California Code of Regulations

TITLE 10. Investment

Chapter 1. Commissioner of Financial Institutions

Subchapter 1. General Provisions

Article 1. Citation, Construction, and Waiver

§1.1. Scope.

Note • History

(a) This Subchapter contains general provisions relating to this Chapter. This Article contains regulations relating to the citation, construction, and waiver of provisions of this Chapter. Article 2 (commencing with Section 1.1000) of this Subchapter contains definitions for this Chapter.

(b) This Subchapter shall be deemed to be issued under all laws administered by the Commissioner as in effect on, or at any time after, the effective date of this Subchapter.

NOTE

Authority cited: Sections 215, 31101 and 33202, Financial Code. Reference: Divisions 1, 15 and 16, Financial Code.

HISTORY

1. Repealer of Subchapter 1 (Sections 1.1-1.121, not consecutive) and new Subchapter 1 (Sections 1.1-1.1028, not consecutive) filed 12-29-78; designated effective 3-1-79 (Register 79, No. 2). For history of former Subchapter 1, see Registers 78, No. 21; 75, Nos. 10 and 44; 74, Nos. 6, 47 and 48; 73, Nos. 5, 29, 40 and 44; 72, No. 45; 71, Nos. 31 and 46; 70, Nos. 11, 27 and 35; 69, No. 47; 68, No. 4; 65, No. 15; and 64, Nos. 19 and 20.

2. Change without regulatory effect amending chapter heading, section and Note filed 8-19-97 pursuant to section 100, title 1, California Code of Regulations (Register 97, No. 34).

§1.2. Citation.

Note • History

This Chapter shall be known and may be cited as the “Regulations of the Commissioner of Financial Institutions.”

NOTE

Authority cited: Sections 215, 4831, 31101 and 33202, Financial Code. Reference: Divisions 1, 1.5, 15 and 16, Financial Code.

HISTORY

1. Amendment of section and new Note filed 4-7-97; operative 4-7-97 pursuant to Government Code section 11343.4(d) (Register 97, No. 15).

2. Change without regulatory effect amending section filed 8-19-97 pursuant to section 100, title 1, California Code of Regulations (Register 97, No. 34).

§1.3. Units.

(a) The units into which this Chapter is divided are, in descending order, as follows:

(1) Subchapter.

(2) Article.

(3) Subarticle.

(4) Part.

(5) Subpart.

(6) Section.

(7) Subdivision.

(8) Paragraph.

(9) Subparagraph.

(b) Within any subchapter of this Chapter, lesser units (except sections) may be skipped over. Thus, a subchapter need not be divided into articles; an article need not be divided into subarticles; and so forth.

§1.4. Section Numbers.

(a) In each subchapter (other than Subchapter 95) of this Chapter: The number of each section consists of two or more units, each separated from the other by a decimal point. The first unit corresponds with the subchapter number. The second unit represents the sequential order of the section within the subchapter. The third and succeeding units, if any, represent the sequential order of the section within the preceding unit. Thus, a section numbered 5.15 would be in Subchapter 5 and would follow any section in Subchapter 5 the second unit in the number of which is less than 15 (e.g., 5.14, 5.13, 5.12, etc.) but would precede any section in Subchapter 5 the second unit in the number of which is greater than 15 (e.g., 5.16, 5.17, 5.18, etc.). Similarly, a section numbered 5.15.7, would be in Subchapter 5 and would follow any section in Subchapter 5 the second unit in the number of which is 15 or less than 15 and, if 15, the third unit in the number of which is less than 7 (e.g., 5.15.6, 5.15.5, 5.15.4, etc.) but would precede any section in Subchapter 5 the second unit in the number of which is 15 or greater than 15 and, if 15, the third unit in the number of which is greater than 7 (e.g., 5.15.8, 5.15.9, 5.15.10, etc.).

(b) In Subchapter 95 of this Chapter: The number of each section consists of two units, each separated from the other by a decimal point. The first unit is “95.” The second unit represents the sequential order of the Section within Subchapter 95 and also corresponds to the number of the form which is illustrated in the section.

§1.5. Tense, Number, and Gender.

In this Chapter, unless the provision or context other requires:

(a) The present tense includes the past and future tenses, and the future tense includes the present.

(b) Words in the singular number include the plural, and words in the plural number include the singular.

(c) Words of the masculine gender include the feminine and the neuter, and when the sense so indicates, words of the neuter gender may refer to any gender.

§1.6. References to Statutes, Regulations, Governmental Agencies, and Public Officers.

In this Chapter, unless otherwise expressly provided:

(a) A reference in any provision of this Chapter to a statute or to a regulation includes such statute or regulation as amended, whether before or after the effective date of such provision, as well as any new statute or regulation substituted for the statute or regulation after the effective date of the provision.

(b) A reference in any provision of this Chapter to a governmental agency or to a public officer includes any governmental agency or public officer which succeeds after the effective date of such provision to substantially the same functions as those performed by such governmental agency or public officer on the effective date of the provision.

§1.7. No Implied Requirement of Hearings.

Note • History

No provision of this Chapter shall be construed to require by implication that the Commissioner hold a hearing on any matter, unless such construction is necessary to avoid rendering such provision unconstitutional or otherwise unlawful.

NOTE

Authority cited: Sections 215, 4831, 31101 and 33202, Financial Code.

HISTORY

1. Change without regulatory effect amending section and adding new Note filed 8-19-97 pursuant to section 100, title 1, California Code of Regulations (Register 97, No. 34).

§1.8. No Implied Requirement of Written Findings.

Note • History

No provision of this Chapter shall be construed to require by implication that the Commissioner make written findings on any matter, unless such construction is necessary to avoid rendering such provision unconstitutional or otherwise unlawful.

NOTE

Authority cited: Sections 215, 4831, 31101 and 33202, Financial Code.

HISTORY

1. Change without regulatory effect amending section and adding new Note filed 8-19-97 pursuant to section 100, title 1, California Code of Regulations (Register 97, No. 34).

§1.9. Time.

Note • History

(a) Whenever the Commissioner, this Chapter, or any law administered by the Commissioner authorizes or requires the performance of an act within a specified period of time, such period of time shall be computed by excluding the first day and including the last day. However, if such last day is a holiday, the period of time shall be extended to and including the next day which is not a holiday.

(b) (1) Whenever any law administered by the Commissioner authorizes or requires the performance of an act on or before a specified time or within a specified period of time, the Commissioner may extend such time only if and as provided in such law.

(2) Whenever the Commissioner or this Chapter authorizes or requires the performance of an act on or before a specified time or within a specified period of time, the Commissioner may for good cause, upon application or on his own initiative, extend such time or period of time.

NOTE

Authority cited: Sections 215, 4831, 31101 and 33202, Financial Code.

HISTORY

1. Change without regulatory effect amending section and adding new Note filed 8-19-97 pursuant to section 100, title 1, California Code of Regulations (Register 97, No. 34).

§1.10. Service.

Note • History

(a) Whenever the Commissioner or this Chapter requires that a document be served on a person, such document may be served either by delivering it to such person or by depositing it in the United States mail, addressed to the person, with registered, certified, or first-class postage charges prepaid.

(b) Whenever a person is represented by a second person in any proceeding before the Commissioner, service on such second person shall be deemed to be service on such first person.

NOTE

Authority cited: Sections 215, 4831, 31101 and 33202, Financial Code.

HISTORY

1. Change without regulatory effect amending section and adding new Note filed 8-19-97 pursuant to section 100, title 1, California Code of Regulations (Register 97, No. 34).

§1.11. Administrative Standards.

Note • History

The administrative standards set forth in this Chapter specify guidelines that the Commissioner follows in exercising his discretionary powers and are designed to apply in the usual or typical circumstances encountered. However, it is impossible to foresee or provide for all of the varying circumstances which may arise in a particular case. Also, the administrative standards set forth in this Chapter are not intended to constitute complete compilation of all the guidelines that the Commissioner follows in exercising his discretionary powers. Therefore, the Commissioner may, if and when warranted in any particular case, upon application or on his own initiative, allow a variation from the administrative standards set forth in this Chapter. Also, the Commissioner may apply administrative standards in addition to the administrative standards set forth in this Chapter.

NOTE

Authority cited: Sections 215, 4831, 31101 and 33202, Financial Code.

HISTORY

1. Change without regulatory effect amending section and adding new Note filed 8-19-97 pursuant to section 100, title 1, California Code of Regulations (Register 97, No. 34).

§1.12. Administrative Procedures.

Note • History

The administrative procedures set forth in this Chapter are designed to apply in the usual or typical circumstances encountered. However, it is impossible to foresee or provide for all of the varying circumstances which may arise in a particular case. Also, the administrative procedures set forth in this Chapter are not intended to constitute a complete compilation of all the administrative procedures which the Commissioner may follow. Therefore, the Commissioner may, if and when warranted in any particular case, upon application or on his own initiative, allow a variation from the administrative procedures set forth in this Chapter. Also, the Commissioner may apply administrative procedures in addition to the administrative procedures set forth in this Chapter.

NOTE

Authority cited: Sections 215, 4831, 31101 and 33202, Financial Code.

HISTORY

1. Change without regulatory effect amending section and adding new Note filed 8-19-97 pursuant to section 100, title 1, California Code of Regulations (Register 97, No. 34).

§1.13. Requirements Regarding Form, Content, and Execution of Applications and Reports.

Note • History

The requirements regarding form, content, and execution of applications and reports set forth in this Chapter are designed to apply in the usual or typical circumstances encountered. However, it is impossible to foresee or provide for all of the varying circumstances which may arise in a particular case. Also, the requirements regarding form, content, and execution of applications and reports set forth in this Chapter are not intended to constitute a complete compilation of all the requirements regarding form, content, and execution of applications and reports which the Commissioner may prescribe. Therefore, the Commissioner may, if and when warranted in any particular case, upon application or on his own initiative, allow a variation from the requirements regarding form, content, and execution of applications and reports set forth in this Chapter. Also, the Commissioner may impose requirements regarding form, content, and execution of applications and reports in addition to the requirements set forth in this Chapter.

NOTE

Authority cited: Sections 215, 4831, 31101 and 33202, Financial Code.

HISTORY

1. Change without regulatory effect amending section and adding new Note filed 8-19-97 pursuant to section 100, title 1, California Code of Regulations (Register 97, No. 34).

§1.14. Waiver.

Note • History

The Commissioner may, upon application or on his own initiative, waive, in whole or in part, any provision of this Chapter in any case or class of cases where in his opinion such provision is not necessary in the public interest.

NOTE

Authority cited: Sections 215, 4831, 31101 and 33202, Financial Code.

HISTORY

1. Change without regulatory effect amending section and adding new Note filed 8-19-97 pursuant to section 100, title 1, California Code of Regulations (Register 97, No. 34).

§1.15. Severability.

If any provision of this Chapter or the application thereof to any person or circumstances is held invalid, illegal, or unenforceable, such invalidity, illegality, or unenforceability shall not affect other provisions or applications of this Chapter which can be given effect without the invalid, illegal, or unenforceable provision or application, and to this end, the provisions of this Chapter are declared to be severable.

Article 2. Definitions

§1.1000. Scope.

This Article contains definitions for this Chapter. Subject to additional definitions contained in this Chapter which are applicable to specific provisions of this Chapter and unless the context otherwise requires, the definitions in this Article apply throughout this Chapter.

§1.1001. Act.

“Act” includes omission.

§1.1002. Amendment.

Note • History

“Amendment” includes any supplement or correction.

NOTE

Authority cited: Sections 215, 4831, 31101 and 33202, Financial Code. Reference: Divisions 1, 1.5, 15 and 16, Financial Code.

HISTORY

1. Amendment of section and new Note filed 4-7-97; operative 4-7-97 pursuant to Government Code section 11343.4(d) (Register 97, No. 15).

§1.1003. Application.

“Application” includes any motion, petition, or request.

§1.1004. Attorney at Law.

“Attorney at law” means a person admitted to practice law before the highest court in any state of the United States (other than the District of Columbia) or before the Court of Appeals or the District Court of the United States for the District of Columbia.

§1.1005. Banking Law.

Note • History

“Banking Law” means Division 1 (commencing with Section 99) of the Financial Code. However, “Banking Law” does not include the Corporate Name Approval Law, the Transmitters Law, or the Travelers Checks Act. (The Corporate Name Approval Law, the Transmitters Law, and the Travelers Checks Act are all within Division 1 of the Financial Code and within the meaning of the term “Banking Law,” as defined in Financial Code Section 99. However, for convenience of reference, the term “Banking Law,” as defined in this Section for purposes of this Chapter, is limited to those provisions of Division 1 of the Financial Code other than the Corporate Name Approval Law, the Transmitters Law, and the Travelers Checks Act.)

NOTE

Authority cited: Sections 215, 4831, 31101 and 33202, Financial Code. Reference: Divisions 1, 1.5, 15 and 16, Financial Code.

HISTORY

1. Amendment of section and new Note filed 4-7-97; operative 4-7-97 pursuant to Government Code section 11343.4(d) (Register 97, No. 15).

§1.1006. Business and Industrial Development Corporations Law.

“Business and Industrial Development Corporations Law” means Division 15 (commencing with Section 31000) of the Financial Code.

§1.1007. Business Day.

“Business day” means any day other than a holiday.

§1.1008. Certified Public Accountant.

“Certified public accountant” includes public accountant.

§1.1009. City.

“City” means a city or a city and county.

§1.1009.5. Commissioner.

Note • History

“Commissioner” means:

(a) The Commissioner of Financial Institutions of the State of California;

(b) Whenever the Chief Deputy Commissioner of Financial Institutions of the State of California has all of the powers and duties of the Commissioner of Financial Institutions of the State of California pursuant to Financial Code Section 235, such Chief Deputy Commissioner of Financial Institutions of the State of California; or

(c) Any person to whom the Commissioner of Financial Institutions of the State of California or the Chief Deputy Commissioner of Financial Institutions of the State of California, as the case may be, delegates the authority to act for him in the particular matter.

NOTE

Authority cited: Section 215, Financial Code. Reference: Sections 210, 210.5, 230 and 231, Financial Code.

HISTORY

1. Change without regulatory effect renumbering former section 1.1026 to new section 1.1009.5, including amendment of section heading, section and Note filed 8-19-97 pursuant to section 100, title 1, California Code of Regulations (Register 97, No. 34).

§1.1010. Corporate Name Approval Law.

“Corporate Name Approval Law” means Chapter 23 (commencing with Section 3900), Division 1 of the Financial Code.

§1.1011. County.

“County” means a county or a city and county.

§1.1011.5. Credit Union Law.

Note • History

“Credit Union Law” means Division 5 (commencing with Section 14000) of the Financial Code.

NOTE

Authority cited: Section 14201, Financial Code. Reference: Section 14000, Financial Code.

HISTORY

1. Change without regulatory effect adding new section filed 8-19-97 pursuant to section 100, title 1, California Code of Regulations (Register 97, No. 34).

§1.1012. Day.

“Day,” unless otherwise indicated, means a calendar day.

§1.1013. Department.

Note • History

“Department” means the Department of Financial Institutions of the State of California.

NOTE

Authority cited: Section 215, Financial Code. Reference: Sections 200 and 210.5, Financial Code.

HISTORY

1. Change without regulatory effect amending section and adding new Note filed 8-19-97 pursuant to section 100, title 1, California Code of Regulations (Register 97, No. 34).

§1.1014. Document.

“Document” includes any writing.

§1.1015. Holiday.

“Holiday” means any of the holidays provided for in Government Code Sections 6700 and 6701 and every Saturday.

§1.1016. Include.

To “include” means by way of enlargement and not by way of limitation.

§1.1016.5. Industrial Loan Law.

Note • History

“Industrial Loan Law” means Division 7 (commencing with Section 18000) of the Financial Code.

NOTE

Authority cited: Section 18347, Financial Code. Reference: Section 18000, Financial Code.

HISTORY

1. Change without regulatory effect adding new section filed 8-19-97 pursuant to section 100, title 1, California Code of Regulations (Register 97, No. 34).

§1.1017. Law.

“Law” includes any constitution, statute, ordinance, regulation, judicial or administrative decision, or common law.

§1.1018. Law Administered by the Commissioner.

Note • History

“Law administered by the Commissioner” means any law (other than this Chapter) which the Commissioner is authorized or required to administer, execute, enforce, or follow, whether in whole or in part (but if in part, then only such part), whether with respect to all persons generally or with respect to certain persons, classes of persons, or circumstances (but if with respect to certain persons, classes of persons, or circumstances, then only with respect to such persons, classes of persons, or circumstances). “Law administered by the Commissioner” includes:

(a) The Banking Law;

(b) The Business and Industrial Development Corporations Law;

(d) The Credit Union Law;

(e) The Depository Corporation Sale, Merger, and Conversion Law;

(f) The Industrial Loan Law;

(g) Payment Instruments Law;

(h) The Savings Association Law;

(i) The Transmitters Law; and

(j) The Travelers Checks Act.

NOTE

Authority cited: Section 215, Financial Code. Reference: Sections 200 and 210.5, Financial Code.

HISTORY

1. Amendment of subsections (d) and (e) and new Note filed 4-7-97; operative 4-7-97 pursuant to Government Code section 11343.4(d) (Register 97, No. 15).

2. Change without regulatory effect amending section heading, section and Note filed 8-19-97 pursuant to section 100, title 1, California Code of Regulations (Register 97, No. 34).

§1.1019. May.

“May” means that an act is permissive or discretionary.

§1.1020. Optional Bank Holiday. [Repealed]

History

HISTORY

1. Repealer filed 4-7-97; operative 4-7-97 pursuant to Government Code section 11343.4(d) (Register 97, No. 15).

§1.1021. Payment Instruments Law.

“Payment Instruments Law” means Division 16 (commencing with Section 33000) of the Financial Code.

§1.1022. Person.

“Person” means any individual, proprietorship, joint venture, partnership, trust, business trust, syndicate, association, joint stock company, corporation, government, agency of any government, or any other organization or group of persons acting in concert.

§1.1022.5. Savings Association Law.

Note • History

“Savings Association Law” means Division 2 (commencing with Section 5000) of the Financial Code.

NOTE

Authority cited: Section 8053, Financial Code. Reference: Section 5000, Financial Code.

HISTORY

1. Change without regulatory effect amending section and adding new Note filed 8-19-97 pursuant to section 100, title 1, California Code of Regulations (Register 97, No. 34).

§1.1023. Shall.

“Shall” means that an act is mandatory.

§1.1024. Should.

“Should” means that an act is suggested or recommended.

§1.1025. Small Business Loan Program Law. [Repealed]

History

HISTORY

1. Repealer filed 4-7-97; operative 4-7-97 pursuant to Government Code section 11343.4(d) (Register 97, No. 15).

§1.1026. Superintendent. [Repealed]

History

HISTORY

1. Change without regulatory effect renumbering former section 1.1026 to new section 1.1009.5 filed 8-19-97 pursuant to section 100, title 1, California Code of Regulations (Register 97, No. 34).

§1.1027. Transmitters Law.

“Transmitters Law” means Article 3 (commencing with Section 1800), Chapter 14, Division 1 of the Financial Code.

§1.1028. Travelers Checks Act.

“Travelers Checks Act” means Chapter 14A (commencing with Section 1851), Division 1 of the Financial Code.

Subchapter 2. Administration [Repealed]

NOTE

Authority cited: Sections 215, 3800.5, 31101 and 33202, Financial Code. Reference: Section 215, Financial Code.

HISTORY

1. Repealer of Subchapter 2 (Sections 2.1-2.254, not consecutive) filed 12-29-78; designated effective 3-1-78 (Register 79, No. 2). For history of former Subchapter 2, see Registers 75, No. 30; and 74, No. 48.

Subchapter 3. Authorization to Engage in Banking Business [Repealed]

NOTE

Authority cited: Sections 215, 3800.5, 31101 and 33202, Financial Code.

HISTORY

1. Repealer of Subchapter 3 (Sections 3.50-3.254, not consecutive) filed 12-29-78; designated effective 3-1-79 (Register 79, No. 2). For history of former Subchapter 3, see Register 74, No. 48.

Subchapter 4. California Foreclosure Prevention Act

Article 1. Requirements

§4.1. Scope of Regulations.

Note • History

(a) This subchapter clarifies the application of Civil Code Sections 2923.52 and 2923.53, and sets forth the minimum requirements for a comprehensive loan modification program under Civil Code Section 2923.53, in order for a residential mortgage loan servicer to be exempted from the provisions of Civil Code Section 2923.52.

(b) The modification of loans in conformance with the Home Affordable Modification Program Guidelines issued by the U.S. Department of the Treasury on March 4, 2009, as amended (the “Guidelines”) shall constitute the implementation of a comprehensive loan modification program that meets the requirements of subdivision (a) of Civil Code Section 2923.53, and shall be deemed to meet all of the requirements in this article (including Sections 4.2, 4.3, 4.4, 4.5, and 4.6). All other comprehensive loan modification programs shall comply with the minimum standards in this article to obtain an order from the Commissioner for exemption from the provisions of Civil Code Section 2923.52.

(c) For purposes of this subchapter, “residential mortgage loan” shall mean any loan primarily for personal, family, or household use that is secured by a mortgage, deed of trust, or other equivalent consensual security interest on a dwelling (as defined in section 103(v) of the Truth in Lending Act) or residential real estate upon which is constructed a dwelling (as so defined).

(d) For purposes of this subchapter, “borrower” shall mean a person who was the original obligor on the note or other secured obligation primarily for personal, family or household use and who is the trustor or mortgagor under the security device. “Borrower” includes a person who has formally assumed the secured obligations with the written consent of the beneficiary or mortgagee.

NOTE

Authority cited: Section 2923.53(d), Civil Code. Reference: Sections 2923.52 and 2923.53, Civil Code.

HISTORY

1. New subchapter 4 (articles 1-4, sections 4.1-4.10), article 1 (sections 4.1-4.6) and section filed 6-1-2009 as an emergency; operative 6-1-2009 (Register 2009, No. 23). A Certificate of Compliance must be transmitted to OAL by 11-30-2009 or emergency language will be repealed by operation of law on the following day.

2. New subchapter 4 (articles 1-4, sections 4.1-4.10), article 1 (sections 4.1-4.6) and section refiled 12-1-1009 as an emergency; operative 12-1-1009 (Register 2009, No. 49). A Certificate of Compliance must be transmitted to OAL by 3-1-2010 or emergency language will be repealed by operation of law on the following day.

§4.2. Eligibility.

Note • History

(a) For an applicant to obtain an order of exemption from Civil Code Section 2923.52, the comprehensive loan modification program shall, at a minimum, be available for borrowers and residential mortgage loans meeting the following requirements:

(1) The residential mortgage loan to be modified was recorded during the period of January 1, 2003 to January 1, 2008.

(2) The borrower occupies the property as his or her principal residence, and occupied the property as his or her principal residence at the time the loan became delinquent.

(3) The loan is in default, and a notice of default has been filed with the county recorder under Civil Code Section 2924 for the mortgaged property.

(4) The residential mortgage loan is the first lien on the property, and either the property is not subject to a subordinate lien, the subordinate lien holder has agreed to subordinate to the modified first lien, or an agreement from the subordinate lien holder is not necessary for the first lien to remain in first position upon the modification of the loan.

(5) The mortgaged property is located in California.

(6) The borrower can document assets, income or likelihood of future earnings to establish the ability to repay the modified loan, using customary underwriting criteria and analysis or current industry standards.

(7) The borrower has not surrendered the property.

(8) The borrower has not contracted with an organization, person or entity whose primary business is advising people who have decided to leave their homes regarding how to extend the foreclosure process and avoid their contractual obligations to mortgagees or beneficiaries.

(9) The borrower does not currently have a bankruptcy action pending under Chapter 7, 11, 12, or 13 of Title 11 of the United States Code.

(b) Nothing in this section prohibits a mortgage loan servicer from including more residential mortgage loans and more borrowers in a comprehensive loan modification program than the minimum set forth in this section, including the borrowers described in paragraphs 8 and 9 of subsection (a) of this rule. For example, the Commissioner will consider a program that includes borrowers whose loans have not yet become delinquent, but such delinquency is reasonably imminent. For purposes of this subchapter, “delinquent” means that the borrower has defaulted on an obligation in the note, deed of trust, mortgage or related loan documents for 30 or more days. “Delinquent” does not include defaults based upon failure to pay at maturity except where maturity has been accelerated and is subject to reinstatement pursuant to Civil Code Section 2924c.

(c) A mortgage loan servicer that has obtained an order from the Commissioner exempting it from Civil Code Section 2923.52(a) is not required to provide a borrower identified in subsection (a) of this rule with an additional 90 days in the foreclosure process.

(d) A comprehensive loan modification program may, but need not, provide for the modification of a loan for a borrower or residential mortgage loan that does not meet the eligibility requirements in subsection (a) of this rule.

NOTE

Authority cited: Section 2923.53(d), Civil Code. Reference: Sections 2923.52 and 2923.53, Civil Code.

HISTORY

1. New section filed 6-1-2009 as an emergency; operative 6-1-2009 (Register 2009, No. 23). A Certificate of Compliance must be transmitted to OAL by 11-30-2009 or emergency language will be repealed by operation of law on the following day.

2. New section refiled 12-1-1009 as an emergency; operative 12-1-1009 (Register 2009, No. 49). A Certificate of Compliance must be transmitted to OAL by 3-1-2010 or emergency language will be repealed by operation of law on the following day.

§4.3. Availability.

Note • History

(a) For an applicant to obtain an order of exemption from Civil Code Section 2923.52, the comprehensive loan modification program shall, at a minimum, be made available to any borrower meeting the eligibility requirements of section 4.2 of these rules who calls, writes, or otherwise communicates with the mortgage loan servicer to notify the servicer of a financial hardship or to explore modifications to an existing loan, and shall be made available to borrowers as part of the contact required under Civil Code Section 2923.5.

(b) Every servicer that contacts a borrower in writing under Civil Code Section 2923.5 shall notify the borrower of the availability of the servicer's comprehensive loan modification program.

(c) A servicer is not required to comply with this section if the loan is investor-owned and the pooling and servicing agreement or other contract prohibits the servicer from modifying the loan in the manner set forth in this subchapter.

NOTE

Authority cited: Section 2923.53(d), Civil Code. Reference: Sections 2923.52 and 2923.53, Civil Code.

HISTORY

§4.4. Program Requirements.

Note • History

For an applicant to obtain an order of exemption from Civil Code Section 2923.52, the comprehensive loan modification program shall meet the minimum requirements in Sections 4.5 and 4.6 of these rules.

NOTE

Authority cited: Section 2923.53(d), Civil Code. Reference: Sections 2923.52 and 2923.53, Civil Code.

HISTORY

§4.5. Loan Modification Features.

Note • History

(a) Any residential mortgage loan refinanced under the HOPE for Homeowners Program of the HOPE for Homeowners Act of 2008 (Title IV of Division A of the Housing and Economic Recovery Act of 2008 (Pub. L. 110-289, 122 Stat. 2654, approved July 30, 2008), as amended, and the rules adopted thereunder) is conclusively presumed to meet the minimum requirements for a loan modification under a comprehensive loan modification program.

(b) Any residential mortgage loan refinanced under the Home Affordable Refinance Program announced by the U.S. Department of the Treasury on February 18, 2009, is conclusively presumed to meet the minimum requirements for a loan modification under a comprehensive loan modification program.

(1) For purposes of determining the anticipated recovery from foreclosure and the anticipated recovery from a loan modification, the net present value of the anticipated recovery shall be based on reasonable assumptions regarding discount rates, property values, costs of foreclosure, costs of modification, and ability of borrowers to pay. A servicer shall have internal or external evidence to support the validity of the assumptions in the calculations. The use of the Net Present Value Model Parameters in the Home Affordable Modification Program Guidelines, including applicable discount rates, cure rates and redefault rates, issued by the Department of the Treasury on March 4, 2009, and any amendments thereto, shall meet the requirements of this section and shall not require additional evidence or support. If a servicer's anticipated recovery (NPV) model differs from the Treasury's Net Present Value Model Parameters, a servicer shall explain the differences in the application and set forth a justification for the differences.

(2) Where the net present value of the anticipated recovery from a loan modification meeting the parameters of this section exceeds the net present value of the anticipated recovery from foreclosure, the servicer shall provide a loan modification to eligible borrowers unless:

(A) A borrower is unable to document his or her ability to repay the loan; or

(B) After reducing the interest rate, extending the amortization period, forbearing principal, or modifying the loan in another manner reasonably designed to facilitate repayment of the loan, the servicer is unable to achieve a loan modification for the borrower that results in a borrower's ability to repay the loan, under customary underwriting criteria and analysis or current industry standards.

(d) Debt to Income Ratio of 38% or Less

(1) For purposes of applying the anticipated recovery test, a servicer shall target a 38% housing-related debt to gross income ratio. However, a servicer is not required to meet this ratio for every loan modified under the program. A servicer's loan modifications shall, on an aggregate basis, target a 38% housing-related debt to gross income ratio. A servicer may use any reasonable statistical analysis of loan modifications to establish that its loan modification program targets a 38% housing-related debt to gross income ratio on an aggregate basis, and may, but is not required to, include loan modifications beyond those meeting the minimum eligibility requirements under this subchapter.

(2) For loan modification programs that do not achieve a 38% or lower ratio, on an aggregate basis, a servicer shall be able to establish other borrower characteristics that support a borrower's ability to repay the loan. These characteristics may include, but are not limited to, assets, a high income, low consumer debt, or any other borrower characteristics that support a borrower's ability to repay the loan, using customary underwriting criteria or current industry standards. If a servicer's comprehensive loan modification program does not achieve a debt-to-income ratio of 38% or lower, on an aggregate basis, the servicer shall explain in the application the reasons for the higher ratio.

(3) For purposes of calculating housing-related debt to gross income, housing-related debt does not include junior liens.

(e) Other Features

(1) A comprehensive loan modification program shall include at least two of the following features:

(A) An interest rate reduction, as needed, for a fixed term of at least 5 years.

(B) An extension of amortization period for the loan term, to no more than 40 years from the original date of the loan.

(D) Reduction of principal.

(E) Compliance with a federally mandated loan modification program.

(F) Any other factor the Commissioner determines is appropriate, as identified and described in the servicer's application and approved by the Commissioner. Some factors may include, but are not limited to, back-end debt-to-income ratios, elimination of certain delinquency-related charges, modifications for borrowers who are not delinquent, but where such delinquency is reasonably imminent, and other forms of modification that result in a reduction of monthly payments for borrowers.

(2) While a comprehensive loan modification program must include at least two of the features set forth in paragraph (1), each individual loan modification need not include two features.

(3) A servicer shall have criteria in place that define when a borrower qualifies for the potential concessions or modifications.

(f) Long-term Sustainability:

A loan modification shall be presumed to constitute a long-term sustainable modification if it includes at least one of the following characteristics:

(1) The modification provides a reduction in monthly payment for the borrower for at least 5 years;

(2) The modification provides the borrower with a housing-related debt to gross income ratio of 38% or less;

(3) After the modification, the borrower's back-end debt-to-income ratio (as defined in the Home Affordable Modification Program Guidelines issued by the Department of the Treasury on March 4, 2009) is equal to or less than 55%;

(4) The borrower is current under the terms of the modified loan at the end of a 3-month trial period; or

(5) The modification is pursuant to the Home Affordable Modification Program Guidelines, HOPE for Homeowners Program, or another federal program intended to reduce the rate of foreclosures.

NOTE

Authority cited: Section 2923.53(d), Civil Code. Reference: Sections 2923.52 and 2923.53, Civil Code.

HISTORY

§4.6. Other Requirements for Comprehensive Loan Modification Programs.

Note • History

(a) If a loan modification consists solely of a repayment plan, a servicer must be able to validate that the borrower has a housing-related debt to gross income ratio of 38% or less, and that under customary underwriting analysis and criteria or current industry standards the servicer has reasonable grounds to support the ability of the borrower to repay the loan. For purposes of this subsection, a repayment plan means a plan or arrangement where loan amounts past due, including principal, interest, late fees or other penalties, are added to the principal amount due on a loan and re-aged so that the loan is no longer delinquent, and no other loan concessions as described in Civil Code Section 2923.53(a) are provided to a borrower.

(b) A servicer shall consider all eligible loans under this subchapter unless prohibited by the rules of the applicable pooling and servicing agreement or other investor servicing agreements.

(c) A servicer shall use reasonable efforts to remove any prohibitions and obtain waivers or approvals from all necessary parties, including, but not limited to, junior lien holders and investors.

(d) For any request to modify a loan made by a borrower and received by the mortgage loan servicer prior to the expiration of 3 months following the recording of a notice of default, a servicer shall act on the request within a reasonable time period, and shall have procedures and processes in place to ensure that delays in the process not caused by a borrower do not adversely impact a borrower in the modification or foreclosure process. For purposes of this subsection, a mortgage loan servicer that evaluates a loan modification request in accordance with the time periods recommended in the HOPE NOW Mortgage Servicing Guidelines dated June 9, 2008, and hereby incorporated by reference, shall be deemed to be acting on a loan modification request in a reasonable time. Every mortgage loan servicer shall have a process in place to provide a borrower an acknowledgement of the receipt of a loan modification request. Nothing herein is intended to prevent a mortgage loan servicer from accepting and processing a borrower loan modification request received after three months from the date the notice of default is recorded.

(e) If a borrower fails to participate in the modification process by providing documentation within a reasonable time or otherwise abandoning the borrower's loan modification request, a servicer may decline the request and pursue other remedies such as foreclosure sale. For purposes for this subsection, a borrower that provides documentation with two weeks of a request by a servicer shall be presumed to have provided documentation within a reasonable times. A servicer shall notify a borrower in writing of the time period to respond to a request for information and the potential consequence of failing to provide information in a reasonable time, prior to declining a loan modification request because of a borrower's undue delay.

(f) A comprehensive loan modification program may include other foreclosure alternatives for borrowers who do not qualify for a loan modification or who no longer wish to remain in the property, such as short sales or deeds-in-lieu of foreclosure.

(g) A servicer is not required to modify a loan more than once, regardless of whether the modification was entered into prior to the operative date of the California Foreclosure Prevention Act (Civil Code Section 2923.52 et seq.) or thereafter pursuant to a comprehensive loan modification program approved by the Commissioner, provided that the initial modification reduced the borrower's monthly payments.

NOTE

Authority cited: Section 2923.53(d), Civil Code. Reference: Sections 2923.52 and 2923.53, Civil Code.

HISTORY

Article 2. Application

§4.7. Initial Application.

Note • History

An applicant shall be temporarily exempt from subdivision (a) of Civil Code Section 2923.52 upon the filing of the exemption application set forth in this rule, provided that the application is accepted by the Commissioner as substantially complete.

1. Where to File

(a) Applicants licensed by the Department of Corporations under either the California Finance Lenders Law or the California Residential Mortgage Lending Act, and any other entities servicing residential mortgage loans that are not described in subparagraphs (b) and (c), shall file their application with the Department of Corporations at the following address:

FORECLOSURE EXEMPTIONS -- DEPARTMENT OF CORPORATIONS
320 WEST 4TH STREET, SUITE 750
LOS ANGELES, CA 90013-2344

Applications not filed by mail may be delivered to any of the Department of Corporations' locations.

Alternatively, applications may be submitted to the Department of Corporations through any electronic means that may be made available by the department at its internet website (www.corp.ca.gov)

(b) Commercial or industrial banks, savings associations, or credit unions organized in this state shall file their application with the Department of Financial Institutions at the following address (for purposes of this regulation, the phrase “organized in this state” means institutions headquartered in this state):

FORECLOSURE EXEMPTIONS -- DEPARTMENT OF FINANCIAL INSTITUTIONS
1810 - 13TH STREET
SACRAMENTO, CALIFORNIA 95811-7118

Applications may be submitted by electronic mail to foreclosures @dfi.ca.gov.

(c) Applicants licensed by the Department of Real Estate under the Real Estate Law shall file their application with the Department of Real Estate at the following address:

FORECLOSURE EXEMPTIONS -- DEPARTMENT OF REAL ESTATE
P.O. BOX 187007
SACRAMENTO, CA 95818-7007

Applications may be submitted by electronic mail to foreclosures @dre.ca.gov.

The inadvertent filing of an application with the incorrect department will not constitute grounds for denial of the application.

2. When to File

An applicant may file an application at any time. An applicant will be temporarily exempt from subdivision (a) of Civil Code Section 2923.52 upon the receipt of the exemption application by the appropriate Department as noted above. An application received before the operative date of Civil Code Section 2923.52 shall be deemed received upon the operative date of that section, for purposes of the temporary order under subdivision (b)(2) of Civil Code Section 2923.53.

3. Temporary Order

Upon the latter of the date of receipt of an application or the operative date of Civil Code Section 2923.52, the Department will immediately notify a servicer electronically of the issuance of a Temporary Order exempting the servicer from the requirements of subdivision (a) of Civil Code Section 2923.52. The Department will identify the servicer as having a Temporary Order on the Department's website, and mail a Temporary Order to the servicer.

4. Final Order

Within 30 days of the latter of the date of receipt of an application or the operative date of Civil Code Section 2923.52, the Department will notify the servicer of whether the servicer has a comprehensive loan modification program that meets the requirements of Civil Code Section 2923.53. Upon a finding that the loan modification program meets the requirements of that section, the Commissioner shall issue a Final Order, and shall immediately notify the servicer of the final order.

5. Denial of Application

If the Commissioner denies the exemption application, the Department shall immediately notify the servicer. The Temporary Order shall remain in effect for 30 days after the date of denial. A servicer may submit a revised application before or after the denial of an application. A revised application will not alter or delay the expiration of the Temporary Order. Upon the expiration of the Temporary Order, a servicer shall comply with subdivision (a) of Civil Code Section 2923.52.

6. Modifications to Application

The Department will accept changes to an application while the application is under consideration. However, the Temporary Order may not be extended.

NOTE

Authority cited: Section 2923.53(d), Civil Code. Reference: Sections 2923.52 and 2923.53, Civil Code.

HISTORY

1. New article 2 (sections 4.7-4.8) and section filed 6-1-2009 as an emergency; operative 6-1-2009 (Register 2009, No. 23). A Certificate of Compliance must be transmitted to OAL by 11-30-2009 or emergency language will be repealed by operation of law on the following day.

2. New article 2 (sections 4.7-4.8) and section refiled 12-1-1009 as an emergency; operative 12-1-1009 (Register 2009, No. 49). A Certificate of Compliance must be transmitted to OAL by 3-1-2010 or emergency language will be repealed by operation of law on the following day.

§4.8. Changes to Program After Final Order.

Note • History

(a) A servicer may not alter its comprehensive loan modification program after the servicer receives a Final Order from the Commissioner, unless the servicer informs the Commissioner of the change to be made to the program. Any alterations to the program that cause the program to fall out of compliance with the approved program shall require a new application for exemption from the Commissioner. Nothing herein shall prevent a servicer from adding additional features to the modification program where such features are designed to increase the eligible volume of loans to be modified, reduce the amounts of monthly payments to borrowers, or reduce the probability of redefault, provided that the Commissioner receives timely notice of such alteration. Such timely notice shall not be greater than sixty (60) days after the changes to the modification program are proposed or initiated.

(b) A change made by the federal government, or an agent thereof, to a federal program, including but not limited to the Home Affordable Modification Program, the Home Affordable Refinance Program, or the Hope for Homeowners Program, shall not constitute a change to a comprehensive loan modification program and shall not require a new application nor require notice to the Commissioner.

NOTE

Authority cited: Section 2923.53(d), Civil Code. Reference: Sections 2923.52 and 2923.53, Civil Code.

HISTORY

Article 3. Application Form

§4.9.

Note • History

The exemption application shall be in the following form:

STATE OF CALIFORNIA

DEPARTMENTS OF

CORPORATIONS, FINANCIAL INSTITUTIONS,

AND REAL ESTATE

APPLICATION FOR ORDER OF EXEMPTION FROM

CIVIL CODE SECTION 2923.52(a)

CALIFORNIA FORECLOSURE PREVENTION ACT

The purpose of this application is to apply for an order of exemption from Section 2923.52 of the California Foreclosure Prevention Act (California Civil Code Section 2923.52, et seq.). The approval of this application by the Commissioner shall provide the applicant with an exemption from the additional 90-day delay period before a servicer may file the Notice of Sale when foreclosing on real property, as provided in Civil Code Section 2923.52.

Upon filing this application, the applicant will be issued a temporary order of exemption, effective from latter of the date of receipt of the application or the operative date of Civil Code Section 2923.52. The temporary order of exemption remains in effect until a final order of exemption is issued or for thirty (30) days after the application is denied.

When completing the application, please note the following:

• The name of the applicant must be the applicant's legal name.

• The applicant's regulatory license number must be provided.

• If the applicant holds a license with more than one regulatory agency, under the same legal name for the same entity, list the license numbers for each regulatory agency from which an order of exemption is requested.

• The applicant must provide the name, title, address, email address, and telephone number of the contact person to whom questions regarding the filing of this application should be directed.

• The application must be signed by the applicant if a sole proprietor, by a general partner if a partnership, or by an authorized officer if a corporation or other entity.

The applicant's loan modification program must meet the following requirements:

• The program is designed to keep borrowers in their homes when the anticipated recovery under the loan modification or workout plan exceeds the anticipated recovery through foreclosure on a net present value basis.

• The program targets a ratio of the borrower's housing related debt to gross income of 38% or less, on an aggregate basis in the program.

• The program includes a combination of the following:

1. An interest rate reduction, as needed, for at least five years.

2. An extension of the amortization period for the loan term, to no more than forty years from the original date of the loan.

3. A deferral of some portion of the unpaid principal balance until the maturity of the loan.

4. A reduction of principal.

5. Compliance with a federally mandated loan modification program.

6. Any other factor the Commissioner determines is appropriate, as identified and described in this application and approved by the Commissioner. (See 10 CCR Sec. 4.5(e)(1)(F)).

• In determining a loan modification solution for the borrower, the program seeks to achieve long-term sustainability for the borrower.

The appropriate page and paragraph from the loan modification program must be referenced on the application to show the program's compliance with the above requirements and expectations.

NOTE: A servicer is not required to violate a contractual agreement for the investor-owned loans or provide a modification to a borrower who is not willing or able to pay under the modification.

In addition to other required documentation, an applicant must submit with this application the declaration that meets the disclosure requirements of Civil Code Section 2923.54 that the applicant will include, or instruct the trustee to include, in the Notice of Sale. The declarations submitted with the application must state whether the servicer has obtained an order of exemption from the Commissioner that is current and valid on the date the Notice of Sale is recorded, and whether the additional 90-day period is applicable.

The application shall be filed with the appropriate agencies as follows:

Department of Corporations

• Licensed residential mortgage lenders and servicers

• Licensed finance lenders and brokers servicing mortgage loans

• Any other entities servicing mortgage loans that are not required to file the application with the Department of Financial Institutions or the Department of Real Estate

Department of Financial Institutions

• Commercial and industrial banks

• Savings associations

• Credit unions

Organized in this state servicing mortgage loans (for purposes of this regulation, the phrase “organized in this state” means institutions headquartered in this state)

Department of Real Estate

• Licensed real estate brokers servicing mortgage loans

An application will not be rejected by a department based upon an applicant's inadvertent failure to file with the designated department.

APPLICATION FOR ORDER OF EXEMPTION UNDER

SECTION 2923.53 OF THE

CALIFORNIA FORECLOSURE PREVENTION ACT

(CIVIL CODE SECTION 2923.52 ET SEQ.)

1. Legal name of applicant:

Fictitious business name (FBN):

2. License numbers:

DOC Primary License Number:

DFI Primary License Number:

DRE Primary License Number:

Other entity servicing mortgage loans

Name of Primary Regulator:

License/Identification Number, if applicable:

(Specify every license held by applicant that this application applies to.)

j Check this box if an application has also been filed with another department.

3. Contact Person/Title:

4. Telephone Number:

5. Email Address:

(Confirmation of Temporary Order will be provided to this e-mail address.)

6. Mailing Address:

7. Date comprehensive loan modification program was implemented:

8. Link to applicant's website describing its loan modification program:

9. Are you a commercial or industrial bank, savings association or credit union that has adopted a comprehensive loan modification program in substantial conformance with the Home Affordable Modification Program Guidelines issued by the Department of Treasury on March 4, 2009?

Yes ___ No ____.

Indicate any differences from the Home Affordable Modification Program:

If your answer is “Yes,” please skip the remaining questions, provide only Exhibit 2 and complete the declaration section of this application. If your answer is “No,” please continue to complete the remainder of this application.

10. Are you currently participating in a federally sponsored loan modification program, or other federal loan modification program?

Yes_____ No_______

If yes, please indicate the program below:

___ Home Affordable Modification Program

___ Home Affordable Refinance Program

___ Hope for Homeowners

___ Other. Please specify.

A. Have you entered into a contract or agreement with the federal agency responsible for the program?

Yes_____ No _______

If your answer is “yes,” please provide a copy of the agreement(s). If you have entered into a Servicer Participation Agreement with a financial agent of the United States for the Home Affordable Modification Program, skip the remaining questions, provide only Exhibit 2, and complete the declaration section of this application.

B. Does the federal loan modification program(s) you are participating in cover all types of residential mortgage loans you service? (i.e. Fannie Mae, Freddie Mac, FHA, VA, etc.)

Yes_____ No_____

If no, please explain and include how modifications for the loans not covered by the federal program are performed.

The following exhibits must be submitted with this application:

Exhibit (1): A description of your Comprehensive Loan Modification Program(s). The program must, at a minimum, include the requirements of Civil Code Section 2923.53. Please respond to the following questions and reference below the page and/or paragraph numbers with your submitted program. If you have more than one comprehensive loan modification program, please identify the program name and provide the requested information for each program:

Program 1 Name/Identity:

Program 2 Name/Identity:

Program 3 Name/Identity:

• Does the program contain a provision that the anticipated recovery under the loan modification or workout plan exceeds the anticipated recovery through foreclosure on a net present value basis? (Net present value (NPV) has same meaning as used in the federal Affordable Home Modification Program.)

Program 1

Yes_____No_____

If yes, indicate the location of the provision. Page___ Paragraph____

Program 2

Yes_____No_____

If yes, indicate the location of the provision. Page___ Paragraph____

Program 3

Yes_____No_____

If yes, indicate the location of the provision. Page___ Paragraph____

• Does the program contain a provision that it targets a ratio of the borrower's housing related debt to gross income of 38% or less, on an aggregate basis in the program?

Program 1

Yes_____No_____

If yes, indicate the location of the provision. Page___ Paragraph____

Program 2

Yes_____No_____

If yes, indicate the location of the provision. Page___ Paragraph____

Program 3

Yes_____No_____

If yes, indicate the location of the provision. Page___ Paragraph____

• The program includes the consideration of a combination of the following features:

A. Does the program include an interest rate reduction, as needed, for at least five years?

Program 1

Yes_____No_____

If yes, indicate the location of the provision. Page___ Paragraph____

Program 2

Yes_____No_____

If yes, indicate the location of the provision. Page___ Paragraph____

Program 3

Yes_____No_____

If yes, indicate the location of the provision. Page___ Paragraph____

B. Does the program include an extension of the amortization period for the loan term, to no more than forty years from the original date of the loan?

Program 1

Yes_____No_____

If yes, indicate the location of the provision. Page___ Paragraph____

Program 2

Yes_____No_____

If yes, indicate the location of the provision. Page___ Paragraph____

Program 3

Yes_____No_____

If yes, indicate the location of the provision. Page___ Paragraph____

C. Does the program include a deferral of some portion of the unpaid principal balance until the maturity of the loan?

Program 1

Yes_____No_____

If yes, indicate the location of the provision. Page___ Paragraph____

Program 2

Yes_____No_____

If yes, indicate the location of the provision. Page___ Paragraph____

Program 3

Yes_____No_____

If yes, indicate the location of the provision. Page___ Paragraph____

D. Does the program include a reduction of principal?

Program 1

Yes_____No_____

If yes, indicate the location of the provision. Page___ Paragraph____

Program 2

Yes_____No_____

If yes, indicate the location of the provision. Page___ Paragraph____

Program 3

Yes_____No_____

If yes, indicate the location of the provision. Page___ Paragraph____

E. Does the program provide for loan modifications that comply with any federal loan modification program?

Program 1

Yes_____No_____

If yes, indicate the location of the provision. Page___ Paragraph____

Program 2

Yes_____No_____

If yes, indicate the location of the provision. Page___ Paragraph____

Program 3

Yes_____No_____

If yes, indicate the location of the provision. Page___ Paragraph____

F. Does the program include other factors that have resulted in an increased number of loan modifications? Please provide a description and an explanation of how the other factors have reduced foreclosures on Exhibit 5.

• In determining a loan modification solution for the borrower, does the servicer seek to reduce monthly payments for at least 5 years?

Program 1

Yes_____No_____

If yes, indicate the location of the provision. Page___ Paragraph____

Program 2

Yes_____No_____

If yes, indicate the location of the provision. Page___ Paragraph____

Program 3

Yes_____No_____

If yes, indicate the location of the provision. Page___ Paragraph____

Exhibit (2): A NOTICE OF SALE form in compliance with Civil Code Section 2923.54, or a copy of the declaration, or forms of declarations, in compliance with Civil Code Section 2923.54 that the applicant will instruct its trustee to include in its Notice of Sale.

Exhibit (3). A copy of the notice that will be sent to borrowers informing them of the program.

Exhibit (4): Complete and submit the most recent 3 months of available data on the attached spreadsheet for mortgages secured by residential property located in California, which includes the following statistical information:

Servicing portfolio volume, including number of units and unpaid principal balance

Delinquency status of portfolio

Loss mitigation data including total number of modifications made

Loan modification features used

Housing related debt ratios (if available)

Subsequent defaults on loan modifications

Reasons for denial of loan modifications

Exhibit (5): Explanations for items included in the application.

(a) Provide the differences between applicant's NPV model and the Department of the Treasury's Net Present Value Model Parameters, and justification for the differences. For example, the use of alternative discount rates, the use of short sale rather than foreclosure, and other differences.

(b) If the program is unable to achieve a debt-to-income ratio of 38% or less, on an aggregate basis, provide an explanation why the program is unable to achieve this target.

NOTE: Exhibits 1, 4 and 5 are considered Confidential in nature and therefore will not be made available for public inspection on an individual basis.

Wherefore, applicant hereby requests that the Commissioner grant an order of exemption from Civil Code Section 2923.52, as provided in Section 2923.53 of the California Foreclosure Prevention Act (Civil Code Section 2923.52 et seq.) pursuant to the criteria set forth in that act and the rules adopted thereunder.

I declare under penalty of perjury that I have read the forgoing application, including all exhibits attached thereto, or filed therewith, and know the contents thereof, and that the statements are true and correct. I further declare that the applicant has implemented the comprehensive loan modification program set forth in this application, and that I have authority to make these representations on behalf of the applicant.

Applicant

Signature of Declarant

Typed Name and Title of Declarant

Executed at: ______________________________

(City, County, and State)

Date:___________________________________

NOTE

Authority cited: Section 2923.53(d), Civil Code. Reference: Sections 2923.52 and 2923.53, Civil Code.

HISTORY

1. New article 3 (section 4.9) and section filed 6-1-2009 as an emergency; operative 6-1-2009 (Register 2009, No. 23). A Certificate of Compliance must be transmitted to OAL by 11-30-2009 or emergency language will be repealed by operation of law on the following day.

2. New article 3 (section 4.9) and section refiled 12-1-1009 as an emergency; operative 12-1-1009 (Register 2009, No. 49). A Certificate of Compliance must be transmitted to OAL by 3-1-2010 or emergency language will be repealed by operation of law on the following day.

Article 4. Data Collection

§4.10. Reports.

Note • History

(a) A servicer that obtains a Final Order exempting the servicer from the provisions of subdivision (a) of Civil Code Section 2923.52 shall, upon request of the Commissioner, report loan modification data to the Commissioner on a quarterly basis, with the first report due no later than 90 days after a mortgage loan servicer obtains a final order from the Commissioner.

(b) The loan modification data shall be reported on the FORECLOSURE PREVENTION LOAN MODIFICATION DATA report form, dated May 21, 2009, hereby incorporated by reference.

(c) A mortgage loan servicer may seek a waiver from all or part of the reporting requirements of this section by requesting a hardship exemption from the Commissioner. A hardship exemption may be granted if a mortgage loan servicer is able to establish one or more of the following:

1. The servicer's volume of loans that are eligible for a comprehensive loan modification program will not be of any reasonable statistical value to the evaluation of the effectiveness of the California Foreclosure Prevention Act.

2 . The servicer's infrastructure prevents it from collecting the data requested by the Commissioner, or the necessary changes are cost prohibitive. In granting a hardship exemption under this paragraph, the Commissioner may require a servicer to collect and report on information in the format that the servicer maintains the information or such other format agreed upon between the servicer and the Commissioner.

(d) The Commissioner may accept a report required or requested under, or pursuant to, a federal loan modification program, in lieu of the report in subsection (b).

NOTE

Authority cited: Sections 2923.52(c)(2)(D) and 2923.53(d), Civil Code. Reference: Sections 2923.52 and 2923.53, Civil Code.

HISTORY

1. New article 4 (section 4.10) and section filed 6-1-2009 as an emergency; operative 6-1-2009 (Register 2009, No. 23). A Certificate of Compliance must be transmitted to OAL by 11-30-2009 or emergency language will be repealed by operation of law on the following day.

2. New article 4 (section 4.10) and section refiled 12-1-1009 as an emergency; operative 12-1-1009 (Register 2009, No. 49). A Certificate of Compliance must be transmitted to OAL by 3-1-2010 or emergency language will be repealed by operation of law on the following day.

Subchapter 5. Administration

Article 1. General Provisions

§5.1. Scope.

Note • History

(a) This Subchapter contains regulations relating to administrative matters. This Article contains general provisions relating to administrative matters. (Article 2 is reserved.) Article 3 (commencing with Section 5.2000) of this Subchapter contains regulations which constitute a Conflict of Interest Code for designated employees. Article 4 (commencing with Section 5.3000) of this Subchapter contains regulations relating to documents filed with the Commissioner. (Article 5 of this Subchapter is reserved.) Article 6 (commencing with Section 5.5000) of this Subchapter contains regulations relating to hearings held on matters pending before the Commissioner.

(b) This Subchapter shall be deemed to be issued under all laws administered by the Commissioner as in effect on, or at any time after, the effective date of this Subchapter.

NOTE

Authority cited: Sections 215, 4831, 31101 and 33202, Financial Code. Reference: Divisions 1, 15 and 16, Financial Code.

HISTORY

1. Repealer of Subchapter 5 (Sections 5.1-5.528, not consecutive) and new Subchapter 5 (Sections 5.1-5.5204, not consecutive) filed 12-29-78; designated effective 3-1-78 (Register 79, No. 2). For history of former Subchapter 5, see Registers 78, Nos. 39 and 46; 75, Nos. 10, 16, 25, 34; and 74, No. 48.

2. Change without regulatory effect amending section and Note filed 8-19-97 pursuant to section 100, title 1, California Code of Regulations (Register 97, No. 34).

§5.2. Offices of Commissioner. [Repealed]

Note • History

NOTE

Authority cited: Sections 215, 4831, 31101 and 33202, Financial Code. Reference: Divisions 1, 1.5, 15 and 16, Financial Code.

HISTORY

1. Change without regulatory effect amending section filed 7-2-91 pursuant to section 100, title 1, California Code of Regulations (Register 91, No. 40).

2. Change without regulatory effect amending section filed 8-6-91 pursuant to section 100, title 1, California Code of Regulations (Register 91, No. 48).

3. Change without regulatory effect amending address filed 11-4-93 pursuant to section 100, title 1, California Code of Regulations (Register 93, No. 45).

4. Amendment of section and new Note filed 4-7-97; operative 4-7-97 pursuant to Government Code section 11343.4(d) (Register 97, No. 15).

5. Change without regulatory effect amending section heading, section and Note filed 8-19-97 pursuant to section 100, title 1, California Code of Regulations (Register 97, No. 34).

6. Repealer filed 4-14-98; operative 5-14-98 (Register 98, No. 16).

§5.3. Payment of Fees, Assessments, and Penalties.

Note • History

Fees, assessments, and penalties payable to the Commissioner may be paid by means of check made payable to the order of “Commissioner of Financial Institutions,” or the “Department of Financial Institutions.” Such checks need not be certified.

NOTE

Authority cited: Sections 215, 4831, 31101 and 33202, Financial Code.

HISTORY

1. Change without regulatory effect amending section and adding new Note filed 8-19-97 pursuant to section 100, title 1, California Code of Regulations (Register 97, No. 34).

§5.4. Appearance and Practice Before Commissioner.

Note • History

(a) In any proceeding before the Commissioner, any person may be represented by an attorney at law. However, any individual may appear in his own behalf; any partnership may be represented by a partner; and any corporation may be represented by an officer.

(b) Any person who represents another person in a proceeding before the Commissioner shall, unless written notice of the contrary signed by such other person is filed with the Commissioner, be deemed to be authorized to take any action on behalf of such other person in connection with such proceeding.

NOTE

Authority cited: Sections 215, 4831, 31101 and 33202, Financial Code.

HISTORY

1. Change without regulatory effect amending section heading and section and adding new Note filed 8-19-97 pursuant to section 100, title 1, California Code of Regulations (Register 97, No. 34).

§5.5. Contingent Fee.

Note • History

As an administrative standard, the Commissioner generally will deny an application if the payment of, or amount of, the fee of any person who assisted in the preparation of such application or who represents the applicant is contingent upon the Commissioner's decision on the application.

NOTE

Authority cited: Sections 215, 4831, 31101 and 33202, Financial Code.

HISTORY

1. Change without regulatory effect amending section heading and section and adding new Note filed 8-19-97 pursuant to section 100, title 1, California Code of Regulations (Register 97, No. 34).

§5.6. Interpretive Opinions.

Note • History

The Commissioner may honor applications from interested persons for interpretive opinions regarding any provision of any law administered by the Commissioner or of this Chapter.

NOTE

Authority cited: Sections 215, 4831, 31101 and 33202, Financial Code.

HISTORY

1. Change without regulatory effect amending section and adding new Note filed 8-19-97 pursuant to section 100, title 1, California Code of Regulations (Register 97, No. 34).

§5.7. Administrative Actions.

Note • History

(a) Whenever the Commissioner issues any certificate of authority, license, approval, consent, or order under any law administered by him or under this Chapter, the Commissioner may impose such conditions as are in his opinion necessary to carry out the provisions or purposes of such law or of this Chapter, as the case may be.

(b) Whenever the Commissioner has issued any certificate of authority, license, approval, consent, or order under any law administered by him or under this Chapter, the Commissioner may, upon application or on his own initiative, if he finds that such action is necessary to carry out the provisions or purposes of such law or of this Chapter, as the case may be, and subject to any applicable provisions of such law or of this Chapter, amend, suspend, or revoke such certificate of authorization, license, approval, consent, or order, in whole or in part.

NOTE

Authority cited: Section 215, 4831, 31101 and 33202, Financial Code. Reference: Sections 200, 215, 31100 and 33200, Financial Code.

HISTORY

1. Change without regulatory effect amending subsection (b) and adding Note filed 11-4-93 pursuant to section 100, title 1, California Code of Regulations (Register 93, No. 45).

2. Change without regulatory effect amending section and adding new Note filed 8-19-97 pursuant to section 100, title 1, California Code of Regulations (Register 97, No. 34).

Article 3. Conflict of Interest Code--Designated Employees

§5.2000. Scope.

Note • History

This Article contains regulations setting forth the Department's conflict of interest code as required by the Political Reform Act of 1974 (Government Code Section 81000 et seq.).

NOTE

Authority cited: Sections 87300 and 87306, Government Code. Reference: Sections 87300-87302, Government Code.

HISTORY

1. New article 3 (sections 5.2000-5.2202, not consecutive) filed 12-29-78 as part of new subchapter 5; designated effective 3-1-79. Approved by Fair Political Practices Commission 5-2-78 (Register 79, No. 2).

2. Repealer of subarticles 1-3, sections 5.2000-5.2202, not consecutive, and new section 5.2000 and Appendix filed 6-15-92; operative 7-15-92. Approved by Fair Political Practices Commission 4-14-92 (Register 92, No. 25).

3. Editorial correction relocating Appendix end notes (Register 93, No. 49).

4. Editorial correction of History 2 (Register 95, No. 12).

5. Repealer of section and appendix and new section filed 11-23-99; operative 12-23-99. Approved by Fair Political Practices Commission 10-8-99 (Register 99, No. 48).

§5.2001. Conflict of Interest Code.

Note • History

(a) The provisions of 2 C.C.R. §18730 and any changes to it adopted by the Fair Political Practices Commission are hereby incorporated by reference. The provisions of 2 C.C.R. §18730 and the Appendix to this Section which lists the designated employees of the Department and their disclosure categories constitute the Conflict of Interest Code of the Department.

(b) Designated employees shall file statements of economic interests with the Administrative Services Unit of the Department. The Department shall make the statements available for public inspection and reproduction. (Government Code Section 81008). Upon receipt of the statement of the Commissioner of Financial Institutions, the Department shall make and retain a copy and forward the original to the Fair Political Practices Commission. Statements of economic interests filed by all other designated employees shall be retained by the Department.

NOTE

Authority cited: Sections 87300 and 87306, Government Code. Reference: Sections 87300-87302, Government Code.

HISTORY

1. New section and appendix filed 11-23-99; operative 12-23-99. Approved by Fair Political Practices Commission 10-8-99 (Register 99, No. 48).

2. Amendment of appendix filed 6-7-2002; operative 7-7-2002. Approved by Fair Political Practices Commission 4-5-2002 (Register 2002, No. 23).

3. Amendment of Appendix filed 6-19-2003; operative 7-19-2003. Approved by Fair Political Practices Commission 4-28-2003 (Register 2003, No. 25).

4. Amendment of Appendix filed 10-9-2007; operative 11-8-2007. Approved by Fair Political Practices Commission 8-22-2007 (Register 2007, No. 41).

Appendix to §5.2001

Designated Employees

Position Title Disclosure Category

Commissioner of Financial Institutions A

Consultants1 A

Chief Deputy Commissioner of Financial Institutions A

Senior Deputy Commissioner of Financial Institutions B

Chief State Examiner B

Deputy Commissioner of Financial Institutions

of the Division of Credit Unions B

Deputy Commissioner of Financial Institutions B

Financial Institutions Manager B

Financial Institutions Supervisor B

Senior Financial Institutions Examiner B

Financial Institutions Examiner B

General Counsel B

Assistant Chief Counsel C

Senior Staff Counsel C

Staff Counsel C

Staff Services Manager C

Chief Information Officer C

Chief Administrative Officer D

Data Processing Manager D

Senior Accounting Officer (Supervisor) D

Associate Business Management Analyst D

Budget Analyst D

Training Officer D

Business Services Assistant D

Disclosure Categories

Category A:

The following are reportable interests for each designated employee in this disclosure category:

All investments, income, including gifts, loans and travel payments, business positions, and interests in real property.

Category B:

The following are reportable interests for each designated employee in this disclosure category:

All interests in real property, and all investments and business positions in, and all income, including gifts loans and travel payments, from, any subject institution.2

Category C:

The following are reportable interests for each designated employee in this disclosure category:

All investments and business positions in, and all income, including gifts, loans and travel payments, from, any subject institution.

Category D:

The following are reportable interests for each designated employee in this disclosure category:

All interests in real property leased to or rented by the Department, and all investments and business positions in, and sources of income, including gifts, loans and travel payments, from, business entities which provide goods, services, supplies, materials, machinery, or equipment of the type utilized by the Department or which provide office space leased to or rented by the Department.

----------

1Consultants are included in the list of designated employees in Category A, and shall disclose pursuant to the requirements of this disclosure category subject to the following limitation: The Commissioner may determine in writing that a particular consultant, although a “designated employee,” is hired to perform a range of duties that is limited in scope and thus is not required to comply fully with the disclosure requirements in this Section. Such written determination shall include a description of the consultant's duties and based upon that description, a statement of the extent, if any, of disclosure requirements. The Commissioner's determination is a public record and shall be retained by the Department and made available for public inspection with a copy of the Department's Conflict of Interest Code upon proper request.

2“Subject institution,” as used in Category B and Category C, means any of the following, any affiliate of any of the following, any attorney, accountant, economist, or business consultant who regularly provides services to any of the following, or any bank, savings association, credit union, or industrial loan company trade organization of which any of the following is a voting member (The definitions set forth in Subarticle 2 (commencing with Section 10.100 of Article 1 of Subchapter 10 of Chapter 1 of Title 10 shall apply throughout this footnote.):

(1) Any California bank.

(2) Any foreign (other state) bank which maintains an office in the State of California.

(3) Any foreign (other nation) bank which maintains an office in the State of California that is licensed by the Commissioner or by the Comptroller of the Currency.

(4) Any international banking corporation organized under the laws of the State of California, or any other international banking corporation which, or a representative of which, maintains an office in the State of California.

(5) Any corporation which is licensed by the Commissioner under Chapter 14 (commencing with Section 1800) of Division 1 of the Financial Code.

(6) Any person which is licensed by the Commissioner under Chapter 14A (commencing with Section 1851) of Division 1 of the Financial Code.

(7) Any savings association organized under the Savings Association Law or any other savings association which maintains an office in the State of California.

(8) Any person which is licensed under Division 3 (commencing with Section 12000) of the Financial Code to engage in the business of a check seller.

(9) Any credit union organized under the Credit Union Law, or any corporation of similar type organized under the laws of the United States or of any state of the United States other than the State of California which maintains an office in the State of California.

(10) Any industrial loan company organized under the Industrial Loan Law, or any corporation of similar type organized under the laws of any state of the United States other than the State of California which maintains an office in the State of California.

(11) Any corporation which is licensed by the Commissioner under Division 15 (commencing with Section 31000) of the Financial Code.

(12) Any corporation which is licensed by the Commissioner under Division 16 (commencing with Section 33000) of the Financial Code.

Article 4. Documents

Subarticle 1. General Provisions

§5.3000. Scope.

Note • History

This Article contains regulations relating to documents filed with the Commissioner. This Subarticle contains general provisions relating to documents filed with the Commissioner. Subarticle 2 (commencing with Section 5.3100) of this Article contains regulations relating to applications filed with the Commissioner. Subarticle 3 (commencing with Section 5.3200) of this Article contains regulations relating to reports filed with the Commissioner.

NOTE

Authority cited: Sections 215, 4831, 31101 and 33202, Financial Code.

HISTORY

1. Change without regulatory effect amending section and adding new Note filed 8-19-97 pursuant to section 100, title 1, California Code of Regulations (Register 97, No. 34).

§5.3001. Applicability.

Note • History

This Article sets forth rules which apply generally to all documents filed with the Commissioner. However, whenever the Commissioner, any provision of this Chapter (other than the provisions of this Article), or any law administered by the Commissioner prescribes for a specified document or for a specified class of documents a rule which is inconsistent with any of the rules set forth in this Article, the rule so prescribed shall apply to such specified documents or specified class of documents, and the rule set forth in this Article which is inconsistent with the rule so prescribed shall not apply.

NOTE

Authority cited: Sections 215, 4831, 31101 and 33202, Financial Code.

HISTORY

1. Change without regulatory effect amending section and adding new Note filed 8-19-97 pursuant to section 100, title 1, California Code of Regulations (Register 97, No. 34).

§5.3002. Language.

Note • History

Each document filed with the Commissioner shall be in the English language. However, whenever the Commissioner, this Chapter, or any law administered by the Commissioner requires that a document which is not in the English language be filed with the Commissioner, such document shall, when filed with the Commissioner, be accompanied by an English translation, and there shall be attached to or endorsed on such English translation a certificate signed by the translator certifying that the translation is a true translation in the English language of the document. If the document or any document of which such document is a part is required to be verified, the certificate of the translator shall be verified.

NOTE

Authority cited: Sections 215, 4831, 31101 and 33202, Financial Code.

HISTORY

1. Change without regulatory effect amending section and adding new Note filed 8-19-97 pursuant to section 100, title 1, California Code of Regulations (Register 97, No. 34).

§5.3003. Incorporation by Reference.

Note • History

There may be incorporated by reference into a document filed with the Commissioner any other document or specified part thereof attached to such document or any other document or specified part thereof currently on file with the Commissioner.

NOTE

Authority cited: Sections 215, 4831, 31101 and 33202, Financial Code.

HISTORY

1. Change without regulatory effect amending section and adding new Note filed 8-19-97 pursuant to section 100, title 1, California Code of Regulations (Register 97, No. 34).

§5.3004. Acknowledgment.

Note • History

Whenever the Commissioner, this Chapter, or any law administered by the Commissioner requires that a signature on a document filed with the Commissioner be acknowledged, such signature shall be acknowledged in accordance with the requirements of Article 3 (commencing with Section 1180), Chapter 4, Title 4, Part 4, Division 2 of the Civil Code, and an appropriate certificate of acknowledgment shall be endorsed on or attached to such document.

NOTE

Authority cited: Sections 215, 4831, 31101 and 33202, Financial Code.

HISTORY

1. Change without regulatory effect amending section and adding new Note filed 8-19-97 pursuant to section 100, title 1, California Code of Regulations (Register 97, No. 34).

§5.3005. Verification.

Note • History

Whenever the Commissioner, this Chapter, or any law administered by the Commissioner requires that a document filed with the Commissioner be verified, the verification shall be made either by affidavit, in which case the certificate of the officer taking the affidavit shall be attached thereto, or by an unsworn statement made in accordance with Code of Civil Procedure Section 2015.5.

NOTE

Authority cited: Sections 215, 4831, 31101 and 33202, Financial Code.

HISTORY

1. Change without regulatory effect amending section and adding new Note filed 8-19-97 pursuant to section 100, title 1, California Code of Regulations (Register 97, No. 34).

§5.3006. Certification of Corporate Resolution.

Note • History

Whenever the Commissioner, this Chapter, or any law administered by the Commissioner requires that a copy of a resolution of the board or of a committee of the board of a corporation filed with the Commissioner be certified, the certification shall:

(a) State the title of the office which the person making the certification holds with the corporation.

(b) State that the copy is a true copy of the resolution.

(2) In case the resolution was adopted by a committee of the board, so state, specify the date of adoption, state the title of the committee, and state that the committee is authorized to exercise the powers of the board with respect to the subject matter of the resolution.

(d) State that the resolution has not been modified or rescinded and is in full force and effect.

(e) Specify the date of the certification.

NOTE

Authority cited: Sections 215, 4831, 31101 and 33202, Financial Code.

HISTORY

1. Change without regulatory effect amending section and adding new Note filed 8-19-97 pursuant to section 100, title 1, California Code of Regulations (Register 97, No. 34).

§5.3007. Certification by Corporate Officer.

Note • History

(a) Whenever the Commissioner, this Chapter, or any law administered by the Commissioner requires that a document filed with the Commissioner be certified by the secretary of a corporation and does not provide that such document may, in the alternative, be certified by an assistant secretary of such corporation, the certification shall be made by the secretary of the corporation. However, if the corporation has no secretary or if the secretary of the corporation is unavailable, the certification may be made by an assistant secretary of the corporation who is authorized to perform the functions of the secretary, in which case the certification shall (1) state that the corporation has no secretary or that the secretary is unavailable and (2) that the assistant secretary is authorized to perform the functions of the secretary. Also, if the corporation has no secretary or assistant secretary, the certification may be made by the officer of the corporation who performs for the corporation the functions usually performed by the secretary of a corporation, in which case the certification shall state that the corporation has no secretary and that the officer making the certification performs for the corporation the functions usually performed by the Secretary of a corporation.

(b) Whenever the Commissioner, this Chapter, or any law administered by the Commissioner requires that a document filed with the Commissioner be certified by the secretary or by an assistant secretary of a corporation, if such corporation has no secretary or assistant secretary, the certification may be made by an officer of the corporation who performs for the corporation the functions usually performed by the secretary or by an assistant secretary of a corporation, in which case the certification shall state that the corporation has no secretary or assistant secretary and that the officer making the certification performs for the corporation the functions usually performed by the secretary or by an assistant secretary of a corporation.

NOTE

Authority cited: Sections 215, 4831, 31101 and 33202, Financial Code.

HISTORY

1. Change without regulatory effect amending section and adding new Note filed 8-19-97 pursuant to section 100, title 1, California Code of Regulations (Register 97, No. 34).

§5.3008. Place of Filing.

Note • History

Whenever the Commissioner, this Chapter, or any law administered by the Commissioner provides that a document be filed with the Commissioner, it may be filed with the Commissioner at any office of the Commissioner.

NOTE

Authority cited: Sections 215, 4831, 31101 and 33202, Financial Code.

HISTORY

1. Change without regulatory effect amending section and adding new Note filed 8-19-97 pursuant to section 100, title 1, California Code of Regulations (Register 97, No. 34).

§5.3009. Time of Filing.

Note • History

(a) This section does not apply to any application which is subject to the Permit Reform Act of 1981 (Chapter 3 (commencing with Section 15374), Part 6.7, Division 3, Title 2 of the Government Code).

(b) Except as otherwise provided in subdivisions (c) and (d) of this section, whenever the Commissioner, this Chapter, or any law administered by the Commissioner provides that a document be filed with the Commissioner, such document shall be deemed to be filed with the Commissioner on the day on which it is received at an office of the Commissioner.

(c) Except as otherwise provided in subdivision (d) of this section, a document which is an application shall, unless the Commissioner rejects it for filing within ten business days after the day on which it is received at an office of the Commissioner, be deemed to be filed with the Commissioner on such day.

(d) (1) In case the day on which a document is received at an office of the Commissioner is a holiday or in case a document is received after the close of business of such office, such document shall be deemed to be filed with the Commissioner on the next succeeding day which is not a holiday.

(2) In case the Commissioner, this Chapter, or any law administered by the Commissioner requires that a document, when filed with the Commissioner, be accompanied by a specified fee or that a specified fee be paid for filing a document with the Commissioner, and if such a document, when received at an office of the Commissioner, is not accompanied by such specified fee, the document shall not be deemed to be filed with the Commissioner until such time as the specified fee is received at an office of the Commissioner.

(3) In case the Commissioner, this Chapter, or any law administered by the Commissioner provides with respect to a document otherwise than as provided in subdivision (b) or (c) of this section, such document shall be deemed to be filed at the time when the Commissioner, such provision of this Chapter, or such law so provides. It is hereby provided that no copy of by-laws or of an amendment of by-laws shall be deemed to be filed with the Commissioner for purposes of Financial Code Sections 400(a) or 601 until specially filed by the Commissioner and that no copy of an agreement of merger or certificate of ownership certified by the Secretary of State shall be deemed to be filed with the Commissioner for purposes of Financial Code Section 2072 or 2094 until specially filed by the Commissioner.

(4) In case a person who submits a document to the Commissioner requests that such document be filed otherwise than as provided in subdivision (b) or (c) of this section, the document shall not be deemed to be filed with the Commissioner until such time as it is specially filed by the Commissioner.

NOTE

Authority cited: Sections 215, 4831, 31101 and 33202, Financial Code. Reference: Sections 200, 215, 31100 and 33200, Financial Code.

HISTORY

1. Amendment filed 12-10-85; designated effective 2-1-86 (Register 85, No. 50).

2. Change without regulatory effect amending section and Note filed 8-19-97 pursuant to section 100, title 1, California Code of Regulations (Register 97, No. 34).

Subarticle 2. Applications

§5.3100. Scope.

Note • History

This Subarticle contains regulations relating to applications filed with the Commissioner.

NOTE

Authority cited: Sections 215, 4831, 31101 and 33202, Financial Code.

HISTORY

1. Change without regulatory effect amending section and adding new Note filed 8-19-97 pursuant to section 100, title 1, California Code of Regulations (Register 97, No. 34).

§5.3101. Pre-Filing Conference and Review.

(a) The staff of the Department is available to confer with a prospective applicant in advance of the filing of an application for the purpose of discussing questions relating to such application. However, no application will be decided in advance of filing.

(b) A prospective applicant may, before filing an application, submit a draft of such application or of a document which is to be part of such application to the staff of the Department for review and comment as to form. However, any comments made on a draft of an application or of a document which is to be part of an application will relate only to the form of such application or of such document and not to the substance or merits of such application or of such document.

§5.3102. Form.

Note • History

Whenever the Commissioner, this Chapter, or any law administered by the Commissioner provides that an application be in a specified form, any such application shall be filed in such form. Whenever the Commissioner, this Chapter, or any law administered by the Commissioner provides that the facing page of an application be in a specified form, the facing page of any such application shall be in such form, and the remainder of the application shall be typewritten or legibly printed on either legal or letter size paper. In all other cases, an application shall be in the form of a letter addressed to the Commissioner, typewritten or legibly printed on either legal or letter size paper.

NOTE

Authority cited: Sections 215, 4831, 31101 and 33202, Financial Code.

HISTORY

1. Change without regulatory effect amending section and adding new Note filed 8-19-97 pursuant to section 100, title 1, California Code of Regulations (Register 97, No. 34).

§5.3103. Combining Applications.

Note • History

Two or more applications may be combined in the same document if all such applications:

(a) Are made by the same person;

(b) Are required to be in the form of a letter addressed to the Commissioner; and

NOTE

Authority cited: Sections 215, 4831, 31101 and 33202, Financial Code.

HISTORY

1. Change without regulatory effect amending section and adding new Note filed 8-19-97 pursuant to section 100, title 1, California Code of Regulations (Register 97, No. 34).

§5.3104. Number of Copies.

Note • History

Whenever an application is filed with the Commissioner, the original and one copy of such application shall be filed. Only the original of an application need be executed.

NOTE

Authority cited: Sections 215, 4831, 31101 and 33202, Financial Code.

HISTORY

1. Change without regulatory effect amending section and adding new Note filed 8-19-97 pursuant to section 100, title 1, California Code of Regulations (Register 97, No. 34).

§5.3105. Contents.

Note • History

(a) An application shall be dated and shall set forth the name, address, and telephone number of the applicant, identify the subject matter of the application, and contain such other information as the Commissioner, this Chapter, or any law administered by the Commissioner may require.

(b) Whenever an application contains economic data, such application shall identify the source of such economic data.

(c) In case any item of information required to be in an application is not applicable to the circumstances of such application, the application shall so state and, in addition, shall specify the reasons why such item of information is not applicable to the application.

(d) In case any item of information required to be in an application is not available, such application shall so state and, in addition, shall state:

(1) Reasons why the item of information is not available; and

(2) Whether or not the item of information is expected to become available, and, if so, the time when the item of information is expected to become available.

NOTE

Authority cited: Sections 215, 4831, 31101 and 33202, Financial Code.

HISTORY

1. Change without regulatory effect amending section and adding new Note filed 8-19-97 pursuant to section 100, title 1, California Code of Regulations (Register 97, No. 34).

§5.3106. Signature.

Note • History

(a) An application shall be signed by the applicant or by a person authorized to represent the applicant in connection with such application.

(b) The signature on an application by a corporation should be in the corporate form, and whenever the Commissioner, this Chapter, or any law administered by the Commissioner requires that an application by a corporation be in the name of such corporation, the signature of the corporation on such application shall be in the corporate form. The following is an example of the signature of a corporation in the corporate form:

ABC BANK

By /s/ John Doe

John Doe, President

NOTE

Authority cited: Sections 215, 4831, 31101 and 33202, Financial Code.

HISTORY

1. Change without regulatory effect amending section and adding new Note filed 8-19-97 pursuant to section 100, title 1, California Code of Regulations (Register 97, No. 34).

§5.3107. Amendment.

Note • History

(a) An applicant may, with the consent of the Commissioner, amend an application. An application for consent to amend an application shall contain the proposed amendment of such application and a statement of the reasons why the applicant wishes to amend the application.

(b) (1) Whenever an applicant becomes aware of any material error in an item of information contained in an application, such applicant shall promptly file with the Commissioner an application for consent to amend such application to correct such error.

(2) Whenever an applicant becomes aware of any material change in an item of information contained in an application, such applicant shall promptly file with the Commissioner an application for consent to amend such application in order to reflect such change.

(c) Whenever the Commissioner, this Chapter, or any law administered by the Commissioner prescribes a specified form for an application consisting of not more than two pages, any amendment of such application shall be in the specified form prescribed for the original application, shall be dated as of current date, and shall bear at the top of the first page a legend stating that it is an amendment in full of the original application and specifying the date of the original application. In all other cases, an amendment of an application shall be in the form of a letter addressed to the Commissioner, typewritten or legibly printed on either legal or letter size paper.

(d) Any amendment of an application shall be signed and filed in the manner prescribed for the original application. However, even though the signature of the applicant on an application is required to be acknowledged, the signature of such applicant on an amendment of such application need not be acknowledged.

(e) Whenever an application is required to be verified, any amendment of such application shall be verified.

NOTE

Authority cited: Sections 215, 4831, 31101 and 33202, Financial Code.

HISTORY

1. Change without regulatory effect amending section and adding new Note filed 8-19-97 pursuant to section 100, title 1, California Code of Regulations (Register 97, No. 34).

§5.3108. Comments.

Note • History

(a) Any person may file with the Commissioner comments on an application, including comments supporting or opposing the granting of such application. Comments on an application shall be in writing in the form of a letter addressed to the Commissioner. A comment letter shall identify the application to which it relates by the name of the applicant and the subject matter of the application. A comment letter shall be signed by the commentator or by a person authorized to represent the commentator in connection with the application.

(b) The Commissioner may solicit comments on an application from any person who in his opinion might have an interest in, be affected by, or have information regarding, such application.

NOTE

Authority cited: Sections 215, 4831, 31101 and 33202, Financial Code.

HISTORY

1. Change without regulatory effect amending section and adding new Note filed 8-19-97 pursuant to section 100, title 1, California Code of Regulations (Register 97, No. 34).

§5.3109. Deficiencies.

Note • History

Whenever an application, when received at an office of the Commissioner, is deficient in that it fails to comply in any respect with the requirements prescribed by the Commissioner, this Chapter, or any law administered by the Commissioner:

(a) At any time within ten business days after the day on which the application was received at an office of the Commissioner, the Commissioner may reject the application for filing. However, this subdivision (a) does not apply to any application which is subject to the Permit Reform Act of 1981 (Chapter 3 (commencing with Section 15374), Part 6.7, Division 3, Title 2 of the Government Code).

(b) At any time, the Commissioner may, by notice served on the applicant, request that the applicant correct the deficiencies in the application and fix the time within which the applicant shall correct the deficiencies in the application. If the applicant fails to correct the deficiencies in the application within such time, the Commissioner may order the application to be abandoned.

NOTE

Authority cited: Sections 215, 4831, 31101 and 33202, Financial Code. Reference: Sections 200, 215, 31100 and 33200, Financial Code.

HISTORY

1. Amendment filed 12-10-85; designated effective 2-1-86 (Register 85, No. 50).

2. Change without regulatory effect amending section and Note filed 8-19-97 pursuant to section 100, title 1, California Code of Regulations (Register 97, No. 34).

§5.3110. Additional Information.

Note • History

The Commissioner may, at any time, by notice served on an applicant, request that the applicant file additional information and fix the time within which the applicant shall file such additional information. If the applicant fails to file such additional information within such time, the Commissioner may order the application to be abandoned.

NOTE

Authority cited: Sections 215, 4831, 31101 and 33202, Financial Code.

HISTORY

1. Change without regulatory effect amending section and adding new Note filed 8-19-97 pursuant to section 100, title 1, California Code of Regulations (Register 97, No. 34).

§5.3111. Withdrawal.

Note • History

An applicant may, with the consent of the Commissioner, withdraw an application.

NOTE

Authority cited: Sections 215, 4831, 31101 and 33202, Financial Code.

HISTORY

1. Change without regulatory effect amending section and adding new Note filed 8-19-97 pursuant to section 100, title 1, California Code of Regulations (Register 97, No. 34).

§5.3112. Notice of Decision.

Note • History

Whenever the Commissioner approves or denies an application, rejects an application for filing, or orders an application to be abandoned, the Commissioner shall serve notice of his decision on the applicant. In case the Commissioner denies an application, rejects an application for filing, or orders an application to be abandoned, such notice shall contain a brief statement of the reasons for the decision.

NOTE

Authority cited: Sections 215, 4831, 31101 and 33202, Financial Code.

HISTORY

1. Change without regulatory effect amending section and adding new Note filed 8-19-97 pursuant to section 100, title 1, California Code of Regulations (Register 97, No. 34).

Subarticle 3. Reports

§5.3200. Scope.

Note • History

This Subarticle contains regulations relating to reports filed with the Commissioner.

NOTE

Authority cited: Sections 215, 4831, 31101 and 33202, Financial Code.

HISTORY

1. Change without regulatory effect amending section and adding new Note filed 8-19-97 pursuant to section 100, title 1, California Code of Regulations (Register 97, No. 34).

§5.3201. Form.

Note • History

Whenever the Commissioner, this Chapter, or any law administered by the Commissioner provides that a report be in a specified form, any such report shall be filed in such form. Whenever the Commissioner, this Chapter, or any law administered by the Commissioner provides that the facing page of a report be in a specified form, the facing page of any such report shall be in such form, and the remainder of the report shall be typewritten or legibly printed on either legal or letter size paper. In all other cases, a report shall be in the form of a letter addressed to the Commissioner, typewritten or legibly printed on either legal or letter size paper.

NOTE

Authority cited: Sections 215, 4831, 31101 and 33202, Financial Code.

HISTORY

1. Change without regulatory effect amending section and adding new Note filed 8-19-97 pursuant to section 100, title 1, California Code of Regulations (Register 97, No. 34).

§5.3202. Combining Reports.

Note • History

Two or more reports may be combined in the same document if all such reports:

(a) Are made by the same person;

(b) Are required to be in the form of a letter addressed to the Commissioner; and

NOTE

Authority cited: Sections 215, 4831, 31101 and 33202, Financial Code.

HISTORY

1. Change without regulatory effect amending section and adding new Note filed 8-19-97 pursuant to section 100, title 1, California Code of Regulations (Register 97, No. 34).

§5.3203. Number of Copies.

Note • History

Whenever a report is filed with the Commissioner, only the original of such report need be filed.

NOTE

Authority cited: Sections 215, 4831, 31101 and 33202, Financial Code.

HISTORY

1. Change without regulatory effect amending section and adding new Note filed 8-19-97 pursuant to section 100, title 1, California Code of Regulations (Register 97, No. 34).

§5.3204. Contents.

Note • History

(a) A report shall be dated and shall set forth the name, address, and telephone number of the person making the report, identify the subject matter of the report, and contain such other information as the Commissioner, this Chapter, or any law administered by the Commissioner may require.

(b) In case any item of information required to be in a report is not applicable to the circumstances of such report, the report shall so state and, in addition, shall specify the reasons why such item of information is not applicable to the report.

(c) In case any item of information required to be in a report is not available, such report shall so state and, in addition, shall state:

(1) Reasons why the item of information is not available; and

(2) Whether or not the item of information is expected to become available, and, if so, the time when the item of information is expected to become available.

NOTE

Authority cited: Sections 215, 4831, 31101 and 33202, Financial Code.

HISTORY

1. Change without regulatory effect amending section and adding new Note filed 8-19-97 pursuant to section 100, title 1, California Code of Regulations (Register 97, No. 34).

§5.3205. Signature.

Note • History

(a) A report shall be signed by the person making the report or by a person authorized to represent such person in connection with the report.

(b) The signature on a report by a corporation should be in the corporate form, and whenever the Commissioner, this Chapter, or any law administered by the Commissioner requires that a report by a corporation be signed in the name of such corporation, the signature of the corporation on such report shall be in the corporate form. (For an example of the signature of a corporation in the corporate form, refer to Section 5.3106 of this Chapter.)

NOTE

Authority cited: Sections 215, 4831, 31101 and 33202, Financial Code.

HISTORY

1. Change without regulatory effect amending section and adding new Note filed 8-19-97 pursuant to section 100, title 1, California Code of Regulations (Register 97, No. 34).

§5.3206. Amendment.

Note • History

(a) A person making a report may, with the consent of the Commissioner, amend such report. An application for consent to amend a report shall contain the proposed amendment of such report and a statement of the reasons why such person wishes to amend the report.

(b) Whenever a person who has made a report becomes aware of any material error in an item of information contained in such report, such person shall promptly file with the Commissioner an application for consent to amend the report to correct such error.

(c) Whenever the Commissioner, this Chapter, or any law administered by the Commissioner prescribes a specified form for a report consisting of not more than two pages, any amendment of such report shall be in the specified form prescribed for the original report, shall be dated as of current date, and shall bear at the top of the first page a legend stating that it is an amendment in full of the original report and specifying the date of the original report. In all other cases, an amendment of a report shall be in the form of a letter addressed to the Commissioner, typewritten or legibly printed on either legal or letter size paper.

(d) Any amendment of a report shall be signed and filed in the manner prescribed for the original report. However, even though the signature of a report is required to be acknowledged, the signature of an amendment of such report need not be acknowledged.

(e) Whenever a report is required to be verified, any amendment of such report shall be verified.

NOTE

Authority cited: Sections 215, 4831, 31101 and 33202, Financial Code.

HISTORY

1. Change without regulatory effect amending section and adding new Note filed 8-19-97 pursuant to section 100, title 1, California Code of Regulations (Register 97, No. 34).

Article 6. Hearings

Subarticle 1. General Provisions

§5.5000. Scope.

Note • History

This Article governs the conduct of all hearings held in connection with matters pending before the Commissioner.

NOTE

Authority cited: Sections 215, 4831, 31101 and 33202, Financial Code.

HISTORY

1. Change without regulatory effect amending section and adding new Note filed 8-19-97 pursuant to section 100, title 1, California Code of Regulations (Register 97, No. 34).

§5.5001. Definitions.

Note • History

In this article:

(a) “Adjudicatory hearing” means a hearing conducted in accordance with subarticle 2 (commencing with section 5.5100) of this article.

(b) “Hearing officer” means the person designated by the Commissioner to preside at a hearing. The hearing officer may be the Commissioner.

(d) “Intervening party” means any person whom the Commissioner, upon application, permits to intervene and become a party to a hearing.

(e) “Investigatory hearing” means a hearing conducted in accordance with subarticle 3 (commencing with section 5.5200) of this article.

(f) “Party” means the Commissioner, the respondent, and any intervening party.

(g) “Respondent” means, in the case of an adjudicatory hearing, any person who is named as respondent in the accusation and, in the case of an investigatory hearing, any person who is named as respondent in the notice of investigatory hearing.

NOTE

Authority cited: Sections 215, 4831, 31101 and 33202, Financial Code. Reference: Sections 200, 215, 31100 and 33200, Financial Code.

HISTORY

1. Change without regulatory effect amending subsections (a) and (e) filed 7-2-91 pursuant to section 100, title 1, California Code of Regulations (Register 91, No. 40).

2. Change without regulatory effect amending section and Note filed 8-19-97 pursuant to section 100, title 1, California Code of Regulations (Register 97, No. 34).

§5.5002. Types of Hearings.

Note • History

Hearings held in connection with matters pending before the Commissioner are of two types, adjudicatory hearings and investigatory hearings. The Commissioner may in his discretion determine which type of hearing to hold in any particular case. In general, however, any hearing on the suspension or revocation of a license will be an adjudicatory hearing, and any hearing on an application will be an investigatory hearing.

NOTE

Authority cited: Sections 215, 4831, 31101 and 33202, Financial Code.

HISTORY

1. Change without regulatory effect amending section and adding new Note filed 8-19-97 pursuant to section 100, title 1, California Code of Regulations (Register 97, No. 34).

§5.5003. Discretion to Hold Hearings.

Note • History

The Commissioner may in his discretion, either upon application or on his own initiative, hold a hearing in connection with any matter pending before him.

NOTE

Authority cited: Sections 215, 4831, 31101 and 33202, Financial Code.

HISTORY

1. Change without regulatory effect amending section and adding new Note filed 8-19-97 pursuant to section 100, title 1, California Code of Regulations (Register 97, No. 34).

§5.5004. Application for Hearing.

Note • History

Any person may apply to the Commissioner to hold a hearing in connection with a matter pending before the Commissioner. An application for a hearing shall contain the following:

(a) Identification of the matter pending before the Commissioner with respect to which the applicant requests that a hearing be held.

(b) Description of the applicant's interest in such matter.

(d) In case an adjudicatory hearing is requested, a proposed accusation or in case an investigatory hearing is requested, a proposed notice of investigatory hearing.

(e) Brief summary of the evidence which the applicant intends to introduce and a list of the witnesses whom the applicant intends to present at the hearing.

(f) Statement of reasons why the holding of a hearing would be in the public interest.

NOTE

Authority cited: Sections 215, 4831, 31101 and 33202, Financial Code.

HISTORY

1. Change without regulatory effect amending section and adding new Note filed 8-19-97 pursuant to section 100, title 1, California Code of Regulations (Register 97, No. 34).

§5.5005. Application to Intervene.

Note • History

An application for permission to intervene and become a party to a hearing shall be filed with the Commissioner and served on the respondent and each other party (other than the Commissioner) not less than five business days before commencement of the hearing, and shall contain the following:

(a) Description of the applicant's interest in the matters at issue in the hearing.

(b) Brief summary of the evidence which the applicant intends to introduce and a list of the witnesses whom the applicant intends to present at the hearing.

(d) Statement of reasons why the intervention of the applicant in the hearing would be in the public interest.

NOTE

Authority cited: Sections 215, 4831, 31101 and 33202, Financial Code.

HISTORY

1. Change without regulatory effect amending section and adding new Note filed 8-19-97 pursuant to section 100, title 1, California Code of Regulations (Register 97, No. 34).

§5.5006. Applicable Statute.

Note • History

Hearings held by the Commissioner pursuant to this Article shall be subject to the provisions of Article 2 (commencing with Section 11180), Chapter 2, Part 1, Division 3, Title 2 of the Government Code.

NOTE

Authority cited: Sections 215, 4831, 31101 and 33202, Financial Code.

HISTORY

1. Change without regulatory effect amending section and adding new Note filed 8-19-97 pursuant to section 100, title 1, California Code of Regulations (Register 97, No. 34).

Subarticle 2. Adjudicatory Hearings

§5.5100. Accusation.

Note • History

The Commissioner shall initiate an adjudicatory hearing proceeding by issuing an accusation. An accusation shall be in writing, signed by the Commissioner, and shall contain the following:

(a) Name and address of respondent.

(b) Statement of acts or omissions with which the respondent is charged.

NOTE

Authority cited: Sections 215, 4831, 31101 and 33202, Financial Code.

HISTORY

1. Change without regulatory effect amending section and adding new Note filed 8-19-97 pursuant to section 100, title 1, California Code of Regulations (Register 97, No. 34).

§5.5101. Notice of Adjudicatory Hearing.

Note • History

(a) Whenever the Commissioner issues an accusation, he shall promptly serve a notice of adjudicatory hearing on the respondent. A notice of adjudicatory hearing shall be in writing, signed by the Commissioner, and shall contain the following:

(1) Copy of the accusation.

(2) Time and place of the adjudicatory hearing.

(3) Copy or summary of the provisions of this Subarticle and Subarticle 1 (commencing with Section 5.5000 of this Article).

(4) Statement that the respondent may, but is not required to, be represented by counsel at any and all stages of the proceedings.

(b) The Commissioner may serve a notice of adjudicatory hearing on such persons other than the respondent as the Commissioner deems advisable, and the Commissioner may otherwise distribute or publish a notice of adjudicatory hearing as he deems appropriate.

NOTE

Authority cited: Sections 215, 4831, 31101 and 33202, Financial Code.

HISTORY

1. Change without regulatory effect amending section and adding new Note filed 8-19-97 pursuant to section 100, title 1, California Code of Regulations (Register 97, No. 34).

§5.5102. Answer.

Note • History

(a) Not more than 15 days after the Commissioner serves a notice of adjudicatory hearing on the respondent, the respondent shall file an answer with the Commissioner. The answer shall be in writing, signed by the respondent or a person authorized to represent the respondent in connection with the hearing, and shall contain the following:

(1) Admission or denial of each of the material allegations of the accusation.

(2) Statement of any new matter constituting a defense.

(b) The respondent may deny any allegation in the accusation on the basis of information and belief. Also, if the respondent has no information or belief upon the subject sufficient to enable him to answer an allegation in the accusation, he may so state in the answer and place his denial on that ground.

(d) Any material allegation in the accusation which is not denied in the answer shall be deemed to be true, and the respondent may not offer evidence to controvert any such allegation at an adjudicatory hearing.

(e) If the respondent fails to file an answer within the time specified in this Section, he shall be deemed to admit the truth of all allegations in the accusation.

NOTE

Authority cited: Sections 215, 4831, 31101 and 33202, Financial Code.

HISTORY

1. Change without regulatory effect amending section and adding new Note filed 8-19-97 pursuant to section 100, title 1, California Code of Regulations (Register 97, No. 34).

§5.5103. Amendment of Accusation.

Note • History

(a) The Commissioner may amend an accusation at any time before or during an adjudicatory hearing. An amendment of an accusation shall be in writing and signed by the Commissioner.

(b) Any amendment of an accusation shall be deemed to be denied by the respondent.

(c) Whenever the Commissioner amends an accusation, he shall promptly serve a copy of the amendment on the respondent and each other party.

(d) Whenever an amendment of an accusation presents new charges, the Commissioner or the hearing officer shall, upon application of the respondent, continue an adjudicatory hearing for such time as may be necessary to afford the respondent a reasonable opportunity to prepare his defense to such new charges.

NOTE

Authority cited: Sections 215, 4831, 31101 and 33202, Financial Code.

HISTORY

1. Change without regulatory effect amending section and adding new Note filed 8-19-97 pursuant to section 100, title 1, California Code of Regulations (Register 97, No. 34).

§5.5104. Discovery.

Note • History

(a) In this Section, “statement” includes written statements by a person, signed or otherwise authenticated by him, stenographic, mechanical, electrical, or other recordings, or transcripts thereof, of oral statements by such person, and written reports or summaries of such oral statements.

(b) The provisions of this Section apply to all parties to an adjudicatory hearing and provide the sole and exclusive right to and method of discovery for any party (other than the Commissioner) requesting discovery in an adjudicatory hearing procedure.

(c) (1) Any party may serve on any other party a request for discovery of any of the items referred to in Subparagraphs (A) to (C) of Paragraph (2) of this Subdivision (c). A request for discovery shall be in writing, shall specify the matters to be disclosed, and, if made by the Commissioner, shall be signed by him, or if made by any other party, shall be signed by such party or by a person authorized to represent such party in connection with the hearing.

(2) Not more than five business days after service of a request for discovery, the party on whom such request for discovery was served shall, to the extent requested in the request for discovery, afford the requesting party an opportunity to inspect and copy any of the following in the possession, custody, or control of the party on whom the request for discovery was served:

(A) Any statement pertaining to the subject matter of the proceeding made by any party to another party or person.

(B) Statements of witnesses whom the party on whom the request for discovery was served then proposes to call and of other persons having personal knowledge of the acts, omissions, or events which are the basis for the proceedings, not included in (A) above; and

(d) The Commissioner or the hearing officer may, for good cause, upon application or on his own initiative, order any party to make available to any other party the names and addresses of witnesses to the extent known to the party to whom such order is directed, including, but not limited to, those witnesses intended to be called to testify at the adjudicatory hearing.

(e) Nothing in this Section shall authorize the inspection or copying of any writing or thing which is privileged from disclosure by law or otherwise made confidential or protected as an attorney's work product.

NOTE

Authority cited: Sections 215, 4831, 31101 and 33202, Financial Code.

HISTORY

1. Change without regulatory effect amending section and adding new Note filed 8-19-97 pursuant to section 100, title 1, California Code of Regulations (Register 97, No. 34).

§5.5105. Time and Place of Adjudicatory Hearing.

Note • History

(a) An adjudicatory hearing shall be held at the time and place set forth in the notice of such adjudicatory hearing. However, at any time before the commencement of an adjudicatory hearing, the Commissioner may, upon application or on his own initiative, change the time or place of such adjudicatory hearing by amending the notice of the hearing and serving a copy of such amendment on each other party.

(b) At the time and place set for an adjudicatory hearing in the notice of such adjudicatory hearing or in any amendment to such notice, as the case may be, the hearing officer may continue the adjudicatory hearing from day to day or adjourn the hearing to a later date or to a different place, without notice other than an announcement at the adjudicatory hearing.

NOTE

Authority cited: Sections 215, 4831, 31101 and 33202, Financial Code.

HISTORY

1. Change without regulatory effect amending section and adding new Note filed 8-19-97 pursuant to section 100, title 1, California Code of Regulations (Register 97, No. 34).

§5.5106. Hearing Officer.

An adjudicatory hearing shall be held before a hearing officer, who shall preside over such adjudicatory hearing. The hearing officer shall have authority to determine the order in which evidence may be presented, to rule on the admission or exclusion of evidence, to question witnesses, and to exercise all powers relating to the conduct of the adjudicatory hearing.

§5.5107. Hearing Panel.

The members of the hearing panel shall assist the hearing officer and may question witnesses.

§5.5108. Default.

Note • History

(a) If a respondent fails to file an answer with the Commissioner in accordance with Section 5.5102 of this Chapter, he shall be deemed to be in default.

(b) If a respondent or intervening party fails to comply with a request for discovery in accordance with Section 5.5104 of this Chapter, fails to appear at an adjudicatory hearing, or fails to comply with any lawful order issued by the Commissioner or a hearing officer in connection with an adjudicatory hearing, he shall be deemed to be in default.

(c) No respondent or intervening party who is in default shall have any right at any adjudicatory hearing to cross-examine witnesses, to present any evidence to controvert the allegations of the accusation, or to present any evidence on his own behalf.

NOTE

Authority cited: Sections 215, 4831, 31101 and 33202, Financial Code.

HISTORY

1. Change without regulatory effect amending section and adding new Note filed 8-19-97 pursuant to section 100, title 1, California Code of Regulations (Register 97, No. 34).

§5.5109. Evidence.

Note • History

(a) Oral evidence shall be taken a an adjudicatory hearing only on oath or affirmation.

(b) Subject to the provisions of Section 5.5108 this Chapter, each party shall have these rights at an adjudicatory hearing: To present evidence relevant to the issues; to cross-examine opposing witnesses on any matter relevant to the issues even though such matter was not covered in the direct examination; to impeach any witness regardless of which party first called him to testify; and to rebut the evidence against him. If a respondent does not testify on his own behalf, he may be called and examined as if under cross-examination.

(c) An adjudicatory hearing need not be conducted according to technical rules relating to evidence and witnesses. Any relevant evidence, including hearsay, shall be admitted if it is the sort of evidence on which responsible persons are accustomed to rely in the conduct of serious affairs, regardless of the existence of any common law or statutory rule which might make improper the admission of such evidence over objection in civil actions. The rules of privilege shall be effective to the same extent that they are now or hereafter may be recognized in civil actions, and irrelevant or unduly repetitious evidence shall be excluded.

(d) Official notice may be taken of any generally accepted technical or scientific matter with the Commissioner's special field of competency or of any fact which may be judicially noticed by the courts of the State of California.

NOTE

Authority cited: Sections 215, 4831, 31101 and 33202, Financial Code.

HISTORY

1. Change without regulatory effect amending section and adding new Note filed 8-19-97 pursuant to section 100, title 1, California Code of Regulations (Register 97, No. 34).

§5.5110. Reporter.

The proceedings at an adjudicatory hearing shall be reported by a certified shorthand reporter or by a phonographic reporter.

Subarticle 3. Investigatory Hearings

§5.5200. Notice of Investigatory Hearings.

Note • History

(a) The Commissioner shall initiate an investigatory hearing proceeding by serving a notice of investigatory hearing on the respondent. A notice of investigatory hearing shall be in writing, signed by the Commissioner, and shall contain the following:

(1) Name and address of the respondent.

(2) Statement of the facts which give rise to the investigatory hearing.

(3) Statement of the issues to be considered at the investigatory hearing.

(4) Time and place of the investigatory hearing.

(b) The Commissioner may serve a notice of investigatory hearing on such persons other than the respondent as the Commissioner deems advisable, and the Commissioner may otherwise distribute or publish a notice of investigatory hearing as he deems appropriate.

NOTE

Authority cited: Sections 215, 4831, 31101 and 33202, Financial Code.

HISTORY

1. Change without regulatory effect amending section and adding new Note filed 8-19-97 pursuant to section 100, title 1, California Code of Regulations (Register 97, No. 34).

§5.5201. Time and Place of Investigatory Hearing.

Note • History

(a) An investigatory hearing shall be held at the time and place set forth in the notice of such investigatory hearing. However, at any time before the commencement of an investigatory hearing, the Commissioner may, upon application or on his own initiative, change the time or place of such investigatory hearing by amending the notice of the investigatory hearing and serving a copy of such amendment on the respondent.

(b) At the time and place set for an investigatory hearing in the notice of such investigatory hearing or in any amendment to such notice, as the case may be, the hearing officer may continue the investigatory hearing from day to day or adjourn the investigatory hearing to a later date or to a different place, without notice other than an announcement at the investigatory hearing.

NOTE

Authority cited: Sections 215, 4831, 31101 and 33202, Financial Code.

HISTORY

1. Change without regulatory effect amending section and adding new Note filed 8-19-97 pursuant to section 100, title 1, California Code of Regulations (Register 97, No. 34).

§5.5202. Hearing Officer.

An investigatory hearing shall be held before a hearing officer, who shall preside over such investigatory hearing. The hearing officer shall have authority to determine the order in which evidence may be presented, to rule on the admission or exclusion of evidence, to question witnesses, and to exercise all powers relating to the conduct of the investigatory hearing.

§5.5203. Hearing Panel.

The members of the hearing panel shall assist the hearing officer and may question witnesses.

§5.5204. Evidence.

Note • History

(a) Unless the Commissioner or the hearing officer orders otherwise, witnesses need not be sworn.

(b) Each party may present evidence relevant to the issues. To the extent permitted by the hearing officer, any interested person who is not a party may present evidence relevant to the issues. Unless the Commissioner or the hearing officer orders otherwise, witnesses shall not be subject to cross-examination.

(c) An investigatory hearing need not be conducted according to technical rules relating to evidence and witnesses. Any relevant evidence, including hearsay, shall be admitted if it is the sort of evidence on which responsible persons are accustomed to rely in the conduct of serious affairs, regardless of the existence of any common law or statutory rule which might make improper the admission of such evidence over objection in civil actions. The rules of privilege shall be effective to the same extent that they are now or hereafter may be recognized in civil actions, and irrelevant or unduly repetitious evidence shall be excluded.

(d) Official notice may be taken of any generally accepted technical or scientific matter within the Commissioner's special field of competency or of any fact which may be judicially noticed by the courts of the State of California.

NOTE

Authority cited: Sections 215, 4831, 31101 and 33202, Financial Code.

HISTORY

1. Change without regulatory effect amending section and adding new Note filed 8-19-97 pursuant to section 100, title 1, California Code of Regulations (Register 97, No. 34).

Article 7. Permit Reform Act of 1981 Regulations

Subarticle 1. General Provisions

§5.6000. Scope.

Note • History

This Article contains regulations relating to the Permit Reform Act of 1981 (Chapter 3 (commencing with Section 15374), Part 6.7, Division 3, Title 2 of the Government Code).

NOTE

Authority cited: Section 15376, Government Code. Reference: Sections 1374-15377, Government Code.

HISTORY

1. New Article 7 (Sections 5.6000-5.6171, not consecutive) filed 12-10-85; designated effective 2-1-86 (Register 85, No. 50).

§5.6000.5. Applicability of Sections to Part 8 (Commencing with Section 5.6180 and Part 9 (Commencing with Section 5.6190).

Note • History

Sections 5.6002 to 5.6008, inclusive, of this Subarticle and Part 1 (commencing with Section 5.6100) of Subarticle 2 do not apply to Part 8 (commencing with Section 5.6180) or Part 9 (commencing with Section 5.6190) of Subarticle 2.

NOTE

Authority cited: Section 15376, Government Code. Reference: Sections 15374-15377, Government Code.

HISTORY

1. Change without regulatory effect adding new section filed 8-19-97 pursuant to section 100, title 1, California Code of Regulations (Register 97, No. 34).

§5.6001. Definitions.

Note • History

In this Article, unless the context otherwise requires:

(a) “Decision period” means the period dating from the filing of a completed permit application, within which the Commissioner must decide the permit application.

(b) “Initial review period” means the period dating from the receipt by the Commissioner of a permit application, within which the Commissioner must inform the applicant in writing either that the permit application is complete and is accepted for filing or that the permit application is deficient and what additional information is required to complete it.

NOTE

Authority cited: Section 15376, Government Code. Reference: Sections 15374-15377, Government Code.

HISTORY

1. Change without regulatory effect amending section filed 8-19-97 pursuant to section 100, title 1, California Code of Regulations (Register 97, No. 34).

§5.6002. Calculation of Time Periods.

Note • History

For purposes of the Permit Reform Act of 1981 and this Article, in calculating the initial review period or decision period for any permit application, the following shall be excluded:

(a) Any time chargeable to the applicant, including any time taken by the applicant to submit additional information or otherwise to amend the permit application upon the request of the Commissioner and any time for which the applicant requests that the Commissioner defer action on the permit application.

(b) In case a hearing on the permit application is held in accordance with the requirements of law or upon request of the applicant, the time from the giving of notice of the hearing to the conclusion of the hearing.

NOTE

Authority cited: Section 15376, Government Code. Reference: Sections 15374-15377, Government Code.

HISTORY

1. Change without regulatory effect amending section filed 8-19-97 pursuant to section 100, title 1, California Code of Regulations (Register 97, No. 34).

§5.6003. Amendment to Permit Application.

Note • History

For purposes of the Permit Reform Act of 1981 and this Article (except Section 5.6008 of this Chapter):

(a) Whenever the Commissioner receives a material amendment to a permit application, the entire permit application shall be deemed to have been again initially received by the Commissioner.

(b) Whenever the Commissioner receives a non-material amendment to a permit application during the last week of the initial review period or decision period, the period shall be extended to that date which is one week after receipt of the amendment.

NOTE

Authority cited: Section 15376, Government Code. Reference: Sections 15374-15377, Government Code.

HISTORY

1. Change without regulatory effect amending section filed 8-19-97 pursuant to section 100, title 1, California Code of Regulations (Register 97, No. 34).

§5.6004. Extension or Waiver of Time Periods.

Note • History

(a) The Commissioner may, with the consent of the applicant, extend the initial review period or decision period for any permit application.

(b) An applicant may waive the deadline of the initial review period or decision period for any permit application.

NOTE

Authority cited: Section 15376, Government Code. Reference: Sections 15374-15377, Government Code.

HISTORY

1. Change without regulatory effect amending section filed 8-19-97 pursuant to section 100, title 1, California Code of Regulations (Register 97, No. 34).

§5.6005. Time of Filing.

Note • History

For purposes of the Permit Reform Act of 1981 and this Article:

(a) Subject to the provisions of subdivision (b) of this section, a permit application shall be deemed to be filed with the Commissioner, as follows:

(1) In case the Commissioner, before the expiration of the initial review period, informs the applicant in writing that the permit application is complete and is accepted for filing, on the date when the Commissioner so informs the applicant.

(2) In case the initial review period expires without the Commissioner's having informed the applicant in writing that the permit application is complete and is accepted for filing, on the date when the initial review period expires.

(b) Notwithstanding the provisions of subdivision (a) of this section, no permit application shall be deemed to be filed with the Commissioner unless and until the filing fee is paid.

NOTE

Authority cited: Section 15376, Government Code. Reference: Sections 15374-15377, Government Code.

HISTORY

1. Change without regulatory effect amending section filed 8-19-97 pursuant to section 100, title 1, California Code of Regulations (Register 97, No. 34).

§5.6006. Additional Information.

Note • History

Nothing in the Permit Reform Act of 1981 or in this Article shall be deemed to preclude the Commissioner from requiring that an applicant provide additional information or otherwise amend a permit application at any time after the initial review period.

NOTE

Authority cited: Section 15376, Government Code. Reference: Sections 15374-15377, Government Code.

HISTORY

1. Change without regulatory effect amending section filed 8-19-97 pursuant to section 100, title 1, California Code of Regulations (Register 97, No. 34).

§5.6007. No Requirement of Approval.

Note

Nothing in the Permit Reform Act of 1981 or in this Article shall be deemed to require that any permit application be approved or that any permit be issued.

NOTE

Authority cited: Section 15376, Government Code. Reference: Sections 15374-15377, Government Code.

§5.6008. Not Applicable to Certain Permit Applications.

Note • History

NOTE

Authority cited: Section 15376, Government Code. Reference: Sections 15374-15377, Government Code.

HISTORY

1. Change without regulatory effect repealing section filed 8-19-97 pursuant to section 100, title 1, California Code of Regulations (Register 97, No. 34).

Subarticle 2. Periods for Processing Permit Applications

Part 1. General Provisions

§5.6100. Scope.

Note

This Subarticle prescribes time periods for processing permit applications.

NOTE

Authority cited: Section 15376, Government Code. Reference: Section 15376, Government Code.

§5.6101. Time Periods.

Note

For each type of permit application, this Subarticle sets forth the following time periods:

(a) The initial review period.

(b) The decision period.

(c) The median, maximum, and minimum periods from the date of receipt of the initial permit application to the date of the final decision, during fiscal years 1981/82 and 1982/83 (i.e., from July 1, 1981 to June 30, 1983). (In any case where this Subarticle does not show median, maximum, and minimum periods for a type of permit application, there were no permit applications of that type decided during fiscal years 1981/82 and 1982/83.)

NOTE

Authority cited: Section 15376, Government Code. Reference: Section 15376, Government Code.

§5.6102. Primary and Secondary Applications.

Note • History

(a) In case any authorization application (hereinafter in this section referred to as a “secondary application”) is incidental to and is processed in conjunction with another authorization application (hereinafter in this section referred to as a “primary application”), the secondary application shall be subject to the initial review period and decision period (if any) which are applicable to the primary application, and the secondary application shall not be subject to the initial review period or decision period (if any) prescribed for that type of application in this Subarticle.

(b) Without limiting the generality of the provisions of subdivision (a) of this section:

(1) Under the Depository Corporation Sale, Merger, and Conversion Law, in the case of a merger of a California state or national bank into a California state bank, the primary application is the application for approval of the merger, and applications such as an application by the surviving bank for a permit to offer and sell securities in consideration of the merger, are secondary applications.

(2) Under the Banking Law, in the case of the formation of a bank holding company for a California state bank through a reverse triangular merger, the primary application is the application by the bank holding company for approval to acquire control of the bank, and applications such as an application by the bank for a permit to offer and sell securities in consideration of the merger are secondary applications.

NOTE

Authority cited: Section 15376, Government Code. Reference: Section 15376, Government Code.

HISTORY

1. Amendment of subsection (b)(1) filed 4-7-97; operative 4-7-97 pursuant to Government Code section 11343.4(d) (Register 97, No. 15).

Part 2. Permit Applications Under Banking Law

§5.6110. Scope.

Note

This Part prescribes time periods for processing permit applications under the Banking Law.

NOTE

Authority cited: Section 15376, Government Code. Reference: Section 15376, Government Code.

§5.6111. Definitions.

Note

The definitions in Sections 122 to 151, inclusive, of the Financial Code and the definitions in Subarticle 2 (commencing with Section 10.100), Article 1, Subchapter 10 of this Chapter apply throughout this Part.

NOTE

Authority cited: Section 15376, Government Code. Reference: Section 15376, Government Code.

§5.6112. Authorization to Transact Banking Business.

Note • History

(a) Application for authority to organize a California state bank (Financial Code Section 350 et seq.):

(1) Initial review period: three weeks.

(2) Decision period: three months.

(3) Median, maximum, and minimum periods during fiscal years 1981/82 and 1982/83: 224 days: 479 days, and same day.

(b) Application by a California state commercial bank for authority to engage in trust business (Financial Code Section 1500.1):

(1) Initial review period: two weeks.

(2) Decision period: one month.

(3) Median, maximum, and minimum periods during fiscal years 1981/82 and 1982/83: 121 days, 234 days, and 98 days.

(c) Application by a California national bank for approval to convert into a California state bank (Financial Code Sections 4941 and 360 et seq.):

(1) Initial review period: two weeks.

(2) Decision period: one month.

(d) Application for authority to organize a California state international banking corporation (Financial Code Sections 3501 et seq. and 360 et seq.):

(1) Initial review period: two weeks.

(2) Decision period: three months.

(e) In the case of an application which is subject to Financial Code Sections 360 et seq., if the Commissioner gives notice of intention to deny the application pursuant to Financial Code Section 363, there shall be excluded from the decision period:

(1) If the Commissioner does not hold a meeting with the applicant pursuant to Financial Code Section 363, the 30 days following the giving of the notice.

(2) If the Commissioner does meet with the applicant pursuant to Financial Code Section 363, the period from the date of the giving of the notice to that date which is two weeks after the meeting.

NOTE

Authority cited: Section 15376, Government Code. Reference: Section 15376, Government Code.

HISTORY

1. Repealer of subsections (c)-(c)(2), subsection relettering, and amendment of newly designated subsections (c)-(c)(1) and (d)-(d)(1) filed 4-7-97; operative 4-7-97 pursuant to Government Code section 11343.4(d) (Register 97, No. 15).

2. Change without regulatory effect amending section filed 8-19-97 pursuant to section 100, title 1, California Code of Regulations (Register 97, No. 34).

3. Amendment of subsections (a)(2), (b)(2), (c)(2) and (d)(2) filed 4-14-98; operative 5-14-98 (Register 98, No. 16).

§5.6113. Offices.

Note • History

(a) Application for approval to relocate a head office (Financial Code Section 420):

(1) Initial review period: two weeks.

(2) Decision period: one month.

(3) Median, maximum, and minimum periods during fiscal years 1981/82 and 1982/83: 17 days, 127 days, and same day.

(b) Application for authority to establish a branch office (Financial Code Sections 500 et seq.):

(1) Initial review period: two weeks.

(2) Decision period: one month.

(3) Median, maximum, and minimum periods during fiscal years 1981/82 and 1982/83: 100 days, 559 days and 6 days.

(1) Initial review period: two weeks.

(2) Decision period: one month.

(3) Median, maximum, and minimum periods during fiscal years 1981/82 and 1982/83: 16 days, 203 days, and same day.

(d) Application for authority to establish a place of business (Financial Code Section 540 et seq.):

(1) Initial review period: two weeks.

(2) Decision period: one month.

(3) Median, maximum, and minimum periods during fiscal years 1981/82 and 1982/83: 18 days, 386 days, and same day.

(e) Application for approval to relocate a place of business (Financial Code Section 546):

(1) Initial review period: two weeks.

(2) Decision period: one month.

(3) Median, maximum, and minimum periods during fiscal years 1981/82 and 1982/83: 11 days, 25 days, and 3 days.

NOTE

Authority cited: Section 15376, Government Code. Reference: Section 15376, Government Code.

HISTORY

1. Amendment of subsections (b) and (b)(2), repealer of subsections (c)-(c)(3) and (g), and subsection relettering filed 4-14-98; operative 5-14-98 (Register 98, No. 16).

§5.6114. Offer and Sale of Securities.

Note • History

(a) Application for a negotiating permit to offer securities in consideration of merger (Financial Code Sections 690 et seq.):

(1) Initial review period: two weeks.

(2) Decision period: two weeks.

(3) Median, maximum, and minimum periods during fiscal years 1981/82 and 1982/83: 2 days, 24 days, and same day.

(b) Applications for other negotiating permits:

(1) Initial review period: two weeks.

(2) Decision period: one month.

(3) Median, maximum, and minimum periods during fiscal years 1981/82 and 1982/83: 6 days, 44 days, and same day.

(1) Initial review period: two weeks.

(2) Decision period: two weeks.

(3) Median, maximum, and minimum periods during fiscal years 1981/82 and 1982/83: 20 days, 47 days, and 4 days.

(d) Applications for other definitive permits:

(1) Initial review period: two weeks.

(2) Decision period: one month.

(3) Median, maximum, and minimum periods during fiscal years 1981/82 and 1982/83: 48 days, 452 days, and 7 days.

NOTE

Authority cited: Section 15376, Government Code. Reference: Section 15376, Government Code.

HISTORY

1. Amendment of subsections (c)(2) and (e)(1) filed 4-7-97; operative 4-7-97 pursuant to Government Code section 11343.4(d) (Register 97, No. 15).

2. Amendment of subsection (b)(2), repealer of subsections (d)-(d)(3), subsection relettering, and amendment of newly designated subsection (d)(2) filed 4-14-98; operative 5-14-98 (Register 98, No. 16).

§5.6115. Investment in Stock and Other Securities.

Note • History

(a) Application for approval to purchase or acquire stock of a corporation engaged exclusively in holding specified types of real and personal property (Financial Code Section 752):

(1) Initial review period: two weeks.

(2) Decision period: four weeks.

(3) Median, maximum, and minimum periods during fiscal years 1981/82 and 1982/83: 71 days: 71 days, and 71 days.

(b) Application for consent to purchase and hold stock of a trust company (Financial Code Section 759):

(1) Initial review period: two weeks.

(2) Decision period: four weeks.

(1) Initial review period: two weeks.

(2) Decision period: four weeks.

(3) Median, maximum, and minimum periods during fiscal years 1981/82 and 1982/83: 146 days, 146 days, and 146 days.

NOTE

Authority cited: Section 15376, Government Code. Reference: Section 15376, Government Code.

HISTORY

1. Amendment filed 4-7-97; operative 4-7-97 pursuant to Government Code section 11343.4(d) (Register 97, No. 15).

§5.6116. Merger or Purchase and Sale Agreement.

Note • History

NOTE

Authority cited: Section 15376, Government Code. Reference: Sections 15376, Government Code.

HISTORY

1. Repealer filed 4-7-97; operative 4-7-97 pursuant to Government Code section 11343.4(d) (Register 97, No. 15).

§5.6117. Foreign (Other Nation) Banks.

Note • History

(a) Application for approval to establish a representative office (Financial Code Section 1726):

(1) Initial review period: one week.

(2) Decision period: four weeks.

(3) Median, maximum, and minimum periods during fiscal years 1981/82 and 1982/83: 27 days, 230 days, and 3 days.

(b) Application for approval to relocate a representative office (Financial Code Section 1727):

(1) Initial review period: two weeks.

(2) Decision period: one month.

(3) Median, maximum, and minimum periods during fiscal years 1981/82 and 1982/83: 4 days, 28 days, and same day.

(1) Initial review period: two weeks.

(2) Decision period: one month.

(3) Median, maximum, and minimum periods during fiscal years 1981/82 and 1982/83: 9 days, 9 days, and 9 days.

(d) Application for approval to establish an agency (Financial Code Section 1753):

(1) Initial review period: two weeks.

(2) Decision period: one month.

(3) Median, maximum, and minimum periods during fiscal years 1981/82 and 1982/83: 95 days, 230 days, and 19 days.

(e) Application for approval to establish a branch office (Financial Code Section 1753):

(1) Initial review period: two weeks

(2) Decision period: one month.

(3) Median, maximum, and minimum periods during fiscal years 1981/82 and 1982/83: 128 days, 321 days, and 54 days.

(f) Application for authority to relocate an agency or branch office (Financial Code Section 1754):

(1) Initial review period: two weeks.

(2) Decision period: one month.

(3) Median, maximum, and minimum periods during fiscal years 1981/82 and 1982/83: 5 days, 27 days, and same day.

(g) Application for approval to close an agency or branch office (Financial Code Section 1763):

(1) Initial review period: two weeks.

(2) Decision period: one month.

(3) Median, maximum, and minimum periods during fiscal years 1981/82 and 1982/83: 31 days, 31 days, and 31 days.

NOTE

Authority cited: Section 15376, Government Code. Reference: Section 15376, Government Code.

HISTORY

1. Amendment of section heading and subsections (a)(1)-(2), (d)(1)-(2) and (e)(1)-(2) filed 4-7-97; operative 4-7-97 pursuant to Government Code section 11343.4(d) (Register 97, No. 15).

2. Amendment of subsection (e)(2) filed 4-14-98; operative 5-14-98 (Register 98, No. 16).

Part 3. Permit Applications Under Transmitters Law

§5.6130. Scope.

Note

This Part prescribes time periods for processing permit applications under the Transmitters Law.

NOTE

Authority cited: Section 15376, Government Code. Reference: Section 15376, Government Code.

§5.6131. License.

Note

Application for license (Financial Code Sections 1802 et seq.):

(a) Initial review period: three weeks.

(b) Decision period: six months.

NOTE

Authority cited: Section 15376, Government Code. Reference: Section 15376, Government Code.

Part 4. Permit Applications Under Corporate Name Approval Law

§5.6140. Scope.

Note

This Part prescribes time periods for processing permit applications under the Corporate Name Approval Law.

NOTE

Authority cited: Section 15376, Government Code. Reference: Section 15376, Government Code.

§5.6141. Certificate of Approval of Name.

Note

Application for a certificate of approval of the name of a nonbank corporation (Financial Code Sections 3900 et seq.):

(a) Initial review: two weeks.

(b) Decision period: one month.

NOTE

Authority cited: Section 15376, Government Code. Reference: Section 15376, Government Code.

Part 5. Permit Applications Under Depository Corporation Sale, Merger, and Conversion Law

§5.6150. Scope.

Note • History

This Part prescribes time periods for processing permit applications under the Depository Corporation Sale, Merger, and Conversion Law.

NOTE

Authority cited: Section 15376, Government Code. Reference: Section 15376, Government Code

HISTORY

1. Amendment of part heading filed 4-7-97; operative 4-7-97 pursuant to Government Code section 11343.4(d) (Register 97, No. 15).

§5.6151. Sale of Business Unit.

Note • History

Application for approval of the sale of a business unit (Financial Code Sections 4840 et seq.):

(a) Initial review period: two weeks.

(b) Decision period: one month.

NOTE

Authority cited: Section 15376, Government Code. Reference: Section 15376, Government Code.

HISTORY

1. Amendment filed 4-7-97; operative 4-7-97 pursuant to Government Code section 11343.4(d) (Register 97, No. 15).

2. Amendment of subsection (b) filed 4-14-98; operative 5-14-98 (Register 98, No. 16).

§5.6152. Merger.

Note • History

Application for approval of a merger (Financial Code Sections 4880 et seq.):

(a) Initial review period: two weeks.

(b) Decision period: one month.

NOTE

Authority cited: Section 15376, Government Code. Reference: Section 15376, Government Code.

HISTORY

1. Amendment of subsections (a) and (b) filed 4-7-97; operative 4-7-97 pursuant to Government Code section 11343.4(d) (Register 97, No. 15).

2. Amendment of subsection (b) filed 4-14-98; operative 5-14-98 (Register 98, No. 16).

§5.6153. Conversion.

Note • History

Application for approval of a conversion (Financial Code Sections 4920 et seq.):

(a) Initial review period: two weeks.

(b) Decision period: one month.

NOTE

Authority cited: Section 15376, Government Code. Reference: Section 15376, Government Code.

HISTORY

1. Amendment of subsections (a) and (b) filed 4-7-97; operative 4-7-97 pursuant to Government Code section 11343.4(d) (Register 97, No. 15).

2. Amendment of subsection (b) filed 4-14-98; operative 5-14-98 (Register 98, No. 16).

Part 6. Permit Applications Under Business and Industrial Development Corporations Law

§5.6160. Scope.

Note

This Part prescribes time periods for processing permit applications under the Business and Industrial Development Corporations Law.

NOTE

Authority cited: Section 15376, Government Code. Reference: Section 15376, Government Code.

§5.6161. License.

Note • History

Application for a license (Financial Code Sections 31150 et seq.):

(a) Initial review period: three weeks.

(b) Decision period: one month.

NOTE

Authority cited: Section 15376, Government Code. Reference: Section 15376, Government Code.

HISTORY

1. Amendment of subsection (b) filed 4-14-98; operative 5-14-98 (Register 98, No. 16).

§5.6162. Offices.

Note • History

(a) Application for approval to establish an office (Financial Code Sections 31320 and 31321):

(1) Initial review period: two weeks.

(2) Decision period: four weeks.

(3) Median maximum, and minimum periods during fiscal years 1981/82 and 1982/83: five days, five days, and five days.

(b) Application for approval to relocate an office (Financial Code Sections 31320 and 31322):

(1) Initial review period: two weeks.

(2) Decision period: one month.

(3) Median, maximum, and minimum periods during fiscal years 1981/82 and 1982/83: 34 days, 35 days, and 9 days.

(1) Initial review period: two weeks.

(2) Decision period: one month.

NOTE

Authority cited: Section 15376, Government Code. Reference: Section 15376, Government Code.

HISTORY

1. Amendment of subsection (a)(2) filed 4-7-97; operative 4-7-97 pursuant to Government Code section 11343.4(d) (Register 97, No. 15).

§5.6163. Acquisition of Control.

Note • History

Application for approval to acquire control of a licensee (Financial Code Sections 31550 et seq.):

(a) Initial review period: two weeks.

(b) Decision period: one month.

NOTE

Authority cited: Section 15376, Government Code. Reference: Section 15376, Government Code.

HISTORY

1. Amendment of subsections (a) and (b) filed 4-7-97; operative 4-7-97 pursuant to Government Code section 11343.4(d) (Register 97, No. 15).

2. Amendment of subsection (b) filed 4-14-98; operative 5-14-98 (Register 98, No. 16).

§5.6164. Merger, Purchase or Sale.

Note • History

Application for approval of a merger, purchase, or sale (Financial Code Sections 31600 et seq.):

(a) Initial review period: two weeks.

(b) Decision period: one month.

NOTE

Authority cited: Section 15376, Government Code. Reference: Section 15376, Government Code.

HISTORY

1. Amendment of subsections (a) and (b) filed 4-7-97; operative 4-7-97 pursuant to Government Code section 11343.4(d) (Register 97, No. 15).

2. Amendment of subsection (b) filed 4-14-98; operative 5-14-98 (Register 98, No. 16).

Part 7. Permit Applications Under Payment Instruments Law

§5.6170. Scope.

Note

This Part prescribes time periods for processing permit applications under the Payment Instruments Law.

NOTE

Authority cited: Section 15376, Government Code. Reference: Section 15376, Government Code.

§5.6171. License.

Note

Application for a license (Financial Code Sections 33400 et seq.):

(a) Initial review period: three weeks.

(b) Decision period: six months.

NOTE

Authority cited: Section 15376, Government Code. Reference: Section 15376, Government Code.

Part 8. Permit Applications Under Credit Union Law

§5.6180. Scope.

Note • History

This Part prescribes time periods for processing permit applications under the Credit Union Law.

NOTE

Authority cited: Section 15376, Government Code. Reference: Section 15376, Government Code.

HISTORY

1. Change without regulatory effect adding new part 8 (sections 5.6180-5.6181) and section filed 8-19-97 pursuant to section 100, title 1, California Code of Regulations (Register 97, No. 34).

§5.6181. License.

Note • History

Application for a certificate to engage in the business of a state credit union (Financial Code Section 14154):

(1) Initial review period: two weeks.

(2) Decision period: two weeks.

(3) Median, maximum, and minimum periods: 20 days, 57 days, and 4 days.

NOTE

Authority cited: Section 15376, Government Code. Reference: Section 15376, Government Code.

HISTORY

1. Change without regulatory effect adding new section filed 8-19-97 pursuant to section 100, title 1, California Code of Regulations (Register 97, No. 34).

§5.6182. Expansion of Field of Membership.

Note • History

Application for an existing credit union to expand its field of membership (Financial Code Sections 14155 and 15451):

(1) Initial review period: 60 days.

(2) Decision period: 90 days.

(3) Median, maximum, and minimum periods during fiscal years 1999/00 and 2000/01: 90 days, 360 days, 14 days.

NOTE

Authority cited: Section 15376, Government Code. Reference: Section 15376, Government Code.

HISTORY

1. New section filed 2-27-2003; operative 3-29-2003 (Register 2003, No. 9).

§5.6183. Eligibility To Add Select Groups.

Note • History

Applications for eligibility to add select groups to a credit union's field of membership (Financial Code Sections 14155 and 15451; Code of Regulations, Title 10, Section 30.72):

(1) Initial review period: 60 days.

(2) Decision period: 90 days.

NOTE

Authority cited: Section 15376, Government Code. Reference: Section 15376, Government Code.

HISTORY

1. New section filed 2-27-2003; operative 3-29-2003 (Register 2003, No. 9).

Part 9. Permit Applications Under Industrial Loan Law

§5.6190. Scope.

Note • History

This Part prescribes time periods for processing permit applications under the Industrial Loan Law.

NOTE

Authority cited: Section 15376, Government Code. Reference: Section 15376, Government Code.

HISTORY

1. Change without regulatory effect adding new part 9 (sections 5.6190-5.6192) and section filed 8-19-97 pursuant to section 100, title 1, California Code of Regulations (Register 97, No. 34).

§5.6191. Application to Transact Business of Industrial Loan Company.

Note • History

(a) Application for authority to organize a corporation for the purpose of engaging the industrial loan business (Financial Code Section 18100):

(1) Initial review period: 28 days.

(2) Decision period: 14 days.

(3) Median, maximum, and minimum periods: 100 days, 173 days, and 28 days.

(b) Application for authority to engage in the industrial loan business (Financial Code Section 18115):

(1) Initial review period: 7 days.

(2) Decision period: 7 days.

(3) Median, maximum, and minimum periods: 3 days, 5 days, and 1 day.

NOTE

Authority cited: Section 15376, Government Code. Reference: Section 15376, Government Code.

HISTORY

1. Change without regulatory effect adding new section filed 8-19-97 pursuant to section 100, title 1, California Code of Regulations (Register 97, No. 34).

§5.6192. Offices.

Note • History

(a) Application by a California industrial loan company for authority to establish a branch (Financial Code Section 18146):

(1) Initial review period: 28 days.

(2) Decision period: 14 days.

(3) Median, maximum, and minimum periods: 76 days, 126 days, and 20 days.

(b) Application by a California industrial loan company for the issuance of a certificate of authority to transact business at a branch (Financial Code Section 18149):

(1) Initial review period: 7 days.

(2) Decision period: 7 days.

(3) Median, maximum, and minimum periods: 4 days, 7 days, and 1 day.

NOTE

Authority cited: Section 15376, Government Code. Reference: Section 15376, Government Code.

HISTORY

1. Change without regulatory effect adding new section filed 8-19-97 pursuant to section 100, title 1, California Code of Regulations (Register 97, No. 34).

Subchapter 10. Banks

Article 1. General Provisions

Subarticle 1. Citation and Construction

§10.1. Scope.

Note • History

(a) This Subchapter contains regulations relating to banks.

(b) This Article contains general provisions relating to this Subchapter. The succeeding Articles of this Subchapter contain regulations relating to various subjects regarding banks.

(c) This Subarticle contains provisions relating to the citation and construction of this Subchapter. Subarticle 2 (commencing with Section 10.100) of this Article contains definitions for this Subchapter.

NOTE

Authority cited for Subchapter 10 (Sections 10.1-10.20478, not consecutive): Section 215, Financial Code. Reference: Division 1, Financial Code.

HISTORY

1. Redesignation from Subchapter 10 (Sections 10.1-10.101, not consecutive) to Article 30 of Subchapter 10 (Sections 10.190000-10.190201, not consecutive) filed 12-29-78; designated effective 3-1-79 (Register 79, No. 2). For history of former Subchapter 10, see Registers 77, Nos. 10 and 1; 75, Nos. 23 and 22; and 74, No. 48.

2. New Subchapter 10 (Sections 10.1-10.20478, not consecutive) filed 12-29-78; designated effective 3-1-79 (Register 79, No. 2).

§10.2. Citation.

(a) This Subchapter shall be known and may be cited as the “Banking Regulations.”

(b) The first unit of the number of each Section in this Subchapter is “10.” However, in citing a section of this Subchapter, a person may omit the first unit of the number of such section if it is clear that such person is referring to a section of the Banking Regulations.

§10.3. Unsafe and Unsound Acts.

Note • History

Any act which is designated in this Subchapter as an “unsafe and unsound act” is an act which, in the usual or typical circumstances encountered, constitutes conducting business in an unsafe and injurious manner within the meaning of Financial Code Sections 1912 and 1913 and in an unsafe manner within the meaning of Financial Code Section 3100. However, it is impossible to foresee or provide for all of the varying circumstances which may arise in a particular case. Also, the acts designated in this Subchapter as “unsafe and unsound acts” are not intended to constitute a complete compilation of all the acts which constitute conducting business in an unsafe or injurious manner within the meaning of Financial Code Sections 1912 and 1913 or in an unsafe manner within the meaning of Financial Code Section 3100. Therefore, the Commissioner may, if and when warranted in any particular case, upon application or on his own initiative, decide that in such case an act which is designated in this Subchapter as an “unsafe and unsound act” does not constitute conducting business in an unsafe or injurious manner within the meaning of Financial Code Sections 1912 and 1913 or in an unsafe manner within the meaning of Financial Code Section 3100. Also, the Commissioner may decide that an act which is not designated in this Subchapter as an “unsafe and unsound act” constitutes conducting business in an unsafe or injurious manner within the meaning of Financial Code Sections 1912 and 1913 or in an unsafe manner within the meaning of Financial Code Section 3100.

NOTE

Authority cited: Section 215, Financial Code.

HISTORY

1. Change without regulatory effect amending section and adding new Note filed 8-19-97 pursuant to section 100, title 1, California Code of Regulations (Register 97, No. 34).

§10.4. References to Financial Statements and Accounting Items.

Note • History

In this Subchapter, all references to financial statements and all references to assets, liabilities, earnings, retained earnings, and similar accounting items mean such financial statements and such accounting items prepared or determined in conformity with generally accepted accounting principles then applicable, fairly presenting in conformity with generally accepted accounting principles the matters which they purport to present, subject to any specific accounting treatment required by the Commissioner, this Subchapter, the Banking Law, or any other applicable law.

NOTE

Authority cited: Section 215, Financial Code.

HISTORY

1. Change without regulatory effect amending section and adding new Note filed 8-19-97 pursuant to section 100, title 1, California Code of Regulations (Register 97, No. 34).

§10.5. Filing of Financial Statements.

Note • History

Whenever the Commissioner or this Subchapter requires that a financial statement of a person be filed with the Commissioner but does not require that such financial statement be set forth on a form provided by the Commissioner, if the financial statement is available as certified by an independent certified public accountant, the financial statement as so certified shall be filed with the Commissioner.

NOTE

Authority cited: Section 215, Financial Code.

HISTORY

1. Change without regulatory effect amending section and adding new Note filed 8-19-97 pursuant to section 100, title 1, California Code of Regulations (Register 97, No. 34).

§10.6. Counting Number of Persons.

In determining for purposes of this Subchapter the number of persons to whom an offer or sale of securities is made or by whom securities are held, the following shall be counted as one person:

(a) A person, his spouse, and any relative of such person or of such spouse who has the same home as such person.

(b) A person and any trust or estate in which such person or any of the persons related to such person as specified in Subdivision (a) or (c) of this Section collectively have the entire beneficial interest (excluding contingent interests).

(c) A person and any corporation or other organization of which such person or any of the persons related to such person as specified in Subdivision (a) or (b) of this Section collectively are the beneficial owners of all the equity securities (excluding directors' qualifying shares) or equity interest.

(d) A corporation or other organization, except that, if such corporation or other organization was formed for the specific purpose of such offer or sale, each beneficial owner of the equity securities of, or an equity interest in, such corporation or other organization shall be counted as one person.

§10.7. No Implied Requirement of Survey.

History

HISTORY

1. Repealer filed 4-7-97; operative 4-7-97 pursuant to Government Code section 11343.4(d) (Register 97, No. 15).

§10.8. Notice--Service.

Note • History

Whenever the Commissioner or this Subchapter requires that a bank serve a notice on a customer or creditor, such bank may serve such notice either by delivering it to such customer or creditor or by depositing it in the United States mail, addressed to the customer or creditor at his last address according to the records of the bank, with registered, certified, or first-class postage charges prepaid. However, if the document last mailed to the customer or creditor at such address was returned by the United States Postal Service marked to indicate that the United States Postal Service was unable to deliver such document to the customer or creditor at such address, the notice shall be deemed to have been given without the bank's delivering or mailing it if it is available for the customer or creditor upon written request at an appropriate office of the bank for a reasonable period of time.

NOTE

Authority cited: Section 215, Financial Code.

HISTORY

1. Change without regulatory effect amending section and adding new Note filed 8-19-97 pursuant to section 100, title 1, California Code of Regulations (Register 97, No. 34).

§10.9. Notice--Language.

Note • History

Whenever this Subchapter calls for a bank to give a notice, the Commissioner may require that such bank give such notice not only in the English language but also in one or more other languages if the circumstances of the persons to whom the notice is to be given make such requirement advisable.

NOTE

Authority cited: Section 215, Financial Code.

HISTORY

1. Change without regulatory effect amending section and adding new Note filed 8-19-97 pursuant to section 100, title 1, California Code of Regulations (Register 97, No. 34).

Subarticle 2. Definitions

§10.100. Scope.

This Subarticle contains definitions for this Subchapter. Subject to additional definitions contained in this Subchapter which are applicable to specific provisions of this Subchapter and unless the context otherwise requires, the definitions in this Subarticle apply throughout this Subchapter.

§10.101. Definitions in Banking Law.

Note • History

Subject to additional definitions contained in this subchapter which are applicable to specific provisions of this subchapter and unless the context otherwise requires, the definitions in sections 122 to 151, inclusive, of the Financial Code apply throughout this subchapter.

NOTE

Authority cited: Section 215, Financial Code. Reference: Sections 200 and 215, Financial Code.

HISTORY

1. Change without regulatory effect amending section filed 7-2-91 pursuant to section 100, title 1, California Code of Regulations (Register 91, No. 40).

§10.102. Percent Equity Security Owner.

“__ percent equity security owner,” when used with respect to a corporation or other organization, means any person who owns, directly or indirectly, of record or beneficially, the specified percentage or more of any class of the equity securities of such corporation or other organization.

§10.103. Percent (Including Associates) Equity Security Owner.

“__ percent (including associates) equity security owner,” when used with respect to a corporation or other organization, means any person who owns, directly or indirectly, of record or beneficially, equity securities of such corporation or other organization which, when combined with the equity securities of the corporation or other organization owned, directly or indirectly, of record or beneficially by all associates of such person, constitute the specified percentage or more of any class of the equity securities of the corporation or other organization.

§10.104. Percent (Including Consociates) Equity Security Owner.

“__ percent (including consociates) equity security owner,” when used with respect to a corporation or other organization, means any person who owns, directly or indirectly, of record or beneficially, equity securities of such corporation or other organization which, when combined with the equity securities of the corporation or other organization owned, directly or indirectly, of record or beneficially, by all consociates of such person, constitute the specified percentage or more of any class of the equity securities of the corporation or other organization.

§10.105. Advertisement.

“Advertisement” means any written or printed communication or any communication by means of recorded telephone messages or spoken on radio, television, or similar communications media.

§10.106. Adviser.

“Adviser” means an attorney at law, a certified public accountant, an economist, or a person who engages in the business of providing advice on matters relating to the banking business, including establishing a bank or an office of a bank, merging, selling, or purchasing a bank, or operating a bank.

§10.107. Affiliate.

“Affiliate,” when used with respect to a specified person, means any person controlling, controlled by, or under common control with, such specified person, directly or indirectly through one or more intermediaries.

§10.108. Agency.

Note • History

“Agency,” when used to designate a United States office of a foreign (other nation) bank, means a depositary agency or a nondepositary agency.

NOTE

Authority cited: Section 215, Financial Code. Reference: Division 1, Financial Code.

HISTORY

1. Amendment filed 10-15-81 as an emergency; effective upon filing (Register 81, No. 44). A Certificate of Compliance must be transmitted to OAL within 120 days or emergency language will be repealed on 2-12-82.

2. Certificate of Compliance transmitted to OAL 2-11-82 and filed 3-12-82 (Register 82, No. 11).

§10.109. Appropriate Federal Bank Regulatory Agency.

“Appropriate federal bank regulatory agency” means:

(a) When used with respect to a national bank, the Comptroller of the Currency.

(b) When used with respect to a member state bank, the Board of Governors of the Federal Reserve System.

§10.110. Associate.

“Associate,” when used to indicate a relationship with a specified person who is related with a bank, means:

(b) Any trust or other estate in which the specified person has a substantial beneficial interest or as to which the specified person serves as a trustee or in a similar fiduciary capacity.

(c) Any relative or spouse of the specified person, or any relative of such spouse, who has the same home as the specified person or who is a director or officer of the bank or of any parent or subsidiary of the bank.

§10.111. Bank.

“Bank” has the meaning set forth in Financial Code Section 102. “Bank” includes state banks, national banks, and foreign banks; also, “bank” includes commercial banks and trust companies. However, “bank” does not include international banking corporations.

§10.112. Banking Business.

“Banking business” includes commercial banking business and trust business.

§10.113. Beneficial.

“Beneficial,” when used with respect to ownership of securities by a specified person, includes, in addition to direct and indirect beneficial ownership by such specified person, direct and indirect beneficial ownership.

(a) By the spouse (except where legally separated) and minor children (including stepchildren and adopted children) of the specified person; and

(b) By any other relative of the specified person who has the same home as the specified person.

§10.114. Branch Office.

Note • History

(a) “Branch office,” when used with respect to a California state bank, means any place at which such bank, in case it is a commercial bank, engages in the business of receiving deposits, paying checks, or making loans or any place at which such bank, in case it is a trust company, engages in the business of receiving fiduciary assets or administering fiduciary accounts. However, a place at which a California state bank engages in one or more of the following activities does not on that account constitute a branch office of the bank:

(1) A place at which the bank engages in the business of receiving deposits or fiduciary assets solely by means of United States mail addressed to a post office box.

(2) A place at which the bank engages in the business of receiving deposits or fiduciary assets solely by means of a messenger who is an independent contractor or an employee of the bank.

(b) “Branch office,” when used to designate a United States office of a foreign (other nation) bank, means a limited branch office, retail branch office, or wholesale branch office. “Branch office,” when used with respect to a foreign (other nation) bank, includes both state and federal branch offices.

(c) “Branch office,” when used with respect to a California state bank, does not include an automated teller machine branch office (as defined in Financial Code Section 550).

NOTE

Authority cited: Section 215, Financial Code. Reference: Sections 500, 550 and 1700, Financial Code.

HISTORY

1. Amendment of subsection (b) filed 10-15-81 as an emergency; effective upon filing (Register 81, No. 44). A Certificate of Compliance must be transmitted to OAL within 120 days or emergency language will be repealed on 2-12-82.

2. Certificate of Compliance transmitted to OAL 2-11-82 and filed 3-12-82 (Register 82, No. 11).

3. Amendment of section and Note filed 4-14-98; operative 5-14-98 (Register 98, No. 16).

§10.115. California.

(a) “California,” when used with respect to a bank means, in the case of a state bank, a bank which is organized under the laws of the State of California and, in the case of a national bank, a national bank which maintains its head office in the State of California.

(b) “California,” when used with respect to an office of a bank, means an office which is located in the State of California.

(c) “California” when used with respect to any corporation other than a bank, means a corporation which is organized under the laws of the State of California.

§10.116. Capital Notes.

“Capital notes” includes debentures.

§10.117. Commercial Bank.

“Commercial bank” has the meaning set forth in Financial Code Section 105.

§10.118. Commercial Bank with Trust Department.

“Commercial bank with trust department” means a commercial bank which is authorized to engage in trust business.

§10.119. Commercial Bank Without Trust Department.

“Commercial bank without trust department” means a commercial bank which is not authorized to engage in trust business.

§10.120. Commercial Banking Business.

“Commercial banking business” means the business of a commercial bank which is not authorized to engage in the trust business.

§10.121. Commercial Banking Department.

“Commercial banking department,” when used with respect to a commercial bank which is authorized to engaged in trust business, means all divisions of such commercial bank other than the division through which it engages in trust business.

§10.122. Consociate.

“Consociate,” when used to indicate a relationship with a specified person who is related with a bank, means:

(a) Any corporation or other organization (other than the bank or a subsidiary of the bank) of which the specified person is an officer or partner or is, directly or indirectly, the beneficial owner of 10% or more of any class of the equity securities, and any person who is an executive officer, general partner, or beneficial owner, directly or indirectly, of 10% or more of any class of the equity securities of such corporation or other organization.

(b) Any trust or other estate in which the specified person has a substantial beneficial interest or as to which the specified person serves as a trustee or in a similar fiduciary capacity, and any person who has a substantial beneficial interest in, or who serves as a trustee or in a similar fiduciary capacity of, such trust or other estate.

(c) Any relative or spouse of the specified person, or any relative of such spouse, who has the same home as such specified person or who is a director or officer of, the bank or of any parent or subsidiary of the bank.

§10.123. Control.

Note • History

“Control” means the possession, direct or indirect, of the power to direct or cause the direction of the management and policies of a person, whether through the ownership of voting securities, by contract, or otherwise. However, “control,” when used with respect to acquiring control of or controlling a bank, has the meaning set forth in Financial Code Section 700(b).

NOTE

Authority cited: Section 215, Financial Code. Reference: Division 1, Financial Code.

HISTORY

2. Certificate of Compliance transmitted to OAL 2-11-82 and filed 3-12-82 (Register 82, No. 11).

§10.124. Court Trust.

“Court trust” has the meaning set forth in Financial Code Section 1581.

§10.125. Demand Deposit.

History

HISTORY

1. Repealer filed 4-7-97; operative 4-7-97 pursuant to Government Code section 11343.4(d) (Register 97, No. 15).

§10.126. Depositary Agency.

Note • History

“Depositary agency,” when used with respect to a foreign (other nation) bank, has the meaning set forth in Financial Code Section 1700(e). In addition, “depositary agency” includes any foreign (other state) office of a foreign (other nation) bank which is substantially equivalent to a depositary agency, as defined in Financial Code Section 1700(e). “Depositary agency” includes any federal agency of a foreign (other nation) bank.

NOTE

Authority cited: Section 215, Financial Code. Reference: Division 1, Financial Code.

HISTORY

2. Certificate of Compliance transmitted to OAL 2-11-82 and filed 3-12-82 (Register 82, No. 11).

§10.127. Depositary Trust Company.

“Depositary trust company” means a trust company which is a commercial bank authorized to engage in trust business.

§10.128. Employee of Commercial Banking Department.

“Employee of commercial banking department,” when used with respect to a commercial bank with trust department, means any employee of such bank who is employed as an employee of the commercial banking department of the bank or who regularly devotes a substantial amount of his time in his capacity as an employee of the bank to the business of the commercial banking department of the bank.

§10.129. Employee of Trust Department.

“Employee of trust department,” when used with respect to a commercial bank with trust department or a title insurance and trust company, means any employee of such commercial bank with trust department or of such title insurance and trust company, as the case may be, who is employed as an employee of the trust department of the institution or who regularly devotes a substantial amount of his time in his capacity as an employee of the institution to the business of the trust department of the institution.

§10.130. Equity Security.

“Equity security” means any stock or similar security, or any security convertible, with or without consideration, into such a security or carrying any warrant or right to purchase such a security, or any such warrant or right.

§10.131. Executive Officer.

“Executive officer,” when used with respect to a specified person (other than an individual), means any person who participates or has authority to participate, otherwise than in the capacity of a director, in major policy-making functions of such specified person, regardless of whether or not he has an official title, whether or not his title contains a designation of assistant, and whether or not he serves with salary or other compensation. Each of the following is rebuttably presumed to be an executive officer of a bank unless he is excluded by the by-laws of such bank or by resolution of the board of the bank from participating in major policy-making functions and does not actually participate therein: the chairman of the board, the vice-chairman of the board, the chairman of the executive committee, the president, any vice president (except as otherwise provided in the next sentence and excluding any assistant vice president), the secretary, the chief financial officer, the cashier, the treasurer, the controller, and any trust officer (including any senior trust officer, but excluding any assistant trust officer). In the case of a bank which has a number of vice-presidents with the title “Vice-President” and some higher ranking vice-presidents with titles such as “Executive Vice-President,” “Senior Vice-President,” or “First Vice-President,” none of the vice-presidents with the title “Vice-President” is presumed to be an executive officer of such bank.

§10.131.2. Federal.

Note • History

“Federal,” when used with respect to a United States office of a foreign (other nation) bank, means an office which such bank is authorized to maintain under federal law.

NOTE

Authority cited: Section 215, Financial Code. Reference: Division 1, Financial Code.

HISTORY

1. New section filed 10-15-81 as an emergency; effective upon filing (Register 81, No. 44). A Certificate of Compliance must be transmitted to OAL within 120 days or emergency language will be repealed on 2-12-82.

2. Certificate of Compliance transmitted to OAL 2-11-82 and filed 3-12-82 (Register 82, No. 11).

§10.131.4. Federal Agency.

Note • History

“Federal agency,” when used with respect to a foreign (other nation) bank, has the meaning set forth in Section 1(b)(5) of the International Banking Act of 1978.

NOTE

Authority cited: Section 215, Financial Code. Reference: Division 1, Financial Code; and Section 1(b)(5), International Banking Act of 1978 (12 USC Section 3101).

HISTORY

2. Certificate of Compliance including amendment of NOTE transmitted to OAL 2-11-82 and filed 3-12-82 (Register 82, No. 11).

§10.131.6. Federal Branch Office.

Note • History

“Federal branch office,” when used with respect to a foreign (other nation) bank, has the meaning set forth for “federal branch” in Section 1(b)(6) of the International Banking Act of 1978. “Federal branch office,” when used with respect to a foreign (other nation) bank, includes federal limited branch offices, federal retail branch offices, and federal wholesale branch offices.

NOTE

Authority cited: Section 215, Financial Code. Reference: Division 1, Financial Code; and Section 1(b)(6), International Banking Act of 1978 (12 USC Section 3101).

HISTORY

2. Certificate of Compliance including amendment of NOTE transmitted to OAL 2-11-82 and filed 3-12-82 (Register 82, No. 11).

§10.132. Foreign.

Note • History

(a) “Foreign,” when used with respect to a bank, means a foreign (other nation) bank or a foreign (other state) bank.

(b) “Foreign,” when used with respect to an office of a bank, means a foreign (other nation) office or a foreign (other state) office.

(c) “Foreign,” when used with respect to any corporation other than a bank, means a foreign (other nation) corporation or a foreign (other state) corporation.

NOTE

Authority cited: Section 215, Financial Code. Reference: Division 1, Financial Code.

HISTORY

1. Amendment of subsection (a) filed 10-15-81 as an emergency; effective upon filing (Register 81, No. 44). A Certificate of Compliance must be transmitted to OAL within 120 days or emergency language will be repealed on 2-12-81.

2. Certificate of Compliance transmitted to OAL 2-11-82 an filed 3-12-82 (Register 82, No. 11).

§10.133. Foreign Nation.

Note • History

“Foreign nation” has the meaning set forth in Financial Code Section 1700(j).

NOTE

Authority cited: Section 215, Financial Code. Reference: Division 1, Financial Code.

HISTORY

2. Certificate of Compliance transmitted to OAL 2-11-82 and filed 3-12-82 (Register 82, No. 11).

§10.134. Foreign (Other Nation).

Note • History

(a) “Foreign (other nation),” when used with respect to a bank, means any bank (including any commercial bank, merchant bank, or other institution that engages in banking activities which are usual in connection with the business of banking in the nations where such institution is organized or operating) other than (1) a stat bank or (2) a national bank which maintains its head office in a state of the United States.

(b) “Foreign (other nation),” when used with respect to an office of a bank, means an office which is located in a place other than a state of the United States.

(c) “Foreign (other nation),” when used with respect to any corporation other than a bank, means a corporation which is organized under the laws of a foreign nation.

(d) “Foreign (other nation),” when used with respect to a deposit, means a deposit of the kind described in Financial Code Section 1755(a)(2).

NOTE

Authority cited: Section 215, Financial Code. Reference: Division 1, Financial Code.

HISTORY

1. Amendment of subsections (a) and (d) filed 10-15-81 as an emergency; effective upon filing (Register 81, No. 44). A Certificate of Compliance must be transmitted to OAL within 120 days or emergency language will be repealed on 2-12-82.

2. Certificate of Compliance transmitted to OAL 2-11-82 and filed 3-12-82 (Register 82, No. 11).

§10.135. Foreign (Other State).

(a) “Foreign (other state),” when used with respect to a bank, means a bank which is organized under the laws of any state of the United States other than the State of California or a national bank which maintains its head office in any state of the United States other than the State of California.

(b) “Foreign (other state),” when used with respect to an office of a bank, means an office which is located in a state of the United States other than the State of California.

(c) “Foreign (other state),” when used with respect to any corporation other than a bank, means a corporation which is organized under the laws of any state of the United States other than the State of California or under the laws of the United States.

§10.136. Head Office.

“Head office,” when used with respect to a bank, has the meaning set forth in Financial Code Section 110.

§10.137. Immediate Family.

“Immediate family,” when used with respect to a person, includes such person's:

(a) Parents and any ancestor of any of them.

(b) Children and any descendant of any of them.

(d) Brothers and sisters.

(e) Spouse.

For purposes of this Section, an adopted child shall be deemed to be a natural child.

§10.138. Independent Trust Company.

Note • History

“Independent trust company” means any trust company other than a depositary trust company.

NOTE

Authority cited: Section 215, Financial Code. Reference: Division 1, Financial Code.

HISTORY

1. Amendment of section and new Note filed 4-7-97; operative 4-7-97 pursuant to Government Code section 11343.4(d) (Register 97, No. 15).

§10.139. Insured.

“Insured,” when used with respect to a bank or to an office of a bank, means a bank or an office of a bank the deposits of which are insured by the Federal Deposit Insurance Corporation in accordance with the provisions of the Federal Deposit Insurance Act.

§10.140. International Banking Corporation.

“International banking corporation” means a corporation organized under Section 25(a) of the Federal Reserve Act (12 U.S.C. Sections 611 to 633, inclusive) or Article 1 (commencing with Section 3500), Chapter 19 of the Banking Law or any similar corporation organized under the laws of any state of the United States other than the State of California.

§10.140.5. Limited Branch Office.

Note • History

“Limited branch office,” when used with respect to a foreign (other nation) bank, has the meaning set forth in Financial Code Section 1700(n). In addition, “limited branch office” includes any foreign (other state) office of a foreign (other nation) bank which is substantially equivalent to a limited branch office, as defined in Financial Code Section 1700(n).

NOTE

Authority cited: Section 215, Financial Code. Reference: Division 1, Financial Code.

HISTORY

2. Certificate of Compliance transmitted to OAL 2-11-82 and filed 3-12-82 (Register 82, No. 11).

§10.141. Member.

“Member,” when used with respect to a bank, means a bank which is a member of the Federal Reserve System.

§10.142. National Bank.

“National bank” means a national banking association organized pursuant to the National Bank Act.

§10.143. Nondepositary Agency.

Note • History

“Nondepositary agency,” when used with respect to a foreign (other nation) bank, has the meaning set forth in Financial Code Section 1700(o). In addition, “nondepositary agency” includes any foreign (other state) office of a foreign (other nation) bank which is substantially equivalent to a nondepositary agency, as defined in Financial Code Section 1700(o). “Nondepositary agency” does not include any federal agency of a foreign (other nation) bank.

NOTE

Authority cited: Section 215, Financial Code. Reference: Division 1, Financial Code.

HISTORY

2. Certificate of Compliance transmitted to OAL 2-11-82 and filed 3-12-82 (Register 82, No. 11).

§10.144. Nondepositary Trust Company.

History

HISTORY

1. Repealer filed 4-7-97; operative 4-7-97 pursuant to Government Code section 11343.4(d) (Register 97, No. 15).

§10.145. Nonmember.

“Nonmember,” when used with respect to a bank, means a bank which is not a member of the Federal Reserve System.

§10.146. Non-Reserve Depositary.

History

HISTORY

1. Repealer filed 4-7-97; operative 4-7-97 pursuant to Government Code section 11343.4(d) (Register 97, No. 15).

§10.147. Office.

Note • History

(a) “Office,” when used with respect to a bank, has the meaning set forth in Financial Code Section 110.

(b) “Office,” when used with respect to a foreign bank, means any agency, branch office, or representative office.

NOTE

Authority cited: Section 215, Financial Code. Reference: Division 1, Financial Code.

HISTORY

2. Certificate of Compliance transmitted to OAL 2-11-82 and filed 3-12-82 (Register 82, No. 11).

§10.148. Officer.

“Officer” means:

(a) When used with respect to a corporation, any person appointed or designated as an officer of such corporation by or pursuant to applicable law or the articles or by-laws of the corporation (or, in case the corporation has no articles or by-laws, the closest equivalent documents) or any person who performs with respect to the corporation functions usually performed by an officer of a corporation. However, “officer” does not include any director of a corporation who neither participates nor has authority to participate in the management or affairs of such corporation otherwise than in the capacity of a director.

(b) When used with respect to a specified person other than a corporation, any person who performs with respect to such specified person functions usually performed by an officer of a corporation with respect to such corporation.

§10.149. Officer of Commercial Banking Department.

“Officer of commercial banking department,” when used with respect to a commercial bank with trust department, means any officer of such bank who is appointed as an officer of the commercial banking department of the bank or who regularly devotes a substantial amount of his time in his capacity as an officer of the bank to the business of the commercial banking department of the bank.

§10.150. Officer of Trust Department.

“Officer of trust department,” when used with respect to a commercial bank with trust department or a title insurance and trust company, means any officer of such commercial bank with trust department or of such title insurance and trust company, as the case may be, who is appointed as an officer of the trust department of such institution or who regularly devotes a substantial amount of his time in his capacity as an officer of the institution to the business of the trust department of the institution.

§10.151. Organizer.

“Organizer,” when used with respect to a corporation or other organization, means:

(a) Any person who, alone or in conjunction with one or more other persons, directly or indirectly takes the initiative in founding and organizing the business or enterprise of the corporation or other organization; or

(b) Any person who, in connection with the founding and organizing of the business or enterprise of the corporation or other organization, directly or indirectly receives in consideration of services or property, or both, 10% or more of any class of securities of the corporation or other organization or 10% or more of the proceeds from the sale of any class of such securities. However, any person who receives such securities or proceeds either solely as underwriting commissions or solely in consideration of property shall not be deemed to be an organizer if he does not otherwise take part in founding and organizing the corporation or other organization.

Each person who applies for authority to organize a California state bank and each person who is proposed in such application to be a director or the chief executive officer of such bank is rebuttably presumed to be an organizer of such bank.

§10.152. Parent.

“Parent,” when used with respect to a specified person (other than an individual), means any person (other than an individual) which controls such specified person, directly or indirectly through one or more intermediaries.

§10.153. Person.

Note • History

“Person” has the meaning set forth in Section 1.1022 of this Chapter. However, “person,” when used with respect to acquiring control of or controlling a bank, has the meaning set forth in Financial Code Section 700(d), and when used with respect to foreign (other nation) deposits, has the meaning set forth in Financial Code Section 1755(a)(2).

NOTE

Authority cited: Section 215, Financial Code. Reference: Division 1, Financial Code.

HISTORY

2. Certificate of Compliance transmitted to OAL 2-11-82 and filed 3-12-82 (Register 82, No. 11).

§10.154. Personal Property.

“Personal property” has the meaning set forth in Civil Code Section 663.

§10.155. Place of Business.

“Place of business,” when used with respect to a California state bank, has the meaning set forth in Financial Code Section 540.

§10.155.5. Primary Office.

Note • History

“Primary office,” when used with respect to a foreign (other nation) bank, has the meaning set forth in Financial Code Section 1700(q).

NOTE

Authority cited: Section 215, Financial Code. Reference: Division 1, Financial Code.

HISTORY

2. Certificate of Compliance transmitted to OAL 2-11-82 and filed 3-12-82 (Register 82, No. 11).

§10.156. Primary Service Area.

History

HISTORY

1. Repealer filed 4-7-97; operative 4-7-97 pursuant to Government Code section 11343.4(d) (Register 97, No. 15).

§10.157. Private Trust.

“Private trust” has the meaning set forth in Financial Code Section 1581.

§10.158. Publish.

“Publish” means publicly to issue or circulate by newspaper, mail, radio, or television, or otherwise to disseminate to the public.

§10.159. Real Property.

“Real property” has the meaning set forth in Civil Code Section 658.

§10.160. Registered Bank Holding Company.

“Registered bank holding company” means a person which is registered as a bank holding company with the Board of Governors of the Federal Reserve System pursuant to the Bank Holding Company Act of 1956.

§10.161. Regular Branch Office.

“Regular branch office,” when used with respect to a California state bank, means any branch office of such bank other than a special branch office.

§10.161.5. Representative Office.

Note • History

“Representative office,” when used with respect to a foreign bank, has the meaning set forth in Financial Code Section 1700(r). In addition, “representative office” includes any foreign (other state) office of a foreign bank which is substantially equivalent to a representative office, as defined in Financial Code Section 1700(r).

NOTE

Authority cited: Section 215, Financial Code. Reference: Division 1, Financial Code.

HISTORY

2. Certificate of Compliance transmitted to OAL 2-11-82 and filed 3-12-82 (Register 82, No. 11).

§10.162. Reserve Depositary.

History

HISTORY

1. Repealer filed 4-7-97; operative 4-7-97 pursuant to Government Code section 11343.4(d) (Register 97, No. 15).

§10.162.5. Retail Branch Office.

Note • History

“Retail branch office,” when used with respect to a foreign (other nation) bank, has the meaning set forth in Financial Code Section 1700(s). In addition, “retail branch office” includes any foreign (other state) office of a foreign (other nation) bank which is substantially equivalent to a retail branch office, as defined in Financial Code Section 1700(s).

NOTE

Authority cited: Section 215, Financial Code. Reference: Division 1, Financial Code.

HISTORY

2. Certificate of Compliance transmitted to OAL 2-11-82 and filed 3-12-82 (Register 82, No. 11).

§10.163. Savings Deposit.

History

HISTORY

1. Repealer filed 4-7-97; operative 4-7-97 pursuant to Government Code section 11343.4(d) (Register 97, No. 15).

§10.164. Secondary Service Area.

History

HISTORY

1. Repealer filed 4-7-97; operative 4-7-97 pursuant to Government Code section 11343.4(d) (Register 97, No. 15).

§10.165. Security.

“Security” has the meaning set forth in Corporations Code Section 25019. However, “security,” when used to denote a security issued by a bank, has the meaning set forth in Financial Code Section 690(c).

§10.166. Service Area.

History

HISTORY

1. Repealer filed 4-7-97; operative 4-7-97 pursuant to Government Code section 11343.4(d) (Register 97, No. 15).

§10.167. Special Branch Office.

Note • History

“Special branch office,” when used with respect to a California state bank, has the meaning set forth in Section 10.6001(n) of this Chapter.

NOTE

Authority cited: Section 215, Financial Code. Reference: Division 1, Financial Code.

HISTORY

1. Amendment of section and new Note filed 4-7-97; operative 4-7-97 pursuant to Government Code section 11343.4(d) (Register 97, No. 15).

§10.168. State.

Note • History

(a) “State,” when used with respect to a bank, means a bank which is organized under the laws of a state of the United States.

(b) “State,” when used with respect to an office of a foreign (other nation) bank, means an office which such bank is authorized to maintain under the laws of the state of the United States where it is located.

NOTE

Authority cited: Section 215, Financial Code. Reference: Division 1, Financial Code.

HISTORY

2. Certificate of Compliance transmitted to OAL 2-11-82 and filed 3-12-82 (Register 82, No. 11).

§10.169. State of the United States.

“State of the United States” means a state of the United States or the District of Columbia.

§10.170. Subsidiary.

“Subsidiary,” when used with respect to a specified person (other than an individual), means any person (other than an individual) controlled by such specified person, directly or indirectly through one or more intermediaries.

§10.171. Territory of the United States.

“Territory of the United States” means any territory, trust territory, dependency, or insular possession of the United States, Puerto Rico, Guam, American Samoa, or the Virgin Islands.

§10.172. Time Certificate of Deposit.

History

HISTORY

1. Repealer filed 4-7-97; operative 4-7-97 pursuant to Government Code section 11343.4(d) (Register 97, No. 15).

§10.173. Time Deposit.

History

HISTORY

1. Repealer filed 4-7-97; operative 4-7-97 pursuant to Government Code section 11343.4(d) (Register 97, No. 15).

§10.174. Time Deposit, Open Account.

History

HISTORY

1. Repealer filed 4-7-97; operative 4-7-97 pursuant to Government Code section 11343.4(d) (Register 97, No. 15).

§10.175. Title Insurance and Trust Company.

History

HISTORY

1. Repealer filed 4-7-97; operative 4-7-97 pursuant to Government Code section 11343.4(d) (Register 97, No. 15).

§10.176. Trust Administration Office.

Note • History

“Trust administration office” means:

(a) When used with respect to an independent trust company, the head office or any branch office of such independent trust company.

(b) When used with respect to a commercial bank with trust department, the headquarters of the trust department of such commercial bank or any office (other than a place of business) of such commercial bank at which one or more officers or employees of such commercial bank are engaged on a substantially full-time basis in the business of administering fiduciary accounts.

NOTE

Authority cited: Section 215, Financial Code. Reference: Division 1, Financial Code.

HISTORY

1. Repealer of subsection (b), subsection relettering and new Note filed 4-7-97; operative 4-7-97 pursuant to Government Code section 11343.4(d) (Register 97, No. 15).

§10.177. Trust Business.

“Trust business” has the meaning set forth in Financial Code Section 106.

§10.178. Trust Company.

Note • History

“Trust company” has the meaning set forth in Financial Code Section 107, and includes a depositary trust company and an independent trust company.

NOTE

Authority cited: Section 215, Financial Code. Reference: Division 1, Financial Code.

HISTORY

1. Amendment of section and new Note filed 4-7-97; operative 4-7-97 pursuant to Government Code section 11343.4(d) (Register 97, No. 15).

§10.179. Trust Department.

Note • History

“Trust department,” when used with respect to a commercial bank which is authorized to engage in trust business, means the division of such bank through which the bank engages in trust business.

NOTE

Authority cited: Section 215, Financial Code. Reference: Division 1, Financial Code.

HISTORY

1. Repealer of subsection (a), repealer of subsection (b) designator, and new Note filed 4-7-97; operative 4-7-97 pursuant to Government Code section 11343.4(d) (Register 97, No. 15).

§10.180. United States.

(a) “United States,” when used with respect to a bank, means (1) a state bank or (2) a national bank which maintains its head office in a state of the United States.

(b) “United States,” when used with respect to an office of a bank, means an office which is located in a state of the United States.

(c) “United States,” when used with respect to any corporation other than a bank, means a corporation which is organized under the laws of a state of the United States or under the laws of the United States.

§10.181. Voting Securities.

“Voting securities” means securities the holders of which are presently entitled to vote for the election of directors.

§10.182. Wholesale Branch Office.

Note • History

“Wholesale branch office,” when used with respect to a foreign (other nation) bank, has the meaning set forth in Financial Code Section 1700(u). In addition, “wholesale branch office” includes any foreign (other state) office of a foreign (other nation) bank which is substantially equivalent to a wholesale branch office, as defined in Financial Code Section 1700(u).

NOTE

Authority cited: Section 215, Financial Code. Reference: Division 1, Financial Code.

HISTORY

1. New section filed 10-15-81; effective upon filing (Register 81, No. 44). A Certificate of Compliance must be transmitted to OAL within 120 days or emergency language will be repealed on 2-12-82.

2. Certificate of Compliance transmitted to OAL 2-11-82 and filed 3-12-82 (Register 82, No. 11).

Article 4. Establishment of California State Banks

Subarticle 1. General Provisions

§10.3000. Scope.

Note • History

This Article contains regulations relating to the establishment of California state banks. This Subarticle contains general provisions relating to the establishment of California state banks. Subarticle 2 (commencing with Section 10.3100) of this Article contains regulations relating to the establishment of a California state commercial bank or of a California state independent trust company pursuant to Chapter 3 (commencing with Section 350) of the Banking Law. Subarticle 3 (commencing with Section 10.3700) of this Article contains regulations relating to the establishment of a trust department by a California state commercial bank pursuant to Financial Code Section 1500.1. (Subarticle 4 of this Article is reserved.) Subarticle 5 (commencing with Section 10.4300) of this Article contains regulations relating to the conversion of a California national bank into a California state bank pursuant to Article 2 (commencing with Section 4940) of Chapter 5 of the Depository Corporation Sale, Merger, and Conversion Law of the Financial Code.

NOTE

Authority cited: Sections 215 and 4831, Financial Code. Reference: Chapter 3, Division 1, Section 1500.1, and Article 2, Chapter 5, Division 1.5, Financial Code.

HISTORY

1. Amendment of section and new Note filed 4-7-97; operative 4-7-97 pursuant to Government Code section 11343.4(d) (Register 97, No. 15).

§10.3001. Post-Incorporation and Post-Approval Matters.

Note • History

(a) In this Section, to “commence business” has the meaning set forth in Sections 10.3102, 10.3702, or 10.4302 of this Chapter.

(b) In the units of this Article relating to post-incorporation or post-approval matters:

(1) In case a provision which calls for a subject institution or applicant to file a document with the Commissioner does not expressly provide when such subject institution or applicant is to make such filing, the subject institution or applicant shall make the filing at a reasonable time under the circumstances and, in any event, at reasonable time before the subject institution or applicant commences business.

(2) In case a provision which calls for a subject institution or applicant to file a document with the Commissioner requires that such subject institution or applicant make such filing not less than a specified number of days or business days before the subject institution or applicant commences business, the subject institution or applicant is encouraged to make the filing before such deadline, if possible, so as to allow ample time not only for the staff of the Department to process the document filed but also for the subject institution or applicant to make any corrections or changes in such document that may be found to be necessary before the certificate of authority is issued.

(c) Any provision in the units of this Article relating to post-incorporation or post-approval matters which, by its terms or pursuant to Paragraph (1) of Subdivision (b) of this Section, requires a subject institution or applicant to perform an act before commencing business shall be deemed also to require such subject institution or applicant to perform such act before its certificate of authority is issued; and, in case such provision requires that the subject institution or applicant performs the act not less than a specified time before commencing business, the subject institution or applicant shall perform the act not less than the specified time before its certificate of authority is issued.

NOTE

Authority cited: Sections 215 and 4831, Financial Code. Reference: Chapter 3, Division 1, Section 1500.1, and Article 2, Chapter 5, Division 1.5, Financial Code.

HISTORY

1. Amendment of subsections (a) and (c) and new Note filed 4-7-97; operative 4-7-97 pursuant to Government Code section 11343.4(d) (Register 97, No. 15).

2. Change without regulatory effect amending section filed 8-19-97 pursuant to section 100, title 1, California Code of Regulations (Register 97, No. 34).

Subarticle 2. Establishment of California State Commercial Bank or Independent Trust Company

Part 1. General Provisions

§10.3100. Definition of “Subject Institution” and Scope.

(a) In this Subarticle, “subject institution” means a California state bank which is or is proposed to be a commercial bank or an independent trust company.

(b) This Subarticle contains regulations relating to the establishment of a subject institution pursuant to Chapter 3 (commencing with Section 350) of the Banking Law. This Part contains general provisions relating to the establishment of a subject institution. Part 2 (commencing with Section 10.3150) of this Subarticle contains regulations relating to an application for authority to organize a subject institution. Part 3 (commencing with Section 10.3300) of this Subarticle contains regulations which set forth administrative standards and procedures relating to an application for authority to organize a subject institution. Part 4 (commencing with Section 10.3350) of this Subarticle contains regulations relating to the pre-incorporation period in the establishment of a subject institution. Part 5 (commencing with Section 10.3450) of this Subarticle contains regulations relating to the post-incorporation period in the establishment of a subject institution.

§10.3101. Other Definitions.

Note • History

In this Subarticle:

(a) “Post-incorporation pre-opening funds account” means the deposit account called for in Section 10.3480 of this Chapter.

(b) “Pre-incorporation pre-opening funds account” means the deposit account called for in Section 10.3405 of this Chapter.

(c) “Pre-opening capital expenditures” means pre-opening expenditures which may be capitalized in conformity with generally accepted accounting principles and practices then applicable.

(d) “Pre-opening expenditure” has the meaning set forth for “preopening expenditure” in Financial Code Section 399(a).

(e) “Pre-opening funds” means any money or other thing of value solicited or accepted by a proposed director, proposed officer, or organizer of a proposed subject institution or by a subject institution at any time before such subject institution commences business, for the purposes of paying the pre-opening expenditures of such subject institution. However, “pre-opening funds” does not include any proceeds from the sale by a subject institution, after incorporation, of any security issued by it under authority of a permit or of an exemption from Financial Code Section 691 issued by the Commissioner or any income or gain derived from any such proceeds.

(f) “Pre-opening noncapital expenditure” has the meaning set forth for “preopening noncapital expenditure” in Financial Code Section 399(b).

(g) “Proposed subject institution” means a subject institution which is proposed to be organized but which has not yet been incorporated.

NOTE

Authority cited: Section 215, Financial Code.

HISTORY

1. Change without regulatory effect amending section and adding new Note filed 8-19-97 pursuant to section 100, title 1, California Code of Regulations (Register 97, No. 34).

§10.3102. Commencement of Business.

Note • History

For purposes of this Subarticle, a subject institution shall be deemed to commence business at the time when, the Commissioner having issued a certificate of authority authorizing such subject institution to transact commercial banking business, trust business, or both, as the case may be, the subject institution opens for the purpose of transacting commercial banking business, trust business, or both, as the case may be.

NOTE

Authority cited: Section 215, Financial Code.

HISTORY

1. Change without regulatory effect amending section and adding new Note filed 8-19-97 pursuant to section 100, title 1, California Code of Regulations (Register 97, No. 34).

§10.3103. Counting Number of Persons.

In determining for purposes of this Subarticle the number of persons from whom pre-opening funds are solicited or accepted, persons shall be counted in the same manner as provided in Section 10.6 of this Chapter.

Part 2. Application

§10.3150. Scope.

This Part contains regulations relating to an application for authority to organize a subject institution.

§10.3151. Applicants.

Note • History

One or more persons may apply to the Commissioner for authority to organize a subject institution.

NOTE

Authority cited: Section 215, Financial Code. Reference: Section 360, Financial Code.

HISTORY

1. Change without regulatory effect amending section and adding new Note filed 8-19-97 pursuant to section 100, title 1, California Code of Regulations (Register 97, No. 34).

§10.3152. Included Application.

An application for authority to organize a subject institution which proposes that such subject institution commence business with its head office in temporary quarters and subsequently relocate its head office to permanent quarters shall, unless otherwise provided in such application, be deemed to include an application for approval pursuant to Financial Code Section 420 for the subject institution to relocate its head office from such temporary quarters to such permanent quarters and shall be accompanied by the fee prescribed in Financial Code Section 420. Approval of such an application for authority to organize a subject institution shall, unless otherwise provided in such approval, be deemed to include approval of such included application for approval for the subject institution to relocate its head office. The subject institution shall, with respect to relocating its head office, comply with the provisions of Subpart 7 (commencing with Section 10.6475), Part 3, Article 5 of this Subchapter.

§10.3153. Facing Page.

An application for authority to organize a subject institution shall have as its first page a facing page in the form of Department Form 10 and shall contain the information called for therein.

§10.3154. Additional Information.

Note • History

An application for authority to organize a subject institution shall contain, in addition to the information called for in the facing page:

(a) In case the subject institution is to be a commercial bank with a trust department, the information called for in Sections 10.3155 to 10.3181, inclusive, of this Chapter.

(b) In case the subject institution is to be a commercial bank without trust department, the information called for in Sections 10.3155, 10.3159 to 10.3163, inclusive, 10.3166 to 10.3168, inclusive, 10.3172, 10.3176 and 10.3177 of this Chapter.

(c) In case the subject institution is to be an independent trust company, the information called for in Sections 10.3155, 10.3159 to 10.3163, inclusive, 10.3165 to 10.3167, inclusive, 10.3169, 10.3173, and 10.3177 of this Chapter.

NOTE

Authority cited: Section 215, Financial Code. Reference: Section 360, Financial Code.

HISTORY

1. Amendment of ssubections (b) and (c) and new Note filed 4-7-97; operative 4-7-97 pursuant to Government Code section 11343.4(d) (Register 97, No. 15).

2. Change without regulatory effect amending section filed 2-11-2002 pursuant to section 100, title 1, California Code of Regulations (Register 2002, No. 7).

§10.3155. Information Regarding Proposed Business Plan.

Note • History

Provide a business plan for the subject institution which includes all of the following:

(a) Description of the market that the subject institution proposes to serve.

(b) Description of the services and products proposed to be offered by the subject institution.

(d) Description of competition in the proposed market of the subject institution, including the name of each other business which provides to the proposed market of the subject institution services and products that are similar to any of the principal services and products proposed to be offered by the subject institution.

(e) Description of how services and products of the subject institution will be marketed in consideration of the existing and anticipated competition.

(f) Analysis of the capital, financial, physical and human resources required by the subject institution to successfully implement the proposed business plan.

(g) In case any material element of the business plan is based on an assumption, a statement of the assumption, and the justification for the assumption.

NOTE

Authority cited: Section 215, Financial Code. Reference: Section 360, Financial Code.

HISTORY

1. Amendment of section heading, repealer and new section, and new Note filed 4-7-97; operative 4-7-97 pursuant to Government Code section 11343.4(d) (Register 97, No. 15).

2. Amendment of section heading and repealer and new section filed 4-14-98; operative 5-14-98 (Register 98, No. 16).

§10.3156. Information Regarding Proposed Market--Trust Business.

Note • History

NOTE

Authority cited: Section 215, Financial Code. Reference: Section 360, Financial Code.

HISTORY

1. Amendment of section heading, repealer and new section, and new Note filed 4-7-97; operative 4-7-97 pursuant to Government Code section 11343.4(d) (Register 97, No. 15).

2. Repealer filed 4-14-98; operative 5-14-98 (Register 98, No. 16).

§10.3157. Information Regarding Marketing Plan--Commercial Banking Business.

Note • History

NOTE

Authority cited: Section 215, Financial Code. Reference: Section 360, Financial Code.

HISTORY

1. Amendment of subsections (a)-(a)(3), repealer of subsections (a)(4)-(c), new subsection (b) and new Note filed 4-7-97; operative 4-7-97 pursuant to Government Code section 11343.4(d) (Register 97, No. 15).

2. Repealer filed 4-14-98; operative 5-14-98 (Register 98, No. 16).

§10.3158. Information Regarding Marketing Plan--Trust Business.

Note • History

NOTE

Authority cited: Section 215, Financial Code. Reference: Section 360, Financial Code.

HISTORY

1. Amendment of subsection (b), repealer of subsections (b)(1)-(d), new subsection (c) and new Note filed 4-7-97; operative 4-7-97 pursuant to Government Code section 11343.4(d) (Register 97, No. 15).

2. Repealer filed 4-14-98; operative 5-14-98 (Register 98, No. 16).

§10.3159. Information Regarding Proposed Board.

(a) Provide a table showing, with respect to each proposed director of the subject institution:

(1) Name.

(2) Business address.

(3) Home address.

(4) Age.

(5) Business or occupation.

(6) Amount of shares of the subject institution for which the proposed director and his consociates intend to subscribe.

(b) With respect to each proposed director of the subject institution, provide:

(1) Personal financial statement in the form of Department Form 2, containing the information called for therein, dated as of a date within 90 days before the filing of the application, and signed by the proposed director.

(2) Confidential resume in the form of Department Form 3, containing the information called for therein, dated as of a date within 90 days before the filing of the application, and signed by the proposed director.

(3) Statement dated as of a date within 90 days before the filing of the application and signed by the proposed director, stating:

(A) Amount of shares of the subject institution for which the proposed director intends to subscribe, the source of funds with which he intends to pay for such subscription, and, if any of such funds are to be borrowed, the amount to be borrowed and the source of funds with which he intends to repay such amount.

(B) Whether or not, to the knowledge or information and belief of the proposed director, any consociate of the proposed director intends to subscribe for shares of the subject institution and, if so, the name, business address, home address, and business or occupation of the consociate, the amount of shares of the subject institution for which the consociate intends to subscribe, the source of funds with which he intends to pay for such subscription, and, if any of such funds are to be borrowed, the amount to be borrowed and the source of funds with which he intends to repay such amount.

(C) Commercial banking, trust, other financial, and other business experience of the proposed director, including, with respect to each position held, title, description of duties, name and address of employer, period of employment, and reason for leaving.

(D) Whether or not the proposed director has had in the past or has presently any relationship with any bank as director, officer, employee, adviser, five percent equity security owner, or in any other capacity (other than solely as a customer), and, if so, the name of the bank and a description of the relationship, and, in the case of any present relationship, whether the proposed director intends to continue, change, or terminate such relationship if and when the subject institution commences business.

(E) Ways in which the proposed director intends to serve the subject institution, including generating business and otherwise promoting the well-being of the subject institution, and qualifications of the proposed director to implement such intentions, including, as applicable, civic, professional, social, and other organizational memberships and participation in local community affairs.

(F) Amount of time which the proposed director intends to devote to the affairs of the subject institution during each of the first three years of business of the subject institution.

(c) State the amount of fees and describe any other compensation which the subject institution proposes to pay to its directors during each of the first three years of business.

(d) State whether or not any change is proposed to be made in the membership of the board of the subject institution during the first three years of business, and, if so, describe such change.

§10.3160. Information Regarding Proposed Officers, Employees, and Advisers.

(a) Provide a table showing, with respect to the proposed chief executive officer of the subject institution and, in case the subject institution is to be a commercial bank with trust department, the proposed senior trust officer, and any other proposed officer of the subject institution who has been selected:

(1) Name.

(2) Business address.

(3) Home address.

(4) Age.

(5) Business or occupation.

(6) Amount of shares of the subject institution for which the proposed officer and his consociates intend to subscribe.

(7) Proposed title.

(8) Proposed duties.

(9) Proposed annual salary.

(b) Provide a table showing, with respect to each proposed officer position for which no person has been selected, including, in case the subject institution is to engage in commercial banking business, the positions of principal commercial lending officer and principal operations officer and, in case the subject institution is to engage in trust business, the positions of principal trust investment officer, principal trust operations officer, and trust administrative officers:

(1) Proposed title.

(2) Proposed duties.

(3) Proposed annual salary.

(c) With respect to each proposed officer of the subject institution listed in the table called for in Subdivision (a) of this Section, provide:

(3) Statement dated as of a date within 90 days before the filing of the application and signed by the proposed officer, stating:

(A) Amount of shares of the subject institution for which the proposed officer intends to subscribe, the source of funds with which he intends to pay for such subscription, and, if any of such funds are to be borrowed, the amount to be borrowed and the source of funds with which he intends to repay such amount.

(B) Whether or not, to the knowledge or information and belief of the proposed officer, any consociate of the proposed officer intends to subscribe for shares of the subject institution and, if so, the name, business address, home address, and business or occupation of the consociate, the amount of shares of the subject institution for which the consociate intends to subscribe, the source of funds with which he intends to pay for such subscription, and, if any of such funds are to be borrowed, the amount to be borrowed and the source of funds with which he intends to repay such amount.

(C) Commercial banking, trust, other financial, and other business experience of the proposed officer, including, with respect to each position held, title, description of duties, name and address of employer, period of employment, and reason for leaving.

(D) Whether or not the proposed officer has had in the past or has presently any relationship with any bank as director, officer, employee, advisor, five percent equity security owner, or in any other capacity (other than solely as customer), and, if so, the name of the bank and a description of the relationship, and, in the case of any present relationship, whether the proposed officer intends to continue, change, or terminate such relationship if and when the subject institution commences business.

(E) Whether or not the proposed officer has ever been discharged or requested to resign from any position, and, if so, an account of the circumstances.

(d) State the amount of salary and describe any other compensation which the subject institution proposes to pay to each officer and to all employees, as a group, during each of the first three years of business.

(e) State the total number of officers and employees proposed to be employed by the subject institution upon commencement of business and at the end of each of the first three years of business.

(f) State whether or not any change is proposed to be made with respect to the executive officers of the subject institution during the first three years of business, and, if so, describe such change.

(g) State whether or not the subject institution proposes to retain any adviser, and, if so, provide, with respect to each such adviser:

(1) Name.

(2) Name of firm of which the adviser is a member or by which the adviser is employed.

(3) Business address.

(4) Description of services which the adviser is to render to the subject institution.

(5) Summary of the adviser's professional qualifications relating to the services referred to in Paragraph (4) of this Subdivision (g).

§10.3161. Information Regarding Organizers.

State whether or not there is any organizer of the subject institution who is neither a proposed director nor a proposed officer of the subject institution, and, if so, with respect to each such organizer:

(a) In case the organizer is an individual, state:

(1) Name.

(2) Business address.

(3) Home address.

(4) Business or occupation.

(5) Amount of shares of the subject institution for which the organizer and his consociates intend to subscribe.

(6) Whether or not the organizer intends to participate in the management or operation of the subject institution, and, if so, a description of such participation.

(b) In case the organizer is any type of person other than an individual, state:

(1) Name.

(2) Type of person (that is, corporation, partnership, etc.).

(3) Address of principal office.

(4) Description of business.

(5) Amount of shares of the subject institution for which the organizer intends to subscribe.

(c) In case the organizer is neither an individual nor a corporation, provide information comparable to the information called for in Subdivision (b) of this Section.

§10.3162. Information Regarding Proposed Controlling Persons and Proposed 25 Percent (Including Consociates) Equity Security Owners.

Note • History

(a) In this Section, “subject person,” when used with respect to a subject institution, means:

(1) Any person who is proposed to control the subject institution (including, in case any such person consists of a group of persons acting in concert, each person who is a member of such group); or

(2) Any person (other than a proposed director, proposed officer, or proposed controlling person of the subject institution) who is proposed to be a 25 percent (including consociates) equity security owner of the subject institution.

(b) (1) State whether or not it is proposed that any person control the subject institution, and, if so, provide a table showing, with respect to each such proposed controlling person:

(A) Name.

(B) Type of person (that is, individual, corporation, etc.).

(C In case the proposed controlling person is an individual, the title of any position which the proposed controlling person is proposed to have with the subject institution.

(2) State whether or not it is proposed that any person (other than a proposed director, proposed officer, or proposed controlling person of the subject institution) be a 25 percent (including consociates) equity security owner of the subject institution, and, if so, provide a table showing, with respect to each such proposed 25 percent (including consociates) equity security owner:

(A) Name.

(B) Type of person (that is, individual, corporation, etc.).

(C) Amount of share of the subject institution for which the proposed 25 percent (including consociates) equity security owner and his consociates intend to subscribe.

(c) With respect to each subject person named in any table called for in Subdivision (b) of this Section who is an individual and who is neither a proposed director nor a proposed officer of the subject institution:

(1) State:

(A) Name.

(B) Business address.

(D) Age.

(E) Business or occupation.

(F) Amount of shares of the subject institution for which the subject person and his consociates intend to subscribe.

(2) Provide a personal financial statement in the form of Department Form 2 (see § 95.2), containing the information called for therein, dated as of a date within 90 days before the filing of the application, and signed by the subject person.

(3) Provide a confidential resume in the form of Department Form 3 (see § 95.3), containing the information called for therein, dated as of a date within 90 days before the filing of the application, and signed by the subject person.

(4) Provide a statement dated as of a date within 90 days before the filing of the application and signed by the subject person, stating:

(A) Amount of shares of the subject institution for which the subject person intends to subscribe, the source of funds with which he intends to pay for such subscription, and, if any of such funds are to be borrowed, the amount to be borrowed and the source of funds with which he intends to repay such amount.

(B) Whether or not, to the knowledge or information and belief of the subject person, any consociate of the subject person intends to subscribe for shares of the subject institution and, if so, the name, business address, home address, and business or occupation of the consociate, the amount of shares of the subject institution for which the consociate intends to subscribe, the source of funds with which he intends to pay for such subscription, and, if any of such funds are to be borrowed, the amount to be borrowed and the source of funds with which he intends to repay such amount.

(C) Commercial banking, trust, other financial, and other business experience of the subject person, including, with respect to each position held, title, description of duties, name and address of employer, period of employment, and reason for leaving.

(D) Whether or not the subject person has had in the past or has presently any relationship with any bank as director, officer, employee, adviser, 15 percent equity security owner, or in any other capacity (other than solely as a customer), and, if so, the name of the bank and a description of the relationship, and, in the case of any present relationship, whether the proposed controlling person intends to continue, change, or terminate such relationship if and when the subject institution commences business.

(E) Whether or not the subject person intends to participate in the management or operation of the subject institution, and, if so, a description of such participation.

(d) With respect to each subject person named in any table called for in Subdivision (b) of this Section which is a corporation:

(1) State:

(A) Name.

(B) Address of principal office.

(D) Amount of shares of the subject institution for which the subject person intends to subscribe.

(2) Provide a table showing, with respect to each director, executive officer, and 25 percent (including consociates) equity security owner of the subject person:

(A) Name.

(B) Relationship to the subject person.

(3) Provide a table showing, with respect to each affiliate of the subject person:

(A) Name.

(B) Description of business.

(4) Provide the following financial statements of the subject person:

(A) Balance sheet as of a date within 120 days before the filing of the application.

(B) If the balance sheet called for in Subparagraph (A) of this Paragraph (4) is not as of the end of a fiscal year of the subject person, a balance sheet as of the end of the fiscal year of the subject person next preceding the date of such balance sheet.

(C) Statement of income and statement of shareholders' equity for each of the two fiscal years of the subject person next preceding the date of the balance sheet called for in Subparagraph (A) of this Paragraph (4) and, if such balance sheet is not of as of the end of a fiscal year of the subject person, a statement of income and a statement of shareholders' equity for the interim period from the date of the balance sheet called for in Subparagraph (B) of this Paragraph (4) to the date of the balance sheet called for in Subparagraph (A) of this Paragraph (4).

(5) Provide a copy of each of the last two annual reports of the subject person to its shareholders and a copy of any interim report of the subject person to its shareholders issued since the last annual report

(6) In case the subject person is required to file reports pursuant to Section 13 of the Securities Exchange Act of 1934 (15 U.S.C. Section 78m), provide a copy of each of the last two such annual reports of the subject person and a copy of each quarterly or current report of the subject person filed since the last annual report.

(7) Provide a statement dated as of a date within 90 days before the filing of the application and signed by an officer of the subject person, stating:

(A) Amount of shares of the subject institution for which the subject person intends to subscribe, and, if any of such funds are to be borrowed, the amount to be borrowed and the source of funds with which it intends to repay such amount.

(B) Whether or not, to the knowledge or information and belief of the subject person, any person referred to in Paragraph (2) or (3) of this Subdivision (d) intends to subscribe for shares of the subject institution and, if so, the name of such person, the amount of shares of the subject institution for which the person intends to subscribe, the source of funds with which he intends to pay for such subscription, and, if any of such funds are to be borrowed, the amount to be borrowed and the source of funds with which he intends to repay such amount.

(C) Whether or not the subject person has had in the past or has presently any relationship with any bank as adviser, 15 percent equity security owner, or in any other capacity (other than solely as a customer), and, if so, the name of the bank and a description of the relationship, and, in the case of any present relationship, whether the subject person intends to continue, change, or terminate such relationship if and when the subject institution commences business.

(D) Whether or not the subject person intends to participate in the management or operation of the subject institution, and, if so, a description of such participation.

(e) With respect to any subject person named in any table called for in Subdivision (b) of this Section which is neither an individual nor a corporation, provide information comparable to the information called for in Subdivision (d) of this Section.

(f) There is hereby exempted from the provisions of Financial Code Section 701 as not being comprehended within the purposes of Article 7 (commencing with Section 700), Chapter 5 of the Banking Law and the regulation of which is not necessary or appropriate in the public interest or for the protection of subject institutions, controlling persons of subject institutions, or the depositors, creditors, or shareholders of subject institutions or of controlling persons of subject institutions, the acquisition of control of a subject institution in accordance with the application for authority to organize such subject institution, as approved by the Commissioner.

NOTE

Authority cited: Section 215, Financial Code. Reference: Section 360, Financial Code.

HISTORY

1. Amendment of section heading and subsections (a)(2), (b)(2), (b)(2)(C), (c)(2), (c)(3), (c)(4)(D), (d)(4)(C), (d)(5), (d)(6), (d)(7)(A) and (d)(7)(C) and new Note filed 4-7-97; operative 4-7-97 pursuant to Government Code section 11343.4(d) (Register 97, No. 15).

2. Change without regulatory effect amending section filed 8-19-97 pursuant to section 100, title 1, California Code of Regulations (Register 97, No. 34).

3. Amendment of subsection (d)(2) filed 4-14-98; operative 5-14-98 (Register 98, No. 16).

§10.3163. Information Regarding Proposed Premises, Furniture, and Equipment.

Note • History

(a) State whether or not it is proposed that the subject institution purchase, lease, or construct any real property in addition to the real property required for its proposed head office, and, if so, describe such additional real property, state how such additional real property is proposed to be used, and, if such additional real property is proposed to be leased, sold, or otherwise transferred to any person, state the name of such person and describe the terms of such lease, sale, or transfer.

(b) With respect to the premises where the head office of the subject institution is proposed to be located and any additional real property referred to in Subdivision (a) of this Section:

(1) In case it is proposed that the whole or any part of such property be purchased by the subject institution, identify the property to be purchased, describe any arrangements which have been made for the subject institution to purchase the property, state the purchase price, identify the source of funds with which the purchase price is proposed to be paid, and, if any of the purchase price is proposed to be financed, state the amount to be financed.

(2) In case it is proposed that the whole or any part of such property be leased by the subject institution, identify the property to be leased, describe any arrangements which have been made for the subject institution to lease the property, and summarize the terms of the proposed lease, including rent, commencement date, termination date, and options to renew or to purchase.

(3) In case it is proposed that the whole or any part of such property be constructed, identify the property to be constructed, describe any arrangements which have been made for the property to be constructed, state the proposed completion date of construction, state the cost of construction, identify the source of funds with which the cost of construction is proposed to be paid, and, if any of the cost of construction is proposed to be financed, state the amount to be financed.

(c) State the total amount which the subject institution proposes to invest in banking premises, additional real property, furniture, and equipment up to the end of the first year of business.

(d) State whether or not any person to whom any payment is proposed to be made by the subject institution in connection with the purchase, lease, or construction of the premises where the head office of the subject institution is proposed to be located or any property referred to in Subdivision (a) or (b) of this Section is, or is a consociate of, any (1) proposed director, (2) proposed officer, (3) organizer, (4) proposed affiliate, or (5) proposed 25 percent (including consociates) equity security owner, of the subject institution, and, if so, identify such person, describe the terms of the transaction, state the amount to be paid, state the cost of such property to the person, and describe the circumstances under which the person acquired the property.

(e) If it is proposed that the subject institution commence business with its head office in temporary quarters and later relocate its head office to permanent quarters, provide the information called for in Subdivisions (a) to (d), inclusive, of this Section with respect to the permanent quarters, and provide the following additional information:

(1) State the address or vicinity of the temporary quarters and of the permanent quarters.

(2) State the time at which it is proposed that the subject institution relocate the head office from the temporary quarters to the permanent quarters.

(3) Provide the information called for in Subdivision (d) of this Section with respect to the temporary quarters.

(4) State the estimated cost of the temporary quarters and of relocating the head office from the temporary quarters to the permanent quarters.

NOTE

Authority cited: Section 215, Financial Code. Reference: Section 360, Financial Code.

HISTORY

1. Amendment of section and new Note filed 4-7-97; operative 4-7-97 pursuant to Government Code section 11343.4(d) (Register 97, No. 15).

2. Repealer of subsection (a), subsection relettering, and amendment of newly designated subsections (b), (d), (e) and (e)(3) filed 4-14-98; operative 5-14-98 (Register 98, No. 16).

§10.3164. Information Regarding Proposed Operations--Commercial Banking Business.

History

HISTORY

1. Repealer filed 4-7-97; operative 4-7-97 pursuant to Government Code section 11343.4(d) (Register 97, No. 15).

§10.3165. Information Regarding Proposed Operations--Trust Business.

Note • History

(a) Describe the proposed policies and procedures of the subject institution relating to:

(1) Acceptance of fiduciary accounts.

(2) Initial and periodic review of fiduciary accounts.

(b) Describe any provisions for successor trustees which are proposed to be included in fiduciary accounts to be accepted by the subject institution.

NOTE

Authority cited: Section 215, Financial Code. Reference: Section 360, Financial Code.

HISTORY

1. Amendment of section and new Note filed 4-7-97; operative 4-7-97 pursuant to Government Code section 11343.4(d) (Register 97, No. 15).

§10.3166. Information Regarding Pre-Opening Expenditures.

Note • History

(a) State the total amount of pre-opening capital expenditures which have been or are proposed to be incurred, and provide an itemized schedule of such pre-opening capital expenditures.

(b) State the total amount of pre-opening noncapital expenditures which have been or are proposed to be incurred, and provide an itemized schedule of such pre-opening noncapital expenditures.

(c) State whether or not any person to whom any pre-opening expenditures has been or is proposed to be paid is, or is a consociate of, any (1) proposed director, (2) proposed officer, (3) organizer, (4) proposed affiliate, or (5) proposed 15 percent equity security owner of the subject institution, and, if so, identify such person, describe the pre-opening expenditure, and state the amount of the pre-opening expenditure, and, if the transaction involves the purchase or lease of any property which the person acquired within the past two years, state the cost of such property to the person and describe the circumstances under which the person acquired the property.

(d) Describe how pre-opening funds have been or are proposed to be obtained, how such pre-opening funds have been or are proposed to be held and accounted for, and how such pre-opening funds have been or are proposed to be disbursed.

(e) State whether or not any pre-opening funds have been solicited, and, if so, describe the manner in which such pre-opening funds were solicited, and provide a copy of each document used in such solicitation.

(f) State whether or not any pre-opening funds have been accepted, and, if so:

(1) State the total amount accepted.

(2) Provide an itemized schedule of pre-opening funds accepted, showing, with respect to each person from whom pre-opening funds have been accepted:

(A) Name of the person.

(B) Proposed position, if any, of the person with the subject institution.

(D) Terms under which pre-opening funds have been accepted from the person; and, if the terms are set forth in any document, provide a copy of such document.

(3) State the total amount expended.

(4) Provide an itemized schedule of expenditures of pre-opening funds showing, with respect to each person to whom the aggregate total amount paid is $25,000 or more:

(A) Name of the person.

(B) Aggregate total amount paid to the person.

(5) State the total amount accepted but not yet expended, and describe the present disposition of such amount.

NOTE

Authority cited: Section 215, Financial Code. Reference: Section 360, Financial Code.

HISTORY

1. Repealer of subsection (c), subsection relettering, amendment of newly designated subsections (c) and (f)(4) and new Note filed 4-7-97; operative 4-7-97 pursuant to Government Code section 11343.4(d) (Register 97, No. 15).

§10.3167. Information Regarding Proposed Capitalization.

Note • History

(a) Provide a pro forma statement of the shareholders' equity of the subject institution as of the date of commencement of business, showing:

(1) Authorized number of shares.

(2) Number of shares outstanding.

(3) Amount of contributed capital.

(4) Amount of retained earnings.

(b) Describe the plan for selling shares of the subject institution, including:

(1) Number of shares proposed to be sold.

(2) Proposed selling price per share.

(3) Whether or not shares are proposed to be offered to the public.

(4) Proposed method of selecting and contacting offerees.

(5) Minimum and maximum number of shares proposed to be sold to any one person and his associates.

(6) Percentage of shares proposed to be sold to proposed directors, proposed officers, and their consociates, as a group, and percentage of shares proposed to be sold to others.

(7) Proposed total number of shareholders.

NOTE

Authority cited: Section 215, Financial Code. Reference: Section 360, Financial Code.

HISTORY

1. Change without regulatory effect amending subsection (b)(4) and adoption of Note filed 8-28-91 pursuant to section 100, title 1, California Code of Regulations (Register 92, No. 4).

2. Repealer of subsection (b)(6), subsection renumbering, and amendment of Note filed 4-7-97; operative 4-7-97 pursuant to Government Code section 11343.4(d) (Register 97, No. 15).

§10.3168. Information Regarding Pro Forma Financial Statements--Commercial Banking Business.

Note • History

(a) Provide a pro forma balance sheet of the subject institution as of the end of the first half-year of business, as of the end of the first year of business, and as of the end of the second year of business.

(b) Provide a pro forma statement of income and a pro forma statement of shareholder's equity of the subject institution for the first half-year of business, for the first year of business, and for the second year of business.

NOTE

Authority cited: Section 215, Financial Code. Reference: Section 360, Financial Code.

HISTORY

1. Amendment of subsection (a), repealer of subsections (a)(1)-(a)(14), amendment of subsection (b), repealer of subsections (b)(1)-(c)(4), subsection relettering, and new Note filed 4-7-97; operative 4-7-97 pursuant to Government Code section 11343.4(d) (Register 97, No. 15).

§10.3169. Information Regarding Pro Forma Financial Statements--Trust Business.

Note • History

(a) Provide a pro forma fiduciary statement of the subject institution as of the first half-year of business, as of the end of the first year of business, and as of the end of the second year of business, stating, with respect to each of the following types of fiduciary accounts, the number of such fiduciary accounts and the market value of the assets of such fiduciary accounts:

(1) Court trusts.

(2) Personal living trusts.

(3) Employee benefit trusts.

(4) Managing agency accounts.

(5) Safekeeping, custodian, nonmanaging agency, and escrow accounts.

(6) Corporate accounts.

(7) Local agency security accounts.

(8) Other fiduciary accounts.

(b) In case the subject institution is to be an independent trust company, provide a pro forma balance sheet of the subject institution as of the end of the first half-year of business, as of the end of the first year of business, and as of the end of the second year of business.

(c) In case the subject institution is to be an independent trust company, provide a pro forma statement of income and a pro forma statement of shareholders' equity of the subject institution for the first half-year of business, as of the end of the first year of business, and as of the end of the second year of business.

(d) In case the subject institution is to be a commercial bank with trust department, provide a pro forma statement of income of the trust department of the subject institution for the first half-year of business, for the first year of business, and for the second year of business.

(e) Explain the basis for the pro forma statements called for in this Section.

(f) State whether or not the pro forma statements called for in Subdivision (d) of this Section include adjustments for (1) charges for a pro rata portion of administrative overhead or taxes or (2) credits for deposits of fiduciary account funds with the commercial banking department of the subject institution, and, if so, describe such adjustments.

NOTE

Authority cited: Section 215, Financial Code. Reference: Section 360, Financial Code.

HISTORY

1. Amendment of subsections (a) and (b), repealer of subsections (b)(1)-(b)(11), amendment of subsection (c), repealer of subsections (c)(1)-(c)(10), amendment of subsection (d), repealer of subsections (d)(1)-(e)(4), subsection relettering, and new Note filed 4-7-97; operative 4-7-97 pursuant to Government Code section 11343.4(d) (Register 97, No. 15).

§10.3170. Information Regarding Effects on Competition--Commercial Banking Business.

Note • History

NOTE

Authority cited: Section 215, Financial Code. Reference: Section 360, Financial Code.

HISTORY

1. Change without regulatory effect amending section filed 7-2-91 pursuant to section 100, title 1, California Code of Regulations (Register 91, No. 40).

2. Repealer filed 4-7-97; operative 4-7-97 pursuant to Government Code section 11343.4(d) (Register 97, No. 15).

§10.3171. Information Regarding Effects on Competition--Trust Business.

History

HISTORY

1. Repealer filed 4-7-97; operative 4-7-97 pursuant to Government Code section 11343.4(d) (Register 97, No. 15).

§10.3172. Information Regarding Public Convenience and Advantage--Commercial Banking Business.

Note • History

Show that the establishment of the subject institution will promote the public convenience and advantage.

NOTE

Authority cited: Section 215, Financial Code. Reference: Section 360, Financial Code.

HISTORY

1. Amendment of first paragraph, repealer oif subsections (a)-(e) and new Note filed 4-7-97; operative 4-7-97 pursuant to Government Code section 11343.4(d) (Register 97, No. 15).

§10.3173. Information Regarding Public Convenience and Advantage--Trust Business.

Note • History

Show that the establishment of the subject institution will promote the public convenience and advantage. Such showing shall include the following:

(a) Comment on the adequacy of existing trust services.

(b) Cite any factors which make it inconvenient or impractical for existing trust administration offices of trust companies to provide trust services adequately.

(c) Specify any trust services which are not provided or which are only inadequately provided by existing trust administration offices of trust companies.

(d) State the reasons why additional trust services are needed.

(e) Describe the manner in which the subject institution proposes to respond to existing trust needs.

NOTE

Authority cited: Section 215, Financial Code. Reference: Section 360, Financial Code.

HISTORY

1. Amendment of section and new Note filed 4-7-97; operative 4-7-97 pursuant to Government Code section 11343.4(d) (Register 97, No. 15).

§10.3174. Information Regarding Reasonable Promise of Successful Operation.

Note • History

NOTE

Authority cited: Section 215, Financial Code. Reference: Section 360, Financial Code.

HISTORY

1. Amendment of section heading and first paragraph, repealer of subsections (a) and (b) and new Note filed 4-7-97; operative 4-7-97 pursuant to Government Code section 11343.4(d) (Register 97, No. 15).

2. Repealer filed 4-14-98; operative 5-14-98 (Register 98, No. 16).

§10.3175. Information Regarding Reasonable Promise of Successful Operation--Trust Business.

History

HISTORY

1. Repealer filed 4-7-97; operative 4-7-97 pursuant to Government Code section 11343.4(d) (Register 97, No. 15).

§10.3176. Information Regarding Proposed Membership in Federal Reserve System.

State whether or not it is proposed that the subject institution be a member bank.

§10.3177. Information Regarding Purposes of Applicants.

(a) State the reasons why the applicants wish to establish the subject institution.

(b) State whether or not it is proposed that the subject institution be merged or consolidated with any other bank or that the business of the subject institution be sold to any other bank, and, if so, describe such proposal.

§10.3178. Information Regarding Assistance in Preparation of Application.

History

HISTORY

1. Repealer filed 4-7-97; operative 4-7-97 pursuant to Government Code section 11343.4(d) (Register 97, No. 15).

§10.3179. Signature and Acknowledgment.

(a) An application for authority to organize a subject institution shall be signed at the places provided on the facing page personally by each of the applicants and, in the case of any applicant which is a corporation, in the name of such corporation.

(b) The signature of each applicant on an application for authority to organize a subject institution shall be acknowledged.

§10.3180. Fee.

An application for authority to organize a subject institution shall be accompanied by the fee prescribed in Financial Code Section 360.

§10.3181. Amendment.

Note • History

An amendment to an application for authority to organize a subject institution shall be signed by the person designated in such application as the representative of the applicants. However, any amendment to an application for authority to organize a subject institution which changes the representative of the applicants shall be signed, and the signatures acknowledged, in like manner as is required by Section 10.3179 of this Chapter in the case of an original application.

NOTE

Authority cited: Section 215, Financial Code. Reference: Section 360, Financial Code.

HISTORY

1. Amendment of section and new Note filed 4-7-97; operative 4-7-97 pursuant to Government Code section 11343.4(d) (Register 97, No. 15).

Part 3. Administrative Standards and Procedures

§10.3300. Scope.

This Part contains regulations which set forth administrative standards and procedures relating to an application for authority to organize a subject institution.

§10.3301. Incomplete Application.

Note • History

As an administrative procedure, the Commissioner generally will reject for filing any application for authority to organize a subject institution which is not substantially complete.

NOTE

Authority cited: Section 215, Financial Code. Reference: Section 362, Financial Code.

HISTORY

1. Change without regulatory effect amending section and adding new Note filed 8-19-97 pursuant to section 100, title 1, California Code of Regulations (Register 97, No. 34).

§10.3302. Shareholders' Equity.

Note • History

As an administrative standard, the Commissioner generally requires that, at the time when a subject institution which is a commercial bank commences business, the shareholders' equity of such subject institution be not less than 10% of estimated total deposits of the subject institution as of the end of the third year of business.

NOTE

Authority cited: Section 215, Financial Code. Reference: Section 362, Financial Code.

HISTORY

1. Change without regulatory effect amending section and adding new Note filed 8-19-97 pursuant to section 100, title 1, California Code of Regulations (Register 97, No. 34).

Part 4. Pre-Incorporation Matters

Subpart 1. General Provisions

§10.3350. Scope.

This Part contains regulations relating to the pre-incorporation period in the establishment of a subject institution. This Subpart contains general provisions relating to pre-incorporation period in the establishment of a subject institution. Subpart 2 (commencing with Section 10.3375) of this Part contains regulations relating to the offer and sale, before a subject institution is incorporated, of securities to be issued by such subject institution and of rights or options to subscribe for or purchase such securities. Subpart 3 (commencing with Section 10.3400) of this Part contains regulations relating to the solicitation and acceptance, before a subject institution is incorporated, of pre-opening funds for such proposed subject institution. Subpart 4 (commencing with Section 10.3425) of this Part contains regulations relating to other matters in the pre-incorporation period in the establishment of a subject institution.

Subpart 2. Pre-Incorporation Offer and Sale of Securities

§10.3375. Scope.

(a) This Subpart contains regulations relating to the offer and sale, before a subject institution is incorporated, of securities to be issued by such subject institution and of rights or options to subscribe for or purchase such securities.

(b) Nothing in this Subpart shall affect the Corporate Securities Law of 1968 (Division 1 (commencing with Section 25000), Title 4 of the Corporations Code) or any regulation adopted pursuant thereto.

§10.3376. Definitions.

In this Subpart:

(a) “Offer” or “offer to sell” has the meaning set forth in Financial Code Section 690(a).

(b) “Sale” or “sell” has the meaning set forth in Financial Code Section 690(b).

§10.3377. Requirement of Permit.

Except as otherwise provided in Section 10.3378 of this Chapter, no proposed director, proposed officer, or organizer of a proposed subject institution shall offer or sell any security to be issued by such subject institution or any right or option to subscribe for or purchase any such security unless the Superintendent has issued a permit authorizing such offer or sale.

§10.3378. Exemptions.

There are hereby exempted from the provisions of Section 10.3377 of this Chapter and, to the extent applicable, the provisions of Financial Code Section 691 as not being comprehended within the purposes of Section 10.3377 of this Chapter or of Financial Code Section 691 and the regulation of which is not necessary or appropriate in the public interest or for the protection of investors, the following transactions and securities:

(a) The offer (but not the sale) by a proposed director, proposed officer, or organizer of a proposed subject institution to any proposed director, proposed officer, or organizer of such proposed subject institution of any security to be issued by the subject institution or of any right or option to subscribe for or purchase any such security, provided:

(1) No advertisement shall be published regarding the security or such right or option.

(2) No consideration for the security or the right or option shall be accepted.

(b) The offer and sale by a proposed director, proposed officer, or organizer of a proposed subject institution to any proposed director, proposed officer, or organizer of such proposed subject institution of any right or option to subscribe for or purchase any security to be issued by the subject institution, provided:

(1) No advertisement shall be published regarding the right or option.

(2) The total number of purchasers shall not exceed 25.

(3) No consideration for such right or option shall be accepted except in accordance with the provisions of Subpart 3 (commencing with section 3.500) of this Part for the purpose of paying pre-opening expenses of the proposed subject institution.

(c) The offer (but not the sale) by any proposed director, proposed officer, or organizer of a proposed subject institution to any commercial bank of a security interest in any security to be issued by such subject institution or in any right or option to subscribe for or purchase any such security.

§10.3379. Application for Permit.

Note • History

An application for a permit authorizing the offer or sale by a proposed director, proposed officer, or organizer of a proposed subject institution of a security to be issued by such subject institution or of a right or option to subscribe for or purchase any such security shall contain:

(a) Name of the proposed subject institution.

(b) Address or vicinity of the proposed head office of the proposed subject institution.

(c) Name, address, business or occupation, and proposed title of each of the proposed directors, proposed officers, and organizers of the proposed subject institution.

(d) Description of the security or of the right or option to be offered or sold.

(e) Description of the terms and conditions of the offer or sale.

(f) Description of the manner in which the offer or sale is to be made.

(g) Description of the persons to whom the offer or sale is to be made, including:

(1) In case the offer or sale is to be made to specified persons, the name, address, and business or occupation of each such specified person.

(2) In case the offer or sale is to be made to a specified class of persons, a description of such specified class and the approximate number of persons in the specified class.

(h) Copies of all documents to be used in connection with the offer or sale.

(i) Opinion of an attorney at law that the offer or sale will not contravene either (1) the Corporate Securities Law of 1968 or any regulation adopted pursuant thereto or (2) the Securities Act of 1933 (15 U.S.C. Sections 77a-77aa) or any regulation adopted pursuant thereto.

NOTE

Authority cited: Section 215, Financial Code. Reference: Section 360, Financial Code.

HISTORY

1. Repealer of subsection (g)(3) and new Note filed 4-7-97; operative 4-7-97 pursuant to Government Code section 11343.4(d) (Register 97, No. 15).

§10.3380. Administrative Standards.

Note • History

(a) As an administrative standard, if the Commissioner finds that the proposed offer or sale by a proposed director, proposed officer, or organizer of a proposed subject institution of securities to be issued by such subject institution or of rights or options to subscribe for or purchase such securities is fair, just, and equitable, he will grant an application for a permit authorizing such offer or sale, such permit; if the Commissioner finds otherwise, he will deny the application.

(b) As an administrative standard, the Commissioner generally will not grant an application for a permit authorizing an unrestricted public offer or unrestricted public sale by a proposed director, proposed officer, or organizer of a proposed subject institution of securities to be issued by such subject institution or of rights or options to subscribe for or purchase such securities.

(c) As an administrative standard, the Commissioner generally will grant an application for a permit authorizing the offer (but not the sale) by a proposed director, proposed officer, or organizer of a proposed subject institution of securities to be issued by such subject institution, provided that such offer is limited to soliciting, in the proposed service area of the subject institution or among an appropriate class of persons, nonbinding indications of interest in subscribing for such securities.

NOTE

Authority cited: Section 215, Financial Code. Reference: Section 693, Financial Code.

HISTORY

1. Change without regulatory effect amending section and adding new Note filed 8-19-97 pursuant to section 100, title 1, California Code of Regulations (Register 97, No. 34).

Subpart 3. Pre-Incorporation Solicitation and Acceptance of Pre-Opening Funds

§10.3400. Scope.

Note • History

(a) This Subpart contains regulations relating to the solicitation and acceptance, before a subject institution is incorporated, of pre-opening funds for such proposed subject institution.

(b) This Subpart does not apply to any offer or sale by a subject institution, after incorporation, of any security issued by it under authority of a permit or of an exemption from Financial Code Section 691 issued by the Commissioner or the proceeds of any such sale.

(c) This Subpart does not apply in any case where pre-opening funds for a proposed subject institution are provided exclusively by an organizer of such proposed subject institution which is a bank, a registered bank holding company, or a person which will be required to become a registered bank holding company on account of the establishment of the proposed subject institution.

(d) Nothing in this Subpart shall affect the Corporate Securities Law of 1968 (Division 1 (commencing with Section 25000), Title 4 of the Corporations Code) or any regulation adopted pursuant thereto.

NOTE

Authority cited: Section 215, Financial Code.

HISTORY

1. Change without regulatory effect amending section and adding new Note filed 8-19-97 pursuant to section 100, title 1, California Code of Regulations (Register 97, No. 34).

§10.3401. Requirement of Approval.

Note • History

Except as otherwise provided in Section 10.3402 of this Chapter, no proposed director, proposed officer, or organizer of a proposed subject institution shall solicit or accept pre-opening funds for such proposed subject institution from any person unless the Commissioner has approved such solicitation and acceptance.

NOTE

Authority cited: Section 215, Financial Code.

HISTORY

1. Change without regulatory effect amending section and adding new Note filed 8-19-97 pursuant to section 100, title 1, California Code of Regulations (Register 97, No. 34).

§10.3402. Exemptions.

Note • History

There are hereby exempted from the provisions of Section 10.3402 of this Chapter as not being comprehended within the purposes of Section 10.3402 of this Chapter and the regulation of which is not necessary or appropriate in the public interest or for the protection of the public, the following transactions:

(a) The solicitation and acceptance by a proposed director, proposed officer, or organizer of a proposed subject institution from any proposed director, proposed officer, or organizer of such proposed subject institution of pre-opening funds for the proposed subject institution, provided:

(1) No advertisement shall be published regarding the solicitation or acceptance of pre-opening funds.

(2) The total number of persons from whom pre-opening funds for the subject institution are accepted shall not exceed 25.

(3) No pre-opening funds shall be accepted from any person except pursuant to a written agreement which shall provide:

(A) Terms under which the pre-opening funds are accepted.

(B) Terms under which the pre-opening funds shall be held, including the name of the California commercial bank in which such money is to be deposited in accordance with Section 10.3405(a) of this Chapter and the name and address of the manager of the pre-incorporation pre-opening funds account.

(C) Terms under which the pre-opening funds shall be disbursed, including a provision that the pre-opening funds shall be expended only for the purpose of paying pre-opening expenditures of the proposed subject institution.

(D) Terms under which the pre-opening funds shall be repaid.

(E) That the pre-opening funds, if expended for the purpose of paying pre-opening expenditures of the proposed subject institution, may not be repaid unless, among other contingencies, an application for authority to organize the subject institution is filed with and approved by the Commissioner, the subject institution is organized and is issued a certificate of authority to transact commercial banking business, trust business, or both, as the case may be, the subject institution, in case it is a commercial bank, becomes an insured bank, and pre-opening expenditures are assumed by the subject institution and, in the case of pre-opening noncapital expenditures, approved by the Commissioner; and that no assurance can be given that any of the foregoing contingencies will occur.

(b) The solicitation and acceptance by a proposed director, proposed officer, or organizer of a proposed subject institution from any commercial bank of pre-opening funds for such proposed subject institution.

NOTE

Authority cited: Section 215, Financial Code.

HISTORY

1. Change without regulatory effect amending section and adding new Note filed 8-19-97 pursuant to section 100, title 1, California Code of Regulations (Register 97, No. 34).

§10.3403. Application for Approval.

Note • History

An application by a proposed director, proposed officer, or organizer of a proposed subject institution for approval to solicit and accept pre-opening funds for such proposed subject institution shall contain:

(a) Name of the proposed subject institution.

(b) Address or vicinity of the proposed head office of the proposed subject institution.

(c) Name, address, business or occupation, and proposed title of each of the proposed directors, proposed officers, and organizers of the proposed subject institution.

(d) Amount of pre-opening funds to be solicited and accepted.

(e) Description of the terms and conditions under which pre-opening funds are to be solicited and accepted.

(f) Description of the manner in which pre-opening funds are to be solicited and accepted.

(g) Description of the persons from whom pre-opening funds are to be solicited and accepted, including:

(1) In case pre-opening funds are to be solicited and accepted from specified persons, the name, address, and business or occupation of each such specified person.

(2) In case pre-opening funds are to be solicited and accepted from a specified class of persons, a description of such specified class and the approximate number of persons in the specified class.

(h) Opinion of an attorney at law that the solicitation and acceptance of pre-opening funds will not contravene either (1) the Corporate securities Law of 1968 or any regulation adopted pursuant thereto or (2) the Securities Act of 1933 (15 U.S.C. Sections 77a-77aa) or any regulation adopted pursuant thereto.

NOTE

Authority cited: Section 215, Financial Code. Reference: Section 350, Financial Code.

HISTORY

1. Repealer of subsection (g)(3) and new Note filed 4-7-97; operative 4-7-97 pursuant to Government Code section 11343.4(d) (Register 97, No. 15).

2. Repealer of subsections (h)-(i), subsection relettering, and amendment of Note filed 4-14-98; operative 5-14-98 (Register 98, No. 16).

§10.3404. Administrative Standards.

Note • History

(a) As an administrative standard, if the Commissioner finds that the proposed solicitation and acceptance by a proposed director, proposed officer, or organizer of a proposed subject institution of pre-opening funds for such proposed subject institution is fair, just, and equitable, he will grant an application for approval of such solicitation and acceptance, subject to such terms and conditions as he may provide in such approval; if the Commissioner finds otherwise, he will deny the application.

(b) As an administrative standard, the Commissioner generally will not grant an application for approval for a proposed director, proposed officer, or organizer of a proposed subject institution to solicit and accept pre-opening funds for such proposed subject institution from the public on an unrestricted basis.

NOTE

Authority cited: Section 215, Financial Code.

HISTORY

1. Change without regulatory effect amending section and adding new Note filed 8-19-97 pursuant to section 100, title 1, California Code of Regulations (Register 97, No. 34).

§10.3405. Account.

(a) Any pre-opening funds for a proposed subject institution accepted by a proposed director, proposed officer, or organizer of such proposed subject institution shall, upon acceptance, be deposited in a deposit account with a California commercial bank. No other funds shall be deposited in such account.

(b) No funds shall be withdrawn from a pre-incorporation pre-opening funds account for a proposed subject institution except:

(1) Upon the order of the manager of such account; and

(2) For the purpose of paying pre-opening expenditures of such proposed subject institution or in accordance with the provisions of Section 10.3408 of this Chapter.

§10.3406. Records.

Note • History

(a) The manager of a pre-incorporation pre-opening funds account shall keep and maintain records containing:

(1) With respect to each deposit to the account:

(A) Date of deposit.

(B) Amount of money deposited.

(2) With respect to each withdrawal from the account:

(A) Date of withdrawal.

(B) Amount of money withdrawn.

(D) Description of purpose of such payment.

(E) Any invoice or billing relating to such payment.

(3) Copy of each agreement with person from whom money is accepted, including each agreement called for in Section 10.3402(a)(3) of this Chapter, if applicable.

(4) Copies of all documents used in connection with the solicitation or acceptance of pre-incorporation pre-opening funds.

(b) The manager of a pre-incorporation pre-opening funds account shall preserve the records called for in Subdivision (a) of this Section for a period of not less than four years after such account is closed.

(c) The manager of a pre-incorporation pre-opening funds account for a proposed subject institution shall, upon request, make the records called for in Subdivision (a) of this Section available for inspection and copying by the Commissioner, any proposed director, proposed officer, or organizer of such proposed subject institution, any person from whom pre-opening funds for the proposed subject institution have been accepted, and the subject institution, if and when incorporated.

NOTE

Authority cited: Section 215, Financial Code. Reference: Section 350, Financial Code.

HISTORY

1. Change without regulatory effect amending section and adding new Note filed 8-19-97 pursuant to section 100, title 1, California Code of Regulations (Register 97, No. 34).

2. New subsection (a)(4) and amendment of Note filed 4-14-98; operative 5-14-98 (Register 98, No. 16).

§10.3407. Reports.

Note • History

On or before the 15th day of each calendar quarter, commencing with the calendar quarter after pre-opening funds for a proposed subject institution are first accepted by a proposed director, proposed officer, or organizer of such proposed subject institution and continuing until the pre-incorporation pre-opening funds account for the proposed subject institution is closed in accordance with the provisions of Section 10.3408 of this Chapter, the manager of such account shall file with the Commissioner a report stating, with respect to the last calendar quarter:

(1) Opening balance of the account.

(2) Total amount deposited in the account during the calendar quarter.

(3) Total amount disbursed from the account during the calendar quarter.

(4) Closing balance of the account.

NOTE

Authority cited: Section 215, Financial Code. Reference: Section 350, Financial Code.

HISTORY

1. Amendment of subsection (a)(5) and new Note filed 4-7-97; operative 4-7-97 pursuant to Government Code section 11343.4(d) (Register 97, No. 15).

2. Change without regulatory effect amending section filed 8-19-97 pursuant to section 100, title 1, California Code of Regulations (Register 97, No. 34).

3. Amendment of section and Note filed 4-14-98; operative 5-14-98 (Register 98, No. 16).

§10.3408. Disposition.

Note • History

(a) In case an application for authority to organize a subject institution is approved by the Commissioner and such proposed subject institution is incorporated, the balance of the pre-incorporation pre-opening funds account for the proposed subject institution may be transferred to the post-incorporation pre-opening funds account of the subject institution.

(b) In case an application for authority to organize a subject institution is not filed with the Commissioner within nine months after pre-opening funds for such proposed subject institution are first accepted by a proposed director, proposed officer, or organizer of the proposed subject institution, or in case an application for authority to organize a subject institution filed with the Commissioner within such time is denied by the Commissioner and a reapplication for authority to organize such subject institution is not filed with the Commissioner within 90 days after such denial, or in case an application for authority to organize a subject institution is approved by the Commissioner and such proposed subject institution is incorporated but the balance of the pre-incorporation pre-opening funds account for the proposed subject institution is not, within 90 days after such incorporation, transferred to the post-incorporation pre-opening funds account of the subject institution, the manager of the pre-incorporation pre-opening funds account for the proposed subject institution shall, after making all disbursements authorized under the terms of agreements with persons from whom pre-opening funds for the proposed subject institution were accepted, including the agreements called for in Section 10.3402(a)(3) of this Chapter, if applicable, pay the balance of such account on a pro rata basis to the persons from whom pre-opening funds for the proposed subject institution have been accepted by the proposed directors, proposed officers, or organizers of the proposed subject institution and, after making such payments, close the account.

NOTE

Authority cited: Section 215, Financial Code.

HISTORY

1. Change without regulatory effect amending section and adding new Note filed 8-19-97 pursuant to section 100, title 1, California Code of Regulations (Register 97, No. 34).

Subpart 4. Other Pre-Incorporation Matters

§10.3425. Scope.

This Subpart contains regulations relating to matters (other than matters relating to offer and sale of securities and solicitation and acceptance of pre-opening funds) in the pre-incorporation period in the establishment of a subject institution.

§10.3426. Name.

No proposed director, proposed officer, or organizer of a proposed subject institution shall use the name of such proposed subject institution in any document unless the designation “Proposed” is appended to such name.

§10.3427. Advertisements.

Note • History

(a) An application for authority to organize a subject institution shall contain a copy of each advertisement regarding such proposed subject institution which is published before the time when such application is filed.

(b) Whenever, at any time after an application for authority to organize a subject institution is filed, any proposed director, proposed officer, or organizer of such proposed subject institution publishes an advertisement regarding the proposed subject institution, he shall, before or concurrently with such publication, serve a copy of such advertisement on the Commissioner.

NOTE

Authority cited: Section 215, Financial Code.

HISTORY

1. Change without regulatory effect amending section and adding new Note filed 8-19-97 pursuant to section 100, title 1, California Code of Regulations (Register 97, No. 34).

§10.3428. Articles.

Note • History

Promptly after an application for authority to organize a subject institution is approved by the Commissioner, the applicants shall file with the Commissioner an application for approval of the articles of such subject institution.

NOTE

Authority cited: Section 215, Financial Code. Reference: Section 400, Financial Code.

HISTORY

1. Amendment of section and new Note filed 4-7-97; operative 4-7-97 pursuant to Government Code section 11343.4(d) (Register 97, No. 15).

2. Change without regulatory effect amending section filed 8-19-97 pursuant to section 100, title 1, California Code of Regulations (Register 97, No. 34).

Part 5. Post-Incorporation Matters

Subpart 1. General Provisions

§10.3450. Scope.

This Part contains regulations relating to the post-incorporation period in the establishment of a subject institution. This Subpart contains general provisions relating to the post-incorporation period in the establishment of a subject institution. Subpart 2 (commencing with Section 10.3475) of this Part contains regulations relating to the solicitation and acceptance by a subject institution, after incorporation, of pre--opening funds. Subpart 3 (commencing with Section 10.3500) of this Part contains regulations relating to other matters in the post--incorporation period in the establishment of a subject institution.

Subpart 2. Post-Incorporation Solicitation and Acceptance of Pre-Opening Funds

§10.3475. Scope.

Note • History

(a) This Subpart contains regulations relating to the solicitation and acceptance by a subject institution, after incorporation, of pre-opening funds.

(b) Nothing in this Subpart shall apply to or affect any offer or sale by a subject institution, after incorporation, of any security issued by it under authority of a permit or of an exemption from Financial Code Section 691 issued by the Commissioner or the proceeds of any such sale.

(c) This Subpart does not apply in any case where pre-opening funds for a subject institution are provided exclusively by an organizer of such subject institution which is a bank, a registered bank holding company, or a person which will be required to become a registered bank holding company on account of the establishment of the subject institution.

(d) Nothing in this Subpart shall affect the Corporate Securities Law of 1968 (Division 1 (commencing with Section 25000), Title 4 of Corporations Code) or any regulation adopted pursuant thereto.

NOTE

Authority cited: Section 215, Financial Code.

HISTORY

1. Change without regulatory effect amending section and adding new Note filed 8-19-97 pursuant to section 100, title 1, California Code of Regulations (Register 97, No. 34).

§10.3476. Requirement of Approval.

Note • History

Except as otherwise provided in Section 10.3477 of this Chapter, no subject institution shall solicit or accept pre-opening funds from any person unless the Commissioner has approved such solicitation and acceptance.

NOTE

Authority cited: Section 215, Financial Code.

HISTORY

1. Change without regulatory effect amending section and adding new Note filed 8-19-97 pursuant to section 100, title 1, California Code of Regulations (Register 97, No. 34).

§10.3477. Exemptions.

Note • History

There are hereby exempted from the provisions of Section 10.3476 of this Chapter as not being comprehended within the purposes of Section 10.3476 of this Chapter and the regulation of which is not necessary or appropriate in the public interest or for the protection of the public, the following transactions:

(a) The solicitation and acceptance by a subject institution from any director, officer, or organizer of such subject institution of pre-opening funds, provided:

(1) No advertisement shall be published regarding the solicitation or acceptance of pre-opening funds.

(2) The total number of persons from whom pre-opening funds are accepted by the subject institution, together with the total number of persons from whom pre-opening funds were accepted before incorporation of the subject institution by a then proposed director, proposed officer, or organizer of the then proposed subject institution, shall not exceed 25.

(3) No pre-opening funds shall be accepted from any person except pursuant to a written agreement which shall provide:

(A) Terms under which the pre-opening funds are accepted.

(D) Terms under which the pre-opening funds shall be repaid.

(E) That the pre-opening funds, if expended for the purpose of paying pre-opening expenditures of the subject institution, may not be repaid unless, among other contingencies, the subject institution is organized and is issued a certificate of authority to transact commercial banking business, trust business, or both, as the case may be, the subject institution, in case it is a commercial bank, becomes an insured bank, and pre-opening noncapital expenditures are approved by the Commissioner; and that no assurance can be given that any of the foregoing contingencies will occur.

(b) The solicitation and acceptance by a subject institution from any commercial bank of pre-opening funds.

NOTE

Authority cited: Section 215, Financial Code.

HISTORY

1. Change without regulatory effect amending section and adding new Note filed 8-19-97 pursuant to section 100, title 1, California Code of Regulations (Register 97, No. 34).

§10.3478. Application for Approval.

Note • History

An application by a subject institution for approval to solicit and accept pre-opening funds shall contain:

(a) Amount of pre-opening funds to be solicited and accepted.

(b) Description of the terms and conditions under which pre-opening funds are to be solicited and accepted.

(d) Description of the persons from who pre-opening funds are to be solicited and accepted, including:

(1) In case pre-opening funds are to be solicited and accepted from specified persons, the name, address, and business or occupation of each such specified person.

(2) In case pre-opening funds are to be solicited and accepted from a specified class of persons, a description of such specified class and the approximate number of persons in the specified class.

(e) Opinion by an attorney at law that the solicitation and acceptance of pre-opening funds will not contravene either (1) the Corporate Securities Law of 1968 or any regulation adopted pursuant thereto or (2) the Securities Act of 1933 (15 U.S.C. Sections 77a-77aa) or any regulation adopted pursuant thereto.

NOTE

Authority cited: Section 215, Financial Code. Reference: Sections 350 and 362, Financial Code.

HISTORY

1. Repealer of subsection (d)(3) and new Note filed 4-7-97; operative 4-7-97 pursuant to Government Code section 11343.4(d) (Register 97, No. 15).

2. Repealer of subsections (e) and (f), subsection relettering, and amendment of Note filed 4-14-98; operative 5-14-98 (Register 98, No. 16).

§10.3479. Administrative Standards.

Note • History

(a) As an administrative standard, if the Commissioner finds that the proposed solicitation and acceptance by a subject institution of pre-opening funds is fair, just and equitable, he will grant an application for approval of such solicitation and acceptance, subject to such terms and conditions as he may provide in such approval; if the Commissioner finds otherwise, he will deny the application.

(b) As an administrative standard, the Commissioner generally will not grant an application by a subject institution for approval to solicit and accept pre-opening funds from the public on an unrestricted basis.

NOTE

Authority cited: Section 215, Financial Code.

HISTORY

1. Change without regulatory effect amending section and adding new Note filed 8-19-97 pursuant to section 100, title 1, California Code of Regulations (Register 97, No. 34).

§10.3480. Account.

(a) Not more than 30 days after incorporation, a subject institution shall establish a deposit account with a California commercial bank, and there shall be deposited in such account any pre-opening funds transferred pursuant to Section 10.3408(a) of this Chapter from the pre-incorporation pre-opening funds account for such subject institution, upon such transfer, and any pre-opening funds for the subject institution accepted by the subject institution, upon such acceptance. No other funds shall be deposited in such account.

(b) No funds shall be withdrawn from the post-incorporation pre-opening funds account of a subject institution except:

(1) Upon the order of an officer of such subject institution duly authorized by the board of directors of the subject institution; and

(2) For the purpose of paying pre-opening expenditures of the subject institution or in accordance with the provisions of Section 10.3483 of this Chapter.

§10.3481. Records.

Note • History

(a) A subject institution shall keep and maintain records relating to its post-incorporation pre-opening funds account, containing:

(1) With respect to each deposit to the account:

(A) Date of deposit.

(B) Amount of money deposited.

(2) With respect to each withdrawal from the account:

(A) Date of withdrawal.

(B) Amount of money withdrawn.

(D) Description of purpose of such payment.

(E) Any invoice or billing relating to such payment.

(3) Copy of each agreement with persons from whom money is accepted, including each agreement called for in Section 10.3477(a)(3) of this Chapter, if applicable.

(4) Copies of all documents used in connection with the solicitation or acceptance of post-incorporation pre-opening funds.

(b) A subject institution shall preserve the records called for in Subdivision (a) of this Section for a period of not less than four years after the account is closed.

(c) A subject institution shall, upon request, make the records called for in Subdivision (a) of this Section available for inspection and copying by the Commissioner, any person from whom pre-opening funds have been accepted by the subject institution, and, in case any pre-opening funds were transferred from the pre-incorporation pre-opening funds account for the subject institution to the post-incorporation pre-opening funds account of the subject institution, any person from whom pre-opening funds were accepted before incorporation of the subject institution by a then proposed director, proposed officer, or organizer of the then proposed subject institution.

NOTE

Authority cited: Section 215, Financial Code. Reference: Sections 350 and 362, Financial Code.

HISTORY

1. Change without regulatory effect amending section and adding new Note filed 8-19-97 pursuant to section 100, title 1, California Code of Regulations (Register 97, No. 34).

2. New subsection (a)(4) and amendment of Note filed 4-14-98; operative 5-14-98 (Register 98, No. 16).

§10.3482. Reports.

Note • History

On or before the 15th day of each calendar quarter, commencing with the first calendar quarter after incorporation of a subject institution and continuing until the post-incorporation pre-opening funds account of such subject institution is closed in accordance with the provisions of Section 10.3483 of this Chapter, the subject institution shall file with the Commissioner a report stating, with respect to the last calendar quarter:

(1) Opening balance of the account.

(2) Total amount deposited in the account during the calendar quarter.

(3) Total amount disbursed from the account during the month.

(4) Closing balance of the account.

NOTE

Authority cited: Section 215, Financial Code. Reference: Sections 350, 362, 401 and 1934, Financial Code.

HISTORY

1. Amendment of subsection (a)(5) and new Note filed 4-7-97; operative 4-7-97 pursuant to Government Code section 11343.4(d) (Register 97, No. 15).

2. Change without regulatory effect amending section filed 8-19-97 pursuant to section 100, title 1, California Code of Regulations (Register 97, No. 34).

3. Amendment of section and Note filed 4-14-98; operative 5-14-98 (Register 98, No. 16).

§10.3483. Disposition.

In case the right to organize a subject institution automatically terminates pursuant to Financial Code Section 404 or in case a subject institution commences business, such subject institution shall, after making all disbursements authorized under the terms of agreements with persons from whom pre-opening funds were accepted, including any agreement called for in Section 10.3402(a)(3) or 10.3477(a)(3) of this Chapter, if applicable, pay the balance of its post-incorporation pre-opening funds account on a pro rata basis to the persons from whom pre-opening funds were accepted by the subject institution and, in case any pre-opening funds were transferred from the pre-incorporation pre-opening funds account for the subject institution to the post-incorporation pre-opening funds account, the persons from whom pre-opening funds were accepted before incorporation of the subject institution by the then proposed directors, proposed officers, or organizers of the then proposed subject institution, and, after making such payments, close such account.

Subpart 3. Other Post-Incorporation Matters

§10.3500. Scope.

This Subpart contains regulations relating to matters (other than matters relating to solicitation and acceptance of pre-opening funds) in the post-incorporation period in the establishment of a subject institution.

§10.3501. Name.

No subject institution shall, at any time before commencing business, use its name in any document unless the designation “In Organization” is appended to such name.

§10.3502. Advertisements.

Note • History

No subject institution shall, at any time before commencing business, publish any advertisement regarding itself unless it shall have filed a copy of such advertisement with the Commissioner not less than five business days before such publication.

NOTE

Authority cited: Section 215, Financial Code.

HISTORY

1. Change without regulatory effect amending section and adding new Note filed 8-19-97 pursuant to section 100, title 1, California Code of Regulations (Register 97, No. 34).

§10.3503. Contracts.

Note • History

No subject institution shall, at any time before commencing business, enter into any contract for the acquisition, construction, or lease of real property or any contract by the terms of which such subject institution is obligated to pay an aggregate total amount in excess of 5% of its proposed contributed capital unless it shall have filed a copy of such contract with the Commissioner not less than five business days before entering into such contract.

NOTE

Authority cited: Section 215, Financial Code.

HISTORY

1. Change without regulatory effect amending section and adding new Note filed 8-19-97 pursuant to section 100, title 1, California Code of Regulations (Register 97, No. 34).

§10.3504. Articles.

Note • History

A subject institution shall file with the Commissioner a copy of its articles certified by the Secretary of State.

NOTE

Authority cited: Section 215, Financial Code. Reference: Section 400, Financial Code.

HISTORY

1. Change without regulatory effect amending section and adding new Note filed 8-19-97 pursuant to section 100, title 1, California Code of Regulations (Register 97, No. 34).

§10.3505. By-Laws.

History

HISTORY

1. Repealer filed 4-7-97; operative 4-7-97 pursuant to Government Code section 11343.4(d) (Register 97, No. 15).

§10.3506. Directors.

Note • History

(b) An application by a subject institution for approval for the election of a person as a director shall contain:

(1) Name of the proposed director.

(2) Personal financial statement in the form of Department Form 2, containing the information called for therein, dated as of a date within 90 days before the filing of the application, and signed by the proposed director.

(3) Confidential resume in the form of Department Form 3, containing the information called for therein, dated as of a date within 90 days before the filing of the application and signed by the proposed director.

(4) Statement dated as of a date within 90 days before the filing of the application and signed by the proposed director, stating:

(A) Amount of shares of the subject institution for which the proposed director has subscribed or intends to subscribe, the source of funds with which he intends to pay for such subscription, and, if any of such funds are to be borrowed, the amount to be borrowed and the source of funds with which he intends to repay such amount.

(B) Whether or not, to the knowledge or information and belief of the proposed director, any consociate of the proposed director has subscribed or intends to subscribe for shares of the subject institution and, if so, the name, business address, home address, and business or occupation of the consociate, the amount of shares of the subject institution for which the consociate has subscribed or intends to subscribe, the source of funds with which he intends to pay for such subscription, and, if any of such funds are to be borrowed, the amount to be borrowed and the source of funds with which he intends to repay such amount.

(D) Whether or not the proposed director has had in the past or has presently any relationship with any bank as director, officer, employee, adviser, 15 percent equity security owner, or in any other capacity (other than solely as a customer), and, if so, the name of the bank and a description of the relationship, and, in the case of any present relationship, whether the proposed director intends to continue, change, or terminate such relationship if and when the subject institution commences business.

NOTE

Authority cited: Section 215, Financial Code. Reference: Chapter 3, Division 1, Financial Code.

HISTORY

1. Amendment of subsection (b)(4)(D), repealer of subsections (b)(4)(E) and (b)(4)(F), and new Note filed 4-7-97; operative 4-7-97 pursuant to Government Code section 11343.4(d) (Register 97, No. 15).

2. Change without regulatory effect amending section filed 8-19-97 pursuant to section 100, title 1, California Code of Regulations (Register 97, No. 34).

§10.3507. Officers and Employees.

Note • History

(a) (1) Except with the prior approval of the Commissioner, no subject institution shall, at any time before commencing business, appoint as an officer any person not named as such proposed officer in the application for authority to organize such subject institution.

(2) An application by a subject institution for approval to appoint a person as an officer shall contain:

(A) Name of the proposed officer.

(B) Proposed title.

(D) Amount of salary and description of other compensation to be paid to the proposed officer.

(E) Personal financial statement in the form of Department Form 2, containing the information called for therein, dated as of a date within 90 days before the filing of the application, and signed by the proposed officer.

(F) Confidential resume in the form of Department Form 3, containing the information called for therein, dated as of a date within 90 days before the filing of the application, and signed by the proposed officer.

(G) Statement dated as of a date within 90 days before the filing of the application and signed by the proposed officer, stating:

1. Amount of shares of the subject institution for which the proposed officer has subscribed or intends to subscribe, the source of funds with which he intends to pay for such subscription, and, if any of such funds are to be borrowed, the amount to be borrowed and the source of funds with which he intends to repay such amount.

2. Whether or not, to the knowledge or information and belief of the proposed officer, any consociate of the proposed officer has subscribed or intends to subscribe for shares of the subject institution and, if so, the name, business address, home address, and business or occupation of the consociate, the amount of shares of the subject institution for which the consociate has subscribed or intends to subscribe, the source of funds with which he intends to pay for such subscription, and, if any of such funds are to be borrowed, the amount to be borrowed and the source of funds with which he intends to repay such amount.

3. Commercial banking, trust, other financial, and other business experience of the proposed officer, including, with respect to each position held, title, description of duties, name and address of employer, period of employment, and reason for leaving.

4. Whether or not the proposed officer has ever been discharged or requested to resign from any position, and, if so, an account of the circumstances.

(b) (1) Except with the prior approval of the Commissioner, no subject institution shall, at any time before commencing business, enter into any contract of employment with any officer.

(2) An application by a subject institution for approval to enter into a contract of employment with an officer shall contain a copy of the proposed contract of employment.

(c)(1) Except with the prior approval of the Commissioner, no subject institution shall, at any time before commencing business, commence to pay salary or other compensation to any officer.

(2) An application by a subject institution for approval to commence to pay salary or other compensation to an officer shall contain:

(A) Name and title of the officer.

(B) Description of duties proposed to be performed by the officer.

(D) Statement of reasons why it is necessary that the subject institution, before commencing business, pay salary or other compensation to the officer.

NOTE

Authority cited: Section 215, Financial Code. Reference: Chapter 3, Division 1 and Section 692, Financial Code.

HISTORY

1. Editorial correction of subsection (a)(1) printing error (Register 89, No. 8).

2. Repealer of subsections (a)(2)(G)4., subsection renumbering, amendment of subsection (c)(1), repealer of subsections (c)(3)-(c)(3)(D), and new Note filed 4-7-97; operative 4-7-97 pursuant to Government Code section 11343.4(d) (Register 97, No. 15).

3. Change without regulatory effect amending section filed 8-19-97 pursuant to section 100, title 1, California Code of Regulations (Register 97, No. 34).

§10.3508. Loans from Correspondent Banks.

Note • History

NOTE

Authority cited: Section 215, Financial Code. Reference: Section 3365, Financial Code.

HISTORY

1. Change without regulatory effect amending subsection (b)(1) filed 7-2- 91 pursuant to section 100, title 1, California Code of Regulations (Register 91, No. 40).

2. Repealer filed 4-7-97; operative 4-7-97 pursuant to Government Code section 11343.4(d) (Register 97, No. 15).

§10.3509. Sale of Shares.

Note • History

NOTE

Authority cited: Section 215, Financial Code. Reference: Chapter 3, Division 1 and Section 692, Financial Code.

HISTORY

1. Amendment of section and new Note filed 4-7-97; operative 4-7-97 pursuant to Government Code section 11343.4(d) (Register 97, No. 15).

2. Change without regulatory effect amending section filed 8-19-97 pursuant to section 100, title 1, California Code of Regulations (Register 97, No. 34).

§10.3510. Reserve and Non-Reserve Depositaries.

History

HISTORY

1. Repealer filed 4-7-97; operative 4-7-97 pursuant to Government Code section 11343.4(d) (Register 97, No. 15).

§10.3511. Committees of Board.

Note • History

A subject institution shall, by resolution of its board, establish committees of such board (including, in case the subject institution is to engage in commercial banking business, a loan committee, an investment committee, and an audit committee and, in case the subject institution is to engage in trust business, a trust investment committee and a trust audit committee).

NOTE

Authority cited: Section 215, Financial Code. Reference: Chapter 3, Division 1, Financial Code.

HISTORY

1. Amendment of first paragraph, repealer of subsections (a)-(e), and new Note filed 4-7-97; operative 4-7-97 pursuant to Government Code section 11343.4(d) (Register 97, No. 15).

§10.3512. Policies.

Note • History

A subject institution shall, by resolution of its board, adopt the following policies:

(a) Investment policy which shall set forth a general statement of investment policies and objectives, and in addition, set forth standards and procedures on investment matters.

(b) In case the subject institution is a commercial bank, a loan policy which shall set forth a general statement of loan policies and objectives, and, in addition, set forth standards and procedures on lending matters.

(c) In case the subject institution is to engage in trust business, a trust investment policy which shall set forth a general statement of trust investment policies and objectives, and, in addition, set forth standards and procedures on trust investment matters.

(d) In case the subject institution is to be a commercial bank with trust department or an independent trust company which will be an affiliate of a commercial bank, a trust conflict of interest policy which shall set forth the standards and procedures of the subject institution to prevent conflicts of interest relating to trust business and which shall contain, in addition to a general statement on policies and objectives in preventing conflicts of interest relating to trust business, standards and procedures to prevent the following:

(1) Any improper transmission to or use by the trust department or by the independent trust company of information which is held by the commercial banking department or the affiliate commercial bank, as the case may be.

(2) Any improper transmission to or use by the commercial banking department or the affiliate commercial bank of information which is held by the trust department or the independent trust company, as the case may be.

(3) Any improper deposits by the trust department or the independent trust company of fiduciary account funds with the commercial banking department or the affiliate commercial bank, as the case may be, or any other improper transactions between the trust department and the commercial banking department or between the independent trust company and the affiliate commercial bank, as the case may be.

NOTE

Authority cited: Section 215, Financial Code. Reference: Chapter 3, Division 1, Financial Code.

HISTORY

1. Amendment of section and new Note filed 4-7-97; operative 4-7-97 pursuant to Government Code section 11343.4(d) (Register 97, No. 15).

§10.3513. Bonds and Other Insurance Policies.

Note • History

Not less than five business days before commencing business, a subject institution shall:

(a) In case the subject institution is to be a commercial bank, obtain a banker's blanket bond which shall be satisfactory in form and content to the Commissioner.

(b) In case the subject institution is to be an independent trust company, obtain a fidelity bond which shall be satisfactory in form and content to the Commissioner.

NOTE

Authority cited: Section 215, Financial Code. Reference: Chapter 3, Division 1, Financial Code.

HISTORY

1. Amendment of subsections (a)-(c), repealer of subsections (c)(1)-(c)(2), and new Note filed 4-7-97; operative 4-7-97 pursuant to Government Code section 11343.4(d) (Register 97, No. 15).

2. Change without regulatory effect amending section filed 8-19-97 pursuant to section 100, title 1, California Code of Regulations (Register 97, No. 34).

§10.3514. Report Regarding Subscribers.

Note • History

After the subscriptions for shares of a subject institution have been accepted and paid but not less than five business days before such subject institution commences business, the subject institution shall file with the Commissioner a report stating, with respect to each subscriber for shares of the subject institution whose subscription has been accepted and paid:

(a) Name.

(b) Address.

NOTE

Authority cited: Section 215, Financial Code.

HISTORY

1. Change without regulatory effect amending section and adding new Note filed 8-19-97 pursuant to section 100, title 1, California Code of Regulations (Register 97, No. 34).

§10.3515. Reports Regarding Contributed Capital.

Note • History

Not more than 30 days nor less than five business days before commencing business, a subject institution shall file with the Commissioner a report signed by an executive officer of the subject institution, stating:

(a) That the entire contributed capital of the subject institution, specifying the amount, has been fully paid in lawful money, unconditionally; and,

(b) That the funds representing such contributed capital, plus or minus net income, gain, or loss on investments, specifying the amount, are on deposit in a California commercial bank, specifying the name and address, subject to withdrawal on demand.

NOTE

Authority cited: Section 215, Financial Code. Reference: Section 400, Financial Code.

HISTORY

1. Change without regulatory effect amending subsection (a)(1) filed 7-2- 91 pursuant to section 100, title 1, California Code of Regulations (Register 91, No. 40).

2. Change without regulatory effect amending section filed 8-19-97 pursuant to section 100, title 1, California Code of Regulations (Register 97, No. 34).

3. Amendment of section filed 4-14-98; operative 5-14-98 (Register 98, No. 16).

§10.3516. Deposit with State Treasurer.

Note • History

After complying with Section 10.3515 of this Chapter but not less than five business days before commencing business, a subject institution which is to engage in trust business shall apply to the Commissioner for approval of money or securities to be deposited with the State Treasurer; and, before commencing business, such subject institution shall, pursuant to such order as the Commissioner may issue, deposit with the State Treasurer money or securities as security for the faithful performance and execution of all court trusts accepted by the subject institution and money or securities for the faithful performance of all private trusts accepted by the subject institution.

NOTE

Authority cited: Section 215, Financial Code. Reference: Sections 1500, 1500.1 and Article 3, Chapter 12, Division 1, Financial Code.

HISTORY

1. Amendment of section and new Note filed 4-7-97; operative 4-7-97 pursuant to Government Code section 11343.4(d) (Register 97, No. 15).

2. Change without regulatory effect amending section filed 8-19-97 pursuant to section 100, title 1, California Code of Regulations (Register 97, No. 34).

§10.3517. Report Regarding Differences from Application.

Note • History

(a) Not more than 30 days nor less than five business days before commencing business, a subject institution shall file with the Commissioner a report signed by an officer of such subject institution, stating whether or not the subject institution is or is to be different in any material respect from what was proposed in the application for authority to organize the subject institution, and, if so, describing such difference.

(b) As an administrative standard, if the Commissioner finds that a subject institution is or is to be different in any material respect from what was proposed in the application for authority to organize such subject institution and that, if such difference had existed at the time when the Commissioner decided the application for authority to organize the subject institution, he would have denied the application, the Commissioner will not issue a certificate of authority to the subject institution.

NOTE

Authority cited: Section 215, Financial Code. Reference: Sections 350, 362, 401 and 1934, Financial Code.

HISTORY

1. Change without regulatory effect amending section and adding new Note filed 8-19-97 pursuant to section 100, title 1, California Code of Regulations (Register 97, No. 34).

2. Amendment of subsection (a) and Note filed 4-14-98; operative 5-14-98 (Register 98, No. 16).

§10.3518. Time for Completing Organization.

Note • History

(a) For purposes of Financial Code Section 404, no subject institution shall be deemed to have filed evidence of incorporation and organization with the Commissioner pursuant to Financial Code Section 400 unless such subject institution shall have filed with the Commissioner:

(1) Copy of its articles of incorporation certified by the Secretary of State.

(2) Reports called for in Section 10.3515 of this Chapter.

(b) An application by a subject institution for an extension of time for completing organization shall contain:

(1) Date on which the time for completing organization is scheduled to expire.

(2) Description of progress to date in the organization of the subject institution.

(3) Proposed timetable for completing the organization of the subject institution.

(4) Amount of additional time requested for completing the organization of the subject institution.

(5) Statement of reasons why such additional time is required for completing the organization of the subject institution.

(c) In case the right to organize a subject institution automatically terminates pursuant to Financial Code Section 404, such subject institution shall be wound up and dissolved, and it shall file with the Commissioner:

(1) Copy of a certificate of election to wind up and dissolve filed with the Secretary of State pursuant to Corporations Code Section 1901, certified by the Secretary of State.

(2) Either (A) a copy of a certificate of dissolution filed with Secretary of State pursuant to Corporations Code Section 1905, certified by the Secretary of State, or (B) a copy of an order entered by a superior court pursuant to Corporations Code Section 1907, certified by the clerk of such superior court.

NOTE

Authority cited: Section 215, Financial Code. Reference: Sections 400, 404 and 1934, Financial Code.

HISTORY

1. Change without regulatory effect amending section and adding new Note filed 8-19-97 pursuant to section 100, title 1, California Code of Regulations (Register 97, No. 34).

2. Repealer of subsection (a)(2), subsection relettering, and amendment of Note filed 4-14-98; operative 5-14-98 (Register 98, No. 16).

§10.3519. Application for Issuance of Certificate of Authority and Fee.

Note • History

(a) Not less than one business day before commencing business, a subject institution shall file with the Commissioner an application for the issuance of a certificate of authority authorizing such subject institution to transact commercial banking business, trust business, or both, as the case may be. Such application shall state:

(1) Address of the head office of the subject institution.

(2) Date on which the subject institution proposes to commence business.

(b) The application called for in Subdivision (a) of this Section shall be accompanied by the fee prescribed in Financial Code Section 400(c).

NOTE

Authority cited: Section 215, Financial Code.

HISTORY

1. Change without regulatory effect amending section and adding new Note filed 8-19-97 pursuant to section 100, title 1, California Code of Regulations (Register 97, No. 34).

§10.3520. Deposit Insurance.

No subject institution which is a commercial bank shall commence business unless it is an insured bank.

§10.3521. Report Regarding Commencement of Business.

Note • History

Not more than five business days after commencing business, a subject institution shall file with the Commissioner a report stating the date on which it commenced business.

NOTE

Authority cited: Section 215, Financial Code.

HISTORY

1. Change without regulatory effect amending section and adding new Note filed 8-19-97 pursuant to section 100, title 1, California Code of Regulations (Register 97, No. 34).

§10.3522. Reports Regarding Transaction of Business.

History

HISTORY

1. Repealer filed 4-7-97; operative 4-7-97 pursuant to Government Code section 11343.4(d) (Register 97, No. 15).

§10.3523. Refinancing Purchase of Shares.

History

HISTORY

1. Repealer filed 4-7-97; operative 4-7-97 pursuant to Government Code section 11343.4(d) (Register 97, No. 15).

§10.3524. Payment of Pre-Opening Noncapital Expenditures.

Note • History

(a) After commencing business, a subject institution may file with the Commissioner an application for approval to pay pre-opening noncapital expenditures. Such an application shall contain:

(1) Total amount and itemized schedule of pre-opening noncapital expenditures proposed to be paid.

(2) Itemized schedule of proposed payments of pre-opening noncapital expenditures showing, with respect to each person to whom the aggregate total amount proposed to be paid, directly or indirectly, is $5,000 or more and, with respect to each director, officer, organizer, 25 percent (including consociates) equity security owner of the subject institution, to whom any amount is proposed to be paid, directly or indirectly:

(A) Name of the person.

(B) Aggregate amount proposed to be paid to the person.

(b) As an administrative standard, the Commissioner generally will not grant an application by a subject institution for approval to pay a pre-opening noncapital expenditure if he finds that such pre-opening noncapital expenditure is not a usual, ordinary, and lawful noncapital expenditure for the purpose of organizing a subject institution.

NOTE

Authority cited: Section 215, Financial Code. Reference: Section 406, Financial Code.

HISTORY

1. Amendment of subsection (a)(2) and new Note filed 4-7-97; operative 4-7-97 pursuant to Government Code section 11343.4(d) (Register 97, No. 15).

2. Change without regulatory effect amending section filed 8-19-97 pursuant to section 100, title 1, California Code of Regulations (Register 97, No. 34).

§10.3525. Winding Up and Dissolution.

Note • History

In case the right of a subject institution to transact business automatically terminates pursuant to Financial Code Section 405, such subject institution shall promptly surrender its certificate of authorization to the Commissioner for cancellation. Also, the subject institution shall be promptly wound up and dissolved, and the subject institution shall file with the Commissioner:

(a) Copy of a certificate of election to wind up and dissolve filed with the Secretary of State pursuant to Corporations Code Section 1901, certified by the Secretary of State.

(b) Either (1) a copy of a certificate of dissolution filed with the Secretary of State pursuant to Corporations Code Section 1905, certified by the Secretary of State, or (2) a copy of an order entered by a superior court pursuant to Corporations Code Section 1907, certified by the clerk of such superior court.

NOTE

Authority cited: Section 215, Financial Code. Reference: Section 405, Financial Code.

HISTORY

1. Change without regulatory effect amending section and adding new Note filed 8-19-97 pursuant to section 100, title 1, California Code of Regulations (Register 97, No. 34).

Subarticle 3. Establishment of Trust Department by California State Commercial Bank

Part 1. General Provisions

§10.3700. Definition of “Applicant” and Scope.

Note • History

(a) In this Subarticle, “applicant” means a California state commercial bank which applies to the Commissioner for authority to engage in trust business.

(b) This Subarticle contains regulations relating to the establishment by an applicant of a trust department pursuant to Financial Code Section 1500.1. This Part contains general provisions relating to the establishment by an applicant of a trust department. Part 2 (commencing with Section 10.3750) of this Subarticle contains regulations relating to an application by an applicant for authority to engage in trust business. Part 3 (commencing with Section 10.3800) of this Subarticle contains regulations which set forth administrative standards and procedures relating to an application by an applicant for authority to engage in trust business. Part 4 (commencing with Section 10.3850) of this Subarticle contains regulations relating to matters after an application by an applicant for authority to engage in trust business is approved by the Commissioner.

NOTE

Authority cited: Section 215, Financial Code. Reference: Section 1500.1, Financial Code.

HISTORY

1. Change without regulatory effect amending section and adding new Note filed 8-19-97 pursuant to section 100, title 1, California Code of Regulations (Register 97, No. 34).

§10.3701. Other Definition.

Note • History

In this Subarticle, “proposed branch office,” when used with respect to an applicant, means a branch office which such applicant has applied to the Commissioner for authority to establish, with respect to which the Commissioner has either approved or not yet decided such application, and which the applicant has not yet established.

NOTE

Authority cited: Section 215, Financial Code. Reference: Section 1500.1, Financial Code.

HISTORY

1. Change without regulatory effect amending section and adding new Note filed 8-19-97 pursuant to section 100, title 1, California Code of Regulations (Register 97, No. 34).

§10.3702. Commencement of Trust Business.

Note • History

For purposes of this Article, an applicant shall be deemed to commence trust business at the time when, the Commissioner having issued to such applicant a certificate of authority authorizing it to transact trust business, the applicant opens its trust department for the purpose of engaging in trust business.

NOTE

Authority cited: Section 215, Financial Code. Reference: Section 1500.1, Financial Code.

HISTORY

1. Change without regulatory effect amending section and adding new Note filed 8-19-97 pursuant to section 100, title 1, California Code of Regulations (Register 97, No. 34).

Part 2. Application

§10.3750. Scope.

This Part contains regulations relating to an application by an applicant for authority to engage in trust business.

§10.3751. Information Required.

An application for authority to engage in trust business shall contain the information called for in Sections 10.3752 to 10.3765, inclusive, of this Chapter.

§10.3752. Information Regarding Proposed Locations.

Note • History

(a) (1) State the address or vicinity of, or otherwise identify (such as by reference to an office of the applicant), each place at which the applicant proposes to establish a trust administration office.

(2) No applicant shall propose to establish a trust administration office at any place other than a place at which it maintains its head office or a branch office unless:

(A) Prior to or concurrently with the filing of the application for authority to engage in trust business, such applicant files with the Commissioner an application for authority to establish a branch office at such place. (For regulations relating to an application for authority to establish a branch office, refer to Part 2 (commencing with Section 10.6700), Subarticle 3, of this Subchapter.); or

(B) The establishment by the applicant of a branch office at such place is exempt from the authorization requirement of Financial Code Section 500(b) pursuant to Financial Code Section 490.

(b) (1) State the address or vicinity of, or otherwise identify (such as by reference to an office of the applicant), each place (other than a trust administration office) at which the applicant proposes to engage in trust business, and describe the trust business which the applicant proposes to conduct at such place.

(2) No applicant shall propose to engage in trust business at any place (other than a trust administration office) unless:

(A) Such applicant maintains its head office, a branch office, or, if the trust business proposed to be conducted at such place does not constitute branch banking business, a place of business at such place;

(B) Prior to or concurrently with the filing of the application for authority to engage in trust business, the applicant files with the Commissioner an application for authority to establish a branch office or a place of business, as the case may be, at such place (For regulations relating to an application for authority to establish a branch office, refer to Part 2 (commencing with Section 10.6700), Subarticle 3, of this Subchapter. For regulations relating to an application for authority to establish a place of business, refer to Part 2 (commencing with Section 10.9100), Subarticle 4, Article 5 of this Subchapter.); or

(C) The establishment by the applicant of a branch office or a place of business, as the case may be, at such place is exempt from the authorization requirement of Financial Code Section 500(b) or 541 pursuant to Financial Code Section 490.

NOTE

Authority cited: Section 215, Financial Code. Reference: Section 1500.1, Financial Code.

HISTORY

1. Amendment of section and new Note filed 4-7-97; operative 4-7-97 pursuant to Government Code section 11343.4(d) (Register 97, No. 15).

2. Change without regulatory effect amending section filed 8-19-97 pursuant to section 100, title 1, California Code of Regulations (Register 97, No. 34).

§10.3753. Information Regarding Proposed Market.

Note • History

(a) Describe the principal trust services which are proposed to be offered by the trust department.

(b) Describe the market that the trust department is proposed to serve.

NOTE

Authority cited: Section 215, Financial Code. Reference: Section 1500.1, Financial Code.

HISTORY

1. Amendment of section and new Note filed 4-7-97; operative 4-7-97 pursuant to Government Code section 11343.4(d) (Register 97, No. 15).

§10.3754. Information Regarding Marketing Plan.

History

HISTORY

1. Repealer filed 4-7-97; operative 4-7-97 pursuant to Government Code section 11343.4(d) (Register 97, No. 15).

§10.3755. Information Regarding Proposed Officers, Employees, and Advisers.

Note • History

(a) Provide a table showing, with respect to the proposed senior trust officer and any other proposed officer of the trust department who has been selected:

(1) Name.

(2) Business address.

(3) Home address.

(4) Age.

(5) Business or occupation.

(6) Proposed title.

(7) Proposed duties.

(8) Proposed annual salary.

(b) Provide a table showing, with respect to each proposed officer position of the trust department for which no person has been selected, including the positions of principal trust investment officer, principal trust operations officer, and trust administrative officers:

(1) Proposed title.

(2) Proposed duties.

(3) Proposed annual salary.

(c) With respect to each proposed officer of the trust department listed in the table called for in Subdivision (a) of this Section, provide:

(3) Statement dated as of a date within 90 days before the filing of the application and signed by the proposed officer, stating:

(A) Trust, commercial banking, other financial, and other business experience of the proposed officer, including, with respect to each position held, title, description of duties, name and address of employer, period of employment, and reason for leaving.

(B) Whether or not the proposed officer has had in the past or has presently any relationship with any bank as director, officer, employee, adviser, 15 percent equity security owner, or in any other capacity (other than solely as a customer), and, if so, the name of the bank and a description of the relationship, and, in the case of any present relationship, whether the proposed officer intends to continue, change, or terminate such relationship if and when he becomes an officer of the trust department.

(C) Whether or not the proposed officer has ever been discharged or requested to resign from any position, and, if so, an account of the circumstances.

(d) State the amount of salary and describe any other compensation which the applicant proposes to pay to each officer of the trust department and to all employees, as a group, or the trust department during each of the first three years of business of the trust department.

NOTE

Authority cited: Section 215, Financial Code. Reference: Section 1500.1, Financial Code.

HISTORY

1. Amendment of subsection (c)(3)(B), repealer of subsections (e)-(g)5. and new Note filed 4-7-97; operative 4-7-97 pursuant to Government Code section 11343.4(d) (Register 97, No. 15).

§10.3756. Information Regarding Proposed Premises, Furniture, and Equipment.

Note • History

(a) State whether or not the applicant proposes, in connection with the establishment of the trust department, to purchase, lease, or construct any real property for the premises of the trust department or for other banking premises.

(b) State the total amount to be expended in connection with the premises, furniture and equipment of the trust administration office by the end of the first year of business.

NOTE

Authority cited: Section 215, Financial Code. Reference: Section 1500.1, Financial Code.

HISTORY

1. Amendment of subsection (a), repealer of subsections (a)(1), (a)(2), and (c)-(i), new subsection (c) and new Note filed 4-7-97; operative 4-7-97 pursuant to Government Code section 11343.4(d) (Register 97, No. 15).

2. Repealer of subsection (a) and subsection relettering filed 4-14-98; operative 5-14-98 (Register 98, No. 16).

§10.3757. Information Regarding Proposed Operations.

Note • History

(a) Describe the proposed policies and procedures of the trust department relating to:

(1) Acceptance of fiduciary accounts.

(2) Initial and periodic review of fiduciary accounts.

(b) Describe any provisions for successor trustees which are proposed to be included in fiduciary accounts to be accepted by the trust department.

NOTE

Authority cited: Section 215, Financial Code. Reference: Section 1500.1, Financial Code.

HISTORY

1. Amendment of section and new Note filed 4-7-97; operative 4-7-97 pursuant to Government Code section 11343.4(d) (Register 97, No. 15).

§10.3758. Information Regarding Capital Notes and Shareholders' Equity.

(a) Provide a statement showing the capital notes and shareholders' equity of the applicant as of a date within 30 days before the filing of the application.

(b) State whether or not the applicant proposes, in connection with the establishment of the trust department, to increase its capital notes or shareholders' equity, and, if so, describe such proposal.

§10.3759. Information Regarding Pro Forma Financial Statements.

Note • History

(a) Provide a pro forma fiduciary statement of the trust department as of the end of the first year of business, and as of the end of the second year of business.

(b) Provide a pro forma statement of income of the trust department for the first year of business, and for the second year of business.

(c) State whether or not the pro forma statements called for in Subdivision (b) of this Section include adjustments for (1) charges for a pro rata portion of administrative overhead or taxes or (2) credits for deposits of fiduciary account funds with the commercial banking department of the applicant, and, if so, describe such adjustments.

NOTE

Authority cited: Section 215, Financial Code. Reference: Section 1500.1, Financial Code.

HISTORY

1. Amendment of subsection (a), repealer of subsections (a)(1)-(a)(8), amendment of subsection (b), repealer of subsections (b)(1)-(c), subsection relettering and new Note filed 4-7-97; operative 4-7-97 pursuant to Government Code section 11343.4(d) (Register 97, No. 15).

§10.3760. Information Regarding Effects on Competition.

History

HISTORY

1. Repealer filed 4-7-97; operative 4-7-97 pursuant to Government Code section 11343.4(d) (Register 97, No. 15).

§10.3761. Information Regarding Public Convenience and Advantage.

History

HISTORY

1. Repealer filed 4-7-97; operative 4-7-97 pursuant to Government Code section 11343.4(d) (Register 97, No. 15).

§10.3762. Information Regarding Reasonable Promise of Successful Operation.

Note • History

Show that the trust department has a reasonable promise of successful operation. Such showing shall include a description of the opportunities for obtaining fiduciary accounts.

NOTE

Authority cited: Section 215, Financial Code. Reference: Section 1500.1, Financial Code.

HISTORY

1. Amendment of section and new Note filed 4-7-97; operative 4-7-97 pursuant to Government Code section 11343.4(d) (Register 97, No. 15).

§10.3763. Information Regarding Purposes of Applicant.

State the reasons why the applicant wishes to engage in trust business.

§10.3764. Information Regarding Assistance in Preparation of Application.

History

HISTORY

1. Repealer filed 4-7-97; operative 4-7-97 pursuant to Government Code section 11343.4(d) (Register 97, No. 15).

§10.3765. Information Regarding Authorization of Board.

Provide a copy of a resolution of the board of the applicant authorizing the applicant to apply for authority to engage in trust business. Such copy of the resolution of the board of the applicant shall be certified by the secretary or by an assistant secretary of the applicant.

§10.3766. Fee.

An application by subject institution for authority to engage in trust business shall be accompanied by the fee prescribed in Financial Code Section 1500.1.

Part 3. Administrative Standards and Procedures

§10.3800. Scope.

This Part contains regulations which set forth administrative standards and procedures relating to an application by an applicant for authority to engage in trust business.

§10.3801. Certificates of Authority.

Note • History

In case the Commissioner approves an application by an applicant which has branch offices for authority to engage in trust business, he generally will, when he issues certificates of authority authorizing such applicant to engage in trust business, issue certificates of authority authorizing the applicant to engage in trust business at its head office and at each of its branch offices.

NOTE

Authority cited: Section 215, Financial Code. Reference: Section 1500.1, Financial Code.

HISTORY

1. Change without regulatory effect amending section and adding new Note filed 8-19-97 pursuant to section 100, title 1, California Code of Regulations (Register 97, No. 34).

Part 4. Post-Approval Matters

§10.3850. Scope.

Note • History

This Part contains regulations relating to matters after an application by an applicant for authority to engage in trust business is approved by the Commissioner.

NOTE

Authority cited: Section 215, Financial Code. Reference: Section 1500.1, Financial Code.

HISTORY

1. Change without regulatory effect amending section and adding new Note filed 8-19-97 pursuant to section 100, title 1, California Code of Regulations (Register 97, No. 34).

§10.3851. Amendment of Articles.

Note • History

(a) An applicant shall file with the Commissioner an application for approval of an amendment of its articles which amends its articles to comply with the provisions of Financial Code Section 600(b).

(b) Promptly after the certificate of amendment of articles of an applicant containing the amendment called for in Subdivision (a) of this Section is filed with the Secretary of State, such applicant shall file with the Commissioner a copy of such certificate of amendment of articles certified by the Secretary of State.

NOTE

Authority cited: Section 215, Financial Code. Reference: Sections 600.4 and 1500.1, Financial Code.

HISTORY

1. Amendment of subsection (a) and new Note filed 4-7-97; operative 4-7-97 pursuant to Government Code section 11343.4(d) (Register 97, No. 15).

2. Change without regulatory effect amending section filed 8-19-97 pursuant to section 100, title 1, California Code of Regulations (Register 97, No. 34).

§10.3852. Amendment of By-Laws.

History

HISTORY

1. Repealer filed 4-7-97; operative 4-7-97 pursuant to Government Code section 11343.4(d) (Register 97, No. 15).

§10.3853. Officers of Trust Department.

Note • History

(a) Except with the prior approval of the Commissioner, no applicant shall, at any time before commencing trust business, appoint as an officer of its trust department any person not named as such proposed officer in its application for authority to engage in trust business.

(b) An application for approval to appoint a person as an officer of the trust department of an applicant shall contain:

(1) Name of the proposed officer.

(2) Proposed title.

(3) Description of duties to be performed by the proposed officer.

(4) Amount of salary and description of other compensation to be paid to the proposed officer.

(5) Personal financial statement in the form of Department Form 2, containing the information called for therein, dated as of a date within 90 days before the filing of the application, and signed by the proposed officer.

(6) Confidential resume in the form of Department Form 3, containing the information called for therein, dated as of a date within 90 days before the filing of the application, and signed by the proposed officer.

(7) Statement dated as of a date within 90 days before the filing of the application and signed by the proposed officer, stating:

(B) Whether or not the proposed officer has ever been discharged or requested to resign from any position, and, if so, an account of the circumstances.

NOTE

Authority cited: Section 215, Financial Code. Reference: Section 1500.1, Financial Code.

HISTORY

1. Repealer of subsection (b)(7)(B), subsection relettering, and new Note filed 4-7-97; operative 4-7-97 pursuant to Government Code section 11343.4(d) (Register 97, No. 15).

2. Change without regulatory effect amending section filed 8-19-97 pursuant to section 100, title 1, California Code of Regulations (Register 97, No. 34).

§10.3854. Committees of Board.

History

HISTORY

1. Repealer filed 4-7-97; operative 4-7-97 pursuant to Government Code section 11343.4(d) (Register 97, No. 15).

§10.3855. Policies.

Note • History

Not less than five business days before commencing trust business, an applicant shall, by resolution of its board, adopt the following policies:

(a) Trust investment policy which complies with the requirements of Section 10.3512(c) of this Chapter.

(b) Trust conflict of interest policy which complies with the requirements of Section 10.3512(d) of this Chapter.

NOTE

Authority cited: Section 215, Financial Code. Reference: Section 1500.1, Financial Code.

HISTORY

1. Amendment of section and new Note filed 4-7-97; operative 4-7-97 pursuant to Government Code section 11343.4(d) (Register 97, No. 15).

§10.3856. Deposit with State Treasurer.

Note • History

Not less than five business days before commencing trust business, an applicant shall file with the Commissioner an application for approval of money or securities to be deposited with the State Treasurer; and, before commencing trust business, such applicant shall, pursuant to such order as the Commissioner may issue, deposit with the State Treasurer money or securities as security for the faithful performance and execution of all court trusts accepted by the applicant and money or securities as security for the faithful performance of all private trusts accepted by the applicant.

NOTE

Authority cited: Section 215, Financial Code. Reference: Sections 1500, 1500.1 and Article 3 (commencing with Section 1540) of Chapter 12 of Division 1, Financial Code.

HISTORY

1. Amendment of section and new Note filed 4-7-97; operative 4-7-97 pursuant to Government Code section 11343.4(d) (Register 97, No. 15).

2. Change without regulatory effect amending section filed 8-19-97 pursuant to section 100, title 1, California Code of Regulations (Register 97, No. 34).

§10.3857. Report Regarding Differences from Application.

Note • History

(a) Not more than 30 days nor less than five business days before commencing trust business, an applicant shall file with the Commissioner a report signed by an officer of such applicant, stating whether or not the trust department of the applicant is to be different in any material respect from what was proposed in the application for authority to engage in trust business, and, if so, describing such difference.

(b) As an administrative standard, if the Commissioner finds that the trust department of an applicant is to be different in any material respect from what was proposed in the application for authority to engage intrust business, and that, if such difference had existed at the time when the Commissioner decided such application for authority to engage in trust business, he would have denied the application, the Commissioner will not issue a certificate of authority to the applicant authorizing it to engage in trust business.

NOTE

Authority cited: Section 215, Financial Code. Reference: Sections 1500.1 and 1934, Financial Code.

HISTORY

1. Change without regulatory effect amending section and adding new Note filed 8-19-97 pursuant to section 100, title 1, California Code of Regulations (Register 97, No. 34).

2. Amendment of subsection (a) filed 4-14-98; operative 5-14-98 (Register 98, No. 16).

§10.3858. Expiration and Extension of Approval of Application.

Note • History

(a) The Commissioner's approval of an application for authority to engage in trust business shall, unless extended by the Commissioner, expire six months after the date of such approval.

(b) An application for an extension of the Commissioner's approval of an application for authority to engage in trust business shall contain:

(1) Date on which the approval is scheduled to expire.

(2) Description of progress to date in establishing the trust department.

(3) Proposed timetable for completing the establishment of the trust department.

(4) Amount of additional time requested for completing the establishment of the trust department.

(5) Statement of reasons why such additional time is required for completing the establishment of the trust department.

NOTE

Authority cited: Section 215, Financial Code. Reference: Section 1500.1, Financial Code.

HISTORY

1. Change without regulatory effect amending section and adding new Note filed 8-19-97 pursuant to section 100, title 1, California Code of Regulations (Register 97, No. 34).

§10.3859. Application for Issuance of Certificate of Authority.

Note • History

Not less than one business day before commencing trust business, an applicant shall file with the Commissioner an application for the issuance of a certificate of authority authorizing it to transact trust business. Such application shall state the date on which the applicant proposes to commence trust business.

NOTE

Authority cited: Section 215, Financial Code. Reference: Section 1500.1, Financial Code.

HISTORY

1. Change without regulatory effect amending section and adding new Note filed 8-19-97 pursuant to section 100, title 1, California Code of Regulations (Register 97, No. 34).

§10.3860. Report Regarding Commencement of Trust Business.

History

HISTORY

1. Repealer filed 4-7-97; operative 4-7-97 pursuant to Government Code section 11343.4(d) (Register 97, No. 15).

§10.3861. Report Regarding Transaction of Trust Business.

History

HISTORY

1. Repealer filed 4-7-97; operative 4-7-97 pursuant to Government Code section 11343.4(d) (Register 97, No. 15).

Subarticle 4. Establishment of Trust Department by California Title Insurance Company

Part 1. General Provisions

§10.4000. Definition of “Applicant” and Scope.

Note • History

NOTE

Authority cited: Section 215, Financial Code. Reference: Section 1501, Financial Code.

HISTORY

1. Change without regulatory effect amending subsection (b) filed 7-2-91 pursuant to section 100, title 1, California Code of Regulations (Register 91, No. 40).

2. Repealer of subarticle 4 (sections 10.4000-10.4168), part 1 (sections 10.4000-10.4001) and section filed 4-7-97; operative 4-7-97 pursuant to Government Code section 11343.4(d) (Register 97, No. 15).

§10.4001. Commencement of Trust Business.

History

HISTORY

1. Repealer filed 4-7-97; operative 4-7-97 pursuant to Government Code section 11343.4(d) (Register 97, No. 15).

Part 2. Application

§10.4050. Scope.

History

HISTORY

1. Repealer of part 2 (sections 10.4050-10.4078) and section filed 4-7-97; operative 4-7-97 pursuant to Government Code section 11343.4(d) (Register 97, No. 15).

§10.4051. Included Application.

History

HISTORY

1. Repealer filed 4-7-97; operative 4-7-97 pursuant to Government Code section 11343.4(d) (Register 97, No. 15).

§10.4052. Information Required.

History

HISTORY

1. Repealer filed 4-7-97; operative 4-7-97 pursuant to Government Code section 11343.4(d) (Register 97, No. 15).

§10.4053. Information Regarding Proposed Location of Head Office.

History

HISTORY

1. Repealer filed 4-7-97; operative 4-7-97 pursuant to Government Code section 11343.4(d) (Register 97, No. 15).

§10.4054. Information Regarding Proposed Service Area.

History

HISTORY

1. Repealer filed 4-7-97; operative 4-7-97 pursuant to Government Code section 11343.4(d) (Register 97, No. 15).

§10.4055. Information Regarding Marketing Plan.

History

HISTORY

1. Repealer filed 4-7-97; operative 4-7-97 pursuant to Government Code section 11343.4(d) (Register 97, No. 15).

§10.4056. Information Regarding Board.

History

HISTORY

1. Repealer filed 4-7-97; operative 4-7-97 pursuant to Government Code section 11343.4(d) (Register 97, No. 15).

§10.4057. Information Regarding Executive Officers and Proposed Officers, Employees, and Advisers.

History

HISTORY

1. Repealer filed 4-7-97; operative 4-7-97 pursuant to Government Code section 11343.4(d) (Register 97, No. 15).

§10.4058. Information Regarding Proposed Premises, Furniture, and Equipment.

History

HISTORY

1. Repealer filed 4-7-97; operative 4-7-97 pursuant to Government Code section 11343.4(d) (Register 97, No. 15).

§10.4059. Information Regarding Proposed Operations.

History

HISTORY

1. Repealer filed 4-7-97; operative 4-7-97 pursuant to Government Code section 11343.4(d) (Register 97, No. 15).

§10.4060. Information Regarding Proposed Apportionment of Shareholders' Equity.

History

HISTORY

1. Repealer filed 4-7-97; operative 4-7-97 pursuant to Government Code section 11343.4(d) (Register 97, No. 15).

§10.4061. Information Regarding Pro Forma Financial Statements.

History

HISTORY

1. Repealer filed 4-7-97; operative 4-7-97 pursuant to Government Code section 11343.4(d) (Register 97, No. 15).

§10.4062. Information Regarding Effects on Competition.

History

HISTORY

1. Repealer filed 4-7-97; operative 4-7-97 pursuant to Government Code section 11343.4(d) (Register 97, No. 15).

§10.4063. Information Regarding Public Convenience and Advantage.

History

HISTORY

1. Repealer filed 4-7-97; operative 4-7-97 pursuant to Government Code section 11343.4(d) (Register 97, No. 15).

§10.4064. Information Regarding Reasonable Promise of Successful Operation.

History

HISTORY

1. Repealer filed 4-7-97; operative 4-7-97 pursuant to Government Code section 11343.4(d) (Register 97, No. 15).

§10.4065. Information Regarding History, Business, and Offices.

History

HISTORY

1. Repealer filed 4-7-97; operative 4-7-97 pursuant to Government Code section 11343.4(d) (Register 97, No. 15).

§10.4066. Information Regarding Corporate Matters.

History

HISTORY

1. Repealer filed 4-7-97; operative 4-7-97 pursuant to Government Code section 11343.4(d) (Register 97, No. 15).

§10.4067. Information Regarding Issued and Outstanding Securities.

History

HISTORY

1. Repealer filed 4-7-97; operative 4-7-97 pursuant to Government Code section 11343.4(d) (Register 97, No. 15).

§10.4068. Information Regarding Financial Statements and Reports.

History

HISTORY

1. Repealer filed 4-7-97; operative 4-7-97 pursuant to Government Code section 11343.4(d) (Register 97, No. 15).

§10.4069. Information Regarding Affiliates.

History

HISTORY

1. Repealer filed 4-7-97; operative 4-7-97 pursuant to Government Code section 11343.4(d) (Register 97, No. 15).

§10.4070. Information Regarding Five Percent Equity Security Owners.

History

HISTORY

1. Repealer filed 4-7-97; operative 4-7-97 pursuant to Government Code section 11343.4(d) (Register 97, No. 15).

§10.4071. Information Regarding Legal Proceedings.

History

HISTORY

1. Repealer filed 4-7-97; operative 4-7-97 pursuant to Government Code section 11343.4(d) (Register 97, No. 15).

§10.4072. Information Regarding Authorization of Insurance Commissioner.

History

HISTORY

1. Repealer filed 4-7-97; operative 4-7-97 pursuant to Government Code section 11343.4(d) (Register 97, No. 15).

§10.4073. Information Regarding Purposes of Applicant.

History

HISTORY

1. Repealer filed 4-7-97; operative 4-7-97 pursuant to Government Code section 11343.4(d) (Register 97, No. 15).

§10.4074. Information Regarding Assistance in Preparation of Application.

History

HISTORY

1. Repealer filed 4-7-97; operative 4-7-97 pursuant to Government Code section 11343.4(d) (Register 97, No. 15).

§10.4075. Information Regarding Authorization of Board.

History

HISTORY

1. Repealer filed 4-7-97; operative 4-7-97 pursuant to Government Code section 11343.4(d) (Register 97, No. 15).

§10.4076. Signature and Acknowledgment.

History

HISTORY

1. Repealer filed 4-7-97; operative 4-7-97 pursuant to Government Code section 11343.4(d) (Register 97, No. 15).

§10.4077. Fee.

History

HISTORY

1. Repealer filed 4-7-97; operative 4-7-97 pursuant to Government Code section 11343.4(d) (Register 97, No. 15).

§10.4078. Amendment.

History

HISTORY

1. Repealer filed 4-7-97; operative 4-7-97 pursuant to Government Code section 11343.4(d) (Register 97, No. 15).

Part 4. Post-Approval Matters

§10.4150. Scope.

History

HISTORY

1. Repealer of part 4 (sections 10.4150-10.4168) and section filed 4-7-97; operative 4-7-97 pursuant to Government Code section 11343.4(d) (Register 97, No. 15).

§10.4151. Proxy Documents.

History

HISTORY

1. Repealer filed 4-7-97; operative 4-7-97 pursuant to Government Code section 11343.4(d) (Register 97, No. 15).

§10.4152. Permit.

History

HISTORY

1. Repealer filed 4-7-97; operative 4-7-97 pursuant to Government Code section 11343.4(d) (Register 97, No. 15).

§10.4153. Amendment of Articles.

History

HISTORY

1. Repealer filed 4-7-97; operative 4-7-97 pursuant to Government Code section 11343.4(d) (Register 97, No. 15).

§10.4154. Amendment of By-Laws.

History

HISTORY

1. Repealer filed 4-7-97; operative 4-7-97 pursuant to Government Code section 11343.4(d) (Register 97, No. 15).

§10.4155. Officers of Trust Department.

History

HISTORY

1. Repealer filed 4-7-97; operative 4-7-97 pursuant to Government Code section 11343.4(d) (Register 97, No. 15).

§10.4156. Non-Reserve Depositaries.

History

HISTORY

1. Repealer filed 4-7-97; operative 4-7-97 pursuant to Government Code section 11343.4(d) (Register 97, No. 15).

§10.4157. Committees of Board.

History

HISTORY

1. Repealer filed 4-7-97; operative 4-7-97 pursuant to Government Code section 11343.4(d) (Register 97, No. 15).

§10.4158. Policies.

History

HISTORY

1. Repealer filed 4-7-97; operative 4-7-97 pursuant to Government Code section 11343.4(d) (Register 97, No. 15).

§10.4159. Bond and Other Insurance Policies.

History

HISTORY

1. Repealer filed 4-7-97; operative 4-7-97 pursuant to Government Code section 11343.4(d) (Register 97, No. 15).

§10.4160. Report Regarding Owners of Securities.

History

HISTORY

1. Repealer filed 4-7-97; operative 4-7-97 pursuant to Government Code section 11343.4(d) (Register 97, No. 15).

§10.4161. Apportionment of Shareholders' Equity.

History

HISTORY

1. Repealer filed 4-7-97; operative 4-7-97 pursuant to Government Code section 11343.4(d) (Register 97, No. 15).

§10.4162. Deposit with State Treasurer.

History

HISTORY

1. Repealer filed 4-7-97; operative 4-7-97 pursuant to Government Code section 11343.4(d) (Register 97, No. 15).

§10.4163. Report Regarding Differences from Application.

History

HISTORY

1. Repealer filed 4-7-97; operative 4-7-97 pursuant to Government Code section 11343.4(d) (Register 97, No. 15).

§10.4164. Certificate of Insurance Commissioner.

History

HISTORY

1. Repealer filed 4-7-97; operative 4-7-97 pursuant to Government Code section 11343.4(d) (Register 97, No. 15).

§10.4165. Expiration and Extension of Approval of Application.

History

HISTORY

1. Repealer filed 4-7-97; operative 4-7-97 pursuant to Government Code section 11343.4(d) (Register 97, No. 15).

§10.4166. Certificate of Authority--Issuance and Expiration.

History

HISTORY

1. Repealer filed 4-7-97; operative 4-7-97 pursuant to Government Code section 11343.4(d) (Register 97, No. 15).

§10.4167. Report Regarding Commencement of Trust Business.

History

HISTORY

1. Repealer filed 4-7-97; operative 4-7-97 pursuant to Government Code section 11343.4(d) (Register 97, No. 15).

§10.4168. Reports Regarding Transaction of Trust Business.

History

HISTORY

1. Repealer filed 4-7-97; operative 4-7-97 pursuant to Government Code section 11343.4(d) (Register 97, No. 15).

Subarticle 5. Conversion of California National Bank into California State Bank

Part 1. General Provisions

§10.4300. Definitions of “Applicant” and “Subject Institution” and Scope.

Note • History

(a) In this Subarticle:

(1) “Applicant” means a California national bank which applies to the Commissioner for approval to convert into a subject institution.

(2) “Subject institution” means a California state bank into which an applicant is, or is proposed to be, converted, as follows:

(A) In case the applicant is authorized to engage both in commercial banking business and in trust business, the subject institution shall be a California state commercial bank with trust department.

(B) In case the applicant is authorized to engage only in commercial banking business, the subject institution shall be a California state commercial bank without trust department.

(C) In case the applicant is authorized to engage only in trust business, the subject institution shall be a California state independent trust company.

(b) This Subarticle contains regulations relating to the conversion of an applicant into a subject institution pursuant to Article 2 (commencing with Section 4940) of Chapter 5 of Division 1.5 of the Financial Code. This Part contains general provisions relating to the conversion of an applicant into a subject institution. Part 2 (commencing with Section 10.4350) of this Subarticle contains regulations relating to an application by an applicant for approval to convert into a subject institution. Part 3 (commencing with Section 10.4400) of this Subarticle contains regulations which set forth administrative standards and procedures relating to an application by an applicant for approval to convert into a subject institution. Part 4 (commencing with Section 10.4450) of this Subarticle contains regulations relating to matters after an application by an applicant for approval to convert into a subject institution is approved by the Commissioner.

NOTE

Authority cited: Section 4831, Financial Code. Reference: Article 2, Chapter 5, Dvision 1.5, Financial Code.

HISTORY

1. Amendment of subsection (b) and new Note filed 4-7-97; operative 4-7-97 pursuant to Government Code section 11343.4(d) (Register 97, No. 15).

2. Change without regulatory effect amending section filed 8-19-97 pursuant to section 100, title 1, California Code of Regulations (Register 97, No. 34).

§10.4301. Other Definitions.

In this Subarticle:

(a) “Approved but unopened,” when used with respect to a branch office of an applicant, means a branch office which such applicant has applied to the Comptroller of the Currency for authority to establish, and the status of the matter is that the Comptroller of the Currency has approved such application but the applicant has not yet established such branch office.

(b) “Popular name” means:

(1) When used with respect to a branch office of a subject institution, the name or other designation assigned by such subject institution to such branch office pursuant to Financial Code Section 509.

(2) When used with respect to a branch office of an applicant, the name or other designation assigned to such branch office by such applicant pursuant to applicable requirements of the Comptroller of the Currency.

§10.4302. Commencement of Business.

Note • History

For purposes of this Subarticle, a subject institution shall be deemed to commence business at the time when the Commissioner issues to the subject institution a certificate of authority authorizing it to transact commercial banking business, trust business, or both, as the case may be.

NOTE

Authority cited: Section 4831, Financial Code. Reference: Article 2, Chapter 5, Division 1.5, Financial Code.

HISTORY

1. Amendment of section heading and section and new Note filed 4-7-97; operative 4-7-97 pursuant to Government Code section 11343.4(d) (Register 97, No. 15).

2. Change without regulatory effect amending section filed 8-19-97 pursuant to section 100, title 1, California Code of Regulations (Register 97, No. 34).

Part 2. Application

§10.4350. Scope.

This Part contains regulations relating to an application by an applicant for approval to convert into a subject institution.

§10.4351. Included Application.

Note • History

An application for approval to convert into a subject institution shall, unless otherwise provided in such application, be deemed to include an application for authority pursuant to Article 2 (commencing with Section 500), Chapter 4 of the Banking Law for the subject institution to establish a branch office at the location of each approved but unopened branch office of the applicant, unless the establishment of the branch office is exempt pursuant to Financial Code Section 490 from the authorization requirement of Financial Code Section 500. Approval of an application for approval to convert into a subject institution shall, unless otherwise provided in such approval, be deemed to include approval of such included application. Such subject institution shall, with respect to establishing any branch office pursuant to such approval, comply with the provisions of Subpart 10 (commencing with Section 10.6950), Part 2, Subarticle 3, Article 5 of this Subchapter.

NOTE

Authority cited: Section 4831, Financial Code. Reference: Sections 4835 and 4944, Financial Code.

HISTORY

1. Amendment of section heading and section and new Note filed 4-7-97; operative 4-7-97 pursuant to Government Code section 11343.4(d) (Register 97, No. 15).

§10.4352. Information Required.

An application for approval to convert into a subject institution shall contain the information called for in Sections 10.4353 to 10.4364, inclusive, of this Chapter.

§10.4353. Information Regarding Proposed Name of Subject Institution.

State the proposed name of the subject institution.

§10.4354. Information Regarding Board.

(a) Provide a table showing, with respect to each director of the applicant:

(1) Name.

(2) Business address.

(3) Home address.

(4) Age.

(5) Business or occupation.

(6) Date first elected as a director of the applicant.

(7) Amount and type of securities of the applicant owned, directly or indirectly, of record or beneficially, by the director.

(b) With respect to each director of the applicant, provide:

(2) Confidential resume in the form of Department Form 3, dated as of a date within 90 days before the filing of the application, and signed by the director.

§10.4355. Information Regarding Officers and Employees.

(a) Provide a table showing, with respect to each executive officer of the applicant:

(1) Name.

(2) Business address.

(3) Home address.

(4) Age.

(5) Date first employed by the applicant.

(6) Amount and type of securities of the applicant owned, directly or indirectly, of record or beneficially, by the executive officer.

(7) Title.

(8) Duties.

(9) Annual salary.

(b) With respect to each executive officer of the applicant listed in the table called for in Subdivision (a) of this Section, provide:

(2) Confidential resume the form of Department Form 3, containing the information called for therein, and dated as of a date within 90 days before the filing of the application, and signed by the executive officer.

(3) Statement dated as of a date within 90 days before the filing of the application and signed by the executive officer, stating:

(A) Commercial banking, trust, other financial, and other business experience of the executive officer, including, with respect to each position held, title, description of duties, name and address of employer, period of employment, and reason for leaving.

(B) Whether or not the executive officer has ever been discharged or requested to resign from any position, and, if so, an account of the circumstances.

§10.4356. Information Regarding History, Business, and Offices.

Note • History

(a) State the date on which the applicant commenced banking business, and summarize the history of the applicant.

(b) State whether the applicant is authorized to engage in commercial banking business, trust business, or both.

(d) With respect to each existing branch office of the applicant:

(1) State the popular name of the branch office. If the office has no popular name, state the proposed popular name of the branch office as a branch office of the subject institution.

(2) State the address of the branch office.

(e) With respect to each approved but unopened branch office of the applicant:

(1) State the proposed popular name of the branch office. If the branch office has no proposed popular name, state the proposed popular name of the branch office as a branch office of the subject institution.

(2) State the proposed address of the branch office.

(3) Specify the proposed type of the branch office (that is, regular or special) and, if special, describe the business proposed to be conducted at the branch office. If the applicant proposes to maintain a trust administration office at the branch office, so state.

(4) State the date on which the branch office is proposed to be established.

(5) Provide a copy of the application for authority to establish the branch office which the applicant filed with the Comptroller of the Currency and a copy of the approval of such application by the Comptroller of the Currency.

(f) State the address of each existing the place of business of the applicant.

NOTE

Authority cited: Section 4831, Financial Code. Reference: Sections 4835 and 4944, Financial Code.

HISTORY

1. Repealer of subsections (d)(3), (d)(4), (f)(3) and (g) and new Note filed 4-7-97; operative 4-7-97 pursuant to Government Code section 11343.4(d) (Register 97, No. 15).

2. Repealer of subsections (f) and (f)(2) and redesignation of former subsection (f)(1) as subsection (f) filed 4-14-98; operative 5-14-98 (Register 98, No. 16).

§10.4357. Information Regarding Corporate Matters.

Note • History

Provide a copy of the articles of association of the applicant and of each amendment thereto. Each such copy of the articles of association of the applicant and of any amendment thereto shall be certified by the Comptroller of the Currency.

NOTE

Authority cited: Section 4831, Financial Code. Reference: Sections 4835 and 4944, Financial Code.

HISTORY

1. Repealer of subsection (a) designator, repealer of subsection (b), and new Note filed 4-7-97; operative 4-7-97 pursuant to Government Code section 11343.4(d) (Register 97, No. 15).

§10.4358. Information Regarding Issued and Outstanding Securities.

With respect to each type of security of the applicant which is issued and outstanding:

(a) Describe such type of security.

(b) State the amount of the issued and outstanding securities of such type.

§10.4359. Information Regarding Financial Statements and Reports.

Note • History

(a) In case the applicant is authorized to engage in trust business, provide a fiduciary statement of the trust department of the applicant as of a date within 30 days before the filing of the application.

(b) Provide a copy of the last annual report of the applicant to its shareholders and a copy of any interim report of the applicant to its shareholders issued since the last annual report.

(c) In case the applicant is required to file reports pursuant to Section 13 of the Securities Exchange Act of 1934 (15 U.S.C. Section 78m), provide a copy of the last annual report of the applicant and a copy of each quarterly or current report of the applicant filed since the last annual report.

(d) State whether or not any change is proposed to be made with respect to the shareholders' equity or capital notes of the applicant in connection with the conversion of the applicant into a subject institution, and, if so, describe such change.

NOTE

Authority cited: Section 4831, Financial Code. Reference: Sections 4835 and 4944, Financial Code.

HISTORY

1. Amendment of section and new Note filed 4-7-97; operative 4-7-97 pursuant to Government Code section 11343.4(d) (Register 97, No. 15).

§10.4360. Information Regarding Affiliates.

Note • History

(a) State whether or not the applicant has any affiliates, and, if so, provide a list or diagram which includes the applicant and each affiliate of the applicant which is a parent of the applicant or a subsidiary of such parent, or a subsidiary of the applicant, and which states the name of each affiliate and shows the relationship of the affiliate to the applicant and to each other affiliate.

(b) If an affiliate is registered as a bank holding company under the Bank Holding Company Act of 1956 (12 U.S.C. §§ 1841 et seq.), so state.

(c) If an affiliate is not registered as a bank holding company under the Banking Holding Company Act of 1956, and is an individual:

(1) State:

(A) Name.

(B) Business address.

(D) Business or occupation.

(E) Amount and type of securities of the applicant owned, directly or indirectly, of record or beneficially, by the affiliate and his consociates.

(2) Provide a personal financial statement in the form of Department Form 2, containing the information called for therein, dated as of a date within 90 days before the filing of the application, and signed by the affiliate.

(3) Provide a confidential resume in the form of Department Form 3, containing the information called for therein, dated as of a date within 90 days before the filing of the application, and signed by the affiliate.

(4) Provide a statement dated as of a date within 90 days before the filing of the application and signed by the affiliate, stating the commercial banking, trust, other financial, and other business experience of the affiliate, including, with respect to each position held, title, description of duties, name and address of employer, period of employment, and reason for leaving.

(d) If an affiliate is not registered as a bank holding company under the Banking Holding Company Act of 1956, and is a corporation:

(1) State:

(A) Name.

(B) Address of principal office.

(D) Amount and type of securities of the applicant owned, directly or indirectly, of record or beneficially, by the affiliate.

(2) Provide the following financial statements of the affiliate:

(A) Balance sheet as of a date within 120 days before the filing of the application.

(B) If the balance sheet called for in Subparagraph (A) of this Paragraph (2) is not as of the end of a fiscal year of the affiliate, a balance sheet as of the end of the fiscal year of the affiliate next preceding the date of such balance sheet.

(C) Statement of income and statement of shareholders' equity for each of the two fiscal years of the affiliate next preceding the date of the balance sheet called for in Subparagraph (A) of this Paragraph (2) and, if such balance sheet is not as of the end of a fiscal year of the affiliate, a statement of income and a statement of shareholders' equity for the interim period from the date of the balance sheet called for in Subparagraph (B) of this Paragraph (2) to the date of the balance sheet called for in Subparagraph (A) of this Paragraph (2).

(3) Provide a copy of each of the last two annual reports of the affiliate to its shareholders and a copy of any interim report of the affiliate to its shareholders issued since the last annual report.

(4) In case the affiliate is required to file reports pursuant to Section 13 of the Securities Exchange Act of 1934 (15 U.S.C. Section 78m), provide a copy of each of the last two such annual reports of the affiliate and a copy of each quarterly or current report of the affiliate filed since the last annual report.

(5) Provide a statement dated as of a date within 90 days before the filing of the application and signed by an officer of the affiliate, stating:

(A) Whether or not the affiliate has had in the past or has presently any relationship with any bank (other than the applicant) as adviser, five percent equity security owner, or in any other capacity (other than solely as a customer), and, if so, the name of the bank and a description of the relationship, and, in the case of any present relationship, whether the affiliate intends to continue, change, or terminate such relationship if and when the subject institution commences business.

(B) Whether or not the affiliate participates in the management or operation of the applicant, and, if so, a description of such participation.

(e) In case the affiliate is neither an individual nor a corporation, provide information comparable to the information called for in Subdivision (d) of this Section.

(f) There is hereby exempted from the provisions of Financial Code Section 701 as not being comprehended within the purposes of Article 7 (commencing with Section 700), Chapter 5 of the Banking Law and the regulation of which is not necessary or appropriate in the public interest or for the protection of subject institutions, controlling persons of subject institutions, or the depositors, creditors, or shareholders of subject institutions or of controlling persons of subject institutions, the acquisition of control of an applicant in accordance with its application for authority to convert into a subject institution, as approved by the Commissioner.

NOTE

Authority cited: Section 4831, Financial Code. Reference: Sections 708, 4835 and 4944, Financial Code.

HISTORY

1. Amendment of section and new Note filed 4-7-97; operative 4-7-97 pursuant to Government Code section 11343.4(d) (Register 97, No. 15).

2. Editorial correction of subsection (a) (Register 98, No. 16).

3. New subsection (f) and amendment of Note filed 4-14-98; operative 5-14-98 (Register 98, No. 16).

§10.4361. Information Regarding 25 Percent Equity Security Owners.

Note • History

State whether or not the applicant has any 25 percent equity security owners, and, if so, provide, with respect to each such person:

(a) Name.

(b) Business address.

(d) Amount and class of equity securities of the applicant owned, directly or indirectly, of record or beneficially, by such person.

NOTE

Authority cited: Section 4831, Financial Code. Reference: Sections 4835 and 4944, Financial Code.

HISTORY

1. Amendment of section heading and first paragraph and new Note filed 4-7-97; operative 4-7-97 pursuant to Government Code section 11343.4(d) (Register 97, No. 15).

§10.4362. Information Regarding Legal Proceedings.

Note • History

(a) For purposes of this Section:

(1) A proceeding involving an applicant or an affiliate of an applicant shall not be deemed to be material if it is an ordinary routine proceeding incidental to the business of the applicant or of such affiliate and if the amount of any damages (including interest and costs) claimed against the applicant or the affiliate does not exceed 10% of the shareholders' equity of the applicant.

(2) Notwithstanding the provisions of Paragraph (1) of this Subdivision (a), each of the following proceedings shall be deemed to be material:

(A) Any proceeding in which any person who is, or who is an associate of, any (1) director, (2) officer, or (3) ten percent (including associates) equity security owner of the applicant or an affiliate of the applicant, is a party adverse to the applicant or to any affiliate of the applicant.

(B) Any proceeding in which the applicant, any affiliate of the applicant, or any of the persons referred to in Subparagraph (A) of this Paragraph (2) is a party adverse to any governmental agency which regulates banks.

(C) Any proceeding brought by a shareholder of the applicant or of any affiliate of the applicant which names the applicant or such affiliate as a plaintiff or defendant.

(D) Any bankruptcy, receivership, or similar proceeding.

(b) State whether or not the applicant or any affiliate of the applicant is a party to, or any property of the applicant or of any affiliate of the applicant is the subject of, any material proceeding pending or threatened by or before any court or governmental agency, and, if so, describe such proceeding, including:

(1) In case the proceeding is pending:

(A) Title of the proceeding.

(B) Name of the court or of the governmental agency before which the proceeding is pending.

(D) Date the proceeding was commenced.

(E) Allegations and responses made in the proceeding.

(F) Relief sought in the proceeding.

(G) Status of the proceeding.

(2) In case the proceeding is threatened.

(A) Name of the person threatening to commence the proceeding.

(B) Allegations made by such person.

(D) Relief threatened to be sought in the proceeding.

NOTE

Authority cited: Section 4831, Financial Code. Reference: Sections 4835 and 4944, Financial Code.

HISTORY

1. Amendment of subsection (a)(1), repealer of subsections (a)(2)(D) and (a)(2)(E), subsection relettering, and new Note filed 4-7-97; operative 4-7-97 pursuant to Government Code section 11343.4(d) (Register 97, No. 15).

§10.4363. Information Regarding Proposed Membership in Federal Reserve System.

State whether or not it is proposed that the subject institution be a member bank.

§10.4364. Information Regarding Purposes of Applicant.

State the reasons why the applicant wishes to convert into a subject institution.

§10.4365. Information Regarding Authorization of Board.

Note • History

(a) Provide a copy of a resolution of the board of the applicant authorizing:

(1) Applicant to apply for approval to convert into a subject institution.

(2) Commissioner to examine the applicant in connection with the application.

(3) All directors, officers, employees, and advisers of the applicant and any person having custody of any of the records of the applicant to furnish to the Commissioner such information, and to permit him to inspect and copy such records, as he may request in connection with the application.

(4) Comptroller of the Currency, Board of Governors of the Federal Reserve System, Federal Deposit Insurance Corporation, and any other governmental agency having information or records regarding the applicant to furnish to the Commissioner such information, and to permit him to inspect and copy such records, as he may request in connection with the application.

(b) The copy of the resolution of the board of the applicant called for in Subdivision (a) of this Section shall be certified by the secretary or by an assistant secretary of the applicant.

NOTE

Authority cited: Section 4831, Financial Code. Reference: Sections 4835 and 4944, Financial Code.

HISTORY

1. Change without regulatory effect amending section and adding new Note filed 8-19-97 pursuant to section 100, title 1, California Code of Regulations (Register 97, No. 34).

§10.4366. Signature and Acknowledgement.

(a) An application for approval to convert into a subject institution shall be signed in the name of the applicant by not less than two officers of the applicant.

(b) The signature of the applicant on an application for approval to convert into a subject institution shall be acknowledged.

§10.4367. Fee.

Note • History

An application for approval to convert into a subject institution shall be accompanied by the fee prescribed in Financial Code Section 4839(c)(1).

NOTE

Authority cited: Section 4831, Financial Code. Reference: Sections 4835, 4839 and 4944, Financial Code.

HISTORY

1. Amendment of section and new Note filed 4-7-97; operative 4-7-97 pursuant to Government Code section 11343.4(d) (Register 97, No. 15).

§10.4368. Amendment.

An amendment to an application for approval to convert into a subject institution shall be signed by an officer of the applicant or by another person authorized to represent the applicant in connection with such application.

Part 3. Administrative Standards and Procedures

§10.4400. Scope.

History

HISTORY

1. Repealerof part 3 (sections 10.4400-10.4401) and section filed 4-7-97; operative 4-7-97 pursuant to Government Code section 11343.4(d) (Register 97, No. 15).

§10.4401. Condition.

History

HISTORY

1. Repealer filed 4-7-97; operative 4-7-97 pursuant to Government Code section 11343.4(d) (Register 97, No. 15).

Part 4. Post-Approval Matters

§10.4450. Scope.

Note • History

This Part contains regulations relating to matters after an application by an applicant for approval to convert into a subject institution is approved by the Commissioner.

NOTE

Authority cited: Section 4831, Financial Code.

HISTORY

1. Change without regulatory effect amending section and adding new Note filed 8-19-97 pursuant to section 100, title 1, California Code of Regulations (Register 97, No. 34).

§10.4451. Plan of Conversion--Approval by Commissioner.

Note • History

(a) No applicant shall submit a plan of conversion to its shareholders for their approval unless such plan of conversion shall have first been approved by the Commissioner.

(b) An application to the Commissioner for his approval of a plan of conversion shall contain a copy of such plan of conversion, which shall set forth:

(1) That the applicant shall be converted into a subject institution.

(2) Proposed name of the subject institution.

(3) Proposed articles of the subject institution.

(4) That, at the time when the conversion becomes effective, specified issued and outstanding securities of the applicant shall be converted into specified securities of the subject institution.

(5) That the conversion shall become effective at the time when the Commissioner issues to the subject institution a certificate of authority authorizing it to engage in commercial banking business, trust business, or both, as the case may be.

(6) Manner of disposing of any shares of the subject institution not taken by dissenting shareholders of the applicant.

NOTE

Authority cited: Section 4831, Financial Code. Reference: Section 4835, Financial Code.

HISTORY

1. Change without regulatory effect amending section heading and section and adding new Note filed 8-19-97 pursuant to section 100, title 1, California Code of Regulations (Register 97, No. 34).

§10.4452. Proxy Documents.

Note • History

If required by the Commissioner, an applicant shall file with the Commissioner an application for approval of the proxy documents relating to its plan of conversion. Such application shall be filed concurrently with or after the filing of the application for approval of such plan of conversion.

NOTE

Authority cited: Section 4831, Financial Code. Reference: Article 2, Chapter 5, Division 1.5, Financial Code.

HISTORY

1. Amendment of section and new Note filed 4-7-97; operative 4-7-97 pursuant to Government Code section 11343.4(d) (Register 97, No. 15).

2. Change without regulatory effect amending section filed 8-19-97 pursuant to section 100, title 1, California Code of Regulations (Register 97, No. 34).

§10.4453. Plan of Conversion--Reports of Approval by Board and Shareholders.

Note • History

(a) After the plan of conversion of an applicant is approved by the board of such applicant in accordance with the requirements of federal law, the applicant shall file with the Commissioner a report so stating and stating, in addition, the date of such approval.

(b) After the plan of conversion of an applicant is approved by the shareholders of such applicant in accordance with the requirements of federal law, the applicant shall file with the Commissioner a report so stating and stating, in addition:

(1) Date of the meeting of shareholders at which the plan of conversion was approved.

(2) Number of shares entitled to vote on approval of the plan of conversion, the number of shares voting in favor of approval of the plan of conversion, and the number of shares voting against approval of the plan of conversion.

(3) In case any shareholders of the applicant gave notice in writing to the applicant of dissent from the plan of conversion at or prior to the meeting of shareholders at which the plan of conversion was approved, the number of such shareholders and the total number of shares held by them.

(4) The officer's certificate required under Financial Code Section 4944(b).

NOTE

Authority cited: Section 4831, Financial Code. Reference: Sections 4832, 4835, 4941, 4944, 4945 and 4948, Financial Code.

HISTORY

1. Change without regulatory effect amending section and adding new Note filed 8-19-97 pursuant to section 100, title 1, California Code of Regulations (Register 97, No. 34).

2. New subsection (b)(4) and amendment of Note filed 4-14-98; operative 5-14-98 (Register 98, No. 16).

§10.4454. Articles.

Note • History

(a) After complying with the provisions of Section 10.4453 of this Chapter, an applicant shall file with the Commissioner an application for approval of the articles of the subject institution.

(b) Promptly after the articles of a subject institution are filed with the Secretary of State, the subject institution shall file with the Commissioner a copy of its articles certified by the Secretary of State.

NOTE

Authority cited: Section 4831, Financial Code. Reference: Section 4946, Financial Code.

HISTORY

1. Amendment of section and new Note filed 4-7-97; operative 4-7-97 pursuant to Government Code section 11343.4(d) (Register 97, No. 15).

2. Change without regulatory effect amending section and Note filed 8-19-97 pursuant to section 100, title 1, California Code of Regulations (Register 97, No. 34).

§10.4455. By-Laws.

History

HISTORY

1. Repealer filed 4-7-97; operative 4-7-97 pursuant to Government Code section 11343.4(d) (Register 97, No. 15).

§10.4456. Directors.

Note • History

(a) Except with the prior approval of the Commissioner, no person shall be elected as a director of a subject institution at any time before such subject institution commences business other than a person who was a director of the applicant at the time when the application for approval to convert into the subject institution was approved by the Commissioner or who was named in such application as a proposed director of the subject institution.

(b) An application for approval for the election of a person as a director of a subject institution shall contain:

(1) Name of the proposed director.

(3) Confidential resume in the form of Department Form 3, dated as of a date within 90 days before the filing of the application, and signed by the proposed director.

(4) Statement dated as of a date within 90 days before the filing of the application and signed by the proposed director, stating:

(A) Commercial banking, trust, other financial, and other business experience of the proposed director, including, with respect to each position held, title, description of duties, name and address of employer, period of employment, and reason for leaving.

(B) Whether or not the proposed director has had in the past or has presently any relationship with any bank as director, officer, employee, adviser, 15 percent equity security owner, or in any other capacity (other than solely as a customer), and, if so, the name of the bank and a description of the relationship, and, in the case of any present relationship, whether the proposed director intends to continue, change, or terminate such relationship if and when he becomes a director of the subject institution.

NOTE

Authority cited: Section 4831, Financial Code. Reference: Sections 4832, 4835, 4941, 4944, 4945 and 4948, Financial Code.

HISTORY

1. Change without regulatory effect amending section and adding new Note filed 8-19-97 pursuant to section 100, title 1, California Code of Regulations (Register 97, No. 34).

2. Amendment of subsection (b)(4)(B), repealer of subsections (b)(4)(C)-(D), and amendment of Note filed 4-14-98; operative 5-14-98 (Register 98, No. 16).

§10.4457. Executive Officers.

Note • History

(a) Except with the prior approval of the Commissioner, no subject institution shall, at any time before commencing business, appoint as an executive officer any person other than a person who was such executive officer of the applicant at the time when the application for approval to convert into the subject institution was approved by the Commissioner or who was named in such application as such proposed executive officer of the subject institution.

(b) An application for approval to appoint a person as an executive officer of a subject institution shall contain:

(1) Name of the proposed executive officer.

(2) Proposed title.

(3) Description of duties to be performed by the proposed executive officer.

(4) Amount of salary and description of other compensation to be paid to the proposed executive officer.

(7) Statement dated as of a date within 90 days before the filing of the application and signed by the proposed executive officer, stating:

(A) Commercial banking, trust, other financial, and other business experience of the proposed executive officer, including, with respect to each position held, title, description of duties, name and address of employer, period of employment, and reason for leaving.

(B) Whether or not the proposed executive officer has ever been discharged or requested to resign from any position, and, if so, an account of the circumstances.

NOTE

Authority cited: Section 4831, Financial Code. Reference: Sections 4832, 4835, 4941, 4944, 4945 and 4948, Financial Code.

HISTORY

1. Change without regulatory effect amending section and adding new Note filed 8-19-97 pursuant to section 100, title 1, California Code of Regulations (Register 97, No. 34).

2. Repealer of subsection (b)(7)(B), subsection relettering, and amendment of Note filed 4-14-98; operative 5-14-98 (Register 98, No. 16).

§10.4458. Permit.

Note • History

After the certified copy of the articles of a subject institution has been filed with the Commissioner, such subject institution shall file with the Commissioner an application for a permit authorizing it to sell securities in exchange for specified issued and outstanding securities of the applicant upon conversion of the applicant into the subject institution.

NOTE

Authority cited: Section 4831, Financial Code. Reference: Section 692 and Article 2, Chapter 5, Division 1.5, Financial Code.

HISTORY

1. Amendment of section and new Note filed 4-7-97; operative 4-7-97 pursuant to Government Code section 11343.4(d) (Register 97, No. 15).

2. Change without regulatory effect amending section filed 8-19-97 pursuant to section 100, title 1, California Code of Regulations (Register 97, No. 34).

§10.4459. Reserve and Non-Reserve Depositaries.

History

HISTORY

1. Repealer filed 4-7-97; operative 4-7-97 pursuant to Government Code section 11343.4(d) (Register 97, No. 15).

§10.4460. Committees of Board.

History

HISTORY

1. Repealer filed 4-7-97; operative 4-7-97 pursuant to Government Code section 11343.4(d) (Register 97, No. 15).

§10.4461. Report Regarding Policies.

History

HISTORY

1. Repealer filed 4-7-97; operative 4-7-97 pursuant to Government Code section 11343.4(d) (Register 97, No. 15).

§10.4462. Bonds and Other Insurance Policies.

Note • History

Not less than five business days before commencing business, a subject institution shall obtain:

(a) In case the subject institution is to be a commercial bank:

(1) Written confirmation from the insurer named in the financial institutions bond maintained by the applicant or from an agent of such insurer that the financial institutions bond will continue in force with respect to the subject institution; or

(2) A new financial institutions bond.

(b) In case the subject institution is to be an independent trust company:

(1) Written confirmation from the insurer named in the fidelity bond maintained by the applicant or from an agent of such insurer that such fidelity bond will continue in force with respect to the subject institution; or

(2) A new fidelity bond.

NOTE

Authority cited: Section 4831, Financial Code. Reference: Sections 4832, 4835, 4941, 4944, 4945 and 4948, Financial Code.

HISTORY

1. Amendment of section and new Note filed 4-7-97; operative 4-7-97 pursuant to Government Code section 11343.4(d) (Register 97, No. 15).

2. Editorial correction of subsection (a) (Register 98, No. 16).

3. Amendment of subsections (a)(1) and (a)(2) and amendment of Note filed 4-14-98; operative 5-14-98 (Register 98, No. 16).

§10.4463. Report Regarding Owners of Securities.

Note • History

Not less than five business days before converting into a subject institution, an applicant shall file with the Commissioner a report stating, with respect to each owner of record of 25 percent or more of any of the issued and outstanding securities of such applicant:

(a) Name.

(b) Address.

NOTE

Authority cited: Section 4831, Financial Code. Reference: Section 4835 and Article 2, Chapter 5, Division 1.5, Financial Code.

HISTORY

1. Amendment of first paragraph and new Note filed 4-7-97; operative 4-7-97 pursuant to Government Code section 11343.4(d) (Register 97, No. 15).

2. Change without regulatory effect amending section and Note filed 8-19-97 pursuant to section 100, title 1, California Code of Regulations (Register 97, No. 34).

§10.4464. Deposit with State Treasurer.

History

HISTORY

1. Repealer filed 4-7-97; operative 4-7-97 pursuant to Government Code section 11343.4(d) (Register 97, No. 15).

§10.4465. Report Regarding Differences from Application.

Note • History

(a) Not less than five business days before commencing business, a subject institution shall file with the Commissioner a report signed by an officer of such subject institution, stating whether or not the subject institution is or is to be different in any material respect from what was proposed in the application for approval to convert into the subject institution, as approved by the Commissioner, and, if so, describing such difference.

(b) As an administrative standard, if the Commissioner finds that a subject institution is or is to be different in any material respect from what was proposed in the application for approval to convert into such subject institution and that, if such difference had existed at the time when the Commissioner decided the application for approval to convert into the subject institution, he would have denied the application, the Commissioner will not issue a certificate of authority to the subject institution.

NOTE

Authority cited: Section 4831, Financial Code. Reference: Sections 4832, 4835, 4941, 4944, 4945 and 4948, Financial Code.

HISTORY

1. Change without regulatory effect amending section and adding new Note filed 8-19-97 pursuant to section 100, title 1, California Code of Regulations (Register 97, No. 34).

2. Amendment of subsection (a) and Note filed 4-14-98; operative 5-14-98 (Register 98, No. 16).

§10.4466. Expiration and Extension of Approval of Application.

Note • History

(a) The Commissioner's approval of an application for approval to convert into a subject institution shall, unless extended by the Commissioner, expire six months after the date of such approval.

(b) An application for an extension of the Commissioner's approval of an application for approval to convert into a subject institution shall contain:

(1) Date on which the approval is scheduled to expire.

(2) Description of progress to date in converting the applicant into the subject institution.

(3) Proposed timetable for completing the conversion.

(4) Amount of additional time requested for completing the conversion.

(5) Statement of reasons why such additional time is required for completing the conversion.

(c) Unless an applicant is converted into a subject institution before the Commissioner's approval of the application for approval to convert into such subject institution expires, the subject institution, in case it has been incorporated, shall be wound up and dissolved, and it shall file with the Commissioner:

(1) Copy of a certificate of election to wind up and dissolve filed with the Secretary of State pursuant to Corporations Code Section 1901, certified by the Secretary of State.

(2) Either (1) a copy of a certificate of dissolution filed with the Secretary of State pursuant to Corporations Code Section 1905, certified by the Secretary of State, or (2) a copy of an order entered by a superior court pursuant to Corporations Code Section 1907, certified by the clerk of such superior court.

NOTE

Authority cited: Section 4831, Financial Code. Reference: Section 4835, Financial Code.

HISTORY

1. Change without regulatory effect amending section and adding new Note filed 8-19-97 pursuant to section 100, title 1, California Code of Regulations (Register 97, No. 34).

§10.4467. Application for Issuance of Certificate of Authority and Fee.

Note • History

(a) Not less than one business day before the date on which an applicant proposes to convert into a subject institution and on which such subject institution proposes to commence business, such applicant shall file with the Commissioner an application for the institution to transact commercial banking business, trust business, or both, as the case may be. Such application shall state:

(1) Name of the subject institution.

(2) Address of the head office of the subject institution.

(3) Date on which the applicant proposes to convert into the subject institution and on which the subject institution proposes to commence business.

(b) The application called for in Subdivision (a) of this Section shall be accompanied by the fee prescribed in Financial Code Section 4839(c)(2).

NOTE

Authority cited: Section 4831, Financial Code. Reference: Section 4835 and Article 2, Chapter 5, Division 1.5, Financial Code.

HISTORY

1. Amendment of subsection (b) and new Note filed 4-7-97; operative 4-7-97 pursuant to Government Code section 11343.4(d) (Register 97, No. 15).

2. Change without regulatory effect amending section and Note filed 8-19-97 pursuant to section 100, title 1, California Code of Regulations (Register 97, No. 34).

§10.4468. Deposit Insurance.

Note • History

No subject institution which is a commercial bank shall commence business unless it is an insured bank.

NOTE

Authority cited: Section 4831, Financial Code. Reference: Sections 4832, 4941, 4944, 4945 and 4948, Financial Code.

HISTORY

1. Repealer filed 4-7-97; operative 4-7-97 pursuant to Government Code section 11343.4(d) (Register 97, No. 15).

2. New section and Note filed 4-14-98; operative 5-14-98 (Register 98, No. 16).

Article 5. Offices of California State Banks

Subarticle 1. General Provisions

§10.6000. Definition of “Subject Institution” and Scope.

Note • History

(a) In this Article, “subject institution” means a California state bank.

(b) This Article contains regulations relating to offices of subject institutions. This Subarticle contains general provisions relating to offices of subject institutions. Subarticle 1.5 (commencing with Section 10.6050 of this Article contains regulations relating to exemptions from the authorization and approval requirements of Financial Code Sections 500, 507, 541, and 546. Subarticle 2 (commencing with Section 10.6100) of this Article contains regulations relating to head offices of subject institutions. Subarticle 3 (commencing with Section 10.6600) of this Article contains regulations relating to branch offices of subject institutions. Subarticle 4 (commencing with Section 10.9000) of this Article contains regulations relating to places of business of subject institutions. Subarticle 5 (commencing with Section 10.11000) of this Article contains regulations relating to extensions of offices of subject institutions. Subarticle 6 (commencing with Section 10.11700) of this Article contains regulations relating to foreign offices of representatives of subject institutions. Subarticle 7 (commencing with Section 10.11800) of this Article contains regulations relating to automated teller machine branch offices.

NOTE

Authority cited: Section 215, Financial Code. Reference: Sections 419, 420, 421, 490, 500, 501, 503, 504, 505, 506, 507, 509, 510, 511, 512, 540, 541, 542, 543, 544, 545, 546, 547, 550, 551, 552, 557, 558 and 559, Financial Code.

HISTORY

1. Amendment of subsection (a), repealer of subsections (a)(1)-(a)(3)(B), amendment of subsection (b) and new Note filed 4-7-97; operative 4-7-97 pursuant to Government Code section 11343.4(d) (Register 97, No. 15).

2. Amendment of subsection (b) and Note filed 5-6-98; operative 6-5-98 (Register 98, No. 19).

§10.6001. Other Definitions.

Note • History

In this Article:

(a) “Approved but unopened,” when used with respect to an office of a California bank, means:

(1) In case such bank is a state bank, an office which the bank has applied to the Commissioner for authority to establish, and the status of the matter is that the Commissioner has approved the application but the bank has not yet established the office.

(2) In case such bank is a national bank, an office which the bank has applied to the Comptroller of the Currency for authority to establish, and the status of the matter is that the Comptroller of the Currency has approved the application but the bank has not yet established the office.

(b) “Automated teller machine branch office” has the meaning set forth in Financial Code Section 550(b).

(c) “Branch banking business,” when used with respect to a subject institution, means, in the case of a subject institution which is a commercial bank, the business of receiving deposits, paying checks, or making loans or, in the case of a subject institution which is a trust company, the business of receiving fiduciary assets or administering fiduciary accounts. However, “branch banking business” does not include the business of receiving deposits or fiduciary assets solely by means of either or both of the following:

(1) The United States mail addressed to a post office box; or

(2) A messenger who is an independent contractor or an employee of the bank.

(d) “Branch office,” when used with respect to a subject institution, does not include an automated teller machine branch office.

(e) To “discontinue,” when used with respect to an office of a subject institution, means to discontinue the operations of, or to close, such office.

(f) “Domiciliary bank” means:

(1) When used with respect to a foreign nation (other than a territory of the United States), a bank which is organized under the laws of such foreign nation.

(2) When used with respect to a territory of the United States, a bank which is organized under the laws of such territory or a national bank which maintains its head office in the territory.

(3) When used with respect to a state of the United States other than the State of California, a state bank which is organized under the laws of such state or a national bank which maintains its head office in the state.

(g) “Foreign office of representative,” when used with respect to a subject institution, means an office located in a state of the United States other than the State of California or in a foreign nation which a person maintains for the purpose of engaging in the business of representing such subject institution. (A foreign office of a representative of a subject institution does not constitute an office of such subject institution for purposes of the Banking Law or this Chapter. However, for the sake of convenience, regulations relating to foreign offices of representatives of subject institutions are included in this Article.)

(h) “Intermittent branch office,” when used with respect to a subject institution, means a place at which such subject institution transacts branch banking business during intermittent periods which are determined according to calendar time (for example, on certain dates of each year), according to specified events (for example, during a specified county fair), or otherwise and which occur at least as frequently as annually but less frequently than weekly.

(i) “New site,” when used with respect to an office of a subject institution which is proposed to be or which has been relocated, means the site to which such office is proposed to be or has been, as the case may be, relocated.

(j) “Non-domiciliary bank” means any bank other than a domiciliary bank.

(k) “Old site,” when used with respect to an office of a subject institution which is proposed to be or which has been relocated, means the site from which such office is proposed to be or has been, as the case may be, relocated.

(l) “Pending but not approved,” when used with respect to an office of a California bank, means:

(1) In case such bank is a state bank, an office which the bank has applied to the Commissioner for authority to establish and the status of the matter is that the Commissioner has not yet decided the application.

(2) In case such bank is a national bank, an office which the bank has applied to the Comptroller of the Currency for authority to establish and the status of the matter is that the Comptroller of the Currency has not yet decided the application.

(m) “Popular name” means:

(1) When used with respect to a branch office of a subject institution, the name or other designation assigned to such office by such subject institution pursuant to Financial Code Section 509.

(2) When used with respect to a branch office of a California national bank, the name or other designation assigned to such office by such bank pursuant to applicable requirements of the Comptroller of the Currency.

(n) “Proposed,” when used with respect to an office of a California bank, means:

(1) In case such bank is a state bank, an office which the bank has applied to the Commissioner for authority to establish, and the status of the matter is that the Commissioner has either approved or not yet decided the application, and the bank has not yet established the office.

(2) In case such bank is a national bank, an office which the bank has applied to the Comptroller of the Currency for authority to establish, and the status of the matter is that the Comptroller of the Currency has either approved or not yet decided the application and the bank has not yet established the office.

(o) “Special branch office,” when used with respect to a subject institution, means an intermittent branch office or any other branch office designated as a special branch office in this Chapter or by the Commissioner.

NOTE

HISTORY

1. Change without regulatory effect amending section and adding new Note filed 8-19-97 pursuant to section 100, title 1, California Code of Regulations (Register 97, No. 34).

2. Amendment of section and Note filed 4-14-98; operative 5-14-98 (Register 98, No. 16).

3. New subsections (b) and (d), subsection relettering and amendment of Note filed 5-6-98; operative 6-5-98 (Register 98, No. 19).

§10.6002. Identification of Office.

Whenever this Article requires that an office of a subject institution be identified, the following information shall be furnished with respect to such office:

(a) Address of the office.

(b) In case the office is a branch office, the popular name of the office.

(c) Type of the office. If the office is of any type other than a head office or a branch office, describe the business transacted at the office. If the office is an office of a commercial bank at which such commercial bank maintains a trust administration office, so state.

§10.6003. Post-Approval Matters.

Note • History

In the units of this Article relating to post-approval matters in connection with the establishment or relocation of an office:

(a)(1) In case a provision which calls for an applicant to file a document with the Commissioner does not expressly provide when such applicant is to make such filing, the applicant shall make the filing at a reasonable time under the circumstances and, in any event, at a reasonable time before the applicant establishes or relocates the office.

(2) In case a provision which calls for an applicant to file a document with the Commissioner requires that such applicant make such filing not less than a specified number of days or business days before the applicant establishes or relocates the office, the applicant is encouraged to make the filing before such deadline, if possible, so as to allow ample time not only for the staff of the Department to process the document filed but also for the applicant to make any corrections or changes in such document that may be found to be necessary before the certificate of authority is issued.

(b) Any provision which, by its terms or pursuant to Paragraph (1) of Subdivision (a) of this Section, requires an applicant to perform an act before commencing business shall be deemed also to require such applicant to perform such act before the license for the office is issued; and, in case such provision requires that the applicant perform the act not less than a specified time before commencing business, the applicant shall perform the act not less than the specified time before the license for the office is issued.

NOTE

Authority cited: Section 215, Financial Code.

HISTORY

1. Change without regulatory effect amending section and adding new Note filed 8-19-97 pursuant to section 100, title 1, California Code of Regulations (Register 97, No. 34).

§10.6004. Establishment of Office and Commencement of Business.

Note • History

(a) For purposes of this Article, an office of a subject institution shall be deemed to be established and to commence business at the time when, the Commissioner having issued a certificate of authority authorizing such subject institution to establish and maintain such office, the subject institution opens the office for the purpose of engaging in commercial banking business, trust business, or both, as the case may be.

(b) For purposes of this Article, an office of a subject institution shall be deemed to be relocated and the office--new site shall be deemed to commence business at the time when, the Commissioner having issued a certificate of authority authorizing such subject institution to establish and maintain such office--new site, the subject institution closes the office--old site, and opens the office--new site for the purpose of engaging in commercial banking business, trust business, or both, as the case may be.

NOTE

Authority cited: Section 215, Financial Code.

HISTORY

1. Change without regulatory effect amending section and adding new Note filed 8-19-97 pursuant to section 100, title 1, California Code of Regulations (Register 97, No. 34).

§10.6005. Relocation.

Moving an office of a subject institution from one site to another in the same building or without a change in street address does not constitute a relocation of such office.

§10.6006. Change in Address Without Relocation.

Note • History

(a) In case the address of an office of a subject institution is proposed to be changed other than by means of a relocation of such office, such subject institution shall, not less than ten business days before such change in address is proposed to become effective, notify the Commissioner of the change in address.

(b) The notice called for in Subdivision (a) of this Section shall contain the following information:

(1) Identify the office.

(2) State the proposed address of the office.

(3) State the date on which the change in the address of the office is proposed to become effective.

(c) As of the date when the change in address becomes effective, the Commissioner shall issue a certificate of authority authorizing the subject institution to maintain the office at the new address.

(d) Within five days after receipt of the certificate of authority described in Subdivision (c), the subject institution shall return for cancellation the certificate of authority issued to the subject institution authorizing it to maintain the office at the old address.

NOTE

Authority cited: Section 215, Financial Code. Reference: Sections 401, 504 and 544, Financial Code.

HISTORY

1. Repealer of subsection (b)(3), subsection renumbering and new Note filed 4-7-97; operative 4-7-97 pursuant to Government Code section 11343.4(d) (Register 97, No. 15).

2. Change without regulatory effect amending section filed 8-19-97 pursuant to section 100, title 1, California Code of Regulations (Register 97, No. 34).

3. Amendment of subsections (a) and (b), new subsections (c) and (d) and amendment of Note filed 4-14-98; operative 5-14-98 (Register 98, No. 16).

§10.6007. Combining Offices.

Note • History

(a) For purposes of this Section, offices of a subject institution are ranked in the following order:

(1) Head office.

(2) Regular branch office.

(3) Special branch office.

(4) Place of business.

(b) In case a subject institution establishes a new office at, or relocates an existing office to, the location of a second office which is of a lower rank than the first office, the second office shall be deemed to be absorbed into the first office. In such a case, the subject institution shall comply with applicable provisions of the Banking Law and this Chapter relating to the establishment or relocation, as the case may be, of the first office. With respect to the absorption of the second office into the first office, the subject institution shall, not more than five business days after establishing or relocating the first office, surrender to the Commissioner for cancellation the certificate of authority authorizing it to establish and maintain the second office.

(c) In case a subject institution locates two or more offices of equal rank in the same location, all but one of such offices shall be deemed to be discontinued. In such a case, the subject institution shall comply with applicable provisions of the Banking Law and this Chapter relating to the discontinuance of the offices which are deemed to be discontinued.

NOTE

Authority cited: Section 215, Financial Code.

HISTORY

1. Change without regulatory effect amending section and adding new Note filed 8-19-97 pursuant to section 100, title 1, California Code of Regulations (Register 97, No. 34).

§10.6008. Business Hours.

History

HISTORY

1. Repealer filed 4-7-97; operative 4-7-97 pursuant to Government Code section 11343.4(d) (Register 97, No. 15).

§10.6009. Messenger Service.

A subject institution may engage in the business of delivering funds and documents from such subject institution to customers of the subject institution and from customers of the subject institution to the subject institution, and no place at which a subject institution delivers funds or documents to a customer of such subject institution or at which a subject institution picks up funds or other documents from a customer of such subject institution for delivery to the subject institution shall on that account be deemed to be an office of the subject institution if:

(a) The customer is sophisticated with respect to business transactions; and

(b) The services are performed pursuant to a written contract between the subject institution and the customer which provides:

(1) That the messenger is the agent of the customer and not of the subject institution:

(2) That funds and documents delivered from the subject institution to the customer are deemed to be received by the customer when delivered by the subject institution to the messenger at an office of the subject institution; and

(3) That funds and documents delivered from the customer to the subject institution are not deemed to be received by the subject institution until they are delivered by the messenger to the subject institution at an office of the subject institution.

Subarticle 1.5. Exemptions

§10.6050. Scope.

Note • History

This Subarticle contains regulations relating to exemptions from the authorization and approval requirements of Financial Code Sections 500(b), 507, 541, and 546.

NOTE

Authority cited: Section 215, Financial Code. Reference: Chapter 4, Division 1, Financial Code.

HISTORY

1. New subarticle 1.5 (sections 10.6050-10.6055) and section filed 4-7-97; operative 4-7-97 pursuant to Government Code section 11343.4(d) (Register 97, No. 15).

§10.6051. Definition.

Note • History

In this Subarticle, “eligible,” when used with respect to a subject institution, means:

(a) In case the subject institution is a California state commercial bank, that the composite rating of the subjection institution in the most recent report of examination issued by the Department or the appropriate federal bank regulatory agency was “1” or “2” under the Uniform Financial Institutions Rating System.

(b) In case the subject institution is a California state independent trust company, that the composite rating of the subject institution in the most recent report of examination issued by the Department was “1” or “2” under the Uniform Financial Institutions Rating System or “satisfactory” on the basis of capital, operations, management, and earnings.

NOTE

Authority cited: Section 215, Financial Code. Reference: Chapter 4, Division 1, Financial Code.

HISTORY

1. New section filed 4-7-97; operative 4-7-97 pursuant to Government Code section 11343.4(d) (Register 97, No. 15).

§10.6052. Exemption--Establishment of Branch Office.

Note • History

(a) There is exempted from the authorization requirement of Financial Code Section 500(b), as not being necessary or appropriate to regulate under Section 500(b), the establishment of a branch office by a subject institution, if the following requirements are met:

(1) Not less than 30 days before establishing the branch office, the subject institution shall file with the Commissioner a report which shall be in the form of Department Form 25 (see Section 95.25), which shall contain the information called for in the Form and in the instructions for the Form, and which shall be signed as required in the Form and instructions.

(2) The subject institution shall be eligible at the time when the report called for in Paragraph (1) of this Subdivision (a) is filed.

(3) The Commissioner does not reject the report called for in Paragraph (1) of this Subdivision (a) within 15 days after filing.

(4) The subject institution shall establish the branch office within one year after filing the report called for in Paragraph (1) of this Subdivision (a) or such extended period as the Commissioner may approve.

(b) The Commissioner may reject a report filed under Paragraph (1) of Subdivision (a) of this Section if the Commissioner finds that it is necessary or appropriate to regulate the establishment of the branch office under Section 500(b) or for other good cause.

(c) In case a subject institution establishes a branch office pursuant to the exemption set forth in Subdivision (a) of this Section, the subject institution shall comply with Sections 10.6952, 10.6954, and 10.6955 of this Article as if the subject institution has applied for and obtained authorization under Section 500(b) to establish the branch office.

(d) The exemption set forth in Subdivision (a) of this Section does not apply in a case where a subject institution simultaneously relocates its head office and establishes a branch office at the location of the old site of the head office.

NOTE

Authority cited: Section 215, Financial Code. Reference: Sections 490 and 500, Financial Code.

HISTORY

1. New section filed 4-7-97; operative 4-7-97 pursuant to Government Code section 11343.4(d) (Register 97, No. 15).

2. Change without regulatory effect amending section filed 8-19-97 pursuant to section 100, title 1, California Code of Regulations (Register 97, No. 34).

3. Amendment of subsection (a)(1) and repealer of subsections (a)(1)(A)-(C) filed 5-6-98; operative 6-5-98 (Register 98, No. 19).

§10.6053. Exemption--Relocation of Branch Office.

Note • History

(a) There is exempted from the authorization requirement of Financial Code Section 507, as not being necessary or appropriate to regulate under Section 507, the relocation by a subject institution of a branch office within the same vicinity, if the following requirements are met:

(1) Not less than 30 days before relocating the branch office, the subject institution shall file with the Commissioner a report which shall be in the form of Department Form 25, which shall contain the information called for in the Form and in the instructions for the Form, and which shall be signed as required in the Form and instructions.

(2) The subject institution shall be eligible at the time when the report called for in Paragraph (1) of this Subdivision (a) is filed.

(3) The Commissioner does not reject the report called for in Paragraph (1) of this Subdivision (a) within 15 days after filing.

(4) The subject institution shall relocate the branch office within one year after filing the report called for in Paragraph (1) of this Subdivision (a) or such extended period as the Commissioner may approve.

(c) In case a subject institution relocates a branch office pursuant to the exemption set forth in Subdivision (a) of this Section, the subject institution shall comply with Sections 10.7526, 10.7527, 10.7529 and 10.7530 of this Article as if the subject institution had applied for and obtained authorization under Section 507 to relocate the branch office.

NOTE

Authority cited: Section 215, Financial Code. Reference: Sections 490 and 507, Financial Code.

HISTORY

1. New section filed 4-7-97; operative 4-7-97 pursuant to Government Code section 11343.4(d) (Register 97, No. 15).

2. Change without regulatory effect amending section filed 8-19-97 pursuant to section 100, title 1, California Code of Regulations (Register 97, No. 34).

3. Amendment of subsection (a)(1) and repealer of subsections (a)(1)(A)-(D) filed 5-6-98; operative 6-5-98 (Register 98, No. 19).

4. Editorial correction of subsection (a)(1) (Register 98, No. 32).

§10.6054. Exemption--Establishment of Place of Business.

Note • History

(a) There is exempted from the authorization requirement of Financial Code Section 541, as not being necessary or appropriate to regulate under Section 541, the establishment of a place of business by a subject institution, if the following requirements are met:

(1) Not less than 30 days before establishing the place of business, the subject institution shall file with the Commissioner a report which shall be in the form of Department Form 25, which shall contain the information called for in the Form and in the instructions for the Form, and which shall be signed as required in the Form and instructions.

(2) The subject institution shall be eligible at the time when the report called for in Paragraph (1) of this Subdivision (a) is filed.

(3) The Commissioner does not reject the report called for in Paragraph (1) of this Subdivision (a) within 15 days after filing.

(4) The subject institution shall establish the place of business within one year after filing the report called for in Paragraph (1) of this Subdivision (a) or such extended period as the Commissioner may approve.

(b) The Commissioner may reject a report filed under Paragraph (1) of Subdivision (a) of this Section if the Commissioner finds that it is necessary or appropriate to regulate the establishment of the place of business under Section 541 or for other good cause.

(c) In case a subject institution establishes a place of business pursuant to the exemption set forth in Subdivision (a) of this Section, the subject institution shall comply with Sections 10.9202, 10.9204, and 10.9205 of this Article as if the subject institution has applied for and obtained authorization under Section 541 to establish the place of business.

NOTE

Authority cited: Section 215, Financial Code. Reference: Sections 490 and 541, Financial Code.

HISTORY

1. New section filed 4-7-97; operative 4-7-97 pursuant to Government Code section 11343.4(d) (Register 97, No. 15).

2. Change without regulatory effect amending section filed 8-19-97 pursuant to section 100, title 1, California Code of Regulations (Register 97, No. 34).

3. Amendment of subsection (a)(1) and repealer of subsections (a)(1)(A)-(C) filed 5-6-98; operative 6-5-98 (Register 98, No. 19).

§10.6055. Exemption--Relocation of Place of Business.

Note • History

(a) There is exempted from the approval requirement of Financial Code Section 546 the relocation by a subject institution of a place of business within the same vicinity, if the following requirements are met:

(1) Not less than 30 days before relocating the place of business, the subject institution shall file with the Commissioner a report which shall be in the form of Department Form 25, which shall contain the information called for in the Form and in the instructions for the Form, and which shall be signed as required in the Form and instructions.

(2) The subject institution shall be eligible at the time when the report called for in Paragraph (1) of this Subdivision (a) is filed.

(3) The Commissioner does not reject the report called for in Paragraph (1) of this Subdivision (a) within 15 days after filing.

(4) The subject institution shall relocate the place of business within one year after filing the report called for in Paragraph (1) of this Subdivision (a) or such extended period as the Commissioner may approve.

(b) The Commissioner may reject a report filed under Paragraph (1) of Subdivision (a) of this Section if the Commissioner finds that it is necessary or appropriate to regulate the establishment of the place of business under Section 546 or for other good cause.

(c) In case a subject institution relocates a place of business pursuant to the exemption set forth in Subdivision (a) of this Section, the subject institution shall comply with Sections 10.9701, 10.9702, 10.9704 and 10.9705 of this Article as if the subject institution has applied for and obtained approval under Section 546 to relocate the place of business.

NOTE

Authority cited: Section 215, Financial Code. Reference: Sections 490 and 546, Financial Code.

HISTORY

1. New section filed 4-7-97; operative 4-7-97 pursuant to Government Code section 11343.4(d) (Register 97, No. 15).

2. Change without regulatory effect amending section filed 8-19-97 pursuant to section 100, title 1, California Code of Regulations (Register 97, No. 34).

3. Amendment of subsection (a)(1) and repealer of subsections (a)(1)(A)-(D) filed 5-6-98; operative 6-5-98 (Register 98, No. 19).

Subarticle 2. Head Offices

Part 1. General Provisions

§10.6100. Scope.

Note • History

This Subarticle contains regulations relating to head offices of subject institutions. This Part contains general provisions relating to head offices of a subject institution. (Part 2 of these Subarticles is reserved.) Part 3 (commencing with Section 10.6300) of this Subarticle contains regulations relating to the relocation by a subject institution of its head office pursuant to Financial Code Section 420. Part 4 (commencing with Section 10.6490) of this Subarticle contains regulations relating to the redesignation of the head office and a branch office of a subject institution.

NOTE

Authority cited: Section 215, Financial Code. Reference: Sections 420 and 421, Financial Code.

HISTORY

1. Amendment of section and new Note filed 4-14-98; operative 5-14-98 (Register 98, No. 16).

Part 3. Relocation of Head Office

Subpart 1. General Provisions

§10.6300. Definition of “Applicant” and Scope.

Note • History

(a) In this Part, “applicant” means a subject institution which applies to the Commissioner for approval to relocate its head office.

(b) This Part contains regulations relating to the relocation by an applicant of its head office pursuant to Financial Code Section 420. This Subpart contains general provisions relating to the relocation by an applicant of its head office. Subpart 2 (commencing with Section 10.6325) of this Part contains regulations relating to an application by an applicant for approval to relocate its head office (Subpart 3 of this Part is reserved.) Subpart 4 (commencing with Section 10.6400) of this Part contains regulations relating to an application by an applicant for approval to relocate its head office and an application by such applicant for authority to establish a branch office in a case where the applicant proposes simultaneously to relocate such head office and to establish such branch office at the old site of the head office. (Subparts 5 and 6 of this Part are reserved.) Subpart 7 (commencing with Section 10.6475) of this Part contains regulations relating to matters after an application by an applicant for approval to relocate its head office is approved by the Commissioner.

NOTE

Authority cited: Section 215, Financial Code. Reference: Section 420, Financial Code.

HISTORY

1. Amendment of subsection (b) and new Note filed 4-7-97; operative 4-7-97 pursuant to Government Code section 11343.4(d) (Register 97, No. 15).

2. Change without regulatory effect amending section filed 8-19-97 pursuant to section 100, title 1, California Code of Regulations (Register 97, No. 34).

§10.6301. Applicability of Subparts to Certain Applications.

Note • History

(a) Subpart 2 (commencing with Section 10.6325) of this Part does not apply to an application for approval to relocate a head office in a case where such application is deemed to be included in the application for authority to organize such applicant pursuant to Section 10.3152 of this Chapter.

(b) An application for approval to relocate a head office which is deemed to be included in the application for authroity to organize the applicant pursuant to Section 10.3152 of this Chapter is subject to this Subpart as well as Subpart 7 (commencing with Section 10.6475) of this Part.

NOTE

Authority cited: Section 215, Financial Code. Reference: Section 420, Financial Code.

HISTORY

1. Amendment of section and new Note filed 4-7-97; operative 4-7-97 pursuant to Government Code section 11343.4(d) (Register 97, No. 15).

§10.6302. Fee.

An application for approval to relocate a head office shall be accompanied by the fee prescribed in Financial Code Section 420.

Subpart 2. Application--Relocation of Head Office

§10.6325. Scope.

Note • History

This Subpart contains regulations relating to an application by an applicant for approval to relocate its head office. This Subpart does not apply to any application which is subject to Subpart 4 (commencing with Section 10.6400) of this Part.

NOTE

Authority cited: Section 215, Financial Code. Reference: Section 420, Financial Code.

HISTORY

1. Amendment of subpart heading and section and new Note filed 4-7-97; operative 4-7-97 pursuant to Government Code section 11343.4(d) (Register 97, No. 15).

§10.6326. Facing Page.

An application for approval to relocate a head office which is subject to this Subpart shall have as its first page a facing page in the form of Department Form 22 and shall contain the information called for therein.

§10.6327. Additional Information.

Note • History

An application for approval to relocate a head office which is subject to this Subpart shall contain, in addition to the information called for in the facing page, the information called for in Sections 10.6335 to 10.6354, inclusive, of this Chapter.

NOTE

Authority cited: Section 215, Financial Code. Reference: Section 420, Financial Code.

HISTORY

1. Amendment of section and new Note filed 4-7-97; operative 4-7-97 pursuant to Government Code section 11343.4(d) (Register 97, No. 15).

§10.6328. Information Regarding Locations.

History

HISTORY

1. Repealer filed 4-7-97; operative 4-7-97 pursuant to Government Code section 11343.4(d) (Register 97, No. 15).

§10.6329. Information Regarding Branching Strategy.

History

HISTORY

1. Repealer filed 4-7-97; operative 4-7-97 pursuant to Government Code section 11343.4(d) (Register 97, No. 15).

§10.6330. Information Regarding Other Offices.

History

HISTORY

1. Repealer filed 4-7-97; operative 4-7-97 pursuant to Government Code section 11343.4(d) (Register 97, No. 15).

§10.6331. Information Regarding Proposed Service Area: New Site: Commercial Banking Business.

History

HISTORY

1. Repealer filed 4-7-97; operative 4-7-97 pursuant to Government Code section 11343.4(d) (Register 97, No. 15).

§10.6332. Information Regarding Proposed Service Area: New Site: Trust Business.

History

HISTORY

1. Repealer filed 4-7-97; operative 4-7-97 pursuant to Government Code section 11343.4(d) (Register 97, No. 15).

§10.6333. Information Regarding Marketing Plan: Commercial Banking Business.

History

HISTORY

1. Repealer filed 4-7-97; operative 4-7-97 pursuant to Government Code section 11343.4(d) (Register 97, No. 15).

§10.6334. Information Regarding Marketing Plan: Trust Business.

History

HISTORY

1. Repealer filed 4-7-97; operative 4-7-97 pursuant to Government Code section 11343.4(d) (Register 97, No. 15).

§10.6335. Information Regarding Proposed Premises, Furniture, and Equipment: New Site.

Note • History

(a) State whether or not the applicant proposes, in connection with the relocation of its head office, to purchase, lease, or construct any real property in addition to the real property required for the proposed banking premises of the head office--new site, and, if so, describe such additional real property, state how such additional real property is proposed to be used, and, if such additional real property is proposed to be leased, sold, or otherwise transferred to any person, state the name of such person and describe the terms of such lease, sale, or transfer.

(b) With respect to the premises where the head office--new site is proposed to be located and any additional real property referred to in Subdivision (a) of this Section state the total amount which the applicant proposes, in connection with the relocation of its head office, to invest in banking premises, additional real property, furniture, and equipment up to the end of the first year of business of the head office--new site.

(c) State whether or not any person to whom any payment is proposed to be made by the applicant in connection with the purchase, lease, or construction of the premises where the head office--new site is proposed to be located or any property referred to in Subdivision (a) or (b) of this Section is, or is a consociate of, any (1) director or proposed director, (2) officer or proposed officer, (3) controlling person, or (4) 25 percent (including consociates) equity security owner of the applicant, and, if so, identify such person, describe the terms of the transaction, state the amount to be paid, state the cost of such property to the person, and describe the circumstances under which the person acquired the property.

NOTE

Authority cited: Section 215, Financial Code. Reference: Section 420, Financial Code.

HISTORY

1. Amendment of section and new Note filed 4-7-97; operative 4-7-97 pursuant to Government Code section 11343.4(d) (Register 97, No. 15).

2. Repealer of subsection (a), subsection relettering, and amendment of newly designated subsections (b) and (c) filed 4-14-98; operative 5-14-98 (Register 98, No. 16).

§10.6336. Information Regarding Capital Notes and Capital Accounts.

History

HISTORY

1. Repealer filed 4-7-97; operative 4-7-97 pursuant to Government Code section 11343.4(d) (Register 97, No. 15).

§10.6337. Information Regarding Pro Forma Financial Statements: Commercial Banking Business.

Note • History

NOTE

Authority cited: Section 215, Financial Code. Reference: Section 420, Financial Code.

HISTORY

1. Repealer filed 4-7-97; operative 4-7-97 pursuant to Government Code section 11343.4(d) (Register 97, No. 15).

§10.6338. Information Regarding Pro Forma Financial Statements: Trust Business.

History

HISTORY

1. Repealer filed 4-7-97; operative 4-7-97 pursuant to Government Code section 11343.4(d) (Register 97, No. 15).

§10.6339. Information Regarding Service Area: Old Site: Commercial Banking Business.

History

HISTORY

1. Repealer filed 4-7-97; operative 4-7-97 pursuant to Government Code section 11343.4(d) (Register 97, No. 15).

§10.6340. Information Regarding Services Areas: Old Site: Trust Business.

History

HISTORY

1. Repealer filed 4-7-97; operative 4-7-97 pursuant to Government Code section 11343.4(d) (Register 97, No. 15).

§10.6341. Information Regarding Premises: Old Site.

Note • History

State whether or not the applicant proposes to sell, lease, or otherwise transfer any of the banking premises of its head office--old site to any person who is, or is a consociate of, any (a) director or proposed director, (b) officer or proposed officer, (c) controlling person, or (d) 25 percent (including consociates) equity security owner of the applicant, and, if so, identify such person and describe the terms of the transaction. State whether or not the applicant proposes to sell, lease, or otherwise transfer any of such property to any person who is, or is a consociate of, any (a) director or proposed director, (b) officer or proposed officer, or (c) 25 percent (including consociates) equity security owner of the applicant, and, if so, identify such person and describe the terms of the transaction.

NOTE

Authority cited: Section 215, Financial Code. Reference: Section 420, Financial Code.

HISTORY

1. Amendment of section heading and section and new Note filed 4-7-97; operative 4-7-97 pursuant to Government Code section 11343.4(d) (Register 97, No. 15).

§10.6342. Information Regarding Financial Statements: Commercial Banking Business.

History

HISTORY

1. Repealer filed 4-7-97; operative 4-7-97 pursuant to Government Code section 11343.4(d) (Register 97, No. 15).

§10.6343. Information Regarding Financial Statements: Trust Business.

History

HISTORY

1. Repealer filed 4-7-97; operative 4-7-97 pursuant to Government Code section 11343.4(d) (Register 97, No. 15).

§10.6344. Information Regarding Other Proposed Changes.

History

HISTORY

1. Repealer filed 4-7-97; operative 4-7-97 pursuant to Government Code section 11343.4(d) (Register 97, No. 15).

§10.6345. Information Regarding Effects on Competition: Commercial Banking Business.

History

HISTORY

1. Repealer filed 4-7-97; operative 4-7-97 pursuant to Government Code section 11343.4(d) (Register 97, No. 15).

§10.6346. Information Regarding Effects on Competition: Trust Business.

History

HISTORY

1. Repealer filed 4-7-97; operative 4-7-97 pursuant to Government Code section 11343.4(d) (Register 97, No. 15).

§10.6347. Information Regarding Public Convenience and Advantage: Commercial Banking Business.

History

HISTORY

1. Repealer filed 4-7-97; operative 4-7-97 pursuant to Government Code section 11343.4(d) (Register 97, No. 15).

§10.6348. Information Regarding Public Convenience and Advantage: Trust Business.

History

HISTORY

1. Repealer filed 4-7-97; operative 4-7-97 pursuant to Government Code section 11343.4(d) (Register 97, No. 15).

§10.6349. Information Regarding Reasonable Promise of Successful Operation: Commercial Banking Business.

History

HISTORY

1. Repealer filed 4-7-97; operative 4-7-97 pursuant to Government Code section 11343.4(d) (Register 97, No. 15).

§10.6350. Information Regarding Reasonable Promise of Successful Operation: Trust Business.

History

HISTORY

1. Repealer filed 4-7-97; operative 4-7-97 pursuant to Government Code section 11343.4(d) (Register 97, No. 15).

§10.6351. Information Regarding Proposed Date of Relocation.

State the date on which the applicant proposes to relocate its head office.

§10.6352. Information Regarding Purposes of Applicant.

State the reasons why the applicant wishes to relocate its head office.

§10.6353. Information Regarding Assistance in Preparation of Application.

History

HISTORY

1. Repealer filed 4-7-97; operative 4-7-97 pursuant to Government Code section 11343.4(d) (Register 97, No. 15).

§10.6354. Information Regarding Authorization of Board.

Provide a copy of either (a) a resolution of the board of the applicant authorizing the applicant to relocate its head office or (b) a like resolution of a committee of such board which is authorized to exercise the powers of the board with respect to such matters. Such copy of the resolution of the board or of such committee of the board of the applicant shall be certified by the secretary or by an assistant secretary of the applicant.

Subpart 3. Application--Relocation of Head Office Within Service Area

§10.6375. Scope.

History

HISTORY

1. Repealer of subpart 3 (sections 10.6375-10.6380) and section filed 4-7-97; operative 4-7-97 pursuant to Government Code section 11343.4(d) (Register 97, No. 15).

§10.6376. Facing Page.

History

HISTORY

1. Repealer filed 4-7-97; operative 4-7-97 pursuant to Government Code section 11343.4(d) (Register 97, No. 15).

§10.6377. Additional Information.

History

HISTORY

1. Repealer filed 4-7-97; operative 4-7-97 pursuant to Government Code section 11343.4(d) (Register 97, No. 15).

§10.6378. Information Regarding Income and Expenses.

Note • History

NOTE

Authority cited: Section 215, Financial Code. Reference: Section 420, Financial Code.

HISTORY

1. Change without regulatory effect amending subsection (b) and adding Note filed 11-4-93 pursuant to section 100, title 1, California Code of Regulations (Register 93, No. 45).

2. Repealer filed 4-7-97; operative 4-7-97 pursuant to Government Code section 11343.4(d) (Register 97, No. 15).

§10.6379. Information Regarding Effects on Competition.

History

HISTORY

1. Repealer filed 4-7-97; operative 4-7-97 pursuant to Government Code section 11343.4(d) (Register 97, No. 15).

§10.6380. Information Regarding Public Convenience and Advantage.

History

HISTORY

1. Repealer filed 4-7-97; operative 4-7-97 pursuant to Government Code section 11343.4(d) (Register 97, No. 15).

Subpart 4. Application--Relocation of Head Office with Establishment of Branch Office

§10.6400. Scope.

This Subpart contains regulations relating to an application by an applicant for approval to relocate its head office and an application by such applicant for authority to establish a branch office in a case where the applicant proposes simultaneously to relocate such head office and to establish such branch office at the old site of the head office. This Subpart does not apply to any application which is subject to Subpart 5 (commencing with Section 10.6425 of this Part).

§10.6401. Combining of Applications; Information Required.

Note • History

An application for approval to relocate a head office and an application for authority to establish a branch office which are subject to this Subpart shall be combined in the form of a single letter addressed to the Commissioner and shall contain the information called for in Sections 10.6335 and 10.6402 to 10.6410, inclusive, of this Chapter.

NOTE

Authority cited: Section 215, Financial Code. Reference: Sections 420 and 501, Financial Code.

HISTORY

1. Amendment of section and new Note filed 4-7-97; operative 4-7-97 pursuant to Government Code section 11343.4(d) (Register 97, No. 15).

2. Change without regulatory effect amending section filed 8-19-97 pursuant to section 100, title 1, California Code of Regulations (Register 97, No. 34).

3. Amendment of section and Note filed 5-6-98; operative 6-5-98 (Register 98, No. 19).

§10.6402. Information Regarding Proposed Address of Head Office: New Site.

State the proposed address of the head office--new site.

§10.6403. Information Regarding Other Proposed Changes.

(a) State whether or not the applicant proposes, in connection with the relocation of its head office and the establishment of the branch office, to make any change with respect to the board or executive officers of the applicant or any material change with respect to the business of the head office, and, if so, describe such change.

(b) State whether or not the services or operations of the branch office are proposed to be different in any material respect from the services and operations of the head office--old site, and, if so, describe such difference.

§10.6404. Information Regarding Public Convenience and Advantage.

History

HISTORY

1. Repealer filed 4-14-98; operative 5-14-98 (Register 98, No. 16).

§10.6405. Information Regarding Proposed Effective Date.

State the date on which the applicant proposes to relocate its head office and to establish the branch office.

§10.6406. Information Regarding Purposes of Applicant.

State the reasons why the applicant wishes to relocate its head office and to establish the branch office.

§10.6407. Information Regarding Assistance in Preparation of Applications.

History

HISTORY

1. Repealer filed 4-7-97; operative 4-7-97 pursuant to Government Code section 11343.4(d) (Register 97, No. 15).

§10.6408. Information Regarding Authorization of Board.

Provide a copy of either (a) a resolution of the board of the applicant authorizing the applicant to relocate its head office and to establish the branch office or (b) a like resolution of a committee of such board which is authorized to exercise the powers of the board with respect to such matters. Such copy of the resolution of the board or of such committee of the board of the applicant shall be certified by the secretary or by an assistant secretary of the applicant.

§10.6409. Information Regarding Proposed Popular Name.

Note • History

State the proposed popular name of the branch office.

NOTE

Authority cited: Section 215, Financial Code. Reference: Sections 420 and 501, Financial Code.

HISTORY

1. New section filed 5-6-98; operative 6-5-98 (Register 98, No. 19).

§10.6410. Information Regarding Capital Notes and Shareholders' Equity.

Note • History

(a) Provide a statement showing the capital notes and shareholders' equity of the applicant as of a date within 90 days before the filing of the applicant.

(b) State whether or not the applicant proposes, in connection with the establishment of the branch office, to increase its capital notes or shareholders' equity, and, if so, describe such proposal.

NOTE

Authority cited: Section 215, Financial Code. Reference: Sections 420 and 501, Financial Code.

HISTORY

1. New section filed 5-6-98; operative 6-5-98 (Register 98, No. 19).

Subpart 5. Application--Relocation of Head Office to Location of Branch Office, with Establishment of Branch Office

§10.6425. Scope.

History

HISTORY

1. Repealer of subpart 5 (sections 10.6425-10.6427) and section filed 4-7-97; operative 4-7-97 pursuant to Government Code section 11343.4(d) (Register 97, No. 15).

§10.6426. Combining of Applications; Information Required.

History

HISTORY

1. Repealer filed 4-7-97; operative 4-7-97 pursuant to Government Code section 11343.4(d) (Register 97, No. 15).

§10.6427. Information Regarding Identification of Branch Office.

History

HISTORY

1. Repealer filed 4-7-97; operative 4-7-97 pursuant to Government Code section 11343.4(d) (Register 97, No. 15).

Subpart 7. Post-Approval Matters

§10.6475. Scope.

Note • History

This Subpart contains regulations relating to matters after an application by an applicant for approval to relocate its head office is approved by the Commissioner.

NOTE

Authority cited: Section 215, Financial Code. Reference: Section 420, Financial Code.

HISTORY

1. Change without regulatory effect amending section and adding new Note filed 8-19-97 pursuant to section 100, title 1, California Code of Regulations (Register 97, No. 34).

§10.6476. Compliance with Other Provisions.

In the case of an application which is subject to Subpart 4 (commencing with Section 10.6400) or Subpart 5 (commencing with Section 10.6425) of this Part, the applicant shall, in addition to complying with the provisions of this Subpart, also comply with the provisions of Subpart 10 (commencing with Section 10.6950), Part 2, Subarticle 3 of this Article.

§10.6477. Notice.

Note • History

Except in the case of an application which is subject to subpart 4 (commencing with section 10.6400) of this part, an applicant shall give notice of the relocation of its head office by posting for a period of not less than 30 days before the effective date of the relocation on the premises of the head office--old site in conspicuous places visible from inside and outside such premises, or by serving not less than 30 days before the effective date of the relocation on each customer of the head office who maintains a deposit or fiduciary account at the head office, who has an outstanding loan which was made at, and is carried on the books of, the head office, or who maintains a safe deposit box at the head office, a notice stating:

(a) That the head office is proposed to be relocated.

(b) Proposed address of the head office--new site.

NOTE

Authority cited: Section 215, Financial Code. Reference: Section 420, Financial Code.

HISTORY

1. Change without regulatory effect amending subsection (a) filed 7-2-91 pursuant to section 100, title 1, California Code of Regulations (Register 91, No. 40).

2. Amendment filed 4-7-97; operative 4-7-97 pursuant to Government Code section 11343.4(d) (Register 97, No. 15).

§10.6478. Amendment of Articles.

Note • History

(a) An applicant shall file with the Commissioner an application for approval of any amendment of its articles which is necessary or appropriate for the relocation of its head office.

(b) Promptly after the certificate of amendment of articles of an applicant containing any amendment called for in Subdivision (a) of this Section is filed with the Secretary of State, such applicant shall file with the Commissioner a copy of such certificate of amendment of articles certified by the Secretary of State.

NOTE

Authority cited: Section 215, Financial Code. Reference: Sections 420 and 600.4, Financial Code.

HISTORY

1. Amendment of subsection (a) and new Note filed 4-7-97; operative 4-7-97 pursuant to Government Code section 11343.4(d) (Register 97, No. 15).

2. Change without regulatory effect amending section filed 8-19-97 pursuant to section 100, title 1, California Code of Regulations (Register 97, No. 34).

§10.6479. Amendment of By-Laws.

History

HISTORY

1. Repealer filed 4-7-97; operative 4-7-97 pursuant to Government Code section 11343.4(d) (Register 97, No. 15).

§10.6480. Expiration and Extension of Approval of Application.

Note • History

(a) The Commissioner's approval of an application for approval to relocate a head office shall, unless extended by the Commissioner, expire one year after the date of such approval.

(b) An application for an extension of the Commissioner's approval of an application for approval to relocate a head office shall contain:

(1) Date on which the approval is scheduled to expire.

(2) Description of progress to date in relocating the head office.

(3) Proposed timetable for completing the relocation of the head office.

(4) Amount of additional time requested for completing the relocation of the head office.

(5) Statement of reasons why such additional time is required for completing the relocation of the head office.

NOTE

Authority cited: Section 215, Financial Code. Reference: Section 420, Financial Code.

HISTORY

1. Change without regulatory effect amending section and adding new Note filed 8-19-97 pursuant to section 100, title 1, California Code of Regulations (Register 97, No. 34).

§10.6481. Certificate of Authority: Issuance and Expiration.

Note • History

(a) Not less than one business day before relocating its head office, an applicant shall file with the Commissioner an application for the issuance of a certificate of authority authorizing such applicant to establish and maintain such head office--new site. Such application shall contain the following information:

(1) State the proposed address of the head office--new site.

(2) State the date on which the applicant proposes to relocate its head office.

(b) An applicant may relocate its head office on or after the date on which the certificate of authority authorizing such applicant to establish and maintain such head office--new site is issued. However, the certificate of authority shall expire on the earlier of the following dates unless the applicant shall have relocated its head office on or before such date:

(1) Date on which the Commissioner's approval of the application for approval to relocate the head office expires pursuant to Section 10.6480 of this Chapter.

(2) Thirtieth day after the date of the issuance of the certificate of authority.

NOTE

Authority cited: Section 215, Financial Code. Reference: Section 420, Financial Code.

HISTORY

1. Change without regulatory effect amending section and adding new Note filed 8-19-97 pursuant to section 100, title 1, California Code of Regulations (Register 97, No. 34).

§10.6482. Surrender of Certificate of Authority and Report Regarding Relocation.

Note • History

Not more than five business days after relocating its head office, an applicant shall:

(a) Surrender to the Commissioner for cancellation the certificate of authority authorizing the applicant to establish and maintain the head office--old site and, in case the head office was relocated to the location of a branch office, the certificate of authority authorizing the applicant to establish and maintain such branch office.

(b) File with the Commissioner a report stating the date on which the head office was relocated.

NOTE

Authority cited: Section 215, Financial Code. Reference: Section 420, Financial Code.

HISTORY

1. Change without regulatory effect amending section and adding new Note filed 8-19-97 pursuant to section 100, title 1, California Code of Regulations (Register 97, No. 34).

Part 4. Redesignation of Head Office and Branch Office

§10.6490. Scope.

Note • History

This Part contains regulations relating to the redesignation of the head office and a branch office of a subject institution.

NOTE

Authority cited: Section 215, Financial Code. Reference: Section 421, Financial Code.

HISTORY

1. New part 4 (sections 10.6490-10.6492) and section filed 4-14-98; operative 5-14-98 (Register 98, No. 16).

§10.6491. Definition.

Note • History

In this Part, “redesignation of the head office and branch office” has the meaning set forth in Financial Code Section 421(a)(2).

NOTE

Authority cited: Section 215, Financial Code. Reference: Section 421, Financial Code.

HISTORY

1. New section filed 4-14-98; operative 5-14-98 (Register 98, No. 16).

§10.6492. Report.

Note • History

Not less than 30 days before redesignating its head office and a branch office, a subject institution shall file with the Commissioner a report containing the following information:

(a) State the reasons for the redesignation.

(b) State the estimated total costs to be incurred by the subject institution as a result of the redesignation.

(c) State whether or not any person to whom any payment is proposed to be made by the subject institution in connection with the redesignation is, or is a consociate of, any (1) director or proposed director, (2) officer or proposed officer, (3) controlling person, or (4) 25 percent (including consociates) equity security owner of the applicant, and, if so, identify such person, describe the purpose of the payment, and state the amount to be paid.

(d) State the proposed effective date of the redesignation.

NOTE

Authority cited: Section 215, Financial Code. Reference: Section 421, Financial Code.

HISTORY

1. New section filed 4-14-98; operative 5-14-98 (Register 98, No. 16).

Subarticle 3. Branch Offices

Part 1. General Provisions

§10.6600. Scope.

Note • History

This Subarticle contains regulations relating to branch offices of subject institutions. This Part contains general provisions relating to branch offices of subject institutions. Part 2 (commencing with Section 10.6700) of this Subarticle contains regulations relating to the establishment by a subject institution of a branch office pursuant to Article 2 (commencing with Section 500), Chapter 4 of the Banking Law. Part 3 (commencing with Section 10.7000) of this Subarticle contains regulations relating to the business and operations of a branch office of a subject institution. Part 4 (commencing with Section 10.7300) of this Subarticle contains regulations relating to the relocation by a subject institution of a branch office pursuant to Financial Code Section 507. Part 5 (commencing with Section 10.7700) of this Subarticle contains regulations relating to the discontinuance by a subject institution of a branch office pursuant to Financial Code Section 510.

NOTE

Authority cited: Section 215, Financial Code. Reference: Article 2 to 5, inclusive, Chapter 4, Division 1, Financial Code.

HISTORY

1. Amendment of section and new Note filed 4-7-97; operative 4-7-97 pursuant to Government Code section 11343.4(d) (Register 97, No. 15).

§10.6601. Definition.

In this Subarticle, “parent office,” when used with respect to a special branch office of a subject institution, means the head office or regular branch office of such subject institution at which the records of such special branch office are domiciled.

§10.6602. Change in Popular Name.

Note • History

Not less than ten business days after a subject institution changes the popular name of a branch office, such subject institution shall file with the Commissioner a report containing the following information:

(a) Identify the branch office, including the new and old popular names.

(b) State the date on which the popular name of the branch office was changed.

NOTE

Authority cited: Section 215, Financial Code. Reference: Sections 509 and 1934, Financial Code.

HISTORY

1. Change without regulatory effect amending section and adding new Note filed 8-19-97 pursuant to section 100, title 1, California Code of Regulations (Register 97, No. 34).

§10.6603. Foreign (Other Nation) Branch Offices.

History

HISTORY

1. Repealer filed 4-7-97; operative 4-7-97 pursuant to Government Code section 11343.4(d) (Register 97, No. 15).

Part 2. Establishment of Branch Office

Subpart 1. General Provisions

§10.6700. Definition of “Applicant” and Scope.

Note • History

(a) In this Part, “applicant” means a subject institution which applies to the Commissioner for authority to establish a branch office.

(b) This Part contains regulations relating to the establishment by an applicant of a branch office pursuant to Article 2 (commencing with Section 500), Chapter 4 of the Banking Law. This Subpart contains general provisions relating to the establishment by an applicant of a branch office. Subpart 2 (commencing with Section 10.6725) of this Part contains regulations relating to an application by an applicant for authority to establish a branch office. (Subparts 3 to 8, inclusive, of this Part are reserved.) Subpart 9 (commencing with Section 10.6925) of this Part contains regulations which set forth administrative standards and procedures relating to an application by an applicant for authority to establish a branch office. Subpart 10 (commencing with Section 10.6950) of this Part contains regulations relating to matters after an application by an applicant for authority to establish a branch office is approved by the Commissioner.

NOTE

Authority cited: Section 215, Financial Code. Reference: Sections 500, 501, 503, 504, 505, 506, 507, 509, 510, 511 and 512, Financial Code.

HISTORY

1. Amendment of subsection (b) and new Note filed 4-7-97; operative 4-7-97 pursuant to Government Code section 11343.4(d) (Register 97, No. 15).

2. Change without regulatory effect amending section filed 8-19-97 pursuant to section 100, title 1, California Code of Regulations (Register 97, No. 34).

3. Amendment of subsection (b) and Note filed 5-6-98; operative 6-5-98 (Register 98, No. 19).

§10.6701. Applicability.

Note • History

(a)(1) Subpart 2 (commencing with Section 10.6725) of this Part does not apply to an application for authority to establish a branch office in a case where the applicant proposes simultaneously to relocate its head office and to establish such branch office at the location of the old site of the head office. (For regulations relating to such an application, refer to Subpart 4 (commencing with Section 10.6400) of Part 3 of Subarticle 5 of this Article.)

(2) An application of the type described in Paragraph (1) of this Subdivision (a) is subject to this Subpart as well as Subpart 9 (commencing with Section 10.7500) and Subpart 10 (commencing with Section 10.7525) of this Part.

(b) Except as otherwise provided in Section 10.6052 of this Article or by order of the Superintendent, this Part does not apply in a case where the establishment of a branch office by a subject institution is exempt from the authorization requirement of Financial Code Section 500(b) pursuant to Financial Code Section 490.

NOTE

Authority cited: Section 215, Financial Code. Reference: Sections 490, 500, 501, 503, 504, and 505, Financial Code.

HISTORY

1. Amendment of section heading and section and new Note filed 4-7-97; operative 4-7-97 pursuant to Government Code section 11343.4(d) (Register 97, No. 15).

2. Amendment of subsection (a)(1) and Note filed 5-6-98; operative 6-5-98 (Register 98, No. 19).

§10.6702. Included Application.

Note • History

An application for authority to establish a branch office which is subject to Subpart 2 (commencing with Section 10.6725) of this Part and which proposes that the applicant establish such branch office in temporary quarters and subsequently relocate the branch office to permanent quarters shall, unless otherwise provided in such application, be deemed to include an application for approval pursuant to Financial Code Section 507 for the applicant to relocate the branch office from such temporary quarters to such permanent quarters, and shall be accompanied by the fee prescribed in Financial Code Section 507. Approval of such an application for authority to establish a branch office shall, unless otherwise provided in such approval, be deemed to include approval of such included application for approval to relocate the branch office. The applicant shall, with respect to relocating the branch office, comply with the provisions of Subpart 10 (commencing with Section 10.7525), Part 4 of this Subarticle.

NOTE

Authority cited: Section 215, Financial Code. Reference: Sections 501, 503 and 507, Financial Code.

HISTORY

1. Amendment of section and new Note filed 5-6-98; operative 6-5-98 (Register 98, No. 19).

§10.6703. Fee.

(a) Except as otherwise provided in Subdivision (b) of this Section, an application for authority to establish a branch office shall be accompanied by the fee prescribed in Financial Code Section 501.

(b) The fee requirement of Financial Code Section 501 does not apply to any of the following applications for authority to establish a branch office:

(1) Application for authority to establish a branch office in a case where the applicant results from the conversion of a California national bank and proposes to establish such branch office at the location of an existing or approved but unopened branch office of such California national bank.

(2) Application for authority to establish a branch office in a case where the applicant proposes to acquire another California bank, in whole or in part, by means of merger or purchase and to establish such branch office at the location of the head office or an existing or approved but unopened branch office of such other California bank.

(3) Application for authority to establish a branch office in a case where the applicant proposes simultaneously to relocate its head office and to establish such branch office at the location of the old site of the head office.

Subpart 2. Application

§10.6725. Scope.

Note • History

This Subpart contains regulations relating to an application for authority to establish a branch office. This Subpart does not apply to any application which is described in Section 10.6701 of this Chapter.

NOTE

Authority cited: Section 215, Financial Code. Reference: Section 501, Financial Code.

HISTORY

1. Repealer of former subpart 2 (sections 10.6725-10.6750), new subpart 2 (sections 10.6725-10.6726), and repealer and new section filed 5-6-98; operative 6-5-98 (Register 98, No. 19).

§10.6726. Application.

Note • History

An application for authority to establish a branch office shall be in the form of Department Form 25, shall contain the information called for in the Form and in the instructions for the Form, and shall be signed as required in the Form and instructions

NOTE

Authority cited: Section 215, Financial Code. Reference: Section 501, Financial Code.

HISTORY

1. Change without regulatory effect amending section filed 7-2-91 pursuant to section 100, title 1, California Code of Regulations (Register 91, No. 40).

2. Repealer and new section filed 5-6-98; operative 6-5-98 (Register 98, No. 19).

§10.6727. Additional Information.

Note • History

NOTE

Authority cited: Section 215, Financial Code. Reference: Section 501, Financial Code.

HISTORY

1. Amendment of subsections (b) and (c) and new Note filed 4-7-97; operative 4-7-97 pursuant to Government Code section 11343.4(d) (Register 97, No. 15).

2. Repealer filed 5-6-98; operative 6-5-98 (Register 98, No. 19).

§10.6728. Information Regarding Proposed Popular Name.

History

HISTORY

1. Repealer filed 5-6-98; operative 6-5-98 (Register 98, No. 19).

§10.6729. Information Regarding Branching Strategy.

History

HISTORY

1. Repealer filed 4-7-97; operative 4-7-97 pursuant to Government Code section 11343.4(d) (Register 97, No. 15).

§10.6730. Information Regarding Other Offices.

History

HISTORY

1. Repealer filed 4-7-97; operative 4-7-97 pursuant to Government Code section 11343.4(d) (Register 97, No. 15).

§10.6731. Information Regarding Proposed Market: Commercial Banking Business.

Note • History

NOTE

Authority cited: Section 215, Financial Code. Reference: Section 501, Financial Code.

HISTORY

1. Amendment of section heading and subsection (a), repealer of subsections (b)-(m), new subsections (b)-(b)(2), and new Note filed 4-7-97; operative 4-7-97 pursuant to Government Code section 11343.4(d) (Register 97, No. 15).

2. Repealer filed 5-6-98; operative 6-5-98 (Register 98, No. 19).

§10.6732. Information Regarding Proposed Market: Trust Business.

Note • History

NOTE

Authority cited: Section 215, Financial Code. Reference: Section 501, Financial Code.

HISTORY

1. Amendment of section heading and subsection (a), repealer of subsections (b)-(h), new subsection (b), and new Note filed 4-7-97; operative 4-7-97 pursuant to Government Code section 11343.4(d) (Register 97, No. 15).

2. Repealer filed 5-6-98; operative 6-5-98 (Register 98, No. 19).

§10.6733. Information Regarding Services: Commercial Banking Business.

Note • History

NOTE

Authority cited: Section 215, Financial Code. Reference: Section 501, Financial Code.

HISTORY

1. Amendment of section heading and section and new Note filed 4-7-97; operative 4-7-97 pursuant to Government Code section 11343.4(d) (Register 97, No. 15).

2. Repealer filed 5-6-98; operative 6-5-98 (Register 98, No. 19).

§10.6734. Information Regarding Services: Trust Business.

Note • History

NOTE

Authority cited: Section 215, Financial Code. Reference: Section 501, Financial Code.

HISTORY

1. Amendment of section heading and section and new Note filed 4-7-97; operative 4-7-97 pursuant to Government Code section 11343.4(d) (Register 97, No. 15).

2. Repealer filed 5-6-98; operative 6-5-98 (Register 98, No. 19).

§10.6735. Information Regarding Proposed Manager and Staff.

History

HISTORY

1. Repealer filed 4-7-97; operative 4-7-97 pursuant to Government Code section 11343.4(d) (Register 97, No. 15).

§10.6736. Information Regarding Proposed Direction, Supervision, and Audit.

History

HISTORY

1. Repealer filed 4-7-97; operative 4-7-97 pursuant to Government Code section 11343.4(d) (Register 97, No. 15).

§10.6737. Information Regarding Proposed Premises, Furniture, and Equipment.

Note • History

NOTE

Authority cited: Section 215, Financial Code. Reference: Section 501, Financial Code.

HISTORY

1. Amendment of section and new Note filed 4-7-97; operative 4-7-97 pursuant to Government Code section 11343.4(d) (Register 97, No. 15).

2. Repealer filed 5-6-98; operative 6-5-98 (Register 98, No. 19).

§10.6738. Information Regarding Capital Notes and Shareholders' Equity.

Note • History

NOTE

Authority cited: Section 215, Financial Code. Reference: Section 501, Financial Code.

HISTORY

1. Amendment of subsection (a) and new Note filed 4-7-97; operative 4-7-97 pursuant to Government Code section 11343.4(d) (Register 97, No. 15).

2. Repealer filed 5-6-98; operative 6-5-98 (Register 98, No. 19).

§10.6739. Information Regarding Pro Forma Financial Statement: Commercial Banking Business.

History

HISTORY

1. Repealer filed 4-7-97; operative 4-7-97 pursuant to Government Code section 11343.4(d) (Register 97, No. 15).

§10.6740. Information Regarding Pro Forma Financial Statements: Trust Business.

History

HISTORY

1. Repealer filed 4-7-97; operative 4-7-97 pursuant to Government Code section 11343.4(d) (Register 97, No. 15).

§10.6741. Information Regarding Effects on Competition: Commercial Banking Business.

History

HISTORY

1. Repealer filed 4-7-97; operative 4-7-97 pursuant to Government Code section 11343.4(d) (Register 97, No. 15).

§10.6742. Information Regarding Effects on Competition: Trust Business.

History

HISTORY

1. Repealer filed 4-7-97; operative 4-7-97 pursuant to Government Code section 11343.4(d) (Register 97, No. 15).

§10.6743. Information Regarding Public Convenience and Advantage.

Note • History

NOTE

Authority cited: Section 215, Financial Code. Reference: Section 501, Financial Code.

HISTORY

1. Amendment of section heading and first paragraph and repealer of subsections (a)-(g) filed 4-7-97; operative 4-7-97 pursuant to Government Code section 11343.4(d) (Register 97, No. 15).

2. Repealer filed 5-6-98; operative 6-5-98 (Register 98, No. 19).

§10.6744. Information Regarding Public Convenience and Advantage: Trust Business.

History

HISTORY

1. Repealer filed 4-7-97; operative 4-7-97 pursuant to Government Code section 11343.4(d) (Register 97, No. 15).

§10.6745. Information Regarding Reasonable Promise of Successful Operation: Commercial Banking Business.

History

HISTORY

1. Repealer filed 4-7-97; operative 4-7-97 pursuant to Government Code section 11343.4(d) (Register 97, No. 15).

§10.6746. Information Regarding Reasonable Promise of Successful Operation: Trust Business.

History

HISTORY

1. Repealer filed 4-7-97; operative 4-7-97 pursuant to Government Code section 11343.4(d) (Register 97, No. 15).

§10.6747. Information Regarding Proposed Date of Establishment.

History

HISTORY

1. Repealer filed 5-6-98; operative 6-5-98 (Register 98, No. 19).

§10.6748. Information Regarding Purposes of Applicant.

History

HISTORY

1. Repealer filed 5-6-98; operative 6-5-98 (Register 98, No. 19).

§10.6749. Information Regarding Assistance in Preparation of Application.

History

HISTORY

1. Repealer filed 4-7-97; operative 4-7-97 pursuant to Government Code section 11343.4(d) (Register 97, No. 15).

§10.6750. Information Regarding Authorization of Board.

History

HISTORY

1. Repealer filed 5-6-98; operative 6-5-98 (Register 98, No. 19).

Subpart 3. Application--Foreign (Other Nation) Regular Branch Office

§10.6775. Scope.

History

HISTORY

1. Repealer of subpart 3 (sections 10.6775-10.6781) and repealer of section filed 5-6-98; operative 6-5-98 (Register 98, No. 19).

§10.6776. Facing Page.

History

HISTORY

1. Repealer filed 5-6-98; operative 6-5-98 (Register 98, No. 19).

§10.6777. Additional Information.

Note • History

NOTE

Authority cited: Section 215, Financial Code. Reference: Section 501, Financial Code.

HISTORY

1. Amendment of section and new Note filed 4-7-97; operative 4-7-97 pursuant to Government Code section 11343.4(d) (Register 97, No. 15).

2. Repealer filed 5-6-98; operative 6-5-98 (Register 98, No. 19).

§10.6778. Information Regarding Proposed Service Area.

History

HISTORY

1. Repealer filed 4-7-97; operative 4-7-97 pursuant to Government Code section 11343.4(d) (Register 97, No. 15).

§10.6779. Information Regarding Foreign Business.

History

HISTORY

1. Repealer filed 4-7-97; operative 4-7-97 pursuant to Government Code section 11343.4(d) (Register 97, No. 15).

§10.6780. Information Regarding Banking System.

History

HISTORY

1. Repealer filed 5-6-98; operative 6-5-98 (Register 98, No. 19).

§10.6781. Information Regarding Regulation of Branch Office.

Note • History

NOTE

Authority cited: Section 215, Financial Code. Reference: Section 501, Financial Code.

HISTORY

1. Change without regulatory effect amending section and adding new Note filed 8-19-97 pursuant to section 100, title 1, California Code of Regulations (Register 97, No. 34).

2. Repealer filed 5-6-98; operative 6-5-98 (Register 98, No. 19).

Subpart 4. Application--California Intermittent Branch Office

§10.6800. Scope.

History

HISTORY

1. Repealer of subpart 4 (sections 10.6800-10.6808) and repealer of section filed 5-6-98; operative 6-5-98 (Register 98, No. 19).

§10.6801. Facing Page.

History

HISTORY

1. Repealer filed 5-6-98; operative 6-5-98 (Register 98, No. 19).

§10.6802. Additional Information.

Note • History

NOTE

Authority cited: Section 215, Financial Code. Reference: Section 501, Financial Code.

HISTORY

1. Amendment of subsection (b) and new Note filed 4-7-97; operative 4-7-97 pursuant to Government Code section 11343.4(d) (Register 97, No. 15).

2. Repealer filed 5-6-98; operative 6-5-98 (Register 98, No. 19).

§10.6803. Information Regarding Proposed Parent Office.

History

HISTORY

1. Repealer filed 5-6-98; operative 6-5-98 (Register 98, No. 19).

§10.6804. Information Regarding Proposed Services.

Note • History

NOTE

Authority cited: Section 215, Financial Code. Reference: Sections 500, 501 and 503, Financial Code.

HISTORY

1. Amendment of section and new Note filed 4-7-97; operative 4-7-97 pursuant to Government Code section 11343.4(d) (Register 97, No. 15).

2. Repealer filed 5-6-98; operative 6-5-98 (Register 98, No. 19).

§10.6805. Information Regarding Proposed Periods of Operation.

History

HISTORY

1. Repealer filed 5-6-98; operative 6-5-98 (Register 98, No. 19).

§10.6806. Information Regarding Proposed Premises, Furniture, and Equipment.

History

HISTORY

1. Repealer filed 4-7-97; operative 4-7-97 pursuant to Government Code section 11343.4(d) (Register 97, No. 15).

§10.6807. Information Regarding Expenses.

History

HISTORY

1. Repealer filed 4-7-97; operative 4-7-97 pursuant to Government Code section 11343.4(d) (Register 97, No. 15).

§10.6808. Information Regarding Public Convenience and Advantage.

History

HISTORY

1. Repealer filed 4-7-97; operative 4-7-97 pursuant to Government Code section 11343.4(d) (Register 97, No. 15).

Subpart 9. Administrative Standards and Procedures

§10.6925. Scope.

This Subpart contains regulations which set forth administrative standards and procedures relating to an application by an applicant for authority to establish a branch office.

§10.6926. Incomplete Application.

Note • History

As an administrative procedure, the Commissioner generally will reject for filing any application for authority to establish a branch office which is not substantially complete.

NOTE

Authority cited: Section 215, Financial Code.

HISTORY

1. Change without regulatory effect amending section and adding new Note filed 8-19-97 pursuant to section 100, title 1, California Code of Regulations (Register 97, No. 34).

§10.6927. Priority.

History

HISTORY

1. Repealer filed 4-7-97; operative 4-7-97 pursuant to Government Code section 11343.4(d) (Register 97, No. 15).

§10.6928. Foreign (Other Nation) Branch Office.

Note • History

As an administrative standard, the Commissioner generally will not grant an application for authority to establish a foreign (other nation) branch office if any law or administrative policy of the foreign nation where such branch office is proposed to be located would prohibit the Commissioner from, or significantly restrict the Commissioner in, examining or regulating the branch office or if any such law or administrative policy would prohibit the applicant or any adviser of the applicant from, or significantly restrict the applicant or any adviser of the applicant in, directing, supervising, or auditing the branch office.

NOTE

Authority cited: Section 215, Financial Code.

HISTORY

1. Change without regulatory effect amending section and adding new Note filed 8-19-97 pursuant to section 100, title 1, California Code of Regulations (Register 97, No. 34).

§10.6929. Commercial Bank with Trust Department.

Note • History

In case the Commissioner approves an application by an applicant which is a commercial bank with trust department for authority to establish a branch office, he generally will, when he issues the certificate of authority for such branch office and unless the applicant proposed in its application to engage only in trust business and not also in commercial banking business at the branch office, authorize the applicant to engage in both commercial banking business and trust business at the branch office.

NOTE

Authority cited: Section 215, Financial Code. Reference: Section 504, Financial Code.

HISTORY

1. Change without regulatory effect amending section and adding new Note filed 8-19-97 pursuant to section 100, title 1, California Code of Regulations (Register 97, No. 34).

Subpart 10. Post-Approval Matters

§10.6950. Scope.

Note • History

This Subpart contains regulations relating to matters after an application by an applicant for authority to establish a branch is approved by the Commissioner.

NOTE

Authority cited: Section 215, Financial Code.

HISTORY

1. Change without regulatory effect amending section and adding new Note filed 8-19-97 pursuant to section 100, title 1, California Code of Regulations (Register 97, No. 34).

§10.6951. Report Regarding Proposed Manager.

History

HISTORY

1. Repealer filed 4-7-97; operative 4-7-97 pursuant to Government Code section 11343.4(d) (Register 97, No. 15).

§10.6952. Report Regarding Foreign (Other Nation) Regular Branch Office.

Note • History

In the case of an application for authority to establish a foreign (other nation) regular branch office, the applicant shall, not less than five business days before establishing such branch office, file with the Commissioner a report which states that the applicant has complied with all laws of the foreign nation applicable to the establishment of the branch office and which contains a copy of any document issued by the bank regulatory agency of the foreign nation having jurisdiction over the proposed establishment of the branch office, authorizing the applicant to establish the branch office.

NOTE

Authority cited: Section 215, Financial Code. Reference: Section 1934, Financial Code.

HISTORY

1. Change without regulatory effect amending section and adding new Note filed 8-19-97 pursuant to section 100, title 1, California Code of Regulations (Register 97, No. 34).

§10.6953. Extension of Time for Establishing Branch Office.

An application for an extension pursuant to Financial Code Section 505 of the time within which a branch office may be established shall contain:

(a) Date on which the time for establishing the branch office is scheduled to expire.

(b) Description of progress to date in completing the establishment of the branch office.

(d) Amount of additional time requested for completing the establishment of the branch office.

(e) Statement of reasons why such additional time is required for completing the establishment of the branch office.

§10.6954. Certificate of Authority: Issuance and Expiration.

Note • History

(a) Not less than one business day before establishing a branch office, an applicant shall file with the Commissioner an application for the issuance of a certificate of authority authorizing such applicant to establish and maintain such branch office. Such application shall contain the following information:

(1) Identify the branch office.

(2) State the date on which the applicant proposes to establish the branch office.

(b) An applicant may establish a branch office on or after the date on which the certificate of authority authorizing such applicant to establish and maintain such branch office is issued. However, such certificate of authority shall expire on the earlier of the following dates unless the applicant shall have established the branch office on or before such date:

(1) Date on which the Commissioner's approval of the application for authority to establish the branch office expires pursuant to Financial Code Section 505.

(2) Thirtieth day after the date of the issuance of the certificate of authority.

NOTE

Authority cited: Section 215, Financial Code. Reference: Sections 504 and 505, Financial Code.

HISTORY

1. Change without regulatory effect amending section and adding new Note filed 8-19-97 pursuant to section 100, title 1, California Code of Regulations (Register 97, No. 34).

§10.6955. Report Regarding Establishment of Branch Office.

Not more than five business days after establishing a branch office, an applicant shall file with the superintendent a report containing the following information:

(a) Identify the branch office.

(b) State the date on which the branch office was established.

Part 3. Business and Operations of Branch Office

§10.7000. Scope.

This Part contains regulations relating to the business and operations of a branch office of a subject institution.

§10.7001. Scope of Business of Branch Office.

Note • History

Subject to the provisions of Section 10.7002 of this Chapter and except as the Superintendent may otherwise provide with respect to such branch office, a subject institution may transact at a branch office any business which, in case such subject institution is a commercial bank, is an authorized business of a California state commercial bank or any business which, in case such subject institution is a trust company, is an authorized business of a California state trust company.

NOTE

Authority cited: Section 215, Financial Code. Reference: Article 2, Chapter 4, Division 1, Financial Code.

HISTORY

1. Amendment of section and new Note filed 4-7-97; operative 4-7-97 pursuant to Government Code section 11343.4(d) (Register 97, No. 15).

§10.7002. Scope of Business of Foreign (Other Nation) Branch Office.

Note • History

(a) Except with the prior approval of the Commissioner, no subject institution shall transact at any foreign (other nation) branch office any business other than such business as such subject institution is authorized to transact at its head office.

(b) An application by a subject institution for approval to transact at a foreign (other nation) branch office any business other than such business as such subject institution is authorized to transact at its head office shall contain the following information:

(1) Identify the foreign (other nation) branch office.

(2) Describe the business which the subject institution proposes to transact at the foreign (other nation) branch office.

(3) Show that such business is usual in connection with the business of banking in the place where the foreign (other nation) branch office is located.

(4) Show that such business is not unsafe or unsound.

(5) State the reasons why the subject institution wishes to transact such business at the foreign (other nation) branch office.

NOTE

Authority cited: Section 215, Financial Code. Reference: Section 512, Financial Code.

HISTORY

1. Change without regulatory effect amending section and adding new Note filed 8-19-97 pursuant to section 100, title 1, California Code of Regulations (Register 97, No. 34).

§10.7003. Report Regarding Establishment of Trust Administration Office.

Note • History

Not less than ten business days after a subject institution which is a commercial bank with trust department establishes a trust administration office at a branch office, such subject institution shall file with the Commissioner a report containing the following information:

(a) Identify the branch office.

(b) State the date on which the subject institution established the trust administration office at the branch office.

NOTE

Authority cited: Section 215, Financial Code. Reference: Section 1934, Financial Code.

HISTORY

1. Change without regulatory effect amending section and adding new Note filed 8-19-97 pursuant to section 100, title 1, California Code of Regulations (Register 97, No. 34).

Part 4. Relocation of Branch Office

Subpart 1. General Provisions

§10.7300. Definition of “Applicant” and Scope.

Note • History

(a) In this part, “applicant” means a subject institution which applies to the Commissioner for approval to relocate a branch office.

(b) This part contains regulations relating to the relocation by an applicant of a branch office pursuant to Financial Code section 507. This subpart contains general provisions relating to the relocation by an applicant of a branch office. Subpart 2 (commencing with section 10.7325) of this part contains regulations relating to an application by an applicant for approval to relocate a California regular branch office. (Subparts 3 to 8, inclusive, of this part are reserved.) Subpart 9 (commencing with section 10.7500) of this part contains regulations which set forth administrative standards and procedures relating to an application by an applicant for approval to relocate a branch office. Subpart 10 (commencing with section 10.7525) of this part contains regulations relating to matters after an application by an applicant for approval to relocate a branch office is approved by the Commissioner.

NOTE

Authority cited: Section 215, Financial Code. Reference: Section 507, Financial Code.

HISTORY

1. Change without regulatory effect amending subsection (b) filed 7-2-91 pursuant to section 100, title 1, California Code of Regulations (Register 91, No. 40).

2. Change without regulatory effect amending section filed 8-19-97 pursuant to section 100, title 1, California Code of Regulations (Register 97, No. 34).

3. Amendment of subsection (b) filed 5-6-98; operative 6-5-98 (Register 98, No. 19).

§10.7301. Applicability.

Note • History

(a)(1) Subpart 2 (commencing with Section 10.7325) of this Part does not apply to any application for approval to relocate a branch office which is deemed to be included in the application for authority to establish such branch office pursuant to Section 10.6702 of this Chapter.

(2) Each application for approval to relocate a branch office which is deemed to be included in the application for authority to establish such branch office pursuant to Section 10.6702 of this Chapter is subject to this Subpart as well as Subpart 9 (commencing with Section 10.7500) and Subpart 10 (commencing with Section 10.7525) of this Part.

(b) Except as otherwise provided in Section 10.6053 of this Article or by order of the Superintendent, this Part does not apply in a case where the relocation of a branch office by a subject institution is exempt from the authorization requirement of Financial Code Section 507 pursuant to Financial Code Section 490.

NOTE

Authority cited: Section 215, Financial Code. Reference: Section 507, Financial Code.

HISTORY

1. Amendment of section heading and section and new Note filed 4-7-97; operative 4-7-97 pursuant to Government Code section 11343.4(d) (Register 97, No. 15).

2. Amendment of subsection (a)(1) filed 5-6-98; operative 6-5-98 (Register 98, No. 19).

§10.7302. Fee.

An application for approval to relocate a branch office shall be accompanied by the fee prescribed in Financial Code Section 507.

Subpart 2. Application

§10.7325. Scope.

Note • History

This Subpart contains regulations relating to an application by an applicant for approval to relocate a branch office. This Subpart does not apply to any application described in Section 10.7301 of this Chapter.

NOTE

Authority cited: Section 215, Financial Code. Reference: Section 507, Financial Code.

HISTORY

1. Repealer of subpart 2 (sections 10.7325-10.7338), new subpart 2 (sections 10.7325-10.7326), and repealer and new section filed 5-6-98; operative 6-5-98 (Register 98, No. 19).

§10.7326. Application.

Note • History

An application for approval to relocate a branch office shall be in the form of Department Form 25, shall contain the information called for in the Form and in the instructions for the Form, and shall be signed as required in the Form and instructions.

NOTE

Authority cited: Section 215, Financial Code. Reference: Section 507, Financial Code.

HISTORY

1. Repealer and new section and Note filed 5-6-98; operative 6-5-98 (Register 98, No. 19).

§10.7327. Additional Information.

Note • History

NOTE

Authority cited: Section 215, Financial Code. Reference: Section 507, Financial Code.

HISTORY

1. Amendment of section and new Note filed 4-7-97; operative 4-7-97 pursuant to Government Code section 11343.4(d) (Register 97, No. 15).

2. Repealer filed 5-6-98; operative 6-5-98 (Register 98, No. 19).

§10.7328. Information Regarding Popular Name.

History

HISTORY

1. Repealer filed 5-6-98; operative 6-5-98 (Register 98, No. 19).

§10.7329. Information Regarding Locations.

History

HISTORY

1. Repealer filed 4-7-97; operative 4-7-97 pursuant to Government Code section 11343.4(d) (Register 97, No. 15).

§10.7330. Information Regarding Proposed Premises, Furniture, and Equipment: New Site.

History

HISTORY

1. Repealer filed 4-7-97; operative 4-7-97 pursuant to Government Code section 11343.4(d) (Register 97, No. 15).

§10.7331. Information Regarding Premises, Furniture, and Equipment: Old Site.

Note • History

NOTE

Authority cited: Section 215, Financial Code. Reference: Section 507, Financial Code.

HISTORY

1. Amendment of section and new Note filed 4-7-97; operative 4-7-97 pursuant to Government Code section 11343.4(d) (Register 97, No. 15).

2. Repealer filed 5-6-98; operative 6-5-98 (Register 98, No. 19).

§10.7332. Information Regarding Income and Expenses.

History

HISTORY

1. Repealer filed 4-7-97; operative 4-7-97 pursuant to Government Code section 11343.4(d) (Register 97, No. 15).

§10.7333. Information Regarding Other Proposed Changes.

Note • History

NOTE

Authority cited: Section 215, Financial Code. Reference: Section 507, Financial Code.

HISTORY

1. Change without regulatory effect amending section and adding Note filed 11-4-93 pursuant to section 100, title 1, California Code of Regulations (Register 93, No. 45).

2. Repealer filed 4-7-97; operative 4-7-97 pursuant to Government Code section 11343.4(d) (Register 97, No. 15).

§10.7334. Information Regarding Effects on Competition.

History

HISTORY

1. Repealer filed 4-7-97; operative 4-7-97 pursuant to Government Code section 11343.4(d) (Register 97, No. 15).

§10.7335. Information Regarding Public Convenience and Advantage.

History

HISTORY

1. Repealer filed 4-7-97; operative 4-7-97 pursuant to Government Code section 11343.4(d) (Register 97, No. 15).

§10.7336. Information Regarding Proposed Date of Relocation.

History

HISTORY

1. Repealer filed 5-6-98; operative 6-5-98 (Register 98, No. 19).

§10.7337. Information Regarding Purposes of Applicant.

History

HISTORY

1. Repealer filed 5-6-98; operative 6-5-98 (Register 98, No. 19).

§10.7338. Information Regarding Authorization of Board.

History

HISTORY

1. Repealer filed 4-7-97; operative 4-7-97 pursuant to Government Code section 11343.4(d) (Register 97, No. 15).

Subpart 3. Application--Foreign (Other Nation) Regular Branch Office

§10.7350. Scope.

History

HISTORY

1. Repealer of subpart 3 (sections 10.7350-10.7352) and repealer of section filed 5-6-98; operative 6-5-98 (Register 98, No. 19).

§10.7351. Facing Page.

History

HISTORY

1. Repealer filed 5-6-98; operative 6-5-98 (Register 98, No. 19).

§10.7352. Additional Information.

Note • History

NOTE

Authority cited: Section 215, Financial Code. Reference: Section 507, Financial Code.

HISTORY

1. Amendment of section and new Note filed 4-7-97; operative 4-7-97 pursuant to Government Code section 11343.4(d) (Register 97, No. 15).

2. Repealer filed 5-6-98; operative 6-5-98 (Register 98, No. 19).

Subpart 4. Application--California Intermittent Branch Office

§10.7375. Scope.

History

HISTORY

1. Editorial correction restoring omitted section (Register 92, No. 5).

2. Editorial correction of History 1 (Register 95, No. 48).

3. Repealer of subpart 4 (sections 10.7375-10.7379) and repealer of section filed 5-6-98; operative 6-5-98 (Register 98, No. 19).

§10.7376. Facing Page.

History

HISTORY

1. Repealer filed 5-6-98; operative 6-5-98 (Register 98, No. 19).

§10.7377. Additional Information.

Note • History

NOTE

Authority cited: Section 215, Financial Code. Reference: Section 507, Financial Code.

HISTORY

1. Amendment of subsection (b) and new Note filed 4-7-97; operative 4-7-97 pursuant to Government Code section 11343.4(d) (Register 97, No. 15).

2. Repealer filed 5-6-98; operative 6-5-98 (Register 98, No. 19).

§10.7378. Information Regarding Proposed Premises.

History

HISTORY

1. Repealer filed 5-6-98; operative 6-5-98 (Register 98, No. 19).

§10.7379. Information Regarding Other Proposed Changes.

History

HISTORY

1. Repealer filed 4-7-97; operative 4-7-97 pursuant to Government Code section 11343.4(d) (Register 97, No. 15).

Subpart 9. Administrative Standards and Procedures

§10.7500. Scope.

This Subpart contains regulations which set forth administrative standards and procedures relating to an application by an applicant for approval to relocate a branch office.

§10.7501. Same Vicinity.

History

HISTORY

1. Repealer filed 4-7-97; operative 4-7-97 pursuant to Government Code section 11343.4(d) (Register 97, No. 15).

Subpart 10. Post-Approval Matters

§10.7525. Scope.

Note • History

This Subpart contains regulations relating to matters after an application by an applicant for approval to relocate a branch office is approved by the Commissioner.

NOTE

Authority cited: Section 215, Financial Code. Reference: Section 507, Financial Code.

HISTORY

1. Change without regulatory effect amending section and adding new Note filed 8-19-97 pursuant to section 100, title 1, California Code of Regulations (Register 97, No. 34).

§10.7526. Notice.

Note • History

An applicant shall give notice of the relocation of a branch office by posting for a period of not less than 30 days before the effective date of the relocation on the premises of such branch office--old site in conspicuous places visible from inside and outside such premises, or by serving not less than 30 days before the effective date of the relocation on each customer of the branch office who maintains a deposit or fiduciary account at the branch office who has an outstanding loan which was made at, and is carried on the books of, the branch office, or who maintains a safe deposit box at the branch office, a notice stating:

(a) That the branch office is proposed to be relocated.

(b) Proposed address of the branch office--new site.

NOTE

Authority cited: Section 215, Financial Code. Reference: Section 507, Financial Code.

HISTORY

1. Amendment of section and new Note filed 4-7-97; operative 4-7-97 pursuant to Government Code section 11343.4(d) (Register 97, No. 15).

§10.7527. Report Regarding Foreign (Other Nation) Regular Branch Office.

Note • History

In the case of an application for approval to relocate a foreign (other nation) regular branch office, the applicant shall, not less than five business days before relocating such branch office, file with the Commissioner a report which states that the applicant has complied with all laws of the foreign nation applicable to the relocation of the branch office and which contains a copy of any document issued by the bank regulatory agency of the foreign nation having jurisdiction over the relocation of the branch office, authorizing the applicant to relocate the branch office.

NOTE

Authority cited: Section 215, Financial Code. Reference: Sections 507 and 1934, Financial Code.

HISTORY

1. Change without regulatory effect amending section and adding new Note filed 8-19-97 pursuant to section 100, title 1, California Code of Regulations (Register 97, No. 34).

§10.7528. Expiration and Extension of Approval of Application.

Note • History

(a) The Commissioner's approval of an application for approval to relocate a branch office shall, unless extended by the Commissioner, expire one year after the date of such approval.

(b) An application for an extension of the Commissioner's approval of an application for approval to relocate a branch office shall contain:

(1) Date on which the approval is scheduled to expire.

(2) Description of progress to date in relocating the branch office.

(3) Proposed timetable for completing the relocation of the branch office.

(4) Amount of additional time requested for completing the relocation of the branch office.

(5) Statement of reasons why such additional time is required for completing the relocation of the branch office.

NOTE

Authority cited: Section 215, Financial Code. Reference: Sections 507 and 1934, Financial Code.

HISTORY

1. Change without regulatory effect amending section and adding new Note filed 8-19-97 pursuant to section 100, title 1, California Code of Regulations (Register 97, No. 34).

§10.7529. Certificate of Authority: Issuance and Expiration.

Note • History

(a) Not less than one business day before relocating a branch office, an applicant shall file with the Commissioner an application for the issuance of a certificate of authority authorizing such applicant to establish and maintain such branch office--new site. Such application shall contain the following information:

(1) Identify the branch office, giving both the address of the old site and the proposed address of the new site.

(2) State the date on which the applicant proposes to relocate the branch office.

(b) An applicant may relocate a branch office on or after the date on which the certificate of authority authorizing such applicant to establish and maintain such branch office--new site is issued. However, such certificate of authority shall expire on the earlier of the following dates unless the applicant shall have relocated the branch office on or before such date:

(1) Date on which the Commissioner's approval of the application for approval to relocate the branch office expires pursuant to Section 10.7528 of this Chapter.

(2) Thirtieth day after the date of the issuance of the certificate of authority.

NOTE

Authority cited: Section 215, Financial Code. Reference: Section 507, Financial Code.

HISTORY

1. Change without regulatory effect amending section and adding new Note filed 8-19-97 pursuant to section 100, title 1, California Code of Regulations (Register 97, No. 34).

§10.7530. Surrender of Certificate of Authority and Report Regarding Relocation.

Note • History

Not more then five business days after relocating a branch office, an applicant shall:

(a) Surrender to the Commissioner for cancellation the certificate of authority authorizing the applicant to establish and maintain the branch office--old site.

(b) File with the Commissioner a report containing the following information:

(1) Identify the branch office--new site.

(2) State the date on which the branch office was relocated.

NOTE

Authority cited: Section 215, Financial Code. Reference: Section 507, Financial Code.

HISTORY

1. Change without regulatory effect amending section and adding new Note filed 8-19-97 pursuant to section 100, title 1, California Code of Regulations (Register 97, No. 34).

Part 5. Discontinuance of Branch Office

Subpart 1. General Provisions

§10.7700. Scope.

Note • History

This Part contains regulations relating to the discontinuance of a branch office by a subject institution. This Subpart contains general provisions relating to the discontinuance of a branch office by a subject institution. Subpart 2 (commencing with Section 10.7725) of this Part contains regulations relating to the notice by a subject institution to discontinue a branch office. (Subpart 3 of this Part is reserved.) Subpart 4 (commencing with Section 10.7775) of this Part contains regulations relating to other matters concerning discontinuance of a branch office by a subject institution.

NOTE

Authority cited: Section 215, Financial Code. Reference: Section 510, Financial Code.

HISTORY

1. Repealer of subpart 1 (section 10.7700) and repealer of section and new section filed 4-7-97; operative 4-7-97 pursuant to Government Code section 11343.4(d) (Register 97, No. 15).

2. Repealer and new section filed 5-6-98; operative 6-5-98 (Register 98, No. 19).

Subpart 2. Notice

§10.7725. Scope.

Note • History

This Subpart contains regulations relating to a notice by a subject institution to discontinue a branch office.

NOTE

Authority cited: Section 215, Financial Code. Reference: Section 510, Financial Code.

HISTORY

1. Repealer of subpart 2 (sections 10.7725-10.7739) and section filed 4-7-97; operative 4-7-97 pursuant to Government Code section 11343.4(d) (Register 97, No. 15).

2. New subpart 2 (sections 10.7725-10.7726) and section filed 5-6-98; operative 6-5-98 (Register 98, No. 19).

§10.7726. Notice.

Note • History

A notice to discontinue a branch office shall be in the form of Department Form 25, shall contain the information called for in the Form and in the instructions for the Form, and shall be signed as required in the Form and the instructions.

NOTE

Authority cited: Section 215, Financial Code. Reference: Section 510, Financial Code.

HISTORY

1. Repealer filed 4-7-97; operative 4-7-97 pursuant to Government Code section 11343.4(d) (Register 97, No. 15).

2. New section filed 5-6-98; operative 6-5-98 (Register 98, No. 19).

§10.7727. Additional Information.

History

HISTORY

1. Editorial correction reinserting subsection (a)(2) (Register 92, No. 24).

2. Repealer filed 4-7-97; operative 4-7-97 pursuant to Government Code section 11343.4(d) (Register 97, No. 15).

§10.7728. Information Regarding Popular Name.

History

HISTORY

1. Repealer filed 4-7-97; operative 4-7-97 pursuant to Government Code section 11343.4(d) (Register 97, No. 15).

§10.7729. Information Regarding Service Area: Commercial Banking Business.

History

HISTORY

1. Repealer filed 4-7-97; operative 4-7-97 pursuant to Government Code section 11343.4(d) (Register 97, No. 15).

§10.7730. Information Regarding Service Area: Trust Business.

History

HISTORY

1. Repealer filed 4-7-97; operative 4-7-97 pursuant to Government Code section 11343.4(d) (Register 97, No. 15).

§10.7731. Information Regarding Financial Statements: Commercial Banking Business.

History

HISTORY

1. Repealer filed 4-7-97; operative 4-7-97 pursuant to Government Code section 11343.4(d) (Register 97, No. 15).

§10.7732. Information Regarding Financial Statements: Trust Business.

History

HISTORY

1. Repealer filed 4-7-97; operative 4-7-97 pursuant to Government Code section 11343.4(d) (Register 97, No. 15).

§10.7733. Information Regarding Transfer of Business.

History

HISTORY

1. Repealer filed 4-7-97; operative 4-7-97 pursuant to Government Code section 11343.4(d) (Register 97, No. 15).

§10.7734. Information Regarding Premises, Furniture, and Equipment.

History

HISTORY

1. Repealer filed 4-7-97; operative 4-7-97 pursuant to Government Code section 11343.4(d) (Register 97, No. 15).

§10.7735. Information Regarding Public Convenience and Advantage: Commercial Banking Business.

History

HISTORY

1. Repealer filed 4-7-97; operative 4-7-97 pursuant to Government Code section 11343.4(d) (Register 97, No. 15).

§10.7736. Information Regarding Public Convenience and Advantage: Trust Business.

History

HISTORY

1. Repealer filed 4-7-97; operative 4-7-97 pursuant to Government Code section 11343.4(d) (Register 97, No. 15).

§10.7737. Information Regarding Proposed Date of Discontinuance.

History

HISTORY

1. Repealer filed 4-7-97; operative 4-7-97 pursuant to Government Code section 11343.4(d) (Register 97, No. 15).

§10.7738. Information Regarding Purposes of Applicant.

History

HISTORY

1. Repealer filed 4-7-97; operative 4-7-97 pursuant to Government Code section 11343.4(d) (Register 97, No. 15).

§10.7739. Information Regarding Authorization of Board.

History

HISTORY

1. Repealer filed 4-7-97; operative 4-7-97 pursuant to Government Code section 11343.4(d) (Register 97, No. 15).

Subpart 3. Administrative Standards and Procedures

§10.7750. Scope.

History

HISTORY

1. Repealer of subpart 3 (sections 10.7750-10.7752) and section filed 4-7-97; operative 4-7-97 pursuant to Government Code section 11343.4(d) (Register 97, No. 15).

§10.7751. Public Convenience and Advantage.

History

HISTORY

1. Repealer filed 4-7-97; operative 4-7-97 pursuant to Government Code section 11343.4(d) (Register 97, No. 15).

§10.7752. Withdrawal of Deposits.

History

HISTORY

1. Repealer filed 4-7-97; operative 4-7-97 pursuant to Government Code section 11343.4(d) (Register 97, No. 15).

Subpart 4. Other Matters

§10.7775. Scope.

Note • History

This Subpart contains regulations relating to other matters concerning the discontinuance of a branch office by a subject institution.

NOTE

Authority cited: Section 215, Financial Code. Reference: Section 510, Financial Code.

HISTORY

1. Change without regulatory effect amending section filed 7-2-91 pursuant to section 100, title 1, California Code of Regulations (Register 91, No. 40).

2. Repealer of subpart 4 heading and repealer of section filed 4-7-97; operative 4-7-97 pursuant to Government Code section 11343.4(d) (Register 97, No. 15).

3. New subpart 4 (sections 10.7775-10.7776) and new section filed 5-6-98; operative 6-5-98 (Register 98, No. 19).

§10.7776. Notice.

Note • History

A subject institution shall give notice of the discontinuance of a branch office by posting for a period of not less than 30 days before the date of the discontinuance of the branch office on the premises of the branch office in conspicuous places visible from inside and outside such premises, or by serving not less than 30 days before the date of the discontinuance of the branch office on each customer of the branch office who maintains a deposit or fiduciary account at the branch office, who has an outstanding loan which was made at, and is carried on the books of, the branch office, or who maintains a safe deposit box at the branch office, a notice stating:

(a) That the branch office is proposed to be discontinued.

(b) Address of the office of the subject institution to which the business of the branch office is proposed to be transferred.

NOTE

Authority cited: Section 215, Financial Code. Reference: Section 510, Financial Code.

HISTORY

1. Amendment of section and new Note filed 4-7-97; operative 4-7-97 pursuant to Government Code section 11343.4(d) (Register 97, No. 15).

2. Repealer and new section filed 5-6-98; operative 6-5-98 (Register 98, No. 19).

§10.7777. Expiration and Extension of Approval of Application.

History

HISTORY

1. Repealer filed 4-7-97; operative 4-7-97 pursuant to Government Code section 11343.4(d) (Register 97, No. 15).

§10.7778. Surrender of Certificate of Authority and Report Regarding Discontinuance of Branch Office.

Note • History

Not more than five business days after discontinuing a branch office, a subject institution shall:

(a) Surrender to the Commissioner for cancellation the certificate of authority authorizing the subject institution to establish and maintain the branch office.

(b) File with the Commissioner a report containing the following information:

(1) Identify the branch office.

(2) State the date on which the branch office was discontinued.

NOTE

Authority cited: Section 215, Financial Code. Reference: Section 510, Financial Code.

HISTORY

1. Amendment of first paragraph and subsection (a) and new Note filed 4-7-97; operative 4-7-97 pursuant to Government Code section 11343.4(d) (Register 97, No. 15).

2. Change without regulatory effect amending section filed 8-19-97 pursuant to section 100, title 1, California Code of Regulations (Register 97, No. 34).

Subarticle 4. Places of Business

Part 1. General Provisions

§10.9000. Scope.

This Subarticle contains regulations relating to places of business of subject institutions. This Part contains general provisions relating to places of business of subject institutions. Part 2 (commencing with Section 10.9100) of this Subarticle contains regulations relating to the establishment by a subject institution of a place of business pursuant to Article 3 (commencing with Section 540), Chapter 4 of the Banking Law. Part 3 (commencing with Section 10.9300) of this Subarticle contains regulations relating to the business and operations of a place of business of a subject institution. Part 4 (commencing with Section 10.9600) of this Subarticle contains regulations relating to the relocation by a subject institution of a place of business pursuant to Financial Code Section 546. Part 5 (commencing with Section 10.9900) of this Subarticle contains regulations relating to the discontinuance by a subject institution of a place of business pursuant to Financial Code Section 547.

§10.9001. Places Not Deemed Places of Business.

For purposes of the Banking Law and this Chapter:

(a) A place at which a subject institution transacts business does not on that account constitute a place of business of such subject institution unless the subject institution transacts business with the public at such place. Accordingly, a place at which a subject institution engages only in one or more of the following activities does not on that account constitute a place of business of such subject institution:

(1) Place at which the subject institution stores records.

(2) Place at which the subject institution performs clerical, bookkeeping, accounting, statistical, electronic data processing, or similar services directly only for itself, and not for other persons except indirectly through offices of the subject institution or otherwise. However, a place at which a subject institution performs such services for persons other than itself and at which such subject institution transacts business directly with such persons (for example, by receiving documents from such persons, delivering documents to such persons, or meeting with such persons, at such place) does constitute a place of business.

(b) A foreign office of a representative of a subject institution does not constitute a place of business of such subject institution.

Part 2. Establishment of Place of Business

Subpart 1. General Provisions

§10.9100. Definition of “Applicant” and Scope.

Note • History

(a) In this Part, “applicant” means a subject institution which applies to the Superintendent for authority to establish a place of business.

(b) This Part contains regulations relating to the establishment by an applicant of a place of business pursuant to Article 3 (commencing with Section 540), Chapter 4 of the Banking Law. This Subpart contains general provisions relating to the establishment by an applicant of a place of business. (Subparts 2 and 3 of this Part are reserved.) Subpart 4 (commencing with Section 10.9175) of this Part contains regulations which set forth administrative standards and procedures relating to an application by an applicant for authority to establish a place of business. Subpart 5 (commencing with Section 10.9200) of this Part contains regulations relating to matters after an application by an applicant for authority to establish a place of business is approved by the Superintendent.

NOTE

Authority cited: Section 215, Financial Code. Reference: Sections 540, 541, 542, 543, 544, 545, 546 and 547, Financial Code.

HISTORY

1. Amendment of subsection (b) and new Note filed 5-6-98; operative 6-5-98 (Register 98, No. 19).

§10.9101. Applicability.

Note • History

Except as otherwise provided in Section 10.6054 of this Article or by order of the Superintendent, this Part does not apply in a case where the establishment of a place of business that is exempt from the authorization requirement of Financial Code Section 541 pursuant to Financial Code Section 490.

NOTE

Authority cited: Section 215, Financial Code. Reference: Sections 490, 540, 541, 542, 543, 544 and 545, Financial Code.

HISTORY

1. Amendment of section heading and section and new Note filed 4-7-97; operative 4-7-97 pursuant to Government Code section 11343.4(d) (Register 97, No. 15).

2. Repealer of subsections (a)-(a)(2) and subsection (b) designator and amendment of Note filed 5-6-98; operative 6-5-98 (Register 98, No. 19).

§10.9102. Included Application.

Note • History

An application for authority to establish a place of business which is subject to Subpart 2 (commencing with Section 10.9125) of this Part and which proposes that the applicant establish such place of business in temporary quarters and subsequently relocate the place of business to permanent quarters shall, unless otherwise provided in such application, be deemed to include an application for approval pursuant to Financial Code Section 546 for the applicant to relocate the place of business from such temporary quarters to such permanent quarters, and shall be accompanied by the fee prescribed in Financial Code Section 546. Approval of such an application for authority to establish a place of business shall, unless otherwise provided in such approval, be deemed to include approval of such included application for approval to relocate the place of business. The applicant shall, with respect to relocating the place of business, comply with the provisions of Subpart 5 (commencing with Section 10.9700), Part 4 of this Subarticle.

NOTE

Authority cited: Section 215, Financial Code. Reference: Sections 542, 543 and 546, Financial Code.

HISTORY

1. Amendment of section and new Note filed 5-6-98; operative 6-5-98 (Register 98, No. 19).

§10.9103. Fee.

Note • History

(a) Except as otherwise provided in subdivision (b) of this section, an application for authority to establish a place of business shall be accompanied by the fee prescribed in Financial Code section 542.

(b) The fee requirement of Financial Code section 542 does not apply to an application for authority to establish a place of business in a case where the applicant proposes to acquire another California state bank, in whole or in part, by means of merger or purchase and to establish such place of business at the location of an existing or approved but unopened place of business of such other California state bank.

NOTE

Authority cited: Section 215, Financial Code. Reference: Section 542, Financial Code.

HISTORY

1. Change without regulatory effect amending subsections (a) and (b) filed 7-2-91 pursuant to section 100, title 1, California Code of Regulations (Register 91, No. 40).

2. Amendment filed 4-7-97; operative 4-7-97 pursuant to Government Code section 11343.4(d) (Register 97, No. 15).

Subpart 2. Application: Place of Business

§10.9125. Scope.

Note • History

This Subpart contains regulations relating to an application by an applicant for authority to establish a place of business. This Subpart does not apply to any application which is described in Section 10.9101 of this Chapter.

NOTE

Authority cited: Section 215, Financial Code. Reference: Section 542, Financial Code.

HISTORY

1. Repealer of subpart 2 (sections 10.9125-10.9139), new subpart 2 (sections 10.9125-10.9126), and repealer and new section filed 5-6-98; operative 6-5-98 (Register 98, No. 19).

§10.9126. Application.

Note • History

An application for authority to establish a place of business shall be in the form of Department Form 25, shall contain the information called for in the Form and in the instructions for the Form, and shall be signed as required in the Form and instructions.

NOTE

Authority cited: Section 215, Financial Code. Reference: Section 542, Financial Code.

HISTORY

1. Repealer and new section and Note filed 5-6-98; operative 6-5-98 (Register 98, No. 19).

§10.9127. Additional Information.

Note • History

NOTE

Authority cited: Section 215, Financial Code. Reference: Section 542, Financial Code.

HISTORY

1. Amendment of section and new Note filed 4-7-97; operative 4-7-97 pursuant to Government Code section 11343.4(d) (Register 97, No. 15).

2. Repealer filed 5-6-98; operative 6-5-98 (Register 98, No. 19).

§10.9128. Information Regarding Proposed Service Area.

History

HISTORY

1. Repealer filed 4-7-97; operative 4-7-97 pursuant to Government Code section 11343.4(d) (Register 97, No. 15).

§10.9129. Information Regarding Services.

Note • History

NOTE

Authority cited: Section 215, Financial Code. Reference: Section 542, Financial Code.

HISTORY

1. Repealer filed 5-6-98; operative 6-5-98 (Register 98, No. 19).

§10.9130. Information Regarding Proposed Manager and Staff.

History

HISTORY

1. Repealer filed 4-7-97; operative 4-7-97 pursuant to Government Code section 11343.4(d) (Register 97, No. 15).

§10.9131. Information Regarding Proposed Direction and Supervision.

History

HISTORY

1. Repealer filed 5-6-98; operative 6-5-98 (Register 98, No. 19).

§10.9132. Information Regarding Proposed Premises, Furniture, and Equipment.

Note • History

NOTE

Authority cited: Section 215, Financial Code. Reference: Section 542, Financial Code.

HISTORY

1. Repealer of subsections (b)-(c)(3) and (f)-(g)(3), subsection relettering, amendment of newly designated subsections (c) and (d), new subsections (d)(1) and (d)(2), and new Note filed 4-7-97; operative 4-7-97 pursuant to Government Code section 11343.4(d) (Register 97, No. 15).

2. Repealer filed 5-6-98; operative 6-5-98 (Register 98, No. 19).

§10.9133. Information Regarding Pro Forma Financial Statements.

History

HISTORY

1. Repealer filed 4-7-97; operative 4-7-97 pursuant to Government Code section 11343.4(d) (Register 97, No. 15).

§10.9134. Information Regarding Effects on Competition.

History

HISTORY

1. Repealer filed 4-7-97; operative 4-7-97 pursuant to Government Code section 11343.4(d) (Register 97, No. 15).

§10.9135. Information Regarding Public Convenience and Advantage.

History

HISTORY

1. Repealer filed 4-7-97; operative 4-7-97 pursuant to Government Code section 11343.4(d) (Register 97, No. 15).

§10.9136. Information Regarding Proposed Date of Establishment.

History

HISTORY

1. Repealer filed 5-6-98; operative 6-5-98 (Register 98, No. 19).

§10.9137. Information Regarding Purposes of Applicant.

History

HISTORY

1. Repealer filed 5-6-98; operative 6-5-98 (Register 98, No. 19).

§10.9138. Information Regarding Assistance in Preparation of Application.

History

HISTORY

1. Repealer filed 4-7-97; operative 4-7-97 pursuant to Government Code section 11343.4(d) (Register 97, No. 15).

§10.9139. Information Regarding Authorization of Board.

History

HISTORY

1. Repealer filed 4-7-97; operative 4-7-97 pursuant to Government Code section 11343.4(d) (Register 97, No. 15).

Subpart 3. Application--Foreign Place of Business

§10.9150. Scope.

History

HISTORY

1. Repealer of subpart 3 (sections 10.9150-10.9156) and repealer of section filed 5-6-98; operative 6-5-98 (Register 98, No. 19).

§10.9151. Facing Page.

History

HISTORY

1. Repealer filed 5-6-98; operative 6-5-98 (Register 98, No. 19).

§10.9152. Additional Information.

Note • History

NOTE

Authority cited: Section 215, Financial Code. Reference: Section 542, Financial Code.

HISTORY

1. Amendment of section and new Note filed 4-7-97; operative 4-7-97 pursuant to Government Code section 11343.4(d) (Register 97, No. 15).

2. Repealer filed 5-6-98; operative 6-5-98 (Register 98, No. 19).

§10.9153. Information Regarding Proposed Service Area.

History

HISTORY

1. Repealer filed 4-7-97; operative 4-7-97 pursuant to Government Code section 11343.4(d) (Register 97, No. 15).

§10.9154. Information Regarding Proposed Services.

History

HISTORY

1. Repealer filed 5-6-98; operative 6-5-98 (Register 98, No. 19).

§10.9155. Information Regarding Banking System.

History

HISTORY

1. Repealer filed 5-6-98; operative 6-5-98 (Register 98, No. 19).

§10.9156. Information Regarding Regulation of Place of Business.

Note • History

NOTE

Authority cited: Section 215, Financial Code. Reference: Section 542, Financial Code.

HISTORY

1. Change without regulatory effect amending section and adding new Note filed 8-19-97 pursuant to section 100, title 1, California Code of Regulations (Register 97, No. 34).

2. Repealer filed 5-6-98; operative 6-5-98 (Register 98, No. 19).

Subpart 4. Administrative Standards and Procedures

§10.9175. Scope.

This Subpart contains regulations which set forth administrative standards and procedures relating to an application by an applicant for authority to establish a place of business.

§10.9176. Incomplete Application.

Note • History

As an administrative procedure, the Commissioner generally will reject for filing any application for authority to establish a place of business which is not substantially complete.

NOTE

Authority cited: Section 215, Financial Code. Reference: Section 543, Financial Code.

HISTORY

1. Change without regulatory effect amending section and adding new Note filed 8-19-97 pursuant to section 100, title 1, California Code of Regulations (Register 97, No. 34).

§10.9177. Foreign Place of Business.

Note • History

As an administrative standard, the Commissioner generally will not grant an application for authority to establish a foreign place of business if any law or administrative policy of the state of the United States or the foreign nation where such place of business is proposed to be located would prohibit the Commissioner from, or significantly restrict the Commissioner in, examining or regulating the place of business or if any such law or administrative policy would prohibit the applicant or any adviser of the applicant from, or significantly restrict the applicant or any adviser of the applicant in, directing, supervising, or auditing the place of business.

NOTE

Authority cited: Section 215, Financial Code. Reference: Section 543, Financial Code.

HISTORY

1. Change without regulatory effect amending section and adding new Note filed 8-19-97 pursuant to section 100, title 1, California Code of Regulations (Register 97, No. 34).

Subpart 5. Post-Approval Matters

§10.9200. Scope.

Note • History

This Subpart contains regulations relating to matters after an application by an applicant for authority to establish a place of business is approved by the Commissioner.

NOTE

Authority cited: Section 215, Financial Code.

HISTORY

1. Change without regulatory effect amending section and adding new Note filed 8-19-97 pursuant to section 100, title 1, California Code of Regulations (Register 97, No. 34).

§10.9201. Report Regarding Proposed Manager.

History

HISTORY

1. Repealer filed 4-7-97; operative 4-7-97 pursuant to Government Code section 11343.4(d) (Register 97, No. 15).

§10.9202. Report Regarding Foreign Place of Business.

Note • History

In the case of an application for authority to establish a place of business in a state of the United States other than the State of California or in a foreign nation, the applicant shall, not less than five business days before establishing such place of business, file with the Commissioner a report which states that the applicant has complied with all laws of such state or foreign nation applicable to the establishment of the place of business and which contains a copy of any document issued by the bank regulatory authority of the state or foreign nation having jurisdiction over the proposed establishment of the place of business, authorizing the applicant to establish the place of business.

NOTE

Authority cited: Section 215, Financial Code. Reference: Section 1934, Financial Code.

HISTORY

1. Change without regulatory effect amending section and adding new Note filed 8-19-97 pursuant to section 100, title 1, California Code of Regulations (Register 97, No. 34).

§10.9203. Expiration and Extension of Approval of Application.

Note • History

(a) The Commissioner's approval of an application for authority to establish a place of business shall, unless extended by the Commissioner, expire one year after the date of such approval.

(b) An application for an extension of the Commissioner's approval of an application for authority to establish a place of business shall contain:

(1) Date on which the approval is scheduled to expire.

(2) Description of progress to date in establishing the place of business.

(3) Proposed timetable for completing the establishment of the place of business.

(4) Amount of additional time requested for completing the establishment of the place of business.

(5) Statement of reasons why such additional time is required for completing the establishment of the place of business.

NOTE

Authority cited: Section 215, Financial Code. Reference: Section 545, Financial Code.

HISTORY

1. Change without regulatory effect amending section and adding new Note filed 8-19-97 pursuant to section 100, title 1, California Code of Regulations (Register 97, No. 34).

§10.9204. Certificate of Authority: Issuance and Expiration.

Note • History

(a) Not less than one business day before establishing a place of business, an applicant shall file with the Commissioner an application for the issuance of a certificate of authority authorizing such applicant to establish and maintain such place of business. Such application shall contain the following information:

(1) Identify the place of business.

(2) State the date on which the applicant proposes to establish the place of business.

(b) An applicant may establish a place of business on or after the date on which the certificate of authority authorizing such applicant to establish and maintain such place of business is issued. However, such certificate of authority shall expire on the earlier of the following dates unless the applicant shall have established the place of business on or before such date:

(1) Date on which the Commissioner's approval of the application for authority to establish the place of business expires pursuant to Section 10.9203 of this Chapter.

(2) Thirtieth day after the date of the issuance of the certificate of authority.

NOTE

Authority cited: Section 215, Financial Code. Reference: Section 544, Financial Code.

HISTORY

1. Change without regulatory effect amending section and adding new Note filed 8-19-97 pursuant to section 100, title 1, California Code of Regulations (Register 97, No. 34).

§10.9205. Report Regarding Establishment of Place of Business.

Note • History

Not more than five business days after establishing a place of business, an applicant shall file with the Commissioner a report containing the following information:

(a) Identify the place of business.

(b) State the date on which the place of business was established.

NOTE

Authority cited: Section 215, Financial Code. Reference: Section 1934, Financial Code.

HISTORY

1. Change without regulatory effect amending section and adding new Note filed 8-19-97 pursuant to section 100, title 1, California Code of Regulations (Register 97, No. 34).

Part 3. Business and Operations of Place of Business

§10.9300. Scope.

This Part contains regulations relating to the business and operations of a place of business of a subject institution.

§10.9301. Scope of Business of Place of Business.

Note • History

(a) No subject institution shall transact at any place of business any business other than business which is, or which is incidental to:

(1) Business which the certificate of authority for the place of business specifically authorizes the subject institution to transact at the place of business; or

(2) If the certificate of authority for the place of business does not specify any business which the subject institution is authorized to transact at the place of business, the business which the subject institution, in the application for authority to establish the place of business, proposed to transact at the place of business.

(b) No subject institution shall transact at any place of business any business other than business which, in case such subject institution is a commercial bank, is an authorized business of a California state commercial bank or which, in case the subject institution is a trust company, is an authorized business of a California state trust company.

NOTE

Authority cited: Section 215, Financial Code. Reference: Section 544, Financial Code.

HISTORY

1. Amendment of subsection (b) and new Note filed 4-7-97; operative 4-7-97 pursuant to Government Code section 11343.4(d) (Register 97, No. 15).

Part 4. Relocation of Place of Business

Subpart 1. General Provisions

§10.9600. Definition of “Applicant” and Scope.

Note • History

(a) In this Part, “applicant” means a subject institution which applies to the Commissioner for approval to relocate a place of business.

(b) This Part contains regulations relating to the relocation by an applicant of a place of business pursuant to Financial Code Section 546. This Subpart contains general provisions relating to the relocation by an applicant of a place of business. Subpart 2 (commencing with Section 10.9625) of this Part contains regulations relating to an application by an applicant for approval to relocate a California place of business. (Subpart 3 of this Part is reserved.) Subpart 4 (commencing with Section 10.9675) of this Part contains regulations which set forth administrative standards and procedures relating to an application by an applicant for approval to relocate a place of business. Subpart 5 (commencing with Section 10.9700) of this Part contains regulations relating to matters after an application by an applicant for approval to relocate a place of business is approved by the Commissioner.

NOTE

Authority cited: Section 215, Financial Code. Reference: Section 546, Financial Code.

HISTORY

1. Change without regulatory effect amending section and adding new Note filed 8-19-97 pursuant to section 100, title 1, California Code of Regulations (Register 97, No. 34).

2. Amendment of subsection (b) and new Note filed 5-6-98; operative 6-5-98 (Register 98, No. 19).

§10.9601. Applicability of Subparts to Certain Applications.

Note • History

(a)(1) Subpart 2 (commencing with Section 10.9625) of this Part does not apply to any application for approval to relocate a place of business which is deemed to be included in the application for authority to establish such place of business pursuant to Section 10.9102 of this Chapter.

(2) Each application for approval to relocate a place of business which is deemed to be included in the application for authority to establish such place of business pursuant to Section 10.9102 of this Chapter is subject to this Subpart as well as Subpart 4 (commencing with Section 10.9675) and Subpart 5 (commencing with Section 10.9700) of this Part.

(b) Except as otherwise provided in Section 10.6055 of this Article or by order of the Commissioner, this Part does not apply in a case where the relocation of a place of business by a subject institution is exempt from the approval requirement of Financial Code Section 546 pursuant to Financial Code Section 490.

NOTE

Authority cited: Section 215, Financial Code. Reference: Sections 490 and 546, Financial Code.

HISTORY

1. Amendment of section and new Note filed 4-7-97; operative 4-7-97 pursuant to Government Code section 11343.4(d) (Register 97, No. 15).

2. Amendment of subsections (a)(1) and (b) and amendment of Note filed 5-6-98; operative 6-5-98 (Register 98, No. 19).

§10.9602. Fee.

An application for approval to relocate a place of business shall be accompanied by the fee prescribed in Financial Code Section 546.

Subpart 2. Application

§10.9625. Scope.

Note • History

This Subpart contains regulations relating to an application by an applicant for approval to relocate a place of business. This Subpart does not apply to any application described in Section 10.9601 of this Chapter.

NOTE

Authority cited: Section 215, Financial Code. Reference: Section 546, Financial Code.

HISTORY

1. Repealer of subpart 2 (sections 10.9625-10.9638), new subpart 2 (sections 10.9625-10.9626), and repealer and new section filed 5-6-98; operative 6-5-98 (Register 98, No. 19).

§10.9626. Application.

Note • History

An application for approval to relocate a place of business shall be in the form of Department Form 25, shall contain the information called for in the Form and in the instructions for the Form, and shall be signed as required in the Form and instructions.

NOTE

Authority cited: Section 215, Financial Code. Reference: Section 546, Financial Code.

HISTORY

1. Repealer and new section and Note filed 5-6-98; operative 6-5-98 (Register 98, No. 19).

§10.9627. Additional Information.

Note • History

NOTE

Authority cited: Section 215, Financial Code. Reference: Section 546, Financial Code.

HISTORY

1. Amendment of section and new Note filed 4-7-97; operative 4-7-97 pursuant to Government Code section 11343.4(d) (Register 97, No. 15).

2. Repealer filed 5-6-98; operative 6-5-98 (Register 98, No. 19).

§10.9628. Information Regarding Locations.

History

HISTORY

1. Repealer filed 4-7-97; operative 4-7-97 pursuant to Government Code section 11343.4(d) (Register 97, No. 15).

§10.9629. Information Regarding Services.

History

HISTORY

1. Repealer filed 5-6-98; operative 6-5-98 (Register 98, No. 19).

§10.9630. Information Regarding Proposed Premises, Furniture, and Equipment: New Site.

Note • History

NOTE

Authority cited: Section 215, Financial Code. Reference: Section 546, Financial Code.

HISTORY

1. Repealer of subsections (b)-(c)(3) and (f)-(g)(3), subsection relettering, amendment of newly designated subsections (b) and (c), and new Note filed 4-7-97; operative 4-7-97 pursuant to Government Code section 11343.4(d) (Register 97, No. 15).

2. Repealer filed 5-6-98; operative 6-5-98 (Register 98, No. 19).

§10.9631. Information Regarding Premises, Furniture, and Equipment: Old Site.

Note • History

NOTE

Authority cited: Section 215, Financial Code. Reference: Section 546, Financial Code.

HISTORY

1. Amendment of section and new Note filed 4-7-97; operative 4-7-97 pursuant to Government Code section 11343.4(d) (Register 97, No. 15).

2. Repealer filed 5-6-98; operative 6-5-98 (Register 98, No. 19).

§10.9632. Information Regarding Income and Expenses.

History

HISTORY

1. Repealer filed 4-7-97; operative 4-7-97 pursuant to Government Code section 11343.4(d) (Register 97, No. 15).

§10.9633. Information Regarding Other Proposed Changes.

History

HISTORY

1. Repealer filed 4-7-97; operative 4-7-97 pursuant to Government Code section 11343.4(d) (Register 97, No. 15).

§10.9634. Information Regarding Effects on Competition.

History

HISTORY

1. Repealer filed 4-7-97; operative 4-7-97 pursuant to Government Code section 11343.4(d) (Register 97, No. 15).

§10.9635. Information Regarding Public Convenience and Advantage.

History

HISTORY

1. Repealer filed 4-7-97; operative 4-7-97 pursuant to Government Code section 11343.4(d) (Register 97, No. 15).

§10.9636. Information Regarding Proposed Date of Relocation.

History

HISTORY

1. Repealer filed 5-6-98; operative 6-5-98 (Register 98, No. 19).

§10.9637. Information Regarding Purposes of Applicant.

History

HISTORY

1. Repealer filed 5-6-98; operative 6-5-98 (Register 98, No. 19).

§10.9638. Information Regarding Authorization of Board.

History

HISTORY

1. Repealer filed 4-7-97; operative 4-7-97 pursuant to Government Code section 11343.4(d) (Register 97, No. 15).

Subpart 3. Application--Foreign Place of Business

§10.9650. Scope.

History

HISTORY

1. Repealer of subpart 3 (sections 10.9650-10.9652) and repealer of section filed 5-6-98; operative 6-5-98 (Register 98, No. 19).

§10.9651. Facing Page.

History

HISTORY

1. Repealer filed 5-6-98; operative 6-5-98 (Register 98, No. 19).

§10.9652. Additional Information.

Note • History

NOTE

Authority cited: Section 215, Financial Code. Reference: Section 546, Financial Code.

HISTORY

1. Amendment of section and new Note filed 4-7-97; operative 4-7-97 pursuant to Government Code section 11343.4(d) (Register 97, No. 15).

2. Repealer filed 5-6-98; operative 6-5-98 (Register 98, No. 19).

Subpart 4. Administrative Standards and Procedures

§10.9675. Scope.

This Subpart contains regulations which set forth administrative standards and procedures relating to an application by an applicant for approval to relocate a place of business.

§10.9676. Same Vicinity.

History

HISTORY

1. Repealer filed 4-7-97; operative 4-7-97 pursuant to Government Code section 11343.4(d) (Register 97, No. 15).

Subpart 5. Post-Approval Matters

§10.9700. Scope.

Note • History

This Subpart contains regulations relating to matters after an application by an applicant for approval to relocate a place of business is approved by the Commissioner.

NOTE

Authority cited: Section 215, Financial Code. Reference: Section 546, Financial Code.

HISTORY

1. Change without regulatory effect amending section and adding new Note filed 8-19-97 pursuant to section 100, title 1, California Code of Regulations (Register 97, No. 34).

§10.9701. Notice.

Note • History

An applicant shall give notice of the relocation of a place of business by posting for a period of not less than 30 days before the effective date of the relocation on the premises of such place of business--old site in conspicuous places visible from inside and outside such premises a notice stating:

(a) That the place of business is proposed to be relocated.

(b) Proposed address of the place of business--new site.

NOTE

Authority cited: Section 215, Financial Code. Reference: Section 546, Financial Code.

HISTORY

1. Amendment of section and new Note filed 4-7-97; operative 4-7-97 pursuant to Government Code section 11343.4(d) (Register 97, No. 15).

§10.9702. Report Regarding Foreign Place of Business.

Note • History

In the case of an application for approval to relocate a place of business which is located in a state of the United States other than the State of California or in a foreign nation, the applicant shall, not less than five business days before relocating such place of business, file with the Commissioner a report which states that the applicant has complied with all laws of such state or foreign nation applicable to the relocation of the place of business and which contains a copy of any document issued by the bank regulatory authority of the state or foreign nation having jurisdiction over the proposed relocation of the place of business, authorizing the applicant to relocate the place of business.

NOTE

Authority cited: Section 215, Financial Code. Reference: Section 546, Financial Code.

HISTORY

1. Change without regulatory effect amending section and adding new Note filed 8-19-97 pursuant to section 100, title 1, California Code of Regulations (Register 97, No. 34).

§10.9703. Expiration and Extension of Approval of Application.

Note • History

(a) The Commissioner's approval of an application for approval to relocate a place of business shall, unless extended by the Commissioner, expire one year after the date of such approval.

(b) An application for an extension of the Commissioner's approval of an application for approval to relocate a place of business shall contain:

(1) Date on which the approval is scheduled to expire.

(2) Description of progress to date in relocating the place of business.

(3) Proposed timetable for completing the relocation of the place of business.

(4) Amount of additional time requested for completing the relocation of the place of business.

(5) Statement of reasons why such additional time is required for completing the relocation of the place of business.

NOTE

Authority cited: Section 215, Financial Code. Reference: Section 546, Financial Code.

HISTORY

1. Change without regulatory effect amending section and adding new Note filed 8-19-97 pursuant to section 100, title 1, California Code of Regulations (Register 97, No. 34).

§10.9704. Certificate of Authority: Issuance and Expiration.

Note • History

(a) Not less than one business day before relocating a place of business, an applicant shall file with the Commissioner an application for the issuance of a certificate of authority authorizing such applicant to establish and maintain such place of business--new site. Such application shall contain the following information:

(1) Identify the place of business, giving both the address of the old site and the proposed address of the new site.

(2) State the date on which the applicant proposes to relocate the place of business.

(b) An applicant may relocate a place of business on or after the date on which the certificate of authority authorizing such applicant to establish and maintain such place of business--new site is issued. However, such certificate of authority shall expire on the earlier of the following dates unless the applicant shall have relocated the place of business on or before such date:

(1) Date on which the Commissioner's approval of the application for approval to relocate the place of business expires pursuant to Section 10.9703 of this Chapter.

(2) Thirtieth day after the date of the issuance of the certificate of authority.

NOTE

Authority cited: Section 215, Financial Code. Reference: Section 546, Financial Code.

HISTORY

1. Change without regulatory effect amending section and adding new Note filed 8-19-97 pursuant to section 100, title 1, California Code of Regulations (Register 97, No. 34).

§10.9705. Surrender of Certificate of Authority and Report Regarding Relocation.

Note • History

Not more than five business days after relocating a place of business, an applicant shall:

(a) Surrender to the Commissioner for cancellation the certificate of authority authorizing the applicant to establish and maintain the place of business--old site.

(b) File with the Commissioner a report containing the following information:

(1) Identify the place of business--new site.

(2) State the date on which the place of business was relocated.

NOTE

Authority cited: Section 215, Financial Code. Reference: Sections 546 and 1934, Financial Code.

HISTORY

1. Change without regulatory effect amending section and adding new Note filed 8-19-97 pursuant to section 100, title 1, California Code of Regulations (Register 97, No. 34).

Part 5. Discontinuance of Place of Business

Subpart 1. General Provisions

§10.9900. Scope.

Note • History

This Part contains regulations relating to the discontinuance of a place of business by a subject institution. This Subpart contains general provisions relating to the discontinuance of a place of business by a subject institution. Subpart 2 (commencing with Section 10.9925) of this Part contains regulations relating to the notice of the discontinuance of a place of business by a subject institution. (Subpart 3 of this Part is reserved.) Subpart 4 (commencing with Section 10.9975) of this Part contains regulations relating to other matters concerning the discontinuance of a place of business by a subject institution.

NOTE

Authority cited: Section 215, Financial Code. Reference: Section 547, Financial Code.

HISTORY

1. Repealer of subpart 1 (section 10.9900) and section and new section filed 4-7-97; operative 4-7-97 pursuant to Government Code section 11343.4(d) (Register 97, No. 15).

2. Repealer and new section filed 5-6-98; operative 6-5-98 (Register 98, No. 19).

Subpart 2. Notice

§10.9925. Scope.

Note • History

This Subpart contains regulations relating to a notice by a subject institution to discontinue a place of business.

NOTE

Authority cited: Section 215, Financial Code. Reference: Section 547, Financial Code.

HISTORY

1. Repealer of subpart 2 (sections 10.9925-10.9933) and section filed 4-7-97; operative 4-7-97 pursuant to Government Code section 11343.4(d) (Register 97, No. 15).

2. New subpart 2 (sections10.9925-10.9926) and section filed 5-6-98; operative 6-5-98 (Register 98, No. 19).

§10.9926. Notice.

Note • History

A notice of the discontinuance of a place of business shall be in the form of Department Form 25, shall contain the information called for in the Form and in the instructions for Form, and shall be signed as required in the Form and instructions.

NOTE

Authority cited: Section 215, Financial Code. Reference: Section 547, Financial Code.

HISTORY

1. Change without regulatory effect amending section filed 7-2-91 pursuant to section 100, title 1, California Code of Regulations (Register 91, No. 40).

2. Repealer filed 4-7-97; operative 4-7-97 pursuant to Government Code section 11343.4(d) (Register 97, No. 15).

3. New section filed 5-6-98; operative 6-5-98 (Register 98, No. 19).

§10.9927. Additional Information.

History

HISTORY

1. Repealer filed 4-7-97; operative 4-7-97 pursuant to Government Code section 11343.4(d) (Register 97, No. 15).

§10.9928. Information Regarding Business.

History

HISTORY

1. Repealer filed 4-7-97; operative 4-7-97 pursuant to Government Code section 11343.4(d) (Register 97, No. 15).

§10.9929. Information Regarding Premises, Furniture, and Equipment.

History

HISTORY

1. Repealer filed 4-7-97; operative 4-7-97 pursuant to Government Code section 11343.4(d) (Register 97, No. 15).

§10.9930. Information Regarding Public Convenience and Advantage.

History

HISTORY

1. Repealer filed 4-7-97; operative 4-7-97 pursuant to Government Code section 11343.4(d) (Register 97, No. 15).

§10.9931. Information Regarding Proposed Date of Discontinuance.

History

HISTORY

1. Repealer filed 4-7-97; operative 4-7-97 pursuant to Government Code section 11343.4(d) (Register 97, No. 15).

§10.9932. Information Regarding Purposes of Applicant.

History

HISTORY

1. Repealer filed 4-7-97; operative 4-7-97 pursuant to Government Code section 11343.4(d) (Register 97, No. 15).

§10.9933. Information Regarding Authorization of Board.

History

HISTORY

1. Repealer filed 4-7-97; operative 4-7-97 pursuant to Government Code section 11343.4(d) (Register 97, No. 15).

Subpart 3. Administrative Standards and Procedures

§10.9950. Scope.

History

HISTORY

1. Repealer of subpart 3 (sections 10.9950-10.9951) and section filed 4-7-97; operative 4-7-97 pursuant to Government Code section 11343.4(d) (Register 97, No. 15).

§10.9951. Public Convenience and Advantage.

History

HISTORY

1. Repealer filed 4-7-97; operative 4-7-97 pursuant to Government Code section 11343.4(d) (Register 97, No. 15).

Subpart 4. Other Matters

§10.9975. Scope.

Note • History

This Subpart contains regulations relating to other matters concerning the discontinuance by a subject institution of a place of business.

NOTE

Authority cited: Section 215, Financial Code. Reference: Section 547, Financial Code.

HISTORY

1. Repealer of subpart 4 heading and repealer of section filed 4-7-97; operative 4-7-97 pursuant to Government Code section 11343.4(d) (Register 97, No. 15).

2. New subpart 4 (sections 10.9975-10.9976) and section filed 5-6-98; operative 6-5-98 (Register 98, No. 19).

§10.9976. Notice.

Note • History

A subject institution shall give notice of the discontinuance of a place of business by posting for a period of not less than 30 days before the date of the discontinuance on the premises of such place of business in conspicuous places visible from inside and outside such premises, a notice stating:

(a) That the place of business is proposed to be discontinued.

(b) Address of the office of the applicant to which the business of the place of business is proposed to be transferred.

NOTE

Authority cited: Section 215, Financial Code. Reference: Section 547, Financial Code.

HISTORY

1. Amendment of section and new Note filed 4-7-97; operative 4-7-97 pursuant to Government Code section 11343.4(d) (Register 97, No. 15).

2. Repealer and new section filed 5-6-98; operative 6-5-98 (Register 98, No. 19).

§10.9977. Expiration and Extension of Approval of Application.

History

HISTORY

1. Repealer filed 4-7-97; operative 4-7-97 pursuant to Government Code section 11343.4(d) (Register 97, No. 15).

§10.9978. Surrender of Certificate of Authority and Report Regarding Discontinuance of Place of Business.

Note • History

Not more than five business days after discontinuing a place of business, a subject institution shall:

(a) Surrender to the Commissioner for cancellation the certificate of authority authorizing the subject institution to establish and maintain the place of business.

(b) File with the Commissioner a report containing the following information:

(1) Identify the place of business.

(2) State the date on which the place of business was discontinued.

NOTE

Authority cited: Section 215, Financial Code. Reference: Sections 547 and 1934, Financial Code.

HISTORY

1. Amendment of first paragraph and subsection (a) and new Note filed 4-7-97; operative 4-7-97 pursuant to Government Code section 11343.4(d) (Register 97, No. 15).

2. Change without regulatory effect amending section and Note filed 8-19-97 pursuant to section 100, title 1, California Code of Regulations (Register 97, No. 34).

Subarticle 5. Extensions of Offices

Part 1. General Provisions

§10.11000. Scope.

Note • History

This Subarticle contains regulations relating to extensions of offices of subject institutions. This Part contains general provisions relating to extensions of offices of subject institutions. (Parts 2 and 3 of this Subarticle are reserved.) Part 4 (commencing with Section 10.11500) of this Subarticle contains regulations relating to the discontinuance by a subject institution of an extension of an office.

NOTE

Authority cited: Section 215, Financial Code. Reference: Section 546, Financial Code.

HISTORY

1. Amendment filed 4-7-97; operative 4-7-97 pursuant to Government Code section 11343.4(d) (Register 97, No. 15).

§10.11001. Definition.

History

HISTORY

1. Repealer filed 4-7-97; operative 4-7-97 pursuant to Government Code section 11343.4(d) (Register 97, No. 15).

§10.11002. Establishment and Commencement of Business.

History

HISTORY

1. Repealer filed 4-7-97; operative 4-7-97 pursuant to Government Code section 11343.4(d) (Register 97, No. 15).

Part 2. Establishment of Extension of Office

Subpart 1. General Provisions

§10.11100. Definition of “Applicant” and Scope.

History

HISTORY

1. Repealer of part 2 (sections 11100-11177), subpart 1 (section 10.11100) and section filed 4-7-97; operative 4-7-97 pursuant to Government Code section 11343.4(d) (Register 97, No. 15).

Subpart 2. Application

§10.11125. Scope.

History

HISTORY

1. Repealer of subpart 2 (sections 10.11125-10.11135) and section filed 4-7-97; operative 4-7-97 pursuant to Government Code section 11343.4(d) (Register 97, No. 15).

§10.11126. Information Required.

History

HISTORY

1. Repealer filed 4-7-97; operative 4-7-97 pursuant to Government Code section 11343.4(d) (Register 97, No. 15).

§10.11127. Information Regarding Primary Office.

History

HISTORY

1. Repealer filed 4-7-97; operative 4-7-97 pursuant to Government Code section 11343.4(d) (Register 97, No. 15).

§10.11128. Information Regarding Proposed Location.

History

HISTORY

1. Repealer filed 4-7-97; operative 4-7-97 pursuant to Government Code section 11343.4(d) (Register 97, No. 15).

§10.11129. Information Regarding Proposed Business.

History

HISTORY

1. Repealer filed 4-7-97; operative 4-7-97 pursuant to Government Code section 11343.4(d) (Register 97, No. 15).

§10.11130. Information Regarding Proposed Staff.

History

HISTORY

1. Repealer filed 4-7-97; operative 4-7-97 pursuant to Government Code section 11343.4(d) (Register 97, No. 15).

§10.11131. Information Regarding Proposed Premises, Furniture, and Equipment.

History

HISTORY

1. Repealer filed 4-7-97; operative 4-7-97 pursuant to Government Code section 11343.4(d) (Register 97, No. 15).

§10.11132. Information Regarding Pro Forma Financial Statements.

History

HISTORY

1. Repealer filed 4-7-97; operative 4-7-97 pursuant to Government Code section 11343.4(d) (Register 97, No. 15).

§10.11133. Information Regarding Proposed Date of Establishment.

History

HISTORY

1. Repealer filed 4-7-97; operative 4-7-97 pursuant to Government Code section 11343.4(d) (Register 97, No. 15).

§10.11134. Information Regarding Purposes of Applicant.

History

HISTORY

1. Repealer filed 4-7-97; operative 4-7-97 pursuant to Government Code section 11343.4(d) (Register 97, No. 15).

§10.11135. Information Regarding Authorization of Board.

History

HISTORY

1. Repealer filed 4-7-97; operative 4-7-97 pursuant to Government Code section 11343.4(d) (Register 97, No. 15).

Subpart 3. Administrative Standards and Procedures

§10.11150. Scope.

History

HISTORY

1. Repealer of subpart 3 (sections 10.11150-10.11151) and section filed 4-7-97; operative 4-7-97 pursuant to Government Code section 11343.4(d) (Register 97, No. 15).

§10.11151. Same Vicinity.

History

HISTORY

1. Repealer filed 4-7-97; operative 4-7-97 pursuant to Government Code section 11343.4(d) (Register 97, No. 15).

Subpart 4. Post-Approval Matters

§10.11175. Scope.

History

HISTORY

1. Repealer of subpart 4 (sections 10.11175-10.11177) and section filed 4-7-97; operative 4-7-97 pursuant to Government Code section 11343.4(d) (Register 97, No. 15).

§10.11176. Expiration and Extension of Approval of Application.

History

HISTORY

1. Repealer filed 4-7-97; operative 4-7-97 pursuant to Government Code section 11343.4(d) (Register 97, No. 15).

§10.11177. Report Regarding Establishment of Extension.

History

HISTORY

1. Repealer filed 4-7-97; operative 4-7-97 pursuant to Government Code section 11343.4(d) (Register 97, No. 15).

Part 4. Discontinuance of Extension of Office

§10.11500. Scope.

This Part contains regulations relating to the discontinuance by a subject institution of an extension of an office.

§10.11501. Report Regarding Discontinuance.

Note • History

Not more than five business days after discontinuing an extension of an office, a subject institution shall file with the Commissioner a report containing the following information:

(a) Identify the extension.

(b) State the date on which the extension was discontinued.

NOTE

Authority cited: Section 215, Financial Code. Reference: Section 1934, Financial Code.

HISTORY

1. Change without regulatory effect amending section and adding new Note filed 8-19-97 pursuant to section 100, title 1, California Code of Regulations (Register 97, No. 34).

2. Repealer of subsection (c) and amendment of Note filed 4-14-98; operative 5-14-98 (Register 98, No. 16).

Subarticle 6. Foreign Offices of Representatives

§10.11700. Scope.

This Subarticle contains regulations relating to foreign offices of representatives of subject institutions.

§10.11701. No Branch Banking Business.

History

HISTORY

1. Repealer filed 4-7-97; operative 4-7-97 pursuant to Government Code section 11343.4(d) (Register 97, No. 15).

§10.11702. Report Regarding Establishment.

Note • History

Not more than ten business days after a foreign office of a representative of a subject institution is established, such subject institution shall file with the Commissioner a report containing the following information:

(a) Name and title of the representative in charge of the office.

(b) Address of the office.

NOTE

Authority cited: Section 215, Financial Code. Reference: Section 1934, Financial Code.

HISTORY

1. Repealer of subsections (b)-(b)(2), (e) and (f), subsection relettering, new subsection (d) and new Note filed 4-7-97; operative 4-7-97 pursuant to Government Code section 11343.4(d) (Register 97, No. 15).

2. Change without regulatory effect amending section filed 8-19-97 pursuant to section 100, title 1, California Code of Regulations (Register 97, No. 34).

3. Repealer of subsection (d) and amendment of Note filed 4-14-98; operative 5-14-98 (Register 98, No. 16).

§10.11703. Report Regarding Changes.

Note • History

(a) Not more than ten business days after any replacement of the representative in charge of a foreign office of a representative of a subject institution, such subject institution shall file with the Commissioner a report containing the following information:

(1) Name and title of the former representative in charge of the office.

(2) Name and title of the new representative in charge of the office.

(b) Not more than ten business days after any change in the address of a foreign office of a representative of a subject institution, such subject institution shall file with the Commissioner a report describing such change.

NOTE

Authority cited: Section 215, Financial Code. Reference: Chapter 4, Division 1 and Section 1934, Financial Code.

HISTORY

1. Amendment of section and new Note filed 4-7-97; operative 4-7-97 pursuant to Government Code section 11343.4(d) (Register 97, No. 15).

2. Change without regulatory effect amending section filed 8-19-97 pursuant to section 100, title 1, California Code of Regulations (Register 97, No. 34).

§10.11704. Report Regarding Discontinuance.

Note • History

Not more than ten business days after a foreign office of a representative of a subject institution is discontinued, such subject institution shall file with the Commissioner a report containing the following information:

(a) Address of the office.

(b) Date the office was discontinued.

NOTE

Authority cited: Section 215, Financial Code. Reference: Chapter 4, Division 1 and Section 1934, Financial Code.

HISTORY

1. Repealer of subsection (c) and new Note filed 4-7-97; operative 4-7-97 pursuant to Government Code section 11343.4(d) (Register 97, No. 15).

2. Change without regulatory effect amending section filed 8-19-97 pursuant to section 100, title 1, California Code of Regulations (Register 97, No. 34).

Subarticle 7. Automated Teller Machine Branch Offices

Part 1. General Provisions

§10.11800. Scope.

Note • History

This Subarticle contains regulations relating to automated teller machine branch offices of subject institutions. This Part contains general provisions relating to automated teller machine branch offices of subject institutions. Part 2 (commencing with Section 10.11825) of this Subarticle contains regulations relating to the establishment by a subject institution of an automated teller machine branch office pursuant to Article 4 (commencing with Section 550) of Chapter 4 of the Banking Law. (Part 3 of this Subarticle is reserved.) Part 4 (commencing with Section 10.11850) of this Subarticle contains regulations relating to the relocation by a subject institution of an automated teller machine branch office pursuant to Financial Code Section 557. Part 5 (commencing with Section 10.11875) of this Subarticle contains regulations relating to the discontinuance by a subject institution of an automated teller machine branch office pursuant to Financial Code Section 558.

NOTE

Authority cited: Section 215, Financial Code. Reference: Sections 550, 551, 552, 557, 558 and 559, Financial Code.

HISTORY

1. New subarticle 7 (parts 1, 2, 4 and 5), part 1 (section 10.11800), and section filed 5-6-98; operative 6-5-98 (Register 98, No. 19).

Part 2. Establishment of Automated Teller Machine Branch Office

§10.11825. Scope.

Note • History

This Part contains regulations relating to the establishment by a subject institution of an automated teller machine branch office.

NOTE

Authority cited: Section 215, Financial Code. Reference: Sections 551 and 552, Financial Code.

HISTORY

1. New part 2 (sections 10.11825-10.11826) and section filed 5-6-98; operative 6-5-98 (Register 98, No. 19).

§10.11826. Notice.

Note • History

A notice to establish an automated teller machine branch office shall be in the form of Department Form 25, shall contain the information called for in the Form and in the instructions for the Form, and shall be signed as required in the Form and the instructions.

NOTE

Authority cited: Section 215, Financial Code. Reference: Section 552, Financial Code.

HISTORY

1. New section filed 5-6-98; operative 6-5-98 (Register 98, No. 19).

Part 4. Relocation of Automated Teller Machine Branch Office

§10.11850. Scope.

Note • History

This Part contains regulations relating to the relocation by a subject institution of an automated teller machine branch office from one location to another in the same vicinity.

NOTE

Authority cited: Section 215, Financial Code. Reference: Section 557, Financial Code.

HISTORY

1. New part 4 (sections 10.11850-10.11851) and section filed 5-6-98; operative 6-5-98 (Register 98, No. 19).

§10.11851. Notice.

Note • History

A notice to relocate an automated teller machine branch office shall be in the form of Department Form 25, shall contain the information called for in the Form and in the instructions for the Form, and shall be signed as required in the Form and the instructions.

NOTE

Authority cited: Section 215, Financial Code. Reference: Section 557, Financial Code.

HISTORY

1. New section filed 5-6-98; operative 6-5-98 (Register 98, No. 19).

Part 5. Discontinuance of Automated Teller Machine Branch Office

§10.11875. Scope.

Note • History

This Part contains regulations relating to the discontinuance by a subject institution of an automated teller machine branch office.

NOTE

Authority cited: Section 215, Financial Code. Reference: Section 558, Financial Code.

HISTORY

1. New part 5 (sections 10.11875-10.11876) and section filed 5-6-98; operative 6-5-98 (Register 98, No. 19).

§10.11876. Notice.

Note • History

A notice to discontinue an automated teller machine branch office shall be in the form of Department Form 25, shall contain the information called for in the Form and in the instructions for the Form, and shall be signed as required in the Form and the instructions.

NOTE

Authority cited: Section 215, Financial Code. Reference: Section 558, Financial Code.

HISTORY

1. New section filed 5-6-98; operative 6-5-98 (Register 98, No. 19).

Article 6. California State Offices of Foreign (Other Nation) Banks

Subarticle 1. General Provisions

§10.13000. Scope.

Note • History

This Article contains regulations relating to California state offices of foreign (other nation) banks.

NOTE

Authority cited: Section 215, Financial Code. Reference: Chapter 13.5, Division 1, Financial Code.

HISTORY

1. Repealer of Article 6 (Sections 10.13000-10.20478, not consecutive) and new Article 6 (Sections 10.13000-10.16227, not consecutive) filed 10-15-81 as an emergency; effective upon filing (Register 81, No. 44). A Certificate of Compliance must be transmitted to OAL within 120 days or emergency language will be repealed on 2-12-82. For prior history, see Registers 80, No. 43; 80, No. 34; 80, No. 26; 80, No. 24; 80, No. 11; 79, No. 26; 79, No. 20; 79, No. 15; 79, No. 13; and 79, No. 2.

2. Certificate of Compliance transmitted to OAL 2-11-82 and filed 3-12-82 (Register 82, No. 11).

3. Amendment of article heading and section filed 4-14-98; operative 5-14-98 (Register 98, No. 16).

§10.13001. Definitions.

Note • History

In this Article:

(a) “Approved but unopened,” when used with respect to a California state office of a foreign (other nation) bank, means an office for which an application for approval to establish has been filed with and approved by the Commissioner but which has not yet been established.

(b) “Domiciliary bank” means:

(1) When used with respect to a foreign nation (other than a territory of the United States), a bank which is organized under the laws of such foreign nation.

(2) When used with respect to a territory of the United States, a bank which is organized under the laws of such territory or a national bank which maintains its head office in the territory.

(3) When used with respect to a state of the United States, a state bank which is organized under the laws of such state or a national bank which maintains its head office in the state.

(1) When used with respect to a bank which is organized under the laws of a foreign nation, such foreign nation.

(2) When used with respect to a bank which is organized under the laws of a state of the United States, such state.

(3) When used with respect to a foreign (other nation) bank which is a national bank, the United States.

(d) “Executive officer,” when used with respect to a foreign (other nation) bank or a controlling person of a foreign (other nation) bank, has the meaning set forth in Financial Code Section 1700(f).

(e) “Non-domiciliary bank” means any bank other than a domiciliary bank.

(f) “Popular name,” when used with respect to a California state office of a foreign bank, means the designation assigned to such office by such bank pursuant to Financial Code Section 1713.

(g) “Proposed,” when used with respect to a California state office of a foreign (other nation) bank, means an office for which an application for approval to establish has been filed with the Commissioner but which has not yet been established.

(h) “Reporting company (Bank Holding Company Act)” means a person (other than an individual) which is required to file reports with the Board of Governors of the Federal Reserve System pursuant to Section 225.5 of Regulation Y of the Board (12 C.F.R. Section 225.5) and which has filed all reports so required to be filed for the last three years (or, if the person was subject to such requirements for less than the last three years, for such lesser period).

(i) “Reporting company (Securities Exchange Act)” means a person (other than an individual) which is required to file reports with, or to furnish reports to, a federal agency pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 and which has filed or furnished all reports so required to be filed or furnished for the last three years (or, if the person was subject to such requirements for less than the last three years, for such lesser period).

NOTE

Authority cited: Section 215, Financial Code. Reference: Sections 1700, 1713, 1726, 1753 and 1761, Financial Code.

HISTORY

1. Amendment of subsection (i) filed 3-12-82; effective thirtieth day thereafter (Register 82, No. 11).

2. Change without regulatory effect amending section filed 8-19-97 pursuant to section 100, title 1, California Code of Regulations (Register 97, No. 34).

3. Amendment of subsection (a), repealer of subsection(b), subsection relettering, amendment of newly designated subsections (c)(3), (d) and (g), and amendment of Note filed 4-14-98; operative 5-14-98 (Register 98, No. 16).

§10.13002. Financial Statement.

Note • History

Whenever this Article requires that a financial statement of a foreign (other nation) bank or of any other person domiciled in a foreign nation be filed with the Commissioner, in case the local accounting practices in the place where such bank or other person is domiciled are materially different from generally accepted principles in the United States, such financial statement shall be prepared either in accordance with such local accounting practices or in accordance with generally accepted accounting principles in the United States; and, if the financial statement is prepared in accordance with local accounting practices, it shall be accompanied by a description of the principal differences between the local accounting practices and generally accepted accounting principles in the United States.

NOTE

Authority cited: Section 215, Financial Code. Reference: Section 118 and Chapter 13.5, Division 1, Financial Code.

HISTORY

1. Change without regulatory effect amending section filed 8-19-97 pursuant to section 100, title 1, California Code of Regulations (Register 97, No. 34).

§10.13003. Identification of Office.

Note • History

Whenever this Article requires that a California state office of a foreign (other nation) bank be identified, the following information shall be furnished with respect to such office:

(a) Address of the office.

(b) Class of the office, as specified in Financial Code Section 1701.

NOTE

Authority cited: Section 215, Financial Code. Reference: Sections 1703 and 1705, Financial Code.

HISTORY

1. Amendment of first paragraph and Note filed 4-14-98; operative 5-14-98 (Register 98, No. 16).

Subarticle 2. Representative Offices

Part 1. General Provisions

§10.13100. Scope.

Note • History

This Subarticle contains regulations relating to California state representative offices of foreign (other nation) banks.

NOTE

Authority cited: Section 215, Financial Code. Reference: Chapter 13.5, Division 1, Financial Code.

HISTORY

1. Amendment filed 4-14-98; operative 5-14-98 (Register 98, No. 16).

Part 2. Establishment of Representative Office

Subpart 1. General Provisions

§10.13200. Definition of “Applicant” and Scope.

Note • History

(a) In this Part, “applicant” means a foreign (other nation) bank which applies to the Commissioner for approval to establish a California state representative office.

(b) This Part contains regulations relating to the establishment of a California state representative office pursuant to Financial Code Section 1726.

NOTE

Authority cited: Section 215, Financial Code. Reference: Section 1726, Financial Code.

HISTORY

1. Change without regulatory effect amending section filed 8-19-97 pursuant to section 100, title 1, California Code of Regulations (Register 97, No. 34).

2. Amendment of subsection (a) filed 4-14-98; operative 5-14-98 (Register 98, No. 16).

Subpart 2. Application

§10.13225. Scope.

Note

This Subpart contains regulations relating to an application for approval to establish a California state representative office.

NOTE

Authority cited: Section 215, Financial Code. Reference: Sections 1703 and 1726, Financial Code.

§10.13226. Included Application.

Note • History

An application for approval to establish a California state representative office which proposes that the applicant establish such office in temporary quarters and subsequently relocate the office to permanent quarters shall, unless otherwise provided in such application, be deemed to include an application for approval to relocate pursuant to Financial Code Section 1727. Approval to establish a California state representative office in such a case shall, unless otherwise provided, be deemed to include approval to relocate the office.

NOTE

Authority cited: Section 215, Financial Code. Reference: Sections 1703, 1726, and 1727, Financial Code.

HISTORY

1. Certificate of Compliance including amendment transmitted to OAL 2-11-82 and filed 3-12-82 (Register 82, No. 11).

§10.13227. Contents.

Note • History

An application for approval to establish a California state representative office shall contain a copy of the applicant's application to the Board of Governors of the Federal Reserve System requesting approval of the Board of Governors to establish the California state representative office.

NOTE

Authority cited: Section 215, Financial Code. Reference: Sections 1703 and 1726, Financial Code.

HISTORY

1. Amendment of section heading and section filed 4-14-98; operative 5-14-98 (Register 98, No. 16).

§10.13228. Amendment.

Note • History

Whenever an applicant files with the Board of Governors of the Federal Reserve System an amendment of its application requesting approval of the Board of Governors to establish a California state representative office, the applicant shall concurrently file a copy of the amendment with the Commissioner.

NOTE

Authority cited: Section 215, Financial Code. Reference: Sections 1703 and 1726, Financial Code.

HISTORY

1. Amendment filed 4-14-98; operative 5-14-98 (Register 98, No. 16).

Subpart 4. Post-Approval Matters

§10.13275. Scope.

Note • History

This Subpart contains regulations relating to matters after an application for approval to establish a California state representative office is approved by the Commissioner.

NOTE

Authority cited: Section 215, Financial Code. Reference: Chapter 13.5, Division 1, Financial Code.

HISTORY

1. Change without regulatory effect amending section filed 8-19-97 pursuant to section 100, title 1, California Code of Regulations (Register 97, No. 34).

§10.13276. Time of Compliance.

Note • History

An applicant may, if it wishes, comply with the provisions of Section 10.13278 of this Chapter before its application for approval to establish a California state representative office is approved by the Commissioner.

NOTE

Authority cited: Section 215, Financial Code. Reference: Chapter 13.5, Division 1, Financial Code.

HISTORY

1. Change without regulatory effect amending section filed 8-19-97 pursuant to section 100, title 1, California Code of Regulations (Register 97, No. 34).

§10.13277. Manager.

Note • History

(a) In case an application for approval to establish a California state representative office, as approved by the Commissioner, does not designate the proposed manager of the representative office, the approval of such application shall be deemed to be subject to a condition that the applicant shall not establish the representative office unless the proposed manager shall have first been approved by the Commissioner.

(b) In a case of the type described in Subdivision (a) of this Section, not less than 30 days before the license for the representative office is to be issued, the applicant shall file with the Commissioner an application for approval of the proposed manager of the representative office. Such application shall contain such information regarding the proposed manager as is called for in an application to the Board of Governors of the Federal Reserve System requesting approval of the Board of Governors to establish a representative office.

NOTE

Authority cited: Section 215, Financial Code. Reference: Sections 1703 and 1726, Financial Code.

HISTORY

1. Change without regulatory effect amending section filed 8-19-97 pursuant to section 100, title 1, California Code of Regulations (Register 97, No. 34).

2. Amendment of subsection (b) filed 4-14-98; operative 5-14-98 (Register 98, No. 16).

§10.13278. Appointment of Commissioner as Attorney for Service of Process.

Note • History

Not less than five business days before the license for a California state representative office is to be issued, the applicant shall, unless it has already done so, file with the Commissioner:

(a) Appointment of Commissioner of Financial Institutions as Attorney for Service of Process, in the form of Department Form 75, completed and signed in accordance with the instructions for such Form.

(b) Copy of a resolution of the board of the applicant, authorizing the signing of the Appointment called for in Subdivision (a) of this Section. Such copy of the resolution of the board of the applicant shall be certified by an officer of the applicant who is assigned to the head office of the applicant and who is not proposed to be assigned to the representative office, and the signature of such officer on such certification shall be acknowledged.

NOTE

Authority cited: Section 215, Financial Code. Reference: Sections 1710 and 1726, Financial Code.

HISTORY

1. Change without regulatory effect amending section heading and section filed 8-19-97 pursuant to section 100, title 1, California Code of Regulations (Register 97, No. 34).

§10.13279. Expiration and Extension of Approval of Application.

Note • History

(a) The Commissioner's approval of an application for approval to establish a California state representative office shall, unless extended by the Commissioner, expire six months after the date of such approval.

(b) An application for an extension of the Commissioner's approval of an application for approval to establish a California state representative office shall contain the following information:

(1) Date on which the approval is scheduled to expire.

(2) Description of progress to date in establishing the representative office.

(3) Proposed timetable for completing the establishing of the representative office.

(4) Amount of additional time requested for completing the establishment of the representative office.

(5) Statement of reasons why such additional time is required for completing the establishment of the representative office.

NOTE

Authority cited: Section 215, Financial Code. Reference: Sections 1703 and 1726, Financial Code.

HISTORY

1. Change without regulatory effect amending section filed 8-19-97 pursuant to section 100, title 1, California Code of Regulations (Register 97, No. 34).

§10.13280. Issuance and Expiration of License.

Note • History

(a) Not less than two business days before the license for a California state representative office is to be issued, the applicant shall file with the Commissioner an application for the issuance of such license. Such application shall contain the following information:

(1) Identify the representative office.

(2) State the date on which the applicant proposes to establish the representative office.

(b) An applicant may establish a California state representative office on or after the date on which the license for such representative office is issued. However, such license shall expire on the earlier of the following dates unless the applicant shall have established the representative office on or before such date:

(1) Date on which the Commissioner's approval of the application for approval to establish the representative office expires pursuant to Section 10.13279 of this Chapter.

(2) Thirtieth day after the date of the issuance of the license.

NOTE

Authority cited: Section 215, Financial Code. Reference: Section 1726, Financial Code.

HISTORY

1. Change without regulatory effect amending section filed 8-19-97 pursuant to section 100, title 1, California Code of Regulations (Register 97, No. 34).

§10.13281. Report Regarding Establishment of Representative Office.

Note • History

Not more than five business days after establishing a California state representative office, an applicant shall file with the Commissioner a report containing the following information:

(a) Identify the representative office.

(b) State the date on which the representative office was established.

NOTE

Authority cited: Section 215, Financial Code. Reference: Sections 1705 and 1726, Financial Code.

HISTORY

1. Change without regulatory effect amending section filed 8-19-97 pursuant to section 100, title 1, California Code of Regulations (Register 97, No. 34).

Subarticle 3. Agencies and Branch Offices

Part 1. General Provisions

§10.14000. Scope.

Note

This Subarticle contains regulations relating to California state agencies and branch offices of foreign (other nation) banks.

NOTE

Authority cited: Section 215, Financial Code. Reference: Chapter 13.5, Division 1, Financial Code.

Part 2. Establishment of Agency or Branch Office

Subpart 1. General Provisions

§10.14100. Definitions of “Applicant” and “Subject Office” and Scope.

Note • History

(a) In this Part:

(1) “Applicant” means a foreign (other nation) bank which applies to the Commissioner for approval to establish a California state agency or branch office.

(2) “Subject office” means the California state agency or branch office which an applicant proposes to establish.

(b) This Part contains regulations relating to the establishment of a subject office pursuant to Financial Code Section 1753.

NOTE

Authority cited: Section 215, Financial Code. Reference: Section 1753, Financial Code.

HISTORY

1. Change without regulatory effect amending section filed 8-19-97 pursuant to section 100, title 1, California Code of Regulations (Register 97, No. 34).

Subpart 2. Application

§10.14125. Scope.

Note

This Subpart contains regulations relating to an application for approval to establish a subject office.

NOTE

Authority cited: Section 215, Financial Code. Reference: Sections 1703 and 1753, Financial Code.

§10.14126. Included Application.

Note • History

An application for approval to establish a subject office which proposes that the applicant establish such office in temporary quarters and subsequently relocate the office to permanent quarters shall, unless otherwise provided in such application, be deemed to include an application for approval to relocate pursuant to Financial Code Section 1754. Approval to establish a subject office in such a case shall, unless otherwise provided, be deemed to include approval to relocate the office.

NOTE

Authority cited: Section 215, Financial Code. Reference: Sections 1703, 1753, and 1754, Financial Code.

HISTORY

1. Certificate of Compliance including amendment transmitted to OAL 2-11-82 and filed 3-12-82 (Register 82, No. 11).

§10.14127. Form.

Note • History

An application for approval to establish a subject office shall contain a copy of the applicant's application to the Board of Governors of the Federal Reserve System requesting approval of the Board of Governors to establish a subject office.

NOTE

Authority cited: Section 215, Financial Code. Reference: Sections 1703 and 1753, Financial Code.

HISTORY

1. Amendment filed 4-14-98; operative 5-14-98 (Register 98, No. 16).

§10.14128. Amendment.

Note • History

Whenever an applicant files with the Board of Governors of the Federal Reserve System an amendment of its application requesting approval of the Board of Governors to establish a subject office, the applicant shall concurrently file a copy of the amendment with the Commissioner.

NOTE

Authority cited: Section 215, Financial Code. Reference: Sections 1703 and 1753, Financial Code.

HISTORY

1. Certificate of Compliance including amendment of NOTE transmitted to OAL 2-11-82 and filed 3-12-82 (Register 82, No. 11).

2. Amendment filed 4-14-98; operative 5-14-98 (Register 98, No. 16).

Subpart 4. Post-Approval Matters

§10.14175. Scope.

Note

This Subpart contains regulations relating to matters after an application for approval to establish a subject office is approved by the Superintendent.

NOTE

Authority cited: Section 215, Financial Code. Reference: Chapter 13.5, Division 1, Financial Code.

§10.14176. Non-Applicability of Certain Provisions.

Note

No provision of Sections 10.14179 to 10.14185 inclusive, of this Chapter applies to an applicant which already maintains one or more subject offices and which has already complied with such provision.

NOTE

Authority cited: Section 215, Financial Code. Reference: Sections 1703 and 1753, Financial Code.

§10.14177. Time of Compliance.

Note • History

An applicant may, if it wishes, comply with the provisions of Sections 10.14179 to 10.14184, inclusive, before its application for approval to establish a California state representative office is approved by the Commissioner.

NOTE

Authority cited: Section 215, Financial Code. Reference: Chapter 13.5, Division 1, Financial Code.

HISTORY

1. Change without regulatory effect amending section filed 8-19-97 pursuant to section 100, title 1, California Code of Regulations (Register 97, No. 34).

§10.14178. Manager.

Note • History

(a) In case an application for approval to establish a subject office, as approved by the Commissioner, does not designate the proposed manager of the subject office, the approval of such application shall be deemed to be subject to a condition that the applicant shall not establish the subject office unless the proposed manager shall have first been approved by the Commissioner.

(b) In a case of the type described in Subdivision (a) of this Section, not less than 30 days before the license for the subject office is to be issued, the applicant shall file with the Commissioner an application for approval of the proposed manager of the subject office. Such application shall contain such information regarding the proposed manager as is called for in an application to the Board of Governors of the Federal Reserve System requesting approval of the Board of Governors to establish a subject office.

NOTE

Authority cited: Section 215, Financial Code. Reference: Sections 1703 and 1753, Financial Code.

HISTORY

1. Change without regulatory effect amending section filed 8-19-97 pursuant to section 100, title 1, California Code of Regulations (Register 97, No. 34).

2. Amendment of subsection (b) filed 4-14-98; operative 5-14-98 (Register 98, No. 16).

§10.14179. Certificate of Good Standing.

Note • History

Except as otherwise provided in Section 10.14176 of this Chapter, not less than five business days before the license for a subject office is to be issued, the applicant shall file with the Commissioner a Certificate of Good Standing--Foreign Corporation issued by the Secretary of State of the State of California, certifying that the applicant has qualified to transact intrastate business in the State of California and is in good corporate standing under the laws of the State of California.

NOTE

Authority cited: Section 215, Financial Code. Reference: Sections 1751 and 1753, Financial Code.

HISTORY

1. Certificate of Compliance including amendment transmitted to OAL 2-11-82 and filed 3-12-82 (Register 82, No. 11).

2. Change without regulatory effect amending section filed 8-19-97 pursuant to section 100, title 1, California Code of Regulations (Register 97, No. 34).

§10.14180. Appointment of Commissioner as Attorney for Service of Process.

Note • History

(a) Appointment of Commissioner of Financial Institutions as Attorney for Service of Process in the form of Department Form 85, completed and signed in accordance with the instructions for such Form.

(b) Copy of a resolution of the board of the applicant, authorizing the signing of the Appointment called for in Subdivision (a) of this Section. Such copy of the resolution of the board of the applicant shall be certified by an officer of the applicant who is assigned to the head office of the applicant and who is not proposed to be assigned to the subject office, and the signature of such officer on such certification shall be acknowledged.

NOTE

Authority cited: Section 215, Financial Code. Reference: Sections 1710 and 1753, Financial Code.

HISTORY

1. Change without regulatory effect amending section heading and section filed 8-19-97 pursuant to section 100, title 1, California Code of Regulations (Register 97, No. 34).

§10.14181. Non-Reserve Depositaries.

Note • History

NOTE

Authority cited: Section 215, Financial Code. Reference: Sections 763, 1753, and 1756, Financial Code.

HISTORY

1. Repealer filed 4-7-97; operative 4-7-97 pursuant to Government Code section 11343.4(d) (Register 97, No. 15).

§10.14182. Bond and Other Insurance Policies.

Note • History

Except as otherwise provided in Section 10.14176 of this Chapter, not less than five business days before the license for a subject office is to be issued, the applicant shall:

(a) Obtain a banker's blanket bond which is applicable to the subject office and satisfactory in form and content to the Commissioner and file with the Commissioner a report containing (1) a copy of such bond and (2) a letter addressed to the Commissioner signed by the insurer named in the bond or by an agent of such insurer, confirming that such copy is a true and correct copy of the bond and that the bond is currently in force with respect to the subject office.

(b) Obtain such other insurance policies as may be appropriate and necessary for the subject office and file with the Commissioner a report containing:

(1) Table showing, with respect to each insurance policy (other than the banker's blanket bond called for in Subdivision (a) of this Section) which is applicable to the subject office:

(A) Name and address of insurer.

(B) Summary of terms of policy.

(D) Deductible amount.

(2) Letter addressed to the Commissioner signed by the insurer under each insurance policy referred to in the table called for in Paragraph (1) of this Subdivision (b) or by an agent of such insurer, confirming that the information in such table with respect to the insurer's insurance policy is true and correct and that the insurance policy is currently in force with respect to the subject office.

NOTE

Authority cited: Section 215, Financial Code. Reference: Sections 1705 and 1753, Financial Code.

HISTORY

1. Change without regulatory effect amending section filed 8-19-97 pursuant to section 100, title 1, California Code of Regulations (Register 97, No. 34).

§10.14183. Agreement.

Note • History

(a) Except as otherwise provided in Section 10.14176 of this Chapter, not less than five business days before the license for a subject office is to be issued, the applicant shall file with the Commissioner:

(1) Agreement of the applicant, agreeing, in consideration of the issuance of the license, as follows:

(A) That any bank regulatory agency having information or records regarding the applicant, including any bank regulatory agency of the domiciliary jurisdiction of the applicant, of the United States, of any state of the United States, or of any foreign nation, may furnish to the Commissioner such information, and permit him to inspect and copy such records, as the Commissioner may request from time to time.

(B) That, in case any violation of law relating to the business of the applicant in the State of California is committed or is suspected of having been committed by an individual who was, at the time of such violation or suspected violation, an officer or employee of the applicant, the applicant, so long as it maintains a California state office, will, if the Commissioner requests that it do so and except to the extent that it is prohibited from doing so by the laws of its domiciliary jurisdiction, use its best efforts to

(i) assist any proper authorities of the United States, of the State of California, or of any political subdivision of the State of California to gain access to such individual,

(ii) assist any such authorities to obtain information which may relate, directly or indirectly, to such violation or suspected violation, and

(iii) otherwise cooperate with any such authorities in enforcing the laws of the United States, of the State of California, and of political subdivisions of the State of California pertaining to such violation or suspected violation.

(C) That an amendment or revocation of the agreement shall be effective unless such revocation or amendment shall have first been approved in writing by the Commissioner.

(D) That any failure by the applicant to comply with any provision of the agreement shall, for purposes of the provisions of Article 5 (commencing with Section 1780), Chapter 13.5, Division 1 of, and Sections 1912 and 1913 of, the Financial Code, as such provisions may be amended from time to time, or any statutes of similar import which may be enacted from time to time, be deemed to be a violation of a law of the State of California and of an order issued under Division 1 (commencing with Section 99) of the Financial Code.

(2) Copy of a resolution of the board of the applicant, authorizing the applicant to make the agreement called for in Paragraph (1) of this Subdivision (a).

(b)(1) The agreement called for in Paragraph (1) of Subdivision (a) of this Section shall be signed in the name of the applicant by an officer of the applicant who is assigned to the head office of the applicant and is not proposed to be assigned to the subject office, and the signature of the applicant on the agreement shall be acknowledged.

(2) The copy of the resolution of the board of the applicant called for in Paragraph (2) of Subdivision (a) of this Section shall be certified by an officer of the applicant who is assigned to the head office of the applicant and who is not proposed to be assigned to the subject office, and the signature of such officer on such certification shall be acknowledged.

NOTE

Authority cited: Section 215, Financial Code. Reference: Sections 1705, 1753, 1780, 1781, 1782, 1785, 1900, 1912 and 1913, Financial Code.

HISTORY

1. Change without regulatory effect amending section filed 8-19-97 pursuant to section 100, title 1, California Code of Regulations (Register 97, No. 34).

2. Amendment of subsection (b)(1) and Note filed 4-14-98; operative 5-14-98 (Register 98, No. 16).

§10.14184. Agreement--Limited Branch Office.

Note • History

NOTE

Authority cited: Section 215, Financial Code. Reference: Sections 1705 and 1753, Financial Code.

HISTORY

1. Repealer filed 4-7-97; operative 4-7-97 pursuant to Government Code section 11343.4(d) (Register 97, No. 15).

§10.14185. Deposit of Eligible Assets.

Note • History

(a) The definitions set forth in Section 10.16001 and the instructions set forth in 10.16002 apply to this Section.

(b) Except as otherwise provided in Section 10.14176 of this Chapter, not less than two business days before the license for a subject office is to be issued, the applicant shall deposit eligible assets with its approved depository in accordance with Financial Code Section 1761 and Part 10 (commencing with Section 10.16000) of this Subarticle, and such approved depository shall file with the Commissioner a report which is verified by an officer of the approved depository and which contains the following information:

(1) Describe each eligible asset in the pledge deposit.

(2) State the total value of the eligible assets in the pledge deposit.

NOTE

Authority cited: Section 215, Financial Code. Reference: Sections 1753 and 1761, Financial Code.

HISTORY

1. Change without regulatory effect amending section filed 8-19-97 pursuant to section 100, title 1, California Code of Regulations (Register 97, No. 34).

2. Amendment of subsection (b) filed 4-14-98; operative 5-14-98 (Register 98, No. 16).

§10.14186. Expiration and Extension of Approval of Application.

Note • History

(a) The Commissioner's approval of an application for approval to establish a subject office shall, unless extended by the Commissioner, expire six months after the date of such approval.

(b) An application for an extension of the Commissioner's approval of an application for approval to establish a subject office shall contain the following information:

(1) Date on which the time for establishing the subject office is scheduled to expire.

(2) Description of progress to date in completing the establishment of the subject office.

(3) Proposed timetable for completing the establishment of the subject office.

(4) Amount of additional time requested for completing the establishment of the subject office.

(5) Statement of reasons why such additional time is required for completing the establishment of the subject office.

NOTE

Authority cited: Section 215, Financial Code. Reference: Sections 1703 and 1753, Financial Code.

HISTORY

1. Change without regulatory effect amending section filed 8-19-97 pursuant to section 100, title 1, California Code of Regulations (Register 97, No. 34).

§10.14187. Issuance and Expiration of License.

Note • History

(a) Not less than two business days before the license for a subject office is to be issued, the applicant shall file with the Commissioner an application for the issuance of such license. Such application shall contain the following information:

(1) Identify the subject office.

(2) State the date on which the applicant proposes to establish the subject office.

(b) An applicant may establish a subject office on or after the date on which the license for such subject office is issued. However, such license shall expire on the earlier of the following dates unless the applicant shall have established the subject office on or before such date:

(1) Date on which the Commissioner's approval of the application for approval to establish the branch office expires pursuant to Section 10.14186 of this Chapter.

(2) Thirtieth day after the date of the issuance of the license.

NOTE

Authority cited: Section 215, Financial Code. Reference: Section 1753, Financial Code.

HISTORY

1. Change without regulatory effect amending section filed 8-19-97 pursuant to section 100, title 1, California Code of Regulations (Register 97, No. 34).

§10.14188. Report Regarding Establishment of Subject Office.

Note • History

Not more than five business days after establishing a subject office, an applicant shall file with the Commissioner a report containing the following information:

(a) Identify the subject office.

(b) State the date on which the subject office was established.

NOTE

Authority cited: Section 215, Financial Code. Reference: Sections 1705 and 1753, Financial Code.

HISTORY

1. Change without regulatory effect amending section filed 8-19-97 pursuant to section 100, title 1, California Code of Regulations (Register 97, No. 34).

Part 4. Business and Operations--General

Subpart 1. General Provisions

§10.14700. Scope.

Note

This Part contains regulations relating to the business and operations of various types of California state agencies and branch offices of foreign (other nation) banks. (For regulations relating to the business and operations of specific types of California state agencies and branch offices of foreign (other nation) banks, refer to the appropriate part of this Subarticle.)

NOTE

Authority cited: Section 215, Financial Code. Reference: Chapter 13.5, Division 1, Financial Code.

§10.14701. Business Hours.

Note • History

NOTE

Authority cited: Section 215, Financial Code. Reference: Chapter 13.5, Division 1, Financial Code; Section 3123, Commercial Code.

HISTORY

1. Repealer filed 4-7-97; operative 4-7-97 pursuant to Government Code section 11343.4(d) (Register 97, No. 15).

Subpart 2. Books, Accounts, and Other Records

§10.14725. Definitions of “Subject Institution” and “Subject Office” and Scope.

Note

(a) In this Subpart:

(1) “Subject institution” means a foreign (other nation) bank which maintains one or more California state agencies or branch offices.

(2) “Subject office” means any California state agency or branch office of a subject institution.

(b) This Subpart contains regulations relating to the books, accounts, and other records of subject offices of subject institutions.

NOTE

Authority cited: Section 215, Financial Code. Reference: Section 1706, Financial Code.

§10.14726. General Requirements.

Note • History

(a) A subject institution shall make and keep such books and accounts relating to the business of its subject offices in such form and in such manner as is in accordance with generally accepted accounting principles.

(b) A subject institution shall make and keep other records relating to the business of its subject offices in such form and in such manner as is customary in the transaction of commercial banking business in the State of California and as is necessary to enable the Commissioner to examine such subject offices.

(c) A subject institution shall preserve the books, accounts, and other records relating to the business of its subject offices for such time as is customary in the transaction of commercial banking business in the State of California and as is necessary to enable the Commissioner to examine such subject offices.

(d) Other provisions of this Chapter which require a subject institution to make, keep, or preserve books, accounts, or other records shall be construed, not as any limitation of or exception from the provisions of Subdivision (a), (b), or (c) of this Section, but rather as in addition to such provisions.

NOTE

Authority cited: Section 215, Financial Code. Reference: Section 1706, Financial Code.

HISTORY

1. Change without regulatory effect amending section filed 8-19-97 pursuant to section 100, title 1, California Code of Regulations (Register 97, No. 34).

2. Amendment of subsection (a) filed 4-14-98; operative 5-14-98 (Register 98, No. 16).

§10.14727. Books and Accounts of Transactions.

Note

A subject institution shall make and keep books and accounts for each of its subject offices which accurately reflect the transactions of such office on a daily basis.

NOTE

Authority cited: Section 215, Financial Code. Reference: Section 1706,Financial Code.

§10.14728. Separate Books and Accounts.

Note

A subject institution shall make and keep the books and accounts for its subject offices separate and apart from the books and accounts for the other offices of such subject institution.

NOTE

Authority cited: Section 215, Financial Code. Reference: Section 1706, Financial Code.

§10.14729. Language.

Note

A subject institution shall make and keep the books, accounts, and other financial records for its subject offices in English. However, a subject institution may make and keep the books, accounts, and other financial records for its subject offices in a language other than English if it makes and keeps English translations of such books, accounts, and other financial records.

NOTE

Authority cited: Section 215, Financial Code. Reference: Section 1706, Financial Code.

§10.14730. Place for Books, Accounts, and Other Records--Blanket Approval.

Note • History

Pursuant to Financial Code Section 1706, approval is granted for books, accounts, and other records relating to the business of a subject office of a subject institution to be made, kept, and preserved at a place other than such office, as follows:

(a) In case a subject institution maintains two or more subject offices, books, accounts and other records relating to the business of any office other than the primary office may be made, kept, and preserved at the primary office.

(b) A subject institution may have a person which provides data processing services make, keep, and preserve books, accounts, and other records relating to the business of its subject offices, provided that, unless such person is a California state bank, the person shall file with the Commissioner an agreement that its performance of data processing services and the making, keeping, and preserving of such books, accounts, and other records shall be subject to regulation and examination by the Commissioner to the same extent as if the services were being performed and the books, accounts, and other records made, kept, and preserved by the subject institution itself at its subject offices.

(c) A subject institution may have any responsible storage facility within the United States preserve any books, accounts, and other records relating to the business of its subject offices which are not needed for the transaction of current business, provided that, whenever ordered to do so by the Commissioner, such subject institution shall at its own expense transfer such books, accounts, and other records to such of its subject offices or to such other place within the State of California as may be specified in the Commissioner's order.

NOTE

Authority cited: Section 215, Financial Code. Reference: Section 1706, Financial Code.

HISTORY

1. Change without regulatory effect amending section filed 8-19-97 pursuant to section 100, title 1, California Code of Regulations (Register 97, No. 34).

Subpart 3. Credit Balances

§10.14750. Definitions of “Subject Institution” and “Subject Office” and Scope.

Note

(a) In this Subpart:

(1) “Subject institution” means a foreign (other nation) bank which maintains one or more California state agencies, limited branch offices, or wholesale branch offices.

(2) “Subject office” means any California state agency, limited branch office, or wholesale branch office of a subject institution.

(b) This Subpart contains regulations relating to credit balances at subject offices of subject institutions.

NOTE

Authority cited: Section 215, Financial Code. Reference: Section 1755, Financial Code.

§10.14751. General Restrictions.

Note

No subject institution shall maintain any credit balance at a subject office other than a credit balance which:

(a) Is incidental to or arises out of the transaction of such commercial banking business as the subject institution may lawfully transact at the subject office;

(b) Is to serve a specific purpose; and

NOTE

Authority cited: Section 215, Financial Code. Reference: Section 1755, Financial Code.

§10.14752. Solicitation.

Note

No subject institution shall solicit credit balances for a subject office from the general public.

NOTE

Authority cited: Section 215, Financial Code. Reference: Section 1755, Financial Code.

§10.14753. Withdrawal.

Note

No subject institution shall cause or permit a customer to withdraw funds from a credit balance at a subject office by means of a draft, check, or similar instrument for the transmission of money except for the purpose of transferring such funds to a deposit account of such customer.

NOTE

Authority cited: Section 215, Financial Code. Reference: Section 1755, Financial Code.

Subpart 4. Notice of Non-Insurance

§10.14775. Definitions of “Subject Institution” and “Subject Office” and Scope.

Note

(a) In this Subpart:

(1) “Subject institution” means a foreign (other nation) bank which maintains one or more California state depositary agencies, limited branch offices, or wholesale branch offices.

(2) “Subject office” means any California state depositary agency, limited branch office, or wholesale branch office of a subject institution.

(b) This Subpart contains regulations relating to the notice which a subject institution is required to give under Financial Code Section 1758.

NOTE

Authority cited: Section 215, Financial Code. Reference: Section 1758, Financial Code.

§10.14776. References to Federal Deposit Insurance Corporation.

Note • History

Whenever a provision of this Subpart requires that a notice refer to the Federal Deposit Insurance Corporation, such notice may refer to the Federal Deposit Insurance Corporation as the “FDIC.”

NOTE

Authority cited: Section 215, Financial Code. Reference: Section 1758, Financial Code.

HISTORY

1. Certificate of Compliance including amendment of NOTE transmitted to OAL 2-11-82 and filed 3-12-82 (Register 82, No. 11).

§10.14777. Language.

Note • History

A notice required by this Subpart shall be set forth in English; and, in case such notice is contained in a document which is in a language other than English, the notice shall, in addition, be set forth in such other language.

NOTE

Authority cited: Section 215, Financial Code. Reference: Section 1758, Financial Code.

HISTORY

1. Certificate of Compliance including amendment of NOTE transmitted to OAL 2-11-82 and filed 3-12-82 (Register 82, No. 11).

§10.14778. Teller Windows.

Note

A subject institution shall display conspicuously at each window or other place where it usually accepts deposits in each of its subject offices a notice stating, in substance, that deposits at such office are not insured by the Federal Deposit Insurance Corporation.

NOTE

Authority cited: Section 215, Financial Code. Reference: Section 1758, Financial Code.

§10.14779. Deposit Documents.

Note • History

(a) A subject institution shall set forth conspicuously on the face side or facing page, as the case may be, of each signature card and any other contract for a deposit at its subject offices and of each passbook, certificate, or other document which evidences, or constitutes a receipt for, a deposit at its subject offices a notice stating, in substance, that such deposit is not insured by the Federal Deposit Insurance Corporation.

(b) Subdivision (a) of this Section shall not be deemed to require that a subject institution set forth on any negotiable certificate of deposit in the sum of $100,000 or more a notice that such deposit is not insured by the Federal Deposit Insurance Corporation, provided that such subject institution gives the depositor at or before the time when the deposit is made a written notice stating, in substance, that the deposit is not insured by the Federal Deposit Insurance Corporation.

NOTE

Authority cited: Section 215, Financial Code. Reference: Section 1758, Financial Code.

HISTORY

1. New subsection (b) filed 3-12-82; effective thirtieth day thereafter (Register 82, No. 11).

Subpart 5. Interest on Deposits and Related Matters

§10.14800. Definitions of “Subject Institution” and “Subject Office” and Scope.

Note • History

(a) In this Subpart:

(1) “Subject institution” means a foreign (other nation) bank which maintains one or more California state agencies, limited branch offices, or wholesale branch offices that are not subject to Regulation Q of the Board of Governors of the Federal Reserve System (12 C.F.R. Part 217), or Part 329 of the regulations of the Federal Deposit Insurance Corporation (12 C.F.R. Part 329).

(2) “Subject office” means any California state agency, limited branch office, or wholesale branch office of a subject institution.

(b) This Part contains regulations relating to the interest that a subject institution may pay on deposits at its subject offices and related matters.

NOTE

Authority cited: Section 215, Financial Code. Reference: Section 1759, Financial Code.

HISTORY

1. Amendment of subsection (a)(1) filed 3-12-82; effective thirtieth day thereafter (Register 82, No. 11).

2. Amendment of subsection (a)(1) filed 5-5-86 as an emergency; effective upon filing (Register 86, No. 19). A Certificate of Compliance must be transmitted to OAL within 120 days or emergency language will be repealed on 9-2-86.

3. Certificate of Compliance transmitted to OAL 8-28-86 and filed 9-23-86 (Register 86, No. 39).

§10.14801. Other Definitions.

Note • History

In this Subpart, “deposit” has the meaning set forth in Section 204.2(a) of Regulation D of the Board of Governors of the Federal Reserve System (12 C.F.R. Section 204.2(a)). However, “deposit” does not include any liability of the type described in Section 204.2(a)(1)(v) of Regulation D (12 C.F.R. Section 204.2(a)(1)(v)).

NOTE

Authority cited: Section 215, Financial Code. Reference: Section 1759, Financial Code.

HISTORY

1. Amendment filed 5-5-86 as an emergency; effective upon filing (Register 86, No. 19). A Certificate of Compliance must be transmitted to OAL within 120 days or emergency language will be repealed on 9-2-86.

2. Certificate of Compliance transmitted to OAL 8-28-86 and filed 9-23-86 (Register 86, No. 39).

§10.14802. Compliance with Federal Regulations.

Note • History

A subject institution shall, with respect to deposits at its subject offices, comply with Regulation Q of the Board of Governors of the Federal Reserve System (12 C.F.R. Part 217) as in effect on April 1, 1986 to the same extent and in the same manner as if such subject institution were a California state member commercial bank.

NOTE

Authority cited: Section 215, Financial Code. Reference: Section 1759, Financial Code.

HISTORY

1. Amendment filed 1-18-83 as an emergency; effective upon filing (Register 83, No. 4). A Certificate of Compliance must be transmitted to OAL within 120 days or emergency language will be repealed on 5-18-83. For prior history, see Register 82, No. 51.

2. Editorial correction of History NOTE No. 3 (Register 83, No. 24).

3. Reinstatement of section as it existed prior to emergency amendment filed 1-18-83 by operation of Government Code, Section 11346.1(f) (Register 83, No. 24).

4. Amendment filed 6-7-83 as an emergency; effective upon filing (Register 83, No. 24). A Certificate of Compliance must be transmitted to OAL within 120 days or emergency language will be repealed on 10-5-83.

5. Amendment filed 10-4-83 as an emergency; effective upon filing (Register 83, No. 41). A Certificate of Compliance must be transmitted to OAL within 120 days or emergency language will be repealed on 2-1-84.

6. Amendment filed 12-30-83 as an emergency; effective upon filing (Register 83, No. 53). A Certificate of Compliance must be transmitted to OAL within 120 days or emergency language will be repealed on 4-29-84.

7. Certificate of Compliance as to 12-30-83 order transmitted to OAL 4-27-84 and filed 5-25-84 (Register 84, No. 21).

8. Amendment filed 5-5-86 as an emergency; effective upon filing (Register 86, No. 19). A Certificate of Compliance must be transmitted to OAL within 120 days or emergency language will be repealed on 9-2-86.

9. Certificate of Compliance transmitted to OAL 8-28-86 and filed 9-23-86 (Register 86, No. 39).

Part 6. Business and Operations--Depositary Agency

Subpart 1. General Provisions

§10.15200. Definitions of “Subject Institution” and “Subject Office” and Scope.

Note

(a) In this Part:

(1) “Subject institution” means a foreign (other nation) bank which maintains one or more California state depositary agencies.

(2) “Subject office” means any California state depositary agency of a subject institution.

(b) This Part contains regulations relating to the business and operations of subject offices of subject institutions. (For additional regulations relating to the business and operations of subject offices of subject institutions, refer to Part 4 (commencing with Section 10.14700) of this Subarticle.)

NOTE

Authority cited: Section 215, Financial Code. Reference: Chapter 13.5, Division 1, Financial Code.

§10.15201. Other Definitions.

Note

In this Part:

(a) “Foreign (other nation) depositor” means a foreign nation which, an agency or instrumentality of a foreign nation which, or a foreign (other nation) person who, makes or maintains a deposit in a subject office of a subject institution.

(b) “Foreign (other nation) depositor's statement” means the statement called for in Subpart 3 (commencing with Section 10.15250) of this Part.

(c) “Foreign (other nation) person” means a person who resides, is domiciled, and maintains his or her principal place of business in a foreign nation.

(d) “Person” has the meaning set forth in Financial Code Section 1755(a)(2).

NOTE

Authority cited: Section 215, Financial Code. Reference: Chapter 13.5, Division 1, Financial Code.

Subpart 2. Foreign (Other Nation) Depositor

§10.15225. Scope.

Note

This Subpart contains regulations relating to determining, for purposes of Financial Code Section 1755(a)(2) and of this Part, whether a person is a foreign (other nation) person.

NOTE

Authority cited: Section 215, Financial Code. Reference: Section 1755, Financial Code.

§10.15226. Residence, Domicile, and Principal Place of Business.

Note

In determining, for purposes of Financial Code Section 1755(a)(2) and of this Party whether a person is a foreign (other nation) person:

(a) A person shall be deemed to maintain his or her principal place of business at the place where he or she primarily conducts his or her affairs.

(b) An individual shall be deemed to reside at the place where he or she dwells, whether or not he or she intends to dwell there permanently.

(c) An individual shall be deemed to be domiciled at the place where he or she maintains his or her principal home with the intent of remaining there indefinitely and to which, if absent, he or she has a general intent to return.

(d) A corporation shall be deemed to be domiciled at the place under the laws of which it is incorporated, and shall be deemed to reside at the place where it maintains its principal place of business.

(e) An estate shall be deemed to have the residence, domicile, and principal place of business of the executor or administrator of such estate or, in case there is more than one executor or administrator of the estate, of each executor or administrator.

(f) A trust shall be deemed to have the residence, domicile, and principal place of business of the trustee of such trust or, in case there is more than one trustee of the trust, of each trustee.

(g) A firm, partnership, association, company, syndicate, business trust, or organization of any other kind shall be deemed to reside and be domiciled at the place where it maintains its principal place of business.

(h) A branch or division of a person shall be deemed to reside and be domiciled at the place where such branch or division maintains its principal place of business.

NOTE

Authority cited: Section 215, Financial Code. Reference: Section 1755, Financial Code.

§10.15227. Branch or Division.

Note

For purposes of Financial Code Section 1755(a)(2) and of this Part:

(a) In case a person qualifies as a foreign (other nation) person under Subdivisions (a) to (g), inclusive, of Section 10.15226 of this Chapter, any branch or division of such person, including a branch or division located in the United States, is also a foreign (other nation) person.

(b) In case a person does not qualify as a foreign (other nation) person under Subdivisions (a) to (g), inclusive, of Section 10.15226 of this Chapter, a subject institution may not accept at a subject office deposits from the head office of such person or from any branch or division of the person other than a branch or division which qualifies as a foreign (other nation) person under Subdivision (h) of Section 10.15226 of this Chapter.

NOTE

Authority cited: Section 215, Financial Code. Reference: Section 1755, Financial Code.

Subpart 3. Foreign (Other Nation) Depositor's Statement

§10.15250. Scope.

Note

This Subpart contains regulations relating to the foreign (other nation) depositor's statement which a subject institution is required to obtain and retain at its subject office.

NOTE

Authority cited: Section 215, Financial Code. Reference: Section 1706, Financial Code.

§10.15251. Requirement.

Note • History

Not more than 30 days before or after a foreign (other nation) depositor first makes a deposit at a subject office of a subject institution, such subject institution shall obtain from such depositor a statement dated and signed by the depositor, stating:

(a) In case the depositor is a foreign nation or an agency or instrumentality of a foreign nation, the name of the depositor, the place where the capitol or head office, as the case may be, of the depositor is located, and the name, title, and mailing address of each official who is authorized to make withdrawals on behalf of the depositor.

(b) In case the depositor is an individual, the mailing addresses of the depositor's residence, domicile, and principal place of business.

(c) In case the depositor is a person other than an individual, the class of person (such as, corporation, estate, trust, etc.) to which the depositor belongs, the places where the depositor resides, is domiciled, and maintains its principal place of business, and the name, title, and mailing address of each officer, employee, or other individual who is authorized to make withdrawals on behalf of the depositor.

NOTE

Authority cited: Section 215, Financial Code. Reference: Section 1706, Financial Code.

HISTORY

1. Amendment filed 3-12-82; effective thirtieth day thereafter (Register 82, No. 11).

§10.15252. Language.

Note

Whenever a subject institution obtains a foreign (other nation) depositor's statement which is not in the English language, such subject institution shall attach to such statement a written English translation together with a certificate signed by the translator certifying that such translation is a true translation of the statement in the English language.

NOTE

Authority cited: Section 215, Financial Code. Reference: Section 1706, Financial Code.

§10.15253. Filing and Retention.

Note

Whenever a subject institution obtains a foreign (other nation) depositor's statement, such subject institution shall file such statement at the subject office where such depositor's deposit account is maintained or at its primary office and shall preserve the statement at such office so long as the depositor maintains a deposit account at the subject office and for a period of not less than two years after such account is closed.

NOTE

Authority cited: Section 215, Financial Code. Reference: Section 1706, Financial Code.

Part 8. Business and Operations--Wholesale Branch Office

Subpart 1. General Provisions

§10.15600. Definitions of “Subject Institution” and “Subject Office” and Scope.

Note

(a) In this Part:

(1) “Subject institution” means a foreign (other nation) bank which maintains one or more California state wholesale branch offices.

(2) “Subject office” means any California state wholesale branch office of a subject institution.

NOTE

Authority cited: Section 215, Financial Code. Reference: Chapter 13.5, Division 1, Financial Code.

Subpart 2. Deposits

§10.15625. Scope.

Note

This Subpart contains regulations relating to deposits at subject offices of subject institutions.

NOTE

Authority cited: Section 215, Financial Code. Reference: Chapter 13.5, Division 1, Financial Code.

§10.15626. Deposits of $100,000 or More.

Note • History

For purposes of determining the amount of the deposit of a depositor at the subject offices of a subject institution under Financial Code Section 1755(a)(4)(B), “deposit” shall be deemed to be the first deposit of such depositor at such offices. In case the first deposit is placed in separate deposit accounts, “deposit” includes all such deposit accounts, even if the deposit accounts are of different types, provided that all the deposit accounts are held by the depositor in the same right and capacity.

NOTE

Authority cited: Section 215, Financial Code. Reference: Section 1755, Financial Code.

HISTORY

1. Amendment filed 4-7-97; operative 4-7-97 pursuant to Government Code section 11343.4(d) (Register 97, No. 15).

§10.15627. Non-Retail Deposits.

Note • History

Pursuant to Financial Code Section 1755(a)(4)(C), the following deposits are determined to be deposits the acceptance of which by a subject institution at its subject offices does not constitute engaging in domestic retail deposit activities requiring deposit insurance protection:

(a) Deposits of the type described in 12 C.F.R. §346.6(a).

(b) Deposits accepted at a branch office which is exempted from the requirement of federal deposit insurance by the Federal Deposit Insurance Corporation pursuant to 12 C.F.R. §346.6(b).

NOTE

Authority cited: Section 215, Financial Code. Reference: Section 1755, Financial Code.

HISTORY

1. Repealer of subsections (a)-(e) and new subsections (a) and (b) filed 4-14-98; operative 5-14-98 (Register 98, No. 16).

Part 10. Deposit of Eligible Assets

Subpart 1. General Provisions

§10.16000. Definition of “Subject Institution” and Scope.

Note

(a) In this Part, “subject institution” means a foreign (other nation) bank which:

(1) Maintains one or more California state agencies or branch offices;

(2) Has one or more approved but unopened California state agencies or branch offices; or

(3) Has closed one or more California state agencies or branch offices with respect to which it is still required to maintain eligible assets on deposit with an approved depositary.

(b) This Part contains regulations relating to the deposit by a subject institution of eligible assets with an approved depository pursuant to Financial Code Section 1761.

NOTE

Authority cited: Section 215, Financial Code. Reference: Section 1761, Financial Code.

§10.16001. Other Definitions.

Note

In this Part:

(a) “Adjusted liabilities” has the meaning set forth in Financial Code Section 1761(a)(1).

(b) “Applicable minimum” has the meaning set forth in Financial Code Section 1761(a)(2).

(d) “Computation period” means the period commencing with the 16th day of the third month of a calendar quarter and ending with the 15th day of the third month of the next succeeding calendar quarter, both inclusive.

(e) “Eligible assets” has the meaning set forth in Financial Code Section 1761(a)(4).

(f) “Maintenance period” means a calendar quarter or, in the case of a subject institution which is subject to Financial Code Section 1761 for only part of a calendar quarter, such part.

(g) “Pledge deposit,” when used with respect to a subject institution, means the eligible assets which such subject institution maintains on deposit with an approved depository pursuant to Financial Code Section 1761.

NOTE

Authority cited: Section 215, Financial Code. Reference: Section 1761, Financial Code.

§10.16002. Description of Eligible Asset.

Note

Whenever this Part requires that an eligible asset be described, the following information shall be provided with respect to such eligible asset:

(a) Name of obligor.

(b) Complete title (including series).

(d) Serial number.

(e) Maturity date.

(f) Call date.

(g) Par value.

(h) Market value.

NOTE

Authority cited: Section 215, Financial Code. Reference: Section 1761, Financial Code.

Subpart 2. Approval of Approved Depository

§10.16025. Scope.

Note

This Subpart contains regulations relating to approval of the approved depository of a subject institution.

NOTE

Authority cited: Section 215, Financial Code. Reference: Section 1761, Financial Code.

§10.16026. Application for Approval--Contents.

Note • History

An application for approval to act as the approved depository of a subject institution shall be in the form of Department Form 88, shall contain the information called for in such Form and in the instructions for the Form, shall be signed as required in the Form and instructions, and shall be verified if and as required in the Form and instructions.

NOTE

Authority cited: Section 215, Financial Code. Reference: Sections 1703 and 1761, Financial Code.

HISTORY

1. Amendment filed 3-12-82; effective thirtieth day thereafter (Register 82, No. 11).

§10.16027. Agreement of Approved Depository.

Note • History

No California bank shall act as the approved depository of a subject institution unless such bank shall have filed with the Commissioner an Agreement of Approved Depository in the form of Department Form 90, completed and signed in accordance with the instructions for such Form.

NOTE

Authority cited: Section 215, Financial Code. Reference: Section 1761, Financial Code.

HISTORY

1. Amendment filed 3-12-82; effective thirtieth day thereafter (Register 82, No. 11).

2. Change without regulatory effect amending section filed 8-19-97 pursuant to section 100, title 1, California Code of Regulations (Register 97, No. 34).

§10.16028. Report on Certain Factors.

Note • History

In case any of the following factors becomes true with respect to an approved depository of a subject institution, such approved depository and such subject institution shall each promptly file with the Commissioner a report on such matter, providing full details:

(a) In case the approved depository is an affiliate of the subject institution.

(b) In case any person who is a director or executive officer of the approved depository or of any parent or subsidiary of the approved depository is a director or executive officer of the subject institution or of any parent or subsidiary of the subject institution.

(c) In case five percent or more of any class of the equity securities of the approved depository or of any parent of the approved depository is owned, directly or indirectly, of record or beneficially, by:

(1) The subject institution and its affiliates,individually or collectively;

(2) The directors and executive officers of the subject institution and of its parents and subsidiaries, individually or collectively;

(3) The foreign nation where the subject institution is domiciled or any person controlled by such foreign nation; or

(4) Any person who is, or is controlled by any person who is, domiciled in the foreign nation where the subject institution is domiciled.

(d) In case the subject institution or any of its affiliates is in default on an obligation which is owed to, or which secures an obligation owed to, the approved depository or any affiliate of the approved depository.

NOTE

Authority cited: Section 215, Financial Code. Reference: Sections 1705 and 1761, Financial Code.

HISTORY

1. Amendment filed 3-12-82; effective thirtieth day thereafter (Register 82, No. 11).

2. Change without regulatory effect amending section filed 8-19-97 pursuant to section 100, title 1, California Code of Regulations (Register 97, No. 34).

§10.16029. Termination.

Note • History

(a) Except as otherwise provided in Section 10.16030 of this Chapter, no approved depository of a subject institution shall cease to act as the approved depository of such subject institution, nor shall any subject institution terminate its approved depository, unless another California bank shall have qualified to act as the successor approved depository of the subject institution.

(b) No provision of this Part (other than the provisions of Subdivision (a) of this Section) shall be deemed to prohibit the approved depository of a subject institution from ceasing to act as the approved depository of such subject institution or to prohibit a subject institution from terminating its approved depository.

NOTE

Authority cited: Section 215, Financial Code. Reference: Section 1761, Financial Code.

HISTORY

1. New subsection (b) filed 3-12-82; effective thirtieth day thereafter (Register 82, No. 11).

§10.16030. Revocation of Approval.

Note • History

(a) If, after notice and a hearing, the Commissioner finds that the approved depository of a subject institution has violated or is about to violate any provision of its Agreement of Approved Depository or that there is other good cause for revoking the approval for such depository to act as the approved depository of such subject institution, the Commissioner may issue an order revoking such approval.

(b)(1) If the Commissioner finds that any of the factors set forth in Subdivision (a) of this Section is true with respect to the approved depository of a subject institution and that it is necessary for the maintenance of sound financial condition, for the protection of the interests of the creditors of such subject institution's business in the State of California, or for the protection of the public interest that the Commissioner immediately revoke the approval for such depository to act as the approved depository of the subject institution, the Commissioner may issue an order revoking such approval.

(2)(A) Within 30 days after the Commissioner issues an order pursuant to Paragraph (1) of this Subdivision (b), the approved depository to which such order is issued or the subject institution of which the depository was an approved depository may file with the Commissioner an application for a hearing on the order. If the Commissioner fails to commence such hearing within 15 business days after such application is filed with him (or within such longer period to which the approved depository or the subject institution, as the case may be, consents), the order shall be deemed rescinded. Within 30 days after the hearing, the Commissioner shall affirm, modify, or rescind the order; otherwise the order shall be deemed rescinded.

(B) Any right of an approved depository to which an order is issued under Paragraph (1) of this Subdivision (b) or of the subject institution of which such depository was an approved depository to petition for judicial review of such order shall not be affected by the failure of the approved depository or of the subject institution to apply to the Commissioner for a hearing on the order pursuant to Subparagraph (A) of this Paragraph (2).

(c) Whenever the Commissioner issues an order revoking the approval for a depository to act as the approved depository of a subject institution, the Commissioner may issue an order directing the approved depository to transfer the eligible assets which it holds for such subject institution to a successor approved depository of the subject institution.

NOTE

Authority cited: Section 215, Financial Code. Reference: Section 1761, Financial Code.

HISTORY

1. Certificate of Compliance including amendment transmitted to OAL 2-11-82 and filed 3-12-82 (Register 82, No. 11).

2. Change without regulatory effect amending section filed 8-19-97 pursuant to section 100, title 1, California Code of Regulations (Register 97, No. 34).

Subpart 3. Eligible Assets

§10.16050. Scope.

Note

This Subpart contains regulations relating to eligible assets.

NOTE

Authority cited: Section 215, Financial Code. Reference: Section 1761, Financial Code.

§10.16051. Valuation.

Note

For purposes of Financial Code Section 1761(b)(2), the market value of an eligible asset shall be determined as follows:

(a) In the case of an eligible asset which is being or is proposed to be deposited and received in or withdrawn and released from a pledge deposit, as of the current date.

(b) In the case of an eligible asset which is held in a pledge deposit and which is not being or proposed to be withdrawn and released from such pledge deposit, as of a reasonably current date. For purposes of this Subdivision (b), no determination of market value which is more than one month old shall be deemed to be as of a reasonably current date.

NOTE

Authority cited: Section 215, Financial Code. Reference: Section 1761, Financial Code.

Subpart 4. Adjusted Liabilities

§10.16075. Scope.

Note

This Subpart contains regulations relating to adjusted liabilities.

NOTE

Authority cited: Section 215, Financial Code. Reference: Section 1761, Financial Code.

§10.16076. Computation.

Note • History

In case the applicable minimum for a maintenance period is to be determined on the basis of the adjusted liabilities of a subject institution, the amount of such adjusted liabilities shall be computed as follows:

(a) Add the adjusted liabilities of the subject institution as of the close of business of each day of the computation period next preceding the maintenance period. (For purposes of this computation, the adjusted liabilities for any day on which the subject institution is not open for business shall be deemed to be the same as the adjusted liabilities as of the close of business on the next preceding day on which the subject institution was open for business.)

(b) Divide the sum determined in accordance with Subdivision (a) of this Section by the number of days in the computation period.

NOTE

Authority cited: Section 215, Financial Code. Reference: Section 1761, Financial Code.

HISTORY

1. Certificate of Compliance including amendment transmitted to OAL 2-11-82 and filed 3-12-82 (Register 82, No. 11).

§10.16077. International Banking Facility Liabilities.

Note • History

(a) In this Section, “international banking facility” has the meaning set forth in Section 204.8 of Regulation D of the Board of Governors of the Federal Reserve System (12 C.F.R. Section 204.8).

(b) For purposes of determining the adjusted liabilities of a subject institution, there shall be excluded the liabilities of any international banking facility of a California state agency or branch office of such subject institution.

NOTE

Authority cited: Section 215, Financial Code. Reference: Section 1761, Financial Code.

HISTORY

1. New section filed 3-12-82; effective thirtieth day thereafter (Register 82, No. 11).

Subpart 5. Applicable Minimum

§10.16100. Scope.

Note

This Subpart contains regulations relating to the applicable minimum.

NOTE

Authority cited: Section 215, Financial Code. Reference: Section 1761, Financial Code.

§10.16101. Amount.

Note • History

Unless the Commissioner provides otherwise:

(a) In the case of a subject institution which maintains one or more California state agencies, has one or more approved but unopened California state agencies, or has closed one or more California state agencies with respect to which it is still required to maintain eligible assets on deposit with an approved depository, the applicable minimum for any maintenance period shall be $1,000,000.

(b) In the case of a subject institution which maintains one or more California state branch offices, has one or more approved but unopened California state branch offices, or has closed one or more California state branch offices with respect to which it is still required to maintain eligible assets on deposit with an approved depository, the applicable minimum for any maintenance period shall be the greater of: (1) $2,000,000, or (2) five percent of the subject institution's adjusted liabilities computed in accordance with Section 10.16076 of this Chapter. However, if the first of such offices was established less than one year before the beginning of the maintenance period, the applicable minimum shall be not less than the greater of $2,000,000 or five percent of the amount which the subject institution estimated in its application for approval to establish such office would be the adjusted liabilities of the office at the end of the first year of operation of the office.

NOTE

Authority cited: Section 215, Financial Code. Reference: Section 1761, Financial Code.

HISTORY

1. Certificate of Compliance including amendment transmitted to OAL 2-11-82 and filed 3-12-82 (Register 82, No. 11).

2. Change without regulatory effect amending section filed 8-19-97 pursuant to section 100, title 1, California Code of Regulations (Register 97, No. 34).

3. Amendment filed 4-14-98; operative 5-14-98 (Register 98, No. 16).

§10.16102. Increase or Decrease in Applicable Minimum.

Note

If the applicable minimum for a subject institution changes from one maintenance period (hereafter in this Section referred to as the “old maintenance period”) to the next maintenance period (hereafter in this section referred to as the “new maintenance period”):

(a) In case the applicable minimum increases and the applicable minimum for the new maintenance period exceeds the total value of the eligible assets which the subject institution maintains in the pledge deposit, the subject institution shall deposit in the pledge deposit additional eligible assets of sufficient value to raise the total value of the eligible assets in the pledge deposit to an amount which equals or exceeds the applicable minimum for the new maintenance period and the subject institution shall make such deposit before the close of business on the last day of the old maintenance period so that the subject institution will be in compliance with Financial Code Section 1761(c) when the new maintenance period begins.

(b) In case the applicable minimum decreases and the applicable minimum for the new maintenance period is less than the total value of the eligible assets which the subject institution maintains in the pledge deposit, the subject institution may not withdraw eligible assets from the pledge deposit so as to reduce the total value of the eligible assets in the pledge deposit to an amount which is less than the applicable minimum for the old maintenance period until the old maintenance period has ended and the new maintenance period begins.

NOTE

Authority cited: Section 215, Financial Code. Reference: Section 1761, Financial Code.

Subpart 6. Depositing, Receiving, and Holding Eligible Assets

§10.16125. Scope.

Note

This Subpart contains regulations relating to the depositing, receiving, and holding of eligible assets.

NOTE

Authority cited: Section 215, Financial Code. Reference: Section 1761, Financial Code.

§10.16126. Multiple Pledge Deposits.

Note

No subject institution shall maintain pledge deposits with more than one approved depository at the same time.

NOTE

Authority cited: Section 215, Financial Code. Reference: Section 1761, Financial Code.

§10.16127. Non-Eligible Assets.

Note • History

(a) No subject institution shall deposit, nor shall the approved depository of any subject institution receive, in a pledge deposit any asset other than an eligible asset.

(b) No subject institution shall maintain in a pledge deposit any asset other than an eligible asset.

NOTE

Authority cited: Section 215, Financial Code. Reference: Section 1761, Financial Code.

HISTORY

1. Certificate of Compliance including amendment of NOTE transmitted to OAL 2-11-82 and filed 3-12-82 (Register 82, No. 11).

§10.16128. Documentation.

Note • History

Whenever a subject institution deposits, and the approved depository of such subject institution receives, an eligible asset in a pledge deposit, the subject institution shall provide to the approved depository, and the approved depository shall obtain from the subject institution, such documentation as may be necessary to enable the approved depository to transfer title to the eligible asset to the Commissioner pursuant to Financial Code Section 1761(h).

NOTE

Authority cited: Section 215, Financial Code. Reference: Section 1761, Financial Code.

HISTORY

1. Change without regulatory effect amending section filed 8-19-97 pursuant to section 100, title 1, California Code of Regulations (Register 97, No. 34).

§10.16129. Segregation.

Note

Whenever the approved depository of a subject institution holds eligible assets in a pledge deposit, it shall keep such eligible assets separate and apart from other assets held by it and shall segregate the eligible assets on its books and account from other assets held by it. However, the approved depository may deposit and maintain the eligible assets in a book-entry account with the Federal Reserve System.

NOTE

Authority cited: Section 215, Financial Code. Reference: Section 1761, Financial Code.

§10.16130. Examination.

Note • History

The approved depository of a subject institution shall permit the Commissioner to examine during regular business hours any eligible assets which it holds in a pledge deposit and any records relating to such eligible assets and pledge deposit.

NOTE

Authority cited: Section 215, Financial Code. Reference: Sections 215 and 1761, Financial Code.

HISTORY

1. Certificate of Compliance including amendment of NOTE transmitted to OAL 2-11-82 and filed 3-12-82 (Register 82, No. 11).

2. Change without regulatory effect amending section filed 8-19-97 pursuant to section 100, title 1, California Code of Regulations (Register 97, No. 34).

§10.16131. Deficiencies--Subject Institution.

Note • History

(a) A subject institution shall monitor its pledge deposit at least once each month to ensure that it is in compliance with the requirements of Financial Code Section 1761 and this Part, including the requirements that all assets in such pledge deposit be eligible assets and that the total value of the eligible assets in the pledge deposit be no less than the applicable minimum.

(b) Whenever a subject institution finds that the total value of the eligible assets in its pledge deposit is less than the applicable minimum, it shall immediately report the matter to the Commissioner by telephone, immediately deposit in its pledge deposit eligible assets having a value sufficient to correct the deficiency, and promptly thereafter serve a written report regarding the matter on the Commissioner.

(1) In case, after deducting the value of such non-eligible asset, the total value of the eligible assets in the pledge deposit is less than the applicable minimum, the subject institution shall comply with the provisions of Subdivision (b) of this Section and, in addition, shall promptly withdraw the non-eligible asset from the pledge deposit.

(2) In any other case, the subject institution shall promptly withdraw the non-eligible asset from the pledge deposit.

NOTE

Authority cite: Section 215, Financial Code. Reference: Sections 1705 and 1761, Financial Code.

HISTORY

1. Change without regulatory effect amending section filed 8-19-97 pursuant to section 100, title 1, California Code of Regulations (Register 97, No. 34).

2. Amendment of subsection (a) filed 4-14-98; operative 5-14-98 (Register 98, No. 16).

§10.16132. Deficiencies--Approved Depository.

Note • History

Whenever an officer or employee of the approved depository of a subject institution, acting in the course and scope of his or her employment, obtains actual knowledge that the total value of the eligible assets in the pledge deposit for such subject institution is less than the applicable minimum, such approved depository shall immediately report the matter to the Commissioner by telephone. In addition, promptly thereafter, the approved depository shall serve a written report regarding the matter on the Commissioner and simultaneously serve a copy of such written report on the subject institution.

NOTE

Authority cited: Section 215, Financial Code. Reference: Sections 1705 and 1761, Financial Code.

HISTORY

1. Change without regulatory effect amending section filed 8-19-97 pursuant to section 100, title 1, California Code of Regulations (Register 97, No. 34).

Subpart 7. Withdrawal and Release of Eligible Assets--Blanket Approval

§10.16150. Scope.

Note • History

NOTE

Authority cited: Section 215, Financial Code. Reference: Section 1761, Financial Code.

HISTORY

1. Repealer of subpart 7 (sections 10.16150-10.16157) and section filed 4-7-97; operative 4-7-97 pursuant to Government Code section 11343.4(d) (Register 97, No. 15).

§10.16151. Alternative.

Note • History

NOTE

Authority cited: Section 215, Financial Code. Reference: Section 1761, Financial Code.

HISTORY

1. Amendment filed 3-12-82; effective thirtieth day thereafter (Register 82, No. 11).

2. Repealer filed 4-7-97; operative 4-7-97 pursuant to Government Code section 11343.4(d) (Register 97, No. 15).

§10.16152. Substitution.

Note • History

NOTE

Authority cited: Section 215, Financial Code. Reference: Section 1761, Financial Code.

HISTORY

1. Repealer filed 4-7-97; operative 4-7-97 pursuant to Government Code section 11343.4(d) (Register 97, No. 15).

§10.16153. Reliance on Report Determination of Applicable Minimum by Approved Depository.

Note • History

NOTE

Authority cited: Section 215, Financial Code. Reference: Section 1761, Financial Code.

HISTORY

1. Amendment filed 3-12-82; effective thirtieth day thereafter (Register 82, No. 11).

2. Repealer filed 4-7-97; operative 4-7-97 pursuant to Government Code section 11343.4(d) (Register 97, No. 15).

§10.16154. Blanket Approval.

Note • History

NOTE

Authority cited: Section 215, Financial Code. Reference: Section 1761, Financial Code.

HISTORY

1. Amendment filed 3-12-82; effective thirtieth day thereafter (Register 82, No. 11).

2. Repealer filed 4-7-97; operative 4-7-97 pursuant to Government Code section 11343.4(d) (Register 97, No. 15).

§10.16155. Election.

Note • History

NOTE

Authority cited: Section 215, Financial Code. Reference: Sections 1705 and 1761, Financial Code.

HISTORY

1. Renumbering of Section 10.16155 to Section 10.16156 and new Section 10.16155 filed 3-12-82; effective thirtieth day thereafter (Register 82, No. 11).

2. Repealer filed 4-7-97; operative 4-7-97 pursuant to Government Code section 11343.4(d) (Register 97, No. 15).

§10.16156. Certification Regarding Withdrawal and Release.

Note • History

NOTE

Authority cited: Section 215, Financial Code. Reference: Sections 1706 and 1761, Financial Code.

HISTORY

1. Renumbering of Section 10.16156 to Section 10.16157 and renumbering and amendment of former Section 10.16155 to Section 10.16156 filed 3-12-82; effective thirtieth day thereafter (Register 82, No. 11).

2. Repealer filed 4-7-97; operative 4-7-97 pursuant to Government Code section 11343.4(d) (Register 97, No. 15).

§10.16157. Monitoring Compliance and Quarterly Certification.

Note • History

NOTE

Authority cited: Section 215, Financial Code. Reference: Section 1761, Financial Code.

HISTORY

1. Renumbering and amendment of former Section 10.16156 to Section 10.16157 filed 3-12-82; effective thirtieth day thereafter (Register 82, No. 11.

2. Repealer filed 4-7-97; operative 4-7-97 pursuant to Government Code section 11343.4(d) (Register 97, No. 15).

Subpart 8. Withdrawal and Release of Eligible Assets--Blanket Approval

§10.16175. Scope.

Note

This Subpart grants blanket approval for the withdrawal and release of eligible assets from a pledge deposit subject to compliance with specified requirements.

NOTE

Authority cited: Section 215, Financial Code. Reference: Section 1761, Financial Code.

§10.16176. Alternative.

Note • History

NOTE

Authority cited: Section 215, Financial Code, Reference Section 1761, Financial Code.

HISTORY

1. Certificate of Compliance including amendment transmitted to OAL 2-11-82 and filed 3-12-82 (Register 82, No. 11).

2. Amendment filed 3-12-82; effective thirtieth day thereafter (Register 82, No. 11).

3. Repealer filed 4-7-97; operative 4-7-97 pursuant to Government Code section 11343.4(d) (Register 97, No. 15).

§10.16177. Blanket Approval.

Note

Pursuant to Financial Code Section 1761(d), approval is granted for a subject institution to withdraw, and for the approved depository of such subject institution to release, eligible assets from a pledge deposit during a maintenance period, provided that the subject institution and such approved depository comply with the provisions of Sections 10.16178 and 10.16179 of this Chapter.

NOTE

Authority cited: Section 215, Financial Code. Reference: Section 1761, Financial Code.

§10.16178. Deposit and Receipt of Eligible Assets of Equal or Greater Value.

Note • History

At the same time as a subject institution withdraws, and the approved depository of such subject institution releases, an eligible asset from a pledge deposit under the blanket approval granted in Section 10.16177 of this Chapter, the subject institution shall deposit, and the approved depository shall receive, in the pledge deposit an eligible asset having a value at least equal to the value of the eligible asset withdrawn and released.

NOTE

Authority cited: Section 215, Financial Code. Reference: Section 1761, Financial Code.

HISTORY

1. Amendment filed 3-12-82; effective thirtieth day thereafter (Register 82, No. 11).

§10.16179. Certification.

Note • History

Before the approved depository of a subject institution releases an eligible asset from a pledge deposit, under the blanket approval granted in Section 10.16177 of this Chapter, two officers of the approved depository shall make a certification in duplicate that the eligible asset deposited and received in the pledge deposit has a value at least equal to the value of the eligible asset withdrawn and released. The approved depository shall retain one copy of such certification for a period of not less than two years after the release. Concurrently with or promptly after the release, the approved depository shall serve the other copy of the certification on the subject institution, and the subject institution shall retain such other copy for a period of not less than two years after the release.

NOTE

Authority cited: Section 215, Financial Code. Reference: Sections 1706 and 1761, Financial Code.

HISTORY

1. Amendment filed 3-12-82; effective thirtieth day thereafter (Register 82, No. 11).

Subpart 9. Withdrawal and Release of Eligible Assets--Specific Approval

§10.16200. Scope.

Note

This Subpart contains regulations relating to specific approval for the withdrawal and release of eligible assets from a pledge deposit.

NOTE

Authority cited: Section 215, Financial Code. Reference: Section 1761, Financial Code.

§10.16201. Application.

Note • History

An application by a subject institution for specific approval to withdraw an eligible asset from a pledge deposit shall be in the form of Department Form 93, shall contain the information called for in such Form and in the instructions for the Form, shall be signed as required in the Form and instructions, and shall be verified and certified if and as required in the Form and instructions.

NOTE

Authority cited: Section 215, Financial Code. Reference: Sections 1703 and 1761, Financial Code.

HISTORY

1. Amendment filed 3-12-82; effective thirtieth day thereafter (Register 82, No. 11).

§10.16202. Conditions of Specific Approval.

Note • History

Any specific approval which the Commissioner grants pursuant to Financial Code Section 1761(d) for a subject institution to withdraw and for the approved depository of such subject institution to release, an eligible asset from a pledge deposit shall, unless otherwise provided in such specific approval, be subject to the following conditions:

(a) That no other eligible asset shall have been withdrawn or released from the pledge deposit during the period beginning on the date of the application called for in Section 10.16201 of this Chapter and ending at the time of the withdrawal and release authorized under the specific approval.

(b) That the specific approval shall expire at the end of the maintenance period during which it is issued.

NOTE

Authority cited: Section 215, Financial Code. Reference: Section 1761, Financial Code.

HISTORY

1. Repealer of Section 10.16202 and renumbering and amendment of former Section 10.16203 to Section 10.16202 filed 3-12-82; effective thirtieth day thereafter (Register 82, No. 11). For prior history, see Register 81, No. 44.

2. Change without regulatory effect amending section filed 8-19-97 pursuant to section 100, title 1, California Code of Regulations (Register 97, No. 34).

§10.16203. Conditions of Specific Approval.

Note • History

NOTE

Authority cited: Section 215, Financial Code. Reference: Section 1761, Financial Code.

HISTORY

1. Renumbering and amendment of Section 10.16203 to Section 10.16202 filed 3-12-82; effective thirtieth day thereafter (Register 82, No. 11).

Subpart 10. Reports

§10.16225. Scope.

Note

This Subpart contains regulations relating to reports which a subject institution and the approved depository of a subject institution are required to make regarding a pledge deposit.

NOTE

Authority cited: Section 215, Financial Code. Reference: Sections 1705 and 1761, Financial Code.

§10.16226. Report Regarding Applicable Minimum.

Note • History

(a) This section does not apply to any subject institution for which the applicable minimum is fixed by Section 10.16101(a) of this Chapter.

(b)(1) Not less than ten days before each maintenance period, a subject institution shall serve on the Commissioner a report which is in the form of Department Form 95, contains the information called for in such Form and in the instructions for the Form, is signed as required in the Form and instructions, and is verified if and as required in the Form and instructions.

(2) In case a subject institution, in making the report called for in Paragraph (1) of this Subdivision (a), determines the applicable minimum on the basis of its adjusted liabilities, such subject institution shall retain the work papers for such report for a period of not less than two years.

(c) Whenever a subject institution serves on the Commissioner the report called for in Subdivision (b) of this Section, such subject institution shall serve on its approved depository an executed copy of such report (including any required verification). The approved depository shall retain such executed copy for a period of not less than two years.

NOTE

Authority cited: Section 215, Financial Code. Reference: Sections 1705 and 1761, Financial Code.

HISTORY

1. Amendment filed 3-12-82; effective thirtieth day thereafter (Register 82, No. 11).

2. Change without regulatory effect amending section filed 8-19-97 pursuant to section 100, title 1, California Code of Regulations (Register 97, No. 34).

§10.16227. Quarterly Report.

Note • History

(a) Not more than 30 days after the end of each maintenance period, the approved depository of a subject institution shall file with the Commissioner a report which is verified by an officer of such approved depository and which contains the following information:

(1) Describe each eligible asset in the pledge deposit as of the end of the maintenance period.

(2) State the total value of the eligible assets in the pledge deposit as of the close of business on the last day of the maintenance period.

(b) Whenever the approved depository of a subject institution files the report called for in Subdivision (a) of this Section with the Commissioner, such approved depository shall serve a copy of such report on such subject institution. The subject institution shall promptly review the report; and, in case the subject institution finds any error in the report, the subject institution shall promptly file with the Commissioner a report which is verified by an officer of the subject institution and which corrects such error.

NOTE

Authority cited: Section 215, Financial Code. Reference: Sections 1705 and 1761, Financial Code.

HISTORY

1. Change without regulatory effect amending section filed 8-19-97 pursuant to section 100, title 1, California Code of Regulations (Register 97, No. 34).

2. Amendment of subsection (a), repealer of subsection (a)(2), subsection renumbering, and amendment of newly designated subsection (a)(2) and subsection (b) filed 4-14-98; operative 5-14-98 (Register 98, No. 16).

Article 7. Acquiring and Holding Equity Securities of Corporations

Subarticle 1. (Reserved)

Subarticle 2. Investing in Corporations Under Financial Code Section 772

Part 1. General Provisions

§10.19050. Definition of “Subject Institution” and Scope.

Note • History

(a) In this Subarticle, “subject institution” means:

(1) Any California state bank; or

(2) Any foreign (other nation) bank which is licensed under Article 3 (commencing with Section 1750) of Chapter 13.5 of the Banking Law to maintain one or more California state depositary agencies or branch offices, with respect to such agencies or branch offices.

(b) This Subarticle contains regulations relating to investments by subject institutions in corporations under Financial Code Section 772.

NOTE

Authority cited: Section 215, Financial Code. Reference: Section 772, Financial Code.

HISTORY

1. New Article 7 (Sections 10.19050-10.19143, not consecutive) filed 12-2-85; effective thirtieth day thereafter (Register 85, No. 49).

§10.19051. Other Definitions.

Note • History

(a) In this Subarticle:

(1) “Eligible,” when used with respect to a subject institution, means that the Commissioner has granted eligibility to the subject institution for purposes of this Subarticle and that the eligibility remains in full force and effect.

(2) “Gross capital” means the sum of shareholders' equity, capital notes, and allowance for possible loan losses.

(3) “Interim,” when used with respect to an investment in a corporation which a subject institution owns, means that the investment was made by the subject institution under Financial Code Section 772 between January 1, 1983 and the effective date of Part 4 (commencing with Section 10.19120) of this Subarticle.

(4) To “invest,” when used with respect to a corporation, means:

(A) To invest in equity securities of the corporation;

(B) To become or be the owner of any other securities of the corporation;

(D) To become or be an obligee of the corporation with respect to the payment of money.

(5) To “invest in equity securities,” when used with respect to a corporation, means:

(A) To become or be the owner of any equity securities of the corporation;

(B) To make a contribution to the capital of the corporation; or

(C) To effect any transaction which constitutes in substance, though not in form, becoming the owner of equity securities of the corporation or making a contribution to the capital of the corporation.

(6) “Pre-1983,” when used with respect to an investment in a corporation which a subject institution owns, means that the investment was made by the subject institution under Financial Code Section 772, as in effect before January 1, 1983.

(7) “Regulated corporation” means any corporation in which a subject institution invests under Financial Code Section 772 and which the subject institution controls, unless the Commissioner designates the corporation as a non-regulated corporation.

(8) “Transition date” means that date which is three months after the effective date of Part 4 (commencing with Section 10.19120) of this Subarticle or, if that date is not a business day, the next date which is a business day.

(b) For purposes of this Subarticle, a subject institution shall be deemed to “control” a corporation in which it invests under Financial Code Section 772 in any of the following cases:

(1) In case the subject institution owns, directly or indirectly, a majority of the voting power of the corporation.

(2) In case the subject institution owns, directly or indirectly, 25 percent or more (but less than a majority) of the voting power of the corporation, unless the Commissioner determines, upon application, that the subject institution does not control the corporation.

(3) In case the Commissioner determines, with the consent of the subject institution and the corporation, that it is appropriate or necessary that the subject institution be treated as controlling the corporation, and that the corporation be treated as controlled by the subject institution, for purposes of Part 3 (commencing with Section 10.19090) of this Subarticle.

NOTE

Authority cited: Section 215, Financial Code. Reference: Section 772, Financial Code.

HISTORY

1. Change without regulatory effect amending section filed 8-19-97 pursuant to section 100, title 1, California Code of Regulations (Register 97, No. 34).

§10.19052. Calculation of Total Amount Invested.

Note

In this Subarticle, for purposes of calculating the total amount invested in a corporation by a subject institution, there shall be included not only amounts invested in the corporation by the subject institution under Financial Code Section 772 but also any amounts otherwise invested in the corporation by the subject institution. Thus, there shall be included all securities (both equity and non-equity securities) of the corporation owned by the subject institution, all contributions to the capital of the corporation made by the subject institution, all loans made or credit otherwise extended by the subject institution to or for the benefit of the corporation, and any other obligations of the corporation to pay money to the subject institution.

NOTE

Authority cited: Section 215, Financial Code. Reference: Section 772, Financial Code.

§10.19053. Not Applicable to Specified Cases.

Note

(a) Neither Financial Code Section 772 nor this Subarticle applies to a case where a subject institution invests in the equity securities of a corporation under any other statute or regulation.

(b) Neither Financial Code Section 772 nor this Subarticle applies to a case where a subject institution makes an investment in a corporation as trustee or agent for another and where the subject institution has no beneficial interest in the investment.

NOTE

Authority cited: Section 215, Financial Code. Reference: Section 772, Financial Code.

§10.19054. Relationships to Other Provisions of Law.

Note

(a) Nothing in Financial Code Section 772 or in this Subarticle shall be deemed to prohibit a subject institution from, or to limit a subject institution in, making a loan to, otherwise extending credit to, investing in the non-equity securities of, or otherwise transacting business with, any corporation other than a corporation in which the subject institution has invested under Financial Code Section 772.

(b) Nothing in this Subarticle shall be deemed to exempt a subject institution from any prohibition or restriction applicable under any other law. For example, no limitation imposed by this Subarticle on the amount of obligations of a corporation that a subject institution may own shall be deemed to exempt the subject institution from the restrictions of Financial Code Section 1221.

NOTE

Authority cited: Section 215, Financial Code. Reference: Section 772, Financial Code.

§10.19055. Violations.

Note • History

If the Commissioner finds that any subject institution or any regulated corporation has violated any provision of this Subarticle, the Commissioner may issue such orders as may be appropriate or necessary in the circumstances, including an order ordering the subject institution or the regulated corporation to cease and desist from the violation, an order ordering the subject institution or the regulated corporation to take affirmative action to correct the conditions resulting from the violation, or an order ordering the subject institution to divest itself of its investment in the regulated corporation.

NOTE

Authority cited: Section 215, Financial Code. Reference: Sections 215 and 772, Financial Code.

HISTORY

1. Change without regulatory effect amending section filed 8-19-97 pursuant to section 100, title 1, California Code of Regulations (Register 97, No. 34).

§10.19056. Permit Reform Act of 1981.

Note • History

The time periods for processing an application for eligibility or an application for specific authorization under this Subarticle are as follows:

(a) The initial review period (i.e., the period dating from receipt of an application, within which the Commissioner must inform the applicant in writing either that the application is complete and is accepted for filing or that the application is deficient and what specific information is required to complete it) is two weeks.

(b) The decision period (i.e., the period dating from the filing of a completed application, within which the Commissioner must reach a decision) is two months.

NOTE

Authority cited: Section 15376, Government Code. Reference: Section 15376, Government Code.

HISTORY

1. Change without regulatory effect amending section filed 8-19-97 pursuant to section 100, title 1, California Code of Regulations (Register 97, No. 34).

Part 2. Authorization to Invest

Subpart 1. General Provisions

§10.19060. Scope.

Note

This Part contains regulations relating to authorization for a subject institution to invest in a corporation under Financial Code Section 772.

NOTE

Authority cited: Section 215, Financial Code. Reference: Section 772, Financial Code.

§10.19061. Requirement of Authorization.

Note

(a) No subject institution shall invest in a corporation under Financial Code Section 772 except as authorized in this Subarticle.

(b) In this Subarticle, there are two types of authorization for investing in a corporation under Financial Code Section 772; namely, general authorization and specific authorization. In order to invest in a corporation under Financial Code Section 772 pursuant to a general authorization, a subject institution must be eligible, and the investment must comply with the requirements of the general authorization. If a subject institution is not eligible, the subject institution must apply for and obtain specific authorization in order to invest in a corporation under Financial Code Section 772. Also, if a subject institution is eligible but an investment that it proposes to make in a corporation under Financial Code Section 772 does not meet the requirements of any general authorization, the subject institution must apply for and obtain specific authorization in order to make the investment. An eligible subject institution need not and may not apply for specific authorization for an investment under Financial Code Section 772 if the investment complies with the requirements of a general authorization; in such a case, the subject institution may make the investment pursuant to the general authorization.

NOTE

Authority cited: Section 215, Financial Code. Reference: Section 772, Financial Code.

Subpart 2. General Authorization

§10.19070. Scope.

Note

This Subpart contains regulations relating to general authorization for a subject institution to invest in a corporation under Financial Code Section 772.

NOTE

Authority cited: Section 215, Financial Code. Reference: Section 772, Financial Code.

§10.19071. Eligibility.

Note • History

(a) An application by a subject institution for eligibility shall contain the following information:

(1) Briefly describe the lines of business of the corporations in which the subject institution proposes to invest pursuant to the general authorization set forth in Section 10.19072 of this Chapter.

(2) State the approximate amount which the subject institution proposes to invest in corporations in each of the lines of business.

(3) Confirm that the board of the subject institution has adopted a policy setting forth guidelines for investing in corporations under Financial Code Section 772 and for managing such investments.

(b)(1) An application by a subject institution for eligibility shall be deemed to be approved by the Commissioner, and eligibility granted to the subject institution, on the 16th day after the application is filed with the Commissioner unless the Commissioner earlier decides the application, requests the applicant to provide additional information, or extends the period for deciding the application. If, before the 16th day after the application is filed with the Commissioner, the Commissioner requests the applicant to provide additional information, the application shall be deemed to be approved by the Commissioner, and eligibility granted to the subject institution, on the 31st day after the additional information is received unless the Commissioner earlier decides the application or extends the period for deciding the application.

(2) For purposes of paragraph (1) of this subdivision (b), an application shall be deemed to be filed with the Commissioner on the date when the application, substantially in compliance with the requirements of subdivision (a) of this section and other applicable provisions of this Chapter, is received by the Commissioner.

(c) As an administrative standard, the Commissioner will approve an application by a subject institution for eligibility if the Commissioner finds both of the following:

(1) That the capital, assets, management, earnings, and liquidity of the subject institution are, on a composite basis, satisfactory.

(2) That the subject institution has sufficient managerial resources to make investments pursuant to the general authorization set forth in Section 10.19072 of this Chapter and to manage such investments.

(d)(1) The Commissioner may by order suspend or revoke the eligibility of a subject institution if the Commissioner finds any of the following:

(A) That the capital, assets, management, earnings, and liquidity of the subject institution are on a composite basis, or that any of such factors is on an individual basis, not satisfactory.

(B) That it would be unsafe or unsound for the subject institution to make additional investments in equity securities of corporations pursuant to the general authorization set forth in Section 10.19072 of this Chapter.

(2) The eligibility of a subject institution shall be automatically revoked upon the happening of any of the following events:

(A) If the Commissioner issues an order against the subject institution under Financial Code Section 662, 1912, or 1913.

(B) If the Commissioner finds on the basis of an examination of the subject institution, and informs the subject institution in writing, that the subject institution is in unsatisfactory condition.

NOTE

Authority cited: Section 215, Financial Code. Reference: Section 772, Financial Code.

HISTORY

1. Change without regulatory effect amending section filed 8-19-97 pursuant to section 100, title 1, California Code of Regulations (Register 97, No. 34).

§10.19072. General Authorization.

Note • History

An eligible subject institution may invest in the equity securities of a corporation under Financial Code Section 772 if all of the following requirements are met:

(a)(1) At the time of the investment in the equity securities of the corporation and, unless the Commissioner provides otherwise in any particular case, at all times thereafter so long as the subject institution owns the equity securities, no affiliate of the subject institution nor any individual who is a director executive officer of the subject institution or of any affiliate of the subject institution shall be a ten-percent (including associates) equity security owner of the corporation.

(2) None of the consideration paid by the subject institution for the equity securities of the corporation shall be paid, directly or indirectly, to any affiliate of the subject institution, any individual who is a director or executive officer of the subject institution or of any affiliate of the subject institution, or to any associate of any of the foregoing persons.

(b) Unless the Commissioner provides otherwise in any particular case, at the time of the investment in the equity securities of the corporation and taking the investment into account:

(1) The total amount invested by the subject institution in the equity securities of the corporation shall not exceed ten percent of the gross capital of the subject institution.

(2) The total amount invested by the subject institution in the corporation shall not exceed 25 percent of the gross capital of the subject institution.

(3) The total amount invested by the subject institution in the equity securities of all corporations under Financial Code Section 772 shall not exceed 25 percent of the gross capital of the subject institution.

(c) Unless the Commissioner provides otherwise in any particular case, the subject institution shall not make any investment in the corporation other than the investment in the equity securities of the corporation which is made pursuant to the general authorization set forth in this Section if, at the time of the other investment and taking the other investment into account, the total amount invested by the subject institution in the corporation would exceed 25 percent of the gross capital of he subject institution.

(d) In case the corporation is a bank, bank holding company, savings and loan association, or savings and loan holding company, unless the Commissioner provides otherwise in any particular case, at the time of the investment in the equity securities of the corporation, taking the investment into account, and at all times thereafter so long as the subject institution owns the securities, the subject institution shall not be a five percent (including associates) equity security owner of the corporation.

(e) Within 30 days after investing in the equity securities of the corporation, if the corporation is a regulated corporation or if the total amount invested by the subject institution in the equity securities of the corporation is three percent or more of the gross capital of the subject institution, the subject institution shall make a Report of Investment in Corporation. The Report of Investment in Corporation shall be in the form of Department Form 702, shall contain the information called for in the Form and in the instructions for the Form, shall be signed as required in the Form and instructions, and shall be verified if and as required in the Form and instructions. If the corporation is a regulated corporation, the subject institution shall file the Report of Investment in Corporation with the Commissioner within 30 days after investing in the equity securities of the corporation. If the corporation is not a regulated corporation, the subject institution shall retain the Report of Investment in Corporation in its records for a period of not less than two years.

NOTE

Authority cited: Section 215, Financial Code. Reference: Sections 772, 1705, 1934, and 1938, Financial Code.

HISTORY

1. Change without regulatory effect amending section filed 8-19-97 pursuant to section 100, title 1, California Code of Regulations (Register 97, No. 34).

§10.19073. General Authorization Not Applicable to Specified Transactions.

Note

(a) The general authorization set forth in Section 10.19072 of this Chapter shall not be deemed to authorize a subject institution to accept any equity securities of a corporation as payment, directly or indirectly, on account of the principal of any loan or other extension of credit.

(b) The general authorization set forth in Section 10.19072 of this Chapter shall not be deemed to authorize a subject institution to acquire for consideration any rights, warrants, or options to subscribe for or purchase equity securities of a corporation, except in the following cases:

(1) In case the rights, warrants, or options are attached to, or purchased in units with, shares or debt securities.

(2) In case the subject institution already owns or is entitled to receive rights, warrants, or options to subscribe for or purchase either a fractional unit of an equity security or one or more whole units and a fractional unit, and the rights, warrants, or options which are acquired for consideration are necessary to enable the subject institution to subscribe for or purchase either one whole unit or one additional whole unit, as the case may be, of the equity security.

(3) In case the subject institution acquires the rights, warrants, or options as consideration for lending money or otherwise extending credit to or for the benefit of the corporation or an affiliate of the corporation. However, this paragraph (3) does not apply to any case described in subdivision (a) of this section.

NOTE

Authority cited: Section 215, Financial Code. Reference: Section 772, Financial Code.

Subpart 3. Specific Authorization

§10.19080. Scope.

Note

This Subpart contains regulations relating to specific authorization for a subject institution to invest in a corporation under Financial Code Section 772.

NOTE

Authority cited: Section 215, Financial Code. Reference: Section 772, Financial Code.

§10.19081. Specific Authorization.

Note • History

A subject institution may invest in a corporation under Financial Code Section 772 if it first obtains specific authorization for the investment from the Commissioner.

NOTE

Authority cited: Section 215, Financial Code. Reference: Section 772, Financial Code.

HISTORY

1. Change without regulatory effect amending section filed 8-19-97 pursuant to section 100, title 1, California Code of Regulations (Register 97, No. 34).

§10.19082. Application.

Note

An application for specific authorization for a subject institution to invest in a corporation under Financial Code Section 772 shall be in the form of Department Form 700, shall contain the information called for in the Form and in the instructions for the Form, shall be signed as required in the Form and instructions, and shall be verified if and as required in the Form and instructions.

NOTE

Authority Cited: Section 215, Financial Code. Reference: Section 772, Financial Code.

§10.19083. Automatic Approval.

Note • History

(a) An application for specific authorization for a subject institution to invest in a corporation under Financial Code Section 772 shall be deemed approved, and the specific authorization granted, on the 31st day after the application is filed with the Commissioner unless the Commissioner earlier decides the application or extends the period for deciding the application.

(b) For purposes of subdivision (a) of this section, an application shall be deemed to be filed with the Commissioner on the date when the application, substantially in compliance with the requirements of Section 10.19082 of this Chapter and other applicable provisions of this Chapter, is received by the Commissioner. However, if, before the application is deemed approved under subdivision (a) of this section, the Commissioner requests the applicant to provide additional material, the application shall not be deemed to be filed until the additional material is received by the Commissioner.

NOTE

Authority cited: Section 215, Financial Code. Reference: Section 772, Financial Code.

HISTORY

1. Change without regulatory effect amending section filed 8-19-97 pursuant to section 100, title 1, California Code of Regulations (Register 97, No. 34).

§10.19084. Administrative Standard.

Note • History

As an administrative standard, the Commissioner will approve an application for specific authorization for a subject institution to invest in a corporation under Financial Code Section 772 unless the Commissioner finds any of the following:

(a) That the capital, assets, management, earnings, and liquidity of the subject institution are, on a composite basis, unsatisfactory.

(b) That the subject institution does not have sufficient financial or managerial resources to make and manage the investment.

NOTE

Authority cited: Section 215, Financial Code. Reference: Section 772, Financial Code.

HISTORY

1. Change without regulatory effect amending section filed 8-19-97 pursuant to section 100, title 1, California Code of Regulations (Register 97, No. 34).

§10.19085. Expiration.

History

Any specific authorization granted for a subject institution to invest in a corporation under Financial Code Section 772 shall expire six months after the date of grant, unless the subject institution makes the investment within such time period or unless the Commissioner extends the time period. However, a specific authorization for a subject institution to invest in a corporation by means of exercising a right, warrant, or option to subscribe for or purchase securities of the corporation shall not expire until the right, warrant, or option expires.

HISTORY

1. Change without regulatory effect amending section filed 8-19-97 pursuant to section 100, title 1, California Code of Regulations (Register 97, No. 34).

Part 3. Requirements and Restrictions

Subpart 1. General Provisions

§10.19090. Scope.

Note

This Part contains regulations relating to requirements and restrictions applicable to a corporation in which a subject institution invests under Financial Code Section 772 and to the subject institution.

NOTE

Authority cited: Section 215, Financial Code. Reference: Section 772, Financial Code.

§10.19091. Exemptions.

Note • History

The Commissioner may exempt any corporation or subject institution from any provision of this Part if the Commissioner finds that the applicability of the provision is either not necessary or not appropriate in the circumstances.

NOTE

Authority cited: Section 215, Financial Code. Reference: Section 772, Financial Code.

HISTORY

1. Change without regulatory effect amending section filed 8-19-97 pursuant to section 100, title 1, California Code of Regulations (Register 97, No. 34).

§10.19092. Valuation.

Note

(a) A subject institution which has invested in the equity securities of a corporation under Financial Code Section 772 shall keep and maintain such records as may be necessary to show the current value of the equity securities.

(b) Subdivision (a) of this section does not apply to any equity security for which bid, asked, or sale prices are published regularly in The Wall Street Journal.

NOTE

Authority cited: Section 215, Financial Code. Reference: Sections 772, 1706 and 1936, Financial Code.

Subpart 2. Regulated Corporations

§10.19100. Scope.

Note

This Subpart contains regulations relating to requirements and restrictions applicable to a regulated corporation and its controlling subject institution.

NOTE

Authority cited: Section 215, Financial Code. Reference: Section 772, Financial Code.

§10.19101. Responsibility of Controlling Subject Institution.

Note

A subject institution shall use its best efforts to ensure that each of its regulated corporations complies with all applicable provisions of this Subpart (including all provisions of law made applicable to the regulated corporations by this Subpart).

NOTE

Authority cited: Section 215, Financial Code. Reference: Section 772, Financial Code.

§10.19102. Agreement.

Note • History

Except as otherwise provided in Sections 10.19133, 10.19141, and 10.19142 of this Chapter, before a subject institution invests in a regulated corporation under Financial Code Section 772, the regulated corporation shall file with the Commissioner an Agreement in the form of Department Form 704, completed and signed in accordance with the instructions for the Form.

NOTE

Authority cited: Section 215, Financial Code. Reference: Section 772, Financial Code.

HISTORY

1. Change without regulatory effect amending section filed 8-19-97 pursuant to section 100, title 1, California Code of Regulations (Register 97, No. 34).

§10.19103. Appointment of Commissioner as Agent for Service of Process.

Note • History

Except as otherwise provided in Sections 10.19133, 10.19141, and 10.19142 of this Chapter, before a subject institution invests in a regulated corporation under Financial Code Section 772, the regulated corporation shall file with the Commissioner an Appointment of Commissioner of Financial Institutions as Agent for Service of Process in the form of Department Form 706, completed and signed in accordance with the instructions for the Form.

NOTE

Authority cited: Section 215, Financial Code. Reference: Section 772, Financial Code.

HISTORY

1. Change without regulatory effect amending section heading and section filed 8-19-97 pursuant to section 100, title 1, California Code of Regulations (Register 97, No. 34).

§10.19104. Examination.

Note • History

A regulated corporation shall be subject to examination by the Commissioner in the same manner as its controlling subject institution under Financial Code Sections 1901 and 1907 to 1909, inclusive, and the controlling subject institution shall pay for any such examination in accordance with Financial Code Sections 1901 and 1907.

NOTE

Authority cited: Section 215, Financial Code. Reference: Section 772, Financial Code.

HISTORY

1. Change without regulatory effect amending section filed 8-19-97 pursuant to section 100, title 1, California Code of Regulations (Register 97, No. 34).

§10.19105. Reports.

Note • History

A regulated corporation shall file reports with the Commissioner as and when the Commissioner may require. The reports shall contain such information, shall be signed in such manner, and shall (if the Commissioner so requires) be verified in such manner, as the Commissioner may require.

NOTE

Authority cited: Section 215, Financial Code. Reference: Section 772, Financial Code.

HISTORY

1. Change without regulatory effect amending section filed 8-19-97 pursuant to section 100, title 1, California Code of Regulations (Register 97, No. 34).

§10.19106. Audit.

Note • History

A regulated corporation shall, at its own expense and as and when the Commissioner may require, have its affairs audited by an independent certified public accountant who is satisfactory to the Commissioner; and the regulated corporation shall file with the Commissioner such report of the accountant as the Commissioner may require.

NOTE

Authority cited: Section 215, Financial Code. Reference: Section 772, Financial Code.

HISTORY

1. Change without regulatory effect amending section filed 8-19-97 pursuant to section 100, title 1, California Code of Regulations (Register 97, No. 34).

§10.19107. Applicable Provisions of Banking Law.

Note

(a) Except as otherwise provided in subdivision (c) of this section, a regulated corporation shall be subject to, and both a regulated corporation and its controlling subject institution shall comply with, (i) the following provisions of the Banking Law which are applicable to the controlling subject institution, (ii) any provisions of the Banking Law which authorize exceptions to, impose sanctions for violations of, or are otherwise related to, the provisions referred to in clause (i), and (iii) any regulations issued under the provisions referred to in clause (i) or (ii), as if the regulated corporation were an operating division of the controlling subject institution and not a separate entity:

(1) Financial Code Section 761.

(2) Financial Code Sections 1221, 1225, 1229, 1230, and 1232.

(3) Financial Code Section 1336.

(4) Financial Code Sections 1951 and 1952.

(5) Articles 1 (commencing with Section 3350) and 2 (commencing with Section 3370) of Chapter 18.

(b) For purposes of the statutes and regulations referred to in subdivision (a) of this section, the pertinent loans and securities of, collateral held b), acceptances made by, and obligations to, a regulated corporation and its controlling subject institution shall be combined. For example, in case the controlling subject institution is a commercial bank, for purposes of Financial Code Section 1221, the obligations of any person to the regulated corporation shall be combined with any obligations of the same person to the controlling subject institution.

(c) The statutes and regulations referred to in subdivision (a) of this section which prohibit or restrict certain types of transactions between a subject institution and a person who has a specified relationship, directly or indirectly, with the subject institution (for example, a person who is a director or executive officer of the subject institution or of a bank holding company of the subject institution) shall apply to such types of transactions between a regulated corporation and a person who has such a relationship with the controlling subject institution of the regulated corporation. However, the statutes and regulations shall not apply to such types of transactions between the regulated corporation or the controlling subject institution and a person who has such a relationship with the regulated corporation but not with the controlling subject institution. For example, an extension of credit by a regulated corporation to an executive officer of the controlling subject institution of the regulated corporation would be subject to Article 2 (commencing with Section 3370) of Chapter 18 of the Banking Law, but an extension of credit by a regulated corporation or by its controlling subject institution to an executive officer of the regulated corporation would not be subject to Article 2 of Chapter 18 of the Banking Law unless the extension of credit was otherwise subject to Article 2 of Chapter 18 of the Banking Law (e.g., unless the person was also an executive officer of the controlling subject institution).

NOTE

Authority cited: Section 215, Financial Code. Reference: Section 772, Financial Code.

Part 4. Transition Provisions

Subpart 1. General Provisions

§10.19120. Scope.

Note

This Part contains regulations relating to investments made by a subject institution in a corporation under Financial Code Section 772 before the effective date of this Part.

NOTE

Authority cited: Section 215, Financial Code. Reference: Section 772, Financial Code.

Subpart 2. Pre-1983 Investments

§10.19130. Scope.

Note

This Subpart contains regulations relating to pre-1983 investments.

NOTE

Authority cited: Section 215, Financial Code. Reference: Section 772, Financial Code.

§10.19131. General Authorization to Retain.

Note

A subject institution may retain under Financial Code Section 772 any pre-1983 equity securities of a corporation which the subject institution owns on the effective date of this Part, subject to compliance with the provisions of this Subpart.

NOTE

Authority cited: Section 215, Financial Code. Reference: Section 772, Financial Code.

§10.19132. Options.

Note • History

If a subject institution owns pre-1983 equity securities of a corporation on the effective date of this Part, the subject institution and the corporation may elect, on or before the transition date, either of the following options:

(a) Update Option: The conditions that the Commissioner imposed in granting approval for the subject institution to acquire the pre-1983 equity securities of the corporation and the agreement that the subject institution and the corporation made with the Commissioner, agreeing to comply with the conditions, shall be rescinded; the subject institution and the corporation shall be subject to the provisions of Part 3 (commencing with Section 10.19090) of this Subarticle; and all of the requirements set forth in subdivisions (a), (b), (c), and (d) of Section 10.19072 of this Chapter shall apply as if the subject institution had acquired the pre-1983 equity securities pursuant to the general authorization set forth in Section 10.19072.

(b) Grandfather Option: The conditions imposed by the Commissioner and the agreement that the subject institution and the corporation made with the Commissioner shall remain in full force and effect, but the provisions of Part 3 of this Subarticle shall not apply.

NOTE

Authority cited: Section 215, Financial Code. Reference: Section 772, Financial Code.

HISTORY

1. Change without regulatory effect amending section filed 8-19-97 pursuant to section 100, title 1, California Code of Regulations (Register 97, No. 34).

§10.19133. Election of Update Option.

Note • History

If a subject institution owns pre-1983 equity securities of a corporation on the effective date of this Part:

(a) In case the subject institution and the corporation wish to elect the Update Option, as described in subdivision (a) of Section 10.19132 of this Chapter, the subject institution and the corporation shall, on or before the transition date, file with the Commissioner a Report of Election of Update Option. The Report of Election of Update Option shall be in the form of Department Form 708, shall contain the information called for in the Form and in the instructions for the Form, shall be signed as required in the Form and instructions, and shall be verified if and as required in the Form and instructions.

(b) In case the subject institution and the corporation file a Report of Election of Update Option in accordance with subdivision (a) of this section:

(1) Concurrently with the filing of the Report of Election of Update Option, the corporation, if it is a regulated corporation, shall comply with Sections 10.19102 and 10.19103 of this Chapter.

(2) As of the date of the filing of the Report of Election of Update Option, the conditions that the Commissioner imposed in granting approval for the subject institution to acquire the pre-1983 equity securities of the corporation and the agreement that the subject institution and the corporation made with the Commissioner, agreeing to comply with the conditions, shall be rescinded, and the subject institution and the corporation shall become subject to the provisions of Part 3 (commencing with Section 10.19090) of this Subarticle.

(3) All of the requirements set forth in subdivisions (a), (b), (c), and (d) of Section 10.19072 of this Chapter shall apply as if the subject institution had acquired the pre-1983 equity securities pursuant to the general authorization set forth in Section 10.19072 on the date of the filing of the Report of Election of Update Option.

NOTE

Authority cited: Section 215, Financial Code. Reference: Section 772, Financial Code.

HISTORY

1. Change without regulatory effect amending section filed 8-19-97 pursuant to section 100, title 1, California Code of Regulations (Register 97, No. 34).

§10.19134. Election of Grandfather Option.

Note • History

If a subject institution owns pre-1983 equity securities of a corporation on the effective date of this Part and if the subject institution and the corporation do not file a Report of Election of Update Option in accordance with Section 10.19133 of this Chapter, the subject institution and the corporation shall be deemed to have elected the Grandfather Option, as described in subdivision (b) of Section 10.19132 of this Chapter, as of the transition date. In such a case:

(a) The conditions that the Commissioner imposed in granting approval for the subject institution to acquire the pre-1983 equity securities of the corporation and the agreement that the subject institution and the corporation made with the Commissioner, agreeing to comply with the conditions, shall remain in full force and effect, and the subject institution and the corporation shall comply with the conditions and the agreement.

(b) Part 3 (commencing with Section 10.19090) of this Subarticle shall not apply.

NOTE

Authority cited: Section 215, Financial Code. Reference: Section 772, Financial Code.

HISTORY

1. Change without regulatory effect amending section filed 8-19-97 pursuant to section 100, title 1, California Code of Regulations (Register 97, No. 34).

§10.19135. Status Pending Election.

Note

If a subject institution owns pre-1983 equity securities of a corporation on the effective date of this Part, the Grandfather Option, as described in subdivision (b) of Section 10.19132 of this Chapter, shall apply during the period from the effective date of this Part to whichever of the following dates is applicable.

(a) In case the subject institution and the corporation file a Report of Election of Update Option in accordance with Section 10.19133 of this Chapter, the date of the filing.

(b) In case the subject institution and the corporation do not file a Report of Election of Update Option in accordance with Section 10.19133 of this Chapter, the transition date.

NOTE

Authority cited: Section 215, Financial Code. Reference: Section 772, Financial Code.

Subpart 3. Interim Investments

§10.19140. Scope.

Note

This Subpart contains regulations relating to interim investments.

NOTE

Authority cited: Section 215, Financial Code. Reference: Section 772, Financial Code.

§10.19141. General Authorization to Retain.

Note • History

(a) A subject institution which owns interim equity securities of a corporation on the effective date of this Part may retain the interim equity securities under Financial Code Section 772 if all of the following requirements are met:

(1) The subject institution shall, on or before the transition date, file with the Commissioner an application for eligibility; and the application shall be approved and eligibility granted to the subject institution.

(2) On the date when the subject institution becomes eligible, all of the requirements set forth in subdivisions (a), (b), and (d) of Section 10.19072 of this Chapter shall be met.

(b) In case a subject institution which owns interim equity securities of a corporation on the effective date of this Part retains the interim equity securities under Financial Code Section 772 pursuant to the general authorization set forth in subdivision (a) of this section:

(1) All of the requirements set forth in Section 10.19072 of this Chapter shall apply as if the subject institution had acquired the interim equity securities pursuant to the general authorization set forth in Section 10.19072 on the date when it became eligible. If the subject institution is required to make a Report of Investment in Corporation under subdivision (e) of Section 10.19072, the subject institution shall state in the Report that the equity securities are interim equity securities which it is retaining pursuant to the general authorization set forth in subdivision (a) of this section.

(2) If the corporation is a regulated corporation, the corporation shall comply with Sections 10.19102 and 10.19103 of this Chapter within one month after the subject institution becomes eligible.

NOTE

Authority cited: Section 215, Financial Code. Reference: Section 772, Financial Code.

HISTORY

1. Change without regulatory effect amending section filed 8-19-97 pursuant to section 100, title 1, California Code of Regulations (Register 97, No. 34).

§10.19142. Specific Authorization to Retain.

Note • History

(a) A subject institution which owns an interim investment in a corporation on the effective date of this Part may retain the interim investment under Financial Code Section 772 if the subject institution obtains specific authorization for the investment from the Commissioner. However, the subject institution shall file its application for specific authorization for the interim investment on or before the transition date or, in case the subject institution files an application for eligibility on or before the transition date, within thirty days after the application for eligibility is decided or otherwise disposed of. The application for specific authorization for the interim investment and the processing of the application shall be subject to the provisions of Subpart 3 (commencing with Section 10.19080) of Part 2 of this Subarticle, with such changes in points of detail as may be appropriate or necessary.

(b) If a subject institution which owns an interim investment in a corporation retains the interim investment under Financial Code Section 772 pursuant to specific authorization in accordance with subdivision (a) of this Section and if the corporation is a regulated corporation, the corporation shall comply with Sections 10.19102 and 10.19103 of this Chapter within one month after the granting of the specific authorization.

NOTE

Authority cited: Section 215, Financial Code. Reference: Section 772, Financial Code.

HISTORY

1. Change without regulatory effect amending section filed 8-19-97 pursuant to section 100, title 1, California Code of Regulations (Register 97, No. 34).

§10.19143. Divestiture.

Note • History

A subject institution which owns an interim investment in a corporation on the effective date of this Part may, unless the Commissioner orders otherwise for good cause, retain the interim investment under Financial Code Section 772 so long as the subject institution is attempting in good faith to obtain authorization to retain the interim investment pursuant to Section 10.19141 or 10.19142 of this Chapter. However, after the subject institution has exhausted its opportunities to obtain authorization for the interim investment under Sections 10.19141 and 10.19142, the subject institution shall divest itself of the interim investment as soon as it can do so without loss. Also, in any event, if the subject institution does not obtain authorization for the interim investment under Section 10.19141 or 10.19142, the subject institution shall divest itself of the interim investment within two years after the transition date unless the Commissioner shortens or extends the period for good cause.

NOTE

Authority cited: Section 215, Financial Code. Reference: Section 772, Financial Code.

HISTORY

1. Change without regulatory effect amending section filed 8-19-97 pursuant to section 100, title 1, California Code of Regulations (Register 97, No. 34).

Article 8. Loans to Insiders

§10.19300. Scope.

Note • History

This Article contains regulations that adopt changes to certain sections of Regulation O for purposes of Article 2 (commencing with Section 3370), Chapter 18, Division 1 of the Financial Code.

NOTE

Authority cited: Section 215, Financial Code. Reference: Section 3373, Financial Code.

HISTORY

1. New article 31 (sections 10.19300-10.19302) and section filed 11-10-97; operative 11-10-97. Submitted to OAL for printing only pursuant to Financial Code section 3373(a) (Register 97, No. 46).

§10.19301. Division.

Note • History

In this Article, “Regulation O” means Regulation O of Board of Governors of the Federal Reserve System (12 CFR Part 215)).

NOTE

Authority cited: Section 215, Financial Code. Reference: Section 3373, Financial Code.

HISTORY

1. New section filed 11-10-97; operative 11-10-97. Submitted to OAL for printing only pursuant to Financial Code section 3373(a) (Register 97, No. 46).

§10.19302. Adoption of Changes to Regulation O.

Note • History

(a) Pursuant to Financial Code Section 3373, the following changes made to Regulation O since July 1, 1995, are adopted for purposes of Article 2 (commencing with Section 3370), Chapter 18, Division 1 of the Financial Code:

(1) The amendments to Sections 215.2 and 215.4 of Regulation O set forth in the final rule of the Board of Governors of the Federal Reserve System dated November 8, 1996 (61 Fed. Reg. 57769).

(2) The amendments to Sections 215.2 and 215.4 of Regulation O set forth in the final rule of the Board of Governors of the Federal Reserve System dated March 20, 1997 (62 Fed. Reg. 13294).

(b) The provisions of Financial Code Section 3372 which refer to specified sections of Regulation O and incorporate the sections by reference into Article 2 (commencing with Section 3370), Chapter 18, Division 1 of the Financial Code, shall, in the case of those sections of Regulation O identified in Subdivision (a) of this Section, be deemed to refer to, and to incorporate by reference, those sections with the changes identified in Subdivision (a) of this Section.

NOTE

Authority cited: Section 215, Financial Code. Reference: Section 3373, Financial Code.

HISTORY

1. New section filed 11-10-97; operative 11-10-97. Submitted to OAL for printing only pursuant to Financial Code section 3373(a) (Register 97, No. 46).

Article 9. Audit Reports

§10.19400. Scope.

Note • History

This Article contains regulations relating to the filing by a California state bank of an audit report with the Commissioner pursuant to Section 1902 of the Financial Code.

NOTE

Authority cited: Section 215, Financial Code. Reference: Section 1902, Financial Code.

HISTORY

1. New article 9 (sections 10.19400-10.19402) and section filed 3-18-98 as an emergency; operative 3-18-98 (Register 98, No. 12). A Certificate of Compliance must be transmitted to OAL by 7-16-98 or emergency language will be repealed by operation of law on the following day.

2. Certificate of Compliance as to 3-18-98 order transmitted to OAL 7-16-98 and filed 8-20-98 (Register 98, No. 34).

§10.19401. Exemptions.

Note • History

The Commissioner finds that the requirements of Section 1902 of the Financial Code are not necessary in the cases described in the subdivisions of this Section. Accordingly, the Commissioner grants exemptions from Section 1902 of the Financial Code, as follows:

(a) A California state bank is exempted from the requirement of filing an audit report for a fiscal year with the Commissioner pursuant to Section 1902 of the Financial Code if the bank complies with the following provisions:

(1) Within 90 days after the end of the fiscal year or within such extended period as the Commissioner may prescribe, the bank shall obtain an audit report complying with the provisions of Subdivision (c) of Section 1902 of the Financial Code and of Section 10.19402 of this Chapter; and

(2) The bank shall keep the audit report in its files for a period of not less than two years after the end of the fiscal year or such longer period as the Commissioner may prescribe.

(b) A California state bank which is a subsidiary of a parent is exempted from the requirement of filing an audit report for a fiscal year with the Commissioner pursuant to Section 1902 of the Financial Code if the parent and the bank comply with the following provisions:

(1) The parent and the bank shall have the same fiscal year;

(2) Within 90 days after the end of the fiscal year or within such extended period as the Commissioner may prescribe, the parent shall obtain an audit report that complies with the following provisions:

(A) The audit report shall contain (1.) audited, consolidated financial statements (including balance sheet, statement of income or loss, statement of shareholders' equity, and statement of cash flows) of the parent for or as of the end of the fiscal year prepared in accordance with generally accepted accounting principles and (2.) any other information that the Commissioner may require.

(B) The audit report shall be based upon an audit of the parent on a consolidated basis conducted in accordance with generally accepted auditing standards and any other requirements that the Commissioner may prescribe;

(C) The audit report shall be prepared by an independent certified public accountant or independent public accountant who is not unsatisfactory to the Commissioner; and

(D) The audit report shall include or be accompanied by a certificate or opinion of the independent certified public accountant or independent public accountant that is satisfactory in form and content to the Commissioner; and

(3) Immediately after obtaining the audit report, the parent shall provide a copy of the audit report to the bank, and the bank shall keep the copy in its files for a period of not less than two years after the end of the fiscal year or such longer period as the Commissioner may prescribe.

NOTE

Authority cited: Section 215, Financial Code. Reference: Section 1902, Financial Code.

HISTORY

1. New section filed 3-18-98 as an emergency; operative 3-18-98 (Register 98, No. 12). A Certificate of Compliance must be transmitted to OAL by 7-16-98 or emergency language will be repealed by operation of law on the following day.

2. Certificate of Compliance as to 3-18-98 order transmitted to OAL 7-16-98 and filed 8-20-98 (Register 98, No. 34).

§10.19402. Contents.

Note • History

(a) The audit report of a California state bank called for in Section 1902 of the Financial Code or in Subdivision (a) of Section 10.19401 of this Chapter shall contain the following audited financial statements of the bank for or as of the end of the relevant fiscal year:

(1) Balance sheet.

(2) Statement of income or loss.

(3) Statement of changes in shareholders' equity.

(4) Statement of cash flows.

(b) The audited financial statements of a California state bank contained in the audit report called for in Section 1902 of the Financial Code or in Subdivision (a) of Section 10.19401 of this Chapter shall, if permissible under generally accepted accounting principles, be prepared on a consolidated basis.

NOTE

Authority cited: Section 215, Financial Code. Reference: Section 1902, Financial Code.

HISTORY

2. Certificate of Compliance as to 3-18-98 order transmitted to OAL 7-16-98 and filed 8-20-98 (Register 98, No. 34).

Article 10. Parity Regulations

§10.19600. Scope.

Note • History

This Article contains regulations adopted under Financial Code Section 753.

NOTE

Authority cited: Section 215, Financial Code. Reference: Section 753, Financial Code.

HISTORY

1. New article 10 (sections 10.19600-10.19604) and section filed 12-4-98; operative 12-4-98 pursuant to Financial Code section 753. Submitted to OAL for printing only pursuant to Financial Code section 753 (Register 98, No. 49).

§10.19601. Definition.

Note • History

In this Article, “federal law” has the meaning set forth in Financial Code Section 753(a)(1).

NOTE

Authority cited: Section 215, Financial Code. Reference: Section 753, Financial Code.

HISTORY

1. New section filed 12-4-98; operative 12-4-98 pursuant to Financial Code section 753. Submitted to OAL for printing only pursuant to Financial Code section 753 (Register 98, No. 49).

§10.19602. Automated Teller Machines and Remote Service Units.

Note • History

(a) In this Section, to “discontinue” means to discontinue the operations of or to close.

(b) The provisions of federal law that national banks may establish, relocate, and discontinue automated teller machines and remote service units without giving notice to, or obtaining approval or other authorization from, a regulatory agency or complying with other regulatory requirements, are applicable to California state banks.

(c) On the basis of Subdivision (b) of this Section, notwithstanding any provision of the Financial Code (including Article 2 (commencing with Section 500), Article 3 (commencing with Section 540), and Article 4 (commencing with Section 550) of Chapter 4 of Division 1) or of this Chapter to the contrary and except as the Commissioner may order otherwise, a California state bank is not required to file any notice with, or to obtain any approval or certificate of authority from, the Commissioner or comply with any other regulatory requirement in order to establish, relocate, or discontinue an automated teller machine or remote service unit.

(d) This Section shall expire at 12 p.m. on December 31, 1999.

NOTE

Authority cited: Section 215, Financial Code. Reference: Section 753, Financial Code.

HISTORY

1. New section filed 12-4-98; operative 12-4-98 pursuant to Financial Code section 753. Submitted to OAL for printing only pursuant to Financial Code section 753 (Register 98, No. 49).

§10.19603. Banker's Banks.

Note • History

(a) In this Section:

(1) “Depository institution” has the meaning set forth in Section 3(c) of the Federal Deposit Insurance Act (12 U.S.C. Section 1813(c)).

(2) “Depository institution holding company” has the meaning set forth in Section 3(w) of the Federal Deposit Insurance Act (12 U.S.C. Section 1813(w)).

(b) The provisions of federal law that a national bank may purchase for its own account shares of the stock of an insured bank or of a holding company which owns or controls an insured bank if the stock of the bank or company is owned exclusively (except to the extent directors' qualifying shares are required by law) by depository institutions or depository institution holding companies and if the bank or company and all subsidiaries thereof are engaged exclusively in providing services to or for other depository institutions, their holding companies, and the officers, directors, and employees of such institutions and companies and in providing correspondent banking services at the request of other depository institutions or their holding companies, are applicable to California state banks.

(c) On the basis of Subdivision (b) of this Section, notwithstanding any provision of the Financial Code (including Financial Code Section 1335(b)) or of this Chapter to the contrary and except as the Commissioner may order otherwise, a California state bank may purchase for its own account shares of the stock of an insured bank or of a holding company which owns or controls an insured bank of the stock of the bank or company is owned exclusively (except to the extent directors' qualifying shares are required by law) by depository institutions or depository institution holding companies and if the bank or company and all subsidiaries thereof are engaged exclusively in providing services to or for other depository institutions, their holding companies, and the officers, directors, and employees of such institutions and companies and in providing correspondent banking services at the request of other depository institutions or their holding companies.

(d) This Section shall expire at 12 p.m. on December 31, 1999.

NOTE

Authority cited: Section 215, Financial Code. Reference: Section 753, Financial Code.

HISTORY

1. New section filed 12-4-98; operative 12-4-98 pursuant to Financial Code section 753. Submitted to OAL for printing only pursuant to Financial Code section 753 (Register 98, No. 49).

§10.19604. Fiduciary Business.

Note • History

(a) The provisions of federal law that, in the case of a national bank, engaging in fiduciary business is not geographically limited to the main office and branch offices of the bank, are applicable to California state banks.

(b) On the basis of Subdivision (a) of this Section, notwithstanding any provision of the Financial Code (including Article 2 (commencing with Section 500) of Chapter 4 of Division 1) or this Chapter to the contrary, no place where a California state bank engages in fiduciary business shall, solely on that account, be deemed to be a branch office. However, no California state bank may engage in fiduciary business at a place unless the place is its head office, an authorized branch office, or an authorized place of business.

NOTE

Authority cited: Section 215, Financial Code. Reference: Section 753, Financial Code.

HISTORY

1. New section filed 12-4-98; operative 12-4-98 pursuant to Financial Code section 753. Submitted to OAL for printing only pursuant to Financial Code section 753 (Register 98, No. 49).

§10.19605. Loans Secured by Segregated Deposit Accounts.

Note • History

(a)(1) “Lending Limits” means:

(A) With respect to federal law, the limitations regarding total loans and extensions of credit to a person as set forth in Section 84 of the National Bank Act (12 U.S.C. Section 84).

(B) With respect to state law, the limitations regarding obligations of any one person to a California state bank as set forth in Section 1221 of the Financial Code.

(2) “Loans” means:

(A) With respect to federal law, loans and extensions of credit as those terms are defined in Section 84(b) of the National Bank Act (12 U.S.C. Section 84(b)).

(B) With respect to state law, the total sums for the payment of which a person is obligated, primarily or secondarily, to a bank.

(b) The provisions of federal law that exempt loans secured by segregated deposit accounts from the lending limits applicable to national banks are applicable to California state banks.

(c) On the basis of Subdivision (b) of this Section, notwithstanding any provision of the Financial Code (including Article 2 (commencing with Section 1220) of Chapter 10 of Division 1) or of this Chapter to the contrary and except as the Commissioner may order otherwise, loans made by a California state bank which are secured by segregated deposit accounts in the bank are exempt from the lending limits otherwise applicable to that bank.

(d) A California state bank which uses a segregated deposit account as security for a loan shall comply with the requirements set forth in Section 32.3(c)(6) of Title 12 of the Code of Federal Regulations (12 C.F.R. Section 32.3(c)(6).

(e) This Section shall expire at 12:00 p.m. on December 31, 2002.

NOTE

Authority cited: Section 215, Financial Code. Reference: Section 753, Financial Code.

HISTORY

1. New section filed 4-2-2001 as an emergency; operative 4-2-2001. Submitted to OAL for printing only pursuant to Financial Code section 753(c) (Register 2001, No. 14).

Article 11. Securities

Subarticle 2. Acquisition of Bank's Own Securities

§10.19900. Application for Acquisition of Own Securities by Bank or Trust Company.

Note • History

(a) California law permits a California state-chartered bank or trust company to acquire its own shares if the acquisition is approved in advance by the Commissioner.

(b) An application for acquisition by a bank or trust company of its own shares shall include the following information:

(1) The class and series, as appropriate, of the shares to be acquired.

(2) The number of such shares outstanding and the number of shares to be acquired.

(3) The date or period when the bank or trust company will make the acquisition.

(4) The identity of the seller of the stock.

(5) The price which the bank or trust company will pay for the shares, an explanation of the basis for setting the price, and a description of any other material terms of the acquisition.

(6) In case the bank is an insured nonmember bank, a confirmation that the bank will obtain the consent of the Federal Deposit Insurance Corporation pursuant to Federal Deposit Insurance Act Section 18(i), (12 U.S.C. 1828(i)), if applicable. In case the bank is a member bank, a confirmation that the bank will obtain the consent of the Board of Governors of the Federal Reserve System pursuant to Federal Reserve Act Section 9, Paragraph 11, (12 U.S.C. 329), if applicable.

(7) A copy of all written materials used to effect the acquisition, including the repurchase plan, if any, resolutions of the board of directors, materials to be distributed to shareholders, and any advertisements relating to the acquisition.

(8) An opinion of an attorney at law that the acquisition will comply with applicable securities laws and applicable provisions of the Financial Code.

NOTE

Authority cited: Section 215, Financial Code. Reference: Section 3359, Financial Code.

HISTORY

1. New article 11, subarticle 2 (sections 10.19900-10.19901) and section filed 4-29-2008; operative 5-29-2008 (Register 2008, No. 18).

§10.19901. Approval of Application for Acquisition of Own Securities by Bank or Trust Company.

Note • History

As an administrative standard, the Commissioner shall consider all of the following factors in processing an application for acquisition by a bank or trust company of its own shares:

(a) The acquisition by the bank or trust company of its own shares would not materially impair the financial condition of the applicant, particularly its capital adequacy, and the safety and soundness of the institution.

(b) The proposed acquisition complies with the provisions of Financial Code Sections 642, 643, and 644.

(d) An opinion of an attorney at law that the acquisition will comply with applicable securities laws and applicable provisions of the Financial Code.

NOTE

Authority cited: Section 215, Financial Code. Reference: Sections 642, 643, 644 and 3359, Financial Code.

HISTORY

1. New section filed 4-29-2008; operative 5-29-2008 (Register 2008, No. 18).

Article 30. Commercial Banking Business

Subarticle 1. General Provisions

§10.190000. Definition of “Subject Institution.”

History

HISTORY

1. Redesignation of Subchapter 10 (Sections 10.1-10.101, not consecutive) to Article 30 of Subchapter 10 (Sections 10.190000-10.190201, not consecutive) filed 12-29-78; designated effective 3-1-79 (Register 79, No. 2).

2. Renumbering from Section 10.1 to Section 10.190000 and amendment filed 12-29-78; designated effective 3-1-79 (Register 79, No. 2).

3. Repealer of subarticle 1 (sections 190000-190001) and section filed 4-14-98; operative 5-14-98 (Register 98, No. 16).

§10.190001. Authorized Activities of Subject Institution.

Note • History

NOTE

Authority cited: Section 215, Financial Code. Reference: Banking Law, Division 1, Financial Code.

HISTORY

1. New Article 1 (Sections 10.1 and 10.2) filed 1-10-75; effective thirtieth day thereafter (Register 75, No. 2).

2. Renumbering from Section 10.2 to Section 10.190001 filed 12-29-78; designated effective 3-1-79 (Register 79, No. 2). Group 2. Reserves

3. Repealer filed 4-14-98; operative 5-14-98 (Register 98, No. 16).

Subarticle 2. Reserves

§10.190100. Definition of “Subject Institution” and Scope.

History

HISTORY

1. Renumbering from section 10.50 to section 10.190100 and amendment filed 12-29-78; designated effective 3-1-79 (Register 79, No. 2).

2. Change without regulatory effect repealing section filed 7-2-91 pursuant to section 100, title 1, California Code of Regulations (Register 91, No. 40).

§10.190101. Other Definitions.

History

HISTORY

1. Renumbering from section 10.51 to section 10.190101 and amendment filed 12-29-78; designated effective 3-1-79 (Register 79, No. 2).

2. Change without regulatory effect repealing section filed 7-2-91 pursuant to section 100, title 1, California Code of Regulations (Register 91, No. 40).

§10.190102. Reserves Against Demand Deposits.

History

HISTORY

1. Amendment filed 12-30-76 as an emergency; designated effective 1-6-77 (Register 77, No. 1). For prior history, see Register 75, No. 22.

2. Certificate of Compliance filed 3-3-77 (Register 77, No. 10).

3. Renumbering from section 10.52 to section 10.190102 filed 12-29-78; designated effective 3-1-79 (Register 79, No. 2).

4. Change without regulatory effect repealing section filed 7-2-91 pursuant to section 100, title 1, California Code of Regulations (Register 91, No. 40).

§10.190103. Computation of Reserves.

History

HISTORY

1. Renumbering from section 10.53 to section 10.190103 filed 12-29-78; designated effective 3-1-79 (Register 79, No. 2).

2. Change without regulatory effect repealing section filed 7-2-91 pursuant to section 100, title 1, California Code of Regulations (Register 91, No. 40).

§10.190104. Report of Reserve Condition: Filing.

History

HISTORY

1. Renumbering from Section 10.54 to Section 10.190104 filed 12-29-78; designated effective 3-1-79 (Register 79, No. 2).

2. Change without regulatory effect repealing section filed 7-2-91 pursuant to section 100, title 1, California Code of Regulations (Register 91, No. 40).

§10.190105. Report of Reserve Condition: Illustration of Form.

History

HISTORY

1. Amendment filed 6-5-75; effective thirtieth day thereafter (Register 75, No. 23).

2. Amendment filed 6-12-75 as an emergency; effective upon filing. Certificate of Compliance included (Register 75, No. 23).

3. Amendment filed 6-12-75 as an emergency; designated effective 8-7-75. Certificate of Compliance included (Register 75, No. 23).

4. Editorial redesignation from Section 10.55 to Section 10.190105 (Register 79, No. 2).

5. Repealer filed 12-29-78; designated effective 3-1-79 (Register 79, No. 2). Group 3. Loans

Subarticle 3. Loans

§10.190200. Definition of “Subject Institution.”

Note • History

NOTE

Authority cited: Section 215, Financial Code. Reference: Sections 1227, 1228, 1253, 1254 and 1934, Financial Code.

HISTORY

1. New Article 3 (Section 10.100 and 10.101) filed 6-5-75; effective thirtieth day thereafter (Register 75, No. 23).

2. Renumbering from Section 10.100 to Section 10.190200 and amendment filed 12-29-78; designated effective 3-1-79 (Register 79, No. 2).

3. Repealer of subarticle 3 (sections 190200-190201) and section filed 4-14-98; operative 5-14-98 (Register 98, No. 16).

§10.190201. Wrap-Around Lien.

History

HISTORY

1. Renumbering from Section 10.101 to Section 10.190201 filed 12-29-78; designated effective 3-1-79 (Register 79, No. 2). Group 4. Adjustable-Rate Mortgage Loans

2. Repealer filed 4-14-98; operative 5-14-98 (Register 98, No. 16).

§10.190202.

Note • History

The following items are ineligible as security under Financial Code Section 1223:

(1) Assigned accounts receivable.

(2) Assigned contracts covering services which are to be, or have been performed; or covering property which is to be, or has been, manufactured.

(3) Trust receipts covering all flooring, including automobiles, boats, appliances, machinery, and equipment of any and all types.

(4) Goods used in trade or inventories including goods covered by an inventory lien.

(5) Tools and small implements.

(6) Household furniture and appliances.

(7) Furniture and fixtures in stores, offices, etc.

(8) Growing crops.

(9) Perishable commodities, unless warehoused and covered by a warehouse receipt.

NOTE

Authority cited: Section 215, Financial Code. Reference: Section 1223, Financial Code.

HISTORY

1. New section filed 6-2-2008; operative 7-2-2008 (Register 2008, No. 23).

Subarticle 4. Adjustable-Rate Mortgage Loans

§10.190300. Definition of “Subject Institution” and Scope.

Note • History

NOTE

Authority cited: Section 215, Financial Code. Reference: Section 1227.1, Financial Code.

HISTORY

1. New subarticle 4 (sections 10.190300-10.190310) filed 9-16-81; effective upon filing (Register 81, No. 38).

2. Repealer of subarticle 4 (sections 10.190300-10.190310) and new subarticle 4 (sections 10.190300-10.190307) filed 4-14-83; effective upon filing (Register 83, No. 16).

3. Change without regulatory effect repealing section filed 7-2-91 pursuant to section 100, title 1, California Code of Regulations (Register 91, No. 40).

§10.190301. Other Definition.

Note • History

NOTE

Authority cited: Section 215, Financial Code. Reference: Section 1227.1, Financial Code.

HISTORY

1. Repealer of subarticle 4 (sections 10.190300-10.190310) and new subarticle 4 (sections 10.190300-10.190307) filed 4-14-83; effective upon filing (Register 83, No. 16).

2. Change without regulatory effect repealing section filed 7-2-91 pursuant to section 100, title 1, California Code of Regulations (Register 91, No. 40).

§10.190302. General Rule.

Note • History

NOTE

Authority cited: Section 215, Financial Code. Reference: Section 1227.1, Financial Code.

HISTORY

1. Repealer of subarticle 4 (sections 10.190300-10.190310) and new subarticle 4 (sections 10.190300-10.190307) filed 4-14-83; effective upon filing (Register 83, No. 16).

2. Change without regulatory effect repealing section filed 7-2-91 pursuant to section 100, title 1, California Code of Regulations (Register 91, No. 40).

§10.190303. Index.

Note • History

NOTE

Authority cited: Section 215, Financial Code. Reference: Section 1227.1, Financial Code.

HISTORY

1. Repealer of subarticle 4 (sections 10.190300-10.190310) and new subarticle 4 (sections 10.190300-10.190307) filed 4-14-83; effective upon filing (Register 83, No. 16).

2. Change without regulatory effect repealing section filed 7-2-91 pursuant to section 100, title 1, California Code of Regulations (Register 91, No. 40).

§10.190304. Rate Changes.

Note • History

NOTE

Authority cited: Section 215, Financial Code. Reference: Section 1227.1, Financial Code.

HISTORY

1. Repealer of subarticle 4 (sections 10.190300-10.190310) and new subarticle 4 (sections 10.190300-10.190307) filed 4-14-83; effective upon filing (Register 83, No. 16).

2. Change without regulatory effect repealing section filed 7-2-91 pursuant to section 100, title 1, California Code of Regulations (Register 91, No. 40).

§10.190305. Amortization Requirements.

Note • History

NOTE

Authority cited: Section 215, Financial Code. Reference: Section 1227.1, Financial Code.

HISTORY

1. Repealer filed 10-13-83; effective upon filing (Register 83, No. 42). 2. Editorial correction of HISTORY NOTE No. 1 (Register 84, No. 3).

§10.190306. Disclosure.

Note • History

NOTE

Authority cited: Section 215, Financial Code. Reference: Section 1227.1, Financial Code.

HISTORY

1. Amendment of subsection (a)(2) filed 8-1-83; designated effective upon filing pursuant to Government Code section 11346.2(d) (Register 83, No. 33).

2. Repealer of subarticle 4 (sections 10.190300-10.190310) and new subarticle 4 (sections 10.190300-10.190307) filed 4-14-83; effective upon filing (Register 83, No. 16).

3. Change without regulatory effect repealing section filed 7-2-91 pursuant to section 100, title 1, California Code of Regulations (Register 91, No. 40).

§10.190307. Transition Rule.

Note • History

NOTE

Authority cited: Section 215, Financial Code. Reference: Section 1227.1, Financial Code.

HISTORY

1. Amendment filed 8-1-83; effective upon filing pursuant to Government Code section 11346.2(d) (Register 83, No. 33).

2. Amendment filed 11-14-83; effective upon filing pursuant to Government Code section 11346.2(d) (Register 83, No. 47).

3. Repealer of subarticle 4 (sections 10.190300-10.190310) and new subarticle 4 (sections 10.190300-10.190307) filed 4-14-83; effective upon filing (Register 83, No. 16).

4. Change without regulatory effect repealing section filed 7-2-91 pursuant to section 100, title 1, California Code of Regulations (Register 91, No. 40).

Subarticle 5. Delayed Funds Availability

§10.190400. Scope.

Note • History

This subarticle contains regulations pertaining to delayed funds availability.

NOTE

Authority cited: Sections 215, 866.5 and 866.6, Financial Code; and Section 4213, California Uniform Commercial Code. Reference: Sections 866.5 and 866.6, Financial Code; and Section 4213, California Uniform Commercial Code.

HISTORY

1. New Subarticle 5 (Sections 10.190400-10.190407) filed 9-21-84; designated effective 10-1-84 pursuant to Government Code Section 11346.2(d) (Register 84, No. 38).

§10.190401. Definitions.

Note • History

In this subarticle:

(a) “Banking day” shall have the same meaning as provided in 12 CFR 229.2(f).

(b) “Business day” shall have the same meaning as provided in 12 CFR 229.2(g).

(c) “Deposit account” shall mean an “account” as defined in 12 CFR 229.2(a) and any savings deposit account other than a time deposit account.

(d) “Depositary bank” means any of the following to which an item is first transferred even though it is also the payor bank:

(1) Any California state commercial bank; or

(2) Any California national bank; or

(3) Any California branch office of a foreign (other nation) bank.

(e) “Item” shall mean “check” as defined in 12 CFR 229.2(k).

(f) “1210 bank” means a bank with a federal reserve routing symbol of 1210.

(g) “1220 bank” means a bank with a federal reserve routing symbol of 1220.

(h) “Regulation CC” means Regulation CC of the Board of Governors of the Federal Reserve System, Part 229 of Title 12 of the Code of Federal Regulations, 12 CFR 229.1 et seq., and all commentary and footnotes thereto, effective September 1, 1988.

(i) “Savings deposit” shall have the same meaning as provided in 12 CFR 204.2(d) as amended March 20, 1986 (51 Fed. Reg. 9634).

(j) “Thrift institution” means a savings and loan association, savings bank or credit union.

NOTE

Authority cited: Sections 215, 866.5 and 866.6, Financial Code; and Section 4213, California Uniform Commercial Code. Reference: Sections 886, 866.5 and 866.6, Financial Code; and Section 4213, California Uniform Commercial Code.

HISTORY

1. Amendment filed 8-1-86; designated effective 10-30-86 (Register 86, No. 31).

2. Repealer and new section filed 10-17-88 as an emergency; operative 10-17-88 (Register 88, No. 45). A Certificate of Compliance must be transmitted to OAL within 120 days or emergency language will be repealed on 2-14-89.

3. Certificate of Compliance including amendment transmitted to OAL 2-10-89 and filed 3-13-89 (Register 89, No. 11).

§10.190402. Funds Availability.

Note • History

(a) A depositary bank shall make funds deposited into a deposit account by an item available for withdrawal as provided in Regulation CC, 12 CFR Part 229, except as set forth in subdivision (b). The hold schedules provided in Regulation CC, 12 CFR Part 229, and in subdivision (b), shall be the reasonable time for the collection and return of an item and the reasonable time by which a depositary bank must permit a depositor to draw on an item deposited into a deposit account.

(b)(1) A depositary bank which is a 1210 bank shall make funds deposited into a deposit account by an item drawn on a 1220 bank or a paying bank located in the portion of California served by the Los Angeles Branch of the Federal Reserve Bank of San Francisco available for withdrawal not later than the fourth business day following the banking day on which the funds are deposited.

(2) A depositary bank which is a 1220 bank shall make funds deposited into a deposit account by an item drawn on a 1210 bank or a paying bank located in the portion of California served by the Head Office of the Federal Reserve Bank of San Francisco available for withdrawal not later than the fourth business day following the banking day on which the funds are deposited.

NOTE

HISTORY

1. Repealer and new section filed 10-17-88 as an emergency; operative 10-17-88 (Register 88, No. 45). A Certificate of Compliance must be transmitted to OAL within 120 days or emergency language will be repealed on 2-14-89.

2. Certificate of Compliance including amendment transmitted to OAL 2-10-89 and filed 3-13-89 (Register 89, No. 11).

3. Amendment filed 4-7-97; operative 4-7-97 pursuant to Government Code section 11343.4(d) (Register 97, No. 15).

§10.190403. Separate Offices.

Note • History

NOTE

HISTORY

1. Repealer filed 10-17-88 as an emergency; operative 10-17-88 (Register 88, No. 45). A Certificate of Compliance must be transmitted to OAL within 120 days or repealed text will be reinstated on 2-14-89.

2. Certificate of Compliance transmitted to OAL 2-10-89 and filed 3-13-89 (Register 89, No. 11).

§10.190404. Limitations on Applicability.

Note • History

NOTE

Authority cited: Sections 215, 866.5 and 866.6, Financial Code; and Section 4213, California Uniform Commercial Code. Reference: Sections 866.5 and 866.6, Financial Code; Sections 4105 and 4213, California Uniform Commercial Code; and Section 3, Chapter 1011 of the Statutes of 1983.

HISTORY

2. Certificate of Compliance transmitted to OAL 2-10-89 and filed 3-13-89 (Register 89, No. 11).

§10.190405. Maximum Hold Periods.

Note • History

NOTE

HISTORY

1. Amendment filed 8-1-86; designated effective 10-30-86 (Register 86, No. 3).

2. Repealer filed 10-17-88 as an emergency; operative 10-17-88 (Register 88, No. 45). A Certificate of Compliance must be transmitted to OAL within 120 days or repealed text will be reinstated on 2-14-89.

3. Certificate of Compliance transmitted to OAL 2-10-89 and filed 3-13-89 (Register 89, No. 11).

§10.190406. Other Hold Periods.

Note • History

NOTE

HISTORY

1. Amendment of subsection (a)(3) filed 8-1-86; designated effective 10-30-86

. (Register 86, No. 31).

3. Certificate of Compliance transmitted to OAL 2-10-89 and filed 3-13-89 (Register 89, No. 11).

§10.190407. Exemptions.

Note • History

NOTE

Authority cited: Sections 215, 866.5 and 866.6, Financial Code; and Sections 4108 and 4213, California Uniform Commercial Code. Reference: Sections 866.5, 866.6 and 866.9, Financial Code; and Sections 4105 and 4213, California Uniform Commercial Code.

HISTORY

1. Amendment of subsection (a)(6) filed 8-1-86; designated effective 10-30-86 (Register 86, No. 31).

3. Certificate of Compliance transmitted to OAL 2-10-89 and filed 3-13-89 (Register 89, No. 11).

Subchapter 30. Credit Unions

Article 1. General Provisions

§30.1. Scope.

Note • History

This Subchapter contains regulations relating to credit unions.

NOTE

Authority cited: Section 14201, Financial Code. Reference: Division 5, Financial Code.

HISTORY

1. Change without regulatory effect adding new subchapter 30, article 1 (sections 30.1-30.109) and section filed 8-19-97 pursuant to section 100, title 1, California Code of Regulations (Register 97, No. 34). For prior history, see Register 80, No. 29.

§30.2. Citation.

Note • History

(a) This Subchapter shall be known and may be cited as the “Credit Union Regulations.”

(b) The first unit of the number of each section in this Subchapter is “30.” However, in citing a section of this Subchapter, a person may omit the first unit of the number of the section if it is clear that the person is referring to a section of this Subchapter.

NOTE

Authority cited: Section 14201, Financial Code. Reference: Division 5, Financial Code.

HISTORY

1. Change without regulatory effect adding new section filed 8-19-97 pursuant to section 100, title 1, California Code of Regulations (Register 97, No. 34).

§30.3. Inconsistent Provisions.

Note • History

In case any provision of this Subchapter is inconsistent with any provision of Subchapter 1 (commencing with Section 1.1) or Subchapter 5 (commencing with Section 5.1) (except the provisions of Article 7 (commencing with Section 5.6000) of Subchapter 5) of this Chapter, the provision of this Subchapter shall apply and the provision of Subchapter 1 or Subchapter 5 shall not apply.

NOTE

Authority cited: Section 14201, Financial Code. Reference: Division 5, Financial Code.

HISTORY

1. Change without regulatory effect adding new section filed 8-19-97 pursuant to section 100, title 1, California Code of Regulations (Register 97, No. 34).

§30.30. Economic Feasibility -- Existing Credit Union.

Note • History

Whenever the Commissioner, this Subchapter or any law administered by the Commissioner requires that the Commissioner determine the economic feasibility of any proposal of an existing credit union, the Commissioner may consider:

(a) The adequacy of the equity capital of the credit union.

(b) The quality of assets of the credit union.

(d) The level of liquidity of the credit union.

(e) The quality of management of the credit union.

(f) The business plan of the credit union.

(g) The marketing plan of the credit union.

(h) The business practices of the credit union.

(i) Such other factors that bear upon a determination of the economic feasibility of the proposal.

NOTE

Authority cited: Section 14201, Financial Code. Reference: Sections 14155 and 14201, Financial Code.

HISTORY

1. New section filed 2-27-2003; operative 3-29-2003 (Register 2003, No. 9).

§30.31. Equity Capital Adequacy.

Note • History

Whenever the Commissioner, this Subchapter or any law administered by the Commissioner requires that the Commissioner determine the adequacy of the equity capital of a credit union, the Commissioner may consider:

(a) The nature and volume of the business of the credit union.

(b) The amount, nature, quality, and liquidity of the assets of the credit union.

(c) The amount and nature of the liabilities (including, but not limited to, any notes or debentures and any contingent liabilities) of the credit union.

(d) The history of, and prospects for, the credit union to earn and retain income.

(e) The quality of the operations of the credit union.

(f) The quality of the management of the credit union.

(g) Such other factors that bear upon a determination that the equity capital of a credit union is adequate.

NOTE

Authority cited: Section 14201, Financial Code. Reference: Sections 14201 and 14211, Financial Code.

HISTORY

1. New section filed 2-27-2003; operative 3-29-2003 (Register 2003, No. 9).

§30.40. Certification of Corporate Resolution.

Note • History

Whenever the Commissioner or this Subchapter requires that a copy of a resolution of the board or of a committee of the board of a credit union filed with the Commissioner be certified, the certification shall:

(a) State the title of the office, which the person making the certification holds with the credit union.

(b) State that the copy is a true copy of the resolution.

(c)(1) In a case where the resolution was adopted by the board, so state that such adoption occurred and specify the date of adoption.

(2) In a case where the resolution was adopted by a committee of the board, so state that such adoption occurred, specify the date of adoption, state the title of the committee, and state that the committee is authorized to exercise the powers of the board with respect to the subject matter of the resolution.

(d) State that the resolution has not been modified or rescinded and is in full force and effect.

(e) Specify the date of the certification.

NOTE

Authority cited: Section 14201, Financial Code. Reference: Section 14201, Financial Code.

HISTORY

1. New section filed 2-27-2003; operative 3-29-2003 (Register 2003, No. 9).

§30.41. Certification by Secretary or Assistant Secretary.

Note • History

(a) Whenever the Commissioner or this Subchapter requires that a document filed with the Commissioner be certified by the secretary of a corporation and does not provide that such document may, in the alternative, be certified by an assistant secretary of such corporation, the certification shall be made by the secretary of the corporation. However, if the corporation has no secretary or if the secretary of the corporation is unavailable, the certification may be made by an assistant secretary of the corporation who is authorized to perform the functions of the secretary, in which case the certification shall (1) state that the corporation has no secretary or that the secretary is unavailable, and (2) that the assistant secretary is authorized to perform the functions of the secretary. Also, if the corporation has no secretary or assistant secretary, the certification may be made by the officer of the corporation who performs for the corporation the functions usually performed by the secretary of a corporation, in which case the certification shall state that the corporation has no secretary and that the officer making the certification performs for the corporation the functions usually performed by the secretary of a corporation.

(b) Whenever the Commissioner or this Subchapter requires that a document filed with the Commissioner be certified by the secretary or by an assistant secretary of a corporation, if such corporation has no secretary or assistant secretary, the certification may be made by an officer of the corporation who performs for the corporation the functions usually performed by the secretary or by an assistant secretary of a corporation, in which case the certification shall state that the corporation has no secretary or assistant secretary and that the officer making the certification performs for the corporation the functions usually performed by the secretary or by an assistant secretary of a corporation.

NOTE

Authority cited: Section 14201, Financial Code. Reference: Section 14201, Financial Code.

HISTORY

1. New section filed 2-27-2003; operative 3-29-2003 (Register 2003, No. 9).

§30.50. Field of Membership: Family of Member.

Note • History

A credit union's field of membership may include persons within the immediate family of a member. The classes of persons who are deemed to be within the immediate family of a member and eligible for membership shall be determined by the board of directors.

NOTE

Authority cited: Section 14201, Financial Code. Reference: Sections 14155 and 15451, Financial Code.

HISTORY

1. New section filed 2-27-2003; operative 3-29-2003 (Register 2003, No. 9).

§30.51. Field of Membership: Common Bond.

Note • History

The field of membership of a credit union shall consist of groups of persons with a common bond beyond obtaining financial services from the credit union. There are three basic forms of groups eligible for membership in a credit union: groups based upon a common bond of occupation; groups based upon a common bond of association; and, groups within a well-defined neighborhood, community, or rural district. A credit union may serve multiple groups from one or more of the three types of groups discussed above.

NOTE

Authority cited: Section 14201, Financial Code. Reference: Sections 14155 and 15451, Financial Code.

HISTORY

1. New section filed 2-27-2003; operative 3-29-2003 (Register 2003, No. 9).

§30.60. Existing Credit Union: Application for Expansion of Field of Membership.

Note • History

(a) In this Section, the term “community” means a well-defined neighborhood, community or rural district.

(b) Except as authorized by Section 30.73, a credit union may not expand its field of membership without the prior approval of the Commissioner.

(d) An application for an expansion of the field of membership of an existing credit union shall include the following information:

(1) If the applicant proposes to serve an occupational group or association, the application shall include the name and description of the proposed group or association. If the proposed field of membership includes more than one group or association, the application shall contain the name and description of each group or association. Other than groups of employees of a common employer, the application shall include the bylaws of each group or association, if the group or association has adopted bylaws.

(2) The bylaw amendment adding the proposed group or association approved by the board of directors of the credit union in accordance with Section 30.105.

(3) A complete list of the organizations, associations, and communities in the credit union's current field of membership.

(4) If the applicant proposes to serve one or more communities, the application shall include information sufficient to demonstrate a common bond with regard to each community.

(5) The number of potential members in each group or community to be included in the field of membership.

(6) The geographic location of each group or community to be included in the field of membership.

(7) If the proposed field of membership is a group the membership of which is equal to or greater than 20 percent of the current membership of the credit union or the proposed field of membership is a community, a copy of the business plan, and a copy of the marketing plan which shall include the methods by which the credit union intends to serve its expanded field of membership.

(8) Such other information that bears upon a finding that the proposed field of membership is not contrary to the principles of organizing credit unions, including principles of organizing credit unions based upon common bond of occupation, association, or groups within a well-defined neighborhood, community or rural district.

NOTE

Authority cited: Section 14201, Financial Code. Reference: Sections 14155 and 15451, Financial Code.

HISTORY

1. New section filed 2-27-2003; operative 3-29-2003 (Register 2003, No. 9).

§30.61. Field of Membership: Approval of Expansion of Field of Membership Application.

Note • History

(a) As an administrative standard, the Commissioner shall consider all of the following factors in processing an application to expand the field of membership of a credit union, and the Commissioner may deny the application for any of the following reasons:

(1) The field of membership of the applicant is contrary to the principles of organizing credit unions, including principles of organizing credit unions based on common bond of occupation, association, or groups within a well-defined neighborhood, community or rural district.

(2) A false statement of material fact has been made with regard to the application.

(3) The applicant's showing as to the economic feasibility of serving the expanded field of membership of the existing credit union is inadequate.

(b) If, after notice and an opportunity to be heard, the Commissioner makes a negative finding on any of the factors in Subdivision (a), the Commissioner may deny the application.

NOTE

Authority cited: Section 14201, Financial Code. Reference: Sections 14155 and 15451, Financial Code.

HISTORY

1. New section filed 2-27-2003; operative 3-29-2003 (Register 2003, No. 9).

§30.70. Field of Membership: Authorization To Add Select Groups.

Note • History

Sections 30.71 through 30.73 contain regulations relating to the eligibility of an existing credit union to add a select group to its field of membership without obtaining the prior approval of the Commissioner.

NOTE

Authority cited: Section 14201, Financial Code. Reference: Sections 14155 and 15451, Financial Code.

HISTORY

1. New section filed 2-27-2003; operative 3-29-2003 (Register 2003, No. 9).

§30.71. Field of Membership: Definitions.

Note • History

In Sections 30.72 and 30.73:

(a) “Eligible” when used with respect to a California credit union, means that the Commissioner has granted eligibility to add select groups to the credit union, and that the eligibility remains in full force and effect.

(b) “Acceptable Rating” when used with respect to a California credit union, means that the composite rating of the credit union in the most recent report of examination issued by the Department or the National Credit Union Administration was “1” or “2” under The CAMEL Rating System; provided that the credit union has not been notified by the Commissioner that it is ineligible.

(1) An association formed by a group of individuals based upon a common bond of occupation. At the time the application is made, the total number of members of that association may not exceed 1,000.

(2) Employees of a common employer. At the time the application is made, the total number of employees of the common employer may not exceed 1,000.

NOTE

Authority cited: Section 14201, Financial Code. Reference: Sections 14155 and 15451, Financial Code.

HISTORY

1. New section filed 2-27-2003; operative 3-29-2003 (Register 2003, No. 9).

§30.72. Field of Membership: Application for Eligibility To Add Select Groups.

Note • History

(a) An application by a California credit union for eligibility to add select groups shall contain the following information:

(1) A statement that the credit union has an acceptable rating. The statement shall include the name of regulator or insurer which gave the acceptable rating, and the date the acceptable rating was given.

(2) A statement that there has been no material change in the condition of the credit union since it received the acceptable rating.

(3) Confirmation that the board of directors of the credit union has adopted a policy setting forth guidelines for adding select groups to its field of membership which incorporates, among other necessary items, the appropriate requirements set forth in Section 30.73. A copy of the policy shall be included as an exhibit to the application.

(b)(1) An application by a California credit union for eligibility shall be deemed to be approved on the 60th calendar day after the complete application is filed with the Commissioner, unless the Commissioner (A) earlier decides the application, (B) requests the applicant to provide additional information, or (C) extends the period for deciding the application. In no event shall the Commissioner extend the period for deciding the application beyond the 90th day after the complete application is filed with the Commissioner.

(2) For purposes of Paragraph (1) of this Subdivision (b), an application shall be deemed to be filed with the Commissioner on the date when the application, substantially in compliance with the requirements of Subdivision (a) of this Section, is received by the Commissioner.

(3) For purposes of Paragraphs (1) and (2) of this Subdivision (b), an application shall be considered complete when the Commissioner has received all of the supplemental information he or she requests from an applicant regarding the application. The Commissioner shall notify the applicant in writing of the date on which the Commissioner determined that the application was deemed complete.

(c) As an administrative standard, the Commissioner will approve an application by a California credit union for eligibility if the Commissioner finds both of the following:

(1) That the credit union has an acceptable rating and that there has been no material change in the credit union since the acceptable rating was issued.

(2) That the credit union has adopted the necessary policy to implement the addition of select groups to the field of membership of the credit union.

(d)(1) The Commissioner may, at his or her discretion, revoke the eligibility of a credit union under this Section and Section 30.73 if he or she finds any of the following conditions:

(A) Subsequent to the credit union being granted eligibility, the credit union receives a less than acceptable rating as a result of an examination of the credit union.

(B) Subsequent to the credit union being granted eligibility, there is a material change in the condition of the credit union.

(2) The eligibility of a credit union shall automatically be revoked if a credit union is subject to any enforcement action undertaken by any regulator or insurer of deposits of the credit union.

(3) There shall be no right to a hearing with regard to a determination to revoke a credit union's eligibility pursuant to Subdivision (d)(1) of this Section.

(e) In the event the eligibility of a credit union is revoked pursuant to Subdivision (d) of this Section, the credit union is required to file an application for eligibility under this Section if the credit union desires to regain its status as an eligible credit union.

NOTE

Authority cited: Section 14201, Financial Code. Reference: Sections 14155 and 15451, Financial Code.

HISTORY

1. New section filed 2-27-2003; operative 3-29-2003 (Register 2003, No. 9).

§30.73. Field of Membership: Procedure for Eligible Credit Unions To Add Select Groups.

Note • History

(a) An application by an eligible California credit union to add a select group to its field of membership shall be deemed approved by the Commissioner, if the following requirements are met:

(1) Not less than 10 business days before adding the proposed select group to the credit union's field of membership, the credit union shall file with the Commissioner a report which shall include the following information:

(A) A document signed by an authorized representative of the proposed select group or a letter signed by the common employer requesting that the credit union add the select group to the credit union's field of membership. Whenever possible, the document shall be submitted on the select group's letterhead stationery or the letterhead of the employer.

(B) A statement explaining how the select group shares a common bond of occupation or a common employer.

(C) A statement that the number of persons currently within the select group to be added to the credit union's field of membership is 1,000 or less.

(D) A statement as to the general locations of the select group to be added to the credit union's field of membership.

(E) Two copies of the bylaw amendment adding the select group of the field of membership of the credit union. The bylaw amendment shall be in the form of certificate of secretary or assistant secretary.

(2) The Commissioner does not reject the report called for in Subdivision (a)(1) within 10 business days after filing. The Commissioner may reject a report filed under Subdivision (a)(1) of this Section if the Commissioner finds that it is necessary or appropriate to regulate the addition of the proposed occupational or employee group to the credit union's field of membership, or for other good cause. If the Commissioner does not reject the report called for in Subdivision (a)(1), the bylaw amendment submitted with the report shall be deemed to be approved. The Commissioner may approve an application prior to the date an application is deemed approved.

(b) Within 30 days after an application is approved or is deemed to be approved, the Commissioner shall notify the credit union of the approval and shall provide the credit union with a copy of the bylaw amendment submitted with the report with the approval of the Commissioner endorsed thereon.

NOTE

Authority cited: Section 14201, Financial Code. Reference: Sections 14155 and 15451, Financial Code.

HISTORY

1. New section filed 2-27-2003; operative 3-29-2003 (Register 2003, No. 9).

§30.101. Delayed Funds Availability.

Note • History

(a) In this Section:

(1) “Credit union” means any of the following:

(A) A credit union organized under the laws of California.

(B) A federal credit union with its home office or a branch office in California.

(C) A credit union organized under the laws of a state other than California that maintains a branch office in California.

(2) “Deposit account” means a deposit account as defined in Section 866(b) of the Financial Code, and includes a share account and a share draft account, but does not include a share account with a stated maturity.

(3) “Item” means “check” as defined in 12 C.F.R. 229.2(k).

(b) A credit union shall make an item received for deposit into a deposit account that is maintained in a California office of the credit union available for withdrawal in accordance with Regulation CC (12 C.F.R. Part 229) of the Board of Governors of the Federal Reserve System.

(c) The time period within which an item is required to be made available for withdrawal pursuant to Regulation CC shall be deemed to be the reasonable time by which a credit union must permit a depositor to draw on an item deposited into a deposit account for the purposes of Sections 866.5 and 866.6 of the Financial Code.

NOTE

Authority cited: Sections 215, 866.5 and 866.6, Financial Code. Reference: Sections 866.5 and 866.6, Financial Code; and Chapter 41 (commencing with Section 4001) of Title 12 of the United States Code; Part 229 (commencing with Section 229.1) of Title12 of the Code of Federal Regulations.

HISTORY

1. Change without regulatory effect renumbering and amending former section 901 to new section 30.101 filed 8-19-97 pursuant to section 100, title 1, California Code of Regulations (Register 97, No. 34).

2. Repealer and new section and amendment of Note filed 2-27-2003; operative 3-29-2003 (Register 2003, No. 9).

§30.101.5. Prohibited Advertising.

Note • History

(a) A credit union shall not advertise that it or any of its officers or agents are “bonded to,” “supervised by,” “regulated by,” “licensed by,” “audited by,” or “examined by” the State of California or any agency thereof.

(b) An out-of-state credit union organized and operating pursuant to Section 14157 shall identify the state where chartered by appropriate language in connection with the use of its name in California.

NOTE

Authority cited: Section 14201, Financial Code. Reference: Sections 14157 and 14202, Financial Code.

HISTORY

1. Change without regulatory effect renumbering former section 905 to new section 30.101 filed 8-19-97 pursuant to section 100, title 1, California Code of Regulations (Register 97, No. 34).

2. Change without regulatory effect renumbering duplicative section 30.101 to new section 30.101.5 (Register 97, No. 42).

§30.102. Definitions.

Note • History

(a) The terms defined in the California Credit Union Law when used in this Subchapter shall have the meanings set forth in that law. In addition, the following definitions shall apply in this Subchapter:

(1) “Management personnel” includes the Chief Executive Officer, the Assistant Chief Executive Officer, the Chief Financial Officer, the Operations Manager, and the Credit Manager, and any individual occupying a similar status or performing similar functions.

(2) “Gross income” does not include non-operating gains or losses, recoveries or donated funds.

(3) “Unimpaired capital and surplus” means the total of shares, undivided earnings, and appropriated undivided earnings, net of any income or loss for the accounting period, and does not include the regular reserve or unrealized gains or losses for changes in market values of available-for-sale investments.

(4) “Risk assets” means all assets except the following:

(A) Cash on hand.

(B) Deposits and/or shares in federally or state-insured banks or savings and loan associations, or federally or privately insured credit unions that have a remaining maturity of 5 years or less.

(C) Assets that have a remaining maturity of 5 years or less and are insured by, fully guaranteed as to principal and interest by, or due from the U.S. Government, its agencies, the Federal National Mortgage Association, Federal Home Loan Mortgage Corporation, or the Government National Mortgage Association. Collateralized mortgage obligations that are comprised of government guaranteed mortgage loans shall be included in this asset category.

(D) Loans to other credit unions that have a remaining maturity of 5 years or less.

(E) Student loans insured under the provisions of title IV, Part B of the Higher Education Act of 1965 (20 U.S.C. 1071, et seq.) or similar state insurance programs that have a remaining maturity of 5 years or less.

(F) Loans that have a remaining maturity of 5 years or less and are fully or partially insured or guaranteed by the Federal or a state government or any agency of either. A loan which is partially insured or guaranteed by the Federal or a state government, or agency of either, shall be excepted pursuant to this Subdivision only to the extent that the loan is so insured or guaranteed.

(G) Shares or deposits in a corporate credit union that have a remaining maturity of 5 years or less, other than shares or deposits representing contributions to the membership capital as defined in 12 C.F.R. Part 704. A corporate credit union is a credit union that:

1. Is operated primarily for the purpose of serving other credit unions;

2. Is designated by the National Credit Union Administration as a corporate credit union; and,

3. Limits natural person members to the minimum required by state or federal law to charter and operate the credit union.

(H) Mutual funds or trusts which are authorized by Section 30.300(b)(6) and are either carried at the lower of cost or market, or are marked to market value monthly.

(I) Prepaid expenses.

(J) Accrued interest on non-risk investments.

(K) Loans fully secured by a pledge of shares in the lending credit union, equal to and maintained to at least the amount of the loan outstanding.

(L) Loans which are purchased from liquidating credit unions and guaranteed by the National Credit Union Administration.

(M) National Credit Union Share Insurance Fund Guaranty Accounts established with the authorization of the National Credit Union Administration under the authority of Section 208(a)(1) of the Federal Credit Union Act (12 U.S.C. §1788(a)(1)).

(N) Investments in shares of the National Credit Union Administration Central Liquidity Facility.

(O) Assets included in Subparagraphs (B), (C), (D), (E), (F), and (G) with maturities greater than 5 years are exempt from risk assets if the asset is being carried on the credit union's records at the lower of cost or market, or are being marked to market value monthly.

(P) Assets included in Subparagraphs (B), (C), (D), (E), (F), and (G), with remaining maturities greater than 5 years are exempt from risk assets provided they meet the following criteria, irrespective of whether or not the asset is being carried on the credit union's records at the lower of cost or market, or are being marked to market value monthly:

1 . The interest rate is reset at least annually.

2. The interest rate of the instrument is less than the maximum allowable interest rate for the instrument on the date of the required reserve transfer.

3. The interest rate of the instrument varies directly (not inversely) with the index upon which it is based and is not reset as a multiple of the change in the related index.

(Q) Fixed assets as authorized by Financial Code Sections 14402 and 14403.

(R) Deposit in the National Credit Union Share Insurance Fund representing a federally insured credit union's capitalization account balance of one percent of insured shares.

(S) Accounts deposited by a credit union with the insurer or guarantor that insures or guarantees the credit union's share accounts in accordance with Section 14858 of the Financial Code.

(b)(1) All references in this Subchapter and the California Credit Union Law to statements of financial condition, statements of income, statements of retained earnings, statements of cash flow, and other financial statements of a credit union and all references to assets, liabilities, earnings, retained earnings, and other accounting items of a credit union mean the financial statements or accounting items prepared or determined in conformity with generally accepted accounting principles then applicable, fairly presenting in conformity with generally accepted accounting principles the matters which they purport to present, subject to any specific accounting treatment required by any provision of the California Credit Union Law, of this Subchapter, of any other applicable law, or of any regulation or order issued under the California Credit Union Law.

(2) The Commissioner may, by regulation or order, require that a financial statement or accounting item of a credit union be prepared or determined in a manner other than in conformity with generally accepted accounting principles if the Commissioner finds that such other manner is necessary or appropriate to carry out the purposes or provisions of the California Credit Union Law.

NOTE

Authority cited: Section 14201, Financial Code. Reference: Division 5, Financial Code.

HISTORY

1. Change without regulatory effect renumbering and amending former section 907 to new section 30.102 filed 8-19-97 pursuant to section 100, title 1, California Code of Regulations (Register 97, No. 34).

2. Amendment of section and Note filed 2-27-2003; operative 3-29-2003 (Register 2003, No. 9).

§30.103. Articles of Incorporation: Submission to Commissioner.

Note • History

Before the articles of incorporation of a credit union, any restated articles, any proposed amendments to the articles of incorporation, or any certificate of correction are filed with the Secretary of State, the articles, the restated articles, the certificate of amendment, or the certificate of correction shall be submitted to the Commissioner for written approval. Upon receiving the Commissioner's written approval, the articles, the restated articles or the certificate with the approval of the Commissioner endorsed thereon, shall be filed with the Secretary of State, at which time the articles, the restated articles or the certificate shall be effective. Promptly after the articles, the restated articles, or the certificate is filed with the Secretary of State, the credit union shall file with the Commissioner a copy certified by the Secretary of State of the articles, the restated articles, or the certificate.

NOTE

Authority cited: Section 14201, Financial Code. Reference: Sections 14100, 14101.8, 14102.2 and 14102.4, Financial Code.

HISTORY

1. Change without regulatory effect renumbering and amending former section 908 to new section 30.103 filed 8-19-97 pursuant to section 100, title 1, California Code of Regulations (Register 97, No. 34).

2. Amendment of section heading, section and Note filed 2-27-2003; operative 3-29-2003 (Register 2003, No. 9).

§30.104. Bond and Insurance Coverage.

Note • History

A credit union shall be deemed to have obtained bond or insurance coverage for each officer, credit manager and employee (collectively and separately, the “individual”) having control of or access to funds or securities owned by or pledged with the credit union “commensurate with risks involved,” within the meaning of Section 14409 of the Financial Code, if all of the following conditions are met:

(a) NCUA Approval. The bond form or insurance policy has been approved in writing by the National Credit Union Administration.

(b) Additional Requirements. The bond form or insurance policy also:

(1) Provides coverage for loss of, or damage to, any property caused by the fraud or dishonesty of the individual or through the individual's failure to faithfully perform his or her trust.

(2) Contains a requirement that the issuer of the bond or insurance policy give the Commissioner at least thirty (30) days written notice prior to the termination of the bond or insurance in its entirety.

(c) Minimum Coverage Amount. The minimum amount of bond or insurance coverage required is computed based on the gross assets of the credit union in accordance with the following formula:

Assets Minimum Bond or Insurance

$0 to $10,000 Coverage equal to the credit

union's assets.

$10,001 to $1,000,000 $10,000 for each $100,000 or

fraction thereof.

$1,000,001 to $50,000,000 $100,000 plus $50,000 for each

million or fraction thereof over

$1,000,000.

$50,000,001 to $295,000,000 $2,550,000 plus $10,000 for each

million or fraction thereof over

$50,000,000.

Over $295,000,000 $5,000,000.

And

(d)(1) Maximum Deductible Amounts. The maximum amounts of deductibles are computed based on the gross assets of the credit union in accordance with the following formula:

Assets Maximum Deductibles

$0 - $100,000 No deductibles allowed

$100,001 - $250,000 $1,000

$250,001 - $1,000,000 $2,000

Over $1,000,000 $2,000 plus 1/1000 of total

assets up to a maximum

deductible of $200,000

(2) A deductible may be applied separately to one or more insuring clauses in a blanket bond or insurance policy.

(3) No deductible shall exceed ten percent of a credit union's regular reserve unless the credit union creates a segregated contingency reserve for the amount of the excess. Valuation allowance accounts (e.g., allowance for loan losses) may not be considered part of the regular reserve when determining the maximum deductible.

NOTE

Authority cited: Sections 14201 and 14409, Financial Code. Reference: Sections 14204 and 14409, Financial Code.

HISTORY

1. Change without regulatory effect renumbering former section 909 to new section 30.104 filed 8-19-97 pursuant to section 100, title 1, California Code of Regulations (Register 97, No. 34).

§30.105. Bylaws: Submission to Commissioner.

Note • History

(a) The bylaws of a credit union and any amendment thereto shall become effective when a copy thereof certified by the secretary or assistant secretary of the credit union has been approved by and filed with the Commissioner.

(b) An application for approval of amendments to the bylaws of a credit union shall include:

(1) A certificate of secretary or assistant secretary, which shall include a statement that the bylaws, or the amendments thereto, were approved by the board of directors and, if applicable, by the required vote of the members of the credit union.

(2) A copy of the bylaw provision proposed to be amended which is marked to show changes between the existing provision and the provision as it is proposed to be amended.

(c) As a condition of approval of one or more amendments to the bylaws of a credit union, the Commissioner may require the credit union to submit for filing two copies of the restated bylaws of the credit union that incorporate the amendment or amendments approved in the application as well as all previously approved amendments. One copy of the restated bylaws shall be returned to the credit union with the approval of the Commissioner endorsed thereon.

NOTE

Authority cited: Section 14201, Financial Code. Reference: Section 14103, Financial Code.

HISTORY

1. Change without regulatory effect renumbering former section 910 to new section 30.105 filed 8-19-97 pursuant to section 100, title 1, California Code of Regulations (Register 97, No. 34).

2. Repealer and new section filed 2-27-2003; operative 3-29-2003 (Register 2003, No. 9).

§30.106. Unclaimed Funds.

Note • History

NOTE

Authority cited: Section 14201, Financial Code. Reference: Sections 14204, 14453 and 14700, Financial Code.

HISTORY

1. Change without regulatory effect renumbering former section 911 to new section 30.106 filed 8-19-97 pursuant to section 100, title 1, California Code of Regulations (Register 97, No. 34).

2. Repealer filed 2-27-2003; operative 3-29-2003 (Register 2003, No. 9).

§30.107. Criminal Actions: Report to Commissioner.

Note • History

A credit union shall immediately report in writing to the Commissioner any criminal action filed against such credit union or its directors, officers, committeemen, management personnel or employees.

NOTE

Authority cited: Section 14201, Financial Code. Reference: Sections 14155 and 14205, Financial Code.

HISTORY

1. Change without regulatory effect renumbering and amending former section 912 to new section 30.107 filed 8-19-97 pursuant to section 100, title 1, California Code of Regulations (Register 97, No. 34).

§30.108. Report of Defalcation Required.

Note • History

It shall be the duty of a credit union to report promptly to the Commissioner any actual or alleged defalcation, embezzlement or theft by any director, officer, committeeman, management personnel or employee of such credit union.

NOTE

Authority cited: Section 14201, Financial Code. Reference: Sections 14155 and 14205, Financial Code.

HISTORY

1. Change without regulatory effect renumbering and amending former section 913 to new section 30.108 filed 8-19-97 pursuant to section 100, title 1, California Code of Regulations (Register 97, No. 34).

§30.109. Central Credit Unions: Groups of Employees of a Common Employer.

Note • History

NOTE

Authority cited: Sections 14201 and 15451, Financial Code. Reference: Section 15451, Financial Code.

HISTORY

1. Change without regulatory effect renumbering former section 914 to new section 30.109 filed 8-19-97 pursuant to section 100, title 1, California Code of Regulations (Register 97, No. 34).

2. Repealer filed 2-27-2003; operative 3-29-2003 (Register 2003, No. 9).

Article 2. Applications

§30.200. Out-of-State Credit Unions.

Note • History

(a) Application of Foreign Credit Union. An application for a credit union organized and duly qualified as a credit union in another state to become a credit union organized and operating pursuant to Section 14157 of the Financial Code shall be submitted on the form furnished by the Commissioner. The application shall be filed in the office of the Department in Los Angeles.

(b) Exhibits. Attached to the application submitted pursuant to Subdivision (a) of this section shall be the following exhibits:

(1) A certificate issued by the Secretary of State pursuant to Section 2105 of the California Corporations Code showing that the credit union is authorized to do business in this state, including the name of the agent upon whom process directed at the credit union may be served.

(2) A schedule of interest rates to be charged on loans to be made to residents of this state, a statement that the applicant understands the provisions of Section 14157(a)(3) of the Credit Union Law and a copy of that portion of the applicable law under which the credit union operates establishing maximum interest rates.

(3) Evidence that the credit union members' share accounts are insured by Title II of the Federal Credit Union Act (12 U.S.C. Sec. 1781 et seq.) or other comparable insurance acceptable to the Commissioner.

(4) Evidence that the credit union has obtained surety bond coverage and fidelity bond coverage as prescribed in Section 14409 of the Financial Code.

(5) A letter from the supervisory agency indicating that the credit union is in good standing in the state where the principal office is located.

(6) If the credit union operates on a fiscal year different from the calendar year, a statement indicating the period covered by the credit union's last fiscal year.

(7) A copy of the audited balance sheet and income statement, prepared by an independent accountant or certified public accountant, for the most recently completed calendar or fiscal year.

(8) Statistics indicating the present number of members in the credit union, the total number of persons eligible for membership, the number of persons eligible for membership in California, and the number of members residing in California.

(9) A statement of exact, present field of membership and the locations of any branch offices in California as well as any proposed field of membership if a change is to be made concurrently, with the establishment of an additional branch office.

(10) Articles of Incorporation.

(11) Bylaws.

(12) A report of the names of the person(s) managing each branch office in this state and Statement(s) of Identity and Questionnaire completed by all such persons.

(13) Completed Customer Authorization of Disclosure of Financial Records giving the Commissioner access to financial records in the custody of persons other than the credit union.

(14) The language to be used in connection with the credit union's name in California as required by Section 30.101(b) of this Chapter.

(15) A copy of a resolution of the board of directors agreeing to keep the Commissioner or the Commissioner's duly designated representative advised at all times of the address at which the books, accounts, papers, records, files, safes and vaults are located in California and the office hours of the credit union or, if not located in California, to furnish copies of the credit union's books, accounts, papers, records and files specified in a request therefor to the Commissioner or the Commissioner's duly designated representative at the place designated at such request.

(16) A copy of a resolution of the board of directors committing the credit union to furnish to the Commissioner the following:

(A) Annual reports to the Commissioner as prescribed in Article 2 of Chapter 3 of the Credit Union Law.

(B) Payment for the cost of examination or services performed in accordance with Section 14353 of the Credit Union Law.

(D) The names of the officers, within fifteen (15) days after the board of directors elects the officers of the credit union. At this time, the credit union shall also notify the Commissioner of the names of the board of directors.

(E) An annual report of the names of the person(s) managing each branch office in this state and a Statement of Identity and Questionnaire within ten (10) business days after a change in managers is effected.

(F) Reports of annual audits or examinations, on a continuing basis, performed by the applicable regulatory or supervisory agency and/or the credit union's independent public accountants or certified public accountants within ten (10) business days of receipt by the credit union and copies of any responses to those reports at the time they are sent to the agency and/or accountants.

(G) All amendments to the Articles of Incorporation, Bylaws and the field of membership within thirty (30) days of adoption.

(H) Any changes, additions, or deletions of branch office locations in this state within ten (10) business days of such changes, additions, or deletions.

(c) Fees. Each credit union organized and operating pursuant to this section shall pay an annual fee of $250.00 to the Commissioner on or before December 31st of each year. If payment is not made to the Commissioner by that time, the certificate then in effect stating that the credit union is organized and operating pursuant to Section 14157 of the Financial Code may by order be summarily suspended or revoked by the Commissioner ten (10) days after giving of notice by the Commissioner that such amount is due and unpaid. If, after such an order is made, a request for hearing is filed in writing and a hearing is not held within sixty (60) days thereafter, the order is rescinded as of its effective date.

NOTE

Authority cited: Section 14201, Financial Code. Reference: Sections 14157, 14200, 14203, 14205, 14250, 14351, 14353 and 14409, Financial Code.

HISTORY

1. Change without regulatory effect adding new article 2 (section 30.200) and renumbering and amending former section 918 to new section 30.200 filed 8-19-97 pursuant to section 100, title 1, California Code of Regulations (Register 97, No. 34).

Article 3. Management

§30.300. Investments.

Note • History

(a) Investments made by a credit union pursuant to Sections 14652, 14653 and 14653.5 of the Financial Code shall be subject to the following provisions:

(1) The board of directors of a credit union shall adopt and review at least annually, and the credit union shall comply with, a written investment policy which sets out the goals of the credit union's investment portfolio with respect to the yield, maturity, liquidity and diversification of its investments.

(2) A credit union shall maintain documentary evidence that its investments are authorized pursuant to Sections 14652, 14653 and 14653.5 of the Financial Code and meet the requirements of this Section.

(b) Pursuant to Section 14653.5 of the Financial Code, a credit union is authorized to make the following investments:

(1) Federal Funds: A credit union may sell funds to authorized financial institutions, provided that the interest or other consideration received from the authorized financial institution is the market value of federal funds transactions and that the transaction has a maturity of one or more business days or the credit union is able to require repayment at any time.

(2) Yankee Dollars: A credit union may invest in Yankee Dollar deposits in a United States branch of a foreign bank licensed to do business in the state in which it is located or in a state-chartered, foreign-controlled bank, if the branch of the foreign bank or the foreign-controlled bank are insured by the Federal Deposit Insurance Corporation.

(3) Eurodollar Deposits: A credit union may invest in Eurodollar deposits in a branch of an authorized financial institution.

(4) Bankers' Acceptances: A credit union may invest in bankers' acceptances issued by a bank insured by the Federal Deposit Insurance Corporation.

(5) Deposits: A credit union may invest in deposits of authorized financial institutions.

(6) Mutual funds or trusts: A credit union may invest in an “investment company” (commonly known as a “mutual fund”) as defined in the Investment Company Act of 1940 (15 U.S.C. Sec. 80a-1 et seq.) or trusts provided all investments and investment practices of the investment company or trust would be permissible if made directly by the credit union or federal credit unions.

(c) Credit unions may not engage in the following investment activities with respect to investments authorized by Subdivision (b):

(1) A credit union may not buy or sell a standby commitment.

(2) A credit union may not buy or sell a futures contract.

(3) A credit union may not engage in adjusted trading.

(4) A credit union may not engage in a short sale.

(5) A credit union's directors, officials, committee members and employees, and their immediate family members, may not receive pecuniary consideration in connection with the making of an investment or deposit by the credit union.

(d) For purposes of Subdivisions (b) and (c) of this Section, the following definitions shall apply:

(1) “Adjusted trading” means any method or transaction used to defer a loss whereby a credit union sells a security to a vendor at a price above its current market price and simultaneously purchases or commits to purchase from the vendor another security at a price above its current market price.

(2) “Authorized financial institution” means a national bank, state bank, trust company, savings association, credit union, or other financial institution which is organized under the laws of the State of California, or which is insured by the Federal Deposit Insurance Corporation or the National Credit Union Share Insurance Fund.

(3) “Bankers' acceptance” means a time draft that is drawn on and accepted by a bank, and that represents an irrevocable obligation of the bank.

(4) “Eurodollar deposit” means a deposit in a foreign branch of a United States depository institution.

(5) “Federal funds transaction” means a short-term or open-ended transfer of funds to an authorized financial institution.

(6) “Futures contract” means a contract for the future delivery of commodities, including certain government securities, sold on commodities exchanges.

(7) “Immediate family member” means a spouse, or a child, parent, grandchild, grandparent, brother or sister, or the spouse of any such individual.

(8) “Market price” means the last established price at which a security is sold.

(9) “Maturity date” means the date on which a security matures, and shall not mean the call date or the average life of the security.

(10) “Security” means any security, obligation, account, deposit, or other item authorized for investment by a credit union.

(11) “Short sale” means the sale of a security not owned by the seller.

(12) “Standby commitment” means a commitment to either buy or sell a security, on or before a future date, at a predetermined price. The seller of the commitment is the party receiving payment for assuming the risk associated with committing either to purchase a security in the future at a predetermined price, or to sell a security in the future at a predetermined price. The seller of the commitment is required to either accept delivery of a security (in the case of a commitment to buy) or make delivery of a security (in the case of a commitment to sell), in either case at the option of the buyer of the commitment.

(13) “Yankee Dollar deposit” means a deposit in a United States branch of a foreign bank licensed to do business in the state in which it is located, or a deposit in a state chartered, foreign controlled bank.

NOTE

Authority cited: Section 14201, Financial Code. Reference: Sections 14652, 14653 and 14653.5, Financial Code.

HISTORY

1. Change without regulatory effect adding new article 3 (sections 30.300-30.307) and renumbering and amending former section 922 to new section 30.300 filed 8-19-97 pursuant to section 100, title 1, California Code of Regulations (Register 97, No. 34).

2. Amendment of section and Note filed 2-27-2003; operative 3-29-2003 (Register 2003, No. 9).

§30.301. Board of Directors: Minutes.

Note • History

(a) The secretary of a credit union shall maintain complete minutes of the board of directors' meetings. The minutes shall include authorization of investments and withdrawals, authorization of borrowing, authorization of charge-off of accounts, authorization of payments of interest refunds, declaration of dividends, authorization of purchase or lease of fixed assets, and approval of expenses of the credit union and either the approval of new members by the board of directors or a report of approval of new members by a committee appointed by the directors for that purpose. The names and account numbers of members shall be maintained by either the board of directors or the membership committee chairperson, or other person designated by the board of directors or by the membership committee chairperson.

(b) With respect to the authorization of charge-off of accounts, the board of directors may authorize the charge-off of the aggregate balance of two or more obligations, if no one obligation has a balance which exceeds $20,000 and if a list of the obligations, by borrower and amount charged-off, is attached to and made a part of the minutes of the board meeting at which the charge-off is authorized.

NOTE

Authority cited: Section 14201, Financial Code. Reference: Sections 14250, 14453, 14456, 14650 and 14800, Financial Code.

HISTORY

1. Change without regulatory effect renumbering former section 923 to new section 30.301 filed 8-19-97 pursuant to section 100, title 1, California Code of Regulations (Register 97, No. 34).

2. Amendment of section and Note filed 2-27-2003; operative 3-29-2003 (Register 2003, No. 9).

§30.302. Confirmation of Accounts.

Note • History

A credit union shall confirm its accounts at least annually, in accordance with Subdivision (a) or (b) of this Section:

(a) If the credit union does not comply with Subdivision (b) of this Section, the supervisory committee shall cause all the accounts of members to be confirmed with the members and the records of the credit union. The confirmation of members' accounts may be made by using either a negative method applied to 100 percent of the credit union's accounts or by using a positive method applied to a sample of the credit union's accounts derived by applying statistical sampling procedures. Within sixty (60) days after the date the accounts are confirmed, the supervisory committee shall report to the board of directors that the confirmation of accounts has been completed. The report shall contain complete details of any unreconciled exceptions and shall be signed by a majority of the members of the supervisory committee. The confirmation of accounts report and returned requests for confirmation shall be made available to the Commissioner upon request and retained by the committee until the next regulatory examination of the credit union's records is made by the Commissioner.

(b) If a credit union does not comply with Subdivision (a) of this Section, the credit union shall have its accounts confirmed as part of an audit made pursuant to Section 14252 of the Financial Code. In such a case, a report of the confirmation of accounts shall be included in the report of the audit. A form of statistical sampling of member's accounts in accordance with generally accepted auditing standards may be employed in lieu of a 100 percent confirmation.

NOTE

Authority cited: Section 14201, Financial Code. Reference: Sections 14250, 14252, 14255 and 14553, Financial Code.

HISTORY

1. Change without regulatory effect renumbering and amending former section 925 to new section 30.302 filed 8-19-97 pursuant to section 100, title 1, California Code of Regulations (Register 97, No. 34).

2. Amendment of section heading, section and Note filed 2-27-2003; operative 3-29-2003 (Register 2003, No. 9).

§30.303. Dividends.

Note • History

NOTE

Authority cited: Sections 14201 and 14862, Financial Code. Reference: Sections 14002, 14204, 14456, 14862 and 14900-14907, Financial Code.

HISTORY

1. Change without regulatory effect renumbering and amending former section 927 to new section 30.303 filed 8-19-97 pursuant to section 100, title 1, California Code of Regulations (Register 97, No. 34).

2. Repealer filed 2-27-2003; operative 3-29-2003 (Register 2003, No. 9).

§30.304. Purchase of Notes from Liquidating Credit Union.

Note • History

A credit union may purchase members' notes of a liquidating credit union, provided all of the following conditions are met:

(a) The purchase shall not result in increases in expenses and losses to the credit union to the extent that it would impair the credit union's ability to pay normal dividends on shares.

(b) After the purchase of notes pursuant to this Section, the credit union shall establish a special reserve in accordance with generally accepted accounting principles.

(c) The amounts paid for the notes shall not exceed the limitations on obligations contained in the California Credit Union Law as they apply to the purchasing credit union.

(d) A purchase agreement shall be signed by the board of directors or authorized officer of the purchasing credit union and the board of directors or authorized liquidating agent of the selling credit union.

(e) The written consent of the Commissioner shall have been obtained authorizing the credit union to purchase the members' notes.

NOTE

Authority cited: Section 14201, Financial Code. Reference: Sections 14656 and 14702, Financial Code.

HISTORY

1. Change without regulatory effect renumbering and amending former section 928 to new section 30.304 filed 8-19-97 pursuant to section 100, title 1, California Code of Regulations (Register 97, No. 34).

2. Amendment of section and Note filed 2-27-2003; operative 3-29-2003 (Register 2003, No. 9).

§30.305. Classification of Shares.

Note • History

Pursuant to the authority granted by Section 14862 of the Financial Code, the Commissioner will permit classification of share accounts into two or more classes, provided the following conditions are met:

(a) The Articles of Incorporation are not in conflict with issuing more than one class of shares.

(b) The corporate records of the credit union will include a schedule of the classes and series of shares authorized by the board of directors, showing all rights, preferences, privileges and restrictions of such class or series. All shares within each series must have the same rights, preferences, privileges, restrictions, and dividend rates.

(c) The board of directors shall be responsible for the establishment and review of a plan of business to determine on a continuous basis the ability of the credit union to pay dividends on share accounts at the rates established.

(d) A credit union which has failed to make timely and full payments of any dividend for which a rate was established in advance shall within five days after the dividend date, report the fact to the Commissioner. If it appears to the Commissioner that the credit union cannot meet its dividend obligations thereafter on its share accounts, the Commissioner may direct the credit union to restrict or discontinue the offering of any or all classes of share accounts.

NOTE

Authority cited: Sections 14201, 14862 and 14866, Financial Code. Reference: Sections 14100, 14862 and 14865, Financial Code.

HISTORY

1. Change without regulatory effect renumbering former section 925 to new section 30.305 filed 8-19-97 pursuant to section 100, title 1, California Code of Regulations (Register 97, No. 34).

§30.306. Investments in Fixed Assets and Service Corporations.

Note • History

(a) In this Section:

(1) “Section 14402 investment” means an investment in real property which is made pursuant to Section 14402 of the Financial Code.

(2) “Section 14403 investment” means an investment in personal property which is made pursuant to Section 14403 of the Financial Code.

(3) “Section 14650 investment” means an investment in shares of a corporation which is made pursuant to Section 14650 of the Financial Code.

(4) “Section 14651 investment” means either of the following:

(A) An investment in the shares of a corporation, or in the membership or economic interests of a limited liability company, which is made pursuant to Section 14651(a) of the Financial Code.

(B) An investment in the securities of a corporation or in the membership or economic interests of a limited liability company, which is made pursuant to Section 14651(b) of the Financial Code.

(b) A credit union shall not make a Section 14402 investment, a Section 14403 investment, a Section 14650 investment, or a Section 14651 investment, if the aggregate of all proposed and current Section 14402 investments, Section 14403 investments, Section 14650 investments and Section 14651 investments exceeds ten percent of unimpaired capital and surplus, unless a greater amount is authorized in writing by the Commissioner.

(c) In requesting the written approval of the Commissioner to exceed the limitation in Subdivision (b), a credit union shall set forth in writing the following information:

(1) The total amount of Section 14402 investments, the total amount of Section 14403 investments, the total amount of Section 14650 investments, and the total amount of Section 14651 investments held by the credit union.

(2) The aggregate of such investments.

(3) The amount, if any, by which the aggregate exceeds the limitation in Subdivision (b).

(4) In the case of Section 14650 investments, the name of each corporation in which the credit union owns shares and the percentage of outstanding shares owned by the credit union.

(5) In the case of Section 14651 investments:

(A) The name of each corporation in which the credit union owns shares and the percentage of outstanding shares owned by the credit union.

(B) The name of each corporation in which the credit union owns securities, other than shares, and the percentage of such securities currently outstanding which are owned by the credit union.

(C) The name of each limited liability company in which the credit union owns a membership or economic interest and the percentage of outstanding membership or economic interests of such limited liability company which is owned by the credit union.

(6) The amount the credit union proposes to invest in Section 14402 investments, in Section 14403 investments, in Section 14650 investments, and in Section 14651 investments.

(7) The amount by which the sum of the proposed Section 14402 investments, Section 14403 investments, Section 14650 investments and Section 14651 investments, plus amounts currently invested in Section 14402 investments, Section 14403 investments, Section 14650 investments, and Section 14651 investments, will exceed the limitation in Subdivision (b).

(8) In the case of Section 14650 investments, the name of each corporation in which the credit union proposes to purchase shares and the percentage of outstanding shares the credit union will own after the proposed transaction.

(9) In the case of Section 14651 investments, the name of each corporation or limited liability company in which the credit union proposes to purchase securities, or membership or economic interests, and the percentage of outstanding securities or membership or economic interests the credit union will own after the proposed transaction.

(10) A statement of the necessity for exceeding the limitation in Subdivision (b). In setting forth the necessity for the excess investments, a credit union shall do all the following:

(A) In case of a Section 14402 investment or a Section 14403 investment, describe the real or personal property to be acquired.

(B) In case of a Section 14650 investment or a Section 144651 investment, describe the corporation or limited liability company in which the credit union is purchasing securities or membership or economic interests.

(D) Describe alternatives to making the investment, such as leasing, renting, otherwise periodically paying for or not acquiring the use of the property.

(11)(A) In case of a Section 14402 investment or Section 14403 investment, the percentage of the property to be initially occupied or used by the credit union, and, if applicable, the name of the person or persons, if known, who the credit union anticipates will occupy or use any portion of the real or personal property.

(B) The name of the person or persons from whom the credit union proposes to acquire the real or personal property or shares.

(12) Confirmation that the investment will not impair the credit union's ability to pay normal dividends on shares or to enter into obligations.

(d) Within forty-five (45) days of receipt of a complete request for approval to exceed the limitation in Subdivision (b) of this Section, the Commissioner shall approve or disapprove the request. Within forty-five (45) days of a receipt of an incomplete request, the Commissioner shall notify the credit union that the request is incomplete and shall specify the information needed to complete the request.

(e) In case a credit union has investments, as of the effective date of the amendment to this Section, which exceed the limitations provided for in this Section but which were made in conformity with the law in effect at the time the investment was made, the credit union shall not be deemed to be in violation of this Section. However, the credit union shall not make any additional investment subject to this Section without first complying with Subdivision (b) of this Section.

NOTE

Authority cited: Section 14201, Financial Code. Reference: Sections 14402, 14403, 14650 and 14651, Financial Code.

HISTORY

1. Change without regulatory effect renumbering and amending former section 932 to new section 30.306 filed 8-19-97 pursuant to section 100, title 1, California Code of Regulations (Register 97, No. 34).

2. Amendment of section and Note filed 2-27-2003; operative 3-29-2003 (Register 2003, No. 9).

§30.307. Reimbursement for Expenses.

Note • History

For purposes of Section 14410(b) of the Financial Code, the term “expenses” includes payment (by reimbursement to a director or a committee member or direct credit union payment to a third party) for reasonable and proper costs incurred by a director or committee member in carrying out the responsibilities of the position to which the person has been elected or appointed, if the payment is determined by the board of directors to be necessary or appropriate in order to carry out the official business of the credit union, and is in accordance with written policies and procedures established by the board of directors which shall include documentation requirements and definitions of any expense items (including travel costs) that may be reimbursed by the credit union. Reimbursement under this section may include the payment of travel costs for directors and committee members and one immediate family member (as defined in the written policies and procedures) per director or committee member.

NOTE

Authority cited: Section 14201, Financial Code. Reference: Section 14410, Financial Code.

HISTORY

1. Change without regulatory effect renumbering former section 933 to new section 30.307 filed 8-19-97 pursuant to section 100, title 1, California Code of Regulations (Register 97, No. 34).

Article 4. Reserves

§30.400. Regular Reserve: Additional Reserves.

Note • History

NOTE

Authority cited: Section 14201, Financial Code. Reference: Sections 14007, 14203, 14204 and 14702, Financial Code.

HISTORY

1. Change without regulatory effect adding new article 4 (sections 30.400-30.405) and renumbering former section 935 to new section 30.400 filed 8-19-97 pursuant to section 100, title 1, California Code of Regulations (Register 97, No. 34).

2. Repealer filed 2-27-2003; operative 3-29-2003 (Register 2003, No. 9).

§30.401. Extensions, Refinances, Renegotiations or Revisions.

Note • History

(a) Obligations shall not be extended, refinanced, renegotiated, or revised unless there is evidence that the borrower will be able to adhere to the terms of the extended, refinanced, renegotiated, or revised obligation.

(b) For the purposes of subdivision (a), an obligation shall not be deemed to be “extended” if the term of the obligation is lengthened by any of the following:

(1) The terms and conditions of the obligation provide for a “skip payment” option.

(2) A general offer is made by a credit union to all its members in good standing to skip a payment, provided no more than two payments per calendar year are skipped in reliance on this paragraph.

NOTE

Authority cited: Section 14201, Financial Code. Reference: Sections 14007 and 14950, Financial Code.

HISTORY

1. Change without regulatory effect renumbering and amending former section 936 to new section 30.401 filed 8-19-97 pursuant to section 100, title 1, California Code of Regulations (Register 97, No. 34).

2. Amendment of section heading and section filed 2-27-2003; operative 3-29-2003 (Register 2003, No. 9).

§30.402. Charge-Offs of Obligations.

Note • History

(a)(1) A credit union shall charge off each of the following types of obligations:

(A) An obligation repayable monthly on which no full monthly contractual payments have been made within the past 180 days, unless the obligor has filed a petition under either Chapter 11 or Chapter 13 of the Bankruptcy Code (Title 11 of the United States Code) and the obligor's confirmed reorganization or debt adjustment plan provides for payment of the account.

(B) An obligation repayable by other than monthly payments or repayable in a single payment on which no full contractual payment has been made within 180 days from the due date of the first past due and unpaid installment.

(D) An obligation on which payments received during the past 180 days have not been sufficient to reduce the principal balance of the obligation, unless the contract creating the obligation does not require a reduction in the principal balance of the obligation but provides for the principal balance to be paid off at the time the obligation matures.

(2) Paragraph (1) of this Subdivision is not an exclusive list of the types of obligations that a credit union is required to charge off.

(b) A credit union shall review its obligations at least once each month and shall, within 30 days after the review, charge off any obligation that is found on the basis of the review to be required to be charged off under Subdivision (a) of this Section.

(c) If, instead of charging off an obligation in full as required by this Section, a credit union writes off less than the full amount of the obligation, the credit union shall not be deemed to be in violation of this Section if the Commissioner finds that use of the lesser amount fairly states the credit union's financial condition.

NOTE

Authority cited: Section 14201, Financial Code. Reference: Section 14703, Financial Code.

HISTORY

1. Change without regulatory effect renumbering and amending former section 937 to new section 30.402 filed 8-19-97 pursuant to section 100, title 1, California Code of Regulations (Register 97, No. 34).

2. Repealer and new section filed 2-27-2003; operative 3-29-2003 (Register 2003, No. 9).

§30.403. Losses Chargeable to Regular Reserve.

Note • History

Written consent of the Commissioner shall be obtained before any operating losses may be charged to the regular reserve under Section 14701 of the Financial Code.

NOTE

Authority cited: Section 14201, Financial Code. Reference: Section 14701, Financial Code.

HISTORY

1. Change without regulatory effect renumbering former section 938 to new section 30.403 filed 8-19-97 pursuant to section 100, title 1, California Code of Regulations (Register 97, No. 34).

2. Amendment of section heading, section and Note filed 2-27-2003; operative 3-29-2003 (Register 2003, No. 9).

§30.404. Regular Reserve: Shares Insured.

Note • History

(a) As used in this Section, “credit union” means any credit union the share accounts of which are insured other than by the National Credit Union Share Insurance Fund.

(b) A credit union that has been in operation for more than four years and maintains continuing insurance of its accounts pursuant to Section 14858 of the Financial Code shall maintain a regular reserve determined in accordance with this Subdivision, or as otherwise specified by the Commissioner pursuant to Financial Code Section 14700. At the close of each accounting period, 10% of the gross income of the credit union shall be transferred to the reserve until the reserve equals four percent of total risk assets, then five percent of the gross income of the credit union until the reserve equals six percent of total risk assets. Whenever the reserve falls below the above levels, it shall be replenished by contributions as may be needed to meet the required levels of four percent or six percent, as the case may be.

(c) A credit union that has been in operation for less than four years shall maintain a regular reserve of at least the level specified by the Commissioner in his or her approval of the credit union's application for a certificate to act as a credit union, or as otherwise specified by the Commissioner pursuant to Financial Code Section 14700.

NOTE

Authority cited: Section 14201, Financial Code. Reference: Section 14700, Financial Code.

HISTORY

1. Change without regulatory effect renumbering former section 939 to new section 30.404 filed 8-19-97 pursuant to section 100, title 1, California Code of Regulations (Register 97, No. 34).

2. Amendment filed 2-27-2003; operative 3-29-2003 (Register 2003, No. 9).

§30.405. Transfers Between Undivided Earnings and Regular Reserve.

Note • History

(a) As used in this Section, “credit union” means any credit union the share accounts of which are insured other than by the National Credit Union Share Insurance Fund.

(b) A credit union which has a regular reserve in excess of six percent of risk assets, may, with the approval of the board of directors and subject to generally accepted accounting principles, transfer any or all of the excess to the undivided earnings account.

(c) A credit union may, with the approval of the board of directors and subject to generally accepted accounting principles, make transfers from the undivided earnings account to the regular reserve account in excess of the amount required to be transferred.

NOTE

Authority cited: Section 14201, Financial Code. Reference: Section 14700, Financial Code.

HISTORY

1. Change without regulatory effect renumbering and amending former section 940 to new section 30.405 filed 8-19-97 pursuant to section 100, title 1, California Code of Regulations (Register 97, No. 34).

2. Amendment of section heading and section and Note filed 2-27-2003; operative 3-29-2003 (Register 2003, No. 9).

§30.406. Reserve and Capital Requirements: NCUA-Insured Institutions.

Note • History

(a) As used in this Section, “credit union” means a credit union the share accounts of which are insured by the National Credit Union Share Insurance Fund.

(b) A credit union is not subject to Sections 30.404 and 30.405, but remains subject to Financial Code Section 14700.

(c) A credit union shall maintain its equity capital at a level at least equal to the minimum net worth ratio specified for the net worth category of an adequately capitalized credit union, as defined in the Prompt Corrective Action regulations of the National Credit Union Administration (12 C.F.R. Section 702.1 et seq.)

NOTE

Authority cited: Section 14201, Financial Code. Reference: Sections 14400 and 14700, Financial Code, Part 702 (commencing with Section 702.1) of Title 12 of the Code of Federal Regulations.

HISTORY

1. New section filed 2-27-2003; operative 3-29-2003 (Register 2003, No. 9).

Article 5. Insurance

§30.500. Insurance Protection for Obligations Secured by Personal Property.

Note • History

The board of directors of a credit union shall adopt and review at least annually, and the credit union shall comply with, a policy on insuring personal property that secures an obligation. The policy shall (a) provide that, subject to reasonable and specified exceptions, personal property securing an obligation shall be insured in an amount at least equal to the lesser of (1) the principal balance of the obligation or (2) the fair market value of the personal property security, and (b) protect against such risks as the board of directors deems necessary or advisable to protect the credit union's interests.

NOTE

Authority cited: Section 14201, Financial Code. Reference: Sections 14950, 14952, 14955 and 15100, Financial Code.

HISTORY

1. Change without regulatory effect adding new article 5 (sections 30.500-30.502) and renumbering and amending former section 942 to new section 30.500 filed 8-19-97 pursuant to section 100, title 1, California Code of Regulations (Register 97, No. 34).

2. Repealer and new section filed 2-27-2003; operative 3-29-2003 (Register 2003, No. 9).

§30.501. Vendor's Single Interest (V.S.I.) Insurance.

Note • History

If a credit union ascertains that insurance required by Section 30.500 with respect to motor vehicles is not obtainable for a borrower, a V.S.I. insurance policy may be purchased and the cost may be added to the borrower's obligation account. In taking such action, the credit union must comply with the following:

(a) Obtain at the time the obligation is made (or at any time prior to the purchase of V.S.I. insurance) a written authorization from the borrower, which will enable the credit union to purchase V.S.I. insurance and add the cost of the premium to the borrower's obligation account in the event that such should become necessary. Such authorization shall include a statement (in 8-point bold type) in which the borrower acknowledges that such V.S.I. insurance is without benefit to him individually but is primarily for the protection of the credit union.

(b) Fifteen days (15) prior to the purchase of V.S.I. insurance, the credit union must give written notice to the borrower that it is its intention to procure such insurance (if a dual coverage policy is not obtained and presented) and that the cost of the V.S.I. premium will be added to the borrower's obligation account. Evidence of such a notification must be retained by the credit union in the member's file.

(c) Upon purchasing a V.S.I. policy, the credit union must immediately inform the borrower of such action, including the amount of the premium, the period of the coverage, and the fact that the premium has been added to his obligation account.

(d) A credit union may obtain a blanket V.S.I. insurance policy provided the premium is paid for by the credit union and not by borrowers individually. Where a credit union does have such a blanket policy in force, signed statements of the borrower (“Borrower's Agreement to Provide Insurance” or an equivalent statement), indicating his intention to obtain an individual policy of insurance from a carrier of his choice will be considered to be evidence of compliance with Section 30.500 of this Chapter.

NOTE

Authority cited: Section 14201, Financial Code. Reference: Sections 14007, 14201, 14204, 14953, 14955 and 15100, Financial Code.

HISTORY

1. Change without regulatory effect renumbering and amending former section 943 to new section 30.501 filed 8-19-97 pursuant to section 100, title 1, California Code of Regulations (Register 97, No. 34).

2. Amendment of first paragraph and subsection (d) filed 2-27-2003; operative 3-29-2003 (Register 2003, No. 9).

§30.502. Group Life Insurance; Accident and Health Insurance; Group Automobile Insurance.

Note • History

A credit union may make group life insurance, accident and health insurance, or group automobile insurance, or any combination thereof, available to members provided the following conditions are met:

(a) Participation by the member must be voluntary. Under no circumstances may such coverage be directly or indirectly a condition to the approval of a loan, nor may such coverage be conditioned on the purchase of additional shares.

(b) The member who desires any such insurance shall indicate in writing that he or she understands that participation in the program is voluntary and the member shall sign such statement. The credit union shall retain such signed statement so long as the insurance coverage is in effect.

(c) Any member who desires any such insurance must execute a written authorization identifying any disbursements which the credit union is authorized to make on the member's behalf in payment of premiums on such insurance.

(d) No fee, compensation, commission, gift or reimbursement incidental or in any way related to the insurance transaction may be paid or given, directly or indirectly, to any officer, director, committee member, or employee of the credit union or to any person related to, or company affiliated with, such officer, director, committee member, or employee.

(e) Compensation for each insurance transaction may be paid by the insurance carrier or the insurance carrier's agent to the credit union to the extent permitted by the Insurance Code and the regulations of the Insurance Commissioner.

(f) Before making any plan or program of insurance available to members, the management of the credit union should satisfy itself that the plan or program is in the best interest of the members, and should make every effort to safeguard members against misrepresentation or deception by the insurer or plan sponsor.

NOTE

Authority cited: Section 14201, Financial Code. Reference: Sections 14201, 14204, 14953, 14955 and 15100, Financial Code.

HISTORY

1. Change without regulatory effect renumbering former section 944 to new section 30.502 filed 8-19-97 pursuant to section 100, title 1, California Code of Regulations (Register 97, No. 34).

Article 6. Books and Records

§30.600. Standard for Keeping Books and Records.

Note • History

(a) A credit union shall maintain its books and records in accordance with generally accepted accounting principles and good business practice, except as otherwise provided in the California Credit Union Law, in this Subchapter, in any other applicable law, or by order of the Commissioner.

(b) A credit union shall keep its books on an accrual basis of accounting or other basis of accounting as permitted by the Commissioner.

NOTE

Authority cited: Section 14201, Financial Code. Reference: Sections 14250 and 14252, Financial Code.

HISTORY

1. Change without regulatory effect adding new article 6 (sections 30.600-30.606) and renumbering former section 951 to new section 30.600 filed 8-19-97 pursuant to section 100, title 1, California Code of Regulations (Register 97, No. 34).

2. Amendment of section heading, section and Note filed 2-27-2003; operative 3-29-2003 (Register 2003, No. 9).

§30.601. Books and Records: Location and Office Hours.

Note • History

A credit union shall keep the Commissioner advised at all times of the address at which said books and records are maintained and the office hours of the credit union.

NOTE

Authority cited: Section 14201, Financial Code. Reference: Sections 14203, 14250 and 14251, Financial Code.

HISTORY

1. Change without regulatory effect renumbering and amending former section 952 to new section 30.601 filed 8-19-97 pursuant to section 100, title 1, California Code of Regulations (Register 97, No. 34).

§30.602. Retention of Books and Records.

Note • History

(a) The following books and records are to be retained permanently at the office of the credit union.

(1) Articles of incorporation, bylaws and amendments to the articles and bylaws.

(2) Certificate to act as a credit union, amendments thereto, and administrative orders of the Commissioner.

(3) Letters and other official instructions of a permanent character received from the Commissioner.

(4) Minutes of meetings of the members and board of directors.

(5) Members' subsidiary ledger accounts which have a balance remaining.

(b) Other books and records, except daily data processing print outs, shall be retained at the office of the credit union for a minimum of five (5) years after the close of the fiscal year for which the records were transcribed, including all of the following:

(1) General ledger and expense ledger.

(2) Journals, including the general journal and cash journal or other record of cash receipts and disbursements.

(3) Monthly financial reports required by Section 30.701 of this Chapter.

(4) Copies of the supervisory committee's audit reports.

(5) Members' subsidiary ledger accounts which were reduced to a zero balance during such fiscal year.

(6) Minutes of the supervisory committee and the credit committee.

(7) Paid checks or records of checks paid, and bank statements for the credit union's accounts.

(c) The records of a credit union shall be maintained in a form which is accessible to the inspection of the Commissioner.

(d) When necessary for the purposes of the California Credit Union Law, the Commissioner may direct a credit union to maintain its records for periods in addition to those prescribed in Subdivision (b) of this Section.

NOTE

Authority cited: Section 14201, Financial Code. Reference: Section 14250, Financial Code.

HISTORY

1. Change without regulatory effect renumbering and amending former section 953 to new section 30.602 filed 8-19-97 pursuant to section 100, title 1, California Code of Regulations (Register 97, No. 34).

2. Amendment of section heading, section and Note filed 2-27-2003; operative 3-29-2003 (Register 2003, No. 9).

§30.603. Accounting: Change of System.

Note • History

NOTE

Authority cited: Section 14201, Financial Code. Reference: Sections 14203, 14204, 14250 and 14300, Financial Code.

HISTORY

1. Change without regulatory effect renumbering former section 954 to new section 30.603 filed 8-19-97 pursuant to section 100, title 1, California Code of Regulations (Register 97, No. 34).

2. Repealer filed 2-27-2003; operative 3-29-2003 (Register 2003, No. 9).

§30.604. Disbursements.

Note • History

NOTE

Authority cited: Section 14201, Financial Code. Reference: Sections 14203, 14204, 14250 and 14300, Financial Code.

HISTORY

1. Change without regulatory effect renumbering former section 956 to new section 30.604 filed 8-19-97 pursuant to section 100, title 1, California Code of Regulations (Register 97, No. 34).

2. Repealer filed 2-27-2003; operative 3-29-2003 (Register 2003, No. 9).

§30.605. Deposit of Funds.

Note • History

Unless specific authority has been granted by the Commissioner, all funds received (except cash needed to replenish vault cash at levels authorized by the board of directors) shall be deposited in accordance with Section 14406 of the Financial Code by the credit union within 48 hours of their receipt (exclusive of Saturdays, Sundays and holidays), provided, however, that receipts in the aggregate amount of $1,000 or less need not be deposited more often than once each week. The deposit slips shall be prepared in duplicate, the duplicate copy to be retained by the credit union as a part of its accounting records.

NOTE

Authority cited: Section 14201, Financial Code. Reference: Section 14406, Financial Code.

HISTORY

1. Change without regulatory effect renumbering former section 957 to new section 30.605 filed 8-19-97 pursuant to section 100, title 1, California Code of Regulations (Register 97, No. 34).

2. Amendment of section and Note filed 2-27-2003; operative 3-29-2003 (Register 2003, No. 9).

§30.606. Statements of Accounts or Passbooks Required.

Note • History

A credit union shall supply its members with statements of accounts or passbooks which show the transactions and current position of the member involving shares, certificates for funds and obligations. If statements of accounts are supplied they may show only the transactions for the period covered and the current positions and must be sent to members at least quarterly. Members whose accounts show no activity other than dividends may be sent an annual statement.

NOTE

Authority cited: Section 14201, Financial Code. Reference: Sections 14007, 14204, 15151, 15152 and 15153, Financial Code.

HISTORY

1. Change without regulatory effect renumbering former section 959 to new section 30.606 filed 8-19-97 pursuant to section 100, title 1, California Code of Regulations (Register 97, No. 34).

Article 7. Reports

§30.700. Report Regarding Officers and Directors.

Note • History

(a) Within 30 days after the board of directors' meeting required by Section 14454 of the Financial Code, the credit union shall file a report with the Commissioner which lists the names of the credit union's officers, including the chief executive officer or individual occupying a similar status or performing similar functions, the members of the board of directors, the members and alternate members of the credit committee or the credit manager, whichever is applicable, and the members of the supervisory committee.

(b) Notwithstanding Subdivision (a), a credit union shall notify the Commissioner of any change in the manager or chief executive officer of the credit union no later than 30 days after making the change, unless the change is made within 30 days before the filing of the report required by Subdivision (a) and the change is included in such report.

NOTE

Authority cited: Section 14201, Financial Code. Reference: Section 14255, Financial Code.

HISTORY

1. Change without regulatory effect adding new article 7 (sections 30.700-30.701) and renumbering former section 965 to new section 30.700 filed 8-19-97 pursuant to section 100, title 1, California Code of Regulations (Register 97, No. 34).

2. Amendment of section heading, section and Note filed 2-27-2003; operative 3-29-2003 (Register 2003, No. 9).

§30.701. Financial Statement and Report of Obligations.

Note • History

(a) In this Section, “delinquent,” when used to describe an obligation, means:

(1) In the case of an obligation repayable in monthly installments, an obligation for which payment in full of a monthly contractual installment is not received within one month after the installment is due and such payment has not yet been received.

(2) In the case of an obligation repayable in other than monthly installments or repayable in a single payment, an obligation for which payment in full of a contractual payment has not been received within one month after the payment is due and such payment has not yet been received.

(b) Within twenty-one (21) days after the close of each calendar month a credit union shall prepare and submit to its board of directors and to the supervisory committee the following:

(1) A statement of financial condition as of the last day of the calendar month.

(2) A statement of income for the current period.

(3) A report of the total number and total unpaid balance of obligations, aggregated in each of the following categories, as of the end of the calendar month:

(A) Obligations which are at least two but less than six months delinquent.

(B) Obligations which are at least six but less than twelve months delinquent.

(D) Obligations, which may or may not be delinquent, but where any one of the following applies:

1. The obligor has filed for relief under the Bankruptcy Code (other than under Chapter 11 or Chapter 13 of the Bankruptcy Code) (Title 11 of the United States Code).

2. The board of directors or an officer has determined that the location of the obligor is unknown.

3. The obligation has been assigned to an agent or attorney for collection.

(c) The credit union shall post copies of its statement of financial condition and statement of income in a conspicuous place in each office of the credit union or at a place convenient to the members as designated by the board of directors, where they shall remain posted until replaced by the financial statements of the next succeeding month. In lieu of posting copies of such financial statements, a credit union may post a notice in a conspicuous place in each office of the credit union stating that copies of the financial statements are available upon request, and the credit union shall make copies of the financial statements available to members upon request.

NOTE

Authority cited: Section 14201, Financial Code. Reference: Sections 14453, 14551 and 14553, Financial Code.

HISTORY

1. Change without regulatory effect renumbering and amending former section 967 to new section 30.701 filed 8-19-97 pursuant to section 100, title 1, California Code of Regulations (Register 97, No. 34).

2. Amendment of section heading, section and Note filed 2-27-2003; operative 3-29-2003 (Register 2003, No. 9).

Article 8. Loans

§30.800. Loan Officers: Prohibited from Signing Checks.

Note • History

A loan officer appointed under Section 14602 of the Financial Code shall not be authorized to sign disbursement checks for loans approved only by such loan officer.

NOTE

Authority cited: Section 14201, Financial Code. Reference: Sections 14602 and 14603, Financial Code.

HISTORY

1. Change without regulatory effect adding new article 8 (sections 30.800-30.804) and renumbering former section 971 to new section 30.800 filed 8-19-97 pursuant to section 100, title 1, California Code of Regulations (Register 97, No. 34).

§30.801. Loan Officers: Authority to Vary Obligation Payment Schedule

Note • History

(a) A loan officer appointed pursuant to Section 14602 of the Financial Code may:

(1) Extend a close-ended obligation, provided, however, a close-ended obligation shall not be extended more than twice during the term of the obligation, and any one extension may not be for more than two consecutive contractual payments.

(2) Defer contractual payments due with respect to open-ended obligations, provided that contractual payments with respect to any open-ended obligation shall not be deferred more than once during any twelve-month period.

(b) Any extension or deferral in excess of the limitations specified in this Section shall be approved by the board of directors, the credit committee or the credit manager.

NOTE

Authority cited: Section 14201, Financial Code. Reference: Section 14602, Financial Code.

HISTORY

1. Change without regulatory effect renumbering former section 972 to new section 30.801 filed 8-19-97 pursuant to section 100, title 1, California Code of Regulations (Register 97, No. 34).

2. Amendment of section heading and section filed 2-27-2003; operative 3-29-2003 (Register 2003, No. 9).

§30.802. Obligations Secured by Real Property.

Note • History

(a) An obligation secured by real property shall comply with all the following:

(1) The obligation shall be secured by either:

(A) A first lien on a parcel of unimproved real property, provided the principal balance of the obligation is not more than 60 percent of the appraised value of the parcel and the term is not more than 30 years.

(B) A first or junior lien on a piece of improved real property, including the land and improvements thereon, provided the total amount of obligations secured by liens on the real property at the time the lien is perfected is not more than 80 percent of the appraised value of the improved real property and the term is not more than 40 years in the case of a first lien, or 30 years in the case of a junior lien. In calculating the total amount of obligations secured by liens on the improved real property for the purposes of this Subparagraph, amounts in excess of 80 percent of the appraised value of the improved real property shall be excluded to the extent the excess is insured by an agency or instrumentality of the federal government or by a private mortgage insurance company admitted in California.

(2) In case the obligation is secured by a first lien, a title insurance policy shall be obtained which designates the credit union as the insured, warrants the priority and validity of the credit union's security interest, and does not contain any exception which would preclude the credit union from obtaining marketable title to the real property security in the event of default.

(3) In case the obligation is secured by one or more junior liens on a piece of real property and the aggregate of all junior liens held by the credit union on the piece of real property does not exceed $100,000, an abbreviated loan guarantee or fidelity lenders abbreviated guarantee issued by a title insurance company shall be obtained, unless the credit union obtains a title insurance policy of the type described in (2) of this subparagraph. As used in the previous sentence, an abbreviated loan guarantee or a fidelity lenders abbreviated guarantee refers to a limited guarantee issued by a title insurance company with respect to the priority and validity of the credit union's security interest which includes, at a minimum, a title search for all record owners and lienholders and a liability amount at least equal to the principal balance of the obligation.

(4) In case the obligation is secured by one or more junior liens on a piece of real property and the aggregate of all junior liens held by the credit union on the piece of real property exceeds $100,000, a title insurance policy of the type described in (2) of this subparagraph shall be obtained.

(5) Unless waived in writing by the credit committee or credit manager, adequate hazard insurance on the real property shall be maintained during the term of the obligation. The requirement for adequate hazard insurance may not be waived if the principal balance of the obligation exceeds the unsecured lending limits prescribed by the California Credit Union Law or the credit union's written lending policies.

(6) The promissory note and deed of trust shall include a due-on-sale clause.

(7) The board of directors of the credit union shall have established a limit on the amount of total obligations which may be secured by real property, and the obligation does not cause the credit union to exceed the limit.

(b) For the purpose of determining whether an obligation is secured by a first lien on real property as specified in Subdivision (a) of this Section, none of the following shall be deemed to be a prior encumbrance unless any installment or payment thereunder other than a rental or royalty under a lease, is due and delinquent:

(1) The lien of any tax, assessment, or bond levied or issued by any state or territory of the United States or by any district, political subdivision, or municipal corporation thereof, except the lien of an assessment levied against a particular parcel of real property and of any bond given or issued pursuant to law in lieu of the payment of such assessment.

(2) A lien created by a contract and given to secure the payment for water to be furnished under such contract for the irrigation of the real property or any part thereof.

(3) The lien of a bond given or issued pursuant to law in lieu of the payment of an assessment levied against a particular parcel of real property and the lien of any assessment levied to pay the bond, if the unpaid balance of the bond and the amount of the obligation combined do not exceed the percentage of the appraised value of the real property specified in the applicable provision of Paragraph (1) of Subdivision (a) of this Section.

(4) A lien given to secure the payment of any assessment or subscription to meet the requirements of any law of the United States in respect to any irrigation project of the United States in any state or territory of the United States which may be levied, made, or received by any corporation or association formed to carry out the provisions of any such law, if the unpaid balance of the assessment or subscription and the amount of the obligation combined do not exceed the percentage of the appraised value of the real property specified in the applicable provision of Paragraph (1) of Subdivision (a) of this Section.

(c) Unless a lesser percentage is ordered by the Commissioner, the total of loans and line of credit loan advances outstanding which are secured by liens on real property shall not exceed 40% of the total of all of the credit union's outstanding loans and advances. However, a credit union that has gross assets of $20,000,000 or more, a written asset liability plan or policy in effect, and has made real property loans for more than four years, may exclude from this 40% limitation the following loans:

(1) Any loans meeting the standards of the Federal National Mortgage Association or Federal Home Loan Mortgage Corporation.

(2) Any loans saleable in the secondary market as evidenced by commitments to buy by a buyer in the secondary market.

(3) Any line of credit loans.

(4) Any loans which contain provisions to adjust the amount of each payment, the number of monthly payments, or both, as is necessary because of changes in the interest rate charged and which are secured by a mortgage or deed of trust on real property which has or will have not more than four residential units.

(5) Any loans for which the promissory note contains an option or series of options by the credit union to call the loan during a sixty day period commencing not sooner than two years, nor later than seven years, from the date of each option period, there are no penalties for prepayment by the borrower, and the following written disclosure, or its substantial equivalent, is given to the borrower:

“Notice of Year ____ Call Option

“Your lender has the right to call this loan due on [the or each] ____ anniversary of the loan. The lender may exercise this right any time during the thirty-day period immediately following [the or each] ____ anniversary date of the loan.

“If the lender exercises its right to call the loan, upon receipt of notice, YOU WILL BE REQUIRED TO PAY THE LOAN IN FULL (OR ARRANGE NEW FINANCING) WITHIN NINETY (90) DAYS. You should be aware that interest rates in effect at the time of the call may be substantially higher than the interest rate on the original loan.

“It cannot be predicted at this time whether or not the lender will exercise the option; however, it will generally be to the lender's advantage to exercise the option if an increase in interest rates has occurred or is anticipated, if the term of the loan extends significantly beyond the option date, or if other reasons exist making the call of the loan advantageous to the lender.”

(d) Except for Paragraph (7) of Subdivision (a) and as otherwise provided in this Subdivision, Subdivision (a) of this Section does not apply to any of the following obligations secured by real property:

(1) An obligation with a principal balance of $50,000 or less, provided, however, that all junior liens on a piece of real property will be counted for the purpose of applying the $100,000 threshold described in Paragraphs (3) and (4) of Subdivision (a).

(2) An obligation which conforms to the eligibility requirements established by the Federal National Mortgage Association or Federal Home Loan Mortgage Corporation for sale in the secondary mortgage market. The credit union shall maintain documents for each obligation made pursuant to this Paragraph which demonstrate that the obligation meets the eligibility requirements.

(3) An obligation which is an alternative mortgage transaction, as defined pursuant to Title VIII of the Garn-St. Germain Depository Institutions Act of 1982 (12 U.S.C. §3801, et seq.) and any applicable regulations, guidelines and policies adopted thereunder. The credit union shall maintain documents for each obligation made pursuant to this Paragraph which demonstrate that the obligation meets the applicable federal requirements relating to the alternative mortgage transaction.

(4) An obligation which is secured by real property and which is a member business loan, as defined in Part 723 of the regulations of the National Credit Union Administration (12 C.F.R. Part 723).

(e) Any obligation for which adequate documentation is not maintained pursuant to the requirements of Paragraphs (2) and (3) of Subdivision (d) of this Section shall be subject to the requirements of Subdivision (a) of this Section.

(f) This Section shall apply to any obligation secured by real property which is created, renewed, extended, renegotiated, or otherwise modified, on or after the effective date of this Section; provided, however, that this Section does not affect any authorization contained in a written variance or waiver of this Section which was issued by the Commissioner prior to the effective date of this Section and which is still in effect.

NOTE

Authority cited: Section 14201, Financial Code. Reference: Sections 14950, 14953 and 15100, Financial Code.

HISTORY

1. Change without regulatory effect renumbering and amending former section 976 to new section 30.802 filed 8-19-97 pursuant to section 100, title 1, California Code of Regulations (Register 97, No. 34).

2. Repealer and new section filed 2-27-2003; operative 3-29-2003 (Register 2003, No. 9).

§30.803. Member Business Loans.

Note • History

The provisions of this Section shall apply to every credit union organized and operating pursuant to the California Credit Union Law (“Law”), the accounts of which are insured by the National Credit Union Share Insurance Fund.

(a) Notwithstanding any other provisions of the Law or of these rules, a credit union must adhere to the requirements stated in the following regulations of the National Credit Union Administration (“NCUA”), other than the requirements that the credit union notify or request approval from the NCUA Board or NCUA Regional Director: NCUA Regulation 701.21 (h) (12 C.F.R. 701.21 (h)) concerning member business loans, NCUA Regulation 701.21 (c) (8) (12 C.F.R. 701.21 (c) (8)) concerning prohibited fees, and NCUA Regulation 701.21 (d) (5) (12 C.F.R. 701.21 (d) (5)) concerning non-preferential loans.

(b) Whenever the federal regulations referred to in Subdivision (a) require that a federal credit union request approval from or notify the NCUA Board or the NCUA Regional Director, a credit union subject to this rule shall request approval from or notify the Commissioner.

(c) Within forty-five (45) days of receipt of a complete request for approval required by Subdivision (b) of this rule, the Commissioner shall approve or disapprove the request. Within forty-five (45) days of receipt of an incomplete request, the Commissioner shall notify the credit union that the request is incomplete and shall specify the information needed to complete the request.

NOTE

Authority cited: Section 14201, Financial Code. Reference: Sections 14950, 14951, 14952, 14953, 14954, 14955, 14957, 14958 and 15100, Financial Code.

HISTORY

1. Change without regulatory effect renumbering and amending former section 976.1 to new section 30.803 filed 8-19-97 pursuant to section 100, title 1, California Code of Regulations (Register 97, No. 34).

§30.804. Late Charge.

Note • History

NOTE

Authority cited: Section 14201, Financial Code. Reference: Section 15001, Financial Code.

HISTORY

1. Change without regulatory effect renumbering former section 980 to new section 30.804 filed 8-19-97 pursuant to section 100, title 1, California Code of Regulations (Register 97, No. 34).

2. Repealer filed 2-27-2003; operative 3-29-2003 (Register 2003, No. 9).

Article 9. Appraisals

§30.900. Appraisal of Real Property.

Note • History

NOTE

Authority cited: Section 14201, Financial Code. Reference: Section 14953, Financial Code.

HISTORY

1. Change without regulatory effect adding new article 9 (sections 30.900-30.901) and renumbering former section 985 to new section 30.900 filed 8-19-97 pursuant to section 100, title 1, California Code of Regulations (Register 97, No. 34).

2. Repealer filed 2-27-2003; operative 3-29-2003 (Register 2003, No. 9).

§30.901. Valuation or Appraisal of Personal and Real Property Security.

Note • History

(a) A credit union shall itself value or obtain an appraisal of personal property offered as security for an obligation in accordance with a written appraisal policy approved by the board of directors.

(b) A credit union shall obtain a valuation or an appraisal of real property offered as security for an obligation in accordance with Part 722 of the regulations of the National Credit Union Administration (12 C.F.R. Part 722).

NOTE

Authority cited: Section 14201, Financial Code. Reference: Sections 14950 and 14953, Financial Code; and Part 722 (commencing with Section 722.1), Title 12, Code of Federal Regulations.

HISTORY

1. Change without regulatory effect renumbering former section 986 to new section 30.901 filed 8-19-97 pursuant to section 100, title 1, California Code of Regulations (Register 97, No. 34).

2. Amendment of section heading, section and Note filed 2-27-2003; operative 3-29-2003 (Register 2003, No. 9).

Article 10. Independent Audit

§30.1000. Audit Reports.

Note • History

(a) For the purposes of Section 14252 of the Financial Code, a credit union shall submit an audit report for a fiscal or calendar year by filing with the Commissioner within 105 days after the end of the fiscal or calendar year an audit report that complies with all of the following:

(1) The audit report shall contain the following audited financial statements of the credit union for or as of the end of the year prepared in accordance with generally accepted accounting principles:

(A) Statement of financial condition.

(B) Statement of income.

(D) Statement of cash flows.

(E) Any other financial statement required by the Commissioner.

(2) The audited financial statements of a credit union contained in the audit report called for in Paragraph (1) of this Subdivision shall, if permissible under generally accepted accounting principles, be prepared on a consolidated basis.

(3) The audit report shall be based upon an audit of the credit union conducted in accordance with generally accepted auditing standards and any other requirements that the Commissioner may prescribe.

(4) The audit report shall be prepared by an independent certified public accountant or independent public accountant who is not unsatisfactory to the Commissioner.

(5) The audit report shall include an opinion of an independent certified public accountant or independent public accountant on the credit union's financial statements which is satisfactory in form and scope to the Commissioner.

(6) The audit report shall include a management letter of the independent certified public accountant or independent public accountant that is satisfactory in form and scope to the Commissioner. If the management letter is not satisfactory to the Commissioner, the Commissioner may order the credit union to take any action the Commissioner finds is necessary or advisable.

(b) The credit union may request confidential treatment of all or part of the independent accountant's opinion or the financial statements by filing a written request for confidential treatment at the same time that the audit report is filed. The information to which the request relates shall be submitted separated from the other parts of the filing and marked “Confidential Treatment Requested.” The written request shall state the basis for any claim of confidentiality and describe the adverse consequences which are expected to result if the information is disclosed.

NOTE

Authority cited: Section 14201, Financial Code. Reference: Section 14252, Financial Code; and Chapter 3.5 (commencing with Section 6250), Division 7, Title 1, Government Code.

HISTORY

1. Change without regulatory effect adding new article 10 (sections 30.1000-30.1001) and renumbering and amending former section 990 to new section 30.1000 filed 8-19-97 pursuant to section 100, title 1, California Code of Regulations (Register 97, No. 34).

2. Repealer and new section filed 2-27-2003; operative 3-29-2003 (Register 2003, No. 9).

§30.1001. Independent Accountant.

Note • History

For purposes of Section 30.1000, no accountant shall be considered independent unless the accountant complies with Rule 101 of the Rules of Professional Conduct of the American Institute of Certified Public Accountants, including the interpretations issued thereunder, as of November 30, 2002, which is incorporated herein by reference.

NOTE

Authority cited: Section 14201, Financial Code. Reference: Section 14252, Financial Code.

HISTORY

1. Change without regulatory effect renumbering former section 991 to new section 30.1001 filed 8-19-97 pursuant to section 100, title 1, California Code of Regulations (Register 97, No. 34).

2. Amendment of section and Note filed 2-27-2003; operative 3-29-2003 (Register 2003, No. 9).

Subchapter 40. Industrial Loans

Article 1. General Provisions

§40.1. Scope.

Note • History

This Subchapter contains regulations relating to industrial loan companies.

NOTE

Authority cited: Section 18347, Financial Code. Reference: Division 7, Financial Code.

HISTORY

1. Change without regulatory effect adding new subchapter 40, article 1 (sections 40.1-40.106) and section filed 8-19-97 pursuant to section 100, title 1, California Code of Regulations (Register 97, No. 34). For prior history, see Register 83, No. 8.

§40.2. Citation.

Note • History

(a) This Subchapter shall be known and may be cited as the “Industrial Loan Regulations” or the “Thrift and Loan Regulations.”

(b) The first unit of the number of each section in this Subchapter is “40.” However, in citing a section of this Subchapter, a person may omit the first unit of the number of the section if it is clear that the person is referring to a section of this Subchapter.

NOTE

Authority cited: Section 18347, Financial Code. Reference: Division 7, Financial Code.

HISTORY

1. Change without regulatory effect adding new section filed 8-19-97 pursuant to section 100, title 1, California Code of Regulations (Register 97, No. 34).

§40.101. Delayed Funds Availability.

Note • History

(a) This section applies to all industrial loan companies which maintain offices in this state for the acceptance of deposits insured by the Federal Deposit Insurance Corporation.

(b) For the purpose of this section, the following definitions apply:

(1) “Account” means investment certification (thrift obligation) (other than a full paid investment certificate) on which the account holder is permitted to make withdrawals by negotiable or transferable instruments, payment orders of withdrawal, telephone transfers, or other similar means for the purpose of making payments to third person or others. “Account” includes a negotiable order of withdrawal draft account.

(2) “Business day” means a period of twenty four hours following the close of business, as the close of business is determined by the industrial loan company. Such twenty-four hour period shall not include Saturdays, Sundays or legal holidays.

(3) “Day of deposit” means the day on which a holder transfers possession of an item to the depository industrial loan company for deposit into his or her account. However, after the close of business of the depository industrial loan company, the “day of deposit” shall mean the next business day of the depository industrial loan company. For purposes of determining the day of deposit of an automated teller machine branch office, the depository industrial loan company shall establish and post a cut-off time for the automated teller machine branch office and the cut-off time shall be deemed the close of business for purpose of this rule.

(4) “Deposit” means sale of an investment certificate (thrift obligation).

(5) “Depository industrial loan company” means the industrial loan company which maintains the account insured by the Federal Deposit Insurance Corporation into which an item is first deposited.

(6) “Item” means a check, negotiable order of withdrawal, share draft, warrant or money order.

(c) Except as provided in Subdivisions (d) and (e), the reasonable time for collection and return of an item, and the reasonable time by which a depository industrial loan company must permit a holder to draw on an item deposited in an account as a master of right shall be not later than the opening of business on the next business day subsequent to the periods detailed below:

(1) For an item drawn on any depository institution in this state, five business days following the day of deposit;

(2) For any item drawn on the depository institution outside this state, eleven business days following the day of deposit;

(3) For any item drawn on the depository industrial loan company, one business day following the day of deposit.

(d) Notwithstanding Subdivision (c), the reasonable time for collection and return of any of the following items, and the reasonable time by which a depository industrial loan company must permit a holder to draw on any of the following items deposited in an account as a matter of right shall not be later than the opening of business on the next business day following the day of deposit:

(1) An item drawn in a face amount of one hundred dollars or less;

(2) A first-endorsed item drawn on the U.S. Treasury;

(3) A first-endorsed item drawn on the State of California or any political subdivision thereof;

(4) A first-endorsed item issued by a depository institution whose accounts are insured by the Federal Deposit Insurance Corporation, or the National Credit Union Administration.

(e) The time periods specified in Subdivisions (c) and (d) shall not apply in any of the following cases:

(1) If the depository industrial loan company has received notice that the item has been or will be dishonored. Such notice must have been received from an intermediary bank, as defined in Paragraph (4) of Section 4105 of the California Uniform Commercial Code, or from the depository institution upon which the item is drawn.

(2) If the item is deposited within 60 calendar days of the opening of the account.

(3) If the depository industrial loan company reasonably believes that the drawer or drawee has become, or is reasonably believed to become, subject to bankruptcy, receivership or similar proceeding, or when the depository industrial loan company reasonably believes that a situation involving fraud or kiting exists.

(4) If the item is drawn on an office located outside of the states of the United States.

(5) If the item is subject to processing delay, that is, presentment delay, mutilated item, a counter check, or an improperly encoded item.

(6) If the item is in the amount of two thousand five hundred dollars or more, other than an item drawn on the depository industrial loan company.

(7) If the item is deposited in an account which on three separate occasions within a six-month period has been the subject of items drawn in excess of the available funds in the account to cover the items, whether the industrial loan company has paid such items creating an overdraft or has returned the items unpaid, for a period of six months commencing with the last such incident. This exception does not include an account with overdraft privileges established pursuant to contractual agreement unless the depositor's credit line has been exceeded.

(f) In the case of exemptions set forth in subsection (e), there shall be “no such regulations,” as the term “no such regulations” is used in California Uniform Commercial Code Section 4213(4)(a).

(g) Any delay by a depository industrial loan company beyond the time limits prescribed by this section is excused if the delay is caused by interruption of communication facilities, suspension of payments by a bank or savings institution, emergency conditions or other circumstances beyond the control of the depository industrial loan company, and the depository industrial loan company exercises such diligence as the circumstances require.

(h) This section shall not affect a depository industrial loan company's right:

(1) to accept or reject an item for deposit, or

(2) to require written notice of an intended withdrawal.

NOTE

Authority cited: Sections 866.5, 866.6 and 18347, Financial Code. Reference: Sections 866.5 and 866.6, Financial Code; and Section 4213, Commercial Code.

HISTORY

1. Change without regulatory effect renumbering and amending former section 1101 to new section 40.101 filed 8-19-97 pursuant to section 100, title 1, California Code of Regulations (Register 97, No. 34).

§40.101.5. Other Business.

Note • History

Any request by an industrial loan company for authorization pursuant to Section 18344 of the Financial Code shall be in writing and shall contain a detailed statement of the business to which the request refers. Insurance sold in connection with loans as provided by Sections 18290, 18294, and 18295 of the Financial Code does not constitute “other business” under Section 18344 of the Financial Code. However, any other insurance will require authorization to engage in “other business.”

NOTE

Authority cited: Section 18347, Financial Code. Reference: Section 18344, Financial Code.

HISTORY

1. Change without regulatory effect renumbering former section 1107 to new section 40.101 filed 8-19-97 pursuant to section 100, title 1, California Code of Regulations (Register 97, No. 34).

2. Change without regulatory effect renumbering duplicative section 40.101 to new section 40.101.5 (Register 97, No. 42).

§40.102. Management Personnel: Notification of Changes.

Note • History

For purposes of Section 18345 of the Financial Code, management personnel shall include supervisors, managers, persons who make loans or purchase obligations and persons who may be in charge of a place of business of an industrial loan company. The notification of changes in personnel required by Section 18345 of the Financial Code shall be on a form provided by the Commissioner.

NOTE

Authority cited: Sections 18345 and 18347, Financial Code. Reference: Sections 18345 and 18347, Financial Code.

HISTORY

1. Change without regulatory effect renumbering former section 1110 to new section 40.102 filed 8-19-97 pursuant to section 100, title 1, California Code of Regulations (Register 97, No. 34).

§40.103. Criminal Actions: Report to Commissioner.

Note • History

An industrial loan company shall immediately report in writing to the Commissioner any criminal action filed against such company or its officers, directors or management personnel.

NOTE

Authority cited: Section 18347, Financial Code. Reference: Section 18117, Financial Code.

HISTORY

1. Change without regulatory effect renumbering and amending former section 1112 to new section 40.103 filed 8-19-97 pursuant to section 100, title 1, California Code of Regulations (Register 97, No. 34).

§40.104. Report of Defalcation Required.

Note • History

It shall be the responsibility of an industrial loan company to report promptly to the Commissioner any actual or alleged defalcation, embezzlement or theft of a material amount by an officer, director or employee of such industrial loan company.

NOTE

Authority cited: Section 18347, Financial Code. Reference: Section 18117, Financial Code.

HISTORY

1. Change without regulatory effect renumbering former section 1113 to new section 40.104 filed 8-19-97 pursuant to section 100, title 1, California Code of Regulations (Register 97, No. 34).

§40.105. Management Fees.

Note • History

An industrial loan company shall not accrue, pay, or contract for the payment of a fee for management services performed by a parent or affiliate without first submitting a copy of its management contract to the Commissioner for nondisapproval. The management contract shall specify the services to be performed and the amount of fees to be paid or the manner and method of computing the fee. Any proposed change in the management contract shall be submitted to the Commissioner for nondisapproval.

NOTE

Authority cited: Section 18347, Financial Code. Reference: Section 18020, Financial Code.

HISTORY

1. Change without regulatory effect renumbering former section 1117 to new section 40.105, including amendment of section and new Note filed 8-19-97 pursuant to section 100, title 1, California Code of Regulations (Register 97, No. 34).

§40.106. Impairment of Capital Defined: Section 18368(a), Financial Code.

Note • History

For purposes of Section 18368(a) of the Financial Code capital is impaired when the minimum amount of capital required by the Financial Code is reduced by a net deficit balance in the company's surplus accounts.

NOTE

Authority cited: Section 18347, Financial Code. Reference: Section 18368(a), Financial Code.

HISTORY

1. Change without regulatory effect renumbering former section 1119 to new section 40.106 filed 8-19-97 pursuant to section 100, title 1, California Code of Regulations (Register 97, No. 34).

Article 2. Applications

§40.200. Articles of Incorporation and Bylaws: Submission to Commissioner.

Note • History

(a) Before the articles of incorporation of an industrial loan company or any proposed amendments to the articles of incorporation are filed with the Secretary of State, a draft of the articles or the proposed amendment shall be submitted to the Commissioner for written approval.

(b) A draft of the bylaws of an individual loan company or any proposed amendments to the bylaws shall be submitted to the Commissioner for written approval before adoption.

(c) Within ten days after the articles of incorporation or amendments thereto have been filed with the Secretary of State, a copy of the articles or amendments showing the date of filing with the Secretary of State shall be filed with the Commissioner. Within ten days after the bylaws or amendments thereto have been adopted, a copy of the bylaws or amendments showing the date of adoption shall be filed with the Commissioner.

NOTE

Authority cited: Section 18347, Financial Code. Reference: Sections 18101.5 and 18102, Financial Code.

HISTORY

1. Change without regulatory effect adding new article 2 (section 40.200) and renumbering and amending former section 1125 to new section 40.200 filed 8-19-97 pursuant to section 100, title 1, California Code of Regulations (Register 97, No. 34).

Article 3. Books and Records

§40.300. Books and Records: To Be Maintained at Principal or Administrative Office in California.

Note • History

An industrial loan company shall maintain at all times its control books, accounts, and records in the State of California at the principal or administrative office designated in writing to the Commissioner.

NOTE

Authority cited: Section 18347, Financial Code. Reference: Section 18029, Financial Code.

HISTORY

1. Change without regulatory effect adding new article 3 (sections 40.300-40.305), and renumbering former section 1132 to new section 40.300, including amendment of section and new Note filed 8-19-97 pursuant to section 100, title 1, California Code of Regulations (Register 97, No. 34).

§40.301. Books and Records: Standard for Keeping.

Note • History

An industrial loan company shall maintain its books, accounts and records in accordance with generally accepted accounting principles (“GAAP”), the regulations of the Commissioner or the FDIC, and good business practice. In the event that GAAP conflict with the regulations of the Commissioner or the FDIC, the regulations of the Commissioner and the FDIC take precedence over GAAP.

NOTE

Authority cited: Section 18347, Financial Code. Reference: Section 18029, Financial Code.

HISTORY

1. Change without regulatory effect renumbering former section 1133 to new section 40.301 filed 8-19-97 pursuant to section 100, title 1, California Code of Regulations (Register 97, No. 34).

§40.302. Forms.

Note • History

(a) An industrial loan company shall not use a loan form unless and until it has determined that such form is in compliance with applicable state and federal law.

(b) All printed matter contained in loan forms used by an industrial loan company shall be in not less than 8-point type, except that printed captions in “boxes” may be 6-point type.

(c) An industrial loan company is prohibited from using a loan form after written notice of objection by the Commissioner to such form has been delivered to such industrial loan company or its representative.

(d) This section does not apply to loans exempted from specified sections of the Industrial Loan Law by Section 18191 of the Financial Code.

NOTE

Authority cited: Section 18347, Financial Code. Reference: Chapter 3 (commencing with Section 18190) of Division 7 and Section 18408, Financial Code.

HISTORY

1. Change without regulatory effect renumbering former section 1134 to new section 40.302 filed 8-19-97 pursuant to section 100, title 1, California Code of Regulations (Register 97, No. 34).

§40.303. Accounting for Real Property Held for Sale.

Note • History

(a) The title to any property acquired by foreclosure or by deed in lieu of foreclosure must be in the name of the industrial loan company, and the deed immediately recorded. The property shall be accounted for in the appropriate real property held for sale account. Subsidiary ledger accounts shall be maintained for each individual property. In accounting for the property, the amount at which it shall be carried on the books of the company shall include the following:

(1) The balance of all senior liens.

(2) The principal loan balance.

(3) Any amounts paid after acquisition for real property taxes accrued prior to acquisition.

(4) Assessments due or delinquent at the time of acquisition.

(5) Necessary costs incurred in connection with acquisition of the property.

(6) Reconditioning costs and improvements necessary for the preservation, sale or renting of the property. However, ordinary maintenance costs should not be capitalized.

(b) Any senior lien balance shall be set up in the appropriate liability account. If the total amount capitalized under subparagraphs (1) through (6) of this subsection (a) exceeds the current appraised market value, the excess amount shall be recorded in the appropriate allowance for loss account.

NOTE

Authority cited: Section 18347, Financial Code. Reference: Section 18041, Financial Code.

HISTORY

1. Change without regulatory effect renumbering former section 1135 to new section 40.303 filed 8-19-97 pursuant to section 100, title 1, California Code of Regulations (Register 97, No. 34).

§40.304. Uniform Classification of Accounts.

Note • History

An industrial loan company shall use the following account numbers and titles. Additional accounts to be used must have titles that are adequately explanatory and must be numbered under the appropriate grouping. However, an industrial loan company formed prior to Janaury 1, 1974 may use a different series of account numbers and titles, provided a cross-index is maintained which shows the account numbers and titles required by this section opposite the corresponding account numbers and titles used by such industrial loan company.

CHART OF ACCOUNTS

ASSET ACCOUNTS

Account No. Account Name

CASH

1000 This series of accounts shall include cash on hand, change funds, petty cash funds, and all deposits in banks or trust companies including time certificates of deposit.

INVESTMENTS

1100 This account or series of accounts shall contain investments made pursuant to Section 18022 of the Financial Code.

1200 Allowance for Decline of Market Value of Investments Below Cost.

RECEIVABLES

1300 Loans Receivable--Precomputed.

1320 Loans Receivable--Interest-Bearing.

1340 Conditional Sale Contracts.

1350 Direct Lease Obligations.

1360 Floorings.

1380 Factoring.

1390 Other Receivables. This series of accounts shall include any other obligations receivable acquired under the Industrial Loan Law.

1400 Unearned Charges--Loans.

1440 Unearned Discount--Contracts.

1450 Unearned Charges--Direct Lease Obligations.

1460 Other Deferred Income.

1480 Reserve for Losses.

1485 Special Reserves--Delinquent Real Estate Accounts.

1490 Dealers Reserves and Withholds. In addition to the above accounts this series shall include any other unearned income, deferred credits, or reserves applicable to the receivables.

COMPANY PROPERTY

1500 This series of accounts shall include land and buildings owned and occupied, including land used for parking, office furniture, fixtures and equipment, automobiles, and leaseholds and improvements.

1600 This account or series of accounts shall be used to record depreciation and amortization of company property.

REAL PROPERTY HELD FOR SALE

1700 Real Property Held for Sale.

1710 Accumulated Depreciation--Real Property Held for Sale.

1720 Allowance for Losses on Real Property Held for Sale. The above accounts shall be used for real property acquired through foreclosure or in satisfaction of debts previously contracted.

1725 Special Reserve--Real Property Held for Sale.

1730 Notes Payable Secured by Real Property Held for Sale. This account shall be used to record the amounts of any senior liens on real property recorded in Account No. 1700.

CONTRACTS OF SALE REAL PROPERTY

1750 Contracts of Sale--Real Property. This account shall be used to record sales of real property on contracts of sale.

1760 Deferred Profit on Contracts of Sale--Real Property. This account may be used to record any profit from the sale of real property that has been deferred.

1780 Notes Payable Secured by Real Property on Contracts of Sale. This account shall be used to record the amounts of any senior liens on real property sold on contracts of sale.

OTHER ASSETS

1800 Misc. Receivables.

1820 Prepaid Expenses.

1850 Deferred Charges.

1870 Other Assets.

1900 This series of accounts shall be used to record assets not classified specifically in other accounts.

LIABILITY ACCOUNTS

INVESTMENT CERTIFICATES

2000 Installment Investment Certificates.

2100 Full-Paid Investment Certificates.

2150 Accrued Interest on Investment Certificates.

BORROWINGS

2200 Notes Payable--Banks.

2300 Notes Payable--Parent Company or Affiliate.

2400 Notes Payable--Other.

2450 Accrued Interest on Borrowings.

OTHER LIABILITIES

2500 Notes Payable on Company Premises.

2600 Accounts Payable.

2700 Income Taxes Accrued or Payable.

2800 Other Accruals and Payables.

2900 Other Liabilities.

2950 This series of accounts shall be used to record liabilities not classified specifically in other accounts.

CAPITAL ACCOUNTS

3000 Capital Stock. This account shall reflect at least the par value of outstanding shares.

3100 Paid-in Surplus. This account shall include the premiums on the sale of shares, contributions by stockholders and may include amounts transferred from earned surplus.

3200 Earned Surplus.

PROFIT AND LOSS ACCOUNTS

INCOME

4000 Charges Earned on Loans.

4100 Discount Earned on Contracts.

4150 Charges Earned on District Lease Obligations

4200 Charges Earned on Floorings.

4300 Discount Earned on Factoring and Other Purchased Obligations.

4400 Late, Extension and Collection Charges.

4500 Insurance Commissions.

4600 Income on Investments.

4700 Rental Income--Company Premises.

4750 Rental Income--Real Property Held for Sale.

4800 Gain on Sale of Real Property.

4850 Real Property Appraisal Fees.

4900 Misc. Income.

EXPENSES

5000 Direct Leasing Expenses.

5100 Advertising and Promotion.

5200 Thrift Guaranty Corporation Assessment.

5300 Insurance and Bond Premiums.

5400 Legal Services and Expense.

5500 Professional Audit and Accounting Services.

5600 Data Processing Expense.

5700 State Supervisory Examinations and Assessments.

5800 Occupancy Expenses.

5900 Provision for Losses.

6000 Directors' Fees and Expenses.

6100 Officers' Salaries and Bonuses.

6200 Employees' Salaries and Bonuses.

6300 Management Fees.

6400 Contribution to Retirement, Pension, Annuity and Similar Plans.

6500 Losses on Real Property Held for Sale.

6600 Expenses of Real Property Held for Sale.

6700 License Fees and Taxes.

6800 Telephone and Telegraph.

6900 Travel.

7000 Depreciation of Company Property.

7100 Other Administrative and Operating Expenses.

7200 Certificate Interest 7300 Interest on Borrowed Funds.

7400 Provision for Income Taxes

NOTE

Authority cited: Section 18347, Financial Code. Reference: Section 18029, Financial Code.

HISTORY

1. Change without regulatory effect renumbering and amending former section 1137 to new section 40.304 filed 8-19-97 pursuant to section 100, title 1, California Code of Regulations (Register 97, No. 34).

§40.305. Accounting Records: Electronic Data Processing Systems.

Note • History

The prior written consent of the Commissioner shall be obtained before an industrial loan company adopts an electronic data processing system or changes from one such system to another. Data submitted to the Commissioner must include a full description of the system and a complete plan of conversion. General guidelines for conversions are available upon request at any office of the Department. Any material change in any electronic data processing system that will result in altering or eliminating any reports or records produced by the system shall not be implemented without the prior written consent of the Commissioner.

NOTE

Authority cited: Section 18347, Financial Code. Reference: Section 18029, Financial Code.

HISTORY

1. Change without regulatory effect renumbering former section 1138 to new section 40.305 filed 8-19-97 pursuant to section 100, title 1, California Code of Regulations (Register 97, No. 34).

Article 4. Reserves

§40.400. Reserve for Losses.

Note • History

Except as permitted in writing by the Commissioner, an industrial loan company shall establish and maintain a reserve for losses for loans made, obligations purchased and net receivable from contracts of sale of foreclosed real property in accordance with generally accepted accounting principles (“GAAP”). The Commissioner may require a reserve for losses in addition to the reserve required by GAAP whenever an examination of the books and records of the industrial loan company indicate that the reserves are inadequate.

Any other method or variation of the above shall not be used without the written consent of the Commissioner. A request for variation must show that the resulting reserve for losses will at least equal or exceed the method provided in this section.

NOTE

Authority cited: Section 18347, Financial Code. Reference: Section 18343, Financial Code.

HISTORY

1. Change without regulatory effect adding new article 4 (sections 40.400-40.407) and renumbering former section 1140 to new section 40.400 filed 8-19-97 pursuant to section 100, title 1, California Code of Regulations (Register 97, No. 34).

§40.401. Charge-Off of Receivables.

Note • History

(a) Receivables in default shall be charged to the reserve for losses if they fall within the following classifications:

(1) Accounts repayable monthly on which no full monthly contractual payments have been made within the past 180 days, unless the borrower has filed a petition under either Chapter 11 or Chapter 13 of the Bankruptcy Code and the plan provides for payment of the account.

(2) Accounts repayable at maturity by a single payment which are not paid in full within 180 days after the maturity date of the account.

(3) Accounts repayable by other than monthly payments or a single payment on which no full contractual payment has been made within 180 days from the due date of the first past due and unpaid installment.

(4) Accounts which the industrial loan company has recognized as uncollectible.

(5) Flooring account balances which are unpaid 90 days after maturity or on which no agreed curtailment payment has been made within the past 90 days.

(6) Factoring account balances which are unpaid 90 days after maturity or on which no contractual payment has been made within the past 90 days.

(b) If an account is secured by real property and its status places it in a charge-off classification, the amount charged to the reserve for losses may be reduced by the value of the real property less estimated costs of sale and any senior encumbrances.

(c) Receivables shall be reviewed at least once each month and accounts subject to charge-off under this section shall be charged to the reserve for losses not later than one month following the date of review.

(d) If a company is able to satisfy the Commissioner that facts exist concerning an account which justify a smaller charge-off than provided in this section, such charge-off may be reduced or eliminated as determined by the Commissioner.

NOTE

Authority cited: Section 18347, Financial Code. Reference: Section 18343, Financial Code.

HISTORY

1. Change without regulatory effect renumbering former section 1141 to new section 40.401 filed 8-19-97 pursuant to section 100, title 1, California Code of Regulations (Register 97, No. 34).

§40.402. Control of Accounts Charged-Off.

Note • History

Accounts charged-off on which the industrial loan company intends to pursue collection efforts or expects to realize further recoveries shall be posted to a control account. Charge-offs shall remain in the control account for as long as any recoveries are being made or contemplated.

NOTE

Authority cited: Section 18347, Financial Code. Reference: Section 18343, Financial Code.

HISTORY

1. Change without regulatory effect renumbering former section 1143 to new section 40.402 and adding new Note filed 8-19-97 pursuant to section 100, title 1, California Code of Regulations (Register 97, No. 34).

§40.403. Recoveries on Accounts Charged-Off.

Note • History

Such recoveries must be credited to the reserve for losses account and not recorded as gross income.

NOTE

Authority cited: Section 18347, Financial Code. Reference: Section 18343, Financial Code.

HISTORY

1. Change without regulatory effect renumbering former section 1144 to new section 40.403 and adding new Note filed 8-19-97 pursuant to section 100, title 1, California Code of Regulations (Register 97, No. 34).

§40.404. Restoration of Accounts Charged-Off.

Note • History

A charged-off account may be restored as a corporate asset by refinance or otherwise only when at least three regular or revised monthly payments have been received within the preceding 90 days and there is evidence that the debtor will continue to adhere to the new terms of repayment. Any amount restored must be credited to the reserve for losses account and not recorded as gross income.

NOTE

Authority cited: Section 18347, Financial Code. Reference: Section 18343, Financial Code.

HISTORY

1. Change without regulatory effect renumbering former section 1145 to new section 40.404 and adding new Note filed 8-19-97 pursuant to section 100, title 1, California Code of Regulations (Register 97, No. 34).

§40.405. Extensions, Refinances, or Revisions.

Note • History

Accounts that are delinquent thirty (30) days or more shall not be extended, refinanced or revised unless there is evidence that the debtor will be able to adhere to the terms of the refinanced loans or revised terms.

NOTE

Authority cited: Section 18347, Financial Code. Reference: Section 18347, Financial Code.

HISTORY

1. Change without regulatory effect renumbering former section 1146 to new section 40.405 filed 8-19-97 pursuant to section 100, title 1, California Code of Regulations (Register 97, No. 34).

§40.406. Unearned Income.

Note • History

An industrial loan company shall employ a system which provides a current, reasonable accounting of its unearned charges and discount for loans made and obligations purchased. Acquisition costs shall not be taken into income. An industrial loan company that does not maintain a perpetual inventory of unearned income shall take an inventory or test the accuracy of its unearned income in accordance with generally accepted accounting procedures at least once each year. Any understatement of unearned income disclosed by such inventory or test shall be adjusted on the records of the industrial loan company.

NOTE

Authority cited: Section 18347, Financial Code. Reference: Section 18343, Financial Code.

HISTORY

1. Change without regulatory effect renumbering former section 1147 to new section 40.406 and adding new Note filed 8-19-97 pursuant to section 100, title 1, California Code of Regulations (Register 97, No. 34).

§40.407. Fees Paid in Connection with a Loan.

Note • History

(a) Fees paid in connection with a loan shall not be recognized as income at a rate greater than would be permitted by the “Rule of 78's” (sum-of-the-digits method), notwithstanding that the loan may have been paid prior to maturity by rewriting, extending, or amending the same or by a new loan made by the industrial loan company. However, fees paid in connection with a loan may be recognized as income when the loan is otherwise paid.

(b) “Fees paid in connection with a loan,” for the purposes of this section, includes all charges as defined in Sections 18007 and 18008 of the Financial Code, except charges precomputed or earned by the agreed rate of charge, appraisal fees, escrow fees, and fees to be paid to a public officer.

NOTE

Authority cited: Section 18347, Financial Code. Reference: Section 18343, Financial Code.

HISTORY

1. Change without regulatory effect renumbering former section 1148 to new section 40.407 filed 8-19-97 pursuant to section 100, title 1, California Code of Regulations (Register 97, No. 34).

Article 5. Investment Certificates

§40.500. Certificate Ratio.

Note • History

A ratio of certificates to capital and surplus restricted as to payment of cash dividends under section 18319 of the Financial Code, of 20 to 1 will ordinarily be granted to established companies with records of sound performance. The Commissioner may, in other cases, limit the ratio of certificates to capital and surplus to a ratio of less than 20 to 1 if in his or her judgment the lower ratio is necessary in the public interest. In determining the ratio to be permitted, the Commissioner may consider (together with all relevant attendant circumstances) one or all of the following items:

(a) The length of time the company has been in operation.

(b) Ratio of losses to volume of loans made and contracts purchased.

(d) Charge-off of uncollectible accounts.

(e) The amount or growth of undivided profits and/or earned surplus.

(f) Diversification of character and source of loans made and contracts purchased.

(g) Creation and maintenance of adequate internal controls.

(h) Sound and efficient management.

NOTE

Authority cited: Sections 18315 and 18347, Financial Code. Reference: Section 18319, Financial Code.

HISTORY

1. Change without regulatory effect adding new article 5 (sections 40.500-40.503) and renumbering and amending former section 1150 to new section 40.500 filed 8-19-97 pursuant to section 100, title 1, California Code of Regulations (Register 97, No. 34).

§40.501. Certificate Ratio: Application and Criteria for Increasing Ratio Under Section 18320 of the Financial Code.

Note • History

(a) The application filed by an industrial loan company for authority to increase its ratio of certificates to capital and surplus restricted as to payment of cash dividends pursuant to subdivisions (b), (c) and (d) of Section 18320 of the Financial Code shall be accompanied by the following documents:

(1) A balance sheet as of the month end prior to the date of filing;

(2) An income statement for the current calendar year and the prior year if the current period is less than six months;

(3) Monthly income statements for the six months prior to the date of filing;

(4) An analysis of the reserve for losses for the current calendar year showing the balance at the beginning of the year and all additions and charges to the reserve. If the period covered is less than four months, the analysis should include the prior calendar year; and

(5) Any other report or schedules required by the Commissioner.

(b) The Commissioner may limit the ratio of certificates to capital and surplus to a ratio less than provided in Section 18320 if in the Commissioner's judgment such lower ratio is reasonable and necessary or advisable for the protection of the public. The industrial loan company must demonstrate to the Commissioner that it is entitled to the ratio permitted by Section 18320. In determining the ratio to be permitted, the Commissioner will consider (together with all relevant attendant circumstances) all of the following facts together with such other information and facts as are relevant under the circumstances:

(1) It maintains adequate reserves for losses, as defined in Article 4 of these Rules;

(2) The ratio of losses to volume of receivables for the six-month period preceding its application is not greater than the industry average for the last three years as shown by the latest reports filed with the Commissioner pursuant to Section 18405 of the Financial Code;

(3) The current ratio of accounts which are three or more contractual payments past due and unpaid to total receivables is not greater as shown by the company's most recent report to the Commissioner than the industry average as shown on the latest reports filed with the Commissioner pursuant to Section 18407 of the Financial Code and 1250 of these Regulations;

(4) Uncollectible accounts are charged off pursuant to the provisions of these Regulations;

(5) The company must have had net earnings from operations for the six-month period prior to the date of filing of the application and must have had net earnings from operations for each of the three months prior to the date of filing of the application;

(6) The company must have diversification of receivables, including but not limited to the character and source of loans made and contracts purchased;

(7) The company has created and maintains an adequate system of internal controls, and;

(8) The company must have demonstrated sound and efficient management in its dealings with borrowers and thriftholders.

NOTE

Authority cited: Section 18347, Financial Code. Reference: Section 18320, Financial Code.

HISTORY

1. Change without regulatory effect renumbering former section 1151.1 to new section 40.501 filed 8-19-97 pursuant to section 100, title 1, California Code of Regulations (Register 97, No. 34).

§40.502. Repurchase Provision.

Note • History

(a) The investment certificates of an industrial loan company issued before May 29, 1991, shall contain a provision that the investment certificate may be repurchased within 30 days after, and shall be repurchased within 6 months of, the first of the month following the date upon which the owner or the owner's agent submits to the industrial loan company a written demand for repurchase.

(b) The investment certificates of an industrial loan company issued on or after May 29, 1991, shall contain a provision that the company shall repurchase the certificate upon the written request of the owner or owner's agent, subject to the company's rights:

(1) to defer payment for a period of 30 days after the first of the month following the date upon which the request for repurchase is received; and

(2) to limit the aggregate amount of repurchases in any one calendar month to an amount not exceeding the company's net receipts of the previous month. The provision shall also state that certificates will be repurchased in the order in which they are presented for payment and that, notwithstanding the amount of the company's net receipts of the previous month, the company must repurchase the certificates within 6 months of the first of the month following the receipt of the written demand for repurchase.

NOTE

Authority cited: Section 18347, Financial Code. Reference: Section 18315, Financial Code.

HISTORY

1. Change without regulatory effect renumbering and amending former section 1152 to new section 40.502 filed 8-19-97 pursuant to section 100, title 1, California Code of Regulations (Register 97, No. 34).

§40.503. Form and Amount of Fidelity Bond.

Note • History

(a) An industrial loan company that sells and issues investment certificates or has investment certificates outstanding shall file with the Commissioner a fidelity bond providing fidelity coverage on each officer, director, and employee in accordance with the requirements of this section and section 18346 of the Financial Code.

(b) A bond must include in its definition as employee, either in the body of the bond or by rider, the following: Each natural person, partnership or corporation authorized by written agreement with the insured to perform services as electronic data processor of checks or other accounting records of the insured, herein called Processor, shall, while performing these services, be deemed to be an Employee as defined in this bond. Each such Processor and the partners, officers and employees of the Processor shall, collectively, be deemed to be one Employee for all the purposes of this bond.

(c) A bond may be subject to cancellation on 30 days notice, provided the bond carries a rider or condition to the effect that it is subject to cancellation by the surety or insured 30 days after written notice to the Commissioner of Financial Institutions of intention to cancel.

(d) Unless the Commissioner for good cause, in writing, has found that a different amount of coverage would be in the public interest, minimum fidelity coverage shall be maintained in accordance with the requirements of the Federal Deposit Insurance Corporation (“FDIC”).

(e) The bond coverage may contain provision for a deductible amount from any loss which, except for the deductible provision, would be recoverable from the insurer. A deductible provision shall not be in excess of ten percent (10%) of the required minimum bond coverage unless authorized by the Commissioner in writing.

NOTE

Authority cited: Section 18347, Financial Code. Reference: Sections 18346 and 18346.1, Financial Code.

HISTORY

1. Change without regulatory effect renumbering and amending former section 1154 to new section 40.503 filed 8-19-97 pursuant to section 100, title 1, California Code of Regulations (Register 97, No. 34).

Article 6. Loans and Obligations Receivable

§40.600. Statement of Loan or Documents Used to Comply with Financial Code: Form: Contents.

Note • History

In addition to the specific requirements of Sections 18231, 18300 and 18301 of the Financial Code, the statement of loan form shall contain at least the following and may consist of more than one document:

(a) The name and license number of the industrial loan company, address of the office where the loan was made, and the name of the person who closed the loan;

(b) A statement in not less than 12-point boldface capital letters

FOR INFORMATION CONTACT

THE DEPARTMENT OF FINANCIAL INSTITUTIONS,

STATE OF CALIFORNIA

NOTE

Authority cited: Section 18347, Financial Code. Reference: Sections 18231, 18300 and 18301, Financial Code.

HISTORY

1. Change without regulatory effect adding new article 6 (sections 40.600-40.619) and renumbering and amending former section 1155 to new section 40.600 filed 8-19-97 pursuant to section 100, title 1, California Code of Regulations (Register 97, No. 34).

§40.601. Dealer Credit File.

Note • History

An industrial loan company shall ordinarily maintain a credit file with respect to each dealer from whom obligations are acquired, with or without recourse. Such credit file shall contain information appropriate to the value and type of business done with such dealer. Such credit file shall include an annual balance sheet and income statement. A written agreement with the dealer should be executed and should include provisions for contingent liability for obligations purchased, and dealer reserve and withholds. With respect to nonrecourse transactions, however, a credit file on the dealer will not be required where a company has made a proper direct check of the obligation with the primary obligor, by prompt notification or otherwise, and has obtained proper credit information on the primary obligor. In such case the account file must contain written evidence, by memorandum or otherwise, substantiating that such check has been made. In cases where a credit file is required, such information shall be kept reasonably current to the extent feasible. The information required by this rule shall be retained in the files, as to each dealer and account, as long as there is a balance outstanding on the same.

NOTE

Authority cited: Section 18347, Financial Code. Reference: Sections 18190 and 18029, Financial Code.

HISTORY

1. Change without regulatory effect renumbering former section 1156 to new section 40.601 and adding new Note filed 8-19-97 pursuant to section 100, title 1, California Code of Regulations (Register 97, No. 34).

§40.602. Diversification of Receivables.

Note • History

An industrial loan company shall limit the volume of obligations purchased from one person or business entity and diversify the loans it makes and obligations it acquires as to the types of debtors and types of collateral so as to minimize the exposure to possible loss. The Commissioner may require a company to reduce its outstanding loans made to a specific type of debtor or secured by a specific type of collateral or reduce the volume of obligations purchased from one person or business entity in order to reduce the exposure to possible loss.

NOTE

Authority cited: Section 18347, Financial Code. Reference: Sections 18190 and 18272, Financial Code.

HISTORY

1. Change without regulatory effect renumbering and amending former section 1157 to new section 40.602 and adding new Note filed 8-19-97 pursuant to section 100, title 1, California Code of Regulations (Register 97, No. 34).

§40.603. Factoring and Accounts Receivable Financing.

Note • History

No industrial loan company which has investment certificates outstanding shall engage in factoring or accounts receivable financing with any borrower or client unless all of the following requirements are met:

(a) It shall have within its organization as officer or employee at least one person possessing no less than five years of responsible experience in factoring or accounts receivable financing.

(b) It shall establish a program for field audits or examinations of client borrowers to establish the validity, quality, and quantity of the collateral assigned to it as security, and shall conduct such an audit or examination of each client borrower at least once every three months.

(c) It shall require that all payments be made to a lock box or a post office box which is under its control and management if the accounts receivable debtor is not notified of the assignment of its account to the industrial loan company (nonnotification), unless the amount advanced to the client borrower is less than $20,000 and is also secured 100% by real property or personal property of a kind or class listed in Section 40.612 of these regulations and it requires that any payments made to the client borrower be forwarded in kind to it.

NOTE

Authority cited: Section 18347, Financial Code. Reference: Section 18190, Financial Code.

HISTORY

1. Change without regulatory effect renumbering and amending former section 1157.1 to new section 40.603 filed 8-19-97 pursuant to section 100, title 1, California Code of Regulations (Register 97, No. 34).

§40.604. Service Contracts.

Note • History

(a) No industrial loan company which has investment certificates outstanding shall purchase service contracts from dealers if such contracts exceed in the aggregate 10 percent of the net receivables outstanding. Service contracts purchased from any one dealer, its parent, and its affiliates shall not exceed in the aggregate 5 percent of the net receivables outstanding.

(b) For the purposes of this section:

(1) “Dealer” is defined to mean any person who provides lessons or services, including, for example, a dance studio or health spa; and

(2) “Service contract” is defined to mean a contract obligating a dealer to provide lessons or services, not in connection with the sale of household goods or commercial goods, for a stated period of time in consideration of a promise to pay a stated sum.

NOTE

Authority cited: Section 18347, Financial Code. Reference: Section 18190, Financial Code.

HISTORY

1. Change without regulatory effect renumbering former section 1157.2 to new section 40.604 filed 8-19-97 pursuant to section 100, title 1, California Code of Regulations (Register 97, No. 34).

§40.605. Reports of Collections.

Note • History

An industrial loan company shall request in writing that any person, to whom as agent or otherwise an account is referred for collection and who receives any sum from a borrower in connection with the collection of such account, report to such industrial loan company in writing within not less than 30 days of the receipt of such sum the gross sum received and the date of the receipt thereof, provided, that if such account is referred or assigned pursuant to an express contract such contract shall specify that the report contemplated by this section must be given.

NOTE

Authority cited: Section 18347, Financial Code. Reference: Sections 18190 and 18029, Financial Code.

HISTORY

1. Change without regulatory effect renumbering former section 1158 to new section 40.605 and adding new Note filed 8-19-97 pursuant to section 100, title 1, California Code of Regulations (Register 97, No. 34).

§40.606. Acceleration of Repayment: Limitations.

Note • History

An industrial loan company shall not be entitled to accelerate repayment of any consumer loan:

(a) Upon failure of the borrower immediately to pay any sum or sums advanced by the industrial loan company for itself or the borrower for insurance premiums relating to the security;

(b) If the industrial loan company feels insecure due to a change in the financial condition of the borrower; or

(c) If any non-material misstatement has been made by the borrower with reference to the borrower's credit or financial standing.

NOTE

Authority cited: Section 18347, Financial Code. Reference: Section 18358, Financial Code.

HISTORY

1. Change without regulatory effect renumbering former section 1159 to new section 40.606 filed 8-19-97 pursuant to section 100, title 1, California Code of Regulations (Register 97, No. 34).

§40.607. Consumer Loan Balloon Payment.

Note • History

(a) Any periodic payment (including any scheduled installment under a retail installment contract) that is more than twice the amount of any other periodic payment will be considered a balloon payment for purposes of Section 18206 of the Financial Code.

(b) Any consumer loan or obligation made or acquired which is secured by a motor vehicle and is repayable in other than equal periodic payments shall have no more than one balloon payment during the term of the loan or obligation. The amount of the balloon payment shall not exceed the amount of the projected residual value of the motor vehicle at the time the loan or obligation is made for the corresponding loan or obligation repayment term as prescribed in the most recent issue of any residual value guide approved by rule of the Commissioner. The Kelley Blue Book Residual Value Guide is an approved residual value guide for the purposes of Financial Code Section 18206 and this rule.

NOTE

Authority cited: Sections 18272 and 18347, Financial Code. Reference: Sections 18206 and 18358, Financial Code.

HISTORY

1. Change without regulatory effect renumbering former section 1162 to new section 40.607 filed 8-19-97 pursuant to section 100, title 1, California Code of Regulations (Register 97, No. 34).

§40.608. Closing Statement and Escrow Instructions.

Note • History

On any loan secured by real property in which loan proceeds were disbursed to an independent escrow holder, an industrial loan company shall retain a copy of the escrow instructions and the closing statement issued by the escrow holder.

NOTE

Authority cited: Section 18347, Financial Code. Reference: Section 18029, Financial Code.

HISTORY

1. Change without regulatory effect renumbering former section 1165 to new section 40.608 and adding new Note filed 8-19-97 pursuant to section 100, title 1, California Code of Regulations (Register 97, No. 34).

§40.609. Charges: Limited to Amounts Disbursed.

Note • History

(a) Except as otherwise provided in Subdivisions (b), (c) and (d) of this section, an industrial loan company may collect and receive charges only on that portion of the unpaid principal balance actually disbursed to the borrower or on the borrower's behalf, and only from the date of such disbursement.

(b) Charges on the account of any statutory fees to be paid to a public officer may be collected and received from the date of the loan, provided such fees are actually paid within a reasonable time after the loan is made.

(c) Charges on the amount of premium for insurance written in connection with a loan may be collected and received only from the effective date of the insurance. However, in the case of an extension of such insurance at the time of the refinance of a loan, extending coverage to the new maturity of such refinance, charges upon the premium may be collected and received from the date of such refinance.

(d) Charges on a loan secured by real property may be collected and received only from the date of closing of the escrow, when the loan proceeds are disbursed by the escrow holder.

NOTE

Authority cited: Section 18347, Financial Code. Reference: Sections 18190 and 18211-18212.2, Financial Code.

HISTORY

1. Change without regulatory effect renumbering and amending former section 1166 to new section 40.609 and adding new Note filed 8-19-97 pursuant to section 100, title 1, California Code of Regulations (Register 97, No. 34).

§40.610. Notary Fees.

Note • History

An industrial loan company may not charge or collect from a borrower any consideration for notary services unless such consideration is actually paid to and retained by the notary public who rendered such services. An industrial loan company may not directly or indirectly receive, participate in or benefit from the consideration paid for said notary services.

NOTE

Authority cited: Section 18347, Financial Code. Reference: Section 18215, Financial Code.

HISTORY

1. Change without regulatory effect renumbering former section 1167 to new section 40.610 and adding new Note filed 8-19-97 pursuant to section 100, title 1, California Code of Regulations (Register 97, No. 34).

§40.611. Forms: Limitation on Distribution.

Note • History

An industrial loan company shall not distribute to persons who are not prospective borrowers forms or documents which are used in connection with the making of loans and which are intended for distribution or exhibition by said persons to prospective borrowers. This provision shall not apply to:

1) a form used solely in the procurement of preliminary credit information and not signed or to be signed by the prospective borrower; or

2) premium finance agreements.

NOTE

Authority cited: Section 18347, Financial Code. Reference: Section 18347, Financial Code.

HISTORY

1. Change without regulatory effect renumbering former section 1168 to new section 40.611 filed 8-19-97 pursuant to section 100, title 1, California Code of Regulations (Register 97, No. 34).

§40.612. Requirements for Loans Made or Obligations Acquired Pursuant to Sections 18210, 18265, 18266, and 18273 of the Financial Code.

Note • History

(a) The following kinds or classes of personal property or collateral are hereby declared eligible as security for loans or obligations:

(1) Motor vehicles;

(2) Mobile homes;

(3) Motor homes;

(4) Campers;

(5) Camper trailers;

(6) Personal property, used for carrying on a business other than that property held for sale;

(7) Farm equipment;

(8) Investment Thrift Certificates of the industrial loan company;

(9) Livestock;

(10) Aircraft;

(11) Boats;

(12) Musical instruments;

(13) Insurance policies;

(14) Traded securities;

(15) Notes secured by deeds of trust on real property which real property is reasonably insured against loss;

(16) Equipment and automobile leases; and

(17) Other personal property or collateral determined by the Commissioner upon written request to be similar in nature to any of the above. This written request shall be submitted at least 5 business days before making a loan or purchasing an obligation secured by personal property or collateral.

(b) A loan or obligation secured only by item (8) in subsection (a) shall be 100 percent secured at all times during the life of the loan.

(c) The kinds or classes of personal property or collateral listed in subsection (a) of this section, except items (8), (13), (14) and (15) thereof, shall be reasonably insured against loss and the industrial loan company shall be named as loss payee in connection therewith.

(d) Real property is eligible as security for loans or obligations. Real property shall be reasonably insured against loss and the industrial loan company shall be named as loss payee in connection therewith.

(e) Subject to the provisions of Financial Code Section 18210, the aggregate of the principal balances of loans and obligations which will not mature within 60 months and 15 days shall not exceed 70 percent of the aggregate of the principal balances due on all loans and obligations owing to the industrial loan company.

NOTE

Authority cited: Section 18347, Financial Code. Reference: Sections 18210, 18265, 18266 and 18273, Financial Code.

HISTORY

1. Change without regulatory effect renumbering former section 1169 to new section 40.612 filed 8-19-97 pursuant to section 100, title 1, California Code of Regulations (Register 97, No. 34).

§40.613. Security Requirement for Loans Made Pursuant to Section 18208, Financial Code.

Note • History

A loan secured by traded securities made pursuant to Section 18208 of the Financial Code shall during its entire term be secured by such securities having a market value of not less than the amount owing on the loan. If at any time during the term of the loan the value of such securities becomes less than the amount owing on the loan, additional traded securities must be obtained in an amount sufficient to bring the market value of all of the securities up to an amount not less than the amount owing on the loan. If such additional traded securities are not obtained within three (3) business days from the date that the market value of such securities became less than the amount owing on the loan, then a valuation reserve shall be established for the deficiency.

NOTE

Authority cited: Section 18347, Financial Code. Reference: Section 18208, Financial Code.

HISTORY

1. Change without regulatory effect renumbering former section 1170 to new section 40.613 filed 8-19-97 pursuant to section 100, title 1, California Code of Regulations (Register 97, No. 34).

§40.614. Definition of Term “Traded Securities” in Section 18208, Financial Code.

Note • History

The term “traded securities” as used in Section 18208 of the Financial Code and in this Subchapter means a security which is either listed or admitted to trading on a national securities exchange or which has a substantial and active market and is subject to two-way quotations (i.e., both bid and asked prices) regularly published by one or more broker-dealers in the National Daily Quotation Service.

The term “traded securities” does not include stock which is subject to any restrictions on sale or transfer.

NOTE

Authority cited: Section 18347, Financial Code. Reference: Section 18208, Financial Code.

HISTORY

1. Change without regulatory effect renumbering and amending former section 1171 to new section 40.614 filed 8-19-97 pursuant to section 100, title 1, California Code of Regulations (Register 97, No. 34).

§40.615. Collection Expenses.

Note • History

Collection expenses under Section 18218(b) of the Financial Code may be charged only when a bona fide attempt to liquidate the entire loan balance is made. Collection expenses shall not be charged to a borrower for the collection of past due payments or installments nor shall the collection charge be made more than once on the unpaid principal balance of the loan.

NOTE

Authority cited: Section 18347, Financial Code. Reference: Section 18218(b), Financial Code.

HISTORY

1. Change without regulatory effect renumbering former section 1172 to new section 40.615 filed 8-19-97 pursuant to section 100, title 1, California Code of Regulations (Register 97, No. 34).

§40.616. Single Payment Loans Made Pursuant to Section 18207, Financial Code.

Note • History

An industrial loan company shall not make a consumer or other type of loan which is repayable by a single payment at maturity unless the following conditions are met:

(a) A determination must be made that the borrower has a specific reason and need for a single payment loan rather than a loan repayable in accordance with the terms provided by Section 18205 of the Financial Code.

(b) The loan application and credit investigation must demonstrate that the borrower intends and will be able to pay the loan at maturity.

NOTE

Authority cited: Section 18347, Financial Code. Reference: Section 18207, Financial Code.

HISTORY

1. Change without regulatory effect renumbering former section 1174 to new section 40.616 filed 8-19-97 pursuant to section 100, title 1, California Code of Regulations (Register 97, No. 34).

§40.617. Refinance of Single Payment Loans.

Note • History

Except for loans secured by 100 percent of the industrial loan company's investment certificates, if a loan repayable by a single payment is not fully paid at maturity, it may be refinanced or extended for a new term not to exceed the original term of such loan, provided that at the time of refinance or extension the charges due are collected. If such a loan is not fully paid at the new or extended maturity date, it may not be refinanced unless the following conditions are met:

(a) A new application shall be taken and an appropriate credit investigation made. A determination shall be made that the borrower will be able to adhere to the terms of the new loan;

(b) The new loan shall comply with the term limitations and other provisions of Section 18205 of the Financial Code;

(c) If the new loan is a consumer loan, it shall be repayable by equal or substantially equal periodic payments during its term. If the new loan is other than a consumer loan, a determination must be made that the borrower will be able to pay any final installment amounting to more than twice the amount of any other scheduled installment.

NOTE

Authority cited: Section 18347, Financial Code. Reference: Section 18207, Financial Code.

HISTORY

1. Change without regulatory effect renumbering former section 1175 to new section 40.617 filed 8-19-97 pursuant to section 100, title 1, California Code of Regulations (Register 97, No. 34).

§40.618. Loan Secured by Assignment of Obligation Secured by Real Property.

Note • History

The market value of the collateral obligation of such loan must be at least 115% of the principal amount owing on the loan. The market value of the underlying real property may be considered in determining the market value of the collateral obligation.

NOTE

Authority cited: Section 18347, Financial Code. Reference: Section 18207, Financial Code.

HISTORY

1. Change without regulatory effect renumbering former section 1176 to new section 40.618 and adding new Note filed 8-19-97 pursuant to section 100, title 1, California Code of Regulations (Register 97, No. 34).

§40.619. Reconveyance Fees.

Note • History

(a) A reconveyance fee shall not be charged in connection with the refinance of a loan secured by real property if the same real property will secure the new loan.

(b) A reconveyance fee charged by an industrial loan company, its parent, or any of its affiliates is a charge as defined in Section 18007 of the Financial Code.

NOTE

Authority cited: Section 18347, Financial Code. Reference: Section 18007, Financial Code.

HISTORY

1. Change without regulatory effect renumbering former section 1178 to new section 40.619 filed 8-19-97 pursuant to section 100, title 1, California Code of Regulations (Register 97, No. 34).

Article 7. Leases

§40.700. Requirements for Lease Obligations.

Note • History

(a) The following kinds or classes of property are hereby declared eligible for the purchasing, discounting or origination of leases:

(1) Motor vehicles, except mobile homes, motor homes, campers and camper trailers;

(2) Personal property used for carrying on a business, other than property held for sale;

(3) Farm equipment; and

(4) Other property approved by the Commissioner.

(b) The kinds or classes of personal property or collateral listed in subsection (a) shall be insured against loss and the industrial loan company shall be named as insured in connection therewith.

(c) The aggregate balances due on lease obligations which will not mature within 60 months and 15 days shall be included in the percentage limitation set forth in Section 40.612(d) of this Chapter.

NOTE

Authority cited: Section 18347, Financial Code. Reference: Section 18310, Financial Code.

HISTORY

1. Change without regulatory effect adding new article 7 (sections 40.700-40.703) and renumbering and amending former section 1179 to new section 40.700 filed 8-19-97 pursuant to section 100, title 1, California Code of Regulations (Register 97, No. 34).

§40.701. Application for Authorization.

Note • History

An industrial loan company requesting the Commissioner's consent to engage in the business of leasing as authorized by Section 18310 of the Financial Code shall submit the following information:

(a) A detailed statement of the company's proposed plan of leasing setting forth both the specific leasing business in which the company proposes to engage at the outset and its proposed future leasing program. Said statement should include, but is not limited to, the following information:

(1) Type of equipment subject to lease.

(2) Lease agreements.

(3) Procedure for perfecting liens.

(4) Terms and maturities.

(5) Advance payment/down payments.

(6) Concluding options.

(7) Credit requirements.

(8) Approval authority.

(9) Collection policy.

(10) Form and amount of collateral and/or public liability insurance.

(11) Method for determination of capitalization costs and residual value.

(12) Method for disposal of returned equipment.

(13) Method for early termination of lease.

(14) Method by which income, depreciation, and tax credits will be treated on the company's books.

(15) Any other pertinent factors.

(b) A schedule showing the estimated number, type and amount of leases to be made in each of the first 12 months of operation.

(d) Name of the person(s) who will be operating the leasing business with a statement as to his or her leasing business experience and other qualifications.

(e) A statement from legal counsel that the proposed plan of business has been reviewed and that it complies with all applicable federal and California statutes.

NOTE

Authority cited: Section 18347, Financial Code. Reference: Section 18311, Financial Code.

HISTORY

1. Change without regulatory effect renumbering former section 1179.1 to new section 40.701 filed 8-19-97 pursuant to section 100, title 1, California Code of Regulations (Register 97, No. 34).

§40.702. Maximum Terms and Final Payment for Motor Vehicle Leases.

Note • History

Each company shall annually submit, in duplicate, to the Commissioner for nondisapproval, a schedule of:

(a) The maximum term of a motor vehicle lease by make, model, year and cost; and

(b) The residual balance percentages it plans to use with an explanation of how they were developed, how they will be employed, and how frequently they will be revised.

NOTE

Authority cited: Section 18347, Financial Code. Reference: Section 18314, Financial Code.

HISTORY

1. Change without regulatory effect renumbering former section 1179.2 to new section 40.702 filed 8-19-97 pursuant to section 100, title 1, California Code of Regulations (Register 97, No. 34).

§40.703. Limitation on Outstanding Lease Obligations.

Note • History

(a) Unless, in the opinion of the Commissioner, a greater percentage is justified by an appropriate showing in the company's first year projections, an industrial loan company during its first 12 months of operating a leasing business shall not originate or purchase direct lease obligations in an amount exceeding in aggregate 10% of the company's net outstanding loan and obligations, including direct lease obligations.

(b) After 12 months of operating a direct leasing business, an industrial loan company may file a request for authority to increase the aggregate amount of its outstanding direct lease obligations which in no event shall exceed 20% of the company's net outstanding loans and obligations, including direct lease obligations.

(1) A statement including, but is not to be limited to, information relating to the type of property leased; net income realized from direct leasing operations; a budget showing the estimated income and expense from the direct leasing operations for the next year; and whether it proposes to lease the same type of property presently leased or whether it plans to lease other types of property.

(2) A schedule showing the number and aggregate amount of direct lease obligations held by the company. The schedule shall show the number and amounts by types of property.

(3) A schedule of delinquent direct leases by types of property and number of months delinquent.

(4) A schedule showing the number and total amount of direct lease obligations which were charged off by the company. The schedule shall show the type of property leased; original cost of property leased; book value of equipment at the time of repossession; and any gain or loss as a result of the sale of said equipment.

(5) Any other pertinent factors.

NOTE

Authority cited: Section 18347, Financial Code. Reference: Section 18316, Financial Code.

HISTORY

1. Change without regulatory effect renumbering former section 1179.3 to new section 40.703 filed 8-19-97 pursuant to section 100, title 1, California Code of Regulations (Register 97, No. 34).

Article 8. Insurance

§40.800. Insurance Premiums: Charge Before Effective Date.

Note • History

No insurance premium shall be charged to or collected from a borrower prior to the effective date of such insurance. However, in the event of refinancing of a loan, existing insurance may be extended to the maturity date of the new loan and the additional premium may be charged to or collected from the borrower at the time the loan is refinanced. The cost of the insurance to replace the unexpired insurance shall not exceed the original premium cost of such unexpired insurance. The cost of the insurance for the additional term may be computed at rates currently in effect.

NOTE

Authority cited: Section 18347, Financial Code. Reference: Section 18294, Financial Code.

HISTORY

1. Change without regulatory effect adding new article 8 (sections 40.800-40.815) and renumbering former section 1186 to new section 40.800 and adding new Note filed 8-19-97 pursuant to section 100, title 1, California Code of Regulations (Register 97, No. 34).

§40.801. Insurance.

Note • History

An industrial loan company shall not sell any type of insurance in connection with a loan not specifically permitted to be sold by these rules unless and until the Commissioner has notified the company in writing that the sale of the insurance is permitted.

NOTE

Authority cited: Section 18347, Financial Code. Reference: Section 18294, Financial Code.

HISTORY

1. Change without regulatory effect renumbering former section 1187 to new section 40.801 filed 8-19-97 pursuant to section 100, title 1, California Code of Regulations (Register 97, No. 34).

§40.802. Insurance Which May Be Required and Sold.

Note • History

(a) The following types of insurance may be required and sold by industrial loan companies:

(1) Material damage insurance on motor vehicles (including motorcycles, mobile homes and other vehicles licensed by the Department of Motor Vehicles), boats and aircraft may be required and sold subject to the following requirements:

(A) The amount of the annual premium shall not exceed one-third of the principal amount of the loan exclusive of any insurance premium or one-third of the reasonable value of the collateral insured;

(B) The insurance shall contain a deductible clause of $50 or more;

(D) The reasonable value of the collateral insured shall be $500 or more.

(2) Fire insurance on household goods, business equipment, and other types of tangible personal property may be required and sold subject to the following requirements:

(A) The principal amount of the loan or loan balance, exclusive of any insurance premiums, shall be $500 or more; and

(B) The reasonable value of the collateral insured shall be $500 or more.

(3) Fire insurance and other types of coverage which protect against damage to real property securing a loan.

(4) Title insurance for loans primarily secured by real property as provided in Section 18006 of the Financial Code. The cost of title insurance shall not be charged or collected in connection with loans which are not primarily secured by real property.

(5) Any type of insurance coverage required by the Federal Deposit Insurance Corporation.

(b) This section shall not prohibit an industrial loan company from requiring that collateral to be used as security for a loan be reasonably insured against the indicated losses and that the industrial loan company be named as loss payee to the extent of its security interest.

(c) The Commissioner may disapprove the sale of any type or policy of insurance which in the Commissioner's opinion does note provide adequate coverage or is not good business practice. Any type of insurance or policy of insurance so disapproved may not be offered or sold by any industrial loan company.

NOTE

Authority cited: Section 18347, Financial Code. Reference: Sections 18294 and 18358, Financial Code.

HISTORY

1. Change without regulatory effect renumbering former section 1188 to new section 40.802 filed 8-19-97 pursuant to section 100, title 1, California Code of Regulations (Register 97, No. 34).

§40.803. Insurance Which May Not Be Required, but May Be Sold.

Note • History

(a) The following types of insurance may not be required, but may be sold at the borrower's request:

(1) The types of insurance described in Subdivisions (a) and (b) of section 40.802 of this Chapter, notwithstanding the limitations and requirements contained therein.

(2) Property damage, public liability, uninsured motorist, towing and labor, medical payments, and other types of insurance on motor vehicles (including motorcycles, mobile homes and other vehicles licensed by the Department of Motor Vehicles), boats, and aircraft.

(3) Theft, flood damage, and other types of insurance on household goods, business equipment, and other types of tangible personal property.

(4) Homeowner liability insurance.

(b) The sale of any insurance under subsection (a) of this section shall be supported by a statement signed by at least one borrower to the effect that the insurance was purchased at the request of the borrower and was not a prerequisite to obtaining the loan.

(d) The Commissioner may disapprove the sale of an y type of policy of insurance which in the Commissioner's opinion does not provide adequate coverage or is not good business practice. Any type of insurance or policy of insurance so disapproved may not be offered or sold by any industrial loan company.

NOTE

Authority cited: Section 18347, Financial Code. Reference: Section 18294, Financial Code.

HISTORY

1. Change without regulatory effect renumbering and amending former section 1189 to new section 40.803 filed 8-19-97 pursuant to section 100, title 1, California Code of Regulations (Register 97, No. 34).

§40.804. Coverage of Insurance: Limitation.

Note • History

(a) Subject to the provisions of Subsection (b), fire insurance on household goods, if the resulting coverage would exceed the lesser of the principal amount of the loan or the balance of the loan at the time the insurance is sold, rounded to the next $500, shall not be required, but may be sold if supported by a statement signed by at least one borrower to the effect that the insurance was purchased at the request of said borrower and was not a prerequisite to obtaining the loan.

(b) Insurance on any property securing a loan shall not be required or sold if the resulting coverage would exceed the reasonable value of said property as established by a bona fide written appraisal, a statement of replacement value signed by the borrower, a recent sales invoice, or other evidence acceptable to the Commissioner.

(c) A statement of replacement value of household goods signed by a borrower as provided in subsection (b) shall contain the following statement in type not smaller than 8-point bold face type: “COLLATERAL FIRE INSURANCE COVERAGE ON HOUSEHOLD GOODS MAY NOT BE REQUIRED IN EXCESS OF THE LESSER OF THE PRINCIPAL AMOUNT OF THE LOAN OR THE BALANCE OF THE LOAN AT THE TIME THE INSURANCE IS SOLD, ROUNDED TO THE NEXT $500.”

NOTE

Authority cited: Section 18347, Financial Code. Reference: Section 18294. Financial Code.

HISTORY

1. Change without regulatory effect renumbering former section 1190 to new section 40.804 filed 8-19-97 pursuant to section 100, title 1, California Code of Regulations (Register 97, No. 34).

§40.805. Term of Insurance: Limitation.

Note • History

(a) The sale of insurance on motor vehicles (including motorcycles, mobile homes, and other vehicles licensed by the Department of Motor Vehicles), boats and aircraft for periods of more than one year, or for periods of less than one year unless the premium is a pro rata portion of the annual premium, will ordinarily be considered unreasonable.

(b) Insurance on real property, household goods, business equipment, and other types of tangible personal property shall not be required or sold if the term would exceed either the period for which such insurance is customarily sold or the term of the loan. For the purposes of this subsection, a loan term involving a fractional part of a year may be considered as extending through a full year.

NOTE

Authority cited: Section 18347, Financial Code. Reference: Section 18294, Financial Code.

HISTORY

1. Change without regulatory effect renumbering former section 1190.1 to new section 40.805 filed 8-19-97 pursuant to section 100, title 1, California Code of Regulations (Register 97, No. 34).

§40.806. Prohibition Against Duplicate Insurance.

Note • History

(a) An industrial loan company shall neither sell nor require the purchase of insurance on any property securing a loan if existing insurance is reasonably sufficient to protect the industrial loan company and the borrower.

(b) An industrial loan company shall take reasonable precautions to prevent the sale of insurance which would result in duplicate coverage.

(c) Each loan file shall contain a document evidencing the steps taken to prevent duplicate insurance coverage. Said document shall include:

(1) The loan number;

(2) The name of the borrower;

(3) The security for the loan;

(4) A statement whether or not insurance, including homeowner insurance, is in effect, and if so,

(A) The amount of coverage;

(B) The effective date of coverage;

(D) The name of agent.

(5) A notice that the borrower may purchase insurance from any licensed insurance agent and is not required to purchase insurance from the lender; and

(6) The signature of the officer or employee closing the loan and the signature of the borrower.

(d) Before an industrial loan company may require or sell fire insurance on real property, it shall first obtain documentary proof from all lenders holding prior encumbrances that reasonably sufficient insurance is not in effect. The documents so obtained shall be maintained in the borrower's loan file with the document required by subsection (c).

NOTE

Authority cited: Section 18347, Financial Code. Reference: Section 18294, Financial Code.

HISTORY

1. Change without regulatory effect renumbering former section 1190.2 to new section 40.806 filed 8-19-97 pursuant to section 100, title 1, California Code of Regulations (Register 97, No. 34).

§40.807. Vendors Single Interest Insurance and Participating Deductible Coverage Insurance.

Note • History

(a) The premiums for vendors single interest insurance shall not be charged to borrowers.

(b) The sale of any participating deductible coverage insurance shall be considered unreasonable unless, in addition to complying with the other applicable provisions of these rules, the following terms and conditions are satisfied:

(1)(A) The borrower voluntarily requests participating deductible coverage insurance in lieu of standard dual coverage insurance after having been given an opportunity to purchase standard dual coverage insurance from an insurance agent of the industrial loan company, or

(B) The industrial loan company provides written notice to the borrower stating that the industrial loan company intends to procure participating deductible coverage insurance if standard dual coverage insurance is not obtained and presented to it prior to the expiration of 15 days after the proper mailing or hand delivery of the notice, and that the cost of the insurance will be added to the borrower's account and may bear interest if not paid immediately.

(2) If the borrower obtains standard dual coverage insurance, the industrial loan company cancels the participating deductible coverage insurance and retains as a charge not more than the amount of the premium earned as of the effective date of the standard dual coverage insurance or the policy fee of up to $15, whichever is greater.

(3) If the borrower pays off an obligation prior to maturity, the industrial loan company refunds the premium which is unearned at the date the obligation is paid off, unless otherwise notified by the borrower.

NOTE

Authority cited: Section 18347, Financial Code. Reference: Section 18294, Financial Code.

HISTORY

1. Change without regulatory effect renumbering former section 1190.3 to new section 40.807 filed 8-19-97 pursuant to section 100, title 1, California Code of Regulations (Register 97, No. 34).

§40.808. Sales of Insurance.

Note • History

Nothing in these regulations shall be construed to authorize the sale of insurance by any person other than one who holds a valid license from the Insurance Commissioner authorizing such person to act in such capacity.

NOTE

Authority cited: Section 18347, Financial Code. Reference: Section 18294, Financial Code.

HISTORY

1. Change without regulatory effect renumbering former section 1190.5 to new section 40.808 filed 8-19-97 pursuant to section 100, title 1, California Code of Regulations (Register 97, No. 34).

§40.809. Requirements and Limitations on Additional Required Insurance When Existing Insurance Expires Before Maturity of Loan.

Note • History

(a) When required insurance expires prior to the maturity date of a loan, an industrial loan company may require additional insurance in a reasonable amount and for a reasonable period, considering the circumstances of the loan.

(b) The premium on the additional insurance shall not be charged to or collected from the borrower prior to the expiration of the existing required insurance except as provided in Section 40.800.

(c) Additional required insurance shall be effective immediately upon the premium being charged to or collected from the borrower except as provided in Section 40.800.

(d) If an industrial loan company elects to place required insurance or act under any authorization taken from a borrower to write or procure additional insurance, upon the expiration of existing insurance, it shall be the duty of the industrial loan company to notify the borrower, at least fifteen days prior to the expiration date of the existing insurance, that it intends to write additional insurance as authorized. If an industrial loan company does not notify the borrower, and the borrower procured additional insurance prior to, and to be effective upon, the expiration of the existing insurance, any insurance procured by the industrial loan company pursuant to this authorization shall, on notice from the borrower, be canceled at no cost to the borrower.

(e) If an industrial loan company elects to act under any authorization taken from a borrower to write or procure additional insurance in the event of cancellation of existing insurance, it shall be the duty of the industrial loan company to notify the borrower, within five days after receipt by the industrial loan company of notice of cancellation, that it intends to write the additional insurance as authorized. If an industrial loan company does not notify the borrower, and the borrower procured additional insurance prior to, and to be effective upon, the cancellation of the existing insurance, any insurance procured pursuant to the authorization shall, on notice from the borrower, be canceled at no cost to the borrower.

(f) Any notice by the industrial loan company that it intends to place required insurance or sell additional insurance shall state the type of insurance to be sold, the effective date, the amount of the premium, any change in the terms of the loan, and any additional precomputed charges.

NOTE

Authority cited: Section 18347, Financial Code. Reference: Section 18294, Financial Code.

HISTORY

1. Change without regulatory effect renumbering and amending former section 1191 to new section 40.809 filed 8-19-97 pursuant to section 100, title 1, California Code of Regulations (Register 97, No. 34).

§40.810. Prohibition Against Requirement of Particular Agent or Broker.

Note • History

An industrial loan company which requires or solicits insurance in connection with a loan shall comply with Article 5.5 of Chapter 1 of Part 2 of Division 1 of the Insurance Code.

NOTE

Authority cited: Section 18347, Financial Code.

HISTORY

1. Change without regulatory effect renumbering former section 1192 to new section 40.810 and adding new Note filed 8-19-97 pursuant to section 100, title 1, California Code of Regulations (Register 97, No. 34).

§40.811. Refund of Policy Fees Charged with Household Fire Insurance Policies.

Note • History

When household fire insurance has been sold by an industrial loan company and it is subsequently canceled, the policy fee, if any, must be considered part of the premium when any cancellation refund is computed.

NOTE

Authority cited: Section 18347, Financial Code. Reference: Section 18294, Financial Code.

HISTORY

1. Change without regulatory effect renumbering former section 1193 to new section 40.811 and adding new Note filed 8-19-97 pursuant to section 100, title 1, California Code of Regulations (Register 97, No. 34).

§40.812. Requirement of Cancellation of Existing Insurance Prohibited.

Note • History

An industrial loan company shall not, as a condition precedent to the making of a loan, require a borrower to cancel any existing insurance. The borrower shall have sole discretion as to whether existing insurance shall be maintained or canceled.

NOTE

Authority cited: Section 18347, Financial Code.

HISTORY

1. Change without regulatory effect renumbering former section 1194 to new section 40.812 and adding new Note filed 8-19-97 pursuant to section 100, title 1, California Code of Regulations (Register 97, No. 34).

§40.813. Adjustment of Insurance Claims: Limitations.

Note • History

Neither an industrial loan company, a company affiliated with such industrial loan company, nor officers, directors or employees of such industrial loan company or affiliate, shall act as adjuster of, or in any manner exercise control or supervision over the adjustment of any insurance claim relating to property securing a loan made by such industrial loan company in any case where there is a direct or indirect financial benefit to such industrial loan company, affiliated company, or the officers, directors, or employees of such industrial loan company or affiliate, as a result of such insurance claim. This prohibition shall not extend, however, to the duly constituted claims or adjustment department or division of a licensed insurance carrier, nor shall it apply where the loss is adjusted by a staff adjuster of the carrier or an independent individual adjuster or attorney at law.

NOTE

Authority cited: Section 18347, Financial Code.

HISTORY

1. Change without regulatory effect renumbering former section 1195 to new section 40.813 and adding new Note filed 8-19-97 pursuant to section 100, title 1, California Code of Regulations (Register 97, No. 34).

§40.814. Requirement of Notice to Borrower in Event of Increase of an Insurance Premium.

Note • History

If an insurance premium is increased subsequent to the sale of the insurance in connection with a loan, the industrial loan company shall notify the borrower in writing of the increase. The notice to the borrower shall state the reason for the increase, the amount of the additional premium, any change in terms and the amount of any additional charges. If the increase is not due to any fault of the borrower, the notice shall give the borrower the option of providing insurance and state that, if the option is exercised, the borrower will receive a pro rata refund of the premium for the insurance previously placed.

NOTE

Authority cited: Section 18347, Financial Code. Reference: Sections 18290 and 18294, Financial Code.

HISTORY

1. Change without regulatory effect renumbering former section 1197 to new section 40.814 filed 8-19-97 pursuant to section 100, title 1, California Code of Regulations (Register 97, No. 34).

§40.815. Reasonable Cause: Right to Approve or Disapprove of the Issuer Selected to Underwriter Insurance.

Note • History

(a) Any person engaged in the business of financing the purchase of real or personal property or of lending money on the security of real or personal property and the trustee, director, officer, agent or other employee or affiliate of any such person shall have the right to approve or disapprove, for reasonable cause, the insurer selected to underwrite any insurance required by the contract of sale or deed of trust or other loan agreement. This regulation includes insurance covering damage to or destruction of real or personal property and it includes title insurance.

(b) Reasonable cause is defined as the failure of the insurer to:

(1) Be licensed by the State of California to transact the line of insurance afforded.

(2) Provide the insurance in conformity with all requirements of the California Insurance Code and the Regulations issued thereunder.

(3) Afford the customary coverage required by the lender for the class of property involved including the loss payable endorsement required by the lender.

(4) Provide, at the option of the lender, coverage equal to the lesser of the market value or the replacement value of the property or the agreed value when the property insured is real property, or the actual cash value of the property when the property is personal property.

(5) Provide coverage with a deductible not exceeding $100 or 1% of the amount of insurance, whichever is greater. If the custom of the insurance business is to afford a higher deductible in conjunction with the coverage provided (including the deductibles used in conjunction with earthquake insurance), the insurer may provide such higher deductible.

(6) Deliver evidence of insurance to the lender which includes those provisions of the contract which have a bearing on the coverage afforded the property securing the loan.

Notwithstanding any other provisions of these regulations, the California FAIR Plan Association shall not be rejected as an insurer.

NOTE

Authority cited: Section 18347, Financial Code. Reference: Section 18294, Financial Code.

HISTORY

1. Change without regulatory effect renumbering former section 1198 to new section 40.815 filed 8-19-97 pursuant to section 100, title 1, California Code of Regulations (Register 97, No. 34).

Article 9. Credit Insurance

§40.900. Limitation on Soliciting Sale of Credit Insurance.

Note • History

(a) An industrial loan company shall not offer or sell credit insurance in any manner which restricts a borrower's ability to voluntarily select or reject credit life or credit disability insurance or both.

(b) An industrial loan company shall use a written form (which may be separate from or incorporated in the loan documents), which shall be signed or initialed by each of the insured borrowers. The form must be substantially as follows:

“Sign or initial Loan No. ________

your election

____________________ I want credit life insurance.

____________________ I do not want credit life insurance.

____________________ I want credit disability insurance.

____________________ I do not want credit disability insurance.”

NOTE

Authority cited: Section 18347, Financial Code. Reference: Section 18290, Financial Code.

HISTORY

1. Change without regulatory effect adding new article 9 (sections 40.900-40.906) and renumbering former section 1201 to new section 40.900 filed 8-19-97 pursuant to section 100, title 1, California Code of Regulations (Register 97, No. 34).

§40.901. Limitation on Sale of Credit Disability Insurance.

Note • History

(a) An industrial loan company shall not sell credit disability insurance, as prohibited by current regulations of the Department of Insurance, to a borrower who is a member of the Armed Forces of the United States.

(b) An industrial loan company shall not sell credit disability insurance to any other borrower as prohibited by current regulations of the Department of Insurance.

NOTE

Authority cited: Section 18347, Financial Code. Reference: Section 18290, Financial Code.

HISTORY

1. Change without regulatory effect renumbering former section 1202 to new section 40.901 filed 8-19-97 pursuant to section 100, title 1, California Code of Regulations (Register 97, No. 34).

§40.902. Limitations on Refinance of Loans Covered by Credit Insurance.

Note • History

(a) During any period when a borrower is disabled, and the disability is, or will become upon completion of the waiting period provided for in the policy, compensable under an existing policy of credit disability insurance, there may be no renewal or refinancing of the borrower's existing loan.

(b) If, with respect to any program for the sale of credit disability insurance, either (1) the policy excludes from coverage those disabilities arising out of injuries or illnesses existing on or before the effective date of insurance; or (2) the policies offered in connection with the renewal of refinancing of loans contain any terms or conditions which are different (other than as to the amount and term of coverage occasioned by the renewal or refinancing) from the terms or conditions of the policy relating to the loan being renewed or refinanced; then, prior to any renewal or refinancing of the borrower's existing loan, a written notice shall be given to the borrower by the industrial loan company, advising the borrower as to either or both of the following, whichever may be applicable:

(1) That if the borrower's loan is renewed or refinanced, the borrower will not be entitled to benefits for any disability resulting from any accident or illness which occurred subsequent to the date of the borrower's existing loan but prior to the date of the renewal or refinancing, even though credit disability insurance may again be provided for in connection with the renewal or refinancing.

(2) If the loan is renewed or refinanced, and a new policy of credit disability insurance is provided, the borrower's right to recover will be limited to the coverage provided by the new policy, which is different from that under which the borrower had been previously insured. The notice shall explain the substance of the differences.

(c) When a loan is insured by a policy of credit life insurance, the loan may not be renewed or refinanced without credit life insurance of substantially the same coverage being offered to the borrower in connection with the renewal or refinancing, unless, prior thereto, a written notice, is given to the borrower by the industrial loan company. The notice shall inform the borrower that in the event of renewal or refinancing the borrower's right to credit life insurance will terminate and the borrower will no longer be entitled to the credit life insurance benefits which had been in effect with respect to the borrower's existing loan.

NOTE

Authority cited: Section 18347, Financial Code. Reference Sections 18290 and 18358, Financial Code.

HISTORY

1. Change without regulatory effect renumbering former section 1203 to new section 40.902 filed 8-19-97 pursuant to section 100, title 1, California Code of Regulations (Register 97, No. 34).

§40.903. Rebates of Unearned Credit Insurance Premiums.

Note • History

(a) When a loan is fully prepaid, an industrial loan company shall rebate any unearned credit insurance premium to the borrower. If a loan becomes fully prepaid on or before 15 days after the loan was made, the entire credit insurance premium must be rebated to the borrower.

(b) When a loan is paid by credit life insurance, any unearned credit disability insurance premium must be promptly refunded to the borrower's heirs or estate and the refund must be computed as of the date of the borrower's death.

NOTE

Authority cited: Section 18327, Financial Code. Reference: Section 18290, Financial Code.

HISTORY

1. Change without regulatory effect renumbering former section 1204 to new section 40.903 filed 8-19-97 pursuant to section 100, title 1, California Code of Regulations (Register 97, No. 34).

§40.904. Limitation on Sale of Credit Insurance: Refinance of Conditional Sale Contract.

Note • History

An industrial loan company shall not sell credit insurance with a loan that is made in whole or in part to refinance a conditional sale contract held by such industrial loan company when such contract is covered by credit insurance, unless the loan file contains evidence of the borrower's request for rebate of any unearned credit insurance premium applicable to such contract.

NOTE

Authority cited: Section 18347, Financial Code. Reference: Section 18290, Financial Code.

HISTORY

1. Change without regulatory effect renumbering former section 1205 to new section 40.904 and adding new Note filed 8-19-97 pursuant to section 100, title 1, California Code of Regulations (Register 97, No. 34).

§40.905. Required Record for Credit Life Insurance Claims.

Note • History

An industrial loan company shall maintain a register of claims filed. Such register should identify each loan, show the date of the borrower's death and the date each claim was filed.

NOTE

Authority cited: Section 18347, Financial Code. Reference: Section 18029, Financial Code.

HISTORY

1. Change without regulatory effect renumbering former section 1206 to new section 40.905 and adding new Note filed 8-19-97 pursuant to section 100, title 1, California Code of Regulations (Register 97, No. 34).

§40.906. Credit Disability Insurance: General Limitations.

Note • History

(a) An industrial loan company is not required to make credit disability insurance available. If offered, however, credit disability insurance must be offered on a voluntary basis, without conditions as to the acceptance of other benefits for which the borrower will be charged. The purchase of credit life insurance may not be a condition precedent to obtaining credit disability insurance, nor may the purchase of credit disability insurance be made a condition to obtaining credit life insurance. No sales techniques may be employed which are designed, or which may be reasonably expected, to restrict the ability of the borrower to select or reject either or both forms of insurance coverage.

(b) Section 18293 of the Financial Code requires that the borrower be given “an understandably written statement . . . detailing the conditions when the borrower will be entitled to make a claim under the insurance policy and the procedure to be followed in making such claim.” The statement will be approved when the content will make a borrower generally aware of the coverage and understandable describes the steps to be followed by the borrower in filing a claim under the policy. The statement should not include a detailed description of the policy coverage, but shall set forth the basic conditions under which coverage becomes applicable (including, particularly, the extent of the elimination period). The statement may contain language indicating that it is not a full statement of the policy terms, and referring the borrower to the certificate of insurance for details.

NOTE

Authority cited: Section 18347, Financial Code. Reference: Sections 18290, 18291, 18292 and 18293, Financial Code.

HISTORY

1. Change without regulatory effect renumbering former section 1207 to new section 40.906 filed 8-19-97 pursuant to section 100, title 1, California Code of Regulations (Register 97, No. 34).

Article 10. Appraisals

§40.1000. Obligation or Loan Considered Unsecured Unless Collateral Appraised or Value Determined.

Note • History

A loan made or obligation purchased shall be considered unsecured within the meaning of Section 18271 of the Financial Code and Sections 40.401 and 40.613 of this Chapter unless the collateral given as security is supported by an adequate written appraisal or the market value thereof is adequately established in the loan file.

NOTE

Authority cited: Section 18347, Financial Code. Reference: Section 18271, Financial Code.

HISTORY

1. Change without regulatory effect adding new article 10 (sections 40.1000-40.1005) and renumbering and amending former section 1210 to new section 40.1000 filed 8-19-97 pursuant to section 100, title 1, California Code of Regulations (Register 97, No. 34).

§40.1001. Standard Publication May Be Used to Ascertain Market Value.

Note • History

Except for obligations secured by real property, an obligation may be considered to be secured by the Commissioner if the market value of the collateral can be ascertained by reference to a standard publication in general use by the trade.

NOTE

Authority cited: Section 18347, Financial Code. Reference: Section 18266, Financial Code.

HISTORY

1. Change without regulatory effect renumbering and amending former section 1211 to new section 40.1001 filed 8-19-97 pursuant to section 100, title 1, California Code of Regulations (Register 97, No. 34).

§40.1002. Reappraisal.

Note • History

The Commissioner may in his discretion require a reappraisal of any property given as collateral security for a loan or covered by a contract purchased.

NOTE

Authority cited: Section 18347, Financial Code. Reference: Section 18266, Financial Code.

HISTORY

1. Change without regulatory effect renumbering and amending former section 1212 to new section 40.1002 and adding new Note filed 8-19-97 pursuant to section 100, title 1, California Code of Regulations (Register 97, No. 34).

§40.1003. Personal Property Appraisals Pursuant to Section 18266 of the Financial Code.

Note • History

Appraisals of personal property pursuant to Section 18266 of the Financial Code shall be in accordance with a written appraisal policy approved by the board of directors of the industrial loan company.

At a minimum, the written appraisal policy shall require that:

(a) The appraisal be in writing, be signed by the appraiser, identify the loan or obligation involved, describe the property and whether or not inspection of the property shows it to be in good marketable condition, describe the procedures involved in making the appraisal, state the fair market value of the property and the basis for determining it, and be maintained in the file.

(b) If the loan or obligation involved has an outstanding principal balance of $25,000 or more, the appraisal shall be made by an independent appraiser. If the loan or obligation involved has an outstanding principal balance of less than $25,000, the appraiser may be a company employee if qualified, but the appraiser shall not be interested either directly or indirectly in any way as a recipient of the loan.

NOTE

Authority cited: Section 18347, Financial Code. Reference: Section 18266, Financial Code.

HISTORY

1. Change without regulatory effect renumbering former section 1213 to new section 40.1003 filed 8-19-97 pursuant to section 100, title 1, California Code of Regulations (Register 97, No. 34).

§40.1004. Appraisal of Real Property.

Note • History

An industrial loan company shall obtain an appraisal of real property offered as security for a loan in accordance with a written appraisal policy approved by the board of directors.

NOTE

Authority cited: Section 18347, Financial Code. Reference: Sections 18216 and 18266, Financial Code.

HISTORY

1. Change without regulatory effect renumbering former section 1213.1 to new section 40.1004 filed 8-19-97 pursuant to section 100, title 1, California Code of Regulations (Register 97, No. 34).

§40.1005. Cost of Appraisals.

Note • History

Where an appraisal fee is charged under Section 18216 of the Financial Code, the actual cost of an appraisal of real property shall be supported by a worksheet which shows the hours spent in connection with the appraisal, the hourly rates of the appraisers and other employees and any other direct costs. A composite hourly rate for appraisers or other employees may be used with the written consent of the Commissioner. Overhead expenses shall not be included in actual costs.

NOTE

Authority cited: Section 18347, Financial Code. Reference: Section 18216, Financial Code.

HISTORY

1. Change without regulatory effect renumbering and amending former section 1214 to new section 40.1005 filed 8-19-97 pursuant to section 100, title 1, California Code of Regulations (Register 97, No. 34).

Article 11. Repossession and Sale of Personal Property

§40.1100. Register of Repossessions Required.

Note • History

An industrial loan company shall maintain a register of all repossessions of personal property including property voluntarily surrendered by a borrower. The register shall show at least the date of repossession, loan number, name of borrower, description of the property and the date of sale or disposition of the property.

NOTE

Authority cited: Section 18347, Financial Code. Reference: Section 18029, Financial Code.

HISTORY

1. Change without regulatory effect adding new article 11 (sections 40.1100-40.1105), renumbering former section 1221 to new section 40.1100, and adding new Note filed 8-19-97 pursuant to section 100, title 1, California Code of Regulations (Register 97, No. 34).

§40.1101. Evidence of Fair Market Value.

Note • History

An industrial loan company shall maintain evidence that the fair market value of the property was obtained and credited to the account of the borrower. The evidence shall be:

(a) A report or other record which described the condition of the collateral at the time of repossession; and

(b) Any of the following:

(1) Three or more signed bids from persons not associated directly or indirectly with the industrial loan company which show the name and address of each bidder, the date of bid and an adequate description of the property; or

(2) A copy of a statement of sale from the auction house which shows the gross sales price, sales commissions and any other costs of sale; or

(3) Some other form acceptable to the Commissioner establishing value.

NOTE

Authority cited: Section 18347, Financial Code. Reference: Section 18029, Financial Code.

HISTORY

1. Change without regulatory effect renumbering former section 1223 to new section 40.1101 filed 8-19-97 pursuant to section 100, title 1, California Code of Regulations (Register 97, No. 34).

§40.1102. Expenses and Costs of Repossession or Sale: Expenses and Costs of Repairs.

Note • History

No expenses or costs of repossession or sale of property securing a loan shall be charged to or collected from a borrower, either directly or indirectly, that exceed the limitation contained in Section 18218 of the Financial Code. No expenses or costs of repairs to such property shall be charged to or collected from a borrower, either directly or indirectly, except upon a written authorization from the borrower specifically authorizing such repairs and signed by the borrower after the repossession and prior to the making of the repairs. Nothing in this section shall be deemed to apply to a lien on property securing a loan which existed prior to the date of repossession of such property and which resulted from some act of the borrower occurring prior to the date of such repossession. Nothing in this section shall be deemed to permit any charge other than charges permitted by law.

NOTE

Authority cited: Section 18347, Financial Code. Reference: Section 18218, Financial Code.

HISTORY

1. Change without regulatory effect renumbering former section 1224 to new section 40.1102 filed 8-19-97 pursuant to section 100, title 1, California Code of Regulations (Register 97, No. 34).

§40.1103. Sales to Certain Persons Prohibited.

Note • History

An industrial loan company shall not sell property securing a loan to any employee, officer, or director of such industrial loan company or affiliate of such industrial loan company, or to a relative of any of them. However, if an industrial loan company purchases such property it may be subsequently sold to a director, officer, or employee of the industrial loan company as provided in Section 18448 of the Financial Code. For purposes of Section 18448 evidence of current market value shall be maintained as required by Section 40.1101 of this Chapter..

NOTE

Authority cited: Section 18347, Financial Code. Reference: Section 18448, Financial Code.

HISTORY

1. Change without regulatory effect renumbering and amending former section 1225 to new section 40.1103 filed 8-19-97 pursuant to section 100, title 1, California Code of Regulations (Register 97, No. 34).

§40.1104. Credit or Refund Upon Resale After Repossession.

Note • History

If an industrial loan company, any affiliate of the industrial loan company, any company in which it has some interest, or any company in which any person connected with the industrial loan company has some interest, purchases any property securing a loan at any sale after repossession, the industrial loan company shall:

(a) At the time of purchase, credit or refund to the borrower an amount at least equal to the fair market value of the property as determined under Section 40.1101.

(b) Upon a resale of the property, credit or refund to the borrower the gross amount for which the property is resold less the amount of credit or refund made under subsection (a) of this rule, and any expenses of repairing or reconditioning the property made after its purchase and any expenses of resale, provided that these expenses shall not exceed the actual outlay therefor.

NOTE

Authority cited: Section 18347, Financial Code. Reference: Sections 18029 and 18266, Financial Code.

HISTORY

1. Change without regulatory effect renumbering and amending former section 1226 to new section 40.1104 filed 8-19-97 pursuant to section 100, title 1, California Code of Regulations (Register 97, No. 34).

§40.1105. Records: Maintenance Required.

Note • History

(a) An industrial loan company shall maintain complete records of the repossession and sale or resale of any property securing a loan and shall include at least the following:

(1) A copy of the Department of Motor Vehicles affidavit of repossession if required.

(2) A copy of the security agreement if the original has been released.

(3) Evidence that the notice of sale required by Section 9504(3) of the Commercial Code was sent by registered or certified mail. If the notice was served personally an affidavit to that effect shall be on file.

(4) A copy of a bill of sale for collateral other than a vehicle for which an affidavit of repossession was prepared. The bill of sale shall include the purchaser's name, address and gross sales price.

(5) Invoices and receipts for payment of liens, expenses of repairs and expenses of resale provided by Sections 40.1102 and 40.1104 of this Chapter.

(6) Evidence that the borrower was notified that existing insurance may be canceled by the borrower.

(b) These records shall be maintained for a period of not less than two (2) years after the sale.

NOTE

Authority cited: Section 18347, Financial Code. Reference: Section 18029, Financial Code.

HISTORY

1. Change without regulatory effect renumbering and amending former section 1227 to new section 40.1105 filed 8-19-97 pursuant to section 100, title 1, California Code of Regulations (Register 97, No. 34).

Article 12. Advertising

§40.1200. Advertising: Submission for Examination.

Note • History

By order of the Commissioner, advertising of investment certificates shall be submitted by the time specified in the order, to the Commissioner in duplicate over the signature of an officer or employee of the industrial loan company whose name has been submitted to the Commissioner with representations that said person is authorized by the industrial loan company to submit advertising and is familiar with the requirements of Financial Code Section 18062 and regulations regarding advertising.

NOTE

Authority cited: Section 18347, Financial Code. Reference: Section 18062, Financial Code.

HISTORY

1. Change without regulatory effect adding new article 12 (sections 40.1200-40.1203) and renumbering former section 1230 to new section 40.1200 filed 8-19-97 pursuant to section 100, title 1, California Code of Regulations (Register 97, No. 34).

§40.1201. Maintenance of Advertising Copy.

Note • History

(a) An industrial loan company shall maintain a file of all advertising copy for a period of at least ninety (90) days after the last date of its use.

(b) All advertising copy shall have noted thereon the name or names of all advertising media used and the dates when such advertising appeared.

(c) In the case of radio or television advertising, unless the full text of such announcements is maintained for the aforesaid prescribed time by the broadcasting station or stations and is there available to the Commissioner, an industrial loan company shall cause a voice transcription of the full text of such announcements to be prepared and retained for said ninety (90) day period.

NOTE

Authority cited: Section 18347, Financial Code. Reference: Sections 18029 and 18063, Financial Code.

HISTORY

1. Change without regulatory effect renumbering and amending former section 1232 to new section 40.1201 and adding new Note filed 8-19-97 pursuant to section 100, title 1, California Code of Regulations (Register 97, No. 34).

§40.1202. Credit Instruments: Limitations.

Note • History

An industrial loan company shall not issue instruments purporting to be a firm offer to lend or a commitment to extend credit to a borrower or a prospective borrower unless all of the following conditions are met:

(a) The company issues said instrument to an individual specifically named therein;

(b) The company expressly covenants with said borrower or prospective borrower to consummate a loan or loans up to a definitely stated or determinable maximum amount at a rate not to exceed the current applicable rate of charge upon presentation of the credit instrument without any credit investigation or consideration of the value of the security;

(c) The credit instrument is dated accurately as of the date of issue and contains a termination date effective not more than twelve months from the date of issuance by the company;

(d) The credit instrument is not a facsimile of a bond or insurance policy, or check, draft or other form of commercial paper;

(e) The credit instrument clearly shows that a loan, including the repayment thereof together with charges, is involved;

(f) The credit instrument specifies the location at which the loan will be made; and

(g) The credit instrument contains only positive statements, not qualified in any way.

NOTE

Authority cited: Section 18347, Financial Code. Reference: Section 18055, Financial Code.

HISTORY

1. Change without regulatory effect renumbering former section 1236 to new section 40.1202 filed 8-19-97 pursuant to section 100, title 1, California Code of Regulations (Register 97, No. 34).

§40.1203. Financial Statements.

Note • History

Any financial information contained in or attached to any advertising shall be based on the most recent audited financial statement filed with the Commissioner under Section 18405 of the Financial Code. Any condensed financial statement so used shall comply with Section 40.1301 of this Chapter.

NOTE

Authority cited: Section 18347, Financial Code. Reference: Section 18055, Financial Code.

HISTORY

1. Change without regulatory effect renumbering and amending former section 1241 to new section 40.1203 filed 8-19-97 pursuant to section 100, title 1, California Code of Regulations (Register 97, No. 34).

Article 13. Reports

§40.1300. Preparation of Independent Audit Report.

Note • History

An industrial loan company shall furnish an independent audit report pursuant to the following:

(a) Each industrial loan company shall annually, on or before the fifteenth day of March, file with the Commissioner a two part report: One, containing statistical information, to be prepared by the company on Form ILL 424, Instructions for Completion of Report of Statistical Information of Industrial Loan Companies (dated 1/88); the other, as described in subsection (d), prepared by an independent certified public accountant or an independent public accountant.

(b) Three copies of the report must be filed with the Commissioner at the office of the Department of Financial Institutions.

(c) For the purpose of determining whether an accountant is independent, as required by Financial Code Section 18405, the rules and regulations of the California State Board of Accountancy with respect to independence shall be applicable. The accountant shall include in the report an affirmative statement that he/she is independent and has no financial interest in the industrial loan company either directly or indirectly.

(d) The second part of the annual report shall contain:

(1) Audited financial statements which include a comparative balance sheet of the company as of the last day of the calendar year and of the preceding year, and comparative statements of income; stockholder's equity and changes in financial position for each such calendar y ear. These financial statements shall be prepared on an accrual basis accompanied by an accountant's report, including an opinion meeting the standards of the California Board of Accountancy (Rule 58.1 of the Board of Accountancy).

(2) An analysis of the allowance for loan losses, showing the balance at the beginning of the year, additions to the allowance less accounts charged to the allowance, and the balance at the end of the year.

(3) The accountant shall submit under separate cover, along with the audit report, a copy of the letter to management describing internal control and making recommendations for improving operating procedures. The company shall submit a copy of its letter, if any, in response to the management letter of the accountant. The accountant shall examine documentation on loans and include in the management letter appropriate comments on the condition of the loan files examined if any weaknesses exist (e.g., application, notes, security interest, insurance, appraisals).

NOTE

Authority cited: Section 18347, Financial Code. Reference: Sections 18029, 18405, 18409, 18410 and 18411, Financial Code.

HISTORY

1. Change without regulatory effect adding new article 13 (sections 40.1300-40.1304) and renumbering and amending former section 1247 to new section 40.1300 filed 8-19-97 pursuant to section 100, title 1, California Code of Regulations (Register 97, No. 34).

§40.1301. Reports to Officers and Directors.

Note • History

Each industrial loan company shall maintain a system of internal controls which shall include the preparation and delivery to each principal officer and member of the board of directors of the company at least monthly a written report of the affairs of the company containing sufficient detail so that the responsible officer and director will be fully informed concerning the current position of the company and be able to discharge his responsibility on an informed basis. Copies of such reports shall be kept on file available for examination for at least two years.

NOTE

Authority cited: Section 18347, Financial Code. Reference: Section 18029, Financial Code.

HISTORY

1. Change without regulatory effect renumbering former section 1251 to new section 40.1301 and adding new Note filed 8-19-97 pursuant to section 100, title 1, California Code of Regulations (Register 97, No. 34).

§40.1302. Condensed Statement of Financial Condition.

Note • History

(a) Except as provided in subsection (e), the condensed statement of financial condition of an industrial loan company which is required to be distributed to certificate holders and posted pursuant to Section 18406 of the Financial Code shall be submitted to the Commissioner together with the annual audit report required by Section 18405(a) of the Financial Code. The condensed statement of financial condition (hereafter in this rule referred to as the “condensed statement”) shall not be posted or distributed without the written consent of the Commissioner.

(b) The condensed statement shall be posted and distributed in accordance with Section 18406 of the Financial Code within 45 days after the written consent of the Commissioner has been obtained pursuant to subsection (a).

(c) The condensed statement to be posted shall (1) be printed or typed in bold face type not smaller than 10 point and (2) be captioned by a statement in bold face type not smaller than 24 point showing the name of the industrial loan company and the words “statement of financial condition as of (date)” or a caption of similar import.

(d) The furnishing of the condensed statement to the purchaser of an installment investment certificate at the time a passbook account is opened and at the time of the initial purchase of a full-paid investment certificate is compliance with Subdivision (b) of Section 18406 of the Financial Code.

(e) An industrial loan company may elect to prepare condensed statements on a quarterly or semi-annual basis by filing a written notice to that effect with the Commissioner, and upon such election being approved by the Commissioner. A company which elects to use quarterly or semi-annual condensed statements shall:

(1) Represent to the Commissioner that such quarterly or semi-annual statements shall be prepared upon a basis consistent with the audited financial statement for the close of its most recently completed fiscal year;

(2) Submit such condensed statements to the Commissioner prior to posting, distribution or other use, together with a copy of the company's balance sheet and profit and loss statement for the same period. Such quarterly or semi-annual condensed statements shall not be used without the written consent of the Commissioner;

(3) Continue to post, distribute and deliver in accordance with Section 18406 of the Financial Code on a quarterly or semi-annual basis, in accordance with its election, until such time as the Commissioner revokes such authorization or permits the modification or rescinding of such election by the company, and;

(4) Prepare, post, distribute and deliver such condensed quarterly or semi-annual statements in accordance with the requirements of Subdivisions (c), (d) and (f).

(f) The condensed statement shall be prepared in the following form and contain the information specified (items not applicable may be omitted):

(Name of Industrial Loan Company)

Condensed Statement of Condition

as of December 31, ___

ASSETS:

Cash $____

Investments at Cost (Current

Market Value ($________) ____

Receivables $____

Less:

Reserve for Losses $____

Unearned Charges and Discount ____

Dealer Reserves and Withholds ____ ____ ____

Company Property (net of depreciation) ____

Real Property Held for Sale (net of

depreciation and encumbrances) ____

Other Tangible Assets ____

Intangible Assets ____

Total Assets $____

LIABILITIES AND NET WORTH

Investment Certificates $____

Notes payable- Parent or Affiliate ____

Notes Payable- Other ____

Other Liabilities ____

Total Liabilities ____

Net Worth ____

Total Liabilities and Net Worth $____

NET WORTH REPRESENTED BY:

Capital Stock $____

Paid-in Surplus ____

Earned Surplus ____

Net Worth $____

IF YOU DESIRE MORE DETAILED INFORMATION A COPY OF THE COMPANY'S AUDITED FINANCIAL STATEMENTS AS OF DECEMBER 31, ____, AND FOR THE PERIOD JANUARY 1, ____, TO DECEMBER 31, ____, IS AVAILABLE FOR YOUR INSPECTION IN ANY OF OUR COMPANY'S OFFICES DURING REGULAR BUSINESS HOURS.

NOTE

Authority cited: Section 18347, Financial Code. Reference: Section 18406, Financial Code.

HISTORY

1. Change without regulatory effect renumbering and amending former section 1252 to new section 40.1302 filed 8-19-97 pursuant to section 100, title 1, California Code of Regulations (Register 97, No. 34).

§40.1303. Audited Financial Statements for Public Inspections.

Note • History

The audited financial statements required to be furnished for public inspection pursuant to Subdivision (c) of Section 18406 of the Financial Code shall include (a) the opinion of the independent accountant, (b) the balance sheet, profit and loss, and statement of source and application of funds and (c) all informative disclosures necessary to make the information contained in the opinion and financial statements not misleading. Information included in the annual audit report required pursuant to Section 18405(a) of the Financial Code which is not required by the foregoing may be omitted.

NOTE

Authority cited: Section 18347, Financial Code. Reference: Section 18406, Financial Code.

HISTORY

1. Change without regulatory effect renumbering former section 1252.1 to new section 40.1303 filed 8-19-97 pursuant to section 100, title 1, California Code of Regulations (Register 97, No. 34).

§40.1304. Order Deleting or Supplementing Form of Financial Statement.

Note • History

Upon written petition or otherwise, the Commissioner may by specific order in a particular matter require additions to, or permit deletions from, the form of financial statement contained in Section 40.1302 of this Chapter or the financial statements required by Section 40.1303 of this Chapter, if the addition or deletion is necessary to make the information contained in the forms not misleading.

NOTE

Authority cited: Section 18347, Financial Code. Reference: Section 18406, Financial Code.

HISTORY

1. Change without regulatory effect renumbering and amending former section 1253 to new section 40.1304 filed 8-19-97 pursuant to section 100, title 1, California Code of Regulations (Register 97, No. 34).

Article 14. Exceptions to Rules

§40.1600. Exceptions to Rules: Loans of $10,000 or More.

Note • History

The following provisions of these rules shall not apply to any loan of a bona fide principal amount of ten thousand dollars ($10,000) or more or to an industrial loan company in connection with any such loan provided the provisions of this section are not used for the purpose of evading the law or this Chapter: Sections 40.101, 40.302, 40.600, 40.605 to 40.609, inclusive, 40.611, 40.800 to 40.812, inclusive, 40.814, 40.900 to 40.906, inclusive, 40.1005, 40.1100, 40.1101 and 40.1103 to 40.1105, inclusive.

NOTE

Authority cited: Section 18347, Financial Code. Reference: Section 18191, Financial Code.

HISTORY

1. Change without regulatory effect adding new article 14 (sections 40.1600-40.1601) and renumbering and amending former section 1280 to new section 40.1600 filed 8-19-97 pursuant to section 100, title 1, California Code of Regulations (Register 97, No. 34).

§40.1601. Exceptions to Rules: Premium Finance Agencies.

Note • History

The following provisions of these rules shall not apply to a premium finance agency or an industrial loan company in conducting business as set forth in Chapter 8 (commencing with Financial Code Section 18560) of the Industrial Loan Law, provided the provisions of this Section are not used for the purpose of evading the law or this Chapter: Sections 40.600, 40.609, 40.611 and 40.612, inclusive.

NOTE

Authority cited: Section 18347, Financial Code. Reference: Sections 18560 and 18594, Financial Code.

HISTORY

1. Change without regulatory effect renumbering and amending former section 1282 to new section 40.1601 filed 8-19-97 pursuant to section 100, title 1, California Code of Regulations (Register 97, No. 34).

Article 15. Premium Finance Agencies

§40.1700. Down Payments--Record Keeping.

Note • History

A premium finance agency that maintains a time deposit, a certificate of deposit or a letter of credit pursuant to Section 18593 of the Financial Code shall establish and maintain currently the following records:

(a) Cash receipts and disbursements journals or other records showing receipts and disbursements of down payment;

(b) Down payment liability control account.

NOTE

Authority cited: Section 18347, Financial Code. Reference: Sections 18029 and 18593, Financial Code.

HISTORY

1. Change without regulatory effect adding new article 15 (sections 40.1700-40.1703) and renumbering former section 1285 to new section 40.1700 filed 8-19-97 pursuant to section 100, title 1, California Code of Regulations (Register 97, No. 34).

§40.1701. Deposits or Letters of Credit Pursuant to Section 18593 of the Financial Code.

Note • History

A premium finance agency that does not hold downpayments in a separate trust bank account shall maintain a time deposit, certificate of deposit or a letter or letters of credit pursuant to Section 18593 of the Financial Code. The amount of the deposits, certificates of deposits, or letters of credit shall be based upon the monthly average downpayment liability, unless the Commissioner for good cause, in writing, has found that a different amount of coverage would be in the public interest.

NOTE

Authority cited: Section 18347, Financial Code. Reference: Section 18593, Financial Code.

HISTORY

1. Change without regulatory effect renumbering former section 1286 to new section 40.1701 filed 8-19-97 pursuant to section 100, title 1, California Code of Regulations (Register 97, No. 34).

§40.1702. Annual Report.

Note • History

A schedule of the downpayment liability as at the end of each month during the calendar year as reflected in the Downpayment Liability Control Account must be submitted each year with the Annual Report required by Section 18405 of the Financial Code unless the downpayments are held by the premium finance agency in a separate account.

NOTE

Authority cited: Section 18347, Financial Code. Reference: Section 18405, Financial Code.

HISTORY

1. Change without regulatory effect renumbering former section 1287 to new section 40.1702 filed 8-19-97 pursuant to section 100, title 1, California Code of Regulations (Register 97, No. 34).

§40.1703. Premium Finance Agreement Copy or Documents Used to Comply with Financial Code: Form: Contents.

Note • History

In addition to the specific requirements of Sections 18605, 18606 and 18607 of the Financial Code, the copy of the Premium Finance Agreement given to the borrower, or other documents used for this purpose or to signify acceptance of the borrower's application for a premium finance loan, shall contain at least the following and may consist of more than one document:

(a) The name and license number of the premium finance agency, address of the office where the loan was made, and the name of the person who closed the loan;

(b) The name and address of the borrower;

(c) The agreed rate of charge, shown as a percentage or percentages per month of the unpaid principal balance or portions thereof, and the amount of any minimum finance charge with a statement of the conditions under which it shall be applicable;

(d) A statement that the borrower may prepay the full amount due at any time and receive a rebate of a portion of the finance charge in the manner provided by Section 18637 of the Financial Code, and a statement disclosing the basis for computing said rebate and any default charge pursuant to Section 18631 of said Code;

(e) A statement in not less than 12-point bold face capital letters:

FOR INFORMATION CONTACT THE

DEPARTMENT OF FINANCIAL

INSTITUTIONS,

STATE OF CALIFORNIA

NOTE

Authority cited: Section 18347, Financial Code. Reference: Sections 18605, 18606, 18607, 18631 and 18637, Financial Code.

HISTORY

1. Change without regulatory effect renumbering and amending former section 1288 to new section 40.1703 filed 8-19-97 pursuant to section 100, title 1, California Code of Regulations (Register 97, No. 34).

Subchapter 50. Business and Industrial Development Corporations

Article 1. General Provisions

Subarticle 1. Citation and Construction

§50.1. Scope.

Note • History

(a) This Subchapter contains regulations relating to business and industrial development corporations.

(b) This Article contains general provisions relating to this Subchapter. The succeeding articles of this Subchapter contain regulations relating to various subjects regarding business and industrial development corporations.

(c) This Subarticle contains regulations relating to the citation and construction of this Subchapter. Subarticle 2 (commencing with Section 50.100) of this Article contains definitions for this Subchapter.

NOTE

Authority cited for Subchapter 50 (Sections 50.1-50.15309, not consecutive): Section 31101, Financial Code. Reference: Division 15, Financial Code.

HISTORY

1. New Subchapter 50 (Sections 50.1-50.15309, not consecutive) filed 12-29-78; designated effective 3-1-79 (Register 79, No. 2).

2. Editorial correction of NOTE (Register 79, No. 17).

§50.2. Citation.

(a) This Subchapter shall be known and may be cited as the “Business and Industrial Development Corporations Regulations” or as the “Bidco Regulations.”

(b) The first unit of the number of each section in this Subchapter is “50.” However, in citing a section of this Subchapter, a person may omit the first unit of the number of such section if it is clear that such person is referring to a section of this Subchapter.

§50.3. Unsafe and Unsound Acts.

Note • History

(a) Any act which is designated in this Subchapter as an “unsafe and unsound act” is an act which, in the usual or typical circumstances encountered, constitutes an unsafe and unsound act within the meaning of the Business and Industrial Development Corporations Law. However, it is impossible to foresee or to provide for all of the varying circumstances which may arise in a particular case. Also, the acts designated in this Subchapter as “unsafe and unsound acts” are not intended to constitute a complete compilation of all the acts which constitute unsafe or unsound acts within the meaning of the Business and Industrial Development Corporations Law. Therefore, the Commissioner may, if and when warranted in any particular case, upon application or on his own initiative, decide that in such case an act which is designated in this Subchapter as an “unsafe and unsound act” does not constitute an unsafe or unsound act within the meaning of the Business and Industrial Development Corporations Law. Also, the Commissioner may decide that an act which is not designated in this Subchapter as an “unsafe and unsound act” constitutes an unsafe or unsound act within the meaning of the Corporations Law.

(b) Subject to the qualifications set forth in Subdivision (a) of this Section, whenever a licensee commits any act which is designated in this Subchapter as an “unsafe and unsound act,” such licensee shall be deemed:

(1) To be transacting and conducting its business in an unsafe and unsound manner within the meaning of the Business and Industrial Development Corporations Law; and

(2) If and to the extent that such act affects the condition of the licensee, to be in an unsafe and unsound condition within the meaning of the Business and Industrial Development Corporations Law.

NOTE

Authority cited: Section 31101, Financial Code.

HISTORY

1. Change without regulatory effect amending section and adding new Note filed 8-19-97 pursuant to section 100, title 1, California Code of Regulations (Register 97, No. 34).

§50.4. References to Corporations.

Except as otherwise expressly provided in this Subchapter, the references in this Subchapter to corporations or to aspects of corporations apply to all corporations, whether for profit or nonprofit. For the sake of convenience, references in this Subchapter to corporations and to aspects of corporations are set forth in terms appropriate to profit corporations. However, whenever any reference in this Subchapter to a corporation or to an aspect of a corporation is applicable to a nonprofit corporation, if the term of such reference is not appropriate to a nonprofit corporation, the term of the reference shall be construed to be the closest equivalent term of reference appropriate to a nonprofit corporation. For example, a reference in this Subchapter to the shareholders of a corporation shall, in the case of a corporation which is a nonprofit corporation, be construed to be a reference to the members of such nonprofit corporation.

§50.5. References to Financial Statements and Accounting Items.

Note • History

In this Subchapter, and the Business and Industrial Development Corporations Law, all references to financial statements and all references to assets, liabilities, earnings, retained earnings, shareholders' equity, and similar accounting items mean such financial statements and such accounting items prepared or determined in conformity with generally accepted accounting principles then applicable, fairly presenting in conformity with generally accepted accounting principles the matters which they purport to present, subject to any specific accounting treatment required by the Commissioner, this Subchapter, the Business and Industrial Development Corporations Law, or any other applicable law.

NOTE

Authority cited: Section 31101, Financial Code.

HISTORY

1. Change without regulatory effect amending section and adding new Note filed 8-19-97 pursuant to section 100, title 1, California Code of Regulations (Register 97, No. 34).

§50.6. Filing of Financial Statements.

Note • History

NOTE

Authority cited: Section 31101, Financial Code.

HISTORY

1. Change without regulatory effect amending section and adding new Note filed 8-19-97 pursuant to section 100, title 1, California Code of Regulations (Register 97, No. 34).

§50.7. Responsibility for Filing Reports.

Note • History

Whenever any provision of this Subchapter requires that a licensee and another person (for example, a director, officer, employee, or affiliate of such licensee) file with the Commissioner a report regarding a matter, it will be sufficient if either (a) the licensee or (b) such other person files such report, so long as the report contains all the information required by such provision. In the case of such a provision, however, the licensee and the other person are each responsible for filing the report, and neither will be excused from such responsibility by the failure of the other to comply.

NOTE

Authority cited: Section 31101, Financial Code.

HISTORY

1. Change without regulatory effect amending section and adding new Note filed 8-19-97 pursuant to section 100, title 1, California Code of Regulations (Register 97, No. 34).

§50.8. Notice: Service.

Note • History

Whenever the Commissioner or this Subchapter requires that a licensee serve a notice on a customer or creditor, such licensee may serve such notice either by delivering it to such customer or creditor or by depositing it in the United States mail, addressed to the customer or creditor at his last address according to the records of the licensee, with registered, certified, or first-class postage charges prepaid. However, if the document last mailed to the customer or creditor at such address was returned by the United States Postal Service marked to indicate that the United States Postal Service was unable to deliver such document to the customer or creditor at such address, the notice shall be deemed to have been given without the licensee's delivering or mailing it if it is available for the customer or creditor upon written request at an appropriate office of the licensee for a reasonable period of time.

NOTE

Authority cited: Section 31101, Financial Code.

HISTORY

1. Change without regulatory effect amending section and adding new Note filed 8-19-97 pursuant to section 100, title 1, California Code of Regulations (Register 97, No. 34).

§50.9. Notice: Language.

Note • History

Whenever this Subchapter calls for a licensee to give a notice, the Commissioner may require that such licensee give such notice not only in the English language but also in one or more other languages if the circumstances of the persons to whom the notice is to be given make such requirement advisable.

NOTE

Authority cited: Section 31101, Financial Code.

HISTORY

1. Change without regulatory effect amending section and adding new Note filed 8-19-97 pursuant to section 100, title 1, California Code of Regulations (Register 97, No. 34).

Subarticle 2. Definitions

§50.100. Scope.

§50.101. Definitions in Business and Industrial Development Corporations Law.

Subject to additional definitions contained in this Subchapter which are applicable to specific provisions of this Subchapter and unless the context otherwise requires, the definitions in Article 3 (commencing with Section 31030), Chapter 1 of the Business and Industrial Development Corporations Law apply throughout this Subchapter.

§50.102. “ Percent Equity Security Owner.”

“____ percent equity security owner,” when used with respect to a corporation or other organization, means any person who owns, directly or indirectly, of record or beneficially, the specified percentage or more of any class of the equity securities of such corporation or other organization.

§50.103. “ Percent (Including Associates) Equity Security Owner.”

“____ percent (including associates) equity security owner,” when used with respect to a corporation or other organization, means any person who owns, directly or indirectly, of record or beneficially, equity securities of such corporation or other organization which, when combined with the equity securities of the corporation or other organization owned, directly or indirectly, of record or beneficially, by all associates of such person, constitute the specified percentage or more of any class of the equity securities of the corporation or other organization.

§50.104. Adviser.

“Adviser” means an attorney at law, a certified public accountant, an economist, or a person who provides management or technical advice to business firms.

§50.105. Associate.

“Associate,” when used to indicate a relationship with a specified person who is related with a licensee or an applicant for a license, means:

(a) Any corporation or other organization (other than the licensee or the applicant for a license or a subsidiary of the licensee or of the applicant for a license) of which the specified person is an officer or partner or is, directly or indirectly, the beneficial owner of 10% or more of any class of the equity securities.

(b) Any trust or other estate in which the specified person has a substantial beneficial interest or as to which the specified person serves as a trustee or in a similar fiduciary capacity.

(c) Any relative or spouse of the specified person, or any relative of such spouse, who has the same home as the specified person or who is a director or officer of the licensee, of the applicant for a license, or of any parent or subsidiary of the licensee or of the applicant for a license.

§50.106. Beneficial.

(a) By the spouse (except where legally separated) and minor children (including stepchildren and adopted children) of the specified person; and

(b) By any other relative o the specified person who has the same home as the specified person.

§50.107. Equity Security.

§50.108. Executive Officer.

“Executive officer,” when used with respect to a specified person (other than an individual), means any person who participates or who has authority to participate, otherwise than in the capacity of a director, in major policy-making functions of such specified person, regardless of whether or not he has an official title, whether or not his title contains a designation of assistant, and whether or not he serves with salary or other compensation. Each of the following is rebuttably presumed to be an executive officer of a licensee unless he is excluded by the by-laws of such licensee or by resolution of the board of the licensee from participating in major policy-making functions and does not actually participate therein: the chairman of the board, the vice-chairman of the board, the chairman of the executive committee, the president, any vice president (including any executive vice president, senior vice president, or regional vice president, but excluding any assistant vice president), the secretary, the chief financial officer, the treasurer, and the controller.

§50.109. Parent.

§50.110. Records.

“Records” includes books, accounts, and other records.

Article 4. Issuance of License

Subarticle 1. General Provisions

§50.3000. Definition of “Applicant” and Scope.

Note • History

(a) In this Article, “applicant” means a California corporation which applies to the Commissioner for a license.

(b) This Article contains regulations relating to the issuance of a license pursuant to Chapter 3 (commencing with Section 31150) of the Business and Industrial Development Corporations Law. This Subarticle contains general provisions relating to the issuance of a license. Subarticle 2 (commencing with Section 50.3100) of this Article contains regulations relating to an application for a license. Subarticle 3 (commencing with Section 50.3200) of this Article contains regulations which set forth administrative standards and procedures relating to an application for a license. Subarticle 4 (commencing with Section 50.3300) of this Article contains regulations relating to matters after an application for a license is approved by the Commissioner.

NOTE

Authority cited: Section 31101, Financial Code.

HISTORY

1. Change without regulatory effect amending section and adding new Note filed 8-19-97 pursuant to section 100, title 1, California Code of Regulations (Register 97, No. 34).

§50.3001. Other Definitions.

In this Article:

(a) “Member,” when used with respect to an applicant which is an old corporation, has the meaning set forth in Financial Code Section 31950(a).

(b) “Old corporation” has the meaning set forth in Financial Code Section 31950(b).

(1) Any person who, alone or in conjunction with one or more other persons, directly or indirectly takes the initiative in founding and organizing the applicant; or

(2) Any person who, in connection with the founding and organizing of the applicant, directly or indirectly receives in consideration of services or property, or both, 10% or more of any class of securities of the applicant or 10% or more of the proceeds from the sale of any class of such securities. However, any person who receives such securities or proceeds either solely as underwriting commissions or solely in consideration of property shall not be deemed to be a promoter if he does not otherwise take part in founding and organizing the applicant.

§50.3002. Commencement of Business.

Note • History

For purposes of this Article, an applicant shall be deemed to commence business at the time when, the Commissioner having issued such applicant a license, the applicant opens for the purpose of transacting business as a business and industrial development corporation pursuant to the Business and Industrial Development Corporation Law.

NOTE

Authority cited: Section 31101, Financial Code.

HISTORY

1. Change without regulatory effect amending section and adding new Note filed 8-19-97 pursuant to section 100, title 1, California Code of Regulations (Register 97, No. 34).

Subarticle 2. Application

§50.3100. Scope.

This Subarticle contains regulations relating to an application for a license.

§50.3101. Included Application.

(a) An application for a license which proposes that the applicant commence business with its office in temporary quarters and subsequently relocate its office to permanent quarters shall, unless otherwise provided in such application, be deemed to include an application for approval under Financial Code Section 31320 for the applicant to relocate its office from such temporary quarters to such permanent quarters and shall be accompanied by the fee prescribed in Financial Code Section 31115(a)(4). Approval of such an application for a license shall, unless otherwise provided in such approval, be deemed to include approval of such included application for approval for the applicant to relocate its office.

(b) An application for a license by an applicant which holds control of a corporation of the type described in Subdivision (b), (c), or (d) of Financial Code Section 31406 and which proposes to continue to hold control of such corporation after commencing business shall, unless otherwise provided in such application, be deemed to include an application for approval under Subdivision (b), (c), or (d), as the case may be, of Section 31406 for the applicant to hold control of the corporation. Approval of such an application for a license, shall, unless otherwise provided in such approval, be deemed to include approval of such included application for approval for the applicant to hold control of the corporation.

(c) An application for a license which proposes that the applicant have any other person make or keep any of its records (except as provided in the blanket approvals set forth in Part 2 (commencing with Section 50.14225), Subarticle 3, Article 13 of this Subchapter) shall, unless otherwise provided in such application, be deemed to include an application for approval under Financial Code Section 31508 for the applicant to have such other person make or keep such other records. Approval of such an application for a license shall, unless otherwise provided in such approval, be deemed to include approval of such included application for approval for the applicant to have the other person make or keep the records.

§50.3102. Facing Page.

An application for a license shall have as its first page a facing page in the form of Department Form 1010 and shall contain the information called for therein.

§50.3103. Additional Information.

An application for a license shall contain, in addition to the information called for in the facing page, the information called for in Sections 50.3104 to 50.3125, inclusive, of this Chapter.

§50.3104. Information Regarding Market.

Note • History

Describe the market which the applicant proposes to serve. Such description shall include the following:

(a) Describe the relevant characteristics of the economy of the market area, including business activity and unemployment.

(c) Describe the business firms which are located in the market area and which the applicant proposes to serve, including:

(1) Types of business conducted by the business firms.

(2) Number of the business firms.

(3) Prospects for growth of the business firms.

(4) Prospects for establishment of additional business firms.

(d) State whether or not any survey has been made of the business firms which are located in the market area and which the applicant proposes to serve, to determine the extent to which such business firms are interested in obtaining financing assistance or management assistance from the applicant, and, if so, describe the results of such survey. (This Subdivision (d) shall not be construed to require that such a survey be made.)

NOTE

Authority cited: Section 31101, Financial Code. Reference: Section 31107, Financial Code.

HISTORY

1. Amendment of section and new Note filed 4-14-98; operative 5-14-98 (Register 98, No. 16).

§50.3105. Information Regarding Plan for Penetrating Market.

Describe the applicant's plan for penetrating the market which it proposes to serve. Such description shall include the following:

(a) Describe the services which the applicant proposes to offer to business firms, including:

(1) Types of financing assistance proposed to be offered, detailing, with respect to each type of financing assistance, the terms of such financing assistance (including, in the case of loans, interest rates, other fees, and maturities) and the proportion of its funds which the applicant proposes to devote to such financing assistance.

(2) Types of management assistance proposed to be offered, detailing, with respect to each type of management assistance, the scope of such management assistance and the fees proposed to be charged for such management assistance.

(b) Describe the manner in which, and the extent to which, the applicant proposes to cooperate with, and participate in, governmental programs for the purpose of providing financing assistance or management assistance to business firms, including programs administered by the Small Business Administration pursuant to Section 7(a) of the Small Business Act and Sections 501 and 502 of the Small Business Investment Act of 1958.

§50.3106. Information Regarding Board.

(a) Provide a table showing, with respect to each director of the applicant:

(1) Name.

(2) Business address.

(3) Home address.

(4) Age.

(5) Business or occupation.

(6) Amount and types of securities of the applicant which the director owns or proposes to own, directly or indirectly, of record or beneficially.

(b) With respect to each director of the applicant, provide:

(3) Statement dated as of a date within 90 days before the filing of the application and signed by the director, stating:

(A) Amount and types of securities of the applicant which the director owns, or proposes to own, directly or indirectly, of record or beneficially, and, if the purchase of any such securities was financed or is proposed to be financed, the amount financed or proposed to be financed, the person from whom the director obtained or proposes to obtain such financing, and the source of funds with which the director proposes to repay the financing.

(B) Business experience of the director, including, with respect to each position held, title, description of duties, name and address of employer, period of employment, and reason for leaving.

(C) Ways in which the director proposes to serve the applicant, including generating business for, and otherwise promoting the well being of, the applicant, and qualifications of the director to carry out such proposals.

(D) Amount of time which the director proposes to devote to the affairs of the applicant during each of the first three years of business of the applicant.

(c) State the amount of fees and describe any other compensation which the applicant proposes to pay to its directors during each of the first three years of business.

(d) State whether or not any change is proposed to be made in the membership of the board of the applicant before commencing business or during the first three years of business, and, if so, describe such change.

§50.3107. Information Regarding Officers, Employees, and Advisers.

(a) Provide a table showing, with respect to the chief executive officer and each other officer of the applicant:

(1) Name.

(2) Business address.

(3) Home address.

(4) Age.

(5) Business or occupation.

(6) Amount and types of securities of the applicant which the officer owns or proposes to own, directly or indirectly, of record or beneficially.

(7) Title.

(8) Duties.

(9) Annual salary.

(b) Provide a table showing, with respect to each proposed officer position of the applicant which has not yet been filled:

(1) Proposed title.

(2) Proposed duties.

(3) Proposed annual salary.

(c) With respect to each officer of the applicant listed in the table called for in Subdivision (a) of this Section, provide:

(3) Statement dated as of a date within 90 days before the filing of the application and signed by the officer, stating:

(A) Amount and types of securities of the applicant which the officer owns or proposes to own, directly or indirectly, of record or beneficially, and, if the purchase of any such securities was financed or is proposed to be financed, the amount financed or proposed to be financed, the person from whom the officer obtained or proposes to obtain such financing, and the source of funds with which the officer proposes to repay the financing.

(B) Business experience of the officer, including, with respect to each position held, title, description of duties, name and address of employer, period of employment, and reason for leaving.

(C) Whether or not the officer has ever been discharged or requested to resign from any position, and, if so, an account of the circumstances.

(d) State the amount of salary and describe any other compensation which the applicant proposes to pay to each officer and to all employees as a group, during each of the first three years of business.

(e) State the total number of officers and employees proposed to be employed by the applicant upon commencement of business and at the end of each of the first three years of business.

(f) State whether or not any change is proposed to be made with respect to the executive officers of the applicant during the first three years of business, and, if so, describe such change.

(g) State whether or not the applicant proposes to retain any adviser, and, if so, provide, with respect to each such adviser:

(1) Name.

(2) Name of firm of which the adviser is a member or by which the adviser is employed.

(3) Business address.

(4) Description of services which the adviser is to render to the applicant.

(5) Summary of the adviser's professional qualifications relating to the services referred to in Paragraph (4) of this Subdivision (g).

§50.3108. Information Regarding Office.

Note • History

(a) Show that the office of the applicant is reasonably accessible to the public.

(b) In case the applicant proposes to commence business with its office in temporary quarters and subsequently relocate its office to permanent quarters:

(1) State the address or vicinity of the permanent quarters.

(2) State the time when the applicant proposes to relocate its office from the temporary quarters to the permanent quarters.

(3) Provide the information called for in Subdivisions (a) of this Section both with respect to the temporary quarters and with respect to the permanent quarters.

NOTE

Authority cited: Section 31101, Financial Code. Reference: Section 31107, Financial Code.

HISTORY

1. Repealer of subsections (a) and (c), subsection relettering, and new Note filed 4-14-98; operative 5-14-98 (Register 98, No. 16).

§50.3109. Information Regarding Proposed Operations.

State whether or not the applicant proposes to have any other person make or keep any of its records (except as provided in the blanket approvals set forth in Part 2 (commencing with Section 50.14225), Subarticle 3, Article 13 of this Subchapter). If so, provide the information called for in Section 50.14251 of this Chapter.

§50.3110. Information Regarding Plan for Obtaining Funds.

(a) Describe the applicant's plan for obtaining funds for use in operating its business and, in particular, for use in providing financing assistance to business firms. Such plans shall include the following:

(1) Describe the means by which the applicant proposes to obtain funds (for example, by selling securities issued by it, by borrowing, or by selling loans or other assets owned by it).

(2) Identify the sources from which the applicant proposes to obtain funds through each of the means referred to in Paragraph (1) of this Subdivision (a).

(3) State the amount of funds which the applicant proposes to obtain through each of the means referred to in Paragraph (1) of this Subdivision (a) and from each of the sources referred to in Paragraph (2) of this Subdivision (a).

(b) Show that the applicant will be able to carry out its plan for obtaining funds.

§50.3111. Information Regarding Pro Forma Financial Statements.

Note • History

(a) Provide a pro forma balance sheet of the applicant as of the date of commencing business.

(b) Provide a pro forma balance sheet of the applicant as of the end of, and a pro forma statement of income for, a pro forma statement of cash flows for, and a pro forma statement of shareholders' equity for, each month of the first six months of transacting business, each quarter of the next succeeding 18 months of transacting business, and each half of the third year of transacting business.

NOTE

Authority cited: Section 31101, Financial Code. Reference: Section 31107, Financial Code.

HISTORY

1. Amendment of subsection (b) and new Note filed 4-7-97; operative 4-7-97 pursuant to Government Code section 11343.4(d) (Register 97, No. 15).

§50.3112. Information Regarding History.

Summarize the history of the applicant.

§50.3113. Information Regarding Corporate Matters.

(a) Provide a Certificate of Good Standing issued by the Secretary of State as of a date within 30 days before the filing of the application, certifying that the applicant is a corporation which is duly organized, subsisting, and in good standing under the laws of the State of California.

(b) Provide a copy of the articles of the applicant and of each amendment thereto. Each such copy of the articles of the applicant and of any amendment thereto shall be certified by the Secretary of State.

(c) Provide a copy of the by-laws of the applicant, as amended to the date of the filing of the application. Such copy of the by-laws of the applicant, as amended, shall be certified by the secretary or by an assistant secretary of the applicant.

§50.3114. Information Regarding Securities.

With respect to each type of security of the applicant which is issued and outstanding or which is proposed to be issued:

(a) Describe such type of security.

(b) State the amount of the securities of such type which are issued and outstanding or which are proposed to be issued.

§50.3115. Information Regarding Financial Statements and Reports.

Note • History

(a) Provide the following financial statements of the applicant:

(1) Balance sheet as of a date within 30 days before the filing of the application.

(2) If the balance sheet called for in Paragraph (1) of this Subdivision (a) is not as of the end of a fiscal year of the applicant, a balance sheet as of the end of the fiscal year of the applicant next preceding the date of such balance sheet.

(3) Statement of income, a statement of cash flows, and a statement of shareholders' equity for each of the three fiscal years of the applicant next preceding the date of the balance sheet called for in Paragraph (1) of this Subdivision (a) and, if such balance sheet is not as of the end of a fiscal year of the applicant, a statement of income, a statement of cash flows, and a statement of shareholders' equity for the interim period from a statement of the balance sheet called for in Paragraph (2) of this Subdivision (a) to the date of the balance sheet called for in Paragraph (1) of this Subdivision (a).

(b) Provide a copy of each of the last three annual reports of the applicant to its shareholders and a copy of any interim report of the applicant to its shareholders issued since the last annual report.

(c) In case the applicant is required to file reports pursuant to Section 13 of the Securities Exchange Act of 1934 (15 U.S.C. Section 78m), provide a copy of each of the last three such annual reports of the applicant and a copy of each quarterly or current report of the applicant filed since the last annual report.

NOTE

Authority cited: Section 31101, Financial Code. Reference: Section 31107, Financial Code.

HISTORY

1. Amendment of subsection (a)(3) and new Note filed 4-7-97; operative 4-7-97 pursuant to Government Code section 11343.4(d) (Register 97, No. 15).

§50.3116. Information Regarding Controlling Persons and Affiliates.

Note • History

(a) In this section, “subject person,” when used with respect to the applicant, means:

(1) Any individual who controls or is proposed to control the applicant; or (2) Any person (other than an individual) which controls or is proposed to control the applicant or which otherwise is or is proposed to be an affiliate of the applicant (including, in case such person consists of a group of persons acting in concert, each person who is a member of such group).

(b) State whether or not there is any subject person of the applicant, and, if so, provide a table showing, with respect to each subject person of the applicant:

(1) Name.

(2) Type of person (that is, individual, corporation, partnership, etc.).

(3) Relationship to the applicant.

(c) With respect to each subject person named in the table called for in subdivision (b) of this section who is an individual and who is neither a director nor an officer of the applicant:

(1) State:

(A) Name.

(B) Business address.

(D) Business or occupation.

(E) Amount and types of securities of the applicant which the subject person owns, or proposes to own, directly or indirectly, of record or beneficially.

(4) Provide a statement dated as of a date within 90 days before the filing of the application and signed by the subject person, stating:

(A) Amount and types of securities of the applicant which the subject person owns or proposes to own, directly or indirectly, of record or beneficially, and, if the purchase of any such securities was financed or is proposed to be financed, the amount financed or proposed to be financed, the person from whom the subject person obtained or proposes to obtain such financing, and the source of funds with which the subject person proposes to repay financing.

(B) Business experience of the subject person, including, with respect to each position held, title, description of duties, name and address of employer, period of employment, and reason for leaving.

(d) With respect to each subject person named in the table called for in subdivision (b) of this section which is a corporation:

(1) State:

(A) Name.

(B) Address of principal executive office.

(D) Amount and types of securities of the applicant which the subject person owns or proposes to own, directly or indirectly, of record or beneficially.

(2) Provide a table showing, with respect to each director, executive officer, and person who owns, directly or indirectly, of record or beneficially, five percent equity security owner of the subject person:

(A) Name.

(B) Relationship to the subject person.

(3) Provide the following financial statements of the subject person:

(A) Balance sheet as of a date within 120 days before the filing of the application.

(B) If the balance sheet called for in subparagraph (A) of this paragraph (3) is not as of the end of a fiscal year of the subject person, a balance sheet as of the end of the fiscal year of the subject person next preceding the date of such balance sheet.

(C) Statement of income, statement of cash flows, and statement of shareholders' equity for each of the three fiscal years of the subject person next preceding the date of the balance sheet called for in subparagraph (A) of this paragraph (3) and, if such balance sheet is not as of the end of a fiscal year of the subject person, a statement of income, a statement of cash flows, and a statement of shareholders' equity for the interim period from the date of the balance sheet called for in subparagraph (B) of this paragraph (3) to the date of the balance sheet called for in subparagraph (A) of this paragraph (3).

(4) Provide a copy of each of the last three annual reports of the subject person to its shareholders and a copy of any interim report of the subject person to its shareholders issued since the last annual report.

(5) In case the subject person is required to file reports pursuant to section 13 of the Securities Exchange Act of 1934 (15 U.S.C. section 78m), provide a copy of each of the last three such annual reports of the subject person and a copy of each quarterly or current report of the subject person filed since the last annual report.

(6) Provide a statement dated as of a date within 90 days before the filing of the application and signed by an officer of the subject person, stating the amount and types of securities of the applicant which the subject person owns, or proposes to own, directly or indirectly, of record or beneficially, and, if the purchase of any such securities was financed or is proposed to be financed, the amount financed or proposed to be financed, the person from whom the subject person obtained or proposes to obtain such financing, and the source of funds with which the subject person proposes to repay the financing.

(e) With respect to each subject person named in the table called for in subdivision (b) of this section which is neither an individual nor a corporation, provide information comparable to the information called for in subdivision (d) of this section.

(f)(1) In the case of a subject person who controls or is proposed to control the applicant, describe the extent to which and the manner in which the subject person controls or proposes to control the applicant.

(2) In all cases, state whether or not the subject person participates or proposes to participate in the management or operations of the applicant, and, if so, describe such participation.

NOTE

Authority cited: Section 31101, Financial Code. Reference: Section 31107, Financial Code.

HISTORY

1. Change without regulatory effect amending subsections (b), (d)(2), (d)(2)(B) and (d)(2)(C) filed 7-2-91 pursuant to section 100, title 1, California Code of Regulations (Register 91, No. 40).

2. Amendment of subsection (d)(3)(C) filed 4-7-97; operative 4-7-97 pursuant to Government Code section 11343.4(d) (Register 97, No. 15).

§50.3117. Information Regarding Promoters.

In case the applicant was incorporated within three years before the filing of the application, state whether or not there is any promoter of the applicant who is neither a director, officer, controlling person, nor proposed controlling person of the applicant, and, if so, with respect to each such promoter:

(a) In case the promoter is an individual, state:

(1) Name.

(2) Business address.

(3) Home address.

(4) Business or occupation.

(5) Amount and type of securities of the applicant which the promoter owns or proposes to own, directly or indirectly, of record or beneficially.

(6) Whether or not the promoter participates or proposes to participate in the management or operation of the applicant, and, if so, a description of such participation.

(b) In case the promoter is any type of person other than an individual, state:

(1) Name.

(2) Type of person (that is, corporation, partnership, etc.).

(3) Address of principal office.

(4) Description of business.

(5) Amount and types of securities of the applicant which the promoter owns or proposes to own, directly or indirectly, of record or beneficially.

(6) Whether or not the promoter participates or proposes to participate in the management or operation of the applicant, and, if so, a description of such participation.

§50.3118. Information Regarding Five Percent Equity Security Owners.

State whether or not the applicant has or is proposed to have any five percent (including associates) equity security owners, and, if so, provide, with respect to each such person:

(a) Name.

(b) Business address.

(d) Amount and types of equity securities of the applicant owned, directly or indirectly, of record or beneficially, by the person or his associates.

§50.3119. Information Regarding Members.

In case the applicant is an old corporation, state whether or not the applicant has any members, and, if so, with respect to each member:

(a) State the name and address of the member.

(b) Describe the terms of the member's membership.

(c) State whether or not the member proposes to withdraw from membership, and, if so, the time when such withdrawal is proposed to become effective.

§50.3120. Information Regarding Legal Proceedings.

(a) In this section, “subject person,” when used with respect to the applicant, means:

(1) Any individual who controls, or is proposed to control, the applicant;

(2) Any person (other than an individual) which controls or proposes to control the applicant or which otherwise is, or is proposed to be, an affiliate of the applicant (including, in case such person is a group of persons acting in concert, each person who is a member of such group).

(b) For purposes of this section:

(1) A proceeding involving the applicant or a subject person of the applicant shall not be deemed to be material if it is an ordinary routine proceeding incidental to the business of the applicant or of such subject person and if the amount of any damages (including interest and costs) claimed against the applicant or the subject person does not exceed 10 percent of the shareholders' equity of the applicant or of the subject person, as the case may be.

(2) Notwithstanding the provisions of Paragraph (1) of this Subdivision (b), each of the following proceedings shall be deemed to be material:

(A) Any proceeding in which any person who is, or is an associate of, any (1) director, (2) officer, or (3) ten percent (including associates) equity security owner of the applicant or a subject person of the applicant, is a party adverse to the applicant or to any subject person of the applicant.

(B) Any proceeding in which the applicant, any subject person of the applicant, or any of the persons referred to in Subparagraph (A) of this Paragraph (2) is a party adverse to any governmental agency which regulates financial institutions, any governmental agency which regulates the offering or selling of securities, or any governmental agency which provides financing assistance or management assistance to business firms.

(C) Any proceeding brought by a shareholder of the applicant or of any subject person of the applicant which names the applicant or such subject person as a plaintiff or defendant.

(D) Any proceeding involving civil rights laws.

(E) Any proceeding involving environmental laws.

(F) Any bankruptcy, receivership, or similar proceeding.

(c) State whether or not the applicant or any subject person of the applicant is a party to, or any property of the applicant or of any subject person of the applicant is the subject of, any material proceeding pending or threatened by or before any court or governmental agency, and, if so, describe such proceeding, including:

(1) In case the proceeding is pending:

(A) Title of the proceeding.

(B) Name and address of the court or of the governmental agency before which the proceeding is pending.

(D) Date the proceeding was commenced.

(E) Allegations and responses made in the proceeding.

(F) Relief sought in the proceeding.

(G) Status of the proceeding.

(2) In case the proceeding is threatened:

(A) Name of the person threatening to commence the proceeding.

(B) Allegations made by such person.

(C) Name and address of the court or of the governmental agency before which the proceeding is threatened to be commenced.

(D) Relief threatened to be sought in the proceeding.

§50.3121. Information Regarding Other Licenses.

Note • History

State whether or not the applicant has, or proposes to obtain, any license from a governmental agency other than a license from the Commissioner pursuant to the Business and Industrial Development Corporations Law, and, if so, state, with respect to each such license:

(a) Name of the governmental agency by which the license was issued or is proposed to be issued.

(b) Law pursuant to which the license was issued or is proposed to be issued.

(c) Business which the applicant is authorized to transact or is proposed to be authorized to transact under the license.

(d) Any material conditions to which the license is subject or is proposed to be subject.

NOTE

Authority cited: Section 31101, Financial Code. Reference: Section 31107, Financial Code.

HISTORY

1. Change without regulatory effect amending section and adding new Note filed 8-19-97 pursuant to section 100, title 1, California Code of Regulations (Register 97, No. 34).

§50.3122. Information Regarding Public Convenience and Advantage.

Show that the licensing of the applicant will promote the public convenience and advantage.

§50.3123. Information Regarding Reasonable Promise of Successful Operation.

Show that the applicant has reasonable promise of successful operation as a business and industrial development corporation.

§50.3124. Information Regarding Purposes of Applicant.

State the reasons why the applicant wishes to obtain a license to transact business as a business and industrial development corporation.

§50.3125. Information Regarding Assistance in Preparation of Application.

Note • History

State whether or not the applicant has been assisted by any adviser in preparing the application and, if so, with respect to each such adviser, state:

(a) Name of the adviser.

(b) Name of firm of which the adviser is a member or by which the adviser is employed.

(d) Specification of parts of the application which the adviser assisted the applicant in preparing.

(e) Amount of fees and description of other compensation which has been paid or is to be paid to the adviser for services rendered or to be rendered in connection with the licensing of the applicant.

(f) Amount and types of securities of the applicant which the adviser and his associates own or propose to own, directly or indirectly, of record or beneficially.

NOTE

Authority cited: Section 31101, Financial Code. Reference: Section 31107, Financial Code.

HISTORY

1. Amendment of subsection (c) and new Note filed 4-7-97; operative 4-7-97 pursuant to Government Code section 11343.4(d) (Register 97, No. 15).

§50.3126. Information Regarding Authorization of Board.

Note • History

(a) Provide a copy of a resolution of the board of the applicant:

(1) Authorizing the applicant to apply for a license.

(2) Authorizing the Commissioner to examine the applicant in connection with the application.

(3) Authorizing and directing all directors, officers, employees, and advisers of the applicant and any persons having custody of any of the records of the applicant to furnish to the Commissioner such information, and to permit him to inspect and copy such records, as he may request in connection with the application.

(4) Authorizing any governmental agency having information or records regarding the applicant to furnish to the Commissioner such information, and to permit him to inspect and copy such records, as he may request in connection with the application.

(b) The copy of the resolution of the board of the applicant called for in Subdivision (a) of this Section shall be certified by an officer of the applicant.

NOTE

Authority cited: Section 31101, Financial Code. Reference: Section 31107, Financial Code.

HISTORY

1. Change without regulatory effect amending section and adding new Note filed 8-19-97 pursuant to section 100, title 1, California Code of Regulations (Register 97, No. 34).

§50.3127. Signature, Acknowledgment, and Verification.

(a) An application for a license shall be signed in the name of the applicant by an officer of the applicant.

(b) The signature of the applicant on an application for a license shall be acknowledged.

(c) An application for a license shall be verified by the officer of the applicant who signs such application on behalf of the applicant.

§50.3128. Fee.

An application for a license shall be accompanied by the fee prescribed in Financial Code Section 31115(a)(1).

§50.3129. Amendment.

An amendment to an application for a license shall be signed in the name of the applicant by an officer of the applicant or by another person authorized to represent the applicant in connection with such application and shall be verified by such officer or other person.

Subarticle 3. Administrative Standards and Procedures

§50.3200. Scope.

This Subarticle contains regulations which set forth administrative standards and procedures relating to an application for license.

§50.3201. Incomplete Application.

Note • History

As an administrative procedure, the Commissioner generally will reject for filing any application for a license which is not substantially complete.

NOTE

Authority cited: Section 31101, Financial Code. Reference: Section 31107, Financial Code.

HISTORY

1. Change without regulatory effect amending section and adding new Note filed 8-19-97 pursuant to section 100, title 1, California Code of Regulations (Register 97, No. 34).

§50.3202. Lendable Funds.

Note • History

As an administrative standard, in the case of an application for a license by an old corporation, the Commissioner generally will, in calculating the amount of lendable funds of the applicant for purposes of Financial Code Section 31152(b), include the amount of financing assistance which the applicant provided to business firms in the State of California in the course of its business as an old corporation and which is represented by sound notes, leases, or other securities still owned by the applicant.

NOTE

Authority cited: Section 31101, Financial Code.

HISTORY

1. Change without regulatory effect amending section and adding new Note filed 8-19-97 pursuant to section 100, title 1, California Code of Regulations (Register 97, No. 34).

§50.3203. Conviction of Crime.

History

HISTORY

1. Repealer filed 4-7-97; operative 4-7-97 pursuant to Government Code section 11343.4(d) (Register 97, No. 15).

§50.3204. Ability to Service Financing Assistance.

Note • History

As an administrative standard, the Commissioner generally will deny an application for a license if he finds that the applicant will not be able to service on a regular and continuous basis the financing assistance that it provides to business firms (including evaluating and collecting the loans that it makes to business firms), either entirely by itself or with the assistance of data processing services provided by another person.

NOTE

Authority cited: Section 31101, Financial Code.

HISTORY

1. Change without regulatory effect amending section and adding new Note filed 8-19-97 pursuant to section 100, title 1, California Code of Regulations (Register 97, No. 34).

§50.3205. Ability to Provide Financing Assistance.

Note • History

As an administrative standard, the Commissioner generally will deny an application for a license if he finds that the applicant will not be able to provide financing assistance to business firms on a regular and continuous basis. Thus, the Commissioner generally will not approve an application for a license if he finds that the applicant will provide financing assistance to business firms only in a limited amount or for a limited period of time and then merely service such financing assistance without providing additional financing assistance to the same or other business firms.

NOTE

Authority cited: Section 31101, Financial Code.

HISTORY

1. Change without regulatory effect amending section and adding new Note filed 8-19-97 pursuant to section 100, title 1, California Code of Regulations (Register 97, No. 34).

Subarticle 4. Post-Approval Matters

§50.3300. Scope.

Note • History

This Subarticle contains regulations relating to matters after an application for a license is approved by the Commissioner.

NOTE

Authority cited: Section 31101, Financial Code. Reference: Section 31102, Financial Code.

HISTORY

1. Change without regulatory effect amending section and adding new Note filed 8-19-97 pursuant to section 100, title 1, California Code of Regulations (Register 97, No. 34).

§50.3301. Time for Filing Documents.

Note • History

In case a provision of this Subarticle calls for an applicant to file a document with the Commissioner not less than a specified number of days or business days before such applicant is issued a license, the applicant is encouraged to make the filing before such deadline, if possible, so as to allow ample time not only for the staff of the Department to process the document filed but also for the applicant to make any corrections or changes in such document that may be found to be necessary before the license is issued.

NOTE

Authority cited: Section 31101, Financial Code. Reference: Section 31102, Financial Code.

HISTORY

1. Amendment of section and new Note filed 4-7-97; operative 4-7-97 pursuant to Government Code section 11343.4(d) (Register 97, No. 15).

2. Change without regulatory effect amending section and Note filed 8-19-97 pursuant to section 100, title 1, California Code of Regulations (Register 97, No. 34).

§50.3302. Reports.

Note • History

In addition to filing with the Commissioner each report called for in this Subarticle, an applicant shall file with the Commissioner each report which the provisions of this Subchapter (other than the provisions of this Subarticle) require of a licensee. A report required by any such provision shall be filed within the period specified in such provision; however, a report regarding any event which occurs before a license is issued to an applicant shall be filed with the Commissioner not less than five business days before such license is issued, notwithstanding the fact that the provision which requires such report may allow a longer time for filing the report.

NOTE

Authority cited: Section 31101, Financial Code. Reference: Sections 31102, 31504 and 31506, Financial Code.

HISTORY

1. Change without regulatory effect amending section and adding new Note filed 8-19-97 pursuant to section 100, title 1, California Code of Regulations (Register 97, No. 34).

§50.3303. Implementation of Proposals.

Note • History

Not less than five business days before an applicant is issued a license, such applicant shall implement each of the proposals which it represented in its application for a license, explicitly or implicitly, that it would implement before commencing business (for example, proposals to appoint officers, sell securities, or obtain financing) and shall file with the Commissioner a report regarding the implementation of each such proposal.

NOTE

Authority cited: Section 31101, Financial Code. Reference: Sections 31102 and 31108, Financial Code.

HISTORY

1. Change without regulatory effect amending section and adding new Note filed 8-19-97 pursuant to section 100, title 1, California Code of Regulations (Register 97, No. 34).

§50.3304. Policies.

Note • History

Not less than five business days before an applicant is issued a license, such applicant shall, by resolution of its board, adopt the following policies and shall file with the Commissioner a report containing a copy of such resolution and of each such policy, certified by the secretary or by an assistant secretary of the applicant:

(a) Personnel policy.

(b) Financing assistance policy.

NOTE

Authority cited: Section 31101, Financial Code. Reference: Section 31102, Financial Code.

HISTORY

1. Amendment of subsections (a) and (b) and new Note filed 4-7-97; operative 4-7-97 pursuant to Government Code section 11343.4(d) (Register 97, No. 15).

2. Change without regulatory effect amending section and Note filed 8-19-97 pursuant to section 100, title 1, California Code of Regulations (Register 97, No. 34).

§50.3305. Report Regarding Directors, Officers, and Balance Sheet.

Note • History

Not more than 30 days nor less than five business days before an applicant is issued a license, such applicant shall file with the Commissioner a report containing the following information:

(a) List of the directors of the applicant, showing the name of each director.

(b) List of the officers of the applicant, showing the name and title of each officer.

NOTE

Authority cited: Section 31101, Financial Code. Reference: Section 31102, Financial Code.

HISTORY

1. Change without regulatory effect amending section and adding new Note filed 8-19-97 pursuant to section 100, title 1, California Code of Regulations (Register 97, No. 34).

§50.3306. Appointment of Commissioner as Agent for Service of Process.

Note • History

In accordance with Financial Code Section 31113, not less than 5 business days before an applicant is issued a license:

(a) Such applicant shall file with the Commissioner an Appointment of Commissioner of Financial Institutions as Agent for Service of Process in the form of Department Form 1020, signed by the applicant in the name of the applicant by an officer of the applicant. The signature of the applicant on such appointment shall be acknowledged.

(b) Each affiliate of such applicant shall file with such applicant an Appointment of Commissioner of Financial Institutions as Agent for Service of Process in the form of Department Form 1020, signed by such affiliate in the name of the affiliate by an officer of the affiliate. The signature of the affiliate on such appointment shall be acknowledged.

NOTE

Authority cited: Section 31101, Financial Code. Reference: Sections 31102 and 31113, Financial Code.

HISTORY

1. Amendment of subsection (b) and new Note filed 4-7-97; operative 4-7-97 pursuant to Government Code section 11343.4(d) (Register 97, No. 15).

2. Change without regulatory effect amending section heading, section and Note filed 8-19-97 pursuant to section 100, title 1, California Code of Regulations (Register 97, No. 34).

§50.3307. Agreement of Affiliate.

Note • History

In accordance with Financial Code Section 31153, not less than 5 business days before an applicant is issued a license, each affiliate of such applicant shall file with the Commissioner an Agreement of Affiliate of Business and Industrial Development Corporation in the form of Department Form 1025, signed by the affiliate in the name of the affiliate by an officer of the affiliate. The signature of the affiliate on such agreement shall be acknowledged.

NOTE

Authority cited: Section 31101, Financial Code. Reference: Section 31153, Financial Code.

HISTORY

1. Change without regulatory effect amending section and adding new Note filed 8-19-97 pursuant to section 100, title 1, California Code of Regulations (Register 97, No. 34).

§50.3308. Report Regarding Differences from Application.

Note • History

(a) Not more than 30 days nor less than 5 business days before an applicant is issued a license, such applicant shall file with the Commissioner a report signed an officer of the applicant, stating whether or not the applicant is or is to be different in any material respect from what was proposed in its application for a license and, if so, describing such difference.

(b) As an administrative standard, if the Commissioner finds that an applicant is or is to be different in any material respect from what was proposed in its application for a license and that, if such difference had existed at the time when the Commissioner decided such application, he would have denied the application, the Commissioner will revoke his approval of the application and will not issue a license to the applicant.

NOTE

Authority cited: Section 31101, Financial Code. Reference: Sections 31102, 31152 and 31154, Financial Code.

HISTORY

1. Amendment of subsection (b) and new Note filed 4-7-97; operative 4-7-97 pursuant to Government Code section 11343.4(d) (Register 97, No. 15).

2. Change without regulatory effect amending section and Note filed 8-19-97 pursuant to section 100, title 1, California Code of Regulations (Register 97, No. 34).

3. Amendment of section and Note filed 4-14-98; operative 5-14-98 (Register 98, No. 16).

§50.3309. Expiration and Extension of Approval of Application for License.

Note • History

(a) The Commissioner's approval of an application for license shall, unless extended by the Commissioner, expire one year after the date of such approval.

(b) An application for an extension of the Commissioner's approval of an application for a license shall contain the following information:

(1) Date on which the approval is scheduled to expire.

(2) Description of progress to date in preparing to commence business.

(3) Proposed timetable for completing preparations to commence business.

(4) Amount of additional time requested for completing preparations to commence business.

(5) Statement of reasons why such additional time is required for completing preparations to commence business.

NOTE

Authority cited: Section 31101, Financial Code. Reference: Sections 31102 and 31107, Financial Code.

HISTORY

1. Amendment of subsection (a) and new Note filed 4-7-97; operative 4-7-97 pursuant to Government Code section 11343.4(d) (Register 97, No. 15).

2. Change without regulatory effect amending section and Note filed 8-19-97 pursuant to section 100, title 1, California Code of Regulations (Register 97, No. 34).

§50.3310. License: Issuance and Expiration.

Note • History

(1) State the address of the applicant's office.

(2) State the date on which the applicant proposes to commence business.

(b) An applicant may commence business on or after the date on which a license is issued to such applicant. However, such license shall expire on the earlier of the following dates unless the applicant shall have commenced business on or before such date:

(1) Date on which the Commissioner's approval of the application for the license expires pursuant to Section 50.3309 of this Chapter.

(2) Thirtieth day after the date of the issuance of the license.

NOTE

Authority cited: Section 31101, Financial Code. Reference: Sections 31102 and 31107, Financial Code.

HISTORY

1. Editorial renumbering from Section 50.3110 to Section 50.3310 (Register 79, No. 2).

2. Change without regulatory effect amending section and adding new Note filed 8-19-97 pursuant to section 100, title 1, California Code of Regulations (Register 97, No. 34).

§50.3311. Report Regarding Commencement of Business.

Note • History

Not more than ten business days after commencing business, an applicant shall file with the Commissioner a report stating the date on which it commenced business.

NOTE

Authority cited: Section 31101, Financial Code. Reference: Sections 31102 and 31506, Financial Code.

HISTORY

1. Change without regulatory effect amending section and adding new Note filed 8-19-97 pursuant to section 100, title 1, California Code of Regulations (Register 97, No. 34).

§50.3312. Reports Regarding Transaction of Business.

Note • History

On or before the tenth business day of each month after the month in which an applicant commences business and continuing until the Commissioner orders otherwise, such applicant shall file with the Commissioner a balance sheet as of the end of, and a statement of income for, the next preceding month.

NOTE

Authority cited: Section 31101, Financial Code. Reference: Sections 31102 and 31506, Financial Code.

HISTORY

1. Change without regulatory effect amending section and adding new Note filed 8-19-97 pursuant to section 100, title 1, California Code of Regulations (Register 97, No. 34).

Article 5. Corporate Matters

Subarticle 1. General Provisions

§50.4000. Scope.

Note • History

This Article contains regulations relating to corporate matters of a licensee. This Subarticle contains general provisions relating to corporate matters of a licensee. Subarticle 2 (commencing with Section 50.4100) of this Article contains regulations relating to the names of a licensee. Subarticle 3 (commencing with Section 50.4200) of this Article contains regulations relating to the articles and by-laws of a licensee. (Subarticle 4 of this Article is reserved.) Subarticle 5 (commencing with Section 50.4400) of this Article contains regulations relating to distributions by a licensee to its shareholders.

NOTE

Authority cited: Section 31101, Financial Code. Reference: Chapter 4, Division 15, Financial Code.

HISTORY

1. Amendment of section and new Note filed 4-7-97; operative 4-7-97 pursuant to Government Code section 11343.4(d) (Register 97, No. 15).

Subarticle 2. Names

§50.4100. Scope.

This Subarticle contains regulations relating to the names of a licensee.

§50.4101. Definitions.

In this Subarticle:

(a) “Corporate name,” when used with respect to a licensee, means the name of such licensee as set forth in the articles of the licensee.

(b) “Fictitious business name,” when used with respect to a licensee, means any name used by such licensee other than its corporate name.

(c) “Fictitious Business Name Law” means Chapter 5 (commencing with Section 17900), Part 3, Division 7 of the Business and Professions Code.

§50.4102. Fictitious Business Name: Application.

An application by a licensee for approval pursuant to Financial Code Section 31201 to transact business under a fictitious business name shall contain the following information:

(a) State the fictitious business name.

(b) State whether or not the licensee proposes to transact the whole of its business under the fictitious business name, and, if not, describe the specific activities which the licensee proposes to transact under the fictitious business name.

§50.4103. Fictitious Business Name: Administrative Standard.

Note • History

As an administrative standard, the Commissioner generally will not approve an application by a licensee for approval to transact business under a fictitious business name unless such fictitious business name indicates that the licensee is a business and industrial development corporation. For purposes of this section, a fictitious business name of a licensee which contains a reasonable abbreviation of the phrase “business and industrial development corporation” (for example, “Bidco”) shall be deemed to indicate that such licensee is a business and industrial development corporation.

NOTE

Authority cited: Section 31101, Financial Code. Reference: Section 31201, Financial Code.

HISTORY

1. Change without regulatory effect amending section and adding new Note filed 8-19-97 pursuant to section 100, title 1, California Code of Regulations (Register 97, No. 34).

§50.4104. Fictitious Business Name: Reports.

Note • History

Whenever a licensee files a fictitious business name statement or a statement of abandonment of the use of a fictitious business name with a county clerk pursuant to the Fictitious Business Name Law, such licensee shall, not more than 30 days after such filing, file with the Commissioner a report containing a copy of the fictitious business name statement or of the statement of abandonment of the use of a fictitious business name, as the case may be.

NOTE

Authority cited: Section 31101, Financial Code. Reference: Sections 31201 and 31506, Financial Code.

HISTORY

1. Amendment of section and new Note filed 4-7-97; operative 4-7-97 pursuant to Government Code section 11343.4(d) (Register 97, No. 15).

2. Change without regulatory effect amending section filed 8-19-97 pursuant to section 100, title 1, California Code of Regulations (Register 97, No. 34).

Subarticle 3. Articles and By-Laws

§50.4200. Scope.

This Subarticle contains regulations relating to the articles and by-laws of a licensee.

§50.4201. Amendment of Articles.

Note • History

Whenever a licensee files a certificate of amendment of its articles of incorporation with the Secretary of State pursuant to Corporations Code Section 905 or 906, such licensee shall, not more than 30 days after such filing, file with the Commissioner a report containing the following information:

(a) Provide a copy of the certificate of amendment certified by the Secretary of State.

(b) Describe the effects of the certificate of amendment.

NOTE

Authority cited: Section 31101, Financial Code. Reference: Section 31506, Financial Code.

HISTORY

1. Change without regulatory effect amending section and adding new Note filed 8-19-97 pursuant to section 100, title 1, California Code of Regulations (Register 97, No. 34).

§50.4202. Other Filings with Secretary of State.

Note • History

Whenever a licensee files with the Secretary of State a certificate of restated articles pursuant to Corporations Code Section 910, a certificate of determination pursuant to Corporations Code Section 401, a certificate of correction pursuant to Corporations Code Section 109, or a certificate of revocation pursuant to Corporations Code Section 110(c), such licensee shall, not more than 30 days after such filing, file with the Commissioner a report containing a copy of such certificate certified by the Secretary of State.

NOTE

Authority cited: Section 31101, Financial Code. Reference: Section 31506, Financial Code.

HISTORY

1. Amendment of section and new Note filed 4-7-97; operative 4-7-97 pursuant to Government Code section 11343.4(d) (Register 97, No. 15).

2. Change without regulatory effect amending section and adding new Note filed 8-19-97 pursuant to section 100, title 1, California Code of Regulations (Register 97, No. 34).

§50.4203. Changes in By-Laws.

Note • History

NOTE

Authority cited: Section 31101, Financial Code. Reference: Section 31506, Financial Code.

HISTORY

1. Change without regulatory effect amending section and adding new Note filed 8-19-97 pursuant to section 100, title 1, California Code of Regulations (Register 97, No. 34).

2. Repealer filed 4-14-98; operative 5-14-98 (Register 98, No. 16).

Subarticle 4. Board

§50.4300. Scope.

History

HISTORY

1. Repealer of subarticle 4 (sections 50.4200-50.4302) and section filed 4-7-97; operative 4-7-97 pursuant to Government Code section 11343.4(d) (Register 97, No. 15).

§50.4301. Action Required.

History

HISTORY

1. Repealer filed 4-7-97; operative 4-7-97 pursuant to Government Code section 11343.4(d) (Register 97, No. 15).

§50.4302. Regular Meetings.

History

HISTORY

1. Repealer filed 4-7-97; operative 4-7-97 pursuant to Government Code section 11343.4(d) (Register 97, No. 15).

Subarticle 5. Distribution to Shareholders

§50.4400. Scope.

This Subarticle contains regulations relating to distributions by a licensee to its shareholders.

§50.4401. Definition.

In this Subarticle, “distribution to its shareholders,” when used with respect to a licensee, has the meaning set forth in Financial Code Section 31230.

§50.4402. Application: Contents.

Note • History

An application by a licensee for approval pursuant to Article 4 (commencing with Section 31230), Chapter 4 of the Business and Industrial Development Corporations Law to make, or to obligate itself to make, a distribution to its shareholders shall contain the following information:

(a) Describe the proposed distribution, including:

(1) In case the proposed distribution is to consist of a dividend on shares of the licensee, identify the class or series of such shares, state the amount of the dividend per share, and state the aggregate amount of the dividend.

(2) In case the proposed distribution is to consist of a purchase or redemption of shares, identify the class or series of such shares to be purchased or redeemed, state the amount to be paid per share, and state the aggregate amount to be paid.

(b) State the date on which the licensee is to make the proposed distribution, including:

(1) In case the proposed distribution consists of a dividend on shares of the licensee, state the record date, the date of declaration of the dividend, and the date of payment of the dividend.

(2) In case the proposed distribution consists of a purchase or redemption of shares of the licensee, state the date of the purchase or redemption.

(d) Provide a pro forma balance sheet of the licensee as of the date of the balance sheet called for in Subdivision (c) of this Section, adjusted to give effect to the proposed distribution.

(e) Show that the proposed distribution will comply with applicable provisions of the Corporations Code and any applicable provisions of the articles and the by-laws of the licensee.

NOTE

Authority cited: Section 31101, Financial Code. Reference: Sections 31107 and 31231, Financial Code.

HISTORY

1. Repealer of subsection (e), subsection relettering, repealer of subsections (g) and (h), and new Note filed 4-7-97; operative 4-7-97 pursuant to Government Code section 11343.4(d) (Register 97, No. 15).

§50.4403. Application: Signature.

Note • History

An application by a licensee for approval to make, or to obligate itself to make, a distribution to its shareholders shall be signed in the name of such licensee by an officer of the licensee.

NOTE

Authority cited: Section 31101, Financial Code. Reference: Sections 31107 and 31231, Financial Code.

HISTORY

1. Amendment of section heading, repealer of subsection (a) designator, repealer of subsection (b) and new Note filed 4-7-97; operative 4-7-97 pursuant to Government Code section 11343.4(d) (Register 97, No. 15).

Article 6. Directors, Officers, and Employees

Subarticle 1. General Provisions

§50.6000. Scope.

Note • History

This Article contains regulations relating to directors, officers, and employees of a licensee. This Subarticle contains general provisions relating to directors, officers, and employees of a licensee. (Subarticle 2 of this Article is reserved.) Subarticle 3 (commencing with Section 50.6200) of this Article contains regulations relating to reports regarding directors, officers, and employees of a licensee. Subarticle 4 (commencing with Section 50.6300) of this Article contains regulations relating to unsafe and unsound acts involving directors, officers, and employees of a licensee.

NOTE

Authority cited: Section 31101, Financial Code. Reference: Chapters 4 and 11, Division 15, Financial Code.

HISTORY

1. Amendment of section and new Note filed 4-7-97; operative 4-7-97 pursuant to Government Code section 11343.4(d) (Register 97, No. 15).

2. Editorial correction of article 6 heading (Register 97, No. 19).

§50.6001. Definitions.

In this Article:

(a) “Appointment,” when used with respect to an officer of a licensee, includes the appointment of an incumbent officer of a licensee to a new or additional office with such licensee. However, “appointment” does not include the appointment of an incumbent officer of a licensee to a new term in the same office.

(b) “Election,” when used with respect to a director of a licensee, includes the election of an incumbent director of a licensee to a new term as a director of such licensee.

(1) If such specified person files a petition for, or otherwise applies for, an adjudication of bankruptcy, reorganization, arrangement, or other relief under any bankruptcy, reorganization, insolvency, or moratorium law;

(2) If any other person files a petition for, or otherwise applies for, an adjudication of bankruptcy, reorganization, arrangement, or other relief under any bankruptcy, reorganization, insolvency, or moratorium law against such specified person; or

(3) If a receiver or similar official is appointed to take control of all or substantially all of the property of such specified person.

Subarticle 2. Personnel Policy

§50.6100. Scope.

History

HISTORY

1. Repealer of subpart 2 (sections 50.6100-50.6103) and section filed 4-7-97; operative 4-7-97 pursuant to Government Code section 11343.4(d) (Register 97, No. 15).

§50.6101. Requirement.

History

HISTORY

1. Repealer filed 4-7-97; operative 4-7-97 pursuant to Government Code section 11343.4(d) (Register 97, No. 15).

§50.6102. Contents.

History

HISTORY

1. Repealer filed 4-7-97; operative 4-7-97 pursuant to Government Code section 11343.4(d) (Register 97, No. 15).

§50.6103. Reports.

History

HISTORY

1. Repealer filed 4-7-97; operative 4-7-97 pursuant to Government Code section 11343.4(d) (Register 97, No. 15).

Subarticle 3. Reports

§50.6200. Scope.

This Subarticle contains regulations relating to reports regarding directors, officers, and employees of a licensee.

§50.6201. Election of Director.

Note • History

Not more than 30 days after the election of any person as a director of a licensee, such licensee and such director shall file with the Commissioner a report containing the following information:

(a) Name of the director.

(b) Title of any office which the director previously held with the licensee and title of any office (other than the office of director) which the director currently holds with the licensee.

(d) Manner of election of the director (that is, whether by the board, by the shareholders, or by the members of the licensee).

(e) In case the director is not an incumbent director or executive officer of the licensee:

(1) Personal financial statement in the form of Department Form 2, containing the information called for therein, dated as of a date within 90 days before the filing of the report, and signed by the director.

(2) Confidential resume in the form of Department Form 3, containing the information called for therein, dated as of a date within 90 days before the filing of the report, and signed by the director.

NOTE

Authority cited: Section 31101, Financial Code. Reference: Section 31506, Financial Code.

HISTORY

1. Change without regulatory effect amending section and adding new Note filed 8-19-97 pursuant to section 100, title 1, California Code of Regulations (Register 97, No. 34).

§50.6202. Appointment of Executive Officer.

Note • History

Not more than ten days after the appointment of any person as the chief executive officer of a licensee and not more than 30 days after the appointment of any person as any other executive officer of a licensee, such licensee and such executive officer shall file with the Commissioner a report containing the following information:

(a) Name of the executive officer.

(b) Title of the office to which the executive officer was appointed.

(d) In case the executive officer was not, immediately before the appointment, a director or executive officer of the licensee.

(2) Confidential resume in the form of Department Form 3, containing the information called for therein, dated as of a date within 90 days before the filing of the report, and signed by the executive officer.

NOTE

Authority cited: Section 31101, Financial Code. Reference: Section 31506, Financial Code.

HISTORY

1. Repealer of subsections (c) and (e), subsection relettering and new Note filed 4-7-97; operative 4-7-97 pursuant to Government Code section 11343.4(d) (Register 97, No. 15).

2. Change without regulatory effect amending section filed 8-19-97 pursuant to section 100, title 1, California Code of Regulations (Register 97, No. 34).

§50.6203. Death, Resignation, or Removal of Director or Executive Officer.

Note • History

Not more than ten days after the death, resignation, or removal of the chief executive officer of a licensee and not more than 30 days after the death, resignation, or removal of any other executive officer or of any director of a licensee, such licensee shall file with the Commissioner a report containing the following information:

(a) Name and title of the director or executive officer.

(b) Statement that the named director or executive officer either died, resigned, or was removed.

NOTE

Authority cited: Section 31101, Financial Code. Reference: Section 31506, Financial Code.

HISTORY

1. Amendment of section and new Note filed 4-7-97; operative 4-7-97 pursuant to Government Code section 11343.4(d) (Register 97, No. 15).

2. Change without regulatory effect amending section filed 8-19-97 pursuant to section 100, title 1, California Code of Regulations (Register 97, No. 34).

§50.6204. Event of Insolvency Involving Director, Executive Officer, or Associate.

History

HISTORY

1. Repealer filed 4-7-97; operative 4-7-97 pursuant to Government Code section 11343.4(d) (Register 97, No. 15).

Subarticle 4. Unsafe and Unsound Acts

§50.6300. Scope.

This Subarticle contains regulations relating to unsafe and unsound acts involving directors, officers, and employees of a licensee.

§50.6301. Required Absence.

It generally constitutes an unsafe and unsound act for a licensee to fail to require that each of its officers and employees be absent from the offices of such licensee for a period of not less than 14 consecutive days in each calendar year.

§50.6302. Conviction of Crime.

It generally constitutes an unsafe and unsound act for a licensee to have as a director or officer any person who has been finally convicted of a crime involving an act of fraud or dishonesty.

Article 9. Affiliates

§50.9000. Scope.

This Article contains regulations relating to affiliates of a licensee.

§50.9001. Report on Becoming Affiliate.

Note • History

Whenever any person becomes an affiliate (other than a controlling person or subsidiary) of a licensee, the licensee and such affiliate shall promptly file with the Commissioner a report containing the following information with respect to the affiliate:

(a) Name.

(b) Type of person (that is, corporation, partnership, etc.).

(d) Description of business.

(e) Description of relationship to the licensee.

NOTE

Authority cited: Section 31101, Financial Code. Reference: Section 31506, Financial Code.

HISTORY

1. Amendment of first paragraph, reepaler of subsections (a) and (b)-(d), redesignation of subsections (a)(1)-(5) as new subsections (a)-(e) and new Note filed 4-7-97; operative 4-7-97 pursuant to Government Code section 11343.4(d) (Register 97, No. 15).

2. Change without regulatory effect amending section filed 8-19-97 pursuant to section 100, title 1, California Code of Regulations (Register 97, No. 34).

§50.9002. Appointment of Commissioner as Agent for Service of Process.

Note • History

In accordance with Financial Code Section 31113, each person who becomes an affiliate of a licensee shall, not less than 30 days after becoming an affiliate of such licensee, file with the Commissioner an Appointment of Commissioner of Financial Institutions as Agent for Service of Process in the form of Department Form 1020, signed by the affiliate in the name of the affiliate by an officer of the affiliate. The signature of the affiliate on such appointment shall be acknowledged.

NOTE

Authority cited: Section 31101, Financial Code. Reference: Section 31113, Financial Code.

HISTORY

1. Change without regulatory effect amending section heading and section and adding new Note filed 8-19-97 pursuant to section 100, title 1, California Code of Regulations (Register 97, No. 34).

§50.9003. Agreement.

Note • History

In accordance with Financial Code Section 31153, each person who becomes an affiliate of a licensee shall, not less than 30 days after becoming an affiliate of such licensee, file with the Commissioner an Agreement of Affiliate of Business and Industrial Development Corporation in the form of Department Form 1025, signed by the affiliate in the name of the affiliate by an officer of the affiliate. The signature of the affiliate on such agreement shall be acknowledged.

NOTE

Authority cited: Section 31101, Financial Code. Reference: Section 31153, Financial Code.

HISTORY

1. Change without regulatory effect amending section and adding new Note filed 8-19-97 pursuant to section 100, title 1, California Code of Regulations (Register 97, No. 34).

Article 12. Transaction of Business

Subarticle 1. General Provisions

§50.12000. Scope.

Note • History

This Article contains regulations relating to the transaction of business by a licensee. This Subarticle contains general provisions relating to the transaction of business by a licensee. Subarticle 2 (commencing with Section 50.12100) of this Article contains regulations relating to the scope of the business of a licensee. Subarticle 3 (commencing with Section 50.12200) of this Article contains regulations relating to the financing assistance policy of a licensee. Subarticle 4 (commencing with Section 50.12300) of this Article contains regulations relating to unsafe and unsound acts regarding the transaction of business by a licensee.

NOTE

Authority cited: Section 31101, Financial Code. Reference: Chapter 6, Division 15, Financial Code.

HISTORY

1. Amendment of section and new Note filed 4-7-97; operative 4-7-97 pursuant to Government Code section 11343.4(d) (Register 97, No. 15).

Subarticle 2. Scope of Business

§50.12100. Scope.

This Subarticle contains regulations relating to the scope of the business of a licensee.

§50.12101. Other Licenses.

For purposes of Financial Code Section 31158, it is not a violation of any provision of the Business and Industrial Development Corporations Law or of any provision of this Subchapter, nor is it contrary to the purposes of the Business and Industrial Development Corporations Law, for a licensee:

(a) To be licensed as a small business investment company under, or to transact business as a licensed small business investment company under, the Small Business Investment Act of 1958; or

(b) To be licensed as a personal property broker under, or to transact business as a licensed personal property broker under, the Personal Property Brokers Law (Division 9 (commencing with Section 22000) of the Financial Code).

Subarticle 3. Financing Assistance Policy

§50.12200. Scope.

This Subarticle contains regulations relating to the financing assistance policy of a licensee.

§50.12201. Requirement.

It generally constitutes an unsafe and unsound act for a licensee to transact business unless such licensee has in effect a financing assistance policy which has been approved by its board and unless the licensee complies with such financing assistance policy.

§50.12202. Contents.

History

HISTORY

1. Repealer filed 4-7-97; operative 4-7-97 pursuant to Government Code section 11343.4(d) (Register 97, No. 15).

§50.12203. Reports.

Note • History

Whenever the board of directors of a licensee amends the financing assistance policy of such licensee in any material respect or repeals the licensee's financing assistance policy and adopts a new financing assistance policy for the licensee, the licensee shall, not more than 30 days after such action, file with the Commissioner a report containing a copy of the resolution of the board and a copy of the amendment of the financing assistance policy or of the new financing assistance policy, as the case may be.

NOTE

Authority cited: Section 31101, Financial Code. Reference: Section 31506, Financial Code.

HISTORY

1. Amendment of section and new Note filed 4-7-97; operative 4-7-97 pursuant to Government Code section 11343.4(d) (Register 97, No. 15).

2. Change without regulatory effect amending section filed 8-19-97 pursuant to section 100, title 1, California Code of Regulations (Register 97, No. 34).

Subarticle 4. Unsafe and Unsound Acts

§50.12300. Scope.

This Subarticle contains regulations relating to unsafe and unsound acts regarding the transaction of business by a licensee.

§50.12301. Concentrations.

Note • History

(a) It generally constitutes an unsafe and unsound act for a licensee to provide, or to commit to provide, financing assistance in an unduly large amount to:

(1) Any single business firm;

(2) Business firms which are affiliated with each other; or

(3) Business firms which are engaged in the same type, or similar types, of business, unless such business firms are widely diversified by geographical location.

(b) In determining for purposes of Subdivision (a) of this Section whether the amount of financing assistance which a licensee has provided or has committed to provide, is unduly large, the Commissioner will generally consider such amount in relation to the total assets, the total lendable funds, and the total shareholders equity of such licensee.

NOTE

Authority cited: Section 31101, Financial Code. Reference: Section 31400, Financial Code.

HISTORY

1. Change without regulatory effect amending section and adding new Note filed 8-19-97 pursuant to section 100, title 1, California Code of Regulations (Register 97, No. 34).

Article 13. Records

Subarticle 1. General Provisions

§50.14000. Scope.

This Article contains regulations relating to the records of a licensee. This Subarticle contains general provisions relating to the records of a licensee. Subarticle 2 (commencing with Section 50.14100) of this Article contains regulations relating to the records of a licensee regarding financing assistance transactions. Subarticle 3 (commencing with Section 50.14200) of this Article contains regulations relating to the granting of approval pursuant to Financial Code Section 31508 for a licensee to have any other person make or keep any of the records of such licensee.

§50.14001. Generally Accepted Accounting Principles.

Note • History

A licensee shall make and keep its records in conformity with generally accepted accounting principles.

NOTE

Authority cited: Section 31101, Financial Code. Reference: Section 31501, Financial Code.

HISTORY

1. Change without regulatory effect amending section filed 7-2-91 pursuant to section 100, title 1, California Code of Regulations (Register 91, No. 40).

§50.14002. Place.

Note • History

Except as the Commissioner may otherwise order pursuant to Financial Code Section 31501 or otherwise approve pursuant to Financial Code Section 31508, a licensee shall make and keep all of its records at its offices. (For regulations relating to approval pursuant to Financial Code Section 31508 for records of a licensee to be made or kept at places other than the offices of such licensee, refer to Subarticle 3 (commencing with Section 50.14200) of this Article.)

NOTE

Authority cited: Section 31101, Financial Code. Reference: Section 31501, Financial Code.

HISTORY

1. Change without regulatory effect amending section and adding new Note filed 8-19-97 pursuant to section 100, title 1, California Code of Regulations (Register 97, No. 34).

Subarticle 2. Records Regarding Financing Assistance Transactions

§50.14100. Scope.

This Subarticle contains regulations relating to the records of a licensee regarding financing assistance transactions.

§50.14101. Ceasing to Hold Interest in Financing Assistance.

For purposes of this Subarticle, a licensee shall be deemed to cease to hold any interest in financing assistance provided by such licensee to a business firm when each lease, note, and other security which such business firm issued to the licensee in consideration of such financing assistance is:

(a) Transferred by the licensee to another person (other than a subsidiary of the licensee) for valuable consideration and without recourse;

(b) Charged off by the licensee; or

§50.14102. Time for Keeping Records.

Note • History

In a case where a licensee provides financing assistance, the licensee shall keep the records relating to providing financing assistance which are called for in this Subarticle for a period of not less than two years after such licensee ceases to hold any interest in such financing assistance.

NOTE

Authority cited: Section 31101, Financial Code. Reference: Section 31501, Financial Code.

HISTORY

1. Amendment of section and new Note filed 4-7-97; operative 4-7-97 pursuant to Government Code section 11343.4(d) (Register 97, No. 15).

§50.14103. Rejection of Application for Financing Assistance.

History

HISTORY

1. Repealer filed 4-7-97; operative 4-7-97 pursuant to Government Code section 11343.4(d) (Register 97, No. 15).

§50.14104. Providing Financing Assistance: General Requirement.

Note • History

In each case where a licensee provides financing assistance, such licensee shall make and keep such records as may be necessary to enable the Commissioner to examine and evaluate the financing assistance.

NOTE

Authority cited: Section 31101, Financial Code. Reference: Section 31501, Financial Code.

HISTORY

1. Amendment of section and new Note filed 4-7-97; operative 4-7-97 pursuant to Government Code section 11343.4(d) (Register 97, No. 15).

2. Change without regulatory effect amending section filed 8-19-97 pursuant to section 100, title 1, California Code of Regulations (Register 97, No. 34).

§50.14105. Providing Financing Assistance: Financial Statements.

History

HISTORY

1. Repealer filed 4-7-97; operative 4-7-97 pursuant to Government Code section 11343.4(d) (Register 97, No. 15).

§50.14106. Providing Financing Assistance: Evaluations.

History

HISTORY

1. Repealer filed 4-7-97; operative 4-7-97 pursuant to Government Code section 11343.4(d) (Register 97, No. 15).

Subarticle 3. Records Made or Kept by Other Persons

Part 1. General Provisions

§50.14200. Scope.

This Subarticle contains regulations relating to the granting of approval pursuant to Financial Code Section 31508 for a licensee to have any other person make or keep any of the records of such licensee. This Part contains general provisions relating to the granting of approval for a licensee to have any other person make or keep any of the records of such licensee. Part 2 (commencing with Section 50.14225) of this Subarticle contains regulations which set forth blanket approvals for a licensee to have another person make or keep the records of such licensee. Part 3 (commencing with Section 50.14250) of this Subarticle contains regulations relating to the granting of approval in a specific case for a licensee to have another person make or keep any of the records of such licensee.

Part 2. Blanket Approvals

§50.14225. Scope.

This Part contains regulations which set forth blanket approvals for a licensee to have another person make or keep the records of such licensee.

§50.14226. Temporary Keeping of Records.

Pursuant to Financial Code Section 31508, approval is granted for a licensee to have any responsible person make or keep any of the records (other than ledger accounts) of such licensee on a temporary basis if and to the extent necessary or convenient for the transaction of the business of the licensee.

§50.14227. Records Relating to Registration or Transfer of Securities.

Pursuant to Financial Code Section 31508, approval is granted for a licensee to have a commercial bank or trust company which is organized under the laws of the State of California or a national bank which maintains its head office in the State of California make or keep records relating to the registration or transfer of securities issued by such licensee.

§50.14228. Corporate Records.

Pursuant to Financial Code Section 31508, approval is granted for a licensee to have any attorney at law make minutes of any proceedings of the shareholders or members, of the board, or of committees of the board of such licensee and to make other corporate records of the licensee. This approval is subject to the condition that the licensee shall cause any such records, when made, to be promptly transferred to and thereafter kept at an office of the licensee.

§50.14229. Storage of Records.

Pursuant to Financial Code Section 31508, approval is granted for a licensee to have any responsible storage facility in the State of California keep records of such licensee which are not required by the licensee for the transaction of current business.

Part 3. Specific Approvals

§50.14250. Scope.

This Part contains regulations relating to the granting of approval in a specific case for a licensee to have another person make or keep any of the records of such licensee.

§50.14251. Application.

Note • History

An application by a licensee for approval to have another person make or keep any of the records of such licensee shall contain the following information:

(a) State the name and address of the other person.

(b) Describe the business of the other person.

(d) Describe the functions which are proposed to be performed by the other person with respect to such records.

NOTE

Authority cited: Section 31101, Financial Code. Reference: Sections 31107 and 31508, Financial Code.

HISTORY

1. Repealer of subsections (e)-(g)(2) and new Note filed 4-7-97; operative 4-7-97 pursuant to Government Code section 11343.4(d) (Register 97, No. 15).

§50.14252. Administrative Standards: Review by Independent Certified Public Accountant.

Note • History

As an administrative standard, the Commissioner generally will deny an application by a licensee for approval to have another person make or keep any of the records of such licensee in a case where it is proposed that the other person provide data processing services for the licensee, unless such other person contracts in writing with the licensee that the other person will, at its expense, have its operations and controls reviewed at least once every 12 months by an independent certified public accountant in accordance with the standards and guidelines of the American Institute of Certified Public Accountants and that the other person will, at its expense, provide a copy of each report of such independent certified public accountant to the licensee.

NOTE

Authority cited: Section 31101, Financial Code. Reference: Section 31508, Financial Code.

HISTORY

1. Change without regulatory effect amending section and adding new Note filed 8-19-97 pursuant to section 100, title 1, California Code of Regulations (Register 97, No. 34).

§50.14253. Administrative Standard: Records Within State of California.

Note • History

As an administrative standard, the Commissioner generally will not approve an application by a licensee for approval to have another person make or keep any of the records of such licensee unless such other person will make and keep such records within the State of California.

NOTE

Authority cited: Section 31101, Financial Code. Reference: Section 31508, Financial Code.

HISTORY

1. Change without regulatory effect amending section and adding new Note filed 8-19-97 pursuant to section 100, title 1, California Code of Regulations (Register 97, No. 34).

Article 14. Reports

Subarticle 1. General Provisions

§50.15000. Scope.

Note • History

This Article contains regulations relating to reports required of a licensee and of other persons. This Subarticle contains general provisions relating to reports required of a licensee and of other persons. Subarticle 2 (commencing with Section 50.15100) of this Article contains regulations relating to the annual report of a licensee to the Commissioner. (Subarticle 3 of this Article is reserved.) Subarticle 4 (commencing with Section 50.15300) of this Article contains regulations relating to reports which a licensee and other persons are required to file with the Commissioner pursuant to Financial Code Section 31506.

NOTE

Authority cited: Section 31101, Financial Code. Reference: Sections 31504 and 31506, Financial Code.

HISTORY

1. Amendment of section and new Note filed 4-7-97; operative 4-7-97 pursuant to Government Code section 11343.4(d) (Register 97, No. 15).

2. Change without regulatory effect amending section filed 8-19-97 pursuant to section 100, title 1, California Code of Regulations (Register 97, No. 34).

§50.15001. Definitions.

Note • History

In this Article, “annual report to the Commissioner,” when used with respect to a licensee, means the report which such licensee is required to file with the Commissioner pursuant to Financial Code Section 31504.

NOTE

Authority cited: Section 31101, Financial Code. Reference: Section 31504, Financial Code.

HISTORY

1. Amendment of section and new Note filed 4-7-97; operative 4-7-97 pursuant to Government Code section 11343.4(d) (Register 97, No. 15).

2. Change without regulatory effect amending section filed 8-19-97 pursuant to section 100, title 1, California Code of Regulations (Register 97, No. 34).

Subarticle 2. Annual Report to Commissioner

§50.15100. Scope.

Note • History

This Subarticle contains regulations relating to the annual report of a licensee to the Commissioner.

NOTE

Authority cited: Section 31101, Financial Code. Reference: Section 31504, Financial Code.

HISTORY

1. Change without regulatory effect amending subarticle heading and section and adding new Note filed 8-19-97 pursuant to section 100, title 1, California Code of Regulations (Register 97, No. 34).

§50.15101. Definition.

In this Subarticle, “fiscal year” means the fiscal year of a licensee next preceding the filing of the annual report of such licensee.

§50.15102. Information Required.

Note • History

The annual report of a licensee to the Commissioner shall contain, in addition to the information called for in Subdivisions (a) and (b) of Financial Code Section 31504, the information called for in Section 50.15103.

NOTE

Authority cited: Section 31101, Financial Code. Reference: Section 31504, Financial Code.

HISTORY

1. Amendment of section and new Note filed 4-7-97; operative 4-7-97 pursuant to Government Code section 11343.4(d) (Register 97, No. 15).

2. Change without regulatory effect amending section filed 8-19-97 pursuant to section 100, title 1, California Code of Regulations (Register 97, No. 34).

§50.15103. Information Regarding Financial Statements.

Note • History

In case the licensee has any subsidiaries, provide the financial statements called for in Subdivision (a) of Financial Code Section 31504 on a consolidated basis.

NOTE

Authority cited: Section 31101, Financial Code. Reference: Section 31504, Financial Code.

HISTORY

1. Amendment of section and new Note filed 4-7-97; operative 4-7-97 pursuant to Government Code section 11343.4(d) (Register 97, No. 15).

§50.15104. Information Regarding Business.

Note • History

NOTE

Authority cited: Section 31101, Financial Code. Reference: Section 31504, Financial Code.

HISTORY

1. Change without regulatory effect amending subsection (b) filed 7-2-91 pursuant to section 100, title 1, California Code of Regulations (Register 91, No. 40).

2. Repealer filed 4-7-97; operative 4-7-97 pursuant to Government Code section 11343.4(d) (Register 97, No. 15).

§50.15105. Information Regarding Directors, Officers, and Offices.

History

HISTORY

1. Repealer filed 4-7-97; operative 4-7-97 pursuant to Government Code section 11343.4(d) (Register 97, No. 15).

Subarticle 3. Reserved

§50.15200. Scope.

History

HISTORY

1. Change without regulatory effect repealing section filed 7-2-91 pursuant to section 100, title 1, California Code of Regulations (Register 91, No. 40).

§50.15201. Information Required.

History

HISTORY

1. Change without regulatory effect repealing section filed 7-2-91 pursuant to section 100, title 1, California Code of Regulations (Register 91, No. 40).

Subarticle 4. Other Reports

§50.15300. Scope.

This Subarticle contains regulations relating to reports which a licensee and other persons are required to file pursuant to Financial Code Section 31506.

§50.15301. Other Licenses.

Note • History

(a) Whenever a licensee files with a governmental agency an application for a license (other than an application for a license under a law which is a tax law rather than a regulatory law), such licensee shall concurrently file with the Commissioner a report containing a copy of such application.

(b) Whenever a licensee files with a governmental agency an amendment of any application of the type referred to in Subdivision (a) of this Section, such licensee shall concurrently file with the Commissioner a report containing a copy of such amendment.

(c) Whenever an application for a license of the type referred to in Subdivision (a) of this Section by a licensee is approved or denied, such licensee shall promptly file with the Commissioner a report containing a copy of such approval or denial.

(d) Whenever proceedings are initiated to suspend or revoke any license of a licensee (other than a license issued by the Commissioner), such licensee shall promptly file with the Commissioner a report containing a copy of the notice, complaint, or other document by which such proceedings were initiated.

(e) Whenever any license of a licensee (other than a license issued by the Commissioner) is suspended or revoked such licensee shall promptly file with the Commissioner a report containing a copy of the order, decision, or other document by which such license was suspended or revoked.

(f) Whenever a licensee surrenders for cancellation any license (other than a license issued by the Commissioner), such licensee shall promptly file with the Commissioner a report containing the following information:

(1) Identify the license and the governmental agency by which the license was issued.

(2) State the date on which the license was surrendered.

(3) State the reasons why the license was surrendered.

NOTE

Authority cited: Section 31101, Financial Code. Reference: Section 31506, Financial Code.

HISTORY

1. Change without regulatory effect amending section and adding new Note filed 8-19-97 pursuant to section 100, title 1, California Code of Regulations (Register 97, No. 34).

§50.15302. Eligibility Under Small Business Act.

Note • History

(a) Whenever a licensee files with the Small Business Administration an application for eligibility to participate with the Small Business Administration in making loans, such licensee shall concurrently file with the Commissioner a report containing a copy of such application.

(b) Whenever a licensee files with the Small Business Administration an amendment of any application of the type referred to in Subdivision (a) of this Section, such licensee shall concurrently file with the Commissioner a report containing a copy of such amendment.

(c) Whenever an application of the type referred to in Subdivision (a) of this Section by a licensee is approved or denied, such licensee shall promptly file with the Commissioner a report containing a copy of such approval or denial.

(d) Whenever proceedings are initiated to suspend or revoke the eligibility of a licensee to participate with the Small Business Administration in making loans, such licensee shall promptly file with the Commissioner a report containing a copy of the notice, complaint, or any other document by which such proceedings were initiated.

(e) Whenever the eligibility of a licensee to participate with the Small Business Administration in making loans is suspended or revoked, such licensee shall promptly file with the Commissioner a report containing a copy of the order, decision, or other document by which such eligibility was suspended or revoked.

(f) Whenever a licensee surrenders for cancellation its eligibility to participate with the Small Business Administration in making loans, such licensee shall promptly file with the Commissioner a report containing the following information:

(1) Identify the eligibility of the licensee to participate with the Small Business Administration in making loans.

(2) State the date on which the eligibility was surrendered.

(3) State the reasons why the eligibility was surrendered.

NOTE

Authority cited: Section 31101, Financial Code. Reference: Section 31506, Financial Code.

HISTORY

1. Change without regulatory effect amending section and adding new Note filed 8-19-97 pursuant to section 100, title 1, California Code of Regulations (Register 97, No. 34).

§50.15303. Securities: Securities and Exchange Commission.

Note • History

(a) Whenever a licensee files with the Securities and Exchange Commission a registration statement pursuant to the Securities Act of 1933 or a notification pursuant to Regulation A, E, or F of the Securities and Exchange Commission with respect to the offer or sale of any security issued by such licensee, the licensee shall concurrently file with the Commissioner a report containing a copy of such registration statement or of such notification, as the case may be.

(b) Whenever a licensee files with the Securities and Exchange Commission a registration statement, report, or proxy statement pursuant to the Securities Exchange Act of 1934, such licensee shall concurrently file with the Commissioner a report containing a copy of such registration statement, report, or proxy statement, as the case may be.

(c) Whenever a licensee files with the Securities and Exchange Commission an amendment of any document referred to in Subdivision (a) or (b) of this Section, such licensee shall concurrently file with the Commissioner a report containing a copy of such amendment.

NOTE

Authority cited: Section 31101, Financial Code. Reference: Section 31506, Financial Code.

HISTORY

1. Amendment of subsection (b) and new Note filed 4-7-97; operative 4-7-97 pursuant to Government Code section 11343.4(d) (Register 97, No. 15).

2. Change without regulatory effect amending section filed 8-19-97 pursuant to section 100, title 1, California Code of Regulations (Register 97, No. 34).

§50.15304. Securities: Commissioner of Corporations.

Note • History

(a) Whenever a licensee files with the Commissioner of Corporations an application for qualification pursuant to the Corporate Securities Law of 1968 (Division 1 (commencing with Section 25000), Title 4 of the Corporations Code) to sell any security issued by such licensee, the licensee shall concurrently file with the Commissioner a report containing a copy of such application.

(b) Whenever a licensee files with the Commissioner of Corporations an amendment of an application of the type referred to in Subdivision (a) of this Section, such licensee shall concurrently file with the Commissioner a report containing a copy of such amendment.

NOTE

Authority cited: Section 31101, Financial Code. Reference: Section 31506, Financial Code.

HISTORY

1. Change without regulatory effect amending section and adding new Note filed 8-19-97 pursuant to section 100, title 1, California Code of Regulations (Register 97, No. 34).

§50.15305. Loans and Other Securities.

Note • History

Whenever a licensee obtains a loan (other than a loan from a nonaffiliated financial institution or a loan from a governmental agency) or otherwise issues any security, such licensee shall promptly file with the Commissioner a report describing such transaction.

NOTE

Authority cited: Section 31101, Financial Code. Reference: Section 31506, Financial Code.

HISTORY

1. Change without regulatory effect amending section and adding new Note filed 8-19-97 pursuant to section 100, title 1, California Code of Regulations (Register 97, No. 34).

§50.15306. Reports to Shareholders.

Note • History

Whenever a licensee issues a report, notice of meeting, proxy statement, or any similar document to its shareholders, such licensee shall promptly file with the Commissioner a report containing a copy of such document.

NOTE

Authority cited: Section 31101, Financial Code. Reference: Section 31506, Financial Code.

HISTORY

1. Change without regulatory effect amending section and adding new Note filed 8-19-97 pursuant to section 100, title 1, California Code of Regulations (Register 97, No. 34).

§50.15307. Legal Proceedings.

Note • History

(a) In this Section:

(1) “Subject person,” when used with respect to a licensee, means:

(A) Any individual who controls the licensee; or

(B) Any person (other than an individual) which controls the licensee or which otherwise is an affiliate of the licensee (including, in case any such person consists of a group of persons acting in concert, each person who is a member of such group).

(2) “Reporting subject person,” when used with respect to a licensee, means any subject person of such licensee who is a director, officer, or affiliate of the licensee.

(b) For purposes of this section:

(1) A proceeding involving a licensee or a subject person of a licensee shall not be deemed to be material if it is an ordinary routine proceeding incidental to the business of such licensee or of such subject person and if the amount of any damages (including interest and costs) claimed against the licensee or the subject person does not exceed 10% of the shareholders' equity of the licensee or of the subject person, as the case may be.

(2) Notwithstanding the provisions of Paragraph (1) of this Subdivision (b), each of the following proceedings shall be deemed to be material:

(A) Any proceeding in which any person who is, or is an associate of, any

(1) director,

(2) officer, or

(3) ten percent (including associates) equity security owner of a licensee or a subject person of a licensee, is a party adverse to such licensee or to any subject person of the licensee.

(B) Any proceeding in which a licensee, any subject person of a licensee, or any of the persons referred to in Subparagraph (A) of this Paragraph (2) is a party adverse to any governmental agency which regulates financial institutions, any governmental agency which regulates the offering or selling of securities, or any governmental agency which provides financing assistance or management assistance to business firms.

(C) Any proceeding brought by a shareholder of a licensee or of any subject person of a licensee which names such licensee or such subject person as a plaintiff or defendant.

(D) Any proceeding involving civil rights laws.

(E) Any proceeding involving environmental laws.

(F) Any bankruptcy, receivership, or similar proceeding.

(c) Whenever any material proceeding to which a licensee or any subject person of a licensee is a party or of which any property of a licensee or of any subject person of a licensee is the subject, is commenced by or before any court or governmental agency, such licensee and, in case any reporting subject person of a licensee is a party to, or any property of a reporting subject person of a licensee is a subject of, such proceeding, such reporting subject person shall promptly file with the Commissioner a report describing such proceeding, including:

(1) Title of the proceeding.

(2) Name and address of the court or of the governmental agency before which the proceeding was commenced.

(3) Names of the parties to the proceeding.

(4) Date the proceeding was commenced.

(5) Allegations made in the proceeding.

(6) Relief sought in the proceeding.

(d) Whenever any proceeding of the type referred to in Subdivision (c) of this Section is concluded, the licensee and, in case any reporting subject person of a licensee was a party to, or any property of a reporting subject person of a licensee was the subject of, such proceeding, such reporting subject person shall promptly file with the Commissioner a report identifying the proceeding and describing the conclusion of the proceeding.

NOTE

Authority cited: Section 31101, Financial Code. Reference: Section 31506, Financial Code.

HISTORY

1. Change without regulatory effect amending section and adding new Note filed 8-19-97 pursuant to section 100, title 1, California Code of Regulations (Register 97, No. 34).

§50.15308. Crimes.

Note • History

Whenever a licensee is informed or suspects that a crime has been committed by or against it, such licensee shall promptly file with the Commissioner a report containing the following information:

(a) State the name of each individual who was involved or who is suspected of having been involved in the commission of the crime, and describe the relationship, if any, of such individual with the licensee.

(b) State the date on which the crime was committed or is suspected of having been committed.

(d) State whether or not the licensee has reported the crime or the suspected crime to any governmental agency (other than the Commissioner), and, if so, state the name and address of such governmental agency and the date of such report.

NOTE

Authority cited: Section 31101, Financial Code. Reference: Section 31506, Financial Code.

HISTORY

1. Change without regulatory effect amending section and adding new Note filed 8-19-97 pursuant to section 100, title 1, California Code of Regulations (Register 97, No. 34).

§50.15309. Criminal Proceedings.

Note • History

(a) In this Section:

(1) “Subject person,” when used with respect to a licensee, means:

(A) Any individual who controls the licensee;

(2) “Reporting subject person,” when used with respect to a licensee, means any subject person of such licensee who is a director, officer, employee, or affiliate of the licensee.

(b) Whenever a licensee or any subject person of a licensee is arrested for, or charged by complaint, information, or indictment with, a crime against the licensee or any affiliate of the licensee, a crime relating to the business of the licensee or of any affiliate of the licensee, or a crime involving an act of fraud or dishonesty, the licensee and, in case the subject person arrested or charged is a reporting subject person, such reporting subject person shall promptly file with the Commissioner a report containing the following information:

(1) State the name of the person arrested or charged, and, unless such person is the licensee, describe the relationship of the person with the licensee.

(2) State the date on which the arrest was made or the charge was issued.

(3) State the name and address of the arresting or prosecuting agency.

(4) State the date on which the crime is alleged to have been committed.

(5) Describe the circumstances of the alleged crime.

(c) Whenever any criminal proceeding of the type referred to in Subdivision (b) of this Section is concluded, the licensee and, in case the person arrested or charged is a reporting subject person, such reporting subject person shall promptly file with the Commissioner a report identifying the proceeding and describing the conclusion of the proceeding.

NOTE

Authority cited: Section 31101, Financial Code. Reference: Section 31506, Financial Code.

HISTORY

1. Change without regulatory effect amending section and adding new Note filed 8-19-97 pursuant to section 100, title 1, California Code of Regulations (Register 97, No. 34).

Subchapter 70. Travelers Checks

Article 1. General Provisions

Subarticle 1. Citation and Construction

§70.1. Scope.

Note • History

(a) This Subchapter contains regulations relating to travelers checks.

(b) This Article contains general provisions relating to this Subchap--ter. The succeeding articles of this Subchapter contain regulations relating to various subjects regarding travelers checks.

(c) This Subarticle contains regulations relating to the citation and construction of this Subchapter. Subarticle 2 (commencing with Section 70.100) of this Article contains regulations relating to definitions.

NOTE

Authority cited: Section 215, Financial Code. Reference: Chapter 14A, Division 1, Financial Code.

HISTORY

1. New Subchapter 70 (Articles 1-10, Sections 70.1-70.9002, not consecutive) filed 7-16-80; designated effective 9-2-80 (Register 80, No. 29).

§70.2. Citation.

Note

(a) This Subchapter shall be known and may be cited as the “Travelers Checks Regulations.”

(b) The first unit of the number of each section in this Subchapter is “70.” However, in citing a section of this Subchapter, a person may omit the first unit of the number of such section if it is clear that such person is referring to a section of this Subchapter.

NOTE

Authority cited: Section 215, Financial Code. Reference: Chapter 14A, Division 1, Financial Code.

§70.3. Unsafe and Unsound Acts.

Note • History

(a) Any act which is designated in this Subchapter as an “unsafe and unsound act” is an act which, in the usual or typical circumstances encountered, constitutes an unsafe and unsound act within the meaning of the Travelers Checks Act. However, it is impossible to foresee or to provide for all the varying circumstances which may arise in a particular case. Also, the acts designated in this Subchapter as “unsafe and unsound acts” are not intended to constitute a complete compilation of all the acts which constitute unsafe or unsound acts within the meaning of the Travelers Checks Act. Therefore, the Commissioner may, if and when warranted in any particular case, upon application or on the Commissioner's own initiative, decide that in such case an act which is designated in this Subchapter as an “unsafe and unsound act” does not constitute an unsafe or unsound act within the meaning of the Travelers Checks Act. Also, the Commissioner may decide that an act which is not designated in this Subchapter as an “unsafe and unsound act” constitutes an unsafe or unsound act within the meaning of the Travelers Checks Act.

(1) To be transacting and conducting its business in an unsafe and unsound manner within the meaning of the Travelers Checks Act; and

(2) If and to the extent that such act affects the condition of the licensee, to be in an unsafe and unsound condition within the meaning of the Travelers Checks Act.

NOTE

Authority cited: Section 215, Financial Code. Reference: Chapter 14A, Division 1, Financial Code.

HISTORY

1. Change without regulatory effect amending section filed 8-19-97 pursuant to section 100, title 1, California Code of Regulations (Register 97, No. 34).

§70.4. References to Corporations.

Note

(a) For the sake of convenience, references in this Subchapter to licensees and to applicants for licenses are set forth in terms appropriate to corporations for profit. Similarly, some references in the Travelers Checks Act to licensees and to applicants for licenses are set forth in terms appropriate to corporations for profit. However, whenever any reference in this Subchapter to a licensee or to an applicant for a license or any such reference in the Travelers Checks Act is applicable to a licensee or to an applicant which is a type of person other than a corporation for profit, if the term of such reference is not appropriate to such type of person, the term of the reference shall be construed to be the closest equivalent term of reference appropriate to the type of person.

(b) In this Subchapter, unless otherwise expressly provided, references to corporations or to aspects of corporations apply to all types of corporations, whether for profit, nonprofit, or of any other type. For the sake of convenience, references in this Subchapter to corporations and to aspects of corporations are set forth in terms appropriate to corporations for profit. However, whenever any reference in this Subchapter to a corporation or to an aspect of a corporation is applicable to a type of corporation other than a corporation for profit, if the term of such reference is not appropriate to such type of corporation, the term of the reference shall be construed to be the closest equivalent term of reference appropriate to the type of corporation.

NOTE

Authority cited: Section 215, Financial Code. Reference: Chapter 14A, Division 1, Financial Code.

§70.5. Financial Statements and Accounting Items--Generally Accepted Accounting Principles.

Note • History

In this Subchapter and in the Travelers Checks Act, unless otherwise expressly provided, references to financial statements and references to assets, liabilities, income, shareholders' equity, and similar accounting items mean such financial statements and such accounting items prepared or determined in conformity with generally accepted accounting principles then applicable, fairly presenting in conformity with generally accepted accounting principles the matters which they purport to present, subject to any specific accounting treatment required by the Commissioner, this Subchapter, the Travelers Checks Act, or any other applicable law.

NOTE

Authority cited: Section 215, Financial Code. Reference: Chapter 14A, Division 1, Financial Code.

HISTORY

1. Change without regulatory effect amending section filed 8-19-97 pursuant to section 100, title 1, California Code of Regulations (Register 97, No. 34).

§70.6. Financial Statements--Certification.

Note • History

Whenever the Commissioner or this Subchapter requires that a financial statement be filed with the Commissioner but does not require that such financial statement be set forth on a form provided by the Commissioner, if the financial statement is available as certified by an independent certified public accountant, the financial statement as so certified shall be filed with the Commissioner.

NOTE

Authority cited: Section 215, Financial Code. Reference: Chapter 14A, Division 1, Financial Code.

HISTORY

1. Change without regulatory effect amending section filed 8-19-97 pursuant to section 100, title 1, California Code of Regulations (Register 97, No. 34).

§70.7. Financial Statements--Consolidating Statements.

Note • History

Whenever this Chapter requires that a consolidating financial statement of a person be filed with the Commissioner, such statement need not include detail regarding any non-significant subsidiary of such person.

NOTE

Authority cited: Section 215, Financial Code. Reference: Chapter 14A, Division 1, Financial Code.

HISTORY

1. Change without regulatory effect amending section filed 8-19-97 pursuant to section 100, title 1, California Code of Regulations (Register 97, No. 34).

§70.8. Actions of Courts and Governmental Agencies.

Note

Whenever this Chapter requires that information be provided regarding an action taken by a court or a governmental agency (for example, the suspension or revocation of a license or other authorization or qualification to transact a business), information need not be provided regarding any such action which has been reversed or vacated.

NOTE

Authority cited: Section 215, Financial Code. Reference: Chapter 14A, Division 1, Financial Code.

§70.9. Forms of Travelers Checks.

Note

For purposes of this Subchapter and the Travelers Checks Act, travelers checks issued by a person which are identical in form except for the following differences shall be deemed to be in the same form:

(a) Differences in face amount, provided that such face amounts are denominated in the same currency.

(b) Differences in the name or logo, or both, of the agent who sells the travelers checks on behalf of the person, provided that such names and logos are set forth in substantially the same style.

NOTE

Authority cited: Section 215, Financial Code. Reference: Chapter 14A, Division 1, Financial Code.

Subarticle 2. Definitions

Part 1. General Provisions

§70.100. Scope.

Note

This Subarticle contains regulations relating to definitions. This Part contains general provisions relating to definitions. Part 2 (commencing with Section 70.125) of this Subarticle contains regulations relating to the definitions set forth in Financial Code Section 1852. Part 3 (commencing with Section 70.150) of this Subarticle contains definitions for this Subchapter.

NOTE

Authority cited: Section 215, Financial Code. Reference: Chapter 14A, Division 1, Financial Code.

Part 2. Definitions--Travelers Checks Act

§70.125. Scope.

Note

This Part contains regulations relating to the definitions set forth in Financial Code Section 1852.

NOTE

Authority cited: Section 215, Financial Code. Reference: Section 1852, Financial Code.

§70.126. Agent.

Note

(a) “Agent,” as defined in Financial Code Section 1852(a), does not include any officer or employee of the licensee, when acting as such at an office of the licensee.

(b) For purposes of Financial Code Section 1852(a), a person shall not be deemed to be authorized by a licensee to sell travelers checks on behalf of such licensee unless the licensee becomes liable for the payment of each travelers check issued by it which is sold by such person at the time when such travelers check is sold by such person.

(c) In the case of a person who is authorized by an issuer of travelers checks to sell travelers checks on behalf of such issuer both inside and outside the State of California, “agent,” as defined in Financial Code Section 1852(a), means such person with respect to sales of travelers checks inside the State of California and related matters.

NOTE

Authority cited: Section 215, Financial Code. Reference: Section 1852, Financial Code.

§70.127. Foreign Currency.

Note • History

NOTE

Authority cited: Section 215, Financial Code. Reference: Section 1852, Financial Code.

HISTORY

1. Change without regulatory effect repealing section filed 7-2-91 pursuant to section 100, title 1, California Code of Regulations (Register 91, No. 40).

§70.128. Outstanding Travelers Checks.

Note

(a) “Outstanding travelers checks,” as defined in Financial Code Section 1852(f), does not include any travelers check issued by a licensee which has been paid by such licensee.

(b) The phrase “and reported to licensee” in Financial Code Section 1852(f) does not apply in a case where a travelers check issued by a licensee is sold in the United States by such licensee directly, rather than indirectly through an agent.

NOTE

Authority cited: Section 215, Financial Code. Reference: Section 1852, Financial Code.

§70.129. United States Currency.

Note • History

NOTE

Authority cited: Section 215, Financial Code. Reference: Section 1852, Financial Code.

HISTORY

1. Change without regulatory effect repealing section filed 7-2-91 pursuant to section 100, title 1, California Code of Regulations (Register 91, No. 40).

Part 3. Definitions--Regulations

§70.150. Scope.

Note

This Part contains definitions for this Subchapter. Subject to additional definitions contained in this Subchapter which are applicable to specific provisions of this Subchapter and unless the context otherwise requires, the definitions in this Part apply throughout this Subchapter.

NOTE

Authority cited: Section 215, Financial Code. Reference: Chapter 14A, Division 1, Financial Code.

§70.151. Definitions in Travelers Checks Act.

Note

Subject to additional definitions contained in this Subchapter which are applicable to specific provisions of this Subchapter and unless this Subchapter otherwise provides or the context otherwise requires, the definitions in Financial Code Sections 1852 and 1876.1 apply throughout this Subchapter.

NOTE

Authority cited: Section 215, Financial Code. Reference: Chapter 14A, Division 1, Financial Code.

§70.152. Percent Equity Security Owner.

Note

NOTE

Authority cited: Section 215, Financial Code. Reference: Chapter 14A, Division 1, Financial Code.

§70.153. Percent (Including Associates) Equity Security Owner.

Note

“__ percent (including associates) equity security owner,” when used with respect to a corporation or other organization, means any person who owns, directly or indirectly, of record or beneficially, equity securities of such corporation or other organization which, when combined with the equity securities of the corporation or other organization owned, directly or indirectly, of record or beneficially, by all associates of such person, constitute the specified percentage or more of any class of the equity securities of the corporation or other organization.

NOTE

Authority cited: Section 215, Financial Code. Reference: Chapter 14A, Division 1, Financial Code.

§70.154. Percent Voting Security Owner.

Note

“__ percent voting security owner,” when used with respect to a corporation or other organization, means any person who owns, directly or indirectly, of record or beneficially, the specified percentage or more of the voting securities of such corporation or other organization.

NOTE

Authority cited: Section 215, Financial Code. Reference: Chapter 14A, Division 1, Financial Code.

§70.155. Percent (Including Associates) Voting Security Owner.

Note

“__ percent (including associates) voting security owner,” when used with respect to a corporation or other organization, means any person who owns, directly or indirectly, of record or beneficially, voting securities of such corporation or other organization which, when combined with the voting securities of the corporation or other organization owned, directly or indirectly, of record or beneficially, by all associates of such person, constitute the specified percentage or more of the voting securities of the corporation or other organization.

NOTE

Authority cited: Section 215, Financial Code. Reference: Chapter 14A, Division 1, Financial Code.

§70.156. Act.

Note

“Act” includes omission.

NOTE

Authority cited: Section 215, Financial Code. Reference: Chapter 14A, Division 1, Financial Code.

§70.157. Affiliate.

Note

NOTE

Authority cited: Section 215, Financial Code. Reference: Chapter 14A, Division 1, Financial Code.

§70.158. Associate.

Note

“Associate,” when used to indicate a relationship with a specified person who is related with a licensee or an applicant for a license, means:

(a) Any corporation or other organization (other than the licensee or applicant or a majority-owned subsidiary of the licensee or applicant) of which the specified person is an executive officer or partner or is, directly or indirectly, the beneficial owner of 10 percent or more of any class of the equity securities.

(b) Any trust or other estate in which the specified person has a substantial beneficial interest or as to which the specified person serves as a trustee or in any similar fiduciary capacity.

(c) Any relative or spouse of the specified person, or any relative of such spouse, who has the same home as the specified person or who is a director or executive officer of the licensee or applicant or of any parent or subsidiary of the licensee or applicant.

NOTE

Authority cited: Section 215, Financial Code. Reference: Chapter 14A, Division 1, Financial Code.

§70.159. Beneficial.

Note

(a) By the spouse (except where legally separated) and minor children (including stepchildren and adopted children) of the specified person; and

(b) By any other relative of the specified person who has the same home as the specified person.

NOTE

Authority cited: Section 215, Financial Code. Reference: Chapter 14A, Division 1, Financial Code.

§70.160. California Corporation.

Note

“California corporation” means a corporation which is organized under the laws of the State of California.

NOTE

Authority cited: Section 215, Financial Code. Reference: Chapter 14A, Division 1, Financial Code.

§70.161. Clearing Bank.

Note

“Clearing bank,” when used with respect to a travelers check, means the bank on which such travelers check is drawn or at or through which such travelers check is payable.

NOTE

Authority cited: Section 215, Financial Code. Reference: Chapter 14A, Division 1, Financial Code.

§70.161.5. Commissioner.

Note • History

“Commissioner” has the meaning set forth in Section 1.1026 of this Chapter.

NOTE

Authority cited: Section 215, Financial Code. Reference: Chapter 14A, Division 1, Financial Code.

HISTORY

1. Change without regulatory effect renumbering former section 70.187 to new section 70.161.5, including amendment of section heading and section, filed 8-19-97 pursuant to section 100, title 1, California Code of Regulations (Register 97, No. 34).

§70.162. Control.

Note

To “control,” when used with respect to a specified person, means to possess, directly or indirectly, the power to direct or cause the direction of the management and policies of such specified person, whether through the ownership of voting securities, by contract, or otherwise; provided, however, that no individual shall be deemed to control a person solely on account of being a director, officer, or employee of such person.

NOTE

Authority cited: Section 215, Financial Code. Reference: Chapter 14A, Division 1, Financial Code.

§70.163. Controlling Person.

Note

“Controlling person,” when used with respect to a specified person, means any person who controls such specified person, directly or indirectly through one or more intermediaries.

NOTE

Authority cited: Section 215, Financial Code. Reference: Chapter 14A, Division 1, Financial Code.

§70.164. Documented Nominee.

Note

“Documented nominee” has the meaning set forth in Section 70.6302.

NOTE

Authority cited: Section 215, Financial Code. Reference: Chapter 14A, Division 1, Financial Code.

§70.165. Equity Security.

Note

NOTE

Authority cited: Section 215, Financial Code. Reference: Chapter 14A, Division 1, Financial Code.

§70.166. Executive Officer.

Note

“Executive officer,” when used with respect to a specified person (other than an individual), means the president, the secretary, the chief financial officer, any vice-president in charge of a principal business function (such as sales, administration, or finance), or any other person who performs similar policy-making functions for such specified person. In the case of a licensee or of an applicant for a license, “executive officer” includes the person in charge of the travelers check business.

NOTE

Authority cited: Section 215, Financial Code. Reference: Chapter 14A, Division 1, Financial Code.

§70.167. Extend Credit.

Note

(a) To “extend credit” to a person includes:

(1) To make or renew a loan to the person.

(2) To purchase a security or other asset from the person under a repurchase agreement.

(3) To acquire a note, draft, contract, or similar instrument with respect to which the person is liable, whether as maker, endorser, guarantor, or otherwise.

(4) To guarantee or become surety upon an obligation with respect to which the person is an obligor or obligee.

(b) Notwithstanding the provisions of Subdivision (a) of this Section, to “extend credit” to a person does not include:

(1) In case the person extending credit is an issuer of travelers checks or payment instruments and the person to whom credit is extended is authorized to sell travelers checks or payment instruments on behalf of the first person, any amount due from the second person to the first person on account of sales of travelers checks or payment instruments issued by the first person.

(2) In case the person extending credit is a bank, the giving of immediate credit upon uncollected items deposited in the ordinary course of business.

NOTE

Authority cited: Section 215, Financial Code. Reference: Chapter 14A, Division 1, Financial Code.

§70.168. Foreign Corporation.

Note

“Foreign corporation” means any corporation other than a corporation organized under the laws of the State of California.

NOTE

Authority cited: Section 215, Financial Code. Reference: Chapter 14A, Division 1, Financial Code.

§70.169. Include.

Note

To “include” means by way of enlargement and not by way of limitation.

NOTE

Authority cited: Section 215, Financial Code. Reference: Chapter 14A, Division 1, Financial Code.

§70.170. License.

Note

“License” means a license issued under the Travelers Checks Act.

NOTE

Authority cited: Section 215, Financial Code. Reference: Chapter 14A, Division 1, Financial Code.

§70.171. Majority-Owned Subsidiary.

Note

“Majority-owned subsidiary” means a subsidiary more than 50 percent of whose outstanding securities representing the right (other than as affected by events of default) to vote for the election of directors, is owned by the subsidiary's parent and/or one or more of the parent's other majority-owned subsidiaries.

NOTE

Authority cited: Section 215, Financial Code. Reference: Chapter 14A, Division 1, Financial Code.

§70.172. Non-California Agent.

Note

(a) “Non-California agent,” when used with respect to an issuer of travelers checks, means any person authorized by such issuer to sell travelers checks outside the State of California on behalf of the issuer, provided that the issuer becomes liable for the payment of each travelers check issued by the issuer which is sold by such person at the time when such travelers check is sold by such person. However, “non-California agent” does not include any officer or employee of the issuer, when acting as such at an office of the issuer.

(b) In the case of a person who is authorized by an issuer of travelers checks to sell travelers checks on behalf of such issuer both inside and outside the State of California, “non-California agent” means such person with respect to sales of travelers checks outside the State of California and related matters.

NOTE

Authority cited: Section 215, Financial Code. Reference: Chapter 14A, Division 1, Financial Code.

§70.173. Officer.

Note

“Officer” means:

(b) When used with respect to a specified person other than an individual or corporation, any person who performs with respect to such specified person functions usually performed by an officer of a corporation with respect to such corporation.

NOTE

Authority cited: Section 215, Financial Code. Reference: Chapter 14A, Division 1, Financial Code.

§70.174. Outstanding.

Note

“Outstanding” when used with respect to a travelers check, has the meaning indicated in Financial Code Section 1852(f), as interpreted in accordance with Section 70.128 of this Chapter; namely, either (a) that the travelers check has been sold in the United States directly by the issuer and has not yet been paid by the issuer or (b) that the travelers check has been sold in the United States by an agent or non-California agent of the issuer, has been reported by such agent or non-California agent to the issuer as having been sold (such report having been received by the issuer), and has not yet been paid by the issuer.

NOTE

Authority cited: Section 215, Financial Code. Reference: Chapter 14A, Division 1, Financial Code.

§70.175. Outstanding (Foreign).

Note

“Outstanding (foreign),” when used with respect to a travelers check, means either (a) that the travelers check has been sold outside the United States directly by the issuer and has not yet been paid by the issuer or (b) that the travelers check has been sold outside the United States by a non-California agent of the issuer, has been reported by such non-California agent to the issuer as having been sold (such report having been received by the issuer), and has not yet been paid by the issuer.

NOTE

Authority cited: Section 215, Financial Code. Reference: Chapter 14A, Division 1, Financial Code.

§70.176. Outstanding (Worldwide).

Note

“Outstanding (worldwide),” when used with respect to a travelers check, means either (a) that the travelers check has been sold, whether inside or outside the United States, directly by the issuer and has not yet been paid by the issuer or (b) that the travelers check has been sold, whether inside or outside the United States, by an agent or non-California agent of the issuer, has been reported by such agent or non-California agent to the issuer as having been sold (such report having been received by the issuer), and has not yet been paid by the issuer.

NOTE

Authority cited: Section 215, Financial Code. Reference: Chapter 14A, Division 1, Financial Code.

§70.177. Parent.

Note

NOTE

Authority cited: Section 215, Financial Code. Reference: Chapter 14A, Division 1, Financial Code.

§70.178. Person.

Note

“Person” has the meaning set forth in Section 1.1022 of this Chapter.

NOTE

Authority cited: Section 215, Financial Code. Reference: Chapter 14A, Division 1, Financial Code.

§70.179. Pre-Clear.

Note

“Pre-clear,” when used to designate a travelers check, means a travelers check which is sold by an agent or non-California agent of the issuer and which is paid by the issuer before the issuer receives a report of the sale from such agent or non-California agent.

NOTE

Authority cited: Section 215, Financial Code. Reference: Chapter 14A, Division 1, Financial Code.

§70.180. Records.

Note

“Records” include books, accounts, and other records.

NOTE

Authority cited: Section 215, Financial Code. Reference: Chapter 14A, Division 1, Financial Code.

§70.181. Reporting Company.

Note • History

“Reporting company” means a person (other than an individual) which meets all of the following requirements:

(a) A class of the equity securities of the person is registered pursuant to Section 12 of the Securities Exchange Act of 1934 and regulations of the Securities and Exchange Commission issued thereunder.

(b) The person is required to file reports and other documents under Sections 13 and 14 of the Securities Exchange Act of 1934 and regulations of the Securities and Exchange Commission issued thereunder, has filed all documents so required to be filed for the last three years (or, if the person was subject to such requirements for less than the last three years, for such lesser period), and has filed all documents so required to be filed in a timely manner for the last one year (or, if the person was subject to such requirements for less than the last one year, for such lesser period).

(c) In case the person is subject to Section 70.8203 of this Chapter, the person has filed with the Commissioner all documents required to be filed under Section 70.8203 for the last three years (or, if the person was subject to Section 70.8203 for less than the last three years, for such lesser period), and has filed with the Commissioner all documents so required to be filed in a timely manner for the last one year (or, if the person was subject to Section 70.8203 for less than the last one year, for such lesser period).

NOTE

Authority cited: Section 215, Financial Code. Reference: Chapter 14A, Division 1, Financial Code.

HISTORY

1. Change without regulatory effect amending section filed 8-19-97 pursuant to section 100, title 1, California Code of Regulations (Register 97, No. 34).

§70.182. Reporting/Remitting Office.

Note • History

“Reporting/remitting office,” when used with respect to an agent of an issuer of travelers checks, means:

(a) In case the agent is a bank, savings and loan association, industrial loan company, or credit union which maintains its head office in the State of California, such head office.

(b) In any other case, each location from which the agent reports sales in the State of California of travelers checks to the issuer or from which the agent remits the proceeds of such sales to the issuer or its representative.

NOTE

Authority cited: Section 215, Financial Code. Reference: Chapter 14A, Division 1, Financial Code.

HISTORY

1. Amendment of subsection (b) filed 4-7-97; operative 4-7-97 pursuant to Government Code section 11343.4(d) (Register 97, No. 15).

§70.183. Security.

Note

“Security” has the meaning set forth in Corporations Code Section 25019.

NOTE

Authority cited: Section 215, Financial Code. Reference: Chapter 14A, Division 1, Financial Code.

§70.184. Significantly Involved in Travelers Check Business.

Note

“Significantly involved in travelers check business,” when used with respect to an affiliate of an issuer of travelers checks, means that such affiliate manages or performs a significant aspect of the travelers check business of such issuer, such as:

(a) Distributing blank travelers checks to agents or non-California agents of the issuer;

(b) Receiving reports of sales of travelers checks or remittances of proceeds from sales of travelers checks from agents or non-California agents of the issuer.

(d) Serving as a clearing bank for the issuer. However, “significantly involved in travelers check business” does not include any affiliate of an issuer of travelers checks solely on account of the fact that such affiliate is an agent or non-California agent of such issuer.

NOTE

Authority cited: Section 215, Financial Code. Reference: Chapter 14A, Division 1, Financial Code.

§70.185. Significant Subsidiary.

Note

“Significant subsidiary” means a subsidiary or a subsidiary and its subsidiaries which meet any of the following requirements on the basis of the most recent annual financial statements of such subsidiary and of its parent:

(a) The parent's and its other subsidiaries' investments in and advances to, or their proportionate share (based on their equity interests) of the total assets (after intercompany eliminations) of, the subsidiary exceed 10 percent of the total assets of the parent and its consolidated subsidiaries.

(b) The parent's and its other subsidiaries' proportionate share (based on their equity interests) of the total sales and revenues (after intercompany eliminations) of the subsidiary exceeds 10 percent of the total sales and revenues of the parent and its consolidated subsidiaries.

(c) The parent's and its other subsidiaries' equity in the income before income taxes and extraordinary items of the subsidiary exceeds 10 percent of (1) such income of the parent and its consolidated subsidiaries or (2) if such income of the parent and its consolidated subsidiaries is at least 10 percent lower than the average of such income for the last five fiscal years, such average income.

NOTE

Authority cited: Section 215, Financial Code. Reference: Chapter 14A, Division 1, Financial Code.

§70.186. Subsidiary.

Note

NOTE

Authority cited: Section 215, Financial Code. Reference: Chapter 14A, Division 1, Financial Code.

§70.187. Superintendent.

Note • History

NOTE

Authority cited: Section 215, Financial Code. Reference: Chapter 14A, Division 1, Financial Code.

HISTORY

1. Change without regulatory effect renumbering former section 70.187 to new section 70.161.5 filed 8-19-97 pursuant to section 100, title 1, California Code of Regulations (Register 97, No. 34).

§70.188. Travelers Check or Payment Instrument License.

Note

“Travelers check or payment instrument license” means any license, permit, approval, registration, or other form of authorization or qualification by which a person is permitted to transact the business of issuing or selling travelers checks or the business of issuing or selling payment instruments. However, “travelers check or payment instrument license” does not include any such authorization or qualification which is issued by a city, county, or other local agency.

NOTE

Authority cited: Section 215, Financial Code. Reference: Chapter 14A, Division 1, Financial Code.

§70.189. Unpaid.

Note

“Unpaid,” when used with respect to a travelers check, means that such travelers check has been issued, whether inside or outside the United States, and has not yet been paid by the issuer.

NOTE

Authority cited: Section 215, Financial Code. Reference: Chapter 14A, Division 1, Financial Code.

§70.190. Voting Securities.

Note

“Voting securities” means securities the holders of which are presently entitled to vote for the election of directors.

NOTE

Authority cited: Section 215, Financial Code. Reference: Chapter 14A, Division 1, Financial Code.

Article 2. (Reserved)

Article 3. (Reserved)

Article 4. (Reserved)

§70.3000. Scope.

Note • History

NOTE

Authority cited: Section 215, Financial Code. Reference: Article 2, Chapter 14A, Financial Code.

HISTORY

1. Change without regulatory effect repealing section filed 7-2-91 pursuant to section 100, title 1, California Code of Regulations (Register 91, No. 40).

§70.3001. Foreign Banking Corporations with Licensed Representatives.

Note • History

NOTE

Authority cited: Section 215, Financial Code. Reference: Article 2, Chapter 14A, Financial Code.

HISTORY

1. Change without regulatory effect repealing section filed 7-2-91 pursuant to section 100, title 1, California Code of Regulations (Register 91, No. 40).

Article 5. Issuance of License

Subarticle 1. General Provisions

§70.4000. Definition of “Applicant” and Scope.

Note • History

(a) In this Article “applicant” means a person who applies to the Commissioner for a license.

(b) This Article contains regulations relating to the issuance of a license pursuant to Articles 3 (commencing with Section 1855) and 4 (commencing with Section 1857) of the Travelers Checks Act. This Subarticle contains general provisions relating to the issuance of a license. Subarticle 2 (commencing with Section 70.4100) of this Article contains regulations relating to an application for a license. Subarticle 3 (commencing with Section 70.4200) of this Article contains regulations which set forth administrative standards and procedures relating to an application for a license. Subarticle 4 (commencing with Section 70.4300) of this Article contains regulations relating to matters after an application for a license is approved by the Commissioner.

NOTE

Authority cited: Section 215, Financial Code. Reference: Articles 3 and 4, Chapter 14A, Division 1, Financial Code.

HISTORY

1. Amendment of article 5 heading and section filed 4-7-97; operative 4-7-97 pursuant to Government Code section 11343.4(d) (Register 97, No. 15).

2. Change without regulatory effect amending section filed 8-19-97 pursuant to section 100, title 1, California Code of Regulations (Register 97, No. 34).

Subarticle 2. Application

§70.4100. Scope.

Note • History

This Subarticle contains regulations relating to an application for a license.

NOTE

Authority cited: Section 215, Financial Code. Reference: Article 3, Chapter 14A, Division 1, Financial Code.

HISTORY

1. Amendment filed 4-7-97; operative 4-7-97 pursuant to Government Code section 11343.4(d) (Register 97, No. 15).

§70.4101. Time of Filing.

Note • History

For purposes of Financial Code Section 1857, an application for a license shall not be deemed to be filed with the Commissioner unless and until:

(a) The application, complying in all respects with the provisions of Article 3 (commencing with Section 1855) of the Travelers Checks Act and of this Subarticle, is submitted to the Commissioner;

(b) Any amendment of the application necessary to supply such information as the Commissioner may request within 90 days after receiving the application (or, in case the application has been amended, within 90 days after receiving the most recent amendment of the application), is submitted to the Commissioner; and

NOTE

Authority cited: Section 215, Financial Code. Reference: Article 3, Chapter 14A, Division 1 and Section 1857, Financial Code.

HISTORY

1. Amendment of first pragraph and Note filed 4-7-97; operative 4-7-97 pursuant to Government Code section 11343.4(d) (Register 97, No. 15).

2. Change without regulatory effect amending section filed 8-19-97 pursuant to section 100, title 1, California Code of Regulations (Register 97, No. 34).

§70.4102. Facing Page.

Note • History

An application for a license shall have as its first page a facing page in the form of Department Form 4010 and shall contain the information called for therein.

NOTE

Authority cited: Section 215, Financial Code. Reference: Article 3, Chapter 14A, Division 1, Financial Code.

HISTORY

1. Amendment filed 4-7-97; operative 4-7-97 pursuant to Government Code section 11343.4(d) (Register 97, No. 15).

§70.4103. Additional Information.

Note • History

An application for a license shall contain, in addition to the information called for in the facing page, the information called for in Sections 70.4104 to 70.4124, inclusive, of this Chapter.

NOTE

Authority cited: Section 215, Financial Code. Reference: Article 3, Chapter 14A, Division 1, Financial Code.

HISTORY

1. Amendment filed 4-7-97; operative 4-7-97 pursuant to Government Code section 11343.4(d) (Register 97, No. 15).

§70.4104. Information Regarding History and Business.

Note • History

(a) Describe the business of the applicant.

(b) In case any of the following has occurred or is pending with respect to the applicant or any subsidiary of the applicant, describe the circumstances:

(1)(A) If any court or governmental agency has suspended or revoked any license or other authorization or qualification of the applicant or of the subsidiary to transact the business of issuing or selling travelers checks, the business of issuing or selling payment instruments, the business of banking, the business of a bank holding company, or the securities business.

(B) In case any court or governmental agency has temporarily or permanently

1. prohibited the applicant or the subsidiary from transacting any business of the kind referred to in Subparagraph (A) of this Paragraph (1),

2. prohibited the applicant or the subsidiary from engaging in any conduct or practice with respect to any such business, or

3. imposed any monetary or other penalty upon the applicant or the subsidiary for having violated any law relating to any such business.

(C) If the applicant or the subsidiary is the subject of any pending proceeding of the kind referred to in Subparagraph (A) or (B) of this Paragraph (1).

(2)(A) If any court or governmental agency has, for any reason other than nonpayment of fees, suspended or revoked any license or other authorization or qualification of the applicant or of the subsidiary to engage in any profession, occupation, vocation, or other business activity (other than a license or other authorization or qualification of the kind referred to in Paragraph (1) of this Subdivision (b)).

(B) If the applicant or the subsidiary is the subject of any pending proceeding of the kind referred to in Subparagraph (A) of this Paragraph (2).

(3)(A) If the applicant or the subsidiary has applied for reorganization, arrangement, or other relief under any bankruptcy, reorganization, insolvency, or moratorium law.

(B) If any person has applied against the applicant or the subsidiary or against any business or property of the applicant or of the subsidiary for the appointment of a receiver, fiscal agent, or similar officer or for other relief of the kind described in Subparagraph (A) of this Paragraph (3), and such application is pending or such relief has been granted.

(4) If any court has entered judgment against the applicant or the subsidiary in any civil action based upon conduct involving fraud or dishonesty.

(5) If the applicant or the subsidiary has pleaded nolo contendere to, been convicted of, or been charged as a defendant in a pending criminal proceeding with, any crime relating to any business of the kind referred to in Subparagraph (A), Paragraph (1) of this Subdivision (b) or any crime involving fraud or dishonesty.

NOTE

Authority cited: Section 215, Financial Code. Reference: Article 3, Chapter 14A, Division 1, Financial Code.

HISTORY

1. Repealer of subsection (a), subsection relettering, redesignation of former subsections (c)(1)(B)(i)-(iii) to new subsections (b)(1)(B)1.-3., and amendment of newly designated subsections (b)(2)(A) and (b)(5) filed 4-7-97; operative 4-7-97 pursuant to Government Code section 11343.4(d) (Register 97, No. 15).

§70.4105. Information Regarding Directors and Executive Officers.

Note • History

(a) In this Section:

(1) “Associated organization,” when used with respect to a subject person and a legal proceeding, means any person (other than an individual) which was an associate of such subject person at or within two years before the commencement of such proceeding.

(2) To be “indebted” does not include indebtedness on account of any of the following:

(A) Any amount due for purchases subject to usual trade terms, for ordinary travel and expense advances, or for other transactions in the ordinary course of business.

(B) Any loan made by a bank, savings and loan association, industrial loan company, or securities broker-dealer extending credit under Regulation T of the Board of Governors of the Federal Reserve System, provided that such loan is made in the ordinary course of business, is made on substantially the same terms (including interest rate and collateral) as those prevailing at the time for comparable transactions with other persons, and does not involve more than normal risk of collectibility or present other unfavorable features.

(3) “Subject person of the applicant” means:

(A) In case the applicant is a reporting company,

1. the chief executive officer of the applicant,

2. the chief financial officer of the applicant,

3. the person in charge of the travelers check business of the applicant, or

4. any other person who is a director or executive officer of the applicant and who was not listed as such in the last annual report (Securities and Exchange Commission Form 10-) filed by the applicant pursuant to Section 13 of the Securities Exchange Act of 1934 and regulations of the Securities and Exchange Commission issued thereunder or who was not listed as a nominee for director in the last proxy statement issued by the parent to its shareholders.

(B) In case the applicant is not a reporting company but a parent of the applicant is a reporting company,

1. the chief executive officer of the applicant,

2. the chief financial officer of the applicant,

3. the person in charge of the travelers check business of the applicant, or

4. any other person who is a director or executive officer of the applicant and who was not listed as a director or executive officer of the parent in the last annual report (Securities and Exchange Commission Form 10-K) filed by the parent pursuant to Section 13 of the Securities Exchange Act of 1934 and regulations of the Securities and Exchange Commission issued thereunder or who was not listed as a nominee for director in the last proxy statement issued by the parent to its shareholders.

(C) In case neither the applicant nor a parent of the applicant is a reporting company, each director and executive officer of the applicant.

(b) Provide a list showing, with respect to each person who is a director or executive officer of the applicant:

(1) Name.

(2) Title of each position held with the applicant.

(d) Provide the following information with respect to each subject person of the applicant:

(1) Give a brief account of the subject person's business experience during the last five years, including his principal occupations during such period and the name and principal address of any corporation or other organization in which such occupations were carried out.

(2)(A) In case any court or governmental agency has suspended or revoked any license or other authorization or qualification of the subject person or of any associated organization of the subject person to transact the business of issuing or selling travelers checks, the business of issuing or selling payment instruments, the business of banking, the business of a bank holding company, or the securities business, describe the circumstances.

(B) In case any court or governmental agency has temporarily or permanently

1. prohibited the subject person or any associated organization of the subject person from transacting any business of the kind referred to in Subparagraph (A) of this Paragraph (2),

2. prohibited the subject person or any associated organization of the subject person from engaging in any conduct or practice with respect to any such business,

3. removed the subject person or any associated organization of the subject person from, or prohibited the subject person or any associated organization of the subject person from having, any position or association with an organization engaged in any such business, or

4. imposed any monetary or other penalty upon the subject person or any associated organization of the subject person for having violated any law relating to any such business, describe the circumstances.

(C) In case the subject person or any associated organization of the subject person is the subject of any pending proceeding of the kind referred to in Subparagraph (A) or (B) of this Paragraph (2), describe the circumstances.

(3)(A) In case any court or governmental agency has, for any reason other than nonpayment of fees, suspended or revoked any license or other authorization or qualification of the subject person to practice any profession, occupation, or vocation (other than a license or other authorization or qualification of the kind referred to in Paragraph (2) of this Subdivision (d)), describe the circumstances.

(B) In case the subject person is the subject of any pending proceeding of the kind referred to in Subparagraph (A) of this Paragraph (3), describe the circumstances.

(4)(A) In case the subject person or any associated organization of the subject person has applied for an adjudication of bankruptcy, reorganization, arrangement, or other relief under any bankruptcy, reorganization, insolvency, or moratorium law, describe the circumstances.

(B) In case any person has applied against the subject person or any associated organization of the subject person or against any business or property of the subject person or of any associated organization of the subject person for the appointment of a receiver, fiscal agent, or similar officer or for other relief of the kind described in Subparagraph (A) of this Paragraph (4), and such application is pending or such relief has been granted, describe the circumstances.

(5) In case any court has entered judgment against the subject person or any associated organization of the subject person in any civil action based upon conduct involving fraud or dishonesty, describe the circumstances.

(6) In case the subject person or any associated organization of the subject person has pleaded nolo contendere to, been convicted of, or been charged as a defendant in a pending criminal proceeding with, any crime relating to any business of the kind referred to in Subparagraph (A), Paragraph (2) of this Subdivision (d) or any crime involving fraud or dishonesty, describe the circumstances.

(e) In case the applicant is neither a reporting company nor a bank nor a savings and loan association, if any person who is, or is an associate of, any director or executive officer of the applicant was at any time during the last three years indebted to the applicant or the applicant's subsidiaries (except any subsidiary which is a bank, savings and loan association, industrial loan company, or broker/dealer in securities extending credit under Regulation T of the Board of Governors of the Federal Reserve System) in an amount which in the aggregate exceeds $10,000 or 1 percent of the applicant's total assets, whichever is less, provide the following information:

(1) Identify the person, and describe the person's relationship to the applicant.

(2) Describe the nature of the indebtedness and of the transaction in which it was incurred.

(3) State the highest aggregate amount of the indebtedness outstanding at any time during the period since the filing of the applicant's last application for renewal of its license.

(4) State the aggregate amount of the indebtedness currently outstanding.

(5) State the rate of interest paid or charged on the indebtedness.

NOTE

Authority cited: Section 215, Financial Code. Reference: Article 3, Chapter 14A, Division 1, Financial Code.

HISTORY

1. Amendment of subsection (a)(2)(B), redesignation of subsections (a)(3)(A)(i)-(iv) to (a)(3)(A)1.-4., (a)(3)(B)(i)-(iv) to (a)(3)(B)1.-4., and (d)(2)(B)(i)-(iv) to (d)(2)(B)1.-4. and amendment of subsection (e) filed 4-7-97; operative 4-7-97 pursuant to Government Code section 11343.4(d) (Register 97, No. 15).

§70.4106. Information Regarding Corporate Matters.

Note

(a) Provide a copy of the articles of the applicant, as amended to the date of the filing of the application, or, if the applicant has no articles, so state and provide a copy of the closest equivalent document, as amended to the date of the filing of the application. Such copy of the articles or of the closest equivalent document, as amended, shall be certified, in case the applicant is a California corporation, by the Secretary of State of the State of California or, in case the applicant is a foreign corporation, by an appropriate public official of the domiciliary jurisdiction of the applicant.

(b)(1) In case the applicant is a California corporation, provide a Certificate of Good Standing issued by the Secretary of State of the State of California as of a date within 30 days before the filing of the application, certifying that the applicant is a corporation which is duly organized, subsisting, and in good standing under the laws of the State of California.

(2) In case the applicant is a foreign corporation, provide a certificate issued by an appropriate public official of the domiciliary jurisdiction of the applicant as of a date within 30 days before the filing of the application, certifying that the applicant is a corporation which is duly organized, subsisting, and in good standing under the laws of the domiciliary jurisdiction.

NOTE

Authority cited: Section 215, Financial Code. Reference: Article 3, Chapter 14A, Division 1, Financial Code.

§70.4107. Information Regarding Securities.

Note

With respect to each type of security of the applicant which is issued and outstanding or which is proposed to be issued:

(a) Describe such type of security.

(b) State the amount of the securities of such type which are issued and outstanding or which are proposed to be issued.

NOTE

Authority cited: Section 215, Financial Code. Reference: Article 3, Chapter 14A, Division 1, Financial Code.

§70.4108. Information Regarding Equity Security Owners.

Note

In case the applicant is not a reporting company and any person is known to the applicant to be a 10 percent (including associates) equity security owner of the applicant, or in case the applicant has a parent which is not a reporting company and any person is known to the applicant to be a 10 percent (including associates) equity security owner of such parent, provide the following information with respect to each such 10 percent (including associates) equity security owner:

(a) Name.

(b) Business address.

(d) Amount and types of equity securities of the applicant or of a parent of the applicant owned by the person and the person's associates.

NOTE

Authority cited: Section 215, Financial Code. Reference: Article 3, Chapter 14A, Division 1, Financial Code.

§70.4109. Information Regarding Affiliates.

Note • History

In case the applicant has a parent or any significant subsidiary, provide a list or diagram which includes the applicant and which contains the following information with respect to each affiliate of the applicant which is a parent of the applicant, a significant subsidiary of such parent, or a significant subsidiary of the applicant or which is significantly involved or is proposed to be significantly involved in the travelers check business of the applicant:

(a) State the name of the affiliate.

(b) Show the relationship of the affiliate to the applicant and to each other affiliate in the list or diagram. In case any affiliate which is a subsidiary is not wholly owned by its immediate parent, state the percentage of voting securities of such subsidiary which is owned by such immediate parent or the other basis upon which the subsidiary is controlled by the immediate parent.

(d) In case the affiliate is significantly involved or is proposed to be significantly involved in the travelers check business of the applicant, briefly describe such involvement.

NOTE

Authority cited: Section 215, Financial Code. Reference: Article 3, Chapter 14A, Division 1, Financial Code.

HISTORY

1. Amendment of subsection (b) filed 4-7-97; operative 4-7-97 pursuant to Government Code section 11343.4(d) (Register 97, No. 15).

§70.4110. Information Regarding Controlling Persons.

Note

In case any person controls the applicant, provide the following information:

(a) Identify the controlling person.

(b) Describe the basis of the controlling person's control of the applicant and state the percentage of each class of voting securities of the applicant which the controlling person owns, directly or indirectly, of record or beneficially.

(c) In case the controlling person participates in the management or operations of the applicant, describe such participation.

NOTE

Authority cited: Section 215, Financial Code. Reference: Article 3, Chapter 14A, Division 1, Financial Code.

§70.4111. Information Regarding Financial Statements and Reports.

Note • History

(a) In case the applicant is not a reporting company:

(1) Provide the following financial statements of the applicant:

(A) Balance sheet as of a date within 120 days before the filing of the application.

(B) If the balance sheet called for in Subparagraph (A) of this Paragraph (1) is not as of the end of a fiscal year of the applicant, a balance sheet as of the end of the fiscal year of the applicant next preceding the date of such balance sheet.

(C) Statement of income, a statement of cash flows, and a statement of shareholders' equity for each of the two fiscal years of the applicant next preceding the date of the balance sheet called for in Subparagraph (A) of this Paragraph (1) and, if such balance sheet is not as of the end of a fiscal year of the applicant, a statement of income for the interim period from the date of the balance sheet called for in Subparagraph (B) of this Paragraph (1) to the date of the balance sheet called for in Subparagraph (A) of this Paragraph (1).

(2) In case the applicant has any subsidiaries, provide the financial statements called for in Paragraph (1) of this Subdivision (a) on a consolidated basis.

(b) In case the applicant has a parent which is not a reporting company, provide the following financial statements of such parent on a consolidated basis:

(1) Balance sheet as of a date within 120 days before the filing of the application.

(2) If the balance sheet called for in Paragraph (1) of this Subdivision (b) is not as of the end of a fiscal year of the parent, a balance sheet as of the end of the fiscal year of the applicant net preceding the date of such balance sheet.

(3) Statement of income, a statement of cash flows, and a statement of shareholders' equity for each of the two fiscal years of the parent next preceding the date of the balance sheet called for in Paragraph (1) of this Subdivision (b) and, if such balance sheet is not as of the end of a fiscal year of the applicant, a statement of income for the interim period from the date of the balance sheet called for in Paragraph (2) of this Subdivision (b) to the date of the balance sheet called for in Paragraph (1) of this Subdivision (b).

(1) Provide a statement showing the amount of travelers checks issued by the applicant during each of the periods covered by the statements of income referred to in Subparagraph (C), Paragraph (1), Subdivision (a) of this Section.

(2) Provide a statement showing, as of the date of each of the balance sheets referred to in Paragraph (1), Subdivision (a) of this Section, the amount of travelers checks issued by the applicant which were outstanding, the amount of travelers checks issued by the applicant which were outstanding (foreign), and the amount of travelers checks issued by the applicant which were outstanding (worldwide).

(3) Provide, if available, a statement showing, as of the date of each of the balance sheets referred to in Paragraph (1), Subdivision (a) of this Section, the amount of travelers checks issued by the applicant in the United States which were unpaid, the amount of travelers checks issued by the applicant outside the United States which were unpaid, and the total amount of travelers checks issued by the applicant which were unpaid.

(4) Provide a statement showing the amount of travelers checks issued by the applicant which were pre-clears as of the date of each of the balance sheets referred to in Paragraph (1), Subdivision (a) of this Section.

(5) Provide a statement of the eligible securities owned by the applicant as of the date of the balance sheet referred to in Subparagraph (A), Paragraph (1), Subdivision (a) of this Section, showing the total value of such eligible securities, as determined in accordance with Financial Code Section 1876.1(f), and containing the following information with respect to each eligible security:

(A) Identify the security, including the name of the issuer, the type of the security, and such other information as may be necessary to distinguish the security from other securities issued by the same issuer.

(B) State the value of the security, as determined in accordance with Financial Code Section 1876.1(f).

(C) In case the qualification of the security as an eligible security depends upon the assignment of an eligible rating by an eligible securities rating service, state the rating assigned to the security by an eligible securities rating service and identify such eligible securities rating service.

(d)(1) Provide a copy of each of the last two annual reports of the applicant to its shareholders, a copy of any interim report issued by the applicant to its shareholders since the last annual report, and a copy of the last proxy or information statement issued by the applicant.

(2) If the applicant is required to file reports with the Securities and Exchange Commission pursuant to Section 13 of the Securities Exchange Act of 1934 and regulations of the Securities and Exchange Commission issued thereunder, provide a copy of each of the last two annual reports (Securities and Exchange Commission Form 10-K) filed by the applicant with the Securities and Exchange Commission and a copy of each quarterly report (Securities and Exchange Commission Form 10-Q) and current report (Securities and Exchange Commission Form 8-K) filed by the applicant with the Securities and Exchange Commission since the last annual report.

(e) In case the applicant has a parent:

(1) Provide a copy of each of the last two annual reports of the parent to its shareholders, a copy of any interim report issued by the parent to its shareholders since the last annual report, and a copy of the last proxy or information statement issued by the parent.

(2) If the parent is required to file reports with the Securities and Exchange Commission pursuant to Section 13 of the Securities Exchange Act of 1934 and regulations of the Securities and Exchange Commission issued thereunder, provide a copy of each of the last two annual reports (Securities and Exchange Commission Form 10-K) filed by the parent with the Securities and Exchange Commission and a copy of each quarterly report (Securities and Exchange Commission Form 10-Q) and current report (Securities and Exchange Commission Form 8-K) filed by the parent with the Securities and Exchange Commission since the last annual report.

NOTE

Authority cited: Section 215, Financial Code. Reference: Section 1856, Financial Code.

HISTORY

1. Amendment of subsections (a)(1)(C) and (a)(2), repealer of subsections (b) and (d), subsection relettering, amendment of newly designated subsections (b) and (b)(2)-(3), repealer of newly designated subsections (c)(5) and (c)(7), and subsection renumbering filed 4-7-97; operative 4-7-97 pursuant to Government Code section 11343.4(d) (Register 97, No. 15).

2. Amendment of subsections (a)(1)(C), (b)(3), (d)(1)-(2) and (e)(1)-(2) and amendment of Note filed 4-14-98; operative 5-14-98 (Register 98, No. 16).

§70.4112. Information Regarding Extensions of Credit.

Note

(a) In case the applicant or any affiliate of the applicant which is significantly involved or is proposed to be significantly involved in the travelers check business of the applicant (other than an applicant or affiliate which is a bank) has extended credit or committed to extend credit in an amount exceeding $25,000 directly or indirectly to, or for the benefit of any non-California agent or any proposed California agent of the applicant (other than an agent or proposed California agent which is a subsidiary of the applicant) and such extension of credit or commitment is outstanding, identify the parties and describe the terms of the transaction.

(b) In case any person has made a commitment to extend credit to the applicant and such commitment is outstanding, identify such person (or, if the person was a group of banks, identify the lead bank of such group and indicate that it is the lead bank of a group of banks) and describe the terms of the commitment.

NOTE

Authority cited: Section 215, Financial Code. Reference: Article 3, Chapter 14A, Division 1, Financial Code.

§70.4113. Information Regarding Legal Proceedings.

Note

(a) For purposes of this Section:

(1) A proceeding involving the applicant or a subsidiary of the applicant shall not be deemed to be material:

(A) If the proceeding is ordinary routine litigation incidental to the business of the applicant or of the subsidiary; or

(B) If the proceeding involves primarily a claim for damages and if the amount of damages claimed (excluding interest and costs) against the applicant or the subsidiary does not exceed 10 percent of the current assets of the applicant and its subsidiaries on a consolidated basis. For purposes of computing the amount of damages claimed, in case a proceeding presents in large degree the same issues as other proceedings pending or known to be contemplated, the amount of damages claimed in such proceeding shall be deemed to include the amounts of damages claimed in such other proceedings.

(2) Notwithstanding the provisions of Paragraph (1) of this Subdivision (a), each of the following proceedings shall be deemed to be material:

(A) Any material proceeding in which any affiliate of the applicant or any person who is, or who is an associate of, any

(i) director,

(ii) executive officer, or

(iii) five percent voting security owner of the applicant, is a party adverse to, or has a material interest adverse to, the applicant or any subsidiary of the applicant.

(B) Any bankruptcy, receivership, or similar proceeding.

(b) In case the applicant is not a reporting company, if the applicant or any subsidiary of the applicant is a party to, or any property of the applicant or of any subsidiary of the applicant is the subject of, any material proceeding pending before any court or governmental agency, describe such proceeding, including:

(1) Title of the proceeding.

(2) Name and address of the court or of the governmental agency before which the proceeding is pending.

(3) Names of the principal parties to the proceeding.

(4) Date the proceeding was commenced.

(5) Description of factual basis alleged to underlie the proceeding.

(6) Relief sought in the proceeding.

(7) Status of the proceeding.

(c) In case the applicant is not a reporting company, if any material proceeding to which the applicant or any subsidiary of the applicant would be a party or of which any property of the applicant or of any subsidiary of the applicant would be the subject, is known to the applicant to be contemplated by any governmental agency, describe such proceeding, including information comparable to the information called for in Paragraphs (1) to (7), inclusive, of Subdivision (b) of this Section.

NOTE

Authority cited: Section 215, Financial Code. Reference: Article 3, Chapter 14A, Division 1, Financial Code.

§70.4114. Information Regarding Travelers Check or Payment Instrument Licenses.

Note • History

In case the applicant has any travelers check or payment instrument license issued by a governmental agency within the United States, provide the following information with respect to each such license:

(a) Name, address, and, if available, telephone number of the governmental agency by which the license was issued.

(b) Business which the applicant is authorized to transact under the license.

NOTE

Authority cited: Section 215, Financial Code. Reference: Article 3, Chapter 14A, Division 1, Financial Code.

HISTORY

1. Repealer of subsection (b) and subsection relettering filed 4-7-97; operative 4-7-97 pursuant to Government Code section 11343.4(d) (Register 97, No. 15).

§70.4115. Information Regarding Business Plan.

Note • History

Provide a business plan for the applicant which includes all of the following:

(a) Description of the market that the applicant proposes to serve.

(b) Description of the services and products proposed to be offered by the applicant.

(d) Description of competition in the proposed market of the applicant, including the name of each other business which provides to the proposed market of the applicant services and products that are similar to any of the principal services and products proposed to be provided by the applicant.

(e) Description of how services and products of the applicant will be marketed in consideration of the existing and anticipated competition.

(f) Analysis of the capital, financial, physical and human resources required by the applicant to successfully implement the proposed business plan.

(g) In case any material element of the business plan is based on an assumption, a statement of the assumption, and the justification for the assumption.

NOTE

Authority cited: Section 215, Financial Code. Reference: Section 1856, Financial Code.

HISTORY

1. Amendment of section heading, repealer and new section, and amendment of Note filed 4-14-98; operative 5-14-98 (Register 98, No. 16).

§70.4116. Information Regarding California Offices.

Note • History

NOTE

Authority cited: Section 215, Financial Code. Reference: Article 3, Chapter 14A, Division 1, Financial Code.

HISTORY

1. Repealer filed 4-7-97; operative 4-7-97 pursuant to Government Code section 11343.4(d) (Register 97, No. 15).

§70.4117. Information Regarding Proposed Agents.

Note • History

In case the applicant proposes to have any agents, provide the following information:

(a) Describe the types of business conducted by the applicant's proposed agents.

(b) Provide a copy of each form of contract which the applicant proposes to make with its agents in accordance with Financial Code Section 1869.

NOTE

Authority cited: Section 215, Financial Code. Reference: Article 3, Chapter 14A, Division 1, Financial Code.

HISTORY

1. Repealer of subsections (a), (b) and (e), and subsection relettering filed 4-7-97; operative 4-7-97 pursuant to Government Code section 11343.4(d) (Register 97, No. 15).

§70.4118. Information Regarding Operations.

Note • History

(a) Describe the manner in which the applicant proposes to conduct its travelers check business after it becomes a licensee, including the procedures and policies which the applicant proposes to follow with respect to the following matters:

(1) Selecting and appointing agents and non-California agents.

(2) Distributing blank travelers checks to agents and non-California agents and controlling blank travelers checks.

(3) Requiring agents which are subject to Financial Code Section 1871 to report sales of travelers checks in accordance with Financial Code Section 1871, and requiring other agents and non-California agents to report sales of travelers checks.

(4) Requiring agents which are subject to Financial Code Section 1871 to remit proceeds from sales of travelers checks in accordance with Financial Code Section 1871, and requiring other agents and non-California agents to remit proceeds from sales of travelers checks.

(5) Receiving and investing proceeds from sales of travelers checks.

(6) Accounting for amounts due from agents and non-California agents on account of sales of travelers checks.

(7) Accounting for unpaid travelers checks.

(8) Paying travelers checks.

(b) In case the applicant presently transacts outside the State of California the business of issuing travelers checks, if its proposed operations, as described in accordance with Subdivision (a) of this Section, differ in any material respect from its present operations, describe such difference.

(c) State the address of each place where the applicant proposes to maintain records relating to its travelers check business.

(d) In case the applicant maintains or proposes to maintain any fidelity bond, describe such fidelity bond.

NOTE

Authority cited: Section 215, Financial Code. Reference: Section 1856, Financial Code.

HISTORY

1. Amendment of subsection (a)(2) and Note filed 4-14-98; operative 5-14-98 (Register 98, No. 16).

§70.4119. Information Regarding Forms of Travelers Checks.

Note

(a) Provide a specimen copy of each form of travelers check which the applicant proposes to issue in the State of California. Each such copy shall be certified by the secretary or by an assistant secretary of the applicant.

(b) If the applicant proposes to issue any such form of travelers check only in certain circumstances (for example, only through a certain agent or type of agent or only in certain geographical areas), describe such circumstances.

NOTE

Authority cited: Section 215, Financial Code. Reference: Article 3, Chapter 14A, Division 1 and Section 1865, Financial Code.

§70.4120. Information Regarding Clearing Bank.

Note • History

In case any travelers checks which the applicant proposes to issue in the State of California are drawn on, payable through, or payable at a bank state the name of the clearing bank, the address of the head office of the clearing bank, and the address and telephone number of the office of the clearing bank on which the travelers checks are drawn, or at or through which the travelers checks are payable.

NOTE

Authority cited: Section 215, Financial Code. Reference: Article 3, Chapter 14A, Division 1, Financial Code.

HISTORY

1. Amendment filed 4-7-97; operative 4-7-97 pursuant to Government Code section 11343.4(d) (Register 97, No. 15).

§70.4121. Information Regarding Pro Forma Financial Statements.

Note • History

(a) Provide a pro forma balance sheet of the applicant as of the end of, a pro forma statement of income for, a pro forma statement of cash flows for, and a pro forma statement of shareholders' equity for, the first half-year of operation, the first year of operation, the second year of operation, and the third year of operation after the applicant becomes a licensee.

(b) Provide a pro forma statement showing the amount of travelers checks issued by the applicant during the first half-year of operation, the first year of operation, the second year of operation, and the third year of operation after it becomes a licensee, detailing in each case the amount issued in the State of California, the amount issued in the United States, the amount issued outside the United States, and the total amount issued.

(c) Provide a pro forma statement showing, as of the end of the first half-year of operation, the first year of operation, the second year of operation, and the third year of operation after the applicant becomes a licensee, the amount of travelers checks issued by the applicant which is outstanding, the amount which is outstanding (foreign), and the amount which is outstanding (worldwide).

NOTE

Authority cited: Section 215, Financial Code. Reference: Article 3, Chapter 14A, Division 1, Financial Code.

HISTORY

1. Amendment filed 4-7-97; operative 4-7-97 pursuant to Government Code section 11343.4(d) (Register 97, No. 15).

§70.4122. Information Regarding Reasonable Promise of Successful Operation.

Note • History

NOTE

Authority cited: Section 215, Financial Code. Reference: Article 3, Chapter 14A, Division 1, Financial Code.

HISTORY

1. Repealer filed 4-14-98; operative 5-14-98 (Register 98, No. 16).

§70.4123. Information Regarding Compliance with Financial Code Section 1876.8.

Note • History

In case the applicant presently transacts the business of issuing travelers checks outside the State of California, if the value of the eligible securities owned by the applicant, as shown in the statement called for in Section 70.4111(c)(5) of this Chapter, is less than the amount of outstanding travelers checks issued by the applicant as of the date of such statement, show how the applicant plans to comply with the provisions of Financial Code Section 1876.8.

NOTE

Authority cited: Section 215, Financial Code. Reference: Article 3, Chapter 14A, Division 1, Financial Code.

HISTORY

1. Amendment filed 4-7-97; operative 4-7-97 pursuant to Government Code section 11343.4(d) (Register 97, No. 15).

§70.4124. Information Regarding Authorization of Board.

Note • History

(a) Provide a copy of a resolution of the Board of the applicant:

(1) Authorizing the applicant to apply for a license.

(2) Authorizing the Commissioner to examine the applicant in connection with the application.

(3) Authorizing and directing all directors, officers, and employees of the applicant and any person having custody of any of the records of the applicant, to furnish to the Commissioner such information, and to permit the Commissioner to inspect and copy such records, as the Commissioner may request in connection with the application.

(4) Authorizing any bank or other financial institution with which the applicant has transacted business to furnish to the Commissioner such information, and to permit the Commissioner to inspect and copy such records, as the Commissioner may request in connection with the application.

(5) Authorizing any governmental agency which licenses or regulates issuers of travelers checks, issuers of payment instruments, or other financial institutions and which has information or records regarding the applicant, to furnish to the Commissioner such information, and to permit the Commissioner to inspect and copy such records, as the Commissioner may request in connection with the application.

(b) The copy of the resolution of the board called for in Subdivision (a) of this Section shall be certified by the secretary or by an assistant secretary of the applicant.

NOTE

Authority cited: Section 215, Financial Code. Reference: Article 3, Chapter 14A, Division 1, Financial Code.

HISTORY

1. Change without regulatory effect amending section filed 8-19-97 pursuant to section 100, title 1, California Code of Regulations (Register 97, No. 34).

§70.4125. Signature, Acknowledgment, and Verification.

Note • History

(a) An application for a license shall be signed at the place provided on the facing page in the name of the applicant by an executive officer of the applicant.

(b) The signature of the applicant on an application for a license shall be acknowledged.

(c) An application for a license shall be verified by the executive officer of the applicant who signs such application on behalf of the applicant. Such verification shall state that such executive officer has read the application (including the documents incorporated therein by reference), that he knows the contents of the application, and that the statements made in the application are true and correct.

NOTE

Authority cited: Section 215, Financial Code. Reference: Article 3, Chapter 14A, Division 1, Financial Code.

HISTORY

1. Amendment of subsections (a) and (c) filed 4-7-97; operative 4-7-97 pursuant to Government Code section 11343.4(d) (Register 97, No. 15).

§70.4126. Fee.

Note • History

An application for a license shall be accompanied by the fee prescribed in Financial Code Section 1852.2(a).

NOTE

Authority cited: Section 215, Financial Code. Reference: Section 1852.2, Financial Code.

HISTORY

1. Amendment filed 4-7-97; operative 4-7-97 pursuant to Government Code section 11343.4(d) (Register 97, No. 15).

§70.4127. Amendment.

Note • History

An amendment to an application for a license shall be signed in the name of the applicant by an executive officer of the applicant or by another person authorized to represent the applicant in connection with such application and shall be verified by such executive officer or other person.

NOTE

Authority cited: Section 215, Financial Code. Reference: Article 3, Chapter 14A, Division 1, Financial Code.

HISTORY

1. Amendment filed 4-7-97; operative 4-7-97 pursuant to Government Code section 11343.4(d) (Register 97, No. 15).

Subarticle 3. Administrative Standards and Procedures

§70.4200. Scope.

Note • History

This Subarticle contains regulations which set forth administrative standards and procedures relating to an application for a license.

NOTE

Authority cited: Section 215, Financial Code. Reference: Articles 3 and 4, Chapter 14A, Division 1, Financial Code.

HISTORY

1. Amendment filed 4-7-97; operative 4-7-97 pursuant to Government Code section 11343.4(d) (Register 97, No. 15).

§70.4201. Incomplete Application.

Note • History

As an administrative procedure, the Commissioner generally will reject for filing any application for a license which is not substantially complete.

NOTE

Authority cited: Section 215, Financial Code. Reference: Articles 3 and 4, Chapter 14A, Division 1, Financial Code.

HISTORY

1. Amendment filed 4-7-97; operative 4-7-97 pursuant to Government Code section 11343.4(d) (Register 97, No. 15).

2. Change without regulatory effect amending section filed 8-19-97 pursuant to section 100, title 1, California Code of Regulations (Register 97, No. 34).

§70.4202. Public Interest.

Note • History

(a) As an administrative standard, the Commissioner generally will find that approving an application for a license and granting such license would be against the public interest, within the meaning of Financial Code Section 1857(a), if the Commissioner finds:

(1) That, subject to the limitations set forth in Financial Code Section 1857(m), the financial condition of the applicant is such that it would be unsafe or unsound for the applicant to engage in the business of issuing travelers checks in the State of California;

(2) That the applicant, any person (including, in case such person consists of a group of persons acting in concert, each person who is a member of such group) who controls or is proposed to control the applicant, or any director or executive officer of the applicant or of any person who controls or is proposed to control the applicant:

(A) Has been convicted of, or has pleaded nolo contendere to, any crime involving an act of fraud or dishonesty;

(B) Has consented to or suffered a judgment in any civil action based upon conduct involving an act of fraud or dishonesty;

(C) Has consented to or suffered the suspension or revocation of any license or other authorization or qualification to engage in any profession, occupation, vocation, or other business activity, based upon conduct involving an act of fraud or dishonesty; or

(D) Is not of sound financial standing;

(3) That the applicant is not competent to engage in the business of issuing travelers checks in the State of California; or

(4) That the applicant's plan for engaging in the business of issuing travelers checks in the State of California does not afford reasonable promise of successful operation.

(b) Subdivision (a) of this Section shall not be deemed to be an exclusive list of the grounds upon which the Commissioner may find that approving an application for a license and granting such license would be against the public interest, within the meaning of Financial Code Section 1857(a).

NOTE

Authority cited: Section 215, Financial Code. Reference: Section 1857, Financial Code.

HISTORY

1. Amendment of subsections (a) and (b) filed 4-7-97; operative 4-7-97 pursuant to Government Code section 11343.4(d) (Register 97, No. 15).

2. Change without regulatory effect amending section filed 8-19-97 pursuant to section 100, title 1, California Code of Regulations (Register 97, No. 34).

Subarticle 4. Post-Approval Matters

§70.4300. Scope.

Note • History

This Subarticle contains regulations relating to matters after an application for a license is approved by the Commissioner.

NOTE

Authority cited: Section 215, Financial Code. Reference: Article 4, Chapter 14A, Division 1, Financial Code.

HISTORY

1. Amendment filed 4-7-97; operative 4-7-97 pursuant to Government Code section 11343.4(d) (Register 97, No. 15).

2. Change without regulatory effect amending section filed 8-19-97 pursuant to section 100, title 1, California Code of Regulations (Register 97, No. 34).

§70.4301. Time for Filing Documents.

Note • History

NOTE

Authority cited: Section 215, Financial Code. Reference: Article 4, Chapter 14A, Division 1, Financial Code.

HISTORY

1. Change without regulatory effect amending section filed 8-19-97 pursuant to section 100, title 1, California Code of Regulations (Register 97, No. 34).

§70.4302. Reports.

Note • History

In addition to filing with the Commissioner each report called for in this Subarticle, an applicant shall file with the Commissioner each report which the provisions of the Travelers Checks Act or of this Subchapter require of a licensee. A report required by any such provision shall be filed within the period specified in such provision; however, any report which is required of a licensee under the provisions of Subarticle 3 (commencing with Section 70.8200), Article 9 of this Subchapter and which relates to an event that occurs before a license is issued to an applicant shall be filed with the Commissioner not less than five business days before such license is issued, notwithstanding the fact that the provision which requires such report may allow a longer time for filing the report.

NOTE

Authority cited: Section 215, Financial Code. Reference: Article 4, Chapter 14A, Division 1, Financial Code.

HISTORY

1. Change without regulatory effect amending section filed 8-19-97 pursuant to section 100, title 1, California Code of Regulations (Register 97, No. 34).

§70.4303. Implementation of Proposals.

Note • History

NOTE

Authority cited: Section 215, Financial Code. Reference: Article 4, Chapter 14A, Division 1, Financial Code.

HISTORY

1. Repealer filed 4-7-97; operative 4-7-97 pursuant to Government Code section 11343.4(d) (Register 97, No. 15).

§70.4304. Report Regarding Directors, Executive Officers, and Balance Sheet.

Note • History

NOTE

Authority cited: Section 215, Financial Code. Reference: Article 4, Chapter 14A, Division 1, Financial Code.

HISTORY

1. Repealer filed 4-7-97; operative 4-7-97 pursuant to Government Code section 11343.4(d) (Register 97, No. 15).

§70.4305. Policy Regarding Agents and Non-California Agents.

Note • History

NOTE

Authority cited: Section 215, Financial Code. Reference: Article 4, Chapter 14A, Division 1, Financial Code.

HISTORY

1. Repealer filed 4-7-97; operative 4-7-97 pursuant to Government Code section 11343.4(d) (Register 97, No. 15).

§70.4306. Contract.

Note • History

In accordance with Financial Code Section 1858, not less than five business days before an applicant is issued a license, such applicant shall file with the Commissioner a Contract of Applicant for License Under Travelers Checks Act in the form of Department Form 4020, signed in the name of the applicant by an executive officer of the applicant. The signature of the applicant on such Contract shall be acknowledged.

NOTE

Authority cited: Section 215, Financial Code. Reference: Section 1858, Financial Code.

HISTORY

1. Change without regulatory effect amending section filed 8-19-97 pursuant to section 100, title 1, California Code of Regulations (Register 97, No. 34).

§70.4307. Appointment of Commissioner as Agent for Service of Process.

Note • History

In accordance with Financial Code Section 1859, not less than five business days before an applicant is issued a license, such applicant shall file with the Commissioner an Appointment of Commissioner of Banks as Agent for Service of Process in the form of Department Form 4025, signed in the name of the applicant by an executive officer of the applicant. The signature of the applicant on such Appointment shall be acknowledged.

NOTE

Authority cited: Section 215, Financial Code. Reference: Section 1859, Financial Code.

HISTORY

1. Change without regulatory effect amending section heading and section filed 8-19-97 pursuant to section 100, title 1, California Code of Regulations (Register 97, No. 34).

§70.4308. Authorization for Release of Information.

Note • History

Not less than five business days before an applicant is issued a license, such applicant shall file with the Commissioner an Authorization for Release of Information in the form of Department Form 4030, signed in the name of the applicant by an executive officer of the applicant. The signature of the applicant on such Authorization shall be acknowledged.

NOTE

Authority cited: Section 215, Financial Code. Reference: Article 4, Chapter 14A, Division 1 and Section 1877, Financial Code.

HISTORY

1. Change without regulatory effect amending section filed 8-19-97 pursuant to section 100, title 1, California Code of Regulations (Register 97, No. 34).

§70.4309. Report Regarding California Offices and Agents.

Note • History

Not more than 30 days nor less than five business days before an applicant is issued a license, such applicant shall file with the Commissioner a report containing the following information:

(a) State the address and telephone number of each of the applicant's offices in the State of California at which the applicant proposes to transact travelers check business, and describe the travelers check business proposed to be conducted at such office.

(b) With respect to each of the applicant's proposed agents:

(1) State the name of the agent.

(2) State the address and, if available, the telephone number of each reporting/remitting office of the agent.

NOTE

Authority cited: Section 215, Financial Code. Reference: Article 4, Chapter 14A, Division 1, Financial Code.

HISTORY

1. Amendment of first paragraph filed 4-7-97; operative 4-7-97 pursuant to Government Code section 11343.4(d) (Register 97, No. 15).

2. Change without regulatory effect amending section filed 8-19-97 pursuant to section 100, title 1, California Code of Regulations (Register 97, No. 34).

§70.4310. Report Regarding Differences from Application.

Note • History

(a) Not more than 30 days nor less than five business days before an applicant is issued a license, such applicant shall file with the Commissioner a report signed by an executive officer of the applicant, stating whether or not the applicant or the applicant's plan for transacting the business of issuing travelers checks in the State of California is or is to be different in any material respect from what was set forth in its application for a license and, if so, describing such difference.

(b) As an administrative standard, if the Commissioner finds that an applicant or the applicant's plan for transacting the business of issuing travelers checks in the State of California is or is to be different in any material respect from what was set forth in its application for a license and that, if such difference had existed at the time when the Commissioner decided the application, the Commissioner would have denied the application, the Commissioner will revoke his approval of the application and will not issue a license to the applicant.

NOTE

Authority cited: Section 215, Financial Code. Reference: Section 1857, Financial Code.

HISTORY

1. Amendment filed 4-7-97; operative 4-7-97 pursuant to Government Code section 11343.4(d) (Register 97, No. 15).

2. Change without regulatory effect amending section filed 8-19-97 pursuant to section 100, title 1, California Code of Regulations (Register 97, No. 34).

3. Amendment of subsection (a) and Note filed 4-14-98; operative 5-14-98 (Register 98, No. 16).

§70.4311. Expiration and Extension of Approval of Application for a License.

Note • History

(a) The Commissioner's approval of an application for a license shall, unless extended by the Commissioner, expire one year after the date of such approval.

(b) An application for an extension of the Commissioner's approval of an application for a license shall contain the following information:

(1) Date on which the approval is scheduled to expire.

(2) Description of the applicant's progress to date in preparing to commence transacting in the State of California the business of issuing travelers checks.

(3) Proposed timetable for completing preparations to commence transacting in the State of California the business of issuing travelers checks.

(4) Amount of additional time requested for completing preparations to commence transacting in the State of California the business of issuing travelers checks.

(5) Statement of reasons why such additional time is required for completing preparations to commence transacting in the State of California the business of issuing travelers check.

NOTE

Authority cited: Section 215, Financial Code. Reference: Article 4, Chapter 14A, Division 1, Financial Code.

HISTORY

1. Amendment of section heading and subsections (a) and (b) filed 4-7-97; operative 4-7-97 pursuant to Government Code section 11343.4(d) (Register 97, No. 15).

2. Change without regulatory effect amending section filed 8-19-97 pursuant to section 100, title 1, California Code of Regulations (Register 97, No. 34).

§70.4312. License--Issuance and Expiration.

Note • History

(a) Not less than one business day before an applicant is issued a license, such applicant shall file with the Commissioner an application for the issuance of such license. Such application shall state the date on which the applicant proposes to commence transacting in the State of California the business of issuing travelers checks, and shall be accompanied by the fee prescribed in Financial Code Section 1852.2.

(b) An applicant may commence transacting in the State of California the business of issuing travelers checks on or after the date on which a license is issued to such applicant. However, such license shall expire on the earlier of the following dates unless the applicant shall have commenced transacting in the State of California the business of issuing travelers checks on or before such date:

(1) Date on which the Commissioner's approval of the application for the license expires pursuant to Section 70.4311 of this Chapter.

(2) Thirtieth day after the date of the issuance of the license.

NOTE

Authority cited: Section 215, Financial Code. Reference: Article 4, Chapter 14A, Division 1, Financial Code.

HISTORY

1. Amendment of section heading and subsections (a) and (b) filed 4-7-97; operative 4-7-97 pursuant to Government Code section 11343.4(d) (Register 97, No. 15).

2. Change without regulatory effect amending section filed 8-19-97 pursuant to section 100, title 1, California Code of Regulations (Register 97, No. 34).

Article 6. Renewal of License

Subarticle 1. General Provisions

§70.5000. Definition of “Applicant” and Scope.

Note • History

NOTE

Authority cited: Section 215, Financial Code. Reference: Articles 3 and 4, Chapter 14A, Division 1, Financial Code.

HISTORY

1. Repealer of article 6 (sections 70.5000-70.5201), subarticle 1 (section 70.5000) and section filed 4-7-97; operative 4-7-97 pursuant to Government Code section 11343.4(d) (Register 97, No. 15).

Subarticle 2. Application

§70.5100. Scope.

Note • History

NOTE

Authority cited: Section 215, Financial Code. Reference: Article 3, Chapter 14A, Division 1, Financial Code.

HISTORY

1. Repeale rof subarticle 2 (sections 70.5100-70.5120) and section filed 4-7-97; operative 4-7-97 pursuant to Government Code section 11343.4(d) (Register 97, No. 15).

§70.5101. Definition.

Note • History

NOTE

Authority cited: Section 215, Financial Code. Reference: Article 3, Chapter 14A, Division 1, Financial Code.

HISTORY

1. Repealer filed 4-7-97; operative 4-7-97 pursuant to Government Code section 11343.4(d) (Register 97, No. 15).

§70.5102. Time of Filing.

Note • History

NOTE

Authority cited: Section 215, Financial Code. Reference: Financial Code Section 1857.

HISTORY

1. Repealer filed 4-7-97; operative 4-7-97 pursuant to Government Code section 11343.4(d) (Register 97, No. 15).

§70.5103. Facing Page.

Note • History

NOTE

Authority cited: Section 215, Financial Code. Reference: Article 3, Chapter 14A, Division 1, Financial Code.

HISTORY

1. Repealer filed 4-7-97; operative 4-7-97 pursuant to Government Code section 11343.4(d) (Register 97, No. 15).

§70.5104. Additional Information.

Note • History

NOTE

Authority cited: Section 215, Financial Code. Reference: Article 3, Chapter 14A, Division 1, Financial Code.

HISTORY

1. Repealer filed 4-7-97; operative 4-7-97 pursuant to Government Code section 11343.4(d) (Register 97, No. 15).

§70.5105. Information Regarding Directors and Executive Officers.

Note • History

NOTE

Authority cited: Section 215, Financial Code. Reference: Article 3, Chapter 14A, Division 1, Financial Code.

HISTORY

1. Repealer filed 4-7-97; operative 4-7-97 pursuant to Government Code section 11343.4(d) (Register 97, No. 15).

§70.5106. Information Regarding Changes in Articles.

Note • History

NOTE

Authority cited: Section 215, Financial Code. Reference: Article 3, Chapter 14A, Division 1, Financial Code.

HISTORY

1. Repealer filed 4-7-97; operative 4-7-97 pursuant to Government Code section 11343.4(d) (Register 97, No. 15).

§70.5107. Information Regarding Equity Security Owners.

Note • History

NOTE

Authority cited: Section 215, Financial Code. Reference: Article 3, Chapter 14A, Division 1, Financial Code.

HISTORY

1. Repealer filed 4-7-97; operative 4-7-97 pursuant to Government Code section 11343.4(d) (Register 97, No. 15).

§70.5108. Information Regarding Affiliates.

Note • History

NOTE

Authority cited: Section 215, Financial Code. Reference: Article 3, Chapter 14A, Division 1, Financial Code.

HISTORY

1. Repealer filed 4-7-97; operative 4-7-97 pursuant to Government Code section 11343.4(d) (Register 97, No. 15).

§70.5109. Information Regarding Changes in Control.

Note • History

NOTE

Authority cited: Section 215, Financial Code. Reference: Article 3, Chapter 14A, Division 1, Financial Code.

HISTORY

1. Repealer filed 4-7-97; operative 4-7-97 pursuant to Government Code section 11343.4(d) (Register 97, No. 15).

§70.5110. Information Regarding Financial Statements and Reports.

Note • History

NOTE

Authority cited: Section 215, Financial Code. Reference: Article 3, Chapter 14A, Division 1, Financial Code.

HISTORY

1. Repealer filed 4-7-97; operative 4-7-97 pursuant to Government Code section 11343.4(d) (Register 97, No. 15).

§70.5111. Information Regarding Eligible Securities.

Note • History

NOTE

Authority cited: Section 215, Financial Code. Reference: Article 3, Chapter 14A, Division 1, Financial Code.

HISTORY

1. Repealer filed 4-7-97; operative 4-7-97 pursuant to Government Code section 11343.4(d) (Register 97, No. 15).

§70.5112. Information Regarding Legal Proceedings.

Note • History

NOTE

Authority cited: Section 215, Financial Code. Reference: Article 3, Chapter 14A, Division 1, Financial Code.

HISTORY

1. Repealer filed 4-7-97; operative 4-7-97 pursuant to Government Code section 11343.4(d) (Register 97, No. 15).

§70.5113. Information Regarding Travelers Check or Payment Instrument Licenses.

Note • History

NOTE

Authority cited: Section 215, Financial Code. Reference: Article 3, Chapter 14A, Division 1, Financial Code.

HISTORY

1. Repealer filed 4-7-97; operative 4-7-97 pursuant to Government Code section 11343.4(d) (Register 97, No. 15).

§70.5114. Information Regarding Changes in Business, Policies, or Operations.

Note • History

NOTE

Authority cited: Section 215, Financial Code. Reference: Article 3, Chapter 14A, Division 1, Financial Code.

HISTORY

1. Repealer filed 4-7-97; operative 4-7-97 pursuant to Government Code section 11343.4(d) (Register 97, No. 15).

§70.5115. Information Regarding California Offices.

Note • History

NOTE

Authority cited: Section 215, Financial Code. Reference: Article 3, Chapter 14A, Division 1, Financial Code.

HISTORY

1. Repealer filed 4-7-97; operative 4-7-97 pursuant to Government Code section 11343.4(d) (Register 97, No. 15).

§70.5116. Information Regarding Agents.

Note • History

NOTE

Authority cited: Section 215, Financial Code. Reference: Article 3, Chapter 14A, Division 1, Financial Code.

HISTORY

1. Repealer filed 4-7-97; operative 4-7-97 pursuant to Government Code section 11343.4(d) (Register 97, No. 15).

§70.5117. Information Regarding Special Reports.

Note • History

NOTE

Authority cited: Section 215, Financial Code. Reference: Article 3, Chapter 14A, Division 1, Financial Code.

HISTORY

1. Repealer filed 4-7-97; operative 4-7-97 pursuant to Government Code section 11343.4(d) (Register 97, No. 15).

§70.5118. Information Regarding Certain Documents.

Note • History

NOTE

Authority cited: Section 215, Financial Code. Reference: Article 3, Chapter 14A, Division 1, Financial Code.

HISTORY

1. Repealer filed 4-7-97; operative 4-7-97 pursuant to Government Code section 11343.4(d) (Register 97, No. 15).

§70.5119. Signature and Verification.

Note • History

NOTE

Authority cited: Section 215, Financial Code. Reference: Article 3, Chapter 14A, Division 1, Financial Code.

HISTORY

1. Repealer filed 4-7-97; operative 4-7-97 pursuant to Government Code section 11343.4(d) (Register 97, No. 15).

§70.5120. Amendment.

Note • History

NOTE

Authority cited: Section 215, Financial Code. Reference: Article 3, Chapter 14A, Division 1, Financial Code.

HISTORY

1. Repealer filed 4-7-97; operative 4-7-97 pursuant to Government Code section 11343.4(d) (Register 97, No. 15).

Subarticle 3. Administrative Standards and Procedures

§70.5200. Scope.

Note • History

NOTE

Authority cited: Section 215, Financial Code. Reference: Articles 3 and 4, Chapter 14A, Division 1, Financial Code.

HISTORY

1. Repealer of subarticle 3 (sections 70.5200-70.5201) and section filed 4-7-97; operative 4-7-97 pursuant to Government Code section 11343.4(d) (Register 97, No. 15).

§70.5201. Issuance of License.

Note • History

NOTE

Authority cited: Section 215, Financial Code. Reference: Article 4, Chapter 14A, Division 1 and Section 1862, Financial Code.

HISTORY

1. Repealer filed 4-7-97; operative 4-7-97 pursuant to Government Code section 11343.4(d) (Register 97, No. 15).

Article 7. Licensees

Subarticle 1. General Provisions

§70.6000. Scope.

Note

This Article contains regulations relating to licensees. This Subarticle contains general provisions relating to licensees. Subarticle 2 (commencing with Section 70.6100) of this Article contains regulations relating to unsafe and unsound acts of licensees. Subarticle 3 (commencing with Section 70.6200) of this Article contains regulations relating to the issuance of travelers checks by licensees. Subarticle 4 (commencing with Section 70.6300) of this Article contains regulations relating to eligible securities.

NOTE

Authority cited: Section 215, Financial Code. Reference: Chapter 14A, Division 1, Financial Code.

Subarticle 2. Unsafe and Unsound Acts

§70.6100. Scope.

Note

This Subarticle contains regulations relating to unsafe and unsound acts of licensees.

NOTE

Authority cited: Section 215, Financial Code. Reference: Article 7, Chapter 14A, Division 1, Financial Code.

§70.6101. Reports by Agents.

Note

It generally constitutes an unsafe and unsound act for a licensee to fail to use its best efforts to require that, whenever an agent (other than an agent which is subject to the provisions of Financial Code Section 1871) or non-California agent sells any travelers check issued by such licensee, such agent or non-California agent report such sale to the licensee, as follows:

(a) In case the sale took place in the United States, within 30 days after the sale.

(b) In case the sale took place outside the United States, within 60 days after the sale.

NOTE

Authority cited: Section 215, Financial Code. Reference: Article 7, Chapter 14A, Division 1, Financial Code.

Subarticle 3. Issuance of Travelers Checks

§70.6200. Scope.

Note

This Subarticle contains regulations relating to the issuance of travelers checks by licensees.

NOTE

Authority cited: Section 215, Financial Code. Reference: Chapter 14A, Division 1, Financial Code.

§70.6201. Form of Travelers Check.

Note • History

The form of a travelers check which a licensee files with the Commissioner in accordance with Financial Code Section 1865 shall be certified by the secretary or by an assistant secretary of such licensee.

NOTE

Authority cited: Section 215, Financial Code. Reference: Section 1865, Financial Code.

HISTORY

1. Change without regulatory effect amending section filed 8-19-97 pursuant to section 100, title 1, California Code of Regulations (Register 97, No. 34).

Subarticle 4. Eligible Securities

§70.6300. Scope.

Note

This Subarticle contains regulations relating to eligible securities.

NOTE

Authority cited: Section 215, Financial Code. Reference: Article 5.1, Chapter 14A, Division 1, Financial Code.

§70.6301. Ownership--Ability to Transfer.

Note

(a) For purposes of Financial Code Section 1876.2(a)(3), a licensee shall not be deemed to be able freely to otherwise transfer an eligible security which consists of a deposit in a bank or savings and loan association unless such licensee is able freely to withdraw such deposit. However, if the deposit is a savings or time deposit and is subject to restrictions on withdrawal usually imposed on a savings or time deposit, as the case may be, the licensee shall not, on account of such restrictions, be deemed unable freely to withdraw the deposit.

(b) For purposes of Financial Code Section 1876.1(a)(3), a licensee shall not be deemed to be able freely to negotiate, assign, or otherwise transfer an eligible security if any negotiation, assignment, or other transfer of such eligible security would constitute a breach or event of default by such licensee or by any affiliate of the licensee under any contract, obligation, note, or other security issued by the licensee or by any affiliate of the licensee. For example, for purposes of Financial Code Section 1876.2(a)(3), a licensee shall not be deemed to be able freely to negotiate, assign, or otherwise transfer an eligible security which consists of a deposit in a bank if such licensee's failure to maintain such deposit would constitute a breach of a provision for compensating balances set forth in a loan contract between such bank and the licensee or a parent of the licensee.

NOTE

Authority cited: Section 215, Financial Code. Reference: Section 1876.2, Financial Code.

§70.6302. Ownership--Documented Nominee.

Note

For purposes of Financial Code Section 1876.2 and this Subchapter, “documented nominee,” when used with respect to a licensee, means a partnership:

(a) The articles of partnership of which authorize it to engage in no business other than the business of owning, buying, selling, or otherwise transferring of record securities which are owned beneficially by the licensee;

(b) The partners of which include no persons other than the licensee and officers and employees of the licensee;

(d) Which is beneficially owned solely and exclusively by the licensee; and

(e) Which is shown by the records of the licensee to comply with the provisions of Subdivisions (a) to (d), inclusive, of this Section.

NOTE

Authority cited: Section 215, Financial Code. Reference: Section 1876.2, Financial Code.

§70.6303. Eligible Securities Rating Services.

Note • History

The Commissioner finds that each of the securities rating services named in the subdivisions of this Section has been continuously engaged in the business of rating securities for a period of not less than three years, is competent to rate securities, is nationally recognized for rating securities in a competent manner, and publishes its ratings of securities on a nationwide basis. Therefore, the Commissioner declares each of the securities rating services named in the subdivisions of this Section to be eligible securities rating services for purposes of the Travelers Checks Act:

(a) Moody's Investors Service, Inc.

(b) Standard and Poor's Corporation.

NOTE

Authority cited: Section 215, Financial Code. Reference: Section 1876.5, Financial Code.

HISTORY

1. Change without regulatory effect amending section filed 8-19-97 pursuant to section 100, title 1, California Code of Regulations (Register 97, No. 34).

§70.6304. Eligible Ratings.

Note • History

The Commissioner finds that the ratings assigned to the respective classes of securities by the respective eligible securities rating services, as specified in the subdivisions of this Section, indicate that such respective classes of securities are each of sufficient quality to be eligible securities. Therefore, the Commissioner declares the ratings assigned to the respective classes of securities by the respective eligible securities rating services, as specified in the subdivisions of this Section, to be eligible ratings for purposes of the Travelers Checks Act:

(a) Moody's Investors Service, Inc.:

(1) Corporate, state, and municipal bonds and railroad equipment trust certificates: Aaa, Aa, and A.

(2) Preferred stock: aaa, aa, and a.

(3) Commercial paper: P-1 and P-2.

(b) Standard and Poor's Corporation:

(1) Corporate, state, and municipal bonds and railroad equipment trust certificates: AAA, AA, and A.

(2) Preferred stock: AAA, AA, and A.

(3) Commercial paper: A-1 and A-2.

NOTE

Authority cited: Section 215, Financial Code. Reference: Section 1876.6, Financial Code.

HISTORY

1. Change without regulatory effect amending section filed 8-19-97 pursuant to section 100, title 1, California Code of Regulations (Register 97, No. 34).

Article 8. Agents of Licensees

§70.7000. Scope.

Note

Article contains regulations relating to agents of licensees.

NOTE

Authority cited: Section 215, Financial Code. Reference: Chapter 14A, Division 1, Financial Code.

§70.7001. Records.

Note

Each agent of a licensee shall make, keep, and preserve such records regarding sales by such agent of travelers checks issued by such licensee and related matters as may be necessary to show at any time the following:

(a) Amount, serial number, and date of sale of each travelers check sold, the sale of which the agent has not yet reported to the licensee.

(b) Serial number and date of voiding of each travelers check voided, the voiding of which the agent has not yet reported to the licensee.

(c) In case the agent is authorized to redeem travelers checks on behalf of the licensee, the amount, serial number, and date of redemption of each travelers check redeemed, the redemption of which the agent has not reported to the licensee.

(d) Total amount and serial numbers of travelers checks sold, the sale of which the agent reported in its last report to the licensee.

(e) Total amount and serial numbers of travelers checks sold, on account of which the agent has not yet remitted funds to the licensee.

(f) Date on which the agent last remitted funds to the licensee on account of travelers checks sold, the total amount of such funds, and the serial numbers of such travelers checks.

NOTE

Authority cited: Section 215, Financial Code. Reference: Section 1869, Financial Code.

§70.7002. Remittances.

Note

For purposes of the second paragraph of Financial Code Section 1871, “representative,” when used with respect to a licensee, means a person who is authorized by such licensee to receive remittances on behalf of the licensee from agents of the licensee, who holds any such remittance in trust for the licensee, and who transmits any such remittance to the licensee by the next business day following receipt.

NOTE

Authority cited: Section 215, Financial Code. Reference: Section 1871, Financial Code.

Article 9. Reports

Subarticle 1. General Provisions

§70.8000. Scope.

Note • History

This Article contains regulations relating to reports which licensees are required to file with the Commissioner. This Subarticle contains general provisions relating to reports which licensees are required to file with the Commissioner. Subarticle 1.5 (commencing with Section 70.8050) of this Article contains regulations relating to the annual report of a licensee. Subarticle 2 (commencing with Section 70.8100) of this Article contains regulations relating to the quarterly report of a licensee. Subarticle 3 (commencing with Section 70.8200) of this Article contains regulations relating to special reports of a licensee.

NOTE

Authority cited: Section 215, Financial Code. Reference: Sections 1863, 1863.1 and 1864, Financial Code.

HISTORY

1. Change without regulatory effect amending section filed 8-19-97 pursuant to section 100, title 1, California Code of Regulations (Register 97, No. 34).

2. Amendment of section and Note filed 4-14-98; operative 5-14-98 (Register 98, No. 16).

§70.8001. Definitions.

Note • History

In this Article:

(a) “Annual report,” when used with respect to a licensee, means a report which such licensee is required to file with the Commissioner pursuant to Financial Code Section 1863.1 and Subarticle 1.5 (commencing with Section 70.8050) of this Article.

(b) “Quarterly report,” when used with respect to a licensee, means a report which such licensee is required to file with the Commissioner pursuant to Financial Code Section 1863 and Subarticle 2 (commencing with Section 70.8100) of this Article.

(c) “Special report,” when used with respect to a licensee, means a report which such licensee is required to file with the Commissioner pursuant to Subarticle 3 (commencing with Section 70.8200) of this Article or an order issued by the Commissioner under Financial Code Section 1864.

NOTE

Authority cited: Section 215, Financial Code. Reference: Sections 1863, 1863.1 and 1864, Financial Code.

HISTORY

1. Change without regulatory effect amending section filed 8-19-97 pursuant to section 100, title 1, California Code of Regulations (Register 97, No. 34).

2. New subsection (a), subsection relettering, and amendment of Note filed 4-14-98; operative 5-14-98 (Register 98, No. 16).

§70.8002. Signature and Verification.

Note • History

A quarterly or special report of a licensee to the Commissioner shall be signed in the name of such licensee by an officer of the licensee and shall be verified by such officer. Such verification shall state that the officer has read the report (including documents incorporated therein by reference), that he knows the contents of the report, and that the statements made in the report are true and correct.

NOTE

Authority cited: Section 215, Financial Code. Reference: Sections 1863 and 1864, Financial Code.

HISTORY

1. Change without regulatory effect amending section filed 8-19-97 pursuant to section 100, title 1, California Code of Regulations (Register 97, No. 34).

Subarticle 1.5. Annual Reports

§70.8050. Scope.

Note • History

This Subarticle contains regulations relating to the annual report of a licensee.

NOTE

Authority cited: Section 215, Financial Code. Reference: Section 1863.1, Financial Code.

HISTORY

1. New subarticle 1.5 (sections 70.8050-70.8062) and section filed 4-14-98; operative 5-14-98 (Register 98, No. 16).

§70.8051. Definition.

Note • History

In this Subarticle, “fiscal year” means the fiscal year of a licensee next preceding the filing of the annual report of such licensee.

NOTE

Authority cited: Section 215, Financial Code. Reference: Section 1863.1, Financial Code.

HISTORY

1. New section filed 4-14-98; operative 5-14-98 (Register 98, No. 16).

§70.8052. Information Required.

Note • History

The annual report of a licensee shall contain the following:

(a) The information called for in Subdivisions (a) and (b) of Financial Code Section 1863.1.

(b) The information called for in Sections 70.8053 to 70.8062, inclusive, of this Chapter.

NOTE

Authority cited: Section 215, Financial Code. Reference: Section 1863.1, Financial Code.

HISTORY

1. New section filed 4-14-98; operative 5-14-98 (Register 98, No. 16).

§70.8053. Information Regarding Financial Statements.

Note • History

(a) In case the licensee has any subsidiaries, provide the financial statements called for in Financial Code Section 1863.1(a) on a consolidated basis.

(b) In case the licensee has a parent which is not a reporting company, provide the following financial statements of the parent on a consolidated basis:

(1) Balance sheet as of the end of the last fiscal year of the parent.

(2) Statement of income, a statement of shareholder's equity, and a statement of cash flows for the last fiscal year of the parent.

(c)(1) Provide a statement showing the amount of travelers issued by the licensee during the fiscal year, detailing the amount issued in the State of California and the total amount issued.

(2) In case the fiscal year of the licensee is not a calendar year, provide a statement showing the amount of travelers checks issued by the licensee during the last calendar year, detailing the amount issued in the State of California and the total amount issued.

(d)(1) In case a parent of the licensee has, since the filing of the licensee's last annual report (or if the annual report is the licensee's first annual report, since the later of (i) the beginning of the fiscal year or (ii) the date on which the licensee was issued its license), filed with the Securities and Exchange Commission a registration statement (other than a registration statement in the form of Securities and Exchange Commission Form S-8) pursuant to the Securities Act of 1933 and regulations of the Securities and Exchange Commission issued thereunder or a notification pursuant to Regulation A, E, or F of the Securities and Exchange Commission, provide a copy of such document.

(2) In case a parent of the licensee has, since the filing of the licensee's last annual report (or if the annual report is the license's first annual report, since the later of (i) the beginning of the fiscal year or (ii) the date on which the licensee was issued its license), filed with the Securities and Exchange Commission a registration statement, report, proxy or information statement, or other document pursuant to Section 12, 13, or 14 of the Securities Exchange Act of 1934 or regulations of the Securities and Exchange Commission issued thereunder, provide a copy of such document.

(3) In case a parent of the licensee has, since the filing of the licensee's last annual report (or if the annual report is the licensee's first annual report, since the later of (i) the beginning of the fiscal year or (ii) the date on which the licensee was issued its license), issued a report, notice, proxy or information statement, or similar document to the holders of any class of its securities, provide a copy of such document. However, this Paragraph (3) does not apply to any document a copy of which the licensee is required to provide pursuant to Paragraph (2) of this Subdivision (f).

NOTE

Authority cited: Section 215, Financial Code. Reference: Section 1863.1, Financial Code.

HISTORY

1. New section filed 4-14-98; operative 5-14-98 (Register 98, No. 16).

§70.8054. Information Regarding Directors and Executive Officers.

Note • History

(a) In this Section, to be “indebted” does not include indebtedness on account of any of the following:

(1) Any amount due for purchases subject to usual trade terms, for ordinary travel and expense advances, or for other transactions in the ordinary course of business.

(2) Any loan made by a bank, savings and loan association, industrial loan company or securities broker-dealer extending credit under Regulation T of the Board of Governors of the Federal Reserve System, provided that such loans is made in the ordinary course of business, is made on substantially the same terms (including interest rate and collateral) as those prevailing at the time for comparable transactions with other persons, and does not involve more than normal risk of collectibility or present other unfavorable features.

(b) Provide a list showing, with respect to each person who was a director or executive officer of the licensee at the end of the fiscal year:

(1) Name.

(2) Title of each position held with the licensee.

(d) In case the licensee is neither a reporting company nor a bank, savings and loan association, or an industrial loan company if any person who at the end of the fiscal year was, or was an associate of, any director or executive officer of the licensee was at any time during the fiscal year indebted to the licensee or the licensee's subsidiaries (except any subsidiary which is a bank, savings and loan association, industrial loan company, or broker/dealer in securities extending credit under Regulation T of the Board of Governors of the Federal Reserve System) in an amount which in the aggregate exceeds $25,000 or 1 percent of the licensee's total assets, whichever is less, provide the following information:

(1) Identify the person, and describe the person's relationship to the licensee.

(2) Describe the nature of the indebtedness and of the transaction in which it was incurred.

(3) State the highest aggregate amount of the indebtedness outstanding at any time during the fiscal year.

(4) State the aggregate amount of the indebtedness currently outstanding.

(5) State the rate of interest paid or charged on the indebtedness.

NOTE

Authority cited: Section 215, Financial Code. Reference: Section 1863.1, Financial Code.

HISTORY

1. New section filed 4-14-98; operative 5-14-98 (Register 98, No. 16).

§70.8055. Information Regarding Equity Security Owners.

Note • History

In case the licensee is not a reporting company and any person is known to the licensee to have been a 10 percent (including associates) equity security owner of the licensee as of the end of the fiscal year or in case the licensee has a parent which is not a reporting company and any person is known to the licensee to have been a 10 percent (including associates) equity security owner of such parent as of the end of the fiscal year, provide the following information with respect to each such 10 percent (including associates) equity security owner:

(a) Name.

(b) Business address.

(d) Amount and types of equity securities of the licensee or of a parent of the licensee owned by the person and the person's associates.

NOTE

Authority cited: Section 215, Financial Code. Reference: Section 1863.1, Financial Code.

HISTORY

1. New section filed 4-14-98; operative 5-14-98 (Register 98, No. 16).

§70.8056. Information Regarding Affiliates.

Note • History

In case the licensee had a parent or any significant subsidiary as of the end of the fiscal year, provide a list or diagram which includes the licensee and which contains the following information with respect to each affiliate of the licensee which was, as of the end of the fiscal year, (i) a parent of the licensee, (ii) a significant subsidiary of such parent, (iii) a significant subsidiary of the licensee, or (iv) significantly involved in the travelers check business of the licensee.

(a) State the name of the affiliate.

(b) Show the relationship of the affiliate to the licensee and to each other affiliate in the list or diagram. In case any affiliate which was a subsidiary was not wholly-owned by its immediate parent, state the percentage of voting securities of such subsidiary which was owned by such immediate parent or the other basis upon which the subsidiary was controlled by the immediate parent.

(d) In case the affiliate was significantly involved in the travelers check business of the licensee, briefly describe such involvement.

NOTE

Authority cited: Section 215, Financial Code. Reference: Section 1863.1, Financial Code.

HISTORY

1. New section filed 4-14-98; operative 5-14-98 (Register 98, No. 16).

§70.8057. Information Regarding California Offices.

Note • History

In case the licensee, as of the end of the fiscal year, maintained any offices in the State of California at which it transacted travelers check business, provide the following information with respect to each such office:

(a) State the address and telephone number of the office.

(b) Describe the travelers check business conducted at the office.

NOTE

Authority cited: Section 215, Financial Code. Reference: Section 1863.1, Financial Code.

HISTORY

1. New section filed 4-14-98; operative 5-14-98 (Register 98, No. 16).

§70.8058. Information Regarding Agents.

Note • History

In case the licensee had any agents as of the end of the fiscal year, provide the following information with respect to each agent:

(a) State the name of the agent.

(b) State the address and, if available, the telephone number of each reporting/remitting office of the agent.

NOTE

Authority cited: Section 215, Financial Code. Reference: Section 1863.1, Financial Code.

HISTORY

1. New section filed 4-14-98; operative 5-14-98 (Register 98, No. 16).

§70.8059. Information Regarding Eligible Securities.

Note • History

State whether or not the licensee has complied with the provisions of Financial Code Section 1876.8 at all times since the filing of the licensee's last annual report (or if the annual report is the licensee's first annual report, at all times while the licensee was licensed during the fiscal year), and, if not, explain the circumstances.

NOTE

Authority cited: Section 215, Financial Code. Reference: Section 1863.1, Financial Code.

HISTORY

1. New section filed 4-14-98; operative 5-14-98 (Register 98, No. 16).

§70.8060. Information Regarding Changes in Control.

Note • History

If there was any change in control of the licensee since the filing of the last annual report (or if the annual report is the licensee's first annual report, since the later of (i) the beginning of the fiscal year or (ii) the date on which the licensee was issued its license), provide the following information:

(a) In case the licensee is not a reporting company:

(1) Identify the new controlling person.

(2) Describe the basis of the new controlling person's control of the licensee and state the percentage of voting securities of the licensee which the new controlling person owns, directly or indirectly, of record or beneficially.

(3) State the date on which the new controlling person acquired control.

(4) Describe the transaction which resulted in the change in control, including:

(A) State the nature, amount, and source of consideration for the change in control; and

(B) Identify the person from whom the new controlling person acquired control.

(5) In case the new controlling person participates or proposes to participate in the management or operations of the licensee, describe such participation.

(b) In any case:

(1) Provide a copy of each of the last two annual reports of the new controlling person to its shareholders, and a copy of any interim report issued by the new controlling person.

(2) If the new controlling person is required to file reports with the Securities and Exchange Commission pursuant to Section 13 of the Securities and Exchange Act of 1934 and regulations of the Securities and Exchange Commission issued thereunder, provide a copy of each of the last two annual reports (Securities and Exchange Commission Form 10-K) filed by the new controlling person with the Securities and Exchange Commission and a copy of each quarterly report (Securities and Exchange Commission Form 10-Q) and current report (Securities and Exchange Commission Form 8-K) filed by the new controlling person with the Securities and Exchange Commission since the last annual report.

NOTE

Authority cited: Section 215, Financial Code. Reference: Section 1863.1, Financial Code.

HISTORY

1. New section filed 4-14-98; operative 5-14-98 (Register 98, No. 16).

§70.8061. Information Regarding Travelers Check or Payment Instrument Licenses.

Note • History

(a) In case the licensee has, since the filing of the last annual report (or if the annual report is the licensee's first annual report, since the later of (i) the beginning of the fiscal year or (ii) the date on which the licensee was issued its license), obtained any new travelers check or payment instrument license from a governmental agency within the United States, provide the following information with respect to each such license:

(1) Name, address, and, if available, telephone number of the governmental agency by which the license was issued.

(2) Business which the licensee is authorized to transact under the license.

(3) Any material conditions to which the license is subject.

(b) In case any application by the licensee for a new travelers check or payment instrument license has, since the filing of the licensee's last annual report (or if the annual report is the licensee's first annual report, since the later of (i) the beginning of the fiscal year or (ii) the date on which the licensee was issued its license), been denied by a governmental agency within the United States, provide a copy of the order, decision, or other instrument by which such application was denied.

(c) In case any travelers check or payment instrument license of the licensee which was issued by a governmental agency within the United States has, since the filing of the licensee's last annual report (or if the annual report is the licensee's first annual report, since the later of (i) the beginning of the fiscal year or (ii) the date on which the licensee was issued its license), been suspended, revoked, voluntarily surrendered, or otherwise terminated or in case any travelers check or payment instrument license of the licensee which was issued by a governmental agency outside the United States has, since the filing of the licensee's last annual report (or if the annual report is the licensee's first annual report, since the later of (i) the beginning of the fiscal year or (ii) the date on which the licensee was issued its license), been suspended, revoked, or otherwise involuntarily terminated (other than for nonpayment of fees), provide the following information:

(1) Name, address, and, if available, telephone number of the governmental agency by which the license was issued.

(2) Describe the business which the licensee was authorized to transact under the license.

(3) State the date on which the license was terminated.

(4) State the reasons why the license was terminated.

NOTE

Authority cited: Section 215, Financial Code. Reference: Section 1863.1, Financial Code.

HISTORY

1. New section filed 4-14-98; operative 5-14-98 (Register 98, No. 16).

§70.8062. Information Regarding Special Reports.

Note • History

In case the licensee has not filed with the Commissioner any of the special reports which it was required to file since the filing of its last annual report (or if the annual report is the licensee's first annual report, since the later of (i) the beginning of the fiscal year or (ii) the date on which the licensee was issued its license), file such special report concurrently with the filing of the annual report and explain in the annual report the reasons why the licensee failed to file the special report on a timely basis.

NOTE

Authority cited: Section 215, Financial Code. Reference: Section 1863.1, Financial Code.

HISTORY

1. New section filed 4-14-98; operative 5-14-98 (Register 98, No. 16).

Subarticle 2. Quarterly Reports

§70.8100. Scope.

Note

This Subarticle contains regulations relating to the quarterly report of a licensee.

NOTE

Authority cited: Section 215, Financial Code. Reference: Section 1863, Financial Code.

§70.8101. Definition.

Note

In this Subarticle, “quarter,” when used with respect to a quarterly report, means the calendar quarter covered by such quarterly report.

NOTE

Authority cited: Section 215, Financial Code. Reference: Section 1863, Financial Code.

§70.8102. Time of Filing.

Note • History

A licensee shall file a quarterly report with the Commissioner within 45 days after the end of each calendar quarter.

NOTE

Authority cited: Section 215, Financial Code. Reference: Section 1863, Financial Code.

HISTORY

1. Change without regulatory effect amending section filed 8-19-97 pursuant to section 100, title 1, California Code of Regulations (Register 97, No. 34).

§70.8103. Information Required.

Note

The quarterly report of a licensee shall contain the following:

(a) The information called for in Financial Code Section 1863, as interpreted and implemented by Sections 70.8104 and 70.8105 of this Chapter.

(b) The information called for in Sections 70.8106 to 70.8108, inclusive, of this Chapter.

NOTE

Authority cited: Section 215, Financial Code. Reference: Sections 1863 and 1864, Financial Code.

§70.8104. Information Regarding Eligible Securities.

Note

(a) The schedule of eligible securities owned by the licensee which is called for in Financial Code Section 1863(b) shall show the total value, as determined in accordance with Financial Code Section 1876.1(f), of the eligible securities owned by the licensee as of the end of the quarter and shall contain the following information with respect to each such eligible security:

(1) Identify the security, including the name of the issuer, the type of the security, and such other information as may be necessary to distinguish the security from other securities issued by the same issuer.

(2) State the value of the security, as determined in accordance with Financial Code Section 1876.1(f).

(3) In case the qualification of the security as an eligible security depends upon the assignment of an eligible rating by an eligible securities rating service, state the rating assigned to the security by an eligible securities rating service and identify such eligible securities rating service.

(b) In case any of the eligible securities included in the schedule called for in Financial Code Section 1876.1(f) is owned of record by a documented nominee of the licensee which is not listed as such in the current edition of the Nominee List published by the American Society of Corporate Secretaries, Inc., state the name of such documented nominee.

NOTE

Authority cited: Section 215, Financial Code. Reference: Section 1863, Financial Code.

§70.8105. Information Regarding Agents.

Note

The list of names and addresses of agents of the licensee appointed or terminated during the quarter which is called for in Financial Code Section 1863(c) shall contain the following information:

(a) In case any person became an agent of the licensee during the quarter, provide the following information:

(1) State the name of the agent.

(2) State the address and, if available, the telephone number of each reporting/remitting office of the agent.

(b) In case any person ceased to be an agent of the licensee during the quarter, provide the following information:

(1) State the name of the person.

(2) State the address of each reporting/remitting office of the person.

NOTE

Authority cited: Section 215, Financial Code. Reference: Section 1863, Financial Code.

§70.8106. Information Regarding Financial Statements.

Note

(a) Provide a statement showing, as of the end of the quarter, the amount of travelers checks issued by the applicant which were outstanding, the amount of travelers checks issued by the applicant which were outstanding (foreign), and the amount of travelers checks issued by the applicant which were outstanding (worldwide).

(b) Provide, if available, a statement showing, as of the end of the quarter, the amount of travelers checks issued by the applicant in the United States which were unpaid, the amount of travelers checks issued by the applicant outside the United States which were unpaid, and the total amount of travelers checks issued by the applicant which were unpaid.

(c) Provide a statement showing the amount of travelers checks issued by the licensee which were pre-clears as of the end of the quarter.

NOTE

Authority cited: Section 215, Financial Code. Reference: Sections 1863 and 1864, Financial Code.

§70.8107. Information Regarding Extensions of Credit.

Note

(a) In case the licensee or any affiliate of the licensee which is significantly involved in the travelers check business of the licensee (other than a licensee or affiliate which is a bank) has extended credit or committed to extend credit in an amount exceeding $25,000 directly or indirectly to, or for the benefit of, any agent or non-California agent of the licensee (other than an agent or non-California agent which is a subsidiary of the licensee) and such extension of credit or commitment was outstanding at the end of the quarter, identify the parties and describe the terms of the transaction.

(b) In case any person has made a commitment to extend credit to the licensee and such commitment was outstanding at the end of the quarter, identify such person (or, if the person was a group of banks, identify the lead bank of such group and indicate that it is the lead bank of a group of banks) and describe the terms of the commitment.

NOTE

Authority cited: Section 215, Financial Code. Reference: Sections 1863 and 1864, Financial Code.

§70.8108. Information Regarding Changes in Accounting Policies.

Note

In case there was any material change in the accounting policies of the licensee during the quarter, describe such change.

NOTE

Authority cited: Section 215, Financial Code. Reference: Sections 1863 and 1864, Financial Code.

Subarticle 3. Special Reports

§70.8200. Scope.

Note

This Subarticle contains regulations relating to special reports of a licensee.

NOTE

Authority cited: Section 215, Financial Code. Reference: Section 1864, Financial Code.

§70.8201. Fidelity Bond.

Note • History

Whenever the coverage provided by a fidelity bond covering directors, officers, or employees of a licensee is reduced (including any reduction in the scope of coverage with respect to persons or acts covered or any reduction in policy limits) upon the initiative of the surety or insurer or whenever any such bond is terminated, such licensee shall, within 10 business days, file with the Commissioner a report describing the circumstances.

NOTE

Authority cited: Section 215, Financial Code. Reference: Section 1864, Financial Code.

HISTORY

1. Change without regulatory effect amending section filed 8-19-97 pursuant to section 100, title 1, California Code of Regulations (Register 97, No. 34).

§70.8202. Acquisition or Disposition of Assets.

Note • History

NOTE

Authority cited: Section 215, Financial Code. Reference: Section 1864, Financial Code.

HISTORY

1. Repealer filed 4-7-97; operative 4-7-97 pursuant to Government Code section 11343.4(d) (Register 97, No. 15).

§70.8203. Filings with Securities and Exchange Commission.

Note • History

(a) Whenever a licensee files with the Securities and Exchange Commission a registration statement (other than a registration statement in the form of Securities and Exchange Commission Form S-8) pursuant to the Securities Act of 1933 and regulations of the Securities and Exchange Commission issued thereunder or a notification pursuant to Regulation A, E, or F of the Securities and Exchange Commission, such licensee shall, within 10 business days, file with the Commissioner a report containing a copy of such document.

(b) Whenever a licensee files with the Securities and Exchange Commission a registration statement, report, proxy or information statement, or other document pursuant to Section 12, 13, or 14 the Securities Exchange Act of 1934 or regulations of the Securities and Exchange Commission issued thereunder, such licensee shall, within 10 business days, file with the Commissioner a report containing a copy of such document.

(c) Whenever a licensee files with the Securities and Exchange Commission an amendment of any document referred to in Subdivision (a) or (b) of this Section, such licensee shall, within 10 business days, file with the Commissioner a report containing a copy of such amendment.

NOTE

Authority cited: Section 215, Financial Code. Reference: Section 1864, Financial Code.

HISTORY

1. Change without regulatory effect amending section filed 8-19-97 pursuant to section 100, title 1, California Code of Regulations (Register 97, No. 34).

§70.8204. Reports to Holders of Securities.

Note • History

NOTE

Authority cited: Section 215, Financial Code. Reference: Section 1864, Financial Code.

HISTORY

1. Repealer filed 4-7-97; operative 4-7-97 pursuant to Government Code section 11343.4(d) (Register 97, No. 15).

§70.8205. Defaults and Events of Insolvency.

Note • History

Whenever any of the following events involving a licensee occurs, such licensee shall immediately file with the Commissioner a report describing the circumstances:

(a) If the licensee without probable legal cause dishonors or defaults in the payment of any travelers check, payment instrument, note, or other security.

(b) If the licensee or any subsidiary of the licensee applies for an adjudication of bankruptcy, reorganization, arrangement, or other relief under any bankruptcy, reorganization, insolvency, or moratorium law.

(c) If any person applies against the licensee or any subsidiary of the licensee or against the business and property the licensee or of any subsidiary of the licensee for the appointment of a receiver or similar officer or for other relief of the type referred to in Subdivision (b) of this Section, or any such relief is granted.

NOTE

Authority cited: Section 215, Financial Code. Reference: Section 1864, Financial Code.

HISTORY

1. Change without regulatory effect amending section filed 8-19-97 pursuant to section 100, title 1, California Code of Regulations (Register 97, No. 34).

§70.8206. Legal Proceedings.

Note • History

(a) For purposes of this Section:

(1) A proceeding involving a licensee or a subsidiary of a licensee shall not be deemed to be material:

(A) If the proceeding is ordinary routine litigation incidental to the business of the licensee or of the subsidiary; or

(B) If the proceeding involves primarily a claim for damages and if the amount of damages claimed (excluding interest and costs) against the licensee or the subsidiary does not exceed 10 percent of the current assets of the licensee and its subsidiaries on a consolidated basis. For purposes of computing the amount of damages claimed, in case a proceeding presents in large degree the same issues as other proceedings pending or known to be contemplated, the amount of damages claimed in such proceeding shall be deemed to include the amount of damages claimed in such other proceedings.

(2) Notwithstanding the provisions of Paragraph (1) of this Subdivision (a), each of the following proceedings shall be deemed to be material:

(A) Any material proceeding in which any affiliate of the licensee or any person who is, or who is an associate of, any

(i) director,

(ii) executive officer, or

(iii) five percent voting security owner of the licensee, is a party adverse to, or has a material interest adverse to, the licensee or any subsidiary of the licensee.

(B) Any bankruptcy, receivership, or similar proceeding.

(b) In case a licensee is not a reporting company, whenever any material proceeding to which such licensee or any subsidiary of the licensee is a party or of which any property of the licensee or of any subsidiary of the licensee is the subject, is commenced by or before any court or governmental agency, the licensee shall, within 10 business days, file with the Commissioner a report describing such proceeding, including:

(1) Title of the proceeding.

(2) Name and address of the court or of the governmental agency before which the proceeding was commenced.

(3) Names of the principal parties to the proceeding.

(4) Date the proceeding was commenced.

(5) Description of the factual basis alleged to underlie the proceeding.

(6) Relief sought in the proceeding.

(c) Whenever a licensee or any subsidiary of a licensee becomes the subject of any of the following proceedings by or before any court or governmental agency, such licensee shall, within 10 business days, file with the Commissioner a report describing such proceeding, including the information called for in Paragraphs (1) to (6), inclusive, of Subdivision (b) of this Section.

(1) Proceeding to revoke or suspend a licensee or other authorization or qualification of the licensee or subsidiary to transact the business of issuing or selling travelers checks, the business of issuing or selling payment instruments, the business of banking, or the business of a bank holding company.

(2) Proceeding to prohibit, temporarily or permanently the licensee or subsidiary from transacting any business of the kind referred to in Paragraph (1) of this Subdivision (d) or from engaging in any conduct or practice with respect to any such business.

(3) Proceeding to impose any monetary or other penalty upon the licensee or subsidiary for having violated any law relating to any business of the kind referred to in Paragraph (1) of this Subdivision (d).

(d) Whenever any proceeding of the type referred to in Subdivision (b) or (c) of this Section is concluded, the licensee shall, within 10 business days, file with the Commissioner a report identifying the proceeding and describing the conclusion of the proceeding.

NOTE

Authority cited: Section 215, Financial Code. Reference: Section 1864, Financial Code.

HISTORY

1. Change without regulatory effect amending section filed 8-19-97 pursuant to section 100, title 1, California Code of Regulations (Register 97, No. 34).

Article 10. Voluntary Surrender of License

§70.9000. Scope.

Note

This Article contains regulations relating to the voluntary surrender of a license.

NOTE

Authority cited: Section 215, Financial Code. Reference: Chapter 14A, Division 1, Financial Code.

§70.9001. Surrender of License.

Note • History

A licensee may surrender its license by filing with the Commissioner such license and a report containing such information as the Commissioner may by order require.

NOTE

Authority cited: Section 215, Financial Code. Reference: Chapter 14A, Division 1, Financial Code.

HISTORY

1. Change without regulatory effect amending section filed 8-19-97 pursuant to section 100, title 1, California Code of Regulations (Register 97, No. 34).

§70.9002. Effective Date of Surrender.

Note • History

(a) Except as otherwise provided in Subdivision (b) of this Section, a voluntary surrender of a license shall be effective on the thirtieth day after such license and the report called for in Section 70.9001 of this Chapter are filed with the Commissioner or on such earlier date as the Commissioner may by order specify.

(b) If a proceeding to revoke or suspend a license is pending at the time when such license and the report called for in Section 70.9001 are filed with the Commissioner or if a proceeding to revoke or suspend a license or to impose conditions upon the surrender of a license is instituted before the thirtieth day after such license and the report called for in Section 70.9001 of this Chapter are filed with the Commissioner, the voluntary surrender of such license shall become effective at such time and upon such conditions as the Commissioner may by order specify.

NOTE

Authority cited: Section 215, Financial Code. Reference: Chapter 14A, Division 1, Financial Code.

HISTORY

1. Change without regulatory effect amending section filed 8-19-97 pursuant to section 100, title 1, California Code of Regulations (Register 97, No. 34).

Subchapter 80. Payment Instruments

Article 1. General Provisions

Subarticle 1. Citation and Construction

§80.1. Scope.

Note • History

(a) This Subchapter contains regulations relating to payment instruments.

(b) This Article contains general provisions relating to this Subchapter. The succeeding articles of this Subchapter contain regulations relating to various subjects regarding payment instruments.

(c) This Subarticle contains regulations relating to the citation and construction of this Subchapter. Subarticle 2 (commencing with Section 80.100) of this Article contains regulations relating to definitions.

NOTE

Authority cited: Section 33202, Financial Code. Reference: Division 16, Financial Code.

HISTORY

1. New Subchapter 80 (Articles 1-9, Sections 80.1-80.8310, not consecutive) filed 7-16-80; designated effective 9-2-80 (Register 80, No. 29).

§80.2. Citation.

Note

(a) This Subchapter shall be known and may be cited as the “Payment Instruments Regulations.”

(b) The first unit of the number of each section in this Subchapter is “80.” However, in citing a section of this Subchapter, a person may omit the first unit of the number of such section if it is clear that such person is referring to a section of this Subchapter.

NOTE

Authority cited: Section 33202, Financial Code. Reference: Division 16, Financial Code.

§80.3. Unsafe and Unsound Acts.

Note • History

(a) Any act which is designated in this Subchapter as an “unsafe and unsound act” is an act which, in the usual or typical circumstances encountered, constitutes an unsafe and unsound act within the meaning of the Payment Instruments Law. However, it is impossible to foresee or to provide for all the varying circumstances which may arise in a particular case. Also, the acts designated in this Subchapter as “unsafe and unsound acts” are not intended to constitute a complete compilation of all the acts which constitute unsafe or unsound acts within the meaning of the Payment Instruments Law. Therefore, the Commissioner may, if and when warranted in any particular case, upon application or on the Commissioner's own initiative, decide that in such case an act which is designated in this Subchapter as an “unsafe and unsound act” does not constitute an unsafe or unsound act within the meaning of the Payment Instruments Law. Also, the Commissioner may decide that an act which is not designated in this Subchapter as an “unsafe and unsound act” constitutes an unsafe or unsound act within the meaning of the Payment Instruments Law.

(1) To be transacting and conducting its business in an unsafe and unsound manner within the meaning of the Payment Instruments Law; and

(2) If and to the extent that such act affects the condition of the licensee, to be in an unsafe and unsound condition within the meaning of the Payment Instruments Law.

NOTE

Authority cited: Section 33202, Financial Code. Reference: Division 16, Financial Code.

HISTORY

1. Change without regulatory effect amending section filed 8-19-97 pursuant to section 100, title 1, California Code of Regulations (Register 97, No. 34).

§80.4. References to Corporations.

Note

In this Subchapter, unless otherwise expressly provided, references to corporations or to aspects of corporations apply to all types of corporations, whether for profit, nonprofit, or of any other type. For the sake of convenience, references in this Subchapter to corporations and to aspects of corporations are set forth in terms appropriate to corporations for profit. However, whenever any reference in this Subchapter to a corporation or to an aspect of a corporation is applicable to a type of corporation other than a corporation for profit, if the term of such reference is not appropriate to such type of corporation, the term of the reference shall be construed to be the closest equivalent term of reference appropriate to the type of corporation.

NOTE

Authority cited: Section 33202, Financial Code. Reference: Division 16, Financial Code.

§80.5. Financial Statements and Accounting Items--Generally Accepted Accounting Principles.

Note • History

In this Subchapter, unless otherwise expressly provided, references to financial statements and references to assets, liabilities, income, shareholders' equity, and similar accounting items mean such financial statements and such accounting items prepared or determined in conformity with generally accepted accounting principles then applicable, fairly presenting in conformity with generally accepted accounting principles the matters which they purport to present, subject to any specific accounting treatment required by the Commissioner, this Subchapter, the Payment Instruments Law, or any other applicable law.

NOTE

Authority cited: Section 33202, Financial Code. Reference: Division 16, Financial Code.

HISTORY

1. Change without regulatory effect amending section filed 8-19-97 pursuant to section 100, title 1, California Code of Regulations (Register 97, No. 34).

§80.6. Financial Statements--Certification.

Note • History

NOTE

Authority cited: Section 33202, Financial Code. Reference: Division 16, Financial Code.

HISTORY

1. Change without regulatory effect amending section filed 8-19-97 pursuant to section 100, title 1, California Code of Regulations (Register 97, No. 34).

§80.7. Financial Statements--Consolidating Statements.

Note • History

NOTE

Authority cited: Section 33202, Financial Code. Reference: Division 16, Financial Code.

HISTORY

1. Change without regulatory effect amending section filed 8-19-97 pursuant to section 100, title 1, California Code of Regulations (Register 97, No. 34).

§80.8. Actions of Courts and Governmental Agencies.

Note

NOTE

Authority cited: Section 33202, Financial Code. Reference: Division 16, Financial Code.

§80.9. Forms of Payment Instruments.

Note

For purposes of this Subchapter, the Payment Instruments Law, and Section 14.1 of Chapter 1347 of the Statutes of 1978, payment instruments issued by a person which are identical in form except for the following differences shall be deemed to be in the same form:

(a) Differences in face amount, provided that such face amounts are denominated in the same currency.

(b) Differences in the name or logo, or both, of the agent who sells the payment instruments on behalf of the person, provided that such names and logos are set forth in substantially the same style.

NOTE

Authority cited: Sections 215 and 33202, Financial Code. Reference: Division 16, Financial Code and Section 14.1, Chapter 1347, Statutes of 1978.

Subarticle 2. Definitions

Part 1. General Provisions

§80.100. Scope.

Note

This Subarticle contains regulations relating to definitions. This Part contains general provisions relating to definitions. Part 2 (commencing with Section 80.125) of this Subarticle contains regulations relating to the definitions set forth in Article 3 (commencing with Section 33040), Chapter 1 of the Payment Instruments Law. Part 3 (commencing with Section 80.150) of this Subarticle contains definitions for this Subchapter.

NOTE

Authority cited: Section 33202, Financial Code. Reference: Division 16, Financial Code. Subarticle 2. Definitions--Payment Instruments Law

Part 2. Definitions--Payment Instruments Law

§80.125. Scope.

Note

This Part contains regulations relating to the definitions set forth in Article 3 (commencing with Section 33040), Chapter 1 of the Payment Instruments Law.

NOTE

Authority cited: Section 33202, Financial Code. Reference: Article 3, Chapter 1, Division 16, Financial Code.

§80.126. California Agent.

Note

In the case of an agent of an issuer of payment instruments who is authorized to sell or sells both inside and outside the State of California payment instruments issued by such issuer, “California agent,” as defined in Financial Code Section 33045, means such agent with respect to sales inside the State of California of payment instruments issued by the issuer and related matters.

NOTE

Authority cited: Section 33202, Financial Code. Reference: Section 33045, Financial Code.

§80.127. Insured Bank.

Note • History

“Insured bank,” as defined in Financial Code Section 33051, includes an office of a bank organized under the laws of a foreign nation, which office is located in the United States and the deposits of which office are insured by the Federal Deposit Insurance Corporation.

NOTE

Authority cited: Section 33202, Financial Code. Reference: Section 33051, Financial Code.

HISTORY

1. Amendment of Note filed 4-7-97; operative 4-7-97 pursuant to Government Code section 11343.4(d) (Register 97, No. 15).

Part 3. Definitions--Regulations

§80.150. Scope.

Note

NOTE

Authority cited: Section 33202, Financial Code. Reference: Division 16, Financial Code.

§80.151. Definitions in Payment Instruments Law.

Note

Subject to additional definitions contained in this Subchapter which are applicable to specific provisions of this Subchapter and unless this Subchapter otherwise provides or the context otherwise requires, the definitions in Article 3 (commencing with Section 33040), Chapter 1 and Section 33560 of the Payment Instruments Law apply throughout this Subchapter.

NOTE

Authority cited: Section 33202, Financial Code. Reference: Division 16, Financial Code.

§80.152. __Percent Equity Security Owner.

Note

“__percent equity security owner,” when used with respect to a corporation or other organization, means any person who owns, directly or indirectly, of record or beneficially, the specified percentage or more of any class of the equity securities of such corporation or other organization.

NOTE

Authority cited: Section 33202, Financial Code. Reference: Division 16, Financial Code.

§80.153. __Percent (Including Associates) Equity Security Owner.

Note

“__ percent (including associates) equity security owner,” when used with respect to a corporation or other organization, means any person who owns, directly or indirectly, of record or beneficially, equity securities of such corporation or other organization which, when combined with the equity securities of the corporation or other organization owned, directly or indirectly, of record or beneficially, by all associates of such person, constitute the specified percentage or more of any class of the equity securities of the corporation or other organization.

NOTE

Authority cited: Section 33202, Financial Code. Reference: Division 16, Financial Code.

§80.154. __Percent Voting Security Owner.

Note

“__percent voting security owner,” when used with respect to a corporation or other organization, means any person who owns, directly or indirectly, of record or beneficially, the specified percentage or more of the voting securities of such corporation or other organization.

NOTE

Authority cited: Section 33202, Financial Code. Reference: Division 16, Financial Code.

§80.155. __Percent (Including Associates) Voting Security Owner.

Note

“__percent (including associates) voting security owner,” when used with respect to a corporation or other organization, means any person who owns, directly or indirectly, of record or beneficially, voting securities of such corporation or other organization which, when combined with the voting securities of the corporation or other organization owned, directly or indirectly, of record or beneficially, by all associates of such person, constitute the specified percentage or more of the voting securities of the corporation or other organization.

NOTE

Authority cited: Section 33202, Financial Code. Reference: Division 16, Financial Code.

§80.156. Associate.

Note

“Associate,” when used to indicate a relationship with a specified person who is related with a licensee or an applicant for a license, means:

(b) Any trust or other estate in which the specified person has a substantial beneficial interest or as to which the specified person serves as a trustee or in any similar fiduciary capacity.

NOTE

Authority cited: Section 33202, Financial Code. Reference: Division 16, Financial Code.

§80.157. Beneficial.

Note

(a) By the spouse (except where legally separated) and minor children (including stepchildren and adopted children) of the specified person; and

(b) By any other relative of the specified person who has the same home as the specified person.

NOTE

Authority cited: Section 33202, Financial Code. Reference: Division 16, Financial Code.

§80.158. California Corporation.

Note

“California corporation” means a corporation which is organized under the laws of the State of California.

NOTE

Authority cited: Section 33202, Financial Code. Reference: Division 16, Financial Code.

§80.159. Clearing Bank.

Note

“Clearing bank,” when used with respect to a payment instrument, means the bank on which such payment instrument is drawn or at or through which such payment instrument is payable.

NOTE

Authority cited: Section 33202, Financial Code. Reference: Division 16, Financial Code.

§80.160. Documented Nominee.

Note

“Documented nominee” has the meaning set forth in Section 80.5302 of this Chapter.

NOTE

Authority cited: Section 33202, Financial Code. Reference: Division 16, Financial Code.

§80.161. Equity Security.

Note

NOTE

Authority cited: Section 33202, Financial Code. Reference: Division 16, Financial Code.

§80.162. Executive Officer.

Note

NOTE

Authority cited: Section 33202, Financial Code. Reference: Division 16, Financial Code.

§80.163. Extend Credit.

Note

(a) To “extend credit” to a person includes:

(1) To make or renew a loan to the person.

(2) To purchase a security or other asset from the person under a repurchase agreement.

(3) To acquire a note, draft, contract, or similar instrument with respect to which the person is liable, whether as maker, endorser, guarantor, or otherwise.

(4) To guarantee or become surety upon an obligation with respect to which the person is an obligor or obligee.

(b) Notwithstanding the provisions of Subdivision (a) of this Section, to “extend credit” to a person does not include:

(1) In case the person extending credit is an issuer of payment instruments or travelers checks and the person to whom credit is extended is authorized to sell payment instruments or travelers checks on behalf of the first person, any amount due from the second person to the first person on account of sales of payment instruments or travelers checks issued by the first person.

(2) In case the person extending credit is a bank, the giving of immediate credit upon uncollected items deposited in the ordinary course of business.

NOTE

Authority cited: Section 33202, Financial Code. Reference: Division 16, Financial Code.

§80.164. Foreign Corporation.

Note

“Foreign corporation” means any corporation other than a corporation organized under the laws of the State of California.

NOTE

Authority cited: Section 33202, Financial Code. Reference: Division 16, Financial Code.

§80.165. Majority-Owned Subsidiary.

Note

NOTE

Authority cited: Section 33202, Financial Code. Reference: Division 16, Financial Code.

§80.166. Parent.

Note

NOTE

Authority cited: Section 33202, Financial Code. Reference: Division 16, Financial Code.

§80.167. Payment Instrument or Travelers Check License.

Note

“Payment instrument or travelers check license” means any license or other form of authorization or qualification by which a person is permitted to transact the business of issuing or selling payment instruments or the business of issuing or selling travelers checks. However, “travelers check or payment instrument license” does not include any such authorization or qualification which is issued by a city, county, or other local agency.

NOTE

Authority cited: Section 33202, Financial Code. Reference: Division 16, Financial Code.

§80.168. Pre-Clear.

Note

“Pre-clear,” when used to designate a payment instrument, means a payment instrument which is sold by an agent of the issuer and which is paid by the issuer before the issuer receives a report of the sale from such agent.

NOTE

Authority cited: Section 33202, Financial Code. Reference: Division 16, Financial Code.

§80.169. Records.

Note

“Records” includes books, accounts, and other records.

NOTE

Authority cited: Section 33202, Financial Code. Reference: Division 16, Financial Code.

§80.170. Reporting Company.

Note • History

“Reporting company” means a person (other than an individual) which meets all of the following requirements:

(c) In case the person or a subsidiary of the person is subject to Section 80.8306 of this Chapter, the person or such subsidiary has filed with the Commissioner all documents required to be filed under Section 80.8306 for the last three years (or, if the person or the subsidiary was subject to Section 80.8306 for less than the last three years, for such lesser period), and has filed with the Commissioner all documents so required to be filed in a timely manner for the last one year (or, if the person was subject to Section 80.8306 for less than the last one year, for such lesser period).

NOTE

Authority cited: Section 33202, Financial Code. Reference: Division 16, Financial Code.

HISTORY

1. Change without regulatory effect amending section filed 8-19-97 pursuant to section 100, title 1, California Code of Regulations (Register 97, No. 34).

§80.171. Reporting/Remitting Office.

Note • History

“Reporting/remitting office,” when used with respect to a California agent of an issuer of payment instruments means:

(a) In case the California agent is a bank, savings and loan association, industrial loan company, or credit union which maintains its head office in the State of California, such head office.

(b) In any other case, each location from which the California agent reports sales in the State of California of payment instruments to the issuer or from which the agent remits the proceeds of such sales to the issuer.

NOTE

Authority cited: Section 33202, Financial Code. Reference: Division 16, Financial Code.

HISTORY

1. Amendment of subsection (a) filed 4-7-97; operative 4-7-97 pursuant to Government Code section 11343.4(d) (Register 97, No. 15).

§80.172. Security.

Note

“Security” has the meaning set forth in Corporations Code Section 25019.

NOTE

Authority cited: Section 33202, Financial Code. Reference: Division 16, Financial Code.

§80.173. Significantly Involved in Payment Instrument Business.

Note

“Significantly involved in payment instrument business,” when used with respect to an affiliate of an issuer of payment instruments, means that such affiliate manages or performs a significant aspect of the payment instrument business of such issuer, such as:

(a) Distributing blank payment instruments to agents of the issuer;

(b) Receiving reports of sales of payment instruments or remittances of proceeds from sales of payment instruments from agents of the issuer;

(d) Serving as a clearing bank for the issuer. However, “significantly involved in payment instrument business” does not include any affiliate of an issuer of payment instruments solely on account of the fact that such affiliate is an agent of such issuer.

NOTE

Authority cited: Section 33202, Financial Code. Reference: Division 16, Financial Code.

§80.174. Significant Subsidiary.

Note

NOTE

Authority cited: Section 33202, Financial Code. Reference: Division 16, Financial Code.

§80.175. Subsidiary.

Note

NOTE

Authority cited: Section 33202, Financial Code. Reference: Division 16, Financial Code.

§80.176. Unpaid.

Note

“Unpaid,” when used with respect to a payment instrument, means that such payment instrument has been issued and sold and has not yet been paid by the issuer.

NOTE

Authority cited: Section 33202, Financial Code. Reference: Division 16, Financial Code.

§80.177. Voting Securities.

Note

“Voting securities” means securities the holders of which are presently entitled to vote for the election of directors.

NOTE

Authority cited: Section 33202, Financial Code. Reference: Division 16, Financial Code.

Article 4. Exemptions

§80.3000. Scope.

Note

This Article contains regulations relating to exemptions from the Payment Instruments Law.

NOTE

Authority cited: Section 33202, Financial Code. Reference: Chapter 2, Division 16, Financial Code.

§80.3001. Construction of Exemptions.

Note • History

For purposes of Financial Code Sections 33401(b) and 34115:

(a) Any person which is exempted from the Payment Instruments Law by Section 80.3002(a) of this Chapter shall be deemed to be a person referred to in Financial Code Section 33100(a), and the provision of Section 80.3002(a) of this Chapter applicable to such person shall be deemed to be the paragraph of Financial Code Section 33100(a) applicable to the person.

(b) Any person which is exempted from the Payment Instruments Law by order of the Commissioner (other than a person exempted only as a California agent of a person so exempted) shall be deemed to be a person referred to in Financial Code Section 33100(a), and any provision of such order which specifies or limits such person's activities with respect to selling payment instruments shall be deemed to be the paragraph of Financial Code Section 33100(a) applicable to the person.

NOTE

Authority cited: Section 33202, Financial Code. Reference: Sections 33102, 33401, and 34115, Financial Code.

HISTORY

1. Change without regulatory effect amending section filed 8-19-97 pursuant to section 100, title 1, California Code of Regulations (Register 97, No. 34).

§80.3002. Exemptions.

Note • History

The Commissioner finds that exempting the persons and transactions specified in the subdivisions of this Section from the Payment Instruments Law is in the public interest and that the regulation of such persons and transactions is not necessary for the purposes of the Payment Instruments Law. Accordingly, the Commissioner exempts the persons and transactions specified in the subdivisions of this Section from the Payment Instruments Law.

(a) Any bank organized under the laws of a foreign nation which maintains a federal agency (as defined in Section 1(b)(5) of the International Banking Act of 1978) or federal branch (as defined in Section 1(b)(6) of the International Banking Act of 1978) in the State of California, when selling any foreign currency payment instrument which is issued by such bank and which is not designated on its face by the term “money order” or “travelers check” or by any similar term.

(b) Any California agent of any person referred to in Subdivision (a) of this Section, when selling any payment instrument which is issued by such person and which such person is permitted to sell under the provisions of Subdivision (a) applicable to such person.

NOTE

Authority cited: Section 33202, Financial Code. Reference: Section 33102, Financial Code.

HISTORY

1. Change without regulatory effect amending section filed 8-19-97 pursuant to section 100, title 1, California Code of Regulations (Register 97, No. 34).

Article 5. Issuance Of License

Subarticle 1. General Provisions

§80.4000. Definition of “Applicant” and Scope.

Note • History

(a) In this Article, “applicant” means a corporation which applies to the Commissioner for a license.

(b) This Article contains regulations relating to the issuance of a license pursuant to Chapter 4 (commencing with Section 33400) of the Payment Instruments Law. This Subarticle contains general provisions relating to the issuance of a license. Subarticle 2 (commencing with Section 80.4100) of this Article contains regulations relating to an application for a license. Subarticle 3 (commencing with Section 80.4200) of this Article contains regulations which set forth administrative standards and procedures relating to an application for a license. Subarticle 4 (commencing with Section 80.4300) of this Article contains regulations relating to matters after an application for a license is approved by the Commissioner.

NOTE

Authority cited: Section 33202, Financial Code. Reference: Chapter 4, Division 16, Financial Code.

HISTORY

1. Change without regulatory effect amending section filed 8-19-97 pursuant to section 100, title 1, California Code of Regulations (Register 97, No. 34).

Subarticle 2. Application

§80.4100. Scope.

Note

This Subarticle contains regulations relating to an application for a license.

NOTE

Authority cited: Section 33202, Financial Code. Reference: Section 33220 and Chapter 4, Division 16, Financial Code.

§80.4101. Included Applications.

Note

(a) An application for a license shall, unless otherwise provided in such application, be deemed to include an application for approval pursuant to Financial Code Section 33521 of each form of payment instrument issued by the applicant which is filed with such application for a license in accordance with Section 80.4119 of this Chapter. Approval of such an application for a license shall, unless otherwise provided in such approval, be deemed to include approval of such included application and of each such form of payment instrument.

(b) An application for a license shall, unless otherwise provided in such application, be deemed to include an application for approval pursuant to Financial Code Section 33522 of each bank which is proposed in such application for a license in accordance with Section 80.4120 of this Chapter as a clearing bank for payment instruments issued by the applicant. Approval of such an application for a license shall, unless otherwise provided in such approval, be deemed to include approval of such included application and of each such bank.

NOTE

Authority cited: Section 33202, Financial Code. Reference: Section 33220, Chapter 4, Division 16, and Sections 33521 and 33522, Financial Code.

§80.4102. Facing Page.

Note

An application for a license shall have as its first page a facing page in the form of Department Form 5010 and shall contain the information called for therein.

NOTE

Authority cited: Section 33202, Financial Code. Reference: Section 33220 and Chapter 4, Division 16, Financial Code.

§80.4103. Additional Information.

Note

An application for a license shall contain, in addition to the information called for in the facing page, the information called for in Sections 80.4104 to 80.4124, inclusive, of this Chapter.

NOTE

Authority cited: Section 33202, Financial Code. Reference: Section 33220 and Chapter 4, Division 16, Financial Code.

§80.4104. Information Regarding History and Business.

Note • History

(a) Describe the business of the applicant.

(b) In case any of the following has occurred or is pending with respect to the applicant or any subsidiary of the applicant, describe the circumstances:

(1) (A) If any court or governmental agency has suspended or revoked any license or other authorization or qualification of the applicant or of the subsidiary to transact the business of issuing or selling payment instruments, the business of issuing or selling travelers checks, the business of banking, the business of a bank holding company, or the securities business.

(B) In case any court or governmental agency has temporarily or permanently

1. prohibited the applicant or the subsidiary from transacting any business of the kind referred to in Subparagraph (A) of this Paragraph (1),

2. prohibited the applicant or the subsidiary from engaging in any conduct or practice with respect to any such business, or

3. imposed any monetary or other penalty upon the applicant or the subsidiary for having violated any law relating to any such business.

(C) If the applicant or the subsidiary is the subject of any pending proceeding of the kind referred to in Subparagraph (A) or (B) of this Paragraph (1).

(2) (A) If any court or governmental agency has, for any reason other than nonpayment of fees, suspended or revoked any license or other authorization or qualification of the applicant or of the subsidiary to engage in any profession, occupation, vocation, or other business activity (other than a license or other authorization or qualification of the kind referred to in Paragraph (1) of this Subdivision (c)).

(B) If the applicant or the subsidiary is the subject of any pending proceeding of the kind referred to in Subparagraph (A) of this Paragraph (2).

(3) (A) If the applicant or the subsidiary has applied for reorganization, arrangement, or other relief under any bankruptcy, reorganization, insolvency, or moratorium law.

(4) If any court has entered judgment against the applicant or the subsidiary in any civil action based upon conduct involving fraud or dishonesty.

NOTE

Authority cited: Section 33202, Financial Code. Reference: Section 33220 and Chapter 4, Division 16, Financial Code.

HISTORY

1. Repealer of subsection (a), subsection relettering, and redesignation of newly designated subsections (b)(1)(B)(i)-(iii) to subsections (b)(1)(B)1.-3. filed 4-7-97; operative 4-7-97 pursuant to Government Code section 11343.4(d) (Register 97, No. 15).

§80.4105. Information Regarding Directors and Executive Officers.

Note

(a) In this Section:

(2) To be “indebted” does not include indebtedness on account of any of the following:

(A) Any amount due for purchases subject to usual trade terms, for ordinary travel and expense advances, or for other transactions in the ordinary course of business.

(B) Any loan made by a bank, savings and loan association, or securities broker-dealer extending credit under Regulation T of the Board of Governors of the Federal Reserve System, provided that such loan is made in the ordinary course of business, is made on substantially the same terms (including interest rate and collateral) as those prevailing at the time for comparable transactions with other persons, and does not involve more than normal risk of collectibility or present other unfavorable features.

(3) “Subject person of the applicant” means:

(A) In case the applicant is a reporting company,

(i) the chief executive officer of the applicant,

(ii) the chief financial officer of the applicant,

(iii) the person in charge of the payment instrument business of the applicant, or

(iv) any other person who is a director or executive officer of the applicant and who was not listed as such in the last annual report (Securities and Exchange Commission Form 10-K) filed by the applicant pursuant to Section 13 of the Securities Exchange Act of 1934 and regulations of the Securities and Exchange Commission issued thereunder or who was not listed as a nominee for director in the last proxy statement issued by the parent to its shareholders.

(B) In case the applicant is not a reporting company but a parent of the applicant is a reporting company,

(i) the chief executive officer of the applicant,

(ii) the chief financial officer of the applicant,

(iii) the person in charge of the payment instrument business of the applicant, or

(iv) any other person who is a director or executive officer of the applicant and who was not listed as a director or executive officer of the parent in the last annual report (Securities and Exchange Commission Form 10-K) filed by the parent pursuant to Section 13 of the Securities Exchange Act of 1934 and regulations of the Securities and Exchange Commission issued thereunder or who was not listed as a nominee for director in the last proxy statement issued by the parent to its shareholders.

(C) In case neither the applicant nor a parent of the applicant is a reporting company, each director and executive officer of the applicant.

(b) Provide a list showing, with respect to each person who is a director or executive officer of the applicant:

(1) Name.

(2) Title of each position held with the applicant.

(c) Identify the executive officer of the applicant who is in charge of the payment instrument business of the applicant.

(d) Provide the following information with respect to each subject person of the applicant:

(2) (A) In case any court or governmental agency has suspended or revoked any license or other authorization or qualification of the subject person or of any associated organization of the subject person to transact the business of issuing or selling payment instruments, the business of issuing or selling travelers checks, the business of banking, the business of a bank holding company, or the securities business, describe the circumstances.

(B) In case any court or governmental agency has temporarily or permanently

(i) prohibited the subject person or any associated organization of the subject person from transacting any business of the kind referred to in Subparagraph (A) of this Paragraph (2),

(ii) prohibited the subject person or any associated organization of the subject person from engaging in any conduct or practice with respect to any such business,

(iii) removed the subject person or any associated organization of the subject person from, or prohibited the subject person or any associated organization of the subject person from having, any position or association with an organization engaged in any such business, or (iv) imposed any monetary or other penalty upon the subject person or any associated organization of the subject person for having violated any law relating to any such business, describe the circumstances.

(3) (A) In case any court or governmental agency has, for any reason other than nonpayment of fees, suspended or revoked any license or other authorization or qualification of the subject person to practice any profession, occupation, or vocation (other than a license or other authorization or qualification of the kind referred to in Paragraph (2) of this Subdivision (d)), describe the circumstances.

(B) In case the subject person is the subject of any pending proceeding of the kind referred to in Subparagraph (A) of this Paragraph (3), describe the circumstances.

(4) (A) In case the subject person or any associated organization of the subject person has applied for an adjudication of bankruptcy, reorganization, arrangement, or other relief under any bankruptcy, reorganization, insolvency, or moratorium law, describe the circumstances.

(e) In case the applicant is neither a reporting company nor a bank nor a savings and loan association, if any person who is, or is an associate of, any director or executive officer of the applicant was at any time during the last three years indebted to the applicant or the applicant's subsidiaries (except any subsidiary which is a bank, savings and loan association, or broker/dealer in securities extending credit under Regulation T of the Board of Governors of the Federal Reserve System) in an amount which in the aggregate exceeds $10,000 or 1 percent of the applicant's total assets, whichever is less, provide the following information:

(1) Identify the person, and describe the person's relationship to the applicant.

(2) Describe the nature of the indebtedness and of the transaction in which it was incurred.

(3) State the highest aggregate amount of the indebtedness outstanding at any time during the period since the filing of the applicant's last application for renewal of its license.

(4) State the aggregate amount of the indebtedness currently outstanding.

(5) State the rate of interest paid or charged on the indebtedness.

NOTE

Authority cited: Section 33202, Financial Code. Reference: Section 33220 and Chapter 4, Division 16, Financial Code.

§80.4106. Information Regarding Corporate Matters.

Note

(b) In case the applicant is a California corporation, provide a Certificate of Good Standing issued by the Secretary of State of the State of California as of a date within 30 days before the filing of the application, certifying that the applicant is a corporation which is duly organized, subsisting, and in good standing under the laws of the State of California.

NOTE

Authority cited: Section 33202, Financial Code. Reference: Section 33220 and Chapter 4, Division 16, Financial Code.

§80.4107. Information Regarding Securities.

Note

With respect to each type of security of the applicant which is issued and outstanding or which is proposed to be issued:

(a) Describe such type of security.

(b) State the amount of the securities of such type which are issued and outstanding or which are proposed to be issued.

NOTE

Authority cited: Section 33202, Financial Code. Reference: Section 33220 and Chapter 4, Division 16, Financial Code.

§80.4108. Information Regarding Equity Security Owners.

Note

(a) Name.

(b) Business address.

(d) Amount and types of equity securities of the applicant or of a parent of the applicant owned by the person and the person's associates.

NOTE

Authority cited: Section 33202, Financial Code. Reference: Section 33220 and Chapter 4, Division 16, Financial Code.

§80.4109. Information Regarding Affiliates.

Note • History

(a) State the name of the affiliate.

(d) In case the affiliate is significantly involved or is proposed to be significantly involved in the payment instrument business of the applicant, briefly describe such involvement.

NOTE

Authority cited: Section 33202, Financial Code. Reference: Section 33220 and Chapter 4, Division 16, Financial Code.

HISTORY

1. Change without regulatory effect amending subsection (b) filed 7-2-91 pursuant to section 100, title 1, California Code of Regulations (Register 91, No. 40).

2. Amendment of subsection (b) filed 4-7-97; operative 4-7-97 pursuant to Government Code section 11343.4(d) (Register 97, No. 15).

§80.4110. Information Regarding Controlling Persons.

Note

In case any person controls the applicant, provide the following information:

(a) Identify the controlling person.

(c) In case the controlling person participates in the management or operations of the applicant, describe such participation.

NOTE

Authority cited: Section 33202, Financial Code. Reference: Section 33220 and Chapter 4, Division 16, Financial Code.

§80.4111. Information Regarding Financial Statements and Reports.

Note • History

(a) In case the applicant is not a reporting company:

(1) Provide the following financial statements of the applicant:

(A) Balance sheet as of a date within 120 days before the filing of the application.

(2) In case the applicant has any subsidiaries, provide the financial statements called for in Paragraph (1) of this Subdivision (a) on a consolidated basis.

(b) In case the applicant has a parent which is not a reporting company, provide the following financial statements of such parent on a consolidated basis.

(1) Balance sheet as of a date within 120 days before the filing of the application.

(3) Statement of income, a statement of cash flows, and a statement of shareholders' equity for each of the two fiscal years of the parent next preceding the date of the balance sheet called for in Paragraph (1) of this Subdivision (b) and, if such balance sheet is not as of the end of the fiscal year of the applicant, a statement of income for the interim period from the date of the balance sheet called for in Paragraph (2) of this Subdivision (b) to the date of the balance sheet called for in Paragraph (1) of this Subdivision (b).

(c) In case the applicant presently transacts outside the State of California the business of selling payment instruments issued by it:

(1) Provide a statement showing the amount of payment instruments issued and sold by the applicant during each of the periods covered by the statements of income referred to in Subparagraph (C), Paragraph (1), Subdivision (a) of this Section.

(2) Provide, if available, a statement showing the amount of payment instruments issued and sold by the applicant which were unpaid as of the date of each of the balance sheets referred to in Paragraph (1), Subdivision (a) of this Section.

(3) Provide a statement showing the amount of payment instruments issued and sold by the applicant which were reported outstanding as of the date of the balance sheet referred to in Subparagraph (A), Paragraph (1), Subdivision (a) of this Section.

(4) Provide a statement showing the amount of payment instruments issued and sold by the applicant which were pre-clears as of the date of each of the balance sheets referred to in Paragraph (1), Subdivision (a) of this Section.

(e) In case the applicant has a parent:

NOTE

Authority cited: Section 33202, Financial Code. Reference: Sections 33220 and 33403, Financial Code.

HISTORY

1. Amendment of subsections (a)(1)(C) and (a)(2), repealer of subsections (b) and (d), subsection relettering, amendment of newly designated subsections (b), (b)(2) and (b)(3), repealer of newly designated subsection (c)(5), amendment of newly designated subsection (c)(6) and repealer of newly designated subsections (c)(6)(A)-(c)(7) filed 4-7-97; operative 4-7-97 pursuant to Government Code section 11343.4(d) (Register 97, No. 15).

2. Amendment of subsections (a)(1)(C), (b)(3), (d)(1)-(2) and (e)(1)-(2) and amendment of Note filed 4-14-98; operative 5-14-98 (Register 98, No. 16).

§80.4112. Information Regarding Extensions of Credit.

Note

(a) In case the applicant or any affiliate of the applicant which is significantly involved or is proposed to be significantly involved in the payment instrument business of the applicant (other than an applicant or affiliate which is a bank) has extended credit or committed to extend credit in an amount exceeding $25,000 directly or indirectly to, or for the benefit of, any non-California agent or any proposed California agent of the applicant (other than a non-California agent or proposed California agent which is a subsidiary of the applicant) and such extension of credit or commitment is outstanding, identify the parties and describe the terms of the transaction.

NOTE

Authority cited: Section 33202, Financial Code. Reference: Section 33220 and Chapter 4, Division 16, Financial Code.

§80.4113. Information Regarding Legal Proceedings.

Note

(a) For purposes of this Section:

(1) A proceeding involving the applicant or a subsidiary of the applicant shall not be deemed to be material:

(A) If the proceeding is ordinary routine litigation incidental to the business of the applicant or of the subsidiary; or

(2) Notwithstanding the provisions of Paragraph (1) of this subdivision (a), each of the following proceedings shall be deemed to be material:

(A) Any material proceeding in which any affiliate of the applicant or any person who is, or who is an associate of, any

(i) director,

(ii) executive officer, or

(iii) five percent voting security owner of the applicant, is a party adverse to, or has a material interest adverse to, the applicant or any subsidiary of the applicant.

(B) Any bankruptcy, receivership, or similar proceeding.

(1) Title of the proceeding.

(2) Name and address of the court or of the governmental agency before which the proceeding is pending.

(3) Names of the principal parties to the proceeding.

(4) Date the proceeding was commenced.

(5) Description of factual basis alleged to underlie the proceeding.

(6) Relief sought in the proceeding.

(7) Status of the proceeding.

NOTE

Authority cited: Section 33202, Financial Code. Reference: Section 33220 and Chapter 4, Division 16, Financial Code.

§80.4114. Information Regarding Payment Instrument or Travelers Check Licenses.

Note • History

In case the applicant has any payment instrument or travelers check license issued by a governmental agency within the United States, provide the following information with respect to each such license:

(a) Name, address, and, if available, telephone number of the governmental agency by which the license was issued.

(b) Business which the applicant is authorized to transact under the license.

NOTE

Authority cited: Section 33202, Financial Code. Reference: Section 33220 and Chapter 4, Division 16, Financial Code.

HISTORY

1. Repealer of subsection (b) and subsection relettering filed 4-7-97; operative 4-7-97 pursuant to Government Code section 11343.4(d) (Register 97, No. 15).

§80.4115. Information Regarding Business Plan.

Note • History

Provide a business plan for the applicant which provides all of the following:

(a) Description of the market that the applicant proposes to serve.

(b) Description of the services and products proposed to be offered by the applicant.

(e) Description of how services and products of the applicant will be marketed in consideration of the existing and anticipated competition.

(f) Analysis of the capital, financial, physical and human resources required by the applicant to successfully implement the proposed business plan.

(g) In case any material element of the business plan is based on an assumption, a statement of the assumption, and the justification for the assumption.

NOTE

Authority cited: Section 33202, Financial Code. Reference: Sections 33220 and 33403, Financial Code.

HISTORY

1. Amendment of section heading, repealer and new section, and amendment of Note filed 4-14-98; operative 5-14-98 (Register 98, No. 16).

§80.4116. Information Regarding California Offices.

Note • History

NOTE

Authority cited: Section 33202, Financial Code. Reference: Section 33220 and Chapter 4, Division 16, Financial Code.

HISTORY

1. Repealer filed 4-7-97; operative 4-7-97 pursuant to Government Code section 11343.4(d) (Register 97, No. 15).

§80.4117. Information Regarding Proposed California Agents.

Note • History

In case the applicant proposes to have any California agents, provide the following information:

(a) Describe the types of business conducted by the applicant's proposed California agents.

(b) Provide a copy of each form of contract which the applicant proposes to make with its California agents in accordance with Financial Code Section 33700.

NOTE

Authority cited: Section 33202, Financial Code. Reference: Section 33220 and Chapter 4, Division 16, Financial Code.

HISTORY

1. Repealer of subsections (a), (b) and (e) and subsection relettering filed 4-7-97; operative 4-7-97 pursuant to Government Code section 11343.4(d) (Register 97, No. 15).

§80.4118. Information Regarding Operations.

Note • History

(a) Describe the manner in which the applicant proposes to conduct its payment instrument business after it becomes a licensee, including the procedures and policies which the applicant proposes to follow with respect to the following matters:

(1) Selecting and appointing agents.

(2) Distributing blank payment instruments to agents and controlling blank payment instruments.

(3) Requiring agents to report sales of payment instruments in accordance with Article 3 (commencing with Section 33730), Chapter 6 of the Payment Instruments Law.

(4) Requiring California agents which are subject to Article 4 (commencing with Section 33740), Chapter 6 of the Payment Instruments Law to remit proceeds from sales of payment instruments in accordance with Article 4, Chapter 6 of the Payment Instruments Law, and requiring other agents to remit proceeds from sales of payment instruments.

(5) Receiving and investing proceeds from sales of payment instruments.

(6) Accounting for amounts due from agents on account of sales of payment instruments.

(7) Accounting for unpaid payment instruments.

(8) Paying payment instruments.

(b) In case the applicant presently transacts outside the State of California the business of selling payment instruments issued by it, if its proposed operations, as described in accordance with Subdivision (a) of this Section, differ in any material respect from its present operations, describe such difference.

(c) State the address of each place where the applicant proposes to maintain records relating to its payment instrument business.

(d) In case the applicant maintains or proposes to maintain any fidelity bond, describe such fidelity bond.

NOTE

Authority cited: Section 33202, Financial Code. Reference: Sections 33220 and 33403, Financial Code.

HISTORY

1. Change without regulatory effect amending subsection (a)(2) filed 8-28-91 pursuant to section 100, title 1, California Code of Regulations (Register 92, No. 4).

2. Amendment of subsection (a)(2) and Note filed 4-14-98; operative 5-14-98 (Register 98, No. 16).

§80.4119. Information Regarding Forms of Payment Instruments.

Note

(a) Provide a specimen copy of each form of payment instrument issued by the applicant which the applicant proposes to sell in the state of California.

(b) In case the applicant proposes to sell a form of payment instrument only in certain circumstances (for example, only through a certain California agent or type of California agent or only in certain geographical areas), describe such circumstances.

NOTE

Authority cited: Section 33202, Financial Code. Reference: Section 33220, Chapter 4, Division 16, and Section 33521, Financial Code.

§80.4120. Information Regarding Clearing Bank.

Note • History

In case any payment instruments issued by the applicant which the applicant proposes to sell in the State of California are drawn on, payable through, or payable at a bank state the name of the clearing bank, the address of the head office of the clearing bank, and the address and telephone number of the office of the clearing bank on which the payment instruments are drawn, or at or through which the payment instruments are payable.

NOTE

Authority cited: Section 33202, Financial Code. Reference: Section 33220, Chapter 4, Division 16, and Section 33522, Financial Code.

HISTORY

1. Amendment filed 4-7-97; operative 4-7-97 pursuant to Government Code section 11343.4(d) (Register 97, No. 15).

§80.4121. Information Regarding Pro Forma Financial Statements.

Note • History

(b) Provide a pro forma statement showing the amount of payment instruments issued and sold by the applicant during the first half year of operation, the first year of operation, the second year of operation and the third year of operation, detailing in each case the amount sold in the State of California and the total amount sold.

(c) Provide a pro forma statement showing the amount of payment instruments issued and sold by the applicant which are reported outstanding as of the end of the first half year of operation, the first year of operation, the second year of operation, and the third year of operation.

NOTE

Authority cited: Section 33202, Financial Code. Reference: Section 33220 and Chapter 4, Division 16, Financial Code.

HISTORY

1. Amendment filed 4-7-97; operative 4-7-97 pursuant to Government Code section 11343.4(d) (Register 97, No. 15).

§80.4122. Information Regarding Reasonable Promise of Successful Operation.

Note • History

NOTE

Authority cited: Section 33202, Financial Code. Reference: Section 33220 and Chapter 4, Division 16, Financial Code.

HISTORY

1. Repealer filed 4-14-98; operative 5-14-98 (Register 98, No. 16).

§80.4123. Information Regarding Compliance with Financial Code Section 33567.

Note • History

In case the applicant presently transacts outside the State of California the business of selling payment instruments issued by it, if the value of the eligible securities owned by the applicant, as shown in the statement called for in Section 80.4111(c)(5) of this Chapter, is less than the amount of reported outstanding payment instruments issued by the applicant as of the date of the balance sheet referred to in Section 80.4111(a)(1)(A), show how the applicant plans to comply with the provisions of Financial Code Section 33567.

NOTE

Authority cited: Section 33202, Financial Code. Reference: Section 33220 and Chapter 4, Division 16, Financial Code.

HISTORY

1. Amendment filed 4-7-97; operative 4-7-97 pursuant to Government Code section 11343.4(d) (Register 97, No. 15).

§80.4124. Information Regarding Authorization of Board.

Note • History

(a) Provide a copy of a resolution of the board of the applicant:

(1) Authorizing the applicant to apply for a license.

(2) Authorizing the Commissioner to examine the applicant in connection with the application.

(5) Authorizing any governmental agency which licenses or regulates issuers of payment instruments, issuers of travelers checks, or other financial institutions and which has information or records regarding the applicant, to furnish to the Commissioner such information, and to permit the Commissioner to inspect and copy such records, as the Commissioner may request in connection with the application.

(b) The copy of the resolution of the board called for in Subdivision (a) of this Section shall be certified by the secretary or by an assistant secretary of the applicant.

NOTE

Authority cited: Section 33202, Financial Code. Reference: Section 33220 and Chapter 4, Division 16, Financial Code.

HISTORY

1. Change without regulatory effect amending section filed 8-19-97 pursuant to section 100, title 1, California Code of Regulations (Register 97, No. 34).

§80.4125. Signature, Acknowledgment, and Verification.

Note

(a) An application for a license shall be signed at the place provided on the facing page in the name of the applicant by an executive officer of the applicant.

(b) The signature of the applicant on an application for a license shall be acknowledged.

NOTE

Authority cited: Section 33202, Financial Code. Reference: Section 33220 and Chapter 4, Division 16, Financial Code.

§80.4126. Fee.

Note

An application for a license shall be accompanied by the fee prescribed in Financial Code Section 33301(a).

NOTE

Authority cited: Section 33202, Financial Code. Reference: Section 33301, Financial Code.

§80.4127. Amendment.

Note

NOTE

Authority cited: Section 33202, Financial Code. Reference: Section 33220 and Chapter 4, Division 16, Financial Code.

Subarticle 3. Administrative Standards and Procedures

§80.4200. Scope.

Note

This Subarticle contains regulations which set forth administrative standards and procedures relating to an application for a license.

NOTE

Authority cited: Section 33202, Financial Code. Reference: Section 33220 and Chapter 4, Division 16, Financial Code.

§80.4201. Incomplete Application.

Note • History

As an administrative procedure, the Commissioner generally will reject for filing any application for a license which is not substantially complete.

NOTE

Authority cited: Section 33202, Financial Code. Reference: Section 33220 and Chapter 4, Division 16, Financial Code.

HISTORY

1. Change without regulatory effect amending section filed 8-19-97 pursuant to section 100, title 1, California Code of Regulations (Register 97, No. 34).

Subarticle 4. Post-Approval Matters

§80.4300. Scope.

Note • History

This Subarticle contains regulations relating to matters after an application for a license is approved by the Commissioner.

NOTE

Authority cited: Section 33202, Financial Code. Reference: Section 33203 and Chapter 4, Division 16, Financial Code.

HISTORY

1. Change without regulatory effect amending section filed 8-19-97 pursuant to section 100, title 1, California Code of Regulations (Register 97, No. 34).

§80.4301. Time for Filing Documents.

Note • History

NOTE

Authority cited: Section 33202, Financial Code. Reference: Section 33203 and Chapter 4, Division 16, Financial Code.

HISTORY

1. Change without regulatory effect amending section filed 8-19-97 pursuant to section 100, title 1, California Code of Regulations (Register 97, No. 34).

§80.4302. Reports.

Note • History

In addition to filing with the Commissioner each report called for in this Subarticle, an applicant shall file with the Commissioner each report which the provisions of the Payment Instruments Law or of this Subchapter require of a licensee. A report required by any such provision shall be filed within the period specified in such provision; however, any report which is required of a licensee under the provisions of Subarticle 4 (commencing with Section 80.8300), Article 9 of this Subchapter and which relates to an event that occurs before a license is issued to an applicant shall be filed with the Commissioner not less than five business days before such license is issued, notwithstanding the fact that the provision which requires such report may allow a longer time for filing the report.

NOTE

Authority cited: Section 33202, Financial Code. Reference: Section 33203, Chapter 4, Division 16, and Sections 33901 and 33902, Financial Code.

HISTORY

1. Change without regulatory effect amending section filed 8-19-97 pursuant to section 100, title 1, California Code of Regulations (Register 97, No. 34).

§80.4303. Implementation of Proposals.

Note • History

Not less than five business days before an applicant is issued a license, such applicant shall implement each of the proposals which it represented in its application for a license, explicitly or implicitly, that it would implement before commencing to transact in the State of California the business of selling payment instruments issued by it (for example, proposals to appoint officers, sell securities, or obtain financing) and shall file with the Commissioner a report regarding the implementation of each such proposal.

NOTE

Authority cited: Section 33202, Financial Code. Reference: Sections 33203, 33221, and 33223, Chapter 4, Division 16, Financial Code.

HISTORY

1. Change without regulatory effect amending section filed 8-19-97 pursuant to section 100, title 1, California Code of Regulations (Register 97, No. 34).

§80.4304. Certificate of Good Standing.

Note • History

In case an applicant is a foreign corporation, such applicant shall, not less than five business days before being issued a license, file with the Commissioner a Certificate of Good Standing--Foreign Corporation of the Secretary of State of the State of California, certifying that the applicant has qualified to transact intrastate business in the State of California and is in good corporate standing under the laws of the State of California.

NOTE

Authority cited: Section 33202, Financial Code. Reference: Section 33203 and Chapter 4, Division 16, Financial Code.

HISTORY

1. Change without regulatory effect amending section filed 8-19-97 pursuant to section 100, title 1, California Code of Regulations (Register 97, No. 34).

§80.4305. Report Regarding Directors, Executive Officers, and Balance Sheet.

Note • History

NOTE

Authority cited: Section 33202, Financial Code. Reference: Sections 33203 and 33221, and Chapter 4, Division 16, Financial Code.

HISTORY

1. Repealer filed 4-7-97; operative 4-7-97 pursuant to Government Code section 11343.4(d) (Register 97, No. 15).

§80.4306. Policy Regarding Agents.

Note • History

NOTE

Authority cited: Section 33202, Financial Code. Reference: Section 33202, Chapter 4, Division 16, Financial Code.

HISTORY

1. Change without regulatory effect amending subsection (b) filed 8-28-91 pursuant to section 100, title 1, California Code of Regulations (Register 92, No. 4).

2. Repealer filed 4-7-97; operative 4-7-97 pursuant to Government Code section 11343.4(d) (Register 97, No. 15).

§80.4307. Agreement.

Note • History

In accordance with Financial Code Section 33280, not less than five business days before an applicant is issued a license, such applicant shall file with the Commissioner an Agreement of Applicant for License Under Payment Instruments Law in the form of Department Form 5020, signed in the name of the applicant by an executive officer of the applicant. The signature of the applicant on such Agreement shall be acknowledged.

NOTE

Authority cited: Section 33202, Financial Code. Reference: Sections 33202 and 33280, and Chapter 4, Division 16, Financial Code.

HISTORY

1. Change without regulatory effect amending section filed 8-19-97 pursuant to section 100, title 1, California Code of Regulations (Register 97, No. 34).

§80.4308. Appointment of Commissioner as Agent for Service of Process.

Note • History

In accordance with Financial Code Section 33261, not less than five business days before an applicant is issued a license, such applicant shall file with the Commissioner an Appointment of Commissioner of Financial Institutions as Agent for Service of Process in the form of Department Form 5025, signed in the name of applicant by an executive officer of the applicant. The signature of the applicant on such Appointment shall be acknowledged.

NOTE

Authority cited: Section 33202, Financial Code. Reference: Sections 33203 and 33261, and Chapter 4, Division 16, Financial Code.

HISTORY

1. Change without regulatory effect amending section filed 8-19-97 pursuant to section 100, title 1, California Code of Regulations (Register 97, No. 34).

§80.4309. Authorization for Release of Information.

Note • History

Not less than five business days before an applicant is issued a license, such applicant shall file with the Commissioner an Authorization for Release of Information in the form of Department Form 5030, signed in the name of the applicant by an executive officer of the applicant. The signature of the applicant on such Authorization shall be acknowledged.

NOTE

Authority cited: Section 33202, Financial Code. Reference: Section 33203, Chapter 4, Division 16, and Section 33903, Financial Code.

HISTORY

1. Change without regulatory effect amending section filed 8-19-97 pursuant to section 100, title 1, California Code of Regulations (Register 97, No. 34).

§80.4310. Report Regarding Differences from Application.

Note • History

(a) Not more than 30 days nor less than five business days before an applicant is issued a license, such applicant shall file with the Commissioner a report signed by an executive officer of the applicant, stating whether or not the applicant or the applicant's plan for transacting in the State of California the business of selling payment instruments issued by it is or is to be different in any material respect from what was set forth in its application for a license and, if so, describing such difference.

(b) As an administrative standard, if the Commissioner finds that an applicant or the applicant's plan for transacting in the State of California the business of selling payment instruments issued by it is or is to be different in any material respect from what was set forth in its application for a license and that, if such difference had existed at the time when the Commissioner decided such application, the Commissioner would have denied the application, the Commissioner will revoke his approval of the application and will not issue a license to the applicant.

NOTE

Authority cited: Section 33202, Financial Code. Reference: Sections 33203, 33221, 33403 and 33406, Financial Code.

HISTORY

1. Change without regulatory effect amending section filed 8-19-97 pursuant to section 100, title 1, California Code of Regulations (Register 97, No. 34).

2. Amendment of subsection (a) and Note filed 4-14-98; operative 5-14-98 (Register 98, No. 16).

§80.4311. Expiration and Extension of Approval of Application for License.

Note • History

(a) The Commissioner's approval of an application for a license shall, unless extended by the Commissioner, expire one year after the date of such approval.

(b) An application for an extension of the Commissioner's approval of an application for a license shall contain the following information:

(1) Date on which the approval is scheduled to expire.

(2) Description of the applicant's progress to date in preparing to commence transacting in the State of California the business of selling payment instruments issued by it.

(3) Proposed timetable for completing preparations to commence transacting in the State of California the business of selling payment instruments issued by it.

(4) Amount of additional time requested for completing preparations to commence transacting in the State of California the business of selling payment instruments issued by it.

(5) Statement of reasons why such additional time is required for completing preparations to commence transacting in the State of California the business of selling payment instruments issued by it.

NOTE

Authority cited: Section 33202, Financial Code. Reference: Sections 33203 and 33220, and Chapter 4, Division 16, Financial Code.

HISTORY

1. Change without regulatory effect amending section filed 8-19-97 pursuant to section 100, title 1, California Code of Regulations (Register 97, No. 34).

§80.4312. License--Issuance and Expiration.

Note • History

(a) Not less than one business day before an applicant is issued a license, such applicant shall file with the Commissioner an application for the issuance of such license. Such applicant shall state the date on which the applicant proposes to commence transacting in the State of California the business of selling payment instruments issued by it, and shall be accompanied by the fee prescribed in Financial Code Section 33301(b).

(b) An applicant may commence transacting in the State of California the business of selling payment instruments issued by it on or after the date on which a license is issued to such applicant. However, such license shall expire on the earlier of the following dates unless the applicant shall have commenced transacting in the State of California the business of selling payment instruments issued by it on or before such date:

(1) Date on which the Commissioner's approval of the application for the license expires pursuant to Section 80.4311 of this Chapter.

(2) Thirtieth day after the date of the issuance of the license.

NOTE

Authority cited: Section 33202, Financial Code. Reference: Sections 33203, 33220, and 33301, and Chapter 4, Division 16, Financial Code.

HISTORY

1. Change without regulatory effect amending section filed 8-19-97 pursuant to section 100, title 1, California Code of Regulations (Register 97, No. 34).

§80.4313. Reports Regarding Commencement of Business, California Offices, and California Agents.

Note • History

Not more than five business days after commencing to transact in the State of California the business of selling payment instruments issued by it, an applicant shall file with the Commissioner a report containing the following information:

(a) State the date on which the applicant commenced to transact in the State of California the business of selling payment instruments issued by it.

(b) State the address and telephone number of each of the applicant's offices in the State of California at which the applicant transacts payment instrument business, and describe the payment instrument business conducted at each such office.

(c) In case the applicant had any California agents as of the date on which it commenced to transact in the State of California the business of selling payment instruments issued by it, provide the following information with respect to each California agent:

(1) State the name of each California agent.

(2) State the address and, if available, the telephone number of each reporting/remitting office of the California agent.

NOTE

Authority cited: Section 33202, Financial Code. Reference: Sections 33203, 33221, 33760 and 33902, Chapter 4, Division 16, Financial Code.

HISTORY

1. Amendment of section heading, and first paragraph, new subsections (c)-(c)(2) and amendment of Note filed 4-7-97; operative 4-7-97 pursuant to Government Code section 11343.4(d) (Register 97, No. 15).

2. Change without regulatory effect amending section and Note filed 8-19-97 pursuant to section 100, title 1, California Code of Regulations (Register 97, No. 34).

Article 6. Licensees

Subarticle 1. General Provisions

§80.5000. Scope.

Note

This Article contains regulations relating to licensees. This Subarticle contains general provisions relating to licensees. (Subarticle 2 of this Article is reserved.) Subarticle 3 (commencing with Section 80.5200) of this Article contains regulations relating to the sale by a licensee of payment instruments issued by it. Subarticle 4 (commencing with Section 80.5300) of this Article contains regulations relating to eligible securities.

NOTE

Authority cited: Section 33202, Financial Code. Reference: Chapter 5, Division 16, Financial Code.

Subarticle 3. Sale of Payment Instruments

§80.5200. Scope.

Note

This Subarticle contains regulations relating to the sale by a licensee of payment instruments issued by it.

NOTE

Authority cited: Section 33202, Financial Code. Reference: Article 2, Chapter 5, Division 16, Financial Code.

§80.5201. Forms of Payment Instruments.

Note • History

(a) An application by a licensee for approval under Financial Code Section 33521 of the form of a payment instrument issued by such licensee shall contain the following:

(1) Provide a specimen copy of the form of payment instrument.

(2) In case the licensee proposes to sell the form of payment instrument only in certain circumstances (for example, only through a certain California agent or type of California agent or only in certain geographical areas), describe such circumstances.

(b) As an administrative standard, the Commissioner will generally deny an application by a licensee for approval of a form of payment instrument issued by such licensee which identifies the agent through which the licensee proposes to sell such form of payment instrument unless such form of payment instrument (1) indicates that such agent is an agent of the licensee and (2) identifies the licensee at least as conspicuously as it does the agent.

NOTE

Authority cited: Section 33202, Financial Code. Reference: Sections 33220 and 33521, Financial Code.

HISTORY

1. Change without regulatory effect amending section filed 8-19-97 pursuant to section 100, title 1, California Code of Regulations (Register 97, No. 34).

§80.5202. Clearing Banks.

Note • History

An application by a licensee for approval of a clearing bank under Financial Code Section 33522 shall state the name of the clearing bank, the address of the head office of the clearing bank, and the address and telephone number of the office of the clearing bank on which payment instruments issued by the licensee are to be drawn or at or through which such payment instruments are to be payable.

NOTE

Authority cited: Section 33202, Financial Code. Reference: Sections 33220 and 33522, Financial Code.

HISTORY

1. Amendment filed 4-7-97; operative 4-7-97 pursuant to Government Code section 11343.4(d) (Register 97, No. 15).

Subarticle 4. Eligible Securities

§80.5300. Scope.

Note

This Subarticle contains regulations relating to eligible securities.

NOTE

Authority cited: Section 33202, Financial Code. Reference: Article 3, Chapter 5, Division 16, Financial Code.

§80.5301. Ownership--Ability to Transfer.

Note

(a) For purposes of Financial Code Section 33561(a)(3), a licensee shall not be deemed to be able freely to otherwise transfer an eligible security which consists of a deposit in a bank or savings and loan association unless such licensee is able freely to withdraw such deposit. However, if the deposit is a savings or time deposit and is subject to restrictions on withdrawal usually imposed on a savings or time deposit, as the case may be, the licensee shall not, on account of such restrictions, be deemed unable freely to withdraw the deposit.

(b) For purposes of Financial Code Section 33561(a)(3), a licensee shall not be deemed to be able freely to negotiate, assign, or otherwise transfer an eligible security if any negotiation, assignment, or other transfer of such eligible security would constitute a breach or event of default by such licensee or by any affiliate of the licensee under any contract, obligation, note, or other security issued by the licensee or by any affiliate of the licensee. For example, for purposes of Financial Code Section 33561(a)(3), a licensee shall not be deemed to be able freely to negotiate, assign, or otherwise transfer an eligible security which consists of a deposit in a bank if such licensee's failure to maintain such deposit would constitute a breach of a provision for compensating balances set forth in a loan contract between such bank and the licensee or a parent of the licensee.

NOTE

Authority cited: Section 33202, Financial Code. Reference: Section 33561, Financial Code.

§80.5302. Ownership--Documented Nominee.

Note

For purposes of Financial Code Section 33561 and this Subchapter, “documented nominee,” when used with respect to a licensee, means a partnership:

(b) The partners of which include no persons other than the licensee and officers and employees of the licensee;

(d) Which is beneficially owned solely and exclusively by the licensee; and

(e) Which is shown by the records of the licensee to comply with the provisions of Subdivisions (a) to (d), inclusive, of this Section.

NOTE

Authority cited: Section 33202, Financial Code. Reference: Sections 33561 and 33902, Financial Code.

§80.5303. Eligible Securities Rating Services.

Note • History

(a) Moody's Investors Service, Inc.

(b) Standard and Poor's Corporation.

NOTE

Authority cited: Section 33202, Financial Code. Reference: Section 33564, Financial Code.

HISTORY

1. Change without regulatory effect amending section filed 8-19-97 pursuant to section 100, title 1, California Code of Regulations (Register 97, No. 34).

§80.5304. Eligible Ratings.

Note • History

(a) Moody's Investors Service, Inc.:

(1) Corporate, state, and municipal bonds and railroad equipment trust certificates: Aaa, Aa, and A.

(2) Preferred stock: aaa, aa, and a.

(3) Commercial paper: P-1 and P-2.

(b) Standard and Poor's Corporation:

(1) Corporate, state, and municipal bonds and railroad equipment trust certificates: AAA, AA, and A.

(2) Preferred stock: AAA, AA, and A.

(3) Commercial paper: A-1 and A-2.

NOTE

Authority cited: Section 33202, Financial Code. Reference: Section 33565, Financial Code.

HISTORY

1. Change without regulatory effect amending section filed 8-19-97 pursuant to section 100, title 1, California Code of Regulations (Register 97, No. 34).

Article 8. Records

§80.7000. Scope.

Note

This Article contains regulations relating to the records of licensees.

NOTE

Authority cited: Section 33202, Financial Code. Reference: Section 33900, Financial Code.

§80.7001. Generally Accepted Accounting Principles.

Note

A licensee shall make, keep, and preserve records in such form, in such manner, and for such time as is in accordance with generally accepted accounting principles.

NOTE

Authority cited: Section 33202, Financial Code. Reference: Section 33900, Financial Code.

Article 9. Reports

Subarticle 1. General Provisions

§80.8000. Scope.

Note • History

This Article contains regulations relating to reports which licensees are required to file with the Commissioner. This Subarticle contains general provisions relating to reports which licensees are required to file with the Commissioner. Subarticle 2 (commencing with Section 80.8100) of this Article contains regulations relating to the annual report of a licensee. Subarticle 3 (commencing with Section 80.8200) of this Article contains regulations relating to the quarterly report of a licensee. Subarticle 4 (commencing with Section 80.8300) of this Article contains regulations relating to special reports of a licensee.

NOTE

Authority cited: Section 33202, Financial Code. Reference: Sections 33221, 33760, 33761, 33762, 33901, and 33902, Financial Code.

HISTORY

1. Change without regulatory effect amending section filed 8-19-97 pursuant to section 100, title 1, California Code of Regulations (Register 97, No. 34).

§80.8001. Definitions.

Note • History

In this Article:

(a) “Annual report,” when used with respect to a licensee, means a report which such licensee is required to file with the Commissioner pursuant to Financial Code Section 33901 and Subarticle 2 (commencing with Section 80.8100) of this Article.

(b) “Quarterly report,” when used with respect to a licensee, means a report which such licensee is required to file with the Commissioner pursuant to Subarticle 3 (commencing with Section 80.8200) of this Article.

(c) “Special report,” when used with respect to a licensee, means a report which such licensee is required to file with the Commissioner pursuant to Subarticle 4 (commencing with Section 80.8300) of this Article or an order issued by the Commissioner under Financial Code Section 33902.

NOTE

Authority cited: Section 33202, Financial Code. Reference: Sections 33221, 33760, 33761, 33762, 33901, and 33902, Financial Code.

HISTORY

1. Change without regulatory effect amending section filed 8-19-97 pursuant to section 100, title 1, California Code of Regulations (Register 97, No. 34).

§80.8002. Signature and Verification.

Note

An annual, quarterly, or special report of a licensee shall be signed in the name of such licensee by an officer of the licensee and shall be verified by such officer. Such verification shall state that the officer has read the report (including documents incorporated therein by reference), that he knows the contents of the report, and that the statements made in the report are true and correct.

NOTE

Authority cited: Section 33202, Financial Code. Reference: Sections 33221, 33760, 33761, 33762, 33901, and 33902, Financial Code.

Subarticle 2. Annual Reports

§80.8100. Scope.

Note

This Subarticle contains regulations relating to the annual report of a licensee.

NOTE

Authority cited: Section 33202, Financial Code. Reference: Sections 33221 and 33901, Financial Code.

§80.8101. Definition.

Note

In this Subarticle, “fiscal year” means the fiscal year of a licensee next preceding the filing of the annual report of such licensee.

NOTE

Authority cited: Section 33202, Financial Code. Reference: Sections 33221 and 33901, Financial Code.

§80.8102. Information Required.

Note

The annual report of a licensee shall contain the following:

(a) The information called for in Subdivisions (a) and (b) of Financial Code Section 33901.

(b) The information called for in Sections 80.8103 to 80.8110, inclusive, of this Chapter.

(c) The information called for in Sections 80.8204 to 80.8210, inclusive, of this Chapter, relating to the fourth quarter of the fiscal year.

NOTE

Authority cited: Section 33202, Financial Code. Reference: Sections 33221 and 33901, Financial Code.

§80.8103. Information Regarding Financial Statements.

Note • History

(a) In case the licensee has any subsidiaries, provide the financial statements called for in Financial Code Section 33901(a) on a consolidated basis.

(b) In case the licensee has a parent which is not a reporting company, provide the following financial statements of such parent on a consolidated basis.

(1) Balance sheet as of the end of the last fiscal year of the parent.

(2) Statement of income, a statement of shareholders' equity, and a statement of cash flows for the last fiscal year of the parent.

(c)(1) Provide a statement showing the amount of payment instruments issued and sold by the licensee during the fiscal year, detailing the amount sold in the State of California and the total amount sold.

(2) In case the fiscal year of the licensee is not a calendar year, provide a statement showing the amount of payment instruments issued and sold by the licensee during the last calendar year, detailing the amount sold in the State of California and the total amount sold.

(d) Provide a statement showing the amount of payment instruments issued and sold by the licensee which were reported outstanding as of the end of the fiscal year.

(e) Provide, if available, a statement showing the amount of payment instruments issued and sold by the licensee which were unpaid as of the end of the fiscal year.

(f) Provide a statement showing the amount of payment instruments issued and sold by the licensee which were pre-clears as of the end of the fiscal year.

NOTE

Authority cited: Section 33202, Financial Code. Reference: Sections 33221 and 33901, Financial Code.

HISTORY

1. Amendment of subsection (a), redesignation and amendment of subsections (b)(1)-(b)(1)(B) to (b)-(b)(2), and repealer of former subsections (b)(2) and (g) filed 4-7-97; operative 4-7-97 pursuant to Government Code section 11343.4(d) (Register 97, No. 15).

§80.8104. Information Regarding Directors and Executive Officers.

Note • History

(a) In this Section, to be “indebted” does not include indebtedness on account of any of the following:

(1) Any amount due for purchases subject to usual trade terms, for ordinary travel and expense advances, or for other transactions in the ordinary course of business.

(2) Any loan made by a bank, savings and loan association, industrial loan company, or securities broker-dealer extending credit under Regulation T of the Board of Governors of the Federal Reserve System, provided that such loans is made in the ordinary course of business, is made on substantially the same terms (including interest rate and collateral) as those prevailing at the time for comparable transactions with other persons, and does not involve more than normal risk of collectibility or present other unfavorable features.

(b) Provide a list showing, with respect to each person who was a director or executive officer of the licensee at the end of the fiscal year:

(1) Name.

(2) Title of each position held with the licensee.

(d) In case the licensee is neither a reporting company nor a bank nor a savings and loan association, if any person who at the end of the fiscal year was, or was an associate of, any director or executive officer of the licensee was at any time during the fiscal year indebted to the licensee or the licensee's subsidiaries (except any subsidiary which is a bank, savings and loan association, industrial loan company, or broker/dealer in securities extending credit under Regulation T of the Board of Governors of the Federal Reserve System) in an amount which in the aggregate exceeds $25,000 or 1 percent of the licensee's total assets, whichever is less, provide the following information:

(1) Identify the person, and describe the person's relationship to the licensee.

(2) Describe the nature of the indebtedness and of the transaction in which it was incurred.

(3) State the highest aggregate amount of the indebtedness outstanding at any time during the fiscal year.

(4) State the aggregate amount of the indebtedness currently outstanding.

(5) State the rate of interest paid or charged on the indebtedness.

NOTE

Authority cited: Section 33202, Financial Code. Reference: Sections 33221 and 33901, Financial Code.

HISTORY

1. Amendment of subsections (a)(2) and (d) filed 4-7-97; operative 4-7-97 pursuant to Government Code section 11343.4(d) (Register 97, No. 15).

§80.8105. Information Regarding Equity Security Owners.

Note

(a) Name.

(b) Business address.

(d) Amount and types of equity securities of the licensee or of a parent of the licensee owned by the person and the person's associates.

NOTE

Authority cited: Section 33202, Financial Code. Reference: Sections 33221 and 33901, Financial Code.

§80.8106. Information Regarding Affiliates.

Note • History

In case the licensee had a parent or any significant subsidiary as of the end of the fiscal year, provide a list or diagram which includes the applicant and which contains the following information with respect to each affiliate of the applicant which was, as of the end of the fiscal year, (i) a parent of the licensee, (ii) a significant subsidiary of such parent, (iii) a significant subsidiary of the licensee, or (iv) significantly involved in the payment instrument business of the licensee.

(a) State the name of the affiliate.

(b) Show the relationship of the affiliate to the licensee and to each other affiliate in the list or diagram. In case any affiliate which was a subsidiary was not wholly owned by its immediate parent, state the percentage of voting securities of such subsidiary which was owned by such immediate parent or the other basis upon which the subsidiary was controlled by the immediate parent.

(d) In case the affiliate was significantly involved in the payment instrument business of the licensee, briefly describe such involvement.

NOTE

Authority cited: Section 33202, Financial Code. Reference: Sections 33221 and 33901, Financial Code.

HISTORY

1. Amendment of subsection (b) filed 4-7-97; operative 4-7-97 pursuant to Government Code section 11343.4(d) (Register 97, No. 15).

§80.8107. Information Regarding California Offices.

Note

In case the licensee, as of the end of the fiscal year, maintained any offices in the State of California at which it transacted payment instrument business, provide the following information with respect to each such office:

(a) State the address and telephone number of the office.

(b) Describe the payment instrument business conducted at the office.

NOTE

Authority cited: Section 33202, Financial Code. Reference: Sections 33221 and 33901, Financial Code.

§80.8108. Information Regarding California Agents.

Note

In case the licensee had any California agents as of the end of the fiscal year, provide the following information with respect to each California agent:

(a) State the name of the California agent.

(b) State the address and, if available, the telephone number of each reporting/remitting office of the California agent.

NOTE

Authority cited: Section 33202, Financial Code. Reference: Sections 33221 and 33901, Financial Code.

§80.8109. Information Regarding Special Reports.

Note • History

In case the licensee has not filed with the Commissioner any of the special reports which it was required to file since the filing of its last quarterly report (or, if the licensee has not filed any quarterly report, since it became a licensee), file such special report concurrently with the filing of the annual report and explain in the annual report the reasons why the licensee failed to file the special report on a timely basis.

NOTE

Authority cited: Section 33202, Financial Code. Reference: Sections 33221, 33901, and 33902, Financial Code.

HISTORY

1. Change without regulatory effect amending section filed 8-19-97 pursuant to section 100, title 1, California Code of Regulations (Register 97, No. 34).

§80.8110. Information Regarding Certain Documents.

Note • History

NOTE

Authority cited: Section 33202, Financial Code. Reference: Sections 33221 and 33901, Financial Code.

HISTORY

1. Repealer filed 4-7-97; operative 4-7-97 pursuant to Government Code section 11343.4(d) (Register 97, No. 15).

Subarticle 3. Quarterly Reports

§80.8200. Scope.

Note

This Subarticle contains regulations relating to the quarterly report of a licensee.

NOTE

Authority cited: Section 33202, Financial Code. Reference: Sections 33221 and 33902, Financial Code.

§80.8201. Definition.

Note

In this Subarticle, “quarter” means the quarter of the fiscal year of a licensee next preceding the filing of the quarterly report of such licensee.

NOTE

Authority cited: Section 33202, Financial Code. Reference: Sections 33221 and 33902, Financial Code.

§80.8202. Filing and Information Required.

Note • History

Not more than 45 days after the end of each quarter (except the fourth quarter) of its fiscal year, a licensee shall file with the Commissioner a quarterly report containing the information called for in Sections 80.8203 to 80.8211, inclusive, of this Chapter.

NOTE

Authority cited: Section 33202, Financial Code. Reference: Sections 33221 and 33902, Financial Code.

HISTORY

1. Change without regulatory effect amending section filed 8-19-97 pursuant to section 100, title 1, California Code of Regulations (Register 97, No. 34).

§80.8203. Information Regarding Financial Statements.

Note • History

(a) In case the licensee is not a reporting company, provide the following financial statements of the licensee on a nonconsolidated basis:

(1) Balance sheet as of the end of the quarter.

(2) Statement of income for the quarter.

(b) Provide a statement showing the amount of payment instruments issued and sold by the licensee which were reported outstanding as of the end of the quarter.

(c) Provide, if available, a statement showing the amount of payment instruments issued and sold by the licensee which were unpaid as of the end of the quarter.

(d) Provide a statement showing the amount of payment instruments issued and sold by the licensee which were pre-clears as of the end of the quarter.

NOTE

Authority cited: Section 33202, Financial Code. Reference: Sections 33221 and 33902, Financial Code.

HISTORY

1. Relettering of subsection (e) to subsection (d) filed 4-7-97; operative 4-7-97 pursuant to Government Code section 11343.4(d) (Register 97, No. 15).

§80.8204. Information Regarding Eligible Securities.

Note

(a) State whether or not the licensee complied with the provisions of Financial Code Section 33567 at all times during the quarter, and, if not, describe the circumstances.

(b) Provide a statement of the eligible securities owned by the licensee as of the end of the quarter, showing the total value of such eligible securities, as determined in accordance with Financial Code Section 33560(g), and containing the following information with respect to each eligible security:

(2) State the value of the security, as determined in accordance with Financial Code Section 33560(g).

(3) In case the qualification of the security as an eligible security depends upon the assignment of an eligible rating by an eligible by an eligible securities rating service, state the rating assigned to the security by an eligible securities rating service and identify such eligible securities rating service.

(c) In case any of the eligible securities included in the statement called for in Subdivisions (b) of this Section is owned of record by a documented nominee of the licensee which is not listed as such in the current edition of the Nominee List published by the American Society of Corporate Secretaries, Inc., state the name of such documented nominee.

NOTE

Authority cited: Section 33202, Financial Code. Reference: Sections 33221 and 33902, Financial Code.

§80.8205. Information Regarding Extensions of Credit.

Note

(a) In case the licensee or any affiliate of the licensee which is significantly involved in the payment instrument business of the licensee (other than a licensee or affiliate which is a bank) has extended credit or committed to extend credit in an amount exceeding $25,000 directly or indirectly to, or for the benefit of, any agent of the licensee (other than an agent which is a subsidiary of the licensee) and such extension of credit or commitment was outstanding at the end of the quarter, identify the parties and describe the terms of the transaction.

NOTE

Authority cited: Section 33202, Financial Code. Reference: Sections 33221 and 33902, Financial Code.

§80.8206. Information Regarding Changes in Business, Policies, or Operations.

Note • History

NOTE

Authority cited: Section 33202, Financial Code. Reference: Sections 33221 and 33902, Financial Code.

HISTORY

1. Repealer filed 4-7-97; operative 4-7-97 pursuant to Government Code section 11343.4(d) (Register 97, No. 15).

§80.8207. Information Regarding Changes in Accounting Policies.

Note

In case there was any material change in the accounting policies of the licensee during the quarter, describe such change.

NOTE

Authority cited: Section 33202, Financial Code. Reference: Sections 33221 and 33902, Financial Code.

§80.8208. Information Regarding Changes in Articles.

Note • History

NOTE

Authority cited: Section 33202, Financial Code. Reference: Sections 33221 and 33902, Financial Code.

HISTORY

1. Repealer filed 4-7-97; operative 4-7-97 pursuant to Government Code section 11343.4(d) (Register 97, No. 15).

§80.8209. Information Regarding Changes in Board or Executive Officer Staff.

Note • History

NOTE

Authority cited: Section 33202, Financial Code. Reference: Sections 33221 and 33902, Financial Code.

HISTORY

1. Repealer filed 4-7-97; operative 4-7-97 pursuant to Government Code section 11343.4(d) (Register 97, No. 15).

§80.8210. Information Regarding Payment Instrument or Travelers Check Licenses.

Note • History

(a) In case the licensee obtained any new payment instrument or travelers check license during the quarter from a governmental agency within the United States, provide the following information with respect to each such license:

(1) Name, address, and, if available, telephone number of the governmental agency by which the license was issued.

(2) Business which the applicant is authorized to transact under the license.

(3) Any material conditions to which the license is subject.

(b) In case any application by the licensee for a new payment instrument or travelers check license was denied during the quarter by a governmental agency within the United States, provide a copy of the order, decision, or other instrument by which such application was denied.

(c) In case any payment instrument or travelers check license of the licensee which was issued by governmental agency within the United States was suspended, revoked, voluntarily surrendered, or otherwise terminated during the quarter or in case any payment instrument or travelers check license of the licensee which was issued by a governmental agency outside the United States was suspended, revoked, or otherwise involuntarily terminated (other than for nonpayment of fees) during the quarter, provide the following information:

(1) State the name, address, and, if available, telephone number of the governmental agency by which the license was issued.

(2) Describe the business which the applicant was authorized to transact under the license.

(3) State the date on which the license was terminated.

(4) State the reasons why the license was terminated.

NOTE

Authority cited: Section 33202, Financial Code. Reference: Sections 33221 and 33902, Financial Code.

HISTORY

1. Repealer of subsection (a)(2) and subsection renumbering filed 4-7-97; operative 4-7-97 pursuant to Government Code section 11343.4(d) (Register 97, No. 15).

§80.8211. Information Regarding Filing of Special Reports.

Note • History

In case the licensee has not filed with the Commissioner any of the special reports which the licensee was required to file since the filing of its last quarterly or annual report, whichever was filed more recently (or, in case the licensee has not filed any quarterly or annual report, since it became a licensee), file such special report concurrently with the filing of the quarterly report and explain in the quarterly report the reasons why the licensee failed to file the special report on a timely basis.

NOTE

Authority cited: Section 33202, Financial Code. Reference: Sections 33221 and 33902, Financial Code.

HISTORY

1. Change without regulatory effect amending section filed 8-19-97 pursuant to section 100, title 1, California Code of Regulations (Register 97, No. 34).

Subarticle 4. Special Reports

§80.8300. Scope.

Note

This Subarticle contains regulations relating to special reports of a licensee.

NOTE

Authority cited: Section 33202, Financial Code. Reference: Sections 33221, 33760, 33761, 33762, and 33902, Financial Code.

§80.8301. California Offices.

Note • History

NOTE

Authority cited: Section 33202, Financial Code. Reference: Sections 33221 and 33902, Financial Code.

HISTORY

1. Repealer filed 4-7-97; operative 4-7-97 pursuant to Government Code section 11343.4(d) (Register 97, No. 15).

§80.8302. California Agents.

Note • History

NOTE

Authority cited: Section 33202, Financial Code. Reference: Sections 33221, 33760, 33761, 33762, and 33902, Financial Code.

HISTORY

1. Repealer filed 4-7-97; operative 4-7-97 pursuant to Government Code section 11343.4(d) (Register 97, No. 15).

§80.8303. Fidelity Bond.

Note • History

NOTE

Authority cited: Section 33202, Financial Code. Reference: Sections 33221 and 33902, Financial Code.

HISTORY

1. Change without regulatory effect amending section filed 8-19-97 pursuant to section 100, title 1, California Code of Regulations (Register 97, No. 34).

§80.8304. Change in Control.

Note • History

(a) In this Section, for a person to “take action to acquire control” of a licensee means for the person to:

(1) Make a tender offer for, a request or invitation for tenders of, or an offer to exchange securities for, securities of the licensee or a parent of the licensee, if the person would by consummation thereof acquire control of the licensee;

(2) Make an agreement (including an agreement to merge a parent of the licensee or to purchase securities of the licensee or of a parent of the licensee), if the person would by consummation thereof acquire control of the licensee; or

(3) Acquire control of the licensee.

(b) Whenever any person takes action to acquire control of a licensee, such licensee shall, within 10 business days, file with the Commissioner a report containing the following information:

(1) Identify the person.

(2) Describe the action taken to acquire control of the licensee, including:

(A) Identify the party from whom the person acquired or proposes to acquire control of the licensee.

(B) State the nature, amount, and source of consideration paid or proposed to be paid for control of the licensee. Describe the basis on which the person controls or proposes to control the licensee, and state the percentage of voting securities of the licensee which the person owns or proposes to own, directly or indirectly, of record or beneficially.

(3) In case the person participates or proposes to participate in the management or operations of the licensee, describe such participation.

(4) Provide a copy of each of the last three annual reports of the person to its shareholders, a copy of any interim report issued by the person to its shareholders since the last annual report, and a copy of the last proxy or information statement issued by the person.

NOTE

Authority cited: Section 33202, Financial Code. Reference: Sections 33221 and 33902, Financial Code.

HISTORY

1. Repealer of subsection (b)(5) filed 4-7-97; operative 4-7-97 pursuant to Government Code section 11343.4(d) (Register 97, No. 15).

2. Change without regulatory effect amending section filed 8-19-97 pursuant to section 100, title 1, California Code of Regulations (Register 97, No. 34).

§80.8305. Acquisition or Disposition of Assets.

Note • History

NOTE

Authority cited: Section 33202, Financial Code. Reference: Sections 33221 and 33902, Financial Code.

HISTORY

1. Repealer filed 4-7-97; operative 4-7-97 pursuant to Government Code section 11343.4(d) (Register 97, No. 15).

§80.8306. Filings with Securities and Exchange Commission.

Note • History

(a) Whenever a licensee or a parent of a licensee files with the Securities and Exchange Commission a registration statement (other than a registration statement in the form of Securities and Exchange Commission Form S-8) pursuant to the Securities Act of 1933 and regulations of the Securities and Exchange Commission issued thereunder or a notification pursuant to Regulation A, E, or F of the Securities and Exchange Commission, such licensee shall, within 10 business days, file with the Commissioner a report containing a copy of such document.

(b) Whenever a licensee or a parent of a licensee files with the Securities and Exchange Commission a registration statement, report, proxy or information statement, or other document pursuant to Section 12, 13, or 14 the Securities Exchange Act of 1934 or regulations of the Securities and Exchange Commission issued thereunder, such licensee shall, within 10 business days, file with the Commissioner a report containing a copy of such document.

(c) Whenever a licensee or a parent of a licensee files with the Securities and Exchange Commission an amendment of any document referred to in Subdivision (a) or (b) of this Section, such licensee shall, within 10 business days, file with the Commissioner a report containing a copy of such amendment.

NOTE

Authority cited: Section 33202, Financial Code. Reference: Sections 33221 and 33902, Financial Code.

HISTORY

1. Change without regulatory effect amending section filed 8-19-97 pursuant to section 100, title 1, California Code of Regulations (Register 97, No. 34).

§80.8307. Reports to Holders of Securities.

Note • History

NOTE

Authority cited: Section 33202, Financial Code. Reference: Sections 33221 and 33902, Financial Code.

HISTORY

1. Repealer filed 4-7-97; operative 4-7-97 pursuant to Government Code section 11343.4(d) (Register 97, No. 15).

§80.8308. Defaults and Events of Insolvency.

Note • History

Whenever any of the following events involving a licensee occurs, such licensee shall immediately file with the Commissioner a report describing the circumstances:

(a) If the licensee without probable legal cause dishonors or defaults in the payment of any payment instrument, travelers check, note, or other security.

NOTE

Authority cited: Section 33202, Financial Code. Reference: Sections 33221 and 33902, Financial Code.

HISTORY

1. Change without regulatory effect amending section filed 8-19-97 pursuant to section 100, title 1, California Code of Regulations (Register 97, No. 34).

§80.8309. Legal Proceedings.

Note • History

(a) For purposes of this section:

(1) A proceeding involving a licensee or a subsidiary of a licensee shall not be deemed to be material:

(A) If the proceeding is ordinary routine litigation incidental to the business of the licensee or of the subsidiary; or

(2) Notwithstanding the provisions of Paragraph (1) of this Subdivision (a), each of the following proceedings shall be deemed to be material:

(A) Any material proceeding in which any affiliate of the licensee or any person who is, or who is an associate of, any (i) director, (ii) executive officer, or (iii) five percent voting security owner of the licensee, is a party adverse to, or has a material interest adverse to, the licensee or any subsidiary of the licensee.

(B) Any bankruptcy, receivership, or similar proceeding.

(1) Title of the proceeding.

(2) Name and address of the court or of the governmental agency before which the proceeding was commenced.

(3) Names of the principal parties to the proceeding.

(4) Date the proceeding was commenced.

(5) Description of the factual basis alleged to underlie the proceeding.

(6) Relief sought in the proceeding.

(c) Whenever a licensee or any subsidiary of a licensee becomes the subject of any of the following proceedings by or before any court or governmental agency, such licensee shall within 10 business days, file with the Commissioner a report describing such proceeding, including the information called for in Paragraphs (1) to (6), inclusive, of Subdivision (b) of this Section.

(1) Proceeding to revoke or suspend a license or other authorization or qualification of the licensee or subsidiary to transact the business of issuing or selling payment instruments, the business of issuing or selling travelers checks, the business of banking, or the business of a bank holding company.

(2) Proceeding to prohibit, temporarily or permanently, the licensee or subsidiary from transacting any business of the kind referred to in Paragraph (1) of this Subdivision (c) or from engaging in any conduct or practice with respect to any such business.

(d) Whenever any proceeding of the type referred to in Subdivision (b) or (c)of this Section is concluded, the licensee shall, within 10 business days, file with the Commissioner a report identifying the proceeding and describing the conclusion of the proceeding.

NOTE

Authority cited: Section 33202, Financial Code. Reference: Sections 33221 and 33902, Financial Code.

HISTORY

1. Change without regulatory effect amending section filed 8-19-97 pursuant to section 100, title 1, California Code of Regulations (Register 97, No. 34).

§80.8310. Criminal Proceedings.

Note • History

(a) Whenever the chief executive officer of a licensee, the chief financial officer of a licensee, or the person in charge of the payment instrument business of a licensee is charged by complaint, information, or indictment with a crime against the interests of, or a crime relating to the business of, such licensee or any parent or subsidiary of the licensee or a crime involving fraud or dishonesty, the licensee shall, within 10 business days, file with the Commissioner a report containing the following information:

(1) State the name of the person charged, and describe the relationship of the person with the licensee.

(2) State the date on which the charge was issued.

(3) State the name and address of the prosecuting agency.

(4) Summarize the allegations made by the prosecuting agency.

(b) Whenever any criminal proceeding of the type referred to in Subdivision (a) of this Section is concluded, the licensee shall, within 10 business days, file with the Commissioner a report identifying such criminal proceeding and describing the conclusion of the criminal proceeding.

NOTE

Authority cited: Section 33202, Financial Code. Reference: Sections 33221 and 33902, Financial Code.

HISTORY

1. Change without regulatory effect amending section filed 8-19-97 pursuant to section 100, title 1, California Code of Regulations (Register 97, No. 34).

Subchapter 95. Forms

§95.1. Scope.

Note • History

This Subchapter contains illustrations of selected Department forms.

NOTE

Authority cited for Subchapter 95 (Sections 95.1-95.2030, not consecutive): Sections 215, 3800.5, 31101 and 33202, Financial Code. Reference: Divisions 1, 15 and 16, Financial Code.

HISTORY

1. New Subchapter 95 (Sections 95.1-95.2030, not consecutive) filed 12-29-78; designated effective 3-1-79 (Register 79, No. 2).

§95.2. Personal Financial Statement.

Note • History

(a) The following is an illustration of the face side of Department Form 2:

Form 2

California Department of Financial Institutions

PERSONAL FINANCIAL STATEMENT FOR THE CONFIDENTIAL USE OF

THE COMMISSIONER OF FINANCIAL INSTITUTIONS, STATE OF CALIFORNIA

Name

Address

Business or Occupation

Embedded Graphic 10.0001

(b) The following is an illustration of the reverse side of Department Form 2:

STOCKS, BONDS, AND OTHER INVESTMENTS

Embedded Graphic 10.0002

The undersigned hereby certifies that the foregoing statement has been carefully read by the undersigned, that it is a true and correct statement of the undersigned's financial condition. This statement may be retained by the Commissioner of Financial Institutions, State of California, for confidential official use.

The foregoing is a statement of my financial condition on __________, 19___.

Date signed Sign here

NOTE

Authority cited: Section 215, Financial Code.

HISTORY

1. Change without regulatory effect amending section and adding new Note filed 8-19-97 pursuant to section 100, title 1, California Code of Regulations (Register 97, No. 34).

§95.3. Confidential Resume.

Note • History

The following is an illustration of Department Form 3:

Form 3

California Department of Financial Institutions

Embedded Graphic 10.0003

NOTE

Authority cited: Section 215, Financial Code.

HISTORY

1. Change without regulatory effect amending section and adding new Note filed 8-19-97 pursuant to section 100, title 1, California Code of Regulations (Register 97, No. 34).

§95.10. Application for Authority to Organize Bank.

Note • History

The following is an illustration of Department Form 10:

Form 10 (7-1-97)

California Department of Financial Institutions

APPLICATION FOR AUTHORITY TO ORGANIZE BANK

(Facing Page)

To: Commissioner of Financial Institutions Date:

The undersigned hereby apply for authority to organize and establish a corporation under the laws of the State of California to engage in:

( ) commercial banking business ( ) trust business (Check one or both)

(Street address or vicinity)

under the name

with shareholders' equity of $

The documents attached hereto are hereby referred to any by this reference incorporated herein.

The person authorized to represent the applicants in connection with this application is:

Name: Telephone:

Address:

APPLICANTS

Name and

Business or Occupation Address Signature

(If additional space is required, continue on attached sheet.)

(This is a facing page only. For instructions on completing and signing this application, refer to the Regulations of the Commissioner of Financial Institutions. Signatures must be acknowledged.)

NOTE

Authority cited: Section 215, Financial Code. Reference: Section 360, Financial Code.

HISTORY

1. Change without regulatory effect amending section and adding new Note filed 8-19-97 pursuant to section 100, title 1, California Code of Regulations (Register 97, No. 34).

§95.20. Application by California State Bank for Authority to Establish Office.

Note • History

NOTE

Authority cited: Section 215, Financial Code. Reference: Sections 501 and 542, Financial Code.

HISTORY

1. Change without regulatory effect amending section and adding new Note filed 8-19-97 pursuant to section 100, title 1, California Code of Regulations (Register 97, No. 34).

2. Repealer filed 5-6-98; operative 6-5-98 (Register 98, No. 19).

§95.22. Application by California State Bank for Approval to Relocate Office.

Note • History

NOTE

Authority cited: Section 215, Financial Code. Reference: Sections 420, 507 and 546, Financial Code.

HISTORY

1. Change without regulatory effect amending section and adding new Note filed 8-19-97 pursuant to section 100, title 1, California Code of Regulations (Register 97, No. 34).

2. Repealer filed 5-6-98; operative 6-5-98 (Register 98, No. 19).

§95.24. Application by California State Bank for Authority to Discontinue Office.

History

HISTORY

1. Repealer filed 5-6-98; operative 6-5-98 (Register 98, No. 19).

§95.25. Uniform California Application/Notice Form.

Note • History

The following is an illustration of Department Form 25 and of the instructions for Department Form 25:

Form 25 (3/11/98)

California Department of

Financial Institutions

Uniform California Application/Notice

Embedded Graphic 10.0004

Report for Exempted Transaction? (Yes/No)

APPLICANT INFORMATION:

Name:

Address: City State Zip Code

Correspondent's Name:

Address: City State Zip Code

LOCATION:

Official Name of Branch:

Proposed Address:

City County State Zip Code

Address of Office

to be Discontinued:

City County State Zip Code

Proposed Date

APPLICATION DETAILS:

1. Please briefly describe the services to be provided from the location, or in the case of a discontinuance, services which will no longer be provided.

2. Are premises or equipment to be purchased or leased from an officer, director or ten (10) percent shareholder in connection with this application? If so, provide details.

3. Please provide a brief statement as to why the subject of this application will promote the public convenience and advantage, or not have a material adverse effect on the public convenience and advantage.

4. Is the establishment or relocation of the branch consistent with intrastate branching restrictions which may exist in the state where the branch is located?

5. If there is any requirement to provide prior notification to the bank's customers, or general public notification through newspaper publication, please provide the date and place of such notification.

(Branch Discontinuance requires 90-days prior notice to appropriate federal agency)

For Applications Involving Branch Offices Only (Information for federal purposes):

6. If the bank's last CRA rating was not at least satisfactory, please provide a detailed explanation of how the subject of this application will promote the bank's efforts to meet its CRA goals, and correct any current deficiencies.

7. If enacted, will the subject of this application result in the demolition or significant alternation of any structure which may have historic or cultural significance? For FDIC purposes, non-member banks must also provide a letter from the State Office of Historic Preservation.

8. Does the proposed branch comply with local zoning ordinances?

Officer's Signature: Date:

Name: Title:

Uniform Application

California and Interstate

Application Instructions

I. GENERAL INFORMATION

A version of this “Uniform Application” was developed by the State/Federal Working Group for the purpose of reducing regulatory burden, by elimination of the need for banks to file multiple different application forms for common applications. By providing the information in this application/notice, applicant will meet the requirements of the California Department of Financial Institutions. It is expected that a version of this application form will be adopted by the FDIC, FRB and all other State Banking Departments in the future. In the minority of cases where additional information is required, you will receive a separate request for additional information to supplement the application. You may also use the top part of this form for filing a “Notice” where no formal application is required.

II. FILING INSTRUCTIONS

File one copy of this application with the California Department of Financial Institutions in the regional office where you are located. If application involves an interstate activity, there is no need to file a separate application with any state except your home state.

Banks with a CAMELS rating of 1 or 2 are exempt from the application process, and need only file the top part of the form as a notice or report.

III. TYPE OF APPLICATION

Check the appropriate box for establishment, relocation, or discontinuance. Also check whether the application concerns a “branch office”; “place of business” other than a branch office such as a “loan production office” (LPO) or representative office; or an automated service location such as a stand alone automated teller machine, or cash dispensing machine. The activity conducted at the location will determine whether the office is considered a “branch” under state or federal statutes. Note if the Form is being used to file a report of an exempted transaction.

IV. APPLICANT INFORMATION

A. Name and Address: Bank's full name and headquarters office address.

B. Correspondent: Provide the name and address of the individual the bank wants to handle any inquiries or requests concerning this application.

C. Popular Name: Please indicate the popular or official name of the office or proposed office such as “Main Street Office” or “Produce Mart Office.”

D. Proposed Location: Provide the complete street address of the location where the bank wishes to establish or relocate a new physical facility.

E. Address of Office

to be Discontinued: If the application involves the discontinuance, or relocation of an existing facility, provide the address of the location where the business will be discontinued.

For additional information on the application process, you may wish to contact the Assistant Deputy Commissioner assigned to your bank.

V. APPLICATION DETAILS

This part of the Form applies only in cases where the applicant is required to file an application or notice of discontinuance. However, this part of the Form does not apply in cases where the applicant proposes to relocate or discontinue an automated teller machine branch office. In any event, the applicant should provide all information required by appliciable statutes. The information provided by the applicant in response to this part of the Form should be set forth on continuation pages attached to the Form.

1. Only a brief description is necessary, such as “full service branch”, or “mortgage loan origination”. It is not necessary to provide a complete laundry list of proposed activities, but just the principal purpose of the office.

2. If the proposed transaction will result in the purchase or lease of any asset from an “insider” (officer, director or 10 percent equity security holder) or one of his/her interests, or will result in the payment of money to an “insider” or one of his/her interests for services, please provide details.

3. Provide an affirmative statement as to why the proposed transaction meets relevant standards for public convenience and advantage. Brief comments such as “will be adding new services” or “new competitor to the area” will generally be sufficient. In cases where the public benefit from the transaction becomes more problematic, the response will call for greater detail of the perceived benefits.

4. “The Riegle-Neal Interstate Banking and Branching Efficiency Act” makes initial entry, and subsequent branch expansion, subject to the laws of the individual states where the branch is to be located. If the state where the branch is to be located imposes limitations on the establishment of branch offices, please provide an affirmative statement that the proposed branch office will be in compliance with any restrictions in existence.

5. California and your primary federal regulator have requirements for public notification of the establishment, and particularly the discontinuance, of any branch office. In response to this question, please provide information concerning what public notification steps have been undertaken or contemplated. Your response will be evaluated in relation to statutory requirements. Some relocations may be considered branch closures, and subject to the customer notice requirement of 90 days specified in the “FFIEC Policy Statement Concerning Branch Closing Policies” issued in September 1993.

The following three questions apply only to applications involving the establishment of new branches to comply with specific federal requirements. These questions need not be answered for applications filed only with the California Department of Financial Institutions.

6. The primary federal regulator, and many state regulators, are required to consider the bank's compliance with the Community Reinvestment Act (“CRA”), or a state equivalent, before approving new branch offices. If the bank's most recent “CRA” evaluation was not at least satisfactory, you must provide detailed justification as to why the deficiencies in the bank's “CRA” evaluation should not preclude approval of the branch application. Where the bank's most recent CRA evaluation was “Needs to Improve” or worse, you should consult with your appropriate regulator before filing an application for a branch office.

7. Banks not members of the Federal Reserve System should provide an affirmative statement as to whether the site is included in or eligible for inclusion in the National Register of Historic Places. In the case of applications to establish or relocate a branch office, please provide evidence that clearance has been obtained from the State Historic Preservation Officer (SHPO). FDIC will act on applications prior to obtaining SHPO clearance; however, such approvals will be expressly conditioned upon obtaining clearance.

8. Please provide an affirmative statement that the establishment of the proposed branch office will be in compliance with any relevant local zoning ordinances. For banks not a member of the Federal Reserve System, also briefly indicate the effect upon local traffic patterns.

NOTE

Authority cited: Section 215, Financial Code. Reference: Sections 490, 501, 507, 510, 511, 542, 546, 547, 552, 557 and 558, Financial Code.

HISTORY

1. New section filed 5-6-98; operative 6-5-98 (Register 98, No. 19).

2. Editorial correction of Form 25 (Register 98, No. 23).

§95.60. Application for Representative's License.

Note • History

NOTE

Authority cited: Section 215, Financial Code. Reference: Sections 6 and 7, Chapter 97, Statutes of 1981.

HISTORY

1. Repealer filed 10-15-81 as an emergency; effective upon filing (Register 81, No. 44). A Certificate of Compliance must be transmitted to OAL within 120 days or emergency language will be repealed on 2-12-82.

2. Certificate of Compliance transmitted to OAL 2-11-82 and filed 3-12-82 (Register 82, No. 11).

§95.62. Appointment of Superintendent as Agent for Service of Process.

Note • History

NOTE

Authority cited: Section 215, Financial Code. Reference: Sections 6 and 7, Chapter 97, Statutes of 1981.

HISTORY

2. Certificate of Compliance transmitted to OAL 2-11-82 and filed 3-12-82 (Register 82, No. 11).

§95.64. Appointment of Superintendent as Agent for Service of Process.

Note • History

NOTE

Authority cited: Section 215, Financial Code. Reference: Sections 6 and 7, Chapter 97, Statutes of 1981.

HISTORY

2. Certificate of Compliance transmitted to OAL 2-11-82 and filed 3-12-82 (Register 82, No. 11).

§95.66. Application for Approval to Relocate Office of Licensed Representative of Foreign Bank.

Note • History

NOTE

Authority cited: Section 215, Financial Code. Reference: Sections 6 and 7, Chapter 97, Statutes of 1981.

HISTORY

2. Certificate of Compliance transmitted to OAL 2-11-82 and filed 3-12-82 (Register 82, No. 11).

§95.70. Application by Foreign Bank to Establish Agency or Branch Office.

Note • History

NOTE

Authority cited: Section 215, Financial Code. Reference: Sections 6 and 7, Chapter 97, Statutes of 1981.

HISTORY

2. Certificate of Compliance transmitted to OAL 2-11-82 and filed 3-12-82 (Register 82, No. 11).

§95.72. Appointment of Superintendent as Agent for Service of Process.

Note • History

NOTE

Authority cited: Section 215, Financial Code. Reference: Sections 6 and 7, Chapter 97, Statutes of 1981.

HISTORY

2. Certificate of Compliance transmitted to OAL 2-11-82 and filed 3-12-82 (Register 82, No. 11).

§95.74. Application by Foreign Bank for Approval to Accept Foreign Deposits.

Note • History

NOTE

Authority cited: Section 215, Financial Code. Reference: Sections 6 and 7, Chapter 97, Statutes of 1981.

HISTORY

2. Certificate of Compliance transmitted to OAL 2-11-82 and filed 3-12-82 (Register 82, No. 11).

§95.76. Application by Foreign Bank for Approval to Relocate Agency or Branch Office.

Note • History

NOTE

Authority cited: Section 215, Financial Code. Reference: Sections 6 and 7, Chapter 97, Statutes of 1981.

HISTORY

2. Certificate of Compliance transmitted to OAL 2-11-82 and filed 3-12-82 (Register 82, No. 11).

§95.78. Application by Foreign Bank for Approval to Discontinue Agency or Branch Office.

Note • History

NOTE

Authority cited: Section 215, Financial Code. Reference: Sections 6 and 7, Chapter 97, Statutes of 1981.

HISTORY

2. Certificate of Compliance transmitted to OAL 2-11-82 and filed 3-12-82 (Register 82, No. 11).

§95.80. Oath of Manager of Agency or Branch Office of Foreign Bank.

Note • History

NOTE

Authority cited: Section 215, Financial Code. Reference: Sections 6 and 7, Chapter 97, Statutes of 1981.

HISTORY

2. Certificate of Compliance transmitted to OAL 2-11-82 and filed 3-12-82 (Register 82, No. 11).

§95.82. Application for Approval and Order: Deposit of Securities by Foreign Bank.

Note • History

NOTE

Authority cited: Section 215, Financial Code. Reference: Sections 6 and 7, Chapter 97, Statutes of 1981.

HISTORY

2. Certificate of Compliance transmitted to OAL 2-11-82 and filed 3-12-82 (Register 82, No. 11).

§95.84. Application for Order: Withdrawal of Securities by Foreign Bank.

Note • History

NOTE

Authority cited: Section 215, Financial Code. Reference: Sections 6 and 7, Chapter 97, Statutes of 1981.

HISTORY

2. Certificate of Compliance transmitted to OAL 2-11-82 and filed 3-12-82 (Register 82, No. 11).

§95.512. Report of Reserve Condition.

History

HISTORY

1. Change without regulatory effect repealing section filed 7-2-91 pursuant to section 100, title 1, California Code of Regulations (Register 91, No. 40).

§95.1010. Application for License as Business and Industrial Development Corporation.

Note • History

The following is an illustration of Department Form 1010:

Form 1010 (7-1-97)

California Department of Financial Institutions

APPLICATION FOR LICENSE AS BUSINESS AND INDUSTRIAL

DEVELOPMENT CORPORATION

(Facing Page)

To: Commissioner of Financial Institutions Date:_______________

Embedded Graphic 10.0005

(This is a facing page only. For instructions on completing and signing this application, refer to the Regulations of the Commissioner of Financial Institutions. The signature of the Applicant must be acknowledged.)

NOTE

Authority cited: Section 31101, Financial Code. Reference: Section 31107, Financial Code.

HISTORY

1. Change without regulatory effect amending section and adding new Note filed 8-19-97 pursuant to section 100, title 1, California Code of Regulations (Register 97, No. 34).

§95.1020. Appointment of Commissioner as Agent for Service of Process.

Note • History

The following is an illustration of Department Form 1020:

Form 1020 (7-1-97)

California Department of Financial Institutions

APPOINTMENT OF COMMISSIONER OF FINANCIAL INSTITUTIONS AS

AGENT FOR SERVICE OF PROCESS

(Name)

(Street Address)

, ,

(City) (State) (Zip Code)

(hereinafter referred to as the “Appointing Party”), in accordance with California Financial Code Section 31113, hereby irrevocably appoints the Commissioner of Financial Institutions of the State of California and his successor from time to time in office to be the Appointing Party's attorney to receive service of any lawful process in any noncriminal judicial or administrative proceeding against the Appointing Party, or any successor, executor, or administrator of the Appointing Party, which arises under the California Business and Industrial Development Corporations Law (Division 15 (commencing with Section 31000) of the California Financial Code) or under any regulation or order issued under the California Business and Industrial Development Corporations Law, with the same force and validity as if served personally on the Appointing Party.

The Appointing party is: (Check and complete one of the following.)

( ) An applicant for a license under the California Business and Industrial Development Corporation Law.

( ) A licensee under the California Business and Industrial Development corporations Law.

( ) An affiliate of ___________________________________, an applicant for a license

(Name of Applicant)

under the California Business and Industrial Development Corporations Law.

( ) An affiliate of __________________________________, a licensee under the California

(Name of Licensee)

Business and Industrial Development Corporations Law.

The definitions set forth in Article 3 (commencing with Section 31030), Chapter 1 of the California Business and Industrial Development Corporations Law shall apply to the provisions of this Appointment.

Dated: (Name of Appointing Party)

(Signature)

(Name and Title)

(The signature of the Appointing Party must be acknowledged.)

NOTE

Authority cited: Section 31101, Financial Code. Reference: Section 31113, Financial Code.

HISTORY

1. Change without regulatory effect amending section and adding new Note filed 8-19-97 pursuant to section 100, title 1, California Code of Regulations (Register 97, No. 34).

§95.1025. Agreement of Affiliate of Business and Industrial Development Corporation.

Note • History

The following is an illustration of Department Form 1025:

Form 1025 (7-1-97)

California Department of Financial Institutions

AGREEMENT OF AFFILIATE OF BUSINESS AND

INDUSTRIAL DEVELOPMENT CORPORATION

(Name of Affiliate)

(Street Address)

, ,

(City) (State) (Zip Code)

(Hereinafter referred to as the “Affiliate”), which is an affiliate of

(Name of Business and Industrial Development Corporation)

(hereinafter referred to as the “Business and Industrial Development Corporation”), hereby agrees with the Commissioner of Financial Institutions of the State of California and his successor from time to time in office (hereinafter referred to as the “Commissioner”) in accordance with California Financial Code Section 31153 that, if and so long as the Business and Industrial Development Corporation is a licensee under the California Business and Industrial Development Corporations Law (Division 15 (commencing with Section 31000) of the California Financial Code) and so long as the Affiliate continues to be an affiliate of the Business and Industrial Development Corporation, the Affiliate will comply with all applicable provisions of the California Business and Industrial Development Corporations Law, as said Law may be amended from time to time, and with all applicable provisions of any regulation or order which may be issued from time to time under the California Business and Industrial Development Corporations Law.

No waiver by the Commissioner of any failure of the Affiliate to comply with the Agreement shall be deemed to be a waiver of any failure to comply thereafter occurring.

This Agreement shall be governed by, and construed in accordance with, the laws of the State of California.

Dated: (Name of Affiliate)

(Signature)

(Name and Title)

(The signature of the Affiliate must be acknowledged.)

NOTE

Authority cited: Section 31101, Financial Code. Reference: Section 31153, Financial Code.

HISTORY

1. Change without regulatory effect amending section and adding new Note filed 8-19-97 pursuant to section 100, title 1, California Code of Regulations (Register 97, No. 34).

§95.2010. Small Business Loan Program: Application for Certification as Lender Participant.

Note • History

NOTE

Authority cited: Section 3800.5, Financial Code. Reference: Chapter 22, Division 1, Financial Code.

HISTORY

1. Repealer filed 2-17-83; effective thirtieth day thereafter (Register 83, No. 8).

§95.2020. Small Business Loan Program: Application to Record Loan.

Note • History

NOTE

Authority cited: Section 3800.5, Financial Code. Reference: Chapter 22, Division 1, Financial Code.

HISTORY

1. Repealer filed 2-17-83; effective thirtieth day thereafter (Register 83, No. 8).

§95.2030. Small Business Loan Program: Report of Default/Application for Payment.

Note • History

NOTE

Authority cited: Section 3800.5, Financial Code. Reference: Chapter 22, Division 1, Financial Code.

HISTORY

1. Repealer filed 2-17-83; effective thirtieth day thereafter (Register 83, No. 8).

§95.4010. Application for License Under Travelers Checks Act.

Note • History

The following is an illustration of Department Form 4010:

Form 4010 (7-1-97)

California Department of Financial Institutions

APPLICATION FOR LICENSE UNDER TRAVELERS CHECKS ACT

(Facing Page)

To: Commissioner of Financial Institutions Date:_______________

(Name of Applicant)

which maintains its principal place of business at

(Street address)

, ,

(City) (State or Nation) (Zip Code)

hereby applies for a license under the California Travelers Check Act.

The documents attached hereto are hereby referred to an by this reference incorporated herein.

(Name of Applicant)

(Signature)

(Name and Title)

(Telephone No.)

NOTE

Authority cited: Section 215, Financial Code. Reference: Article 3, Chapter 14A, Division 1, Financial Code.

HISTORY

1. New section filed 7-16-80; effective 7-2-80; designated effective 9-2-80 (Register 80, No. 29).

2. Amendment of section heading and form filed 4-7-97; operative 4-7-97 pursuant to Government Code section 11343.4(d) (Register 97, No. 15).

3. Change without regulatory effect amending section filed 8-19-97 pursuant to section 100, title 1, California Code of Regulations (Register 97, No. 34).

§95.4020. Contract of Applicant for License Under Travelers Checks Act.

Note • History

The following is an illustration of Department Form 4020:

Form 4020 (7-1-97)

California Department of Financial Institutions

CONTRACT OF APPLICANT FOR LICENSE UNDER TRAVELERS CHECK ACT

(Name of Applicant)

(hereinafter referred to as the “Applicant”), which is applying for a license under the California Travelers Checks Act (Chapter 14A (commencing with Section 1851), Division 1 of the California Financial Code), in accordance with California Financial Code Section 1858 and in consideration of the issuance to the Applicant of a license under the California Travelers Checks Act, hereby agrees with the State of California, by and through the Commissioner of Financial Institutions of the State of California, and his successor from time to time in office (hereinafter referred to as the “Commissioner”), that the Applicant shall comply with the laws of the State of California, all regulations and orders issued by the Commissioner, and all of the provisions, obligations, and requirements of the California Travelers Checks Act, including, but not limited to, the provisions of Article 6 (commencing with Section 1877) of the California Travelers Checks Act relating to examinations.

No waiver by the Commissioner of any failure of the Applicant to comply with this Contract shall be deemed to be a waiver of any failure to comply thereafter occurring.

This Contract shall be governed by, and construed in accordance with, the laws of the State of California.

Dated: (Name of Applicant)

(Signature)

(Name and Title)

(The signature of the Applicant must be acknowledged.)

NOTE

Authority cited: Section 215, Financial Code. Reference: Section 1858, Financial Code.

HISTORY

1. New section filed 7-16-80; designated effective 9-2-80 (Register 80, No. 29).

2. Change without regulatory effect amending section and Note filed 8-19-97 pursuant to section 100, title 1, California Code of Regulations (Register 97, No. 34).

§95.4025. Appointment of Commissioner of Financial Institutions as Agent for Service of Process.

Note • History

The following is an illustration of Department Form 4025:

Form 4025 (7-1-97)

California Department of Financial Institutions

APPOINTMENT OF COMMISSIONER OF FINANCIAL INSTITUTIONS

AS AGENT FOR SERVICE OF PROCESS

(Name of Applicant)

(hereinafter referred to as the “Applicant”), which is applying for a license under the California Payment Instruments Law (Division 16 (commencing with Section 33000) of the California Financial Code), in accordance with California Financial Code Section 33261, hereby irrevocably appoints the Commissioner of Financial Institutions of the State of California and his successor from time to time in office be the Applicant's agent to receive service of any lawful process in any noncriminal judicial or administrative proceeding against the Applicant, or any successor, executor, or administrator of the Applicant, which arises under the California Payment Instruments Law or under any regulation or order issued under the California Payment Instruments Law, with the same force and validity as if served personally on the Applicant.

Dated: (Name of Applicant)

(Signature)

(Name and Title)

(The signature of the Applicant must be acknowledged.)

NOTE

Authority cited: Section 215, Financial Code. Reference: Section 1859, Financial Code.

HISTORY

1. New section filed 7-16-80; designated effective 9-2-80 (Register 80, No. 29).

2. Change without regulatory effect amending section heading and section filed 8-19-97 pursuant to section 100, title 1, California Code of Regulations (Register 97, No. 34).

§95.4030. Authorization for Release of Information.

Note • History

The following is an illustration of Department Form 4030:

Form 4030 (7-1-97)

California Department of Financial Institutions

AUTHORIZATION FOR RELEASE OF INFORMATION

(Name of Applicant)

(hereinafter referred to as the “Applicant”), which is applying for a license under the California Payment Instruments Law (Division 16 (commencing with Section 33000) of the California Financial Code), hereby irrevocably authorizes any bank or other financial institution with which the Applicant may at any time transact business and any governmental agency which licenses or regulates issuers of payment instruments, issuers of travelers checks, or other financial institutions and which at any time has information or records regarding the Applicant, to furnish to the Commissioner of Financial Institutions of the State of California such information, and to permit him to inspect and copy such records, as he may request from time to time.

Dated: (Name of Applicant)

(Signature)

(Name and Title)

(The signature of the Applicant must be acknowledged.)

NOTE

Authority cited: Section 215, Financial Code. Reference: Article 4, Chapter 14A, Division 1 and Section 1877, Financial Code.

HISTORY

1. New section filed 7-16-80; designated effective 9-2-80 (Register 80, No. 29).

2. Change without regulatory effect amending section filed 8-19-97 pursuant to section 100, title 1, California Code of Regulations (Register 97, No. 34).

§95.4040. Application for Renewal of License Under Travelers Checks Act.

Note • History

NOTE

Authority cited: Section 215, Financial Code. Reference: Article 3, Chapter 14A, Division 1, Financial Code.

HISTORY

1. New Section filed 7-16-80; designated effective 9-2-80 (Register 80, No. 29).

2. Repealer filed 4-7-97; operative 4-7-97 pursuant to Government Code section 11343.4(d) (Register 97, No. 15).

§95.5010. Application for License Under Payment Instruments Law.

Note • History

The following is an illustration of Department Form 5010:

Form 5010 (7-1-97)

California Department of Financial Institutions

APPLICATION FOR LICENSE

UNDER PAYMENT INSTRUMENTS LAW

(Facing Page)

To: Commissioner of Financial Institutions Date:

(Name of Applicant)

which is corporation organized under the laws of

(State or Nation)

and which maintains its principal place of business at

(Street Address)

, ,

(City) (State or Nation) (Zip Code)

hereby applies for a license under the California Payment Instruments Law.

The documents attached hereto are hereby referred to and by this reference incorporated herein.

(Name of Applicant)

(Signature)

(Name and Title)

(Telephone No.)

NOTE

Authority cited: Section 33202, Financial Code. Reference: Section 33220 and Chapter 4, Division 16, Financial Code.

HISTORY

1. New Section filed 7-16-80; designated effective 9-2-80 (Register 80, No. 29.)

2. Change without regulatory effect amending section filed 8-19-97 pursuant to section 100, title 1, California Code of Regulations (Register 97, No. 34).

§95.5020. Agreement of Applicant for License Under Payment Instruments Law.

Note • History

The following is an illustration of Department Form 5020:

Form 5020 (7-1-97)

California Department of Financial Institutions

AGREEMENT OF APPLICANT FOR LICENSE UNDER

PAYMENT INSTRUMENTS LAW

(Name of Applicant)

(hereinafter referred to as the “Applicant”), which is applying for a license under the California Payment Instruments Law (Division 16 (commencing with Section 33000) of the California Financial Code, in accordance with California Financial Code Section 33280 and in consideration of the issuance to the Applicant of a license under the California Payment Instruments Law, hereby agrees with the Commissioner of Financial Institutions of the State of California and his successor from time to time in office (hereinafter referred to as the “Commissioner”), that the Applicant shall comply with all applicable provisions of the California Payment Instruments Law and of any regulations or order issued under the Payment Instruments Law.

No waiver by the Commissioner of any failure of the Applicant to comply with the Agreement shall be deemed to be a waiver of any failure to comply thereafter occurring.

The definitions set forth in Article 3 (commencing with Section 33040), Chapter 1 of the California Payment Instruments Law shall apply to the provisions of this Agreement.

This Agreement shall be governed by, and construed in accordance with, the laws of the State of California.

Dated: (Name of Applicant)

(Signature)

(Name and Title)

(The signature of the Applicant must be acknowledged.)

NOTE

Authority cited: Section 33202, Financial Code. Reference: Sections 33202 and 33280, and Chapter 4, Division 16, Financial Code.

HISTORY

1. New section filed 7-16-80; designated effective 9-2-80 (Register 80, No. 29).

2. Change without regulatory effect amending section filed 8-19-97 pursuant to section 100, title 1, California Code of Regulations (Register 97, No. 34).

§95.5025. Appointment of Commissioner of Financial Institutions as Agent for Service of Process.

Note • History

The following is an illustration of Department Form 5025:

Form 5025 (7-1-97)

California Department of Financial Institutions

APPOINTMENT OF COMMISSIONER OF FINANCIAL INSTITUTIONS

AS AGENT FOR SERVICE OF PROCESS

(Name of Applicant)

(hereinafter referred to as the “Applicant”), which is applying for a license under the California Travelers Checks Act (Chapter 14A (commencing with Section 1851) of the California Financial Code), in accordance with California Financial Code Section 1859, hereby irrevocably appoints the Commissioner of Financial Institutions of the State of California and his successor from time to time in office be the Applicant's agent to receive service of any lawful process in any noncriminal judicial or administrative proceeding against the Applicant, or any successor, executor, or administrator of the Applicant, which arises under the California Travelers Checks Act or under any regulation or order issued under the California Travelers Checks Act, with the same force and validity as if served personally on the Applicant.

Dated: (Name of Applicant)

(Signature)

(Name and Title)

(The signature of the Applicant must be acknowledged.)

NOTE

Authority cited: Section 33202, Financial Code. Reference: Sections 33202 and 33261, and Chapter 4, Division 16, Financial Code.

HISTORY

1. New section filed 7-16-80; designated effective 9-2-80 (Register 80, No. 29).

2. Change without regulatory effect amending section heading and section filed 8-19-97 pursuant to section 100, title 1, California Code of Regulations (Register 97, No. 34).

§95.5030. Authorization for Release of Information.

Note • History

The following is an illustration of Department Form 5030:

Form 5030 (7-1-97)

California State Banking Department

AUTHORIZATION FOR RELEASE OF INFORMATION

(Name of Applicant)

(hereinafter referred to as the “Applicant”), which is applying for a license under the California Travelers Checks Act (Chapter 14A (commencing with Section 1851), Division 1 of the California Financial Code), hereby irrevocably authorizes any bank or other financial institution with which the Applicant may at any time transact business and any governmental agency which licenses or regulates issuers of payment instruments, issuers of travelers checks, or other financial institutions and which at any time has information or records regarding the Applicant, to furnish to the Commissioner of Financial Institutions of the State of California such information, and to permit him to inspect and copy such records, as he may request from time to time.

Dated: (Name of Applicant)

(Signature)

(Name and Title)

NOTE

Authority cited: Section 33202, Financial Code. Reference: Section 33203, Chapter 4, Division 16, and Section 33903, Financial Code.

HISTORY

1. Change without regulatory effect adding new section filed 8-19-97 pursuant to section 100, title 1, California Code of Regulations (Register 97, No. 34).

Chapter 2. Savings and Loan Commissioner

Introduction

These rules and regulations as hereinafter set forth are hereby issued under the authority contained in Section 5255 of the law.

The words “the law” as used herein mean the Savings and Loan Association Law, now Division 2, Part 1 in the Financial Code and formerly the Building and Loan Association Act of 1931, as amended.

The words “the regulations” as used herein mean Chapter 2, Title 10, Investment, California Administrative Code.

Subchapter 1. General Provisions

(Originally Printed 3-22-45)

Article 1. Definitions

§100.100. Terms Defined.

Note • History

The definitions set forth in Article 2, Chapter 1, Part 1, Division 2 of the Financial Code and Sections 1916.5 and 1916.6 of the Civil Code are incorporated herein by reference.

NOTE

Authority cited: Section 5255, Financial Code; and Section 1916.5, Civil Code. Reference: Section 1916.5 and 1916.6, Civil Code.

HISTORY

1. Change without regulatory effect renumbering former Section 240.1 to Section 100.100 (Register 87, No. 14). For prior history, see Register 79, No. 21.

§101.100. Definition of Terms Used in Regulatory Provisions.

Note • History

(a) “Value or aggregate amount of outstanding shares and investment certificates” referred to in Section 5070, 6700.1, and 8150 of the law.

The above term means the aggregate of the balances representing the liability to holders of shares, including dividends applicable therein, and the aggregate of the balances representing the liability to holders of investment certificates, including interest accrued since the date of the last apportionment and not yet credited to investment certificate or withdrawable share accounts.

(b) “Total Assets” means the total assets as stated on the statement of financial condition as prepared in accordance with generally accepted accounting principles.

(c) “Unpaid balance of all loans,” as referred to in Section 7170 and 7171 of the law, means the total of all loans secured by real property, plus secured advances, property improvement loans and Government National Mortgage Association (GNMA) Mortgage-backed Securities, less any participating interest sold in such loans, any valuation allowance established and wrap-around loan funds withheld for payment on prior liens.

(d) “Insured loans,” as referred to in Section 7200 through 7206 of the law, means loans that are insured or guaranteed wholly or in part by the U.S. Government or one of its agencies.

(e) “Surplus Profits,” referred to in Section 7410 of the law, means unappropriated retained earnings from prior periods plus unallocated earnings from operations for the current year. Unappropriated retained earnings available for cash or earnings of the current year or of prior years, but such dividends, except with the prior written consent of the commissioner, shall not be paid (1) from such surplus profits of the current year and prior years where there remains a total deficit caused by operations or losses sustained in the current and prior years, or (2) in an amount which, along with any federal income tax payable by reason of the dividend, would be in excess of the accumulated surplus profits.

(f) “Scheduled items” means those assets defined in Section 561.15 of the Rules and Regulations for Insurance of Accounts of the Federal Home Loan Bank Board.

(g) “Current market value” means the highest price estimated in terms of money which a property will bring if exposed for sale in the open market with a reasonable time allowed to find a purchaser, buying with knowledge of all the uses and purposes to which the property is adapted and for which it is capable of being used.

(h) “Statutory Net Worth,” as referred to in Sections 5120 and 6475 of the law, consists of the total of the balances in capital stock, paid-surplus, undivided profits, current earnings and general reserves. In certain preapproved cases this may include subordinated debt. Paid-in capital (permanent capital and paid-in surplus) other than cash shall not be included in statutory net worth without the prior written approval of the commissioner. The commissioner may prescribe additional accounts for either inclusion in or exclusion from statutory net worth.

NOTE

Authority cited: Section 8053, Financial Code. Reference: Sections 5120 and 6574, Financial Code.

HISTORY

1. Change without regulatory effect renumbering former Section 101 to Section 101.100 (Register 87, No. 14). For prior history, see Register 84, No. 49.

§101.137. Escrow.

Note • History

“Escrow” means any transaction wherein one person, for the purpose of effecting the sale, transfer, encumbering, or leasing of real or personal property to another person, delivers any written instrument, money, evidence of title to real or personal property, or other thing of value to a third person to be held by such third person until the happening of a specified event or the performance of a prescribed condition, when it is then to be delivered by such third person to a grantee, grantor, promisee, promisor, obligee, obligor, bailee, bailor, or any agent or employee of any of the latter.

NOTE

Authority cited: Section 8053, Financial Code. Reference: Section 6521, Financial Code.

HISTORY

1. New section filed 12-7-88; operative 1-6-89 (Register 88, No. 52).

§101.138. Escrow Agent.

Note • History

“Escrow agent” means any person engaged in the business of receiving escrows for deposit or delivery.

NOTE

Authority cited: Section 8053, Financial Code. Reference: Section 6521, Financial Code.

HISTORY

1. New section filed 12-7-88; operative 1-6-89 (Register 88, No. 52).

Subchapter 2. Administration

Article 1. Assessment for Support of Department

§102.100. Assessment for Support of Department.

Note • History

(a) The proportion of operating costs and expenses to be assessed against each association shall be the sum of the products of the base assessment rate, or a percentage of the base assessment rate, and the segregated portions of the association's total assets, according to the following table. The base assessment rate shall be determined using the amount of the budget for the ensuing fiscal year plus a reasonable reserve for contingencies and considering the existing surplus and revenue from other sources. The association assets shall be the amount shown on the monthly reports of associations to the commissioner dated April 30.

Total Assets Percentage of Base

(In Millions or Fractions of Millions) Assessment Rate

First $1 100.0%

Next $9 25.0%

Next $40 15.5%

Next $50 12.5%

Next $400 9.5%

Next $500 7.5%

Next $2,000 5.5%

Next $7,000 3.5%

Next $5,000 2.0%

Excess over $15,000 1.0%

(b) In the levy and collection of an annual assessment under this subchapter, no association shall be assessed for nor permitted to pay less than Twenty Thousand Dollars ($20,000.00).

NOTE

Authority cited: Section 8031 and 8053, Financial Code. Reference: Sections 8030 and 8031, Financial Code.

HISTORY

1. Change without regulatory effect renumbering former Section 246 to Section 102.100 (Register 87, No. 14). For prior history, see Register 86, No. 18.

Article 2. Information Available to the Public

§102.200. General.

Note • History

This article contains regulations which set forth provisions to make specified information available to the public.

NOTE

Authority cited: Section 8053, Financial Code. Reference: Sections 6253 and 6254, Government Code.

HISTORY

1. Change without regulatory effect renumbering former Section 242 to Section 102.200 (Register 87, No. 14). For prior history, see Register 72, No. 47.

2. Amendment filed 1-5-89; operative 2-4-89 (Register 89, No. 3).

§102.201. Availability of Public Records.

Note • History

(a) The public records of the Department of Savings and Loan (“Department”) are open to inspection during the regular office hours of the Department and every citizen has a right to inspect any public record, except as hereinafter provided.

(b) The Commissioner may require any person who wishes to inspect a public record of the Department to file a written request disclosing the following information:

(1) Name of person inspecting the record.

(2) If the person inspecting the record is an agent, the identity of the principal he represents.

(3) Description of the record to be inspected.

(4) Date the record is inspected.

(c) The Department has no facilities for transcribing recorded tapes of public hearings. These tapes may be used by the public at the Department's office where the hearing was held for listening or transcription purposes, on equipment supplied by the person requesting such use.

(d) All applications, or portions thereof, that are deemed by the Commissioner to be public records shall be available eleven days after filing.

NOTE

Authority cited: Section 8053, Financial Code. Reference: Sections 6253 and 6254, Government Code.

HISTORY

1. Change without regulatory effect renumbering former Section 242.1 to Section 102.201 (Register 87, No. 14). For prior history, see Register 72, No. 47.

2. New subsections (c) and (d) and changes without regulatory effect filed 1-5-89; operative 2-4-89 (Register 89, No. 3).

§102.202. Public Records.

Note • History

The term “public record” means any of the following records which are retained by the Department:

(a) Copy of independent audit report filed with the Commissioner under Section 8751 of the Financial Code.

If in the judgment of the Commissioner, the public welfare or the welfare of any association, its savers, borrowers, or stockholders demand that any audit, or any information in an audit should not be made public, the Commissioner may withhold such audit or information from inspection by the public for such time as in his judgment is necessary.

(b) Applications, supplements, amendments, exhibits, protests and rebuttals filed under Subchapter 3 of Chapter 2, Title 10, California Code of Regulations (New Associations, Branches, Agencies, Changes of Location or Redesignation of Offices, Mergers, Acquisition of Control, Stock Permit, Service Corporation, Trust Powers, Conversions, Change of Name, and Acquiring Assets of Liabilities of another Financial Institution). Tapes of hearings under this subdivision are available in the manner specified under Section 102.201 (c) above.

(d) Periodic lists of all state associations with principal office mailing addresses, prepared by the Department.

(e) Notices of public hearings mailed to associations or to other interested parties.

(f) Articles of incorporation and by laws and amendments thereto filed by each association with the Commissioner.

(g) Department monthly bulletins listing decisions rendered.

(h) Copies of decisions on applications by associations, signed by the Commissioner.

(i) Annual or current holding company reports filed by corporations and other forms of business organizations excluding only that information designated as confidential by the Commissioner.

(j) the Department's Annual Report to the Governor.

(k) Tape recordings of public hearings held by the Commissioner

NOTE

Authority cited: Section 8053, Financial Code. Reference: Sections 5615, 5654, 8050 and 8053, Financial Code; and Sections 6253 and 6254, Government Code.

HISTORY

1. Change without regulatory effect renumbering former Section 242.3 to Section 102.203 (Register 87, No. 14). For prior history, see Register 72, No. 47.

2. Amendment filed 1-5-89; operative 2-4-89 (Register 89, No. 3).

§102.203. Confidential Records.

Note • History

(a) Records or parts of records of applications shall not be public if the applicant designates such records as confidential, gives sufficient reasons for confidential treatment and the Commissioner finds good cause for treating such records as confidential.

(b) Information contained in an application which the Commissioner has designated as confidential shall be excluded from the Public records.

(c) Any other records of the Department not specifically referred to in these regulations will be treated as confidential pursuant to the provisions of Section 6254 of the Government Code and not open for public inspection unless the commissioner shall make such records public upon a finding that disclosure is not contrary to the interests of the association, its savers, borrowers or stockholders, or that on the facts of the particular case the public interest served by disclosure of the record clearly outweighs the public interest served by not making the record public.

NOTE

Authority cited: Section 8053, Financial Code. Reference: Sections 6253 and 6254, Government Code; and Sections 8050 and 8053, Financial Code.

HISTORY

1. Change without regulatory effect renumbering former Section 242.3 to Section 102.203 (Register 87, No. 14). For prior history, see Register 72, No. 47.

2. Lettering of existing regulation as subsection (c), new subsections (a) and (b), and changes without regulatory effect filed 1-5-89; operative 2-4-89 (Register 89, No. 3).

Article 3. Conflict of Interest Code

§102.300. General Provisions.

Note • History

NOTE

Authority cited: Section 87300 and 87306, Government Code. Reference: Sections 87300-87302 and 87306, Government Code.

HISTORY

1. Change without regulatory effect renumbering former section 248 to section 102.300 (Register 87, No. 14). For prior history, see Register 81, No. 9.

2. Amendment filed 2-27-92; operative 3-30-92. Submitted to OAL for printing only. Approved by Fair Political Practices Commission 1-21-92 (Register 92, No. 12).

3. Amendment of second paragraph and Appendix filed 12-15-95; operative 1-14-96. Approved by Fair Political Practices Commission 10-9-95 (Register 95, No. 50).

4. Editorial correction of Appendix (Register 97, No. 19).

5. Repealer of article 3, section and appendix filed 11-23-99; operative 12-23-99. Approved by Fair Political Practices Commission 10-8-99 (Register 99, No. 48).

Subchapter 3. Applications and Hearings

Article 1. Applications and Hearings: New Facilities, Branches, Changes of Location, Agencies, Conversions from a Federal to State Association, Changes of Name and Amendments of Articles of Incorporation

§103.100. Terms Defined.

Note • History

(a) “Party of record” is the original applicant, a competing applicant, or an objector of record.

(b) “Original applicant” is the association which first files for a particular location.

(c) “Competing applicant” is a second applicant for a new facility to be located in an area of preemption of a proposed new facility contained in a pending application filed with the commissioner.

(d) “Application” for the purposes of this subchapter includes the applications filed by the applicant association and all other California associations under common control with the applicant association.

(e) “Objector of record” is a person who has filed a written protest in compliance with Section 103.120(e).

(f) “Standard Metropolitan Statistical Area” or “SMSA” has the same meaning as currently defined by the United States Government.

(g) Computation of time.

(1) If the last day for the performance of any act falls on a Saturday or holiday, the act must be performed on the business day immediately following the Saturday or holiday. “Holiday” means a day specified in Sections 6700 and 6701 of the Government Code. “Business day” means any day other than a Saturday or holiday.

(2) The time in which any act is required to be performed by these regulations shall be computed by excluding the first day and including the last.

(h) “Statutory net worth” as used in these regulations shall refer to the items set forth in Section 5076 of the law and Section 101.100(h).

(i) “Branch office” is any office of an association other than its principal office, an executive or administrative headquarters office, service office or data processing office, or a remote service unit.

(j) “Facility,” used without qualification, includes a branch, a new association and a principal office.

(k) “Board” means the Federal Home Loan Bank Board.

(l) “Regional shopping center” or “RSC” is a group of commercial establishments planned, developed, owned or managed as a unit with off-street parking provided on the property (in direct ratios to the building area) and related in location size (gross floor area) and type of shops to the trade area that the unit serves. It will have a gross floor area of at least 400,000 square feet of retail selling space or business offices and will include as major tenants one or more major department stores.

(m) “Executive or administrative headquarters office” means an office which is not a branch or the principal office of the association and from which control and direction of all or some part of the association's operations are exercised. No savings business shall be conducted in or from such office.

(n) “Savings business” includes but is not limited to the receipt or disbursement of savings deposits whether in person or by mail.

(o) “Low- and moderate-income families” means families whose median income does not exceed 80 percent of the median income of the county in which the primary service area is located.

NOTE

Authority cited: Section 5255, Financial Code. Reference: Sections 5076, 5500-5515, 5700-5702, 6000-6010 and 9200-9218, Financial Code; and Sections 6700 and 6701, Government Code.

HISTORY

1. Change without regulatory effect renumbering former Section 145 to Section 103.100 (Register 87, No. 14). For prior history, see Register 85, No. 3.

§103.101. Applications.

Note • History

(a) Applications for proposed new domestic savings and loan associations or savings banks; proposed branches of existing domestic associations; changes of location or designation of any office; agency; conversions from a federal to state association; changes of name; or amendments of articles of incorporation shall comply with the law and with such instructions, rules and regulations as the commissioner may publish from time to time.

(b) In approving any application under the provisions of this subchapter, the commissioner may impose as conditions of approval any lawful limitations or restrictions which are deemed necessary or appropriate.

NOTE

Authority cited: Section 8403, Financial Code. Reference: Sections 5102, 5500, 5654 and 5713, Financial Code.

HISTORY

1. Change without regulatory effect renumbering former Section 145.1 to Section 103.101 (Register 87, No. 14). For prior history, see Register 85, No. 3.

§103.102. Filing Procedures.

Note • History

(a) Places of filing. Applications may be filed, together with filing fee, at either the San Francisco office or the Los Angeles office of the Department of Savings and Loan.

(b) Number of copies. Unless specified otherwise, the following number of copies of the application and the accompanying documents shall be filed at a Department office:

(1) Applications--in triplicate

(2) Biographical Statements--in duplicate

(3) Affidavits--in triplicate

(4) Financial Statements--in duplicate

(5) Fingerprints--two originals

(6) Large maps, charts or demonstrative exhibits--original

(1) New association and conversion from federal association--$7,500

(2) Branch--$750

(3) Change of location or designation of any office--$200

(4) Agency, amendment of articles of incorporation, or change of name--$375

(d) Time. An application received after 5:00 P.M. will be deemed filed on the following business day.

NOTE

Authority cited: Section 8053, Financial Code. Reference: Sections 5500, 5654 and 5713, Financial Code.

HISTORY

1. Change without regulatory effect renumbering former Section 145.2 to Section 103.102 (Register 87, No. 14). For prior history, see Register 85, No. 3.

§103.103. Preemptions.

Note • History

(a) Areas of Preemption:

(1) Except as stated in paragraphs (3), (4), (5) and (6) below, the area of preemption for a new association or branch located within a Standard Metropolitan Statistical Area (SMSA) shall be a circle with a radius of one mile measured by a straight line from the location of the new association or branch, as stated in the application.

(2) Except as stated in paragraph (6) below, the area of preemption for a new association or branch located outside an SMSA shall be a circle with a radius of two miles measured by a straight line from the location of the new association or branch, as stated in the application.

(3) The area of preemption for a new association or branch located within the Central Business Districts (CBD), as defined in U.S. Department of Commerce, 1977 Census of Business, Major Retail Centers in Standard Metropolitan Statistical Areas, California, and any amendments, of the following cities, shall be a circle with a radius of one-eighth mile measured by a straight line from the location of the new association or branch, as stated in the application, except that it shall not extend beyond the boundaries of the CBD:

Anaheim Pasadena

Berkeley Sacramento

Fresno San Diego

Glendale San Francisco

Long Beach San Jose

Los Angeles Santa Ana

Oakland

The preemption area of a location outside a CBD of a city listed above shall not extend into the CBD of that city.

(4) The area of preemption for a new association or branch located within the boundaries of the City of San Francisco, but outside its CBD, shall be a circle with a radius of one-half mile measured by a straight line from the location of the new association or branch, as stated in the application.

(5) The area of preemption for a new association or branch located within the boundaries of Beverly Hills shall be a circle with a radius of one-quarter mile measured by a straight line from the location of the new association or branch, as stated in the application.

(6) The area of preemption for a new association or branch located within an opened or unopened Regional Shopping Center (RSC), or within one-quarter of a mile of the perimeter of an RSC, shall be the shopping center area plus the area extending one-quarter of a mile from any point on the perimeter of the shopping center. “Perimeter” is defined as the outermost boundaries of the shopping center, including the parking lots. The area of preemption for a new association or branch located more than one-quarter of a mile from the perimeter of an RSC shall not extend into the above area of preemption.

(7) Applications for new associations or branches shall state a specific address. If not known, the application shall state a specific intersection as the approximate location for the facility. Areas of preemption shall be established at the time the application is filed, and shall be measured from such specific address or from the midpoint of the stated intersection.

(b) Time Periods of Preemption:

(1) If the commissioner approves the Articles of Incorporation of a new association, the commissioner shall not issue an approval of any application for a new association, or branch in that association's area of preemption for a period of 24 months from the date of such approval, or 12 months from date of opening, whichever occurs first.

(2) If the commissioner approves the establishment of a new branch, the commissioner shall not issue an approval of any application to establish a new association or branch in that branch's area of preemption for a period of one year from the date of approval.

(3) If the commissioner approves the establishment of a branch within an opened RSC, or within one-quarter of a mile of the perimeter of such RSC, the commissioner shall not issue an approval of any application to establish a new association or branch in that branch's area of preemption for a period of one year from the date of approval.

(4) No application for a facility shall be filed with or accepted by the commissioner more than 120 days prior to the end of a time period of preemption. The 120-day period shall include the last day of the preemption period and if the 120th day is a holiday, or Saturday, it shall be excluded.

(5) Time periods of preemption shall exclude the date of approval of an application and include the last day of the period, unless the last day is a holiday, or Saturday, then it is also excluded.

NOTE

Authority cited: Section 5255, Financial Code. Reference: Sections 5500-5515, 5700-5702, 6000-6010 and 9000, Financial Code.

HISTORY

1. Change without regulatory effect renumbering former Section 145.3 to Section 103.103 (Register 87, No. 14). For prior history, see Register 82, No. 16.

§103.104. Previously Filed Applications.

Note • History

(a) No association shall have more than two applications for all types of facilities pending at any one time, except as provided in this section.

No application for any type of facility shall be accepted for filing if at the time of filing the association has more than three approved but unopened facilities of all types.

(b) An application for a change of location of an existing facility shall not be considered a pending application under this section.

(c) If the branch application is to serve a primary service area of low- and moderate-income families, located in an inner-city area that is inadequately served by existing savings and loan facilities, the commissioner may approve such application even though the applicant has other applications pending. The application shall not be deemed a pending application under this section.

The applicant shall submit sufficient information to satisfy the commissioner that:

(1) The branch is to be located within an inner-city area which is characterized by low- and moderate-income families, chronic high unemployment, a high percentage of welfare recipients, and substandard housing; and

(2) The branch will fulfill the objectives of granting loans in such area, particularly for construction or rehabilitation of housing, stimulating thrift and providing financial guidance among low- and moderate-income families, and providing opportunities for employment or job training for residents of such area.

(d) An application for approval of an office for executive or administrative headquarters or application for license for service office shall not be deemed a pending application under this section.

(e) An application will not be deemed to be pending if it has been on file with the commissioner for more than 120 days and has not been acted upon.

(f) After the filing of the application for the merger of two associations or an acquisition of all or substantially all of the assets of one association by another, the associations involved shall be deemed one association for compliance with subsection (a) above.

NOTE

Authority cited: Section 5255, Financial Code. Reference: Sections 5500-5515, 5700-5702, 6000-6010, 6050-6055, 9000 and 9200-9218, Financial Code.

HISTORY

1. Change without regulatory effect renumbering former Section 145.4 to Section 103.104 (Register 87, No. 14). For prior history, see Register 82, No. 16.

§103.105. Change of Location.

Note • History

(a) General. An application for a change of location of an existing facility shall have no priority of decision, or area or time preemption.

An application for a change of location of an existing facility may be accepted where both the old and new locations are within the same area of preemption of a facility. An application for a change of location of an existing facility will not ordinarily be accepted if the old location is outside of and the new location is within the area of preemption of a facility.

(b) Within Three Years. An application for change of location of an existing principal office or branch will not ordinarily be approved if the application is filed within three years of the opening of the office proposed to be changed; however, the foregoing limitation is not applicable to an initial change from a temporary to a permanent location, nor to a change of location of an approved branch which has not yet been opened.

(1) For the purposes of this subsection, the “existing area” of a facility shall be a circle with a radius of one mile measured by a straight line from the existing location of a facility if the facility is located within an SMSA, and a circle with a radius of two miles measured by a straight line from the existing location of a facility if the facility is located outside of an SMSA.

(2) A change of location of a facility to a location outside its existing area will not be approved without a satisfactory showing that the adequacy of service in the existing area will not be significantly affected by the loss of the facility.

(3) An application for a change of location of a facility to a location outside its existing area shall contain a Neighborhood Impact Statement which shall describe:

(A) The characteristics of the facility's existing area;

(B) The geographical sources of the facility's deposits in the existing area and the geographical distribution of mortgage loans in the existing area during the last three years;

(4) The Neighborhood Impact Statement shall be available for public inspection and copying at cost (the charge of which shall not exceed the cost to the association) during regular business hours at such facility.

(5) An application for a change of location of a facility to a location outside its existing area shall describe how the association's affirmative loan marketing policies and programs and its Community Reinvestment Act Statements would be changed or affected if the change of location is approved.

(6) A public hearing may be held for a change of location of a facility to a location outside its existing area.

NOTE

Authority cited: Section 5255, Financial Code. Reference: Sections 5700-5702, Financial Code.

HISTORY

1. Change without regulatory effect renumbering former Section 145.5 to Section 103.105 (Register 87, No. 14). For prior history, see Register 82, No. 16.

§103.106. Facilities in Unopened Regional Shopping Centers.

Note • History

(a) General. The provisions of this section govern unopened RSC's. If the RSC has opened and is in operation an application shall be handled under the provisions of Section 103.103 unless expressly excepted.

An RSC shall be considered open when one or more major department stores have opened for business with the general public. For purposes of this section, references to new facilities in an unopened RSC shall include new facilities located within one-quarter of a mile of the perimeter of such RSC.

(b) Preemptions:

(1) The area of preemption of a new association or branch located within an unopened RSC is as defined in Section 103.103(a)(6).

(2) The time period of preemption of a new association or branch in an unopened RSC shall be a period of 36 months from the date of approval, a period of nine months from the date of opening of such new association or branch or nine months from the date of opening of the RSC, whichever occurs first.

If a second application is approved under the provisions of this section, the time period of preemption shall be as set forth in this subsection.

(1) Prior to the opening date of an RSC the commissioner may approve one or more applications for a new facility for that RSC without regard to any area or time preemptions, subject to the following conditions:

(A) Competing applications may be consolidated in accordance with the provisions of Section 146.10(d).

(B) The commissioner may not approve a second application for a new association or branch, even if consolidated, until the Board has been allowed 90 days after the Weekly Notice of Filing of the first application to approve, deny or fail to act on a new application for that RSC.

(C) An application for change of location of an existing association or branch shall be considered a new association or branch under subsection (B) only if the old location is outside of and the new location is within the preemption area of the RSC. The application must then contain the information in (3) below.

(2) There shall be no more than two applications approved for an RSC before it is opened. An application for a subsequent branch or new association shall not be accepted for filing prior to the opening of the RSC, nor more than 120 days prior to the end of the periods of preemption of the approved applications.

(3) Applications for a new association or branch in an RSC shall include reasonable positive evidence that the shopping center will open within 36 months of the filing date of such application including executed copies of leases or letters of intent to lease from proposed major tenants; evidence of execution of a reciprocal easement agreement; evidence of compliance with applicable provisions of the California Environmental Quality Act of 1970, as amended; or other evidence acceptable to the commissioner.

NOTE

Authority cited: Section 5255, Financial Code. Reference: Sections 5500-5515, 5700-5702, 6000-6010 and 9000, Financial Code.

HISTORY

1. Change without regulatory effect renumbering former Section 145.6 to Section 103.106 (Register 87, No. 14). For prior history, see Register 82, No. 16.

§103.107. New Associations--Capital Requirements.

Note • History

(a) Application. An application for approval of a new guarantee stock or mutual association must comply with current instructions issued by the commissioner.

(b) Guarantee Stock. A new guarantee stock association should have guarantee stock with a par value or stated value of at least $8 per share upon application for approval.

NOTE

Authority cited: Section 5255, Financial Code. Reference: Sections 5500-5515, 6456 and 6457, Financial Code.

HISTORY

1. Change without regulatory effect renumbering former Section 145.7 to Section 103.107 (Register 87, No. 14). For prior history, see Register 82, No. 16.

§103.108. Insurance of Accounts.

Note • History

A savings and loan association must have its accounts insured by the Federal Savings and Loan Insurance Corporation before accepting savings deposits.

NOTE

Authority cited: Section 5255, Financial Code. Reference: Section 9100, Financial Code.

HISTORY

1. Change without regulatory effect renumbering former Section 145.8 to Section 103.108 (Register 87, No. 14). For prior history, see Register 82, No. 16.

§103.109. Foreign Associations--Establishment of Principal Office.

Note • History

(a) The procedure to be followed by a foreign association licensed to transact a savings and loan business in the State of California as of September 15, 1935, which has ceased to do business within the State of California subsequent to September 1, 1935, shall be as follows:

(1) Such foreign association shall comply with all of the provisions of Sections 5800 through 5814 of the law prior to opening or reopening its office in California.

(2) Such foreign association shall file an application for its office in California as if it were a domestic association filing an application for a branch office pursuant to the provisions of Chapter 5, Part I, of the law, commencing at Section 6000 and Subchapter 3, Article 1, Chapter 2, Title 10, of the California Administrative Code.

NOTE

Authority cited: Section 5255, Financial Code. Reference: Sections 5800-5814 and 6000-6010, Financial Code.

HISTORY

1. Change without regulatory effect renumbering former Section 145.9 to Section 103.109 (Register 87, No. 14). For prior history, see Register 82, No. 16.

§103.110. Application for a Service Office or an Executive or Administrative Headquarters Office.

Note • History

(a) An application for permission to establish or change the location of a service office or an executive or administrative headquarters office of an association will not be approved unless the application contains evidence satisfactory to the commissioner that the proposed office will not be used to conduct or transact a savings business. The application shall include an affirmative statement that the association will not in any manner advertise, inform the public, its account holders or borrowers that savings deposits or withdrawals will be permitted.

(b) The application shall indicate whether it is for a service office or an executive or administrative headquarters office and shall include the following information:

(1) The street address of the proposed office, and the city and county in which located;

(2) A description of the premises, including the number of floors in the building, size of the proposed premises and the location of the office in the building;

(3) If the office premises are to be leased by the association, a description of the lease and the name and address of the record owner of the premises;

(4) The cost of the premises and the estimated cost of furnishing and equipping the premises, including leasehold improvements of leased premises;

(5) A detailed list and description of the activities and functions to be performed in the premises;

(6) A description of the sign or signs, both exterior and interior, to be used;

(7) A description of the public access to the premises;

(8) A list of the executive and administrative positions which will be officed at the premises for an executive or administrative headquarters office; and the method of operation of the office, including a statement of the number and job description of the personnel proposed to be employed in the premises; and

(9) A statement setting forth the reasons justifying the need for the proposed premises.

(c) The commissioner may act upon the application without a hearing and shall issue a written decision approving or denying the application. Conditions of approval shall be set out in the decision.

NOTE

Authority cited: Section 5255, Financial Code. Reference: Sections 5056.5, 5700-5702, 6005 and 6050-6055, Financial Code.

HISTORY

1. Change without regulatory effect renumbering former Section 146 to Section 103.110 (Register 87, No. 14). For prior history, see Register 82, No. 16.

§103.111. Hearing.

Note • History

(a) At the time and place set for hearing by the commissioner, each party of record may present oral argument with respect to the application and with respect to the documents and briefs filed therein, but the oral argument shall be based on the written material which has been filed in connection with the application or protest and shall not include new information. The hearing officer may limit the amount of time for oral argument of each party of record; however, not more than one hour shall be allowed for all oral argument against an application and not more than one hour shall be allowed for all oral argument in favor of an application. In the event that a person appears at such hearing in protest without having filed any documents or briefs as provided in Section 103.120(e), such person may make an oral statement limited to not more than 15 minutes in duration, or such shorter time as may be allowed by the hearing officer.

(b) A hearing for branch applications will be scheduled only if the commissioner considers it to be necessary. Protests from objectors of record and competing applicants will be considered by the commissioner in making a determination.

NOTE

Authority cited: Section 5255, Financial Code. Reference: Sections 5258, 5510, 5511, 5700 and 6005, Financial Code; and Section 11500, Government Code.

HISTORY

1. Change without regulatory effect renumbering former Section 146.1 to Section 103.111 (Register 87, No. 14). For prior history, see Register 82, No. 16.

§103.112. Denial Without Hearing.

Note • History

If the commissioner determines that an application should be denied without a hearing, a written denial will be issued.

NOTE

Authority cited: Section 5255, Financial Code. Reference: Sections 5513 and 5513.5, Financial Code; and Section 11500, Government Code.

HISTORY

1. Change without regulatory effect renumbering former Section 146.2 to Section 103.112 (Register 87, No. 14). For prior history, see Register 82, No. 16.

§103.113. Hearing Officer.

Note • History

Every hearing shall be held before a hearing officer who shall be the commissioner or an authorized representative deputized pursuant to Section 5203 of the law.

NOTE

Authority cited: Section 5255, Financial Code. Reference: Section 5203, Financial Code.

HISTORY

1. Change without regulatory effect renumbering former Section 146.32 to Section 103.113 (Register 87, No. 14). For prior history, see Register 82, No. 16.

§103.114. Hearing Procedure for Additional Evidence.

Note • History

If the commissioner determines upon good cause shown by the parties of record, or determines that it is advisable or necessary for the purposes of rendering a decision on an application, to hold a hearing for the taking of evidence both oral and documentary to secure additional relevant facts or to impeach the credibility of documents filed by parties of record, the commissioner shall notify the parties of record. In the event of such a hearing, the following procedures shall apply:

(a) Oaths and Affirmations. The hearing officer shall administer oaths, accept affirmations and rule on the admission or exclusion of evidence.

(b) Subpoenas. The commissioner or hearing officer may issue a subpoena in advance of or at the time of the hearing to compel the attendance of witnesses or the production of records. Such subpoena may also be issued upon the request of a party to the hearing when supported by an affidavit setting forth in detail the pertinence and materiality of the testimony of such witnesses or the production of such records to the issues to be raised at the hearing.

(c) Order of Presentation of Evidence. The conduct of the hearing, including order of presentation of evidence and matters in objection to the application, shall be in the discretion of the hearing officer presiding at the hearing.

(d) Evidence; Examination of Witnesses.

(1) Oral evidence shall be taken only on oath or affirmation.

(2) Each party of record may call and examine witnesses, introduce exhibits, cross-examine opposing witnesses in any matter relevant to the issue, even though that matter was not covered in the direct examination, impeach any witness regardless of which party called him to testify and rebut the evidence against him. If a party of record does not testify in his own behalf, he may be called and examined as if under cross-examination.

(3) The hearing need not be conducted according to technical rules relating to evidence and witnesses.

(A) Any relevant evidence, including hearsay evidence, may be admitted if it is the sort of evidence on which responsible persons are accustomed to rely in the conduct of serious affairs, regardless of the existence of any common law or statutory rule which might make improper the admission of such evidence over objection in civil actions.

(B) The rules of privilege shall be effective to the same extent that they are recognized in civil actions, and irrelevant or unduly repetitious evidence shall be excluded.

(e) Evidence by Affidavit. Affidavits may be introduced in evidence subject to comment and objection on grounds of competency, materiality and relevance.

NOTE

Authority cited: Section 5255, Financial Code. Reference: Sections 5258, 5510, 5511, 5700 and 6005, Financial Code; and Section 11500, Government Code.

HISTORY

1. Change without regulatory effect renumbering former Section 146.4 to Section 103.114 (Register 87, No. 14). For prior history, see Register 82, No. 16.

§103.115. Official Notice.

Note • History

In reaching a decision, the commissioner may take official notice of the records of the Department, of the rules and requirements of the Board and the Federal Savings and Loan Insurance Corporation, of any generally accepted technical or scientific matter within the Department's special field, and of those matters set forth in Sections 451 through 454, inclusive, of the California Evidence Code.

NOTE

Authority cited: Section 5255, Financial Code. Reference: Section 5258, Financial Code; and Section 11500, Government Code.

HISTORY

. Change without regulatory effect renumbering former Section 146.5 to Section 103.115 (Register 87, No. 14). For prior history, see Register 82, No. 16.

§103.116. Burden of Proof.

Note • History

The burden of proof shall at all times be on the applicant to show that the application meets all statutory and regulatory requirements. The objector shall have the burden of producing evidence in support of its objections.

NOTE

Authority cited: Section 5255, Financial Code. Reference: Section 5258, Financial Code; and Section 11500, Government Code.

HISTORY

1. Change without regulatory effect renumbering former Section 146.6 to Section 103.116 (Register 87, No. 14). For prior history, see Register 82, No. 16.

§103.117. Decision.

Note • History

(a) The decision of the commissioner shall be in writing.

(b) Copies of the decision shall be mailed to all parties of record.

NOTE

Authority cited: Section 5255, Financial Code. Reference: Section 5258, Financial Code; and Section 11500, Government Code.

HISTORY

1. Change without regulatory effect renumbering former Section 146.7 to Section 103.117 (Register 87, No. 14). For prior history, see Register 82, No. 16.

§103.118. Improper Influence.

Note • History

(a) It is improper that there be any ex parte, private, oral or written communications on the merits of a pending application to the commissioner, assistant commissioners, administrative adviser, or to the hearing officer in the case, by any person, either in private or public life, unless requested by them or otherwise required by law.

(b) It is improper that there be any effort, direct or indirect, by any person to sway the judgment of the commissioner, assistant commissioners, administrative adviser, or hearing officer by attempting to bring pressure or influence to bear upon them.

NOTE

Authority cited: Section 5255, Financial Code. Reference: Section 5258, Financial Code; and Section 11500, Government Code.

HISTORY

1. Change without regulatory effect renumbering former Section 146.8 to Section 103.118 (Register 87, No. 14). For prior history, see Register 82, No. 16.

§103.119. Violations.

Note • History

The commissioner may disqualify and deny, temporarily or permanently, the privilege of appearing or practicing before the Department in any way to any person who, after hearing by the commissioner on reasonable notice, is found to have engaged in unethical or improper professional conduct.

NOTE

Authority cited: Section 5255, Financial Code. Reference: Sections 5018 and 5019, Financial Code.

HISTORY

1. Change without regulatory effect renumbering former Section 146.9 to Section 103.119 (Register 87, No. 14). For prior history, see Register 82, No. 16.

§103.120. General Procedures for Processing Applications.

Note • History

(a) Applications, Amendments. Applications shall contain information to permit a determination without further amendments or additions. The application shall have all information required in the commissioner's instructions and in these regulations. Amendments or additions to the application will only be permitted upon the prior approval or request of the commissioner.

(b) Distribution of Additional Copies to Parties of Record. In addition to the copies of the application filed with the commissioner, each applicant shall prepare sufficient additional copies for distribution to parties of record or attorneys.

After the availability of an application for inspection as provided in subsection (h), upon receipt of a written request from a party of record, or its attorney, a copy of the application shall be mailed to the requesting party. The applicant shall not be required to furnish a copy of the application under the provision of this subsection unless the written request is received within 10 days of the date of the notice required by subsection (c) from a party of record that has an operating, approved or pending facility located within the area of preemption of the applicant's proposed facility, as specified in Section 103.103(a).

(1) A notice of filing shall be mailed by the commissioner to the applicant and to each association existing in this state stating that an application has been filed.

The first notice for a new association will show the date, time and place of the public hearing. If a hearing is scheduled for a branch application or a change of location, a notice of hearing will be placed in a subsequent Weekly Notice of Filings, Hearings and Decisions on Applications and Licenses.

(2) Within 10 days of the date of the mailing of the notice of filing the applicant shall publish a notice of filing of the application in substantially the form set out in subdivision (A) or (B), in a place prominent to the general readership in a newspaper, not exclusively a legal journal, of general circulation (as defined in Government Code Sections 6000 and 6008) published in the city or community in which the proposed facility is to be located. If no newspaper of general circulation is published within the city or community where the propose facility is to be located, publication shall be made in a newspaper of general circulation in the community nearest the proposed facility. The blanks in subdivision (A) or (B) are to be filled in by applicant. If the application is for a change of location of a facility, form (B) should be revised as necessary to show the present and proposed locations.

(A) “NOTICE OF FILING OF SAVINGS AND LOAN FACILITY APPLICATION (New association)

Notice is hereby given that an application has been filed with the

DEPARTMENT OF SAVINGS AND LOAN relating to an application by ____________________SAVINGS AND LOAN ASSOCIATION,

(Address--Home Office)

for permission to establish a facility at, or in the immediate vicinity of _______________________________ , and _____________________,

(Intersection or Street Address)

City of ______________________, County of __________________.

A public hearing will be held at the Department's office at _______. M., (Time)

on the ________ of ____________, 19_______, at ________________,

(Day) (Month) (Year) (Room #)

____________________________ , ___________________________.

(Address) (City)

The application is open for public inspection in accordance with the commissioner's regulations at either office of the Department of Savings and Loan of the State of California located at 600 South Commonwealth Avenue, Los Angeles 90005 (Tel: (213) 736-2785), and 350 Sansome Street, San Francisco 94104 (Tel: (415) 557-3666).

Written objections or other documents relevant to the application should be filed with the Department, and a copy delivered or mailed to the applicant,

_________________________________

SAVINGS AND LOAN ASSOCIATION, not later than

___________________________________ , 19____.

(20 days after date of mailing of notice of filing)

At the public hearing, any person may appear and make an oral statement during an amount of time limited by the hearing officer, which in the case of any person who has not filed prior written objections or other documents is to be limited to not more than 15 minutes in duration, or such shorter time as may be allowed by the hearing officer.”

(B) “NOTICE OF FILING OF SAVINGS AND LOAN FACILITY APPLICATION (Branch)

Notice is hereby given that an application has been filed with the

DEPARTMENT OF SAVINGS AND LOAN relating to an application by _____________________ SAVINGS AND LOAN ASSOCIATION,

________________________________________________________

(Address--Home Office)

for permission to establish a facility at, or in the immediate vicinity of ______________________________ and _______________________

(Intersection or Street Address)

City of ______________________, County of __________________.

on the _______ of ____________, 19_______, at _________________,

(Day) (Month) (Year) (Room #)

____________________________ , ___________________________ (Address) (City)

Written objections or other documents relevant to the application should be filed with the Department, and a copy delivered or mailed to the applicant

_________________________

SAVINGS AND LOAN ASSOCIATION, not later than

_______________ , 19____.

(20 days after date of mailing of notice of filing)

If a public hearing is held, any person may appear and make an oral statement during an amount of time limited by the hearing officer, which in the case of any person who has not filed prior written objections or other documents is to be limited to not more than 15 minutes in duration, or such shorter time as may be allowed by the hearing officer. If a branch office hearing is scheduled, a notice will be placed in the Weekly Notice of Filings, Hearings and Decisions on Applications and Licenses. Information may be secured by calling the above phone numbers.”

(3) Promptly after publication of the newspaper notice, the applicant shall file two copies with the commissioner, accompanied by two copies of the publisher's affidavit of publication.

(4) If the notice of filing is for an application for a change of location of an open facility, the applicant shall prominently display for public view a copy of the published newspaper notice in a front window of that facility.

(5) This section shall not apply to an application for a service office or an executive or administrative headquarters office, nor to an application for a change of location of a facility to a location inside its existing area.

(d) Consolidation of Competing Applications.

(1) Single Consolidations. If the commissioner receives a second application for a new facility to be located in an area of preemption of a proposed new facility contained in a pending application filed with the commissioner, the two applications may be consolidated provided:

(A) the subsequent application has been filed within 10 days after the date of the mailing of the Weekly Notice of Filings and Hearings on Applications and Licenses by the commissioner advising of the first new facility application; and

(B) the subsequent application, as of the date it is filed, is for a new facility which is not within the area of preemption of another new facility for which there is an application on file with the Board.

(2) Multiple Consolidations. If more than one application is filed in the preemption area of the original application, all such applications will be governed by the preceding paragraph. Applications filed for facilities in the preemption area of any such subsequent applications may also be consolidated with the original application, if the above criteria are met.

(e) Objectors of Record.

(1) Within 20 days after the date of the mailing of the Notice of Filing and Hearing for the original application by the commissioner, any person may file with the commissioner any documents, including briefs, in protest of the application and in protest of the application of a competing applicant who has filed an application under subsection (d) above. Documents and briefs shall contain such information as required in the instructions issued by the commissioner and such other matter or information pertaining to the application as may be material or relevant.

(2) An objector immediately upon filing the documents or briefs with the commissioner shall deliver or mail to each applicant or its attorney a copy of such documents or briefs.

(3) A document filed pursuant to this subsection shall contain an affidavit of service. This affidavit shall constitute prima facie evidence of timely filing of the document.

(f) Rebuttal of Applicants and Reply by Objectors.

(1) In the event any documents or briefs are filed in protest of the application, the applicant shall file a rebuttal to the protest with the commissioner within ten days after the last date for filing a protest pursuant to the preceding subsection (e).

(2) The applicant shall deliver or mail a copy of the documents or briefs to each objector or its attorney immediately upon filing the documents or briefs with the commissioner.

(3) An objector of record may file a reply to the rebuttal within ten days after the last date for filing a rebuttal.

(4) The objector of record must file the reply to the rebuttal with the commissioner and shall immediately deliver or mail a copy to the applicant or its representative.

(5) A document filed pursuant to this subsection shall contain an affidavit of service. This affidavit shall constitute prima facie evidence of timely filing of the document.

(g) Demonstrative Exhibits. Demonstrative exhibits (charts, maps or overlays) must contain appropriate identifying legends and must be filed with the commissioner within the time limits specified for the application or protest, but copies need not be delivered or mailed to applicants or objectors. The applicant or objector immediately after filing any such demonstrative exhibit must advise the other party in writing that such exhibit has been filed with the commissioner.

(h) Inspection of Applications and Objectors. The application together with all documents and briefs in protest shall be open to inspection by parties of record and by members of the public eleven days after the date of mailing of the Weekly Notice of Filings and Hearings advising of the new facility application.

Individual financial statements and fingerprint cards included in new association applications are not open to inspection by the public or parties of record.

(i) Availability of Working Papers. Working papers containing figures or other information used in the preparation of final accounting and statistical data submitted by a party of record shall be made available for inspection or copying to other parties of record immediately upon receipt of a written request, provided that the time for filing a competing application has expired.

NOTE

Authority cited: Section 5255, Financial Code. Reference: Sections 5507, 5700, 6001, 6004, 6050, 8708, 9000 and 9204, Financial Code; and Sections 6253 and 6254, Government Code.

HISTORY

1. Change without regulatory effect renumbering former Section 146.102 to Section 103.120 (Register 87, No. 14). For prior history, see Register 82, No. 16.

§103.121. Consideration of Fair Lending.

Note • History

(a) Each branch application filed under the provisions of this subchapter shall describe the extent, if any, that the association's affirmative loan marketing policies and programs and its Community Reinvestment Act Statements would be changed or affected if the branch application is approved.

(b) In reaching a decision on branch applications, the commissioner may consider, among other things, the extent of compliance with fair lending laws and regulations, and the extent to which the association's present and anticipated marketing policies and programs affirmatively further the purposes of fair lending laws and regulations. Consideration of fair lending compliance pursuant to this subsection shall be given special emphasis when there are competing applicants for a branch facility.

NOTE

Authority cited: Section 8053, Financial Code. Reference: Section 6556, Financial Code.

HISTORY

1. Change without regulatory effect renumbering former Section 147 to Section 103.121 (Register 87, No. 14). For prior history, see Register 82, No. 16.

2. Amendment of section heading, section, and Note filed 4-29-96; operative 5-29-96 (Register 96, No. 18).

§103.122. Waiver of Regulations.

Note • History

The commissioner for good cause shown may waive in whole or in part any of the conditions, requirements or provisions of these regulations.

NOTE

Authority cited: Section 5255, Financial Code. Reference: Sections 5250 and 5255, Financial Code.

HISTORY

1. Change without regulatory effect renumbering former Section 147.1 to Section 103.122 (Register 87, No. 14). For prior history, see Register 82, No. 16.

Article 2. Applications and Hearings for Mergers, Consolidations, or Transfers of Property and Assets of Existing Associations

§103.200. Purpose and Scope.

Note • History

This subchapter contains certain procedures and rules to be followed in connection with applications and hearings for approval of mergers, consolidations, or transfers of all or substantially all of the property and assets of associations under the provisions of Sections 9200 through 9218, inclusive, of the Financial Code.

NOTE

Authority cited: Section 5255, Financial Code. Reference: Sections 9200 through 9218, inclusive, Financial Code.

HISTORY

1. Change without regulatory effect renumbering former Section 200 to Section 103.200 (Register 87, No. 14). For prior history, see Register 70, No. 42.

§103.201. Terms Defined.

Note • History

(a) The definitions set forth in Article 2, Chapter 1, Part 1, Division 2; and Chapter 1, Part 4, Division 2; and Sections 1 through 21, Financial Code, are incorporated herein by reference.

(b) For purposes of this subchapter the term “merger” includes a merger, a consolidation or a transfer of all or substantially all of the property and assets and stock acquisitions under Financial Code Section 9215, unless specified otherwise.

(c) “Constituent association” is any association which is a party to a merger, consolidation or to a transfer of property and assets.

(d) “Surviving association” means the association into which one or more other associations are merged or which receives by transfer all or substantially all of the property and assets of one or more associations and “consolidated association” means the new association into which two or more associations are consolidated.

(e) The phrase “transfer of property and assets” means a transfer of all or substantially all the property and assets of an association.

(f) “Disappearing association” means any constituent association other than the surviving association.

(g) “Registered association” means any association which at the time of obtaining stockholder approval of the merger is required to comply with the proxy rules of the United States Securities and Exchange Commission.

(h) “Statutory net worth” has the meaning set forth in Section 5076 of the law and Section 100.100(h) of the regulations.

(i) “Associate” is used in these regulations to indicate a relationship with any person, including: (1) any corporation or organization (other than the constituent association or a majority owned subsidiary of the constituent association) of which such person is an officer or partner or is the beneficial owner of ten percent (10%) or more of any class of securities; and (2) any trust or other estate in which such person has a substantial beneficial interest or as to which such person serves as a trustee or in a similar fiduciary capacity; and (3) any relative or spouse of such person, who is a member of such person's household or who is a director or officer of the constituent association or any of its parents or subsidiaries.

(j) “Affiliate” as used in these regulations has the same meaning as defined in Financial Code Section 5075.

(k) “Fiscal year,” for purposes of these regulations, when applied to associations, means the year ended as of the date of the statement of condition for purposes of the statutory audit as described in Subchapter 5, Article 3, Chapter 2, Title 10 of the California Administrative Code.

NOTE

Authority cited: Section 5255, Financial Code. Reference: Section 9200-9218, Financial Code.

HISTORY

1. Change without regulatory effect renumbering former Section 201 to Section 103.201 (Register 87, No. 14). For prior history, see Register 77, No. 11.

§103.202. Merger Requirements.

Note • History

(a) A merger will not ordinarily be approved if any of the constituent associations have been incorporated for less than three years.

(b) The surviving association, after giving effect to the merger, shall possess a net worth which is not less than an amount to be determined by the commissioner after consideration of the facts in each case.

NOTE

Authority cited: Section 5255, Financial Code. Reference: Sections 9200-9218, Financial Code.

HISTORY

1. Change without regulatory effect renumbering former Section 202 to Section 103.202 (Register 87, No. 14). For prior history, see Register 77, No. 11.

§103.203. Merger Negotiations--Notice.

Note • History

One of the constituent associations shall immediately give written notice to the commissioner, at the earliest time that would not violate the disclosure rules of the United States Securities and Exchange Commission, Stock Exchange rules, or court decisions, when the boards of directors of the constituent associations adopt resolutions approving the merger or when a merger agreement has been executed, whichever first occurs. One of the constituent associations shall immediately notify the commissioner, in writing, of the abandonment of any proposed merger.

NOTE

Authority cited: Section 5255, Financial Code. Reference: Sections 9200-9218, Financial Code.

HISTORY

1. Change without regulatory effect renumbering former Section 203 to Section 103.203 (Register 87, No. 14). For prior history, see Register 77, No. 11.

§103.204. Merger and Acquisition Agreements.

Note • History

All agreements by a domestic association involving transactions covered by this subchapter shall contain a condition requiring the prior written approval of the Savings and Loan Commissioner before such merger may be consummated. No agreement shall contain a provision providing for the payment or forfeiture of money or other consideration, except for actual expenses, in the event of the disapproval of the Savings and Loan Commissioner unless such provision has been approved in advance by the Commissioner.

NOTE

Authority cited: Section 5255, Financial Code. Reference: Section 9200-9218, Financial Code.

HISTORY

1. Change without regulatory effect renumbering former Section 203.1 to Section 103.204 (Register 87, No. 14). For prior history, see Registers 77, No. 11 and 76, No. 18.

§103.205. Notice to Stockholders.

Note • History

Promptly after execution of a merger agreement, and in any event within ten days after such execution, each constituent association shall mail to each of its stockholders a notice advising them that the merger agreement has been executed. Such notice shall, in addition, contain the following information:

(a) A statement of the general terms of the merger agreement, including a description of the nature and amount of consideration to be paid, and to whom, and

(b) A statement of necessary approvals from state and federal authorities.

The said notice need not be mailed to any stockholder who has in writing waived the right the receive the notice.

NOTE

Authority cited: Section 5255, Financial Code. Reference: Sections 9200-9218, Financial Code.

HISTORY

1. Change without regulatory effect renumbering former Section 203.2 to Section 103.205 (Register 87, No. 14). For prior history, see Register 71, No. 32.

§103.206. Application: Places of Filing, Number of Copies, and Execution.

Note • History

(a) Applications may be filed, together with the filing fee, at either the San Francisco office or the Los Angeles office of the Department of Savings and Loan.

(b) Unless specified otherwise, each application shall be filed in triplicate.

(c) The application shall be signed, dated and verified on behalf of each constituent association by its chief executive officer and its chief financial officer, and said verification shall be in accordance with the provisions of the California Code of Civil Procedure.

NOTE

Authority cited: Section 5255, Financial Code. Reference: Section 9200-9218, Financial Code.

HISTORY

1. Change without regulatory effect renumbering former Section 204 to Section 103.206 (Register 87, No. 14). For prior history, see Registers 77, No. 11 and 76, No. 18.

§103.207. Applications: Branch, Stock Permit, Change in Designation of Office, Change of Name.

Note • History

(a) An application for merger may seek approval of the following:

(1) Acquisition of any office of a constituent association as a branch office of the surviving association;

(2) Issuance and sale of guarantee stock;

(3) Change in designation of an office;

(4) Approval of amendments to articles of incorporation.

NOTE

Authority cited: Section 5255, Financial Code. Reference: Sections 9200-9218, Financial Code.

HISTORY

1. Change without regulatory effect renumbering former Section 204.1 to Section 103.207 (Register 87, No. 14). For prior history, see Registers 77, No. 11 and 76, No. 18.

§103.208. Applications' Content.

Note • History

(a) Applications filed pursuant to the provisions of Section 9200, 9202, 9203, 9215 and 9216 of the law shall contain all of the information herein required under subsections (c) through (q), inclusive of this section. They shall further contain a table of contents indicating titles and corresponding page numbers. All amendments shall be filed under cover of the application, shall be clearly identified as amendments, numbered consecutively, and shall comply with all pertinent requirements of the application.

(b) Where the surviving association is a federal association, in lieu of the information required under the provisions of this section, the application may incorporate by reference information filed with the Federal Home Loan Bank Board provide three (3) copies thereof filed as an exhibit to the application.

(1) The total number of shares of stock outstanding for each constituent association on the date of the application. If the association has more than one class of stock or more than one series of stock, the total number of shares in each class and/or series.

(2) On the date of filing the application, description and number of stock options, profit sharing, pension plans, employment contracts, and other employee benefit plans, if any, outstanding of the disappearing association and setting forth the method of handling them upon such merger.

(3) The total number of shares of stock of the corporate holding company whose stock is being used to acquire the assets or the stock of the disappearing association. The latest available market price quotations (closing or bid and ask prices) for the stock of the corporate holding company and each association, and quarterly range of sales of bid and ask prices over the preceding two (2) years, if available, on the basis of any adequate market.

(4) For any stockholder and affiliate, their officers and directors or partners and any associates thereof, who, on the filing date of the application, are known to own of record or beneficially then percent (10%) of the voting stock of any savings and loan holding company:

(A) Name of savings and loan association or savings and loan holding company;

(B) Number of shares held in each type of stock;

(D) Number of shares acquired within one year prior to the date the application is filed.

(E) Stockholder's name(s).

(5) Total number of shares of stock of the surviving association which will be outstanding on the effective date of the merger.

(6) For any stockholder and affiliate, their officers or directors or partners and any associates thereof, who directly or indirectly will own ten percent (10%) or more of the outstanding stock of any class and/or series of stock which carries a voting right of the surviving association when the merger becomes effective:

(A) Stockholder's name(s);

(B) Number of shares of each type of stock estimated to be held on the effective date of the merger;

(7) For any constituent association that is a mutual association, the total number of voting rights on the filing date of the application. Specify the estimated appropriate number of votes represented by valid proxies held by the management.

(8) For any “person” or “company” who owns of record or beneficially or controls ten percent (10%) or more of the voting proxies or voting rights (on the filing date of the application) of any constituent association that is a mutual association:

(A) Name of the “person” or “company”;

(B) Number of proxies or voting rights held;

1. Specify whether all of such proxies were solicited from the mutual shareholders in the name of such person or company.

2. If such proxies were not solicited in the name of such person or company, whether they were acquired by substitution of a previous proxy holder or by some form of assignment or agreement, and set forth the consideration that may have been given for the acquisition of such proxies.

(9) For any disappearing association that is a mutual association:

(A) The amount of investment in the disappearing association of each officer, director and his associates of all constituent associations:

1. On the filing date of the application;

2. One year prior thereto;

3. Two years prior thereto.

(B) Name, address, business and personal relationship, if any, to each constituent association and its officers and directors, of each person whose investment in the disappearing association on the record date for determination of ownership has increased more than $20,000 over his investment two years prior thereto, and the amount of his investment of each of the dates stated in (A) above.

(d) Describe the nature and total dollar amount of business or financial transactions occurring within the past three years between each constituent association, with each affiliate, as defined in Section 5075 of the Financial Code, (including a description of the nature of such affiliate relationship) and with the holding company where the amount involved in the transaction or series of similar transactions exceeds the sum of $30,000 in any one year.

(1) Describe any arrangements or agreements with respect to any affiliate which will be associated with or serving the surviving association or its borrowers.

(e) A brief outline of the facts substantiating the fairness of the consideration, including:

(1) The number of shares to be acquired by cash purchase, the amount proposed to be paid per share, and in total; the method by which the purchase price was determined and the source of the funds to be applied to the purchase.

(2) The number of shares to be acquired by exchange of stock, the exchange ratio, the method by which the ratio was determined, and classes or series of shares to be exchanged.

(3) The difference, if any, in per share amount of consideration to be paid to holders of various classes of stock, or of the same class.

(4) The latest available market price quotations (closing or bid and ask prices) and trading volume for the stock of each association and each holding company, and quarterly range of sales or bid and asked prices over the preceding two years and trading volume, if available, on basis of an adequate market.

(5) Statement of dividends for each year of the three years prior to the date of the application paid by each of the constituent associations and the dividends paid by the holding company if the holding company stock is to be a consideration in the transaction.

(f) List of principal officers and proposed directors of surviving association, including a brief description of business experience, proposed salary, profit sharing, bonus, pensions, stock options and other similar benefits of each such officer and director.

(g) Competitive Factors. (Date presented in this section should be consistent so that relationship between each constituent association and the surviving association can be adequately analyzed.)

(1) Furnish map showing the location of all offices of each constituent.

(2) Furnish a map showing the authorized lending territories of the surviving and disappearing associations.

(3) A brief summary of the net effect of the proposed merger upon the lending territories of the constituent associations should be provided.

(4) Include a comprehensive discussion setting forth any relevant statistics plus supporting statements as to the effect of this merger on competition for savings and for loans.

(5) Furnish as of December 31 for each of the last three (3) calendar years and for the most recent month available the dollar amount of total assets, total savings, and real estate loans outstanding of the constituent associations, the dollar volume of real estate loans by each such constituent association for the last three (3) calendar years and the current calendar year to the end of the above most recent month.

(6) For constituent associations which are overlapping lending institutions:

(A) List each overlapping lending area defined as each area in which a significant volume of lending operations of a constituent association overlaps with a significant volume of lending operations of one or more of the other constituent associations. If an overlapping lending area lies within or mostly within a Standard Metropolitan Statistical Area then the overlapping lending area should be taken to be the Standard Metropolitan Statistical Area. In other case the overlapping lending area should be taken to be a county or group of contiguous counties in which the overlap occurs.

(B) For each overlapping constituent association furnish as of the most recent feasible date the number and dollar volume of its real estate loans outstanding by county. This should be based upon a random sampling of at least thirty percent (30%) of the portfolio. Loan date should be shown as on the following Table 1.

TABLE 1

For Each Overlapping Area

SUMMARY OF LOAN DATA

Loans No. of Loans No of.

Held by Loans Held by Loans

Surviving Held by Disappearing Held by

Association Surviving Association Disappearing

County ($1,000) Association ($1,000) Association

(C) For each overlapping constituent association furnish the total number and dollar volume of total real estate loans made by county and state for the preceding calendar year and for the current calendar year to date.

(D) For each of the counties that constitute a whole or part of any of the overlapping lending area or contain overlapping constituent associations, furnish data for each of the three (3) most recent calendar years on the following where available:

1. The number and dollar volume of trust deed recordings from all sources;

2. The number and dollar volume of trust deed recordings where available for each major class of institutional lender: savings and loan associations, commercial banks, life insurance companies, and others;

3. The number and dollar volume of trust deed recordings for each constituent association regardless of where the association is located.

(E) List each overlapping savings area defined as each area in which a significant volume of the savings accounts of a constituent association overlaps with a significant volume of the savings accounts of one or more of the other constituent associations. The institutions above whose savings areas overlap to a significant degree shall be referred to as overlapping savings institutions and should be listed under the appropriate overlapping savings area.

(F) For each overlapping savings institution take a random sampling of twenty percent (20%) of its savings accounts. This random sampling should be used to ascertain the number and dollar volume of savings accounts by census tracts or postal zip code and by counties of account holders. Savings data should be shown as on the following Table 2.

TABLE 2

For each Overlapping Area

SUMMARY OF SAVINGS DATA

Zip Savings No. of Savings No. of

Code Held by Accounts Held by Accounts

or Surviving Held by Disappearing Held by

Census Association Surviving Association Disappearing

Tract ($1,000) Association ($1,000) Association

(h) Financial Statements.

(1) A statement of condition of each constituent association as of a date within ninety (90) days prior to the filing date of the application. In addition, the constituent associations shall include an audited statement of condition as of a date within one (1) year of the filing date of the application, in which case the statement of condition as of the end of the latest fiscal year may be unaudited, but the application shall also contain an audited statement of condition as of the end of the preceding fiscal year.

(2) An audited statement of operations of each constituent association for each of the last three fiscal years and an interim unaudited statement of operations for the period between the end of the last fiscal year and the date of the latest statement of condition in the application. If the last fiscal year ended within ninety (90) days prior to the filing date of the application and an audited statement is not available for that fiscal year, there shall be included with the application audited statements of operations for the latest three years available and an unaudited statement of operations for the last fiscal year and following interim period.

(3) A pro forma statement of condition and statement of operations giving effect to the proposed merger. The pro forma statement of condition shall be as of a date within ninety (90) days prior to the filing date of the application and as of the end of the preceding fiscal year. The pro forma statement of operations should cover the year to date period ended within ninety (90) days prior to the filing date of the application and the prior fiscal year.

(4) Any differences from generally accepted accounting principles in the individual and pro forma financial statements which have a material effect on the financial statements shall be fully explained. The amounts and effects of those differences shall be stated.

(5) A calculation of book value per share for each constituent association as of the same dates as the statement of condition referred to in (1) above and pro forma statements of condition referred to in (3) above.

(6) A calculation of the earnings per share on a comparable basis for each constituent association as of the same dates as the statement of operations referred to in (2) above and pro forma statement of operations referred to in (3) above.

(7) If the constituent association is a subsidiary of a corporate holding company, as defined by Section 11500 of the Financial Code, the applicant shall file both unconsolidated financial statements of the parent holding company and consolidated financial statements of the parent holding company and its subsidiaries as follows:

(A) A statement of condition as of a date within ninety (90) days prior to the filing date of the application and an audited statement of condition as of a date within one (1) year of the filing date of the application unless the fiscal year of the constituent has ended within ninety (90) days prior to the filing date of the application, in which case the latest statement of condition may be unaudited, but the application shall also contain an audited statement of condition as of the end of the preceding fiscal year.

(B) An audited statement of operations covering a fiscal year ended within one (1) year of the application filing date; provided that if the fiscal year of the constituent has ended within ninety (90) days prior to the filing date of the application, the audited statement of operations may cover the preceding fiscal year. An interim unaudited statement of operations shall also be included for the period, if any, between the close of the latest fiscal year and the date of the latest statement of condition.

(C) If stock or obligations of the parent holding company are used as consideration for the transaction, include audited consolidated statements of operations covering the two (2) fiscal years prior to the year referred to in (B) above giving calculations of earnings per share for each fiscal year and book value per share as of the date of the statements of condition required in (A) above.

(8) The audited financial statements shall be accompanied by the report of the independent accountant who examined such financial statements and by a letter from each independent accountant, dated not more than five (5) days prior to the date of the application, consenting to the use of his accountant's report in the applications.

(9) When unaudited financial statements are used as the basis for determining the purchase price or value for the exchange, or when requested by the Commissioner, the independent accountant shall perform certain specified procedures with respect to the unaudited financial statements and issue a separate letter to the Commissioner describing the procedures performed. Such procedures as a minimum shall include:

(A) A reading of the unaudited financial statements, comparison of such statements to the prior comparable period and, if practicable, agreement of such statements with the underlying books.

(B) A test to determine if the unaudited financial statements include normal recurring accruals.

(D) Appropriate inquiries to officials of the company and its subsidiaries who have responsibility for financial and accounting matter which may affect such financial statements.

(i) Supplementary Information. Such other financial information as the Commissioner may require as to operating efficiency, market policy and performance, capital and profit experience.

(j) Debt Securities. If debt securities are issued or assumed as consideration in connection with a proposed merger, the application shall clearly indicate the means by which the surviving entity intends to service the debt until the debt is fully amortized. The terms of any debt securities other than advances by the Federal Home Loan Bank should be described. If there are no debt securities, the applicant shall so state.

(k) Taxability. State the basis for nontaxability (including applicable Internal Revenue Code sections) of the merger, reorganization, or acquisition. If the transaction is not tax-free either as to the association or the stockholders, it should be so stated and the estimated amount of any tax liability to the association should be stated.

(l) Special Consideration. The application shall contain information:

(1) Regarding any special consideration, monetary or otherwise, that has been paid, given, or offered, directly or indirect, to any stockholder, shareholder, directory or officer of any constituent association or of the holding company thereof in connection with the proposed merger or a statement that none has been paid or promised. Include information as to any formal or informal agreements relating to payment of compensation, after consummation of the proposed transaction, in any form, such as salary, bonus or retirement allowance, or consulting fee, showing to what extent and in what manner such information has been or will be disclosed to all stockholders or shareholders of the constituent association. If none, so indicate.

(2) If any person to whom fees or commissions have been or are to be paid in connection with merger is an affiliate or associate, or a holding company of any constituent association, set forth the facts with respect thereto, including but not limited to:

(A) Name of affiliate or holding company;

(B) Description of service performed;

(D) Name of the constituent association paying such fees, commissioners, and expenses.

(3) Estimated Expenses. Information as to fees, commissions and expenses paid or incurred by the constituent associations to persons other than these mentioned in (1) and (2) above.

(m) Advisory Opinions. The application shall contain an undertaking by the constituent associations to bear the expense of an advisory opinion to the Commissioner on the fairness of the terms of the merger, and as to any anticompetitive effects of the merger, should the Commissioner deem such advisory opinion necessary.

(n) Address. List in the application the complete address of each branch office which will be acquired by the surviving association by reason of said merger.

(o) Exhibits.

(1) Certified copies of the resolutions of the board of directors of each constituent association authorizing the submission of the application for approval of merger.

(2) If a stockholders' or shareholders' meeting is to be held or stockholders' or shareholders' approval obtained as required under Section 103.211:

(A) Draft of proxy statement to be used.

(B) Draft of stockholder's or shareholder's proxy (in form permitting a vote either for or against the merger) to be used.

(D) Draft of notice of meeting of stockholders or shareholders to approve merger to be used.

(3) Draft of all letters or other communications relating to the merger to be sent to stockholders, shareholders, investment certificate holders, and members. Copies of any proposed tender or exchange offer to stockholders.

(4) Copy of merger agreement, any amendments thereto, and copy of any contract or agreement or any other means of acquisition providing for cash purchase or exchange of stock for the voting shares.

(5) The documents referred to in (2) and (3) above shall not be used until approval of the Commissioner has been obtained. Such approval may be obtained prior to the filing of the application but submission thereof should be accompanied by a statement setting forth the details of the stock acquisition and information required under these regulations unless such information is furnished in the proxy statements.

(p) Supplement to Application. Applicant shall file the following information either with the application or as a supplement to the application:

(1) A copy of the notice that has been sent to each stockholder or shareholder by each constituent association showing the date on which approval of said merger by the stockholders or shareholders took place, which shall be filed ten (10) days after such approval.

(2) Evidence of compliance with the applicable provisions of the Financial Code and the Corporations Code including but not limited to the provisions of each of the following sections of the Financial Code: Section 9207, 9209, 9210, 9213, 9215 and 9216. Applicant shall state the mailing date of notice to stockholders and/or shareholders specified in (1) above.

(3) Where the vote required for the merger has been obtained by written consents, applicant shall attach a copy of the written consent and a certification by the secretary of the association obtaining consent as to the number of consents obtained and the stock or share interest represented thereby.

(4) Copy of proxy statement used by each constituent association.

(5) Copy of proxy and notice of meeting used by each constituent association.

(6) Copy of all letters and other communications relating too the merger sent or proposed to be sent to stockholders, shareholders, investment certificate holders and borrowing members.

(7) A copy of the notice that has been or will be sent to depositors, promptly after consummation of the merger, showing the effective date of the merger and the effect of the merger on the depositor's FSLIC insurance if they are also depositors of any other constituent association.

(8) A statement setting forth the proposed form of the accounting for the merger by the surviving association. The statement shall describe the accounting method to be employed and set forth in reasonable detail the reasons justifying the accounting method and the underlying generally accepted accounting principles including a reference to the substantial authoritative support for such principles.

If the surviving association has a parent company, the accounting method employed by the parent company should be described and any inconsistency with the accounting method employed by the subsidiary association should be fully explained and justified.

This statement may be prepared by management of the surviving association or by the independent accountant, it must contain an opinion that the proposed accounting treatment conforms with generally accepted accounting principles. If the statement is prepared by management of the surviving association, it shall be accompanied by an opinion from the independent certified public accountant who will audit the surviving association, it shall be accompanied by an opinion from the independent certified public accountant who will audit the surviving association that he has reviewed the proposed accounting treatment and concurs that it conforms with generally accepted accounting principles.

(9) The supplement shall be signed and verified that all copies attached are true copies in the same manner as the application by the chief executive officer and chief financial officer of the surviving association.

(q) Marketing Policies and Programs. On and after November 1, 1976, each application filed under the provisions of this Subchapter shall describe how the marketing policies and programs of the surviving association, as described in the document maintained on file with the Commissioner pursuant to Section 104.504, would be changed or affected if the application is approved.

(r) Consideration of Information. In reaching a decision on applications filed under this Subchapter, the Commissioner shall consider data received pursuant to this section.

NOTE

Authority cited: Section 5255, Financial Code. Reference: Section 5500-5515, 5700-5702, 6000, 6010, 8708, 9000, 9200-9218 and Chapter 10, Financial Code.

HISTORY

1. Change without regulatory effect renumbering former Section 204.2 to Section 103.208 (Register 87, No. 14). For prior history, see Register 77, Nos. 32 and 11.

§103.209. Applications: Public Inspection.

Note • History

(a) Except for data covered in subsection (b) below, an application filed under this Subchapter, together with all supplements, amendments and exhibits shall be open for public inspection.

(b) If an applicant wishes any information in its application, supplement or exhibit to be treated as confidential by the Commissioner and not available for public inspection it shall in its application separate and designate such information as confidential. The applicant shall also attach to such information designated as confidential a statement of the reasons therefor.

If the Commissioner finds good cause exists for treating such information a confidential, he shall exclude the same from the application available for public inspection.

NOTE

Authority cited: Section 5255, Financial Code. Reference: Sections 9200-9218, Financial Code.

HISTORY

1. Change without regulatory effect renumbering former Section 2045.3 to Section 103.209 (Register 87, No. 14). For prior history, see Register 71, No. 32.

§103.210. Proxy Statement Filing.

Note • History

(a) No copies of the proxy statement, form of proxy, or any other soliciting material shall be furnished to stockholders or shareholders unless copies thereof, in triplicate, are filed either as a part of the application or separately with the Commissioner for approval and approved fifteen (15) days prior to the date that copies of such material are first sent or given to stockholders or shareholders or such shorter period prior to that date as the Commissioner may authorize upon good cause therefor.

(b) Every “Registered Association” shall, and any other association may, prepare its proxy statement in accordance with the proxy regulations of the Securities and Exchange Commission.

Each association with prepares its proxy statement in accordance with the proxy regulations of the Securities and Exchange Commission shall also include the material in subsection 103.210(e)(7) required of other associations.

(c) The proxy statement of each association which is not prepared in accordance with the proxy regulations of the Securities and Exchange Commission shall contain all information and disclose all material facts necessary for the making of an informed judgment on the advisability of the merger and ordinarily shall contain substantially all of the following information:

(1) Table of contents;

(2) Date of proxy statement, which shall be the approximate date of first mailing to stockholders or shareholders;

(3) Identification of person making solicitation;

(4) Statement of use to be made of stockholders' or shareholders' proxy and its revocability and that only proxies obtained by this solicitation are to be voted on the merger;

(5) Statement of method of solicitation and payment of costs;

(6) With respect to outstanding voting securities and voting rights, statements:

(A) Of record date, meeting date and number of outstanding shares or votes;

(B) Listing all persons who, together with associates, are known to own of record or beneficially, five percent (5%) or more of outstanding guarantee stock or voting shares of the association.

(D) As to each class of voting securities entitled to be voted at the meeting, the number of shares of stock outstanding and the number of votes to which each class is entitled.

(7) Brief description under separate heading of the nature of any material relationship of the association and its officers, directors and five percent (5%) owners and their associates to each of the other constituent associations, its officers, directors and five percent (5%) owner and their associates:

(8) Description of any agreement made with or consideration furnished, directly or indirectly, to any of the officers, directors or stockholders of any constituent association in connection with the merger other than by the terms of the merger agreement.

(d) Plan of merger containing at least:

(1) Brief description of the material features of the plan of merger, including:

(A) Identity of the surviving association;

(B) The nature and amount of consideration to be paid, and to whom, including:

(2) A brief outline of the facts bearing upon the question of the fairness of the consideration, including:

(A) The number of shares to be acquired by cash purchase, the amount proposed to be paid per share, and in total; the method by which the purchase price was determined and the source of the funds to be applied to the purchase;

(B) The number of shares to be acquired by exchange of stock, the exchange ratio, the method by which the ratio was determined, and classes or series of shares to be exchanged; and the number of shares in the disappearing association which will be canceled;

(C) The difference, if any, in amount of consideration to be paid to holders of various classes of stock or of the same class;

(D) The latest available market price quotations (closing or bid and ask prices) for the stock of each association and quarterly range of sales or bid and asked prices over preceding two years, if available on basis of an adequate market; and

(E) Treatment of fractional shares;

(F) Statement of dividends for each year of the three years prior to the date of the application paid by each of the constituent associations and the dividends paid by the holding company if the holding company stock is to be a consideration in the transaction.

(3) Statement of reasons for recommendation of plan. If formation of a holding company or public offering of stock in the surviving association is contemplated, so state.

(4) Statement of the votes needed for approval.

(5) A statement that an Internal Revenue Service ruling or opinion of tax counsel on federal income tax consequences to stockholders, members and associations will be sought and the merger consummated only if it is determined to be a tax-free reorganization from the standpoint of the association and stockholders. Normally, an IRS ruling should be applied for if the transaction is being treated as a tax-free reorganization. If transaction is not tax-free either as to the association or the stockholders, it should be stated, including a summary of the tax consequences.

(6) Statement of necessary approvals from state and federal authorities.

(7) An outline of the rights of dissenting stockholders of the disappearing association(s) and statutory procedure required to be followed.

(e) Financial statements, including:

(1) A statement of condition of each constituent association as of a date within ninety (90) days prior to the date of the proxy statement. In addition, the constituent associations shall include an audited statement of conditions as of a date within one (1) year of the date of the proxy statement unless the fiscal year of the constituent association has ended within ninety (90) days prior to the date of the proxy statement, in which case the statement of condition as of the end of the preceding fiscal year.

(2) An audited statement of operations of each constituent association for each of the last three (3) fiscal years and an interim unaudited statement of operations for the period between the end of the last fiscal year and the date of the latest statement of condition in the proxy statement. If the last fiscal year ended within ninety (90) days prior to the date of the proxy statement and an audited statement is not available for that fiscal year, there shall be included with the proxy statement audited statements of operations for the latest three (3) years available, and an unaudited statement of operations for the last fiscal year and following interim period.

(3) A pro forma statement of condition and statement of operations giving effect to the proposed merger. The pro forma statement of condition shall be as of a date within ninety (90) days prior to the date of the proxy statement and as of the end of the preceding fiscal year. The pro forma statement of operations should cover the year to date period ended within ninety (90) days prior to the date of the proxy statement and for the prior fiscal year.

(4) Any differences form generally accepted accounting principles reflected in the individual and pro forma financial statements which have a material effect on the financial statements shall be fully explained. The amounts and effects of those differences shall be stated.

(5) A calculation of book value per share for each constituent association as of the same dates a the statement of condition referred to in (1) above and pro forma statements of condition referred to in (3) above.

(7) A table setting forth for each constituent association for each of the three (3) years immediately preceding the date of the proxy statement the dollar amount, and percentage to total assets of:

(A) Real estate owned acquired through foreclosure or by deed in lieu of foreclosure.

(B) Loans to facilitate, including contracts of sale.

(8) If the constituent association is a subsidiary of a corporate holding company, as defined by Section 11500 of the Financial Code, the proxy statement shall include both unconsolidated statements of the parent holding company and consolidated financial statements of the parent holding company and its subsidiaries as follows:

(A) A statement of condition as of a date within ninety (90) days prior to the date of the proxy statement and an audited statement of condition as of a date within one (1) year of the date of the proxy statement unless the fiscal year for the constituent has ended within ninety (90) days prior to the date of the proxy statement, in which case to latest statement of condition may be unaudited, but the proxy statement shall also contain an audited statement of condition as of the end of the preceding fiscal year.

(B) An audited statement of operations covering a fiscal year ended within one (1) year of the proxy statement date; provided that if the fiscal year of the constituent has ended within ninety (90) days prior to the date of the proxy statement, the audited statement of operations may cover the preceding fiscal year. An interim unaudited statement of operations shall also be included for the period, if any, between the close of the latest fiscal year and the date of the latest statement of condition.

(9) The audited financial statements shall be accompanied by the report of the independent accountant who examined such financial statements and by a letter from each independent accountant, dated not more than five (5) days prior to the date of the proxy statement, consenting to the use of his accountant's report in the proxy statement.

(10) When unaudited financial statements are used as the basis for determining the purchase price or value for the exchange, or when requested by the Commissioner, the independent accountant shall perform certain specified procedures with respect to the unaudited financial statements and issue a separate letter to the Commissioner describing the procedures performed. Such procedures as a minimum shall include:

(A) A reading of the unaudited financial statements, comparison of such statements to the prior comparable period and, if practicable, agreement of such statements with the underlying books.

(B) A test to determine if the unaudited financial statements include normal recurring accruals.

(C) Appropriate inquiries to officials of the company and its subsidiaries who have responsibility for financial and accounting matters which may affect such financial statements.

(f) Management of constituent associations, including:

(1) The name, position, principal occupation for past five (5) years, and length of service in present capacity, of all directors and principal officers of constituent associations of the holding company, if any.

(2) A list of proposed principal officers and directors of surviving association if known.

(3) The renumeration from constituent associations of the foregoing persons, including:

(A) Direct compensation during the last calendar year including profit sharing, salary and bonus:

1. individually, if over $30,000; and

2. all officers and directors as a group.

(B) Retirement or pension benefits accrued, if any.

(4) Amount of stock beneficially owned by foregoing persons and associates. If acquired within preceding year, state the consideration paid and from whom acquired.

(5) Nature and amount of any material interest of any of the persons named in subsections (c) and (f) of this section and his associates in any loan from or material transaction with a constituent association during the current and preceding three (3) calendar years, including description of the transaction or loans.

(6) Business of affiliates as defined in Section 5075 of the Financial Code:

(A) Describe the nature and total dollar amount of business or financial transaction occurring within the past three (3) years between each constituent association with each affiliate, as defined in Section 5075 of the Financial Code, (including a description of the nature of such affiliate relationship), and with the holding company where the amount involved in the transaction or series of similar transactions exceed the sum of $30,000 in any one year.

1. Describe any arrangements or agreements with respect to any affiliate which will be associated with or serving the surviving association.

(B) For affiliates listed under (A) above describe the nature of the affiliate relationship.

(g) Information about the surviving association:

(1) Describe briefly the location and description of officers of the surviving association and any major changes with regard to saving activities or lending activities which will result from the merger.

(2) Any arrangements by which any affiliate agrees to provide services to borrowers from the surviving association.

(3) Description of any bonus, profit sharing, stock option, pension, retirement or other remuneration plan, or employment contract, proposed or already adopted, with respect to the surviving association.

(4) Capitalization. Capitalization of each constituent association showing pro forma adjustments and pro forma capitalizations after the merger.

(5) Statement of stockholders' equity for each year for the three-year period ended within ninety (90) days prior to the date of the proxy statement.

(6) Dividend voting and liquidation rights.

(7) Policy on payment of dividends.

(8) Taxation.

(A) Federal.

A pro forma statement regarding the qualifying loan reserve as a percentage of qualifying loans. Permitted reserve transfer and position of the association.

(B) State.

(h) Execution. One (1) copy of the proxy statement shall be normally signed by the chief executive officer and the chief financial officer of each constituent association and filed with the Commissioner.

(i) Exhibits to be attached.

(1) Merger agreement.

The foregoing schedule of required information is not intended as a required form of presentation. This order of items need not be followed so long as the information is clearly presented under appropriate subject headings. The Commissioner may require additional information or for good cause shown waive the inclusion of certain of the forgoing items in a particular case.

NOTE

Authority cited: Section 5255, Financial Code. Reference: Sections 9200-9218, Financial Code.

HISTORY

1. Change without regulatory effect renumbering former Section 205 to Section 103.210 (Register 87, No. 14). For prior history, see Registers 77, No. 11 and 71, No. 48.

§103.211. Stockholder or Shareholder Approval--Written Consent.

Note • History

(a) Where two-thirds (2/3) or more of the stock or shares of a constituent association is held by less than twenty-five (25) stockholders or shareholders, approval of a merger may be by written consent such stockholders or shareholders and not by vote at a meeting duly noticed. In such event, the provisions of Section 205 need not be complied with. In the event the association solicits the written consent of such stockholders or shareholders, copies of the solicitation, if in writing, and all letters, written communications, material and documents in connection therewith given or sent to such stockholders or shareholders shall be filed fifteen (15) days prior to the date that such copies are first sent or given to stockholders or shareholders or such shorter period prior to that date as the Commissioner may authorize upon good cause.

(b) Where two-thirds (2/3) or more of the stock or shares of a constituent association are held by twenty-five (25) or more stockholders or shareholders the provisions of Section 205 shall be applicable.

NOTE

Authority cited: Section 5255, Financial Code. Reference: Sections 9200-9218, Financial Code.

HISTORY

1. Change without regulatory effect renumbering former Section 206 to Section 103.211 (Register 87, No. 14). For prior history, see Registers 77, No. 11 and 71, No. 48.

§103.212. Solicitation.

Note • History

(a) A merger will not ordinarily be favorable considered by the Commissioner between two associations, one of which was acquired within one (1) year prior to the filing of the merger application by a person, directly or indirectly, who made an offer for the acquisition of any stock or class of stock of any association and after consummation thereof, such person became, directly or indirectly, the beneficial owner of more than twenty-five percent (25%) of such stock or class of stock unless within fifteen (15) days prior to the making of such offer, request, or solicitation, the prior written approval of the Commissioner was obtained for such offer, solicitation or invitation and for all letters, written communications, material and documents used in connection therewith, given or sent to such stockholders.

(b) No association, officer, director, or substantial stockholder, or any person acting on his behalf shall made a general solicitation of stockholders of shareholders of another association or other corporation unless the soliciting party shall have first submitted to the Commissioner copies of such offer, solicitation, invitation, documents, letters, and written communications and material which the association, officer, director, or substantial stockholder, or any person acting on his behalf proposes to use or execute in accomplishing such acquisitions at least fifteen (15) days prior to such use or execution, including but not limited to the following:

(1) Letters, written communications, material and information to be sent to the stockholders or shareholders of the corporation to be acquired;

(2) Letters, written communications, material, information and proxies sent or to be sent to stockholders or shareholders of the applicant association; and

(3) Information setting forth details of the proposed acquisition adequate to substantiate its fairness to all parties.

(c) Copies of all papers, documents, and material filed with the Securities and Exchange Commission and the Federal Home Loan Bank Board with respect to an offer, or solicitation shall be filed with the Commissioner either at or prior to the filing of an application for approval of the merger, but in no event, later than fifteen (15) days after such papers, documents, and material shall have been filed with the Securities and Exchange Commission or the Federal Home Loan Bank Board.

(d) No solicitation subject to this regulation shall be made by means of any proxy statement, form or proxy, notice of meeting or other communication, written or oral, containing any statement which, at the time and in the light of the circumstances under which it is made, is false or misleading with respect to any material fact, or which omits to state any material fact necessary in order to make the statements therein not false or misleading or necessary to correct any statement in any earlier communication with respect to the solicitation of a proxy for the same meeting or subject matter which has become false or misleading.

The fact that a proxy statement, form of proxy or other soliciting material has been filed with or examined by the Commissioner shall not be deemed a finding by the Commissioner that such material is accurate or complete or not false or misleading, or that the Commissioner has passed upon the merits of or approval any statement contained therein or any matter to be acted upon by security holders. No representation contrary to the foregoing shall be made.

NOTE

Authority cited: Section 5255, Financial Code. Reference: Sections 9200-9218, Financial Code.

HISTORY

1. Change without regulatory effect renumbering former Section 206.1 to Section 103.212 (Register 87, No. 14). For prior history, see Registers 77, No. 11 and 71, No. 48.

§103.213. Certificate of Approval.

Note • History

Prior to the Commissioner's issuance of the certificate of approval of merger there shall be filed with the Commissioner the following:

(a) Copy of letter from the Federal Savings and Loan Insurance Corporation with respect to:

(1) Authorization to surviving association to increase insurable account in bulk, if applicable; and

(2) Effect, if any, of merger on the surviving association's insurance of accounts or continuation of insured status of accounts.

(b) Evidence of compliance with conditions of the Federal Home Loan Bank Board approval.

NOTE

Authority cited: Section 5255, Financial Code. Reference: Sections 9200-9218, Financial Code.

HISTORY

1. Change without regulatory effect renumbering former Section 207 to Section 103.213 (Register 87, No. 14). For prior history, see Register 77, No. 11.

§103.214. Hearings.

Note • History

(a) Hearings will ordinarily be held upon all applications for approval of a merger unless, for good cause, the Commissioner shall dispense with the same.

(b) Any hearings held under this section will be in accordance with the procedures set forth in the applicable sections under Subchapter 3 Article 1 of the regulations. Sections under Subchapter 3 Article 1 of the regulations that are not applicable under this section include subdivisions (c), (d) and (k) of Section 103.118.

(c) Notice of Hearing. (1) Unless the Commissioner shall approve or deny an application without hearing, a notice of hearing shall be mailed by the Commissioner to each constituent association existing in this state stating that an application has been filed, that a public hearing will be held, and the time and place thereof.

(2) (A) Within 15 days of the date of the mailing of the notice of hearing, each constituent association shall publish a notice of hearing on the application in substantially the form set our in subdivision (B) below, in a place prominent to the general readership in a newspaper, not exclusively a legal journal, of general circulation (as defined in Government Code Sections 6000 and 6008) published in the city or community in which its principal office is located, publication shall be made in a newspaper of general circulation in the community nearest the principal office.

(B) “NOTICE OF HEARING ON SAVINGS AND LOAN MERGER APPLICATION

Notice is hereby given that a public hearing has been scheduled by the DEPARTMENT OF SAVINGS AND LOAN relating to an application by _____________________ SAVINGS AND LOAN ASSOCIATION,

________________________________________________________

(Address Principal Office)

for approval of _____________________________________________ ________________________________________________________

________________________________________________________

(Briefly describe transaction including any name change.)

The hearing will be held at the Department's office at ______.M.,

(Time)

on the _____________ of ______________, 19______, at ___________

(Day) (Month) (Year) (Room #)

________________________________________________________

(Address)

_____________________________, ___________________________

(City) (Telephone Number)

The application is open for public inspection is accordance with the Commissioner's regulations at either office of the Department of Savings and Loan of the State of California, located at 600 South Commonwealth Avenue, Los Angeles 90005, and 350 Sansome Street, San Francisco, 94104.

Written objections or other documents relevant to the application should be filed with the Department, and a copy delivered or mailed to the applicants,

_____________________ SAVINGS AND LOAN ASSOCIATION and

________________________SAVINGS AND LOAN ASSOCIATION,

not later than ____________________ ___________, 19____.

(30 days after date of mailing of notice of hearing.)

Any person may appear at the hearing and make an oral statement during an amount of time limited by the hearing officer, which is the case of any person who has not filed prior written objections or other documents is to be limited to not more than 15 minutes in duration, or such shorter time as may be allowed by the hearing officer.”

(3) Promptly after publication of the newspaper notice, the applicant shall file two copies thereof with the Commissioner, accompanied by two copies of the publisher's affidavit of publication.

(4) If proof of publication of the notice of hearing within the time period stated 103.214(c)(2) above is not filed on or before the hearing date, the hearing shall be continued to such future date as will allow for publication.

NOTE

Authority cited: Section 5255, Financial Code. Reference: Sections 5500-5515, 5700-5702, 6000-6010 and 9200-9218, Financial Code.

HISTORY

1. Change without regulatory effect renumbering former Section 208 to Section 103.214 (Register 87, No. 14). For prior history, see Registers 78, No. 51 and 77, No. 11.

§103.215. Additional Information.

Note • History

The Commissioner may require additional information and material in connection with any application under these regulations and the applicant associations may include such further and additional information as may be relevant and material to the consideration of the merits of the application.

NOTE

Authority cited: Section 5255, Financial Code. Reference: Sections 9200-9218, Financial Code.

HISTORY

1. Change without regulatory effect renumbering former Section 209 to Section 103.215 (Register 87, No. 14). For prior history, see Register 77, No. 11.

§103.216. Waiver of Regulations.

Note • History

The Commissioner, for good cause shown, may waive in whole or in part any of the conditions, requirements or provisions of these regulations.

NOTE

Authority cited: Section 5255, Financial Code. Reference: Sections 9200-9218, Financial Code.

HISTORY

1. Change without regulatory effect renumbering former Section 209.1 to Section 103.216 (Register 87, No. 14). For prior history, see Register 77, No. 11.

Article 3. Acquisition of Control of Savings and Loan Association or Savings and Loan Holding Company Registration as a Savings and Loan Holding Company

§103.300. Terms Defined.

Note • History

(a) “Domestic corporation” shall mean any corporation formed under the laws of the State of California.

(b) “Foreign corporation” shall mean any corporation formed under the laws of any jurisdiction other than the State of California.

(c) “Voting trust” shall mean any trust under the terms of which the right to vote or otherwise represent shares or other voting securities is conferred upon one or more trustees.

(d) “Business trust” shall mean any trust under the terms of which one or more trustees carry on a business for profit.

(e) “Limited partnership” shall be defined:

(1) as provided by the Uniform Limited Partnership Act of the State of California (Corporations Code Sections 15501-15532) or

(2) as provided by any similar statute in any jurisdiction other than California.

(f) “Partnership fund” shall be defined as a partnership as provided by the Uniform Partnership Act of the State of California (Corporations Code Sections 15001-15045), which is engaged in the business of trading in corporate securities.

(g) “Joint stock company” shall mean a corporation, a partnership, or a limited partnership.

(h) “Association” shall mean:

(1) a partnership, or a limited partnership, or

(2) a nonprofit association.

(i) “Syndicate” shall mean:

(1) a partnership or a limited partnership, or

(2) a joint venture.

(j) “Organized group of persons” shall mean:

(1) any unincorporated group of persons which has the characteristic of a corporation with the rights and duties of the members governed by the terms of an agreement, or

(2) any family group consisting of a husband, wife, or minor child, or any combination thereof.

NOTE

Authority cited: Section 5255, Financial Code. Reference: Sections 11500-11650, Financial Code.

HISTORY

1. Change without regulatory effect renumbering former Section 180 to Section 103.300 (Register 87, No. 14). For prior history, see Register 82, No. 33.

§103.301. Determination of Status as a Savings and Loan Holding Company.

Note • History

(a) A savings and loan holding company does not include any broker, underwriter or other dealer in securities if securities are held on a temporary basis and for a reasonably limited period of time (not exceeding 90 days unless extended by the commissioner) solely for purposes of a public offering or distribution, or for sale to customers in the course of business.

(b) No company shall be deemed to be a savings and loan holding company solely by reason of bona fide ownership, control or holding of the guarantee stock, shares, proxies of shares, or other proxies, on the part of:

(1) stockholders, shareholders or members, of a corporation;

(2) partners of a partnership or a limited partnership;

(3) members of an association or a syndicate; or

(4) trustees in their private and individual capacities of a voting or business trust.

(c) The Commissioner shall give at least 20 days prior written notice of a hearing to any person or company which the Commissioner alleges is exercising a controlling influence over the management and policies of any association. Any such person or company shall have an opportunity to be heard, and to be represented by counsel at any such hearing.

The Commissioner shall, subsequent to the hearing, furnish a written determination as to whether the person or company is a savings and loan holding company within the meaning of Section 11500 of the law.

NOTE

Authority cited: Section 5255, Financial Code. Reference: Sections 5258 and 11500, Financial Code.

HISTORY

1. Change without regulatory effect renumbering former Section 181 to Section 103.301 (Register 87, No. 14). For prior history, see Register 82, No. 33.

§103.302. Determination of Status as a Company.

Note • History

(a) Any group or organization may file a written registration application with the commissioner, requesting the commissioner to determine whether it is a company within the meaning of Section 11501 of the law.

(b) A written application, filed in duplicate, and verified shall contain such information as the commissioner may require.

(d) If the decision made by the commissioner pursuant to subdivision (c) is deemed adverse by the applicant, the applicant may within 20 days after the date of the decision make written demand upon the commissioner for a hearing. A hearing shall be scheduled and conducted as in Section 103.301. A demand for hearing shall vacate any prior determination made pursuant to subdivision (c).

(e) No organization or group of persons shall be deemed to be a company within the meaning of Section 11501 of the law, which the commissioner has determined is not such a company, after proceedings held pursuant to this Section 103.302.

NOTE

Authority cited: Section 5255, Financial Code. Reference: Sections 5258 and 11501, Financial Code; and Section 11500, Government Code.

HISTORY

1. Change without regulatory effect renumbering former Section 182 to Section 103.302 (Register 87, No. 14). For prior history, see Register 82, No. 33.

§103.303. Registration Instructions.

Note • History

Registration application shall be typed in duplicate and filed in accordance with such instructions as the commissioner may publish from time to time. Applications will be deemed to be filed upon receipt in either office of the Department of Savings and Loan. The instructions shall set forth the form of the registration application to be completed and filed by every person and company defined as a savings and loan holding company, hereinafter referred to as “Registrants.” Copies of such instructions will be available at either office of the Department of Savings and Loan.

NOTE

Authority cited: Section 5255, Financial Code. Reference: Section 11550, Financial Code.

HISTORY

1. Change without regulatory effect renumbering former Section 183 to Section 103.303 (Register 87, No. 14). For prior history, see Register 82, No. 33.

§103.304. Applications.

Note • History

(a) An application shall be typed and filed in triplicate in either office of the Department of Savings and Loan. It shall be signed under penalty of perjury by each acquiring party. A filing fee of $7,500 shall be included with the application. An incorporated acquiring party shall include a certified copy of the resolution of the board of directors authorizing the execution and filing of the application.

(b) An application shall include all of the information set out in section 5801 of the law and is to be identified in the same numerical order unless otherwise authorized by the commissioner. It shall in addition include a copy of the proposed acquisition agreement and financial statements supporting the financial standing of the applicant. The statements should have been examined by and supported by an opinion from an independent public accountant. The commissioner may authorize submission of financial statements without an accountant's examination and opinion which are prepared by the applicant under penalty of perjury. It may also include a statement setting forth any other relevant information.

(c) An unincorporated company which is required to file the information under paragraph (1) of section 11706(a) shall give such information for each partner of a partnership or limited partnership; for each member of a syndicate or group; and for each person who controls a partner or member.

(d) A corporation which is required to file the information under paragraph (1) of section 5801(a) shall give such information for itself, for each of its officers and directors and for each person who is directly or indirectly the beneficial owner of twenty-five percent (25%) or more of its outstanding voting securities.

NOTE

Authority cited: Sections 8053 and 9001, Financial Code. Reference: Sections 5800 and 5801, Financial Code.

HISTORY

1. Change without regulatory effect renumbering former Section 185 to Section 103.304 (Register 87, No. 14). For prior history, see Register 82, No. 33.

2. Amendment filed 7-13-90; operative 8-12-90 (Register 90, No. 34).

§103.305. Filing Date.

Note • History

(a) The date of filing of the application shall be the date the complete application is filed in the office of the commissioner. An application shall be complete when all amendments by the acquiring party, the information prescribed by the commissioner, and any additional information requested by the commissioner are also on file. Any additional information deemed necessary by the commissioner to complete the application shall be requested from the applicant within 12 days after receipt of the incomplete application. The commissioner shall notify the acquiring party of the date of filing of the complete application.

(b) Applications filed pursuant to Section 11706(c) of the law shall have a concurrent filing date when filed with the commissioner.

NOTE

Authority cited: Section 5255, Financial Code. Reference: Section 11706, Financial Code.

HISTORY

1. Change without regulatory effect renumbering former Section 186 to Section 103.305 (Register 87, No. 14). For prior history, see Register 82, No. 33.

§103.306. Confidential Treatment.

Note • History

An application filed under Section 11706, together with all supplements, amendments and exhibits, shall be open for public inspection with the following exceptions:

(a) An applicant who wishes any information to be treated as confidential by the commissioner and not available for public inspection shall separate and designate such information as confidential and attach a statement of reasons.

This information shall be excluded from the application available for public inspection if the commissioner finds good cause exists for treating such information as confidential.

(b) If confidential treatment is requested under Section 11706(a) of the law, the request shall include substantiation that the loan was made in the lender's ordinary course of business.

(c) The commissioner may also designate as confidential any information in an application, if it is for the public welfare or the welfare of any association that such information should not be made public. The information may be withheld for such time as the commissioner may deem necessary.

NOTE

Authority cited: Section 5255, Financial Code. Reference: Section 11706, Financial Code; and Sections 6253 and 6254, Government Code.

HISTORY

1. Change without regulatory effect renumbering former Section 187 to Section 103.306 (Register 87, No. 14). For prior history, see Register 82, No. 33.

Article 4. Guarantee Stock

§103.400. Permit Under Section 6450.4.

Note • History

The Savings and Loan Commissioner will initiate appropriate proceedings under the provisions of California Financial Code Section 5554 with respect to any (a) sale, (b) offering, or (c) solicitation or taking of subscriptions for sales, involving 10% or more of the issued and outstanding guarantee stock of any association, unless:

(1) a permit authorizing the sale, offering or taking of subscriptions for the sale of the guarantee stock in question pursuant to the provisions of California Financial Code Section 6450.4 is duly issued, or

(2) a prior written determination is made by the Savings and Loan Commissioner that the sale, offering or solicitation or taking of subscriptions for such sale is not subject to the requirements of California Financial Code Section 6450.4. Said determination shall be made on the basis of a written application which shall include the names and addresses of each of the proposed legal and beneficial owners of the guarantee stock, a biographical description and references for each purchaser, and such additional information as the Commissioner may require.

NOTE

Authority cited: Section 5255, Financial Code. Reference: Section 6450.4, Financial Code.

HISTORY

1. Change without regulatory effect renumbering former Section 190 to Section 103.400 (Register 87, No. 14). For prior history, see Register 82, No. 29.

§103.401. Stock Dividends and Stock Split-Ups.

Note • History

The term “stock dividend” refers to an issuance by an association of its own guarantee stock to its stockholders without consideration and under conditions indicating that such action is prompted mainly by a desire to give the recipient stockholders some ostensibly separate evidence of a part of their respective interests in accumulative earnings without distribution of cash or other property which the board of directors deems necessary or desirable to retain in the business.

The term “Stock Split-Up” refers to an issuance by an association of its own guarantee stock to its stockholders without consideration and under conditions indicating that such action is prompted mainly by a desire to increase the number of outstanding shares for the purpose of effecting a reduction in their unit market price and, thereby, obtaining wider distribution and improved marketability of the shares.

The accounting for stock split-ups presents no significant problems as no accounting entries are generally required. The accounting for stock dividends, however, requires adjustments to the capital stock and capital surplus accounts to reflect the market value of the stock dividend.

Generally accepted accounting principles require that the fair value of the shares issued be capitalized and charged to retained earnings; however, no distinction is made between appropriated or unappropriated retained earnings. Either unappropriated and/or appropriated retained earnings may be capitalized as capital surplus for the purpose of recording a stock dividend, thus satisfying the requirements of generally accepted accounting principles.

In accounting for stock dividends, the guarantee stock and capital surplus accounts must be increased in an amount equivalent o the fair market value of the stock issued, if determinable, or by some reasonable amount if the fair market value is not easily determined. The guarantee stock account must be increased by the par value of the shares issued and any amount in excess credited to a capital surplus account. The capital surplus account shall be segregated into two segments, that directly contributed by the investors, and that contributed by appropriations from retained earnings or general reserves as stock dividends.

If the transfer to the latter account is from the Federal Insurance Reserve or another general reserve account, this must be disclosed or annotated to preserve its identity.

NOTE

Authority cited: Section 5255, Financial Code. Reference: Sections 6450, 6456, and 6457, Financial Code.

HISTORY

1. Change without regulatory effect renumbering former Section 191 to Section 103.401 (Register 87, No. 14). For prior history, see Register 82, No. 19.

Article 5. Trust Powers

§103.500. Applications.

Note • History

An association desiring to exercise trust powers, either through a trust department or through an affiliate, shall file with the commissioner an application indicating which trust powers it wishes to exercise and providing the information necessary to make the determination under Section 235.41(b) of the regulations.

NOTE

Authority cited: Section 5500.5, Financial Code. Reference: Title 10, Calif. Adm. Code, Chapter 2, Subchapter 3, Article 5 (Sec. 103.500.) and Subchapter 4, Article 5 (Section 104.500 et seq.); and Sections 5003 and 5501.5, Financial Code.

HISTORY

1. Change without regulatory effect renumbering former Section 245.2 to Section 103.500 (Register 87, No. 14). For prior history, see Register 81, No. 5.

Article 6. Investments--Service Corporations and Business Development Credit Corporations

§103.600. Terms Defined.

Note • History

(a) For the purposes of this subchapter, service corporations are of three types:

(1) Common Subsidiaries. A common subsidiary is a service corporation in which the stock is only available for purchase by two or more domestic or federal savings and loan associations having their home offices in this State;

(2) Wholly Owned Subsidiaries. A wholly owned subsidiary is a service corporation in which the sole stockholder is a domestic savings and loan association;

(3) Independent Service Corporations. An independent service corporation is any service corporation other than a common subsidiary or wholly owned subsidiary.

(b) The words “adjusted total capital” mean the total statutory net worth as defined in Section 5076 of the law and Section 101.100(h) of the regulations minus 1/5 of scheduled items. “Specified assets” has the same meaning as that term is defined in Section 561.17 of the Rules and Regulations for Insurance of Accounts of the Federal Home Loan Bank Board.

(c) The word “person” as used herein includes a natural person and, in addition, any domestic, foreign or national corporation, voting trust, business trust, limited partnership, partnership, joint stock company, association or similar organization whether incorporated or not.

NOTE

Authority cited: Sections 5255 and 6702.1, Financial Code. Reference: Section 6702.1, Financial Code.

HISTORY

1. Change without regulatory effect renumbering former Section 230 to Section 103.600 (Register 87, No. 14). For prior history, see Register 82, No. 52.

§103.601. Articles of Incorporation and Bylaws.

Note • History

The articles of incorporation and bylaws of the service corporation shall be approved by the commissioner in writing, concurrent with the submission of an application by an association to invest in or buy capital stock, obligations or other securities of the service corporation.

(a) The articles of incorporation of each common, wholly owned or independent service corporation shall provide that the service corporation is organized to engage in activities as are approved by the commissioner.

(b) The bylaws of a common or wholly owned service corporation shall provide, and the certificates of stock issued shall carry, notice that the stock shall be only available for purchase by, and nontransferable other than to, a domestic or federal savings and loan association having their home offices in this State.

NOTE

Authority cited: Sections 5255 and 6702.1, Financial Code. Reference: Section 6702.1, Financial Code.

HISTORY

1. Change without regulatory effect renumbering former Section 230.1 to Section 103.601 (Register 87, No. 14). For prior history, see Register 82, No. 52.

§103.602. Activities.

Note • History

A service corporation may engage in any activity which is approved by the commissioner.

NOTE

Authority cited: Sections 5255 and 6702.1, Financial Code. Reference: Section 6702.1, Financial Code.

HISTORY

1. Change without regulatory effect renumbering former Section 230.2 to Section 103.602 (Register 87, No. 14). For prior history, see Register 82, No. 52.

§103.603. Debts of Service Corporations.

Note • History

Except with the prior written consent of the commissioner, no association shall guarantee or in any way be liable for any debts or obligations of any service corporation.

NOTE

Authority cited: Sections 5255 and 6702.1, Financial Code. Reference: Section 6702.1, Financial Code.

HISTORY

1. Change without regulatory effect renumbering former Section 230.4 to Section 103.603 (Register 87, No. 14). For prior history, see Register 82, No. 52.

§103.604. Restricted Transactions.

Note • History

All service corporations shall comply with Sections 7177-7183 of the law when making or acquiring loans directly or indirectly to or from any stockholder, officer, director or employee of any association or associations which are stockholders of the service corporation, or to any member of the immediate family of any such person above enumerated, either for himself or as agent or as partner of another, or to any corporation the majority of the stock of which is owned or controlled, individually or collectively, by any of such persons. For the purposes of this section, the term “stock” does not include shares representing savings accounts, or borrower memberships, in a domestic savings and loan association or a federal savings and loan association.

NOTE

Authority cited: Sections 5255 and 6702.1, Financial Code. Reference: Sections 6702.1 and 7177-7183, Financial Code.

HISTORY

1. Change without regulatory effect renumbering former Section 230.5 to Section 103.604 (Register 87, No. 14). For prior history, see Register 82, No. 52.

Article 7. Remote Service Units

§103.700. Purpose and Scope.

Note • History

NOTE

Authority cited: Sections 5250 and 5255, Financial Code. Reference: Sections 5250, 5255 and 5500, Financial Code.

HISTORY

1. Change without regulatory effect renumbering former Section 244 to Section 103.700 (Register 87, No. 14). For prior history, see Register 81, No. 52.

2. Renumbering and amendment of Section 103.700 to Section 104.700 filed 12-8-87; operative 1-7-88 (Register 87, No. 50).

§103.701. Terms Defined.

Note • History

NOTE

Authority cited: Sections 5250 and 5255, Financial Code. Reference: Sections 5250, 5255 and 5500, Financial Code.

HISTORY

1. Change without regulatory effect renumbering former Section 244.1 to Section 103.701 (Register 87, No. 14). For prior history, see Register 81, No. 52.

2. Renumbering and amendment of Section 103.701 to Section 104.701 filed 12-8-87; operative 1-7-88 (Register 87, No. 50).

§103.702. Operations and Procedures.

Note • History

NOTE

Authority cited: Sections 5250 and 5255, Financial Code. Reference: Sections 5250, 5255 and 5500, Financial Code.

HISTORY

1. Change without regulatory effect renumbering former Section 244.2 to Section 103.702 (Register 87, No. 14). For prior history, see Register 81, No. 52.

2. Renumbering and amendment of former Section 103.702 to Section 104.702 filed 12-8-87; operative 1-7-88 (Register 87, No. 50).

§103.703. Waiver of Regulations.

Note • History

NOTE

Authority cited: Sections 5250 and 5255, Financial Code. Reference: Sections 5250, 5255 and 5500, Financial Code.

HISTORY

1. Change without regulatory effect renumbering former Section 244.3 to Section 103.703 (Register 87, No. 14). For prior history, see Register 81, No. 52.

2. Repealer filed 12-8-87; operative 1-7-88 (Register 87, No. 50).

Article 8. Foreign Savings and Loan Association

§103.800. Filing Procedures.

Note • History

(a) An application filed by a foreign savings association for approval to conduct the business of an association in this state shall be filed with the Department of Savings and Loan at either its San Francisco or Los Angeles office.

(b) Shall be filed in triplicate and shall be accompanied by a filing fee of $7,500.

(c) An applicant may separately file and designate part of its application as “confidential,” and attach a statement of reasons. Such information shall be deemed “confidential,” and shall not be open for public inspection except pursuant to the provisions of Section 102.203.

NOTE

Authority cited: Sections 8053 and 10012, Financial Code. Reference: Section 10012, Financial Code.

HISTORY

1. New section filed 7-1-87; operative 7-1-87 pursuant to Government Code Section 11346.2(d) (Register 87, No. 28).

§103.801. Information to Be Included in Applications.

Note • History

An application shall include the following information:

(a) Name of the applicant.

(b) Address and telephone number of the applicant's home office.

(d) Summary of applicant's history, including but not limited to the date and place of organization or incorporation. Attach certified copies of applicant's articles of incorporation and bylaws, or other documents establishing applicant's existence and organization.

(e) A description of the applicant's business and corporate structure, including the name, location, and principal business of each majority-owned subsidiary and the amount invested in each subsidiary by the applicant.

(f) If the applicant is directly or indirectly controlled by a foreign holding company, include the total deposits of each financial institution directly or indirectly controlled by such foreign holding company, and indicate the states in which the home offices of each such financial institution is located.

(g) A business plan describing the applicant's proposed business activities in this state.

(h) The auditor's report for the applicant's most recent fiscal year, and comparative statements for the prior year.

(i) The name and title of the chief executive officer of applicant, the regional officer if more than one office will be established in California, and completed biographical and financial statements and fingerprint cards.

(j) The name, address, and principal occupation of each director of applicant, and completed biographical and financial statements for each.

(k) A copy of the most recent examination report prepared by the applicable Federal Home Loan Bank or the Federal Deposit Insurance Corporation, the last state examination report, any correspondence from the relevant regulator to the Board of Directors discussing each such report, and the Board's responses thereto.

(l) State whether any supervisory or regulatory agreement or order is currently in effect with respect to the applicant, and, if so, attach a copy of each.

(m) An opinion from the applicant's state regulatory agency which describes the conditions under which California savings associations may conduct business in such state.

(n) Any additional information required by these regulations or current instructions of the Commissioner.

NOTE

Authority cited: Sections 8053 and 10012, Financial Code. Reference: Section 10012, Financial Code.

HISTORY

1. New section filed 7-1-87; operative 7-1-87 pursuant to Government Code Section 11346.2(d) (Register 87, No. 28).

§103.802. Approval to Conduct the Business of an Association in California.

Note • History

If the Commissioner finds each of the following with respect to an application by a foreign savings association for approval to conduct the business of an association in California, the Commissioner shall approve such application:

(a) That the applicant, any savings and loan holding company of the applicant, the directors and chief executive officer of the applicant and of any savings and loan holding company of the applicant, are each of good character and sound financial standing.

(b) That the financial history and condition of the applicant are satisfactory.

(c) That the applicant's plan to conduct the business of an association in California affords a reasonable promise of successful operation.

(d) That the foreign savings association has obtained a certificate of qualification from the Secretary of State under Chapter 21 (commencing with Section 2100) of Division 1 of the Corporations Code.

(e) That the state in which the home office of the applicant is located permits California associations to conduct the business of an association in such state in substantially the same manner as the applicant proposes to conduct in this State.

(f) That the applicant is not directly or indirectly controlled by a foreign holding company with its principal place of deposits located in a state outside the states listed in Financial Code Section 10011.

(g) That the applicant has provided all required information.

If the Commissioner finds otherwise, the Commissioner shall deny the application.

NOTE

Authority cited: Sections 8053 and 10012, Financial Code. Reference: Section 10012, Financial Code.

HISTORY

1. New section filed 7-1-87; operative 7-1-87 pursuant to Government Code Section 11346.2(d) (Register 87, No. 28).

§103.803. Issuance of Certificate of Authority.

Note • History

Whenever an application by a foreign savings association for approval to conduct the business of an association in California has been approved the Commissioner shall issue to such foreign savings association a certificate of authority to conduct the business of an association in California.

NOTE

Authority cited: Sections 8053 and 10012, Financial Code. Reference: Section 10012, Financial Code.

HISTORY

1. New section filed 7-1-87; operative 7-1-87 pursuant to Government Code Section 11346.2(d) (Register 87, No. 28).

Subchapter 4. Operations--General

Article 1. Advertising

§104.100. Association Advertising File.

Note • History

Each association shall maintain or cause to be maintained, and make available for inspection at its home office chronological files of all forms of advertisements used by it during the preceding eighteen months.

NOTE

Authority cited: Section 8053, Financial Code. Reference: Section 6523, Financial Code.

HISTORY

1. Change without regulatory effect renumbering former Section 130 to Section 104.100 (Register 87, No. 14). For prior history, see register 82, No. 45.

2. Amendment filed 4-13-88; operative 5-13-88 (Register 88, No. 18).

§104.101. Filing of Advertising Prior to Publication.

Note • History

Under Section 6523 of the law the commissioner may require any or all associations to file a true copy of the text of any advertisement in the office of the commissioner at least five days prior to issuance, circulation, or publication of such advertisement. Filing shall not be necessary, except when specifically required by the Commissioner or when proposed to be used in connection with the sale of capital stock, a permit for which must first be applied for and issued. All advertising proposed to be used in connection with the sale of capital stock shall not be used until the commissioner has authorized such use.

NOTE

Authority cited: Section 8053, Financial Code. Reference: Section 6523, Financial Code.

HISTORY

1. Change without regulatory effect renumbering former Section 131 to Section 104.101 (Register 87, No. 14). For prior history, see Register 82, No. 45.

2. Amendment filed 4-13-88; operative 5-13-88 (Register 88, No. 18).

§104.102. Advertising Signs.

Note • History

An association may use shortened names or phrases in advertising signs located in or on its office premises provided somewhere on the front of the office premises there appears the full name of the association.

NOTE

Authority cited: Section 8053, Financial Code. Reference: Section 6523, Financial Code.

HISTORY

1. Change without regulatory effect renumbering former Section 133.1 to Section 104.102 (Register 87, No. 14). For prior history, see Register 82, No. 45.

2. Amendment of NOTE filed 4-13-88; operative 5-13-88 (Register 88, No. 18).

§104.103. Misleading Impression.

Note • History

The advertisement as a whole must not be inaccurate or create a misleading impression even though statements therein separately considered are literally truthful.

NOTE

Authority cited: Section 8053, Financial Code. Reference: Section 6523, Financial Code.

HISTORY

1. Change without regulatory effect renumbering former Section 134 to Section 104.103 (Register 87, No. 14). For prior history, see Register 82, No. 45.

2. Amendment of NOTE filed 4-13-88; operative 5-13-88 (Register 88, No. 18).

§104.104. Comparison of Stock Structures.

Note • History

No association shall publish any comparison of its paid-in capital with the paid-in capital of any other association or associations, unless it also publishes in connection therewith a comparison of its general loss reserves with the general loss reserves of said association or associations.

NOTE

Authority cited: Section 8053, Financial Code. Reference: Section 6523, Financial Code.

HISTORY

1. Change without regulatory effect renumbering former Section 135 to Section 104.104 (Register 87, No. 14). For prior history, see Register 82, No. 45.

2. Amendment of NOTE filed 4-13-88; operative 5-13-88 (Register 88, No. 18).

§104.105. Rate of Interest and Early Withdrawal Penalties.

Note • History

(a) If any association advertises a special rate of interest which is paid or credited, or is to be paid or credited, on one class of share or investment certificate account, or savings account, such advertising shall clearly set forth special restrictions or conditions applicable to such accounts.

(b) Any advertisement publicizing the rate of interest paid on savings accounts shall clearly state whether the association will or may impose a penalty for withdrawal from a savings account before maturity.

(c) Non-Cash Interest. Any advertisement announcing the distribution of any non-cash item (merchandise, goods or services) that is intended to be given as interest on an account in lieu of cash shall clearly and legibly disclose that the cost of such item will be a payment of interest.

NOTE

Authority cited: Section 8053, Financial Code. Reference: Section 6523, Financial Code.

HISTORY

1. Change without regulatory effect renumbering former Section 136.1 to Section 104.105 (Register 87, No. 14). For prior history, see Register 82, No. 45.

2. Amendment filed 4-13-88; operative 5-13-88 (Register 88, No. 18).

§104.106. Unqualified Claims.

Note • History

No association shall advertise in any manner that it is the “safest,” “most secure,” “most reliable” or “strongest” association or make other similar claims relating to the security of investments therein unless it also sets forth in detail valid reasons for the claim.

NOTE

Authority cited: Section 8053, Financial Code. Reference: Section 6523, Financial Code.

HISTORY

1. Change without regulatory effect renumbering former Section 137 to Section 104.108 (Register 87, No. 14). For prior history, see Register 82, No. 45.

2. Repealer of former Section 104.106, and renumbering of Section 104.108 to Section 104.106 filed 4-13-88; operative 5-13-88 (Register 88, No. 18).

§104.107. Claim of Leadership.

Note • History

No association shall state or imply in its advertising, by use of superlatives or otherwise, that it is the leader in a particular field unless it also sets forth in detail valid reasons for the claim.

NOTE

Authority cited: Section 8053, Financial Code. Reference: Section 6523, Financial Code.

HISTORY

1. Change without regulatory effect renumbering former Section 136.4 to Section 104.107 (Register 87, No. 14). For prior history, see Register 82, No. 45.

2. Repealer of former Section 104.107, and renumbering of Section 104.109 to Section 104.107 filed 4-13-88; operative 5-13-88 (Register 88, No. 18).

§104.108. Claims of Superior Facilities.

Note • History

No association shall state or imply in its advertising that its facilities are superior to those of another association unless it sets forth in detail valid reasons for its claim.

NOTE

Authority cited: Section 8053, Financial Code. Reference: Section 6523, Financial Code.

HISTORY

1. Change without regulatory effect renumbering former Section 137 to Section 104.108 (Register 87, No. 1). For prior history, see Register 82, No. 45.

2. Renumbering of former Section 104.108 to Section 104.106, and renumbering of Section 104.110 to Section 104.108 filed 4-13-88; operative 5-13-88 (Register 88, No. 18).

§104.109. Nature of Loan Portfolio.

Note • History

No association shall state or imply in its advertising that its loan portfolio is secured by residential properties if more than 20 percent of the unpaid balance of its loan portfolio is in loans secured by other than residential properties unless it sets forth a breakdown as follows: Loans on one to four unit residential properties, loans on multiple unit dwellings in excess of four units, loans on commercial properties, and loans on unimproved property.

NOTE

Authority cited: Section 8053, Financial Code. Reference: Section 6523, Financial Code.

HISTORY

1. Change without regulatory effect renumbering former Section 137.1 to Section 104.109 (Register 87, No. 14). For prior history, see Register 82, No. 45.

2. Renumbering of former Section 104.109 to Section 104.107, and renumbering of Section 104.111 to Section 104.109 filed 4-13-88; operative 5-13-88 (Register 88, No. 18).

§104.110. Adequacy of Reserves.

Note • History

Any advertisement, other than solely a balance sheet, concerning the dollar amount of reserves of an association shall also set forth the percentage ratio of said reserves to withdrawable savings accounts.

NOTE

Authority cited: Section 8053, Financial Code. Reference: Section 6523, Financial Code.

HISTORY

1. Change without regulatory effect renumbering former Section 137.2 to Section 104.110 (Register 87, No. 14). For prior history, see Register 82, No. 45.

2. Renumbering of former Section 104.110 to Section 104.108, and renumbering of Section 104.112 to Section 104.110 filed 4-13-88; operative 5-13-88 (Register 88, No. 18).

§104.111. Giveaways.

Note • History

The term “giveaway” means anything of value, or services performed in whole or in part outside the premises of an association, furnished the recipient without adequate payment; the term does not, however, include (a) provision by an association, for its depositors, of safety deposit facilities at no cost or at a reduced rental, regardless of the location of such facilities; or (b) reimbursement for all or any part of amounts paid by depositors for safety deposit facilities located outside the premises of the association; or (c) provision of any service or thing of value as payment of interest.

NOTE

Authority cited: Section 8053, Financial Code. Reference: Sections 6523 and 6653, Financial Code.

HISTORY

1. Change without regulatory effect renumbering former Section 138 to Section 104.111 (Register 87, No. 14). For prior history, see Register 82, No. 45.

2. Renumbering of former Section 104.111 to 104.109, and renumbering and amendment of Section 104.114 to Section 104.111 filed 4-13-88; operative 5-13-88 (Register 88, No. 18).

§104.112. Connection Between Giveaways and Savings Accounts Prohibited.

Note • History

No association shall condition the distribution of a giveaway on the recipient's possessing, opening, or adding to a savings account, or maintaining a minimum balance therein.

NOTE

Authority cited: Section 8053, Financial Code. Reference: Sections 6523 and 6653, Financial Code.

HISTORY

1. Change without regulatory effect renumbering former Section 139 to Section 104.112 (Register 87, No.14). For prior history, see Register 82, No. 45.

2. Renumbering of former Section 104.112 to Section 104.110, and renumbering of Section 104.115 to Section 104.112 filed 4-13-88; operative 5-13-88 (Register 88, No. 18).

§104.113. Advertisements of Giveaway Prohibited; Exceptions.

Note • History

Except as provided in Section 104.114, no association shall refer in any of its advertisements to any giveaway, other than printed material of an educational or informational nature of a cost not exceeding $2.50, or a coin bank not exceeding said cost.

NOTE

Authority cited: Section 8053, Financial Code. Reference: Sections 6523 and 6653, Financial Code.

HISTORY

1. Change without regulatory effect renumbering former Section 140 to Section 104.113 (Register 87, No. 14). For prior history, see Register 82, No. 45.

2. Repealer of former Section 104.113, and renumbering and amendment of Section 104.116 to Section 104.113 filed 4-13-88; operative 5-13-88 (Register 88, No. 18).

§104.114. Giveaway Advertisements Permitted in Connection with New Association Opening.

Note • History

An association may refer to giveaways in its advertisements for a single period of 30 days ending not more than one year after the opening of its first office.

NOTE

Authority cited: Section 8053, Financial Code. Reference: Sections 6523 and 6653, Financial Code.

HISTORY

1. Change without regulatory effect renumbering former Section 141 to Section 104.114 (Register 87, No. 14). For prior history, see Register 82, No. 45.

2. Renumbering and amendment of former Section 104.114 to Section 104.111, and renumbering and amendment of Section 104.117 to Section 104.114 filed 4-13-88; operative 5-13-88 (Register 88, No. 18).

§104.115. Giveaway Prohibition Applicable to Dealings with Any Persons.

Note • History

No association shall enter into any agreement or understanding with, or accept funds for investment in savings accounts from, any person engaging in activities that are prohibited by Sections 104.112 and 104.113 if done by an association.

NOTE

Authority cited: Section 8053, Financial Code. Reference: Sections 6523 and 6653, Financial Code.

HISTORY

1. Change without regulatory effect renumbering former Section 141.1 to Section 104.115 (Register 87, No. 14). For prior history, see Register 82, No. 45.

2. Renumbering of former Section 104.115 to Section 104.112, and renumbering and amendment of Section 104.118 to Section 104.115 filed 4-13-88; operative 5-13-88 (Register 88, No. 18).

§104.116. Advertisements of Giveaways Prohibited; Exceptions.

Note • History

NOTE

Authority cited: Section 5255, Financial Code. Reference: Section 6412, Financial Code.

HISTORY

1. Change without regulatory effect renumbering former Section 141.2 to Section 104.116 (Register 87, No. 14). For prior history, see Register 82, No. 45.

2. Renumbering and amendment of Section 104.116 to Section 104.113 filed 4-13-88; operative 5-13-88 (Register 88, No. 18).

§104.117. Giveaway Advertisements Permitted in Connection with New Association Opening.

Note • History

NOTE

Authority cited: Section 5255, Financial Code. Reference: Section 6412, Financial Code.

HISTORY

1. Change without regulatory effect renumbering former Section 141.3 to Section 104.117 (Register 87, No. 14). For prior history, see Register 82, No. 45.

2. Renumbering and amendment of Section 104.117 to Section 104.114 filed 4-13-88; operative 5-13-88 (Register 88, No. 18).

§104.118. Giveaway Prohibition Applicable to Dealings with Brokers and Other Persons.

Note • History

NOTE

Authority cited: Section 5255, Financial Code. Reference: Section 6412, Financial Code.

HISTORY

1. Change without regulatory effect renumbering former Section 141.4 to Section 104.118 (Register 87, No. 14). For prior history, see Register 82, No. 45.

2. Renumbering and amendment of Section 104.118 to Section 104.115 filed 4-13-88; operative 5-13-88 (Register 88, No. 18).

§104.200. Terms Defined.

Note • History

(a) Data processing means bookkeeping, recordkeeping and/or accounting by manual, mechanical or electronic methods.

(b) A service center is:

(1) A data processing unit of an association, located either on its premises or at its branch or service office, which, in addition to performing data processing for the association itself, performs such service for another association or other associations, or

(2) A jointly operated data processing unit owned and operated by two or more associations for the purpose of rendering data processing service for said associations, and for any other associations that have contracted for its services, or

(3) An independent facility which performs data processing operations for an association or associations and which is not operated by the personnel employed by the associations whose accounts are being serviced.

(c) The definitions set forth in Article 2, Chapter 1, Part 1, of the law (commencing with Section 5050) are incorporated herein by reference.

(d) “Authorized service corporation” means a service corporation whose articles of incorporation authorize it to provide data processing services.

NOTE

Authority cited: Section 5255, Financial Code. Reference: Section 8701, Financial Code.

HISTORY

1. Change without regulatory effect renumbering former Section 166 to Section 104.200 (Register 87, No. 14). For prior history, see Register 82, No. 33.

§104.201. Blanket Authority--Conditions.

Note • History

Blanket authority is hereby granted to any association or its authorized service corporation to contract for data processing services with any service center described in Section 166(b) hereof, provided the association or its authorized service corporation which contracts for the data processing services files a written report with the commissioner within 10 days after the execution of the contract disclosing the following:

(a) The date that a written contract was executed by the association or its authorized service corporation and a service center;

(b) That a copy of the contract is retained in the association's files for examination by the commissioner; and

NOTE

Authority cited: Section 5255, Financial Code. Reference: Section 8701, Financial Code.

HISTORY

1. Change without regulatory effect renumbering former Section 167 to Section 104.201 (Register 87, No. 14). For prior history, see Register 82, No. 33.

§104.300. Classes and Appointment of Appraisers.

Note • History

(a) The board of directors of a state savings and loan association may appoint any person or persons to act as an appraiser in any one of the four classes as described in this Subchapter 4, Article 3 or may delegate such authority to management. Prior to appointment, information must be provided to the association verifying that the person(s) meet the Commissioner's qualification standards established for the designated class. Documentation to support the appointment for each natural person(s) signing an appraisal report shall be available upon request for examination by the Commissioner.

(b) The provisions of this Subchapter 4, Article 3 shall not affect the appointment of appraisers made prior to the effective date of these regulations.

NOTE

Authority cited: Sections 7500 and 8053, Financial Code. Reference: Sections 7500 and 8158, Financial Code.

HISTORY

1. Change without regulatory effect renumbering former Section 122 to Section 104.300 (Register 87, No. 14). For prior history, see Registers 82, No. 49 and 69, No. 22.

2. Amendment filed 8-23-88; operative 9-22-88 (Register 88, No. 35).

§104.301. Appraiser I.

Note • History

An Appraiser I is a trainee who is permitted to assist an Appraiser II, III or IV in appraising:

(a) the fee interest in existing and proposed residential properties up to and including four units; and

(b) the fee interest in individual lots zoned for residential use, with offsite improvements in place.

Such appraisals must be signed by both the trainee and the Appraiser II, III or IV. The Appraiser II, III or IV must personally inspect the property and prepare the certification required under Section 104.312.

NOTE

Authority cited: Section 8053, Financial Code. Reference: Section 7500, Financial Code.

HISTORY

1. Change without regulatory effect renumbering former Section 122.1 to Section 104.301 (Register 87, No. 14). For prior history, see Register 82, No. 49.

2. Amendment of subsection (b) filed 8-23-88; operative 9-22-88 (Register 88, No. 35).

§104.302. Qualifications for Appraiser I.

Note • History

Both of the following are prerequisites to qualification as an Appraiser I:

(a) Full-time employment as an employee of an association or its affiliates;

(b) Graduation from a junior college or possession of an equivalent number of course units from an accredited four-year college or university or from an extension program thereof.

NOTE

Authority cited: Sections 7500 and 8053, Financial Code. Reference: Section 7500, Financial Code.

HISTORY

1. Change without regulatory effect renumbering former Section 122.2 to Section 104.302 (Register 87, No. 14). For prior history, see Register 82, No. 49.

2. Amendment of subsection (b) filed 8-23-88; operative 9-22-88 (Register 88, No. 35).

§104.303. Appraiser II.

Note • History

An Appraiser II is permitted to appraise:

(a) the fee interest in an existing or proposed residential property up to and including four units or a construction project of not more than four single family residences; and

(b) the fee interest in individual lots zoned for residential use, with offsite improvements in place.

An Appraiser II is permitted to assist, for training purpose, an Appraiser III or an Appraiser IV in appraising such other types of real property as an Appraiser III or an Appraiser IV might appraise. Such other appraisals must be signed by both the Appraiser II and the Appraiser III or IV. The Appraiser III or IV must personally inspect the property and prepare the certification required under Section 104.312.

NOTE

Authority cited: Section 8053, Financial Code. Reference: Section 7500, Financial Code.

HISTORY

1. Change without regulatory effect renumbering former Section 122.3 to Section 104.303 (Register 87, No. 14). For prior history, see Register 82, No. 49.

2. Amendment of subsection (b) filed 8-23-88; operative 9-22-88 (Register 88, No. 35).

§104.304. Qualifications for Appraiser II.

Note • History

Either (a) (1) three months of full-time appraisal experience performing the duties of an Appraiser I with adequate field training in procedures appropriate to appraising existing and proposed residential properties up to and including four units; and (2) successful completion of a basic course in real estate appraising conducted by a junior college; by an accredited four-year college or university or from an extension program thereof; by a recognized professional appraisal society; or by the Institute of Financial Education or other entity in a course of instruction that has been approved by the commissioner; or

(b) one year of appraisal experience as a staff or fee appraiser with experience primarily in one to four family residential properties.

NOTE

Authority cited: Sections 7500 and 8053, Financial Code. Reference: Section 7500, Financial Code.

HISTORY

1. Change without regulatory effect renumbering former Section 122.4 to Section 104.304 (Register 87, No. 14). For prior history, see Register 82, No. 49.

2. Amendment filed 8-23-88; operative 9-22-88 (Register 88, No. 35).

§104.305. Appraiser III.

Note • History

An Appraiser III is permitted to appraise:

(a) the fee interest or leasehold interest in existing or proposed residential properties; and

(b) the fee interest or leasehold interest in developed or undeveloped land zoned for residential use only.

An Appraiser III is permitted to assist, for training purposes, an Appraiser IV in appraising such other types of real property as an Appraiser IV might appraise. Such other appraisals must be signed by both the Appraiser III and the Appraiser IV. The Appraiser IV must personally inspect the property and prepare the certification required under Section 104.312.

NOTE

Authority cited: Section 8053, Financial Code. Reference: Section 7500, Financial Code.

HISTORY

1. Change without regulatory effect renumbering former Section 122.5 to Section 104.305 (Register 87, No. 14). For prior history, see Register 82, No. 49.

2. Amendment of subsection (b) filed 8-23-88; operative 9-22-88 (Register 88, No. 35).

§104.306. Qualifications for Appraiser III.

Note • History

(a) Three years of appraisal experience as a staff or fee appraiser with substantial experience appraising investment-type residential properties; and

(b) successful completion of an advanced course in real estate appraising conducted by a junior college; by an accredited four-year college or university or from an extension program thereof; by a recognized professional appraisal society; or by the Institute of Financial Education or other entity in a course of instruction that has been approved by the commissioner.

NOTE

Authority cited: Sections 7500 and 8053, Financial Code. Reference: Section 7500, Financial Code.

HISTORY

1. Change without regulatory effect renumbering former Section 122.6 to Section 104.306 (Register 87, No. 14). For prior history, see Register 82, No. 49.

2. Amendment of subsection (b) filed 8-23-88; operative 9-22-88 (Register 88, No. 35).

§104.307. Appraiser IV.

Note • History

An Appraiser IV is permitted to appraise any type of real property that may be accepted as the security for a loan by an association. The Appraiser IV must personally inspect the property and prepare the certification required under Section 104.312.

NOTE

Authority cited: Section 8053, Financial Code. Reference: Section 7500, Financial Code.

HISTORY

1. Change without regulatory effect renumbering former Section 122.7 to Section 104.307 (Register 87, No. 14). For prior history, see Register 82, No. 49.

2. Amendment filed 8-23-88; operative 9-22-88 (Register 88, No. 35).

§104.308. Qualifications for Appraiser IV.

Note • History

(a) (1) Either five years of appraisal experience as a staff or fee appraiser gained within the past ten years, with substantial experience appraising commercial and industrial properties; and

(2) successful completion of an advanced course in real estate appraising conducted by a junior college; by an accredited four-year college or university, or from an extension program thereof; by a recognized professional appraisal society; or by the Institute of Financial Education or other entity in a course of instruction that has been approved by the commissioner; or

(b) designation as a member of a recognized professional appraisal society as an appraiser qualified to appraise all types of real property.

NOTE

Authority cited: Sections 7500 and 8053, Financial Code. Reference: Section 7500, Financial Code.

HISTORY

1. Change without regulatory effect renumbering former Section 122.8 to Section 104.308 (Register 87, No. 14). For prior history, see Register 82, No. 49.

2. Amendment filed 8-23-88; operative 9-22-88 (Register 88, No. 35).

§104.309. Approval Process.

Note • History

The board of directors or management of an association may determine that a person is qualified as an appraiser in any one of the four classifications, provided that such person has the qualifications outlined in Sections 104.302, 104.304, 104.306 and 104.308 of this article.

NOTE

Authority cited: Section 8053, Financial Code. Reference: Section 7500, Financial Code.

HISTORY

1. Change without regulatory effect renumbering former Section 123 to Section 104.309 (Register 87, No. 14). For prior history, see Register 82, No. 49.

2. Amendment filed 8-23-88; operative 9-22-88 (Register 88, No. 35).

§104.310. Designation of Classification.

Note • History

An appraiser in signing an appraisal report shall designate his appraiser classification.

NOTE

Authority cited: Section 8053, Financial Code. Reference: Sections 7500, Financial Code.

HISTORY

1. Change without regulatory effect renumbering former Section 124 to Section 104.311 (Register 87, No. 14). For prior history, see Register 82, No. 49.

2. Repealer of former Section 104.310, and renumbering of former Section 104.311 to Section 104.310 filed 8-23-88; operative 9-22-88 (Register 88, No. 35).

§104.311. Compensation.

Note • History

No appraiser shall issue an appraisal report if his compensation, either as an appraiser, agent or loan solicitor in connection with the property being appraised, is based either directly or indirectly upon his findings as to the value of the loan security.

NOTE

Authority cited: Section 8053, Financial Code. Reference: Sections 7500, Financial Code.

HISTORY

1. Change without regulatory effect renumbering former Section 125 to Section 104.312 (Register 87, No. 14). For prior history, see Register 82, No. 49.

2. Renumbering of former Section 104.311 to Section 104.310, and renumbering of former Section 104.312 to Section 104.311 filed 8-23-88; operative 9-22-88 (Register 88, No. 35).

§104.312. Certification of Physical Inspection.

Note • History

Each appraisal report must contain a certification by the appraiser charged with rendering the valuation that he has made a physical inspection of the property.

NOTE

Authority cited: Section 8053, Financial Code. Reference: Section 7500, Financial Code.

HISTORY

1. Change without regulatory effect renumbering former Section 126 to Section 104.313 (Register 87, No. 14). For prior history, see Register 82, No. 49.

2. Renumbering of former Section 104.312 to Section 104.311, and renumbering of former Section 104.313 to Section 104.312 filed 8-23-88; operative 9-22-88 (Register 88, No. 35).

§104.313. Certification of Physical Inspection.

Note • History

NOTE

Authority cited: Section 8053, Financial Code. Reference: Section 7500, Financial Code.

HISTORY

1. Change without regulatory effect renumbering former Section 126 to Section 104.313 (Register 87, No. 14). For prior history, see Register 82, No. 49.

2. Renumbering of former Section 104.313 to Section 104.312, filed 8-23-88; operative 9-22-88 (Register 88, No. 35).

§104.400. Affirmative Action in Employment Reports.

Note • History

NOTE

Authority cited: Section 5255, Financial Code. Reference: Section 8708, Financial Code.

HISTORY

1. Change without regulatory effect renumbering former Section 150 to Section 104.400 (Register 87, No. 14). For prior history, see Register 82, No. 18.

2. Repealer filed 4-29-96; operative 5-29-96 (Register 96, No. 18).

§104.401. Reports on Composition of Boards of Directors.

Note • History

The report required by Section 8707 of the law shall include the following information concerning each member of the board of directors of the association:

(a) Name

(b) Business address

(d) Age

(e) Sex

(f) Race or ethnic background, including classifications for White, Black, Oriental, American Indian and Hispanic.

(g) Name, address and principal activity of any business organization, other than the association, of which the member is an employee, officer, director or substantial stockholder. If none, so state.

NOTE

Authority cited: Section 5255, Financial Code. Reference: Section 8707, Financial Code.

HISTORY

1. Change without regulatory effect renumbering former Section 151 to Section 104.401 (Register 87, No. 14). For prior history, see Register 83, No. 12.

§104.402. Confidentiality.

Note • History

Information reported pursuant to the provisions of this subchapter shall be treated as confidential, as provided in Section 102.203 of the regulations, except the commissioner may publish data derived from such information in a form which does not reveal the identity of associations supplying the information.

NOTE

Authority cited: Section 5255, Financial Code. Reference: Section 6254, Government Code.

HISTORY

1. Change without regulatory effect renumbering former Section 152 to Section 104.402 (Register 87, No. 14). For prior history, see Register 83, No. 39.

§104.500. Purpose and Scope.

Note • History

This subchapter contains procedures and rules to implement Section 235.41 of the regulations, relating to the exercise of trust powers by associations.

NOTE

Authority cited: Section 5500.5, Financial Code and Section 235.41(b), Title 10, Calif. Adm. Code. Reference: Sections 5003 and 5501.5,Financial Code, and Section 235.41, Title 10, Calif. Adm. Code.

HISTORY

1. Change without regulatory effect renumbering former Section 245 to Section 104.500 (Register 87, No. 14). For prior history, see Register 81, No. 25.

§104.501. Definitions.

Note • History

Unless the context requires otherwise, as used in this subchapter:

(a) “Account” means the trust, estate or other fiduciary relationship which has been established with an association;

(b) “Custodian under a uniform gifts to minors act” means an account established pursuant to a state law which is substantially similar to the Uniform Gifts to Minors Act as published by the American Law Institute and with respect to which the association operating such account has established to the satisfaction of the Secretary of the Treasury that it has duties and responsibilities similar to the duties and responsibilities of a trustee or guardian;

(c) “Fiduciary” means an association undertaking to act alone, through an affiliate, or jointly with others primarily for the benefit of another in all matters connected with its undertaking and includes trustee, executor, administrator, guardian, receiver, managing agent, registrar of stocks and bonds, escrow, transfer, or paying agent, trustee of employee pension, welfare and profit-sharing trusts, and any other similar capacity;

(d) “Fiduciary records” means all matters which are written, transcribed, recorded, received or otherwise come into the possession of an association and are necessary to preserve information concerning the actions and events relevant to the fiduciary activities of an association;

(e) “Guardian” means the guardian, conservator, or committee by whatever name employed by local law, of the estate of an infant, an incompetent individual, an absent individual, or a competent individual over whose estate a court has taken jurisdiction, other than under bankruptcy or insolvency laws;

(f) “Investment authority” means the responsibility conferred by action of law or a provision of an appropriate governing instrument to make, select or change investments, review investment decisions made by others, or to provide investment advice or counsel to others;

(g) “Local law” means the law of the State of California or other jurisdiction governing the fiduciary relationship;

(h) “Managing agent” means the fiduciary relationship assumed by an association upon the creation of an account which names the association as agent and confers investment discretion upon the association;

(i) “State-chartered corporate fiduciary” means any state bank, trust company, or other corporation which comes into competition with associations and is permitted to act in a fiduciary capacity under the laws of the state in which the association is located;

(j) “Trust department” means that group or groups of officers and employees of an association or of an affiliate of an association to whom are assigned the performance of fiduciary services by the association;

(k) “Trust powers” means the power to act in any fiduciary capacity authorized by Section 403 of the Depository Institutions Deregulation and Monetary Control Act of 1980, Pub. L No. 96-221, 94 Stat. 132, 12 U.S.C. Section 1464(n). Under that Act, a federal association may be authorized to act, when not in contravention of local law, as trustee, executor, administrator, guardian, receiver, managing agent, registrar of stocks and bonds, escrow, transfer, and paying agent, trustee of employee pension, welfare, and profit-sharing trusts, or in any other fiduciary capacity which state-chartered corporate fiduciaries exercise under local law: provided, that the granting to, and exercise of, such powers shall not be deemed to be in contravention of state or local law whenever the laws of such state authorize or permit the exercise of any or all of the foregoing powers by state banks, trust companies, or other corporations which compete with federal associations.

(l) The definitions set forth in the law and in Sections 1 through 21, Financial Code, are incorporated by reference.

NOTE

Authority cited: Section 5500.5, Financial Code. Reference: Title 10, Calif. Adm. Code, Chapter 2, Subchapter 3, Article 5, (Section 103.500)and Subchapter 4, Article 5 (Section 104.500 et. seq.); and Sections 5003 and 5501.5, Financial Code.

HISTORY

1. Change without regulatory effect renumbering former Section 245.1 to Section 104.501 (Register 87, No. 14). For prior history, see Register 81, No. 25.

§104.502. Consolidation or Merger of Two or More Associations.

Note • History

Where two or more associations consolidate or merge, and any one of such associations has, prior to such consolidation or merger, received a permit from the commissioner to exercise trust powers which permit is in force at the time of the consolidation or merger, the rights existing under such permit pass to the resulting association, and the resulting association may exercise such trust powers in the same manner and to the same extent as the association to which such permit was originally issued; and no new application to continue to exercise such powers is necessary. However, when the name of the resulting association differs from that of the association to which the right to exercise trust powers was originally granted, the commissioner will issue a certificate to that association showing its right to exercise the trust powers theretofore granted to any of the associations participating in the consolidation or merger.

NOTE

Authority cited: Section 5500.5, Financial Code. Reference: Title 10, Calif. Adm. Code, Chapter 2, Subchapter 3, Article 5 (Section 103.500) and Subchapter 4, Article 5 (Section 104.500 et seq.); 23 (Section 245 et seq.); and Sections 5003 and 5501.5, Financial Code.

HISTORY

1. Change without regulatory effect renumbering former Section 245.3 to Section 104.502 (Register 87, No. 14). For prior history, see Register 81, No. 25.

§104.503. Deposit of Securities with State Authorities.

Note • History

Whenever local law requires corporations acting as fiduciary to deposit securities with state authorities for the protection of private or court trusts, associations in this state authorized to exercise trust powers shall, before undertaking to act in any fiduciary capacity, make a similar deposit with the state authorities. If the state authorities refuse to accept such a deposit, the securities shall be deposited with the Federal Home Loan Bank of which the association is a member, and such securities shall be held for the protection of private or court trusts with like effect as though the securities had been deposited with the state authorities.

NOTE

Authority cited: Section 5500.5, Financial Code. Reference: Title 10, Calif. Adm. Code, Chapter 2, Subchapter 23 (Sec. 245 et seq.); and Sections 5003 and 5501.5, Financial Code.

HISTORY

1. Change without regulatory effect renumbering former Section 245.4 to Section 104.503 (Register 87, No. 14). For prior history, see Register 81, No. 25.

§104.504. Administration of Trust Powers.

Note • History

(a) (1) Responsibility of the board of directors. The board of directors is responsible for the proper exercise of fiduciary powers by the association. All matters pertinent thereto, including the determination of policies, the investment and disposition of property held in a fiduciary capacity, and the direction and review of the actions of all officers, employees, and committees utilized by the association in the exercise of its fiduciary powers, are the responsibility of the board. In discharging this responsibility, the board of directors may assign, by action duly entered in the minutes, the administration of such of the association's trust powers as it may consider proper to assign to such director(s), officer(s), employee(s), or committee(s) as it may designate.

(2) Administration of accounts. No fiduciary account shall be accepted without the prior approval of the board, or of the director(s), officer(s), or committee(s) to whom the board may have assigned the performance of that responsibility. A written record shall be made of such acceptances and of the relinquishment or closing out of all fiduciary accounts. Upon the acceptance of an account for which the association has investment responsibilities, a prompt review of the assets shall be made. The board shall also ensure that at least once during every calendar year thereafter, and within 15 months of the last review, all the assets held in or held for each fiduciary account for which the association has investment responsibilities are reviewed to determine the advisability of retaining or disposing of such assets. The board of directors should act to ensure that all investments have been made in accordance with the terms and purposes of the governing instrument.

(b) Use of other association personnel. The trust department may utilize personnel and facilities of other departments of the association, and other departments of the association may utilize personnel and facilities of the trust department only to the extent not prohibited by law.

(c) Compliance with Federal and State securities laws. Every association exercising trust powers shall adopt written policies and procedures to ensure that the federal and state securities laws are complied with in connection with any decision or recommendation to purchase or sell any security. Such policies and procedures, in particular, shall ensure that the association's trust departments shall not use material inside information in connection with any decision or recommendation to purchase or sell any security.

(d) Legal counsel. Every association exercising fiduciary powers shall designate, employ, or retain legal counsel who shall be readily available to pass upon fiduciary matters and to advise the association and its trust department.

(e) Bonding. In addition to the minimum bond coverage required by Section 563.19 of the Insurance Regulations (12 CFR Section 563.19) and by Section 5610 of the law, directors, officers, and employees of an association engaged in the operation of a trust department shall acquire such additional bond coverage as the commissioner may require.

NOTE

HISTORY

1. Change without regulatory effect renumbering former Section 245.5 to Section 104.504 (Register 87, No. 14). For prior history, see Register 81, No. 25.

§104.505. Books and Accounts.

Note • History

(a) General. Every association exercising trust powers shall keep its fiduciary records separate and distinct from other records of the association. All fiduciary records shall be so kept and retained for such time as to enable the association to furnish such information or reports with respect thereto as may be required by the commissioner. The fiduciary records shall contain full information relative to each account.

(b) Record of pending litigation. Every association shall keep an adequate record of all pending litigation to which it is a party in connection with its exercise of trust powers.

NOTE

HISTORY

1. Change without regulatory effect renumbering former Section 245.6 to Section 104.505 (Register 87, No. 14). For prior history, see Register 81, No. 25.

§104.506. Audit of Trust Department.

Note • History

At least once during each calendar year, the association's trust department shall be audited by auditors in a manner consistent with Section 563.17-1 of the Insurance Regulations (12 CFR Section 563.17-1) and by Section 8701 of the law. A copy of the report of the audit shall be promptly filed with the commissioner. Trust department audits may be made as part of the periodic audits required by Section 563.17-1 and by Section 8800 of the law.

NOTE

HISTORY

1. Change without regulatory effect renumbering former Section 245.7 to Section 104.506 (Register 87, No. 14). For prior history, see Register 81, No. 25.

§104.507. Funds Awaiting Investment or Distribution.

Note • History

(a) General. Funds held in a fiduciary capacity by an association awaiting investment or distribution shall not be held uninvested or undistributed any longer than is reasonable for the proper management of the account.

(b) Use by association in regular business.

(1) Funds held in trust by an association, including managing agency accounts, awaiting investment or distribution may, unless prohibited by the instrument creating the trust or by local law, be deposited in other departments of the association, provided that the association shall first set aside under control of the trust department as collateral security:

(A) Direct obligations of the United States, or other obligations fully guaranteed by the United States as to principal and interest;

(B) Readily marketable securities of the classes in which state-chartered corporate fiduciaries are authorized or permitted to invest trust funds under the laws of this state, or

(2) Collateral securities or securities substituted therefor as collateral shall at all times be at least equal in face value to the amount of trust funds so deposited, but such security shall not be required to the extent that the funds so deposited are insured by the Federal Savings and Loan Insurance Corporation. The requirements of this subdivision are met when qualifying assets of the association are pledged to secure a deposit in compliance with local law, and no duplicate pledge shall be required in such case.

(3) Any funds held by an association as fiduciary awaiting investment or distribution and deposited in other departments of the association shall be made productive.

NOTE

HISTORY

1. Change without regulatory effect renumbering former Section 245.8 to Section 104.507 (Register 87, No. 14). For prior history, see Register 81, No. 25.

§104.508. Investment of Funds Held as Fiduciary.

Note • History

(a) Private trusts. Funds held by an association in a fiduciary capacity shall be invested in accordance with the instrument establishing the fiduciary relationship and local law. When such instrument does not specify the character or class of investments to be made and does not vest in the association, its directors, or its officers investment discretion in the matter, funds held pursuant to such instrument shall be invested in any investment in which state-chartered corporate fiduciaries may invest under local law.

(b) Court trusts. If, under local law, corporate fiduciaries appointed by a court are permitted to exercise discretion in investments, or if an association acting as fiduciary under appointment by a court is vested with discretion in investments by an order of such court, funds of such accounts may be invested in any investments which are permitted by local law. Otherwise, an association acting as fiduciary under appointment by a court must make all investments of funds in such accounts under an order of that court. Such orders in either case shall be preserved with the fiduciary records of the association.

(c) Collective investment of trust funds. The collective investment of funds received or held by an association as fiduciary is governed by Section 245.13.

NOTE

HISTORY

. 1, Change without regulatory effect renumbering former Section 245.9 to Section 104.508 (Register 87, No. 14). For prior history, see Register 81, No. 25.

§104.509. Self-Dealing.

Note • History

(a) Purchase of obligations, etc., from association. Unless lawfully authorized by the instrument creating the relationship, or by court order or local law, funds held by an association as fiduciary shall not be invested in stock or obligations of, or property acquired from, the association or its directors, officers, or employees, or individuals with whom there exists such a connection, or organizations in which there exists such an interest, as might affect the exercise of the best judgment of the association in acquiring the property, or in stock or obligations of, or property acquired from, affiliates of the association or their directors, officers or employees.

(b) Sale or transfer of trust assets to association. Property held by an association as fiduciary shall not be sold or transferred, by loan or otherwise, to the association or its directors, officers, or employees, or to individuals with whom there exists such a connection, or organizations in which there exists such an interest, as might affect the exercise of the best judgment of the association in selling or transferring such property, or to affiliates of the association or their directors, officers or employees, except:

(1) When lawfully authorized by the instrument creating the relationship or by court order or by local law;

(2) In cases in which the association has been advised by its counsel in writing that it has incurred as fiduciary a contingent or potential liability and desires to relieve itself from such liability, in which case such a sale or transfer may be made with the approval of the board of directors and the commissioner, provided that in all such cases the association, upon the consummation of the sale or transfer, shall make reimbursement in cash at no loss to the account;

(3) As provided in the laws and regulations governing collective investments; and

(4) When required by the commissioner.

(c) Investment in stock of association. Except as provided in Section 104.507(b), funds held by an association as fiduciary shall not be invested by the purchase of stock or obligations of the association or its affiliates unless authorized by the instrument creating the relationship or by court order or by local law; provided, that if the retention of stock or obligations of the association or its affiliates is authorized by the instrument creating the relationship or by court order or by local law, it may exercise rights to purchase its own stock or securities convertible into its own stock when offered pro rata to stockholders, unless such exercise is forbidden by local law. When the exercise of rights or receipt of a stock dividend results in fractional share holdings, additional fractional shares may be purchased to complement the fractional shares so acquired. In elections of directors, an association's share held by the association as sole trustee, whether in its own name as trustee or in the name of its nominee, may not be voted by the registered owner unless, under the terms of the trust, the manner in which such shares shall be voted may be determined by a donor or beneficiary of the trust and the donor or beneficiary actually directs how the shares will be voted.

(d) Transactions between accounts.

(1) An association may sell assets held by it as fiduciary in one account to itself as fiduciary in another account if the transaction is fair to both accounts and if such transaction is not prohibited by the terms of any governing instrument or by local law.

(2) An association may make a loan to an account from the funds belonging to another such account, when the making of such loans to a designated account is authorized by the instrument creating the account from which such loans are made, and is not prohibited by local law, and the terms of the transaction are fair to all accounts.

(3) An association may make a loan to an account and may take as security therefor assets of the account, provided such transaction is fair to such account and is not prohibited by local law.

NOTE

HISTORY

1. Change without regulatory effect renumbering former Section 245.10 to Section 104.509 (Register 87, No. 14). For prior history, see Register 81, No. 25.

§104.510. Custody of Investments.

Note • History

(a) Segregation of trust assets and joint custody. The investments of each account shall be kept separate from the assets of the association, and shall be placed in the joint custody or control of not fewer than two of the officers or employees of the association designated for that purpose either by the board of directors of the association or by one or more officers designated by the board of directors of the association, and all such officers and employees shall be adequately bonded. To the extent permitted by law, an association may permit the investments of a fiduciary account to be deposited elsewhere.

(b) Segregation of accounts. The investments of each account shall be either:

(1) Kept separate from those of all other accounts, except as provided in Section 104.512, or

(2) Adequately identified as the property of the relevant account.

NOTE

HISTORY

1. Change without regulatory effect renumbering former Section 245.11 to Section 104.510 (Register 87, No. 14). For prior history, see Register 81, No. 25.

§104.511. Compensation of Association.

Note • History

(a) General. If the amount of the compensation for acting in a fiduciary capacity is not regulated by local law or provided for in the instrument creating the fiduciary relationship or otherwise agreed to by the parties, an association acting in such capacity may charge or deduct a reasonable compensation for its services. When the association is acting in a fiduciary capacity under appointment by a court, it shall receive such compensation as may be allowed or approved by that court or by local law.

(b) Officer or employee of association as co-fiduciary. No association shall, except with the specific approval of its board of directors, permit any of its officers or employees, while serving as such, to retain any compensation for acting as a co-fiduciary with the association in the administration of any account undertaken by it.

(c) Bequests or gifts to trust officers and employees. No association shall permit an officer or employee engaged in the operation of its trust department to accept a bequest or gift of trust assets unless the bequest or gift is directed or made by a relative or is approved by the board of director of the association.

NOTE

Authority cited: Section 5500.5, Financial Code. Reference: Title 10, Calif Adm. Code, Chapter 2, Subchapter 3, Article 5 (Section 103.500) and Subchapter 4, Article 5 (Section 104.500 et seq.); and Sections 5003 and 5501.5, Financial Code.

HISTORY

1. Change without regulatory effect renumbering former Section 245.12 to Section 104.511 (Register 87, No. 14). For prior history, see Register 81, No. 25.

§104.512. Collective Investment.

Note • History

(a) When not in contravention of local law, funds held by an association as fiduciary may be held in:

(1) A common trust fund maintained by the association exclusively for the collective investment and reinvestment of moneys contributed thereto by the association in its capacity as trustee, executor, administrator, guardian, or custodian under a Uniform Gifts to Minors Act; or

(2) A fund consisting solely of assets of retirement, pension, profit sharing, stock bonus or other trusts which are exempt from federal income taxation under the Internal Revenue Code.

(b) Collective investments of funds or other property by an association under paragraph (a) of this section shall be administered in accordance with Comptroller of the Currency Regulation 9.18 (12 CFR 9.18), provided, that any documents required to be filed with the Comptroller of the Currency under that regulation shall also be filed with the commissioner and that the commissioner may review such documents for compliance with these and other laws and regulations.

(c) As used in this section, the term “association” shall include two or more associations which are members of the same affiliated group with respect to any fund established pursuant to this section of which any of such affiliated associations is trustee, or of which two or more of such affiliated associations are co-trustees.

NOTE

HISTORY

1. Change without regulatory effect renumbering former Section 245.13 to Section 104.512 (Register 87, No. 14). For prior history, see Register 81, No. 25.

§104.513. Surrender of Trust Powers.

Note • History

(a) Any association which has been granted the right to exercise trust powers and which desires to surrender such rights shall file with the commissioner a certified copy of the resolution of its board of directors signifying such desire.

(b) Upon receipt of such resolution, the commissioner shall make an investigation and if satisfied that the association has been discharged from all fiduciary duties which it has undertaken, shall issue a certificate to such association certifying that it is not longer authorized to exercise fiduciary powers.

(1) shall no longer be subject to the provisions of these regulations,

(2) shall be entitled to have returned to it any securities which it may have deposited with state authorities or a Federal Home Loan Bank under Section 104.503, and

(3) shall not exercise thereafter any of the powers granted by Section 235.41 without first applying for and obtaining new authorization to exercise such powers.

NOTE

HISTORY

1. Change without regulatory effect renumbering former Section 245.14 to Section 104.513 (Register 87, No. 14). For prior history, see Register 81, No. 25.

§104.514. Effect on Trust Accounts of Appointment of Conservator or Receiver or Voluntary Dissolution of Association.

Note • History

(a) Appointment of conservator or receiver. Whenever a conservator or receiver is appointed for an association under Section 9057 or 9126 of the law, such receiver or conservator shall, pursuant to the instructions of the commissioner and the orders of the court having jurisdiction, proceed to close such of the association's trust accounts as can be closed promptly and transfer all other such accounts to substitute fiduciaries.

(b) Voluntary dissolution. Whenever an association exercising trust powers is placed in voluntary dissolution, the liquidating agent shall, in accordance with local law, proceed at once to liquidate the affairs of the trust department as follows:

(1) All trusts and estates over which a court is exercising jurisdiction shall be closed or disposed of as soon as practicable in accordance with the order or instructions of such court; and

(2) All other accounts which can be closed promptly shall be closed as soon as practicable and final accounting made therefor, and all remaining accounts shall be transferred by appropriate legal proceedings to substitute fiduciaries.

NOTE

HISTORY

1. Change without regulatory effect renumbering former Section 245.15 to Section 104.514 (Register 87, No. 14). For prior history, see Register 81, No. 25.

§104.515. Revocation of Trust Powers.

Note • History

(a) In addition to the other sanctions available, if, in the opinion of the commissioner, an association is unlawfully or unsoundly exercising, or has unlawfully or unsoundly exercised, or has failed for a period of five consecutive years to exercise, the powers granted to it, or otherwise fails or has failed to comply with the requirements of this subchapter, the commissioner may issue and serve upon the association a notice of intent to revoke the authority of the association to exercise the powers granted to it. The notice shall contain a statement of the facts constituting the alleged unlawful or unsound exercise of powers, or failure to exercise powers, or failure to comply, and shall fix a time and place at which a hearing will be held to determine whether an order revoking authority to exercise such powers should issue against the association.

(b) Such hearing shall be conducted in accordance with the provisions of Section 103.114, and shall be fixed for a date not earlier than thirty days and not later than sixty days after service of such notice unless an earlier or later date is set by the commissioner at the request of an association so served.

(c) Unless the association so served shall appear at the hearing by a duly authorized representative, it shall be deemed to have consented to the issuance of the revocation order. In the event of such consent or if, upon the record made at any such hearing, the commissioner shall find that any allegation specified in the notice of charges has been established, the commissioner may issue and serve upon the association an order prohibiting it from accepting any new or additional trust accounts and revoking authority to exercise any and all powers granted to it except that such order shall permit the association to continue to service all previously accepted trust accounts pending their expeditious divestiture or termination.

(d) A revocation order shall become effective not earlier than the expiration of thirty days after service of such order upon the association so served (except in the case of a revocation order issued upon consent, which shall become effective at the time specified therein), and shall remain effective and enforceable, except to such extent as it is stayed, modified, terminated, or set aside by action of the commissioner or a reviewing court.

NOTE

HISTORY

1. Change without regulatory effect renumbering former Section 245.16 to Section 104.515 (Register 87, No. 14). For prior history, see Register 81, No. 25.

Article 6. Foreign Savings Associations

§104.600. Definitions.

Note • History

For the purposes of Chapter 10.1 of the Financial Code and of this Subchapter 4 Article 6:

(a) “Association” means any person which was organized under the laws of the State of California and which holds a certificate of authority issued by the Commissioner.

(b) “Control” means the possession, direct or indirect, of the power:

(1) To vote 25 percent or more of the outstanding voting stock of a corporation with less than 500 shareholders; or

(2) To vote 10 percent or more of the outstanding voting stock of a corporation with 500 or more shareholders; or

(3) To direct or cause the direction of the management or policies of a person, whether through ownership or otherwise, provided that no individual shall be deemed to control a person solely on account of being a director, officer, or employee of such person.

(c) “Officer” means the president, any vice-president, the secretary, the treasurer, the comptroller, and any other person performing similar functions with respect to any organization whether incorporated or unincorporated. The term “officer” also includes the chairman of the board of directors if the chairman is authorized by the charter or by-laws of the organization to participate in its operating management or if the chairman in fact participates in such management.

(d) “Principal California office” means the office designated on the certificate of authority issued by the Commissioner pursuant to these regulations.

NOTE

Authority cited: Sections 8053 and 10012, Financial Code. Reference: Sections 5800, 10012, Financial Code.

HISTORY

1. New section filed 7-1-87; operative 7-1-87 pursuant to Government Code Section 11346.2(d) (Register 87, No. 28).

§104.601. Certificate of Authority.

Note • History

No foreign savings association shall conduct the business of an association in California unless the Commissioner has first approved an application for approval to conduct the business of an association in California and issued a certificate of authority to such foreign savings association.

NOTE

Authority cited: Sections 8053 and 10012, Financial Code. Reference: Sections 5103 and 10012, Financial Code.

HISTORY

1. New section filed 7-1-87; operative 7-1-87 pursuant to Government Code Section 11346.2(d) (Register 87, No. 28).

§104.602. Assessment.

Note • History

(a) The provisions of Section 102.100 shall apply to foreign savings associations authorized to accept deposits in California except that the assessment shall be based upon the percentage of the foreign savings association's total assets that equals the percentage of the foreign savings association's deposits in its California offices compared to its total deposits, subject to a minimum assessment of $2500 per branch office for up to 10 offices.

(b) Any foreign savings association which is authorized to conduct the business of an association in California but is not authorized to accept deposits in California shall pay an annual assessment of $1000 to the Commissioner no later than July 1 of each year for the fiscal year commencing on that date for each office authorized pursuant to the provisions of this subchapter.

NOTE

Authority cited: Sections 8053 and 10012, Financial Code. Reference: Sections 8030 and 10012, Financial Code.

HISTORY

1. New section filed 7-1-87; operative 7-1-87 pursuant to Government Code Section 11346.2(d) (Register 87, No. 28).

§104.603. Name of Foreign Savings Association.

Note • History

Every foreign savings association authorized to maintain an office in California shall include in any written materials and advertisements or signs used by it in this State the words “savings association,” “savings and loan association,” or “savings bank,” or such other words as the Commissioner may approve in writing, and identify the state in which the home office of the foreign savings association is located.

NOTE

Authority cited: Sections 8053 and 10012, Financial Code. Reference: Sections 5650 and 10012, Financial Code.

HISTORY

1. New section filed 7-1-87; operative 7-1-87 pursuant to Government Code Section 11346.2(d) (Register 87, No. 28).

§104.604. Establishment or Acquisition of Additional Offices; Change in Location or Designation.

Note • History

A foreign savings association which has been issued a certificate of authority shall not, without the prior written consent of the Commissioner:

(a) Establish or acquire any office in California;

(b) Change the location or designation of any office in California;

NOTE

Authority cited: Sections 8053 and 10012, Financial Code. Reference: Sections 5654 and 10012, Financial Code.

HISTORY

1. New section filed 7-1-87; operative 7-1-87 pursuant to Government Code Section 11346.2(d) (Register 87, No. 28).

§104.605. Acquisition of Control.

Note • History

Any person who becomes a savings and loan holding company of a foreign savings association authorized to conduct the business of an association in California shall file with the Commissioner, at least 15 days prior to the effective date of such acquisition, unless a shorter time period is approved by the Commissioner, a notice of such change in control, which shall include copies of approvals from state and federal regulatory agencies, and shall also include such other information as the Commissioner may request.

NOTE

Authority cited: Sections 8053 and 10012, Financial Code. Reference: Section 10012, Financial Code.

HISTORY

1. New section filed 7-1-87; operative 7-1-87 pursuant to Government Code Section 11346.2(d) (Register 87, No. 28).

§104.606. Meetings of Members of Mutual Foreign Savings Associations.

Note • History

Notice of each and every meeting of members of a foreign savings association which is a mutual association shall be either published once a week for two consecutive calendar weeks (in each instance on any day of the week) commencing no later than the fourth calendar week immediately preceding the week in which such meeting shall convene, in a newspaper printed in the English language and of general circulation in the city or county in which the principal California office of the foreign savings association is located, or mailed postage prepaid at least 30 days and not more than 60 days prior to the date on which such meeting shall convene to each of its members of record which have addresses on the books of the foreign savings association in the State of California. Such notice shall state the name of the foreign savings association, the place of the meeting, the time when it shall convene, and, in the case of a special meeting, the purpose or purposes for which the meeting is called. A similar notice shall be posted in a conspicuous place in each of the California offices of the foreign savings association during the 30 days immediately preceding the date on which such meeting shall convene. Notice need not be given to any member who in person or in writing waives notice of such meeting.

NOTE

Authority cited: Sections 8053 and 10012, Financial Code. Reference: Sections 6002 and 10012, Financial Code.

HISTORY

1. New section filed 7-1-87; operative 7-1-87 pursuant to Government Code Section 11346.2(d) (Register 87, No. 28).

§104.607. Financial Statement Publication.

Note • History

Each foreign savings association authorized to maintain an office in California shall prepare and publish annually within 120 days of the close of its annual audit period in a newspaper of general circulation in the county in which it maintains its principal California office, and shall deliver to each member or stockholder which has a California address upon the records of the foreign savings association, a statement of its financial condition in a form approved by the Commissioner.

NOTE

Authority cited: Sections 8053 and 10012, Financial Code. Reference: Sections 6100 and 10012, Financial Code.

HISTORY

1. New section filed 7-1-87; operative 7-1-87 pursuant to Government Code Section 11346.2(d) (Register 87, No. 28).

§104.608. Regulatory Orders.

Note • History

(a) If, after notice and hearing, the Commissioner finds that any foreign savings association has violated any provision of the Savings Association Law or of any regulation or order issued pursuant to this chapter, the Commissioner may order the foreign savings association to pay to the Commissioner a penalty in such amount as the Commissioner may specify, provided that the amount of the penalty shall not exceed $1,000 per violation, or for a continuing violation, $1,000 for each day or part thereof for which such violation continues.

(b)(1) If the Commissioner, as a result of any examination or from any report, finds that any foreign savings association has violated, is violating, or is about to violate any provision of this subchapter or of the Savings Association Law or any law or regulation of this state or of the United States, or is engaging in an unsafe or unsound business practice, the Commissioner may, by formal written order delivered to the principal California office of the foreign savings association, state any alleged violation or practice and the facts supporting the allegation, and order discontinuance of the violation or practice, conformance with all requirements of law and regulation, and any remedial action deemed necessary and appropriate.

(2) Unless otherwise indicated, the order shall be effective immediately and shall remain in effect until withdrawn by the Commissioner or terminated by a court order.

(3) The order, upon application made on or after its effective date by the Commissioner to the superior court of the county in which the foreign savings association's principal California office is located, shall be enforced ex parte and without notice by an order to comply entered by the court. The proceedings shall be given precedence over other cases pending in court, and shall in every way be expedited.

(4) Any foreign savings association affected by an order of the Commissioner shall, after its receipt, have the right to apply within 10 days to the court for a hearing and order suspending the order of the Commissioner until the hearing has been completed. The hearing shall be held as provided in a notice to the Commissioner by the court. The Court may stay or suspend the Commissioner's order only if the foreign savings association establishes that the order is likely to be reversed after hearing.

(5) Whether upon application by the Commissioner or by the foreign savings association, the court shall have the power to enter and enforce the proper order or orders or to dismiss the matter. The burden of proof shall be upon the foreign savings association to establish that the Commissioner's order was issued unlawfully.

(c)(1) The Commissioner may require that any director, officer, or employee of a foreign savings association who has consented to or participated in a violation of law or regulation or an unsafe or unsound practice or who has breached his or her fiduciary duty to the foreign savings association be removed from supervision of or employment at any California office of the foreign savings association if the action of the person or persons concerned was knowingly and willfully taken.

(2) Prior to entering an order of removal, the Commissioner shall deliver a full statement of the objectionable acts and conduct to the board of directors of the foreign savings association and the person or persons concerned and notice of the Commissioner's intention to issue a removal order.

(3) If a hearing on the matter is requested within 10 days after delivery of the notice to the foreign savings association, the Commissioner shall hold a public hearing at which any evidence relating to the matters set forth in the statement may be presented. After the hearing, the Commissioner, on the basis of the evidence presented at the hearing, may proceed to enter an order for the immediate removal of the director, officer, or employee affected, a reprimand to the individuals and foreign savings association concerned, or a dismissal of the entire matter. The Commissioner's order may include such conditions as are deemed appropriate.

(4) If no hearing is requested within the time specified, the Commissioner may proceed to enter a final order of removal on the basis of the facts set forth in the original statement.

(5) No director, officer, or employee who has been removed from his or her position pursuant to a removal order that has become final, shall thereafter participate in any manner in the conduct of the affairs of the California office(s) of the foreign savings association from which that director, officer, or employee was removed, or without prior written approval of the Commissioner, serve as a director, officer, or employee of any association or California office of a foreign savings association.

(6) With respect to any officer, director, or employee of a foreign savings association who is the subject of a statement delivered by the Commissioner pursuant to subdivision (2), the Commissioner may, if the Commissioner deems it necessary for the protection of savings account holders, borrowers, or stockholders resident in this state, by written notice to that effect served upon the officer, director, or employee, prohibit him or her from further participation in any manner in the conduct of the affairs of the California office. The prohibition shall become effective upon service of the notice and, unless stayed by a court in proceedings authorized by subdivision (7), shall remain in effect pending completion of the proceedings pursuant to the statement delivered under subdivision (2) and until the effective date of an order entered by the Commissioner under subdivision (3) or subdivision (4). A copy of the notice shall also be served upon the foreign savings association of which the person is a director, officer, or employee.

(7) Within 10 days after any director, officer, or employee has become subject to a suspension or prohibition under subdivision (6), such person may apply to a court having jurisdiction for a stay of the suspension or prohibition pending completion of the proceedings, pursuant to subdivisions (3), or (4) and the court shall have power to stay the prohibition.

NOTE

Authority cited: Sections 8053 and 10012, Financial Code. Reference: Sections 5810, 8200, 8201 and 10012, Financial Code.

HISTORY

1. New section filed 7-1-87; operative 7-1-87 pursuant to Government Code Section 11346.2(d) (Register 87, No. 28).

§104.609. Suspension or Revocation of Certificate of Authority.

Note • History

(a) The Commissioner may suspend or revoke any certificate of authority issued to a foreign savings association if it appears that:

(1) The foreign savings association is in an impaired, or unsafe or unsound condition.

(2) The foreign savings association is engaging in safe or unsound business practices which threaten its viability or the interests of the depositors, or borrowers of its California office(s).

(3) The foreign savings association has violated or is violating any law or regulation of this state or of the United States.

(4) The foreign savings association has violated or is in violation of any condition of the approval of its application for a certificate of authority, or of an order issued by the Commissioner.

(5) A person has become a savings and loan holding company of the foreign savings association, which person is a foreign holding company with its principal place of deposits located in a state other than one of the states listed in Financial Code Section 10011.

(6) The deposits of a California branch are not insured by the Federal Savings and Loan Insurance Corporation or the Federal Deposit Insurance Corporation.

(7) The foreign savings association has been placed under receivership pursuant to state or federal law.

(8) The foreign savings association has not actively conducted the business of an association in California for six months of the most recent twelve months, notwithstanding the fact that its certificate of authority may have been suspended during that time.

(9) The foreign savings association has failed to pay the assessment to the Commissioner as required by Section 104.602.

(b) An order of suspension or revocation may be effective immediately or at some later date, and may be subject to such conditions as the Commissioner deems appropriate.

(c) Prior to issuing an order of suspension or revocation, the Commissioner shall deliver to the foreign savings association at its principal California office a Notice of Suspension or Notice of Revocation which states the facts supporting an order of suspension or revocation. If the foreign savings association requests a hearing on the notice within 10 days of the date of receipt, the Commissioner shall hold a hearing at which evidence may be presented. On the basis of the evidence and argument presented at the hearing, the Commissioner may issue the order as set forth in the notice, or issue a modified order, or dismiss the matter.

(d) If no hearing is requested within the time specified, the Commissioner may proceed to issue an order of suspension or revocation on the basis of the facts set forth in the Notice of Suspension or Notice of Revocation.

(e) Notwithstanding subdivision (c) above, if the Commissioner determines that immediate action is necessary to protect the California depositors or creditors of a foreign savings association, a certificate of authority may be suspended without prior notice or hearing. A foreign savings association may apply within 10 days of receipt of an order of suspension issued pursuant to this subdivision to the superior court of the county in which the foreign savings association's principal California office is located for a hearing on the suspension, and an order staying the suspension until after the hearing is completed. The court shall set a hearing on an expedited basis, but shall not stay the suspension unless it appears to the court that the suspension was unlawful. After the hearing the court shall make findings of fact and may affirm or rescind the suspension, subject to any conditions the court deems appropriate, or dismiss the action.

(f) Within 10 days of the date an order is issued which suspends or revokes a certificate of authority pursuant to subsections (c) and (d), a foreign savings association may apply to the superior court of the county in which the foreign savings association's principal California office is located for a hearing on the order, and an order staying the suspension or revocation until after the hearing is completed. The court shall set a hearing on an expedited basis, but shall not stay any suspension or revocation unless it appears to the court that the suspension or revocation was unlawful. After the hearing the court shall make findings of fact and may affirm or rescind the order, subject to any conditions the court deems appropriate, or dismiss the action.

(g) Upon suspension or revocation of the certificate of authority, the foreign savings association shall immediately cease to operate in California, except as permitted or required in writing by the Commissioner.

NOTE

Authority cited: Sections 8053 and 10012, Financial Code. Reference: Section 10012, Financial Code.

HISTORY

1. New section filed 7-1-87; operative 7-1-87 pursuant to Government Code Section 11346.2(d) (Register 87, No. 28).

§104.610. Surrender of Certificate of Authority.

Note • History

A foreign savings association may surrender a certificate of authority only with the approval of the Commissioner, and only after any conditions imposed by the Commissioner have been satisfied.

NOTE

Authority cited: Sections 8053 and 10012, Financial Code. Reference: Section 10012, Financial Code.

HISTORY

1. New section filed 7-1-87; operative 7-1-87 pursuant to Government Code Section 11346.2(d) (Register 87, No. 28).

Article 7. Remote Service Units and Home Banking Services

§104.700. General Provisions.

Note • History

This article contains provisions regarding the establishment and use of remote service unit systems and home banking services by use of an electronic fund transfer system. Any electronic fund transfer made pursuant to these regulations is subject to the provisions of the Electronic Fund Transfer Act (15 U.S.C. 1693 et seq.) and Regulation E (12 CFR 205.2).

NOTE

Authority cited: Sections 6516, 6517 and 8053, Financial Code. Reference: Sections 6516 and 6517, Financial Code.

HISTORY

1. Renumbering and amendment of Section 103.700 to Section 104.700 filed 12-8-87; operative 1-7-88 (Register 87, No. 50).

§104.701. Terms Defined.

Note • History

(a) “Generic data” means statistical information which does not identify any individual accountholder.

(b) “Home banking services” means any transfer of funds or financial information or the performance of other transactions initiated by a customer by means of an electronic home terminal, such as a telephone, a home computer terminal, or a television set that is linked to an association's computer by telephone or cable television lines

(c) “Personal Security Identifier” (PSI) means any word, number, or other security identifier essential for an accountholder to gain access to an account.

(d) “Remote Service Unit” (RSU) means an information processing device, including associated equipment, structures and systems, by which information relating to financial services rendered to the public is stored and transmitted, instantaneously or otherwise, to a financial institution and is not located on the premises of an association. Activation and account access requires use of a machine-readable instrument and PSI in the possession and control of the accountholder. The term includes, without limitation, point-of-sale terminals, merchant-operated terminals, cash-dispensing machines and automated teller machines. It excludes automated teller machines on the premises of an association unless shared with other financial institutions.

(e) “RSU account” means a savings account or a loan account that may be accessed through use of an RSU.

NOTE

Authority cited: Sections 6516, 6517 and 8053, Financial Code. Reference: Sections 6516 and 6517, Financial Code.

HISTORY

1. Renumbering and amendment of Section 103.701 to Section 104.701 filed 12-8-87; operative 1-7-88 (Register 87, No. 50).

§104.702. Remote Service Units.

Note • History

(a) An association may establish or use RSUs and participate with others in RSU operations in this state or other states. No RSU may be used to enable an accountholder to open a savings account or to establish a loan account.

(b) An association shall take all steps necessary to protect its interest in the financial services processed at each RSU, including acquisition of available fidelity, forgery and other appropriate insurance.

(c) An association shall establish and maintain safeguards acceptable to the Commissioner to insure the privacy and confidentiality of account information. An association shall allow accountholders to obtain any information concerning their RSU accounts. An association may not disclose account data to third parties, other than the Commissioner except generic data or data necessary to identify a transaction, unless express written consent of the accountholder is given, or applicable law requires.

(d) An association may operate an RSU according to an agreement with a third party or share computer systems, communication facilities, or services of another financial institution only if such third party agrees to abide by subsection (c) as to information concerning RSU accounts in the association. An association may share an RSU controlled by an institution not subject to examination by the Commissioner only if such institution has agreed in writing that the RSU is subject to examination by the Commissioner as deemed necessary.

(e) An association may impose service charges for RSU financial services.

(f) An association shall protect electronic data against fraudulent alterations or disclosure, shall provide a PSI to each accountholder, and require its use with a machine-readable, nontransferable device when accessing an RSU. Measures satisfactory to the Commissioner shall be taken for the installation, maintenance, and operation of security devices and procedures, reasonable in cost, to discourage robberies, burglaries and larcenies and to assist in the identification and apprehension of persons who commit such acts.

NOTE

Authority cited: Sections 6516, 6517 and 8053, Financial Code. Reference: Sections 6516 and 6517, Financial Code.

HISTORY

1. Renumbering and amendment of Section 103.702 to Section 104.702 filed 12-8-87; operative 1-7-88 (Register 87, No. 50).

§104.703. Home Banking Services.

Note • History

(a) An association may utilize any electronic fund transfer technology to provide its customers with home banking services, but any devices used by the customer shall not be classified as an electronic terminal for purposes of requiring a terminal receipt.

(b) An association providing services authorized by this section shall adopt security measures adequate to prevent unauthorized access to its records or those of its customers or the use of a home terminal to defraud the association or any of its customers.

NOTE

Authority cited: Sections 6517 and 8053, Financial Code. Reference: Section 6517, Financial Code.

HISTORY

1. New section filed 12-8-87; operative 1-7-88 (Register 87, No. 50).

§104.704. Locations.

Note • History

Each association that has RSU's or offers home banking services to customers shall specify and provide geographic locations of each RSU annually 60 days after December 31st.

NOTE

Authority cited: Sections 6516, 6517 and 8053, Financial Code. Reference: Sections 6516 and 6517, Financial Code.

HISTORY

1. New section filed 12-8-87; operative 1-7-88 (Register 87, No. 50).

Subchapter 5. Operations--Accounting

Article 1. Accounting

§105.100. Classification of Accounts.

Note • History

Section 8701 of the law authorizes the Commissioner to establish a uniform classification of accounts and to prescribe the manner in which such accounts are to be kept.

No uniform classification of accounts is required. All accounting records, however, shall be maintained in accordance with generally accepted accounting principles, unless otherwise required by the Commissioner.

NOTE

Authority cited: Section 5255, Financial Code. Reference: Section 8701, Financial Code.

HISTORY

1. Change without regulatory effect renumbering former Section 100 to Section 105.100 (Register 87, No. 14). For prior history, see Register 83, No. 49.

§105.101. Books and Records.

Note • History

The corporate records of each association shall be kept at the association's offices, and not in the offices of attorneys, accountants, directors, stockholders, officers, or employees. All records of the association shall immediately be made available to the Commissioner, his deputies, examiners or appraisers upon demand as set forth in Sections 8801 and 9001 of the law.

The accounting year for all associations shall be the calendar year.

Associations are required to retain in their possession documents necessary to facilitate the verification of receipts and disbursements, income and expense.

NOTE

Authority cited: Section 5255, Financial Code. Reference: Sections 8702 and 8800.1, Financial Code.

HISTORY

1. Change without regulatory effect renumbering former Section 102 to Section 105.101 (Register 87, No. 14). For prior history, see Register 83, No. 49.

§105.102. Deferral of Recognition and Amortization of Gain or Loss.

Note • History

Notwithstanding any other provision, associations intending to reinvest sale proceeds in similar type assets may account for gains and losses on the sale, exchange or other disposition of real loans, manufactured home chattel paper, securities, redeemable ground-rent leases, or redeemable preferred stock which has a fixed date for redemption in a fixed dollar amount or a fixed schedule of periodic payments with a remaining term to maturity of at least five years, by providing for deferral of recognition and amortization of any gain or loss (net of related income taxes computed in accordance with generally accepted accounting principles) over a period not to exceed the average of the remaining terms to maturity of the disposed loans or securities. In the case of redeemable ground leases, the period must not exceed 40 years, with the yield calculated to reflect the length of the amortization period. Any unamortized deferred gain or loss will be carried in a separate account.

NOTE

Authority cited: Section 5255, Financial Code. Reference: Section 7102, 8701, 8703, 8708, 8750, 8751 and 8752, Financial Code.

HISTORY

1. Change without regulatory effect renumbering former Section 103 to Section 105.102 (Register 87, No. 14). For prior history, see Register 83, No. 49.

§105.103. Accounting for Losses and Valuation Allowances.

Note • History

Associations shall determine the need for valuation allowances at least as of the end of each calendar quarter and as of the date of published financial statements and any necessary provisions for loss shall be recorded in accordance with generally accepted accounting principles.

NOTE

Authority cited: Section 5255, Financial Code. Reference: Section 8706, Financial Code.

HISTORY

1. Change without regulatory effect renumbering former Section 104 to Section 105.103 (Register 87, No. 14). For prior history, see Register 83, No. 49.

§105.104. Accounting for Associations on Notice.

Note • History

Section 8202 of the law provides that the obligation of an association, which has matured withdrawal claims or is on notice, to pay matured withdrawal claims, and the right of shareholders and certificate holders of such an association to receive payment of matured withdrawal claims, shall be secondary and subsequent to the right of such association to pay and to provide a reasonable fund for the payment of the items enumerated in the subdivisions of Section 8202 of the law.

This provision of the law is interpreted to mean that unless an association actually sets aside a fund to meet such requirements, it will be liable for payment of matured claims, and that the right of an association to set up such a fund is not restricted to liabilities already accrued or incurred, but includes anticipated amounts of the character enumerated which will have to be met during a reasonable future period.

At any time when an association has matured withdrawal claims, or becomes “an association on notice,” as defined in Section 8150 of the law, it should immediately determine the amount of such find required by summarizing all matured or accrued liabilities of the nature described in the law, and also make an estimate of similar liabilities for such reasonable future period, anticipating at lest the next regular interest or dividend period.

Such amount should be set aside in a special cash fund designated as being established under Section 8202 and thereafter all payments made for any of the purposes hereinbefore set forth should be paid out of such fund until such time as the association shall no longer be on notice or has no matured withdrawal claims unpaid, then such “Special Cash Fund” may be discontinued. Such find shall be increased from time to time as further liabilities mature or accrue, and adequate memorandum records must be preserved showing at all times how the amount of such fund has been arrived at, and that the amount thereof is no more than adequate for the purposes set forth in the law.

NOTE

Authority cited: Section 5255, Financial Code. Reference: Sections 8150, 8201 and 8701, Financial Code.

HISTORY

1. Change without regulatory effect renumbering former Section 105 to Section 105.104 (Register 87, No. 14). For prior history, see Register 83, No. 49.

Article 2. Statutory Net Worth Requirements

§105.200. Definitions.

Note • History

(a) “Statutory net worth” has the meaning set forth in Section 6076 of the law and Section 101.100(h) of the regulations.

(b) “Total assets” shall include all assets as defined in Section 100.1(d) of the regulations, except the following:

(1) Cash on hand and demand deposits in banks.

(2) Loans of an association secured by the pledge of shares on investment certificates of such association.

(3) United States Government bonds and treasury certificates and other securities fully guaranteed as to principal and interest by the United States Government bonds and treasury certificates and other securities fully guaranteed as to principal and interest by the United States; and securities issued or guaranteed by the Government National Mortgage Association or those securities described in (b) (3) herein and held under repurchase agreements.

(4) Any obligations of, or participations or other instruments fully guaranteed as to principal and interest by, the Federal Home Loan Mortgage Corporation or Federal National Mortgage Association.

(5) Stock of a Federal Home Loan Bank or the Federal National Mortgage Association.

(6) Federal funds transactions.

(7) Transactions in the “Overnight Deposit Program” of the Federal Home Loan Bank.

(8) The federal Savings and loan Insurance Corporation secondary reserve.

(9) Loans insured by the Federal Housing Administration or guaranteed by the Veterans Administration.

NOTE

Authority cited: Section 5255, Financial Code. Reference: Section 5076 and 6900, Financial Code.

HISTORY

1. Change without regulatory effect renumbering former Section 119.1 to Section 105.200 (Register 87, No. 14). For prior history, see Register 82, No. 43.

§105.201. Minimum Statutory Net Worth.

Note • History

(a) The minimum statutory net worth for each association shall be not less than three percent of its total assets.

(b) An association shall not be required to meet the level set forth in (a) if its failure to attain that level is caused by losses recognized in accordance with generally accepted accounting principles (1) on sales, exchanges or other disposition of real estate loans, manufacture home chattel paper, securities, redeemable ground-rent leases, redeemable preferred stock as described in Section 105.102, or (2) by discount on submarket interest rate loans made to facilitate the sale of real estate owned by an association under Section 6705 of the law.

NOTE

Authority cited: Section 5255 and 6900, Financial Code. Reference: Section 6900 and 8751, Financial Code.

HISTORY

1. Change without regulatory effect renumbering former Section 119.2 to Section 105.201 (Register 87, No. 14). For prior history, see Register 82, No. 43.

§105.202. Total Asset Computation.

Note • History

In computing total assets at any particular date an association may use its total assets at the computation date. As an alternative it may, but is not required to, use the average of its total assets as of the end of its last five or less preceding consecutive calendar years.

NOTE

Authority cited: Section 5255 and 6900, Financial Code. Reference: Section 6900, Financial Code.

HISTORY

1. Change without regulatory effect renumbering former Section 119.3 to Section 105.202 (Register 87, No. 14). For prior history, see Register 82, No. 49.

Article 3. Independent Audits

§105.300. Approval of Statutory Auditor.

Note • History

(a) The statutory auditor must be approved by the Commissioner prior to the commencement of the statutory audit. To be eligible for approval, the statutory auditor must be a certified public accountant or public accountant who is licensed by and in good standing with the Board of Accountancy of the State of California.

(b) Each association seeking the approval of the Commissioner for a statutory auditor shall first submit an application in letter form which contains the following basic information:

(1) The name and address of the proposed statutory auditor.

(2) The period to be covered by the proposed statutory audit. This period must be at least the entire interval of time since the date of the last approved audit.

(3) A statement, in reasonable detail, of all major services other than the statutory audit which the association intends to request its statutory auditor to perform during the period of his appointment. If the statutory auditor is being reappointed, the statement shall also refer to the letter requesting approval for the prior audit period and shall describe any additional major services performed thereafter by the statutory auditor.

(4) A certified copy of the resolution of the board of directors: (A) authorizing the engagement of the statutory auditor to perform the statutory audit, (B) authorizing the statutory auditor to perform such specific procedures, to review such additional information, and to prepare such supplemental reports which may be requested by the Commissioner, (C) authorizing the statutory auditor to make available his working papers to representatives of the Commissioner's office if requested, and (D) authorizing the statutory auditor to consult with representatives of the Commissioner's office regarding the audit and regarding any reports or other information on file in the Commissioner's office concerning the condition and affairs of the association.

(c) The Commissioner will not ordinarily approve a statutory auditor until the audited financial statements, the letter report and any supplemental report pertaining to the prior audit period have been filed and such statements and reports comply with the requirements of this Subchapter and all special instructions of the Commissioner.

(d) Notice of disapproval of the proposed statutory auditor by the Commissioner shall be in writing containing the reasons therefor and shall be mailed to the association and the proposed statutory auditor. An application for reconsideration may be filed with the Commissioner by the association or the proposed statutory auditor within 15 days after the mailing of the notice of disapproval by the Commissioner.

NOTE

Authority cited: Section 5255, Financial Code. Reference: Sections 8750, 8751 and 8752, Financial Code.

HISTORY

1. Change without regulatory effect renumbering former Section 160 to Section 105.300 (Register 87, No. 14). For prior history, see Register 81, No. 21.

§105.301. Independence of Statutory Auditor.

Note • History

(a) The Commissioner's approval of a statutory auditor and the acceptability of the audit report shall require the independence of the statutory auditor from the commencement of the period of the financial statements being audited until the completion of his audit. The statutory auditor shall comply with all official pronouncements on independence of public accountants by the American Institute of Certified Public Accountants and the Board of Accountancy of the State of California. The statutory auditor will not ordinarily be considered independent if, among other things, he or his partner or the accountant assigned to the audit is:

(1) An officer, director, attorney, or employee of the association or a member of the immediate family of an officer, director, attorney, or employee.

(2) The beneficial or record owner, directly or indirectly, of guarantee stock of the association.

(3) An owner of an interest in any partnership, syndicate, or corporation which directly or indirectly controls the association.

(4) A borrower from the association, directly or indirectly, other than (A) on loans wholly secured by the pledge of association shares or investment certificates; or (B) on a loan on the security of his residence.

(5) To make entries or postings in the books of accounts or to perform any other operating functions for the association, except such functions for which prior approval was requested and obtained, in writing, from the Commissioner.

(6) To receive any special consideration in any transaction with the association or with any of its officers or directors or to have any interest, direct or indirect, financial or otherwise, in any of the association's loans or the security therefor other than the loans described in subparagraph (4), or in any other operating activity or function of the association.

(b) The statutory auditor shall disclose to the Commissioner any matters which might bear upon his independence, and shall have any questions on independence resolved before proceeding with the performance of the statutory audit for the association.

NOTE

Authority cited: Section 5255, Financial Code. Reference: Sections 8750, 8751 and 8752, Financial Code.

HISTORY

1. Change without regulatory effect renumbering former Section 161 to Section 105.301 (Register 87, No. 14). For prior history, see Register 82, No. 21.

§105.302. Scope and Requirements of Statutory Audit.

Note • History

The statutory audit shall be made in accordance with generally accepted auditing standards and shall include such tests of the accounting records and such other auditing procedures as the statutory auditor considers necessary in the circumstances. The tests and procedures shall include but not be limited to the following:

(a) Analysis and tests of the system of internal check and control.

(b) Appropriate tests of assets including the following which, in circumstances considered appropriate by the statutory auditor, may be performed on a sample basis:

(1) The unannounced (surprise) count of cash and cash items and negotiable securities and satisfactory reconcilement with general ledger accounts.

(2) Satisfactory reconcilement of bank accounts with general ledger accounts.

(3) Inspection of documents supporting real estate loans made or purchased since the date of the last audit. The documents to be inspected shall include: (A) note, (B) deed of trust, and (C) policy of title insurance which insures the association as the first lien holder. Fire insurance policies, loan applications and appraisals shall be inspected as considered necessary by the statutory auditor. In addition, the inspection of loan documents shall include a reasonable percentage of all active real estate loans made prior to the date of the last audit.

(4) Confirmation of real estate and other loan accounts by direct correspondence with the borrower.

(5) Review of the adequacy of valuation allowances on loans, real estate owned and other assets.

(c) Appropriate tests of liabilities including the following which, in circumstances considered appropriate by the statutory auditor, may be performed on a sample basis:

(1) Confirmation of savings accounts by direct correspondence with the holder of the account.

(2) Appropriate review of escrow accounts (if any) which are not related to or a part of escrows involving association loans.

(d) Appropriate tests of income and receipts.

(e) Appropriate tests of expenses and disbursements.

(f) Review of compliance with applicable provisions of the Savings and Loan Association Law and regulations and the association's articles of incorporation and by-laws which might materially affect the association's financial position or results of operations.

(g) Reading of a representative sample of the internally prepared financial reports, including projections.

(h) Analysis of the accounting procedure to determine its conformity with Subchapter 1 of this Chapter.

(i) Such specific procedures or the preparation and review of such additional information which may be requested by the Commissioner.

NOTE

Authority cited: Section 5255, Financial Code. Reference: Sections 8750, 8751 and 8752, Financial Code.

HISTORY

1. Change without regulatory effect renumbering former Section 162 to Section 105.302 (Register 87, No. 14). For prior history, see Register 82, No. 21.

§105.303. Reporting Procedures.

Note • History

(a) The audited financial statements shall include:

(1) A statement of financial condition as of the audit date.

(2) A statement of income and expenses for the calendar year or other audit period.

(3) A statement of changes in financial position for the period covered by the statement of income and expenses.

(4) A statement or statements of stockholders' or shareholders' equity for the period covered by the statement of income and expenses describing the additions and reductions to the equity accounts.

(5) Adequate footnote disclosures, including disclosure of any adjustments reflected in the audited financial statements which are yet to be recorded in the association's books which are to be maintained as prescribed by Subchapter 1 of this Chapter.

(6) A reconciliation of income and expenses for the audit period and net worth as of the audit date with those amounts reported in SL 100 forms furnished to this Department.

Prior period figures of the statement of financial condition, the statement of income and expenses, and the statement of changes in financial position shall be included with the audited financial statements for comparative purposes. The Commissioner may waive the requirement for comparative figures upon receipt of a letter from the statutory auditor which satisfactorily explains the impracticality of including comparative figures.

(b) The audited financial statements shall be accompanied by the statutory auditor's report which shall be prepared in accordance with generally accepted auditing standards and Rule 58.1, Title 16, of the California Administrative Code. Except with the prior approval of the commissioner, an association will not be considered in compliance with Section 8750 of the law if the report of the statutory auditor expresses a qualified or adverse opinion or a disclaimer of opinion on the financial statements of the association, as such opinions are described in Rule 58.1, Title 16 of the California Administrative Code, and if the qualified or adverse opinion or the disclaimer of opinion can be deleted from the accountant's report either by adjustment of the financial statements by the association or by extension of auditing procedures by the statutory auditor. A qualified or adverse opinion or a disclaimer of opinion will be accepted by the commissioner if it results from a deferral of recognition of the gain or loss on the sale, exchange, or other disposition of real estate loans, manufactured home chattel paper, securities, redeemable ground-rent leases or redeemable preferred stock in accordance with the authority in Section 105.102.

(c) The auditor's report shall include a statement that the requirements of Section 105.303 have been met by his audit and that he has complied with the provisions of Section 105.302 concerning independence.

(d) The auditor's report shall include a statement that the accountant has taken into consideration the recommendations in the latest edition of the publication “Audits of Savings and Loan Associations” published by the American Institute of Certified Public Accountants.

(e) When the Commissioner has requested additional information, the statutory auditor shall prepare a supplemental report, bound separately from the statutory audit report, responding to the Commissioner's request.

(f) Based upon information coming to his attention in the conduct of the statutory audit, including his review of the system of internal check and control, the statutory auditor shall prepare a separate letter report to the board of directors of the association covering:

(1) A report in compliance with generally accepted auditing standards on internal control.

(2) Any infractions of or noncompliance with the Savings and Loan Association Law and regulations having accounting significance which could have a material effect on the financial position or results of operations.

(3) Any indications that the internally prepared financial reports are not reviewed and approved by the board of directors on a reasonably frequent periodic basis or that the contents of such financial reports, including projections, are insufficient or inadequate to provide a proper basis for review and decision by the board of directors.

(4) Any other matters which in the auditor's opinion may be appropriate such as any significant deficiencies in accounting procedures or in the system of internal check and control which have been determined not practicable for corrective action or which have previously been corrected by management.

NOTE

Authority cited: Sections 5255, 8751 and 8753, Financial Code. Reference: Sections 8750-8753 and 8755, Financial Code.

HISTORY

1. Change without regulatory effect renumbering former Section 163 to Section 105.303 (Register 87, No. 14). For prior history, see Register 82, No. 43.

§105.304. Filing Procedures.

Note • History

(a) Two copies of the audited financial statements and of each supplemental or letter report shall be filed with the Commissioner and shall be due at the end of the third month after the end of the period covered by the audit. The Commissioner may extend the due date upon receipt of a letter from the statutory auditor which contains a satisfactory reason for late filing.

(b) The association shall also file either (1) a certificate by the secretary of the association certifying that at a meeting of the board of directors the directors were presented for consideration the financial statements and each supplemental report or (2) a certified copy of an extract from the minutes of a meeting of the board of directors at which such documents were presented for consideration.

(c) Within 45 days after the receipt of the letter report from the statutory auditor, the association shall submit a letter to the commissioner describing the action taken to correct the deficiencies contained in the letter report accompanied by either (1) a certificate by the secretary of the association certifying that at the meeting of the board of directors the named directors have approved the corrective action described in the association's letter or (2) a certified copy of an extract from the minutes of a meeting of the board of directors at which approval of such corrective action was given.

NOTE

Authority cited: Section 5255, Financial Code. Reference: Section 8751, Financial Code.

HISTORY

1. Change without regulatory effect renumbering former Section 164 to Section 105.304 (Register 87, No. 14). For prior history, see Register 82, No. 21.

Subchapter 6. Operations--Savings

Article 1. Investment Certificates and Withdrawable Shares

§106.100. Certificates and Shares.

Note • History

Full Paid Investment Certificates and Full Paid Withdrawable Shares, Accumulative Investment Certificates and Accumulative Withdrawable Shares, and Minimum Term Investment Certificates and Minimum Term Shares may be issued in several classes.

NOTE

Authority cited: Section 5255, Financial Code. Reference: Sections 6507, 6509, 6510.5, 6555, 6557, 6558 and 6559, Financial Code.

HISTORY

1. Change without regulatory effect renumbering former Section 210 to Section 106.100 (Register 87, No. 14). For prior history, see Register 83, No. 4.

§106.101. Provision of Different Rates of Return.

Note • History

The associations may pay a different rate of return on investment certificates or shares in each class. The determination of such rates of return shall be made in accordance with the requirements of Section 7400, et seq., Chapter 11, Part 1 of the law.

In matters of transfer, cancellation and withdrawal the associations shall be guided by the provisions of Chapter 7, Part 1 of the law and by other applicable State statutes and regulations.

NOTE

Authority cited: Section 5255, Financial Code. Reference: Section 6403, Financial Code.

HISTORY

1. Change without regulatory effect renumbering former Section 211 to Section 106.101 (Register 87, No. 14). For prior history, see Register 83, No. 4.

§106.102. Period of Bonus Certificate or Share.

Note • History

The board of directors of an association may determine a bonus rate of return on shares or investment certificates for a period not to exceed ten years.

NOTE

Authority cited: Section 5255, Financial Code. Reference: Section 7400.1, Financial Code.

HISTORY

1. Change without regulatory effect renumbering former Section 212 to Section 106.102 (Register 87, No. 14). For prior history, see Register 83, No. 4.

§106.103. Payment of Interest upon Withdrawal.

Note • History

An association may, upon the withdrawal of any sum evidenced by an investment certificate or share certificate, pay interest or dividend on such sum withdrawn for the period from the date of receipt to the date of withdrawal.

NOTE

Authority cited: Section 5255, Financial Code. Reference: Section 6560.1, Financial Code.

HISTORY

1. Change without regulatory effect renumbering former Section 213 to Section 106.103 (Register 87, No. 14). For prior history, see Register 83, No. 4.

§106.104. Split Rates--General.

Note • History

(a) For any interest period, the board of directors may, by resolution, determine to distribute interest at a rate higher than the regular rate on the balance of an account in excess of a minimum balance fixed by the board of directors. The minimum balance shall not be less than $200. The rate to be paid on the higher balance shall be determined by the board of directors.

(b) Each certificate, whether printed in a passbook or as a separate certificate, evidencing an account issued pursuant to this section, shall bear on its face the following additional words:

“Interest is distributable on this account as determined by the board of directors of the association, subject to Section 106.103, Subchapter 6, Article 1, Chapter 2, Title 10 of the California Administrative Code.”

NOTE

Authority cited: Section 5255, Financial Code. Reference: Sections 6403 and 7400, Financial Code.

HISTORY

1. Change without regulatory effect renumbering former Section 214 to Section 106104 (Register 87, No. 14). For prior history, see Register 83, No. 4.

§106.105. Retirement of Shares.

Note • History

An association issuing withdrawable shares may provide that such shares are not subject to retirement for an initial period after the issuance. The initial period shall not exceed ten years.

NOTE

Authority cited: Section 5255, Financial Code. Reference: Section 6511.1, Financial Code.

HISTORY

1. Change without regulatory effect renumbering former Section 215 to Section 106.105 (Register 87, No. 14). For prior history, see Register 83, No. 4.

§106.106. Redemption of Investment Certificates.

Note • History

An association issuing investment certificates may provide that such certificates are not subject to redemption for an initial period after the issuance. The initial period shall not exceed ten years.

NOTE

Authority cited: Section 5255, Financial Code. Reference: Section 6564, Financial Code.

HISTORY

1. Change without regulatory effect renumbering former Section 216 to Section 106.106 (Register 87, No. 14). For prior history, see Register 83, No. 4.

§106.107. Public Disclosure of Account Information.

Note • History

(a) General. An association shall make readily available to the public in a public place and shall furnish to the depositor prior to the time funds are initially placed with the association, whether such funds are accepted at its principal office, branch office or mobile facility, disclosures concerning savings accounts, investment certificates and withdrawable shares.

(b) Form of Disclosure. The disclosure required by subsection (a) shall be in the form of a written statement or written statements which shall contain an effective date and shall disclose the following minimum information in a clear and concise manner:

(1) A description of the various accounts available;

(2) The rate of interest, the annual yield, and method that will be used in computing and paying interest on the account, if any, including any provision for nonpayment of interest on deposits made after the beginning of the interest payment period or withdrawn before the end of such period;

(3) Rules for grace period interest on:

(A) Deposits mailed or received on or before the last day of the grace period,

(B) Transfer of funds between accounts within the association on or before the effective date of such change, unless such change is required by law or regulations.

(g) Copies to be Retained. The association shall maintain a chronological file showing all notices and the dates of the related accounts. The statements and notices shall bear the date of issue.

NOTE

Authority cited: Section 5255, Financial Code. Reference: Sections 6601 and 6602, Financial Code.

HISTORY

1. Change without regulatory effect renumbering former Section 217 to Section 106.107 (Register 87, No. 14). For prior history, see Register 83, No. 4.

§106.108. Eurodollar Deposits.

Note • History

(a) Definitions. As used in this section:

(1) “Eurodollar certificate” means a certificate account, denominated in United States dollars, evidencing a Eurodollar deposit;

(2) “Eurodollar deposit” means a deposit by a person who is not a United States person;

(3) “United States person” means any national or resident of the United States of America, its territories and possessions, including any corporation, trust, estate, or other entity organized under the laws thereof or of any political subdivision thereof; and

(4) “Participation” means an interest or participation in a Eurodollar certificate.

(b) General. Unless otherwise provided, Eurodollar deposit issuance shall follow the rules set forth in Section 235.50.

(c) Collateralization of Certificates. Notwithstanding the provisions of Section 563.31 of the Federal Insurance Regulations which allows associations to give bond or security for borrowings, an association may give security for Eurodollar deposits. For any secured Eurodollar certificate, the terms of the certificate shall provide that the commissioner and the Federal Savings and Loan Insurance Corporation (FSLIC) shall receive prompt written notification of any default on the obligation and, before a sale or other disposition of any portion of the collateral, that the FSLIC shall have thirty (30) days after receipt of written notice of the proposed sale or other disposition to exercise a right to repurchase the collateral at the price to be paid at the sale or to acquire the collateral at the value to be assigned to it in any other disposition. The notice and right of purchase required by this paragraph shall not apply to collateral consisting of liquid assets as defined in Section 523.10 of the Bank System Regulations or collateral that would qualify as liquid assets but for its remaining term to maturity.

(d) Requirements as to Distribution.

(1) In exercising authority under this section, an association shall require an undertaking in writing from each purchaser of a Eurodollar certificate or participation to the effect that:

(A) If the purchaser is not a dealer, he will not offer, sell or deliver such Eurodollar certificate(s) or participations directly or indirectly in the United States of America or its territories or possessions or to nationals or residents thereof, including any corporation, trust, estate or other entity organized under the laws thereof or of any political subdivision thereof; or

(B) If the purchaser is a dealer, he has not offered, sold or delivered, and agrees that he will not offer, sell or deliver, any such Eurodollar certificate(s) or participations directly or indirectly in the United States of America or its territories or possessions or to nations or residents thereof and he is not purchasing any such Eurodollar certificate(s) or participations for the account of any such nationals or residents. Further, if the purchaser is a dealer, he shall agree that he will require the undertaking required by subparagraph (d)(1)(A) of this section on any sales of the Eurodollar certificate(s) or participations and that he will inform the issuing association promptly if any beneficial ownership by a United States person comes to his attention.

(2) Upon completion of the distribution of any Eurodollar certificates or participations, the lead or managing underwriter shall deliver to the issuing association a certification as to the sale stating that to the knowledge of the underwriter no beneficial owner or owners of the Eurodollar certificate(s) or participations is a United States person; and, further, that the underwriter has not knowingly sold or offered for sale and will not sell or offer for sale, the Eurodollar certificate(s) or participations to any United States person.

(3) To the extent that beneficial ownership of a Eurodollar certificate or participation is acquired by a United States person, the return payable may not exceed the maximum rate of return payable on an account without a fixed term from the time ownership is acquired by the United States person. The issuing association shall take the necessary and appropriate action to ensure that the interest paid on a Eurodollar certificate, or that portion of a Eurodollar certificate attributable to a participation beneficially owned by a United States person, does not exceed the maximum rate of return payable on an account without a fixed term.

(4) Upon issuance of any certificate under this section, the issuing association shall provide to the commissioner and the FSLIC such information as is deemed necessary to monitor effectively the use of the authority provided by this section.

(e) Requirements as to Eurodollar Certificates. Each Eurodollar certificate and participation, including a temporary Eurodollar certificate or participation, shall bear on its face, in boldface type, a legend substantially in the following form:

“This Eurodollar certificate has been issued pursuant to a regulation of the Federal Home Loan Bank Board, an agency of the United States government, and the California Department of Savings and Loan, which requires that the Eurodollar certificate be sold, and interest at the amount stated hereon paid, only to purchasers who are not United States nationals or residents, and may not be directly or indirectly offered or sold in the United States of America, its territories or possessions, or to persons who are nationals or residents thereof.”

(f) Requirements as to Coupons. Each coupon attached to a Eurodollar certificate or participation shall bear a legend substantially in the following form:

“To the extent that beneficial ownership of the Eurodollar certificate or the participation therein to which this coupon appertains is acquired by a United States national or resident of the United States of America or its territories and possessions, including any corporation or other entity organized under the laws thereof or any political subdivision thereof, the return payable thereon will be the maximum permissible rate of return payable on a regular account of the association.”

(g) Pooling of Certificates. An association may engage in pooling or participate in pooling funds, or soliciting or promoting pooled accounts, in connection with the issuance of a Eurodollar certificate in conformity with this section.

NOTE

Authority cited: Section 5255, Financial Code. Reference: Section 6420, Financial Code.

HISTORY

1. Change without regulatory effect renumbering former Section 218 to Section 106.108 (Register 87, No. 14). For prior history, see Register 83, No. 4.

Article 2. Delayed Funds Availability

§106.200. Definitions.

Note • History

(a) “Depository savings institution” means the savings and loan association or savings bank that maintains the account into which the item is deposited.

(b) “Item” shall mean “check” as defined in 12 CFR 229.2(k), effective September 1, 1988.

(c) “Non-transaction account” means a savings deposit which includes a regular account, an automatic transfer account, a money market deposit account (MMDA), or any other savings deposit account as descried in 12 CFR 204.2(d) as amended April 1, 1986 (51 FR 9634).

(d) “Regulation CC” means regulations adopted by the Board of Governors of the Federal Reserve System, Part 229 of Title 12 of the Code of Federal Regulations (12 CFR 229 et seq.) as directed in the Expedited Funds Availability Act (Title VI of Pub. L. 100-86, enacted on August 10, 1987). All references in this Article to Regulation CC shall mean that regulation and all commentary and footnotes thereto effective beginning September 1, 1988.

(e) “Transaction account” means a demand deposit account, a negotiable order of withdrawal (NOW), and any other deposit or account as described in 12 CFR 204.2(e) as amended April 1, 1986 (51 FR 9634-9635).

NOTE

Authority cited: Sections 866.5, 866.6 and 8053, Financial Code. Reference: Sections 866.5 and 866.6, Financial Code; and Section 4213, California Uniform Commercial Code.

HISTORY

1. Change without regulatory effect renumbering former Section 247 to Section 106.200 (Register 87, No. 14). For prior history, see Register 84, No. 38.

2. Repealer and new section filed 10-12-88 as an emergency; operative 10-12-88 (Register 88, No. 43). A Certificate of Compliance must be transmitted to OAL within 120 days or emergency language will be repealed on 2-9-89.

3. Certificate of Compliance including amendment of subsections (b), (c) and (e) transmitted to OAL 2-10-89 and filed 3-8-89 (Register 89, No. 11).

§106.201. Funds Availability.

Note • History

All items deposited into a transaction account or a non-transaction account of a depository savings institution shall be made available for withdrawal as provided by Regulation CC, 12 CFR 229, et seq.

NOTE

Authority cited: Sections 866.5, 866.6 and 8053, Financial Code. Reference: Sections 866.5, 866.6 and 8053, Financial Code; and Section 4213, California Uniform Commercial Code.

HISTORY

1. Change without regulatory effect renumbering former Section 247.1 to Section 106.201 (Register 87, No. 14). For prior history, see Register 84, No. 38.

3. Certificate of Compliance including amendment of NOTE transmitted to OAL 2-10-89 and filed 3-8-89 (Register 89, No. 11).

§106.202. Disclosure Statements.

Note • History

A depository savings institution may provide customers who have non-transaction accounts with disclosures concerning funds availability as provided in Regulation CC, 12 CFR 229 et seq., for transaction accounts. Such disclosure by a depository savings institution shall be deemed to comply with Section 866.2 of the Financial Code.

NOTE

Authority cited: Sections 866.5, 866.6 and 8053, Financial Code. Reference: Sections 866.2, 866.5 and 866.6, Financial Code; and Section 4213, California Uniform Commercial Code.

HISTORY

1. Change without regulatory effect renumbering former Section 247.2 to Section 106.202 (Register 87, No. 14). For prior history, see Register 84, No. 38.

3. Certificate of Compliance including amendment of NOTE transmitted to OAL 2-10-89 and filed 3-8-89 (Register 89, No. 11).

§106.203. Limitations on Applicability.

Note • History

NOTE

Authority cited: Sections 866.5, 866.6 and 8053, Financial Code; and Section 4213, California Uniform Commercial Code. Reference: Sections 866.5 and 866.6, Financial Code; and Sections 4105, 4212 and 4213, California Uniform Commercial Code.

HISTORY

1. Change without regulatory effect renumbering former Section 247.3 to Section 106.203 (Register 87, No. 14). For prior history, see Register 84, No. 38.

2. Repealer filed 10-12-88 as an emergency; operative 10-12-88 (Register 88, No. 43). A Certificate of Compliance must be transmitted to OAL within 120 days or emergency language will be repealed on 2-9-89.

3. Certificate of Compliance transmitted to OAL 2-10-89 and filed 3-8-89 (Register 89, No. 11).

§106.204. Hold Periods.

Note • History

NOTE

Authority cited: Sections 866.5, 866.6, 866.9 and 8053, Financial Code; and Section 4213, California Uniform Commercial Code. Reference: Sections 866.5, 866.6 and 866.9, Financial Code; and Section 4213, California Uniform Commercial Code.

HISTORY

1. Change without regulatory effect renumbering former Section 247.4 to Section 106.204 (Register 87, No. 14). For prior history, see Register 84, No. 38.

3. Certificate of Compliance transmitted to OAL 2-10-89 and filed 3-8-89 (Register 89, No. 11).

§106.205. Exemptions.

Note • History

NOTE

HISTORY

1. Change without regulatory effect renumbering former Section 247.5 to Section 106.205 (Register 87, No. 14). For prior history, see Register 84, No. 38.

3. Certificate of Compliance transmitted to OAL 2-10-89 and filed 3-8-89 (Register 89, No. 11). (Next page is 217)

Subchapter 7. Operations--Loans

Article 1. Supplementary Loan Report and Documentation Requirements

§107.100. Loan Register.

Note • History

Each association shall keep a loan register accounting for all real estate loans which it makes or purchases. When an association acquires a participating interest in a group of loans, totals regarding such loans may be entered in the loan register if reference is made to the participation agreement. Information regarding loans appearing in the loan register shall consist of, but not be limited to, the following:

(a) Loan number

(b) Date loan entered on books

(d) Name of borrower

(e) Location of security (by city and state, and by census tract if such information is available)

(f) Type of improvement

(g) Purpose of loan (speculative construction, construction for owner, purchase of property, refinance, other, purchased loan, or collateral loan)

(h) Amount of loan

(i) Secondary financing (where information is available)

(1) Amount

(2) Holder

(j) Current value of the security property

(k) Selling price of property on loans made for the purchase of property

(l) Amount of discount or premium on purchased loans

(m) Interest rate

(n) Method of repayment (unamortized or amortized)

(o) Loan fees (not required for purchased loans)

(p) Maximum loan permitted under loan limitation applicable to the particular property. Express as a maximum percent of loan to value

(q) The unpaid balance of the underlying trust deed obligation on wrap- around loans made pursuant to Subchapter 7 Article 3 of regulations

(r) The interest rate on the underlying trust deed obligation on wrap-around loans made pursuant to Subchapter 7 Article 3 of the regulations.

NOTE

Authority cited: Section 5255. Reference: Sections 7102, 8703 and 8708, Financial Code.

HISTORY

1. Change without regulatory effect renumbering former Section 118.1 to Section 107.100 (Register 87, No. 14). For prior history, see Register 82, No. 49.

§107.101. Loans Modified.

Note • History

Each Association shall keep a record of loans that were modified. Information regarding each loan appearing in the record shall consist of, but not be limited to, the following:

(a) Loan number

(b) Date original loan entered on books

(d) Unpaid balance of loan before and after modification

(e) Latest appraisal showing the current market value of the security property

(f) Type of improvement

(g) Loan to value ratio after modification

(h) Nature of modifications

Loans listed under the subaccounts of Account Nos. 120 and 122 that have any modifications, additional loans or secured advances, or other action taken by any association pursuant to Sections 6701(a)(i), 6701(a)(iii), and 6701(b), which cause the loans to exceed otherwise applicable loan limits, shall be transferred to Subaccount Nos. 120-9 and 122-8. When the terms of these loans are conforming to normal loan limits, the loans shall be transferred back to the original subaccounts.

NOTE

Authority cited: Section 5255, Financial Code. Reference Sections 8701, 8703 and 8705, Financial Code.

HISTORY

1. Change without regulatory effect renumbering former Section 118.2 to Section 107.101 (Register 87, No. 14). For prior history, see Register 82, No. 49.

§107.102. Documents Supporting Loans.

Note • History

The provisions of this section do not apply to purchased participating interests in loans or to loans or participating interests in loans which are a part of a pool of loans securing obligations issued or guaranteed by the Federal National Mortgage Association, the Government National Mortgage Association, or similar Federal Government agency, to purchased participating interests in loans, or to loans insured by the Federal Housing Administrator or guaranteed by the Administrator of Veterans' Affairs. (See Sections 7200 through 7206 of the law.) The retention in each loan file of the documentation required by FHA or VA for making FHA or VA loans will satisfy the loan documentation requirements of this Department. Proposed FHA takeout loans shall not be regarded as insured loans during the construction period unless so specified by FHA. Associations should be careful not to treat a loan as being exempt from the following documentation requirements until the insurance or guarantee has been or is certain to be received. When conventional whole loans are purchased by an association, the purchaser's copy of the agreement between buyer and seller must be on file on the premises of the purchasing association, together with evidence of an assignment of title in the security instrument from the seller to buyer or a written statement by counsel for the association that such assignment of security instrument is not required and the lien follows the promissory note. A servicing agreement covering purchased whole loans must also be maintained on the premises of the purchasing association when such loans are serviced by the seller. In addition to any other requirements with respect to the maintenance of records, every association shall file and maintain on its premises, except as otherwise authorized by the Savings and Loan Commissioner, the following documents or information for each whole real estate loan made or purchased (information shall be maintained on the location of any document or record not in a particular loan file):

(a) An application for the loan, signed by the applicant borrower or his agent, in such form and containing such information as will disclose the purpose for which the loan is sought (speculative, construction, purchase, construction for owner, refinancing, other) and the identity of the security;

(b) If any loan is made for the purpose of financing the purchase of the real estate security for the loan, a signed statement by the borrower or his agent, as a part of or as an attachment to the application for the loan, disclosing the price at which such real estate security is being purchased by the borrower, and the arrangements made or proposed to finance the amount of the difference between the price and the loan applied for (in the case of a purchased loan, this data should be obtained if available);

(c) One or more written appraisal reports, disclosing the current market value of the security offered by the applicant, prepared in accordance with generally accepted standards and procedures. Such reports shall be signed prior to the approval of the loan application, by a person, or persons duly approved as an appraiser by the board of directors of the association. In the case of purchased loans, a statement signed by a person approved as a Class IV association appraiser by the board of directors that he has personally supervised a review by qualified association appraisers of the appraisal report of each purchased loan and that he is satisfied that a proper appraisal method has been employed;

(d) A written report evaluating the credit of the applicant, based upon information available to the association or supplied by the applicant or by others. With respect to a purchased loan, a statement (or other evidence) by the seller which evaluates the payment record of the borrower and the status of taxes, assessments, insurance premiums, and other charges on the security for such loan;

(e) Except for properties acquired by foreclosure, a title insurance policy or its equivalent insuring the priority and validity of the association's lien on the real estate for such loan;

(f) A copy of a loan settlement statement furnished to the borrower upon the closing of the loan made by the association setting forth in detail the charges or fees such borrower has paid or obligated himself to pay through the loan escrow or to such association during the life of such loan or copies of the loan settlement statements furnished to the borrower as required by the Real Estate Settlement Procedures Act of 1974 on loans made after June 20, 1975;

(g) Information on all modifications of the original loan contract, including the written document, or a photocopy or conformed copy of the document effecting such modification;

(h) Information on all releases of any portion of the collateral securing the loan, showing the part of the property involved and the consideration, if any;

(i) The financial statement required by Section 8703.2 of the law shall consist of a statement of financial condition and a statement of income and expenses in the case of any loan subject to the requirements of this section. Such statements shall be as of a date not more than fifteen months prior to the date of the loan, and in the case of borrowers with more than one loan, the statements shall be as of a date not more than fifteen months prior to the date of the latest loan;

(j) If the original promissory note is not kept in the loan file for security reasons, each loan file shall contain a copy of the promissory note;

(k) If the original deed of trust securing the promissory note is not kept in the loan file for security reasons, each loan file shall contain a copy of the deed of trust or mortgage securing the promissory note;

(l) In the case of a construction loan made by the association, the inspection records required by Section 8703.1 of the law;

(m) In the case of any loan made by the association which involved an escrow in connection with the distribution of the loan funds, a certified copy of all escrow instructions and amendments thereof received by the association and all escrow instructions prepared by the association including a copy of a demand by the association upon the escrow for such instructions. The association's instructions to the escrow shall provide that the escrow shall not close without the association's consent whenever the escrow officer or escrow officers handling the transaction acquire actual knowledge that there is either a concurrent escrow or an escrow to be opened or closed immediately upon completion of the existing escrow which will transfer the same property and shall further provide that the association shall be furnished with a certified copy of the closing statement to the borrower;

(n) In the case of a loan under Section 7152(b) of the law, a written opinion by association counsel stating that the long-term lease security instruments provide at least the following: (1) that a foreclosure will not render the lease invalid nor cause the loss of any rights such as reciprocal parking; (2) that the lease cannot be modified by the lessor or lessee without the express written consent of the lender; (3) that in the event of a default under the lease by the lessor or lessee, the lender will be given at least 30 days' notice to take such action as it deems necessary to protect its loan security.

(o) In the case of a wrap-around loan, all of the additional documentation required under Subchapter 7 Article 3 of the regulations.

NOTE

Authority cited: Section 5255, Financial Code. Reference: Sections 7102, 8707 and 8708, Financial Code.

HISTORY

1. Change without regulatory effect renumbering former Section 118.3 to Section 107.102 (Register 87, No.14). For prior history, see Register 80, No. 19.

§107.103. Documents Required for Total Real Estate Loans in Excess of $1,000,000.

Note • History

Except with the consent of the commissioner, no association shall make or purchase a single loan in excess of $1,000,000, or make or purchase any real estate loan which in addition to the existing loans held by the association that are due from the borrower will exceed a total of $1,000,000 unless the association obtains from the borrower either:

(a) A statement of financial condition as of a date within fifteen months of the date of the loan, and a statement of income and expenses for the last fiscal year or other audit period which have been examined by an independent public accountant in accordance with generally accepted auditing standards, and a report prepared by such accountant expressing an opinion concerning the financial statements, or

(b) A statement of financial condition and a statement of income and expenses, for the same period as described in (a) above, prepared under penalty of perjury, which includes the following information relating to any assets in the form of real property, trust deeds or mortgages, or nonlisted securities:

(1) The date of the acquisition of the asset;

(2) The cost of the asset at date of acquisition (cost shall include actual cash payment, cost basis of any real or personal property exchanged or received and the amount of any indebtedness incurred or assumed in connection with the acquisition).

Each association making a single loan in excess of $1,000,000 shall obtain from the borrower a statement signed by the borrower under penalty of perjury, stating as follows:

“The undersigned borrower hereby represents to _____________ Savings and Loan Association that the total of all loans my by said association to the undersigned borrower, including the loan hereby applied for, and to all other persons and entities which are required to be included in computing said total, pursuant to the requirements of Section 118.5 of the regulations, is as follows:

(1) This loan: $_____________

(2) Other loans applied for or made: (If none, state: no exceptions; if any, state name of borrowers, loan number, and amount, as to each loan application)

Amount $___________”

Documents required by this sections shall be maintained in the loan files of the association.

NOTE

Authority cited: Section 5255, Financial Code. Reference: Sections 8707 and 8708, Financial Code.

HISTORY

1. Change without regulatory effect renumbering former Section 118.4 to Section 107.103 (Register 87, No. 14). For prior history, See Register 80, No. 19.

§107.104. Computation of Total of Loans to One Borrower.

Note • History

For the purpose of Section 7174 of the law, in computing the total of loans to any one borrower, any loan or loans to any one or more of the following persons or entities shall be included:

(a) Any person or entity that is, or that upon the making of a loan will become, obligor on a loan on the security of real estate;

(b) Nominees of such obligor;

(c) All persons, trusts, partnerships, syndicates, and corporations of which such obligor is a beneficiary, partner, member, or record or beneficial stockholder owning 10 percent or more of the capital stock; or a nominee for any of these persons;

(d) If such obligor is a trust, partnership, syndicate, or corporation: all trusts, partnerships, syndicates and corporations of which any beneficiary, partner, member, or record or beneficial stockholder owning 10 percent or more of the capital stock,is also a beneficiary, partner, member, or record or beneficial stockholder owning 10 percent or more of the capital stock of the obligor;

(e) Members of the immediate family of any borrower.

NOTE

Authority cited: Section 5255, Financial Code.Reference: Section 7174, Financial Code.

HISTORY

1. Change without regulatory effect renumbering former Section 118.5 to Section 107.104 (Register 87, No. 14). For prior history, see Register 82, No. 49.

Article 2. Sale of Loans or Participating Interests Therein

§107.200. Purpose and Scope.

Note • History

This subchapter contains standards for approval of the sale of loans, or participating interests therein, pursuant to Section 6712 of the Savings and Loan Association Law.

NOTE

Authority cited: Section 5255, Financial Code. Reference: Section 6712, Financial Code.

HISTORY

1. Change without regulatory effect renumbering former Section 170 to Section 107.200 (Register 87, No. 14). For prior history, See Register 64, No.15.

§107.201. Terms Defined.

Note • History

The term “with recourse” means, in connection with the sale of a loan or a participation interest in a loan, an agreement or arrangement under which the purchaser is to be entitled to receive from the seller a sum of money or thing of value, whether tangible or intangible (including any substitution), upon default in payment of any loan involved or any part thereof or to withhold or to have withheld from the seller a sum of money or any thing of value by way of security against default. The recourse liability resulting from a sale with recourse shall be the total book value of any loan sold with recourse less (a) the amount of any insurance or guarantee against loss in the event of default provided by a third party and (b) the amount of any loss resulting from a recourse obligation entered on the books and records of the association.

NOTE

Authority cited: Section 5255, Financial Code. Reference: Section 6712, Financial Code.

HISTORY

1. Change without regulatory effect renumbering former Section 171 to Section 107.201 (Register 87, No. 14). For prior history, see Register 82, No. 24.

§107.202. Blanket Authority, Sale of Loans and Participating Interests in Loans.

Note • History

(a) Subject to the limitations imposed by this section and Section 105.201 and any other limitation imposed by law blanket authority is hereby granted to any domestic association to sell its loans or participation interests in loans without prior approval of the commissioner to any purchaser.

(b) Sale with recourse. General rule. All loans and participation interests in loans sold by a domestic association may be sold with recourse.

(c) Mortgage transactions with federally-chartered secondary market agencies. To the extent that it has legal power to do so, an association may enter into, perform and carry out any mortgage transaction with the Federal Home Loan Mortgage Association specified in Section 305 of the Federal Home Loan Mortgage Corporation Act, notwithstanding any provision of this Chapter except the net worth requirements of Section 105.201.

(d) No loans, or participating interests in loans, shall be sold to or purchased from, directly or indirectly, any of the persons specified in Section 5613 of the law or to any corporation in which any director, officer or majority stockholder of the selling or buying or participating association is a stockholder.

(e) Participation interests in pools of loans. Where an association sells or purchases a participating interest in a pool of loans, documentation requirements will be satisfied if:

(1) Access to all loan documentation is provided by the originator/servicer upon request and without charge to any trustee of the pool, the commissioner, the Federal Home Loan Bank Board, or the Federal Savings and Loan Insurance Corporation or their examiners or Supervisory Agents and upon request and subject only to reasonable charges incurred in providing such access to any association investing in the he pool;

(2) The originator/servicer warrants as to each loan in the pool to or for the benefit of each association investing in the pool that as of the date participation interests in the pool were first issued:

(A) no loan was 30 or more days delinquent;

(B) each loan met the requirements for investment by the association;

(C) there were no delinquent tax or assessment liens or mechanics' liens on any collateral for the loans and the collateral was free of substantial damage and in good repair; and

(D) each loan complied with all applicable state and federal laws; and

(3) The originator/servicer has agreed to provide each association investing in the pool a monthly report of loan delinquencies separately indicating the number and aggregate principal amount of loans delinquent one month and two or more months, the book value of any collateral acquired by the pool through foreclosure or other exercise of its security interest in the collateral, and the aggregate dollar amount of loans made by the pool, if any, on the security of the collateral if such loans are loans secured by, and contracts for the sale of, real estate as described in Scheduled Items, Section 561.15(c) and (d) of the Insurance Regulations.

NOTE

Authority cited: Section 5255, Financial Code. Reference: Sections 5613, 6419, 6712, 6718 and 6719, Financial Code.

HISTORY

1. Change without regulatory effect renumbering former Section 172 to Section 107.202 (Register 87, No. 14). For prior history, see Register 82, No. 24.

§107.203. Nonconforming Sales.

Note • History

Any sale of loans or participating interests in loans which does not conform to the conditions stated above may be made only with the prior written approval of the commissioner.

NOTE

Authority cited: Section 5255, Financial Code. Reference: Section 6712, Financial Code.

HISTORY

1. Change without regulatory effect renumbering former Section 173 to Section 107.203 (Register 87, No. 14). For prior history, see Register 82, No. 11.

§107.204. Termination and Revocation.

Note • History

In the event it is determined by the commissioner that an association has sold loans or participating interests in loans, without complying with the conditions stated above in addition to any other action taken, the commissioner may terminate blanket authority as to such association by giving notice, in writing, of such termination to said association. After receipt of notice of termination the association shall not sell any loans or participating interests in loans except with the prior written approval of the commissioner. The commissioner also reserves the right to revoke this authority as to any given association by giving written notice to that association whenever this action is necessary in the interests of the association, its savings accountholders, the savings and loan industry, or the general public.

NOTE

Authority cited: Section 5255, Financial Code. Reference: Sections 5019, 5021 and 5150 Financial Code.

HISTORY

1. Change without regulatory effect renumbering former Section 174 to Section 107.204 (Register 87, No. 14). For prior history, see Register 82, No. 11.

Article 3. Wrap-Around Loans

§107.300. Purpose and Scope.

Note • History

This subchapter contains the requirements and procedures to be followed by an association in making loans secured by a wrap-around deed of trust, and is adopted pursuant to Section 5255 of the law to implement and interpret Section 7102 of the law.

NOTE

Authority cited: Section 5255, Financial Code. Reference: Sections 7102, 8707 and 8708, Financial Code.

HISTORY

1. Change without regulatory effect renumbering former section 176 to Section 107.300 (Register 87, No. 14). For prior history, see Register 76, No. 31.

§107.301. Terms Defined.

Note • History

(a) The definitions set forth in Section 7100 and in Article 2, Chapter 1, Part 1 of the law, are incorporated herein by reference.

(b) “Wrap-around loan” means an additional loan whereby an association as a second lender “refinances” a loan for a sum greater than the existing balance on a preexisting loan without paying off or disturbing the existence of the first trust deed or mortgage.

NOTE

Authority cited: Section 5255, Financial Code. Reference: Sections 7102, 8707 and 8708, Financial Code.

HISTORY

1. Change without regulatory effect renumbering former Section 176.1 to Section 107.301 (Register 87, No. 14). For prior history, see Register 76, No. 31.

§107.302. Wrap-Around Loans.

Note • History

For the purpose of Section 7102 of the law, a wrap-around loan made by an association to a borrower on the security of a trust deed or mortgage on real property shall, notwithstanding the fact that such real property is subject to a preexisting loan, be deemed to be a loan secured by a first mortgage or first trust deed upon real property, if each of the following conditions is met:

(a) There is no more than one preexisting loan on the real property;

(b) The total amount of the obligation of the borrower to the association under the wrap-around loan is not less than the sum of (1) the amount disbursed by the association on account of the wrap-around loan and (2) the outstanding balance of the obligation secured by the preexisting loan;

(c) The total amount of the obligation of the borrower to the association under the wrap-around loan does not exceed applicable limitations of the law;

(d) The instrument evidencing the wrap-around loan is recorded, and the borrower is insured under a policy of title insurance in an amount not less than the total amount of the obligation of the borrower to the association under the wrap-around loan;

(e) The association either:

(1) Pursuant to Civil Code Section 2924b, files for record in the office of the recorder of the county in which the real property is located a duly acknowledged request for a copy of any notice of default or of sale under the preexisting loan, or

(2) Otherwise arranges with the recorder of any county in which the real property is located to be advised in case of the filing for record of any notice of default or of sale with respect to any obligations secured by the preexisting loan;

(f) The association (1) holds in reserve funds pledged by or on behalf of the borrower in an amount sufficient to cover at all times the unpaid balance of the preexisting loan and (2) may at any time use such funds to pay all or any part of the unpaid balance of the preexisting loan. The term “unpaid balance of the preexisting loan” as used in this subsection means the unpaid balance of the preexisting loan as of the first day of the current calendar year, after adjustment for advances and payments on principal during the preceding calendar year;

(g) The association enters into such agreements and covenants with the borrower and/or the preexisting lender as are necessary to establish adequate safeguards and controls with respect to its position and security under the wrap-around loan including, among other things, but not limited to, the following:

(1) Default under the preexisting loan will constitute a default under the wrap-around loan;

(2) The preexisting lender will be directed to send copies of all notices and correspondence to the association;

(3) The wrap-around lender, in the event of default of the preexisting loan, will be authorized to make any payments and to perform any acts under the preexisting loan which the borrower is required or permitted to do;

(4) The association, borrower and preexisting lender make such other and further covenants and agreements as the commissioner deems necessary and proper to protect and safeguard the wrap-around loan.

NOTE

Authority cited: Section 5255, Financial Code. Reference: Sections 7102, 8707 and 8708, Financial Code.

HISTORY

1. Change without regulatory effect renumbering former Section 176.2 to Section 107.302 (Register 87, No. 14). For prior history, see Register 76, No. 31.

Article 4. Loans on Manufactured Homes

§107.400. Terms Defined.

Note • History

NOTE

Authority cited: Section 5255, Financial Code. Reference: Sections 5050-5076 and 7187, Financial Code.

HISTORY

1. Change without regulatory effect renumbering former Section 233 to Section 107.400 (Register 87, No. 14). For prior history, see Register 83, No. 8.

2. Change without regulatory effect repealing section filed 11-20-87; operative 11-20-87 (Register 87, No. 48).

§107.401. General Investment Authority.

Note • History

NOTE

Authority cited: Section 5255, Financial Code. Reference: Section 7187, Financial Code.

HISTORY

1. Change without regulatory effect renumbering former Section 233.1 to Section 107.401 (Register 87, No. 14). For prior history, see Register 83, No. 8.

2. Change without regulatory effect repealing section filed 11-20-87; operative 11-20-87 (Register 87, No. 48).

§107.402. Sound Investment Practices.

Note • History

NOTE

Authority cited: Section 5255, Financial Code. Reference: Section 7187, Financial Code.

HISTORY

1. Change without regulatory effect renumbering former Section 233.2 to Section 107.402 (Register 87, No. 14). For prior history, see Register 83, No. 8.

2. Change without regulatory effect repealing section filed 11-20-87; operative 11-20-87 (Register 87, No. 48).

§107.403. Inventory Financing.

Note • History

NOTE

Authority cited: Section 5255, Financial Code. Reference: Section 7187, Financial Code.

HISTORY

1. Change without regulatory effect renumbering former Section 233.3 to Section 107.403 (Register 87, No. 14). For prior history, see Register 83, No. 8.

2. Change without regulatory effect repealing section filed 11-20-87; operative 11-20-87 (Register 87, No. 48).

§107.404. Retail Financing.

Note • History

NOTE

Authority cited: Section 5255, Financial Code. Reference: Section 7187, Financial Code.

HISTORY

1. Change without regulatory effect renumbering former Section 233.4 to Section 107.404 (Register 87, No. 14). For prior history, see Register 83, No. 8.

2. Change without regulatory effect repealing section filed 11-20-87; operative 11-20-87 (Register 87, No. 48).

§107.405. Purchase and Sale of Participation Interests in Manufactured Home Chattel Paper and Sale of Manufactured Home Chattel Paper.

Note • History

NOTE

Authority cited: Section 5255, Financial Code. Reference: Section 7187, Financial Code.

HISTORY

1. Change without regulatory effect renumbering former Section 233.5 to Section 107.405 (Register 87, No. 14). For prior history, see Register 83, No. 8.

2. Change without regulatory effect repealing section filed 11-20-87; operative 11-20-87 (Register 87, No. 48).

§107.406. Loans to Rehabilitate Manufactured Dwellings.

Note • History

NOTE

Authority cited: Section 5255, Financial Code. Reference: Section 7184, Financial Code.

HISTORY

1. Change without regulatory effect renumbering former Section 233.6 to Section 107.406 (Register 87, No. 14). For prior history, see Register 83, No. 8.

2. Change without regulatory effect repealing section filed 11-20-87; operative 11-20-87 (Register 87, No. 48).

§107.407. Loss Valuation Allowances.

Note • History

NOTE

Authority cited: Section 5255, Financial Code. Reference: Section 7255, Financial Code.

HISTORY

1. Change without regulatory effect renumbering former Section 233.7 to Section 107.407 (Register 87, No. 14). For prior history, see Register 83, No. 8.

2. Change without regulatory effect repealing section filed 11-20-87; operative 11-20-87 (Register 87, No. 48).

Article 5. Loans--Variable Interest Rate Provisions

§107.500. General.

Note • History

This article contains regulations which set forth provisions to make variable interest rate loans.

NOTE

Authority cited: Section 8053, Financial Code; and Section 1916.5, Civil Code. Reference: Sections 1916.5 and 1916.6, Civil Code.

HISTORY

1. Change without regulatory effect renumbering former Section 240 to Section 107.500 (Register 87, No. 14). For prior history, see Register 79, No. 21.

2. Change without regulatory effect (Register 87, No. 35).

§107.501. Standards Adopted; Effects of Changes in Standards.

Note • History

(a) (1) The Standard for savings and loan associations, upon which variations in the interest rate on mortgage contracts, deeds of trust, real estate sales contracts or any note or negotiable instrument (hereinafter referred to as “note”) issued under Civil Code Section 1916.5 may be based, shall be the last (Next page is 231)published weighted average cost of savings, borrowings and Federal Home Loan Bank advances to California members of the Federal Home Loan Bank of San Francisco as computed from statistics by the Federal Home Loan Bank of San Francisco.

(2) The Standard for savings and loan associations, upon which variations in the interest rate on any note issued under Civil Code Section 1916.6 may be based, shall be on any specific date the arithmetic mean of the weighted average yields of competitive offers for the sale of conventional fixed rate first mortgage or trust deed loans on the single-family residential property accepted by the Federal Home Loan Mortgage Corporation (“FHLMC”), under its immediate delivery program, at all loan auctions held by it during the calendar month preceding that specific date, provided that if during any calendar month to be used shall be the next preceding calendar month during which one or more auctions were held by FHLMC and at which offers were accepted, and provided further that if FHLMC ceases to conduct its auctions for the purchase of these loans, or if no offers are accepted for a period of three months, then the Standard shall be an equivalent Standard designated by the commissioner.

(b) Subject to the provisions set forth below, an association in exercising its rights to change the interest rate pursuant to a variable interest clause in its note shall effect such changes in such manner as to maintain the same margin above or below the initial interest rate of such note as the Standard is above or below the Standard at the date of such note.

(1) Any increase or decrease in the interest rate of a note issued under Civil Code Section 1916.5 shall not exceed 1/4 of 1% per annum in any semiannual period. Any increase in the interest rate of a note issued under Civil Code Sections 1916.5 and 1916.6 shall not result in a rate more than 2.5 percentage points greater than the rate for the first loan payment due after the closing of the loan.

(2) No increase or decrease in the interest rate of a note issued under Civil Code Section 1916.5 in any semiannual period shall be less than 1/10 of 1% per annum except for increases or decreases not previously invoked in full by reason of the 1/4 of 1% per annum maximum limitation. No increase or decrease in the interest rate of a note issued under Civil Code Section 1916.6 in any period of five years shall be less than 1/10 of 1% per annum.

(3) No change in the rate of interest shall be made effective during the first semiannual period in the case of a note issued under Civil Code Section 1916.6.

(4) In the case of a note issued under Civil Code Section 1916.5, after the first semiannual period there shall be only one change in any one semiannual period. In the case of a note issued under Civil Code Section 1916.6, after the first period of five years there shall be only one change in any one period of five years.

(5) At least six months shall elapse between each change in the interest rate of a note issued under Civil Code Section 1916.5 and at least sixth months shall elapse between each change in the interest rate of a note issued under Civil Code Section 1916.6.

(6) Each change in rate of a note issued under Civil Code Section 1916.5 shall become effective commencing on the date the monthly installment becomes due during the second month following publication of the Standard for each semiannual period. Each change in rate of a note issued under Civil Code Section 1916.6 shall become effective commencing on the date the monthly installment becomes due during the second month following the date that the Standard for each period of five years is established. Notwithstanding the foregoing, an association may provide in a note issued under Civil Code Section 1916.5 that the first change in rate shall become effective with the first loan installment falling due more than 30 days after the first publication of the Standard following expiration of the first semiannual period of the loan, and an association may provide in a note issued under Civil Code Section 1916.6 that the first change in rate shall become effective with the first loan installment falling due more than 30 days after the Standard is established following expiration of the first period of five years.

(7) Decreases shall be mandatory and increases shall be optional with the lender.

(8) The fact that an association may not have invoked a permissible increase, in whole or in part, shall not be deemed a waiver of the association's right to invoke said increase at any time thereafter within the limits imposed by this subchapter.

NOTE

Authority cited: Section 8053, Financial Code; and Section 1916.5, Civil Code. Reference: Sections 1916.5 and 1916.6, Civil Code.

HISTORY

1. Change without regulatory effect renumbering former Section 240.2 to Section 107.501 (Register 87, No. 14). For prior history, see Register 79, No. 47.

2. Change without regulatory effect (Register 87, No. 35).

§107.502. Change in Monthly Payments.

Note • History

An association, in exercising its rights pursuant to a variable interest rate clause to increase the interest rate, may at the option of the borrower (a) increase the amount of monthly payment of an amortized loan, or (b) extend the maturity date, or (c) a combination of both (a) and (b), provided the loan will be paid in full in regular monthly installments by the end of the maximum amortization period allowed at the time the instrument was executed or for such additional period as may be required to amortize the loan without increasing the existing monthly payment, but not to exceed a maximum term of 40 years. An association may provide in a note issued under either Civil Code Section 1916.5 or Section 1916.6 that, upon a decrease in the rate pursuant to a variable interest rate clause, the association may at its option (a) decrease the amount of monthly payment of an amortized loan, or (b) reduce the maturity date to the degree the maturity was previously extended, or (c) a combination of both (a) and (b).

NOTE

Authority cited: Section 8053, Financial Code; and Section 1916.5, Civil Code. Reference: Sections 1916.5 and 1916.6, Civil Code.

HISTORY

1. Change without regulatory effect renumbering former Section 240.3 to Section 107.502 (Register 87, No. 14). For prior history, see Register 79, No. 21.

2. Change without regulatory effect (Register 87, No. 35).

§107.503. Modification Agreements.

Note • History

If, on or after November 23, 1970, an association executes a modification agreement with a borrower respecting a mortgage contract, deed of trust, real estate sales contract, or modifies any note or negotiable instrument issued in connection therewith which was executed before November 23, 1970, and the modification agreement or modified note includes a variable interest rate, it shall comply with Civil Code Section 1916.5 or 1916.6 and with these regulations.

NOTE

Authority cited: Section 8053, Financial Code; and Section 1916.5, Civil Code. Reference: Sections 1916.5 and 1916.6, Civil Code.

HISTORY

1. Change without regulatory effect renumbering former Section 240.4 to Section 107.503 (Register 87, No. 14). For prior history, see Register 79, No. 21.

2. Change without regulatory effect of NOTE (Register 87, No. 35).

§107.504. Notice to Borrowers.

Note • History

If an association changes the interest rate on any instrument evidencing a loan covered by Civil Code Section 1916.5 or 1916.6 and these regulations, it shall at least 30 days prior to the effective date of the change notify the borrower in writing of the change, the effect, if any, on the amount of the installment payments, and the effect, if any, on the number of installment payments required to pay the remaining balance of the loan. If the change increases the interest rate the association shall also inform the borrower of his right to prepay all or part of the loan within 90 days of the notice, without a prepayment charge. The notice required under this section shall be deemed given when it is deposited in the United States mail, postage prepaid, addressed to the person or persons personally liable on the loan, as those persons' names and addresses appear on the association's records at the time of giving the notice.

NOTE

Authority cited: Section 8053, Financial Code; and Section 1916.5, Civil Code. Reference: Sections 1916.5 and 1916.6, Civil Code.

HISTORY

1. Change without regulatory effect renumbering former Section 240.5 to Section 107.504 (Register 87, No. 14). For prior history, see Register 79, No. 21.

2. Change without regulatory effect of NOTE (Register 87, No. 35).

§107.505. Disclosure.

Note • History

Each association that offers any loans subject to the provisions of this subchapter shall disclose in a Variable Interest Rate Loans Pamphlet that is made available to prospective borrowers the following information relating to each type of variable interest rate offered:

(a) Disclosure of the fact that the interest rate is subject to increase and the conditions under which the rate may increase, including: (1) identification of the Standard to which an increase in rate is tied; and (2) any limitation on an increase;

(b) Disclosure of how an increase in the interest rate may be effected (such as an increase in payment amounts, number of scheduled monthly payments, or in the amount due at maturity);

(c) If loans are offered under Civil Code Section 1916.5, disclosure of the estimated increase in the amount of monthly payment caused by a hypothetical interest rate increase of 1/4 of 1% effective commencing on the date the monthly payment becomes due during the third month following the first semiannual period; and if loans are offered under Civil Code Section 1916.6, disclosure of the estimated increase in the amount of monthly payment caused by a hypothetical interest rate increase of 1 1/4% effective commencing on the date the monthly payment becomes due during the third month following the first period of five years. These disclosures should be based upon an average amount hypothetical loan with a hypothetical interest rate under which the obligation is repayable in substantially equal monthly installments.

(d) If loans are offered under Civil Code Section 1916.5, disclosure of the estimated increase in the number of monthly payments caused by a hypothetical interest rate increase of 1/4 of 1% effective commencing on the date the monthly payment becomes due during the third month following the first semiannual period; and if loans are offered under Civil Code Section 1916.6, disclosure of the estimated increase in the number of monthly payments caused by a hypothetical interest rate increase of 1-1/4% effective commencing on the date the monthly installment becomes due during the third month following the first period of five years for a loan under Civil Code Section 1916.6. This disclosure should be based upon an average amount hypothetical loan, with a hypothetical interest rate under which the obligation is repayable in substantially equal monthly installments.

NOTE

Authority cited: Section 8053, Financial Code; and Section 1916.5, Civil Code. Reference: Sections 1916.5 and 1916.6, Civil Code.

HISTORY

1. Change without regulatory effect renumbering former Section 240.6 to Section 107.505 (Register 87, No. 14). For prior history, see Register 79, No. 21.

2. Change without regulatory effect of NOTE (Register 87, No. 35).

Article 6. Insurance in Connection with Sales, Loans and Advances of Credit

§107.600. Purpose and Scope.

Note • History

This article contains regulations regarding insurance and advancing premiums for insurance in connection with loans and advances of credit.

NOTE

Authority cited: Section 8053, Financial Code. Reference: Section 771, Insurance Code; and Section 7650, Financial Code.

HISTORY

1. Change without regulatory effect renumbering former Section 241 to Section 107.600 (Register 87, No. 14). For prior history, see Register 77, No. 32.

2. Amendment filed 2-18-88; operative 3-19-88 (Register 88, No. 10).

§107.601. Reasonable Cause: Right to Approve or Disapprove of the Insurer Selected to Underwrite Insurance.

Note • History

(a) General Provisions:

(1) Any lender engaged in the business of financing the purchase of real property or of lending money on the security of real property and any trustee, director, officer, agent or other employee, or affiliate, of any such lender shall have the right to disapprove, for reasonable cause, the insurer selected to underwrite the insurance required by the contract of sale or deed of trust or other loan agreement and shall have the right to furnish or renew such insurance if the borrower or purchaser shall have failed to furnish the insurance or renewal thereof within such reasonable time or form as may be specified in the sale or loan agreement.

(2) Notwithstanding any other provisions of these regulations, the California FAIR Plan Association shall not be rejected as an insurer.

(3) The corporate structure of an insurer shall not be a basis for disapproval of such insurer.

(4) These regulations shall not affect the respective rights of a borrower and its lender to contract as to the insurance coverage or the right of a lender to require an insurance policy and coverage in accordance with such agreement between it and the borrower.

(5) These regulations do not apply to insurance covering personal property as the subject of security for the loan.

(b) “Reasonable Cause” for Disapproval. Any one or more of the following reasons may constitute reasonable cause to disapprove of the insurer selected to underwrite the insurance:

(1) Financial Status of Insurer.

(A) Failure of the insurer to be rated in the most recently published ratings made by a nationally recognized rating service.

(B) Failure of the insurer to be rated in one of the two highest policyholder ratings in the most recently published ratings made by a nationally recognized rating service.

(C) Failure of the insurer to be rated in one of the twelve highest financial ratings in the most recently published ratings made by a nationally recognized rating service.

(D) The insured amount would exceed three percent of the policyholder surplus of the insurer.

(E) Failure of the insurer to have a policyholder surplus of $5 million or more where the insurer has already underwritten an aggregate amount of $300,000 on properties in close proximity in a tract or in adjoining tracts for the borrowers of an association.

Paragraphs (A) through (E) above shall not constitute reasonable cause to disapprove if there shall be obtained and attached to the evidence of insurance afforded to the lender appropriate evidence of reinsurance. Such reinsurance may be required by the lender to be in a company meeting all of the criteria of this regulation.

(2) License of Insurer. Failure of the insurer or reinsurer to be licensed by the State of California to transact the line of insurance afforded.

(3) Claims Settlement Practices and Servicing Practices.

(A) Knowingly committing or performing with such frequency as to indicate a general business practice, unfair claims settlement practices as defined in Section 790.03 of the Insurance Code as amended in 1983.

(B) A lender relying upon the provisions of this paragraph (3) with respect to the disapproval of a particular insurer must follow the provisions of the following subsection (d) of these regulations, which will then control the determination of this issue.

(4) Failure of the policy to stipulate on the face of the policy or the declarations page that the term of the policy shall be continuous until cancelled or nonrenewed or for no less than three years, although premium payments may be on an annual basis for a three year policy.

(5) Unwillingness of the insurer to make provision for notice of cancellation or nonrenewal to the lender in accordance with the terms of the loan agreement.

(1) Be licensed by the State of California to transact the line of insurance afforded.

(2) Provide the insurance in conformity with all requirements of the California Insurance Code and the Regulations issued thereunder.

(3) Establish, as disclosed by its most current annual statement on file with the Insurance Commissioner of the State of California, that the amount of any loan which is to be the subject of a title insurance policy does not exceed 30% of its “surplus as regards policyholders” (see Annual Statement, Form 9, page 3, line 22). Any reinsurance or coinsurance that may be offered by the title insurer in excess of such amount shall be in such company or companies and afford such coverage as the lender shall approve.

(4) Afford the coverage required by the lender. Notwithstanding any of the above, it is a reasonable cause for a lender to reject a policy of a title insurer if the borrower or if the seller of real property, the purchase of which is to be financed in whole or in part by the lender, is a subsidiary or affiliate (as defined in Section 1215 of the Insurance Code) of such title insurer or if such borrower or such seller is a subsidiary or affiliate of an underwritten title company (as defined in Section 12340.5 of the Insurance Code) that regularly makes the title searches or title examinations upon the basis of which the title insurance policy would be issued.

(d) Other “Reasonable Causes” for Disapproval. If a lender desires to reject a particular insurer on the grounds set forth in (b)(3) above or on reasonable grounds other than set forth above, the lender may submit the rejection, in writing, to the Commissioner with a copy to the insurer, agent and borrower, stating the grounds for the rejection. The insurer, agent or the borrower may contest the grounds, in writing, either on the basis of fact or on the basis of reasonableness, within fifteen days of the mailing of notice of rejection, which said mailing shall be by certified mail. If the Commissioner has not received contest of the grounds, in writing, for rejection within such fifteen days, then the rejection of the insurer shall stand as though the Commissioner had decided in favor of the lender. If the insurer, agent or borrower contests the rejection, the Commissioner shall notify the lender, the insurer, the agent and the borrower of his finding that the rejection is either upheld or denied within fifteen days of the receipt by the Commissioner of such contest of rejection.

(e) Notice with respect to insurance on home loans. Any association or subsidiary thereof shall notify the borrower in writing, at or prior to the time of the written commitment to make the loan, of his right to freely select the person or organization rendering the insurance services referred to in paragraph (a)(1) of this section in connection with a loan on a home occupied or to be occupied by the borrower.

NOTE

Authority cited: Section 8053, Financial Code; and Section 771, Insurance Code. Reference: Sections 771, 790.03 and 12340.5, Insurance Code; and section 7650, Financial Code.

HISTORY

1. Change without regulatory effect renumbering former Section 241.1 to Section 107.601 (Register 87, No. 14). For prior history, see Register 77, No. 32.

2. Amendment of subsections (a)(5), (b)(3)(A), (c)(4) and new subsection (e) filed 2-18-88; operative 3-19-88 (Register 88, No. 10).

§107.602. Advance of Credit for Insurance.

Note • History

An association may advance credit to a borrower for payment of insurance premiums in connection with an unsecured loan if the proceeds of the insurance are payable to the association and the amount of the coverage does not exceed the unpaid balance of the loan.

NOTE

Authority cited: Section 8053, Financial Code. Reference: Section 7650, Financial Code.

HISTORY

1. Change without regulatory effect renumbering former Section 241.2 to Section 107.602 (Register 87, No. 14). For prior history, see Register 73, No. 46.

2. Amendment filed 2-18-88; operative 3-19-88 (Register 88, No. 10).

§107.603. Advance of Credit for Life or Disability Insurance in Connection with Loans Made.

Note • History

(a) An association may accept the assignment by a borrower of a policy of life insurance on the life of the borrower, or disability insurance on the borrower, as additional security for a loan made and may advance the insurance premiums on such assigned life or disability insurance and add the amounts thereof to the outstanding loan balance subject to the following conditions:

(1) The insurer of the borrower's life or disability policy agrees in writing with the association and insured that in the event of a foreclosure sale or acceptance of a deed in lieu of foreclosure, the insurer will immediately refund to the association the amount of unearned premium.

(2) The borrower shall repay to the association all advances of life or disability insurance premiums in monthly payments of at least one-twelfth of the amount advanced plus interest.

(b) These advances for insurance premiums may be considered as having been made pursuant to the provisions of California Financial Code Section 7650.

NOTE

Authority cited: Section 8053, Financial Code. Reference: Section 7650, Financial Code.

HISTORY

1. Change without regulatory effect renumbering former Section 241.3 to Section 107.603 (Register 87, No. 14). For prior history, see Register 74, No. 21.

2. Amendment of subsection (b) filed 2-18-88; operative 3-19-88 (Register 88, No. 10).

Article 7. Modification Agreements

§107.700. Terms Defined.

Note • History

(a) “Modification agreement” means the written agreement executed by an association and borrower which modifies the amount, terms, or provisions of an existing promissory note and the deed of trust securing such note.

(b) “Loan” or “advance” means an amortized loan. A loan which has been modified by an additional advance thereon or any change in the terms shall be deemed to be a new loan for the purposes of Sections 5074 and 7150 of the law. The term for the purposes of Section 7150 shall begin on the date the advance was made if money was advanced or the date the terms were changed if no money was advanced.

NOTE

Authority cited: Section 5255, Financial Code. Reference: Sections 5074, 6701 and 7150, Financial Code.

HISTORY

1. Change without regulatory effect renumbering former Section 175 to Section 107.700 (Register 87, No. 14). For prior history, see Register 82, No. 21.

§107.701. Modification Agreements.

Note • History

Notwithstanding any other provisions of the law or regulations, an association may, without prior written consent of the commissioner, execute a modification agreement when any of the following conditions exist:

(a) A statutory change has taken place subsequent to the inception of the loan providing for a longer loan term or a larger loan to appraised value ratio.

(b) An additional advance is made subsequent to the inception of the loan to either the existing borrower or a new purchaser who has assumed the loan and which does not increase the unpaid balance to above the existing statutory limit.

(c) Due to the financial status of the borrower, it is advisable to reduce the monthly payments to prevent delinquency or default and the term of the loan is extended not to exceed the existing statutory limit.

NOTE

Authority cited: Section 5255, Financial Code. Reference: Section 6701, Financial Code.

HISTORY

1. Change without regulatory effect renumbering former Section 175.1 to Section 107.701 (Register 87, No. 14). For prior history, see Register 82, No. 21.

§107.702. Amortization Procedure.

Note • History

Where an additional advance is made as provided in Section 107.702(b), the prior existing balance of the loan plus the amount of the advance may be combined and payments amortized for a term not greater than provided in Section 7150.

NOTE

Authority cited: Section 5255, Financial Code. Reference: Sections 5074, 6701 and 7150, Financial Code.

HISTORY

1. Change without regulatory effect renumbering former Section 175.2 to Section 107.702 (Register 87, No. 14). For prior history, see Register 82, No. 21.

Article 8. Loans on Low-Rent Housing

§107.800. Purpose and Scope.

Note • History

NOTE

Authority cited: Sec. 5255, Financial Code. Reference: Section 7153.6, Financial Code.

HISTORY

1. Change without regulatory effect renumbering former Section 234 to Section 107.800 (Register 87, No. 14). For prior history, see Register 82, No. 21.

2. Change without regulatory effect repealing Section 107.800 (Register 88, No. 6).

§107.801. Terms Defined.

Note • History

NOTE

Authority cited: Section 5255, Financial Code. Reference: Section 7153.6, Financial Code.

HISTORY

1. Change without regulatory effect renumbering former Section 234.1 to Section 107.801 (Register 87, No. 14). For prior history, see Register 71, No. 32.

2. Change without regulatory effect repealing Section 107.801 (Register 88, No. 6).

§107.802. Blanket Authority--Conditions.

Note • History

NOTE

Authority cited: Section 5255, Financial Code. Reference: Section 7153.6, Financial Code.

HISTORY

1. Change without regulatory effect renumbering former Section 234.2 to Section 107.802 (Register 87, No. 14). For prior history, see Register 71, No. 32.

2. Change without regulatory effect repealing Section 107.802 (Register 88, No. 6).

§107.803. Waiver of Regulations.

Note • History

NOTE

Authority Cited: Section 5255, Financial Code. Reference: Section 7153.6, Financial Code.

HISTORY

1. Change without regulatory effect renumbering former Section 234.3 to Section 107.803 (Register 87, No. 14). For prior history, see Register 71, No. 3.

2. Change without regulatory effect repealing Section 107.802 (Register 88, No. 6).

Subchapter 8. Operations--Investments and Borrowings

Article 1. Investments--Service Corporations and Business Development Credit Corporations

§108.100. Approval to Invest.

Note • History

An association must submit an application for commissioner approval before investing in, or buying capital stock, obligations or other securities of a common subsidiary, wholly owned, or independent service corporation. The procedure for securing approval is as follows:

(a) Application. A written application submitted in duplicate, in letter form, signed by an officer of each association shall be filed with the commissioner. The application shall include:

(1) In duplicate, the articles of incorporation and bylaws which comply with Section 103.601;

(2) The names of all participation associations;

(3) A statement that the service corporation is a common, wholly owned or independent service corporation;

(4) The amount of investment by each association; and

(5) Such other information as the Commissioner may required.

(b) Written agreement. The service corporation must execute a written agreement with the Commissioner, bearing the written approval of the association, and containing provisions satisfactory to the Commissioner, including but not limited to provisions:

(1) Requiring the service corporation to submit reports in the form and contain information as is directed by the Commissioner;

(2) Subjecting the service corporation to inspection and examination by the Commissioner on the same basis as the association is, including an annual examination by an independent public accountant and to special examinations by the Commissioner or by an independent public accountant selected by the Commissioner, all at the expense of the service corporation.

(3) Requiring the service corporation to comply with any written order of the Commissioner which requires the service corporation to (A) withdraw from an activity, or (B) to terminate any investment or holding or relationship, or cease any operation found by the Commissioner to be prejudicial to the interests of its stockholders or to the interests or financial condition of the service corporation, or in which Commissioner approval has not been obtained within the time and under the conditions as provided in the regulations. The order and enforcement may be modified, suspended or withdrawn by the Commissioner and may be modified, suspended or enjoined by a court of competent jurisdiction;

(4) Requiring the service corporation to submit written notification to the Commissioner when removing or changing the location as set forth in the agreement, or to establishing other locations;

(5) That amendments to the articles of incorporation and bylaws be approved by the Commissioner;

(6) That the exact nature of the business and activities of the service corporation be specified in detail. Any change shall require the written permission of the Commissioner;

(7) That the service corporation shall maintain books and records and shall prepare financial statements in a manner consistent with the prescribed for associations in Subchapter 1 of these regulations.

NOTE

Authority cited: Sections 5255 and 6702.1, Financial Code. Reference: Section 6702.1, Financial Code.

HISTORY

1. Change without regulatory effect renumbering former Section 230.3 to Section 108.100 (Register 87, No. 14). For prior history, see Register 82, No. 52.

Article 2. Real Estate Owned

§108.200. Purpose and Scope.

Note • History

This subchapter contains rules and regulations authorized by Section 5255 of the law respecting investments in real property by an association under Section 6705, loans under Sections 6705.1, 6705.2, 6705.3, 6705.4 and 6705.6 and the holding period of Section 6705 property under Section 6706 of the law.

NOTE

Authority cited: Section 5255, Financial Code. Reference: Sections 6705 - 6705.6 and 6706, Financial Code.

HISTORY

1. Change without regulatory effect renumbering former Section 243 to Section 108.200 (Register 87, No. 14). For prior history, see Register 76, No. 20.

§108.201. Terms Defined.

Note • History

(a) The definitions in Article 2 of Chapter 1, Part 1, Division 2, Financial Code, are incorporated herein by reference.

(b) “Invest in real property” in Section 6705 means the acquisition of the fee or a leasehold in real property.

(1) Loans made by an association under Sections 6705.1 through 6705.6, inclusive, and

(2) Loans made for the purpose of facilitating the sale of real property owned by such association.

(d) “Section 6705 property” means real property investments acquired under Section 6705 or reclassified as provided in Section 108.205 hereof.

NOTE

Authority cited: Section 5255, Financial Code. Reference: Sections 6705-6705.6 and 6706, Financial Code.

HISTORY

1. Change without regulatory effect renumbering former Section 243.1 to Section 108.201 (Register 87, No. 14). For prior history, see Register 76, No. 20.

§108.202. Holding Period.

Note • History

(a) Blanket Authority. Pursuant to the provisions of Section 6706 of the law, the commissioner hereby approves an extension of the five-year holding period specified therein for an additional period not to exceed ten years. This extension shall not affect orders previously issued under the provisions of Section 7155.2 of the law.

(b) Commencement. Generally, the holding period for Section 6705 property, set out in Section 6706, commences on the date the property is acquired or is reclassified from Section 6702 or 6707 property, or such other date as the commissioner prescribes. If real property acquired under Section 6707 in settlement of loans is classified as Section 6705 property under Section 108.205 hereof, it shall become Section 6705 property on the date of issuance of the approval of the commissioner under Section 108.205(2) hereof. In the event of the merger of an association into another association, the holding period of the Section 6705 property of the disappearing association is not affected and continues from the date the property was acquired by the disappearing association.

NOTE

Authority cited: Section 5255, Financial Code. Reference: Section 6706, Financial Code.

HISTORY

1. Change without regulatory effect renumbering former Section 243.2 to Section 108.202 (Register 87, No. 14). For prior history, see Register 81, No. 34.

§108.203. Sale of Section 6705 Property.

Note • History

Upon the sale of Section 6705 property, if the association makes a loan to finance the sale, and the loan secured by such property otherwise qualifies as an original loan, the Section 6705 classification shall terminate and the loan shall become part of the original loan portfolio of the association. If the loan does not qualify as an original loan it must qualify under Sections 6705.1, 6705.2, 6705.4, or 6705.6.

NOTE

Authority cited: Section 5255, Financial Code. Reference: Sections 6705-6705.6 and 6706, Financial Code.

HISTORY

1. Change without regulatory effect renumbering former Section 243.3 to Section 108.203 (Register 87, No. 14). For prior history, see Register 76, No. 20.

§108.204. Real Property Acquired in Exchange for Scheduled Items.

Note • History

Real property acquired in exchange for scheduled items shall be classified as Section 6705 property. The term “Scheduled Items” as used herein means those assets defined in Section 561.15 of the Rules and Regulations for Insurance of Accounts of the Federal Home Loan Bank Board. Loans made to finance the sale of Section 6705 property shall be classified as “Loans on Real Estate Owned for Development--Section 6705,” subject to the limitations of Section 6705.5. If real property was acquired from a borrower in a transaction designed to avoid foreclosure, with no consideration or only a token consideration being paid for the acquisition, such property shall be classified under Section 6707.

NOTE

Authority cited: Section 5255, Financial Code. Reference; Sections 6705-6705.6 and 6706, Financial Code.

HISTORY

1. Change without regulatory effect renumbering former Section 243.4 to Section 108.204 (Register 87, No. 14). For prior history, see Register 76, No. 20.

§108.205. Improvements on Property Acquired in Settlement of Loans.

Note • History

(a) The improvements made by the association on real property acquired under Section 6707 in settlement of loans may be classified as Section 6705 property subject to the following conditions:

(1) The expenditures for the improvement must be greater than the amount carried on the books of the association pursuant to Section 108 hereof for the real property acquired by foreclosure or by deed in lieu of foreclosure. The improvements must be of a type that changes the characteristics of the property, and as such excludes costs of rehabilitation of existing improvements and the costs of completion of partially completed improvements.

(2) Associations wishing to classify such improvements as Section 6705 property must obtain the prior written approval of the Commissioner.

(3) Improvements classified as Section 6705 property may not be reclassified again as Section 6707 property and are subject to all the limitations relating to such property, including the five-year holding period and percent of assets or net worth limitations.

(b) When the real property (foreclosed real property and Section 6705 property improvements) is sold for consideration other than cash or cash and an original loan, the use of Section 6701 for a loan to facilitate is inappropriate. The loan for such a sale shall be classified under Sections 6705.2, 6705.4 or 6705.6.

NOTE

Authority cited: Section 5255, Financial Code. Reference: Sections 6705-6705.6 and 6706, Financial Code.

HISTORY

1. Change without regulatory effect renumbering former Section 243.5 to Section 108.205 (Register 87, No. 14). For prior history, see Register 76, No. 20.

§108.206. Percentage of Asset or Percentage of Statutory Net Worth Limitations.

Note • History

(a) If a loan on unimproved real property under Section 6705.1 or 6705.2 and an improvement loan under Section 6705.4 do not together exceed the limitations for an original loan, then both such loans may be classified as original loans and excluded from the percentage of asset and net worth limitations of Sections 6705 and 6705.5. If a loan on unimproved real property under Section 6705.1 or 6705.2 and an improvement loan under Section 6705.4 together exceed the limitations for an original loan, then both such loans are included in the percentage of asset and net worth limitations of Sections 6705 and 6705.5 until the sum of the unpaid balances of both loans is reduced to the limitations of an original loan; both loans may then be reclassified as original loans and should no longer be classified as Section 6705 loans.

(b) Under Section 6705.5 the total of an association's investment in unimproved Section 6705 property plus its investments or loans under Sections 6705.1, 6705.2, 6705.3, 6705.4 and 6705.6 together may not at any time exceed (1) 2 1/2 percent of the association's total assets, or (2) 50 percent of its statutory net worth, whichever is less.

(c) An association shall not make an investment under Section 6705 if such investment together with the aggregate of existing Section 6705 investments and loans by the association under authority of Sections 6705.1, 6705.2, 6705.4 and 6705.6 would cause an excess over the lesser of (1) 5 percent of its total assets, or (2) its statutory net worth.

(d) An association shall not make an investment in unimproved real property under Section 6705, nor investments authorized under Sections 6705.1, 6705.2, 6705.3, 6705.4 and 6705.6 if such investment together with the aggregate of existing investments under such Sections 6705.1, 6705.2, 6705.3, 6705.4 and 6705.6, and investments in unimproved real property under Section 6705, would cause an excess over the lesser of (1) 2 1/2 percent of the association's total assets, or (2) 50 percent of its statutory net worth.

NOTE

Authority cited: Section 5500.5, Financial Code. Reference: Sections 6705-6705.6 and 6706, Financial Code.

HISTORY

1. Change without regulatory effect renumbering former Section 243.6 to Section 108.206 (Register 87, No. 14). For prior history, see Register 76, No. 20.

Article 3. Investments and Borrowings

§108.300. Acceptance or Acquisition of Company Stock or Securities.

Note • History

Except with prior approval of the commissioner an association shall not accept or acquire, whether by donation, gift or otherwise, any stock, shares or other securities in any company as defined in Section 108.301(a), except the stock, shares or other securities of a company specifically authorized as an investment under Section 6702 and of a service corporation as defined in Financial Code Section 6702.1, provided such stock, shares or other securities of a service corporation are received and held by the association after compliance with all requirements of the law and regulations covering Section 6702.1 and after prior approval by the commissioner.

NOTE

Authority cited: Section 5255, Financial Code. Reference: Sections 6702 and 672.1, Financial Code.

HISTORY

1. Change without regulatory effect renumbering former Section 231 to Section 108.300 (Register 87, No. 14). For prior history, see Register 83, No. 16.

§108.301. Terms Defined.

Note • History

(a) “Company” means any domestic or foreign corporation, voting trust, business trust, limited partnership, partnership fund, joint stock company, association, syndicate, organized group of persons, or similar organization or group, whether incorporated or not.

(b) “Issuer” means any party who issues or proposes to issue any security authorized for investment herein.

(c) “Affiliate of savings and loan” means any person, corporation, sole partnership, trust, partnership, or other business organization controlling, controlled by, or under common control with the association.

(d) “Subordinated debt security” means any unsecured note, debenture or other debt security issued by an association and subordinated on liquidation to claims of accountholders and to all claims having the same priority as accountholders.

(e) “Mortgage-backed bond” means a debt security of an association that is secured by an indenture agreement between the association and a trustee for the benefit of the person or persons to whom the debt is payable, and under the terms of which indenture agreement real estate loans or interests in real estate loans are pledged by the association as collateral for repayment of the debt. The term does not include borrowing by an association secured by a pledge of assets directly to the lender, such as federal home loan bank advances or bank borrowings secured by the pledge of loans.

(f) “Commercial paper” means any note, draft, or bill of exchange which arises out of a current transaction or the proceeds of which have been or are to be used for current transactions, and which has a maturity at the time of issuance of not exceeding nine months, exclusive of days of grace, or any renewal thereof the maturity of which is likewise limited.

(g) “Corporate debt security” means a marketable obligation, evidencing in indebtedness of any corporation in the form of a bond, note and/or debenture which is commonly regarded as a debt security and is not predominantly speculative in nature. A security is marketable if it may be sold with reasonable promptness at a price which corresponds reasonably to its fair value.

NOTE

Authority cited: Section 5255, Financial Code. Reference: Section 6705.8, Financial Code.

HISTORY

1. Change without regulatory effect renumbering former Section 231.1 to Section 108.301 (Register 87, No. 14). For prior history, see Register 83, No. 16.

§108.302. Investments in Loans on Real Property or in Other Foreign Countries.

Note • History

(a) Prior approval of the commissioner is required before an association may invest in loans or interests in loans pursuant to Section 6702(n).

(b) Prior consent of the commissioner is required for an association to invest pursuant to Section 6702(o) in an amount in excess of one percent of its total assets.

NOTE

Authority cited: Section 5255, Financial Code. Reference: Section 6702, Financial Code.

HISTORY

1. Change without regulatory effect renumbering former Section 231.2 to Section 108.302 (Register 87, No. 14). For prior history, see Register 83, No. 16.

§108.303. Borrowing Limitations.

Note • History

(a) General.

(1) Except as the commissioner may otherwise approve by advice in writing, an association may borrow and may exceed the limitations specified in Sections 6716 and 6717 of the law only in accordance with the provisions of this section.

(2) As used in this section, the term “outside borrowing” means a borrowing from other than a Federal Home Loan Bank or other similar agency.

(b) Power to borrow. The association may borrow money without limitation and pledge and otherwise encumber any of its assets to secure its debts.

(1) General rule. For any secured outside borrowing, the terms of such borrowing shall provide that the commissioner and the Federal Savings and Loan Insurance Corporation receive prompt written notification of any default on the obligation and, before a sale or other disposition of any portion of the collateral, that the Federal Savings and Loan Insurance Corporation shall have 30 days after written receipt of notice of such proposed sale or other disposition to exercise a right to repurchase such collateral at the price to be paid at such sale or to acquire such collateral at the value to be assigned to it in any other disposition.

(2) Exception. The notice and right of purchase required by paragraph (c)(1) above shall not apply to collateral consisting of liquid assets as defined in Section 523.10 of the Bank System Regulations or collateral that would qualify as liquid assets but for their remaining term to maturity.

(d) Required statement for all securities evidencing outside borrowings. Each security shall bear on its face, in a prominent place, the following legend: “This security is not a savings account or a deposit and it is not insured by the Federal Savings and Loan Insurance Corporation.”

(e) Filing requirements for outside borrowings with maturities in excess of one year.

(1) Unless the association meets the net worth requirement of Section 6900 of the law and, at the close of its most recent semi-annual period, it had a ratio of scheduled items (other than assets acquired in a merger instituted for supervisory reasons) to specified assets not in excess of 2.5 percent, it shall, at least ten business days prior to issuance, file with the commissioner a notice of intent to issue securities evidencing such borrowings. Such notice shall contain a summary of the terms of the security, including:

(A) principal amount of the securities;

(B) anticipated interest rate range and price range at which the securities are to be sold;

(D) stated and average effective maturity;

(E) mandatory and optional prepayment provisions;

(F) description, amount, and maintenance of collateral if any;

(G) trustee provisions if any;

(H) events of default and remedies of default; and

(I) any provisions which restrict, conditionally or otherwise, the operations of the association.

(2) The commissioner shall have ten (10) business days after receipt of such filing to object to the issuance of such securities. The commissioner shall object if the terms or covenants of the proposed issue are deemed to place unreasonable burdens on, or convey to the security holders undue control over, the operations of the association. If no objection is taken, the association shall have one hundred twenty (120) calendar days within which to issue such securities.

(f) Minimum denominations of securities evidencing outside borrowings.

(1) General rule. The minimum denomination of the security shall be $100,000.

(2) Exceptions.

(A) There is no minimum denomination for securities:

1. issued in a private placement to institutional investors;

2. constituting evidence of a borrowing from a commercial bank; or

3. complying with 12 CFR Section 563.8-4 of the Federal Home Loan Bank Insurance Regulations and evidencing an obligation maturing in less than 90 days to repurchase direct obligations of, or obligations that are fully guaranteed as to principal and interest by, the United States or any agency thereof.

(B) The minimum denomination may be $10,000, if the securities are not offered or sold at any office of the association or any of its affiliates, and

1. they are not sold to more than 35 persons or offered by any advertisement, including any broadcast or written communication published in a newspaper, magazine or similar medium, or by any letter, circular, or other written communication, sent, given, or communicated to more than 35 persons who prior to such communication have not indicated an interest in purchasing the securities, and any purchases by such persons are for their own account and not with a view to distribution; or

2. prior to or simultaneously with any offering, and prior to issuance, purchasers of such securities have been furnished an offering circular which conforms to the requirements of paragraphs (g) and (h) of this section; or

3. the maturity of the securities does not exceed one year.

(g) Disclosure. No association shall, directly or indirectly in connection with the offer, sale, or issuance of a security evidencing a borrowing pursuant to this section, make any statement that: (1) is false or misleading with respect to any material fact; or (2) omits to state any material fact (A) necessary in order to make the statements made, in light of circumstances under which they were made, neither false nor misleading, or (B) necessary to correct any earlier statement that has subsequently become false or misleading.

(h) Offering circular.

(1) Review. No final offering circular shall be furnished to purchasers under subdivision (f)(2)(B) 2 of this section unless it is filed with the commissioner and declared effective prior to its use.

(2) Content. A final offering circular under this section shall be in a form satisfactory to the commissioner. At a minimum, it shall contain information in detail comparable to that required under the Securities Act of 1933, General Form of Registration S-1, or S-7 if the issuing association meets the eligibility requirements prescribed by the Securities and Exchange Commission for use of that form, and Item 7 of Form PS as prescribed in Part 563b of the Rules and Regulations for Insurance of Accounts (“Insurance Regulations”) (12 CFR Part 563b).

(3) Financial statements. A final offering circular under this section shall contain the association's latest audited annual statement of condition and audited statements of operations for each of its last three years. It shall also contain the association's latest unaudited statements of condition and operations on a comparative basis for the quarter ending within one hundred twenty (120) days of its latest amendment. Such financial statements shall be prepared in accordance with the requirements of Section 563c.1 of the Insurance Regulations. The issuer shall also make available promptly upon request to each purchaser of a security issued subject to the requirements of subdivision (f)(2)(B)2 (including purchasers upon resale) while the securities are outstanding, audited annual statements of condition and operation and comparative unaudited quarterly statements of condition and operations for the first three quarters.

(i) Note accounts. For purposes of this section, note accounts are not borrowings.

NOTE

Authority cited: Section 5255, Financial Code. Reference: Sections 6419 and 6712-6719, Financial Code.

HISTORY

1. Change without regulatory effect renumbering former Section 231.3 to Section 108.303 (Register 87, No. 14). For prior history, see Register 83, No. 16.

§108.304. Issuance of Subordinated Debt Securities.

Note • History

(a) General. No association shall issue subordinated debt securities pursuant to this section or amend the terms of such securities unless it has obtained written approval of the commissioner. Approval of the issue under this section is required only in order to qualify it under Section 101.100(h) as part of statutory net worth to the extent provided in that section, and may be obtained either before or after the securities are issued, but no approval shall be granted unless issuance of the securities and the form and manner of filing of the application are in accordance with the provisions of this section.

(b) Eligibility requirements. In determining whether the commissioner will process an application by an association for approval of the issuance of subordinated debt securities pursuant to this section, the commissioner will consider the following factors:

(1) whether the issuance of such securities by the applicant is authorized by applicable law and regulation and is not inconsistent with any provision of the applicant's charter, constitution, or bylaws; and

(2) whether in the opinion of the commissioner the overall policies, condition, and operation of the applicant do not afford a basis for supervisory objection to the application. Bases for supervisory objection may include the following:

(A) net worth, without regard to the amount of any subordinated debt securities to be included in net worth, does not meet the requirements of Section 6900 of the law.

(B) scheduled items exceed 2.5 percent of specified assets;

(D) actual and anticipated income from operations, after distribution of earnings to the holders of savings accounts, payment of dividends on equity securities and payment of interest on borrowings but before income taxes, is not demonstrably sufficient for payment of interest and amortization of debt, discount, and related expenses of the proposed issue.

(c) Application form; supporting information. An application for approval of the issuance of subordinated debt securities by an association pursuant to this section shall be in letter form setting forth all of the terms and provisions relating to the proposed issue and showing that all of the requirements of this section have been or will be met, and numbered in accordance with the numbering of this section.

(d) Requirements as to securities. Subordinated debt securities issued pursuant to this section shall meet all of the following requirements unless one or more of such requirements, not including paragraphs (1)(A) and (1)(B), which are not eligible for waiver, are waived by the commissioner.

(1) Form of certificate. Each certificate evidencing subordinated debt issued by an association pursuant to this section shall:

(A) Bear on its face, in bold-face type, the following legend: “This security is not a savings account or deposit and it is not insured by the Federal Savings and Loan Insurance Corporation”;

(B) Clearly state that the security:

1. is subordinated on liquidation, as to principal, interest, and premium, if any, to all claims (including post-default interest) against the association having the same priority as savings account holders or any higher priority;

2. is unsecured by the assets of the issuing association, or any of its affiliates; and

3. is not eligible as collateral for any loan by the issuing association;

(C) State or refer to a document stating the terms under which the association may prepay the obligation, which shall include at least the right to prepay without premium or other penalty during the fifteen months immediately prior to the maturity date;

(D) State or refer to a document stating that no payment of principal shall be accelerated without the approval of the commissioner if after giving effect to such payment the association would fail to meet the net statutory worth requirements of Section 6900 of the law;

(E) Be in a minimum original amount of at least $50,000, except that the minimum original amount shall be $10,000 for securities meeting the requirements of Section 108.306(f)(2)(B) and upon partial prepayment a certificate for the amount then outstanding may be issued in substitution therefor.

(2) Limitation as to term. No subordinated debt security issued by an association pursuant to this section shall have an original period to maturity of less than 7 years. During the first six years that such a security is outstanding, the total of all required sinking fund payments, other required prepayments and required reserve allocations with respect to the portion of such six years as have elapsed shall at no time exceed the original principal amount thereof multiplied by a fraction the numerator of which is the number of years which have elapsed since the issuance of the security and the denominator of which is the number of years covered by the original period to maturity.

(3) Limitations on sale to certain institutions. No association may sell any subordinated debt securities issued pursuant to this section to a Federal Home Loan Bank or, except with prior written approval of the commissioner in a supervisory situation, to the Federal Savings and Loan Insurance Corporation.

(e) Filing of application. The application for approval of the issuance of subordinated debt securities under this section is filed with the commissioner by transmitting the original and two copies of the application and all supporting documents to the commissioner in Los Angeles or San Francisco.

(f) Additional requirements. The commissioner may impose on the applicant such requirements or conditions with regard to the securities or the offering or issuance thereof as the commissioner may deem necessary or desirable for the protection of purchasers or the applicant.

(g) Limitation on offering period. Following the date of the approval of the application by the commissioner the association shall have an offering period of not more than one year in which to complete the sale of the subordinated debt securities issued pursuant to this section. The commissioner may extend such offering period if a written request showing good cause for such extension is filed not later than 30 days before the expiration of such offering period or any previous extension thereof.

(h) Reports. Within 30 days after completion of the sale of the subordinated debt securities issued pursuant to prior approval under this section, the association shall transmit a written report to the commissioner stating the number of purchasers, the total dollar amount of securities sold, and the amount of net proceeds received by the association.

NOTE

Authority cited: Section 5255, Financial Code. Reference: Section 6702, Financial Code.

HISTORY

1. Change without regulatory effect renumbering former Section 231.4 to Section 108.304 (Register 87, No. 14). For prior history, see Register 83, No. 16.

§108.305. Authorized Investments Pursuant to Section 6702(c) and (d) of the Law.

Note • History

(a) The securities in which an association may invest under subsection (c) of Section 6702 of the law include the following:

(1) United States government securities (i.e., treasury bills, notes and bonds)

(2) District of Columbia Armory Board bonds

(3) Federal Housing Administration debentures

(4) Government National Mortgage Association:

(A) Participation certificates

(B) Mortgage-backed bonds

(5) Farmers Home Administration insured notes

(6) New Communities debentures pursuant to Title IV of HUD Act of 1968 and Title VII of HUD Act of 1970

(7) Public Housing notes and bonds issued under programs administered by HUD

(8) Export-Import Bank of the United States debentures, guaranteed participation certificates and guaranteed certificates of beneficial interest

(9) Merchant Marine bonds issued in accordance with the Merchant Marine Act of 1936, as amended

(b) Authorized investments under subsection (d) of Section 6702 include securities issued or guaranteed by the following agencies or instrumentalities:

(1) Federal Home Loan Mortgage Corporation

(2) Federal Home Loan Banks

(3) Federal Savings and Loan Insurance Corporation

(4) Banks for Cooperatives

(5) Federal Land Banks

(6) Federal Intermediate Credit Banks

(7) Student Loan Market Association

(8) Federal Financing Bank

NOTE

Authority cited: Section 5255, Financial Code. Reference: Section 6702, Financial Code.

HISTORY

1. Change without regulatory effect renumbering former Section 231.5 to Section 108.305 (Register 87, No. 14). For prior history, see Register 83, No. 16.

§108.306. Authorized Investments Pursuant to CFC Section 6702(g).

Note • History

(a) The securities in which an association may invest under subsection (g) of Section 6702 of the California Financial Code in addition to the securities stated therein are the following:

(1) With approval of the commissioner preferred stock of any corporation.

(2) Futures transactions.

(a) Definitions. As used in this section, the following definitions apply unless the context otherwise requires:

(1) Interest-rate futures contract. A transferable agreement to make or take delivery of a standardized amount of an interest-bearing security, of standardized minimum quality grade, during a month specified in the agreement, under terms and conditions established by an exchange designated and regulated by the Commodity Futures Trading Commission.

(2) Interest-rate futures transaction. Purchase or sale of an interest-rate futures contract.

(3) Long position. The holding of a futures contract to take delivery of securities.

(4) Mortgage-related securities. Securities based on and backed by mortgages, including GNMA-guaranteed mortgage-backed securities, Mortgage Participation Certificates of the Federal Home Loan Mortgage Corporation, and similar obligations issued by the association or in which the association is authorized to invest.

(5) Offset. To close out an obligation to make or take delivery of securities under a futures contract. A futures contract to purchase securities is offset by a futures contract to sell securities of the same type for the same delivery month. A futures contract to sell securities is offset by a futures contract to purchase securities of the same type for the same delivery month.

(6) Short position. The holding of a futures contract to make delivery of securities.

(b) Permitted transactions. To the extent that it has legal power to do so, an association may engage in interest-rate futures transactions to reduce its net interest-rate exposure. For purposes of this section, net interest-rate risk exposure is the volatility in an association's earnings that can arise from the mismatching of the effective maturities of assets and liabilities. An association may enter into short positions that are appropriate for reducing its net interest-rate risk exposure. Long positions, other than those that offset short positions, may be entered into only under the following conditions:

(1) The futures position must be matched against a firm forward commitment to sell mortgages not yet originated or to issue mortgage-related securities based on mortgages not yet originated. For purposes of this paragraph (B), a firm forward commitment is a written commitment obligating the seller to make delivery, and the buyer to take delivery, of mortgage loans not yet originated or mortgage-related securities based on mortgages not yet originated, at a price and on or before a date specified in the commitment; and

(2) An association may enter into and maintain long futures positions only to the extent that its firm forward commitments exceed 10 percent of long-term assets with fixed interest rates. For purposes of this section, long-term assets are those having remaining terms to maturity in excess of five years.

Until February 6, 1982, associations may continue to engage in mortgage rate futures transactions as authorized immediately prior to January 23, 1982. Associations with interest-rate futures positions entered into before February 6, 1982, that are not permitted under this paragraph (B), will be permitted to continue to hold those futures contracts; provided that the mortgage-rate futures transactions were authorized when entered into and the contracts are not renewed.

(c) Authorized contracts. An association may engage in interest-rate futures transactions using any interest-rate futures contracts designated by the Commodity Futures Trading Commission and based upon a security in which the association has authority to invest.

(d) Board of directors' authorization. Prior to engaging in interest-rate futures transactions, an association's board of directors must authorize such activity. In authorizing futures trading, the board of directors shall consider any plan to engage in interest-rate futures transactions, shall endorse specific written policies, and shall require the establishment of internal control procedures. Policy objectives must be specific enough to outline permissible contract strategies taking into account price and yield correlations between the assets or liabilities and the futures contracts with which they are matched, their relationship to the association's operations and how such strategies reduce the association's net interest-rate risk exposure. Internal control procedures shall include, at a minimum, periodic reports to management, segregation of duties and internal review procedures. In addition, the minutes of the meeting of the board of directors shall set forth limits applicable to futures transactions, identify personnel authorized to engage in futures transactions, and set forth the duties, responsibilities and limits of authority of such personnel. The board of directors shall review the position limit, all outstanding contract positions, and the unrealized gains or losses on those positions at each regular meeting of the board.

(e) Notification. Each association engaging in interest-rate futures transactions shall notify the commissioner at the inception of such activity and thereafter on a monthly basis shall report such information as the commissioner shall require.

(f) Recordkeeping requirements. An association engaging in futures transactions shall maintain records of such transactions sufficient to document how the transactions reduce the net interest-rate risk exposure of the association in accordance with the following requirements:

(1) Contract register. The association shall maintain a contract register adequate to identify and control all interest-rate futures contracts and including, at a minimum, the type and amount of each contract, the maturity date of each contract, the cost of each contract, the dollar amount and description of the asset or liability with which the futures contract is matched, and the date and manner in which a contract is closed out. Such register shall be prepared in a manner sufficient to indicate at any time the association's total outstanding long and short interest-rate futures positions.

(2) Other documentation. The association shall maintain, as part of the documentation of its interest-rate futures strategy, a schedule of the assets and liabilities for which net interest-rate risk exposure is being reduced and the purpose of each contract entered into.

(3) Maintenance of records. The records designated in this paragraph (F) shall be maintained for all futures transactions closed out during the past two years.

(4) Forward commitments to purchase securities, subject to all the requirements and limitations set forth below:

(A) Definitions.

1. Forward Commitment. An oral or written contract to buy securities 30 or more days after the contract date; such a commitment is a standby commitment if delivery is optional with the seller and a firm commitment if both buyer and seller are obligated to perform on the agreed date.

2. Securities. Assets which are legal investments for an association under Section 6702 of the law and implementing regulations issued (except mortgage futures under Section 108.306(a)(4) of the regulations).

3. Commitment Fee. Any consideration received directly or indirectly by an association for a forward commitment.

(B) Authorized Personnel. The minutes of the board of directors of the association shall set out the names, duties, responsibilities, and current limits of authority of the association's personnel authorized to engage in forward commitment transactions for the association; the brokerage firms through which authorized personnel may conduct forwards activity; and the dollar limit on transactions with each such firm.

1. General. An association may make forward commitments to purchase securities, subject to the limits in paragraph 2 below, if that activity is conducted in a safe and sound manner. An example of an unsafe and unsound practice which may preclude further investment under this regulation is an inability to fund commitments when due. No association may sell a forward commitment or security under agreement to purchase another forward commitment or security at a price other than actual market value.

2. Percent of Assets. An association's outstanding forward commitments to purchase securities may not exceed an amount equal to ten percent of its total assets if statutory net worth is less than five percent of total assets, or 15 percent of total assets if statutory net worth is five percent or more of total assets.

(D) Disposal Before Settlement. All profit or loss related to disposal or modification of a forward commitment before settlement shall be recognized on the association's books at the time of disposal or modification.

(E) Recordkeeping Requirements. An association engaging in forward commitments shall establish and maintain the following:

1. A current register of all outstanding forward commitments, including the type (firm or standby), commitment date, amount, rate, price to be paid at settlement, market price at date of commitment, settlement date, commitment fees received, date and manner of disposal, sales price and market value at disposal if disposition is made on or prior to settlement date other than through funding, and seller's identify and confirmation; and

2. Documentation of the association's ability to fund all outstanding forward commitments when due.

(F) Commitment Fees Received. A fee received for a forward commitment shall be recorded according to generally accepted accounting principles for loan commitment fees. If the commitment period is less than 30 days, a fee shall be deferred as provided in Section 113.

(b) Each association shall maintain detailed, separate “Section 6702(g) Regulation” investment files and records which confirm for examiners compliance with this regulation of any investments made pursuant to the sole authority of this regulation.

NOTE

Authority cited: Section 5255, Financial Code. Reference: Section 6702, Financial Code.

HISTORY

1. Change without regulatory effect renumbering former Section 231.6 to Section 108.306 (Register 87, No. 14). For prior history, see Register 83, No. 16.

Subchapter 9. Operations--Parity Regulations

Article 1. Extension to State-Licensed Associations of Right, Power, Privilege or Duty Extended to Federal Institutions

§109.100. Purpose and Scope.

Note • History

This subchapter contains rules and regulations respecting Sections 5500.5 and 7150.1 of the Financial Code.

NOTE

Authority cited: Sections 5255 and 5500.5, Financial Code. Reference: Section 7153.1 and 7153.2, Financial Code.

HISTORY

1. Change without regulatory effect renumbering former Section 235 to Section 109.100 (Register 87, No. 14). For prior history, see Register 82, No. 3.

Subchapter 10. Escrow Operations

Article 1. General

§110.100. Application of Regulations.

Note • History

Except as otherwise specified, the provisions of this article shall apply to the escrow operations of associations and of service corporations which are not licensed by the Department of Corporations.

NOTE

Authority cited: Section 8053, Financial Code. Reference: Section 6521, Financial Code.

HISTORY

1. New section filed 12-7-88; operative 1-6-89 (Register 88, No. 52).

Article 2. Escrow Operations

§110.200. Policies and Procedures.

Note • History

Prior to acting as an escrow agent, the board of directors of an association or service corporation shall adopt formal written policies and procedures to govern the escrow operations of the association or service corporation.

NOTE

Authority cited: Section 8053, Financial Code. Reference: Section 6521, Financial Code.

HISTORY

1. New section filed 12-7-88; operative 1-6-89 (Register 88, No. 52).

§110.201. Experience Requirements.

Note • History

Each association or its service corporation which acts as an escrow agent shall retain or employ, either as an officer or employee, one or more individuals possessing a minimum of four years of responsible escrow experience. At least one such person shall be stationed at each office of the association or service corporation during all hours in which escrow business is conducted at that office. An individual who has taken the subject matter courses called Escrow I, Escrow II, and Escrow III at a Community College may substitute such education for up to one year of experience to qualify under this section.

NOTE

Authority cited: Section 8053, Financial Code. Reference: Section 6521, Financial Code.

HISTORY

1. New section filed 12-7-88; operative 1-6-89 (Register 88, No. 52).

§110.202. Disclosure of Fees.

Note • History

Prior to or concurrently with the opening of any escrow account, each party to the escrow shall be furnished with a written statement disclosing the type and amount of any known fee or fees to be charged by the association or service corporation in connection with its services as an escrow agent. Each party shall be advised that there may be additional fees if there are changes or conditions imposed by the parties during the escrow which require additional services.

NOTE

Authority cited: Section 8053, Financial Code. Reference: Section 6521, Financial Code.

HISTORY

1. New section filed 12-7-88; operative 1-6-89 (Register 88, No. 52).

§110.203. Delivery of Documents or Property.

Note • History

An association or a service corporation which acts as an escrow agent shall use documents or other property deposited in escrow only in accordance with the written instructions of the principals to the escrow transaction, or if not otherwise directed by written instructions, in accordance with sound escrow practice, or pursuant to order of a court of competent jurisdiction.

NOTE

Authority cited: Section 8053, Financial Code. Reference: Section 6521, Financial Code.

HISTORY

1. New section filed 12-7-88; operative 1-6-89 (Register 88, No. 52).

§110.204. Similar Names.

Note • History

An association or service corporation which acts as an escrow agent shall not conduct business under a corporate or fictitious name similar to the name of any escrow agent engaged in the escrow business in the same competitive locality or area.

NOTE

Authority cited: Section 8053, Financial Code. Reference: Section 6521, Financial Code.

HISTORY

1. New section filed 12-7-88; operative 1-6-89 (Register 88, No. 52).

§110.205. Subescrow Agent.

Note • History

A subescrow agent may be a bank or trust company under the supervision of the Superintendent of Banks, Controller of the Currency, or the Commissioner, a state or federal savings and loan association, a municipal, county, state, or federal governmental agency, a state or federally chartered credit union, an insurance or title insurance company admitted to do business in the State of California, a company doing business under the Industrial Loan Law of the State of California, a company licensed to do business under the Escrow Law of the State of California, an attorney at law admitted to practice in the State of California, or any person or persons whose principal business is that of preparing abstracts or making searches of title that are used as a basis for the issuance of a policy of title insurance by a company doing business under any law of this state relating to insurance companies.

NOTE

Authority cited: Section 8053, Financial Code. Reference: Section 6521, Financial Code.

HISTORY

1. New section filed 12-7-88; operative 1-6-89 (Register 88, No. 52).

§110.206. Printed Instructions.

Note • History

(a) A preprinted form of escrow instructions shall not contain:

(1) An authorization or direction to disburse any money except to an authorized subescrow agent prior to recordation of instruments in escrows relating to real property or prior to consummation of sale in escrows relating to bulk sales of personal property; or

(2) An authorization or direction to deliver, except to a duly authorized subescrow agent, or record instruments affecting ownership or interest in real or personal property, prior to deposit with the association or service corporation or an authorized subescrow agent of the full sum of money required to be deposited in escrow under escrow instructions.

(b) Nothing in this section shall prohibit:

(1) The insertion of such authorization in the form of escrow instructions, in handwriting or typewriting, at the direction of the party executing such instructions; or

(2) An instruction authorizing disbursements in payment of services, fees, or other items of expense, not including, however, commissions payable to brokers or agents.

NOTE

Authority cited: Section 8053, Financial Code. Reference: Section 6521, Financial Code.

HISTORY

1. New section filed 12-7-88; operative 1-6-89 (Register 88, No. 52).

§110.207. Enforcement of Money Judgment, Status of Funds and Interest.

Note • History

(a) Escrow or trust funds are not subject to enforcement of a money judgment arising out of any claim against the association or service corporation acting as an escrow agent, and in no instance shall such escrow or trust funds be considered or treated as an asset of the association or service corporation unless the association or service corporation is also a principal in the underlying transaction.

(b) Interest paid or payable on funds deposited in escrow by an association or a service corporation are not subject to enforcement of a money judgment arising out of any claim against the association or service corporation.

NOTE

Authority cited: Section 8053, Financial Code. Reference: Section 6521, Financial Code.

HISTORY

1. New section filed 12-7-88; operative 1-6-89 (Register 88, No. 52).

§110.208. Escrow Instructions.

Note • History

(a) No association or service corporation which acts as an escrow agent shall solicit or accept an escrow instruction or amended or supplemental escrow instruction containing any blank to be filled in after signing or initialing of such escrow instruction or amended or supplemental escrow instruction, nor permit any person to make any addition to, deletion from, or alteration of an escrow instruction or amended or supplemental escrow instruction unless such addition, deletion, or alteration is signed or initialed by all persons who had signed or initiated such escrow instruction or amended or supplemental escrow instruction prior to such addition, deletion, or alteration.

(b) At the time of execution a copy of each escrow instruction or amended or supplemental escrow instruction shall be delivered to all persons executing the same.

NOTE

Authority cited: Section 8053, Financial Code. Reference: Section 6521, Financial Code.

HISTORY

1. New section filed 12-7-88; operative 1-6-89 (Register 88, No. 52).

§110.209. Notice of Affiliation or Interest.

Note • History

An association or service corporation which acts as an escrow agent shall act without partiality to any of the parties to an escrow transaction. If an association or a service corporation which acts as an escrow agent or an affiliate or an affiliated person of the association or service corporation is a principal in the escrow transaction or is acting or has acted as broker or salesman in relation to the escrow transaction, the association or service corporation shall advise in writing all parties to the escrow transaction of such relationship or affiliation before being employed as escrow agent in connection with such transaction. Such advice shall be on the face of the escrow instructions in large, bold type situated in a conspicuous location.

NOTE

Authority cited: Section 8053, Financial Code. Reference: Section 6521, Financial Code.

HISTORY

1. New section filed 12-7-88; operative 1-6-89 (Register 88, No. 52).

§110.210. Debit Balances Prohibited.

Note • History

An association or service corporation which acts as an escrow agent shall not withdraw, pay out, or transfer moneys from any particular escrow account in excess of the amount to the credit of such account at the time of such withdrawal, payment, or transfer.

NOTE

Authority cited: Section 8053, Financial Code. Reference: Section 6521, Financial Code.

HISTORY

1. New section filed 12-7-88; operative 1-6-89 (Register 88, No. 52).

§110.211. Statement of Account.

Note • History

Upon completion of an escrow transaction, the association or service corporation which is acting as an escrow agent shall render to each principal to the escrow transaction a statement of account in writing. Such statement shall specify all receipts and disbursements of escrow funds for such principal's account. Charges made by the association or service corporation for escrow services, and all disbursements by the association or service corporation to a broker or salesman in connection with an escrow transaction shall be clearly designated as such and shall be shown separately from disbursements of the association or service corporation. Payments outside of escrow, if shown in the statement, shall be set forth separately from payments by or to the association or service corporation.

NOTE

Authority cited: Section 8053, Financial Code. Reference: Section 6521, Financial Code.

HISTORY

1. New section filed 12-7-88; operative 1-6-89 (Register 88, No. 52).

§110.212. Records.

Note • History

Every association or service corporation which acts as an escrow agent shall keep and use in its business, books, accounts, and records which will properly enable the Commissioner to determine whether the escrow functions performed by such association or service corporation comply with the provisions of this article.

NOTE

Authority cited: Section 8053, Financial Code. Reference: Section 6521, Financial Code.

HISTORY

1. New section filed 12-7-88; operative 1-6-89 (Register 88, No. 52).

§110.213. Escrow Receipts.

Note • History

An association or service corporation which acts as an escrow agent shall issue consecutively prenumbered receipts for all escrow money or checks deposited with or mailed to the association or service corporation and retain copies of such receipts in a separate file.

NOTE

Authority cited: Section 8053, Financial Code. Reference: Section 6521, Financial Code.

HISTORY

1. New section filed 12-7-88; operative 1-6-89 (Register 88, No. 52).

§110.214. Unlawful Commissions, Referral Fees, etc.; Other Prohibited Arrangements.

Note • History

(a) Except for the normal compensation of its own employees, a service corporation which acts as an escrow agent shall not pay to any other person any commission, fee, or other consideration as compensation for referring, soliciting, handling, or servicing escrow customers or accounts.

(b) Except as permitted by subdivision (c), below, a service corporation which acts as an escrow agent is further prohibited from entering into any arrangement, or other device, either directly or indirectly, or through any other person having a dual capacity, or through any person having a direct or indirect interest in the escrow, permitting any fee, commission, or compensation which is contingent upon the performance of any act, condition, or instruction set forth in an escrow to be drawn or paid, either in whole or in part, or in kind or its equivalent, prior to the actual closing and completion of the escrow.

(c) A disbursal, other than for a fee, commission, or compensation, may be advanced or paid out prior to the close of an escrow if the written instructions of all parties to the transaction so provide.

NOTE

Authority cited: Section 8053, Financial Code. Reference: Section 6521, Financial Code.

HISTORY

1. New section filed 12-7-88; operative 1-6-89 (Register 8, No. 52).

Chapter 3. Commissioner of Corporations

(Originally Printed 3-22-45)

Subchapter 1. General Provisions

Article 1. Administration

§250.1. Adoption, Amendment and Repeal of Rules. [Repealed]

Note • History

NOTE

Authority cited: Section 17771, Business and Professions Code; Sections 25610, 27003 and 31502, Corporations Code; Sections 12300, 14201, 17400, 18347, 22400, 24400 and 30006, Financial Code; and Sections 1344 and 35190, Health and Safety Code.

HISTORY

1. Repealer of Subchapter 1 ( §§ 250 through 268) and new Subchapter 1 ( §§ 250.1 through 250.25) filed 11-15-68; designated effective 1-2-69 (Register 68, No. 43). For prior regulations see Registers: 12, No. 9; 54, No. 6; 56, Nos. 8, 12; 60, Nos. 6, 15; 61, Nos. 4, 22; 62, No. 2; 63, No. 20; 65, No. 14; 67, Nos. 40 and 43.

2. Repealer filed 10-21-82; effective thirtieth day thereafter (Register 82, No. 43).

§250.2. Definitions. [Repealed]

Note • History

NOTE

HISTORY

1. Repealer filed 10-21-82; effective thirtieth day thereafter (Register 82, No. 43).

§250.3. Statutes Administered by the Commissioner. [Repealed]

Note • History

NOTE

Authority cited: Section 17771, Business and Professions Code; Sections 25610, 27003, 31502, Corporations Code; Sections 12300, 14201, 17400, 18347, 22400, 24400, 30006, Financial Code; and Sections 1344 and 35190, Health and Safety Code. Reference: Sections 25000-25804, 27000-27203, 29000-29201, 31000-31516, Corporations Code; Sections 35100-35237, 1340-1399, Health and Safety Code; Sections 12000-12403, 14000-15451, 17000-17654, 18000-18705, 22000-22653, 24000-24651, 30000-30704; and Sections 17750-17780, Business and Professions Code.

HISTORY

1. Amendment filed 3-7-73 as an emergency; designated effective 3-7-73. Certificate of Compliance included (Register 73, No. 10). For prior history, see Register 70, No. 50.

2. Amendment filed 1-22-75; effective thirtieth day thereafter (Register 75, No. 4).

3. Amendment filed 5-27-77 as procedural and organizational; effective upon filing (Register 77, No. 22).

4. Amendment filed 12-29-80; effective thirtieth day thereafter (Register 81, No. 1).

5. Order of Repeal filed 6-3-85 by OAL pursuant to Government Code Section 11349.7; effective thirtieth day thereafter (Register 85, No. 26).

§250.4. Offices of the Department. [Repealed]

Note • History

NOTE

HISTORY

1. Amendment filed 5-27-77 as procedural and organizational; effective upon filing (Register 77, No. 22). For prior history, see Register 73, No. 38.

2. Repealer filed 10-21-82; effective thirtieth day thereafter (Register 82, No. 43).

§250.5. Business Hours. [Repealed]

History

HISTORY

1. Order of Repeal filed 6-3-85 by OAL pursuant to Government Code Section 11349.7; effective thirtieth day thereafter (Register 85, No. 26).

§250.6. Organization of the Department. [Repealed]

Note • History

NOTE

HISTORY

1. Amendment filed 12-28-73 as procedural and organizational; designated effective 1-1-74 (Register 73, No. 52). For prior history, see Register 73, No. 26.

2. Amendment filed 5-27-77 as procedural and organizational; effective upon filing (Register 77, No. 22).

3. Repealer filed 10-21-82; effective thirtieth day thereafter (Register 82, No. 43).

§250.7. Office for Filing. [Repealed]

Note • History

NOTE

HISTORY

1. Amendment filed 5-27-77 as procedural and organizational; effective upon filing (Register 77, No. 22). For prior history, see Register 73, No. 52.

2. Repealer filed 10-21-82; effective thirtieth day thereafter (Register 82, No. 43).

§250.8. Releases. [Repealed]

Note • History

NOTE

HISTORY

1. Repealer filed 10-21-82; effective thirtieth day thereafter (Register 82, No. 43).

§250.9. Public Inspection of Records.

Note • History

During the regular business hours of the Department, members of the public may inspect the documents on file in the Department which are specified in Section 250.9.1 as being subject to public inspection and which are not held confidential pursuant to Section 250.10. Copies of such documents, certified under the seal of the Commissioner, will be furnished to any person making a request therefor and paying the appropriate fee. See Section 260.617 of these rules.

NOTE

Authority cited: Section 17771, Business and Professions Code; Sections 25610, 27003, 28951, 29561 and 31502, Corporations Code; Sections 12300, 14201, 17400, 18347, 22150, 30006 and 50304, Financial Code; Sections 1344 and 35190, Health and Safety Code; and Section 5155, Labor Code. Reference: Sections 25605, 25617, 27005, 28505, 29564, 31504 and 31505, Corporations Code; Sections 12300, 22160 and 50304, Financial Code; Sections 6253 and 6254, Government Code; Sections 1344, 1351, 1380 and 1383, Health and Safety Code; and Sections 5155, 5159(d) and 5186, Labor Code.

HISTORY

1. Amendment filed 12-29-80; effective thirtieth day thereafter (Register 81, No. 1).

2. Editorial correction of NOTE filed 8-28-85; effective thirtieth day thereafter (Register 85, No. 35).

3. Change without regulatory effect amending section and Note filed 4-21-94 pursuant to title 1, section 100, California Code of Regulations (Register 94, No. 16).

4. Change without regulatory effect amending Note filed 12-6-94 pursuant to section 100, title 1, California Code of Regulations (Register 94, No. 49).

5. Change without regulatory effect amending Note filed 2-24-99 pursuant to section 100, title 1, California Code of Regulations (Register 99, No. 9).

§250.9.1. Records Subject to Public Inspection.

Note • History

Except as provided below and in Sections 250.10 and 250.12, the public records which are subject to public inspection are the following records which are filed with, retained by, or prepared by the Department pursuant to the statutes administered by the Commissioner:

(a) All applications, amendments, supplements and exhibits thereto, filed for any qualification, registration, order, permit, certificate, license, consent or other authority including correspondence between the parties and the Commissioner directly relating thereto. Financial statements, reports, advertising, and correspondence between the parties and the Commissioner directly relating thereto.

(b) All orders, permits, certificates, licenses, consents or other authority.

(c) Notices of public hearings, accusations and statements of issues in connection with any application, qualification, registration, order, permit, certificate, license, consent or other authority; proposed decisions of hearing officers and decisions of the Commissioner; the transcripts of such proceedings; and correspondence between the parties and the Commissioner directly relating thereto.

(d) Public notices in connection with the adoption, amendment or repeal of regulations of the Commissioner; the transcript of such proceedings; and correspondence with the public directly relating thereto, including comments received from the public.

(e) Releases, newsletters and, subject to the provisions of Section 250.12, interpretive opinions, determinations, specific rulings, and the correspondence relating thereto.

NOTE

Authority cited: Section 17771, Business and Professions Code; Sections 25014.6(b)(2), 25610, 27003, 28951 and 31502, Corporations Code; Sections 12300, 14201, 17400, 18347, 22150, 30006 and 50304, Financial Code; and Section 5155, Labor Code. Reference: Sections 25014.6(b)(2), 25605, 25617, 27005, 28505, 31504 and 31505, Corporations Code; Sections 12300, 22160 and 50312, Financial Code; Sections 6253 and 6254, Government Code; and Sections 5155, 5159(d) and 5186, Labor Code.

HISTORY

1. New section filed 6-28-74 as procedural and organizational; designated effective 7-1-74 (Register 74, No. 26).

2. Amendment of subsections (b) and (c) filed 9-2-77; effective thirtieth day thereafter (Register 77, No. 36).

3. Repealer and new section filed 12-29-80; effective thirtieth day thereafter (Register 81, No. 1).

4. Amendment of subsection (a) filed 3-16-84; designated effective 3-26-84 pursuant to Government Code section 11346.2(d) (Register 84, No. 11).

5. Editorial correction of NOTE filed 8-28-85; effective thirtieth day thereafter (Register 85 No. 35).

6. Amendment of subsection (a) filed 1-3-89; operative 2-1-89 (Register 89, No. 2).

7. Change without regulatory effect amending subsection (a) and Note filed 3-11-94 pursuant to title 1, section 100, California Code of Regulations (Register 94, No. 10).

8. Change without regulatory effect amending subsection (e) and Note filed 12-6-94 pursuant to section 100, title 1, California Code of Regulations (Register 94, No. 49).

9. Change without regulatory effect amending subsection (a) and Note filed 2-24-99 pursuant to section 100, title 1, California Code of Regulations (Register 99, No. 9).

10. Change without regulatory effect amending subsection (a) filed 6-3-99 pursuant to section 100, title 1, California Code of Regulations (Register 99, No. 23).

11. Change without regulatory effect amending subsection (a) and Note filed 9-25-2002 pursuant to section 100, title 1, California Code of Regulations (Register 2002, No. 39).

§250.10. Requests for Confidentiality.

Note • History

(a) Policy. Upon request pursuant to Subsection (b), the Commissioner will withhold from public inspection pursuant to Section 6254 of the Government Code (and Sections 25605 or 31504 of the Corporations Code, if applicable) for such time as in the Commissioner's judgment is necessary information received in connection with an application (including applications for interpretive opinions) or report, if in the opinion of the Commissioner the public inspection of such information is not necessary in the public interest or for the purposes of the law under which it is filed and such information is reasonably shown to meet any of the following requirements:

(1) Information which is of a proprietary business nature and is in fact confidential, including but not limited to trade secrets.

(2) Information which is of a confidential business nature and which is in fact confidential, the release of which would be damaging or prejudicial to the business concerned.

(3) The name of any present or proposed investor when such information is filed in an application pursuant to Section 25113, 25121 or 25133 of the Corporations Code, if the disclosure of such information may be damaging or prejudicial to such person.

(4) Any other information, upon a showing that a public interest is served in withholding such information.

(b) Requests for Confidentiality. A request for confidential treatment of any information received in connection with any application or report submitted to the Commissioner should accompany the submission of such information and such information must be submitted separated from the other parts of the filing and marked “Confidential Treatment Requested.” Such request must be signed by the person making the application or report and contain the following:

(1) A statement identifying the information which is the subject of the request and the application or report relating thereto.

(2) A statement specifying the provisions of Subsection (a) pursuant to which the request is made.

(3) A statement of the grounds upon which the request is made, including (if applicable) a statement as to its confidentiality and the measures taken to protect its confidentiality, and a statement of the adverse consequences which are expected to result if the information is disclosed through the public records of the Department.

(4) In the case of a request pursuant to Subsection (a)(3), a statement that the investor is not required to disclose investments pursuant to the Political Reform Act of 1975 or similar statute.

(5) A statement of the specific time for which confidential treatment of the information is necessary and the basis for such conclusion.

(6) If appropriate, a statement of the extent to which such information has been or will be disclosed to present or proposed investors, franchisees or other persons appropriate under the statute pursuant to which the information is filed.

(7) The request for confidentiality should not contain information for which itself confidential treatment is desired, as requests for confidentiality will be available for public inspection.

(c) Denial of Request. Material for which confidential treatment is requested shall not be deemed filed unless the request is granted, and may be withdrawn by the applicant if the request is denied, unless (1) the Commissioner has already taken an official action in reliance on such information prior to receiving the request for confidential treatment or (2) the Commissioner determines that the withdrawal of such information is otherwise contrary to the public interest. If withdrawn, such information will not be considered by the Commissioner in connection with the application or report.

(d) Granting of Request. If a request for confidential treatment is granted, the person making such request will be notified in writing, the information will be marked “confidential” and kept separate from the public file, and the application or report will be noted with the following legend: “Additional portions of this filing have been granted confidential treatment pursuant to Rule 250.10 and are contained in a separate confidential file.”

NOTE

Authority cited: Section 17771, Business and Professions Code; Sections 25610, 27003, 28951, 29561 and 31502, Corporations Code; Sections 12300, 14201, 17400, 18347, 22150, 30006 and 50304, Financial Code; Sections 1344 and 35190, Health and Safety Code; and Section 5155, Labor Code. Reference: Sections 25605, 25617, 27005, 28505, 29561, 29571, 29670, 31504 and 31505, Corporations Code; Sections 12300, 22160 and 50301, Financial Code; Sections 6253 and 6254, Government Code; Sections 1344, 1351, 1380 and 1383, Health and Safety Code; and Sections 5155, 5159 and 5186, Labor Code.

HISTORY

1. Amendment filed 12-30-71 as an emergency; designated effective 1-1-72. Certificate of Compliance included (Register 72, No. 1).

2. Repealer and new section filed 12-29-80; effective thirtieth day thereafter (Register 81, No. 1).

3. Editorial correction of NOTE filed 8-28-85; effective thirtieth day thereafter (Register 85, No. 35).

4. Change without regulatory effect amending Note filed 6-3-94 pursuant to title 1, section 100, California Code of Regulations (Register 94, No. 22).

5. Change without regulatory effect amending Note filed 12-6-94 pursuant to section 100, title 1, California Code of Regulations (Register 94, No. 49).

6. Change without regulatory effect amending Note filed 2-24-99 pursuant to section 100, title 1, California Code of Regulations (Register 99, No. 9).

§250.10.5. Disclosure of Confidential Information.

Note • History

(a) Information held confidential pursuant to Section 250.10 may be disclosed by the Commissioner, at any time and in the Commissioner's sole discretion, whether on the Commissioner's own motion or upon the request of any person:

(1) To other state or federal regulatory agencies, in accordance with law, or

(2) When necessary or appropriate in any proceeding or investigation pursuant to the law under which the information was filed, or

(3) Upon a determination by the Commissioner that continued confidential treatment is no longer justified because the reasons therefore no longer exist or because the public interest in disclosing such information outweighs the public interest in not doing so. If the Commissioner concludes that the disclosure of such information is necessary and urgent in the public interest or that it is impractical under the circumstances to give notice to the person who requested confidential treatment of the information, the information may be disclosed without notice. Otherwise, the person who requested confidential treatment of such information will be given notice that the release of such information is under consideration and the reasons therefore, and an opportunity to make representations promptly, within not more than five business days, regarding the continued need and justification for continued confidentiality.

(b) Requests to Inspect Confidential Information. A request to inspect confidential information pursuant to Subsection (a)(3) should ordinarily be in writing, signed by the person making the request, and state the justification for the request. A copy of the request for inspection will ordinarily be forwarded to the person who requested confidential treatment of the information in accordance with Subsection (a)(3). If a request for inspection should be held confidential, the reasons therefore must be stated in such request, in accordance with Section 250.10(b).

(c) Nothing contained herein shall be interpreted as affording any person a right to withdraw information once it has been received by the Commissioner, except as provided in subsection (c) of Section 250.10.

NOTE

Authority cited: Section 17771, Business and Professions Code; Sections 25610, 27003, 28951, 29561 and 31502, Corporations Code; Sections 12300, 14201, 17400, 18347, 22150, 30006 and 50304, Financial Code; Sections 1344 and 35190, Health and Safety Code; and Section 5155, Labor Code. Reference: Sections 25605, 25617, 27005, 28505, 29561, 29571, 29670, 31504 and 31505, Corporations Code; Sections 12300, 22160 and 50302, Financial Code; Sections 6253 and 6254, Government Code; Sections 1344, 1351, 1380 and 1383, Health and Safety Code; and Sections 5155, 5159 and 5186, Labor Code.

HISTORY

1. New section filed 12-29-80; effective thirtieth day thereafter (Register 81, No. 1).

2. Editorial correction of NOTE filed 8-28-85; effective thirtieth day thereafter (Register 85, No. 35).

3. Change without regulatory effect amending Note filed 6-3-94 pursuant to title 1, section 100, California Code of Regulations (Register 94, No. 22).

4. Change without regulatory effect amending Note filed 12-6-94 pursuant to section 100, title 1, California Code of Regulations (Register 94, No. 49).

5. Change without regulatory effect amending Note filed 2-24-99 pursuant to section 100, title 1, California Code of Regulations (Register 99, No. 9).

§250.11. Appearance and Practice Before the Department.

Note • History

In any proceeding before the Commissioner, any person may be represented by an attorney at law admitted to practice before the highest court of any state or territory of the United States, or the Court of Appeals or the District Court of the United States for the District of Columbia. Any individual may, however, appear before the Department in his own behalf, a member of a partnership may represent the partnership, and an authorized officer of a corporation, trust or association may represent such corporation, trust or association.

NOTE

Authority cited: Section 17771, Business and Professions Code; Sections 25610, 27003, 29561, 29851 and 31502, Corporations Code; Sections 12300, 14201, 17400, 18347, 22150, 30006 and 50304, Financial Code; and Sections 1344 and 35190, Health Safety Code; and Section 5155, Labor Code. Reference: Sections 25000-25804, 27000-27202, 28000-28958, 29500-29572 and 31000-31516, Corporations Code; Sections 1340-1399 and 35100-35237, Health and Safety Code; Sections 12000-12403, 14000-15451, 17000-17654, 18000-18705, 22000-22780, 30000-30704 and 50000-50602, Financial Code; and Sections 5150-5210, Labor Code.

HISTORY

1. Editorial correction adding NOTE filed 6-7-83 (Register 83, No. 24).

2. Editorial correction of NOTE filed 8-28-85; effective thirtieth day thereafter (Register 85, No. 35).

3. Change without regulatory effect amending Note filed 6-3-94 pursuant to title 1, section 100, California Code of Regulations (Register 94, No. 22).

4. Change without regulatory effect amending Note filed 12-6-94 pursuant to section 100, title 1, California Code of Regulations (Register 94, No. 49).

5. Change without regulatory effect amending Note filed 2-24-99 pursuant to section 100, title 1, California Code of Regulations (Register 99, No. 9).

§250.11.1. Telephone Transceiving Equipment.

Note • History

Messages directed to the San Francisco and Los Angeles offices of the Commissioner by means of Xerox Telecopier, Magnafax, or other compatible telephone transceiving equipment will be accepted by the Commission as complying with the requirement of notification under Section 25111(c) of the Corporations Code concerning the date and time when a federal registration statement has become effective and with respect to the content of the price amendment, if any. Such notification must be followed up by filing of a posteffective amendment to the application containing the information and documents in the price amendment, and telephone transceiving equipment may not be utilized for that filing.

NOTE

Authority cited: Section 25610, Corporations Code. Reference: Section 25111, Corporations Code.

HISTORY

1. New section filed 4-6-72 as an emergency; effective upon filing (Register 72, No. 15).

2. Certificate of Compliance filed 7-20-72 (Register 72, No. 30).

3. Editorial correction (Register 73, No. 17).

4. Editorial correction of NOTE filed 6-7-83 (Register 83, No. 24).

§250.12. Interpretive Opinions, Determinations and Specific Rulings.

Note • History

(a) The Commissioner has discretionary authority to issue interpretive opinions pursuant to Corporations Code Section 25618 (of the Corporate Securities Law of 1968), Corporations Code Section 29546 (of the California Commodity Law of 1990), Corporations Code Section 31510 (of the Franchise Investment Law), Corporations Code Section 28952 (of the Capital Access Company Law), and Financial Code Section 50312 (of the California Residential Mortgage Lending Act); determinations under Corporations Code Section 25014.6(b)(2); and specific rulings under Financial Code Section 22150 (of the California Finance Lenders Law). Each request for a written interpretive opinion, determination or specific ruling of the commissioner shall be made in writing and shall fully set forth the questions presented and the particular facts and circumstances upon which the opinion is requested. Each interpretive opinion, determination or specific ruling is applicable only to the transaction identified in the request therefor, and may not be relied upon in connection with any other transaction.

(b) The name(s) of the principal party(ies) or person(s) on whose behalf an interpretive opinion, determination or specific ruling has been requested, are indexed in the Department's index reference system.

(c) Copies of published interpretive opinions, determinations or specific rulings are available as specified in subsection (f) of Section 260.608. Requests for confidentiality of opinion requests are processed subject to the procedures in Sections 250.10 and 250.10.5.

NOTE

Authority cited: Sections 25014.6(b)(2), 25610, 28951, 29561 and 31502, Corporations Code; Sections 22150 and 50304, Financial Code; and Section 5155, Labor Code. Reference: Sections 25014.6(b)(2), 25618, 28952, 29546 and 31510, Corporations Code; Sections 22160 and 50312, Financial Code; and Section 5155(b), Labor Code.

HISTORY

1. Amendment filed 12-30-71 as an emergency; designated effective 1-1-72. Certificate of Compliance included (Register 72, No. 1).

2. Amendment of subsection (b) filed 4-6-72 as an emergency; effective upon filing (Register 72, No. 15).

3. Certificate of Compliance filed 7-20-72 (Register 72, No. 30).

4. Amendment filed 12-29-80; effective thirtieth day thereafter (Register 81, No. 1).

5. Amendment of subsection (a) filed 9-25-81; effective thirtieth day thereafter (Register 81, No. 39).

6. Amendment of subsection (a) filed 1-11-91; operative 2-10-91 (Register 91, No. 10).

7. Editorial correction of printing errors in subsections (a) and (c) (Register 94, No. 2).

8. Change without regulatory effect amending section and Note filed 3-11-94 pursuant to title 1, section 100, California Code of Regulations (Register 94, No. 10).

9. Change without regulatory effect amending section heading, text and Note filed 12-6-94 pursuant to section 100, title 1, California Code of Regulations (Register 94, No. 49).

10. Change without regulatory effect amending subsections (a) and (b) and Note filed 2-24-99 pursuant to section 100, title 1, California Code of Regulations (Register 99, No. 9).

11. Change without regulatory effect amending subsection (a) filed 6-3-99 pursuant to section 100, title 1, California Code of Regulations (Register 99, No. 23).

12. Change without regulatory effect amending subsection (a) and Note filed 9-25-2002 pursuant to section 100, title 1, California Code of Regulations (Register 2002, No. 39).

§250.13. Applications and Reports. [Repealed]

Note • History

NOTE

HISTORY

1. Repealer filed 10-21-82; effective thirtieth day thereafter (Register 82, No. 43).

§250.14. Verification.

Note • History

Whenever the statute or these rules require a document to be verified, it shall be verified in accordance with the provisions of Sections 446 and 2015.5 of the California Code of Civil Procedure.

NOTE

Authority cited: Section 17771, Business and Professions Code; Sections 25610, 27003, 29561 and 31502, Corporations Code; Sections 12300, 14201, 17400, 18347, 22150, 28951, 30006 and 50304, Financial Code; Sections 1344 and 35190, Health and Safety Code and Section 5155, Labor Code. Reference: Sections 17750-17781, Business and Professions Code; Sections 25000-25804, 27000-27202, 28000-28958, 29500-29572 and 31000-31516, Corporations Code; Sections 1340-1399 and 35100-35237, Health and Safety Code; Sections 12000-12403, 14000-15451, 17000-17654, 18000-18705, 22000-22780, 30000-30704 and 50000-50602, Financial Code; and Sections 5150-5210, Labor Code.

HISTORY

1. Editorial correction adding NOTE filed 6-7-83 (Register 83, No. 24).

2. Editorial correction of NOTE filed 8-28-85; effective thirtieth day thereafter (Register 85, No. 35).

3. Change without regulatory effect amending Note filed 6-3-94 pursuant to title 1, section 100, California Code of Regulations (Register 94, No. 22).

4. Change without regulatory effect amending Note filed 12-6-94 pursuant to section 100, title 1, California Code of Regulations (Register 94, No. 49).

5. Change without regulatory effect amending Note filed 2-24-99 pursuant to section 100, title 1, California Code of Regulations (Register 99, No. 9).

§250.15. Payment of Fees and Refunds.

Note • History

Fees required by the statutes administered by the Commissioner or these rules are due and payable upon filing of the application regardless of the action taken thereon and should be submitted together with the application or other filing to which they refer. Checks should be made payable to the “Department of Corporations” and need not be certified. Refunds of filing fees paid to the Department are made in accordance with Sections 13140 through 13144 of the California Government Code. Normally, refunds of excess fees paid to the Department do not require the filing of a request for refund. When a request for refund is required, such request should be filed in letter form at the Department's office where the application was filed and should specify the following:

(a) The name of the applicant.

(b) The law under which the application was filed and the date of filing the application.

(d) The amount of the refund claimed as due and the grounds upon which the claim is made.

NOTE

Authority cited: Section 17771, Business and Professions Code; Sections 25610, 27003, 29561 and 31502, Corporations Code; Sections 12300, 14201, 17400, 18347, 22150, 28110, 30006 and 50304, Financial Code; Sections 1344 and 35190, Health and Safety Code; and Section 5155, Labor Code. Reference: Sections 17750-17781, Business and Professions Code; Sections 25000-25804, 27000-27202, 29500-29572 and 31000-31516, Corporations Code; Sections 1340-1399 and 35100-35237, Health and Safety Code; Sections 12000-12403, 14000-15451, 17000-17654, 18000-18705, 22000-22780, 28000-28958, 30000-30704 and 50000-50602, Financial Code; and Sections 5150-5210, Labor Code.

HISTORY

1. Editorial correction adding NOTE filed 6-7-83 (Register 83, No. 24).

2. Editorial correction of NOTE filed 8-28-85; effective thirtieth day thereafter (Register 85, No. 35).

3. Change without regulatory effect amending Note filed 6-3-94 pursuant to title 1, section 100, California Code of Regulations (Register 94, No. 22).

4. Change without regulatory effect amending Note filed 12-6-94 pursuant to section 100, title 1, California Code of Regulations (Register 94, No. 49).

5. Change without regulatory effect amending Note filed 2-24-99 pursuant to section 100, title 1, California Code of Regulations (Register 99, No. 9).

§250.16. Abandonment and Withdrawal.

Note • History

The Commissioner may by notice to the applicant order an application to be abandoned upon the failure of the applicant within a reasonable time to respond to any request for additional information or otherwise to complete the showing required for action upon the application; or the applicant may with the consent of the Commissioner withdraw his application. There can be no refund of the filing fee paid upon abandonment or withdrawal of the application.

NOTE

Authority cited: Section 17771, Business and Professions Code; Sections 25610, 27002, 28951, 29561 and 31502, Corporations Code; Sections 12300, 14201, 17400, 18347, 22150, 30006 and 50304, Financial Code; Sections 1344 and 35190, Health and Safety Code; and Section 5155, Labor Code. Reference: Sections 17750-17781, Business and Professions Code; Sections 25000-25804, 27000-27202, 28000-28958, 29500-29572 and 31000-31516, Corporations Code; Sections 12000-12403, 14000-15451, 17000-17654, 18000-18705, 22000-22780, 30000-30704 and 50000-50602, Financial Code; and Sections 5150-5210, Labor Code.

HISTORY

1. Editorial correction adding NOTE filed 6-7-83 (Register 83, No. 24).

2. Editorial correction of NOTE filed 8-28-85; effective thirtieth day thereafter (Register 85, No. 35).

3. Change without regulatory effect amending Note filed 6-3-94 pursuant to title 1, section 100, California Code of Regulations (Register 94, No. 22).

4. Change without regulatory effect amending Note filed 12-6-94 pursuant to section 100, title 1, California Code of Regulations (Register 94, No. 49).

5. Change without regulatory effect amending Note filed 2-24-99 pursuant to section 100, title 1, California Code of Regulations (Register 99, No. 9).

Article 2. Hearings

§250.17. Scope of This Article.

Note • History

This Article governs the conduct of all hearings held in connection with matters pending before the Commissioner, except hearings required by law to be conducted according to the California Administrative Procedure Act (Chapter 5, commencing with Section 11500, of Part 1 of Division 3 of Title 2 of the Government Code), but including those hearings where a person entitled to a hearing in accordance with the provisions of the Administrative Procedure Act has consented to a hearing before the Department pursuant to Sections 25702 and 31513 of the Corporations Code.

NOTE

Authority cited: Sections 25610, 27003, 28951 and 31502, Corporations Code; Sections 17400, 18347, 22150 and 50304, Financial Code; and Section 5155, Labor Code. Reference: Sections 25702, 27201, 28955 and 31513, Corporations Code; Sections 17604, 18117, 18349, 18353, 18360, 18367, 22717 and 50331, Financial Code; and Section 5207, Labor Code.

HISTORY

1. Amendment filed 10-21-82; effective thirtieth day thereafter (Register 82, No. 43).

2. Change without regulatory effect amending Note filed 12-6-94 pursuant to section 100, title 1, California Code of Regulations (Register 94, No. 49).

3. Change without regulatory effect amending Note filed 2-24-99 pursuant to section 100, title 1, California Code of Regulations (Register 99, No. 9).

§250.18. Initiation of Hearing.

Note • History

Each hearing before the Department is commenced by the filing and service of a notice of hearing. A notice of hearing is a written statement prepared by the Commissioner which sets forth the matters to be considered at the hearing in sufficient detail to permit the respondent or other interested parties to prepare and present their allegations, and evidence in support thereof, at the hearing and shall contain the following:

(a) A brief statement of the facts which give rise to the hearing.

(b) A statement of the issues to be considered at the hearing, together with a reference to the relevant statutes and rules.

NOTE

Authority cited: Sections 25610, 27003 and 31502, Corporations Code; Sections 17400, 18347, 22150, 28951 and 50304, Financial Code; and Section 5155, Labor Code. Reference: Sections 25702, 27201, 28955 and 31513, Corporations Code; Sections 17604, 18117, 18349, 18353, 18360, 18367, 22717 and 50331, Financial Code; and Section 5207, Labor Code.

HISTORY

1. New Note filed 8-28-85; effective thirtieth day thereafter (Register 85, No. 35).

2. Change without regulatory effect amending Note filed 12-6-94 pursuant to section 100, title 1, California Code of Regulations (Register 94, No. 49).

3. Change without regulatory effect amending Note filed 2-24-99 pursuant to section 100, title 1, California Code of Regulations (Register 99, No. 9).

§250.19. Service of Notice of Hearing.

Note • History

Notice of any hearing shall be:

(a) Posted on the bulletin board in the appropriate office of the Department;

(b) If so ordered by the Commissioner in a particular case, published at least once in a newspaper of general circulation published in such county or city and county as the Commissioner may designate in such order; and

(c) Served upon each respondent and such other interested party or parties as ordered by the Commissioner by personal service or mail. Service may be proved in the manner provided by law for service of papers by mail in civil actions.

NOTE

HISTORY

1. New Note filed 8-28-85; effective thirtieth day thereafter (Register 85, No. 35).

2. Change without regulatory effect amending Note filed 12-6-94 pursuant to section 100, title 1, California Code of Regulations (Register 94, No. 49).

3. Change without regulatory effect amending Note filed 2-24-99 pursuant to section 100, title 1, California Code of Regulations (Register 99, No. 9).

§250.20. Time of Notice.

Note • History

The notice of hearing shall be posted, published (if required) and served not less than 10 days nor more than 30 days prior to the date fixed for the hearing, unless the Commissioner for good cause shown prescribes a shorter time of notice.

NOTE

Authority cited: Sections 25610, 27003, 28951 and 31502, Corporations Code; Sections 17400, 18347, 22150 and 50304, Financial Code; and Section 5155 Labor Code. Reference: Sections 25702, 27201, 28955 and 31513, Corporations Code; Sections 17604, 18117, 18349, 18353, 18360, 18367, 22717 and 50331, Financial Code; and Section 5207, Labor Code.

HISTORY

1. New Note filed 8-28-85; effective thirtieth day thereafter (Register 85, No. 35).

2. Change without regulatory effect amending Note filed 12-6-94 pursuant to section 100, title 1, California Code of Regulations (Register 94, No. 49).

3. Change without regulatory effect amending Note filed 2-24-99 pursuant to section 100, title 1, California Code of Regulations (Register 99, No. 9).

§250.21. Subpoenas.

Note • History

Prior to and during the hearing, the hearing officer may issue subpoenas and subpoenas duces tecum at the request of any interested party in the manner prescribed by Sections 11450.10, 11450.20 and 11450.40 of the Government Code for subpoenas and subpoenas duces tecum in civil actions.

NOTE

HISTORY

1. Amendment filed 10-21-82; effective thirtieth day thereafter (Register 82, No. 43).

2. Change without regulatory effect amending Note filed 12-6-94 pursuant to section 100, title 1, California Code of Regulations (Register 94, No. 49).

3. Change without regulatory effect amending Note filed 2-24-99 pursuant to section 100, title 1, California Code of Regulations (Register 99, No. 9).

4. Change without regulatory effect amending section filed 6-3-99 pursuant to section 100, title 1, California Code of Regulations (Register 99, No. 23).

§250.22. Continuances.

Note • History

A hearing shall be held at the time and place set forth in the notice of hearing, but may at such time or from time to time be continued by the hearing officer from day to day or adjourned to a later date or to a different place, without notice other than the announcement thereof at the hearing.

NOTE

HISTORY

1. New Note filed 8-28-85; effective thirtieth day thereafter (Register 85, No. 35).

2. Change without regulatory effect amending Note filed 12-6-94 pursuant to section 100, title 1, California Code of Regulations (Register 94, No. 49).

3. Change without regulatory effect amending Note filed 2-24-99 pursuant to section 100, title 1, California Code of Regulations (Register 99, No. 9).

§250.23. Hearing Record.

Note • History

A reporter shall record the proceedings of each hearing, unless the Commissioner otherwise directs upon request of the applicant. All documents offered and received into evidence at the hearing shall be numbered as exhibits and made a part of the record.

NOTE

HISTORY

1. New Note filed 8-28-85; effective thirtieth day thereafter (Register 85, No. 35).

2. Change without regulatory effect amending Note filed 12-6-94 pursuant to section 100, title 1, California Code of Regulations (Register 94, No. 49).

3. Change without regulatory effect amending Note filed 2-24-99 pursuant to section 100, title 1, California Code of Regulations (Register 99, No. 9).

§250.24. Procedure and Evidence.

Note • History

A representative of the Department shall first introduce appropriate evidence necessary to establish the jurisdiction of the Commissioner and the scope of the hearing. Thereafter, the hearing officer shall determine the order in which evidence may be presented, as required by the circumstances of the particular matter. Witnesses shall give evidence upon oath

or affirmation and each interested party shall have the right to call and examine witnesses and to cross-examine opposing witnesses in any manner relevant to the issues. Any relevant evidence shall be admitted if it is the type of evidence upon which responsible persons are accustomed to rely in the conduct of serious affairs, whether or not admissible over objection in a civil action. The hearing officer shall have authority to administer oaths and affirmations, to rule on the admission or exclusion of evidence and to take all necessary action to insure a fair and orderly conduct of the hearing. The hearing officer may take official notice of any generally accepted technical or scientific matter within the Commissioner's special field of competency and also of any fact which may be judicially noticed by the courts.

NOTE

HISTORY

1. New Note filed 8-28-85; effective thirtieth day thereafter (Register 85, No. 35).

2. Change without regulatory effect amending Note filed 12-6-94 pursuant to section 100, title 1, California Code of Regulations (Register 94, No. 49).

3. Change without regulatory effect amending Note filed 2-24-99 pursuant to section 100, title 1, California Code of Regulations (Register 99, No. 9).

§250.25. Cost of Hearing.

Note • History

When an applicant requests that a hearing be held, the Commissioner shall estimate the expenses to be incurred in noticing and conducting the hearing, and the applicant shall deposit the estimated amount in cash with the Commissioner prior to the hearing date, together with written instructions authorizing the distribution thereof. In the event the expense incurred exceeds the estimate, an additional deposit may be required before the decision is rendered. Any amount deposited in excess of the expenses actually incurred will be returned to the applicant.

NOTE

HISTORY

1. Editorial correction adding Note filed 6-7-83 (Register 83, No. 24).

2. Change without regulatory effect amending Note filed 12-6-94 pursuant to section 100, title 1, California Code of Regulations (Register 94, No. 49).

3. Change without regulatory effect amending Note filed 2-24-99 pursuant to section 100, title 1, California Code of Regulations (Register 99, No. 9).

Article 3. Conflict of Interest

§250.30. General Provisions.

Note • History

(a) Authority. This Conflict of Interest Code has been adopted pursuant to the provisions of Government Code Sections 87300, et seq. It is separate and apart from the requirements and prohibitions set forth in Section 260.607 of this title. All employees should refer to that section for additional requirements and prohibitions.

(b) General prohibitions. All employees of the Department of Corporations are subject to the provisions for disqualification set forth in Government Code Sections 87100 and 87103.

(c) References. The Political Reform Act is set forth in Sections 81000, et seq., of the Government Code. The Regulations of the Fair Political Practices Commission are set forth in Division 6, Title 2, California Code of Regulations. Copies of the Government Code and Title 2 of the California Code of Regulations are available in each library of the Department of Corporations.

(d) The Code. Set forth below is the Conflict of Interest Code of the Department of Corporations.

CONFLICT OF INTEREST CODE FOR THE

DEPARTMENT OF CORPORATIONS

The Political Reform Act, Government Code Sections 81000, et seq., requires state and local government agencies to adopt and promulgate Conflict of Interest Codes. The Fair Political Practices Commission has adopted a regulation, Title 2 California Code of Regulations Section 18730, which contains the terms of a standard Conflict of Interest Code, which can be incorporated by reference, and which may be amended by the Fair Political Practices Commission to conform to amendments in the Political Reform Act after public notice and hearings. Therefore, the terms of Title 2 California Code of Regulations Section 18730 and any amendments to it duly adopted by the Fair Political Practices Commission, along with the attached Appendix in which officials and employees are designated and disclosure categories are set forth, are hereby incorporated by reference and constitute the Conflict of Interest Code of the Department of Corporations with the addition provided below.

Designated employees shall file statements of economic interests with the Manager of Human Resources of the Department of Corporations, (under the supervision of the Deputy Commissioner of the Office of Management and Budget and consultation of the Deputy Commissioner and General Counsel) to whom the agency has delegated the authority to carry out the duties of filing officer. Upon receipt of the statement of the Commissioner of Corporations, the Manager of Human Resources shall make and retain a copy and forward the original of this statement to the Fair Political Practices Commission. The Department will make the statements available for public inspection and reproduction in accordance with Government Code Section 81008.

Addition: A business entity or source of income does business in the state, plans to do business in the state, or has done business in the state within the past two years within the meaning of Government Code Sections 82030 and 82034, incorporated by reference into this Code by Section 1 of the standard Code, Title 2 California Code of Regulations Section 18730(b)(1), in addition to any meaning those terms might otherwise have, if it has applied for or received a permit, registration, certificate, order or opinion from the Commissioner or if it is subject to any investigation by the Commissioner.

NOTE

Authority cited: Sections 87300 and 87306, Government Code; and Section 25610, Corporations Code. Reference: Sections 87300, et seq., Government Code; and Section 25607, Corporations Code.

HISTORY

1. Repealer of article 3 (sections 250.30-250.38) and new article 3 (section 250.30 and Appendix) filed 2-26-81; effective thirtieth day thereafter. Approved by Fair Political Practices Commission 12-1-80 (Register 81, No. 9). For prior history, see Registers 79, No. 45 and 77, No. 20.

2. Amendment of subsections (a) and (d) and Appendix filed 9-23-82; effective thirtieth day thereafter (Register 82, No. 39).

3. Change without regulatory effect pursuant to section 100, Title 1, California Code of Regulations amending section 250.30, filed 3-4-91; operative 4-3-91 (Register 91, No. 14).

4. Amendment of Appendix filed 11-4-91; operative 12-4-91. Submitted to OAL for printing only (Register 92, No. 8).

5. Amendment of Appendix filed 2-14-94; operative 3-16-94. Submitted to OAL for printing only. Approved by Fair Political Practices Commission 1-18-94 (Register 94, No. 7).

6. Amendment of subsection (d)--Conflict of Interest Code and Appendix filed 9-16-97; operative 10-16-97. Approved by Fair Political Practices Commission 7-7-97 (Register 97, No. 38).

7. Amendment of section and Appendix filed 3-26-2002; operative 4-25-2002. Approved by Fair Political Practices Commission 2-8-2002 (Register 2002, No. 13).

8. Amendment of section and Appendix filed 4-26-2004; operative 5-26-2004. Approved by Fair Political Practices Commission 2-25-2004 (Register 2004, No. 18).

9. Amendment of Appendix filed 4-25-2007; operative 5-25-2007. Approved by Fair Political Practices Commission 3-9-2007 (Register 2007, No. 17).

10. Repealer of penultimate and final paragraphs and amendment of Appendix filed 7-6-2009; operative 8-5-2009. Approved by Fair Political Practices Commission 6-12-2009 (Register 2009, No. 28).

Appendix

Designated Employees Disclosure Categories

Commissioner of Corporations A

Chief Deputy Commissioner of Corporations A

Deputy Commissioners, Assistant Commissioners, and General Counsel A

All Special Assistants or Advisors to the Commissioner

(regardless of classification) A

Counsel assigned to the Office of Legislation & Policy A

All other Counsel (regardless of rank) B

Examiners and Auditors (regardless of rank) assigned to the Securities

Regulation Division and Enforcement Division B

Regional Manager, Supervising Investigator and Associate

Investigator assigned to the Enforcement Division B

Examiners and Auditors (regardless of rank) assigned to the Financial

Services Division C

Librarian D

Data Processing Manager D

All Information Technology Staff assigned to arrange contracts and/or

solicit bids D

Accounting Office Supervisor D

Business Services Officer D

All Contract Analysts and Procurement Staff D

All Staff Services Managers (regardless of rank) D

Office Manager D

Operations Officer D

Consultant* A

Disclosure Categories

Category A.

Each “designated employee” in this category shall report:

(1) Any investment and/or business position in any business entity and income, including gifts, loans and travel payments, from any source, or representative thereof, which has transacted business with the Department or been the subject of any legislation or rulemaking activity during the preceding two years or which the designated employee knows or has reason to know will transact business with the Department or be the subject of any legislation or rulemaking activity.

(2) Any interest in real property which during the preceding two years has been rented or leased to, or which the designated employee knows or has reason to know may be rented, leased or sold to a business entity or non-profit, or representative thereof, which has transacted business with the Department or been the subject of any legislation or rulemaking activity during the preceding two years or which the designated employee knows or has reason to know will transact business with the Department or be the subject of any legislation or rulemaking activity.

(3) For purposes of this category, “transacting business with the Department” includes, but is not limited to, any activity or contact with the Department in connection with a permit, order, registration, license, certificate, opinion, complaint or enforcement action. A business entity, non-profit or source has been or will be “the subject of any legislation or rulemaking activity” if the business entity, non-profit or source is, was, will be, or would have been affected by any legislation or rule in connection with the laws over which the Commissioner has jurisdiction, whether or not such legislation or rule was enacted, adopted, amended or repealed.

Category B.

Each “designated employee” in this category shall report:

(1) Any investment and/or business position in any business entity and income, including gifts, loans and travel payments, from any source, or representative thereof, with which the designated employee has transacted business on behalf of the Department during the preceding two years or knows or has reason to know that he or she will transact business on behalf of the Department.

(2) Any interest in real property which during the preceding two years has been rented or leased to, or which the designated employee knows or has reason to know may be rented, leased or sold to a business entity or non-profit, or representative thereof, with which the designated employee has transacted business on behalf of the Department during the preceding two years or, knows or has reason to know that he or she will transact business on behalf of the Department.

(3) For the purposes of this category, “transacting business on behalf of the Department” includes, but is not limited to, preparing or reviewing material in connection with a permit, order, registration, license, certificate, opinion, complaint, enforcement action or legislation or rules in connection with the laws over which the Commissioner has jurisdiction.

(4) Absent specific knowledge to the contrary which, in light of his or her specific functions and duties within the Department which would put the employee on notice, a designated employee in Category B has no reason to know that he or she will transact business on behalf of the Department with any business entity which is the issuer of securities exempt from the qualification requirement of the Corporate Securities Law of 1968 by virtue of Subsections (a), (b), (c), (d), (g), (h), (i), (j), (m), (o) or (p) of Section 25100 of that Law.

Category C.

Each “designated employee” in this category shall report:

(1) Any investment and/or business position in any business entity and income, including gifts, loans and travel payments, from any source, or representative thereof, which has requested and/or obtained during the preceding two years, or which the designated employee knows or has reason to know will request and/or obtain, a license or certificate under the laws administered by the Financial Services Division, or which has been subject to any action, or which he or she knows or has reason to know will be subject to any action, by the Department in connection with the failure to obtain a license or certificate under such laws.

(2) Any interest in real property, which during the preceding two years has been rented or leased to, or which the designated employee knows or has reason to know may be rented, leased or sold to a business entity or non-profit, or representative thereof, which has requested and/or obtained during the preceding two years, or which he or she knows or has reason to know may request and/or obtain, a license or certificate under the laws administered by the Financial Services Division, or which has been subject to any action, or which he or she knows or has reason to know may be subject to any action, by the Department in connection with the failure to obtain a license or certificate under such laws.

(3) The term “laws administered by the Financial Services Division” means the following laws: California Finance Lenders Law, California Residential Mortgage Lending Act, Check Sellers, Bill Payers and Proraters Law, Deferred Deposit Transaction Law and Escrow Law.

Category D.

Each “designated employee” in this category shall report:

(1) Any investment and/or business position in any business entity and income, including gifts, loans and travel payments, from any source, or representative thereof, which during the preceding two years has provided, or which the designated employee knows or has reason to know may provide, the Department of Corporations with services, supplies, materials, machines, equipment or office space.

(2) Any interest in real property which during the preceding two years has been rented or leased to, or which the designated employee knows or has reason to know may be rented, leased or sold to a business entity or non-profit, or representative thereof, which during the preceding two years has provided, or which he or she knows or has reason to know may provide the Department of Corporations with services, supplies, materials, machines, equipment or office space.

*Consultants shall disclose pursuant to the broadest disclosure category in the Code (Category A) subject to the following limitations:

The Commissioner may determine in writing that a particular consultant, although a “designated position” or “designated employee,” is hired to perform a range of duties that is limited in scope and thus is not required to fully comply with the disclosure requirements described in this section. Such written determination shall include a description of the consultant's duties and, based upon that description, a statement of the extent of disclosure requirements. The Commissioner's determination is a public record and shall be retained for public inspection in the same manner and location as this conflict of interest code.

Article 4. Permit Reform Act

§250.50. Definitions. [Repealed]

Note • History

NOTE

Authority cited: Sections 15376 and 15378, Government Code. Reference: Sections 15376 and 15378, Government Code.

HISTORY

1. New Article 4 (Sections 250.50 and 250.51) filed 9-20-84; effective thirtieth day thereafter (Register 84, No. 38).

2. Repealer filed 9-23-2009; operative 10-23-2009 (Register 2009, No. 39).

§250.51. Permit Processing Times. [Repealed]

Note • History

NOTE

Authority cited: Sections 25610 and 35006, Corporations Code; and Sections 12300, 17400, 22150, 23015 and 30006, Financial Code. Reference: Sections 25610 and 35006, Corporations Code; and Sections 12300, 17400, 22150, 23015 and 30006, Financial Code.

HISTORY

1. Change without regulatory effect amending table filed 2-24-99 pursuant to section 100, title 1, California Code of Regulations (Register 99, No. 9).

2. Change without regulatory effect amending table filed 9-25-2002 pursuant to section 100, title 1, California Code of Regulations (Register 2002, No. 39).

3. Amendment of table filed 12-16-2002; operative 12-16-2002 pursuant to Government Code section 11343.4 (Register 2002, No. 51).

4. Amendment of table filed 3-13-2003 as an emergency; operative 3-14-2003 (Register 2003, No. 11). A Certificate of Compliance must be transmitted to OAL by 7-14-2003 or emergency language will be repealed by operation of law on the following day.

5. Amendment of table refiled 7-14-2003 as an emergency; operative 7-14-2003 (Register 2003, No. 29). A Certificate of Compliance must be transmitted to OAL by 11-12-2003 or emergency language will be repealed by operation of law on the following day.

6. Certificate of Compliance as to 7-14-2003 order transmitted to OAL 11-3-2004; Certificate of Compliance withdrawn 12-15-2003 and reinstatement of section as it existed prior to 7-14-2003 emergency amendment by operation of Government Code section 11346.1(f) (Register 2004, No. 17).

7. Amendment of table filed 4-20-2004; operative 4-20-2004 pursuant to Government Code section 11343.4 (Register 2004, No. 17).

8. Repealer filed 9-23-2009; operative 10-23-2009 (Register 2009, No. 39).

Article 5. Limitations on Licenses and Certificates to Aliens

§250.60. Limitations on Licenses and Certificates to Aliens.

Note • History

(a) This section shall apply to any individual (e.g., sole proprietorship) who is applying for any of the following:

(1) Broker-Dealer Certificate (Corporations Code Section 25211).

(2) Investment Adviser Certificate (Corporations Code Section 25231).

(3) Finance Lender or Broker License (Financial Code Section 22101).

(4) Residential Mortgage Lender and/or Servicer Licenses (Financial Code Sections 50122 and 50130).

(b) All eligibility requirements contained herein shall be applied without regard to the race, creed, color, gender, religion, or national origin of the individual applying for a license or certificate described in subsection (a).

(c) Pursuant to Section 411 of the Personal Responsibility and Work Opportunity Reconciliation Act of 1996 (Pub. L. No. 104-193 (“PRWORA”), 8 U.S.C. Section 1621, et seq.), and notwithstanding any other provision of this division, aliens who are not qualified aliens, nonimmigrant aliens under the Immigration and Nationality Act (“INA”) (8 U.S.C. Section 1101, et seq.), or aliens paroled into the United States under Section 212(d)(5) of the INA (8 U.S.C. Section 1182(d)(5)), for less than one year, are not eligible to receive a license or certificate described in subsection (a), except as provided in 8 U.S.C. 1621(c)(2).

(d) A qualified alien is an alien who, at the time he or she applies for, receives, or attempts to receive a license or certificate described in subsection (a), is, under Section 431(b) and (c) of the PRWORA (8 U.S.C. Section 1641(b) and (c)), any of the following:

(1) An alien who is lawfully admitted for permanent residence under the INA (8 U.S.C. Section 1101, et seq.).

(2) An alien who is granted asylum under Section 208 of the INA (8 U.S.C. Section 1158).

(3) A refugee who is admitted to the United States under Section 207 of the INA (8 U.S.C. Section 1157).

(4) An alien who is paroled into the United States under Section 212(d)(5) of the INA (8 U.S.C. Section 1182(d)(5)) for a period of at least one year.

(5) An alien whose deportation is being withheld under Section 243(h) of the INA (8 U.S.C. Section 1253(h)) (as in effect immediately before the effective date of Section 307 of Division C of Public Law 104-208) or Section 241(b)(3) of such Act (8 U.S.C. Section 1251(b)(3)) (as amended by Section 305(a) of Division C of Public Law 104-208).

(6) An alien who is granted conditional entry pursuant to Section 203(a)(7) of the INA as in effect prior to April 1, 1980. (8 U.S.C. Section 1153(a)(7)) (See editorial note under 8 U.S.C. Section 1101, “Effective Date of 1980 Amendment.”)

(7) An alien who is a Cuban or Haitian entrant (as defined in Section 501(e) of the Refugee Education Assistant Act of 1980 (U.S.C. Section 1522 note)).

(8) An alien who meets all of the conditions of subparagraphs (A), (B), (C), and (D) below:

(A) The alien has been battered or subjected to extreme cruelty in the United States by a spouse or a parent, or by a member of the spouse's or parent's family residing in the same household as the alien, and the spouse or parent of the alien consented to, or acquiesced in, such battery or cruelty. For purposes of this subsection, the term “battered or subjected to extreme cruelty” includes, but is not limited to being the victim of any act or threatened act of violence including any forceful detention, which results or threatens to result in physical or mental injury. Rape, molestation, incest (if the victim is a minor), or forced prostitution shall be considered as acts of violence.

(B) There is a substantial connection between such battery or cruelty and the need for the benefits to be provided in the opinion of the Department of Corporations. For purposes of this subsection, the following circumstances demonstrate a substantial connection between the battery or cruelty and the need for the benefits to be provided:

1. The benefits are needed to enable the alien to become self-sufficient following separation from the abuser.

2. The benefits are needed to enable the alien to escape the abuser and/or the community in which the abuser lives, or to ensure the safety of the alien from the abuser.

3. The benefits are needed due to a loss of financial support resulting from the alien's separation from the abuser.

4. The benefits are needed because the battery or cruelty, separation from the abuser, or work absences or lower job performance resulting from the battery or extreme cruelty or from legal proceedings relating thereto (including resulting child support, child custody, and divorce actions) cause the alien to lose his or her job or to earn less or to require the alien to leave his or her job for safety reasons.

5. The benefits are needed because the alien requires medical attention or mental health counseling, or has become disabled, as a result of the battery or extreme cruelty.

6. The benefits are needed because the loss of a dwelling or source of income or fear of the abuser following separation from the abuser jeopardizes the alien's ability to care for his or her children (e.g., inability to house, feed or clothe children or to put children into a day care for fear of being found by the abuser).

7. The benefits are needed to alleviate nutritional risk or need resulting from the abuse or following separation from the abuser.

8. The benefits are needed to provide medical care during a pregnancy resulting from the abuser's sexual assault or abuse of, or relationship with, the alien and/or to care for any resulting children.

9. Where medical coverage and/or health care services are needed to replace medical coverage or health care services the alien had when living with the abuser.

1. status as a spouse or child of a United States citizen pursuant to clause (ii), (iii), or (iv) of Section 204(a)(1)(A) of the INA (8 U.S.C. Section 1154(a)(1)(A)(ii), (iii), or (iv)),

2. classification pursuant to clause (ii) or (iii) of Section 204(a)(1)(B) of the INA (8 U.S.C. Section 1154(a)(1)(B)(ii) or (iii)),

3. suspension of deportation and adjustment of status pursuant to Section 244(a)(3) of the INA (8 U.S.C. Section 1254) as in effect prior to April 1, 1997 [Pub.L. 104-208, Section 501 (effective September 30, 1996, pursuant to Section 591); Pub.L. 104-208, Section 304 (effective April 1, 1997, pursuant to Section 309); Pub.L. 105-33, Section 5581 (effective pursuant to Section 5582)] (incorrectly codified as “cancellation of removal under Section 240A of such Act [8 U.S.C. Section 1229b] (as in effect prior to April 1, 1997),”.)

4. status as a spouse or child of a United States citizen pursuant to clause (i) of Section 204(a)(1)(A) of the INA (8 U.S.C. Section 1154(a)(1)(A)(i)) or classification pursuant to clause (i) of Section 204(a)(1)(B) of the INA (8 U.S.C. Section 1154(a)(1)(B)(i)), or

5. cancellation or removal pursuant to Section 240A(b)(2) of the INA (8 U.S.C. Section 1229b(b)(2)).

(D) For the period for which benefits are sought, the individual responsible for the battery or cruelty does not reside in the same household or family eligibility unit as the individual subjected to the battery or cruelty.

(9) An alien who meets all of the conditions of subparagraphs (A), (B), (C), (D), and (E) below:

(A) The alien has a child who has been battered or subjected to extreme cruelty in the United States by a spouse or a parent of the alien (without the active participation of the alien in the battery or cruelty), or by a member of the spouse's or parent's family residing in the same household as the alien, and the spouse or parent consented or acquiesced to such battery or cruelty. For purposes of this subsection, the term “battered or subjected to extreme cruelty” includes, but is not limited to being the victim of any act or threatened act of violence including any forceful detention, which results or threatens to result in physical or mental injury. Rape, molestation, incest (if the victim is a minor), or forced prostitution shall be considered as acts of violence.

(B) The alien did not actively participate in such battery or cruelty.

(C) There is a substantial connection between such battery or cruelty and the need for the benefits to be provided in the opinion of the Department of Corporations. For purposes of this subsection, the following circumstances demonstrate a substantial connection between the battery or cruelty and the need for the benefits to be provided:

1. The benefits are needed to enable the alien's child to become self-sufficient following separation from the abuser.

2. The benefits are needed to enable the alien's child to escape the abuser and/or the community in which the abuser lives, or to ensure the safety of the alien's child from the abuser.

3. The benefits are needed due to a loss of financial support resulting from the alien's child's separation from the abuser.

4. The benefits are needed because the battery or cruelty, separation from the abuser, or work absences or lower job performance resulting from the battery or extreme cruelty or from legal proceedings relating thereto (including resulting child support, child custody, and divorce actions) cause the alien's child to lose his or her job or to earn less or to require the alien's child to leave his or her job for safety reasons.

5. The benefits are needed because the alien's child requires medical attention or mental health counseling, or has become disabled, as a result of the battery or extreme cruelty.

6. The benefits are needed because the loss of a dwelling or source of income or fear of the abuser following separation from the abuser jeopardizes the alien's child's ability to care for his or her children (e.g., inability to house, feed or clothe children or to put children into a day care for fear of being found by the abuser).

7. The benefits are needed to alleviate nutritional risk or need resulting from the abuse or following separation from the abuser.

8. The benefits are needed to provide medical care during a pregnancy resulting from the abuser's sexual assault or abuse of, or relationship with, the alien's child and/or to care for any resulting children.

9. Where medical coverage and/or health care services are needed to replace medical coverage or health care services the alien's child had when living with the abuser.

(D) The alien meets the requirements of subsection (c)(8)(C) above.

(E) For the period for which benefits are sought, the individual responsible for the battery or cruelty does not reside in the same household or family eligibility unit as the individual subjected to the battery or cruelty.

(10) An alien child who meets all of the conditions of subparagraphs (A), (B), and (C) below:

(A) The alien child resides in the same household as a parent who has been battered or subjected to extreme cruelty in the United States by that parent's spouse or by a member of the spouse's family residing in the same household as the parent and the spouse consented or acquiesced to such battery or cruelty. For the purposes of this subsection, the term “battered or subjected to extreme cruelty” includes, but is not limited to being the victim of any act or threatened act of violence including any forceful detention, which results or threatens to result in physical or mental injury. Rape, molestation, incest (if the victim is a minor), or forced prostitution shall be considered acts of violence.

1. The benefits are needed to enable the alien child's parent to become self-sufficient following separation from the abuser.

2. The benefits are needed to enable the alien child's parent to escape the abuser and/or the community in which the abuser lives, or to ensure the safety of the alien child's parent from the abuser.

3. The benefits are needed due to a loss of financial support resulting from the alien child's parent's separation from the abuser.

4. The benefits are needed because the battery or cruelty, separation from the abuser, or work absences or lower job performance resulting from the battery or extreme cruelty or from legal proceedings relating thereto (including resulting child support, child custody, and divorce actions) cause the alien child's parent's to lose his or her job or to earn less or to require the alien to leave his or her job for safety reasons.

5. The benefits are needed because the alien child's parent requires medical attention or mental health counseling, or has become disabled, as a result of the battery or extreme cruelty.

6. The benefits are needed because the loss of a dwelling or source of income or fear of the abuser following separation from the abuser jeopardizes the alien's ability to care for his or her children (e.g., inability to house, feed or clothe children or put children into a day care for fear of being found by the abuser).

7. The benefits are needed to alleviate nutritional risk or need resulting from the abuse or following separation from the abuser.

8. The benefits are needed to provide medical care during a pregnancy resulting from the abuser's sexual assault or abuse of, or relationship with, the alien child's parent and/or to care for any resulting children.

9. Where medical coverage and/or health care services are needed to replace medical coverage or health care services the alien child's parent had when living with the abuser.

(e) For purposes of this section, “nonimmigrant” is defined the same as in Section 101(a)(15) of the INA (8 U.S.C. Section 1101(a)(15)).

(f) For purposes of establishing eligibility for a license or certificate described in subsection (a), all of the following must be met:

(1) The applicant must declare himself or herself to be a citizen of the United States or a qualified alien under subsection (d), a nonimmigrant alien under subsection (e), or an alien paroled into the United States for less than one year under Section 212(d)(5) of the INA (8 U.S.C. Section 1182(d)(5)). The applicant shall declare that status through the use of the “Statement of Citizenship, Alienage, and Immigration Status for Application of Department of Corporations License or Certificate” Form.

(2) The applicant must present documents of a type acceptable to the Immigration and Naturalization Service (“INS”) which serve as reasonable evidence of the applicant's declared status. A fee receipt from the INS for replacement of a lost, stolen, or unreadable INS document is reasonable evidence of the alien's declared status.

(3) The applicant must complete and sign the “Statement of Citizenship, Alienage, and Immigration Status for Department of Corporations License or Certificate” Form.

(4) Where the documents presented do not on their face reasonably appear to be genuine or to relate to the individual presenting them, the government entity that originally issued the documents should be contacted for verification. With regard to naturalized citizens and derivative citizens presenting certificates of citizenship and aliens, the INS may be contacted for verification. The Department of Corporations may request verification from the INS by filing INS Form G-845 with copies of the pertinent documents provided by the applicant with the local INS office. If the applicant has lost his or her original documents or presents expired documents or is unable to present any documentation evidencing his or her immigration status, the applicant should be referred to the local INS office to obtain documentation.

(5) The type of documentation referred to the INS for verification pursuant to INS Form G-845 shall include the following:

(A) The document presented indicates immigration status but does not include an alien registration or alien admission number.

(B) The document is suspected to be counterfeit or to have been altered.

(C) The document includes an alien registration number in the A60 000 000 (not yet issued) or A80 000 000 (illegal border crossing) series.

(6) If the INS advises that the applicant has citizenship status or immigration status which makes him or her a qualified alien, a nonimmigrant, or an alien paroled for less than one year under Section 212(d)(5) of the INA, the INS verification should be accepted. If the INS advises that it cannot verify that the applicant has citizenship status or an immigration status that makes him or her a qualified alien, a nonimmigrant, or an alien paroled for less than one year under Section 212(d)(5) of the INA, benefits should be denied and the applicant notified pursuant to the Department of Corporations' regular procedures of his or her rights to appeal the denial of benefits.

(g) Pursuant to Section 434 of the PRWORA (8 U.S.C. Section 1644), where the Department of Corporations reasonably believes that an alien is unlawfully in the State based on the failure of the alien to provide reasonable evidence of the alien's declared status, after an opportunity to do so, said alien shall be reported to the INS.

(h) Provided that the alien has completed and signed “Statement of Citizenship, Alienage, and Immigration Status for Department of Corporations License or Certificate” Form under penalty of perjury, eligibility for the license or certificate shall not be delayed, denied, reduced or terminated while the status of the alien is verified.

(i) Pursuant to Section 432(d) of the PRWORA (8 U.S.C. Section 1642(d)), a nonprofit charitable organization that provides federal, state or local public benefits shall not be required to determine, verify, or otherwise require proof of eligibility of any applicant with respect to his or her immigration status or alienage.

(j) Nothing in this section shall be construed to withdraw eligibility for any state or local benefits under Section 411(b) of the PRWORA (8 U.S.C. Section 1621(b)).

(k) Any applicant who is determined to be ineligible pursuant to subsection (b) and (e) or who was made eligible for a license or certificate described in subsection (a) whose services are terminated, suspended, or reduced pursuant to subsections (c) and (f) is entitled to a hearing, pursuant to Chapter 5 (commencing with Section 11500) of Part 1 of Division 3 of Title 2 of the Government Code, and in all cases, the Commissioner of Corporations has all the powers granted therein.

NOTE

Authority cited: Section 25610, Corporations Code; and Sections 22150 and 50304, Financial Code. Reference: Sections 25211 and 25231, Corporations Code; Sections 22101, 50122 and 50130, Financial Code; and 8 U.S.C. Sections 1621, 1641 and 1642.

HISTORY

1. New article 5 (sections 250.60-250.61) and section filed 7-6-98; operative 8-5-98 (Register 98, No. 28).

2. Change without regulatory effect repealing subsection (a)(5) and amending Note filed 9-25-2002 pursuant to section 100, title 1, California Code of Regulations (Register 2002, No. 39).

§250.61. Statement of Citizenship, Alienage, and Immigration Status for Application of Department of Corporations License or Certificate.

Note • History

(a) Any individual owner (e.g., sole proprietorship) who is applying for any license or certificate described in subsection (a) of Section 250.60 shall include the following form as part of the application for that license or certificate:

STATE OF CALIFORNIA

DEPARTMENT OF CORPORATIONS

STATEMENT OF CITIZENSHIP, ALIENAGE, AND IMMIGRATION STATUS

FOR APPLICATION OF DEPARTMENT OF CORPORATIONS

LICENSE OR CERTIFICATE

Embedded Graphic 10.0006

LICENSES AND CERTIFICATES TO CITIZENS AND ALIENS

Citizens and nationals of the United States who meet all eligibility requirements and apply for a license or certificate must fill out Sections A and D of this form.

Aliens who meet all eligibility requirements and apply for a license or certificate must complete Sections A, B, C (if applicable), and D of this form.

SECTION A: CITIZENSHIP/IMMIGRATION STATUS DECLARATION

1. Is the applicant a citizen or national of the United States?

Embedded Graphic 10.0007

If the answer to the above question is “Yes”, where was he/she born?

(City/State)

2. To establish citizenship or nationality, please submit one of the documents on List A (attached hereto), which must be legible and unaltered to establish proof.

IF YOU ARE A CITIZEN OR NATIONAL OF THE UNITED STATES, PROCEED DIRECTLY TO SECTION D. IF YOU ARE AN ALIEN, PLEASE COMPLETE SECTION B, SECTION C (IF APPLICABLE), AND SECTION D.

SECTION B: ALIEN STATUS DECLARATION

IMPORTANT: Please indicate the applicant's alien status below, and submit documents evidencing such status. The alien status documents listed for each category are the most commonly used documents that the United States Immigration and Naturalization Service (INS) provides to aliens in those categories. You can provide other acceptable evidence of your alien status even if not listed below.

1. An alien lawfully admitted for permanent residence

under the Immigration and Naturalization Act (INA). Evidence includes:

• INS Form I-551 (Alien Registration Receipt Card,

commonly known as a “green card”); or

• Unexpired Temporary I-551 stamp in foreign passport

or on INS Form I-94.

2. An alien who is granted asylum under section 208 of the INA.

Evidence includes:

• INS Form I-94 annotated with stamp showing grant of asylum under

section 208 of the INA;

• INS form I-688B (Employment Authorization Card) annotated

“274a.12(a)(5)”;

• INS Form I-766 (Employment Authorization Document) annotated

“A5”;

• Grant letter from the Asylum Office of INS; or

• Order of an immigration judge granting asylum.

3. A refugee admitted to the United States under section 207 of the INA.

Evidence includes:

• INS Form I-94 annotated with stamp showing admission under

section 207 of the INA;

• INS Form I-688B (Employment Authorization Card) annotated

“274a.12(a)(3)”;

• INS Form I-766 (Employment Authorization Document) annotated

“A3”; or

• INS Form I-571 (Refugee Travel Document).

4. An alien whose deportation is being withheld under section 243(h) of the INA

(as in effect immediately prior to September 30, 1996) or Section 241(b)(3) of such Act (as amended by section 305(a) of Division C of Public Law 104-208). Evidence includes:

• INS Form I-688B (Employment Authorization Card) annotated

“274a.12(a)(10)”;

• INS Form I-766 (Employment Authorization Document)

annotated “A10”; or

• Order from an immigration judge showing deportation withheld under

section 243(h) of the INA as in effect prior to April 1, 1997, or removal withheld

under section 241(b)(3) of the INA.

5. An alien who is granted conditional entry under section 203(a)(7) of the

INA as in effect prior to April 1, 1980. Evidence includes:

• INS Form I-94 with stamp showing admission under Section 203(a)(7) of

the INA;

• INS Form I-688B (Employment Authorization Card) annotated

“274a.12(a)(3)”; or

• INS Form I-766 (Employment Authorization Document)

annotated “A3”.

6. An alien who is a Cuban or Haitian entrant (as defined in section 501(e) of the

Refugee Education Assistance Act of 1980). Evidence includes:

• INS Form I-551 (Alien Registration Receipt Card, commonly known as a

“green card”) with the code CU6, CU7, or CH6;

• Unexpired temporary I-551 stamp in foreign passport or on INS Form I-94

with the code CU6 or CU7; or

• INS Form I-94 with stamp showing parole as “Cuban/Haitian Entrant” under

Section 212(d)(5) of the INA.

7. An alien paroled into the United States for at least one year under section

212(d)(5) of the INA. Evidence includes:

• INS Form I-94 with stamp showing admission for at least one year under

Section 212(d)(5) of the INA. (Applicant cannot aggregate periods of admission

for less than one year to meet the one-year requirement.)

8. An alien paroled into the United States for less than one year under Section

212(d)(5) of the INA. (Evidence includes INS Form I-94 showing this status.)

9. An alien not in status categories 1 through 8 who has been admitted to the United

States for a limited period of time (a non-immigrant). Non-immigrants are persons who have temporary status for a specific purpose. (Evidence includes INS Form I-94 showing this status.)

SECTION C: DECLARATION FOR BATTERED ALIENS

IMPORTANT: Complete this section if the applicant, the applicant's child or the applicant child's parent has been battered or subjected to extreme cruelty in the United States.

1. Has the INS or the EOIR granted a petition or application filed by or on behalf

of the applicant, the applicant's child, or the applicant's child's parent under the INA or found that a pending petition sets forth a prima facie case? Evidence includes one of the documents on List B (attached hereto).

2. Has the applicant, the applicant's child, or the applicant child's parent been

battered or subjected to extreme cruelty in the United States by a spouse or parent, or by a spouse's or parent's family member living in the same house (where the spouse or parent consented to, or acquiesced in the battery or cruelty)?

SECTION D:

I DECLARE UNDER PENALTY OF PERJURY UNDER THE LAWS OF THE STATE OF CALIFORNIA THAT THE ANSWERS I HAVE GIVEN ARE TRUE AND CORRECT TO THE BEST OF MY KNOWLEDGE.

Applicant's Signature: Date:

Signature of Person

Acting for Applicant: Date:

LIST A

A person who is a citizen or national of the United States.

A. Primary Evidence

• A birth certificate showing birth in one of the 50 States, the District of Columbia, Puerto Rico (on or after January 13, 1941), Guam, the U.S. Virgin Islands (on or after January 17, 1917), American Samoa, Swain's Island or the Northern Mariana Islands, unless the person was born to foreign diplomats residing in the U.S.

Note: If the document shows that the individual was born in Puerto Rico, the U.S. Virgin Islands or the Northern Mariana Islands before these areas became part of the U.S., the individual may be a collectively naturalized citizen--see Paragraph C below.

• United States passport (except limited passports, which are issued for periods of less than five years);

• Report of birth abroad of a U.S. citizen (FS-240)(issued by the Department of State to U.S. citizens);

• Certificate of birth (FS-545) (issued by a foreign service post) or Certification of Report of Birth (DS-1350) (issued by the Department of State), copies of which are available from the Department of State;

• Certificate of Naturalization (N-550 or N-570) (issued by INS through a Federal or State court, or through administrative naturalization after December 1990 to individuals who are individually naturalized: The N-570 is a replacement certificate issued when the N-550 has been lost or mutilated or the individual's name has been changed);

• Certificate of Citizenship (N-560 or N-561) (issued by the INS to individuals who derive U.S. citizenship through a parent; the N-561 is a replacement certificate issued when the N-560 has been lost or mutilated or the individual's name has been changed);

• United States Citizen Identification Card (I-197) (issued by the INS until April 7, 1983 to U.S. citizens living near the Canadian or Mexican border who needed it for frequent border crossings) (formerly Form I-179, last issued in February 1974);

• Northern Mariana Identification Card (issued by the INS to a collectively naturalized citizen of the U.S. who was born in the Northern Mariana Islands before November 3, 1986);

• Statement provided by a U.S. consular officer certifying that the individual is a U.S. citizen (this is given to an individual born outside the U.S. who derives citizenship through a parent but does not have an FS-240, FS-545 or DS-1350); or

• American Indian Card with a classification code “KIC” and a statement on the back (identifying U.S. citizen members of the Texas Band of Kickapoos living near the U.S./Mexican border).

B. Secondary Evidence

If the applicant cannot present one of the documents listed in A above, the following may be relied upon to establish U.S. citizenship or nationality:

• Religious record recorded in one of the 50 States, the District of Columbia, Puerto Rico (on or after January 13, 1941), Guam, the U.S. Virgin Islands (on or after January 17, 1917)), American Samoa, Swain's Island or the Northern Mariana Islands (unless the person was born to foreign diplomats residing in such a jurisdiction) within three months after birth showing that the birth occurred in such jurisdiction and the date of birth or the individual's age at the time the record was made;

• Evidence of civil service employment by the U.S. government before June 1, 1976;

• Early school records (preferably from the first school) showing the date of admission to the school, the child's date and place of birth, and the name(s) and place(s) of birth of the parent(s);

• Census record showing name, U.S. citizenship or a U.S. place of birth, and date of birth or age of applicant;

• Adoption Finalization Papers showing the child's name and place of birth in one of the 50 States, the District of Columbia, Puerto Rico (on or after January 13, 1941), Guam, the U.S. Virgin Islands (on or after January 17, 1917), American Samoa, Swain's Island or the Northern Mariana Islands (unless the person was born to foreign diplomats residing in such a jurisdiction) or, where or adoption is not finalized and the State or other jurisdiction listed above in which the child was born will not release a birth certificate prior to final adoption, a statement from a state-approved adoption agency showing the child's name and place of birth in one of such jurisdictions (NOTE: the source of the information must be an original birth certificate and must be indicated in the statement); or

• Any other document that establishes a U.S. place of birth or in some way indicates U.S. citizenship (e.g., a contemporaneous hospital record of birth in that hospital in one of the 50 States, the District of Columbia, Puerto Rico (on or after January 13, 1941), Guam, the U.S. Virgin Islands (on or after January 17, 1917), American Samoa, Swain's Island or the Northern Mariana Islands (unless the person was born to foreign diplomats residing in such a jurisdiction).

C. Collective Naturalization

If the applicant cannot present one of the documents listed in A or B above, the following may be relied upon to establish U.S. citizenship for collectively naturalized individuals:

Puerto Rico:

• Evidence of birth in Puerto Rico on or after April 11, 1899 and the applicant's statement that he or she was residing in the U.S., a U.S. possession or Puerto Rico on January 13, 1941; or

• Evidence that the applicant was a Puerto Rican citizen and the applicant's statement that he or she was residing in Puerto Rico on March 1, 1917 and that he or she did not take an oath of allegiance to Spain.

U.S. Virgin Islands:

• Evidence of birth in the U.S. Virgin Islands, and the applicant's statement of residence in the U.S., a U.S. possession or the U.S. Virgin Islands on February 25, 1927;

• The applicant's statement indicating residence in the U.S. Virgin Islands as a Danish citizen on January 17, 1917 and residence in the U.S., a U.S. possession or the U.S. Virgin Islands on February 25, 1927, and that he or she did not make a declaration to maintain Danish citizenship; or

• Evidence of birth in the U.S. Virgin Islands and the applicant's statement indicating residence in the U.S., a U.S. possession or territory or the Canal Zone on June 28, 1932.

Northern Mariana Islands (NMI) (formerly part of the Trust Territory of the Pacific Islands (TTPI);

• Evidence of birth in the NMI, TTPI citizenship and residence in the NMI, the U.S., or a U.S. territory or possession on November 3, 1986 (NMI local time) and the applicant's statement that he or she did not owe allegiance to a foreign state on November 4, 1986 (NMI local time);

• Evidence of TTPI citizenship, continuous residence in the NMI since before November 3, 1981 (NMI local time), voter registration prior to January 1, 1975 and the applicant's statement that he or she did not owe allegiance to a foreign state on November 4, 1986 (NMI local time); or

• Evidence of continuous domicile in the NMI since before January 1, 1974 and the applicant's statement that he or she did not owe allegiance to a foreign state on November 4, 1986 (NMI local time). Note: If a person entered the NMI as a nonimmigrant and lived in the NMI since January 1, 1974, this does not constitute continuous domicile and the individual is not a U.S. citizen.

D. Derivative Citizenship

If the applicant cannot present one of the documents listed in A or B above, the following may be relied upon for a determination of derivative U.S. citizenship:

Applicant born abroad to two U.S. citizen parents:

• Evidence of the U.S. citizenship of the parents and the relationship of the applicant to the parents, and evidence that at least one parent resided in the U.S. or an outlying possession prior to the applicant's birth.

Applicant born abroad to a U.S. citizen parent and a U.S. non-citizen parent:

• Evidence that one parent is a U.S. citizen and that the other is a U.S. non-citizen national, evidence of the relationship of the applicant to the U.S. citizen parent and evidence that the U.S. citizen parent resided in the U.S., a U.S. possession, American Samoa or Swain's Island for a period of at least one year prior to the applicant's birth.

Applicant born out of wedlock abroad to a U.S. citizen mother:

• Evidence of the U.S. citizenship of the mother, evidence of the relationship to the applicant and, for births on or before December 24, 1952, evidence that the mother resided in the U.S. prior to the applicant's birth or, for births after December 24, 1952, evidence that the mother had resided, prior to the child's birth, in the U.S. or a U.S. possession for a period of one year.

Applicant born in the Canal Zone or the Republic of Panama:

• A birth certificate showing birth in the Canal Zone on or after February 26, 1904 and before October 1, 1979 and evidence that one parent was a U.S. citizen at the time of the applicant's birth; or

• A birth certificate showing birth in the Republic of Panama on or after February 26, 1904 and before October 1, 1979 and evidence that at least one parent was a U.S. citizen and employed by the U.S. government or the Panama Railroad Company or its successor in title.

All other situations where an applicant claims to have a U.S. citizen parent and an alien parent, or claims to fall within one of the above categories but is unable to present the listed documentation:

• If the applicant is in the U.S., he or she may contact the local INS office for determination of U.S. citizenship;

• If the applicant is outside the U.S., he or she may contact the State Department for a U.S. citizenship determination.

E. Adoption of Foreign-Born Child by U.S. Citizen

• If the birth certificate shows a foreign place of birth and the applicant cannot be determined to be a naturalized citizen under any of the above criteria, other evidence of U.S. citizenship may be obtained;

• Since foreign-born adopted children do not automatically acquire U.S. citizenship by virtue of adoption by U.S. citizens, the applicant may contact the local INS district office for a determination of U.S. citizenship if the applicant provides no evidence of U.S. citizenship.

F. U.S. Citizenship by Marriage

A women acquired U.S. citizenship through marriage to a U.S. citizen before September 22, 1922. Ask for: Evidence of U.S. citizenship of the husband, and evidence showing the marriage occurred before September 22, 1922.

Note: If the husband was an alien at the time of the marriage, and became naturalized before September 22, 1922, the wife also acquired naturalized citizenship. If the marriage terminated, the wife maintained her U.S. citizenship if she was residing in the U.S. at that time and continued to reside in the U.S.

LIST B

A. Documentation Evidencing an Approved Petition or Application

• INS Form I-551 (“Resident Alien Card” or “Alien Registration Receipt Card” commonly known as a “green card”) with one of the following INS class of admission (“COA”) codes printed on the front of a white card or the back of a pink card; AR1, AR6, C20 through C29, CF1, CF2, CR1, CR2, CR6, CR7, CX1 through CX3, CX6 through CX8, F20 through F29, FX1 through FX3, FX6 through FX8, IF1, IF2, IR1 through IR4, IR6 through IR9, IW1, IW2, IW6, IW7, MR6, MR7, P21 through P23, or P26 through P28.

If an alien claiming approved status presents a code different than those enumerated, or if the class of admission from the I-551 stamp cannot be determined, INS Form G-845, and G-845 Supplement (mark item six on the Supplement) along with a copy of the document(s) presented may be filed with the local INS office in order to determine whether the applicant gained his or her status because he or she was the spouse, widow, or child of a U.S. citizen or the spouse, child, or unmarried son or daughter of an LPR (lawful permanent resident).

• INS Form I-551 with one of the following COA codes stamped on the lower left side of the back of a pink card: IB1 through IB3, IB6 through IB8, B11, B12, B16, B17, B20 through B29, B31 through B33, B36 through B38, BX1 through BX3, or BX6 through BX8.

• INS Form I-551 with COA code Z13.

• Unexpired Temporary I-551 stamp in foreign passport or on INS Form I-94 with one of the COA codes specified in the Subsections (1)-(3), above.

• INS Form I-797 indicating approval of an INS I-130 petition (only I-130 petitions describing the following relationships may be accepted: husbands or wives of U.S. citizens or LPRs, unmarried children under 21 years old of U.S. citizens or LPRs, or unmarried children 21 or older of LPRs), or approval of an I-360 petition (only I-360 approvals based on status as a widow/widower of a U.S. citizen or as a self-petitioning spouse or child of an abusive U.S. citizen or LPR may be accepted).

• A final order of an Immigration Judge or the Board of Immigration Appeals granting suspension of deportation under section 244(a)(3) of the INA as in effect prior to April 1, 1997, or cancellation of removal under section 240A(b)(2) of the INA.

B. Documentation Demonstrating that the Applicant has Established a Prima Facie Case

• INS Form I-797 indicating that the applicant has established a prima facie case; or

• An immigration court or Board of Immigration Appeals order indicating that the applicant has established a prima facie case for suspension of deportation under INA section 244(a)(3) as in effect prior to April 1, 1997, or cancellation of removal under section 240A(b)(2) of the INA.

C. Documentation Indicating that the Applicant has Filed a Petition or that a Petition has been Filed on the Applicant's Behalf, as Applicable, but with no Evidence of Approval of the Petition or Establishment of a Prima Facie Case

Based on the documentation, the filing date of the petition may be determined and the following actions may be taken:

• Applicants with petitions filed before June 7, 1997 should have an INS Form I-797 indicating filing of the I-360 petition by “self-petitioning spouse [or child] of abusive U.S.C. or LPR,” a file-stamped copy of the petition, or another document demonstrating filing (including a cash register or computer-generated receipt indicating filing of Form I-360).

• Applicants with petitions filed after June 7, 1997 should have an INS Form I-797 indicating filing of the I-360 petition.

D. Documentation Indicating that the Applicant has filed a Petition or that a Petition was filed on His or Her Behalf, as Applicable

The following must indicate that the applicant is the widow/widower of a U.S. citizen, the husband or wife of a U.S. Citizen or LPR, the unmarried child under age 21 of a U.S. citizen or LPR, or the unmarried child age 21 or older of an LPR):

• For aliens on whose behalf a petition has been filed: INS Form I-797 indicating filing of an INS I-130 petition, a file-stamped copy of the petition, or another document demonstrating filing (including a cash register or computer-generated receipt indicating filing of Form I-130).

• For self-petitioning widows or widowers: a file-stamped copy of the INS I-360 petition, or another document demonstrating filing (including a cash register or computer-generated receipt indicating filing of Form I-360).

E. Documentation Indicating that the INS has Initiated Deportation or Removal Proceedings in which Relief may be Available

• an “Order to Show Cause”;

• a “Notice to Appear”; or

• a “Notice of Hearing in Deportation Proceedings.”

F. Minimal or no Documentation Regarding the Claimed Filing

If the applicant has some documentation, but it is insufficient to demonstrate filing, establishment of prima facie case or approval of a petition, the INS Request Form on agency letterhead, as well as a copy of any document(s) provided by the applicant, may be faxed to the INS Vermont Service Center in order to determine the applicant's status. If the applicant has no documentation, but is certain that a petition has been filed by his or her spouse or parent, the INS Request Form may be faxed to the INS Vermont Service Center.

NOTE

Authority cited: Section 25610, Corporations Code; Sections 22150 and 50304, Financial Code; and Section 1344, Health and Safety Code. Reference: Sections 25211 and 25231, Corporations Code; Sections 22101, 50122 and 50130, Financial Code; Section 1351, Health and Safety Code; and 8 U.S.C. Sections 1621, 1641 and 1642.

HISTORY

1. New section filed 7-6-98; operative 8-5-98 (Register 98, No. 28).

Article 6. Administrative Penalties

§250.70. Administrative Penalties.

Note • History

(a) In determining the amount of any administrative penalty levied or assessed against any person subject to Part 3, Division 1, Title 4 of the Corporations Code for each violation of any statute, rule, or order, the Commissioner may consider a variety of factors including, but not limited to, the following:

(1) The nature and seriousness of the violations including actual or potential harm to the public or consumer.

(2) The number and persistence of violations and the length of time over which they occurred.

(3) The person's history of violations or complaints with the Department, other agencies or regulators.

(4) Whether the person's conduct was negligent, willful, or knowing, and the extent to which it was negligent, willful, or knowing.

(5) The person's financial condition including net worth and revenue.

(6) The nature and extent to which the person cooperated with the Department's investigation.

(7) Whether the person aggravated or mitigated any injury or damage caused by the violations.

(8) The nature and extent to which the person has taken corrective action to ensure that violations will not reoccur.

NOTE

Authority cited: Section 25610, Corporations Code. Reference: Section 25252, Corporations Code.

HISTORY

1. New article 6 (section 250.70) and section filed 9-11-2003; operative 10-11-2003 (Register 2003, No. 37).

Subchapter 2. Corporate Securities

(Originally Printed 3-22-45)

Article 1. Definitions

§260.000. Section Numbers.

Note • History

The section numbers in this Subchapter 2 of these rules are keyed to the section numbers in the Corporate Securities Law of 1968. The section numbers in this subchapter all commence with “260” with a decimal point and three numbers following the decimal point which correspond to the last three numbers of the relevant section in the Corporate Securities Law of 1968. For example, Section “260.017” is a rule adopted relating to Section 25017 of the Corporate Securities Law of 1968. Where there is more than one rule relating to a particular section the second three numbers are followed by a second decimal point and one or more further numbers to distinguish the different rules adopted relating to that same section. Where there are many rules relating to a single section, as for example under Section 25140 of the Corporate Securities Law of 1968 dealing with the “fair, just and equitable” standard, the last set of numbers are not always consecutive, in order that additional sections can be added without renumbering all of the rules relating to that Code section.

These Rules may be cited without the prefactory numbers “260” where the context makes clear that a rule under the Corporate Securities Law of 1968 is referred to.

NOTE

Authority cited for Subchapter 2: Sec. 25308, Corporations Code, and Secs. 25610, 25612 and 25614 of the Corporate Securities Law of 1968.

HISTORY

1. Repealer of Subchapter 2 ( §§ 300 through 860) and new Subchapter 2 ( §§ 260.000 through 260.617not consecutive) filed 11-15-68; designated effective 1-2-69 (Register 68, No. 43). For prior regulations, see Registers: 12, No. 9; 54, No. 6; 56, Nos. 8, 12; 60, Nos. 6, 15; 61, Nos. 4, 22; 62, No. 2; 63, No. 20; 65, No. 14; 67, Nos. 40 and 43.

§260.001. General Definitions.

Note • History

The terms defined in Part 1 and Section 25600 of the Corporate Securities Law of 1968 when used in this Subchapter 2 shall have the meanings set forth in that part and that section. In addition, the following definitions shall apply in this Subchapter 2:

(a) “Charter Documents” means certificate of incorporation, articles of incorporation, articles of organization, certificate of determination of preferences, agreement of consolidation or merger, and bylaws of a corporation; a shareholders' agreement as defined in subsection (h); declaration of trust; agreement of partnership, certificate of limited partnership, or any other document or instrument adopted to establish or regulate any association, joint stock company, trust, limited liability company, or other entity; as such documents are currently in effect, and includes a certificate of correction such as that referred to in Section 109 of the Code, an opinion of counsel pursuant to Section 110 of the Code (or pursuant to a similar provision of the law of a foreign jurisdiction), and any of the foregoing which have been filed with the Secretary of State or similar authority subject to a request for delayed effectiveness.

(b) “Close corporation” means a corporation which is a close corporation within the meaning of Section 158 of the Code, and includes a foreign corporation organized or operating pursuant to a similar provision of the laws of a foreign jurisdiction.

(d) “Default” or “Arrears” means default or arrears in payment of dividends, interest, sinking fund payment, or principal, on the date due.

(e) “Limited Offering Qualification” means a qualification which authorizes the offer and sale of securities only to persons designated therein by name or class.

(f) “Open Qualification” means a qualification which authorizes the offer and sale of securities to the public generally, without restriction as to persons or class of persons.

(g) A “Seasoned Corporation” ordinarily means an issuer which has been conducting bona fide business operations, either directly or through a predecessor, for more than two years, and has operated at profit during at least one of the last three fiscal years.

(h) Unless the context otherwise requires, “shareholders' agreement” means an agreement as defined by Section 186 of the Code, and includes substantially similar agreements pursuant to the laws of a foreign jurisdiction (See Sections 260.017.2, 260.017.3, 260.102.12 and 260.105.22).

(i) The term “small business issuer” means any entity meeting all of the following:

(1) has annual revenues of less than $12.5 million;

(2) is either a California corporation or a foreign corporation, which foreign corporation at the time of filing an application for qualification:

(A) is subject to Section 2115 of the Code, or

(B) is not subject to Section 2115 of the Code, but by applying the three-factor test set forth in subdivision (a) of Section 2115 of the Code, has an average property factor, payroll factor and sales factor of not less than 25 percent during the latest full income year, provided that the payroll factor for the same period is at least 50 percent, and has a percentage of outstanding voting securities held of record, as of the last record date for a shareholder's meeting, by persons having addresses in this state of at least 25 percent;

(3) is not an investment company subject to the Investment Company Act of 1940 or “blind pool” company (as that term is defined in Section 260.113.1); and,

(4) if a majority-owned subsidiary, the parent is also a small business issuer.

NOTE

Authority cited: Section 25610, Corporations Code. Reference: Sections 2115, 25113(b)(2), 25600 and 25610, Corporations Code.

HISTORY

1. Amendment of subsection (a) and new subsections (g) and (h) filed 5-15-78; effective thirtieth day thereafter (Register 78, No. 20).

2. Editorial correction of NOTE filed 3-9-83 (Register 83, No. 11).

3. Amendment filed 10-26-84; effective thirtieth day thereafter (Register 84, No. 43).

4. Amendment of subsection (a), new subsections (i)-(i)(4), and amendment of Note filed 12-19-95; operative 1-18-96 (Register 95, No. 51).

5. Editorial correction restoring inadvertently omitted subsection (c) (Register 96, No. 52).

6. Change without regulatory effect amending subsections (a), (h) and (i)(2)(A) filed 9-25-2002 pursuant to section 100, title 1, California Code of Regulations (Register 2002, No. 39).

§260.004. Certification of Exchanges.

Note • History

(a) Any exchange that desires to be certified as excluded from the definition of a “broker-dealer” pursuant to subdivision (a)(7) of Section 25004 of the Code shall file a written request for certification with the Commissioner. In addition to the most recent audited financial statement of the exchange, the request shall include the provisions of the governing documents of the exchange regarding the following:

(1) the rights and obligations imposed upon holders and writers of options;

(2) the requirements for approval of underlying stock and the issuers thereof;

(3) the limitations on the number of options covering a given stock which may be exercised by a holder or group of holders within a specified period;

(4) the limitations imposed upon the number of options which may be written, held or exercised by a single writer or investor, or group of investors;

(5) the restrictions on trading in options upon the occurrence of specified conditions;

(6) the requirements imposed upon members of the exchange, including net capital requirements, margin requirements applicable to accounts of member firms and their customers and recordkeeping requirements;

(7) the requirements imposed upon exchange members regarding the approval of a prospective customer's account, including information required as to the customer's investment objectives, financial status and needs; and

(8) the procedures for the suspension of members.

(b) To the extent that the matters specified in subsection (a) are set forth in an application for registration under the Securities Act of 1933 and/or in a filing pursuant to Rule 19b-4 under the Securities Exchange Act of 1934, a copy of that filing should be filed in fulfilling the requirement of this section.

NOTE

Authority cited: Section 25610, Corporations Code. Reference: Sections 25004 and 25210, Corporations Code.

HISTORY

1. New section filed 12-31-74 as an emergency; designated effective 1-1-75 (Register 75, No. 1).

2. Certificate of Compliance filed 4-29-75 (Register 75, No. 18).

3. Amendment filed 5-6-75; effective thirtieth day thereafter (Register 75, No. 19).

4. Editorial correction of NOTE filed 3-9-83 (Register 83, No. 11).

5. Amendment of subsections (a) and (b) filed 9-24-2009; operative 10-24-2009 (Register 2009, No. 39).

§260.004.1. Associated Persons of an Issuer.

Note • History

(a) The term “broker-dealer,” as defined in section 25004 of the Corporate Securities Law of 1968, does not include an associated person of an issuer who is deemed not to be a broker pursuant to Rule 3a4-1 under the Securities Exchange Act of 1934 as amended (17 C.F.R. 240.3a4-1) (“Rule 3a4-1”)(50 FR 27946, July 9, 1985). For purposes of this rule, (i) “associated person of an issuer” will have the same meaning as is given such term in Rule 3a4-1; provided, however, than an associated person will not be entitled to rely on this section 260.004.1 if the associated person has done any of the acts, satisfies any of the circumstances, or is subject to any order specified in section 25212, subdivisions (a) through (i) of the Corporate Securities Law of 1968. No presumption will arise that an associated person of an issuer is a “broker-dealer” solely by reason of his or her participation in the offer and sale of securities of the issuer if he or she does not meet the conditions specified in Rule 3a4-1.

NOTE

Authority cited: Sections 25204 and 25610, Corporations Code. Reference: Section 25004, Corporations Code.

HISTORY

1. New section filed 5-4-2011; operative 6-3-2011 (Register 2011, No. 18).

§260.008. Circulation of Publications in This State.

Note • History

In determining whether a newspaper or other publication has had more than two-thirds of its circulation outside this State during the past 12 months for the purposes of subdivision (c) of Section 25008 of the Code, in the case of a newspaper or magazine which publishes a separate edition circulated in this State which does not carry the same advertising as that of other editions of the same publication, such separate edition shall be considered a separate newspaper or magazine from the other editions of the same publication with respect to any advertisement which is not to be carried in all editions of the newspaper or magazine.

NOTE

Authority cited: Section 25610, Corporations Code. Reference: Section 25008, Corporations Code.

HISTORY

1. Editorial correction adding NOTE filed 3-9-83 (Register 83, No. 11).

§260.011. Indirect Benefit to the Issuer.

Note • History

The term “purchase price” as used in Section 25011 of the Code includes only the specific consideration bargained for in return for the securities (which may include the making of a loan to the issuer); it does not include any remote, contingent or incidental benefit which may accrue to the issuer, such as (without limitation) the inducement to a person to become or remain an employee of the issuer or perform other services for the issuer, even though a motive of the seller or the purchaser is to obtain such remote, contingent or incidental benefit for the issuer.

NOTE

Authority cited: Section 25610, Corporations Code. Reference: Sections 25011, 25101, 25102, 25104, 25110 and 25130, Corporations Code.

HISTORY

1. Editorial correction adding NOTE filed 3-9-83 (Register 83, No. 11).

§260.017. Stock Dividend.

Note • History

(a) The term “stock dividend” as used in subdivision (f) of Section 25017 of the Code and this section means the issuance of additional shares (including treasury shares) of the issuer to its existing shareholders, or to the shareholders of a class, pro rata according to the shares previously held (except for any cash or scrip paid for fractional shares), without consideration other than the transfer from surplus to stated capital of an amount equal to or greater than the par, stated or market value of the shares distributed, but without any other consideration being paid by the shareholders, and not by an amendment to the articles of incorporation stating the effect on outstanding shares. The term “stock dividend” does not include a stock split (as defined in Section 260.103.2 of these rules), exchange or reclassification of shares.

(b) A stock dividend is not payable “solely in shares of such common stock” within the meaning of subdivision (f) of Section 25017 of the Code when the shareholders are given an option to accept either cash or the additional shares of common stock.

(c) A stock dividend is not payable “in shares of such common stock, if the corporation has no other class of voting stock outstanding” within the meaning of subdivision (f) of Section 25017 of the Code unless (1) such dividend is payable in shares of voting common stock and (2) such voting common stock is of the same class as the class upon which the dividend is paid.

(d) Stock dividends which are included in the definition of “sale” are transactions requiring qualification under Section 25110 or 25120 of the Code, as appropriate, unless otherwise exempted by Section 25100, 25102, 25103 or 25105 of the Code.

NOTE

Authority cited: Section 25610, Corporations Code. Reference: Sections 25017, 25100, 25102, 25103, 25105, 25110 and 25120, Corporations Code.

HISTORY

1. Amendment filed 8-7-85; effective thirtieth day thereafter (Register 85, No. 32).

§260.017.1. Voting Stock.

Note • History

The term “voting stock” as used in subdivision (f) of Section 25017 and the term “voting shares” as used in Sections 260.105.6(b), 260.105.6(c) and 260.105.17(a)(4)(A) of these rules mean any stock presently entitling the owner or holder thereof to vote in elections of directors. Such terms do not include any security which entitles the owner or holder thereof to vote in elections of directors only upon the happening of an event or contingency which has not yet occurred.

NOTE

Authority cited: Section 25610, Corporations Code. Reference: Section 25017, Corporations Code.

HISTORY

1. Editorial correction adding NOTE filed 3-9-83 (Register 83, No. 11).

2. Amendment of section and Note filed 9-24-2009; operative 10-24-2009 (Register 2009, No. 39).

§260.017.2. Changes Effected Through Shareholders' Agreements.

Note • History

The term “any change in the rights, preferences, privileges, or restrictions of or on outstanding securities” as used in subdivision (a) of Section 25017 of the Code includes changes in the rights, preferences, privileges, or restrictions of or on outstanding securities of a corporation effected through the adoption, modification or termination of provisions of a shareholders' agreement, which provisions, except for the second sentence of Section 204(a) or other provision of the Code, or a substantially similar provision of the law of a foreign jurisdiction, would be required to be in the articles of incorporation or bylaws to be effective.

NOTE

Authority cited: Section 25610, Corporations Code. Reference: Sections 25017, 25103 and 25120, Corporations Code.

HISTORY

1. New section filed 5-15-78; effective thirtieth day thereafter (Register 78, No. 20).

2. Editorial correction of NOTE filed 3-9-83 (Register 83, No. 11).

§260.017.3. Change in Close Corporation Status.

Note • History

The term “any change in the rights, preferences, privileges, or restrictions of or on outstanding securities” as used in subdivision (a) of Section 25017 of the Code includes, but is not limited to, the addition to or deletion from the articles of incorporation of the provisions prescribed by Section 158(a) of the Code with respect to close corporations (see Sections 418(d) and 421 of the Code relating to restrictions on the transfer of shares and Sections 158(c), 1111 and 1201(e) relating to restrictions on voting rights).

NOTE

Authority cited: Section 25610, Corporations Code. Reference: Section 25017, Corporations Code.

HISTORY

1. New section filed 5-15-78; effective thirtieth day thereafter (Register 78, No. 20).

2. Editorial correction of NOTE filed 3-9-83 (Register 83, No. 11).

§260.019. Commodity Accounts.

Note • History

The term “security” as used in Section 25019 of the Code does not include any discretionary account maintained by a customer with a commodity broker for trading in commodities or commodity futures.

NOTE

Authority cited: Section 25610, Corporations Code. Reference: Section 25019, Corporations Code.

HISTORY

1. Editorial correction adding NOTE filed 3-9-83 (Register 83, No. 11).

§260.019.1. Voluntary Inter Vivos Trusts.

Note • History

(a) The term “voluntary inter vivos trust” as used in Section 25019 of the Code includes, but is not limited to, (1) either a charitable remainder annuity trust or charitable remainder unitrust as defined in Section 664 of the Internal Revenue Code, and (2) a pooled income fund as defined in Section 642(c)(5) of the Internal Revenue Code.

(b) A trust is presumptively a “voluntary inter vivos trust” within the meaning of that term as used in Section 25019 of the Code if each of the following conditions is met:

(1) It is an express trust created during the life of the trustor, which trust may be revocable or irrevocable.

(2) The obligations of the trustee are in accord with Article 2 (commencing with Section 2258) of Division Third, Part 4, Title 8, Chapter 1 of the Civil Code, and the trustee is not authorized or directed, expressly or by implication, to commingle by loan or otherwise the corpus or any part thereof with the personal assets of the trustee, or with the assets of any person entitled to a remainder interest.

(3) No beneficiary, other than the trustor if the trustor is a beneficiary, and no person entitled to any remainder interest in the trust, pays any consideration for such interest.

(c) This section does not create any presumption that a trust not conforming to this section is not a voluntary inter vivos trust. This section does not create a presumption that a trust is or is not formed for the purpose of carrying on a business or solely for the purposes of voting.

NOTE

Authority cited: Section 25610, Corporations Code. Reference: Section 25019, Corporations Code.

HISTORY

1. New section filed 1-22-75; effective thirtieth day thereafter (Register 75, No. 4).

2. Editorial correction of NOTE filed 3-9-83 (Register 83, No. 11).

§260.019.2. Non-Business Trusts.

Note • History

A voluntary inter vivos trust is not “created for the purpose of carrying on any business” within the meaning of Section 25019 of the Code, merely because the trustee invests and reinvests the assets of the trust in passive investments, provided a primary purpose of the trust evidences an intent to presently or ultimately benefit one or more specified eleemosynary organizations.

NOTE

Authority cited: Section 25610, Corporations Code. Reference: Section 25019, Corporations Code.

HISTORY

1. New section filed 1-22-75; effective thirtieth day thereafter (Register 75, No. 4).

2. Editorial correction of NOTE filed 3-9-83 (Register 83, No. 11).

Article 2. Exemptions from Qualification

§260.100. Class Exemption for Persons Issuing Life Income Contracts.

Note • History

The following persons are hereby designated by class as entitled to the exemption for the offer or sale of life income contracts pursuant to subdivision (k) of Section 25100 of the Code: Any nonprofit college or university which has total endowment funds (including annuity and life income funds) according to its most recent audited financial statement of not less than $2,000,000.

NOTE

Authority cited: Sections 25100 (k) and 25610, Corporations Code. Reference: Section 25100(k), Corporations Code.

HISTORY

1. Amendment filed 7-13-70; effective thirtieth day thereafter (Register 70, No. 29).

2. Editorial correction of NOTE filed 3-9-83 (Register 83, No. 11).

§260.100.1. Form of Request for Designation.

Note • History

Any organization which desires to be designated as one entitled to the exemption for the offer and sale of life income contracts pursuant to Subdivision (k) of Section 25100, and which is not within the class designated in Section 260.100 of these rules, may apply to the Commissioner for such a designation by order, on the following form:

File No.

(Insert file number of previous filings

before the Department, if any.)

Fee: $50

Date of Request________________________

DEPARTMENT OF CORPORATIONS

STATE OF CALIFORNIA

Request for designation as an exempt organization pursuant to Subdivision (k) of Section 25100 of the Corporate Securities Law of 1968.

1.______________________

(Name of Applicant)

2.______________________

(Principal business address of applicant)

3.______________________

(State whether applicant is a corporation, trust or other entity)

4.Is applicant organized exclusively for educational, benevolent, fraternal, religious, charitable, social, or reformatory purposes and not for pecuniary profit?

5.______________________

(Name and address of person to whom correspondence regarding

this request for designation should be addressed.)

6. Describe briefly the type of activities engaged in by the applicant.

7. There are attached hereto as exhibits, if applicable, the following which are hereby incorporated by reference:

A. Financial statements, including a balance sheet of recent date and a profit and loss statement for each of the three fiscal years preceding the date of the balance sheet. The balance sheet and profit and loss statements should reflect all assets acquired from donors of property in consideration of the payment to the donor or other persons of income or specified periodic payments.

B. A list containing the complete names and other business affiliations of the directors, officers, trustees and/or other persons who will be charged with the activities and operation of the applicant.

C. A statement setting forth the scope and nature of any investment advisory services that the applicant has utilized or proposes to utilize, or (if no such services are utilized) the investment experience of the persons to manage the investment portfolio.

D. An opinion of counsel with respect to the tax consequences to the prospective donors of property. The applicant has duly caused this application to be signed on its behalf by the undersigned, thereunto duly authorized.

______________________

(Applicant)

By______________________

(Title)

I certify (or declare) under penalty of perjury under the laws of the State of California that I have read this application and the exhibits thereto and know the contents thereof, and that the statements therein are true and correct.

Executed at ____________________, on ________________, 20____.

(Place) (Date )

______________________

(Signature)

NOTE

Authority cited: Section 25610, Corporations Code. Reference: Section 25100(k), Corporations Code.

HISTORY

1. Amendment of form filed 5-14-69; effective thirtieth day thereafter (Register 69, No. 20).

2. Editorial correction adding NOTE filed 3-9-83 (Register 83, No. 11).

3. Amendment filed 2-11-85; effective thirtieth day thereafter (Register 85, No. 7).

4. Change without regulatory effect amending form filed 9-25-2002 pursuant to section 100, title 1, California Code of Regulations (Register 2002, No. 39).

§260.100.2. Definition of “Life Income Contract.”

Note • History

The term “life income contract” as used in subdivision (k) of Section 25100 of the Code means an agreement between the issuer and a donor in consideration of a donation of property (which must be irrevocable) to such issuer (and only to such issuer) and providing for the payment to the donor or persons designated by him, for the life of the donor or such other persons, of a variable return measured or determined by the original value of the donated property and the return on designated assets (which may be other than the donated property).

NOTE

Authority cited: Section 25610, Corporations Code. Reference: Section 25100(k), Corporations Code.

HISTORY

1. New section filed 7-13-70; effective thirtieth day thereafter (Register 70, No. 29).

2. Amendment filed 1-22-75; effective thirtieth day thereafter (Register 75, No. 4).

3. Editorial correction of NOTE filed 3-9-83 (Register 83, No. 11).

§260.100.3. Request for Order of Exemption.

Note • History

(a) Any issuer whose notes, drafts, bills of exchange or banker's acceptances would be exempt from the qualification requirements of the Corporate Securities Law by virtue of subdivision (1) of Section 25100 but for the fact that such securities are to be offered and sold in amounts of less than $25,000 in the aggregate to any one purchaser may request an order of exemption pursuant to subdivision (1) of Section 25100 for such securities.

Generally, unless otherwise stated in the order, the order of exemption shall be for a one-year period and may be renewed for additional periods upon submission and approval of subsequent requests for order of exemption.

The order of exemption shall only be applicable to the securities described in the request for the order when offered and sold in the manner described in the request for the order. The order of exemption will exempt the securities that are the subject of the order from the provisions of Sections 25110, 25120 and 25130 of the Corporate Securities Law.

(b) A request for such order of exemption, or for renewal thereof, shall be submitted to the Commissioner on the following form:

File No.

Date of Request

DEPARTMENT OF CORPORATIONS

STATE OF CALIFORNIA

REQUEST FOR ORDER OF EXEMPTION PURSUANT

TO SUBDIVISION (1) OF SECTION 25100 OF THE

CORPORATE SECURITIES LAW OF 1968

1. ______________________

(Name of Issuer)

2. ______________________

(Address of Principal Executive Office of Issuer)

3. a. Is Issuer a corporation, partnership, bank, trust or other entity? ___

b. State of incorporation or jurisdiction under which organized ___

4. Name and address of person to whom correspondence regarding this request should be addressed:

______________________

5. (a) (b) (c) (d) (e)

Title of Maturities Denominations Renewable Minimum

securities (days or Min.-Max. (yes or no) investment

months)

Min.-Max.

___________ __________ ___________ ___________ __________

(f) (g)

Average dollar amount of such Average dollar amount of such

securities in minimum investments securities outstanding during previous

of less than $25,000 outstanding 12 months

during previous 12 months

California Total California Total

$ $ $ $

6. Briefly describe the business done by the Issuer and its parent or subsidiaries.

7. Briefly describe the class or classes of persons to whom the securities will be offered and the manner in which such persons will be solicited for such offers. Explain the suitability of the security as an investment for the individuals to whom offers are made and explain any relationships between such individuals and the Issuer. Attach copies of any advertising or other information disclosing the nature of the investment that is utilized in the solicitation process.

8. Briefly describe the terms of the securities, including renewal provisions or “roll-over” features. Describe the relationship between denomination, maturity, and rate of return, and the manner in which the Issuer establishes the rate of return. Explain whether the securities are sold at a discount or whether periodic interest payments are made. Attach a specimen certificate for each type of security to be issued pursuant to this exemption evidencing the security to be issued.

9. State the principal transactions out of which the securities arise or the principal purposes for which the net proceeds of the sales of such securities are to be used and the approximate amount intended to be used for each such transaction or purpose.

10. Attach as exhibits, if applicable, the following which are hereby incorporated by reference.

a. Financial statements of the Issuer as required by Section 260.613 of Title 10 of the California Code of Regulations.

b. Copies of the Issuer's most recent Form 10-K and Form 8-K filings with the Securities and Exchange Commission (or the filings of the parent if the Issuer has not made such filings).

c. Copies of each of the most recent ratings by nationally recognized statistical rating organizations of the Issuer's securities issuable pursuant to the exemption under Section 25100(l), or a description thereof if copies are not available.

d. A schedule which sets forth the Issuer's ratio of earnings to fixed charges, current ratio, quick asset ratio and inventory turnover (all based on the Issuer's most current financial information).

e. A copy of any “no action” letters issued by the Securities and Exchange Commission regarding whether the Issuer's securities are exempt from the registration requirements of the Securities Act of 1933 pursuant to Section 3(a)(3). If no such letters have been requested or received, attach an opinion of counsel that such securities are so exempt.

11. Are any of the Issuer's securities in default?

12. Describe any material changes which may have occurred subsequent to the dates of any financial statements or information submitted. Is the Issuer aware of any information which would give rise to questions regarding the ratings disclosed under Item 10c? If so, describe the information.

13. There is no adverse order, judgment or decree entered in connection with Issuer's debt securities that are exempt pursuant to Section 25100 (l), or similar exemption in another jurisdiction, or Section 3(a)(3) of the Securities Act of 1933, by any state regulatory authority, any court, or the Securities and Exchange Commission, except as follows: (If none, so state)

14. Submit any additional statements or information which will assist the Commissioner in determining whether qualification of such securities is necessary or appropriate in the public interest or for the protection of investors.

15. The Issuer agrees, in the event it does not reapply for an exemption under Subdivision (1) of Section 25100, to furnish the information specified in Item 5 above for the period during which the exemption herein applied for is in effect, if granted, within 90 days after the expiration of such exemption.

The Issuer has duly caused this request to be signed on its behalf by the undersigned, thereunto duly authorized.

(Issuer)

(Title)

I certify (or declare) under penalty of perjury under the laws of the State of California that I have read this request and the exhibits thereto and know the contents thereof, and that the statements therein are true and correct.

Executed at on , 20 .

(Place) (Date)

(Signature)

Instruction: It is recognized that if this is the Issuer's first request for Order of Exemption, some of the information requested by this application may not be available to the Issuer. If any requested information is not available, the Issuer shall so state and explain why the information is not available. The Commissioner expects that all Issuers who intend to apply for this Order of Exemption on a continuous basis will take appropriate action subsequent to the initial request to obtain information that was unavailable for this request for submission in subsequent requests for Order of Exemption pursuant to Section 25100(l).

NOTE

Authority cited: Sections 25100(l) and 25610, Corporations Code. Reference: Section 25100(l), Corporations Code.

HISTORY

1. New section filed 1-4-77; effective thirtieth day thereafter (Register 77, No. 2).

2. Section refiled 1-7-77; effective thirtieth day thereafter (Register 77, No. 2).

3. Editorial correction of NOTE filed 3-9-83 (Register 83, No. 11).

4. Amendment filed 2-11-85; effective thirtieth day thereafter (Register 85, No. 7).

5. Change without regulatory effect amending form filed 9-25-2002 pursuant to section 100, title 1, California Code of Regulations (Register 2002, No. 39).

§260.101. Insurance Company Securities. [Repealed]

Note • History

NOTE

Authority cited: Section 25610, Corporations Code. Reference: Section 25101, Corporations Code.

HISTORY

1. Amendment filed 4-4-78; effective thirtieth day thereafter (Register 78, No. 14).

2. Amendment refiled 4-4-78; effective thirtieth day thereafter (Register 78, No. 14).

3. Repealer filed 9-24-2009; operative 10-24-2009 (Register 2009, No. 39).

§260.101.1. Definitions of Terms and Implementation of Section 25101 of the Code. [Repealed]

Note • History

NOTE

Authority cited: Section 25610, Corporations Code. Reference: Section 25101(b), Corporations Code.

HISTORY

1. Amendment filed 4-4-78; effective thirtieth day thereafter (Register 73, No. 14). For prior history, see Register 78, No. 26.

2. Amendment refiled 4-4-78; effective thirtieth day thereafter (Register 78, No. 14.)

3. Amendment of subsections (c)(2) and (e) filed 8-11-89; operative 8-11-89 (Register 89, No. 33).

4. Amendment of subsections (a), (c) and (e) and Note and new subsection (c)(2) filed 12-4-92; operative 1-4-93 (Register 92, No. 49).

5. Change without regulatory effect repealing section filed 7-9-98 pursuant to section 100, title 1, California Code of Regulations (Register 98, No. 28).

§260.101.2. Certified National Securities Exchanges.

Note • History

Pursuant to subdivision (a) of Section 25101 of the Code, the following national securities exchanges are certified:

The NASDAQ Global Market

The New York Stock Exchange

NYSE Amex

Tier 1 of the NYSE Arca

Tier 1 of the NASDAQ OMX PHLX

NOTE

Authority cited: Sections 25101 and 25610, Corporations Code. Reference: Section 25101, Corporations Code.

HISTORY

1. New section filed 4-4-78; effective thirtieth day thereafter (Register 78, No. 14).

2. New section refiled 4-4-78; effective thirtieth day thereafter (Register 78, No. 14).

3. Amendment filed 12-14-79; effective thirtieth day thereafter (Register 79, No. 50).

4. Editorial correction of NOTE filed 3-9-83 (Register 83, No. 11).

5. Change without regulatory effect adding subsection (b) and renumbering undesignated paragraph as subsection (a) filed 4-19-91 pursuant to section 100, title 1, California Code of Regulations; operative 4-19-91 (Register 91, No. 21).

6. Amendment of subsection (a) and new subsection (c) filed 7-29-92; operative 8-28-92 (Register 92, No. 31).

7. Change without regulatory effect amending subsections (a)-(c) and adding new subsection (d) filed 12-5-95 pursuant to section 100, title 1, California Code of Regulations (Register 95, No. 49).

8. Amendment filed 11-10-2009; operative 12-10-2009 (Register 2009, No. 46).

§260.101.3. Notice Under Section 25101 (b) of the Code. [Repealed]

Note • History

NOTE

Authority cited: Section 25610, Corporations Code. Reference: Section 25101(b), Corporations Code.

HISTORY

1. New section filed 4-4-78; effective thirtieth day thereafter (Register 78, No. 14).

2. New section refiled 4-4-78; effective thirtieth day thereafter (Register 78, No. 14).

3. Amendment filed 2-11-85; effective thirtieth day thereafter (Register 85, No. 7).

4. Change without regulatory effect of subsection (b) filed 9-10-87; operative 10-10-87 (Register 87, No. 37).

5. Change without regulatory effect pursuant to section 100(b)(3), title 1, California Code of Regulations filed 12-15-89; operative 1-14-90 (Register 90, No. 1).

6. Amendment of subsection (a), form and Note, redesignation and amendment of former subsections (b)-(c) and new subsections (b)(1)-(2) filed 12-4-92; operative 1-4-93 (Register 92, No. 49).

7. Change without regulatory effect repealing section filed 7-9-98 pursuant to section 100, title 1, California Code of Regulations (Register 98, No. 28).

§260.102. Negotiating Permit.

Note • History

An application for a negotiating permit referred to in subdivision (c) of Section 25102 should be made on the form set out in Section 260.113 of these rules, which should be completed to the extent the information is available to the applicant at the time of application for the negotiating permit, and to the extent that it is not then available a brief statement should be included to that effect. However, except where the material terms of an offering remain to be negotiated, a permit qualifying the offer and sale will normally be issued if a negotiating permit would be issued and the permit qualifying the offer and sale should be applied for rather than a negotiating permit.

NOTE

Authority cited: Section 25610, Corporations Code. Reference: Sections 25102 and 25113, Corporations Code.

HISTORY

1. Amendment filed 8-7-85; effective thirtieth day thereafter (Register 85, No. 32).

§260.102.1. Non-Public Offering Under Subdivision (a) of Section 25102.

Note • History

(a) For the purposes of subdivision (a) of Section 25102 of the Code, no public offering is involved in an offer made to not more than 35 persons. The number of offerees referred to above is exclusive of the following:

(1) Those persons described in Section 25102(i) of the Code and Sections 260.102.10 and 260.105.14 of these rules.

(2) Officers, directors and affiliates of the issuer and those persons described in Section 260.102.13, subject to the definitions and limitations contained in Sections 260.102.12 and 260.102.13.

(3) For the purposes of this section, a husband and wife (together with any custodian or trustee acting for the account of their minor children) are counted as one person and a partnership, corporation or other organization which was not specifically formed for the purpose of purchasing the security offered in reliance upon this exemption, is counted as one person.

(b) This section does not create any presumption that a public offering is involved in offers made to more than 35 persons and the determination of whether or not a transaction not covered by this section involves a public offering shall be made without reference to this section.

NOTE

Authority cited: Sections 25105 and 25610, Corporations Code. Reference: Sections 25102 and 25105, Corporations Code.

HISTORY

1. Amendment filed 7-13-70; effective thirtieth day thereafter (Register 70, No. 29).

2. Amendment filed 10-20-83; effective thirtieth day thereafter (Register 83, No. 43).

§260.102.2. Non-Public Offering and Sale.

Note • History

For the purposes of subdivisions (e) and (g) of Section 25102 and subdivision (a) of Section 25104 of the Code, an offer or sale, does not involve any public offering if offers are not made to more than 25 persons and sales are not consummated to more than 10 of such persons, and if all of the offerees either have a preexisting personal or business relationship with the offeror or its partners, officers, directors or controlling persons or by reason of their business or financial experience could be reasonably assumed to have the capacity to protect their own interests in connection with the transaction. The number of offerees and purchasers referred to above is exclusive of any described in subdivision (i) of Section 25102 of the Code and a husband and wife (together with any custodian or trustee acting for the account of their minor children) are counted as one person. This section does not create any presumption that a public offering is involved in offers not conforming to this section, and the determination of whether or not a transaction not covered by this section involves a public offering shall be made without reference to this section.

NOTE

Authority cited: Section 25610, Corporations Code. Reference: Sections 25102 and 25104, Corporations Code.

HISTORY

1. Amendment filed 1-11-72; effective thirtieth day thereafter (Register 72, No. 3). For prior history, see Register 70, No. 50.

2. Amendment filed 10-26-81 as an emergency; designated effective 11-1-81 (Register 81, No. 44). A Certificate of Compliance must be transmitted to OAL within 120 days or emergency language will be repealed on 2-23-82.

3. Certificate of Compliance transmitted to OAL 2-22-82 and filed 3-24-82 (Register 82, No. 13).

§260.102.3. Evidence of Indebtedness.

Note • History

The term “evidence of indebtedness' as used in subdivision (e) in Section 25102 of the Code does not include a debt security which is convertible into an equity security unless such debt security is convertible into an equity security of the same issuer and the offer and sale of such equity security would be exempt from the provisions of Section 25110 of the Code by any provision other than Section 25102(h) of the Code.

NOTE

Authority cited: Sections 25105 and 25610, Corporations Code. Reference: Sections 25017 and 25102, Corporations Code.

HISTORY

1. Amendment filed 7-13-70; effective thirtieth day thereafter (Register 70, No. 29).

2. Editorial correction of NOTE filed 3-9-83 (Register 83, No. 11).

§260.102.4. One Class of Stock.

Note • History

For the purposes of subdivision (h) of Section 25102 of the Code:

(a) Debt securities are not a “class of stock” though they may be determined to be “equity” for the purpose of income taxes with respect to either the corporation or the shareholders thereof or for the purpose of priorities in bankruptcy or otherwise among creditors of the corporation.

(b) A corporation does not have “only one class of stock” outstanding if, at the time its shares are issued, there exists or is presently intended to be executed a shareholders' agreement pursuant to which any of the rights, preferences, privileges, or restrictions upon its shares, as enumerated in Subdivision (e) of Section 25103 of the Code, are or would be modified as to any such shares, or as to the holders of any such shares, in a manner not applicable to all outstanding shares.

NOTE

Authority cited: Section 25610, Corporations Code. Reference: Sections 25102 and 25103, Corporations Code.

HISTORY

1. Amendment filed 5-15-78; effective thirtieth day thereafter (Register 78, No. 20).

2. Change without regulatory effect amending subsection (b) filed 9-25-2002 pursuant to section 100, title 1, California Code of Regulations (Register 2002, No. 39).

§260.102.5. Beneficial Ownership of Securities.

Note • History

For the purpose of Subdivision (h) of Section 25102 of the Code:

(a) Securities held by a partnership or joint venture shall be considered to be owned beneficially by each of its partners or joint venturers and securities held by a trustee shall be considered to be owned beneficially by each of the beneficiaries, present, future, and contingent of the trust, provided, however, that a future or contingent beneficiary shall be disregarded if he or she is an ancestor, descendant or spouse of a present beneficiary, or a custodian or trustee for his or her account.

(b) In determining the number of persons owning shares beneficially, the provisions of Subdivision (d) of Section 158 of the Code are not controlling and reference should be made to this rule and to Subdivision (h)(5) of Section 25102 of the Code.

NOTE

Authority cited: Section 25610, Corporations Code. Reference: Section 25102, Corporations Code.

HISTORY

1. Amendment filed 5-14-69; effective thirtieth day thereafter (Register 69, No. 20).

2. Amendment filed 5-15-78; effective thirtieth day thereafter (Register 78, No. 20).

3. Editorial correction of NOTE filed 3-9-83 (Register 83, No. 11).

§260.102.6. Transfer Restriction on Stock Issued Under Small Offering Exemption. (Repealed)

Note • History

NOTE

Authority cited: Sections 25102 and 25610, Corporations Code. Reference: Section 25102, Corporations Code.

HISTORY

1. Amendment filed 1-4-77; effective thirtieth day thereafter (Register 77, No. 2). For prior history see Register 74, No. 9.

2. Amendment refiled 1-7-77; effective thirtieth day thereafter (Register 77, No. 2).

3. Amendment filed 5-15-78; effective thirtieth day thereafter (Register 78, No. 20).

4. Editorial correction of NOTE filed 3-9-83 (Register 83, No. 11).

5. Repealer filed 5-20-97; operative 5-20-97 pursuant to Government Code section 11343.4(d) (Register 97, No. 21).

§260.102.7. Selling Expenses.

For the purposes of Clause (2) of Subdivision (h) of Section 25102 of the Code, “selling expenses” means commissions, discounts or other compensation paid to any person as remuneration for selling the securities.

§260.102.8. Notice of Issuance of Securities Pursuant to Small Offering Exemption.

Note • History

(a) The notice referred to in Clause (5) of Subdivision (h) of Section 25102 of the Code shall be in the following form on 81/2” by 11” paper:

Embedded Graphic 10.0008

Embedded Graphic 10.0009

(b) The consent to service of process form required by Clause (5) of Subdivision (h) of Section 25102 of the Code shall be in the following form:

Embedded Graphic 10.0010

NOTE

Authority cited: Sections 25102(h), 25608 and 25610, Corporations Code. Reference: Section 25102(h), Corporations Code and Section 1189, Civil Code.

HISTORY

1. Amendment of subsection (a) filed 9-30-83 as an emergency; effective upon filing (Register 83, No. 40). A Certificate of Compliance must be transmitted to OAL within 120 days or emergency language will be repealed on 1-28-84. For prior history, see Register 83, No. 11.

2. Certificate of Compliance including amendment as to 9-30-83 order transmitted to OAL 1-25-84 and filed 2-16-84 (Register 84, No. 7).

3. Amendment filed 9-6-84; effective thirtieth day thereafter (Register 84, No. 36).

4. Change without regulatory effect amending section and Note filed 12-7-95 pursuant to section 100, title 1, California Code of Regulations (Register 95, No. 49).

5. Amendment of form and Note filed 5-20-97; operative 5-20-97 pursuant to Government Code section 11343.4(d) (Register 97, No. 21).

6. Change without regulatory effect amending subsection (b) form filed 9-25-2002 pursuant to section 100, title 1, California Code of Regulations (Register 2002, No. 39).

7. Amendment of subsection (b) and Note filed 9-23-2009; operative 10-23-2009 (Register 2009, No. 39).

§260.102.9. Proof of Mailing.

Note • History

The mailing of the notice referred to in Section 260.102.8 of these rules may be proved in the manner provided in Section 1013a of the California Code of Civil Procedure for proof of mailing of papers in civil actions, except that the affidavit of mailing need not be filed, but should be retained in duplicate in the records of the attorney and of the issuer.

NOTE

authority cited: Section 25610, Corporations Code. Reference: Section 25102, Corporations Code.

HISTORY

1. Editorial correction adding NOTE filed 3-9-83 (Register 83, No. 11).

§260.102.10. Designation of Institutional Investors and Governmental Agencies and Instrumentalities by Class.

Note • History

The following institutional investors and governmental agencies and instrumentalities are hereby designated by class as persons to whom an offer or sale may be made without qualification pursuant to the exemption contained in Subdivision (i) of Section 25102 of the Code:

(a) Any organization described in Section 501(c)(3) of the Internal Revenue Code, as amended December 29, 1981, which has total assets (including endowment, annuity and life income funds) of not less than $5,000,000 according to its most recent audited financial statement.

(b) Any corporation which has a net worth on a consolidated basis according to its most recent audited financial statement of not less than $14,000,000, provided that, if the securities being acquired pursuant to an exemption under this subsection (b) are common stock of a corporation or securities exchangeable for or convertible into common stock of a corporation, (1) the holders of less than 25% of the outstanding shares of such common stock (computed as provided in Section 25103(d) of the Corporate Securities Law, but deeming outstanding all shares of common stock issuable upon exchange or conversion of securities presently exchangeable for or convertible into common stock) have addresses in this state according to the records of the issuer of such common stock as of the most recent record date of such issuer for any action requiring the determination of shareholders of record, or as of three months prior to such offer or sale, whichever is most recent; or (2) such securities (plus any other similar securities held by the purchaser) will not represent more than five per cent of the total number of outstanding shares of common stock of the issuer assuming the exchange or conversion of all securities exchangeable for or convertible into common stock (unless all such shares of common stock are owned by corporations meeting the net worth test of this subsection (b)) provided, however, that the foregoing limitations with respect to transactions in common shares or securities convertible into common shares shall not apply to a transaction (1) in which such securities are offered pro rata to the holders of the outstanding common shares, (2) which is approved by the holders of 75% or more of the outstanding common shares, or (3) there are no common shares or securities convertible into common shares outstanding prior to the transaction.

(c) Any wholly-owned subsidiary of any institutional investor designated in Subdivision (i) of Section 25102 of the Code or in this Section.

NOTE

Authority cited: Section 25610, Corporations Code. Reference: Section 25102, Corporations Code.

HISTORY

1. Repealer of subsection (b) and renumbering of subsections (c) and (d) as (b) and (c) filed 4-30-70 as an emergency; designated effective 5-1-70 (Register 70, No. 18).

2. Certificate of Compliance filed 6-10-70 (Register 70, No. 24).

3. Amendment of subsection (b) filed 11-23-70 as an emergency; designated effective 11-23-70 (Register 70, No. 48).

4. Certificate of Compliance Sec. 11422.1, Gov. Code, filed 12-9-70 (Register 70, No. 50).

5. Amendment filed 10-15-82; effective thirtieth day thereafter (Register 82, No. 42).

§260.102.10.1. Distribution Under Securities and Exchange Commission Rule 144A.

Note • History

Section 25102(i) of the Code requires that each purchaser represent that the purchaser is purchasing for the purchaser's own account (or a trust account if the purchaser is a trustee) and not with a view to or for sale in connection with any distribution of the security. For purposes of Section 25102(i) of the Code, an offer to resell or a resale made under Section 260.105.13.1 will not be viewed as inconsistent with such purchaser representation.

NOTE

Authority cited: Section 25610, Corporations Code. Reference: Section 25102(i), Corporations Code.

HISTORY

1. New section filed 3-1-93; operative 3-31-93 pursuant to Government Code section 11343.4(d) (Register 93, No. 10).

2. Amendment filed 2-22-96; operative 2-22-96 pursuant to Government Code section 11343.4(d) (Register 96, No. 8).

§260.102.11. Advances and Loans in Connection with Small Offering Exemption.

Note • History

For the purposes of subdivision (h) of Section 25102 of the Code, advances or loans made to the issuer shall not be deemed to be the “receipt of consideration for the securities by the issuer,” until the issuance of shares in cancellation of the advances or loans, provided each of the following conditions is met:

(a) The advances or loans are made solely for the purpose of paying the expense incurred in connection with the organization of the issuer and the initial sale of its shares. Advances or loans includes advances on open book accounts and loans evidenced by promissory notes or other evidences of indebtedness.

(b) The advances or loans are made by, and owed to, the organizers of the corporation. For the purposes of this section, “organizers” means the persons instrumental in forming the issuer and the officers and directors of the issuer, but in no event may the number of persons making such advances or loans exceed the number of issuees permissible under Section 25102(h) of the Code.

(c) The issuer has not commenced business other than activities in connection with the organization and preparation for regular business or issued shares at the time such advances or loans are made.

(d) Any issuance of shares in cancellation of such advances or loans is consummated within 90 days after the filing of the articles of incorporation of the issuer.

(e) This section does not create any presumption that advances or loans made to the corporation not conforming to this section constitute the `receipt of consideration for the securities of the issuer.'

NOTE

Authority cited: Section 25610, Corporations Code. Reference: Sections 25102, 25105 and 25110, Corporations Code.

HISTORY

1. New section filed 1-22-75; effective thirtieth day thereafter (Register 75, No. 4).

2. Amendment filed 5-15-78; effective thirtieth day thereafter (Register 78, No. 20).

3. Amendment filed 8-7-85; effective thirtieth day thereafter (Register 85, No. 32).

§260.102.12. Limited Offering Exemption Interpretations.

Note • History

(a) The provisions of this section apply to the provisions of Section 25102(f) of the Code.

(b) Integration. The term “transaction” does not include

(1) any offer or sale of a security made more than 6 months before the start of an offering under the exemption or made more than six months after completion of an offering under the exemption, so long as during those six month periods there are no offers or sales of securities by or for the issuer that are of the same or a similar class as those offered or sold pursuant to the exemption, other than those offers or sales of securities under any purchase, savings, option, bonus, appreciation, profit-sharing, thrift, incentive, pension or similar plan solely for employees, directors, trustees or officers of the issuer or a subsidiary of the issuer (note: Section 25102(f) is not available for an offer or sale of a security to a pension or profit-sharing trust of the issuer),

(2) any offer or sale of a security pursuant to a qualification under Section 25110 or 25120 which became effective after the filing of the notice of the transaction pursuant to Rule 260.102.14, or in which the application for qualification discloses the transaction under the exemption, whether past, current or proposed. This subsection does not create any presumption that offers and sales not excluded from the transaction by its provisions are to be integrated for the purposes of the exemption and that determination shall be made without reference to this subsection.

(c) Purchaser. The term “purchaser” means a person who acquires the beneficial ownership of the security, whether individually or in joint ownership, in the transaction under the exemption. Each person who takes in joint ownership with another is to be counted as one except as otherwise provided in Section 25102(f).

(d) Relationship.

(1) The term “preexisting personal or business relationship” includes any relationship consisting of personal or business contacts of a nature and duration such as would enable a reasonably prudent purchaser to be aware of the character, business acumen and general business and financial circumstances of the person with whom such relationship exists. A relationship of employer-employee, or as a security holder of the issuer, or as a customer of a broker-dealer, investment adviser or other person, does not necessarily involve contacts of a nature which are sufficient to establish a “preexisting personal or business relationship” within the meaning of Section 25102(f). This subsection does not create any presumption that relationships not falling within its terms are not within the statutory language, and the determination of whether or not such a relationship is within the statutory language shall be made without reference to this subsection.

(2) The phrase “all purchasers” used in Section 25102(f)(2) of the Code does not include purchasers excluded from the count of purchasers by virtue of Section 25102(f)(4) or Rule 260.102.13.

(e) Partners. The term “partners” in Section 25102(f)(2) means general partners.

(f) Controlling Person. The term “controlling person of the offeror” includes but is not limited to a person who, in connection with transactions within one year of the formation of the issuer, is a “promoter” of the issuer. “Promoter” means a person who, acting alone or in conjunction with one or more other persons, takes the initiative in founding and organizing the business or enterprise of an issuer.

(g) Professional Advisor. The term “professional advisor” means a person who, as a regular part of such person's business, is customarily relied upon by others for investment recommendations or decisions, and who is customarily compensated for such services, either specifically or by way of compensation for related professional services, and attorneys and certified public accountants.

(1) The foregoing includes but is not limited to persons licensed or registered as broker-dealers, agents, investment advisers, banks and savings and loan associations. The foregoing also includes licensed real estate brokers with respect to those securities referred to in Section 25206 of the Code.

(2) A person is not the professional advisor of a purchaser unless designated as such by the purchaser.

(h) Unaffiliated. The relationships which will render a person not “unaffiliated” include

(1) a present or intended relationship of employment, either as an employee, employer, independent contractor or principal,

(2) any relationship within the definition of the term “affiliate” or as an officer or director of an affiliate and

(3) the beneficial ownership by the professional advisor of securities of the issuer or its affiliates or selling agent, except that the ownership of 1% or less of such securities shall not render a professional advisor not unaffiliated.

(i) Affiliate. “Affiliate” of the issuer means a person controlling, controlled by or under common control with, the issuer. A person controls another person within the meaning of this subsection through the possession, direct or indirect, of the power to direct or cause the direction of the management, policies or actions of such other person.

(j) Publication of Advertising. Section 25102(f)(4) of the Code is to be interpreted so as to facilitate the circulation of disclosure materials to offerees and purchasers, so long as such materials are not disseminated to the public (see Sections 25002 and 25014 of the Code). Private placement memoranda, offering circulars and similar disclosure documents are not “disseminated to the public” for the purposes of Section 25102(f) of the Code if the issuer limits such circulation

(1) to persons reasonably believed to be interested in purchasing the securities or

(2) to persons whom the issuer believes may meet the qualifications required of purchasers pursuant to such section and the rules thereunder, provided with respect to clause (1) and clause (2) that neither the issuer nor any person acting on its behalf shall offer or sell the securities by any form of general solicitation or general advertising, including, but not limited to, the following:

(A) Any advertisement, article, notice or other communication published in any newspaper, magazine, or similar media or broadcast over television or radio; and

(B) Any seminar or meeting whose attendees have been invited by any general solicitation or general advertising. The preceding sentence does not create any presumption that a dissemination of materials otherwise than as described therein is a “publication of advertising,” and the determination of that question shall be made without reference to that sentence.

(k) Institutional Investors. The reference in Section 25102(f) of the Code to purchasers described in Section 25102(i) includes those persons designated in Rule 260.102.10.

(l) For purposes of Section 25102(f), when a person is both an “affiliate of the issuer” or a purchaser excluded by Rule 260.102.13 and a partnership, corporation or other organization which was specifically formed for the purpose of purchasing the security offered in reliance upon the exemption, each beneficial holder of its securities shall be counted or excluded from the count in accordance with the provisions of Section 25102(f).

NOTE

Authority cited: Section 25610, Corporations Code. Reference: Section 25102(f), Corporations Code.

HISTORY

1. New section filed 10-26-81 as an emergency; designated effective 11-1-81 (Register 81, No. 44). A Certificate of Compliance must be transmitted to OAL within 120 days or emergency language will be repealed on 2-23-82.

2. Certificate of Compliance including amendment transmitted to OAL 2-22-82 and filed 3-24-82 (Register 82, No. 13).

3. Amendment of subsections (b), (d), and (j) filed 9-21-84; effective thirtieth day thereafter (Register 84, No. 38).

§260.102.13. Limited Offering Exemption Excluded Purchasers.

Note • History

For the purposes of Section 25102(f) of the Code, the following purchasers are excluded from the count of purchasers for purposes of Subparagraph (1) of that subdivision, except as provided in Subsection (l) of Rule 260.102.12:

(a) The trustee of an issuer which is a trust and the general partner of an issuer which is a partnership, who exercise managerial functions with respect to such entities, and any officer, director or general partner of a general partner of an issuer which is a partnership.

(b) Any person who occupies a position with the issuer, or with a general partner of an issuer which is a partnership, with duties and authority substantially similar to those of an executive officer of a corporation.

(c) (1) Any relative, spouse or relative of the spouse of a purchaser who has the same principal residence as the purchaser;

(2) any trust or estate in which a purchaser and any of the persons related to such purchaser as specified in Clause (1) or Clause (3) collectively have more than 50% of the beneficial interest (excluding contingent interests); and

(3) any corporation or other organization of which a purchaser and any of the persons related to such purchaser as specified in Clause (1) or Clause (2) collectively are beneficial owners of more than 50% of the equity securities (excluding director's qualifying shares) or equity interests. “Relative” means a person related by blood, marriage or adoption.

(d) Any individual who is a “promoter” of the issuer, as defined in Subsection (f) of Section 260.102.12.

(e) Any person who purchases $150,000 or more of the securities offered in the transaction, provided each such purchaser meets either one of the following, or who the issuer reasonably believes comes within either of the following:

(1) Such person, or such person's professional advisor, has the capacity to protect such person's own interests in connection with the transaction, as provided in Section 25102(f)(2).

(2) The investment (including mandatory assessments) does not exceed 10% of such person's net worth or joint net worth with that person's spouse.

(f) A small business investment company licensed by the U.S. Small Business Administration under Section 301(c) or (d) of the Small Business Investment Company Act of 1958, and a business development company as defined in Section 2(a)(48) of the Investment Company Act of 1940, and a private business development company as defined in Section 202(a)(22) of the Investment Advisors Act of 1940.

(g) A person who comes within one of the categories of an “accredited investor” in Rule 501(a) of Regulation D adopted by the Securities and Exchange Commission under the Securities Act of 1933 (17 CFR Sec. 230.501(a)).

(h) Any entity in which all of the equity owners are persons specified in Section 25102(i) of the Code; Rule 260.102.10; or subsections (a), (b), (c), (d), (f) and (g) of this rule; or who are “officers, directors or affiliates of the issuer” as that term is used in Section 25102(f) of the Code.

NOTE

Authority cited: Section 25610, Corporations Code. Reference: Section 25102, Corporations Code.

HISTORY

2. Certificate of Compliance including amendment transmitted to OAL 2-22-82 and filed 3-24-82 (Register 82, No. 13).

3. Amendment filed 10-15-82; effective thirtieth day thereafter (Register 82, No. 42).

4. Amendment of subsections (e), (f) and (g) filed 9-21-84; effective thirtieth day thereafter (Register 84, No. 38).

5. Amendment of subsection (g) filed 6-25-87; operative 7-25-87 (Register 87, No. 26).

6. Change without regulatory affect amending subsection (g) filed 7-2-92 pursuant to section 100, title 1, California Code of Regulations (Register 92, No. 28).

7. Amendment of subsection (e), repealer of subsection (e)(2), subsection renumbering, and repealer and new subsection (g) filed 12-19-96; operative 1-18-97 (Register 96, No. 51).

8. Editorial correction of first paragraph (Register 96, No. 51).

§260.102.14. Limited Offering Exemption Notice of Transaction.

Note • History

(a) An issuer who conducts a transaction under section 25102(f) of the Code shall file a notice with the Commissioner as follows:

(1) If in connection with the transaction the issuer is filing a notice with the Securities and Exchange Commission pursuant to section 4(6) of the Securities Act of 1933 or Regulation D (Rule 230.503), the notice may be a copy of the form first filed pursuant to those provisions. The fee required by section 25608(c) of the Code must accompany the filing. Each issuer (other than a California corporation) must also file a consent to service of process (Form 260.165), unless it already has a consent to service on file with the Commissioner. The filing should be accompanied with a cover letter indicating that the filing is pursuant to section 25102(f), and if a consent to service is not included, a statement that the issuer already has a consent to service on file with the Commissioner.

(2) Unless a notice is filed pursuant to paragraph (1), the notice shall be filed electronically through the Internet process made available by the Department at www.corp.ca.gov. If the issuer claims the exception under subsection (f), the notice shall be in the form and contain the information specified by subsection (c) and in accordance with the instructions in subsection (d).

(b) A notice required by this section shall be filed with the Commissioner no later than 15 calendar days after the first sale of a security in the transaction in this state. No notice is required if none of the securities offered are purchased in this state.

(c) Form of Notice. The following form is to be used for transactions covered by subsection (a)(2) that are subject to the hardship exception to electronic filing under subsection (f):

Embedded Graphic 10.0011

Embedded Graphic 10.0012

(d) Instructions. The following instructions apply to the form specified in subsection (c):

COMMISSIONER OF CORPORATIONS

STATE OF CALIFORNIA NOTICE OF TRANSACTION

PURSUANT TO CORPORATIONS CODE SECTION 25102(f)

INSTRUCTIONS

1. This Notice is to provide information on transactions conducted under the section 25102(f) exemption from the qualification requirements of Section 25110 of the Corporate Securities Law of 1968 and under the Rule 260.103 exemption from the qualification requirements of Section 25120 of that Law. The form is not designed to indicate whether or not the transaction complies with the requirements of those exemptions but only to provide notice to the Commissioner that the exemption is being relied on.

2. When to File Notice. The Notice must be filed with, or mailed to, the Commissioner within 15 calendar days after the first sale of a security in the transaction in this state. However, for purposes of determining the filing fee, a filing received before demand by the Commissioner shall be deemed filed as provided by rule of the Commissioner, provided that the obligation to file within 15 calendar days after the first sale of a security in the transaction in this state has not been intentionally disregarded. (See Corporations Code section 25102(f)(4).) The first sale in this state occurs when the issuer has obtained a contractual commitment in this state to purchase one or more of the securities the issuer intends to sell in connection with the transaction. No notice is required if none of the securities offered are purchased in this state. No subsequent notices are required for sales in connection with the same transaction. The information required by the form is to relate to the entire transaction, not just the first sale or sales in this state.

3. The Heading and Filing Fee. The Notice may be filed in person or by mail at any office of the Department. If the issuer has previously qualified securities with the Department, insert the file number of the qualification in the upper right hand corner of the form in the space provided. Circle the appropriate fee for filing this Notice. The fee is based on the value of all securities sold or intended to be sold in the entire transaction as follows (see Item 6 for valuing securities):

Value of Securities Filing Fee

$25,000 or less $25

$25,001-$100,000 $35

$100,001-$500,000 $50

$500,001-$1,000,000 $150

Over $1,000,000 $300

Filing Fee: Each notice, whether under 25102(f) or Rule 260.103, must be accompanied by the filing fee required by Section 25608(c) of the Code as described above.

Item A. Check appropriate box for exemption being relied on.

Item 1. Give the issuer's legal name.

Item 2. Give the street address, and the mailing address if different, of the issuer's principal place of business.

Item 3. Give the telephone number of issuer's principal place of business.

Item 4. Give the name of the state or other jurisdiction under whose laws the issuer is incorporated or organized. If the issuer is not incorporated or organized under the laws of any jurisdiction, provide the name of the jurisdiction where issuer is domiciled and include parenthetical “(domicile).”

Item 5. Set forth the name or title of each class or type of security to be sold in the transaction.

Item 6. See Corp. Code sec. 25608(g). Generally, the value of the securities shall be the price at which the issuer proposes to sell the securities, as alleged in the notice, or the actual value of the consideration (if other than money) to be received in exchange for the securities. See sec. 25608(g) for valuing voting trust certificates, warrants, rights, and share dividends. Complete the amounts in (a)(i), (ii) and (iii) in both the California and the Total Offering columns.

Item 7. If the transaction was registered under the Securities Act of 1933, insert “Registration Statement”. If conducted pursuant to an exemption from registration under that Act which requires a filing with the Securities and Exchange Commission, indicate the number of the rule pursuant to which such filing was made. If no such filing was made, insert “none.”

Item 8. If the notice is not filed electronically through the Internet process made available by the Department at www.corp.ca.gov, then complete the hardship exception by checking the applicable box and describing the reason(s) and description(s) for the hardship exception, as specified.

Item 9. Consent to Service of Process. Corporations Code section 25165 requires each issuer, other than a California corporation, to file a consent to service of process with the notice filed pursuant to section 25102(f) unless it already has a consent to service on file with the Commissioner. If the issuer already has a consent to service of process on file with the Commissioner, check the box. If no consent to service of process is on file with the Commissioner, attach the consent to this notice. Use Form 260.165 (see Rule 260.165, Title 10, California Code of Regulations).

Item 10. Date, Signature and Contact. The notice shall be signed and dated by an authorized officer, director, general partner or trustee of the issuer (or a person occupying a position with the issuer of equivalent responsibility) or by the authorized attorney of the issuer. If the person the Department is to contact in the event of questions concerning the transaction or the notice is different than the signer, insert the contact person's name, telephone number and correspondence address in the spaces provided. Otherwise, provide this information with respect to the signer.

(e) Electronic Filing. An issuer shall file a notice electronically through the Internet process made available by the Department, except as provided in subdivision (f).

The following shall apply to any person filing electronically:

(1) In addition to the information requested in subsection (c), an issuer that files a notice electronically shall provide a Federal Employer Identification Number for the issuer and, if applicable, a Federal Employer Identification Number for a representative filing on behalf of the issuer.

(2) The instructions and explanations in subsection (d) are applicable to the same information requested through the electronic filing.

(3) An issuer (other than a California Corporation) filing a notice electronically shall file electronically an irrevocable consent appointing the Commissioner to be the issuer's attorney to receive service of process under Section 25165 of the Code.

(4) An issuer filing the notice electronically shall print a copy of the notice and manually sign and date the notice pursuant to the instructions in Item 8 of subsection (d). The notice shall be executed before or at the time the electronic filing is made and shall be retained by the issuer for a period of five years from the date of filing.

(5) Upon request, the issuer shall provide to the Commissioner the manually signed notice.

(6) An issuer filing the notice electronically shall pay the filing fee electronically by credit card. A notice is not deemed filed until the filing fee is submitted.

(f) Hardship exception for electronic filing. An issuer may file the paper notice in person or by mail only if: (1) computer equipment including hardware and software is unavailable to the issuer without unreasonable burden or expense, and the issuer describes in the notice both of the following: (A) the reason(s) that the computer equipment including hardware and software is unavailable without unreasonable burden or expense; and (B) the description(s) of the unreasonable burden or expense to the issuer to make the electronic filing; or (2) the issuer cannot obtain and provide information requested on the Department's electronic notice or through the Internet filing process, and the issuer describes in the notice both of the following: (A) the reason(s) that the issuer cannot obtain and provide the requested information on the electronic notice or through the Internet filing process without unreasonable burden or expense; and (B) the description(s) of the unreasonable burden or expense to the issuer to make the electronic filing.

NOTE

Authority cited: Sections 25102, 25165 and 25610, Corporations Code. Reference: Sections 25102, 25165, 25608 and 25620, Corporations Code.

HISTORY

2. Certificate of Compliance including amendment transmitted to OAL 2-22-82 and filed 3-24-82 (Register 82, No. 13).

3. Amendment of subsection (a)(1) filed 10-15-82; effective thirtieth day thereafter (Register 82, No. 42).

4. Editorial correction of subsection (d) to correct printing error (Register 83, No. 11).

5. Amendment filed 9-30-83 as an emergency; effective upon filing (Register 83, No. 40). A Certificate of Compliance must be transmitted to OAL within 120 days or emergency language will be repealed on 1-28-84.

6. Certificate of Compliance including amendment as to 9-30-83 order transmitted to OAL 1-25-84 and filed 2-16-84 (Register 84, No. 7).

7. Amendment filed 9-21-84; effective thirtieth day thereafter (Register 84, No. 38).

8. Editorial correction of Form Reference (Register 91, No. 24).

9. New subsections (e)-(e)(5) filed 7-3-2003 as an emergency; operative 7-4-2003 (Register 2003, No. 27). A Certificate of Compliance must be transmitted to OAL by 11-3-2003 or emergency language will be repealed by operation of law on the following day.

10. New subsections (e)-(e)(5) refiled 10-31-2003 as an emergency; operative 11-3-2003 (Register 2003, No. 44). A Certificate of Compliance must be transmitted to OAL by 3-2-2004 or emergency language will be repealed by operation of law on the following day.

11. Amendment of section and Note filed 1-16-2004 as an emergency; operative 1-16-2004 (Register 2004, No. 3). A Certificate of Compliance must be transmitted to OAL by 5-17-2004 or emergency language will be repealed by operation of law on the following day.

12. Certificate of Compliance as to 10-31-2003 order, including amendment of subsection (e) and new subsection (e)(6), transmitted to OAL 3-2-2004 and filed 4-13-2004 (Register 2004, No. 16).

13. Amendment of section and Note refiled 5-17-2004 as an emergency; operative 5-17-2004 (Register 2004, No. 21). A Certificate of Compliance must be transmitted to OAL by 9-14-2004 or emergency language will be repealed by operation of law on the following day.

14. Certificate of Compliance as to 5-17-2004 order, including further amendment of section and Note, transmitted to OAL 9-14-2004 and filed 10-27-2004 (Register 2004, No. 44).

15. Amendment of subsections (a)(2) and (c)-(e), new subsection (f) and new Note filed 6-22-2005; operative 7-22-2005 (Register 2005, No. 25).

16. Amendment of subsections (a)(2), (c) and (d) filed 9-24-2009; operative 10-24-2009 (Register 2009, No. 39).

§260.102.15. Distribution Under Securities and Exchange Commission Rule 144A.

Note • History

Paragraph (3) of Section 25102(f) of the Code requires that each purchaser represent that the purchaser is purchasing for the purchaser's own account (or a trust account if the purchaser is a trustee) and not with a view to or for sale in connection with any distribution of the security. For purposes of paragraph (3) of Section 25102(f) of the Code, an offer to resell or a resale made under Section 260.105.13.1 will not be viewed as inconsistent with such purchaser representation.

NOTE

Authority cited: Section 25610, Corporations Code. Reference: Section 25102(f), Corporations Code.

HISTORY

1. New section filed 3-1-93; operative 3-31-93 (Register 93, No. 10).

2. Amendment filed 2-22-96; operative 2-22-96 pursuant to Government Code section 11343.4(d) (Register 96, No. 8).

§260.102.16. Limited Public Offering Exemption Notice of Transaction.

Note • History

(a) An issuer who conducts a transaction under Section 25102(n) of the Code shall file the notices of transaction with the Commissioner as follows:

(1) A First Notice of Transaction must be filed with the Commissioner concurrently with the earlier of the publication of the general announcement of the proposed offering or at the time of the initial offer of securities. The fee required by Section 25608(x) of the Code must accompany the filing. Each issuer (other than a California corporation) must also file a consent to service of process (Form 260.165), unless it already has a consent to service on file with the Commissioner. The filing should be accompanied with a cover letter indicating that the filing is pursuant to Section 25102(n), and if a consent to service is not included, a statement that the issuer already has a consent to service on file with the Commissioner. The claim of exemption is available upon the filing of the First Notice of Transaction and the payment of the filing fee, and terminates on the close or abandonment of the offering, but in no case more than 210 days from the date of the filing of the First Notice of Transaction.

(2) A Second Notice of Transaction Pursuant to Corporations Code Section 25102(n) must be filed within ten business days after the close or abandonment of the proposed offering, but in any case no more than 210 days from the date of the filing of the First Notice of Transaction.

(b) The term, “blind pool issuer,” is defined to have the same meaning as the term, “blind pool company,” found at Section 260.113.1(a)1. of these rules. However, for the purpose of the exemption from qualification provided by Section 25102(n) of the Code, the word “company” is used in a generic and comprehensive sense to include individuals, partnerships, corporations, and other forms of organization of an enterprise.

(c) This exemption is not available for transactions where the issuer has either failed to file the First Notice of Transaction or has failed to pay the required filing fee. However, failure to file the Second Notice of Transaction will not jeopardize the availability of the exemption.

(d) Form of the First Notice. The following form is to be used for transactions covered by subsection (a)(1):

Form of the First Notice

Embedded Graphic 10.0013

First Notice - Section 25102(n)

INSTRUCTIONS FOR FILING THE FIRST NOTICE

1. The notices are to provide information on transactions conducted under the Section 25102(n) exemption from the qualification requirements of Section 25110 of the Corporate Securities Law of 1968. The form is not designed to indicate whether or not the transaction complies with the requirements of those exemptions but only to provide notice to the Commissioner that the exemption is being relied on. See, Corporations Code Section 25163. This exemption is not available for transactions where the issuer has failed to file the First Notice of Transaction or has failed to pay the required filing fee.

2. When to File the First Notice. A First Notice of Transaction must be filed with the Commissioner of Corporations concurrent with the publication of the general announcement of the proposed offering or at the time of the initial offer of securities, whichever occurs first, accompanied by $600 filing fee. A Second Notice of Transaction must be filed within ten business days following the close or abandoment of the proposed offering, but in any case no more than 210 days from the date of the filing of the First Notice of Transaction.

3. The Notice may be filed in person or by mail at any office of the Department.

The Heading. If the issuer has previously qualified securities with the Department, insert the file number of the qualification in the upper right hand corner of the form in the space provided. The fee for filing the First Notice of Transaction is $600.00. There is no filing fee for the Second Notice of Transaction. A transaction under Rule 260.103 with a Notice pursuant to Section 25102(n) requires a $600.00 filing fee.

Item 1. Give the issuer's legal name.

Item 2. Give the street address, and the mailing address if different, of the issuer's principal place of business.

Item 3. Give the telephone number of issuer's principal place of business.

Item 4. Indicate the incorporation or organization of the issuer. Only entities organized in California (other then foreign corporations subject to Corporations Code Section 2115) may claim this exemption. If the issuer is a foreign corporation subject to Corporations Code Section 2115, provide the name of the jurisdiction where issuer is domiciled. If the issuer is another form of business entity organized under the laws of California, specify the type of business entity.

Item 5. Set forth the name or title of each class or type of security to be sold in the transaction.

Item 6. If the transaction was registered under the Securities Act of 1933, insert “registered”. If conducted pursuant to an exemption from registration under that Act which requires a filing with the Securities and Exchange Commission, indicate the number of the rule pursuant to which the filing was made. If no such filing was required, insert “none”.

Item 7. Indicate whether or not disclosure statements will be distributed.

Item 8. Indicate if disclosure statements are attached to the notice or if they will be submitted within 10 days of the Commissioner's request for the information.

Item 9. Indicate how the general announcement of the offering was made.

Item 10. Set forth the undertaking language required by Corporations Code Section 25102(n)(7).

Item 11. Date and Signature. The notices should be signed by an authorized officer, director, general partner or trustee of the issuer (or a person occupying a position with the issuer of equivalent responsibility) or by the authorized attorney of the issuer. If the person the Department is to contact in the event of questions concerning the transaction is different from the signer, insert the contact person's name, telephone number and correspondence address in the spaces provided. Otherwise, provide this information with respect to the signer.

Filing Fee. Each First Notice under 25102(n) must be accompanied by the filing fee required by Section 25608(x) of the Code.

Corporations Code Section 25165 requires each issuer, other than a California corporation, to file a consent to service of process with the Notices filed pursuant to Section 25102(n) unless it already has a consent to service on file with the Commissioner. Use Form 260.165 (see Rule 260.165, Title 10, California Code of Regulations).

(e) The Form of the Second Notice. The following form is to be used for transactions covered under subdivision (a)(2):

The Form of the Second Notice

Embedded Graphic 10.0014

INSTRUCTIONS FOR FILING THE SECOND NOTICE.

1. When to File the Second Notice. A Second Notice of Transaction must be filed within ten business days following the close or abandonment of the proposed offering, but in any case no more than 210 days from the date of the filing of the First Notice of Transaction.

2. The Notice may be filed in person or by mail at any office of the Department.

Item 1. Give the issuer's legal name.

Item 2. Give the street address, and the mailing address if different, of the issuer's principal place of business.

Item 3. Give the telephone number of the issuer's principal place of business.

Item 4. Give the date the First Notice was filed with the Department of Corporations.

Item 5. Give the date the offering was closed or abandoned.

Item 6. Set forth the name or title of each class or type of security to be sold in the transaction.

Item 7. If the transaction was registered under the Securities Act of 1933, insert “registered”. If conducted pursuant to an exemption from registration under that Act which requires a filing with the Securities and Exchange Commission, indicate the number of the rule pursuant to which such filing was made. If no such filing was required, insert “none.”

Item 8. Date and Signature. The notice should be signed by an authorized officer, director, general partner or trustee of the issuer (or a person occupying a position with the issuer of equivalent responsibility) or by the authorized attorney of the issuer. If the person the Department is to contact in the event of questions concerning the transaction is different from the signer, insert the contact person's name, telephone number and correspondence address in the spaces provided. Otherwise, provide this information with respect to the signer.

NOTE

Authority cited: Sections 25165 and 25610, Corporations Code. Reference: Sections 25102(n), 25165 and 25608, Corporations Code.

HISTORY

1. New section filed 2-22-96; operative 2-22-96 pursuant to Government Code section 11343(d) (Register 96, No. 8).

2. Editorial correction of First Notice form (Register 96, No. 52).

3. Editorial correction of subsections (a)(2) and (c) (Register 98, No. 32).

4. Amendment of forms and instructions thereto filed 8-5-98; operative 9-4-98 (Register 98, No. 32).

5. Change without regulatory effect amending section filed 9-25-2002 pursuant to section 100, title 1, California Code of Regulations (Register 2002, No. 39).

§260.102.17. Disclosure Statement Requirement for Section 25102(n)/Rule 504 Offerings.

Note • History

The written offering disclosure statement required to be received by each natural person (including a corporation, partnership, or other organization specifically formed by natural persons for the purpose of acquiring the securities offered by the issuer) under paragraph (4) of subdivision (n) of Section 25102 of the Code in an offering of securities exempt from federal registration under the Securities Act of 1933 by virtue of Rule 504 of Regulation D promulgated by the Securities and Exchange Commission shall be the information specified in paragraph (b)(2) of Rule 502 of Regulation D [Reg. Sec. 230.502(b)(2)]. For the purposes of the written offering disclosure statement required by paragraph (4) of subdivision (n) of Section 25102 of the Code, the references to a transaction under Rule 505 or 506 in paragraph (b)(2) of Rule 502 shall include a transaction under Rule 504.

NOTE

Authority cited: Sections 25102(n)(4) and 25610, Corporations Code. Reference 25102(n), Corporations Code.

HISTORY

1. New section filed 2-22-96; operative 2-22-96 pursuant to Government Code section 11343(d) (Register 96, No. 8).

§260.102.18. Distribution Under Securities and Exchange Commission Rule 144A.

Note • History

Paragraph (3) of Section 25102(n) of the Code requires that each purchaser represent that the purchaser is purchasing for the purchaser's own account (or a trust account, if the purchaser is a trustee) and not with a view to or for sale in connection with any distribution of the security. For purposes of paragraph (3) of Section 25102(n) of the Code, an offer to resell or a resale made under Section 260.105.13.1 will not be viewed as inconsistent with such purchaser representation.

NOTE

Authority cited: Section 25610, Corporations Code. Reference: Section 25102(n), Corporations Code.

HISTORY

1. New section filed 2-22-96; operative 2-22-96 pursuant to Government Code section 11343(d) (Register 96, No. 8).

2. Editorial correction (Register 96, No. 52).

§260.102.19. Notice of Transaction for Purchase or Option Plans or Agreements.

Note • History

(a) An issuer who effects a transaction under Section 25102(o) of the Code shall file a notice of transaction with the Commissioner not later than 30 days after the initial issuance of a security in California (Section 25008 of the Code) in that transaction. The notice shall be accompanied by the fee prescribed by Section 25608(y) of the Code.

(b) Each issuer (other than a California corporation) must also file a consent to service of process (Form 260.165), unless it already has a consent to service of process on file with the Commissioner.

Embedded Graphic 10.0015

NOTE

Authority cited: Sections 25102(o) and 25165, Corporations Code. Reference: Sections 25102(o), 25165 and 25608(y), Corporations Code.

HISTORY

1. New section filed 5-20-97; operative 5-20-97 pursuant to Government Code section 11343.4(d) (Register 97, No. 21).

2. Amendment of section heading, section and form filed 12-28-2000 as an emergency; operative 1-1-2001 (Register 2000, No. 52). A Certificate of Compliance must be transmitted to OAL by 5-1-2001 or emergency language will be repealed by operation of law on the following day.

3. Amendment of section heading, section and form refiled 5-2-2001 as an emergency; operative 5-2-2001 (Register 2001, No. 18). A Certificate of Compliance must be transmitted to OAL by 8-30-2001 or emergency language will be repealed by operation of law on the following day.

4. Amendment of section heading, section and form refiled 8-30-2001 as an emergency; operative 8-30-2001 (Register 2001, No. 35). A Certificate of Compliance must be transmitted to OAL by 12-28-2001 or emergency language will be repealed by operation of law on the following day.

5. Certificate of Compliance as to 8-30-2001 order, including further amendment of subsections (a) and (c), transmitted to OAL 12-27-2001 and filed 2-7-2002 (Register 2002, No. 6).

§260.103. Exemption from Qualification of Recapitalizations and Reorganizations.

Note • History

(a) Pursuant to the authority contained in Section 25105 of the Code, the following transactions are exempted from the provisions of Section 25120 of the Code as not being comprehended within the purposes of the Corporate Securities Law of 1968 and the qualification of which is not necessary or appropriate in the public interest or for the protection of investors:

(1) Any change in the rights, preferences, privileges, or restrictions of or on outstanding securities, and any exchange of securities by the issuer with its existing security holders exclusively, if the transaction, had it involved the issuance of a new security containing the changed rights, preferences, privileges, or restrictions, or a new issuance of the exchange security, would have been exempt from the provisions of Section 25110 of the Code by any of the subdivisions of Section 25102 of the Code or Section 260.105.14 of these rules; and

(2) Any exchange of securities in connection with any merger or consolidation or sale of corporate assets in consideration wholly or in part of the issuance of securities under, or pursuant to, a plan of reorganization or arrangement which, pursuant to the provisions of the Bankruptcy Code, has been confirmed or is subject to confirmation by the decree or order of a court of competent jurisdiction.

(b) A transaction conducted under this rule by reason of the provisions of subdivisions (f), (h) or (n) of Section 25102 requires the issuer to file the notice prescribed thereunder (see Rules 260.102.8, 260.102.14, and 260.102.16).

NOTE

Authority cited: Sections 25105 and 25610, Corporations Code. Reference: Sections 25102 and 25103, Corporations Code.

HISTORY

1. Amendment filed 5-15-78; effective thirtieth day thereafter (Register 78, No. 20). For prior history, see Register 75, No. 4.

3. Certificate of Compliance transmitted to OAL 2-22-82 and filed 3-24-82 (Register 82, No. 13).

4. Amendment of subsection (b) and Note filed 2-26-96; operative 2-26-96 pursuant to Government Code section 11343.4(d) (Register 96, No. 8).

5. Change without regulatory effect amending subsection (a)(2) filed 9-25-2002 pursuant to section 100, title 1, California Code of Regulations (Register 2002, No. 39).

§260.103.1. Authorization of New Classes of Stock.

History

Neither the authorization of a new class of stock by amendment of the charter documents of a corporation nor the issuance and sale of such new class of stock nor the issuance and sale of additional shares of an outstanding class constitutes a change in the rights, preferences, privileges, or restrictions of or on previously outstanding shares enumerated in subdivision (e) of Section 25103 of the Code, even though the new class of stock may have priority over or dilute the voting power of or the preferences of such previously outstanding shares or otherwise indirectly affect such previously outstanding shares. Any offer or sale of such new class of stock is, however, subject to the provisions of Section 25110 or Section 25120 of the Code.

HISTORY

1. Amendment filed 1-11-72; effective thirtieth day thereafter (Register 72, No. 3).

§260.103.2. Stock Split.

Note • History

A “stock split” or “reverse stock split,” as used in subdivision (f) of Section 25103 of the Code means the subdivision or combination of previously outstanding shares of stock (whether or not including authorized and unissued shares) into a greater or lesser number of shares of the same class, effected by an amendment to the charter documents of the issuer. A stock split may or may not be accompanied by the transfer of surplus to stated capital pursuant to a simultaneous change in the par value of the shares as constituted after the stock split or pursuant to resolution of the board of directors or shareholders.

NOTE

Authority cited: Section 25610, Corporations Code. Reference: Section 25103, Corporations Code.

HISTORY

1. Editorial correction adding NOTE filed 3-9-83 (Register 83, No. 11).

2. Amendment filed 8-7-85; effective thirtieth day thereafter (Register 85, No. 32).

§260.103.3. Voting Shares. [Repealed]

Note • History

NOTE

Authority cited: Section 25610, Corporations Code. Reference: Section 25103, Corporations Code.

HISTORY

1. Editorial correction adding NOTE filed 3-9-83 (Register 83, No. 11).

2. Repealer filed 9-24-2009; operative 10-24-2009 (Register 2009, No. 39).

§260.103.4. Traded in the Market.

Note • History

The phrase “traded in the market,” as used in subdivision (f) of Section 25103 of the Code means a stock which is either listed or admitted to trading on a national securities exchange or which is the subject of two-way quotations (i.e., both bid and asked prices) regularly published on the electronic service operated by Pink Sheets LLC or the OTC Bulletin Board.

NOTE

Authority cited: Section 25610, Corporations Code. Reference: Section 25103, Corporations Code.

HISTORY

1. Editorial correction adding Note filed 3-9-83 (Register 83, No. 11).

2. Amendment filed 11-10-2009; operative 12-10-2009 (Register 2009, No. 46).

§260.103.5. Legend or Escrow of Stock Dividend Shares or Split Shares.

Note • History

Any certificate representing shares issued in a stock dividend or upon a stock split or reverse stock split which are exempted from qualification by subdivision (f) of Section 25017 or subdivision (f) of Section 25103 of the Code with respect to shares subject to a legend or escrow condition (under this law or any prior law) shall either have the same legend stamped thereon as was required with respect to the previous shares or shall be deposited in escrow in addition to or in substitution for the previous shares held in escrow. Any escrow holder is hereby authorized to accept any such dividend shares or to surrender the previous shares and accept in lieu thereof the split shares upon receipt of an opinion of counsel to the effect that the dividend shares have been validly issued or the split shares have been validly substituted for such previous shares in a transaction pursuant to one of said exemptions.

NOTE

Authority cited: Section 25610, Corporations Code. Reference: Sections 25017, 25103 and 25141, Corporations Code.

HISTORY

1. Editorial correction adding NOTE filed 3-9-83 (Register 83, No. 11).

§260.103.6. Limited Exchange Transaction--Notice of Exchange Transaction.

Note • History

(a) An acquiring or converting entity in an exchange under Section 25103(h) of the Code shall file a Notice of Exchange Transaction with the Commissioner no later than 15 calendar days after the first sale of the securities in the transaction in this state. No notice is required to be filed if there is no sale in this state.

(b) The notice referred to in subdivision (h) of Section 25103 of the Code shall be in the following form:

Embedded Graphic 10.0016

NOTE

Authority cited: Sections 25165 and 25610, Corporations Code. Reference: Sections 25103(h), 25165 and 25608(z), Corporations Code.

HISTORY

1. New section filed 12-7-90; operative 1-1-91 (Register 91, No. 3).

2. Amendment of section, form and Note filed 5-20-97; operative 5-20-97 pursuant to Government Code section 11343.4(d) (Register 97, No. 21).

3. Amendment of section and Note filed 9-23-2009; operative 10-23-2009 (Register 2009, No. 39).

§260.104. Unsolicited Orders.

Note • History

For purposes of subdivision (b) of section 25104 of the Code, an order or offer to buy a security is presumed not to be “unsolicited,” if the broker-dealer knows or has reason to know that the order or offer to buy is in response to one or more of the following activities in which the selling broker-dealer has engaged within the last sixty (60) days:

(a) Publicly quoted a bid or asked price for the security which identifies the broker-dealer other than an interdealer quotation system intended for broker-dealer use only.

(b) Made a direct solicitation that customers purchase the security.

(c) Recommended the purchase of the security to customers, either directly or in a manner which would bring its recommendation to the attention of customers.

(d) Volunteered information about the issuer of the security either to a particular customer who then purchased the security or to customers generally .

(e) Executed a transaction to purchase or sell a security pursuant to its discretionary authority for a customer in a discretionary account.

A statement to the effect that the security is ineligible for purchase or sale in California or that investment in a security is not recommended for California purchasers included in a recommendation or other information circulated with respect to a security or an issuer does not negate the presumption created by this section.

This section does not create a presumption that an order or offer to buy is “unsolicited,” if the broker-dealer has not engaged in the above activities within the previous sixty (60) days.

The term “customer,” as used in this section, does not include persons to whom offers and sales may be made pursuant to the exemption set forth in subdivision (c) of section 25104 of the Code.

NOTE

Authority cited: Section 25610, Corporations Code. Reference: Section 25104, Corporations Code.

HISTORY

1. Repealer and new section filed 3-1-91; operative 3-31-91 (Register 91, No. 13).

§260.104.1. Designation of Institutional Investors and Governmental Agencies and Instrumentalities by Class.

Note • History

There are hereby designated pursuant to subdivision (c) of Section 25104 of the Code those institutional investors and governmental agencies and instrumentalities specified in Sections 260.102.10 and 260.105.14 of these rules.

NOTE

Authority cited: Sections 25104(c) and 25610, Corporations Code. Reference: Section 25104, Corporations Code.

HISTORY

1. Amendment filed 4-30-70 as an emergency; designated effective 5-1-70 (Register 70, No. 18).

2. Certificate of Compliance filed 6-10-70 (Register 70, No. 24).

3. Editorial correction adding NOTE filed 3-9-83 (Register 83, No. 11).

§260.104.2. Bona Fide Secured Party.

Note • History

The phrase “bona fide secured party,” as used in subdivision (e) of Section 25104 of the Code, does not include a secured party who takes securities in pledge without any intention or expectation that they will be redeemed but merely as a step in the distribution thereof to the public.

NOTE

Authority cited: Section 25610, Corporations Code. Reference: Section 25104, Corporations Code.

HISTORY

1. Editorial correction adding NOTE filed 3-9-83 (Register 83, No. 11).

§260.104.3. Securities Subject to Legend or Escrow Condition. [Repealed]

Note • History

NOTE

Authority cited: Section 25610, Corporations Code. Reference: Section 25104, Corporations Code.

HISTORY

1. New section filed 11-23-70 as an emergency; designated effective 11-23-70 (Register 70, No. 48).

2. Certificate of Compliance Sec. 11422.1, Gov. Code, filed 12-9-70 (Register 70, No. 50).

3. Editorial correction of NOTE filed 3-9-83 (Register 83, No. 11).

4. Repealer filed 8-7-85; effective thirtieth day thereafter (Register 85, No. 32).

§260.104.4. Order Withholding Exemption.

Note • History

If securities are qualified, pursuant to a limited offering qualification as defined in subdivision (e) of Section 260.001 of these rules, the Commissioner may issue an order withholding the exemption provided in subdivision (h) of Section 25104 of the Code with respect to all or any part of the securities qualified by such limited offering qualification and with respect to previously outstanding securities of the same class as those qualified pursuant to such qualification. This order may be issued at the time when the limited offering qualification becomes effective or at any subsequent time.

NOTE

Authority cited: Sections 25104(h) and 25610, Corporations Code. Reference: Section 25104, Corporations Code.

HISTORY

1. New section filed 4-6-72 as an emergency; effective upon filing (Register 72, No.15).

2. Certificate of Compliance filed 7-20-72 (Register 72, No. 30).

3. Editorial correction of NOTE filed 3-9-83 (Register 83, No. 11).

§260.105. Exemption for Offers Prior to Sale.

Note • History

There is hereby exempted from the provisions of Sections 25110, 25120 and 25130 of the Code as not being comprehended within the purposes of the Corporate Securities Law of 1968 and the qualification of which is not necessary or appropriate in the public interest or for the protection of investors any offer of securities provided that the securities are actually sold only in a transaction exempted under subdivision (i) of Section 25102 or subdivision (c) of Section 25104 of the Code, or in a transaction exempted under Section 260.105.14 of these rules, or provided that the securities are exempt securities at the time of issuance under Section 25100 of the Code.

NOTE

Authority cited: Sections 25105 and 25610, Corporations Code. Reference: Sections 25105, 25110, 25120 and 25130, Corporations Code.

HISTORY

1. Amendment filed 4-30-70 as an emergency; designated effective 5-1-70 (Register 70, No. 18).

2. Certificate of Compliance filed 6-10-70 (Register 70, No. 24).

3. Editorial correction adding NOTE filed 3-9-83 (Register 83, No. 11).

§260.105.1. Exemption for Oil and Gas Interests Issued for Drillsite Rights or Transit Rights.

Note • History

There is hereby exempted from the provisions of Section 25110 of the Code as not being comprehended within the purposes of the Corporate Securities Law of 1968 and the qualification of which is not necessary or appropriate in the public interest or for the protection of investors any offer or sale of any interest or participation in an oil or gas title or lease (including subsurface gas storage) or in payments out of production under such a title or lease if the sole consideration given by the purchaser for the security is the grant or lease of a drillsite or of rights for a well to traverse his property where the well in either case is drilled for the purpose of producing oil or gas from beneath other land.

NOTE

Authority cited: Sections 25105 and 25610, Corporations Code. Reference: Sections 25105 and 25110, Corporations Code.

HISTORY

1. Editorial correction adding NOTE filed 3-9-83 (Register 83, No. 11).

§260.105.2. Out-of-State Sales and Sales to Broker-Dealers.

Note • History

There is hereby exempted from the provisions of Section 25110 and Section 25130 of the Code as not being comprehended within the purposes of the Corporate Securities Law of 1968 and the qualification of which is not necessary or appropriate in the public interest or for the protection of investors, any offer or sale of a security by or through a broker-dealer licensed under the Code (whether acting as such or as a finder), to a resident of a foreign state, territory or country who is neither domiciled in this State to the knowledge of the broker-dealer nor actually present in this State if the sale of such security is not in violation of any securities law of the foreign state, territory or country concerned, and any offer or sale to a broker-dealer licensed under the Code in a principal transaction (or for resale pursuant to an exemption contained in the Code or in these Rules) or as an underwriter or a member of an underwriting syndicate or selling group.

NOTE

Authority cited: Sections 25105 and 25610, Corporations Code, reference: Sections 25105, 25110 and 25130, Corporations Code.

HISTORY

1. Amendment filed 10-1-69; effective thirtieth day thereafter (Register 69, No. 40).

§260.105.3. Effective Date of Requirement of Qualification for Secondary Trading. [Repealed]

History

HISTORY

1. Amendment filed 4-24-69 as an emergency; designated effective 5-1-69 (Register 69, No. 17).

2. Amendment filed 6-9-69 as an emergency; designated effective 6-10-69 (Register 69, No. 24).

3. Certificate of Compliance Section 11422.1, Gov. Code, filed 10-1-69 (Register 69, No. 40).

4. Repealer filed 1-22-75; effective thirtieth day thereafter (Register 75, No. 4).

§260.105.4. Sale of Franchise. [Repealed]

History

HISTORY

1. Repealer filed 1-11-72; effective thirtieth day thereafter (Register 72, No. 3).

§260.105.5. Phantom Stock Plans.

Note • History

There is hereby exempted from the provisions of Section 25110 of the Code, as not being comprehended within the provisions of the Corporate Securities Law of 1968 and the qualification of which is not necessary or appropriate in the public interest or for the protection of investors, any transaction whereby an issuer allocates to its employees or employees of its parent or subsidiaries “units” representing a right eventually to receive cash (but not stock) measured by dividends paid on shares of capital stock of the issuer or the market value of shares of capital stock of the issuer or both in a so-called “phantom stock plan.”

NOTE

Authority cited: Sections 25105 and 25610, Corporations Code. Reference: Section 25105, Corporations Code.

HISTORY

1. Amendment filed 1-22-75; effective thirtieth day thereafter (Register 75, No. 4).

2. Amendment filed 10-20-83; effective thirtieth day thereafter (Register 83, No. 43).

§260.105.6. Professional Organizations.

Note • History

There is hereby exempted from the provisions of Section 25110 and Section 25120 of the Code, as not being comprehended within the purposes of the Corporate Securities Law of 1968 and the qualification of which is not necessary or appropriate in the public interest or for the protection of investors.

(a) Any offer or sale of (1) shares of capital stock issued by (A) a professional corporation organized pursuant to the provisions of the Professional Corporation Act (Part 4, commencing with Section 13400, of Division 3 of Title 1 of the Corporations Code) or (B) a foreign professional corporation (as defined in subdivision (c) of Section 13401 of the Code) qualified to render professional services in this state in accordance with the requirements of the Professional Corporation Act, or (2) an interest, to the extent the interest is a security, in (A) a registered limited liability partnership (as defined in paragraph (1) of subdivision (i) of Section 15002 of the Code) or (B) a foreign limited liability partnership (as defined in paragraph (1) of subdivision (j) of Section 15002 of the Code).

(b) Any offer or sale of beneficial interests in a trust established for the purpose of voting shares of the capital stock of such a professional corporation or a foreign professional corporation qualified to render professional services in this state, provided that the trustees are, and such interests are held solely by, persons entitled under the provisions of the Professional Corporation Act to hold voting shares in such corporation.

(c) Any offer or sale of interests in a partnership organized to render professional services as defined in Section 13401(a) of the Code, all of whose partners are persons entitled to hold voting shares in a professional corporation or a foreign professional corporation engaged in such services under the provisions of the Professional Corporation Act.

NOTE

Authority cited: Section 25610, Corporations Code. Reference: Sections 13401, 15002 and 25105, Corporations Code.

HISTORY

1. Amendment filed 10-20-83; effective thirtieth day thereafter (Register 83, No. 43).

2. Amendment of section and Note filed 11-2-94; operative 12-2-94 (Register 94, No. 44).

3. Amendment of subsection (a) and Note filed 9-10-96; operative 10-10-96 (Register 96, No. 37).

§260.105.7. Inter-Dealer Quotations.

Note • History

There is hereby exempted from the provisions of Section 25130 of the Code as not being comprehended within the purposes of the Corporate Securities Law of 1968 and the qualification of which is not necessary or appropriate in the public interest or for the protection of investors, inter-dealer solicitations when published and circulated to broker-dealers on a regular subscription basis and in connection with which a charge (which may be included in the subscription price) is made for listing such solicitations. A publication is circulated to broker-dealers within the meaning of this rule when subscriptions are limited substantially to broker-dealers, banks, trust companies, and savings and loan associations subject to a provision that the information contained in the publication is for the private use of the subscriber. The quotation services of the Pink Sheets LLC, the OTC Bulletin Board, and The NASDAQ Stock Market LLC are exempt pursuant to this rule.

NOTE

Authority cited: Sections 25105 and 25610, Corporations Code. Reference: Sections 25105 and 25130, Corporations Code.

HISTORY

1. Amendment filed 10-1-69; effective thirtieth day thereafter (Register 69, No. 40).

2. Amendment filed 7-20-72; effective thirtieth day thereafter (Register 72, No. 30).

3. Editorial correction adding NOTE filed 3-9-83 (Register 83, No. 11).

4. Amendment filed 11-10-2009; operative 12-10-2009 (Register 2009, No. 46).

§260.105.8. Incentive Stock Option Plans.

Note • History

(a) There is hereby exempted from the provisions of Section 25110 of the Code as not being comprehended within the purposes of the Corporate Securities Law of 1968 and the qualification of which is not necessary or appropriate in the public interest or for the protection of investors, any offer or sale of incentive stock options as defined in, and complying with all terms of, the United States Internal Revenue Code of 1986, if

(1) the company issuing such options is the issuer of any security registered under Section 12 of the Securities Exchange Act of 1934, (15 USC 781), and

(2) the total number of shares of stock of the company subject to such incentive stock options (and all other employee stock options outstanding), does not exceed 10% of the outstanding shares of the same class of the company (excluding all shares subject to promotional waivers) and (3) options granted prior to shareholder approval are by their terms not exercisable until shareholder approval has been obtained and are void if shareholder approval is not obtained within the time prescribed by the Internal Revenue Code of 1986.

(b) There is hereby exempted from the provisions of Section 25120 of the Code as not being comprehended within the purposes of the Corporate Securities Law of 1968 and the qualification of which is not necessary or appropriate in the public interest or for the protection of investors, any offer or sale of incentive stock options as a result of the amendment of outstanding options to conform to the requirements for incentive stock options, as defined in the United States Internal Revenue Code of 1986, provided one of the following applies:

(1) The outstanding options were qualified under Section 25110 of the Code.

(2) The transaction conforms to the requirements of subsections (1), (2) and (3) of subsection (a).

(3) The transaction conforms to the requirements of subsections (1) and (3) of subsection (a) and, at the time the options were issued, that

transaction conformed to the limitation in subsection (2) of subsection (a).

NOTE

Authority cited: Sections 25105 and 25610, Corporations Code. Reference: Section 25105, Corporations Code.

HISTORY

1. New section filed 5-14-69; effective thirtieth day thereafter (Register 69, No. 20).

2. Amendment filed 10-20-83; effective thirtieth day thereafter (Register 83, No. 43).

3. Change without regulatory effect amending subsections (a), (a)(3) and (b) filed 9-25-2002 pursuant to section 100, title 1, California Code of Regulations (Register 2002, No. 39).

§260.105.9. Split or Reverse Split of Beneficial Interests in Voting Trust.

Note • History

There is hereby exempted from the provisions of Section 25110 and Section 25120 of the Code as not being comprehended within the purposes of the Corporate Securities Law of 1968, and the qualification of which is not necessary or appropriate in the public interest or for the protection of investors, any offer or sale of beneficial interests in any voluntary inter vivos trust created solely for the purpose of voting, if such offer or sale is the result of a stock split or reverse stock split of the underlying securities which is exempted from the provisions of Section 25110 and Section 25120 of the Code by virtue of the provisions of Section 25103(f) of the Code, or of the issuance of underlying securities as a stock dividend which is not a sale as defined in Section 25017(f) of the Code. Any beneficial interests issued pursuant to the exemption provided by this Section shall be subject to any conditions imposed by the Commissioner applicable to beneficial interests previously issued with respect to the underlying securities which are the subject of such stock split, reverse stock split, or stock dividend.

NOTE

Authority cited: Sections 25105 and 25610, Corporations Code. Reference: Sections 25017, 25103, 25105, 25110 and 25120, Corporations Code.

HISTORY

1. New section filed 5-14-69; effective thirtieth day thereafter (Register 69, No. 20).

2. Amendment filed 3-20-78; effective thirtieth day thereafter (Register 78, No. 12).

3. Editorial correction adding NOTE filed 3-9-83 (Register 83, No. 11).

§260.105.10. Securities of Foreign Issuers. [Repealed]

History

HISTORY

1. Amendment filed 4-24-69 as an emergency; designated effective 5-1-69 (Register 69, No. 17).

2. Repealed by operation of law (Register 72, No. 12).

§260.105.11. Securities of Foreign Issuers.

Note • History

(a) There is hereby exempted from the provisions of Section 25130 of the Code as not being comprehended within the purposes of the Corporate Securities Law of 1968 and the qualification of which is not necessary or appropriate in the public interest or for the protection of investors, any offer or sale of a security issued by any corporation organized under the laws of a foreign country or of a certificate of deposit, receipt or other evidence relating to such a security, provided one of the following conditions is met:

(1) The issuer is currently required to file with the Securities and Exchange Commission information and reports pursuant to Section 15(d) of the Securities Exchange Act of 1934 [15 U.S.C. 78a et seq.] and is not delinquent in such filing.

(2)(i) The security appears on the most recent Federal Reserve Board List of Foreign Margin Stocks or (ii) the security is deemed by the Securities and Exchange Commission to have a “ready market” for purposes of Securities and Exchange Commission Rule 15c3-1 (17 C.F.R. 240.15c3-1). A broker-dealer may rely on written “no action” or interpretive letters issued by the Securities and Exchange Commission or its staff regarding the Securities and Exchange Commission's “ready market” criteria.

(3) The issuer is not subject to the reporting requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934 and all of the following conditions are met:

(A) The issuer, including any predecessors, has been in continuous operation for at least 5 years and is a going concern actually engaged in business and neither in the organization stage nor in bankruptcy or receivership.

(B) The number of shares outstanding is at least 2.5 million worldwide and the number of shareholders is at least 5,000 worldwide.

(C) The market value of the outstanding shares, other than debt securities and preferred stock, is at least US$100 million worldwide.

(D) The issuer, as of the date of its most recent financial statements, which may not be more than 18 months old and which have been audited in accordance with the generally accepted accounting principles of its country of domicile, has net tangible assets of at least US$100 million worldwide.

(E) The issuer has net income after all charges, including taxes and extraordinary losses, and excluding extraordinary gains, or either:

1. At least US$50 million in total for its last 3 fiscal years; or

2. At least US$20 million in each of its last 2 fiscal years.

(F) If the security is a debt security or preferred stock, the issuer has not, during the past five years or during the period of its existence if shorter, defaulted in the payment of any dividend, principal, interest or sinking fund installment thereon.

(b) A broker-dealer may recommend to an investor a security which is exempted under this rule only where the broker-dealer can demonstrate that an adequate and reasonable basis exists for such recommendation.

(c) Except in the case of an unsponsored American Depository Receipt (“ADR”), a broker-dealer initiating a quotation for a security which is exempted under this rule shall comply with all of the requirements of Rule 15c2-11 [17 C.F.R. Sec. 240.15c2-11] of the Securities Exchange Act of 1934, except that a broker-dealer may not rely on the information set forth in paragraphs (2) and (4) of subsection (a) of that rule. A broker-dealer initiating a quotation in an unsponsored ADR exempted under this rule shall comply with all of the applicable requirements of Rule 15c2-11, including the exemptive provisions of subsection (f) of that rule.

NOTE

Authority cited: Sections 25105 and 25610, Corporations Code. Reference: Sections 25105 and 25130, Corporations Code.

HISTORY

1. New section filed 10-1-69; effective thirtieth day thereafter (Register 69, No. 40).

2. Editorial correction of NOTE filed 3-9-83 (Register 83, No. 11).

3. Repealer of subsections (a)(1)-(b) and new subsections (a)(1)-(c) filed 7-7-93; operative 8-7-93 (Register 93, No. 28).

4. Amendment of subsection (a)(2) filed 5-9-2000; operative 6-8-2000 (Register 2000, No. 19).

§260.105.12. Temporary Nonissuer Exemption. [Repealed]

History

HISTORY

1. New section filed 10-1-69; effective thirtieth day thereafter (Register 69, No. 40).

2. Repealer filed 1-22-75; effective thirtieth day thereafter (Register 75, No. 4).

§260.105.13. Extended Eligibility for Nonissuer Transaction. [Repealed]

History

HISTORY

1. New section filed 10-1-69; effective thirtieth day thereafter (Register 69, No. 40).

2. Repealer filed 1-22-75; effective thirtieth day thereafter (Register 75, No. 4).

§260.105.13.1. Private Resales Under Securities and Exchange Commission Rule 144A.

Note • History

NOTE

Authority cited: Sections 25105 and 25610, Corporations Code. Reference: Sections 25105 and 25130, Corporations Code.

HISTORY

1. New section filed 3-1-93; operative 3-31-93 (Register 93, No. 10).

§260.105.14. Sales to Public Agencies.

Note • History

There is hereby exempted from the provisions of Sections 25110, 25120 and 25130 of the Code as not being comprehended within the purposes of the Corporate Securities Law of 1968 and the qualification of which is not necessary or appropriate in the public interest or for the protection of investors any offer or sale of a security to the Federal Government, any agency or instrumentality of the Federal Government, any corporation wholly owned by the Federal Government, any state, any city, city and county, or county, or any agency or instrumentality of a state, city, city and county, or county, or any state university or state college, and any retirement system for the benefit of employees of any of the foregoing.

NOTE

Authority cited: Sections 25105 and 25610, Corporations Code. Reference: Sections 25105, 25110, 25120 and 25130, Corporations Code.

HISTORY

1. New section filed 4-30-70; as an emergency; designated effective 5-1-70 (Register 70, No. 18).

2. Certificate of Compliance filed 6-10-70 (Register 70, No. 24).

3. Amendment filed 7-13-70; effective thirtieth day thereafter (Register 70, No. 29).

4. Editorial correction of NOTE filed 3-9-83 (Register 83, No. 11).

§260.105.15. Exemption from Qualification of Certain Exchanges.

Note • History

There is exempted from the provision of section 25110 of the Code, as not being comprehended within the purposes of the Corporate Securities Law of 1968 and the qualification of which is not necessary or appropriate in the public interest or for the protection of investors, the offer and sale of securities of one entity in exchange for all securities issued by another entity (the “Acquired Entity”), except for directors' qualifying shares, if all of the following requirements are met:

(a)(1) Such exchange is subject to approval after a hearing as to the fairness of its terms and conditions, by public commission, board or other governmental authority of a state expressly authorized by the law of such state to grant such approval, or

(2) such exchange is subject to approval by the affirmative vote of not less than a majority (unless the requirement is increased by a provision contained in the articles of incorporation, bylaws or applicable state law) of the outstanding securities of the Acquired Entity of the class which are to be exchanged, excluding from such outstanding securities the securities of any person who owns, directly or beneficially, 50 percent or more of such outstanding securities;

(b) Any holder of shares of the Acquired Entity dissenting from the exchange is entitled to the fair value of his or her securities; and

(c) Less than 25 percent of the outstanding securities of the Acquired Entity of any class to be exchanged are held as of the record date for the exchange by persons who have addresses in this state according to the records of the Acquired Entity; provided that any securities held to the knowledge of the Acquired Entity in the names of broker-dealers or nominees of broker-dealers, and any securities controlled by a person who controls, directly or indirectly, 50 percent or more of the outstanding securities of that class, shall not be considered outstanding for the purposes of this subdivision (c).

NOTE

Authority cited: Sections 25105 and 25610, Corporations Code. Reference: Sections 25105 and 25110, Corporations Code.

HISTORY

1. Amendment filed 1-11-72; effective thirtieth day thereafter (Register 72, No. 3). For prior history see Register 71, No. 52.

2. Amendment filed 1-22-75; effective thirtieth day thereafter (Register 75, No. 4).

3. Editorial correction of NOTE filed 3-9-83 (Register 83, No. 11).

4. Amendment filed 5-3-90; operative 6-2-90 (Register 90, No. 20).

5. Amendment filed 9-23-2009; operative 10-23-2009 (Register 2009, No. 39).

§260.105.16. Checks, Drafts, and Money Orders.

Note • History

There is hereby exempted from the provisions of Section 25110 of the Code, as not being comprehended within the purposes of the Corporate Securities Law of 1968 and the qualification of which is not necessary or appropriate in the public interest or for the protection of investors, the offer and sale of checks, drafts, or money orders by a person holding an effective license from the Commissioner of Corporations to engage in the business of selling checks, drafts, or money orders, or an effective license from the Superintendent of Banks to transact the business permitted by Chapter 14 of the Banking Law (1750 et seq., Financial Code).

NOTE

Authority cited: Sections 25105 and 25610, Corporations Code. Reference: Sections 25105 and 25110, Corporations Code.

HISTORY

1. New section filed 6-28-73; effective thirtieth day thereafter (Register 73, No. 26).

2. Editorial correction adding NOTE filed 3-9-83 (Register 83, No. 11).

§260.105.17. Exemption for Certain Publicly Traded Common Shares.

Note • History

(a) There is hereby exempted from the provisions of Sections 25110, 25120 and 25130 of the Code as not being comprehended within the purposes of the Corporate Securities Law of 1968 and the qualification of which is not necessary or appropriate in the public interest or for the protection of investors, the offer or sale of nonassessable common shares, or any warrant or right to purchase or subscribe to any such shares, or any unit or right arising from a compensation plan of the issuer or affiliate of the issuer payable in such shares or cash in an amount which relates to the value of and/or dividends paid on such shares, or both, whether or not subject to any contingency, if on the business day preceding the date of sale of such shares, warrant or right, or grant of such unit or right, all of the following requirements are met:

(1) Such shares (or the shares issuable upon exercise of such warrant or right or payable upon such unit or right) are issued by a person which is the issuer of any security registered under Section 12 of the Securities Exchange Act of 1934 (15 USC 781(g)) or exempted from such registration by Section 12(g)(2)(G) (15 USC 781(g)(2)(G)) of that Act;

(2) The shares to be offered or sold (or the shares issuable upon exercise of such warrant or right or payable upon such unit or right) are listed or approved for listing upon notice of issuance on a national securities exchange approved for the purpose of this section by rule or order of the Commissioner (or in the case of employee options or rights, shareholder approval is required of the options or rights or of the plan and the issuer has no reason to believe that, upon such approval, the shares issuable upon the exercise of such options or rights, will not be listed or approved for listing upon notice of issuance), or quotations for the class of such shares are reported by the automated quotations system operated by any quotation system approved by rule or order of the Commissioner pursuant to this section;

(3) Shares of the class to be offered or sold (or shares of the class issuable upon exercise of such warrant or right or payable upon such unit or right) shall have been traded or (in the case of shares traded only over-the-counter) offered for sale on each of at least twelve (12) days within the thirty (30) calendar days preceding the date of sale of such shares, warrant or right and during such period (A) shares of such class shall not have been suspended from trading by order of the Commissioner or the Securities and Exchange Commission; and (B) the average closing sale price and the last closing sale price of shares of such class (exclusive of any sale price for the business day preceding the offering) as reported on any national securities exchange on which shares of such class are listed, or the average closing bid price and the last closing bid price of shares of such class (exclusive of any bid price for the business day preceding the offering), as reported by the quotation system referred to in clause (2) of this subsection shall be at least $4 per share. Quotations appearing in the Wall Street Journal or any other publication approved by order of the Commissioner may be relied upon to satisfy the requirement of this clause (3);

(4) The issuer of such shares is a corporation organized under the laws of the United States or any state of the United States or the District of Columbia and meets all of the following requirements:

(A) Such corporation has an authorized capitalization which includes not more than one class of common shares, and such common shares are voting shares;

(B) Such corporation has not during the past five years, or during the period of its existence if shorter, defaulted in the payment of any dividend or sinking fund installment on preferred shares, or in the payment of any principal, interest or sinking fund installment on any indebtedness for borrowed money;

(C) Such corporation has a net worth on a consolidated basis of at least one million dollars ($1,000,000) according to (1) its most recent available audited financial statement which may not be over 15 months old and (2) its most recent available unaudited financial statement as of a date subsequent to such audited statement;

(D) Such corporation has had net income, after all charges, including taxes and extraordinary losses, and excluding extraordinary gains, of either (1) at least five hundred thousand dollars ($500,000) for its last fiscal year and one million five hundred thousand dollars ($1,500,000) in total for its last five fiscal years, or (2) at least one million dollars ($1,000,000) in each of its last two fiscal years. The determination of net income herein required, if such determination is made within 90 days after the close of its last fiscal year and prior to the availability of an audited statement for that period, may be based upon an unaudited statement for the period which the issuer reasonably believes is prepared in accordance with generally accepted accounting principles. In determining whether a corporation satisfies the requirements of this subsection (D), there may be included the net income of any corporation to whose assets such corporation, or a successor of such corporation, has succeeded by merger, consolidation or acquisition of assets, if such net income of such predecessor corporation may, in accordance with generally accepted accounting principles, be consolidated with the income of such corporation.

(b) Pursuant to subsection (a)(2) of this section, the following national securities exchanges are certified:

THE NASDAQ GLOBAL MARKET
THE NEW YORK STOCK EXCHANGE
NYSE AMEX

NOTE

Authority cited: Sections 25105 and 25610, Corporations Code. Reference: Sections 25105 and 25531(a), Corporations Code.

HISTORY

1. New section filed 6-28-73; effective thirtieth day thereafter (Register 73, No. 26).

2. Amendment filed 3-27-81; effective thirtieth day thereafter (Register 81, No. 13).

3. Amendment filed 10-20-83; effective thirtieth day thereafter (Register 83, No. 43).

4. Amendment of subsections (a)(2) and (b) filed 11-10-2009; operative 12-10-2009 (Register 2009, No. 46).

§260.105.18. Commodity Contracts. [Repealed]

Note • History

NOTE

Authority cited: Sections 25105 and 25610, Corporations Code. Reference: Section 25105, Corporations Code.

HISTORY

1. Amendment filed 1-4-77; effective thirtieth day thereafter (Register 77, No. 2). For prior history, see Register 75, No. 4.

2. Amendment refiled 1-7-77; effective thirtieth day thereafter (Register 77, No. 2).

3. Repealer filed 3-13-80; effective thirtieth day thereafter (Register 80, No. 11).

§260.105.19. Exemption for Certain Commodity Contracts. [Repealed]

Note • History

NOTE

Authority cited: Section 25610, Corporations Code. Reference: Div. 1, Title 4 and Section 25105, Corporations Code.

HISTORY

1. New section filed 10-25-73 as an emergency; effective upon filing (Register 73, No. 43).

2. Amendment filed 10-26-73 as an emergency; effective upon filing (Register 73, No. 43).

3. Amendment filed 2-22-74 as an emergency; effective upon filing. Certificate of Compliance included (Register 74, No. 8).

4. Repealer filed 1-22-75; effective thirtieth day thereafter (Register 75, No. 4).

§260.105.20. Exemption for Certain Nonprofit Organizations.

Note • History

There is hereby exempted from the provisions of Section 25110 of the Code as not being comprehended within the purposes of the Corporate Securities Law of 1968 and the qualification of which is not necessary or appropriate in the public interest or for the protection of investors, any offer or sale of a security (except evidences of indebtedness, whether interest bearing or not) of a nonprofit organization of the class described in Section 25100(j) of the Code, if all of the following conditions are met:

(1) The nonprofit organization meets all of the requirements of Section 25100(j), except that some person instrumental in organizing the nonprofit organization expects or intends to make a profit directly or indirectly from any business or activity associated with the organization or operation of such nonprofit organization or from remuneration received from such nonprofit organization;

(2) Neither that person nor any affiliate of that person is in control of the nonprofit organization either directly or indirectly or is an officer or director of that nonprofit organization nor is the holder of any securities of that organization except for a membership or memberships for personal, family or other social uses;

(3) The profit which such person expects or intends to make will be derived solely from a passive relationship with the organization by way of a lease of real or personal property or providing of goods to such organization at a fair market rental or price competitive with similar properties or goods offered by nonaffiliated persons, or from the sale of real properties within the immediate geographic area of operation of such organization but without the offer of immediate or automatic admission into such nonprofit organization with or without an additional fee, and without any active participation in or operation of any business or activity associated with the organization or operation of such nonprofit organization, including the operation of facilities or services, such as a bar, restaurant, locker room, etc.;

(4) The initial offering of memberships was qualified;

(5) The terms of the arrangements with the promoter extant at the time the initial qualification became effective, either remain unchanged in their terms or have become more favorable to the members of the nonprofit organization;

(6) The nonprofit organization, at least 30 days prior to any sale of memberships under the exemption provided by this Section, gives notice of such intention to the Commissioner and files financial statements complying with Section 260.613 of these Rules; and

(7) No order is issued by the Commissioner under Sections 25140 or 25143 of the Code relating to a qualification obtained for the sale of the memberships of the nonprofit organization, and no order has been issued by the Commissioner withholding this exemption either at the time of the initial offering of memberships or at any subsequent time.

NOTE

Authority cited: Sections 25105 and 25610, Corporations Code. Reference: Sections 25100(j), 25105, 25110, 25120 and 25130, Corporations Code.

HISTORY

1. New section filed 12-28-73; effective thirtieth day thereafter (Register 73, No. 52).

2. Amendment filed 1-22-75; effective thirtieth day thereafter (Register 75, No. 4).

3. Editorial correction of NOTE filed 3-9-83 (Register 83, No. 11).

§260.105.21. Exemption for Amendments to Limited Partnership Agreements Pursuant to Corporations Code Section 15520.5. [Repealed]

Note • History

NOTE

Authority cited: Sections 25105 and 25610, Corporations Code. Reference: Section 25105, Corporations Code.

HISTORY

1. New section filed 10-18-74 as an emergency; effective upon filing (Register 74, No. 42).

2. Certificate of Compliance filed 12-24-74 (Register 74, No. 52).

3. Amendment filed 3-20-78; effective thirtieth day thereafter (Register 78, No. 12).

4. Repealer filed 8-7-85; effective thirtieth day thereafter (Register 85, No. 32).

§260.105.22. Shares of Foreign Subsidiaries.

Note • History

There is hereby exempted from the provisions of Section 25110 of the Code as not being comprehended within the purposes of the Corporate Securities Law of 1968, and the qualification of which is not necessary or appropriate in the public interest or for the protection of investors, any offer or sale of common shares issued by any corporation organized under the laws of a foreign country, provided all of the following conditions are met:

(a) After such offer and sale, 100% of the outstanding capital stock of the issuer is owned by a corporation, directly or indirectly, in its own name or in the name of nominees or other persons holding for the sole benefit of such corporation;

(b) The acquiring corporation represents that such securities are purchased for its own account for investment and not with a view to, or for sale in connection with, any distribution of the shares; and

(c) All such shares shall be evidenced by certificates which shall have stamped or printed prominently on their face a legend in the form prescribed by Section 260.141.11 of these rules, and the sale or transfer of the shares or any interest therein, shall be subject to the restrictions provided in that Section, provided that such securities may be transferred without the consent of the Commissioner to such corporation or to any nominee or other person holding for the sole benefit of such corporation.

NOTE

Authority cited: Sections 25105 and 25610, Corporations Code. Reference: Sections 25105, 25110 and 25120, Corporations Code.

HISTORY

1. New section filed 1-22-75; effective thirtieth day thereafter (Register 75, No. 4).

2. Editorial correction of NOTE filed 3-9-83 (Register 83, No. 11).

§260.105.23. Exemption for Advances to Corporations.

Note • History

There is hereby exempted from the provisions of Section 25110 of the Code as not being comprehended within the purposes of the Corporate Securities Law of 1968 and the qualification of which is not necessary or appropriate in the public interest or for the protection of investors, any transaction in which money is advanced or loaned to a corporation (“issuer”) with an agreement or expectation that shares of the issuer will be issued in exchange for, cancellation of, or conversion of such advances or loans, provided that all of the following requirements are met:

(a) The aggregate amount of the advances or loans made does not substantially exceed the funds required to pay the fees and expenses of organization and the initial issuance of share certificates, including attorney fees.

(b) The advance or loan is made by persons, each of whom is in one or more of the following classes:

(1) By a corporation, directly or indirectly, which will have a direct or indirect interest in the issuer.

(2) By any officer, director or controlling shareholder of such corporation.

(3) By any partnership whose business the issuer intends to acquire.

(4) By any partner of such partnership.

(5) By any person who is or is expected to become an officer or director of the issuer.

(d) The issuer has not commenced business other than activities in connection with the organization and preparation for regular business or issued shares at the time such advances or loans are made.

(e) Prior to the earlier of the commencement of business (other than organizational activities) or the issuance of shares, the issuer qualifies such issuance or such issuance of shares is exempted from qualification under Section 25110 of the Code.

This exemption shall not be affected by an agreement or understanding that such advances or loans may be repaid or cancelled by the issuance of shares or other securities of the issuer, but nothing contained herein shall be deemed to modify the requirements for the exemption contained in Section 25102(h) of the Code or to impair the authority of the Commissioner under Section 25140 of the Code.

NOTE

Authority cited: Sections 25105 and 25610, Corporations Code. Reference: Sections 25102, 25105, 25110 and 25140, Corporations Code.

HISTORY

1. New section filed 1-22-75; effective thirtieth day thereafter (Register 75, No. 4).

2. Editorial correction (Register 76, No. 1).

3. Amendment filed 8-7-85; effective thirtieth day thereafter (Register 85, No. 32).

§260.105.26. Exemption for Preneed Funeral Trust Arrangements.

Note • History

There is hereby exempted from the provisions of Sections 25110 and 25120 of the Code as not being comprehended within the purposes of the Corporate Securities Law of 1968 and the qualification of which is not necessary or appropriate in the public interest or for the protection of investors, any offer or sale of a beneficial interest in an inter vivos funeral trust meeting the requirements of Division 3, Chapter 12, Article 9 (commencing with Section 7735) of the Business and Professions Code.

NOTE

Authority cited: Sections 25105 and 25610, Corporations Code. Reference: Sections 25105, 25110 and 25120, Corporations Code.

HISTORY

1. New section filed 5-17-77; effective thirtieth day thereafter (Register 77, No. 21).

2. Editorial correction of NOTE filed 3-9-83 (Register 83, No. 11).

§260.105.27. Temporary Nonissuer Exemption. [Repealed]

Note • History

NOTE

Authority cited: Section 25610, Corporations Code. Reference: Sections 25101 and 25105, Corporations Code.

HISTORY

1. Amendment filed 6-21-78 as an emergency; designated effective 6-30-78 (Register 78, No. 25). For prior history, see Register 78, No. 14.

2. Amendment filed 8-24-78 as an emergency, designated effective 8-31-78 (Register 78, No. 34).

3. Repealer filed 8-7-85; effective thirtieth day thereafter (Register 85, No. 32).

§260.105.28. Reliance on Eligible Securities List. [Repealed]

Note • History

NOTE

Authority cited: Section 25610, Corporations Code. Reference: Section 25105, Corporations Code.

HISTORY

1. New section filed 4-4-78; effective thirtieth day thereafter (Register 78, No. 14).

2. New section refiled 4-4-78; effective thirtieth day thereafter (Register 78, No. 14).

3. Amendment filed 8-11-89; operative 8-11-89 (Register 89, No. 33).

4. Change without regulatory effect repealing section filed 9-25-2002 pursuant to section 100, title 1, California Code of Regulations (Register 2002, No. 39).

§260.105.29. Use of Red Herring Offering Circulars in Regulation A Offerings.

Note • History

There is hereby exempted from the provisions of Section 25110 and 25130 of the Code as not being comprehended within the purposes of the Corporate Securities Law of 1968 and the qualification of which is not necessary or appropriate in the public interest or for the protection of investors any offer (but not a sale) of a security for which a notification on Form 1A (Regulation A Offering Statement under the Securities Act of 1933) has been filed with the Securities and Exchange Commission and for which an application for qualification has been filed pursuant to said sections of the Code, provided each of the following conditions is met:

(a) No order is in effect and no public proceeding or examination looking toward such an order is pending under Rule 261 (17 CFR 230.261) pursuant to the Securities Exchange Act of 1933 and no order under Section 25140 or subdivision (a) of Section 25143 of the Code is in effect; and

(b) The offering circular distributed pursuant to this section has been on file with the Commissioner for not less than 3 business days and no order with respect thereto has been issued pursuant to Section 25302 of the Code; and

(d) If material changes or corrections are made in the offering circular referred to in subsection (b), each sale pursuant to the qualification applied for, if granted, shall be made upon the condition that the purchaser may rescind within 3 business days after receipt of the final offering circular and the final offering circular has prominently upon its face in not less than 10-point type the following legend:

MATERIAL CHANGES AND CORRECTIONS HAVE BEEN MADE IN THIS OFFERING CIRCULAR FROM THE PRELIMINARY OFFERING CIRCULAR DATED ____________, AFFECTING THE INFORMATION RELEVANT TO INVESTORS IN THE SECURITIES WHICH ARE BEING OFFERED PURSUANT TO THIS OFFERING CIRCULAR.

NOTE

Authority cited: Sections 25105 and 25610, Corporations Code. Reference: Sections 25105, 25110, 25130, 25140, 25143 and 25302, Corporations Code.

HISTORY

1. New section filed 1-25-80; effective thirtieth day thereafter (Register 80, No. 4).

2. Amendment filed 7-1-81; effective thirtieth day thereafter (Register 81, No. 27).

3. Amendment filed 8-7-85; effective thirtieth day thereafter (Register 85, No. 32).

§260.105.30. Real Estate Loans: Multiple Lender Transactions. [Repealed]

Note • History

NOTE

Authority cited: Section 25610, Corporations Code. Reference: Section 25105, Corporations Code.

HISTORY

1. New section filed 8-27-81 as an emergency; effective upon filing (Register 81, No. 37).

2. Order of Repeal of 8-27-81 emergency order filed 9-4-81 by OAL pursuant to Government Code Section 11349.6 (Register 81, No. 37).

3. New section filed 6-24-82; effective thirtieth day thereafter (Register 82, No. 26).

4. Change without regulatory effect filed 3-2-89 (Register 89, No. 11).

5. Change without regulatory effect amending subsection (a) filed 2-16-95 pursuant to section 100, title 1, California Code of Regulations (Register 95, No. 7).

6. Change without regulatory effect amending subsections (h) and (j)(1)(A) and last paragraph filed 12-27-96 pursuant to section 100, title 1, California Code of Regulations (Register 96, No. 52).

7. Repealer filed 8-6-98; operative 9-5-98 (Register 98, No. 32).

§260.105.31. Limited Offering Exemption--Transitional Exemption. [Repealed]

Note • History

NOTE

Authority cited: Sections 25105 and 25610, Corporations Code. Reference: Section 25105, Corporations Code.

HISTORY

2. Certificate of Compliance transmitted to OAL 2-22-82 and filed 3-24-82 (Register 82, No. 13).

3. Repealer filed 8-7-85; effective thirtieth day thereafter (Register 85, No. 32).

§260.105.33. Senior to Listed or Designated Securities.

Note • History

(a) There is hereby exempted from the provisions of Sections 25110 and 25130 of the Code as not being comprehended within the purposes of the Corporate Securities Law of 1968 and the qualification of which is not necessary or appropriate in the public interest or for the protection of investors, any offer or sale of an equity security

(1) which is issued by the issuer of a security listed on an exchange certified by the Commissioner pursuant to the provisions of Section 25100(o) of the Code and

(2) which is senior to such listed or designated security, including a senior security which is convertible into another senior security or into securities of the listed or designated class.

Except as provided in the next sentence, an equity security is “senior” to a listed or designated security of the same issuer within the meaning of this section if, upon liquidation or dissolution of the issuer, the holders of such security are entitled to payment from, or to participate in the distribution of assets of, the issuer prior to any payment to, or participation in such distribution of assets by, the holders of such listed or designated security. An equity security is not “senior” to a listed or designated security of the same issuer if it is currently able to be converted into an evidence of indebtedness which does not meet the requirements for the exemption under Rule 260.105.34.

(b) Notice. The issuer of securities pursuant to the exemption under this rule or Rule 260.105.34 shall file a notice upon the form specified below containing the information specified and in accordance with the instructions in subsections (c) and (d). Neither the failure to file the notice nor the failure to file it as required by this section shall affect the availability of the exemption under this rule or Rule 260.105.34. The notice shall be in the following form:

Embedded Graphic 10.0017

(1) Time to File: The notice pursuant to the exemptions from qualification under Rules 260.105.33 and 260.105.34 (Title 10, California Code of Regulations) is to be filed within 60 days after the first contractual commitment in this state to purchase the securities offered in the transaction. If one of the securities offered are sold in this state, a notice need not be filed.

(2) “Transaction.” File a separate notice for each transaction. For the purposes of this notice, “transaction” means:

(A) All offers and sales of securities pursuant to a registration under Section 5 of the Securities Act of 1933 [or in the case of a “shelf registration” under Rule 415 (17 C.F.R. 230.415), pursuant to a supplement to the registration] or pursuant to notice filed under Section 4(6) of that act or Regulation A, D, or E thereunder (17 C.F.R. Sections 230.251 to 230.263, 230.501 to 230.508, and 230.601 to 230.610a).

(B) Except as provided in subsection (A), the term “transaction” means all sales of securities which would constitute a single transaction, based on the discussion of “integration” in Release 33-4552 under the Securities Act of 1933.

(3) Form: Use the printed form available from any office of the Commissioner or type the form on one side of 8 l/2 by 11 inch white bond paper.

(4) Filing Fee: Payment of the fee prescribed by Rule 260.608.3 is required only when an original notice is required to be filed for a transaction exempted by Rule 260.105.33, Rule 260.105.34 or both rules. Neither a notice nor a fee is required if securities are offered but not sold in this state in the transaction. No fee is required for filing an amended notice unless the aggregate value of the securities sold is increased as explained in Rule 260.608.3.

(d) Instructions for Completing Items. In the heading portion of the form, insert the Department's file number for the issuer, if available, in the space provided, and circle or underline the amount of the fee specified for the notice by Rule 260.608.3.

(1) The issuer. Give the legal name of the issuer and the mailing address of its principal business office.

(2) Other Issuer Information. Indicate the issuer's type of organization (e.g., “corporation,” “partnership,” or “business trust”), the jurisdiction under whose laws it was organized and the year of its incorporation or inception.

(3) Contact Person. Indicate the name of the person to be contacted regarding the notice, including the name of that person's firm, and the person's mailing address and telephone number.

(4) Transaction. See General Instructions.

(A) Rule Number. Indicate either Rule 260.105.33 or 260.105.34, or both rules, as applicable.

(B) Proposed 1st Sale Date. Insert the date upon which it is believed that the first contractual commitment in this state was received in connection with the offering. If the first sale has not occurred, insert the date of the notice from Item 6.

(C) Securities Description. Insert a brief description of the security or securities, and indicate whether it is convertible into another class of securities of the issuer, and if so, the name of such other class.

(D) Value of Securities. Indicate the value of the securities sold or expected to be sold in the transaction, determined pursuant to Corporations Code Section 25608(g). The value of consideration other than cash may be determined by the issuer.

(5) The consent to service of process should be filed on Form 260.165. It need not be filed if the issuer is a California corporation or if the issuer has a consent to service on file with the Commissioner.

(6) Execution. The notice should be manually signed by a person authorized to do so on behalf of the issuer.

NOTE

Authority cited: Sections 25105 and 25610, Corporations Code. Reference: Sections 25105 and 25608(w), Corporations Code.

HISTORY

1. New section filed 9-30-83; effective upon filing pursuant to Government Code section 11346.2(d) (Register 83, No. 40).

2. Amendment filed 9-30-83 as an emergency; effective eleventh day thereafter (Register 83, No. 40). A Certificate of Compliance must be transmitted to OAL within 120 days or emergency language will be repealed on 1-28-84.

3. Editorial correction filed 10-3-83 redesignating effective date of 9-30-83 emergency to 9-30-83 (Register 83, No. 40).

4. Certificate of Compliance including amendment as to 9-30-83 order transmitted to OAL 1-25-84 and filed 2-16-84 (Register 84, No. 7).

5. Editorial correction of HISTORY 1. (Register 84, No. 15).

6. Amendment of subsection (a) filed 6-26-85; effective thirtieth day thereafter (Register 85, No. 26).

7. Amendment filed 10-10-90; operative 11-9-90 (Register 90, No. 45).

8. Amendment filed 5-20-92; operative 6-19-92 (Register 92, No. 21).

9. Change without regulatory effect amending section filed 9-25-2002 pursuant to section 100, title 1, California Code of Regulations (Register 2002, No. 39).

10. Repealer of subsection (a)(1)(A) designator and subsection (a)(1)(B) and amendment of subsections (a)(1) and (c)(2)(A) filed 11-10-2009; operative 12-10-2009 (Register 2009, No. 46).

§260.105.34. Exemption for Rated Debt Securities.

Note • History

(a) There is hereby exempted from the provisions of Section 25110 of the Code as not being comprehended within the purposes of the Corporate Securities Law of 1968 and the qualification of which is not necessary or appropriate in the public interest or for the protection of investors, any offer or sale of any evidence of indebtedness, whether or not convertible into any other security, whether secured or unsecured, and any guarantee thereof, which has been rated as an “investment grade security” as defined below by Standard & Poor's Rating Services, Fitch, Inc., or Moody's Investors Service, Inc.

(1) An evidence of indebtedness is an “investment grade security” if it is rated or provisionally rated by Standard & Poor's Rating Services as AAA, AA, A or BBB; Fitch, Inc., as International Long-term AAA, AA, A or BBB or International Short-term F1 to F3; or by Moody's Investors Service, Inc. as Aaa, Aa, or A or Baa, including any such ratings with “+” or “-” designations or other variations that occur within such ratings.

(2) Convertible evidence of indebtedness shall be exempt under this section only if the security which may be issued on conversion (i) is listed or approved for listing upon notice of issuance on a national securities exchange certified by rule or order of the Commissioner pursuant to Section 25100(o) of the Code and (ii), if common shares, will have full voting rights equal per share to any other class of outstanding common shares of the issuer.

(b) The issuer of securities in a transaction under this exemption shall file a notice in the form and containing the information specified in Section 260.105.33. Neither the failure to file the notice nor the failure to file it as required shall affect the availability of the exemption under this section.

NOTE

Authority cited: Sections 25105 and 25610, Corporations Code. Reference: Sections 25105 and 25110, Corporations Code.

HISTORY

1. New section filed 9-30-83; effective upon filing pursuant to Government Code section 11346.2(d) (Register 83, No. 40).

2. Editorial correction of subsection (a)(2) filed 10-21-83 (Register 83, No. 43).

3. Editorial correction of HISTORY 1. (Register 84, No. 15).

4. Amendment filed 5-20-92; operative 6-19-92 (Register 92, No. 21).

5. Amendment of subsections (a), (a)(1) and (a)(2) filed 7-29-98; operative 8-28-98 (Register 98, No. 31).

6. Amendment of subsections (a)-(a)(2) filed 11-10-2009; operative 12-10-2009 (Register 2009, No. 46).

§260.105.35. Exchange-Traded Options on Stock Indices.

Note • History

(1) The index options are offered or sold by The Options Clearing Corporation on an exchange, or through the facilities of a national securities association, approved by the Commissioner; and

(2) The rules of such exchange, or national securities association, and the rules of The Options Clearing Corporation relating to issuance, clearance, and settlement of index option transactions and relating to the processing and settlement of index option exercises, have been approved by the Securities and Exchange Commission under Section 19(b) of the Securities Exchange Act of 1934 (15 U.S.C. Sec. 78s(b)).

(b) The Commissioner has approved, upon application, the American Stock Exchange, the Chicago Board Options Exchange, Incorporated, and the New York Stock Exchange, Inc. Pending an appropriate amendment to this rule, the Commissioner may by release designate other exchanges or associations whose applications have been approved.

NOTE

Authority cited: Section 25610, Corporations Code. Reference: Section 25105, Corporations Code.

HISTORY

1. New section filed 2-11-85; effective thirtieth day thereafter (Register 85, No. 7).

§260.105.36. Exchange-Traded Options on Foreign Currencies.

Note • History

(1) The foreign currency options are offered or sold by The Options Clearing Corporation on an exchange approved by the Commissioner; and

(2) The rules of such exchange, and the rules of The Options Clearing Corporation relating to issuance, clearance, and settlement of foreign currency option transactions and relating to the processing and settlement of foreign currency option exercises, have been approved by the Securities and Exchange Commission under Section 19(b) of the Securities Exchange Act of 1934 (15 U.S.C. Sec. 78s(b)).

(b) The Commissioner has approved, upon application, the Philadelphia Stock Exchange. Pending an appropriate amendment to this rule, the Commissioner may by release designate other exchanges whose applications have been approved.

NOTE

Authority cited: Section 25610, Corporations Code. Reference: Section 25105, Corporations Code.

HISTORY

1. New section filed 2-11-85; effective thirtieth day thereafter (Register 85, No. 7).

§260.105.37. Exemption for Certain Securities Listed on the Chicago Board Options Exchange. [Repealed]

Note • History

NOTE

Authority cited: Sections 25105 and 25610, Corporations Code. Reference: Section 25105, Corporations Code.

HISTORY

1. New section filed 7-28-92; operative 7-28-92 pursuant to Government Code section 11346.2(d) (Register 92, No. 31).

2. Change without regulatory effect amending subsection (d) filed 9-5-95 pursuant to section 100, title 1, California Code of Regulations (Register 95, No. 36).

3. Repealer filed 11-10-2009; operative 12-10-2009 (Register 2009, No. 46).

§260.105.38. Guarantees of Governmental Securities.

Note • History

There is hereby exempted from the provisions of Sections 25110, 25120 and 25130 of the Code as not being comprehended within the purposes of the Corporate Securities Law of 1968 and the qualification of which is not necessary or appropriate in the public interest or for the protection of investors, any offer or sale of any guarantee, letter of credit, standby purchase agreement or similar security obligating the issuer to pay the principal of and/or the interest on a security exempted from the qualification requirements of the Code by virtue of Section 25100(a) provided:

(a) The security exempted from the qualification requirements of the Code by virtue of Section 25100(a) is an “investment grade security” as defined in subsection (a)(1) of Section 260.105.34 of these rules, or

(b) the issuer of the guarantee, letter of credit, standby purchase agreement, or similar security meets all of the following requirements:

(1) The issuer is the issuer of any security registered under Section 12 of the Securities Exchange Act of 1934 (15 U.S.C. 78l(g)) or exempted from such registration by Section 12(g)(2)(G) (15 U.S.C. 78l(g)(2)(G)) of the Act or, if the issuer is a bank, it is a member of the Federal Reserve System.

(2) The issuer has not during the past five years, or during the period of its existence if shorter, defaulted in the payment of any dividend or sinking fund installment on preferred shares, or in the payment of any principal, interest or sinking fund installment on any indebtedness for borrowed money.

(3) The issuer has net worth on a consolidated basis of at least 12 million dollars ($12,000,000) according to (A) its most recent available audited financial statement which may not be over 15 months old and (B) its most recent available unaudited financial statement as of a date subsequent to the audited statement;

(4) The issuer has had average net income, after all charges, including taxes and extraordinary losses and excluding extraordinary gains, of at least 10% of its then net worth for (A) its 5 most recent fiscal years, or during the period of its existence if shorter, and (B) its most recent fiscal year, as determined from the financial statements referred to in subsection (b)(3). In determining whether the issuer satisfies the requirements of subsection (b)(4) there may be included in the net income of any entity to whose assets such issuer, or a successor of such issuer, has succeeded by merger, consolidation or acquisition of assets, if such net income of such predecessor may, in accordance with generally accepted accounting principles, be consolidated with the income of the issuer.

NOTE

Authority cited: Sections 25105 and 25610, Corporations Code. Reference: Sections 25100, 25105, 25110, 25120 and 25130, Corporations Code.

HISTORY

1. New section filed 7-16-86; effective thirtieth day thereafter (Register 86, No. 29).

§260.105.39. Resales of Units in Unit Investment Trusts.

Note • History

There is hereby exempted from the provisions of section 25110 and section 25130 of the Code as not being comprehended within the purposes of the Corporate Securities Law of 1968 (“Law”) and the qualification of which is not necessary or appropriate in the public interest or for the protection of investors, any offer or sale of units in a unit investment trust by the sponsor of that trust or to or through a broker-dealer, if all of the following conditions are met:

(a)(1) The offer and sale of the units was previously qualified under section 25111 of the Law and (2) there has been no material change in the offering (see section 260.111.2 of these Rules);

(b) The units were repurchased by the broker-dealer or sponsor and are redeemable in accordance with the provisions of the Investment Company Act of 1940 (15 U.S.C. 80a-1 et seq.);

(c) The offer and sale is in accordance with the provisions of the Securities Act of 1933 (15 U.S.C. 77a et seq.) and the Investment Company Act of 1940; and

(d) The sponsor or the broker-dealer is a broker-dealer licensed under the Law.

NOTE

Authority cited: Sections 25610 and 25612, Corporations Code. Reference: Sections 25102(c), 25110, 25111, 25112, 25113, 25115, 25120, 25121, 25160, 25162, 25608 and 25615, Corporations Code.

HISTORY

1. Amendment filed 7-13-70; effective thirtieth day thereafter (Register 70, No. 29).

2. Amendment filed 1-11-72; effective thirtieth day thereafter (Register 72, No. 3).

§260.105.40. Certain Canadian Tax-Deferred Retirement Savings Accounts and Canadian Residents.

Note • History

The offer and sale of Canadian securities to or for a “Canadian Retirement Account”, as defined by 17 CFR 230.237(a)(2) or 17 CFR 7d-2(a)(2), respectively, or to or for a Canadian resident temporarily resident in or visiting California with whom the Canadian broker-dealer had a bona fide broker-dealer-client relationship before the Canadian resident entered the United States are exempt from the qualifications requirements of Sections 25110, 25120 and 25130 of the Code; provided, that the offer and sale of such Canadian securities are exempt from registration under the Securities Act of 1933. For the purposes of this section, “Canadian securities” means any security issued by an issuer organized under the laws of Canada or its provinces or territories.

NOTE

Authority cited: Sections 25105 and 25610, Corporations Code. Reference: Section 25105, Corporations Code.

HISTORY

1. New section filed 5-24-2001; operative 6-23-2001 (Register 2001, No. 21).

Article 3. Procedure for Qualification

§260.110. Form of Application--Facing Page.

Note • History

All applications for qualification of the offer and sale of securities pursuant to Sections 25102(c), 25111, 25112, 25113 and 25121 of the Code shall have as the first page thereof a facing page in the following form containing the information therein specified:

Embedded Graphic 10.0018

Embedded Graphic 10.0019

Instructions: The following instructions must be adhered to with respect to all applications for qualification by permit under Sections 25102(c), 25113 and 25121; by coordination under Section 25111, and notification by Section 25112:

Completion of Application. The facing page on the reverse side hereof, must be completed in full and in addition to the facing page, applications must continue by completion of each item of the applicable following forms:

Application for qualification by coordination, Form No. 260.111

Application for qualification by notification, Form No. 260.112

Application for permit pursuant to Section 25113, Form No. 260.113

Application for permit pursuant to Section 25121, Form No. 260.121

Application for Negotiating Permit pursuant to Section 25102(c), Form No. 260.113

The numbering sequence in the forms must be adhered to. Any item which is inapplicable should be listed by the number on the form, followed simply by the word “inapplicable.”

Form of Application. The application should be typewritten or printed in the English language, on one side only of either legal or letter size paper.

Signing of Applications. An application for permit pursuant to Section 25113(b)(2) must be reviewed and signed by each member of the board of directors of the small company applicant. Any other application should be signed by an officer or general partner of the applicant; however, it may be signed by another person holding a power of attorney for such purposes from the applicant, and if signed on behalf of the applicant pursuant to such power of attorney, should include as an additional exhibit a copy of said power of attorney or a copy of the corporate resolution authorizing the attorney to act.

Item 5--“Public Market.” A “public market” exists for this class of securities if it (1) is listed on a national securities exchange, (2) is traded in the over-the-counter market and quoted in the Wall Street Journal or other newspaper of general circulation, or (3) is held of record or beneficially by 500 or more persons.

Incorporation by Reference. In lieu of answering any specific item in this form, an applicant may incorporate the information called for by reference to any attached document, or to any document currently on file with the Department. Such reference should indicate the pages or portion of the document where the information is located.

Amendments to Applications. An amendment to any application for qualification should contain only the information being amended by item number and should be verified in the form prescribed for the application. Each amendment should be accompanied by a facing page in the form prescribed by Section 260.110 of the rules on which the applicant shall insert the fact that the filing is an amendment and the number of the amendment if more than one amendment.

Filing Fee Calculation. The filing fee fixed by Section 25608 must accompany each application and the amount of filing fee paid is to be set forth on the facing page in the upper right hand corner. By way of illustration, the filing fee for qualification of securities by coordination, notification, or permit, under Sections 25113(b)(1) or 25121 is computed by taking 1/5th of 1% of the maximum aggregate offering price of securities being qualified in California, see appropriate column on facing page, and adding $200. Thus, a qualification with an aggregate offering price of $275,250 would be computed by multiplying $275,250 by .002, equalling $550.50, and adding $200 for a total of $750.50. However, the maximum filing fee, including the $200, is $2,500 for applications filed under Sections 25111, 25112, 25113(b)(1), and 25121, except in the case of a transaction under Section 25121 involving a change in rights, preferences, privileges or restrictions. In this case, the filing fee is $200. The fee for filing a small company application for qualification of the sale of securities by permit under Section 25113(b)(2) is $2,500. In the case where the actual costs of processing a small company application under Section 25113(b)(2) exceed the $2,500 filing fee, an additional fee shall be charged, not to exceed $1,000, over and above the filing fee based on the actual amount of the salary or other compensation paid to persons processing the application plus the actual amount of expenses including overhead reasonably incurred in the performance of the work. In the case where the costs exceed the initial $2,500 filing fee, an applicant will be required to submit the additional $1,000 fee before the Department will continue processing the application. Any unexpended fee will be refunded to the applicant.

Description of Securities Being Qualified. State title of each class of securities (e.g., $10 par value common stock) and include rights, warrants, options and convertible securities and the securities to be issued upon exercise or conversion thereof.

A Customer Authorization of Disclosure of Financial Records Form (Form No. QR 500.259) must also be filed as an exhibit to the application.

NOTE

Authority cited: Sections 25610 and 25612, Corporations Code. Reference: Sections 25102(c), 25110, 25111, 25112, 25113, 25115, 25120, 25121, 25160, 25162, 25608 and 25615, Corporations Code.

HISTORY

1. Amendment filed 7-13-70; effective thirtieth day thereafter (Register 70, No. 29).

2. Amendment filed 1-11-72; effective thirtieth day thereafter (Register 72, No. 3).

3. Amendment filed 1-22-75; effective thirtieth day thereafter (Register 75, No. 4).

4. Amendment filed 10-26-84; effective day thereafter (Register 84, No. 43).

5. Editorial correction (Register 85, No. 17).

6. Change without regulatory effect amending “Filing Fee Calculation” filed 11-20-91 pursuant to section 100, title 1, California Code of Regulations (Register 92, No. 9).

7. Amendment of form and Filing Fee Calculation filed 7-1-93; operative 7-1-93 (Register 93, No. 27).

§260.110.1. Form of Application.

All applications for the offer and sale of securities shall be typewritten or printed in the English language on one side only of either legal or letter size paper.

§260.110.2. Signing of Application.

Note • History

An application for the qualification of the offer and sale of securities pursuant to Section 25113(b)(2) shall be reviewed and signed by each member of the board of directors of the small company applicant. Any other application for the qualification of the offer and sale of securities pursuant to Section 25102(c), 25111, 25112, 25113(b)(1), 25121 or 25131 of the Code should be signed by an officer or general partner of the applicant; however, it may be signed by another person holding a power of attorney for such purposes from the applicant and, if signed on behalf of the applicant pursuant to such power of attorney, should include as an additional exhibit a copy of said power of attorney or a copy of the corporate resolution authorizing the person signing to act on behalf of the applicant.

NOTE

Authority cited: Section 25610, Corporations Code. Reference: Sections 25102(c), 25111, 25112, 25113, 25121 and 25131, Corporations Code.

HISTORY

1. Amendment and new Note filed 7-1-93; operative 7-1-93 (Register 93, No. 27).

§260.110.3. Incorporation by Reference.

In lieu of answering any specific item in any of the forms in this Article, an applicant may incorporate the information called for by reference to any attached document or to any document currently on file with the Department. Such reference should indicate the pages or portion of the document where the information is located.

§260.110.4. Amendments to Applications.

Note • History

An amendment to any application for qualification should contain only the information being amended by item number and should be verified in the form prescribed for the application. Each amendment should be accompanied by a facing page in the form prescribed by Section 260.110 of these rules on which the applicant shall insert the fact that the filing is an amendment and the number of the amendment.

NOTE

Authority cited: Section 25610, Corporations Code. Reference: Sections 25160 and 25162, Corporations Code.

HISTORY

1. Amendment filed 10-26-84; effective thirtieth day thereafter (Register 84, No. 43).

§260.111. Application for Qualification by Coordination.

Note • History

An applicant must comply with the requirements of subdivisions (a) and (b) of Section 25111 of the Code when filing an application for qualification by coordination. See also, Section 260.111.1 of these rules.

(a) In lieu of the form set forth in subsection (b), the Uniform Application to Register Securities (Form U-1) recommended by the Subcommittee on Uniform Forms of the Committee on State Regulation of Securities of the American Bar Association's Section of Corporation, Banking and Business Law will be accepted for an application for qualification by coordination. If Form U-1 is utilized, it must be signed and verified as provided in the form set forth in subsection (b) and it must contain the information required by the form set forth in subsection (b).

(b) An application for qualification of the offer and sale of securities by coordination shall, in addition to the facing page required by Section 260.110 of these rules, continue in the following form:

8. Applicant hereby undertakes to forward to the Commissioner of Corporations all future amendments to the Registration Statement under the Securities Act of 1933 attached hereto as Exhibit A, other than an amendment which merely delays the effective date of the Registration Statement, promptly and in any event not later than the first business day after the day they are forwarded to or filed with the Securities and Exchange Commission, whichever first occurs.

9. A copy of the Registration Statement under the Securities Act of 1933, either two copies of the prospectus or two additional copies of the Registration Statement, a copy of the Underwriting Agreement, copies of any pension, retirement or other deferred compensation plan, contract or arrangement when securities to be issued pursuant to such plan, contract or arrangement are the subject of the application, is attached hereto as Exhibit A and incorporated herein by reference. Any of the exhibits (other than exhibits incorporated by reference) to the Registration Statement that are deemed necessary to evidence compliance with any of the Rules of the Commissioner contained in Title 10 of the California Code of Regulations may be required to be submitted.

10. The Consent to Service of Process if required by Section 25165 of the California Corporations Code is attached hereto as Exhibit B. A Customer Authorization of Disclosure of Financial Records Form (Form No. QR 500.259) is attached hereto as Exhibit C.

11. If the applicant will employ agents (other than licensed broker-dealers) in connection with the sale of securities in California, the applicant must comply with Sections 260.141.30 and 260.141.31, Title 10, California Code of Regulations, and furnish the following information.

a. The name and business address of each person who will represent the applicant as an agent in this state.

b. The name and business address of the officer or other official who will supervise such agents on behalf of the applicant.

c. A statement that all such agents employed in this state are employees of the applicant.

d. A statement of the compensation to be paid to such agents. A statement of the compensation to be paid to such supervisory personnel, other than their regular salaries if they are regular employees of the applicant.

e. Describe any order, judgment or decree of any governmental agency or administrator, or of any court of competent jurisdiction revoking or suspending for cause any license, permit or other authority of such agent or supervisory person or of any corporation of which he is an officer or director, to engage in the securities business or in the sale of a particular security or temporarily or permanently restraining or enjoining any such person or any corporation of which he is an officer or director from engaging in or continuing any conduct, practice, or employment in connection with the purchase or sale of securities, or convicting such person of any felony or misdemeanor involving a security or any aspect of the securities business, or of theft or of any felony.

f. A surety bond complying with Section 260.216.15, Title 10, California Code of Regulations.

12. Pursuant to Section 25146 of the California Corporations Code and Section 260.146 of Title 10 of the California Code of Regulations, applicant hereby undertakes, as long as required under the foregoing sections and subject to the exception therein contained, to file with the Commissioner: (a) within 120 days after the end of each fiscal year a report of financial condition and a related statement of income and expenses covering such fiscal year; and (b) within 90 days after the first six months of each fiscal year, a like report and statement covering such six months period.

(NOTE: The application must be signed and verified in the following manner.) The applicant has duly caused this application to be signed on its behalf by the undersigned, thereunto duly authorized.

(Applicant)

(Title)

Executed at _________________ , on __________ , 20____ (Place) (Date)

(Signature)

NOTE

Authority cited: Sections 25111(b), 25610 and 25612, Corporations Code. Reference: Sections 25110, 25111 and 25160, Corporations Code.

HISTORY

1. Amendment filed 3-20-78; effective thirtieth day thereafter (Register 78, No. 12). For prior history see Register 75, No. 4; Register 74, No. 9; Register 73, No. 26; Register 70, No. 29; and Register 69, No. 20.

2. Amendment of subsection (b) filed 11-29-79 as an emergency; designated effective 1-1-80. Certificate of Compliance included (Register 79, No. 48).

3. Amendment filed 10-26-84; effective thirtieth day thereafter (Register 84, No. 43).

4. Change without regulatory effect amending section filed 9-25-2002 pursuant to section 100, title 1, California Code of Regulations (Register 2002, No. 39).

§260.111.1. Time for Filing Application.

Note • History

The time provided in Section 25111(b) of the Code for the filing of an application for qualification of the offer and sale of securities by coordination, provided such application has been on file with the Commissioner for at least ten business days, is hereby extended to permit the filing of such application on or before the twentieth business day following filing of the registration statement with the Securities and Exchange Commission. This time may be further extended by order of the Commissioner with respect to a particular application.

NOTE

Authority cited: Sections 25102(i), 25104(h), 25105, 25111(b), 25507(b) and 25610, Corporations Code.

HISTORY

1. New section filed 11-23-70 as an emergency; designated effective 11-23-70 (Register 70, No. 48).

2. Certificate of Compliance--Sec. 11422.1, Gov. Code, filed 12-9-70 (Register 70, No. 50).

§260.111.2. Application by Certain Investment Companies.

Note • History

NOTE

Authority cited: Section 25610, Corporations Code. Reference: Sections 25111 and 25160, Corporations Code.

HISTORY

1. New section filed 8-12-80 as an emergency; designated effective 9-8-80 (Register 80, No. 33). A Certificate of Compliance must be transmitted to OAL within 120 days or emergency language will be repealed on 1-7-81.

2. A Certificate of Compliance was transmitted to OAL on 10-22-80 and filed on 11-21-80 (Register 80, No. 47).

3. Amendment filed 2-24-83; effective thirtieth day thereafter (Register 83, No. 9).

4. Amendment of subsection (a) filed 10-26-84; effective thirtieth day thereafter (Register 84, No. 43).

5. Change without regulatory effect repealing section filed 6-3-99 pursuant to section 100, title 1, California Code of Regulations (Register 99, No. 23).

§260.112. Application for Qualification of Issuer Transaction by Notification.

Note • History

An application for the qualification of the offer and sale of securities by notification pursuant to Section 25112 of the Code shall, in addition to the facing page required by Section 260.110 of the rules, continue in the following form:

Note: Any item which is inapplicable should be listed by number on the form followed simply by the word “inapplicable.”

ITEM 8. DESCRIPTION OF BUSINESS. Describe the business done and intended to be done by the issuer and its subsidiaries and the general development of such business during the past three years. Indicate any other names under which the issuer or any of its subsidiaries have conducted business during such period.

ITEM 9. USE OF PROCEEDS TO ISSUER. State the principal purposes for which the net proceeds to the applicant for the securities to be offered are intended to be used and the approximate amount intended to be used for each such purpose.

ITEM 10. PLAN OF DISTRIBUTION. Describe the plan of distribution of securities including the names of any underwriters or agents to be employed by applicant in connection with the sale of securities and the discounts or compensation to be allowed or paid to such persons, or other consideration to be received by such persons or other persons in connection with the sale of securities. If agents (other than licensed broker-dealers) are to be employed by the applicant in connection with the sale of securities in California, the applicant must comply with Sections 260.141.30 and 260.141.31, Title 10, California Code of Regulations, and furnish the following information:

a. The name and business address of each person who will represent the applicant as an agent in this state.

b. The name and business address of the officer or other official who will supervise such agents on behalf of the applicant.

c. A statement that all such agents employed in this state are employees of the applicant.

f. A surety bond complying with Section 260.216.15, Title 10, California Code of Regulations.

ITEM 11. DIRECTORS AND EXECUTIVE OFFICERS. List the names of all directors and officers of the issuer indicating all positions and offices held by each person named. In addition, describe any order, judgment, or decree of any governmental agency or administrator, or of any court of competent jurisdiction revoking or suspending for cause any license, permit or other authority of such person or of any corporation of which he is an officer or director, to engage in the securities business or in the sale of a particular security or temporarily or permanently restraining or enjoining any such person or any corporation of which he is an officer or director from engaging in or continuing any conduct, practice, or employment in connection with the purchase or sale of securities, or convicting such person of any felony or misdemeanor involving a security or any aspect of the securities business, or of theft or of any felony.

ITEM 12. MATERIAL TRANSACTIONS WITH AFFILIATES. Describe any material transactions or agreements during the 3-year period immediately preceding the filing of the application between (i) the applicant or any of its affiliated companies, and (ii) any of the promoters, directors, officers, principal employees, principal security holders, underwriters or agents, or any company directly or indirectly controlled by any such person or persons.

ITEM 13. OUTSTANDING SECURITIES. State in tabular form the title and amount of all outstanding securities and whether any of such securities are publicly traded.

ITEM 14. OUTSTANDING OPTIONS TO PURCHASE SECURITIES. State in tabular form the title and amount of securities called for by any options, warrants or rights, including the purchase price of the securities so called for and the expiration dates of such options, together with the market value of the securities so called for as of the latest practicable date. Such statement should include the foregoing information for all options held by each officer or director of the applicant. Except for information with respect to each officer or director, information with respect to option prices and expiration dates may be furnished in ranges.

ITEM 15. PRINCIPAL SECURITY HOLDERS. State in tabular form the voting securities of the issuer owned of record or beneficially by each person who owns of record or is known by the applicant to own beneficially more than 10 percent of the outstanding securities of any class of such voting securities. Such statement should reflect the respective amounts and percentages owned either beneficially or of record by each person and such statement should also include information as to the amounts held by, and the terms of, any voting trust or similar agreement with respect to more than 10 percent of the outstanding securities of any class voting securities of the issuer.

ITEM 16. REMUNERATION OF DIRECTORS AND OFFICERS, AND PRINCIPAL SECURITY HOLDERS. Furnish in tabular form information as to the direct remuneration paid by the issuer and its subsidiaries during the issuer's last fiscal year for services in all capacities to each director, officer, and principal holder of securities whose aggregate direct remuneration during such year exceeded $60,000, and the aggregate remuneration paid to all officers, directors and principal holders of securities as a group.

ITEM 17. ADDITIONAL INFORMATION IN CONNECTION WITH DEBT SECURITIES AND OPTIONS OR STOCK BONUSES. Instructions:

(i) Debt securities:

(a) A copy of the trust indenture or other instrument pursuant to which the debt securities are to be issued should be attached to the application as an additional exhibit.

(b) Include a calculation based upon earnings history during the past three years demonstrating the ability of applicant to meet the proposed dividends, interest and signing fund requirements on all senior securities outstanding and proposed to be outstanding (in cases where such ability to meet the proposed dividends, interest and sinking fund requirements depends upon future earning capacity, applicant should submit calculations of such future earning capacity together with such supporting evidence as may be necessary to demonstrate reasonable certainty in connection with such future earning capacity).

(c) Such other information as may be required to comply with the rules of the Commissioner of Corporations relating to debt securities.

(ii) Options or stock bonuses:

(a) A copy of the plan pursuant to which options or stock bonuses will be granted should be attached to the application as an additional exhibit together with a copy of the form of option or stock bonus agreement to be issued pursuant to the plan.

(b) A copy of any proxy material submitted or to be submitted to shareholders in connection with approval of the plan.

(c) If the plan has previously been approved by the shareholders, a statement of the number of shares approving and the number of shares opposing or not represented.

ITEM 18. ADDITIONAL INFORMATION. Indicate such additional information as may be required to evidence compliance with any of the rules of the Commissioner contained in Title 10 of the California Code of Regulations.

ITEM 19. EXHIBITS. Attach and incorporate by reference the following exhibits:

Note: Any exhibit which is inapplicable should be listed by letter on the form followed simply by the word “inapplicable.”

A. A copy of the charter documents of applicant as described in Section 260.001 of Title 10 of the California Code of Regulations (which may be in the form of a restated or composite copy).

B. Specimen certificate evidencing the security to be issued. (Instruction: Certificates evidencing securities of a class with currently outstanding shares or units should not be submitted.)

C. A copy of any contract made or to be made by the issuer affecting any of the rights, privileges or preferences or transferability of the securities.

D. Financial statements of the issuer and, if some or all of the consideration to be received by the issuer in the transaction is securities of another business, the financial statements of such other business, as required by Section 260.613 of Title 10 of the California Code of Regulations.

E. A copy of any advertisement or prospectus to be used in connection with the offer or sale of the securities. Also include the consent of any attorney, accountant or other expert named in any such advertisement or prospectus, if required pursuant to Section 260.504.2.2 of Title 10, California Code of Regulations, in the form required by that section.

F. A description of the consideration to be received by applicant in exchange for the securities if other than cash.

Instructions: If the applicant proposes to issue securities in exchange for consideration other than cash, state in tabular form the total number of shares proposed to be issued for each type of consideration, the per share selling price based on the consideration proposed to be paid and the names of the purchasers for each category. Submit an appraisal or detailed description of the valuation thereof, or if for a patent or invention for which an application for patent is pending, a copy of the patent or application together with an opinion of a patent attorney covering subjects of ownership and validity thereof and of infringement of patents of others by products as disclosed therein, and a description of all contracts, licenses and assignments of rights or interests herein.

G. A list of the names of the proposed purchasers or an identification of the class of the proposed offerees, if the application is for a limited offering qualification.

Instructions: A list of the complete names, post office addresses and occupations of the proposed issuees and a statement as to the relationship, if any, of the proposed issuees to the promoters, officers or directors of applicant. Further information as to the financial responsibility and investment experience of the proposed purchasers, while not required as part of the original application except in connection with oil and gas or mining interests and real estate syndicates, if furnished may serve to facilitate processing by the Department. (UPON REQUEST, SUCH INFORMATION WILL BE TREATED AS CONFIDENTIAL BY THE COMMISSIONER.) If the applicant proposes to limit the offering to a class of purchasers, information concerning the financial and other qualifications which will be used to determine the class, together with the methods to be used by the applicant in qualifying purchasers within that class, should be submitted.

H. The Consent to Service of Process if required by Section 25165 of the California Corporations Code.

I. A Customer Authorization of Disclosure of Financial Records Form (Form No. QR 500.259).

ITEM 20. REPORTS OF FINANCIAL CONDITION. Pursuant to Section 25146 of the California Corporations Code and Section 260.146 of Title 10 of the California Code of Regulations, applicant hereby undertakes, as long as required under the foregoing sections and subject to the exception therein contained, to file with the Commissioner: (a) within 120 days after the end of each fiscal year a report of financial condition and a related statement of income and expenses covering such fiscal year; and (b) within 90 days after the first six months of each fiscal year, a like report and statement covering such six months period.

(Note: The application must be signed and verified in the following manner.)

The applicant has duly caused this application to be signed on its behalf by the undersigned, thereunto duly authorized.

(Applicant)

(Title)

Executed at ________________________, on ________, 20 ___.

(Place) (Date)

(Signature)

NOTE

Authority cited: Sections 25112(b), 25610 and 25612, Corporations Code. Reference: Sections 25110, 25112 and 25160, Corporations Code.

HISTORY

1. New item 20 filed 3-1-74; effective thirtieth day thereafter (Register 74, No. 9). For prior history, see Register 72, No. 30.

2. Amendment filed 1-22-75; effective thirtieth day thereafter (Register 75, No. 4).

3. Amendment filed 3-20-78; effective thirtieth day thereafter (Register 78, No. 12).

4. Amendment of subsection (E) of Item 19 filed 1-10-79; effective thirtieth day thereafter (Register 79, No. 2).

5. Amendment of Item 10 filed 11-29-79 as an emergency; designated effective 1-1-80. Certificate of Compliance included (Register 79, No. 48).

6. Amendment filed 10-26-84; effective thirtieth day thereafter (Register 84, No. 43).

7. Editorial correction of ITEM 15 (Register 2002, No. 35).

8. Change without regulatory effect amending section filed 9-25-2002 pursuant to section 100, title 1, California Code of Regulations (Register 2002, No. 39).

§260.113. Application for Qualification by Permit.

Note • History

An application for the qualification of the offer and sale of securities by permit pursuant to Section 25113 of the Code shall, in addition to the facing page required by Section 260.110 of these rules and items 8 through 10 and 12 through 18 specified in Section 260.112 of these rules, continue in the following form:

(Note: The applicant's response to Item 21(j) of the application for qualification by permit pursuant to Corporations Code Section 25113 incorporates the information requested by Item 11 of Section 260.112 of these rules. Consequently, applicant's response to Item 11 should be “see response to Item 21(j).” In addition, the small company applicant's response to items of Section 260.112 and Section 260.113 of these rules may incorporate the information contained in the Form U-7 by referring to the appropriate page and question number of the Form U-7.)

ITEM 19. PRIOR ISSUANCES PURSUANT TO CODE SECTIONS 25102(f), (h), (n) AND (o). If the applicant has issued securities pursuant to the exemptions from qualification provided for in Sections 25102(f), (h), (n) and (o) of the Code, briefly state the details of the transaction(s).

ITEM 20. ADDITIONAL INFORMATION REQUIRED IN CONNECTION WITH INTEREST OR PARTICIPATION IN OIL, GAS OR MINING LEASES; REAL ESTATE SYNDICATES; AND MUTUAL WATER COMPANIES AND CHURCHES.

(i) Interest or participation in oil, gas or mining titles or leases: The following, if appropriate:

(a) A description of the properties involved and copies of all conveyances, assignments, leases, subleases or other instruments or agreements relating to said properties together with an opinion of counsel or title policy indicating that applicant has title to such properties.

(b) A statement of the area of interest to the applicant, a description of the plan of exploration including, where available, anticipated drilling depth, the horizon or horizons in which hydrocarbon substances are expected and the nature of such hydrocarbons, the estimated costs of drilling and completing the well or wells proposed to be drilled, and the availability of a market or markets for hydrocarbons discovered.

(c) In the case of programs other than wildcat drilling, a geological report and appraisal which indicate the proposed method of development and production, a statement of the method used in preparing such report, together with supporting geological and engineering data, a table setting forth the estimated future production and the present value thereof, together with a statement of the factor or factors used in making such estimate, and an estimate of the expenses to be incurred in connection with development and production of minerals as proposed in such geological report.

(d) If the securities proposed to be issued involve minerals other than oil, gas or other hydrocarbons, the applicant shall include a mineral report which indicates the area of interest to the applicant, the geological information available to such applicant with respect to such area, the results of other mineral operations in the area, if known, a description of the plan of operation including, where available, the extent of ore deposits, the cost of development and production thereof, the market or markets for minerals produced and the cost of marketing such minerals.

(e) Copies of all instruments or agreements which will convey an interest in minerals to the proposed purchasers and a statement of the ownership of other interests in the same minerals. In the event that there is a relationship or an arrangement between one or more holders of such an interest in minerals and the applicant, the nature thereof shall be described.

(ii) Real Estate Syndicates: The following if appropriate: (a) A copy of an appraisal of the property of recent date should be attached hereto as an additional exhibit. In lieu of an appraisal, in cases where the property is being acquired from other than a promoter of the applicant and where no real estate commission in connection with the acquisition is being paid to anyone related to the applicant, a valuation of the property may be submitted together with a detailed description of the method of valuation. (b) Such other information as may be necessary to demonstrate compliance with Sections 260.140.110.1 through 260.140.119.1 of Title 10 of the California Code of Regulations.

(iii) Mutual Water Companies: An application for a permit to offer and sell securities of a mutual water company must demonstrate compliance with Sections 260.140.71 through 260.140.71.10 of Title 10 of the California Code of Regulations.

(iv) Church debt securities: An application for permit to offer and sell church debt securities must demonstrate compliance with Subarticle 7.2, Article 4, Subchapter 2 of these rules.

ITEM 21. EXHIBITS. Attach and incorporate by reference the following exhibits:

Note: Any exhibit which is inapplicable should be listed by letter on the form followed simply by the word “inapplicable.”

A. A copy (which may be in the form of a restated or composite copy) of applicant's charter documents as described in Section 260.001 of Title 10 of the California Code of Regulations.

B. Specimen certificate evidencing the security to be issued. (Instruction: Certificates for common stock which are to be in a standard printer's form without any additional substantive provisions should not be submitted.)

C. A copy of any contract made or to be made by the issuer affecting any of the rights, preferences, privileges or transferability of the securities.

D. Subject to the following instruction, a copy of any agreement made or to be made by or among shareholders of the issuer which materially affects, or will materially affect, any of the rights, preferences, privileges, or restrictions of or on securities of the issuer or the management of the issuer (including any voting agreement, irrevocable proxy or shareholders' agreement). Instruction: If a copy of an agreement is not available to the issuer, so state and furnish a brief description of the agreement including therein such information regarding the parties and terms as is known to the issuer. Nothing contained herein shall be construed as requiring the issuer to disclose information concerning agreements of which it has no knowledge.

E. Financial statements of the issuer and any other business involved in this transaction as required by Section 260.613 of Title 10 of the California Code of Regulations.

F. A copy of any advertisement, prospectus, or Small Corporate Offerings Registration Form (Form U-7 disclosure document as described in Section 260.113.1 of these rules) to be used in connection with the offer or sale of the securities. Also include the consent of any attorney, accountant or other expert named in any such advertisement, prospectus, or Form U-7, if required pursuant to Section 260.504.2.2 of Title 10, California Code of Regulations, in the form required by that section.

G. A description of the consideration to be received by applicant in exchange for the securities if other than cash. Instructions: If the applicant proposes to issue securities in exchange for consideration other than cash, state in tabular form the total number of shares proposed to be issued for each type of consideration, the per share selling price based on the consideration proposed to be paid and the names of the purchasers for each category. Submit an appraisal or detailed description of the valuation thereof, or if for a patent or invention for which an application for patent is pending, a copy of the patent or application together with an opinion of a patent attorney covering subjects of ownership and validity thereof and of infringement of patents of others by products as disclosed therein, and a description of all contracts, licenses and assignments of rights or interests therein.

H. A list of the names of the proposed purchasers or an identification of the class of the proposed offerees, if the application is for a limited offering qualification. Instructions: A list of the complete names, post office addresses and occupations of the proposed issuees and a statement as to the relationship, if any, of the proposed issuees to the promoters, officers or directors of applicant. Further information as to the financial responsibility and investment experience of the proposed purchasers, while not required as part of the original application except in connection with oil and gas or mining interests and real estate syndicates, if furnished may serve to facilitate processing by the Department. (UPON REQUEST, AND IN ACCORDANCE WITH RULE 250.10, SUCH INFORMATION WILL BE TREATED AS CONFIDENTIAL BY THE COMMISSIONER.) If the applicant proposes to limit the offering to a class of purchasers, information concerning the financial and other qualifications which will be used to determine the class, together with the methods to be used by the applicant in qualifying purchasers within that class, should be submitted.

I. (1) The Consent to Service of Process if required by Section 25165 of the California Corporations Code.

(2) A Customer Authorization of Disclosure of Financial Records Form (Form No. QR 500.259).

J. (1) A list containing the complete names of the directors, officers, trustees, and/or general partners, as the case may be, and the general managers, principal executives and/or other persons who will be charged with the business activities and operations of the applicant and with respect to each of the foregoing persons, the current post office address, age, and current occupation and principal occupation during the last five years.

(2) A statement of any order, judgment or decree of any governmental agency or administrator, or of any court of competent jurisdiction, revoking or suspending for cause any license, permit or other authority of such person or of any corporation of which he is an officer or director, to engage in the securities business or in the sale of a particular security or temporarily or permanently restraining or enjoining any such person or any corporation of which he is an officer or director from engaging in or continuing any conduct, practice or employment in connection with the purchase or sale of securities, or convicting such person of any misdemeanor involving a security or any aspect of the securities business, or of theft, or of any felony.

K. In the event applicant has not commenced business and has no assets or liabilities, in lieu of financial statements a statement should be submitted, in the form of a budget, setting forth (i) the use proposed to be made of the proceeds from the sale of the securities, including all expenditures to be made or incurred; (ii) the total projected financing requirements of the applicant for six months or, if the proposed plan of operation requires initial financing for a period longer than six months, for such longer period; and (iii) a statement setting forth the sources of all of the required funds other than from the sale of securities, including any proposed loans or contributions to capital.

ITEM 22. REPORTS OF FINANCIAL CONDITION. Pursuant to Section 25146 of the California Corporations Code and Section 260.146 of Title 10 of the California Code of Regulations, applicant hereby undertakes, as long as required under the foregoing sections and subject to the exception therein contained, to file with the Commissioner:

(a) within 120 days after the end of each fiscal year a report of financial condition and a related statement of income and expenses covering such fiscal year; and

(b) within 90 days after the first six months of each fiscal year, a like report and statement covering such six months period.

ITEM 23. SMALL COMPANY UNDERTAKING. For an application filed under Section 25113(b)(2) of the California Corporations Code, the applicant hereby undertakes that there will be no stock splits, stock dividends, spinoffs, or mergers for a period of two years from the close of the offering.

(Note: The application must be signed and verified in the following manner.)

The applicant has duly caused this application to be signed on its behalf by the undersigned, thereunto duly authorized.

(Applicant)

(Title)

Executed at ________________________, on ________, 20 ___.

(Place) (Date)

(Signature)

NOTE

Authority cited: Sections 25113(b), 25610 and 25612, Corporations Code. Reference: Sections 25102, 25110, 25113, and 25160, Corporations Code.

HISTORY

1. Amendment of Item 20.(iii) filed 4-14-83; effective thirtieth day thereafter (Register 83, No. 16). For prior history, see Register 79, No. 2.

2. Amendment filed 10-26-84; effective thirtieth day thereafter (Register 84, No. 43).

3. Editorial correction (Register 85, No. 17).

4. Amendment of Item 20 filed 2-8-89; operative 3-10-89 (Register 89, No. 8).

5. Amendment and new Item 23 filed 7-1-93; operative 7-1-93 (Register 93, No. 27).

6. Change without regulatory effect amending Item 20 (iii) filed 9-30-93 pursuant to title 1, section 100, California Code of Regulations (Register 93, No. 40).

7. Change without regulatory effect amending Item 20 (iv) and Item 23 filed 9-25-2002 pursuant to section 100, title 1, California Code of Regulations (Register 2002, No. 39).

8. Amendment of Item 19 and Note filed 9-23-2009; operative 10-23-2009 (Register 2009, No. 39).

§260.113.1. Form U-7 Disclosure Document.

Note • History

(a) General. For the purpose of Section 25113(b)(2)(E) of the Code, the offering shall be made pursuant to a Small Corporate Offering Registration Form (Form U-7), as adopted by the North American Securities Administrators Association, Inc. (NASAA) on April 29, 1989, and pursuant to the additional instructions of this rule.

(b) Additional Instructions. Notwithstanding any NASAA instruction to the contrary, additional instructions for use of Form U-7 are as follows:

1. The applicant must be a California Corporation or a foreign corporation, which at the time of filing the application is subject to Corporations Code Section 2115 irrespective of the notice filing requirement under Section 2108. In addition: (1) the applicant shall not be a “blind pool company,” which is defined as a development stage company that either (i) has no specific business plan or purpose or (ii) has indicated that its business plan is to engage in mergers or acquisitions with unidentified companies or other entities; (2) the applicant shall not be engaged in oil and gas exploration or production, or mining or other extractive industries; (3) the applicant shall not be an investment company subject to the Investment Company Act of 1940; and (4) the applicant shall not be subject to the reporting requirements of Sections 13 or 15(d) of the Securities and Exchange Act of 1934.

2. Use of the Form U-7 is available only in an offering by the applicant of one-class of voting common stock, and immediately after the proposed sale and issuance there must be only one class of voting common stock outstanding. The total offering of voting common stock by the applicant to be sold in a 12-month period, within or outside of this state, shall be limited to not more than one million dollars ($1,000,000), less the aggregate offering price for all securities sold (within the 12 months before the start, and during the offering, of the voting common stock) under Rule 504 of the Securities and Exchange Commission, in reliance on any exemption under subdivision (b) of Section 3 of the Securities Act of 1933, or in violation of subdivision (a) of Section 5 of that Act.

3. The minimum offering price of the voting common stock to be sold shall be at least five dollars ($5.00) per share. The applicant shall undertake that there will be no stock splits, stock dividends, spinoffs, or mergers for a period of two years from the close of the offering. (See Item 23 in the Application for Qualification by Permit in Section 260.113 of these rules.)

4. The net proceeds from the offering shall be expended in the operations of the business. Operations of the business does not include servicing or retiring any indebtedness where any part of the proceeds of the offering, directly or indirectly, is used to service or repay any debt or make any payment (other than reasonable salaries) to any officer, director or 10% shareholder of the applicant, or any affiliate of the applicant.

5. Each answer in the Form U-7 shall be thoroughly stated notwithstanding the various Notes and lined spaces set forth in that form.

6. The Form U-7 shall be reviewed and signed by each member of the board of directors of the applicant. In this regard, the board of directors may wish to seek the advice of an attorney at law experienced in securities matters with respect to the adequacy of the disclosure and the potential liability associated with inaccurate or incomplete disclosure.

7. Financial Statements required by the Form U-7 shall comply with Section 260.613 of these Rules.

8. Exhibits required with the Form U-7 shall be filed to the extent applicable pursuant to Item 21 of the Application for Qualification by Permit under Section 260.113 of these Rules.

9. Copies of annual financial reports provided to investors in accordance with Question 46 of the Form U-7 shall be filed with the Commissioner of Corporations. Those financial reports filed with the Commissioner shall include a separate written addendum describing the total number of the applicant's present employees, the total number of employees that applicant anticipates it will have within the next 12 months, and a breakdown of the numbers and corresponding classifications of employees (e.g., 20 clerks, 15 analysts, 10 managers, etc.) for each of those totals.

NOTE

Authority cited: Section 25113(b), 25610 and 25612, Corporations Code. Reference: Sections 25110, 25113, and 25160, Corporations Code.

HISTORY

1. New section filed 7-1-93; operative 7-1-93 (Register 93, No. 27).

2. Amendment of subsections (b)1., (b)4. and (b)6. filed 2-22-96; operative 2-22-96 pursuant to Government Code section 11343.4(d) (Register 96, No. 8).

§260.115. “Issuer” of Notes Secured by Real Property.

Note • History

A licensed real estate broker, a licensed finance lender, or licensed industrial loan company who engages in the offer and sale of notes secured by real property of various makers, which are a series of notes or notes in which undivided interests are offered and sold, is the issuer of such notes and undivided interests if the notes of the various makers are offered and sold pursuant to a plan or arrangement which is common as to the various makers with respect to documentation and loan standards and which includes provisions for servicing such notes on behalf of the purchasers.

NOTE

Authority cited: Section 25610, Corporations Code. Reference: Sections 25010 and 25115, Corporations Code.

HISTORY

1. New section filed 8-27-81 as an emergency; effective upon filing (Register 81, No. 37).

2. Order of Repeal of 8-27-81 emergency order filed 9-4-81 by OAL pursuant to Government Code Section 11349.6 (Register 81, No. 37).

3. New section filed 6-24-82; effective thirtieth day thereafter (Register 82, No. 26).

4. Amendment filed 8-6-98; operative 9-5-98 (Register 98, No. 32).

§260.121. Application for Qualification of Recapitalizations and Reorganizations.

Note • History

An application pursuant to Section 25121 of the Code for the qualification of the offer and sale of securities in connection with any change in the rights, preferences, privileges, or restrictions of or on outstanding securities or in any exchange of securities by the issuer with its existing security holders exclusively or in any exchange in connection with any merger or consolidation or purchase of assets in consideration wholly or in part of the issuance of securities or in an entity conversion transaction shall, in addition to the facing page required by Section 260.110 of these rules, continue on the following form:

Note: Any item which is inapplicable should be listed by number on the form followed simply by the word “inapplicable.”

(a) IF THE TRANSACTION INVOLVES a merger, consolidation, purchase of assets or is an entity conversion transaction:

ITEM 8. DESCRIPTION OF PLAN. Where applicable, describe the material features of the plan, the reasons therefor, the general effect thereof upon the rights of existing security holders, the approximate number of security holders of each entity involved, the vote needed for its approval, the proposed date for the mailing of proxies and the proposed date of the security holders' meeting.

ITEM 9. EXECUTION OF PLAN. Describe the method by which the plan described in Item 8 will be carried out, including the names of any broker-dealers or agents to be employed by each entity in effecting purchases or sales of securities pursuant to the plan and the compensation to be paid such persons, or other consideration to be received by such persons, or any other persons, in connection with the sale, purchase, or exchange of securities. If agents (other than licensed broker-dealers) are to be employed by the applicant in connection with the distribution of securities in California pursuant to the plan, the applicant is required to comply with Sections 260.141.30 and 260.141.31, Title 10, California Code of Regulations, and the following information is to be furnished:

a. The name and business address of each person who will represent the applicant as an agent in this state.

b. The name and business address of the officer or other official who will supervise such agents on behalf of the applicant.

c. A statement that all such agents are employees of the applicant.

e. Describe any order, judgment or decree of any governmental agency or administrator, or of any court of competent jurisdiction revoking or suspending for cause any license, permit or other authority of such agent or supervisory person or of any entity of which he or she is an executive officer, director or person occupying a similar status or performing similar functions, to engage in the securities business or in the sale of a particular security or temporarily or permanently restraining or enjoining any such person or any entity of which he or she is an executive officer, director, or person occupying a similar status or performing similar functions from engaging in or continuing any conduct, practice, or employment in connection with the purchase or sale of securities, or convicting such person of any felony or misdemeanor involving a security or any aspect of the securities business, or of theft or of any felony.

f. A surety bond complying with Section 260.216.15, Title 10, California Code of Regulations.

ITEM 10. DESCRIPTION OF BUSINESS. Describe the business of the issuer and each other entity involved in the transaction.

ITEM 11. DIVIDENDS IN ARREARS OR DEFAULTS. A statement concerning any dividends in arrears or defaults in principal or interest in respect of any securities of the issuer and any other entity involved in the transaction, and concerning the effect of the plan thereon.

ITEM 12. HIGH AND LOW SALES PRICES WITHIN 2 YEARS. As to each class of securities of the issuer and of each other entity involved in the transaction which is admitted to trading on a securities exchange or with respect to which a market otherwise exists, and which will be materially affected by the plan, state the high and low sale prices (or, in the absence of such information, the range of the bid prices) for each quarterly period within two years.

ITEM 13. DIRECTORS AND EXECUTIVE OFFICERS.

(a) List the names of all directors, executive officers or persons occupying a similar status or performing similar functions of the issuer and of each other entity involved in the transaction, indicating all positions and offices held by each person named.

(b) Describe any order, judgment, or decree of any governmental agency or administrator, or of any court of competent jurisdiction revoking or suspending for cause any license, permit or other authority of such person or of any entity of which he or she is an executive officer, director, or person occupying a similar status or performing similar functions, to engage in the securities business or in the sale of a particular security or temporarily or permanently restraining or enjoining any such person or any entity of which he or she is an executive officer, director, or person occupying a similar status or performing similar functions from engaging in or continuing any conduct, practice, or employment in connection with the purchase or sale of securities, or convicting such person of any felony or misdemeanor involving a security or any aspect of the securities business, or of theft or of any felony.

ITEM 14. PRINCIPAL HOLDERS OF SECURITIES. State any material interest in the transaction of each person who, with respect to the issuer or any other entity involved in the transaction, is a director, executive officer, or person occupying a similar status or performing similar functions, or owns of record or beneficially (if known to the issuer) 10% or more of any class of outstanding equity securities, or is a promoter if the issuer or such other entity was organized within the past three years. (Instruction: An interest of one of the specified persons which arises solely from the ownership of securities of only one of the entities involved in the transaction is not a material interest where the specified person receives no extra or special benefit not shared on a pro rata basis by all holders of securities of that class.)

ITEM 15. EXCHANGE RATIO. State the basis of the ratio for the exchange or conversion of the securities of the issuer for the securities of each constituent entity.

ITEM 16. EXHIBITS. Attach and incorporate by reference the following exhibits.

Note: Any exhibit which is inapplicable should be listed by letter on the form followed simply by the word “inapplicable.”

A. With respect to the issuer and each other entity involved in the transaction, the financial statements required by Section 260.613 of Title 10 of the California Code of Regulations, and pro forma financial statements giving effect to the proposed transaction.

B. A copy of the plan of reorganization or entity conversion if it is set forth in a written document, including any request for delayed effectiveness of the filing of such document with the Secretary of State or similar authority.

C. Copies (which may be in a restated or composite form) of the current charter documents (as defined in Section 260.001, Title 10, California Code of Regulations) of the issuer and of each constituent entity involved in a merger or consolidation or entity conversion transaction.

D. A copy of any contract made or to be made by the issuer affecting any of the rights, preferences, privileges, or transferability of the securities.

E. Subject to the following instruction, a copy of any agreement made or to be made by or among security holders of the issuer which materially affects, or will materially affect, any of the rights, preferences, privileges, or restrictions of or on securities of the issuer or the management of the issuer (including any voting agreement, irrevocable proxy or security holders' agreement).

Instruction: If a copy of an agreement is not available to the issuer, so state and furnish a brief description of the agreement including therein such information regarding the parties and terms as is known to the issuer. Nothing contained herein shall be construed as requiring the issuer to disclose information concerning agreements of which it has no knowledge.

F. A preliminary copy of the proxy material to be used to solicit the vote or consents of security holders (amended copies of such proxy material and final copies should be submitted as supplemental information to this application), and the consent of any attorney, accountant or other expert named in such proxy material, if such expert's consent is required pursuant to Section 260.504.2.2, Title 10, California Code of Regulations, in the form required by that section.

G. The Consent to Service of Process if required by Section 25165 of the California Corporations Code.

H. A Customer Authorization of Disclosure of Financial Records Form (Form No. QR 500.259).

ITEM 17. REPORTS OF FINANCIAL CONDITION. Pursuant to Section 25146 of the California Corporations Code and Section 260.146 of Title 10 of the California Code of Regulations, applicant hereby undertakes, as long as required under the foregoing sections and subject to the exceptions therein contained, to file with the Commissioner: (a) within 120 days after the end of each fiscal year a report of financial condition and a related statement of income and expenses covering such fiscal year; and (b) within 90 days after the first six months of each fiscal year, a like report and statement covering such six-month period.

(b) IF THE TRANSACTION INVOLVES a change in the rights, preferences, privileges or restrictions of or on outstanding securities or an exchange by an issuer with its existing security holders exclusively:

ITEM 8. OUTSTANDING SECURITIES TO BE MODIFIED. State the title and amount of outstanding securities to be modified.

ITEM 9. DESCRIPTION OF OUTSTANDING SECURITIES AND MODIFIED SECURITIES. Describe any material differences between the outstanding securities and the modified or new securities.

ITEM 10. DESCRIPTION OF PROPOSED MODIFICATION. State the reasons for the proposed modification, the general effect thereof upon the rights of existing security holders, the basis of the ratio for the exchange of securities by an issuer with its existing security holders, the vote needed for approval, the proposed date for the mailing of proxies and the proposed date of the security holders' meeting.

ITEM 11. DIVIDENDS IN ARREARS OR DEFAULTS. A statement as to arrears in dividends or as to defaults in principal or interest with respect to outstanding securities which are to be modified, and such other information as may be appropriate in the particular case to disclose adequately the nature and effect of the proposed action.

ITEM 12. METHOD OF SELLING THE SECURITIES. If the applicant will employ broker-dealers or agents in connection with the recapitalization described in Items 9 and 10, describe the functions such persons will perform, furnish their names, and state the compensation to be paid such persons, or other consideration to be received by such persons, or any other persons, in connection with the sale or purchase of securities under the plan of recapitalization. If agents are to be employed by the applicant in connection with the distribution of securities pursuant to the plan, the applicant is required to comply with Sections 260.141.30 and 260.141.31, Title 10, California Code of Regulations, and the following information is to be furnished:

a. The name and business address of each person who will represent the applicant as an agent in this state.

b. The name and business address of the officer or other official who will supervise such agents on behalf of the applicant.

c. A statement that all such agents are employees of the applicant.

e. Describe any order, judgment or decree of any governmental agency or administrator, or of any court of competent jurisdiction revoking or suspending for cause any license, permit or other authority of such agent or supervisory person or of any entity of which such person is an executive officer, director or person occupying a similar status or performing similar functions, to engage in the securities business or in the sale of a particular security or temporarily or permanently restraining or enjoining any such person or any entity of which such person is an executive officer, director or person occupying a similar status or performing similar functions from engaging in or continuing any conduct, practice, or employment in connection with the purchase or sale of securities, or convicting such person of any felony or misdemeanor involving a security or any aspect of the securities business, or of theft or of any felony.

f. A surety bond complying with Section 260.216.15, Title 10, California Code of Regulations.

ITEM 13. DIRECTORS AND EXECUTIVE OFFICERS.

(a) List the names of all directors and executive officers or persons occupying a similar status or performing similar functions of the issuer indicating all positions and offices held by each person named.

(b) Describe any order, judgment, or decree of any governmental agency or administrator, or of any court of competent jurisdiction revoking or suspending for cause any license, permit or other authority of such person or of any entity of which such person is an executive officer, director or person occupying a similar status or performing similar functions, to engage in the securities business or in the sale of a particular security or temporarily or permanently restraining or enjoining any such person or any entity of which such person is an executive officer, director, or person occupying a similar status or performing similar functions from engaging in or continuing any conduct, practice, or employment in connection with the purchase or sale of securities, or convicting such person of any felony or misdemeanor involving a security or any aspect of the securities business, or of theft or of any felony.

ITEM 14. PRINCIPAL HOLDERS OF SECURITIES. State any material interest in the transaction of each executive officer or director of the issuer, or any person occupying a similar status or performing similar functions, any person owning of record or beneficially (if known to the issuer) 10% or more of the outstanding securities of any class of equity security of the issuer, and any promoter of the issuer if the issuer was organized within the past three years.

ITEM 15. EXHIBITS. Attach and incorporate by reference the following exhibits.

Note: Any exhibit which is inapplicable should be listed by letter on the form followed simply by the word “inapplicable.”

A. With respect to the issuer, the financial statements required by Section 260.613 of Title 10 of the California Code of Regulations.

B. A copy of the plan of recapitalization if it is set forth in a written document, including any request for delayed effectiveness of the filing of such document with the Secretary of State or similar authority.

D. A preliminary copy of the proxy material to be used to solicit the vote or consents of security holders (amended copies of such proxy material and final copies should be submitted as supplemental information to this application), and the consent of any attorney, accountant or other expert named in such proxy material, if such expert's consent is required pursuant to Section 260.504.2.2, Title 10, California Code of Regulations, in the form required by that section.

E. A copy of any contract made or to be made by the issuer affecting any of the rights, preferences, privileges, or transferability of the securities.

F. The Consent to Service of Process if required by Section 25165 of the California Corporations Code.

G. Subject to the following instruction, a copy of any agreement made or to be made by or among security holders of the issuer which materially affects, or will materially affect, any of the rights, preferences, privileges, or restrictions of or on securities of the issuer or the management of the issuer (including any voting agreement, irrevocable proxy or security holders' agreement).

H. A Customer Authorization of Disclosure of Financial Records Form (Form No. QR 500.259).

ITEM 16. REPORTS OF FINANCIAL CONDITION. Pursuant to Section 25146 of the California Corporations Code and Section 260.146 of Title 10 of the California Code of Regulations, applicant hereby undertakes, as long as required under the foregoing sections and subject to the exceptions therein contained, to file with the Commissioner:

(a) within 120 days after the end of each fiscal year a report of financial condition and a related statement of income and expenses covering such fiscal year; and

(b) within 90 days after the first six months of each fiscal year, a like report and statement covering such six months period.

The application must be signed and verified in the following form:

The applicant has duly caused this application to be signed on its behalf by the undersigned, thereunto duly authorized.

Embedded Graphic 10.0020

NOTE

Authority cited: Sections 25120, 25610 and 25612, Corporations Code. Reference: Sections 25120, 25121 and 25160, Corporations Code.

HISTORY

1. Amendment of Item 15 to subsection (a) and Item 14 to subsection (b) filed 5-15-78; effective thirtieth day thereafter (Register 78, No. 20). For prior history, see Register 75, No. 4.

2. Amendment of Item 15 of subsection (a) and Item 14 of subsection (b) filed 1-10-79; effective thirtieth day thereafter (Register 79, No. 2).

3. Amendment of Item 15 of subsection (a) and Item 14 of subsection (b) filed 1-12-79 as an emergency; designated effective 2-9-79. Certificate of Compliance included (Register 79, No. 2).

4. Amendment filed 11-29-79 as an emergency; designated effective 1-1-80. Certificate of Compliance included (Register 79, No. 48).

5. Renumbering of former Section 260.121 to new Section 260.140.63 and renumbering and amendment of former Section 260.121.1 to new Section 260.121 filed 10-26-84; effective thirtieth day thereafter (Register 84, No. 43).

6. Editorial correction of printing error (Register 85, No. 17).

7. Change without regulatory effect amending section filed 9-25-2002 pursuant to section 100, title 1, California Code of Regulations (Register 2002, No. 39).

8. Amendment filed 9-28-2005; operative 10-28-2005 (Register 2005, No. 39).

§260.131. Application for Qualification of Nonissuer Transaction by Notification.

Note • History

Application for the qualification of the offer and sale of securities by notification in a nonissuer transaction pursuant to Section 25131 of the Code shall be made on the following form:

Embedded Graphic 10.0021

INSTRUCTIONS

Completion of Application. The application should continue in the number sequence shown below. Any item which is inapplicable should be listed by the number on the form, followed by the word “inapplicable.”

7. Describe the business done by the issuer and its subsidiaries and the general development of such business during the last three years and indicate the intended development of the business in the immediate future. Indicate any other names under which the issuer or any of its subsidiaries have conducted business during such period.

8. List the names and home addresses of all directors and officers of the issuer, indicating all positions and offices held by each person named. In addition, describe any order, judgment, or decree of any governmental agency or administrator, or of any court of competent jurisdiction, revoking or suspending for cause any license, permit or other authority of such person or of any corporation of which he is an officer or director, to engage in the securities business or in the sale of a particular security or temporarily or permanently restraining or enjoining any such person or any corporation of which he is an officer or director from engaging in or continuing any conduct, practice, or employment in connection with the purchase or sale of securities, or convicting such person of any felony or misdemeanor involving a security or any aspect of the securities business or of theft or of any felony.

9. Furnish in tabular form information as to the direct remuneration paid by the issuer and its subsidiaries during the issuer's last fiscal year for services in all capacities to each director, officer, and principal holder of securities (as defined in item 11) whose aggregate direct remuneration during such year exceeded $60,000, and the aggregate remuneration paid to all officers, directors, and principal holders of securities as a group.

10. State in tabular form the title and amount of securities called for by any options, warrants or rights, including the purchase price of the securities so called for and the expiration dates of such options together with the market value of the securities so called for as of the latest practicable date. Such statements should include the foregoing information for all options held by each officer or director of the issuer. Except for information required with respect to each officer or director, information with respect to option prices and expiration dates may be furnished in ranges.

11. A. State in tabular form the voting securities of the issuer owned of record or beneficially by each person who owns of record or is known by the applicant to own beneficially more than 10% of the outstanding securities of any class of such voting securities. Such statement should reflect the respective amounts and percentage owned either beneficially or of record by each person and such statement should also include information as to the amounts held by, and the terms of, any voting trust or similar agreement with respect to more than 10% of the outstanding securities of any class of voting securities of the issuer.

B. As to each such principal security holder and each officer or director of the issuer who effected more than five transactions in the securities of the issuer within the last twelve months, state the dates of all purchases and sales of securities of the issuer by such person, the prices received or paid and the number of securities bought or sold in each transaction.

12. Describe any material transactions or agreements during the 3-year period immediately preceding the filing of the application between (i) the issuer or any of its affiliated companies, and (ii) any of their promoters, officers, directors, principal employees, principal security holders, underwriters or agents or any company directly or indirectly controlled by any such person or persons. Include a detailed statement of the number of promotional shares (as defined in Section 260.140.30 of Title 10 of the California Code of Regulations) issued, the consideration for and any restrictions on such shares. If securities were issued by the issuer during such period, briefly describe each such transaction, including any sale or distribution of the issuer's securities effected by or through a subsidiary of the issuer.

13. If the issuer has outstanding securities other than common stock, outline briefly the rights, preferences, privileges and restrictions of or on such securities. If any class of outstanding common stock is nonvoting, assessable, redeemable, or subject to preemptive, rights or restrictions on transfer, outline briefly such provisions. Outline briefly the rights, terms and provisions of any debt security or other security identified in Item 6.

14. Exhibits. Attach and incorporate by reference the following exhibits:

(NOTE: Any exhibit which is inapplicable should be listed by letter on the application followed simply by the word “inapplicable.”)

A. Financial Statements: With respect to the issuer, the financial statements required by Section 260.613 of Title 10 of the California Code of Regulations.

B. All press or publicity releases, communications to shareholders and communications to broker-dealers and investment advisers within the preceding twelve months by the issuer or its subsidiaries and relating to the business or intended business or to the assets or acquisitions of the issuer or its subsidiaries.

C. Copy of any management contract or bonus plan, contract or arrangement with any officer or director named in item 9 above.

D. The Consent to Service of Process if required by Section 25165 of the California Corporations Code.

15. The following statement should be made and completed: There has not been and there is no adverse order, judgment or decree entered in connection with the offering or trading of securities of the issuer by any State regulatory authority, any court or the Securities and Exchange Commission, except as follows: (if none, so state)

16. The following undertaking should be made by the issuer named in Item 1 above and, if the issuer is not the applicant, executed by an authorized officer of the issuer on its behalf:

The issuer, if it is the applicant, hereby undertakes to furnish the Commissioner promptly copies of all current, quarterly, semi-annual or annual reports or other material information concerning its operations furnished to its shareholders during the period a security is qualified pursuant to this application.

(NOTE: The application must be signed and verified in the following manner.)

The applicant has duly caused this application to be signed on its behalf by the undersigned, thereunto duly authorized.

(Applicant)

(Title)

Executed at____________________________on _________________, 20____

(Place) (Date)

(Signature)

Form of Application. The application should be typewritten or written in the English language, on one side only of either legal or letter-size paper.

Signing of Applications. Application should be signed by an officer or general partner of the applicant; however, it may be signed by another person holding a power of attorney for such purposes from the applicant, and if signed on behalf of the applicant pursuant to such power of attorney, should include as an additional exhibit a copy of said power of attorney or a copy of the corporate resolution authorizing the attorney to act.

Amendments to Applications. An amendment to any application for qualification should contain only the information being amended by item number and should be verified in the form prescribed for the application. Each amendment should be accompanied by a facing page in the form prescribed by Section 260.131 of the rules on which the applicant shall insert the fact that the filing is an amendment and the number of the amendment.

NOTE

Authority cited: Sections 25131(b), 25610, 25611 and 25612, Corporations Code. Reference: Sections 25130, 25131, 25160 and 25162, Corporations Code.

HISTORY

1. Amendment filed 5-23-78 as procedural and organizational; effective upon filing (Register 78, No. 21). For prior history, see Register 75, No. 4.

2. Amendment filed 10-26-84; effective thirtieth day thereafter (Register 84, No. 43).

3. Change without regulatory effect amending application fee on form and numbers 8, 11, 12, 14A, and 15 of the Instructions filed 11-20-91 pursuant to section 100, title 1, California Code of Regulations (Register 92, No. 9).

4. Change without regulatory effect amending certification filed 9-25-2002 pursuant to section 100, title 1, California Code of Regulations (Register 2002, No. 39).

Article 4. Standards for the Exercise of the Commissioner's Authority

§260.140. Application of Standards.

The standards set forth in this Article are intended to furnish guidelines in the situations covered for the exercise of the Commissioner's discretion relating to the qualification of the offer and sale of securities, based upon the usual or typical circumstances encountered. However, it is impossible to foresee or provide for all of the variant circumstances which may exist in a particular case, and these standards are not intended to preclude the application of more liberal or more stringent standards if the circumstances justify in either an open or a limited offering qualification (unless the contrary is expressly stated in these rules). Standards relating to additional types of companies or offerings may be added to this Article or may be dealt with in interpretive opinions or releases from time to time as these are developed by experience or new problems are encountered.

A variation from the standards stated in this Article will be granted at the request of the applicant in the case of a limited offering qualification if it is possible to find that the offer and sale will not be unfair, unjust or inequitable to the initial purchasers upon the basis of all of the facts and circumstances of the case. See Section 260.141.10 of these rules.

§260.140.01. Suitability of Investors.

Note • History

(a) If a limited offering qualification is approved pursuant to a condition imposed by the Commissioner, or a representation by the applicant, confining the sale of securities under the qualification to persons meeting specified standards of experience, financial responsibility, tax status or other specification, any sale of such securities pursuant to the qualification to persons not meeting such specified standards is a violation of the terms and conditions of qualification.

(b) The responsibility for assuring that sales of securities are limited to persons meeting the suitability standards applicable to an offering is upon the issuer and upon each person, including broker-dealers and agents, who participates in the distribution of the securities. Issuers and participating broker-dealers should adopt reasonable procedures to assure (i) that persons charged with selling the securities are familiar with the suitability standards, (ii) that appropriate means are at hand to obtain the information required to comply with such standards, (iii) reasonable steps are taken to assure that persons selling the securities comply with the limitations imposed under the suitability standards; provided that nothing herein contained is a limitation upon liability under Section 25503 of the Code (or under Section 25504 insofar as it pertains to Section 25503).

(c) Adherence to a suitability standard imposed in connection with a qualification, by condition or otherwise, shall not relieve a broker-dealer from compliance with Section 260.218.2 of these rules or Rule 15b10-3 under the Securities Exchange Act of 1934.

(d) Any prospectus used in connection with an offering on which suitability standards are imposed under the terms and conditions of qualification shall include a description of such suitability standards. (See Sections 260.140.112.1 and 260.140.123.2 of these rules.)

(e) Where the issuer is a small business issuer and the proposed maximum aggregate offering price for all the securities to be sold in the offering anywhere does not exceed $5,000,000, Sections 260.140.05 (except for subsection (c) of that rule), 260.140.31 and 260.140.50 (except for the requirement that the initial offering price shall not be less than $2.00 per share) shall be waived, if the issuer seeks a limited offering or open qualification (depending on the class of prospective investors) to sell its securities only:

(1) to investors each of whom

(A) has a minimum net worth of at least $75,000 and had minimum gross income of $50,000 during the last tax year and will have (based on a good faith estimate) minimum gross income of $50,000 during the current tax year, or

(B) in the alternative, has a minimum net worth of $150,000, provided that in either case the investment shall not exceed 10 percent of the net worth of the investor; or

(2) to a “small investor” who, including the proposed purchase, has not

(A) purchased more than $2,500 of securities issued or proposed to be issued by the small business issuer in the 12 months preceding the proposed sale, or

(B) in the case of a small investor that is an individual retirement plan of an individual and an individual retirement account of an individual, such small investor shall not have purchased more than $2,500 of securities issued by the small business issuer or any affiliate of the small business issuer during the 12 months preceding the proposed sale, unless the small business issuer is registered under Section 12 of the Securities Exchange Act of 1934 (in which case, the suitability standard in clause (1) of subsection (e) of this rule applies); or

(3) to both (1) and (2).

Net worth shall be determined exclusive of homes, home furnishings and automobiles. Assets included in the computation of net worth shall be valued at not more than fair market value. Higher suitability standards may be imposed as a condition of any qualification where the issuer substantially fails to comply with other rules of the Commissioner. For the purpose of this subsection, “small investor” means either: an individual (which includes both a husband and wife counted as a single individual); or a self-employed individual retirement plan of an individual or an individual retirement account of an individual.

NOTE

Authority cited: Section 25610, Corporations Code. Reference: Sections 25113(b)(2), 25140, 25503 and 25504, Corporations Code.

HISTORY

1. New section filed 1-4-77; effective thirtieth day thereafter (Register 77, No. 2).

2. Section refiled 1-7-77; effective thirtieth day thereafter (Register 77, No. 2).

3. New subsections (e)-(e)(3) and amendment of Note filed 12-19-95; operative 1-18-96 (Register 95, No. 51).

§260.140.05. Securities of Speculative Business.

Note • History

(a) An application for an open qualification normally will not be approved if the business in which the issuer is engaged is not reasonably anticipated to produce profits within a reasonable period of time. A period of time not exceeding twenty-four months after the date of the approval of the application is presumptively reasonable; however a longer period of time may be authorized in light of the nature and circumstances of the proposed business, including the operational norms for the industry in which the business will operate.

(b) Any prospective financial information that an applicant submits to demonstrate a reasonable anticipation of profits shall be prepared by the issuer and based upon appropriate and reasonable assumptions. The Department may require a specified level of service to be performed by an independent certified public accountant in accordance with standards established by the American Institute of Certified Public Accountants (“AICPA”) and that any such prospective financial information submitted by an applicant be examined by an independent certified public accountant. The specified level of service to be performed by an independent certified public accountant may include:

(1) examination of prospective financial statements, either forecasted or projected;

(2) compilation of prospective financial statements, either forecasted or projected;

(3) performing feasibility studies;

(4) providing assistance in developing forecasting systems; and

(5) identifying factors to be considered in developing prospective financial statements, forecasts and projections.

(c) Each small business issuer shall deliver to each prospective purchaser of a security to be issued by such issuer, at least five business days before a prospective purchaser's offer to purchase securities is accepted by such issuer, a copy of “A Consumer's Guide to Small Business Investments” prepared by the North American Securities Administration Association (see, CCH NASAA Reports, Para. 3676). A copy of this guide may be obtained from any office of the Department.

NOTE

Authority cited: Sections 25241 and 25610, Corporations Code. Reference: Sections 25140-25142, 25241 and 25534, Corporations Code.

HISTORY

1. New section filed 5-10-73; effective thirtieth day thereafter (Register 73, No. 19).

2. Amendment of newly designated subsection (a) and new subsections (b)-(c) filed 12-19-95; operative 1-18-96 (Register 95, No. 51).

Subarticle 1. Rights of Security Holders

§260.140.1. Voting Rights of Common Stock.

History

Common shares and similar equity securities should normally carry equal voting rights on all matters where such vote is permitted by applicable law.

HISTORY

1. Editorial correction deleting misplaced text and Histories (Register 96, No. 23).

§260.140.2. Voting Rights of Preferred Stock.

Note • History

The charter documents of a corporation proposing to issue preferred shares (which are not participating and not convertible on a fair and equitable basis) without full voting rights shall provide that the holders of such preferred shares shall have the right to reasonable representation on the board of directors upon a cumulative default, whether consecutive or not, of eight quarterly dividends and that such right shall continue until the full payment of all arrears in dividends on such preferred shares. The right to elect a majority of the board is presumptively reasonable.

NOTE

Authority cited: Section 25610, Corporations Code. Reference: Section 25140, Corporations Code.

HISTORY

1. Amendment filed 5-3-83; effective thirtieth day thereafter (Register 83, No. 19).

§260.140.3. Protective Provisions for Preferred Shares.

Note • History

The charter documents of a corporation proposing to issue preferred shares which are not participating and are not convertible on a fair and equitable basis shall provide reasonable protective provisions for the preferred shareholders, including where appropriate (a) a provision that the dividends on such shares shall be cumulative, (b) a provision prohibiting any dividends on common stock during the existence of any arrears on the preferred shares, (c) a requirement for the approval by the vote or written consent of a specified percentage of the preferred shares of any adverse change in the rights of such shares and of the issuance of any shares having priority over such preferred shares, and (d) dividend restrictions on the common stock.

NOTE

Authority cited: Section 25610, Corporations Code. Reference: Section 25140, Corporations Code.

HISTORY

1. Amendment filed 5-3-83; effective thirtieth day thereafter (Register 83, No. 19).

§260.140.4. Debt Securities.

Note • History

If nonconvertible debt securities are proposed to be issued, the indenture or other instrument pursuant to which they are issued should normally provide for the following:

(a) A sinking fund provision whereby all or a reasonable portion of the issue is to be retired in installments prior to maturity. The deferral of sinking fund payments and the amount of the balloon payment at maturity which will be permitted will depend upon the financial condition and other circumstances of the issuer.

(b) An appropriate negative pledge or equal protection clause restricting the creation of liens on the property of the issuer.

(d) An appropriate restriction on the payment of dividends upon stock of the issuer.

Such protective provisions will not be required in connection with debt securities having a rating or quality making such provisions unnecessary.

NOTE

Authority cited: Section 25610, Corporations Code. Reference: Section 25140, Corporations Code.

HISTORY

1. Amendment filed 2-2-83; effective thirtieth day thereafter (Register 83, No. 6).

§260.140.5. Trust Indentures.

An open qualification will not normally be approved for the issuance of debt securities unless they are issued under a trust indenture complying with the provisions of the Trust Indenture Act of 1939, whether or not the indenture is required to be qualified under that Act. A limited offering qualification may be approved for the issuance of debt securities which are not accompanied by a trust indenture or which are issued under a trust indenture not complying with all of the provisions of the Trust Indenture Act of 1939, if the trust indenture or other instruments provide adequate protection to the holders of the debt securities under the circumstances of the particular case. The indenture should provide that the trustee or a co-trustee must be a bank or trust company, or if a bank or trust company is not a trustee or co-trustee that any person who is to act in that capacity must have the written approval of the Commissioner.

§260.140.6. Convertible Senior Securities.

Note • History

If preferred or debt securities are proposed to be issued which are convertible, or are proposed to be issued in units with warrants or options (whether or not severable), the conversion rights, options or warrants (as the case may be) must be fair and equitable under the circumstances and should normally contain an appropriate antidilution provision providing for an adjustment of the number of shares into which such shares or units are convertible, or of the number of shares purchasable pursuant to such options or warrants, upon any stock split or stock dividend or other recapitalization of the issuer. Provision may also be made for a similar adjustment upon the issuance of additional shares of the class issuable upon conversion, or purchasable upon exercise, by the issuer for a consideration less than the conversion price or the exercise price of the options or warrants (as the case may be) or less than the then current market price for the class so issuable.

NOTE

Authority cited: Section 25610, Corporations Code. Reference: Section 25140, Corporations Code.

HISTORY

1. Amendment filed 2-2-83; effective thirtieth day thereafter (Register 83, No. 6).

§260.140.7. Assessments.

Securities should be nonassessable, except that issuers organized solely to supply services or property to their members on a continuing basis may provide for an equitable assessment corresponding to the services or property supplied.

§260.140.8. Restrictions on Transfer.

Note • History

(a) No open qualifications will be approved to issue securities if the transfer of the securities is subject to any restrictions imposed by the issuer's charter documents, indenture agreements or other instruments or agreements under which the securities are to be issued.

(b) Limited offering qualifications may be approved to issue securities subject to transfer restrictions if the restrictions do not unfairly prejudice the opportunity of the holder(s) to receive the fair value of the securities (Section 260.140.50).

(1) Provisions are presumptively reasonable when there is no third-party offeror and the holder(s) desires to sell, if the provisions base the price at which the issuer or other holder(s) may purchase the securities upon either: (A) an independent appraised value; or (B) the book value of the securities (unless the business is one where the book value is not a significant indication of value).

(2) Rights of first refusal in favor of the issuer or other holder(s) are presumptively reasonable if: (A) they apply only where there is a bona fide third-party offeror and the selling holder desires to sell the securities; (B) such right of first refusal requires the issuer or other holder(s) to make its election to purchase the securities subject to such right of first refusal, if at all, by giving notice of such election no more than 30 days after receipt of notice of such right of first refusal; and (C) upon such exercise, the issuer or other holder(s) exercising such right of first refusal must purchase all (but not less than all, unless the selling holder consents) of the offered securities on the same terms offered by the bona fide third-party offeror, within 60 days after receipt of the notice described in clause (B) hereof, unless a longer period is offered by the bona fide third-party offeror.

(3) Provisions are not presumptively reasonable if they absolutely prohibit the transfer of securities or permit transfer only upon the consent of the issuer or the other holder(s), or give an option to the issuer or the other holder(s) to purchase regardless of the desire of the selling holder(s) to sell and will only be permitted when justified by the issuer, except as otherwise set forth in these rules.

(4) Provisions giving an issuer the right to repurchase securities upon termination of employment are presumptively reasonable if the repurchase price:

(A) is not less than the fair value of the securities to be repurchased on the date of termination of employment, and the right to repurchase will be exercised for cash or cancellation of purchase money indebtedness for the securities within 6 months of termination of employment (or in the case of securities issued upon exercise of options after the date of termination, within 6 months after the date of the exercise), and the right terminates when the issuer's securities become publicly traded; or

(B) is at the original purchase price, provided that the right to repurchase at the original purchase price lapses at the rate of at least 20% of the securities per year over 5 years from the date the option is granted (without respect to the date the option was exercised or became exercisable) and the right to repurchase must be exercised for cash or cancellation of purchase money indebtedness for the securities within 6 months of termination of employment (or in the case of securities issued upon exercise of options after the date of termination, within 6 months after the date of the exercise). In addition to the restrictions set forth in clauses (A) and (B), the securities held by an officer, director, general partner, trustee (where the issuer is a business trust), manager, advisor or consultant of the issuer, its parents, its majority-owned subsidiaries or majority-owned subsidiaries of the issuer's parents, or an affiliate of the issuer may be subject to additional or greater restrictions.

NOTE

Authority cited: Sections 25102, 25140, 25610 and 25612.5, Corporations Code. Reference: Sections 25102, 25110, 25140, 25610 and 25612.5, Corporations Code.

HISTORY

1. Amendment filed 12-5-91; operative 1-6-92 (Register 92, No. 9).

2. Amendment of subsection (b)(3), new subsections (b)(4)-(b)(4)(B) and amendment of Note filed 7-9-2007; operative 7-9-2007 pursuant to Government Code section 11343.4 (Register 2007, No. 28).

3. Amendment of subsection (b)(4)(B) and Note filed 9-23-2009; operative 10-23-2009 (Register 2009, No. 39).

§260.140.9. Capital Structure of Unseasoned Corporations.

Note • History

Unseasoned corporations selling securities pursuant to an open qualification shall have a capital structure consisting of only common stock, or of common stock and preferred stock or debt which is convertible into common stock on a fair and equitable basis or is fully-participating and non-redeemable. A limited offering qualification may be approved for an unseasoned corporation to sell nonconvertible and nonparticipating senior securities if they are to be issued to the holders of the residual equity securities on a pro rata basis or if the circumstances otherwise justify.

NOTE

Authority cited: Section 25610, Corporations Code. Reference: Section 25140, Corporations Code.

HISTORY

1. Amendment filed 5-3-83; effective thirtieth day thereafter (Register 83, No. 19).

§260.140.10. Capital Structure of Seasoned Corporations.

Note • History

A seasoned corporation proposing to sell securities which are nonparticipating and nonconvertible on a fair and equitable basis must show its ability to meet the proposed dividend, interest and sinking fund requirements on all of its securities outstanding and proposed to be issued based upon its previous earnings or cash-flow history or demonstrated future earning or cash-flow capacity.

NOTE

Authority cited: Section 25610, Corporations Code. Reference: Section 25140, Corporations Code.

HISTORY

1. Amendment filed 5-3-83; effective thirtieth day thereafter (Register 83, No. 19).

Subarticle 2. Selling Expenses and Options to Underwriters

§260.140.20. Selling Expenses.

Note • History

(a) No issuer of securities shall incur more selling expenses than are reasonably necessary for the sale and issuance of such securities. Selling expenses which do not exceed 15 percent of the aggregate offering price (before deducting discounts and commissions) are presumed to be reasonable if the percentage is computed only on the portion of the aggregate offering price when and as paid to the issuer. “Selling expenses,” as used in this Article, means the total underwriting and brokerage discounts and commissions (including fees of the underwriters' attorneys paid by the issuer) paid in connection with the offering plus all other expenses incurred by the issuer relating to printing, engraving, mailing, salaries of employees while engaged in sales activity, charges of transfer agents, registrars, trustees, escrow holders, depositaries, and engineers and other experts, expenses of qualification of the sale of the securities under Federal and State laws, including taxes and fees, and any other expenses incurred by the issuer directly related to the offering and sale of the securities, but excluding accountants' and the issuer's attorneys' fees and options to underwriters.

Stock acquired or to be acquired by the underwriter, a person associated with an underwriter, underwriter's counsel, finder, financial advisor, or related parties in connection with the offering is considered part of the underwriter's compensation and is valued for such purposes on a formula basis taking into account the difference between the cost of such stock and the public offering price and other factors. However, the fact that stock has been held, or that there is an obligation to hold it, for a substantial period of time, and the method of payment therefor, may alter the valuation placed thereon.

(b) Where the issuer is a small business issuer and the proposed maximum aggregate offering price for all the securities to be sold in the offering does not exceed $5,000,000 anywhere, selling expenses which do not exceed 18 percent of the aggregate offering price (before deducting discounts and commissions) are presumed to be reasonable provided the total underwriting and brokerage discounts and commissions (including fees of the underwriters' attorneys paid by the issuer) do not exceed 13 percent of the aggregate offering price and the percentages are computed only on the portion of the aggregate offering price when and as paid to the issuer.

(c) Where the issuer is a small business issuer and the proposed maximum aggregate offering price for all the securities to be sold in the offering do not exceed $3,000,000 anywhere, selling expenses which does not exceed 20 percent of the aggregate offering price (before deducting discounts and commissions) are presumed to be reasonable provided the total underwriting and brokerage discounts and commissions (including fees of the underwriters' attorneys paid by the issuer) do not exceed 15 percent of the aggregate offering price and the percentages are computed only on the portion of the aggregate offering price when and as paid to the issuer.

NOTE

Authority cited: Section 25610, Corporations Code. Reference: Sections 25113(b)(2) and 25140, Corporations Code.

HISTORY

1. Amendment filed 7-20-72; effective thirtieth day thereafter (Register 72, No. 30).

2. Amendment filed 5-3-83; effective thirtieth day thereafter (Register 83, No. 19).

3. New subsection (a) designator, new subsections (b)-(c) and amendment of Note filed 12-19-95; operative 1-18-96 (Register 95, No. 51).

§260.140.21. Options to Underwriters.

Note • History

Options granted by the issuer to underwriters or other persons as compensation, in whole or in part, for the sale of securities must be reasonable in amount and in terms and conditions under the circumstances of the particular issue. Options which meet the following requirements are presumptively reasonable:

(a) The number of shares or units called for by such options does not exceed ten per cent of the number of shares or units underwritten for the issuer in the offering.

(b) The options do not exceed five years in total duration.

(c) The options are exercisable at an exercise price which is initially not less than the public offering price of the securities underwritten and the options provide for an increase of the exercise price by seven percent of the initial exercise price for each full year such options are outstanding; or the options are exercisable at a price which is not less than 120 percent of the public offering price of the securities underwritten.

(d) The options are not deliverable to the underwriters until the entire issue has been sold, whether it is underwritten on a firm commitment or a best-efforts arrangement.

(e) The options are nontransferable other than by will or pursuant to the laws of descent and distribution, except to a partner of the underwriter when the underwriter is a partnership or to a stockholder, officer or director of the underwriter or beneficiary of a trust which is a stockholder of such underwriter when the underwriter is a corporation; however, after one year such a transfer may occur providing the option is exercised immediately upon transfer. If not exercised immediately upon transfer, the option shall lapse.

(f) Either the exercise of the options, or the resale, transfer and assignment of the shares underlying the options, is prohibited for a period of at least one year from the date of the offering.

NOTE

Authority cited: Section 25610, Corporations Code. Reference: Section 25140, Corporations Code.

HISTORY

1. Amendment of subsection (f) filed 5-14-69; effective thirtieth day thereafter (Register 69, No. 20).

2. Amendment filed 9-19-73; effective thirtieth day thereafter (Register 73, No. 38).

3. Amendment filed 5-3-83; effective thirtieth day thereafter (Register 83, No. 19).

§260.140.22. Nonissuer Transactions.

An issuer should not normally pay or assume any liability for expenses, including options to underwriters, incurred in connection with the sale of securities made by or on behalf of a selling security holder, whether or not such expenses constitute selling expenses as defined in Section 260.140.20 of these rules, except that the issuer may:

(a) Provide for services customarily rendered to all security holders in connection with the transfer of securities, including the services of transfer agents and registrars;

(b) Provide audited financial statements if such statements are needed by the issuer for its own purposes; and

(1) made by a person who purchased such securities from the issuer pursuant to an arm's-length agreement which required the issuer to pay such expenses in the event of a resale by the original purchaser, or made by a transferee of such purchaser, or

(2) made by a security holder where there is no preexisting public market and the other shareholders consent to such payment.

When an offering is made simultaneously by an issuer and one or more of its security holders, the expenses, except as provided above, should be apportioned among the issuer and the selling security holders in accordance with the aggregate offering price of the securities being sold by each party.

Subarticle 3. Promotional Shares

§260.140.30. Promotional Shares Defined.

“Promotional shares” means any securities which are (a) issued in consideration for services rendered in connection with the founding or organizing of a business enterprise, or (b) issued to a promoter in consideration for any tangible or intangible property, such as patents, copyrights or goodwill, to the extent that the value has not been satisfactorily established, or (c) issued to a promoter in the recent past or proposed to be issued at a price substantially lower than the price at which other securities of the same class or substantially similar class have been or are to be sold without any change in the conditions of the market or in the circumstances of the issuer which would justify such different price.

§260.140.31. Amount of Promotional Shares.

Note • History

(a) In connection with the financing of an unseasoned corporation, a number of promotional shares (considered in conjunction with any selling expenses paid to promoters) may be issued which is not unreasonable. A number of promotional shares which does not exceed 25% of all of the common shares issued and proposed to be issued by the corporation is presumptively reasonable. However, additional promotional shares may be authorized in the light of the services rendered and other consideration given to the corporation by the promoters, the nature and circumstances of the business enterprise being promoted, and the identity of the investors.

(b) Where the issuer is a small business issuer and meets the conditions for filing under Section 25113(b)(2), a number of promotional shares which does not exceed 50% of all of the common shares issued and proposed to be issued by the corporation is presumptively reasonable.

NOTE

Authority cited: Section 25610, Corporations Code. Reference: Sections 25113(b)(2) and 25140, Corporations Code.

HISTORY

1. New subsection (a) and (c) designators, new subsection (b) and new Note filed 12-19-95; operative 1-18-96 (Register 95, No. 51).

§260.140.32. Rights of Promotional Shares.

Promotional shares shall be equity securities without preference as to dividends, assets, or voting rights and shall have no greater rights per share than the securities issued for cash or its equivalent. Normally promotional shares should be subject to the waivers of dividends and assets as provided in Section 260.141 of these rules and to the legend condition restricting their transfer as provided in Section 260.141.1 of these rules.

§260.140.33. Reimbursement to Promoters.

Note • History

A promoter may be reimbursed for actual and necessary expenses paid to found a business and offer its securities. Selling expenses are subject to the limitation contained in Section 260.140.20 of these rules, however.

NOTE

Authority cited: Section 25610, Corporations Code. Reference: Section 25140, Corporations Code.

HISTORY

1. Amendment filed 5-3-83; effective thirtieth day thereafter (Register 83, No. 19).

Subarticle 4. Rights, Warrants and Options

§260.140.40. Pro Rata Rights to Shareholders.

Note • History

Rights may be issued to all of the shareholders of an issuer (or all the holders of a particular class of stock) to purchase additional shares on a pro rata basis and having a term of no more than 90 days following the date of issuance, provided the exercise price is not so low in relation to the price as calculated in Section 260.140.50 of these rules as to be unreasonably prejudicial to those shareholders unable to exercise or sell their rights and provided that the relative equity positions of different classes of outstanding shares shall not be unfairly prejudiced thereby. An exercise price, which is not more than 15% below the price as calculated in Section 260.140.50, is presumptively reasonable under this section. Such rights to shareholders shall be freely transferable.

NOTE

Authority cited: Section 25610, Corporations Code. Reference: Section 25140, Corporations Code.

HISTORY

1. Amendment filed 5-3-83; effective thirtieth day thereafter (Register 83, No. 19).

2. Amendment filed 2-11-85; effective thirtieth day thereafter (Register 85, No. 7).

§260.140.41. Compensatory Option Plans.

Note • History

Options granted to employees [including insurance agents who are employees for purposes of Rule 701(c) under the Securities Act of 1933, as amended (17 C.F.R. 230.701(c)], officers, directors, general partners, trustees (where the issuer is a business trust), managers, advisors or consultants of the issuer, its parents, its majority-owned subsidiaries or majority-owned subsidiaries of the issuer's parent as part of a compensatory benefit plan shall be pursuant to a plan or agreement that provides for all of the following:

(a) The total number of securities (which may be expressed as a specific number of securities or as a percentage of the total number of securities outstanding from time to time) which may be issued and the persons eligible to receive options to purchase these securities.

(b) An exercise period of not more than 120 months from the date the option is granted.

(c) The non-transferability of the options, provided that the plan or agreement may permit transfer by will, by the laws of descent and distribution, to a revocable trust, or as permitted by Rule 701 of the Securities Act of 1933, as amended (17 C.F.R. 230.701).

(d) The proportionate adjustment of the number of securities purchasable and the exercise price thereof under the option in the event of a stock split, reverse stock split, stock dividend, recapitalization, combination, reclassification or other distribution of the issuer's equity securities without the receipt of consideration by the issuer, of or on the issuer's class or series of securities underlying the option.

(e) Unless employment is terminated for cause as defined by applicable law, the terms of the plan or option grant or a contract of employment, the right to exercise in the event of termination of employment, to the extent that the optionee is entitled to exercise on the date employment terminates, continues until the earlier of the option expiration date or:

(1) At least 6 months from the date of termination if termination was caused by death or disability.

(2) At least 30 days from the date of termination if termination was caused by other than death or disability.

(f) Options must be granted within 10 years from the date the plan or agreement is adopted or the date the plan or agreement is approved by the issuer's security holders, whichever is earlier.

(g) The plan or agreement must be approved by a majority of the outstanding securities entitled to vote by the later of (1) within 12 months before or after the date the plan is adopted or the date the agreement is entered into or (2) prior to or within 12 months of the granting of any option or issuance of any security under the plan or agreement in this state. Any option granted to any person in this state that is exercised before security holder approval is obtained must be rescinded if security holder approval is not obtained in the manner described in the preceding sentence. Such securities shall not be counted in determining whether such approval is obtained. A foreign private issuer, as defined by Rule 3b-4 of the Securities Exchange Act of 1934, as amended (17 C.F.R. 240.3b-4), shall not be required to comply with this subsection provided that the aggregate number of persons in this state granted options under all option plans and agreements and issued securities under all purchase and bonus plans and agreements does not exceed 35.

(h) Compliance with Section 260.140.46 of these rules regarding the information required to be received by security holders.

NOTE

Authority cited: Section 25610, Corporations Code. Reference cited: Sections 25102, 25110, 25140, 25610 and 25612.5, Corporations Code.

HISTORY

1. Amendment of subsection (b) filed 7-19-72; effective thirtieth day thereafter (Register 72, No. 30).

2. Amendment filed 5-3-83; effective thirtieth day thereafter (Register 83, No. 19).

3. Amendment filed 12-5-91; operative 1-6-92 (Register 92, No. 9).

4. Amendment of first paragraph and subsections (a), (f), (g) and (k), repealer of subsections (k)(1) and (k)(2), and new subsection (l) filed 1-15-97; operative 1-15-97 pursuant to Government Code section 11343.4(d) (Register 97, No. 3).

5. Amendment of subsection (d) filed 12-30-98; operative 1-29-99 (Register 99, No. 1).

6. Amendment of first paragraph and subsections (a)-(b), (e), (h)-(i) and (k)(1)-(l) filed 12-28-2000 as an emergency; operative 1-1-2001 (Register 2000, No. 52). A Certificate of Compliance must be transmitted to OAL by 5-1-2001 or emergency language will be repealed by operation of law on the following day.

7. Amendment of first paragraph and subsections (a)-(b), (e), (h)-(i) and (k)(1)-(l) refiled 5-2-2001 as an emergency; operative 5-2-2001 (Register 2001, No. 18). A Certificate of Compliance must be transmitted to OAL by 8-30-2001 or emergency language will be repealed by operation of law on the following day.

8. Amendment of first paragraph and subsections (a)-(b), (e), (h)-(i) and (k)(1)-(l) refiled 8-30-2001 as an emergency; operative 8-30-2001 (Register 2001, No. 35). A Certificate of Compliance must be transmitted to OAL by 12-28-2001 or emergency language will be repealed by operation of law on the following day.

9. Certificate of Compliance as to 8-30-2001 order, including further amendment of section heading and section, transmitted to OAL 12-27-2001 and filed 2-7-2002 (Register 2002, No. 6).

10. Amendment of section heading, section and Note filed 7-9-2007; operative 7-9-2007 pursuant to Government Code section 11343.4 (Register 2007, No. 28).

§260.140.41.1. Employee Options Other Than Qualified Stock Options. [Renumbered]

History

HISTORY

1. New section filed 7-20-72; effective thirtieth day thereafter (Register 72, No. 30).

2. Renumbering and amendment of Section 260.140.41.1 to Section 260.140.42 filed 5-3-83; effective thirtieth day thereafter (Register 83, No. 19).

§260.140.41.2. Information to Employees. [Repealed]

Note • History

NOTE

Authority cited: Section 25610, Corporations Code. Reference: Section 25140, Corporations Code.

HISTORY

1. New section filed 10-20-83; effective thirtieth day thereafter (Register 83, No. 43).

2. Repealer filed 12-5-91; operative 1-6-92 (Register 92, No. 9).

§260.140.42. Compensatory Purchase or Bonus Plans Excluding Option Plans.

Note • History

Securities (other than options) distributed or sold to employees [including insurance agents who are employees for purposes of Rule 701(c) under the Securities Act of 1933, as amended (17 C.F.R. 230.701)], officers, directors, general partners, trustees (where the issuer is a business trust), managers, advisors or consultants of the issuer, its parents, its majority-owned subsidiaries or majority-owned subsidiaries of the issuer's parents as part of a compensatory benefit plan shall be pursuant to a plan or agreement that provides for all of the following:

(b) The nontransferablity of the rights of any eligible person to acquire securities under the plan or agreement, provided that the plan or agreement may permit transfer of the rights to purchase securities by will, by the laws of descent and distribution, to a revocable trust, or as permitted by Rule 701 of the Securities Act of 1933, as amended (17 C.F.R. 230.701).

(c) The proportionate adjustment of the number of securities allocated to any eligible person under the plan or agreement in the event of a stock split, reverse stock split, stock dividend, recapitalization, combination, reclassification or other distribution of the issuer's equity securities without the receipt of consideration by the issuer, of or on the issuer's class of securities subject to the purchase right.

(d) Securities must be issued within 10 years from the date the plan or agreement is adopted or the plan or agreement is approved by the issuer's security holders, whichever is earlier.

(e) The plan or agreement must be approved by a majority of the outstanding securities entitled to vote by the later of (1) within 12 months before or after the plan is adopted or the date the agreement is entered into or (2) prior to or within 12 months of the issuance of any security under the plan or agreement in this state. Any issuance of securities before security holder approval is obtained must be rescinded if security holder approval is not obtained in the manner described in the preceding sentence. Such securities shall not be counted in determining whether such approval is obtained. A foreign private issuer, as defined by Rule 3b-4 of the Securities Exchange Act of 1934, as amended (17 C.F.R. 240.3b-4), shall not be required to comply with this subsection provided that the aggregate number of persons in this state granted options under all option plans and agreements and issued securities under all purchases and bonus plans and agreements does not exceed 35.

(f) Compliance with Section 260.140.46 of these rules regarding the information required to be received by security holders.

NOTE

Authority cited: Sections 25102, 25140, 25610 and 25612.5, Corporations Code. Reference: Sections 25102, 25110, 25140, 25610 and 25612.5, Corporations Code.

HISTORY

1. Renumbering and amendment of former section 260.140.42 to section 260.140.43, and renumbering and amendment of former section 260.140.41.1 to Section 260.140.42 filed 5-3-83; effective thirtieth day thereafter (Register 83, No. 19).

2. Amendment filed 12-5-91; operative 1-6-92 (Register 92, No. 9).

3. Amendment of first paragraph and subsections (c), (d) and (h), repealer of subsections (h)(1) and (h)(2), and new subsection (i) filed 1-15-97; operative 1-15-97 pursuant to Government Code section 11343.4(d) (Register 97, No. 3).

4. Amendment filed 12-28-2000 as an emergency; operative 1-1-2001 (Register 2000, No. 52). A Certificate of Compliance must be transmitted to OAL by 5-1-2001 or emergency language will be repealed by operation of law on the following day.

5. Amendment refiled 5-2-2001 as an emergency; operative 5-2-2001 (Register 2001, No. 18). A Certificate of Compliance must be transmitted to OAL by 8-30-2001 or emergency language will be repealed by operation of law on the following day.

6. Amendment refiled 8-30-2001 as an emergency; operative 8-30-2001 (Register 2001, No. 35). A Certificate of Compliance must be transmitted to OAL by 12-28-2001 or emergency language will be repealed by operation of law on the following day.

7. Certificate of Compliance as to 8-30-2001 order, including further amendment of section heading and section, transmitted to OAL 12-27-2001 and filed 2-7-2002 (Register 2002, No. 6).

8. Amendment of section heading, section and Note filed 7-9-2007; operative 7-9-2007 pursuant to Government Code section 11343.4 (Register 2007, No. 28).

9. Amendment of subsection (e) and Note filed 9-23-2009; operative 10-23-2009 (Register 2009, No. 39).

§260.140.43. Warrants to Purchasers of Debt Securities.

Note • History

Warrants to purchase equity securities may be issued to the purchasers of debt securities provided their issuance is necessary in order to obtain the debt financing and provided further:

(a) the term of the warrant does not exceed the life of the debt securities or 15 years, whichever is less;

(b) the number of shares of equity securities issuable upon exercise of the warrants does not exceed the number that could be purchased at the exercise price with the debt securities at face amount; and

(c) the exercise price is at least equal to the value of the equity securities calculated in the manner described in Section 260.140.50 of these rules on the date the warrant is issued.

NOTE

Authority cited: Section 25610, Corporations Code. Reference: Section 25140, Corporations Code.

HISTORY

1. Renumbering and amendment of former Section 260.140.43 to Section 260.140.44, and renumbering and amendment of former Section 260.140.42 to Section 260.140.43 filed 5-3-83; effective thirtieth day thereafter (Register 83, No. 19).

§260.140.44. Warrants to Purchasers of Equity Securities.

Note • History

Warrants to purchase equity securities may be issued to purchasers of equity securities provided their issuance is necessary to obtain the equity financing, and provided further that the term of the warrant does not exceed 5 years, the number of equity securities issuable upon exercise of the warrants does not exceed the number of equity securities purchased together with the warrants and the exercise price is at least equal to the value of the equity securities calculated in the manner described in Section 260.140.50 of these rules at the date the warrant is issued.

NOTE

Authority cited: Section 25610, Corporations Code. Reference: Section 25140, Corporations Code.

HISTORY

1. Renumbering and amendment of former Section 260.140.44 to Section 260.140.45, and renumbering and amendment of former Section 260.140.43 to Section 260.140.44 filed 5-3-83; effective thirtieth day thereafter (Register 83, No. 19).

§260.140.45. Limitation on Number of Securities.

Note • History

(a) The total number of securities issuable upon exercise of all outstanding options [exclusive of rights described in Section 260.140.40 and warrants described in Sections 260.140.43 and 260.140.44 of these rules, and any purchase plan or agreement as described in Section 260.140.42 of these rules (provided that the purchase plan or agreement provides that all securities will have a purchase price of 100% of the fair value (Section 260.140.50) of the security either at the time the person is granted the right to purchase securities under the plan or agreement or at the time the purchase is consummated)], and the total number of securities called for under any bonus or similar plan or agreement shall not exceed a number of securities which is equal to 30% of the then outstanding securities of the issuer (convertible preferred or convertible senior common shares of stock will be counted on an as if converted basis), exclusive of securities subject to promotional waivers under Section 260.141, unless a percentage higher than 30% is approved by at least two-thirds of the outstanding securities entitled to vote.

(b) The 30% limitation set forth in this Rule, or such other percentage limitation as may be approved pursuant to this Rule, shall be deemed satisfied if the plan or agreement provides that at no time shall the total number of securities issuable upon exercise of all outstanding options and the total number of shares provided for under any stock bonus or similar plan or agreement of the issuer exceed the applicable percentage as calculated in accordance with the conditions and exclusions of this Rule, based on the securities of the issuer which are outstanding at the time the calculation is made.

(c) This section shall not apply to any plan or agreement that complies with all conditions of Rule 701 of the Securities Act of 1933, as amended (17 C.F.R. 230.701); provided that for purposes of determining such compliance, any registered domestic partner shall be considered a “family member” as that term is defined in Rule 701.

NOTE

Authority cited: Section 25610, Corporations Code. Reference: Sections 25102, 25110, 25140, 25610 and 25612.5, Corporations Code.

HISTORY

1. Renumbering and amendment of former section 260.140.44 to section 260.140.45 filed 5-3-83; effective thirtieth day thereafter (Register 83, No. 19).

2. Amendment filed 12-5-91; operative 1-6-92 (Register 92, No. 9).

3. Amendment filed 1-15-97; operative 1-15-97 pursuant to Government Code section 11343.4(d) (Register 97, No. 3).

7. Certificate of Compliance as to 8-30-2001 order, including further amendment of section heading and section, transmitted to OAL 12-27-2001 and filed 2-7-2002 (Register 2002, No. 6).

8. New subsection (c) and amendment of Note filed 7-9-2007; operative 7-9-2007 pursuant to Government Code section 11343.4 (Register 2007, No. 28).

§260.140.46. Information to Security Holders.

Note • History

Plans or agreements pursuant to which securities are to be issued to employees, officers, directors, managers, advisors or consultants (including option, purchase and bonus plans) shall provide that the security holder(s) will receive financial statements at least annually. This section does not require the use of financial statements in accordance with Section 260.613 of these rules. This section shall not apply when issuance is limited to key persons whose duties in connection with the issuer assure them access to equivalent information. This section shall not apply to any plan or agreement that complies with all conditions of Rule 701 of the Securities Act of 1933, as amended (17 C.F.R. 230.701); provided that for purposes of determining such compliance, any registered domestic partner shall be considered a “family member” as that term is defined in Rule 701.

NOTE

Authority cited: Section 25610, Corporations Code. Reference: Sections 25102, 25110, 25140, 25610 and 25612.5, Corporations Code.

HISTORY

1. New section filed 12-5-91; operative 1-6-92 (Register 92, No. 9).

2. Amendment filed 12-28-2000 as an emergency; operative 1-1-2001 (Register 2000, No. 52). A Certificate of Compliance must be transmitted to OAL by 5-1-2001 or emergency language will be repealed by operation of law on the following day.

3. Amendment refiled 5-2-2001 as an emergency; operative 5-2-2001 (Register 2001, No. 18). A Certificate of Compliance must be transmitted to OAL by 8-30-2001 or emergency language will be repealed by operation of law on the following day.

4. Amendment refiled 8-30-2001 as an emergency; operative 8-30-2001 (Register 2001, No. 35). A Certificate of Compliance must be transmitted to OAL by 12-28-2001 or emergency language will be repealed by operation of law on the following day.

5. Certificate of Compliance as to 8-30-2001 order, including further amendment of section heading and section, transmitted to OAL 12-27-2001 and filed 2-7-2002 (Register 2002, No. 6).

6. Amendment of section and Note filed 7-9-2007; operative 7-9-2007 pursuant to Government Code section 11343.4 (Register 2007, No. 28).

Subarticle 5. Offering Price

§260.140.50. Review of the Offering Price.

Note • History

In connection with those offerings specified in subdivision (d) of Section 25140 of the Code, the Commissioner will not consider the fairness of the offering price, except insofar as the offering price in its relation to the price at which securities of the same class have been sold by the issuer to others would make such other securities promotional shares and would result in unreasonable promoters' profits or participations. In connection with other offerings, securities shall be sold at a price which is fair to the issuer and the purchasers. In determining whether the price is fair, predominant weight will be given to the following:

(a) If securities of the same class are publicly traded on an active market of substantial depth, the recent market price of such securities.

(b) If securities of the same class have not been so publicly traded, the price at which securities of reasonably comparable corporations (if any) in the same industry are being traded, subject to appropriate adjustments for the dissimilarities between the corporations being compared.

(c) In the absence of any reliable indicator under subsection (a) or subsection (b), the earnings history, book value and prospects of the issuer in the light of market conditions generally. The initial public offering price shall not be less than $2.00 per share.

NOTE

Authority cited: Section 25610, Corporations Code. Reference: Section 25140, Corporations Code.

HISTORY

1. Amendment filed 5-3-83; effective thirtieth day thereafter (Register 83, No. 19).

§260.140.51. Sliding Scale Contracts.

Note • History

No qualification will be approved for the sale of securities pursuant to a contract whereby the price of the securities sold varies among different purchasers of the same offering or whereby such price varies as a result of the quantity of securities sold, except that in the case of quantity discounts qualification may be approved provided that there is compliance with all of the following six conditions.

(a) There is no variance in the net proceeds to the issuer from the sale of the securities to different purchasers of the same offering;

(b) All purchasers of the securities are informed of the available quantity discounts;

(d) The minimum amount of securities on the purchase of which quantity discounts are allowed is not less than $10,000;

(e) The variance in the price of the securities results solely from a different range of commissions, no discounts are allowed to any group of purchasers, and all discounts allowed are based on a uniform scale of commissions;

(f) The applicant for qualification of the securities justifies allowance of the proposed quantity discounts by a showing that the aggregate amount thereof does not exceed, and that the measure of such discounts is reasonably related to, the saving of selling expense to be achieved in the sale of the quantities of securities for which such discounts are allowed.

The foregoing rule does not prohibit a quantity discount offered by an investment company registered under the Investment Company Act of 1940, as permitted by the Regulations under that Act, and does not apply to any employee option or stock purchase plans.

NOTE

Authority cited: Section 25610, Corporations Code. Reference: Section 25140, Corporations Code.

HISTORY

1. Amendment filed 5-10-73; effective thirtieth day thereafter (Register 73, No. 19).

2. Amendment filed 5-3-83; effective thirtieth day thereafter (Register 83, No. 19).

Subarticle 6. Recapitalizations and Reorganizations

§260.140.60. Filing of Proxy Materials.

If qualification of a recapitalization or reorganization is required, no materials designed to solicit proxies or consents from security holders in connection therewith shall be distributed without the prior filing of such proxy materials with the Commissioner and the issuance of a permit. A preliminary copy of such materials shall be attached as an exhibit to the application for qualification.

§260.140.61. Mergers and Consolidations.

A plan of reorganization contemplating the combination of two or more businesses by way of merger or consolidation (including a sale of assets in exchange wholly or in part for securities of the purchasing corporation) should provide for the issuance of securities which fairly reflect the relative values of the corporations which are parties to the plan of reorganization. The permit authorizing the issuance of securities in connection with a plan of reorganization may be conditioned upon the obtaining of an affirmative vote of a specified percentage of the outstanding stock held by persons other than those who have a conflict of interest in connection with the adoption of the plan of reorganization.

§260.140.62. Hearings.

Note • History

A hearing pursuant to Sections 250.17-250.25 of these rules may be ordered by the Commissioner in unusual circumstances in connection with an application for a permit to sell securities in any recapitalization or reorganization, and such a hearing will be held upon the request of the applicant.

NOTE

Authority cited: Sections 25140 and 25610, Corporations Code. Reference: Section 25140, Corporations Code.

HISTORY

1. Amendment filed 3-20-78; effective thirtieth day thereafter (Register 78, No. 12).

§260.140.63. Negotiating Permit in Connection with Recapitalizations and Reorganizations.

Note • History

Normally, no negotiating permit is required or will be issued in connection with a recapitalization or reorganization. Any negotiations prior to general solicitation of shareholders' approval are exempted by subdivision (a) of Section 25103 of the Code. An application for a definitive permit should be made prior to the distribution of the proxy material to the shareholders and normally will be acted upon prior to such distribution. The permit, however, may be conditioned upon the obtaining of an affirmative vote of a specified percentage of the outstanding shares held by persons other than those who have a conflict of interest in connection with the adoption of the plan of reorganization or recapitalization. In extraordinary cases the Commissioner may delay decision on the issuance of the definitive permit until after the shareholders' vote, and in that case a negotiating permit will be issued prior to the solicitation of shareholders' approval without the necessity for any separate application therefor upon payment of the additional fee specified therefor.

NOTE

Authority cited: Sections 25102(c), 25610 and 25612, Corporations Code. Reference: Sections 25102(c), 25140 and 25160, Corporations Code.

HISTORY

1. Renumbering of former Section 260.121 to Section 260.140.63 filed 10-26-84; effective thirtieth day thereafter (Register 84, No. 43).

Subarticle 7. Stock Dividends and Stock Splits

§260.140.70. Stock Dividends and Stock Splits.

An application for the issuance of securities in a stock dividend or stock split (which is not exempt from qualification by subdivision (f) of Section 25017 or subdivision (f) of Section 25103 of the Code) will normally be approved unless as a result thereof the relative voting power of different classes of stock would be unfairly altered. However, a stock split which would reduce the market price of the securities to less than two dollars per share (referred to in Clause (2) of subdivision (f) of Section 25103 of the Code) or a reverse stock split which would substantially alter the proportionate interests of the shareholders (referred to in Clause (3) of subdivision (f) of Section 25103 of the Code) will not normally be approved.

Subarticle 7.1. Mutual Water Companies

§260.140.71. Purpose.

Note • History

The purpose of the mutual water company rules is two-fold: To assure that an adequate water supply and distribution system exists for human consumption (or irrigation for agricultural use) and for fire protection; and to assure that adequate disclosure and protection to the security holders exists with respect to rights and duties arising from their security holdings in the mutual water company.

NOTE

Authority cited: Section 25610, Corporations Code. Reference: Section 25140, Corporations Code.

HISTORY

1. New Subarticle 7.1 (Sections 260.140.71-260.140.71.10) filed 4-14-83; effective thirtieth day thereafter (Register 83, No. 16).

§260.140.71.1. General.

Note

A mutual water company seeking a permit from the Commissioner must be organized under either the General Corporation Law (Corporations Code Sections 100-2319) or the Nonprofit Corporation Law relating to Nonprofit Mutual Benefit Corporations (Corporations Code Sections 7110-8910).

NOTE

Authority cited: Section 25610, Corporations Code. Reference: Section 25140, Corporations Code.

§260.140.71.2. Application for Qualification by Permit Pursuant to Section 25113 of the Corporate Securities Law of 1968.

Note • History

An application for qualification by permit of the offer and sale of securities proposed to be issued by a mutual water company must contain the information required by Sections 260.110 and 260.113 of the Commissioner's Rules.

In addition, the following information must be filed as an exhibit to the application in response to the items of Rule 260.113 found below:

(a) Item 20(iii):

(1) A statement of the purposes of the company indicating the scope and variety of its proposed operations.

(2) A description of the service area in which the mutual water company proposes to deliver water, and a representation that the mutual water company contacted the Public Utilities Commission (PUC) and the county local agency formation commission (LAFCO) to determine if the proposed service area will overlap an existing water service area or if an existing water service area could more appropriately serve the subdivision. In the case of a proposed subdivision, contact with the PUC and the LAFCO should be made at the time of initial contact with the local planning department. If a water company is reorganizing to become a mutual water company, contact with the PUC and the LAFCO should be made at the time initial contact with the local or state department of health.

(3) A description of the method by which the company is to acquire the water supply, distribution and fire protection system. If a mutual water company being formed in connection with subdivided lands or a subdivision of land is to acquire its water supply, distribution and fire protection system from the subdivider, copies of the contract and other documents relating to the acquisition of the system must be filed. These contracts and documents must evidence the mutual water company's title to the water supply, distribution and fire protection system. For example: a bill of sale transferring all personal property used and usable in the operation of the mutual water company; a copy of the recorded deed to the wells and water tanks to be used by the mutual water company in the supply, distribution and fire protection system; copies of recorded deeds granting easements for construction, repair, maintenance and improvements of the water supply, distribution and fire protection system.

Additionally, the subdivider must file a copy of an executed written contract entered into with the mutual water company whereby the subdivider agrees with the mutual water company to pay monthly a proportional part of the repair and replacement fund (as required by Rule 260.140.71.2(b)(3)) according to the following ratio: number of lots owned or controlled by the subdivider to total number of lots in the subdivision. The written contract may also provide that, in consideration of transfer by the subdivider to the mutual water company of the water supply, distribution and fire protection system, the mutual water company agrees to:

(A) take all necessary action to apply for subsequent permits from the Department of Corporations, provided the subdivider agrees to pay all expenses of the mutual water company associated with obtaining the permit, and provided further the extension of the water supply, distribution and fire protection system is to a contiguous subdivision and is completely integrated into the present system so that there exists, in effect, one water supply, distribution and fire protection system which will not create conflicts between present and future users;

(B) sell and issue securities to purchasers of remaining lots in the subdivision on the same terms (except for price, if the difference is justified) for the initial purchasers;

(C) cooperate with the subdivider in the operation, maintenance, and improvement of the present and contemplated water supply, distribution and fire protection system; and

(D) contract with the subdivider or a successor in interest, if a reasonable request is made to do so, for the management of the mutual water company for as long as lots in the subdivision remain unsold, provided at all times the board of directors of the mutual water company shall approve or disapprove the terms of the contract including compensation to the subdivider or successor in interest, if any.

(4) An engineer's report prepared as required by Section 260.150 and Sections 260.504.2-260.504.2.4.

(5) If the company proposes to distribute water for human consumption, a copy of the certificate of the Director of Public Health as required by Sections 4010-4024 of the Health and Safety Code must be filed.

(6) If a mutual water company is being formed in connection with subdivided lands or a subdivision of land, as defined in Sections 11000, 11000.1, 11000.5, and 11004.5 of the Business and Professions Code, the application must state that the securities will be sold or issued only to purchasers of lots in the subdivision, or to successors in interest of purchasers of lots in the subdivision, and not sold or issued to the subdivider or to the successor in interest of the subdivider. Moreover, the application must state that the securities will be sold or issued only after a public report for the subdivision has been issued by the Department of Real Estate. The mutual water company must file one additional copy of the application to be referred for comment to the Commissioner of Real Estate.

(7) A statement undertaking to comply with the requirements of Corporations Code Section 14300 for making the security issued by the mutual water company appurtenant to the land.

(8) If the water supply and distribution system will be completed prior to the issuance of a permit by the Commissioner, the application should include either a statement of the engineer preparing the engineer's report submitted with the application, or of a person employed or acting on behalf of a public agency or other independent qualified person, that the system has been examined and tested and that the system operates in accordance with the design standards of the system described in the application.

(b) Item 21.A: The articles of incorporation or bylaws of the mutual water company must contain the following:

(1) A statement to the effect that the mutual water company shall provide water to all members or shareholders.

(2) A general description of any activities other than the delivery of water in which the water company may engage. The appropriateness of these other activities will be determined by the commissioner upon a consideration of the circumstances in each particular case.

(3) A proviso directing the board of directors to establish a rate structure which will result in the accumulation and maintenance of a fund for the repair and replacement of the water supply, distribution and fire protection system (the “repair and replacement fund”). The rate charged, moreover, must bear a reasonable relationship to the cost of furnishing water. Unimproved lots included within the area to be served must bear a proportionate share of the cost of repair and replacement of the water supply, distribution and fire protection system, as well as a proportionate share of the cost of maintaining the repair and replacement fund.

(4) A reasonable relationship between each unit of the securities to be issued and each unit of the area to be served; e.g., one share of common stock issued for each subdivided lot purchased.

(5) A statement prohibiting the issuance of fractional shares or securities.

(6) Adequate provision must be provided for transfer of the securities, voting rights of the security holders, inspection of books and records by security holders, necessary or contemplated expansion of the facilities of the mutual water company, and further subdivision, where applicable, of the area to be served.

(7) A reasonable limitation on the salaries paid to the persons operating, or employed by, the mutual water company including officers and directors.

(8) A provision for annual meetings of the security holders accompanied by a provision for adequate notice.

(9) A provision for distributing to each security holder annually fiscal year-end financial statements within 105 days of the close of the fiscal year.

(10) In the case of a mutual water company purchasing water for distribution from a public utility, municipal water company or water district, a provision for charging all security holders a pro rata amount of the cost of water supplied to an entity providing fire protection service.

(c) Item 21.F: A mutual water company must prepare an offering circular to be used in an offer and sale of its securities. This offering circular must include, among other things: a discussion of the water supply, distribution and fire protection system; a summary of the opinion of the engineer along with the engineer's consent as required by Sections 260.504.2-260.504.2.4; the area in which the mutual water company intends to provide water service; whether activities other than delivery of water are contemplated by the mutual water company; a discussion of the rights and duties of the security holders of the mutual water company as set forth in its articles of incorporation and bylaws, including the consequence of failure to pay for water or assessments; the fact that the articles of incorporation provide that the shares or securities of the mutual water company may not be sold separately from the right to water evidenced by the security of the mutual water company; prohibition of issuance of fractional shares or securities of the mutual water company; a discussion of the certificate issued by the Director of Public Health certifying that the water is fit for human consumption; the limitation imposed on salaries to be paid to personnel operating, or employed by, the mutual water company including officers and directors; a discussion of the transferability of the securities, the voting rights of the security holders, access to books and records, necessary or contemplated expansion of the facilities of the mutual water company, and further subdivision of the area to be served, if applicable; a discussion of the subdivider's duties with respect to maintenance and repair or replacement of the water supply, distribution or fire protection system; and a discussion of the establishment and maintenance of the repair and replacement fund.

Additionally, the following exhibits shall be attached to the offering circular: a copy of the articles of incorporation and bylaws of the mutual water company; and a copy of financial statements of the mutual water company (if the mutual water company has not yet commenced operations, a detailed operating budget for the first six months of operations should be included as an exhibit to the offering circular; the operating budget must include estimated monthly fees to be charged to the water users).

NOTE

Authority cited: Section 25610, Corporations Code. Reference: Section 25140, Corporations Code.

HISTORY

1. Change without regulatory effect amending section filed 9-25-2002 pursuant to section 100, title 1, California Code of Regulations (Register 2002, No. 39).

2. New subsection (a)(7) and subsection renumbering filed 9-23-2009; operative 10-23-2009 (Register 2009, No. 39).

§260.140.71.3. Content of Engineer's Report.

Note

The engineer's report filed with the application shall contain all relevant information pertaining to the proposed water supply distribution and fire protection system including, but not limited to, the following:

(a) A system map of the area to be served showing:

(1) The total acreage;

(2) The number and location of lots into which the area is or can be subdivided and the location of the connection for water service;

(3) The location of all sources of supply, principal pumping stations, diversion works, water treatment and filter plants, and storage facilities; the size, character, and location of all mains and ditches; and the location of all valves and gates, gauges, interconnections with other systems, and fire hydrants;

(4) The location, size, and kind of each service pipe;

(5) The layout of all principal pumping stations and water treatment and filter plants to show size, location, and character of all major equipment, pipelines, connections, valves, and other equipment used in connection therewith;

(6) The date of construction and condition of all principal items of plant and extensions of all mains.

(b) A description of the sources of supply, including in the case of wells, information on the depth, diameter, and casing of the well, and a statement indicating that the proposed water supply and distribution system complies with the requirements of the following paragraphs of this Rule, supported by reports showing the sustained capacity of source of supply, or, if all or some water is to be obtained from another source, copies of contracts for obtaining such water, together with estimates of the present and ultimate water consumption in the area to be served.

(c) A statement indicating in detail the cost of the water supply, distribution and fire protection system, and indicating the cost of any required repairs or replacement.

(d) An opinion by the engineer to the effect that the water supply, distribution and fire protection system will adequately, dependably and safely meet the total requirements for all water consumers under maximum consumption. The opinion must have attached to it the calculations and data used in estimating the water requirements.

(e) A statement of the engineer of the estimated cost of maintenance of the system, the estimated useful life of the components of the system, the estimated cost of replacement of the system, and the monthly or annual amount which should be charged to establish a reasonable reserve for maintenance and replacement of the system based on these estimates.

NOTE

Authority cited: Section 25610, Corporations Code. Reference: Section 25140, Corporations Code.

§260.140.71.4. Design Standards for Water Supply and Distribution Systems.

Note

The water supply and distribution system of a mutual water company proposing to distribute water for human consumption should comply with the following design standards:

(a) The system will be adequate to maintain normal operating pressure of not less than 25 pounds per square inch, nor more than 125 pounds per square inch, at the service connection; provided, however, that during periods of hourly maximum demand, or at the time of peak seasonal loads, the pressure may be reduced to not less than 20 pounds per square inch, and during periods of hourly minimum demand the pressure may increase to not more than 150 pounds per square inch. Variations in pressure under normal operation should not exceed fifty percent of the average operating pressure. The average operating pressure should be determined by computing the arithmetical average of at least twenty-four consecutive hourly pressure readings.

(b) The quantity of water delivered to the distribution system from all source facilities should be sufficient to supply adequately, dependably, and safely the total requirements of all water consumers under maximum consumption, and should be sufficient to maintain the pressure specified by subsection (a) of this section.

(c) The distribution system should provide at least one connection per service and, to the extent feasible, should be designed in a property segmented grid so as (1) to minimize the extent of interruption in water service when repairs are necessary and (2) to avoid dead ends in its water mains.

NOTE

Authority cited: Section 25610, Corporations Code. Reference: Section 25140, Corporations Code.

§260.140.71.5. Design Standards for Fire Protection System.

Note

(a) In addition to complying with the requirements of the other provisions of this Subarticle 7.1, the mutual water company shall provide at least a minimum level of water service to its customers for fire protection purposes as an inherent part of the water system design in accordance with the standards set forth below. These standards are stated as minimum levels of water service which the mutual water company shall provide and are not intended to preclude the mutual water company from designing a fire protection system meeting higher standards, nor preclude any governmental agency from setting higher standards in any area subject to its jurisdiction. A mutual water company may request the Commissioner to exercise discretion with respect to a fire protection system not meeting the design standards set forth herein upon a strong showing by the mutual water company that the system is adequate for fire protection purposes. In determining whether to exercise discretion, the Commissioner, among other things, will look to a written statement from the entity providing fire protection service that the system is adequate for fire protection.

(b) Initial Construction, Extension, or Modification. In the initial construction, extension, or modification of a water system, any one of which is required to serve (1) a new user or (2) a change in use, the facilities constructed, extended, or modified shall be designed to be capable of providing, for a sustained period of at least two hours, in addition to the requirements of the average daily demand within the area to be served, the minimum flow requirements set forth below opposite the classification of land use to be served:

Land Use Minimum Flow

1. Rural, residential with a lot density of two or less per acre

primarily for recreational and retirement use 250 gpm

2. Lot density of less than one single-family residential unit

per acre 500 gpm

3. Lot density of one or two single-family residential units

per acre 750 gpm

4. Lot density of three or more single-family residential units

per acre 1,000 gpm

5. Duplex residential units, neighborhood business of

one story 1,500 gpm

6. Multiple residential, one and two stories; light commercial

or light industrial 2,000 gpm

7. Multiple residential, three stories or higher; heavy commercial

or heavy industrial 2,500 gpm

NOTE

Authority cited: Section 25610, Corporations Code. Reference: Section 25140, Corporations Code.

§260.140.71.6. Water Supply and Distribution System Construction Standards.

Note

The water supply and distribution system of a mutual water company proposing to distribute water for human consumption shall be constructed to conform with currently accepted engineering practices, and shall comply with the following construction standards where possible:

(a) Water mains to be installed below the frost level or otherwise protected to prevent freezing and should not have less than 30 inches of cover over the top of the pipe in public streets or alleys except where such depth is rendered impossible by underground obstructions or rocky or hardpan conditions.

(b) The size, design, material, and installation of service pipes to conform to the reasonable requirements of the mutual water company; provided, however, that the minimum size of the pipe to be not less than 3/4 inch nominal size. Except where services are not intended for use during freezing weather and arrangements are made to drain service pipes prior to such weather, and except at terminations in connection with the meter or water consumer's piping, all service pipes to be laid at a depth sufficient to prevent freezing.

NOTE

Authority cited: Section 25610, Corporations Code. Reference: Section 25140, Corporations Code.

§260.140.71.7. Fire Protection System Construction Standards.

Note

The fire protection system of a mutual water company must be constructed to conform with currently accepted engineering practices, and must comply with the following construction standards:

(a) Flow Tests. The flows set forth in Section 260.140.71.5 above are to be calculated on the basis of a residual pressure of 20 p.s.i.g. in the distribution system under flowing conditions.

(b) Fire Hydrants. Fire hydrants shall be attached to the distribution systems at the locations designated by the entity responsible for their use for fire fighting purposes. Any new mains to which a hydrant may be attached shall be not less than six inches in diameter.

NOTE

Authority cited: Section 25610, Corporations Code. Reference: Section 25140, Corporations Code.

§260.140.71.8. Fire Hydrant Maintenance, Repair or Replacement; Annual Flow Tests.

Note

The mutual water company is financially responsible for the maintenance, repair or replacement of fire hydrants. See Civil Code Section 549 regarding charges from mutual water companies to entities providing fire protection services. A mutual water company must perform and record annual flow tests pursuant to Section 260.140.71.7(a) or, in lieu of the annual flow test under Section 260.140.71.7(a), any test to determine available flow performed by a fire protection agency. The recorded test results will become part of the mutual water company's books and records.

NOTE

Authority cited: Section 25610, Corporations Code. Reference: Section 25140, Corporations Code.

§260.140.71.9. Permit Issuance Prior to Completion of Water Supply, Distribution and Fire Protection System.

Note

(a) Generally, the Commissioner will not issue a permit authorizing the offer and sale of securities of a mutual water company if the water supply, distribution and fire protection system has not been installed and is not ready to operate. However, upon a showing by the engineer for the mutual water company that the water supply, distribution and fire protection system is substantially completed (i.e., completion of at least 75% of the system), the Commissioner may issue a permit.

(b) In addition to the requirement of a showing of substantial completion of the system, the mutual water company must file a completion bond issued to it and naming it as beneficiary in order to protect proposed security holders from unexpected costs attributable to completion of the system. The amount of the completion bond should be at least 120% of the then estimated cost to complete the facilities (as determined by the engineer) and it must state that the water supply, distribution and fire protection system will be complete within six months from the date of purchase of the bond.

(c) As an alternative to a completion bond, the mutual water company may propose other arrangements to guarantee completion of the water supply, distribution and fire protection system. A mutual water company proposing other arrangements to guarantee completion of the system must first obtain the written consent of the Commissioner that the arrangement is satisfactory.

(d) Where the Commissioner approves a qualification without requiring the water supply, distribution and fire protection system to be installed and ready to operate, as provided for above, a condition will be imposed upon the permit, but not limited to, prohibiting the sale of securities prior to the completion of the system and the filing of the report required by Section 260.140.71.2(a)(viii).

NOTE

Authority cited: Section 25610, Corporations Code. Reference: Section 25140, Corporations Code.

§260.140.71.10. Application for Subsequent Qualification by Permit Pursuant to Section 25113 of the Corporate Securities Law of 1968.

Note

When a mutual water company has already sold securities pursuant to a previously issued permit, an application for a subsequent qualification of additional securities shall comply with Sections 260.110 and 260.113, incorporating by reference the information already on file with the Department and furnishing any amendment or revision thereto by exhibit. The following additional information must be filed as an exhibit to Item 20 of Section 260.113:

(a) Copies of operating records of the applicant indicating the number of water customers and the total amount of water consumed at the time the application is filed.

(b) An engineer's report meeting the requirements of Section 260.140.71.3 for the total water supply, distribution and fire protection system, present and proposed, concluding that one, completely integrated and serviceable water supply, distribution and fire protection system exists. The engineer's report must also state any changes in the water distribution and fire protection system and must state whether adequate water is available to serve present as well as proposed new users. In addition, the engineer's report must include the quantity of water available at the time the report is prepared and a detailed estimate of the water requirements of the present and proposed users.

(c) If the mutual water company distributes or intends to distribute water for human consumption, it must file a copy of the certificate then in effect from the Director of Public Health as required by Sections 4010-4024 of the Health and Safety Code.

(d) If the mutual water company was originally formed, or is now intended to be used, in connection with subdivided lands or a subdivision of land as defined in Sections 11000, 11000.1, 11000.5, and 11004.5 of the Business and Professions Code, an additional copy of the application must be filed for comment by the Commissioner of Real Estate.

NOTE

Authority cited: Section 25610, Corporations Code. Reference: Section 25140, Corporations Code.

Subarticle 7.2. Offerings of Debt Securities by Churches

§260.140.72. Purpose; Definitions.

Note • History

(a) This subarticle sets forth the standards with respect to an application of a church for a permit to sell debt securities in a limited offering pursuant to Section 25113 of the Code. An offering of church debt securities to the general public, even if combined with an offering to the persons described in subdivision (d), will be subject to the standards generally applicable to public offerings of debt securities (including, but not limited to, Rules 260.140.4, 260.140.5 and 260.140.10) and to the special standards set forth in this subarticle, except for Rules 260.140.72.3 and 260.140.72.4.

(b) “Cash-flow,” as used in Rule 260.140.10 when applicable to offerings of debt securities by churches and for the purposes of this subarticle, and as used in Rule 260.140.72.2, means donations and other revenue which can be demonstrated to be of a continuing nature as distinguished from irregular fund raising campaigns.

(c) “Church,” for the purposes of this subarticle, includes a church, a synagogue, temple, mosque or other place of worship and related church property such as a school or youth camp. “Church” shall be a nonprofit organization that operates exclusively for religious purposes and is an organization described in Section 501(c)(3) of the Internal Revenue Code of 1986, as amended.

(d) “Limited offering,” for the purposes of this subarticle, means an offering only to a group of persons, each of whom is an individual who, prior to solicitation for the purchase of the security, was a member of, contributor to, or participant in the church or in any specified program, activity or organization which is a part of the church, or who is a family member of such individual. In addition, ”limited offering” for purposes of this subarticle may include an offering to a bank, savings and loan association, trust company, insurance company, investment company registered under the Investment Company Act of 1940, or pension or profit-sharing trust (other than a pension or profit-sharing trust of the issuer), whether the purchaser is acting for itself or as trustee. As used in this subsection, ”family member” means an ancestor or descendant, a brother, sister, aunt, uncle, niece, nephew or first cousin.

NOTE

Authority cited: Section 25610, Corporations Code. Reference: Section 25140, Corporations Code.

HISTORY

1. New section filed 2-8-89; operative 3-10-89 (Register 89, No. 8).

2. Amendment of subsection (c) filed 4-1-2005; operative 5-1-2005 (Register 2005, No. 13).

§260.140.72.1. Application for Qualification.

Note • History

The application must contain the information required by Sections 260.110 and 260.113 of the Commissioner's Rules. In addition, the following information must be filed as an exhibit to the application:

(a) If any portion of the net proceeds from the sale of the securities is to be used for the construction of real estate improvements, a schedule detailing the construction of the project and a statement of estimated cost with respect to each part of the construction project. The cost estimate shall be substantiated by a statement of a qualified independent contractor or other qualified and independent person. The application shall demonstrate that with the proceeds of the proposed financing, the applicant will have funds sufficient to complete the project.

(b) A copy of the resolution adopted by the governing body of the applicant providing:

(1) for a fund devoted exclusively to the payment of interest and principal on the debt securities proposed to be issued and pledging a specified portion of the monthly revenues of the applicant to the fund devoted exclusively to the payment of such interest and principal. The portion pledged shall be sufficient for the payment of current interest and maturing installments of principal;

(2) that such fund shall be maintained with and administered by a federally insured bank located in any of the United States;

(3) That all monies received from the sale of securities shall be deposited in a trust account available only for expenditures on account of the project for which the indebtedness is to be incurred; and

(4) that such trust account shall be maintained with and administered by a bank or savings and loan association located in California. This subsection (b)(4) shall not apply to:

(A) a firmly underwritten public offering; or

(B) a public offering where the issuer and selling broker-dealer commit as a part of the verified application of the issuer that less than 50 percent of the debt is to be held by persons who have addresses in this state according to the records of the underwriter. For the purposes of this rule, a public offering is ”firmly underwritten” when an underwriter unconditionally agrees to purchase all the debt to be issued by a church in a specified offering to the public, subject to agreed upon provisions relating to acts occasioned by nature without the interference of any human agency.

(c) An opinion of legal counsel attesting to: the authority of the applicant to offer and sell the debt securities; the status of the applicant as a nonprofit organization; and whether after the sale, the church debt securities will be valid, binding obligations of the applicant in accordance with the issuer's governing documents.

NOTE

Authority cited: Section 25610, Corporations Code. Reference: Section 25140, Corporations Code.

HISTORY

1. New section filed 2-8-89; operative 3-10-89 (Register 89, No. 8).

2. New subsection (c) filed 4-1-2005; operative 5-1-2005 (Register 2005, No. 13).

§260.140.72.2. Aggregate Debt.

Note • History

An applicant must demonstrate its ability to repay debt from cash flow. As a general rule, the aggregate debt of the issuer on completion of the offering should not exceed an amount which can be serviced as to principal and interest with one-third of applicant's cash flow. The general rule notwithstanding, an applicant may justify incurring a larger indebtedness by demonstrating: 1) ability to devote more cash flow to the service of indebtedness; 2) that an increase in cash flow is to be anticipated in line with past experience or as a result of the improvements to be provided with the proceeds of the proposed financing; or 3) other appropriate reasons.

NOTE

Authority cited: Section 25610, Corporations Code. Reference: Section 25140, Corporations Code.

HISTORY

1. New section filed 2-8-89; operative 3-10-89 (Register 89, No. 8).

§260.140.72.3. Sales Commissions.

Note • History

Sales commissions in connection with the sale of the debt securities (exclusive of expenses incurred in preparation of the offering) shall not exceed 2 l/2% of the monies collected from the sale of such securities.

NOTE

Authority cited: Section 25610, Corporations Code. Reference: Section 25140, Corporations Code.

HISTORY

1. New section filed 2-8-89, operative 3-10-89 (Register 89, No. 8).

§260.140.72.4. Limitations on Transfer.

Note • History

Limitations shall be imposed upon the transfer of the debt securities so as to maintain ownership with the group of individuals described in Section 260.140.72(d). Transfers outside that group by gift or as security for a loan shall be permissible.

NOTE

Authority cited: Section 25610, Corporations Code. Reference: Section 25140, Corporations Code.

HISTORY

1. New section filed 2-8-89, operative 3-10-89 (Register 89, No. 8).

§260.140.72.5. Disclosure.

Note • History

(a) The offering shall be accompanied by a disclosure document in the form and containing the information required by the Offering Circular provisions of the Statement of Policy Regarding Church Bonds of the North American Securities Administrators Association, adopted April 14, 2002. In addition, a Cross Reference Sheet, which is substantially equivalent to the form that accompanies the Statement of Policy Regarding Church Bonds adopted April 14, 2002 and the proposed disclosure document shall be attached as an exhibit to the application.

(b) If purchasers are given the opportunity to make payment by means of borrowing or installment payments, these payment methods shall be clearly described in the disclosure documents, and all expenses and charges, including those on account of interest or loss of interest, if any, shall be disclosed.

(c) Terms such as “lay-away-plan,” “safe investment,” and “revenue bonds” shall not be approved. Unsecured promissory notes may not be described as “bonds.”

NOTE

Authority cited: 25610, Corporations Code. Reference: Section 25140, Corporations Code.

HISTORY

1. New section filed 2-8-89, operative 3-10-89 (Register 89, No. 8).

2. Amendment of subsection (a) filed 4-1-2005; operative 5-1-2005 (Register 2005, No. 13).

§260.140.72.6. Financial Statements.

Note • History

An application for an offering of debt securities by a church shall be accompanied by audited financial statements meeting the requirements of Rule 260.613, except that: (1) audited financial statements meeting the requirements of Rule260.613 may be filed for the church's last fiscal year only when audited financial statements for more than the last fiscal year are unavailable and unaudited financial statements for the two prior fiscal years are also filed; or (2) audited financial statements meeting the requirements of Rule 260.613 may be filed for the church's last two fiscal years only when audited financial statements for more than the last two fiscal years are unavailable and an unaudited financial statement for the prior fiscal year is also filed. The foregoing notwithstanding, this rule shall not diminish or otherwise restrict the Commissioner's discretion under Rule 260.613 to waive such requirements when appropriate such as the issuance of debt securities only to the members of the congregation of a church.

NOTE

Authority cited: Section 25610, Corporations Code. Reference: Section 25140 and 25613, Corporations Code.

HISTORY

1. New section filed 2-8-89; operative 3-10-89 (Register 89, No. 8).

Subarticle 8. Investment Companies

§260.140.80. Front-End Load Prohibited.

A qualification will not be approved for the sale of open-end investment company shares pursuant to a contractual plan whereby more than a pro rata portion of the load or commission is deducted from any installment payment or whereby any charge, penalty or forfeiture is assessed for failure to make installment payments.

§260.140.80.5. Contractual Periodic Payment Plan Standards.

Note • History

Notwithstanding Rules 260.140.80 and 260.140.83, the offer and sale of shares in a contractual periodic payment plan (the “plan”) whereby more than a pro rata portion of the load or commission is deducted from any installment payment may be qualified, provided that the offer and sale of the shares and the plan conform to the following guidelines.

(a) Determination of Suitability of Purchasing Investor.

No shares in a plan may be offered for sale in this state unless a principal of the selling broker-dealer has determined that the plan is suitable for the purchasing investor. This determination shall be based upon, but not be limited to, consideration of the following facts:

(1) The investor's age, marital status, and number of dependents.

(2) The investor's major investment goals and the time frame for achieving these goals.

(3) The investor's current and anticipated future financial status, including income, and reasonably anticipated short-and long-term liabilities or other obligations.

(4) The reasonable likelihood of the investor's continued income.

(5) The investor's ability to address potentially burdensome financial situations, (e.g., the death of a family member) through the use of insurance, savings, or other assets; and

(6) The investor's understanding of the risks inherent in investing in securities and the usefulness of savings instruments or accounts for short-term needs.

The selling broker-dealer shall retain for at least five (5) years the documents disclosing the basis upon which the determination of suitability was made as to each purchasing investor.

(b) Limitation on Commissions.

(1) In addition to the refund rights available to an investor pursuant to Sections 27(d) and 27(f) of the Investment Company Act of 1940, as amended, [15 U.S.C. Sec. 80a-1, et seq.] an investor may withdraw from the plan within twenty-eight (28) months of the investor's initial payment and shall receive the sum of (i) the value of his or her account, and (ii) the amount by which all sales charges, commissions or other selling or redemption fees deducted from the investor's account exceed fifteen percent (15%) of the gross payments made by the investor.

(2) For purposes of paragraph (1) of subsection (b), above, each investor shall be provided a notice setting forth his or her cancellation rights. This notice shall be in the form set forth, below, and shall be sent to the investor not less than thirty (30) days and not more than sixty (60) days prior to the expiration of the investor's cancellation rights. Neither the sponsor of the plan nor its agent(s) shall advise the investor against exercising his or her right to cancel the plan without first determining that this advice is suitable for the particular investor. This determination shall be based upon, but not be limited to, consideration of the facts set forth in subsection (a) of this Rule, as well as consideration of other facts indicating the likelihood that the investor will complete the plan.

IMPORTANT MESSAGE REGARDING YOUR (NAME OF PLAN)

Dear Investor:

You have the right within twenty-eight (28) months of the commencement of plan to cancel your plan and receive a refund of all sales charges, commissions and other selling or redemption fees paid or deducted from your account which are in excess of fifteen percent (15%) of the total payments made. In determining whether or not to exercise your cancellation right, you should consider, among other things, the projected cost of your investment, your ability to make the scheduled payments over the life of your investment, and your ability to make the scheduled payments over the life of your plan as they become due.

If you wish to exercise your cancellation rights, you must send notice to that effect to:

_________________________________________________________________________________________________________________________________________________________________________________________________ by (date of expiration of cancellation rights).

Each investor in a plan shall be provided with such additional disclosure in the form set forth, below. This disclosure shall be executed at the time of sale by the investor and by the selling broker-dealer. The investor shall be provided with an executed copy. The broker-dealer shall retain the executed original for a period of at least five (5) years.

IMPORTANT MESSAGE TO PURCHASER OF A PERIODIC PAYMENT PLAN

Regarding your application for (Name of Plan) at (The Monthly Investment Amount and Total Number of Years of Program). Date (of Application): ___________.

You are applying for an investment account which features a brokerage commission structure concentrating the sales charges in the first twelve installment payments. In establishing this investment account, you should carefully consider your financial ability and personal intention to complete all of the scheduled [120 (10 years) or 180 (15 years)] payments. If you do not complete the full schedule of [120 or 180] payments, you may incur very high effective sales charges. These sales charges could cost you up to 50 percent (50%) of the amount invested during the first 12 months. Moreover, it will take ____ payments before the effective sales load charged to you will not exceed 9 percent (9%), which is the maximum sales load allowed in California. For your information, the 9 percent (9%) sales load rate is higher than the rate charged by all other mutual funds. You should be aware that there are many mutual funds available with brokerage commission structures that do not concentrate the sales charge in the early installment payments.

There are two points at which you may withdraw from the plan and receive a full or partial refund of the sales charges: (1) within forty-five (45) days after receiving notice of your cancellation rights, you may cancel the plan and receive a full refund of all sales charges paid; or (2) within twenty-eight (28) months of commencement of the plan, you may cancel the plan and receive a refund of all sales charges, commissions or other selling or redemption fees paid or deducted from your account which are in excess of fifteen percent (15%) of the total payments made.

In evaluating your ability to invest regularly for a number of years, you should consider your income pattern, contingencies which may arise, and your willingness to invest in securities which fluctuate in value. If you have reason to doubt your ability and likelihood to complete this plan, you are urged to seek another investment program, such as a voluntary periodic payment plan which does not penalize you for early withdrawals.

Purchaser's Statement:

I have received the above statement.

______________________________________________________________________

(Signature of Applicant)

______________________________________________________________________

(Printed Name)

______________________________________________________________________

(Account Number)

______________________________________________________________________

(Date of Signature)

______________________________________________________________________

Broker's Statement

I have discussed the above statement with the applicant and believe that applicant understands it.

______________________________________________________________________

(Signature of Sales Representative)

______________________________________________________________________

(Printed Name)

______________________________________________________________________

(Date of Signature)

(d) Reports and Persistency Rate.

(1) For all fiscal-year quarters beginning after the offer and sales of shares under the plan has become qualified, the issuer of shares under the plan shall file within thirty (30) days from the end of the plan's quarter a report disclosing the number of accounts opened and the number of accounts cancelled in accordance with the cancellation right contained in Section 27(f) of the Investment Company Act of 1940, as amended.

(2) For all fiscal years beginning after the offer and sale of shares under the plan has become qualified, the issuer of shares under the plan shall file within sixty (60) days of the end of the plan's fiscal year a report disclosing the plan's persistency rate for all accounts opened in this state for the period of not less than one year but not more than five (5) years, before the last day of the fiscal year.

(3) An issuer who fails to maintain a persistency rate of seventy percent (70%) or higher in California shall file an additional report setting forth an explanation for such failure. Failure to file the additional report or failure to provide an explanation satisfactory to the Commissioner in the additional report shall be grounds to deny, suspend or revoke the qualification of the offer and sale of shares under the plan. In making a determination to deny, suspend or revoke the qualification, the Commissioner may consider all relevant factors, including but not limited to, California and national persistency rates, market conditions, the number of investors in this state, the period of time the plan has been selling in this state, legislative and regulatory developments, and any other unusual or unique circumstances.

(4) The Commissioner may deny the qualification of a plan based upon a persistency rate of less than seventy percent (70%) in one or more other jurisdictions.

(5) For purposes of the persistency rate and reports:

(A) “Current account” means an investors' account in a plan:

(i) which has not been “liquidated” and

(I) which is no more than six (6) installment payments in arrears, or

(II) in which an installment payment has been made in the last six (6) months; or

(ii) where the total amount deducted from all payments for sales charges, commissions or other selling or redemption fees is nine percent (9%) or less of the total amount of payments made.

(B) “Liquidated” means ascertaining the value of an investor's account and paying that value to an investor in cash and in settlement of the account upon an investor's withdrawal from the plan.

(C) “Persistency rate” means the percentage of the total number of investors' accounts in a plan that are current accounts. The computation of the persistency rate shall not include any account which has been canceled in accordance with the cancellation rights contained in Section 27(f) of the Investment Company Act of 1940, as amended.

(e) Investment Objective.

The stated investment objective of a plan shall be a fundamental policy of the plan as set forth in Section 8(b) of the Investment Company Act of 1940 and shall be consistent with the goal of providing long-term investment opportunities suitable for persons of relatively modest means. If a plan's investment objective is not currently a fundamental policy of the mutual fund, it shall be made a fundamental policy at the next meeting of shareholders.

NOTE

Authority cited: Section 25610, Corporations Code. Reference: Section 25140, Corporations Code.

HISTORY

1. New section filed 9-20-94; operative 9-20-94 pursuant to Government Code section 11346.2(d) (Register 94, No. 38).

§260.140.81. Prohibition on Promotional Shares.

No promotional shares, as defined in Section 260.140.30 of these rules, shall be issued in connection with the sale of securities of an investment company.

§260.140.82. Prohibition on Options.

No option shall be issued by an open-end investment company; provided, however, that this prohibition does not apply to short-term options issued to permit the reinvestment of dividends or distributions of capital gains.

§260.140.83. Selling Expenses.

The sales charges or load, including all compensation to distributors, brokers, dealers and agents, in connection with the sale of securities of an open-end investment company shall not exceed 9% of the offering price prior to the deduction of such charges. No sales charges may be imposed upon the sale of securities of an open-end investment company resulting from the reinvestment of distributions of capital gains.

§260.140.84. Investment Company Expense Limitation.

Note • History

(a) “Aggregate annual expenses” shall not normally exceed two and one-half percent (2-1/2%) of the first $30 million of the average net assets, two percent (2%) of the next $70 million of the average net assets, and one and one-half percent (1-1/2%) of the remaining average net assets of the investment company for any fiscal year, determined monthly or at more frequent intervals on a consistent basis.

(b) “Aggregate annual expenses” means the sum of all expenses of the investment company (including advisory and management fees) and all charges paid or payable by the shareholders of the investment company related to the activities of the investment company, the maintenance of shareholder accounts, and other similar services, subject to the following:

(1) Expenses of the investment company shall be determined in accordance with generally accepted accounting principles applicable to investment companies.

(2) Interest, taxes and capital items of the investment company such as, but not limited to, the cost of brokerage incurred in connection with execution of securities transactions are not included in aggregate annual expenses.

(3) Sales and redemption charges paid by the shareholders of the investment company shall not be included in aggregate annual expenses to the extent that they are not directly charged against and/or do not have the effect of reducing the expenses of the investment company.

(4) There shall be excluded from aggregate annual expenses costs incurred or charges paid by any person, entity or plan other than the investment company in connection with:

(A) any registered unit investment trust contractual plan through which an interest in shares of the investment company may be accumulated, or

(B) any retirement plan, employee trust, pension, profit sharing or other benefit plan, or payroll deduction or other group investment plan, participation in which is available to persons whose eligibility depends on factors other than their being the owners of shares of the investment company.

(5) If an investment company obtains custodian, transfer agency or other fees at a rate lower than would otherwise have been charged by maintaining uninvested cash balances at its custodian bank in excess of the amount reasonably necessary to clear its transactions, there shall be included in “aggregate annual expenses,” in addition to the amount of fees paid by the investment company, an amount equal to interest on such excess cash balances at a rate equal to the prevailing interest rate then paid by the custodian bank on its 90 day certificates of deposit during the period such excess balance was maintained.

(6) Aggregate annual expenses shall exclude expenses incurred by the investment company:

(A) as a result of litigation in connection with a suit involving a claim for recovery by the investment company;

(B) as a result of litigation involving a defense against a liability asserted against the investment company, provided that, if the adviser made the decision or took the action which resulted in such claim the adviser acted in good faith without gross negligence or misconduct; and

(C) any indemnification paid by the investment company to its officers, directors and advisers in accordance with applicable state and federal laws as a result of such litigation.

(7) Annual distribution plan expenses incurred in the sale of its shares may be excluded under the following circumstances:

(A) If sales charges are not collected at the time of the sale of shares, then the investment company may exclude all annual distribution plan expenses up to one percent (1%) of its average net assets during its fiscal year.

(B) If sales charges are collected at the time of the sale of shares, then the investment company shall first subtract the maximum sales charge rate (under the schedule of sales charge rates expressed in terms of a percentage of sales proceeds in the prospectus) from 9 percent (9%) and second, divide the result by 9. The quotient resulting from the second step of this calculation is the portion of the one percent (1%) of average net assets which may be excluded.

(8) There shall be excluded from aggregate annual expenses the excess custodian costs attributable to investments in foreign securities compared to the custodian costs which would have been incurred had the investments been in domestic securities.

(c) The investment adviser or manager shall reduce or rebate, or both, advisory and management fees otherwise payable by the investment company for the fiscal year in the amount by which the “aggregate annual expenses” of the investment company or the fiscal year exceed the limitations stated in paragraph (a) of this Rule.

(d) The Commissioner, by rule or order, for good cause shown, may approve the exclusion from “aggregate annual expenses” of such items or amounts of ordinary or extraordinary expenses or costs as appear necessary and appropriate in the interests of fairness, justice and equity.

NOTE

Authority cited: Section 25610, Corporations Code. Reference: Sections 25140 and 25146, Corporations Code.

HISTORY

1. Amendment filed 7-13-70; effective thirtieth day thereafter (Register 70, No. 29).

2. Amendment filed 7-12-74; effective thirtieth day thereafter (Register 74, No. 28).

3. Amendment of subsections (b) and (d) filed 4-23-86; effective upon filing pursuant to Government Code Section 11346.2(d) (Register 86, No. 17).

4. Amendment filed 9-21-89; operative 9-21-89 pursuant to Government Code Section 11346.2(d) (Register 89, No. 39).

5. Change without regulatory effect repealing subsection (d) and relettering former subsection (e) to subsection (d) filed 6-3-99 pursuant to section 100, title 1, California Code of Regulations (Register 99, No. 23).

§260.140.85. Prohibited Investments.

Note • History

The charter documents or fundamental policy adopted by an investment company shall include a prohibition of any of the following investment practices or activities:

(a) Acquisition or retention of securities of any open-end investment company.

(b) Except as provided in subsections (1) and (2) of this subsection, engaging in short sales (other than sales against the box) or margin purchases, in writing, buying or selling puts and calls on securities, stock index futures, options on stock index futures, financial futures contracts or options thereon, or in other investment practices which, in the opinion of the Commissioner, are highly speculative, unless the securities of such investment company are offered only to a limited class of purchasers and are subject to such other sales limitations as the Commissioner may require, including those in Section 260.140.01, and adequate disclosure is made of the speculative nature of the security.

(1) An investment company may engage in writing puts and calls on securities if each of the following conditions are met:

(A) The security underlying the put or call is within the investment policies of the company and the option is issued by the Options Clearing Corporation.

(B) The aggregate value of the securities underlying the calls or obligations underlying the puts determined as of the date the options are sold shall not exceed 25% of the net assets (as determined in Section 260.140.84) of the investment company. However, if consistent with its plan of operations and objectives and its advisor has demonstrated previous experience in managing portfolios containing options on a substantial basis, there need be no limit on the aggregate value of the securities underlying the calls and the aggregate value of the obligations underlying the puts shall not exceed 50% of the net assets.

(C) The securities subject to the exercise of a call written by the investment company must be owned by the investment company at the time the call is sold and must continue to be owned by the investment company until the call has been exercised, has lapsed, or the investment company has purchased a closing call, and such purchase has been confirmed, thereby extinguishing the investment company's obligation to deliver securities pursuant to the call it has sold. At the time a put is written, the investment company must establish a segregated account with its custodian consisting of cash or short term United States Government securities equal in value to the amount the investment company will be obligated to pay upon exercise of the put. This account must be maintained until the put is exercised, has expired, or the investment company has purchased a closing put, which is a put of the same series as the one previously written.

(2) An investment company may buy and sell puts and calls on securities, stock index futures or options on stock index futures, or financial futures or options on financial futures, if such options are written by other persons and if

(A) the options or futures are offered through the facilities of a national securities association approved by the Commissioner under Rule 260.105.35 or are listed on a national securities or commodities exchange,

(B) the aggregate premiums paid on all such options which are held at any time do not exceed 20% of the company's total net assets and

(C) the aggregate margin deposits required on all such futures or options thereon held at any time do not exceed 5% o the company's total assets.

NOTE

Authority cited: Section 25610, Corporations Code. Reference: Section 25140, Corporations Code.

HISTORY

1. Amendment filed 1-4-77; effective thirtieth day thereafter (Register 77, No. 2).

2. Amendment refiled 1-7-77; effective thirtieth day thereafter (Register 77, No. 2).

3. Amendment filed 5-3-83; effective thirtieth day thereafter (Register 83, No. 19).

4. Amendment of subsections (b) and (c) filed 4-23-86; effective upon filing pursuant to Government Code Section 11346.2(d) (Register 86, No. 17).

§260.140.86. Accumulation Plan.

Note • History

Whenever a security holder of an investment company participating in an informal accumulation plan agrees to make payments for periodic investments out of a checking account, by power of attorney or otherwise, such arrangements must be subject to revocation or modification by the security holder at all times, until final payment of any withdrawal by the bank in which the account is maintained.

NOTE

Authority cited: Section 25610, Corporations Code. Reference: Section 25140, Corporations Code.

HISTORY

1. Amendment filed 4-23-86; effective upon filing pursuant to Government Code Section 11346.2(d) (Register 86, No. 17).

§260.140.87. Insurance Plan.

History

The sale of securities of an investment company in conjunction with the sale of life insurance shall conform with the following conditions:

(a) Any person selling such securities and insurance shall be the holder of (1) a valid certificate from the Commissioner authorizing him to act as a broker-dealer or agent, and (2) such authorization from the California Insurance Commissioner as may be required under the Insurance Code to act as an insurance broker or agent.

(b) The material features of the plan shall be fully and fairly disclosed to the prospective purchaser in a manner which will afford him an opportunity to make an informed judgment.

(c) The purchaser shall be billed on a form which shall clearly distinguish between the cost of the securities and the cost of the insurance.

(d) The purchaser shall have the right to cancel the insurance coverage at any time without forfeiting any securities already purchased or losing the right to continue purchasing securities.

(e) The purchaser shall have the right to discontinue the further purchase of securities without forfeiting any securities already purchased or canceling the insurance coverage; provided, however, that when the insurance coverage is declining balance term insurance, a requirement may be imposed that the insurance coverage will be canceled whenever the purchase of securities is discontinued.

(f) One or more policies of insurance shall be issued in the purchaser's name and delivered to him.

(g) The securities shall be issued to the purchaser and the security certificates shall be delivered to him, or such securities shall be issued and credited to his account or share record with the investment company and a memorandum of such entry shall be delivered to him.

HISTORY

1. Change without regulatory effect amending subsection (e) filed 9-25-2002 pursuant to section 100, title 1, California Code of Regulations (Register 2002, No. 39).

§260.140.88. Qualification Termination Date.

Note • History

A Qualification for the offer and sale of shares of an open-end investment company will have a termination date 16 months after the date of the audited financial statements contained in its current application for qualification.

NOTE

Authority cited: Sections 25114 and 25610, Corporations Code.

HISTORY

1. New section filed 5-14-69; effective thirtieth day thereafter (Register 69, No. 20).

§260.140.89. Redemptions In-Kind.

Note • History

An open-end investment company reserving the right to redeem its shares in-kind by delivering securities from its investment portfolio to redeeming shareholders shall comply with these conditions:

(a) Elect to be governed by Rule 18f-1 under the Investment Company Act of 1940.

(b) Disclose fully in its prospectus the Rule 18f-1 reservation and election, how the securities will be valued, and the possibility that its shareholders will incur brokerage commissions in selling the securities.

NOTE

Authority cited: Section 25610, Corporations Code. Reference: Section 25140, Corporations Code.

HISTORY

1. New section filed 5-3-83; effective thirtieth day thereafter (Register 83, No. 19).

Subarticle 9. Real Estate Investment Trusts

§260.140.90. Amendment of Declaration of Trust.

Note • History

The declaration of trust should provide that no amendment thereto may be made unless approved by the vote or written consent of the holders of a majority of the voting securities of the trust; except that no amendment which would change any rights with respect to any outstanding class of securities of the trust, by reducing the amount payable thereon upon liquidation of the trust, or by diminishing or eliminating any voting rights pertaining thereto, may be made unless approved by the vote or written consent of the holders of two-thirds of the outstanding securities of such class.

NOTE

Authority cited: Section 25610, Corporations Code. Reference: Section 25140, Corporations Code.

HISTORY

1. Repealer and renumbering and amendment of former Section 260.140.91 to Section 260.140.90 filed 1-28-82; effective thirtieth day thereafter (Register 82, No. 5).

§260.140.91. Minimum Net Capital.

Note • History

Prior to the initial public offering, the adjusted net worth of the trust shall be no less than the lower of (a) 10% of the adjusted net worth upon completion of such public offering, or (b) $200,000. The adjusted net worth of the trust shall not be less than $1 million upon completion of the initial public offering. “Adjusted net worth” shall mean the amount obtained by subtracting the trust's total liabilities from its total assets as adjusted. The total asset figure used shall be calculated by deduction of any reasonable reserves but before provision for depreciation. All figures used shall be as shown on the trust's books in accordance with generally accepted accounting principles.

NOTE

Authority cited: Section 25610, Corporations Code. Reference: Section 25140, Corporations Code.

HISTORY

1. Renumbering and amendment of Section 260.140.91 to Section 260.140.90, and renumbering and amendment of former Section 260.140.93 to Section 260.140.91 filed 1-28-82; effective thirtieth day thereafter (Register 82, No. 5).

§260.140.92. Annual Expenses.

Note • History

The total operating expenses of the trust during each fiscal year shall not exceed the greater of (i) 2% of its average invested assets, or (ii) 25% of its net income for such year. The investment advisor shall reimburse the trust within sixty days after the end of each fiscal year for the amount by which operating expenses of the trust for such period exceeded the limit permitted. “Average invested assets” shall mean the average of the aggregate book value of the assets of the trust invested, directly or indirectly, in equity interests in and loans secured by real estate, before reserves for depreciation or bad debts or similar non-cash reserves computed by taking the average of such values at the end of each month during such period. “Net income” shall mean the total revenues for such period, less the expenses applicable to such period other than additions to reserves for depreciation or bad debts or other similar non-cash reserves. “Total operating expenses” for any period shall mean all cash operating expenses, including additional expenses paid by third parties to the advisor and its affiliates based upon its relationship with the trust, including loan administration, servicing, engineering, inspection and all other expenses paid by the trust, except the expenses related to raising capital, for interest, taxes and direct property acquisition, operation and management costs.

NOTE

Authority cited: Section 25610, Corporations Code. Reference: Section 25140, Corporations Code.

HISTORY

1. Repealer and new section filed 1-28-82; effective thirtieth day thereafter (Register 82, No. 5).

2. Amendment filed 2-11-85; effective thirtieth day thereafter (Register 85, No. 7).

§260.140.93. Investments and Activities.

Note • History

The investment policy intended to be followed shall be stated in the declaration of trust in reasonable detail. The declaration of trust shall provide that the trust will not engage in any of the following investment practices or activities:

(a) Invest in commodities or commodity future contracts.

(b) Invest more than 10% of its total assets in unimproved real property or indebtedness secured by a deed of trust or mortgage loans on unimproved real property.

(c) Invest in indebtedness (herein called “junior debt”) secured by a mortgage on real property which is subordinate to the lien of other indebtedness (herein called “senior debt”), except where the amount of such junior debt, plus the outstanding amount of the senior debt, does not exceed 90% of the appraised value of such property, if after giving effect thereto, the value of all such investments of the trust (as shown on the books of the trust in accordance with generally accepted accounting principles after all reasonable reserves but before provision for depreciation) would not then exceed 25% of trust tangible assets. The value of all investments in junior debt of the trust which does not meet the aforementioned requirements would be limited to 10% of the trust's tangible assets (which would be included within the 25% limitation).

(d) Invest in contracts for the sale of real estate.

(e) Engage in any short sale, or borrow, on an unsecured basis, if such borrowing will result in an asset coverage of less than 300%, except that such borrowing limitation shall not apply to a first mortgage trust. “Asset coverage,” for the purpose of this section, means the ratio which the value of the total assets of an issuer, less all liabilities and indebtedness except indebtedness for unsecured borrowings, bears to the aggregate amount of all unsecured borrowings of such issuer.

(f) Engage in trading, as compared with investment activities.

(g) Acquire securities in any company holding investments or engaging in activities prohibited by this section.

(h) Engage in underwriting or the agency distribution of securities issued by others.

NOTE

Authority cited: Section 25610, Corporations Code. Reference: Section 25140, Corporations Code.

HISTORY

1. Renumbering and amendment of Section 260.140.93 to Section 260.140.91, and renumbering and amendment of former Section 260.140.95 to Section 260.140.93 filed 1-28-82; effective thirtieth day thereafter (Register 82, No. 5). For prior history, see Register 69, No. 20.

§260.140.94. Investment Advisory Contract.

Note • History

The declaration of trust shall provide for the following. It is the duty of the trustees to evaluate the performance of the advisor before entering into or renewing an advisory contract. The criteria used in such evaluation shall be reflected in the minutes of such meeting. Each contract for the services of an advisor entered into by the trustees shall have a term of no more than one year. Each advisory contract shall be terminable by a majority of the trustees who are not affiliated with, officers, directors or employees of the investment advisor or any affiliated business entity of such advisor. Each advisory contract shall be terminable by the advisor. Termination may be without cause. At least 60 days written notice shall be given by the party wishing to terminate the contract. In the event of the termination of such contract, the advisor will cooperate with the trust and take all reasonable steps requested to assist the trustees in making an orderly transition of the advisory function. The qualifications of the advisor shall be set forth in the prospectus relating to the initial public offering of the shares and the trustees shall determine that any successor advisor possesses sufficient qualifications (i) to perform the advisory function for the trust, and (ii) to justify the compensation provided for in its contract with the trust.

NOTE

Authority cited: Section 25610, Corporations Code. Reference: Section 25140, Corporations Code.

HISTORY

1. Amendment filed 5-14-69; effective thirtieth day thereafter (Register 69, No. 20).

2. Repealer and renumbering and amendment of former Section 260.140.96 to Section 260.140.94 filed 1-28-82; effective thirtieth day thereafter (Register 82, No. 5).

§260.140.95. Number and Election of Trustees.

Note • History

A real estate investment trust should have a minimum of three trustees, all of whom are elected annually by the security holders of the trust. A trustee may be removed from office without cause by the vote or written consent of the holders of a majority of the outstanding securities of the trust.

NOTE

Authority cited: Section 25610, Corporations Code. Reference: Section 25140, Corporations Code.

HISTORY

1. Amendment of subsection (e) filed 5-14-69; effective thirtieth day thereafter (Register 69, No. 20).

2. Renumbering and amendment of Section 260.140.95 to Section 260.140.93, and renumbering and amendment of former Section 260.140.97 to Section 260.140.95 filed 1-28-82; effective thirtieth day thereafter (Register 82, No. 5).

§260.140.96. Terms and Conditions of Securities.

Note • History

The declaration of trust shall not permit the issuance by the trust of:

(a) Securities which are non-voting or assessable.

(b) Securities which are redeemable at the option of the holder.

(c) Warrants, options or similar evidences of a right to buy its securities, unless (1) issued to all of its security holders ratably, (ii) as part of a financing arrangement, or (iii) as part of a stock option plan to trustees, officers or employees of the trust which meets the conditions of Section 260.140.41 of those rules.

NOTE

Authority cited: Section 25610, Corporations Code. Reference: Section 25140, Corporations Code.

HISTORY

1. Renumbering and amendment of Section 260.140.96 to Section 260.140.94, and renumbering and amendment of former Section 260.140.99 to Section 260.140.96 filed 1-28-82; effective thirtieth day thereafter (Register 82, No. 5).

§260.140.97. Meetings.

Note • History

The declaration of trust shall provide that at least once a year, after reasonable notice has been given, the trust will hold a meeting of security holders at a location convenient to the security holders. This annual meeting shall be held on a date which is a reasonable period of time following the distribution of the annual report referred to in Section 260.140.98 of these rules. Special meetings of the shareholders may be called at any time by a majority of the trustees and shall be called by the trustees upon the written request of shareholders holding not less than 10% of the outstanding shares.

NOTE

Authority cited: Section 25610, Corporations Code. Reference: Section 25140, Corporations Code.

HISTORY

1. Renumbering and amendment of Section 260.140.97 to Section 260.140.95, and renumbering and amendment of former Section 260.140.100 to Section 260.140.97 filed 1-28-82; effective thirtieth day thereafter (Register 82, No. 5).

§260.140.98. Annual Reports.

Note • History

The declaration of trust should provide that at least once a year, within 120 days after the close of its fiscal year, the trustees will distribute to each security holder an annual report relating to the prior fiscal year.

NOTE

Authority cited: Section 25610, Corporations Code. Reference: Section 25140, Corporations Code.

HISTORY

1. Repealer and renumbering and amendment of former Section 260.140.101 to Section 260.140.98 filed 1-28-82; effective thirtieth day thereafter (Register 82, No. 5).

§260.140.99. Inspection of Records.

Note • History

Inspection of books and records by shareholders shall be permitted to the same extent as permitted under law applicable to shareholders of a corporation organized in the jurisdiction in which the trust is organized.

NOTE

Authority cited: Section 25610, Corporations Code. Reference: Section 25140, Corporations Code.

HISTORY

1. Renumbering and amendment of Section 260.140.99 to Section 260.140.96, and renumbering and amendment of former Section 260.140.102 to Section 260.140.99 filed 1-28-82; effective thirtieth day thereafter (Register 82, No. 5). For prior history, see Register 78, No. 12.

§260.140.100. Disclosure on Distribution.

Note • History

The declaration of trust should provide that any distribution to security holders of income or capital assets of the trust will be accompanied by a written statement disclosing the source of the funds distributed. If, at the time of distribution, this information is not available, it should be provided that a written explanation of the relevant circumstances will accompany the distribution and the written statement disclosing the source of the funds distributed will be sent to the security holders not later than 60 days after the close of the fiscal year in which the distribution was made.

NOTE

Authority cited: Section 25610, Corporations Code. Reference: Section 25140, Corporations Code.

HISTORY

1. Renumbering and amendment of Section 260.140.100 to Section 260.140.97, and renumbering and amendment of former Section 260.140.103 to Section 260.140.100 filed 1-28-82; effective thirtieth day thereafter (Register 82, No. 5).

§260.140.101. Termination of Trust.

Note • History

A trust should be subject to termination at any time by the vote or written consent of the holders of a majority of the securities of the trust.

NOTE

Authority cited: Section 25610, Corporations Code. Reference: Section 25140, Corporations Code.

HISTORY

1. Renumbering and amendment of Section 260.140.101 to Section 260.140.98, and renumbering and amendment of former Section 260.140.104 to Section 260.140.101 filed 1-28-82; effective thirtieth day thereafter (Register 82, No. 5).

§260.140.102. Transactions with Affiliates.

Note • History

Trustees occupy a fiduciary relationship with respect to transactions entered into by the trust. Consequently, the declaration of trust shall provide that the trust shall not engage in transactions with any trustee, director, officer, or any person affiliated with such person, except to the extent that each such transaction has, after disclosure of such affiliation, been approved or ratified by the affirmative vote of a majority of the trustees not affiliated with the person who is party to the transaction and:

(a) The transaction is fair and reasonable to the trust and its shareholders.

(b) The terms of such transaction are at least as favorable as the terms of any comparable transactions made on arms length basis and known to the trustees.

(c) The total consideration is not in excess of the appraised value of the property being acquired, if an acquisition is involved.

(d) Payments to the investment advisor, its affiliates and the trustees for services rendered in a capacity other than that as investment advisor or trustees may only be made upon a determination that:

(1) The compensation is not in excess of their compensation paid for any comparable services; and

(2) The compensation is not greater than the charges for comparable services available from others who are competent and not affiliated with any of the parties involved.

NOTE

Authority cited: Section 25610, Corporations Code. Reference: Section 25140, Corporations Code.

HISTORY

1. Amendment filed 3-20-78; effective thirtieth day thereafter (Register 78, No. 12).

2. Renumbering and amendment of Section 260.140.102 to Section 260.140.99, and new Section 260.140.102 filed 1-28-82; effective thirtieth day thereafter (Register 82, No. 5).

§260.140.103. Limitation on Borrowing.

Note • History

The declaration of trust shall provide that, unless at least 80% of the trust's tangible assets are comprised of first mortgage loans, the trust may not incur any indebtedness which would result in an aggregate amount of indebtedness in excess of 300% of the adjusted net worth, as defined in Section 260.140.91 of these rules.

NOTE

Authority cited: Section 25610, Corporations Code. Reference: Section 25140, Corporations Code.

HISTORY

1. Renumbering and amendment of Section 260.140.103 to Section 260.140.100, and new Section 260.140.103 filed 1-28-82; effective thirtieth day thereafter (Register 82, No. 5).

§260.140.104. Termination of Trust.

Note • History

NOTE

Authority cited: Section 25610, Corporations Code. Reference: Section 25140, Corporations Code.

HISTORY

1. Renumbering and amendment to Section 260.140.101 filed 1-28-82; effective thirtieth day thereafter (Register 82, No. 5).

Subarticle 10. Real Estate Programs

INTRODUCTION

§260.140.110.1. Application.

Note • History

(a) The guidelines contained in these Rules apply to qualifications of real estate programs in the form of limited partnerships (also referred to herein as “programs” or “partnerships”) and will be applied by analogy to real estate programs in other forms. While applications not conforming to the standards contained herein shall be looked upon with disfavor, where good cause is shown certain guidelines may be modified or waived by the Commissioner.

(b) Where the individual characteristics of specific programs warrant modification from these standards, they will be accommodated, insofar as possible, while still being consistent with the spirit of these Rules.

(c) As part of the application for qualification of a real estate program, a cross reference sheet shall be submitted showing the location in the prospectus, partnership agreement or other exhibits of compliance with, or variance from, all of the provisions of these Rules. The cross reference sheet shall contain a concise statement explaining and justifying each variance from these Rules. If any of these Rules are inapplicable, a statement to that effect shall be made in the cross reference sheet.

(d) Where these guidelines conflict with requirements of the Securities and Exchange Commission, the guidelines will not apply.

NOTE

Authority cited: Section 25610, Corporations Code. Reference: Section 25140, Corporations Code.

HISTORY

1. Repealer of Subarticle 10 (260.140.110 through 260.140.115) and new Subarticle 10 (sections 260.140.110.1 through 260.140.118.5, not consecutive) filed 4-10-73; effective thirtieth day thereafter (Register 73, No. 15).

2. Repealer of Subarticle 10 ( §§ 260.140.110.1 through 260.140.118.5, not consecutive) and new Subarticle 10 ( §§ 260.140.110.1 through 260.140.119.1, not consecutive) filed 6-20-73 as an emergency; effective upon filing (Register 73, No. 25).

3. Certificate of Compliance filed 10-17-73 (Register 73, No. 42).

4. Amendment filed 1-27-84; effective thirtieth day thereafter (Register 84, No. 4).

5. Amendment of subsections (a) and (c) filed 5-18-92; operative 6-17-92 (Register 92, No. 22).

§260.140.110.2. Definitions.

Note • History

(a) Acquisition Expenses--expenses including but not limited to legal fees and expenses, travel and communication expenses, cost of appraisals, non-refundable option payments on property not acquired, accounting fees and expenses, title insurance, and miscellaneous expenses related to selection and acquisition of properties, whether or not acquired.

(b) Acquisition Fee--the total of all fees and commissions paid by any party in connection with the purchase or development of property by a program, except a development fee paid to a person not affiliated with a sponsor, in connection with the actual development of a project after acquisition of the land by the program. Included in the computation of such fees or commissions shall be any real estate commission, acquisition fee, selection fee, development fee, non-recurring management fee, or any fee of a similar nature, however designated.

(1) any person directly or indirectly controlling, controlled by or under common control with such person,

(2) any person owning or controlling 10% or more of the outstanding voting securities or beneficial interests of such person,

(3) any officer, director, partner, or trustee of, anyone acting in a substantially similar capacity with respect to, such person,

(4) any person who is an officer, director, partner, trustee, or holder of 10% or more of the voting securities or beneficial interests of any of the foregoing; and

(5) any entity of which any of the foregoing is an officer, director, partner, or trustee, or with respect to which such person serves in a substantially similar capacity.

(d) Appraised Value--value according to an appraisal made by an independent qualified appraiser. Such qualification may be demonstrated by membership in a nationally recognized appraisal society such as Member Appraisal Institute (“M.A.I.”), Society of Real Estate Appraisers (“S.R.E.A.”), or their equivalent, but is not limited thereto.

(e) Assessments--additional amounts of capital which may be required to be paid or paid at the option of a limited partner beyond the limited partner's subscription commitment excluding mandatory deferred payments.

(f) Audited Financial Statements--financial statements (balance sheet, statement of income, statement of partners' equity, and statement of cash flows) prepared in accordance with generally accepted accounting principles and accompanied by an independent auditor's report containing:

(1) an unqualified opinion,

(2) an opinion containing no material qualification or

(3) no explanatory paragraph relating to material uncertainties (except as to litigation) or going concern issues.

(g) Capital Contribution--the gross amount of investment in a program by a participant, or all participants as the case may be. Unless otherwise specified, capital contribution shall include principal amounts to be received on account of mandatory deferred payments.

(h) Cash Available for Distribution from Operations--program cash funds provided from operations, including lease payments on net leases from builders and sellers, without deduction for depreciation, but after deducting cash funds used to pay all other expenses, debt payments, capital improvements, amounts set aside for restoration or creation of reserves, and replacements.

(i) Cash Available From Sale and Refinancing--program cash funds provided from a sale, financing or refinancing of property less the amount necessary for the payment of all debts and obligations of the partnership related to the particular property, the expenses incurred in the sale, financing or refinancing, and amounts set aside for restoration or creation of reserves.

(j) Competitive Real Estate Commission--a real estate or brokerage commission paid for the purchase or sale of property which is reasonable, customary and competitive in light of the size, type and location of the property.

(k) Construction Fee--a fee for acting as general contractor to construct improvements on a program's property either initially or at a later date.

(l) Development Fee--a fee for the packaging of a program's property, including negotiating and approving plans, and undertaking to assist in obtaining zoning and necessary variances and necessary financing for the specific property, either initially or at a later date.

(m) Mandatory Deferred Payments--deferred payments on account of the purchase price of program interests offered in accordance with 17 Code of Federal Regulations 240.3a12-9.

(n) Net Worth--the excess of total assets over total liabilities as determined by generally accepted accounting principles, except that if any of such assets have been depreciated, then the amount of depreciation relative to any particular asset may be added to the depreciated cost of such asset to compute total assets, provided that the amount of depreciation may be added only to the extent that the amount resulting after adding such depreciation does not exceed the fair market value of such asset.

(o) Non-Specified Property Program--a program where, at the time the qualification becomes effective, 75% or less of the net proceeds from the sale of program interests is allocable to the purchase, construction, or improvement of specific properties, or a program in which the proceeds from any sale or refinancing of properties may be reinvested. Reserves shall be included in the non-specified portion. Net proceeds shall include principal amounts to be received on account of mandatory deferred payments.

(p) Organization and Offering Expenses--actual expenses incurred in connection with and in preparing a program for qualification and subsequently offering and selling program interests, including, but not limited to, sales commissions paid to broker-dealers in connection with the distribution of program interests and all advertising expenses related to the offer and sale of program interests.

(q) Participant--the holder of a program interest.

(r) Person--any individual, corporation, partnership, joint venture, association, joint stock company, trust, unincorporated organization, or other legal entity.

(s) Program--any organization, other than a corporation or a real estate investment trust, which has as a primary purpose the investment in, operation of, or receipt of gain from an interest in real property.

(t) Program Interest--a limited partnership unit or other indicia of ownership in a program.

(u) Program Management Fee--a fee paid to the sponsor or other persons for management and administration of the program.

(v) Property Management Fee--the fee paid for professional property management services in connection with a program's real property projects.

(w) Prospectus--shall have the meaning given to that term by Section 2(10) of the Securities Act of 1933, including a preliminary prospectus; provided, however, that such term as used herein shall also include an offering circular as described in Rule 256 of the General Rules and Regulations under the Securities Act of 1933 or, in the case of an intrastate offering, any document by whatever name known, utilized for the purpose of offering and selling securities to the public.

(x) Purchase Price--means the total consideration paid for a property, including acquisition fees and all liens and mortgages on the property, but excluding points and prepaid interest.

(y) Specified Property Program--a program other than a non-specified property program.

(z) Sponsor--any person directly or indirectly instrumental in organizing, wholly or in part, a program or any person who will manage or participate in the management of a program, including the general partner(s) and any affiliate of any such person, but does not include a person whose only relation with the program is that of an independent property manager, whose only compensation is as such. “Sponsor” does not include wholly independent third parties such as attorneys, accountants, and underwriters whose only compensation is for professional services rendered in connection with the offering of program interests.

NOTE

Authority cited: Section 25610, Corporations Code. Reference: Section 25140, Corporations Code.

HISTORY

1. Amendment filed 3-12-74; effective thirtieth day thereafter (Register 74, No. 11).

2. Amendment filed 1-27-84; effective thirtieth day thereafter (Register 84, No. 4).

3. New subsections (a), (e), (m), (p)(q), (t) and subsection amendment and relettering filed 5-18-92; operative 6-17-92 pursuant to Government Code section 11346.2(d) (Register 92, No. 22).

4. Change without regulatory effect amending subsections (a), (c)(5), (e) and (j) filed 9-25-2002 pursuant to section 100, title 1, California Code of Regulations (Register 2002, No. 39).

REQUIREMENTS OF SPONSORS

§260.140.111.1. Experience.

Note • History

The general partner or, if the general partner is not an individual, the principal operating officer of such general partner shall have at least two years relevant real estate or other experience demonstrating the knowledge and experience to acquire and manage the type of properties being acquired, and such persons or any affiliate providing services to the program shall have had not less than four years relevant experience in the kind of service being rendered or otherwise must demonstrate sufficient knowledge and experience to perform the services proposed.

NOTE

Authority cited: Section 25610, Corporations Code. Reference: Section 25140, Corporations Code.

HISTORY

1. Amendment filed 1-27-84; effective thirtieth day thereafter (Register 84, No. 4).

2. Amendment filed 5-18-92; operative 6-17-92 (Register 92, No. 22).

§260.140.111.2. Net Worth Requirement of General Partner.

Note • History

(a) The financial condition of the general partner(s) must be commensurate with any financial obligations assumed in the offering and in the operations of the program. At a minimum, the general partner(s) shall have an aggregate financial net worth of the lesser of (a) $1,000,000 or (b) the greater of either (1) $100,000 or (2) an amount at least equal to 5% of the gross amount of all offerings sold within the prior twelve months plus 5%of the gross amount of the current offering. The gross amount of offerings includes amounts to be received on account of mandatory deferred payments. Evaluation will be made of contingent liabilities and the use of promissory notes to determine the appropriateness of their inclusion in determining net worth. The Commissioner may require the general partner(s) to present evidence of ability to maintain this net worth for a period of 3 years after completion of the offering.

(b) If promissory notes are used to satisfy the net worth requirements of this Section, the application shall include a copy of the note(s) and financial statements of the maker demonstrating the maker's ability to satisfy the terms of the note. Such financial statements shall comply with paragraphs (b), (c) and (d) of Section 260.140.118.4, provided that, if permitted by the Commissioner, the financial statements of the maker need not be included in the prospectus. The Commissioner may require the note(s) to contain such terms and conditions as may be necessary to assure that the note is an enforceable obligation of the maker, including requiring the maker to waive all defenses in any action to enforce the notes and requiring the note to be full recourse obligation of the maker.

NOTE

Authority cited: Section 25610, Corporations Code. Reference: Section 25140, Corporations Code.

HISTORY

1. Amendment filed 3-12-74; effective thirtieth day thereafter (Register 74, No. 11).

2. Amendment filed 1-27-84; effective thirtieth day thereafter (Register 84, No. 4).

3. Amendment and new subsection (b) filed 5-18-92; operative 6-17-92 (Register 92, No. 22).

4. Editorial correction of subsection (b) (Register 95, No. 48).

§260.140.111.3. Reports to the Commissioner.

Note • History

Each application for qualification shall contain a commitment, executed by the sponsor, to submit to the Commissioner upon request any report or statement required to be distributed to limited partners pursuant to Section 260.140.116.3.

NOTE

Authority cited: Section 25610, Corporations Code. Reference: Section 25140, Corporations Code.

HISTORY

1. Amendment filed 1-27-84; effective thirtieth day thereafter (Register 84, No. 4).

§260.140.111.4. Liability and Indemnification.

Note • History

(a) The program shall not provide for indemnification of the sponsor for any liability or loss suffered by the sponsor, nor shall it provide that the sponsor be held harmless for any loss or liability suffered by the program, unless all of the following conditions are met:

(1) the sponsor has determined, in good faith, that the course of conduct which caused the loss or liability was in the best interests of the program, and

(2) the sponsor was acting on behalf of or performing services for the program, and

(3) such liability or loss was not the result of gross negligence or gross misconduct by the sponsor, and

(4) such indemnification or agreement to hold harmless is recoverable only out of the assets of the program and not from the participants.

(b) Notwithstanding paragraph (a) of this Section, the sponsor shall not be indemnified for any losses, liabilities or expenses arising from or out of an alleged violation of federal or state securities laws unless either:

(1) there has been a successful adjudication on the merits of each count involving alleged securities law violations as to the particular indemnitee, or

(2) such claims have been dismissed with prejudice on the merits by a court of competent jurisdiction as to the particular indemnitee, or

(3) a court of competent jurisdiction approves a settlement of the claims against a particular indemnitee and finds that indemnification of the settlement and related costs should be made; and prior to seeking such approval, the court has been apprised of the position of the Commissioner and the SEC with respect to indemnification for securities laws violations.

(c) The program may not incur the cost of that portion of liability insurance that insures the sponsor for any liability for which the sponsor is prohibited from being indemnified under this Section.

(d) Provision for advancement from program funds to the sponsor for legal expenses and other costs incurred as a result of any legal action is permissible if the following conditions are satisfied:

(1) the legal action relates to acts or omissions with respect to the performance of duties or services on behalf of the program; and

(2) the legal action is initiated by a third party who is not a participant, or the legal action is initiated by a participant and a court of competent jurisdiction specifically approves such advancement; and

(3) the sponsor undertakes to repay the advanced funds to the program in cases in which such person is not entitled to indemnification hereunder.

NOTE

Authority cited: Section 25610, Corporations Code. Reference: Section 25140, Corporations Code.

HISTORY

1. Amendment filed 3-12-74; effective thirtieth day thereafter (Register 74, No. 11).

2. Amendment filed 1-27-84; effective thirtieth day thereafter (Register 84, No. 4).

3. Amendment of subsection (a), repealer of subsection (b), and new subsections (b)-(d) filed 5-18-92; operative 6-17-92 (Register 92, No. 22).

§260.140.111.5. Fiduciary Duty.

Note • History

The program agreement shall provide that the sponsor shall have fiduciary responsibility for the safekeeping and use of all funds and assets of the program, whether or not in the sponsor's possession or control, and that the sponsor shall not employ, or permit another to employ such funds or assets in any manner except for the exclusive benefit of the program. In addition, the program shall not permit the participant to contract away the fiduciary duty owed to the participant by the sponsor under common law.

NOTE

Authority cited: Section 25610, Corporations Code. Reference: Section 25140, Corporations Code.

HISTORY

1. Renumbering and amendment of former section 260.140.118.1 to section 260.140.111.5 filed 1-27-84; effective thirtieth day thereafter (Register 84, No. 4).

2. Amendment filed 5-18-92; operative 6-17-92 (Register 92, No. 22).

§260.140.111.6. Terminated General Partner.

Note • History

Upon the occurrence of a terminating event, the partnership may be required to pay to the terminated general partner all amounts then accrued and owing to the terminated general partner. Additionally, the partnership may terminate the general partner's interest in partnership income, losses, distributions, and capital by payment of an amount equal to the then present fair market value of the terminated general partner's interest in said items determined by agreement of the terminated general partner and the partnership, or, if they cannot agree, by arbitration in accordance with the then current rules of the American Arbitration Association. The expense of arbitration shall be borne equally by the terminated general partner and the partnership. The fair market value of the terminated general partner's interest shall be the amount the terminated general partner would receive upon dissolution and termination of the partnership assuming that such dissolution or termination occurred on the date of the terminating event and the assets of the partnership were sold for their then fair market value without any compulsion on the part of the partnership to sell such assets.

The method of payment to the terminated general partner must be fair, and must protect the solvency and liquidity of the partnership. Where the termination is voluntary, the method of payment will be deemed presumptively fair where it provides for a non-interest bearing unsecured promissory note with principal payable, if at all, from distributions which the terminated general partner otherwise would have received under the partnership agreement had the general partner not terminated. Where the termination is involuntary, the method of payment will be deemed presumptively fair where it provides for an interest bearing promissory note coming due in no less than 5 years with equal installments each year.

NOTE

Authority cited: Section 25610, Corporations Code. Reference: Section 25140, Corporations Code.

HISTORY

1. New section filed 1-27-84; effective thirtieth day thereafter (Register 84, No. 4).

SUITABILITY OF THE PARTICIPANT

§260.140.112.1. Standards to Be Imposed.

Note • History

Given the limited transferability, lack of liquidity, and the risks associated with investments in real estate programs, the sponsor and each person selling program interests on behalf of the sponsor or program shall be cautious concerning the persons to whom such securities are marketed. Suitability standards will be imposed which are reasonable in view of the foregoing and the type of program to be offered. In determining how restrictive the suitability standards must be, the Commissioner will consider the type of program and the existence of such factors as high leverage, tax implications, mandatory deferred payments, balloon payment financing, excessive investments in unimproved land, and the prospect of uncertain or no cash available for distribution from operations. Programs which involve more than ordinary investor risk should emphasize suitability standards for investors of high net worth and/or income.

NOTE

Authority cited: Section 25610, Corporations Code. Reference: Section 25140, Corporations Code.

HISTORY

1. Amendment filed 1-27-84; effective thirtieth day thereafter (Register 84, No. 4).

2. Amendment filed 5-18-92; operative 6-17-92 (Register 92, No. 22).

3. Editorial correction (Register 95, No. 48).

§260.140.112.2. Sales to Appropriate Persons.

Note • History

The sponsor and each person selling program interests on behalf of the sponsor or program shall make every reasonable effort to assure that the persons being offered or sold program interests, by reason of their educational, business, or financial experience, can be reasonably assumed to have the capacity to understand the fundamental aspects of the program and meet the suitability standards imposed. The sponsor or its representatives shall ascertain that the investor can bear the economic risk of an investment in the program and that the program interests are appropriate for the investor's investment objectives, portfolio structure, and financial situation.

NOTE

Authority cited: Section 25610, Corporations Code. Reference: Section 25140, Corporations Code.

HISTORY

1. Amendment filed 1-27-84; effective thirtieth day thereafter (Register 84, No. 4).

2. Renumbering of former section 260.140.112.2 to section 260.140.112.3 and new section filed 5-18-92; operative 6-17-92 (Register 92, No. 22).

§260.140.112.3. Presumptive Suitability Standards.

Note • History

(a) Investors shall have a minimum annual gross income of $30,000 and a net worth of $30,000 or, in the alternative, a minimum net worth of $75,000. For programs offering mandatory deferred payments on account of the purchase price of program interests, investors shall ordinarily have a minimum annual gross income of $60,000 and a net worth of $60,000 or, in the alternative, a net worth of $225,000. In high-risk or principally tax-oriented offerings, higher suitability standards may be required. In low-risk or non-tax-oriented offerings, lower suitability standards may be allowed.

(b) The Commissioner may approve any offering on a basis other than that permitted in these rules where the investor has a minimum net worth of up to $250,000 and had during the last tax year, or estimates that the investor will have during the current tax year, gross income of $65,000 or, in the alternative, a minimum net worth of up to $500,000. In the case of such offerings, the Commissioner may require a statement signed by the investor acknowledging the manner in which the program varies from these rules.

(c) Net worth shall be determined exclusive of home, home furnishings and automobiles. Assets included in the computation of net worth may be valued at fair market value.

(d) In the case of sales to fiduciary accounts, the suitability standards shall be met by each beneficiary of the account. Where the fiduciary is the donor of the funds for investment in the program the fiduciary may meet the suitability standards. If the only beneficiaries of the fiduciary account are the donor's ancestors, descendants or spouse, the suitability standards may be met by the donor to the account.

NOTE

Authority cited: Section 25610, Corporations Code. Reference: Section 25140, Corporations Code.

HISTORY

1. Amendment filed 1-27-84; effective thirtieth day thereafter (Register 84, No. 4).

2. Renumbering and amendment of former section 260.140.112.2 to section 260.140.112.3 and renumbering of former section 260.140.112.3 to section 260.140.112.4 filed 5-18-92; operative 6-17-92 (Register 92, No. 22).

§260.140.112.4. Maintenance of Records.

Note • History

The sponsor shall maintain for at least 4 years a record of the information obtained to determine that an investor meets the suitability standards imposed on the offer and sale of program interests and a representation of the investor that the investor is investing for the investor's own account or, in lieu of such representation, information indicating that the investor for whose account the investment was made met the suitability standards. Where the offering is underwritten or sold by a broker-dealer, the sponsor shall obtain a commitment from the broker-dealer to maintain the same record of information required of the sponsor.

NOTE

Authority cited: Section 25610, Corporations Code. Reference: Section 25140, Corporations Code.

HISTORY

1. Repealer filed 1-27-84; effective thirtieth day thereafter (Register 84, No. 4).

2. Renumbering of section 260.140.112.3 to section 260.140.112.4 filed 5-18-92; operative 6-17-92 (Register 92, No. 22).

§260.140.112.5. Presumptive Suitability Standards.

History

HISTORY

1. Repealer filed 1-27-84; effective thirtieth day thereafter (Register 84, No. 4). FEES--COMPENSATION--EXPENSES

§260.140.113.1. Fees, Compensation and Expenses to be Reasonable.

Note • History

(a) The total amount of consideration of all kinds which may be paid directly or indirectly to all persons shall be reasonable.

(b) Except for the promotional interests and program management fees permitted by Sections 260.140.113.5 and 260.140.113.6 hereof, and subject to all other prohibitions and requirements contained in these Rules, consideration may only be paid for reasonable and necessary goods, property or services.

(c) The Prospectus must fully disclose and itemize all consideration which may be received from the program directly or indirectly by the sponsor, its affiliates and underwriters, what the consideration is for, and how and when it will be paid. This information shall be set forth in one location in tabular form.

NOTE

Authority cited: Section 25610, Corporations Code. Reference: Section 25140, Corporations Code.

HISTORY

1. New section filed 5-18-92; operative 6-17-92 (Register 92, No. 22).

§260.140.113.2. Organization and Offering Expenses.

Note • History

All organization and offering expenses incurred in connection with the sale of program interests shall not exceed 15% of aggregate capital contributions. The percentage limitation shall be applied only to the portion of aggregate capital contributions when and as paid to the program. For purposes of this Section, capital contributions shall include mandatory deferred payments only as such amounts are paid to the program.

NOTE

Authority cited: Section 25610, Corporations Code. Reference: Section 25140, Corporations Code.

HISTORY

1. Amendment filed 1-27-84; effective thirtieth day thereafter (Register 84, No. 4).

2. Amendment filed 5-18-92; operative 6-17-92 (Register 92, No. 22).

3. Editorial correction (Register 95, No. 48).

§260.140.113.3. Compensation for Acquisition Services.

Note • History

Payment of an acquisition fee shall be reasonable and shall be payable only for services actually rendered and to be rendered directly or indirectly and subject to the following conditions:

(a) The total of all such compensation paid to everyone involved in the transaction by the program and/or any other person shall be deemed to be presumptively reasonable if it does not exceed the lesser of such compensation customarily charged in arms' length transactions by others rendering similar services as an ongoing public activity in the same geographical location and for comparable property or an amount equal to 18% of the gross proceeds of the offering. The acquisition fee to be paid to the sponsor shall be reduced to the extent that other real estate commissions, acquisition fees, finder's fees, or other similar fees or commissions are paid by any person in connection with the transaction. For purposes of this Section, gross proceeds of the offering shall include mandatory deferred payments only as such amounts are paid to the program.

(b) The limitation imposed in paragraph (a) of this Rule shall be applied separately to each acquisition, with the 18% maximum percentage computed on that portion of the proceeds (adjusted to include a pro rata amount of any organization and offering expenses) applicable to the property which is the subject of the transaction.

Within 30 days after completion of the last acquisition, the sponsor shall forward to the Commissioner a schedule, verified under penalty of perjury, reflecting:

(1) each acquisition made;

(2) the purchase price paid (not including acquisition fees);

(3) the aggregate of all acquisition fees paid on each transaction; and,

(4) a computation showing compliance with this Rule.

(c) The sponsor shall set forth on the face of the prospectus the amount of all acquisition fees which may be paid. This amount shall be expressed in both absolute dollars and as a percentage of the gross proceeds of the offering and may, in addition, be expressed as a percentage of the purchase price of the property.

(d) The purchase price of the program's properties shall not exceed the appraised value of the properties.

NOTE

Authority cited: Section 25610, Corporations Code. Reference: Section 25140, Corporations Code.

HISTORY

1. Amendment of subsection (c) filed 3-12-74; effective thirtieth day thereafter (Register 74, No. 11).

2. Amendment filed 1-27-84; effective thirtieth day thereafter (Register 84, No. 4).

3. Amendment filed 5-18-92; operative 6-17-92 (Register 92, No. 22).

4. Change without regulatory effect amending subsection (b) filed 9-25-2002 pursuant to section 100, title 1, California Code of Regulations (Register 2002, No. 39).

CONFLICTS OF INTEREST AND INVESTMENT(ln.l>RESTRICTIONS

§260.140.113.4. Payment for Acquisition Expenses.

Note • History

(a) Except as provided herein, payments by the program for acquisition expenses are subject to Section 260.140.114.5.

(b) The sponsor may be reimbursed for the actual cost of acquisition expenses consisting of goods or services provided to the program by persons who are unaffiliated with the sponsor if the acquisition expenses were incurred by the sponsor prior to the time that the program had funds available to pay such expenses directly.

(c) Notwithstanding paragraph (b) of this Section, the program may not directly pay or reimburse the sponsor for acquisition expenses consisting of salaries, fringe benefits, miscellaneous expenses related to the evaluation, selection or acquisition of properties, unless such expenses reduce the acquisition fees permitted to be paid by Section 260.140.113.3.

NOTE

Authority cited: Section 25610, Corporations Code. Reference: Section 25140, Corporations Code.

HISTORY

1. New section filed 5-18-92; operative 6-17-92 (Register 92, No. 22).

2. Renumbering of former section 260.140.113.4 to section 260.140.113.5 and new section filed 5-18-92; operative 6-17-92 (Register 92, No. 22).

§260.140.113.5. Promotional Interests and Program Management Fees.

Note • History

(a) An adequately subordinated interest in the program will be allowed as a promotional interest and program management fee, provided the amount or percentage of such interest is reasonable. Such interest will be considered adequately subordinated and presumptively reasonable if it is within the limitations expressed in either subparagraph below:

(1) An interest equal to 25% of distributions from any source remaining after payment to investors of an amount equal to 100% of capital contributions plus an amount equal to 6% of capital contributions per annum cumulative; or

(2) An interest equal to:

(A) 10% of distributions from cash available for distribution from operations; and

(B) 15% of distributions from cash available from sale and refinancing of properties remaining after payment to investors of an amount equal to 100% of capital contributions plus an amount equal to 6% of capital contributions per annum cumulative.

(b) For the purposes of this Section, the capital contributions of participants shall only be reduced by distributions to participants from cash available from sale and refinancing of program properties and distributions from reserves created from the proceeds of the offering.

(c) Dissolution and liquidation of the partnership. The distribution of assets upon dissolution and liquidation of the partnership shall conform to the applicable subordination provisions of subparagraphs (a)(1) and (a)(2)(B) herein, and appropriate language to this effect shall be included in the partnership agreement.

(d) The cumulative benefits required by subparagraphs (a)(1) and (a)(2)(B) herein, shall commence no later than the end of the calendar quarter in which the participant's capital contribution is made. A program may elect an earlier date if it so chooses.

NOTE

Authority cited: Section 25610, Corporations Code. Reference: Section 25140, Corporations Code.

HISTORY

1. Amendment filed 1-27-84; effective thirtieth day thereafter (Register 84, No. 4).

2. Renumbering and amendment of former section 260.140.113.4 to section 260.140.113.5 filed 5-18-92; operative 6-17-92 (Register 92, No. 22).

§260.140.113.6. Other Program Management Fees.

Note • History

(a) A general partner of a program owning unimproved land shall be entitled to annual compensation not exceeding 1/4 of 1% of the cost of such unimproved land for operating the program until such time as the land is sold or improvement of the land commences by the limited partnership. In no event shall this fee exceed a cumulative total of 2% of the original cost of the land regardless of the number of years held.

(b) A general partner of a program holding property in government subsidized projects shall be entitled to annual compensation not exceeding 1/2 of 1% of the cost of such property for operating the program until such time as the property is sold, provided the aggregate of all compensation received is consistent with the maximum allowed for nonsubsidized programs.

NOTE

Authority cited: Section 25610, Corporations Code. Reference: Section 25140, Corporations Code.

HISTORY

1. Amendment filed 3-12-74; effective thirtieth day thereafter (Register 74, No. 11).

2. Amendment filed 1-27-84; effective thirtieth day thereafter (Register 84, No. 4).

3. Renumbering of former section 260.140.113.6 to section 260.140.113.7 and renumbering of former section 260.140.113.5 to section 260.140.113.6 filed 5-18-92; operative 6-17-92 (Register 92, No. 22).

§260.140.113.7. Real Estate Brokerage Commissions on Resale of Property.

Note • History

The total compensation paid to all persons for the sale of a program property shall be limited to a competitive real estate commission, not to exceed 6% of the contract price for the sale of the property. If the sponsor provides a substantial amount of the services in the sales effort, the sponsor may receive up to one-half of the competitive real estate commission, not to exceed 3%, and subordinated as in Section 260.140.113.5(a) above. If the sponsor participates with an independent broker on resale, the subordination requirement shall apply only to the commission earned by the sponsor.

NOTE

Authority cited: Section 25610, Corporations Code. Reference: Section 25140, Corporations Code.

HISTORY

1. Amendment filed 1-22-75; effective thirtieth day thereafter (Register 75, No. 4).

2. Amendment filed 1-27-84; effective thirtieth day thereafter (Register 84, No. 4).

3. Renumbering and amendment of former section 260.140.113.6 to section 260.140.113.7 filed 5-18-92; operative 6-17-92 (Register 92, No. 22).

§260.140.113.8. Property Management Fee.

Note • History

(a) The sponsor may render property management services to the program provided such services are necessary to the prudent operation of the program and the sponsor maintains adequate staff to perform such services. Property management fees paid to the sponsor may not exceed the lesser of the fees set forth in subparagraphs (1) through (3) below or the fees which are competitive with amounts charged by unaffiliated parties for similar services in the same geographic location. Included in such fees shall be amounts paid for bookkeeping services and fees paid to persons unaffiliated with the sponsor for property management services.

(1) In the case of residential property, the maximum property management fee (including all rent-up, leasing, re-leasing fees and bonuses, and leasing related services, paid to any person) shall be 5% of the gross revenues from such property.

(2) In the case of industrial and commercial property, except as set forth in subparagraph (3) below, the maximum property management fee shall be 6% of the gross revenues from such leases where the sponsor performs leasing, re-leasing and leasing related services. The maximum property management fee from such leases shall be 3% of the gross revenues where the sponsor does not perform leasing, re-leasing, and leasing related services with respect to the property.

(3) In the case of industrial and commercial properties which are leased on a long term (ten or more years) net (or similar) basis, the maximum property management fee from such leases shall be 1% of the gross revenues, except for a one-time initial leasing fee of 3% of the gross revenues on each lease, which fee is payable over the first five full years of the original term of the lease.

(b) Any property management services for which the sponsor is to receive compensation shall be rendered pursuant to a written contract, fully disclosed in the prospectus, which precisely describes the services to be rendered and all compensation to be paid. Such contract shall provide that it may only be modified in any material respect by the vote of a majority in interest of limited partners. The contract shall contain a clause allowing termination without penalty on 60 days' notice.

NOTE

Authority cited: Section 25610, Corporations Code. Reference: Section 25140, Corporations Code.

HISTORY

1. New section filed 5-18-92; operative 6-17-92 (Register 92, No. 22).

2. Editorial correction moving “Conflicts of Interest and Investment Restrictions” subheading to section 260.140.114.1 (Register 92, No. 34).

§260.140.113.9. Insurance Services.

Note • History

The sponsor may provide insurance brokerage services in connection with obtaining insurance on the program's property so long as the cost of providing such service, including the cost of the insurance, is no greater than the lowest quote obtained from two unaffiliated insurance agencies and the coverage and terms are likewise comparable. In no event may such services be provided by the sponsor unless they are independently engaged in the business of providing such services to other than affiliates and at least 75% of their insurance brokerage service gross revenue is derived from other than affiliates.

NOTE

Authority cited: Section 25610, Corporations Code. Reference: Section 25140, Corporations Code.

HISTORY

1. New section filed 5-18-92; operative 6-17-92 (Register 92, No. 22).

§260.140.113.10. Asset Based Fee.

Note • History

(a) An asset based fee includes compensation to a sponsor computed in accordance with this section.

(b) A program may elect to compensate the sponsor according to the provisions of this section only if the program meets all of the following:

(1) The prospectus states that a primary investment objective of the program is to generate and to distribute to the participants the cash flow from the operation of the properties of the program.

(2) The anticipated life of the program does not exceed 20 years from the date the offering is declared effective by the Securities and Exchange Commission. However, the partnership agreement may provide that the program will be extended by the affirmative vote of a majority of the outstanding limited partnership interests.

(3) The program will invest not less than 82% of the capital contributions in the purchase, development construction or improvement of specific properties. The remaining capital contributions may be used to pay organization and offering expenses, acquisition expenses, acquisition fees, and any other related fees and expenses, provided such expenses and fees are reasonable in accordance with Sections 260.140.113.1, 260.140.113.2., 260.140.113.3. and 260.140.113.4. The total amount of organization and offering expenses, acquisition expenses, acquisition fees, and any other related fees and expenses, whenever paid, shall be limited to the initial amount of capital contributions not applied to the purchase, construction or improvement of specific properties. Not more than 3% of the capital contributions invested in the purchase, development, construction, or improvement of specific properties may be included as a working capital reserve.

(c) The annual asset based fee shall be 0.75% of the base amount. On capital contributions temporarily held while awaiting purchase, development, construction or improvement of specific properties, the asset based fee shall be 0.5% of those capital contributions. The sponsor may also be allowed the following additional fees and compensation:

(1) A property management fee as provided in Section 260.140.113.8.

(2) Real Estate Commissions as provided in Section 260.140.113.7.

(3) A promotional interest as provided in Section 260.140.113.5(a)(2)(B).

(4) Fees for insurance services as allowed by Section 260.140.113.9.

(5) Organization and offering expenses, acquisition expenses and acquisition fees as provided in subparagraph (b)(3).

(6) Reimbursement for program expenses as provided in Section 260.140.114.5.

(7) Fees, interest and other charges as allowed in Section 260.140.114.10(a).

(8) Except as provided above, the sponsor shall receive no fees or other compensation from the program.

(d) An election to compensate the sponsor with an asset based fee as provided in this section shall be subject to the following limitations:

(1) The program may reinvest the cash available from sale and refinancing of properties during the 7 years following the date of its effectiveness with the Securities and Exchange Commission. No deduction for organization and offering expenses, acquisition expenses, acquisition fees, and any other related fees and expenses, shall be allowed on such reinvestments. Beginning on a date 7 years after the date of effectiveness with the Securities and Exchange Commission, no reinvestment of the cash available from sale and refinancing of program properties shall be allowed.

(2) The asset based fee may be accrued without interest when program funds are not available for its payment. Any accrued asset based fee may be paid from the next cash available from sale and refinancing of properties. No asset based fee may be paid from program reserves.

(3) A sponsor that is terminated and entitled to compensation from the program as provided in the partnership documents and governed by Section 260.140.111.6 shall be paid the asset based fee through the date of such termination.

(4) Except as modified by this section, all other rules governing real estate programs shall apply where appropriate to programs electing an asset based fee.

(e) For purposes of this section, the base amount includes that portion of the capital contributions originally committed to the purchase, development, construction or improvement of specified properties without regard to leverage and including working capital reserves allowable under subsection (b). The base amount shall be recomputed annually by subtracting from the then fair market value of the program's real properties as determined by independent appraisals plus the working capital reserves allowable under subsection (b), an amount equal to the outstanding debt secured by the program's properties.

NOTE

Authority cited: Section 25610, Corporations Code. Reference: Section 25140, Corporations Code.

HISTORY

1. New section filed 5-18-92; operative 6-17-92 (Register 92, No. 22).

CONFLICTS OF INTEREST AND INVESTMENT RESTRICTIONS

§260.140.114.1. Sales, Leases and Loans.

Note • History

(a) Sales and Leases to Program. A program shall not purchase or lease property in which a sponsor has an interest unless:

(1) The transaction occurs at the formation of the program and is fully disclosed in its prospectus, and

(2) The property is sold upon terms fair to the program and at a price not in excess of its appraised value, and

(3) The cost of the property and any improvements thereon to the sponsor is clearly established. If the sponsor's cost was less than the price to be paid by the program, the price to be paid by the program will not be deemed fair, regardless of the appraised value, unless some material change has occurred to the property which would increase the value since the sponsor acquired the property. Material factors may include the passage of a significant amount of time (but in no event less than 2 years) the assumption by the promoter of the risk of obtaining a re-zoning of the property and its subsequent re-zoning, or some other extraordinary event which in fact increases the value of the property.

(4) The provisions of this paragraph notwithstanding, the sponsor may purchase property in its own name (and assume loans in connection therewith) and temporarily hold title thereto for the purpose of facilitating the acquisition of such property or the borrowing of money or obtaining of financing for the program, or completion of construction of the property, or any other purpose related to the business of the program, provided that such property is purchased by the program for a price no greater than the cost of such property to the sponsor, except for compensation permitted by Sections 260.140.113.3 and 260.140.114.6 hereof, and provided there is no difference in interest rates of the loans secured by the property at the time acquired by the sponsor and the time acquired by the program, nor any other benefit arising out of such transaction to the sponsor apart from compensation otherwise permitted by these Rules. Accordingly, all income and expenses allocable to the period during which the property was held by the sponsor shall be treated as belonging to the program upon the purchase of the property by the program.

In no event shall the program purchase property from the sponsor pursuant to this subparagraph (a)(4) if the sponsor has held the property for a period in excess of 12 months prior to commencement of the offering. The sponsor shall not sell property to the program pursuant to this subparagraph (a)(4) if the cost of the property exceeds the funds reasonably anticipated to be available to the program to purchase the property. The prospectus and program agreement shall set forth a reasonable and satisfactory methodology to be utilized for determining which properties will ultimately be transferred to the program when the cost of the property acquired by the sponsor on behalf of the program exceeds program funds available to purchase the property.

(5) Notwithstanding subparagraphs (a)(1) through (4) of this Section, the program may purchase property from a program formed by the sponsor upon exercise of the rights of first refusal required by Section 260.140.114.9. In such a case the cost of the property to the program shall not exceed its appraised value at the time such rights are exercised.

(b) Sales and Leases to Sponsor. A program shall not sell or lease property to the sponsor except as provided herein.

(1) The program may lease property to the sponsor pursuant to a lease-back arrangement made at the outset, the terms of which are fully disclosed in the prospectus and not less favorable to the program than those offered to and accepted by persons who are not affiliates of the sponsor.

(2) Not more than 10% of aggregate leasable space owned by the program may be under lease to the sponsor pursuant to terms not less favorable to the program than those offered to and accepted by persons who are not affiliates of the sponsor; provided that the sponsor may not sublet such properties unless all profits derived from such subleases in excess of rentals due on the master lease are paid to the program.

(3) A sponsor may purchase property (or contract rights related thereto) from the program only if all of the following criteria are met:

(A) The program does not have sufficient offering proceeds available to retain the property (or contract rights related thereto).

(B) The sponsor pays the program an amount in cash equal to the cost of the property (or contract rights) to the program (including all cash payments and carrying costs related thereto).

(C) The sponsor assumes all of the program's obligations and liabilities incurred in connection with the holding of the property (or contract rights) by the program.

(D) The sale to the sponsor occurs not later than 90 days following the termination date of the offering.

(E) A reasonable and satisfactory methodology to be used by the sponsor in determining which properties it will purchase in the event that the program's offering proceeds are insufficient to retain all properties must be fully disclosed in the prospectus.

(d) Dealings with Related Programs. A program shall not acquire property from a program in which the sponsor has an interest, except as permitted by Section 260.140.114.1(a)(5).

NOTE

Authority cited: Section 25610, Corporations Code. Reference: Section 25140, Corporations Code.

HISTORY

1. Amendment filed 5-18-92; operative 6-17-92 (Register 92, No. 22).

2. Editorial correction inserting “Conflicts of Interest and Investment Restrictions” subheading (Register 92, No. 34).

3. Change without regulatory effect amending subsections (c)-(d) filed 9-25-2002 pursuant to section 100, title 1, California Code of Regulations (Register 2002, No. 39).

4. Amendment of subsection (c) filed 9-23-2009; operative 10-23-2009 (Register 2009, No. 39).

§260.140.114.2. Exchange of Limited Partnership Interests.

Note • History

Ordinarily, a program may not acquire property in exchange for limited partnership interests. Such an exchange will be permitted if the property and specific terms of the transaction are identified in the prospectus and the property will be exchanged immediately upon effectiveness of the qualification. In addition, such exchange shall meet the following conditions:

(a) A provision for such exchange must be set forth in the partnership agreement, and appropriate disclosure as to tax effects of such exchange must be set forth in the prospectus;

(b) The property to be acquired must come within the objectives of the program;

(d) Each program interest must be valued at no less than market value if there is a market or if there is no market, at the fair market value of the program's assets as determined by an independent appraiser within the last 90 days, less its liabilities, divided by the number of program interests outstanding;

(e) No more than one-half of the interests issued by the program shall be issued in exchange for property;

(f) No securities sales or underwriting commissions shall be paid in connection with such exchange.

NOTE

Authority cited: Section 25610, Corporations Code. Reference: Section 25140, Corporations Code.

HISTORY

1. Amendment filed 1-27-84; effective thirtieth day thereafter (Register 84, No. 4).

2. Amendment and new subsections (a)-(f) filed 5-18-92; operative 6-17-92 (Register 92, No. 22).

3. Editorial correction of History 2 (Register 95, No. 12).

4. Change without regulatory effect amending subsection (e) filed 9-25-2002 pursuant to section 100, title 1, California Code of Regulations (Register 2002, No. 39).

§260.140.114.3. Exclusive Agreement.

A program shall not give a sponsor an exclusive right to sell or exclusive employment to sell property for the program.

§260.140.114.4. Commissions on Reinvestment.

Note • History

A program may pay a commission or fee to the sponsor in connection with any reinvestment provided the sum of such commission or fee and the acquisition fee received on the initial acquisition together do not exceed the limitations of Section 260.140.113.3 had the initial and subsequent purchase occurred simultaneously on a combined leverage basis not exceeding 80% of the purchase price of the properties.

NOTE

Authority cited: Section 25610, Corporations Code. Reference: Section 25140, Corporations Code.

HISTORY

1. Amendment filed 1-27-84; effective thirtieth day thereafter (Register 84, No. 4).

2. Amendment of section and heading filed 5-18-92; operative 6-17-92 (Register 92, No. 22).

§260.140.114.5. Program Expenses and Other Goods and Services Provided by the Sponsor.

Note • History

(a) All expenses of the program shall be billed directly to and paid by the program. Reimbursements to the sponsor may be permitted for the following:

(1) Organization and offering expenses subject to Section 260.140.113.2.

(2) Acquisition expenses subject to Section 260.140.113.4.

(3) The actual cost of goods and materials used for or by the program and obtained from unaffiliated persons.

(4) Administrative and transfer agency type services provided by the sponsor, such as legal, accounting, and investor communications services, which meet the following conditions:

(A) The sponsor undertakes to maintain an adequate staff to perform such services;

(B) Such services are necessary to the prudent operations of the program; and

(C) The price paid to the sponsor for such services does not exceed the lesser of the actual cost of such services to the sponsor or 90% of the competitive rate charged by unaffiliated persons rendering similar services in the same geographic location.

(5) The actual cost of on site property management personnel if such amounts are customarily reimbursed for similar property in the same geographical location in addition to payment of the property management fee permitted by Section 260.140.113.8 of these Rules and the sponsor is compensated for property management services pursuant to that Section. Such reimbursements may not exceed a competitive rate for comparable services for similar property in the same geographic location.

(b) No reimbursement shall be permitted for any services for which the sponsor is entitled to compensation by way of a separate fee. Excluded from allowable reimbursement shall be:

(1) Rent or depreciation, utilities, capital equipment, and other administrative items generally falling under the category of overhead; and

(2) Salaries, fringe benefits, travel expenses, and other administrative items incurred or allocated to any controlling persons of the sponsor.

(c) For purposes of this Section, controlling person includes, but is not limited to, any person, whatever their title, who performs functions for the sponsor similar to those for:

(1) Chairman or member of the Board of Directors;

(2) Executive management, such as the president, vice-president or senior vice-president, corporate secretary, and treasurer;

(3) Senior management, such as the vice-president of an operating division who reports directly to executive management; or

(4) Those holding 5% or more equity interest in the sponsor or a person having the power to direct or cause the direction of the sponsor, whether through the ownership of voting securities, by contract, or otherwise.

(d) Except as provided in Sections 260.140.113.3 through 260.140.113.9 and 260.140.114.6 and paragraph (a) of this Section, the sponsor may not provide other goods or services to the program unless all of the following conditions are satisfied:

(1) The goods or services are necessary to the prudent operation of the program.

(2) The goods or services must be provided at a price which does not exceed the lesser of the actual cost of such goods and services to the sponsor or 90% of the compensation, price or fee charged by unaffiliated persons for providing comparable goods or services on competitive terms in the same geographic location.

(3) The goods or services for which the sponsor is to receive compensation shall be embodied in a written contract, fully disclosed in the prospectus, which precisely describes the goods or services to be provided and all compensation to be paid. Such contract may only be modified in any material respect by the vote of a majority in interest of limited partners and shall be terminable without penalty on 60 days' notice.

(4) The sponsor must be previously engaged in the business of rendering such services, or providing such goods, independently of the program and as an ordinary and ongoing business.

(5) For purposes of this paragraph (d) only, the actual cost of services means the pro rata cost of personnel, including an allocation of overhead directly attributable to such personnel, based on the amount of time the personnel spent on such services, or other method of allocation acceptable to the program's certified public accountant. The actual cost of goods includes the price of goods and materials paid to unaffiliated persons, and direct costs incurred by the sponsor in the transaction, including an allocation of overhead directly attributable to the transaction. Actual cost shall exclude all of the items set forth in paragraph (b)(2) hereof, and the items set forth in paragraph (b)(1) hereof to the extent the items are not directly attributable to the rendering of such services.

(e) Notwithstanding paragraph (d) of this Section, the sponsor may provide other goods and services to the program in compliance with Section V.E.2. of the NASAA Statement of Policy on Real Estate Programs and the Comments thereto, as amended through October 12, 1988.

(f) The annual program report must contain a breakdown of the costs reimbursed to the sponsor. Within the scope of the annual audit of the sponsor's financial statement, the independent certified public accountants must verify the allocation of such costs to the program. The method of verification shall at minimum provide:

(A) A review of the time records of individual employees, the costs of whose services were reimbursed; and

(B) A review of the specific nature of the work performed by each such employee. The methods of verification shall be in accordance with generally accepted auditing standards and shall accordingly include such tests of the accounting records and such other auditing procedures which the sponsor's independent certified public accountants consider appropriate in the circumstance. The additional costs of such verification will be itemized by said accountants on a program by program basis and may be reimbursed to the sponsor by the program in accordance with this subparagraph only to the extent that such reimbursement when added to the cost for such goods and services does not exceed 90% of the competitive rate for such goods or services as determined above. The prospectus must disclose in tabular form an estimate of such proposed expenses for the next fiscal year together with a breakdown by year of such expenses reimbursed in each of the last five public programs formed by the sponsor.

NOTE

Authority cited: Section 25610, Corporations Code. Reference: Section 25140, Corporations Code.

HISTORY

1. Amendment filed 1-27-84; effective thirtieth day thereafter (Register 84, No. 4).

2. Repealer and new section filed 5-18-92; operative 6-17-92 (Register 92, No. 22).

§260.140.114.6. Development or Construction Contracts.

Note • History

The sponsor will not be permitted to construct or develop properties, or render any services in connection with such development or construction, unless all of the following conditions are satisfied:

(a) The transactions occur at the formation of the program.

(b) The specific terms of the development and construction of identifiable properties are ascertainable and fully disclosed in the prospectus.

(c) The purchase price to be paid by the program is based upon a firm contract price which in no event can exceed the sum of the cost of the land and the sponsor's cost of construction. For purposes of this subdivision, cost of construction includes the contractor or construction fee customarily paid for services as a general contractor, provided, however, that any overhead of the general contractor is not charged to the program or included in the cost of construction.

(d) In the case of construction, the only fees paid to the sponsor in connection with such project, other than a development fee, shall consist of a construction fee for acting as a general contractor, which fees must be comparable and competitive with the fee of unaffiliated persons rendering comparable services (excluding, however, any overhead of the contractor), and a real estate commission in connection with the acquisition of the land, if appropriate under the circumstances. Any such real estate commission shall be subject to the provisions of Section 260.140.113.3 of these Rules.

(e) In the case of both development and construction fees paid to the sponsor, the sponsor must comply with paragraphs (d)(2) and (3) of Section 260.140.114.5.

NOTE

Authority cited: Section 25610, Corporations Code. Reference: Section 25140, Corporations Code.

HISTORY

1. Amendment filed 1-27-84; effective thirtieth day thereafter (Register 84, No. 4).

2. Amendment of subsections (d) and (e) filed 5-18-92; operative 6-17-92 (Register 92, No. 22).

§260.140.114.7. Rebates, Kickbacks and Reciprocal Arrangements.

Note • History

(a) No rebates or give-ups may be received by the sponsor nor may the sponsor participate in any reciprocal business arrangements which would circumvent these Rules. Furthermore the prospectus and program agreement shall contain language prohibiting the above as well as language prohibiting reciprocal business arrangements which would circumvent the restrictions against dealing with the general partners or affiliates.

(b) No sponsor, underwriter, dealer or salesman of program interests shall directly or indirectly pay or award any finder's fees, commissions or other compensation to any person engaged by a potential investor for investment advice as an inducement to such advisor to advise the purchase of interests in the program; provided, however, that this clause shall not prohibit the normal sales commissions payable to a registered broker-dealer or other properly licensed person for selling program interests.

NOTE

Authority cited: Section 25610, Corporations Code. Reference: Section 25140, Corporations Code.

HISTORY

1. Amendment filed 1-27-84; effective thirtieth day thereafter (Register 84, No. 4).

2. Amendment filed 5-18-92; operative 6-17-92 (Register 92, No. 22).

§260.140.114.8. Commingling of Funds.

Note • History

The funds of a program shall not be commingled with the funds of any other person. Nothing contained in this Rule shall prohibit a sponsor from establishing a master fiduciary account pursuant to which separate subtrust accounts are established for the benefit of affiliated limited partnerships, provided that program funds are protected from claims of such other partnerships and/or creditors. The prohibition of this Rule shall not apply to investments meeting the requirements of Section 260.140.114.9.

NOTE

Authority cited: Section 25610, Corporations Code. Reference: Section 25140, Corporations Code.

HISTORY

1. Amendment filed 3-12-74; effective thirtieth day thereafter (Register 74, No. 11).

2. Amendment filed 1-27-84; effective thirtieth day thereafter (Register 84, No. 4).

3. Amendment filed 5-18-92; operative 6-17-92 (Register 92, No. 22).

§260.140.114.9. Investments in or With Other Programs.

Note • History

(a) The program shall be permitted to invest in general partnerships or joint ventures with non-affiliates that own and operate one or more particular properties if the program, alone or together with any publicly registered affiliate of the program meeting the requirements of paragraph (b) of this Section, acquires a controlling interest in such a general partnership or joint venture, but in no event shall duplicate fees be permitted. For purposes of this Section, “controlling interest” means an equity interest possessing the power to direct or cause the direction of the management and policies of the general partnership or joint venture, including the authority to:

(1) Review all contracts entered into by the general partnership or joint venture that will have a material effect on its business or property;

(2) Cause a sale or refinancing of the property or its interest therein subject in certain cases where required by the partnership or joint venture agreement, to limits as to time, minimum amounts and/or right of first refusal by the joint venture partner or consent of the joint venture partner;

(3) Approve budgets and major capital expenditures, subject to a stated minimum amount;

(4) Veto any sale or refinancing of the property, or, alternatively, to receive a specified preference on sale or refinancing proceeds; and

(5) Exercise a right of first refusal on any desired sale or refinancing by the joint venture partner of its interest in the property except for transfer to an affiliate of the joint venture partner.

(b) The program shall be permitted to invest in general partnerships or joint ventures with other publicly registered affiliates of the program if all of the following conditions are met:

(1) The programs have substantially identical investment objectives.

(2) There are no duplicate fees.

(3) The compensation to sponsors is substantially identical in each program.

(4) Each program must have a right of first refusal to buy if the other programs wish to sell property held in the joint venture.

(5) The investment of each program is on substantially the same terms and conditions.

(6) The prospectus must disclose the potential risk of impasse on joint venture decisions since no program controls and the potential risk that while a program may have the right to buy the property from the partnership or joint venture it may not have the resources to do so.

(c) The program shall be permitted to invest in general partnership or joint ventures with affiliates other than publicly registered affiliates of the program only under the following conditions: (1) the investment is necessary to relieve the sponsor from any commitment to purchase a property entered into in compliance with Section 260.140.114.1(a)(4) of these Rules prior to the closing of the offering period of the program; (2) there are no duplicate fees; (3) the investment of each entity is on substantially the same terms and conditions; (4) the program must have a right of first refusal to buy if the sponsor wishes to sell property held in the joint venture; and (5) the prospectus discloses the potential risk of impasse on joint venture decisions.

(d) Other than as specifically permitted in paragraphs (b) and (c) above, the program shall not be permitted to invest in general partnerships or joint ventures with affiliates.

(e) A program shall be permitted to invest in general partnership interests of limited partnerships only if the program, alone or together with any publicly registered affiliate of the program meeting the requirements of paragraph (b) above, acquires a “controlling interest” as defined in paragraph (a) of this Section, no duplicate fees are permitted, no additional compensation beyond that permitted by Sections 260.140.113.1 through 260.140.113.9 of these Rules shall be paid to the sponsor, and the program agreement shall comply with Sections 260.140.114.1 through 260.140.114.14.

(f) A program that is a limited partnership (the “Upper-Tier Partnership”) shall be permitted to invest in limited partnership interests of other limited partnerships (the “Lower-Tier Partnerships”) only if all of the following conditions are met:

(1) If the general partner of the Lower-Tier Partnership is a sponsor of the Upper-Tier Partnership, the program agreement of the Upper-Tier Partnership shall:

(A) Prohibit the program from investing in such Lower-Tier Partnership unless the partnership agreement of the Lower-Tier Partnership contains provisions required by Section 260.140.119.1 of these Rules and provisions acknowledging privity between the Lower-Tier general partner and the participants; and

(B) Provide that compensation payable in the aggregate from both levels shall not exceed the amounts permitted under Sections 260.140.113.1 through 260.140.113.9 of these Rules.

(2) If the general partner of the Lower-Tier Partnership is not a sponsor of the Upper-Tier Partnership, the program agreement of the Upper-Tier Partnership shall prohibit the program from investing in the Lower-Tier Partnership unless the partnership agreement of the Lower-Tier Partnership contains provisions complying with Sections 260.140.111.5 and 260.140.111.6; 260.140.115.5; 260.140.116.1 - 260.140.116.9; and 260.140.118.3; and shall provide that the compensation payable at both tiers shall not exceed the amounts permitted by Sections 260.140.113.1 - 260.140.113.9 herein.

(3) Each Lower-Tier Partnership shall have as its limited partners only publicly registered Upper-Tier Partnerships; provided, however, that special limited partners not affiliated with the sponsor shall be permitted if the interests taken result in no diminution in the control exercisable by the other limited partners.

(4) No program may be structured with more than two tiers.

(5) The program agreement of the Upper-Tier Partnership must contain a prohibition against duplicate fees.

(6) The program agreement of the Upper-Tier Partnership must provide that the limited partners of the Upper-Tier Partnership can, upon the vote of majority in interest and without the concurrence of the sponsor, direct the general partner of the Upper-Tier Partnership (acting on behalf of the Upper-Tier Partnership) to take any action permitted to a limited partner (e.g., the Upper-Tier Partnership) in the Lower-Tier Partnership.

(7) The prospectus must fully and prominently disclose the two-tiered arrangement and any risks related thereto.

(g) Notwithstanding subparagraphs (f)(2) through (7) hereof, if the general partner of the Lower-Tier Partnership is not a sponsor of the Upper-Tier Partnership, an Upper-Tier Partnership may invest in a Lower-Tier Partnership that owns and operates a particular property to be qualified pursuant to Section 42(g) of the Internal Revenue Code of 1986, as amended, if limited partners at both tiers are provided all of the rights and obligations required by Section 260.140.116.1 through 260.140.116.9 and the program agreement of the Upper-Tier Partnership contains a prohibition against payment of duplicate fees.

(h) Nothing contained in this Section may be used to circumvent or abrogate the restrictions and requirements of these Rules, including, but not limited to, Section 260.140.114.1 hereof. However, no provision contained in this Section is intended to restrict or prohibit any payment to a person who is not an affiliate of the sponsor otherwise permitted by these Rules.

NOTE

Authority cited: Section 25610, Corporations Code. Reference: Section 25140, Corporations Code.

HISTORY

1. Amendment filed 3-12-74; effective thirtieth day thereafter (Register 74, No. 11).

2. Amendment filed 1-27-84; effective thirtieth day thereafter (Register 84, No. 4).

3. Repealer and new section filed 5-18-92; operative 6-17-92 (Register 92, No. 22).

§260.140.114.10. Lending Practices.

Note • History

(a) On financing made available to the program by the sponsor, the sponsor may not receive interest and other financing charges or fees in excess of the amounts which would be charged by unrelated lending institutions on comparable loans for the same purpose in the same locality of the property. No prepayment charge or penalty shall be required by the sponsor on a loan to the program secured by either a first or a junior or all-inclusive trust deed, mortgage or encumbrance on the property, except to the extent that such prepayment charge or penalty is attributable to the underlying encumbrance. Except as permitted by subsection (b) of this section, the sponsor shall be prohibited from providing permanent financing for the program.

(b) The sponsor may provide permanent financing for the purchase of property by the program through use of an “all-inclusive” or “wrap around” note provided all of the following conditions are complied with:

(1) The sponsor under the all-inclusive note shall not receive interest on the amount of the underlying encumbrance included in the all-inclusive note in excess of that payable to the lender on that underlying encumbrance;

(2) The program shall receive credit on its obligation under the all-inclusive note for payments made directly on the underlying encumbrance, and

(3) A paying agent, ordinarily a bank, escrow company, or savings and loan, shall collect payments (other than any initial payment of prepaid interest or loan points not to be applied to the underlying encumbrance) on the all-inclusive note and make disbursements therefrom to the holder of the underlying encumbrance prior to making any disbursement to the holder of the all-inclusive note, subject to the requirements of subparagraph (1) above, or, in the alternative, all payments on the all-inclusive and underlying note shall be made directly by the program.

(c) For purposes of this Section, the term “permanent financing” shall mean all indebtedness encumbering program properties or incurred by the program, the principal amount of which is scheduled to be paid over a period of not less than 48 months, and not more than 50 percent of the principal amount of which is scheduled to be paid during the first 24 months. Nothing in this definition shall be construed as prohibiting a bona-fide prepayment provision in the financing agreement.

NOTE

Authority cited: Section 25610, Corporations Code. Reference: Section 25140, Corporations Code.

HISTORY

1. Amendment of subsection (a) filed 3-12-74; effective thirtieth day thereafter (Register 74, No. 11).

2. Amendment of subsection (a) filed 1-22-75; effective thirtieth day thereafter (Register 75, No. 4).

3. Amendment filed 1-27-84; effective thirtieth day thereafter (Register 84, No. 4).

4. New subsection (c) filed 5-18-92; operative 6-17-92 (Register 92, No. 22).

§260.140.114.11. Completion Bond Requirement.

Note • History

(a) The completion of property acquired by the program which is under construction shall be guaranteed at the price contracted by an adequate completion bond or other satisfactory arrangements.

(b) For purposes of this section, satisfactory arrangements include, but are not limited to, the following:

(1) A written guarantee of completion by a person, supported by financial statements demonstrating sufficient net worth or adequately collateralized by real or personal properties or other personal guarantees.

(2) A retention of a reasonable portion of the purchase consideration as a potential offset to such purchase consideration in the event the seller does not perform in accordance with the purchase and sale agreement.

(c) Other satisfactory arrangements to guarantee completion may be made, provided they are disclosed in the prospectus and the prior written approval of the Commissioner of Corporations has been obtained.

NOTE

Authority cited: Section 25610, Corporations Code. Reference: Section 25140, Corporations Code.

HISTORY

1. Amendment filed 3-12-74; effective thirtieth day thereafter (Register 74, No. 11).

2. Amendment of subsection (e) filed 1-22-75; effective thirtieth day thereafter (Register 75, No. 4).

3. Amendment filed 1-27-84; effective thirtieth day thereafter (Register 84, No. 4).

4. Amendment of subsections (a) and (b)(1) filed 5-18-92; operative 6-17-92 (Register 92, No. 22).

§260.140.114.12. Requirement for Real Property Appraisal.

Note • History

All real property acquisitions must be supported by an appraisal. Any appraisal obtained, whether or not required by these Rules, shall be maintained in the sponsor's records for at least 5 years.

NOTE

Authority cited: Section 25610, Corporations Code. Reference: Section 25140, Corporations Code.

HISTORY

1. Amendment filed 1-27-84; effective thirtieth day thereafter (Register 84, No. 4).

2. Amendment filed 5-18-92; operative 6-17-92 (Register 92, No. 22).

§260.140.114.13. Financing Policies.

Note • History

(a) All mortgage financing obtained by the program or retained upon acquired properties must provide for one of the following:

(1) Equal periodic payments (except for differences attributable to adjustable rate loans) on a schedule that would be sufficient to fully amortize the loan over a 20 to 40 year period;

(2) Payments of interest only for a period not greater than ten (10) years with the remaining balance payable in equal periodic payments on a schedule that would fully amortize the loan over a 20 to 30 year period;

(3) Payments of a portion of stated interest currently and deferral of the remaining interest for a period not greater than five (5) years, with the remaining principal and interest payable in equal periodic payments on a schedule that would fully amortize the loan over a 20 to 35 year period, provided that the amount of deferred interest must be included in calculating the 25% exception referred to in paragraph (c)(1) of this Section.

(b) All financing including all-inclusive and wrap-around loans and interest-only loans shall provide that no balloon payment may become due sooner than the earlier of:

(1) Ten years from the date the program acquires the property, or

(2) Two years beyond the anticipated holding period of the property, provided in such case that a balloon payment shall not become due sooner than seven years from the date the program acquires the property. The anticipated holding period for such properties shall be stated in the prospectus.

(1) Financing representing, in the aggregate, 25% or less of the total purchase price of program properties or 25% or less of the fair market value of properties which have been financed subsequent to acquisition;

(2) Interim financing, including construction financing, with a full take-out commitment for financing which complies with paragraphs (a) and (b) of this Section; or

(3) If the program establishes a reserve equal to the amount of the balloon payment and holds the reserve for the purpose of the balloon payment.

NOTE

Authority cited: Section 25610, Corporations Code. Reference: Section 25140, Corporations Code.

HISTORY

1. Amendment filed 1-27-84; effective thirtieth day thereafter (Register 84, No. 4).

2. Amendment and new subsections (a)(1)-(3) and (c)(1)-(3) filed 5-18-92; operative 6-17-92 (Register 92, No. 22).

3. Editorial correction of History 2 (Register 95, No. 12).

§260.140.114.14. Program Indebtedness.

Note • History

(a) Following termination of the offering, total indebtedness incurred by the program shall at no time exceed the sum of 80% of the aggregate purchase price of properties that have not been refinanced, and 80% of the aggregate fair market value of all refinanced properties, as determined by the lender as of the date of refinancing.

(b) For purposes of this Section only, “indebtedness” shall include the principal of any loan together with any interest that may be deferred pursuant to the terms of the loan agreement which exceeds 5% per annum of the principal balance of such indebtedness (excluding contingent participations in income and/or appreciation in the value of the program property); and shall exclude any indebtedness incurred by the program for necessary working capital.

NOTE

Authority cited: Section 25610, Corporation Code. Reference: Section 25140, Corporation Code.

HISTORY

1. New section filed 5-18-92; operative 6-17-92 (Register 92, No. 22).

2. Editorial correction moving “Non-specified property programs” subheading to section 260.140.115.1 and amendment of History 1. (Register 92, No. 34).

NON-SPECIFIED PROPERTY PROGRAMS

The following special provisions shall apply to non-specified property programs:

§260.140.115.1. Minimum Capitalization.

Note • History

A non-specified property program shall provide for minimum gross proceeds from the offering of not less than $1,000,000 after payment of all organizational and offering expenses before it may commence business.

NOTE

Authority cited: Section 25610, Corporations Code. Reference: Section 25140, Corporations Code.

HISTORY

1. Amendment filed 1-27-84; effective thirtieth day thereafter (Register 84, No. 4).

2. Amendment filed 5-18-92; operative 6-17-92 (Register 92, No. 22).

3. Editorial correction inserting “Non-specified property programs” subheading (Register 92, No. 34).

§260.140.115.2. Experience of Sponsor.

Note • History

In addition to the experience requirements stated in Section 260.140.111.1, a general partner, or if a general partner is not an individual, the operating officer of such general partner, must have had the equivalent of at least 5 years experience in the real estate business in an executive capacity.

Such persons must also have two years experience in the management and acquisition of the type of properties to be acquired or otherwise must demonstrate to the satisfaction of the Commissioner that they have sufficient knowledge and experience to acquire and manage the type of properties proposed to be acquired by the non-specified property program.

NOTE

Authority cited: Section 25610, Corporations Code. Reference: Section 25140, Corporations Code.

HISTORY

1. Amendment filed 1-27-84; effective thirtieth day thereafter (Register 84, No. 4).

2. Amendment filed 5-18-92; operative 6-17-92 (Register 92, No. 22).

§260.140.115.3. Investment Restrictions and Objectives.

Note • History

(a) Unimproved or non-income producing property shall not be acquired except upon terms which can be financed by the program proceeds or from cash available for distribution from operations. Investments in such property shall not exceed 25% of the gross proceeds of the offering. Properties which are expected to produce income within a reasonable period of time shall not be considered non-income producing. For purposes of this paragraph two years shall be deemed to be presumptively reasonable.

(b) Investments in junior trust deeds, and other similar obligations shall be prohibited, except for junior trust deeds which arise from the sale of program properties.

(c) The manner in which acquisitions will be financed, including the use of an all-inclusive note or wrap-around mortgage, and the amount of leverage to be employed shall be fully set forth in the statement of investment objectives.

(d) The prospectus shall disclose whether the program will enter into joint venture arrangements and the projected extent thereof.

NOTE

Authority cited: Section 25610, Corporations Code. Reference: Section 25140, Corporations Code.

HISTORY

1. Amendment filed 1-27-84; effective thirtieth day thereafter (Register 84, No. 4).

2. Amendment of section heading and subsection (a), repealer of subsection (c), and new subsections (c) and (d) filed 5-18-92; operative 6-17-92 (Register 92, No. 22).

§260.140.115.4. Expenditure of Net Proceeds.

Note • History

While the net proceeds of an offering are awaiting investment in real property, the net proceeds may be temporarily invested in short-term highly liquid investments where there is appropriate safety of principal, such as U.S. Treasury Bonds or Bills. Any proceeds of the offering of program interests not invested within the later of two years from the date of effectiveness of the qualification or one year after the termination of the offering, or, if permitted by the Commissioner, six months from the last scheduled mandatory deferred payment date (except for necessary operating capital) shall be distributed pro rata to the partners as a return of capital.

NOTE

Authority cited: Section 25610, Corporations Code. Reference: Section 25140, Corporations Code.

HISTORY

1. Amendment filed 1-27-84; effective thirtieth day thereafter (Register 84, No. 4).

2. Amendment filed 5-18-92; operative 6-17-92 (Register 92, No. 22).

§260.140.115.5. Special Reports.

Note • History

Within 60 days after the end of each quarter during which there have been real property acquisitions, a “Special Report” (which may be part of the quarterly report) shall be sent to all participants until the proceeds of the offering are committed or returned to the investors in accordance with Section 260.140.115.4 of these rules. The report shall contain the following information:

(a) the location and a description of the general character of all materially important real properties acquired or presently intended to be acquired by or leased to the program, during the quarter,

(b) the present or proposed use of such properties and their suitability and adequacy for such use,

(d) the proposed method of financing, including estimated down payment, leverage ratio, prepaid interest, balloon payment(s), prepayment penalties, due-on-sale or encumbrance clauses and possible adverse effects thereof and similar details of the proposed financing plan,

(e) a statement that title insurance and any require construction, permanent or other financing and performance bonds or other assurances with respect to builders have been or will be obtained on all properties acquired, and

(f) a statement of the amount of proceeds in the program which remain uncommitted or unexpended, stated as both a dollar amount and percentage of the total amount of the offering proceeds of the program.

NOTE

Authority cited: Section 25610, Corporations Code. Reference: Section 25140, Corporations Code.

HISTORY

1. Amendment filed 1-27-84; effective thirtieth day thereafter (Register 84, No. 4).

2. Amendment and new subsection (f) filed 5-18-92; operative 6-17-92 (Register 92, No. 22).

§260.140.115.6. Multiple Programs.

Note • History

The method for allocating the acquisition of properties among two or more programs of the same sponsor seeking to acquire similar types of properties shall be reasonable. The method shall be described in the prospectus.

NOTE

Authority cited: Section 25610, Corporations Code. Reference: Section 25140, Corporations Code.

HISTORY

1. Repealer and new section filed 1-27-84; effective thirtieth day thereafter (Register 84, No. 4).

2. Amendment filed 5-18-92; operative 6-17-92 (Register 92, No. 22).

§260.140.115.7. Multiple Programs.

History

HISTORY

1. Repealer filed 1-27-84; effective thirtieth day thereafter (Register 84, No. 4).

RIGHTS AND OBLIGATIONS OF PARTICIPANTS

§260.140.116.1. Meetings.

Note • History

Meetings of the limited partners to vote upon any matters on which the limited partners are authorized to take action under the partnership agreement may be called at any time by the general partner(s) or one or more limited partners holding not less than 10% of the outstanding limited partnership interests. Upon request in writing to the general partner(s) by any person(s) entitled to call a meeting, the general partner(s) shall cause notice to be given to the limited partners that a meeting will be held at a time requested by the person(s) calling the meeting, not less than 15 nor more than 60 days after receipt of the request. Written notice of the meeting shall be given either personally or by first class mail not less than 10 nor more than 60 days before the date of the meeting to the limited partners. Included with the notice shall be a detailed statement of the action proposed, including a verbatim statement of the wording of any resolution proposed for adoption by the limited partners and of any proposed amendment to the partnership agreement. The partnership will provide for proxies or written consents which specify a choice between approval and disapproval of each matter to be acted upon at the meeting. A majority of the limited partnership interests entitled to vote, represented in person or by proxy, shall constitute a quorum at a meeting of the limited partners.

NOTE

Authority cited: Section 25610, Corporations Code. Reference: Section 25140, Corporations Code.

HISTORY

1. Amendment filed 1-27-84; effective thirtieth day thereafter (Register 84, No. 4).

§260.140.116.2. Voting Rights of Limited Partners.

Note • History

(a) General Requirement.

(1) Without the necessity for concurrence by the general partner(s), a majority of the outstanding limited partnership interests may vote to (A) amend the partnership agreement, (B) remove the general partner(s), (C) elect a new general partner(s), (D) approve or disapprove the sale of all or substantially all of the assets of the partnership other than in the ordinary course of its business and (E) dissolve the partnership.

(2) Without concurrence of a majority of the outstanding limited partnership interests, the general partner(s) may not (A) amend the partnership agreement except for those amendments which do not adversely affect the rights of the limited partners, (B) voluntarily withdraw as a general partner, (C) appoint a new general partner(s), (D) sell all or substantially all of the assets of the program other than in the ordinary course of the program's business, (E) cause the merger or other reorganization of the program or (F) dissolve the partnership. Notwithstanding clause (C) of paragraph (2), an additional general partner may be appointed without obtaining the consent of the participants if the addition of such person is necessary to preserve the tax status of the program, such person has no authority to manage or control the program under the program agreement, there is no change in the identity of persons who have authority to manage or control the program, and the admission of such person as an additional general partner does not materially adversely affect the participants. Any amendment to the partnership agreement which modifies the compensation or distributions to which a general partner is entitled or which affects the duties of a general partner may be conditioned upon the consent of the general partner. If the law of the state of formation provides that the program will dissolve upon termination of a general partner(s) unless the remaining general partner(s) continues the existence of the program, the program agreement shall obligate the remaining general partner(s) to continue the program's existence; and if there will be no remaining general partner(s), the termination of the last general partner shall not be effective for a period of at least 120 days during which time a majority of the outstanding program interests shall have the right to elect a general partner who shall agree to continue the existence of the program. The partnership agreement should provide for a successor general partner where the only general partner of the program is an individual.

(b) Foreign Limited Partnerships. In those applications filed by limited partnerships organized in states where the investor voting rights are not provided as set forth in subsection (a), the limited partnership shall provide all such investor voting rights set forth in subsection (a) which can be afforded in the jurisdiction where the limited partnership is organized and limit the sale of limited partnership interests in California to no more than 25 percent of the total interests to be sold.

In the discretion of the Commissioner, the sale of foreign limited partnership interests in excess of the 25 percent limitation may be authorized. The Commissioner may impose investor suitability standards higher than those set forth in Section 260.140.112.2 in these cases.

(c) Prospectus Legend. To the extent that a foreign limited partnership does not provide all of the investor voting rights as set forth in subsection (a), a legend in bold face type shall appear prominently in the prospectus containing substantially the following:

THE PARTNERSHIP UNITS OF __________ DO NOT PROVIDE TO LIMITED PARTNERS THE UNCONDITIONAL RIGHT TO VOTE UPON MATTERS AFFECTING THE BASIC STRUCTURE OF THE PARTNERSHIP, WHICH RIGHTS ARE REQUIRED BY THE CALIFORNIA COMMISSIONER OF CORPORATIONS TO BE PROVIDED IN THE PARTNERSHIP AGREEMENT OF PARTNERSHIPS FORMED UNDER CALIFORNIA LAW, INCLUDING THE FOLLOWING MATTERS: (1) ELECTION OR REMOVAL OF GENERAL PARTNERS, (2) TERMINATION OF THE PARTNERSHIP, (3) AMENDMENT OF THE PARTNERSHIP AGREEMENT, AND (4) SALE OF ALL OR SUBSTANTIALLY ALL OF THE ASSETS OF THE PARTNERSHIP. THE ABSENCE OR CONDITIONING OF ANY OF THESE RIGHTS MEANS THAT THE LIMITED PARTNERS' ABILITY TO PARTICIPATE IN BASIC INVESTOR VOTING IS EITHER NONEXISTENT OR SUBSTANTIALLY LIMITED.

NOTE

Authority cited: Section 25610, Corporations Code. Reference: Section 25140, Corporations Code.

HISTORY

1. Amendment filed 3-12-74; effective thirtieth day thereafter (Register 74, No. 11).

2. Amendment filed 1-27-84; effective thirtieth day thereafter (Register 84, No. 4).

3. Amendment of subsection (a) filed 5-18-92; operative 6-17-92 (Register 92, No. 22).

§260.140.116.3. Reports to Limited Partners.

Note • History

The limited partners shall receive the following reports:

(a) In the case of a program registered under Section 12 of the Securities Exchange Act of 1934, within 60 days after the end of each quarter of the program, a report containing:

(1) a balance sheet, which may be unaudited;

(2) a statement of income for the quarter then ended, which may be unaudited;

(3) a statement of cash flows for the quarter then ended, which may be unaudited; and

(4) other pertinent information regarding the program and its activities during the quarter covered by the report.

(b) All information necessary for the preparation of the limited partners' federal income tax return not later than 75 days after the end of the fiscal year.

(1) audited financial statements covering such fiscal year accompanied by an auditor's report which, for purposes of this Section only, may contain a qualified opinion or explanatory paragraph,

(2) a report of the activities of the program during the period covered by the report,

(3) where forecasts have been provided to the holders of limited partnership interests, a table comparing the forecasts previously provided with the actual results during the period covered by the report,

(4) a schedule of all compensation paid and distributions made to the sponsor, including a description of the services performed and identifying the source of each distribution, and

(5) a schedule of all distributions to participants, identifying the source of each and the dollar amount attributable to each source.

(d) Where assessments have been made during any period covered by any report required by paragraphs (a) or (b) hereof, then such report shall contain a detailed statement of such assessments and the application of the proceeds derived from such assessments.

(e) Where program interests have been purchased on a mandatory deferred payment basis, on which there remains an unpaid balance during any period covered by any report required by paragraphs (a) or (b) hereof; then such report shall contain a detailed statement of the status of all mandatory deferred payments, actions taken by the program in response to any defaults, and a discussion and analysis of the impact on capital requirements of the program.

NOTE

Authority cited: Section 25610, Corporations Code. Reference: Section 25140, Corporations Code.

HISTORY

1. Amendment of subsection (b) filed 1-4-77; effective thirtieth day thereafter (Register 77, No. 2).

2. Amendment of subsection (b) refiled 1-7-77; effective thirtieth day thereafter (Register 77, No. 2).

3. Amendment filed 1-27-84; effective thirtieth day thereafter (Register 84, No. 4).

4. Amendment of subsection (a)(3), repealer of subsection (c), and new subsections (c)-(e) filed 5-18-92; operative 6-17-92 (Register 92, No. 22).

§260.140.116.4. Records.

Note • History

Every limited partner shall at all times have access to the records of the partnership and may inspect and copy any of them. A list of the names and addresses of all of the limited partners shall be maintained as part of the books and records and shall be mailed to any limited partner upon request. A reasonable charge for copy work may be imposed by the partnership.

NOTE

Authority cited: Section 25610, Corporations Code. Reference: Section 25140, Corporations Code.

HISTORY

1. Amendment filed 1-27-84; effective thirtieth day thereafter (Register 84, No. 4).

2. Amendment filed 5-18-92; operative 6-17-92 (Register 92, No. 22).

§260.140.116.5. Admission into Partnership.

Note • History

(a) Sales by Partnership. Purchasers should be recognized as participants not later than 15 days after the release of their funds from impound, if purchasers' funds are impounded. Otherwise, purchasers should be recognized as participants not later than the last day of the calendar month following the date the partnership accepted the subscription. All subscriptions shall be accepted or rejected by the partnership within 30 days of their receipt; if rejected, all subscription monies should be returned to the subscriber within 10 business days.

(b) Assignees and Substituted Partners. The partnership shall recognize an assignment not later than the first day of the fiscal quarter following the date the notice of assignment and other required documentation is received and accepted by the general partner. The partnership shall admit substitute limited partners on the first day of each fiscal quarter. If the partnership received actual notice of a transfer, it must inform a transferee in writing within 45 days of receipt of such notice whether or not the transferee will be recognized as possessing all of the rights of a limited partner.

(c) Participants holding program interests by assignment from entities holding limited partnership interests in a program for the purpose of assigning all or a portion of such interests to persons investing in such program (hereinafter the “Assignor”) shall be expressly granted the same rights as if they were limited partners except as prohibited by applicable local law, including but not limited to, the rights enumerated under Sections 260.140.116.1 to 260.140.116.8 of these Rules.

The assignment agreement and prospectus shall provide that the Assignor's management shall have fiduciary responsibility for the safekeeping and use of all funds and assets of the assignees, whether or not in the Assignor management's possession or control, and that the management of the Assignor shall not employ, or permit another to employ such funds in any manner except for the exclusive benefit of the assignees. In addition, the agreement shall not permit the assignees to contract away the fiduciary duty owed to the assignees by the Assignor's management under the common law of agency.

NOTE

Authority cited: Section 25610, Corporations Code. Reference: Section 25140, Corporations Code.

HISTORY

1. Amendment filed 1-27-84; effective thirtieth day thereafter (Register 84, No. 4).

2. Amendment and new subsection (c) filed 5-18-92; operative 6-17-92 (Register 92, No. 22).

§260.140.116.6. Redemption of Limited Partnership Interests.

Note • History

Ordinarily, the partnership and the sponsor may not be obligated to redeem or repurchase any of its limited partnership interests, although the partnership and the sponsor may not be precluded from purchasing such outstanding limited partnership interests, if such purchase does not impair the capital or operation of the partnership. Notwithstanding the foregoing, a real estate limited partnership may provide for mandatory redemption rights under the following circumstances:

(a) Death or legal incapacity of the owner, or

(b) A substantial reduction in the owner's net worth or income (defined to mean an involuntary loss of not less than 50% in income or net worth during the year in which redemption occurs) provided that (1) the limited partnership has sufficient cash to make the purchase, (2) the purchase will not be in violation of applicable legal requirements and (3) not more than 15% of the outstanding units are purchased in any year. Where the purchase price is not mutually agreed upon, the matter shall be submitted to arbitration.

NOTE

Authority cited: Section 25610, Corporations Code. Reference: Section 25140, Corporations Code.

HISTORY

1. Amendment filed 1-27-84; effective thirtieth day thereafter (Register 84, No. 4).

2. Amendment filed 5-18-92; operative 6-17-92 (Register 92, No. 22).

§260.140.116.7. Transferability of Limited Partnership Interests.

Note • History

Restrictions on assignment of program interests or on the substitution of a limited partner are generally disfavored and such restrictions will be allowed only if they are intended to preserve the tax status of the partnership or the characterization or treatment of income or loss. Any restriction must be affirmatively supported by an opinion of counsel or a demonstration by the program as to the necessity of such restriction based on the tax laws, regulations, rulings, notices or other official pronouncements governing the Internal Revenue Service. The program agreement shall require the general partner to eliminate or modify any restriction on substitution or assignment at such time as the restriction is no longer necessary.

NOTE

Authority cited: Section 25610, Corporations Code. Reference: Section 25140, Corporations Code.

HISTORY

1. Amendment filed 1-27-84; effective thirtieth day thereafter (Register 84, No. 4).

2. Repealer and new section filed 5-18-92; operative 6-17-92 (Register 92, No. 22).

3. Change without regulatory effect amending section filed 9-25-2002 pursuant to section 100, title 1, California Code of Regulations (Register 2002, No. 39).

§260.140.116.8. Assessments and Defaults.

Note • History

(a) Assessments will not be allowed for non-specified programs. In the case of specified programs, assessments shall be permitted only when specific circumstances demonstrate a need. If the anticipated cash flow from property (after payment of debt service and all operating expenses) is not sufficient to pay taxes and/or special assessments imposed by governmental or quasi-government units, the program agreement may include a provision for assessments to meet such deficiencies. Assessments must be limited to the foregoing obligations, and all amounts derived from such assessments must be applied only to satisfaction of said obligations.

(b) In the event of a default in the payment of assessments by a participant a program's interest shall not be subject to forfeiture, but may be subject to a reasonable penalty for failure to meet the participant's commitment. Provided that the arrangements are fair, this may take the form of reducing the participant's proportionate interest in the program, subordinating the interest to that of nondefaulting partners, a forced sale complying with applicable procedures for notice of sale, the lending of the amount necessary to meet such commitment by the other participants or a fixing of the value of such interest by independent appraisal or other suitable formula with provision for a delayed payment for the interest not beyond a reasonable period, but a debt security issued for such interest should not have a claim prior to that of the other investors in the event of liquidation.

(c) A participant shall be reinstated to his full status as a limited partner upon payment of the delinquent assessment with interest at the maximum rate allowed by law within 30 days of the date of default. A default shall occur upon failure to pay an assessment within a 30-day period from the date of the notice imposing the assessment.

NOTE

Authority cited: Section 25610, Corporations Code. Reference: Section 25140, Corporations Code.

HISTORY

1. Amendment filed 1-27-84; effective thirtieth day thereafter (Register 84, No. 4).

2. Repealer and new section filed 5-18-92; operative 6-17-92 (Register 92, No. 22).

3. Change without regulatory effect amending subsection (a) filed 9-25-2002 pursuant to section 100, title 1, California Code of Regulations (Register 2002, No. 39).

§260.140.116.9. Dividend Reinvestment Plans.

Note • History

A program may offer participants the opportunity to elect to have cash distributions reinvested in program interests to be issued by the program or subsequent programs pursuant to a reinvestment plan if the following conditions are met:

(a) The program interests to be issued by the program and subsequent programs in which the participants reinvest are qualified under the Corporate Securities Law of 1968 or exempted therefrom.

(b) Counsel for the program submits an opinion that the pooling of the funds for reinvestment does not create a security.

(d) The participants are free to elect or revoke reinvestment within a reasonable time and such right is fully disclosed in the offering documents.

(e) Prior to each reinstatement the participants receive a current updated disclosure document which contains at a minimum the following information:

(1) The minimum investment amount.

(2) The type or source of proceeds (e.g. cash available for distribution from operations or cash from sale and refinancing of properties) which may be reinvested.

(3) The tax consequences of the reinvestment to the participants.

(f) Participants must be permitted to change or eliminate the designation of a securities broker-dealer in connection with the reinvestment plan. In the event no broker-dealer is designated, the program will retain amounts otherwise payable as commissions and fees for the benefit of all partners.

(g) The broker-dealer or the issuer assumes responsibility for compliance and performance of due diligence responsibilities under the Corporate Securities Law of 1968 and has contacted the participants to ascertain whether the participants continue to meet the applicable suitability standards for participation in each reinvestment.

(h) The program must demonstrate that the price of program interests to be issued upon reinvestment pursuant to the plan is fair pursuant to Section 260.140.50 of these Rules.

NOTE

Authority cited: Section 25610, Corporations Code. Reference: Section 25140, Corporations Code.

HISTORY

1. Repealer filed 1-27-84; effective thirtieth day thereafter (Register 84, No. 4).

2. New section filed 5-18-92; operative 6-17-92 (Register 92, No. 22).

DISCLOSURE AND MARKETING REQUIREMENTS

§260.140.117.1. Sales Promotional Efforts.

Note • History

(a) Advertising. All advertising shall conform to the standards of Section 260.302.

(b) Group Meetings. All advertisements of and oral or written invitations to “seminars” or other group meetings at which program interests are to be described, offered or sold shall clearly indicate that the purpose of such meeting is to offer such program interests for sale, the minimum purchase price thereof, and the name of the sponsor, underwriter, or selling agent. No cash, merchandise or other item of more than nominal value shall be offered as an inducement to any prospective participant to attend any such meeting. In connection with the offer or sale of program interests, no general offer shall be made of “free” or “bargain price” trips to visit property in which the program or proposed program has invested or intends to invest. All written or prepared audio-visual presentations (including scripts prepared in advance for oral presentations) to be made at such meetings must be submitted in advance to the Commissioner not less than 3 business days prior to the first use thereof.

(d) Sketches and photographs of properties acquired by the program or proposed to be acquired by the program may be included in the offering circular or supplements thereto. The photographs of properties acquired by previous programs of the same or affiliated issuers should appear only when they are representative of the type of property the program seeks to acquire. The following caveat should be prominently featured in the presentation of the foregoing information:

“This property was acquired by a prior affiliated partnership, and is representative of the type of properties which (name of program) may acquire.”

NOTE

Authority cited: Section 25610, Corporations Code. Reference: Section 25140, Corporations Code.

HISTORY

1. Amendment filed 1-27-84; effective thirtieth day thereafter (Register 84, No. 4).

§260.140.117.2. Offerings Registered with the Securities and Exchange Commission.

Note • History

With respect to offerings registered with the Securities and Exchange Commission under the Securities Act of 1933, as amended, and qualified with the Commissioner by coordination, a prospectus which is part of a registration statement which has been declared effective by such Commission shall be deemed to comply with all requirements as to form of these Rules; provided however, that the Commissioner reserves the right to exercise discretion to require additional disclosure of substance.

NOTE

Authority cited: Section 25610, Corporations Code. Reference: Section 25140, Corporations Code.

HISTORY

1. Amendment filed 1-27-84; effective thirtieth day thereafter (Register 84, No. 4).

§260.140.117.3. Contents of Prospectus.

Note • History

The prospectus shall meet the requirements of Guide 5 of the Securities and Exchange Commission. Foreign limited partnerships shall make additional disclosures as required by Section 260.140.116.2(c), if applicable. The description of the method for allocating the acquisition of properties by two or more programs of the same sponsor shall meet the requirements of Section 260.140.115.6. The prospectus shall contain a full description of the terms, consequences, and risks to participants and the program of any mandatory deferred payments. The Commissioner may require additional disclosure if, in the Commissioner's opinion, specific facts concerning the offering require it.

NOTE

Authority cited: Section 25610, Corporations Code. Reference: Section 25140, Corporations Code.

HISTORY

1. Amendment of subsection (k) filed 3-12-74; effective thirtieth day thereafter (Register 74, No. 11).

2. Amendment filed 1-27-84; effective thirtieth day thereafter (Register 84, No. 4).

3. Amendment filed 5-18-92; operative 6-17-92 (Register 92, No. 22).

§260.140.117.4. Forecasts.

Note • History

(a) The presentation of predicted future results of operations of real estate programs shall be permitted but not required for specified property programs investing primarily in improved property and shall be prohibited for non-specified property programs or specified property programs investing primarily in unimproved land. The prospectus cover must contain in boldface type one of the following applicable statements:

(1) For specified property programs:

FORECASTS ARE CONTAINED IN THIS PROSPECTUS. ANY PREDICTIONS AND REPRESENTATIONS, WRITTEN OR ORAL, WHICH DO NOT CONFORM TO THOSE CONTAINED IN THE PROSPECTUS SHALL NOT BE PERMITTED.

(2) For non-specified property and unimproved land programs:

THE USE OF FORECASTS IN THIS OFFERING IS PROHIBITED. ANY REPRESENTATIONS TO THE CONTRARY AND ANY PREDICTIONS, WRITTEN OR ORAL, AS TO THE AMOUNT OR CERTAINTY OF ANY PRESENT OR FUTURE CASH BENEFIT OR TAX CONSEQUENCE WHICH MAY FLOW FROM AN INVESTMENT IN THIS PROGRAM IS NOT PERMITTED.

(b) Forecasts for specified property programs shall be included in the prospectus, or sales material of the program only if they comply with the following requirements:

(1) Presentation of Forecasts. Forecasts shall be realistic in their predictions and shall clearly identify the assumptions made with respect to all material features of the presentation. Forecasts shall be examined and reported upon by an independent certified public accountant in accordance with the Guide for Prospective Financial Statements and the Statement on Standards for Accountant's Services on Prospective Financial Information as promulgated by the American Institute of Certified Public Accountants, and that person or firm should be identified in the prospectus as being responsible for the examination of the forecasts. The report of the independent certified public accountant must be included in the prospectus. No forecasts shall be permitted in any sales literature which do not appear in the prospectus. If any forecasts are included in the sales literature, all forecasts must be presented.

(2) Material Information. If predicted future results of operations are used, they shall be prepared in the form of a forecast meeting the requirements of paragraph (b)(1) and shall include all of the following information:

(A) Annual predicted revenue by source, including the occupancy rate used in predicting rental revenue;

(B) Annual predicted operating expenses and partnership administration expenses;

(C) Debt service, including annual payments of principal and interest and points and financing fees, shown as dollars, not as percentages;

(D) The required occupancy rate in order to meet debt service and all expenses;

(E) Predicted annual cash flow stating the assumed occupancy rate;

(F) Predicted annual depreciation and amortization with full description of methods to be used; and

(G) Predicted annual taxable income or loss and a simplified explanation of the tax treatment of such results;

(H) Predicted construction costs, including disclosure regarding contracts; and

(I) Accounting policies, for example, with respect to points, financing costs and depreciation.

(3) Presentation. Forecasts shall be presented in the following manner:

(A) Forecasts shall prominently display a statement to the effect that they represent a mere prediction of future events based on assumptions which may or may not occur and may not be relied upon to indicate the actual results which will be obtained.

(B) Explanatory notes describing assumptions made and referring to risk factors should be integrated with tabular and numerical information.

(C) Any projections that supplement forecasts shall be clearly identified as supplemental projections, and it shall be stated that such projections are not within the scope of the accountant's examination of the forecast.

(D) When a sale-leaseback is employed, the statement that the seller is assuming the operating risk and consequently may have charged a higher price for the property must be included.

(4) Additional Disclosures and Limitations.

The following additional information shall accompany or supplement the forecasts:

(A) Forecasts shall be for a period at least equivalent to the anticipated holding period for the property, or 10 years, whichever is shorter, and project the consequences of a sale of the property, including depreciation recapture, if applicable. The resale price must be reasonable.

Normally, the total consideration paid for the properties shall be deemed a reasonable resale price except in special circumstances, e.g., some leasebacks, or subsidized housing. The sponsor may justify the proposed resale price by appropriate analysis of the projected financial characteristics of the property in the assumed year of sale. Sale consequences shall be presented in the following form or such other appropriate form as may be approved by the Commissioner:

HYPOTHETICAL SALE CONSEQUENCES

Sale Price, xxxx

Costs of sale; xxxx

Net selling price; xxxx

Taxable gain (loss) on sale with ordinary income and

capital gain on each sale separately stated, xxxx

Net sales proceeds; xxxx

Less sponsor's participation in net sales proceeds; xxxx

Net sales proceeds distributable to investors; xxxx

Income tax liability; xxxx

Net after tax proceeds to investors; xxxx

(B) Adequate disclosure shall be made of the changing economic effects upon the limited partners resulting principally from federal income tax consequences over the life of the partnership property, e.g., tax losses in early years followed by an increasing amount of taxable income in later years.

(C) Forecasts shall disclose all possible undesirable tax consequences of an early sale of the program property (such as, depreciation recapture or the failure to sell the property at a price which would return sufficient cash to meet resulting tax liabilities of the participants).

(D) In computing the return to investors, no appreciation, so called “equity buildup”, or any other benefits from unrealized gains or value shall be shown or included.

(E) Forecasts shall not be allowed for unimproved land. Instead, a table of deferred payments specifying the various holding costs, i.e., interest, taxes, and insurance shall be inserted. However, where the program intends to develop and sell the land as its primary business, a detailed cash flow statement showing the timing of expenditures and anticipated revenues shall be required. The consequences of a sale of the property shall be shown. The minimum sales price shall be the total consideration paid for the property, plus the necessary increase to cover all holding costs (and thereby achieve a sale of the property at a break-even price). The sale consequences shall include an expression of the average annual increase in the total consideration paid for the property in order to reach the break-even sales price. Information as to the timing of the sale as well as the sales price shall be included.

NOTE

Authority cited: Section 25610, Corporations Code. Reference: Section 25140, Corporations Code.

HISTORY

1. Amendment filed 3-12-74; effective thirtieth day thereafter (Register 74, No. 11).

2. Amendment of subsections (b)(3) and (b)(6) filed 1-22-75; effective thirtieth day thereafter (Register 75, No. 4).

3. Amendment filed 1-27-84; effective thirtieth day thereafter (Register 84, No. 4).

4. Repealer and new section filed 5-18-92; operative 6-17-92 (Register 92, No. 22).

§260.140.117.5. Opinions of Counsel.

Note • History

The application for qualification shall contain a favorable ruling from the Internal Revenue Service or an opinion of counsel to the effect that the issuer will be taxed as a “partnership” and not as an “association” for federal income tax purposes. An opinion of counsel shall be in form and substance satisfactory to the Commissioner and shall be unqualified except to the extent permitted by the Commissioner. However, an opinion of counsel may be based one reasonable assumptions, such as:

(1) facts or proposed operations as set forth in the offering circular or prospectus and organizational documents;

(2) the absence of future changes in applicable laws;

(3) the securities offered are paid for;

(4) compliance with certain procedures such as the execution and delivery of certain documents and the filing of a certificate of limited partnership or an amended certificate; and

(5) the continued maintenance of or compliance with certain financial, ownership, or other requirements by the issuer or general partner(s). The Commissioner may request from counsel as supplemental information such supporting legal memoranda and an analysis as he shall deem appropriate under the circumstances. To the extent the opinion of counsel or Internal Revenue Service ruling is based on the maintenance of or compliance with certain requirements or conditions by the issuer or general partner(s), the offering circular or prospectus shall contain representations that such requirements or conditions will be met and the partnership agreement shall, to the extent practicable, contain provisions requiring such compliance. There shall be included also an opinion of counsel to the effect that the securities being offered are duly authorized or created and validly issued interests in the issuer, and that the liability of the public investors will be limited to their respective total agreed upon investment in the issuer. The Commissioner may request an opinion of counsel concerning tax benefits flowing to the partnership when this appears necessary for the protection of investors.

NOTE

Authority cited: Section 25610, Corporations Code. Reference: Section 25140, Corporations Code.

HISTORY

1. Amendment filed 1-27-84; effective thirtieth day thereafter (Register 84, No. 4).

MISCELLANEOUS PROVISIONS

§260.140.118.1. Deferred Payments.

Note • History

Deferred payments or similar arrangements on account of the purchase price of program interests shall not be allowed except as set forth below:

(a) Mandatory Deferred Payments may be allowed in the case of specified property programs to the extent such payments bear a reasonable and demonstrable relationship to the capital needs and objectives of the program as described in the presentation of the business development plan in the prospectus, but in any event such arrangements shall be subject to the following conditions:

(1) A minimum of 50% of the purchase price of the program interests must be paid by the investor at the time of sale, with the remainder to be paid within three years of the earlier of the completion of the offering or one year following the effective date of the offering or such shorter period as the Commissioner, under the circumstances, deems appropriate.

(2) Mandatory Deferred Payments shall be evidenced by a promissory note of the investor. Such notes shall be with recourse, shall not be negotiable and shall be assignable only subject to defenses of the maker. Such notes shall not contain a provision authorizing a confession of judgment. In any event, the notes shall provide for venue in the jurisdiction of the investor.

(3) The program shall not sell or assign the mandatory deferred payment notes at a discount.

(4) Selling commissions for program interests sold on a mandatory deferred payment basis are payable pro rata only as cash payments are made by the participant.

(5) In the event of default in the payment of Mandatory deferred payments by a participant, the participant's interest may be subject to a reasonable reduction as set forth in the prospectus and acceptable to the Commissioner. Responses to defaults should be designed to protect the capital requirements of the program and the best interests of the non-defaulting participants while being fair to the defaulting participant.

(6) The program may take a security interest in the participant's program interests in the amount of the unpaid portion of the note provided that proceedings to enforce the security interest may not be commenced earlier than 30 days after default and notice for intent to foreclose on the security interest. Security interests on program interests that have been fully paid shall be dissolved promptly.

(7) Unless mandatory deferred payments are guaranteed by the sponsor or by a surety bond or other arrangement satisfactory to the Commissioner, prior to the time the qualification becomes effective, the sponsor shall not be allowed to purchase program interests recovered as a result of defaults in mandatory deferred payments unless, after recovery, such program interests have first been offered to the non-defaulting participants.

(8) Any certificates evidencing program interests purchased or a mandatory deferred payment basis shall so indicate.

(9) Upon receipt of any request to assign or transfer program interests purchased on a mandatory deferred payment basis and having an unpaid balance, the sponsor, before the assignment or transfer, at its own cost, shall notify the proposed assignee/transferee of the material terms of the mandatory deferred payment obligation, including: the schedule of payments, the status of payments, the status of any encumbrance held by the program or the program interests; the terms of default, the consequences thereof, and the procedure for curing the default. In lieu of such notification the sponsor may accept a written statement containing such information and signed by the assignee/transferee.

(10) A default shall include the failure to make a scheduled payment on the mandatory deferred payment obligation within 30 days after its due date. A participant shall be allowed to cure a default and avoid any reduction in the participant's interest in the program if within a minimum of 30 days from default and notice thereof the participant makes the delinquent payment with interest at the rate set forth in the prospectus for curing defaults.

(11) Default provisions shall have the integrity of the program's capital as a priority. Depending on the circumstances, arrangements which may be appropriate include: (A) a reduction in the participant's percentage interest in program revenues based on the ratio of the cost to the program of the unpaid mandatory deferred payment obligation to all capital contribution; (B) a reallocation of the defaulting participant's revenues and application for such revenues to make up the cost to the program of the unpaid mandatory deferred payment obligations; (C) a reallocation of the defaulting participant's right to receive revenues from the program to those non-defaulting participants who have voluntarily paid the defaulting participant's obligation until such time as such non-defaulting participants have recovered from this reallocation 200% of the proportionate amount of the defaulted payment which they forwarded; (D) a forced sale of the program interest complying with applicable procedures for notice and sale; (E) a delayed buy-out of the defaulting participant's interest; or (F) a foreclosure of the security interest held by the program. “Cost to the program” shall be defined in the prospectus and may include the reasonable costs to the program of collecting unpaid installments, reselling the interests, and/or additional financing costs caused by the default.

(b) Mandatory Deferred Payments shall not be allowed in the case on non-specified property programs except where the sponsor is able to satisfy the Commissioner that the mandatory deferred payments bear a reasonable and demonstrable relationship to the capital needs and objectives of the program as described in the business development plan in the investor disclosure document. A plan that merely states that money will be invested as installments are received, or at specified intervals, will not be considered a sufficient business development plan. In any event, such arrangements shall be subject to the following conditions:

(2) The program shall otherwise comply with the provisions (2) through (11) of paragraph (a) hereof.

(c) Warrants or options (or their equivalents) to purchase program interests will be allowed only at the discretion of the Commissioner but, in any event, must be identified as such and be accompanied by a clear statement of their nature and effect. Program interests acquired by their exercise may not differ from the stated terms of program interests otherwise acquired. Any penalty for non-exercise will ordinarily be viewed with disfavor.

NOTE

Authority cited: Section 25610, Corporations Code. Reference: Section 25140, Corporations Code.

HISTORY

1. Renumbering and amendment of former Section 260.140.118.1 to Section 260.114.111.5; and renumbering and amendment of former Section 260.140.118.2 to Section 260.114.118.1 filed 1-27-84; effective thirtieth day thereafter (Register 84, No. 4).

2. Repealer and new section filed 5-18-92; operative 6-17-92 (Register 92, No. 22).

§260.140.118.2. Reserves.

Note • History

The program agreement shall provide that adequate reserves for normal repairs, replacements and contingencies be maintained by retention of a reasonable percentage of proceeds from the offering and regular receipts. Normally, not less than 3% of the proceeds of the offering will be considered adequate as an initial reserve fund.

NOTE

Authority cited: Section 25610, Corporations Code. Reference: Section 25140, Corporations Code.

HISTORY

1. Renumbering and amendment of former section 260.140.118.2 to section 260.140.118.1; and renumbering and amendment of former section 260.140.118.3 to section 260.140.118.2 filed 1-27-84; effective thirtieth day thereafter (Register 84, No. 4).

2. Amendment filed 5-18-92; operative 6-17-92 (Register 92, No. 22).

§260.140.118.3. Reinvestment of Cash Available for Distribution from Operations and Proceeds on Disposition of Property.

Note • History

(a) Reinvestment of cash available for distribution from operations or proceeds from a disposition or refinancing of property is allowed so long as sufficient cash will be distributed to investors to pay any resulting state or federal income tax. The amount to be distributed may be determined upon an assumption that all investors are in a specified tax bracket.

(b) Reinvestment does not include placements of funds held as reserves or short-term deposits (90 days or less) to fund distributions to investors.

NOTE

Authority cited: Section 25610, Corporations Code. Reference: Section 25140, Corporations Code.

HISTORY

1. Renumbering and amendment of former Section 260.140.118.3 to Section 260.140.118.2; and renumbering and amendment of former Section 260.140.118.4 to Section 260.140.118.3 filed 1-27-84; effective thirtieth day thereafter (Register 84, No. 4).

§260.140.118.4. Financial Information.

Note • History

The following financial information shall be provided with any application:

(a) Financial Statements of Program. The prospectus shall include audited financial statements of the program for each of the last three fiscal years (or for the life of the program, if less), provided that the only audited balance sheet that shall be required shall be as of the end of the most recent fiscal year of the program. When a program has operated less than one fiscal year, audited financial statements are not required unless requested by the Commissioner.

(b) Financial Statements of Corporate Sponsor. The prospectus shall contain audited financial statements which shall be required to consist only of an audited balance sheet of each corporate sponsor as of the end of the sponsor's most recent fiscal year. An audited statement of income for the last fiscal year shall also be submitted with the application. The inclusion of statements of income in the prospectus shall be at the discretion of the Commissioner.

(c) Other Sponsors. A balance sheet for each non-corporate sponsor (including individual partners or individual joint venturers of a sponsor) as of a date not more than one hundred thirty-five days prior to the date of filing the application shall be submitted. Such balance sheet shall be prepared in accordance with generally accepted accounting principles and reviewed and reported upon by an independent certified public accountant under the review standards set forth by the American Institute of Certified Public Accountants, and shall be signed and sworn to by such sponsor. A representation of the amount of such net worth must be included in the prospectus, or in the alternative, a representation that such sponsor meets the net worth requirements of Section 260.140.111.2 shall be so included.

(d) Affiliates of Sponsors. The submission of financial statements of affiliates of a sponsor will be required when material.

(e) Interim Financial Information. Where an audited balance sheet required by this Section is as of a date more than 90 days prior to the date of filing, an unaudited balance sheet as of a date not more than 90 days prior to the date of filing shall also be provided. Where the application is made in coordination with a Registration Statement submitted to the Securities and Exchange Commission pursuant to the Securities Act of 1933, an interim unaudited balance sheet as of a date not more than one hundred thirty-five days prior to the date of filing shall be provided only if the audited balance sheet is as of a date more than 135 days prior to the date of filing. Interim unaudited statements of income, partners' equity, and cash flows shall also be provided with the unaudited balance sheet in instances where such statements are required by this section as part of the audited financial statements.

(f) Filing of Other Statements. The Commissioner may permit the omission of one or more of the financial statements required under this Section and the filing (in substitution thereof) of appropriate statements verifying financial information having comparable relevance to an investor in determining whether to invest in the program. Such substitution will only be allowed where the Commissioner finds this would be consistent with the protection of investors.

NOTE

Authority cited: Section 25610, Corporations Code. Reference: Section 25140, Corporations Code.

HISTORY

1. Renumbering and amendment of former section 260.140.118.4 to section 260.140.118.3; and renumbering and amendment of former section 260.140.118.5 to section 260.140.118.4 filed 1-27-84; effective thirtieth day thereafter (Register 84, No. 4).

2. Amendment filed 5-18-92; operative 6-17-92 (Register 92, No. 22).

3. Change without regulatory effect amending subsection (c) filed 9-25-2002 pursuant to section 100, title 1, California Code of Regulations (Register 2002, No. 39).

§260.140.118.5. Legend Condition.

Note • History

All program interests will normally be subject to the restrictions on transferability as set forth in Section 260.141.11 of these Rules.

NOTE

Authority cited: Section 25610, Corporations Code. Reference: Section 25140, Corporations Code.

HISTORY

1. Amendment of subsection (d)(2) filed 3-12-74; effective thirtieth day thereafter (Register 74, No. 11).

2. Renumbering and amendment of former Section 260.140.118.5 to Section 260.140.118.4; and renumbering and amendment of former Section 260.140.118.7 to Section 260.140.118.5 filed 1-27-84; effective thirtieth day thereafter (Register 84, No. 4).

§260.140.118.6. Impound.

Note • History

The sale of program interests should normally be subject to an impound.

NOTE

Authority cited: Section 25610, Corporations Code. Reference: Section 25140, Corporations Code.

HISTORY

1. Repealer of former Section 260.140.118.6 and renumbering and amendment of former Section 260.140.118.8 to Section 260.140.118.6 filed 1-27-84; effective thirtieth day thereafter (Register 84, No. 4).

§260.140.118.7. Legend Condition.

History

HISTORY

1. Renumbering and amendment of Section 260.140.118.7 to Section 260.140.118.5 filed 1-27-84; effective thirtieth day thereafter (Register 84, No. 4).

§260.140.118.8. Impound Condition.

History

HISTORY

1. Renumbering and amendment of Section 260.140.118.8 to Section 260.140.118.6 filed 1-27-84; effective thirtieth day thereafter (Register 84, No. 4).

PARTNERSHIP AGREEMENT

§260.140.119.1. Provisions of Partnership Agreement.

Note • History

The requirements and/or provisions of appropriate portions of the following sections shall be included in a partnership agreement:

260.140.111.4 260.140.111.5; 260.140.111.6; 260.140.113.3;

260.140.113.4; 260.140.113.5; 260.140.113.6; 260.140.113.7

260.140.113.8; 260.140.113.9; 260.140.114.1; 260.140.114.2;

260.140.114.3; 260.140.114.4; 260.140.114.5; 260.140.114.6;

260.140.114.7; 260.140.114.8; 260.140.114.9; 260.140.114.10;

260.140.114.13; 260.140.114.14; 260.140.115.3; 260.140.115.4;

260.140.115.5; 260.140.115.6; 260.140.116.1; 260.140.116.2;

260.140.116.3; 260.140.116.4; 260.140.116.5; 260.140.116.6;

260.140.116.8; 260.140.118.1; 260.140.118.3; and 260.140.118.4.

NOTE

Authority cited: Section 25610, Corporations Code. Reference: Section 25140, Corporations Code.

HISTORY

1. Amendment filed 1-27-84; effective thirtieth day thereafter (Register 84, No. 4)

2. Amendment filed 5-18-92; operative 6-17-92 (Register 92, No. 22).

Subarticle 11. Oil and Gas Interests

§260.140.120. Application.

Note • History

The rules in this subarticle shall govern the qualification of oil and gas programs in the form of limited partnerships (herein sometimes called “programs”) and will be applied by analogy to oil and gas programs in other forms. While applications not conforming to the standards contained herein shall be looked upon with disfavor, where good cause is shown certain guidelines may be modified or waived by the Commissioner.

NOTE

Authority cited: Section 25610, Corporations Code. Reference 25140, Corporations Code.

HISTORY

1. Repealer of Subarticle 11 (Sections 260.140.120-260.140.124), Article 4, and new Subarticle 11 (Sections 260.140.120-260.140.131.9), Article 4 filed 12-6-74; effective thirtieth day thereafter (Register 74, No. 49).

§260.140.121. Definitions.

Note • History

The following definitions are applicable to this subarticle.

(a) “Affiliate” means (1) any person directly or indirectly controlling, controlled by or under common control with another person, (2) a person owning or controlling 10% or more of the outstanding voting securities of such other person, (3) any officer or director of such other person and (4) if such other person is an officer or director, any company for which such person acts in any such capacity.

(b) “Area of Interest” means a geologically described region in which a program intends to conduct its oil and gas exploration activities. The area of interest of a program shall not include less than all of any known producing geologic structure, or oil or gas field which is contained in the description of such area of interest, except that if good case is shown, the Commissioner may allow an area of interest to exclude any lands adjacent thereto which are within an inland body of water or the coastal waters of the United States or any state.

(c) “Assessment” means any additional amounts of capital which a participant may be called upon to furnish, voluntarily or mandatorily, beyond his subscription.

(d) “Capital Contribution” means the total investment, including the original investment, assessments and reinvested amounts, in a program by a participant or by all participants, as the case may be.

(e) “Cost,” when used with respect to property in Section 260.140.127.1, means (1) the sum of the prices paid by the seller for such property; (2) title insurance or examination costs, brokers' commissions, filing fees, recording costs, transfer taxes, if any, and like charges in connection with the acquisition of such property; and (3) bonuses, rentals and ad valorem taxes paid by the seller with respect to such property to the date of its transfer to the buyer, interest on funds used to acquire or maintain such property, and such portion of the seller's expenses for geological, geophysical, seismic, land engineering, drafting, accounting, legal and other like services allocated to the property in accordance with generally accepted accounting principles, except for expenses in connection with the drilling of wells which are not producers of sufficient quantities of oil or gas to make commercially reasonable their continued operations, and provided that such expenses shall have been incurred not more than 36 months prior to the purchase by the program. When used with respect to services, “cost” means the expense incurred by the seller in providing such services, determined in accordance with generally accepted accounting principles. As used elsewhere, “cost” means the price paid by the seller in an arm's-length transaction.

(f) “Net Worth” means the excess of total assets over total liabilities as determined in accordance with generally accepted accounting principles.

(g) “Oil and Gas Interest” means any oil or gas royalty or lease, or fractional interest therein, or certificate of interest or participation or investment contract relative to such royalties, leases or fractional interests, or any other interest or right which permits the exploration of, drilling for, or production of oil and gas or other related hydrocarbons or the receipt of such production or the proceeds thereof.

(h) “Overriding Royalty” means an interest severed out of the lessee's working interest entitling its owner to a fraction of production free of the expense of production.

(i) “Participant” means the holder of a unit.

(j) “Partnership Agreement” means the limited partnership agreement of a program.

(k) “Program” means a limited or general partnership, joint venture, unincorporated association or similar organization, formed, or to be formed, for the primary purpose of exploring for oil, gas and other hydrocarbon substances or investing in or holding any interests which permit the exploration for or production of oil or gas or the receipt of such production or the proceeds thereof.

(l) “Prospect” of a program means an area in which such program owns or intends to own one or more oil and gas interests, which is geographically defined on the basis of geological data by the sponsor of such program and which is reasonably anticipated by the sponsor to contain at least one reservoir. Such area shall be enlarged or contracted on the basis of geological data to define the productive limits of such reservoir and must include all of the territory encompassed by any such reservoir.

(m) “Prospectus” shall have the meaning given to that term by Section 2(10) of the Securities Act of 1933, as amended, including a preliminary prospectus; provided, however, that such term as used herein shall also include an offering circular as described in Rule 256 of the General Rules and Regulations under the Securities Act of 1933, as amended, or, in the case of an intra-state offering, any document by whatever name known, utilized for the purpose of offering and selling units.

(n) “Reservoir” means a separate structural or stratigraphic trap containing an accumulation of oil or gas.

(o) “Sponsor” means any person directly or indirectly instrumental in organizing a program or any person who will manage or participate in the management of a program, including the general partner(s) and any other person who, pursuant to a contract with the program, regularly performs or selects the person who performs 25% or more of the exploratory, developmental or producing activities of the program, or segment thereof. “Sponsor” does not include wholly independent third parties such as attorneys, accountants, and underwriters whose only compensation is for professional services rendered in connection with the offering of units.

(p) “Subscription” means the original committed investment (excluding assessments) to a program by a participant upon its formation.

(q) “Tangible Costs” means those costs which are generally accepted as capital expenditures pursuant to the provisions of the Internal Revenue Code.

(r) “Unit” means an interest in a program.

(s) “Working Interest” means the operating interest under an oil and gas interest which carries with it the obligation to bear a proportionate share of all costs thereon.

NOTE

Authority cited: Section 25610, Corporations Code. Reference: Section 25140, Corporations Code.

HISTORY

1. Editorial correction adding NOTE filed 11-8-82 (Register 82, No. 46).

SPONSOR'S REQUIREMENTS

§260.140.122.1. Experience.

Note • History

The general partner or its chief operating officers shall have at least three years relevant oil and gas experience demonstrating the knowledge and experience to carry out the stated program policies and to manage the program operations. Additionally, the general partner or any affiliate providing services to the program shall have had not less than four years relevant experience in the kind of service being rendered or otherwise must demonstrate sufficient knowledge and experience to perform the services proposed. If any managerial responsibility for the program is to be rendered by persons other than the general partner, then such persons must be identified in the prospectus, their experience must be similar to that required of a general partner and must be set out in the prospectus, and a contract setting forth the basis of their relationship with the program must be filed with and not disapproved by the Commissioner.

NOTE

Authority cited: Section 25610, Corporations Code. Reference: Section 25140, Corporations Code.

HISTORY

1. Editorial correction adding NOTE filed 11-8-82 (Register 82, No. 46).

§260.140.122.2. Net Worth.

Note • History

(a) The financial condition of the general partner must be commensurate with any financial obligations assumed by it. The general partner must specifically have a minimum aggregate net worth at all times at least equal to the greater of (1) $100,000 or (2) the lesser of $1,000,000 or 5% of the total subscriptions made by participants in all existing programs organized by the general partner, including the one being offered.

(b) In determining the general partner's net worth, the value of proven reserves, as determined by an independent petroleum engineer, of oil, gas and other minerals owned by a general partner may be used. Notes and accounts receivables from all programs, interests in all programs, and all contingent liabilities will be scrutinized carefully to determine the appropriateness of their inclusion in the net worth computation.

(c) If more than one person acts or serves as general partner of a program, the net worth requirements may be met by aggregating the net worth of all such persons. In addition, the net worth of any guarantor of the general partner's obligations to or for the program may be included in the net worth computation, but only if the guarantor's liability is coextensive with that of the general partner.

NOTE

Authority cited: Section 25610, Corporations Code. Reference: Section 25140, Corporations Code.

HISTORY

1. Editorial correction adding NOTE filed 11-8-82 (Register 82, No. 46).

§260.140.122.3. Reports to Commissioner.

Note • History

The partnership agreement shall require that the sponsor file with the Commissioner, concurrently with their transmittal to participants, a copy of each report made pursuant to Section 260.140.128.3 of these rules.

NOTE

Authority cited: Section 25610, Corporations Code. Reference: Section 25140, Corporations Code.

HISTORY

1. Editorial correction adding NOTE filed 11-8-82 (Register 82, No. 46).

PARTICIPANT SUITABILITY

§260.140.123.1. Suitability Standards.

Note • History

In view of the limited transferability, the relative lack of liquidity, the high risk of loss or the specific tax orientation of many oil and gas programs, suitability standards which are reasonably related to the risks to be undertaken, will be required for the participants, and they must be set forth in a writing to be executed by all participants. It will be the responsibility of the sponsor and the persons selling units to see that units are sold only to participants meeting the applicable suitability standards.

NOTE

Authority cited: Section 25610, Corporations Code. Reference: Section 25140, Corporations Code.

HISTORY

1. Editorial correction adding NOTE filed 11-8-82 (Register 82, No. 46).

§260.140.123.2. Presumptive Suitability Standards.

Note • History

(a) Unless circumstances warrant and the Commissioner allows another standard, suitability standards for participants shall be presumptively reasonable if all of the following criteria are met:

(1) the participant has a net worth of $200,000 or more (exclusive of home, furnishings and automobiles), or

(2) the participant has a net worth of $50,000 or more (exclusive of home, furnishings and automobiles) and had during the last tax year, or estimates that he will have during the current tax year, “taxable income” as defined in Section 63 of the Internal Revenue Code of 1954, as amended, some portion of which was or will be subject to federal income tax at a rate of 50% or more, without regard to the investment in the program.

(b) In the case of programs engaged primarily in investing in income producing properties (production purchase programs) the Commissioner may allow lower suitability standards than those described in Subsection (a). Subject to a satisfactory showing as to the plan of business of the program and the value of properties acquired or proposed to be acquired, the following suitability standards will be deemed reasonable if:

(1) the participant has a net worth of $75,000 or more (exclusive of home, furnishings and automobiles), or

(2) the participant has a net worth of $25,000 or more (exclusive of home, furnishings and automobiles) and an annual income of $20,000 or more.

(c) In the case of qualification by coordination, the application for such qualification should be accompanied by an undertaking by the issuer and underwriter to limit sales in California to an identified class meeting these standards, together with a statement of the method to be employed in meeting this requirement.

NOTE

Authority cited: Section 25610, Corporations Code. Reference: Section 25140, Corporations Code.

HISTORY

1. Editorial correction adding NOTE filed 11-8-82 (Register 82, No. 46).

§260.140.123.3. Sales to Appropriate Persons.

Note • History

(a) In addition to the objective standards of suitability set forth in Section 260.140.123.2, it will be the responsibility of the sponsor and each person selling units to make every reasonable effort to see that such securities are an appropriate investment for the participants.

(b) Persons selling units shall specifically ascertain by means of a writing that the offering is appropriate for each participant. In doing so, such persons must determine that each participant or his representative has the capacity to understand the fundamental aspects of the program.

(c) Persons selling units shall also, ascertain by means of a writing that the participants understand (when applicable):

(1) the risks involved in the offering, including the speculative nature of the investment;

(2) the financial hazards involved in the offering, including the risk of losing their entire investment;

(3) the lack of liquidity of units;

(4) the restrictions on transferability of units;

(5) the background and qualifications of the sponsor and/or the manager or persons responsible for the offering; and

(6) the tax consequences of the investment.

(d) All of the requirements of this section may be satisfied by the use of the same writing filed with and not disapproved as to form by the Commissioner and properly executed by each participant.

NOTE

Authority cited: Section 25610, Corporations Code. Reference: Section 25140, Corporations Code.

HISTORY

1. Editorial correction adding NOTE filed 11-8-82 (Register 82, No. 46).

§260.140.123.4. Maintenance of Suitability Records.

Note • History

The sponsor shall maintain for a period of at least four years a record of the information obtained to indicate that a participant meets the suitability standards established in connection with the offer and sale of the program units. In addition, he must obtain a representation from each participant that he has purchased units for his own account or, in lieu of such representation, information indicating that the participants for whose account the purchase was made met such suitability standards. Such information may be obtained from the participant through inclusion of such statement in the writing described in Section 260.140.123.3 of these rules. If units are sold by a broker-dealer, the sponsor shall obtain a commitment from the broker-dealer to the effect that such broker-dealer will obtain and maintain in its files the record of information which otherwise would have been required of the sponsor.

NOTE

Authority cited: Section 25610, Corporations Code. Reference: Section 25140, Corporations Code.

HISTORY

1. Editorial correction adding NOTE filed 11-8-82 (Register 82, No. 46).

§260.140.123.5. Minimum Investment.

Note • History

(a) The participant is required to make a minimum subscription to the program of at least $5,000, except that in the case of an offering being made pursuant to Regulation B under the Securities Act of 1933, the minimum subscription for pre-completion costs may be $1,500, and except in the case of an offering consisting of a series of limited partnerships to be formed during a consecutive 12-month period, the minimum subscription may be $5,000 for the entire series.

(b) Subsequent transfers of such units shall be limited to no less than a minimum unit equivalent to an initial minimum subscription except for transfers which do not require the Commissioner's consent pursuant to Section 260.141.11 of these rules.

NOTE

Authority cited: Section 25610, Corporations Code. Reference: Section 25140, Corporations Code.

HISTORY

1. Editorial correction adding NOTE filed 11-8-82 (Register 82, No. 46).

§260.140.123.6. Installment Payments.

Note • History

(a) Provisions for deferred payments on account of the purchase price of program units may be allowed when warranted by the investment objectives of the program, but in any event such arrangements shall be subject to the following conditions:

(1) Installment payments, subsequent to the initial payment required by the terms of the offering, shall be made in not more than 3 payments and the full amount of the purchase price shall be paid not later than 9 months after the date on which such programs commence operations.

(2) Selling commissions payable on the units shall be paid only as and when the allocable part of the purchase price is paid by the participant.

(3) Such installments shall be contractually binding obligations of the buyer whether or not a promissory note is taken.

(4) If a promissory note is taken, the program shall not sell or assign it at a discount.

(b) In the event of a default in the payment of any installment due on an installment sale, the participant's percentage interest in the program should not be subject to forfeiture, but may be subject to a reasonable penalty for failure of the participant to meet his commitment. Provisions which conform to the following will be considered reasonable:

(1) A proportionate reduction of the participant's percentage interest in the program based on the ratio of his unpaid capital contribution as to the total capital contribution of all participants in the program; or,

(2) A subordination of the defaulting participant's right to receive revenues from the program until those non-defaulting participants who have paid the defaulting participant's assessment have received an amount of revenues from all revenues of the program equal to 300% of the proportionate amount of the defaulted capital contribution which they paid.

NOTE

Authority cited: Section 25610, Corporations Code. Reference: Section 25140, Corporations Code.

HISTORY

1. Editorial correction adding NOTE filed 11-8-82 (Register 82, No. 46).

§260.140.124. Selling Commissions, Selling Expenses and Offering Costs.

Note • History

(a) Selling expenses of programs are subject to Section 260.140.20 of these rules and should not exceed 15% of the initial subscriptions. Management fees or payments for so-called management services are considered as additional promotional compensation and ordinarily will not be permitted.

(b) Commissions payable on the sale of program units shall be paid in cash based solely on the amount of initial subscriptions. Payment of commissions in the form of overriding royalties, net profit interests or other interests in production ordinarily will not be approved, except that no objection will be raised to the payment of commissions in the form of working interests in property of the program, provided the amount does not exceed that purchasable by applying the aggregate cash commission allowable to the unit offering price.

(c) All items of compensation to underwriters or dealers, including but not limited to, selling commissions, expenses, rights of first refusal, consulting fees, finders' fees and all other items of compensation of any kind or description paid by the program, directly or indirectly, shall be taken into consideration in computing the amount of allowable selling commissions.

(d) As an alternative to the provisions of Subsection (a) above, a sponsor may elect to receive twelve and one-half percent (12 1/2%) of the initial subscriptions to a program (excluding assessments) provided (i) that all selling expenses are paid by the sponsor, and (ii) that the receipt by the sponsor of said twelve and one-half percent (12 1/2%) and the payment of all selling expenses by the sponsor shall be fully set forth in the prospectus. Selling expenses as used in this Subsection means the total underwriting and brokerage discounts and commissions (including fees of the underwriters' attorneys) paid in connection with the offering and all other expenses actually incurred in connection with the offer and sale of the units, including expenses for printing, engraving, mailing, salaries of employees while engaged in sales activity, charges of transfer agents, registrars, trustees, escrow holders, depositaries, and engineers and other experts, expenses of qualification of the sale of the securities under Federal and State laws, including taxes and fees, accountants' and attorneys' fees.

NOTE

Authority cited: Section 25610, Corporations Code. Reference: Section 25140, Corporations Code.

HISTORY

1. Editorial correction adding NOTE filed 11-8-82 (Register 82, No. 46).

§260.140.125. Sponsor's Compensation.

Note • History

The total amount of compensation of all kinds to the sponsor should be reasonable in the light of the nature of the exploration and development proposed, the nature of the services to be provided by the sponsor and the identity of the participants. A landowner's royalty or an overriding royalty or other interests paid to persons unconnected with the program as consideration for the acquisition of properties for the program shall not be deemed to be sponsor's compensation.

NOTE

Authority cited: Section 25610, Corporations Code. Reference: Section 25140, Corporations Code.

HISTORY

1. Editorial correction adding NOTE filed 11-8-82 (Register 82, No. 46).

§260.140.125.1. Compensation Arrangements.

Note • History

Any form of compensation arrangement that conforms to the following standards shall be considered presumptively reasonable for a sponsor who actively participates in obtaining a significant portion of a program's prospects and who assumes management responsibility for drilling, completing, equipping and operating a significant portion of the program's wells.

(a) Cost and Revenue Sharing. The sponsor may elect a compensation arrangement where he shares in revenue on a basis related to certain costs paid by him.

(1) Where the sponsor agrees to pay all tangible costs of the program but in any case at least 10% of the total program's capital contribution, even if the tangible costs otherwise payable are less than such 10%, his share of revenue will be determined by the following formula:

(A) If the agreement is to pay all tangible costs, but in any case a sum of not less than 10% of the capital contributions of the program, the sponsor is entitled to receive 35% of program revenues;

(B) If the agreement is to pay all tangible costs, but in any case a sum of not less than 15% of the capital contributions of the program, the sponsor is entitled to receive 40% of program revenues; and

(C) The sponsor's revenue sharing may be increased in additional increments of 5%, for each additional 5% increase in the percentage of capital contribution agreed to be paid by him, up to a maximum of 50% of revenues, subject to the sponsor's agreement to pay in any case all tangible costs.

(2) As an alternative to Subdivision (1), the sponsor may elect to receive 15% of revenues and an additional percentage of revenues determined by computing the sponsor's tangible costs as compared to total costs associated with obtaining production, on a prospect basis, until such time as the sponsor shall have received from such additional percentage of revenues an amount equal to his tangible costs; after which, revenues shall be distributed as follows: 15% of revenues to the sponsor and 85% of revenues to the participants until the participants shall have received on a program basis a return of their capital contributions and then, 15% plus the additional percentage of revenues shall be paid to the sponsor and the remainder to the participants.

(3) The agreement to pay tangible costs should include tangible costs for development during the life of the program. If the sponsor should enter into farm-out or other arrangements through which he is relieved of his obligation to pay for tangible costs, then the sponsor's share of revenue authorized by Subdivision (1) or (2) of this Section shall be proportionately reduced, the amount to be determined on an individual basis. Any such variation from the basic format described in either of said Subdivisions shall be fully disclosed in the application for qualification and must be approved in advance of the effectiveness of the qualification.

(4) In order to elect either of the sharing arrangements authorized by Subdivisions (1) or (2) hereof, the following conditions must be met:

(A) the sponsor has a net worth of $300,000 or 10% of the total contributions to the program by the participants, whichever is greater, and

(B) the sponsor is under a contractual obligation to pay his share of expenses as such expenses are paid by the program and to complete his minimum financial commitment to the program, by the end of the second fiscal year succeeding the fiscal year in which the program commenced operations.

(5) For the purposes of this Subsection (a) if a well is not abandoned within 90 days of completion, then it shall be deemed to be a commercial well insofar as the program is concerned and the sponsor may not recapture its tangible costs from the program, which otherwise would be treated as intangible costs upon abandonment.

(b) Other Compensation Arrangements.

In lieu of the compensation arrangements authorized by Subsection (a) hereof, the sponsor may take one of the following:

(1) A promotional interest in the form of a subordinated percentage of the working interest which does not exceed 33 1/3% of the working interest. A subordinated interest shall provide for the return from production to the investors of 100% of their capital contribution, determined on a prospect or total program basis, before the holder of any subordinated working interest may receive a share of revenues, and should provide that, when such promotional interest is entitled to receive distribution, it will bear costs in the same ratio as it participates in revenues; or,

(2) An overriding royalty of not more than 1/32 of the program's share of production, convertible to not more than a 20% working interest after the return from production to the investors of 100% of their capital contribution on a prospect or total program basis.

(c) If substantiated by the sponsor, any interest or combination of interests substantially equivalent to the compensation arrangements set forth in Subsections (a) and (b) above may be approved.

(d) The sharing arrangements set forth in this Section 260.140.125 shall not be considered presumptively reasonable (1) for a sponsor who does not actively participate in obtaining a significant portion of the program's prospects and who does not assume management responsibility for drilling, completing, equipping and operating a significant portion of a program's wells, unless such sponsor shall satisfactorily demonstrate that his compensation together with the costs of procuring such services for the program from third parties does not exceed the permissible compensation to the sponsor set forth in this Section, (2) where any overriding royalty is taken in a program in which lease acquisition costs are anticipated to exceed 25% of capital contributions to a program, (3) in the case of sharing arrangements where the sponsor does not pay his share or category of the costs on a current basis or where properties or revenues of the participants are pledged to obtain loans for the sponsor, (4) in the case of sharing arrangements in which the sponsor pays all development costs and exploratory wells are drilled on prospects which cannot reasonably be expected to require developmental drilling if the exploratory drilling is successful, or (5) in the case of sharing arrangements where the sponsor cannot demonstrate a financial ability to pay for his share of costs.

(e) Compensation for Regulation B Sponsors.

As an alternative to the sharing arrangements authorized by this Section 260.140.125.1, the sponsor of a Regulation B offering may elect to retain a working interest in the well or tract involved equal to a percentage of the aggregate drilling and completion costs of such well or tract paid by him, plus an additional percentage of 15%. To the extent that the sponsor intends to render drilling and related services under a “turn key” contract, the amount of profits in excess of 10% of the cost of providing such services will be considered in determining the reasonableness of the sponsor's aggregate promotional compensation.

Each sponsor of a Regulation B offering shall file with the Commissioner one copy of each of Forms 3-G and 1-G within 30 days after filing with the Securities and Exchange Commission.

(f) Compensation for Production Purchase Programs.

Compensation to sponsors of production purchase programs shall be limited as follows:

(1) Where a major portion of the sponsor's management and operating responsibilities are performed by third parties, the cost of which is paid by the program, the sponsor may take a 3% working interest convertible to not more than a 5% working interest after the return from production to the investors of 100% of their capital contribution, computed on a total program basis.

(2) Where the sponsor maintains the operating capabilities and technical staff so as to be in a position to, and in fact does provide the program with a major part of the management and operating responsibilities of the program, the sponsor may take a 10% working interest convertible to not more than a 15% working interest after the return from production to the investors of 100% of their capital contribution, computed on a total program basis.

The sponsor's interest in a program or in properties owned by a program shall bear a pro rata share of all costs, expenses and obligations of the program including but not limited to costs of operations, general and administrative expenses, debt service and any other items of expense chargeable to the operations of the program.

NOTE

Authority cited: Section 25610, Corporations Code. Reference: Section 25140, Corporations Code.

HISTORY

1. Editorial correction adding NOTE filed 11-8-82 (Register 82, No. 46).

§260.140.126. Program Expenses.

Note • History

(a) All actual and necessary expenses incurred by the program directly may be paid by the sponsor out of capital contributions and out of program revenues.

(b) A sponsor may be reimbursed out of capital contributions and program revenues for all actual and necessary direct expenses paid or incurred by it in connection with its operation of a program, and for an allocable portion of its general and administrative expenses, computed on a cost basis determined by an independent public accountant or certified public accountant in accordance with generally accepted accounting principles. Administrative and similar services must be fully supportable as to the necessity thereof and the reasonableness of the amounts proposed to be charged. The prospectus or offering circular shall disclose in tabular form an estimate of all such expenses to be charged to the program showing separately direct expenses, general and administrative expenses (including a separate breakdown for salaries to officers, directors and other principals of the sponsor and any affiliate of the sponsor).

(c) Except as may be permitted by Section 260.140.127.1 of these rules, the sponsor may not be reimbursed for any expenses incurred prior to commencement of operations of the program or any indirect, general or administrative expenses relating to the sale of program units.

NOTE

Authority cited: Section 25610, Corporations Code. Reference: Section 25140, Corporations Code.

HISTORY

1. Editorial correction adding NOTE filed 11-8-82 (Register 82, No. 46).

TRANSACTIONS WITH AFFILIATES AND CONFLICTS OF INTEREST

§260.140.127.1. Sales and Purchases.

Note • History

(a) Neither the sponsor nor any affiliated person shall sell or lease any property to or purchase or lease any property from the program, directly or indirectly, except pursuant to transactions that are fair and reasonable to the participants of the program and then subject to the following conditions:

(1) In the case of a sale or lease to a program:

(A) The prospectus discloses the fact that the sponsor will sell or lease property to the program and whether or not the property will be sold from the sponsor's existing inventory.

(B) The property is sold or leased to the program at the cost of the sponsor, unless the seller has reasonable grounds to believe that cost is materially more than the fair market value of such property, in which case such sale should be made for a price not in excess of its fair market value.

(C) If the sponsor sells or leases any oil, gas or other mineral interests or property to the program, he must, at the same time, sell to the program an equal interest in all his other property in the same prospect. If the sponsor or any affiliate subsequently proposes to acquire an interest in a prospect in which the program possesses an interest or in a prospect abandoned by the program within one year preceding such proposed acquisition, the sponsor shall offer such interest to the program; and, if cash or financing is not available to the program to enable it to consummate a purchase of an equivalent interest in such property, neither the sponsor nor any of its affiliates shall acquire such interest or property. The term “abandon” for the purpose of this subsection and of subsection (b) of Section 260.140.127.2 of these rules, shall mean the termination, either voluntarily or by operation of the lease or otherwise, of all of the program's interest in the prospect. The provisions of this subdivision shall not apply after the lapse of 5 years from the date of formation of the program.

(D) A sale or lease of less than all of the ownership of the sponsor in any interest or property is prohibited unless the interest retained by the sponsor is a proportionate working interest, the respective obligations of the sponsor and the program are substantially the same after the sale of the interest by the sponsor and his interest in revenues does not exceed the amount proportionate to his retained working interest. The sponsor may not retain any overrides or other burdens and may not enter into any farm-out arrangements with respect to his retained interest, except to nonaffiliated third parties.

(2) In the case of a purchase or lease of nonproducing property from a program, the purchase is made at a price which is the higher of the fair market value or the cost of such property.

(3) In the case of producing property, the sponsor shall not be given an exclusive right to purchase such property. A sale of producing property or interest therein, except for the sale of production, must consist of a sale of all of the program's interest in the property and must be made at a price determined by an appraisal prepared by an independent petroleum engineer. A sale of production must be on terms comparable to and competitive with prices obtainable on the open market.

(b) The oil program shall not purchase properties from nor sell properties to any program in which its sponsor or any affiliated person has an interest. This Subsection shall not apply to transactions among oil programs for whom the same person acts as sponsor by which property is transferred from one to another in exchange for the transferee's obligation to conduct drilling activities on such property or to joint ventures among such programs, provided that the respective obligations and revenue sharing of all parties to the transactions are substantially the same and provided further that the compensation arrangement or any other interest or right of the sponsor and any affiliated person of such sponsor is the same in each program, or, if different, the aggregate compensation of the sponsor does not exceed the lower of the compensation he would have received in any one of the programs.

(c) Any other provision of these rules notwithstanding, a sponsor may purchase property in its own name and hold title in trust for the benefit of the program, where necessary to facilitate the acquisition of such property or the business purposes of the programs.

NOTE

Authority cited: Section 25610, Corporations Code. Reference: Section 25140, Corporations Code.

HISTORY

1. Editorial correction adding NOTE filed 11-8-82 (Register 82, No. 46).

§260.140.127.2. Restricted and Prohibited Transactions.

Note • History

(a) Neither the sponsor nor any affiliate shall enter into any farm-out or other agreement with the oil program where in consideration for services to be rendered, an interest in production is payable to such sponsor or affiliate.

(b) During the existence of a program and before it has ceased operations neither the sponsor nor any affiliate (excluding another program where the interest of the sponsor is identical to or less than his interest in the first program) shall acquire, retain, or drill for its own account any oil and gas interest on any prospect upon which such program possesses an interest, except for sales or lease transactions which comply with Subdivision (D) of Section 260.140.127.1(a)(1) of these rules. In the event the program abandons its interest in the prospect, this restriction shall continue until one year following the abandonment. If the geological limits of a prospect are enlarged to encompass any interest held by such sponsor or affiliate, such interest shall be sold to such program in accordance with the provisions of Subdivision (C) of Section 260.140.127.1(a)(1) of these rules and any net income previously received by the sponsor or affiliate shall be paid over to such program. If within this period, the sponsor acquires additional acreage or interest in a prospect of the program, he must sell such to the program and is prohibited from retaining any such interest, except as may be permitted by Section 260.140.127.1(a) of these rules.

(c) The sponsor shall not take any action with respect to the assets or property of the program which does not benefit exclusively the program, including among other things:

(1) the utilization of funds of the program as compensating balances for his own benefit, and

(2) future commitments of production.

(d) All benefits from marketing arrangements or other relationships affecting property of the sponsor and the program shall be fairly and equitably apportioned according to the respective interests of each.

(e) Any agreements or arrangements which bind the program must be fully disclosed in the prospectus.

(f) Anything to the contrary notwithstanding, a sponsor may never profit by drilling in contravention of his fiduciary obligation to the participants.

(g) Neither the sponsor nor any affiliate shall render to the program any oil field, equipage or drilling services nor sell or lease to the program any equipment or related supplies unless:

(1) such person is engaged, independently of the program and as an ordinary and ongoing business, in the business of rendering such services or selling or leasing such equipment and supplies predominantly to other persons in the oil and gas industry in addition to programs in which he has an interest, and

(2) the compensation, price or rental therefore is competitive with the compensation, price or rental of other persons engaged in the business of rendering comparable services or selling or leasing comparable equipment and supplies which could reasonably be made available to the program, provided that, if such person is not engaged in a business within the meaning of Subdivision (1), then such compensation, price or rental shall be the cost of such services, equipment or supplies to such person or the competitive rate whichever is less.

(h) With the exception of compensation authorized by Section 260.140.125.1 of these rules, all services for which the sponsor and any affiliated person is to receive compensation shall be embodied in a written contract which:

(1) Precisely describes the services to be rendered and all compensation to be paid.

(2) Provides, in substance, that any material change in the terms of such contract must be approved by the vote of the holders of a majority of the units of the program.

(i) No loans may be made by the program to the sponsor.

(j) On loans made available to the program by the sponsor, the sponsor may not receive interest in excess of the amounts which would be charged the program (without reference to the sponsor's financial abilities or guaranties) by unrelated banks on comparable loans for the same purpose and the sponsor shall not receive points or other financing charges or fees regardless of the amount.

NOTE

Authority cited: Section 25610, Corporations Code. Reference: Section 25140, Corporations Code.

HISTORY

1. Editorial correction adding NOTE filed 11-8-82 (Register 82, No. 46).

§260.140.127.3. Exchange of Units.

Note • History

The program may not acquire property in exchange for units.

NOTE

Authority cited: Section 25610, Corporations Code. Reference: Section 25140, Corporations Code.

HISTORY

1. Editorial correction adding NOTE filed 11-8-82 (Register 82, No. 46).

§260.140.127.4. Commingling of Funds.

Note • History

The funds of a program shall not be commingled with the funds of any other person.

NOTE

Authority cited: Section 25610, Corporations Code. Reference: Section 25140, Corporations Code.

HISTORY

1. Editorial correction adding NOTE filed 11-8-82 (Register 82, No. 46).

§260.140.127.5. Liability.

Note • History

Sponsors shall not attempt to pass on to limited partners the general liability imposed on them by law except that the partnership agreement may provide that a general partner (a) may be held harmless and be indemnified by the partnership for any liability or loss suffered by the general partner solely by virtue of his acting as general partner for the partnership in connection with its activities and (b) shall not be liable to the partnership for any loss suffered by it in connection with its activities, provided that if such loss or liability arises out of any action or inaction of the general partner, the general partner must have determined, in good faith, that such course of conduct was in the best interests of the partnership, and such course of conduct must not have constituted gross negligence or gross misconduct by the general partner; and, provided further, that such indemnification or agreement to hold harmless shall only be recoverable out of the assets of the partnership and not from the limited partners.

NOTE

Authority cited: Section 25610, Corporations Code. Reference: Section 25140, Corporations Code.

HISTORY

1. Editorial correction adding NOTE filed 11-8-82 (Register 82, No. 46).

PARTICIPANTS' RIGHTS AND OBLIGATIONS

§260.140.128.1. Meetings.

Note • History

Meetings of the participants may be called by the general partner(s) or by participants holding more than 10% of the then outstanding units for any matters for which the participants may vote as set forth in the limited partnership agreement or charter document. Such call for a meeting shall be deemed to have been made upon receipt by the general partner of a written request from holders of the requisite percentage of units stating the purpose(s) of the meeting. The general partner shall deposit in the United States mails within fifteen days after receipt of said request, written notice to all participants of the meeting and the purpose of such meeting, which shall be held on a date not less than thirty nor more than sixty days after the date of mailing of said notice, at a reasonable time and place.

NOTE

Authority cited: Section 25610, Corporations Code. Reference: Section 25140, Corporations Code.

HISTORY

1. Editorial correction adding NOTE filed 11-8-82 (Register 82, No. 46).

§260.140.128.2. Voting Rights of Limited Partners.

Note • History

(a) To the extent the law of the state of organization is not inconsistent, the limited partnership agreement must provide that holders of a majority of the then outstanding units may, without the necessity for concurrence by the general partner, vote to (1) amend the limited partnership agreement or charter document, (2) dissolve the program, (3) remove the general partner and elect a new general partner, (4) approve or disapprove the sale of all or substantially all of the assets of the program, and (5) cancel any contract for services with the sponsor or any affiliate without penalty upon thirty days notice. The agreement should provide a detailed provision for the substitution of a new general partner and a provision for the purchase of the removed general partner's interest, excluding any interest he may have as an investor, including the following:

1. A method of valuation of the removed general partner's interest which is fair. Normally, valuation at the time of such removal by means of an appraisal, arbitration or agreement will be deemed fair.

2. A method of payment for such interest which is fair and which protects the solvency and liquidity of the partnership. If immediate payment would impose a hardship upon the partnership, the provision should call for payment plus reasonable interest to be postponed to the time payment of his subordinated interest would have been made.

NOTE

Authority cited: Section 25610, Corporations Code. Reference: Section 25140, Corporation Code.

HISTORY

1. Editorial correction adding NOTE filed 11-8-82 (Register 82, No. 46).

§260.140.128.3. Annual and Periodic Reports.

Note • History

(a) The partnership agreement or charter document shall provide for the transmittal to each participant of an annual report within 90 days after the close of the fiscal year, and of a semiannual report within 60 days after the end of the first six months of its fiscal year, containing, except as otherwise indicated, at least the following information:

(1) Financial statements, including a balance sheet and statements of income, partners' equity and changes in financial position prepared in accordance with generally accepted accounting principles and accompanied by an auditor's report containing an opinion of an independent certified public accountant or independent public accountant, except that semiannual reports need not be audited.

(2) A description of each geological prospect in which the program owns an interest, including the cost, location, number of acres under lease and the interest owned therein by the program.

(3) A list of the wells drilled by such program (indicating whether each of such wells has or has not been completed), the costs incurred in or allocable to drilling each well and the additional estimated costs to complete each well.

(4) A summary itemization, by type and/or classification of the total fees and compensation paid by the program, or indirectly on behalf of the program, to the sponsor and affiliates of the sponsor. If compensation is paid on a subordinated interest subject to Subsection (b)(1) of Section 260.140.125.1 of these rules, a reconciliation of all such payments to the conditions precedent and limitations thereto. The report should provide comparative data from which competitive prices may be determined, pursuant to Subsection (g)(2) of Section 260.140.127.2 of these rules.

(5) With respect to a program which compensates the sponsor in the manner permitted by Subsections (a)(1), (a)(2) and (e) of Section 260.140.125.1,

(A) a schedule reflecting the total program costs, and where applicable, the costs pertaining to each prospect, the costs paid by the sponsor and the costs paid by the participants,

(B) the total program revenues, the revenues received or credited to the sponsor and the revenues received or credited to the participants and

(6) Annually, beginning with the fiscal year succeeding the fiscal year in which the program commenced operations, a computation of the total oil and gas proven reserves of the program and dollar value thereof at then existing prices and of each participant's interest in such reserve value. The reserve computations shall be based upon engineering reports prepared by qualified independent petroleum engineers. In addition, there shall be included an estimate of the time required for the extraction of such reserves with a statement that because of the time period required to extract such reserves the present value of revenues to be obtained in the future is less than if immediately receivable. In addition to the annual computation and estimate required by this Section, as soon as possible, and in no event more than 90 days after the occurrence of an event leading to a reduction of such reserves of the program of more than 10%, a computation and estimate conforming to the above requirements shall be sent to each participant.

(b) By March 15 of each year, the general partner must furnish a report to each participant containing such information as is pertinent for tax purposes.

NOTE

Authority cited: Section 25610, Corporations Code. Reference: Section 25140, Corporations Code.

HISTORY

1. Editorial correction adding NOTE filed 11-8-82 (Register 82, No. 46).

§260.140.128.4. Access to Program Records.

Note • History

(a) The general partner shall maintain a list of the names and addresses of all participants at the principal office of the partnership. Such list shall be made available for the review of any participant or his representative at reasonable times, and upon request either in person or by mail the general partner shall furnish a copy of such list to any participant or his representative for the cost of reproduction and mailing.

(b) The participants and/or their accredited representatives shall be permitted access to all records of the program, after adequate notice, at any reasonable time. The sponsor shall maintain and preserve during the term of the program and for four (4) years thereafter all accounts, books, and other relevant program documents. Notwithstanding the foregoing, the sponsor may keep logs, well reports and other drilling data confidential for a reasonable period of time.

NOTE

Authority cited: Section 25610, Corporations Code. Reference: Section 25140, Corporations Code.

HISTORY

1. Editorial correction adding NOTE filed 11-8-82 (Register 82, No. 46).

§260.140.128.5. Admission of Participants.

Note • History

(a) Admission of participants to the program shall be subject to the following:

(1) Admission of Original Participants. Upon the original sale of partnership units by the program, the purchasers should be admitted as limited partners not later than 15 days after the release from impound of the purchasers' funds to the program, and thereafter purchasers should be admitted into the program not later than the last day of the calendar month following the date their subscriptions were accepted by the program. Subscriptions shall be accepted or rejected by the program within 30 days of their receipt; if rejected, all subscription monies shall be returned to the subscriber forthwith.

(2) Admission of Substituted Limited Partners and Recognition of Assignees. The program shall amend the certificate of limited partnership at least once each calendar quarter to effect the substitution of substituted limited partners, although the sponsor may elect to do so more frequently. In the case of assignments, where the assignee does not become a substituted limited partner, the program shall recognize the assignment not later than the last day of the calendar month following receipt of notice of assignment and required documentation.

NOTE

Authority cited: Section 25610, Corporations Code. Reference: Section 25140, Corporations Code.

HISTORY

1. Editorial correction adding NOTE filed 11-8-82 (Register 82, No. 46).

§260.140.128.6. Redemption and Repurchase of Units.

Note • History

(a) Ordinarily, the program may not be mandatorily obligated to redeem or repurchase any of the units of the program, although the program need not be precluded from purchasing such outstanding units if the purchase does not impair the capital or the operations of the program. Notwithstanding the foregoing, the program may obligate itself to redeem units under terms which comply with Section 260.140.116.6 of these rules.

(b) Provisions in the partnership agreement or other documents which require the unit owner to sell his unit or give the program or any other person the right to repurchase such unit, irrespective of the desire of the owner to sell, will not be approved.

NOTE

Authority cited: Section 25610, Corporations Code. Reference: Section 25140, Corporations Code.

HISTORY

1. Editorial correction adding NOTE filed 11-8-82 (Register 82, No. 46).

§260.140.128.7. Transferability of Program Units.

Note • History

Restrictions on assignment of units will not be allowed. Restrictions on the substitution of a limited partner are generally disfavored and will be allowed only to the extent necessary to preserve the tax status of the partnership and any restriction must be supported by opinion of counsel as to its legal necessity.

NOTE

Authority cited: Section 25610, Corporations Code. Reference: Section 25140, Corporations Code.

HISTORY

1. Editorial correction adding NOTE filed 11-8-82 (Register 82, No. 46).

§260.140.128.8. Accessibility and Defaults.

Note • History

(a) In appropriate cases there may be a provision for assessment; provided, however, that the maximum amount which may be assessed for a voluntary assessment shall not exceed 100% of the initial subscription and for a mandatory assessment shall not exceed 25% of the initial subscription, and provided further, that in no case shall the total of all assessments exceed 100% of the initial subscription. All such assessments shall be solely for the purpose of drilling or completing a development well or wells or for acquiring additional interests or leases in a prospect which has proven production. In such cases, the aggregate offering price of the units as set forth in the application for qualification shall include and show separately the basic unit offering price and the maximum amount of the assessment.

(b) In the event of a default in all or a portion of the payment of assessments, the participant's percentage interest in the program represented by his unit should not be subject to forfeiture, but may be subject to a reasonable penalty for the failure of the participant to meet his commitment. Provisions which conform to the following will be considered reasonable:

(1) For voluntary assessments,

(A) A proportionate reduction of the participant's percentage interest in revenues derived from future development based on the ratio of his unpaid assessment to all capital contributions and assessments used for such future development, or

(B) A subordination of the defaulting participant's right to receive revenues from future development until those nondefaulting participants who have paid the defaulting participant's assessment have received an amount of revenues from revenues of the program from future development equal to 300% of the proportionate amount of the defaulted assessment which they paid.

(2) For mandatory assessments,

(A) A proportionate reduction of the participant's percentage interest in program revenues based on the ratio of his unpaid assessment to all capital contributions and assessments, or

(B) A subordination of the defaulting participant's right to receive revenues from the program until those nondefaulting participants who have paid the defaulting participant's assessment have received an amount of revenues from all revenues of the program equal to 300% of the proportionate amount of the defaulted assessment which they paid.

(C) In order to make any assessment, the sponsor shall include with the call for such assessment a statement of the purpose and intended use of the proceeds from such assessment, a statement of the penalty to be imposed for failure of the participant to meet the assessment, and to the extent practicable, a summary of pertinent geological data on the relevant properties to which the assessments relate.

NOTE

Authority cited: Section 25610, Corporations Code. Reference: Section 25140, Corporations Code.

HISTORY

1. Editorial correction adding NOTE filed 11-8-82 (Register 82, No. 46).

2. Change without regulatory effect amending subsection (a) filed 9-25-2002 pursuant to section 100, title 1, California Code of Regulations (Register 2002, No. 39).

§260.140.128.9. Program Policies.

Note • History

The partnership agreement or charter document should include a recital in reasonable detail of the policies and objectives to be followed by the program. This will include a statement of the extent to which the program intends to engage in acquiring producing properties, acquiring or drilling on unproven or unexplored properties or acquiring or drilling on proven or semiproven properties.

NOTE

Authority cited: Section 25610, Corporations Code. Reference: Section 25140, Corporations Code.

HISTORY

1. Editorial correction adding NOTE filed 11-8-82 (Register 82, No. 46).

SALES MATERIALS AND MARKETING RESTRICTIONS

§260.140.129.1. Sales Literature.

Note • History

Sales literature, including without limitation, books, pamphlets, movies, slides, article reprints, and television and radio commercials, sales presentations (including prepared presentations to prospective participants at group meetings) and all other advertising used in the offer or sale of units shall conform in all applicable respects to filing, disclosure and adequacy requirements currently imposed on the sale of corporate securities under these rules. When periodic or other reports furnished to participants in prior programs are furnished to prospective participants in a program not yet sold, such reports will be treated as sales literature subject to the above requirements.

NOTE

Authority cited: Section 25610, Corporations Code. Reference: Section 25140, Corporations Code.

HISTORY

1. Editorial correction adding NOTE filed 11-8-82 (Register 82, No. 46).

§260.140.129.2. Group Meetings.

Note • History

All advertisements of and oral or written invitations to “seminars” or other group meetings at which units are to be described, offered or sold shall clearly indicate that the purpose of such meeting is to offer such units for sale, the minimum purchase price thereof, the suitability standards to be employed, and the name of the person selling the units. No cash, merchandise or other item of value shall be offered as an inducement to any prospective participants to attend any such meeting. All written or prepared audio-visual presentations (including scripts prepared in advance for oral presentations) to be made at such meetings must be submitted to the Department within the prescribed review period. The provisions of this Section shall not apply to meetings consisting only of representatives of securities' broker-dealers.

NOTE

Authority cited: Section 25610, Corporations Code. Reference: Section 25140, Corporations Code.

HISTORY

1. Editorial correction adding NOTE filed 11-8-82 (Register 82, No. 46).

DISCLOSURE AND MARKETING REQUIREMENTS

§260.140.130.1. Offerings Registered with the Securities and Exchange Commission (“SEC”).

Note • History

With respect to offerings registered with the Securities and Exchange Commission under the Securities Act of 1933, as amended and qualified with the Commissioner by coordination, a prospectus which is part of a registration statement which has been declared effective by said Commission shall be deemed to comply with all requirements as to form of this Rule; provided, however, that the Commissioner reserves the right to require additional disclosure of substance in his discretion.

NOTE

Authority cited: Section 25610, Corporations Code. Reference: Section 25140, Corporations Code.

HISTORY

1. Editorial correction adding NOTE filed 11-8-82 (Register 82, No. 46).

§260.140.130.2. Contents of Prospectus.

Note • History

(a) The following information shall be included in the prospectus of each program:

(1) Information on Cover Page. There should be set forth briefly on the cover page of the prospectus a summary which should include the following:

The title and general nature of the units being offered; the maximum aggregate amount of the offering; the minimum amount of net proceeds; the minimum subscription price; the period of the offering; the maximum amount of any sales or underwriting commissions to be paid (or if non, or if such commissions are paid by the sponsor), the nature of any sharing arrangement and fees; the estimated amount of organization and offering expenses, the estimated amount to be paid during the first twelve (12) months following commencement of operations for administrative and similar services.

(2) Definitions. Technical terms used in the prospectus should be defined either in a glossary or as they appear in the prospectus.

(3) Risk Factors. Participants should be advised in a carefully organized series of short, concise paragraphs, under subcaptions where appropriate, of the risks to be considered before making an investment in the program. These paragraphs should include a cross-reference to further information in the prospectus. In particular, in those cases where the sponsor has elected the compensation arrangement described in Section 260.140.125.1(a) (Cost and Revenue Sharing), there should be set forth the fact that there is a conflict where the sponsor must decide whether to complete a well which is anticipated to have a marginal return since the tangible costs he would incur would not appear to warrant his investment, although completion of the well would be in the best interests of the participants.

(4) Business Experience. The business experience of the sponsor(s), including general partner(s), principal officers of a corporate general partner (chairman of the board, president, vice president, treasurer, secretary or any person having similar authority or performing like functions) and others responsible for the program, shall be prominently disclosed in the prospectus, such disclosure indicating their business experience for the past ten years. The lack of experience or limited experience of the sponsor, or other person supplying services to the program, shall be prominently disclosed in the prospectus.

(5) Compensation. All indirect and direct compensation which may be paid by the program to the sponsor or any affiliate of every type and from every source shall be summarized in the forepart of the prospectus.

(6) Use of Proceeds. State the purposes for which the net proceeds to the program are intended to be used and the approximate amount intended to be used for each such purpose. Also state the minimum aggregate amount necessary to initiate the program and the disposition of the funds raised if they are not sufficient for that purpose.

(7) Assessments. If provisions for assessments are provided, the method of assessment and the penalty for default shall be prominently set forth.

(8) Investment Objectives and Policies. Describe the investment objectives and policies of the program.

(9) Description of Oil and Gas Interests. State the location and describe the general character of all materially important oil and gas interests now held or presently intended to be acquired by the program.

(10) Performance.

(A) The previous program experience of the sponsor and other relevant parties shall be disclosed in the prospectus for all programs during the past ten years which:

(i) Involved a public offering registered under State or Federal securities laws,

(ii) Involved a private or limited offering, the results of which are material to an informed investment decision by the participant.

(B) Information on previous programs shall include, but not be limited to, the following:

(i) Name of the program, including the type of legal entity and state of incorporation or organization.

(ii) The effective date of the offering, the date it commenced operations and the date of dissolution or termination or, if it is continuing.

(iii) The total amount of units, the gross amount of capital raised by the program, the number of participants, and the amount of investment of the sponsor, if applicable.

(iv) The drilling results of the program, including the number of gross and net wells drilled, both oil and gas, both exploratory and developmental, and both successful and unsuccessful.

(v) Total dollar amounts of federal tax deductible items passed on to participants.

(vi) Cash distribution to participants.

(vii) Compensation and fees to the sponsor, segregated as to type.

(viii) Disclosure of any development wells drilled which did not or have not returned the investment therein within four years.

(ix) Such additional or different disclosures of the success or failure of the programs as may be permitted or required by the Commissioner.

(D) The following caveat should be prominently featured in the presentation of the foregoing information: “It should not be assumed that participants in the offering covered by this prospectus will experience returns, if any, comparable to those experienced by investors in prior programs.”

(E) Information required to be set forth in Subsection (A) above shall be supported in the application for qualification by an affidavit of the sponsor that the performance summary is a fair representation of the information contained in the audited financial statement or the Federal income tax returns of the program or in other reports or data of the program or sponsor.

(11) Operating Data. Include appropriate data with respect to each property which is separately described in answer to paragraph (9) above.

(12) The Program.

(a) Date of formation.

(b) Place of formation.

(d) Address and telephone number of the program and the sponsor.

(e) Duration.

(f) Information called for in items (a) through (e) hereof shall be given for any other programs in which the program invests.

(13) Summary of Terms of the Program.

(a) Powers of the sponsor.

(b) Rights and liabilities of the participants.

(d) Termination and dissolution.

(e) Meetings and reports.

(f) Amendment of partnership agreement.

(g) Provision for additional assessments.

(h) Other pertinent matters.

(14) Federal Tax Consequences.

(a) A summary of an opinion of tax counsel acceptable to the Commissioner and/or a ruling from the IRS covering major state and federal tax questions relative to the program, which may be based on reasonable assumptions such as those described in Section 260.140.130.4 of these rules. To the extent the opinion of counsel or IRS ruling is based on the maintenance of or compliance with certain requirements or conditions by the sponsor(s), the prospectus shall to the extent practicable, contain representations that such requirements or conditions have been met and that the sponsors shall use their best efforts to continue to meet such requirements or conditions.

(b) Tax treatment of the program.

(d) Allocation of intangible drilling deductions, depreciation, depletion allowances, etc.

(e) Method of allocation of losses or profits and cash distributions upon transfer of a unit or the rights to income or revenues.

(f) Any other pertinent information applicable to the tax shelter aspects of the investment.

(g) Possibility of requirement for filing tax returns with states in which prospects are located.

(15) Units.

(a) Amount.

(b) Minimum purchase.

(d) Transferability.

(e) Voting rights.

(16) Plan of Distribution.

(a) Discounts and commissions.

(b) Estimated fees and expenses paid or reimbursed by the program.

(d) Terms of payment.

(e) Identity of underwriter, managing dealer and/or principal selling agent.

(f) Type of underwriting best efforts or firm commitment.

(g) Minimum and maximum sales.

(h) Escrow provisions.

(i) Material relationship of underwriter to the program, if any.

(17) Pending Legal Proceedings. Briefly describe any legal proceedings to which the program or the sponsor is a party which is material to the program and any material legal proceedings between sponsor and participants in any prior program of the sponsor. Also, describe any material legal proceedings to which any of the program's or sponsor's property is subject.

(18) Transactions with Affiliates. Describe fully any transactions and the dollar amount thereof which may be entered into between the program and the sponsor or any affiliate. Include a full description of the material terms of any agreement and the dollar amount thereof between the program and the sponsor or any affiliate. Where the sponsor sponsors other programs, describe the equitable principles which will apply in resolving any conflict between the programs. In the case where the program has been in existence, include all transactions and contracts of the program with the sponsor or any affiliate during the period of such existence.

(19) Interest of Affiliates in Program Property. If within the past five years the sponsor or any affiliate has been in the chain of title or had a beneficial interest in any property to be acquired by the program this fact must be disclosed.

(20) Interest of Counsel and Experts in the Sponsor or Program. Where counsel for the selling representatives or the sponsor are named in the prospectus as having passed upon the legality of the units being registered or upon other legal matters in connection with the registration or offering of such units, there should be disclosed in the prospectus the nature and amount of any direct or indirect material interests of any such counsel, other than legal fees to be received by such counsel, in the sponsor or any affiliate. Any such interest received or to be received in connection with the registration or offering of the units being registered, including the ownership or receipt by counsel, or by members of the firm participating in the matter, of securities of the sponsor, any affiliate of the program for services shall be disclosed. Employment by the sponsor, other than retainer is legal counsel, should be disclosed in the prospectus.

(21) Investment Company Act of 1940. Where beneficial interests of a program are to be sold, treatment under the Investment Company Act of 1940 must be disclosed.

(22) Financial Statements. As provided elsewhere in these rules.

(23) Additional Information. Any additional information which is material should be included.

NOTE

Authority cited: Section 25610, Corporations Code. Reference: Section 25140, Corporations Code.

HISTORY

1. Editorial correction adding NOTE filed 11-8-82 (Register 82, No. 46).

§260.140.130.3. Financial Information Required on Application.

Note • History

The sponsor or the program shall provide as an exhibit to the application or where indicated below shall provide as part of the prospectus, the following financial information and financial statements:

(a) Cash Flow Statement of Program. As part of the prospectus, if the program has been formed and owns assets, a cash flow statement, which may be unaudited, for the program for each of the last three fiscal years of the program (or for life of the program, if less) and unaudited statements for any interim period between the end of the latest fiscal year and the date of the balance sheet furnished, and for the corresponding interim period of the preceding years.

(b) Balance Sheet of Program. As part of the prospectus, a balance sheet of the program as of the end of its most recent fiscal year prepared in accordance with generally accepted accounting principles and accompanied by an auditor's report containing an unqualified opinion of an independent certified public accountant or independent public accountant, and an unaudited balance sheet as of a date not more than ninety days prior to the date of filing.

(c) Statements of Income, Partners' Equity, and Changes in Financial Position of Program. As part of the prospectus, if the program has been formed and owns assets, statements of income, statements of partners' equity, and statements of changes in financial position for the program for each of the last three fiscal years of the program (or for the life of the program, if less), all of which statements shall be prepared in accordance with generally accepted accounting principles and accompanied by an auditor's report containing an unqualified opinion of an independent certified public accountant or independent public accountant, and unaudited statements for any interim period ending not more than ninety days prior to the date of filing an application.

(d) Balance Sheet of General Partner.

(1) Corporate General Partner. A balance sheet of any corporate general partners as of the end of their most recent fiscal year, prepared in accordance with generally accepted accounting principles and accompanied by an auditor's report containing an unqualified opinion of an independent certified public accountant or independent public accountant, and an unaudited balance sheet as of a date not more than ninety days prior to the date of filing. Such statements shall be included in the prospectus.

(2) Other General Partners. A balance sheet for each noncorporate general partner (including individual partners or individual joint venturers of a sponsor) as of a time not more than ninety days prior to the date of filing an application; such balance sheet, which may be unaudited should conform to generally accepted accounting principles and shall be signed and sworn to by such general partners. A representation of the amount of such net worth must be included in the prospectus.

(e) Statements of Income for Corporate General Partners. A statement of income for the last fiscal year of any corporate general partner (or for the life of the corporate general partner, if less) prepared in accordance with generally accepted accounting principles and accompanied by an auditor's report containing an unqualified opinion of an independent certified public accountant or independent public accountant, and an unaudited statement for any interim period ending not more than ninety days prior to the date of filing an application. The inclusion of such statements in the prospectus shall be at the discretion of the Commissioner.

(f) Filing of Other Statements. Upon request by an applicant, the Commissioner may, where consistent with the protection of investors, permit the omission of one or more of the statements required under this Section and the filing, in substitution thereof, of appropriate statements verifying financial information having comparable relevance to an investor in determining whether he should invest in the program.

NOTE

Authority cited: Section 25610, Corporations Code. Reference: Section 25140, Corporations Code.

HISTORY

1. Editorial correction adding NOTE filed 11-8-82 (Register 82, No. 46).

§260.140.130.4. Opinions of Counsel.

Note • History

The application for qualification shall contain a favorable ruling from the IRS or an opinion of counsel to the effect that the program will be taxed as a “partnership” and not as an “association taxable as a corporation” for Federal and State income tax purposes. An opinion of counsel shall be in form satisfactory to the Commissioner and shall be unqualified except to the extent permitted by the Commissioner. However, an opinion of counsel may be based on reasonable assumptions, such as:

(a) facts or proposed operations as set forth in the prospectus and organization documents;

(b) the absence of future changes in applicable laws;

(c) compliance with certain procedures such as the execution and delivery of certain documents and the filing of a certificate of limited partnership or an amended certificate; and

(d) the continued maintenance of or compliance with certain financial, ownership or other requirements by the sponsor or general partner. The Commissioner may request from counsel as supplemental information such supporting legal memoranda and an analysis as he shall deem appropriate under the circumstances. To the extent the opinion of counsel or IRS ruling is based on the maintenance of or compliance with certain requirements or conditions by the sponsor or general partner, the prospectus shall contain representations that such requirements or conditions will be met and the partnership agreement shall, to the extent practicable, contain provisions requiring such compliance. There shall be included also an opinion of counsel to the effect that the units being offered will be duly authorized or created and validly issued interests in the program, and that the liability of the participants will be limited to their respective capital contributions, except as set forth in the prospectus.

NOTE

Authority cited: Section 25610, Corporations Code. Reference: Section 25140, Corporations Code.

HISTORY

1. Editorial correction adding NOTE filed 11-8-82 (Register 82, No. 46).

MISCELLANEOUS PROVISIONS

§260.140.131.1. Reinvestment of the Participants' Revenues.

Note • History

(a) No offering will be approved by the Commissioner that includes a provision which requires that the participant reinvest his share of distributable cash distributions.

(b) Subject to compliance with applicable securities laws, a program may make available to its participants a voluntary plan for systematic reinvestments in such program or in any other program. No sales commissions may be charged the participants, however, for effecting such reinvestment.

NOTE

Authority cited: Section 25610, Corporations Code. Reference: Section 25140, Corporations Code.

HISTORY

1. Editorial correction adding NOTE filed 11-8-82 (Register 82, No. 46).

§260.140.131.2. Minimum Program Capital.

Note • History

No offering shall be approved by the Commissioner if the minimum subscriptions necessary to activate the program are less than $500,000. Additionally, in those instances where it appears unlikely that the stated objectives of the program can be achieved with the minimum subscriptions, the Commissioner may require a greater amount or a reduction of the stated objectives of the program.

NOTE

Authority cited: Section 25610, Corporations Code. Reference: Section 25140, Corporations Code.

HISTORY

1. Editorial correction adding NOTE filed 11-8-82 (Register 82, No. 46).

§260.140.131.3. Impound Condition.

Note • History

(a) An impound condition as described in Section 260.141.20 et seq of these rules may be imposed as a condition to the qualification of the program units.

(b) In those instances where a formal impound is not required, a provision must be included in the prospectus to the effect that all funds (including sales commissions and monies destined for reimbursement of offering costs) must be deposited in a trust account in a bank for the benefit of the participants of the program, subject to release only when the minimum program subscriptions have been deposited. The prospectus must also provide that such funds without deduction are to be promptly returned to the participants in the event that the minimum program subscriptions have not been obtained within the time specified in the prospectus, but in no event more than 6 months after commencement of the offering. A copy of the instructions to the bank utilized must be filed with the Commissioner prior to the effectiveness of the qualification.

NOTE

Authority cited: Section 25610, Corporations Code. Reference: Section 25140, Corporations Code.

HISTORY

1. Editorial correction adding NOTE filed 11-8-82 (Register 82, No. 46).

§260.140.131.4. Legend Condition.

Note • History

A legend restricting transferability, in the form set forth in Section 260.141.11 of these rules, will normally be required as a condition to the qualification for sale of units and must be fully described and set forth in the prospectus and the documents evidencing the units.

NOTE

Authority cited: Section 25610, Corporations Code. Reference: Section 25141, Corporations Code.

HISTORY

1. Editorial correction adding NOTE filed 11-8-82 (Register 82, No. 46).

§260.140.131.5. Offers of Exchanges.

Note • History

(a) No sponsor or any affiliates shall make or cause to be made any offer to a participant to exchange his units for a security of any company, unless:

(1) such offer is made after the expiration of two years after such program commenced operations;

(2) such offer is made to all participants;

(3) such offer, if made by a third party to the sponsor or principal underwriter, or any affiliate of such sponsor or principal underwriter, is on a basis not more advantageous to such sponsor, principal underwriter or affiliate than to participants.

(4) the value of the security or other consideration offered is at least equivalent to the value of the units;

(5) the value of any reserves used in computing the exchange ratio is supported by an appraisal prepared by an independent petroleum engineer within 120 days of the date such exchange is to be made; the value of any undeveloped acreage used in computing the exchange ratio is at cost unless fair market value, as evidenced by supporting data, is higher; and the value of other assets used in computing the exchange ratio is based upon audited financial statements prepared in accordance with generally accepted accounting principles consistently applied; and

(6) the offer is made pursuant to a qualification first obtained and, unless exempt, by means of a Registration Statement meeting the requirements of the Securities Act of 1933, as amended.

For purposes of this Section, an “offer of exchange” includes any security of an oil program which is convertible into a security issued by the sponsor or another issuer.

NOTE

Authority cited: Section 25610, Corporations Code. Reference: Section 25140, Corporations Code.

HISTORY

1. Editorial correction adding NOTE filed 11-8-82 (Register 82, No. 46).

§260.140.131.6. Other Securities.

Note • History

The sale of units in a program together with shares, options to purchase shares or other securities issued by the sponsor or another issuer ordinarily will not be permitted, unless such other securities viewed separately satisfy the requirements otherwise applicable to an open qualification.

NOTE

Authority cited: Section 25610, Corporations Code. Reference: Section 25140, Corporations Code.

HISTORY

1. Editorial correction adding NOTE filed 11-8-82 (Register 82, No. 46).

§260.140.131.7. Investments in Other Programs.

Note • History

Investments in units of another limited partnership, in general partnerships or joint ventures shall be prohibited unless

(a) there is no duplication of selling commissions, selling expenses, offering costs, and sponsor's compensation or other fees and costs and

(b) in the case of investments in other limited partnerships, such other limited partnerships shall provide for their limited partners all of the rights and obligations required by these rules to be provided by the original program.

NOTE

Authority cited: Section 25610, Corporations Code. Reference: Section 25140, Corporations Code.

HISTORY

1. Editorial correction adding NOTE filed 11-8-82 (Register 82, No. 46).

§260.140.131.8. Limited Offerings.

Note • History

The Commissioner may approve any offering on a basis other than that permitted in these rules, if the class of investors is sufficiently limited. The Commissioner will take into consideration in reviewing such restricted or limited offerings, among other things, the identity of the investors, the suitability standards to be employed, the relationship of the investors, the knowledgeability of the investors, the legal, business, technical and accounting advice available to and utilized by the investors and any other factors deemed relevant.

NOTE

Authority cited: Section 25610, Corporations Code. Reference: Section 25140, Corporations Code.

HISTORY

1. Editorial correction adding NOTE filed 11-8-82 (Register 82, No. 46).

§260.140.131.9. Provisions of Partnership Agreement.

Note • History

The requirements and/or provisions of appropriate portions of the following sections shall be included in the partnership agreement or other charter document: 260.140.122.3; 260.140.123.6; 260.140.125.1; 260.140.126; 260.140.127.1; 260.140.127.2; 260140.127.3; 260.140.127.4; 260.140.127.5; 260.140.128.1; 260.140.128.2; 260.140.128.3; 260.140.128.4; 260.140.128.5; 260.140.128.6; 260.140.128.7; 260.140.128.8; 260.140.128.9; 260.140.131.1; 260.140.131.5 and 260.140.131.7.

NOTE

Authority cited: Section 25610, Corporations Code. Reference: Section 25140, Corporations Code.

HISTORY

1. Editorial correction adding NOTE filed 11-8-82 (Register 82, No. 46).

Subarticle 12. Nonissuer Qualifications

§260.140.135. General Standard.

Note • History

Except as otherwise provided in this subarticle, a security will not be qualified for nonissuer transactions pursuant to Section 25130 of the Code unless it appears (i) that full, complete and accurate information is provided upon all matters required to be stated in the application, (ii) that all information contained therein whether required or not, is accurate and not misleading, and (iii) that there is no factor indicating that the market in the security will be subject to manipulation or other artificial influences. The failure of an issuer to make available to the public on a timely basis adequate and accurate information regarding developments materially affecting its affairs or securities normally will be deemed a factor indicating that the market in the security will be subject to artificial influence.

NOTE

Authority cited: Sections 25241 and 25610, Corporations Code. Reference: Div. 1, Title 4, Sections 25140-25142, 25241 and 25534, Corporations Code.

HISTORY

1. New Subarticle 12 (Secs. 260.140.130 through 260.140.134) filed 5-10-73; effective thirtieth day thereafter (Register 73, No. 19).

2. Renumbering of Sections 260.140.130-260.140.134 to 260.140.135- 260.140.139 filed 12-6-74; effective thirtieth day thereafter (Register 74, No. 49).

§260.140.136. Application of Standards for Issuer Transactions.

Note • History

Ordinarily, applications to qualify securities for nonissuer transactions are subject to the standards for review of applications for the qualification of issuer transactions only in the following instances:

(a) An application is filed in connection with a proposed offering of the securities pursuant to a registration under the Securities Act of 1933 (15 USC 77a et seq.) or pursuant to an exemption under Regulation A under that Act. (17 CFR 230.251 et seq.).

(b) The issuer within 24 months immediately preceding the date of filing the application had a public offering which was not qualified in this state or which was qualified in this state as a limited offering.

(c) A significant market for the securities proposed to be qualified does not presently exist in California. A significant market in the securities will be deemed to exist if the securities are held by not less than 100 persons in California and are subject to regular quotations of prices by at least one market maker.

NOTE

Authority cited: Section 25610, Corporations Code. Reference: Sections 25131 and 25140, Corporations Code.

HISTORY

1. Editorial correction adding NOTE filed 3-9-83 (Register 83, No. 11).

2. Amendment filed 8-7-85; effective thirtieth day thereafter (Register 85, No. 32).

§260.140.137. Shell Companies.

Note • History

An application to qualify securities for nonissuer transactions should show that the issuer's assets are productively employed in the operation of an on-going business. Ordinarily an issuer showing annual gross receipts from operations of not less than $500,000 will be deemed to meet this requirement.

NOTE

Authority cited: Section 25610, Corporations Code. Reference: Sections 25131 and 25140, Corporations Code.

HISTORY

1. Editorial correction adding NOTE filed 3-9-83 (Register 83, No. 11).

2. Amendment filed 8-7-85; effective thirtieth day thereafter (Register 85, No. 32).

§260.140.138. Non-Qualifiable Securities.

Note • History

Ordinarily, securities which are subject to any of the limitations described below will not be qualified for nonissuer transactions:

(a) Common shares which are nonvoting or whose voting rights are disproportionate to other classes of common shares in relation to market price or equity interest.

(b) Securities which are not freely transferable. Securities which are subject to an escrow or legend condition or to a right of first refusal, and stock purchased for investment (letter stock) are considered to be not freely transferable within the meaning of this provision. If only some but not all securities of the class sought to be qualified are subject to such limitations, the application will not be denied solely on this ground if adequate assurances are established against a distribution of the securities subject to the limitations.

NOTE

Authority cited: Section 25610, Corporations Code. Reference: Sections 25131 and 25140, Corporations Code.

HISTORY

1. Editorial correction adding NOTE filed 3-9-83 (Register 83, No. 11).

2. Amendment filed 8-7-85; effective thirtieth day thereafter (Register 85, No. 32).

§260.140.139. Failure to Furnish Information.

Note • History

Failure to supply information with the application which is sought to be excused under the provisions of subdivision (d) of Section 25131 of the Code shall be supported by an affidavit. The affidavit shall be executed by the applicant and by each person on whose behalf the distribution is to be made and shall include, as to each deficiency:

(a) A statement that the information is unknown to such person (and, if a corporation or partnership, to all officers, directors and partners thereof);

(b) A statement of all efforts made to obtain such information and the reasons ascribed to their failure; and

(c) A statement in reasonable detail as to the reasons why further efforts to obtain such information should be deemed to involve unreasonable effort or expense.

NOTE

Authority cited: Section 25610, Corporations Code. Reference: Sections 25131 and 25140, Corporations Code.

HISTORY

1. Editorial correction adding NOTE filed 3-9-83 (Register 83, No. 11).

Article 5. Conditions of Qualification

Subarticle 1. Conditions on Promotional Shares

§260.141. Waiver of Assets and Dividends.

Until such conditions are removed by order of the Commissioner, normally all promotional shares should be subject to the conditions that the holders thereof waive all rights:

(a) To receive cash or property dividends; and

(b) To participate in any distribution of assets, in the event of liquidation.

§260.141.1. Restriction on Transfer.

It is unlawful to consummate a sale or transfer of any promotional shares, or any interest therein, without the prior written consent of the Commissioner, except pursuant to the order or process of any court provided that such transfer is on condition that any certificate evidencing such shares issued to the transferee shall contain the legend required by this Section. The certificates representing all shares subject to promotional waivers, whether upon original issuance or upon any transfer thereof, shall, until this condition is removed by order of the Commissioner, bear on their face a legend, prominently stamped or printed thereon and in capital letters of not less than 10-point size, reading as follows:

“THE SHARES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO CERTAIN RESTRICTIONS, INCLUDING WAIVERS OF DIVIDENDS AND ASSETS; AND IT IS UNLAWFUL TO CONSUMMATE A SALE OR TRANSFER OF THEM, OR ANY INTEREST THEREIN, OR RECEIVE ANY CONSIDERATION THEREFOR, WITHOUT THE PRIOR WRITTEN CONSENT OF THE COMMISSIONER OF CORPORATIONS OF THE STATE OF CALIFORNIA.”

§260.141.2. Removal of Conditions on Promotional Shares.

Note • History

Upon application, the Commissioner may issue an order eliminating the conditions imposed on promotional shares when the issuer has demonstrated a satisfactory earnings record, if no other circumstances exist which would require the continuation of one or more of such conditions. The removal of such conditions is solely within the discretion of the Commissioner and no right is conferred by the imposition of such conditions upon the holders of shares other than promotional shares to their continuation. An earnings record will usually be considered satisfactory if the average annual earnings during a three-year period is equal to a reasonable return for the particular type of business on an amount determined by multiplying the total number of outstanding shares of the issuer by the average price at which the nonpromotional shares were originally issued and sold.

NOTE

Authority cited: Section 25610, Corporations Code. Reference: Section 25141, Corporations Code.

HISTORY

1. Amendment of form filed 5-14-69; effective thirtieth day thereafter (Register 69, No. 20).

2. Amendment filed 1-4-77; effective thirtieth day thereafter (Register 77, No. 2).

3. Amendment refiled 1-7-77; effective thirtieth day thereafter (Register 77, No. 2).

§260.141.3. Use of Escrow Rather Than Legend.

In cases where the Commissioner determines that there is an unusual danger that promotional shares might be distributed to the public despite the requirement of a legend on the certificates, he may require that the certificates representing promotional shares be deposited in escrow. No person shall be qualified to act as escrow holder until the Commissioner has issued a written order approving such person as an escrow holder.

Subarticle 2. Conditions Restricting Transfer of Other Securities

§260.141.10. Bases for Imposition of Legend Condition.

In cases where securities are issued pursuant to a limited offering qualification and (a) a variation from the standards normally imposed in an open qualification is approved by the Commissioner based upon the characteristics of the particular purchasers or their close relationship with the issuer and the Commissioner determines that there is a substantial danger that subsequent transfers of such securities might be unfair, unjust or inequitable to the subsequent purchasers thereof despite the provisions of the Code requiring the qualification of nonissuer transactions, or (b) the applicant requests that a restriction on transfer be imposed, a condition may be imposed on the qualification restricting the transfer of the securities to be offered and sold and requiring a legend on the certificates therefor in accordance with Section 260.141.11 of these rules.

§260.141.11. Restriction on Transfer.

Note • History

(a) The issuer of any security upon which a restriction on transfer has been imposed pursuant to Section 260.141.10 or 260.534 shall cause a copy of this section to be delivered to each issuee or transferee of such security at the time the certificate evidencing the security is delivered to the issuee or transferee.

(b) It is unlawful for the holder of any such security to consummate a sale or transfer of such security, or any interest therein, without the prior written consent of the Commissioner (until this condition is removed pursuant to Section 260.141.12 of these rules), except:

(1) to the issuer;

(2) pursuant to the order or process of any court;

(3) to any person described in Subdivision (i) of Section 25102 of the Code or Section 260.105.14 of these rules;

(4) to the transferor's ancestors, descendants or spouse, or any custodian or trustee for the account of the transferor or the transferor's ancestors, descendants, or spouse; or to a transferee by a trustee or custodian for the account of the transferee or the transferee's ancestors, descendants or spouse;

(5) to holders of securities of the same class of the same issuer;

(6) by way of gift or donation inter vivos or on death;

(7) by or through a broker-dealer licensed under the Code (either acting as such or as a finder) to a resident of a foreign state, territory or country who is neither domiciled in this state to the knowledge of the broker-dealer, nor actually present in this state if the sale of such securities is not in violation of any securities law of the foreign state, territory or country concerned;

(8) to a broker-dealer licensed under the Code in a principal transaction, or as an underwriter or member of an underwriting syndicate or selling group;

(9) if the interest sold or transferred is a pledge or other lien given by the purchaser to the seller upon a sale of the security for which the Commissioner's written consent is obtained or under this rule not required;

(10) by way of a sale qualified under Sections 25111, 25112, 25113, or 25121 of the Code, of the securities to be transferred, provided that no order under Section 25140 or subdivision (a) of Section 25143 is in effect with respect to such qualification;

(11) by a corporation to a wholly owned subsidiary of such corporation, or by a wholly owned subsidiary of a corporation to such corporation;

(12) by way of an exchange qualified under Section 25111, 25112 or 25113 of the Code, provided that no order under Section 25140 or subdivision (a) of Section 25143 is in effect with respect to such qualification;

(13) between residents of foreign states, territories or countries who are neither domiciled nor actually present in this state;

(14) to the State Controller pursuant to the Unclaimed Property Law or to the administrator of the unclaimed property law of another state; or

(15) by the State Controller pursuant to the Unclaimed Property Law or by the administrator of the unclaimed property law of another state if, in either such case, such person (i) discloses to potential purchasers at the sale that transfer of the securities is restricted under this rule, (ii) delivers to each purchaser a copy of this rule, and (iii) advises the Commissioner of the name of each purchaser;

(16) by a trustee to a successor trustee when such transfer does not involve a change in the beneficial ownership of the securities;

(17) by way of an offer and sale of outstanding securities in an issuer transaction that is subject to the qualification requirement of Section 25110 of the Code but exempt from that qualification requirement by subdivision (f) of Section 25102; provided that any such transfer is on the condition that any certificate evidencing the security issued to such transferee shall contain the legend required by this section.

(c) The certificates representing all such securities subject to such a restriction on transfer, whether upon initial issuance or upon any transfer thereof, shall bear on their face a legend, prominently stamped or printed thereon in capital letters of not less than 10-point size, reading as follows:

“IT IS UNLAWFUL TO CONSUMMATE A SALE OR TRANSFER OF THIS SECURITY, OR ANY INTEREST THEREIN, OR TO RECEIVE ANY CONSIDERATION THEREFOR, WITHOUT THE PRIOR WRITTEN CONSENT OF THE COMMISSIONER OF CORPORATIONS OF THE STATE OF CALIFORNIA, EXCEPT AS PERMITTED IN THE COMMISSIONER'S RULES.”

NOTE

Authority cited: Section 25610, Corporations Code. Reference: Section 25141, Corporations Code.

HISTORY

1. Amendment filed 1-4-77; effective thirtieth day thereafter (Register 77, No. 2). For prior history, see Register 74, No. 9.

2. Amendment refiled 1-7-77; effective thirtieth day thereafter (Register 77, No. 2).

3. Amendment filed 6-12-80; effective thirtieth day thereafter (Register 80, No. 24).

4. Amendment of subsection (b)(16) and new subsection (b)(17) filed 12-22-87; operative 1-21-88 (Register 88, No.2).

5. Amendment of subsection (a) filed 5-20-97; operative 5-20-97 pursuant to Government Code section 11343.4(d) (Register 97, No. 21).

§260.141.12. Removal of Restriction on Transfer.

Note • History

Upon application (Form 260.141.50), the Commissioner will issue an order eliminating the restriction on transfer provided for in any condition imposed pursuant to Section 260.141.10, or eliminating the restriction on transfer imposed upon securities by an order issued pursuant to Section 25534 of the Code, if the Commissioner finds:

(a) That circumstances no longer require the imposition of the condition, and

(b) That subsequent transfers of the securities are not likely to be unfair, unjust or inequitable to any purchaser thereof.

NOTE

Authority cited: Section 25610, Corporations Code. Reference: Section 25141, Corporations Code.

HISTORY

1. Amendment filed 1-4-77; effective thirtieth day thereafter (Register 77, No. 2).

2. Amendment refiled 1-7-77; effective thirtieth day thereafter (Register 77, No. 2).

3. Amendment filed 5-3-83; effective thirtieth day thereafter (Register 83, No. 19).

4. Amendment of first paragraph filed 5-20-97; operative 5-20-97 pursuant to Government Code section 11343.4(d) (Register 97, No. 21).

§260.141.13. Release of Outstanding Escrows.

Note • History

(a) All previous permits issued by the Commissioner under the California Corporate Securities Law as it existed prior to January 2, 1969, requiring the escrow of securities (other than promotional shares subject to waivers of assets or dividends and other than shares issued by corporations licensed under the Escrow Law, Sections 17000 and following, California Financial Code) shall be deemed amended to delete the escrow condition and to substitute therefor a legend condition restricting the transfer of such securities pursuant to Section 260.141.11 of these rules and subject to the qualifications and exceptions contained in that section of these rules, as to any or all such securities (other than promotional shares subject to waiver of assets or dividends and other than shares issued by corporations licensed under the Escrow Law, Sections 17000 and following, California Financial Code), upon the escrow holder holding the certificates representing the same stamping or printing prominently on their face a legend in the form prescribed by Section 260.141.11 of these rules. The escrow holder may take this action at his own election and must take said action upon the written request of any or all of the record owners of such securities. The escrow holder is hereby authorized to release certificates so legended to the record owners thereof, and is required to release certificates to any record owner upon whose written request they have been legended, or who makes a written request to the escrow holder for delivery of certificates which have been legended at the election of the escrow holder. Upon such release of certificates to the record owner, the escrow holder shall also deliver to the record owner a copy of Section 260.141.11 of these rules.

Any such escrow holder releasing securities from escrow pursuant to this section must within one month thereafter notify the Commissioner of such action.

(b) The notice referred to in Subsection (a) shall be in the following form, on which shall be printed a copy of Subsection (a):

TO THE COMMISSIONER OF CORPORATIONS OF

THE STATE OF CALIFORNIA

Notice of Release of Securities from Escrow

Pursuant to Section 260.141.13 of the rules of the Commissioner of Corporations, you are hereby notified that the securities formerly held by the undersigned in escrow pursuant to a permit issued, to

dated ________________, 19____ (File No. ________), have been released from escrow and delivered to the following persons who are the record owners thereof:

All such certificates delivered to such record owners contained the legend required by Section 260.141.11 of the Commissioner's rules. A copy of Section 260.141.11 of the Commissioner's rules has been delivered to each record owner of the securities.

The undersigned has duly caused this notice to be executed on its behalf by the person signing the same, who was duly authorized to do so.

__________________________________

By ______________________________

__________________________________

(Title)

I certify (or declare) under penalty of perjury under the laws of the State of California that I have read this notice and know the contents thereof, and that the statements therein are true and correct.

Executed at_________________, on_____________, 19________,

__________________________________

(Signature)

NOTE

Authority cited: Section 25610, Corporations Code. Reference: Section 25141, Corporations Code.

HISTORY

1. Amendment filed 1-4-77; effective thirtieth day thereafter (Register 77, No. 2). For prior history, see Register 75, No. 14.

2. Amendment refiled 1-7-77; effective thirtieth day thereafter (Register 77, No. 2).

3. Amendment filed 6-12-80; effective thirtieth day thereafter (Register 80, No. 24).

4. Amendment filed 2-11-85; effective thirtieth day thereafter (Register 85, No. 7).

§260.141.14. Amendment to Escrow Conditions.

All previous permits issued by the Commissioner under the California Corporate Securities Law as it existed prior to January 2, 1969 requiring the escrow of securities (whether or not promotional) are hereby amended to permit the transfer of such securities pursuant to the order or process of any court without the consent of the Commissioner, provided a notice that such transfer has been effected and stating the name of the transferee accompanied by a copy of the order or process is mailed to the Commissioner within five days after such transfer is consummated, together with a copy of the appropriate receipt of the escrow holder.

§260.141.15. Substitution of Commissioner as Escrow Holder.

Note • History

An escrow holder may request that the Commissioner be substituted as escrow holder and, upon a showing of good cause such as the suspension of the corporate existence of the issuer for nonpayment of franchise fees, such substitution will be ordered without payment of the fees prescribed by Section 25608(k) of the Code. Upon issuance of an order substituting the Commissioner as escrow holder, the former escrow holder shall deliver all escrowed certificates to the Commissioner in accordance with his written instructions and shall furnish together therewith in duplicate a list of all certificates held in escrow setting forth the name of the issuer and showing the serial number or other identification of each certificate, the name of the security holder as it appears thereon, the number of shares or the fact amount and the class of securities evidenced thereby. One copy of such list will be returned to the former escrow holder as his receipt.

NOTE

Authority cited: Section 25610, Corporations Code.

HISTORY

1. New section filed 7-13-70; effective thirtieth day thereafter (Register 70, No. 29).

Subarticle 3. Impound Condition

§260.141.20. Imposition of Impound Condition.

In a case where the offering of securities is not firmly underwritten, the Commissioner considers that the following conditions normally require the imposition of an impound condition:

(a) That a specific minimum amount of funds is necessary to finance the proposed undertaking as described in the application; and

(b) That it is inadvisable for the issuer to expend any of the proceeds from the sale of securities prior to receipt of such minimum amount.

§260.141.21. Operation of Impound Condition.

History

When an impound condition is imposed in connection with the sale of securities, the issuer may not issue any certificates or other evidences of securities, except subscription agreements, unless and until the impound condition has been satisfied and the impounds have been released to the issuer pursuant to an order of the Commissioner, as provided in Section 260.141.24 of these rules. All checks shall be made payable to the depositary or to a licensed broker-dealer acting as the selling agent.

One hundred percent of any amounts received from the sale of securities, including any amounts to be allowed as selling expenses, shall within 48 hours of the receipt be placed with the depositary until the Commissioner takes further action pursuant to Section 260.141.24 of these rules.

HISTORY

1. Editorial correction (Register 72, No. 36).

§260.141.22. Subscription Agreements and Purchase Receipts.

Note • History

(a) When an impound condition is imposed, the issuer shall deliver to each subscriber a subscription agreement in a form approved by the Commissioner. The subscription agreement shall set forth, at least,

(1) the complete names and addresses of the issuer and the subscriber;

(2) the complete name of the agent of the issuer or broker receiving the payment;

(3) the number of securities purchased and the total purchase price;

(4) the amount of the payment received;

(5) the complete name and address of the depositary with whom the payment will be placed; and

(6) the date of the payment. In addition, the subscription agreement should contain the following statement: “This subscription is made pursuant to, and is subject to, the terms and conditions of the qualification approved by the Commissioner of Corporations of the State of California for (name of issuer) under date of (date of qualification).” Subscription agreements shall be consecutively numbered and prepared in quadruplicate and the original given to the subscriber, the first copy to the depositary together with the payment received, the second copy to the issuer, and the third copy shall be retained by the broker, if any, unless the Commissioner approves another form of subscription agreement. For example, the Commissioner may require that the subscription agreements be press-numbered.

(b) If securities are to be paid for in installments, each subscriber shall be given a receipt, in a form satisfactory to the Commissioner, for each installment payment made subsequent to the first payment. Such receipt shall set forth, at least,

(1) the date of the payment;

(2) the amount of such payment; and

(3) a reference to the number of the subscription agreement to which payment relates.

NOTE

Authority cited: Section 25610, Corporations Code. Reference: Section 25141, Corporations Code.

HISTORY

1. Amendment filed 6-12-80; effective thirtieth day thereafter (Register 80, No. 24).

§260.141.23. Depositary.

Note • History

(a) Funds subject to an impound condition shall be placed in a separate escrow account with an approved depositary, which normally shall be a national bank located in California or a California bank. The Commissioner may permit the use of any national bank or foreign state-chartered bank subject to regulatory supervision similar to that of California banks by an issuer located in another state if less than 50% of the securities are offered in California.

(b) An application for the Commissioner's approval of a depositary shall contain the following information:

(1) The name, including identification of the branch office, if any, and the address of the depositary;

(2) A written consent of the depositary to act in such capacity;

(3) A copy of the agreement between the issuer and the depositary containing all the terms and conditions pursuant to which the depositary will act. The agreement shall

(A) provide that the disbursement of the impounded funds by the depositary will be at the direction of the Commissioner only;

(B) provide that, unless and until the Commissioner orders the release of the impounded funds to the issuer, such funds are not the assets of the issuer;

(D) provide that the depositary cannot resign as the escrow holder without the consent of the Commissioner;

(E) provide that the records of the type specified in Section 25145 of the Code, which are made and kept by the depositary, are available for inspection by the Commissioner and that the depositary will furnish to the Commissioner, upon demand, at such place designated in such demand, true, correct, complete and current copies of any or all of such records; and

(F) authorize the Commissioner to inspect the account without obtaining any further permission from the issuer.

NOTE

Authority cited: Section 25610, Corporations Code. Reference: Section 25141, Corporations Code.

HISTORY

1. Amendment filed 6-12-80; effective thirtieth day thereafter (Register 80, No. 24).

§260.141.24. Release of Impounds.

Note • History

(a) The Commissioner will authorize the depositary to release the impounds to the issuer when the full amount of impounds specified in the impound condition has been deposited with the depositary, and any other conditions to such release have been satisfied, unless there have been changes in the plan of operation or in other circumstances that would render that amount of impounds inadequate to finance the proposed plan of operations, or circumstances have changed so that the Commissioner could no longer find that the sale of the securities is fair, just and equitable.

(b) An application for an order of the Commissioner authorizing the release of impounds to the issuer shall be signed and verified in accordance with Sections 260.110.2 and 250.14 of these rules and shall contain the following:

(1) A statement of the issuer that all required proceeds from the sale of securities have been placed with the depositary in accordance with the terms and conditions of the impound condition and that there have been no changes in the plan of operation or in other circumstances that would render the amount of the impounds inadequate to finance the proposed plan of operation.

(2) A statement of the depositary signed by an appropriate officer setting forth the aggregate amount of impounds placed with the depositary.

(3) A statement of the issuer that the required proceeds are represented by unconditional subscription agreements which are not loans and are not subject to rescission or rejection by the issuer or the subscriber.

(4) Such other information as the Commissioner may require in a particular case. For example, if the issuer has engaged in the conduct of business, the Commissioner may require a statement prepared in accordance with Section 260.613 of these rules together with a statement of all significant liabilities, including contingent liabilities, which the issuer has incurred since the date of the financial statements; if the issuer has not been engaged in the conduct of business, the Commissioner may require a statement to that effect and setting forth all the liabilities, including contingent liabilities, which the issuer has incurred prior to the filing of the application for release of impounded funds.

(d) In unusual cases a partial release or modification of impounds may be approved based upon the individual circumstances with the consent of the subscribers. An application for a partial release or modification of the impound should be filed as an amendment in accordance with Section 260.110.4 of these rules and should indicate the manner by which the approval of the subscribers will be solicited.

NOTE

Authority cited: Section 25610, Corporations Code. Reference: Section 25141, Corporations Code.

HISTORY

1. Amendment filed 6-12-80; effective thirtieth day thereafter (Register 80, No. 24).

§260.141.25. Failure to Comply with Impound Condition.

Note • History

(a) If the specified amount of impounds has not been obtained as of the date specified in the impound condition, or upon the earlier issuance of a stop order or order suspending or revoking the permit, the Commissioner will issue an order directing the depositary to return to each subscriber the amount of impounds which corresponds to each such subscriber's payments.

(b) In unusual cases an extension of time may be granted upon application. Such an application should be filed as an amendment in accordance with Section 260.110.4 of these rules and should include a statement from the issuer setting forth the reasons why the amount specified in the impound condition has not been obtained and the reasons leading the issuer to believe that the specified amount can be obtained if the impound is extended. In the event of any extension, the Commissioner shall direct the issuer to give each subscriber notice of the extension and by separate order shall authorize the depositary to release to any subscriber, who within thirty (30) days from the date the notice is distributed makes a demand therefor to the Commissioner, the amount of impounds which corresponds to such subscriber's purchase payments. A copy of such notice should accompany the application.

NOTE

Authority cited: Section 25610, Corporations Code. Reference: Section 25141, Corporations Code.

HISTORY

1. Amendment filed 6-12-80; effective thirtieth day thereafter (Register 80, No. 24).

§260.141.26. Removal of Impound Condition.

Note • History

The Commissioner will issue an order removing the impound condition if an order is issued by the Commissioner authorizing the depositary to release the full amount of the funds impounded and the issuer is qualified to offer and sell additional securities.

NOTE

Authority cited: Section 25610, Corporations Code. Reference: Section 25141, Corporations Code.

HISTORY

1. New section filed 1-4-77; effective thirtieth day thereafter (Register 77, No. 2).

2. Section refiled 1-7-77; effective thirtieth day thereafter (Register 77, No. 2).

3. Amendment filed 5-3-83; effective thirtieth day thereafter (Register 83, No. 19).

§260.141.27. Requests for Variance.

Note • History

It is impossible to foresee or provide for all of the variant circumstances which may exist in a particular case, and these standards are not intended to preclude the application of more liberal or more stringent standards if the circumstances so justify. Whenever an applicant believes that the facts and circumstances presented in its application justify a variance from any of the rules of this subarticle which would otherwise be applicable, it may submit a verified request for variance therefrom setting forth all of the reasons which it believes justify its request.

NOTE

Authority cited: Section 25610, Corporations Code. Reference: Section 25141, Corporations Code.

HISTORY

1. New section filed 6-12-80; effective thirtieth day thereafter (Register 80, No. 24).

Subarticle 3.5. Employment of Agents by Issuer

§260.141.30. Employment of Agents.

Note • History

(a) An issuer shall not employ agents in connection with a distribution of securities subject to qualification under Section 25110 or 25120 of the Code unless it complies with the provisions of this subarticle.

(b) No person may act as an agent for an issuer unless such person is (1) a licensed broker-dealer or (2) an individual who is an officer or employee of the issuer, and such individual has been named as an agent pursuant to Item 11 of Section 260.111(b), Item 10 of Section 260.112, Item 9 of Section 260.121.1(a) or Item 12 of Section 260.121.1(b). An amendment to the qualification must be filed in connection with the employment of a person as an agent who is not named in the application for qualification as stated above; however, no amendment is required upon the termination of employment of an agent.

(c) Each such agent shall perform his duties for the issuer under the direct supervision of designated officer or other official of the applicant. Each agent shall be trained in the procedures required in connection with their activities (including the requirements for the delivery of the prospectus, offering circular, proxy statement or other disclosure document; the requirements as to suitability of purchasers, if any, and the taking of information in connection with such requirements; and the procedures required in connection with subscriptions and, if applicable, the impound of the proceeds of the offering).

NOTE

Authority cited: Section 25610, Corporations Code. Reference: Section 25141, Corporations Code.

HISTORY

1. New Article 3.5 (Sections 260.141.30 and 260.141.31) filed 11-29-79 as an emergency; designated effective 1-1-80. Certificate of Compliance included (Register 79, No. 48).

§260.141.31. Surety Bond.

Note

An issuer which employs agents in connection with a distribution of securities subject to qualification under Section 25110 or 25120 of the Code shall file with the Commissioner a surety bond complying with Section 260.216.15.

NOTE

Authority cited: Section 25610, Corporations Code. Reference: Section 25141, Corporations Code.

Subarticle 4. Removal or Modification of Conditions

§260.141.50. Application for Removal or Modification of Conditions.

Note • History

An application for removal or modification of conditions on securities or on the qualification of securities imposed pursuant to Section 25141 or 25534 of the Code shall be made on the following form:

File No.

Insert file number of Issuer, if any

Fee: $

See Corp. Code Sec. 25608(i) and (j)

Date of Application

DEPARTMENT OF CORPORATIONS

STATE OF CALIFORNIA

APPLICATION FOR REMOVAL OF CONDITIONS

Imposed Pursuant to the Corporate Securities Law of 1968

1. Name of Issuer:

2. Address of Principal Office of Issuer:

3. Name and Address of Person to Whom Correspondence Regarding This Application Should be Addressed:

4. Identify each condition the removal of which is requested by this application.

a. If imposed upon a qualification pursuant to Corp. Code Sec. 25141, specify the date of the this qualification.

b. If imposed pursuant to an order issued under Corp. Code Sec. 25534, specify the date of such order.

5. State the justification for the requested removal of the condition.

6. If this is an application to remove conditions imposed upon promotional shares pursuant to Sections 260.141 and 260.141.1 of Title 10, California Code of Regulations, state the following information:

a. The names of the present holders of the shares subject to the promotional conditions and the number of shares held by each such person subject thereto.

b. State in tabular held form the voting securities of the issuer owned of record or beneficially by each person who owns of record or is known by the applicant to own beneficially more than 10% of any class of such securities. Such statement should held reflect the respective amounts and percentages owned either of record or beneficially by such person and such held statement should also include information as to the amounts held by, and the terms of, any voting trust or similar agreement with respect to more than 10% of any class of voting securities of the issuer.

c. State in tabular form the number of securities of each class of the issuer's securities which are outstanding.

7. If this is an application for the removal of a restriction on transfer imposed by the Commissioner or for the removal of promotional conditions, state in tabular form the title and amount of securities called for by any options, warrants or rights, including the purchase price of the securities so called for and the expiration dates of such options, together with the market value of the securities so called for as of the latest practicable date. Such statement should include the foregoing information for all options held by each officer or director of the issuer.

8. If this is an application for the removal of an impound condition, furnish the information indicated by Section 260.141.24, Title 10, California Code of Regulations.

9. There are attached hereto as exhibits the following which are incorporated by reference:

a. Financial statements of the issuer as required by Section 260.613, Title 10, California Code of Regulations.

b. Copies (which may be in a restated or composite form) of the issuer's current charter documents (as defined in Section 260.001, Title 10, California Code of Regulations).

10. The applicant has duly caused this application to be signed on its behalf by the undersigned, thereunto duly authorized.

_______________________________

Applicant

By____________________________

_______________________________

(Title)

Executed at___________________________ on __________. (Place) (Date)

_______________________________

(Signature)

Instruction:

The application may be made and signed either by the issuer or by the holders of the shares upon which the conditions are imposed.

NOTE

Authority cited: Section 25610, Corporations Code. Reference: Section 25141, Corporations Code.

HISTORY

1. New Subarticle 4 (Section 260.141.50) filed 1-4-77; effective thirtieth day thereafter (Register 77, No. 2).

2. Sections refiled 1-7-77; effective thirtieth day thereafter (Register 77, No. 2).

3. Amendment filed 2-11-85; effective thirtieth day thereafter (Register 85, No. 7).

4. Amendment of section and form filed 5-20-97; operative 5-20-97 pursuant to Government Code section 11343.4(d) (Register 97, No. 21).

Article 6. Other Provisions Concerning Exercise of the Commissioner's Authority

§260.142. Hearing in Connection with Exchange of Securities.

A hearing will be ordered by the Commissioner in connection with any transaction described in Section 25142 of the Code upon the request of the applicant. The provisions of Sections 250.17-250.25 of these rules shall be applicable to such hearings.

§260.146. Requirement of Semi-Annual Report.

Note • History

Any issuer selling securities pursuant to an open qualification, so long as it is not exempt from this requirement by Section 25146 of the Code and is not filing reports pursuant to Section 13 (15 USC 78m) or Section 15(d) (15 USC 78o(d)) of the Securities Exchange Act of 1934 (15 USC 78a et seq.), shall file semi-annual reports with the Commissioner within 120 days after the end of its fiscal year and within 90 days after the end of the first six months of its fiscal year. Such reports shall be filed until the expiration of 18 months after the qualification was effective or until the securities which were the subject of the application have been qualified for trading in this State under Section 25131 of the Code, whichever first occurs. Such report shall be made on the following form:

DEPARTMENT OF CORPORATIONS FILE NO.

(Insert file number of qualification

to which report relates.)

Date of Report:__________________________________________

DEPARTMENT OF CORPORATIONS

STATE OF CALIFORNIA

SEMI-ANNUAL REPORT PURSUANT TO SECTION 25146

OF THE CORPORATE SECURITIES LAW OF 1968

________________________________________________________

1. Name of Issuer

________________________________________________________

2. Address of principal executive office of issuer

Number and Street City State Zip Code

________________________________________________________

3. Name and address of person to whom correspondence regarding this report should be addressed

________________________________________________________

4. There are attached hereto as exhibits the following which are hereby incorporated by reference:

Financial Statements. (There should be attached to a report filed as of the end of a fiscal year a balance sheet as of that date and a profit and loss statement for the year then ended, covered by an auditor's report containing an unqualified opinion of an independent certified public accountant or an independent public accountant. There should be attached to a report filed as of the end of the first six months of a fiscal year a balance sheet as of that date and a profit and loss statement for the six-months' period then ended; such statements need not be audited but shall be prepared in accordance with generally accepted accounting principles.)

5. The issuer has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

_______________________________

(Issuer)

By____________________________

(Title)

I certify (or declare) under penalty of perjury under the laws of the State of California that I have read this report and the exhibits thereto and know the contents thereof, and that the statements therein are true and correct.

Executed at ____________________, on ________________, 20____. (Place) (Date)

_______________________________

(Signature)

Instructions: The report should be signed by an officer or general partner of the issuer; however, it may be signed by another person holding a power of attorney for such purposes from the issuer and, if signed on behalf of the issuer pursuant to such power of attorney, should include as an additional exhibit a copy of said power of attorney or a copy of the corporate resolution authorizing the person to sign on behalf of the corporation.

NOTE

Authority cited: Sections 25146 and 25610, Corporations Code. Reference: Section 25146, Corporations Code.

HISTORY

1. Amendment of form filed 5-14-69; effective thirtieth day thereafter (Register 69, No. 20).

2. Amendment filed 6-12-80; effective thirtieth day thereafter (Register 80, No. 24).

3. Amendment filed 2-11-85; effective thirtieth day thereafter (Register 85, No. 7).

4. Amendment filed 1-10-89; operative 2-9-89 (Register 89, No. 2).

5. Change without regulatory effect amending certification filed 9-25-2002 pursuant to section 100, title 1, California Code of Regulations (Register 2002, No. 39).

§260.150. Technical Reports.

(a) The Commissioner may require the submission of a technical report whenever he determines that such a report is necessary in resolving a matter pending before him. The cost of a technical report shall be borne by the person requested by the Commissioner to submit it. The Commissioner may require or permit a technical report to be prepared by an employee of the State of California.

(b) The engineer, appraiser or other skilled person preparing a technical report shall submit with such report a statement as to his qualifications and experience and a statement of any material relationship or other factor which tends to impair his independence from the subject matter to which or the person to whom the technical report relates.

§260.150.1. Technical Reports Prepared by State Employee.

Note • History

When a technical report is to be prepared by an employee of the State of California, the Commissioner shall estimate the expense of making such report and notify the applicant thereof. Before any preparation of the technical report is commenced, the applicant shall deposit with the Commissioner the estimated expense of such report. If it appears that the expense of preparing the report will exceed the estimate, an additional deposit may be required before the report is filed. When the deposit exceeds the actual expense incurred in preparing the report, the excess will be returned to the applicant.

NOTE

Authority cited: Section 25610, Corporations Code. Reference: Section 25150, Corporations Code.

HISTORY

1. Amendment filed 12-4-84; effective thirtieth day thereafter (Register 84, No. 49).

§260.151. Request for Consent to Transfer Securities Subject to Legend or Escrow Condition.

Note • History

The consent to transfer required by Section 25133 of the Code may be requested pursuant to Section 25151 of the Code on the following form:

(a) Transferor statement form:

Embedded Graphic 10.0022

Embedded Graphic 10.0023

(b) Statement to be executed by each transferee:

Embedded Graphic 10.0024

Embedded Graphic 10.0025

NOTE

Authority cited: Section 25610, Corporations Code. Reference: Section 25151, Corporations Code.

HISTORY

1. Amendment filed 1-4-77; effective thirtieth day thereafter (Register 77, No. 2). For prior history, see Register 75, No. 4.

2. Amendment refiled 1-7-77; effective thirtieth day thereafter (Register 77, No. 2).

3. Amendment filed 6-12-80; effective thirtieth day thereafter (Register 80, No. 24).

4. Editorial correction of form (Register 80, No. 30).

5. Amendment filed 2-2-83; effective thirtieth day thereafter (Register 83, No. 6).

6. Amendment filed 10-26-84; effective thirtieth day thereafter (Register 84, No. 43).

7. Change without regulatory effect amending application form fee and numbers 7 and 9 of transferor statement form filed 11-20-91 pursuant to section 100, title 1, California Code of Regulations (Register 92, No. 9).

8. Change without regulatory effect amending subsection (a) certification and subsection (b) certification filed 9-25-2002 pursuant to section 100, title 1, California Code of Regulations (Register 2002, No. 39).

9. Amendment of subsection (a) filed 9-23-2009; operative 10-23-2009 (Register 2009, No. 39).

Article 7. General Provisions Relating to Qualification

§260.162. Amendments.

Note • History

An amendment to an application filed before or after the effective date of the qualification of the sale of securities shall be made on the form used for the original qualification with the appropriate heading checked on the facing page prescribed by Section 260.111 of these rules. The facing page shall be completely filled in; and only such other items of the applicable form as are being amended shall be included. The amendment should include a recalculation of the fee payable resulting from the change in authority reflected in the amended application plus $50 for an application filed after the effective date of the original qualification.

NOTE

Authority cited: Sec. 25610, Corporations Code.

HISTORY

1. Amendment filed 7-13-70; effective thirtieth day thereafter (Register 70, No. 29).

§260.165. Consent to Service of Process.

Note • History

The consent to service of process required by Section 25165 of the Code shall be: (1) pursuant to the Uniform Consent to Service of Process (Form U-2), (2) pursuant to Form D (17 CFR 239.500) filed with the Commissioner in connection with the transaction, (3) included in an electronic submission of a filing, or (4) in the following form:

Embedded Graphic 10.0026

Any certificate of acknowledgement taken in another place shall be sufficient in the State of California if it is taken in accordance with the laws of the place where the acknowledgement is made.

NOTE

Authority cited: Sections 25165 and 25610, Corporations Code. Reference: Section 25165, Corporations Code and Section 1189, Civil Code.

HISTORY

1. Amendment filed 10-26-84; effective thirtieth day thereafter (Register 84, No. 43).

2. Amendment of first paragraph filed 2-27-92; operative 3-30-92 (Register 92, No. 12).

3. Change without regulatory effect amending section and Note filed 12-7-95 pursuant to section 100, title 1, California Code of Regulations (Register 95, No. 49).

4. Change without regulatory effect amending form filed 2-9-2005 pursuant to section 100, title 1, California Code of Regulations (Register 2005, No. 6).

5. Amendment filed 9-24-2009; operative 10-24-2009 (Register 2009, No. 39).

Article 8. Licensing of Broker-Dealers and Agents

§260.200. Designation of Institutional Investors and Governmental Agencies and Instrumentalities by Class.

Note • History

There are hereby designated pursuant to Section 25200 and Section 25202 of the Code those institutional investors and governmental agencies and instrumentalities specified in Sections 260.102.10 and 260.105.14 of these rules, including corporations having a net worth on a consolidated basis, according to their most recent audited financial statement, of not less than $14,000,000.

NOTE

Authority cited: Sections 25200, 25202 and 25610, Corporations Code. Reference: Sections 25200 and 25202, Corporations Code.

HISTORY

1. Amendment filed 4-30-70 as an emergency; designated effective 5-1-70 (Register 70, No. 18).

2. Certificate of Compliance filed 6-10-70 (Register 70, No. 24).

3. Editorial correction adding NOTE filed 4-6-83 (Register 83, No. 15).

§260.204. Brokers Effecting Transactions in Certain Securities Exempt Under Federal Law. [Repealed]

Note • History

NOTE

Authority cited: Sections 25204 and 25610, Corporations Code. Reference: Section 25204, Corporations Code.

HISTORY

1. New section filed 12-24-69 as an emergency; designated effective 1-2-70. Certificateof Compliance included (Register 69, No. 52).

2. Amendment filed 7-13-70; effective thirtieth day thereafter (Register 70, No. 29).

3. Editorial correction filed 11-9-82 (Register 82, No. 46).

4. Repealer filed 1-31-91; operative 3-2-91 (Register 91, No. 8).

§260.204.1. Real Estate Brokers Effecting Transactions in Securities.

Note • History

An exemption from the provisions of Section 25210 of the Code is hereby granted, as being necessary and appropriate in the public interest and for the protection of investors, to any person who is a real estate broker as defined in Section 10131 of the Business and Professions Code, duly licensed to engage in the business of a real estate broker in this state, and whose business as a broker-dealer, in addition to any transactions within Section 25206 of the Code, is limited to any or all of the following:

(a) Transactions involving all of the outstanding securities of an existing business if the transactions have been negotiated as transactions for the purchase or sale of real estate or substantially all of the assets of the existing business, or both, but excluding those transactions involving a merger, consolidation, or other reorganization; or

(b) Transactions in the shares or memberships of mutual water companies in connection with a sale of an interest in real property; or

(c) Transactions in investment contracts sold or offered for sale with, or as part of, residential condominium units or time share uses or estates, if the sale of such investment contracts has been qualified pursuant to Chapter 2, (commencing with Section 25110), Part 2, Division 1, Title 4 of the Code; or

(d) Transactions in a series of notes secured by interests in the same real property, or in undivided interests in a note secured by real property, pursuant to a qualification under Section 25110, Section 25120 or Section 25130 of the Code or pursuant to the exemption contained in Section 25102(e), Section 25102(i) or Section 25102.5, other than an offering which is made pursuant to a registration under the Securities Act of 1933 or a Regulation A exemption under that act (17 CFR 230.231 et seq.).

NOTE

Authority cited: Sections 25204 and 25610, Corporations Code. Reference: Section 25204, Corporations Code.

HISTORY

1. Repealer of subsection (d) and renumbering of subsection (e) to (d) filed 11-14-78; effective thirtieth day thereafter (Register 78, No. 45). For former history, see Registers 72, No. 42; 72, No. 30; 72, No. 27; 72, No. 15; 70, No. 29.

2. Amendment filed 8-27-81 as an emergency; effective upon filing (Register 81, No. 37).

3. Order of Repeal of 8-27-81 emergency order filed 9-4-81 by OAL pursuant to Government Code Section 11349.6 (Register 81, No. 37).

4. Amendment filed 6-24-82; effective thirtieth day thereafter (Register 82, No. 26).

5. Amendment filed 4-27-84; effective thirtieth day thereafter (Register 84, No. 18).

6. Amendment filed 1-31-91; operative 3-2-91 (Register 91, No. 8).

7. Amendment of first paragraph and subsections (c) and (d) filed 8-6-98; operative 9-5-98 (Register 98, No. 32).

§260.204.2. Exemption for Certain Investment Advisers.

Note • History

An exemption from the provisions of Section 25230 is hereby granted, as being necessary and appropriate in the public interest and for the protection of investors, to any person who does not hold itself out generally to the public as an investment adviser, and who advises only banks, trust companies, savings and loan associations, real estate investment trusts as defined in Sections 23000 and 23002 of the Code, or the organizations specified in Section 25203 of the Code, or any combination of the foregoing.

NOTE

Authority cited: Sections 25204 and 25610, Corporations Code. Reference: Section 25204, Corporations Code.

HISTORY

1. Amendment filed 9-2-77; effective thirtieth day thereafter (Register 77, No. 36). For prior history, see Register 71, No. 29.

2. Editorial correction filed 11-9-82 (Register 82, No. 46).

§260.204.3. Exemption for Certain Real Estate Salesmen. [Repealed]

Note • History

NOTE

Authority cited: Section 25610, Corporations Code. Reference: Section 25204, Corporations Code.

HISTORY

1. New section filed 4-6-72 as an emergency; effective upon filing (Register 72, No. 15).

2. Certificate of Compliance filed 7-20-72 (Register 72, No. 30).

3. Amendment filed 11-14-78; effective thirtieth day thereafter (Register 78, No. 45).

4. Repealer filed 11-29-79 as an emergency; designated effective 1-1-80. Certificate of Compliance included (Register 79, No. 48).

§260.204.4. Commodity Contract Sales. [Repealed]

Note • History

NOTE

Authority cited: Section 25610, Corporations Code. Reference: Section 25204, Corporations Code.

HISTORY

1. New section filed 10-1-73 as an emergency; effective upon filing (Register 73, No. 40).

2. Certificate of Compliance filed 12-28-73 (Register 73, No. 52).

3. Amendment filed 1-22-75; effective thirtieth day thereafter (Register 75, No. 4).

4. Repealer filed 11-29-79 as an emergency; designated effective 1-1-80. Certificate of Compliance included (Register 79, No. 48).

§260.204.5. Merger and Acquisition Specialists.

Note • History

An exemption from the provisions of Section 25210 of the Code is hereby granted, as being necessary and appropriate in the public interest and for the protection of investors, to any person who effects transactions in securities in this state only in connection with mergers, consolidations or purchases of corporate assets, and who does not receive, transmit, or hold for customers any funds or securities in connection with such transactions.

NOTE

Authority cited: Sections 25204 and 25610, Corporations Code. Reference: Section 25204, Corporations Code.

HISTORY

1. New section filed 3-1-74; effective thirtieth day thereafter (Register 74, No. 9).

2. Editorial correction of NOTE filed 4-6-83 (Register 83, No. 15).

§260.204.6. Licensed Lenders.

Note • History

An exemption from the provisions of Section 25210 of the Code is hereby granted, as being necessary and appropriate in the public interest and for the protection of investors, to:

(a) Any person licensed as a finance lender under the California Finance Lenders Law (Division 9, commencing with Section 22000 of the Financial Code) when acting under the authority of that license, or licensed as an industrial loan company doing business under the Industrial Loan Law (Division 7, commencing with Section 18000 of the Financial Code), when engaged in transactions in a series of notes secured by interests in the same real property, or in undivided interests in a note secured by real property, pursuant to a qualification under Section 25110, Section 25120 or Section 25130 of the Code, or pursuant to the exemption contained in Section 25102(e) or Section 25102(i) of the Code, other than an offering which is made pursuant to a registration under the Securities Act of 1933 or a Regulation A exemption under that act (17 CFR 230.231 et. seq.).

(b) A person licensed as a business and industrial development corporation (“BIDCO”) under the Business and Industrial Development Corporations Law (Division 15, commencing with Section 31000 of the Financial Code) when engaged in the sale of notes, and guarantees thereof by the United States Small Business Administration or other federal governmental agency, arising from loans to businesses in this state, made by a licensed BIDCO pursuant to the requirements of the Business and Industrial Development Corporation Law and regulations promulgated thereunder.

NOTE

Authority cited: Sections 25204 and 25610, Corporations Code. Reference: Section 25204, Corporations Code.

HISTORY

1. New section filed 8-27-81 as an emergency; effective upon filing (Register 81, No. 37).

2. Order of Repeal of 8-27-81 emergency order filed 9-4-81 by OAL pursuant to Government Code Section 11349.6 (Register 81, No. 37).

3. New section filed 6-24-82; effective thirtieth day thereafter (Register 82, No. 26).

4. Amendment filed 1-10-85; effective thirtieth day thereafter (Register 85, No. 2).

5. Amendment filed 1-31-91; operative 3-2-91 (Register 91, No. 8).

6. Amendment filed 8-6-98; operative 9-5-98 (Register 98, No. 32).

§260.204.7. State Teachers' Retirement System.

Note • History

Exempt from the provisions of Sections 25210 and 25230 of the Code are any individuals who pursuant to Section 22205.2 of the Education Code contract to perform investment management or advisory services only for the State Teachers' Retirement System; provided, that the securities transactions are effected by or through a broker-dealer who is licensed under Section 25210 of the Code or exempt from licensure under Section 25200 of the Code.

NOTE

Authority cited: Sections 25204 and 25610, Corporations Code. Reference: Section 25204, Corporations Code.

HISTORY

1. New section filed 11-20-87; operative 12-20-87 (Register 87, No. 48).

§260.204.8. Limited Exemption for Commodity Trading Advisers.

Note • History

Commodity trading advisers registered under the federal Commodity Exchange Act, as amended, are exempt from the provisions of Section 25230 of the Code when advising or exercising trading discretion, or both advising and trading, with respect to foreign currency options listed and traded exclusively on the Philadelphia Stock Exchange.

NOTE

Authority cited: Sections 25204 and 25610, Corporations Code. Reference: Sections 25204 and 25230, Corporations Code.

HISTORY

1. New section filed 8-3-95; operative 9-2-95 (Register 95, No. 31).

§260.204.9. Certificate Exemption for Investment Advisers to Private Funds.

Note • History

(a) Definitions. For purposes of this section 260.204.9 (this “rule”), the following definitions shall apply:

(1) “Private fund adviser” means an investment adviser who provides advice solely to one or more qualifying private fund(s).

(2) “Qualifying private fund” means an issuer that qualifies for the exclusion from the definition of an investment company under one or more of sections 3(c)(1), 3(c)(5), and 3(c)(7) of the Investment Company Act of 1940, as amended (15 U.S.C. 80a-3(c)(1), (5) and (7)).

(3) “Retail buyer fund” means a qualifying private fund that is not a venture capital company and that qualifies for the exclusion from the definition of an investment company under one or both of sections 3(c)(1) and 3(c)(5) of the Investment Company Act of 1940, as amended (15 U.S.C. 80a-3(c)(1) and (5)).

(4) “Venture capital company” means an entity that satisfies one or more of the conditions below:

(A) on at least one occasion during the annual period commencing with the date of its initial capitalization, and on at least one occasion during each annual period thereafter, at least fifty percent (50%) of its assets (other than short-term investments pending long-term commitment or distribution to investors), valued at cost, are venture capital investments, as defined in subsection (a)(5) of this rule, or derivative investments, as defined in subsection (a)(6) of this rule; or

(B) the entity is a “venture capital fund” as defined in rule 203(l)-1 adopted by the Securities and Exchange Commission under the Investment Advisers Act of 1940, as amended (17 C.F.R. 275.203(l)-(1)); or

(C) the entity is a “venture capital operating company” as defined in rule 2510.3-101(d) adopted by the U.S. Department of Labor under the Employee Retirement Income Security Act of 1974 (29 C.F.R. §2510.3-101(d)).

(5) “Venture capital investment” means an acquisition of securities in an operating company as to which the investment adviser, the entity advised by the investment adviser, or an affiliated person of either has or obtains management rights as defined in subsection (a)(7) of this rule.

(6) “Derivative investment” means an acquisition of securities by a venture capital company in the ordinary course of its business in exchange for an existing venture capital investment either (i) upon the exercise or conversion of the existing venture capital investment or (ii) in connection with a public offering of securities or the merger or reorganization of the operating company to which the existing venture capital investment relates.

(7) “Management rights” means the right, obtained contractually or through ownership of securities, either through one person alone or in conjunction with one or more persons acting together or through an affiliated person, to substantially participate in, to substantially influence the conduct of, or to provide (or to offer to provide) significant guidance and counsel concerning, the management, operations or business objectives of the operating company in which the venture capital investment is made.

(8) An “operating company” means an entity that is primarily engaged, directly or through a majority owned subsidiary or subsidiaries, in the production or sale (including any research or development) of a product or service other than the management or investment of capital, but shall not include an individual or sole proprietorship.

(9) “Affiliated person” means a person that controls, is controlled by, or is under common control with the other specified person(s).

(10) “Control” means possessing, directly or indirectly, the power to direct or cause the direction of management and policies.

(11) “Advisory affiliate” means an “advisory affiliate” as defined in the Glossary of Terms to Form ADV (Uniform Application for Investment Adviser Registration (17 C.F.R. §279.1).

(12) “Fund of funds” means a qualifying private fund that invests a majority of its assets in one or more qualifying private funds.

(b) Exemption for private fund advisers. Subject to the additional requirements of subsection (c) of this rule below, a private fund adviser shall be exempt from the certificate requirement of Section 25230(a) of the Code if the private fund adviser satisfies each of the following conditions:

(1) neither the private fund adviser nor any of its advisory affiliates are subject to a disqualification as described in Rule 262 of Regulation A adopted by the Securities and Exchange Commission under the Securities Act of 1933, as amended (17 C.F.R. §230.262); or have done any of the acts, satisfy any of the circumstances, or are subject to any order specified in Section 25232(a) through 25232(h) of the Code; and

(2) the private fund adviser files with the Commissioner:

(A) each report and amendment thereto that an investment adviser is required to file with the Securities and Exchange Commission pursuant to Rule 204-4 (“Rule 204-4”) adopted by the Securities and Exchange Commission under the Investment Advisers Act of 1940, as amended (17 C.F.R. §275.204); or

(B) if the private fund adviser is not required to submit such filings to the Securities and Exchange Commission, the private fund adviser prepares and files the reports and amendments referenced in paragraph (2)(A) immediately above (on or before the date(s) such reports would be required to be filed pursuant to Rule 204-4) directly with the Commissioner.

(3) The private fund adviser has paid the fee required by Section 25608(q) of the Code for each calendar year in which it relies upon the exemption established by this rule. If the private fund adviser has paid an initial fee pursuant to this rule and it intends to rely on the exemption in a succeeding calendar year, it must pay the renewal fee specified by Section 25608(q) before January 1 of the succeeding year.

(c) Additional requirements for private fund advisers to certain retail buyer funds. In order to qualify for the exemption described in subsection (b) of this rule, a private fund adviser who advises at least one retail buyer fund shall, except as otherwise provided in subsection (h) of this rule, in addition to satisfying each of the conditions specified in subsections (b)(1) through (b)(3) of this rule, comply with each of the following requirements with respect to each retail buyer fund advised by the private fund adviser:

(1) The private fund adviser shall advise only retail buyer funds whose outstanding securities (other than short-term paper) are beneficially owned entirely by:

(A) persons who, at the time the securities were sold, either (i) met the definition of “accredited investor” in Rule 501(a) of Regulation D adopted by the Securities and Exchange Commission under the Securities Act of 1933, as amended (17 C.F.R. §230.501(a)), or (ii) were managers, directors, officers, or employees of the private fund adviser; or

(B) any person that obtains the securities through a transfer not involving a sale of that security.

(2)

(A) At or before the time of purchase of any ownership interest in a retail buyer fund, the private fund adviser shall prominently and in plain English disclose (in a private placement memorandum or similar written document) to the purchaser of such ownership interest all material facts regarding the following:

(i) all services, if any, to be provided by the investment adviser to a beneficial owner of the fund, and to the fund itself; and

(ii) all duties, if any, the investment adviser owes to a beneficial owner of the fund, and to the fund itself.

(B) Compliance with subparagraph (2)(A) immediately above shall not relieve the private fund adviser of any disclosure obligation under any other state or federal law.

(3)

(A) The private fund adviser shall obtain, on an annual basis, financial statements of each retail buyer fund advised by the private fund adviser, audited by an independent certified public accountant (CPA) that is registered with, and subject to regular examination by, the Public Company Accounting Oversight Board (PCAOB), and shall deliver a copy of such audited financial statements to each beneficial owner of the retail buyer fund within 120 days after the end of each fiscal year (or within 180 days if the retail buyer fund is a fund of funds);

(B) if a retail buyer fund begins operations more than 180 days into a fiscal year, the investment adviser need not comply with suparagraph (3)(A) immediately above for that initial fiscal year, provided that the financial audit (conducted in accordance with the qualitative requirements set forth in subparagraph (3)(A) immediately above) for the fiscal year immediately succeeding this period is supplemented by, or includes, a financial audit of the initial fiscal year.

(4) A private fund adviser may not enter into, perform, renew or extend an investment advisory contract that provides for compensation to the investment adviser on the basis of a share of the capital gains upon, or the capital appreciation of, the funds, or any portion of the funds of an investor that is not a “qualified client” as defined in Rule 205-3(d) (17 C.F.R. 275.205.-3(d)) adopted by the Securities and Exchange Commission under the Investment Advisers Act of 1940, as amended (15 USC 80b-1 et seq.).

(d) Federal covered investment advisers. If a private fund adviser is registered with the Securities and Exchange Commission, the adviser is not eligible for this exemption and shall comply with the state notice filing requirements applicable to federal covered investment advisers in Section 25230.1 of the Code.

(e) Investment adviser representatives. A person is exempt from the requirements of Section 25230(b) of the Code if he or she is employed by or associated with an investment adviser that is exempt from registration in this state pursuant to this rule and does not otherwise act as an investment adviser representative.

(f) Electronic filing. The report described in subsection (b)(2) of this rule above shall be filed electronically through the IARD (Investment Advisor Registration Depository). A report shall be deemed filed when the report and the fee required by Section 25608(q) of the Code are filed and accepted by the IARD on the state's behalf.

(g) Transition. An investment adviser who becomes ineligible for the exemption provided by this rule shall comply with all applicable laws and rules requiring registration or notice filing within ninety (90) days after the date the investment adviser's eligibility for this exemption ceases.

(h) Grandfathering for investment advisers to retail buyer funds. An investment adviser to a retail buyer fund that existed prior to the effective date of this rule and that does not satisfy the conditions set forth in subsection (c)(1) or (c)(4) of this rule, on the effective date, may nevertheless be eligible for the exemption contained in subsection (b) of this rule if the following conditions are satisfied:

(1) as of the effective date of this rule, the retail buyer fund ceases to sell interests to investors other than those described in subsection (c)(1)(A) of this rule.

(2) the investment adviser complies with subsection (c)(4) of this rule for every beneficial owner who purchases an ownership interest from the retail buyer fund on or after the effective date of this rule.

(3) the investment adviser discloses in writing the information described in subsection (c)(2) of this rule to every beneficial owner of the fund within 90 days after the effective date of this rule; and

(4) for every fiscal year ending after the effective date of this rule, the investment adviser delivers audited financial statements to each beneficial owner as required by subsection (c)(3) of this rule.

(i) Temporary Filing Extension. Any initial report required to be filed pursuant to subsection (b)(2) of this rule shall be filed no later than 60 days from the effective date of this rule.

NOTE

Authority cited: Sections 25204 and 25610, Corporations Code. Reference: Section 25230, Corporations Code.

HISTORY

1. New section filed 7-3-97 as an emergency; operative 7-3-97 (Register 97, No. 27). A Certificate of Compliance must be transmitted to OAL by 10-31-97 or emergency language will be repealed by operation of law on the following day.

2. New section, including new preface and amendment of section and Note, refiled 10-17-97 as an emergency; operative 10-31-97 (Register 97, No. 42). Expires by its own terms 1-1-98.

3. Expired by its own terms on 1-1-98.

4. New section filed 3-27-2002; operative 3-27-2002 pursuant to Government Code section 11343.4 (Register 2002, No. 13).

5. Amendment of subsection (a) filed 7-7-2011 as an emergency; operative 7-21-2011 pursuant to Government Code section 11343.4(b) (Register 2011, No. 27). A Certificate of Compliance must be transmitted to OAL by 1-17-2012 or emergency language will be repealed by operation of law on the following day.

6. Amendment of subsection (a) refiled 1-11-2012 as an emergency; operative 1-18-2012 pursuant to Government Code section 11346.1(d) (Register 2012, No. 2). A Certificate of Compliance must be transmitted to OAL by 4-16-2012 or emergency language will be repealed by operation of law on the following day.

7. Amendment of subsection (a) refiled 4-10-2012 as an emergency; operative 4-17-2012 (Register 2012, No. 15). A Certificate of Compliance must be transmitted to OAL by 7-16-2012 or emergency language will be repealed by operation of law on the following day.

8. Certificate of Compliance as to 4-10-2012 order, including amendment of section heading and section, transmitted to OAL 7-16-2012 and filed 8-27-2012 (Register 2012, No. 35).

§260.204.10. Certain Canadian Broker-Dealers; Agents.

Note • History

(a) A broker-dealer that is resident in Canada and has no office or other physical presence in this state is not subject to the certification requirements of Section 25210 and may effect transactions in Canadian securities in this state; provided, the broker-dealer is effecting transactions in securities with or for, or inducing or attempting to induce the purchase or sale of any security by: (1) a Canadian resident who is temporarily resident in or visiting this state, with whom the Canadian broker-dealer had a bona fide broker-dealer-client relationship before the Canadian resident entered the United States; or (2) a “Canadian Retirement Account”, as defined by 17 CFR 230.237(a)(2) or 17 CFR 7d-2(a)(2), respectively, of which the holder or contributor thereto is a permanent or temporary resident or visitor in this state.

(b) An agent who will be representing a Canadian broker-dealer effecting transactions in securities under this rule may, subject to the provisions of this rule, effect transactions in securities in this state as permitted for the broker-dealer in subsection (a).

(c) A Canadian broker-dealer may effect transactions in securities under this rule only if: (1) registered as a broker or dealer in good standing in the jurisdiction from which it is effecting transactions into this state; and (2) a member of a self-regulatory organization or stock exchange in Canada.

(d) An agent representing a Canadian broker-dealer effecting transactions in securities in this state is required to be registered in good standing in the jurisdiction from which he or she is effecting transactions into this state.

(e) A Canadian broker-dealer effecting transactions in securities under this rule shall: (1) maintain its provincial or territorial registration and its membership in a self-regulatory organization or stock exchange in good standing; (2) provide the Commissioner upon request with its books and records relating to its business in the state as a broker-dealer in reliance upon this exemption; and (3) in connection with its reliance upon this exemption, disclose to its clients in the state that the broker-dealer and its agents are not subject to the certification requirements under the Code.

(f) An agent of a Canadian broker-dealer effecting transactions in securities under this section shall maintain his or her provincial or territorial registration in good standing.

(g) A Canadian broker-dealer or agent may only effect transactions in securities in this state: (1) as permitted in subsection (a) or (b); (2) with or through (i) the issuers of the securities involved in the transactions, (ii) other broker-dealers, and (iii) banks, savings institutions, trusts companies, insurance companies, investment companies as defined in the Investment Company Act of 1940, pension or profit-sharing trusts, or other financial institutions or institutional buyers, whether acting for themselves or as trustees; and (3) as otherwise permitted by the Code.

(h) A Canadian broker-dealer and an agent of a Canadian broker-dealer shall not be entitled to rely on the exemption under this rule if that person: (1) has been convicted within ten years preceding the transaction for which the exemption is to be relied upon of (i) a felony or misdemeanor of which fraud is an essential element or (ii) a felony or misdemeanor involving the purchase or sale of securities or arising out of conduct incident to doing business as a broker-dealer or agent; or (2) is subject to an order, judgment, or decree issued by a self-regulatory organization, administrative body or court of competent jurisdiction (i) finding a violation of an investment-related law or rule of which fraud is an essential element and (ii) enjoining, restraining, suspending, revoking, censuring, or barring the broker-dealer or agent, as the case may be, from engaging in or continuing any conduct or practice in connection with the sale or purchase of securities.

(i) For purposes of this section, “Canadian securities” means any security issued by an issuer organized under the laws of Canada or its provinces or territories.

(j) For purposes of this section, registration with the Bureau des services financiers in Quebec shall be deemed to be membership in a self-regulatory organization or stock exchange in Canada.

NOTE

Authority cited: Sections 25204 and 25610, Corporations Code. Reference: Sections 25204 and 25210, Corporations Code.

HISTORY

1. New section filed 5-24-2001; operative 6-23-2001 (Register 2001, No. 21).

§260.204.11. Pacific Exchange, Inc. [Repealed]

Note • History

NOTE

Authority cited: Sections 25204 and 25610, Corporations Code. Reference: Sections 25204 and 25610, Corporations Code.

HISTORY

1. New section filed 5-24-2001; operative 6-23-2001 (Register 2001, No. 21).

2. Repealer filed 11-10-2009; operative 12-10-2009 (Register 2009, No. 46).

§260.204.12. Capital Access Company.

Note • History

An investment adviser to a capital access company licensed under the Capital Access Company Law (Corporations Code Section 28000 et seq.) is exempt from the certification requirement of Section 25230 of the Code as not being necessary or appropriate in the public interest or for the protection of investors when (i) making recommendations with respect to the investment of funds of the capital access company as provided for in subdivision (e) of Section 28152 of the Code for that company and (ii) pursuant to an approved contract as required by Section 28212 of the Code.

NOTE

Authority cited: Sections 25204 and 25610, Corporations Code. Reference: Sections 25204 and 25230, Corporations Code.

HISTORY

1. New section filed 4-2-2001; operative 5-2-2001 (Register 2001, No. 14).

§260.210. Agent Procedures for Broker-Dealers.

Note • History

The procedures set forth in this section are applicable to broker-dealers licensed pursuant to subdivisions (a) and (b) of Section 25211 of the Code.

(a) Upon employment of an individual as an agent, a broker-dealer shall (1) obtain a properly executed application for registration, on the Uniform Application for Securities Industry Registration, or Transfer Form (“Form U4”), (2) obtain for its records, evidence that such agent meets the qualification requirements of Section 260.217 of these rules, and (3) ascertain (by investigation) the character, business reputation and experience of any individual, prior to executing any transaction on behalf of the broker-dealer. Evidence of compliance with Section 260.217 and investigation of the agent, shall be maintained as a part of the records of the broker-dealer as required by Sections 260.241 of these rules.

(b) A broker-dealer who registers its agents with Financial Industry Regulatory Authority, Inc. (“FINRA”), shall:

(1) Upon the employment of an individual as an agent, file the Form U4, through the Central Registration Depository (the “CRD”) of FINRA in accordance with its procedures, and pay, for transmission to the Commissioner, the fees prescribed by Section 260.608.2(a) of these rules. The filing of Form U4 with the CRD does not constitute an automatic “approval” through the CRD. Broker-dealers should not consider an agent “registration” through the CRD approved until approved by the Commissioner and the approval has been received through the CRD. If requested by the Commissioner, additional information, documentation or details pertaining to the Form U4 or properly executed fingerprint information of the agent must be filed directly with the Commissioner within 15 days from the date of the request. In accordance with Section 250.16, the Form U4 may be abandoned if the Commissioner does not receive the requested information within the time prescribed. The Commissioner shall “reject” through the CRD an abandoned Form U4.

(2) An agent registered through the CRD may comply with the requirements of this subsection through participation in the “Relicensing” program (the Relicensing program was formerly known as “Temporary Agent Transfer” or “TAT”) adopted by the North American Securities Administrators Association (“NASAA”), provided that the agent is eligible and qualifies for registration through the Relicensing program and the broker-dealer has complied will all of the requirements of the Relicensing program with respect to the agent in a timely manner. Agent CRD registration through the Relicensing program shall not waive any rights of the Commissioner to proceed in any disciplinary proceeding or sanction provided for under the Code.

(3) File an amendment to the Form U4 through the CRD within 30 days when there are any changes to the information contained in the original Form U4. If the Form U4 is being amended due to a disciplinary occurrence, a copy of the amendment shall be filed with the Commissioner upon request.

(4) Within 30 days after the termination of an individual as an agent, file the Uniform Termination Notice for Securities Industry Registration Form (“Form U5”) through the CRD. The Form U5 shall clearly state the reason(s) for termination. However, if an agent has been terminated for cause, the Form U5 shall, upon request, be filed directly with the Commissioner.

A broker-dealer shall be responsible for the acts, practices, and conduct of an agent in connection with the purchase or sale of securities until such time as they have been properly terminated and the Form U5 has been filed with the CRD of FINRA.

(1) Upon the employment of an individual as an agent, file the Form U4 with the Commissioner. The filing of Form U4, with the Commissioner, does not constitute an automatic approval. Broker-dealers should not consider an agent registration approved until such approval has been received from this Department. If requested by the Commissioner, additional documentation or details pertaining to the Form U4 must be filed directly with the Commissioner within 15 days from the date of the request. In accordance with Section 250.16, the Form U4 may be abandoned if the Commissioner does not receive the requested information within the time prescribed.

(2) File an amendment to the Form U4 with the Commissioner within 30 days, when there are any changes to the information (including information relating to a disciplinary action) contained in the original Form U4.

(3) Within 30 days after the termination of employment of an individual as an agent, file the Form U5 with the Commissioner. The Form U5 shall clearly state the reason(s) for termination. A broker-dealer shall be responsible for the acts, practices, and conduct of an agent in connection with the purchase or sale of securities until such time as they have been properly terminated and the Form U5 has been filed with the Commissioner.

(4) If the fingerprints of an individual employed as an agent are not on file with the Commissioner, such broker-dealer shall file with the Form U4 required under subsection (c)(1), fingerprint information pursuant to California Penal Code Section 11077.1 for such individual. Information about whether an individual's fingerprints are on file with the Commissioner may be obtained from any office of the Commissioner.

NOTE

Authority cited: Section 25610, Corporations Code. Reference: Sections 25210, 25213, 25213.3, 25217 and 25612.3, Corporations Code; and Section 11077.1, Penal Code.

HISTORY

1. New section filed 11-29-79 as an emergency; designated effective 1-1-80. Certificate of Compliance included (Register 79, No. 48).

2. Amendment filed 3-16-84; designated effective 3-26-84 pursuant to Government Code section 11346.2(d) (Register 84, No. 11).

3. Amendment filed 4-23-90; operative 5-23-90 (Register 90, No. 20).

4. Amendment of section and Note filed 6-1-98; operative 6-1-98 pursuant to Government Code section 11343.4(d) (Register 98, No. 23).

5. Amendment of subsection (b)(1), new subsection (b)(2), subsection renumbering, and amendment of newly designated subsection (b)(4) filed 1-23-2001; operative 1-23-2001 pursuant to Government Code section 11343.4(c) (Register 2001, No. 4).

6. Change without regulatory effect amending subsections (b)-(b)(1), (b)(4), (c)(1) and (c)(4) and amending Note filed 11-23-2005 pursuant to section 100, title 1, California Code of Regulations (Register 2005, No. 47).

7. Amendment of section and Note filed 9-24-2009; operative 10-24-2009 (Register 2009, No. 39).

§260.211. Application for Broker-Dealer Certificate.

Note • History

(a) For any broker-dealer that participates in the Central Registration Depository (“CRD”), the application for a certificate as a broker-dealer shall be filed as follows:

(A) An applicant that files an application through CRD shall complete a Customer Authorization of Disclosure of Financial Records, set forth in section 260.231(i) of these rules, and maintain the form in the applicant's books and records as provided in Section 25241 of the Code. The applicant shall provide the form to the Commissioner upon request.

(B) Upon reviewing the application, the Commissioner may require the applicant to submit the following information:

1. A balance sheet as of a date within 45 days prior to the filing of the application, which need not be audited. If the balance sheet is not audited, the applicant shall file, in addition, an audited balance sheet as of the end of applicant's last fiscal year.

2. A calculation of the net capital and the ratio of net capital to aggregate indebtedness of the applicant, in accordance with Section 260.216.12 of these rules, as of the same date as the balance sheets submitted under paragraph (B)1. above.

3. Copies of all currently effective subordination agreements. If any are substantially similar, attach one copy of the most standard form(s) and a schedule(s) showing the name and address of each lender and the dollar value of the subordinated items on each agreement.

(C) The Commissioner may request additional information, documentation or detail pertaining to Form BD (Uniform Application for Broker-Dealer Registration, 17 C.F.R. § 249.501) to be filed directly with the Commissioner.

(2) FILING FEE: The fee for filing an initial application is $300 as prescribed in Section 25608(o) of the Code. The applicant shall remit the fee directly with CRD in accordance with its procedures for transmission to the Commissioner. Fees are not refundable except pursuant to Section 250.15 of these rules.

(3) COMPLETION OF FILING: For the purposes of Sections 250.51, an application for a certificate as a broker-dealer is not deemed filed until the required fee and all required submissions are received by the Commissioner. The filing of Form BD (Uniform Application for Broker-Dealer Registration, 17 C.F.R. § 249.501) with CRD does not constitute automatic approval. The broker-dealer shall not consider the application approved until approved by the Commissioner and the approval is received through CRD.

(b) For any broker-dealer that does NOT participate in the CRD, the application for a certificate as a broker-dealer shall be filed as follows:

(1) INITIAL APPLICATION: The application for a certificate as a broker-dealer pursuant to subsection (a) of Section 25211 of the Code and an amendment to such application pursuant to Section 260.241.4(a) of these rules shall be filed upon Form BD (Uniform Application for Broker-Dealer Registration, 17 C.F.R. § 249.501) in accordance with the form instructions and by filing the form directly with the Commissioner at the Department of Corporations, 1515 K Street, Suite 200, Sacramento, CA 95814-4052. In addition to Form BD, the application shall include the additional documentation prescribed in subsections (b)(1)(A) through (b)(1)(D) of this rule.

(A) Financial Statements:

1. Attach a balance sheet as of a date within 45 days prior to the filing of the application, which need not be audited. If the balance sheet is not audited, the applicant shall file, in addition, an audited balance sheet as of the end of applicant's last fiscal year.

2. Attach a calculation of the net capital and the ratio of net capital to aggregate indebtedness of the applicant, in accordance with Section 260.216.12 of these rules, as of the same date as the balance sheets submitted under paragraph (A)1. above.

3. Attach copies of all currently effective subordination agreements. If any are substantially similar, attach one copy of the most standard form(s) and a schedule(s) showing the name and address of each lender, and the dollar value of the subordinated items on each agreement.

4. Furnish the date applicant's fiscal year ends.

5. Furnish applicant's minimum net capital requirement.

A broker-dealer registered pursuant to Section 15 of the Securities Exchange Act of 1934 may file a copy of its most recent annual report of financial condition and its most recent quarterly financial report required under 17 CFR 240.17a-5 in lieu of paragraphs (A)1. and (A)2. above.

(B) Organizational Information and Other Exhibits.

1. If applicant is a corporation, attach copies of articles, by-laws, amendments and certification.

2. If applicant is a partnership, attach partnership agreement and amendments.

3. If applicant is a limited liability company, attach copies of its articles of organization and amendments.

4. If applicant will conduct business under a fictitious name, attach a certified copy of the Fictitious Business Name Statement required by Business and Professions Code Section 17910.

5. Attach a completed Customer Authorization of Disclosure of Financial Records, set forth in Section 260.231(i) of these rules.

(C) Exhibits Required by Applicants Not Registered Under The Securities Exchange Act of 1934 (15 U.S.C. 78a et seq.) or Applicants Whose Agent Records are not on File with CRD.

1. Attach a statement demonstrating compliance with the examination requirements of Section 260.217 of these rules.

2. Attach fingerprint information pursuant to California Penal Code Section 11077.1 for each person listed on Schedule A, B or C of Form BD (Uniform Application for Broker-Dealer Registration, 17 C.F.R. § 249.501).

(D) The Commissioner may request additional information, documentation or detail pertaining to Form BD (Uniform Application for Broker-Dealer Registration, 17 C.F.R. § 249.501) to be filed with the Commissioner.

(2) FILING FEE: The fee for filing an initial application is $300 as prescribed in Section 25608(o) of the Code. Checks shall be made payable to the DEPARTMENT OF CORPORATIONS. Fees are not refundable except pursuant to Section 250.15 of these rules.

(3) COMPLETION OF FILING: For the purposes of Sections 250.51 of these rules, an application for a certificate as a broker-dealer is not considered filed until the required fee and all required submissions are received by the Commissioner.

(c) AMENDMENTS TO FORM BD: Any amendments to Form BD (Uniform Application for Broker-Dealer Registration, 17 C.F.R. § 249.501) shall be filed pursuant to Section 260.241.4 of these rules.

(d) ANNUAL ASSESSMENT: The annual assessment shall consist of the fee prescribed in Section 25608(o) of the Code. The minimum assessment of $75 shall be filed through CRD in accordance with its procedures by the 31st of December for transmission to the Commissioner. This fee shall keep the certificate in effect for an additional period. Broker-dealers not filing through CRD shall pay the minimum assessment of $75 directly to the Commissioner by the 31st of December.

(e) SUCCESSIONS: In the event that a broker-dealer succeeds to and continues the business of a broker-dealer holding a current certificate, both the predecessor broker-dealer and the successor broker-dealer shall follow Rule 15b1-3 under the Securities Exchange Act of 1934 (17 C.F.R. § 240.15b1-3) for the filing of Form BD (Uniform Application for Broker-Dealer Registration, 17 C.F.R. § 249.501), an amendment to Form BD, or Form BDW (Uniform Application for Broker-Dealer Withdrawal, 17 C.F.R. § 249.501a), as applicable. Form BD shall be filed in the manner set forth in subsection (a) or (b) of this section, as applicable. An amendment to Form BD shall be filed in the manner set forth in subsection (c) of this section. Form BDW shall be filed in the manner set forth in Section 260.242 of these rules.

Note: Social Security Account Numbers: In accordance with Section 7 of the Privacy Act of 1974 (PL. 93-579), the following information is provided in connection with the disclosure of a social security account number in the Schedules to Form BD (Uniform Application for Broker-Dealer Registration, 17 C.F.R. §249.501).

Disclosure of a social security account number shall be considered a voluntary disclosure, except as provided below. A social security account number is solicited pursuant to one or more of the following authorities:

Section 25211, Corporations Code.

Section 260.211, Title 10, California Code of Regulations.

Section 17520, Family Code.

Uses to be made of social security account numbers solicited by Form BD and the Schedules thereto are:

A. For all persons disclosing a social security account number, the number may be used, in addition to other information provided, to conduct a background investigation of the individual by the Department of Justice's Identification and Information Branch or by other federal, state or local law enforcement agencies. The social security number may also be used to respond to requests for this number made by child support agencies.

B. The completed form, except any disclosed social security account numbers, shall become a public record and available to members of the public pursuant to the provisions of the Public Records Act (Government Code Sections 6250 et seq.).

NOTE

Authority cited: Sections 25211 and 25610, Corporations Code. Reference: Section 1798.17, Civil Code; Sections 25210, 25211, 25216, 25217, 25241, 25608, 25612.3, 25612.5 and 25613, Corporations Code; Section 17520, Family Code; and Section 11077.1, Penal Code.

HISTORY

1. Amendment filed 6-18-76 as an emergency; effective upon filing. Certificate of Compliance included (Register 76, No. 25). For prior history, see Register 76, No. 18.

2. Amendment of subsection (b), Part II-A, Items II and VII, and Part II-B, No. 2 filed 11-14-78; effective thirtieth day thereafter (Register 78, No. 45).

3. Amendment filed 11-29-79 as an emergency; designated effective 1-1-80. Certificate of Compliance included (Register 79, No. 48).

4. Repealer and new section filed 1-3-84 as an emergency; effective upon filing (Register 84, No.2). A Certificate of Compliance must be transmitted to OAL within 120 days or emergency language will be repealed on 5-3-84.

5. Amendment filed 4-27-84; effective thirtieth day thereafter (Register 84, No. 18).

6. Editorial correction repealing 4-27-84 order and readopting 1-3-84 text filed 5-7-84 (Register 84, No. 18).

7. Certificate of Compliance as to 1-3-84 order transmitted to OAL 4-27-84 and filed 5-29-84 (Register 84, No. 22).

8. Amendment filed 12-19-85 as an emergency; designated effective 1-1-86 (Register 85, No. 51). A Certificate of Compliance must be transmitted to OAL within 120 days or emergency language will be repealed on 5-1-86.

9. Certificate of Compliance transmitted to OAL 4-10-86 and filed 5-8-86 (Register 86, No. 19).

10. Change without regulatory effect filed 3-2-89 (Register 89, No. 11).

11. Change without regulatory effect amending subsection (b) Part I and Part IV filed 11-19-93 pursuant to title 1, section 100, California Code of Regulations (Register 93, No. 47).

12. Change without regulatory effect amending subsection (b) filed 2-16-95 pursuant to section 100, title 1, California Code of Regulations (Register 95, No. 7).

13. Amendment of section and Note filed 1-23-2001; operative 1-23-2001 pursuant to Government Code section 11343.4(c) (Register 2001, No. 4).

14. Amendment of section heading, section and Note filed 3-27-2003; operative 4-26-2003 (Register 2003, No. 13).

15. Change without regulatory effect amending subsection (b)(1)(C)2. and amending Note filed 11-23-2005 pursuant to section 100, title 1, California Code of Regulations (Register 2005, No. 47).

16. Amendment of subsections (a)(1)(A), (b)(1)(B)5. and (e) and amendment of Note filed 9-24-2009; operative 10-24-2009 (Register 2009, No. 39).

§260.211.1. Application for License by Notification.

Note • History

(a) An application for licensing by notification pursuant to Section 25211(b) of the Code shall be in the following form and contain the information therein specified:

Embedded Graphic 10.0027

NOTE

Authority cited: Sections 25211(b) and 25610, Corporations Code. Reference: Section 1798.17, Civil Code; and Sections 25210, 25211, 25216, 25241 and 25608, Corporations Code.

HISTORY

1. Amendment filed 4-27-84; effective thirtieth day thereafter (Register 84, No. 18). For prior history, see Register 84, No. 2.

2. Editorial correction repealing 4-27-84 order and readopting 1-3-84 text filed 5-7-84 (Register 84, No. 18).

3. Certificate of Compliance as to 1-3-84 order transmitted to OAL 4-27-84 and filed 5-29-84 (Register 84, No. 22).

4. Amendment filed 12-19-85 as an emergency; designated effective 1-1-86 (Register 85, No. 51). A Certificate of Compliance must be transmitted to OAL within 120 days or emergency language will be repealed on 5-1-86.

5. Certificate of Compliance transmitted to OAL 4-10-86 and filed 5-8-86 (Register 86, No. 19).

6. Change without regulatory effect filed 3-2-89 (Register 89, No. 11).

7. Change without regulatory effect amending form subsection 6b filed 11-19-93 pursuant to title 1, section 100, California Code of Regulations (Register 93, No. 47).

8. Change without regulatory effect amending subsection (b) filed 2-16-95 pursuant to section 100, title 1, California Code of Regulations (Register 95, No. 7).

9. Amendment of section and Note filed 1-23-2001; operative 1-23-2001 pursuant to Government Code section 11343.4(c) (Register 2001, No. 4).

10. Amendment of section and Note filed 3-27-2003; operative 4-26-2003 (Register 2003, No. 13).

11. Amendment of form section 5.b. filed 11-10-2009; operative 12-10-2009 (Register 2009, No. 46).

§260.211.2. Expiration of Broker-Dealer Certificates.

Note • History

A general license as a broker-dealer pursuant to subsection (a) or (b) of Section 25211 of the Code continues effective until it is revoked or suspended by the Commissioner or surrendered by the broker-dealer pursuant to Section 260.242.

NOTE

Authority cited: Section 25610, Corporations Code. Reference: Section 25211, Corporations Code.

HISTORY

1. Amendment filed 9-2-77; effective thirtieth day thereafter (Register 77, No. 36).

2. Amendment filed 11-29-79 as an emergency; designated effective 1-1-80. Certificate of Compliance included (Register 79, No. 48).

§260.211.3. Waiver of Denial or Revocation Under Section 25211(b) of the Code.

Note • History

Pursuant to the provisions of Section 25211(b) of the Code, the Commissioner waives in the public interest as a bar to issuance of a broker-dealer certificate by notification any revocation of a broker-dealer certificate pursuant to the provisions of subdivision (b) or (c)(1) of Section 25242 of the Code, or pursuant to a provision of a predecessor statute of substantially identical import or effect.

NOTE

Authority cited: Sections 25211(b), (c) and 25610, Corporations Code. Reference: Section 25211, Corporations Code.

HISTORY

1. New section filed 11-29-79 as an emergency; designated effective 1-1-80. Certificate of Compliance included (Register 79, No. 48).

2. Editorial correction of NOTE filed 4-6-83 (Register 83, No. 15).

Article 9. Regulation of Broker-Dealers and Agents

§260.216. Fraud and Misrepresentation.

Note • History

The phrase “manipulative, deceptive, or other fraudulent scheme, device, or contrivance,” as used in subdivision (a) of Section 25216 of the Code is hereby defined to include:

(a) Any act, practice, or course of business which operates or would operate as a fraud or deceit upon any person; and

(b) Any untrue statement of a material fact and any omission to state a material fact necessary in order to make the statements made, in the light of the circumstances under which they are made, not misleading, if the person making the statement or omission knows or has reasonable grounds to believe that it is untrue or misleading.

NOTE

Authority cited: Sections 25216(a) and 25610, Corporations Code. Reference: Section 25216, Corporations Code.

HISTORY

1. Editorial correction adding NOTE filed 4-6-83 (Register 83, No. 15).

§260.216.1. Definitions.

Note • History

As used in any Section of these rules adopted pursuant to subdivision (a) of Section 25216 of the Code:

(a) The term “customer” does not include a broker-dealer.

(b) The phrase “the completion of the transaction” means:

(1) In the case of a customer who purchases a security through or from a broker-dealer, except as provided in Clause (2) of this subsection, the time when such customer pays the broker-dealer any part of the purchase price, or, if payment is effected by a bookkeeping entry, the time when such bookkeeping entry is made by the broker-dealer for any part of the purchase price;

(2) In the case of a customer who purchases a security through or from a broker-dealer and who makes payment therefor prior to the time when payment is requested or notification is given that payment is due, the time when such broker-dealer delivers the security to or into the account of such customer;

(3) In the case of a customer who sells a security through or to a broker-dealer, except as provided in Clause (4) of this subsection, if the security is not in the custody of the broker-dealer at the time of sale, the time when the security is delivered to the broker-dealer, and if the security is in the custody of the broker-dealer at the time of sale, the time when the broker-dealer transfers the security from the account of such customer;

(4) In the case of a customer who sells a security through or to a broker-dealer and who delivers such security to such broker-dealer prior to the time when delivery is requested or notification is given that delivery is due, the time when such broker-dealer makes payment to or into the account of such customer.

NOTE

Authority cited: Sections 25216(a) and 25610, Corporations Code. Reference: Section 25216, Corporations Code.

HISTORY

1. Editorial correction adding NOTE filed 4-6-83 (Register 83, No. 15).

§260.216.2. Confirmation of Transactions.

Note • History

(a) The phrase “manipulative, deceptive, or other fraudulent scheme, device or contrivance,” as used in subdivision (a) of Section 25216 of the Code, is hereby defined to include any act of any broker-dealer designed to effect for or with the account of a customer any transaction in, or to induce the purchase or sale by such customer of, any security (other than U.S. Savings Bonds or municipal securities) unless such broker-dealer at or before completion of such transaction, gives or sends to such customer written notification disclosing:

(1) Whether it is acting as agent for such customer, as agent for some other person, as agent for both such customer and some other person, or as principal for its own account; and

(2) The date and time of the transaction (or the fact that the time of the transaction will be furnished upon written request of such customer) and the identity, price and number of shares or units (or principal amount) of such security purchased or sold by such customer; and

(3) In the case of any transaction in a debt security subject to redemption before maturity, a statement to the effect that such debt security may be redeemed in whole or in part before maturity, that such a redemption could affect the yield represented and that additional information is available upon request; and

(4) In the case of a transaction in a debt security effected exclusively on the basis of a dollar price:

(A) The dollar price at which the transaction was effected, and

(B) The yield to maturity calculated from the dollar price; provided, however, that this paragraph (B) shall not apply to a transaction in a debt security with a maturity date that may be extended by the issuer thereof, with a variable interest rate payable thereon, or a participation interest in notes secured by liens upon real estate continuously subject to prepayment; and

(5) In the case of a transaction in a debt security effected on the basis of yield:

(A) The yield at which the transaction was effected, including percentage amount and its characterization (e.g., current yield, yield to maturity, or yield to call); and if effected at yield to call, the type of call, the call date and call price;

(B) The dollar price calculated from the yield at which the transaction was effected; and

(C) If effected on a basis other than yield to maturity and the yield to maturity is lower than the represented yield, the yield to maturity as well as the represented yield; provided, however, that this paragraph shall not apply to a transaction in a debt security with a maturity date that may be extended by the issuer thereof, with a variable interest rate payable thereon, or a participation interest in notes secured by liens upon real estate continuously subject to prepayment; and

(6) Whether any odd-lot differential or equivalent fee has been paid by such customer in connection with the execution of an order for an odd-lot number of shares or units (or principal amount) of a security and that the amount of any such differential or fee will be furnished upon oral or written request; provided, however, that such disclosure need not be made if the differential or fee is included in the remuneration disclosed, or exempted from disclosure, pursuant to subsection (a)(7)(B) of this section; and

(7) If it is acting as agent for such customer, for some other person, or for both such customer and some other person:

(A) The name of the person from whom the security was purchased or to whom it was sold, for such customer or the fact that such information will be furnished upon written request of such customer; and

(B) The amount of any remuneration received or to be received by it from such customer in connection with the transaction, unless remuneration paid by such customer is determined, pursuant to a written agreement with such customer, otherwise than on a transaction basis; and

(C) The source and amount of any other remuneration received or to be received by it in connection with the transaction; provided, however, that if, in the case of a purchase, the broker-dealer or agent was not participating in a distribution, or, in the case of a sale, was not participating in a tender offer, the written notification may state whether any other remuneration has been or will be received and that the source and amount of such other remuneration will be furnished upon written request of such customer; and

(8) If it is acting as principal for its own account:

(A)

1. If is not a market maker in that security and, if, after having received an order to buy from such customer, it purchased the security from another person to offset a contemporaneous sale to such customer, or, after having received an order to sell from such customer, it sold the security to another person to offset a contemporaneous purchase from such a customer, the amount of any mark-up, mark-down, or similar remuneration received in an equity security; or

2. In any other case of a transaction in a reported security, the trade price reported in accordance with an effective transaction reporting plan, the price to the customer in the transaction, and the difference, if any, between the reported trade price and the price to the customer.

(B) In the case of a transaction in an equity security, whether it is a market maker in that security (otherwise than by reason of its acting as a block positioner in that security).

(b) A broker-dealer may effect transactions for or with the account of a customer without giving or sending to such customer the written notification described in subsection (a) of this section if:

(1) Such transactions are effected pursuant to a periodic plan, an investment company plan; and

(2) Such broker-dealer gives or sends to such customer within five business days after the end of each quarterly period a written statement disclosing each purchase or sale, effected for or with, and each dividend or distribution credited to, or reinvested for, the account of such customer (pursuant to the plan) during the period; the date of each such transaction; the identity, number and price of any securities purchased or sold by such customer in each such transaction; the total number of shares of such securities in such customer's account; any remuneration received or to be received by the broker-dealer or agent in connection therewith; and that any other information required by subsection (a) will be furnished upon written request; provided, however, that the quarterly written statement may be delivered to some other person designated by the customer for distribution to the customer; and

(3) In the case of transactions effected pursuant to an investment company plan:

(A) Payments for the purchase of securities by such customer or by such customer's designated agent are made directly to, or made payable to, the registered investment company, or the principal underwriter, custodian, trustee, or other designated agent of the registered investment company; and

(B) The intention to give or send to the customer the written statement referred to in subsection (b)(2) of this section, in lieu of the written notification required by subsection (a), is disclosed in writing to such customer.

(c) A broker-dealer may effect transactions for or with the account of a customer without giving or sending to such customer the written notification described in subsection (a) of this section if:

(1) Such transactions are effected in shares of any no-load open-end investment company registered under the Investment Company Act of 1940 that attempts to maintain a constant net asset value per share and that holds itself out to be a “money market” fund or has an investment policy calling for investment of at least 80% of its assets in debt securities maturing in thirteen months or less; and

(2) Such broker-dealer gives or sends to such customer within five business days after the end of each monthly period a written statement disclosing each purchase or redemption, effected for or with, and each dividend or distribution credited to, or reinvested for, the account of such customer during the month; the date of each such transaction; the identity, number and price of any securities purchased or redeemed by such customer in each such transaction; the total number of shares of such securities in such customer's account; any remuneration received or to be received by the broker-dealer in connection therewith; and that any other information required by subsection (a) will be furnished upon written request; and

(3) Such customer is provided with prior notification in writing disclosing the intention to send the written information referred to in subsection (c)(1) on a monthly basis in lieu of an immediate confirmation.

(d) A broker-dealer shall give or send to a customer information requested pursuant to this section within five business days of receipt of the request; provided, however, that in the case of information pertaining to a transaction effected more than 30 days prior to receipt of the request, the information shall be given or sent to the customer within 15 business days.

(e) For the purposes of this section,

(1) “Customer” shall not include a broker-dealer or agent;

(2) “Completion of the transaction” shall have the meaning provided in Section 260.216.1;

(3) “Time of the transaction” means the time of execution, to the extent feasible, of the customer's order;

(4) “Debt security,” as used in subsections (a)(3), (a)(4), and (a)(5) only, means any security, such as a bond, debenture, note, or any other similar instrument which evidences a liability of the issuer (including any such security that is convertible into stock or a similar security) and fractional or participation interests in one or more of any of the foregoing: Provided, however, that securities issued by an investment company registered under the Investment Company Act of 1940 shall not be included in this definition;

(5) “Periodic plan” means any written authorization for a broker-dealer or agent acting as agent to purchase or sell for a customer a specific security or securities (other than securities issued by an open-end investment company or unit investment trust registered under the Investment Company Act of 1940), (15 USC 80a-1 et seq), in specific amounts (calculated in security units or dollars), at specific time intervals and setting forth the commissions or charges to be paid by the customer in connection therewith (or the manner of calculating them); and

(6) “Investment company plan” means any plan under which securities issued by an open-end investment company or unit investment trust registered under the Investment Company Act of 1940 (15 USC 80a-1 et seq.) and the securities of which are qualified under Section 25111, 25112 or 25113 of the Code, or exempt from such qualification, are purchased or sold by a customer pursuant to:

(A) An individual retirement or individual pension plan qualified under the Internal Revenue Code; or

(B) A contractual or systematic agreement under which the customer purchases at the applicable public offering price, or redeems at the applicable redemption price, such securities in specified amounts (calculated in security units or dollars) at specified time intervals and setting forth the commissions or charges to be paid by such customer in connection therewith (or the manner of calculating them); or

(C) Any other arrangement involving a group of two or more customers and contemplating periodic purchases of such securities by each customer through a person designated by the group; provided, that such arrangement requires the registered investment company or its agent:

1. To give or send to the designated person, at or before the completion of the transaction for the purchase of such securities, a written notification of the receipt of the total amount paid by the group;

2. To send to anyone in the group who was a customer in the prior quarter and on whose behalf payment has not been received in the current quarter a quarterly written statement reflecting that a payment was not received on its behalf; and

3. To advise each customer in the group if a payment is not received from the designated person on behalf of the group within 10 days of a date certain specified in the arrangement for delivery of that payment by the designated person and thereafter to send to each such customer a written notification described in subsection (a) of this section for the next three succeeding payments.

(7) “Reported security” shall have the meaning provided in Rule 11Aa3-1 (17 CFR 240.11Aa3-1) under the Securities Exchange Act of 1934 (15 USC 78a et seq.).

(8) “Effective transaction reporting plan” shall have the meaning provided in Rule 11Aa3-1 (17 CFR 240.11Aa3-1) under the Securities Exchange Act of 1934 (15 USC 78a et seq.).

(f) The Commissioner may exempt any broker-dealer from the requirements of subsections (a) and (b) of this section with regard to specific transactions of specific classes of transactions for which the broker-dealer or agent will provide alternative procedures to effect the purposes of this section; any such exemption may be granted subject to compliance with such alternative procedures and upon such other stated terms and conditions as the Commissioner may impose.

NOTE

Authority cited: Sections 25216(a) and 25610, Corporations Code. Reference: Section 25216, Corporations Code.

HISTORY

1. Amendment filed 7-10-75 as an emergency; effective upon filing (Register 75, No. 28).

2. Certificate of Compliance filed 11-5-75 (Register 75, No. 45).

3. Repealer and new section filed 6-22-79; effective thirtieth day thereafter (Register 79, No. 25).

4. Amendment filed 4-27-84; effective thirtieth day thereafter (Register 84, No. 18).

5. Amendment of subsections (a) (8) and (e) filed 1-7-88; operative 2-6-88 (Register 88, No. 4).

6. Editorial correction of subsection (e) printing error (Register 88, No. 16).

§260.216.3. Disclosure of Control of Issuer.

Note • History

The phrase “manipulative, deceptive, or other fraudulent scheme, device, or contrivance,” as used in subdivision (a) of Section 25216 of the Code, is hereby defined to include any act of any broker-dealer or agent controlled by, controlling,or under common control with, the issuer of any security, designed to effect with or for the account of a customer any transaction in, or to induce the purchase or sale by such customer of, such security unless such broker-dealer or agent, before entering into any contract with or for such customer for the purchase or sale of such security, discloses to such customer the existence of such control, and unless such disclosure, if not made in writing, is supplemented by the giving or sending of written disclosure at or before the completion of the transaction.

NOTE

Authority cited: Sections 25216(a) and 25610, Corporations Code. Reference: Section 25216, Corporations Code.

HISTORY

1. Editorial correction adding NOTE filed 4-6-83 (Register 83, No. 15).

§260.216.4. Disclosure of Interest in Distributions.

Note • History

The phrase “manipulative, deceptive, or other fraudulent scheme, device, or contrivance,” as used in subdivision (a) of Section 25216 of the Code, is hereby defined to include any act of any broker-dealer or agent designed to effect with or for the account of a customer any transaction in, or to induce the purchase or sale by such customer of, any security in the primary or secondary distribution of which such broker-dealer or agent is participating or is otherwise financially interested unless such broker-dealer or agent, at or before the completion of each such transaction, notifies such customer of the existence of such participation or interest.

NOTE

Authority cited: Sections 25216(a) and 25610, Corporations Code. Reference: Section 25216, Corporations Code.

HISTORY

1. Editorial correction adding NOTE filed 4-6-83 (Register 83, No. 15).

§260.216.4.1. Disclosure of Compensation from Financial Planning Activities.

Note • History

The phrase, “manipulative, deceptive, or other fraudulent scheme or device, or contrivance,” as used in subdivision (a) of Section 25216 of the Code, is hereby defined to include the failure of any broker-dealer or agent to deliver to a financial planning customer a notice in writing at the time and containing the information required by Section 260.235.2 of these rules.

NOTE

Authority cited: Section 25610, Corporations Code. Reference: Section 25216, Corporations Code.

HISTORY

1. New section filed 12-20-85; effective thirtieth day thereafter (Register 85, No. 51).

§260.216.5. Churning.

Note • History

The phrase “manipulative, deceptive, or other fraudulent scheme, device, or contrivance,” as used in subdivision (a) of Section 25216 of the Code, is hereby defined to include any act of any broker-dealer or agent designed to effect with or for any customer's account with respect to which such broker-dealer or its agent or employee is vested with any discretionary power, or with respect to which such person is able by reason of the customer's trust and confidence to influence the volume and frequency of the trades, any transactions of purchase or sale which are excessive in size or frequency in view of the financial resources and character of such account.

NOTE

Authority cited: Sections 25216(a) and 25610, Corporations Code. Reference: Section 25216, Corporations Code.

HISTORY

1. Editorial correction filed 11-9-82 (Register 82, No. 46).

§260.216.6. Record of Transactions in Discretionary Accounts.

Note • History

The phrase “manipulative, deceptive, or other fraudulent scheme, device, or contrivance,” as used in Subdivision (a) of Section 25216 of the Code, is hereby defined to include any act of any broker-dealer or agent designed to effect with or for any customer's account in respect to which such broker-dealer or its agent or employee is vested with any discretionary power any transaction of purchase or sale unless immediately after effecting such transaction such broker-dealer or agent makes a record of such transaction which record includes the name of such customer, the name, amount and price of the security, and the date and time when such transaction took place.

NOTE

Authority cited: Sections 25216(a) and 25610, Corporations Code. Reference: Section 25216, Corporations Code.

HISTORY

1. Editorial correction filed 11-9-82 (Register 82, No. 46).

§260.216.7. Control of the Market.

Note • History

The phrase “manipulative, deceptive, or other fraudulent scheme, device, or contrivance,” as used in subdivision (a) of Section 25216 of the Code, is hereby defined to include any representation made to a customer by a broker-dealer or agent that any security is being offered to such customer “at the market” or at a price related to the market price unless such broker-dealer or agent knows or has reasonable grounds to believe that a market for such security exists other than that made, created, or controlled by such person, or by any person for whom such person is acting or with whom such person is associated, or by any person controlled by, controlling, or under common control with such person. A written notification to a customer at or prior to the completion of the transaction that a broker-dealer making the principal market in a security may be in control of the market, by virtue of the fact that such person is the only broker-dealer regularly appearing in the sheets or by reason of the volume of such person's transactions in relation to the total volume of trading by all broker-dealers, shall be sufficient to negative any representation which might otherwise be implied that such person is selling “at the market.”

NOTE

Authority cited: Sections 25216(a) and 25610, Corporations Code. Reference: Section 25216, Corporations Code.

HISTORY

1. Editorial correction filed 11-9-82 (Register 82, No. 46).

§260.216.8. Hypothecation of Customers' Securities.

Note • History

(a) General Provisions. The phrase “fraudulent, deceptive, or manipulative act or practice,” as used in subdivision (b) of Section 25216 of the Code, is hereby defined to include the direct or indirect hypothecation by a broker-dealer, or its arranging for or permitting, directly or indirectly, the continued hypothecation of any securities carried for the account of any customer under circumstances

(1) that will permit the commingling of securities carried for the account of any such customer with securities carried for the account of any other customer, without first obtaining the written consent of each such customer to such hypothecation;

(2) that will permit such securities to be commingled with securities carried for the account of any person other than a bona fide customer of such broker-dealer under a lien for a loan made to such broker-dealer; or

(3) that will permit securities carried for the account of customers to be hypothecated, or subjected to any lien or liens or claim or claims of the pledgee or pledgees, for a sum which exceeds the aggregate indebtedness of all customers in respect of securities carried for their accounts; except that this clause is not violated by reason of an excess arising on any day through the reduction of the aggregate indebtedness of customers on such day, provided that funds or securities in an amount sufficient to eliminate such excess are paid or placed in transfer to pledgees for the purpose of reducing the sum of the liens or claims to which securities carried for the account of customers are subjected as promptly as practicable after such reduction occurs, but before the lapse of one-half hour after the commencement of banking hours on the next banking day at the place where the largest principal amount of loans of such broker-dealer are payable and, in any event, before such broker-dealer on such day has obtained or increased any bank loan collateralized by securities carried for the account of customers.

(b) Definitions. For the purposes of this section the term “customer” does not include any general or special partner or any director or officer of such broker-dealer, or any participant, as such, in any joint, group or syndicate account with such broker-dealer or with any partner, officer or director thereof;

(2) the term “securities carried for the account of any customer” shall mean:

(i) securities received by or on behalf of such broker-dealer for the account of any customer;

(ii) securities sold and appropriated by such broker-dealer to a customer, except that if such securities were subject to a lien when appropriated to a customer they are not “securities carried for the account of any customer” pending their release from such lien as promptly as practicable;

(iii) securities sold, but not appropriated, by such broker-dealer to a customer who has made any payment therefor, to the extent that such broker-dealer owns and has received delivery of securities of like kind, except that if such securities were subject to a lien when such payment was made they are not “securities carried for the account of any customer” pending their release from such lien as promptly as practicable;

(3) “aggregate indebtedness” shall not be reduced by reason of uncollected items; and, in computing aggregate indebtedness, related guarantee and guarantor accounts shall be treated as a single account and considered on a consolidated basis, and balances in accounts carrying both long and short positions shall be adjusted by treating the market value of the securities required to cover such short positions as though such market value were a debit; and

(4) in computing the sum of the liens or claims to which securities carried for the account of customers of a broker-dealer are subject, any rehypothecation of such securities by another broker-dealer shall be disregarded.

(c) Exemption for Cash Account. The provisions of subsection (a)(1) hereof shall not apply to any hypothecation of securities carried for the account of a customer in a special cash account within the meaning of Section 4(c) of Regulation T of the Board of Governors of the Federal Reserve System (12 CFR Part 220), provided that at or before the completion of the transaction of purchase of such securities for, or of sale of such securities to, such customer, written notice is given or sent to such customer disclosing that such securities are or may be hypothecated under circumstances which will permit the commingling thereof with securities carried for the account of other customers.

(d) Exemption for Clearing House Liens. The provisions of subsections (a)(2), (a)(3), and (f) hereof shall not apply to any lien or claim of the clearing corporation, or similar department or association, of a national securities exchange, or a registered national securities association for a loan made and to be repaid on the same calendar day, which is incidental to the clearing of transactions in securities or loans through such corporation, department or association; provided, however, that for the purpose of subsection (a)(3) hereof, “aggregate indebtedness of all customers in respect of securities carried for their accounts” shall not include indebtedness in respect of any securities subject to any lien or claim exempted by this subsection (d).

(e) Exemption for Certain Liens on Securities of Noncustomers. The provisions of subsection (a)(2) hereof shall not prevent such broker-dealer from permitting securities not carried for the account of a customer to be subjected (1) to a lien for a loan made against securities carried for the account of customers, or (2) to a lien for a loan made and to be repaid on the same calendar day. For the purpose of this exemption, a loan is “made against securities carried for the account of customers” if only securities carried for the account of customers are used to obtain or to increase such loan or as substitute for other securities carried for the account of customers.

(f) Notice of Certification Requirements. No person subject to this section shall hypothecate any security carried for the account of a customer unless, at or prior to the time of each such hypothecation, such person gives written notice to the pledgee that the security pledged is carried for the account of a customer and that such hypothecation does not contravene any provision of this section, except that in the case of an omnibus account the broker-dealer for whom such account is carried may furnish a signed statement to the person carrying such account that all securities carried therein by such broker-dealer will be securities carried for the account of its customers and that the hypothecation thereof by such broker-dealer will not contravene any provision of this Section. The provisions of this subsection (f) shall not apply to any hypothecation of securities under any lien or claim of a pledgee securing a loan made and to be repaid on the same calendar day nor to any broker-dealer registered under the Securities Exchange Act of 1934 (15 USC 78a et seq.).

(g) The fact that securities carried for the accounts of customers and securities carried for the accounts of others are represented by one or more certificates in the custody of a clearing corporation or other subsidiary organization of either a national securities exchange or of a registered national securities association, or of a custodian bank, in accordance with a system for the central handling of securities established by a national securities exchange or a registered national securities association, pursuant to which system the hypothecation of such securities is effected by bookkeeping entries without physical delivery of such securities, shall not, in and of itself, result in a commingling of securities prohibited by subsection (a)(1) or (a)(2) hereof, whenever a participating member broker-dealer hypothecates securities in accordance with such system; provided that

(1) any custodian of any securities held by or for such system has entered into an agreement approved by the Securities and Exchange Commission that it will not for any reason, including the assertion of any claim, right or lien of any kind, refuse or refrain from promptly delivering any such securities (other than securities then hypothecated in accordance with such system) to such clearing corporation or other subsidiary organization or as directed by it, except that nothing in such agreement shall require the custodian to deliver any securities in contravention of any notice of levy, seizure or similar notice, or order, or judgment, issued or directed by a governmental agency or court, or officer thereof, having jurisdiction over such custodian, which on its face affects such securities; and

(2) such system has safeguards in the handling, transfer and delivery of securities and provisions for fidelity bond coverage of the employees and agents of the clearing corporation or other subsidiary organization and for periodic examinations by independent public accountants, approved by the Securities and Exchange Commission.

NOTE

Authority cited: Sections 25216(b)and 25610, Corporations Code. Reference: Section 25216, Corporations Code.

HISTORY

1. Amendment of subsection (d) filed 7-20-72; effective thirtieth day thereafter (Register 72, No. 30).

2. Editorial correction filed 11-9-82 (Register 82, No. 46).

§260.216.9. Transmission or Maintenance of Payments Received in Connection with Underwritings.

Note • History

It shall constitute a “fraudulent, deceptive or manipulative act or practice,” as used in subdivision (b) of Section 25216 of the Code, for any broker-dealer participating in any distribution of securities, other than a firm commitment underwriting, to accept any part of the sale price of any security being distributed unless:

(a) the money or other consideration received is promptly transmitted to the persons entitled thereto; or

(b) if the distribution is being made on an “all-or-none” basis, or on any other basis which contemplates that payment is not to be made to the person on whose behalf the distribution is being made until some further event or contingency occurs,

(1) the money or other consideration received is promptly deposited in a separate bank account, as agent or trustee for the persons who have the beneficial interests therein, until the appropriate event or contingency has occurred, and then the funds are promptly transmitted or returned to the persons entitled thereto, or

(2) all such funds are promptly transmitted to a bank which has agreed in writing to hold all such funds in escrow for the persons who have the beneficial interests therein and to transmit or return such funds directly to the persons entitled thereto when the appropriate event or contingency has occurred.

NOTE

Authority cited: Sections 25216(b) and 25610, Corporations Code. Reference: Sections 25216(b) and 25610, Corporations Code.

HISTORY

1. Editorial correction adding NOTE filed 4-6-83 (Register 83, No. 15).

§260.216.10. Disclosure and Other Requirements When Extending or Arranging Credit in Certain Transactions.

Note • History

(a) It shall constitute a “fraudulent, deceptive or manipulative act or practice,” as used in subdivision (b) of Section 25216 of the Code, for any broker-dealer or agent to offer or sell any security to, or to attempt to induce the purchase of any security by, any person, in connection with which such broker-dealer or agent, directly or indirectly, offers to extend any credit to or to arrange any loan for such person, or extends any credit to or participates in arranging any loan for such person, unless such broker-dealer or agent, before any purchase, loan or other related element of the transaction is entered into:

(1) delivers to such person a written statement setting forth the exact nature and extent of

(i) such person's obligations under the particular loan arrangement, including, among other things, the specific charges which such person will incur under such loan in each period during which the loan may continue or be extended,

(ii) the risks and disadvantages which such person will incur in the entire transaction, including the loan arrangement, and

(iii) all commissions, discounts, and other remuneration received and to be received, in connection with the entire transaction including the loan arrangement, by the broker-dealer or agent, by any person controlling, controlled by, or under common control with the broker-dealer or agent, and by any other person participating in the transaction; provided, however, that the broker-dealer or agent shall be deemed to be in compliance with this subsection if the customer, before any purchase, loan, or other related element of the transaction is entered into in a manner legally binding upon the customer, receives a statement from the lender, or receives a prospectus or offering circular from the broker-dealer or agent, which statement, prospectus or offering circular contains the information required by this subsection; and

(2) obtains from such person information concerning its financial situation and needs, reasonably determines that the entire transaction, including the loan arrangement, is suitable for such person, and retains in its files a written statement setting forth the basis upon which the broker-dealer or agent made such determination; provided, however, that the written statement referred to in this subsection must be made available to the customer on request.

(b) This section shall not apply to any credit extended or any loan arranged by any broker-dealer or agent subject to the provisions of Regulation T of the Board of Governors of the Federal Reserve System (12 CFR Part 220) if such credit is extended or such loan is arranged, in compliance with the requirements of such regulation, only for the purpose of purchasing or carrying the security offered or sold; provided, however, that notwithstanding this subsection, the provisions of subsection (a) shall apply in full force with respect to any transaction involving the extension of or arrangement for credit by a broker-dealer or agent (i) in a special insurance premium funding account within the meaning of Section 4(k) of Regulation T or (ii) in compliance with the terms of Rule 3a12-5 under the Securities Exchange Act of 1934 (17 CFR 240.3a12-5).

NOTE

Authority cited: Sections 25216(b) and 25610, Corporations Code. Reference Section 25216, Corporations Code.

HISTORY

1. Amendment filed 9-2-77; effective thirtieth day thereafter (Register 77, No. 36).

2. Editorial correction of subsection (b) filed 11-9-82 (Register 82, No. 46).

§260.216.11. Identification of Quotations.

Note • History

(a) It shall constitute an attempt to induce the purchase or sale of a security by making a “fictitious quotation,” within the meaning of subdivision (b) of Section 25216 of the Code, for any broker-dealer to furnish or submit, directly or indirectly, any quotation for a security to an inter-dealer-quotation-system unless:

(1) The inter-dealer-quotation-system is informed, if such is the case, that the quotation is furnished or submitted

(i) by a correspondent broker-dealer for the account or on behalf of another broker-dealer, and if so, the identity of such other broker-dealer; and/or

(ii) in furtherance of one or more other arrangements (including a joint account, guarantee of profit, guarantee against loss, commission, mark-up, mark-down, indication of interest and accommodation arrangement) between or among broker-dealers, and if so, the identity of each broker-dealer participating in any such arrangement or arrangements; provided, however, that th provisions of this paragraph (ii) shall not apply if only one of the broker-dealers participating in any such arrangement or arrangements furnishes or submits a quotation with respect to the security to an inter-dealer-quotation-system.

(2) The inter-dealer-quotation-system to which the quotation is furnished or submitted makes it a general practice to disclose with each published quotation, by appropriate symbol or otherwise, the category or categories (subsection (a)(1)(i) and/or (a)(1)(ii)) in furtherance of which the quotation is submitted, and the identities of all other broker-dealers referred to in subsection (a)(1)(i) and (a)(1)(ii) where such information is supplied to the inter-dealer-quotation-system under the provisions of subsection (a)(1) of this section.

(b) It shall constitute an attempt to induce the purchase or sale of a security by making a “fictitious quotation,” within the meaning of subdivision (b) of Section 25216 of the Code, for a broker-dealer to enter into any correspondent or other arrangement (including a joint account, guarantee of profit, guarantee against loss, commission, mark-up, mark-down, indication of interest and accommodation arrangement) in furtherance of which two or more broker-dealers furnish or submit quotations with respect to a particular security unless such broker-dealer informs all broker-dealers furnishing or submitting such quotations of the existence of such correspondent and other arrangements, and the identity of the parties thereto.

(1) The term “inter-dealer-quotation-system” shall mean any system of general circulation to broker-dealers which regularly disseminates quotations of identified broker-dealers but shall not include a quotation sheet prepared and distributed by a broker-dealer in the regular course of his business and containing only quotations of such broker-dealer.

(2) The term “quotation” shall mean any bid or offer, or any indication of interest (such as OW or BW) in any bid or offer.

(3) The term “correspondent” shall mean a broker-dealer who has a direct line of communication to another broker-dealer located in a different city or geographical area.

NOTE

Authority cited: Sections 25216(b) and 25610, Corporations Code. Reference: Section 25216, Corporations Code.

HISTORY

1. Editorial correction adding NOTE filed 4-6-83 (Register 83, No. 15).

§260.216.12. Minimum Capital Requirement for Broker-Dealers.

Note • History

(a) No broker-dealer shall permit its aggregate indebtedness to all other persons to exceed the limitations of 17 CFR 240.15c3- and Appendices A through D thereto (Rule 15c3-1) adopted by the Securities and Exchange Commission under the Securities Exchange Act of 1934 (15 USC 78a et seq.) and every broker-dealer shall have net capital necessary to comply with the conditions set forth in that rule.

(b) Notification and Filings. Every broker-dealer shall notify, or file a specified document with, the Commissioner whenever Rule 15c3-1 requires a broker-dealer to notify, or file a specified document with, the Securities and Exchange Commission and/or Examining Authority. Such notification or filing shall be in the manner prescribed in the rule. Every broker-dealer shall also file with the Commissioner a copy of any exemption from Rule 15c3-1 granted by the Securities and Exchange Commission.

(c) Examining Authority for Non-Registered Broker-Dealers. The term “Examining Authority” as used in Rule 15c3-1 shall mean, in the case of any non-registered broker-dealer, the Commissioner.

(d) Exemption. The Commissioner may, upon written application, exempt from the provisions of subsection (a), either unconditionally or on specified terms and conditions, any broker-dealer who satisfies the Commissioner that, because of the special nature of its business, its financial position, and the safeguards it has established for the protection of its customers' funds and securities, it is not necessary in the public interest or for the protection of the investors to subject the particular broker-dealer to the specific provisions of Rule 15c3-1 insofar as it relates to a broker-dealer's requirements under subsection (a). The Commissioner may also exempt or otherwise reduce or adjust a broker-dealer's requirements under the terms and conditions provided in Rule 15c3-1 for such actions by the Securities and Exchange Commission and/or the Examining Authority.

(e) Appendix C--Flow Through Capital Benefits. The Commissioner may permit consolidation in the same manner as the Securities and Exchange Commission pursuant to Appendix C to Rule 15c3-1.

(f) Appendix D--Special Provisions.

(1) Notwithstanding the provisions of Appendix D to Rule 15c3-1 regarding permissive payments, no prepayment of a subordinated indebtedness shall occur without the prior written approval of the Examining Authority for the broker-dealer and the Commissioner.

(2) In the case of a non-registered broker-dealer, Events of Default in Subordination Agreements may include the revocation of the license of the broker-dealer by the Commissioner.

NOTE

Authority cited: Sections 25216(c) and 25610, Corporations Code. Reference: Section 25216, Corporations Code.

HISTORY

1. Repealer and new section filed 4-27-84; effective thirtieth day thereafter (Register 84, No. 18). For prior history, see Registers 79, No. 45; 79, No. 25; 78, No. 45; and 78, No. 22.

§260.216.12.1. Reserve and Custody Requirements.

Note • History

(a) Every broker-dealer shall comply with the requirements of 17 CFR 240.15c3-3 (Rule 15c3-3) adopted by the Securities and Exchange Commission under the Securities Exchange Act of 1934 (15 USC 78a et seq.) relating to reserves and custody of securities requirements.

(b) Notification and Filings. Every broker-dealer shall notify, or file a specified document with, or make records available to, the Commissioner whenever Rule 15c3-3 requires a broker-dealer to notify, or make records available to, or file a specified document with, the Securities and Exchange Commission and/or Examining Authority as defined in Rule 15c3-1 (17 CFR 240.15c3-1). Such notification or filing shall be in the manner prescribed in Rule 15c3-3.

(c) Control of Securities. Securities under the control of the broker-dealer shall be deemed to be securities which, in addition to those specified in Rule 15c3-3 are held in such other locations as the Commissioner shall upon application from a broker-dealer find and designate to be adequate for the protection of customer securities.

(d) Examining Authority for Nonregistered Broker-Dealers. The term “Examining Authority” as used in Rule 15c3-3 shall mean, in the case of any nonregistered broker-dealer, the Commissioner.

(e) Exemption. Upon written application by a broker-dealer, the Commissioner may exempt such broker-dealer from the provisions of this section, either conditionally or on specified terms or conditions, if the Commissioner finds that the broker-dealer has established safeguards for the protection of funds or securities for customers comparable to those provided for by Rule 15c3-3 and that it is not necessary in the public interest or for the protection of investors to subject the particular broker-dealer to the provisions of this section.

(f) References to Securities and Exchange Rules. For purposes of this section, the following references to rules of the Securities and Exchange Commission in Rule 15c3-3 shall mean references to corresponding rules of the Commissioner as set forth in this Chapter 3:

(1) Rule 8c-1 (17 CFR 240.8c-1) and 15c2-1 (17 CFR 240.15c2-1) shall mean Section 260.216.8.

(2) Rule 15c3-1 (17 CFR 240.15c3-1) shall mean Section 260.216.12.

(3) Rule 17a-3 (17 CFR 240.17a-3) shall mean Section 260.241.

(4) Rule 17a-4 (17 CFR 240.17a-4) shall mean Section 260.241.2.

(5) Rule 17a-5 (17 CFR 240.17a-5) shall mean Section 260.241.2.

(6) Rule 17a-13 (17 CFR 240.17a-13) shall mean Section 260.241.6.

NOTE

Authority cited: Sections 25216(c) and 25610, Corporations Code. Reference: Section 24216, Corporations Code.

HISTORY

1. Repealer and new section filed 4-27-84; effective thirtieth day thereafter (Register 84, No. 18). For prior history, see Registers 78, No. 22; 76, No. 1; 75, No. 4; and 74, No. 9.

§260.216.13. Ratio of Net Capital to Aggregate Indebtedness. [Repealed]

Note • History

NOTE

Authority cited: Section 25610, Corporations Code. Reference: Sections 25216, 25231, 25237 and 25241, Corporations Code.

HISTORY

1. Amendment of subsection (a) filed 3-1-74; effective thirtieth day thereafter (Register 74, No. 9).

2. Repealer filed 12-31-75 as an emergency; designated effective 1-1-76. Certificate of Compliance included (Register 76, No. 1).

§260.216.14. Use of Customer Free-Credit Balance.

Note • History

No broker-dealer shall use any funds arising out of any free credit balance carried for the account of any customer in connection with the operation of the business of such broker-dealer unless such broker-dealer has established adequate procedures pursuant to which each customer for whom a free credit balance is carried will be given or sent, together with or as a part of the customer's statement of account, whenever sent but not less frequently than once every three months, a written statement informing such customer of the amount due to the customer by such broker-dealer on the date of such statement, and containing a written notice that (a) such funds are not segregated and may be used in the operation of the business of such broker-dealer; and (b) such funds are payable on the demand of the customer. For the purpose of this section, the term “customer” shall mean every person other than a broker-dealer.

NOTE

Authority cited: Sections 25216 and 25610, Corporations Code. Reference: Section 25216, Corporations Code.

HISTORY

1. Editorial correction adding NOTE filed 4-6-83 (Register 83, No. 15).

§260.216.15. Bond Requirement.

Note • History

(a) Any issuer who employs agents in connection with any security or transaction not exempt by Chapter 1 (commencing with Section 25100) of Part 2 of Division 1 of Title 4 of the Code shall furnish and maintain, so long as such issuer is engaging in sales of securities requiring the posting of such bond, a surety bond in the amount of $10,000 issued by a corporate surety admitted to transact business in the State of California, in the form and tenor required pursuant to subdivision (e) of Section 25216 of the Code, unless such issuer complies with subdivision (b) hereof.

(b) An appropriate deposit of cash or securities is acceptable by the Commissioner in lieu of the bonds mentioned in subsection (a).

The following procedure should be observed by the person making such deposit (“depositor”):

(1) Appropriate deposits of cash or securities include certificates of deposit or other appropriate evidence of deposit of bank accounts or savings and loan certificates or share accounts. Securities which have a fluctuating market value will not be deemed appropriate within the meaning of subdivision (e) of Section 25216 of the Code.

(2) The depositor forwards the cash or securities to a bank of its choice in the City of Sacramento, with the request that the same be held subject to written instructions of the Commissioner of Corporations or State Treasurer.

(3) Concurrently, the depositor files with the Commissioner six copies of an Assignment Form furnished by the Commissioner completed as to Part I and Part II, together with two copies of instruction letter to the Sacramento bank. If the depositor is a corporation, it shall also file two copies of the resolution of its board of directors authorizing the filing of the Assignment.

(4) Upon acceptance of the deposit, the Commissioner will complete Part III of the Assignment Form. One copy each of the completed form will be forwarded to the depositor or issuer, and the bank or savings and loan association where the funds are deposited.

(5) The arrangement may be terminated by filing a bond as specified in subsection (a) of this section, upon expiration or termination of the qualification, or otherwise as ordered by the Commissioner. However, the deposit in lieu of bond is not returnable to the depositor until two years after termination of the arrangement.

(c) The Commissioner has no authority to adjudicate any claim or controversy against the bond or deposit, and disputed claims must be adjudicated by a court. Upon the filing of suit and notice thereof to the Commissioner, the Commissioner, if he/she deems it appropriate, will turn over all or part of the deposit to the court by means of an interpleader or similar proceeding.

NOTE

Authority cited: Sections 25216(e) and 25610, Corporations Code. Reference: Section 25216, Corporations Code.

HISTORY

1. Amendment filed 1-11-72; effective thirtieth day thereafter (Register 72, No. 3).

2. Amendment of subsections (c)(3) and (4) filed 11-14-78; effective thirtieth day thereafter (Register 78, No. 45).

3. Amendment filed 4-27-84; effective thirtieth day thereafter (Register 84, No. 18).

§260.216.16. Dual Employment or Affiliation.

Note • History

It shall constitute a “fraudulent, deceptive or manipulative act or practice,” as used in subsection (b) of Section 25216 of the Code, for any agent, officer, director, partner, managing employee or controlling person of a broker-dealer to become concurrently associated with another broker-dealer or with an issuer as an agent, officer, director, partner, managing employee or controlling person unless prior to establishing such concurrent affiliation (i) such person gives written notice to both affiliates regarding such dual relationship, (ii) both affiliates consent to such concurrent affiliation, (iii) both affiliates establish appropriate procedures designed to correct any conflict of interest arising out of such relationship and to guard against violations of Sections 260.216, 260.216.3, 260.216.4, 260.216.7 or 260.218.4 of these rules or Rules 15c1-2 (17 CFR 240.15 c1-2), 15c1-5 (17 CFR 240.15c1-5), 15c1-6 (17 CFR 240.15c1-6),or 15c1-8 (17 CFR 240.15 c1-8), under the Securities Exchange Act of 1934 (15 USC 78a et seq.) and (iv) if both affiliates are broker-dealers and employ the same person as an agent (as defined in Section 25003 of the Code), both affiliates agree to be liable to customers of either affiliate for all acts of the agent in the employment of either affiliate. For the purposes of this section, “controlling person” means any person owning or controlling 10% or more of the voting securities of a broker-dealer or the parent of a broker-dealer and any partner of a broker-dealer.

NOTE

Authority cited: Sections 25216(b) and 25610, Corporations Code. Reference: Section 25216, Corporations Code.

HISTORY

1. New section filed 9-19-73; effective thirtieth day thereafter (Register 73, No. 38).

2. Amendment filed 4-27-84; effective thirtieth day thereafter (Register 84, No. 18).

3. Amendment filed 1-7-88; operative 2-6-88 (Register 88, No. 4).

§260.217. Qualifications of Broker-Dealers, Compliance Supervisors and Reported Agents.

Note • History

(a) Every individual who is a broker-dealer, or a compliance supervisor or reported agent of a broker-dealer:

(1) shall have passed, within two years prior to the date of filing the application for, or the issuance of, a broker-dealer license, or becoming a compliance supervisor or reported agent of a licensed broker-dealer, the Series 63/Uniform Securities Agent State Law Examination (“Series 63 Examination”) or the Series 66/Uniform Combined State Law Examination (“Series 66 Examination”), both of which are administered by the Financial Industry Regulatory Authority; and

(2) shall meet all applicable examination requirements of the Securities and Exchange Commission and the self-regulatory organizations of which the broker-dealer is a member.

(b) The provisions of subsection (a)(1) shall not apply to an individual:

(1) who was a broker-dealer licensed under the Code (or a compliance supervisor or reported agent of a broker-dealer licensed under the Code) on May 22, 1989, or

(2) who has been an active broker-dealer (or a compliance supervisor or reported agent of a broker-dealer) without an interruption of two or more years since passing the Series 63 Examination or the Series 66 Examination or not being required to take the Series 63 Examination or the Series 66 Examination pursuant to subsection (b)(1).

(d) The provisions of this section do not apply to a broker-dealer or a compliance supervisor or reported agent of a broker-dealer when acting within the scope of his or her affiliation with a broker-dealer:

(1) who is licensed by the State Cemetery Bureau as a Cemetery Authority or as a Cemetery Broker under Sections 9700 through 9723.3 of the Business and Professions Code and who sells only the securities of one issuer in connection with arrangements for funerals or cemetery space; or

(2) who sells only evidences of indebtedness of issuers organized exclusively for religious purposes and not for pecuniary profit.

(e) Definitions. For purposes of this section:

(1) “Compliance supervisor” of a broker-dealer means every individual who has responsibility of ensuring that reported agents comply with the Corporate Securities Law of 1968 and the rules thereunder.

(2) “Reported agent” means every agent employed by a broker-dealer and whose employment has been reported in accordance with Section 260.210 of these rules.

NOTE

Authority cited: Sections 25217(a) and 25610, Corporations Code. Reference: Section 25217, Corporations Code.

HISTORY

1. Amendment of subsection (c)(2) filed 12-23-69 as an emergency; designated effective 1-2-70 (Register 69, No. 52).

2. Certificate of Compliance-section 11422.1, Gov. Code, filed 3-26-70 (Register 70, No. 13).

3. Amendment of subsection (c)(2) filed 7-20-72; effective thirtieth day thereafter (Register 72, No. 30).

4. Amendment of subsection (a) filed 6-28-73; effective thirtieth day thereafter (Register 73, No. 26).

5. Editorial correction (Register 73, No. 36).

6. Amendment filed 11-28-79 as an emergency; designated effective 1-1-80. Certificate of Compliance included (Register 79, No. 48).

7. Editorial correction of subsections (a) and (c) filed 11-9-82 (Register 82, No. 46).

8. Amendment filed 4-23-90; operative 5-23-90 (Register 90, No. 20).

9. Editorial correction of printing error in subsections (a)(1)(A) and (a)(1)(B) (Register 91, No. 44).

10. Amendment filed 12-31-97; operative 1-1-98 pursuant to Government Code section 11343.4(d) (Register 98, No. 1).

11. Change without regulatory effect repealing subsection (c) filed 9-25-2002 pursuant to section 100, title 1, California Code of Regulations (Register 2002, No. 39).

12. Amendment of subsections (a)(1) and (d)(1) filed 11-10-2009; operative 12-10-2009 (Register 2009, No. 46).

§260.217.1. Qualifications of Agents. [Repealed]

Note • History

NOTE

Authority cited: Sections 25217(a) and 25610, Corporations Code. Reference: Section 25217, Corporations Code.

HISTORY

1. Amendment filed 11-29-79 as an emergency; designated effective 1-1-80. Certificate of Compliance included (Register 79, No. 48). For prior history, see Register 69, No. 20.

2. Editorial correction filed 11-9-82 (Register 82, No. 46).

3. Repealer filed 4-23-90; operative 5-23-90 (Register 90, No. 20).

§260.218. Just and Equitable Principles of Trade.

Note • History

Each broker-dealer and each agent employed by such a broker-dealer shall observe high standards of commercial honor and just and equitable principles of trade in the conduct of such person's business.

NOTE

Authority cited: Sections 25218 and 25610, Corporations Code. Reference: Section 25218, Corporations Code.

HISTORY

1. Amendment filed 11-29-79 as an emergency; designated effective 1-1-80. Certificate of Compliance included (Register 79, No. 48).

2. Editorial correction filed 11-9-82 (Register 82, No. 46).

§260.218.1. Mark-Ups and Mark-Downs.

Note • History

No broker-dealer and no agent employed by such a broker-dealer shall enter into any transaction with a customer in any security at a price not reasonably related to the current market price of the security, or charge a commission which is not reasonable.

NOTE

Authority cited: Sections 25218 and 25610, Corporations Code. Reference: Section 25218, Corporations Code.

HISTORY

1. Amendment filed 11-29-79 as an emergency; designated effective 1-1-80. Certificate of Compliance included (Register 79, No. 48).

2. Editorial correction of NOTE filed 4-6-83 (Register 83, No. 15).

§260.218.2. Suitability of Recommendations.

Note • History

Any broker-dealer and any agent employed by such a broker-dealer who recommends to a customer the purchase, sale or exchange of any security shall have reasonable grounds to believe that the recommendation is not unsuitable for such customer on the basis of information furnished by such customer after reasonable inquiry concerning the customer's investment objectives, financial situation and needs, and any other information known by such broker-dealer or agent.

NOTE

Authority cited: Sections 25218 and 25610, Corporations Code. Reference: Section 25218, Corporations Code.

HISTORY

1. Amendment filed 11-29-79 as an emergency; designated effective 1-1-80. Certificate of Compliance included (Register 79, No. 48).

2. Editorial correction of NOTE filed 4-6-83 (Register 83, No. 15).

§260.218.3. Free-Riding and Withholding.

Note • History

No broker-dealer who is participating in a distribution of securities, whether acquired as an underwriter, a selling group member, or from a member participating in the distribution as an underwriter or selling group member, shall fail to make a bona fide public offering of all of the securities allotted to such person for distribution.

NOTE

Authority cited: Sections 25218 and 25610, Corporations Code. Reference: Section 25218, Corporations Code.

HISTORY

1. Amendment filed 11-29-79 as an emergency; designated effective 1-1-80. Certificate of Compliance included (Register 79, No. 48).

2. Editorial correction filed 11-9-82 (Register 82, No. 46).

§260.218.4. Supervision of Agents.

Note • History

(a) Every broker-dealer shall exercise diligent supervision over the securities activities of all of its agents.

(b) Every agent employed by a broker-dealer shall be subject to the supervision of a supervisor designated by such broker-dealer. The supervisor may be the broker-dealer in the case of a sole proprietor, or a partner, officer, office manager, or any qualified agent.

(c) As part of the responsibility under this rule, every broker-dealer shall establish, maintain and enforce written procedures, a copy of which shall be kept in each business office, which shall set forth the procedures adopted by the broker-dealer to comply with the following duties imposed by this section, and shall state at which business office or offices the broker-dealer keeps and maintains the records required by Section 260.218.5 of these rules.

(1) The review and written approval by the designated supervisor of the opening of each new customer account;

(2) The frequent examination of all customer accounts to detect and prevent irregularities or abuses;

(3) The prompt review and written approval by the designated supervisor of all securities transactions by agents and all correspondence pertaining to the solicitation or execution of all securities transactions by agents;

(4) The review and written approval by the designated supervisor of the delegation by any customer of discretionary authority with respect to the account to the broker-dealer or to a stated agent or agents of the broker-dealer and the prompt written approval of each discretionary order entered on behalf of that account; and

(5) The prompt review and written approval of the handling of all customer complaints.

(d) Every broker-dealer who has designated more than one supervisor pursuant to Subsection (b) of this section shall designate from among its partners, officers or other qualified agents, a person or group of persons who shall:

(1) supervise and periodically review the activities of the supervisors designated pursuant to subsection (b) of this section; and

(2) periodically inspect each business office of the broker-dealer to insure that the written procedures are enforced.

NOTE

Authority cited: Sections 25218 and 25610, Corporations Code. Reference: Section 25218, Corporations Code.

HISTORY

1. Amendment filed 11-29-79 as an emergency; designated effective 1-1-80. Certificate of Compliance included (Register 79, No. 80).

2. Editorial correction of subsection (c) filed 11-9-82 (Register 82, No. 46).

3. Amendment of subsection (d) filed 1-7-88; operative 2-6-8 (Register 88, No. 4).

§260.218.5. Record Keeping. [Repealed]

Note • History

NOTE

Authority cited: Sections 25218 and 25610, Corporations Code. Reference: Section 25218, Corporations Code.

HISTORY

1. Amendment filed 11-29-79 as an emergency; designated effective 1-1-80. Certificate of Compliance included (Register 79, No. 48).

2. Editorial correction filed 11-9-82 (Register 82, No. 46).

3. Repealer filed 3-6-2008; operative 4-5-2008 (Register 2008, No. 10).

§260.218.6. Discretionary Authority.

Note • History

No broker-dealer and no agent employed by such broker-dealer shall exercise any discretionary power or authority for any customer unless such customer has given prior written authorization to exercise such power or authority to a stated individual who is a broker-dealer or agent, and has indicated the reasons for such authorization. This Section does not apply to transactions in which the broker-dealer's discretion is limited to the price at which or the time when an order given by a customer for the purchase or sale of a definite amount of a specified security shall be executed.

NOTE

Authority cited: Section 25610, Corporations Code. Reference: Section 25218, Corporations Code.

HISTORY

1. Amendment filed 11-29-79 as an emergency; designated effective 1-1-80. Certificate of Compliance included (Register 79, No. 48).

§260.230. Electronic Filings.

Note • History

(a) Designation: The Commissioner designates the web-based Investment Adviser Registration Depository (“IARD”) operated by the National Association of Securities Dealers Regulation, Inc. to receive and store filings and collect related fees from investment advisers and investment adviser representatives on behalf of the Commissioner.

(b) Use of IARD: All investment adviser and investment adviser representative applications, amendments, reports, notices, related filings and fees required to be filed with the Commissioner pursuant to the rules promulgated under the Code shall be filed electronically with and transmitted to IARD, except as otherwise indicated in these rules. The following conditions relate to such electronic filings:

(1) Electronic Signature: When a signature or signatures are required by the particular instructions of any filing to be made through IARD, a duly authorized officer of the applicant or the applicant him or herself, as required, shall affix his or her electronic signature to the filing by typing his or her name in the appropriate fields and submitting the filing to IARD. Submission of a filing in this manner shall constitute irrefutable evidence of legal signature by any individuals whose names are typed on the filing.

(2) When filed: Solely for purposes of a filing made through IARD, unless otherwise specified, a document is considered filed with the Commissioner when all fees are received and the filing is accepted by IARD on behalf of the state.

(3) Any documents required to be filed with the Commissioner that are not permitted to be filed with or cannot be accepted by IARD shall be filed in paper directly with the Commissioner.

NOTE

Authority cited: Sections 25231, 25610 and 25612.5, Corporations Code. Reference: Section 1633.7, Civil Code; and Sections 25231 and 25612.5, Corporations Code.

HISTORY

1. New section filed 3-4-2003; operative 4-3-2003 (Register 2003, No. 10).

2. Amendment of subsection (b) and Note filed 3-6-2007; operative 4-5-2007 (Register 2007, No. 10).

§260.230.1. Notice Filing Requirements for Investment Advisers Registered Under Section 203 of the Investment Advisers Act of 1940.

Note • History

(a) Initial notice: A person subject to subsection (a) of Corporations Code Section 25230.1 shall file an initial notice consisting of Form ADV (Uniform Application for Investment Adviser Registration (17 CFR 279.1) in accordance with the instructions in Form ADV within thirty (30) days of conducting business in the state. The notice shall be deemed filed when the fee required by Section 25608.1(d) and Form ADV are filed with and accepted by IARD on behalf of this state.

(b) Portions of Form ADV not yet accepted by IARD: If an investment adviser agrees to provide, within five (5) days of a request, Part 2 of Form ADV to the Commissioner, an investment adviser is not required to file Part 2 of Form ADV with the Commissioner until IARD provides for the filing of Part 2 of Form ADV.

(c) Annual renewal: The notice expires December 31st unless renewed. The annual renewal shall be filed with IARD in accordance with its procedures. The renewal of the notice filing shall be deemed filed when the fee required by Section 25608.1(d) is filed with and accepted by IARD on behalf of the state.

(d) Amendments to Form ADV: Any changes to the information contained in Form ADV shall be filed with IARD in accordance with the instructions in Form ADV.

(e) Investment Adviser Representatives: Each investment adviser representative, as defined in Section 25009.5(b) of the Code, with a place of business in the state shall be reported in the manner prescribed in Section 260.236.1(b) of these rules.

(f) Switching to state registration: Upon the filing of Form ADV-W (Notice of Withdrawal from Registration as an Investment Adviser withdrawing registration with the Securities and Exchange Commission under the Investment Advisers Act of 1940, an investment adviser may not conduct business in this state as an investment adviser until the investment adviser has secured a certificate from the Commissioner or unless the investment adviser is otherwise exempt. An investment adviser may file an application for an investment adviser certificate in accordance with the instructions in Section 260.231 prior to the date the investment adviser's registration with the Securities and Exchange Commission is subject to termination.

NOTE

Authority cited: Sections 25230.1, 25610 and 25612.5, Corporations Code. Reference: Sections 25230.1, 25231, 25608.1(d), 25612.3 and 25612.5, Corporations Code.

HISTORY

1. New section filed 3-4-2003; operative 4-3-2003 (Register 2003, No. 10).

2. Amendment of subsections (a) and (f) and amendment of Note filed 9-24-2009; operative 10-24-2009 (Register 2009, No. 39).

Article 10. Licensing and Regulation of Investment Advisers

§260.230. Electronic Filings.

Note • History

(a) Designation: The Commissioner designates the web-based Investment Adviser Registration Depository (“IARD”) operated by the Financial Industry Regulatory Authority to receive and store filings and collect related fees from investment advisers and investment adviser representatives on behalf of the Commissioner.

(3) Any documents required to be filed with the Commissioner that are not permitted to be filed with or cannot be accepted by IARD shall be filed in paper directly with the Commissioner.

NOTE

Authority cited: Sections 25231, 25610 and 25612.5, Corporations Code. Reference: Section 1633.7, Civil Code; and Sections 25231 and 25612.5, Corporations Code.

HISTORY

1. New section filed 3-4-2003; operative 4-3-2003 (Register 2003, No. 10).

2. Amendment of subsection (b) and Note filed 3-6-2007; operative 4-5-2007 (Register 2007, No. 10).

3. Amendment of subsection (a) filed 11-10-2009; operative 12-10-2009 (Register 2009, No. 46).

§260.231. Application for Investment Adviser Certificate.

Note • History

The application for a certificate as an investment adviser and all amendments thereto shall be filed as follows:

(a) Initial Application: The application for a certificate as an investment adviser pursuant to Section 25231 of the Code shall be made by completing Form ADV in accordance with the form instructions and by filing the form with IARD for transmission to the Commissioner. The Commissioner may require additional documentation as deemed appropriate as prescribed in subsection (a)(4) of this rule.

(1) Part 2 of Form ADV shall be filed directly with the Commissioner until the form can be filed with IARD.

(2) An applicant shall complete a Customer Authorization of Disclosure of Financial Records, as set forth in subsection (i), and maintain the form in the applicant's books and records as provided in Section 25241 of the Code and Section 260.241.3 of these rules. The applicant shall provide the form to the Commissioner upon request.

(3) The applicant shall file directly with the Commissioner, a Statement of Financial Condition with worksheet that demonstrates compliance with the minimum financial requirements as prescribed in Section 260.237.2, investment advisory contract(s), and proof of compliance with the qualification requirements prescribed in Section 260.236.

(4) The Commissioner may request additional information, documentation or detail pertaining to Form ADV to be filed directly with the Commissioner.

(b) Filing fee: The fee for filing an initial application is $125 as prescribed in Section 25608(q). The payment of this fee shall keep the certificate, if granted, in effect during the calendar year during which it is granted. The applicant shall remit the fee directly with IARD in accordance with its procedures for transmission to the Commissioner. Fees are not refundable except pursuant to Government Code Sections 13140-13144.

(c) Completion of Filing: For the purposes of Section 250.51, an application for a certificate as an investment adviser is not considered filed until the required fee and all required submissions are received by the Commissioner. The filing of Form ADV with IARD does not constitute automatic approval. The applicant shall not consider the application approved until approved by the Commissioner and the approval has been received through IARD.

(d) Amendments to Form ADV: Any amendment to Form ADV shall be filed with IARD in accordance with the requirements of Section 260.241.4.

(e) Annual Renewal: The annual renewal shall consist of the fee as prescribed in Section 25608(q). The renewal fee shall be filed through IARD in accordance with its procedures for transmission to the Commissioner. This fee shall keep the certificate in effect for the next calendar year.

(f) Successions: An application for a certificate as an investment adviser pursuant to Section 25231 shall be filed in accordance with the instructions in this section if a person is succeeding to the business of an investment adviser licensed pursuant to Section 25230, and is not eligible for registration with the Securities and Exchange Commission. Notwithstanding the foregoing, if an investment adviser succeeds to and continues the business of a predecessor investment adviser, and the succession is based solely on a change on the predecessor's date or state of incorporation, form of organization, or composition of a partnership, and there has been no practical change in control or management, the successor may, within 30 days after the succession, amend the Form ADV of the predecessor investment adviser to reflect these changes.

(g) Switching to Securities and Exchange Commission registration: Upon registration with the Securities and Exchange Commission, the investment adviser shall file Form ADV-W with IARD in accordance with instructions in Form ADV-W.

(h) Dually certificated broker-dealers: Subsections (b) and (e) of this rule shall not apply to a broker-dealer licensed under Section 25210 of the Code.

(i) An authorization for the disclosure of financial records shall be made on the following form:

STATE OF CALIFORNIA

DEPARTMENT OF CORPORATIONS

CUSTOMER AUTHORIZATION OF DISCLOSURE

OF FINANCIAL RECORDS

Pursuant to Corporations Code Section 25241 and Government Code Sections 7470 and 7473, any financial institution, wherever situated, possessing financial records of:

________________________________________________________

Name of (check appropriate designation(s) below)

__________ Broker-Dealer

__________ Investment Adviser

is hereby authorized to disclose to the California Department of Corporations records of the above named broker-dealer or investment adviser business whether such records relate to accounts which have been closed, accounts which are currently maintained, or accounts which are hereafter established.

This authorization is effective as of the date of execution and shall remain effective until five years after the expiration or revocation of the above-named broker-dealer or investment adviser license, including renewals of such license.

This authorization may not be revoked.

The terms used in this authorization shall have the definitions contained in the California Right to Financial Privacy Act (Government Code Section 7460 et seq.) and the Corporate Securities Law (Corporations Code Section 25000 et seq.).

The above-named licensee has duly caused this authorization to be signed on its behalf by the undersigned, thereunto duly authorized. Executed on ___________________, 20 ____ at _______________

_______________

Name of Licensee

____________________________

Licensee's Department of

Corporations File Number

By ___________________________________________

___________________________________________

(Title)

STATE OF CALIFORNIA

DEPARTMENT OF CORPORATIONS

INSTRUCTIONS FOR CUSTOMER AUTHORIZATION

OF DISCLOSURE OF FINANCIAL RECORDS

On the reverse is a Customer Authorization of Disclosure of Financial Records form. The Commissioner of Corporations is authorized to require such authorization from certain licensees and other persons pursuant to the authority cited in the first paragraph of the form.

The form must be properly executed and submitted with the attached application for license, qualification, registration or other authority.

All information required on the form, except the signature of the person executing the form, is to be typewritten.

If the form requests a Department of Corporations file number, the applicant need only provide such number if it is known to the applicant and is the type of file number appropriate for the license, qualification, registration or other authority applied for in the attached application.

If additional authorization forms are needed, they may be obtained from any office of the Department of Corporations, or accurate copies of the form may be utilized by applicants.

(j) The following notices required by state and federal law are hereby incorporated as part of any uniform form:

NOTICES REQUIRED UNDER STATE AND FEDERAL LAW INFORMATION PRACTICES ACT OF 1977

(California Civil Code Section 1798.17)

(a) The Department of Corporations of the State of California, Securities Regulation Division, is requesting the information specified in the application for registration, qualification, a certificate or a license.

(b) The Chief Administrative Officer, 1515 K Street, Suite 200 Sacramento, CA 95814, telephone (916) 445-5541, is responsible for the system of records and shall, upon request, inform individuals regarding the location of the Department of Corporations' records and the categories of persons who use the information in the records.

(c) The records are maintained pursuant to the Corporate Securities Law of 1968 (Corporations Code Section 25000, et seq.).

(d) The submission of all items of information is mandatory unless otherwise noted. Section 17520 of the Family Code requires the Department of Corporations to collect social security numbers from all applicants. The Privacy Act of 1974 prohibits a state agency from denying an individual any right, benefit or privilege provided by law because of the individual's refusal to disclose the individual's social security account number.

(e) Failure to provide all or any part of the information requested may preclude the Department of Corporations from approving the application.

(f) The principal purposes within the Department of Corporations for which the information is to be used are to determine whether (1) a license, qualification, registration, certificate or other authority should be accepted, granted, approved, denied, revoked or limited in any way; (2) business entities or individuals licensed or otherwise regulated by the Department of Corporations are conducting themselves in accordance with applicable laws; and/or (3) laws administered by the Department of Corporations are being or have been violated and whether administrative action, civil action, or referral to appropriate federal, state or local law enforcement or regulatory agencies, or to a self-regulatory organization, as authorized by law, is appropriate.

(g) Any known or foreseeable disclosures of the information pursuant to subdivision (e) or (f) of Civil Code Section 1798.24 may include transfers to other federal, state, or local law enforcement or regulatory agencies, or to a self-regulatory organization, as authorized by law.

(h) Subject to certain exceptions or exemptions, the Information Practices Act grants an individual a right of access to personal information concerning the requesting individual that is maintained by the Department of Corporations.

FEDERAL PRIVACY ACT OF 1974 (Public Law 93-579)

In accordance with Section 7 of the Privacy Act of 1974 (found at 5 U.S.C. § 552a note (Disclosure of Social Security Number)), the following is information on whether the disclosure of a social security account number is voluntary or mandatory, by what statutory or other authority such number is solicited, and what uses will be made of it.

(1) Section 17520 of the Family Code requires the Department of Corporations to collect social security numbers from all applicants. The Privacy Act of 1974 prohibits a state agency from denying an individual any right, benefit or privilege provided by law because of the individual's refusal to disclose the individual's social security account number.

(2) A social security account number is solicited pursuant to one or more of the following authorities: Sections 25210, 25211, 25230, 25230.1, 25231, and 25241 of the Corporations Code; Sections 260.210, 260.211, 260.211.1, 260.231, 260.231.2, 260.236.1, 260.236.2 of Title 10, California Code of Regulations; and Section 17520 of the Family Code.

(3) For all persons disclosing a social security account number, the number may be used, in addition to other information provided, to conduct a background investigation of the individual by the Department of Justice's Identification and Information Branch or by other federal, state or local law enforcement agencies, or a self-regulatory organization, as authorized by law. The social security number may also be used to respond to requests for this number made by child support agencies.

NOTE

Authority cited Sections 25231, 25610, 25612.3 and 25612.5, Corporations Code. Reference: Section 1798.17, Civil Code; Sections 25230, 25231, 25234, 25236, 25237, 25241, 25242, 25608, 25612.3, 25612.5 and 25613, Corporations Code; Section 17520, Family Code; Sections 7470, 7473, 7490 and 13140-13144, Government Code; and Section 7 of Public Law 93-579 (5 U.S.C. Section 552a note).

HISTORY

1. Amendment of form filed 5-14-69; effective thirtieth day thereafter (Register 69, No. 20).

2. Amendment filed 7-13-70; effective thirtieth day thereafter (Register 70, No. 29).

3. Amendment filed 3-1-74; effective thirtieth day thereafter (Register 74, No. 9).

4. Amendment of form (Item 6-A) filed 7-18-79; effective thirtieth day thereafter (Register 79, No. 29).

5. Amendment filed 4-27-84; effective thirtieth day thereafter (Register 84, No. 18).

6. Repealer and new section filed 12-19-85 as an emergency; designated effective 1-1-86 (Register 85, No. 51). A Certificate of Compliance must be transmitted to OAL within 120 days or emergency language will be repealed on 5-1-86.

7. Editorial correction of Part III (2) printing error (Register 86, No. 5).

8. Certificate of Compliance as to 12-19-85 order transmitted to OAL 4-10-86 and filed 5-8-86 (Register 86, No. 19).

9. Change without regulatory effect filed 3-2-89 (Register 89, No. 11).

10. Change without regulatory effect amending first paragraph of Part I and Part III(1) filed 11-20-91 pursuant to section 100, title 1, California Code of Regulations (Register 92, No. 9).

11. Change without regulatory effect amending subsection (b) filed 2-16-95 pursuant to section 100, title 1, California Code of Regulations (Register 95, No. 7).

12. Change without regulatory effect amending subsection (b) filed 9-25-2002 pursuant to section 100, title 1, California Code of Regulations (Register 2002, No. 39).

13. Repealer and new section filed 3-4-2003; operative 4-3-2003 (Register 2003, No. 10).

14. Amendment of section and Note filed 3-6-2007; operative 4-5-2007 (Register 2007, No. 10).

§260.231.1. Special Instruction Sheet. [Repealed]

Note • History

NOTE

Authority cited: Sections 25231 and 25610, Corporations Code. Reference: Sections 25230, 25231, 25241, Corporations Code.

HISTORY

1. New section filed 7-18-79; effective thirtieth day thereafter (Register 79, No. 29).

2. Amendment filed 4-27-84; effective thirtieth day thereafter (Register 84, No. 18).

3. Repealer filed 12-19-85 as an emergency; designated effective 1-1-86 (Register 85, No. 51). A Certificate of Compliance must be transmitted to OAL within 120 days or emergency language will be repealed on 5-1-86.

4. Certificate of Compliance transmitted to OAL 4-10-86 and filed 5-8-86 (Register 86, No. 19).

§260.231.2. Application for Investment Adviser Certificate Not Filing Through the Investment Adviser Registration Depository. [Repealed]

Note • History

NOTE

Authority cited: Sections 25231 and 25610, Corporations Code. Reference: 25230, 25231, 25234, 25236, 25237, 25241, 25608 and 25613, Corporations Code; and Sections 7470, 7473, 7490 and 13140-13144, Government Code.

HISTORY

1. New section filed 3-4-2003; operative 4-3-2003 (Register 2003, No. 10).

2. Repealer filed 3-6-2007; operative 4-5-2007 (Register 2007, No. 10).

§260.231.3. Representation of Eligibility by Investment Adviser.

Note • History

(a) The filing of an application, renewal, or notice with the Investment Adviser Registration Depository (“IARD”) or directly with the Commissioner shall constitute a representation by the applicant or investment adviser that the applicant or investment adviser is not ineligible to receive a certificate under Section 250.60 of these rules.

(b) An applicant subject to Section 250.60 of these rules who files an application through IARD or directly with the Commissioner may, in lieu of filing the form in Section 250.61 of these rules, complete the form and maintain the form and supporting documentation in the applicant's books and records as provided in Section 25241 of the Code and Section 260.241.3 of these rules, if the investment adviser agrees to provide the form and supporting documentation to the Commissioner upon request.

NOTE

Authority cited: Sections 25241 and 25610, Corporations Code. Reference: Sections 25231 and 25241, Corporations Code.

HISTORY

1. New section filed 3-4-2003; operative 4-3-2003 (Register 2003, No. 10).

§260.234. Compensation Based on Capital Gains.

Note • History

The provisions of Section 25234 (a)(1) of the Code shall not apply:

(a) to any investment adviser registered under the Investment Advisers Act of 1940; or

(b) to any investment adviser, provided all of the following are met:

(1) the only clients entering into the investment advisory contract are “qualified clients” as defined in paragraph (d) of Rule 205-3 (17 CFR 275.205-3(d)) under the Investment Advisers Act of 1940 (Section 80b-1 et seq.),

(2) the condition in paragraph (b) of Rule 205-3 (17 CFR 275.205-3(b)) is satisfied (for purposes of this subsection (b), the definition in paragraph (d) of Rule 205-3 shall apply), and

(3) full disclosure of all material information regarding the proposed compensation arrangement is provided to each qualified client prior to entering into the contract; or

(c) to an investment advisory contract with an institutional investor as defined in subdivision (i) of Section 25102 of the Code or in Section 260.102.10 or Section 260.105.14 of these Rules, excluding for the purposes of this section any pension or profit sharing plan with gross assets of less than $100,000,000 according to its most recent audited financial statement; or

(d) to the extension, renewal or performance of any investment advisory contract which, at the time it was entered into met the conditions of this Section 260.234 as then in effect or which was approved by order of the Commissioner.

NOTE

Authority cited: Sections 25234(a) and 25610, Corporations Code. Reference: Section 25234, Corporations Code.

HISTORY

1. Amendment of form filed 5-14-69; effective thirtieth day thereafter (Register 69, No. 20).

2. Amendment filed 7-13-70; effective thirtieth day thereafter (Register 70, No. 29).

3. Editorial correction filed 11-9-82 (Register 82, No. 46).

4. Amendment filed 1-7-88; operative 2-6-88 (Register 88, No.4).

5. Amendment of subsection (a), new subsections (b)-(b)(3) and subsection relettering filed 1-23-2001; operative 1-23-2001 pursuant to Government Code section 11343.4(c) (Register 2001, No. 4).

§260.235. Advertisements by Investment Advisers.

Note • History

(a) It shall constitute a fraudulent, deceptive, or manipulative act, practice or course of business, within the meaning of Section 25235 of the Code, for an investment adviser, directly or indirectly, to publish, circulate or distribute any advertisement:

(1) which refers, directly or indirectly, to any testimonial of any kind concerning the investment adviser or concerning any advice, analysis, report or other service rendered by such investment adviser; or

(2) which refers, directly or indirectly, to past specific recommendations of such investment adviser which were or would have been profitable to any person; provided, however, that this Clause (2) does not prohibit an advertisement which sets out or offers to furnish a list of all recommendations made by such investment adviser within the immediately preceding period of not less than one year if such advertisement, and such list if it is furnished separately:

(i) state the name of each such security recommended, the date and nature of each such recommendation (e.g., whether to buy, sell or hold), the market price at that time, the price at which the recommendation was to be acted upon, and the market price of each such security as of the most recent practicable date, and

(ii) contain the following cautionary legend on the first page thereof in print or type as large as the largest print or type used in the body or text thereof: “It should not be assumed that recommendations made in the future will be profitable or will equal the performance of the securities in this list.”; or

(3) which represents, directly or indirectly, that any graph, chart, formula or other device being offered can in and of itself be used to determine which securities to buy or sell, or when to buy or sell them; or which represents, directly or indirectly, that any graph, chart, formula or other device being offered will assist any person in making his/her own decisions as to which securities to buy or sell, or when to buy or sell them, without prominently disclosing in such advertisement the limitations thereof and the difficulties with respect to its use; or

(4) which contains any statement to the effect that any report, analysis, or other service will be furnished free or without charge, unless such report, analysis or other service actually is or will be furnished entirely free and without any condition or obligation, directly or indirectly; or

(5) which contains any untrue statement of a material fact, or which is otherwise false or misleading.

(b) For the purposes of this section, the term “advertisement” includes any notice, circular, letter or other written communication addressed to more than one person, or any notice or other announcement in any publication or by radio or television, which offers (1) any analysis, report, or publication concerning securities, or which is to be used in making any determination as to when to buy or sell any security, or which security to buy or sell, or (2) any graph, chart, formula or other device to be used in making any determination as to when to buy or sell any security, or which security to buy or sell, or (3) any other investment advisory service with regard to securities.

NOTE

Authority cited: Sections 25235(d) and 25610, Corporations Code. Reference: Section 25235, Corporations Code.

HISTORY

1. Editorial correction of subsection (a)(3) filed 11-9-82 (Register 82, No. 46).

§260.235.1. Licensed Broker-Dealers.

Note • History

(a) An investment adviser who is a licensed broker-dealer is not subject to the provisions of subdivision (c) of Section 25235 of the Code in connection with any transaction in relation to which such broker-dealer is acting as an investment adviser solely (1) by means of publicly distributed written materials or publicly made oral statements or (2) through the issuance of responses to specific requests for statistical information where such responses involve no expressions of opinion or estimates by such investment adviser as to the investment merits of a particular security; provided, however, that such materials and oral statements include a statement that if the purchaser of the advisory communication uses the services of the adviser in connection with a sale or purchase of a security which is a subject of such communication, the adviser may act as principal for its own account or as agent for another person.

For the purpose of this rule, publicly distributed written materials are those which are distributed to 35 or more persons who pay for such materials, and publicly made oral statements are those made simultaneously to 35 or more persons who pay for access to such statements.

(b) The requirement that the investment adviser disclose that it may act as principal or agent for another person in the sale or purchase of a security that is the subject of investment advice does not relieve the investment adviser of any disclosure obligation which may be imposed by subdivision (a) or (b) of Section 25235 of the Code or by other provisions of the Corporate Securities Law of 1968.

NOTE

Authority cited: Sections 25205 and 25610, Corporations Code. Reference: Sections 25205 and 25235, Corporations Code.

HISTORY

1. New section filed 5-29-75 as an emergency; effective upon filing (Register 75, No. 22).

2. Certificate of Compliance filed 9-24-75 (Register 75, No. 39).

3. Editorial correction of NOTE filed 4-6-83 (Register 83, No. 15).

§260.235.2. Disclosure of Compensation for Financial Planning Activities.

Note • History

(a) It shall constitute a fraudulent, deceptive, or manipulative act, practice or course of business within the meaning of Section 25235 of the Code for an investment adviser or an associated person of an investment adviser to fail to deliver to a financial planning client a notice in writing containing at least the information found below at the time of entering into a contract for, or otherwise arranging for the provision of, the delivery of a financial plan:

(1) Whether the investment adviser, or an affiliate or associated person of the investment adviser, will receive commissions from the sale of insurance or real estate or will receive fees or other compensation from the sale of securities or other products or services recommended in the financial plan or otherwise has a conflict of interest. If so, that a conflict exists between the interests of the investment adviser or associated person and the interests of the client. This requirement does not apply to an investment adviser or an associated person of the investment adviser if the investment adviser, an associated person of the investment adviser, and an affiliate of the investment adviser will not receive fees or other compensation from the sale of securities or other products or services recommended in the financial plan, and if such persons otherwise do not have a conflict of interest.

(2) The client is under no obligation to act on the investment adviser's or associated person's recommendation. Moreover, if the client elects to act on any of the recommendations, the client is under no obligation to effect the transaction through the investment adviser or the associated person when such person is employed as an agent with a licensed broker-dealer or is licensed as a broker-dealer or through any associate or affiliate of such person.

(b) “Financial planning” includes, in all or part, but is not limited to, the preparation of a financial plan by an investment adviser or an associated person of an investment adviser for an investment advisory client which may include estate or tax planning recommendations, an annual or periodic review of a financial plan, the management and/or monitoring of a client's investments under a financial plan, the provision of information and/or advice to a client regarding the purchase and/or sale of securities, real estate, insurance contracts, annuities contracts, or any types of real or personal property under a financial plan.

(c) This rule does not apply to persons exempt from the provisions of Section 25230 of the Code by virtue of Sections 25202 and 25203 of the Code and Section 260.204.2 of these rules.

(d) Nothing in this section shall be construed to limit the authority of any state agency, including but not limited to the Departments of Real Estate and Insurance, to regulate persons subject to their jurisdiction.

NOTE

Authority cited: Section 25610, Corporations Code. Reference: Section 25235, Corporations Code.

HISTORY

1. New section filed 12-20-85; effective thirtieth day thereafter (Register 85, No. 51).

§260.235.3. Agency Cross Transactions for Advisory Clients.

Note • History

(a) A licensed investment adviser, or a person licensed as a broker-dealer and controlling, controlled by or under common control with a licensed investment adviser, shall be deemed in compliance with the provisions of subdivision (c) of Section 25235 of the Code in effecting an agency cross transaction for an advisory client, if:

(1) The advisory client has executed a written consent prospectively authorizing the adviser, or any other person relying on this rule, to effect agency cross transactions for the advisory client, provided that the written consent is obtained after full written disclosure that with respect to agency cross transactions the adviser or other person will act as a broker-dealer for, receive commissions from, and have a potentially conflicting division of loyalties and responsibilities regarding, both parties to the transactions;

(2)(A) The adviser, or any other person relying on this rule, sends to each client a written confirmation at or before the completion of each transaction, which confirmation includes (i) a statement of the nature of the transaction, (ii) the date the transaction took place, (iii) an offer to furnish upon request the time when the transaction took place, and (iv) the source and amount of any other remuneration received or to be received by the adviser and any other person relying on this rule in connection with the transaction.

(B) Provided, however, that if, (i) in the case of a purchase, neither the adviser nor any other person relying on this rule was participating in a distribution, or (ii) in the case of a sale, neither the adviser nor any other person relying on this rule was participating in a tender offer, then the written confirmation may state whether any other remuneration has been or will be received and that the source and amount of any other remuneration will be furnished upon written request of the customer;

(3) The adviser, or any other person relying on this rule, sends to each client, at least annually, and with or as part of any written statement or summary of the account from the adviser or other person (A) written disclosure statement identifying the total number of the transactions during the period since the date of the last statement or summary and (B) the total amount of all commissions or other remuneration received or to be received by the adviser or any other person relying on this rule in connection with the transactions during the period;

(4) Each written disclosure and confirmation required by this rule includes a conspicuous statement that the written consent referred to in subsection (a)(1) of this rule may be revoked at any time by written notice to the adviser, or to any other person relying on this rule, from the advisory client; and

(5) No transaction is effected in which the same adviser or an adviser and any person controlling, controlled by or under common control with the adviser, recommended the transaction to both any seller and any purchaser.

(b) For purposes of this rule, the term “agency cross transaction for an advisory client” shall mean a transaction in which a person acts as an investment adviser in relation to a transaction in which the adviser, or any person controlling, controlled by or under common control with the adviser, also acts as a broker-dealer for both the advisory client and for another person on the other side of the transaction.

(c) This rule shall not be construed as relieving in any way the adviser or another person relying on this rule from acting in the best interests of the advisory client, including fulfilling the duty with respect to the best price and execution for the particular transaction for the advisory client; nor shall it relieve the person or persons from any disclosure obligation which may be imposed by the Code or these rules.

NOTE

Authority cited: Section 25610, Corporations Code. Reference: Section 25235(c), Corporations Code.

HISTORY

1. New section filed 5-12-92; operative 6-11-92 (Register 92, No. 20).

2. Editorial correction inserting inadvertently omitted subsection (b) (Register 94, No. 2).

§260.235.4. Financial and Disciplinary Information Disclosures by Investment Advisers.

Note • History

(a) It shall constitute a fraudulent, deceptive, or manipulative act, practice or course of business within the meaning of Section 25235 of the Code for any investment adviser to fail to disclose to any client or prospective client all material facts with respect to:

(1) A financial condition of the adviser that is reasonably likely to impair the ability of the adviser to meet contractual commitments to clients if (A) the adviser has discretionary authority (express or implied) or custody over such client's funds or securities, or (B) requires prepayment of advisory fees from such client 6 months or more in advance; or

(2) A legal or disciplinary event that is material to an evaluation of the adviser's integrity or ability to meet contractual commitments to clients.

(b) It shall constitute a rebuttable presumption that the following legal or disciplinary events involving the adviser or a management person of the adviser (any of the foregoing being referred to hereafter as “person”) that were not resolved in the person's favor or subsequently reversed, suspended, or vacated are material within the meaning of subsection (a)(2) of this rule for a period of 10 years from the time of one or more of the following events:

(1) A criminal or civil action in a court of competent jurisdiction in which the person:

(A) Was convicted, pled guilty or nolo contendere (“no contest”) to a felony or misdemeanor, or is the named subject of a pending criminal proceeding (any of the foregoing referred to hereafter as “action”), and such action involved: (i) an investment-related business; (ii) fraud, false statements, or omissions; (iii) wrongful taking of property; or (iv) bribery, forgery, counterfeiting, or extortion;

(B) Was found to have been involved in a violation of an investment-related statute or regulation; or

(C) Was the subject of any order, judgment, or decree permanently or temporarily enjoining the person, or otherwise limiting the person, from engaging in any investment-related activity.

(2) Administrative proceedings before the Securities and Exchange Commission, any other federal regulatory agency, or any state agency (any of the foregoing being referred to as “agency”) in which the person:

(A) Was found to have caused an investment-related business to lose its authorization to do business; or

(B) Was found to have been involved in a violation of an investment-related statute or regulation and was the subject of an order by the agency (i) denying, suspending, or revoking the authorization of the person to act in, or barring or suspending the person's association with, an investment-related business; or (ii) otherwise significantly limiting the person's investment-related activities.

(3) Self-Regulatory Organization (“SRO”) proceedings in which the person:

(A) Was found to have caused an investment-related business to lose its authorization to do business; or

(B) Was found to have been involved in a violation of the SRO's rules and was the subject of an order by the SRO (i) barring or suspending the person from membership or from association with other members, (ii) expelling the person from membership; (iii) fining the person more than $2,500; or (iv) otherwise significantly limiting the person's investment-related activities.

(c) The information required to be disclosed by subsection (a) shall be disclosed to existing clients promptly and to prospective clients (A) not less than 48 hours prior to entering into any written or oral investment advisory contract, or (B) no later than the time of entering into such contract if the client has the right to terminate the contract without penalty within five business days after entering into the contract.

(d) For purposes of this rule:

(1) “Management person” means a person with power to exercise, directly or indirectly, a controlling influence over the management or policies of an investment adviser, which is a company, or to determine the general investment advice given to clients.

(2) “Found” means determined or ascertained by adjudication or consent in a final SRO proceeding, administrative proceeding, or court action.

(3) “Investment-related” means pertaining to securities, commodities, banking, insurance, or real estate (including, but not limited to, acting as or being associated with a broker-dealer, investment company, investment adviser, government securities broker or dealer, municipal securities dealer, bank, savings and loan association, or other entity or person required to be registered under the Commodity Exchange Act (7 U.S.C. 1 et seq.) or other fiduciary).

(4) “Involved” means acting or aiding, abetting, causing, counseling, commanding, inducing, conspiring with or failing reasonably to supervise another in doing an act.

(5) “Self-Regulatory Organization” or “SRO” means those terms as defined in 17 CFR 275.206(4)-4(d)(5).

(e) For purposes of calculating the 10-year period during which events are presumed to be material under subsection (b), the date of a reportable event shall be the date on which the final order, judgment, or decree was entered, or the date on which any rights of appeal from preliminary orders, judgments, or decrees lapsed.

(f) Compliance with subsection (b) of this rule shall not relieve any investment adviser from the disclosure obligations of subsection (a) of this rule. Compliance with subsection (a) of this rule shall not relieve any investment adviser from any other disclosure requirements imposed on investment advisers by the Code or these rules.

NOTE

Authority cited: Sections 25235(d) and 25610, Corporations Code. Reference: Section 25235(d), Corporations Code.

HISTORY

1. New section filed 5-12-92; operative 6-11-92 (Register 92, No. 20).

2. Editorial correction of printing errors in section heading and subsection (b)(2)(C) (Register 94, No. 2).

§260.236. Qualifications of Investment Advisers and Investment Adviser Representatives.

Note • History

References to an investment adviser representative shall mean both an investment adviser representative and an associated person of an investment adviser, as those terms are defined in Section 25009.5(a) and (b) of the Code.

(a) Qualification Requirements. An investment adviser and each investment adviser representative shall pass, within two years prior to the date of filing the application for an investment adviser certificate or becoming engaged as an investment adviser representative:

(1) the Series 65/Uniform Investment Adviser Law Examination in effect on January 1, 2000 (“2000 Series 65 Examination”), or

(2) the Series 7/General Securities Representative Examination (“Series 7 Examination) and the Series 66/Uniform Combined State Law Examination (“2000 Series 66 Examination”).

(b) Waivers: The requirements of subsection (a) do not apply to:

(1) Any investment adviser or individual employed or engaged as an investment adviser representative registered, reported or licensed in any state of the United States as of December 31, 1999. However, the Commissioner may require additional examinations for any individual found to have violated the Corporate Securities Law of 1968 or the rules promulgated thereunder.

(2) Any investment adviser or investment adviser representative who has been actively and continuously engaged in the securities business as a broker-dealer, an agent of a broker-dealer, an investment adviser, or an investment adviser representative without substantial interruption (two or more years) since passing the qualifying examination(s) and who has:

(A) passed the Series 2 Examination (SEC/FINRA Nonmember General Securities Examination) or passed the Series 7 Examination before January 1, 1998, or

(B) passed the Series 65 Examination or Series 66 Examination before January 1, 2000 and has passed the Series 7 Examination.

(1) any individual who has been registered as an investment adviser or employed or engaged as an investment adviser representative in any state for two consecutive years immediately before the date of filing an application or notice pursuant to Corporations Code Section 25230(b) or 25230.1(c) in this state. This provision shall not apply to an individual using the exemption in subsection (c)(2).

(2) any investment adviser representative employed by or engaged by an investment adviser only to offer or negotiate for the sale of investment advisory services of the investment adviser.

(3) any individual who currently holds one of the following professional designations:

(A) Chartered Financial Analyst (“CFA”) granted by the CFA Institute;

(B) Chartered Financial Consultant (“ChFC”) awarded by The American College, Bryn Mawr, Pennsylvania;

(D) Chartered Investment Counselor (“CIC”) granted by the Investment Adviser Association; or

(E) Personal Financial Specialist (“PFS”) administered by the American Institute of Certified Public Accounts.

(d) An individual who has not been registered in any state for a period of two years shall be required to comply with the examination requirements of this rule. This provision shall not apply to an individual using the exemption in subsection (c)(2) or (c)(3).

NOTE

Authority cited: Sections 25236(a) and 25610, Corporations Code. Reference: Sections 25230, 25230.1 and 25236, Corporations Code.

HISTORY

1. Amendment of subsection (a) filed 6-28-73; effective thirtieth day thereafter (Register 73, No. 26).

2. Editorial correction (Register 73, No. 36).

3. Amendment filed 4-27-84; effective thirtieth day thereafter (Register 84, No. 18).

4. Amendment filed 1-10-89; operative 2-9-89 (Register 89, No. 2).

5. Amendment of section heading and section filed 12-31-97; operative 1-1-98 pursuant to Government Code section 11343.4(d) (Register 98, No. 1).

6. Amendment filed 12-27-99 as an emergency; operative 1-1-2000 (Register 99, No. 53). A Certificate of Compliance must be transmitted to OAL by 5-1-2000 or emergency language will be repealed by operation of law on the following day.

7. Certificate of Compliance as to 12-27-99 order, including amendment of section and Note, transmitted to OAL 4-24-2000 and filed 6-6-2000 (Register 2000, No. 23).

8. Amendment of section heading and section filed 3-4-2003; operative 4-3-2003 (Register 2003, No. 10).

9. Amendment of subsection (c)(3)(C) filed 9-23-2009; operative 10-23-2009 (Register 2009, No. 39).

10. Amendment of subsections (b)(2)(A), (c)(3)(A) and (c)(3)(D) filed 9-24-2009; operative 10-24-2009 (Register 2009, No. 39).

§260.236.1. Reporting Requirements for Investment Adviser Representatives.

Note • History

(a) The procedures set forth in this subsection are applicable to investment advisers licensed pursuant to Section 25230 of the Code. References to an investment adviser representative shall mean both an investment adviser representative and an associated person of an investment adviser, as those terms are defined in Section 25009.5(a) of the Code.

(1) Upon employment of an individual as an investment adviser representative, the investment adviser shall:

(A) Obtain a properly executed application for registration, Form U4,

(B) Obtain for its records evidence that such investment adviser representative meets the qualification requirements of Section 260.236 of these rules, and

(C) Have the responsibility and duty to ascertain by reasonable investigation the good character, business reputation, qualifications, and experience of an individual upon employment or engagement as an investment adviser representative. Where an individual has previously been reported to the Central Registration Depository (“CRD”), the investment adviser shall obtain and review a copy of Form U5 filed with CRD by such individual's most recent previous employer, together with any amendments thereto.

The investment adviser shall conduct the investigation required by this section no later than thirty (30) days following the filing of Form U4 with CRD, or demonstrate that it has made a reasonable effort to comply with this section. Upon completion of the investigation, the investment adviser shall take whatever action is deemed appropriate in accordance with sound business practice and the protection of investors.

Evidence of compliance with Section 260.236 and investigation of the investment adviser representative shall be maintained as a part of the records of the investment adviser as required by Section 260.241.3 of these rules.

(2) Upon employment or engagement of an individual as an investment adviser representative, the investment adviser shall file Form U4 with CRD in accordance with its procedures, and pay the fee prescribed by Section 25608(p) for transmission to the Commissioner. Form U4, including any Disclosure Reporting Page(s), shall be completed in accordance with the form instructions. The filing of Form U4 with CRD does not constitute an automatic “approval” of the filing by the Commissioner. Investment advisers shall not consider an investment adviser representative “registration” with CRD approved until approved by the Commissioner and the approval has been received by CRD. If requested by the Commissioner, additional information, documentation or detail pertaining to Form U4 or the investment adviser representative's compliance with the qualification requirements shall be filed directly with the Commissioner within 15 days from the date of the request. In accordance with Section 250.16, Form U4 may be abandoned if the Commissioner does not receive the requested information within the time prescribed. The Commissioner shall “reject” with CRD an abandoned Form U4.

(3) Within thirty (30) days of any changes to the information contained in Form U4, an amendment to Form U4 shall be filed with CRD. If Form U4 is being amended due to a disciplinary occurrence, a copy of the amendment shall be filed with the Commissioner upon request.

(4) Within thirty (30) days after the termination of an individual as an investment adviser representative, Form U5 shall be filed with CRD in accordance with the form instructions. Form U5 shall clearly state the reason(s) for termination. If an investment adviser representative has been terminated for cause, Form U5 shall, upon request, be filed directly with the Commissioner.

An investment adviser shall be responsible for the acts, practices, and conduct of an investment adviser representative in connection with acting as an investment adviser representative on its behalf until such time as the investment adviser representative has been terminated and Form U5 has been filed with CRD. No civil liability in favor of any private party shall arise against any person as a result of this provision, except as expressly provided in the Code.

(b) The procedures set forth in this subsection are applicable to investment adviser representatives subject to the provisions of Section 25230.1(c) of the Code.

(1) The reporting of an investment adviser representative shall be made by completing Form U4 in accordance with the form instructions and by filing Form U4 with CRD in accordance with its procedures, and by paying the fee prescribed by Section 25608.1(d) for transmission to the Commissioner.

The filing of Form U4 with CRD does not constitute an automatic “approval” of the filing by the Commissioner. An investment adviser representative “registration” with CRD shall not be considered approved until approved by the Commissioner and the approval has been received by CRD. If requested by the Commissioner, additional information, documentation or detail pertaining to Form U4 or the investment adviser representative's compliance with the qualification requirements shall be filed directly with the Commissioner within 15 days from the date of the request. In accordance with Section 250.16, Form U4 may be abandoned if the Commissioner does not receive the requested information within the time prescribed. The Commissioner shall “reject” with CRD an abandoned Form U4.

(2) Within thirty (30) days of any changes to the information contained in Form U4, an amendment to Form U4 shall be filed with CRD. If Form U4 is amended due to a disciplinary occurrence, a copy of the amendment shall be filed directly with the Commissioner upon request.

(3) Within thirty (30) days after the termination of an individual as an investment adviser representative, Form U5 shall be filed with IARD in accordance with the form instructions. Form U5 shall clearly state the reason(s) for termination. If an investment adviser representative is terminated for cause, Form U5 shall, upon request, be filed directly with the Commissioner.

NOTE

Authority cited: Sections 25230, 25230.1, 25231 and 25610, Corporations Code. Reference: Sections 25230, 25230.1, 25231, 25236, 25241, 25510, 25608(p), 25612.3 and 25612.5, Corporations Code.

HISTORY

1. New section filed 3-4-2003; operative 4-3-2003 (Register 2003, No. 10).

2. Amendment of section heading, subsections (a), (a)(1)(A) and (C) and Note filed 3-6-2007; operative 4-5-2007 (Register 2007, No. 10).

3. Amendment of subsections (a)(1)(A), (a)(1)(C), (a)(2)-(4) and (b)(1)-(c) and amendment of Note filed 9-24-2009; operative 10-24-2009 (Register 2009, No. 39).

§260.236.2. Reporting Requirements for Investment Adviser Representatives of Investment Advisers Not Filing Through the Investment Adviser Registration Depository. [Repealed]

Note • History

NOTE

Authority cited: Sections 25230, 25230.1 and 25610, Corporations Code. Reference: Sections 25230, 25230.1, 25236, 25241, 25510 and 25608(p), Corporations Code.

HISTORY

1. New section filed 3-4-2003; operative 4-3-2003 (Register 2003, No. 10).

2. Repealer filed 3-6-2007; operative 4-5-2007 (Register 2007, No. 10).

§260.237. Custody or Possession of Funds or Securities of Clients.

Note • History

It shall constitute a fraudulent, deceptive or manipulative act, practice or course of business, within the meaning of Section 25235 of the Code, for any investment adviser who has custody or possession of any funds or securities, except prepaid fees for periodic publications or other advisory services, in which any client has any beneficial interest to do any act or take any action, directly or indirectly, with respect to any such funds or securities, unless:

(a) all securities of each client are segregated, marked to identify the particular client who has the beneficial interest therein, and held in safekeeping in some place reasonably free from risk of destruction or other loss; and

(b)

(1) all funds of clients are deposited in one or more bank accounts which contain only clients' funds,

(2) the account or accounts are maintained in the name of the investment adviser as agent or trustee for the clients, and

(3) the investment adviser maintains a separate record for each account which shows the name and address of the bank where the account is maintained, the dates and amounts of deposits in and withdrawals from the account, and the exact amount of each client's beneficial interest in the account; and

(c) the investment adviser, immediately after accepting custody or possession of funds or securities from any client, notifies the client in writing of the place and manner in which the funds and securities will be maintained, and thereafter, if and when there is any change in the place or manner in which the funds or securities are being maintained, gives each client written notice thereof; and

(d) the investment adviser sends to each client, not less frequently than once every three months, an itemized statement showing the funds and securities in the custody or possession of the investment adviser at the end of the period, and all debits, credits and transactions in the client's account during the period; and

(e) all funds and securities of clients are verified by actual examination at least once during each calendar year by an independent certified public accountant or public accountant at a time which shall be chosen by the accountant without prior notice to the investment adviser. A certificate of the accountant stating that such person has made an examination of the funds and securities, and describing the nature and extent of the examination, shall be filed with the Commissioner promptly after each examination.

NOTE

Authority cited: Sections 25235, 25237 and 25610, Corporations Code. Reference: Sections 25235 and 25237, Corporations Code.

HISTORY

1. Amendment filed 4-27-84; effective thirtieth day thereafter (Register 84, No. 18).

§260.237.1. Alternative Minimum Financial Requirements (Until 1/1/05). [Repealed]

Note • History

NOTE

Authority cited: Sections 25237 and 25610, Corporations Code. Reference: Section 25237, Corporations Code.

HISTORY

1. Amendment of subsection (a) filed 12-31-75 as an emergency; designated effective 1-1-76. Certificate of Compliance included (Register 76, No. 1).

2. Amendment filed 4-27-84; effective thirtieth day thereafter (Register 84, No. 18).

3. Amendment of section heading and subsections (a) and (c) filed 1-7-88, operative 2-6-88 (Register 88, No. 4).

4. Amendment of section heading and new first paragraph filed 3-4-2003; operative 4-3-2003 (Register 2003, No. 10).

5. Repealer filed 9-24-2009; operative 10-24-2009 (Register 2009, No. 39).

§260.237.2. Minimum Financial Requirements.

Note • History

(a) Every investment adviser who has custody of client funds or securities shall maintain at all times a minimum net worth of $35,000, and every investment adviser who has discretionary authority over client funds or securities but does not have custody of client funds or securities, shall maintain at all times a minimum net worth of $10,000.

(b) Every investment adviser who accepts prepayment of more than $500 per client and six or more months in advance shall maintain at all times a positive net worth.

(c) Unless otherwise exempted, as a condition of the right to continue to transact business in this state, every investment adviser shall, by the close of business on the next business day following the discovery that the investment adviser's net worth is less than the minimum required, notify the Commissioner that the investment adviser's net worth is less than the minimum required. After transmitting such notice, by the close of business on the next business day each investment adviser shall file a report with the Commissioner of its financial condition, including the following:

(1) A trial balance of all ledger accounts;

(2) A statement of all client funds or securities which are not segregated;

(3) A computation of the aggregate amount of client ledger debit balances; and

(4) A statement as to the number of client accounts.

(d) For purposes of this rule, the term “net worth” shall mean an excess of assets over liabilities, as determined by generally accepted accounting principles, but shall not include as assets: prepaid expenses (except as to items properly classified as current assets under generally accepted accounting principles), deferred charges, goodwill, franchise rights, organizational expenses, patents, copyrights, marketing rights, unamortized debt discount and expense, and all other assets of intangible nature; home, home furnishings, automobile(s), and any other personal items not readily marketable in the case of an individual; advances or loans to stockholders and officers in the case of a corporation; and advances or loans to partners in the case of a partnership.

(e) For purposes of this rule, a person will be deemed to have custody if said person directly or indirectly holds client funds or securities, has any authority to obtain possession of them, or has the ability to appropriate them.

(f) For purposes of this rule, an investment adviser shall not be deemed to be exercising discretion when it places trade orders with a broker-dealer pursuant to a third party trading agreement if

(1) the investment adviser has executed a separate investment adviser contract exclusively with its client which acknowledges that the investment adviser must secure client permission prior to effecting securities transactions for the client in the client's brokerage account(s), and

(2) the investment adviser in fact does not exercise discretion with respect to the account, and

(3) a third party trading agreement is executed between the client and a broker-dealer which specifically limits the investment adviser's authority in the client's broker-dealer account to the placement of trade orders and deduction of investment adviser fees.

(g) The Commissioner may require that a current appraisal be submitted in order to establish the worth of any asset.

(h) Every investment adviser that has its principal place of business in a state other than this state shall maintain only such minimum capital as required by the state in which the investment adviser maintains its principal place of business, provided the investment adviser is licensed in such state and is in compliance with such state's minimum capital requirements.

(i) This section shall not apply to an investment adviser that has secured a certificate as a broker-dealer from the Commissioner under Section 25210 of the Code.

(j) For purposes of subsection (c) of this rule, if the failure to discover that an investment adviser's net worth is less than the minimum required is the result of the investment adviser's failure to keep true, accurate and current the books and records required under Section 260.241.3, the investment adviser will be deemed to have discovered that the investment adviser's net worth is less that the minimum required by this section.

NOTE

Authority cited: Sections 25237 and 25610, Corporations Code. Reference: Sections 25237 and 25613, Corporations Code.

HISTORY

1. New section filed 3-4-2003; operative 4-3-2003 (Register 2003, No. 10).

2. Repealer of first paragraph and amendment of subsection (j) filed 9-24-2009; operative 10-24-2009 (Register 2009, No. 39).

§260.238. Investment Advisers: Fair, Equitable and Ethical Principles.

Note • History

The following activities do not promote “fair, equitable or ethical principles,” as that phrase is used in Section 25238 of the Code:

(a) Recommending to a client to whom investment supervisory, management or consulting services are provided the purchase, sale or exchange of any security without reasonable grounds to believe that the recommendation is suitable for the client on the basis of information furnished by the client after reasonable inquiry concerning the client's investment objectives, financial situation and needs, and any other information known or acquired by the adviser after reasonable examination of such of the client's records as may be provided to the adviser.

(b) Placing an order to purchase or sell a security for the account of a client without authority to do so.

(c) Placing an order to purchase or sell a security for the account of a client upon instruction of a third party without first having obtained a written third-party trading authorization from the client.

(d) Exercising any discretionary power, including any power of attorney, in placing an order for the purchase or sale of securities without first obtaining written discretionary authority, unless the discretionary power relates solely to the price at which, or the time when, an order involving a definite amount of a specified security shall be executed, or both.

(e) Inducing trading in a client's account that is excessive in size and frequency in view of the financial resources, investment objectives and character of the account.

(f) Borrowing money or securities from a client unless the client is a broker-dealer, an affiliate of the adviser, or a financial institution engaged in the business of loaning funds or securities.

(g) Loaning money to a client unless the adviser is a financial institution engaged in the business of loaning funds or the client is an affiliate of the adviser.

(h) Misrepresenting to any advisory client, or any prospective advisory client, the qualifications of the adviser, its representatives or any employees, or misrepresenting the nature of the advisory services being offered or fees to be charged for such service, or omitting to state a material fact necessary to make the statements made regarding the qualifications, services or fees, in light of the circumstances under which they are made, not misleading.

(i) Providing a report or recommendation to any advisory client prepared by someone other than the adviser without disclosing the fact. This prohibition does not apply, however, to a situation where the adviser uses published research reports or statistical analyses to render advice or where an adviser orders such a report in the normal course of providing service.

(j) Charging a client an advisory fee that is unreasonable in light of the type of services to be provided, the experience and expertise of the adviser, the sophistication and bargaining power of the client, and whether the adviser has disclosed that lower fees for comparable services may be available from other sources.

(k) Failing to disclose to a client in writing before entering into or renewing an advisory agreement with that client any material conflict of interest relating to the adviser, its representatives or any of its employees, which could be reasonably expected to impair the rendering of unbiased and objective advice including:

(1) Compensation arrangements connected with advisory services to clients which are in addition to compensation from such clients for such services; and

(2) Charging a client an advisory fee for rendering advice without disclosing that a commission for executing securities transactions pursuant to such advice will be received by the adviser, its representatives or its employees, or that such advisory fee is being reduced by the amount of the commission earned by the adviser, its representatives or employees for the sale of securities to the client.

(l) Guaranteeing a client that a specific result will be achieved (e.g., a gain or no loss) as a result of the advice which will be rendered.

(m) Disclosing the identity, affairs, or investments of any client to any third party unless required by law to do so, or unless consented to by the client.

(n) Entering into, extending or renewing any investment advisory contract, other than a contract for impersonal advisory services, unless such contract is in writing and discloses, in substance, the services to be provided, the term of the contract, the advisory fee or the formula for computing the fee the amount or the manner of calculation of the amount of the prepaid fee to be returned in the event of contract termination or nonperformance, whether the contract grants discretionary power to the adviser or its representatives.

(o) Making any untrue statement of a material fact or omitting a statement of material fact necessary in order to make the statements made, in light of the circumstances under which they are made, not misleading in the solicitation of advisory clients.

NOTE

Authority cited: Sections 25238 and 25610, Corporations Code. Reference: Section 25238, Corporations Code.

HISTORY

1. New section filed 5-12-92; operative 6-11-92 (Register 92, No. 20).

2. Editorial correction of printing error in subsection (n) (Register 94, No. 2).

Article 11. General Provisions Relating to Agents, Broker-Dealers and Investment Advisers

§260.240. Consent to Service of Process.

Note • History

(a) An investment adviser's electronic signature on the Execution Page of Form ADV (Uniform Application for Investment Adviser Registration (17 CFR 279.1), filed with the Investment Adviser Registration Depository (“IARD”), shall constitute the consent to service of process required under Section 25240 of the Code. If an investment adviser has not filed Form ADV with IARD, then the consent to service of process required by Section 25240 of the Code shall be the investment adviser's written signature on the Execution Page of Form ADV filed with the Commissioner.

(b) A broker-dealer's electronic signature on the Execution Page of Form BD (Uniform Application for Broker-Dealer Registration (17 CFR 249.501) in the Central Registration Depository (“CRD”) shall constitute the consent to service of process required under Section 25240 of the Code. If the broker-dealer does not file its Form BD with CRD, then the consent to service of process required by Section 25240 of the Code shall be the broker-dealer's written signature on the Execution Page of Form BD filed with the Commissioner.

NOTE

Authority cited: Sections 25240, 25610 and 25612.5, Corporations Code. Reference: Section 1633.7, Civil Code; and Sections 25211, 25231, 25240, 25612.3 and 25612.5, Corporations Code.

HISTORY

1. Editorial correction adding NOTE filed 4-6-83 (Register 83, No. 15).

2. Repealer and new section and amendment of Note filed 3-4-2003; operative 4-3-2003 (Register 2003, No. 10).

3. Amendment of section and Note filed 9-24-2009; operative 10-24-2009 (Register 2009, No. 39).

§260.241. Books and Records of Broker-Dealers.

Note • History

(a) Unless otherwise provided by order of the Commissioner, every broker-dealer shall make, maintain, and preserve books and records in compliance with U.S. Securities and Exchange Commission rules 15c2-11 (17 CFR 240.15c2-11), 15g-2(c) (17 CFR 240.15g-2(c)), 15g-4(b)(2) (17 CFR 240.15g-4(b)(2)), 15g-5(b)(2) (17 CFR 240.15g-5(b)(2)), 15g-6(f) (17 CFR 240.15g-6(f)), 17a-3 (17 CFR 240.17a-3), and 17a-4 (17 CFR 240.17a-4), all of which are incorporated by reference.

(b) For purposes of the application of the above-referenced U.S. Securities and Exchange Commission rules, “member” shall also mean “broker-dealer” as defined in Corporations Code Section 25004, “associated person” shall also mean “agent” as defined in Corporations Code Section 25003, and “securities regulatory authority” shall also mean the Department of Corporations.

NOTE

Authority cited: Sections 25241 and 25610, Corporations Code. Reference: Section 25241, Corporations Code.

HISTORY

1. Amendment of subsections (a) (11) and (b) filed 12-31-75 as an emergency; designated effective 1-1-76. Certificate of Compliance included (Register 76, No. 1). For prior history, see Register 75, No. 4.

2. Amendment of subsections (a)(11) and (a)(12)(viii) filed 9-2-77; effective thirtieth day thereafter (Register 77, No. 36).

3. Amendment of subsection (b) filed 6-2-78; effective thirtieth day thereafter (Register 78, No. 22).

4. Amendment filed 4-27-84; effective thirtieth day thereafter (Register 84, No. 18).

5. Amendment of subsection (a), repealer of subsections (a)(12)-(a)(12)(ix), and new subsections (a)(12)-(14) filed 6-1-98; operative 6-1-98 pursuant to Government Code section 11343.4(d) (Register 98, No. 23).

6. Amendment of subsections (a), (a)(12), (b)(1) and (b)(2) filed 1-23-2001; operative 1-23-2001 pursuant to Government Code section 11343.4(c) (Register 2001, No. 4).

7. Repealer and new section filed 3-6-2008; operative 4-5-2008 (Register 2008, No. 10).

§260.241.1. Preservation of Records. [Repealed.]

Note • History

NOTE

Authority cited: Sections 25241 and 25610, Corporations Code. Reference: Section 25241, Corporations Code.

HISTORY

1. Amendment of subsection (f) filed 7-13-70; effective thirtieth day thereafter (Register 70, No. 29).

2. New subsection (b)(8) filed 9-2-77; effective thirtieth day thereafter (Register 77, No. 36).

3. New subsections (b)(9) and (h) filed 6-2-78; effective thirtieth day thereafter (Register 78, No. 22).

4. Amendment filed 4-27-84; effective thirtieth day thereafter (Register 84, No. 18).

5. Amendment of subsection (f) filed 1-7-88; operative 2-6-88 (Register 88, No. 4).

6. Repealer filed 3-6-2008; operative 4-5-2008 (Register 2008, No. 10).

§260.241.2. Reports by Broker-Dealers and Investment Advisers.

Note • History

(a) General Rule. Subject to the provisions of subsection (c) of this section, every licensed broker-dealer, and every licensed investment adviser subject to the provisions of Section 260.237.2 of these rules, shall file an annual financial report, as follows:

(1) The annual report for a broker-dealer shall contain a Statement of Financial Condition, a Statement of Income, a Statement of Changes in Stockholders' or Partners' or Sole Proprietor's Equity and a Statement of Changes in Liabilities Subordinated to Claims of General Creditors. Supporting schedules shall include a Schedule of Securities, a Computation of Net Capital under Rule 15c3-1 under the Securities Exchange Act of 1934 (17 CFR 240.15c3-1), a Computation for Determination of the Reserve Requirement under Rule 15c3-3(a) (17 CFR 240.15c3-3(a)), Information Relating to the Possession or Control Requirements under Rule 15c3-3 (17 CFR 240.15c3-3), and shall be filed with the annual report.

(2) The annual report for an investment adviser shall contain a balance sheet, income statement, and computations of the minimum financial requirements required under Section 260.237.2 of these rules.

(3) The financial statements included in the annual report shall be prepared in accordance with generally accepted accounting principles and shall be audited by either an independent certified public accountant or independent public accountant; provided, however, the financial statements need not be audited if:

The broker-dealer or investment adviser has not held or accepted custody of funds and securities for or owed money or securities to customers or clients during the period covered by the report; and

(A) if the licensee is a broker-dealer, the securities business has been limited to soliciting subscriptions for securities of an issuer and the broker-dealer promptly forwarded the subscriptions to the issuer, underwriter, sponsor or other distributor of the securities and received checks, drafts, notes or other evidence of indebtedness payable solely to the issuer, underwriter, sponsor or distributor who delivered the securities purchased directly to the subscriber; and

(B) if the licensee is an investment adviser, the investment adviser only has discretionary authority over client funds or securities, the investment adviser has taken only limited powers of attorney to execute transactions on behalf of its clients, or the investment adviser does not accept prepayment of more than $500 per client for more than six months in advance; or

(4) The report shall be filed not more than 90 days after the investment adviser or broker-dealer's fiscal year end.

(5) Whenever the Commissioner so requires, a financial report shall be filed as of the date, and within the period, and in the form specified in the Commissioner's request. The Commissioner may require the financial report to be audited.

(b) Verification of Reports. Attached to each financial report filed with the Commissioner shall be a verification that, to the best knowledge and belief of the person making the verification,

(1) the financial statements and supporting schedules are true and correct, and

(2) neither the broker-dealer nor any partner, officer, or director thereof has any proprietary interest in any account classified solely as that of a customer. If the broker-dealer or investment adviser is a sole proprietorship, the verification shall be made by the proprietor; if a partnership, by a general partner; or if a corporation, by a duly authorized officer.

(c) Exemption. The provisions of subsection (a) of this section shall not apply to any broker-dealer registered under the Securities Exchange Act of 1934 (15 USC 78a et seq.), provided that, upon request of the Commissioner, the broker-dealer files with, or transmits for filing to, the Commissioner a copy of any report under Rule 17a-5 (17 CFR 240.17a-5).

(d) Interim Reports.

(1) Every broker-dealer subject to the provisions of Section 260.216.12 of these rules shall file a report within 15 days after

(A) its net capital is reduced to 120% of its required minimum net capital or

(B) if the broker-dealer computes its net capital pursuant to 17 CFR 240.15c3-1(c), its aggregate indebtedness is in excess of 1200% of its net capital or

(C) if the broker-dealer computes its net capital pursuant to 17 CFR 240.15c3-1(f), its net capital is reduced to less than 5% of the aggregate debit items computed in accordance with 17 CFR 240.15c3-3, Exhibit A.

(2) Every investment adviser subject to the provisions of Section 260.237.2 of these rules shall file a report within 15 days after its net worth is reduced to less than 120% of its required minimum net worth.

(3) The report required by subsections (d)(1) and (d)(2) of this section shall be as of a date within the 15 day period. Additional reports shall be filed within 15 days after each subsequent monthly accounting period until three successive months have elapsed during which none of the conditions specified in subsection (d)(1) or (d)(2) of this section have occurred.

(4) For an investment adviser, the interim report shall consist of a balance sheet, income statement, and computation of the minimum financial requirement under Section 260.237.2 of these rules, including the verification in subdivision (b) of this section.

(5) For a broker-dealer not registered under the Securities Exchange Act of 1934 (15 USC 78a et seq.), the interim report shall consist of a balance sheet, income statement, and a computation of the minimum financial requirement under Section 260.216.12 of these rules.

(6) For a broker-dealer registered under the Securities Exchange Act of 1934 (15 USC 78a et seq.), the interim report shall consist of a copy of the notice required pursuant to Rule 17a-11(c) (17 CFR 240.17a-11(c)).

(e) Confidential Treatment.

All of the statements filed pursuant to subsections (a), (c), and (d) shall be public, except that upon request an income statement that is bound separately from the balance of the annual financial statements shall be confidential, except in cases where the Commissioner determines that it is in the public interest to direct otherwise.

NOTE

Authority cited: Sections 25241 and 25610, Corporations Code. Reference: Sections 25237, 25241 and 25613, Corporations Code.

HISTORY

1. Amendment of subsection (d) filed 12-31-75 as an emergency; designated effective 1-1-76. Certificate of Compliance included (Register 76, No. 1). For prior history, see Register 75, No. 4.

2. Amendment filed 9-2-77; effective thirtieth day thereafter (Register 77, No. 36).

3. Amendment filed 4-27-84; effective thirtieth day thereafter (Register 84, No. 18).

4. Amendment of subsections (a) (2), (c) and (e) filed 1-7-88 operative 2-6-88 (Register 88, No. 4).

5. Amendment of section and Note filed 3-4-2003; operative 4-3-2003 (Register 2003, No. 10).

6. Amendment of section and Note filed 3-6-2008; operative 4-5-2008 (Register 2008, No. 10).

§260.241.3. Books and Records to Be Maintained by Investment Advisers.

Note • History

(a) Every licensed investment adviser shall make and keep true, accurate and current the following books and records relating to such person's investment advisory business:

(1) A journal or journals, including cash receipts and disbursements records, and any other records of original entry forming the basis of entries in any ledger.

(2) General and auxiliary ledgers (or other comparable records) reflecting asset, liability, reserve, capital, income and expense accounts.

(3) A memorandum of each order given by the investment adviser for the purchase or sale of any security, of any instruction received by the investment adviser from a client concerning the purchase, sale, receipt or delivery of a particular security, and of any modification or cancellation of any such order or instruction. Such memoranda shall show the terms and conditions of the order, instruction, modification or cancellation; shall identify the person connected with the investment adviser who recommended the transaction to the client and the person who placed such order; and shall show the account for which entered, the date of entry, and the bank or broker-dealer by or through whom executed where appropriate. Orders entered pursuant to the exercise of a power of attorney shall be so designated.

(4) All check books, bank statements, cancelled checks and cash reconciliations of the investment adviser.

(5) All bills or statements (or copies thereof), paid or unpaid, relating to the business of the investment adviser as such.

(6) All trial balances, financial statements, worksheets that contain computations of minimum financial requirements required under Section 260.237.2, of these rules, and internal audit working papers relating to the business of such investment adviser.

(7) Originals of all written communications received and copies of all written communications sent by such investment adviser relating to (i) any recommendation made or proposed to be made and any advice given or proposed to be given, (ii) any receipt, disbursement or delivery of funds or securities, or (iii) the placing or execution of any order to purchase or sell any security; provided, however, that the investment adviser shall not be required to keep any unsolicited market letters and other similar communications of general public distribution not prepared by or for the investment adviser; and provided that if the investment adviser sends any notice, circular or other advertisement offering any report, analysis, publication or other investment advisory service to more than 10 persons, the investment adviser shall not be required to keep a record of the names and addresses of the persons to whom it was sent, except that if such notice, circular or advertisement is distributed to persons named on any list, the investment adviser shall retain with the copy of such notice, circular or advertisement a memorandum describing the list and the source thereof.

(8) A list or other record of all accounts in which the investment adviser is vested with any power of attorney with respect to the funds, securities or transactions of any client.

(9) All powers of attorney and other evidences of the granting of any discretionary authority by any client to the investment adviser, or copies thereof.

(10) All written agreements (or copies thereof) entered into by the investment adviser with any client or otherwise relating to the business of such investment adviser as such.

(11) A copy of each notice, circular, advertisement, newspaper article, investment letter, bulletin or other communication recommending the purchase or sale of a specific security, which the investment adviser circulates or distributes, directly or indirectly, to 10 or more persons (other than investment supervisory clients or persons connected with such investment adviser), and if such notice, circular, advertisement, newspaper article, investment letter, bulletin or other communication does not state the reasons for such recommendation, a memorandum of the investment adviser indicating the reasons therefor.

(12) A record of every transaction in a security in which the investment adviser or any advisory representative (as hereinafter defined) of such investment adviser has, or by reason of such transaction acquires, any direct or indirect beneficial ownership, except (i) transactions effected in any account over which neither the investment adviser nor any advisory representative of the investment adviser has any direct or indirect influence or control; and (ii) transactions in securities which are direct obligations of the United States. Such record shall state the title and amount of the security involved; the date and nature of the transaction (i.e., purchase, sale or other acquisition or disposition); the price at which it was effected; and the name of the broker-dealer or bank with or through whom the transaction was effected. Such record may also contain a statement declaring that the reporting or recording of any such transaction shall not be construed as an admission that the investment adviser or advisory representative has any direct or indirect beneficial ownership in the security. A transaction shall be recorded not later than 10 days after the end of the calendar quarter in which the transaction was effected.

For purposes of this subsection (12):

(A) The term “advisory representative” shall mean any partner, officer or director of the investment adviser; any employee who makes any recommendation, who participates in the determination of which recommendation shall be made, or whose functions or duties relate to the determination of which recommendation shall be made; any employee who, in connection with such person's duties, obtains any information concerning which securities are being recommended prior to the effective dissemination of such recommendations or of the information concerning such recommendations; and any of the following persons who obtain information concerning securities recommendations being made by such investment adviser prior to the effective dissemination of such recommendations or of the information concerning such recommendations: (i) any person in a control relationship to the investment adviser, (ii) any affiliated person of such controlling person and (iii) any affiliated person of such affiliated person.

(B) The term “control” shall mean the power to exercise a controlling influence over the management and policies of a person, unless such power is solely the result of an official position with such person.

An investment adviser shall not be deemed to have violated the provisions of this subsection (12) because of its failure to record securities transactions of any advisory representative if it establishes that it instituted adequate procedures and used reasonable diligence to obtain promptly reports of all transactions required to be recorded.

(13) Notwithstanding the provisions of subsection (12) above, where the investment adviser is primarily engaged in a business or businesses other than advising registered investment companies or other advisory clients, a record must be maintained of every transaction in a security in which the investment adviser or any advisory representative (as hereinafter defined) of such investment adviser has, or by reason of such transaction acquires, any direct or indirect beneficial ownership, except (i) transactions effected in any account over which neither the investment adviser nor any advisory representative of the investment adviser has any direct or indirect influence or control; and (ii) transactions in securities which are direct obligations of the United States. Such record shall state the title and amount of the security involved; the date and nature of the transaction (i.e., purchase, sale or other acquisition or disposition); the price at which it was effected; and the name of the broker-dealer or bank with or through whom the transaction was effected. Such record may also contain a statement declaring that the reporting or recording of any such transaction shall not be construed as an admission that the investment adviser or advisory representative has any direct or indirect beneficial ownership in the security. A transaction shall be recorded not later than 10 days after the end of the calendar quarter in which the transaction was effected.

For the purposes of this subsection (13):

(A) The term “advisory representative,” when used in connection with a company primarily engaged in a business or businesses other than advising registered investment companies or other advisory clients, shall mean any partner, officer, director or employee of the investment adviser who makes any recommendation, who participates in the determination of which recommendation shall be made, or whose functions or duties relate to the determination of which recommendation shall be made, or who, in connection with its duties, obtains any information concerning which securities are being recommended prior to the effective dissemination of such recommendations or of the information concerning such recommendations; and any of the following persons who obtain information concerning securities recommendations being made by such investment adviser prior to the effective dissemination of such recommendations of the information concerning such recommendations: (i) any person in a control relationship to the investment adviser, (ii) any affiliated person of such controlling person and (iii) any affiliated person of such affiliated person.

(C) An investment adviser is “primarily engage in a business or businesses other than advising registered investment companies or other advisory clients” when, for each of its most recent three fiscal years or for the period of time since organization, whichever is lesser, the investment adviser derived, on an unconsolidated basis, more than 50% of (i) its total sales and revenues, and (ii) its income (or loss) before income taxes and extraordinary items, from other business or businesses.

An investment adviser shall not be deemed to have violated the provisions of this subsection (13) because of such person's failure to record securities transactions of any advisory representative if it establishes that it instituted adequate procedures and used reasonable diligence to obtain promptly reports of all transactions required to be recorded.

(14) A properly completed and executed Customer Authorization of Disclosure of Financial Records (Section 260.231(i)).

(15) If the investment adviser is an individual owner (e.g., sole proprietorship), a properly completed and executed Statement of Citizenship, Alienage, and Immigration Status form (Section 250.61) and any documents establishing proof thereof.

(16) Evidence of compliance with Section 260.236 and the investigation of each investment adviser representative.

(17) For investment advisers filing through IARD, copies, with original signatures of the investment adviser's appropriate signatory and the investment adviser representative, of each initial Form U4.

(b) If a licensed investment adviser has custody or possession of securities or funds of any client, the records required to be made and kept under Subsection (a) above shall include:

(1) A journal or other record showing all purchases, sales, receipts and deliveries of securities (including certificate numbers) for such accounts and all other debits and credits to such accounts.

(2) A separate ledger account for each such client showing all purchases, sales, receipts and deliveries of securities, the date and price of each such purchase or sale, and all debits and credits.

(3) Copies of confirmations of all transactions effected by or for the account of any such client.

(4) A record for each security in which any such client has a position, which record shall show the name of each such client having any interest in such security, the amount of interest of each such client, and the location of each such security.

(c) Every licensed investment adviser who renders any investment supervisory or management service to any client shall, with respect to the portfolio being supervised or managed and to the extent that the information is reasonably available to or obtainable by the investment adviser, make and keep true, accurate and current:

(1) Records showing separately for each such client the securities purchased and sold, and the date, amount and price of each such purchase or sale.

(2) For each security in which any such client has a current position, information from which the investment adviser can promptly furnish the name of each such client, and the current amount of the interest of such client.

(d) Any books or records required by this section may be maintained by the investment adviser in such manner that the identity of any client to whom such investment adviser renders investment supervisory services is indicated by numerical or alphabetical code or some similar designation.

(e)(1) All books and records required to be made under the provisions of subsections (a) to (c)(1), inclusive, of this section shall be maintained and preserved in an easily accessible place for a period of not less than five years from the end of the fiscal year during which the last entry was made on such record, the first two years in an appropriate office of the investment adviser.

(2) Charter documents, minute books and stock certificate books of the investment adviser and of any predecessor, shall be maintained in the principal office of the investment adviser and preserved until at least three years after termination of the enterprise.

(f) A licensed investment adviser, before ceasing to conduct or discontinuing business as an investment adviser, shall arrange for and be responsible for the preservation of the books and records required to be maintained and preserved under this section for the remainder of the period specified in this section, and shall notify the Commissioner in writing of the exact address where such books and records will be maintained during such period.

(g)(1) The records required to be maintained and preserved pursuant to this rule may be produced or reproduced by photograph on film or, as provided in paragraph (g) (2) below, on magnetic disk, tape or other computer storage medium, and be maintained and preserved for the required time in that form. If records are produced or reproduced by photographic film or computer storage medium, the investment adviser shall:

(A) arrange the records and index the films or computer storage medium so as to permit the immediate location of any particular record;

(B) be ready at all times to promptly provide any facsimile enlargement of film or computer printout or copy of the computer storage medium which the Commissioner, the Commissioner's examiners or other representatives of the Commissioner may request;

(D) with respect to records stored on computer storage medium, maintain procedures for maintenance and preservation of and access to, records so as to reasonably safeguard records from loss, alteration, or destruction, and

(E) with respect to records stored on photographic film, at all times have available for examination by the Commissioner, the Commissioner's examiners or other representatives of the Commissioners its records pursuant to Section 25241 of the Code facilities for immediate, easily readable projection of the film and for producing easily readable facsimile enlargements.

(2) Pursuant to subsection (g) (1) an adviser may maintain and preserve on computer tape or disk or other computer storage medium records which, in the ordinary course of the adviser's business, are created by the adviser on electronic media or are received by the adviser solely on electronic media or by electronic data transmission.

(h)(1) Any book or other record made, kept, maintained and preserved in compliance with sections 260.241 and 260.241.1 of these rules, which is substantially the same as the book or other record required to be made, kept, maintained and preserved under this section, shall satisfy the requirements of this section.

(2) A record made and kept pursuant to any provision of subsection (a) of this section, which contains all the information required under any other provision of subsection (a), need not be maintained in duplicate in order to meet the requirements of the other provision of subsection (a) of the section.

(i) As used in this section, the terms “power of attorney” and “discretionary authority” do not include discretion as to the price at which or the time when a transaction is or is to be effected, if, before the order is given by the investment adviser, the client has directed or approved the purchase or sale of a definite amount of the particular security.

(j) Any investment adviser who is subject to the minimum financial requirements of Section 260.237.2 shall, in addition to the records otherwise required under this section, maintain a record of the proof of money balances of all ledger accounts in the form of trial balances and a record of the computations of minimum net worth pursuant to Section 230.237.2 of these rules (as of the trial balance date). The trial balances and computations shall be prepared currently at least once a month.

NOTE

Authority cited: Sections 25241 and 25610, Corporations Code. Reference: Sections 25230, 25236, 25237, 25241 and 25613, Corporations Code.

HISTORY

1. Amendment of subsection (a)(12)(A) filed 2-8-78; effective thirtieth day thereafter (Register 78, No. 6). For prior history, see Register 77, No. 36.

2. Editorial correction of subsection (a) filed 11-9-82 (Register 82, No. 46).

3. Amendment of subsection (j) filed 4-27-84; effective thirtieth day thereafter (Register 84, No. 18).

4. Amendment of subsection (g) filed 1-7-88; operative 2-6-88 (Register 88, No. 4).

5. Amendment of subsection (a)(6), new subsections (a)(14)-(17), amendment of subsection (j) and amendment of Note filed 3-4-2003; operative 4-3-2003 (Register 2003, No. 10).

6. Amendment of subsections (a)(6), (a)(17) and (j) filed 9-24-2009; operative 10-24-2009 (Register 2009, No. 39).

§260.241.4. Notice of Changes by Broker-Dealer and Investment Adviser.

Note • History

(a) Each licensed broker-dealer and each licensed investment adviser shall, upon any change in the information contained in its application for a certificate (other than financial information contained therein) promptly file an amendment to such application setting forth the changed information.

(b) A licensed broker-dealer that is a member of the Financial Industry Regulatory Authority, shall file changed information contained in its Form BD and any schedule thereto, through the Central Registration Depository (“CRD”) in accordance with its procedures for transmission to the Commissioner. If the broker-dealer does not participate in CRD, the broker-dealer shall file changed information directly with the Commissioner.

(c) A licensed broker-dealer shall notify the Commissioner of the employment of any new agent in California and of the termination of employment of any agent in California in accordance with Section 260.210.

(d) A licensed investment adviser shall file changed information contained in its Form ADV with the Investment Adviser Registration Depository (“IARD”) in accordance with its procedures for transmission to the Commissioner.

(e) A licensed investment adviser shall file an annual updating amendment, in accordance with the instruction in Form ADV, with IARD in accordance with its procedures for transmission to the Commissioner within ninety (90) days of the end of the investment adviser's fiscal year.

(f) A licensed investment adviser shall notify the Commissioner of the employment or engagement of any new investment adviser representative, as defined in Section 25009.5(a) of the Code and the termination thereof in accordance with Section 260.236.1.

NOTE

Authority cited: Sections 25231, 25241 and 25610, Corporations Code. Reference: Section 1798.18, Civil Code; and Sections 25210, 25230, 25231, 25241, 25612.3 and 25612.5, Corporations Code.

HISTORY

1. Repealer of subsection (c) filed 6-18-76 as an emergency; effective upon filing. Certificate of Compliance included (Register 76, No. 25).

2. Amendment filed 9-2-77; effective thirtieth day thereafter (Register 77, No. 36).

3. Amendment of subsection (b) filed 11-29-79 as an emergency; designated effective 1-1-80. Certificate of Compliance included (Register 79, No. 48).

4. Editorial correction of NOTE filed 4-6-83 (Register 83, No. 15).

5. Relettering of former subsection (b) to subsection (c) and new subsection (b) filed 1-3-89; operative 2-1-89 (Register 89, No. 2).

6. Change without regulatory effect amending subsection (b) filed 9-25-2002 pursuant to section 100, title 1, California Code of Regulations (Register 2002, No. 39).

7. Amendment of subsections (b)-(c), new subsections (d)-(f) and amendment of Note filed 3-4-2003; operative 4-3-2003 (Register 2003, No. 10).

8. Amendment of section and Note filed 3-6-2007; operative 4-5-2007 (Register 2007, No. 10).

9. Amendment of subsection (b) filed 11-10-2009; operative 12-10-2009 (Register 2009, No. 46).

§260.241.5. Notice of Complaint.

Note • History

Each licensed broker-dealer and each licensed investment adviser who has filed a complaint against any of its partners, officers or, directors or, agents employed in California or associated persons (in the case of an investment adviser) with any law enforcement agency, any other regulatory agency having jurisdiction over the securities industry, or with any bonding company regarding any loss arising from alleged acts of such person, shall send a copy of such complaint to the Commissioner, within 10 days following its filing with such other agency or bonding company.

NOTE

Authority cited: Sections 25241 and 25610, Corporations Code. Reference: Section 25241, Corporations Code.

HISTORY

1. Editorial correction adding NOTE filed 4-6-83 (Register 83, No. 15).

2. Amendment filed 1-7-88; operative 2-6-88 (Register 88, No. 4).

§260.241.6. Quarterly Security Counts.

Note • History

(a) Every licensed broker-dealer, except such broker-dealers operating subject to all limitations provided in paragraph (a)(2) of Rule 15c3-1 under the Securities Exchange Act of 1934 (17 CFR 240.15c3-1) shall, at least once in each calendar quarter-year:

(1) physically examine and count all securities held;

(2) account for all securities in transfer, in transit, pledged, loaned, borrowed, deposited, failed to receive and failed to deliver or otherwise subject to such person's control or direction but not in his physical possession by examination and comparison of the supporting detail records with the appropriate ledger control accounts;

(3) verify all securities in transfer, in transit, pledged, loaned, borrowed, deposited, failed to receive and failed to deliver or otherwise subject to such person's control or direction but not in such person's physical possession, where such securities have been in said status for longer than thirty days;

(4) compare the results of the count and verification with such person's records; and

(5) record on the books and records of the broker-dealer all unresolved differences setting forth the security involved and the date of comparison in a security count difference account no later than seven business days after the date of each such security examination, count, and verification in accordance with the requirements provided in (b) hereof; provided, however, that such procedures need not be carried out by the broker-dealer for the calendar quarter-year during which the date of such person's annual report of financial condition pursuant to Section 260.241.2(a) of these rules falls; and further provided, that no examination, count, verification and comparison for the purpose of this rule shall be within two months of or more than four months following a prior examination, count, verification and comparison made hereunder.

(b) The examination, count, verification and comparison may be made either as of a date certain or on a cyclical basis covering the entire list of securities. In either case the recordation shall be effected within seven business days subsequent to the examination, count, verification and comparison of a particular security. In the event that an examination, count, verification and comparison is made on a cyclical basis, it shall not extend over more than one calendar quarter-year, and no security shall be examined, counted, verified or compared for the purpose of this rule less than two months or more than four months after a prior examination, count, verification and comparison.

(c) The examination, count, verification and comparison shall be made or supervised by persons whose regular duties do not require them to have responsibility for the proper care and protection of the securities or the making or preservation of the subject records.

(d) The Commissioner, may, upon written request, exempt from the provisions of this rule, either unconditionally or on specified terms and conditions, any broker-dealer who satisfies the Commissioner that it is not necessary in the public interest and for the protection of investors to subject the particular broker-dealer to certain or all of the provisions of this rule, because of the special nature of such person's business, the safeguards such person has established for the protection of customers' funds and securities or such other reason as the Commissioner deems appropriate.

NOTE

Authority cited: Sections 25241 and 25610, Corporations Code. Reference: Section 25241, Corporations Code.

HISTORY

1. New section filed 7-20-72; effective thirtieth day thereafter (Register 72, No. 30).

2. Amendment of subsection(a) filed 1-22-75; effective thirtieth day thereafter (Register 75, No. 4).

3. Amendment filed 4-27-84; effective thirtieth day thereafter (Register 84, No. 18).

§260.242. Surrender of Certificate as a Broker-Dealer or Investment Adviser.

Note • History

(a) An application to surrender a certificate as a broker-dealer shall be filed on Form BDW. Each licensed broker-dealer that is a member of the Financial Industry Regulatory Authority shall file Form BDW through the Central Registration Depository in accordance with its procedures for transmission to the Commissioner. All other broker-dealers shall file Form BDW directly with the Commissioner.

(b) An application to surrender a certificate as an investment adviser shall be filed on Form ADV-W in accordance with the instructions in Form ADV-W. Form ADV-W shall be filed with the Investment Adviser Registration Depository (IARD) in accordance with its procedures for transmission to the Commissioner.

NOTE

Authority cited: Section 25610, Corporations Code. Reference: Sections 25231, 25242, 25612.3 and 25612.5, Corporations Code.

HISTORY

1. Amendment of form filed 5-14-69; effective thirtieth day thereafter (Register 69, No. 20).

2. Amendment filed 3-1-74; effective thirtieth day thereafter (Register 74, No. 9).

3. Amendment of Items 12, 15 and 16 filed 11-14-78; effective thirtieth day thereafter (Register 78, No. 45).

4. Amendment of Item 12 filed 11-29-79 as an emergency; designated effective 1-1-80. Certificate of Compliance included (Register 79, No. 48).

5. Editorial correction of Item 9 (Register 80, No. 4).

6. Repealer and new section filed 1-3-89; operative 2-1-89 (Register 89, No. 2).

7. Change without regulatory effect amending certification filed 9-25-2002 pursuant to section 100, title 1, California Code of Regulations (Register 2002, No. 39).

8. Repealer and new section and amendment of Note filed 3-4-2003; operative 4-3-2003 (Register 2003, No. 10).

9. Amendment of section and Note filed 3-6-2007; operative 4-5-2007 (Register 2007, No. 10).

10. Amendment of subsection (a) filed 11-10-2009; operative 12-10-2009 (Register 2009, No. 46).

Article 12. Advertising Securities

§260.300. Filing and Use of Advertisements.

Note • History

The Department will not issue letters of nondisapproval of advertising filed under Section 25300 of the Code. However, if the person desiring to use the advertisement requests an order shortening the three-day waiting period before use of the advertisement becomes permissible under that Section, such order will be issued when an appropriate showing of the need therefor is made by the filer. Any permit issued by the Commissioner shall automatically constitute an order shortening the three-day waiting period with respect to any advertisement on file at the time of the issuance of the permit, relating to the offer and sale of the securities covered by the permit, so as to permit the use of such advertisement at any time thereafter.

NOTE

Authority cited: Section 25610, Corporations Code. Reference: Section 25300, Corporations Code.

HISTORY

1. Editorial correction adding NOTE filed 11-8-82 (Register 82, No. 46).

2. Editorial correction of NOTE filed 11-8-82 (Register 82, No. 46).

§260.300.1. Exemption for Advertisement of Sales by Secured Party or Fiduciary.

Note • History

There is hereby exempted from the provisions of Section 25300(a) of the Code as not being comprehended within the purposes of said Section, any advertisement for any security in a nonissuer transaction if the offer of such security is exempted by Subdivision (e) or Subdivision (f) of Section 25104.

NOTE

Authority cited: Section 25610, Corporations Code. Reference: Section 25300, Corporations Code.

HISTORY

1. New section filed 5-14-69; effective thirtieth day thereafter (Register 69, No. 20).

2. Editorial correction of NOTE filed 11-8-82 (Register 82, No. 46).

§260.300.2. Qualified Investment Companies.

Note • History

An investment company with a currently effective qualification under Section 25111(c) of the Code is permitted to comply with Section 25300(a) of the Code by filing an advertisement subject to the provisions of that section within 10 calendar days after its initial publication in this state; an investment company qualified under Section 25111(d) of the Code is exempted from Section 25300(a) of the Code.

NOTE

Authority cited: Sections 25610 and 25300, Corporations Code. Reference: Section 25300, Corporations Code.

HISTORY

1. New section filed 4-23-86; effective upon filing pursuant to Government Code Section 11346.2(d) (Register 86, No. 17).

§260.302. Standards Relating to Advertisements.

Note • History

Any advertisement of securities (other than a tombstone advertisement) should disclose, fairly and accurately, such relevant facts concerning the nature of the securities, their terms and conditions, and the nature and financial condition of the business enterprise as are necessary to make the advertisement not misleading. Normally, any advertisement should comply with the following standards:

(a) An advertisement should not contain any statement or inference that an investment in the security is safe, or that continuation of earnings or dividends is assured, or that failure, loss, or default is impossible or unlikely.

(b) An advertisement (other than a tombstone advertisement) should disclose all relevant details relating to promotional shares, options, warrants and rights issued or proposed to be issued by the company.

(c) Any statement in an advertisement (other than a tombstone advertisement) relating to the financial condition of the issuer should comply with the following:

(1) Any statement relating to the current or past financial condition of an issuer should be clear, intelligible and reasonably complete.

(2) A statement purporting to show the current financial condition of an issuer should be prepared as of a date reasonably close to the time at which the advertisement is used and should disclose the date on which it was prepared and the date to which the issuer's financial condition is reflected therein.

(3) A statement purporting to show the past financial condition of an issuer should be accompanied by a current financial statement prepared in accordance with Clause (2) of this Subsection.

(4) A statement purporting to show the average earnings of an issuer for a period of more than one year should be accompanied by a statement of the earnings for each of the individual years within the period covered if there are any significant variations within such period.

(5) No “Pro Forma” financial statements should be used in an advertisement except in connection with recapitalizations or reorganizations.

(6) No statement of estimated future earnings should be made unless (i) it is based on a past earnings record, (ii) it projects future earnings for a reasonable period only, and (iii) it is substantiated by data which clearly supports such estimate.

(d) Any advertisement which refers to the qualification of the sale of the securities under the law of the State of California shall contain in capital letters of not less than 10-point type the following legend, printed in contrasting color or type:

“THE COMMISSIONER OF CORPORATIONS OF THE STATE OF CALIFORNIA DOES NOT RECOMMEND OR ENDORSE THE PURCHASE OF THESE SECURITIES.”

(e) Any advertisement which refers to an exemption from or reduction in taxation under any law should be based on an opinion of counsel, and the name of such counsel should be stated in the advertisement.

(f) An advertisement should normally contain the name and address of the person using the advertisement.

(g) If the advertisement contains any endorsement or recommendation of the securities by any public figure, whether express or implied (for example, by the inclusion of such person's photograph or name in the advertisement), full disclosure shall be made of any compensation or other benefit given or promised by the issuer or any person associated with the issuer to such person, directly or indirectly. The disclosure required in this Subsection (g) shall be made in the same document containing the advertisement or, if such advertisement is presented on radio or television, as a part of the same program, without any intermission or other intervening material.

(h) Any advertisement relating to securities of an open-end management company registered under the Investment Company Act of 1940 which complies with the Statement of Policy of the Securities and Exchange Commission (Investment Company Act Release No. 2621, November 5, 1957, as amended) will not be disapproved.

(i) Any advertisement of debt securities which states the rate or amount of interest and the date at which interest payments will cease by reason of the final maturity of the principal obligation, shall also disclose the right if reserved by the issuer, to avoid payment of such interest by redemption prior to final maturity.

NOTE

Authority cited: Section 25610, Corporations Code. Reference: Sections 25300 and 25302, Corporations Code.

HISTORY

1. New subsection (i) filed 11-23-70 as an emergency; designated effective 11-23-70 (Register 70, No. 48).

2. Certificate of Compliance Sec. 11422.1, Gov. Code, filed 12-9-70 (Register 70, No. 50).

3. Amendment filed 1-11-72; effective thirtieth day thereafter (Register 72, No. 3).

4. Editorial correction adding NOTE filed 11-8-82 (Register 82, No. 46).

§260.402. Purchases and Sales.

Note • History

For purposes of Section 25402 of the Code, an issuer or person described in Section 25402 shall not be deemed to have purchased or sold an issuer's security at a time when that person knows material information about the issuer if the issuer or such person demonstrates that the purchase or sale of the issuer's security was in accordance will Rule 10b5-1(c) promulgated under the Securities Exchange Act of 1934, as amended, 17 CFR Section 240.10b5-1(c).

NOTE

Authority cited: Section 25610, Corporations Code. Reference: Section 25402, Corporations Code.

HISTORY

1. New section filed 3-14-2001 as an emergency; operative 3-14-2001 (Register 2001, No. 11). A Certificate of Compliance must be transmitted to OAL by 7-12-2001 or emergency language will be repealed by operation of law on the following day.

2. Certificate of Compliance as to 3-14-2001 order transmitted to OAL 6-26-2001 and filed 7-30-2001 (Register 2001, No. 31).

Article 13. General Provisions

Subarticle 1. Expert's Liability

§260.504.2. Authority.

Note • History

The provisions of this subarticle are adopted pursuant to the Commissioner's authority under Sections 25140, 25300 and 25610 of the Code and to implement, interpret and make specific Section 25504.2 of the Code.

NOTE

Authority cited: Section 25610, Corporations Code. Reference: Sections 25140, 25300 and 25504.2, Corporations Code.

HISTORY

1. Redesignation of Sections 260.507-260.617, not consecutive, from Article 13 to Subarticle 2 of Article 13 filed 1-10-79; effective thirtieth day thereafter (Register 79, No. 2).

2. New Subarticle 1 (Sections 260.504.2-260.504.2.4) filed 1-10-79; effective thirtieth day thereafter (Register 79, No. 2).

§260.504.2.1. Definitions.

Note

For the purposes of Section 25504.2 of the Code and this subarticle, the following definitions apply:

(a) “Expert” means any accountant, engineer, appraiser or other person whose profession gives authority to a statement by such person, including without limitation an actuary, assessor, attorney, financial analyst, geologist, investment adviser, mineralogist, petrologist or tax consultant, and any firm or other organization or association engaged in the practice of any such profession.

(b) “Expertized material” means any statement, report, valuation, opinion or other material, or any summary of or quotation from any of the foregoing, that is represented to have been prepared or certified by an expert acting as such, and any statement, report, valuation, opinion which is stated to be made on the authority of the expert.

(c) “Prospectus or offering circular” means any written or printed prospectus, offering circular, proxy statement, notice, advertisement, letter, financial statement, report or communication (including any exhibits or attachments incorporated therein) and any communication by radio, television, movie, magnetic recording or similar medium of communication issued, circulated or distributed, in connection with the offer or sale of a security.

(d) “Written consent” means a written consent to the inclusion in or reference to expertized material in a prospectus or offering circular and to the inclusion of the name of the expert in the prospectus or offering circular required by and filed pursuant to Section 260.504.2.2, whether or not the expert giving such consent knew that it was so required to be filed and would be filed in accordance with Section 260.504.2.2.

NOTE

Authority cited: Section 25610, Corporations Code. Reference: Sections 25140, 25300 and 25504.2, Corporations Code.

§260.504.2.2. Written Consent of Expert.

Note

(a) When Consent Required. Except as provided in Subsection (b), no person shall use any prospectus or offering circular in connection with an offer or sale of securities which is required to be qualified pursuant to Part 2 (commencing with Section 25100) of Division 1 of Title 4 of the Code which contains any expertized material or with which any expertized material is distributed or in which any expertized material is referred to unless the expert is named in the prospectus or offering circular and a written consent has been filed in accordance with subsection (d).

(b) Written Consent Not Required. Subsection (a) shall not apply in any of the following instances:

(1) The application seeks authority to offer or sell securities only to named persons, unless the Commissioner by order otherwise requires in the particular circumstances.

(2) In connection with other types of offerings, the Commissioner does not require the filing of a written consent of the expert upon a request of the applicant because of undue hardship or other sufficient cause.

(1) Expert's Reliance on Expert. When an expert named in connection with expertized material expressly relies on another expert, such other expert must also be named and the written consent of such other expert filed, in accordance with Subsection (a).

(2) Attorneys.

(A) When a prospectus or offering circular contains an opinion of counsel as to the legality of the issue, the written consent of the attorney furnishing the opinion must be filed. If any other attorney is also named as having prepared an opinion as to the legality of the issue, the written consent of such other attorney must also be filed, even though the opinion of such attorney is not included in the prospectus or offering circular.

(B) If any information contained in the prospectus, other than that referred to above, is stated to be furnished upon the authority of an attorney, such attorney shall be named in the prospectus or offering circular and such attorney's written consent to being so named shall be filed. Where the same attorney is named with respect to several parts of the prospectus, it is not necessary to file a separate written consent with respect to each such part but the consent filed must be broad enough to cover all matters with respect to which the attorney is named as having acted.

(C) When an attorney is named in a prospectus or offering circular as having acted for the underwriters or selling security holders, no consent will be required by reason of such attorney being named as having acted in such capacity.

(D) When the opinion of one attorney relies upon the opinion of another attorney, the written consent of the attorney who prepared the initial opinion must be filed if such attorney is named in the prospectus or offering circular.

(E) When information, such as the nature of title to properties, is stated in a prospectus or offering circular to be based on an opinion of counsel, the name of the attorney must be disclosed in the prospectus or offering circular and such attorney's written consent must also be filed. The name of such attorney need not be set forth at the particular place where the information based on his or her opinion is given, provided such attorney is otherwise identified and named elsewhere in the prospectus or offering circular.

(d) Formal Requirements for Written Consent.

(1) Except as provided in Subsection (4), each written consent filed with the Commissioner pursuant to Subsection (a) shall be dated and manually signed, shall identify the prospectus or offering circular to which it relates, and shall consent to the inclusion in or reference to specific expertized material in the prospectus or offering circular and to the inclusion of the name of the expert in the prospectus or offering circular.

(2) If the prospectus or offering circular is amended after such written consent is obtained in any manner affecting the use of the expert's name or the expertized material, the further written consent of such expert is required in accordance with the foregoing.

(3) The written consent must be filed as an exhibit to the application for qualification (see instructions in the application forms for qualification set forth in Rules 260.112, 260.113 and 260.121.1), and such written consent may be included in the expertized material or any other document required to be filed as an exhibit with the Commissioner.

(4) SEC Filings. A written consent of an expert filed with the Securities and Exchange Commission in connection with an offering registered under the Securities Act of 1933, the qualification of which is required pursuant to Part 2 (commencing with Section 25100) of Division 1 of Title 4 of the Code, shall constitute a filing with the Commissioner pursuant to Subsection (a) and shall be effective in lieu of the other requirements of this subsection if:

(A) Such consent does not expressly provide that it shall not constitute the consent of the expert for any other purpose, and

(B) The applicant has incorporated generally by reference in the application all written consents filed with the Securities and Exchange Commission.

(e) No Implied Written Consent. Neither the filing of expertized material as an exhibit to an application or as supplemental information in connection with qualification proceedings, nor the use of or reference to expertized material in a prospectus or offering circular or any written report or valuation distributed with a prospectus or offering circular, whether pursuant to an exemption under, or by order of the Commissioner under, Subsection (b) or otherwise, nor any waiver by the Commissioner of a written consent which would otherwise be required, shall be deemed to take the place of, or to imply, the written consent of the expert required by Section 25504.2 of the Code as a condition of liability.

NOTE

Authority cited: Section 25610, Corporations Code. Reference: Sections 25111(d), 25112(d), 25113(d), 25121(d), 25140(a)(b)(c)(d), 25300(a)(b)(c)(d), and 25504.2(e), Corporations Code.

§260.504.2.3. Disclosure of Interest of Expert.

Note

(a) When an expert is named in a prospectus or offering circular in accordance with Section 260.504.2.2, there shall be disclosed in the prospectus the nature and amount of any direct or indirect material interest of any such expert in the issuer of such securities, including any such interest received or to be received, in connection with the offering which is the subject of the prospectus or offering circular, by such expert, or by the expert's firm, or by members of such firm participating in the matter, other than fees paid in cash or to be paid in cash to such expert, firm or members. Employment by the issuer, other than retainer as such expert, shall also be disclosed in the prospectus or offering circular.

(b) The above interests will not be deemed material if the amount of the interest, including the fair market value of all securities of the issuer owned, received and to be received, or subject to options, warrants or rights received and to be received by such firm or all members of the firm participating in the matter does not exceed $30,000 in the aggregate and not more than $10,000 for such expert or any individual member of the firm participating in the matter. For the purposes of this section, the term “member” means any director or executive officer of any corporate entity, a trustee of any trust, a general partner in any venture or partnership, and any other person having responsibilities comparable to the foregoing with respect to any other expert which is not an individual; and the term “firm” includes any organization or association of experts, acting in such capacity. This subsection does not create any presumption that an interest exceeding the amounts herein defined is material.

NOTE

Authority cited: Section 25610, Corporations Code. Reference: Sections 25140 and 25300, Corporations Code.

§260.504.2.4. Notice Pursuant to Section 25504.2(b)(3) of the Code.

Note

A notice pursuant to Subdivision (b)(3) of Section 25504.2 of the Code that an expert will not be responsible for a part of a document, report or evaluation is not effective prior to its receipt by both the issuer and the Commissioner.

NOTE

Authority cited: Section 25610, Corporations Code. Reference: Section 25504.2, Corporations Code.

Subarticle 2. Miscellaneous Provisions

§260.507. Form of Application for Approval of Repurchase Offer Facing Page.

Note • History

An application for approval as to form of an offer to repurchase a security in accordance with Subdivision (b) of Section 25507 of the Code shall have as the first page thereof a facing page in the following form containing the information therein specified:

(Department of Corporations Use Only)

Fee Paid $______________

Receipt No._____________ DEPARTMENT OF CORPORATIONS

File No.

(Insert file number of previous filings of applicant before the Department, if any)

FEE:

(To be completed by applicant)

Date of application:

DEPARTMENT OF CORPORATIONS

STATE OF CALIFORNIA

FACING PAGE

APPLICATION FOR APPROVAL AS TO FORM OF AN OFFER TO REPURCHASE A SECURITY UNDER SUBDIVISION (b) OF SECTION 25507 OF THE CORPORATE SECURITIES LAW OF 1968.

1. Name of issuer.

2. Address of principal executive office of issuer.

Number and Street City State Zip Code

3. The name and address of each person making the offer set forth in Exhibit D of Item 9.

4. Name and address of person to whom correspondence regarding this application should be addressed.

5. State whether issuer is a corporation, partnership, trust or other entity and the state of incorporation or jurisdiction under which organized.

6. (a) (b) (c) (d)

Type of security Number of shares Aggregate value If a cash

or units covered of consideration offer

by the offer. received. aggregate

amount to

be offered.

$ $

INSTRUCTIONS

Completion of Application. The application should be continued in typewritten or printed form in the English language, on one side only of either legal or letter size paper which should be attached to the facing page when submitted. Provide the information required by Items 7 through 9 below. Identify each statement by reference to the item number. Any item which is inapplicable should be listed by the number of the item, followed simply by the word “inapplicable.” At each item where relevant refer to and incorporate by reference any attached exhibits or documents and any documents currently on file with the Department. Such reference should indicate the page or portion of the document where the information is located. Sign and verify the last page in the manner shown in the instructions below.

7. Describe the transaction or distribution of securities in connection with which the repurchase offer is to be made, including, but not limited to, the following:

a. If offers are to be made to less than all of the persons who received securities in connection with such transaction or distribution, the names and addresses of the persons to whom offers will not be made. In the absence of unusual circumstances, the Commissioner will not ordinarily approve a repurchase offer if concurrent offers are not being made to all persons to whom liability may exist. If a request is made for a variance, a detailed explanation of the facts and circumstances must be submitted, including an explanation of the basis for excluding each person proposed to be omitted.

b. If the consideration paid for the securities was other than cash, a description of such consideration and a statement of the method and basis by which the valuation of the consideration was determined in connection with the repurchase offer, and information demonstrating that such valuation is bona fide and fair to the offeree.

8. Describe the business done and intended to be done by the issuer and its subsidiaries and the general development of such business during the past three years. Indicate any other names under which the issuer or any of its subsidiaries have conducted business during such period.

9. Exhibits. Attach and incorporate by reference the following exhibits:

A. Financial statements setting forth the information required by Section 260.613 of these rules.

B. Unless such information is included in Exhibit D hereto, the name and address of each person to whom the offer is to be made, the consideration paid by such person for the securities and, if a cash offer is being made, the amount to be offered such person.

C. A copy (which may be in the form of a restated or composite copy) of applicant's certificate of incorporation, articles of incorporation, certificate of determination of preferences, agreement of consolidation or merger, and by-laws of a corporation; declaration of trust; agreement of partnership, certificate of limited partnership; or any other document or instrument adopted to establish or regulate any association, joint stock company, trust, or other entity; as such documents are currently in effect.

D. A form of written offer for which the Commissioner's approval is requested. Such offer should contain the following:

(1) In capital letters of not less than ten-point type the following legend, printed in contrasting color or type:

“THIS OFFER OF REPURCHASE HAS BEEN APPROVED BY THE COMMISSIONER OF CORPORATIONS IN ACCORDANCE WITH SECTION 25507(b) OF THE CORPORATE SECURITIES LAW OF 1968 ONLY AS TO ITS FORM. SUCH APPROVAL DOES NOT IMPLY A FINDING BY THE COMMISSIONER THAT ANY STATEMENTS MADE HEREIN OR IN ANY ACCOMPANYING DOCUMENTS ARE TRUE OR COMPLETE; NOR DOES IT IMPLY A FINDING THAT THE AMOUNT OFFERED BY THE SELLER IS EQUAL TO THE AMOUNT RECOVERABLE BY THE BUYER OF THE SECURITY IN ACCORDANCE WITH SECTION 25503 IN A SUIT AGAINST THE SELLER, AND THE COMMISSIONER DOES NOT ENDORSE THE OFFER AND MAKES NO RECOMMENDATION AS TO ITS ACCEPTANCE OR REJECTION.”

(2) The name and address of each person making the offer.

(3) Any variation proposed to be made in the form of the repurchase offer to the several parties to whom the offer is made.

(4) A statement regarding the respect in which the liability under Section 25503 of the Code arose, including the following:

(a) Identification of the transaction involved, including the date, a complete description of the security sold and the nature and amount of consideration given therefor.

(b) Identification of the parties to the transaction involved, including:

(i) The seller of the security;

(ii) Every person who directly or indirectly controls the seller;

(iii) Every partner in the seller firm;

(iv) Every principal executive officer or director of a seller corporation;

(v) Every person occupying a similar status or performing similar functions;

(vi) Every employee of any of the foregoing who has materially aided in the transaction;

(vii) Every broker-dealer or agent who has materially aided in the transaction.

(c) Identification of the specific section of the Corporate Securities Law of 1968 which may have been violated. In this connection, the offer need not contain an admission or acknowledgment that a violation has occurred or that liability has been incurred. All that is required is a statement that liability under the particular section may have arisen.

(d) An explanation of the scope of the liability which may have been incurred, and a statement that this liability is being terminated by the offer.

(5) If the offer is to repurchase the security for cash, the offer should set forth the following:

(a) The amount to be paid as a monetary sum and that interest will be paid thereon at 7% per annum, from the date of the transaction (specifying such date). If the amount to be paid is not equal to the value of the consideration paid for the security by the offeree (because of income paid thereon or because the security was sold by the offeree), the method by which the amount to be paid was determined should be set forth, showing all adjustment, if any, by reason of dividends, distributions, assessments or otherwise. Assessments on the security paid by the offeree shall be included as a part of the purchase price paid and as a part of the value of the consideration received by the seller.

(b) If the consideration paid for the securities was other than monetary (such as services or property), the repurchase offer must set a cash value for the services or property and state the method by which such valuation was determined.

(c) A statement that payment will be made immediately upon delivery of the security, or, if no certificates were issued or if the offeree no longer owns the security, that payment will be made immediately upon delivery of acceptance of the offer. The offer should set forth reasonable provisions regarding the manner of acceptance, including the name and address of the party to whom acceptance and tender is to be made.

(6) If rescission is offered, the offer shall set forth in detail the terms and conditions thereof, including:

(a) All of the undertakings required to be performed by the offeror and offeree, to place the parties back in the same position as before the transaction.

(b) If rescission is contingent upon undertakings by parties other than offeror or offeree, a detailed statement as to such undertakings.

(c) The time within which such undertakings are to be performed, which shall be a reasonable time, and the date or event from which such time begins to run.

(d) Reasonable provisions regarding the manner of acceptance and tender, including the name and address of the party to whom acceptance and tender is to be made.

(7) A statement of the time within which the offer must be accepted, which may not be less than 30 days after the receipt of the offer.

(8) A complete statement of Subdivision (b) of Section 25507 and of Sections 25503 and 25504 of the Code.

(9) A statement indicating that the offeree's right of action, if any, under Sections 25500, 25501 and 25502 of the Code and under common law, is not necessarily foreclosed by acceptance or rejection of the offer.

(10) A statement with respect to the Commissioner's authority to impose a legend condition restricting transferability of the security under Section 25534 of the Code and with respect to any action taken by the Commissioner pursuant to such section with respect to the security.

(11) Such information regarding the issuer and the security as is material to the consideration of the offer by the offerees, including information regarding the issuer's organization and management, its operations and plan of business, and its financial condition. In general, the information required to be furnished to the offerees is that which would be furnished for a qualification of a similar offering, considering the nature of the transaction, the number of investors and their relationship with the issuer. Such information may be required to be set forth in the form of an offering circular. Financial statements shall be in the form prescribed by Section 260.613 of these rules.

(12) If the financial condition of the issuer is such that the acceptance of the offer by some or all of the offerees will imperil its ability to continue in business, the offer must clearly state the risks undertaken by investors who elect to reject, or who do not accept, the offer. If the financial condition of the offeror is such that it may be unable to perform upon the offer in the event of acceptance by all, or a portion of, the offerees, the offer must clearly state the legal consequences and the investment risks of such failure of performance as to the issuer and as to the investors. If the offeror has insufficient liquid assets to assure payment to all parties who may accept the offer, commitments of payment by other persons may be included, together with a showing of their ability to perform such commitments.

(NOTE: The application must be signed and verified in the following manner.)

The applicant has duly caused this application to be signed on its behalf by the undersigned, thereunto duly authorized.

(Applicant)

(Title)

Executed at ____________________, on _____________ 20____

(Place) (Date)

(Signature)

Signing of Application. Application should be signed by an officer or general partner of the applicant; however, it may be signed by another person holding a power of attorney for such purposes from the applicant, and if signed on behalf of the applicant pursuant to such power of attorney, should include as an additional exhibit a copy of said power of attorney or a copy of the corporate resolution authorizing the attorney to act.

Filing Fee. The filing fee shall be the amount that would have been payable under subdivisions (e), (f), (h) or (i) of Section 25608 if an application had been filed to qualify the transaction in which the securities were sold in violation of the qualification provisions. The filing fee fixed by Section 25608 must accompany each application and the amount of filing fee paid is to be set forth on the front page in the upper right hand corner.

By way of illustration, the filing fee for qualification of securities by coordination, notification, or permit, under Sections 25113 or 25121 is computed by taking 2/10ths of 1% of the maximum aggregate offering price of securities being qualified in California and adding $200. Thus, a qualification, for $275,250 would be computed by moving the decimal point three places to the left, $275.25, doubling the amount, $550.50, and adding $200 for a total of $750.00.

NOTE

Authority cited: Sections 25507(b) and 25610, Corporations Code. Reference: Sections 25500, 25501, 25502, 25503, 25504, 25504.1 and 25507, Corporations Code.

HISTORY

1. Amendment filed 1-4-77; effective thirtieth day thereafter (Register 77, No. 2). For prior history, see Register 75, No. 4.

2. Amendment refiled 1-7-77; effective thirtieth day thereafter (Register 77, No. 2).

3. Redesignation of Sections 260.507-260.617, not consecutive, from Article 13 to Subarticle 2 of Article 13 filed 1-10-79; effective thirtieth day thereafter (Register 79, No. 2).

4. Amendment filed 6-12-80; effective thirtieth day thereafter (Register 80, No. 24).

5. Editorial correction of NOTE filed 3-9-83 (Register 83, No. 11).

6. Change without regulatory effect (Register 87, No. 29).

7. Change without regulatory effect amending certification and last paragraph filed 9-25-2002 pursuant to section 100, title 1, California Code of Regulations (Register 2002, No. 39).

§260.508. Form of Application for Approval of Repurchase Offer. [Repealed]

History

HISTORY

1. Repealer filed 1-22-75; effective thirtieth day thereafter (Register 75, No. 4. For prior history, see Register 74, No. 4.

§260.534. Transfer Restriction Imposed by Order of the Commissioner.

Note • History

The issuer of any securities who receives an order issued by the Commissioner pursuant to Section 25534 of the Code shall comply with Section 260.141.11 of these rules, and it shall be unlawful for the holder of any such securities to make any disposition thereof in nonconformity with such rule, unless such order otherwise provides, or unless such order is revoked or modified by the Commissioner or the conditions imposed by such order are removed pursuant to Section 260.141.12 of these rules.

NOTE

Authority cited: Section 25610, Corporations Code. Additional authority cited: Division 1, Title 4 and Section 25534, Corporations Code. Reference: Section 25534, Corporations Code.

HISTORY

1. Amendment filed 1-4-77; effective thirtieth day thereafter (Register 77, No. 2). For prior history, see Register 74, No. 9.

2. Amendment refiled 1-7-77; effective thirtieth day thereafter (Register 77, No. 2).

§260.607. Conflicts of Interests.

Note • History

(a) The Department is charged with the responsibility of administering regulatory statutes which vitally affect the interests of private citizens and of the general public. It is important that persons employed in the Department maintain unusually high standards of honesty, integrity, impartiality and conduct. They must be constantly aware of the need to avoid situations which might result in either actual or apparent misconduct or conflict of interests, since any such actual or apparent conflict of interests may impair public confidence in the integrity of the Department regardless of whether any improper influence or action has resulted therefrom.

(b) No employee of the Department shall:

(1) Engage, directly or indirectly, in any personal business transaction or private arrangement for personal profit which accrues from or is based upon official position or authority or upon confidential or non-public information which he or she gains by reason of such position or authority.

(2) Solicit or accept, directly or indirectly, any valuable gift, gratuity, fee, entertainment, loan, service, or any other thing of monetary value from any person with whom he or she transacts business or may reasonably expect to transact business on behalf of the Department or who has any other interest which may be substantially affected by the performance or nonperformance of the employee's official duties.

This Clause (2) does not prohibit the acceptance of food and refreshments of nominal value (not on a repetitive basis), or unsolicited advertising or promotional material, such as pens, note pads, calendars, etc., or any similar gratuity of nominal value which could not reasonably be alleged to have influenced the official conduct of the employee, and does not prohibit the acceptance of reimbursement for the expenses of meetings attended in an official capacity, with the approval of the Commissioner, to the extent such expenses are not reimbursed in any manner from public funds.

This Clause (2) also does not prohibit an employee who is, or who may be, assigned to work on any application, filing or other matter involving the California Residential Mortgage Lending Act (commencing with Section 50000 of the Financial Code) from making application for or receiving a residential mortgage loan (as defined by subdivision (n) of Section 50003 of the Financial Code) from the residential mortgage lender licensed under the California Residential Mortgage Lending Act and subject to the employee's work on the application, filing or other matter so long as the employee immediately reports in writing to the Assistant Commissioner in charge of the application, filing or other matter the fact of the making of an application for or receiving of a residential mortgage loan from the residential mortgage lender. The Assistant Commissioner to whom such report is made shall normally relieve the employee in question of the assignment in writing; but the Assistant Commissioner may in writing direct the reporting employee to continue with the assignment in question if the Assistant Commissioner determines that the personal interest of the reporting employee is so insignificant as not to create even the appearance of a substantial conflict of interests. In making this determination, the Assistant Commissioner may take into consideration the extent to which the reporting employee's activities will be supervised and the difficulty in assigning the matter to some other employee, but all doubts must be resolved in favor of avoiding any substantial conflict of interests.

(3) Discuss or entertain any proposal for future employment by any person outside the government with whom he or she is personally transacting business on behalf of the Department or by the attorney for any such person.

(4) Act in any manner, whether or not specifically prohibited by this Section, which might result in, or create the appearance of, using public office for private gain, giving preferential treatment to any person, losing complete independence or impartiality, or affecting adversely the confidence of the public in the integrity of the Department.

(1) Permit his or her name to be associated in any way with any legal, accounting or other professional firm or office.

(2) Have any outside or private employment or activity or affiliation incompatible with concurrent employment by the Department.

(3) Be employed in any capacity by any company or firm which holds a license from the Commissioner.

Any employee who proposes to engage in outside employment of any kind must report such intention to the Commissioner and receive the written approval of the Commissioner, which shall be placed in his or her personnel file, prior to his or her accepting such outside employment. For the purposes of this subsection (c) the private employment or affiliation of an employee's parent, spouse, child, or any other relative living in his or her household by any person holding a license from the Commissioner is deemed to be incompatible with the employee's concurrent employment in the Department, except as otherwise determined by the Commissioner in a specific case. Nothing in this section is intended to prohibit an employee from engaging in teaching, lecturing, or writing activities which do not interfere with the performance of his or her duties to the Department, with or without compensation; provided, however, that any publication by an employee which refers to his or her connection with the Department must contain an appropriate disclaimer indicating that the views expressed are his or her own and do not necessarily reflect the views of the Commissioner or the policy of the Department.

(d) (1) Pursuant to subdivision (b) of Section 25607 of the Code, the following rules are adopted with respect to the purchasing and holding of securities by any assistant, clerk or deputy of the Department, and govern all transactions in securities effected by or on behalf of any such person, including transactions for the accounts of other persons effected by such person, directly or indirectly, under a power of attorney or otherwise, and including any transactions by any trust or estate in which he or she holds a beneficial interest (unless the transactions by such trust or estate are effected without any knowledge or participation by such person). Any assistant, clerk or deputy is considered to have sufficient interest in the securities transactions of his or her spouse, children, or any other relatives living in his or her household that such transactions are subject to the provisions of this subsection.

(2) No assistant, clerk or deputy shall effect any securities transaction involving any short sale, put, call, straddle or spread; and no assistant, clerk or deputy shall purchase or hold any security in any licensee of the Department or in any business outside the State of California which, if conducted within this State, would require a license from the Commissioner.

(3) Within 30 days after December 31st and June 30th of each year, each assistant, clerk or deputy shall file a report with the Commissioner detailing all of his or her holdings of securities as of those dates on a form to be supplied by the Commissioner; and each assistant, clerk or deputy shall report to the Commissioner any purchase or disposition of any security (other than a security exempted by Chapter 1 of Part 2 of the Corporate Securities Law of 1968) within five days after the date of each such transaction. This Clause (3) does not require any report with respect to any interest in any professional, charitable, religious, social, civic, political, or other similar organization which is not conducted as a business enterprise for profit, and securities purchased pursuant to the State of California Deferred Compensation Plan may be reported only in the semi-annual reports herein required. All reports pursuant to this Clause (3) shall be furnished directly to the Commissioner or the Chief Deputy Commissioner marked “Confidential” and will be maintained in a confidential file. Only those officials or employees of the Department whose access thereto is necessary for the purpose of carrying out the provisions of this Section shall be permitted access to such file.

(4) Any assistant, clerk or deputy assigned to work on any application, filing or other matter involving a person in which he or she (or any of the persons whose securities transactions he or she is required to report pursuant to this Section) owns any amount of securities or with respect to whom for any other reason (including current or prior employment or other association) he or she has a personal interest, shall immediately report such fact in writing to the Commissioner, the Chief Deputy Commissioner, or the Assistant Commissioner in charge of the matter. The official to whom such report is made shall normally relieve the employee in question of the assignment in writing; but such official may in writing direct the reporting employee to continue with the assignment in question if the official determines that the personal interest or the holding of securities is so insignificant as not to create even the appearance of a substantial conflict of interests. In making this determination, the official may take into consideration the extent to which the reporting employee's activities will be supervised and the difficulty of assigning the matter to some other employee, but all doubts must be resolved in favor of avoiding any substantial conflict of interests.

(5) The reporting and disqualification provisions of Clauses (3) and (4) of this subsection (d) do not apply to any employee of the Department who is assigned to purely stenographic, clerical, or other nondiscretionary duties. Pursuant to subdivision (b) of Section 25607 of the Code, all purchases and holdings of securities made in accordance with the rules contained in this Section (including all purchases and holdings of securities by employees exempted from the reporting requirement by this Clause (5)), are exempted from the prohibition contained in subdivision (a) of Section 25607 of the Code.

(e) No person shall appear in a representative capacity before the Department in a particular matter if such person, or anyone assisting him or her or participating with him or her in such representation, personally considered the matter or gained knowledge of the facts thereof during any former employment or association with the Department. Nothing in the preceding sentence shall prohibit appearance in a proceeding more than two years after a person ceases to be an official or employee of the Department, unless it appears to the Commissioner that there is such identity of particular issues or pertinent facts as to create a reasonably substantial possibility that confidential information, derived by such person while an official or employee of the Department, would have continuing relevance to the proceeding. No person who has been a commissioner, a chief deputy commissioner, or an assistant commissioner shall within one year after his or her employment has ceased appear in a representative capacity before the Department with respect to any application or proceeding that was pending under his or her official responsibility (whether or not it was brought to his or her personal attention) at any time while he or she was employed by the Department.

(f) Knowing violation or knowing participation in a violation of any of the provisions of this section by any official or employee of the Department shall constitute a breach of his or her duties as an employee of the State of California and shall constitute grounds for dismissal for cause.

NOTE

Authority cited: Section 25610, Corporations Code; and Section 50304, Financial Code. Reference: Sections 25607, Corporations Code; and Section 50303, Financial Code.

HISTORY

1. Amendment of subsection (d)(3) filed 1-22-75; effective thirtieth day thereafter (Register 75, No. 4).

2. Amendment of section and new Note filed 11-25-96; operative 12-25-96 (Register 96, No. 48).

§260.608. Fees for Publications.

Note • History

(a) Publications issued by the Commissioner shall be available for the charges set forth below, except that these charges shall not apply to other governmental agencies.

(b) Individual Copies. Individual copies of the releases, notices of rule changes and other publications of the Commissioner may be obtained upon request from any office of the Department. Mail requests should be directed to the Department of Corporations, 320 West 4th Street, Suite 750, Los Angeles, California 90013-2344. No charge is made for individual copies of current publications. The charge for items which are not current is the regular charge for copy work.

(c) Mailing Lists. A charge per year in the amount indicated below is made for each individual mailing list to receive releases, notices of rule changes and other publications of the Commissioner pertaining to a particular law administered by the Department. Requests to be placed on a mailing list should be directed to the Department of Corporations, 320 West 4th Street, Suite 750, Los Angeles, California 90013-2344.

(1) California Finance Lenders Law ($4.00)

(2) California Residential Mortgage Lending Act ($4.00)

(3) Capital Access Company Law ($4.00)

(4) Check Sellers, Bill Payers and Proraters Law ($1.00)

(5) Corporate Securities Law and Commodity Law ($10.00)

(6) Escrow Law ($2.00)

(7) Franchise Investment Law ($2.00)

(8) General Mailing List ($27.00) includes items (1) through (7).

(d) Forms. As a convenience to attorneys and other members of the public, forms prescribed by these rules may be obtained from any office of the Department. No charge will be made in connection with any single request for not more than two copies of any form which are picked up at any office of the Department. The Department will, upon request, mail additional copies of any form or forms at cost, except that the minimum charge for any single order will be one dollar ($1.00). Prices will include sales tax and postage.

NOTE

Authority cited: Sections 25608 and 25610, Corporations Code. Reference: Section 25608, Corporations Code.

HISTORY

1. Amendment filed 7-20-78; effective thirtieth day thereafter (Register 78, No. 29). For prior history, see Register 73, No. 52.

2. Amendment filed 6-12-80; effective thirtieth day thereafter (Register 80, No. 24).

3. Editorial correction of NOTE filed 3-9-83 (Register 83, No. 11).

4. Change without regulatory effect of subsections (b) and (c) pursuant to section 100(b)(3), title 1, California Code of Regulations filed 12-15-89; operative 1-14-90 (Register 90, No. 1).

5. Changes without regulatory effect amending subsections (b), (c)(1), (2) and (8) and (d) filed 8-24-92; operative 9-23-92 (Register 92, No. 35).

6. Change without regulatory effect adopting new subsection (c)(8) and amending subsection (d) and Note filed 3-11-94 pursuant to title 1, section 100, California Code of Regulations (Register 94, No. 10).

7. Change without regulatory effect amending subsection (f) filed 8-1-94 pursuant to section 100, title 1, California Code of Regulations (Register 94, No. 31).

8. Change without regulatory effect amending subsection (c)(9), adopting new subsection (c)(11) and redesignating and amending subsection (c)(12) filed 12-6-94 pursuant to section 100, title 1, California Code of Regulations (Register 94, No. 49).

9. Amendment of subsection (e) filed 1-24-96; operative 2-23-96 (Register 96, No. 4).

10. Change without regulatory effect repealing subsections (c)(1)-(12) and adopting new subsections (c)(1)-(9) filed 2-24-99 pursuant to section 100, title 1, California Code of Regulations (Register 99, No. 9).

11. Change without regulatory effect amending subsections (b), (c), (c)(2) and (e) filed 5-24-99 pursuant to section 100, title 1, California Code of Regulations (Register 99, No. 22).

12. Change without regulatory effect amending subsections (b) and (c), repealing subsection (c)(8), amending subsection (c)(9) and repealing subsections (e) and (f) filed 9-25-2002 pursuant to section 100, title 1, California Code of Regulations (Register 2002, No. 39).

13. Amendment of subsection (c) and renumbering of former subsection (c)(9) to subsection (c)(8) filed 9-23-2009; operative 10-23-2009 (Register 2009, No. 39).

§260.608.1. Broker-Dealer Office or Location. [Repealed]

Note • History

NOTE

Authority cited: Section 25610, Corporations Code. Reference: Sections 25204, 25211, 25216, 25241, 25605 and 25608, Corporations Code.

HISTORY

1. New section filed 9-2-77; effective thirtieth day thereafter (Register 77, No. 36).

2. Change without regulatory effect repealing section filed 4-22-93 pursuant to section 100, title 1, California Code of Regulations (Register 93, No. 17).

§260.608.2. Agent Program Fees.

Note • History

(a) The fee for filing a Uniform Application for Securities Industry Registration and Transfer Form (Form U-4), pursuant to subsections (b) and (c) of Section 260.210 is $25 for each agent.

(b) Upon filing fingerprints of an agent pursuant to subsection (c) of Section 260.210, a broker-dealer shall reimburse the Department of Corporations the fee charged by the Department of Justice (Penal Code Section 11105) for processing Noncriminal Applicant Fingerprints.

NOTE

Authority cited: Section 25610, Corporations Code. Reference: Section 25608, Corporations Code.

HISTORY

1. New section filed 11-29-79 as an emergency; designated effective 1-1-80 (Register 79, No. 48). Certificate of Compliance included.

2. Amendment filed 3-16-84; designated effective 3-26-84 pursuant to Government Code section 11346.2(d) (Register 84, No. 11).

3. Change without regulatory effect amending subsection (a) filed 11-20-91 pursuant to section 100, title 1, California Code of Regulations (Register 92, No. 9).

4. Amendment filed 6-1-98; operative 6-1-98 pursuant to Government Code section 11343.4(d) (Register 98, No. 23).

§260.608.3. Notices and Reports Under Section 25105 Rules.

Note • History

The fee for filing a notice of transaction pursuant to Rule 260.105.33(c), whether or not the notice specifies that both Rules 260.105.33 and 260.105.34 are claimed for the transaction, shall be determined based on the value of the securities sold in the transaction for which the notice is filed and in accordance with Section 25608(g) of the code, and shall be as follows:

Value of Securities Sold Filing Fee

$25,000 or less $25

$25,001 to $100,000 $35

$100,001 to $500,000 $50

$500,001 to $1,000,000 $150

Over $1,000,000 $300

No fee is payable upon the filing of an amended notice unless the amendment increases the “value of securities sold” in an amount which would have increased the fee for the previous notice. In that case, the fee due is the amount due based on the value of securities specified in the amended notice less the fee originally paid.

NOTE

Authority cited: Sections 25608(w) and 25610, Corporations Code. Reference: Sections 25105 and 25608, Corporations Code.

HISTORY

1. New section filed 9-30-83 as an emergency; effective eleventh day thereafter (Register 83, No. 40). A Certificate of Compliance must be transmitted to OAL within 120 days or emergency language will be repealed on 1-28-84.

2. Editorial correction filed 10-3-83 redesignating effective date of 9-30-83 emergency order to 9-30-83 (Register 83, No. 40).

3. Certificate of Compliance as to 9-30-83 order transmitted to OAL 1-25-84 and filed 2-16-84 (Register 84, No. 7).

§260.613. Financial Statements.

Note • History

(a) All financial statements required by these rules or by any official form of the Department shall be prepared in accordance with generally accepted accounting principles including a balance sheet as of a date within 90 days prior to the date of the application and statements of income and statements of cash flows for each of the three fiscal years (for each of the two fiscal years in the case of a “small business issuer” as defined by subsection (i) of Section 260.001) preceding the date of the balance sheet and for the period, if any, between the close of the last fiscal year and the date of the balance sheet. Where the application is for an open qualification, there shall be filed, in addition, an audited balance sheet as of the end of the person's last fiscal year (unless the last fiscal year ended within 90 days of the date of the application, in which case there shall be filed an audited balance sheet as of the end of the person's next preceding fiscal year) and statements of income and statements of cash flows which shall be audited up to the date of the last audited balance sheet filed.

(b) As used herein, “audited” refers to financial statements covered by an auditor's report containing an unqualified opinion of an independent certified public accountant. An opinion shall not be considered unqualified if an explanatory paragraph is included in the auditor's report or the notes to the financial statements which discloses information relating to material uncertainties (except as to litigation) or going concern issues.

(c) While the foregoing is established as a general guideline in the preparation of financial statements, the Commissioner may in certain cases require audited statements of an applicant in connection with a limited offering qualification and may in certain cases waive audited statements in connection with an open qualification.

(d) Financial statements of a corporation shall be prepared on a consolidated basis with any other corporation(s) in which it owns directly or indirectly more than 50% of the outstanding voting securities.

(e) Financial statements prepared in accordance with the rules and requirements of the Securities and Exchange Commission in a registration statement shall satisfy the requirement of this Section that the financial statements be prepared in accordance with generally accepted accounting principles when the financial statements are submitted as part of an application for qualification.

(f) Where the issuer is a small business issuer and the aggregate proceeds of the proposed offering plus the total aggregate proceeds to the issuer from the sale of any of its securities in the preceding 12 months is not more than $500,000, the requirements of subsection (a) may be satisfied by reviewed financial statements. For purposes of this subsection, “reviewed financial statements” means financial statements prepared and accompanied by a report issued by an independent certified public accountant in accordance with generally accepted accounting principles.

NOTE

Authority cited: Sections 25216 and 25613, Corporations Code. Reference: Sections 25113(b)(2) and 25140, Corporations Code.

HISTORY

1. Amendment of subsection (a) filed 9-19-73; effective thirtieth day thereafter (Register 73, No. 38).

2. Amendment of subsection (a) filed 1-22-75; effective thirtieth day thereafter (Register 75, No. 4).

3. Amendment filed 5-3-83; effective thirtieth day thereafter (Register 83, No. 19).

4. Amendment of subsections (a), (b) and (e) filed 7-1-93; operative 7-1-93 (Register 93, No. 27).

5. Change without regulatory effect amending subsection (a) filed 9-30-93 pursuant to title 1, section 100, California Code of Regulations (Register 93, No. 40).

6. Amendment of subsections (a) and (b), new subsection (f) and amendment of Note filed 12-19-95; operative 1-18-96 (Register 95, No. 51).

§260.617. Charges for Copies of Documents.

Note • History

The following charges shall be made for copies and telecopies of documents furnished by the Commissioner and for certification thereof:

(a) Two dollars for each certificate under seal affixed thereto, plus 30 cents for each page or fraction thereof to be certified, whether the copies to be certified are furnished by the person requesting the certification or by the Commissioner.

(b) Thirty cents for each page or fraction thereof when the copies are not to be certified.

NOTE

Authority cited: Sections 25610 and 25617, Corporations Code. Reference: Section 25617, Corporations Code.

HISTORY

1. Editorial correction adding NOTE filed 3-9-83 (Register 83, No. 11).

2. Amendment of initial paragraph and new subsection (c) filed 3-15-90; operative 4-14-90 (Register 90, No. 11).

3. Change without regulatory effect amending subsection (a) filed 4-21-94 pursuant to title 1, section 100, California Code of Regulations (Register 94, No. 16).

Subchapter 2.2. Retirement Systems

NOTE

Authority cited for Subchapter 2.2: Sections EC 28002, 28003, 28103 and 28200, Corporations Code. Reference: Sections 28000 through 28305, Corporations Code.

HISTORY

1. Repealer of Subchapter 2.2 (Sections 280.000-280.105, not consecutive) filed 5-19-77; effective thirtieth day thereafter (Register 77, No. 21). For prior history, see Registers 71, No. 2, and 72, Nos. 2 and 32.

Subchapter 2.3. Capital Access Companies

Article 1. Definitions

§280.100. Definitions.

Note • History

(a) “Code” means the California Corporations Code.

(b) “Commissioner” means the Commissioner of Corporations.

NOTE

Authority cited: Section 28951, Corporations Code. Reference: Section 28951, Corporations Code.

HISTORY

1. New subchapter 2.3 (articles 1-12, sections 280.100-280.700), article 1 (section 280.100) and section filed 6-24-99; operative 7-1-99 pursuant to Government Code section 11343.4(d) (Register 99, No. 26).

Article 2. Application for Licensure and Related Forms

§280.150. Office Location for Filing of Application and Related Forms.

Note • History

All applications, notices or forms under the Capital Access Company Law must be filed in the Sacramento Office of the Department of Corporations, located at 1515 K Street, Suite 200, Sacramento, CA 95814.

NOTE

Authority cited: Section 28951, Corporations Code. Reference: Section 28951, Corporations Code.

HISTORY

1. New article 2 (sections 280.150-280.154) and section filed 6-24-99; operative 7-1-99 pursuant to Government Code section 11343.4(d) (Register 99, No. 26).

2. Change without regulatory effect amending section filed 9-25-2002 pursuant to section 100, title 1, California Code of Regulations (Register 2002, No. 39).

§280.151. Application for a License Under the Capital Access Company Law.

Note • History

The application for licensure under the Capital Access Company Law shall be made in the following form:

(Department of Corporations Use Only) DEPARTMENT OF CORPORATIONS

Fee Paid $ ___________________ File No.__________________________

Receipt No. __________________

STATE OF CALIFORNIA

DEPARTMENT OF CORPORATIONS

FACING PAGE

FOR

APPLICATION FOR A LICENSE UNDER THE

CAPITAL ACCESS COMPANY LAW

PRE-LICENSE AMENDMENT NO. POST-LICENSE AMENDMENT NO.

The application must be TYPEWRITTEN and accompanied by an application fee of $1,400. The application (together with the fee payable to the Commissioner of Corporations) must be filed only in the Sacramento Office of the Department of Corporations.

Special Instructions: Any amendment to this application for licensure under the Capital Access Company Law shall be made by a verified pre-license or post-license amendment to the application. A pre-license amendment is required for an amendment to the application prior to licensure; a post-license amendment is required subsequent to licensure. An amendment is made by filing the completed “Facing Page” with the appropriate pre-license or post-license amendment number entered, attaching the pages of that part of the application (including the exhibits) that are revised or changed, and attaching another duly executed and verified “Execution Page”. (The Execution Page is found at the end of this application.)

1. Name of Applicant:

Fictitious Business Name:

2. List the place or places of business at which Applicant will engage in licensed activity. Indicate principal place of business and branch or other office locations: (Attach a separate sheet, if necessary.)

(Number and Street) (City) (County) (State) (Zip)

(“d.b.a.” or fictitious business name) (Name of person in charge of business location)

[The application continues on the following, separate pages.]

3. Applicant is organized and will do business as (check as applicable):

[ ] a corporation [ ] a limited liability company

[ ] a partnership [ ] a limited partnership

[ ] trust [ ] other (please specify) _______________________

4. Complete the following:

Applicant was organized on .

(Date)

The FULL first, middle (if no middle name, so indicate) and last name, and complete business address MUST be given for each person named below: (Attach additional sheets, if necessary.)

General Partners:

(Name) (Business Address)

President/Chief Executive Officer:

(Name) (Business Address)

Executive Vice President/Vice President:

(Name) (Business Address)

Secretary:

(Name) (Business Address)

Treasurer/Chief Financial Officer:

(Name) (Business Address)

Other Principal Officers:

(Name) (Business Address)

Director(s):

(Name) (Business Address)

Manager(s)/Member(s) [i.e., a manager member of an association, or a manager appointed or elected by the members of a limited liability company]:

(Name) (Business Address)

Trustee(s):

(Name) (Business Address)

Employees who have access to or responsibility for funds held by the applicant:

(Name) (Business Address)

Any person (other than those persons listed above) that owns or controls, directly or indirectly, the power to direct, or cause the direction of, the management and policies of the applicant. If the “person” is a corporation or other business entity, please provide sufficient information to identify the individual(s) in positions of management in, or who own or control, the corporation or business entity. (E.g., the name and business address of the officers, directors, partners, etc.) (See Corporations Code Sections 28035 and 28036):

(Name) (Business Address)

5. Provide the following information for the investment adviser(s) who will make recommendations to the applicant with respect to the investment of funds.

a..

(Name) (Business Address)

b. Provide the following information for each investment adviser:

1. Is the investment adviser registered under the Investment Advisers Act of 1940?

[ ] Yes. The investment adviser's SEC File Number:

[ ] No. Explain why and cite the appropriate statutory authority. (E.g., the investment adviser is exempt from registration under Section 203(b)(1) of the Investment Adviser Act of 1940.).

2. Is the investment adviser licensed by the State of California?

[ ] Yes. The investment adviser's license number: _________________________

[ ] No. Explain why and cite the appropriate statutory authority. (E.g., the investment adviser is exempt from licensure under Section 25202 of the Corporate Securities Law of 1968.)

6. a. Furnish the File Number(s) of any other Department of Corporations' license(s) currently held by applicant or affiliates of the applicant:

b. Furnish the license number(s) and description of any state or federal licenses held by the applicant. (E.g., a California real estate broker's license.): .

7. The applicant's fiscal year end is: _____________________________________________

Note: If you DO NOT designate a fiscal year end, the Department of Corporations will record your fiscal year end as December 31.

8. If any person other than the applicant makes or keeps any of the books, accounts, or other records of the applicant, provide the following information:

(Name) (Business Address)

(Relationship to applicant)

9. The following items MUST BE provided as Exhibits to the application:

EXHIBIT A. A statement of financial solvency supported by an audited financial statement dated not more than 90 days from the date this application is filed with an unqualified opinion prepared by an independent certified public accountant in accordance with generally accepted accounting principles reflecting the required minimum tangible net worth of $250,000, the minimum $5,000,000 to invest, and the financial resources to pay the (company's) expenses in transacting business for at least 3 years from the date of licensure.

EXHIBIT B. A copy of the fidelity bond (including any riders). A certified copy of the bond and any riders shall be filed with the Commissioner within 10 days of its execution. [See Rule 280.400.]

EXHIBIT C. For each person named in Item 4 of this application, please furnish the following:

1. A Statement of Identity and Questionnaire*,

2. Fingerprint Card*, and

3. Notice of Officers, Directors, Partners, “Control” Persons, Managers, Members, Trustees, and Employees of a Capital Access Company*. [See Rule 280.153.]

* These documents shall be treated by the Department of Corporations as being received in confidence pursuant to paragraph (4) of subdivision (d) of Section 6254 of the Government Code.

EXHIBIT D. A detailed plan of business that includes at a minimum the following items:

1. Describe in sufficient detail the business activities of the applicant, including but not limited to, the applicant's proposals to appoint officers, sell securities, obtain financing or purchase securities of small business firms.

2. Information as to the education, financial condition and business experience, and criminal convictions of the following:

a. Any person that owns or controls, directly or indirectly, 10 percent or more of any class of stock or other voting securities of the applicant.

b. Any person that controls, directly or indirectly, the election of 25 percent or more of the members of the board of directors, executive committee, or other policy committee of the applicant.

c. Any person or entity that has the ability to control the management of the applicant.

3. A description of any disciplinary actions filed against any other license under which the applicant conducts its business.

4. A description of any adverse judgments entered in court actions filed against the applicant based upon allegations of fraud, misrepresentation, or dishonesty in the conduct of the applicant's business.

5. A listing of all material judgments filed against the applicant, and the disposition of each material judgements.

6. A listing of all bankruptcy petitions filed by the applicant for the preceding five years, and the disposition of each bankruptcy petition.

7. Has any person listed in Item 4 violated* any provision of the Corporate Securities Law of 1968 (or the rules of the Commissioner of Corporations thereunder), the Securities Act of 1933, the Securities Exchange Act of 1934, the Small Business Investment Company Act of 1958, the Investment Company Act of 1940 (or any rules of the Securities and Exchange Commission), or the Business and the Industrial Development Corporation Law (or the rules of the Commissioner of Financial Institutions thereunder). If the answer is “yes”, set forth below the name(s) of the state(s) or foreign country(ies), the specific provision(s) of the law(s) and rule(s), and the date(s) and disposition(s) of the violation(s). (Attach additional sheets, if necessary.)

* For the purposes of this question, “violated” means that the applicant: (1) either has been convicted or pled nolo contendere to a felony or misdemeanor; (2) has been held liable in a civil action by final judgment; (3) is or has been permanently or temporarily enjoined by order, judgment or decree of any court of competent jurisdiction; and (4) is or has been subject to any order of a commission or administrator under any law or rule referred to in this question. If the conviction has been overturned or reversed on appeal, provide a copy of the order and any other documents necessary to explain the final disposition.

8. A list of officers, directors, partners, members, trustees, employees, or other persons owning or controlling, directly or indirectly, 10 percent or more of the outstanding interests or equity securities of the applicant who has, within the last 10 years:

a. Been convicted of, or plead nolo contendere to, a crime; or

b. Committed any act involving dishonesty, fraud or deceit,

if the crime or act is substantially related to the qualifications, functions, or duties of a person engaged in business in accordance with this Law.

EXHIBIT E. Complete the form entitled “Customer Authorization of Disclosure of Financial Records”. This form must be TYPEWRITTEN and signed by a person authorized to sign on behalf of the applicant.

EXHIBIT F. If the applicant will be doing business under a fictitious business name, provide a copy of the Certificate of Filing and Proof of Publication, both of which bear the County Clerk's filing stamp. Refer to Section 17000 of the Business and Professions Code for the requirements of filing this statement.

EXHIBIT G. Submit a copy of applicant's organizational documents and any amendments thereto. (E.g., Articles of Incorporation, Bylaws, Articles of Organization, Articles of Partnership, etc.)

EXHIBIT H. Provide the following if the applicant is a subsidiary:

1. A statement disclosing the ultimate parent corporation's name and state where incorporated.

2. A statement disclosing whether applicant has or will have other licensed locations or affiliates in California operating under a similar plan or business.

3. A statement disclosing the complete business address and telephone number of applicant's management officer in California. If none, so indicate.

EXHIBIT I. Submit a copy of the applicant's conflict of interest policies and procedures to demonstrate compliance with Sections 28820, 28822, 28823, 28824, 28825, 28826, 28827, 28828 and 28829 of the Corporations Code.

EXHIBIT J. Submit a copy of any contracts that the applicant has entered into with any investment adviser(s). (See Section 28212 of the Corporations Code.)

EXHIBIT K. Submit a consent to service of process from applicant and for applicant's parent organization and/or all of the applicant's subsidiaries in the form stated in Rule 280.152. Service made pursuant to the terms of the consent to service of process shall have the same force and validity as if served personally on the applicant.

EXHIBIT L. By signing the application as provided for on the Execution Page, the applicant agrees (or attests) to the following:

1. To maintain staff adequate to meet the requirements of the Capital Access Company Law, as prescribed by rule or order of the Commissioner of Corporations.

2. To keep and maintain for 60 months the business records and other information required by law or rules of the Commissioner of Corporations regarding any activities undertaken in the course of the conduct of its business.

3. To file with the Commissioner of Corporations any report or applications required under law or rule or order of the Commissioner of Corporations, including, but not limited to: Surrender of License Application and Applications to Acquire Control, Merge With, or Purchase or Sell All or Substantially All of the Licensee's Business or of the Business of any of the Licensee's Offices to Another Licensee.

4. To file with the Commissioner of Corporations an amendment to this application prior to any material change in the information contained in the application for licensure, including, without limitation, the plan of operation.

5. To notify the Commissioner of Corporations, in writing, by certified mail, return receipt requested, prior to opening a branch office in this state or changing its business location(s) or the location(s) of any branch office(s) from which activities subject to the Capital Access Company Law are conducted.

6. To comply with the provisions of the Capital Access Company Law, Section 6(a)(5) of the Investment Company Act of 1940, the Corporate Securities Law of 1968, and with any order or rule of the Commissioner of Corporations.

7. To submit to periodic and nonroutine examinations by the Commissioner of Corporations and to pay any required fees associated with examinations, audits, or investigations conducted by the Department of Corporations, as required by the Capital Access Company Law.

8. To advise the Commissioner of Corporations by amendment to this application of any material judgment filed against, or bankruptcy petition filed by, the applicant within five days of the filing.

9. Hereby attests that the applicant will ensure compliance with the conflict of interest provisions outlined in Sections 28820-28829 of the Corporations Code.

10. Hereby attests that the officers, directors, partners, trustees and members have read and understand the Capital Access Company Law and rules adopted thereunder.

11. Hereby attests that the applicant has complied with all applicable state and federal tax return filing requirements for the past three years or has filed with the Commissioner of Corporations an independent certified public accountant's or attorney's statement as to why no return was filed.

12. Hereby attests that the applicant has not committed a crime under the laws of any state or the United States, involving moral turpitude, misrepresentation, fraudulent or dishonest dealing, or fraud and has disclosed to the Commissioner of Corporations any final judgment entered against it in a civil action upon grounds or allegations of fraud, misrepresentation, or deceit.

13. Hereby attests that the applicant has not engaged in conduct that would be cause for denial of a license.

14. Hereby attests that the applicant will submit the economic benefit surveys and questionnaires to the Trade and Commerce Agency in compliance with Section 28506 of the Capital Access Company Law.

15. Hereby attests that the applicant is not insolvent.

16. Hereby attests that the applicant has acted with due care and competence in performing any act for which it is required to hold a license under the Capital Access Company Law.

17. Hereby attests that the applicant will comply with all applicable requirements of California and federal law, including the Corporate Securities Law of 1968.

18. Hereby attests that the applicant's organizational documents will include the provisions required in Section 28200 of the Capital Access Company Law.

19. Hereby attests that the applicant will not engage in any business other than the following:

a. The business of providing financial assistance through the purchase of securities of small business firms doing business or proposing to do business wholly or substantially in this state.

b. The business of providing managerial assistance (including managerial and technical assistance) to small business firms doing business or proposing to do business wholly or substantially in this state.

EXECUTION PAGE

Please indicate the name, address, title, and telephone number of the person who should be contacted for information regarding this application. The license will be mailed to this person unless otherwise instructed.

Attention:

(Name) (Title) (Telephone Number)

(Number and Street) (City) (State) (Zip Code)

In the event of the issuance of a license, applicant agrees to comply with the requirements of the Capital Access Company Law and rules adopted, and orders issued, by the Commissioner of Corporations, and further agrees that in the event of any change of its officers, directors, or any persons named in this application, that a verified amendment to the application reflecting such change shall within fifteen business days from the date of the change, be filed with the Commissioner of Corporations setting forth the change, the effective date of the change, the names of the persons involved in the change, and a statement of the qualifications of each successor person.

WHEREFORE, applicant requests that a license be issued by the Commissioner of Corporations authorizing applicant to engage in business under the Capital Access Company Law within the State of California.

The applicant has duly caused this application to be signed on its behalf by the undersigned, thereunto duly authorized.

Applicant: _____________________

By: ___________________________

______________________________

(Typed Name)

______________________________

(Title)

The undersigned, on behalf of the applicant, acknowledges that this application and all exhibits thereto which are not designated as confidential are subject to public inspection pursuant to Section 250.9.1, Chapter 3, Title 10, California Code of Regulations. A request for confidentiality of certain documents may be requested pursuant to Section 250.10. If a request for confidential treatment is granted (or denied), the person making such request will be notified in writing.

I certify (or declare) under penalty of perjury that I have read the foregoing application, including all Exhibits attached thereto, or filed therewith, and know the contents thereof, and that the statements therein are true and correct

Executed at

(Signature of Declarant)

Date

(Typed Name)

IF EXECUTED OUTSIDE THE STATE OF CALIFORNIA, ATTACH A VERIFICATION EXECUTED AND SWORN TO BEFORE A NOTARY PUBLIC.

NOTE

Authority cited: Section 28951, Corporations Code. Reference: Sections 28103, 28104, 28108, 28110, 28152, 28153, 28200, 28210, 28211, 28320, 28400, 28500, 28501, 28502, 28503, 28504, 28506, 28551 and 28604, Corporations Code.

HISTORY

1. New section filed 6-24-99; operative 7-1-99 pursuant to Government Code section 11343.4(d) (Register 99, No. 26).

§280.152. Consent to Service of Process; Form.

Note • History

The consent to service of process shall be made on the following form:

TO THE COMMISSIONER OF CORPORATIONS OF

THE STATE OF CALIFORNIA

CONSENT TO SERVICE OF PROCESS

KNOW ALL MEN BY THESE PRESENTS

That the undersigned, _____________________________________ (a corporation, partnership or limited liability company organized under the laws of the State of ____________________________), (an individual), (other ____________________) hereby irrevocably appoints the Commissioner of Corporations of the State of California, or the Commissioner's successor in office, to be the undersigned's attorney to receive service of any lawful process in any noncriminal suit, action or proceeding against the undersigned, or the undersigned's successor, executor, or administrator which arises under the Capital Access Company Law or any rule or order thereunder after this consent has been filed, with the same force and validity as if served personally on the undersigned.

For the purpose of compliance with the Capital Access Company Law, notice of the service and a copy of the process should be sent by registered or certified mail to the undersigned at the following address:

(Name and Address)

Dated: By

Title

ACKNOWLEDGEMENT

STATE OF CALIFORNIA )

COUNTY OF _________________)

On _____________________ before me, (here insert the name and title of the officer), personally appeared

personally known to me (or proved to me on the basis of satisfactory evidence) to be the person(s) whose name(s) is/are subscribed to the within instrument and acknowledged to me that he/she/they executed the same in his/her/their authorized capacity(ies), and that by his/her/their signature(s) on the instrument the person(s), or the entity upon behalf of which the person(s) acted, executed the instrument.

WITNESS my hand and official seal.

Signature (Seal)

Any certificate of acknowledgement taken in another place shall be sufficient in California if it is taken in accordance with the laws of the place where the acknowledgement is made. See, California Civil Code Section 1189.

NOTE

Authority cited: Sections 28108 and 28951, Corporations Code. Reference: Section 28108, Corporations Code.

HISTORY

1. New section filed 6-24-99; operative 7-1-99 pursuant to Government Code section 11343.4(d) (Register 99, No. 26).

§280.153. Notice of Officers, Directors, Partners, “Control” Persons, Managers, Members, Trustees and Employees.

Note • History

(a) The notice to accompany the filing of an individual's fingerprints required in the following circumstances shall be made on the form set forth in subsection (b) of this rule:

(1) In compliance with the requirements of Exhibit C to Item 10 of the application for license (Rule 280.151);

(2) In compliance with the requirements for filing an application for change of control (Rule 280.250);

(b) The notice shall be made on the following form:

Embedded Graphic 10.0028

NOTE

Authority cited: Section 28951, Corporations Code. Reference: Sections 28104(a)(1), 28152(d), 28152(e) and (f), 28153 and 28552, Corporations Code.

HISTORY

1. New section filed 6-24-99; operative 7-1-99 pursuant to Government Code section 11343.4(d) (Register 99, No. 26).

§280.154. Amendments to Application.

History

A licensed capital access company shall, within 30 days after any change in the information contained in its application, other than financial information, file an amendment with the Commissioner. However, for any change in the persons listed in Item 4 of the application, the licensed capital access company must file an amendment with the Commissioner within five days of the change.

HISTORY

1. New section filed 6-24-99; operative 7-1-99 pursuant to Government Code section 11343.4(d) (Register 99, No. 26).

Article 3. Application Requesting Approval to Surrender License

§280.200. Application Requesting Approval to Surrender License.

Note • History

A n application requesting approval to surrender a license as a capital access company shall be made on the following form:

File No. ____________________________

Date of Application ___________________

COMMISSIONER OF CORPORATIONS

STATE OF CALIFORNIA

APPLICATION FOR REQUESTING APPROVAL TO SURRENDER

CAPITAL ACCESS COMPANY LAW LICENSE

PURSUANT TO SECTION 28650 OF THE CORPORATIONS CODE

The Application for Requesting Approval to Surrender a Capital Access Company Law License MUST BE TYPEWRITTEN and may only be filed in the Sacramento Office of the Department of Corporations.

1. Name of Applicant:

2. Name under which business is conducted, if different from above:

3. Address of actual location of principal place of business:

No. and Street City State ZIP Code

4. State the reason for surrendering the license:

5. Does the applicant owe any money or securities to any investor?

( ) Yes ( ) No If answer is “yes”, furnish all of the following information:

a. Amount of money owed: $

b. Arrangements made for the payment of the money owed:

c. Market value of securities (if applicable):

d. Arrangements made for the return or delivery of securities:

6. Has applicant assigned any of its contracts to another person?

( ) Yes ( ) No If answer is “yes” furnish all of the following information:

a. Name and business address of the person(s) to whom the contracts were assigned:

b. Name of contact person:

c. What alternative was provided with respect to those investors who did not consent to the assignment of their contracts?

7. Is applicant involved in any legal action or proceeding?

( ) Yes ( ) No If “yes”, furnish complete information with respect to each.

8. Are there any unsatisfied judgments or liens against applicant?

( ) Yes ( ) No If “yes”, furnish complete information with respect to each.

9. If the answer was “yes” to any questions in paragraphs 5, 6, 7, or 8 above, attach a statement of financial condition. The Statement of financial condition must be prepared in accordance with generally accepted accounting principles and must have been prepared within 10 days of filing this application. Securities of the applicant in which applicant has an interest must be listed in a separate schedule at market price, if any; and if no current independent market exists the basis upon which value has been assigned should be stated.

10. Attach a copy of the closing audit. The closing audit must be performed by an independent certified public accountant and must contain a statement specifying all deficiencies, if any, noted by the accountant, with respect to all collections and disbursements of funds, together with such information as the accountant may wish to include (such as corrective steps taken with respect to any deficiency so noted), or stating that no deficiencies were found.

11. Furnish below the name and address of the person who has or will have custody or possession of applicant's books and records which are required to be preserved pursuant to Rules 280.650, 280.651, and 280.652 of Title 10 of the California Code of Regulations.

12. The applicant has duly caused this application to be signed on its behalf by the undersigned, thereunder duly authorized.

______________________________

(Applicant)

By: __________________________

______________________________

(Title)

I certify or (declare) under penalty of perjury under the laws of the State of California that I have read this application and the exhibits thereto an know the contents thereof, and that the statements therein are true and correct.

Executed at _______________________, on ______________

(Place) (Date)

______________________________

NOTE

Authority cited: Section 28650, Corporations Code. Reference: Sections 28650 and 28651, Corporations Code.

HISTORY

1. New article 3 (section 280.200) and section filed 6-24-99; operative 7-1-99 pursuant to Government Code section 11343.4(d) (Register 99, No. 26).

Article 4. Application for Approval to Acquire Control, Merge with, or Purchase or Sell All or Substantially All of the Licensee's Business

§280.250. Application for Approval to Acquire Control, Merge with, or Purchase or Sell All or Substantially All of the Business of Another Person , or to Sell All or Substantially All of the Licensee's Business or the Business of the Licensee's Officers to Another License.

Note • History

(Department of Corporations Use Only) DEPARTMENT OF CORPORATIONS

Fee Paid $ ___________________ File No.__________________________

Receipt No. __________________

[ ] Acquisition of Control, Section 28500

[ ] Merger, Section 28601

[ ] Purchase of Business, Section 28601

[ ] Sale of Business, Section 28601

STATE OF CALIFORNIA

DEPARTMENT OF CORPORATIONS

FACING PAGE

FOR

APPLICATION FOR APPROVAL TO ACQUIRE CONTROL, MERGE WITH, OR PURCHASE OR SELL ALL OR SUBSTANTIALLY ALL OF THE BUSINESS OF ANOTHER PERSON, OR TO SELL ALL OR SUBSTANTIALLY ALL OF THE LICENSEE'S BUSINESS OR OF THE BUSINESS OF ANY OF THE LICENSEE'S OFFICES TO ANOTHER LICENSEE.

PRE-AUTHORIZATION AMENDMENT NO. _________

The Application For Approval To Acquire Control, Merge With, Or Purchase Or Sell All Or Substantially All Of The Business Of Another Person, Or To Sell All Or Substantially All Of The Licensee's Business Or Of The Business Of Any Of The Licensee's Offices To Another Licensee MUST be TYPEWRITTEN and accompanied by the application fee of $900. The application (together with the fee payable to the Commissioner of Corporations) must be filed only in the Sacramento Office of the Department of Corporations.

Special Instructions: An Application for Authorization for a Change of Control under the Capital Access Company Law shall include (1) this completed Facing Page, (2) the completed and revised applicable pages of the Application for a License Under the Capital Access Company Law (but not the Facing Page for that application) with information contained therein necessary to enable the Commissioner of Corporations to make findings required by Corporations Code Sections 28551 and 28604 and attached to this completed Facing Page, and (3) the duly executed and verified Execution Page for this application. (A blank Execution Page may be found at the end of the Application for a License.)

In pursuance of, and in compliance with, the provisions of the Capital Access Company Law, the licensee, ___________________________, with its principal office located at:

(Number and Street) (City) (State) (Zip Code)

hereby applies to the Commissioner of Corporations for authorization for a change of control.

1. a. Date of Organization:

b. State of Organization:

2. Please provide the following information:

a. For applications for approval to acquire control of the licensee, describe in detail how applicant meets the criteria stated in Section 28551 of the Corporations Code.

b. For applications for approval of a merger, purchase or sale of the licensee, describe in detail how applicant meets the criteria stated in Section 28604 of the Corporations Code.

[The application continues on the following, separate pages.]

(See Special Instructions, above.)

NOTE

Authority cited: Section 28951, Corporations Code. Reference: Sections 28550, 28551, 28552 and 28604, Corporations Code.

HISTORY

1. New article 4 (section 280.250) and section filed 6-24-99; operative 7-1-99 pursuant to Government Code section 11343.4(d) (Register 99, No. 26).

Article 5. Advertising

§280.300. Prohibited Advertising.

Note • History

(a) No capital access company shall advertise that it or any of its officers, employees, or agents are “bonded,” “supervised by,” “regulated by,” “audited by” or “examined by” the State of California or any agency thereof.

(b) A capital access company shall refer to its licensure under the Capital Access Company Law in any written or printed communication or any communication by means of recorded telephone messages, telephonic or electronic media, or spoken on radio, television or similar communications media, only by the following statement: “Licensed by the Department of Corporations under the Capital Access Company Law.”

NOTE

Authority cited: Section 28155, Corporations Code. Reference: Section 28951, Corporations Code.

HISTORY

1. New article 5 (sections 280.300-280.301) and section filed 6-24-99; operative 7-1-99 pursuant to Government Code section 11343.4(d) (Register 99, No. 26).

2. Editorial correction of History 1 (Register 99, No. 27).

§280.301. “Blind” Advertising Prohibited.

Note • History

A capital access company shall not use so-called “blind” advertisements. “Blind” advertising is an advertisement used to solicit business that gives only a telephone number, post office or newspaper box number, or name other than that of the licensee.

NOTE

Authority cited: Section 28951, Corporations Code. Reference: Section 28951, Corporations Code.

HISTORY

1. New section filed 6-24-99; operative 7-1-99 pursuant to Government Code section 11343.4(d) (Register 99, No. 26).

2. Editorial correction inserting History 1 (Register 99, No. 27).

Article 6. Fees

§280.350. Fees.

Note • History

(a) The filing fee for an application for a license shall be one thousand four hundred dollars ($1,400).

(b) The filing fee for an application for approval to acquire control of a licensee shall be nine hundred dollars ($900).

(c) Subject to the limitations in Section 28110(a)(3) of the Corporations Code, the filing fee for an application for approval for a licensee to merge with another company, or to purchase all or substantially all of the business of another person, or to sell all or substantially all of its business, shall be nine hundred dollars ($900).

NOTE

Authority cited: Section 28951, Corporations Code. Reference: Section 28110, Corporations Code.

HISTORY

1. New article 6 (section 280.350) and section filed 6-24-99; operative 7-1-99 pursuant to Government Code section 11343.4(d) (Register 99, No. 26).

Article 7. Bonding

§280.400.

Note • History

(a) Each licensed capital access company shall provide and maintain a fidelity bond covering each officer, director, partner, member, trustee, employee, or subject person, as defined in Section 28700, who has access to or responsibility for the securities or funds of the capital access company. The fidelity bond may be either a primary commercial blanket bond or a blanket position bond written by an insurer licensed by the California Insurance Commissioner. The bond shall be filed in the Sacramento Office of the Department of Corporations.

(b) The bond shall be renewed on at least an annual basis and the amount the bond shall be at least equal to an amount computed in accordance with the following schedule:

Amount of Licensed Capital

Access Company's Total Assets

at End of Most Recent Fiscal

Quarter Prior to Date of Determination

In Dollars Minimum amount of Bond

5,000,000 to 7,500,000 150,000

7,500,000 to 10,000,000 175,000

10,000,000 to 15,000,000 200,000

15,000,000 to 20,000,000 225,000

20,000,000 to 25,000,000 250,000

25,000,000 to 35,000,000 300,000

35,000,000 to 50,000,000 350,000

50,000,000 to 75,000,000 400,000

75,000,000 to 100,000,000 450,000

100,000,000 to 150,000,000 525,000

150,000,000 to 250,000,000 600,000

250,000,000 to 500,000,000 750,000

500,000,000 to 750,000,000 900,000

750,000,000 to 1,000,000,000 1,000,000

1,000,000,000 to 1,500,000,000 1,250,000

1,500,000,000 to 2,000,000,000 1,500,000

over 2,000,000,000 200,000 for each

500,000,000 of gross assets

up to a maximum bond of 2,500,000.

(c) The sufficiency of the sureties on the bond is at all times subject to the approval of the Commissioner. The aggregate liability of the surety for all claims shall in no event exceed the penal sum of the bond.

(d) The bond shall contain a provision that the bond shall not be cancelled in whole or in part without 30 days written notice to the Commissioner by the bonding or insurance company.

(e) The bond shall also provide that the bonding or insurance company issuing the bond provide written notice to the Commissioner within 10 days of service of any action against the bond and immediately upon payment of any claims.

(f) The Commissioner may at any time require an additional bond to be filed when in the Commissioner's opinion any bond then in force is insufficient for any reason.

NOTE

Authority cited: Section 28951, Corporations Code. Reference: Sections 28152(d) and 28703, Corporations Code.

HISTORY

1. New article 7 (section 280.400) and section filed 6-24-99; operative 7-1-99 pursuant to Government Code section 11343.4(d) (Register 99, No. 26).

Article 8. Unsafe and Unsound Acts

§280.450.

Note • History

For purposes of Sections 28551, 28604 and 28703 of the Corporations Code, unsafe and unsound acts include, but are not limited, to the following activities:

(a) Failing to maintain adequate working capital to provide reasonable assurance that the licensee will be able to operate actively and in accordance with its Articles and within the context of the business plan;

(b) Operating at variance with the basic organizational documents as filed pursuant to Commissioner's Rule 280.151.

(d) Any officer, director, employee, agent, or other participant in the management or conduct of the affairs of a licensee engages in any act or practice, or omits any act, in breach of his or her fiduciary duty as such officer, director, employee, agent, or participant, if, as a result thereof, the licensee has suffered or is in imminent danger of suffering financial loss or other damage.

(e) Engaging in any conduct which constitutes fraud of dishonest dealing or unfair competition, as defined by Section 17200 of the Business and Professions Code.

(f) Permitting any person other than the officers, directors, partners, members, trustees, or employees listed in Item 4 of the application to have access to or responsibility for the funds of the capital access company.

(g) Failing to maintain a tangible net worth of $250,000.

(h) Failing to maintain the required fidelity bond coverage.

(i) Failing to obtain a majority vote of the board of directors, executive committee or other policy body approving the appointment or change in the accountant certifying the licensee's financial statements.

(j) Commingling the general funds of the capital access company with the investment funds.

NOTE

Authority cited: Section 28951, Corporations Code. Reference: Sections 28551, 28604, and 28703, Corporations Code.

HISTORY

1. New article 8 (section 280.450) and section filed 6-24-99; operative 7-1-99 pursuant to Government Code section 11343.4(d) (Register 99, No. 26).

Article 9. Legend Requirement

§280.500. Legend Requirement.

Note • History

The certificates representing all securities of the capital access company sold to “accredited investors” for the purposes of providing capital to small business firms shall bear on their face a legend prominently stamped or printed thereon and in capital letters of not less than 10 point size, reading as follows:

“THE SECURITIES REPRESENTED BY THIS CERTIFICATE ARE NOT REDEEMABLE AND MAY BE TRANSFERRABLE ONLY TO ACCREDITED INVESTORS AS DEFINED IN SECTION 28031 OF THE CORPORATIONS CODE.”

NOTE

Authority cited: Section 25951, Corporations Code. Reference: Sections 28200(b) and (d) and 28031, Corporations Code.

HISTORY

1. New article 9 (section 280.500) and section filed 6-24-99; operative 7-1-99 pursuant to Government Code section 11343.4(d) (Register 99, No. 26).

Article 10. Reports to the Commissioner

§280.600. Financial Statements.

Note • History

(a) Whenever pursuant to these rules, or pursuant to an order or request of the Commissioner pursuant to the Capital Access Company Law, a financial statement or other report is required to be audited or be accompanied by the opinion of a certified public accountant or public accountant, such accountant shall be independent of the licensee, as determined in accordance with Section 602.02 of Financial Reporting Release Number 1 issued by the Securities and Exchange Commission.

(b) Except as provided in subsection (c), financial statements of a licensed capital access company required pursuant to these rules must be on a combining basis with an affiliate, if the licensed capital access company or such affiliate if the following conditions exist:

(1) The affiliate controls, is controlled by, or is under common control with, the licensed capital access company, either directly or indirectly, and

(2) The licensed capital access company or the affiliate is substantially dependent, either directly or indirectly, upon the other for services or revenue.

(c) Upon written request of a licensed capital access company, the Commissioner may waive the requirement that an affiliate be combined in a financial statement required pursuant to these rules. A waiver will only be granted when the affiliate is operating under an authority granted by a government agency pursuant to which the affiliate is required to submit periodic financial reports in a form prescribed by such governmental agency that cannot practicably be reformatted into the form prescribed by these rules.

(d) When combined financial statements are required by this section, the independent accountant's report or opinion must cover all the entities included in the combined financial statements. If the accountant's report or opinion makes reference to the fact that a part of the examination was performed by another auditor, the plan shall also file the individual financial statements and report or opinion issued by the other auditor.

(e) Licensed capital access companies which have subsidiaries that are required to be consolidated under generally accepted accounting principles must present either

(1) consolidating financial statements, or

(2) consolidating schedules for the balance sheet and statement of operations, which in either case must show the capital access company separate from the other entities included in the consolidated balances.

(f) Annual financial statements filed with the Commissioner pursuant to Corporations Code Section 25501(a) shall include as an attachment to the financial statements fully disclosing all material transactions with affiliates.

NOTE

Authority cited: Sections 28500 and 29851, Corporations Code. Reference: Section 28501, Corporations Code.

HISTORY

1. New article 10 (sections 280.600-280.605) and section filed 6-24-99; operative 7-1-99 pursuant to Government Code section 11343.4(d) (Register 99, No. 26).

§280.601. Change of Independent Accountant.

Note • History

Whenever the filing of financial statements required pursuant to Section 28501 are to be reported upon or certified by an accountant other than the accountant certifying the licensee's most recent filing, the licensee must furnish the Commissioner with a separate letter stating whether in the eighteen (18) months preceding the engagement of the new accountants there was any disagreement with the former accountants on any matter of accounting principles or practices, financial statement disclosure or auditing procedures, which such disagreement if not resolved to the satisfaction of the former accountants would have caused him to make reference to the subject matter of such disagreement in his opinion or report. This letter must be verified by a principal officer of the licensee. The licensee shall also request the former accountants to furnish them with a letter addressed to the Commissioner stating whether he or she agrees with the statements contained in the letter of the licensee and, if not, stating the respects in which he or she does not agree. The notification by the licensee along with the former accountant's letter, if necessary, must be furnished to the Commissioner within 45 days of the engagement of the new accountants.

NOTE

Authority cited: Sections 28500 and 28951, Corporations Code. Reference: Section 28501, Corporations Code.

HISTORY

1. New section filed 6-24-99; operative 7-1-99 pursuant to Government Code section 11343.4(d) (Register 99, No. 26).

§280.602. Interim Reports.

Note • History

(a) Every capital access company shall file a report within 15 days from a determination that it has negative working capital or that its tangible net worth is reduced by 120% of its minimum tangible net worth as specified in Corporations Code Section 28152. See also Rule 280.450(g). The report shall include the capital access company's most recent financial statements prepared as of that month.

(b) The report required by subsection (a) shall be prepared as of a date within the 15-day period set forth in subsection (a). Additional reports shall be filed in the same form within 10 days of the close of each monthly accounting period until three consecutive months have elapsed in which the conditions specified in subsection (a) that required the filing of the report under subsection (a) no longer exist.

NOTE

Authority cited: Section 28951, Corporations Code. Reference cited: Section 28502 , Corporations Code.

HISTORY

1. New section filed 6-24-99; operative 7-1-99 pursuant to Government Code section 11343.4(d) (Register 99, No. 26).

§280.603. Report of Civil, Criminal or Disciplinary Action.

Note • History

(a) A capital access company shall immediately report in writing to the Commissioner any civil, criminal or disciplinary actions filed against the capital access company, or any of its officers, directors, partners, members, employees, persons controlling 10 percent or more of the ownership interests, trustees, or investment advisers or affiliates.

(b) For purposes of this rule, “employee” means an individual with access to or responsibility for any funds held by the capital access company.

NOTE

Authority cited: Section 28951, Corporations Code. Reference: Section 28502, Corporations Code.

HISTORY

1. New section filed 6-24-99; operative 7-1-99 pursuant to Government Code section 11343.4(d) (Register 99, No. 26).

§280.604. Report of Defalcation.

Note • History

(a) A licensee shall immediately report to the Commissioner any defalcation, embezzlement or theft made, or reasonably believed by the company to have been made, by any of its officers, directors, partners, members, employees or persons controlling 10 percent or more of the ownership interests, trustees, investment advisers, or affiliates.

(b) Employee shall have the same meaning as in Rule 280.603(b).

NOTE

Authority cited: Section 28951, Corporations Code. Reference: Section 28502, Corporations Code.

HISTORY

1. New section filed 6-24-99; operative 7-1-99 pursuant to Government Code section 11343.4(d) (Register 99, No. 26).

§280.605. Verification of Reports.

Note • History

Attached to each financial report filed pursuant to these rules shall be a verification that, to the best knowledge and belief of the person making the verification,

(1) the financial statements and supporting schedules are true and correct, and

(2) no partner, officer, member, employee, trustee or director, thereof has any proprietary interest in any account classified as that of an investor. If the capital access company is a partnership, the verification shall be made by a general partner; if by a corporation, by a duly authorized officer; by a trust, a trustee; by a limited liability company, by a member.

NOTE

Authority cited: Sections 28502 and 28951, Corporations Code. Reference: Section 28502, Corporations Code.

HISTORY

1. New section filed 6-24-99; operative 7-1-99 pursuant to Government Code section 11343.4(d) (Register 99, No. 26).

Article 11. Books and Records

§280.650. Records to Be Maintained by Capital Access Companies.

Note • History

(a) Every licensed capital access company shall maintain and keep true, current, and accurate the accounts, books, and other documents relating to its business which constitute the record forming the basis for financial statements required to be filed pursuant to Section 28501 of the Corporations Code.

(b) Every licensed capital access company shall maintain and keep current the following books, accounts, and other documents:

(1) Journals (or other records of original entry) containing an itemized daily record in detail of all purchases and sales of securities (including sales and redemption of its own securities), all receipts and deliveries of securities (including certificate numbers if such detail is not recorded by custodian or transfer agent), all receipts and disbursements of cash and all other debits and credits. Such records shall show for each such transaction the name and quantity of securities, the unit and aggregate purchase or sale price, commission paid, the market on which effected, the trade date, the settlement date, and the name of the person through or from whom purchased or received or to whom sold or delivered. and, in a subsidiary portfolio investment record, provide the complete legal name and accounting and other information (including sufficient information to calculate coupons, accruals, maturities, puts, and calls) necessary to identify, value, and account for each investment.

(2) General and auxiliary ledgers (or other records) reflecting all assets, liability, reserve, capital, income and expense accounts, including:

(i) Separate ledger accounts (or other records) reflecting the following:

(a) Securities in transfer (stated in terms of securities quantities only);

(b) Securities in physical possession; (stated in terms of securities quantities only)

(d) Monies borrowed and monies loaned together with a record of the collateral therefor and substitutions in such collateral (stated in dollar amounts and securities quantities as appropriate);

(e) Dividends and interest received (stated in dollar amounts only);

(f) Dividend receivable and interest accrued (stated in dollar amounts only).

(ii) Separate ledger accounts (or other records) for each portfolio security, showing (as of trade dates):

(a) the quantity and unit and aggregate price for each purchase, sale, receipt, and delivery of securities and commodities for such accounts, and

(b) all other debits and credits for such accounts. Securities positions and money balances in such ledger accounts (or other records) shall be brought forward periodically but not less frequently than at the end of fiscal quarters. Any portfolio security, the salability of which is conditioned, shall be so noted. A memorandum record shall be available setting forth, with respect to each portfolio security account, the amount and declaration ex-dividend, and payment dates of each dividend declared thereon.

(iii) Separate ledger accounts (or other records) for each person with or through which transactions in portfolio securities are effected, showing each purchase or sale of securities with or through such persons, including details as to the date of the purchase or sale, the quantity and unit and aggregate price of such securities, and the commissions or other compensation paid to such persons. Purchases or sales effected during the same day at the same price may be aggregated.

(iv) Separate ledger accounts (or other records), which may be maintained by a transfer agent or registrar, showing for each shareholder of record of the capital access company the number of shares of capital stock of the company held. In respect of share accumulation accounts (arising from periodic investment plans, dividend reinvestment plans, deposit of issued shares by the owner thereof, etc.), details shall be available as to the dates and number of shares of each accumulation, and except with respect to already issued shares deposited by the owner thereof, prices of each such accumulation.

(3) Corporate charters, certificates of incorporation or trust agreements, and by-laws, and minute books of stockholders' and directors' or trustees' meetings; and minute books of directors' or trustees' committee and advisory board or advisory committee meetings.

(4) A record of each brokerage order given by or in behalf of the capital access company for, or in connection with, the purchase or sale of securities, whether executed or unexecuted. Such record shall include the name of the broker, the terms and conditions of the order and of any modification or cancellation thereof, the time of entry or cancellation, the price at which executed, and the time of receipt of report of execution. The record shall indicate the name of the person who placed the order in behalf of the capital access company.

(5) A record of all other portfolio purchases or sales showing details comparable to those prescribed in paragraph (4) of subsection (b) of this section.

(6) A record of the proof of money balances in all ledger accounts (except shareholder accounts), in the form of trial balances. Such trial balances shall be prepared currently at least once a month.

(7) A record for each fiscal quarter, which shall be completed within ten days after the end of such quarter, showing specifically the basis or bases upon which the allocation of orders for the purchase and sale of portfolio securities to named brokers or dealers and the division of brokerage commissions or other compensation on such purchase and sale orders among named persons were made during such quarter. The record shall indicate the consideration given to (i) sales of shares of the capital access company by brokers or dealers, (ii) the supplying of services or benefits by brokers or dealers to the capital access company, its investment adviser or any persons affiliated therewith, and (iii) any other considerations other than the technical qualifications of the brokers and dealers as such. The record shall show the nature of the services or benefits made available, and shall describe in detail the application of any general or specific formula or other determinant used in arriving at such allocation of purchase and sale orders and such division of brokerage commissions or other compensation. The record shall also include the identities of the persons responsible for the determination of such allocation and such division of brokerage commissions or other compensation.

(8) A record in the form of an appropriate memorandum identifying the person or persons, committees, or groups authorizing the purchase or sale of portfolio securities. Where an authorization is made by a committee or group, a record shall be kept of the names of its members who participated in the authorization. There shall be retained as part of the record required by this paragraph any memorandum, recommendation, or instruction supporting or authorizing the purchase or sale of portfolio securities. The requirements of this paragraph are applicable to the extent they are not met by compliance with the requirements of paragraph (b)(4) of this section.

(9) Files of all advisory material received from the investment adviser, any advisory board or advisory committee, or any other persons from whom the capital access company accepts investment advice, other than material which is furnished solely through uniform publications distributed generally.

(10) Files of all investor suitability statements. Such files shall include the individual's name, telephone number, and the basis for establishing the suitability of the investor as an “accredited investor.”

(11) A record of all complaints received from investors. There shall be retained as part of the record required by this paragraph a description of the nature of the complaint and the final disposition and resolution of the complaint.

(12) Files containing due diligence documentation of the small business firms that the capital access company invests in, including but not limited to the following:

(a) copies of each issuer's prospectus, if one was prepared;

(b) copies of each issuer's offering circular, if one was prepared;

(d) copies of each issuer's most recent balance sheet and profit and loss and retained earnings statements; and

(e) copies of written records of any other material information that comes to the knowledge or possession of the capital access company before the investment is made.

(13) The term “other records” as used in the expressions “journals (or other records of original entry)” and “ledger accounts (or other records)” shall be construed to include, where appropriate, copies of voucher checks, confirmations, or similar documents which reflect the information required by the applicable rule or rules in appropriate sequence and in permanent form, including similar records developed by the use of automatic data processing systems.

NOTE

Authority cited: Sections 28500 and 28951, Corporations Code. Reference: Section 28500, Corporations Code.

HISTORY

1. New article 11 (sections 280.650-280.653) and section filed 6-24-99; operative 7-1-99 pursuant to Government Code section 11343.4(d) (Register 99, No. 26).

§280.651. Records to Be Preserved by Capital Access Companies.

Note • History

(a) Every licensed capital access company shall:

(1) Preserve permanently, for the first two years in a readily accessible place, all books and records required to be made pursuant to paragraphs (1) through (6) of subsection (a) of Rule 280.650;

(2) Preserve for a period of not less than five years from the end of the fiscal year in which any transactions occurred, the first two years in an easily accessible place, all books and records required to be made pursuant to paragraphs (7) through (12) of Rule 280.650 and all vouchers, memoranda, correspondence, checkbooks, bank statements, cancelled checks, reconciliations, cancelled stock certificates, and other documents required to be maintained by 280.650(a) and not enumerated in Rule 280.650(b);

(3) Preserve for a period of not less than five years from the end of the fiscal year last used, the first two years in an readily accessible place, any advertisement, pamphlet, circular, form letter or other sales literature addressed to or intended for distribution to prospective investors.

(b)(1) The records required to be maintained and preserved under Rule 280.650 and this section may be produced or reproduced on photographic film after three years or, as provided in paragraph (2) of subsection (b), on magnetic tape, disk, or other computer storage medium, and be maintained and preserved for the required time in that form. If such records are produced or reproduced by photographic film or computer storage medium by or on behalf of, a capital access company, such capital access company shall:

(i) Arrange the records and index and file the films or computer storage medium in such a manner as to permit the immediate access and retrieval of any particular record;

(ii) Be ready at all times to provide, and promptly provide, any facsimile enlargement of film or computer printout or copies of the computer storage medium that the Commissioner, by his/her examiners or other representatives, or the directors of such capital access company may request;

(iii) Store separately from the original one other copy of the photographic film or computer storage medium for the time required;

(iv) With respect to records stored on computer storage medium, maintain procedures for maintenance and preservation of, and access to, records so as to reasonably safeguard records from loss, alteration, or destruction; and

(2) Under paragraph (b)(1) of this section, a capital access company may maintain and preserve on computer tape, disk, or other computer storage medium records that, in the ordinary course of the capital access company's business, are created by, or on behalf of, the capital access company on electronic media or are received by, or on behalf of, the capital access company solely on electronic media or by electronic data transmission.

(3) Notwithstanding the provisions of paragraphs (a) and (b) of this section, any record, book or other document may be destroyed in accordance with a plan previously submitted to and approved by the Commissioner.

NOTE

Authority cited: Sections 28500 and 28951, Corporations Code. Reference: Section 28500, Corporations Code.

HISTORY

1. New section filed 6-24-99; operative 7-1-99 pursuant to Government Code section 11343.4(d) (Register 99, No. 26).

§280.652. Records Prepared or Maintained by Other Than Person Required to Maintain and Preserve Them.

Note • History

(a) If the records required to be maintained and preserved pursuant to the provisions of Rules 280.650 and 280.651 are prepared or maintained by others on behalf of the capital access company required to maintain and preserve such records, the person required to maintain and preserve such records shall obtain from such other person an agreement in writing to the effect that such records are the property of the person required to maintain and preserve such records and will be surrendered promptly to the Commissioner on request.

(b) In cases where a bank or member of a national securities exchange acts as custodian, transfer agent, or dividend disbursing agent, compliance with this section shall be considered to have been met if such bank or exchange member agrees in writing to make any records relating to such service available upon request and to preserve for the periods prescribed in Rule 280.651 any such records as are required to be maintained by 280.650.

NOTE

Authority cited: Section 28500, Corporations Code. Reference: Sections 28501(a) and 28501(c), Corporations Code.

HISTORY

1. New section filed 6-24-99; operative 7-1-99 pursuant to Government Code section 11343.4(d) (Register 99, No. 26).

§280.653. Books and Records: Location and Office Hours.

Note • History

A capital access company shall keep the Commissioner promptly advised at all times of the address or addresses at which the books and records are maintained and, if the office or location hours at the place where the books and records are maintained are other than 8 a.m. to 5 p.m., Monday through Friday, the hours and days during which the books and records may be reviewed.

NOTE

Authority cited: Section 28500, Corporations Code. Reference: Sections 28500 and 28503, Corporations Code.

HISTORY

1. New section filed 6-24-99; operative 7-1-99 pursuant to Government Code section 11343.4(d) (Register 99, No. 26).

Article 12. Custody

§280.700. Custody of Securities or Other Similar Investment--Contract.

Note • History

(a) No capital access company shall place or maintain any of its securities or similar investments in custody with any person outside the State of California.

(b) No capital access company shall place or maintain any of its securities or similar investments in the custody of any person, except pursuant to a written contract which shall have been approved, by a majority of the board of directors of such capital access company.

(1) The securities and similar investments held in such custody shall at all times be individually segregated from the securities and investments of any other person and marked in such manner as to clearly identify them as the property of such capital access company both upon physical inspection thereof and upon examination of the books of the custodian;

(2) The custodian shall have no power or authority to assign, hypothecate, pledge or otherwise to dispose of any such securities and investments, except pursuant to the direction of capital access company and only for the account of such capital access company;

(3) Such securities and investments shall be subject to no lien or charge of any kind in favor of the custodian or any persons claiming through the custodian.

(4) Such securities and investments shall be verified by actual examination at the end of each annual fiscal period by an independent public accountant retained by the capital access company, and shall be examined by an accountant at least one time during each year on an unannounced basis. This unannounced examination must be conducted independent to the annual certified audit. A certificate of such accountant, stating that an examination of such securities has been made, and describing the nature and extent of the examination, shall be filed with the Commissioner within 45 days after each examination. If the accountant notes any material deficiencies during the examination, such deficiencies must immediately be reported to the Commissioner.

(5) Such securities and investments shall, at all times, be subject to inspection by the Commissioner through the Commissioner's employees or agents.

(d) A copy of any contract executed or ratified pursuant to subsection (b) of this section shall be transmitted to the Commissioner promptly after execution or ratification unless it has been previously transmitted.

(e) Any contract executed or ratified pursuant to subsection (b) of this section shall be ratified by the board of directors of the capital access company at least annually thereafter.

NOTE

Authority cited: Sections 28500 and 28951, Corporations Code. Reference: Section 28500, Corporations Code.

HISTORY

1. New article 12 (section 280.700) and section filed 6-24-99; operative 7-1-99 pursuant to Government Code section 11343.4(d) (Register 99, No. 26)

Subchapter 2.4. Commodity Law

§290.570. Notice of Commodity Merchant Transacting Business in this State.

Note • History

NOTE

Authority cited: Section 29561, Corporations Code. Reference: Section 29570, Corporations Code.

HISTORY

1. New section filed 1-11-91; operative 2-10-91 (Register 91, No. 10).

2. Editorial correction of printing error (Register 91, No. 17).

3. Change without regulatory effect amending A., adopting h. and i. of form, and amending Instructions filed 1-13-92 pursuant to section 100, title 1, California Code of Regulations (Register 92, No. 12).

4. Change without regulatory effect repealing section filed 5-5-97 pursuant to section 100, title 1, California Code of Regulations (Register 97, No. 19).

§290.571. Notice of Telephonic Seller of a Commodity or a Commodity Contract.

Note • History

NOTE

Authority cited: Section 29561, Corporations Code. Reference: Section 29571, Corporations Code.

HISTORY

1. New section filed 1-11-91; operative 2-10-91 (Register 91, No. 10).

2. Editorial correction of printing error (Register 91, No. 17).

3. Editorial correction inserting inadvertently omitted Note (Register 94, No. 2).

4. Change without regulatory effect repealing section filed 5-5-97 pursuant to section 100, title 1, California Code of Regulations (Register 97, No. 19).

Subchapter 2.6. Franchises

§310.000. Section Numbers.

Note • History

NOTE

Authority cited for Subchapter 2.6: Sections 31111(d), 31111(g), 31113, 31120, 31156, 31502, and 31516 Corporations Code. Reference: Sections 31000 through 31156, Corporations Code. Additional reference: Sections 31303, 31304 and 31505, Corporations Code.

HISTORY

1. New Subchapter 2.6 (§ 310.000, 310.002, 310.011, 310.013, 310.111, 310.111.1 through 310.111.6, 310.112, 310.113, 310.113.1 through 310.113.5, 310.114, 310.114.1through 310.114.3, 310.120, 310.122, 310.122.1, 310.123, 310.155, 310.156, 310.156.1, 310.156.2, 310.210, 310.505) filed 1-4-71 as an emergency; designated effective 1-1-71. Certificate of Compliance, Sec. 11422.1, Gov. Code, included (Register 71, No. 2).

2. Repealer filed 5-19-89; operative 6-18-89 (Register 89, No. 21).

§310.002. General Definitions.

Note • History

The terms defined in Part 1 of the Franchise Investment Law when used in this Subchapter 2.6 shall have the meanings set forth in that law. In addition, the following definitions shall apply in this Subchapter 2.6.

(a) “Affiliate” means a person controlling, controlled by, or under common control with another person.

(b) “Code” means the California Corporations Code.

(d) “Law” means the Franchise Investment Law.

NOTE

Authority cited: Section 31502, Corporations Code. Reference: Section 31502, Corporations Code.

HISTORY

1. Amendment filed 3-15-83; effective thirtieth day thereafter (Register 83, No. 12).

2. Amendment filed 5-19-89; operative 6-18-90 (Register 89, No. 21).

3. Editorial correction of Note (Register 2001, No. 4).

§310.011. Payment of Nominal Franchise Fee.

Note • History

NOTE

Authority cited: Sections 31110 and 31502, Corporations Code. Reference: Sections 31011, 31110, 31111, 31112, 31113, 31114, 31115, 31116, 31117, 31118, 31119, 31120, 31121, 31122, 31123, 31124, 31125, Corporations Code.

HISTORY

1. Amendment filed 1-4-72; effective thirtieth day thereafter (Register 72, No. 2).

2. Amendment filed 5-19-89; operative 6-18-89 (Register 89, No. 21).

3. Editorial correction of Note (Register 98, No. 32).

4. Amendment filed 6-4-2001; operative 7-4-2001 (Register 2001, No. 23).

5. Editorial correction of History 4 (Register 2001, No. 28).

§310.011.1. Purchase Price or Rental of Fixtures, Equipment and Certain Other Articles Utilized and Necessary in Franchised Business.

Note • History

There is exempted from the provisions of Chapter 2 (commencing with Section 31110) of Part 2 of the Law, any offer or sale of a franchise which would be subject to registration solely because the franchisee by the agreement with the franchisor is obligated to pay in addition to any sums for which the exemption of Section 310.011 of these rules is available, a sum of not exceeding $1,000 annually on account of the purchase price or rental of fixtures, equipment or other tangible property to be utilized in, and necessary for, the operation of the franchised business, of the price or rental so charged does not exceed the cost which would be incurred by the franchisee acquiring the item or items from other persons or in the open market.

NOTE

Additional reference: Section 31011, Corporations Code. Reference: Sections 31011, 31110, 31111, 31112, 31113, 31114, 31115, 31116, 31117, 31118, 31119, 31120, 31121, 31122, 31123, 31124 and 31125, Corporations Code.

HISTORY

1. New section filed 2-20-74 as an emergency; effective upon filing. Certificate of Compliance included (Register 74, No. 8).

2. Amendment filed 5-19-89; operative 6-18-89 (Register 89, No. 21).

§310.013. Circulation of Publications in This State.

In determining whether a newspaper or other publication has had more than two-thirds of its circulation outside this State during the past 12 months for the purposes of Subdivision (c) of Section 31013 of the Code, in the case of a newspaper or magazine which publishes a separate edition circulated in this State which does not carry the same advertising as that of other editions of the same publication, such separate edition shall be considered a separate newspaper or magazine from the other editions of the same publication with respect to any advertisement which is not to be carried in all editions of the newspaper or magazine.

§310.100. Exemption for Certain Parent Subsidiary Franchisors.

Note • History

NOTE

Authority cited: Sections 31100 and 31502, Corporations Code. Reference: Sections 31100, 31101, 31111, 31112, 31113, 31114, 31115, 31116, 31117, 31118, 31119, 31120, 31121, 31122, 31123, 31124 and 31125, Corporations Code.

HISTORY

1. New section filed 3-17-71 as an emergency; effective upon filing (Register 71, No. 12).

2. Certificate of Compliance-section 11422.1, Government Code, filed 7-13-71 (Register 71, No. 29).

3. Editorial correction (Register 74, No. 47).

4. Amendment filed 10-6-86; effective thirtieth day thereafter (Register 86, No. 41).

5. Amendment filed 5-19-89 operative 6-18-89 (Register 89, No. 21).

6. Change without regulatory effect repealing section 310.100 pursuant to section 100 (b) (3), Title 1, California Code of Regulations filed 4-26-90 (Register 90, No. 22).

§310.100.1. Out of State Sales.

Note • History

NOTE

Authority cited: Sections 31100 and 31502, Corporations Code. Reference: Sections 31100, 31110, 31111, 31112, 31113, 31114, 31115, 31116, 31117, 31118, 31119, 31120, 31121, 31122, 31123, 31124 and 31125, Corporations Code.

HISTORY

1. New section filed 3-17-71 as an emergency; effective upon filing (Register 71, No. 12).

2. Certificate of Compliance Sec. 11422.1, Gov. Code, filed 7-13-71 (Register 71, No. 29).

3. Amendment filed 7-20-71 as an emergency; effective upon filing. Certificate of Compliance included (Register 71, No. 30).

4. Amendment filed 10-6-86; effective thirtieth day thereafter (Register 86, No. 41).

5. Amendment filed 5-19-89; operative 6-18-89 (Register 89, No. 21).

6. Editorial correction of Note (Register 98, No. 32).

7. Editorial correction of History 5 (Register 2001, No. 4).

8. Repealer filed 8-5-2002; operative 9-4-2002 (Register 2002, No. 32).

§310.100.2. Negotiated Sales.

Note • History

(a) General. The offer or sale of a franchise on terms different from the terms of the offer registered under Section 31111, 31121 or 31123 of the Law is exempt from the requirements of Section 31110 of the Law, if all of the following conditions are met:

(1) The initial offer is the offer registered under to Section 31111, 31121 or 31123 of the Law.

(2) When the prospective franchisee receives the offering circular, he or she also receives copies of all Notices of Negotiated Sale of Franchise filed with the Commissioner within the last 12 months, if any.

(3) Before selling another franchise, the franchisor amends its registered offer to disclose: “The terms of Item(s) _________ of this Offering Circular have been negotiated with other franchisees. A copy of all Negotiated Sales Notices filed in California in the last twelve months is attached as Exhibit _________.” This disclosure should be made in the UFOC Item that was negotiated or in an appendix to the UFOC. This disclosure must be made if the negotiated sale occurred within twelve months of the offering being made. An amendment making only this disclosure is effective when filed.

(4) The Notice of Negotiated Sale of Franchise in the form set forth in subsection (b) is filed with the Commissioner within 15 business days after the negotiated sale is consummated.

(5) The franchisor certifies or declares in an appendix to its application for renewal that all notices have been filed with the Commissioner as required by paragraph (a)(4) (see Section 310.122 of these rules).

(b) The Notice of Negotiated Sale of Franchise required by subsection (a)(4) of this rule shall be filed on the following form:

Embedded Graphic 10.0029

NOTE

Authority cited: Sections 31100 and 31502, Corporations Code. Reference: Sections 31100, 31110 and 31111, Corporations Code.

HISTORY

1. New section filed 8-17-89; operative 9-16-89 (Register 89, No. 33).

2. Editorial correction of printing error in form (Register 94, No. 2).

3. Amendment filed 1-20-94; operative 2-21-94 (Register 94, No. 3).

§310.100.3. Exemption for Internet Offers.

Note • History

(a) There is hereby exempted from the provisions of Section 31110 of the Code as not being comprehended within the purposes of the Franchise Investment Law and the registration of which is not necessary or appropriate in the public interest or for the protection of investors, any communication made through the Internet, World Wide Web, or any other similar proprietary or common carrier electronic delivery system, of an offer to sell a franchise (“Internet Offer”), provided:

(1) The Internet Offer indicates, directly or indirectly, that the franchise is not being offered to the residents of the State of California;

(2) The Internet Offer is not otherwise directed to any person in California by or on behalf of the franchisor or anyone acting with the franchisor's knowledge;

(3) No franchises are sold in California by or on behalf of the franchisor until the offering has been registered under the Franchise Investment Law and declared effective, and the Uniform Franchise Offering Circular (UFOC) has been delivered to the offeree before the sale and in compliance with the Franchise Investment Law.

(b) Reliance on an exemption from registration under this rule does not preclude a franchisor from relying on any other exemption provided under the Franchise Investment Law or the rules promulgated thereunder.

NOTE

Authority cited: Section 31100, Corporations Code. Reference: Section 31013, Corporations Code.

HISTORY

1. New section filed 1-25-2001; operative 1-25-2001 pursuant to Government Code section 11343.4(c) (Register 2001, No. 4).

§310.100.4. Negotiated Sales Exempt Under Section 31109.1 of the Corporations Code--Summary Description.

Note • History

The summary description of each material negotiated term required by Corporations Code Section 31109.1(a)(2)(A) shall contain the following content:

1. (a) Offering Circular Item Number:

(b) Description of Provisions in Currently Registered Offering

Circular:

2. (a) Offering Circular Item Number:

(b) Description of Provisions in Currently Registered Offering

Circular:

3. (a) Offering Circular Item Number:

(b) Description of Provision in Currently Registered Offering

Circular:

(If additional space is needed, attach separate sheet(s) with respect to each additional item being changed using the above format)

NOTE

Authority cited: Section 31502, Corporations Code. Reference: Sections 31109.1 and 31114, Corporations Code.

HISTORY

1. New section filed 1-31-2006; operative 3-2-2006 (Register 2006, No. 5).

§310.101. Transactions Exempt Under Section 31101, 31104, 31108, or 31109 of the Corporations Code--Notice of Exemption.

Note • History

(a) The Notice of Exemption required to be filed with the Commissioner of Corporations under subdivision (d) of Section 31101, subdivision (f) of Section 31108, or subdivision (e) of Section 31109, shall be made on the following form:

Embedded Graphic 10.0030

(b) The following instructions apply to the form and information required by Subsection (a):

INSTRUCTIONS FOR COMPLETING AND FILING

NOTICE OF EXEMPTION

(Sectional references are to the California Corporations Code)

1. General Instructions.

(a) The notice required of persons claiming the exemption under Section 31101, 31104, 31108, or 31109 may be filed at any time after July 1 of the year preceding the calendar year for which the notice is required to be filed. For example, the notice for the calendar year 2006 may be filed at any time between July 1, 2005 and December 31, 2005. A notice may be filed in the same year the exemption is claimed. However, the effective date of the notice will be the date the completed notice is filed. For example, if a completed notice is filed March 21, 2006, it will be effective March 21, 2006 through December 31, 2006. The subsequent notice for 2007 should be filed prior to December 31, 2006 (by the end of the year in which the current notice is effective). A separate notice must be filed for each calendar year, together with the fee specified in Section 31500(f), prior to any offer or sale of a franchise in this state (other than a “material modification” [Section 31018(c)], for the exemption under Section 31101, 31104, 31108 or 31109). The notice for each claimed exemption must be filed only once for each calendar year, even if franchises are sold to one or more franchisees under the exemption claimed for that calendar year.

(b) If the notice is filed by a subfranchisor (Section 31009), the notice is applicable only to offers and sales by the subfranchisor filing the notice.

(d) If the notice form cannot be obtained from the Department, it may be typed on a single sheet of 8 1/2 inch by 11 inch white bond paper, using one side only. If the space in the form is insufficient for one or more items, attach a single continuation sheet, designating the continued information by item number.

(e) Amendments. An amendment should be filed only for material changes in the information contained in the notice, such as a change in the name under which the franchisor does business or an addition to Item 3 (e.g., new type of franchise).

2. Instructions for Completing Form.

Heading: (A) Department file number. Insert the file number(s) assigned to the filing franchisor or subfranchisor in any prior registration filings with the Department under the Franchise Investment Law.

(B) Exemption used. Check the box to indicate the exemption to be used by the Filer.

(C) Type of filing. Check the box as appropriate to indicate whether the filing is an initial filing (including a non-consecutive subsequent notice), consecutive subsequent notice, or an amendment to a notice previously filed for the calendar year specified in the notice.

(D) Calendar year. Indicate the calendar year for which the notice is filed.

Item 1. The information provided in parts (a), (b) and (c) relate to the company filing the notice (i.e., the “filer”) which may be the franchisor or a subfranchisor. If a subfranchisor files the notice, part (d) must be completed to give the name and business address of the franchisor. Part (e) must state the names associated with the franchisor's business.

Item 2. If the notice is filed by a subfranchisor, the agent(s) for service of process of both the franchisor and subfranchisor must be furnished.

Item 3. Specify the name or title given the franchise agreement. Briefly describe the franchised business (e.g. “restaurant,” “retail sales of bicycles”). Check the box to specify whether the franchise is one to conduct the franchised business (Corp. Code Section 31010) or a subfranchise (Corp. Code Section 31008.5).

Item 4. Give the name, title, business address and telephone number of the individual the Department may contact in connection with the notice.

Item 5. The notice shall be signed on behalf of the filing franchisor or subfranchisor by a person authorized to do so.

3. Filing the Notice.

The notice may be filed, and the fee may be paid, by mail or delivery to any office of the Department of Corporations. The completed notice is effective when received with the fee (Section 31101(d), 31108(f), or 31109(e)).

NOTE

Authority cited: Section 31502, Corporations Code. Reference: Sections 31101, 31104, 31108, 31109 and 31500, Corporations Code.

HISTORY

1. New section filed 5-18-84; effective thirtieth day thereafter (Register 84, No. 20).

2. Change without regulatory effect amending section filed 7-13-90 pursuant to section 100, title 1, California Code or Regulations; operative 8-12-90 (Register 90, No. 35).

3. Editorial correction of printing error restoring text to form (Register 91, No. 44).

4. Amendment of section and Note filed 10-12-2000; operative 11-11-2000 (Register 2000, No. 41).

5. Amendment of section heading, section and Note filed 1-31-2006; operative 3-2-2006 (Register 2006, No. 5).

§310.106. Transactions Exempt Under Section 31106 of the Corporations Code--Notice of Exemption.

Note • History

(a) The Notice of Exemption required to be filed with the Commissioner of Corporations under subdivision (b) of Section 31106 of the Code shall be made on the following form:

Department Use Only A. Department of Corporations

Fee paid (per Corporations Code File No.

Section 31500(f)): $ (Insert file number(s) of prior filings with the Department, if any)

Receipt No.

STATE OF CALIFORNIA

DEPARTMENT OF CORPORATIONS

FRANCHISE INVESTMENT LAW

NOTICE OF A TRANSACTION EXEMPT UNDER CORPORATIONS CODE SECTION 31106

SEE INSTRUCTIONS

1. Type of Filing (check one):

( ) Initial Notice $450 Fee

( ) Subsequent Notice $150 Fee

2. (a) Name of FILER:

(b) Principal business address of FILER:

( ) FRANCHISOR ( ) SUBFRANCHISOR

(d) If FILER is a SUBFRANCHISOR, the name and principal business address of the FRANCHISOR:

(e) Name(s) under which FRANCHISOR does business:

3. Name and address of agent in California authorized to receive service of process:

4. The following subdivision paragraph under Corporations Code Section 31106 applies to this transaction (check one):

( ) (a)(1)

( ) (a)(2)

( ) (a)(3

5. Franchise sold:

(a) Name of franchise or subfranchise:

(b) Description of franchised business:

( ) Franchise ( ) Subfranchise

(d) Name of all persons to whom the franchise was sold:

(e) Date of sale:

6. Name, title, telephone number and business address of individual to be contacted by the Department regarding this notice:

Name:

Title:

Business Address:

Telephone: ( )

7. Date of this notice:

Name of Filer Authorized Signature

Printed Name of Signatory

(b) The following instructions apply to the form and information required by subsection (a):

Instructions for Completing and Filing Notice of Exemption

(Sectional and Chapter references are to the

California Corporations Code)

1. General Instructions.

(a) The filing of this notice means that the FILER is claiming an exemption from Chapter 2 (commencing with Section 31110) regarding any offer, sale, or other transfer of a franchise or any interest in a franchise, and that the offer, sale or transfer meets the requirements for filing this notice as described in (b) and (c) below. A separate notice must be filed for each transaction for which this exemption is claimed, together with the fee prescribed in Section 31500(f).

(b) The condition for filing this notice is one of the following:

(1) One or more of the owners of the prospective franchisee owning at least a 50 percent interest in the prospective franchisee meet both of the following:

(A) The owner or owners have had, within the seven years before the date of the sale or other transaction, at least 24 months experience being responsible for the financial and operational aspects of a business offering products or services substantially similar to those offered by the franchised business; and

(B) The owner or owners are not controlled by the franchisor.

(2) One or more of the owners of the prospective franchisee owning at least a 50 percent interest in the prospective franchisee meet both of the following:

(A) The owner or owners are, or have been within 60 days prior to the sale or other transaction, an officer, director, managing agent, or an owner of at least a 25 percent interest in the franchisor for at least 24 months; and

(B) The owner or owners are not controlled by the franchisor.

(3) The offer, sale, or other transfer is of an additional franchise to an existing franchise of the franchisor, or to an entity, one or more of the officers, directors, managing agents or owners of at least a 25 percent interest of which is an existing franchisee of the franchisor; provided that, in either case, for 24 months or more the franchisee, or the qualifying person, has been engaged in a business offering products or services substantially similar to those to be offered by the franchise being sold, or otherwise transferred.

(c) This notice must be filed, together with the fee prescribed in Section 31500(f), within 15 calendar days after the sale of the franchise.

(d) If the notice is filed by a subfranchisor (Section 31009), the notice is applicable only to sales by the subfranchisor filing the notice.

(e) No documents need be filed with the notice.

(f) If the notice form cannot be obtained from the Department, it may be typed on a single sheet of 8-1/2 inch by 11 inch white bond paper, using one side only. If the space in the form is insufficient for one or more items, attach a single continuation sheet, designating the continued information by item number.

(g) Amendments. An amendment should be filed only for material changes in the information contained in the notice. There is no fee for an amendment.

2. Instructions for Completing Form.

Heading:

A. Department file number. Insert the file number(s) assigned to the filing franchisor or subfranchisor in any prior filings with the Department under the Franchise Investment Law.

Item 1. Type of filing. Check the box as appropriate to indicate whether the filing is an initial filing or subsequent notice.

Item 2. The information provided in parts (a), (b) and (c) relate to the company filing the notice (i.e., the “filer”) which may be the franchisor or a subfranchisor. If a subfranchisor files the notice, part (d) must be completed to give the name and principal business address of the franchisor. Part (e) must state the names associated with the franchisor's business.

Item 3. If the notice is filed by a subfranchisor, the agent(s) for service of process of both the franchisor and subfranchisor must be furnished.

Item 4. Check the box that applies to indicate the condition in Section 31106 that is claimed as the basis for the exemption.

Item 5. Specify the name or title given the franchise agreement. Briefly describe the franchised business (e.g. “restaurant,” “retail sales of bicycles”). Check the box to specify whether the franchise is one to conduct the franchised business (Corp. Code Section 31010) or a subfranchise (Corp. Code Section 31008.5). Give the names of all the purchasers of the franchise or subfranchise. State the date of when the sale was consummated.

Item 6. Give the name, title, business address and telephone number of the individual the Department may contact in connection with the notice.

Item 7. The notice shall be signed on behalf of the filing franchisor or subfranchisor by a person authorized to do so.

3. Instructions for Filing the Notice.

The notice must be filed and the fee paid within 15 calendar days after the sale of the franchise. The notice may be filed, and the fee may be paid, by mail or delivery to any office of the Department of Corporations. The notice is effective when received with the fee (Section 31106(b)).

NOTE

Authority cited: Section 31502, Corporations Code. Reference: Sections 31106 and 31500(f), Corporations Code.

HISTORY

1. New section filed 7-29-98; operative 8-28-98 (Register 98, No. 31).

§310.111. Form of Application.

Note • History

(a) All applications for registration under this Law shall be filed upon the Uniform Franchise Registration Application as defined in subsection (b).

(b) Until June 30, 2008, the term “Uniform Franchise Registration Application” means information required from the applicant in accordance with either (1) the Uniform Franchise Offering Circular (“UFOC”) Guidelines, as amended by the North American Securities Administrators Association, Inc. on April 25, 1993; or (2) the Uniform Franchise Disclosure Document (“UFDD”) Guidelines, as adopted by the North American Securities Administrators Association, Inc. on June 22, 2007 and effective July 1, 2007. On or after July 1, 2008, the term “Uniform Franchise Registration Application” means information required from the applicant in accordance with the Uniform Franchise Disclosure Document (“UFDD”) Guidelines, as adopted by the North American Securities Administrators Association, Inc. on June 22, 2007 and effective July 1, 2007.

(c) When an application is filed using the UFDD, the applicant shall include the required information set forth in Rule 310.114.1 in appropriate corresponding sections of the UFDD. For purposes of Rule 310.114.1 when filing the UFDD, the term “offering circular” shall mean “disclosure document” and “UFOC” shall mean “UFDD.”

NOTE

Authority cited: Section 31502, Corporations Code. Reference: Sections 31110, 31111, 31114, 31122 and 31125, Corporations Code.

HISTORY

1. Amendment filed 10-18-74 as an emergency; effective upon filing (Register 74, No. 42).

2. Certificate of Compliance filed 12-24-74 (Register 74, No. 52).

3. Amendment filed 12-24-74; effective thirtieth day thereafter (Register 74, No. 52).

4. Amendment filed 7-20-78; effective thirtieth day thereafter (Register 78, No. 29).

5. Amendment filed 11-21-79; designated effective 1-1-80 (Register 79, No. 47).

6. Amendment filed 7-17-81; effective thirtieth day thereafter (Register 81, No. 29).

7. Amendment filed 7-27-88; operative 8-26-88 (Register 88, No. 32).

8. Editorial correction of printing errors (Register 94, No. 2).

9. Amendment filed 4-6-94; operative 5-6-94 (Register 94, No. 14).

10. Amendment filed 4-28-2008; operative 4-28-2008 pursuant to Government Code section 11343.4 (Register 2008, No. 18).

§310.111.1. Subfranchisors.

Note • History

When the person filing the application for registration is a subfranchisor, the application shall also include the same information concerning the subfranchisor as is required from the franchiser.

NOTE

Authority cited: Section 31502, Corporations Code. Reference: Section 31111, Corporations Code.

HISTORY

1. Repealer of Section 310.111.1 and renumbering of Section 310.111.2 to Section 310.111.1 filed 11-21-79; designated effective 1-1-80 (Register 79, No. 47). For prior history, see Register 72, No. 29.

§310.111.2. Financial Statement.

Note • History

(a) Financial Statements required to be filed by these rules or by any official form of the Department shall be prepared in accordance with generally accepted accounting principles. Financial statements should be audited by either an independent certified public accountant or independent public accountant, except where the particular form or this Section permits the use of unaudited statements for interim periods or generally.

(b) The financial statements required to be filed by a franchiser refer to a balance sheet as of a date within 90 days prior to the date of the application, and profit and loss statements for each of the three fiscal years preceding the date of the balance sheet and for the period, if any, between the close of the last fiscal year and the date of the balance sheet. The balance sheet as of a date within 90 days prior to the date of the application need not be audited. However, if this balance sheet is not audited, there shall be filed in addition an audited balance sheet as of the end of the franchiser's last fiscal year unless such last fiscal year ended within 90 days of the date of the application in which case there shall be filed an audited balance sheet as of the end of the franchiser's next preceding fiscal year. The profit and loss statements shall be audited up to the date of the last audited balance sheet filed, if any.

(c) Where a franchiser owns directly or indirectly more than 50% of the outstanding voting securities of any other corporation, the financial statements required to be filed should normally reflect on a consolidated basis the financial condition of the franchiser and each of its subsidiaries.

(d) In extraordinary cases the Commissioner may waive the requirement for audited statements if the statements have been prepared by an independent certified public accountant or independent public accountant and the Commissioner is otherwise satisfied as to the reliability of such statements and as to the ability of the franchiser to perform future commitments. Such waiver will ordinarily be granted only upon a showing that the franchiser has not had prior audited statements; that the close of the most recent or current fiscal year is so near the time of filing of the application that it would be unreasonably costly or impractical to provide audited statements with the application; and that audited statements will be furnished within a reasonable time after the end of the most recent or current fiscal year. In such cases the Commissioner may impose an impound condition and such other conditions and restrictions as in his discretion may be appropriate.

(e) The use of unaudited financial statements as provided herein does not relieve the applicant or any person from any liability for false and misleading statements contained in such financial statements.

NOTE

Authority cited: Section 31502, Corporations Code. Reference: Section 31111, Corporations Code.

HISTORY

1. Renumbering of Section 310.111.4 to Section 310.111.2 filed 11-21-79; designated effective 1-1-80 (Register 79, No. 47).

2. Amendment filed 10-28-82; effective thirtieth day thereafter (Register 82, No. 44).

§310.111.3. Identification of Persons Affiliated with Franchiser. [Repealed]

Note • History

NOTE

Authority cited: Section 31502, Corporations Code. Reference: Section 31111, Corporations Code.

HISTORY

1. Repealer filed 11-21-79; designated effective 1-1-80 (Register 79, No. 47).

§310.111.5. Other Franchises. [Repealed]

Note • History

NOTE

Authority cited: Section 31502, Corporations Code. Reference: Section 31111, Corporations Code.

HISTORY

1. Amendment filed 3-17-72 as an emergency; effective upon filing (Register 72, No. 12).

2. Certificate of compliance filed 7-14-72 (Register 72, No. 29).

3. Repealer filed 11-21-79; designated effective 1-1-80 (Register 79, No. 47).

§310.111.6. Cross Reference Sheets. [Repealed]

Note • History

NOTE

Authority cited: Section 31502, Corporations Code. Reference: Section 31111, Corporations Code.

HISTORY

1. Repealer filed 11-21-79; designated effective 1-1-80 (Register 79, No. 47).

2. Editorial correction removing “Specimen Cross Reference Sheet” inadvertently retained after 11-21-79 repeal of section (Register 2010, No. 45).

§310.112. Signing of Application.

Note • History

An application under this Law shall be signed by an officer or general partner of the applicant or by a person holding a power of attorney for such purposes from the applicant. If signed under a power of attorney, the application shall include a copy of the power of attorney or of the corporate resolution authorizing the person signing to act on behalf of the applicant.

NOTE

Authority cited: Section 31502, Corporations Code. Reference: Section 31112, Corporations Code.

HISTORY

1. Amendment filed 10-28-82; effective thirtieth day thereafter (Register 82, No. 44).

2. Amendment filed 7-27-88; operative 8-26-88 (Register 88, No. 32).

§310.113. Imposition of Impound.

Note • History

In a case where the applicant has failed to demonstrate that adequate financial arrangements have been made to fulfill obligations to provide real estate, improvements, equipment, inventory, training or other items included in the offering, the Commissioner may impose as a condition to the registration of a franchise offering an impoundment of the franchise fees and other funds paid by the franchisee or subfranchisor until such obligations have been satisfied.

NOTE

Additional authority cited: Section 31502, Corporations Code. Reference: Section 31113, Corporations Code.

HISTORY

1. Amendment filed 12-28-73 as an emergency; designated effective 1-1-74. Certificate of Compliance included (Register 73, No. 52).

§310.113.1. Operation of Impound Condition.

Note • History

When an impound condition is imposed in connection with the registration of a franchise offering, one hundred percent of franchisee fees and all other funds paid by the franchisees or subfranchisors for any purpose shall within 48 hours of the receipt of such funds, be placed with the depositary. The funds will be held by the depositary until the Commissioner takes further action pursuant to Section 310.113.4 of these rules.

All checks shall be made payable to the depositary.

NOTE

Authority cited: Section 31502, Corporations Code. Reference: Section 31113, Corporations Code.

HISTORY

1. Amendment filed 10-28-82; effective thirtieth day thereafter (Register 82, No. 44).

§310.113.2. Purchase Receipts.

Note • History

When an impound condition is imposed, the franchiser shall deliver to each franchisee or subfranchisor, a purchase receipt, in the following form: The purchase receipt form shall provide space for at least: (1) the complete names and addresses of the purchaser; (2) the complete name of the individual receiving the payment; (3) the general location of the franchise involved and the total purchase price; (4) the amount of the payment received; (5) the complete name and address of the depositary with whom the payment will be placed; and (6) the date of the payment. Purchase receipt forms shall be consecutively numbered and prepared in triplicate. The original copy is to be given to the purchaser. The duplicate copy is to be retained by the franchiser. The triplicate copy is to be provided to the depositary along with the payment involved.

NOTE

Authority cited: Section 31502, Corporations Code. Reference: Section 31113, Corporations Code.

HISTORY

1. Amendment filed 10-28-82; effective thirtieth day thereafter (Register 82, No. 44).

§310.113.3. Depositary.

Note • History

Funds subject to an impound condition shall be placed in a separate trust account with an approved depositary. The depositary shall be a national bank located in California or a California bank or trust company. A written consent of the depositary to act in such capacity shall be filed with the Commissioner.

NOTE

Authority cited: Section 31502, Corporations Code. Reference: Section 31113, Corporations Code.

HISTORY

1. Amendment filed 10-28-82; effective thirtieth day thereafter (Register 82, No. 44).

§310.113.4. Release of Impounds.

Note • History

The Commissioner will authorize the depositary to release to the franchiser such amounts of the impounded funds applicable to a specified franchisee (or subfranchisor) upon a showing that the franchiser has fulfilled its obligations under the franchise agreement, or that for other reasons the impound is no longer required for protection of franchisees.

Any request for an order of the Commissioner authorizing the release of impounds to the franchiser shall contain the following:

(a) A statement of the franchiser that all required proceeds from the sale of franchises have been placed with the depositary in accordance with the impound condition.

(b) A statement of the depositary signed by an appropriate officer setting forth the aggregate amount of impounds placed with the depositary.

(c) The names of each franchisee (or subfranchisor) and the amount held in the impound for the account of each franchisee (or subfranchisor).

(d) A showing that the franchiser, with respect to each franchise the funds for which are sought to be released, has completely performed those obligations to provide real estate, improvements, equipment, inventory, training or other items, as the case may be.

(e) Such other information as the Commissioner may require in a particular case.

(f) A statement signed by the franchisee (or subfranchisor) that the information is correct.

NOTE

Authority cited: Section 31502, Corporations Code. Reference: Section 31113, Corporations Code.

HISTORY

1. Amendment filed 10-28-82; effective thirtieth day thereafter (Register 82, No. 44).

§310.113.5. Surety Bond in Lieu of Impound.

Note • History

In lieu of the imposition of an impound condition a franchiser may post a surety bond in such amount as shall be required by the Commissioner. Such bond shall be issued by a corporate surety admitted to transact business in the State of California, conditioned upon the completion by the franchiser of its obligations under the franchise contract to provide real estate, improvements, equipment, inventory, training or other items included in the offering. Where more than one franchise may at the same time be sold but unopened, the amount of the bond shall equal the aggregate liability to all such franchises in this state.

NOTE

Authority cited: Section 31502, Corporations Code. Reference: Section 31113, Corporations Code.

HISTORY

1. Amendment filed 10-28-82; effective thirtieth day thereafter (Register 82, No. 44).

§310.114. Offering Prospectus. [Repealed]

Note • History

NOTE

Authority cited: Section 31502, Corporations Code.

HISTORY

1. Repealer filed 7-27-88; operative 8-26-88 (Register 88, No. 32).

§310.114.1. Offering Circular.

Note • History

(a) General. Each offering circular shall contain the information required by the Uniform Franchise Registration Application, as defined in Section 310.111(b), and as modified by this section.

(b) Manner of Presenting Information. Present the information in the offering circular in a clear, concise fashion that is readily understandable by a person unfamiliar with the franchise business. Define the franchisee as “you” in Item 1 and use this description throughout the offering circular. In Item 1 use the word “we,” initials or one or two words to refer to the franchisor. Use different initials or a different one or two words to refer to other persons contracting with the franchisee under the franchise agreement. Except in the 23 Item titles, use these initials or word(s) to describe these persons or entities throughout the offering circular.

(1) A preface, exhibit or appendix to the UFOC must state: “THE CALIFORNIA FRANCHISE INVESTMENT LAW REQUIRES THAT A COPY OF ALL PROPOSED AGREEMENTS RELATING TO THE SALE OF THE FRANCHISE BE DELIVERED TOGETHER WITH THE OFFERING CIRCULAR”.

(2) “Salesman Disclosure Form” and Item 3.A of the Body of the UFOC: In an initial application to register the offer and sale of a franchise, do not disclose a pending action involving an arrest that did not result in conviction or plea of nolo contendere.

(3) Item 3.C: In addition to the information required by Item 3.C, state whether the franchisor, any person or franchise broker in Item 2 of the UFOC is subject to any currently effective order of any national securities association or national securities exchange, as defined in the Securities Exchange Act of 1934, 15 U.S.C.A. 78a et seq., suspending or expelling such persons from membership in that association or exchange. The information required by this provision may be included in Item 3 or in a preface, exhibit or appendix, which is part of the offering circular. If the information is in a preface, exhibit or appendix, a reference to the preface, exhibit or appendix shall be prominently set forth in Item 3.

(4) Item 5: If the initial fee can vary, include a mathematical formula which enables the franchisee to calculate the specific dollar amount of the franchise fee.

(5) Item 17: Additional Paragraph(s) Required. The paragraph(s) required by this provision may be included in Item 17 or in a preface, exhibit or appendix, which is part of the offering circular. If the paragraph(s) are in a preface, exhibit or appendix, a reference to the preface, exhibit or appendix shall be prominently set forth in Item 17.

(A) In addition to the information required by Item 17, all offering circulars shall contain the following paragraph:

California Business and Professions Code Sections 20000 through 20043 provide rights to the franchisee concerning termination or non-renewal of a franchise. If the franchise agreement contains a provision that is inconsistent with the law, the law will control.

(B) If the franchise agreement contains one or more of the provisions referred to in the following paragraph(s), the appropriate paragraph(s) shall be included:

i. The franchise agreement provides for termination upon bankruptcy. This provision may not be enforceable under federal bankruptcy law (11 U.S.C.A. Sec. 101 et seq.).

ii. The franchise agreement contains a covenant not to compete which extends beyond the termination of the franchise. This provision may not be enforceable under California law.

iii. The franchise agreement contains a liquidated damages clause. Under California Civil Code Section 1671, certain liquidated damages clauses are unenforceable.

iv. The franchise agreement requires binding arbitration. The arbitration will occur at (indicate sites) with the costs being borne by (explanation). Prospective franchisees are encouraged to consult private legal counsel to determine the applicability of California and federal laws (such as Business and Professions Code Section 20040.5, Code of Civil Procedure Section 1281, and the Federal Arbitration Act) to any provisions of a franchise agreement restricting venue to a forum outside the State of California.

v. The franchise agreement requires application of the laws of (indicate jurisdiction). This provision may not be enforceable under California law.

(6) Item 19: If any earnings claim is made, and the earnings claim figure(s) does (do) not include either costs of sales or operating expenses, then, in addition to the information required by Item 19, all offering circulars shall contain the following statement prominently set forth in Item 19 or set forth in a preface, exhibit or appendix, which is part of the offering circular. If the statement is set forth in a preface, exhibit or appendix, a reference to the preface, exhibit or appendix shall be prominently set forth in Item 19: “The earnings claims figure(s) does (do) not reflect the costs of sales, operating expenses, or other costs or expenses that must be deducted from the gross revenue or gross sales figures to obtain your net income or profit. You should conduct an independent investigation of the costs and expenses you will incur in operating your (franchised business). Franchisees or former franchisees, listed in the offering circular, may be one source of this information.”

NOTE

Authority cited: Section 31502, Corporations Code. Reference: Sections 31110, 31111, 31114, 31119 and 31125, Corporations Code.

HISTORY

1. Repealer and new section filed 11-21-79; designated effective 1-1-80 (Register 79, No. 46). For prior history, see Registers 74, No. 52 and 74, No. 42.

2. Amendment of subsections (a) and (c) filed 7-17-81; effective thirtieth day thereafter (Register 81, No. 29).

3. Amendment filed 7-27-88; operative 8-26-88 (Register 88, No. 32).

4. Amendment filed 1-20-94; operative 2-21-94 (Register 94, No. 3).

5. Amendment of subsection (a) filed 4-6-94; operative 5-6-94 (Register 94, No. 14).

6. Amendment filed 6-10-2003; operative 7-10-2003 (Register 2003, No. 24).

§310.114.2. Sequence of Presentation. [Repealed]

Note • History

NOTE

Authority cited: Section 31502, Corporations Code. Reference: Section 31114, Corporations Code.

HISTORY

1. Repealer filed 11-21-79; designated effective 1-1-80 (Register 79, No. 47).

§310.114.3. Adequacy of Disclosure. [Repealed]

Note • History

NOTE

Authority cited: Section 31502, Corporations Code. Reference: Section 31114, Corporations Code.

HISTORY

1. Repealer filed 11-21-79; designated effective 1-1-80 (Register 79, No. 47).

§310.114.4. Disclosure of Offering Circular by Electronic Means.

Note • History

(a) A franchisor may deliver a franchise disclosure document over the Internet or by other electronic means, or in machine-readable media, provided all of the following are met: (1) before furnishing a disclosure document or making it accessible to the prospective franchisee, the franchisor has advised the prospective franchisee of the formats in which the disclosure document is available and any prerequisites or conditions necessary for obtaining or reviewing it in a particular format; and (2) the disclosure document:

(A) is delivered as a single, integrated, document or file;

(B) has no extraneous content beyond what is required or permitted by law and by the UFOC Guidelines, except for the items allowed under subsection (i) below:

(i) for the sole purpose of enhancing the prospective franchisee's ability to maneuver through an electronic version of the disclosure document, the franchisor may include scroll bars, internal links, and search features;

(ii) all other features are prohibited, including audio, video, “pop-up” screens, and links to external documents.

(C) is delivered in a form that intrinsically enables the recipient to store, retrieve, and print the disclosure document; and

(D) conforms as to its content and format to the requirements of law; and

(3) the franchisor:

(A) can prove that it delivered the disclosure document electronically in compliance with this section, and that it did so at or before the time required by law; and

(B) keeps records of its electronic delivery of disclosure documents and makes those records available on demand by the Department.

(b) “Delivery” requires that the disclosure document be conveyed to and received by the prospective franchisee, or that the storage media in which the disclosure document is stored be physically delivered to the prospective franchisee in accordance with subsection (a).

(c) Proof of delivery may be demonstrated by a return email from the recipient acknowledging receipt of the document, or the recipient's use of security codes, passwords, electronic signatures, or similar devices to authenticate the recipient's identity, or by any other form of written confirmation of receipt from the prospective franchisee.

(d) This section does not change or waive any other requirement of law concerning registration or presale disclosure of franchise offerings.

NOTE

Authority cited: Section 31502, Corporations Code. Reference: Section 31119, Corporations Code.

HISTORY

1. New section filed 1-31-2006; operative 3-2-2006 (Register 2006, No. 5).

§310.120. Effective Period of Registration.

Note • History

A franchise offering is duly registered for a period to expire 110 days from the end of the applicant's fiscal year which follows the date of the application, unless the Commissioner by order specifies a different period.

NOTE

Authority and reference cited: Sections 31120 and 31502, Corporations Code. Reference: Section 31120, Corporations Code.

HISTORY

1. New section filed 5-19-89; operative 6-18-89 (Register 89, No. 21). For prior history, see Registers 78, No. 12 and 71, No. 2).

§310.122. Registration Renewal Statement.

Note • History

(a) Applications for renewal of a registration pursuant to Section 31122 of the Code shall be made upon the Uniform Franchise Registration Application, as defined in Section 310.111(b).

(b) The following statement shall be attached as an appendix to the application, if the franchisor has effected any negotiated sales exempt from registration by Section 310.100.2:

I certify (or declare) that all Notices of Negotiated Sale of Franchise have been filed with the Commissioner as required by paragraph (a) (4) of Section 310.100.2 of these rules. Executed at _______________, California, on the date of _________, _____.

Name of Franchisor

By:

Signature of Franchisor

Title:

Printed Name of Signatory

If executed at any place within or without this state; I certify (or declare) under penalty of perjury under the laws of the State of California that the foregoing is true and correct. Executed at _______________, California, on the date of __________, _____.

Name of Franchisor

By:

Signature of Franchisor

Title:

Printed Name of Signatory

NOTE

Authority cited: Section 31502, Corporations Code. Reference: Section 31122, Corporations Code.

HISTORY

1. Repealer and new section filed 11-21-79; designated effective 1-1-80 (Register 79, No. 47).

2. Editorial correction (Register 80, No. 24).

3. Amendment filed 10-28-82; effective thirtieth day thereafter (Register 82, No. 44).

4. Amendment filed 7-27-88; operative 8-26-88 (Register 88, No. 32).

5. Amendment filed 8-17-89; operative 9-16-89 (Register 89, No. 33).

6. Amendment of form filed 1-20-94; operative 2-21-94 (Register 94, No. 3).

7. Editorial correction of subsection (b) (Register 94, No. 3).

8. Amendment filed 4-6-94; operative 5-6-94 (Register 94, No. 14).

§310.122.1. Underscoring of Changes.

Note • History

If the registration renewal statement or any amendment to an application alters the text of the offering prospectus, or of any item, exhibit or other document previously filed, the changes in such text shall be indicated by means of underscoring or in some other appropriate manner.

NOTE

Authority cited: Section 31502, Corporations Code. Reference: Section 31122, Corporations Code.

HISTORY

1. Amendment filed 10-28-82; effective thirtieth day thereafter (Register 82, No. 44).

§310.123. Application to Amend Registration.

An amendment to an application filed before or after the effective date of the registration of the sale of franchises shall be made on the form used for the original application with the appropriate heading checked on the facing page prescribed by Section 310.111 of these rules. The facing page shall be completely filled in and only such other items of the applicable form as are being amended shall be included.

§310.124. Automatic Effectiveness of Amendments to Include UFOC. [Repealed]

Note • History

NOTE

Authority cited: Section 31502, Corporations Code. Reference: Section 31124, Corporations Code.

HISTORY

1. New section filed 10-19-79 as an emergency; effective upon filing (Register 79, No. 42). A Certificate of Compliance must be filed within 120 days or emergency language will be repealed on 2-16-80.

2. Repealed by operation of Section 11422.1(c), Government Code (Register 80, No. 24).

§310.125. Application for Registration of a Material Modification of Existing Franchises.

Note • History

An application for registration of a material modification of franchises pursuant to Section 31125 of the Code shall, in addition to the facing page of the Uniform Franchise Registration Application, as defined in Section 310.111(b), continue on the following form:

EXHIBIT 1

Attach a copy of the item(s) of the Uniform Franchise Offering Circular, complying with Section 310.114.1 of these rules, if the information is changed. State the existing arrangement and the new arrangement with respect to the item(s). The cover of the Offering Circular shall state: “The changes set forth herein are voluntary. If a franchisee does not receive the attached disclosure at least five business days prior to the execution of a binding agreement, the franchisee may, by written notice, mailed or delivered to the franchisor or (specify agent of the franchisor), within five business days following the execution of the agreement rescind the agreement to the modifications.”

Describe the proposed modifications, including:

(a) An identification of the section of the franchise contract or document being modified.

(b) The nature of the modification.

(d) State the effect on a franchisee who accepts the change and on a franchisee who does not accept the change.

EXHIBIT 2

Attach a copy of the franchise contract or document which embodies the modification(s).

EXHIBIT 3

State the number of franchises presently operating, the number of such franchises presently operating in California and the number of franchises proposed to be modified and the number of franchises proposed to be modified in California.

EXHIBIT 4

Attach the Consent to Service of Process if required by Section 31155 of the California Corporations Code, if one has not previously been filed.

EXHIBIT 5

The applicant has duly caused this application to be signed on its behalf by the undersigned, thereunto duly authorized.

(Applicant)

(Title)

I certify or declare under penalty of perjury that I have read this application and the exhibits thereto and know the contents thereof, and that the statements therein are true and correct.

Executed at___________________, California, on the date of ____________, ______

(Signature)

If executed at any place within or without this state: I certify (or declare) under penalty of perjury under the laws of the State of California that the foregoing is true and correct. Executed at , on the date of ___________, ____

Signature _________________________________________________________

NOTE

Authority cited: Sections 31125 and 31502, Corporations Code. Reference: Sections 31110, 31111, 31114, 31125 and 31155, Corporations Code.

HISTORY

1. New section filed 7-20-78; effective thirtieth day thereafter (Register 78, No. 29).

2. Amendment filed 11-21-79; designated effective 1-1-80 (Register 79, No. 47).

3. Amendment filed 10-28-82; effective thirtieth day thereafter (Register 82, No. 44).

4. Amendment filed 5-19-89; operative 6-18-89 (Register 89, No. 21).

5. Amendment of opening paragraph and Exhibit 5 filed 4-6-94; operative 5-6-94 (Register 94, No. 14).

§310.155. Consent to Service of Process.

Note • History

The consent to service of process required by Section 31155 of the Code shall be upon the Uniform Consent to Service of Process prescribed in the Uniform Franchise Registration Application.

NOTE

Authority cited: Section 31502, Corporations Code. Reference: Sections 31110, 31111, 31114 and 31155, Corporations Code.

HISTORY

1. Amendment filed 10-18-74 as an emergency; effective upon filing (Register 74, No. 42).

2. Certificate of Compliance filed 12-24-74 (Register 74, No. 52). 3. Amendment filed 11-21-79; designated effective 1-1-80 (Register 79, No. 47).

3. Amendment filed 11-21-79; designated effective 1-1-80 (Register 79, No 47).

4. Amendment filed 10-28-82; effective thirtieth day thereafter (Register 82, No. 44).

§310.156. Filing and Use of Advertisements.

The Department will not issue letters of nondisapproval of advertising filed under Section 31156 of the Code. However, if the person desiring to use the advertisement requests an order shortening the three business day waiting period before use of the advertisement becomes permissible under that Section, such order will be issued when an appropriate showing of the need therefor is made by the filer. If a registration has become effective, such effectiveness shall automatically constitute an order shortening the three business day waiting period, with respect to any offering prospectus on file at the time of the effectiveness of such registration, relating to the offer and sale of the franchises covered by such registration, so as to permit the use of such offering prospectus at any time thereafter.

§310.156.1. Standards Relating to Advertisements.

Note • History

Any advertisement of a franchise should disclose fairly and accurately such relevant facts concerning the franchise, the terms and conditions thereof and the material rights and liabilities created thereunder as are necessary to make the advertisement not misleading. Normally, an advertisement should also comply with the following more specific standards:

(a) An advertisement should not contain any statement or inference that a purchase of a franchise is a safe investment or that failure, loss or default is impossible or unlikely, or that earnings or profits are assured.

(b) Earnings Claims must conform with Item 19 of the offering circular prescribed by the Uniform Franchise Registration Application, as defined in Section 310.111(b).

(c) Any advertisement which refers to the registration of the franchises under the Franchise Investment Law of the State of California shall contain in capital letters of not less than 10-point type the following legend:

“THESE FRANCHISES HAVE BEEN REGISTERED UNDER THE FRANCHISE INVESTMENT LAW OF THE STATE OF CALIFORNIA. SUCH REGISTRATION DOES NOT CONSTITUTE APPROVAL, RECOMMENDATION OR ENDORSEMENT BY THE COMMISSIONER OF CORPORATIONS NOR A FINDING BY THE COMMISSIONER THAT THE INFORMATION PROVIDED HEREIN IS TRUE, COMPLETE AND NOT MISLEADING.”

(d) An advertisement should normally contain the name and address of the person using the advertisement.

(e) If the advertisement contains any endorsement or recommendation of the franchises by any public figure, whether express or implied (for example, by the inclusion of such person's photograph or name in the advertisement), full disclosure shall be made of any compensation or other benefit given or promised by the franchisor or any person associated with the franchisor to such person, directly or indirectly. The disclosure required in this Subsection (e) shall be made in the same document containing the advertisement or, if such advertisement is presented on radio or television, as a part of the same program, without any intermission or other intervening material.

(f) Any advertisement which refers to an exemption from or reduction in taxation under any law should be based on an opinion of counsel, and the name of such counsel should be stated in the advertisement.

NOTE

Authority cited: Section 31502, Corporations Code. Reference: Sections 31111(p) and (q), and 31156, Corporations Code.

HISTORY

1. Amendment filed 3-15-83; effective thirtieth day thereafter (Register 83, No. 12).

2. Amendment of subsection (b) filed 7-27-88; operative 8-26-88 (Register 88, No. 32).

3. Amendment of subsection (b) filed 4-6-94; operative 5-6-94 (Register 94, No. 14).

§310.156.2. Non Filing of Certain Advertisements.

The term “advertisement” as used in Section 31156 of the Code does not include, and there need not be filed with the Commissioner any notice, circular or other communication which is published or transmitted only after a registration of the franchise is in effect and which contains only the statements required or permitted to be included therein by the following provisions of this rule:

(a) Such communications may include any one or more of the following items of information, which need not follow the numerical sequence of this paragraph:

1. the name of the franchiser;

2. a brief description of the type of franchise being offered;

3. a brief description of the type of business to be conducted by the franchisee;

4. the total dollar investment (which must include all obligations) required to be made on a franchise purchase, or if the amount of such investment varies, the method of its determination or the probable price range;

5. the city and/or state in which franchises are being offered;

6. the name and address of the sender of the communication.

(b) Every communication used pursuant to this rule shall contain the following:

1. A statement in bold type of not less than 10-point type that:

2. The name and address of a person or persons from whom an offering prospectus may be obtained.

§310.156.3. Exemption for Internet Advertisements.

Note • History

(a) Any communication made in connection with an offer or sale of a franchise posted on a website on the Internet (“Internet advertisement”) is exempt from the requirements of Corporations Code Section 31156 for filing advertisements with the Commissioner provided a franchisor complies with all of the following:

(1) The franchisor files with the Commissioner a written notice, executed by an officer or general partner of the franchisor having direct responsibility for the conduct of the franchisor's activities, and verified pursuant to Section 2015.5 of the Code of Civil Procedure, that includes:

(A) The Uniform Resource Locator (“URL”) address or similar address or device identifying the location of any Internet advertisement;

(B) A statement that the franchisor, or anyone acting with the franchisor's knowledge, agrees to comply with the California Franchise Investment Law, and Rules thereunder, when posting any Internet advertisement on a website; and

(2) The Internet advertisement is not directed to any person in the State of California by or on behalf of the franchisor or anyone acting with the franchisor's knowledge. For the purposes of this section, “directed to any person in the State of California,” means directed to a specifically named person, or group of persons, and not to the public generally, and includes, but is not limited to, non-passive forms of communication such as e-mail, instant messages, or other similar modes of communication; and

(3) A preface, exhibit or appendix of the franchisor's offering circular includes the URL address of the franchisor's website, and the following statement, in clear readable type, of not less than 12-point size:

OUR WEBSITE HAS NOT BEEN REVIEWED OR APPROVED BY THE CALIFORNIA DEPARTMENT OF CORPORATIONS. ANY COMPLAINTS CONCERNING THE CONTENT OF THIS WEBSITE MAY BE DIRECTED TO THE CALIFORNIA DEPARTMENT OF CORPORATIONS at www.corp.ca.gov.

(b) Any notice filed in compliance with subsection (a) shall be effective from the date the notice is filed with the Commissioner until the end of the franchisor's then-currently effective registration period, as specified in Section 310.120. The exemption may be renewed for additional periods of one year by submitting to the Commissioner no later than the end of the franchisor's then-currently effective registration period, as specified in Section 310.120, an additional written notice that complies with the requirements of subsection (a).

(c) Nothing in this regulation shall be construed to limit the Commissioner's authority to bring any action against any person violating any of the provisions of the California Franchise Investment Law.

NOTE

Authority cited: Sections 31156 and 31506, Corporations Code. Reference: Sections 31110, 31111, 31114 and 31156, Corporations Code.

HISTORY

1. New section filed 6-10-2003; operative 7-10-2003 (Register 2003, No. 24).

§310.210. Persons Identified in an Application.

Note • History

(a) For the purposes of Section 31210 of the Code a person shall be deemed identified only if all the information required by:

(1) Item 2 (Identity and Business Experience of Persons Affiliated With The Franchisor; Franchise Brokers) and Item 3 (Litigation) of an offering circular upon the format prescribed by the Uniform Franchise Registration Application, in accordance with Item 2 of the Special Instructions for the Uniform Franchise Offering Circular (“UFOC”) (see Section 310.114.1(c) of these rules), or;

(2) a Salesman Disclosure Form prescribed by the Uniform Franchise Registration Application provided that, in an initial application to register the offer and sale of a franchise, Item 2.A. of the Salesman Disclosure Form does not disclose a pending action involving an arrest that did not result in conviction or plea of nolo contendere , has been filed with the Commissioner.

(b) The term “Uniform Franchise Registration Application” means the Uniform Franchise Registration Application, as defined in Section 310.111(b).

NOTE

Authority cited: Section 31502, Corporations Code. Reference: Section 31210, Corporations Code.

HISTORY

1. Amendment filed 11-21-79; designated effective 1-1-80 (Register 79, No. 47).

2. Amendment of subsection (a) filed 10-28-82; effective thirtieth day thereafter (Register 82, No. 44).

3. Amendment filed 7-27-88, operative 8-26-88 (Register 88, No. 32).

4. Amendment of subsection (b) filed 4-6-94; operative 5-6-94 (Register 94, No. 14).

§310.303. Notice of Violation.

History

An application for approval as to form of a written notice of violation in accordance with Section 31303 of the Code shall be made in writing and may be in letter form. There shall be attached to this application as an exhibit a form of the written notice for which the Commissioner's approval is requested which should contain the following:

(a) In capital letters of not less than 10-point type the following legend, printed in contrasting color or type:

“THIS NOTICE DISCLOSING VIOLATION OF THE FRANCHISE INVESTMENT LAW HAS BEEN APPROVED BY THE COMMISSIONER OF CORPORATIONS ONLY AS TO ITS FORM. SUCH APPROVAL DOES NOT IMPLY A FINDING BY THE COMMISSIONER THAT ANY STATEMENTS MADE HEREIN OR IN ANY ACCOMPANYING DOCUMENTS ARE TRUE OR COMPLETE AND THE COMMISSIONER MAKES NO RECOMMENDATION AS TO WHETHER OR NOT RESORT SHOULD BE HAD TO THE CIVIL REMEDIES PROVIDED IN THE FRANCHISE INVESTMENT LAW.”

(b) The name and address of each party to whom the notice is to be directed. If such parties are too numerous to make the submission of separate notices convenient, such parties and their addresses may be shown upon a list attached to the application.

(c) A statement regarding the respect in which the violation under Section 31303 of the Code arose, including the following:

(1) Identification of the transaction involved, including the names of the franchiser and/or subfranchisors, the date, the particular franchise, and the nature and amount of the consideration received by the seller of the franchise.

(2) Identification of the specific section concerning which the violation occurred.

(3) An explanation of the liability of the franchiser and/or sub franchisors to the franchisee under that specific section.

(d) Such information regarding the franchiser which is material and pertinent to the franchisee, including information regarding the franchiser's management, its operations and plan of business, its financial condition and the terms of its organization. In addition, the franchisee shall be furnished (1) a disclosure statement, contained in a document separate from the notice of violation, pursuant to the disclosure requirement of Section 31101(c) or Section 31114, as applicable, and (2) a statement setting forth the specific misrepresentation or omission together with the information necessary to correct such misrepresentation or omission.

(e) A statement indicating the franchisee's right of action, if any, under Section 31300 of the Code, together with the statement that no action may be brought to enforce this right of action unless brought not later than 90 days after delivery of the notice.

(f) A complete statement setting forth Section 31303 of the Code.

(g) The notice must not be subject to any condition not authorized by Section 31303 of the Code.

Because of the importance of the date of delivery of the notice, the franchiser/subfranchisor seeking to use this procedure should provide for a means of delivery which will provide a method whereby the time of receipt of the notice by the franchisee will be ascertainable. At the time the notice is submitted for approval as to form, the applicant should indicate the method of delivery of the notice that will be used.

HISTORY

1. New section filed 1-22-74; effective thirtieth day thereafter (Register 74, No. 4).

§310.304. Notice of Violation.

History

An application for approval as to form of a written notice of violation in accordance with Section 31304 of the Code shall be made in writing and may be in letter form. There shall be attached to this application as an exhibit a form of the written notice for which the Commissioner's approval is requested which should contain the following:

(a) In capital letters of not less than 10-point type the following legend, printed in contrasting color or type: “THIS NOTICE DISCLOSING VIOLATION OF THE FRANCHISE INVESTMENT LAW HAS BEEN APPROVED BY THE COMMISSIONER OF CORPORATIONS ONLY AS TO ITS FORM. SUCH APPROVAL DOES NOT IMPLY A FINDING BY THE COMMISSIONER THAT ANY STATEMENTS MADE HEREIN OR IN ANY ACCOMPANYING DOCUMENTS ARE TRUE OR COMPLETE AND THE COMMISSIONER MAKES NO RECOMMENDATION AS TO WHETHER OR NOT RESORT SHOULD BE HAD TO THE CIVIL REMEDIES PROVIDED IN THE FRANCHISE INVESTMENT LAW.”

(c) A statement regarding the respect in which the violation under Section 31304 of the Code arose, including the following:

(2) Identification of the specific section concerning which the violation occurred.

(3) An explanation of the liability of the franchiser and/or subfranchisors to the franchisee under that specific section.

(1) a disclosure statement, contained in a document separate from the notice of violation, pursuant to the disclosure requirement of Section 31101(c) or Section 31114, as applicable, and

(2) a statement setting forth the specific misrepresentation or omission together with the information necessary to correct such misrepresentation or omission.

(e) A statement indicating the franchisee's right of action, if any, under Section 31301 of the Code, together with the statement that no action may be brought to enforce this right of action unless brought not later than 90 days after delivery of the notice.

(f) A complete statement setting forth Section 31304 of the Code.

(g) The notice must not be subject to any condition not authorized by Section 31304 of the Code.

HISTORY

1. New section filed 1-22-74; effective thirtieth day thereafter (Register 74, No. 4).

§310.505. Charges for Copies of Documents.

Note • History

The following charges shall be made for copies and telecopies of documents furnished by the Commissioner and for certification thereof:

(b) Thirty cents for each page or fraction thereof when the copies are not to be certified.

NOTE

Authority cited: Section 31502, Corporations Code. Reference: Section 31505, Corporations Code.

HISTORY

1. New subsection (c) filed 1-22-74; effective thirtieth day thereafter (Register 74, No. 4).

2. Change without regulatory effect amending section and adopting Note filed 4-21-94 pursuant to title 1, section 100, California Code of Regulations (Register 94, No. 16).

Subchapter 2.9. Commodities [Repealed]

NOTE

Authority cited for Subchapter 2.9: Section 29591, Corporations Code, Chapter 452 of the Statutes of 1979. Reference: Division 4.5, Title 4, Corporations Code, Chapter 452 of the Statutes of 1979.

HISTORY

1. Repealer of Subchapter 2.9 (Sections 350.500 through 350.541.1, not consecutive) and new Subchapter 2.9 (Sections 350.500 through 350.545.2, not consecutive) filed 10-1-73 as an emergency; effective upon filing (Register 73, No. 40). For prior history, see Register 69, No. 52, 70, Nos. 12 and 50, 72, Nos. 2 and 30, 73, No. 10.

2. Certificate of Compliance filed 1-16-74 (Register 74, No. 3).

3. Repealer of Subchapter 2.9 (Sections 350.500 through 350.545.2, not consecutive) filed 3-13-80; effective thirtieth day thereafter (Register 80, No. 11). For prior history, see Registers 74, No. 9; 74, No. 28; 74, No. 51; 75, No. 1; 75, No. 18; 75, No. 19; 75, No. 51; 76, No. 25; 77, No. 36; 78, No. 6; 78, No. 12; 78, No. 36; 78, No. 45; and 78, No. 48.

Subchapter 3. Credit Unions [Repealed]

HISTORY

1. Change without regulatory effect renumbering chapter 3, subchapter 3 (articles 1-11, sections 901-997) to sections within chapter 1, subchapter 30 filed 8-19-97 pursuant to section 100, title 1, California Code of Regulations (Register 97, No. 34). For prior history of chapter 3, subchapter 3, see Register 80, No. 11, Register 81, No. 49, Register 82, No. 48, Register 83, No. 11, Register 83, No. 37, Register 83, No. 53, Register 84, No. 32 and Register 84, No. 42.

Subchapter 4. Industrial Loans [Repealed]

HISTORY

1. Change without regulatory effect renumbering chapter 3, subchapter 4 (articles 1-18, sections 1101-1290.2) to sections within chapter 1, subchapter 40 filed 8-19-97 pursuant to section 100, title 1, California Code of Regulations (Register 97, No. 34). For prior history of chapter 3, subchapter 4, see Register 77, No. 45, Register 81, No. 49, Register 83, No. 4, Register 85, No. 26, Register 90, No. 42, Register 95, No. 12, Register 95, No. 33 and Register 96, No. 27.

Subchapter 5. Limited Dividend Housing Corporations [Repealed]

NOTE

Authority and reference cited: Sections 34943 and 34944, Health and Safety Code.

HISTORY

1. Repealer of Subchapter 5 (Sections 1292-1296) filed 3-20-78: effective 30th day thereafter (Register 78, No. 12). For prior history, see Register 73, No. 26.

Subchapter 5.5. Health Care Service Plans [Renumbered]

(Originally Printed 6-5-76)

HISTORY

1. Change without regulatory effect renumbering former Subchapter 5.5 (sections 1300.43-1300.826) to new Title 28, Division 1, Chapter 1 (sections 1300.43-1300.826) filed 12-22-2000 pursuant to section 100, title 1, California Code of Regulations (Register 2000, No. 51).

Subchapter 6. California Finance Lenders Law (Finance Company Rules)

(Originally Printed 3-22-45)

Note: Pursuant to Section 1570 of the finance company rules, only the following sections shall apply to a commercial loan of a bona fide principal amount of $5,000 or more or to a finance company in connection with any such loan: 1404, 1408, 1409, 1411, 1422, 1423, 1425, 1426, 1427, 1428, 1429, 1430.5, 1431, 1435, 1446, 1451, 1452, 1460, 1499, 1550, 1552, 1556, and 1557.

Note: Authority cited: Section 22150, Financial Code. Reference: Section 22000, et seq., Financial Code.

Article 1. General Provisions

§1400. Offices of Division. [Repealed]

Note • History

NOTE

Authority cited for Subchapter 6: Sections 22400 and 24400, Financial Code. Issuing agency: Commissioner of Corporations.

HISTORY

1. Repealer of subchapter 6 and new subchapter 6 (§ 1400-1413, 1420, 1421, 1425-1435, 1445-1460, 1475-1478, 1485-1498, 1510-1517, 1525, 1526, 1535-1542, 1550-1558, 1565-1569, 1570) filed 3-3-71 as an emergency; effective upon filing. Certificate of Compliance included (Register 71, No.10). For prior history see Registers 53, No. 2 and 70, No. 48.

2. Repealer filed 7-3-75 as procedural and organizational; effective upon filing (Register 75, No. 27).

3. Amendment of subchapter 6 heading and new NOTE filed 2-21-85; effective thirtieth day thereafter (Register 85, No. 8).

4. Change without regulatory effect amending first Note in subchapter 6 filed 6-3-94 pursuant to title 1, section 100, California Code of Regulations (Register 94, No. 22).

5. Change without regulatory effect amending subchapter 6 heading and Notes filed 6-14-95 pursuant to section 100, title 1, California Code of Regulations (Register 95, No. 24).

6. Amendment of subchapter 6 Note filed 9-23-2009; operative 10-23-2009 (Register 2009, No. 39).

§1401. General Information: Where Obtainable. [Repealed]

Note • History

NOTE

Authority cited: Section 22400, Financial Code.

HISTORY

1. Repealer filed 12-3-81; effective thirtieth day thereafter (Register 81, No. 49).

§1402. Communications to Department. [Repealed]

Note • History

NOTE

Authority cited: Section 22400, Financial Code.

HISTORY

1. Repealer filed 12-3-81; effective thirtieth day thereafter (Register 81, No. 49).

§1403. Exhibits Previously Filed. [Repealed]

Note • History

NOTE

Authority cited: Section 22400, Financial Code.

HISTORY

1. Repealer filed 12-3-81; effective thirtieth day thereafter (Register 81, No. 49).

§1404. Definitions.

Note • History

The following terms used in Subchapter 6 of these rules shall have (unless the context otherwise indicates) the following meanings:

(a) “Call report” or “NMLS Mortgage Call Report” means a report of condition on the company and its operations including financial statements and production activity volumes.

(b) “Company” includes all domestic and foreign private corporations, limited liability companies, joint ventures, associations, syndicates, joint stock companies, partnerships of every kind, unincorporated organizations, government or political subdivisions of a government, trustees and individuals.

(d) “Finance company” means a company subject to the California Finance Lenders Law and also has the same meaning as “licensee” as defined in Financial Code Section 22007.

(e) “Law” or “Code” means the California Finance Lenders Law.

(f) “Mortgage lender” or “mortgage broker” or “mortgage lender and broker” means a finance company, finance lender, or broker who makes, brokers, or services residential mortgage loans and who is required to be licensed pursuant to Section 22100 of the Code.

(g) “Form MU1” means the uniform licensing form developed by the Nationwide Mortgage Licensing System and Registry for a mortgage lender, mortgage servicer, or mortgage broker business, entitled “Uniform Mortgage Lender/Mortgage Broker Form.”

(h) “Form MU2” means the uniform licensing form developed by the Nationwide Mortgage Licensing System and Registry for a person that directly or indirectly exercises control over a mortgage lender, mortgage servicer, or mortgage broker business, or a branch thereof, including qualifying individuals and branch managers specified in Form MU1, entitled “Uniform Mortgage Biographical Statement & Consent Form.”

(i) “Form MU3” means the uniform licensing form developed by the Nationwide Mortgage Licensing System and Registry for the branch office of a mortgage lender, mortgage servicer, or mortgage broker, entitled “Uniform Mortgage Branch Office Form.”

(j) “Form MU4” means the uniform licensing form developed by the Nationwide Mortgage Licensing System and Registry for an individual mortgage loan originator license or registration, entitled “Uniform Individual Mortgage License/Registration & Consent Form.”

(k) “NMLS” means the Nationwide Mortgage Licensing System and Registry.

(l) “Sponsoring” or “to sponsor” means to maintain an employment relationship between a mortgage loan originator and a mortgage lender, mortgage broker, or mortgage lender and broker where the mortgage loan origination activities of the mortgage loan originator are subject to the supervision and oversight of the mortgage lender, mortgage broker, or mortgage lender and broker. A licensed mortgage lender, mortgage broker, or mortgage lender and broker is the “sponsor” of a mortgage loan originator employed by, and subject to the supervision and oversight of, the mortgage lender, mortgage broker, or mortgage lender and broker. For purposes of Subchapter 6 of these rules, an employment relationship may be established through factors such as supervision and control of the sponsored mortgage loan originator, legal and regulatory responsibility for the acts of the mortgage loan originator, and performance under the name, authority and policies of the sponsor, and is not necessarily contingent on whether a mortgage loan originator is issued a Form W-2 by the sponsor.

NOTE

Authority cited: Sections 22012, 22100 and 22150, Financial Code. Reference: Sections 2200 et seq., Financial Code.

HISTORY

1. Amendment filed 12-3-81; effective thirtieth day thereafter (Register 81, No. 49).

2. Editorial correction of NOTE filed 10-13-82 (Register 82, No. 42).

3. Amendment filed 12-29-83; effective thirtieth day thereafter (Register 83, No. 53).

4. Amendment filed 2-21-85; effective thirtieth day thereafter (Register 85, No. 8).

5. Change without regulatory effect amending subsections (b)(1)-(3) and Note filed 6-14-95 pursuant to section 100, title 1, California Code of Regulations (Register 95, No. 24).

6. Amendment filed 8-4-98; operative 9-3-98 (Register 98, No. 32).

7. Amendment of section and Note filed 4-1-2010 as an emergency; operative 4-1-2010 (Register 2010, No. 14). A Certificate of Compliance must be transmitted to OAL by 9-28-2010 or emergency language will be repealed by operation of law on the following day.

8. Amendment of section and Note refiled 9-28-2010 as an emergency; operative 9-28-2010 (Register 2010, No. 40). A Certificate of Compliance must be transmitted to OAL by 12-27-2010 or emergency language will be repealed by operation of law on the following day.

9. Amendment of section and Note refiled 12-23-2010 as an emergency; operative 12-23-2010 (Register 2010, No. 52). A Certificate of Compliance must be transmitted to OAL by 3-23-2011 or emergency language will be repealed by operation of law on the following day.

10. Certificate of Compliance as to 12-23-2010 order, including amendment of subsections (a) and (h), transmitted to OAL 3-14-2011 and filed 4-25-2011; amendments operative 5-25-2011 (Register 2011, No. 17).

§1405. Rulings. [Repealed]

Note • History

NOTE

Authority cited: Section 22400, Financial Code.

HISTORY

1. Repealer filed 12-3-81; effective thirtieth day thereafter (Register 81, No. 49).

§1406. Other Business. [Repealed]

Note • History

NOTE

Authority cited: Section 22400, Financial Code. Reference: Sections 22404, 22458, 22458.1 and 24404, Financial Code.

HISTORY

1. Repealer filed 12-3-81; effective thirtieth day thereafter (Register 81, No. 49).

§1408. Waivers Prohibited.

Note • History

A finance company shall not require or permit a borrower to waive any statutory provision of the Law for his/her benefit, including any notice which the law requires to be given to the borrower (however, any notice may be given by registered mail, directed to his/her last known address), nor shall a finance company require or permit a borrower to waive any mandatory provision of these rules and regulations.

NOTE

Authority cited: Section 22150, Financial Code. Reference: Section 22150, Financial Code.

HISTORY

1. Editorial correction of NOTE filed 10-13-82 (Register 82, No. 42).

2. Amendment filed 12-29-83; effective thirtieth day thereafter (Register 83, No. 53).

3. Amendment filed 2-21-85; effective thirtieth day thereafter (Register 85, No. 8).

4. Change without regulatory effect amending section and Note filed 6-14-95 pursuant to section 100, title 1, California Code of Regulations (Register 95, No. 24).

§1409. Officers, Directors, Partners, and Other Persons: Maintenance of Current List with Commissioner: Information Required.

Note • History

(a) A finance company shall at all times maintain on file with the Commissioner a current list of officers, directors, and partners in the case of a partnership, and other persons named in the application. Changes in partnerships are limited to the conditions set forth in Section 22151(b) of the Law. In the event of any change, other than transfers between branch offices, in the officers, directors, or partners, or other persons named in the application, a finance company shall file with the Commissioner an amendment to the application containing the same information in relation to such new person(s) as is required in the application, within thirty days from the date of the change.

(b) A mortgage lender, mortgage broker, or mortgage lender and broker shall comply with subsection (a) by submitting changes to the Commissioner through NMLS on Forms MU1, MU2, MU3, and MU4, as applicable.

NOTE

Authority cited: Sections 22100, 22101 and 22150, Financial Code. Reference: Sections 22100, 22101, 22108, 22109, 22109.6, 22150 and 22151, Financial Code.

HISTORY

1. Amendment filed 3-27-78; effective thirtieth day thereafter (Register 78, No. 12).

2. Amendment filed 12-3-81; effective thirtieth day thereafter (Register 81, No. 49).

3. Editorial correction of NOTE filed 10-13-82 (Register 82, No. 42).

4. Amendment filed 12-29-83; effective thirtieth day thereafter (Register 83, No. 53).

5. Amendment filed 2-21-85; effective thirtieth day thereafter (Register 85, No. 8).

6. Change without regulatory effect amending section and Note filed 6-14-95 pursuant to section 100, title 1, California Code of Regulations (Register 95, No. 24).

7. Amendment of section heading and section filed 11-7-2007; operative 12-7-2007 (Register 2007, No. 45).

8. Amendment of section and Note filed 4-1-2010 as an emergency; operative 7-31-2010 (Register 2010, No. 14). A Certificate of Compliance must be transmitted to OAL by 9-28-2010 or emergency language will be repealed by operation of law on the following day.

9. Editorial correction of History 8 (Register 2010, No. 40).

10. Amendment of section and Note refiled 9-28-2010 as an emergency, including repealer of subsection (c); operative 9-28-2010 (Register 2010, No. 40). A Certificate of Compliance must be transmitted to OAL by 12-27-2010 or emergency language will be repealed by operation of law on the following day.

11. Amendment of section and Note refiled 12-23-2010 as an emergency; operative 12-23-2010 (Register 2010, No. 52). A Certificate of Compliance must be transmitted to OAL by 3-23-2011 or emergency language will be repealed by operation of law on the following day.

12. Certificate of Compliance as to 12-23-2010 order transmitted to OAL 3-14-2011 and filed 4-25-2011 (Register 2011, No. 17).

§1409.1. Notice of Changes by Mortgage Lender, Mortgage Broker, Mortgage Lender and Broker, and Mortgage Loan Originator.

Note • History

(a) Each licensed mortgage lender, mortgage broker, mortgage lender and broker, and mortgage loan originator shall, upon any change in the information contained in its license application (other than financial information contained therein) promptly file an amendment to such application setting forth the changed information.

(b) A mortgage lender, mortgage broker, and mortgage lender and broker shall file changed information contained in its Forms MU1, MU2, and MU3, and any exhibits thereto, through NMLS in accordance with its procedures for transmission to the Commissioner. Any change that cannot be submitted through NMLS shall be filed directly with the Commissioner.

(c) A mortgage loan originator shall file changed information contained in its Form MU4, and any exhibits thereto, through NMLS in accordance with its procedures for transmission to the Commissioner within twenty (20) days of changes to the information as provided in Section 1422.6 of Subchapter 6 of these rules. Any change that cannot be submitted through NMLS shall be filed directly with the Commissioner. A mortgage loan originator may not renew his or her license under Section 1422.6.3 of Subchapter 6 of these rules until all changes to the information contained in his or her Form MU4 are filed with the Commissioner as provided in this section.

(d) A licensed mortgage lender, mortgage broker, and mortgage lender and broker shall notify the Commissioner of the employment of any new mortgage loan originator in California and of the termination of employment of any mortgage loan originator in California in accordance with Section 1422.6 of Subchapter 6 of these rules.

(e) If a mortgage lender, mortgage broker, or mortgage lender and broker discovers that a sponsored mortgage loan originator has not filed an amendment to his or her Form MU4, the mortgage lender, mortgage broker, or mortgage lender and broker shall require the mortgage loan originator to file the amendment immediately. If, within five (5) days from the demand, the mortgage loan originator has not made the changes, the mortgage lender, mortgage broker, or mortgage lender and broker shall inform the Commissioner in writing.

NOTE

Authority cited: Sections 22100 and 22108, Financial Code. Reference: Section 1798.18, Civil Code; and Sections 22106 and 22108, Financial Code.

HISTORY

1. New section filed 4-1-2010 as an emergency; operative 7-31-2010 (Register 2010, No. 14). A Certificate of Compliance must be transmitted to OAL by 9-28-2010 or emergency language will be repealed by operation of law on the following day.

2. Editorial correction of History 1 (Register 2010, No. 40).

3. New section refiled 9-28-2010 as an emergency, including repealer of subsection (f); operative 9-28-2010 (Register 2010, No. 40). A Certificate of Compliance must be transmitted to OAL by 12-27-2010 or emergency language will be repealed by operation of law on the following day.

4. New section refiled 12-23-2010 as an emergency; operative 12-23-2010 (Register 2010, No. 52). A Certificate of Compliance must be transmitted to OAL by 3-23-2011 or emergency language will be repealed by operation of law on the following day.

5. Certificate of Compliance as to 12-23-2010 order, including amendment of subsection (e), transmitted to OAL 3-14-2011 and filed 4-25-2011; amendments operative 5-25-2011 (Register 2011, No. 17).

§1410. Responsibility for Acts of Employees. [Repealed]

Note • History

NOTE

Authority cited: Section 22400, Financial Code.

HISTORY

1. Repealer filed 12-3-81; effective thirtieth day thereafter (Register 81, No. 49).

§1411. Criminal Actions: Report to Commissioner.

Note • History

(a) A finance lender shall immediately report in writing to the commissioner any criminal action filed against such company or its directors, officers or management personnel.

(b) A mortgage lender, mortgage broker, mortgage lender and broker, and mortgage loan originator shall file the information in subsection (a) with the NMLS on Form MU1 and MU2, as applicable, in accordance with its procedures for transmission to the Commissioner.

NOTE

Authority cited: Section 22150, Financial Code. Reference: Sections 22108, 22109, 22109.1, 22701, 22705 and 22714, Financial Code.

HISTORY

1. Amendment filed 12-3-81; effective thirtieth day thereafter (Register 81, No. 49).

2. Editorial correction of NOTE filed 10-13-82 (Register 82, No. 42).

3. Amendment of NOTE filed 2-21-85; effective thirtieth day thereafter (Register 85, No. 8).

4. Change without regulatory effect amending Note filed 6-14-95 pursuant to section 100, title 1, California Code of Regulations (Register 95, No. 24).

5. Amendment of section and Note filed 4-1-2010 as an emergency; operative 7-31-2010 (Register 2010, No. 14). A Certificate of Compliance must be transmitted to OAL by 9-28-2010 or emergency language will be repealed by operation of law on the following day.

6. Editorial correction of History 5 (Register 2010, No. 40).

7. Amendment of section and Note refiled 9-28-2010 as an emergency, including repealer of subsection (c); operative 9-28-2010 (Register 2010, No. 40). A Certificate of Compliance must be transmitted to OAL by 12-27-2010 or emergency language will be repealed by operation of law on the following day.

8. Amendment of section and Note refiled 12-23-2010 as an emergency; operative 12-23-2010 (Register 2010, No. 52). A Certificate of Compliance must be transmitted to OAL by 3-23-2011 or emergency language will be repealed by operation of law on the following day.

9. Certificate of Compliance as to 12-23-2010 order, including amendment of subsection (a), transmitted to OAL 3-14-2011 and filed 4-25-2011; amendments operative 5-25-2011 (Register 2011, No. 17).

§1412. Subterfuge to Violate Laws or Rules Is Grounds for Suspension or Revocation. [Repealed]

Note • History

NOTE

Authority cited: Sections 22400 and 24400, Financial Code.

HISTORY

1. Repealer filed 12-3-81; effective thirtieth day thereafter (Register 81, No. 49).

§1413. Authorization to Act as a Broker. [Repealed]

Note • History

NOTE

Authority cited: Section 22400, Financial Code. Reference: Section 22416, Financial Code.

HISTORY

1. Repealer filed 12-3-81; effective thirtieth day thereafter (Register 81, No. 49).

§1414. Supervision of Mortgage Loan Originators.

Note • History

(a) Every mortgage lender, mortgage broker, and mortgage lender and broker shall exercise diligent supervision over the mortgage loan origination and lending activities of every mortgage loan originator that it sponsors.

(b) Every mortgage loan originator employed by a mortgage lender, mortgage broker, or mortgage lender and broker shall be subject to the supervision of a branch manager designated by such mortgage lender, mortgage broker, or mortgage lender and broker. Every branch manager shall be identified on Form MU3 and shall submit a Form MU2 to NMLS.

(c) Every mortgage lender, mortgage broker, and mortgage lender and broker shall establish, maintain and enforce written procedures, a copy of which shall be kept in each business office, that set forth the procedures adopted by the mortgage lender, mortgage broker, and mortgage lender and broker to comply with the duties imposed by this section.

(d) Every mortgage lender, mortgage broker, and mortgage lender and broker shall designate a Supervisor, an individual who shall:

(1) Supervise and periodically review the activities of the branch managers designated pursuant to subsection (b) of this section;

(2) Periodically inspect each business office of the mortgage lender, mortgage broker, or mortgage lender and broker to ensure that the written procedures are enforced; and

(3) In the event a mortgage lender, mortgage broker, or mortgage lender and broker does not have any branch offices, the supervisor shall directly supervise and review the activities of the mortgage loan originators.

(e) The supervisor shall be identified in Form MU1 as a qualifying individual and shall submit a Form MU2. For purposes of this section, a qualifying individual is a person in charge and responsible for the actions of the mortgage lender, mortgage broker, and mortgage lender and broker.

NOTE

Authority cited: Sections 22100 and 22109.1, Financial Code. Reference: Section 22013, Financial Code.

HISTORY

2. Editorial correction of History 1 (Register 2010, No. 40).

5. Certificate of Compliance as to 12-23-2010 order, including amendment of subsections (d)(3) and (e), transmitted to OAL 3-14-2011 and filed 4-25-2011; amendments operative 5-25-2011 (Register 2011, No. 17).

Article 2. Applications

§1420. Additional Information. [Repealed]

Note • History

NOTE

Authority cited: Section 22400, Financial Code. Reference: Sections 22201 and 24201, Financial Code.

HISTORY

1. Repealer filed 12-3-81; effective thirtieth day thereafter (Register 81, No. 49).

§1421. Filing Date of Application in Case of Notification of Deficiency. [Repealed]

Note • History

NOTE

Authority cited: Section 22400, Financial Code. Reference: Section 22210, Financial Code.

HISTORY

1. Repealer filed 12-3-81; effective thirtieth day thereafter (Register 81, No. 49).

§1422. Application for License as a Finance Lender or Broker; Form.

Note • History

(a) The application for a license as a finance lender or broker pursuant to Financial Code Section 22100 shall be filed upon the form set forth in subdivision (c) of this section.

(b) Within 45 calendar days from the receipt of the application under this rule, the California Corporations Commissioner shall inform the applicant, in writing, that the application is complete and accepted for filing, or that the application is deficient and specify what information is required to complete the application. Within 60 calendar days from the filing of a completed application, the California Corporations Commissioner shall reach a decision on the license.

(c) An application for a license as a finance lender or broker shall be submitted to the California Corporations Commissioner on the following form:

STATE OF CALIFORNIA

DEPARTMENT OF CORPORATIONS

INSTRUCTIONS FOR COMPLETING

THE APPLICATION FOR A LICENSE UNDER THE

CALIFORNIA FINANCE LENDERS LAW (CFLL)

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CFLL Application Checklist

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STATE OF CALIFORNIA

DEPARTMENT OF CORPORATIONS

INSTRUCTIONS FOR FILING OF SURETY BOND

EXHIBIT B

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BEFORE THE

DEPARTMENT OF CORPORATIONS

OF THE

STATE OF CALIFORNIA

EXHIBIT B

BOND OF FINANCE LENDER AND/OR BROKER

FINANCIAL CODE SECTION 22112

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DEPARTMENT OF CORPORATIONS

STATE OF CALIFORNIA

EXHIBIT C

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STATE OF CALIFORNIA

DEPARTMENT OF CORPORATIONS

INSTRUCTIONS FOR CUSTOMER AUTHORIZATION

FOR DISCLOSURE OF FINANCIAL RECORDS FORM

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STATE OF CALIFORNIA

DEPARTMENT OF CORPORATIONS

CUSTOMER AUTHORIZATION FOR DISCLOSURE OF

FINANCIAL RECORDS

EXHIBIT E

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NOTE

Authority cited: Section 22150, Financial Code. Reference: Sections 22000, 22100, 22101, 22101.5, 22102, 22103, 22104, 22105, 22106, 22107, 22108, 22112, 22153, 22154, 22157 and 22159, Financial Code.

HISTORY

1. New section filed 3-18-2002 as an emergency; operative 3-18-2002 (Register 2002, No. 12). A Certificate of Compliance must be transmitted to OAL by 7-16-2002 or emergency language will be repealed by operation of law on the following day.

2. New section refiled 7-10-2002 as an emergency; operative 7-15-2002 (Register 2002, No. 28). A Certificate of Compliance must be transmitted to OAL by 11-12-2002 or emergency language will be repealed by operation of law on the following day.

3. Certificate of Compliance as to 7-10-2002 order, including amendments, transmitted to OAL 10-30-2002 and filed 12-16-2002 (Register 2002, No. 51).

4. Editorial correction implementing amendments from 12-16-2002 order and amending History 3 (Register 2003, No. 20).

5. Amendment of section and new Note filed 11-7-2007; operative 12-7-2007 (Register 2007, No. 45).

§1422.4. Electronic Filings.

Note • History

(a) DESIGNATION: The Commissioner designates the Nationwide Mortgage Licensing System (NMLS) owned and operated by the State Regulatory Registry LLC (SRR), a wholly-owned subsidiary of the Conference of State Bank Supervisors (in cooperation with the American Association of Residential Mortgage Regulators) to receive and store filings, obtain fingerprints, obtain credit reports, and collect related fees from applicants and state-licensed mortgage lenders, mortgage brokers, mortgage lenders and brokers, and mortgage loan originators on behalf of the Commissioner.

(b) USE OF NMLS: All mortgage lender, mortgage broker, mortgage lender and broker, and mortgage loan originator applications, amendments, reports, notices, related filings, renewals, authorizations, and fees required to be filed with the Commissioner shall be filed electronically with and transmitted to NMLS, except as otherwise indicated in Subchapter 6 of these rules. The following conditions relate to such electronic filings:

(1) Electronic Signature: When a signature or signatures are required by the particular instructions of any filing, including any attestation to be made through NMLS, a duly authorized officer or proper delegate of the applicant or the applicant him or herself, as required, shall affix his or her electronic signature to the filing by typing his or her name in the appropriate field and submitting the filing to NMLS. Submission of a filing in this manner shall constitute irrefutable evidence of legal signature by any individual whose name is typed on the filing.

(2) When filed: Solely for purposes of a filing made through NMLS, unless otherwise specified, a document is considered filed with the Commissioner when all fees are received and the filing is transmitted by NMLS to the Commissioner.

(3) An applicant shall provide through NMLS the necessary authorizations so that NMLS may obtain independent credit reports, fingerprinting and criminal background checks.

(4) Any document required to be filed with the Commissioner that is not permitted to be filed with or cannot be transmitted through NMLS shall be filed in paper form directly with the Commissioner.

NOTE

Authority cited: Sections 22100 and 22150, Financial Code. Reference: Section 1633.7, Civil Code; and Sections 22012, 22014, 22100, 22105.1 and 22105.2, Financial Code.

HISTORY

1. New section filed 4-1-2010 as an emergency; operative 4-1-2010 (Register 2010, No. 14). A Certificate of Compliance must be transmitted to OAL by 9-28-2010 or emergency language will be repealed by operation of law on the following day.

2. New section refiled 9-28-2010 as an emergency; operative 9-28-2010 (Register 2010, No. 40). A Certificate of Compliance must be transmitted to OAL by 12-27-2010 or emergency language will be repealed by operation of law on the following day.

3. New section refiled 12-23-2010 as an emergency; operative 12-23-2010 (Register 2010, No. 52). A Certificate of Compliance must be transmitted to OAL by 3-23-2011 or emergency language will be repealed by operation of law on the following day.

4. Certificate of Compliance as to 12-23-2010 order, including amendment of subsections (b)(1) and (b)(4), transmitted to OAL 3-14-2011 and filed 4-25-2011; amendments operative 5-25-2011 (Register 2011, No. 17).

§1422.4.1. Share Arrangements with Other Governmental Agencies.

Note • History

For purposes of Section 22105.3 of the Financial Code, the Commissioner is authorized to share any information or material that has been submitted to NMLS to any governmental agency, including, but not limited to the California Attorney General, the California Department of Justice, the U.S. Department of Justice, the U.S. Department of Housing and Urban Development, including the Federal Housing Administration, the Federal Consumer Financial Protection Bureau, the Federal Bureau of Investigation, state, local, or federal regulatory agencies, state attorneys general, and county district attorney's offices. The information or material that is shared with a governmental agency shall be accomplished without the loss of privilege or the loss of confidentiality protections provided by law.

NOTE

Authority cited: Sections 22105.3 and 22150, Financial Code. Reference: Section 1798.24, Civil Code; and Sections 22105.1, 22105.2, 22105.3 and 22105.4, Financial Code.

HISTORY

4. Certificate of Compliance as to 12-23-2010 order, including amendment of section heading and amendment of section and Note, transmitted to OAL 3-14-2011 and filed 4-25-2011; amendments operative 5-25-2011 (Register 2011, No. 17).

§1422.4.5. Request for Confidential Treatment.

Note • History

A mortgage lender, broker, mortgage lender and broker, and mortgage loan originator applicant may request that certain documents, or parts thereof, be treated confidentially. A request for confidentiality shall be in writing and made pursuant to Section 250.10 of Article 1 of Subchapter 1 of these rules. If a request for confidential treatment is granted or denied, the person making such request will be notified in writing.

NOTE

Authority cited: Sections 22105.3 and 22150, Financial Code. Reference: Section 1798.24, Civil Code; and Sections 22105.1, 22105.3 and 22105.4, Financial Code.

HISTORY

1. New section filed 4-25-2011; operative 5-25-2011 (Register 2011, No. 17).

§1422.5. License Application for Mortgage Lenders, Mortgage Brokers, and Mortgage Lenders and Brokers.

Note • History

The procedures set forth in this section are applicable to a mortgage lender, mortgage broker, and mortgage lender and broker that is required to be licensed under Section 22100 of the Code. Except as otherwise provided in Subchapter 6 of these rules, a mortgage lender, mortgage broker, and mortgage lender and broker are subject to the requirements of this section and are not subject to the requirements of Section 1422 of Subchapter 6 of these rules.

(a) INITIAL APPLICATION: The application for a license as a mortgage lender, broker, or mortgage lender and broker under subdivision (a) of Section 22100 of the Code and any amendment to such application under Section 1409.1 of Subchapter 6 of these rules shall be filed upon Form MU1 (Uniform Mortgage Lender/Mortgage Broker Form) and any exhibits, in accordance with the instructions of NMLS for transmission to the Commissioner. Exhibits that cannot be submitted through NMLS shall be submitted directly to the Commissioner. The notices set forth in Section 1422.7 of Subchapter 6 of these rules are part of every application. An applicant shall provide the following information, exhibits and documentation in the manner provided:

(1) An applicant shall identify all fictitious business names on Form MU1.

(A) For each fictitious business name, an applicant shall submit directly to the Commissioner a Fictitious Business Name Statement bearing the seal of the county clerk.

(B) An applicant may not use a fictitious business name until the Commissioner approves the use of the name. An applicant may not permit a mortgage loan originator sponsored by the applicant or a branch office to use any name not approved by the Commissioner.

(C) Every applicant and licensee shall comply with the rules governing the filing of a fictitious business name set forth in Business and Professions Code Section 17900 et seq.

(2) For every additional business location, an applicant shall obtain a branch office license in accordance with Section 1424 of Subchapter 6 of these rules.

(3) An applicant shall provide the names, personal history, and experience of individual applicants, officers, directors, managing members (in the case of a limited liability company), general and managing partners (in the case of a partnership), and control persons (both direct and indirect) of the applicant through NMLS on Form MU1 within the “Directors and Executive Officers” section and on Form MU2.

(A) The named individuals shall provide authorization for, and subsequent delivery of, fingerprints to NMLS or the California Department of Justice, or both, as applicable.

(B) An applicant shall pay all fees required for the criminal history background check.

(4) An applicant shall submit through NMLS as an exhibit to Form MU1 financial statements prepared in accordance with generally accepted accounting principles and acceptable to the Commissioner, that includes applicant's fiscal year end date.

(A) The balance sheet shall be dated no more than 90 days before the date that the application is submitted to the Commissioner through NMLS.

(B) The financial statements shall document the required minimum tangible net worth in accordance with Section 22104 of the Code. An applicant who employs one or more mortgage loan originators must meet and maintain a minimum net worth of $250,000 at all times, and all other applicants shall maintain a minimum net worth of at least $25,000 at all times.

(5) An applicant shall submit directly to the Commissioner a Customer Authorization of Disclosure of Financial Records form (Exhibit E (Rev. 9/07) to the application for license as a finance lender or broker in Section 1422 of Subchapter 6 of these rules), and maintain a copy in the applicant's books and records as provided in Section 22156 of the Code. This authorization is effective as of the date of execution and shall remain effective until five years after the suspension, surrender, or revocation of the mortgage lender or broker license. The authorization may not be revoked.

(6) In addition to the identification of business activities requested on Form MU1, an applicant shall submit a detailed description of the applicant's business activities directly to the Commissioner. If an applicant answers yes to either question (7)(A) or (7)(B) of Form MU1, the applicant must also submit an organizational chart.

(7) An applicant shall submit directly to the Commissioner evidence of surety bond in accordance with Section 1437 of Subchapter 6 of these rules.

(8) If an applicant intends to engage in any activity not specified in Items 4 and 5 of Form MU1, the applicant shall submit this information directly to the Commissioner.

(9) A business entity applicant shall submit the following documents directly to the Commissioner:

(A) A corporate applicant shall submit an original certificate of qualification or good standing from the California Secretary of State executed not more than sixty days before the filing of the application. The certificate must show that the applicant is authorized to transact business in the State of California.

(B) A foreign corporation shall submit an original certificate of qualification or good standing from the Secretary of State of the state of incorporation executed not more than sixty days before the filing of the application, showing that the applicant is authorized to transact business in that state.

(D) A limited partnership or limited liability company applicant shall submit an original certificate of qualification or good standing from the California Secretary of State executed not more than sixty days before the filing of the application, showing that the applicant is authorized to transact business in the State of California.

(E) A foreign limited partnership or limited liability company applicant shall submit an original certificate of qualification or good standing from the Secretary of State of the state of formation executed not more than sixty days before the filing of the application, showing that the applicant is authorized to transact business in that state.

(10) Every applicant shall provide a registered agent for service of process in item 2(A) of Form MU1 that is located within the state of California.

(11) An applicant shall provide its website information through NMLS on Form MU1.

(12) The individual attesting to the filing of the Form MU1 must be a duly authorized individual who has submitted a Form MU2, or who has been delegated to attest to the filing by an individual who has submitted a Form MU2. The attestation provided pursuant to this paragraph shall constitute an agreement to comply with the requirements of the California Finance Lenders Law.

(b) FILING FEE: Pursuant to Section 22103 of the Financial Code, application fees ($200), investigation fees ($100) and fingerprint processing fees ($20 per set to the Department of Corporations, plus Department of Justice and Federal Bureau of Investigation fees, as applicable) related to the fingerprint and criminal background checks, shall be paid through NMLS for transmission to the Commissioner. The payment of fingerprint processing fees shall be filed directly with the Commissioner until such time as the NMLS can accept the fee. Fees are not refundable.

(c) COMPLETION OF FILING and ISSUANCE OF LICENSE: An application for licensure as a mortgage lender, mortgage broker, or mortgage lender and broker is not deemed complete until all required fees, all required submissions, and all background and investigative reports are received by the Commissioner. In accordance with Section 22109(b), the Form MU1 application may be considered withdrawn if the Commissioner does not receive the requested information contained in any written notification of a deficiency within 90 days of the notification.

(d) FILING AN AMENDMENT: In the event of a change to the information in the application, or exhibits thereto, the mortgage lender, mortgage broker, or mortgage lender and broker applicant or licensee shall file an amendment to the Form MU1, MU2, or MU3 through NMLS in accordance with the procedures in Section 1409.1 of Subchapter 6 of these rules. Prior to the issuance of a license, any amendment to an application shall be filed within five (5) days. Any change that cannot be reported through NMLS shall be reported directly to the Commissioner.

NOTE

Authority cited: Section 22150, Financial Code. Reference: Sections 17900, 17910, 17913 and 17926, Business and Professions Code; Section 1798.17, Civil Code; Section 7473, Government Code; Sections 22000, 22100, 22101, 22101.5, 22102, 22103, 22104, 22105, 22105.2, 22106, 22107, 22108, 22109.6, 22112, 22153, 22154, 22156, 22157, 22159 and 22170, Financial Code; Section 17520, Family Code; and Section 11077.1, Penal Code.

HISTORY

2. New section, including amendment of subsection (a)(5) and repealer of subsection (e), refiled 9-28-2010 as an emergency; operative 9-28-2010 (Register 2010, No. 40). A Certificate of Compliance must be transmitted to OAL by 12-27-2010 or emergency language will be repealed by operation of law on the following day.

4. Certificate of Compliance as to 12-23-2010 order, including amendment of first paragraph and subsections (a), (a)(3), (a)(4) and (a)(4)(B), new subsection (a)(12) and amendment of Note, transmitted to OAL 3-14-2011 and filed 4-25-2011; amendments operative 5-25-2011 (Register 2011, No. 17).

§1422.6. Mortgage Loan Originator Application Procedures.

Note • History

(a) ESTABLISHING A RELATIONSHIP IN NMLS: A licensed mortgage lender, mortgage broker, or mortgage lender and broker shall sponsor in NMLS each mortgage loan originator employed by it. To sponsor a mortgage loan originator, a mortgage lender, mortgage broker, or mortgage lender and broker applicant or licensee must:

(1) Obtain a unique identifier through NMLS,

(2) Obtain for its records, evidence that each mortgage loan originator meets the qualification requirements of Section 1422.6.1 of Subchapter 6 of these rules, and

(3) Ascertain (by investigation) the character, business reputation and experience of any individual mortgage loan originator, prior to executing any transaction on behalf of the mortgage lender, mortgage broker, or mortgage lender and broker. Evidence of compliance with this paragraph shall be maintained as a part of the records of the licensee as required by Sections 1425 and 1426 of Subchapter 6 of these rules.

(b) Upon the employment of an individual as a mortgage loan originator, a mortgage lender, mortgage broker, or mortgage lender and broker shall ensure that the mortgage loan originator files a Uniform Individual Mortgage License/ Registration & Consent Form (Form MU4) in NMLS for submission to the Commissioner and obtains a mortgage loan originator license. The notices set forth in Section 1422.7 of Subchapter 6 of these rules are part of every mortgage loan originator application.

(c) A mortgage lender, mortgage broker, or mortgage lender and broker must establish the sponsorship of the mortgage loan originator in NMLS. A mortgage loan originator sponsorship is not approved until the Commissioner approves the sponsorship and issues the mortgage loan originator a license. A sponsorship will not be approved until the sponsoring mortgage lender, mortgage broker, or mortgage lender and broker has obtained a license through NMLS or has transitioned its license onto NMLS in accordance with Section 1422.5 of Subchapter 6 of these rules.

(d) A mortgage loan originator applicant must complete all license requirements, including, but not limited to the payment of all required fees prior to transmitting the application to the Commissioner. The fee for an application as a mortgage loan originator is three hundred dollars ($300), which shall be paid through NMLS for transmission to the Commissioner, plus twenty dollars ($20) for the processing of a criminal history background check. The application fee shall constitute the mortgage loan originator's license fee for the remainder of the year in which a license is issued. The fees in this subsection are in addition to any fees required by NMLS, the Department of Justice, the Federal Bureau of Investigation, or any other party for the processing of criminal history background checks, credit reports, testing, education, or any other licensure requirement under the California Finance Lenders Law. As of January 1, 2011, the fee for an application as a mortgage loan originator is three hundred dollars ($300), which shall be paid through NMLS for transmission to the Commissioner, plus twenty dollars ($20) for the processing of a criminal history background check.

(e) The Form MU4 application may be considered withdrawn if the Commissioner does not receive the requested information contained in the written notification of a deficiency within 90 days of the notification.

(f) In accordance with subdivision (c) of Section 22100, a mortgage lender, mortgage broker, or mortgage lender and broker shall not permit a mortgage loan originator whose license or license sponsorship has lapsed, or whose license sponsorship is not in effect, to engage in activities of a mortgage loan originator unless the mortgage loan originator's license has been reinstated pursuant to the procedures set forth in Section 1422.11 of Subchapter 6 of these rules.

(g) A mortgage lender, mortgage broker, or mortgage lender and broker shall require every sponsored mortgage loan originator to file an amendment to his or her Form MU4 through NMLS within twenty (20) days of any change to the information contained in the Form MU4.

(h) A mortgage loan originator may not engage in business under any name other than a name approved by the Commissioner for the use by the sponsor of the mortgage loan originator.

(i) A mortgage lender, mortgage broker, or mortgage lender and broker shall be responsible for the acts, practices, and conduct of its sponsored mortgage loan originator in connection with the making, brokering, servicing, or origination of residential mortgage loans until such time that the sponsorship of the mortgage loan originator is terminated through the NMLS. Termination procedures shall be as follows:

(1) A mortgage lender, mortgage broker, or mortgage lender and broker shall terminate the sponsorship of a mortgage loan originator through the NMLS within fifteen (15) days after the termination of an individual, and shall clearly state the reason(s) for termination.

(2) A mortgage loan originator shall file an amendment to Form MU4 to terminate a relationship with a mortgage lender, broker, or mortgage lender and broker within 15 days of the termination. A mortgage loan originator may not originate loans unless he or she has a valid license and the mortgage loan originator has a sponsorship approved by the Commissioner.

(j) PROCEDURES FOR A SOLE PROPRIETOR MORTGAGE LOAN ORIGINATOR: A sole proprietor mortgage loan originator must:

(1) File Forms MU1 and MU2 (biographical information) and obtain a license as a mortgage lender, mortgage broker, or mortgage lender and broker, and

(2) File Form MU4 and obtain a license as a mortgage loan originator.

NOTE

Authority cited: Sections 22105.2 and 22150, Financial Code. Reference: Sections 17900, 17910, 17913 and 17926, Business and Professions Code; Section 1798.17, Civil Code; Section 7473, Government Code; Sections 22000, 22014, 22100, 22105.1, 22107, 22108, 22109.6 and 22347, Financial Code.

HISTORY

2. New section, including amendment of subsection (d), refiled 9-28-2010 as an emergency; operative 9-28-2010 (Register 2010, No. 40). A Certificate of Compliance must be transmitted to OAL by 12-27-2010 or emergency language will be repealed by operation of law on the following day.

3. New section, including further amendment of subsection (d), refiled 12-23-2010 as an emergency; operative 12-23-2010 (Register 2010, No. 52). A Certificate of Compliance must be transmitted to OAL by 3-23-2011 or emergency language will be repealed by operation of law on the following day.

4. Certificate of Compliance as to 12-23-2010 order, including amendment of subsection (d) and Note, transmitted to OAL 3-14-2011 and filed 4-25-2011; amendments operative 5-25-2011 (Register 2011, No. 17).

§1422.6.1. Qualifications of Mortgage Loan Originator Applicants.

Note • History

Every applicant for a mortgage loan originator license shall meet the requirements of this section.

(a) QUALIFIED WRITTEN TEST: Every applicant for a mortgage loan originator license shall pass a qualified written test developed by the Nationwide Mortgage Licensing System and Registry and administered by a test provider approved by the Nationwide Mortgage Licensing System and Registry within one year prior to the date of filing the application for, or the issuance of, a mortgage loan originator license. The qualified written test shall consist of a national component and a California component. An applicant shall abide by the rules, policies and procedures of the Nationwide Mortgage Licensing System and Registry in the administration of the test.

(b) EDUCATION: Every applicant for a residential mortgage loan originator license shall complete at least 20 hours of NMLS approved education including:

(1) Three hours of instruction on federal law and regulations,

(2) Three hours of ethics, which shall include instruction on fraud, consumer protection, and fair lending issues, and

(3) Two hours of training related to lending standards for the nontraditional mortgage product marketplace.

NOTE

Authority cited: Section 22150, Financial Code. Reference: Sections 22109.1, 22109.2 and 22109.3, Financial Code.

HISTORY

4. Certificate of Compliance as to 12-23-2010 order transmitted to OAL 3-14-2011 and filed 4-25-2011 (Register 2011, No. 17).

§1422.6.2. Evidence of Financial Responsibility.

Note • History

(a) The Commissioner's finding required by Section 22109.1(c) of the California Finance Lenders Law relates to any matter, personal or professional, that may impact upon an applicant's propensity to operate honestly, fairly, and efficiently when engaging in the role of a mortgage loan originator.

(b) An applicant for a mortgage loan originator license shall authorize NMLS to obtain the applicant's current credit report. The credit report will be used as needed to validate the applicant's responses to the electronic application form, in order to support the Commissioner's finding required by Section 22109.1(c) of the California Finance Lenders Law.

(c) An applicant may be precluded from obtaining a mortgage loan originator license where his or her personal history includes:

(1) Any liens or judgments for fraud, misrepresentation, dishonest dealing, and/or mishandling of trust funds, or

(2) Other liens, judgments, or financial or professional conditions that indicate a pattern of dishonesty on the part of the applicant.

NOTE

Authority cited: Section 22150, Financial Code. Reference: Section 22109.1, Financial Code.

HISTORY

4. Certificate of Compliance as to 12-23-2010 order transmitted to OAL 3-14-2011 and filed 4-25-2011 (Register 2011, No. 17).

§1422.6.3. Continuing Education and Renewal Procedures for Mortgage Loan Originators.

Note • History

(a) A mortgage loan originator license shall be renewed on an annual basis between November 1 and December 31. A license not renewed during the specified time period shall be deemed a lapsed or expired license. A mortgage loan originator with a lapsed or expired license may not engage in business as a mortgage loan originator until the mortgage loan originator's license is reinstated pursuant to Section 1422.11 of Subchapter 6 of these rules.

(b) To renew a license under subsection (a) of this rule, a licensed mortgage loan originator shall pay a renewal fee ($300), comply with all submission requests by the Commissioner, and complete at least eight hours of NMLS approved continuing education on or before December 31st of every year, which shall include the following:

(1) Three hours of instruction on federal law and regulations,

(2) Two hours of ethics, which shall include instruction on fraud, consumer protection and fair lending issues, and

(3) Two hours of training related to lending standards for the nontraditional mortgage product marketplace.

(c) As of January 1, 2011, to renew a license under subsection (a) of this rule, a licensed mortgage loan originator shall pay a renewal fee ($300), and comply with (b).

NOTE

Authority cited: Section 22150, Financial Code. Reference: Sections 22107, 22109.4, 22109.5 and 22172, Financial Code.

HISTORY

3. New section, including new subsection (c), refiled 12-23-2010 as an emergency; operative 12-23-2010 (Register 2010, No. 52). A Certificate of Compliance must be transmitted to OAL by 3-23-2011 or emergency language will be repealed by operation of law on the following day.

4. Certificate of Compliance as to 12-23-2010 order, including amendment of subsection (b), transmitted to OAL 3-14-2011 and filed 4-25-2011; amendments operative 5-25-2011 (Register 2011, No. 17).

§1422.7. Notices Included with Applications.

Note • History

The following notices required by state and federal law are hereby provided for those completing an application for a residential mortgage lender, mortgage broker, or residential mortgage lender and broker license in Section 1422.5 of Subchapter 6 of these rules, and an application for a mortgage loan originator license in Section 1422.6 of Subchapter 6 of these rules:

NOTICES REQUIRED UNDER STATE AND FEDERAL LAW

INFORMATION PRACTICES ACT OF 1977

(California Civil Code Section 1798.17)

(a) The Department of Corporations of the State of California is requesting the information specified in the application for licensure of mortgage lenders, mortgage brokers, mortgage lender and brokers and mortgage loan originators.

(e) Failure to provide all or any part of the information requested may preclude the Department of Corporations from approving the application.

(f) The principal purposes within the Department of Corporations for which the information is to be used are to determine whether (1) a license, registration, or other authority, as allowed under the law, should be accepted, granted, approved, denied, revoked or limited in any way; (2) business entities or individuals licensed or otherwise regulated by the Department of Corporations are conducting themselves in accordance with applicable laws; and/or (3) laws administered by the Department of Corporations are being or have been violated and whether administrative action, civil action, or referral to appropriate federal, state or local law enforcement or regulatory agencies, as authorized by law, is appropriate.

(g) Any known or foreseeable disclosures of the information pursuant to subdivision (e) or (f) of Civil Code Section 1798.24 may include transfers to other federal, state, or local law enforcement and regulatory agencies, including NMLS as a channelling agent to, from, or on behalf of those federal, state, and local law enforcement and regulatory agencies, as authorized by law.

(h) Except for Section 22105.3 of the Financial Code, the Information Practices Act grants an individual a right of access to personal information concerning the requesting individual that is maintained by the Department of Corporations.

FEDERAL PRIVACY ACT OF 1974 (Public Law 93-579)

In accordance with Section 7 of the Privacy Act of 1974 (found at 5 U.S.C. §552a note (Disclosure of Social Security Number)), the following is information on whether the disclosure of a social security account number is voluntary or mandatory, by what statutory or other authority such number is solicited, and what uses will be made of it.

(2) A social security account number is solicited pursuant to one or more of the following authorities: Sections 1422.5 and 1422.7 of Title 10, California Code of Regulations; and Section 17520 of the Family Code.

(3) For all persons disclosing a social security account number, the number may be used, in addition to other information provided, to conduct a background investigation of the individual by the Department of Justice's Identification and Information Branch or by other federal, state or local law enforcement agencies, as authorized by law. The social security number may also be used to respond to requests for this number made by child support agencies.

NOTE

Authority cited Section 22150, Financial Code. Reference: Sections 1798.17 and 1798.24, Civil Code; Sections 22100, 22101, 22105, 22105.1, 22105.2 and 22105.3, Financial Code; Section 17520, Family Code; Sections 7470, 7473, 7490 and 13140-13144, Government Code; and Section 7 of Public Law 93-579 (5 U.S.C. Section 552a note).

HISTORY

4. Certificate of Compliance as to 12-23-2010 order, including amendment of subsection (g) and Note, transmitted to OAL 3-14-2011 and filed 4-25-2011; amendments operative 5-25-2011 (Register 2011, No. 17).

§1422.7.1. Statement of Citizenship, Alienage, and Immigration Status.

Note • History

Any individual (e.g. sole proprietor or mortgage loan originator) who is applying for any license under the California Finance Lenders Law shall file the Statement of Citizenship, Alienage, and Immigration Status and any accompanying documentation directly with the Commissioner in accordance with Sections 250.60 and 250.61 of Article 5 of Subchapter 1 of these rules.

NOTE

Authority cited: Section 22150, Financial Code. Reference: Section 22101, Financial Code; and 8 U.S.C. Sections 1621, 1641 and 1642.

HISTORY

4. Certificate of Compliance as to 12-23-2010 order, including amendment of Note, transmitted to OAL 3-14-2011 and filed 4-25-2011; amendments operative 5-25-2011 (Register 2011, No. 17).

§1422.9. Effectiveness of Mortgage Lender, Mortgage Broker, Mortgage Lender and Broker, and Mortgage Loan Originator Licenses.

Note • History

(a) A license as a mortgage lender, mortgage broker, or mortgage lender and broker under Section 22100 of the Code continues in effect until it is revoked or suspended by the Commissioner, or surrendered by the mortgage lender, mortgage broker, or mortgage lender and broker and the surrender has been accepted by the Commissioner pursuant to Section 1422.10 of Subchapter 6 of these rules.

(b) A license as a mortgage loan originator under Section 22100 of the Code shall be renewed on an annual basis in accordance with Section 1422.6.3 of Subchapter 6 of these rules. The license shall be in effect for the calendar year unless revoked, suspended, or surrendered.

NOTE

Authority cited: Sections 22100 and 22150, Financial Code. Reference: Section 22109.6, Financial Code.

HISTORY

4. Certificate of Compliance as to 12-23-2010 order, including amendment of subsection (b), transmitted to OAL 3-14-2011 and filed 4-25-2011; amendments operative 5-25-2011 (Register 2011, No. 17).

§1422.10. Surrender of License as a Mortgage Lender, Mortgage Broker or Mortgage Loan Originator.

Note • History

(a) An application to surrender a license as a mortgage lender, mortgage broker, mortgage lender and broker, or mortgage loan originator shall be filed on Form(s) MU1, MU3, and MU4 through NMLS in accordance with its procedures for transmission to the Commissioner. Upon approval of the surrender by the Commissioner, a licensee shall amend every branch office application Form MU3 and terminate the sponsorship of all mortgage loan originators.

(b) To surrender a branch office license, a licensee shall file an amendment to Form MU3 in accordance with the instructions on the form for surrendering a branch office license.

NOTE

Authority cited: Section 22150, Financial Code. Reference: Sections 22107 and 22108, Financial Code.

HISTORY

4. Certificate of Compliance as to 12-23-2010 order, including amendment of subsection (a), transmitted to OAL 3-14-2011 and filed 4-25-2011; amendments operative 5-25-2011 (Register 2011, No. 17).

§1422.11. Reinstatement of License as a Mortgage Loan Originator.

Note • History

(a) A mortgage loan originator license that has not been renewed between November 1 and December 31 is a lapsed or expired license. A mortgage loan originator with an expired license may not continue doing business as a mortgage loan originator unless his or her license is reinstated.

(b) A mortgage loan originator may reinstate an expired license if all of the following conditions are met:

(1) The mortgage loan originator must submit a request for reinstatement through NMLS before March 1 of the year immediately following the year the license expired.

(2) All continuing education courses and any other minimum requirements for the license renewal for the year in which the license expired must be completed before March 1 of the year immediately following the year the license expired.

(3) The mortgage loan originator must pay the applicable licensing fee ($300), reinstatement fee ($100), and any late fees or penalties. As of January 1, 2011, the mortgage loan originator must pay the applicable licensing fee ($300), reinstatement fee ($100), and any later fees or penalties.

(4) The mortgage loan originator must continue to meet minimum standards for renewal in Section 22109.4 of the Code.

(c) If a mortgage loan originator whose license has expired cannot meet the requirements for reinstatement specified in this section or submits a reinstatement filing on or after March 1, the mortgage loan originator must apply for a new license and meet the requirements for licensure in effect at that time.

NOTE

Authority cited: Section 22150, Financial Code. Reference: Sections 22107, 22108, 22109, 22109.1, 22109.2, 22109.3, 22109.4 and 22109.5, Financial Code.

HISTORY

2. Editorial correction restoring inadvertently omitted History 1 (Register 2010, No. 16).

3. New section refiled 9-28-2010 as an emergency; operative 9-28-2010 (Register 2010, No. 40). A Certificate of Compliance must be transmitted to OAL by 12-27-2010 or emergency language will be repealed by operation of law on the following day.

3. New section, including amendment of subsection (b)(3), refiled 12-23-2010 as an emergency; operative 12-23-2010 (Register 2010, No. 52). A Certificate of Compliance must be transmitted to OAL by 3-23-2011 or emergency language will be repealed by operation of law on the following day.

4. Certificate of Compliance as to 12-23-2010 order, including amendment of subsection (b)(3), transmitted to OAL 3-14-2011 and filed 4-25-2011; amendments operative 5-25-2011 (Register 2011, No. 17).

§1422.12. Challenge Process for Information Entered Into NMLS.

Note • History

(a) If an applicant or licensee disputes the accuracy or completeness of any material information entered into and maintained by NMLS, the applicant or licensee may submit a written request to the Commissioner to the attention of the Special Administrator, California Finance Lenders Law, Department of Corporations, 320 West 4th Street, Suite 750, Los Angeles, CA 90013-2344. For purposes of this section, a “licensee” includes a mortgage loan originator.

(b) The request shall include the applicant or licensee's name, unique identifier, a statement of the alleged inaccuracy or incompleteness of the information entered into NMLS, and its materiality, and shall provide any proof or corroboration available, including copies of official documents or court orders that support the changes requested by the licensee or applicant.

(c) Upon receipt of the request, the Commissioner shall investigate the request, along with any information provided, and determine if the information entered into NMLS is correctly reflected.

(d) If the Commissioner determines that the information is materially incorrect, the Commissioner shall request that the NMLS record be corrected.

(e) If the Commissioner denies the allegations of material inaccuracy or incompleteness in the NMLS record, the Commissioner shall notify the licensee or applicant in writing.

(f) Within 30 days from the mailing or service of the notification, the person may request a hearing under the Administrative Procedure Act (Chapter 5 (commencing with Section 11500) of Part 1, Division 3, Title 2 of the Government Code) for a determination of whether material inaccuracy or incompleteness exists in the record.

(g) If a material inaccuracy or incompleteness is found in any record, within 30 days of notice of the finding the Commissioner shall request that NMLS correct the information.

(h) Judicial review of the decision shall be governed by Section 11523 of the Government Code.

NOTE

Authority cited: Section 22150, Financial Code. Reference: Section 22105.2, Financial Code.

HISTORY

4. Certificate of Compliance as to 12-23-2010 order transmitted to OAL 3-14-2011 and filed 4-25-2011 (Register 2011, No. 17).

§1423. Short Form Application for Licensees Seeking Additional Location License; Form.

Note • History

(a) The application for a licensee seeking an additional location license pursuant to Financial Code Section 22102(b) shall be filed upon the form set forth in subdivision (b) of this section. An applicant under this section must currently hold a valid finance lender or broker license pursuant to Financial Code Sections 22100 and 22101.

(b) An application for a licensee as set forth in subdivision (a) shall be submitted to the California Corporations Commissioner on the following form:

STATE OF CALIFORNIA

DEPARTMENT OF CORPORATIONS

INSTRUCTIONS FOR COMPLETING

THE SHORT FORM APPLICATION FOR A LICENSE

UNDER THE CALIFORNIA FINANCE LENDERS LAW (CFLL)

Embedded Graphic 10.0054

Embedded Graphic 10.0055

STATE OF CALIFORNIA

DEPARTMENT OF CORPORATIONS

“SHORT FORM APPLICATION”

FOR A LICENSE UNDER THE

CALIFORNIA FINANCE LENDERS LAW

FOR A LICENSEE CURRENTLY HOLDING ONE OR MORE LICENSES

Embedded Graphic 10.0056

Embedded Graphic 10.0057

*This Short Form Application must be signed by an officer who has PREVIOUSLY completed and submitted a Statement of Identity and Questionnaire. No other officer is authorized to sign documents on behalf of the applicant.

NOTE

Authority cited: Section 22150, Financial Code. Reference: Sections 22101, 22102 and 22106, Financial Code.

HISTORY

3. Certificate of Compliance as to 7-10-2002 order transmitted to OAL 10-30-2002 and filed 12-16-2002 (Register 2002, No. 51).

4. Amendment of section and new Note filed 11-7-2007; operative 12-7-2007 (Register 2007, No. 45).

§1424. Branch Office License Instructions for Mortgage Lenders.

Note • History

(a) A mortgage lender, broker, or mortgage lender and broker licensee that seeks to engage in business at an additional location must submit an application for a branch office license by submitting Form MU3 (Uniform Mortgage Branch Office Form) in accordance with the instructions of NMLS for transmission to the Commissioner at least ten days (10) before engaging in business at the location.

(b) An applicant that intends to conduct business at the branch office under a fictitious business name not already approved by the Commissioner shall submit a copy of the Fictitious Business Name Statement with the “filed stamp” from the county clerk's office and may not use the name until the Commissioner approves the use of the name.

(c) An applicant shall indicate each branch manager as a branch manager on Form MU3 and submit to NMLS a Form MU2 (Biographical Statement & Consent Uniform Mortgage Lender/Mortgage Broker Form) for each branch manager.

(1) Each branch manager shall provide authorization for, and delivery of, fingerprints and related information to NMLS and the California Department of Justice, as applicable.

(2) Each location must have a branch manager and the same individual may not be a branch manager of multiple locations.

(d) The Commissioner may request that additional information, documentation or detail pertaining to the branch office application be filed directly with the Commissioner.

(e) Application, investigation, and criminal history background check fees shall be paid by the applicant or licensee to NMLS for transmission to the Commissioner. Any applicable fees that cannot be paid through NMLS shall be paid directly to the Commissioner. Fees are not refundable.

NOTE

Authority cited: Section 22150, Financial Code. Reference: Sections 22101, 22101.5, 22102, 22103 and 22105, Financial Code.

HISTORY

4. Certificate of Compliance as to 12-23-2010 order, including amendment of Note, transmitted to OAL 3-14-2011 and filed 4-25-2011; amendments operative 5-25-2011 (Register 2011, No. 17).

Article 3. Books, Records and Examinations

§1425. Books and Records: To Be Maintained at the Licensed Place of Business.

Note • History

Except as otherwise provided by Section 22158 of the Financial Code, a finance company shall always maintain its books, records, and accounts at its licensed location. The individual loan records required to be maintained shall include at least the following: The Statement of Loan or other disclosure statements used to comply with Section 22337 of the Financial Code, Security Agreement or Wage Assignment, Promissory Note, Loan Application, Payment Record, Escrow Closing Statement (if applicable), Insurance Policies or memoranda, when insurance other than Credit Insurance has been sold, and such records as the Commissioner may designate.

NOTE

Authority cited: Section 22150, Financial Code. Reference: Sections 22156, 22157, 22158, 22337 and 22709, Financial Code.

HISTORY

1. Amendment filed 12-29-83; effective thirtieth day thereafter (Register 83, No. 53).

2. Amendment of NOTE filed 5-16-84; effective thirtieth day thereafter (Register 84, No. 20).

3. Amendment filed 2-21-85; effective thirtieth day thereafter (Register 85, No. 8).

4. Change without regulatory effect amending section and Note filed 6-14-95 pursuant to section 100, title 1, California Code of Regulations (Register 95, No. 24).

§1426. Same: Standard for Keeping.

Note • History

A finance company shall maintain its books, accounts and records in accordance with generally accepted accounting principles and good business practice.

NOTE

Authority cited: Section 22150, Financial Code. Reference: Sections 22156, 22157 and 22709, Financial Code.

HISTORY

1. New NOTE filed 12-29-83; effective thirtieth day thereafter (Register 83, No. 53).

2. Amendment of NOTE filed 2-21-85; effective thirtieth day thereafter; (Register 85, No. 8).

3. Change without regulatory effect amending section and Note filed 6-14-95 pursuant to section 100, title 1, California Code of Regulations (Register 95, No. 24).

§1427. Same: Must Be Separate.

Note • History

A finance company shall install and maintain separate loan records for each licensed loan business in accordance with the provisions of this article, in order to distinguish each licensed loan business and operations from other licensed loan business or operations subject to this subchapter. A finance company shall install and maintain separate loan records from those loan records maintained by any other business that is transacted at the same office, room, or place of business.

NOTE

Authority cited: Section 22150, Financial Code. Reference: Sections 22156, 22157 and 22709, Financial Code.

HISTORY

1. Amendment filed 12-29-83; effective thirtieth day thereafter (Register 83, No. 53).

2. Amendment filed 2-21-85; effective thirtieth day thereafter (Register 85, No. 8).

3. Change without regulatory effect amending section and Note filed 6-14-95 pursuant to section 100, title 1, California Code of Regulations (Register 95, No. 24).

4. Amendment filed 8-4-98; operative 9-3-98 (Register 98, No. 32).

§1428. Loan Documents: When Loan Is Transferred Within a Company.

Note • History

Except as otherwise provided by Section 22158 of the Financial Code, whenever any loan is transferred within the same company outside the State for any reason, or to an unlicensed affiliate wherever located for any reason, a finance company shall maintain at its licensed location, the original or exact copy of the Statement of Loan and any other disclosure statement used to comply with Section 22337 of the Financial Code, Payment Record and a record identifying the loan, the date of transfer, and the receiving office. However, except as otherwise provided by Section 22158, when a loan is sold, transferred, or assigned to another licensed location of the same company within the State of California, only a record identifying the loan, the date of transfer, and the receiving office need be maintained by the sending office and thereafter the branch office receiving said loan shall maintain the required documents in its files.

NOTE

Authority cited: Section 22150, Financial Code. Reference: Sections 22156, 22157, 22158, 22337 and 22709, Financial Code.

HISTORY

1. Amendment filed 12-29-83; effective thirtieth day thereafter (Register 83, No. 53).

2. Amendment filed 5-16-84; effective thirtieth day thereafter (Register 84, No. 20.)

3. Amendment filed 2-21-85; effective thirtieth day thereafter (Register 85, No. 8).

4. Change without regulatory effect amending section and Note filed 6-14-95 pursuant to section 100, title 1, California Code of Regulations (Register 95, No. 24).

§1429. Loan Documents: When Loan Is Transferred Outside a Company.

Note • History

Except when otherwise provided by Section 22158 of the Financial Code, whenever any loan is sold, transferred or assigned to an unaffiliated entity, the finance company relinquishing the loan shall maintain at its licensed location the original or an exact copy of the application for a loan and all papers and other documents relating to such transaction, as provided by the Law.

NOTE

Authority cited: Section 22150, Financial Code. Reference: Sections 22156, 22157, 22158 and 22709, Financial Code.

HISTORY

1. Amendment filed 12-29-83; effective thirtieth day thereafter (Register 83, No. 53).

2. Amendment filed 2-21-85; effective thirtieth day thereafter (Register 85, No. 8).

3. Change without regulatory effect amending section and Note filed 6-14-95 pursuant to section 100, title 1, California Code of Regulations (Register 95, No. 24).

§1430. Annual Report. [Repealed]

Note • History

NOTE

Authority cited: Section 22400, Financial Code. Reference: Section 22408, Financial Code.

HISTORY

1. Amendment filed 1-6-76; effective thirtieth day thereafter (Register 77, No. 2).

2. Repealer filed 4-14-83; effective thirtieth day thereafter (Register 83, No. 16).

§1430.5. Annual Report and Mortgage Call Report.

Note • History

(a) The annual report required under Section 22159 of the Financial Code shall be submitted on forms furnished by the Commissioner.

(b) In addition to the annual report required under Section 22159 of the Financial Code, a mortgage lender, mortgage broker, and mortgage lender and broker shall file the NMLS Mortgage Call Report required to be filed pursuant to subdivisions (c) and (d) of Section 22159 of the Code with NMLS for transmission to the Commissioner.

(c) Every mortgage loan originator shall ensure that all residential mortgage loans that close as a result of his or her loan origination activities are included in the NMLS Mortgage Call Report submitted to NMLS or the Commissioner by his or her sponsoring mortgage lender, broker, or mortgage lender and broker.

NOTE

Authority cited: Section 22150, Financial Code. Reference: Sections 22159 and 22160, Financial Code.

HISTORY

1. New section filed 4-14-83; effective thirtieth day thereafter (Register 83, No. 16).

2. Change without regulatory effect amending section and Note filed 6-14-95 pursuant to section 100, title 1, California Code of Regulations (Register 95, No. 24).

3. Amendment of section heading, section and Note filed 4-1-2010 as an emergency; operative 4-1-2010 (Register 2010, No. 14). A Certificate of Compliance must be transmitted to OAL by 9-28-2010 or emergency language will be repealed by operation of law on the following day.

4. Amendment of section heading, section and Note refiled 9-28-2010 as an emergency; operative 9-28-2010 (Register 2010, No. 40). A Certificate of Compliance must be transmitted to OAL by 12-27-2010 or emergency language will be repealed by operation of law on the following day.

5. Amendment of section heading, section and Note refiled 12-23-2010 as an emergency; operative 12-23-2010 (Register 2010, No. 52). A Certificate of Compliance must be transmitted to OAL by 3-23-2011 or emergency language will be repealed by operation of law on the following day.

4. Certificate of Compliance as to 12-23-2010 order transmitted to OAL 3-14-2011 and filed 4-25-2011 (Register 2011, No. 17).

§1431. Special Report.

Note • History

A special report required by the Commissioner under Financial Code Section 22159(b) shall be signed by the licensee if an individual, by a general partner if a partnership, or by an authorized officer, if a corporation or other business entity.

NOTE

Authority cited: Section 22150, Financial Code. Reference: Section 22159(b), Financial Code.

HISTORY

1. Amendment filed 12-29-83; effective thirtieth day thereafter (Register 83, No. 53).

2. Amendment filed 2-21-85; effective thirtieth day thereafter (Register 85, No. 8).

3. Change without regulatory effect amending section and Note filed 6-14-95 pursuant to section 100, title 1, California Code of Regulations (Register 95, No. 24).

4. Amendment of section and Note filed 8-4-98; operative 9-3-98 (Register 98, No. 32).

5. Amendment filed 4-1-2010 as an emergency; operative 4-1-2010 (Register 2010, No. 14). A Certificate of Compliance must be transmitted to OAL by 9-28-2010 or emergency language will be repealed by operation of law on the following day.

6. Amendment refiled 9-28-2010 as an emergency; operative 9-28-2010 (Register 2010, No. 40). A Certificate of Compliance must be transmitted to OAL by 12-27-2010 or emergency language will be repealed by operation of law on the following day.

7. Amendment refiled 12-23-2010 as an emergency; operative 12-23-2010 (Register 2010, No. 52). A Certificate of Compliance must be transmitted to OAL by 3-23-2011 or emergency language will be repealed by operation of law on the following day.

8. Certificate of Compliance as to 12-23-2010 order transmitted to OAL 3-14-2011 and filed 4-25-2011 (Register 2011, No. 17).

§1433. Forms.

Note • History

(a) A licensee shall only use a loan form that the licensee has determined to be in compliance with applicable state and federal law. For purposes of this section, a licensee includes a mortgage loan originator.

(b) All printed matter contained in loan forms used by a licensee shall be in not less than 8-point type, except that printed captions in “boxes” may be 6-point type.

(c) A licensee is prohibited from using a loan form after written notice of objection by the Commissioner to such form has been delivered to the licensee.

(d) In accordance with Section 22347 of the Code, the unique identifier of a mortgage loan originator shall be clearly shown on all residential mortgage loan application forms.

(e) The unique identifier of a licensed mortgage loan originator shall be clearly shown on any advertising, solicitations, including business cards or Internet Web sites, whether in paper, electronic, or any other format, which directly identifies the mortgage loan originator.

NOTE

Authority cited: Section 22150, Financial Code. Reference: Sections 22150, 22156, 22161, 22163, 22164, 22250, 22347 and 22714, Financial Code.

HISTORY

1. Amendment filed 9-12-79; effective thirtieth day thereafter (Register 79, No. 37).

2. Amendment filed 10-18-79; effective thirtieth day thereafter (Register 79, No. 42).

3. Amendment filed 12-29-83; effective thirtieth day thereafter (Register 83, No. 53).

4. Change without regulatory effect amending subsections (a), (d) and Note filed 6-14-95 pursuant to section 100, title 1, California Code of Regulations (Register 95, No. 24).

5. Amendment of subsection (a), repealer of subsection (d), and amendment of Note filed 8-4-98; operative 9-3-98 (Register 98, No. 32).

6. Amendment of subsections (a)-(c), new subsections (d)-(e) and amendment of Note filed 4-1-2010 as an emergency; operative 7-31-2010 (Register 2010, No. 14). A Certificate of Compliance must be transmitted to OAL by 9-28-2010 or emergency language will be repealed by operation of law on the following day.

7. Editorial correction of History 6 (Register 2010, No. 40).

8. Amendment of subsections (a)-(c), new subsection (d) and amendment of Note refiled 9-28-2010 as an emergency, including repealer of subsection (e); operative 9-28-2010 (Register 2010, No. 40). A Certificate of Compliance must be transmitted to OAL by 12-27-2010 or emergency language will be repealed by operation of law on the following day.

9. Amendment of subsections (a)-(c), new subsection (d), repealer of subsection (e) and amendment of Note refiled 12-23-2010 as an emergency; operative 12-23-2010 (Register 2010, No. 52). A Certificate of Compliance must be transmitted to OAL by 3-23-2011 or emergency language will be repealed by operation of law on the following day.

10. Certificate of Compliance as to 12-23-2010 order, including amendment of subsection (d) and new subsection (e), transmitted to OAL 3-14-2011 and filed 4-25-2011; amendments operative 5-25-2011 (Register 2011, No. 17).

§1434. Forms: Limitations on Distribution.

Note • History

A finance company shall not distribute any forms or documents used in connection with the making of a loan to any merchants, repairmen, or persons who are not prospective borrowers of the finance company for the distribution or exhibition by the merchants, repairmen, or persons to prospective borrowers. This provision does not apply to a form used solely to procure preliminary credit information and which is not signed or to be signed by the prospective borrower.

NOTE

Authority cited: Section 22150, Financial Code. Reference: Sections 22000, 22004, 22009, 22150 and 22161, Financial Code.

HISTORY

1. New NOTE filed 12-29-83; effective thirtieth day thereafter (Register 83, No. 53).

2. Change without regulatory effect amending Note filed 6-14-95 pursuant to section 100, title 1, California Code of Regulations (Register 95, No. 24).

3. Amendment of section and Note filed 8-4-98; operative 9-3-98 (Register 98, No. 32).

§1435. Closing Statement and Escrow Instructions.

Note • History

A finance company shall retain a copy of the escrow instructions and the closing statement issued by the escrow holder for any loan secured by real property where the loan proceeds were disbursed to an independent escrow holder.

NOTE

Authority cited: Section 22150, Financial Code. Reference: Sections 22156, 22157 and 22709, Financial Code.

HISTORY

1. New NOTE filed 12-29-83; effective thirtieth day thereafter (Register 83, No. 53).

2. Amendment of NOTE filed 2-21-85; effective thirtieth day thereafter (Register 85, No. 8).

3. Change without regulatory effect amending Note filed 6-14-95 pursuant to section 100, title 1, California Code of Regulations (Register 95, No. 24).

4. Amendment filed 8-4-98; operative 9-3-98 (Register 98, No. 32).

§1436. Nontraditional, Adjustable Rate and Mortgage Loan Products.

Note • History

(a) Best Practices. Every mortgage lender, mortgage broker, and mortgage lender and broker shall implement best practices to manage loan product risk on a continuous basis. These best practices shall include practices set forth in the Guidance on Nontraditional Mortgage Product Risks published on November 14, 2006 by the Conference of State Bank Supervisors and the American Association of Residential Mortgage Regulators, which is hereby incorporated by reference, and the Statement on Subprime Mortgage Lending published on July 17, 2007 by the aforementioned entities and the National Association of Consumer Credit Administrators, which is hereby incorporated by reference. Both publications are collectively referred to herein as the “Guidance” and are available on the Department's web site at www.corp.ca.gov. A mortgage loan originator employed by a mortgage lender, mortgage broker, or mortgage lender and broker shall follow the best practices policies and procedures developed by his or her employer. For purposes of this section, “best practices” shall mean lawful processes, policies, and procedures to manage risks associated with use of nontraditional mortgage products and adjustable rate mortgage products as defined and prescribed by the Guidance.

(b) Written Compliance Report. In a separate written document, submitted as an addendum to its annual financial report or report of condition required under Section 22159 of the Financial Code, every mortgage lender, mortgage broker, and mortgage lender and broker shall state whether it made or arranged nontraditional mortgage products and adjustable rate mortgage products, as defined by the Guidance, during the reporting period covered by the annual report. If any such loans were made or arranged, the mortgage lender, mortgage broker, and mortgage lender and broker shall also explain how it has implemented best practices and explain whether and how it has put into effect the following internal controls or procedures during the reporting period: adopted processes, policies and procedures to ensure compliance with the Guidance; designated a compliance officer (including contact information of that officer) to ensure compliance with the Guidance; implemented a consumer complaint process to resolve consumer complaints involving loans covered by the Guidance; and educated employees and agents to help them understand how to apply the best practices. In addition, the mortgage lender, mortgage broker, and mortgage lender and broker shall indicate the number of any consumer complaints it received during the reporting period regarding loans that are subject to the Guidance, including the number of resolved complaints and unresolved complaints and the number of workout arrangements used for resolved complaints. For purposes of this section, “workout arrangement” shall mean a modified or converted loan product with predictable payment requirements to help the financially-stressed borrower. If any nontraditional mortgage loans or adjustable rate mortgage loans subject to the Guidance were made or arranged, the mortgage lender, broker, and mortgage lender and broker shall also submit information regarding those loan products on the form entitled Non-traditional, Adjustable Rate and Mortgage Loan Survey (Rev. 8/07), which is hereby incorporated by reference. This form is available on the Department's website at www.corp.ca.gov.

(c) Books and Records. If the mortgage lender, mortgage broker, and mortgage lender and broker receive any reportable consumer complaints described in subsection (b), the mortgage lender, mortgage broker, and mortgage lender and broker shall maintain for each complaint a copy of the complaint and the mortgage lender, mortgage broker, and mortgage lender and broker's written response or explanation of how the company resolved the complaint including any workout arrangement, shall maintain this documentation as part of its books and records, and shall make the documentation available to the commissioner upon request. In addition, if the mortgage lender, mortgage broker, and mortgage lender and broker report any internal controls or procedures or nontraditional or adjustable rate loans described in subsection (b), the mortgage lender, mortgage broker, and mortgage lender and broker shall maintain documentation of those controls or procedures as part of its books and records, and any loan documentation required by law, and shall make the documentation available to the commissioner upon request.

(d) Loan Disclosures. Every mortgage lender, mortgage broker, and mortgage lender and broker shall, within three business days after receipt of a completed application for a nontraditional loan or an adjustable rate loan that is subject to the Guidance, or before the borrower becomes obligated on the note, whichever is earlier, cause to be delivered to the borrower statements in writing disclosing, in a clear and conspicuous manner, information comparing payment scenarios and loan balance scenarios among any nontraditional loan and adjustable rate loan products offered by the finance company and that are subject to the Guidance. This information shall be provided by one of the following methods:

(1) The form entitled Comparison of Sample Mortgage Features: Typical Mortgage Transaction (8/1/07), which is hereby incorporated by reference. This form and its instructions are available on the Department's website at www.corp.ca.gov; or

(2) The form of the typical mortgage transaction disclosures set forth in the Comparison of Single Mortgage Features of the Form RE 885 of the Department of Real Estate, as required by Title 10, California Code of Regulations, Section 2842, when provided by a real estate broker on behalf of the mortgage lender, mortgage broker, and mortgage lender and broker. This form is available on the Department of Real Estate website at www.dre.ca.gov; or

(3) Any other form used by the mortgage lender, mortgage broker, and mortgage lender and broker to compare payment scenarios and loan balance scenarios among any nontraditional loan and adjustable rate loan products that are subject to the Guidance; provided, however, that the form shall, at a minimum, (A) compare monthly payments and loan balances of these loan products offered by the mortgage lender, mortgage broker, and mortgage lender and broker and (B) reflect the borrower's proposed loan amount.

(e) Advertising Prohibitions. For purposes of Section 22161 of the Financial Code, the following are considered false, misleading, or deceptive advertising prohibited by that section for loans that are subject to the Guidance:

(1) Any advertisement of an installment in repayment of an adjustable rate, interest only or payment-option loan without an equally prominent disclosure of the following information about the loan as applicable:

(A) Principal amount

(B) Term of loan

(D) Number of months the initial interest rate will be in effect

(E) Fully-indexed interest rate

(F) Maximum interest rate

(G) If different, an explanation of the difference between the payment rate, initial interest rate and fully-indexed rate

(H) Annual percentage rate

(I) How often the interest rate and payments can change

(J) Maximum periodic change in the interest rate and payments (periodic caps)

(K) Number of months and percentage of original loan amount after which minimum payments will not be accepted and the loan re-amortizes

(L) The monthly payment based on the maximum interest rate, and the loan balance after all negative amortization is included, assuming minimum payments are made

(M) If the loan contains a prepayment penalty, a statement to that effect

(N) If the loan contains a balloon payment, a statement to that effect

(2) Any advertisement that the licensee can arrange “low doc/no doc”, “no income/no asset”, “stated income”, “stated asset”, “no ratio” or similar loan products without a statement that these products may have a higher interest rate, more points or more fees than other products requiring documentation.

(f) This section does not apply to a commercial loan. This section applies to loans secured by residential real property located in this State improved by a one-to-four family dwelling.

NOTE

Authority cited: Section 22150, Financial Code. Reference: Sections 22150, 22156, 22157, 22159, 22161, 22163, 22164, 22171, 22302, 22502, 22701, 22714 and 22755, Financial Code.

HISTORY

1. New section filed 12-27-2007; operative 1-1-2008 pursuant to Government Code section 11343.4 (Register 2007, No. 52).

2. Amendment of subsections (a)-(d) and (d)(2)-(d)(3) and amendment of Note filed 4-1-2010 as an emergency; operative 4-1-2010 (Register 2010, No. 14). A Certificate of Compliance must be transmitted to OAL by 9-28-2010 or emergency language will be repealed by operation of law on the following day.

3. Amendment of subsections (a)-(d) and (d)(2)-(d)(3) and amendment of Note refiled 9-28-2010 as an emergency; operative 9-28-2010 (Register 2010, No. 40). A Certificate of Compliance must be transmitted to OAL by 12-27-2010 or emergency language will be repealed by operation of law on the following day.

4. Amendment of subsections (a)-(d) and (d)(2)-(d)(3) and amendment of Note refiled 12-23-2010 as an emergency; operative 12-23-2010 (Register 2010, No. 52). A Certificate of Compliance must be transmitted to OAL by 3-23-2011 or emergency language will be repealed by operation of law on the following day.

5. Certificate of Compliance as to 12-23-2010 order transmitted to OAL 3-14-2011 and filed 4-25-2011 (Register 2011, No. 17).

§1437. Surety Bond.

Note • History

Every finance company shall maintain a surety bond in accordance with Section 22112 of the Financial Code as follows:

(a) A finance company that does not make residential mortgage loans and does not employ one or more mortgage loan originators shall post a surety bond in the amount of $25,000.

(b) A mortgage lender, mortgage broker, or mortgage lender and broker shall post a surety bond based on the aggregate dollar amount of residential mortgage loans originated by the mortgage lender, mortgage broker, mortgage lender and broker in the preceding year, as follows:

Aggregate Loans Bond Amount

0 - $1,000,000 $25,000

$1,000,001 - $50,000,000 $50,000

$50,000,001 - $500,000,000 $100,000

Over $500,000,001 $200,000

(c) The surety bond shall be in the form provided as Exhibit B to the application for a license as a finance lender or broker in Section 1422 of Subchapter 6 of these rules.

(d) A mortgage lender, mortgage broker, or mortgage lender and broker applicant without a prior year operating history shall make a good faith estimate of the aggregate amount of loans anticipated to be originated in the upcoming year to determine the amount of the surety bond.

NOTE

Authority cited: Section 22150, Financial Code. Reference: Section 22112, Financial Code.

HISTORY

2. Editorial correction of History 1 (Register 2010, No. 40).

3. New section refiled 9-28-2010 as an emergency, including repealer of subsection (e); operative 9-28-2010 (Register 2010, No. 40). A Certificate of Compliance must be transmitted to OAL by 12-27-2010 or emergency language will be repealed by operation of law on the following day.

5. Certificate of Compliance as to 12-23-2010 order, including amendment of subsection (a), transmitted to OAL 3-14-2011 and filed 4-25-2011; amendments operative 5-25-2011 (Register 2011, No. 17).

Article 4. Loans

§1445. Limitation on Loans Made to Finance Sales in Connection with Other Business.

Note • History

No finance company shall make a loan to finance a retail sale made in connection with any “other business” authorized in accordance with Section 22154 of the Financial Code. This means that if a license has been granted to someone engaged in a retail sales business in accordance with Section 22154, no retail sales may be financed by the making of a loan. A loan may be made however, to refinance a sales contract which originated from such a retail sale if the loan complies with Section 22341 of the Financial Code.

NOTE

Authority cited: Section 22150, Financial Code. Reference: Sections 22150, 22154, 22326 and 22341, Financial Code.

HISTORY

1. Amendment filed 12-29-83; effective thirtieth day thereafter (Register 83, No. 53).

2. Change without regulatory effect amending first paragraph, repealing subsections (a) and (b), and amending Note filed 1-14-93 pursuant to section 100, title 1, California Code of Regulations (Register 93, No. 3).

3. Change without regulatory effect amending section and Note filed 6-14-95 pursuant to section 100, title 1, California Code of Regulations (Register 95, No. 24).

§1446. Employees: Knowledge of Laws and Rules Required.

Note • History

Every employee of a finance company who negotiates for or makes any loan pursuant to the Law shall familiarize oneself with the laws, rules, and regulations governing such loan business. No office shall be left in charge of any person who is not informed concerning such laws, rules, and regulations.

NOTE

Authority cited: Section 22150, Financial Code. Reference: Section 22150, Financial Code.

HISTORY

1. New NOTE filed 12-29-83; effective thirtieth day thereafter (Register 83, No. 53).

2. Amendment of NOTE filed 2-21-85; effective thirtieth day thereafter (Register 85, No. 8).

3. Change without regulatory effect amending section and Note filed 6-14-95 pursuant to section 100, title 1, California Code of Regulations (Register 95, No. 24).

§1447. Reports of Collections.

Note • History

A finance company shall request in writing that any person, to whom as agent or otherwise an account is referred for collection and who receives any sum from a borrower in connection with the collection of such account, report to such finance company in writing within not less than 30 days of the receipt of such sum the gross sum received and the date of the receipt thereof, provided, that if such account is referred or assigned pursuant to an express contract such contract shall specify that the report contemplated by this section must be given.

NOTE

Authority cited: Section 22150, Financial Code. Reference: Section 22156, Financial Code.

HISTORY

1. New NOTE filed 12-29-83; effective thirtieth day thereafter (Register 83, No. 53).

2. Change without regulatory effect amending Note filed 6-14-95 pursuant to section 100, title 1, California Code of Regulations (Register 95, No. 24).

§1448. Acceleration of Repayment: Limitations.

Note • History

The finance company shall not be entitled to accelerate repayment of the loan:

(a) Upon failure of the borrower immediately to pay any sum or sums advanced by the finance company for itself or the borrower for the preservation or protection of the security;

(b) If the finance company feels insecure due to a change in the financial condition of the borrower; and

NOTE

Authority cited: Section 22150, Financial Code. Reference: Section 22150, Financial Code.

HISTORY

1. Amendment filed 12-29-83; effective thirtieth day thereafter (Register 83, No. 53).

2. Change without regulatory effect amending Note filed 6-14-95 pursuant to section 100, title 1, California Code of Regulations (Register 95, No. 24).

§1449. Instruments Signed by Borrower: Copies: Pertinent Provisions.

Note • History

(a) Upon making or renewing a loan a finance company shall:

(1) Deliver immediately to the borrower a copy of all notes, security agreements, financing statements if any, wage assignments, insurance authorizations, and any other contracts or agreements executed as evidence of, or security for, said loan; or

(2) Deliver immediately to the borrower the pertinent provisions of all notes, security agreements, financing statements if any, wage assignments, insurance authorizations and any other contracts or agreements executed as evidence of, or as security for, said loan.

(b) A finance company shall deliver to a borrower promptly on written demand a true copy of any or all instruments executed by the borrower in connection with his/her loan transaction unless previously given.

(c) Subsection (a) shall not be interpreted to require the delivery of the materials indicated at the time of an advance under an open end loan, other than any documents executed at the time of the advance.

NOTE

Authority cited: Section 22150, Financial Code. Reference: Sections 22150 and 22337, Financial Code.

HISTORY

1. Amendment filed 12-29-83; effective thirtieth day thereafter (Register 83, No. 53).

2. Editorial correction of History 1 (Register 95, No. 12).

3. Change without regulatory effect amending subsections (a), (a)(2) and Note filed 6-14-95 pursuant to section 100, title 1, California Code of Regulations (Register 95, No. 24).

§1450. Predating or Postdating Loan Documents Prohibited.

Note • History

No finance company shall predate or postdate any documents in connection with making or renewing any loan.

NOTE

Authority cited: Section 22150, Financial Code. Reference: Sections 22150, 22300 and 22307, Financial Code.

HISTORY

1. New NOTE filed 12-29-83; effective thirtieth day thereafter (Register 83, No. 53).

2. Change without regulatory effect amending Note filed 6-14-95 pursuant to section 100, title 1, California Code of Regulations (Register 95, No. 24).

§1451. Brokerage Charges: Rebate Prohibited: Compensation to Unlicensed Persons Prohibited.

Note • History

(a) A finance company shall not charge for “brokerage” services unless that service is actually rendered. In that event, the finance company must clearly identify in its records the full amount of the charge actually paid to a broker licensed under the Law or a person within the authorization provided by subsection (c) who rendered said brokerage service.

(b) No broker or other person shall divide with or rebate to any finance company any portion of the sum collected by way of brokerage and no finance company shall receive or accept any such division or rebate.

(c) No finance company shall pay any compensation to an unlicensed person or company for soliciting or accepting applications for loans, except for an employee regularly employed at a licensed place of business of the finance company. However, a finance company may pay compensation for soliciting or accepting applications or performing services as a broker to a person or company licensed (1) as a real estate broker under Article 2 (commencing with Section 10150) of Chapter 3 of Part 1 of Division 4 of the Business and Profession Code with respect to loans made under Division 9 of the Financial Code or Article 7 (commencing with Section 10240) of Chapter 3 of Part 1 of Division 4 of the Business and Professions Code, or (2) for any brokerage service rendered by a bank, savings and loan association or any other financial institution exempted from the provisions of Division 9 of the Financial Code.

NOTE

Authority cited: Section 22150, Financial Code. Reference: Sections 22004, 22150, 22156 and 22306, Financial Code.

HISTORY

1. Amendment filed 12-29-83; effective thirtieth day thereafter (Register 83, No. 53).

2. Amendment of subsection (d) filed 5-15-84; effective thirtieth day thereafter (Register 84, No. 20).

3. Change without regulatory effect amending subsections (a), (d) and Note filed 6-14-95 pursuant to section 100, title 1, California Code of Regulations (Register 95, No. 24).

4. Amendment filed 8-4-98; operative 9-3-98 (Register 98, No. 32).

§1452. Loan Size and Duration: Limitations.

Note • History

When making or negotiating loans, a finance company shall take into consideration, in determining the size and duration thereof, the financial ability of the borrowers to repay the same, to the end that the borrowers should be reasonably to repay said loans in the time and manner provided in the loan contracts.

NOTE

Authority cited: Section 22150, Financial Code. Reference: Section 22150, Financial Code.

HISTORY

1. New NOTE filed 12-29-83; effective thirtieth day thereafter (Register 83, No. 53).

2. Amendment of NOTE filed 2-21-85; effective thirtieth day thereafter (Register 85, No. 8).

3. Change without regulatory effect amending Note filed 6-14-95 pursuant to section 100, title 1, California Code of Regulations (Register 95, No. 24).

§1453. “Ballooning” Prohibited.

Note • History

Any so-called “ballooning” of loan contracts is prohibited. Any scheduled installment that is more than twice the amount of any other scheduled installment will be considered a balloon payment for purposes of this section and Section 22307 of the Financial Code. This section shall not be construed to apply to open end loans.

NOTE

Authority cited: Section 22150, Financial Code. Reference: Section 22307, Financial Code.

HISTORY

1. Amendment filed 12-29-83; effective thirtieth day thereafter (Register 83, No. 53).

2. Change without regulatory effect amending section and Note filed 6-14-95 pursuant to section 100, title 1, California Code of Regulations (Register 95, No. 24).

§1454. Statement of Loan or Documents Used to Comply with Financial Code: Form: Contents.

Note • History

(a) In addition to the specific requirements of Sections 22337, 22338 and 22400(b) of the Financial Code, the statement of loan form shall contain the following and may consist of more than one document:

(1) The name and address of the borrower;

(2) A statement of the actual amount of cash received and retained by the borrower and a statement of any funds (not including any charges within the meaning of Section 22306) paid to third persons pursuant to the written instructions of the borrower;

(3) A statement of any fees, charges, costs, insurance premiums or other sums which have been paid or are to be paid by or on behalf of the borrower at the time the loan is made. On any loan secured in part by real property, in which loan proceeds were disbursed to an escrow holder, delivery of a copy of the closing statement issued by such escrow holder will be sufficient notification for purposes of subsection (3) of this rule;

(4) A statement that the borrower shall have the right to make payment in advance and in any amount on any contract of loan at any time;

(5) A statement in not less than 12-point bold face capital letters:

FOR INFORMATION CONTACT THE DEPARTMENT OF

CORPORATIONS, STATE OF CALIFORNIA.

(6) A statement that the loan is made pursuant to the California Finance Lenders Law, Division 9 (commencing with Section 22000) of the Financial Code.

(b) Subsection (a) shall apply to open end loans only to the extent requiring compliance with items (1), (5), and (6) in open end loan agreements.

(c) Any statement of loan form used by a mortgage lender, mortgage broker, mortgage lender and broker, or mortgage loan originator shall indicate the unique identifier of the mortgage lender, mortgage broker, mortgage lender and broker, or mortgage loan originator.

NOTE

Authority cited: Section 22150, Financial Code. Reference: Sections 22150, 22156, 22158, 22306, 22337, 22338 and 22400, Financial Code.

HISTORY

1. Amendment filed 3-20-78; effective thirtieth day thereafter (Register 78, No. 12).

2. Amendment filed 12-29-83; effective thirtieth day thereafter (Register 83, No. 53).

3. Change without regulatory effect amending subsections (a), (a)(2), (a)(6) and Note filed 6-14-95 pursuant to section 100, title 1, California Code of Regulations (Register 95, No. 24).

4. New subsections (c) and (d) filed 4-1-2010 as an emergency; operative 7-31-2010 (Register 2010, No. 14). A Certificate of Compliance must be transmitted to OAL by 9-28-2010 or emergency language will be repealed by operation of law on the following day.

5. Editorial correction of History 4 (Register 2010, No. 40).

6. New subsection (c) refiled 9-28-2010 as an emergency, including repealer of subsection (d); operative 9-28-2010 (Register 2010, No. 40). A Certificate of Compliance must be transmitted to OAL by 12-27-2010 or emergency language will be repealed by operation of law on the following day.

7. New subsection (c) and repealer of subsection (d) refiled 12-23-2010 as an emergency; operative 12-23-2010 (Register 2010, No. 52). A Certificate of Compliance must be transmitted to OAL by 3-23-2011 or emergency language will be repealed by operation of law on the following day.

8. Certificate of Compliance as to 12-23-2010 order transmitted to OAL 3-14-2011 and filed 4-25-2011 (Register 2011, No. 17).

§1455. Charges Subsequent to Loan.

Note • History

(a) No charges shall be received from a borrower subsequent to the making of a loan unless authorized by the Law, and specifically provided for in the original contract.

(b) All charges shall be clearly substantiated in the records of the finance company, and the borrower shall be provided with a detailed statement showing how the charges originated and the basis upon which the charges were calculated.

NOTE

Authority cited: Section 22150, Financial Code. Reference: Sections 22156, 22300, 22306 and 22326, Financial Code.

HISTORY

1. Amendment filed 12-29-83; effective thirtieth day thereafter (Register 83, No. 53).

2. Change without regulatory effect amending subsection (a) and Note filed 6-14-95 pursuant to section 100, title 1, California Code of Regulations (Register 95, No. 24).

3. Amendment of subsection (b) filed 8-4-98; operative 9-3-98 (Register 98, No. 32).

§1456. Schedule of Charges: Filing: Posting. [Repealed]

Note • History

NOTE

Authority cited: Section 2400, Financial Code.

HISTORY

1. Repealer filed 5-15-84; effective thirtieth day thereafter (Register 84, No. 20).

§1457. Charges: Limited to Amounts Disbursed.

Note • History

(a) Except as provided in subsections (b), (c) and (d) of this section, a finance company may collect and receive charges only on the portion of the unpaid principal balance actually disbursed to the borrower or on the borrower's behalf, and only from the date of such disbursement.

(b) Charges on the amount of any statutory fees to be paid to a public officer may be collected and received from the date of the loan, provided the fees are actually paid within a reasonable time after the loan is made.

(c) Charges on the amount of premium for insurance written in connection with a loan may be collected and received only from the effective date of the insurance. However, if the loan is refinanced and insurance extended to cover the refinanced loan to the new maturity date, charges upon the premium may be collected and received from the date of such refinance.

(d) Charges on a loan secured by real property may be collected and received only from the date of closing of the escrow, when the loan proceeds are disbursed by the escrow holder, except as provided by Civil Code Section 2948.5.

NOTE

Authority cited: Section 22150, Financial Code. Reference: Section 2948.5, Civil Code; and Sections 22300, 22303, 22306, 22307 and 22326, Financial Code.

HISTORY

1. New NOTE filed 12-29-83; effective thirtieth day thereafter (Register 83, No. 53).

2. Change without regulatory effect amending Note filed 6-14-95 pursuant to section 100, title 1, California Code of Regulations (Register 95, No. 24).

3. Amendment filed 8-4-98; operative 9-3-98 (Register 98, No. 32).

4. Amendment of subsection (d) and Note filed 9-23-2009; operative 10-23-2009 (Register 2009, No. 39).

§1458. Notary Fees.

Note • History

A finance company may not charge or collect from a borrower any consideration for notary services unless such consideration is actually paid to and retained by the notary public who rendered such services. A finance company may not directly or indirectly receive, participate in, or benefit from the consideration paid for said notary services.

NOTE

Authority cited: Section 22150, Financial Code. Reference: Sections 22300, 22303, 22306, 22307 and 22326, Financial Code.

HISTORY

1. New NOTE filed 12-29-83; effective thirtieth day thereafter (Register 83, No. 53).

2. Change without regulatory effect amending Note filed 6-14-95 pursuant to section 100, title 1, California Code of Regulations (Register 95, No. 24).

§1459. Limitation of Escrow Fee Pursuant to Section 22318 of the Financial Code.

Note • History

No escrow fee shall be considered reasonable unless it is paid to a company or to persons described in Section 22318 of the Financial Code and unless such services are performed.

NOTE

Authority cited: Section 22150, Financial Code. Reference: Section 22318, Financial Code.

HISTORY

1. Amendment filed 12-29-83; effective thirtieth day thereafter (Register 83, No. 53).

2. Change without regulatory effect amending section heading, section and Note filed 6-14-95 pursuant to section 100, title 1, California Code of Regulations (Register 95, No. 24).

§1460. Real Estate Secured Loans: Sale to Institutional Investors.

Note • History

Loans made by a finance company under Financial Code sections 22340 and 22600 shall meet all of the following requirements:

(a) The finance company shall approve the loan but may utilize criteria established by an institutional investor.

(b) The finance company shall be the lender or creditor on the promissory note and the beneficiary on the deed of trust securing the loan.

(c) The finance company shall provide funding for the loan from sources exclusive of any funding advances received from an institutional investor committed to purchasing the note.

NOTE

Authority cited: Section 22150, Financial Code. Reference: Sections 22340 and 22600, Financial Code.

HISTORY

1. Repealer filed 5-15-84; effective thirtieth day thereafter (Register 84, No. 20).

2. New section and heading filed 6-28-91; operative 7-29-91 (Register 91, No. 41).

3. Change without regulatory effect amending first paragraph and Note filed 6-14-95 pursuant to section 100, title 1, California Code of Regulations (Register 95, No. 24).

4. Amendment of section heading and section filed 8-4-98; operative 9-3-98 (Register 98, No. 32).

Article 5. Charges on Scheduled Balances

§1475. Special Rebate. [Repealed]

Note • History

NOTE

Authority cited: Section 22400, Financial Code.

HISTORY

1. Repealer filed 5-15-84; effective thirtieth day thereafter (Register 84, No. 20).

§1476. Installment Due Date: Deferment and Calculation. [Repealed]

Note • History

NOTE

Authority cited: Section 22400, Financial Code.

HISTORY

1. Repealer filed 5-15-84; effective thirtieth day thereafter (Register 84, No. 20).

§1477. Deferment Charges. [Repealed]

Note • History

NOTE

Authority cited: Section 22150, Financial Code. Reference: Sections 22150 and 22400, Financial Code.

HISTORY

1. New NOTE filed 12-29-83; effective thirtieth day thereafter (Register 83, No. 53).

2. Change without regulatory effect amending Note filed 6-14-95 pursuant to section 100, title 1, California Code of Regulations (Register 95, No. 24).

3. Repealer filed 8-4-98; operative 9-3-98 (Register 98, No. 32).

§1478. Deferment Charges: Required Notice and Records.

Note • History

(a) When a borrower requests deferment of the payment date of an installment which is in default on the date of deferment or which will become due within 15 days of such date, and such deferment is granted, the finance company's records must contain some evidence thereof. This must be represented by a written request from the borrower or by an appropriate notation of the request in the borrower's file or upon the loan ledger card.

(b) When the payment date of an installment that is in default at least one full month is deferred at the option of a finance company and a charge is made, the finance company shall notify the borrower of such deferment and the loan file shall contain evidence thereof. The notice to the borrower shall include at least the following:

(1) The amount of the deferment charge and any additional credit insurance charges;

(2) The date the next installment will be due;

(3) The new maturity date of the loan; and

(4) The date the deferment was granted.

NOTE

Authority cited: Section 22150, Financial Code. Reference: Sections 22150, 22156 and 22400, Financial Code.

HISTORY

1. New NOTE filed 12-29-83; effective thirtieth day thereafter (Register 83, No. 53).

2. Change without regulatory effect amending Note filed 6-14-95 pursuant to section 100, title 1, California Code of Regulations (Register 95, No. 24).

§1479. Rebate of Precomputed Charges, Financial Code Section 22480(a) (2) (i) & (ii): Rate Exceeding 22451. [Repealed]

Note • History

NOTE

Authority cited: Sections 22400 and 24400, Financial Code. Reference: Sections 22451.5 and 22480, Financial Code.

HISTORY

1. New section filed 12-31-74 as an emergency; designated effective January 1, 1975 (Register 75, No. 1).

2. Repealer by operation of Sec. 11422.1, Gov. Code (Register 75, No. 18).

Article 6. Insurance

§1485. Credit Insurance.

Note • History

This article does not apply to the sale of credit life insurance, credit disability insurance and credit loss-of-income insurance.

NOTE

Authority cited: Section 22150, Financial Code. Reference: Section 22314, Financial Code.

HISTORY

1. Amendment filed 12-29-83; effective thirtieth day thereafter (Register 83, No. 53).

2. Change without regulatory effect amending Note filed 6-14-95 pursuant to section 100, title 1, California Code of Regulations (Register 95, No. 24).

3. Amendment filed 8-4-98; operative 9-3-98 (Register 98, No. 32).

§1486. Insurance Premiums: Charge Before Effective Date.

Note • History

NOTE

Authority cited: Section 22150, Financial Code. Reference: Sections 22300, 22303, 22306, 22307 and 22309, Financial Code.

HISTORY

1. New NOTE filed 12-29-83; effective thirtieth day thereafter (Register 83, No. 52).

2. Change without regulatory effect amending Note filed 6-14-95 pursuant to section 100, title 1, California Code of Regulations (Register 95, No. 24).

§1487. Insurance Forms: Submission for Examination. [Repealed]

Note • History

NOTE

Authority cited: Section 22400, Financial Code.

HISTORY

1. Repealer filed 5-15-84; effective thirtieth date thereafter (Register 84, No. 20).

§1488. Limitations on Requirement and Sale of Insurance: General.

Note • History

The following are general limitations on the requirement and sale of insurance. These requirements are in addition to the requirements contained in Section 1489 of this Article for specific types of security.

(a) A finance company shall not require or sell insurance on any property securing a loan when:

(1) The insurance coverage exceeds the reasonable value of the property insured. Reasonable value shall be that value established by a bona fide written appraisal, a statement of replacement value signed by the borrower, a recent sales invoice, or other evidence acceptable to the commissioner.

(2) Insurance on the loan security is already in force in an amount reasonably sufficient to protect the finance company considering the circumstances of the loan.

(b) A finance company shall not require but may sell insurance on any property securing a loan when:

(1) The amount of the unpaid principal balance of a loan, exclusive of any insurance premium, is less than $500. However, if a loan balance is less than a principal amount of $500 at the time existing insurance expires, such insurance may be renewed only at the option of the borrower. The sale of such insurance must be supported by a statement signed by the borrower to the effect that the insurance was purchased at the option of the borrower only.

(2) The reasonable value of the property securing the loan is less than $500.

(c) A finance company shall take reasonable precautions to prevent the sale of insurance that will result in duplicate coverage.

(d) Vendors single interest insurance premiums may not be charged to borrowers.

NOTE

Authority cited: Section 22150, Financial Code. Reference: Sections 22150, 22311, 22312 and 22313, Financial Code.

HISTORY

1. New NOTE filed 12-29-83; effective thirtieth day thereafter (Register 83, No. 53).

2. Change without regulatory effect amending Note filed 6-14-95 pursuant to section 100, title 1, California Code of Regulations (Register 95, No. 24).

§1489. Limitations on Sale of Insurance: Specific Types of Security.

Note • History

(a) Insurance on motor vehicles (including motorcycles, and other vehicles licensed by the Department of Motor Vehicles), mobile homes (registered by the Department of Housing and Community Development), boats and aircraft is subject to the following limitations:

(1) A finance company shall not require or solicit in a manner which may lead a prospective borrower to believe that collision insurance is required when the amount of the annual premium is more than one-third of the principal amount of the loan exclusive of any insurance premium or one-third of the reasonable value of the security for the loan. A finance company may require and sell collision insurance with a $50 or more deductible clause, and fire, theft and/or comprehensive insurance.

(2) A finance company may sell, but not require, property damage, public liability, uninsured motorist, towing and labor, and medical payments insurance provided such insurance has not been disapproved by the commissioner. The sale of such insurance must be supported by a statement, signed by the borrower that the insurance was not a prerequisite to obtaining the loan and that the insurance was purchased at the option of the borrower only.

(3) Insurance for periods of more or less than one year will ordinarily be considered unreasonable, except that the insurance for periods of less than one year will not be considered unreasonable if the premium is a pro-rata portion of the annual premium.

(b) Insurance on household goods, business equipment, and other types of tangible personal property is subject to the following limitations:

(1) A finance company may require and sell fire insurance.

(2) A finance company may sell, but not require, other types of insurance such as theft, flood damage, etc., in compliance with applicable law.

(3) Insurance which exceeds the term of the loan shall not be required or sold, except that a one-year term may be provided for a fractional part of a year.

(1) A finance company may require title insurance and may require and sell fire insurance, and other types of coverage that comply with applicable law and protect against damage to the real property securing the loan. However, before material damage insurance may be sold, documentary proof must be obtained from any and all lenders holding any prior encumbrances or liens that sufficient insurance does not exist. The documents shall be maintained in the borrower's loan file.

(2) A finance company may sell, but not require, homeowner liability insurance provided such insurance complies with applicable law. The sale of such insurance must be supported by a statement, signed by the borrower, to the effect that the insurance was not a prerequisite to obtaining the loan and that the insurance was purchased at the option of the borrower only.

(3) Insurance for periods which extend for more than that which is customarily sold may not be required nor sold. Where the term of the loan is less than this customary period, however, insurance shall not exceed the term of the loan. However, a one-year term may be provided for a fractional part of a year.

NOTE

Authority cited: Section 22150, Financial Code. Reference: Sections 22150, 22311, 22312 and 22313, Financial Code.

HISTORY

1. Amendment filed 12-29-83; effective thirtieth day thereafter (Register 83, No. 53).

2. Amendment of subsection (b)(3) filed 6-18-87; operative 7-18-87 (Register 87, No. 25).

3. Change without regulatory effect amending Note filed 6-14-95 pursuant to section 100, title 1, California Code of Regulations (Register 95, No. 24).

4. Amendment of subsections (a)-(a)(2), (b)(3) and (c)(1) filed 8-4-98; operative 9-3-98 (Register 98, No. 32).

§1490. Prohibited Collateral Sales.

Note • History

Any sale of insurance, in connection with a loan that is in violation of Sections 1488 and 1489 of these rules, constitutes a prohibited transaction under Sections 22311 and 22312 of the Financial Code.

NOTE

Authority cited: Section 22150, Financial Code. Reference: Sections 22150, 22311, 22312 and 22313, Financial Code.

HISTORY

1. Amendment filed 12-29-83; effective thirtieth day thereafter (Register 83, No. 53).

2. Change without regulatory effect amending section and Note filed 6-14-95 pursuant to section 100, title 1, California Code of Regulations (Register 95, No. 24).

§1491. Requirements and Limitations on Additional Required Insurance When Existing Insurance Expires Before Maturity of Loan.

Note • History

(a) When required insurance exists in an amount sufficient to protect a finance company, but expired prior to the maturity date of a loan, such finance company may require additional insurance in a reasonable amount and for a reasonable period, considering the circumstances of the loan.

(b) The premium on such additional renewed insurance shall not be charged to or collected from the borrower prior to the expiration of the existing required insurance except as provided in Section 1486 of these rules.

(c) Such additional required insurance shall be made effective immediately upon said premium being charged to or collected from the borrower except as provided in Section 1486 of these rules.

(d) If a finance company shall elect to place required insurance or act under any authorization taken from a borrower to write or procure additional insurance upon the expiration of existing insurance, it shall be the duty of such finance company to notify the borrower, at least fifteen days prior to the expiration date of the existing insurance, that it intends to write such additional insurance as authorized. If a finance company does not so notify the borrower, and such borrower shall have procured additional insurance prior to, and to be effective upon the expiration of the existing insurance, any insurance procured by the finance company pursuant to such authorization shall, on notice from the borrower, be canceled at no cost to the borrower.

(e) If a finance company shall elect to act under any authorization taken from a borrower to write or procure additional insurance in the event of cancellation of existing insurance, it shall be the duty of such finance company to notify the borrower, within five days after receipt by the finance company of notice of cancellation, that it intends to write such additional insurance as authorized. If a finance company does not so notify the borrower, and such borrower shall have procured additional insurance prior to, and to be effective upon the cancellation of the existing insurance, any insurance procured pursuant to such authorization shall, on notice from the borrower, be canceled at no cost to the borrower.

(f) Any notice by the finance company that it intends to place required insurance or sell additional insurance shall state the type of insurance to be sold, the effective date, the amount of the premium, any change in the terms of the loan and the amount of any additional precomputed charges.

NOTE

Authority cited: Section 22150, Financial Code. Reference: Sections 22150, 22311, 22312 and 22313, Financial Code.

HISTORY

1. New NOTE filed 12-29-83; effective thirtieth day thereafter (Register 83, No. 53).

2. Change without regulatory effect amending subsections (d), (e) and Note filed 6-14-95 pursuant to section 100, title 1, California Code of Regulations (Register 95, No. 24).

§1492. Prohibition Against Requirement of Particular Agent or Broker.

Note • History

A finance company which requires or solicits insurance in connection with a loan shall comply with Article 5.5 of Chapter 1 of Part 2 of Division 1 of the Insurance Code.

NOTE

Authority cited: Section 22150, Financial Code. Reference: Article 5.5, Chapter 1, Part 2, Division 1, Insurance Code.

HISTORY

1. New NOTE filed 12-29-83; effective thirtieth day thereafter (Register 83, No. 53).

2. Change without regulatory effect amending Note filed 6-14-95 pursuant to section 100, title 1, California Code of Regulations (Register 95, No. 24).

§1493. Refund of Policy Fees Charged with Household Fire Insurance Policies.

Note • History

When household fire insurance has been sold by a finance company and it is subsequently canceled, the policy fee, if any, must be considered part of the premium when any cancellation refund is computed.

NOTE

Authority cited: Section 22150, Financial Code. Reference: Sections 22150, 22311, 22312 and 22313, Financial Code.

HISTORY

1. New NOTE filed 12-29-83; effective thirtieth day thereafter (Register 83, No. 53).

2. Change without regulatory effect amending section and Note filed 6-14-95 pursuant to section 100, title 1, California Code of Regulations (Register 95, No. 24).

§1494. Requirement of Cancellation of Existing Insurance Prohibited.

Note • History

A finance company shall not as a condition precedent to the making of a loan require a borrower to cancel any existing insurance. The borrower shall have sole discretion as to whether existing insurance shall be maintained or canceled.

NOTE

Authority cited: Section 22150, Financial Code. Reference: Sections 22150, 22311, 22312 and 22313, Financial Code.

HISTORY

1. New NOTE filed 12-29-83; effective thirtieth day thereafter (Register 83, No. 53).

2. Change without regulatory effect amending Note filed 6-14-95 pursuant to section 100, title 1, California Code of Regulations (Register 95, No. 24).

§1495. Payment of Insurance Claims to Lender: Retention of Insurance Policies by Lender: Limitations.

Note • History

Neither a finance company, a company affiliated with such finance company, nor officers, directors, or employees of such finance company or such affiliate shall accept from insurance companies remittances in payment of claims under policies of insurance upon property securing a loan or hold such insurance policies for borrowers unless such policies of insurance protect the finance company such as a coinsured or by a loss payable clause or otherwise. In the event a remittance under a policy in which a lender is not a loss payee should be received by any of the persons herein named, it shall immediately be forwarded by mail to the insurance carrier for proper transmittal.

NOTE

Authority cited: Section 22150, Financial Code. Reference: Sections 22150, 22311, 22312 and 22313, Financial Code.

HISTORY

1. Amendment filed 12-29-83; effective thirtieth day thereafter (Register 83, No. 53).

2. Change without regulatory effect amending Note filed 6-14-95 pursuant to section 100, title 1, California Code of Regulations (Register 95, No. 24).

§1496. Adjustment of Insurance Claims: Limitations.

Note • History

Neither a finance company, a company affiliated with such finance company, nor officers, directors or employees of such finance company or affiliate, shall act as adjuster of, or in any manner exercise control or supervision over the adjustment of any insurance claim relating to property securing a loan made by such finance company in any case where there is a direct or indirect financial benefit to such finance company, affiliated company, or the officers, directors, or employees of such finance company or affiliate, as a result of such insurance claim. This prohibition shall not extend, however, to the duly constituted claims or adjustment department or division of a licensed insurance carrier, nor shall it apply where the loss is adjusted by a staff adjuster of the carrier or an independent individual adjuster.

NOTE

Authority cited: Section 22150, Financial Code. Reference: Sections 22150, 22311, 22312 and 22313, Financial Code.

HISTORY

1. New NOTE filed 12-29-83; effective thirtieth day thereafter (Register 83, No. 53).

2. Change without regulatory effect amending section and Note filed 6-14-95 pursuant to section 100, title 1, California Code of Regulations (Register 95, No. 24).

§1497. Cancellation of Insurance Policy. After Repossession: Credit or Refund Required.

Note • History

A finance company shall, within 10 days after the repossession and sale of such collateral securing the loan by the finance company, notify the borrower that existing insurance may be canceled by the borrower, and a refund of premium obtained and shall, if requested, join such borrower in any request for cancellation of such policy. Any funds received by a finance company as a return premium resulting from cancellation of any insurance policy written in connection with a loan shall be immediately credited or refunded to the borrower.

NOTE

Authority cited: Section 22150, Financial Code. Reference: Sections 22150, 22311, 22312 and 22313, Financial Code.

HISTORY

1. Amendment filed 12-29-83; effective thirtieth day thereafter (Register 83, No. 53).

2. Change without regulatory effect amending Note filed 6-14-95 pursuant to section 100, title 1, California Code of Regulations (Register 95, No. 24).

§1498. Requirement of Notice to Borrower in Event of Increase of an Insurance Premium.

Note • History

If an insurance premium is increased subsequent to the sale of the insurance in connection with a loan, the finance company shall notify the borrower of such increase. The notice to the borrower shall state the reason for the increase, the amount of the additional premium, any change in terms and the amount of any additional charges.

NOTE

Authority cited: Section 22150, Financial Code. Reference: Sections 22150, 22311, 22312 and 22313, Financial Code.

HISTORY

1. New NOTE filed 12-29-83; effective thirtieth day thereafter (Register 83, No. 53).

2. Change without regulatory effect amending Note filed 6-14-95 pursuant to section 100, title 1, California Code of Regulations (Register 95, No. 24).

§1499. Reasonable Cause: Right to Approve or Disapprove of the Issuer Selected to Underwrite Insurance.

Note • History

(a) Any person engaged in the business of financing the purchase of real or personal property or of lending money on the security of real or personal property and the trustee, director, officer, agent or other employee or affiliate of any such person shall have the right to approve or disapprove, for reasonable cause, the insurer selected to underwrite any insurance required by the contract of sale or deed or trust or other loan agreement. This regulation includes insurance covering damage to or destruction of real or personal property and it includes title insurance.

(b) Reasonable cause is defined as the failure of the insurer to:

(1) Be licensed by the State of California to transact the line of insurance afforded;

(2) Provide the insurance in conformity with all requirements of the California Insurance Code and the Regulations issued thereunder;

(3) Obtain and attach to the evidence of insurance afforded to the lender appropriate evidence of the reinsurance referred to in Section 3080 of the California Insurance Code when the amount of insurance is in excess of the one-tenth of the value of the insurer's assets in excess of the sum of its liabilities for losses reported, expenses, taxes, all other indebtedness and reinsurance of outstanding risks as provided by law as referred to in said section. Such reinsurance may be required by the lender to be in a company meeting all of the criteria of this regulation;

(4) Afford the customary coverage required by the lender for the class of property involved including the loss payable endorsement required by the lender;

(5) Provide, at the option of the lender, coverage equal to the lesser of the market value or the replacement value of the property or the agreed value when the property insured is real property, or the actual cash value of the property when the property is personal property;

(6) Provide coverage with a deductible not exceeding $100 or 1% of the amount of insurance, whichever is greater. If the custom of the insurance business is to afford a higher deductible in conjunction with the coverage provided (including the deductibles used in conjunction with earthquake insurance), the insurer may provide such higher deductible; or

(7) Deliver evidence of insurance to the lender which includes those provisions of the contract which have a bearing on the coverage afforded the property securing the loan.

(c) If a finance company desires to reject the policies of any particular insurer on reasonable grounds, other than the above, they shall submit the rejection, in writing, to the Commissioner with a copy to the borrower. The insurer or borrower may contest the grounds, in writing, either on the basis of fact or on the basis of reasonableness, within ten days of the receipt of rejection. If the Commissioner has not received contest of the grounds, in writing, for rejection within ten days, then the rejection of the insurer's policies shall stand as though the Commissioner has decided in favor of the lender. If the insurer or borrower contests the rejection, the Commissioner shall notify the lender, the insurer and the borrower of his finding that the rejection is either upheld or denied within twenty days of the receipt of the rejection. In determining the issue as submitted by the parties at interest, the Commissioner shall consult with the Insurance Commissioner.

(d) Notwithstanding any other provisions of these regulations, the California FAIR Plan Association shall not be rejected as an insurer.

NOTE

Authority cited: Section 22150, Financial Code. Reference: Section 22150, Financial Code; and Section 771, Insurance Code.

HISTORY

1. New section filed 12-14-72; effective thirtieth day thereafter (Register 72, No. 51).

2. Amendment filed 12-29-83; effective thirtieth day thereafter (Register 83, No. 53).

3. Amendment of NOTE filed 3-29-85; effective thirtieth day thereafter (Register 85, No. 13).

4. Editorial correction of section heading (Register 91, No. 14).

5. Change without regulatory effect amending subsection (c) and Note filed 6-14-95 pursuant to section 100, title 1, California Code of Regulations (Register 95, No. 24).

Article 7. Credit Insurance

§1510. Credit Insurance: Extension Thereof.

Note • History

When the maturity date of a loan is extended by virtue of deferment of installments under Section 22400(a)(4) of the Financial Code or by agreement between the finance company and the borrower, existing credit life and credit disability insurance coverage shall be extended to cover the new term of the loan contract as provided in Section 22314(a) or 22400(a)(4) of the Financial Code, and the premium for this coverage may be charged to the borrower.

NOTE

Authority cited: Section 22150, Financial Code. Reference: Sections 22150, 22314 and 22400, Financial Code.

HISTORY

1. Amendment filed 12-29-83; effective thirtieth day thereafter (Register 83, No. 53).

2. Amendment of NOTE filed 5-15-84; effective thirtieth day thereafter (Register 84, No. 20).

3. Change without regulatory effect amending section and Note filed 6-14-95 pursuant to section 100, title 1, California Code of Regulations (Register 95, No. 24).

4. Amendment filed 8-4-98; operative 9-3-98 (Register 98, No. 32).

§1511. Limitation on Soliciting Sale of Credit Insurance.

Note • History

(a) A finance company shall not offer or sell credit insurance in any manner which restricts a borrower's ability to voluntarily select or reject credit life or credit disability insurance or both.

(b) A finance loan company shall use a written form (which may be separate from or incorporated in the loan documents), which shall be signed or initialed by each of the insured borrowers. Such form should be in substantially the following form:

“Sign or initial._________ Loan No._________

___________________ I want credit life insurance.

___________________ I do not want credit life insurance.

___________________ I want credit disability insurance.

___________________ I do not want credit disability insurance.”

(c) When credit insurance is sold more than 30 days after the making of the loan, in lieu of subsection (b) above, a finance company may obtain an audio recorded confirmation of an insured borrower's selection of credit insurance. Such recording shall be obtained with the consent of the insured borrower(s) and include confirmation of the type of credit insurance selected. A finance company shall make recorded confirmations available to the Commissioner upon request.

NOTE

Authority cited: Section 22150, Financial Code. Reference: Sections 22150 and 22314, Financial Code.

HISTORY

1. Amendment filed 12-3-74; effective thirtieth day thereafter (Register 74, No. 49).

2. Amendment filed 12-29-83; effective thirtieth day thereafter (Register 83, No. 53).

3. Change without regulatory effect amending subsection (b) and Note filed 6-14-95 pursuant to section 100, title 1, California Code of Regulations (Register 95, No. 24).

4. New subsection (c) filed 8-4-98; operative 9-3-98 (Register 98, No. 32).

§1512. Limitation on Sale of Credit Disability Insurance: Illusory Benefit.

Note • History

(a) A finance company shall not sell credit disability insurance, as prohibited by current regulations of the Insurance Commissioner, to a borrower who is a member of the Armed Forces of the United States.

(b) A finance company shall not sell credit disability insurance, as prohibited by current regulations of the Insurance Commissioner, to a borrower which would, in effect, provide a substantially illusory benefit. This would include the sale to a borrower who is not normally employed.

NOTE

Authority cited: Section 22150, Financial Code. Reference: Sections 22150, 22314 and 22315, Financial Code.

HISTORY

1. Amendment filed 3-20-78; effective thirtieth day thereafter (Register 7, No. 12).

2. Amendment filed 12-29-83; effective thirtieth day thereafter (Register 83, No. 53).

3. Change without regulatory effect amending Note filed 6-14-95 pursuant to section 100, title 1, California Code of Regulations (Register 95, No. 24).

§1513. Limitations on Refinance of Loans Covered by Credit Insurance.

Note • History

(a) During any period when a borrower is disabled, and such disability is, or will become upon the completion of the waiting period provided for in the applicable policy, compensable under an existing policy of credit disability insurance, there may be no renewal or refinancing of such borrower's existing loan. Any additional loans or advances which the licensee desires to make to such a borrower during such a period must be accomplished by a new and separate loan, subject, however, to Section 22327 of the Financial Code.

(b) If, with respect to any program for the sale of credit disability insurance, either (a) the credit disability insurance policy excludes from coverage those disabilities arising out of injuries or illnesses existing on or before the effective date of the insurance; and/or (b) such credit disability insurance policies written or offered in connection with the renewal or refinancing of loans contain any terms or conditions which are different (other than as to the amount and term of coverage occasioned by such renewal or refinancing) from the terms and/or conditions of the policy relating to the loan being renewed or refinanced; then, prior to any renewal or refinancing of such borrower's existing loan, a notice, in writing, shall be given to the borrower by the licensee, advising the borrower as to either or both of the following, whichever may be applicable;

(1) That if the borrower's loan is renewed or refinanced, the borrower will not be entitled to recover any disability benefits for any disability resulting from any accident or illness which occurred subsequent to the date of the borrower's existing loan but prior to the date of such renewal or refinancing, even though credit disability insurance may again be provided for in connection with such renewal or refinancing.

(2) That if the borrower's loan is renewed or refinanced, and a new policy of credit disability insurance is again provided, the borrower's right to recover upon such insurance policy will be limited to the coverage provided by such new policy, which is different from that under which the borrower had been previously insured. Such notice shall then explain the substance of such differences.

(c) When a borrower's loan is insured by a policy of credit life insurance, his loan may not be renewed or refinanced without credit life insurance of substantially the same type and coverage being offered to the borrower in connection with such renewal or refinancing, unless, prior thereto, a notice, in writing, is given to the borrower by the licensee. Such notice shall inform the borrower that in the event of such renewal or refinancing his/her right to credit life insurance will terminate and he/she will no longer be entitled to the credit life insurance benefits which had theretofore been in effect with respect to the existing loan.

NOTE

Authority cited: Section 22150, Financial Code. Reference: Sections 22150, 22314 and 22315, Financial Code.

HISTORY

1. Amendment filed 12-29-83; effective thirtieth day thereafter (Register 83, No. 53).

2. Change without regulatory effect amending subsections (a), (b)(2) and Note filed 6-14-95 pursuant to section 100, title 1, California Code of Regulations (Register 95, No. 24).

§1514. Rebates of Unearned Credit Insurance Premiums.

Note • History

(a) If a loan becomes fully prepaid on or before 15 days after the loan was made, the entire credit insurance premium must be rebated.

(b) When a loan is paid by credit life insurance, any unearned credit disability insurance premium must be promptly refunded to the borrower's heirs or estate and such refund must be computed as of the date of the borrower's death.

NOTE

Authority cited: Section 22150, Financial Code. Reference: Sections 22150 and 22314, Financial Code.

HISTORY

1. Amendment filed 12-29-83; effective thirtieth day thereafter (Register 83, No. 53).

2. Change without regulatory effect amending Note filed 6-14-95 pursuant to section 100, title 1, California Code of Regulations (Register 95, No. 24).

§1515. Limitation on Sale of Credit Insurance: Refinance of Conditional Sale Contract.

Note • History

A finance company shall not sell credit insurance with a loan that is made in whole or part to refinance a conditional sale contract held by such finance company when such contract is covered by credit insurance, unless the loan file contains evidence of the borrower's request for rebate of any unearned credit insurance premium applicable to such contract.

NOTE

Authority cited: Section 22150, Financial Code. Reference: Sections 22150 and 22314, Financial Code.

HISTORY

1. New NOTE filed 12-29-83; effective thirtieth day thereafter (Register 83, No. 53).

2. Change without regulatory effect amending Note filed 6-14-95 pursuant to section 100, title 1, California Code of Regulations (Register 95, No. 24).

§1516. Required Record for Credit Life Insurance Claims.

Note • History

A finance company shall maintain a register of claims filed. Such register should identify each loan, show the date of the borrower's death and the date each claim was filed.

NOTE

Authority cited: Section 22150, Financial Code. Reference: Section 22156, Financial Code.

HISTORY

1. New NOTE filed 12-29-83; effective thirtieth day thereafter (Register 83, No. 53).

2. Change without regulatory effect amending Note filed 6-14-95 pursuant to section 100, title 1, California Code of Regulations (Register 95, No. 24).

§1517. Credit Disability Insurance: General Limitations.

Note • History

(a) Policies will ordinarily be considered acceptable if they provide for premium rates consistent with the Regulations of the Insurance Commissioner (Title 10, California Code of Regulations). In addition, in order to comply with the statutory requirement that policies be available on a monthly basis as well as annually, a schedule of premiums will be accepted, based upon a prorating throughout the bracketed period to which the Insurance Commissioner's presumptive rates apply.

(b) The “initial indebtedness” to which the foregoing premium rates are to be applied, shall include the total of the principal amount of the indebtedness plus all charges which are added to, and amortized over, the term of the loan. It is intended that the foregoing will include as “charges” both those charges which may be precomputed at the time of the making of the loan as well as those which may reasonably be estimated as arising over the course of the loan, predicated upon the assumption that such charges will be incurred in accordance with the terms of the lending agreement.

(c) The schedule of monthly premium payment rates shall be used both with respect to loans initially contracted for where the term of the loan is more or less than an exact number of years, and also for purposes of computing refunds which become due because of the prepayment of loans prior to their maturity. The actual computation of any refund resulting from a prepayment shall be in accordance with the formula approved by the Insurance Commissioner pursuant to Section 779.14 of the Insurance Code.

(d) A lender is not required to make credit disability insurance available; however, if credit disability insurance is made available it may be made subject to reasonable and objective standards, such as qualifying by a set of non-discretionary medical standards and must be offered on a voluntary basis, without conditions as to the acceptance of other benefits for which the borrower will be charged. The purchase of credit life insurance may not be a condition precedent to obtaining credit disability insurance, nor may the purchase of credit disability insurance be made a condition to obtaining credit life insurance. No sales techniques may be employed which are designed, or which may be reasonably expected, to restrict the ability of the borrower to select or reject either or both forms of insurance coverage based upon the borrower's consideration of the benefits to be received, the cost of the coverage, and the particular needs and circumstances of the individual borrower.

(e) In the event of an insured disability which extends beyond the elimination period set forth in the policy, the policy must provide for the payment in full of each installment which thereafter becomes due during the period of disability, without regard to the length of the period of disability which by then has elapsed. Coverage may not provide for a prorated payment based upon the fraction of the month during which the insured was disabled, although such computation will be permitted as an alternative to that described in the preceding sentence where in any event the amount payable under the policy is the greater of either of such alternatives.

(f) The statement required by Section 22314(g) of the Financial Code will ordinarily be approved when the content thereof makes the borrower generally aware of the coverage of the policy and which sets forth understandably the mechanics to be followed by the borrower in filing a claim under the policy. Such statement need not include a detailed description of the policy coverage, but should set forth the basic conditions under which coverage becomes applicable (including, particularly, the extent of the elimination period). Such statement may contain language indicating that it is not a full statement of the policy terms, and referring the borrower to the certificate of insurance for more details.

(g) Problems of a more specific nature have come to the attention of the Department, and the determination made with respect thereto, are the following:

(1) There may be no dollar limitation in a credit disability policy which restricts the insurer's obligation to any dollar amount which is less than the full amount of each loan payment, as required by the statute;

(2) No policy may restrict coverage to “permanent disabilities” if the borrower is disabled for the period required by the policy, even if the disability is temporary;

(3) A disability insurance policy may not define “disability” as the inability to perform “any occupation,” but must relate the disability to the occupation of the borrower, at the time such disability occurs; and

(4) The term “disability” may not be restricted to those periods when an insured is under the regular and continuing care of a physician, if medical evidence furnished by the insured supports the contention of actual disability.

The foregoing are examples of specific policy provisions which are inappropriate and unacceptable.

NOTE

Authority cited: Section 22150, Financial Code. Reference: Sections 22150, 22314 and 22315, Financial Code.

HISTORY

1. Amendment filed 12-29-83; effective thirtieth day thereafter (Register 83, No. 53).

2. Change without regulatory effect amending subsections (a), (d)-(f) and Note filed 6-14-95 pursuant to section 100, title 1, California Code of Regulations (Register 95, No. 24).

3. Amendment of subsections (a), (b), (d), (e), (g)(2) and (g)(3) filed 8-4-98; operative 9-3-98 (Register 98, No. 32).

Article 8. Appraisals

§1525. Appraisals Pursuant to Section 22317, Financial Code.

Note • History

An appraisal, for which a fee is charged pursuant to Section 22317 of the Financial Code, shall be made by a qualified appraiser. An appraiser may be a company employee if qualified. The appraisal shall be in writing and signed by the appraiser, shall state the fair market value of the property, and describe the work method used and done by the appraiser in making the appraisal.

NOTE

Authority cited: Section 22150, Financial Code. Reference: Sections 22150 and 22317, Financial Code.

HISTORY

1. Amendment filed 12-29-83; effective thirtieth day thereafter (Register 83, No. 53).

2. Change without regulatory effect amending section heading, section and Note filed 6-14-95 pursuant to section 100, title 1, California Code of Regulations (Register 95, No. 24).

§1526. Limitation of Appraisal Fee Pursuant to Section 22458.4 or 24458.4, Financial Code. [Repealed]

Note • History

NOTE

Authority cited: Sections 22400 and 24400, Financial Code. Reference: Sections 22400, 22458.4, 24400 and 24458.4, Financial Code.

HISTORY

1. Amendment filed 12-29-83; effective thirtieth day thereafter (Register 83, No. 53).

2. Amendment filed 7-8-85; effective thirtieth day thereafter (Register 85, No. 28).

3. Repealer filed 2-24-86; effective thirtieth day thereafter (Register 86, No. 9).

Article 9. Repossession and Sale of Personal Property

§1535. Duty of a Finance Company.

Note • History

(a) Unless otherwise provided in these regulations, a repossession, whether voluntary or involuntary, and sale shall be conducted in accordance with the California Commercial Code.

(b) Upon repossession of property securing a loan, a finance company must deal fairly and justly with the borrower in selling such property and obtain on such sale the fair market value of the property.

(d) If a borrower requests, and if the lender agrees, the property securing a loan may be repossessed and sold even though the loan is not in default. The repossession and sale of such property shall be processed in accordance with this Article.

NOTE

Authority cited: Section 22150, Financial Code. Reference: Section 22150, Financial Code.

HISTORY

1. Amendment filed 12-29-83; effective thirtieth day thereafter (Register 83, No. 53).

2. Change without regulatory effect amending subsection (b) and Note filed 6-14-95 pursuant to section 100, title 1, California Code of Regulations (Register 95, No. 24).

§1536. Register of Repossessions Required.

Note • History

A finance company shall maintain a register of all repossessions of personal property including property voluntarily surrendered by a borrower. The register shall show at least the date of repossession, loan number, name of borrower, description of the property and the date of sale or disposition of the property.

NOTE

Authority cited: Section 22150, Financial Code. Reference: Section 22156, Financial Code.

HISTORY

1. New NOTE filed 12-29-83; effective thirtieth day thereafter (Register 83, No. 53).

2. Change without regulatory effect amending Note filed 6-14-95 pursuant to section 100, title 1, California Code of Regulations (Register 95, No. 24).

§1537. Sale of Security.

Note • History

(a) After repossession of any property securing a loan and prior to a public or private sale, (unless the collateral is perishable or threatens to decline speedily in value), a finance company shall give written notice to the borrower of the date, time and place at which the property will be sold in a public sale or the date and time on or after which the property may be sold in private sale. Notice shall be personally served on the borrower at least five (5) days before the date of the sale. If the notice is not served on the borrower personally it may be served by registered or certified mail sent to the borrower at his/her last known address. The notice must state the amounts required to release the collateral to the borrower. If a demand for the entire balance is made, the amount quoted must be the net pay-off as adjusted by any rebate of unearned precomputed charges and credit insurance premiums.

(b) If the finance company cannot obtain the fair market value of the property at the time of sale and the borrower does not demand that the sale proceed, the finance company may reschedule the sale of the property within a reasonable time thereafter. Written notice or announcement of the date, time and place of sale shall be provided to the borrower. The borrower is given credit for the actual selling price, or the highest bid obtained at the noticed sale, whichever is greater.

NOTE

Authority cited: Section 22150, Financial Code. Reference: Section 22150, Financial Code.

HISTORY

1. Amendment filed 12-29-83; effective thirtieth day thereafter (Register 83, No. 53).

2. Change without regulatory effect amending Note filed 6-14-95 pursuant to section 100, title 1, California Code of Regulations (Register 95, No. 24).

3. Amendment filed 8-4-98; operative 9-3-98 (Register 98, No. 32).

§1538. Evidence of Fair Market Value.

Note • History

A finance company shall maintain in its records evidence that the fair market value of the property was obtained and credited to the account of the borrower. Such evidence shall be in the form of:

(a) A report or other record which describes the condition of the collateral at the time of repossession; and

(b) Any of the following:

(1) Three (3) or more signed bids from persons not associated directly or indirectly with the finance company which show the name and address of each bidder, the date of bid and an adequate description of the property; or

(2) A copy of a statement of sale from the auction house which shows the gross sales price, sales commissions and any other costs of sale; or

(3) Some other form acceptable to the commissioner establishing value.

NOTE

Authority cited: Section 22150, Financial Code. Reference: Sections 22150 and 22156, Financial Code.

HISTORY

1. Amendment filed 12-29-83; effective thirtieth day thereafter (Register 83, No. 53).

2. Change without regulatory effect amending Note filed 6-14-95 pursuant to section 100, title 1, California Code of Regulations (Register 95, No. 24).

§1539. Expenses and Costs of Repossession or Sale: Expenses and Costs of Repairs.

Note • History

Except as provided by Section 22329(e)(5), expenses or costs of repossession or sale of property securing a loan shall be charged to or collected from a borrower, either directly or indirectly. No expenses or costs of repairs to such property shall be charged to or collected from a borrower, either directly or indirectly, except upon a written authorization from the borrower specifically authorizing such repairs and signed by the borrower after the repossession and prior to the making of the repairs. Nothing in this section shall be deemed to apply to a lien on property securing a loan, which existed prior to the date of repossession of such property and which resulted from some act of the borrower occurring prior to the date of such repossession. Nothing in this section shall be deemed to permit any charge other than charges permitted by law.

NOTE

Authority cited: Section 22150, Financial Code. Reference: Sections 22150, 22156 and 22329, Financial Code.

HISTORY

1. Amendment filed 12-29-83; effective thirtieth day thereafter (Register 83, No. 53).

2. Change without regulatory effect amending Note filed 6-14-95 pursuant to section 100, title 1, California Code of Regulations (Register 95, No. 24).

3. Amendment of section and Note filed 8-4-98; operative 9-3-98 (Register 98, No. 32).

§1540. Sales to Certain Persons Prohibited.

Note • History

A finance company shall not sell property securing a loan to any employee, officer, director or partner of such finance company or affiliate of such finance company, or to a relative of any of them.

NOTE

Authority cited: Section 22150, Financial Code. Reference: Sections 22150 and 22156, Financial Code.

HISTORY

1. Amendment filed 12-29-83; effective thirtieth day thereafter (Register 83, No. 53).

2. Change without regulatory effect amending Note filed 6-14-95 pursuant to section 100, title 1, California Code of Regulations (Register 95, No. 24).

§1541. Credit or Refund upon Resale After Repossession.

Note • History

If a finance company, or any affiliate of such finance company, or any company in which it has some interest, or any company in which any person connected with the finance company has some interest, purchases any property securing a loan at any sale after repossession, the finance company shall:

(a) At the time of purchase, credit or refund to the borrower an amount at least equal to the fair market value of such property as determined under Section 1538 of these rules.

(b) Upon a resale of such property, credit or refund to the borrower the gross amount for which such property is resold less the amount of credit or refund made under subsection (a) of this rule, and any expenses of repairing or reconditioning such property made after its purchase and any expenses of resale, provided that any such expenses shall not exceed the actual outlay therefor.

NOTE

Authority cited: Section 22150, Financial Code. Reference: Section 22150, Financial Code.

HISTORY

1. Amendment filed 12-29-83; effective thirtieth day thereafter (Register 83, No. 53).

2. Change without regulatory effect amending Note filed 6-14-95 pursuant to section 100, title 1, California Code of Regulations (Register 95, No. 24).

§1542. Records: Maintenance Required.

Note • History

A finance company shall maintain complete records of the repossession and sale or resale of any property securing a loan and such records shall include at least the following:

(a) A copy of the Department of Motor Vehicles affidavit of repossession if required.

(b) A copy of the security agreement if the original has been released.

(c) Evidence that the notice of sale required by Section 1537 of this Article was sent by registered or certified mail. If the notice was served personally, an affidavit to that effect shall be on file.

(d) A copy of a bill of sale for collateral other than a vehicle for which an affidavit of repossession was prepared. The bill of sale shall include the purchaser's name, address and gross sales price.

(e) Invoices and/or receipts for payment of liens, expenses of repairs and expense of resale provided by Sections 1539 and 1541 of this Article.

(f) Evidence that the borrower was notified that existing insurance may be canceled by him/her.

Such records shall be maintained for a period of not less than two (2) years after the sale.

NOTE

Authority cited: Section 22150, Financial Code. Reference: Sections 22150 and 22156, Financial Code.

HISTORY

1. Amendment of subsection (f) filed 12-29-83; effective thirtieth day thereafter (Register 83, No. 53).

2. Change without regulatory effect amending subsection (c) and Note filed 6-14-95 pursuant to section 100, title 1, California Code of Regulations (Register 95, No. 24).

Article 10. Advertising

§1550. Advertising: Submission for Examination.

Note • History

Any advertisement proposed to be used by a licensed mortgage lender, mortgage broker, mortgage lender and broker, or mortgage loan originator shall indicate the unique identifier of the mortgage lender, mortgage broker, mortgage lender and broker, or mortgage loan originator.

NOTE

Authority cited: Section 22150, Financial Code. Reference: Sections 22014, 22150, 22161, 22163, 22164, 22165, 22347 and 22755, Financial Code.

HISTORY

1. Amendment filed 12-29-83; effective thirtieth day thereafter (Register 83, No. 53).

2. Amendment filed 2-21-85; effective thirtieth day thereafter (Register 85, No. 8).

3. Change without regulatory effect amending subsections (a), (c) and Note filed 6-14-95 pursuant to section 100, title 1, California Code of Regulations (Register 95, No. 24).

4. Amendment of subsections (a) and (b), new subsection (b)(1), amendment of subsection (c), new subsections (d) and (e) and amendment of Note filed 4-1-2010 as an emergency; operative 7-31-2010 (Register 2010, No. 14). A Certificate of Compliance must be transmitted to OAL by 9-28-2010 or emergency language will be repealed by operation of law on the following day.

5. Editorial correction of History 4 (Register 2010, No. 40).

6. Amendment of subsections (a) and (b), new subsection (b)(1), amendment of subsection (c), new subsection (d) and amendment of Note refiled 9-28-2010 as an emergency, including repealer of subsection (e); operative 9-28-2010 (Register 2010, No. 40). A Certificate of Compliance must be transmitted to OAL by 12-27-2010 or emergency language will be repealed by operation of law on the following day.

7. Amendment of section and Note, including repealer of subsections (a)-(c) and subsection (d) designator, refiled 12-23-2010 as an emergency; operative 12-23-2010 (Register 2010, No. 52). A Certificate of Compliance must be transmitted to OAL by 3-23-2011 or emergency language will be repealed by operation of law on the following day.

8. Certificate of Compliance as to 12-23-2010 order transmitted to OAL 3-14-2011 and filed 4-25-2011 (Register 2011, No. 17).

§1551. Disapproved Advertising. [Repealed]

Note • History

NOTE

Authority cited: Sections 22400 and 24400, Financial Code.

HISTORY

1. Repealer filed 5-16-84; effective thirtieth day thereafter (Register 84, No. 20).

§1552. Maintenance of Advertising Copy.

Note • History

(a) A licensee shall maintain in its home office, a file of all advertising copy for a period of at least two (2) years after the last date of its use.

(b) All advertising copy shall have noted thereon the name or names of all advertising media used and the dates when such advertising appeared.

(c) In the case of radio or television advertising, unless the full text of such announcements is retained for the aforesaid prescribed time by the broadcasting station or stations and is available to the commissioner, a licensee shall cause a voice transcription of the full text of such announcements to be prepared and retained for two (2) years after the last date of its use.

(d) Any advertising used by a mortgage loan originator shall be maintained by the sponsoring mortgage lender, mortgage broker, or mortgage lender and broker, in the manner set forth in this section.

(e) For purposes of this section, a licensee shall include a mortgage loan originator.

NOTE

Authority cited: Section 22150, Financial Code. Reference: Sections 22014 and 22166, Financial Code.

HISTORY

1. Amendment filed 12-29-83; effective thirtieth day thereafter (Register 83, No. 53).

2. Amendment of NOTE filed 2-21-85; effective thirtieth day thereafter (Register 85, No. 8).

3. Change without regulatory effect amending Note filed 6-14-95 pursuant to section 100, title 1, California Code of Regulations (Register 95, No. 24).

4. Amendment of subsections (a) and (c), new subsections (d) and (e) and amendment of Note filed 4-1-2010 as an emergency; operative 7-31-2010 (Register 2010, No. 14). A Certificate of Compliance must be transmitted to OAL by 9-28-2010 or emergency language will be repealed by operation of law on the following day.

5. Editorial correction of History 4 (Register 2010, No. 40).

6. Amendment of subsections (a) and (c), new subsection (d) and amendment of Note refiled 9-28-2010 as an emergency, including repealer of subsection (e); operative 9-28-2010 (Register 2010, No. 40). A Certificate of Compliance must be transmitted to OAL by 12-27-2010 or emergency language will be repealed by operation of law on the following day.

7. Amendment of section and Note, including further amendment of subsections (a) and (c) and new subsection (e), refiled 12-23-2010 as an emergency; operative 12-23-2010 (Register 2010, No. 52). A Certificate of Compliance must be transmitted to OAL by 3-23-2011 or emergency language will be repealed by operation of law on the following day.

8. Certificate of Compliance as to 12-23-2010 order, including amendment of subsection (a), transmitted to OAL 3-14-2011 and filed 4-25-2011; amendments operative 5-25-2011 (Register 2011, No. 17).

§1553. Advertising Specified Terms of Loans: Must Apply to All Loans Unless Qualified. [Repealed]

Note • History

NOTE

Authority cited: Sections 22400 and 24400, Financial Code.

HISTORY

1. Repealer filed 5-16-84; effective thirtieth day thereafter (Register 84, No. 20).

§1554. Specified Rates or Charges Quoted: Additional Information Required: Must Apply to All Loans Unless Qualified. [Repealed]

Note • History

NOTE

Authority cited: Sections 22400 and 24400, Financial Code.

HISTORY

1. Repealer filed 5-16-84; effective thirtieth day thereafter (Register 84, No. 20).

§1555. “No Brokerage”: Limitations on Use. [Repealed]

Note • History

NOTE

Authority cited: Sections 22400 and 24400, Financial Code.

HISTORY

1. Repealer filed 5-16-84; effective thirtieth day thereafter (Register 84, No. 20).

§1556. Credit Instruments: Limitations.

Note • History

(a) “Guaranteed loan offer” as used in this section means an offer by a finance company that purports to be a firm offer or guarantee or commitment that the finance company will make a loan to the individual or individuals named in the offer.

(b) A finance company shall not be permitted to make a guaranteed loan offer unless the following conditions are met:

(1) The complete offer package and any related advertising copy (the “Package”) have been submitted to the Commissioner for examination and the Commissioner has notified the company in writing that the use of the Package is not disapproved.

(2) The finance company makes the offer to an individual or individuals specifically named in the offer. The finance company may require each individual so named in the offer to be obligated on the loan.

(3) The finance company expressly agrees to make a loan or loans of any stated amount or amounts (or up to a definitely stated or determinable maximum amount or amounts) at a rate or rates not to exceed a stated annual percentage rate or rates, upon presentation of the offer, and without any credit investigation.

(4) The finance company expressly agrees (A) to make the loan without security or (B) to make a loan secured by personal property as described in Section 22009 without considering the value of or insuring the security.

(5) The offer is dated accurately as of the date of issue and contains a termination date effective not more than 12 months from the date of issuance by the finance company.

(6) The offer is not a facsimile of a check, draft, bond, insurance policy, or any other form of commercial paper, which would tend to be false, misleading or deceptive.

(7) The offer clearly shows that a loan and repayment thereof, together with charges thereon, is involved.

(8) The offer specifies the location at which the loan will be made.

(9) The offer specifies that the finance company's loans are made pursuant to a California Finance Lenders license.

(1) The finance company will honor the offer only if the prospective borrower or borrowers does not have a current loan balance outstanding with the finance company.

(2) The prospective borrower or borrowers will be required to choose between all outstanding guaranteed loan offers.

(3) The finance company will honor the offer only if the prospective borrower or borrowers agrees to combine the offered loan with the current loan balance outstanding with the finance company.

(d) Within twenty-five (25) calendar days from the receipt of the Package under subsection (b)(1) of this rule, the Commissioner shall inform the finance company, in writing, that the Package is not disapproved, or that the Package is disapproved and specify information needed to complete the Package. Within twenty-five (25) calendar days from the receipt of a complete Package, the Commissioner shall reach a decision on the Package. The Commissioner's median, minimum, and maximum times for processing a Package are nineteen (19) calendar days, six (6) calendar days, and thirty-six (36) calendar days, respectively, from the acceptance of the initial package to the final decision on the Package, based on the Commissioner's actual performance during the two years immediately preceding the proposal of this subsection.

(e) The finance company shall comply with the terms stated in the offer when the offer is accepted by the prospective borrower or borrowers.

(f) The Commissioner may, by order, exempt any finance company from the requirements of submitting any Package for examination under subsection (b)(1) of this rule if the Commissioner finds the finance company has been in substantial compliance with the Law or any regulation or order regarding advertising for a period of not less than 12 months immediately prior to the effective date of the order. Any order issued pursuant to this subsection shall continue in effect until it expires by its terms or until the order is revoked by the Commissioner.

(g) For an instant loan check or a live check, the finance company shall comply with Financial Code Section 22342.

NOTE

Authority cited: Section 22150, Financial Code. Reference: Sections 22150, 22161, 22162, 22163, 22164, 22165 and 22342, Financial Code.

HISTORY

1. Amendment filed 12-29-83; effective thirtieth day thereafter (Register 83, No. 53).

2. Amendment of NOTE filed 2-21-85; effective thirtieth day thereafter (Register 85, No. 8).

3. Amendment of section filed 6-28-91; operative 7-29-91 (Register 91, No. 41).

4. Change without regulatory effect amending subsection (b)(4) and Note filed 6-14-95 pursuant to section 100, title 1, California Code of Regulations (Register 95, No. 24).

5. Amendment of subsection (b)(1), new subsection (b)(9), amendment of subsection (d), new subsection (f) and amendment of Note filed 7-27-99; operative 8-26-99 (Register 99, No. 31).

6. Change without regulatory effect amending subsection (b)(1), adding subsection (g) and amending Note filed 3-25-2005 pursuant to section 100, title 1, California Code of Regulations (Register 2005, No. 12).

§1557. “Blind” Advertising Prohibited.

Note • History

A licensee shall not use “blind” advertisements. “Blind” advertising is an advertisement used to solicit business that gives only a telephone number, post office or newspaper box number, or name other than that of the licensee. For purposes of this section, a licensee includes a mortgage loan originator.

NOTE

Authority cited: Section 22150, Financial Code. Reference: Sections 22014, 22150, 22161, 22163, 22164, 22165 and 22755, Financial Code.

HISTORY

1. New NOTE filed 12-29-83; effective thirtieth day thereafter (Register 83, No. 53).

2. Amendment of NOTE filed 2-21-85; effective thirtieth day thereafter (Register 85, No. 8).

3. Change without regulatory effect amending Note filed 6-14-95 pursuant to section 100, title 1, California Code of Regulations (Register 95, No. 24).

4. Amendment of section and Note filed 4-1-2010 as an emergency; operative 7-31-2010 (Register 2010, No. 14). A Certificate of Compliance must be transmitted to OAL by 9-28-2010 or emergency language will be repealed by operation of law on the following day.

5. Editorial correction of History 4 (Register 2010, No. 40).

6. Amendment of section and Note refiled 9-28-2010 as an emergency, including further amendments; operative 9-28-2010 (Register 2010, No. 40). A Certificate of Compliance must be transmitted to OAL by 12-27-2010 or emergency language will be repealed by operation of law on the following day.

7. Amendment of section and Note refiled 12-23-2010 as an emergency; operative 12-23-2010 (Register 2010, No. 52). A Certificate of Compliance must be transmitted to OAL by 3-23-2011 or emergency language will be repealed by operation of law on the following day.

8. Certificate of Compliance as to 12-23-2010 order transmitted to OAL 3-14-2011 and filed 4-25-2011 (Register 2011, No. 17).

§1558. Advertising of Gifts: Limitations. [Repealed]

Note • History

NOTE

Authority cited: Sections 22400 and 24400, Financial Code.

HISTORY

1. Repealer filed 5-16-84; effective thirtieth day thereafter (Register 84, No. 37). (Text inadvertently not deleted during printing of Register 81, No. 49.)

Article 11. Hearings and Complaints [Repealed]

HISTORY

1. Repealer of Article 11 (Sections 1565-1569) filed 12-3-81; effective thirtieth day thereafter (Register 81, No. 49).

Article 12. Exceptions to Rules

§1570. Exceptions to Rules.

Note • History

(a) The following rules shall not apply to any consumer loan of a bona fide principal amount of $10,000 or more or to a finance company in connection with any such loan provided the provisions of this section are not used for the purpose of evading the law or these rules: Sections 1433, 1434, 1445, 1447, 1448, 1449, 1450, 1453 to 1457, 1459, 1478, 1486 to 1495, 1497, 1498, 1510 to 1517, 1525 and 1535 to 1542.

(b) The following rules shall not apply to any commercial loan of a bona fide principal loan amount of $5,000 or more or to a finance company in connection with any such loan provided the provisions of this section are not used for the purpose of evading the law or those rules: Sections 1458, 1496, and the sections enumerated in subsection (a) of this rule.

NOTE

Authority cited: Section 22150, Financial Code. Reference: Sections 22150, 22250, 22550 and 22500, Financial Code.

HISTORY

1. Amendment filed 12-3-81; effective thirtieth day thereafter (Register 81, No. 49).

2. Amendment filed 12-29-83; effective thirtieth day thereafter (Register 83, No. 53).

3. Amendment filed 2-21-85; effective thirtieth day thereafter (register 85, No. 8).

4. Change without regulatory effect amending subsection (a), repealing and adding new subsection (b) and amending Note filed 6-14-95 pursuant to section 100, title 1, California Code of Regulations (Register 95, No. 24).

5. Amendment filed 8-4-98; operative 9-3-98 (Register 98, No. 32).

Article 13. Pilot Program for Affordable Credit-Building Opportunities

Subarticle 1. General Provisions

§1580. Notice of Changes to Finders: Reporting New or Change in Business Location of Finders.

Note • History

(a) A licensee shall report any change to the information contained in the finder registration form to the California Corporations Commissioner within fifteen (15) days of the change. The notice shall be in writing and signed by the licensee.

(b) Any change in the business location of a finder registered with the Department, including a new location, shall include in the notice the physical address of the new or changed business location, the physical address of the previous business location, the effective date of the change, and the name and contact information, including telephone number, of an employee or employees of the finder who is or are responsible for the activities of the finder at that new or changed business location.

NOTE

Authority cited: Section 22150, Financial Code. Reference: Sections 22356(b)(4) and 22357, Financial Code.

HISTORY

1. New article 13 (subarticles 1-6, sections 1580-1596), subarticle 1 (section 1580) and section filed 3-3-2011 as an emergency; operative 3-3-2011 (Register 2011, No. 9). A Certificate of Compliance must be transmitted to OAL by 8-30-2011 or emergency language will be repealed by operation of law on the following day.

2. Repealed by operation of Government Code section 11346.1(g) (Register 2011, No. 47).

3. New article 13 (subarticles 1-6, sections 1580-1596), subarticle 1 (section 1580) and section filed 11-21-2011; operative 12-21-2011 (Register 2011, No. 47).

Subarticle 2. Application and Registration

§1581. Application Under the Affordable Credit-Building Opportunities Program: Form.

Note • History

(a) The application under the Affordable Credit-Building Opportunities program pursuant to Section 22349 of the Financial Code shall be filed upon the form set forth in subdivision (c) of this section.

(b) Within 30 calendar days from the receipt of the application, the California Corporations Commissioner shall inform the applicant in writing that the application is complete and the licensee is approved to participate in the program or disapproved, and if disapproved, the reason(s) for disapproval; or that the application is deficient and specify what information is required to complete the application.

(c) An application to make loans under the Affordable Credit-Building Opportunities program shall be submitted to the California Corporations Commissioner on the following form:

Embedded Graphic 10.0058

Embedded Graphic 10.0059

Embedded Graphic 10.0060

Embedded Graphic 10.0061

NOTE

Authority cited: Section 22150, Financial Code. Reference: Sections 22349 and 22349.1, Financial Code.

HISTORY

1. New subarticle 2 (sections 1581-1582) and section filed 3-3-2011 as an emergency; operative 3-3-2011 (Register 2011, No. 9). A Certificate of Compliance must be transmitted to OAL by 8-30-2011 or emergency language will be repealed by operation of law on the following day.

2. Repealed by operation of Government Code section 11346.1(g) (Register 2011, No. 47).

3. New subarticle 2 (sections 1581-1582) and section filed 11-21-2011; operative 12-21-2011 (Register 2011, No. 47).

§1582. Finder Registration: Form.

Note • History

(a) A licensee shall notify the California Corporations Commissioner within 15 days of entering into a contract with a finder on the form set forth in subdivision (c) of this section.

(b) Within 15 calendar days from the receipt of the finder registration form, the California Corporations Commissioner shall inform the licensee in writing, that the registration is complete and that use of the finder by the licensee is accepted or rejected, and if rejected, the reason(s) for the rejection; or that the registration is deficient and specify what information is required to complete the registration. A licensee shall not use an unregistered finder or a finder that has been rejected by the California Corporations Commissioner.

(c) Registration of a finder under the Affordable Credit-Building Opportunities program shall be submitted to the California Corporations Commissioner on the following form:

Embedded Graphic 10.0062

Embedded Graphic 10.0063

EXHIBIT A

Business addresses of all locations at which the finder will perform the services described in Section 22354(a) of the Financial Code:

Street Address City State Zip Code

EXHIBIT B

Name and contact information of the employee responsible for the activities of the finder at each of its locations:

Name of Employee Title Physical Business Location Telephone No. Email

EXHIBIT C

License Name: License No:

Services that a finder may perform for the licensee at the finder's physical location for business in accordance with Section 22354(a) of the Financial Code. Please check the box for the type of services that the finder will perform for the licensee:

[] Distributing, circulating, using, or publishing preprinted brochures, flyers, factsheets, or other written materials relating to loans that the licensee may make or negotiate and that have been reviewed and approved in writing by the licensee prior to their being distributed, circulated, or published.

[] Providing written factual information about loan terms, conditions, or qualification requirements to a prospective borrower that has been either prepared by the licensee or reviewed and approved in writing by the licensee. A finder may discuss that information with a prospective borrower in general terms, but may not provide counseling or advice to a prospective borrower.

[] Notifying a prospective borrower of the information needed in order to complete a loan application without providing counseling or advice to a prospective borrower.

[] Entering information provided by the prospective borrower on a preprinted or electronic application form or onto a preformatted computer database without providing counseling or advice to a prospective borrower.

[] Assembling credit application and other materials obtained in the course of a credit application transaction for submission to the licensee.

[] Contacting the licensee to determine the status of a loan application.

[] Communicating the licensee's underwriting decision to a borrower or a prospective borrower.

[] Obtaining a borrower's signature on documents prepared by the licensee, delivering the final copies of the documents to the borrower, and returning the signed original documents to the licensee.

Services or activities that a finder shall not engage in accordance with Section 22354(b) of the Financial Code:

1. Providing counseling or advice to a borrower or prospective borrower.

2. Providing loan related marketing material that has not previously been approved by the licensee to a borrower or a prospective borrower.

3. Interpreting or explaining the relevance, significance, or effect of any of the marketing materials or loan documents the finder provides to a borrower or prospective borrower.

A person who performs any of the following activities is a broker within the meaning of Section 22004 of the Financial Code and is required to obtain a broker's license:

1. Negotiating the price, length, or any other loan term between a licensee and a prospective borrower.

2. Advising either a prospective borrower or a licensee as to any loan term.

3. Offering information pertaining to a single prospective borrower to more than one licensee, except that, if a licensee has declined to offer a loan to a prospective borrower and has so notified that prospective borrower in writing, the person may then offer information pertaining to a single prospective borrower to another licensee with which it has a finder's agreement.

4. Personally contacting or providing services to a borrower or prospective borrower at any place other than a finder's physical location for business, that has previously been reported to the California Corporations Commissioner.

Completed by: (Name and Title) (Date Completed)

CFL 1582 (11/10)

NOTE

Authority cited: Section 22150, Financial Code. Reference: Sections 22351 and 22357(a), Financial Code.

HISTORY

1. New section filed 3-3-2011 as an emergency; operative 3-3-2011 (Register 2011, No. 9). A Certificate of Compliance must be transmitted to OAL by 8-30-2011 or emergency language will be repealed by operation of law on the following day.

2. Repealed by operation of Government Code section 11346.1(g) (Register 2011, No. 47).

3. New section filed 11-21-2011; operative 12-21-2011 (Register 2011, No. 47).

Subarticle 3. Fees

§1583. Application Fee.

Note • History

(a) The non-refundable filing fee for an application under the Affordable Credit-Building Opportunities program shall be the amount set forth in subsection (b), and paid to the Department of Corporations at the time the application is filed with the California Corporations Commissioner.

(b) Filing Fee

NUMBER OF LICENSED

FINANCE LENDER LOCATIONS APPLICATION FEE

1 to 10 $250

11 to 50 $450

51 to 100 $650

Over 100 $850

NOTE

Authority cited: Section 22150, Financial Code. Reference: Section 22349, Financial Code.

HISTORY

1. New subarticle 3 (sections 1583-1584) and section filed 3-3-2011 as an emergency; operative 3-3-2011 (Register 2011, No. 9). A Certificate of Compliance must be transmitted to OAL by 8-30-2011 or emergency language will be repealed by operation of law on the following day.

2. Repealed by operation of Government Code section 11346.1(g) (Register 2011, No. 47).

3. New subarticle 3 (sections 1583-1584) and section filed 11-21-2011; operative 12-21-2011 (Register 2011, No. 47).

§1584. Annual Finder Registration Fee.

Note • History

(a) The annual finder registration fee shall be based on the number of finders used by a licensee. The annual finder registration fee shall be the sum of the amounts set forth in subdivision (d) for each finder used by the licensee as reported to the California Corporations Commissioner at the time of notification of the annual finder registration fee in subdivision (b).

(b) On or before the 30th day of September in each year, the California Corporations Commissioner shall notify each licensee by mail of the amount of the annual finder registration fee and that amount shall be paid to the California Corporations Commissioner by October 31st. If payment is not made by October 31st, the California Corporations Commissioner shall assess and collect a penalty, in additional to the fee, of 1 percent of the fee for each month or part of a month that the payment is delayed or withheld.

(c) If a licensee fails to pay the annual finder registration fee on or before the 31st day of October, the California Corporations Commissioner may terminate the licensee's authority to use the services of finders.

(d) Annual Finder Fee

IF A FINDER HAS THE FOLLOWING THE ANNUAL FEE FOR

NUMBER OF LOCATIONS: THAT FINDER IS:

Less than 10 $100

11 to 30 $150

31 to 50 $200

51 to 100 $250

101 to 200 $300

201 to 1000 $500

Over 1000 $1000

NOTE

Authority cited: Section 22150, Financial Code. Reference: Sections 22107(b), 22107(d) and 22357(b), Financial Code.

HISTORY

2. Repealed by operation of Government Code section 11346.1(g) (Register 2011, No. 47).

3. New section filed 11-21-2011; operative 12-21-2011 (Register 2011, No. 47).

Subarticle 4. Reports

§1585. Annual Report: Form.

Note • History

(a) Each licensee shall file an annual report as set forth in subdivision (b) of this section with the California Corporations Commissioner, on or before the 15th of March, providing information concerning the business and operations conducted by the licensee under the Affordable Credit-Building Opportunities program, and information pertaining to each finder and the licensee's relationship and business arrangements with each finder, during the preceding calendar year. The annual report required under this section is in addition to the annual report of the total business operations of a licensee required under Section 22159 of the Financial Code.

(b) The individual annual report required under Sections 22349.2 and 22357(c) of the Financial Code shall be submitted on the following form:

Embedded Graphic 10.0064

Embedded Graphic 10.0065

Embedded Graphic 10.0066

SCHEDULE A

SCHEDULE OF APPLICATIONS TAKEN AND LOANS MADE BY SIZE

FOR THE CALENDAR YEAR 20XX

A-1(a) Total Number of Application Taken and Loans Made Using a Finder

Embedded Graphic 10.0067

A-1(b) Number of Applications Taken and Loans Made Without Using a Finder

Embedded Graphic 10.0068

A-2(a) Number of Loans Made by Loan Size Using a Finder

Embedded Graphic 10.0069

A-2(b) Number Of Loans Made by Loan Size Without Using a Finder

Embedded Graphic 10.0070

A-3(a) Number of Borrowers Who Obtained More Than One Loan Using a Finder

Embedded Graphic 10.0071

A-3(b) Number of Borrowers Who Obtained More Than One Loan Without Using a Finder

Embedded Graphic 10.0072

SCHEDULE B

SCHEDULE OF LOANS BY INCOME DISTRIBUTION OF CENSUS TRACTS

AND BORROWERS WITH BANK ACCOUNTS

FOR CALENDAR YEAR 20XX

B-1(a) Number of Loans by Income Distribution of Census Tract Using a Finder

Embedded Graphic 10.0073

B-1(b) Number of Loans by Income Distribution of Census Tract Without Using a Finder

Embedded Graphic 10.0074

B-2(a) Number of Loans Made to Borrowers with Bank Account(s) Using a Finder

Embedded Graphic 10.0075

B-2(b) Number of Loans Made to Borrowers with Bank Account(s) Without Using a Finder

Embedded Graphic 10.0076

SCHEDULE C

SCHEDULE OF LATE FEES CHARGED DURING THE YEAR BY SIZE

FOR CALENDAR YEAR 20XX

C-1(a) Number of Loans Made Using a Finder in Which Late Fee(s) Were Charged

Embedded Graphic 10.0077

C-1(b) Number of Loans Made Without Using a Finder in Which Late Fee(s) Were Charged

Embedded Graphic 10.0078

C-2(a) Number of Late Fees Charged on Loans Made Using a Finder

Embedded Graphic 10.0079

C-2(b) Number of Late Fees Charged on Loans Made Without Using a Finder

Embedded Graphic 10.0080

C-3(a) Dollar Amount of Late Fees Collected on Loans Made Using a Finder

Embedded Graphic 10.0081

C-3(b) Dollar Amount of Late Fees Collected on Loans Made Without Using a Finder

Embedded Graphic 10.0082

C-4(a) Average Number of Late Fees Charged Per Loan Made Using a Finder

Embedded Graphic 10.0083

C-4(b) Average Number of Late Fees Charged Per Loan Made Without Using a Finder

Embedded Graphic 10.0084

C-5(a) Percentage of Loans Made with Late Fees Using a Finder

Embedded Graphic 10.0085

C-5(b) Percentage of Loans Made with Late Fees Without Using a Finder

Embedded Graphic 10.0086

SCHEDULE D

SCHEDULE OF LOANS MADE BY LOAN PURPOSE

FOR CALENDAR YEAR 200XX

D-1(a) Number of Loans Made by Loan Purpose Using a Finder

Embedded Graphic 10.0087

D-1(b) Number of Loans Made by Loan Purpose Without Using a Finder

Embedded Graphic 10.0088

SCHEDULE E

SCHEDULE OF LOANS BY RATE CHARGES

FOR CALENDAR YEAR 20XX

E-1(a) Number of Loans Made Between $250-$499 Using a Finder

Embedded Graphic 10.0089

E-1(b) Number of Loans Made Between $250-$499 Without Using a Finder

Embedded Graphic 10.0090

E-2(a) Number of Loans Made Between $500-$1,499 Using a Finder

Embedded Graphic 10.0091

E-2(b) Number of Loans Made Between $500-$1,499 Without Using a Finder

Embedded Graphic 10.0092

E-3(a) Number of Loans Made Between $1,500-$2,499 Using a Finder

Embedded Graphic 10.0093

E-3(b) Number of Loans Made Between $1,500-$2,499 Without Using a Finder

Embedded Graphic 10.0094

SCHEDULE F

SCHEDULE OF LOAN PERFORMANCE

AS OF YEAR END 20XX

F-1(a) Number of Loans (using a Finder) with Past Due Payments and Percentage of Loans with Past Due Payments

Embedded Graphic 10.0095

F-1(b) Number of Loans (not using a Finder) with Past Due Payments and Percentage of Loans with Past Due Payments

Embedded Graphic 10.0096

SCHEDULE G

SCHEDULE OF LOANS MADE BY LANGUAGE AND CREDIT EDUCATION PROGRAM OR SEMINAR OFFERED

FOR THE CALANDER YEAR 20XX

G-1(a) Number of Loans Made Using a Finder (For columns A and B see instructions.)

Embedded Graphic 10.0097

G-1(b) Number of Loans Made Without Using a Finder (For columns A and B see instructions.)

Embedded Graphic 10.0098

SCHEDULE H

SCHEDULE OF FINDERS

FOR CALENDAR YEAR 20XX

Embedded Graphic 10.0099

SCHEDULE I

RECOMMENDATIONS FOR IMPROVING THE PILOT PROGRAM

Embedded Graphic 10.0100

NOTE

Authority cited: Sections 22150 and 22159, Financial Code. Reference: Sections 22159, 22349.2, 22357(c) and 22715, Financial Code.

HISTORY

1. New subarticle 4 (sections 1585-1586) and section filed 3-3-2011 as an emergency; operative 3-3-2011 (Register 2011, No. 9). A Certificate of Compliance must be transmitted to OAL by 8-30-2011 or emergency language will be repealed by operation of law on the following day.

2. Repealed by operation of Government Code section 11346.1(g) (Register 2011, No. 47).

3. New subarticle 4 (sections 1585-1586) and section filed 11-21-2011; operative 12-21-2011 (Register 2011, No. 47).

§1586. Additional Information Required to Complete the Annual Report.

Note • History

(a) A licensee shall obtain and keep for every loan the following additional information, for purposes of reporting information in the annual report:

(1) Credit scores from at least one major credit bureau for each borrower who obtained more than one program loan (Section 22361(d)(5) of the Financial Code),

(2) Income distribution for each borrower, including the number of borrowers who obtained at least one program loan and who resided in a low-to-moderate-income census tract at the time of their loan application (Section 22361(d)(6) of the Financial Code), defined as a distressed/underserved tract under the federal Community Reinvestment Act (12 U.S.C. 2901) and based on census tract data published by the Federal Financial Institutions Examination Council.

(3) Borrowers' primary purpose in obtaining the loan, based on the borrower response at the time of the loan application, as follows (Section 22361(d)(7) of the Financial Code):

(A) Medical.

(B) Other emergency.

(D) Vehicle purchase.

(E) To pay bills.

(F) To consolidate debt.

(G) To build or repair credit history.

(H) To finance a purchase of goods or services other than a vehicle.

(I) Other.

(4) Whether the borrower has a bank account and if the borrower has a bank account, whether the borrower uses check-cashing services (Section 22361(d)(8) of the Financial Code),

(5) Language in which the loan was negotiated orally or in writing, and whether the credit education program or seminar offered by the licensee was offered in that language, and

(6) If known, whether the borrower attended a credit education program or seminar offered by the licensee.

NOTE

Authority cited: Section 22150, Financial Code. Reference: Sections 22349.2, 22352, 22357 and 22361, Financial Code.

HISTORY

2. Repealed by operation of Government Code section 11346.1(g) (Register 2011, No. 47).

3. New section filed 11-21-2011; operative 12-21-2011 (Register 2011, No. 47).

Subarticle 5. Credit Education Programs and Seminars

§1587. Approval by the California Corporations Commissioner.

Note • History

(a) A licensee shall either offer a credit education program or seminar to the borrower, or invite the borrower to a credit education program or seminar offered by an independent third party.

(b) The content of the credit education program or seminar shall provide information to help borrowers understand, build and manage consumer credit, including but not limited to, information on how installment loans work, interest charges, credit scores and the effect of credit scores on future financial decisions, costs of credit, effect of late or missed payments on credit scores, loan payment, understanding the credit reporting system and best practices for establishing and building good credit.

(c) Before offering any credit education program or seminar to a borrower, the licensee shall submit the following information in writing to the California Corporations Commissioner for his or her review and approval of the program or seminar:

(1) The name, address, telephone number and email address of the credit education program or seminar,

(2) Name, title and contact information of a contact person,

(3) Program's accreditation, if any,

(4) Format of the program (classroom, one-on-one, online, etc.),

(5) Address locations where the program or seminar will be held in California,

(6) Name, certifications, and resume of instructors,

(7) Licensee's relationship (business or personal) with any person employed or affiliated with the program or seminar,

(8) Language(s) in which the program or seminar is offered and whether the program or seminar is made available to every borrower in the language in which the loan contract is negotiated,

(9) Copy of program content and program curriculum and all materials used or distributed to the borrower in the program or seminar, in all offered languages, and

(10) Any additional information or materials provided to the borrower after the credit education program or seminar is offered or has been provided.

(d) Within 30 calendar days from the receipt of the information in subdivision (c) of this section, the California Corporations Commissioner shall inform the licensee in writing whether the credit education program is approved or disapproved for use.

(e) A licensee shall not offer to a borrower any credit education program or seminar that has not been previously reviewed and approved by the California Corporations Commissioner for use.

(f) A licensee shall maintain a file with the name and contact information on all credit education programs or seminars being offered to borrowers, and a copy of the program curriculum and all materials used or distributed in each program or seminar, in all offered languages, for purposes of compliance.

NOTE

Authority cited: Section 22150, Financial Code. Reference: Section 22352, Financial Code.

HISTORY

1. New subarticle 5 (sections 1587-1588) and section filed 3-3-2011 as an emergency; operative 3-3-2011 (Register 2011, No. 9). A Certificate of Compliance must be transmitted to OAL by 8-30-2011 or emergency language will be repealed by operation of law on the following day.

2. Repealed by operation of Government Code section 11346.1(g) (Register 2011, No. 47).

3. New subarticle 5 (sections 1587-1588) and section filed 11-21-2011; operative 12-21-2011 (Register 2011, No. 47).

§1588. Licensee's Evidence of Compliance with Education Offer.

Note • History

(a) A licensee shall offer in writing and at no cost to the borrower a credit education program or seminar, and provide the borrower with a list of one or more available credit education programs or seminars. The written offer shall include the name of the program or seminar, location of the program or seminar offered, and language in which the program or seminar was offered to the borrower. The licensee shall have the borrower initial and date the written offer, and the licensee shall retain a copy of the written offer with the borrower's initials and date acknowledging receipt in the file.

(b) A licensee shall include a copy of the written offer of a credit education program or seminar with any late notice provided to a borrower.

NOTE

Authority cited: Section 22150, Financial Code. Reference: Section 22352, Financial Code.

HISTORY

2. Repealed by operation of Government Code section 11346.1(g) (Register 2011, No. 47).

3. New section filed 11-21-2011; operative 12-21-2011 (Register 2011, No. 47).

Subarticle 6. Books, Records and Examinations

§1589. Licensee's Evidence of Compliance with Credit Reporting and Underwriting Standards.

Note • History

(a) A licensee shall retain for every loan a copy of the following documents for compliance with credit reporting and loan underwriting standards:

(1) Evidence that the payment performance of each borrower, on every loan made to that borrower, is being reported to one or more of the national credit reporting agencies in the United States under Section 22352(g)(2) of the Financial Code.

(2) All evidence of loan underwriting under Section 22352(g)(3) of the Financial Code, including a copy of any information obtained through electronic means and relied upon in underwriting the loan.

NOTE

Authority cited: Section 22150, Financial Code. Reference: Section 22352, Financial Code.

HISTORY

1. New subarticle 6 (sections 1589-1596) and section filed 3-3-2011 as an emergency; operative 3-3-2011 (Register 2011, No. 9). A Certificate of Compliance must be transmitted to OAL by 8-30-2011 or emergency language will be repealed by operation of law on the following day.

2. Repealed by operation of Government Code section 11346.1(g) (Register 2011, No. 47).

3. New subarticle 6 (sections 1589-1596) and section filed 11-21-2011; operative 12-21-2011 (Register 2011, No. 47).

§1590. Licensee's Duty to Verify Status of Finder Prior to Compensation.

Note • History

(a) Before paying any finder, a licensee shall verify that the finder has not been barred from providing services at that location by the California Corporations Commissioner.

(b) The status of a finder is available at the Department's website at www.corp.ca.gov.

(c) A licensee shall be on notice that the licensee's finder has been barred upon issuance of an order by the California Corporations Commissioner barring that finder from the specified location(s).

NOTE

Authority cited: Section 22150, Financial Code. Reference: Section 22356(b)(4), Financial Code.

HISTORY

2. Repealed by operation of Government Code section 11346.1(g) (Register 2011, No. 47).

3. New section filed 11-21-2011; operative 12-21-2011 (Register 2011, No. 47).

§1591. Notice to Applicant Concerning Loan Interest and Right to Rescind.

Note • History

(a) A licensee shall at the time of application provide the applicant with written notice under Section 22352(a)(3)(A) and (B) of the Financial Code, containing the following:

(1) the annual percentage rate, the periodic payment amount and the total finance charge, calculated as required by the Federal Reserve Board Regulation Z, as to a loan of an amount and term substantially similar to the loan applied for by the applicant, and

(2) that the applicant shall have the right to rescind the loan by notifying the licensee of the applicant's intent to rescind the loan and returning the principal advanced by the licensee, by the end of the business day following the date of the consummation of the loan.

(b) The licensee shall have the applicant initial and date the notice to acknowledge receipt, and the licensee shall retain in the file a copy of the notice with the applicant's initials and date acknowledging receipt.

NOTE

Authority cited: Section 22150, Financial Code. Reference: Section 22352, Financial Code.

HISTORY

2. Repealed by operation of Government Code section 11346.1(g) (Register 2011, No. 47).

3. New section filed 11-21-2011; operative 12-21-2011 (Register 2011, No. 47).

§1592. Disclosure Notice to Applicant and to Borrower.

Note • History

(a) At the time a finder receives or processes an application, the finder shall have the applicant initial and date as of that day the disclosure notice required under Section 22355(a) of the Financial Code, acknowledging receipt. The finder shall provide a copy of the disclosure notice to the applicant and retain in the file the original disclosure notice with the applicant's initials and date acknowledging receipt.

(b) The licensee shall either have the borrower re-initial and re-date a copy of the disclosure notice in subdivision (a) of this section acknowledging the borrower's receipt of the disclosure notice from the licensee on the day the loan is consummated, or use other such procedures established by the licensee to document that the licensee mailed a copy of the disclosure notice to the borrower within two weeks of the date of the loan consummation.

NOTE

Authority cited: Section 22150, Financial Code. Reference: Section 22355, Financial Code.

HISTORY

2. Repealed by operation of Government Code section 11346.1(g) (Register 2011, No. 47).

3. New section filed 11-21-2011; operative 12-21-2011 (Register 2011, No. 47).

§1593. Books and Records of Finders: Standard for Keeping and Retention Period.

Note • History

A licensee shall maintain all books, records, accounts and documents at the place(s) of business provided in the finder's registration form, including but not limited to, records demonstrating that the activities and services performed by the finder are in compliance with Section 22354 of the Financial Code, written disclosures used to provide notice to a borrower in compliance with subdivision (a)(3) of Section 22352 and Section 22355 of the Financial Code, written agreement between the licensee and finder under subdivision (a) of Section 22356 and Section 22358 of the Financial Code, and records of compensation paid to a finder in compliance with subdivision (b) of Section 22356 of the Financial Code.

NOTE

Authority cited: Section 22150, Financial Code. Reference: Sections 22352, 22354, 22355, 22356 and 22358, Financial Code.

HISTORY

2. Repealed by operation of Government Code section 11346.1(g) (Register 2011, No. 47).

3. New section filed 11-21-2011; operative 12-21-2011 (Register 2011, No. 47).

§1594. Services of Finders.

Note • History

A finder receives or processes an application under Section 22355(a) of the Financial Code when the finder performs one or more of the services for a licensee under Section 22354(a) of the Financial Code.

NOTE

Authority cited: Section 22150, Financial Code. Reference: Sections 22354(a) and 22355(a), Financial Code.

HISTORY

2. Repealed by operation of Government Code section 11346.1(g) (Register 2011, No. 47).

3. New section filed 11-21-2011; operative 12-21-2011 (Register 2011, No. 47).

§1595. Counseling or Advice: Prohibited by Finder.

Note • History

(a) A finder shall not provide counseling or advice to a borrower or prospective borrower under Section 22354(a)(2) and (b)(1) of the Financial Code.

(b) Counseling or advice means providing written or oral information to a borrower or prospective borrower that is specific to a loan or to the borrower's or prospective borrower's circumstances.

NOTE

Authority cited: Section 22150, Financial Code. Reference: Sections 22354(a)(2) and 22354(b)(1), Financial Code.

HISTORY

2. Repealed by operation of Government Code section 11346.1(g) (Register 2011, No. 47).

3. New section filed 11-21-2011; operative 12-21-2011 (Register 2011, No. 47).

§1596. List of Borrowers: Survey.

Note • History

For purposes of conducting a survey of borrowers under subdivision (e) of Section 22361 of the Financial Code, a licensee shall upon request make available to the California Corporations Commissioner a list of all borrowers who participated in the program, regardless of whether a loan was consummated. The information shall include the name and contact information of the borrower, date of the transaction, loan information, location of business, and other such information as deemed necessary by the California Corporations Commissioner.

NOTE

Authority cited: Section 22150, Financial Code. Reference: Section 22361, Financial Code.

HISTORY

2. Repealed by operation of Government Code section 11346.1(g) (Register 2011, No. 47).

3. New section filed 11-21-2011; operative 12-21-2011 (Register 2011, No. 47).

Subchapter 7. Securities Owners Protection [Repealed]

HISTORY

1. Change without regulatory effect repealing subchapter 7 (sections 1590-1600) filed 2-7-97 pursuant to section 100, title 1, California Code of Regulations (Register 97, No. 6).

Subchapter 8. Retirement Systems [Repealed]

(Originally Printed 5-15-46)

Note: Authority for Subchapter 8 (§§1650 through 1692, Sec. 22, Chapter 1035, Stats. 1945); authority for repealer, Chap. 1443, Stats. 1970.

HISTORY

1. New Subchapter 8 filed 3-1-46 (Register No. 3)

2. Repealer of Subchapter 8 filed 8-27-71 as procedural; effective upon filing (Register 71, No. 35).

Subchapter 9. Escrow Agents

(Originally Printed 6-12-48)

Article 1. General Provisions

§1700. Preamble. [Repealed]

Note • History

NOTE

Sections 1700-1753, inclusive, issued under authority contained in Section 14 of Escrow Act, Chapter 921, Statutes 1947. Additional authority cited: Sections 17400 and 17401, Financial Code.

HISTORY

1. New Sections 1700 to 1753, inclusive, filed 6-7-48 (Register 12, No. 10).

2. Amendment to Section 1700 filed 3-3-52; effective thirtieth day thereafter (Register 27, No. 5).

3. Amendment filed 10-6-72; effective thirtieth day thereafter (Register 72, No. 41).

4. Repealer filed 12-3-81; effective thirtieth day thereafter (Register 81, No. 49).

§1701. Offices of Division. [Repealed]

Note • History

NOTE

Authority cited: Sections 17400 and 17401, Financial Code.

HISTORY

1. Amendment filed 3-33-52; effective thirtieth day thereafter (Register 27, No. 5).

2. Amendment filed 11-24-65; effective thirtieth day thereafter (Register 65, No. 23).

3. Repealer filed 10-6-72; effective thirtieth day thereafter (Register 72, No. 41).

§1702. Information: Where Obtainable. [Repealed]

Note • History

NOTE

Additional authority cited: Sections 17400 and 17401, Financial Code.

HISTORY

1. Amendment filed 11-13-58; effective thirtieth day thereafter (Register 58, No. 21).

2. Amendment filed 10-6-72; effective thirtieth day thereafter (Register 72, No. 41).

3. Repealer filed 12-3-81; effective thirtieth day thereafter (Register 81, No. 49).

§1703. Communications to Department. [Repealed]

Note • History

NOTE

Authority cited: Sections 17400 and 17401, Financial Code.

HISTORY

1. Amendment filed 10-6-72; effective thirtieth day thereafter (Register 72, No. 41).

2. Repealer filed 12-3-81; effective thirtieth day thereafter (Register 81, No. 49).

§1704. Reference of Inquiries. [Repealed]

History

HISTORY

1. Amendment filed 3-3-52; effective thirtieth day thereafter (Register 27, No. 41).

2. Repealer filed 10-6-72; effective thirtieth day thereafter (Register 72, No. 41).

§1705. Address for Communications. [Repealed]

History

HISTORY

1. Repealer filed 10-6-72; effective thirtieth day thereafter (Register 72, No. 41).

§1706. Additional Data. [Repealed]

History

HISTORY

1. Amendment filed 10-6-72; effective thirtieth day thereafter (Register 72, No. 41).

2. Repealer filed 12-3-81; effective thirtieth day thereafter (Register 81, No. 49).

§1707. Duplicate Exhibits. [Repealed]

History

HISTORY

1. Repealer filed 12-3-81; effective thirtieth day thereafter (Register 81, No. 49).

§1708. Rulings. [Repealed]

History

HISTORY

1. Repealer filed 12-3-81; effective thirtieth day thereafter (Register 81, No. 49).

§1709. Branch Office Sign.

Note • History

An escrow agent by an appropriate sign shall identify each of its branch offices as a branch office of the escrow agent.

NOTE

Authority cited: Sections 17400 and 17401, Financial Code. Reference: Section 17213.5, Financial Code.

HISTORY

1. Editorial correction of NOTE filed 10-13-82 (Register 82, No. 42).

§1709.1. Notification of Location of Customer Contact Centers.

Note • History

Each Internet escrow agent shall notify the Commissioner in writing of the following:

(a) The business address of a customer contact center at least 10 days prior to commencing business at that location.

(b) The new business address at least 10 days prior to the date of an intended change in the location of any customer contact center.

NOTE

Authority cited: Section 17400, Financial Code. Reference: Sections 17005.3, 17404 and 17406, Financial Code.

HISTORY

1. New section filed 7-21-2003; operative 7-21-2003 pursuant to Government Code section 11343.4 (Register 2003, No. 30).

§1710. Joint Control Agents and Internet Escrow Agents.

Note • History

A “joint control agent” is an escrow agent of the type described in Section 17005.1 of the Financial Code. An “Internet escrow agent” is an escrow agent of the type described in Section 17004.5 of the Financial Code. All the regulations in this subchapter shall be applicable to joint control agents and Internet escrow agents. All references to an “escrow agent” or “escrow agents” shall be deemed to refer not only to escrow agents generally but also to joint control agents and Internet escrow agents.

NOTE

Authority cited: Section 17400, Financial Code. Reference: Sections 17004.5 and 17005.1, Financial Code.

HISTORY

1. New section filed 11-24-65; effective thirtieth day thereafter (Register 65, No. 23).

2. Amendment filed 3-20-78; effective thirtieth day thereafter (Register 78, No. 12).

3. Editorial correction filed 10-13-82 (Register 82, No. 42).

4. Amendment of section heading, section and Note filed 7-21-2003; operative 7-21-2003 pursuant to Government Code section 11343.4 (Register 2003, No. 30).

§1711. Definition of Terms.

Note • History

The terms used in these regulations shall have the same meanings set forth in the Escrow Law.

NOTE

Authority cited: Sections 17400 and 17401, Financial Code. Reference: Section 17001, Financial Code.

HISTORY

1. New section filed 7-8-83; effective thirtieth day thereafter (Register 83, No. 28).

Article 2. Applications

§1712. Form of Application. [Repealed]

History

HISTORY

1. Repealer filed 12-3-81; effective thirtieth day thereafter (Register 81, No. 49).

§1713. Additional Information. [Repealed]

History

HISTORY

1. Repealer filed 12-3-81; effective thirtieth day thereafter (Register 81, No. 49).

§1714. Financial Statement. [Repealed]

History

HISTORY

1. Repealer filed 12-3-81; effective thirtieth day thereafter (Register 81, No. 49).

§1714.1. Independent Accountant. [Repealed]

Note • History

NOTE

Authority cited: Section 17400, Financial Code. Reference: Section 17406, Financial Code.

HISTORY

1. New section filed 3-3-52; effective thirtieth day thereafter (Register 27, No. 5).

2. Editorial correction of NOTE filed 10-13-82 (Register 82, No. 42).

3. Amendment filed 1-5-87; effective thirtieth day thereafter (Register 87, No. 2).

4. Repealer filed 12-16-97; operative 1-15-98 (Register 97, No. 51).

§1715. Branch Offices. [Repealed]

Note • History

NOTE

Additional authority cited: Section 17400, Financial Code.

HISTORY

1. Amendment filed 11-13-58; effective thirtieth day thereafter (Register 58, No. 21).

2. Amendment filed 6-27-74; effective thirtieth day thereafter (Register 74, No. 26).

3. Repealer filed 12-3-81; effective thirtieth day thereafter (Register 81, No. 49).

§1716. Locations. [Repealed]

History

HISTORY

1. New section filed 3-3-52; effective thirtieth day thereafter (Register 27, No. 5).

2. Amendment filed 6-27-74; effective thirtieth day thereafter (Register 74, No. 26).

3. Repealer filed 12-3-81; effective thirtieth day thereafter (Register 81, No. 49).

§1716.1. Similar Names. [Repealed]

Note • History

NOTE

Authority cited: Section 17400, Financial Code. Reference: Section 17209.3, Financial Code.

HISTORY

1. New section filed 3-3-52; effective thirtieth day thereafter (Register 27, No. 5).

2. Editorial correction of NOTE filed 10-13-82 (Register 82, No. 42).

3. Repealer filed 12-16-97; operative 1-15-98 (Register 97, No. 51).

§1717. Filing Copies of Certificates.

Note • History

A corporate licensee shall file with the commissioner a copy of any certificate affecting the licensee corporation hereafter filed by it with the Secretary of State and not theretofore filed with the commissioner.

NOTE

Authority cited: Section 17400, Financial Code. Reference: Section 17213.5, Financial Code.

HISTORY

. 1. New section filed 3-3-52; effective thirtieth day thereafter (Register 27, No. 5).

. 2. Editorial correction of NOTE filed 10-13-82 (Register 82, No. 42).

§1717.1. Notice of Judgments.

Note • History

An escrow agent shall notify the Commissioner in writing immediately after an entry of a money judgment in a civil action against the escrow agent, or entry of a judgment involving moral turpitude against any escrow agent, officer, or director of an escrow agent, or the person meeting the requirements of Section 17200.8 of the Escrow Law, and immediately after the filing of a criminal action involving moral turpitude against the escrow agent, or any of its officers, or directors, or the person meeting the requirements of Section 17200.8 of the Escrow Law.

NOTE

Authority cited: Section 17400, Financial Code. Reference: Sections 17200.8 and 17210, Financial Code.

HISTORY

. 1. New section filed 3-3-52; effective thirtieth day thereafter (Register 27, No. 5).

. 2. Amendment filed 11-24-65; effective thirtieth day thereafter (Register 65, No. 23).

. 3. Editorial correction of NOTE filed 10-13-82 (Register 82, No. 42).

§1717.2. Experience Requirement for Internet Escrow Agents (With Respect to Personal Property Transactions).

Note • History

Within the organization of each Internet escrow agent corporation engaged in the business of escrows involving personal property, one or more qualified persons shall demonstrate knowledge and understanding of the Escrow Law (as set forth in Division 6 (commencing with Section 17000) of the Financial Code), the rules promulgated thereunder and accounting practices and procedures as follows:

(a) Execute a declaration certifying under penalty of perjury that the person has read and understood the provisions of Division 6 of the Financial Code and these rules promulgated under the Escrow Law; and

(b) Possess a minimum of two years of experience performing and/or supervising accounting functions that are similar to those functions that will be necessary to maintain the books, records and accounts of the Internet escrow agent as required by the Escrow Law and these rules; or

(c) Successful completion of beginning and intermediate accounting courses or equivalent accounting courses with a grade of “C” or better (or a “passing” or equivalent grade when no letter grade is awarded) from an accredited college. College transcripts shall be provided to the Commissioner to demonstrate this requirement has been met. An “accredited” college means a University of California, a California State University, a California Community College, or another college or university approved (or exempt from approval) by the California Bureau for Private Postsecondary and Vocational Education.

NOTE

Authority cited: Section 17400, Financial Code. Reference: Section 17200.8, Financial Code.

HISTORY

1. New section filed 7-21-2003; operative 7-21-2003 pursuant to Government Code section 11343.4 (Register 2003, No. 30).

Article 3. Bonds

§1718. Cash in Lieu of Surety Bond.

Note • History

(a) Section 17202.1 of the Financial Code allows licensed escrow agents, or applicants for an escrow agent's license, to deposit with the Commissioner cash, investment certificates of industrial loan companies, certificates of deposit, bank accounts or savings and loan share accounts in lieu of the surety bond required by section 17202 of the Financial Code.

The procedures for establishing a deposit are as follows:

(1) The escrow agent or applicant shall make an assignment of the deposit, certificate or account to the Commissioner. The assignment shall be made using the following form containing the information therein specified:

BEFORE THE

DEPARTMENT OF CORPORATIONS

OF THE

STATE OF CALIFORNIA

ASSIGNMENT TO COMMISSIONER OF CORPORATIONS

PURSUANT TO FINANCIAL CODE SECTION 17202.1

PART I. ASSIGNMENT

, herein after called Assignor,

(Name)

whose place of business is ________________________________, does hereby assign and set over to the Commissioner of Corporations of the State of California or his or her duly appointed conservator or receiver all right, title and interest of whatever nature of Assignor in and to the investment certificate/certificate of deposit/bank account/savings and loan share account of the Assignor in

(Name of industrial loan company, bank or savings and loan association)

,California,

(Street) (City)

in the amount of $__________________, identified as certificate/account no. ___________________________________________. Assignor agrees that this assignment carries with it the right in the insurance of the assigned accounts by the Federal Deposit Insurance Corporation or the Federal Savings and Loan Insurance Corporation (or its successor) and includes and gives the right to the Commissioner of Corporations or his or her duly appointed conservator or receiver to redeem, collect and withdraw the full amount of such deposit, certificate or account at any time without notice to the Assignor. This assignment is given as security for any liability of the Assignor under the provisions of the Escrow Law and in accordance with sections 17202 and 17202.1 of the California Financial Code.

This assignment includes interest and penalties payable on any such liability. Assignor hereby notifies the above-named industrial loan company, bank or savings and loan association of this assignment.

(A copy of the resolution of Assignor's Board of Directors, certified by the Secretary of the Assignor, must be attached to each copy of this Assignment.)

Dated this day of ,20 .

(Assignor)

Signature of Authorized Officer

PART II. RECEIPT FOR NOTICE OF ASSIGNMENT

Receipt is hereby acknowledged of the written notice of the assignment to the Commissioner of Corporations, State of California, of the investment certificates, certificates of deposit, bank accounts or savings and loan share accounts identified in Part I hereof. We confirm that such account/certificate is outstanding and we have noted in our records the interest of the Commissioner and his or her duly appointed conservator or receiver therein as shown in said Assignment, and have retained a copy of said Assignment and of this receipt. We certify that said accounts are fully insured by the Federal Deposit Insurance Corporation or the Federal Savings and Loan Insurance Corporation (or its successor) and that we have received no notice of any lien, encumbrance, hold, claim or obligation concerning said certificates or accounts prior to the assignment thereof to the Commissioner of Corporations. We further state that no lien or right of offset is or at any subsequent time will be claimed by this industrial loan company, bank or savings and loan association against said certificates or accounts for any obligation due or to become due to this industrial loan company bank or savings and loan association from the Assignor or any of its officers, directors, shareholders or employees. We agree to make payment to the Commissioner of Corporations upon request in accordance with the laws applicable to this industrial loan company, bank or savings and loan association.

Dated this day of , 20 .

(Name of industrial loan company, bank or savings and loan association)

(Street) (City)

(Name and Title of Officer)

PART III. RECEIPT FOR DEPOSIT OF INVESTMENT CERTIFICATES, CERTIFICATES OF DEPOSIT, BANK ACCOUNTS OR SAVINGS AND LOAN SHARE ACCOUNTS AND DIRECTIONS TO PAY EARNINGS.

Receipt is acknowledged of the above Assignment and the investment certificates, certificates of deposit, bank accounts or savings and loan share accounts identified therein. The industrial loan company, bank or savings and loan association named in the above Assignment is hereby authorized and directed to pay any earnings which exceed the amount of any penalties which may be assessed on said certificates or accounts to the above-named Assignor until otherwise notified in writing by the Commissioner of Corporations of the State of California.

Dated this day of , 20 .

(Commissioner of Corporations)

(2) An original and 5 copies of the form set forth in subsection (1) above, completed as to Part I and Part II thereof, shall be filed with the Commissioner.

(3) Submission of the original form must be accompanied by two copies of the board of directors' resolution authorizing filing of the assignment.

(4) The escrow agent or applicant shall forward the investment certificates, certificates of deposit, or other appropriate evidence of deposit of bank accounts or savings and loan share accounts to the Commissioner at the time of filing the assignment.

(5) After completion of Part III of the form by the Commissioner, a copy of the assignment will be sent to the assignor escrow agent, or applicant, and a copy to the issuing industrial loan company, bank or savings and loan association.

(b) The Commissioner is not given authority under the Escrow Law to adjudicate any claim or controversy against a bond of an escrow agent or against a deposit of cash, investment certificates, certificates of deposit, bank accounts or savings and loan share accounts made in lieu of a bond. It will be necessary for disputed claims to be adjudicated by a court of competent jurisdiction. Upon filing of suit and notice to the Commissioner, if deemed appropriate under the circumstances, the Commissioner will turn over all or part of the funds to the court by means of an interpleader or similar proceeding.

(c) Cash, investment certificates, certificates of deposit, bank accounts or savings and loan share accounts deposited in lieu of a bond may be returned to the escrow agent two years after the date of termination by the escrow agent of the deposit arrangement or two years after the termination of the escrow agent's license, if the escrow agent makes a showing satisfactory to the Commissioner that it has no outstanding liabilities or claims against it which, if valid, could be satisfied in whole or in part out of the deposit. In the event an escrow agent establishes a subsequent deposit in lieu of a bond in accordance with this section, the prior deposit may be returned to the escrow agent after obtaining the Commissioner's written consent.

NOTE

Authority cited: Sections 17202.1 and 17400, Financial Code. Reference: Section 17202.1, Financial Code.

HISTORY

1. New section filed 8-24-90; operative 9-23-90 (Register 90, No. 42).

2. Change without regulatory effect amending subsections (a), (b) and (c) filed 2-8-91 pursuant to section 100, title 1, California Code of Regulations (Register 91, No. 11).

3. Editorial correction of subsection (c) (Register 91, No. 24).

4. Editorial correction of printing error in form (Register 91, No. 33).

5. Change without regulatory effect amending subsection (a)(1) filed 9-25-2002 pursuant to section 100, title 1, California Code of Regulations (Register 2002, No. 39).

§1719. Additional Bond. [Repealed]

Note • History

NOTE

Authority cited: Sections 17400 and 17401, Financial Code.

HISTORY

1. Amendment filed 6-27-74; effective thirtieth day thereafter (Register 74, No. 26).

2. Repealer filed 8-11-83; effective thirtieth day thereafter (Register 83, No. 33).

§1720. Employee Bonds. [Repealed]

Note • History

NOTE

Authority cited: Sections 17400 and 17401, Financial Code.

HISTORY

1. Amendment filed 6-27-74; effective thirtieth day thereafter (Register 74, No. 26).

2. Repealer filed 8-11-83; effective thirtieth day thereafter (Register 83, No. 33).

§1721. Filing Employee Bonds. [Repealed]

Note • History

NOTE

Authority cited: Sections 17400 and 17401, Financial Code.

HISTORY

1. Amendment filed 6-27-74; effective thirtieth day thereafter (Register 74, No. 26).

2. Repealer filed 8-11-83; effective thirtieth day thereafter (Register 83, No. 33).

§1722. Employee Bond Coverage.

Note • History

Except as otherwise provided in Section 1723 of these rules, a bond or bonds filed pursuant to Section 17203.1 of the Financial Code shall have at least the coverage provided in standard forms of fidelity, commercial blanket or blanket position bonds. Any additional coverage in such bonds is optional with the escrow agent.

NOTE

Authority cited: Section 17400, Financial Code. Reference: Sections 17203.1 and 17312, Financial Code.

HISTORY

1. Amendment filed 8-11-83; effective thirtieth day thereafter (Register 83, No. 33).

2. Amendment of section and Note filed 5-1-2000 as an emergency; operative 5-1-2000 (Register 2000, No. 18). A Certificate of Compliance must be transmitted to OAL by 8-29-2000 or emergency language will be repealed by operation of law on the following day.

3. Reinstatement of section as it existed prior to 5-1-2000 emergency amendment by operation of Government Code Section 11346.1(f) (Register 2000, No. 35).

4. Amendment of section and Note filed 8-30-2000 as an emergency; operative 8-30-2000 (Register 2000, No. 35). A Certificate of Compliance must be transmitted to OAL by 12-28-2000 or emergency language will be repealed by operation of law on the following day.

5. Certificate of Compliance as to 8-30-2000 order transmitted to OAL 11-30-2000 and filed 1-10-2001 (Register 2001, No. 2).

§1723. Form and Amount of Fidelity Bond.

Note • History

(a) Applicants for an escrow agent's license and licensees that are not required to be members of Escrow Agents' Fidelity Corporation pursuant to Section 17312 of the Financial Code or that will engage in or are engaged in the business of receiving escrows for deposit or delivery of the types of transactions not specified in subdivision (c) of Section 17312 of the Financial Code shall do the following:

(1) File with the Department a fidelity bond, providing fidelity coverage on each officer, director, trustee, and employee of not less than $125,000, for the purpose of indemnifying the escrow agent, or the escrow agent's successor in interest, for loss of trust obligations held by the escrow agent as a result of the fraudulent or dishonest abstraction, misappropriation, or embezzlement of trust obligations by an officer, director, trustee, or employee of the escrow agent. The fidelity bond may be either a primary commercial blanket bond or a blanket position bond, but shall be written by an insurer who has been licensed by the Department of Insurance of the State of California. The fidelity bond shall contain a rider as set forth in subsection (b). Section 1725 of these rules shall not apply to a bond required under this section.

(2) The licensee shall maintain minimum fidelity coverage in accordance with the following schedule:

Monthly average Minimum

escrow liability coverage

Up to $125,000 $ 125,000

$125,001 to $250,000 $ 250,000

$250,001 to $500,000 $ 500,000

$500,001 to $750,000 $ 750,000

$750,001 to $1,000,000 $1,000,000

$1,000,001 to $3,000,000 $2,000,000

$3,000,001 to $5,000,000 $3,000,000

$5,000,001 to $7,500,000 $4,000,000

$7,500,001 to $10,000,000 $5,000,000

and additional coverage at the rate of $1.00 for every $3.00 of average escrow liability in excess of $10,000,000.

The foregoing schedule is a guide for the determination of the minimum fidelity coverage required of a licensee and shall not limit the Department in requiring any additional fidelity coverage that may be required under the circumstances.

(b) The rider shall:

(1) Provide that the coverage of the bond extends to all officers, directors, trustees, and employees of the insured whether or not such officers, directors, trustees, and employees are compensated by the insured.

(2) Provide that “employee” shall include:

(A) The Commissioner of Corporations, State of California, during the time said Commissioner, including his or her authorized representative, has possession of the property and business of the insured as provided in Chapter 6 (commencing with Section 17621) of Division 6 of the Financial Code.

(B) Any individual or individuals assigned to perform employee duties for the insured within any premises of the insured by any agency furnishing temporary personnel on a contingent or part-time basis; provided, however, that the policy does not cover any loss caused by such individual if such loss is also covered by any insurance or suretyship held by the agency furnishing such temporary personnel to the insured.

(C) An independent contractor working in any office of the insured. Independent contractor shall be understood to mean any natural person while performing escrow duties in the service of the insured, and whose performance in such service, the insured has a right to govern and direct, but whom the insured compensates by other than salary or wages.

(3) Contain a provision that the bond shall not be cancelled by the insurer in whole or in part without 30 days prior written notice to the Commissioner.

(c) A fidelity bond required under this section may contain a deductible; however, the escrow agent shall deposit with the Commissioner a surety bond satisfactory to the Commissioner in the amount of the deductible. The surety bond required by this subsection is in addition to the surety bond required by Section 17202 of the Financial Code. The amount of the surety bond shall always be maintained at the same amount as the deductible, thereby reflecting any increase or decrease in the amount of the deductible. The surety bond shall run to the state for the use of the state to cover any loss of trust obligations that the escrow agent's fidelity bond does not cover due to the fidelity bond's deductible. The surety under the bond may pay the amount of its liability thereunder to the Commissioner or a conservator appointed by the Commissioner or a receiver or other designated fiduciary or officer of the court appointed by the court pursuant to Chapter 6 (commencing with Section 17621) of Division 6 of the Financial Code in lieu of payment to the state.

NOTE

Authority cited: Section 17400, Financial Code. Reference: Sections 17203.1, 17312, 17621, 17628, 17629, 17630, 17631, 17635, 17636, 17637, 17638 and 17640, Financial Code.

HISTORY

1. Amendment filed 11-13-58; effective thirtieth day thereafter (Register 58, No. 21).

2. Amendment filed 6-27-74; effective thirtieth day thereafter (Register 74, No. 26).

3. Editorial correction of NOTE filed 4-6-83 (Register 83, No. 15).

4. Amendment of section and Note filed 12-23-99 as an emergency; operative 1-1-2000 (Register 99, No. 52). A Certificate of Compliance must be transmitted to OAL by 5-1-2000 or emergency language will be repealed by operation of law on the following day.

5. Reinstatement of section as it existed prior to 12-23-99 emergency amendment by operation of Government Code section 11346.1(f) (Register 2000, No. 18).

6. Amendment of section and Note filed 5-1-2000 as an emergency; operative 5-1-2000 (Register 2000, No. 18). A Certificate of Compliance must be transmitted to OAL by 8-29-2000 or emergency language will be repealed by operation of law on the following day.

7. Reinstatement of section as it existed prior to 5-1-2000 emergency amendment by operation of Government Code Section 11346.1(f) (Register 2000, No. 35).

8. Amendment of section and Note filed 8-30-2000 as an emergency; operative 8-30-2000 (Register 2000, No. 35). A Certificate of Compliance must be transmitted to OAL by 12-28-2000 or emergency language will be repealed by operation of law on the following day.

9. Certificate of Compliance as to 8-30-2000 order transmitted to OAL 11-30-2000 and filed 1-10-2001 (Register 2001, No. 2).

§1724. Term of Employee Bonds. [Repealed]

Note • History

NOTE

Authority cited: Sections 17400 and 17401, Financial Code.

HISTORY

1. Amendment filed 6-27-74; effective thirtieth day thereafter (Register 74, No. 26).

2. Repealer filed 8-11-83; effective thirtieth day thereafter (Register 83, No. 33).

§1725. California Escrow Rider.

Note • History

A bond shall contain the “California Escrow Rider,” as in effect on July 1, 1983.

NOTE

Authority cited: Sections 17400 and 17401, Financial Code. Reference: Section 17204, Financial Code.

HISTORY

1. Amendment filed 8-11-83; effective thirtieth day thereafter (Register 83, No. 33).

2. Repealer filed 5-1-2000 as an emergency; operative 5-1-2000 (Register 2000, No. 18). A Certificate of Compliance must be transmitted to OAL by 8-29-2000 or emergency language will be repealed by operation of law on the following day.

3. Reinstatement of section as it existed prior to 5-1-2000 emergency amendment by operation of Government Code Section 11346.1(f) (Register 2000, No. 35).

§1726. Notification of Required Membership Fees to Escrow Agents' Fidelity Corporation and Personnel.

Note • History

(a) The Commissioner shall be notified in writing by the Escrow Agents' Fidelity Corporation of the escrow agent's payment to the corporation of the required membership fees for those escrow agents subject to membership pursuant to subdivisions (a) and (c) of Section 17312 of the Financial Code and the escrow agent shall notify the Commissioner, on the form set forth in subdivision (b) furnished by the Commissioner, the names of any officer, director, trustee, employee or other person directly or indirectly compensated by the escrow agent before allowing the person in the regular discharge of his/her duties to have access to moneys or negotiable securities belonging to or in the possession of the escrow agent, or to draw checks upon the escrow agent or the trust funds of the escrow agent.

(b) The following form shall be used to notify the Commissioner pursuant to subsection (a):

Embedded Graphic 10.0101

(c) The fee for filing a notice pursuant to subsection (b) of this section is $10.00 for each notice plus the fee charged by the Department of Justice (Section 11105, Penal Code) for processing fingerprints and certain information provided by the applicant on the form.

(d) If the fingerprints of an individual named in a notice filed pursuant to subsection (b) of this section are not on file with the Commissioner, the escrow agent shall file with the notice fingerprint information pursuant to California Penal Code Section 11077.1 for such individual. Information as to whether or not an individual's fingerprints are on file with the Commissioner may be obtained from any office of the Commissioner. Upon filing the fingerprints of such person, an escrow agent shall reimburse the Department of Corporations the actual amount then currently charged by the Department of Justice for processing the fingerprints.

NOTE

Authority cited: Sections 17203.1 and 17400, Financial Code. Reference: Sections 17203.1, 17207, 17209, 17209.1 and 17312, Financial Code; and Section 11077.1, Penal Code.

HISTORY

1. Change without regulatory effect of subsection (a) filed 3-27-86; effective thirtieth day thereafter (Register 86, No. 13). For prior history, see Register 85, No. 12.

2. Change without regulatory effect pursuant to section 100(b)(3), title 1, California Code of Regulations filed 12-15-89; operative 1-14-90 (Register 90, No. 1).

3. Change without regulatory effect amending subsection (b) filed 4-26-90 pursuant to section 100, title 1, California Code of Regulations. Printing delayed due to numerical error (Register 90, No. 41).

4. Change without regulatory effect amending subsections (b) and (c) filed 4-26-90 pursuant to section 100, title 1, California Code of Regulations (Register 90, No. 41).

5. Editorial correction of printing error in subsection (a), form in subsection (b), and HISTORY 4 (Register 91, No. 36).

6. Editorial correction of form in subsection (b) (Register 95, No. 12).

7. Change without regulatory effect amending form filed 5-24-99 pursuant to section 100, title 1, California Code of Regulations (Register 99, No. 22).

8. Amendment of section and Note filed 7-21-2003; operative 7-21-2003 pursuant to Government Code section 11343.4 (Register 2003, No. 30).

9. Change without regulatory effect amending subsection (d) and amending Note filed 11-23-2005 pursuant to section 100, title 1, California Code of Regulations (Register 2005, No. 47).

§1726.1. Corporate Surety.

History

A corporate surety which is an admitted insurer in the State of California is satisfactory to the commissioner.

HISTORY

. 1. New section filed 3-3-52; effective thirtieth day thereafter (Register 27, No. 5).

Article 4. Books, Records and Accounts

§1729. Inspection and Examination by Commissioner.

Note • History

The Commissioner may consider the following factors in determining how often an examination required under subdivision (c) of Section 17405 of the Financial Code shall be conducted:

(a) Past and current violations of the Escrow Law and the regulations promulgated thereunder, taking into consideration the nature and severity of the violations and the number of violations.

(b) The number of years the escrow agent has been licensed under the Escrow Law.

NOTE

Authority cited: Section 17400, Financial Code. Reference: Section 17405, Financial Code.

HISTORY

1. New section filed 12-31-2001 as an emergency; operative 1-1-2002 (Register 2002, No. 1). A Certificate of Compliance must be transmitted to OAL by 5-1-2002 or emergency language will be repealed by operation of law on the following day.

2. New section refiled 4-29-2002 as an emergency; operative 4-30-2002 (Register 2002, No. 18). A Certificate of Compliance must be transmitted to OAL by 8-28-2002 or emergency language will be repealed by operation of law on the following day.

3. Certificate of Compliance as to 4-29-2002 order transmitted to OAL 7-9-2002 and filed 8-20-2002 (Register 2002, No. 34).

§1730. Maintenance of Books.

Note • History

(a) An escrow agent who is engaged in the business of receiving escrows specified in subdivision (c) of Section 17312 of the Financial Code and is required to be a member of Escrow Agents' Fidelity Corporation shall have its business offices located in the State of California and shall maintain its books, records and accounts in the State of California. An escrow agent who is not engaged in the business of receiving escrows specified in subdivision (c) of Section 17312 of the Financial Code and is not required to be a member of Escrow Agents' Fidelity Corporation shall maintain its books, records and accounts in the State of California or in the state the escrow agent is located in.

(b) An escrow agent shall notify the Commissioner in writing of the location of its books, records and accounts. Such books, records and accounts shall be maintained at such location unless the escrow agent notifies the Commissioner in writing at least 15 days prior to changing the location of such books.

NOTE

Authority cited: Section 17400, Financial Code. Reference: Sections 17404 and 17405, Financial Code.

HISTORY

1. Amendment filed 6-27-74; effective thirtieth day thereafter (Register 74, No. 26).

2. Editorial correction adding NOTE filed 4-6-83 (Register 83, No. 15).

3. Amendment of section and Note filed 7-21-2003; operative 7-21-2003 pursuant to Government Code section 11343.4 (Register 2003, No. 30).

§1730.1. License Application: Out-of-State Locations.

Note • History

A license for a business location outside this state may be issued only to an escrow agent who is not engaged in the business of receiving escrows specified in subdivision (c) of Section 17312 of the Financial Code and is not required to be a member of Escrow Agents' Fidelity Corporation if the escrow agent agrees in writing in the license application to pay the reasonable expenses for travel, meals and lodging of the Commissioner or the Commissioner's representatives incurred during any investigation or examination made at the escrow agent's location outside this state.

NOTE

Authority cited: Section 17400, Financial Code. Reference: Sections 17209, 17404 and 17405, Financial Code.

HISTORY

1. New section filed 7-21-2003; operative 7-21-2003 pursuant to Government Code section 11343.4 (Register 2003, No. 30).

§1731. Annual Report.

Note • History

An escrow agent should make its annual report on an accrual basis.

NOTE

Authority cited: Sections 17400, 17401 and 17406(j), Financial Code. Reference: Section 17406, Financial Code.

HISTORY

. 1. Amendment filed 6-27-74; effective thirtieth day thereafter (Register 74, No. 26).

. 2. Editorial correction adding NOTE filed 4-6-83 (Register 83, No. 15).

§1731.1. Date of Annual Report. [Repealed]

Note • History

NOTE

Authority cited: Sections 17400 and 17401, Financial Code.

HISTORY

. 1. New section filed 3-3-52; effective thirtieth day thereafter (Register 27, No. 5).

. 2. Repealer filed 7-8-83; effective thirtieth day thereafter (Register 83, No. 28).

§1731.2. Confirmation of Escrow Fund and Liability. [Repealed]

Note • History

NOTE

Authority cited: Sections 17400, 17401 and 17406(j), Financial Code. Reference: Section 17406, Financial Code.

HISTORY

. 1. New section filed 3-3-52; effective thirtieth day thereafter (Register 27, No. 5).

2. Editorial correction adding NOTE filed 4-6-83 (Register 83, No. 15).

3. Repealer filed 12-16-97; operative 1-15-98 (Register 97, No. 51).

§1731.3. Schedule of Escrow Liability. [Repealed]

Note • History

NOTE

Authority cited: Sections 17400 and 17401, Financial Code. Reference: Section 17406, Financial Code.

HISTORY

. 1. New section filed 3-3-52; effective thirtieth day thereafter (Register 27, No. 5).

§1732. Basis of Books.

Note

An escrow agent shall maintain its books, records and accounts in accordance with generally accepted accounting principles and good business practice.

NOTE

Authority cited: Sections 17400 and 17401, Financial Code. Reference: Section 17404, Financial Code.

§1732.1. Posting Dates.

Note • History

All receipts and disbursements of moneys shall be posted in the escrow ledger as of the date of such receipts and disbursements, regardless of the date of posting.

NOTE

Authority cited: Sections 17400 and 17401, Financial Code. Reference: Sections 17404 and 17409, Financial Code.

HISTORY

1. New section filed 3-3-52; effective thirtieth day thereafter (Register 27, No. 5).

2. Amendment filed 6-27-74; effective thirtieth day thereafter (Register 74, No. 26).

3. Editorial correction adding NOTE filed 4-6-83 (Register 83, No. 15).

§1732.2. Escrow Books.

Note • History

(a) An escrow agent shall establish and maintain currently the following books with reference to its escrow accounts:

(1) Escrow ledger containing a separate ledger sheet for each escrow;

(2) Escrow liability controlling account;

(3) Cash receipt and disbursement journal or a file containing copies of all receipts and checks and/or check stubs of checks issued by the escrow agent as a medium of posting to the records referred to in subsections (1) and (2) in which case adding machine tapes of totals of receipts and checks shall be retained. The records referred to in subsections (1) and (2) shall be reconciled at least once each month with the bank statements of the “trust” or “escrow” account. The records referred to in subsection (1) shall be reconciled at least once each week with the escrow liability controlling account referred to in subsection (2).

(b) An escrow agent engaged in the business of receiving escrows for deposit or delivery of the types of transactions specified in subdivision (c) of Section 17312 of the Financial Code and of the types of transactions not specified therein shall maintain separate escrow books and separate escrow trust accounts for each type of escrow business in the same manner as provided for in subsection (a).

(c) An escrow agent that is located outside this state shall, in addition to the books and records required in subsections (a) and (b), maintain separate books and records and separate escrow trust bank accounts for the escrow activity that occurs within this state as defined in Section 17005.5 of the Financial Code.

NOTE

Authority cited: Section 17400, Financial Code. Reference: Sections 17005.5, 17404 and 17409, Financial Code.

HISTORY

1. New section filed 3-3-52; effective thirtieth day thereafter (Register 27, No. 5).

2. Amendment filed 6-27-74; effective thirtieth day thereafter (Register 74, No. 6).

3. Amendment filed 7-8-83; effective thirtieth day thereafter (Register 83, No. 28).

4. Editorial correction of printing error in subsection (c) (Register 96, No. 52).

5. Amendment of section and Note filed 7-21-2003; operative 7-21-2003 pursuant to Government Code section 11343.4 (Register 2003, No. 30).

§1732.3. General Books.

Note • History

An escrow agent shall establish and maintain currently the following books with reference to its general accounts:

(a) General ledger reflecting the assets, liabilities, capital, income and expense of the business, in accordance with generally accepted accounting principles;

(b) Cash receipt and disbursement journal.

The bank accounts contained in the general ledger shall be reconciled at least once each month with the bank statements of the general accounts.

NOTE

Authority cited: Sections 17400 and 17401, Financial Code. Reference: Section 17404, Financial Code.

HISTORY

1. New section filed 3-3-52; effective thirtieth day thereafter (Register 27, No. 5).

2. Amendment filed 6-27-74; effective thirtieth day thereafter (Register 74, No. 26).

3. Amendment filed 7-8-83; effective thirtieth day thereafter (Register 83, No. 28).

4. Editorial correction of printing errors in subsections (a) and (b) (Register 96, No. 52).

§1733. Books Accessible. [Repealed]

Note • History

NOTE

Authority cited: Sections 17400 and 17401, Financial Code.

HISTORY

1. Repealer filed 7-8-83; effective thirtieth day thereafter (Register 83, No. 28).

§1734. Time for Filing Annual Report. [Repealed]

Note • History

NOTE

Authority cited: Sections 17400 and 17401, Financial Code.

HISTORY

1. Amendment filed 3-3-52; effective thirtieth day thereafter (Register 27, No. 3).

2. Repealer filed 7-8-83; effective thirtieth day thereafter (Register 83, No. 28).

§1735. Special Reports. [Repealed]

Note • History

NOTE

Authority cited: Sections 17400 and 17401, Financial Code.

HISTORY

1. Amendment filed 3-3-52; effective thirtieth day thereafter (Register 27, No. 5).

2. Repealer filed 7-8-83; effective thirtieth day thereafter (Register 83, No. 28).

§1736. Extension of Time for Reports. [Repealed]

Note • History

NOTE

Authority cited: Sections 17400 and 17401, Financial Code.

HISTORY

1. Repealer filed 7-8-83; effective thirtieth day thereafter (Register 83, No. 28).

§1737. Special Accounts.

Note • History

(a) Except as provided in Section 1737.1 of these rules, all money received by an escrow agent as part of an escrow transaction shall on or before the close of the next full working day after such receipt be deposited in a bank, a savings bank, or a savings and loan association in an account designated “trust” or “escrow” account. No funds other than those received as part of an escrow transaction shall be deposited in such account or otherwise commingled with escrow money.

(b) Pursuant to written instructions of the principals or electronic instructions received by an Internet escrow agent from the principals containing at least the provisions required by subsection (c), funds received in any particular escrow transaction and deposited pursuant to subsection (a) may subsequently be deposited into an interest-bearing escrow account established solely for such purpose at a bank, savings bank, savings and loan association or credit union (“financial institution”) in the name of the escrow agent as trustee for the principals to the particular escrow identified by escrow number.

(1) authorize the opening of an interest-bearing escrow account in the name of the escrow agent as trustee for the particular escrow identified by escrow number;

(2) specify the type of account to be opened and the amount of the deposit;

(3) identify the name and location of the financial institution with which the interest-bearing account is to be opened;

(4) specify

(A) the disposition of the interest at the close of escrow,

(B) the disposition of the interest in the event that the escrow fails to close, and

(C) the disposition of any accrued interest retained in the interest-bearing escrow account after the close of escrow pursuant to subsection (g);

(5) indicate that the principals have been advised by the escrow agent of possible restrictions and/or penalties for early withdrawal of funds; and

(6) prohibit the escrow agent from withdrawing funds from the interest- bearing account except for redeposit into the “trust” or “escrow” account.

(d) An escrow agent is responsible for establishing and maintaining an interest-bearing account so that the funds are fully insured or guaranteed, to the extent available by law.

(e) An escrow agent is responsible for establishing and maintaining adequate controls over the passbooks and certificates issued by financial institutions in connection with interest-bearing escrow accounts.

(f) An escrow agent depositing escrow funds into interest-bearing escrow accounts shall establish and maintain a control ledger summarizing the deposits in interest-bearing escrow accounts or shall make a memo entry on each individual escrow ledger. The posting of the ledger shall include the escrow number, interest-bearing account number, date of deposit, and amount of deposit.

(g) All funds deposited into an interest-bearing escrow account, including any interest paid thereon, shall be transferred from such account into the “trust” or “escrow” account before the close of escrow, except that a specified portion or all of the interest accrued may be retained in the interest-bearing escrow account until the end of the current calendar quarter if the escrow instructions of the principals so provide.

(h) Disbursements from the “trust” or “escrow” account shall not be made against funds deposited in an interest-bearing escrow account until such funds have been transferred and receipted into the “escrow” or “trust” account with proper posting to the particular escrow.

(i) Electronic fund transfers may be made between the “trust” or “escrow” account and any interest-bearing account.

(j) Interest paid on any interest-bearing escrow account shall be paid over to the principal having deposited the moneys in escrow unless the escrow instructions clearly specify that such interest is to be paid over to a named person other than the escrow agent. Notwithstanding any provision in any escrow instructions, the interest paid or payable on any interest-bearing account shall not be transferred to the account of, accrue to the benefit of, or otherwise be treated as an asset of the escrow agent.

(k) An escrow agent who wishes to transact business as an escrow agent on a basis other than as provided by this section may request in writing a variance to or waiver of any provisions of this section, but may not engage in business in a manner not in compliance with this section without first having received a waiver or variance in writing from the Commissioner.

(l) Any request for a variance or waiver shall include at least:

(A) a statement of the basis upon which the escrow agent's business is proposed to be transacted in connection with a particular named financial institution;

(B) a description of the plan of business and applicable procedures including copies of all agreements or memoranda of understanding between the escrow agent and the financial institution;

(C) a showing that the proposed plan of business and applicable procedures provide for administrative and accounting controls at least as adequate as those provided in this section; and

(D) a statement of the reasons why, under the escrow agent's circumstances, a variance or waiver is requested.

(2) Any variance or waiver granted pursuant to this subsection by the Commissioner shall be in writing and subject to such terms and conditions as may be deemed necessary or advisable by the Commissioner to protect any escrow transactions of such escrow agent, to preserve the trust nature of the escrow relationship, and to insure compliance with the Escrow Law and rules, including the other provisions of this section.

NOTE

Authority cited: Section 17400, Financial Code. Reference: Sections 17403.5, 17409, 17410 and 17411, Financial Code.

HISTORY

1. Amendment filed 11-24-65; effective thirtieth day thereafter (Register 65, No. 23).

2. Amendment filed 12-31-79 as an emergency; effective upon filing. Certificate of Compliance included (Register 80, No. 1).

3. Editorial correction of NOTE filed 4-6-83 (Register 83, No. 15).

4. Amendment filed 7-23-84 as an emergency; effective upon filing (Register 84 No. 30). A Certificate of Compliance must be transmitted to OAL within 120 days or all emergency language will be repealed on 11-20-84.

5. Editorial correction of subsection (i) (Register 84, No. 46).

6. Certificate of Compliance as to 7-23-84 order transmitted to OAL 10-23-84 and filed 11-26-84 (Register 84, No. 49).

7. Editorial correction of printing errors in subsections (b), (c)(2), and (k)(1)(C) (Register 96, No. 52).

8. Amendment of subsections (a) and (g) filed 12-16-97; operative 1-15-98 (Register 97, No. 51).

9. Amendment of subsections (a)-(b), (i) and (l)(2) and amendment of Note filed 7-21-2003; operative 7-21-2003 pursuant to Government Code section 11343.4 (Register 2003, No. 30).

§1737.1. Internet Escrow Agent Special Accounts.

Note • History

(a) All money received by an Internet escrow agent from a credit card or Automated Clearing House (“ACH”) transfer as part of an escrow transaction shall upon receipt be deposited in a bank, a savings bank, or a savings and loan association in a separate account that is designated “trust” or “escrow” account. No funds other than those received from a credit card or ACH transfer as part of an escrow transaction shall be deposited in such account or otherwise commingled with any other escrow money.

(b) An Internet escrow agent shall not withdraw, pay out or transfer monies from a particular escrow for deposits received by credit card or ACH transfer prior to the deposit of the funds into the trust or escrow bank account.

(c) An Internet escrow agent shall be required to establish a reserve made up of general account funds for the purpose of covering losses that result from the acceptance of credit cards and ACH deposits, including, but not limited to, charge backs, disputed charges, fraudulent transactions and any other debits. The reserve shall at least equal 10% of the average monthly credit card and ACH receipts. If actual losses exceed 10% of the average monthly credit card and ACH receipts, the Internet escrow agent shall immediately increase the reserve to at least equal the percentage of actual losses to the average monthly credit card and ACH receipts. An Internet escrow agent may request approval from the Commissioner to reduce the reserves required under this section. The Commissioner may approve the request to reduce the required reserve if, in the opinion of the Commissioner, the Internet escrow agent submitted sufficient evidence to demonstrate that the lower reserve will be sufficient to cover anticipated losses. The reserve required for credit card and ACH losses is in addition to the tangible net worth and liquid assets required by Section 17210 of the Financial Code.

(d) The Internet escrow agent shall deposit funds from the reserves required in subsection (c) into the escrow trust account to cover any losses that result from credit cards or ACH deposits on or before the close of the next full working day after receiving notification of the debit. This subsection shall not apply if the debit is against funds received from a credit card or ACH deposit that remains in the escrow account.

NOTE

Authority cited: Section 17400, Financial Code. Reference: Sections 17409, 17410 and 17411, Financial Code.

HISTORY

1. New section filed 3-3-52; effective thirtieth day thereafter (Register 27, No. 5).

2. Amendment filed 6-27-74; effective thirtieth day thereafter (Register 74, No. 26).

3. Amendment filed 12-31-79 as an emergency; effective upon filing. Certificate of Compliance included (Register 80, No. 1).

4. Editorial correction of NOTE filed 4-6-83 (Register 83, No. 15).

5. Redesignation of first paragraph as subsection (a), renumbering of former subsections (a)-(g) as (a)(1)-(7) and new paragraph (b) filed 12-16-97; operative 1-15-98 (Register 97, No. 51).

6. Renumbering of former section 1737.1 to section 1737.3 and new section 1737.1 filed 7-21-2003; operative 7-21-2003 pursuant to Government Code section 11343.4 (Register 2003, No. 30).

§1737.2. Internet-Authorized Equivalent of Money.

Note • History

(a) An Internet escrow agent who is engaged in the business of escrows involving personal property or services may accept the Internet-authorized equivalent of money for the purpose of effecting the sale or transfer of such personal property or services. An Internet escrow agent shall not withdraw, pay out or transfer monies from a particular escrow for deposits received from the Internet-authorized equivalent of money prior to the deposit of monies into the trust or escrow bank account.

(b) An Internet escrow agent who wishes to transact business on a basis other than as provided by this section may request in writing a variance or waiver to the provisions in this section, but may not engage in business in a manner not in compliance with this section without first having received a waiver or variance in writing from the Commissioner.

NOTE

Authority cited: Section 17400, Financial Code. Reference: Section 17003, Financial Code.

HISTORY

1. New section filed 7-21-2003; operative 7-21-2003 pursuant to Government Code section 11343.4 (Register 2003, No. 30).

§1737.3. Records to Be Preserved.

Note • History

(a) An escrow agent shall preserve for at least five years from the close of escrow:

(1) All bank statements of the “trust” or “escrow” account;

(2) All canceled checks drawn upon the “trust” or “escrow” account;

(3) Copies of bank deposit slips with reference to the “trust” or “escrow” account;

(4) All additional records reflecting banking transactions with reference to the “trust” or “escrow” account, including copies of all receipts for funds transferred from interest-bearing accounts into the “trust” or “escrow” account;

(5) The Statement of Account;

(6) Escrow instructions and amendments thereto;

(7) All additional records pertinent to the escrow transaction.

(b) The records referred to in paragraph (a) may be retained and provided to the Commissioner in electronic format provided that:

(1) The electronic records are maintained and provided in a format that allows the Commissioner or his or her authorized representatives complete access to all of the books, accounts and records. The electronic records must be provided to the Commissioner in a software format that is acceptable to the Commissioner and that the Commissioner has in his or her possession. The escrow agent shall ensure that the Commissioner and his or her authorized representatives have the ability to download and print any or all of the records that are stored and maintained electronically.

(2) The escrow agent shall provide any or all of the records maintained in electronic format in printed form if the electronic records are not in a format that enables the Commissioner or his or her authorized representatives to determine if the licensee is complying with the Escrow Law or rules, or upon the request of the Commissioner or his or her authorized representatives.

(3) The electronic records shall be maintained in a media that is (A) non-erasable “write once, read many” (”WORM”) that does not allow changes to the stored document, (B) consistent with the minimum standards of quality approved by either the National Institute of Standards and Technology or the Association for Information and Image Management, and (C) contain written authentication identifying the electronic record as an exact unaltered copy of the document.

NOTE

Authority cited: Section 17400, Financial Code. Reference: Sections 17403.5 and 17404, Financial Code.

HISTORY

1. Renumbering of former section 1737.1 to new section 1737.3, including repealer of subsection (b), new subsections (b)-(b)(3) and amendment of Note, filed 7-21-2003; operative 7-21-2003 pursuant to Government Code section 11343.4 (Register 2003, No. 30).

§1738. Withdrawals from Special Accounts.

Note • History

(a) All money deposited in such “trust” or “escrow” account shall be withdrawn, paid out, or transferred to other accounts only in accordance with the written escrow instructions of the principals to the escrow transaction or the escrow instructions transmitted electronically over the Internet executed by the principals to the escrow transaction or pursuant to order of a court of competent jurisdiction.

(b) The escrow agent shall comply with, at a minimum, the following procedures for wire transfers (also known as “electronic fund transfers”):

(1) The instructions of the principals authorizing the wire transfer must contain, at a minimum, the amount of the funds to be wire transferred, the name of the financial institution, the account number and the account name receiving the funds.

(2) The escrow agent shall retain confirmation of the wire transfer from the financial institution that contains, at a minimum, the amount of the funds wire transferred and the account number and name of the account the funds were wire transferred to.

(3) If necessary, the escrow books shall be properly adjusted to reflect the wire transfer of funds from the escrow account.

(4) The escrow agent shall maintain a proper audit trail and adequate controls and safeguards for funds disbursed by wire transfer.

NOTE

Authority cited: Section 17400, Financial Code. Reference: Sections 17403.2, 17403.3, 17409 and 17409.1, Financial Code.

HISTORY

1. Amendment filed 3-3-52; effective thirtieth day thereafter (Register 27, No. 5).

2. Editorial correction adding NOTE filed 4-6-83 (Register 83, No. 15).

3. Amendment of section and Note filed 7-21-2003; operative 7-21-2003 pursuant to Government Code section 11343.4 (Register 2003, No. 30).

§1738.1. Debit Balances Prohibited.

Note • History

An escrow agent shall not withdraw, pay out, or transfer monies from any particular escrow account in excess of the amount to the credit of such account at the time of such withdrawal, payment, or transfer.

NOTE

Authority cited: Sections 17400 and 17401, Financial Code. Reference: Section 17409, Financial Code

HISTORY

1. New section filed 3-3-52; effective thirtieth day thereafter (Register 27, No. 5).

2. Editorial correction adding NOTE filed 4-6-83 (Register 83, No. 15).

§1738.2. Delivery of Documents or Property.

Note • History

An escrow agent shall use documents or other property deposited in escrow only in accordance with the written escrow instructions of the principals to the escrow transaction or the escrow instructions transmitted electronically over the Internet executed by the principals to the escrow transaction, or if not otherwise directed by written or electronically executed instructions, in accordance with sound escrow practice, or pursuant to order of a court of competent jurisdiction.

NOTE

Authority cited: Section 17400, Financial Code. Reference: Sections 17403.2 and 17403.3, Financial Code.

HISTORY

1. New section filed 3-3-52; effective thirtieth day thereafter (Register 27, No. 5).

2. Amendment filed 11-13-58; effective thirtieth day thereafter (Register 58, No. 21).

3. Editorial correction of NOTE filed 4-6-83 (Register 83, No. 15).

4. Amendment of section and Note filed 7-21-2003; operative 7-21-2003 pursuant to Government Code section 11343.4 (Register 2003, No. 30).

§1738.3. Dated.

Note • History

All written escrow instructions and all escrow instructions transmitted over the Internet shall be dated.

NOTE

Authority cited: Section 17400, Financial Code. Reference: Sections 17403.2, 17403.3 and 17404, Financial Code.

HISTORY

1. New section filed 3-3-52, effective thirtieth day thereafter (Register 27, No. 5).

2. Editorial correction adding NOTE filed 4-6-83 (Register 83, No. 15).

3. Amendment filed 12-16-97; operative 1-15-98 (Register 97, No. 51).

4. Amendment of section and Note filed 7-21-2003; operative 7-21-2003 pursuant to Government Code section 11343.4 (Register 2003, No. 30).

§1738.4. Subescrow Agent.

Note • History

A subescrow agent may be a bank or trust company under the supervision of the Superintendent of Banks or Controller of the Currency, a state or federal savings and loan or building and loan association, a municipal, county, state, or federal government agency, a state or federally chartered credit union, an insurance or title insurance company admitted to do business in the State of California, an attorney at law admitted to practice in the State of California, a company doing business under the Industrial Loan Law of the State of California, a company licensed to do business under the Escrow Law of the State of California, or any person or persons whose principal business is that of preparing abstracts or making searches of title that are used as a basis for the issuance of a policy of title insurance by a company doing business under any law of this State or any other state relating to insurance companies.

NOTE

Authority cited: Sections 17400 and 17401, Financial Code. Reference: Sections 17409, 17420 and 17608, Financial Code.

HISTORY

1. New section filed 3-3-52; effective thirtieth day thereafter (Register 27, No. 5).

2. Editorial correction adding NOTE filed 4-4-83 (Register 83, No. 15).

3. Editorial correction of printing errors in section (Register 96, No. 52).

4. Amendment filed 12-16-97; operative 1-15-98 (Register 97, No. 51).

§1738.5. Escrow Instructions.

Note • History

The following shall be contained on the face or first page of the escrow instructions, or attached as a separate amendment to the escrow instructions, but only in the case where the escrow agent proposes to act accordingly to the following, enumerated instructions:

(2) An authorization or direction to deliver, except to a duly authorized subescrow agent, or record instruments affecting ownership or interest in real or personal property, prior to deposit with the escrow agent or an authorized subescrow agent of the full sum of money required to be deposited in escrow under escrow instructions.

(3) An instruction authorizing disbursements in payment of services, or other items of expense, not including, however, commissions payable to brokers or agents.

(4) An instruction in not less than 8 point bold type stating:

“The principals to the transaction agree that if no additional instructions are received from one or both of the principals to the transaction within 120 days from the date escrow is to close, the escrow holder shall consider the escrow canceled and is authorized to take a cancellation fee in the amount specified in the instruction and disburse any remaining deposits to the parties specified in the instruction.”

In order for the instruction to be valid, it must be initialed or electronically executed by the principals to the transaction. The principals to the transaction are the buyer and seller or the borrower and lender.

NOTE

Authority cited: Section 17400, Financial Code. Reference: Section 17403.3, Financial Code.

HISTORY

1. New section filed 3-3-52 effective thirtieth day thereafter (Register 27, No. 5).

2. Amendment of subsection (a) filed 7-8-83; effective thirtieth day thereafter (Register 83, No. 28).

3. Editorial correction of printing error in subsection (a)(2) (Register 96, No. 52).

4. Repealer and new subsection (a), new subsections (a)(3)-(4), and repealer of subsections (b)-(b)(2) filed 12-16-97; operative 1-15-98 (Register 97, No. 51).

5. Amendment of section heading, last paragraph and Note filed 7-21-2003; operative 7-21-2003 pursuant to Government Code section 11343.4 (Register 2003, No. 30).

§1738.6. Escrow Instructions Transmitted Over the Internet; Electronic Signatures.

Note • History

(a) Internet escrow agents may accept escrow instructions that are created, generated, sent, communicated, received or stored by electronic means provided that the principals to the transaction agree to conduct the transaction electronically.

(b) The Internet escrow agent shall require that the principals to the transaction acknowledge that they are able to electronically receive the escrow instructions, download the escrow instructions, and print the escrow instructions. The Internet escrow agent shall maintain a record of the principal's acknowledgment. In the event a principal to the transaction is not able to receive the escrow instructions electronically, download the escrow instructions and print the escrow instructions, the Internet escrow agent shall mail a true and correct copy of the instructions to the person within 24 hours of execution. The Internet escrow agent shall retain a record of each mailing.

(c) The principals to the transaction may execute the escrow instructions referred to in subsection (a) and other escrow documents with an “electronic signature” that complies with the federal Electronic Signatures in Global and National Commerce Act (the E-Sign Act) (15 U.S.C. Sec. 7001, et seq.).

NOTE

Authority cited: Section 17400, Financial Code. Reference: Sections 17403.2 and 17403.3, Financial Code.

HISTORY

1. New section filed 7-21-2003; operative 7-21-2003 pursuant to Government Code section 11343.4 (Register 2003, No. 30).

§1739. Withdrawal of Escrow Fees. [Repealed]

Note • History

NOTE

Authority cited: Sections 17400 and 17401, Financial Code. Reference: Sections 17409 and 17411, Financial Code.

HISTORY

1. Editorial correction adding NOTE filed 4-6-83 (Register 83, No. 15).

2. Repealer filed 12-16-97; operative 1-15-98 (Register 97, No. 51).

§1740. Solvency. [Repealed]

Note • History

NOTE

Authority cited: Sections 17400 and 17401, Financial Code.

HISTORY

1. New section filed 3-3-52; effective thirtieth day thereafter (Register 27, No. 5).

2. Amendment filed 6-27-74; effective thirtieth day thereafter (Register 74, No. 26).

3. Repealer filed 7-8-83; effective thirtieth day thereafter (Register 83, No. 28).

§1740.1. Notice of Interest.

Note • History

An escrow agent shall act without partiality to any of the parties to an escrow transaction. If an escrow agent or a person or company related to or affiliated with the escrow agent is a principal to the escrow transaction or is acting or has acted as broker or salesman in relation to the escrow transaction, the escrow agent shall advise in writing all parties to the escrow transaction of such relationship or affiliation before being employed as escrow agent in connection with such transaction. Such advice shall be on the face of the escrow instructions in not less than eight (8) point bold type. Internet escrow agents may transmit the advice electronically over the Internet to all parties to the escrow transaction.

NOTE

Authority cited: Section 17400, Financial Code. Reference: Sections 17420, 17421 and 17603, Financial Code.

HISTORY

1. New section filed 3-3-52; effective thirtieth day thereafter (Register 27, No. 5).

2. Amendment filed 10-6-72; effective thirtieth day thereafter (Register 72, No. 41)

3. Amendment filed 7-8-83; effective thirtieth day thereafter (Register 83, No. 28).

4. Amendment filed 12-16-97; operative 1-15-98 (Register 97, No. 51).

5. Amendment of section and Note filed 7-21-2003; operative 7-21-2003 pursuant to Government Code section 11343.4 (Register 2003, No. 30).

§1740.2. Liquid Assets Defined.

Note • History

The term “liquid assets” as referred to in Section 17210 of the Financial Code includes the following:

(a) Cash on hand or in bank.

(b) Cash in transit.

(d) Direct obligations of the United States Government.

(e) Bonds of state and government units whose marketability and value are established by satisfactory proof.

(f) Investments in savings and loan associations and other financial institutions upon satisfactory proof that the funds of the licensee are readily available upon demand.

NOTE

Authority cited: Sections 17210, 17400 and 17401, Financial Code. Reference: Sections 17210 and 17415, Financial Code.

HISTORY

1. New section filed 11-13-58; effective thirtieth day thereafter (Register 58, No. 21).

2. Amendment filed 11-24-65; effective thirtieth day thereafter (Register 65, No. 23).

3. Amendment filed 6-27-74; effective thirtieth day thereafter (Register 74, No. 26).

4. Editorial correction adding NOTE filed 4-6-83 (Register 83, No. 15).

§1740.3. Current Liabilities Defined.

Note • History

The term “current liabilities” as used in Section 17210 of the Financial Code includes (a) all liabilities due within one (1) year after the date as of which the balance sheet making reference thereto is prepared; together with (b) all liabilities due to officers, directors, stockholders, affiliated companies, and employees of the escrow agent, regardless of the due date thereof, except that such liabilities need not be included as current liabilities, if not due within said one-year period, to the extent they are the subject of a subordination agreement executed by the creditor subordinating such liability to the claims of all other creditors for a period of not less than said one-year period, if such agreement has been approved by the Commissioner. Any such subordination agreement shall provide that it may be rescinded or amended only upon thirty (30) days prior notice to the Commissioner.

NOTE

Authority cited: Sections 17400 and 17401, Financial Code. Reference: Sections 17210 and 17415, Financial Code.

HISTORY

1. New section filed 11-24-65; effective thirtieth day thereafter (Register 65, No. 23).

2. Editorial correction adding NOTE filed 4-6-83 (Register 83, No. 15).

3. Editorial correction of printing error in section (Register 96, No. 52).

§1740.4. Transfers Between Escrows.

Note • History

(a) Transfers of funds between escrows may not be accomplished by the making of book entries alone, but must be accomplished by the actual writing of a check from one escrow to the other; and by the depositing of such check for the account of, and the writing of a receipt for, the escrow to which the funds are being transferred. Such transfers must also be properly supported and documented in the escrow files by inclusion of the reasons for, and the appropriate approval of, the transfer.

(b) This section does not apply to Internet escrow agents.

NOTE

Authority cited: Section 17400, Financial Code. Reference: Sections 17403.5, 17404, 17415 and 17603, Financial Code.

HISTORY

1. New section filed 11-24-65; effective thirtieth day thereafter (Register 65, No. 23).

2. Editorial correction of NOTE filed 4-6-83 (Register 83, No. 15).

3. Amendment of section and Note filed 7-21-2003; operative 7-21-2003 pursuant to Government Code section 11343.4 (Register 2003, No. 30).

§1741. Copies of Escrow Instructions. [Repealed]

Note • History

NOTE

Authority cited: Sections 17400 and 17401, Financial Code.

HISTORY

1. New section filed 3-3-52; effective thirtieth day thereafter (Register 27, No. 5).

2. Repealer filed 7-8-83; effective thirtieth day thereafter (Register 83, No. 28).

§1741.1. Escrow Receipts.

Note • History

(a) An escrow agent shall issue consecutively numbered receipts for all escrow money or checks deposited with or mailed to the escrow agent and retain copies of such receipts in a separate file. The copies of the receipts shall be clearly identified as a copy of the original receipt.

(b) An Internet escrow agent shall issue consecutively numbered receipts for all escrow money or checks deposited with or mailed to the Internet escrow agent. An Internet escrow agent may deliver the receipts electronically over the Internet to the person depositing the funds into the escrow. In the event a person is not able to electronically receive the receipt, the Internet escrow agent shall mail a true and correct copy of the receipt within 24 hours of execution. An Internet escrow agent may retain a copy of the receipt electronically in accordance with the provisions of subsection (b) of Section 1737.3 of these rules.

NOTE

Authority cited: Section 17400, Financial Code. Reference: Sections 17403.5, 17404, 17415 and 17603, Financial Code.

HISTORY

1. New section filed 3-3-52; effective thirtieth day thereafter (Register 27, No. 5).

2. Editorial correction adding NOTE filed 4-6-83 (Register 83, No. 15).

3. Amendment of section and Note filed 7-21-2003; operative 7-21-2003 pursuant to Government Code section 11343.4 (Register 2003, No. 30).

§1741.2. Drawing of Checks.

Note • History

A check shall not be drawn, executed or dated prior to the existence, in the particular escrow account against which it is drawn, executed or dated, of a sufficient credit balance to cover said check.

NOTE

Authority cited: Sections 17400 and 17401, Financial Code. Reference: Sections 17404, 17415 and 17603, Financial Code.

HISTORY

1. New section filed 3-3-52; effective thirtieth day thereafter (Register 27, No. 5).

2. Editorial correction adding NOTE filed 4-6-83 (Register 83, No. 15).

3. Editorial correction of printing error (Register 91, No. 33).

§1741.3. Statement of Account.

Note • History

Upon completion of an escrow transaction an escrow agent shall render to each principal to the escrow transaction a statement of his account in writing. Such statement shall specify all receipts and disbursements of escrow funds for his account. Charges made by the escrow agent for his services, and all disbursements by the escrow agent to a broker or salesman in connection with an escrow transaction shall be clearly designated as such and shall be shown separately from disbursements of the escrow agent. Payments outside of escrow, if shown in the statement, shall be set forth separately from payments by or to the escrow agent. Internet escrow agents may transmit the statement of account electronically over the Internet to the principals to the escrow transaction. In the event a person is not able to electronically receive the statement of account, the Internet escrow agent shall mail a true and correct copy of the statement of account within 24 hours of its completion.

NOTE

Authority cited: Section 17400, Financial Code. Reference: Sections 17403.3, 17403.5, 17404, 17415, 17601 and 17603, Financial Code.

HISTORY

1. New section filed 3-3-52; effective thirtieth day thereafter (Register 27, No. 5).

2. Editorial correction adding NOTE filed 4-6-83 (Register 83, No. 15).

3. Amendment of section and Note filed 7-21-2003; operative 7-21-2003 pursuant to Government Code section 11343.4 (Register 2003, No. 30).

§1741.4. Copy of Statement of Account. [Repealed]

History

HISTORY

1. New section filed 3-3-52; effective thirtieth day thereafter (Register 27, No. 5).

2. Repealer filed 6-27-74; effective thirtieth day thereafter (Register 74, No. 26).

§1741.5. Preparation of Independent Audit Report.

Note • History

(a) Set forth below are the Instructions for preparing the Independent Annual Audit Report required by Section 17406 of the Escrow Law.

STATE OF CALIFORNIA

DEPARTMENT OF CORPORATIONS

INSTRUCTIONS FOR INDEPENDENT AUDIT PURSUANT TO THE CALIFORNIA ESCROW LAW

(1) The Independent Annual Audit Report shall be prepared in accordance with the provisions of Section 17406 of the Escrow Law, and as provided in the paragraphs of this subsection. For the purpose of determining independence, the regulations of the California State Board of Accountancy (Chapter 1, Sections 1 through 99.1, Title 16, California Code of Regulations) shall apply.

(2) The following items shall be considered in preparation of the report and in examining the financial statements included in the annual report:

(A) If the licensee is engaged in other businesses, in addition to the escrow business, the financial statements of the licensee shall include the assets and liabilities employed in such other businesses and the results of the operations thereof.

(B) The income statement shall state, separately from other salaries, the amount of salaries and bonuses paid to officers.

(C) If the liabilities include long term notes or mortgages, the amount of monthly payments, name of payee, due date, and other terms and conditions, including any subordination agreement which may exist with respect thereto in the financial statements or a footnote thereto, shall be stated.

(D) Quoted market values, if available, shall be stated parenthetically on the balance sheet or in a supporting schedule for items as marketable securities, including obligations of the United States Government, bonds of state and municipal governmental units, etc. A schedule of all securities shall be included in the annual report.

(E) The report shall contain a statement as to whether or not the licensee met the liquid asset and tangible net worth requirement of Section 17210 of the Financial Code on the balance sheet date. The report shall include:

(i) A schedule showing the computation of both the licensee's liquidity and tangible net worth for measuring compliance with Section 17210 of the Financial Code.

(ii) An itemized schedule listing each item included in the computations.

(iii) If marketable investments are included as liquid assets, the following information must be shown: company name; market value at balance sheet date; cost; the name of the exchange it is listed on; and the stock symbol.

(iv) If fees receivable are to be considered a liquid asset, a copy of the fee ledger at the balance sheet date must be included with the report.

(F) The report shall include copies of the trust bank account reconciliations for each location as of the balance sheet date, including all interest bearing and dormant accounts. The report shall contain an outstanding checklist which includes check and escrow numbers, dates and amounts for each check and an explanation for all adjustments and reconciling items including the date of adjustment. This explanation shall include an affirmative statement if any reconciling items were not adjusted as of the report date and whether or not the adjustments cause debit balances (shortages). The outstanding checklists submitted with the audit report shall be maintained in the confidential section of the Department of Corporations' records.

(G) The report shall include an escrow trial balance as at the reconciliation date.

(H) The report shall disclose if the licensee is engaged in the business of receiving escrows for deposit or delivery of the types of transactions specified in subdivision (c) of Section 17312 of the Financial Code and if the licensee is engaged in the business of receiving escrows for deposit or delivery of the types of transactions not specified therein, or both. If applicable, the report shall include:

(i) A trial balance for the types of transactions specified in subdivision (c) of Section 17312 of the Financial Code and a separate trial balance for the types of transactions not specified therein. The trial balances submitted with the audit report shall be maintained in the confidential section of the Department of Corporations' records.

(ii) A statement whether or not escrow books and escrow trust accounts are maintained for those transactions specified in subdivision (c) of Section 17312 of the Financial Code separate from those transactions not specified therein.

(iii) If the escrow agent is engaged in the business of receiving escrows for deposit or delivery of the types of transactions not specified in subdivision (c) of Section 17312 of the Financial Code, a statement shall be made whether or not the licensee has fidelity bond coverage as required by Section 1723 of these rules.

(iv) If the escrow agent is engaged in the business of receiving escrows for deposit or delivery of the types of transactions specified in subdivision (c) of Section 17312 of the Financial Code, a statement shall be made whether or not the licensee is a member of Escrow Agents' Fidelity Corporation as required by Section 17312 of the Financial Code.

(3) The report shall include a statement indicating:

(A) That the individual escrow liability accounts and the controlling account have been reconciled to the escrow trust account as at the balance sheet date. If debit balances exist in the escrow liability, a full explanation of the nature and cause of the debit balances must be included in the auditor's comments along with a full explanation of the resolution of the item. If the debit balance has not been resolved as of the date of the auditor's report, then the auditor shall include a positive statement stating that the debit balance has not been resolved as of the auditor's report date. If no debit balances were in existence at the balance sheet date, a positive statement of this fact shall be made; and

(B) That the escrow funds were independently confirmed in writing by the accountant directly with the depositories or other holders of escrow assets.

(4)(A) The schedule of the escrow liability as at the end of each month during the calendar or fiscal year as reflected in the Escrow Control Account must be included in the report.

(B) If the audit is commenced on a date other than the calendar or fiscal year-end, the accountant shall request cut-off bank statements on all bank accounts covering the period from the balance sheet date to the date the audit is commenced. The bank accounts shall be reconciled to adjusted book balances as at the cut-off date, with particular attention given to the propriety and disposition of reconciling items appearing in the bank reconciliations at the balance sheet date. The report shall include and show the same information as at the cut-off date as is required by paragraph (4) of this subsection.

(5) The opinion or report of the independent accountant shall include a statement to the effect that the accountant has examined the financial statements with respect to the provisions of Part 3, Title 10, of the Code of Civil Procedure, and the results of such examination.

(6) The accountant shall use such additional auditing procedures and standards including extension of the minimum escrow liability confirmation required above that is considered necessary in verifying the escrow funds and the escrow liability. The escrow liability shall include all escrow funds deposited into interest-bearing accounts pursuant to Section 1737(b). The comments shall include details of the nature and extent of all additional auditing procedures used in this verification.

(7) The following additional audit procedures shall be performed and the results shall be disclosed in the report:

(A) Verify the authorization and documentation of disbursements from a selective number of escrows.

(B) Select a representative sampling of escrows closed within 60 days prior to the commencement of the audit and perform the following audit procedures:

(i) Review escrow instructions, correspondence and documents in the escrow files for authorization disbursements.

(ii) Review checks for disbursements out of escrow.

(C) Review the schedule of escrow liability as of the last audit for dormant files and outstanding checks and perform the following audit procedures:

(i) Verify that funds in dormant files that no longer are on the schedule of escrow liability were properly disbursed according to signed instructions or according to the instructions of a court of competent jurisdiction, were interpleaded to a court of competent jurisdiction, or were escheated to the State of California.

(ii) Verify that the oldest dormant outstanding checks that no longer appear on the outstanding checklist were paid, were properly canceled back into the escrow fund, were properly canceled and re-issued to the original payee, were properly canceled and re-issued to a new payee according to instructions, or were escheated to the State of California. The selection of the checks shall include those checks that were older than six months at the last audit and no longer appear on the current outstanding checklist. The procedures shall include the review of check endorsements.

(8) When a licensee has branches, a statement shall be made by the accountant that the examination included auditing of the branches, and the address of each branch so examined shall be listed.

(9) If in the opinion of the independent public accountant a departure from the requirements set forth in this section is justified, upon request, the Commissioner may grant a variance upon a proper showing of suitable alternative procedures.

(b) This section became operative March 31, 2002.

NOTE

Authority cited: Section 17400, Financial Code. Reference: Section 17406, Financial Code.

HISTORY

1. Amendment filed 3-20-78; effective thirtieth day thereafter (Register 78, No. 12). For prior history, see Register 68, No. 48.

2. Amendment filed 12-31-79 as an emergency; effective upon filing. Certificate of Compliance included (Register 80, No. 1).

3. Repealer and new section filed 7-8-83; effective thirtieth day thereafter (Register 83, No. 28).

4. Editorial correction of printing error in subsections (h) and (j) (Register 91, No. 33).

5. Editorial correction of subsection (c)(2)(B)(ii) (Register 95, No. 12).

6. Editorial correction of printing errors in section and audit instructions (Register 96, No. 52).

7. Repealer of subsections (c)-(c)(4), subsection relettering, amendment of relettered subsection (g)(1), and repealer of former subsection (h)(2)(i) and redesignation of former subsections (h)(2)(ii)-(iii) as (g)(2)(A)-(B) filed 12-16-97; operative 1-15-98 (Register 97, No. 51).

8. Amendment of section heading, section and Note filed 12-31-2001 as an emergency; operative 1-1-2002 (Register 2002, No. 1). A Certificate of Compliance must be transmitted to OAL by 5-1-2002 or emergency language will be repealed by operation of law on the following day.

9. New section filed 12-31-2001 as an emergency; operative 3-31-2002 (Register 2002, No. 1). A Certificate of Compliance must be transmitted to OAL by 5-1-2002 or emergency language will be repealed by operation of law on the following day. Text of version effective through 3-31-2002 retained for reference.

10. New section refiled 4-29-2002 as an emergency, including amendment of section heading and subsection (b); operative 4-30-2002 (Register 2002, No. 18). A Certificate of Compliance must be transmitted to OAL by 8-28-2002 or emergency language will be repealed by operation of law on the following day. Text of former version of section 1741.5 that was effective from 1/1/2002 until 3/31/2002 expired by its own terms on 3/31/2002.

11. Certificate of Compliance as to 4-29-2002 order transmitted to OAL 7-9-2002 and filed 8-20-2002 (Register 2002, No. 34).

§1741.6. Internet Escrow Agent “Click-Through” Fees.

Note • History

The prohibition against the payment by an escrow agent of fees, commissions, or other consideration as compensation for referring, soliciting, handling, or servicing escrow customers or accounts, as set forth in Section 17420 of the Code, does not apply to a written contract between an Internet escrow agent licensed under the Escrow Law and an owner of an Internet web site for the establishment of a hypertext on that web site for the exclusive purpose of receiving personal property escrows for the deposit or delivery by the Internet escrow agent pursuant to transactions on the Internet web site; provided, that the Internet escrow agent and the owner of the Internet web site are doing business exclusively on the Internet. For the purpose of this section, “hypertext” means an electronic document on a web site page that contains a link to another document that requires an affirmative act to click-on the link to display or otherwise access the document.

NOTE

Authority cited: Section 17400, Financial Code. Reference: Section 17420, Financial Code.

HISTORY

1. New section filed 7-5-2001; operative 8-4-2001 (Register 2001, No. 27).

Article 5. Advertising [Repealed]

HISTORY

1. Repealer of article 5 (sections 1742-1744) filed 12-16-97; operative 1-15-98 (Register 97, No. 51). For prior history, see Register 83, No. 33 and Register 85, No. 21.

Article 6. Accusations and Hearings [Repealed]

HISTORY

1. Repealer of Article 6 (Sections 1749-1753) filed 12-3-81; effective thirtieth day thereafter (Register 81, No. 49). For prior history, see Register 74, No. 26.

2. Editorial correction of History 1 (Register 95, No. 16).

Article 7. Guarantee of Trust Obligations

§1760. Rules and Amendments to Rules and Plan of Operation to be Submitted to the Commissioner.

Note • History

Rules and amendments to the rules and plan of operation established by the board of directors of Fidelity Corporation pursuant to Section 17313 of the Financial Code shall be submitted in writing to the Commissioner for approval.

NOTE

Authority cited: Section 17315, Financial Code. Reference: Sections 17310,17311, 17312, 17313, 17315 and 17347, Financial Code.

HISTORY

1. New article 7 (sections 1760-1769) filed 9-19-83; effective thirtieth day thereafter (Register 83, No. 39). For history of former section 1760, see Register 81, No. 49.

2. Change without regulatory effect filed 3-10-86; effective thirtieth day thereafter (Register 86, No. 11).

3. Editorial correction of printing error in section (Register 96, No. 52).

§1761. Location of Office and Records.

Note • History

Fidelity Corporation shall maintain its office and records in California and shall promptly notify the Commissioner in writing of the location of such office and records. Fidelity Corporation shall not change the location of its office and records until written notice has been given the Commissioner. Such notice must be filed at least five (5) business days prior to the proposed change.

NOTE

Authority cited: Section 17315, Financial Code. Reference: Sections 173333 and 17344, Financial Code.

HISTORY

1. Change without regulatory effect filed 3-10-86; effective thirtieth day thereafter (Register 86, No. 11). For history of former section 1761, see Register 75, No. 27.

2. Editorial correction of printing errors in section (Register 96, No. 52).

§1762. Accounting and Fiscal Year.

Note • History

Fidelity Corporation shall maintain its records on an accrual basis and in accordance with generally accepted accounting principles and good business practice. The selection of the fiscal year end shall be subject to the approval of the Commissioner.

NOTE

Authority cited: Section 17315, Financial Code. Reference: Sections 17315, 17320, 17339 and 17344, Financial Code.

HISTORY

1. Change without regulatory effect filed 3-10-86; effective thirtieth day thereafter (Register 86, No. 11).

2. Editorial renumbering of section 1762 “Office for Transaction of Business” of subchapter 10 to section 1770 to correct duplication of section numbers (Register 90, No. 20). For history of section 1762 “Office for Transaction of Business,” see Register 82, No. 42.

3. Editorial correction of printing error (Register 91, No. 33).

§1763. Custodian, Trustee or Management Agency Account.

Note • History

(a) The board of directors of Fidelity Corporation shall appoint a bank located in this State as custodian of any funds collected or investments made by it. The custodian shall be responsible for the safekeeping of all such funds and investments and evidences thereof.

(b) In lieu of appointing a custodian, the board of directors of Fidelity Corporation may either appoint a bank to act as trustee or create a management agency account with a bank. The appointment of a custodian or trustee, or the creation of a management agency account shall be reported to the Commissioner at least (5) business days before the making of such an appointment or the creation of such account. Any such appointment or agreement must be acceptable to the Commissioner.

NOTE

Authority cited: Sections 17315 and 17337, Financial Code. Reference: Sections 17310, 17315, 17320, 17333 and 17337, Financial Code.

HISTORY

1. Change without regulatory effect filed 3-10-86; effective thirtieth day thereafter (Register 86, No. 11). For history of former section 1763, see Register 81, No. 49.

§1764. Bond.

Note • History

If the board of directors of Fidelity Corporation appoints a bank as custodian as described in Section 1763 (a) of these rules, Fidelity Corporation must obtain adequate fidelity bond coverage for its own officers, directors and employees. The bond must be in a form and in an amount acceptable to the Commissioner.

NOTE

Authority cited: Section 17315, Financial Code. Reference: Sections 17310,17315, 17333, 17337 and 17334, Financial Code.

HISTORY

1. Change without regulatory effect filed 3-10-86; effective thirtieth day thereafter (Register 86, No. 11). For history of former section 1764, see Register 81, No. 49.

2. Editorial correction of printing error in section (Register 96, No. 52).

§1765. Officers, Directors and Employees: Maintenance of Current List With Commissioner.

Note • History

Fidelity Corporation shall at all times maintain on file with the Commissioner a current list of its officers, directors and employees. Any change of such persons shall be reported to the Commissioner within five (5) business days of such change. Each officer, director and employee shall file a statement of information on a form provided by the Commissioner.

NOTE

Authority cited: Section 17315, Financial Code. Reference: Sections 17315,17333, 17336 and 17344, Financial Code.

HISTORY

1. Change without regulatory effect filed 3-10-86; effective thirtieth day thereafter (Register 86, No. 11). For history of former section 1765, see Register 81, No. 49.

2. Editorial correction of printing error in section (Register 96, No. 52).

§1766. Payment of Assessment: Default.

Note • History

When a default previously reported pursuant to Section 17323 of the Financial Code has been cured, Fidelity Corporation shall notify the Commissioner of such action in writing. Fidelity Corporation shall regularly inform the Commissioner of the progress of any action to enforce any payment in default.

NOTE

Authority cited: Section 17315, Financial Code. Reference: Sections 17323,17333, 17344,17415 and 17608, Financial Code.

HISTORY

1. Change without regulatory effect filed 3-10-86; effective thirtieth day thereafter (Register 86, No. 11). For history of former section 1766, see Register 81, No. 49.

2. Editorial correction of printing error in section (Register 96, No. 52).

§1767. Investments: Limitation.

Note • History

Fidelity Corporation may invest its funds only in investments legal for savings banks under the laws of this state.

NOTE

Authority cited: Sections 17315 and 17337, Financial Code. Reference: Sections 17315,17333,17337 and 17344, Financial Code.

HISTORY

1. Change without regulatory effect filed 3-10-86; effective thirtieth day thereafter (Register 86, No. 11). For history of former section 1767, see Register 81, No. 49.

§1768. Evidence of Membership. [Repealed]

Note • History

NOTE

Authority cited: Section 17315, Financial Code. Reference: Sections 17342 and 17344, Financial Code.

HISTORY

1. Change without regulatory effect filed 3-10-86; effective thirtieth day thereafter (Register 86, No. 11). For history of former section 1768, see Register 81, No. 49.

2. Repealer filed 12-16-97; operative 1-15-98 (Register 97, No. 51).

§1769. Annual Report.

Note • History

On or before 105 days after each fiscal year end, Fidelity Corporation shall file with the Commissioner audited financial statements prepared in accordance with generally accepted accounting principles and generally accepted auditing standards. The report shall include a list of members' account balances. A copy of the annual report shall be sent to each member of Fidelity Corporation upon request.

NOTE

Authority cited: Section 17315, Financial Code. Reference: Sections 17320, 17333 and 17344, Financial Code.

HISTORY

1. Change without regulatory effect filed 3-10-86; effective thirtieth day thereafter (Register 86, No. 11).

Subchapter 10. Check Sellers, Bill Payers and Proraters

(Originally Printed 6-12-48)

Article 1. General Provisions [Repealed]

HISTORY

1. Change without regulatory effect repealing article 1 (section 1770) filed 6-26-96 pursuant to section 100, title 1, California Code of Regulations (Register 96, No. 26).

Article 2. Applications

§1772. Verified Applications. [Repealed]

Note • History

NOTE

Authority and reference cited: Section 12300, Financial Code.

HISTORY

1. Amendment filed 3-27-52; effective thirtieth day thereafter (Register 59, No. 1).

2. Repealer filed 12-3-81; effective thirtieth day thereafter (Register 81, No. 49).

§1772.1. Corporations. [Repealed]

Note • History

NOTE

Authority cited: Section 12300, Financial Code. Reference: Section 12300, Financial Code.

HISTORY

1. New section filed 12-31-58; effective thirtieth day thereafter (Register 59, No. 1).

2. Editorial correction of NOTE filed 10-13-82 (Register 82, No. 42).

3. Change without regulatory effect repealing section filed 2-28-2000 pursuant to section 100, title 1, California Code of Regulations (Register 2000, No. 9).

§1773. Form of Applications. [Repealed]

Note • History

NOTE

Authority and reference cited: Section 12300, Financial Code.

HISTORY

1. Repealer filed 12-3-81; effective thirtieth day thereafter (Register 81, No. 49).

§1774. Additional Information. [Repealed]

Note • History

NOTE

Authority and reference cited: Section 12300, Financial Code.

HISTORY

1. Amendment filed 3-20-78; effective thirtieth day thereafter (Register 78, No. 12).

2. Repealer filed 12-MI; effective thirtieth day thereafter (Register 81, No. 49).

§1775. Type of Business.

Note • History

An applicant shall specifically designate in which of the following types of business it proposes to engage:

(a) Check selling.

(b) Bill paying.

(d) Special prorater (business agent).

Whenever the term “prorater” is used in these regulations with reference to a licensee it shall refer to a general prorater and not a special prorater unless otherwise provided.

NOTE

Authority cited: Section 12300, Financial Code. Reference: Section 12200.5, Financial Code.

HISTORY

1. Amendment filed 3-27-52; effective thirtieth day thereafter (Register 28, No. 1).

2. Amendment filed 12-31-58; effective thirtieth day thereafter (Register 59, No. 1).

3. Editorial correction filed 10-13-82 (Register 82, No. 42).

4. Change without regulatory effect repealing subsections (a) and renumbering following subsections filed 1-3-92 pursuant to section 100, title 1, California Code of Regulations (Register 92, No. 12).

§1776. Statutory Bond. [Repealed]

Note • History

NOTE

Authority cited: Section 12300, Financial Code. Reference: Sections 12206-12212,Financial Code.

HISTORY

1. Amendment filed 3-Z7-52; effective thirtieth day thereafter (Register 28, No. 1).

2. Amendment filed 12-31-58; effective thirtieth clay thereafter (Register 59, No. 1).

3. Repealer filed 12-3-81; effective thirtieth day thereafter (Register 81, No. 49).

§1777. Additional Bond. [Repealed]

Note • History

NOTE

Authority cited: Section 12300, Financial Code. Reference: Section 12213, Financial Code.

HISTORY

1. Repealer filed 12-3-81; effective thirtieth day thereafter (Register 81, No. 49).

§1778. Required Liquid Assets and Net Worth; Check Casher. [Repealed]

Note • History

NOTE

Authority cited: Section 12300, Financial Code. Reference: Section 12205, Financial Code.

HISTORY

1. Repealer filed 12-3-81; effective thirtieth day thereafter (Register 81, No. 49).

§1779. Required Liquid Assets and Net Worth. [Repealed]

Note • History

NOTE

Authority cited: Section 12300, Financial Code. Reference: Section 12205, Financial Code.

HISTORY

1. Amendment filed 3-27-52; effective thirtieth day thereafter (Register 28, No. 1).

2. Amendment filed 12-31-58; effective thirtieth day thereafter (Register 59, No. 1).

3. Repealer filed 12-3-81; effective thirtieth day thereafter (Register 81, No. 49).

§1780. Liquid Assets Defined.

Note • History

The term “liquid assets” as referred to in Section 12205 of the Financial Code includes the following:

(a) Cash in hand or in bank.

(b) Cash in transit.

(d) United States Bonds.

(e) Bonds of state and government units whose marketability and value is established by satisfactory proof.

(f) Investments in savings and loan associations and other financial institutions upon satisfactory proof that the funds of the licensee are readily available upon demand.

(g) Other securities and property having a market value upon satisfactory proof of marketability and value.

The Department does not favorably consider investments in securities such as second trust deeds as “liquid assets” where the determination of value requires investigation into collateral matters such as value of property securing the note, and considerations of senior liens on the property, and where there is not a clear showing of a well-established market for such securities.

The Department does not favorably consider as “liquid assets” such assets of the licensee, which if sold would affect the ability the licensee, which if sold would affect the ability of the licensee to carry on its business.

In a determination by specific ruling whether a particular asset is a liquid asset within the meaning of Section 12205 of the Financial Code, the rule to be followed is that the stated value of the asset is the price at which the asset is immediately marketable at a forced sale.

NOTE

Authority cited: Section 12300, Financial Code. Reference: Section 12205, Financial Code.

HISTORY

1. Amendment filed 3-27-52; effective thirtieth day thereafter (Register 28, No. 1).

2. Amendment filed 12-31-58; effective thirtieth day thereafter (Register 59, No. 1).

3. Amendment filed 3-20-78; effective thirtieth day thereafter (Register 78, No. 12).

4. Editorial correction of subsection (g) and NOTE filed 10-13-82 (Register 82, No. 42).

§1781. Fictitious Firm Names.

Note • History

An applicant who desires to conduct his business under a fictitious firm name shall file with the Commissioner a certificate of the county clerk showing compliance with the provisions of Chapter 5 (commencing with Section 17900) of Part 3 of Division 7 of the Business and Professions Code.

NOTE

Authority cited: Section 12300, Financial Code. Reference: Sections 12217 and 12300.2, Financial Code.

HISTORY

1. New section filed 3-27-52; effective thirtieth day thereafter (Register 28, No. 1).

2. Editorial correction of NOTE filed 10-13-82 (Register 82, No. 42).

3. Change without regulatory effect amending section filed 1-3-92 pursuant to section 100, title 1, California Code of Regulations (Register 92, No. 12).

4. Change without regulatory effect amending section and Note filed 6-26-96 pursuant to section 100, title 1, California Code of Regulations (Register 96, No. 26).

5. Change without regulatory effect amending section filed 2-28-2000 pursuant to section 100, title 1, California Code of Regulations (Register 2000, No. 9).

§1782. Fictitious Employee Names.

Note • History

The use of an alias or fictitious name by an officer, agent, employee or representative of a licensee without the written consent of the Commissioner will be considered a dishonest, unfair and inequitable practice.

NOTE

Authority cited: Section 12300, Financial Code. Reference: Section 12300, Financial Code.

HISTORY

1. New section filed 12-31-58; effective thirtieth day thereafter (Register 59, No. 1).

2. Editorial correction of NOTE filed 10-13-82 (Register 82, No. 42).

Article 3. Books, Records and Examinations

§1784. Maintenance of Books. [Repealed]

Note • History

NOTE

Authority cited: Section 12300, Financial Code.

HISTORY

1. Repealer filed 8-9-83; effective thirtieth day thereafter (Register 83, No. 33).

§1784.1. Trust Account. [Repealed]

Note • History

NOTE

Authority cited: Section 12300, Financial Code.

HISTORY

1. New section filed 3-27-52; effective thirtieth day thereafter (Register 28, No. 1).

2. Amendment filed 12-31-58; effective thirtieth day thereafter (Register 59, No. 1).

3. Repealer filed 8-9-83; effective thirtieth day thereafter (Register 83, No. 33).

§1784.2. Transmission by Agent. [Repealed]

Note • History

NOTE

Authority, cited: Section 12300, Financial Code.

HISTORY

1. New section filed 3-27-52; effective thirtieth day thereafter (Register 28, No. 1).

2. Amendment filed 12-31-58; effective thirtieth day thereafter (Register 59, No. 1).

3. Repealer filed 8-9-83; effective thirtieth day thereafter (Register 83, No. 33).

§1785. Annual Report. [Repealed]

Note • History

NOTE

Authority cited: Section 12300, Financial Code.

HISTORY

1. Repealer filed 8-9-83; effective thirtieth day thereafter (Register 83, No. 33).

§1786. Offices Open for Inspection. [Repealed]

Note • History

NOTE

Authority cited: Section 12300, Financial Code.

HISTORY

1. Repealer filed 8-9-83; effective thirtieth day thereafter (Register 83, No. 33).

§1787. Date of Annual Report. [Repealed]

Note • History

NOTE

Authority cited: Section 12300, Financial Code. Reference: Section 12304, Financial Code.

HISTORY

1. Amendment filed 3-27-52; effective thirtieth day thereafter (Register 28, No. 1).

2. Repealer filed 8-9-83; effective thirtieth day thereafter (Register 83, No. 33).

§1787.1. Preparation of Independent Audit Report.

Note • History

A check seller shall furnish an independent audit report pursuant to the following instructions:

STATE OF CALIFORNIA

DEPARTMENT OF CORPORATIONS

INSTRUCTIONS FOR INDEPENDENT AUDIT PURSUANT TO THE

CALIFORNIA CHECK SELLERS, BILL PAYERS AND PRORATERS LAW

To Licensee and the Accountant:

These instructions have been prepared as an aid to licensees and their independent accountants in the preparation of the audit report to be filed with this Department pursuant to Section 12304 of the Check Sellers, Bill Payers and Proraters Law (Law) (Financial Code, Division 3).

There are set forth in these instructions certain requirements which must be included in the accountant's comments and certain auditing procedures to be performed in the conduct of the audit in order that the report be acceptable to the Department in accordance with Section 12304 and the proper administration of that section. The requirements included herein are a part of and/or in addition to generally accepted accounting principles and auditing procedures applicable in the circumstances.

It will be noted that these requirements have been developed by adapting generally accepted accounting principles and auditing procedures so as to follow the express provisions of Section 12304 of the Law and these rules.

These instructions set forth minimum audit procedures and are not in any manner intended to restrict the judgment of the independent public accountant where in his/her opinion the circumstances warrant the employment of additional procedures.

The report may be filed with any office of the Department of Corporations.

AUDIT REPORT AND PROCEDURES

Balance Sheet and Statement of Income:

These financial statements must in all cases be audited statements prepared on an accrual basis accompanied by a short or long form accountant's report, including an opinion meeting the standards of the California Board of Accountancy with no material qualifications. (Rule 58 of the Board of Accountancy.) The financial statements shall include a balance sheet which must be as of the end of the licensee's fiscal year or in the case of a closing audit report, shall be as of the date of expiration, surrender or revocation of license, and a statement of income for the fiscal year or period then ended.

The following items must be taken into consideration by the accountant in examining the financial statements of a licensee under the Law (other than a general prorater), when applicable to the particular business of the licensee.

(a) If licensee is engaged in other businesses, in addition to the licensed business, all assets and liabilities of other businesses must be included in the balance sheet submitted. All income and expenses of other businesses must be included in the statement of income submitted.

(b) The money order and bill collection liabilities at the balance sheet date, should be shown as a deduction from the trust bank account on the asset side of the balance sheet rather than showing the net amount, if any, in the trust bank account.

(c) The accountant shall enumerate in detail, in comments included in the report, the auditing procedures employed in verifying the money order and bill collection liability. The accountant's verification shall include observation of the preparation of the individual outstanding money order (trust subsidiary ledger) tabulation and sufficient test checks of this procedure to ascertain that the tabulation was proper. The subsidiary ledger should be reconciled with the trust control account. Shortages (excess of subsidiary over control) should be covered by the licensee's deposit of general funds in the trust account. Overages (excess of control over subsidiary) should be noted and carried forward to subsequent tabulations.

The accountant's verification shall also include a selective examination of the old outstanding money orders and the propriety of the clearings against these dormant items. Permanent old outstanding audit listings should be maintained by the accountant for this purpose. Dormant outstanding items should be traced through the escheat date, and should not be subjected to service charges or other fees.

An examination shall be made, on a test-check basis, of the money orders issued and bill collections made prior to the last day of the calendar or fiscal year under examination but which were outstanding on that date and which cleared the trust account subsequent to the last day of the calendar or fiscal year being examined. The purpose of the examination shall be to determine that such money orders and bill collections have been included in the money order and bill collection liability as at the end of the calendar year or fiscal year under examination, and the test check shall be sufficient to enable the accountant to make such determination.

The withdrawal by the licensee of money order or bill collection fees should be reviewed for propriety. The collection and payment of utility bills should be examined for timely remittances and proper handling.

Precleared money orders (money orders which have cleared the trust bank account but have not been reported and/or paid for by agents) should be tested for a period before and after the balance sheet date and a proper cut-off established. The validity of the preclears should be determined by tracing of money orders clearing subsequent to the cut-off and by comparing preclears with agent's reports processed after the cut-off date. Preclears should be aged by dollar amount for each agent and considered in the examination of agent's reporting practices-see item (e) below.

(d) The accountant shall include in the report or in a separate letter over his/her signature, a brief description of the system of internal control, its weaknesses, if any, and recommendations for improvement, if any. Such report or letter may incorporate by reference all or part of any previous report or letter to the Commissioner.

(e) In the event the licensee has agents, and after a detailed review of preclears and a determination of which agents are not complying with Section 12300.4 of the Law, the agents comprising the top 25% of the non-complying group shall be concentrated on and visits arranged to agency locations selected from among that group. Care should be taken to note substantial violators not on the preclear list (i.e., agents may submit reports without payment; these reports may be processed by the licensee in which case the agent would not, appear on the preclear list in any substantial amount). In these cases bank reconciliations and/or “due from” agent accounts should be carefully examined. It should be noted that trust funds consist only of cash or cash in transit from agents. Emphasis should be placed on larger agents that could, in the event of a cash shortage, financially impair the licensee. In visits to the agent's location, the independent accountants' function will be to accompany licensee's personnel and observe cash count and collection of amounts due for all money orders sold and not reported. The accountant should verify the deposit of these trust funds into the bank. The accountant should verify whether all cash shortages have been covered by the licensee's deposit of general funds. There shall be included in the report a schedule of those agents cash short and those agents not complying with the three-day reporting requirement, and comments on action taken by the licensee, if any, in connection therewith pursuant to Section 12301.4 of the Law. Independent accounts shall assess the materiality of overall agent reporting deficiencies that may be sanctioned or allowed by the licensee and disclose improper reporting practices, especially of larger agents that could financially impair the licensee. A statement to this effect shall be made in the independent accountant's report.

(f) Include a statement to the effect that the accountant has examined the books and records with respect to the provisions of the Uniform Disposition of Unclaimed Property Law (Code of Civil Procedure, Part 3, Title 10, Chapter 7), and the results of such examination.

(g) If the liabilities include long term notes or mortgages, state the amount of monthly payments, name of payee, due date, and other terms and conditions, including any subordination agreement which may exist with respect thereto in the financial statements or a footnote thereto.

The following items should be taken into consideration by the accountant in preparing the financial statements and comments of a general prorater:

(a) If the licensee is engaged in other businesses, in addition to the licensed business, all assets and liabilities of other businesses must be included in the balance sheet submitted. All income and expenses of other businesses should be included in the statement of income and expenses submitted.

(b) The liability for clients' deposits not yet transmitted to creditors should be shown as a deduction from the trust bank account on the asset side of the balance sheet, rather than showing the net amount, if any, in the trust bank account.

(c) The accountant shall enumerate in detail in his/her comments, the auditing procedure employed in verifying the untransmitted clients' funds.

(e) In the event licensee has branch offices, each office shall be examined to the same extent as the main office.

(f) If the liabilities include long term notes or mortgages, state the amount of monthly payments, name of payee, due date, and other terms and conditions, including any subordination agreement which may exist with respect thereto in the financial statements or a footnote thereto.

NOTE

Authority cited: Section 12300, Financial Code. Reference: Sections 12300.4, 12301.4 and 12304, Financial Code.

HISTORY

1. New section filed 12-12-55 and amendment filed 12-21-55, as emergencies; effective upon filing (Register 55, No. 18).

2. Amendment filed 12-31-58; effective thirtieth day thereafter (Register 59, No. 11).

3. Amendment filed 12-16-68; effective thirtieth day thereafter (Register 68, No. 48).

4. Amendment filed 8-9-83; effective thirtieth day thereafter (Register 83, No. 33).

5. Change without regulatory effect amending first paragraph, Instructions heading, first and last paragraphs of Instructions, and third paragraph of subsection (c) of Audit Report and Procedures filed 1-3-92 pursuant to section 100, title 1, California Code of Regulations (Register 92, No. 12).

6. Change without regulatory effect amending first and last paragraphs of Instructions and first subparagraph (f) filed 6-26-96 pursuant to section 100, title 1, California Code of Regulations (Register 96, No. 26).

§1787.2. Independent Accountant. [Repealed]

Note • History

NOTE

Authority cited: Section 12300, Financial Code.

HISTORY

1. New section filed 12-16-68; effective thirtieth day thereafter (Register 68, No. 48).

2. Repealer filed 8-9-83; effective thirtieth day thereafter (Register 83, No. 33).

§1788. Special Reports. [Repealed]

Note • History

NOTE

Authority cited: Section 12300, Financial Code.

HISTORY

1. Amendment filed 3-27-52; effective thirtieth day thereafter (Register 28, No. 1).

2. Repealer filed 8-9-83; effective thirtieth day thereafter (Register 83, No. 33).

§1789. Special Examinations. [Repealed]

Note • History

NOTE

Authority cited: Section 12300, Financial Code.

HISTORY

1. Amendment filed 3-27-52; effective thirtieth day thereafter (Register 28, No. 1).

2. Repealer filed 8-9-83; effective thirtieth day thereafter (Register 83, No. 33).

§1789.1. Accounting Records. [Repealed]

Note • History

NOTE

Authority cited: Section 12300, Financial Code.

HISTORY

1. New section filed 3-27-52; effective thirtieth day thereafter (Register 28, No. 1).

2. Repealer filed 8-9-83; effective thirtieth day thereafter (Register 83, No. 33).

§1789.2. Posting Dates.

Note • History

All receipts and disbursements of money shall be posted as of the date of the receipt or disbursement, regardless of the date of posting.

NOTE

Authority cited: Section 12300, Financial Code. Reference: Section 12303, Financial Code.

HISTORY

1. New section filed 3-27-52; effective thirtieth day thereafter (Register 28, No. 1).

2. Amendment filed 8-9-83; effective thirtieth day thereafter (Register 83, No. 33).

§1789.3. Reconciling Bank Accounts.

Note • History

A licensee shall reconcile all of its bank accounts with his accounting records at least once each month.

NOTE

Authority cited: Section 12300, Financial Code. Reference: Section 12303, Financial Code.

HISTORY

1. New section filed 3-27-52; effective thirtieth day thereafter (Register 28, No. 1).

2. Amendment filed 8-9-83; effective thirtieth day thereafter (Register 83, No. 33).

§1789.4. Accounting Records of Proraters.

Note • History

A licensee engaged in the business of prorating, in addition to the accounting records required by Section 12303 of the Financial Code, shall maintain an individual ledger account of each customer. The ledger shall show:

(1) All receipts and disbursements of money posted to the individual ledger accounts on or before the end of the next business day after receipt or disbursement.

(2) Balance of funds held for customer's account.

(3) All of the data necessary to prepare the statement required by Section 1789.6 of these rules.

NOTE

Authority cited: Section 12300, Financial Code. Reference: Sections 12303 and 12322 Financial Code.

HISTORY

1. New section filed 3-27-52; effective thirtieth day thereafter (Register 28, No. 1).

2. Amendment filed 1-22-74; effective thirtieth day thereafter (Register 74, No. 4).

3. Amendment filed 8-9-83; effective thirtieth day thereafter (Register 83, No. 33).

§1789.5. Preservation of Documents. [Repealed]

Note • History

NOTE

Authority cited: Section 12300, Financial Code.

HISTORY

1. New section filed 3-27-52; effective thirtieth day thereafter (Register 28, No. 1).

2. Repealer filed 8-9-83; effective thirtieth day thereafter (Register 83, No. 33).

§1789.6. Statements of Account.

Note • History

A licensee engaged in the business of prorating, upon closing an account shall immediately render to the customer a statement in writing showing the following:

(1) Total funds received by the prorater from or on behalf of the customer.

(2) Total disbursements made to each of the customer's creditors by the prorater.

(3) The total amount which any creditor has agreed to accept as payment in full on any debt owed him by the debtor.

(4) Amount and type of charges paid to the prorater by the debtor.

(5) Balance of customer's account at the closing of the account.

(6) That all funds held in the customer's account have been returned to the customer.

NOTE

Authority cited: Section 12300, Financial Code. Reference: Sections 12300.3,12314, 12314.1 and 12316, Financial Code.

HISTORY

1. New section filed 3-27-52; effective thirtieth day thereafter (Register 28, No. 1).

2. Amendment filed 1-22-74; effective thirtieth day thereafter (Register 74, No. 4).

3. Amendment filed 8-9-83; effective thirtieth day thereafter (Register 83, No. 33).

§1789.7. Copies of Statements of Account. [Repealed]

Note • History

NOTE

Authority cited: Section 12300, Financial Code.

HISTORY

1. New section filed 3-27-52; effective thirtieth day thereafter (Register 28, No. 1).

2. Amendment filed 1-22-74; effective thirtieth day thereafter (Register 74, No. 4).

3. Repealer filed 8-9-83; effective thirtieth day thereafter (Register 83, No. 33).

§1789.8. Advertising.

Note • History

(a) All advertising (written, printed, radio, television, or of any other nature) of a prorater shall be submitted in duplicate to the Commissioner for examination. Advertising shall not be used by a prorater until the Commissioner has notified the licensee in writing that the use of said advertising is not disapproved.

(b) A prorater shall not use any advertising copy after the use thereof has been disapproved by the Commissioner and the company notified in writing of such disapproval.

NOTE

Authority cited: Sections 12300 and 12303, Financial Code. Reference: Sections 12311 and 12300, Financial Code.

HISTORY

1. New section filed 3-27-52; effective thirtieth day thereafter (Register 28, No. 1).

2. Amendment filed 12-31-58; effective thirtieth day thereafter (Register 59, No. 1).

3. Amendment filed 1-22-74; effective thirtieth day thereafter (Register 74, No. 4).

4. Amendment filed 8-9-83; effective thirtieth day thereafter (Register 83, No. 33).

§1789.9. Advertising Copy.

Note • History

The copy for written or printed advertising shall be submitted in the following manner:

(a) Printers proof showing the makeup of the advertising as it will be printed publication, or

(b) A reasonable approximation of the proposed advertising showing the arrangement of the type and any illustrations to be used. The various sizes of type to be used should be designated.

NOTE

Authority cited: Sections 12300 and 12330, Financial Code. Reference: Sections12311 and 12330, Financial Code.

HISTORY

1. New Sections 1789.9 through 1789.13 filed 12-31-58; effective thirtieth day thereafter (Register 59, No. 1).

2. Editorial correction of NOTE filed 4-6-83 (Register 83, No. 15).

§1789.10. “Blind” Advertising Prohibited.

Note • History

A prorater shall not use so-called “blind” advertisements. An example of “blind” advertising is an advertisement giving only telephone number, post office, or newspaper box numbers, or name other than that of the prorater. An advertisement shall include the name of the advertiser.

NOTE

Authority cited: Section 12300, Financial Code. Reference: Sections 12311 and 12330, Financial Code.

HISTORY

1. Editorial correction adding NOTE filed 4-6-83 (Register 83, No. 15).

§1789.11. Maintenance of Advertising Copy.

Note • History

(a) A prorater shall maintain for inspection by the Commissioner a file of all advertising copy for a period of at least ninety (90) days after the last date of its use.

(b) All advertising copy shall have noted thereon the name or names of all advertising media used and the dates when such advertising appeared.

(c) In the case of radio or television advertising, unless full text of such announcements is maintained for at least ninety (90) days after the date of its last use by the broadcasting station or stations and is therein available, a prorater shall have a voice transcription of the full text of such announcements to be prepared and retained for the ninety (90) day period,

NOTE

Authority cited: Section 12300, Financial Code. Reference: Sections 12311 and 12330, Financial Code.

HISTORY

1. Amendment filed 3-20-78; effective thirtieth day thereafter (Register 78, No. 12).

2. Amendment filed 8-9-83; effective thirtieth day thereafter (Register 83, No. 33).

§1789.12. Prohibited Advertising. [Repealed]

Note • History

NOTE

Authority cited: Section 12300, Financial Code.

HISTORY

1. Repealer filed 8-9-83; effective thirtieth day thereafter (Register 83, No. 33).

§1789.13. Rates of Charge. [Repealed]

Note • History

NOTE

Authority cited: Section 12300, Financial Code.

HISTORY

1. Repealer filed 8-9-83; effective thirtieth day thereafter (Register 83, No. 33).

§1789.14. General Prorater Fees.

Note • History

(a) A prorater is not a creditor of a debtor for purposes of calculating fees pursuant to Section 12314 of the Financial Code. A prorater may not assess, charge, or collect a fee on any sums or debts due the prorater.

(b) The origination fee permitted by Section 12314 (a) of the Financial Code shall be disclosed in writing to the debtor at the time of execution of the prorate agreement or contract and shall specify the amount of the origination fee and the terms and conditions for payment of the fee.

(c) Only one origination fee may be charged to a debtor (husband and wife shall be considered one debtor) regardless of the number of times a contract or agreement is rewritten or revised.

(d) An origination fee shall not be charged a debtor who has had an account cancelled or defaulted within 30 days prior to the opening of the new account; provided, further, that a debtor shall not be charged more than two origination fees.

(e) An origination fee shall not be charged a debtor who has had an account cancelled or defaulted within the past three months and has been assessed a cancellation fee.

NOTE

Authority cited: Section 12300, Financial Code. Reference: Sections 12314, 12315 and 12315.1, Financial Code.

HISTORY

1. New section filed 1-22-74; effective thirtieth day thereafter (Register 74, No. 4).

2. Editorial correction adding NOTE filed 4-6-83 (Register 83, No. 15).

3. Editorial correction of subsection (b) (Register 95, No. 48).

§1789.15. Disbursement of Funds. [Repealed]

Note • History

NOTE

Authority cited: Section 12300, Financial Code.

HISTORY

1. New section filed 1-22-74; effective thirtieth day thereafter (Register 74, No. 4).

2. Repealer filed 8-9-83; effective thirtieth day thereafter (Register 83, No. 33).

Article 4. Bonds and Insurance

§1790. Fidelity Bond for Officers and Employees.

Note • History

A licensee engaged in the business of selling checks or accepting money for the purpose of forwarding it to others in payment of utility bills should obtain and file with the Commissioner a fidelity bond providing fidelity coverage on each officer and employee of not less than $50,000. The fidelity bond may be either a primary commercial blanket bond or a blanket position bond, but shall be written by an insurer who has been licensed by the Department of Insurance of the State of California. The bond shall contain a rider which provides that the coverage of the bond extends to all officers and employees of the insured whether or not such officers and employees are compensated by the insured.

A licensee should maintain minimum fidelity coverage in accordance with the following schedule:

Monthly

average Minimum

liability coverage

Up to $50,000 $50,000

$50,001 to 60,000 55,000

60,001 to 70,000 60,000

70,001 to 80,000 65,000

80,001 to 90,000 70,000

90,001 to 100,000 75,000

100,001 to 115,000 80,000

115,001 to 145,000 90,000

145,001 to 175,000 100,000

175,001 to 200,000 110,000

and additional coverage at the rate of 25 percent of any monthly average in excess of $200,000.

The minimum fidelity coverage required of a licensee as set forth herein shall be obtained and maintained in effect unless the Commissioner for good cause, in writing, has found that a different amount of coverage would be in the public interest.

NOTE

Authority cited: Section 12300, Financial Code. Reference: Section 12223, Financial Code.

HISTORY

1. Amendment filed 12-31-58; effective thirtieth day thereafter (Register 59, No. 1).

2. Amendment filed 6-11-82; effective thirtieth day thereafter (Register 82, No. 24).

3. Change without regulatory effect amending last paragraph filed 6-26-96 pursuant to section 100, title 1, California Code of Regulations (Register 96, No. 26).

§1790.1. Fidelity Bonds for Agent.

Note • History

A licensee engaged in the business of selling checks or accepting money for the purpose of forwarding it to others in payment of utility bills shall obtain and keep in effect at all times a fidelity bond on each agent of the licensee in a principal amount sufficient to protect the licensee against substantial loss. If the liability of an agent to the licensee for any three consecutive business days exceeds $5,000, the licensee should be protected from loss by a fidelity bond in a principal amount at least equal to the highest liability of the agent to licensee for any three consecutive business days, unless the Commissioner for good cause, in writing, has found that a different amount of coverage would be in the public interest.

NOTE

Authority cited: Section 12300, Financial Code. Reference: Section 12223, Financial Code.

HISTORY

1. New section filed 12-31-58; effective thirtieth day thereafter (Register 59, No. 1).

2. Editorial correction of NOTE filed 4-6-83 (Register 83, No. 15).

3. Change without regulatory effect amending section filed 6-26-96 pursuant to section 100, title 1, California Code of Regulations (Register 96, No. 26).

4. Change without regulatory effect amending section filed 2-28-2000 pursuant to section 100, title 1, California Code of Regulations (Register 2000, No. 9).

§1790.2. Fidelity Bond for Proraters.

Note • History

A licensee engaged in business as a general or special prorater shall obtain and file with the Commissioner and maintain in effect primary commercial blanket bond or a blanket position bond against the loss of moneyor property in the possession of the licensee. Each officer, employee, and agent having access to money in the possession of the licensee or drawing checks against the account of the licensee, shall be bonded in a principal amount of at least $10,000. The Commissioner may for good cause and based upon financial information require a bond in a different principal amount if the Commissioner finds such change to be in the public interest.

NOTE

Authority cited: Section 12300, Financial Code. Reference: Section 12223, Financial Code.

HISTORY

1. New section filed 12-31-58; effective thirtieth day thereafter (Register 59, No. 1).

2. Amendment filed 6-11-82; effective thirtieth day thereafter (Register 82, No. 24).

§1791. Insurance, Holdup and Burglary. [Repealed]

Note • History

NOTE

Authority cited: Section 12300, Financial Code.

HISTORY

1. Repealer filed 6-11-82; effective thirtieth day thereafter (Register 82,.No. 24).

§1792. Corporate Surety. [Repealed]

Note • History

NOTE

Authority cited: Section 12300, Financial Code.

HISTORY

1. Repealer filed 6-11-82; effective thirtieth day thereafter (Register 82, No. 24).

§1793. New Employees.

Note • History

A licensee shall notify the Commissioner in writing of the names of any new officers, employees, and agents within 10 days after employment and have on file with the Commissioner a bond in accordance with Section 1790 of these Rules, before allowing any officer, employee, or agent in the regular discharge of his/her duties to have access to moneys or negotiable securities belonging to or in the possession of the licensee, or to draw checks upon the licensee or the trust funds of the licensee.

NOTE

Authority cited: Section 12300, Financial Code. Reference: Sections 12220 and 12223, Financial Code.

HISTORY

1. New section filed 3-27-52; effective thirtieth day thereafter (Register 28, No. 1).

2. Amendment filed 12-31-58; effective thirtieth day thereafter (Register 59, No. 1).

3. Amendment filed 6-11-82; effective thirtieth day thereafter (Register 82, No. 24).

Article 5. Notices

§1795. Schedule of Fees. [Repealed]

Note • History

NOTE

Authority cited: Section 12300, Financial Code.

HISTORY

1. Amendment filed 3-27-52, effective thirtieth day thereafter (Register 28, No. 1).

2. Repealer filed 9-15-82; effective thirtieth day thereafter (Register 82, No. 38).

§1796. Branch Office Sign. [Repealed]

Note • History

NOTE

Authority cited: Section 12300, Financial Code.

HISTORY

1. Amendment filed 3-27-52; effective thirtieth day thereafter (Register 28, No. 1).

2. Amendment filed 12-31-58; effective thirtieth day thereafter (Register 59, No. 1).

3. Repealer filed 9-15-82; effective thirtieth day thereafter (Register 82, No. 38).

§1797. Branch Office Notification. [Repealed]

Note • History

NOTE

Authority cited: Section 12300, Financial Code.

HISTORY

1. Repealer filed 9-15-82; effective thirtieth day thereafter (Register 82, No. 38).

§1798. Notice of Actions.

Note • History

A licensee shall immediately notify the Commissioner in writing of any civil or criminal action filed against the licensee or any of its officers or directors.

NOTE

Authority cited: Section 12300, Financial Code. Reference: Section 12221 and 12400, Financial Code.

HISTORY

1. New section filed 3-27-52; effective thirtieth day thereafter (Register 28, No. 1).

2. Amendment filed 3-20-78; effective thirtieth day thereafter (Register 78, No. 12).

3. Editorial correction adding NOTE filed 11-17-82 (Register 82, No. 47).

§1799. Required Provisions in Contracts Between Proraters and Debtors.

Note • History

A contract between the prorater and debtor customer must include a statement in not less than 12-point bold face capital letters:

FOR INFORMATION CONTACT THE

DEPARTMENT OF CORPORATIONS,

STATE OF CALIFORNIA

NOTE

Authority cited: Section 12300, Financial Code. Reference: Section 12319, Financial Code.

HISTORY

1. New section filed 3-27-52; effective thirtieth day thereafter (Register 28, No. 1).

2. Amendment filed 1-22-74; effective thirtieth day thereafter (Register 74, No. 4).

3. Amendment filed 9-15-82 effective thirtieth day thereafter (Register 82, No. 38).

§1799.1. Change of Address, Area or Registration Number. [Repealed]

Note • History

NOTE

Authority cited: Section 12300, Financial Code.

HISTORY

1. New section filed 3-27-52, effective thirtieth day thereafter (Register 28, No. 1).

2. Amendment filed 3-20-78; effective thirtieth day thereafter (Register 78, No. 12).

3. Repealer filed 9-15-82 effective thirtieth day thereafter (Register 82, No. 38).

Article 6. Accusations and Hearings [Repealed]

HISTORY

1. Repealer of Article 6 (Sections 1801-1805) filed 12-3-81; effective thirtieth day thereafter (Register 81, No. 49). For prior history, see Register 78, No. 12.

Subchapter 11. Securities Depositories

(Originally Printed 3-10-73)

§1805.001. Definitions Governing Construction of Rules.

Note • History

Unless the condition otherwise requires, the definitions set forth in the Securities Depository Law govern the construction of these rules.

NOTE

Authority cited: Section 30006, Financial Code. Reference: Section 30001, Financial Code.

HISTORY

1. New section filed 8-9-83; effective thirtieth day thereafter (Register 83, No. 33). For prior history, see Register 73, No. 10.

§1805.201. Stockholders.

Note • History

The articles of incorporation or the bylaws of a securities depository shall include provisions by which it, or the holders of its capital stock, can enforce the provisions of Section 30201 of the Financial Code.

NOTE

Authority cited: Section 30006, Financial Code. Reference: Section 30201, Financial Code.

HISTORY

1. New Subchapter 11 (1805.201, 1805.204, 1805.204.1, 1805.210, 1805.210.1, 1805.213, 1805.213.1) filed 3-7-73 as an emergency; designated effective 3-7-73. Certificate of Compliance included (Register 73, No. 10).

2. Editorial correction of NOTE filed 3-9-83 (Register 83, No. 11).

§1805.204. Application for Certificate.

Note • History

An application for a certificate as a securities depository shall be made on the following form:

DEPARTMENT OF CORPORATIONS

FILE NO.

(insert file number of previous filings

before the Department, if any.)

FEE: $2,500

(not refundable)

Date of Application

DEPARTMENT OF CORPORATIONS

STATE OF CALIFORNIA

INDICATE THE TYPE OF FILING BY CHECKING EITHER THE ORIGINAL OR AMENDMENT APPLICATION HEADING SHOWN BELOW.

[ ] ORIGINAL APPLICATION FOR A CERTIFICATE AS A SECURITIES DEPOSITORY PURSUANT TO SECTION 30204 OF THE SECURITIES DEPOSITORY LAW.

[ ] AMENDMENT TO APPLICATION FOR A CERTIFICATE AS A SECURITIES DEPOSITORY PURSUANT TO SECTION 1805.213.1 OF TITLE 10 OF THE CALIFORNIA CODE OF REGULATIONS.

1. Name of Applicant (Complete name as appearing on articles of incorporation)

2. Address of principal office of applicant

Number and Street City State Zip Code

3. Address of principal office of applicant in the State of California

Number and Street City State Zip Code

4. Name and address of person to whom communications should be addressed concerning this application

5. (a) State in which applicant was incorporated: ___________

(b) Date on which applicant was incorporated: ___________

Indicate “yes” or “no”

6. The name and address of the independent certified public accountant or independent public accountant retained, or to be retained, by the applicant to report upon or certify its financial statements in accordance with Section 30213 of the Financial Code is:

Name:

Address:

7. There are attached as exhibits the following which are incorporated herein by reference:

A. A list of the incorporators, directors and officers of the applicant, showing the full name of each such person, his residence address and the position or positions he occupies with the applicant.

B. A list of all addresses at which facilities of the applicant will be located, setting forth as to each such address the following information:

(1) The functions or operations which will be conducted.

(2) The facilities (including staff) to be there employed.

(3) A statement as to whether or not any other business will be conducted at such address and, if so, the name of the person conducting such other business and a description thereof, together with a detailed statement of the reasons for such joint occupancy and of the safeguards to be employed by the applicant by reason thereof.

C. A detailed description of the proposed method of operation of the applicant, including a description of the books, records and accounts to be maintained, its description of its operational procedures (e.g. interfacing with other depositories, dividend payments, stock transfers, dividend claims, proxies and proxy statements, loans and pledges of depositors' securities), and a description of the safeguards to be employed with respect to the custody, handling, record-keeping, insurance and auditing of securities on deposit.

D. An analysis of the financial needs of the applicant for a period of not less than 12 months of operation from the date it anticipates receiving a securities depository certificate, showing projected income and disbursements and the source and allocation of funds to be employed in its business, together with a statement of the facts and assumptions underlying such analysis and projections.

E. Financial statements of the applicant, which include at least a balance sheet and profit and loss statement certified by an independent public accountant or certified public accountant, and if such certified financial statements are prepared as of a date more than 60 days prior to the filing of this application, a balance sheet and profit and loss statement, which need not be certified, prepared as of a date within such 60-day period, together with profit and loss statements covering at least three years of its operations, or such lesser period as the applicant may have operated, to the date of such certified balance sheet.

F. A copy (which may be in the form of a restated or composite copy) of applicant's articles of incorporation, bylaws, depository agreement and custody agreement.

G. A list in columnar form showing, as to each person who is or who will be a holder of capital stock of the applicant, the following information:

(1) Such person's full name and address.

(2) The class of capital stock to be held by such person and the percentage of that class to be held by such person.

(3) A statement of the capacity in which such person holds or win hold capital stock in compliance with Section 30201 of the Financial Code.

H. A bond as required by Section 1805.205.1 of Title 10 of the California Code of Regulations.

8. There is attached, for each person identified in Exhibit A to this application as an incorporator, director or officer of the applicant, a statement executed by such person in the form prescribed by Section 1805.204.1 of Title 10 of the California Code of Regulations.

9. Pursuant to Section 1805.213.1 of Title 10 of the California Administrative Code, applicant hereby undertakes to notify the Commissioner promptly, and in no event later than 30 days after the occurrence, of any changes in the information set forth in this application by filing with the Commissioner an amendment to this application on this form setting forth the changed items only. (Instruction: Such undertaking is applicable to all matters except financial statements which are otherwise covered by the provisions of Section 1805.213 of Title 10 of the California Code of Regulations.)

10. The name of the applicant's workmen's compensation insurance carrier, if any, is. The applicant is aware of the provisions of Section 3700 of the Labor Code which requires every employer to be insured against liability for workmen's compensation.

11.The applicant has duly caused this application to be signed on its behalf by the undersigned, thereunto duly authorized.

(Applicant)

(Title)

I declare under penalty of perjury that I have read this application and the exhibits thereto and know the contents thereof and that the statements therein are true.

Executed at _____________________California,__________20_____

(Signature of Declarant)

(If executed outside of California, attach a verification executed and sworn to before a notary public.)

NOTE

Authority cited: Sections 30006 and 30204, Financial Code. Reference: Section 30204, Financial Code.

HISTORY

1. Amendment filed 9-12-73; effective thirtieth day thereafter (Register 73, No. 37).

2. Editorial correction adding NOTE filed 3-9-83 (Register 83, No. 11).

3. Editorial correction of NOTE filed 6-24-83 (Register 83, No. 26).

4. Change without regulatory effect amending section filed 9-25-2002 pursuant to section 100, title 1, California Code of Regulations (Register 2002, No. 39).

§1805.204.1. Statement of Qualifications.

Note • History

The statement of qualifications required pursuant to Item 8 of Section 1805.204 of these rules shall be in the following form:

DEPARTMENT OF CORPORATIONS

STATE OF CALIFORNIA

Department of Corporations

File No._______________

STATEMENT OF QUALIFICATIONS TO BE FILED BY AN INCORPORATOR, OFFICER OR DIRECTOR OF AN APPLICANT FOR A SECURITIES DEPOSITORY CERTIFICATE OR OF A LICENSED SECURITIES DEPOSITORY.

1. Name of Securities Depository or Applicant:

2. Full name of incorporator, officer or director:

3. Residence address of the person named in Item 2:

4. Identifying Information:

a. [ ] Male [ ] Female b. Citizenship

c. Date of birth___/___/___ d. Place of birth

5. Capacity in which this statement is filed: (check applicable box)

[ ] Incorporator [ ] Director [ ] Officer

6. If an officer of the applicant/securities depository, state title:

7. If you are an officer or will perform any managerial functions for the applicant/ securities depository, describe such functions fully, specifically identifying the operations and/or offices of the applicant/securities depository over which you will have supervision:

8. State the college or university degrees received and the dates received, and the school awarding each degree.

9. List all employments which you believe relate to your qualifications to perform your duties as specified in Items 5, 6 and/or 7 above, stating the name of the employer, the duties performed and the dates of such employment.

Inclusive Dates Duties Performed

of Employment Name of Employer Position Held

10. Have you, or are you, within the 10 years immediately preceding the filing of this statement:

A. Been either (1) convicted of or pleaded nolo contendere to a felony or misdemeanor, or (2) held liable in a civil action by final judgment of a court based upon conduct showing moral turpitude, which felony, misdemeanor or judgment (i) involved the purchase or sale of any security, (ii) arose out of the conduct of the business of a broker-dealer, investment adviser, or commodity adviser, (iii) involved embezzlement, fraudulent conversion or misappropriation of property, fund or securities, or (iv) involved the violation of Sections 1341, 1342 or 1343 of Title 18 of the United States Code;

[ ] Yes [ ] No;

B. Permanently or temporarily enjoined by order, judgment, or decree of any court of competent jurisdiction from acting as an investment adviser, underwriter, or broker-dealer, or as an affiliated person or employee of any investment company, bank or insurance company, or from engaging in or continuing any conduct or practice in connection with any such activity or in connection with the purchase or sale of any security;

[ ] Yes [ ] No;

C. Subject to any currently effective order of the Securities and Exchange Commission or the securities administrator of any other state denying registration to or revoking or suspending the registration of such person as a broker or dealer or investment adviser or subject to any currently effective order of any national securities association or national securities exchange (as defined in the Securities Exchange Act of 1934) suspending or expelling such person from membership in such association or exchange?

[ ] Yes [ ] No

If the answer to any of the foregoing is “yes,” or any such action is pending, set forth on a separate sheet in reasonable detail the facts with respect thereto.

11. Have you ever been known personally by, or conducted business under, any other name than that shown in Item 2 above?

[ ] Yes [ ] No;

If “yes,” attach a statement giving full details.

12. Signature to this statement by person named in Item 2 above:

I declare under penalty of perjury that I have read this statement and the attachments hereto, if any, called for by Items 10 and 11 above, and know the contents thereof, and that the statements therein are true.

Executed at _____________________California, ______________20_____.

(Signature of Person Named in Item 2 Above)

(INSTRUCTION: If executed outside of California, attach a verification executed and sworn to before a notary public.)

NOTE

Authority cited: Sections 30006 and 30204, Financial Code. Reference: Sections 30204, 30205 and 30206, Financial Code.

HISTORY

1. Amendment filed 9-12-73; effective thirtieth day thereafter (Register 73, No. 37).

2. Editorial correction adding NOTE filed 3-9-83 (Register 83, No. 11).

3. Editorial correction of NOTE filed 6-24-83 (Register 83, No. 26).

4. Change without regulatory effect amending section filed 9-25-2002 pursuant to section 100, title 1, California Code of Regulations (Register 2002, No. 39).

§1805.205. Prohibition.

Note • History

A securities depository shall not loan or pledge depositors' securities for its own account.

NOTE

Authority cited: Section 30006, Financial Code. Reference: Sections 30205, 30206 and 30601, Financial Code.

HISTORY

1. New section filed 9-12-73; effective thirtieth day thereafter (Register 73, No. 37).

2. Editorial correction of NOTE filed 3-9-83 (Register 83, No. 11).

3. Editorial correction of NOTE filed 6-24-83 (Register 83, No. 26).

§1805.205.1. Fidelity Bond.

Note • History

The securities depository shall keep in effect at all times a fidelity bond providing coverage on each officer and employee, written by a corporate surety licensed by the Department of Insurance of the State of California, in an amount satisfactory to the Commissioner, and ordinarily not less than $1,000,000 or 10% of the aggregate market value of all securities on deposit.

NOTE

Authority cited: Section 30006, Financial Code. Reference: Sections 30205, 30206 and 30601, Financial Code.

HISTORY

1. New section filed 9-12-73; effective thirtieth.day thereafter (Register 73, No. 37).

2. Editorial correction of NOTE filed 3-9-83 (Register 83, No. 11).

3. Editorial correction of NOTE filed 6-24-83 (Register 83, No. 26).

§1805.206. Dividend Distribution.

Note • History

Any dividends received by the securities depository with respect to depositors' securities shall be distributed to the depositor no later than three (3) days after receipt of the dividends by the securities depository.

NOTE

Authority cited: Section 30006, Financial Code. Reference: Sections 30206, 30603 and 30608, Financial Code.

HISTORY

1. New section filed 9-12-73; effective thirtieth day thereafter (Register 73, No. 37).

2. Editorial correction of NOTE filed 3-9-83 (Register 83, No. 11).

3. Editorial correction of NOTE filed 6-24-83 (Register 83, No. 26).

§1805.206.1. Proxy Statement and Proxy Distribution.

Note • History

Any statement and proxy received by the securities depository with respect to depositors' securities shall be forwarded immediately to the depositor. Further, no securities depository shall vote any such proxies, except in accordance with and pursuant to the written instructions of the depositor.

NOTE

Authority cited: Section 30006, Financial Code. Reference: Sections 30206, 30603 and 30608, Financial Code.

HISTORY

1. New section filed 9-12-73; effective thirtieth day thereafter (Register 73, No. 37).

2. Editorial correction of NOTE filed 3-9-83 (Register 83, No. 11).

3. Editorial correction of NOTE filed 6-24-83 (Register 83, No. 26).

§1805.210. Books and Records of Securities Depositories.

Note • History

(a) Every licensed securities depository shall make and keep current the records relating to its business:

(1) Ledgers (or other records) reflecting all assets, liabilities, and capital, and the income and expenses of the licensee.

(2) Journals (or other records of original entry) containing an itemized daily record of all receipts, deliveries, transfers, pledges and loans of securities (including names of issuers, certificate numbers and CUSIP (Committee on Uniform Security Identification Procedures) all receipts and disbursements of cash and all other debits and credits . Such records shall show the account for which each receipt, delivery, transfer, pledge or loan of securities was effected; the name and amount of securities; the CUSIP numbers; the number of units and aggregate market value (if any); the date of receipt, delivery, transfer, pledge or loan of securities; and the name or other designation of the person from whom received or to whom delivered, transferred, pledged or loaned.

(3) Ledger accounts (or other records) itemizing separately for each account of every depositor, customer or pledgee all receipts, deliveries, transfers, for such account and all other debits and credits to such an account, on a daily basis.

(4) Ledgers (or other records) reflecting daily the following:

(i) Securities in transfer, showing from whom transferred and to whom to be delivered, transferred, pledged or loaned;

(ii) Dividends received and the account for whom received;

(iii) Dividends paid or transferred and the account to whom paid or delivered.

(iv) Securities pledged, loaned or held for the account or benefit of another than the depositor;

(v) Substitution of securities held in sub-clause (iv) of this clause.

(5) A securities ledger or position record for each security, on a daily basis, showing the number or unit held and whether for the depositor's account, pledge, loan or otherwise, including any security count difference, classified by the date of discovery of the difference or date of physical count.

(6) A memorandum (or other record) of each order or instruction received or for the receipt, delivery, transfer, pledge, loan or otherwise of securities whether completed or incompleted. Such memorandum shall show all the terms and conditions of the order or instructions, and any modifications or cancellations thereto.

(7) A record of all receipts, deliveries, transfers, pledges or loans of securities and all other notices or advice items for the account of each depositor, customer, or pledgee.

(8) A record of the proof of money balances of all ledger accounts in the form of a trial balance, prepared at least monthly. Such trial balances shall be prepared on a basis consistent with the financial statement filed or required to be filed, pursuant to subdivision (a) of Section 30213 of the Financial Code and Section 1805.213 of these rules.

(9) A questionnaire or application for employment executed by each employee of the securities depository, which questionnaire or application shall be approved in writing by an authorized officer of the securities depository and shall contain at least the following information with respect to each such person:

(i) His name, address, social security number, and the starting date of his employment with the securities depository.

(ii) His/her date and place of birth.

(iii) A complete, consecutive statement of all his/her business connections and employments for at least the preceding 10 years, including his/her reason for leaving each employment.

(iv) A record of any arrests, indictments or convictions for any felony or any misdemeanor, except minor traffic offenses, of which he/she has been the subject.

(v) A record of any disciplinary action taken, or sanction imposed upon him/ her by any federal or state agency, or by any national securities exchange, national securities association or any commodity exchange regulated by the federal or by any state government.

(vi) A record of any civil actions brought against him/her based upon conduct showing moral turpitude.

(vii) A record of any permanent or temporary injunction entered against him/her or against any firm with which he/she was associated in any capacity at the time such injunction was entered.

(viii) A record of any other name or names by which he/ she has been known or which he/she has been known or which he/she used.

(10) Copies of all applications and amendments thereto, and of all reports, filed with the Commissioner pursuant to the provisions of the Securities Depository Law.

(11) A record of all holders of its capital stock, together with such information as is necessary to demonstrate compliance with the provisions of Section 30201 of the Financial Code.

(b) Every licensed securities depository shall prepare and maintain, at least monthly and on a regular period basis, a balance sheet as of the close of such period and a profit and loss statement covering its operations for such period, such statements to be prepared on a basis consistent with the financial report required under Section 30213 of the Financial Code.

(c) Every licensed securities depository shall keep and maintain its books and records on an accrual basis, and shall maintain its books, accounts, records and files in accordance with generally accepted accounting principles and good business practice.

(d) Every licensed securities depository shall maintain its books and records in such a manner and at such locations that the complete destruction of its records at any one location will not disable it from promptly recovering the information required to be maintained under this section.

NOTE

Authority cited: Section 30006, Financial Code. Reference: Sections 30210 and 30211, Financial Code.

HISTORY

1. Amendment filed 8983; effective thirtieth day thereafter (Register 83, No. 33).

§1805.210.1. Preservation of Records.

Note • History

Every licensed securities depository shall preserve its records in the manner prescribed under subdivision (d) of Section 1805.210 of these rules and in accordance with the following requirements:

(a) There shall be preserved for a period of not less than 10 years, the first two of which shall be in an easily accessible place:

(1) All records required to be made pursuant to subsection (a) (1), (2) and (3) of Section 1805.210 of these rules.

(2) All records required to be made pursuant to subsection (a) (8) of Section 1805.210 of these rules, including all working papers in connection therewith.

(3) Copies of all reports required to be filed with the Commissioner under Section 30213 of the Financial Code, together with all correspondence with the Commissioner thereon.

(b) There shall be preserved for a period of not less than four years, the first two of which shall be in an easily accessible place, the following records:

(1) All records required to be made pursuant to subsection (a) (4), (5), (6) and (7) of Section 1805.210 of these rules.

(2) All cheek books, bank statements, cancelled cheeks and cash reconciliations.

(3) All bills receivable or payable (or copies thereof, paid or unpaid).

(4) Originals of all communications received and copies of all communications sent by the securities depository (including inter-office memoranda and communications).

(5) All written agreements (or copies thereof) entered into by the securities depository.

(c) There shall be preserved for a period of not less than four years after the termination of employment of any person or after a person ceases to be a holder of capital stock, the first two years of which shall be in an easily accessible place, the records pertaining to such person maintained pursuant to subsections (a) (9) and (10) of Section 1805.210.

(d) Every securities depository shall preserve for the life of the enterprise and any successor enterprise, the articles of incorporation and amendments thereto, the bylaws and amendments thereto, the minute books and stock certificate books of the corporation.

(e) After a record or other document has been preserved for two years, there may be substituted for such record for the balance of the required time (i) a photograph thereof on film or (ii), with respect to the records specified in subsections (a) (1), (2), (3), (4) and (5) of Section 1805.210, on computer tapes or cards; provided t at, as to all such records so maintained, the securities depository shall (1) at all times have available for the Commissioner's examination of his records facilities for immediate, easily readable projection of the microfilm and for producing easily readable copies of all such film or computer records, (2) arrange and index and file such records in a manner as to permit the immediate location of any particular record, and (3) be ready at all times to provide, and immediately provide, any facsimile, enlargement or print-out which the Commissioner may request.

(f) If a person who has been subject to the requirements of Section 1805.210 of these rules ceases to hold a certificate as a securities depository, such person shall continue to preserve the records which he heretofore preserved pursuant to this section for the remainder of the periods of time specified in this section or for ten years, whichever is the shorter period.

NOTE

Authority cited: Section 30006, Financial Code. Reference: Sections 30210, 30211 and 30213, Financial Code.

HISTORY

1. Editorial correction adding NOTE filed 3-9-83 (Register 83, No. 11).

§1805.213. Reports.

Note • History

A securities depository shall file with the Commissioner, within 11 days after the close of any month (i) in which it became or was determined to be insolvent or (ii) in which it incurred a loss in an amount exceeding one-third of its net worth as of the close of such month, and within 15 days after the close of each month thereafter, its financial statements as of the close of the month for which such report is made. Such financial statements shall include a balance sheet and a profit and loss statement which need not be audited but which shall be prepared on a basis consistent with the financial statements filed, or to be filed, pursuant to subdivision (a) of Section 30213 of the Financial Code.

NOTE

Authority cited: Section 30006, Financial Code. Reference: Section 30213, Financial Code.

HISTORY

1. Editorial correction adding NOTE filed 3-9-83 (Register 83, No. 11).

§1805.213.1. Notice of Changes.

Note • History

Each licensed securities depository shall, upon any change in the information contained in its application for a certificate (other than financial information contained therein) promptly file an amendment to such application upon the form prescribed in Section 1805.204 of these rules setting forth the changed information (and in any event within 30 days after the change occurs).

NOTE

Authority cited; Section 30006, Financial Code. Reference: Section 30213, Financial Code.

HISTORY

1. Editorial correction adding NOTE filed 3-9-83 (Register 83, No. 11).

Subchapter 11.5.

Article 1. Definitions

§1950.003. Definitions.

Note • History

The following terms used in Subchapter 11.5 of these rules shall have the following meanings (unless the context otherwise indicates):

(a) “Code” means the California Financial Code.

(b) “Department” means the Department of Corporations.

(c) “Call report” or “NMLS Mortgage Call Report” means a report of condition on a residential mortgage lender, mortgage servicer, or residential mortgage lender and servicer and its operations including financial statements and production activity volumes.

(d) “Form MU1” means the uniform licensing form developed by the Nationwide Mortgage Licensing System and Registry for a mortgage lender, mortgage servicer, or mortgage broker business, entitled “Uniform Mortgage Lender/Mortgage Broker Form.”

(e) “Form MU2” means the uniform licensing form developed by the Nationwide Mortgage Licensing System and Registry for a person that directly or indirectly exercises control over a mortgage lender, mortgage servicer, or mortgage broker business, or a branch thereof, including qualifying individuals and branch managers specified in Form MU1, entitled “Uniform Mortgage Biographical Statement & Consent Form.”

(f) “Form MU3” means the uniform licensing form developed by the Nationwide Mortgage Licensing System and Registry for the branch office of a mortgage lender, mortgage servicer, or mortgage broker, entitled “Uniform Mortgage Branch Office Form.”

(g) “Form MU4” means the uniform licensing form developed by the Nationwide Mortgage Licensing System and Registry for an individual mortgage loan originator license or registration, entitled “Uniform Individual Mortgage License/Registration & Consent Form.”

(h) “NMLS” means the Nationwide Mortgage Licensing System and Registry.

(i) “Sponsoring” or “to sponsor” means to maintain an employment relationship between a mortgage loan originator and a residential mortgage lender, mortgage servicer, or residential mortgage lender and servicer where the mortgage loan origination activities of the mortgage loan originator are subject to the supervision and oversight of the residential mortgage lender, mortgage servicer, or residential mortgage lender and servicer. A licensed residential mortgage lender, mortgage servicer, or residential mortgage lender and servicer is the “sponsor” of a mortgage loan originator employed by, and subject to the supervision and oversight of, the residential mortgage lender, mortgage servicer, or residential mortgage lender and servicer. For purposes of Subchapter 11.5 of these rules, an employment relationship may be established through factors such as supervision and control of the sponsored mortgage loan originator, legal and regulatory responsibility for the acts of the mortgage loan originator, and performance under the name, authority and policies of the sponsor, and is not necessarily contingent on whether a mortgage loan originator is issued a Form W-2 by the sponsor.

NOTE

Authority cited: Section 50304, Financial Code. Reference: Sections 50002.5 and 50003, Financial Code.

HISTORY

1. New subchapter 11.5 (articles 1-10), article 1 (section 1950.003) and section filed 11-25-96; operative 12-25-96 (Register 96, No. 48).

2. New first paragraph, new subsections (c)-(i) and amendment of Note filed 4-1-2010 as an emergency; operative 4-1-2010 (Register 2010, No. 14). A Certificate of Compliance must be transmitted to OAL by 9-28-2010 or emergency language will be repealed by operation of law on the following day.

3. New first paragraph, new subsections (c)-(i) and amendment of Note refiled 9-28-2010 as an emergency; operative 9-28-2010 (Register 2010, No. 40). A Certificate of Compliance must be transmitted to OAL by 12-27-2010 or emergency language will be repealed by operation of law on the following day.

4. New first paragraph, new subsections (c)-(i) and amendment of Note refiled 12-23-2010 as an emergency; operative 12-23-2010 (Register 2010, No. 52). A Certificate of Compliance must be transmitted to OAL by 3-23-2011 or emergency language will be repealed by operation of law on the following day.

5. Certificate of Compliance as to 12-23-2010 order, including amendment of subsections (c) and (e), transmitted to OAL 3-14-2011 and filed 4-25-2011; amendments operative 5-25-2011 (Register 2011, No. 17).

Article 2. Application for Licensure and Related Forms

§1950.122. Electronic Filings.

Note • History

(a) DESIGNATION: The Commissioner designates the Nationwide Mortgage Licensing System (NMLS) owned and operated by the State Regulatory Registry LLC (SRR), a wholly-owned subsidiary of the Conference of State Bank Supervisors (in cooperation with the American Association of Residential Mortgage Regulators) to receive and store filings, obtain fingerprints, obtain credit reports, and collect related fees from applicants and state-licensed residential mortgage lenders, mortgage servicers, residential mortgage lender and servicers, and mortgage loan originators on behalf of the Commissioner.

(b) USE OF NMLS: All residential mortgage lender, mortgage servicer, residential mortgage lender and servicer, and mortgage loan originator applications, amendments, reports, notices, related filings, renewals, authorizations, and fees required to be filed with the Commissioner shall be filed electronically with and transmitted to NMLS, except as otherwise indicated in Subchapter 11.5 of these rules. The following conditions relate to such electronic filings:

(1) Electronic Signature: When a signature or signatures are required by the particular instructions of any filing, including any attestation to be made through NMLS, a duly authorized officer or proper delegate of the applicant or the applicant him or herself, as required, shall affix his or her electronic signature to the filing by typing his or her name in the appropriate field and submitting the filing to the Commissioner through NMLS. Submission of a filing in this manner shall constitute irrefutable evidence of legal signature by any individual making the filing.

(3) An applicant shall provide through NMLS the necessary authorizations so that NMLS may obtain independent credit reports, fingerprinting and criminal background checks.

(4) Any documents required to be filed with the Commissioner that is not permitted to be filed with or cannot be transmitted through NMLS shall be filed in paper form directly with the Commissioner.

NOTE

Authority cited: Sections 50150 and 50304, Financial Code. Reference: Section 1633.7, Civil Code; and Sections 50002, 50002.5, 50003, 50120, 50122, 50130, 50140 and 50146, Financial Code.

HISTORY

1. New article 2 (sections 1950.122-1950.122.3) and section filed 11-25-96; operative 12-25-96 (Register 96, No. 48).

2. Editorial correction of section heading and form (Register 99, No. 9).

3. Change without regulatory effect amending Exhibit M of form filed 2-24-99 pursuant to section 100, title 1, California Code of Regulations (Register 99, No. 9).

4. Change without regulatory effect amending facing page filed 5-24-99 pursuant to section 100, title 1, California Code of Regulations (Register 99, No. 22).

5. Change without regulatory effect amending Exhibit D instructions on form and amending Note filed 11-23-2005 pursuant to section 100, title 1, California Code of Regulations (Register 2005, No. 47).

6. Repealer and new section filed 4-1-2010 as an emergency; operative 4-1-2010 (Register 2010, No. 14). A Certificate of Compliance must be transmitted to OAL by 9-28-2010 or emergency language will be repealed by operation of law on the following day.

7. Repealer and new section refiled 9-28-2010 as an emergency; operative 9-28-2010 (Register 2010, No. 40). A Certificate of Compliance must be transmitted to OAL by 12-27-2010 or emergency language will be repealed by operation of law on the following day.

8. Repealer and new section refiled 12-23-2010 as an emergency; operative 12-23-2010 (Register 2010, No. 52). A Certificate of Compliance must be transmitted to OAL by 3-23-2011 or emergency language will be repealed by operation of law on the following day.

9. Certificate of Compliance as to 12-23-2010 order, including amendment of subsections (b)(1) and (b)(4) and Note, transmitted to OAL 3-14-2011 and filed 4-25-2011; amendments operative 5-25-2011 (Register 2011, No. 17).

§1950.122.1. Consent to Service of Process; Form.

Note • History

The consent to service of process shall be made on the following form:

Embedded Graphic 10.0102

NOTE

Authority cited: Section 50304, Financial Code. Reference: Section 50122, Financial Code; and Section 1189, Civil Code.

HISTORY

1. New section filed 11-25-96; operative 12-25-96 (Register 96, No. 48).

2. Amendment of section and Note filed 9-23-2009; operative 10-23-2009 (Register 2009, No. 39).

§1950.122.2. Notice of Officers, Directors, Partners, “Control” Persons, Managers, Members, Trustees and Employees.

Note • History

(a) The notice to accompany the filing of an individual's fingerprints required in the following circumstances shall be made on the form set forth in subsection (c) of this rule:

(1) In compliance with the requirements for a license application in Section 1950.122.4 of Subchapter 11.5 of these rules;

(2) In compliance with the requirements for filing an application for change of control (Rule 1950.206);

(3) In compliance with Section 50317(a) of the Code for an officer, director, partner, shareholder controlling 10 percent or more of the ownership interests or trustee of a licensed residential mortgage lender, residential mortgage lender and servicer, or residential mortgage loan servicer whose office, employment, ownership interest or other participation in the licensed business commenced after January 1, 1995; or

(4) In compliance with the requirements of Rule 1950.301 for certain employees.

(5) For purposes of this section, an individual who has submitted fingerprints through NMLS as part of the application for a mortgage loan originator license is not required to submit an additional set of fingerprints under this rule.

(b) For the purpose of paragraph (4) of subsection (a) of this rule, “employee” means (1) an individual with access to or responsibility for trust funds held by a licensed residential mortgage lender, residential mortgage lender and servicer, mortgage loan originator, or residential mortgage loan servicer, and (2) employed by such licensee after January 1, 1995.

Embedded Graphic 10.0103

* This document shall be treated by the Department of Corporations as being received in confidence pursuant to paragraph (4) of subdivision (d) of Section 6254 of the Government Code.

NOTE

Authority cited: Section 50304, Financial Code. Reference: Sections 50121, 50122, 50130, 50140 and 50317, Financial Code.

HISTORY

1. New section filed 11-25-96; operative 12-25-96 (Register 96, No. 48).

2. Change without regulatory effect amending form filed 5-24-99 pursuant to section 100, title 1, California Code of Regulations (Register 99, No. 22).

3. Amendment of subsection (a)(1), new subsection (a)(5) and amendment of subsection (b) and Note filed 4-1-2010 as an emergency; operative 4-1-2010 (Register 2010, No. 14). A Certificate of Compliance must be transmitted to OAL by 9-28-2010 or emergency language will be repealed by operation of law on the following day.

4. Amendment of subsection (a)(1), new subsection (a)(5) and amendment of subsection (b) and Note refiled 9-28-2010 as an emergency; operative 9-28-2010 (Register 2010, No. 40). A Certificate of Compliance must be transmitted to OAL by 12-27-2010 or emergency language will be repealed by operation of law on the following day.

5. Amendment of subsection (a)(1), new subsection (a)(5) and amendment of subsection (b) and Note refiled 12-23-2010 as an emergency; operative 12-23-2010 (Register 2010, No. 52). A Certificate of Compliance must be transmitted to OAL by 3-23-2011 or emergency language will be repealed by operation of law on the following day.

6. Certificate of Compliance as to 12-23-2010 order, including amendment of subsection (a)(5), transmitted to OAL 3-14-2011 and filed 4-25-2011; amendments operative 5-25-2011 (Register 2011, No. 17).

§1950.122.2.1. Officers, Directors, Partners, and Other Persons: Maintenance of Current List with Commissioner: Information Required.

Note • History

(a) A residential mortgage lender, mortgage servicer, or residential mortgage lender and servicer shall at all times maintain on file with NMLS in accordance with its procedures for transmission to the Commissioner, a current list of officers, directors, and partners in the case of a partnership, and other persons named in the Forms MU1, MU2, MU3, and MU4, as applicable. In the event of any change in the officers, directors, partners, or other persons named in the application, other than transfers between branch offices, a residential mortgage lender, mortgage servicer, or residential mortgage lender and servicer shall file with NMLS in accordance with its procedures for transmission to the Commissioner, an amendment to the application containing the same information in relation to such new person(s) as is required in the Forms MU1, MU2, MU3, and MU4.

NOTE

Authority cited: Sections 50140, 50146 and 50304, Financial Code. Reference: Section 50146, Financial Code.

HISTORY

2. Editorial correction of History 1 (Register 2010, No. 40).

3. New section refiled 9-28-2010 as an emergency, including repealer of subsection (b); operative 9-28-2010 (Register 2010, No. 40). A Certificate of Compliance must be transmitted to OAL by 12-27-2010 or emergency language will be repealed by operation of law on the following day.

5. Certificate of Compliance as to 12-23-2010 order transmitted to OAL 3-14-2011 and filed 4-25-2011 (Register 2011, No. 17).

§1950.122.3. Similar Names.

Note • History

A residential mortgage lender or residential mortgage loan servicer shall not engage in the residential mortgage lending or residential mortgage loan servicing business under a name similar to the name of any other residential mortgage lender or residential mortgage loan servicer which is deceptively similar and likely to cause confusion among the borrowing public.

NOTE

Authority cited: Sections 50122(b)(7) and 50304, Financial Code. Reference: Sections 50124, 50207, 50208 and 50301, Financial Code.

HISTORY

1. New section filed 11-25-96; operative 12-25-96 (Register 96, No. 48).

§1950.122.4. License Application for Residential Mortgage Lender, Mortgage Servicer, and Residential Mortgage Lender and Servicer.

Note • History

The procedures set forth in this section are applicable to a person who is required to be licensed pursuant to Section 50002 of the Code as a residential mortgage lender, mortgage servicer, or as a residential mortgage lender and servicer. The application for a license as a residential mortgage lender, mortgage servicer, or residential mortgage lender and servicer shall be filed as follows:

(a) INITIAL APPLICATION: The application for a license as a residential mortgage lender, mortgage servicer, or residential mortgage lender and servicer under subdivision (a) of Section 50002 of the Code and any amendment to such application shall be filed upon Form MU1 (Uniform Mortgage Lender/Mortgage Broker Form) and any exhibits, in accordance with the instructions of NMLS for transmission to the Commissioner. Exhibits that cannot be submitted through NMLS shall be submitted directly to the Commissioner. The notices set forth in Section 1950.122.8 of Subchapter 11.5 of these rules are part of every application. An applicant shall provide the following information, exhibits and documentation in the manner provided:

(1) An applicant shall identify all fictitious business names on Form MU1.

(A) For each fictitious business name, an applicant shall submit directly to the Commissioner a Fictitious Business Name Statement bearing the seal of the county clerk.

(C) Every applicant and licensee shall comply with the rules governing the filing of a fictitious business name set forth in Business and Professions Code Section 17900 et seq.

(2) For every additional business location, an applicant shall submit through NMLS a Uniform Mortgage Branch Office Form (Form MU3) in accordance with Section 1950.122.4.1 of Subchapter 11.5 of these rules.

(A) The named individuals shall provide authorization for, and subsequent delivery of, fingerprints to NMLS or the California Department of Justice, or both, as applicable.

(B) An applicant shall pay all fees required for the criminal history background check.

(4) An applicant shall submit through NMLS as an exhibit to Form MU1 audited financial statements with an unqualified opinion prepared by an independent certified public accountant in accordance with generally accepted accounting principles and acceptable to the Commissioner. The audited financial statements shall be prepared as of the applicant's most recent fiscal year end, or a more recent date, and must document a minimum tangible net worth of $250,000.

(5) An applicant shall submit directly to the Commissioner a Customer Authorization or Disclosure of Financial Records (Form MBL 1950.122B (Rev. 02/01), hereby incorporated by reference), and maintain a copy in the applicant's books and records as provided in Section 50314 of the Code. This authorization is effective as of the date of execution and shall remain effective until five years after the surrender or revocation of the residential mortgage lender, mortgage servicer, or residential mortgage lender and servicer license. The authorization may not be revoked.

(7) An applicant shall submit directly to the Commissioner evidence of surety bond in accordance with Section 1950.205.1 of Subchapter 11.5 of these rules.

(8) If an applicant intends to engage in any activities not specified in Items 4 and 5 of Form MU1, the applicant shall submit this information directly to the Commissioner.

(9) Business entities shall submit the following documents directly to the Commissioner:

(B) A foreign corporation shall submit an original certificate of qualification or good standing from the Secretary of State of the state of incorporation executed not more than 60 days before the filing of the application, showing that the applicant is authorized to transact business in that state.

(10) An applicant shall submit directly to the Commissioner evidence of federal agency approval for the applicant to engage in business as a lender or servicer of federally related mortgage loans, in accordance with subdivisions (l) and (p) of Section 50003 of the Code.

(11) Every applicant shall provide a registered agent for service of process in item 2(A) of Form MU1 that is located within the state of California.

(12) An applicant shall provide its website information through NMLS on Form MU1.

(13) The individual attesting to the filing of the Form MU1 must be a duly authorized individual who has submitted a Form MU2, or has been delegated to attest to the filing by an individual who has submitted a Form MU2. The attestation provided pursuant to this paragraph shall constitute an agreement to comply with the requirements of Section 50124 of the Code.

(b) FILING FEE: Pursuant to Section 50121 of the Financial Code, the application fee ($900), the investigation fee ($100) and the fingerprint processing fees ($20 per set to the Department of Corporations and additional fees for the Department of Justice) related to the fingerprint and criminal background checks, if applicable, shall be paid through NMLS for transmission to the Commissioner. The payment of fingerprint processing fees shall be filed directly with the Commissioner until such time as NMLS can accept the fee. Fees are not refundable.

(c) COMPLETION OF FILING AND ISSUANCE OF LICENSE: An application for licensure as a residential mortgage lender, mortgage servicer, or residential mortgage lender and servicer is not deemed complete until all required fees, all required submissions, and all background and investigative reports are received by the Commissioner. The filing of Form MU1 with NMLS does not constitute automatic approval of a license. The residential mortgage lender, mortgage servicer, or residential mortgage lender and mortgage servicer shall not consider the application approved until it is approved by the Commissioner and a license is issued to the applicant. In accordance with Section 50126(b), the Form MU1 application may be considered withdrawn if the Commissioner does not receive the requested information contained in the notification of a deficiency within 90 days of the notification.

(d) FILING AN AMENDMENT: In the event of a change to the information in the application, or exhibits thereto, the residential mortgage lender, mortgage servicer, or residential mortgage lender and servicer applicant or licensee shall file an amendment to the Form MU1, MU2 or MU3 through NMLS in accordance with the procedures in Section 1950.122.9 of Subchapter 11.5 of these rules. Prior to the issuance of a license, any amendment to an application shall be filed within five (5) days. Any change that cannot be reported through NMLS shall be reported directly to the Commissioner.

NOTE

Authority cited: Sections 50002, 50120 and 50304, Financial Code. Reference: Sections 17900, 17910, 17913 and 17926, Business and Professions Code; Section 1798.17, Civil Code; Section 7473, Government Code; Sections 50002, 50002.5, 50120, 50121, 50122, 50124, 50130, 50200, 50201, 50205, 50206, 50208, 50301, 50314 and 50146, Financial Code; Section 17520, Family Code; and Section 11077.1, Penal Code.

HISTORY

2. New section refiled 9-28-2010 as an emergency, including amendment of subsection (a)(5) and repealer of subsection (e); operative 9-28-2010 (Register 2010, No. 40). A Certificate of Compliance must be transmitted to OAL by 12-27-2010 or emergency language will be repealed by operation of law on the following day.

4. Certificate of Compliance as to 12-23-2010 order, including amendment of subsections (a)(3) and (a)(5), new subsection (a)(13) and amendment of Note, transmitted to OAL 3-14-2011 and filed 4-25-2011; amendments operative 5-25-2011 (Register 2011, No. 17).

§1950.122.4.1. Branch Office Instructions for Residential Mortgage Lenders, Mortgage Servicers, and Residential Mortgage Lenders and Servicers.

Note • History

(a) A residential mortgage lender, mortgage servicer, or residential mortgage lender and servicer that seeks to engage in business at an additional location must submit an application for a branch office by submitting Form MU3 (Uniform Mortgage Branch Office Form) in accordance with the instructions of NMLS for transmission to the Commissioner at least ten days (10) before engaging in business at the location.

(c) An applicant shall indicate the branch manager as a branch manager on the Form MU3 and submit to NMLS a Form MU2 (Biographical Statement & Consent Uniform Mortgage Lender/Mortgage Broker Form) for each branch manager.

(d) The Commissioner may request additional information, documentation or detail pertaining to the branch office application be filed directly with the Commissioner.

NOTE

Authority cited: Section 50304, Financial Code. Reference: Section 50124, Financial Code.

HISTORY

4. Certificate of Compliance as to 12-23-2010 order, including amendment of Note, transmitted to OAL 3-14-2011 and filed 4-25-2011; amendments operative 5-25-2011 (Register 2011, No. 17).

§1950.122.5. Mortgage Loan Originator Application Procedures.

Note • History

(a) ESTABLISHING A RELATIONSHIP IN NMLS: A licensed residential mortgage lender, mortgage servicer, or residential mortgage lender and servicer shall sponsor in NMLS each mortgage loan originator employed by it. To sponsor a mortgage loan originator, a residential mortgage lender, mortgage servicer, or residential mortgage lender and servicer applicant or licensee must:

(1) Obtain a unique identifier through NMLS,

(2) Obtain for its records, evidence that each mortgage loan originator meets the qualification requirements of Section 1950.122.5.1 of Subchapter 11.5 of these rules, and

(3) Ascertain (by investigation) the character, business reputation and experience of any individual mortgage loan originator, prior to executing any transaction on behalf of the residential mortgage lender, mortgage servicer, or residential mortgage lender and servicer. Evidence of compliance with this paragraph shall be maintained as a part of the records of the licensee as required by Section 1950.314.4 of Subchapter 11.5 of these rules.

(b) Upon the employment of an individual as a mortgage loan originator, a mortgage lender, mortgage broker, or mortgage lender and broker shall ensure that the mortgage loan originator files a Uniform Individual Mortgage License/ Registration & Consent Form (Form MU4) in NMLS for submission to the Commissioner and obtains a mortgage loan originator license. The notices set forth in Section 1950.122.8 of Subchapter 11.5 of these rules are part of every mortgage loan originator application.

(c) A mortgage loan originator sponsorship is not approved until the Commissioner approves the sponsorship and issues the mortgage loan originator a license. A sponsorship will not be approved until the sponsoring residential mortgage lender, mortgage servicer, or residential mortgage lender and servicer has obtained a license through NMLS or has transitioned its license onto NMLS in accordance with Section 1950.122.4 of Subchapter 11.5 of these rules.

(d) A mortgage loan originator applicant must complete all license requirements, including, but not limited to the payment of all required fees prior to transmitting the application to the Commissioner. The fee for an application as a mortgage loan originator is three hundred dollars ($300), which shall be paid through NMLS for transmission to the Commissioner, plus twenty dollars ($20) for the processing of a criminal history background check. The application fee shall constitute the mortgage loan originator's license fee for the remainder of the year in which a license is issued. The fees in this subsection are in addition to any fees required by NMLS, the Department of Justice, the Federal Bureau of Investigation, or any other party for the processing of criminal history background checks, credit reports, testing, education, or any other licensure requirement under the California Residential Mortgage Lending Act. As of January 1, 2011, the fee for an application as a mortgage loan originator is three hundred dollars ($300), which shall be paid through NMLS for transmission to the Commissioner, plus twenty dollars ($20) for the processing of a criminal history background check.

(f) In accordance with Section 50002.5 of the Code, a residential mortgage lender, mortgage servicer, or residential mortgage lender and servicer shall not permit a mortgage loan originator whose license or license sponsorship has lapsed, or whose license sponsorship is not in effect, to engage in activities of a mortgage loan originator unless the mortgage loan originator's license has been reinstated pursuant to the procedures set forth in Section 1950.122.5.4 of Subchapter 11.5 of these rules.

(g) A residential mortgage lender, mortgage servicer, or residential mortgage lender and servicer shall require every sponsored mortgage loan originator to file an amendment to his or her Form MU4 through NMLS within twenty (20) days of any change to the information contained in the Form MU4.

(h) A mortgage loan originator may not engage in business under any name other than a name approved by the Commissioner for use by the sponsor of the mortgage loan originator.

(i) A residential mortgage lender, mortgage servicer, or residential mortgage lender and servicer shall be responsible for the acts, practices, and conduct of its sponsored mortgage loan originator in connection with the making, brokering, servicing, or origination of residential mortgage loans until such time that the sponsorship of the mortgage loan originator is terminated through the NMLS. Termination procedures shall be as follows:

(1) A residential mortgage lender, mortgage servicer, or residential mortgage lender and servicer shall terminate the sponsorship of a mortgage loan originator through the NMLS within fifteen (15) days after the termination of an individual, and shall clearly state the reason(s) for termination.

(2) A mortgage loan originator shall terminate a relationship with a residential mortgage lender, mortgage servicer, or residential mortgage lender and servicer through the NMLS within 15 days of the termination. A mortgage loan originator may not originate loans under the authority of the California Residential Mortgage Lending Act unless he or she has a valid license and the mortgage loan originator has a sponsorship approved by the Commissioner.

(j) PROCEDURES FOR A SOLE PROPRIETOR MORTGAGE LOAN ORIGINATOR: A sole proprietor mortgage loan originator must:

(1) File Forms MU1 and MU2 (biographical information) and obtain a license as a residential mortgage lender, mortgage servicer, or residential mortgage lender and servicer, and

(2) File Form MU4 and obtain a license as a mortgage loan originator.

NOTE

Authority cited: Sections 50002, 50120 and 50304, Financial Code. Reference: Sections 17900, 17910, 17913 and 17926, Business and Professions Code; Section 1798.17, Civil Code; Section 17520, Family Code; Sections 50002, 50002.5, 50120, 50123, 50126, 50140 and 50146, Financial Code; and Section 11077.1, Penal Code.

HISTORY

2. New section refiled 9-28-2010 as an emergency, including amendment of subsection (d); operative 9-28-2010 (Register 2010, No. 40). A Certificate of Compliance must be transmitted to OAL by 12-27-2010 or emergency language will be repealed by operation of law on the following day.

3. New section refiled 12-23-2010 as an emergency, including further amendment of subsection (d); operative 12-23-2010 (Register 2010, No. 52). A Certificate of Compliance must be transmitted to OAL by 3-23-2011 or emergency language will be repealed by operation of law on the following day.

4. Certificate of Compliance as to 12-23-2010 order, including amendment of subsections (d) and (i)(2) and Note, transmitted to OAL 3-14-2011 and filed 4-25-2011; amendments operative 5-25-2011 (Register 2011, No. 17).

§1950.122.5.1. Qualifications of Mortgage Loan Originator Applicants.

Note • History

Every applicant for a mortgage loan originator license shall meet the requirements of this section.

(b) EDUCATION: Every applicant for a residential mortgage loan originator license shall complete at least 20 hours of NMLS approved education including:

(1)Three hours of instruction on federal law and regulations,

(2) Three hours of ethics, which shall include instruction on fraud, consumer protection, and fair lending issues, and

(3) Two hours of training related to lending standards for the nontraditional mortgage product marketplace.

NOTE

Authority cited: Section 50304, Financial Code. Reference: Sections 50142 and 50143, Financial Code.

HISTORY

4. Certificate of Compliance as to 12-23-2010 order transmitted to OAL 3-14-2011 and filed 4-25-2011 (Register 2011, No. 17).

§1950.122.5.2. Evidence of Financial Responsibility.

Note • History

(a) The Commissioner's finding required by subdivision (c) of Section 50141 of the California Residential Mortgage Lending Act relates to any matter, personal or professional, that may impact upon an applicant's propensity to operate honestly, fairly, and efficiently when engaging in the role of a mortgage loan originator.

(b) An applicant for a mortgage loan originator license shall authorize NMLS to obtain the applicant's current credit report. The credit report will be used as needed to validate the applicant's responses to the electronic application form, in order to support the Commissioner's finding required by subdivision (c) Section 50141 of the California Residential Mortgage Lending Act.

(c) An applicant may be precluded from obtaining a mortgage loan originator license where his or her personal history includes:

(1) Any liens or judgments for fraud, misrepresentation, dishonest dealing, and/or mishandling of trust funds, or

(2) Other liens, judgments, or financial or professional conditions that indicate a pattern of dishonesty on the part of the applicant.

NOTE

Authority cited: Sections 50140 and 50304, Financial Code. Reference: Section 50141, Financial Code.

HISTORY

4. Certificate of Compliance as to 12-23-2010 order transmitted to OAL 3-14-2011 and filed 4-25-2011 (Register 2011, No. 17).

§1950.122.5.3. Continuing Education and Renewal Procedures for Mortgage Loan Originators.

Note • History

(1) Three hours of instruction on federal law and regulations,

(2) Two hours of ethics, which shall include instruction on fraud, consumer protection and fair lending issues, and

(3) Two hours of training related to lending standards for the nontraditional mortgage product marketplace.

(c) As of January 1, 2011, to renew a license under subsection (a) of this rule, a licensed mortgage loan originator shall pay a renewal fee ($300), and comply with (b).

NOTE

Authority cited: Sections 50140 and 50304, Financial Code. Reference: Sections 50141, 50144 and 50145, Financial Code.

HISTORY

4. Certificate of Compliance as to 12-23-2010 order, including amendment of subsection (b) and Note, transmitted to OAL 3-14-2011 and filed 4-25-2011; amendments operative 5-25-2011 (Register 2011, No. 17).

§1950.122.5.4. Reinstatement of License as a Mortgage Loan Originator.

Note • History

(a) A mortgage loan originator license that has not been renewed between November 1 and December 31 is a lapsed or expired license. A mortgage loan originator with a lapsed or expired license is not authorized to continue doing business as a mortgage loan originator unless his or her license is reinstated.

(b) A mortgage loan originator may reinstate an expired license if the following conditions are met:

(1) The mortgage loan originator must submit a request for reinstatement through NMLS after December 31 and before March 1 of the year immediately following the year the license expired.

(2) All continuing education courses and any other minimum requirements for the license renewal for the year in which the license expired must be completed before March 1 following the year the license expired.

(3) The mortgage loan originator must pay the applicable license renewal fee ($300), reinstatement fee ($100), and any late fees or penalties. As of January 1, 2011, the mortgage loan originator must pay the applicable licensing fee ($300), reinstatement fee ($100), and any late fees or penalties.

(4) The mortgage loan originator must continue to meet minimum standards for renewal in Section 50141 of the Code.

NOTE

Authority cited: Sections 50002 and 50304, Financial Code. Reference: Sections 50140, 50141, 50142, 50143, 50144, 50145 and 50146, Financial Code.

HISTORY

4. Certificate of Compliance as to 12-23-2010 order, including amendment of subsection (b)(3) and Note, transmitted to OAL 3-14-2011 and filed 4-25-2011; amendments operative 5-25-2011 (Register 2011, No. 17).

§1950.122.6. Supervision of Mortgage Loan Originators.

Note • History

(a) Every residential mortgage lender, mortgage servicer, or residential mortgage lender and servicer shall exercise diligent supervision over the mortgage loan origination, lending and servicing activities of every mortgage loan originator that it sponsors.

(b) Every mortgage loan originator employed by a residential mortgage lender, mortgage servicer, or residential mortgage lender and servicer shall be subject to the supervision of a branch manager designated by such residential mortgage lender, mortgage servicer, or residential mortgage lender and servicer. Every branch manager shall be identified on Form MU3 and shall submit a Form MU2 to NMLS.

(c) Every residential mortgage lender, mortgage servicer, or residential mortgage lender and servicer that sponsored a mortgage loan originator shall establish, maintain, and enforce written procedures, a copy of which shall be kept in each business office, that set forth the procedures adopted by the residential mortgage lender, mortgage servicer, or residential mortgage lender and servicer to comply with the duties imposed by this section.

(d) Every residential mortgage lender, mortgage servicer, and residential mortgage lender and servicer shall designate a Supervisor, an individual, who shall:

(1) Supervise and periodically review the activities of the branch managers designated pursuant to subsection (b) of this section; and

(2) Periodically inspect each business office of the residential mortgage lender, mortgage servicer, or residential mortgage lender and servicer to ensure that the written procedures are enforced.

(3) In the event a residential mortgage lender, mortgage servicer, and residential mortgage lender and servicer does not have any branches offices, the supervisor shall directly supervise and review the activities of the mortgage loan originators.

(e) The supervisor shall be identified on Form MU1 as a qualifying individual and shall submit a Form MU2. For purposes of this section, a qualifying individual is a person in charge and responsible for the actions of the mortgage lender, mortgage broker, and mortgage lender and broker.

NOTE

Authority cited: Sections 50002 and 50304, Financial Code. Reference: Sections 50002.5, 50124, 50128 and 50141, Financial Code.

HISTORY

2. Editorial correction of History 1 (Register 2010, No. 40).

5. Certificate of Compliance as to 12-23-2010 order, including amendment of subsections (c), (d)(3) and (e) and Note, transmitted to OAL 3-14-2011 and filed 4-25-2011; amendments operative 5-25-2011 (Register 2011, No. 17).

§1950.122.7. Statement of Citizenship, Alienage, and Immigration Status.

Note • History

Any individual (e.g. sole proprietor or mortgage loan originator) who is applying for any license under the California Residential Mortgage Lending Act shall file the Statement of Citizenship, Alienage, and Immigration Status and any accompanying documentation directly with the Commissioner in accordance with Sections 250.60 and 250.61 of Article 5 of Subchapter 1 of these rules.

NOTE

Authority cited: Section 50304, Financial Code. Reference: Sections 50122, 50130 and 50140, Financial Code; and 8 U.S.C. Sections 1621, 1641 and 1642.

HISTORY

4. Certificate of Compliance as to 12-23-2010 order, including amendment of Note, transmitted to OAL 3-14-2011 and filed 4-25-2011; amendments operative 5-25-2011 (Register 2011, No. 17).

§1950.122.8. Notices Included with Applications.

Note • History

The following notices required by state and federal law are hereby provided for those completing an application for a residential mortgage lender, mortgage servicer, or residential mortgage lender and mortgage servicer license in Section 1950.122.4 of Subchapter 11.5 of these rules, and an application for a mortgage loan originator license in Section 1950.122.5 of Subchapter 11.5 of these rules:

NOTICES REQUIRED UNDER STATE AND FEDERAL LAW

INFORMATION PRACTICES ACT OF 1977

(California Civil Code Section 1798.17)

(a) The Department of Corporations of the State of California is requesting the information specified in the application for licensure of residential mortgage lenders, mortgage servicers, residential mortgage lender and mortgage servicers, and mortgage loan originators.

(c) The records are maintained pursuant to the California Residential Mortgage Lending Act (Financial Code Section 50000, et seq.).

(e) Failure to provide all or any part of the information requested may preclude the Department of Corporations from approving the application.

(g) Any known or foreseeable disclosures of the information pursuant to subdivision (e) or (f) of Civil Code Section 1798.24 may include transfers to other federal, state, or local law enforcement and regulatory agencies, including NMLS as a channeling agent to, from, or on behalf of those federal, state, and local law enforcement and regulatory agencies, as authorized by law.

(h) Except for Section 50151 of the Financial Code, the Information Practices Act grants an individual a right of access to personal information concerning the requesting individual that is maintained by the Department of Corporations.

FEDERAL PRIVACY ACT OF 1974 (Public Law 93-579)

In accordance with Section 7 of the Privacy Act of 1974 (found at 5 U.S.C. §552a note (Disclosure of Social Security Number)), the following is information on whether the disclosure of a social security account number is voluntary or mandatory, by what statutory or other authority such number is solicited, and what uses will be made of it.

(2) A social security account number is solicited pursuant to one or more of the following authorities: Sections 1950.122 of Title 10, California Code of Regulations; and Section 17520 of the Family Code.

(3) For all persons disclosing a social security account number, the number may be used, in addition to other information provided, to conduct a background investigation of the individual by the Department of Justice's Identification and Information Branch or by other federal, state or local law enforcement agencies, as authorized by law. The social security number may also be used to respond to requests for this number made by child support agencies.

NOTE

Authority cited: Section 50304, Financial Code. Reference: Section 1798.17, Civil Code; Sections 50002, 50003, 50120, 50121, 50122, 50124, 50130, 50140, 50146 and 50151, Financial Code; Section 17520, Family Code; Sections 7470, 7473, 7490 and 13140-13144, Government Code; and Section 7 of Public Law 93-579 (5 U.S.C. Section 552a note).

HISTORY

§1950.122.9. Notice of Changes by Residential Mortgage Lender, Mortgage Lender Servicer, Residential Mortgage Lender and Servicer, and Mortgage Loan Originator.

Note • History

(a) Each licensed residential mortgage lender, mortgage servicer, residential mortgage lender and servicer, or mortgage loan originator shall, upon any change in the information contained in its application for license (other than financial information contained therein), promptly file an amendment to such application setting forth the changed information.

(b) A residential mortgage lender, mortgage servicer, and residential mortgage lender and servicer shall file changed information contained in its Forms MU1, MU2, and MU3, and any exhibits thereto, through NMLS in accordance with its procedures for transmission to the Commissioner. Any change that cannot be submitted through NMLS shall be filed directly with the Commissioner.

(c) A mortgage loan originator shall file changed information contained in its Form MU4, and any exhibits thereto, through NMLS in accordance with its procedures for transmission to the Commissioner within twenty (20) days of changes to the information. Any change that cannot be submitted through NMLS shall be filed directly with the Commissioner. A mortgage loan originator may not renew his or her license under Section 1950.122.5.3 of Subchapter 11.5 of these rules until all changes to the information contained in his or her Form MU4 are filed with the Commissioner as provided in this section.

(d) A licensed residential mortgage lender, mortgage servicer, and residential mortgage lender and servicer shall notify the Commissioner of the employment of any new mortgage loan originator in California and of the termination of employment of any mortgage loan originator in California in accordance with Section 1950.122.5 of Subchapter 11.5 of these rules.

(e) If a residential mortgage lender, mortgage servicer, or residential mortgage lender and servicer discovers that a sponsored mortgage loan originator has not filed an amendment to his or her Form MU4, the residential mortgage lender, mortgage servicer, or residential mortgage lender and servicer shall require the mortgage loan originator to file the amendment immediately. If, within five (5) days from the demand, the mortgage loan originator has not made the changes, the residential mortgage lender, mortgage servicer, or residential mortgage lender and servicer shall inform the Commissioner in writing.

NOTE

Authority cited: Sections 50120, 50130, 50140 and 50304, Financial Code. Reference: Section 1798.18, Civil Code; and Sections 50124, 50126 and 50146, Financial Code.

HISTORY

2. Editorial correction of History 1 (Register 2010, No. 40).

5. Certificate of Compliance as to 12-23-2010 order, including amendment of subsection (e) and Note, transmitted to OAL 3-14-2011 and filed 4-25-2011; amendments operative 5-25-2011 (Register 2011, No. 17).

§1950.122.10. Effectiveness of Residential Mortgage Lender, Mortgage Servicer, Residential Mortgage Lender and Servicer, and Mortgage Loan Originator Licenses.

Note • History

(a) A license as a residential mortgage lender, mortgage servicer or residential mortgage lender and servicer under Section 50002 of the Code continues in effect until it is revoked, terminated, or suspended by the Commissioner, or surrendered by the residential mortgage lender, mortgage servicer, or residential mortgage lender and servicer and the surrender has been accepted by the Commissioner pursuant to Section 50123 of the Code.

(b) A license as a mortgage loan originator under Section 50140 of the Code shall be renewed on an annual basis in accordance with Section 1950.122.5.3 of Subchapter 11.5 of these rules. The license shall be in effect for the calendar year unless revoked, suspended, or surrendered.

NOTE

Authority cited: Sections 50002 and 50304, Financial Code. Reference: Sections 50002, 50123 and 50140, Financial Code.

HISTORY

4. Certificate of Compliance as to 12-23-2010 order, including amendment of section, transmitted to OAL 3-14-2011 and filed 4-25-2011; amendments operative 5-25-2011 (Register 2011, No. 17).

§1950.122.11. Challenge Process for Information Entered into NMLS.

Note • History

(a) If an applicant or licensee disputes the accuracy or completeness of any material information entered into and maintained by NMLS, the applicant or licensee may submit a written request to the Commissioner to the attention of the Special Administrator, California Residential Mortgage Lending Act, Department of Corporations, 320 West 4th Street, Suite 750, Los Angeles, CA 90013-2344.

(c) Upon receipt of the request, the Commissioner shall investigate the request, along with any information provided, and determine if the information entered into NMLS is correctly reflected.

(d) If the Commissioner determines that the information is materially incorrect, the Commissioner shall request that the NMLS record be corrected.

(e) If the Commissioner denies the allegations of material inaccuracy or incompleteness in the NMLS record, the Commissioner shall notify the licensee or applicant in writing.

(g) If a material inaccuracy or incompleteness is found in any record, within 30 days of notice of the finding the Commissioner shall request that NMLS correct the information.

(h) Judicial review of the decision shall be governed by Section 11523 of the Government Code.

NOTE

Authority cited: Sections 50146 and 50304, Financial Code. Reference: Section 50150, Financial Code.

HISTORY

4. Certificate of Compliance as to 12-23-2010 order, including amendment of section heading, transmitted to OAL 3-14-2011 and filed 4-25-2011; amendments operative 5-25-2011 (Register 2011, No. 17).

§1950.122.12. Share Arrangements with Other Governmental Agencies.

Note • History

For purposes of subdivisions (c) and (d) of Section 50150 and Section 50151 of the Code, the Commissioner is authorized to share any information or material that has been submitted to the NMLS to any governmental agency, including but not limited to, the California Attorney General, the California Department of Justice, the U.S. Department of Justice, the U.S. Department of Housing and Urban Development, including the Federal Housing Administration, the Federal Consumer Financial Protection Bureau, the Federal Bureau of Investigation, state, local, or federal regulatory agencies, state attorneys general, and county district attorney's offices. The information or material that is shared with a governmental agency shall be accomplished without the loss of privilege or the loss of confidentiality protections provided by law.

NOTE

Authority cited: Section 50304, Financial Code. Reference: Section 1798.24, Civil Code; and Sections 50150, 50151 and 50152, Financial Code.

HISTORY

4. Certificate of Compliance as to 12-23-2010 order, including amendment of section heading, section and Note, transmitted to OAL 3-14-2011 and filed 4-25-2011; amendments operative 5-25-2011 (Register 2011, No. 17).

§1950.122.15. Request for Confidential Treatment.

Note • History

A residential mortgage lender, mortgage servicer, residential mortgage lender and servicer, and mortgage loan originator applicant may request that certain documents, or parts thereof, be treated confidentially. A request for confidentiality shall be in writing and made pursuant to Section 250.10 of Article 1 of Subchapter 1 of these rules. If a request for confidential treatment is granted or denied, the person making such request will be notified in writing.

NOTE

Authority cited: Section 50304, Financial Code. Reference: Section 1798.24, Civil Code; and Sections 50151 and 50152, Financial Code.

HISTORY

1. New section filed 4-25-2011; operative 5-25-2011 (Register 2011, No. 17).

Article 3. Surrender of License

§1950.123. Surrender of License as a Residential Mortgage Lender, Mortgage Servicer, Residential Mortgage Lender and Servicer, or Mortgage Loan Originator.

Note • History

(a) An application to surrender a license as a residential mortgage lender, mortgage servicer, residential mortgage lender and servicer, or mortgage loan originator shall be filed on Form(s) MU1, MU2, MU3, or MU4 through NMLS in accordance with its procedures for transmission to the Commissioner. A licensee shall amend every branch office application Form MU3 and terminate the sponsorship of all mortgage loan originators.

(b) Prior to surrendering its license, a residential mortgage lender, mortgage servicer, or residential mortgage lender and servicer must file a plan for approval by the Commissioner. The plan shall contain the licensee's detailed proposal for the orderly closing out of its residential mortgage lending or residential mortgage loan servicing business. At a minimum, the plan shall contain the following:

(1) A detailed description of the plan to process to completion any loan applications pending that were received before the decision to surrender the license was made. In the alternative, the plan may describe the process for cancellation or completion of the loan by another licensee or exempt person.

(2) A detailed description of the plan to transfer the licensee's existing servicing portfolio, including the time frame within which the transfer will be completed.

(3) The time frame required for payout to the lender of all payments received from the borrowers, or the time frame required for transfer of payments received to another servicing licensee or exempt person.

NOTE

Authority cited: Section 50304, Financial Code. Reference: Section 50123, Financial Code.

HISTORY

1. New article 3 (section 1950.123) and section filed 11-25-96; operative 12-25-96 (Register 96, No. 48).

2. Amendment of section heading and section filed 4-1-2010 as an emergency; operative 4-1-2010 (Register 2010, No. 14). A Certificate of Compliance must be transmitted to OAL by 9-28-2010 or emergency language will be repealed by operation of law on the following day.

3. Amendment of section heading and section refiled 9-28-2010 as an emergency; operative 9-28-2010 (Register 2010, No. 40). A Certificate of Compliance must be transmitted to OAL by 12-27-2010 or emergency language will be repealed by operation of law on the following day.

4. Amendment of section heading and section refiled 12-23-2010 as an emergency; operative 12-23-2010 (Register 2010, No. 52). A Certificate of Compliance must be transmitted to OAL by 3-23-2011 or emergency language will be repealed by operation of law on the following day.

5. Certificate of Compliance as to 12-23-2010 order, including amendment of subsection (b)(1), transmitted to OAL 3-14-2011 and filed 4-25-2011; amendments operative 5-25-2011 (Register 2011, No. 17).

Article 4. Audit Reports

§1950.200. Preparation of Independent Audit Report.

Note • History

These instructions have been prepared as an aid to licensees and their independent certified public accountants in the preparation of the audit report to be filed with the Department pursuant to Section 50200 of the California Residential Mortgage Lending Act [Division 20 (commencing with Section 50000), Financial Code.]

A. In General.

This report should be filed with the office of the Department with which the residential mortgage lender or residential mortgage loan servicer ordinarily transacts its business within 105 days of the end of the licensee's fiscal year.

B. Internal Control

The independent certified public accountant must provide a description of the system of internal control used by the residential mortgage lender or residential mortgage loan servicer, including material weaknesses in internal accounting controls, recommendations for improvements, and comments concerning corrective actions taken or in process.

C. The independent certified public accountant's opinion, the Statement of Financial Position, the Statement of Income and the Statement of Cash Flows, including any footnotes that are an integral part of those statements, are public records except as provided in Section 250.10, Title 10, California Code of Regulations. Other information required in the report will be considered confidential information and should be submitted as a separate report or in such a manner as to be easily separated from the Statement of Financial Position, Statement of Income and the Statement of Cash Flows.

NOTE

Authority cited: Section 50304, Financial Code. Reference: Section 50200, Financial Code.

HISTORY

1. New article 4 (section 1950.200) and section filed 11-25-96; operative 12-25-96 (Register 96, No. 48).

Article 5. Borrowers and Advertising

§1950.204. Copies of Signed Documents.

Note • History

The applicant or borrower shall be provided a copy of the loan documents. Forms furnished for application by mail should be accompanied by a clear and conspicuous statement, or separate statement or notice, declaring that it is the responsibility of the applicant or borrower to obtain machine copies before mailing the signed documents back to the licensee.

NOTE

Authority cited: Section 50304, Financial Code. Reference: Section 50204, Financial Code.

HISTORY

1. New article 5 (sections 1950.204-1950.204.4) and section filed 11-25-96; operative 12-25-96 (Register 96, No. 48).

§1950.204.1. Changes Affecting Loans in Process.

Note • History

(a) If it is determined that an applicant does not qualify for the loan amount, terms or program for which he or she applied, and the costs of another program (if another program is presented or requested) would materially differ from the costs itemized on the Good Faith Estimate, then the licensee shall provide to the applicant, within a reasonable time, a written explanation of the presented or requested program for which the applicant may be qualified. Such explanation shall include but not be limited to detailed information on costs to the applicant or borrower.

(b) When any notice is received from a secondary market underwriter, an investor, the Federal Housing Administration or the Veteran's Administration which materially affects a loan in process, the licensee processing the loan application shall so notify the applicant in writing upon receipt of such notice. Examples include but are not limited to future or immediate change of rules or requirements, discontinuation of a specific loan program, or failure by the applicant to qualify.

NOTE

Authority cited: Section 50304, Financial Code. Reference: Section 50204, Financial Code.

HISTORY

1. New section filed 11-25-96; operative 12-25-96 (Register 96, No. 48).

§1950.204.2. Charges to Seller.

Note • History

(a) Except for FHA-insured or VA-guaranteed residential mortgage loans, no licensee shall:

(1) Impose any charges upon a seller under a borrower's purchase contract; or

(2) Impose any charges on the seller, pursuant to another agreement or loan commitment, unless specifically authorized in writing by that seller to do so.

(b) For purposes of this Section, “seller” refers to the vendor of real estate which is the subject of the residential mortgage loan.

NOTE

Authority cited: Section 50304, Financial Code. Reference: Sections 50204, Financial Code.

HISTORY

1. New section filed 11-25-96; operative 12-25-96 (Register 96, No. 48).

§1950.204.3. Prohibited Advertising.

Note • History

(a) A residential mortgage lender, mortgage servicer, residential mortgage lender and servicer, or mortgage loan originator shall not advertise that it or any of its officers, employees, or agents are “bonded,” “supervised by,” “regulated by,” “audited by” or “examined by” the State of California or any agency thereof.

(b) A residential mortgage lender, mortgage servicer, residential mortgage lender and servicer, or mortgage loan originator shall refer to its licensure under the Act in any written or printed communication or any communication by means of recorded telephone messages, telephonic or electronic media, or spoken on radio, television or similar communications media, only by the following statement: “Licensed by the Department of Corporations under the California Residential Mortgage Lending Act.”

NOTE

Authority cited: Section 50304, Financial Code. Reference: Section 50204, Financial Code.

HISTORY

1. New section filed 11-25-96; operative 12-25-96 (Register 96, No. 48).

2. Amendment filed 4-1-2010 as an emergency; operative 7-31-2010 (Register 2010, No. 14). A Certificate of Compliance must be transmitted to OAL by 9-28-2010 or emergency language will be repealed by operation of law on the following day.

3. Editorial correction of History 2 (Register 2010, No. 40).

4. Amendment refiled 9-28-2010 as an emergency, including repealer of subsection (c); operative 9-28-2010 (Register 2010, No. 40). A Certificate of Compliance must be transmitted to OAL by 12-27-2010 or emergency language will be repealed by operation of law on the following day.

5. Amendment refiled 12-23-2010 as an emergency; operative 12-23-2010 (Register 2010, No. 52). A Certificate of Compliance must be transmitted to OAL by 3-23-2011 or emergency language will be repealed by operation of law on the following day.

6. Certificate of Compliance as to 12-23-2010 order transmitted to OAL 3-14-2011 and filed 4-25-2011 (Register 2011, No. 17).

§1950.204.4. “Blind” Advertising Prohibited.

Note • History

A residential mortgage lender, residential mortgage lender and servicer, mortgage servicer, or mortgage loan originator shall not use “blind” advertisements. “Blind” advertising is an advertisement used to solicit business that gives only a telephone number, post office or newspaper box number, or name other than that of the licensee.

NOTE

Authority cited: Section 50304, Financial Code. Reference: Sections 50308 and 50314, Financial Code.

HISTORY

1. New section filed 11-25-96; operative 12-25-96 (Register 96, No. 48).

3. Editorial correction of History 2 (Register 2010, No. 40).

4. Amendment refiled 9-28-2010 as an emergency, including further amendments; operative 9-28-2010 (Register 2010, No. 40). A Certificate of Compliance must be transmitted to OAL by 12-27-2010 or emergency language will be repealed by operation of law on the following day.

6. Certificate of Compliance as to 12-23-2010 order transmitted to OAL 3-14-2011 and filed 4-25-2011 (Register 2011, No. 17).

Article 6. Bonding

§1950.205. Bond Cancellation and Claims.

Note • History

(a) The bond issued pursuant to Section 50205 of the Code shall contain a provision that the bond shall not be cancelled in whole or in part without 30 days notice to the Commissioner by the bonding or insurance company.

(b) The bond issued pursuant to Section 50205 of the Code shall also provide that the bonding or insurance company issuing the bond provide notice to the Commissioner within 10 days of service of any action against the bond and immediately upon payment of any claims.

NOTE

Authority cited: Section 50304, Financial Code. Reference: Section 50205, Financial Code.

HISTORY

1. New article 6 (section 1950.205) and section filed 11-25-96; operative 12-25-96 (Register 96, No. 48).

§1950.205.1. Surety Bond.

Note • History

Every licensee shall maintain a surety bond in accordance with Section 50205 of the Financial Code as follows:

(a) A residential mortgage lender, mortgage servicer, or residential mortgage lender and servicer that does not employ one or more mortgage loan originators shall post a surety bond in the amount of $50,000. The amount may be increased by order of the Commissioner upon a determination by the Commissioner that the licensee is not in compliance with any law, rule, or order.

(b) A residential mortgage lender, mortgage servicer, or residential mortgage lender and servicer that employs one or more mortgage loan originators shall post a surety bond based on the dollar amount of residential mortgage loans originated or serviced, or both, by that licensee and its mortgage loan originator employees in the preceding year, as follows:

Aggregate Loans Bond Amount

0 - $50,000,000 $ 50,000

$50,000,001 - $500,000,000 $100,000

Over $500,000,001 $200,000

(c) A residential mortgage lender, mortgage servicer, or residential mortgage lender and servicer applicant without a prior year operating history shall make a good faith estimate of the aggregate amount of loans anticipated to be originated in the upcoming year to determine the amount of the surety bond.

NOTE

Authority cited: Section 50304, Financial Code. Reference: Section 50205, Financial Code.

HISTORY

2. Editorial correction of History 1 (Register 2010, No. 40).

3. New section refiled 9-28-2010 as an emergency, including repealer of subsection (d); operative 9-28-2010 (Register 2010, No. 40). A Certificate of Compliance must be transmitted to OAL by 12-27-2010 or emergency language will be repealed by operation of law on the following day.

5. Certificate of Compliance as to 12-23-2010 order transmitted to OAL 3-14-2011 and filed 4-25-2011 (Register 2011, No. 17).

Article 7. Application for Change of Control

§1950.206. Application for Authorization for a Change of Control Under the California Residential Mortgage Lending Act.

Note • History

The application for authorization for a change of control shall be made on the following form:

(Department of Corporations Use Only) DEPARTMENT OF CORPORATIONS

Fee Paid $

File No.

Receipt No.

STATE OF CALIFORNIA

DEPARTMENT OF CORPORATION

FACING PAGE

FOR

APPLICATION FOR AUTHORIZATION FOR A CHANGE OF CONTROL

UNDER THE

CALIFORNIA RESIDENTIAL MORTGAGE LENDING ACT

PRE-AUTHORIZATION AMENDMENT NO. ____________________

The Application for Authorization for a Change of Control MUST be TYPEWRITTEN and accompanied by an investigation fee of $100 and the fingerprint processing fees (Departments of Corporations and Justice), if applicable. These fees are payable to the Commissioner of Corporations. The application must be filed only in the Los Angeles office of the Department of Corporations located at 320 West 4th Street, Suite 750, Los Angeles, California 90013-1105. [Financial Code Sections 50121, 50126 and 50206.]

Special Instructions: An Application for Authorization for a Change of Control under the California Residential Mortgage Lending Act shall include (1) this completed Facing Page, (2) the completed and revised applicable pages of the Application for a License Under the California Residential Mortgage Lending Act (but not the Facing Page for that application) with information contained therein necessary to enable the Commissioner of Corporations to make a finding required by Financial Code Sections 50121 and 50206(b) and attached to this completed Facing Page, and (3) the duly executed and verified Execution Page for this application. (A blank Execution Page may be found at the end of the Application for a License.) The applicant should also review the Special Instructions for the Application for a License for instructions on filing pre-authorization amendments to this application.

In pursuance of, and in compliance with, the provisions of the California Residential Mortgage Lending Act, the licensee, ___________________________, with its principal office located at:

(Number and Street) (City) (State) (Zip Code)

hereby applies to the Commissioner of Corporations for authorization for a change of control.

1. a. Date of Organization:

b. State of Organization:

[The application continues on the following, separate pages.]

NOTE

Authority cited: Section 50304, Financial Code. Reference: Sections 50121, 50126 and 50206, Financial Code.

HISTORY

1. New article 7 (section 1950.206) and section filed 11-25-96; operative 12-25-96 (Register 96, No. 48).

2. Change without regulatory effect amending form filed 5-24-99 pursuant to section 100, title 1, California Code of Regulations (Register 99, No. 22).

§1950.209. Forms.

Note • History

(a) The unique identifier of a licensed mortgage loan originator shall be clearly shown on all residential mortgage loan application forms.

(b) The unique identifier of a licensed mortgage loan originator shall be clearly shown on any advertising, solicitations, including business cards or Internet Web sites, whether in paper, electronic, or any other format, which directly identifies the mortgage loan originator.

NOTE

Authority cited: Sections 50146 and 50304, Financial Code. Reference: Section 50209, Financial Code.

HISTORY

2. Editorial correction of History 1 (Register 2010, No. 40).

5. Certificate of Compliance as to 12-23-2010 order, including amendment of subsection (a), new subsection (b) and amendment of Note, transmitted to OAL 3-14-2011 and filed 4-25-2011; amendments operative 5-25-2011 (Register 2011, No. 17).

Article 8. Employees

§1950.301. Fingerprinting of Certain Employees.

Note • History

(a) If a licensee suffers a loss of trust funds as a result of the actions of an employee, as defined by subsection (b) of Rule 1950.122.2, and that employee is or was an individual prohibited from employment with a licensee under Section 50317(a) of the Code, then the Department, at the discretion of the Commissioner, may undertake to obtain a (1) Statement of Identity and Questionnaire, or similar report, including but not limited to the Form MU2, (2) notice under Rule 1950.122.2, and (3) fingerprints of all other such employees for the purpose of determining whether other prohibited individuals have been so employed by the licensee.

(b) A licensee shall cooperate fully with the Department in complying with the requirement of subsection (a).

NOTE

Authority cited: Section 50304, Financial Code. Reference: Sections 50140 and 50317, Financial Code.

HISTORY

1. New article 8 (section 1950.301) and section filed 11-25-96; operative 12-25-96 (Register 96, No. 48).

2. Amendment of subsection (a) and Note filed 4-1-2010 as an emergency; operative 4-1-2010 (Register 2010, No. 14). A Certificate of Compliance must be transmitted to OAL by 9-28-2010 or emergency language will be repealed by operation of law on the following day.

3. Amendment of subsection (a) and Note refiled 9-28-2010 as an emergency; operative 9-28-2010 (Register 2010, No. 40). A Certificate of Compliance must be transmitted to OAL by 12-27-2010 or emergency language will be repealed by operation of law on the following day.

4. Amendment of subsection (a) and Note refiled 12-23-2010 as an emergency; operative 12-23-2010 (Register 2010, No. 52). A Certificate of Compliance must be transmitted to OAL by 3-23-2011 or emergency language will be repealed by operation of law on the following day.

5. Certificate of Compliance as to 12-23-2010 order transmitted to OAL 3-14-2011 and filed 4-25-2011 (Register 2011, No. 17).

Article 9. Books and Records

§1950.302. Examination by Commissioner.

Note • History

The Commissioner may consider the following factors in determining how often an examination required under subdivision (a) of Section 50302 of the Financial Code shall be conducted:

(a) Past and current violations of the California Residential Mortgage Lending Act and the regulations promulgated thereunder, taking into consideration the nature and severity of the violations and the number of violations.

(b) The number of years the licensee has been licensed under the California Residential Mortgage Lending Act.

NOTE

Authority cited: Section 50304, Financial Code. Reference: Section 50302, Financial Code.

HISTORY

3. Certificate of Compliance as to 4-29-2002 order transmitted to OAL 7-9-2002 and filed 8-20-2002 (Register 2002, No. 34).

§1950.307. Annual Report and Mortgage Call Report.

Note • History

(a) In addition to the annual report required under Section 50307 of the Code, a residential mortgage lender, mortgage servicer, or residential mortgage lender and servicer, shall file the NMLS Mortgage Call Report required to be filed pursuant to Section 50307.2 of the Code with NMLS for transmission to the Commissioner.

(b) Every mortgage loan originator shall ensure that all residential mortgage loans that close as a result of his or her loan origination activities are included in the mortgage call reports submitted to NMLS or the Commissioner by his or her sponsoring residential mortgage lender, mortgage servicer, or residential mortgage lender and servicer.

NOTE

Authority cited: Sections 50146 and 50304, Financial Code. Reference: Sections 50307 and 50307.2, Financial Code.

HISTORY

4. Certificate of Compliance as to 12-23-2010 order transmitted to OAL 3-14-2011 and filed 4-25-2011 (Register 2011, No. 17).

§1950.314. Books and Records: Standard for Keeping.

Note • History

In lieu of the requirements set forth in Sections 1950.314.1 and 1950.314.2 of these rules, a residential mortgage lender, residential mortgage lender and servicer, or residential mortgage loan servicer may maintain its trust account records, books, and other loan records pursuant to the requirements of the Federal Housing Administration, Veterans Administration, Farmers Home Administration, Government National Mortgage Association, Federal National Mortgage Association, or Federal Home Loan Mortgage Corporation, as applicable, or requirements of any other institutional investor to whom loans have been or will be sold, or on whose behalf loans are or will be serviced; provided the institutional investor does all of the following: (1) requires monthly reconciliations of trust account balances; (2) requires annual audited financial statements prepared by an independent certified public accountant in accordance with generally accepted accounting principles; and (3) maintains a contractual right to audit the trust accounts held by the licensee.

NOTE

Authority cited: Section 50304, Financial Code. Reference: Sections 50124, 50301 and 50314, Financial Code.

HISTORY

1. New article 9 (sections 1950.314-1950.314.7) and section filed 11-25-96; operative 12-25-96 (Register 96, No. 48).

§1950.314.1. Trust Account Books.

Note • History

(a) A residential mortgage lender, residential mortgage lender and servicer, or residential mortgage loan servicer shall establish, and maintain current, the following books with reference to its trust accounts:

(1) A trust account ledger card for each account detailing receipts and disbursement of all funds deposited by the borrower, lender or seller with the licensee in connection with the origination, closing or servicing of any mortgage loan. The funds shall be held in accordance with the terms of a written agreement between the licensee and such borrower, lender or seller which provides that upon the occurrence of a specific condition or event, the funds or a portion thereof shall be disbursed to the borrower, lender or seller.

(2) Liability controlling account;

(3) Cash receipt and disbursement journal or a file containing copies of all receipts and checks and/or check stubs of checks issued by the residential mortgage lender or residential mortgage loan servicer as a medium of posting to the records referred to in subsections (a) and (b) in which case adding machine tapes of totals of receipts and checks shall be retained.

(b) The records referred to in subsections (a)(1) and (2) shall be reconciled at least once each month with the bank statements of the trust account. The records referred to in subsection (a)(1) shall be reconciled at least once each week with the liability controlling account referred to in subsection (a)(2).

(c) Maintenance of records in accordance with generally accepted accounting principles on microfilm, microfiche, or electronic data processing and retrieval systems shall be deemed to be in compliance with the requirements of this section.

NOTE

Authority cited: Section 50304, Financial Code. Reference: Sections 50301 and 50314, Financial Code.

HISTORY

1. New section filed 11-25-96; operative 12-25-96 (Register 96, No. 48).

§1950.314.2. General Books.

Note • History

(1) General ledger reflecting the assets, liabilities, capital, income and expense of the business, in accordance with generally accepted accounting principles;

(2) Cash receipt and disbursement journal.

The bank accounts contained in the general ledger shall be reconciled at least once each month with the bank statements of the general accounts.

(b) Maintenance of records in accordance with generally accepted accounting principles on microfilm, microfiche, or electronic data processing and retrieval systems shall be deemed to be in compliance with the requirements of this section.

NOTE

Authority cited: Section 50304, Financial Code. Reference: Sections 50301 and 50314, Financial Code.

HISTORY

1. New section filed 11-25-96; operative 12-25-96 (Register 96, No. 48).

§1950.314.3. Books and Records: Location and Office Hours.

Note • History

A residential mortgage lender, residential mortgage lender and servicer, or residential mortgage loan servicer shall keep the Commissioner promptly advised at all times of the address or addresses at which the books and records are maintained and, if the office or location hours at the place where the books and records are maintained are other than 8 a.m. to 5 p.m., Monday through Friday, the hours and days during which the books and records may be reviewed.

NOTE

Authority cited: Section 50304, Financial Code. Reference: Sections 50301 and 50314, Financial Code.

HISTORY

1. New section filed 11-25-96; operative 12-25-96 (Register 96, No. 48).

§1950.314.4. Books and Records.

Note • History

(a) Each licensee shall maintain a loan log which shall be kept current according to the record maintenance procedures of the licensee and shall be produced for examination by the Commissioner. Any report which the licensee generates may be substituted for the loan log. At a minimum, the loan log or its substitute shall contain the following with respect to each loan application received during the previous 36 months:

(1) Application Date;

(2) Borrower Name;

(3) Property Address;

(4) Loan Amount;

(5) Terms, Loan Program;

(6) Loan Officer; and

(7) If closed, disposition of the loan and servicing.

(b) Each licensee shall maintain for each mortgage loan application the following data, if utilized by the licensee in connection with the mortgage loan application, for 36 months from the date of final entry:

(1) Loan Application;

(2) Loan Commitment;

(3) Truth-in-Lending Disclosure Statement;

(4) Loan Closing Statement;

(5) Copy of Note and Deed of Trust;

(6) Adverse Action or Rejection of Application Letter;

(7) Appraisal Report;

(8) Credit Report.

(c) The following books and records are to be retained by the residential mortgage lender, residential mortgage lender and servicer, or residential mortgage loan servicer:

(1) Ledger cards or electronic ledger entries which have a balance remaining.

(2) For all loans with a remaining balance:

(A) All documents signed by the customer, including but not limited to the initial loan application, disclosure documents and closing documents.

(B) The appraisal and credit report as well as all other third party documents relating to the loan; and

(d) The following books and records shall be retained by the residential mortgage lender, residential mortgage lender and servicer, or residential mortgage loan servicer for a minimum of 36 months from the date of final entry:

(1) General ledger and expense ledger.

(2) Journals, including the general journal and cash journal or other records of cash receipts and disbursements.

(3) Monthly financial reports.

(4) Borrowers' ledger cards which were reduced to a zero balance.

(5) For loans which have been closed:

(A) The original initial loan application;

(B) Copies of all documents signed by the customer, including but not limited to the disclosure documents and closing documents;

(D) The escrow instructions and the closing statement issued by an independent escrow holder on a residential mortgage loan in which the proceeds of that loan were disbursed to that escrow holder.

(E) All other documents in or related to the loan file.

(e) The records specified in subsections (a), (b), (c) and (d) shall be maintained in a form (which may include electronic and other data storage technology) accessible to the inspection of the Commissioner within ten (10) calendar days after notice and in a form which permits the production of transcripts readily and economically.

(f) Bank statements shall be retained for a minimum of thirty-six (36) months after the date of posting to the bank statement, except as authorized in writing by the Commissioner.

(g) Other records, except daily data processing printouts, shall be maintained in accordance with subsections (c) and (d), unless an earlier destruction date is authorized in writing by the Commissioner.

(h) Upon a showing of good cause, the Commissioner may direct a residential mortgage lender, residential mortgage lender and servicer, or residential mortgage loan servicer to maintain certain records for periods in addition to those prescribed in this section.

(i) Secondary Market Information. If a licensee sells, assigns or purchases any loans or any servicing of loans, the licensee shall retain the following documents for 36 months from the date of each transaction, as part of its books and records to be examined by the Commissioner:

(1) The contract and delivery schedules detailing loans sold, assigned or purchased; and

(2) The contract and delivery schedules detailing servicing sold, assigned or purchased.

(j) All licensees shall maintain a record keeping system which shall demonstrate the following fees if charged to the mortgage applicant by the licensee:

(1) Appraisal fees;

(2) Credit report fees;

(3) Application fees;

(4) Commitment fees;

(5) Warehouse fees; and

(6) Third party charges.

(k) Maintenance of records in accordance with generally accepted accounting principles on microfilm, microfiche, or electronic data processing and retrieval systems shall be deemed to be in compliance with the requirements of this section.

NOTE

Authority cited: Section 50304, Financial Code. Reference: Sections 50124, 50301 and 50314, Financial Code.

HISTORY

1. New section filed 11-25-96; operative 12-25-96 (Register 96, No. 48).

2. Change without regulatory effect amending subsections (a), (b), (d), (f) and (i) filed 2-24-99 pursuant to section 100, title 1, California Code of Regulations (Register 99, No. 9).

§1950.314.5. Statements of Account.

Note • History

A residential mortgage lender, residential mortgage lender and servicer, or residential mortgage loan servicer shall supply its borrowers with statements of account which show the transactions and current position of the borrower. The statements of account may show only the transactions for the period covered and the current positions and must be sent to the borrowers annually.

NOTE

Authority cited: Section 50304, Financial Code. Reference: Sections 50124, 50301 and 50314, Financial Code.

HISTORY

1. New section filed 11-25-96; operative 12-25-96 (Register 96, No. 48).

§1950.314.6. Debit Balances Prohibited.

Note • History

A residential mortgage lender, residential mortgage lender and servicer, or residential mortgage loan servicer shall not withdraw, pay out, or transfer moneys from any loan or servicing account in excess of the amount to the credit of the account at the time of the withdrawal, payment, or transfer.

However, a residential mortgage lender, residential mortgage lender and servicer, or residential mortgage loan servicer may advance its own funds to a loan or servicing account under an impound arrangement to pay taxes, insurance, and other payments, if the required withdrawal, payment, or transfer exceeds the amount of the credit for the account.

NOTE

Authority cited: Section 50304, Financial Code. Reference: Sections 50124, 50202, 50301 and 50314, Financial Code.

HISTORY

1. New section filed 11-25-96; operative 12-25-96 (Register 96, No. 48).

§1950.314.7. Payment Processing.

Note • History

A licensee shall credit any payment made to a borrower's account on the same business day the payment is received by the licensee, regardless of the date of processing. As a general rule, a licensee shall process any payment to a borrower's account within two business days from the business day the payment is received by the licensee.

NOTE

Authority cited: Section 50304, Financial Code. Reference: Section 50314, Financial Code.

HISTORY

1. New section filed 11-25-96; operative 12-25-96 (Register 96, No. 48).

§1950.314.8. Nontraditional, Adjustable Rate and Mortgage Loan Products.

Note • History

(a) Best Practices. Every licensee shall implement best practices to manage loan product risk on a continuous basis. These best practices shall include practices set forth in the Guidance on Nontraditional Mortgage Product Risks published on November 14, 2006 by the Conference of State Bank Supervisors and the American Association of Residential Mortgage Regulators, which is hereby incorporated by reference, and the Statement on Subprime Mortgage Lending published on July 17, 2007 by the aforementioned entities and the National Association of Consumer Credit Administrators, which is hereby incorporated by reference. Both publications are collectively referred to herein as the “Guidance” and are available on the Department's web site at www.corp.ca.gov. A mortgage loan originator employed by a licensee shall follow the best practices policies and procedures developed by his or her employer. For purposes of this section, “best practices” shall mean lawful processes, policies, and procedures to manage risks associated with use of nontraditional mortgage products and adjustable rate mortgage products as defined and prescribed by the Guidance.

(b) Written Compliance Report. In a separate written document, submitted as an addendum to its annual financial report and report of condition required under Section 50307 of the Financial Code, every licensee shall state whether it made or arranged nontraditional mortgage products and adjustable rate mortgage products, as defined by the Guidance, during the reporting period covered by the annual report. If any such loans were made or arranged, the licensee shall also explain how it has implemented best practices and explain whether and how it has put into effect the following internal controls or procedures during the reporting period: adopted processes, policies and procedures to ensure compliance with the Guidance; designated a compliance officer (including contact information of that officer) to ensure compliance with the Guidance; implemented a consumer complaint process to resolve consumer complaints involving loans covered by the Guidance; and educated employees and agents to help them understand how to apply the best practices. In addition, the licensee shall indicate the number of any consumer complaints it received during the reporting period regarding loans that are subject to the Guidance, including the number of resolved complaints and unresolved complaints and the number of workout arrangements used for resolved complaints. For purposes of this section, “workout arrangement” shall mean a modified or converted loan product with predictable payment requirements to help the financially-stressed borrower. If any nontraditional mortgage loans or adjustable rate mortgage loans subject to the Guidance were made or arranged, the licensee shall also submit information regarding those loan products on the form entitled Non-traditional, Adjustable Rate and Mortgage Loan Survey (Rev. 8/07), which is hereby incorporated by reference. This form is available on the Department's website at www.corp.ca.gov.

(c) Books and Records. If the licensee receives any reportable consumer complaints described in subsection (b), the licensee shall maintain for each complaint a copy of the complaint and the licensee's written response or explanation of how the company resolved the complaint including any workout arrangement, shall maintain this documentation as part of its books and records, and shall make the documentation available to the commissioner upon request. In addition, if the licensee reports any internal controls or procedures or nontraditional or adjustable rate loans described in subsection (b), the licensee shall maintain documentation of those controls or procedures as part of its books and records, and any loan documentation required by law, and shall make the documentation available to the commissioner upon request.

(d) Loan Disclosures. Every licensee shall, within three business days after receipt of a completed application for a nontraditional loan or an adjustable rate loan that is subject to the Guidance, or before the borrower becomes obligated on the note, whichever is earlier, cause to be delivered to the borrower statements in writing disclosing, in a clear and conspicuous manner, information comparing payment scenarios and loan balance scenarios among any nontraditional loan and adjustable rate loan products offered by the licensee and that are subject to the Guidance. This information shall be provided by one of the following methods:

(2) The form of the typical mortgage transaction disclosures set forth in the Comparison of Single Mortgage Features of the Form RE 885 of the Department of Real Estate, as required by Title 10, California Code of Regulations, Section 2842, when provided by a real estate broker on behalf of the licensee. This form is available on the Department of Real Estate website at www.dre.ca.gov; or

(3) Any other form used by the licensee to compare payment scenarios and loan balance scenarios among any nontraditional loan and adjustable rate loan products that are subject to the Guidance; provided, however, that the form shall, at a minimum, (A) compare monthly payments and loan balances of these loan products offered by the licensee, and (B) reflect the borrower's proposed loan amount.

(e) Advertising Prohibitions. For purposes of Section 50204 of the Financial Code, the following are considered false, misleading, or deceptive advertising prohibited by that section for loans that are subject to the Guidance:

(A) Principal amount

(B) Term of loan

(D) Number of months the initial interest rate will be in effect

(E) Fully-indexed interest rate

(F) Maximum interest rate

(G) If different, an explanation of the difference between the payment rate, initial interest rate and fully-indexed rate

(H) Annual percentage rate

(I) How often the interest rate and payments can change

(J) Maximum periodic change in the interest rate and payments (periodic caps)

(K) Number of months and percentage of original loan amount after which minimum payments will not be accepted and the loan re-amortizes

(L) The monthly payment based on the maximum interest rate, and the loan balance after all negative amortization is included, assuming minimum payments are made

(M) If the loan contains a prepayment penalty, a statement to that effect

(N) If the loan contains a balloon payment, a statement to that effect

(f) This section applies to loans secured by residential real property located in this State improved by a one-to-four family dwelling.

NOTE

Authority cited: Section 50304, Financial Code. Reference: Sections 50003, 50124, 50204, 50302, 50304, 50307, 50308, 50314, 50322, and 50333, Financial Code.

HISTORY

1. New section filed 12-27-2007; operative 1-1-2008 pursuant to Government Code section 11343.4 (Register 2007, No. 52).

2. Change without regulatory effect amending subsections (b) and (d)(2) filed 3-20-2008 pursuant to section 100, title 1, California Code of Regulations (Register 2008, No. 12).

3. Amendment of subsections (a) and (b) filed 4-1-2010 as an emergency; operative 4-1-2010 (Register 2010, No. 14). A Certificate of Compliance must be transmitted to OAL by 9-28-2010 or emergency language will be repealed by operation of law on the following day.

4. Amendment of subsections (a) and (b) refiled 9-28-2010 as an emergency; operative 9-28-2010 (Register 2010, No. 40). A Certificate of Compliance must be transmitted to OAL by 12-27-2010 or emergency language will be repealed by operation of law on the following day.

5. Amendment of subsections (a) and (b) refiled 12-23-2010 as an emergency; operative 12-23-2010 (Register 2010, No. 52). A Certificate of Compliance must be transmitted to OAL by 3-23-2011 or emergency language will be repealed by operation of law on the following day.

6. Certificate of Compliance as to 12-23-2010 order transmitted to OAL 3-14-2011 and filed 4-25-2011 (Register 2011, No. 17).

Article 10. Reports to the Commissioner

§1950.316. Report of Civil, Criminal or Disciplinary Action.

Note • History

(a) A residential mortgage lender, residential mortgage lender and servicer, mortgage servicer, or mortgage loan originator shall immediately report to the Commissioner any civil, criminal or disciplinary action set forth in Section 50316 or 50317 of the Code, filed against the residential mortgage lender, mortgage servicer, residential mortgage lender and servicer, mortgage loan originator, or any of its officers, directors, partners, shareholders controlling 10 percent or more of the ownership interests, trustees or employees (as “employee” is defined in subdivision (h) of Section 50317 of the Code) through the NMLS in accordance with its procedures for transmission to the Commissioner on Forms MU1, MU2, MU3, or MU4. Any action that cannot be reported through NMLS shall be reported directly to the Commissioner.

(b) If a residential mortgage lender, mortgage servicer, or residential mortgage lender and servicer finds that a sponsored mortgage loan originator has not filed an amendment to his or her Form MU4, the residential mortgage lender, residential mortgage loan servicer, or residential mortgage lender and mortgage servicer shall proceed as required in Section 1950.122.5 of Subchapter 11.5 of these rules.

NOTE

Authority cited: Sections 50146 and 50304, Financial Code. Reference: Sections 50120, 50130, 50140, 50146, 50316 and 50317, Financial Code.

HISTORY

1. New article 10 (sections 1950.316-1950.317) and section filed 11-25-96; operative 12-25-96 (Register 96, No. 48).

2. Amendment of section and Note filed 4-1-2010 as an emergency; operative 7-31-2010 (Register 2010, No. 14). A Certificate of Compliance must be transmitted to OAL by 9-28-2010 or emergency language will be repealed by operation of law on the following day.

3. Editorial correction of History 3 (Register 2010, No. 40).

4. Amendment of section and Note refiled 9-28-2010 as an emergency, including repealer of subsection (c); operative 9-28-2010 (Register 2010, No. 40). A Certificate of Compliance must be transmitted to OAL by 12-27-2010 or emergency language will be repealed by operation of law on the following day.

5. Amendment of section and Note refiled 12-23-2010 as an emergency; operative 12-23-2010 (Register 2010, No. 52). A Certificate of Compliance must be transmitted to OAL by 3-23-2011 or emergency language will be repealed by operation of law on the following day.

6. Certificate of Compliance as to 12-23-2010 order, including amendment of subsection (b) and Note, transmitted to OAL 3-14-2011 and filed 4-25-2011; amendments operative 5-25-2011 (Register 2011, No. 17).

§1950.317. Report of Defalcation.

Note • History

A residential mortgage lender, residential mortgage lender and servicer, mortgage servicer, or mortgage loan originator shall immediately report to the Commissioner any defalcation, embezzlement or theft made, or reasonably believed by the company to have been made, by any of its officers, directors, partners, shareholders controlling 10 percent or more of the ownership interests, trustees or employees (as “employee” is defined in subdivision (h) of Section 50317 of the Code).

NOTE

Authority cited: Section 50304, Financial Code. Reference: Section 50317, Financial Code.

HISTORY

1. New article 10 (sections 1950.316-1950.317) and section filed 11-25-96; operative 12-25-96 (Register 96, No. 48).

2. Amendment filed 4-1-2010 as an emergency; operative 4-1-2010 (Register 2010, No. 14). A Certificate of Compliance must be transmitted to OAL by 9-28-2010 or emergency language will be repealed by operation of law on the following day.

3. Amendment refiled 9-28-2010 as an emergency; operative 9-28-2010 (Register 2010, No. 40). A Certificate of Compliance must be transmitted to OAL by 12-27-2010 or emergency language will be repealed by operation of law on the following day.

4. Amendment refiled 12-23-2010 as an emergency; operative 12-23-2010 (Register 2010, No. 52). A Certificate of Compliance must be transmitted to OAL by 3-23-2011 or emergency language will be repealed by operation of law on the following day.

5. Certificate of Compliance as to 12-23-2010 order transmitted to OAL 3-14-2011 and filed 4-25-2011 (Register 2011, No. 17).

Subchapter 13. Deferred Deposit Transaction Law

Article 1. Applications

§2020. Application for Deferred Deposit Transaction Licenses.

Note • History

(a) The application for a deferred deposit transaction license pursuant to Financial Code Section 23005(a) shall be filed upon the form set forth in subdivision (c) of this section.

(b) Within 45 calendar days from the receipt of the application under this rule, the Commissioner shall inform the applicant, in writing, that the application is complete and accepted for filing, or that the application is deficient and specify what information is required to complete the application. Within 60 calendar days from the filing of a completed application, the Commissioner shall reach a decision on the license.

(c) An application for a deferred deposit transaction license shall be submitted to the Commissioner on the following form:

Embedded Graphic 10.0104

Embedded Graphic 10.0105

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10. The following items MUST be provided as exhibits to the application:

EXHIBIT A. Please provide financial statements, including a balance sheet of the applicant as of a date not more than ninety days prior to the date this application is filed, that indicate a minimum net worth of $25,000. (Financial Code Section 23007; the balance sheet may be unaudited.)

EXHIBIT B. Please provide a copy of a surety bond, including any and all riders and endorsements, in the amount of $25,000. The bond has to be in effect prior to the issuance of a license. Instructions and surety bond form acceptable to the Department of Corporations are enclosed. (Financial Code Section 23013.)

EXHIBIT C. Please provide, for each person named in Items 4, 5, and 6 of this application, a Statement of Identity and Questionnaire, form enclosed (Financial Code Section 23008), along with fingerprint information pursuant to California Penal Code Section 11077.1 and the cost of fingerprint processing. (Financial Code Section 23006.)

EXHIBIT D. FOR INDIVIDUAL APPLICANTS ONLY. Please complete the enclosed form entitled “Statement of Citizenship, Alienage, and Immigration Status For Application of Department of Corporations License or Certificate.” (Title 10 C.C.R. Section 250.61.)

EXHIBIT E. Please retain the enclosed form entitled “Licensee Authorization of Disclosure of Financial Records” and complete and return it to the Corporations Commissioner upon receipt of the license. A person named in Items 4, 5, or 6 of this application who is authorized to sign on behalf of the licensee must sign this form. (Financial Code Sections 23005(b), 23024.)

EXHIBIT G. Please submit the following if the applicant is incorporated in the State of California (domestic corporation):

1. An ORIGINAL certificate of good standing or qualification duly executed not more than sixty (60) days before filing this application by the Secretary of State of California showing that the applicant is authorized to do business in this State. The certificate must also indicate the original date of incorporation. (Financial Code Sections 23005(b), 23015.)

2. A copy of the notice filed with the Department of Corporations that the initial issuance of shares of stock was entitled to an exemption pursuant to Section 25102 of the Corporations Code or was qualified for issuance in some other manner. (Financial Code Sections 23005(b), 23015.)

EXHIBIT H. Please submit the following if the applicant is incorporated outside of the State of California (foreign corporation): (Financial Code Sections 23005(b), 23015.)

1. A certificate of good standing or qualification duly executed not more than sixty (60) days before filing this application by the Secretary of State of the foreign state, or other proper authority, showing that the applicant is authorized to transact business in that state. The certificate must also indicate the original date of incorporation.

2 A certificate of good standing or qualification duly executed not more than sixty (60) days before the filing of this application by the Secretary of State of California showing that the applicant is authorized to do business in California.

3. A Consent to Service of Process (form enclosed). Service made pursuant to the terms of the consent to service of process shall have the same force and validity as if served personally on the applicant.

4. Name and address of the principal agent in California.

EXHIBIT I. If the applicant is a Trust, Limited Partnership or Limited Liability Company (domestic business entity) submit an ORIGINAL certificate of good standing, qualification, or other document duly executed not more than sixty (60) days before filing this application by the Secretary of State of California showing that the applicant is authorized to do business in California. The certificate must also indicate the original date of incorporation. (Financial Code Sections 23005(b), 23015.)

EXHIBIT J. Please submit the following if the applicant is a Trust, Limited Partnership or Limited Liability Company organized outside of the State of California (foreign business entity): (Financial Code Sections 23005(b), 23015.)

2. A certificate of good standing or qualification duly executed not more than sixty (60) days before the filing of this application by the Secretary of State of California showing that the applicant is authorized to do business in California.

4. Name and address of the principal agent in California.

EXHIBIT K. DECLARATION REGARDING LAW AND RULES. Please complete and attach the enclosed declaration regarding the applicant's knowledge of the Deferred Deposit Transaction Law and Rules. Only one responsible officer or director is required to complete this form.

EXHIBIT L: DECLARATION PURSUANT TO FINANCIAL CODE SECTION 23037(i). Please complete and attach the enclosed declaration regarding offering, arranging, acting as an agent for, or assisting a deferred deposit originator in the making of a deferred deposit transaction. Only one responsible officer or director is required to complete this form.

Embedded Graphic 10.0107

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Embedded Graphic 10.0110

Embedded Graphic 10.0111

Embedded Graphic 10.0112

Embedded Graphic 10.0113

NOTE

Authority cited: Section 23015, Financial Code. Reference: Sections 23005(b) and 23015, Financial Code; Section 1189, Civil Code; and Section 11077.1, Penal Code.

HISTORY

1. New section filed 3-13-2003 as an emergency; operative 3-14-2003 (Register 2003, No. 11). A Certificate of Compliance must be transmitted to OAL by 7-14-2003 or emergency language will be repealed by operation of law on the following day.

2. New section refiled 7-14-2003 as an emergency; operative 7-14-2003 (Register 2003, No. 29). A Certificate of Compliance must be transmitted to OAL by 11-12-2003 or emergency language will be repealed by operation of law on the following day.

3. Certificate of Compliance as to 7-14-2003 order transmitted to OAL 11-3-2004; Certificate of Compliance withdrawn 12-15-2003 and repealer of section by operation of Government Code section 11346.1(g) (Register 2004, No. 17).

4. New section filed 4-20-2004; operative 4-20-2004 pursuant to Government Code section 11343.4 (Register 2004, No. 17).

5. Change without regulatory effect amending Exhibit C instructions on form, Exhibits B and C and amending Note filed 11-23-2005 pursuant to section 100, title 1, California Code of Regulations (Register 2005, No. 47).

6. New subchapter 13 and article 1 headings filed 1-25-2006; operative 1-25-2006 pursuant to Government Code section 11343.4 (Register 2006, No. 4).

7. Amendment of subsection (c) and Note filed 9-23-2009; operative 10-23-2009 (Register 2009, No. 39).

§2021. Short Form Application for Deferred Deposit Transaction Licensee Seeking Additional Location License; Form.

Note • History

(a) The application for a licensee seeking an additional location license pursuant to Financial Code Section 23005(c) shall be filed upon the form set forth in subdivision (c) of this section. An applicant under this section must currently hold a valid deferred deposit transaction license pursuant to Financial Code Section 23005(a).

(b) Within 20 calendar days from the receipt of the application under this rule, the Commissioner shall inform the applicant, in writing, that the application is complete and accepted for filing, or that the application is deficient and specify what information is required to complete the application. Within 15 calendar days from the filing of a completed application, the Commissioner shall reach a decision on the license.

(c) An application for a license as set forth in subdivision (a) shall be submitted to the Commissioner on the following form:

Embedded Graphic 10.0114

Embedded Graphic 10.0115

NOTE

Authority cited: Section 23015, Financial Code. Reference: Sections 23005(c) and 23015, Financial Code.

HISTORY

4. New section filed 4-20-2004; operative 4-20-2004 pursuant to Government Code section 11343.4 (Register 2004, No. 17).

Article 2. Books and Records

§2025. Books and Records: Standard for Keeping.

Note • History

(a) For purposes of this section, the term “long form application” means the initial application submitted to the Department to conduct deferred deposit transactions in California under Section 2020 of these rules.

(b) A licensee shall maintain the following books, records and accounts at the licensed place of business provided in its long form application, provided that records maintained at the each additional location are available at the licensed location within 24 hours of request: records demonstrating minimum net worth requirements in compliance with Section 23007 of the Financial Code including quarterly unaudited balance sheets, records demonstrating surety bond requirements in compliance with Section 23013 of the Financial Code, a list of licensed locations by address and license number, the advertising file as provided in subsection (f), bank or other financial institution statements, and any other records identified by written demand of the Commissioner.

(c)(1) Except as provided in subsection (e), records to be maintained at each licensed business location for each deferred deposit transaction shall include at least the following: the deferred deposit transaction agreement, evidence of the check, written disclosure(s) used to provide notice in compliance with subdivision (c) of Section 23035 of the Financial Code, record of any and all extensions of time or payment plans for repayment of an existing deferred deposit transaction, record of time periods for each transaction, record of transaction fees and charges, and record of transaction payments.

(2) Records to be maintained at each licensed business location may include the advertising file as provided in subsection (f) and bank or other financial institution statements, in lieu of maintaining these records as set forth in subsection (b).

(d) The records required under subsections (b) and (c) may be retained and provided to the Commissioner in electronic format provided that:

(1) The electronic records are maintained and provided in a format that allows the Commissioner complete access to all of the books, accounts and records. The electronic records must be provided to the Commissioner in a software format that is acceptable to the Commissioner. The deferred deposit originator shall ensure that the Commissioner and his or her authorized representatives have the ability to download and print any or all of the records that are stored and maintained electronically.

(2) A deferred deposit originator shall provide any and all of the records maintained in electronic format in printed form if the electronic records are not in a format that enables the Commissioner to determine if the licensee is complying with the California Deferred Deposit Transaction Law or rules, or upon the request of the Commissioner or his or her authorized representatives.

(3) The electronic records shall be maintained in a media that ensures reliable, credible, accurate and auditable records.

(e) A licensed location may maintain records older than 90 days at a location other than the licensed location, provided that the records are made available to the Commissioner within 48 hours of a request. Upon request, a licensee shall provide the Commissioner with the address of the location of the books, records and accounts maintained at a location other than the licensed location, and, if applicable, the identity of the person with custody of the records.

(f) A licensee shall maintain a file of all advertising copy for a period of 90 days from the date of its use.

NOTE

Authority cited: Section 23015, Financial Code. Reference: Sections 23007, 23013, 23024, 23027, 23035, 23036, 23037, 23046 and 23048, Financial Code.

HISTORY

1. New article 2 (sections 2025-2029) and section filed 1-25-2006; operative 1-25-2006 pursuant to Government Code section 11343.4 (Register 2006, No. 4). For prior history of former subchapter 12, see Register 98, No. 17 and Register 2003, No. 11.

§2026. Maintenance of Books and Records.

Note • History

A deferred deposit originator shall maintain its books, accounts and records in accordance with generally accepted accounting principles and good business practices.

NOTE

Authority cited: Section 23015, Financial Code. Reference: Sections 23024 and 23046, Financial Code.

HISTORY

1. New section filed 1-25-2006; operative 1-25-2006 pursuant to Government Code section 11343.4 (Register 2006, No. 4).

§2027. Records Maintained at Multiple Locations.

Note • History

A deferred deposit originator shall maintain separate deferred deposit transaction records for each licensed business location in accordance with the provisions of this article, in order to distinguish each licensed business location and operations from other licensed business locations or operations subject to this subchapter. A deferred deposit originator shall maintain separate deferred deposit transaction records from those deferred deposit transaction records maintained by any other business that is transacted at the same office, room, or place of business. Nothing in this section shall be construed to prohibit a deferred deposit originator from maintaining one bank account or one database for all licensed locations, provided that the records of each licensed location can be identified and distinguished.

NOTE

Authority cited: Section 23015, Financial Code. Reference: Sections 23024 and 23046, Financial Code.

HISTORY

1. New section filed 1-25-2006; operative 1-25-2006 pursuant to Government Code section 11343.4 (Register 2006, No. 4).

§2028. Transfers Involving Affiliates.

Note • History

Whenever any deferred deposit transaction is sold, transferred or assigned, within the same business outside the State for any reason, or to an affiliate wherever located for any reason, a deferred deposit originator shall maintain at its licensed location, the original or exact copy of the deferred deposit transaction agreement and any other disclosure statements used to provide notice in compliance with Section 23035 of the Financial Code, payment record and a record identifying the deferred deposit transaction, the date of transfer, and the name and location of the receiving office. However, when a loan is sold, transferred, or assigned to another licensed location of the same business within the State of California, only a record identifying the deferred deposit transaction, the date of transfer, and the receiving office need be maintained by the sending office and thereafter the licensed location receiving that deferred deposit transaction shall maintain the required documents in its files.

NOTE

Authority cited: Section 23015, Financial Code. Reference: Sections 23024, 23035 and 23046, Financial Code.

HISTORY

1. New section filed 1-25-2006; operative 1-25-2006 pursuant to Government Code section 11343.4 (Register 2006, No. 4).

§2029. Transfers Involving Unaffiliated Entities.

Note • History

Whenever any deferred deposit transaction is sold, transferred or assigned to an unaffiliated entity, the deferred deposit originator relinquishing the deferred deposit transaction shall maintain at its licensed location the original or an exact copy of the deferred deposit transaction agreement and all papers and other documents relating to such transaction, including evidence of the check, as provided by the law.

NOTE

Authority cited: Section 23015, Financial Code. Reference: Sections 23024, 23035 and 23046, Financial Code.

HISTORY

1. New section filed 1-25-2006; operative 1-25-2006 pursuant to Government Code section 11343.4 (Register 2006, No. 4).

Article 3. Reports to the Commissioner

§2030. Annual Report.

Note • History

(a) Annual Report Form. The annual report required under Section 23026 of the Financial Code shall be submitted on the following form number 2030 (Rev. 9/09):

PLEASE READ THE ATTACHED INSTRUCTIONS CAREFULLY BEFORE COMPLETING THIS REPORT. All licensees must complete the report even if no business was conducted.

To: COMMISSIONER OF CORPORATIONS, STATE OF CALIFORNIA

ANNUAL REPORT FOR

LICENSEES ENGAGED IN BUSINESS UNDER THE

CALIFORNIA DEFERRED DEPOSIT TRANSATION LAW

For the Year Ended December 31, 20__

THIS REPORT IS REQUIRED IN ACCORDANCE WITH FINANCIAL CODE SECTION 23026

Name of Licensee (as shown on the License): _____________________

Business Phone No.: ( ) Fax No.:

E-mail Address(es) (optional):

Total number of licenses held as of December 31, 20__

Licensee's Type of Organization [ ] Corporation [ ] Partnership

[ ] Limited Liability Company

[ ] Individual

[ ] Other:

CALIFORNIA DEFERRED DEPOSIT TRANSACTION ACTIVITY REPORT FOR THE YEAR ENDED 20__

The Information being requested is for the calendar year ended December 31, 20__

1. The total number of deferred deposit transactions

made:

2. The total dollar amount of deferred deposit transactions

made: $

3. The total number of individual customers who

obtained deferred deposit transactions: (Only

count repeat customers once)

4. The minimum dollar amount of deferred deposit

transactions made: $

5. The maximum dollar amount of deferred

deposit transactions made: $

6. The average dollar amount of deferred deposit

transactions made: $

(Line 2 divided by line 1)

7. The average Annual Percentage Rate (APR)

agreed to:

(Total annual percentage rate as stated on the

agreements of all transactions divided by total number

of transactions)

8. The average number of days of deferred deposit

transactions:

9. The total number of returned checks from deferred

deposit transactions:

10. The total dollar amount of returned checks

from deferred deposit transactions: $

11. The total number of returned checks from

deferred deposit transactions recovered:

(Include partial recoveries)

12. The total dollar amount of returned checks

recovered: $

(Include partial recoveries)

13. The total number of checks from deferred

deposit transactions charged off: $

(Include partial balances charged off)

14. The total dollar amount of checks from deferred

deposit transactions charged off:

(Include partial balances charged off)

VERIFICATION

State of )

) SS.

County of )

I, the undersigned state: That I am an officer or general partner or the sole proprietor or have a position of similar proprietary interest of (Insert name as shown on the license)

and I have read and signed the report and the documents filed herewith and know the contents thereof, I certify this annual report is to the best of my knowledge true and exact.

Complete Section (A) OR Section (B) as appropriate.

(A) IF LOCATED IN CALIFORNIA OR IN A STATE WHICH PERMITS A DECLARATION UNDER PENALTY OF PERJURY, COMPLETE THIS SECTION. NOTARIZATION IS NOT NECESSARY.

Date ____________, _______ at _________________,

(Month/Day) (Year) (City) (State)

I certify (or declare) under the penalty of perjury that the foregoing is true and correct.

(Signature of Declarant)

(Name and Title (Please type or print))

Phone Number: ( ) Fax Number: ( )

(B) IF LOCATED OUTSIDE OF CALIFORNIA IN A STATE WHICH DOES NOT PERMIT A DECLARATION UNDER PENALTY OF PERJURY, COMPLETE THIS SECTION. NOTARIZATION IS REQUIRED.

Date , (Month/Day) (Year) Signature of Affiant

(City)

(State) Name and Title (Please type or print)

Subscribed and sworn to before me on

(Seal) , (Month/Date) (Year

Notary Public in and for said County and State

(b) Instructions. The following instructions apply to the form specified in subsection (a).

INSTRUCTIONS FOR COMPLETING THE 20XX ANNUAL

REPORT FOR DEFERRED DEPOSIT ORIGINATORS LICENSED UNDER THE CALIFORNIA DEFERRED DEPOSIT

TRANSACTION LAW

WHO MUST FILE THE REPORT: Every licensee who was licensed as of December 31, 20XX shall file the Department's Annual Report. The report is to include information on all business conducted pursuant to the authority of the California Deferred Deposit Transaction Law by licensees located in or outside the State of California. A report shall be filed even if no business was conducted under the authority of the license in 20XX.

DUE DATE / PENALTY FOR FAILURE TO FILE THE REPORT: The report is due on or before March 15, 20XX. No extension of the filing date can be granted. Failure to file the report may result in Summary Revocation of your license(s).

WHERE TO FILE THE REPORT:

DEPARTMENT OF CORPORATIONS

Financial Services Division

320 West Fourth Street, Suite 750

Los Angeles, CA 90013

THE REPORT FORM: The report must be submitted on this form. All items requesting dollar amounts are to be rounded to the nearest whole dollar. Do not add “.00” to represent rounding to the nearest dollar. Do not round items to the nearest thousand or million dollars. Do not round intermediate calculations.

PERIOD COVERED BY THE REPORT: The reporting period is (1) January 1, 20XX to December 31, 20XX, or (2) from the effective date of licensure for licenses issued in 20XX to December 31, 20XX.

COMPANIES WITH MULTIPLE LOCATIONS: Companies with multiple licenses must prepare one report consolidating the information from all locations into one report.

ANNUAL REPORT FORM AVAILABLE ON THE INTERNET: The annual report form is also available at the Department's Internet website at www.corp.ca.gov.

VERIFICATION: The Verification on page 3 must be executed by the licensee or authorized person on behalf of the licensee. For example, the verification must be signed by an individual if the licensee is an individual, by a general partner if the licensee is a partnership, by a corporate officer if the licensee is a corporation or a manager if the licensee is a limited liability company. The Verification must have an original signature. Reports bearing incomplete verifications or a missing signature will not be accepted and will be returned to the licensee.

REQUIREMENT FOR THE REPORT: Section 23026 of the Financial Code states that on or before March 15 of each year, beginning March 2006, each licensee shall file an annual report with the Commissioner pursuant to procedures that the Commissioner shall establish. The licensee's annual report shall be kept confidential pursuant to Chapter 3.5 (commencing with Section 6250) of Division 7 of Title 1 of the Government Code and any regulations adopted thereunder. The Department of Corporations will prepare an annual consolidated report that incorporates the information received from each and every annual report submitted by licensees for the designated year. The annual consolidated report will be available to the public.

DEFERRED DEPOSIT TRANSACTIONS: Section 23000 of the Financial Code defines a deferred deposit transaction as a transaction whereby a person defers depositing a customer's personal check until a specific date, pursuant to a written agreement, as provided in Section 23035.

OTHER REPORT REQUIREMENTS:

1. The information required in the report is for the calendar beginning January 1 and ending December 31.

2. The “dollar amount” in Items 2, 4, 5 and 6 shall be based on the face amounts of the checks.

3. For the “total number of individual customers” in Item 3 of the report, count repeat customers only once.

4. The “average dollar amount” of deferred deposit transactions (DDT) under Item 6 of the report is determined by adding the dollar amount of all the transactions made during the calendar year and dividing this number by the total number of DDTs made during the calendar year.

5. The “annual percentage rate” of all transactions under Item 7 of the report is determined by adding the percentage rate specified on all DDT agreements made during the calendar year and dividing this number by the total number of those transactions.

6. The “average number of days” of a DDT under Item 8 of the report is determined by adding the number of days for all DDT agreements and dividing by the total number of transactions.

7. The number and amount in Items 11 and 12 shall include partial recoveries, and the number and amount in Items 13 and 14 shall include partial balances charged off.

QUESTIONS REGARDING THIS REPORT: If you have questions regarding this report, you may contact the Department of Corporations at 1 (866) ASK-CORP (1 (866) 275-2677). Form number 2030 (Rev. 9/09).

NOTE

Authority cited: Section 23015, Financial Code. Reference: Section 23026, Financial Code.

HISTORY

1. New article 3 (section 2030) and section filed 1-25-2006; operative 1-25-2006 pursuant to Government Code section 11343.4 (Register 2006, No. 4).

2. Amendment filed 9-23-2009; operative 10-23-2009 (Register 2009, No. 39).

Subchapter 14. California Foreclosure Prevention Act

Article 1. Requirements

§2031.1. Scope of Regulations.

Note • History

(a) This subchapter clarifies the application of Civil Code Sections 2923.52 and 2923.53, and sets forth the minimum requirements for a comprehensive loan modification program under Civil Code Section 2923.53, in order for a mortgage loan servicer to obtain an order of exemption from Civil Code Section 2923.52.

(b) The modification of loans in conformance with the Home Affordable Modification Program Guidelines issued by the U.S. Department of the Treasury on March 4, 2009, as amended (the “Guidelines”), shall constitute the implementation of a comprehensive loan modification program that meets the requirements of subdivision (a) of Civil Code Section 2923.53, and shall be deemed to meet all of the requirements in this article (including Sections 2031.2, 2031.3, 2031.4, 2031.5, and 2031.6 of these rules). All other comprehensive loan modification programs shall comply with the minimum standards in this article to obtain an order from the Commissioner for exemption from Civil Code Section 2923.52.

NOTE

Authority cited: Section 2923.53(d), Civil Code. Reference: Sections 2923.52 and 2923.53, Civil Code.

HISTORY

1. New subchapter 14 (articles 1-4, sections 2031.1-2031.10) article 1 (sections 2031.1-2031.6) and section filed 6-1-2009 as an emergency; operative 6-1-2009 (Register 2009, No. 23). A Certificate of Compliance must be transmitted to OAL by 11-30-2009 or emergency language will be repealed by operation of law on the following day.

2. New subchapter 14 (articles 1-4, sections 2031.1-2031.10) article 1 (sections 2031.1-2031.6) and section refiled 12-1-2009 as an emergency; operative 12-1-2009 (Register 2009, No. 49). A Certificate of Compliance must be transmitted to OAL by 3-1-2010 or emergency language will be repealed by operation of law on the following day.

3. Certificate of Compliance as to 12-1-2009 order, including amendment of subsection (b), transmitted to OAL 3-1-2010 and filed 4-13-2010 (Register 2010, No. 16).

§2031.2. Eligibility.

Note • History

(1) The residential mortgage loan to be modified was recorded during the period of January 1, 2003 to January 1, 2008.

(2) The borrower occupies the property as his or her principal residence, and occupied the property as his or her principal residence at the time the loan became delinquent.

(3) The loan is in default, and a notice of default has been filed with the county recorder under Civil Code Section 2924 for the mortgaged property.

(5) The mortgaged property is located in California.

(7) The borrower has not surrendered the property.

(9) The borrower does not currently have a bankruptcy action pending under Chapter 7, 11, 12, or 13 of Title 11 of the United States Code.

NOTE

Authority cited: Section 2923.53(d), Civil Code. Reference: Sections 2923.52 and 2923.53, Civil Code.

HISTORY

2. New section refiled 12-1-2009 as an emergency; operative 12-1-2009 (Register 2009, No. 49). A Certificate of Compliance must be transmitted to OAL by 3-1-2010 or emergency language will be repealed by operation of law on the following day.

3. Certificate of Compliance as to 12-1-2009 order transmitted to OAL 3-1-2010 and filed 4-13-2010 (Register 2010, No. 16).

§2031.3. Availability.

Note • History

(a) For an applicant to obtain an order of exemption from Civil Code Section 2923.52, the comprehensive loan modification program shall, at a minimum, be made available to any borrower meeting the eligibility requirements of Section 2031.2 of these rules who calls, writes, or otherwise communicates with the mortgage loan servicer to notify the servicer of a financial hardship or to explore modifications to an existing loan, and shall be made available to borrowers as part of the contact required under Civil Code Section 2923.5.

(b) Every servicer that contacts a borrower in writing under Civil Code Section 2923.5 shall notify the borrower of the availability of the servicer's comprehensive loan modification program.

NOTE

Authority cited: Section 2923.53(d), Civil Code. Reference: Sections 2923.52 and 2923.53, Civil Code.

HISTORY

3. Certificate of Compliance as to 12-1-2009 order transmitted to OAL 3-1-2010 and filed 4-13-2010 (Register 2010, No. 16).

§2031.4. Program Requirements.

Note • History

For an applicant to obtain an order of exemption from Civil Code Section 2923.52, the comprehensive loan modification program shall meet the minimum requirements in Sections 2031.5 and 2031.6 of these rules.

NOTE

Authority cited: Section 2923.53(d), Civil Code. Reference: Sections 2923.52 and 2923.53, Civil Code.

HISTORY

3. Certificate of Compliance as to 12-1-2009 order transmitted to OAL 3-1-2010 and filed 4-13-2010 (Register 2010, No. 16).

§2031.5. Loan Modification Features.

Note • History

(a) Any residential mortgage loan refinanced under the HOPE for Homeowners Program of the HOPE for Homeowners Act of 2008 (Title IV of Division A of the Housing and Economic Recovery Act of 2008 (Pub. L. 110-289, 122 Stat. 2654, approved July 30, 2008) as amended, and the rules adopted thereunder) is conclusively presumed to meet the minimum requirements for a loan modification under a comprehensive loan modification program.

(A) A borrower is unable to document his or her ability to repay the loan; or

(d) Debt to Income Ratio of 38% or Less

(3) For purposes of calculating housing-related debt to gross income, housing-related debt does not include junior liens.

(e) Other Features

(1) A comprehensive loan modification program shall include at least two of the following features:

(A) An interest rate reduction, as needed, for a fixed term of at least 5 years.

(B) An extension of amortization period for the loan term, to no more than 40 years from the original date of the loan.

(D) Reduction of principal.

(E) Compliance with a federally mandated loan modification program.

(2) While a comprehensive loan modification program must include at least two of the features set forth in paragraph (1), each individual loan modification need not include two features.

(3) A servicer shall have criteria in place that define when a borrower qualifies for the potential concessions or modifications.

(f) Long-term Sustainability:

A loan modification shall be presumed to constitute a long-term sustainable modification if it includes at least one of the following characteristics:

(1) The modification provides a reduction in monthly payment for the borrower for at least 5 years;

(2) The modification provides the borrower with a housing-related debt to gross income ratio of 38% or less;

(4) The borrower is current under the terms of the modified loan at the end of a 3-month trial period; or

(5) The modification is pursuant to the Home Affordable Modification Program Guidelines, HOPE for Homeowners Program, or another federal program intended to reduce the rate of foreclosures.

NOTE

Authority cited: Section 2923.53(d), Civil Code. Reference: Sections 2923.52 and 2923.53, Civil Code.

HISTORY

3. Certificate of Compliance as to 12-1-2009 order transmitted to OAL 3-1-2010 and filed 4-13-2010 (Register 2010, No. 16).

§2031.6. Other Requirements for Comprehensive Loan Modification Programs.

Note • History

(b) A servicer shall consider all eligible loans under this subchapter unless prohibited by the rules of the applicable pooling and servicing agreement or other investor servicing agreements.

(c) A servicer shall use reasonable efforts to remove any prohibitions and obtain waivers or approvals from all necessary parties, including but not limited to junior lien holders and investors.

(e) If a borrower fails to participate in the modification process by providing documentation within a reasonable time or otherwise abandoning the borrower's loan modification request, a servicer may decline the request and pursue other remedies such as foreclosure sale. For purposes of this subsection, a borrower that provides documentation within 2 weeks of a request by a servicer shall be presumed to have provided documentation within a reasonable time. A servicer shall notify a borrower in writing of the time period to respond to a request for information and the potential consequence of failing to provide information in a reasonable time, prior to declining a loan modification request because of a borrower's undue delay.

NOTE

Authority cited: Section 2923.53(d), Civil Code. Reference: Sections 2923.52 and 2923.53, Civil Code.

HISTORY

3. Certificate of Compliance as to 12-1-2009 order transmitted to OAL 3-1-2010 and filed 4-13-2010 (Register 2010, No. 16).

Article 2. Application

§2031.7. Initial Application.

Note • History

1. Where to File

FORECLOSURE EXEMPTIONS -- DEPARTMENT OF CORPORATIONS
320 WEST 4TH STREET, SUITE 750
LOS ANGELES, CA 90013-2344

Applications not filed by mail may be delivered to any of the Department of Corporations' locations.

Alternatively, applications may be submitted to the Department of Corporations through any electronic means that may be made available by the department at its Internet website (www.corp.ca.gov).

FORECLOSURE EXEMPTIONS -- DEPARTMENT OF FINANCIAL INSTITUTIONS 1810 - 13TH STREET
SACRAMENTO, CALIFORNIA 95811-7118

Applications may be submitted by electronic mail to foreclosures@ dfi.ca.gov.

(c) Applicants licensed by the Department of Real Estate under the Real Estate Law shall file their application with the Department of Real Estate at the following address:

FORECLOSURE EXEMPTIONS -- DEPARTMENT OF REAL ESTATE
P.O. BOX 187007
SACRAMENTO, CA 95818-7007

Applications may be submitted by electronic mail to foreclosures@ dre.ca.gov.

The inadvertent filing of an application with the incorrect department will not constitute grounds for denial of the application.

2. When to File

3. Temporary Order

4. Final Order

5. Denial of Application

6. Changes to Application

The Department will accept changes to an application while the application is under consideration. However, the Temporary Order may not be extended.

NOTE

Authority cited: Section 2923.53(d), Civil Code. Reference: Sections 2923.52 and 2923.53, Civil Code.

HISTORY

1. New article 2 (sections 2031.7-2031.8) and section filed 6-1-2009 as an emergency; operative 6-1-2009 (Register 2009, No. 23). A Certificate of Compliance must be transmitted to OAL by 11-30-2009 or emergency language will be repealed by operation of law on the following day.

2. New article 2 (sections 2031.7-2031.8) and section refiled 12-1-2009 as an emergency; operative 12-1-2009 (Register 2009, No. 49). A Certificate of Compliance must be transmitted to OAL by 3-1-2010 or emergency language will be repealed by operation of law on the following day.

3. Certificate of Compliance as to 12-1-2009 order transmitted to OAL 3-1-2010 and filed 4-13-2010 (Register 2010, No. 16).

§2031.8. Changes to Program after Final Order.

Note • History

NOTE

Authority cited: Section 2923.53(d), Civil Code. Reference: Sections 2923.52 and 2923.53, Civil Code.

HISTORY

3. Certificate of Compliance as to 12-1-2009 order transmitted to OAL 3-1-2010 and filed 4-13-2010 (Register 2010, No. 16).

Article 3. Application Form

§2031.9.

Note • History

The exemption application shall be in the following form:

STATE OF CALIFORNIA

DEPARTMENTS OF

CORPORATIONS, FINANCIAL INSTITUTIONS,

AND REAL ESTATE

APPLICATION FOR ORDER OF EXEMPTION FROM

CIVIL CODE SECTION 2923.52(a)

CALIFORNIA FORECLOSURE PREVENTION ACT

The purpose of this application is to apply for an order of exemption from Section 2923.52 of the California Foreclosure Prevention Act (California Civil Code Section 2923.52 et seq.). The approval of this application by the Commissioner shall provide the applicant with an exemption from the additional 90-day delay period before a servicer may file the Notice of Sale when foreclosing on real property, as provided in Civil Code Section 2923.52.

Upon filing this application, the applicant will be issued a temporary order of exemption, effective from the latter of the date of receipt of the application or the operative date of Civil Code Section 2923.52. The temporary order of exemption remains in effect until a final order of exemption is issued or for thirty (30) days after the application is denied.

When completing the application, please note the following:

• The name of the applicant must be the applicant's legal name.

• The applicant's regulatory license number must be provided.

• If the applicant holds a license with more than one regulatory agency under the same legal name for the same entity, list the license numbers for each regulatory agency from which an order of exemption is requested.

• The applicant must provide the name, title, address, email address, and telephone number of the contact person to whom questions regarding the filing of this application should be directed.

• The application must be signed by the applicant if a sole proprietor, by a general partner if a partnership, or by an authorized officer if a corporation or other entity.

The applicant's loan modification program must meet the following requirements:

• The program targets a ratio of the borrower's housing related debt to gross income of 38% or less, on an aggregate basis in the program.

• The program includes a combination of the following:

1. An interest rate reduction, as needed, for at least five years.

2. An extension of the amortization period for the loan term, to no more than forty years from the original date of the loan.

3. A deferral of some portion of the unpaid principal balance until the maturity of the loan.

4. A reduction of principal.

5. Compliance with a federally mandated loan modification program.

6. Any other factor the Commissioner determines is appropriate, as identified and described in this application and approved by the Commissioner (see 10 CCR §2031.5(e)(1)(F)).

• In determining a loan modification solution for the borrower, the program seeks to achieve long-term sustainability for the borrower.

The appropriate page and paragraph from the loan modification program must be referenced on the application to show the program's compliance with the above requirements and expectations.

NOTE: A servicer is not required to violate a contractual agreement for the investor-owned loans or provide a modification to a borrower who is not willing or able to pay under the modification.

The application shall be filed with the appropriate agencies as follows:

Department of Corporations

• Licensed residential mortgage lenders and servicers

• Licensed finance lenders and brokers servicing mortgage loans

• Any other entities servicing mortgage loans that are not required to file the application with the Department of Financial Institutions or the Department of Real Estate

Department of Financial Institutions

• Commercial and industrial banks

• Savings associations

• Credit unions

Organized in this state servicing mortgage loans (for purposes of this regulation, the phrase “organized in this state” means institutions headquartered in this state)

Department of Real Estate

• Licensed real estate brokers servicing mortgage loans

An application will not be rejected by a department based upon an applicant's inadvertent failure to file with the designated department.

APPLICATION FOR ORDER OF EXEMPTION UNDER

SECTION 2923.53 OF THE

CALIFORNIA FORECLOSURE PREVENTION ACT

(CIVIL CODE SECTION 2923.52 ET SEQ.)

1. Legal name of applicant:

Fictitious business name (FBN):

2. License numbers:

DOC Primary License Number:

DFI Primary License Number:

DRE Primary License Number:

Other entity servicing mortgage loans

Name of Primary Regulator:

License/Identification Number, if applicable:

(Specify every license held by applicant that this application applies to.)

j Check this box if an application has also been filed with another department.

3. Contact Person/Title:

4. Telephone Number:

5. Email Address:

(Confirmation of Temporary Order will be provided to this e-mail address.)

6. Mailing Address:

7. Date comprehensive loan modification program was implemented:

8. Link to applicant's website describing its loan modification program:

Yes ___ No ____.

Indicate any differences from the Home Affordable Modification Program:

If your answer is “Yes,” please skip the remaining questions, provide only Exhibit 2, and complete the declaration section of this application. If your answer is “No,” please continue to complete the remainder of this application.

10. Are you currently participating in a federally sponsored loan modification program, or other federal loan modification program?

Yes_____ No_______

If yes, please indicate the program below:

___ Home Affordable Modification Program

___ Home Affordable Refinance Program

___ Hope for Homeowners

___ Other. Please specify.

A. Have you entered into a contract or agreement with the federal agency responsible for the program?

Yes_____ No _______

B. Does the federal loan modification program(s) you are participating in cover all types of residential mortgage loans you service? (i.e. Fannie Mae, Freddie Mac, FHA, VA, etc.)

Yes_____ No_____

If no, please explain and include how modifications for the loans not covered by the federal program are performed.

The following exhibits must be submitted with this application:

Program 1 Name/Identity:

Program 2 Name/Identity:

Program 3 Name/Identity:

Program 1

Yes_____No_____

If yes, indicate the location of the provision. Page___ Paragraph____

Program 2

Yes_____No_____

If yes, indicate the location of the provision. Page___ Paragraph____

Program 3

Yes_____No_____

If yes, indicate the location of the provision. Page___ Paragraph____

• Does the program contain a provision that it targets a ratio of the borrower's housing related debt to gross income of 38% or less, on an aggregate basis in the program?

Program 1

Yes_____No_____

If yes, indicate the location of the provision. Page___ Paragraph____

Program 2

Yes_____No_____

If yes, indicate the location of the provision. Page___ Paragraph____

Program 3

Yes_____No_____

If yes, indicate the location of the provision. Page___ Paragraph____

• The program includes the consideration of a combination of the following features:

A. Does the program include an interest rate reduction, as needed, for at least five years?

Program 1

Yes_____No_____

If yes, indicate the location of the provision. Page___ Paragraph____

Program 2

Yes_____No_____

If yes, indicate the location of the provision. Page___ Paragraph____

Program 3

Yes_____No_____

If yes, indicate the location of the provision. Page___ Paragraph____

B. Does the program include an extension of the amortization period for the loan term, to no more than forty years from the original date of the loan?

Program 1

Yes_____No_____

If yes, indicate the location of the provision. Page___ Paragraph____

Program 2

Yes_____No_____

If yes, indicate the location of the provision. Page___ Paragraph____

Program 3

Yes_____No_____

If yes, indicate the location of the provision. Page___ Paragraph____

C. Does the program include a deferral of some portion of the unpaid principal balance until the maturity of the loan?

Program 1

Yes_____No_____

If yes, indicate the location of the provision. Page___ Paragraph____

Program 2

Yes_____No_____

If yes, indicate the location of the provision. Page___ Paragraph____

Program 3

Yes_____No_____

If yes, indicate the location of the provision. Page___ Paragraph____

D. Does the program include a reduction of principal?

Program 1

Yes_____No_____

If yes, indicate the location of the provision. Page___ Paragraph____

Program 2

Yes_____No_____

If yes, indicate the location of the provision. Page___ Paragraph____

Program 3

Yes_____No_____

If yes, indicate the location of the provision. Page___ Paragraph____

E. Does the program provide for loan modifications that comply with any federal loan modification program?

Program 1

Yes_____No_____

If yes, indicate the location of the provision. Page___ Paragraph____

Program 2

Yes_____No_____

If yes, indicate the location of the provision. Page___ Paragraph____

Program 3

Yes_____No_____

If yes, indicate the location of the provision. Page___ Paragraph____

• In determining a loan modification solution for the borrower, does the servicer seek to reduce monthly payments for at least 5 years?

Program 1

Yes_____No_____

If yes, indicate the location of the provision. Page___ Paragraph____

Program 2

Yes_____No_____

If yes, indicate the location of the provision. Page___ Paragraph____

Program 3

Yes_____No_____

If yes, indicate the location of the provision. Page___ Paragraph____

Exhibit (3). A copy of the notice that will be sent to borrowers informing them of the program.

Servicing portfolio volume, including number of units and unpaid principal balance

Delinquency status of portfolio

Loss mitigation data including total number of modifications made

Loan modification features used

Housing related debt ratios (if available)

Subsequent defaults on loan modifications

Reasons for denial of loan modifications

Exhibit (5): Explanations for items included in the application.

(b) If the program is unable to achieve a debt-to-income ratio of 38% or less, on an aggregate basis, provide an explanation of why the program is unable to achieve this target.

NOTE: Exhibits 1, 4 and 5 are considered Confidential in nature and therefore will not be made available for public inspection on an individual basis.

Applicant

Signature of Declarant

Typed Name and Title of Declarant

Executed at: ______________________________

(City, County, and State)

Date:___________________________________

NOTE

Authority cited: Section 2923.53(d), Civil Code. Reference: Sections 2923.52 and 2923.53, Civil Code.

HISTORY

1. New article 3 (section 2031.9) and section filed 6-1-2009 as an emergency; operative 6-1-2009 (Register 2009, No. 23). A Certificate of Compliance must be transmitted to OAL by 11-30-2009 or emergency language will be repealed by operation of law on the following day.

2. New article 3 (section 2031.9) and section refiled 12-1-2009 as an emergency; operative 12-1-2009 (Register 2009, No. 49). A Certificate of Compliance must be transmitted to OAL by 3-1-2010 or emergency language will be repealed by operation of law on the following day.

3. Certificate of Compliance as to 12-1-2009 order transmitted to OAL 3-1-2010 and filed 4-13-2010 (Register 2010, No. 16).

Article 4. Data Collection

§2031.10. Reports.

Note • History

(b) The loan modification data shall be reported on the FORECLOSURE PREVENTION LOAN MODIFICATION DATA report form, dated November 25, 2009, and hereby incorporated by reference.

(c) A mortgage loan servicer may seek a waiver from all or part of the reporting requirement of this section by requesting a hardship exemption from the Commissioner. A hardship exemption may be granted if a mortgage loan servicer is able to establish one or more of the following:

2. The servicer's infrastructure prevents it from collecting the data requested by the Commissioner, or the necessary changes are cost prohibitive. In granting a hardship exemption under this paragraph, the Commissioner may require a servicer to collect and report on information in the format that the servicer maintains the information or such other format agreed upon between the servicer and the Commissioner.

(d) The Commissioner may accept a report required or requested under, or pursuant to, a federal loan modification program, in lieu of the report in subsection (b).

NOTE

Authority cited: Section 2923.53(d), Civil Code. Reference: Sections 2923.52 and 2923.53, Civil Code.

HISTORY

1. New article 4 (section 2031.10) and section filed 6-1-2009 as an emergency; operative 6-1-2009 (Register 2009, No. 23). A Certificate of Compliance must be transmitted to OAL by 11-30-2009 or emergency language will be repealed by operation of law on the following day.

2. New article 4 (section 2031.10) and section refiled 12-1-2009 as an emergency; operative 12-1-2009 (Register 2009, No. 49). A Certificate of Compliance must be transmitted to OAL by 3-1-2010 or emergency language will be repealed by operation of law on the following day.

3. Certificate of Compliance as to 12-1-2009 order, including amendment of subsection (b), transmitted to OAL 3-1-2010 and filed 4-13-2010 (Register 2010, No. 16).

Chapter 5. Insurance Commissioner

(Originally Printed 5-15-46)

Subchapter 1. Production of Insurance

Article 1. Standards for Approval and Disapproval of Names of Insurance Producers

§2050. Authority.

Note • History

These regulations are promulgated pursuant to the authority granted to the Insurance Commissioner under the provisions of Section 790.10 of the Insurance Code.

NOTE

Authority cited: Section 790.10, Insurance Code.

HISTORY

1. Repealer of Article 1 (Sections 2050-2052) and new Article 1 (Sections 2050-2052.3, not consecutive) filed 8-17-73; designated effective 10-1-73 (Register 73, No. 33). For former Article 1, see Register 71, No. 48.

§2050.1. Purpose.

California Insurance Code Section 1724.5 provides that the Commissioner may, in writing, disapprove the use of any true or fictitious name (other than the bona fide natural name of an individual) by any licensee on any of the following grounds:

(a) Such name is an interference with or is too similar to a name already filed and in use by another licensee;

(b) The use of the name may mislead the public in any respect;

(c) The name states or implies that the licensee is an insurer, motor club, hospital service plan or entitled to engage in insurance activities not permitted under licenses held or applied for;

(d) The name states or implies that the licensee is an underwriter. This subdivision shall not prevent a natural person who is a life licensee from describing himself as an “underwriter” or from using the designation “Chartered Life Underwriter” if entitled thereto nor shall it prevent a natural person who is a fire and casualty licensee from using the designation “Chartered Property and Casualty Underwriter” entitled hereto nor a producers trade association each member of which is also separately licensed from having a name containing the word underwriter; or

(e) The licensee has already filed and not discontinued the use of more than two names including the true name. This subdivision shall not event a licensee who has lawfully purchased or succeeded to the business or businesses of other licensees from using for each such business not more than two additional names, true or fictitious, consisting of names used by his predecessors in the conduct of such businesses.

The purpose of these regulations is to promulgate the criteria whereby the Commissioner disapproves an application for name approval filed by or on behalf of an applicant or licensed producer and to set forth the Commissioner's interpretation of the terms and provisions appearing in subsections (a), (b), (c), (d), and (e) of Section 1724.5 of the Insurance Code, and to specify a list of words or phrases that shall serve as the grounds for disapproval if used (or in some cases if used improperly) in a producer's name. The list of such words and phrases appearing in these regulations is representative only and is intended to serve as a standard or guideline and shall not be construed as the only words or phrases which when used, or when used improperly, would be misleading or would have the capacity or tendency to mislead the public in any respect. Subsections (d) and (e) of Section 2052.4 of these regulations will be amended from time to time as conditions warrant the revision of the list of objectionable words and phrases.

§2051. Definitions.

For the purposes of this Article and Division 1, Part 2, Chapter 5, Article 12, of the Insurance Code, the following definitions shall apply:

(a) The term “producer” means any person (including any partnership, association or corporation) licensed by the Commissioner in one or more of the following capacities: insurance agent, variable contract agent, life and disability agent, life only agent, disability only agent, insurance broker, surplus line broker, special lines surplus line broker, bail agent and bail permittee (The term “producer,” for the purpose of these regulations, does not encompass or mean persons licensed as insurance solicitors or bail solicitors because an individual licensed as either an insurance solicitor or bail solicitor is authorized to do business solely under the said individual's true name or under the name(s) appearing on the license of the said individual's employer.);

(b) The term “true name” means present legal name or true corporate name;

(d) The term “fictitious name” means any name other than a true name or a bona fide natural name;

(e) The term “applicant” means a person applying for approval of a name, and

(f) The term “other applicant or licensee” or “another applicant or licensee” shall include all persons except the applicant required by the Insurance Code:

(1) To hold a license from the Insurance Commissioner;

(2) To hold a certificate of authority from the Insurance Commissioner; or

(3) To have a name approved by the Insurance Commissioner although not otherwise required to be licensed.

§2052. Interference with a Name Already in Use or Under Reservation.

Except for the bona fide natural name of an individual, no name proposed by an applicant or licensed producer shall be approved if such name is an interference with a name already approved for use by another applicant or licensee of the Department of Insurance.

§2052.1. Proposed Name Too Similar to Name Already in Use or Under Reservation.

Note • History

Except for the bona fide natural name of an individual, no name proposed by an applicant or licensed producer shall be approved if such name is too similar to a name already approved for use by another applicant or licensee of the Department of Insurance. Similarity is determined by comparing the first two, or more, words, initials, and/or numbers in the proposed name, with any or all of the words, initials, and/or numbers of all existing approved names.

NOTE

Authority cited: Section 790.10, Insurance Code. Reference: Section 1724.5, Insurance Code.

HISTORY

. 1 Amendment of section and new Note filed 12-29-2006; operative 1-28-2007 (Register 2006, No. 52).

§2052.2. Proposed Name States or Implies Insurance Capabilities Not Permitted Under Held or Applied for Licenses.

No true or fictitious name proposed by an applicant or licensed producer shall be approved if such name states or implies, or would lead reasonable persons to infer, that the applicant or licensed producer is an insurer, motor club, hospital service plan, or other entity entitled to engage in insurance activities which in fact are not permitted under held or applied for licenses. This rule is intended to apply to names which are objectionable in and of themselves and, therefore, this rule shall apply whether or not the name proposed for use by an applicant or licensed producer would interfere with, or would be too similar to, a name already approved for use by another applicant or licensee.

§2052.3. Proposed Name States or Implies Ability to Act as an Insurer or Guarantor.

No true or fictitious name proposed by an applicant or licensed producer shall be approved if such name states or implies, or would lead reasonable persons to infer, that the applicant or licensed producer is an underwriter (i.e., an insurer or guarantor). This section, however, does not prohibit any agent from indicating that such agent is an authorized representative of an admitted insurer if such agent is also clearly designated as an agent representing such insurer or a natural person otherwise entitled to do so from using the title “Chartered Life Underwriter” (CLU) or “Chartered Property and Casualty Underwriter” (CPCU), and no approval from the Commissioner is required for the use of such association, wherein each member of the association is also separately licensed, may use the word “underwriter” in the name under which the association is licensed.

§2052.4. When Proposed Name Is Misleading.

Note • History

No name proposed by an applicant or licensed producer (other than the bona fide natural name of an individual) shall be approved if it appears that use of the proposed name may mislead the public in any respect. When the true name of an organization is disapproved under these regulations, said organization may operate under an approved fictitious name provided that a commitment to use said approved fictitious name exclusively in the solicitations of insurance is made by the applicant or licensee to the Commissioner. A disapproval under this section may be based on one or more of the following criteria:

(a) The name is the same as, closely resembles, borrows on the name of, or implies affiliation with or sponsorship by, a federal, state, or local governmental authority or program.

(b) The name is the same as the name of a well-known company, or is so similar in spelling, pronunciation or appearance to the name, trade name, trademark or service mark, logo, or symbol of a well-known company as to borrow on the name of, or imply affiliation with, the said well-known company. This rule shall apply whether or not the company or business entity that would suffer the infringement is licensed by the Insurance Commissioner or regulated by the Department of Insurance, or is otherwise identified with the insurance industry.

(c) The name fails to state or clearly indicate that the applicant or licensed producer is or will be an insurance producer by any of the following:

(1) Failing to include in its name the word “insurance” followed by one of the following definitive words:

(A) “agency”, “services”, “marketing”, “sales”, “solutions”, “center;

(B) “broker”, “brokers”, or “brokerage”, as long as the applicant or licensed producer holds broker-authority and has a broker's bond on file with the Commissioner; or,

(2) An administrator or applicant for an administrator certificate that fails to include one of the following words in its name: “administrator”, “administrative”, or “administration”.

(3) A bail applicant or bail licensee that fails to include the word “bail” in its name.

(d) The name states or implies, or would lead reasonable persons to infer:

(1) That the applicant or licensee is primarily engaged in some line of business other than the insurance business, and the applicant cannot qualify for any of the exceptions set forth in paragraphs (2), (3), and (4) of this subsection.

(2) That the applicant or licensee has expertise in the area of investment, tax shelter, financial or estate planning or computer programming. An applicant may overcome this objection by showing that he qualifies under either of the two following exceptions:

(A) An exception to this rule may be made on a case by case basis where the applicant or licensee holds a certificate as a broker“dealer under California Corporations Code Section 25210 and/or where applicant holds a certificate as an investment adviser under the provisions of California Corporations Code Section 25230, and applicant has submitted evidence satisfactory to the Commissioner that in excess of 80% of applicant's net income from the said business entity for which name approval is being sought is derived from sources of business other than insurance. The foregoing exception is not available to an agent of a broker-dealer, as the word “agent” is defined in California Corporations Code Section 25003.

(B) An exception to this rule may be made on a case by case basis where a licensee is seeking approval for the use as a corporate name the same name, whether true or fictitious, in which he is licensed as an unincorporated producer, provided the said licensee is an officer owning 10% or more of the shares of the corporate applicant for license. The foregoing exception, however, shall not be available to an applicant or a licensee who purchases the unincorporated business or businesses of another licensed producer subsequent to the adoption of these regulations.

(3) That the applicant or licensee is a regulated finance or mortgage company. An exception to this rule may be made where the applicant presents evidence satisfactory to the Commissioner that applicant's principal business is that of a regulated finance or mortgage company and that 80% of applicant's net income from said business entity is derived from sources of business other than insurance or where the applicant presents a verified statement to the effect that insurance coverage will be written only on those persons who are customers of the finance or mortgage company generally identified with the name for which approval is sought. This exception to the rule shall apply whether the applicant is a regulated finance or mortgage company or is held or controlled by a regulated finance or mortgage company.

(4) That the applicant or licensee is engaged in any other business activity, including but not limited to retail sales or benefits consulting. An exception to this rule may be made where the applicant presents evidence satisfactory to the Commissioner that applicant's principal business is that of retail sales having nothing to do with insurance and that 80% of applicant's net income from said business entity is derived from sources of business other than insurance or where the applicant presents a verified statement to the effect that insurance coverage will be written only on those persons who are customers of the retail business generally identified with the name for which approval is sought. This exception to the rule shall apply whether the applicant is the said retail business entity or is held or controlled by such business entity.

(e) The name makes use of one or more of the following words or phrases in its singular or plural form or a derivation of one or more of such words or phrases:

(1) “A,” singly or in a series of such capital letters as the initial part of a name;

(2) “Advisor”;

(3) “Analyst,” unless the licensee holds or is applying for a Life and Disability Analyst License;

(4) “Assigned Risk”;

(5) “Assurance Company” or “Assurance Corporation” or “Assurance, Inc.”;

(6) “Bureau”;

(7) “Cal-Med”;

(8) “Citius Altius Fortius”;

(9) “Compensation”;

(10) “Consultant”;

(11) “Consumer”;

(12) “Counselor” or “Counsellor”;

(13) “Credit unless the licensee is a Credit Union”;

(14) “Department”;

(15) “Deposit Insurance”;

(16) “Excess”, unless the licensee holds or is applying for a Surplus Line Broker license;

(17) “E&S”, unless the licensee holds or is applying for a Surplus Line Broker license;

(18) “Federal”;

(19) “Government”;

(20) “Indemnity”;

(21) “Institute”;

(22) “Insurance” when comprising the last word (e.g., Great Cliff Insurance) or preceding “Company” or “Corporation” or “Incorporated” or “Inc.”, or “Limited” or “Ltd”, or “Limited Liability Company” or “LLC”, or “Limited Liability Partnership” or “LLP”;

(23) “Insurer”;

(24) “Insuror”;

(25) “Investment”;

(26) “Investor”;

(27) “Life” when comprising the last word (e.g., Acme United Life);

(28) “Medi” when used as the first part or prefix of a word (e.g., Medical, Medi-Cal, Medifund, Mediplan, and similar combinations);

(29) “Mortgage Guarantee” or “Mortgage Guaranty”;

(30) “National”;

(31) “Nationwide” (except when an agent representing an insurance company whose name contains the word “Nationwide” and the agent is authorized by said company to use the word to identify with such insurer);

(32) “No Fault”;

(33) “Olympic”;

(34) “Olymiad”;

(35) “Plan”;

(36) “Reinsurance”, unless the licensee holds or is applying for a Reinsurance Intermediary-Broker or Reinsurance Intermediary-Manager license;

(37) “Reserve”;

(38) “Social Security”;

(39) “State”;

(40) “Statewide”;

(41) “Trust”;

(42) “Underwriter”;

(43) “United States,” “U.S.” or “U.S.A.”;

(44) “Veteran.”

(f) The name improperly makes use of one or more of the following words or phrases in its singular or plural form or a derivation of one or more of such words or phrases:

(1) “Administrator”;

(2) “Advocate”;

(3) “Affordable”;

(4) “Asset”;

(5) “Associate”;

(6) “Broker”;

(7) “California”;

(8) “Care”;

(9) “Cash”;

(10) “Certified”;

(11) “Cheap”;

(12) “City”;

(13) “Company”;

(14) “Consolidate”;

(15) “Cost”;

(16) “County”;

(17) “Discount”;

(18) “Education”;

(19) “Elder”;

(20) “Enterprise”;

(21) “Entitlement”;

(22) “Equity”;

(23) “Estate”;

(24) “Expert”;

(25) “Franchise”;

(26) “Group”;

(27) “Legal”;

(28) “Long Term Care”;

(29) “Money”;

(30) “Mature”;

(31) “Price”;

(32) “Protection”;

(33) “Provider”;

(34) “Retire”;

(35) “Safe”;

(36) “Secure”;

(37) “Securities”;

(38) “Senior”;

(39) “Specialist”;

(40) “Tax”;

(41) “Transcontinental.”

NOTE

Authority cited: Section 790.10, Insurance Code. Reference: Section 1724.5, Insurance Code.

HISTORY

1. Amendment of section and new Note filed 12-29-2006; operative 1-28-2007 (Register 2006, No. 52).

§2052.5. Effective Date of Standards.

The standards established by these regulations are applicable to names filed with the Insurance Commissioner on and after October 1, 1973, the effective date of these regulations. Producers may continue to use the name(s) under which they are licensed on the effective date of these regulations. The adoption of these regulations does not affect the authority of the Commissioner to order a producer to discontinue the use of a name on any of the grounds specified in Insurance Code Section 1724.5; provided, however, that any such action by the Commissioner shall be conducted in accordance with Chapter 5 of Part 1 of Division 3 of Title 2 of the Government Code.

Article 2. Bail Transactions

PRELIMINARY

§2053. Application; Construction.

Note • History

This article as amended is applicable to all applications for licenses filed after the effective date of such amendments, to all transactions or severable portions thereof occurring thereafter and to the keeping of all records pertaining to such transactions or severable portions thereof. All such applications filed prior thereto and all transactions or severable portions thereof occurring prior thereto and the keeping of records pertaining thereto shall be governed by the provisions of this article which were in effect prior to such date. Insofar as the provisions of this article are substantially the same as the provisions of this article as it read prior to said effective date, they shall be construed as restatements and continuations thereof and not as new provisions.

NOTE

Authority cited for Article 2 (§§2053-2104, inclusive), Section 1812, Insurance Code. Reference: Sections 1800-1822, California Insurance Code.

HISTORY

1. Repealer of Article 2 (§§2055-2102, inclusive) filed 11-30-53, designated effective 1-1-54; new Article 2 (§§2053-2104, inclusive) filed 11-30-53, designated effective 12-1-53 as therein specified (Register 53, No. 22).

2. Repealer of 2053,2053.1 and 2053.2 filed 12-11-53 as an emergency; designated effective 1-1-54; new §§2053, 2053.1 and 2053.2 filed 12-11-53 as an emergency; designated effective 1-1-54 (Register 53, No. 22).

3. Repealer of Article 2 (Sections 2053-2104) and new Article 2 (Sections 2053-2104) filed 9-12-77; effective thirtieth day thereafter (Register 77, No. 38).

§2053.1. Past Violations; Power of Commissioner.

Insofar as the provisions of this article are new provisions, their promulgation shall not preclude the commissioner from taking such action as is permitted law for acts or omissions which occurred prior to the effective date these amendments.

§2054. Definitions; Application of Insurance Code.

Insofar as they are applicable, the definitions contained in the General Provisions and in Chapter 7, Part 2, Division 1 of the Insurance Code are applicable to this article.

§2054.1. “Bail License”; “Bail Licensee”; Terms Defined.

As used in this article “bail license” includes all licenses specified in Section 1801 of the Insurance Code and “bail licensee” the holders thereof whether on a permanent or temporary basis and whether as individuals or as members of a partnership.

§2054.2. “Bail Agent” or “Permittee” Includes Copartners.

Whenever the term “bail agent or permittee” is used in this article, such term includes the members of a partnership of bad agents or permittees if applicable.

§2054.3. “Bail”; “Transaction of Bail”; Terms Defined.

As used in this article “bad” or “transaction of bail” includes undertakings of bail and “bail bond” as that term is defined in Insurance Code Section 1800.4, including the activities in respect to execution or delivery of undertakings of bail of any person, whether designated “general agent” or otherwise, who conducts, or supervises the conduct of bail business pursuant to contract with a surety insurer.

§2054.4. Payment of Commissions; Unlawful Rebates; Prohibited.

No person may receive commission on bail or the transaction of bail as defined in Section 2054.3 unless he holds a bail license as defined in Section 2054.1. No bail licensee shall pay or allow in any manner, directly or indirectly, to any person who is not also a bail licensee any commission or other valuable consideration on or in connection with a bail transaction. This section shall not prohibit payments by a bail licensee to an unlicensed person of charges such person for services of the kind specified in Section 2081(c) and (d).

§2054.5. “Arrestee” Defined.

As used in this article “arrestee” means any person actually detained or subject to detention in custody whose release may lawfully be effected by bail.

§2054.6. Notices; Time for Filing.

Whenever any provision of this article requires that notice be given to or that filing be made with the commissioner a specified period of time before a matter may lawfully be used or an event lawfully occur, such period of time may be reduced by the commissioner at the request of the licensee if good cause is shown therefor.

§2054.7. Notice of Noncompliance; Request and Hearing.

Whenever pursuant to any provision of this article the commissioner gives notice to any person that such person may not establish a particular relationship or perform a particular act, such person shall upon written request therefor filed within 10 days of said notice be granted within 60 days following the date of such notice on the issues of noncompliance specified in such notice. Whenever pursuant to the provisions of this article the commissioner gives notice to any person to discontinue within a specified time a particular established relationship or the performance of a particular act, such person shall upon written request therefor filed within 10 days of said notice be granted a hearing on the issues of noncompliance specified in such notice which shall big held at least 10 days prior to the date specified in the notice as the date such person shall discontinue the relationship or the act.

LICENSE REGULATIONS

§2055. Applications; Forms.

All applications for original or renewal bail licenses shall be on forms furnished by the commissioner. All applicants for such licenses and all bail licensees shall furnish such supplementary information and supporting statements as the commissioner may require.

§2056. License Qualifications.

An original bail license shall not be issued to any person unless he:

(a) Is a California resident and has been such for a period of two years immediately preceding issuance of the license.

(b) Satisfies the commissioner that he is a person of good business reputation and of good general reputation in:

(1) The community in which he intends to principally engage in the transaction of bail, or

(2) The community or communities in which he formerly resided, if he has not been a resident of the community in which he intends to principally engage in the transaction of bail for a sufficient period of time to establish such reputation.

§2057. Prohibited Associations.

An original or renewal bail license shall not be issued to any person nor shall it be kept in force if he is:

(a) Regularly or frequently employed by or associated with:

(1) A court of law in respect to its exercise of its criminal jurisdiction, if any,

(2) A public law enforcement agency possessing the power of arrest and detention of persons suspected of violating the law in the specific terms of the statutes establishing and governing the agency.

(b) A private patrol operator.

(d) An associate of persons of bad general or bad business reputation, or criminals, except to the extent that such association is required in the transaction of bail with such persons.

(e) In case the associations defined in (d) above are only with persons related to the licensee or applicant by blood or marriage, on good cause shown the commissioner may issue the license applied for or a restricted license, or may revoke an existing license and issue in lieu thereof a restricted license.

§2058. License; Prior Prohibited Associations.

An unrestricted original bail license shall not be issued to any person if within the two-year period immediately prior to his application a license would not have been issued to him for any of the reasons specified in Section 2057 (a); but a restricted bail license may be issued to such person if he presents evidence satisfactory to the commissioner that his bail business will be conducted in a county other than any county wherein he was employed by or associated with a court of law or law enforcement agency; or that such business will be conducted only in a part of the same county so remote from the place of his prior employment that such employment will have no affect on his conduct of his bail business.

§2059. Solicitor, Other Licenses Prohibited.

A person licensed as a bail solicitor may not at the same time be licensed as:

(a) A bail agent.

(b) A bail permittee.

(c) A bail solicitor for more than one employer unless all such employers are partners, in which event he shall be licensed as a solicitor for all partners.

TRANSACTION OF BAIL THROUGH PARTNERSHIPS AND EMPLOYEES

§2060. Natural Persons Only.

Only natural persons may be issued a bail license.

§2061. Transacting as Partners; Notices.

Two or more bail agents or permittees desiring to transact bail as partners shall file with the commissioner the written statement required by Section 2061.2 at least 10 days prior to so transacting, except as provided by Section 2061.3.

§2061.1. Partners; Individual Licensing; Rebating.

Each partner shall be licensed individually as a bail agent or permittee, or both, and every partner shall be licensed in the same capacity or capacities as the other members of the partnership so that all partners will be licensed in the same capacity or capacities; except the commissioner may permit the inclusion of an unlicensed partner if evidence is presented satisfactory to him that such unlicensed partner will have no functions, duties or responsibilities involving the actual conduct, supervision or transaction of the bail business.

§2061.2. Copartners; Filing Individual Statements.

A written statement subscribed by each partner shall be filed with the commissioner setting forth:

(a) The nature of all businesses conducted or intended to be conducted by the partnership.

(b) The location of the principal place of conduct of the bail business of the partnership and of all other places for the conduct of such business.

(d) An agreement to immediately notify the commissioner of any change in the membership of the partnership or of the matters set forth in (a) to (c) hereof.

§2061.3. Change in Partnership; Notices.

Upon any change in the membership of the partnership whether through death, dissolution, addition, deletion, or otherwise, or upon the revocation of the license of any partner, the survivors or successors to the bail business, if they are to act a partnership, shall file a new statement pursuant to Section 2061.2 and shall be subject to the requirements of Section 2061.1. If the change in membership arises through the death or revocation of the license of three or more persons whose partnership agreement provides for continuation of the partnership by the survivors, such survivors may continue to transact bail as a partnership until the expiration of such reasonable period of time as may be specified in any notice which may be sent by the commissioner pursuant to Section 2054.7.

§2061.4. Copartnership Suspension; Prohibitions.

If the license of any partner is suspended such partner may not engage in the transaction of bail nor may he receive any commission on, or profit derived from, such transactions entered into by other persons during the period of suspension.

§2061.5. Copartnership; Disciplinary Action for Act of One Partner.

The licenses of each member of a partnership are subject to suspension or revocation for the failure of the partnership or of any member of the partnership to comply with all laws and rules governing or regulating the conduct of the bail business or acts incidental thereto if such failure occurred with his express or implied knowledge, consent, ratification or collusion.

§2062. Licensed Employees; Notice of Employment.

A bail agent or permittee or a partnership of bail agents or permittees desiring to employ another person licensed as a bail agent or permittee for the purpose of assisting him in his bail business shall file with the commissioner a written statement as required by Section 2062.2 at least 10 days prior to such employment. If prior to the expiration of such 10-day period the commissioner gives notice to the prospective employer specifying wherein such employment would be contrary to any provision of this article or any law relating to bail, such person shall not be employed. If after such 10-day period and after the establishment of the employer-employee relationship the commissioner gives notice to such wherein the continued employer-employee relationship would be contrary to any provision of this article or any law relating to bail, they shall discontinue such relationship within such reasonable time as the commissioner may prescribe.

§2062.1. Employee; Licensed in Same Capacity as Employer.

Each such employee (employed pursuant to Section 2062) shall be licensed in the same capacity or capacities as the employing bail licensee or bail licensees.

§2062.2. Employment; Written Notices.

A written statement subscribed by the employer and each such employee (employed pursuant to Section 2062) shall be filed with the commissioner setting forth:

(a) The fact of employment.

(b) The location of the place of business from which the employee will normally transact bail.

(c) The basis of compensation of the employee and if such compensation is to be more than $1,000 per month the amount thereof.

(d) An agreement to immediately notify the commissioner in writing of any change in the matters set forth in (a) to (c) hereof.

§2063. Licensed and Unlicensed Employees; Effect.

Sections 2063.1 to 2063.2, inclusive, apply to each employee of a bail agent or permittee whether or not such employee is licensed as a bail agent, permittee or solicitor if such employee performs any duties connected with the transaction of bail by his employer.

§2063.1. Employer Supervision; Disciplinary Action.

An employing bail agent or permittee shall exercise a reasonable degree of supervision over his employees and make a reasonable effort to keep informed of their acts as his employees. Failure of the employer to exercise such supervision resulting in the violation of law or these regulations by the employee may result in disciplinary action against the employer.

§2063.2. Branch Offices.

A bail licensee (i.e., the owner, a partner or a licensed employee) shall be in charge, as his usual and customary place of business, of each branch office.

§2063.3. Solicitor; Transactions and Conduct.

A bail solicitor shall not conduct a bail business or transact bail under any name or at any address other than that of his employer, nor shall he use any forms or documents in connection with a bail transaction other than those of his employer.

CONDUCT OF BAIL LICENSEES

§2064. Bail Licensees; Capacity and Conduct.

Every bail licensee shall conduct his business in such a manner that the public and those dealing with him shall be aware of the capacity in which he is acting, and if he transacts bail both as an employee and as an individual or in any other dual capacity, each such transaction shall be so conducted that the public and those dealing with him shall not be confused as to the capacity in which he acts.

§2065. Business in Specified Capacities Only and Notices.

Every bail agent or permittee shall conduct his bail business:

(a) As an individual;

(b) As a member of a partnership as provided in Section 2061;

(d) As the temporary associate of another bail agent or permittee in the joint transaction of bail if such temporary association is limited to a single transaction or to a series of related transactions;

(e) As the temporary conductor of the bail business of another bail a period of his temporary absence; or

(f) In any other lawful manner provided written notice is filed with the commissioner by the bail licensee at least 10 days prior to his so conducting his bail business setting forth full details of the manner in which the business will be conducted and the names of all persons, if any, to associated with him. If prior to the expiration of such 10-day period the commissioner gives notice to such bail licensee specifying wherein the intended conduct of the business would be contrary to any provision of this article or any law relating to bail, such bail licensee shall not so conduct his business. If after such 10-day period the commissioner gives notice to such bail licensee specifying wherein the continued conduct of his bail business would be contrary to any provision of this article or any law relating to bail, he shall discontinue to so conduct his business within such reasonable time as the commissioner may prescribe.

§2066. Business in Own Name.

Except as provided in Section 1724.5 of the Insurance Code and the commissioner's regulations promulgated thereunder (Sections 2050 and following of Title 10 of the California Administrative Code) and Sections 2066.2, 2066.3, 2066.4 hereof, every bail licensee shall do business in his own name.

§2066.1. Using Employer's Name.

Every bail agent and permittee employed by another bail agent or permittee pursuant to Section 2062 and acting as such and every bail solicitor shall do business only in the natural name or fictitious name, if any, of his employer.

§2066.2. Using Predecessor's Name.

The permission under Section 1724.5 of the Insurance Code to use a predecessor's name in case a bail agent or permittee purchases or succeeds to the bail business of another bail agent or permittee is applicable only where the business so purchased or succeeded to was a bona fide business which the predecessor or predecessors had actively conducted as a bail business for at least 5 consecutive years.

§2066.3. Fictitious Names; Filing, Similar Names.

Prior to its use, a fictitious name or style must be:

(a) Filed with and approved by the commissioner in writing.

(b) Filed with the county clerk of all counties in which user thereof maintains an office for the transaction of bail or in which he contemplates the active solicitation of bail under such fictitious name or style.

(c) Worded in compliance with the requirements of Section 1724.5 of the Insurance Code and the regulations of the commissioner promulgated under authority thereof (Sections 2050 and following of Title 10 of the California Administrative Code).

§2066.4. Disapproval of Fictitious Name.

If the commissioner gives notice to a bail agent or permittee specifying wherein the continued use of a fictitious name would be in violation of any of the provisions of the Insurance Code or this Article, such bail agent or permittee shall discontinue the use of such fictitious name subject to such extension of time as the commissioner may prescribe pursuant to the provisions of Section 1724.5 of the Insurance Code.

§2066.5. Advertising of Fictitious Names.

All advertising or telephone listings in the yellow pages of telephone directories shall contain the true name of the licensee(s) who owns it with equal prominence with that of the fictitious name, so that there will be no indication that another separate business exists when in fact, the ownership is the same.

§2067. Misrepresenting Capacity, Authority.

No bail licensee shall directly or indirectly represent that he is a fidelity or surety insurer or that he has the authority or powers of a bail permittee, bail agent or bail solicitor unless he is licensed as such nor shall he misrepresent his authority or power to act on behalf of a surety insurer; nor shall he advertise his bail business in the yellow pages of the telephone directory under “Surety” or “Fidelity.”

§2068. Transactions by Unlicensed Persons; Prohibitions.

No bail licensee shall directly or indirectly permit any person on his behalf to solicit or negotiate undertakings of bail or bail bonds or to effect undertakings of bail or to issue or deliver bail bonds unless such person is properly licensed by the commissioner to perform such acts, even though such person acts in a purely mechanical or ministerial manner or renders his services gratuitously. This section shall not prevent a bail agent or permittee from suing the mail, or any messenger or delivery generally, to file executed undertakings of bail or deliver bail bonds, nor shall it prevent such filing or such delivery by the attorney or other agent of the arrestee. No person in the employment of the licensee shall act as an agent of the arrestee in the performance of any of the acts specified herein.

§2069. Confidential Communications; Information.

No bail licensee shall disclose or reveal any information coming into his possession or to his knowledge concerning an impending arrest or detention of a person by a law enforcing agency, except in accordance with the lawful inquiry of a law enforcement or judicial officer, unless such information is a matter of public record or knowledge.

§2070. Agreements for Bail Before Arrest; Prohibited.

No bail licensee shall enter into an agreement or arrangement with any person, which agreement or arrangement has for its purpose the guaranteeing or assuring such person or any other person in advance of the commission of any offense that bail will be furnished to such person or any other person when and if such person or any other person is arrested, nor shall any bail licensee perform any act which will encourage any person to violate the law.

§2071. Suggesting or Recommending Attorney; Prohibited.

No bail licensee shall in any manner, directly or indirectly, suggest the name of or recommend any attorney to any arrestee or person purporting to act for or represent an arrestee.

§2072. Acting for Attorney; Prohibited.

No bail licensee shall receive, accept or collect for, or transmit to, any attorney any money or other item of value for attorney's fee, costs or any other purpose on behalf of an arrestee or any other person with whom bail is negotiated. Any bail licensee who is lawfully holding any money or other item of value as collateral may, however, upon the release of such collateral, honor an assignment thereof to an attorney if the licensee took no part in the negotiation of such assignment. No bail licensee shall furnish forms for or otherwise aid in such assignment.

§2073. Preparation of Writ of Habeas Corpus; Prohibited.

No bail licensee or his employees shall prepare, make, or assist in any manner in the preparing, making or filing of a petition for a writ of habeas corpus for or on behalf of an arrestee. Such licensee or his employees may, however, without charge and in accordance with the specific directions of the attorney of the arrestee, perform such mechanical ministerial acts as will assist such attorney in preparing or making such petition.

§2074. Unlawful Solicitations; Place.

Except as provided in Sections 2074 and 2079.5, no bail licensee shall solicit any person for bail in any prison, jail, or other place of detention of persons, court or public institution connected with the administration of justice; or in the halls or corridors adjacent thereto; provided that a bail licensee may in such halls, corridors or in other rooms or areas where not prohibited by local rule or ordinance transact bail with persons specified in Section 2079 who have prior to transaction, requested his services.

§2075. Regulations of Public Authority; Compliance.

Every bail licensee shall fully comply with every rule, regulation or ordinance issued by a proper public authority governing the conduct of persons in or about any prison, jail or other place of detention of persons, court or public institution connected with the administration of justice. This section shall not be construed to authorize any act constituting a violation of any other section of this article which is done pursuant to any rule, regulation or ordinance that is merely permissive in its nature.

§2076. Informing or Notifying of Arrests; Prohibitions.

No bail licensee shall, for any purpose, directly or indirectly, enter into an arrangement of any kind or have any understanding with a law enforcement officer, newspaper employee, messenger service or any of its employees, a trusty in a jail, any other person incarcerated in a jail, or with any other persons, to inform or notify any licensee (except in direct answer to a question relating to the public records concerning a specific person named by the licensees in the request for information), directly or indirectly, of:

(a) The existence of a criminal complaint;

(b) The fact of an arrest; or

(d) Any information pertaining to the matters set forth in (a) to (c) hereof or the persons involved therein.

§2077. Fictitious Communications.

No bail licensee shall, directly or indirectly, transmit or cause to be transmitted to himself or to any other person a communication authorizing said licensee or any other person to solicit or negotiate bail which is a fictitious communication or which is from a person other than a person from whom he may lawfully solicit bail pursuant to Section 2079 or with whom he may lawfully negotiate bail pursuant to Section 2080. No such communication shall, at any time or in any manner, be used directly or indirectly as an aid in securing information concerning a person confined in a jail, prison or other place of detention or for the purpose of visiting an arrestee therein, or for any other purpose.

§2077.1. Identification Card.

Every bail licensee shall keep in his possession an identification card issued to him by the commissioner and shall, upon request, show it to any person with whom he transacts bail. He shall not permit any person other than himself to use his identification card for any purpose. The identification card shall be returned to the commissioner immediately upon the termination of all of the holder's bail licenses.

§2078. Gifts Prohibited.

No bail licensee shall give, directly or indirectly, any gift of any kind to any public official or employee of any governmental agency who has duties, functions or responsibilities in respect to the administration of justice or a place wherein detention of persons charged with crime may occur, or to a prisoner any jail or place of detention. Items of nominal value which are distributed generally for the purpose of advertising shall not be considered gifts for the purpose of this article, except if given to prisoners or persons directly in charge of prisoners in their place of detention; nor shall this article prevent the customary giving of gifts to relatives by blood or marriage. But nothing in this Section shall be construed to justify any rebate or bribe.

§2079. Soliciting of Bail; Persons.

No bail licensee shall solicit bail except in accordance with Section 2079.5 and from:

(a) An arrestee;

(b) The arrestee's attorney;

(d) Such other person as the arrestee shall specifically designate in writing. Such designation shall be signed by the arrestee before the solicitation, unless prohibited by the rules, regulations or ordinances governing the place of imprisonment. If so prohibited, it may be signed after release of the arrested to ratify a previous oral designation made by him.

§2079.1. Solicitation of Arrestee; Hours.

Any solicitation of an arrestee himself pursuant to Section 2079 (a) shall be only after a bona fide request for bail services has been received from the arrestee or from a person specified in Section 2079 (b) or (c). Any solicitation of a person specified in Section 2079 (c) or (d) shall be only between the hours of 7 o'clock a.m., and 11 o'clock p.m., unless the bail licensee is directly and specifically authorized in writing by the arrestee or the arrestee's attorney to make such solicitation at some other specific time.

§2080. Negotiation of Bail; Persons.

No bail licensee shall negotiate concerning bail, except with:

(a) A person specified in Section 2079;

(b) Any other person who without previous solicitation on the part of the bail licensee has requested his services.

§2081. Collection and Charges Permitted.

No bail licensee shall, in any bail transaction or in connection therewith, directly or indirectly, charge or collect money or other valuable consideration from any person except for the following purposes:

(a) To pay the premium at the rates established by the insurer and set forth on the undertaking of bail or to pay the charges for the bail bond filed in connection with such transaction at the rates filed in accordance with Section 2094.

(b) To provide collateral.

(c) To reimburse himself for actual, necessary and reasonable expenses incurred in connection with the individual bail transaction, including but not limited to:

(1) Guard fees after the first 12 hours following release of an arrestee on bail;

(2) Notary fees, recording fees, necessary long distance telephone expenses (i.e., telephone calls billed by the telephone company as “long distance,” but not those for which “message unit” charges only are made); telegram charges, travel expenses and verification of collateral outside of the county where the bail was arranged; a reasonable posting fee charged by a licensee operating in a county other than that where the bail was arranged; providing that no charge shall be made for travel from the licensee's office to post bail in an area where the licensee advertises in the yellow pages of the telephone directory unless the advertisement specifically so states. Such travel charges, when permitted, shall not exceed the amount allowed to be taken as a travel expense for income tax purposes under the federal Internal Revenue Code and Regulations thereunder, or the amount allowed by the State of California to be claimed for mileage by its employees, whichever the licensee chooses.

(d) To reimburse himself for actual reasonable and necessary expenses incurred and caused by a breach by the arrestee of any of the terms of the written agreement under which and pursuant to which the undertaking of bail or the bail bond was written. Such reimbursement may not exceed the penal amount of such undertaking or bond and may include a reasonable charge for the services of the licensee, his employees, partners or other persons associated with him in the particular transaction of bail.

(e) If a forfeiture of bail occurs and is not set aside, the expenses under (c) and (d) of this Section which are incurred within 180 days of such forfeiture may be charged in addition to the amount of such forfeiture.

§2082. Prohibited Service Charges.

Except to the extent permitted by Section 2081 (c), (d) , and (e), no bail licensee shall make any charge for his services in a bail transaction in addition to the premium on an undertaking of bail or the charge for a bail bond at the rates filed in accordance with Section 2094.

§2083. Written Statements of Bail Transactions; Contents; Delivery.

Every bail licensee shall, at the time of obtaining the release of an arrestee on bail or immediately thereafter, deliver to such arrestee or, if the negotiations concerning the bail were not with the arrestee, to the principal person with whom such negotiations were had, a numbered document containing the following information:

(a) If an undertaking of bail, the name of the surety insurer.

(b) The name and address of the bail licensee.

(d) The date of release of the arrestee.

(e) The date, time and place of the arrestee's required appearance.

(f) The amount of bail.

(g) The offenses with which the arrestee is charged.

(h) The premium if an undertaking of bail, or the charge if a bail bond.

(i) An itemization of all actual expenses described in Section 2081 (c) and (d), supported by vouchers and receipts, or true copies thereof.

(j) The total amount of all charges.

(k) The amount received on account.

(l) The unpaid balance, if any.

(m) A description of and receipt for any collateral received and a statement of any conditions relating thereto including a copy of any written agreement executed in connection therewith.

§2083.1. Same; Additional Statements.

If, after the release of an arrestee, additional expenses are incurred or charges made, the bail licensee shall immediately deliver to the person specified in Section 2083 an additional numbered document containing the information, required by Section 2083 (h), (i), (j), (k) and (l).

§2084. Guarantor Agreements; Delivery; Notices.

All guarantor agreements shall be in writing, or reduced to writing as soon as possible after consummation. If any person acts as a guarantor, a copy of the guarantor's agreement shall be delivered to him promptly upon his execution thereof. No bail licensee shall enforce any such agreement without disclosing to the guarantor all collateral held by such licensee indemnifying the bond to which the agreement relates, and the identity of all other guarantors thereof, if any.

§2086. Undertakings of Bail; Delivery; Compliance.

No bail licensee shall deliver an undertaking of bail which does not comply with all of the provisions of Section 381 of the Insurance Code.

§2087. Waiver of Rights of Guarantor, Prohibited.

No bail licensee shall require the waiver by a depositor of collateral or by a guarantor of any right he might have or thereafter acquire in connection with any bail transaction. No bail licensee shall require or accept in connection with any bail transaction any waiver of defense, confession of judgment, or other agreement impairing the right of the person with whom the bail is negotiated or any depositor of collateral or guarantor to a determination of his rights in a civil court.

§2088. Collateral; Fiduciary Relation.

Any bail licensee who receives collateral in connection with a bail transaction shall receive such collateral in a fiduciary capacity, and prior to any forfeiture of bail shall keep it separate and apart from any other funds or assets of such licensee.

§2088.1. Collateral; Custody Thereof.

If pursuant to his agreement or contract of agency employment or partnership any bail licensee is or may be required, or in fact does, transfer collateral to another bail licensee, general agent, or surety insurer, such recipient of said collateral shall hold it in the same fiduciary capacity as the bail licensee, return it, and otherwise handle it in conformity with Sections 2088 through 2089, both inclusive, hereof. Such collateral shall only be transferred to another bail licensee or to a surety insurer holding a certificate of authority in California and said collateral shall not be removed from this state.

§2088.2. Return of Collateral.

Any collateral received shall be returned to the person who deposited it with the bail licensee or to any assignee of such person, other than the bail licensee or his representative, as soon as he is advised that the obligation, the satisfaction of which was secured by the collateral, is discharged. It is the duty of the bail licensee or surety insurer to determine promptly whether such obligation has been discharged upon request for return of the collateral by the person depositing it or by his assignee. If the collateral was deposited to secure the obligation of a bond, it shall be returned immediately upon the entry of any order by an authorized official by virtue of which liability under the bond is terminated. If any licensee or surety insurer which has custody of the collateral fails to take promptly any action necessary to secure the termination of such liability, he shall return such collateral immediately upon the accrual of any right to secure an order of termination of liability. If such collateral was deposited as security for unpaid premium or charges and if such premium or charges remained unpaid at the time of exoneration and after demand therefor has thereafter been made by the licensee or surety insurer which has custody of the collateral, the collateral other than cash may be levied upon in the manner provided by law and the proceeds of such collateral may be applied to the amount of such unpaid premium or charges.

§2088.3. Real Property as Collateral.

If a bail licensee receives as collateral in a bail transaction, whether in his own or on another's behalf, any document which conveys title to real property, such document shall state on its face that it is executed as part of a security transaction. If such document is recorded, a reconveyance of such property executed in such a manner that it may be recorded shall be delivered by the responsible bail licensee or surety insurer to the person executing the original conveyance or to his heirs, legal representative or successor in interest immediately upon such responsible party learning of the satisfaction of the obligation secured; and it is the duty of such responsible party to determine promptly whether such obligation has been discharged upon request for return of the collateral by the person entitled thereto.

§2089. Return of Excess Collateral on Forfeiture.

If collateral received is in excess of the bail forfeited, such excess shall be returned to the depositor immediately upon the application of the collateral to the forfeiture; subject, however, to any claim for unpaid premium or charges as provided in Section 2081.

§2090. Surrender of Arrestee to Custody; Return of Premiums.

No bail licensee shall surrender an arrestee to custody prior to the time specified in the undertaking of bail or the bail bond for the appearance of the arrestee, or prior to any other occasion when the presence of the arrestee in court is lawfully required, without returning all premium paid for such undertaking or bond; except that when as the result of judicial action, information concealed or misrepresented by the arrestee or other reasonable cause, any one of which was material to the hazard assumed, and the licensee can show that the hazard was substantially increased, then the bail licensee may retain incurred out of pocket expenses permitted to be charged by Section 2081 (c) and (d). The surrender of an arrestee who is again in custody for an offense for which a penalty greater than that for the original offense may not be imposed, or his surrender at the request of the guarantor shall never, in and of themselves, be considered to be reasonable cause for surrender, and in case of any surrender under such circumstances, and no actual and substantial increase in hazard can be shown by the licensee, all premiums received and incurred expenses shall be returned. Compliance with an Order of the Court made pursuant to Section 1300(b) of the Penal Code shall be in compliance with this Section; and a licensee at the time of any surrender of an arrestee prior to the time specified in the undertaking of bail shall inform such arrestee of his rights under said Section 1300(b) to petition the Court for a ruling as to return of premium.

§2091. Forfeitures; Misrepresentations.

No bail licensee shall make any misleading or untrue representation to a court or to a public official for the purpose of avoiding or preventing a forfeiture of bail or of having set aside a forfeiture which has occurred, or for the release of an arrestee on his own recognizance after bail has once been placed by the licensee. A copy of all written representations made by or on behalf of a bail licensee for such purpose shall be kept as provided in Section 2098, unless such representations are filed by an official as a public record.

§2092. Interrogations; Licensee Must Answer.

Every bail licensee must truthfully answer any question asked him by the commissioner or his representative about his bail transactions or matters relating to the conduct of his bail business, subject only to his lawful constitutional rights against self-incrimination.

FILINGS AND RECORDS

§2094. Filing Schedule of Charges.

Every bail permittee shall file with the commissioner a schedule of charges to be made for bail. He shall also file with the commissioner any change in such charges at least five days prior to the effective date thereof. Such charges and changes so filed are public records.

§2094.1. Rates Chargeable.

No bail permittee shall issue or deliver a bail bond except at the rates most recently filed with the commissioner in accordance with Section 2094.

§2094.2. Filing of Charges; Differences in Rates.

If a person is licensed as both a bail agent and a bail permittee or licensed in either capacity but conducting his bail business under an agreement with a person licensed in the other capacity, any filing made pursuant to Section 2094 shall state all differences between the premiums charged for undertakings of bail and the charges made for bail bonds and the reasons therefor. If there is any such difference and if for his own convenience a bail licensee shall substitute or cause to be substituted one type of obligation for the other, he shall do so without additional premium or charge. Such substitution without additional premium or charge may not be used as a device or means of avoiding compliance with Section 2094 or with Chapter 9, Part 2, Division 1 of the Insurance Code.

§2095. Filings; Necessary Notices.

Every bail licensee shall promptly file with the commissioner the following:

(a) If conducting business as a partnership pursuant to Section 2061, the written statement required by Section 2061.2 and any modification thereof.

(b) If the relationship of a bail agent or permittee employed by another bail agent or permittee or a partnership of bail agents or permittees exists as set forth in Section 2062:

(1) The written statement to the commissioner required by Section 2062.2;

(2) The written notice of any change as required by Section 2062.2 (d).

(d) The written notice required by Section 2066.4 (a) of any fictitious name or style used pursuant to Section 2066.4.

(e) A written notice of any changes made in any of the licensee's business addresses.

(f) A complete list of all persons employed by the licensee who aid him in any way in the conduct of his bail business setting forth for each employee the full name, duties and basis of compensation, and if such compensation is to be over $1,000 per month the amount thereof.

(g) A notice containing the same information as that required by (f) above for each new employee.

(h) A notice of termination of the employment of any employee and, if the reason therefor was any act or conduct by the employee which would in the opinion of the employer indicate an unfitness to transact bail, a full statement of such reason.

(i) A notice within 10 days after service upon him of the filing of:

(1) Any criminal suit;

(2) Any action at law against him or of any judgment against him which arises out of his transaction of the bail business or the transaction of bail.

(j) A written notice within five days after making any arrangement of any kind to obtain money, securities or other assets to use directly or indirectly in the bail business, giving the name of the person with whom such arrangements have been made, the amount of money or value of other assets involved, the date of the transaction and the details of the arrangement.

(k) A copy, or a reference to copies already filed and which he will use, of all forms or documents which the licensee intends to use regularly or frequently in connection with his bail transactions, including:

(1) The document to be delivered to the arrestee or other person containing the information required by Section 2083;

(2) The form of any receipt for or agreement relating to collateral used pursuant to Section 2083 (m);

(3) The document to be delivered to the arrestee or other person containing the information required by Section 2083.5;

(4) The form of guarantor's agreement referred to in Section 2084;

(5) The form of original communication referred to in Section 2097 (a);

(6) The form or original application referred to in Section 2097 (b); and

(7) Any other form or document.

§2096. Improper Forms; Notice.

If the commissioner finds that any form or document, the filing of which is required by Section 2095 (k), is misleading or contrary to any provision of this article or any law relating to bail, he shall notify the bail licensee specifying wherein such form or document is misleading or contrary to any provision of this article or any law relating to bail. Thereafter such bail licensee may not use such form or document. If such notification is not given to such licensee within 30 days after the filing of such form or document, the commissioner shall prescribe a reasonable time after which such form or document may not be used.

§2097. Documents; Retention of Originals or Duplicates by Licensee.

Every bail licensee shall retain in his records the original or duplicate original of the following:

(a) Any written request received by him from an arrestee or person acting on his behalf which resulted in the posting of bail by such licensee.

(b) The application for bail signed by the arrestee or person negotiating bail on his behalf.

§2098. Documents; Retention of Copies by Licensee.

If a bail licensee has arranged for the posting of bail, he shall in each case retain in his records a copy of the following documents:

(a) The document or documents furnishing the arrestee or person negotiating bail on his behalf with the information required by Section 2083.

(b) The collateral receipt or any form of agreement relating thereto described in Section 2083 (m).

(d) Any written representation made to a court or a public official with respect to the matters dealt with in Section 2091.

(e) An guarantor's agreement.

(f) All documents signed by the arrestee or any person with whom bail is negotiated, the originals of which are not retained by the licensee.

(g) All documents delivered to the arrestee or any person with whom bail is negotiated.

§2099. Documents; Tender to Arrestee or Representative.

Every bail licensee shall tender a copy of any document which is executed by any person with whom bail is negotiated to such person at the time of the execution thereof.

§2100. Necessary Record; Open to Inspection.

Every bail agent or permittee shall keep complete records of all business done under authority of his license or under the authority of the license of any bail solicitor, bail agent or bail permittee employed by him. All records kept by such agent or permittee, including all documents and copies thereof shall be open to inspection or examination by the commissioner or his representatives at all reasonable times, at the principal place of business of the licensee as designated in his license. Such records shall include at least the following information as to each bail transaction shown either in one of the forms required by the provisions of these rules or in a separate book, ledger, or card record:

(a) The full name and address of the arrestee.

(b) The date of arrest, the offense with which the arrestee was charged, the penal amount of the bail, the premium for the undertaking of bail or the amount charged for the bail bond, the date the bail was filed or delivered, and the court or public official before whom the arrestee must appear.

(c) The full name and address of the person furnishing information leading to the solicitation or negotiation of the bail, the date and time such information was received, the manner in which it was received, the connection or relationship to the arrestee of the person other than the arrestee furnishing such information, and the name of the person receiving such information.

(d) If the bail was negotiated with any person other than the arrestee, the full name, address and connection or relationship to the arrestee of such person, and the name of the person who carried out the negotiations on behalf of the licensee.

(e) If the bail was negotiated directly with the arrestee, a full statement of the manner in which the arrestee communicated with the licensee and the name of the person receiving such communication.

(f) The full name and address of each and every person directly or indirectly paying, promising to pay, or guaranteeing the payment of, the whole or any part of the premium, guard fees, charges for extraordinary services, or collateral made or deposited in connection with a bail transaction.

(g) The name of any bail licensee from whom the business was accepted or to whom commission was promised or paid in connection therewith, and the amount of commission promised or paid.

(h) The name of any person who received or was promised any portion of a premium, guard fee, charge or commission or was compensated in any manner directly or indirectly on account of any bail transaction.

(i) If any valuable consideration other than money was received in connection with a bail transaction, a full statement in explanation of such consideration and the circumstances attendant thereto.

(j) Where a writ bond was issued, the name of the attorney appearing thereon.

(k) A separate book record which shall show the date of receipt of any collateral as a guarantee in a bail transaction, the name of the person from whom it was received, the name of the person receiving it, a complete description of the collateral, the amount of bail guaranteed, the amount of premium guaranteed and the disposition of the collateral. If the collateral was returned, the date of its return and the name of the person to whom it was returned.

§2101. Copartnership Records; Filings.

During the period when two or more bail licensees are conducting their business as a partnership pursuant to Section 2061, such licensees may combine their books and records and make a joint filing with the commissioner of all forms used by them as a partnership, provided, however, that such books and records shall identify the member of the partnership who actually transacted each individual bail transaction or portion thereof.

§2101.1. Records; Licensed Employees.

Every employing bail agent or permittee shall keep at his office all books and records concerning the bail transactions of himself and his employees while acting as such, and such employees may use all forms filed, directly or by reference, with the commissioner by such employer; provided, however, that such books and records shall identify the particular person who actually transacted each individual bail transaction or portion thereof. But the employed bail agent or permittee is responsible for the maintenance of such records, and the proper use of such forms for the transactions in which he participates.

§2101.2. Records; Temporary Associations.

If two or more bail agents or permittees are temporarily associated for the purposes of a single or series of bail transactions, each shall be responsible for keeping sufficient records to identify the transactions and to meet the requirements of this article with respect to the portion of the transaction conducted by him.

§2101.3. Records; Temporarily Conducting Business.

During the time a bail agent or permittee is temporarily conducting the business of another bail agent or permittee as provided in Section 2065 (e), such bail agent or permittee shall be responsible for the proper entries in and the retention of the books and records of such other bail agent or permittee but he may use the forms and documents usually used by the permanent owner of the bail business. Following such temporary conduct of his business the permanent owner of such business is responsible for the retention of such books and records.

§2102. Use of Filed Documents and Forms.

Except as provided in Sections 2101.1 to 2101.3, inclusive, every bail agent and permittee shall use the forms and documents filed, directly or by reference, by him with the commissioner as an individual and shall be individually responsible for the proper entries in and the retention of all books and records.

§2103. Information; Not Required; Severability.

Any bail licensee secure from any person with whom he engaged in a bail transaction information in addition to that required by these rules or his signature to documents other than those required by these rules. If such information is secured as a part of the same document which contains any of the information required by these rules, it shall be clearly severable and the licensee, in using such document, may, at his discretion, omit the use of the portion of it which is not required by these rules.

§2104. Destruction of Records.

Five years after the final completion of all parts of a bail transaction, a bail licensee may destroy his records pertaining to such transactions.

Article 2.1. Bail Education

§2105.1. 1 Definitions.

Note • History

(a) “Class” means a presentation of course material to a specific group of enrolled students.

(b) “Classroom” means a prelicensing or continuing education place of instruction with sufficient space designed so that instructor(s) and students can communicate face-to-face in a physical facility with a high degree of privacy and relative freedom from outside interferences. Computer instruction is not considered a classroom per Section 1810.7 of the California Insurance Code (CIC).

(d) “Course” means education taken or given to satisfy the requirements of Insurance Code section 1810.7(a).

(e) “Department” means the California Department of Insurance.

(f) Electronic Filing” means the submission of provider rosters and class presentation schedules to the Department by a provider using the Department website, electronic flat file, diskette, compact disc (CD), or digital versatile disc (DVD), or other electronic technology compatible with Department technology.

(g) “Electronic Signature” means a CDI assigned provider log-in/-out number that allows providers to submit class presentation schedules and provider rosters online or by other electronic means. For the purpose of section 2105.7(c), “Electronic Signature” means a provider assigned student log-in/-out number that allows providers to monitor student activity.

(h) “Fee Schedule” means the bulletin issued pursuant to Insurance Code section 12978 entitled State of California, Department of Insurance, Schedule of Fees and Charges.

(i) “Instructor” means a person who teaches a course to students on behalf of an approved provider.

(j) “Original signature” means the provider director's actual signature. Original signatures are required on the Prelicensing/Continuing Education Program, Provider Certification/Renewal Application, Form 446-2, and the Bail Course Approval/Renewal Application, Form LIC001B, when these forms are submitted in a paper format rather than on-line. A provider may utilize either a controlled signature stamp, a computer generated signature, or appoint an authorized designee for purposes of signing any other forms. Prior to using either a signature stamp or a computer generated signature, the provider must submit to the Department a letter thoroughly explaining the steps that the provider has taken to ensure the security of either the stamp or computer generated signature. Prior to utilizing an authorized designee, the provider must submit to the Department a list of the names of the persons so authorized, along with a sample of each person's signature or computer generated signature.

(k) “Provider” means an individual or business entity who offers prelicensing or continuing bail education courses to students or prospective students.

(l) “Provider director” means the individual employed by a provider who the provider has designated as the person responsible for administering the provider's prelicensing and continuing education business.

NOTE

Authority cited: Section1812, Insurance Code. Reference: Section 1810.7, Insurance Code.

HISTORY

1. New article 2.1 (sections 2105.1-2105.19) and section filed 8-20-2007; operative 9-19-2007 (Register 2007, No. 34).

§2105.2. Prelicensing Education Curriculum.

Note • History

An approved prelicensing bail education course must be taught in a classroom and must impart information on all of the following topics. Each topic below must be cross referenced to the material submitted to the commissioner before the material can be approved:

(a) Insurance Code sections 1724.5, 1733, 1734, 1735; Article 6 commencing with section 1666; Article 13 commencing with section 1737; sections 1800 - 1823;

(b) California Code of Regulations, Title 10, Chapter 5, Subchapter 1, Article 2, sections 2053 - 2104;

(c) Penal Code sections 1166, 1195, 1269b, 1269c, 1270, 1270.1, 1275, 1276.5, 1285, 1286, 1296, 1298, 1299, 1301, 1302, 1304, 1306;

(d) 18 United States Code 1033 and 1034;

(e) Common law and ethical duties of bail agents to sureties, arrestees, indemnitors and others;

(f) Overview of bail and the function of bail agents;

(g) Criminal and courtroom procedures;

(h) Special obligations to the court;

(i) Collateralizing bail undertakings;

(j) Fugitive location methods and resources; and,

(k) Interaction with police and prosecutors.

NOTE

Authority cited: Section1812, Insurance Code. Reference: Section 1810.7, Insurance Code.

HISTORY

1. New section filed 8-20-2007; operative 9-19-2007 (Register 2007, No. 34).

§2105.3. Providers.

Note • History

(a) Provider Approval

(1) An individual or business entity who wants to be approved as a provider must submit to the Department a Prelicensing/Continuing Education Program Provider Certification/Renewal Application, which appears as section 2105.12, along with the fee recited for Insurance Code section 1751.1(a) as listed in the Fee Schedule.

(2) A provider shall not be approved if an incomplete application is submitted to the Department. The incomplete application will remain on file for one year unless withdrawn by the applicant. After one year, a new application is required. Notification that an application is complete does not mean approval has been or will be granted. The Department must decide whether to approve a provider within sixty (60) days of receiving a completed application. If the Department initiates an investigation of an applicant for an alleged violation that would, if proven, result in the suspension, revocation, or denial of the provider's approval to provide prelicensing or continuing education to bail agents, the sixty (60) day period will toll until the completion of the investigation. If, after completion of the investigation, the applicant is referred to the Department's Legal Division, the Department will have thirty (30) days from the date of the referral to issue a Statement of Issues pursuant to Government Code section 11504, or to issue the approval.

(3) The Department may refuse to approve a provider based on any of the grounds for which it may deny an insurance agent license under Insurance Code sections 1668 or 1668.5.

(4) A nonresident applicant for provider approval must file with the Department a Prelicensing/Continuing Education Program Out-of-State Provider Jurisdiction Agreement, which appears as section 2105.13.

(5) The Department may investigate and require the filing of any supplementary documents, affidavits and statements it deems necessary to obtain information that will aid in determining whether the prerequisites for approval have been met.

(6) Provider approval will be valid for two (2) years from the date it is granted.

(b) Renewal of Provider Approval

(1) To renew approval, a provider must submit to the Department a Prelicensing/Continuing Education Program Provider Certification/Renewal Application along with the fee recited for Insurance Code section 1751.1(b) listed in the Fee Schedule.

(2) Approval as a provider may not be renewed if the renewal application is incomplete. The Department must inform all renewal applicants in writing if the application contains deficiencies requiring correction, and the nature of those deficiencies.

(3) Renewal applications must be received by the Department at least sixty (60) days before the provider's approval expires to maintain continuity of approval.

(4) An incomplete renewal application will remain active for one year unless withdrawn by the applicant. After one year, a provider must submit a new application. Notification that an application is complete does not mean approval or disapproval. The Department must decide whether to renew the approval within sixty (60) days of receiving a completed application.

(5) A provider whose approval has expired may late renew up to sixty (60) days after the expiration date. If a renewal is received by the Department more than sixty (60) days after expiration of approval, the provider must re-file the Prelicensing/Continuing Education Program Provider Certification/Renewal Application for approval.

(6) A provider whose approval has expired may not present a class for credit until the Department has issued a written notice of renewal.

(c) A provider must notify the Department in writing within ten (10) days following any change in information recorded on the Prelicensing/Continuing Education Program Provider Certification/Renewal Application.

(d) A provider must obtain the Department's written consent before using a fictitious name in an act for which provider approval is required. A provider must notify the Department if it changes or discontinues use of a true or fictitious name. The Department may in writing disapprove the use of a fictitious or true name, other than the legal name of an individual, on any of the following grounds:

(1) The name interferes with or is too similar to a name already filed with the Department and in use by another approved provider;

(2) the use of the name might mislead the public in any respect; or

(3) the provider or applicant has already obtained approval for the use of a fictitious name and has not agreed to discontinue the use of that name. This subdivision does not prevent a provider or applicant who has lawfully purchased or succeeded to the business or businesses of other providers from using for each such business not more than two additional names, true or fictitious, consisting of names used by the predecessor businesses in their conduct as approved providers.

(e) Providers shall offer courses to all students at the same per course fee.

(1) By the last day of each month, a provider shall establish a course fee schedule to be in effect for all students who, in the following month, purchase a course or set of courses.

(2) The course fee schedule shall state the month and year in which it will be in effect, and be dated and signed by the provider director on the date on which the provider commits to using the schedule.

(3) The course fee schedule must include a price for each course or set of courses that will be available for purchase in the month for which the schedule applies.

(4) A course fee schedule may not have the effect of discriminating in the amount of course fees based solely on membership or lack of membership in any group or association, including employment by any employer.

(5) No person may purchase from a provider the right to enroll a student in a course and sell that right to a student for more or less that the person paid the provider. No person may sell to a student the right to enroll in a course, or enroll a student in a course, and charge that student more or less than the person paid or will pay for the course.

NOTE

Authority cited: Section1812, Insurance Code. Reference: Section 1810.7, Insurance Code.

HISTORY

1. New section filed 8-20-2007; operative 9-19-2007 (Register 2007, No. 34).

§2105.4. Instructor Qualifications.

Note • History

(a) An approved provider must ensure that each approved course is taught by an instructor who has at least three (3) years of experience within the last five (5) years in the subject matter of the course. The instructor must complete a Prelicensing/Continuing Education Program Instructor Qualification Form, which appears as section 2105.14, which must then be signed by the provider director.

(b) The Department may direct a provider not to use an instructor who does not meet the instructor qualifications recited in this section or does not adhere to other applicable requirements stated in these regulations.

NOTE

Authority cited: Section1812, Insurance Code. Reference: Section 1810.7(c), Insurance Code.

HISTORY

1. New section filed 8-20-2007; operative 9-19-2007 (Register 2007, No. 34).

§2105.5. Course Approval.

Note • History

(a) To obtain approval of a course, a provider must submit to the Department a Bail Course Approval/Renewal Application, which appears as section 2105.15, along with the fee recited for Insurance Code sections 1751.1(c) and (e) listed in the Fee Schedule.

(b) A course approval application must be received by the Department at least thirty (30) days before the date the course will be presented to students for the first time. An incomplete course approval application will remain active for one year from the date of receipt, unless withdrawn by the provider. After one year, a provider must submit a new application. Notification that an application is complete does not mean approval or disapproval. The Department must approve or reject a course within thirty (30) days of receiving a completed application.

(c) A provider of a classroom course must notify the Department of the classroom location(s) where the provider intends to present the course, including the street address, city, state and zip code, and the dates and times of the presentation. The notification must be submitted to the Department using electronic filing at least ten (10) business days before each time a class in which the course will be presented is scheduled to meet. A provider may submit notification on a Class Presentation Schedule, which appears in section 2105.16, if a course to be presented is pending approval and is submitted with a course approval application. The classroom must allow the instructor and students to communicate with a reasonable degree of privacy and without unreasonable distractions.

(d) An advertisement for an approved course must include the name of the provider, the provider number, the course title approved by the Department, the course number, the license type for which the course is approved and the credit hours assigned. A course advertisement may mention that the course has been approved for credit by the Department of Insurance or the Insurance Commissioner only if it has been approved in writing by the Department.

(e) A course advertisement may mention that the course has been submitted to the Department for approval only if a completed filing pursuant to Section 2105.5(a) was submitted to the Department at least thirty (30) days before the date the course will be presented to students for the first time and that the advertisement includes a notice, in at least the same size type as any language regarding the course having been submitted for approval, that the course is pending approval.

(f) A minor change to a course that does not affect course content or presentation time may be reported to the Department by a letter at least thirty (30) days before the change is to be implemented. A new edition of written material distributed to students with virtually identical content as an edition submitted when the course was approved may, in the Department's discretion, be considered a minor change.

(g) A major change to a course is one that affects presentation time or that alters the course content, and requires approval as a new course. The course approval application must be received by the Department at least thirty (30) days before the date the course will be presented to students for the first time. Use of different written materials is a major change, except as provided in subdivision (f).

(h) Notification of a cancellation, change in the location, date, or time of a previously submitted class schedule, or of an addition of a location, date or time must be submitted using electronic filing. The notification must be received by the Department at least ten (10) business days before the meeting of the rescheduled or relocated class or addition. The Department may accept late notification if accompanied by a letter, signed by the provider director, stating good cause. A provider may not at any time have a cumulative cancellation rate of more than 15 percent of its classes due to inadequate enrollment.

(i) Credit of less than one hour is not granted.

(j) Contact course credit hours are determined using a fifty (50) minute hour. A student may not receive credit for more than eight (8) hours per day or 400 minutes per day.

(k) Course subjects will be approved only if they sufficiently relate to the legal duties and responsibilities of a bail licensee, and they will be taught in a structured manner and environment that contributes to the professional or technical competence of the student

(l) Course subjects that do not qualify for approval include training in sales, marketing, communication, motivation, or products or programs offered by a specific surety.

(m) A provider may not state or imply that a course, including an approved course, is endorsed by the Department.

(n) If a scheduled class is cancelled, a provider must make a reasonable effort to notify all registrants of the cancellation, and maintain documentation of that effort.

(o) Credit will be given to a student who successfully completes an expired course if the course would have been renewed and the student was unaware that the course was expired.

(p) The Department may revoke approval of a course if the course content was significantly changed without prior notice to the Department and the change affects the number of hours that would have been assigned to the course, or the change in content would make the course ineligible for approval.

(q) Course approval will be valid for two (2) years from the date it is granted.

(r) For an Internet course, a provider must establish to the Department's satisfaction that the provider will employ adequate measures to ensure that students are actively engaged in course material for the entirety of the prescribed time, and such measures must actually be employed. The measures shall include, and a provider shall certify that it has included the following:

(1) the course must contain a minimum of 4,600 words for each hour of credit;

(2) the course examination time must total at least 10 percent and not more than 15 percent of the course completion time;

(3) the course must periodically pose questions and receive student answers before a student may proceed to the next screen;

(4) a final examination at the end of the course must contain a minimum of three questions for each credit hour;

(5) the time allocated for a student to spend on each page must not be excessive or inadequate;

(6) Internet course credit hours are determined using a sixty (60) minute hour.

(s) A Bail Course Approval/Renewal Application shall be accompanied by a declaration signed by the provider director stating that the course outlines were sent to the entities specified in Insurance Code section 1810.7(c). The declaration shall be accompanied by copies of the cover letters to the associations and all responses from the associations, if any. A provider will be deemed to have complied with the consultation requirement of Insurance Code section 1810.7(c) if either: (i) the provider submits responses from all of the associations; or (ii) thirty (30) days have passed from the date the provider sent the outlines to the associations and one or more associations has not responded.

NOTE

Authority cited: Section1812, Insurance Code. Reference: Section 1810.7, Insurance Code.

HISTORY

1. New section filed 8-20-2007; operative 9-19-2007 (Register 2007, No. 34).

§2105.6. Course Renewal.

Note • History

(a) A provider who wants to renew approval of an unchanged course or a course with only minor changes must submit to the Department a Bail Course Approval/Renewal Application, which appears as section 2105.15, along with the fee recited for Insurance Code sections 1751.1(d) and (f) listed in the Fee Schedule.

(b) A Bail Course Approval/Renewal Application must be received by the Department at least thirty (30) days before the expiration of the course's approval to maintain continuity of approval.

(c) A provider may not offer a continuing education course for credit if approval of the course has expired and the Department has not yet granted a renewal.

(d) The Department may deny renewal of course approval if the course material no longer contains current information.

NOTE

Authority cited: Section1812, Insurance Code. Reference: Section 1810.7, Insurance Code.

HISTORY

1. New section filed 8-20-2007; operative 9-19-2007 (Register 2007, No. 34).

§2105.7. Maintenance of Records.

Note • History

(a) A provider must maintain Prelicensing/Continuing Education Program Instructor Qualification Forms for each instructor.

(b) A provider must maintain records of registration for students attending approved courses. A provider must maintain address information and telephone numbers for each student of a prelicensing education course.

(c) For classroom courses, a provider must complete and maintain a daily attendance record, showing whether each student attended at the beginning and end of each class session. The attendance record must be on the Prelicensing/Continuing Education Program Course Attendance Record and Verification Form, which appears as section 2105.17, or on a form approved by the Department that contains the following minimum provisions:

(1) For prelicensing courses, the name, signature, and all or part of the social security number of the student as required by the Department. For continuing education courses, the name, original or electronic signature, and insurance license number of the student;

(2) provider name and approval number;

(3) course title and approval number;

(4) date and location of the class;

(5) the beginning and ending time of the session, and the time-in and time-out of each student.

(d) Provider records must be maintained for five (5) years and must be made immediately available to the Department for inspection and copying upon request. All provider records must be maintained at a location within this State unless a Prelicensing and Continuing Education Provider Stipulation to Maintain Records Outside of California, which appears as section 2105.18, has been submitted to and accepted in writing by the Department.

(e) A provider must maintain sufficient records to allow an accurate and reliable audit of all fees collected from and refunded to students for prelicensing and continuing education courses. These records must include, but are not limited to, bank statements, ledgers, journals, receipt books, invoices and checks.

(f) A provider must maintain for at least two (2) years a copy of each advertisement and solicitation that refers to a prelicensing or continuing education course. Upon good cause, the Department may require a particular provider to retain copies for a longer period.

(g) For a correspondence course, a provider must maintain a declaration signed by each student under penalty of perjury, under the laws of the State of California, declaring that the student was engaged with the course material for the entirety of the prescribed time.

(h) For an Internet course, a provider must maintain a description of the measures taken to ensure that students are actively engaged in the course material for the entirety of the prescribed time.

(i) A provider must employ all reasonable means to maintain personal information of students in a secure and confidential manner.

NOTE

Authority cited: Section1812, Insurance Code. Reference: Section 1810.7, Insurance Code.

HISTORY

1. New section filed 8-20-2007; operative 9-19-2007 (Register 2007, No. 34).

§2105.8. Successful Completion of a Prelicensing Course.

Note • History

(a) To obtain credit for a prelicensing course a student must attend one-hundred percent of the class.

(b) A provider or instructor must withhold credit when a student did not pay satisfactory attention, or otherwise failed to act acceptably in class.

(c) Prelicensing certificates of completion expire three (3) years from the completion date of the course, whether or not a license has been issued.

NOTE

Authority cited: Section1812, Insurance Code. Reference: Section 1810.7, Insurance Code.

HISTORY

1. New section filed 8-20-2007; operative 9-19-2007 (Register 2007, No. 34).

§2105.9. Successful Completion of a Continuing Education Course.

Note • History

(a) To obtain credit for a continuing education course a student must attend one-hundred percent of the class, if the course was provided in a classroom. However, an instructor or provider director may for good cause allow a student to attend not less than eighty (80) percent of a scheduled class and receive full credit. A provider or instructor must withhold credit when a student did not pay satisfactory attention, or otherwise failed to act acceptably in class.

(b) A course may not be taken for credit more than once during a renewal period.

(c) Successful completion of a continuing education course by means of the Internet or correspondence shall require the student to obtain a passing grade of at least seventy (70) percent on a written final examination. The final examination must be open book and must be graded by the approved provider. The provider must issue certificates of completion only to those students who have passed the final examination.

NOTE

Authority cited: Section1812, Insurance Code. Reference: Section 1810.7, Insurance Code.

HISTORY

1. New section filed 8-20-2007; operative 9-19-2007 (Register 2007, No. 34).

§2105.10. Certificates of Completion.

Note • History

(a) A provider must issue a certificate of completion to each student who successfully completes a prelicensing or continuing education course. A duplicate certificate of completion must be issued by a provider upon request in the case of a lost or destroyed certificate. A certificate of completion must contain the following information:

(1) an original signature of the instructor or provider director;

(2) the course title and approval number;

(3) the provider's name, address, telephone number and provider approval number;

(4) for classroom courses, the beginning date(s), the completion date, and the class location including street address, city, state, and zip code;

(5) the number of hours approved for the course;

(6) a statement that submitting a false or fraudulent certificate of completion to the Department may result in denial of a license application and revocation of a license;

(7) a statement that the student should retain the certificate for five (5) years.

(b) A provider must submit to the Department a provider roster using electronic filing within ten (10) business days following completion of a prelicensing course. A roster is to be submitted, using electronic filing, within thirty (30) calendar days following the completion of a continuing education course.

(1) Online provider roster filings must contain the following:

a. for prelicensing courses, the student's name and social security number; for continuing education courses, the licensee's social security number or license number, if any;

b. the course approval number, and course completion date;

c. for classroom courses, the start date(s) and zip code of the class location.

(2) Electronic provider roster filings must contain the following:

a. the provider approval number;

b. the student's name, social security number, or license number, if any;

c. the course approval number and completion date.

d. for classroom courses, the zip code of the class location.

(3) Flat File Format uploads using the ASCII flat file format. The ASCII flat file is a single line of information to record course credits for each student. The single line of information is 121 characters long. The following characters (numbers or letters) must be completed to allow the ASCII flat file information to be uploaded and recorded:

a. provider number, characters 1 to 9 (numbers only);

b. course number, characters 10 to 18 (numbers only);

c. course beginning date, characters 19 to 26 (mmddyyyy). If roster is for online course, space through characters 19 to 26);

d. course beginning time, characters 27 to 30 (military time). If roster is for an online course, space through characters 27 to 30);

e. course end date, characters 31 to 38 (mmddyyyy). If roster is for online course, space through characters 31 to 38);

f. course location zip code, characters 39 to 47, for contact courses only (non-contact courses enter 9 spaces);

g. student's social security number, characters 48 to 56 (numbers only). If the social security number is not provided, space to character 56;

h. student's last name, characters 57 to 91 (letters only). If the name has fewer characters, space to character 91;

i. student's first name, characters 92 to 106 (letters only). If the name has fewer characters, space to character 106;

j. student's middle name, spaces 107 to 121 (letters only). If the name has fewer characters, space to character to 121.

k. student's license number, spaces 122 to 128. If the license number is not available, space to character 128.

(4) “Comma Separated Values (CSV) format uploads using the CSV format. The CSV format is a tabular data format that has fields separated by the comma character (e.g. 123456,,,1234567,, 07152007,1000,07202007,99999,,,,,). The following characters (numbers or letters) must be completed to allow the CSV format file information to be uploaded and recorded:

a. the first line contains the provider number, a maximum of 9 characters (numbers only);

b. the second line contains the course number, a maximum of 9 characters (numbers only);

c. the third line contains the course beginning date, (mmddyyyy) for contact courses only. Insert a single comma if the roster is for an online course;

d. the fifth line contains the course beginning time (military time, hhmm) for contact courses only. Insert a single comma if roster is for an online course;

e. the sixth line contains the course end date (mmddyyyy) for contact courses only. Insert a single comma if roster is for online course;

f. the seventh line contains the course location zip code, for contact courses only. Insert a single comma if course is non-contact;

g. the eighth line contains the student's social security number (numbers only) if the student does not have a social security number, insert a single comma;

h. the ninth line contains the student's last name, (letters only), a maximum of 35 characters;

i. the tenth line contains the student's first name,(letters only, a maximum of 15 characters;

j. the eleventh line contains the student's middle name (letters only), a maximum of 15 characters;

k. the twelfth line contains the licensee's license number. If the student does not have a license number leave blank.

(5) Under special circumstances approved in advance by the Department, a provider may submit a typed or printed Provider Roster, form 446-13, as specified in section 2105.19. The roster must contain the following:

a. student's or licensee's name;

b. student's social security number for prelicensing courses; or

c. student's license number for continuing education courses, if any;

d. provider's name;

e. provider's approval number;

f. course name;

g. course approval number;

h. course credit hours;

i. course completion date;

j. for classroom courses, the start date, beginning time, end time, and classroom location including street address, city, state, and zip code;

k. signature of the provider director certifying the accuracy of the information provided

NOTE

Authority cited: Section1812, Insurance Code. Reference: Section 1810.7, Insurance Code.

HISTORY

1. New section filed 8-20-2007; operative 9-19-2007 (Register 2007, No. 34).

§2105.11. Enforcement.

Note • History

(a) The Department may revoke or suspend approval of a provider, issue approval on a restricted basis, and/or impose a monetary penalty, if:

(1) A basis exists that would have authorized the Department to deny approval to the provider;

(2) the provider violated these regulations or applicable provisions of the Insurance Code;

(3) The provider failed to exercise reasonable care in evaluating the competency, good character, and integrity of an instructor; or

(4) The provider allowed another person to use the provider's approved provider status or course approval status.

(b) A provider whose approval is revoked or suspended, or upon whom a monetary penalty is imposed, must reimburse the Department for its costs of investigating and prosecuting the provider for the violation.

(c) Insurance Code section 1742 shall apply to providers. For such purposes, “approval” shall be interpreted the same as “license.” When warranted, the Department may issue a restricted approval, or may revoke an unrestricted approval and issue a restricted approval in lieu thereof.

(d) A provider shall be considered a “subject person,” and be chargeable as such pursuant to Insurance Code section 1748.5.

(e) An unapproved provider or person representing that provider who states or implies that the provider is approved shall be chargeable pursuant to Insurance Code section 12921.8 as if the provider were an unlicensed insurance agent.

(f) Insurance Code sections 1669 and 1738 shall apply to approval as a provider and to an application for approval as a provider.

(g) A provider must pay the below monetary penalties, plus any investigation and prosecution costs, for the following violations. The exiastence of this monetary penalty schedule does not preclude the Department from revoking or suspending the approval of a provider, in addition to or in lieu of imposing a monetary penalty, if the facts warrant. The Department may impose a monetary penalty without commencing a formal enforcement action pursuant to California Government Code sections 11500 et seq. However, if a provider upon whom such a penalty has been imposed requests a hearing within 10 business days of receiving written notice of the penalty, the Department must serve an Accusation pursuant to those sections or rescind the penalty. The fact that a violation is not recited in the below schedule does not mean that a monetary penalty, suspension or revocation may not be imposed by the Department.

Violation of Section Penalty

Section 2105.3(a) -- Provider Automatic denial of any pending application

approval for provider approval, and automatic denial of

any application for provider approval filed

within twenty four (24) months following the

date on which course material was given to a

student. Revocation of any approval already

issued.

Section 2105.3(b) -- Renewal A fine of one and one-half (1 1/2) times the

of provider approval amount of the course fees charged to all

students completing courses provided after

approval as a provider has expired and not yet

been renewed, or $1,000 per course, whichever

is more.

Section 2105.3(c) -- Changes $500 fine per failure to notify the Department

in provider information of a change in provider information.

Section 2105.3(d) -- Fictitious $10,000 total maximum fine for all uses

name of a particular unapproved fictitious name.

Section 2105.4(a) -- Qualified $5,000 fine for each class taught by an

instructor instructor when either requirement of section

2105.4(a) has not been met.

Section 2105.4(b) -- Use Automatic revocation of provider's approval

of disqualified instructor for permitting a person to act as an instructor

after express disapproval by the Department.

Section 2105.5 -- Course A fine of one and one-half (1 1/2) times the

approval amount of the course fees charged to all

students for all courses for which the course

had not been approved, or $1,000 per course,

whichever is more.

Section 2105.5(c) -- $500 fine for each violation.

Notification to Department of

classes

Section 2105.5(d), (e) and $500 fine for each violation of (d) or (e);

(m) -- Advertisement of $10,000 fine for each violation of (m).

courses

Section 2105.5(g) -- Approval A fine equal to 50 percent of the amount of the

of course with major change course fees charged to all students completing

courses after a major change without

Department approval, or $1,000 per course,

whichever is more.

Section 2105.5(h) -- $500 fine for any violation.

Notification of class change

Section 2105.5(i) and (j) -- A fine equal to 50 percent of the amount of the

Credit course fees charged to all students completing

courses in which credit is awarded in violation

of subdivisions (i) or (j), or $1,000 per course,

whichever is more.

Section 2105.5(n) -- Class $1,000 fine for each violation

cancellation

Section 2105.6(c) -- Expired A fine equal to 50 percent of the amount of

courses course fees charged to all students for all

courses for which the course expired and not

yet been renewed, or $1,000 per course,

whichever is more.

Section 2105.7 -- Maintenance $100 fine per record for each failure to

of required records... maintain a required record or provide it upon

request to the Department.

Section 2105.8 -- Credit A fine equal to 50 percent of the amount of the

course fees charged to all students completing

courses in which credit is awarded in violation

of subdivisions (a) or (b).

Section 2105.9(a) and (c) A fine equal to 50 percent of the amount of the

Successful completion of a course fees charged to all students completing

continuing education course courses in which credit is awarded in violation

of subdivisions (a) or (c).

Section 2105.10(a) -- $200 fine per certificate for each certificate that

Certificates of completion. a provider fails to provide to a student who has

successfully completed a course.

Section 2105.10(b) -- $500 fine per roster for each roster that a

Attendance rosters. provider fails to submit on time to the

Department using electronic filing.

Section 2105.3(e) -- Course $1,000 fine for each student charged a course

fees. fee that deviates from the course fee schedule

in effect at the time the student enrolled. $1,000

fine for each student charged a course fee based

on a fee schedule that did not comply with a

provision of section 2105.3(e).

NOTE

Authority cited: Sections1812, 1813 and 1814, Insurance Code. Reference: Section 1810.7, Insurance Code.

HISTORY

1. New section filed 8-20-2007; operative 9-19-2007 (Register 2007, No. 34).

§2105.12. Department Prelicensing/Continuing Education Program Provider Certification/Renewal Application.

Note • History

Embedded Graphic 10.0116

Embedded Graphic 10.0117

Embedded Graphic 10.0118

Embedded Graphic 10.0119

Embedded Graphic 10.0120

NOTE

Authority cited: Section1812, Insurance Code. Reference: Section 1810.7, Insurance Code.

HISTORY

1. New section filed 8-20-2007; operative 9-19-2007 (Register 2007, No. 34).

§2105.13. Out-of-State Provider Jurisdiction Agreement.

Note • History

Embedded Graphic 10.0121

NOTE

Authority cited: Section1812, Insurance Code. Reference: Section 1810.7, Insurance Code.

HISTORY

1. New section filed 8-20-2007; operative 9-19-2007 (Register 2007, No. 34).

§2105.14. Prelicensing/Continuing Education Program Instructor Qualification.

Note • History

Embedded Graphic 10.0122

Embedded Graphic 10.0123

NOTE

Authority cited: Section1812, Insurance Code. Reference: Section 1810.7, Insurance Code

HISTORY

1. New section filed 8-20-2007; operative 9-19-2007 (Register 2007, No. 34).

§2105.15. Bail Course Approval/Renewal Application.

Note • History

Embedded Graphic 10.0124

Embedded Graphic 10.0125

NOTE

Authority cited: Section1812, Insurance Code. Reference: Section 1810.7, Insurance Code.

HISTORY

1. New section filed 8-20-2007; operative 9-19-2007 (Register 2007, No. 34).

§2105.16. Class Presentation Schedule.

Note • History

Embedded Graphic 10.0126

Embedded Graphic 10.0127

NOTE

Authority cited: Section1812, Insurance Code. Reference: Section 1810.7, Insurance Code.

HISTORY

1. New section filed 8-20-2007; operative 9-19-2007 (Register 2007, No. 34).

§2105.17. Prelicensing and Continuing Education Program Course Attendance Record and Verification Form.

Note • History

Embedded Graphic 10.0128

Embedded Graphic 10.0129

NOTE

Authority cited: Section1812, Insurance Code. Reference: Section 1810.7, Insurance Code.

HISTORY

1. New section filed 8-20-2007; operative 9-19-2007 (Register 2007, No. 34).

§2105.18. Prelicensing and Continuing Education Provider Stipulation to Maintain Records Outside of California.

Note • History

Embedded Graphic 10.0130

NOTE

Authority cited: Section1812, Insurance Code. Reference: Section 1810.7, Insurance Code.

HISTORY

1. New section filed 8-20-2007; operative 9-19-2007 (Register 2007, No. 34).

§2105.19. Provider Roster.

Note • History

Embedded Graphic 10.0131

Embedded Graphic 10.0132

NOTE

Authority cited: Section1812, Insurance Code. Reference: Section 1810.7, Insurance Code.

HISTORY

1. New section filed 8-20-2007; operative 9-19-2007 (Register 2007, No. 34).

Article 3. Motor Vehicle Insurance

BASIC PRINCIPLES

§2107. Prevention of Fraud; Statement to Purchaser.

Note • History

All questions involving violation or alleged violation of these rules and regulations or of the provisions of the Insurance Code applicable to the transaction of insurance in connection with sales of or loans on motor vehicles will be viewed by the commissioner upon the basis of whether or not as to each such question there has been any violation of the following principles:

(a) The purpose of the rules and regulations is to prevent fraud or the transaction of insurance covering motor vehicles, where the premiums for such insurance are included in the purchase price or the amount loaned upon security of a motor vehicle.

(b) To accomplish this purpose it is necessary that in connection with such a transaction the purchaser or borrower receive at the time of the execution of the contract either a written statement conforming to Section 2114 or all of the information required to be placed in such statement in the manner and form permitted by Section 2114.5. The responsibility for delivery of such statement or for the transmittal of the information required to be placed in the statement and otherwise complying with Section 2114.5 rests upon the licensee who transacts the insurance involved.

NOTE

Authority cited for §§2107 to 2127: Section 383.5, Insurance Code.

HISTORY

1. Amendment filed 9-5-61; designated effective 1-1-62 (Register 61, No. 18).

§2108. Relation to Specific Rules.

The above basic principles shall govern in all matters relating to these rules and regulations. Specific rules are hereinafter set forth for the purpose of facilitating the application of the basic principles and are not to be used for the purpose of voiding or defeating these basic principles.

DEFINITIONS

§2109. Terms Defined; Rules for Construction.

History

For the purpose of the basic principles and rules and regulations, unless the context otherwise requires,

(a) “Motor vehicle insurance transaction” means

(1) Any sale of a motor vehicle which includes in the cash or time selling price of such motor vehicle a premium for insurance covering any interest therein, and

(2) Any loan where the security for the repayment for all or any portion thereof is a lien or encumbrance upon a motor vehicle and which includes in the amount involved in a loan agreement, chattel mortgage or other lien instrument a premium for insurance covering any interest of the borrower or mortgagor therein.

(b) “Dealer” means any person who

(1) As seller or lender enters into motor vehicle insurance transactions as a business, or

(2) Who discounts or purchases contracts of sale and receives for its own use and benefit, either directly or indirectly, a commission on the insurance included therein.

(c) “Dealer's Subsidiary” means any person duly licensed by the Department of Insurance who transacts insurance covering a motor vehicle which is the subject matter of a motor vehicle insurance transaction, where such insurance is not lawfully transacted by a duly licensed dealer.

(d) “Licensee” means any person licensed by the Department of Insurance to transact insurance, including a duly licensed dealer or a dealer's subsidiary.

(e) “Purchaser” includes borrower or mortgagor.

(f) “Contract of sale” includes conditional sales contracts, loan agreements, financing agreements, chattel mortgages or other lien instruments, or any revision thereof, made in conjunction with a motor vehicle insurance transaction.

(g) “Insurance coverage” includes “dual” and “single interest” insurance and any coverage in which the dealer acts as insurer or self-insurer.

(h) “Gross premium” means the charge made to the purchaser for insurance coverage without deduction for commissions.

(i) “Gross return premium” means the gross premium unearned as of the date of cancellation of the insurance contract.

(j) “Unlawful rebate” includes the acts denounced by Sections 750 to 761 of the Insurance Code.

(k) “Dealer's reserve” means that portion of the difference between the cash balance and the contract balance which is earned or given to the dealer and retained by the person purchasing or discounting the contract of sale as collateral security for any contingent liability of the dealer.

(l) “Bonus” means a dealer's reserve which is earned or given to the dealer by the person purchasing or discounting the contract of sale, and not held as collateral security for any contingent liability.

(m) Insurance Code Sections 11, 12, 13, 16, 19, 20, 22, 23 govern the construction of these rules and regulations. These rules and regulations are applicable to Vendor's Single Interest Insurance of all kinds.

HISTORY

1. Amendment filed 9-5-61; designated effective 1-1-62 (Register 61, No. 18).

REGULATIONS

§2110. License Requirements; Dealer.

History

Every dealer who enters into a motor vehicle insurance transaction shall be licensed to transact insurance as an agent or broker, or both, unless he receives no commission dealer's reserve or bonus dependent directly or indirectly upon insurance and the insurance is personally transacted by a dealer's subsidiary or other licensee.

HISTORY

1. Amendment filed 9-5-61; designated effective 1-1-62 (Register 61, No. 18).

§2111. Same; Appointment by Insurer Required for Agent.

History

Dealers and dealers' subsidiaries who are licensed as agents only shall not transact insurance, directly or indirectly, which is placed with an insurer unless, at the time of the transaction, there is on file with the commissioner a document executed by the insurer or its authorized representative appointing them its agent in this State.

HISTORY

1. Amendment filed 9-3-61; designated effective 1-1-62 (Register 61, No. 18).

§2112. Same; When Required of Employee.

History

Every employee or salesman of a licensed dealer or dealer's subsidiary shall be licensed to transact insurance unless

(a) He is a regularly salaried administrative or clerical employee who devotes substantially all of his services to activities other than the solicitation of insurance from the insuring public and receives no commission on insurance, directly or indirectly, or

(b) He devotes substantially all of his activities to selling merchandise and his solicitation of insurance is limited only to the quoting of a premium for insurance, to be included in the purchase price, covering the interest retained in such merchandise by the dealer, and he receives no commission on insurance, directly or indirectly.

HISTORY

1. Amendment filed 9-5-61; designated effective 1-1-62 (Register 61, No. 18).

§2113. Responsibility of Licensee for Employees.

History

Every licensed dealer and dealer's subsidiary is responsible for violations of the Insurance Code committed by his employees and salesmen and permitted by him.

HISTORY

1. Amendment filed 9-5-61; designated effective 1-1-62 (Register 61, No. 18).

§2114. Written Statement to Purchaser.

History

Except as permitted by Section 21145 every licensed dealer or dealer's subsidiary shall at the time of the execution of a contract of sale deliver to the purchaser a written statement signed by both the purchaser and the dealer or dealer's subsidiary as the case may be. Such statement shall be denominated a “Statement of Insurance” and shall be either a separate document or a separately executed portion of another document connected with the motor vehicle insurance transaction. If any provision of any law of this State requires that any matters specified herein be included in another document connected with such transaction their inclusion therein shall be deemed compliance with this section. A copy of the Statement of Insurance and of such other document, if any, shall be retained by the dealer or dealer's subsidiary in the records and files of his insurance transactions. The printed portion of the Statement of Insurance shall be in type not less than ten point unless it is included in the same document as a conditional sales contract as defined in Section 2981 of the Civil Code, in which event it shall be printed in not less than eight point. All inserts made to complete such Statement must be equally prominent and must be made prior to the signing thereof by any party. Such Statement of Insurance shall specify the following facts relative to all insurance charged to the purchaser or placed upon the motor vehicle referred to in the contract of sale.

(a) The kind of insurance coverage. If there be no insurance covering an interest of the purchaser, a clear statement of that effect must be included. If there be no insurance against damages resulting from the ownership or operation of the vehicle arising by reason of personal injury to or the death of any person, or from damage to property, a statement must be included reading:

“UNLESS A CHARGE IS INCLUDED IN THIS AGREEMENT FOR PUBLIC LIABILITY OR PROPERTY DAMAGE INSURANCE, PAYMENT FOR SUCH COVERAGE IS NOT PROVIDED BY THIS AGREEMENT.”

(b) The amount of the gross premium for each kind of insurance coverage and the aggregate gross premium for all such insurance coverage.

(c) The term of such insurance coverage. In the event the term of any insurance coverage expires prior to or continues after the expiration date of the contract of sale, that fact shall be clearly stated.

(d) A notice reading substantially as follows:

“NOTICE. No person is required as a condition precedent to financing the purchase of an automobile that any insurance be negotiated or purchased through a particular insurance agent or broker.”

HISTORY

1. Amendment filed 9-5-61; designated 1-1-62 (Register 61, No. 18).

§2114.3. Written Statement; on Revision or Correction of Contract.

History

If a contract of sale be revised or corrected after its original execution and at a time when the purchaser is not present at the premises of the dealer the requirement of Section 2114 with respect to the signing of the Statement of Insurance by the purchaser shall be deemed complied with if the dealer promptly mails to the purchaser at his last known address two signed copies of said statement with a request to the purchaser that he execute and return one of them.

HISTORY

1. New section filed 9-5-61; designated effective 1-1-62 (Register 61, No. 18).

§2114.5. Written Statement; Transaction by Dealer's Subsidiary.

History

If the insurance is transacted by a dealer's subsidiary the information required to be contained in the Statement of Insurance may be given by the dealer's subsidiary to the purchaser as provided in this section if all the following requirements are met:

(a) The dealer's subsidiary has in his possession blank Statement of Insurance forms in which all of the information required by Section 2114 may be inserted.

(b) There is as a part of the transaction oral communication between the purchaser and the dealer's subsidiary either person to person or by telephone in which:

(1) The dealer's subsidiary ascertains that the purchaser has in his possession and before him at the time of such conversation a blank Statement of Insurance form which, if properly completed, will include all the information required by such section.

(2) The dealer's subsidiary secures from the purchaser all facts necessary to the underwriting and rating of the insurance.

(3) The dealer's subsidiary gives to the purchaser all information required to be set forth in the Statement of Insurance pursuant to such section and records the information given in his own Statement of Insurance form.

(c) The dealer's subsidiary on the same or next business day mails to the purchaser and to the motor vehicle dealer copies of the Statement of Insurance signed by him and keeps a record thereof in the records referred to in Section 2116.

HISTORY

1. New section filed 9-5-61; designated effective 1-1-62 (Register 61, No. 18).

§2114.7. Duty of Licensee in Quotation of Rate.

History

Every dealer or dealer's subsidiary shall use due care in obtaining full information necessary to the quotation of the rate for the insurance and in the quotation of such rate. No dealer or dealer's subsidiary shall knowingly or willfully make any misquotation of premium or rate nor quote a premium or rate for a particular kind of insurance or for a particular insurer without a reasonable expectation that such kind of insurance at the rate quoted can be lawfully procured by him from such insurer.

HISTORY

1. New section filed 9-5-61; designated effective 1-1-62 (Register 61, No. 18).

§2115. Licensee to Compare Statement and Policy and Make Adjustment.

History

Every dealer or dealer's subsidiary shall, within a reasonable time after entering into a motor vehicle insurance transaction

(a) Compare the gross premium, insurance coverage and the term thereof set forth in the statement referred to in Section 2114 with the policy or certificate of insurance issued by the insurer.

(b) Shall adjust the coverage and term in the policy to conform to the statement described in Section 2114 by securing any necessary endorsement from the insurer, and

(c) Shall adjust any difference in the premium by making a refund or additional charge, as the case may be, to the purchaser so that the charge for the insurance coverage as contained in the statement referred to in Section 2114 conforms to the premium set forth in the policy or certificate of insurance. To the extent that Chapter 2b of Division 3 of Part 4 of Title 14 of the Civil Code prescribes the procedure, time or amount of such charges or refunds they shall be governed thereby. Otherwise any refund herein referred to may be made only in the following ways:

(1) By cash or check, immediately,

(2) By crediting the next payments due on the purchaser's contract of sale, or

(3) By crediting the last payments due on the purchaser's contract of sale; in which event such refund shall include a refund of all finance, interest, time price differential, service charges or other fees properly allocable to the amount of the refund from the inception of the contract.

(4) If the contract of sale has been assigned, sold or transferred, by payment to the holder thereof with instructions to credit or pay the refund in any one of the three preceding alternative ways.

HISTORY

1. Amendment filed 9-5-61; designated effective 1-1-62 (Register 61, No. 18).

§2116. Maintenance of Separate Record; Contents.

History

Every licensed dealer or dealer's subsidiary shall maintain, separate from the records of other business transactions, a ledger, book or card record of insurance business transacted under the authority of his license, which shall set forth at least the following information:

(a) Name of insurer.

(b) Policy or certificate number.

(d) Effective and termination dates.

(e) Kind of coverage.

(f) Amount of gross premium.

(g) Amount of commission.

(h) Amount of net premium.

(i) Date of cancellation.

(j) Amount of gross return premium and disposition thereof.

(k) Any addition or reduction in original premium by reason of endorsement.

(l) Names of persons to whom commissions are paid or allowed and the amount to each.

HISTORY

1. Amendment filed 9-5-61; designated effective 1-1-62 (Register 61, No. 18).

§2117. Record Required of Insurance Not Included in Vehicle Transaction.

History

Every licensed dealer or dealer's subsidiary who transacts insurance where the premium is not included in a motor vehicle insurance transaction shall maintain, in addition to the data contained in Section 2116, the following additional information:

(a) Date of payment of premium by insured.

(b) Date of payment of premium to insurer.

HISTORY

1. Amendment filed 9-5-61; designated effective 1-1-62 (Register 61, No. 18).

§2118. Purchase of Contracts Restricted.

History

Licensees shall not purchase, finance or discount contracts of sale which include a charge, either directly or indirectly, for insurance or as to which insurance exists for the benefit of the purchaser or licensed dealer, from any dealer who is not licensed by the Department of Insurance unless such insurance was lawfully transacted.

HISTORY

1. Amendment filed 9-5-61; designated effective 1-1-62 (Register 61, No. 18).

§2119. Insurance Through Unlicensed Dealers; Placing by Licensee Prohibited.

History

Licensees shall not place insurance coverage in conjunction with motor vehicle insurance transactions, either directly or indirectly, at the request of any dealer who is not properly licensed.

HISTORY

1. Amendment filed 9-5-61; designated effective 1-1-62 (Register 61, No. 18).

§2120. Same; Duty of Licensee to Investigate.

History

Licensees shall not place insurance coverage in conjunction with motor vehicle insurance transactions, either directly or indirectly, which was not solicited or negotiated by such licensee unless he first determines that such insurance was solicited or negotiated by a properly licensed dealer.

HISTORY

1. Amendment filed 9-5-61; designated effective 1-1-62 (Register 61, No. 18).

§2121. Same; Commission Payment to, Prohibited.

History

The paying or allowing of any commission or other valuable consideration on insurance by any insurer or licensee to an unlicensed dealer or to a licensee in connection with insurance which was not lawfully transacted by him, by crediting the dealer's reserve or by paying a bonus, or otherwise, constitutes an unlawful rebate.

HISTORY

1. Amendment filed 9-5-61; designated effective 1-1-62 (Register 61, No. 18).

§2121.5. Duty of Licensee; Remission of Premium; Refund of Finance Charge.

History

No licensed dealer or dealer's subsidiary shall enter into or proceed under any contract, agreement or other arrangement under or pursuant to which any premium for insurance which is included in the unpaid balance of any contract of sale is not remitted to the insurer or person entitled thereto within 90 days after the execution of such contract.

If such premium or the net portion due is not so actually remitted to such persons within said 90 days the licensed dealer or dealer's subsidiary shall be responsible for the refund to the purchaser of the finance, interest, time price differential, service charge or any other fee based upon such premium for any period prior to its actual remission. Such refund shall be made in the same manner as is provided for a refund in Section 2115.

HISTORY

1. New section filed 9-5-61; designated effective 1-1-62 (Register 61, No. 18).

§2122. Return Premium; Account to Purchaser.

History

Every licensed dealer or dealer's subsidiary who, in connection with a motor vehicle transaction, effects the cancellation of an existing insurance policy pursuant to written authority from the purchaser and takes from the purchaser an assignment of the return premium thereon, or who, in connection with such transaction, takes from the purchaser an assignment of any return premium which may develop upon a future cancellation shall, in either event, upon such cancellation apply the full amount of the gross return premium toward the purchase of replacing insurance required by the contract of sale; except that if the amount thereof be in excess of the amount required for replacing insurance, if there be no replacing insurance or if the premium for such replacing insurance is not included in any contract of sale, such excess or such gross return premium, as the case may be, shall be refunded to the purchaser in one of the following ways:

(1) By cash or check, immediately,

(2) By crediting the next payments due on the purchaser's contract of sale, or

(4) If the contract of sale has been assigned, sold or transferred by payment to the holder thereof with instructions to credit or pay the refund in any one of the three preceding alternative ways.

HISTORY

1. New section filed 9-5-61; designated effective 1-1-62 (Register 61, No. 18).

§2123. Same; Form of Assignment to Dealer.

History

The assignment referred to in Section 2122 shall be in writing and shall contain, in substance, the following provision:

“In consideration of allowing me credit for the full amount of the gross return premium on Policy No. ___________ covering my 19 ____ automobile, I hereby assign to _________ all my right, title and interest in and to such return premium.”

A signed copy of such assignment shall be retained by the person taking the assignment in the records and files of his insurance transactions.

HISTORY

1. Amendment filed 9-5-61; designated effective 1-1-62 (Register 61, No. 18).

§2124. Refund or Additional Charge Less Than $1.00 Waived.

History

If the total amount of any refund or additional charge required by any provision of this article is less than $1.00 no licensee is in violation of this article if he fails to make such refund or charge.

HISTORY

1. Amendment filed 9-5-61; designated effective 1-1-62 (Register 61, No. 18).

§2125. Duty to Deliver Policy or Certificate.

History

(a) Where an insurer executes a policy or certificate evidencing insurance and delivers the original or a true copy thereof to a dealer, dealer's subsidiary or other licensee, for transmittal to the purchaser or owner, it shall be the duty of said dealer, dealer's subsidiary or other licensee to deliver such original or copy to the purchaser and to each owner of the motor vehicle.

(b) Where insurance coverage is evidenced by a policy or certificate executed by a dealer, dealer's subsidiary or other licensee duly authorized pursuant to Chapter 5, Part 2, Division 1 of the Insurance Code, it shall be the duty of said dealer, dealer's subsidiary or other licensee to deliver the original or a true copy thereof to the purchaser and to each owner of the motor vehicle.

HISTORY

1. Amendment filed 9-5-61; designated 1-1-62 (Register 61, No. 18).

§2126. Compliance Required in Addition to Insurance Code.

History

Compliance with these rules and regulations is not exclusive but is required in addition to compliance with any and all provisions of the Insurance Code.

HISTORY

1. Amendment filed 9-5-61; designated effective 1-1-62 (Register 61, No. 18).

§2127. Penalties.

History

A violation of this article constitutes a violation of Insurance Code Section 383.5 and is grounds for the suspension, revocation or denial of licenses issued by this Department in accordance with the provisions of the Insurance Code relating thereto.

HISTORY

1. Amendment filed 9-5-61; designated effective 1-1-62 (Register 61, No. 18).

Article 3.5. Rental Car Agent Licensing Regulations

§2130. Authority.

Note • History

These regulations are promulgated pursuant to the authority granted the Insurance Commissioner by the California State Legislature under the provisions of Assembly Bill No. 62 (Stats. 1999, Ch. 618). On and after January 1, 2001, no rental car company may sell or offer insurance without complying with Sections 1758.8-1758.891 of the Insurance Code and these regulations.

NOTE

Authority cited: Section 2, A.B. 62 (Stats. 1999, c. 618). Reference: Sections 1758.8-1758.891, Insurance Code.

HISTORY

1. New article 3.5 (sections 2130-2130.8) and section filed 12-6-2000 as an emergency; effective 12-6-2000; operative 1-1-2001 pursuant to Insurance Code section 1758.891 (Register 2000, No. 49). A Certificate of Compliance must be transmitted to OAL by 4-5-2001 or emergency language will be repealed by operation of law on the following day.

2. Repeal of article 3.5 (sections 2130-2130.8) and repeal of section by operation of Government Code section 11346.1(g) (Register 2001, No. 18).

3. New article 3.5 (sections 2130-2130.8) and section filed 4-30-2001 as an emergency; operative 4-30-2001 (Register 2001, No. 18). A Certificate of Compliance must be transmitted to OAL by 8-28-2001 or emergency language will be repealed by operation of law on the following day.

4. Repeal of article 3.5 (sections 2130-2130.8) and repeal of section by operation of Government Code section 11346.1(g) (Register 2001, No. 39).

5. New article 3.5 (sections 2130-2130.8) and section filed 9-25-2001 as an emergency; operative 9-25-2001 (Register 2001, No. 39). A Certificate of Compliance must be transmitted to OAL by 1-23-2002 or emergency language will be repealed by operation of law on the following day.

6. Repealer of article 3.5 (sections 2130-2130.8) and section by operation of Government Code section 11346.1(g) (Register 2002, No. 5).

7. New article 3.5 (sections 2130-2130.8) and section filed 1-31-2002 as an emergency; operative 1-31-2002 (Register 2002, No. 5). A Certificate of Compliance must be transmitted to OAL by 5-31-2002 or emergency language will be repealed by operation of law on the following day.

8. Certificate of Compliance as to 1-31-2002 order, including amendment of section and Note, transmitted to OAL 2-6-2002 and filed 3-21-2002 (Register 2002, No. 12).

§2130.1. Definitions.

Note • History

As used in these regulations and in Article 16.6 (commencing with Section 1758.8) of the Insurance Code:

(a) “Authorized insurer” means an insurer holding a California certificate of authority that includes the kinds of insurance enumerated in Section 1758.85 of the Insurance Code.

(b) “Franchise” and its derivatives are as defined in the California Corporations Code, Title 4, Division 5, Part 1 (commencing with Section 31005).

(c) “Organization” means a partnership, limited liability company, association, or corporation. Where reference is made to a natural person named on an organization license, the reference shall be to a person who is named to exercise the power and perform the duties under an organization license.

NOTE

Authority cited: Section 2, A.B. 62 (Stats. 1999, c. 618). Reference: Sections 1628 and 1758.85, Insurance Code.

HISTORY

1. New section filed 12-6-2000 as an emergency; effective 12-6-2000; operative 1-1-2001 pursuant to Insurance Code section 1758.891 (Register 2000, No. 49). A Certificate of Compliance must be transmitted to OAL by 4-5-2001 or emergency language will be repealed by operation of law on the following day.

2. Repealed by operation of Government Code section 11346.1(g) (Register 2001, No. 18).

3. New section filed 4-30-2001 as an emergency; operative 4-30-2001 (Register 2001, No. 18). A Certificate of Compliance must be transmitted to OAL by 8-28-2001 or emergency language will be repealed by operation of law on the following day.

4. Repealed by operation of Government Code section 11346.1(g) (Register 2001, No. 39).

5. New section filed 9-25-2001 as an emergency; operative 9-25-2001 (Register 2001, No. 39). A Certificate of Compliance must be transmitted to OAL by 1-23-2002 or emergency language will be repealed by operation of law on the following day.

6. Repealed by operation of Government Code section 11346.1(g) (Register 2002, No. 5).

7. New section filed 1-31-2002 as an emergency; operative 1-31-2002 (Register 2002, No. 5). A Certificate of Compliance must be transmitted to OAL by 5-31-2002 or emergency language will be repealed by operation of law on the following day.

8. Certificate of Compliance as to 1-31-2002 order transmitted to OAL 2-6-2002 and filed 3-21-2002 (Register 2002, No. 12).

§2130.2. Applications.

Note • History

(a) A separate license shall be applied for and obtained by each natural person (i.e., individual) or organization that intends to act as a rental car agent.

(1) An individual licensee may own or act as the franchisee of more than one rental car company without obtaining additional licenses.

(2) An organization licensee may act as the franchisee of more than one rental car company without obtaining additional licenses.

(b) An individual or organization licensee shall file with the Commissioner any true name or fictitious name(s) under which the applicant intends to act as a rental car agent. The Commissioner may disapprove, in writing, the use of any true or fictitious name (other than the bona fide true name of an individual) by any licensee pursuant to Section 2050 et seq. of this chapter.

(c) Any certification required in Article 16.6 (commencing with Section 1758.8) of the Insurance Code shall be made under penalty of perjury under the laws of the State of California.

NOTE

Authority cited: Section 2, A.B. 62 (Stats. 1999, c. 618). Reference: Sections 1758.8, 1758.82 and 2050 et seq., Insurance Code.

HISTORY

2. Repealed by operation of Government Code section 11346.1(g) (Register 2001, No. 18).

4. Repealed by operation of Government Code section 11346.1(g) (Register 2001, No. 39).

6. Repealed by operation of Government Code section 11346.1(g) (Register 2002, No. 5).

8. Certificate of Compliance as to 1-31-2002 order transmitted to OAL 2-6-2002 and filed 3-21-2002 (Register 2002, No. 12).

§2130.3. Fees.

Note • History

(a) A fee of $340 shall be paid at the time the license application is filed.

(1) Applications that are not accompanied by the appropriate fee shall not be accepted for filing, whether or not they contain all the documents otherwise required by Sections 1758.81(a) and 1758.82(c) of the Insurance Code.

(b) A fee of $340 shall be paid at the time a rental car agent license renewal is filed.

(c) Costs charged by the Department of Insurance for any enforcement action or investigation shall be paid by the licensee, in addition to the application or renewal filing fee.

NOTE

Authority cited: Section 2, A.B. 62 (Stats. 1999, c. 618). Reference: Section 1758.81, Insurance Code.

HISTORY

2. Repealed by operation of Government Code section 11346.1(g) (Register 2001, No. 18).

4. Repealed by operation of Government Code section 11346.1(g) (Register 2001, No. 39).

6. Repealed by operation of Government Code section 11346.1(g) (Register 2002, No. 5).

8. Certificate of Compliance as to 1-31-2002 order transmitted to OAL 2-6-2002 and filed 3-21-2002 (Register 2002, No. 12).

9. New subsection (b) and subsection relettering filed 8-19-2002 as an emergency; operative 8-19-2002 (Register 2002, No. 34). A Certificate of Compliance must be transmitted to OAL by 12-17-2002 or emergency language will be repealed by operation of law on the following day.

10. Reinstatement of section as it existed prior to 8-19-2002 emergency amendment by operation of Government Code section 11346.1(f) (Register 2003, No. 10).

11. New subsection (b) and subsection relettering filed 3-6-2003; operative 4-5-2003 (Register 2003, No. 10).

§2130.4. Disclosure.

Note • History

(a) The brochures or other written materials that are provided to the prospective renter pursuant to Section 1758.86 of the Insurance Code shall include, among other information:

(1) the approved true or fictitious name under which the licensee is doing business at the location in which the rental transaction is taking place;

(2) the name(s) of any insurer(s) providing the insurance being offered to the prospective purchaser.

(b) All disclosures required by Section 1758.86(b) of the Insurance Code and these regulations shall be written clearly and conspicuously.

NOTE

Authority cited: Section 2, A.B. 62 (Stats. 1999, c. 618). Reference: Section 1758.86, Insurance Code.

HISTORY

2. Repealed by operation of Government Code section 11346.1(g) (Register 2001, No. 18).

4. Repealed by operation of Government Code section 11346.1(g) (Register 2001, No. 39).

6. Repealed by operation of Government Code section 11346.1(g) (Register 2002, No. 5).

8. Certificate of Compliance as to 1-31-2002 order transmitted to OAL 2-6-2002 and filed 3-21-2002 (Register 2002, No. 12).

§2130.5. Training.

Note • History

(a) A separate set of training materials shall be prepared and submitted to the Commissioner for each insurance product sold.

(1) If endorsees of a single licensee doing business under the same name at multiple locations are selling the same insurance product, no more than one set of training materials shall be prepared and submitted to the Commissioner for that product.

(2) Insurance products provided by different insurers shall be deemed to be different products for the purpose of these regulations.

(b) Training of endorsees shall be conducted whenever there is a change in the insurance product(s) sold, but in no event less frequently than every two (2) years.

(c) If the training materials have been developed by an insurer and approved by the California Department of Insurance, the applicant is not required to submit the training material. The applicant instead shall submit a letter, signed by both an authorized representative of the insurer and by the applicant (or officer of the entity), stating that the applicant will use the approved training materials filed by the insurer.

NOTE

Authority cited: Section 2, A.B. 62 (Stats. 1999, c. 618). Reference: Section 1758.82, Insurance Code.

HISTORY

2. Repealed by operation of Government Code section 11346.1(g) (Register 2001, No. 18).

4. Repealed by operation of Government Code section 11346.1(g) (Register 2001, No. 39).

6. Repealed by operation of Government Code section 11346.1(g) (Register 2002, No. 5).

8. Certificate of Compliance as to 1-31-2002 order transmitted to OAL 2-6-2002 and filed 3-21-2002 (Register 2002, No. 12).

§2130.6. Records.

Note • History

(a) Records of insurance transactions and other documents required by Article 16.6 (commencing with Section 1758.8) of the Insurance Code and these regulations shall be maintained for at least three (3) years after the expiration or cancellation date of the policy to which the records pertain, except where otherwise specifically authorized by statute or the Commissioner.

(b) Records shall be kept in this State, in the principal office of the licensee, except where otherwise specifically authorized by statute or the Commissioner.

(c) Records shall be produced for examination by the Commissioner or a designee of the Commissioner within 30 days of the mailing date of a written request. Records may be requested in electronic or written format.

NOTE

Authority cited: Section 2, A.B. 62 (Stats. 1999, c. 618). Reference: Section 1758.82, Insurance Code.

HISTORY

2. Repealed by operation of Government Code section 11346.1(g) (Register 2001, No. 18).

4. Repealed by operation of Government Code section 11346.1(g) (Register 2001, No. 39).

6. Repealed by operation of Government Code section 11346.1(g) (Register 2002, No. 5).

8. Certificate of Compliance as to 1-31-2002 order, including amendment of subsection (c), transmitted to OAL 2-6-2002 and filed 3-21-2002 (Register 2002, No. 12).

§2130.7. Forms.

Note • History

The specific forms required to be filed with the Commissioner by license applicants and licensees are as follows:

(a) The written application for licensure shall be made on Form 441-9 (Rev 11/2000) for individuals and on Form 441-11 (Rev 11/2000) for organizations.

(b) The initial certification of authorized employees shall be made on form Lic. RCA 1 (Rev 11/2000).

(d) The insurer certification shall be made on form Lic. RCA 3 (Rev 11/2000).

(e) Training materials submitted to the Commissioner shall contain all of the elements set forth in form Lic. RCA 4 (Rev 11/2000).

(f) The list of authorized endorsees shall be made on form Lic. RCA 5 (Rev 1/2000). The list shall be maintained in a format capable of transmission to the Commissioner electronically and in hard copy or diskette, however requested by the Commissioner pursuant to Section 2130.6(c) above. The electronic version shall be transmitted in commercial word-processing or spreadsheet form. When requested, the list shall be updated to include endorsees newly authorized up to 30 days before the mailing date of the request, and shall include the dates upon which each endorsee's authorization began and, if relevant, terminated. It shall then be transmitted as an attachment to e-mail or by regular mail in hard copy or diskette, as requested. The appropriate e-mail and regular mailing addresses shall be posted by the Department on its website at http://www.insurance.ca.gov.

(g) All forms set forth in this subsection are incorporated herein by reference in their entirety and are available upon request, by telephone or in writing, to the Department of Insurance or on the website of the Department of Insurance, at www.insurance.ca.gov.

NOTE

Authority cited: Section 2, A.B. 62 (Stats. 1999, c. 618). Reference: Sections 1758.81 and 1758.82, Insurance Code.

HISTORY

2. Repealed by operation of Government Code section 11346.1(g) (Register 2001, No. 18).

4. Repealed by operation of Government Code section 11346.1(g) (Register 2001, No. 39).

6. Repealed by operation of Government Code section 11346.1(g) (Register 2002, No. 5).

8. Certificate of Compliance as to 1-31-2002 order, including amendment of subsection (f), transmitted to OAL 2-6-2002 and filed 3-21-2002 (Register 2002, No. 12).

§2130.8. Procedures.

Note • History

(a) The following criteria shall apply to procedures employed by the Commissioner in considering and issuing licenses:

(1) If the application is deficient, the Commissioner shall, within twenty-one (21) calendar days of receipt of the license application, inform the applicant, in writing, that the application is deficient and what specific information is required for completion.

(2) The Commissioner shall, within thirty (30) calendar days of filing of a completed application, reach a decision whether to issue or deny a license, and shall notify the applicant of the decision. If the Commissioner has decided to deny the application, the reason(s) therefor shall be set forth in the notification.

(b) The periods set forth above shall be tolled in the event the application requires legal action by the Commissioner.

(c) The Department of Insurance's median, minimum and maximum times for processing a license from the receipt of the initial completed application to the final license decision, and excluding applications that require legal action by the Commissioner, are as follows:

(1) thirty (30) calendar days (median time),

(2) fourteen (14) calendar days (minimum time), and

(3) one (1) calendar year (maximum).

NOTE

Authority cited: Section 2, A.B. 62 (Stats. 1999, c. 618). Reference: Section 15376, Government Code; and Section 1670, Insurance Code.

HISTORY

2. Repealed by operation of Government Code section 11346.1(g) (Register 2001, No. 18).

4. Repealed by operation of Government Code section 11346.1(g) (Register 2001, No. 39).

6. Repealed by operation of Government Code section 11346.1(g) (Register 2002, No. 5).

8. Certificate of Compliance as to 1-31-2002 order transmitted to OAL 2-6-2002 and filed 3-21-2002 (Register 2002, No. 12).

Article 4. Surplus Lines

LICENSEES OTHER THAN SURPLUS LINE BROKERS

§2131. Misrepresentation by Licensee to Surplus Line Broker.

Note

(a) Any person licensed by the Insurance Commissioner who misrepresents, to any surplus line broker, any material fact regarding insurance coverage, or misrepresents to such surplus line broker facts with regard to the rules of submission or rates, or in any way conspires to procure nonadmitted insurance in violation of the law or of the basic principles herein set forth, will subject himself to action in respect to his license as provided by Section 1731 of the Insurance Code. (Ins. C. 1760.5.)

(b) This rule relating to other licensees shall not relieve the surplus line broker of his duty under the law.

NOTE

§§2131 to 2172, inclusive, issued under authority contained in Section 1763, Insurance Code. The source of §§2050 to 2324, inclusive, is the Rules and Regulations, Insurance Commissioner.

BASIC PRINCIPLES

§2132. Preference to Admitted Insurers; Collection of Tax.

All questions involving violation or alleged violation of the Surplus Line Brokers' Act, Chapter 6, Part 2, Division 1, Insurance Code, hereinafter referred to as the “Act,” will be viewed by the commissioner upon the basis of whether or not as to each such question there has been any violation of the following basic principles:

(a) The Act is designed to grant a preference to insurers admitted to do business in this State, with the specific exceptions contained therein, and insurance coverage may not be solicited for, or contracts of insurance placed with, any nonadmitted insurer, unless and until such coverage is not procurable from a majority of the admitted insurers holding certificates of authority to transact the class or classes of insurance involved in such insurance contracts.

(b) The act is designed only to provide a medium through which citizens of this State may obtain from nonadmitted insurers coverage not readily procurable from admitted insurers.

The above basic principles shall govern in all matters relating to the act. General and specific rules are hereinafter incorporated for the purpose of facilitating the application of the basic principles, and are not to be used for the purpose of avoiding or defeating these basic principles.

SUBMISSION RULES

§2133. Submission to Admitted Insurers: “Class” Defined.

Submission to admitted insurers is always required except as hereinafter expressly otherwise stated.

Forms of Coverage. (“Class” means the classes enumerated and defined in Sections 100 to 120, inclusive, of the Insurance Code).

§2134. Not Unprocurable If Admitted Insurer Cannot Lawfully Issue.

No insurance will be deemed unprocurable from a majority of admitted insurers, and therefore eligible for placing with nonadmitted insurers, if the proposed form of contract cannot lawfully be issued by an admitted insurer.

§2135. Not Unprocurable If Combination of Classes Not Authorized.

The refusal of admitted insurers to write a form of contract is not a basis for the contention that such insurance is not procurable from a majority of admitted insurers, if the form of contract involves a combination of classes of insurance which cannot lawfully be combined in a single certificate of authority to one admitted insurer. In such case separate forms of contract, each incorporating a class or a lawful combination of classes, must be offered to and refused by a majority of insurers admitted for each such class or combination of classes, before such insurance can be placed with nonadmitted insurers.

§2136. Artificial Division of Coverage Prohibited.

Artificial divisions of coverage in one class or in any form of coverage under one class, into two or more proposed contracts, for the purpose of rendering a portion of the coverage unacceptable to a majority of insurers admitted for that class, or for the purpose of obtaining a rate advantage upon the entire risk, is prohibited where the entire coverage sought in that class or form would be acceptable as a single contract to such 'majority of admitted insurers.

§2137. Refusal by Admitted Insurers to Write Lawful Coverage by Mutual Agreement.

The refusal of a majority of admitted insurers to write a lawful form of coverage offered them, solely upon the basis of mutual agreement so not to write, where such form of coverage can be demonstrated to be proper and necessary to the protection of the citizen (and not prohibited by law), will permit the surplus line broker to write such coverage in nonadmitted insurers upon such refusal. A test of good faith of the surplus line broker in each such transaction will be a comparison of the rate or premium involved. Compliance with filing requirements of Section 1763 of the Insurance Code will be enforced.

§2138. Rejection of Part of Class by Admitted Insurers.

Where one portion of insurance in one class is acceptable to admitted insurers, but another portion in the same class is not acceptable, then if it can be shown that nonadmitted insurers will accept the entire coverage but not the rejected portion alone, the entire coverage in that class may be placed with nonadmitted insurers after approval by the commissioner.

RATES FOR COVERAGE

§2139. Offered at Specified Rate: Filing with Commissioner.

No form of coverage offered to admitted insurers upon the basis of a specified rate or premium will be considered eligible for nonadmitted writing, unless filed with the commissioner, subject to the provisions of Section 1763 of the Insurance Code.

§2140. Use of Broker's License for Rate Competition.

The use of a surplus line broker's license for the sole purpose of premium or rate competition with admitted insurers is prohibited. The commissioner is of the opinion, however, that the act does not contemplate the forcing by admitted insurers of unreasonable or arbitrary rates upon the insuring public.

RULES COVERING SPECIFIC POLICY FORMS HERETOFORE SUBMITTED TO THE COMMISSIONER

§2141. Life Insurance.

(Ins. C. 101.) No forms of policies having been submitted, the writing of nonadmitted insurance must be in conformity with the general rules and basic principles.

§2142. Fire Insurance.

(Ins. C. 102.) Attention is directed to the law prohibiting the use of any form other than the California Standard Form Fire Insurance Policy. (Ins. C. 2070.) This applies to both primary and excess fire insurance.

§2143. Earthquake Insurance.

Note • History

First loss (primary) earthquake insurance may be procured from nonadmitted insurers. If at least one of the following elements is present, such insurance may be procured from such insurers without restriction as to rates:

(a) The deductible is at least 25 percent less than the following:

(1) For dwellings of Class D (one to four dwellings) Construction (including farm dwellings) and the contents thereof.

One-half of 1 percent of the value of the property insured or $250, whichever is the higher.

(2) For all other buildings of Class I to VI Construction (wood frame, stucco, steel frame or steel and re-enforced concrete) and the contents thereof

One-half of 1 percent of the value of the property insured or $1,000, whichever is the higher

(3) For buildings of Classes VIIa and VIIb (ordinary brick building not re-enforced) Construction and the contents thereof

2 percent of the value of the property insured or $2,000, whichever is the higher

(4) For buildings of Classes VIIIa and VIIIb (hollow tile or hollow concrete block) Construction and the contents thereof

5 percent of the value of the property insured or $3,000, whichever is the higher.

(b) The average or co-insurance clause is not required, or if required, requires insurance in an amount equal to a percentage of the value of the following percent value of property insured which is less than the following percentages thereof:

(1) Construction Classes I to VI 3%

(2) Construction Classes VIIa and VIIb. 6%

(3) Construction Classes VIIIa and VIIIb 9%

(d) The placement of the coverage is not contingent upon the placing of fire insurance covering the same property.

If at least one of the above elements is not present, then the procuring of such insurance from nonadmitted insurers must be in conformity with the general rules and basic principles as set forth in this article.

NOTE

Authority cited: Section 1763, Insurance Code.

HISTORY

1. Amendment filed 10-13-54; designated effective 11-15-54 (Register 54, No. 22).

§2144. Riot, Strike, Civil Commotion and Malicious Damage.

The noncancellable feature of policies of this form constitutes a material advantage to the insured not now procurable from admitted insurers. Such noncancellable insurance, but not cancellable insurance, is therefore exempt until further notice from the submission rules.

§2145. Depreciation Insurance.

Until admitted insurers provide a market for depreciation insurance, such insurance may be procured from nonadmitted insurers, exempt until further notice from the submission rules. Coverage offered must not in any way encroach upon primary fire insurance.

§2146. Collapse Insurance.

Until admitted insurers provide a market for collapse insurance, such insurance may be procured from nonadmitted insurers, exempt until further notice from the submission rules. Coverage submitted or written must specifically exclude all loss or damage arising from earthquake or fire. Earthquake or fire insurance may be placed with nonadmitted insurers only under the rules applicable to each.

Marine Insurance. (Ins. C. 103.) (Classification includes inland marine insurance.)

§2147. (a) Furriers Block Policy.

This form has been submitted for a ruling as to whether or not same is permissible for nonadmitted insurers. The request for ruling is based upon a form similar to the Jewelers Block Form but covering furs, namely covering not only merchandise in stock at the assured's permanent location or locations, but outside risk of the insured against fire arid supplementary lines, burglary and other hazards. Unlike the Jewelers Block Form Section 103 of the Insurance Code does not authorize issuance of such policies covering furs as marine insurance.

Forms in nonadmitted insurers covering all hazards of the Furriers Block Policy but specifically excepting fire and supplemental coverages attaching to assured's merchandise at assured's permanent location or locations are permissible for writing in nonadmitted insurers subject to the submission rules.

It will be understood that the rates applying to the several burglary coverages of the Block policy will be not less than those quoted by admitted insurers.

§2148. Negative Film Floater.

This form may be placed with nonadmitted insurers subject to the general rules and basic principles. Present forms submitted to the Commissioner as being those in use by nonadmitted insurers do not, in my opinion, offer substantial difference in coverage.

§2149. Other Forms of Inland Marine.

All other forms of Inland Marine Insurance must be submitted in conformity with the general rules and basic principles.

§2150. Title Insurance.

(Ins. C. 104.) No forms of policies having been submitted, the writing of non-admitted insurance must be in conformity with the general rules and basic principles.

§2151. Surety Insurance.

(Ins. C. 105.) (Attention is directed to the Code definition which includes Fidelity Insurance and Bankers, Brokers and Commercial Blanket Bonds.)

No forms of policies having been submitted, the writing of nonadmitted insurance must be in conformity with the general rules and basic principles. Compliance with filing requirements of Section 1763 of the Insurance Code will be enforced.

§2152. Disability.

(Ins. C. 106.) No forms have been submitted, but it has been brought to the notice of the Commissioner that risks involving “special hazards” can not be placed in admitted markets. All risks involving “special hazards” may be placed with nonadmitted insurers subject to the general rules and basic principles.

§2153. Plate Glass.

(Ins. C. 107.) No forms of policies having been submitted, the writing of nonadmitted insurance must be in conformity with the general rules and basic principles.

§2154. Liability.

(Ins. C. 108.) (It should be noted that the code definition of Liability Insurance includes “insurance against loss resulting from liability for damage to property or property interests of others, but does not include workmen's compensation, common carrier liability, boiler and machinery or team and vehicle insurance.”)

§2155.

The question has been submitted as to the propriety of dividing liability lines into:

(a) (1) Primary coverage and

(2) Excess coverage for submission purposes, and the Commissioner has been asked to rule whether such division would be considered a violation of the artificial division rule.

(b) Unless the excess coverage upon any risk is written in nonadmitted insurers at a rate or premium comparable with that regularly chargeable for the excess portion by the primary carrier on such risk, the division of such risk into primary and excess will be considered a violation of the artificial division rule, subject to the following exceptions:

(1) Excess insurance written by nonadmitted insurers in excess of a net retention of risk by the assured.

(2) Excess insurance written by nonadmitted insurers because of a refusal in writing by the primary admitted insurer to assume the limits of liability desired by the assured.

(3) Excess insurance written by nonadmitted insurers because of a written demand by the assured that the entire liability be not placed with one insurer, such request to set forth specifically the assured's reason therefor.*

§2156.

All excess insurance shall be subject to the general rules and basic principles, and is available for nonadmitted insurers only upon a majority refusal by admitted insurers.*

§2157.

Special situations arising in connection with coverages such as Hospital Malpractice Liability and Hospital Liability for the same risk will be governed by Section 2138.*

§2158. Workmen's Compensation.

(Ins. C. 109.) By virtue of the Attorney General's opinion under date of July 26, 1948, the writing of excess aggregate (stop loss) and excess catastrophe (straight excess) was declared to be subject to the minimum rating law (Ins. C. 11730 to 11742), and the policy approval law. (Ins. C. 11650 to 11662)*

§2159. Common Carrier Liability.

(Ins. C. 110.) No forms of policies having been submitted, the writing of nonadmitted insurance must be in conformity with the general rules and basic principles.

(a) Questions of

(1) Primary coverage and

(2) Excess coverage are subject to the same rules and regulations as defined under Liability, Section 2155.

(b) Reference is made to Section 1760.5 of the Insurance Code, sub-paragraphs (b), (c) and (d) which remove from the operations of the Act, insurance for certain common carriers such as steamships, railroads and aircraft (other than public liability hazards).*

§2160. Boiler and Machinery.

(Ins. C. 111.) No forms of policies having been submitted, the writing of nonadmitted insurance must be in conformity with the general rules and basic principles. Questions of

(a) Primary coverage and

(b) Excess coverage

are subject to the same rules and regulations as defined under Liability, Section 2155.*

*For statutory and source citation, see note to §2131.

§2161. Burglary.

(Ins. C. 112.) “Form G” burglary policy issued by Lloyds, London, has been submitted. The questions raised are under two heads: (1) rate and co-insurance; (2) extension of coverage to premises” instead of “within the residence” as appearing in forms of admitted insurers, and to personal effects in hotels.

(a) As to question (1), rate and co-insurance: Until admitted insurers recognize the apparent reasonableness of a substantial reduction in rate per unit of coverage upon application of the 100% co-insurance clause, it is hereby ruled that refusal of a majority of admitted insurers to accept upon the basis of 100% co-insurance, with reasonable rate allowance therefor, may be considered a refusal to write, and permits the surplus line broker to place coverage with a nonadmitted insurer.

(b) As to question (2) extension of coverage to “premises” instead of “within the residence,” it is ruled that the insured is entitled to procure coverage on property located on the “premises” and if such coverage is not procurable from a majority of admitted insurers, an offering upon the basis of inclusion of such coverage win be considered sufficient to comply with the submission rules. As to coverage in hotels or away from the premises, this ruling will not apply; inasmuch as a majority of admitted insurers are writing tourist floater or traveller's policies.

§2162. Same: Other Forms.

All other forms of burglary insurance must be written in conformity with the general rules and basic principles.

§2163. Credit Insurance.

(Ins. C. 113.) No forms of policies having been submitted, the writing of nonadmitted insurance must be in conformity with the general rules and basic principles.

§2164. Sprinkler.

(Ins. C. 114.) No forms of policies having been submitted, the writing of nonadmitted insurance must be in conformity with the general rules and basic principles.

§2165. Team and Vehicle.

(Ins. C. 115.) No forms of policies having been submitted, the writing of nonadmitted insurance must be in conformity with the general rules and basic regulations. Questions of (a) primary coverage and (b) excess coverage are subject to the same rules and regulations as defined under Liability, Section 2155.

§2166. Automobile.

(Ins. C. 116.) No forms of policies having been submitted, the writing of nonadmitted insurance must be in conformity with the general rules and basic principles. Questions of (a) primary coverage and (b) excess coverage are subject to the same rules and regulations as defined under Liability, Section 2155.

§2167. Mortgage Insurance.

(Ins. C. 117.) No forms of policies having been submitted, the writing of nonadmitted insurance must be in conformity with the general rules and basic principles.

§2168. Aircraft Insurance.

(Ins. C. 118.) Excluded operation under the Act.

The Code definition of aircraft insurance specifically excludes insurance against “loss resulting from accident or physical injury, fatal or nonfatal, to any natural person.”

§2169. Land Value.

(Ins. C. 119.) This section of the Insurance Code repealed and Land Value insurance prohibited.

§2170. Miscellaneous.

(Ins. C. 120.) No forms of policies having been submitted, the writing of nonadmitted insurance must be in conformity with the general rules and basic principles.

§2171. Third Party Property Damage Insurance.

This rule refers to that form of coverage which is not necessarily confined to one class of insurance but deals with hazards under the general heading of third party property damage.

Recognizing the restrictions of the present market, it is suggested that such amount of such insurance as can readily be placed with admitted insurers be offered to such admitted insurers.

§2171.1. Notice to Insureds.

Note • History

On and after October 1, 1972, every certificate, policy, contract, cover note, or other evidence of insurance delivered or issued for delivery in California by a Surplus Line Broker shall contain prominently displayed on the face page thereof by means of a sticker, an imprint, or in some other manner the following statement:

This insurance is issued pursuant to the California Insurance Code, Sections 1760 through 1780, and is placed in an insurer or insurers not holding a Certificate of Authority from or regulated by the California Insurance Commissioner.

On or before October 1, 1972, every Surplus Line Broker licensed by the Insurance Commissioner to transact surplus line insurance business in California shall report to the office of The Surplus Line Association its selected manner of compliance with the above-required notice.

NOTE

Authority cited: Section 1763, Insurance Code.

HISTORY

1. New section filed 7-19-72; effective thirtieth day thereafter (Register 72, No. 30).

§2172. Filing Rules.

(a) On and after December 1, 1938, the Insurance Commissioner will excuse all surplus line risks from the filing requirement if the same are filed with the Stamping Office of the Surplus Line Association, with the exception of those risks filed with him through the Stamping Office.

(b) Any surplus line broker making a filing with the Stamping Office is thereby deemed to constitute the Stamping Office his agent to make such filing with the Commissioner in its discretion.

(c) The Commissioner reserves the power to examine and review any and all such filings with the Stamping Office and all filings therewith are subject to the exercise of this power. (Ins. C. 1763.)

§2173. Pre-Condition to Placement with Nonadmitted Insurers.

Note • History

NOTE

Authority cited: Section 1763, Insurance Code. Reference: Section 1763, Insurance Code.

HISTORY

1. New section filed 11-16-90 as an emergency; operative 11-16-90 (Register 90, No. 50). A Certificate of Compliance must be transmitted to OAL by 3-18-91 or emergency language will be repealed by operation of law on the following day.

2. New section refiled 3-18-91 as an emergency; operative 3-18-91 (Register 91, No. 14). A Certificate of Compliance must be transmitted to OAL by 7-16-91 or emergency language will be repealed by operation of law on the following day.

3. Editorial correction of History 2 (Register 96, No. 16).

4. Certificate of Compliance as to 3-18-91 order transmitted to OAL 7-10-91; disapproved by OAL on 8-6 -91 and repeal ordered 8-12-91 (Register 96, No. 16).

§2174. Placement of Insurance with Alien Nonadmitted Insurers.

Note • History

NOTE

Authority cited: Section 1763, Insurance Code. Reference: Sections 1763 and 1765.1, Insurance Code

HISTORY

1. New section filed 12-28-90 as an emergency; operative 1-27-91 (Register 91, No. 4). A Certificate of Compliance must be transmitted to OAL by 5-28-91 or emergency language will be repealed by operation of law on the following day.

2. Repealed by operation of Government Code section 11346.1(g) (Register 91, No. 41).

3. New section filed 7-1-91 as an emergency; operative 7-1-91 (Register 91, No. 41). A Certificate of Compliance must be transmitted to OAL by 10-29-91 or emergency language will be repealed by operation of law on the following day.

4. Editorial correction moving forms after section 2174.14 (Register 92, No. 32).

5. Repealed by operation of Government Code section 11346.1(g) (Register 92, No. 39).

§2174.1. Definitions.

Note • History

(a) “Filing” means the providing of documents required under Insurance Code Section 1765.1(c), (d) and (i) to the Department.

(b) “Report of Examination” means a report of examination by the insurer's domiciliary regulator listing the condition of the insurer at an as of date that is no later than 5 years from the date of submission.

NOTE

Authority cited: Section 1763, Insurance Code. Reference: Sections 1763 and 1765.1, Insurance Code.

HISTORY

1. New section filed 6-12-92 as an emergency; operative 6-12-92 (Register 92, No. 24). A Certificate of Compliance must be transmitted to OAL 10-12-92 or emergency language will be repealed by operation of law on the following day.

2. Certificate of Compliance as to 6-12-92 order transmitted to OAL 10-13-92 and filed 11-25-92 (Register 92, No. 48).

3. Repealer of former section 2174.1 and renumbering and amendment of former section 2174.2 to section 2174.1 filed 2-24-99; operative 2-24-99 pursuant to Government Code section 11343.4(d) (Register 99, No. 9).

§2174.2. Schedule of Fees.

Note • History

(a) Initial Filing

Insurer, or licensee, shall pay in support of a filing for qualification as an eligible surplus lines insurer pursuant to Insurance Code Section 1765.1 the filing fee of $4500 except that for a group of incorporated or a combination of incorporated and unincorporated insurers which underwrite insurance as members of a group of syndicates pursuant to Insurance Code Section 1765.1(a)(2)(C), the filing fee shall be $4500. In addition, the group shall reimburse the Department for the costs of review of any individual syndicate.

(b) Annual Renewal

Within twelve months after being added to the list of approved surplus line carriers and annually thereafter, a filing of all the documents required by 2174.3(a) must be made and the filing fee for that annual renewal will be $2250 except that for a group of incorporated or a combination of incorporated insurers and unincorporated insurers which underwrite insurance as members of a group of syndicates pursuant to Insurance Code Section 1765.1(a)(2)(C), the filing fee shall be $2250. In addition, the group shall reimburse the Department for the costs of review of any individual syndicate.

Upon the filing of documents, pursuant to the update provisions of 2174.3(b) throughout the year, the filing fee will be $250 per document for updates of financial documents; and $35 per document for all other updates. These document fees shall not apply to any documents filed in connection with the review of any syndicate that is part of a group of incorporated or a combination of incorporated insurers and unincorporated insurers which underwrite insurance as members of a group of syndicates pursuant to Insurance Code Section 1765.1(a)(2)(C).

(d) Additional Requirements

All filings made pursuant to this section shall meet the requirements of Insurance Code Section 8 and shall be forwarded to the Department at the following address:

SURPLUS LINES ENFORCEMENT UNIT
INVESTIGATION BUREAU
CALIFORNIA DEPARTMENT OF INSURANCE
45 FREMONT
SAN FRANCISCO, CA 94105

All filings shall be made in quadruplicate, unless otherwise agreed to by the Department.

NOTE

Authority cited: Sections 1763 and 1771, Insurance Code. Reference: Sections 1763 and 1765.1, Insurance Code.

HISTORY

2. Certificate of Compliance as to 6-12-92 order including amendment of subsections (f) and (j) transmitted to OAL 10-13-92 and filed 11-25-92 (Register 92, No. 48).

3. Renumbering of former section 2174.2 to section 2174.1, new section 2174.2(a)-(c), and relocation and amendment of former section 2174.4(d) to section 2174.2(d) filed 2-24-99; operative 2-24-99 pursuant to Government Code section 11343.4(d) (Register 99, No. 9).

§2174.3. Documents to Submit.

Note • History

(a) Annual Renewal Filing

Within a year of the initial filing and every year thereafter the insurer or the licensee must file the following:

(1) Foreign Insurers

(A) Financial Documents

(i) Annual Statement as required by Insurance Code Section 1765.1(c)(1)(A)

(ii) Audited Financial Report as required by Insurance Code Section 1765.1(c)(1)(B) & (D)

(iii) Latest Report of Examination as required by Insurance Code Section 1765.1(c)(7)

(iv) Quarterly Financial Statements

(B) Non-financial Documents

(i) Certified License as required by Insurance Code Section 1765.1(c)(2)

(ii) Certificate of Good Standing as required by Insurance Code 1765.1 Section (c)(2)

(iii) Agent for Service of Process as required by Insurance Code Section 1765.1(c)(3)

(iv) Principal Place of Business as required by Insurance Code Section 1765.1(c)(4)

(v) Market Conduct Statement as required by Insurance Code Section 1765.1(c)(5)

(vi) Regulatory Disclosure Statement as required by Insurance Code Section 1765.1(c)(6)

(vii) List of Surplus Line Brokers authorized to issue policies as required by Insurance Code Section 1765.1(c)(7)

(i) Proposed Plan of Operation as required under Insurance Code 1765.1(d)(1) and (h)

(ii) Biographical Affidavits pursuant to Insurance Code Section 1765.(d)(1)

(2) Alien Insurers

(A) Financial Documents

(i) Audited Financial Report as required by Insurance Code Section 1765.1(c)(1)(B) & (E)

(ii) Latest Financial Statement as required by Insurance Code Section 1765.1(c)(1)(A) & (E)

(iii) Quarterly or half-yearly if available

(B) Non-financial Documents

(i) Trust Agreement as required by Insurance Code Section 1765.1(c)(1)(C)(i)

(ii) Certified License as required by Insurance Code 1765.1(c)(2)

(iii) Certificate of Good Standing as required by Insurance Code Section 1765.1(c)(2)

(iv) Agent for Service of Process as required by Insurance Code Section 1765.1(c)(3)

(v) Principal Place of Business as required by Insurance Code Section 1765.1(c)(4)

(vi) Market Conduct Statement as required by Insurance Code Section 1765.1(c)(5)

(vii) Regulatory Disclosure Statement as required by Insurance Code Section 1765.1(c)(6)

(viii) List of Authorized Surplus Line Brokers as required by Insurance Code Section 1765.1(c)(7)

(ix) Most recent quarterly statement of account of assets in the trust as required by Insurance Code Section 1765.1(c)(1)(C)(ii)

(i) Proposed Plan of Operation as required by Insurance Code Section 1765.1(d)(1) and (h)

(ii) Biographical Affidavits pursuant to Insurance Code Section 1765.1(d)(1)

All documents and information required to be filed pursuant to subdivision (a) must be the most recent version of the document or information. If a document or information has previously been filed to the Department it need not be refiled as part of the annual renewal filing. The cover letter with the annual renewal should mention when and what document was previously filed. If one or more of the documents listed in subdivision (a) is not filed with the Department as part of the annual renewal filing then explain in writing what those documents are and the reason they are not being filed.

(b) Update Requirements

Whenever a document required in the initial filing or annual renewal filing is materially changed or a more recent version becomes available, the insurer or the licensee must file the document as soon as it is available.

NOTE

Authority cited: Section 1763, Insurance Code. Reference: Sections 1763 and 1765.1, Insurance Code.

HISTORY

2. Certificate of Compliance as to 6-12-92 order transmitted to OAL 10-13-92 and filed 11-25-92 (Register 92, No. 48).

3. Repealer and new section filed 2-24-99; operative 2-24-99 pursuant to Government Code section 11343.4(d) (Register 99, No. 9).

§2174.4. Public Availability of Documents.

Note • History

(a) All documents filed with the Commissioner under Insurance Code Section 1765.1 except the biographical affidavits and the plan of operation, all periodic filings required under the trust agreement, all order issued under Insurance Code Section 1765.1, and all evidence, pleadings and documents relating to hearings held under Insurance Code Section 1765.1, shall be available for public review. Nothing herein shall make any memorandum, study or other document prepared by or for the Department staff in its official capacity, for internal Department use, a public document.

(b) The Commissioner may prepare and distribute to the public a list of insurers to whom section 1765.1 orders have been issued.

NOTE

Authority cited: Section 1763, Insurance Code. Reference: Sections 856(a), 1763 and 1765.1, Insurance Code.

HISTORY

2. Certificate of Compliance as to 6-12-92 order including amendment of subsection (a) and Note transmitted to OAL 10-13-92 and filed 11-25-92 (Register 92, No. 48).

3. Editorial correction of printing error in subsections (c)(3) and (c)(4) (Register 93, No. 24).

4. Repealer of subsections (a)-(c)(4), relocation of former section 2174.4(d) to section 2174.2(d), and renumbering and amendment of former section 2174.11 to section 2174.4 filed 2-24-99; operative 2-24-99 pursuant to Government Code section 11343.4(d) (Register 99, No. 9).

§2174.5. Documents to Submit.

Note • History

NOTE

Authority cited: Section 1763, Insurance Code. Reference: Sections 1763 and 1765.1, Insurance Code.

HISTORY

2. Certificate of Compliance as to 6-12-92 order transmitted to OAL 10-13-92 and filed 11-25-92 (Register 92, No. 48).

3. Repealer filed 2-24-99; operative 2-24-99 pursuant to Government Code section 11343.4(d) (Register 99, No. 9).

§2174.6. Filing.

Note • History

NOTE

Authority cited: Section 1763, Insurance Code. Reference: Sections 1763 and 1765.1, Insurance Code.

HISTORY

2. Certificate of Compliance as to 6-12-92 order transmitted to OAL 10-13-92 and filed 11-25-92 (Register 92, No. 48).

3. Repealer filed 2-24-99; operative 2-24-99 pursuant to Government Code section 11343.4(d) (Register 99, No. 9).

§2174.7. Rejection of Documents.

Note • History

NOTE

Authority cited: Sections 1763 and 12977, Insurance Code. Reference: Sections 1763 and 1765.1, Insurance Code.

HISTORY

2. Certificate of Compliance as to 6-12-92 order transmitted to OAL 10-13-92 and filed 11-25-92 (Register 92, No. 48).

3. Repealer filed 2-24-99; operative 2-24-99 pursuant to Government Code section 11343.4(d) (Register 99, No. 9).

§2174.8. List of Filings.

Note • History

NOTE

Authority cited: Section 1763, Insurance Code. Reference: Sections 1763 and 1765.1, Insurance Code.

HISTORY

2. Certificate of Compliance as to 6-12-92 order transmitted to OAL 10-13-92 and filed 11-25-92 (Register 92, No. 48).

3. Repealer filed 2-24-99; operative 2-24-99 pursuant to Government Code section 11343.4(d) (Register 99, No. 9).

§2174.9. Standards For Evaluation Of Insurers.

Note • History

NOTE

Authority cited: Section 1763, Insurance Code. Reference: Sections 1763, 1765 and 1765.1, Insurance Code.

HISTORY

2. Certificate of Compliance as to 6-12-92 order including amendment of subsection (a)(4) transmitted to OAL 10-13-92 and filed 11-25-92 (Register 92, No. 48).

3. Repealer filed 2-24-99; operative 2-24-99 pursuant to Government Code section 11343.4(d) (Register 99, No. 9).

§2174.10. Procedures For Orders Under Section 1765.1.

Note • History

NOTE

Authority cited: Section 1763, Insurance Code. Reference: Sections 1763 and 1765.1, Insurance Code.

HISTORY

2. Certificate of Compliance as to 6-12-92 order transmitted to OAL 10-13-92 and filed 11-25-92 (Register 92, No. 48).

3. Repealer filed 2-24-99; operative 2-24-99 pursuant to Government Code section 11343.4(d) (Register 99, No. 9).

§2174.11. Public Availability of Documents.

Note • History

NOTE

Authority cited: Section 1763, Insurance Code. Reference: Sections 856(a), 1763 and 1765.1, Insurance Code.

HISTORY

2. Certificate of Compliance as to 6-12-92 order transmitted to OAL 10-13-92 and filed 11-25-92 (Register 92, No. 48).

3. Renumbering of former section 2174.11 to section 2174.4 filed 2-24-99; operative 2-24-99 pursuant to Government Code section 11343.4(d) (Register 99, No. 9).

§2174.12. Status of Nonadmitted Insurers.

Note • History

NOTE

Authority cited: Section 1763, Insurance Code. Reference: Sections 1763, 1765, 1765.1 and 1776, Insurance Code.

HISTORY

2. Certificate of Compliance as to 6-12-92 order including amendment of section transmitted to OAL 10-13-92 and filed 11-25-92 (Register 92, No. 48).

3. Repealer filed 2-24-99; operative 2-24-99 pursuant to Government Code section 11343.4(d) (Register 99, No. 9).

§2174.13. Transition.

Note • History

NOTE

Authority cited: Section 1763, Insurance Code. Reference: Sections 1763 and 1765.1, Insurance Code.

HISTORY

2. Certificate of Compliance as to 6-12-92 order including amendment of section transmitted to OAL 10-13-92 and filed 11-25-92 (Register 92, No. 48).

3. Repealer filed 2-24-99; operative 2-24-99 pursuant to Government Code section 11343.4(d) (Register 99, No. 9).

§2174.14. Notice to Licensees.

Note • History

NOTE

Authority cited: Section 1763 and 1765.1, Insurance Code. Reference: Section 1765.1, Insurance Code.

HISTORY

2. Editorial correction adding Appendices C and D (Register 92, No. 30).

3. Certificate of Compliance as to 6-12-92 order transmitted to OAL 10-13-92 and filed 11-25-92 (Register 92, No. 48).

4. Repealer of section and appendices A-D filed 2-24-99; operative 2-24-99 pursuant to Government Code section 11343.4(d) (Register 99, No. 9).

Article 4.5. Procedures Governing Persons Subject to Title 18 United States Code Section 1033

§2175. Procedures Governing Prohibited Persons.

History

HISTORY

1. New article 4.5 (sections 2175-2177.14) filed 3-10-2003; operative 4-9-2003 (Register 2003, No. 11).

§2175.1. Purpose.

Note • History

The purpose of these regulations is to implement the provisions of Title 18 United States Code sections 1033 “(the Act”), as well as California Insurance Code sections 1723 and 1742.2.

NOTE

Authority cited: Sections 1723 and 1742.2, Insurance Code. Reference: Sections 1723 and 1742.2, Insurance Code; and 18 U.S.C. §1033.

HISTORY

1. New section filed 3-10-2003; operative 4-9-2003 (Register 2003, No. 11).

§2175.2. Definitions.

Note • History

For the purpose of these regulations, the following definitions shall apply:

(a) “Application” shall mean any filing made with the California Department of Insurance (Department) for written consent to engage in the business of insurance.

(b) “Applicant” shall mean any person subject to the provisions of Title 18 United States Code §1033 , who files an application for written consent to engage in the business of insurance.

(c) “Breach of Trust” refers to certain crimes or offenses, including, but not limited to, any offense constituting or involving misuse, misapplication or misappropriation of (1) anything of value held as a fiduciary (including, but not limited to, a trustee, administrator, executor, conservator, receiver, guardian, agent, employee, partner, officer, director or public servant) or (2) anything of value of any public, private or charitable entity.

(d) “Burden of Proof” means the necessity or duty of proving a fact that is in dispute on an issue raised at a hearing on a Request for Written Consent.

(e) “Business of Insurance” means: (1) the writing of insurance, or (2) the reinsuring of risks, by an insurer, including all acts necessary or incidental to such writing or reinsurance and the activities of persons who act as, or are, officers, directors, agents, or employees of insurers or who are other persons authorized to act on behalf of such persons.

(f) “Conviction” means a finding of guilty or a plea of guilty, nolo contendere or no contest in a criminal court of the United States of America or in any state, commonwealth or possession. Completion of deferred adjudication and conditional discharges are not convictions.

(g) “Dishonesty” refers to a crime or offense which includes, but is not limited to, any offense constituting or involving perjury, bribery, forgery, counterfeiting, false or misleading oral or written statements, deception, fraud, schemes or artifices to deceive or defraud, material misrepresentations and the failure to disclose material facts.

(h) “Felony” means

(1) Any Federal crime for which the maximum authorized punishment exceeds one year of imprisonment;

(2) Any crime for which the maximum authorized punishment exceeds one year incarceration; or

(3) Any crime in any other state, commonwealth, territory or possession that is identified as a felony in that state, commonwealth, territory or possession, or if not identified as a felony in said other jurisdiction, any offense for which the maximum authorized punishment exceeds one year incarceration.

(4) Any conviction of a felony crime of dishonesty, breach of trust or violation of 18 U.S.C. § 1033 which has been set aside pursuant to California Penal Code section 1203.4.

(i) “Insurer” means any entity that transacts the business of insurance or that reinsures risks, and includes any person who acts as, is, an officer, director, agent or employee of that business.

(j) “Interstate Commerce,” means the following:

(1) Commerce within the District of Columbia, or any territory, or possession of the United States;

(2) All commerce between any point in the State, territory, possession, or the District of Columbia and any point outside thereof;

(3) All commerce between points within the same State through any place outside such State via the Internet or any other means to receive commerce; or

(4) All other commerce over which the United States has Jurisdiction.

(k) “License” means any license, registration, certificate of authority or other permit or approval issued or granted by the Commissioner of Insurance.

(l) “Licensee” means any person or entity holding a license.

(m) “Prohibited Person” means any person who has been convicted of felony crimes of dishonesty, breach of trust in a state or federal jurisdiction or who has been convicted of any violation of 18 U.S.C. §1033 (the “Act”), who wishes to engage in or transact the business of insurance in this State, or who wishes to engage in or transact the business of insurance for insurers, and/or reinsurers and/or their agents and employees who are domiciled in this State. A “Prohibited Person” may be an officer, director or employee of an insurance agency or an insurance company, an agent, solicitor, broker, consultant, third-party administrator, managing general agent, or subcontractor representing an insurance agency or insurance company who engages in or transacts the business of insurance.

(n) “Request for Consent” means a completed application, submitted by a Prohibited Person that requests the Commissioner's express, written consent to allow that Prohibited Person to engage in or transact, or to continue to engage in or transact, the business of Insurance.

(o) “State” for the purposes of this regulation, includes any State in the United States the District of Columbia, the Commonwealth of Puerto Rico, the Northern Mariana Islands, the Virgin Islands, American Samoa and the Trust Territory of the Pacific Islands.

NOTE

Authority cited: Sections 1723 and 1742.2, Insurance Code Reference: Sections 1723 and 1742.2, Insurance Code; and 18 U.S.C. §1033.

HISTORY

1. New section filed 3-10-2003; operative 4-9-2003 (Register 2003, No. 11).

§2175.3. Who Must Comply.

Note • History

Any and all Prohibited Persons who are currently transacting, or engaging in, the business of insurance, or who intend to transact, or engage in, the business of insurance, must submit a completed Request for Consent to the California Department of Insurance (Department).

NOTE

Authority cited: Sections 1723 and 1742.2, Insurance Code. Reference: Sections 1723 and 1742.2, Insurance Code; and 18 U.S.C. §1033.

HISTORY

1. New section filed 3-10-2003; operative 4-9-2003 (Register 2003, No. 11).

§2175.4. Prohibited Persons Currently Engaged in or Transacting the Business of Insurance.

Note • History

(a) There are no provisions in the Act or these regulations that exempt or except any Prohibited Person, who is currently engaging in, or transacting, the business of insurance from compliance with the Act and these regulations. The Act and these regulations expressly apply to all persons currently licensed who have been convicted of any criminal felony involving dishonesty, breach of trust or any violation of the Act.

(b) Any and all currently licensed individuals who are subject to the Act and who were granted a license by the Department following full and complete disclosure of their criminal history shall be deemed to have the Insurance Commissioner's temporary consent to engage in or transact the business of insurance within the scope of their license authority only if the currently licensed individual submits an application for written consent within ninety (90) days from the effective date of these regulations. Any current licensee who is a Prohibited Person and who fails to submit an application for Written Consent within the ninety (90) day period will be barred from transacting the business of insurance as set forth in Title 18 USC section 1033.

(c) Any and all Prohibited Persons engaging in, or transacting, the business of insurance, without the express Written Consent of the Commissioner, are in violation of the Act and risk federal criminal sanctions.

NOTE

Authority cited: Sections 1723 and 1742.2, Insurance Code Reference: Sections 1723 and 1742.2, Insurance Code; and 18 U.S.C. §1033.

HISTORY

1. New section filed 3-10-2003; operative 4-9-2003 (Register 2003, No. 11).

§2175.5. Responsibility of Insurers and Other Employers to Identify Prohibited Persons.

Note • History

(a) It is the responsibility of insurers and of any other employer engaging in, or transacting the business of insurance to make a diligent effort to identify Prohibited Persons and to ensure that Prohibited Persons are not engaging in, or transacting, the business of insurance in violation of the Act and of these regulations. Insurers and other employers must actively seek to determine whether or not Prohibited Persons are in their employ and are engaging in or transacting the business of insurance.

(b) The existence of a valid license for a Prohibited Person does not waive, excuse, except or exempt an insurer or other employer from its responsibility under subdivision (a) nor the insurer's or other employer's ultimate responsibility for compliance with the provisions of the Act and these regulations.

(c) An insurer or employer must notify the Department of Insurance, in writing, of any Prohibited Person who is engaged in the business of insurance without Written Consent.

NOTE

Authority cited: Sections 1723 and 1742.2, Insurance Code Reference: Sections 1723 and 1742.2, Insurance Code; and 18 U.S.C. §1033.

HISTORY

1. New section filed 3-10-2003; operative 4-9-2003 (Register 2003, No. 11).

§2175.6. Applications for Written Consent.

Note • History

The Prohibited Person must file an Application for Written Consent with the Department as set forth herein.

(a) Prohibited Persons must submit to the Department an Application for Written Consent (National Association of Insurance Commissioners' (NAIC) Short Form Application for Written Consent to Engage in the Business of Insurance Pursuant to 18 U.S.C. §1033 and 1034 (dated 1998), which is incorporated herein by this reference). Prohibited Persons are those defined in section 2175.2(m), herein.

(b) It is the responsibility of the applicant to read the Application in its entirety. Every question must be answered completely and truthfully. The NAIC Short Form Application is available at the Department's website at www.insurance.ca.gov and at the Department of Insurance Licensing Background Bureau.

(c) Failure to submit a complete Application may result in delay or denial of the Commissioner's Written Consent. The purpose of the Application is to provide the Prohibited Person with an opportunity to demonstrate that, notwithstanding the provisions of the Act, the Prohibited Person is fit to transact, or to engage in, the business of insurance without risk to consumers or insurers.

(d) The burden is upon the Prohibited Person to establish that the Commissioner's Written Consent should be granted.

(e) All Applications submitted to the Department must be typewritten. Any application that is not typewritten will be returned to the Applicant.

(f) All Applications submitted must be complete. Certified copies of all court documents setting forth the initial conviction and any subsequent disposition, together with any other relevant documents or information that the Prohibited Person would like to have considered must be submitted within thirty (30) days of the Department's receipt of the application.

(g) Fingerprint impressions on FBI Form #FD-258 (Rev. 12-29-1982, which is incorporated herein by this reference) should be submitted directly to “Sylvan/Identix Fingerprinting Centers”, along with a check in the amount of $74.00 made payable to “Sylvan/Identix Fingerprinting Centers.” Fingerprint card completion instructions are available on the Department's website at www.insurance.ca.gov.

An application is incomplete without the following:

(1) An application processing fee in the amount of $124.00, payable to the California Department of Insurance.

(2) Two 2” by 2” recent passport photographs attached to the upper right hand corner of the first page of the application for written consent.

(3) Any amendment to the application must be filed immediately upon the occurrence of any event that would change any answer on the application. Failure to file a timely amendment may result in denial of the Request for Written Consent or the immediate withdrawal of previously granted consent.

NOTE

Authority cited: Sections 1723 and 1742.2, Insurance Code. Reference: Sections 1723 and 1742.2, Insurance Code; and 18 U.S.C §1033.

HISTORY

1. New section filed 8-21-2003; operative 8-21-2003 pursuant to Government Code section 11343.4 (Register 2003, No. 34).

§2175.7. Consideration of Applications for Written Consent.

Note • History

(a) The Insurance Commissioner shall have the sole discretion to grant or deny any Application for Written Consent to engage in or transact the business of insurance.

(b) Factors to be considered in granting or denying an Application for Written Consent will include, but are not limited to:

(1) The nature and severity of the crime.

(2) The length of time since the conviction.

(3) The injury and/or loss caused by the Prohibited Person. Whether the conviction is related to the business of insurance.

(4) Whether the Prohibited Person received a pardon from the sovereign that convicted him.

(5) Whether the Prohibited Person completed parole or probation.

(6) Whether a breach of trust, dishonesty or a violation of the Act was involved.

(7) The nature and strength of character reference letters.

(8) The person's business and personal record before and after the conviction.

(9) Whether and to what extent the person has made material false statements in an application, renewal or in other documents filed with the Commissioner.

(10) Whether and to what extent the person has made material false statements in applications or other documents filed with other State or federal agencies.

(11) Whether the Prohibited Person's conviction was expunged.

(12) Whether the conviction was received in a foreign country.

NOTE

Authority cited: Sections 1723 and 1742.2, Insurance Code. Reference: Sections 1699(a)-(d), 1723(a) and (b) and 1742.2, Insurance Code.

HISTORY

1. New section filed 8-21-2003; operative 8-21-2003 pursuant to Government Code section 11343.4 (Register 2003, No. 34).

§2175.8. Written Consent as a Prerequisite for Obtaining or Retaining a License.

Note • History

(a) Prohibited Persons are required to obtain the express, written consent of the Commissioner before any license application shall be considered.

(b) Licensees, who are prohibited persons, must have the Commissioner's express Written Consent pursuant to the Act and these regulations prior to engaging in, or transacting, the business of insurance. Licensees who have complied with the provisions of section 2175.4 herein and who are within the ninety (90) day period specified in section 2175.4 are not subject to this provision.

(c) No Prohibited Person shall be granted a license, shall be permitted to retain a license or shall engage in, or transact, the business of insurance if their Request for Written Consent has been denied.

NOTE

Authority cited: Sections 1723 and 1742.2, Insurance Code Reference: Sections 1723 and 1742.2, Insurance Code; and 18 U.S.C. § 1033.

HISTORY

1. New section filed 8-21-2003; operative 8-21-2003 pursuant to Government Code section 11343.4 (Register 2003, No. 34).

§2175.9. Standard Form of Application for Requesting Written Consent.

Note • History

(a) Prohibited Persons seeking the Commissioner's Written Consent will use the NAIC Short Form Application For Written Consent to Engage in the Business of Insurance Pursuant to 18 U.S.C. §1033 and 1034 for the use of Prohibited Persons (dated 1998), which is incorporated herein by this reference. The Prohibited Person seeking Written Consent must sign the Application.

(b) The Commissioner may request additional information at any time from an Applicant to support a pending Application for Written Consent. The Applicant is required to support a pending Application by promptly providing any requested information. Failure to provide such information may result in the Commissioner's denial of the Application.

(c) If consent is denied, the Applicant and the employer identified in the application will be notified in writing of the basis for that denial. The Notice of Denial will provide the Applicant with a denial statement as well as a time line and instruction for any appeal of the denial.

(d) Upon approval, the Commissioner will provide documentation of Written Consent containing the terms and conditions upon which the consent has been granted. Failure to comply with all terms and conditions of consent will result in the immediate termination of consent and summary revocation of license to transact the business of insurance. Terms and conditions of consent may include, but are not limited, to the following:

Any subsequent misdemeanor or felony charge involving dishonesty, breach of trust or violation of 18 U.S.C. §1033 against a Prohibited Person;

Failure to notify the Department of any misdemeanor or felony charge involving dishonesty, breach of trust or violation of 18 U.S.C. §1033 against a Prohibited Person;

The filing of an Administrative sanction against a Prohibited Person;

Failure to comply with any provision of these regulations;

Failure to notify the Department upon the filing of any action against a Prohibited Person by a regulator;

Failure to amend an application for Written Consent upon a change in job duties;

Failure to notify employer of status as a Prohibited Person.

NOTE

Authority cited: Sections 1723 and 1742.2, Insurance Code. Reference: Sections 1669, 1723, 1727 and 1742.2, Insurance Code.

HISTORY

1. New section filed 8-21-2003; operative 8-21-2003 pursuant to Government Code section 11343.4 (Register 2003, No. 34).

§2175.10. Requirements for Character References.

Note • History

Character references may be submitted to the Department for the Commissioner's consideration. Character references shall state how long and in what capacity the person making the reference has known the applicant. References shall also expressly state that the person providing the reference is aware that the reference is being provided in connection with a Request for Written Consent to engage in or transact the business of insurance despite the existence of a relevant felony criminal conviction.

NOTE

Authority cited: Sections 1723 and 1742.2, Insurance Code Reference: Sections 1723, 1727 and 1742.2, Insurance Code.

HISTORY

1. New section filed 3-10-2003; operative 4-9-2003 (Register 2003, No. 11).

2. Editorial correction adding History 1 (Register 2003, No. 34).

§2176. Denial, Expiration or Termination of Written Consent.

§2176.1. Effect of False or Misleading Statements.

Note • History

(a) Any Written Consent granted by the Commissioner shall be conditioned upon the truth and veracity of the documents and information submitted by or on behalf of the Prohibited Person making the Request for Written Consent. In the event that the Department determines that the Prohibited Person receiving the Written Consent, or their representative, has made materially false or misleading statements, or has failed to disclose material information, the Written Consent shall be void ab initio.

(b) If the Department determines that a Prohibited Person has violated the terms of Written Consent in any way, the consent shall terminate immediately.

(c) Knowingly and willfully providing false information to the Department for any purpose constitutes a violation of the Act and is grounds for immediate, summary revocation of any license issued by the Department.

NOTE

Authority cited: Sections 1723 and 1742.2, Insurance Code. Reference: Sections 1723 and 1742.2, Insurance Code; and 18 U.S.C. §1033.

HISTORY

1. New section filed 3-10-2003; operative 4-9-2003 (Register 2003, No. 11).

§2176.2. Written Consent Effective for Specified Positions and Responsibilities Only.

Note • History

Any Written Consent issued by the Commissioner shall be for the Prohibited Person remaining in the same or similar job position with the same responsibilities as attested to in the initial Request for Written Consent. The Written Consent will contain a reference to Title 18 U.S.C. 1033(e)(1)(B)(2). A change in job responsibilities requires the Prohibited Person to file an amended Request for Written Consent. Failure to amend an application for Written Consent upon any change in job responsibilities will result in immediate termination of Written Consent.

NOTE

Authority cited: Sections 1723 and 1742.2, Insurance Code. Reference: Sections 1723 and 1742.2, Insurance Code; and 18 U.S.C. §1033.

HISTORY

1. New section filed 3-10-2003; operative 4-9-2003 (Register 2003, No. 11).

§2176.3. Temporary Written Consent.

Note • History

(a) The Commissioner has the discretion to grant a temporary Written Consent that will expire at a time certain.

(b) Upon the expiration of a temporary Written Consent, the Prohibited Person is in violation of the Act if the Prohibited Person is engaging in or transacting the business of insurance without first receiving a new, express, Written Consent from the Commissioner.

NOTE

Authority cited: Sections 1723 and 1742.2, Insurance Code Reference: Sections 1065.3, 1669 and 1742.2, Insurance Code.

HISTORY

1. New section filed 3-10-2003; operative 4-9-2003 (Register 2003, No. 11).

§2176.4. Subsequent Convictions of Prohibited Persons Previously Granted Written Consent.

Note • History

Any Prohibited Person given a Written Consent to participate in the business of insurance shall immediately notify the Department if the Prohibited Person is subsequently convicted of an offense under 18 U.S.C. §1033, or any felony offense involving dishonesty or breach of trust making them once again subject to the provisions of 18 U.S.C. §1033 and these regulations. The consent previously issued is terminated automatically upon arrest or conviction for the subsequent offense. Immediately upon notification that consent has been terminated, the Prohibited Person must return the original Written Consent and all copies to the Department.

NOTE

Authority cited: Sections 1723 and 1742.2, Insurance Code. Reference: Sections 1065.3, 1669 and 1742.2, Insurance Code.

HISTORY

1. New section filed 3-10-2003; operative 4-9-2003 (Register 2003, No. 11).

§2177. Hearing Procedure.

§2177.1. Time Limit in Which to Request a Hearing.

Note • History

Applicants who have received a Notice of Denial of Consent may request a hearing, in writing, within sixty (60) calendar days after the issue date of the Notice.

NOTE

Authority cited: Sections 1723 and 1742.2, Insurance Code. Reference: Sections 1723 and 1742.2, Insurance Code; and 18 U.S.C. §1033.

HISTORY

1. New section filed 3-10-2003; operative 4-9-2003 (Register 2003, No. 11).

§2177.2. Form of Request for Hearing and Information Required.

Note • History

A Request for Hearing shall be in writing and must include:

(a) The name, address, telephone number, and fax number of the Prohibited Person;

(b) The name, address, telephone number, and fax number of the Prohibited Person's representative, if any;

(d) A copy of the Commissioner's Denial of Consent;

(e) Copies of any additional documents that were not included in the Prohibited Person's initial Application, which support the Prohibited Person's explanatory statement and upon which the Prohibited Person intends to rely at the hearing.

NOTE

Authority cited: Sections 1723 and 1742.2, Insurance Code. Reference: Sections 1723 and 1742.2, Insurance Code; and 18 U.S.C. §1033.

HISTORY

1. New section filed 3-10-2003; operative 4-9-2003 (Register 2003, No. 11).

§2177.3. Filing and Service Requirements.

Note • History

(a) An original and one copy of the Request for Hearing and all documents provided must be sent to the California Department of Insurance, Administrative Hearing Bureau, 45 Fremont Street, San Francisco, California 94105.

(b) All required documents and copies must be delivered to the Administrative Hearing Bureau either by personal delivery or U.S. Postal Service Return Receipt Requested delivery.

NOTE

Authority cited: Sections 1723 and 1742.2, Insurance Code. Reference: Sections 1723 and 1742.2, Insurance Code; and 18 U.S.C. §1033.

HISTORY

1. New section filed 3-10-2003; operative 4-9-2003 (Register 2003, No. 11).

§2177.4. Time of Hearing.

Note • History

The Chief Administrative Law Judge of the Administrative Hearing Bureau shall assign the case to an Administrative Law Judge for hearing. An administrative law judge shall hold a hearing within sixty (60) days of the Administrative Hearing Bureau's receipt of the Department's response to the Request for Hearing. The hearing may be held on a later date upon agreement of both parties. The Administrative Law Judge shall give the parties not less than 10 days written notice of the date on which a hearing is scheduled.

NOTE

Authority cited: Sections 1723 and 1742.2, Insurance Code. Reference: Sections 1723 and 1742.2, Insurance Code; and 18 U.S.C. §1033.

HISTORY

1. New section filed 3-10-2003; operative 4-9-2003 (Register 2003, No. 11).

§2177.5. Continuances; Good Cause.

Note • History

(a) A continuance for any act occurring under this article may be granted by the Chief Administrative Law Judge or the Administrative Law Judge for good cause shown.

(b) When seeking a continuance, a party shall apply for the continuance within five (5) business days following the time the party discovered or reasonably should have discovered the event or occurrence which establishes the good cause for the continuance. A continuance may be granted for good cause after the five (5) business days have lapsed, if the party seeking the continuance is not responsible for, or has made a good faith effort to prevent, the condition or event establishing the good cause.

NOTE

Authority cited: Sections 1723 and 1742.2, Insurance Code. Reference: Sections 1723 and 1742.2, Insurance Code; and 18 U.S.C. §1033.

HISTORY

1. New section filed 3-10-2003; operative 4-9-2003 (Register 2003, No. 11).

§2177.6. Role of Department of Insurance.

Note • History

The Department of Insurance is a party in the hearing, representing the Commissioner. Within 20 days of notification by the Administrative Hearing Bureau of the request for hearing, the Department shall file an original and one copy of its response to the underlying issues raised by the Prohibited Person in the Request as well as an original and one copy of any documents upon which he or she plans to rely at the hearing. Copies of the Department's response and any documents filed with the Administrative Hearing Bureau shall also be served on the Prohibited Person and/or their representative, if any.

NOTE

Authority cited: Sections 1723 and 1742.2, Insurance Code. Reference: Sections 1723 and 1742.2, Insurance Code; and 18 U.S.C. §1033.

HISTORY

1. New section filed 3-10-2003; operative 4-9-2003 (Register 2003, No. 11).

§2177.7. Representation of Prohibited Person at the Hearing.

Note • History

A Prohibited Person may be represented in the proceedings before the Administrative Hearing Bureau. A representative is not required and the representative need not be an attorney.

NOTE

Authority cited: Sections 1723 and 1742.2, Insurance Code. Reference: Sections 1723 and 1742.2, Insurance Code; and 18 U.S.C. §1033.

HISTORY

1. New section filed 3-10-2003; operative 4-9-2003 (Register 2003, No. 11).

§2177.8. Administrative Law Judge's Authority.

Note • History

(a) Article 10 of Chapter 4.5 of the Administrative Procedure Act (commencing with Government Code section 11445.10 and concerning enforcement of subpoenas and sanctions), is adopted, and is applicable to these proceedings. The Administrative Law Judge may exercise all the authority granted pursuant to Chapter 4.5 of the Administrative Procedure Act.

(b) The Administrative Law Judge may take any other action necessary or appropriate to the discharge of his or her duties, consistent with the statutory or other authority under which the Commissioner functions. The Administrative Law Judge may issue such orders compelling the compliance of the parties and other persons subject to the jurisdiction of the Commissioner as necessary to the discharge of his or her official duties and the efficient use of the Department's judicial time and resources.

(c) The Chief Administrative Law Judge shall exercise all authority set forth in this section until a proceeding is assigned to an Administrative Law Judge.

NOTE

Authority cited: Sections 1723 and 1742.2, Insurance Code. Reference: Sections 1723 and 1742.2, Insurance Code; and 18 U.S.C. §1033.

HISTORY

1. New section filed 3-10-2003; operative 4-9-2003 (Register 2003, No. 11).

§2177.9. Burden of Proof.

Note • History

The burden of proof at a hearing on a Request for Written Consent is on the Prohibited Person seeking the Commissioner's Written Consent to engage in or transact the business of insurance in this State.

NOTE

Authority cited: Sections 1723 and 1742.2, Insurance Code Reference: Sections 1723, 1727 and 1742.2, Insurance Code.

HISTORY

1. New section filed 3-10-2003; operative 4-9-2003 (Register 2003, No. 11).

§2177.10. Evidence.

Note • History

(a) The hearing need not be conducted according to technical rules relating to evidence and witnesses, except as hereinafter provided. Any relevant evidence shall be admitted if it is evidence upon which responsible persons are accustomed to rely in the conduct of serious affairs, regardless of the existence of any common law or statutory rule which might make improper the admission of evidence over objection in civil actions.

(b) The rules of privilege shall be effective to the extent that they are otherwise required by law to be recognized at the hearing.

(c) The Administrative Law Judge has the sole discretion to exclude evidence if its probative value is substantially outweighed by the probability that its admission will necessitate undue consumption of time.

(d) No documentary evidence will be admitted into evidence at the hearing that was not previously exchanged between the parties without good cause shown why the evidence was not available to the parties for exchange prior to the hearing.

NOTE

Authority cited: Sections 1723 and 1742.2, Insurance Code. Reference: Sections 1723 and 1742.2, Insurance Code; and 18 U.S.C. §1033.

HISTORY

1. New section filed 3-10-2003; operative 4-9-2003 (Register 2003, No. 11).

§2177.11. Additional Evidence or Briefing.

Note • History

(a) The Administrative Law Judge may require the production of further evidence or briefing on any issue. If the administrative law judge determines that specific evidence or briefing is necessary as a part of the record, he or she shall set a deadline for the parties to file the requested evidence or briefing.

(c) Unless ordered by the Administrative Law Judge, or upon written motion for good cause shown, no additional evidence shall be introduced after the close of the evidentiary hearing.

NOTE

Authority cited: Sections 1723 and 1742.2, Insurance Code. Reference: Sections 1723 and 1742.2, Insurance Code; and 18 U.S.C. §1033.

HISTORY

1. New section filed 3-10-2003; operative 4-9-2003 (Register 2003, No. 11).

§2177.12. Official Notice.

Note • History

In reaching a decision, official notice may be taken, before submission of the case for decision, of any fact that may be judicially noticed by the courts of this state. All parties shall be informed of the matters to be noticed, and those matters shall be noted in the record, referred to therein, or appended thereto. Pursuant to a written request, all parties shall be given a reasonable opportunity to refute the officially noticed matters, either by evidence or by written or oral presentation to the Administrative Law Judge.

NOTE

Authority cited: Sections 1723 and 1742.2, Insurance Code. Reference: Sections 1723 and 1742.2, Insurance Code; and 18 U.S.C. §1033.

HISTORY

1. New section filed 3-10-2003; operative 4-9-2003 (Register 2003, No. 11).

§2177.13. Hearing Reporter.

Note • History

The proceedings at the hearing shall be reported by a hearing reporter. However, upon the consent and agreement of all parties, the proceedings may be reported electronically. Parties must make their own arrangements for payment with the hearing reporter if they wish to obtain a copy of the reporter's transcript.

NOTE

Authority cited: Sections 1723 and 1742.2, Insurance Code. Reference: Sections 1723 and 1742.2, Insurance Code; and 18 U.S.C. §1033.

HISTORY

1. New section filed 3-10-2003; operative 4-9-2003 (Register 2003, No. 11).

§2177.14. Costs.

Note • History

All parties shall bear their own costs.

NOTE

Authority cited: Sections 1723 and 1742.2, Insurance Code. Reference: Sections 1723 and 1742.2, Insurance Code; and 18 U.S.C. §1033.

HISTORY

1. New section filed 3-10-2003; operative 4-9-2003 (Register 2003, No. 11).

§2178. Procedures to Be Employed By the Commissioner in Considering Requests for Consent.

Note • History

The following criteria shall apply to procedures employed by the Commissioner in considering Requests for Consent:

(a) Within twenty-one (21) calendar days of receipt of the application, the Commissioner shall inform the applicant, in writing, that the Application is complete. Or, if the application is deficient, the applicant will be informed, in writing, that the application is deficient and what specific information is required for completion.

(b) Any Application for Written Consent that is not resubmitted to the Department within thirty (30) days of the applicant's receipt of a Notice re deficiency of the Application, shall be deemed withdrawn.

(c) The Commissioner shall, within thirty (30) calendar days of receipt of a complete Application, reach a decision whether to grant or deny a request for consent, and shall notify the applicant of the decision. If the Commissioner has decided to deny the Application, the reason(s) therefor shall be set forth in the notification of denial.

(d) The periods set forth above shall be tolled in the event the Application requires legal action by the Commissioner.

(e) The Department of Insurance's median, minimum and maximum times for processing an Application for Written Consent, from the receipt of the initial completed Application to the final license decision (excluding Applications that require legal action by the Commissioner), are as follows:

(1) thirty (30) calendar days (median time),

(2) thirty (30) calendar days (minimum time), and

(3) forty-five (45) calendar days (maximum).

NOTE

Authority cited: Sections 1723 and 1742.2, Insurance Code. Reference: Sections 1723 and 1742.2, Insurance Code; 18 U.S.C. §1033; and Section 15376, Government Code.

HISTORY

1. New section filed 8-21-2003; operative 8-21-2003 pursuant to Government Code section 11343.4 (Register 2003, No. 34).

Article 5. Insurance in Connection with Sales and Loans

§2180. Maximum Charge; Policy Substitution.

Note • History

The maximum service charge which may be made by a lender for a substitution of insurance policies pursuant to Section 771 (d) of the Insurance Code is $5.00.

NOTE

Authority cited for Article 5 (Section 2180): Section 771 (e), Insurance Code.

HISTORY

1. New Article 5 (Section 2180) filed 10-9-59; effective thirtieth day thereafter (Register 59, No. 17).

§2181. Purpose and Scope.

Note • History

This subchapter contains rules and regulations authorized by California Insurance Code Section 771 (a).

NOTE

Authority cited: Section 771 (a), Insurance Code.

HISTORY

1. New sections 2181 and 2181.1 filed thereafter (Register 72, No. 50).

§2181.1. Reasonable Cause: Right to Disapprove of the Insurer Selected to Underwrite Insurance.

History

(a) General Provisions:

(2) Notwithstanding any other provisions of these regulations, the California FAIR Plan Association shall not be rejected as an insurer.

(3) The corporate structure of an insurer shall not be a basis for disapproval of such insurer.

(4) These regulations shall not affect the respective rights of a borrower and its lender to require an insurance policy and coverage in accordance with such agreement between it and the borrower.

(5) These regulations do not apply to insurance covering personal property as the subject of security for the loan nor do they apply to insurance covering real property securing loans in excess of $75,000.

(b) “Reasonable Cause” for Disapproval. Any one or more of the following reasons may constitute reasonable cause to disapprove of the insurer selected to underwrite the insurance.

(1) Financial Status of Insurer.

(A) Failure of the insurer to be rated in the most recently published ratings made by a nationally recognized rating service.

(B) Failure of the insurer to be rated in one of the two highest policyholder ratings in the most recently published ratings made by a nationally recognized rating service.

(C) Failure of the insurer to be rated in one of the twelve highest financial ratings in the most recently published ratings made by a nationally recognized rating service.

(D) The insured amount would exceed three percent of the policyholder surplus of the insurer.

(E) Failure of the insurer to have a policyholder surplus of $5 million or more where the has already underwritten an aggregate amount of $300,000 on properties in close proximity in a tract or in adjoining tracts for the borrowers of an association.

(2) License of Insurer.

Failure of the insurer or reinsurer to be licensed by the State of California to transact the line of insurance afforded.

(3) Claims Settlement Practices and Servicing Practices.

(A) Knowingly committing or performing with such frequency as to indicate a general business practice unfair claims settlement practices as defined in Section 790.03 of the Insurance Code as amended in 1972.

(5) Unwillingness of the insurer to make provision for notice of cancellation or nonrenewal to the lender in accordance with the terms of the loan agreement.

(1) Be licensed by the State of California to transact the line of insurance afforded.

(2) Provide the insurance in conformity with all requirements of the California Insurance Code and the Regulations issued thereunder.

(4) Afford the coverage required by the lender.

Notwithstanding any of the above, it is a reasonable cause for a lender to reject a policy of a title insurer if the borrower or if the seller of real property, the purchase of which is to be financed in whole or in part by the lender, is a subsidiary or affiliate (as defined in Section 1215 of the Insurance Code) of such title insurer or if such borrower or such seller is a subsidiary or affiliate of an underwritten title company (as defined in Section 12404 of the Insurance Code) that regularly makes the title searches or title examinations upon the basis of which the title insurance policy would be issued.

(d) Other “Reasonable Cause” for Disapproval. If a lender desires to reject a particular insurer on the grounds set forth in (b) (3) above or on reasonable grounds other than set forth above, the lender may submit the rejection, in writing, to the Commissioner with a copy to the insurer, agent and borrower, stating the grounds for the rejection. The insurer, agent or the borrower may contest the grounds, in writing, either on the basis of fact or on the basis of reasonableness, within fifteen days of the mailing of notice of rejection, which said mailing shall be by certified mail. If the Commissioner has not received contest of the grounds, in writing, for rejection within such fifteen days, then the rejection of the insurer shall stand as though the Commissioner had decided in favor of the lender. If the insurer, agent or borrower contests the rejection, the Commissioner shall notify the lender, the insurer, the agent and the borrower of his finding that the rejection is either upheld or denied within fifteen days of the receipt by the Commissioner of such contest of rejection.

HISTORY

1. Amendment of subsection (b) (4) filed 3-22-73 as procedural and organizational; effective upon filing (Register 73, No. 12).

Article 5.5. License Qualification Examinations

§2182. Limitation on Taking Further Examinations.

Note • History

(a) No person who has twice failed a license qualification examination shall be permitted to take further examinations for a period of thirty (30) days from receipt of notice of said failure.

(b) No person who, after having been prohibited from taking further examinations pursuant to subsection (a) above, twice fails a license qualification examination shall be permitted to take further examinations for a period of sixty (60) days from receipt of notice of said failure.

(c) No person, who after having been prohibited from taking further examinations pursuant to subsection (b) above or pursuant to this subsection, twice fails a license qualification examination shall be permitted to take further examinations for a period of sixty (60) days from receipt of notice of said failure.

NOTE

Authority cited: Section 1682, Insurance Code. Reference: Sections 1670 and 1681, Insurance Code.

HISTORY

1. New article 5.5 and section filed 4-15-93; operative 5-17-93 (Register 93, No. 16).

Article 5.6. Personal Lines Examination Exemption Request [Repealed]

HISTORY

1. Repealer of article 5.6 (sections 2182.1-2182.5 and Form LIC.PL1) by operation of Government Code section 11346.1(g) (Register 2003, No. 10).

Article 5.7. Producer Licensing Background Review Guidelines

§2183. Authority and Purpose.

Note • History

These regulations are promulgated pursuant to the authority granted the Commissioner under the provisions of Section 12921(a) of the Insurance Code. The purpose of these regulations is to set forth licensing background review guidelines for use in determining the denial, suspension, revocation, and/or restriction of an insurance producer license or license application.

NOTE

Authority cited: Section 12921, Insurance Code. Reference: Section 12921, Insurance Code.

HISTORY

1. New article 5.7 (sections 2183-2183.4) and section filed 1-23-2007; operative 2-22-2007 (Register 2007, No. 4).

§2183.1. Applicability.

Note • History

The producer licensing background review guidelines described in Sections 2183, 2183.1, 2183.2, 2183.3, and 2183.4 shall apply to all persons who possess, or who have applied for, any insurance producer license governed by the Insurance Code, including, but not limited to agent, broker, solicitor, bail agent, bail solicitor, or adjuster.

NOTE

Authority cited: Section 12921, Insurance Code. Reference: Section 12921, Insurance Code.

HISTORY

1. New section filed 1-23-2007; operative 2-22-2007 (Register 2007, No. 4).

§2183.2. Substantial Relationship Criteria for Crimes or Wrongful Acts.

Note • History

For purposes of denial, suspension, revocation, and/or restriction of a license or license application, statutes within the Insurance Code list specific grounds and also allow for action based upon findings that include, but are not limited to, the licensee or applicant lacking integrity, having a poor business reputation, or that permitting the licensee or applicant to hold an insurance license is against the public interest. The following is a partial list of crimes or acts that are substantially related to the qualifications, functions or duties of an insurance licensee:

(a) Any felony conviction;

(b) A misdemeanor conviction which evidences present or potential unfitness to perform the functions authorized by the license in the manner consistent with the public health, safety, and welfare, including but not limited to, soliciting, attempting, or committing crimes involving the following:

(1) Dishonesty or fraud;

(2) Any conviction arising out of acts performed in the business of insurance or any other licensed business or profession;

(3) Theft;

(4) Sexually related conduct affecting a person who is an observer or non-consenting participant in the conduct or convictions, or which requires registration pursuant to the provisions of Section 290 of the Penal Code;

(5) Resisting, delaying, or obstructing a public officer in violation of Penal Code Section 148;

(6) Any act or offense wherein the person willfully causes injury to the person or property of another;

(7) Violation of a relation of trust or confidence, or a breach of fiduciary duty;

(8) Multiple convictions which demonstrate a pattern of repeated and willful disregard for the law.

(c) Any act which demonstrates a willful attempt to derive a personal financial benefit through the nonpayment or underpayment of taxes, assessments, or levies duly imposed upon the licensee or applicant by federal, state or local government or a willful failure to comply with a court order.

NOTE

Authority cited: Section 12921, Insurance Code. Reference: Sections 1668, 1668.1, 1668.5, 1669, 1738, 1742, 1743, 1805, 1806, 1807, 14026.5, 14028, 14028.5, 14061, 14061.5, 15011, 15018, 15018.5, 15039 and 15039.5, Insurance Code.

HISTORY

1. New section filed 1-23-2007; operative 2-22-2007 (Register 2007, No. 4).

§2183.3. Weight of Substantially Related Acts.

Note • History

In considering discipline of a license or license application, the weight to be accorded to a substantially related crime or act described in Section 2183.2 (a), (b), or (c) may be determined by the application of guidelines including, but not limited to, the following:

(a) The extent to which the particular act or omission has adversely affected other person(s) or victim(s), including but not limited to, insurers, clients, employers or other persons, and the probability such adverse effects will continue;

(b) The recency or remoteness in time of the act, misconduct, or omission;

(d) The extenuating or aggravating circumstances surrounding the act, misconduct, or omission;

(e) Whether the licensee or applicant has a history of prior license discipline, particularly where the prior discipline is for the same or similar type of conduct.

NOTE

HISTORY

1. New section filed 1-23-2007; operative 2-22-2007 (Register 2007, No. 4).

§2183.4. Criteria for Evaluating Rehabilitation.

Note • History

The Commissioner may consider all of the evidence presented, including evidence offered by the licensee or applicant, to determine whether the licensee or applicant has sufficiently rehabilitated from the prior act, misconduct, or omission such that the licensee or applicant is fit to hold an insurance license. When evaluating the rehabilitation of an applicant for an insurance license, or when considering the suspension, revocation, and/or restriction of an insurance license, on the grounds of conviction of a crime or the commission of some other wrongful act, the Commissioner may consider criteria, including, but not limited to, the following:

(a) Nature and severity of the act, misconduct, or omission;

(b) Total criminal record;

(c) The time that has elapsed since commission of the act, misconduct, or omission; however, the mere passage of time without unlawful or wrongful activity is not alone sufficient to establish rehabilitation;

(d) Whether the licensee or applicant has complied with any terms of parole, probation, restitution or any other sanctions lawfully imposed against the licensee or applicant; however, termination of probation or parole or obtaining a Penal Code Section 1203.4 expungement of the conviction, or other comparable orders of a court, including federal courts, are not alone sufficient evidence of rehabilitation;

(e) Whether the licensee or applicant has made any restitution or done anything to recompense the injured party or to alleviate the wrong or damage caused by the act, misconduct, or omission;

(f) Significant and/or conscientious involvement in community or privately-sponsored programs designed to provide social benefits or to ameliorate social problems.

NOTE

HISTORY

1. New section filed 1-23-2007; operative 2-22-2007 (Register 2007, No. 4).

Article 6. Disclosure of Compensation Received from Premium Financers

§2185. Disclosure of Compensation.

Note • History

(a) Any person engaged in business as an insurance agent or broker who accepts compensation for arranging, directing, or performing services in connection with a premium financing agreement shall disclose in writing to the insured prior to the execution of the premium finance agreement the amount of compensation such insurance agent or broker is to receive from the premium financer on account of that premium finance agreement.

(b) The disclosure required under subsection (a) shall be made in the following form:

STATEMENT OF COMPENSATION TO BE PAID TO INSURANCE AGENT OR BROKER BY LENDER

This statement is required by provisions of California Insurance Code Section 778.2.

1. Name of Insured: _______________________________

2. Last of Financed Policies and Amount of Premium Financed on each Policy:

___________________________ $ ___________________________

Total $ ___________________________

3. Name and Address of Premium Financer (lender):

______________________________________________________

4. Gross Finance Charge for Financing the Above Premiums:

$ ____________________________

5. Total compensation to be received by the undersigned agent or broker from the lender by reason of the premium agreement relating to the above premiums (if compensation is contingent state the maximum compensation payable under any contingency):

$ ___________________________

Dated: ____________________________________

(Insurance Agent or Broker)

(c) In lieu of the foregoing separate disclosure statement, said information may be contained in the premium finance agreement or other document, provided the premium finance agreement or other document contains all of the information set forth above and is signed by the insurance agent or broker.

NOTE

Authority cited: Section 778.2(b), Insurance Code.

HISTORY

1. New Article 6 (§2185) filed 7-19-72; effective thirtieth day thereafter (Register 72, No. 30).

Article 6.5. Prelicensing and Continuing Education

§2186. Authority and Purpose.

Note • History

(a) These regulations are promulgated pursuant to authority granted to the Insurance Commissioner under the provisions of Section 1749.7 of the California Insurance Code. The purpose of these regulations is to set forth the prelicensing education curriculum standards for approval of courses and providers of prelicensing and continuing education, and to set forth standards of conduct for students and providers of prelicensing and continuing education.

(b) All forms referenced in this Article shall be found in Section 2188.50.

NOTE

Authority cited: Section 1749.7, Insurance Code. Reference: Sections 1749, 1749.1, 1749.3, 1749.31, 1749.32, 1749.33, 1749.4, 1749.5 and 1749.8, Insurance Code.

HISTORY

1. New article 6.5 and section filed 4-15-93; operative 5-17-93 (Register 93, No. 16).

2. Repealer and new section filed 8-23-96; operative 9-22-96 (Register 96, No. 34).

3. Amendment of section and Note filed 2-23-2010; operative 3-25-2010 (Register 2010, No. 9).

§2186.1. Definitions.

Note • History

For purposes of these regulations:

(a) “Approved course” means a course for which the Commissioner has granted his written approval. The Commissioner reserves the right to reduce the hours requested if the course fails to meet all of the criteria set forth in these regulations.

(b) “Certified provider” means a provider who or which has been determined by the Commissioner to have met the requirements of Section 2188 of this article.

(1) any space sufficiently designed so that instructor(s) and students can communicate with a high degree of privacy and relative freedom from outside interference; or

(2) for continuing education courses only, classroom may include teleconferences with audio/visual interface, internet webcast, or other electronic devices used to accommodate technological changes.

(d) “Controlling person” means any of the following persons within a provider organization possessing decision making authority in matters pertaining to prelicensing and/or continuing education: a provider director, partner, corporate director, officer, shareholder owning a ten percent (10%) or more interest in the organization, or other person with decision making authority.

(e) “Course” means any program of instruction, as defined in these regulations, taken or given to satisfy the requirements of Sections 1749, 1749.3, 1749.31, 1749.32, 1749.33, 1749.4, 1749.5, 1749.8 and 10234.93(a)(4) of the California Insurance Code as follows:

(1) A “contact course” includes the following:

(A) A live classroom presentation, seminar, workshop, conference, lecture, or teleconference with monitored attendance. A “class” is a contact course presentation;

(B) An “interactive continuing education course” that allows for an agent or broker and the instructor/subject matter expert or proctor to exchange information using technological mediums such as video, compact diskette (CD), digital versatile disc (DVD), internet webcast, webinar, web conference or other similar technology designed for the exchange of information electronically;

(2) A “non-contact course” includes the following:

(A) A “self-directed continuing education course” that is not an interactive course, with study material in text, video, audio cassette, compact diskette (CD), digital versatile disc (DVD), internet webcast, or other similar technology designed for individual study by a licensee;

(B) An “online prelicensing course” that is delivered to and taken by a student using computer-based technology with a connection to a host home or office computer, the Internet, or other computer-based technology and shall include but is not limited to the following:

(i) “Participatory Activities” that include regular inquiry periods and/or activities designed to test the students' subject matter knowledge of a completed chapter or section in order to assess the student's progress and provide feedback on areas requiring further study. Participatory activities may include but are not limited to “live” interchanges such as polling, instant surveys, public/private/moderated text chat, and “open floor” audio chats; and,

(ii) “Inquiry Periods” that provide an interval in which the student actively participates in the online course by responding to questions or, in the case of incorrect responses to questions, by searching the online course material to review previously presented material and answer questions correctly in order to progress through the online prelicensing course;

(3) A “combination course” includes both non-contact and contact course requirements to total a minimum of three (3) continuing education hours. It is mandatory for the student to complete the non-contact portion prior to completing the contact course portion of the course. Successful completion shall be determined by the provider in the same manner as described in Section 2188.6.

(f) “Curriculum” is a statement describing the general content required in a course of study to satisfy the requirements of Sections 1749 et. seq. of the California Insurance Code. Each curriculum is approved by the curriculum board and the Commissioner.

(g) “Electronic filing” is the method by which the education provider submits the course rosters and class presentation schedules. The electronic filing methods include, but are not limited to, the California Department of Insurance's Web site, electronic flat file, diskette, compact diskette (CD), or digital versatile disc (DVD).

(h) “Electronic signature” means an assigned student log-in/log-out number from an approved provider that allows a student to log into a computer-based class presentation. The approved provider must maintain the time attendance of each student who participates in the computer-based course.

(i) “Experience” includes, but is not limited to, employment as a writer, editor, teacher, insurance underwriter or employee of an insurance producer, insurance company or other segment of the insurance industry performing duties related to the topic subject matter.

(j) “Instructor/Subject Matter Expert” means:

(1) For a contact course, a person who conveys curricular content to students on behalf of a provider and who possesses the required experience as stated in Section 2188.1 of these regulations;

(2) For a non-contact course, a person who is assigned by the provider to respond to student questions and who possesses the required experience as stated in Section 2188.1 of these regulations. In addition to the above requirements, for online prelicensing courses, said person shall be available by telephone or email within one business day, excluding state holidays, to respond to student questions. Questions asked during weekends shall be answered by the close of business on the following Monday. Technical questions regarding course requirements and materials may be responded to by staff of the CDI approved provider.

(k) Original signature” means the provider director's actual signature. Original signatures are required on all provider and course applications and renewals, as well as on each “Prelicensing/Continuing Education Program Out-of-State Provider Jurisdiction Agreement” form (LIC 446-40) and “Prelicensing and Continuing Education Provider Stipulation to Maintain Records Outside of California” form (LIC 446-32) as set forth in Section 2188.50. A provider shall utilize either a controlled signature stamp, or a computer generated signature, or appoint an authorized designee for purposes of signing any other forms. Prior to using either a signature stamp or a computer generated signature, the provider must submit to the Department a thorough explanation of the steps the provider has taken to ensure the security of either the stamp or computer facsimile. Prior to utilizing an authorized designee, the provider must submit to the Department a list of the names of the persons so authorized, along with a sample of each person's signature.

(l) “Provider” means any institution or organization as described in Section 1749.4 of the California Insurance Code, including an authorized insurer, recognized agents' association or insurance trade association, and any accredited college, or university, or any other person or entity offering classes, courses, seminars, programs and self-directed study in insurance intended to satisfy the requirements of Sections 1749, 1749.3, 1749.31, 1749.32, 1749.33, 1749.8 or 10234.93(a)(4) of the California Insurance Code.

(m) “Provider director” means the individual within a provider organization with responsibility for the administration of the programs approved by the Commissioner pursuant to Sections 1749, 1749.3, 1749.31, 1749.32, 1749.33, 1749.8 and 10234.93(a)(4) of the California Insurance Code.

(n) “Student” means:

(1) an individual taking a prelicensing education course that is required as a prerequisite to obtaining a life agent, life-only agent, accident and health insurance agent, fire and casualty broker-agent, personal lines broker-agent, or limited lines automobile insurance agent license pursuant to California Insurance Code Section 1749; or,

(2) an individual taking a continuing education course to satisfy the requirements of Sections 1749.3, 1749.31, 1749.32, 1749.33, 1749.8 and 10234.93(a)(4) of the California Insurance Code.

NOTE

Authority cited: Section 1749.7, Insurance Code. Reference: Sections 1749, 1749.1, 1749.3, 1749.31, 1749.32, 1749.33, 1749.4, 1749.8 and 10234.93(a)(4), Insurance Code.

HISTORY

1. New section filed 4-15-93; operative 5-17-93 (Register 93, No. 16).

2. Repealer and new section filed 8-23-96; operative 9-22-96 (Register 96, No. 34).

3. Amendment of section heading and amendment of subsection (f)(1) filed 6-13-2001 as an emergency; operative 1-1-2002 (Register 2001, No. 24). A Certificate of Compliance must be transmitted to OAL by 5-1-2002 or emergency language will be repealed by operation of law on the following day.

4. Certificate of Compliance as to 6-13-2001 order transmitted to OAL 4-19-2002 and filed 6-3-2002 (Register 2002, No. 23).

5. Amendment of section and Note filed 5-25-2006; operative 6-24-2006 (Register 2006, No. 21).

6. Amendment of section and Note filed 2-23-2010; operative 3-25-2010 (Register 2010, No. 9).

§2187. Prelicensing Education for Life-Only Agents.

Note • History

(a) Any course taken to satisfy the Life-Only Agent prelicensing education requirements of Section 1749 of the California Insurance Code shall use the general subject matter derived from the following curriculum:

I. GENERAL INSURANCE (30 percent of exam questions)

A. Basic Insurance Concepts and Principles

B. Contract Law

C. The Insurance Marketplace

1. Distribution Systems

2. Producers

3. Insurers

4. Market Regulation-General

5. Fair Claims Settlement Practices Regulations

II. LIFE INSURANCE (65 percent of exam questions)

A. Life Insurance -- Basics

B. Types of Life Policies

C. Annuities

D. Life Insurance and Annuities -- Policy Replacement/Cancellation

E. The Individual Life Insurance Contract

F. Taxation of Life Insurance and Annuity -- Premium and Proceeds

G. Employee Benefits Plans -- Life

H. Social Insurance System

I. Underwriting/Pricing/Claims

J. Financial Structure of Insurers

III. LIFE POLICY RIDERS (5 percent of exam questions)

(b) The examination required for licensure as a life-only agent pursuant to California Insurance Code Section 1676 shall be based on the subject matter reflected in the foregoing curriculum.

NOTE

Authority cited: Section 1749.7, Insurance Code. Reference: Sections 1749 and 1749.1, Insurance Code.

HISTORY

1. New section filed 4-15-93; operative 5-17-93 (Register 93, No. 16).

2. Repealer and new section filed 8-23-96; operative 9-22-96 (Register 96, No. 34).

3. Renumbering of former section 2187 to section 2187.3 and new section 2187 filed 2-23-2010; operative 3-25-2010 (Register 2010, No. 9).

§2187.1. Prelicensing Education for Accident and Health Insurance Agents.

Note • History

(a) Any course taken to satisfy the Accident and Health Insurance Agent prelicensing education requirement of Section 1749 of the Insurance Code shall use the general subject matter derived from the following curriculum:

I. GENERAL INSURANCE (25 percent of exam questions)

A. Basic Insurance Concepts and Principles

1. Social Insurance System

B. Contract Law

C. The Insurance Marketplace

1. Distribution Systems

2. Producers

3. Insurers

a. Financial Structure of Insurers

4. Market Regulation-General

5. Underwriting/Pricing/Claims

a. Fair Claims Settlement Practices Regulations

II. HEALTH/DISABILITY INSURANCE (65 percent of exam questions)

A. General Concepts

B. Medical Expense Insurance

C. Senior Health Insurance Products

1. Medical Supplement (Med Supp) Insurance

2. MediCare and Medi-Cal

3. Health Insurance Counseling and Advocacy Program (HICAP)

D. Worker's Compensation Insurance

1. General Concepts & Twenty-Four Hour Coverage

III. DISABILITY INCOME INSURANCE (5 percent of exam questions)

IV. LONG TERM CARE INSURANCE (5 percent of exam questions)

(b) The examination required for licensure as an Accident and Health Insurance Agent pursuant to California Insurance Code Section 1676 shall be based on the subject matter reflected in the foregoing curriculum.

NOTE

Authority cited: Section 1749.7, Insurance Code. Reference: Sections 1749 and 1749.1, Insurance Code.

HISTORY

1. New section filed 4-15-93; operative 5-17-93 (Register 93, No. 16).

2. Repealer and new section filed 8-23-96; operative 9-22-96 (Register 96, No. 34).

3. Amendment of section heading and amendment of subsection (a) filed 6-13-2001 as an emergency; operative 1-1-2002 (Register 2001, No. 24). A Certificate of Compliance must be transmitted to OAL by 5-1-2002 or emergency language will be repealed by operation of law on the following day.

4. Certificate of Compliance as to 6-13-2001 order transmitted to OAL 4-19-2002 and filed 6-3-2002 (Register 2002, No. 23).

5. Renumbering of former section 2187.1 to section 2187.2 and new section 2187.1 filed 2-23-2010; operative 3-25-2010 (Register 2010, No. 9).

§2187.2. Prelicensing Education Requirements for the Life Agent Examination (Life-Only and Accident and Health).

Note • History

(a) Any course taken to qualify an applicant to take the Life-Agent examination shall use the general subject matter and educational objectives derived from Section 2187. Prelicensing Education for Life-Only Agents and Section 2187.1. Prelicensing Education for Accident and Health Insurance Agents.

(b) The examination required for licensure as a life agent (life-only and accident and health) pursuant to California Insurance Code Section 1676 shall be based on the subject matter reflected in sections 2187 and 2187.1 of these regulations.

NOTE

Authority cited: Section 1749.7, Insurance Code. Reference: Sections 1749 and 1749.1, Insurance Code.

HISTORY

1. New section filed 4-15-93; operative 5-17-93 (Register 93, No. 16).

2. Repealer and new section filed 8-23-96; operative 9-22-96 (Register 96, No. 34).

4. Certificate of Compliance as to 6-13-2001 order transmitted to OAL 4-19-2002 and filed 6-3-2002 (Register 2002, No. 23).

5. Renumbering of former section 2187.2 to section 2187.7 and renumbering of former section 2187.1 to section 2187.2, including amendment of section heading and section, filed 2-23-2010; operative 3-25-2010 (Register 2010, No. 9).

§2187.3. Prelicensing Education for Fire and Casualty Broker-Agents.

Note • History

(a) Any course taken to satisfy the Fire and Casualty Broker-Agent prelicensing education requirement of Section 1749 of the California Insurance Code shall use the general subject matter derived from the following curriculum:

I. GENERAL INSURANCE (31 percent of exam questions--includes “II. P and L Insurance”)

A. Basic Insurance Concepts and Principles

B. Contract Law

C. The Insurance Marketplace

1. Distribution Systems

2. Producers

3. Insurers

4. Market Regulation--General

5. Excess and Surplus (E&S) Lines

II. PROPERTY AND LIABILITY INSURANCE

A. Legal Concept: Tort Law

B. Property and Liability Basics

C. Property and Liability Policies: General

III. PERSONAL LINES INSURANCE (35 percent of exam questions)

A. Dwelling Insurance

1. General Concepts

2. Property Coverage -- Homeowners/Fire Policy

3. Liability Coverage -- Comprehensive Personal Liability/Dwelling Liability

4. Endorsements

B. Inland Marine

1. General Concepts

2. Personal Insurance

3. Personal Watercraft

C. Government/Pools/Catastrophe -- Property Insurance

1. Earthquake Coverage

2. National Flood Insurance

D. Personal Auto

1. General Concepts

2. Liability/Medical/Uninsured Motorist

3. Physical Damage/Miscellaneous

4. California Automobile Assigned Risk Plan (CAARP)

5. Motorcycles

6. Recreational Vehicles

E. Umbrellas and Excess Liability Insurance

F. Low-Cost Automobile Insurance

IV. HOMEOWNERS' INSURANCE VALUATION (2 percent of exam questions)

A. General Concepts and California Insurance Code section 1749.85

B. Dwelling

C. Earthquake Coverage

D. California Fair Access to Insurance Requirements (FAIR) Plan

E. Fire Mitigation

V. COMMERCIAL INSURANCE COVERAGES (27 percent of exam questions)

A. Insurance Services Office, Inc. (ISO) Commercial Lines Insurance Programs

B. Property Insurance

1. Commercial Property

a. General Concepts

b. Building and Personal Property Coverage Form

c. Causes of Loss Form(s)

d. Property Indirect Damage Insurance

e. Other Endorsements and Coverages

2. Inland Marine

3. Equipment Breakdown Protection Coverage (aka Boiler and Machinery)

4. Commercial Crime

C. Liability/Casualty Insurance

1. Commercial General Liability (CGL)

a. General Concepts

b. CGL Coverage Forms -- Occurrence and Claims-Made

c. Professional Liability

d. Management (Directors and Officers) Liability

2. Commercial Auto

3. Farm

4. National Flood

5. Ocean Marine

6. Surety Bonds and General Bond Concepts

7. Umbrella and Excess Liability

8. Workers Compensation

D. Businessowners Policy (BOP)

1. General Concepts

2. BOP Property Coverages

3. BOP Liability Coverages

VI. HEALTH AND DISABILITY INCOME INSURANCE (5 percent of exam questions -- includes VII. LONG-TERM CARE INSURANCE)

A. General Concepts

B. Medical Expense Insurance

C. Disability Income Insurance

D. Senior Health Products/Medicare and Medi-Cal

E. Health Insurance Counseling and Advocacy Program (HICAP)

VII. LONG-TERM CARE INSURANCE

(b) The examination required for licensure as a fire and casualty broker-agent pursuant to California Insurance Code Section 1676 shall be based on the subject matter reflected in the foregoing curriculum.

NOTE

Authority cited: Section 1749.7, Insurance Code. Reference: Sections 1749 and 1749.1, Insurance Code.

HISTORY

1. New section filed 6-13-2001 as an emergency; operative 1-1-2002 (Register 2001, No. 24). A Certificate of Compliance must be transmitted to OAL by 5-1-2002 or emergency language will be repealed by operation of law on the following day.

2. Certificate of Compliance as to 6-13-2001 order transmitted to OAL 4-19-2002 and filed 6-3-2002 (Register 2002, No. 23).

3. Renumbering of former section 2187.3 to section 2187.4 and renumbering and amendment of former section 2187 to section 2187.3 filed 2-23-2010; operative 3-25-2010 (Register 2010, No. 9).

§2187.4. Prelicensing Education for Personal Lines Broker-Agent.

Note • History

(a) Any course taken to satisfy the Personal Lines Broker-Agent prelicensing education requirement of Section 1749 of the California Insurance Code shall use the general subject matter derived from the following curriculum:

I. GENERAL INSURANCE (35 percent of exam questions) includes “II. P&L Insurance)

A. Basic Insurance Concepts and Principles

B. Contract Law

C. The Insurance Marketplace

1. Distribution Systems

2. Producers

3. Insurers

4. Market Regulation

5. Excess and Surplus (E&S) Lines

II. PROPERTY AND LIABILITY INSURANCE

A. Basic Legal Concepts: Tort Law

B. Property and Liability Basics

C. Property and Liability Policies: General Concepts

III. PERSONAL LINES INSURANCE (63 percent of exam questions)

A. Dwelling Insurance

1. General Concepts

2. Property Coverage -- Homeowners/Fire Policy

3. Liability Coverage -- Comprehensive Personal Liability/Dwelling Liability

4. Endorsements

B. Inland Marine

1. General Concepts

2. Personal Insurance

C. Government/Pools/Catastrophe -- Property Insurance

1. Earthquake Coverage

2. California Fair Access to Insurance Requirements (FAIR) Plan

3. National Flood Insurance

D. Personal Auto

1. General Concepts

2. Liability/Medical/Uninsured Motorist

3. Physical Damage/Miscellaneous

4. California Automobile Assigned Risk Plan (CAARP)

5. Motorcycles

6. Recreational Vehicles

E. Umbrella and Excess Liability Insurance

F. Low-Cost Automobile Insurance

IV. HOMEOWNERS' INSURANCE VALUATION (2 percent of exam questions)

A. General Concepts and California Insurance Code section 1749.85

B. Dwelling

C. Earthquake Coverage

D. California Fair Access to Insurance Requirements (FAIR) Plan

E. Fire Mitigation

(b) The examination required for licensure as a personal lines broker-agent pursuant to California Insurance Code Section 1676 shall be based on the subject matter reflected in the foregoing curriculum.

NOTE

Authority cited: Section 1749.7, Insurance Code. Reference: Sections 1749 and 1749.1, Insurance Code.

HISTORY

1. New section filed 11-18-2002 as an emergency; operative 11-18-2002 (Register 2002, No. 47). A Certificate of Compliance must be transmitted to OAL by 3-18-2003 or emergency language will be repealed by operation of law on the following day.

2. New section refiled 3-20-2003 as an emergency; operative 3-20-2003 (Register 2003, No. 12). A Certificate of Compliance must be transmitted to OAL by 7-18-2003 or emergency language will be repealed by operation of law on the following day.

3. Certificate of Compliance as to 3-20-2003 order transmitted to OAL 7-10-2003 and filed 8-21-2003 (Register 2003, No. 34).

4. Renumbering of former section 2187.4 to section 2187.5 and renumbering and amendment of former section 2187.3 to section 2187.4 filed 2-23-2010; operative 3-25-2010 (Register 2010, No. 9).

§2187.5. Prelicensing Education for Personal Lines Licensees to Become Fire and Casualty Broker-Agents.

Note • History

(a) Any course taken to satisfy the Personal Lines Licensees To Become Fire and Casualty Broker-Agent prelicensing education requirement of Section 1749, of the California Insurance Code shall use the general subject matter derived from the following curriculum:

I. COMMERCIAL INSURANCE COVERAGES (75 percent of exam questions)

A. Insurance Services Office, Inc. (ISO) Commercial Lines Insurance Programs

B. Property Insurance

1. Commercial Property

a. General Concepts

b. Building and Personal Property Coverage Form

c. Causes of Loss Form(s)

d. Property Indirect Damage Insurance

e. Other Endorsements and Coverages

2. Inland Marine

3. Equipment Breakdown Protection Coverage (aka Boiler and Machinery)

4. Commercial Crime

C. Liability/Casualty Insurance

1. Commercial General Liability (CGL)

a. General Concepts

b. CGL Coverage Forms -- Occurrence and Claims-Made

c. Professional Liability

d. Management (Directors and Officers) Liability

2. Commercial Auto

3. Farm

4. National Flood

5. Ocean Marine

6. Surety Bonds and General Bond Concepts

7. Umbrella and Excess Liability

8. Workers Compensation

D. Businessowners Policy (BOP)

1. General Concepts

2. Property Coverages

3. Liability Coverages

II. HEALTH AND DISABILITY INCOME INSURANCE (25 percent of exam questions -- includes III. LONG-TERM CARE INSURANCE)

A. General Concepts

B. Medical Expense Insurance

C. Disability Income Insurance

D. Senior Health Products/Medicare and Medi-Cal

E. Health Insurance Counseling and Advocacy Program (HICAP)

III. LONG-TERM CARE INSURANCE

(b) The examination required for licensure for a personal lines broker-agent who applies to become a fire and casualty broker-agent, pursuant to California Insurance Code Section 1676 shall be based on the subject matter reflected in the foregoing curriculum.

NOTE

Authority cited: Section 1749.7, Insurance Code. Reference: Sections 1749 and 1749.1, Insurance Code.

HISTORY

1. Renumbering of former section 2187.4 to new section 2187.5, including amendment of section heading and section, filed 2-23-2010; operative 3-25-2010 (Register 2010, No. 9).

§2187.6. Prelicensing Education for Limited Lines Automobile Insurance Agent.

Note • History

(a) Any course taken to satisfy the Limited Lines Automobile Insurance Agent prelicensing education requirement of Section 1749 of the California Insurance Code shall use the general subject matter derived from the following curriculum:

I. GENERAL INSURANCE (15 percent of exam questions)

A. Basic Insurance Concepts and Principles

B. Contract Law

C. The Insurance Marketplace

1. Distribution Systems

2. Producers

3. Insurers

4. Market Regulation -- General

5. Fair Claims Settlement Practices regulations

6. Excess and Surplus (E&S) Lines

II. PROPERTY AND LIABILITY BASICS (5 percent of exam questions)

A. Basic Legal Concepts -- Tort Law

B. Property and Liability Basics

C. Property and Liability Policies -- General

III. PERSONAL AUTO INSURANCE (80 percent of exam questions)

A. Personal Auto

1. General

2. Liability/Medical/Uninsured Motorists

3. Physical Damage/Miscellaneous

4. California Automobile Assigned Risk Plan (CAARP)

5. Motorcycles

6. Recreational Vehicles

B. Umbrellas and Excess Liability Insurance

C. Low-Cost Automobile Insurance

(b) The examination required for licensure as a Limited Lines Automobile Insurance Agent pursuant to Insurance Code Section 1676 shall be based on the subject matter reflected in the foregoing curriculum.

NOTE

Authority cited: Section 1749.7, Insurance Code. Reference: Sections 1749 and 1749.1, Insurance Code.

HISTORY

1. New section filed 2-23-2010; operative 3-25-2010 (Register 2010, No. 9).

§2187.7. Prelicensing Education on Ethics and the California Insurance Code.

Note • History

(a) Any course taken to satisfy the Ethics and Code prelicensing education requirement of Section 1749 of the California Insurance Code shall use the general subject matter derived from the following curriculum:

I. GENERAL INSURANCE

A. Basic Insurance Concepts and Principles

B. Contract Law

C. The Insurance Marketplace

1. Distribution Systems

2. Producers

3. Insurers

4. Market Regulation -- General

5. Fair Claims Settlement Practices Regulations

(b) The examination required to satisfy the Ethics and Code prelicensing education requirement pursuant to Insurance Code Section 1676 shall be based on the subject matter in the foregoing curriculum.

NOTE

Authority cited: Section 1749.7, Insurance Code. Reference: Section 1749, 1749.1, Insurance Code.

HISTORY

1. Renumbering and amendment of former section 2187.2 to section 2187.7 filed 2-23-2010; operative 3-25-2010 (Register 2010, No. 9).

§2188. Provider Certification, Renewal, and Qualification.

Note • History

(a) Original Provider Certification

(1) Every person desiring to be certified as a provider shall submit to the Commissioner a provider application on Form LIC 446-2 (Prelicensing/Continuing Education Program Provider Certification/Renewal Application), as set forth in section 2188.50, along with the filing fee specified in California Insurance Code Section 1751.1. The provider application shall request information that shall include but not be limited to the following:

(i) the name and qualifications (experience, professional designations, degrees, licenses held) of the provider director;

(ii) whether the provider director, or a controlling person of a provider organization, has been convicted of a crime, refused a professional, occupational or vocational license or has had such a license suspended, restricted or revoked by any licensing authority, or been fined or placed on probation by an administrative agency;

(iii) the location, including street address, city, telephone number and contact person, of records required to be maintained by provider; if records are to be kept outside of California, Form LIC 446-32 (Prelicensing/Continuing Education Provider Stipulation to Maintain Records Outside of California) as described in Section 2188.4(e) and set forth in section 2188.50 must be completed and signed by the Provider Director;

(iv) the attendance record forms proposed for use meeting the requirements delineated in Section 2188.5(b);

(v) the provider's status with the Council for Private Post Secondary and Vocational Education;

(vi) whether the provider is a sole proprietorship, partnership, association or corporation;

(vii) certification that no course shall be offered for credit unless the provider has been certified as a provider by the Commissioner;

(viii) the original signature of the provider director certifying accuracy of information provided; and

(ix) the full legal name, social security number, and date of birth of each controlling person.

(2) No provider shall be certified if the application referred to above is incomplete. The Department shall inform all provider applicants in writing within seven days from the Department's receipt of the provider application either that it is complete and accepted for filing, or that it otherwise contains deficiencies requiring correction. Incomplete provider applications shall remain active for one year unless withdrawn by the applicant. After one year, a new application is required, along with the filing fee specified in California Insurance Code Section 1751.1. Notification that an application is complete does not necessarily mean the Department considers all information contained therein to be sufficient, and submission of insufficient information may be a basis for denial of provider certification. The Department shall decide whether to grant or renew provider certification within sixty days from its receipt of a completed application, however, the sixty-day time period shall be tolled during any such time that a provider applicant comes under formal investigation by the Department.

(3) The Commissioner may refuse to certify a provider if:

(i) the applicant or any controlling person is not properly qualified to perform the duties of a provider;

(ii) the granting of certification would be against the public interest;

(iii) the applicant or any controlling person is not of good business reputation;

(iv) the applicant or any controlling person is lacking in integrity;

(v) the applicant or any controlling person has been refused a professional, occupational or vocational license, had such a license suspended, revoked, or restricted, or been fined or placed on probation by any licensing authority for reasons other than the applicant's or controlling person's failure to meet the licensing authority's technical requirements for licensure;

(vi) the applicant or any controlling person has knowingly, willfully, or recklessly made any misstatement in any application to the Commissioner or in a document filed in support of such application, or has made a false statement in testimony given under oath before the Commissioner or any other person acting in his stead;

(vii) the applicant or any controlling person has previously engaged in a fraudulent practice or act or has conducted any business in a dishonest manner;

(viii) the applicant or any controlling person has shown incompetency or untrustworthiness in the conduct of any business, or has by commission of a wrongful act or practice in the course of any business exposed the public or those dealing with him to the danger of loss;

(ix) the applicant or any controlling person has been convicted of a felony, a misdemeanor denounced by any law regulating insurance, a public offense having as one of its necessary elements a fraudulent act or an act of dishonesty in the acceptance, custody, or payment of money or property, or a public offense which indicates any potential for future conduct detrimental to students or the insurance industry;

(x) the applicant or any controlling person has aided or abetted any person in an act or omission which would constitute grounds for certification denial of or disciplinary action under the California Insurance Code against the person aided or abetted; or

(xi) the applicant or any controlling person has permitted any person in his employ to violate any provision of the California Insurance Code.

(4) Every nonresident applicant for provider certification shall file with the Commissioner the agreement included on Form LIC 446-40 ([Prelicensing/Continuing Education Program Out-of-State Provider Jurisdiction Agreement), as set forth in section 2188.50. The agreement shall give jurisdiction over and shall be binding upon the applicant executing it. Service shall be made upon the Commissioner under the circumstances described in the agreement and in the manner provided in the Insurance Code.

(5) Upon the filing of an original or renewal application to be certified as a provider, the Insurance Commissioner may make such investigation and require the filing of such supplementary documents, affidavits and statements as may be necessary to obtain a full disclosure of such information as will aid him in determining whether the prerequisites for the certification or renewed certification of said provider have been met.

(b) Renewal of Provider Certification

(1) Every person desiring to renew certification as a provider shall submit to the Commissioner a provider renewal application on Form LIC 446-2 (Prelicensing/Continuing Education Program Provider Certification/Renewal Application), as set forth in section 2188.50.

(2) No provider certification shall be renewed if the application referred to above is incomplete. The Department shall inform all provider renewal applicants in writing within seven days from the Department's receipt of the provider renewal application either that it is complete and accepted for filing, or that it otherwise contains deficiencies requiring correction. Incomplete provider applications shall remain active for one year unless withdrawn by the applicant. After one year, a new application is required, along with the filing fee specified in California Insurance Code Section 1751.1. Notification that an application is complete does not necessarily mean the Department considers all information contained therein to be sufficient, and submission of insufficient information may be a basis for denial of provider certification. The Department shall decide whether to renew provider certification within sixty days from its receipt of a completed application, however, the sixty-day time period shall be tolled during any such time that a provider comes under formal investigation by the Department.

(3) Provider renewal applications shall be received by the Department not less than sixty days prior to the expiration of provider status to maintain continuity of certification.

(4) A provider with an expired certification is not permitted to offer any of its approved courses until such time as its active status has been renewed.

(1) A certified provider shall notify the Commissioner in writing no later than ten days following any change in any of the items listed in subdivision (a)(1) of this Section.

(2) A certified provider and applicant for certification shall obtain the Commissioner's written approval prior to using any fictitious name under which it acts in a capacity for which certification is required. A certified provider or applicant shall file with the Commissioner any change in or discontinuance of a true or fictitious name. The Insurance Commissioner may in writing disapprove the use of any fictitious or true name, other than the bona fide natural name of an individual, on any of the following grounds:

(A) the name is an interference with or is too similar to a name already filed and in use by another certified provider;

(B) the use of the name might mislead the public in any respect; or

(C) the provider or applicant has already obtained approval for the use of a fictitious name, and has not agreed to discontinue the use of that name. This subdivision shall not prevent a provider or applicant who has lawfully purchased or succeeded to the business or businesses of other providers from using for each such business not more than two additional names, true or fictitious, consisting of names used by the predecessor businesses in their conduct as certified providers.

NOTE

Authority cited: Section 1749.7, Insurance Code. Reference: Sections 1749, 1749.1, 1749.3 and 1749.4, Insurance Code.

HISTORY

1. New section filed 4-15-93; operative 5-17-93 (Register 93, No. 16).

2. Repealer and new section filed 8-23-96; operative 9-22-96 (Register 96, No. 34).

3. Amendment of section heading and section filed 2-23-2010; operative 3-25-2010 (Register 2010, No. 9).

§2188.1. Instructor/Subject Matter Expert Qualifications.

Note • History

(a) An approved provider shall ensure all of the following:

(1) that each course approved to satisfy the requirements of California Insurance Code Sections 1749, 1749.3, 1749.31, 1749.32, 1749.33, 1749.5, 1749.8 and 10234.93 shall be taught or presented by an instructor/subject matter expert who meets at least one of the following qualifications:

(A) three years experience within the last five years in the course or related subject matter, or

(B) currently licensed as an insurance or life agent or broker-agent for the subject being taught and holding the insurance license for three of the last five years, or

(C) possession of a college degree in the subject matter being taught, or a related recognized professional designation, or related recognized professional credential in the subject matter being taught and two years experience within the last five years in the course or related subject matter;

(2) that each classroom and online prelicensing education instructor/subject matter expert, as defined in these regulations, shall meet all instructor/subject matter expert qualifications as stated in this section and shall receive comprehensive training by the Provider;

(3) that each online prelicensing education instructor/subject matter expert, as defined in these regulations, shall meet all instructor/subject matter expert qualifications as stated in this section and shall be available by telephone or email within one business day, excluding state holidays, to respond to an online prelicensing student's course content questions. Questions asked during weekends shall be answered by close of business on the following Monday. Technical questions regarding course requirements and materials may be responded to by staff of the CDI approved provider; and,

(4) that an instructor/subject matter expert, defined in these regulations, shall be available by telephone or email within one business day, excluding state holidays, to respond to continuing education non-contact student's course content questions. Questions asked during weekends shall be answered by close of business on the following Monday. Technical questions regarding course requirements and materials may be responded to by staff of the CDI approved provider.

(b) An approved education provider shall collect and maintain sufficient documentation to demonstrate that each instructor/subject matter expert meets the minimum qualifications as set forth in this section. All documentation shall be maintained by the provider for a minimum of five years after termination of instructor/subject matter expert employment. Documentation shall include the Prelicensing/Continuing Education Program Instructor/Subject Matter Expert Qualification Form LIC 446-4 signed under penalty of perjury as set forth in Section 2188.50 and at least two of the following:

(1) Copy of degree, license, or certificate in the subject being taught;

(2) Curriculum vita, resume or transcripts stating instructor/subject matter expert's experience, qualifications and education;

(3) Documents or letters from a third party including but not limited to a supervisor, professor, attorney, legislator, or Certified Public Accountant that demonstrate the instructor/subject matter expert meets the minimum requirements;

(4) Documentation that the instructor/subject matter expert has successfully completed a course that meets the requirements of California Insurance Code Section 1749.4.

(c) The Department shall have the right to review existing records of instructors/subject matter experts and direct the provider not to use an instructor who does not meet the instructor/subject matter expert qualifications as set forth in this Section or does not adhere to other applicable requirements stated in these regulations.

NOTE

Authority cited: Section 1749.7, Insurance Code. Reference: Sections 1749, 1749.1, 1749.3 and 1749.4, Insurance Code.

HISTORY

1. New section filed 4-15-93; operative 5-17-93 (Register 93, No. 16).

2. Repealer and new section filed 8-23-96; operative 9-22-96 (Register 96, No. 34).

3. Amendment of section heading and section filed 2-23-2010; operative 3-25-2010 (Register 2010, No. 9).

§2188.2. Course Approval.

Note • History

(a) Every provider desiring to obtain approval of a course shall submit to the Commissioner, on Form LIC 446-3 (Prelicensing/Continuing Education Program Course Approval Application), as set forth in Section 2188.50, a course approval application, along with the applicable filing fee specified in California Insurance Code Section 1751.1. The course approval application form shall request information which shall include but not be limited to the following:

(1) the title of the course;

(2) a detailed statement of how each specific course is relevant to insurance topics or insurance products;

(3) a detailed outline of approximately one (1) page per hour of instruction for a contact course, including the time each topic is being presented; or a copy of all materials presented to each student and the time each topic is being presented.

(4) the number of credit hours requested for the course and how the number was determined;

(5) the applicable license type(s) of the intended audience;

(6) an agenda showing the beginning and ending times, breaks, and time allotted for exams, if given;

(7) the examination proposed to be used for the course when completion by examination is required; the exam shall include the answers along with a page and paragraph reference for each answer to the source material; and a statement on how the provider will maintain the integrity of the examination including a page and paragraph reference to the source book(s) for the answers; the length of time students have to complete a course; a copy of the exam instruction sheet that goes to the students; an explanation of how a course's completion date is determined, who maintains control of the answer key, what constitutes a passing grade and the provider's procedures in the event that a student fails an exam;

(8) when using another vendor's source material as the basis for the course, a current letter of authorization from the author or publisher;

(9) whether the course is open to the public; and

(10) the original signature of the provider director certifying accuracy of information provided.

(b) Every provider desiring to obtain approval of a contact course shall advise the Insurance Commissioner of the course's proposed location, including street address, city, state and zip code, and dates and time of the course. Such information shall be received at least fourteen days before the course is scheduled to begin. The provider shall provide this information on Form LIC 446-12 (Class Presentation Schedule Form) as set forth in Section 2188.50.

(c) Any requests for course approval shall be received by the Department not less than thirty (30) days prior to the date of the course offering. The Department shall inform all providers and provider applicants submitting such requests within seven (7) days from the Department's receipt of an application whether it is complete and accepted for filing, or that it otherwise contains deficiencies requiring correction. Incomplete course applications shall remain active for one (1) year unless withdrawn by the applicant. After one (1) year, a new application is required, along with the applicable filing fee specified in California Insurance Code Section 1751.1. Notification that an application is complete does not necessarily mean the Department considers all information contained therein to be sufficient, and submission of insufficient information may be a basis for denial of course approval. The Department shall decide whether to approve or reject a course within thirty (30) days of its receipt of a request, however the thirty-day (30) time period shall be tolled during any time that a provider or provider-applicant comes under formal investigation by the Department.

(d) All advertisements for approved courses shall include the name of the provider, course title as approved by the Commissioner, license type for which the course is approved and the credit hour(s) assigned. No course shall be advertised as approved for credit by the Insurance Commissioner until approved in writing by the Insurance Commissioner.

(e) A course may be advertised as submitted for approval if a complete filing pursuant to Section 2188.2(a) has been submitted within the time specified by Section 2188.2(c), and if such advertisement includes an advisement, in at least the same size type as any language regarding the course having been submitted for approval, that the course is pending approval.

(f) A minor change is a change that only slightly changes the content of a course without introducing new subject matter. Minor changes to courses shall be reported in letter form to the Department not less than thirty (30) days prior to implementation of the change. Changes that correct only spelling and/or grammar are not considered a change for the purposes of this subsection and do not need to be reported to the Department.

(g) Major changes that affect presentation time or alter the course content shall be filed as a new course. The course application shall be received by the Department not less than thirty (30) days prior to the date of the first course offering using the new material. Use of a different source book is considered a major change.

(h) Any changes regarding the location or date of any previously approved course, or notification of any additional date or location offering of a previously approved course shall be submitted on Form LIC 446-12 (Class Presentation Schedule) as set forth in Section 2188.50, and such notification must be received by the Commissioner at least ten (10) days prior to the course offering. Late submission of a class presentation schedule must be accompanied by a letter of explanation signed by the provider director, in order for the Department to consider the course for approval. Continued noncompliance with the notification requirements of this subsection, including any failure to submit a letter of explanation, shall be considered grounds for the rescission of a provider's certification.

(i) Credit hours for contact courses, such as seminars, workshops or conferences, are determined using a fifty (50) minute hour. A contact course student shall not receive more than 480 minutes per day of instruction. Credit hours for non-contact courses and the non-contact portion of a combination course shall be determined using a sixty (60) minute hour. Fractional hours or credit of less than one (1) hour shall not be granted.

(j) A provider must assure the Department that adequate measures are employed to ensure that students are actively engaged in course material for non-contact courses and the non-contact portion of combination courses. A provider shall ensure that, at a minimum, the following measures are employed:

(1) the course must contain a minimum of 4,600 words for each hour of credit; and,

(2) the course examination time must total at least 10 percent and not more than 15 percent of the course completion time; and,

(3) a final examination at the end of the course must contain a minimum of three questions for each credit hour.

(k) Subjects qualifying for continuing education course approval shall include, but not be limited to, insurance contract analysis, risk management techniques, and rating and classification sessions. The overriding consideration in determining whether a specific program or course qualifies for continuing education credit is that it be a structured learning program which contributes directly to the professional or technical competence of the individual licensed. Courses on nontraditional insurance products or programs may be acceptable if the course contributes to the professional or technical competence of the individual person in the capacity for which they are licensed.

(l) Contact and self-directed course subjects that do not qualify for continuing education course approval shall include but not be limited to: sales training, communication skills, motivational training, meetings offered by insurers to launch new products or programs, and self-improvement programs.

(m) Combination courses having identical content in both the self-directed and contact portions of the course may not be approved. Combination courses having identical content in both the self-directed and contact portions of the course may be subject to a reduction in requested hours.

(n) Courses may fail to qualify for continuing education credit if the subject matter is deemed to be too basic, or is not at least as comprehensive as any applicable portion of the prelicensing curriculum. Courses which have, as a majority of their allocated time, general subject matter such as economics, demographics, taxation and law will be decided on a case by case basis. Courses on retirement planning, financial planning and estate planning may not qualify if the course curriculum does not reflect a substantial allocation of course time to training the agent to provide product- specific information to insurance consumers.

(o) No course approved for prelicensing or continuing education credit shall be construed to be endorsed by the Commissioner.

(p) Only an approved provider can offer and schedule an approved course; providers cannot delegate this authority to instructors, subject matter experts, or other parties.

(q) When scheduled courses are cancelled, providers must take reasonable efforts to notify all registrants and maintain documentation of those efforts.

NOTE

Authority cited: Section 1749.7, Insurance Code. Reference: Sections 1749, 1749.1, 1749.2-1749.6 and 1749.8, Insurance Code.

HISTORY

1. New section filed 4-15-93; operative 5-17-93 (Register 93, No. 16).

2. Repealer and new section filed 8-23-96; operative 9-22-96 (Register 96, No. 34).

3. Amendment of subsections (a), (a)(3), (b), (c) and (f)-(i), repealer and new subsection (l), new subsection (m), subsection relettering and new Note filed 5-25-2006; operative 6-24-2006 (Register 2006, No. 21).

4. Amendment of subsections (a), (b) and (f)-(i), repealer and new subsection (j), new subsections (j)(1)-(3) and amendment of subsection (p) and Note filed 2-23-2010; operative 3-25-2010 (Register 2010, No. 9).

§2188.2.5. Online Prelicensing Course Approval.

Note • History

(a) Every provider desiring to obtain approval of an online prelicensing course, in addition to meeting the Course Approval requirements of Section 2188.2 shall include the following in the course:

(1) clear instructions to the student on how to access and participate in the course;

(2) a methodology to ensure that the student taking the course cannot complete the course in less time than the period for which the course certification is granted by the department;

(3) an electronic component that:

(A) monitors, tracks and provides rosters on the student's time spent completing each section/chapter of the course;

(B) authenticates the student's identity on a periodic basis, including upon entering and during the course (i.e. employs miscellaneous types of questions that only the student would know and requires the student to answer correctly);

(D) logs the student out of the course after a period of inactivity of twenty minutes, requiring the student to log back in and re-enter the course;

(4) encryption of all non-public personal student information so that the information cannot be read as it passes across the internet;

(5) a participatory component that:

(A) requires students to answer the review questions after each section/chapter or requires a minimum of four interactive multiple choice inquiry periods during each hour of the course. Inquiry periods shall occur at regular intervals and shall cover material presented in that section/chapter of the course.

(B) identifies all incorrect responses and informs the student of the correct response with an explanation of the correct answer. Examples include but are not limited to: a response to the student with a correct answer and explanation or a reference back to the student with the section/chapter/screen that pertains to the question.

(C) requires students to answer one hundred percent (100%) of the review questions before allowing the student to proceed to the next section/chapter or to complete the course.

(D) provides the student with the ability to review any unit/section/chapter of the course at any time.

(E) provides the student with the ability to contact an online prelicensing course instructor/subject matter expert regarding course material. Online prelicensing course instructors/subject matter experts shall be available by telephone or email within one business day, excluding state holidays, to respond to student questions. Questions asked during weekends shall be answered by close of business on the following Monday. Technical questions regarding course requirements and materials may be responded to by staff of the CDI approved provider.

(b) Every provider desiring to obtain approval of an online prelicensing course shall ensure that each student completes the following minimum number of review questions per course, per section/chapter:

(1) Fire and Casualty Agent Courses:

12-Hour Course: Review Question Total = 36

40-Hour Course: Section I&II- 37 Review Questions

Section III - 45 Review Questions

Section IV- 32 Review Questions

Section V- 6 Review Questions

Review Question Total = 120

(2) Life-Only Courses:

12-Hour Course: Review Question Total = 36

20-Hour Course: Section I - 19 Review Questions

Section II 20 Review Questions

Review Question Total = 39

(3) Accident and Health Courses:

12-Hour Course: Review Question Total = 36

20-Hour Course: Section I - 19 Review Questions

Section II 20 Review Questions

Review Question Total = 39

(4) Personal Lines Agent Courses:

12-Hour Course: Review Question Total = 36

20-Hour Course: Section I&II - 19 Review Questions

Section III - 20 Review Questions

Review Question Total = 39

(5) Limited Lines Automobile Insurance Agent Courses:

12-Hour Course: Review Question Total = 36

20-Hour Course: Section I - 19 Review Questions

Section II 20 Review Questions

Review Question Total = 39

NOTE

Authority cited: Section 1749.7, Insurance Code. Reference: Sections 1749 and 1749.1, Insurance Code.

HISTORY

1. New section filed 2-23-2010; operative 3-25-2010 (Register 2010, No. 9).

§2188.23. Prelicensing/Continuing Education Program Course Approval Application Form 446-3. [Renumbered]

Note • History

NOTE

Authority cited: Section 1749.7, Insurance Code. Reference: Sections 1749, 1749.1, 1749.4, 1749.8 and 10234.93(a)(4), Insurance Code.

HISTORY

1. New section filed 5-25-2006; operative 6-24-2006 (Register 2006, No. 21).

2. Renumbering of former section 2188.23 to section 2188.50(d) filed 2-23-2010; operative 3-25-2010 (Register 2010, No. 9).

§2188.24. Class Presentation Schedule Form 446-12. [Renumbered]

Note • History

NOTE

Authority cited: Section 1749.7, Insurance Code. Reference: Section 1749.1, Insurance Code.

HISTORY

1. New section filed 5-25-2006; operative 6-24-2006 (Register 2006, No. 21).

2. Renumbering of former section 2188.24 to section 2188.50(f) filed 2-23-2010; operative 3-25-2010 (Register 2010, No. 9).

§2188.3. Course Renewal.

Note • History

(a) Every provider desiring to renew approval of an unchanged course or a course with only minor changes shall receive from the Commissioner an electronically generated Provider Course Renewal Letter, Form LIC 446-38(Rev. 08/2001), incorporated by reference herein, that lists the courses to be renewed. The Provider shall submit Form LIC 446-38 to the Insurance Commissioner along with the applicable renewal fee specified in California Insurance Code Section 1751.1. The course renewal application form shall request information which shall include but not be limited to the following:

(1) the title of the course and Department of Insurance approval number;

(2) the number of credit hours currently assigned;

(3) for contact courses:

(i) a certification stating that the course remains unchanged from its last approval, signed by the provider-director; and

(ii) for minor changes not affecting time or course content, a course outline and agenda highlighting the changes made;

(4) for self-directed courses, a current letter of authorization from the author or publisher when using another vendor's source material as the basis for the course; and

(5) an original signature of the provider director certifying accuracy of information provided.

(b) The Department reserves the right to revise the number of credit hours previously assigned for courses submitted for renewal approval.

(c) Course renewal applications shall be received by the Department not less than sixty days prior to the expiration of the course's approval to ensure continuity of the approval status.

(d) No provider shall be permitted to offer for continuing education credit a course with an expired status until such time as the active approval status of the course has been renewed.

NOTE

Authority cited: Section 1749.7, Insurance Code. Reference: Sections 1749, 1749.1, 1749.2-1749.6 and 1749.8, Insurance Code.

HISTORY

1. New section filed 4-15-93; operative 5-17-93 (Register 93, No. 16).

2. Repealer and new section filed 8-23-96; operative 9-22-96 (Register 96, No. 34).

3. Amendment of subsections (a) and (a)(4), repealer of subsections (a)(4)(i)-(iii) and amendment of Note filed 2-23-2010; operative 3-25-2010 (Register 2010, No. 9).

§2188.4. Maintenance of Records.

Note • History

(a) All providers shall maintain completed instructor/subject matter expert qualification information on Form LIC 446-4 (Prelicensing/Continuing Education Program Instructor/Subject Matter Expert Qualification), as set forth in Section 2188.50.

(b) All providers shall maintain records of enrollments, and/or registrations, provider rosters, examination answer sheets and grades of students attending approved courses. Prelicensing education providers shall also maintain student resident addresses, telephone numbers, and complete social security numbers. Online prelicensing student affidavits shall be maintained by providers as required by Section 2188.5.5. Electronic records of online prelicensing student affidavits may be accepted. All records shall be maintained in a manner that protects the identity and non-public personal information of the student.

(d) Records of attendance in accordance with this Section shall be maintained by the provider (including the local chapter of educational entity) for classroom programs referred to in Insurance Code Section 1749.4.

(e) Provider records are to be maintained for a period of five (5) years and must be made available to the Insurance Commissioner for inspection and copying immediately upon request. All records of providers with an office in this State, or which are otherwise doing business in this State, shall be maintained at a location within the State unless Form LIC 446-32 (Prelicensing/Continuing Education Provider Stipulation to Maintain Records Outside of California), as set forth in Section 2188.50, is submitted by the provider director. Failure to comply with this subdivision shall be grounds for rescission of a provider's certification.

(f) Providers shall maintain records such as bank statements, ledgers, journals, receipt books, invoices, and checks, which establish an audit trail of all fees collected from and refunded to students for prelicensing and continuing education courses.

(g) Providers shall maintain copies of all advertisements, mailers and solicitations used in connection with the advertising or offering of prelicensing and continuing education courses to the public. Providers are not required to retain such items for a period in excess of two years, unless they have been notified by a representative of the Department of Insurance that a longer retention period is required.

NOTE

Authority cited: Section 1749.7, Insurance Code. Reference: Sections 1749, 1749.1, 1749.3, 1749.31, 1749.32, 1749.33, 1749.4, 1749.5, 1749.8 and 10234.93, Insurance Code.

HISTORY

1. New section filed 4-15-93; operative 5-17-93 (Register 93, No. 16).

2. Repealer and new section filed 8-23-96; operative 9-22-96 (Register 96, No. 34).

3. Amendment of subsections (a)-(b) and (d)-(e) and Note filed 2-23-2010; operative 3-25-2010 (Register 2010, No. 9).

§2188.5. Successful Completion of Prelicensing Courses.

Note • History

(a) A student's successful completion of a course intended to meet the prelicensing education requirements referred to in California Insurance Code Section 1749 shall be by attending one-hundred percent (100%) of a scheduled course.

(b) Course attendance shall be determined by the provider completing and maintaining a daily attendance record, at both the beginning and end of each session. The daily attendance record shall protect the identity and non-public personal information of the student. Such attendance record may be maintained on Form LIC 446-5 (Prelicensing/Continuing Education Program Course Attendance Record and Verification), as set forth in Section 2188.50, or on a form selected by the provider, as long as the form contains the following minimum requirements:

(1) name, signature, last four digits of the social security number or insurance license number (if any) of the student;

(2) provider name and Department of Insurance certification number;

(3) course title and Department of Insurance approval number;

(4) date and location of course; and

(5) whether the record is for the beginning or end of a session.

(c) Providers of courses referenced in California Insurance Code Section 1749.4(n) are exempt from the attendance record keeping requirements of Section 2188.5(b) above.

(d) The provider/instructor/subject matter expert has the authority to withhold credit for program completion when, in his or her opinion, the student did not pay satisfactory attention, or otherwise failed to demonstrate acceptable student conduct in class.

NOTE

Authority cited: Section 1749.7, Insurance Code. Reference: Sections 1749 and 1749.1, Insurance Code.

HISTORY

1. New section filed 4-15-93; operative 5-17-93 (Register 93, No. 16).

2. Repealer and new section filed 8-23-96; operative 9-22-96 (Register 96, No. 34).

3. Amendment of subsections (b), (b)(1), (c) and (d) and Note filed 2-23-2010; operative 3-25-2010 (Register 2010, No. 9).

§2188.5.5. Successful Completion of Online Prelicensing Courses.

Note • History

(a) A student's successful completion of an online prelicensing course intended to meet the prelicensing education requirements referred to in California Insurance Code Section 1749 and these regulations shall be determined by the student's compliance with the following:

(1) actively engaged in one-hundred percent (100%) of an approved online prelicensing course and completion of the total number of required training hours;

(2) completion of one-hundred percent (100%) of the inquiry period review questions;

(3) successful identity authentication throughout the course as defined in Section 2188.2.5 of these regulations; and,

(4) student signature on a completed affidavit (paper or electronic) that declares that the identified student has completed the entire course including 20 or 40 hours of product training, whichever is applicable, and 12 hours of code and ethics training.

(b) Online prelicensing course attendance shall be verified by the provider who shall complete and maintain attendance records that contain at a minimum the following:

(1) date and time student logs into and exits the online prelicensing course; and,

(2) completed affidavit signed by student as defined above.

NOTE

Authority cited: Section 1749.7, Insurance Code. Reference: Section 1749, Insurance Code.

HISTORY

1. New section filed 2-23-2010; operative 3-25-2010 (Register 2010, No. 9).

§2188.6. Successful Completion of Continuing Education Courses.

Note • History

(a) Students shall attend all of a scheduled contact course; any exceptions must be approved by the instructor or provider director and must not violate the minimum attendance requirements listed below in Section 2188.6 (b). The provider/instructor has the authority to withhold credit for program completion when, in his or her opinion, the student did not pay satisfactory attention or otherwise failed to demonstrate acceptable student conduct in class.

(b) Except as set forth in other subsections of this Section, successful completion of a contact course referred to in California Insurance Code Sections 1749.4 (g) shall be by attending at least eighty percent (80%) of a scheduled course.

(c) Course attendance shall be determined by the provider completing and maintaining a daily attendance record, at both the beginning and end of each session, in the same manner as described in Section 2188.5 (b).

(d) Providers of courses referenced in California Insurance Code Section 1749.4 (f) are exempt from the attendance record keeping requirements of subsection 2188.5 (b) above. A student's successful completion of such courses will be by obtaining a passing grade of at least seventy percent (70%) on a final examination or an instructor's certification that such student attended at least eighty percent (80%) of the contact course.

(e) Students taking self-directed courses must meet the provider's established criteria for acceptable work. Successful completion of self directed courses shall mean obtaining a passing grade of at least seventy percent (70%) on a final examination. The final examination shall be graded by the approved provider. The provider shall issue certificates of completion only to those students who have passed the final examination.

(f) Interactive courses, consisting of only video or audio programs, conducted in supervised environments involving attendance monitoring, such as work stations or conference rooms, may qualify for continuing education credit without the use of a final examination. A student's successful completion of such a course shall be by attending all of the scheduled time; any exceptions must be approved by an instructor or provider director and must not violate the minimum attendance requirements. Attendance shall be verified in accordance with Section 2188.5(b), by any approved provider.

(g) No course shall be taken for credit more than once within a two (2) year license period.

(h) Students licensed as a life agent and/or a fire and casualty broker-agent shall complete courses, programs of instruction, or seminars which follow a prescribed outline and have been approved by the Commissioner on ethics as part of, and not in addition to, the continuing education requirements pursuant to California Insurance Code Section 1749.3. The minimum number of hours required on ethics is as follows:

(1) The life agent and/or fire and casualty broker-agent shall satisfactorily complete four (4) hours on ethics each license term.

(i) Students licensed as a personal lines broker-agent shall complete those courses, programs of instruction, or seminars which follow a prescribed outline and have been approved by the Commissioner on ethics as part of, and not in addition to, the continuing education requirements pursuant to California Insurance Code Section 1749.31. The minimum number of hours required on ethics is as follows:

(1) The personal lines broker-agent shall satisfactorily complete two (2) hours on ethics each license term.

(j) Excess ethics continuing education hours accumulated during any license term may not be carried forward to the next license term. Pursuant to Section 2188.6(g), no course shall be taken for credit more than once within a two (2) year license term.

NOTE

Authority cited: Section 1749.7, Insurance Code. Reference: Sections 1749, 1749.1, 1749.3, 1749.31, 1749.4, 1749.8 and 10234.93(a)(4), Insurance Code.

HISTORY

1. New section filed 4-15-93; operative 5-17-93 (Register 93, No. 16).

2. Repealer and new section filed 8-23-96; operative 9-22-96 (Register 96, No. 34).

3. Amendment of subsections (d) and (f), new subsections (h)-(j) and new Note filed 5-25-2006; operative 6-24-2006 (Register 2006, No. 21).

§2188.7. Successful Completion of Statutory Approved Courses.

Note • History

Successful completion of courses referred to in California Insurance Code Section 1749.4 (a) through (e) shall mean:

(a) Having received a passing grade for the examination administered by the council, college or institute referred to in Insurance Code Sections 1749.4 (a) through (e); or,

(b) Students attending a program referred to in Insurance Code Sections 1749.4 (a) through (e) shall attend all of a scheduled class; any exceptions must be approved by the instructor or provider director and must not violate the minimum attendance requirement of eighty percent (80%) of the scheduled class. Students shall be awarded credits based on attendance and subject to the attendance record keeping requirements of Section 2188.5(b). The provider/instructor has the authority to withhold credit for program completion when, in his or her opinion, the student did not pay satisfactory attention, or otherwise failed to demonstrate acceptable student conduct in class.

NOTE

Authority cited: Section 1749.7, Insurance Code. Reference: Sections 1749.3 and 1749.4, Insurance Code.

HISTORY

1. New section filed 4-15-93; operative 5-17-93 (Register 93, No. 16).

2. Repealer and new section filed 8-23-96; operative 9-22-96 (Register 96, No. 34).

§2188.8. Certificates of Completion.

Note • History

(a) Certificates of completion shall be provided by the approved provider to any student successfully completing a prelicensing, continuing education, or training course. Duplicate certificates of completion shall be issued by providers upon request in the case of lost or destroyed certificates. Certificates of Completion may be issued electronically to the student. Certificates of completion shall contain the following information:

(1) original or electronic signature of the student and the instructor/subject matter expert, or the provider director, or in the case of supervised audio/video courses, the original signature of the provider director designee who supervised the course and verified attendance;

(2) the title and Department of Insurance course approval number of the course completed;

(3) the provider name, address, telephone number and Department of Insurance approval number;

(4) for contact courses, the date/s of the course taken, the date completed and the city, including street address and zip code, where taken;

(5) the number of hours approved for the course;

(6) a statement that submitting a false or fraudulent certificate of completion to the Commissioner may subject any application for an insurance license to denial, and any issued license to suspension or revocation; and

(7) certificates of completion or the records of final examination grades of courses taken to satisfy the requirements of California Insurance Code Section 1749, 1749.3, 1749.31, 1749.32, 1749.33, 1749.8 and 10234.93(a)(4) shall state that the student shall retain the certificate for five (5) years.

(b) The provider shall provide the Commissioner with a roster of students given certificates of completion as follows:

(1) The prelicensing roster is to be submitted within ten (10) business days following the completion of the course.

(2) The continuing education roster is to be submitted thirty (30) calendar days following the completion of the course. Said roster shall include the name of the instructor/subject matter expert if the instructor/subject matter expert is requesting credit for the course.

(3) The roster shall be submitted through an electronic filing method which can include, but is not limited to, the California Department of Insurance's Web site, electronic flat file, diskette, compact diskette (CD), or digital versatile disc (DVD). Specific requirements for submitting rosters using one (1) of the methods noted above will be provided by the education unit.

(4) Submission of typed hard copy form LIC 446-13 (Provider Roster), as set forth in Section 2188.50, or typed on a form selected by the provider, as long as the form contains the following minimum requirements, will only be accepted under special circumstances previously approved by the CDI:

(A) the name, social security number and insurance license number (if any) of the student;

(B) the provider name and Department of Insurance approval number;

(D) the date and location of course including street address and zip code;

(E) the number of hours approved for the course; and

(F) the signature of the provider director certifying accuracy of information provided.

(c) Submission of a late roster shall be accompanied by a letter of explanation signed by the provider director. Continued noncompliance, including any failure to supply a letter of explanation, shall be considered grounds for the rescission of a provider's certification.

NOTE

Authority cited: Section 1749.7, Insurance Code. Reference: Sections 1749, 1749.1, 1749.3, 1749.31, 1749.32, 1749.33, 1749.4, 1749.8 and 10234.93(a)(4), Insurance Code.

HISTORY

1. New section filed 4-15-93; operative 5-17-93 (Register 93, No. 16).

2. Repealer and new section filed 8-23-96; operative 9-22-96 (Register 96, No. 34).

3. Amendment of section and Note filed 5-25-2006; operative 6-24-2006 (Register 2006, No. 21).

4. Amendment of subsections (a), (a)(1), (a)(7), (b)(2) and (b)(4) and Note filed 2-23-2010; operative 3-25-2010 (Register 2010, No. 9).

§2188.50. Forms.

Note • History

(a) Prelicensing/Continuing Education Program Provider Certification/Renewal Application LIC 446-2

Embedded Graphic 10.0133

Embedded Graphic 10.0134

Embedded Graphic 10.0135

Embedded Graphic 10.0136

Embedded Graphic 10.0137

(b) Prelicensing/Continuing Education Program Out-of-State Provider Jurisdiction Agreement LIC 446-40

Embedded Graphic 10.0138

Embedded Graphic 10.0139

(d) Prelicensing/Continuing Education Program Course Approval Application LIC 446-3

Embedded Graphic 10.0140

Embedded Graphic 10.0141

Embedded Graphic 10.0142

(e) Prelicensing/Continuing Education Program Course Attendance Record and Verification LIC 446-5

Embedded Graphic 10.0143

Embedded Graphic 10.0144

(f) Class Presentation Schedule LIC 446-12

Embedded Graphic 10.0145

(g) Provider Roster LIC 446-13

Embedded Graphic 10.0146

(h) Prelicensing/Continuing Education Program Instructor/Subject Matter Expert Qualifications LIC 446-4

Embedded Graphic 10.0147

Embedded Graphic 10.0148

Embedded Graphic 10.0149

NOTE

Authority cited: Section 1749.7, Insurance Code. Reference: Sections 1749, 1749.1, 1749.3, 1749.31, 1749.32, 1749.33, 1749.4, 1749.5, 1749.8 and 10234.93, Insurance Code.

HISTORY

1. New section, including renumbering and amendment of former section 2188.23 to section 2188.50(d), renumbering and amendment of former section 2188.24 to section 2188.50(f) and renumbering and amendment of former section 2188.83 to section 2188.50(g), filed 2-23-2010; operative 3-25-2010 (Register 2010, No. 9).

§2188.65. Broker-Agent Training on Estimating Replacement Value.

Note • History

(a) As used in this section 2188.65 and in Insurance Code section 1749.85 the following terms have the following meanings:

(1) “Homeowners' insurance policy” shall have the same meaning as “policy of residential property insurance” as defined in subdivision (a) of Insurance Code section 10104. A “homeowners' insurance policy” does not include:

(A) a tenant's policy;

(B) a policy covering an individually owned mobilehome and its contents;

(D) a renter's policy; or

(E) a policy insuring an individually owned condominium unit that does not provide dwelling structure coverage.

(2) “Replacement value” shall have the same meaning as “replacement cost” and is defined as the amount it would cost to repair, construct, rebuild or replace a damaged or destroyed structure.

(3) “Fire and casualty broker-agent” and “personal lines broker-agent” mean holders of the licenses defined in Insurance Code sections 1625 and 1625.5, respectively. Fire and casualty broker-agents and personal lines broker-agents are also referred to as “broker-agents” in this section.

(b) On or after June 27, 2011, every California resident fire and casualty broker-agent and personal lines broker-agent who has not already taken a homeowners' insurance valuation training course must satisfactorily complete one three-hour training course on homeowners' insurance valuation meeting the requirements of this section prior to estimating the replacement value of structures in connection with, or explaining the various levels of coverage under, a homeowners' insurance policy. For resident broker-agents, this requirement shall be part of, and not in addition to, the continuing education requirements of Insurance Code section 1749.3. The homeowners' insurance valuation training course needs to be taken only once in order to satisfy the requirements of this subdivision (b).

(c) The training required by this section must be approved by the commissioner and shall consist of topics related to dwelling, fire, and homeowners' insurance. Any course taken to satisfy the requirements stated in Section 1749.85 of the Insurance Code shall use subject matter described in this article.

(d) The broker-agent shall be trained on the differences between homeowners' insurance coverage and other Fire, and Dwelling Property policies, which differences may necessitate differences in coverage or coverage levels. The broker-agent shall also be trained on the basic concepts of property insurance and estimating replacement value, which includes:

(1) How loss settlement provisions in an insurance policy apply to major claims, the potential causes of underinsurance and the potential effects that underinsurance may have on settlement;

(2) The differences in the measure of indemnity between actual cash value coverage and replacement cost coverage, as summarized in Insurance Code sections 2051, 2051.5, and 10102, including:

(A) California Residential Property Insurance Disclosure, as described in Insurance Code section 10102; and

(B) Depreciation and how it is applied under a homeowners' insurance policy;

(3) The several components and features of a structure necessary to estimate replacement cost, as well as the other costs incident to reconstruction, including at least the following:

(A) Type of foundation;

(B) Type of frame;

(D) Siding materials and type of siding;

(E) Whether the structure is located on a slope;

(F) Size of the entire structure and, separately, the square footage of the living space;

(G) Geographic location of property;

(H) Number of stories and any nonstandard interior wall heights;

(I) Materials used in, and generic types of, interior features and finishes, such as, where applicable, the type of heating and air conditioning system, walls, flooring, ceiling, fireplaces, kitchen and bath(s);

(J) Cost of demolition and debris removal;

(K) Cost of permits and architect's plans;

(L) Age of the structure or the year it was built; and

(M) Size and type of attached garage; and

(N) Additional costs associated with building a single or custom home.

(4) The effects of catastrophes on replacement cost. This includes how shortages of construction labor, building supplies, fuel, transportation issues, and permit restrictions can result in increased costs, sometimes referred to as demand surge, and delays in rebuilding.

(5) Review of the significant enhancements and endorsements to the homeowners' insurance policy, and identification of coverages that help protect against underinsurance. The review is to include:

(A) what is included and excluded in Building Code Upgrade (Ordinance and Law) Coverage, as defined in California Insurance Code section 10102; and

(B) the various types and levels of replacement cost, as defined in California Insurance Code section 10102;

(6) Review of the California Standard Form Fire Policy and FAIR (Fair Access to Insurance Requirements) Plan coverages, as described in California Insurance Code sections 2071 and 10090, respectively; review of earthquake insurance coverages as described in Insurance Code section 10081 et seq., including coverage offered by the CEA (California Earthquake Authority).

(7) Review of the types of basic building construction, including tilt-up, cinderblock, wood frame, brick and masonry, and metal frame.

(8) Review of the various methodologies of estimating replacement cost including:

(A) Proprietary replacement cost valuation tools;

(B) Real estate appraisals;

(D) Contractor's and architect's estimates or opinions;

(E) Cost per square footage estimates; and

(F) Insured's opinion.

(9) Review of fire mitigation and how it affects insurance costs, to include:

(A) Define, recognize, and describe the fire problem in the wildland urban interface;

(B) Discuss the areas that affect the risk and hazard such as topography, fuel types and locations, weather, and construction; and

(C) Discuss current statutes and regulations that address efforts to mitigate and indicate that local codes may also apply. These statutes, regulations and codes include requirements for defensible space and fire-resistant building construction.

(e) The training required by this section 2188.65 shall ensure that the broker-agent is aware of the provisions of sections 2695.182 and 2695.183.

(f) Any course or seminar that is disapproved for the reason that it fails to comply with this section shall be presumed invalid for credit towards the continuing education requirement of this section unless the course or seminar is later approved in writing by the commissioner.

NOTE

Authority cited: Sections 790.04, 790.10, 1749.7, 1749.85 and 2051.5, Insurance Code. Reference: Sections 790.03, 790.04, 1625, 1625.5, 1749.1, 1749.3, 1749.31, 1749.85, 2051.5, 10087 and 10104, Insurance Code.

HISTORY

1. New section filed 12-29-2010; operative 6-27-2011 pursuant to Government Code section 11343.4(b) (Register 2010, No. 53).

2. Change without regulatory effect amending subsection (a)(1) and adding subsections (a)(1)(A)-(E) filed 4-18-2011 pursuant to section 100, title 1, California Code of Regulations (Register 2011, No. 16).

§2188.83. Provider Roster Form 446-13. [Renumbered]

Note • History

NOTE

Authority cited: Section 1749.7, Insurance Code. Reference: Sections 1749, 1749.1, 1749.4 and 10234.93(a)(4), Insurance Code.

HISTORY

1. New section filed 5-25-2006; operative 6-24-2006 (Register 2006, No. 21).

2. Renumbering of former section 2188.83 to section 2188.50(g) filed 2-23-2010; operative 3-25-2010 (Register 2010, No. 9).

§2188.9. Rescission of Provider Certification or Course Approval.

Note • History

(a) The approval of a course may be rescinded by the Commissioner pursuant to Insurance Code Section 1749.1(c) if it is determined that course content has been significantly changed without notice to the Insurance Commissioner and the change affects the number of hours assigned to the course, or the change in content would make the course ineligible for approval.

(b) Provider certification may be rescinded by the Commissioner if it is determined that:

(1) A certificate of completion is or has been issued to any individual who is or was not entitled to the issuance of any such certificate;

(2) A certificate of completion was not provided when requested by any student successfully completing the course;

(3) Any of the grounds exist on which the Commissioner may deny a provider certification;

(4) The provider has not complied with these regulations or applicable provisions of the California Insurance Code;

(5) The provider has failed to exercise reasonable care in evaluating the competency, good character, and integrity of any of its instructors; or

(6) The provider has allowed any other person or entity to use the provider's approved provider status or course approval status.

(c) Reinstatement of a rescinded certification or approval shall be at the discretion of the Commissioner after receipt of satisfactory proof that any conditions responsible for the rescission have been corrected, and the Insurance Commissioner has received an application for course approval pursuant to Section 2188.2 above, or an application for provider certification pursuant to Section 2188 above.

NOTE

Authority cited: Section 1749.7, Insurance Code. Reference: Sections 1749, 1749.1, 1749.3 and 1749.4, Insurance Code.

HISTORY

1. New section filed 8-23-96; operative 9-22-96 (Register 96, No. 34).

Article 6.8. Broker Fees

§2189.1. Applicability.

Note • History

(a) The provisions of this article apply to all transactions and services performed by fire and casualty broker-agents acting in the capacity of an insurance broker for applicants, policyholders, or other consumers of an insurance coverage described in Insurance Code sections 660 or 675.

(b) Subdivisions 2189.3(a), (d), (e) and (g), 2189.4, and 2189.5(a), (b), (c), and (f) of this article shall not apply to a wholesale intermediary who in the particular transaction did not negotiate directly with the consumer, provided that the wholesale intermediary discloses its fees in writing to the retail broker-agent.

NOTE

Authority cited: Section 790.10, Insurance Code. Reference: Sections 790, 790.01, 790.02 and 709.03(b), Insurance Code.

HISTORY

1. New article 6.8 (sections 2189.1-2189.8) and section filed 8-25-2000; operative 11-23-2000 pursuant to Government Code section 11343.4(c) (Register 2000, No. 34).

§2189.2. Definitions.

Note • History

(a) “Broker fee” means and includes any fee, however labeled, charged by an insurance broker, as defined in Insurance Code sections 33 and 1623, to provide services that constitute or arise out of the transaction of insurance, as defined in sections 35 of the Insurance Code, but excludes fees charged for services not constituting or arising out of the transaction of insurance.

(b) “Consumer” means an applicant or purchaser of personal insurance coverage described in Insurance Code sections 660 or 675.

(d) “Wholesale intermediary” means a broker-agent that negotiates an insurance contract with a retail broker-agent, but not with a consumer.

NOTE

Authority cited: Section 790.10, Insurance Code. Reference: Sections 790, 790.01, 790.02 and 709.03(b), Insurance Code.

HISTORY

1. New section filed 8-25-2000; operative 11-23-2000 pursuant to Government Code section 11343.4(c) (Register 2000, No. 34).

§2189.3. Broker Fee Requirements.

Note • History

A broker-agent acting in the capacity of a broker may charge a broker fee, provided that:

(a) The consumer agrees to the fee in advance of the agreement required by subdivision 2189.3(e), after full disclosure of all material facts surrounding the fee, including if true the fact that an insurer may pay to the broker a commission in addition to the broker fee.

(b) The fee is not being charged directly or indirectly for services related to procuring coverage from the California Automobile Assigned Risk Plan or the California FAIR Plan, and is not prohibited by statute or regulation.

(d) The broker provides the consumer with the Standard Broker Fee Disclosure set forth as Appendix A to this Article.

(e) The consumer and broker sign a broker fee agreement that includes at minimum, and does not conflict with, the Standard Broker Fee Agreement set forth as Appendix B to this Article.

(f) The broker has an in-force broker bond on file with the Department as required by Insurance Code sections 1662, 1663, and 1665.

(g) The broker discloses, concurrent with the conveyance of an initial premium quotation, the fact that a broker fee may be charged.

NOTE

Authority cited: Section 790.10, Insurance Code. Reference: Sections 790, 790.01, 790.02, 709.03(b) and 790.06, Insurance Code.

HISTORY

1. New section filed 8-25-2000; operative 11-23-2000 pursuant to Government Code section 11343.4(c) (Register 2000, No. 34).

§2189.4. Disclosure and Agreement.

Note • History

The disclosure and agreement required by subdivisions 2189.3(d) and (e) shall be printed in English and in any other language principally used by the broker to advertise, solicit or negotiate the sale and purchase of insurance. The disclosure and agreement, signed or initialed by the consumer, shall be retained by a broker for eighteen months following the latest expiration of any policy to which the disclosure and agreement apply.

NOTE

Authority cited: Section 790.10, Insurance Code. Reference: Sections 790, 790.01, 790.02 and 709.03(b), Insurance Code.

HISTORY

1. New section filed 8-25-2000; operative 11-23-2000 pursuant to Government Code section 11343.4(c) (Register 2000, No. 34).

§2189.5. Unfair and Deceptive Acts and Practices.

Note • History

The following acts shall be deemed unfair or deceptive when committed by a broker who has charged or will charge a broker fee:

(a) Failing to provide the consumer with the Standard Broker Fee Disclosure required by subdivision 2189.3(d).

(b) Failing to complete all relevant portions of the broker fee agreement required by subdivision 2189.3(e) before giving the agreement to the consumer for review.

(c) Failing to provide to a consumer a fully completed copy of the broker fee agreement required by subdivision 2189.3(e), signed by both the consumer and the broker, as soon as reasonably practicable.

(d) Failing promptly to refund an entire broker fee if the broker acted incompetently or dishonestly resulting in financial loss to the consumer, or if the broker did any of the following regardless of financial loss:

(1) Negligently or intentionally misquoted the premium to the consumer, resulting in an uprate.

(2) Permitted an unlicensed employee to transact insurance for, or on behalf of, the consumer paying the fee, where the Insurance Code required that employee to be licensed.

(3) Failed to refund unearned premium as required by Insurance Code section 393(a), except where permitted by Insurance Code sections 393(b) or 1735.5.

(4) Negligently or intentionally failed to place the consumer's coverage within the time period indicated to the consumer or within a timely manner.

(5) Negligently or intentionally failed to remit a consumer's premium payment to an insurer or general agent, resulting in policy cancellation.

(6) Failed to disclose the existence of the insurer's periodic payment plan, if one was available.

(7) Failed to refund unearned commission in the broker's possession to the person to whom it is owed within 30 days of the unearned commission being generated due to amendment or cessation of coverage.

(8) Failed to remit or apply to another policy premium finance company credit owed to the consumer/borrower within 15 days or receiving the credit from the premium finance company.

(e) Failing to place a consumer with an insurer with which the broker is appointed as an agent, solely for the purpose of charging a broker fee.

(f) Charging or attempting to charge a broker fee for a renewal, endorsement, or other service, that was not disclosed under section 6 of the Standard Broker Fee Agreement.

NOTE

Authority cited: Section 790.10, Insurance Code. Reference: Sections 790, 790.01, 790.02, 709.03(b) and 790.06, Insurance Code.

HISTORY

1. New section filed 8-25-2000; operative 11-23-2000 pursuant to Government Code section 11343.4(c) (Register 2000, No. 34).

§2189.6. Discipline.

Note • History

(a) The failure to comply with any subdivision of this article by a fire and casualty broker-agent shall constitute a violation of Insurance Code section 1668(j), and shall be grounds to suspend or revoke a license pursuant to Insurance Code section 1738 et seq.

(b) Nothing contained within this article shall be deemed to limit the Commissioner's authority to impose disciplinary sanctions authorized by statute or regulation for conduct or nonfeasance by a broker not specifically addressed in this article.

NOTE

Authority cited: Section 790.10, Insurance Code. Reference: Sections 790, 790.08 and 790.09, Insurance Code.

HISTORY

1. New section filed 8-25-2000; operative 11-23-2000 pursuant to Government Code section 11343.4(c) (Register 2000, No. 34).

§2189.7. Severability.

Note • History

If any provision of this article is invalidated by a court with proper jurisdiction, the remaining provisions shall continue in effect.

NOTE

Authority cited: Section 790.10, Insurance Code. Reference: Sections 790, 790.01, 790.02, 709.03(b), 790.06, 790.08 and 790.09, Insurance Code.

HISTORY

1. New section filed 8-25-2000; operative 11-23-2000 pursuant to Government Code section 11343.4(c) (Register 2000, No. 34).

§2189.8. Effective Date.

Note • History

This Article shall become effective on November 23, 2000.

NOTE

Authority cited: Section 790.10, Insurance Code. Reference: Sections 790, 790.01, 790.02, 709.03(b), 790.08 and 790.09, Insurance Code.

HISTORY

1. New section and appendices A and B filed 8-25-2000; operative 11-23-2000 pursuant to Government Code section 11343.4(c) (Register 2000, No. 34).

Embedded Graphic 10.0150

Embedded Graphic 10.0151

Article 7. Production Agency Records

§2190. Authority.

Note • History

These regulations are promulgated pursuant to the authority granted the Commissioner under the provisions of Sections 1727, 1763 and 1768, of the Insurance Code. They shall apply to every agent or broker or surplus line broker or special lines' surplus lines broker licensed by the Commissioner. Surplus lines brokers and special lines' surplus lines brokers shall be subject to these regulations to the same extent and in the same manner as agents and brokers.

NOTE

Authority cited: Sections 1727, 1763 and 1768, Insurance Code. Reference: Sections 1727, 1763 and 1768, Insurance Code.

HISTORY

1. New Article 7 (Sections 2190-2190.8) filed 12-30-76; effective thirtieth day thereafter (Register 77, No. 1).

2. Amendment of section and Note filed 8-28-98; operative 9-27-98 (Register 98, No. 35).

§2190.2. Required Records.

Note • History

Wherever applicable, the following records shall be maintained by every agent or broker or surplus lines broker or special lines' surplus lines broker with respect to each and every insurance transaction for at least five years after expiration or cancellation date of the policy to which the records pertain:

(a) Name of insured,

(b) Name of insurer,

(d) Effective date, termination date and mid-term cancellation date of coverage,

(e) Amount of gross premium,

(f) Amount of net premium,

(g) Amount of commission and basis on which computed,

(h) Names of persons who receive, or are promised, any commissions or other valuable consideration related to the transaction,

(i) Amount of premium received including itemization of any partial payments or additional premium,

(j) Date premium received by agent or broker,

(k) Date deposited in bank account or bank depository into which premiums are deposited or maintained in accord with Section 1733 of the Insurance Code, including but not limited to trustee accounts maintained pursuant to Section 1734 of the Insurance Code,

(l) Name and address of bank and number of account in which premium is deposited or maintained in accord with Section 1733 of the Insurance Code, including but not limited to trustee accounts maintained pursuant to Section 1734 of the Insurance Code,

(m) Date premium paid by agent or broker to the person entitled thereto and identification of the means of transmittal,

(n) Amount of net and gross return premium,

(o) Date return premium is received from insurer by agent or broker which may be the date the credit is taken from the insurer or the date the check or draft is received,

(p) Date gross return premium is remitted to person entitled thereto by agent or broker and identification of means of transmittal, and

(q) Any documents required to be maintained pursuant to Section 2695.182 or subdivision (i) of Section 2695.183.

NOTE

Authority cited: Sections 1727, 1763 and 1768, Insurance Code. Reference: Sections 1727, 1733, 1734, 1763 and 1768, Insurance Code.

HISTORY

1. Amendment filed 6-27-78; designated effective 9-1-78 (Register 78, No. 26).

2. Amendment of first paragraph, amendment of subsections (k) and (l) and new Note filed 8-28-98; operative 9-27-98 (Register 98, No. 35).

3. Amendment of subsections (o) and (p) and new subsection (q) filed 12-29-2010; operative 6-27-2011 pursuant to Government Code section 11343.4(b) (Register 2010, No. 53).

§2190.3. Records by File.

Note • History

(a) Wherever applicable, the following records shall be maintained by every agent or broker and surplus lines broker and special lines' surplus lines broker in a file pertaining to a particular insured for a period of eighteen months after the transaction described by such records:

(1) Identity of each person who transacted the insurance, renewals and any change in coverage,

(2) Records of all binders, whether written or oral, showing the names of insured and insurer, nature of coverage, effective and termination dates and premium for binder or policy to be issued,

(3) Copy of application or memorandum of request for insurance,

(4) Correspondence received, copies of correspondence sent, memoranda, notes of conversation, or any other record necessary to describe the transaction.

(b) The following records of surplus line transactions shall be maintained by every agent and broker and surplus lines broker and special lines' surplus lines broker for a period of at least five years after expiration or cancellation date of the policy to which the records pertain: forms, reports or statements required to be maintained or filed under Sections 1763 and 1764.1 of the Insurance Code.

(c) The agent, broker, surplus line broker or special lines' surplus lines broker who signs the form, report or statement under Insurance Code Section 1763 shall maintain the original. The agent, broker, surplus lines broker or special lines' surplus lines broker who receives the originally signed disclosure statement under Insurance Code Section 1764.1 shall maintain the original.

(d) The agent, broker, surplus line broker or special lines' surplus lines broker who signs the diligent search form under Insurance Code Section 1763 or receives the originally signed disclosure statement under Insurance Code Section 1764.1 shall send copies to all other agents, brokers, surplus lines brokers or special lines' surplus lines brokers involved in the transaction.

(e) The agent, broker, surplus line broker or special lines' surplus lines broker who receives copies of documents pursuant to 2190.3(d), shall maintain the copies which show the signature of the agent, broker, surplus lines broker, special lines' surplus lines broker or applicant who signed it.

(f) An agent or broker who provides an estimate of replacement cost to an applicant or insured with respect to a policy of homeowner's insurance shall maintain records and copies as mandated by Section 2695.182 and subdivision (i) of Section 2695.183.

NOTE

Authority cited: Sections 1727, 1763 and 1768, Insurance Code. Reference: Sections 1760.5(b), 1763 and 1764.1, Insurance Code.

HISTORY

1. Amendment of subsection (a) filed 6-27-78; designated effective 9-1-78(Register 78, No. 26).

2. Amendment of section and new Note filed 8-28-98; operative 9-27-98 (Register 98, No. 35).

3. New subsection (f) filed 12-29-2010; operative 6-27-2011 pursuant to Government Code section 11343.4(b) (Register 2010, No. 53).

§2190.05. Definitions.

Note • History

(a) The term “agent,” as used in these regulations, means an insurance agent as defined in Insurance Code Section 1621.

(b) The term “broker” means an insurance broker as defined in Insurance Code Section 1623.

(c) The term “copy” as used in these regulations means any reproduction by which a reasonably clear image of the form, report or statement is provided, including the image of the executing broker's signature, including but not limited to a photocopy, facsimile transmission copy, and any other electronically transmitted digital reproduction.

(d) The term “secondary office” means an office of a resident agent or broker or surplus lines broker or special lines' surplus lines broker other than the principal office.

(e) The term “special lines' surplus lines broker” means a person licensed under Insurance Code Section 1760.5 and authorized to do business pursuant to Division 1, Part 2, Chapter 6 Sections 1760.5 through 1780.

(f) The term “surplus line broker” means a person licensed under Insurance Code Section 1765 and authorized to do business pursuant to Division 1, Part 2, Chapter 6 Sections 1760 through 1780.

(g) The term “resident surplus line broker” means a person licensed as a California resident under Insurance Code Section 1765 and authorized to do business pursuant to Division 1, Part 2, Chapter 6 Sections 1760 through 1780.

(h) The term “resident special lines' surplus lines broker” means a person licensed as a California resident under Insurance Code Section 1760.5 and authorized to do business pursuant to Division 1, Part 2, Chapter 6 Sections 1760.5 through 1780.

(i) The term “non-resident surplus line broker” means a person licensed as a resident surplus line broker in a state or territory of the United States other than California and who is licensed as a non-resident in California under Insurance Code Section 1765 and authorized to do business pursuant to Division 1, Part 2, Chapter 6 Sections 1760 through 1780.

(j) The term “non-resident special lines' surplus lines broker” means a person licensed as a resident special lines' surplus lines broker in a state or territory of the United States other than California, or the functional equivalent thereof offered by such state or territory, and who is licensed as a non-resident in California under Insurance Code Section 1760.5 and authorized to do business pursuant to Division 1, Part 2, Chapter 6 Sections 1760.5 through 1780.

NOTE

Authority cited: Sections 1727, 1763 and 1768, Insurance Code. Reference: Sections 1621, 1623, 1639, 1727 and 1760-1780, Insurance Code.

HISTORY

1. Amendment filed 6-27-78; designated effective 9-1-78 (Register 78, No. 26).

2. Amendment of section and new Note filed 8-28-98; operative 9-27-98 (Register 98, No. 35).

3. New subsections (g)-(j) and amendment of Note filed 7-14-2003 as an emergency; operative 7-14-2003 (Register 2003, No. 29). A Certificate of Compliance must be transmitted to OAL by 11-12-2003 or emergency language will be repealed by operation of law on the following day.

4. Certificate of Compliance as to 7-14-2003 order transmitted to OAL 11-5-2003 and filed 12-22-2003 (Register 2003, No. 52).

§2190.1. General.

Note • History

(a) All record-keeping systems, whether manual or mechanical, must provide an audit trail so that details underlying the summary data, such as invoices, checks, and statements, may be identified and made available on request. All such systems must provide the means to trace any transaction back to its original source or forward to final entry, such as is accomplished by a conventional double-entry bookkeeping system. When automatic data processing systems are used, a description of the system must be available for review by the Department.

This description must contain statements and illustrations sufficiently detailed to indicate the application or process being performed, the procedures employed in each application or process (such as flow charts, block diagrams or other satisfactory descriptions of input or output procedures) and the controls used to insure accurate an reliable processing.

(b) All record-keeping systems, including automatic data processing systems and computer output microfilms, must be designed and programmed to produce the required information in an intelligible form. Identification of coding systems shall be readily available whenever they are used to record and maintain any of the information required under Sections 2190.2, 2190.3 and 2190.4.

NOTE

Authority cited: Sections 1727, 1763 and 1768, Insurance Code. Reference: Sections 1727, 1763 and 1768, Insurance Code.

HISTORY

1. Amendment filed 6-27-78; designated effective 9-1-78 (Register 78, No. 26).

2. New Note filed 8-28-98; operative 9-27-98 (Register 98, No. 35).

§2190.2. Required Records.

Note • History

(a) Name of insured,

(b) Name of insurer,

(d) Effective date, termination date and mid-term cancellation date of coverage,

(e) Amount of gross premium,

(f) Amount of net premium,

(g) Amount of commission and basis on which computed,

(h) Names of persons who receive, or are promised, any commissions or other valuable consideration related to the transaction,

(i) Amount of premium received including itemization of any partial payments or additional premium,

(j) Date premium received by agent or broker,

(m) Date premium paid by agent or broker to the person entitled thereto and identification of the means of transmittal,

(n) Amount of net and gross return premium,

(o) Date return premium is received from insurer by agent or broker which may be the date the credit is taken from the insurer or the date the check or draft is received, and

(p) Date gross return premium is remitted to person entitled thereto by agent or broker and identification of means of transmittal.

NOTE

Authority cited: Sections 1727, 1763 and 1768, Insurance Code. Reference: Sections 1727, 1733, 1734, 1763 and 1768, Insurance Code.

HISTORY

1. Amendment filed 6-27-78; designated effective 9-1-78 (Register 78, No. 26).

2. Amendment of first paragraph, amendment of subsections (k) and (l) and new Note filed 8-28-98; operative 9-27-98 (Register 98, No. 35).

§2190.3. Records by File.

Note • History

(1) Identity of each person who transacted the insurance, renewals and any change in coverage,

(2) Records of all binders, whether written or oral, showing the names of insured and insurer, nature of coverage, effective and termination dates and premium for binder or policy to be issued,

(3) Copy of application or memorandum of request for insurance,

(4) Correspondence received, copies of correspondence sent, memoranda, notes of conversation, or any other record necessary to describe the transaction.

NOTE

Authority cited: Sections 1727, 1763 and 1768, Insurance Code. Reference: Sections 1760.5(b), 1763 and 1764.1, Insurance Code.

HISTORY

1. Amendment of subsection (a) filed 6-27-78; designated effective 9-1-78(Register 78, No. 26).

2. Amendment of section and new Note filed 8-28-98; operative 9-27-98 (Register 98, No. 35).

§2190.4. Direct Billing.

Note • History

(a) With respect to any business transacted on a direct billing basis, the following records may be maintained in lieu of the records required by Section 2190.2:

(1) A policy record card or sheet or declaration page,

(2) Copies of premium payment receipts or other memoranda thereof for premiums collected when collected by the agent or broker,

(3) Records of premium payments made by the agent or broker,

(4) Copies of memoranda of any additional or return premium received by the agent or broker,

(5) Monthly or other periodic statements from the insurer showing premium receipts on the agent's or broker's business, and

(6) Copy of any cancellation notice, or letter of cancellation notice, or letter of cancellation for cause.

(b) All records specified in Section 2190.4(a)(1), (a)(2), (a)(3), (a)(4) and (a)(6) shall be maintained for at least five years after expiration or cancellation date of the policy.

NOTE

Authority cited: Sections 1727, 1763 and 1768, Insurance Code. Reference: Sections 1727, 1763 and 1768, Insurance Code.

HISTORY

1. Amendment filed 6-27-78; designated effective 9-1-78 (Register 78, No. 26).

2. Amendment of section and new Note filed 8-28-98; operative 9-27-98 (Register 98, No. 35).

§2190.5. Bank Records.

Note • History

(a) The following bank records shall be maintained at all times:

(1) Periodic statements of account supplied by the bank for all accounts or depositories into which premiums are deposited or maintained in accord with 1733 of the Insurance Code, including but not limited to trustee accounts maintained pursuant to Section 1734 of the Insurance Code.

(2) Records of all deposits made into such accounts or depositories into which premiums are deposited or maintained in accord with Section 1733 of the Insurance Code, including but not limited to trustee accounts maintained pursuant to Section 1734 of the Insurance Code.

(3) Cancelled checks drawn on, or records of withdrawal of funds from, such accounts or depositories into which premiums are deposited or maintained in accord with Section 1733 of the Insurance Code, including but not limited to trustee accounts maintained pursuant to Section 1734 of the Insurance Code.

(b) Nothing in this section is intended to abrogate the provisions of Insurance Code Section 1734 and 1734.5.

NOTE

Authority cited: Sections 1727, 1763 and 1768, Insurance Code. Reference: Sections 1733, 1734 and 1734.5, Insurance Code.

HISTORY

1. Renumbering from Section 2190.4 filed 6-27-78; designated effective 9-1-78 (Register 78, No. 26).

2. Amendment of section and new Note filed 8-28-98; operative 9-27-98 (Register 98, No. 35).

§2190.6. Interest Bearing Accounts.

Note • History

Whenever a principal has authorized an agent or broker or surplus lines broker or special lines' surplus lines broker to maintain funds received in a fiduciary capacity, as defined in Sections 1733 and 1734 of the Insurance Code, in an interest bearing account and to retain interest earned (i.e., savings account or certificate of deposit), such authorization shall be in writing and the original thereof shall at all times be maintained as part of the pertinent records of the agent or broker and shall be readily available on request, for so long as fiduciary funds are so maintained for such insurer.

NOTE

Authority cited: Sections 1727, 1763 and 1768, Insurance Code. Reference: Sections 1733 and 1734, Insurance Code.

HISTORY

1. Amendment filed 6-27-78; designated effective 9-1-78 (Register 78, No. 26).

2. Amendment of section and new Note filed 8-28-98; operative 9-27-98 (Register 98, No. 35).

§2190.7. Place Where Records Kept.

Note • History

(a) All records described in Sections 2190.2, 2190.4, 2190.5 and 2190.6 shall be kept in the principal office in this State of the resident agent or broker or resident surplus lines broker or resident special lines' surplus lines broker except where otherwise specifically authorized by the commissioner. All records described in Sections 2190.2, 2190.4, 2190.5 and 2190.6 for non-resident surplus line brokers and non-resident special lines' surplus lines brokers shall be kept in the principal office in the state or territory of the United States in which he or she is licensed as a resident surplus line broker or resident special lines' surplus lines broker.

(b) All records described by Section 2190.3 shall be maintained at the office servicing the insured.

(c) An agent operating under an exclusive contract with an insurer, including one insurer and its subsidiaries or affiliates, shall, upon termination of the appointment, be required to maintain only such records as such contract authorizes him to retain, provided that the insurer shall bear the responsibility of maintaining within this State all other records which would have otherwise been required to be maintained by the agent, subject to the time limitations set forth in 2190.2, 2190.3 and 2190.4.

(d) All records shall be maintained in an orderly manner so that the information therein is readily available and shall be open to inspection or examination of the commissioner at all times and the commissioner may at any time require such licensee to furnish him any information maintained or required to be maintained.

(e) One year after cancellation or expiration of a policy, records pertaining thereto may be stored off premises so long as they are retrievable within two business days.

(f) An agent or broker may maintain the records, which are otherwise required by this article to be kept at the principal office, at a secondary office upon obtaining specific written authorization from the Insurance Commissioner, which authorization may impose any conditions or restrictions which the Insurance Commissioner deems to be necessary and proper.

NOTE

Authority cited: Sections 1727, 1763 and 1768, Insurance Code. Reference: Sections 1639, 1727, 1763, 1767 and 1768, Insurance Code.

HISTORY

1. Amendment filed 6-27-78; designated effective 9-1-78 (Register 78, No. 26).

2. Amendment of subsections (a) and (c) and new Note filed 8-28-98; operative 9-27-98 (Register 98, No. 35).

3. Amendment of subsection (a) and amendment of Note filed 7-14-2003 as an emergency; operative 7-14-2003 (Register 2003, No. 29). A Certificate of Compliance must be transmitted to OAL by 11-12-2003 or emergency language will be repealed by operation of law on the following day.

4. Certificate of Compliance as to 7-14-2003 order transmitted to OAL 11-5-2003 and filed 12-22-2003 (Register 2003, No. 52).

§2190.8. Retention Period. [Repealed]

History

HISTORY

1. Amendment filed 6-27-78; designated effective 9-1-78 (Register 78, No. 26).

2. Repealer filed 8-28-98; operative 9-27-98 (Register 98, No. 35).

Article 7.5. Prescribed Method of Filing Notice of Appointment of Agents and Notice of Termination of Appointment of Agents

§2190.20. Authority and Purpose.

Note • History

These regulations are promulgated pursuant to the authority granted the Commissioner under the provisions of Sections 1707 of the California Insurance Code. Except as otherwise provided in Section 1704.5, each notice of appointment or notice of termination of appointment shall be filed on forms prescribed by the commissioner within 10 days of appointment or termination.

NOTE

Authority cited: Section 1707, Insurance Code. Reference: Sections 1705 and 1707.5, Insurance Code.

HISTORY

1. New article 7.5 (sections 2190.20-2190.24) and section filed 7-12-2006; operative 8-11-2006 (Register 2006, No. 28).

§2190.22. Prescribed Method of Electronic Filing.

Note • History

Within six months of the effective date of these regulations, all insurance companies, unless excepted by section 2190.24, are required to submit appointments and terminations in an electronic form for the following license lines: Fire & Casualty, Life Agent, Travel Agent, Disability Only, Part Time Fraternal, Motor Club, Personal Lines, and Home Protections. Additional lines of authority may be added to this section as technological advancement will allow. Any paper appointments or terminations received after the six month grace period will be considered null and void.

Electronic submission into the department's Insurance Producer Licensing Database shall be through any of the following approved entities:

(a) The National Insurance Producer Registry (NIPR) and its authorized business partners. NIPR is a subsidiary of the National Association of Insurance Commissioners (NAIC) and offers organizations the option of programming their own portal into NIPR or the option of using the portals provided by its authorized business partners. NIPR Authorized business partners may also be added or removed as new business partner agreements are made.

(b) Any additional vendors authorized by the California Department of Insurance to provide similar electronic submission services will be identified on the Department's official web site (www.insurance.ca.gov) as they become available. These regulations do not endorse any particular vendor.

(c) The California Department of Insurance also reserves the right to develop its own direct method of electronic submission of appointment and termination of company appointments.

NOTE

Authority cited: Section 1707, Insurance Code. Reference: Sections 1705 and 1707.5, Insurance Code.

HISTORY

1. New section filed 7-12-2006; operative 8-11-2006 (Register 2006, No. 28).

§2190.24. Prescribed Alternate Methods of Filing.

Note • History

(a) An exception to the electronic submission requirement for company appointments and terminations for the lines of authority specified under section 2190.22 is made for companies that annually appoint and terminate, in the aggregate, 25 or fewer agents. Requests for exceptions to this requirement must be submitted in writing with an Action Notice of Appointment (Form LIC 447-54A, (Rev. 3/2006)) or Action Notice of Termination (Form LIC 447-54T, (Rev. 6/2006)) with applicable fees.

(b) An exception to the electronic submission requirement for company appointments and terminations is also made for lines of authority not covered under section 2190.22. In those cases, the insurer shall continue to submit in writing both the applicable forms and fees.

NOTE

Authority cited: Section 1707, Insurance Code. Reference: Sections 1705 and 1707.5, Insurance Code.

HISTORY

1. New section and new forms LIC 447-54A and LIC 447-54T filed 7-12-2006; operative 8-11-2006 (Register 2006, No. 28).

Embedded Graphic 10.0152

Embedded Graphic 10.0153

Article 8. Insured Automobile Inspection

§2191. Insured Automobile Inspection. [Repealed]

Note • History

NOTE

Authority cited: Sections 400, 401, 402, 403 and 12926, Insurance Code, Code. Reference: Sections 400, 402 and 403, Insurance Code.

HISTORY

1. New section filed 3-17-92; operative 4-1-92 (Register 92, No. 14).

2. Change without regulatory effect amending subsections (b), (b)(3), (c)(1), and form and repealer of subsection (d) and relettering filed 4-7-92 pursuant to section 100, title 1, California Code of Regulations (Register 92, No. 19).

3. Change without regulatory effect repealing section filed 7-10-2008 pursuant to section 100, title 1, California Code of Regulations (Register 2008, No. 28).

§2191.2. Automobile Theft and Loss Reporting.

Note • History

(a) Purpose.

This section implements and interprets Insurance Code Section 1874.6.

(b) Automobile Theft and Loss Reporting.

All insurers issuing private passenger automobile insurance in California shall report, either directly or through an authorized representative, to the National Insurance Crime Bureau (NICB), formerly the National Automobile Theft Bureau, all private passenger automobiles involving in total losses as follows:

1. All total thefts of a private passenger automobile, having a wholesale value in excess of $2000.00, shall be reported within five (5) working days from the receipt of sufficient information from the insured.

2. All total losses involving private passenger automobile salvage where the vehicle is of the current model year or the four immediately preceding model years, however sustained, including claimant, shall be reported to the NICB within five (5) working days after he sale of salvage; or, if the insured, or third party claimant, is permitted to retain salvage, within five (5) working days after the date of loss payment.

3. The information reported to the NICB shall include the vehicle's Vehicle Identification Number (VIN), the vehicle's make, model, model year and any other information, as required by the NICB. Where possible, this information shall be obtained from the Automobile Inspection Report completed pursuant to Section 2191 of this Article.

Notwithstanding any provision of the Unfair Practices Act (Insurance Code Sections 790 et seq.) and Regulations to the contrary:

1. No insurer shall pay a claim filed by an insured, or a third party claimant, under comprehensive or other coverage for the total theft of a private passenger automobile with a wholesale market value in excess of $2000.00, unless the claim has first been reported to and either acknowledged by the NICB or no information indicating unresolved questionable circumstances about the claim has been received from the NICB within 10 working days from the date the insurer transmitted the report to the NICB.

2. Notwithstanding any provision of the Unfair Practices Act (Insurance Code Sections 790 et seq.) and Regulations to the contrary, an insurer may defer payment of a total theft loss claim filed under comprehensive or other coverage in accordance with the following:

(A) An insurer may defer the payment of such a claim for five (5) calendar days following receipt of an acknowledgement from the NICB of the Insurer's report. If no further communication is received from the NICB during this five (5) day period indicating unresolved questionable circumstances, the insurer shall continue with the processing of the claim in accordance with the provisions of this section and other provisions of the Unfair Practices Act (Insurance Code section 790 et seq.) and Regulations.

(B) If the NICB indicates in its acknowledgement or response to the insurer that coverage is in effect by more than one insurer for the same private passenger automobile or that the private passenger automobile has been previously reported as stolen and unrecovered, or that previous claims on the automobile have been reported, the insurer shall promptly investigate, attempt to resolve any discrepancy and report to the Fraud Division of the Department of Insurance, as required by Section 1872.4 of the Insurance Code.

(C) If the NICB discovers an erroneous vehicle identification number (VIN) and the NICB is unable to resolve the discrepancy internally, the NICB shall send a standardized inquiry to the insurer. A response to the inquiry shall be returned within five (5) working days by the insurer and the insurer shall notify the Fraud Division as required by Section 1872.4 of the Insurance Code. If the NICB and the insurer are unsuccessful, after due diligence in resolving the VIN error after a thirty-day (30-day) period from the date of the receipt by the insurer of sufficient information from the insured, the insurer shall proceed with the final processing of the claim.

(D) If the NICB indicates in its response to the insurer its belief, or if the insurer believes, that a fraudulent claim is being made by any claimant, the insurer shall report this information to the Fraud Division of the Department of Insurance as required by Section 1872.4 of the Insurance Code, suspend the processing of the claim and promptly begin an investigation. The insurer shall promptly provide such information to the NICB and shall cooperate fully with the NICB and the Department of Insurance in any investigation of potentially criminal or fraudulent acts.

(d) Definitions.

1. As used in this section, “private passenger automobile” means a motor vehicle of the private passenger or station wagon type, any four-wheel vehicle with a load capacity of 1,500 pounds or less, or a motorcycle.

2. As used in this section, and as provided in Section 544 of the Vehicle Code, “total salvage loss” means a private passenger automobile which has been wrecked, destroyed, or damaged, to such an extent that the owner, leasing company, financial institution, or the insurance company which has insured the vehicle, considers it uneconomical to repair the vehicle and because of this, the vehicle is not repaired by or for the person who owned the vehicle at the time of the event resulting in the damage.

3. As used in this section, “total theft” means the theft of a private passenger automobile.

NOTE

Authority cited: Section 1874.6, Insurance Code. Reference: Section 1874.6, Insurance Code.

HISTORY

1. New section filed 4-1-93; operative 5-1-93 (Register 93, No. 14).

Article 9. Credit Insurance Agent Licensing Regulations

§2192.1. Authority.

Note • History

The Insurance Commissioner has promulgated this article pursuant to Statutes of 2000, Chapter 321, Section 8 (Assembly Bill No. 393, 1999).

NOTE

Authority cited: Statutes of 2000, Chapter 321, Section 8 (Assembly Bill No. 393, 1999). Reference: Sections 1758.9-1758.994, Insurance Code.

HISTORY

1. New article 9 (sections 2192.1-2192.13) and section filed 9-17-2001 as an emergency; operative 9-17-2001 (Register 2001, No. 38). A Certificate of Compliance must be transmitted to OAL by 1-15-2002 or emergency language will be repealed by operation of law on the following day.

2. Repealer of article 9 (sections 2192.1-2192.13) and section by operation of Government Code section 11346.1(g) (Register 2002, No. 5).

3. New article 9 (sections 2192.1-2192.13) and section filed 1-31-2002 as an emergency; operative 2-1-2002 (Register 2002, No. 5). A Certificate of Compliance must be transmitted to OAL by 6-3-2002 or emergency language will be repealed by operation of law on the following day.

4. New article 9 (sections 2192.1-2192.13) and section refiled 6-3-2002 as an emergency; operative 6-3-2002 (Register 2002, No. 23). A Certificate of Compliance must be transmitted to OAL by 10-1-2002 or emergency language will be repealed by operation of law on the following day.

5. Repealer of article 9 (sections 2192.1-2192.13) and repealer of section by operation of Government Code section 11346.1(g) (Register 2003, No. 10).

6. New article 9 (sections 2192.1-2192.13) and section filed 4-29-2003 as an emergency; operative 4-29-2003 (Register 2003, No. 18). A Certificate of Compliance must be transmitted to OAL by 8-27-2003 or emergency language will be repealed by operation of law on the following day.

7. New article 9 (sections 2192.1-2192.13) and section refiled 8-26-2003 as an emergency; operative 8-26-2003 (Register 2003, No. 35). A Certificate of Compliance must be transmitted to OAL by 12-24-2003 or emergency language will be repealed by operation of law on the following day.

8. New article 9 (sections 2192.1-2192.12) and section refiled 12-23-2003 as an emergency; operative 12-23-2003 (Register 2003, No. 52). A Certificate of Compliance must be transmitted to OAL by 4-21-2004 or emergency language will be repealed by operation of law on the following day.

9. Repealed by operation of Government Code section 11346.1(g) (Register 2004, No. 18).

10. New article 9 (sections 2192.1-2192.12) and section filed 4-29-2004 as an emergency; operative 4-29-2004 (Register 2004, No. 18). A Certificate of Compliance must be transmitted to OAL by 8-27-2004 or emergency language will be repealed by operation of law on the following day.

11. Certificate of Compliance as to 4-29-2004 order transmitted to OAL 6-25-2004 and filed 7-29-2004 (Register 2004, No. 31).

§2192.2. Applicability.

Note • History

This article applies to all credit insurance agents, all applicants for a credit insurance agent license, and all persons who transact credit insurance, whether licensed or not.

NOTE

Authority cited: Statutes of 2000, Chapter 321, Section 8 (Assembly Bill No. 393, 1999). Reference: Sections 1758.9-1758.994, Insurance Code.

HISTORY

1. New section filed 9-17-2001 as an emergency; operative 9-17-2001 (Register 2001, No. 38). A Certificate of Compliance must be transmitted to OAL by 1-15-2002 or emergency language will be repealed by operation of law on the following day.

2. Repealed by operation of Government Code section 11346.1(g) (Register 2002, No. 5).

3. New section filed 1-31-2002 as an emergency; operative 2-1-2002 (Register 2002, No. 5). A Certificate of Compliance must be transmitted to OAL by 6-3-2002 or emergency language will be repealed by operation of law on the following day.

4. New section refiled 6-3-2002 as an emergency; operative 6-3-2002 (Register 2002, No. 23). A Certificate of Compliance must be transmitted to OAL by 10-1-2002 or emergency language will be repealed by operation of law on the following day.

5. Repealed by operation of Government Code section 11346.1(g) (Register 2003, No. 10).

6. New section filed 4-29-2003 as an emergency; operative 4-29-2003 (Register 2003, No. 18). A Certificate of Compliance must be transmitted to OAL by 8-27-2003 or emergency language will be repealed by operation of law on the following day.

7. New section refiled 8-26-2003 as an emergency; operative 8-26-2003 (Register 2003, No. 35). A Certificate of Compliance must be transmitted to OAL by 12-24-2003 or emergency language will be repealed by operation of law on the following day.

8. New section refiled 12-23-2003 as an emergency; operative 12-23-2003 (Register 2003, No. 52). A Certificate of Compliance must be transmitted to OAL by 4-21-2004 or emergency language will be repealed by operation of law on the following day.

9. Repealed by operation of Government Code section 11346.1(g) (Register 2004, No. 18).

10. New section filed 4-29-2004 as an emergency; operative 4-29-2004 (Register 2004, No. 18). A Certificate of Compliance must be transmitted to OAL by 8-27-2004 or emergency language will be repealed by operation of law on the following day.

11. Certificate of Compliance as to 4-29-2004 order transmitted to OAL 6-25-2004 and filed 7-29-2004 (Register 2004, No. 31).

§2192.3. Definitions.

Note • History

The following definitions apply to these regulations and to Article 16.7 of Chapter 5 of Part 2 of Division 1 of the Insurance Code (commencing with Section 1758.9):

(a) “Authorized insurer” means an insurance company holding a certificate of authority from the California Insurance Commissioner, and that is permitted by that certificate of authority to transact the kinds of insurance enumerated in Insurance Code section 1758.96.

(b) “Sell” has the same meaning as “enrollment,” as that term is defined in Insurance Code section 1758.992(a).

(c) “Solicit” means to mention the availability of credit insurance to a current or prospective debtor, to recommend or suggest consideration of credit insurance to a current or prospective debtor, or to ask a current or prospective debtor if he or she might be interested in obtaining credit insurance.

(d) “Endorsee” means a natural person who is authorized by the Commissioner to sell or solicit credit insurance and is employed by a credit insurance agent organization.

(e) “Commission” means any tangible or intangible thing of value, the existence, size, quality or quantity of which depends on the quantity or value of credit insurance solicited, sold, or enrolled by the person receiving the commission. “Commission” does not include salary paid to an employee of a creditor who sells, solicits, or enrolls, as long as the amount of the salary does not depend on the quantity or value of credit insurance solicited, sold, or enrolled by the employee.

(f) “Compensation,” as that term is used in Insurance Code section 1758.98(c), has the same meaning as “commission.”

(g) “Fee,” for the purpose of section 1758.98(c), shall have the same meaning as “commission.”

(h) “Material terms and conditions,” as that phrase is used in Insurance Code section 1758.97(a)(1), means all terms and conditions that, if known by or communicated to a sophisticated, prospective purchaser of credit insurance, would more likely than not influence that purchaser's decision to buy or not buy the insurance on the stated terms.

NOTE

Authority cited: Statutes of 2000, Chapter 321, Section 8 (Assembly Bill No. 393, 1999). Reference: Sections 1634(h), 1758.9, 1758.91, 1758.92(a)(2), 1758.92(b), 1758.93, 1758.93(b), 1758.94(a), 1758.94(b), 1758.95(a), 1758.95(b), 1758.95(c), 1758.96, 1758.97, 1758.97(b)(3), 1758.97(e), 1758.98(a), 1757.98(b), 1757.98(c) and 1758.992(a), Insurance Code.

HISTORY

2. Repealed by operation of Government Code section 11346.1(g) (Register 2002, No. 5).

5. Repealed by operation of Government Code section 11346.1(g) (Register 2003, No. 10).

9. Repealed by operation of Government Code section 11346.1(g) (Register 2004, No. 18).

11. Certificate of Compliance as to 4-29-2004 order transmitted to OAL 6-25-2004 and filed 7-29-2004 (Register 2004, No. 31).

§2192.4. Applications; License Term.

Note • History

(a) A separate license must be applied for and obtained by each natural person (i.e., individual) before that person acts as a credit insurance agent. A separate license must be applied for and obtained by each organization before that organization acts as a credit insurance agent.

(b) A natural person may sell, solicit, or otherwise transact credit insurance and receive a commission as a licensed credit insurance agent or as an endorsee of an organization that holds a credit insurance agent license. A natural person may be named simultaneously as an endorsee of multiple organizations that hold credit insurance agent licenses.

(c) A credit insurance agent license, whether issued to an individual or an organization, is valid for twelve months, and must be renewed annually by the anniversary of the issue date.

(d) An individual credit insurance agent license applicant must obtain electronic fingerprint impressions from the Department's vendor for that service, using the Request For Live Scan Service (Form 442-39A). The manager of each business location of an organization licensed as a credit insurance agent must obtain electronic fingerprint impressions from the Department's vendor for that service, using the Request For Live Scan Service (Form 442-39A).

NOTE

Authority cited: Statutes of 2000, Chapter 321, Section 8 (Assembly Bill No. 393, 1999). Reference: Sections 1758.9-1758.93, Insurance Code.

HISTORY

2. Repealed by operation of Government Code section 11346.1(g) (Register 2002, No. 5).

5. Repealed by operation of Government Code section 11346.1(g) (Register 2003, No. 10).

9. Repealed by operation of Government Code section 11346.1(g) (Register 2004, No. 18).

11. Certificate of Compliance as to 4-29-2004 order transmitted to OAL 6-25-2004 and filed 7-29-2004 (Register 2004, No. 31).

§2192.5. Fees.

Note • History

(a) A $300 fee must be paid at the time a credit insurance agent license application is filed with the Department. A $30 fee for each endorsee must accompany the organization endorsement appointment form.

(b) A $274 fee must be paid at the time a credit insurance agent license renewal application is filed with the Department. A $4 fee must be paid at the time an endorsee renewal application is filed with the Department.

(c) The Commissioner must refuse to issue a credit insurance agent license if the appropriate fees do not accompany the application.

(d) Subject to Insurance Code Sections 12978 and 1758.92(a)(3), the Commissioner may increase or decrease the fees set forth above to reflect the actual costs associated with processing the application and renewal transactions.

NOTE

Authority cited: Statutes of 2000, Chapter 321, Section 8 (Assembly Bill No. 393, 1999). Reference: Sections 1758.92(a)(3) and 12978, Insurance Code.

HISTORY

2. Repealed by operation of Government Code section 11346.1(g) (Register 2002, No. 5).

5. Repealed by operation of Government Code section 11346.1(g) (Register 2003, No. 10).

9. Repealed by operation of Government Code section 11346.1(g) (Register 2004, No. 18).

11. Certificate of Compliance as to 4-29-2004 order transmitted to OAL 6-25-2004 and filed 7-29-2004 (Register 2004, No. 31).

§2192.6. Disclosure.

Note • History

(a) All disclosures required by Insurance Code sections 1758.97(a) and (b) must be printed and must be clear and conspicuous.

(b) An insurer must include in the evidence of coverage it provides to a purchaser, pursuant to Insurance Code section 1758.97(c), all provisions the insurer could rely upon to deny a claim. An insurer may not rely upon a policy provision to deny a claim unless that provision was included in the evidence of coverage.

NOTE

Authority cited: Statutes of 2000, Chapter 321, Section 8 (Assembly Bill No. 393, 1999). Reference: Sections 1758.97(a)-(c), Insurance Code.

HISTORY

2. Repealed by operation of Government Code section 11346.1(g) (Register 2002, No. 5).

5. Repealed by operation of Government Code section 11346.1(g) (Register 2003, No. 10).

9. Repealed by operation of Government Code section 11346.1(g) (Register 2004, No. 18).

11. Certificate of Compliance as to 4-29-2004 order transmitted to OAL 6-25-2004 and filed 7-29-2004 (Register 2004, No. 31).

§2192.7. Training.

Note • History

(a) The training materials required by Insurance Code Section 1758.93(b) must be prepared and submitted to the Commissioner, and must include training for all insurance products to be sold.

(b) Retraining of endorsees must be conducted whenever there is a change in the insurance product(s) sold, but in no event less frequently than every two (2) years for each endorsee.

(c) If training materials have been developed by an insurer and approved by the Department of Insurance, the licensee may submit, in lieu of the training materials, a letter, signed by the licensee's manager or a corporate officer, stating that the licensee will use the approved training materials filed by the insurer.

NOTE

Authority cited: Statutes of 2000, Chapter 321, Section 8 (Assembly Bill No. 393, 1999). Reference: Sections 1758.93(a)(2), 1758.93(b) and (c) and 1758.94(a), Insurance Code.

HISTORY

2. Repealed by operation of Government Code section 11346.1(g) (Register 2002, No. 5).

5. Repealed by operation of Government Code section 11346.1(g) (Register 2003, No. 10).

9. Repealed by operation of Government Code section 11346.1(g) (Register 2004, No. 18).

11. Certificate of Compliance as to 4-29-2004 order transmitted to OAL 6-25-2004 and filed 7-29-2004 (Register 2004, No. 31).

§2192.8. Records.

Note • History

Credit insurance agents must comply with the provisions of Insurance Code section 1727 and Article 7 of Chapter 5 of Subchapter 1 of Title 10 of the California Code of Regulations, commencing with section 2190.

NOTE

Authority cited: Statutes of 2000, Chapter 321, Section 8 (Assembly Bill No. 393, 1999). Reference: Sections 1758.9-1758.994, Insurance Code.

HISTORY

2. Repealed by operation of Government Code section 11346.1(g) (Register 2002, No. 5).

5. Repealed by operation of Government Code section 11346.1(g) (Register 2003, No. 10).

9. Repealed by operation of Government Code section 11346.1(g) (Register 2004, No. 18).

11. Certificate of Compliance as to 4-29-2004 order transmitted to OAL 6-25-2004 and filed 7-29-2004 (Register 2004, No. 31).

§2192.9. Forms.

Note • History

(a) The Commissioner requires credit insurance agent applicants and licensees to submit the following forms for the following purposes:

(1) The written application for licensure must be made using Form 441-9 (01-03) for individuals and using Form 441-11 (05-04) for organizations.

(2) The credit insurance agent notice of appointment must be made using Form LIC.CI 20 (05-01).

(3) The employee affidavit of training and knowledge must be made using Form LIC.CI 50 (05-01).

(4) The annual certificate of compliance and listing for authorized endorsees must be made using Form LIC.CI 40 (05-01).

(5) The annual training material submission must be made using Form LIC.CI 10 (05-01).

(6) Fingerprint impressions must be requested, and their having been taken evidenced by completion and submission to the Department of a Request for Live Scan Service using Form 442-39A (04-04).

(7) Organization endorsements must be made using Form 411-8A (12-03).

(b) Training materials submitted to the Commissioner must contain all of the elements set forth in Form LIC.CI 30 (05-01).

(c) All forms set forth in this section are incorporated herein by reference in their entirety and are available upon request, by telephone or in writing, to the Department of Insurance, and on the Department of Insurance website, www.insurance.ca.gov.

NOTE

Authority cited: Statutes of 2000, Chapter 321, Section 8 (Assembly Bill No. 393, 1999). Reference: Sections 1758.92(a)(1) and (2), Insurance Code.

HISTORY

2. Repealed by operation of Government Code section 11346.1(g) (Register 2002, No. 5).

5. Repealed by operation of Government Code section 11346.1(g) (Register 2003, No. 10).

9. Repealed by operation of Government Code section 11346.1(g) (Register 2004, No. 18).

11. Certificate of Compliance as to 4-29-2004 order, including amendment of section, transmitted to OAL 6-25-2004 and filed 7-29-2004 (Register 2004, No. 31).

§2192.10. Certifications.

Note • History

Any certification required by Article 16.7 of Chapter 5 of Part 2 of Division 1 of the Insurance Code (commencing with Section 1758.9) must be made under penalty of perjury under the laws of the State of California.

NOTE

Authority cited: Statutes of 2000, Chapter 321, Section 8 (Assembly Bill No. 393, 1999). Reference: Sections 1758.92(a)(1) and (2) and 1758.93(a)(2), Insurance Code.

HISTORY

2. Repealed by operation of Government Code section 11346.1(g) (Register 2002, No. 5).

5. Repealed by operation of Government Code section 11346.1(g) (Register 2003, No. 10).

9. Repealed by operation of Government Code section 11346.1(g) (Register 2004, No. 18).

11. Certificate of Compliance as to 4-29-2004 order transmitted to OAL 6-25-2004 and filed 7-29-2004 (Register 2004, No. 31).

§2192.11. Limitations on the Authority of the Credit Insurance Agent to Transact.

Note • History

Pursuant to Insurance Code section 1758.96, a person licensed as a credit insurance agent may not sell credit insurance in connection with the loan in excess of $60,000 relating to or secured by real property, or where the repayment period for any loan or extension of credit exceeds 10 years.

NOTE

Authority cited: Statutes of 2000, Chapter 321, Section 8 (Assembly Bill No. 393, 1999). Reference: Section 1758.96, Insurance Code.

HISTORY

2. Repealed by operation of Government Code section 11346.1(g) (Register 2002, No. 5).

5. Repealed by operation of Government Code section 11346.1(g) (Register 2003, No. 10).

9. Repealed by operation of Government Code section 11346.1(g) (Register 2004, No. 18).

11. Certificate of Compliance as to 4-29-2004 order transmitted to OAL 6-25-2004 and filed 7-29-2004 (Register 2004, No. 31).

§2192.12. Endorsee Termination and Renewal.

Note • History

The Department must provide an organization that holds a credit insurance agent license a list of its endorsees 90 days prior to the renewal of the organization's license. The organization must terminate endorsees no longer employed by the organization by striking through those endorsees' names, having an officer sign and date the list, and return the list to the Department along with the renewal fees for the non-stricken, active endorsees. The organization must return the endorsee list with an Annual Certificate of Training and List of Endorsee Form LIC.CI 40 to certify that the endorsees have received required training. The submission of the list to the Department will satisfy the credit insurance agent's duty to submit an annual listing of endorsees pursuant to Section 1758.93(b).

NOTE

Authority cited: Statutes of 2000, Chapter 321, Section 8 (Assembly Bill No. 393, 1999). Reference: Sections 1758.93(a)(3) and 1758.93(b), Insurance Code.

HISTORY

2. Repealed by operation of Government Code section 11346.1(g) (Register 2002, No. 5).

5. Repealed by operation of Government Code section 11346.1(g) (Register 2003, No. 10).

9. Repealed by operation of Government Code section 11346.1(g) (Register 2004, No. 18).

11. Certificate of Compliance as to 4-29-2004 order transmitted to OAL 6-25-2004 and filed 7-29-2004 (Register 2004, No. 31).

§2192.13. Effective Date.

Note • History

NOTE

Authority cited: Statutes of 2000, Chapter 321, Section 8 (Assembly Bill No. 393, 1999). Reference: Sections 1758.9-1758.994, Insurance Code.

HISTORY

2. Repealed by operation of Government Code section 11346.1(g) (Register 2002, No. 5).

5. Repealed by operation of Government Code section 11346.1(g) (Register 2003, No. 10).

8. Repealed by operation of Government Code section 11346.1(g) (Register 2003, No. 52).

Article 10. Clerical Activities Exempt from Licensure

§2193. Definitions.

Note • History

For the purpose of this article, the following definitions apply:

(a) “Licensee” means a person that holds a valid license from the Commissioner authorizing that person to solicit, negotiate or effect contracts of insurance, or act in any of the capacities defined in Insurance Code Sections 1621 through 1624, as provided in Chapter 5 (commencing with Section 1621), Part 2, Division 1 of the Insurance Code.

(b) “Unlicensed person” means a person that does not hold a valid license from the Commissioner authorizing that person to solicit, negotiate or effect contracts of insurance, or act in any of the capacities defined in Insurance Code sections 1621 through 1624, as provided in Chapter 5 (commencing with Section 1621), Part 2, Division 1 of the Insurance Code.

NOTE

Authority cited: Section 8, Assembly Bill 393, Chapter 321, Statutes of 2000. Reference: Sections 1631 and 1635, Insurance Code.

HISTORY

1. New article 10 (sections 2193-2193.3) and section filed 6-17-2002 as an emergency; operative 6-17-2002 (Register 2002, No. 25). A Certificate of Compliance must be transmitted to OAL by 10-15-2002 or emergency language will be repealed by operation of law on the following day.

2. Certificate of Compliance as to 6-17-2002 order transmitted to OAL 10-10-2002 and filed 11-7-2002 (Register 2002, No. 45).

§2193.1. Exemptions for Clerical Activities.

Note • History

Clerical activities indirectly related to the solicitation, negotiation, or effecting the sale of insurance which, pursuant to Insurance Code Section 1635(l), are exempt from licensure, include, but are not limited to:

(a) Distribution of brochures, business cards, or other general information advertising insurance agencies or insurers, or insurance products, services or promotions, provided that unlicensed persons do not analyze, give advice or make recommendations concerning insurance contracts or potential insurance contract terms to applicants for insurance coverage, potential applications for insurance coverage, or policyholders.

(b) Preparation of applications for insurance coverage without any contact with applicants, other than the contact permitted in Section 2193.2(d).

(c) Obtaining underwriting information from third parties, including, but not limited to, the Department of Motor Vehicles, credit reporting agencies and other insurance companies.

(d) Preparation of binders, certificates, endorsements, identification cards, policies and similar evidences of insurance, under the supervision of licensees and for the review and signature of licensees, provided that the unlicensed persons are not signing such documents, either in their names or in the names of the licensees.

NOTE

Authority cited: Section 8, Assembly Bill 393, Chapter 321, Statutes of 2000. Reference: Sections 1631 and 1635, Insurance Code.

HISTORY

1. New section filed 6-17-2002 as an emergency; operative 6-17-2002 (Register 2002, No. 25). A Certificate of Compliance must be transmitted to OAL by 10-15-2002 or emergency language will be repealed by operation of law on the following day.

2. Certificate of Compliance as to 6-17-2002 order transmitted to OAL 10-10-2002 and filed 11-7-2002 (Register 2002, No. 45).

§2193.2. Exemptions for Making Clerical Changes and Providing Indirect Marketing and Servicing Support.

Note • History

Clerical activities involving the making of changes to existing insurance policies or providing indirect insurance marketing and servicing support which, pursuant to Insurance Code Section 1635(m), are exempt from licensure, include, but are not limited to:

(a) Dissemination of buyers' guides for insurance, applications for insurance coverage, insurance coverage selection forms, or related forms, in response to consumer requests, provided that unlicensed persons do not analyze, give advice or make recommendations concerning insurance contracts or potential insurance contract terms to applicants for insurance coverage, potential applicants for insurance coverage, or policyholders.

(b) Receiving information from applicants for insurance coverage, potential applicants for insurance coverage, or policyholders, or recording information from applicants for insurance coverage, potential applicants for insurance coverage, or policyholders to give to licensees for response, provided that the unlicensed persons do not analyze, give advice or make recommendations concerning insurance contracts or potential insurance contract terms to applicants for insurance coverage, potential applicants for insurance coverage, or policyholders.

(c) Scheduling appointments with licensees to discuss insurance, provided that there are no conversations, or other exchanges of information concerning insurance contracts or potential insurance contract terms between unlicensed persons and applicants for insurance coverage, potential applicants for insurance coverage, or policyholders.

(d) Communicating with applicants for insurance coverage, potential applicants for insurance coverage, or policyholders solely in order to obtain factual information requested by licensees, provided that unlicensed persons do not analyze, give advice or make recommendations concerning insurance contracts or potential insurance contract terms to applicants for insurance coverage, potential applicants for insurance coverage, or policyholders.

(e) Acceptance of insurance premiums for delivery to licensees.

(f) Receiving and recording insureds' requests for additions or deletions to existing insurance policies, and preparing endorsement forms for the review and signature of licensees.

(g) Informing insureds factually, in response to their inquiries, as to the category and financial limits of insurance coverages indicated in policy records, whether coverages are in effect and any premium balances due, provided that the unlicensed persons are not otherwise explaining, interpreting, or offering opinions on such coverages or limits, or any other terms of the insurance contracts.

(h) Answering telephone calls, receiving faxes, opening electronic mail, opening written mail, processing outgoing mail, doing filing, and engaging in other general secretarial or administrative functions not otherwise prohibited herein.

(i) Merely translating between licensees and applicant for insurance coverage, potential applicants for insurance coverage, or policyholders.

NOTE

Authority cited: Section 8, Assembly Bill 393, Chapter 321, Statutes of 2000. Reference: Sections 1631 and 1635, Insurance Code.

HISTORY

2. Certificate of Compliance as to 6-17-2002 order transmitted to OAL 10-10-2002 and filed 11-7-2002 (Register 2002, No. 45).

§2193.3. Necessity of License.

Note • History

The following activities are not exempt from licensure under Insurance Code Sections 1631 and 1635, because they are directly related to solicitation, negotiation, or effecting the sale of insurance:

(a) Explanations or interpretations of, and offering of opinions or recommendations on, insurance coverages, exposures, limits, premiums, rates, deductibles, payment plans, or any other insurance contract, or potential insurance contract, terms.

(b) Recommending, advising, or urging applicants for insurance coverage, potential applicants for insurance coverage, or policyholders to buy particular insurance policies or to insure with particular companies or insurers.

NOTE

Authority cited: Section 8, Assembly Bill 393, Chapter 321, Statutes of 2000. Reference: Sections 1631 and 1635, Insurance Code.

HISTORY

2. Certificate of Compliance as to 6-17-2002 order transmitted to OAL 10-10-2002 and filed 11-7-2002 (Register 2002, No. 45).

Article 11. Communications Equipment Agent Licensing Regulations

§2194. Authority and Purpose.

Note • History

These regulations are promulgated pursuant to the authority granted to the Insurance Commissioner under the provisions of Assembly Bill No. 2856 (Stats. 2002, ch. 437). No communications equipment vendor may sell or offer insurance without complying with Sections 1758.6-1758.693 of the California Insurance Code. (For operative effect, see Insurance Code section 1758.693.)

NOTE

Authority cited: Sections 1758.6 and 1758.693, Insurance Code. Reference: Sections 1758.6-1758.693, Insurance Code.

HISTORY

1. New article 11 (sections 2194-2194.8) and section filed 7-11-2003 as an emergency; operative 7-11-2003 (Register 2003, No. 28). A Certificate of Compliance must be transmitted to OAL by 11-10-2003 or emergency language will be repealed by operation of law on the following day.

2. New article 11 (sections 2194-2194.8) and section refiled 11-7-2003 as an emergency; operative 11-10-2003 (Register 2003, No. 45). A Certificate of Compliance must be transmitted to OAL by 3-9-2004 or emergency language will be repealed by operation of law on the following day.

3. New article 11 (sections 2194-2194.8) and section refiled 3-8-2004 as an emergency; operative 3-9-2004 (Register 2004, No. 11). A Certificate of Compliance must be transmitted to OAL by 7-7-2004 or emergency language will be repealed by operation of law on the following day.

4. New article 11 (sections 2194-2194.8) and section refiled 7-7-2004 as an emergency; operative 7-7-2004 (Register 2004, No. 28). A Certificate of Compliance must be transmitted to OAL by 11-4-2004 or emergency language will be repealed by operation of law on the following day.

5. Certificate of Compliance as to 7-7-2004 order transmitted to OAL 11-2-2004 and filed 12-17-2004 (Register 2004, No. 51).

§2194.1. Definitions.

Note • History

As used in these regulations and in Article 16.1 (commencing with Section 1758.6) of the Insurance Code:

(a) “Insurer” means an insurance company holding a California certificate of authority.

(b) “Franchise” and its derivatives are as defined in the California Corporations Code, Title 4, Division 5, Part 1 (commencing with Section 31005).

(c) “Organization” means any legal entity other than a natural person. Where reference is made to a natural person named on an organization license, the reference shall be to a person who is named to exercise the power and perform the duties under an organization license. The natural person named on the organizational license shall meet the qualifications required for the type of license sought by the organization.

NOTE

Authority cited: Sections 1758.6 and 1758.693, Insurance Code. Reference: Sections 1628 and 1758.68, Insurance Code.

HISTORY

1. New section filed 7-11-2003 as an emergency; operative 7-11-2003 (Register 2003, No. 28). A Certificate of Compliance must be transmitted to OAL by 11-10-2003 or emergency language will be repealed by operation of law on the following day.

2. New section refiled 11-7-2003 as an emergency; operative 11-10-2003 (Register 2003, No. 45). A Certificate of Compliance must be transmitted to OAL by 3-9-2004 or emergency language will be repealed by operation of law on the following day.

3. New section refiled 3-8-2004 as an emergency; operative 3-9-2004 (Register 2004, No. 11). A Certificate of Compliance must be transmitted to OAL by 7-7-2004 or emergency language will be repealed by operation of law on the following day.

4. New section refiled 7-7-2004 as an emergency; operative 7-7-2004 (Register 2004, No. 28). A Certificate of Compliance must be transmitted to OAL by 11-4-2004 or emergency language will be repealed by operation of law on the following day.

5. Certificate of Compliance as to 7-7-2004 order transmitted to OAL 11-2-2004 and filed 12-17-2004 (Register 2004, No. 51).

§2194.2. Applications.

Note • History

(a) Each natural person (i.e., individual) or organization intending to act as a communications equipment insurance agent shall apply for and obtain a separate license.

(b) An individual or organization licensee shall file with the Commissioner any true name or fictitious name(s) under which the applicant intends to act as a communications equipment agent. The Commissioner may disapprove, in writing, the use of any true or fictitious name (other than the bona fide true name of the individual) by any licensee pursuant to Article 1 (commencing with section 2050) of this chapter.

(c) Any certification required in Article 16.1 (commencing with Section 1758.6) of the Insurance Code shall be made under penalty of perjury under the laws of the State of California.

NOTE

Authority cited: Sections 1758.6 and 1758.693, Insurance Code. Reference: Section 1758.62, Insurance Code; and Article 1 (commencing with section 2050), California Code of Regulations, Title 10.

HISTORY

5. Certificate of Compliance as to 7-7-2004 order transmitted to OAL 11-2-2004 and filed 12-17-2004 (Register 2004, No. 51).

§2194.3. Fees.

Note • History

(a) A fee of $225 shall be paid at the time the license application is filed.

(b) A fee of $225 shall be paid at the time a communications equipment agent license renewal application is filed.

(c) Costs charged by the Department of Insurance for any enforcement action or investigation shall be paid by the licensee, in addition to the application or renewal filing fee.

NOTE

Authority cited: Sections 1758.6 and 1758.693, Insurance Code. Reference: Sections 1758.62 and 1758.692, Insurance Code.

HISTORY

5. Certificate of Compliance as to 7-7-2004 order transmitted to OAL 11-2-2004 and filed 12-17-2004 (Register 2004, No. 51).

§2194.4. Disclosure.

Note • History

(a) The brochures or other materials that are provided to the prospective customer pursuant to Section 1758.66 of the Insurance Code shall include, among other information:

(1) the approved true or fictitious name under which the licensee is doing business at the location in which the communications equipment transaction is taking place; and

(2) the name of the insurer providing the insurance being offered to the prospective purchaser.

(b) All disclosures required by Section 1758.66 of the Insurance Code and these regulations shall be written clearly and conspicuously.

NOTE

Authority cited: Sections 1758.6 and 1758.693, Insurance Code. Reference: Section 1758.66, Insurance Code.

HISTORY

5. Certificate of Compliance as to 7-7-2004 order transmitted to OAL 11-2-2004 and filed 12-17-2004 (Register 2004, No. 51).

§2194.5. Training.

Note • History

If the training materials required pursuant to Section 1758.63(c) of the Insurance Code have been previously approved by the California Department of Insurance, the applicant is not required to submit the training materials. The applicant instead shall submit a letter, signed by both the fire and casualty broker-agent and by the applicant (or officer of the entity), stating that the applicant will use the approved training materials filed by the fire and casualty broker-agent.

NOTE

Authority cited: Sections 1758.6 and 1758.693, Insurance Code. Reference: Section 1758.63, Insurance Code.

HISTORY

5. Certificate of Compliance as to 7-7-2004 order transmitted to OAL 11-2-2004 and filed 12-17-2004 (Register 2004, No. 51).

§2194.6. Records.

Note • History

(a) Records of insurance transactions and other documents required by Article 16.1 (commencing with Section 1758.6) of the Insurance Code and these regulations shall be maintained for at least three (3) years after the expiration or cancellation date of the policy to which the records pertain, except where otherwise specifically authorized by statute or by the Commissioner in regulation.

(b) Records shall be kept in this State, in the principal office of the licensee, except where otherwise specifically authorized by statute or by the Commissioner in regulation.

(c) Records shall be produced for examination by the Commissioner or a designee of the Commissioner within thirty (30) days of the mailing date of a written request. Records may be requested in electronic or written format by the Commissioner or a designee of the Commissioner.

NOTE

Authority cited: Sections 1758.6 and 1758.693, Insurance Code. Reference: Section 1758.63, Insurance Code.

HISTORY

5. Certificate of Compliance as to 7-7-2004 order transmitted to OAL 11-2-2004 and filed 12-17-2004 (Register 2004, No. 51).

§2194.7. Forms.

Note • History

The specific forms required to be filed with the Commissioner by license applicants and licensees are as follows:

(a) The written application for licensure shall be made on Form 441-9 (Rev 01/2003) for individuals and on Form 441-11 (Rev 01/2003) for organizations.

(b) The initial certification of authorized employees shall be made on form Lic. CV 1 (Rev 12/2002).

(d) The insurer certification shall be made on form Lic. CV 3 (Rev 9/2004).

(e) Training materials submitted to the Commissioner shall contain all of the elements set forth in form Lic. CV 4 (Rev 12/2002).

(f) The list of authorized endorsees shall be made on form Lic. CV 5 (Rev 9/2004). The list shall be maintained in a format capable of transmission to the Commissioner or a designee of the Commissioner electronically and in hard copy or diskette, however requested by the Commissioner or a designee of the Commissioner pursuant to Section 2194.6(c) above. The electronic version shall be transmitted in commercial word-processing or spreadsheet form. When requested, the list shall be updated to include endorsees newly authorized up to thirty (30) days before the mailing date of the request, and shall include the dates upon which each endorsee's authorization began and, if relevant, terminated. It shall then be transmitted as an attachment to e-mail or by regular mail in hard copy or diskette, as requested. The appropriate e-mail and regular mailing addresses shall be posted by the Department on its website at http://www.insurance.ca.gov.

(g) All forms set forth in this section are incorporated herein by reference in their entirety and are available upon request, by telephone or in writing, to the Department of Insurance or on the website of the Department of Insurance at www.insurance.ca.gov.

NOTE

Authority cited: Sections 1758.6 and 1758.693, Insurance Code. Reference: Sections 1758.62 and 1758.63, Insurance Code.

HISTORY

5. Certificate of Compliance as to 7-7-2004 order, including amendment of subsections (d) and (f), transmitted to OAL 11-2-2004 and filed 12-17-2004 (Register 2004, No. 51).

§2194.8. Procedures.

Note • History

(a) The following criteria shall apply to procedures employed by the Commissioner in considering and issuing licenses under this article:

(1) If the application is deficient, the Commissioner shall, within twenty-one (21) days of receipt of the license application, inform the applicant, in writing, that the application is deficient and what specific information is required for completion. Absent notice of a deficiency, the application is deemed complete at the date of filing.

(2) The Commissioner shall, within thirty (30) calendar days of the applicant's filing of a completed application, reach a decision whether to issue or deny a license, and shall notify the applicant of the decision. If the Commissioner has decided to deny the application, the reason(s) therefor shall be set forth in the notification.

(b) The periods set forth above shall be tolled in the event the application requires legal action by the Commissioner.

(c) The Department of Insurance's median, minimum and maximum times for processing a similar license from the receipt of the initial completed application to the final license decision, and excluding applications that require legal action by the Commissioner, are as follows:

(1) thirty (30) calendar days (median time),

(2) fourteen (14) calendar days (minimum time), and

(3) one (1) calendar year (maximum time).

NOTE

Authority cited: Sections 1758.6 and 1758.693, Insurance Code. Reference: Section 15376, Government Code; and Section 1670, Insurance Code.

HISTORY

5. Certificate of Compliance as to 7-7-2004 order transmitted to OAL 11-2-2004 and filed 12-17-2004 (Register 2004, No. 51).

Article 12. Self-Service Storage Agent Licensing Regulations

§2194.9. Authority and Purpose.

Note • History

These regulations are promulgated pursuant to the authority granted to the Insurance Commissioner under the provisions of Assembly Bill No. 2520 (Stats. 2004, ch. 428). No self-service storage facility may sell or offer insurance without complying with Sections 1758.7-1758.792 of the California Insurance Code and these regulations.

NOTE

Authority cited: Sections 1758.7 and 1758.792, Insurance Code. Reference: Sections 1758.7-1758.792, Insurance Code.

HISTORY

1. New article 12 (sections 2194.9-2194.17) and section filed 6-30-2006 as an emergency; operative 6-30-2006 (Register 2006, No. 26). A Certificate of Compliance must be transmitted to OAL by 10-30-2006 or emergency language will be repealed by operation of law on the following day.

2. Certificate of Compliance as to 6-30-2006 order transmitted to OAL 8-31-2006 and filed 10-16-2006 (Register 2006, No. 42).

§2194.10. Definitions.

Note • History

As used in these regulations and in Article 16.3 (commencing with Section 1758.7) of the Insurance Code:

(a) “Authorized insurer” means any admitted insurer holding a California Certificate of Authority that includes the kinds of insurance enumerated in Section 1758.75 of the Insurance Code.

(b) “Franchise” and its derivatives are as defined in the California Corporations Code, Title 4, Division 5, Part 1 (commencing with Section 31005).

NOTE

Authority cited: Sections 1758.7 and 1758.792, Insurance Code. Reference: Sections 1628 and 1758.7, Insurance Code.

HISTORY

1. New section filed 6-30-2006 as an emergency; operative 6-30-2006 (Register 2006, No. 26). A Certificate of Compliance must be transmitted to OAL by 10-30-2006 or emergency language will be repealed by operation of law on the following day.

2. Certificate of Compliance as to 6-30-2006 order transmitted to OAL 8-31-2006 and filed 10-16-2006 (Register 2006, No. 42).

§2194.11. Applications.

Note • History

(a) Each natural person (i.e., individual) or organization intending to act as a self-service storage insurance agent shall apply for and obtain a separate license.

(1) An individual licensee may own or act as the franchisee of more than one self-service storage company without obtaining additional licenses.

(2) An organization licensee may act as the franchisee of more than one self-service storage company without obtaining additional licenses.

(b) An individual or organization licensee shall file with the Commissioner any true name or fictitious name(s) under which the applicant intends to act as a self-service storage agent. The Commissioner may disapprove in writing, the use of any true or fictitious name (other than the bona fide true name of the individual) by any licensee pursuant to Article 1 (commencing with Section 2050) of this chapter.

(c) Any certification required in Article 16.3 (commencing with Section 1758.7) of the Insurance Code shall be made under penalty of perjury under the laws of the State of California.

NOTE

Authority cited: Sections 1758.7 and 1758.792, Insurance Code. Reference: Sections 1758.71 and 1758.72, Insurance Code.

HISTORY

2. Certificate of Compliance as to 6-30-2006 order transmitted to OAL 8-31-2006 and filed 10-16-2006 (Register 2006, No. 42).

§2194.12. Fees.

Note • History

(a) A fee of $250 shall be paid at the time the license application is filed.

(b) A fee of $250 shall be paid at the time of self-service storage agent license renewal application is filed.

(c) Costs charged by the Department of Insurance for any enforcement action or investigation shall be paid by the licensee, in addition to the application or renewal filing fee.

NOTE

Authority cited: Sections 1758.7 and 1758.792, Insurance Code. Reference: Sections 1758.7 and 1758.71, Insurance Code.

HISTORY

2. Certificate of Compliance as to 6-30-2006 order transmitted to OAL 8-31-2006 and filed 10-16-2006 (Register 2006, No. 42).

§2194.13. Disclosure.

Note • History

(a) The brochures or other materials that are provided to the prospective renter pursuant to Section 1758.76 of the California Insurance Code shall include, among other information:

(1) the approved true or fictitious name under which the licensee is doing business at the location in which the self-service storage transaction is taking place; and

(2) the name(s) of any insurer(s) providing the insurance being offered to the prospective purchaser.

(b) All disclosures required by Section 1758.76(b) of the California Insurance Code and these regulations shall be in writing and provided in a clear and conspicuous manner.

(c) A copy of the rental agreement shall be provided to the customer at the time of execution of the self-service storage rental agreement.

NOTE

Authority cited: Sections 1758.7, 1758.76(b), 1758.79 and 1758.792, Insurance Code. Reference: Sections 1758.75 and 1758.76, Insurance Code.

HISTORY

2. Certificate of Compliance as to 6-30-2006 order transmitted to OAL 8-31-2006 and filed 10-16-2006 (Register 2006, No. 42).

§2194.14. Training.

Note • History

(a) If the training materials required pursuant to Section 1758.72(b) of the Insurance Code have been previously approved by the California Department of Insurance, the applicant is not required to submit the training materials. The applicant instead shall submit a letter, signed by both the fire and casualty broker-agent and by the applicant (or officer of the entity), stating that the applicant will use the approved training materials filed by the fire and casualty broker-agent.

(b) If endorsees of a single licensee doing business under the same name at multiple locations are selling the same insurance product, only one set of training materials need be submitted to the Commissioner for that product.

(c) Insurance products provided by different insurers shall be deemed to be different products for the purpose of these regulations.

NOTE

Authority cited: Sections 1758.7 and 1758.792, Insurance Code. Reference: Section 1758.72, Insurance Code.

HISTORY

2. Certificate of Compliance as to 6-30-2006 order transmitted to OAL 8-31-2006 and filed 10-16-2006 (Register 2006, No. 42).

§2194.15. Records.

Note • History

(a) Records of insurance transactions and other documents required by Article 16.3 (commencing with Section 1758.7) of the Insurance Code and these regulations shall be maintained for at least three (3) years after the expiration or cancellation date of the policy to which the records pertain, except where otherwise specifically authorized by statute or by the Commissioner in regulation.

(b) Records shall be kept in this State, in the principal office of the licensee, except where otherwise specifically authorized by statute or by the Commissioner in regulation.

(c) Records shall be produced for examination by the Commissioner or a designee of the Commissioner within thirty (30) days from the mailing date of a written request. Records may be requested in electronic or written format.

NOTE

Authority cited: Sections 1758.7, 1758.71, 1758.72 and 178.792, Insurance Code. Reference: Sections 1758.7, 1758.71 and 1758.72, Insurance Code.

HISTORY

2. Certificate of Compliance as to 6-30-2006 order transmitted to OAL 8-31-2006 and filed 10-16-2006 (Register 2006, No. 42).

§2194.16. Forms.

Note • History

The following information is required to be filed with the Commissioner by license applicants and licensees:

(a) Form 441-9 for individuals.

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NOTICE: INFORMATION COLLECTION AND ACCESS

Section 1798.17 of the California Civil Code requires the following information to be provided when collecting information from individuals to determine compliance with the group and corporate practice provisions of the law, and to establish positive identification, to match the names of the certified list provided by the Department of Child Support Services to applicants and licensees, and of responding to requests for this information made by child support agencies.

AGENCY: Department of Insurance ADDRESS: 320 Capitol Mall, Sacramento, CA 95814-4309 TELEPHONE NUMBER: (800) 967-9331 or (916) 322-3555

TITLE OF OFFICIAL RESPONSIBLE FOR INFORMATION MAINTENANCE: Chief, Producer Licensing Bureau

AUTHORITY WHICH AUTHORIZES THE MAINTENANCE OF THE INFORMATION: California Insurance Code, Chapters 5, 6, 7, 8-Part 2, Division 1

THE CONSEQUENCES, IF ANY, OF NOT PROVIDING ALL OR PART OF THE REQUESTED INFORMATION: It is mandatory that you provide all information requested. Omission of any item of requested information will result in the application being rejected as incomplete.

THE PRINCIPAL PURPOSE(S) FOR WHICH THE INFORMATION IS TO BE USED: The information requested will be used to determine qualifications for licensure or certification, to determine compliance with the group and corporate practice provisions of the law and to establish positive identification.

EACH INDIVIDUAL HAS THE RIGHT TO REVIEW OWN PERSONAL FILES MAINTAINED BY THE AGENCY SUBJECT TO ANY LIMITATIONS UNDER THE INFORMATION PRACTICES ACT OF 1977, CIVIL CODE SECTION 1798.40, AND EXEMPTIONS UNDER THE CALIFORNIA PUBLIC RECORDS ACT, GOVERNMENT CODE SECTION 6254.

INSTRUCTIONS FOR COMPLETING APPLICATION

RE: “LICENSE TYPE” a separate application is required for each license type requested

RE: “APPLICANT NAME” Enter full legal name. If no middle name, enter (NMN). If any part of your legal name is an initial only, place parentheses around such initial.

RE: “ADDRESS INFORMATION” Do not enter the word “same” in any address area. Enter the appropriate address. P. O. BOX is not acceptable for a resident or business address. Business and mailing addresses are public record and are available to the public. It is the applicants/licensees responsibility to notify the department of any change in address.

RE: “ARE YOU A CITIZEN OF THE UNITED STATES” If no is answered, the applicant must supply a copy of both sides of the work authorization.

RE: “EXAM INFORMATION” Examinations are administered daily, Monday through Friday at 8:30 a.m. and 1:00 p.m., in Los Angeles (LA), San Diego (SD), San Francisco (SF) and Sacramento (SA). An examination is also administered twice monthly in Clovis usually the second and fourth Saturday of the month at 8:30 a.m. If you fail to appear for a scheduled examination, an additional examination fee will be required for rescheduling.

RE: “PREVIOUS LICENSE HISTORY INFORMATION” If currently licensed as a resident in another state, upon becoming a California resident, a clearance letter from the previous state of residence is also required.

RE: “AKA/ALIAS” List previously and currently used aliases and maiden names, if any. If you are currently using an “also known as” (AKA) name which you desire to be noted on record, so state. Abbreviations of true name or “nick” names are not acceptable.

RE: “BACKGROUND QUESTIONS” If you answer yes to any of these questions, you must submit a signed statement, with your original signature summarizing the details of each event. You must also provide the additional certified documentation described with each question.

PRELICENSING EDUCATION REQUIREMENTS: Effective 1/1/92 all new applicants must:

A) take an approved minimum 40-hour class for the fire and casualty broker-agent license exam, and/or;

B) take an approved minimum 40-hour class for the life agent license exam, and/or;

C) take an approved minimum 20-hour class for the personal lines broker-agent license exam,

D) and take an approved minimum 12-hour class on ethics and the California Insurance Code.

An applicant will be taking either 52 hours (40 and 12) or 92 hours (40 and 40 and 12) of prelicensing class hours depending on whether one or both licenses are being sought. The Personal Lines Broker-Agent applicant is required to complete 32 hours (20 and 12) of prelicensing classroom hours. Original certificates must be signed and submitted with the application.

ADDITIONAL FILING REQUIREMENTS:

The following documents are required to be submitted with the application for the specific license types as listed:

MC - Action Notice of Appointment (Form 447-54A (Rev. 03/2006)) from the sponsoring insurance company.

SL - $50,000 bond (Form 447-31 (Rev. 1/2003)) with a properly executed Power of Attorney form attached.

SP - $10,000 bond (Form 447-32 (Rev. 1/2003)) with a properly executed Power of Attorney form attached.

CS - $10,000 bond (Form 447-70 (Rev. 12/2003)) with a properly executed Power of Attorney form attached.

CI - Action Notice of Appointment (Form 447-54A (Rev. 03/2006)) from the sponsoring insurance company and/or Business Entity Endorsement

(Form 411-8A (Rev. 12/2003)) completed by sponsoring Business Entity.

The following documents may be submitted with the initial application. Submitting these documents at a later date will not delay the issuance of your license, however, no authority to transact insurance will be granted until such time as the document has been received. If submitting an online application, these documents are to be submitted after your license is issued:

PF - Action Notice of Appointment (Form 447-54A (Rev. 03/2006)) from the sponsoring fraternal benefit society or association admitted to California.

LX - Action Notice of Appointment (Form 447-54A (Rev. 03/2006)) from the sponsoring insurance company and/or; Business Entity Endorsement (Form 411-8A completed by sponsoring business entity. To be granted variable authority acceptable proof of registration with SECO or NASD must be submitted with application and you must be appointed by an insurer authorized for variable contracts. Failure to submit proof of registration will result in license being issued without variable authority.

TA -Action Notice of Appointment (Form 447-54A (Rev. 03/2006)) from the sponsoring insurance company.

FX/PL - License authority is determined by what documents are submitted. To act as a:

BROKER - $10,000 bond (Form 417-5 (Rev. 10/2002)) with properly executed Power of Attorney form attached and/or Business Entity Endorsement

(Form 411-8A (Rev. 12/2003)) completed by sponsoring Business Entity.

AGENT - Action Notice of Appointment (Form 447-54A (Rev. 03/2006)) from the sponsoring insurance company and/or Business Entity Endorsement (Form 411-8A (Rev. 12/2003)) completed by sponsoring Business Entity.

SOLICITOR - Action Notice of Solicitor (Form 417-31 (Rev. 7/95)) completed by the sponsoring insurance agent or broker.

> To obtain insurance licensing FORMS by mail, send request to: Department of Insurance, 320 Capitol Mall, Sacramento, CA 95814, or you may phone Sacramento toll free at (800) 967-9331 or (916) 322-3555, press 3. Forms are also available on our Web site at http://www.insurance.ca.gov

> To obtain insurance licensing information, you may phone our Sacramento office toll free at (800) 967-9331 or (916) 322-3555. You may also obtain licensing information and a complete list of licensing fees by visiting our Web site at http://www.insurance.ca.gov

> MAIL APPLICATION WITH ATTACHMENTS AND FEES TO: DEPARTMENT OF INSURANCE

P. O. BOX 1139

SACRAMENTO, CA 95812-1139

(b) Form 441-11 for organizations.

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NOTICE: INFORMATION COLLECTION AND ACCESS

AGENCY: Department of Insurance ADDRESS: 320 Capitol Mall, Sacramento, Ca 95814-4309 TELEPHONE NUMBER: (800) 967-9331 or (916) 322-3555

TITLE OF OFFICIAL RESPONSIBLE FOR INFORMATION MAINTENANCE: Chief, Producer Licensing Bureau

AUTHORITY WHICH AUTHORIZES THE MAINTENANCE OF THE INFORMATION: California Insurance Code, Chapters 5, 6, 7, 8-Part 2, Division 1

THE PRINCIPAL PURPOSES (S) FOR WHICH THE INFORMATION IS TO BE USED: The information requested will be used to determine qualifications for licensure or certification, to determine compliance with the group and corporate practice provisions of the law and to establish positive identification.

INSTRUCTIONS FOR COMPLETING BUSINESS ENTITY APPLICATION

RE: “BUSINESS ENTITY TYPE”:

CORPORATION - if already incorporated, attach a copy of your Certificate of Good Standing. If corporation has been formed as a result of a merger, submit a copy of your approved merger papers.

PARTNERSHIP - attach a copy of the partnership agreement (if any). If no agreement, so state on application. The PARTNERSHIP'S FEDERAL IDENTIFICATION NUMBER IS MANDATORY and must be entered in the space shown.

LIMITED LIABILITY COMPANY - attach a copy of your approved articles of organization. Additional requirements are listed on page 4. This documentation must be submitted with your application.

RE: “BUSINESS ENTITY NAME”:

The true business entity name must be entered. Include commas, hyphens, ampersands, etc. This name is subject to disapproval by the Insurance Commissioner.

RE: “FICTITIOUS NAME”:

If you intend to transact insurance in a name other than the true business entity name, enter such fictitious name. This name is subject to disapproval by the Insurance Commissioner.

RE: “DESIGNATED/RESPONSIBLE LICENSED PRODUCER”:

You must list all licensed producers intending to transact on behalf of the business entity. All unlicensed producers intending to transact on behalf of the business entity must complete form 441-9.

RE: “CONTROLLING PERSON”:

Insurance Code Section 1668.5(b), in part, defines a “controlling person” as a person who possesses the power to direct or cause the direction of the management and policies of the business entity.

RE: “BACKGROUND INFORMATION”:

If the answer is “yes” to any of these questions, you must submit required documentation.

RE: “APPLICANT'S CERTIFICATION”:

Partnership - each partner of the partnership must sign. Corporation or Association - an officer having authority to bind the Corporation or Association must sign.

Embedded Graphic 10.0165

A) Licenses are issued for a two-year term, which begins the date the first license is issued to the business entity and ends the last day of that calendar month two years later. Subsequent licenses are issued for the balance of the established license term.

B) Fees: Filing fees are required for each business entity application submitted, except that Surplus Line or Special Lines' fees may vary - see below:

SURPLUS AND SPECIAL LINES' FILING FEES:

1) One filing fee covers the first TWO natural persons named under either of these license types. An additional filing fee is required for each subsequent natural person to be named on the license.

2) Fees collected from one person for either the Surplus Line or Special Lines' license cover that person's fees for both licenses.

C) Total fee due is determined by adding the appropriate filing fees in (A) and (B) above to other applicable fees listed in enclosed fee chart.

> PLEASE REVIEW THE APPLICATION CAREFULLY AFTER COMPLETION. ANY OMISSIONS OR DEFICIENCIES WILL RESULT IN A DELAY IN THE PROCESSING OF YOUR APPLICATION FOR LICENSE.

> MAIL APPLICATION WITH FEES TO: DEPARTMENT OF INSURANCE

P. O. BOX 1139

SACRAMENTO, CA 95812-1139

> DIRECT QUESTIONS REGARDING THIS FILING TO THE PRODUCER LICENSING BUREAU IN SACRAMENTO, (800) 967-9331 or

(916) 322-3555

> ALL FEES ARE FILING FEES AND ARE NOT REFUNDABLE OR TRANSFERABLE, WHETHER OR NOT THE APPLICATION IS ACTED UPON OR THE EXAMINATION TAKEN.

The list of authorized endorsees shall be made on Form Lic. SSA 1. The list shall be maintained in a format capable of transmission to the Commissioner or a designee of the Commissioner electronically and in hard copy or diskette, however requested by the Commissioner or a designee of the Commissioner pursuant to Section 2194.15(c) above. The electronic version shall be transmitted in commercial word-processing or spreadsheet form. When requested, the list shall be updated to include endorsees newly authorized up to thirty (30) days before the mailing date of the request, and shall include the dates upon which each endorsee's authorization began and, if relevant, terminated. It shall then be transmitted as an attachment to the e-mail or by regular mail in hard copy or diskette, as requested.

The appropriate e-mail or regular mailing addresses shall be posted by the Department on its website at http://www.insurance.ca.gov.

Authorized Endorsees -- Self-Service Storage Facility

Form Lic. SSA 1

Producer Licensing Bureau

P.O. Box 1139

Sacramento, CA 95812-1139

Information: (800) 967-9331 Or (916) 322-3555

www.insurance.ca.gov

California Department of Insurance

Self-Service Storage Agent

Authorized Endorsees

Pursuant to CIC Section 1758.72(d)

Effective Date:__________________________

The listed endorsees, having met the training requirements of California Insurance Code Section 1758.72(a) are authorized to offer the following types of insurance in connection with the rental of self-service storage space.

1. Hazard insurance providing coverage to renters for the loss of, or damage to, tangible personal property in storage or in transit during the rental period, only in connection with and incidental to, self-service storage rental agreements.

Note: This form must be completed annually and maintained for a three year period pursuant to CIC section 1758.72(d)

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(d) Form Lic. SSA 2.

The insurer certification shall be made on Form Lic. SSA 2.

Notice of Appointment -- Self-Service Storage Facility

Form Lic. SSA 2

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(e) Form Lic. SSA 3.

Training materials submitted to the Commissioner shall contain all of the elements set forth in Form Lic. SSA 3.

Required Training Elements -- Self-Service Storage Facility

Form Lic. SSA 3

Producer Licensing Bureau

P.O. Box 1139

Sacramento, CA 95812-1139

Information: (800) 967-9331 Or (916) 322-3555

www.insurance.ca.gov

California Department of Insurance

Self-Service Storage Agent

Outline of Required Training Elements

California Insurance Code Section 1758.72(a) requires all self-service storage agents to provide an insurance training program for its employees that shall meet specified minimum requirements. In an effort to assist you with developing your training program, we have provided you with the following checklist of required training elements to be covered in your materials.

1. Section 1758. 72(a)(1) requires that each employee receive instruction about the types of insurance specified in Section 1758.75, as follows, that are offered for sale to prospective renters.

n Insurance that provides hazard insurance coverage to renters for the loss of, or damage to, tangible personal property in storage or in transit during the rental period, and only in connection with, and incidental to, self-service storage rental agreements.

2. Section 1758.72(a)(2) requires that each employee receive training about ethical sales practices. Pursuant to 1758.78 a self-service storage agent shall not do any of the following:

n Offer to sell insurance except in conjunction with, and incidental to, authorized rental agreements.

n Advertise, represent, or otherwise portray itself or its employees as licensed insurers, insurance agents, or insurance brokers.

Section 1758.76(a) states that a licensee shall not sell insurance pursuant to this article unless all of the following conditions are satisfied: The self-service agent provides brochures or other written material to the prospective renter that does all of the following:

n Summarizes the material terms and conditions of coverage offered to renters, including the identity of the insurer.

n Describes the process for filing a claim, including a toll-free telephone number to report a claim.

n Discloses any additional information on the price, benefits, exclusions, conditions, or other limitations of the types of insurance specified in 1758.75 that the commissioner may by rule prescribe in regulation.

n Provide the licensee's name, address, telephone number, and license number and the availability of the department's toll-free consumer hotline.

3. Section 1758.72(a)(3) requires that each employee receive training about the disclosures to be given to prospective renter pursuant to subdivision (b) of Section 1758.76. The self-service storage agent makes all of the following disclosures to the renter, which shall be acknowledged in writing by the renter, or displayed by clear and conspicuous signs that are posted at every location where rental agreements are executed, such as the counter where a renter would sign a rental agreement:

n That the purchase by the renter of the insurance is not required in order to rent storage space. However, the licensee's employees may advise the renter that the self-service storage facility's rental agreement may contain provisions requiring the renter to provide insurance on his or her property in the storage unit.

n That the insurance policies offered by the self-service storage agent may provide a duplication of coverage already provided by a renter's homeowners insurance policy or by another source of coverage.

n That the self-service storage facility and its employees are not qualified or authorized to evaluate the adequacy of the purchaser's existing coverage.

n That if a renter elects to purchase the coverage, evidence of coverage must be stated on the face of the rental agreement or must be provided to the renter.

n That the insurance is provided under an individual, a group, or a master policy issued to the self-service storage agent by an insurer authorized to write the types of insurance specified in Section 1758.75 in this state.

(f) All forms set forth in their entirety in this section are available upon request, by telephone or in writing to the Department of Insurance or on the website of the Department of Insurance at www.insurance.ca.gov.

NOTE

Authority cited: Sections 1758.7 and 1758.792, Insurance Code. Reference: Sections 1758.7, 1758.71 and 1758.72, Insurance Code.

HISTORY

2. Certificate of Compliance as to 6-30-2006 order, including amendments to forms, transmitted to OAL 8-31-2006 and filed 10-16-2006 (Register 2006, No. 42).

§2194.17. Procedures.

Note • History

(a) The following criteria shall apply to procedures employed by the Commissioner in considering and issuing licenses:

(b) The periods set forth above shall be tolled in the event the application requires legal action by the Commissioner.

(c) The California Department of Insurance's median, minimum and maximum times for processing a license from the receipt of the initial completed application to the final license decision, and excluding applications that required legal action by the Commissioner, are as follows:

(1) thirty (30) calendar days (median time),

(2) fourteen (14) calendar days (minimum time),

(3) one (1) calendar year (maximum time)

NOTE

Authority cited: Sections 1758.7 and 1758.792, Insurance Code. Reference: Section 1670, Insurance Code.

HISTORY

2. Certificate of Compliance as to 6-30-2006 order transmitted to OAL 8-31-2006 and filed 10-16-2006 (Register 2006, No. 42).

Article 13. Form of Application for Title Marketing Representative Certificate of Registration

§2194.50. Definitions.

Note • History

As used in this article:

(a) The term “title marketing representative” has the meaning set forth in subdivision (b) of Insurance Code section 12418. “Representative” means “title marketing representative,” as defined in the preceding sentence.

(b) The term “company” means a title insurer, an underwritten title company or a controlled escrow company.

(c) The terms “employment” and “employ” signify any arrangement whereby a representative is authorized to work for a company.

(d) The Department of Insurance is referred to herein as the “Department.”

(e) “Live Scan” is a service provided by vendors authorized by the California Department of Justice whereby fingerprint impressions are electronically scanned and processed in order to perform a criminal record check.

(f) “Live Scan vendor” means any organization identified from time to time by the California Department of Justice as being authorized to collect Live Scan fingerprint impressions. It is possible to locate a Live Scan vendor by contacting the California Department of Justice. It is also possible to schedule an appointment with the Department's contracted Live Scan vendor located at the Department's examination sites; the contact information for the Department's contracted Live Scan vendor can be obtained from the Department's Producer Licensing Bureau.

(g) An “Automated Transaction Identifier” or “ATI” is a character string that is provided by a Live Scan vendor to an applicant whose fingerprint impressions the vendor has scanned and that is used to record, identify and track the applicant's fingerprint data.

(h) The letter and number designations appearing to the left of the headings and the blocks of text within sections indicate the following organizational hierarchy, in descending order of inclusiveness: (a) Subdivision; (1) Paragraph; (A) Subparagraph; 1. item; a. subitem; A. sub-subitem.

NOTE

Authority cited: Sections 12404, 12418, 12418.1, 12418.2 and 12418.3, Insurance Code; CalFarm Ins. Co. v. Deukmejian, 48 Cal.3d 805 (1989); and 20th Century Ins. Co. v. Garamendi, 8 Cal. 4th 216 (1994). Reference: Sections 12404, 12418, 12418.1, 12418.2 and 12418.3, Insurance Code.

HISTORY

1. New article 13 (sections 2194.50-2194.55) and section filed 12-31-2008 as an emergency; operative 1-1-2009 (Register 2009, No. 1). A Certificate of Compliance must be transmitted to OAL by 6-30-2009 or emergency language will be repealed by operation of law on the following day.

2. Certificate of Compliance as to 12-31-2008 order, including new subsection (h) and amendment of Note, transmitted to OAL 6-17-2009 and filed 7-29-2009 (Register 2009, No. 31).

§2194.51. Certification.

Note • History

(a)(1) In order to be employed as a representative, a person must apply to the commissioner to receive a certificate of registration. An applicant must initiate his or her application for a title marketing representative certificate of registration by completing the online application at the Department's website: www.insurance.ca.gov. The information the applicant must provide when completing the online application is specified in subdivision (a) of Section 2194.55.

(2) Within five working days after the applicant submits the online application, the company that is to employ the applicant must use the Department's online business entity services portal referenced in subdivision (c) of Section 2194.55 to notify the Department that the applicant is or will be employed by the company.

(3)(A) The applicant must acknowledge in writing any notification sent within 30 days after the date an applicant completes the online application by the Department concerning an application that is deficient or incomplete, and must do so within 15 calendar days of the date the notification is delivered to the applicant. If the applicant does not so respond within this 15-day period, the applicant's application shall be deemed to be incomplete, shall not be accepted for filing with the Department, and shall be deemed not to be a pending application. In such an event, the applicant's authority to operate on a provisional basis as described in subdivision (c) of this Section 2194.51 shall be automatically suspended, without notice to the applicant or further action by the Department.

(B) If in a written notification sent within 30 days after the date an applicant completes the online application the Department requests that the applicant provide an ATI assigned to the applicant by a Live Scan Vendor, the applicant must provide the ATI in the acknowledgement or response required by subparagraph (a)(3)(A) above. If the applicant fails to provide the ATI, or provides an invalid ATI, in response to the notification sent by the Department, the applicant's application shall be deemed to be incomplete, shall not be accepted for filing with the Department, and shall be deemed not to be a pending application. In such an event the applicant's authority to operate on a provisional basis as described in subdivision (c) of this Section 2194.51 shall be automatically suspended, without notice to the applicant or further action by the Department. The preceding sentence shall be given full force and effect, the timeliness of the applicant's acknowledgement or response pursuant to subparagraph (a)(3)(A) of this Section 2194.51 notwithstanding.

(C) In a written notification sent to an applicant within 30 days after the date the applicant completes the online application the Department may identify as necessary in order to complete, or remedy a deficiency in, the applicant's application such information or documents as are required pursuant to this article. If the Department does not receive any item of information or any document identified in its written notification on or before the date by which the applicant's acknowledgement or response is required to be received pursuant to subparagraph (a)(3)(A) of this Section 2194.51, the applicant's application shall be deemed to be incomplete, shall not be accepted for filing with the Department, and shall be deemed not to be a pending application. In such an event, the applicant's authority to operate on a provisional basis as described in subdivision (b) of this Section 2194.51 shall be automatically suspended, without notice to the applicant or further action by the Department. The preceding sentence shall be given full force and effect, the timeliness of the applicant's acknowledgement or response pursuant to subparagraph (a)(3)(A) of this Section 2194.51 notwithstanding. The following information and documents may be required pursuant to this subparagraph (a)(3)(C):

1. The company's notification of employment required pursuant to paragraph (a)(2) of this Section 2194.51, if the Department has not received such notification.

2. A copy of the applicant's authorization to work in the United States, if required by paragraph (a)(8) of Section 2194.55.

3.a. The written statement, with original signature, specified in subparagraph (a)(11)(A) of Section 2194.55, if required by that subparagraph.

b. Copies of all correspondence sent by the applicant in order to obtain certified copies of the documents specified in subparagraph (a)(11)(A) of Section 2194.55, if such documents are required by that paragraph. However, in lieu of copies of his or her correspondence as specified in the preceding sentence, the applicant may submit the certified copies of the charging documents and court documents that are required by subparagraph (a)(11)(A) of Section 2194.55.

4.a. The written statement, with original signature, specified in subparagraph (a)(11)(B) of Section 2194.55, if required by that subparagraph.

b. Copies of all correspondence sent by the applicant in order to obtain certified copies of the documents specified in subparagraph (a)(11)(B) of Section 2194.55, if such documents are required by that subparagraph. However, in lieu of copies of his or her correspondence as specified in the preceding sentence, the applicant may submit the certified copies of the charging documents and court documents that are required by subparagraph (a)(11)(B) of Section 2194.55.

5.a. The written statement, with original signature, specified in subparagraph (a)(11)(C) of Section 2194.55, if required by that subparagraph.

b. Copies of all correspondence sent by the applicant in order to obtain certified copies of the documents specified in subparagraph (a)(11)(C) of Section 2194.55, if such documents are required by that subparagraph. However, in lieu of copies of his or her correspondence as specified in the preceding sentence, the applicant may submit the certified copies of the charging documents and court documents that are required by subparagraph (a)(11)(C) of Section 2194.55.

6.a. The written statement, with original signature, specified in subparagraph (a)(11)(D) of Section 2194.55, if required by that subparagraph.

b. Copies of all correspondence sent by the applicant in order to obtain certified copies of the documents specified in subparagraph (a)(11)(D) of Section 2194.55, if such documents are required by that subparagraph. However, in lieu of copies of his or her correspondence as specified in the preceding sentence, the applicant may submit the certified copies of the charging documents and court documents that are required by subparagraph (a)(11)(D) of Section 2194.55.

7.a. The written statement, with original signature, specified in subparagraph (a)(11)(E) of Section 2194.55, if required by that subparagraph.

b. Copies of all correspondence sent by the applicant in order to obtain certified copies of the documents specified in subparagraph (a)(11)(E) of Section 2194.55, if such documents are required by that subparagraph. However, in lieu of copies of his or her correspondence as specified in the preceding sentence, the applicant may submit the certified copies of the charging documents that are required by subparagraph (a)(11)(E) of Section 2194.55.

8.a. The written statement, with original signature, specified in subparagraph (a)(11)(F) of Section 2194.55, if required by that subparagraph.

b. Copies of all correspondence sent by the applicant in order to obtain certified copies of the documents specified in subparagraph (a)(11)(F) of Section 2194.55, if such documents are required by that subparagraph. However, in lieu of copies of his or her correspondence as specified in the preceding sentence, the applicant may submit the certified copies of the Notices of Hearing and other documents that are required by subparagraph (a)(11)(F) of Section 2194.55.

9.a. The written statement, with original signature, specified in subparagraph (a)(11)(G) of Section 2194.55, if required by that subparagraph.

b. Copies of all correspondence sent by the applicant in order to obtain certified copies of the documents specified in subparagraph (a)(11)(G) of Section 2194.55, if such documents are required by that subparagraph. However, in lieu of copies of his or her correspondence as specified in the preceding sentence, the applicant may submit the certified copies of the Notices of Hearing or other documents that are required by subparagraph (a)(11)(G) of Section 2194.55.

10. The written statement, with original signature, specified in subparagraph (a)(11)(H) of Section 2194.55, if required by that subparagraph.

11.a. The written statement, with original signature, specified in subparagraph (a)(11)(J) of Section 2194.55, if required by that subparagraph.

b. Copies of all correspondence sent by the applicant in order to obtain copies of the documents specified in subparagraph (a)(11)(J) of Section 2194.55, if such documents are required by that subparagraph. However, in lieu of copies of his or her correspondence as specified in the preceding sentence, the applicant may submit the copies of the Petition, Complaint or other document that commenced the lawsuit or arbitration, and the copy of any official document demonstrating the resolution of the charges or any final judgment, that are required by subparagraph (a)(11)(J) of Section 2194.55.

12. The written statement, with original signature, specified in subparagraph (a)(11)(K) of Section 2194.55, if required by that subparagraph.

(D) In the event that the authority of the applicant to operate on a provisional basis has more than once been suspended pursuant to this Section 2194.51, the applicant shall never again be permitted to operate as a representative on a provisional basis.

(4) A certificate of registration will be valid from the date of issuance up to and including the last day of the month in which the three-year anniversary of the issuance date falls. The certificate of registration will expire on the first day of the following month (hereinafter the “certificate expiration date”), unless it has been renewed at that time.

(b)(1) In order to renew an existing certificate of registration, the representative must apply to the commissioner for renewal of the representative's certificate of registration. Applications for renewal must be completed online at the Department's Website: www.insurance.ca.gov.

(2) A renewed certificate of registration will be valid from the date of renewal up to and including the last day of the month in which the three-year anniversary of the date the certificate was renewed falls. The renewed certificate of registration will expire on the first day of the following month (hereinafter the “renewal expiration date”), unless it has again been renewed at that time.

(3) An expired certificate of registration may be renewed at any time up to and including the one-year anniversary of its certificate expiration date or renewal expiration date, as the case may be. When pursuant to the preceding sentence an expired certificate of registration may no longer be renewed, a person must apply to the commissioner to receive a new certificate of registration pursuant to subdivision (a) of this Section 2194.51 in order to be permitted to operate as a representative.

(c) An applicant who has completed the online application identified in subdivision (a) above shall, pursuant to Insurance Code section 12418.1, be permitted to operate as a representative on a provisional basis, beginning from the date the applicant completes the online application and continuing until either the applicant's authority to operate as a representative on a provisional basis is suspended pursuant to this article or the certificate of registration is issued or denied. However, an applicant who has had a certificate of registration denied, revoked, suspended or otherwise limited shall never be permitted to operate as a representative on a provisional basis.

(d) Only a holder of a valid certificate of registration or an applicant permitted to operate on a provisional basis pursuant to subdivision (c) of this Section 2194.51 may operate as a representative.

NOTE

HISTORY

1. New section filed 12-31-2008 as an emergency; operative 1-1-2009 (Register 2009, No. 1). A Certificate of Compliance must be transmitted to OAL by 6-30-2009 or emergency language will be repealed by operation of law on the following day.

2. Certificate of Compliance as to 12-31-2008 order, including amendment of section and Note, transmitted to OAL 6-17-2009 and filed 7-29-2009 (Register 2009, No. 31).

§2194.52. Fees.

Note • History

(a) An application fee of $200 shall be paid online in order to complete the online application referenced in paragraph (a)(1) of Section 2194.51.

(b)(1) A renewal fee of $200 shall be paid online in order to complete the online renewal application referenced in paragraph (b)(1) of Section 2194.51.

(2) A late renewal fee of $50 shall be paid online in addition to the $200 renewal fee in order to complete the online renewal application when the renewal application is received by the Department after the certificate expiration date or, if applicable, the renewal expiration date, whichever is the later.

(c) The fee to be paid to the Department pursuant to subdivision (a) of this Section 2194.52 must be paid online using one of the following major credit cards: VISA, MasterCard, and American Express.

(d) No application for which the Department does not receive electronic payment of the appropriate fee or fees as specified in this Section 2194.52 shall under any circumstances be accepted for filing.

(e) The applicant is responsible for paying to the Live Scan vendor both the vendor's rolling fee and the criminal history processing fees collected by the California Department of Justice and the Federal Bureau of Investigation.

NOTE

Authority cited: Sections 12404, 12418, 12418.1, 12418.2 and 12418.3, Insurance Code; CalFarm Ins. Co. v. Deukmejian, 48 Cal.3d 805 (1989); and 20th Century Ins. Co. v. Garamendi, 8 Cal. 4th 216 (1994). Reference: Sections 12404, 12418, 12418.1, 12418.2 and 12418.3, Insurance Code.

HISTORY

2. Certificate of Compliance as to 12-31-2008 order, including new subsections (b)(1)-(b)(2), subsection relettering and amendment of Note, transmitted to OAL 6-17-2009 and filed 7-29-2009 (Register 2009, No. 31).

§2194.53. Training.

Note • History

An officer of the company that employs or will employ an applicant for a title marketing representative certificate of registration shall retain a written statement, signed by the officer, certifying that the applicant will be provided training regarding Article 6 (commencing with Section 12404) of Chapter 1 of Part 6 of Division 2 of the Insurance Code, as amended. The signed statement required by the preceding sentence shall be deemed to be part of the applicant's online application. The text of this signed statement shall read as follows: “I certify under penalty of perjury, under the laws of the State of California, that all applicants submitted for employment will be provided training regarding Article 6 (commencing with Section 12404) of the Insurance Code within 60 days of the hiring date or of the date of his or her application, whichever is later” and shall be submitted as part of the online notice of employment referenced in subdivision (c) of Section 2194.55.

NOTE

HISTORY

2. Certificate of Compliance as to 12-31-2008 order, including amendment of section and Note, transmitted to OAL 6-17-2009 and filed 7-29-2009 (Register 2009, No. 31).

§2194.54. Fingerprinting.

Note • History

(a) All applicants who submit a title marketing representative application are required to submit fingerprint impressions by following the procedure specified below.

(1) The applicant must obtain hardcopy of the Department's Live Scan request form either from the Department's contracted Live Scan vendor, in the event the applicant has made an appointment with that vendor, or by downloading and printing the form from the Department's website: insurance.ca.gov.

(2) The applicant must complete the applicants' portion of the Department's Live Scan request form by providing on the form the information specified in subdivision (b) of Section 2194.55.

(3) The applicant must present to a Live Scan vendor the completed Live Scan request form and obtain from that vendor the requisite fingerprint impression services.

(4) The applicant must retain indefinitely the information that will be provided on the Department's Live Scan request form by the Live Scan vendor, including but not limited to the ATI.

(b) Live Scan impressions obtained without providing the Department's Live Scan request form to the Live Scan vendor will not satisfy the requirements of this Section 2194.54, and any ATI provided by a Live Scan vendor to which the applicant did not submit the Department's Live Scan request form at the time of fingerprinting will be deemed invalid for purposes of subparagraph (a)(3)(B) of Section 2194.51.

NOTE

HISTORY

2. Certificate of Compliance as to 12-31-2008 order, including amendment of Note, transmitted to OAL 6-17-2009 and filed 7-29-2009 (Register 2009, No. 31).

§2194.55. Prescribed Form of Application.

Note • History

(a) In order to complete the online application, the applicant shall provide the following information:

(1) Application type. The “application type” of the application to be completed by an applicant for a title marketing representative certificate of registration is “certificate.”

(2) License type. The license type that must be selected in order to apply for a title marketing representative certificate of registration is Title Marketing Representative.

(3) Full legal name.

(4) Residence, business, mailing and email addresses. The business and mailing addresses specified by the applicant are matters of public record and shall be available to the public.

(5) Gender.

(6) Social security number.

(7) Date of birth.

(8) Country of citizenship. In addition to completing the online application, an applicant indicating on the online application that he or she is not a citizen of the United States must submit to the Department's Producer Licensing Bureau a copy of his or her authorization to work in the United States.

(9) Employment history for the previous five years. The applicant must enter the name of each employer, the month and year employment began, the month and year employment ended, and the position held for all employment experiences starting with their current employer and continuing in reverse chronological order through the date that is five years before the date the online application is being completed. The applicant must include any and all full-time employment, part-time employment, self-employment, military service, periods of unemployment, and periods during which the applicant was a full-time student.

(10) Past licensing history. The applicant must account for all current and past insurance licenses he or she has held as a resident or as a non-resident in California or in any other state. For each such license, the applicant must indicate the license type, the state or province that issued the license, the period of time during which the license was or has been held, and whether or not the license is currently in force.

(11) Background information. The applicant must answer “yes” or “no” to the following background questions on the online application:

(A) Have you ever been convicted of a felony?

1. The online application will advise the applicant as follows: “For the purpose of this application, you have been `convicted' if you were ever found guilty by verdict of a judge or jury; and/or ever entered a plea of guilty, nolo contendere or no contest. You must disclose all convictions, even if the charges were later dismissed or expunged, your guilty plea was withdrawn pursuant to Penal Code Section 1203.4, or you were placed on probation, received a suspended sentence or just ordered to pay a fine. If you fail to disclose all convictions, your application may be denied. You may exclude juvenile offenses tried in juvenile court.”

2. If the answer to the above background question is “Yes,” the applicant, in addition to completing the online application, must submit to the Department's Producer Licensing Bureau:

a. a written statement, with original signature, explaining the circumstances of each conviction or charge; and

b. certified copies of the charging documents, and of the court documents which detail the conviction, resolution of the charges, probation and any final judgment.

An applicant who is required to submit any such certified copy but who does not have it at his or her disposal must retain for his or her records copies of the correspondence the applicant sends to the court or other source of documents in order to obtain the required certified copy. Failure to provide to the Department either copies of this correspondence, or the required certified copies of the charging documents and court documents, upon the Department's request shall result in the applicant's application being deemed incomplete and the suspension of the applicant's authority to operate as a representative on a provisional basis. The online application will advise the applicant of the requirement that, unless and until the required certified copies of the charging documents and court documents are in his or her possession, the applicant must retain copies of this correspondence and that the applicant may lose his or her provisional authority if he or she fails to furnish such copies upon request.

(B) Have you ever been convicted of a felony involving dishonesty or breach of trust?

1. a. The online application will advise the applicant as follows: Federal law (18 U.S.C. 1033) prohibits anyone who has been convicted of a felony involving dishonesty or a breach of trust or who has been convicted of any violation of 18 U.S.C. 1033 from conducting the business of insurance unless they have obtained the written consent of the Insurance Commissioner. It is a violation of this statute to conduct business of insurance without the Commissioner's written consent. If you have been convicted of a felony involving dishonesty or a breach of trust or a violation of 18 U.S.C. 1033, you must attach a copy of this consent. If you have not obtained this written consent you must do so prior to filing your application.

b. If the answer to the above background question is “Yes,” the applicant must further answer “yes” or “no” to the following question: “Have you received consent from the Insurance Commissioner?”

2. a. The online application will advise the applicant as follows: “For the purpose of this application, you have been `convicted' if you were ever found guilty by verdict of a judge or jury; and/or ever entered a plea of guilty, nolo contendere or no contest. You must disclose all convictions, even if the charges were later dismissed or expunged, your guilty plea was withdrawn pursuant to Penal Code Section 1203.4, or you were placed on probation, received a suspended sentence or just ordered to pay a fine. If you fail to disclose all convictions, your application may be denied. You may exclude juvenile offenses tried in juvenile court.”

b. If the answer to the question “Have you ever been convicted of a felony involving dishonesty or breach of trust?” is “Yes,” the applicant, in addition to completing the online application, must submit to the Department's Producer Licensing Bureau:

A. a written statement, with original signature, explaining the circumstances of each conviction or charge; and

B. certified copies of the charging documents, and of the court documents which detail the conviction, resolution of the charges, probation and any final judgment.

2. If the answer to the above background question is “Yes,” the applicant, in addition to completing the online application, must submit to the Department's Producer Licensing Bureau:

a. a written statement, with original signature, explaining the circumstances of each conviction or charge; and

b. certified copies of the charging documents, and of the court documents which detail the conviction, resolution of the charges, probation and any final judgment.

(D) Have you ever been convicted of a military offense?

2. If the answer to the above background question is “Yes,” the applicant, in addition to completing the online application, must submit to the Department's Producer Licensing Bureau:

a. a written statement, with original signature, explaining the circumstances of each conviction or charge; and

b. certified copies of the charging documents, and of the court documents which detail the conviction, resolution of the charges, probation and any final judgment.

(E) Are you currently charged with committing a crime?

1. The online application will advise the applicant as follows: “`Crime' includes a felony, a misdemeanor or a military offense. You may exclude traffic citations but must include driving offenses such as, but not limited to, reckless driving, driving under the influence and driving with a suspended license.”

2. If the answer to the above background question is “Yes,” the applicant, in addition to completing the online application, must submit to the Department's Producer Licensing Bureau:

a. a written statement, with original signature, explaining the circumstances of each charge; and

b. certified copies of the charging documents.

An applicant who is required to submit any such certified copy but who does not have it at his or her disposal must retain for his or her records copies of the correspondence the applicant sends to the court or other source of documents in order to obtain the required certified copy. Failure to provide to the Department either copies of this correspondence, or the required certified copies of the charging documents, upon the Department's request shall result in the applicant's application being deemed incomplete and the suspension of the applicant's authority to operate as a representative on a provisional basis. The online application will advise the applicant of the requirement that, unless and until the required certified copies of the charging documents are in his or her possession, the applicant must retain copies of this correspondence and that the applicant may lose his or her provisional authority if he or she fails to furnish such copies upon request.

(F) Have you ever been involved in an administrative proceeding (including matters with the Department of Insurance) regarding any professional or occupational license?

1. The online application will advise the applicant as follows: “`Involved' means having a license censured, suspended, revoked, cancelled, terminated; or being assessed a fine, placed on probation or surrendering a license to resolve an administrative action. `Involved' also means being named a party to an administrative or arbitration proceeding which is related to a professional or occupational license. `Involved' also means having a license application denied or the act of withdrawing an application to avoid denial. You may exclude terminations due solely to noncompliance with continuing education requirements or failure to pay a renewal fee.”

2. If the answer to the above background question is “Yes,” the applicant, in addition to completing the online application, must submit to the Department's Producer Licensing Bureau:

a. a written statement, with original signature, explaining the circumstances of each disciplinary incident; and

b. certified copies of the Notices of Hearing or other documents that state the charges and allegations, and of the documents which demonstrate the resolution of the charges or any final judgment.

An applicant who is required to submit any such certified copy but who does not have it at his or her disposal must retain for his or her records copies of the correspondence the applicant sends to the court or other source of documents in order to obtain the required certified copy. Failure to provide to the Department either copies of this correspondence, or the required certified copies of the Notices of Hearing and other documents, upon the Department's request shall result in the applicant's application being deemed incomplete and the suspension of the applicant's authority to operate as a representative on a provisional basis. The online application will advise the applicant of the requirement that, unless and until the required certified copies of the Notices of Hearing and other documents are in his or her possession, the applicant must retain copies of this correspondence and that the applicant may lose his or her provisional authority if he or she fails to furnish such copies upon request.

(G) Has any business in which you were an owner, partner, officer or director ever been involved in an administrative proceeding (including matters with the Department of Insurance) regarding any professional or occupational license?

2. If the answer to the above background question is “Yes,” the applicant, in addition to completing the online application, must submit to the Department's Producer Licensing Bureau:

a. a written statement, with original signature, explaining the circumstances of each disciplinary incident; and

b. certified copies of the Notices of Hearing or other documents that state the charges and allegations, and of any documents which demonstrate the resolution of the charges or any final judgment.

An applicant who is required to submit any such certified copy but who does not have it at his or her disposal must retain for his or her records copies of the correspondence the applicant sends to the court or other source of documents in order to obtain the required certified copy. Failure to provide to the Department either copies of this correspondence, or the required certified copies of the Notices of Hearing or other documents, upon the Department's request shall result in the applicant's application being deemed incomplete and the suspension of the applicant's authority to operate as a representative on a provisional basis. The online application will advise the applicant of the requirement that, unless and until the required certified copies of the Notices of Hearing or other documents are in his or her possession, the applicant must retain copies of this correspondence and that the applicant may lose his or her provisional authority if he or she fails to furnish such copies upon request.

(H) Has any demand been made or judgment rendered against you for any overdue monies by an insurer, insured, or producer, or have you ever been subject to a bankruptcy proceeding?

1. The online application will advise the applicant as follows: “Include only bankruptcies that involve funds held on behalf of others.”

2. If the answer to the above background question is “Yes,” the applicant, in addition to completing the online application, must submit to the Department's Producer Licensing Bureau a statement, with an original signature, summarizing the details of the indebtedness and arrangements for repayment, and/or type and location of bankruptcy.

(I) Have you ever been notified by any jurisdiction of any delinquent tax obligation that is not the subject of a repayment agreement?

If the answer to the above question is “Yes,” the applicant must identify all such jurisdictions on the online application.

(J) Are you currently a party to or have you ever been found liable in any lawsuit or arbitration proceeding involving allegations of fraud, misappropriation or conversion of funds, misrepresentation or breach of fiduciary duty?

1. If the answer to the above question is “Yes,” the applicant, in addition to completing the online application, must for each such lawsuit or proceeding submit to the Department's Producer Licensing Bureau:

a. a written statement, with original signature, summarizing the details of the incident;

b. a copy of the Petition, Complaint, or other document that commenced the lawsuit or arbitration; and

c. a copy of any official document which demonstrates the resolution of the charges or any final judgment.

2. An applicant who is required to submit a copy of any document required pursuant to subitem (a)(11)(J)1.b. or (a)(11)(J)1.c. above but who does not have such a copy at his or her disposal must retain for his or her records copies of the correspondence the applicant sends to the court or other source of documents in order to obtain the copy of the document that is required pursuant to subitem (a)(11)(J)1.b. or (a)(11)(J)1.c. Failure to provide to the Department either copies of this correspondence, or the copies of the documents that are required pursuant to subitem (a)(11)(J)1.b. or (a)(11)(J)1.c, upon the Department's request shall result in the applicant's application being deemed incomplete and the suspension of the applicant's authority to operate as a representative on a provisional basis. The online application will advise the applicant of the requirement that, unless and until the copies of the documents that are required pursuant to subitem (a)(11)(J)1.b. or (a)(11)(J)1.c are in his or her possession, the applicant must retain copies of this correspondence and that the applicant may lose his or her provisional authority if he or she fails to furnish such copies upon request.

(K) Have you or any business in which you are or were an owner, partner, officer, or director ever had an insurance agency contract or any other business relationship with an insurance company terminated for any alleged misconduct?

If the answer to the above question is “Yes,” the applicant, in addition to completing the online application, must for each such termination submit to the Department's Producer Licensing Bureau:

1. a written statement, with original signature, summarizing the details of the incident and explaining why the applicant feels this incident should not prevent him or her from receiving a title marketing representative certificate of registration; and,

2. copies of any relevant documents.

(12) Applicant's certification. The applicant must certify the under penalty of perjury that the applicant had read the online application, that the applicant knows the contents of the information he or she has provided on the online application, and that each statement made on the online application is full, true and correct. The required certification includes language indicating that the applicant understands that pursuant to section 1738, and subdivision (h) of section 1668, of the Insurance Code, any false statement made on the application or any document filed in support thereof may subject the applicant's application to denial and may subject the applicant's certificate to suspension or revocation.

(b) The applicant shall complete the applicant's portion of the Department's Live Scan request form to be provided to a Live Scan vendor as specified in Section 2194.54. The applicant must provide the following information on the Live Scan request form:

(1) Full legal name;

(2) Any former names or aliases;

(3)(A) Date of birth,

(B) Gender,

(D) Weight,

(E) Eye color

(F) Hair color, and

(G) Place of birth;

(4) Social security number;

(5) Driver's license number;

(6) Daytime telephone number; and

(7) Residence address.

(c) Companies shall use the Department's online business entity services portal to provide the notice of employment, and the notice of termination, of a representative as required by subdivision (f) of section 12418.1 of the Insurance Code. The Department's online business entity services portal is accessible via the Department's website: www.insurance.ca.gov.

(1) A company must register to use the Department's online business entity services portal by specifying the following information:

(A) The company's National Association of Insurance Commissioners number or the company's California identification number;

(B) The company's Federal Employer Identification Number (FEIN);

1. the name of the contact person,

2. the title of the contact person,

3. the telephone number of the contact person, and

4. the email address of the contact person;

(2) The company's designated contact person must specify:

(A) a username selected by the contact person,

(B) a password known only to the contact person, and

(C) for security purposes, a security question and an answer to that security question that are known only to the contact person.

(d) Renewal of certificate

(1) The representative must provide the following information when completing the online renewal application referenced in Paragraph (b)(1) of Section 2194.51:

(A) 1.a. the certificate number that is printed on his or her title marketing representative certificate of registration, and

b. the renewal ID specified in the renewal notice referenced in Paragraph (d)(3) below of this Section 2194.55; or

2.a. the certificate number that is printed on his or her title marketing representative certificate of registration,

b. his or her date of birth, and

c. the last four digits of his or her social security number.

(B) The applicant must answer the background questions stated below.

1.a. Have you been the subject of any administrative disciplinary action since your last previous application for, or renewal of, the title marketing representative certificate of registration?

b. If the answer to the above background question is “Yes,” the applicant, in addition to completing the online application, must submit the following to the Department's Producer Licensing Bureau, and will be so informed by the online renewal application:

A. a written statement, with original signature, explaining the circumstances of each disciplinary incident; and

B. certified copies of the Notices of Hearing or other documents that state the charges and allegations, and of the documents which demonstrate the resolution of the charges or any final judgment.

2.a. Have you been convicted of, or charged with, a crime since your last previous application or renewal?

b. The online application will advise the applicant as follows: “For the purpose of this application, a `crime' includes any felony, misdemeanor or military offense. For the purpose of this application, you have been `convicted' if you were found guilty by a verdict of a judge or jury, entered a plea of nolo contendere, had any charge expunged, dismissed or plea withdrawn pursuant to Penal Code section 1203.4, were placed on probation, received a suspended sentence or just ordered to pay a fine. You may exclude traffic citations. You must answer `Yes' if you have been convicted of a driving offense constituting a felony or misdemeanor including, but not limited to, reckless driving, driving under the influence and driving with a suspended license, whether or not you spent any time in jail, and whether or not you believe the conviction has been removed from your license.”

c. If the answer to the background question stated in subitem (d)(1)(B)2.a. above is “Yes,” the applicant must submit the following to the Department's Producer Licensing Bureau, and will be so informed by the online renewal application:

A. a written statement, with original signature, explaining the circumstances of each conviction or charge; and

B. certified copies of the charging documents and, if such court documents exist, certified copies of the court documents which detail the conviction, resolution of the charges, probation and any final judgment.

(2) Applicant's certification

The applicant must certify under penalty of perjury that he or she is the certificate holder he or she represents himself or herself to be, that he or she has read the foregoing renewal application, that he or she knows the contents thereof and that each statement made by him or her on the application and on any document that is or will be filed in support thereof is full, true and correct.

(3) Renewal notice

By doing both of the following not less than 60 days before a certificate is to expire, the Department shall fulfill the requirement stated in Subdivision (b) of Insurance Code section 12418.3 that it mail to the representative a renewal application:

(A) The Department shall email to the representative's most recent email address on record with the Department a renewal notice containing a link to the online renewal application; and

(B) The Department shall, by means of its online business entity services portal, email the renewal notice to the company having most recently notified the Department that it has employed the representative pursuant to Paragraph (a)(2) of Section 2194.51 or Subdivision (c) of this Section 2194.55.

NOTE

HISTORY

2. Certificate of Compliance as to 12-31-2008 order, including amendment of section and Note, transmitted to OAL 6-17-2009 and filed 7-29-2009 (Register 2009, No. 31).

Subchapter 1.5. Advisory Organizations, Policy and Bond Form Approval

Article 1. Submission and Approval Procedures; Fees

§2195.1. Authority and Scope.

Note • History

This subchapter is promulgated pursuant to Insurance Code sections 1855.1 through 1855.5. This subchapter shall only apply to advisory organizations and shall not be construed to require or permit advisory organizations to submit any documents to the Department of Insurance not provided for in the Insurance Code, or other subchapters of the California Code of Regulations. This subchapter shall be in addition to, and shall not apply to, any action or proceedings under Insurance Code sections 1858 through 1858.7.

NOTE

Authority cited: Section 12921, Insurance Code; and CalFarm Insurance Company, et al. v. Deukmejian, et al. (1989) 48 Cal.3d 805, 824. Reference: Sections 1855.1 through 1855.5, Insurance Code.

HISTORY

1. New section filed 10-5-90 as an emergency; operative 10-5-90 (Register 90, No. 45). A Certificate of Compliance must be transmitted to OAL by 2-4-90 or emergency language will be repealed by operation of law on the following day.

2. New section refiled 2-4-91 as an emergency; operative 2-4-91 (Register 91, No. 7). A Certificate of Compliance must be transmitted to OAL by 6-4-91 or emergency language will be repealed by operation of law on the following day.

3. Certificate of Compliance as to 2-4-91 order transmitted to OAL 5-17-91 and filed 6-17-91 (Register 91, No. 36).

§2195.2. Definitions.

Note • History

(a) “Advisory organization” means every person other than an individual admitted insurer who:

(1) develops or prepares policy or bond forms, carries on research relative to the development and preparation of policy and bond forms for use in California by insurers, or who collects, compiles, or disseminates to insurers historical data on paid claims or reserves for reported claims, or related statistical information or data for actuarial analysis and acts in an advisory, as distinguished from a ratemaking, capacity and

(2) has filed with the Commissioner

(A) a copy of its constitution, articles of incorporation, agreement of association, and of its by-laws, or rules and regulations governing its activities,

(B) a list of its members and subscribers, and

(C) the name and address of a resident of this State upon whom notices or orders of the Commissioner or process may be served.

(b) “Applicant” means any advisory organization as defined in this subchapter applying for approval of a policy or bond form pursuant to California Insurance Code section 1855.5.

(c) “Application” means the transmittal letter and policy or bond form and other documentation which every advisory organization seeking approval of a policy or bond form pursuant to California Insurance Code section 1855.5(a) must file with the Form Filing Office. All applications must comply with sections 2195.2, 2195.3, 2195.4 and 2195.5 of this subchapter.

(d) “Form Filing Office” means that office within the office of the Insurance Commissioner in San Francisco designated for receipt of all applications filed pursuant to this subchapter. Facsimile transmissions and plastic bound documents shall not be filed with the Form Filing Office.

(e) “Policy or bond form” means any insurance policy, contract, rider, endorsement, insert policy page, or surety or guaranty bond developed or prepared by an advisory organization first printed on or after January 1, 1990, and made available for use by insurers on risks or operations in California as defined in Insurance Code section 1855.1.

(f) “First printed on or after January 1, 1990” means any form that was not printed and made available for use by insurers on risks or operations in California as defined in Insurance Code section 1855.1 by an advisory or rating organization prior to January 1, 1990.

(g) “Transmittal Letter” means the correspondence accompanying the policy or bond form filed for approval. Every transmittal letter shall comply with the requirements of section 2195.4(b).

(h) “Submission” means acceptance for review of a filed application by the Form Filing Office. The date of submission shall be the date an application is accepted for review pursuant to section 2196.1(b).

NOTE

Authority cited: Section 12921, Insurance Code; and CalFarm Insurance Company, et al. v. Deukmejian, et al. (1989) 48 Cal.3d 805, 824. Reference: Sections 1855.1, 1855.2, 1855.3, 1855.5 and 1855.5(a), Insurance Code.

HISTORY

3. Certificate of Compliance as to 2-4-91 order transmitted to OAL 5-17-91 and filed 6-17-91 (Register 91, No. 36).

§2195.3. Fees.

Note • History

(a) A one hundred dollar ($100.00) fee shall be paid at the time an application is filed for submission.

(b) Applications which are not accompanied by the appropriate fee shall be rejected.

NOTE

Authority cited: Section 12921, Insurance Code; and CalFarm Insurance Company, et al. v. Deukmejian, et al. (1989) 48 Cal.3d 805, 824. Reference: Sections 1855.5 and 12973.9, Insurance Code.

HISTORY

3. Certificate of Compliance as to 2-4-91 order including amendment to subsections (a) and (b) transmitted to OAL 5-17-91 and filed 6-17-91 (Register 91, No. 36).

§2195.4. Filing Requirements.

Note • History

All policy or bond forms developed or prepared by an advisory organization first printed on or after January 1, 1990, shall be filed with the Form Filing Office, in compliance with the following standards:

(a) All policy or bond forms shall be filed together with a transmittal letter.

(b) Every transmittal letter shall include the following information:

(1) Name and address of advisory organization

(2) Name, address and telephone number of contact person

(3) Title of form submitted

(4) Form number

(5) A general description of the form submitted

(6) Whether the form revises another form previously published by the advisory organization, and if so identifying the form or forms

(7) Whether the form revises another form previously filed with or approved by the Commissioner, and if so identifying the form or forms

(8) The fee indicated by section 2195.3(a).

(d) All filings shall include an original and three (3) copies of the application. Any person desiring an acknowledgement of the filing of an application must so request in their transmittal letter and must furnish an extra copy of the application together with a self-addressed envelope with postage fully prepaid.

(e) Applications filed pursuant to this subchapter shall be typewritten or printed on paper 8-1/2 inches wide and 11 inches long except that forms or exhibits annexed thereto of a larger size shall be folded to the 8-1/2 inches wide and 11 inches long size. Unless pre-printed, the impression shall be on one side of the paper only. Pages of documents shall be consecutively numbered and fastened together in any suitable manner except plastic binding. Reproduction may be by any process, except facsimile machine, provided that all copies are clear and legible.

(f) All proposed policy(ies), form(s) or endorsement(s) must be submitted in an easily readable condition. Printer's proofs, typewritten or photostatic copies, or other legible copies, other than by facsimile transmission, will be accepted. Plastic bound documents will not be accepted.

(g) Any employee of an advisory organization may submit an application on behalf of a advisory organization, provided that the transmittal letter is on the advisory organization's letterhead and is signed in ink and indicates the name and title of the employee.

NOTE

Authority cited: Section 12921, Insurance Code; and CalFarm Insurance Company, et al. v. Deukmejian, et al. (1989) 48 Cal.3d 805, 824. Reference: Sections 1855.2, 1855.5, 1855.5(a) and 12973.9, Insurance Code.

HISTORY

3. Certificate of Compliance as to 2-4-91 order transmitted to OAL 5-17-91 and filed 6-17-91 (Register 91, No. 36).

§2195.5. Information Requirements.

Note • History

(a) Each application shall include the following, if applicable:

(1) if the application relates to a new program or line of business, the applicant shall provide a written explanation of the purpose and intent of the new product;

(2) if the application is a revision or replacement of a previously approved form or a form previously made available to insurers for use in California, the application must describe each revision or replacement and the reasons for each revision or replacement, and must include copies of the revised or replaced form;

(3) if the application is a revision of a previously approved form or a form previously made available to insurers for use in California, the application must show a comparison of the new words with the words being replaced or, in lieu of this, bracket [] the words or matter to be omitted and underline the words or matter to be added on a separate copy of the form. The filing of a revised form or forms must fully describe the intended effect(s) of each element of the revision;

(4) if the application is for a form (such as a rider) which is designed to be used with another document (such as a policy), reference to the document or the type of document with which it is intended to be used shall be made, or, in lieu of this, a copy of the document or a sample of the type of document with which it is intended to be used may be included; a copy of the document or a sample of the type of document shall be provided upon request by the Department;

(5) if the application is submitted to respond or comply with a particular statute, case or decision, reference shall be made thereto including either a citation or a copy of the statute, case or decision.

(b) Any information required by section 2195.5(a) may be included in the transmittal letter or in a separate memorandum. If provided in a separate memorandum, the memorandum shall be attached to the transmittal letter.

(c) Applicants shall be required to provide such additional information as the Commissioner may require for purposes of review.

NOTE

Authority cited: Section 12921, Insurance Code; and CalFarm Insurance Company, et al. v. Deukmejian, et al. (1989) 48 Cal.3d 805, 824. Reference: Sections 1855.2 and 1855.5(a), Insurance Code.

HISTORY

3. Certificate of Compliance as to 2-4-91 order transmitted to OAL 5-17-91 and filed 6-17-91 (Register 91, No. 36).

§2195.6. Service and Computation of Time.

Note • History

Whenever a writing is due from the Commissioner, an applicant or any other person, it may be served by mail or in person in accordance with the procedures set forth in section 2197.2(f) and the time for service shall be computed in accordance with section 2197.2(1).

NOTE

Authority cited: Section 12921, Insurance Code; and CalFarm Insurance Company, et al. v. Deukmejian, et al. (1989) 48 Cal.3d 805, 824. Reference: Section 1855.5, Insurance Code.

HISTORY

3. Certificate of Compliance as to 2-4-91 order transmitted to OAL 5-17-91 and filed 6-17-91 (Register 91, No. 36).

Article 2. Actions on Approval

§2196.1. Review of Application.

Note • History

(a) The Insurance Department may review any submitted application to determine whether or not the policy or bond form contents or the use thereof would be inconsistent with the Insurance Code or would result in activities and practices by insurers that are unfair, unreasonable or otherwise inconsistent with the Insurance Code.

(b) Within fifteen days of receipt by the Department, applications which are not in compliance with applicable procedural requirements of this subchapter or which the Commissioner chooses not to review, may be rejected. A rejection shall constitute an act by the Commissioner on the policy or bond form application and no application that has been rejected shall be deemed approved. In the case of a rejection, the Commissioner shall notify the applicant in writing of the reason(s) for the rejection. Acceptance of a application is not a determination that the application complies with all requirements and shall not constitute a waiver of any requirements.

(d) A rejection shall be effective on the date it is served.

NOTE

Authority cited: Section 12921, Insurance Code; and CalFarm Insurance Company, et al. v. Deukmejian, et al. (1989) 48 Cal.3d 805, 824. Reference: Section 1855.5(a) and (b), Insurance Code.

HISTORY

1. New section filed 10-5-90 as an emergency; operative 10-5-90 (Register 90, No. 45). A Certificate of Compliance must be transmitted to OAL by 2-4- 90 or emergency language will be repealed by operation of law on the following day.

2. New section refiled 2-4-91 as an emergency operative 2-4-91 (Register 91, No. 7). A Certificate of Compliance must be transmitted to OAL by 6-4-91 or emergency language will be repealed by operation of law on the following day.

3. Certificate of Compliance as to 2-4-91 order transmitted to OAL 5-17-91 and filed 6-17-91 (Register 91, No. 36).

4. Editorial correction of printing error in subsection (b) (Register 91, No. 46).

§2196.2. Approval of Applications.

Note • History

(a) Reviewed applications shall be approved if the Commissioner determines that the policy or bond form contents or the use thereof would be consistent with the Insurance Code and would not result in activities and practices by insurers that are unfair, unreasonable or otherwise inconsistent with the Insurance Code.

(b) Approvals shall be in writing, served on the applicant.

NOTE

Authority cited: Section 12921, Insurance Code; and CalFarm Insurance Company, et al. v. Deukmejian, et al. (1989) 48 Cal.3d 805, 824. Reference: Section 1855.5(a), Insurance Code.

HISTORY

3. Certificate of Compliance as to 2-4-91 order transmitted to OAL 5-17-91 and filed 6-17-91 (Register 91, No. 36).

§2196.3. Disapproval.

Note • History

(a) The Commissioner may disapprove any policy or bond forms which are unfair, unreasonable, or otherwise inconsistent with the provisions of the Insurance Code.

(b) If the Commissioner reviews an application and determines that the application should be disapproved, the Commissioner shall issue a Notice of Determination to Hold Hearing. A Notice of Determination to Hold Hearing shall set forth the basis for disapproval.

(1) modify, supplement, amend or withdraw the application,

(2) acknowledge receipt of the notice and request a hearing pursuant to section 2197.1, or

(3) waive the right to a hearing and accept the disapproval. All elections must be written and filed. An applicant who fails to so elect will be deemed to have requested a hearing.

(d) Absent good cause, hearings shall ordinarily commence within 45 days of service of a request for hearing. The time period set forth in this section is directory, not mandatory.

(e) Service of a Notice of Determination to Hold Hearing shall constitute an act by the Commissioner on the policy or bond form application. No policy or bond form application shall be deemed approved after a Notice of Determination to Hold Hearing has been served.

NOTE

Authority cited: Section 12921, Insurance Code; and CalFarm Insurance Company, et al. v. Deukmejian, et al. (1989) 48 Cal.3d 805, 824. Reference: Section 1855.5(b), Insurance Code.

HISTORY

1. New section filed 10-5-90 as an emergency; operative 10-5-90 (Register 90, No. 45). A Certificate of Compliance must be transmitted to OAL by 2-4- 90 or emergency language will be repealed by operation of law on the following day.

3. Certificate of Compliance as to 2-4-91 order transmitted to OAL 5-17-91 and filed 6-17-91 (Register 91, No. 36).

4. Editorial correction of printing error in subsection (b) (Register 91, No. 46).

§2196.4. Revocation of Approval.

Note • History

(a) Approval of a policy or bond form application may be revoked for good cause, after a hearing is held as set forth in article 3 of this subchapter. Good cause to revoke approval shall include forms that by their contents or as utilized are unfair, unreasonable or otherwise inconsistent with the provisions of the Insurance Code.

(b) Revocations of approvals shall be in writing, served on the applicant.

NOTE

Authority cited: Section 12921, Insurance Code; and CalFarm Insurance Company, et al. v. Deukmejian, et al. (1989) 48 Cal.3d 805, 824. Reference: Sections 1855.5(a) and (b), Insurance Code.

HISTORY

3. Certificate of Compliance as to 2-4-91 order transmitted to OAL 5-17-91 and filed 6-17-91 (Register 91, No. 36).

Article 3. Hearing Procedures

§2197.1. Definitions.

Note • History

In addition to the definitions set forth in section 2195.2, the following definitions shall apply:

(a) “Certificate of Service” means a statement, signed under penalty of perjury under the laws of California by a person at least 18 years of age and not a party to the proceeding, containing the names and addresses of all parties to the proceeding, indicating the date, place and manner of service to all parties to the proceeding of the pleading or other document a copy of which is attached. An employee of a party may sign a certificate of service.

(b) “Day” means a calendar, not business day.

(c) “Pleading” means any petition, notice of defense, withdrawal of application, waiver of hearing, notice of hearing, notice of determination to hold hearing, acknowledgement of notice of determination to hold hearing and request for hearing, petition to intervene, any motion or other formal filing made as part of a proceeding held pursuant to this subchapter. An application is not a pleading.

(d) “Proceeding” means any hearing conducted pursuant to Insurance Code section 1855.5.

(e) “Filing Office” means that office within the office of the Insurance Commissioner in San Francisco, designated for receipt of all pleadings filed pursuant to this subchapter. Facsimile transmissions and plastic bound documents shall not be submitted to the Filing Office.

NOTE

Authority cited: Section 12921, Insurance Code; and CalFarm Insurance Company, et al. v. Deukmejian, et al. (1989) 48 Cal.3d 805, 824. Reference: Section 1855.5, Insurance Code.

HISTORY

3. Certificate of Compliance as to 2-4-91 order transmitted to OAL 5-17-91 and filed 6-17-91 (Register 91, No. 36).

§2197.2. Procedural Requirements.

Note • History

(a) Form and Size. Pleadings and other documents submitted pursuant to this subchapter other than applications shall be typewritten or printed on paper 8-1/2 inches wide and 11 inches long. Exhibits annexed thereto shall be folded to the same size. Unless preprinted, the impression shall be on one side of the paper only and shall be double-spaced, except that footnotes and quotations in excess of a few lines may be single-spaced. Pages of documents shall be consecutively numbered and fastened together without cover in any suitable manner other than plastic binding. Reproduction may be by any process, except facsimile machine, provided that all copies are clear and legible.

(b) Title and File Number. The first page of any document submitted for filing shall show the full name, mailing address and telephone number of the person submitting it or that person's attorney, if any, the caption of the proceeding, the Department proceeding number (if assigned), and the title of the document. Sufficient space in the upper right-hand corner shall be left blank for a date stamp.

Documents initiating new proceedings shall have a blank space for the Department to insert the proceeding number.

A Sample form appears in article 16 of subchapter 4.5, section 2630.2.

(c) Signatures. The original of each pleading shall be signed in ink by each person or their attorney. If the person is a corporation or association, the document shall be signed by an officer. any attorney for or other representative shall show his or her address and telephone number.

(d) Verification. Petitions, answers, notices of defenses or amendments thereto shall be verified. If the party filing such pleadings is a corporation or association, the pleading must be verified by and officer.

Verification may be made before a notary public or by declaration under penalty of perjury under California law.

A sample verification form appears in article 16 of subchapter 4.5, sections 2630.9 - 2630.11.

(e) Signature and Verification by Attorney. The attorney for a party may sign and verify any pleading if the party is absent from the county where the attorney's office is located, or for some other reason is unable to sign and verify the pleading. When a pleading is signed and verified by an attorney, the attorney shall set forth in a declaration the reasons why the verification is not made by the party.

(f) Service of Pleadings. Whenever a pleading or other document is filed with the Insurance Commissioner, a certificate of service shall be attached thereto, indicating the date a copy was served on all other parties. The original certificate shall be submitted to the Insurance Commissioner and shall include a list of the name and addresses of the persons served.

A sample certificate of service form appears in article 16 of subchapter 4.5, section 2630.12.

(g) Copies. Unless otherwise required by the Insurance Commissioner, there shall be filed with the Insurance Commissioner an original and four copies of each pleading or other document other than an application, filed pursuant to this subchapter.

(h) Amended Pleadings. Amended pleadings may be filed provided they are served upon all parties at least 10 days before the hearing. Thereafter, pleadings may be amended as permitted or directed by the hearing officer.

(i) Place of Filing. Unless otherwise directed, all pleadings and other documents other than applications filed pursuant to this subchapter shall be filed with the Filing Office in San Francisco.

(j) Rejection of Documents. Pleadings which are not in substantial compliance with applicable statutes, these regulations, or an order of the Insurance Commissioner or hearing officer, may be rejected. When pleadings and other documents submitted for filing pursuant to this subchapter are rejected, the sender will be provided with the reasons for the rejection. Acceptance of a document for filing is not a determination that the document complies with all requirements and is not a waiver of those requirements. The Insurance Commissioner may require amendment of a document.

(k) Acknowledgements. Any person who desires an acknowledgment by the Insurance Commissioner of the filing of a document he or she has submitted must so request and must furnish, at the time of submission, an extra copy of the letter of transmittal or of the document, and a self-addressed envelope with postage fully prepaid. Upon filing, the extra copy will be stamped and returned by mail to the requesting party.

(l) Computation of Time. The time within which any document other than an application may be served or filed as provided by any statute, regulation, or direction of the Insurance Commissioner or a hearing officer shall be computed so as to exclude the first day and include the last day; provided, that when the last day of any such period falls on Saturday, Sunday or holiday under the laws of this State, the computation of time shall omit that day and include the first “business” day thereafter. When service is made by mail, the provisions of California Code of Civil Procedure section 1013 shall apply. When the service is made by personal delivery, the provisions of California Code of Civil Procedure section 1011 shall apply.

NOTE

Authority cited: Section 12921, Insurance Code; and CalFarm Insurance Company, et al. v. Deukmejian, et al. (1989) 48 Cal.3d 805, 824. Reference: Section 1855.5, Insurance Code.

HISTORY

3. Certificate of Compliance as to 2-4-91 order including amendment to subsections (b), (d) and (f) transmitted to OAL 5-17-91 and filed 6-17-91 (Register 91, No. 36).

§2197.3. Decision to Hold Hearing.

Note • History

The Insurance Commissioner shall exercise discretion in deciding whether or not to hold a hearing under Insurance Code section 1855.5. The Commissioner will serve a Notice of Determination to Hold Hearing if he or she reviews an application and determines that it should be disapproved.

NOTE

Authority cited: Section 12921, Insurance Code; and CalFarm Insurance Company, et al. v. Deukmejian, et al. (1989) 48 Cal.3d 805, 824. Reference: Section 1855.5, Insurance Code.

HISTORY

3. Certificate of Compliance as to 2-4-91 order transmitted to OAL 5-17-91 and filed 6-17-91 (Register 91, No. 36).

§2197.4. Notice of Hearing.

Note • History

Written notice of not less than 10 days shall be given to the applicant prior to commencement of any hearing.

NOTE

Authority cited: Section 12921, Insurance Code; and CalFarm Insurance Company, et al. v. Deukmejian, et al. (1989) 48 Cal.3d 805, 824. Reference: Section 1855.5, Insurance Code.

HISTORY

3. Certificate of Compliance as to 2-4-91 order transmitted to OAL 5-17-91 and filed 6-17-91 (Register 91, No. 36).

Article 4. Consumer and Interested Party Participation

§2198.1. Intervention Right.

Note • History

Any consumer representative or other interested person may intervene in any hearing under this subchapter unless it is determined by the hearing officer that granting the petition to intervene will unduly broaden the issues or would unduly burden resolution of the hearing.

NOTE

Authority cited: Section 12921, Insurance Code; and CalFarm Insurance Company, et al. v. Deukmejian, et al. (1989) 48 Cal.3d 805, 824. Reference: Section 1855.5(b), Insurance Code.

HISTORY

1. New section filed 10-5-90 as an emergency; operative 10-5-90 (Register 90, No. 45). A Certificate of Compliance must be transmitted to OAL by 2-4- 90 or emergency language will be repealed by operation of law on the following day.

3. Certificate of Compliance as to 2-4-91 order transmitted to OAL 5-17-91 and filed 6-17-91 (Register 91, No. 36).

4. Editorial correction of punctuation printing error in NOTE (Register 91, No. 46).

§2198.2. Consumer Representatives.

Note • History

For purpose of this subchapter, “Consumer Representative” means anyone who, in the judgment of the Commissioner or Hearing Officer, represents the interests of the public, policyholders, claimants or any other interest not otherwise adequately represented.

NOTE

Authority cited: Section 12921, Insurance Code; and CalFarm Insurance Company, et al. v. Deukmejian, et al. (1989) 48 Cal.3d 805, 824. Reference: Section 1855.5(b), Insurance Code.

HISTORY

3. Certificate of Compliance as to 2-4-91 order transmitted to OAL 5-17-91 and filed 6-17-91 (Register 91, No. 36).

§2198.3. Interested Parties.

Note • History

“Interested party” means any person, organization, association or other entity that believes it has an interest in the hearing.

NOTE

Authority cited: Section 12921, Insurance Code; and CalFarm Insurance Company, et al. v. Deukmejian, et al. (1989) 48 Cal.3d 805, 824. Reference: Section 1855.5(b), Insurance Code.

HISTORY

3. Certificate of Compliance as to 2-4-91 order transmitted to OAL 5-17-91 and filed 6-17-91 (Register 91, No. 36).

§2198.4. Procedures for Intervention.

Note • History

An interested party or consumer representative desiring to intervene and become a party to the hearing shall file a petition to intervene which shall be drafted in compliance with section 2197.2 of this subchapter.

The Petition to Intervene shall contain the grounds of the proposed intervention, the positions and interest of the petitioner in the proceeding, and whether the petitioner supports or opposes the application which is the subject of the hearing.

A petition to intervene shall be filed with the Commissioner and served prior to the hearing, except for good cause shown.

The Commissioner or hearing officer shall rule on the petition.

NOTE

Authority cited: Section 12921, Insurance Code; and CalFarm Insurance Company, et al. v. Deukmejian, et al. (1989) 48 Cal.3d 805, 824. Reference: Section 1855.5(b), Insurance Code.

HISTORY

3. Certificate of Compliance as to 2-4-91 order including amendment transmitted to OAL 5-17-91 and filed 6-17-91 (Register 91, No. 36).

§2198.5. Other Participation.

Note • History

In the discretion of the Hearing Officer, consumer representatives and other interested persons who have not formally intervened may participate in the hearing in any other manner the hearing officer deems appropriate under the circumstances.

NOTE

Authority cited: Section 12921, Insurance Code; and CalFarm Insurance Company, et al. v. Deukmejian, et al. (1989) 48 Cal.3d 805, 824. Reference: Section 1855.5(b), Insurance Code.

HISTORY

3. Certificate of Compliance as to 2-4-91 order transmitted to OAL 5-17-91 and filed 6-17-91 (Register 91, No. 36).

Article 5. Public Access to Submitted Documents

§2199.1. Public Inspection.

Note • History

All applications and other documents submitted pursuant to this subchapter shall be available for public inspection at the Commissioner's Office in Los Angeles and San Francisco.

NOTE

Authority cited: Section 12921, Insurance Code; and CalFarm Insurance Company, et al. v. Deukmejian, et al. (1989) 48 Cal.3d 805, 824. Reference: Sections 1855.5(b), Insurance Code; Section 6256, Government Code.

HISTORY

3. Certificate of Compliance as to 2-5-91 order including amendment transmitted to OAL 5-17-91 and filed 6-17-91 (Register 91, No. 36).

Subchapter 1.6. Advisory Organizations, Manuals Approval

Article 1. Submission and Approval Procedures, Fees

§2199.2.1. Preamble.

Note • History

Section 1855.1 of the California Insurance Code states that the Legislature intended to promote competition in the insurance business and provide a means whereby insurance customers can more easily comparison shop for insurance coverage by allowing advisory organizations to develop and draft for use by insurers in California common forms, coverages, endorsements and manuals. Section 1855.5 provides that the Commissioner shall approve only those manuals that are found by him or her to contemplate activities and practices that are not unfair, unreasonable or otherwise inconsistent with the insurance code. The Insurance Commissioner promulgates these regulations in order to:

(1) interpret the provisions of Insurance Code section 1855.5 as applied to manuals, and

(2) interpret the provisions of Insurance Code sections 1855.4 and 1861.03 as applied to manuals with respect to the application of the terms “unfair, unreasonable or otherwise inconsistent with the provisions of this code” in Insurance Code section 1855.5.

NOTE

Authority cited: Section 12921, Insurance Code; Calfarm Insurance Company, et al. v. Deukmejian, et al., 48 Cal. 3d 805, 824 (1989); and 20th Century v. Garamendi, 8 Cal.4th 216 (1994). Reference: Sections 1855.1 through 1855.5, Insurance Code.

HISTORY

1. New subchapter 1.6 (articles 1-4), article 1, (sections 2199.2.1--2199.2.8) and section filed 6-26-96; operative 7-26-96 (Register 96, No. 26).

§2199.2.2. Authority and Scope.

Note • History

This subchapter is promulgated pursuant to Insurance Code Sections 1855.1 through 1855.5. This subchapter shall only apply to advisory organizations and shall not be construed to require or permit advisory organizations to submit any documents to the Department of Insurance not provided for in the Insurance Code, or other Subchapters of the California Code of Regulations.

NOTE

Authority cited: Section 12921, Insurance Code; Calfarm Insurance Company, et al. v. Deukmejian, et al. (1989) 48 Cal. 3d 805, 824; and 20th Century v. Garamendi, 8 Cal. 4th, 216 (1994). Reference: Sections 1855.1 through 1855.5, Insurance Code.

HISTORY

1. New section filed 6-26-96; operative 7-26-96 (Register 96, No. 26).

§2199.2.3. Findings.

Note • History

For purposes of these regulations, the Commissioner finds that:

(a) According to custom and usage in the insurance industry, a manual is a publication distributed by an insurer to its agents and policy issuance personnel for purposes of instructing them on how to assemble an insurance policy. Typically, such manuals include one or more types of material such as policy writing rules, rating plans, classification codes, and descriptions, territory codes and descriptions, rules that include factors and relativities, prospective cost information or rates.

(b) Advisory organization manuals made available to insurers in many other states include prospective loss costs.

(c) Insurance Code section 1855.5 authorizes advisory organizations to prepare, develop and file manuals, but prohibits advisory organizations from issuing any manual that contains final rates.

(d) Insurance Code section 1855.5 requires that the Commissioner approve only those advisory organization manuals that are found by him or her to contemplate activities and practices that are not unfair, unreasonable or otherwise inconsistent with the provisions of the Insurance Code.

(e) Under Insurance Code section 1855.5 as well as California case law, the Commissioner has the authority to determine and regulate the competitive effect of the advisory organization manuals within the context of insurance practices that may be unfair, unreasonable or otherwise in violation of the insurance code.

(f) Where there is a large number of insurers, an unconcentrated market structure, shifting market shares, or a real potential for the entry and exit of insurers, the property/casualty insurance markets in the United States and California for any line of insurance is likely to be competitively structured and competitive.

(g) In other states, evidence of price differentials in the form of filed statewide rate levels of insurers that use advisory organization manuals in competitively structured insurance markets indicates that the availability of advisory organization manuals has not, to date, adversely affected competition.

(h) The law in other states, including the law regarding the applicability of antitrust law to the business of insurance, may or may not be the same as it is in California.

(i) The availability of advisory organization manuals usually provides economies of scale in the production of actuarial information and encourages the potential participation by small insurers as well as entry by insurers without prior experience or expertise in insurance markets. Because these economies of scale and potential participation promote competitive insurance markets, they should be encouraged, unless on balance they are found to have an anti-competitive effect.

NOTE

Authority cited: Section 12921, Insurance Code; Calfarm Insurance Company et al. v. Deukmejian, et al. 48 Cal. 3d 805, 824 (1989); and 20th Century v. Garamendi, 8 Cal. 4th 216 (1994). Reference, Sections 1855.1 through 1855.5, Insurance Code.

HISTORY

1. New section filed 6-26-96; operative 7-26-96 (Register 96, No. 26).

§2199.2.4. Definitions.

Note • History

(a) “Advisory organization” means every group, association, or other organization of insurers, whether located within or outside of this state, that develops or prepares policy or bond forms or manuals, for use by admitted insurers, carries on research relative to the development and preparation of policy or bond forms, and acts in an advisory, as distinguished from a ratemaking, capacity, and has filed with the Commissioner (a) a copy of its constitution, articles of incorporation, agreement of association, and of its by- laws, or rules and regulations governing its activities. (b) a list of its members and subscribers, and (c) the name and address of a resident of this State upon whom notices or orders of the Commissioner or process may be served.

(b) “Applicant” means any advisory organization as defined in this subchapter applying for approval of a manual pursuant to California Insurance Code Section 1855.5.

(c) “Application” means the transmittal letter and manual and other documentation which every advisory organization seeking approval of a manual pursuant to California Insurance Code Section 1855.5(a) must file with the Rate Regulation Division, Rate Filing Bureau.

(d) “Transmittal Letter” means the correspondence accompanying the manual filed for approval. Every transmittal letter shall comply with the requirements of Section 2199.2.6(b).

(e) “Submission” means acceptance for review of a filed application by the Rate Regulation Division, Rate Filing Bureau. The date of submission shall be the date an application is accepted for review pursuant to Section 2199.3.1.

(f) “Manual” means any publication, which is developed or prepared by an advisory organization or any revisions thereof, that could include one or more types of material such as policy writing rules; rating plans; classification codes and descriptions; territory codes and descriptions; rules that include factors or relativities, such as increased limits factors, classification relativities or similar factors, or prospective cost information.

(g) “Market” means the entire statewide business of insurance in California for the Annual Statement Statutory Page 14 line or lines of business under which premium is reported for any type of insurance that is the subject of the advisory organization manual. The market includes all insurers that, by virtue of holding a certificate of authority issued by the Commissioner under Cal. Ins. Code section 700, are entitled to transact any such line or lines of insurance business in California as well as those that are actually writing such insurance.

(h) “Technical or actuarial requirements” means all grounds in the California Insurance Code, other than competitive grounds, upon which the Commissioner is authorized to base his or her review, approval and/or disapproval of advisory organization manuals.

(i) “Party” means the advisory organization whose manual is the subject of a proceeding under this regulation; any person whose petition to intervene in the proceeding has been granted pursuant to section 2661.1 of these regulations; or the California Department of Insurance.

NOTE

Authority cited: Section 12921, Insurance Code; Calfarm Insurance Company, et al. v. Deukmejian, et al. (1989) 48 Cal. 3d 805, 824; and Pasadena Police Officers Association v. City of Pasadena, 51 Cal.3d 564 (1990). Reference: Sections 100, 1855.1, 1855.2, 1855.3, 1855.5 and 12973.9, Insurance Code.

HISTORY

1. New section filed 6-26-96; operative 7-26-96 (Register 96, No. 26).

§2199.2.5. Fees.

Note • History

(a) A one hundred dollar ($100) fee shall be paid at the time an application is filed for submission.

(b) Applications which are not accompanied by the appropriate fee shall be rejected.

NOTE

Authority cited: Section 12921, Insurance Code; and Calfarm Insurance Company et al. v. Deukmejian, et al. (1989) 48 Cal. 3d 805, 824. Reference: Sections 1855.5 and 12973.9, Insurance Code.

HISTORY

1. New section filed 6-26-96; operative 7-26-96 (Register 96, No. 26).

§2199.2.6. Filing Requirements.

Note • History

All manuals developed or prepared by an advisory organization, shall be filed with the California Department of Insurance, Rate Regulation Division, Rate Filing Bureau, 45 Fremont Street, 23rd Floor, San Francisco, California 94105, in compliance with the following standards:

(a) All manuals shall be filed with a transmittal letter.

(b) Every transmittal letter shall include the following information:

(1) Name and address of advisory organization

(2) Name, address and telephone number of contact person

(3) Title of the manual submitted

(4) A general description of the manual submitted

(5) Whether the manual revises a manual previously filed with or approved by the Commissioner, and if so. identifying the manual.

(d) All filings shall include an original and three (3) copies of the application. Any person desiring an acknowledgment of the filing of an application must so request in their transmittal letter and must furnish an extra copy of the application together with a self-addressed envelope with postage fully prepaid.

(e) Applications filed pursuant to this subchapter shall be typewritten or printed on paper 8-1/2 inches wide and 11 inches except that exhibits annexed thereto of a larger size shall be folded to the 8-1/2 inches wide and 11 inches long size. Unless pre-printed, the impression shall be on one side of the paper only. Pages of documents shall be consecutively numbered and fastened together in any suitable manner except plastic binding. Reproduction may be by any process, except facsimile machine, provided that all copies are clear and legible.

(f) All proposed manual(s) must be submitted in an easily readable condition. Printer's proofs, typewritten or photostatic copies, or other legible copies, other than by facsimile transmission, will be accepted. Plastic bound documents will not be accepted.

(g) Any employee of an advisory organization may submit an application on behalf of an advisory organization, provided that the transmittal letter is on the advisory organization's letterhead and is signed in ink and indicates the name and title of the employee.

NOTE

Authority cited: Section 12921, Insurance Code; and Calfarm Insurance Company, et al. v. Deukmejian, et al. (1989) 48 Cal.3d 805, 824. Reference: Sections 1855.2 and 1855.5(a), Insurance Code.

HISTORY

1. New section filed 6-26-96; operative 7-26-96 (Register 96, No. 26).

§2199.2.7. Information Requirements.

Note • History

(a) Each application shall include the following, if applicable:

(1) if the application relates to a new program or line of business, the applicant shall provide a written explanation of the purpose and intent of the new manual;

(2) if the application is a revision or replacement of a previously approved manual, the application must describe each revision or replacement and the reasons for each revision or replacement, and must include copies of the revised or replaced manual;

(3) information in support of applicant's claim that the manual is technically correct and will not have an adverse effect on competition;

(b) Any information required by section 2199.2.7(a) may be included in the transmittal letter or in a separate memorandum. If provided in a separate memorandum, the memorandum shall be attached to the transmittal letter.

(c) Applicants shall be required to provide such additional information as the Commissioner may require for purposes of review.

NOTE

Authority cited: Section 12921, Insurance Code; and Calfarm Insurance Company et al. v. Deukmejian, et al. (1989) 48 Cal. 3d 805, 824. Reference: Sections 1855.2 and 1855.5(a), Insurance Code.

HISTORY

1. New section filed 6-26-96; operative 7-26-96 (Register 96, No. 26).

§2199.2.8. Service and Computation of Time.

Note • History

Whenever a writing is due from the Commissioner, an applicant or any other person, it shall be served in accordance with the procedures set forth in sections 2651.1-2660.1 of these regulations.

NOTE

Authority cited: Section 12921, Insurance Code; and Calfarm Insurance Company, et al. v. Deukmejian, et al. (1989) 48 Cal. 3d 805, 824. Reference: Section 1855.5, Insurance Code.

HISTORY

1. New section filed 6-26-96; operative 7-26-96 (Register 96, No. 26).

Article 2. Actions on Approval

§2199.3.1. Review of Applications.

Note • History

(a) The Insurance Department shall review any submitted application to determine whether or not the application complies with applicable procedural requirements and whether or not the manual contents or the use thereof would be inconsistent with the Insurance Code or would result in activities and practices by insurers that are unfair, unreasonable or otherwise inconsistent with the Insurance Code.

(b) Within fifteen days of receipt by the Department, applications which do not meet the requirements of sections 2199.2.6 and 2199.2.7 may be rejected. A rejection shall constitute an act by the Commissioner on the manual application and no application that has been rejected shall be deemed approved. In the case of a rejection, the Commissioner shall notify the applicant in writing of the reason(s) for the rejection. Acceptance of an application is not a determination that the application complies with all requirements and shall not constitute a waiver of any requirements.

(d) A rejection shall be effective on the date it is served.

NOTE

Authority cited: Section 12921, Insurance Code; and Calfarm Insurance Company, et al. v. Deukmejian, et al. (1989) 48 Cal. 3d 805, 824. Reference: Section 1855.5(a) and (b), Insurance Code.

HISTORY

1. New article 2 (sections 2199.3.1--2199.3.6) and section filed 6-26-96; operative 7-26-96 (Register 96, No. 26).

§2199.3.2. Approval of Applications.

Note • History

(a) Reviewed applications shall be approved if the Commissioner determines that the manual or manual contents or the use thereof would be consistent with the Insurance Code and would not result in activities and practices by insurers that are unfair, unreasonable or otherwise inconsistent with the Insurance Code.

(b) Approvals shall be in writing, served on the applicant. No manual may be distributed for use in writing risks located in California until it has been approved. Approval of a manual shall remain in effect until such time as such approval is revoked pursuant to section 2199.3.4 of these regulations.

(c) After a manual has been approved, if it is revised, the revised pages must be submitted for the Commissioner's review and approval. The revised pages may not be distributed for use in writing risks located in California until they have been approved by the Commissioner. If approval of the revised pages is denied, such denial will not affect the status of the remaining portion of the manual. The same standards and procedures which apply to approval of a manual and hearings related to the disapproval of a manual, will apply to determinations regarding revised pages.

NOTE

Authority cited: Section 12921, Insurance Code; and Calfarm Insurance Company, et al. v. Deukmejian, et al. (1989) 48 Cal. 3d 805, 824. Reference: Sections 1855.4 and 1855.5(a), Insurance Code.

HISTORY

1. New section filed 6-26-96; operative 7-26-96 (Register 96, No. 26).

§2199.3.3. Disapproval.

Note • History

(a) The Commissioner shall disapprove any manual which is found by him or her to contemplate activities and practices that are unfair, unreasonable, or otherwise inconsistent with the provisions of the Insurance Code. A manual shall not be disapproved as contemplating activities and practices that are unfair, unreasonable or otherwise inconsistent with the Insurance Code based on technical or actuarial grounds unless the manual fails to meet the requirements of section 2199.3.5. A manual shall not be disapproved as contemplating activities and practices that are unfair, unreasonable or otherwise inconsistent with the provisions of the Insurance Code based on the grounds of an adverse effect on competition unless the requirements of section 2199.3.6 are met.

(b) If the Department of Insurance reviews an application and determines that the application should be disapproved, the Commissioner shall issue a Notice of Determination to Hold Hearing. A Notice of Determination to Hold Hearing shall set forth the basis for disapproval.

(c) Within fifteen days of service of a Notice of Determination to Hold Hearing, an applicant must elect to either: (1) modify, supplement, amend or withdraw the application; (2) acknowledge receipt of the notice and request a hearing pursuant to section 2199.4.4 or (3) waive the right to a hearing and accept the disapproval. All elections must be written and filed. An applicant who fails to so elect will be deemed to have requested a hearing.

(d) Absent good cause, hearings shall commence within 60 days of service of a request for hearing. Hearings shall be conducted in accordance with the provisions of Insurance Code section 1861.08 and sections 2649.1 - 2662.8 of these regulations.

(e) At all such hearings, the applicant shall have the burden of proving that the manual does not contemplate activities and practices that are unfair, unreasonable, or otherwise inconsistent with the provisions of the Insurance Code.

NOTE

Authority cited: Section 12921, Insurance Code; and Calfarm Insurance Company, et al. v. Deukmejian, et al. (1989) 48 Cal. 3d 805, 824. Reference: Sections 1855.4 and 1855.5(b),1861.08, Insurance Code.

HISTORY

1. New section filed 6-26-96; operative 7-26-96 (Register 96, No. 26).

§2199.3.4. Revocation of Approval.

Note • History

(a) Approval of a manual may be revoked for good cause after a hearing. Good cause to revoke approval shall be only on the same grounds and conditions which would permit disapproval if the manual were submitted for approval at the time of hearing. The hearing shall be conducted in accordance with the provisions of Insurance Code section 1861.08 and sections 2649.1 - 2662.8 of these regulations.

(b) Revocations of approval shall be in writing, served on the applicant.

NOTE

Authority cited: Section 12921, Insurance Code; and Calfarm Insurance Company, et al. v. Deukmejian (1989) 48 Cal. 3d 805, 824. Reference: Sections 1855.4 and 1855.5(a), Insurance Code.

HISTORY

1. New section filed 6-26-96; operative 7-26-96 (Register 96, No. 26).

§2199.3.5. Standards for Technical or Actuarial Review of Manuals.

History

A manual shall not be found to contemplate activities or practices that are unfair, unreasonable or otherwise inconsistent with the provisions of the Insurance Code based on the grounds that the contents of the manual fails to meet technical or actuarial requirements unless:

(a) the manual contents violate any provision of the Insurance Code, or

(b) the actuarial analyses underlying the contents of the manual are not actuarially sound according to the standards contained in the Statement of Principles Regarding Property and Casualty Insurance Ratemaking of the Casualty Actuarial Society (CAS) or other generally accepted actuarial standards.

HISTORY

1. New section filed 6-26-96; operative 7-26-96 (Register 96, No. 26).

§2199.3.6. Standards for Review of Manuals' Effect on Competition.

History

(a) Absent a finding of an agreement by insurers to adhere to the manual as described in paragraph (c), an applicant shall be deemed to have met its burden of proving that a manual does not contemplate activities or practices that are unfair, unreasonable or otherwise inconsistent with the Insurance Code based on the grounds of an adverse effect on competition by presenting evidence sufficient to show that:

(1) the statewide market concentration, as measured by the Herfindahl-Hirschman Index, of all insurers licensed to write the lines of insurance for such market (using the statewide total written premium for the applicable lines of business as reported on the Annual Statement Statutory Page 14 for the most recently available calendar year) is less than 1000; or

(2) if the statewide market concentration of all insurers exceeds the standard set forth in 2199.3.6(a)(1) the statewide market concentration of insurers authorized to use the advisory organization manual (as demonstrated by records of the advisory organization submitted to the Commissioner), as measured by the Herfindahl-Hirschman Index (using the statewide total written premium for the applicable lines of business as reported on the Annual Statement Statutory Page 14 for the most recently available calendar year), for such insurers is less than 1000.

(b) If the applicant has met its burden of proof on this issue by showing that statewide market concentrations of all insurers or insurers authorized to use the advisory organization manual satisfy either of the standards of 2199.3.6(a)(1) or 2199.3.6(a)(2) any party claiming that the manual has an adverse effect on competition has the burden of proving this issue with evidence which would be sufficient for a plaintiff to establish that the distribution and use of the manual in the market as defined in section 2199.2.4(g) of this regulation is anticompetitive in violation of the California antitrust laws. In determining whether such party has met its burden of proof on that issue, the Commissioner shall consider the standards of sections 2199.3.6(a)(1) and 2199.3.6(a)(2) of this regulation and any and all other relevant evidence including but not limited to:

(1) the existence of significant variation in insurers' statewide filed rate levels in effect for the applicable lines of insurance with respect to insurers authorized to use the manual over the last three calendar years; and

(2) the existence of significant change in statewide market shares (using the Annual Statement Statutory Page 14 written premium of insurers for the applicable lines of insurance) over the last ten calendar years; and

(3) the entries and exits of insurers measuring one-tenth of one percent of the market (using the Annual Statement Statutory Page 14 written premium of insurers for the applicable lines of insurance) over the last ten calendar years; and

(4) whether one or more insurers, alone or in conjunction with each other, control the business of the advisory organization, or decide or determine the contents of the advisory organization manual according to the documents governing the operation of the advisory organization that have been submitted to the Commissioner.

(c) A manual may be found to contemplate activities or practices that are unfair, unreasonable or otherwise inconsistent with the Insurance Code on the grounds of an adverse effect on competition if the Commissioner determines that there is an agreement to adhere to the manual as prohibited by section 1855.4 of the Insurance Code, which is supported by direct evidence. However, pursuant to section 1855.4 of the Insurance Code, the following shall be insufficient evidence, alone or taken together, to establish an agreement to adhere to the manual:

(1) the fact that two or more insurers participate in the activities of the advisory organization submitting the manual;

(2) the fact that two or more insurers use or may use, either consistently or intermittently, the manual or other manuals of the advisory organization; or

(3) the fact that the advisory organization manual contains information authorized by statute or regulation.

(d) The Commissioner can, by regulation, at any time, change the standards set forth in section 2199.3.6(a)(1) and 2199-3.6(a)(2). He or she can change the specified Herfindahl-Hirschman Index to a different index or change the 1000 score on that or any other index after considering evidence that some other index or some other point on this index is a better measurement of the degree of competition.

HISTORY

1. New section filed 6-26-96; operative 7-26-96 (Register 96, No. 26).

Article 3. Hearing Procedures

§2199.4.1. Definitions.

Note • History

In addition to the definitions set forth in section 2199.2.4, and except for the definition of “Proceeding” set forth herein, the definitions contained in section 2651.1 of these regulations shall apply to hearings held pursuant to this subchapter regarding the disapproval of advisory organization manuals:

(a) “Proceeding” means any hearing conducted pursuant to Insurance Code section 1855.5, which shall be conducted in accordance with the provisions of Insurance Code section 1861.08 and these regulations.

NOTE

Authority cited: Section 12921, Insurance Code; and Calfarm Insurance Company, et al. v. Deukmejian, et al. (1989) 48 Cal. 3d 805, 824. Reference: Section 1855.5, Insurance Code.

HISTORY

1. New article 3 (sections 2199.4.1--2199.4.4) and section filed 6-26-96; operative 7-26-96 (Register 96, No. 26).

§2199.4.2. Procedural Requirements.

Note • History

With the exception of the requirements which follow, all procedural and evidentiary requirements in hearings regarding advisory organization manuals shall conform with the requirements of sections 2650.1 - 2659.4 of these regulations.

(a) Copies.

Unless otherwise required by the Insurance Commissioner, an original plus four copies of each pleading or other document, including the application, filed pursuant to this subchapter shall be filed with the Commissioner.

(b) Place of Filing.

Unless otherwise directed, all pleadings and other documents other than applications filed pursuant to this subchapter shall be filed with the Administrative Law Bureau, California Department of Insurance, 45 Fremont Street, 22nd Floor, San Francisco, CA 94105.

Applications and manuals submitted for review shall be submitted to California Department of Insurance, Rate Regulation Division, Rate Filing Bureau, 45 Fremont Street, 23rd Floor, San Francisco, California 94105.

Pleadings which are not in substantial compliance with applicable statutes, these regulations, or an order of the Insurance Commissioner or Administrative Law Judge, may be rejected. When pleadings and other documents submitted for filing pursuant to this subchapter are rejected, the sender will be provided with the reasons for the rejection. Acceptance of a document for filing is not a determination that the document complies with all requirements and is not a waiver of those requirements. The Commissioner may require amendment of a document.

NOTE

Authority cited: Section 12921, Insurance Code; and Calfarm Insurance Company, et al. v. Deukmejian, et al. (1989) 48 Cal. 3d 805, 824. Reference: Section 1855.5, Insurance Code.

HISTORY

1. New section filed 6-26-96; operative 7-26-96 (Register 96, No. 26).

§2199.4.3. Decision to Hold Hearing.

Note • History

The Insurance Commissioner shall exercise discretion in deciding whether or not to disapprove a manual and serve a Notice of Determination to Hold Hearing pursuant to section 2199.3.3 of these regulations because it fails to meet the requirements of Insurance Code section 1855.5. The Commissioner will serve a Notice of Determination to Hold Hearing when he or she reviews an application and determines that it should be disapproved or revoked. Hearings shall be conducted in accordance with the provisions of Insurance Code section 1861.08 and sections 2649.1 - 2662.8 of these regulations.

NOTE

Authority cited: Section 12921, Insurance Code; and Calfarm Insurance Company, et al. v. Deukmejian, et al. (1999) 48 Cal. 3d 805, 824. Reference: Section 1855.5, Insurance Code.

HISTORY

1. New section filed 6-26-96; operative 7-26-96 (Register 96, No. 26).

§2199.4.4. Notice of Hearing.

Note • History

If applicant acknowledges receipt of the Notice of Determination to Hold Hearing and requests a hearing, the Department shall serve written notice of hearing not less than 10 days prior to the first scheduled appearance for any such hearing.

NOTE

Authority cited: Section 12921, Insurance Code; and Calfarm Insurance Company, et al. v. Deukmejian, et al. (1989) 48 Cal. 3d 805, 814. Reference: Section 1855.5, Insurance Code.

HISTORY

1. New section filed 6-26-96; operative 7-26-96 (Register 96, No. 26).

Article 4. Consumer and Interested Party Participation

§2199.5.1. Intervention.

Note • History

Intervention in any proceeding having to do with an advisory organization manual shall be pursuant to sections 2661.1 - 2662.8 of these regulations.

NOTE

Authority cited: Section 12921, Insurance Code; and Calfarm Insurance Company, et. al. v. Deukmejian, et al. (1989) 48 Cal. 3d 805, 824. Reference: Section 1855.5(b), Insurance Code.

HISTORY

1. New article 4 (section 2199.5.1) and section filed 6-26-96; operative 7-26-96 (Register 96, No. 26).

Subchapter 2. Policy Forms and Other Documents

Article 1. Document Submission and Approval Procedures; Fees

§2200. Authority. [Repealed]

Note • History

NOTE

Authority and reference cited: Sections 779.8, 779.13, 795.5, 1320, 9080.1, 10191, 10205, 10225, 10270.1, 10270.2, 10270.3, 10270.5, 10270.57, 10270.9, 10270.93, 10271, 10290, 10292, 10506, 10507.2, 11027, 11029, 11066, 11069, 11512.4, 11513, 11522, 11658, 11659, 12250, 12763, 12973.9, California Insurance Code and Sections 2249.2, 2249.5, 2266, 2529, California Administrative Code, Title 10.

HISTORY

1. Repealer and new Article 1 (Sections 2200-2218.1) filed 10-4-79; designated effective 1-2-80 (Register 79, No. 40). Sections 2218.2-2218.10 of former Article 1.2 incorporated into Article 1. For prior history, see Registers 65, No. 16, 76, No. 46, 77, No. 19, 78, No. 4 and 78, No. 34.

2. Repealer filed 2-11-97; operative 3-13-97 (Register 97, No. 7).

§2201. Definitions.

Note • History

As used in this Article:

(a) “Document” includes but is not limited to every form of contract, insurance policy, application, enrollment form, rider, endorsement, amendment, insert policy page, certificate or other evidence or notice of insurance, fill-in material, text cell, schedule of rates and classification of risks except for workers' compensation insurance, advertisement and any modification thereto which is required by law to be filed or approved and which pertains to coverages defined in Ins. C. §§ 101, 106 and 109.

(b) “Fee” means the fee charged by the Commissioner for the filing or approval of documents subject to this Article.

(c) “Application” means a document used to apply for or request individual or group insurance coverage which contains medical or economic questions designed to determine the rating class or the eligibility for coverage of one or more persons and which is not an “enrollment” form. This definition shall not apply to “application” as it may be used in any other statute or regulation.

(d) “Enrollment Form” means a document used to apply for or request individual or group insurance coverage which contains no questions about an individual's health status or eligibility for coverage except that it may inquire about age, family status, dependency or current or past employment. A document to be used by a master-policy-holder to apply for or request group insurance is an “enrollment form” for the purposes of these regulations, provided that no information concerning the health of any persons to be covered is solicited. This definition shall not be used to interpret the word “application” as it may be used in any other statute or regulation.

(e) “Rider/insert page” means a document of one or more pages of text, identified by a single form number, which is physically added to or inserted into another document, such as a policy, certificate, application or other rider.

(f) “Text cell” means a block of text not to exceed one paragraph in length, which is identified for filing purposes by a form number and which is printed with other similarly-identified blocks of text to comprise documents such as policies and certificates. A text cell exceeding one paragraph in length or a list of words or phrases to be inserted into a waiver rider is considered to be a “rider/insert page”. Where multiple text cells are filed on a single page, the total fee for the cells on that page shall not exceed the fee for a rider/insert page.

NOTE

Authority cited: Sections 742.43, 779.21, 10195.1, 10234, 10327, 10506, 10704 and 12973.9, California Insurance Code. Reference: Sections 742.42, 779.8, 795.5, 1320, 9080.1, 10112.5, 10163.3, 10195.1, 10195.45, 10195.65, 10205, 10225, 10231.6, 10232, 10270, 10270.1, 10270.2, 10270.3, 10270.5, 10270.507, 10270.57, 10270.9, 10270.93, 10290, 10292, 10436, 10489.93, 10506, 10705, 10717, 11027, 11029, 11066, 11069, 11522, 11658 and 12250, California Insurance Code.

HISTORY

1. Amendment of subsection (a), new subsections (c)-(f) and repealer and new Note filed 8-26-96 as an emergency; operative 9-3-96 (Register 96, No. 35). A Certificate of Compliance must be transmitted to OAL by 1-2-97 or emergency language will be repealed by operation of law on the following day.

2. Certificate of Compliance as to 8-26-96 order, including amendment of Note, transmitted to OAL 12-27-96 and filed 2-11-97 (Register 97, No. 7).

§2202. Documents to Be Submitted; Fees.

Note • History

(a) The fees to be charged for the Commissioner's actions on documents submitted to him are determined according to the document classes below. The fees for each document class are set forth in the Fee Table in subsection (b).

(1) (“Health Insurance”) Group, blanket or individual documents that include benefits contingent on hospital confinement or on medical or surgical treatment of sickness or injury or on diagnosis of sickness, whether provided on a stipulated benefit, indemnity or reimbursement basis, except where described more specifically in another subdivision; disclosure material required by Ins. C. § 10270.3.

This class of documents:

(A) Includes documents which also provide coverages described elsewhere in this Section, such as group documents providing life insurance in addition to “health” insurance coverage.

(B) Includes rates and risk classifications for individual “health” insurance policies.

(C) Includes small employer health insurance rating plans; lists of small employer health insurance benefit plan designs; lists of associations to which or through which small employer health insurance benefit plans are marketed and information pertaining thereto.

(D) Does not include documents providing only dental and/or vision coverage or documents providing only coverage for treatment of accidental injuries unless they are included with filings of documents that are not so limited.

(E) Does not include documents providing stop-loss coverage to self-insured plans or to providers in capitated plans.

(2) (“Group and Blanket Life and Non-health Disability”) Blanket life and group life documents. Blanket disability, tuition refund and group disability documents, except where described more specifically in another subdivision. Documents providing stop-loss coverage to self-insured plans or to providers in capitated plans.

(3) (“Individual Disability, Non-health”) Individual disability documents and rates and risk classifications therefor, except where described more specifically in another subdivision.

(4) (“Medicare Supplement”)

(A) Group or individual documents providing Medicare supplement coverage.

(B) Documents advertising Medicare supplement coverage.

(C) Rate filings and filings of experience under previously-approved Medicare supplement insurance rate schedules demonstrating compliance with loss ratio standards for in-force policies.

(D) Other filings with the Commissioner related to the marketing or rating of Medicare supplement insurance as required by law.

(5) (“Long-term Care”)

(A) Group or individual documents providing “long-term care insurance” as defined in Ins. C. § 10231.2.

(B) Rates and risk classifications for individual policies.

(D) Documents advertising long-term care insurance.

(E) Other filings with the Commissioner related to the marketing or rating of long-term care insurance as required by law.

(6) (“Credit Life and Disability”)

(A) Credit life and/or disability documents which are non-standard or are required to be approved pursuant to §§ 2249.2 or 2249.5 of this Chapter.

(B) Voluntary downward deviated rates; renewal of previously-approved upward deviated rates and actuarially equivalent rates; upward deviated rates and mandatory downward deviated rates.

(7) (“Supplemental Life Benefits”) Individual life or individual or group annuity documents with provisions which:

(A) Provide additional benefits in the case of death by accident or operate to safeguard such contracts against lapse, give a special surrender value, special benefit or an annuity if the insured or annuitant becomes disabled.

(B) (“Accelerated Benefits”) Accelerate the payment of life insurance benefits on an annuity or lump-sum basis or waive annuity surrender or withdrawal charges contingent upon the life insured's or annuitant's catastrophic injury or illness. Applications reflecting any additional underwriting criteria for issue of such provisions.

(C) Provide long-term care benefits funded by reducing life insurance benefits otherwise payable or by waiving annuity withdrawal charges. Applications reflecting any additional underwriting criteria for issue of such provisions.

(8) (“Variable Life and Annuities”) Group and individual variable annuity documents. Group and individual variable life insurance documents.

(9) (“Fraternals”) Fraternal benefit society disability documents except where described more specifically in another subdivision.

(10) Workers' compensation insurance forms. Workers' compensation rates shall be filed as provided for in § 2509.30. et seq, of this Chapter.

(11) Every document, including documents attached thereto or incorporated therein, which pertains to coverages defined in Ins. C. §§ 101, 106 and 109, which is required to be approved or filed and for which no fee is otherwise provided.

(12) (“Life Insurance Policies and Annuity Contracts Subject to Nonforfeiture Laws”) Life insurance documents subject to Ins. C. §10163.35 which do not fall within other more specific categories of this section. Annuity documents subject to Ins. C. §10168.93 which do not fall within other more specific categories of this section. Filings of these documents are exempt from §§ 2203, 2205 and 2208 through 2218.10.

(13) (“Grants and Annuities”) Annuity contracts of grants and annuities societies. See Ins. C. § 11522 to compute fees for more than 10 documents filed within a calendar quarter. Filings of these documents are exempt from §§ 2203, 2205 and 2208 through 2218.10.

(14) (“Reciprocal or Inter-insurance Exchanges”)

(A) Powers of attorney and amendments and revisions thereto of reciprocal or inter-insurance exchanges. Filings of these documents are exempt from §§ 2203, 2205 and 2208 through 2218.10.

(B) Documents required to be filed with the Commissioner under subdivisions (b), (c) and (d) of Ins. C. § 1320 shall be subject to these regulations as if they were being submitted by stock insurers.

(15) Articles of incorporation, constitutions and by-laws of fraternal benefit societies and amendments thereto or revisions thereof. Filings of these documents are exempt from §§2203, 2205 and 2208 through 2218.10.

(16) Motor club service contracts: Original service contract, including application and membership card. (See Ins. C. § 12168 for fees for amended contracts, applications and membership cards.) Filings of these documents are exempt from §§ 2203, 2205 and 2208 through 2218.10.

(b) Fee Table:

Embedded Graphic 10.0168

(c) “Minimum Fee.” A minimum fee of $610 shall be charged for each submission for which one Document Submission Form is included or for which one filing fee invoice is prepared.

(d) “Change of Company Name or Merger.” Where an insurer changes its name or merges into another insurer and previously filed or approved documents are revised to reflect such name change or the name of the merger survivor (and address and company officers, as applicable) and no other changes whatsoever are made in such documents, the insurer or merger survivor shall submit a Document Submission Formset listing such documents in lieu of submitting the revised documents. The Document Submission Formset shall be accompanied by a cover letter signed by an executive officer of the insurer or merger survivor showing the previous approval dates of the documents and attesting that no changes have been made to them other than to the insurer's name (and address and company officers, as applicable). The fee shall be $760 per submission.

Previously filed or approved documents which are revised only to reflect a change in home office address or company officers need not be submitted.

(e) The Commissioner may increase or decrease the fees established in this Article by issuing a Bulletin setting forth the modified fees at least 90 days prior to their effective date. The Commissioner shall not issue more than one such Bulletin in a fiscal year. Any fee increases or decreases made pursuant to this subdivision shall be by a uniform percentage for all fees established in this Article rounded to the next ten dollars, except that the Commissioner may establish a different percentage change if the Commissioner determines that a uniform percentage change is not appropriate with respect to any document class.

Any fee changes made pursuant to this subdivision shall not, in conjunction with other moneys received or projected to be received for the unit or units processing the documents subject to such fees, exceed the respective amounts calculated by the Department's Budget Office as necessary to cover all direct and indirect costs of the unit or units for the next succeeding fiscal year. Where moneys received or projected to be received for the unit or units processing the documents subject to such fees are insufficient to meet the respective amounts calculated by the Department's Budget Office as necessary to cover all direct and indirect costs of the unit or units during the then current fiscal year, any fee increases made during the then current fiscal year shall not, in conjunction with those moneys, exceed the amounts calculated by the Budget Office.

NOTE

Authority cited: Sections 742.43, 779.21, 10168.92, 10192.3, 10234, 10327, 10506, 10506.3, 10704 and 12973.9, California Insurance Code. Reference: Sections 742.42, 779.8, 795.5, 1320, 9080.1, 10112.5, 10163.35, 10168.93, 10192.15, 10192.19, 10205, 10225, 10231.2, 10231.6, 10232, 10233.9, 10234.9, 10234.93, 10234.97, 10236.11, 10236.13, 10270, 10270.1, 10270.2, 10270.3, 10270.5, 10270.507, 10270.57, 10270.9, 10270.93, 10290, 10292, 10436, 10506, 10705, 10717, 11011, 11027, 11029, 11066, 11069, 11522, 11658 and 12250, California Insurance Code.

HISTORY

1. Amendment of subsections (a) and (b) filed 1-9-86; designated effective 2-2-86 pursuant to Government Code Section 11346.2(d) (Register 86, No. 2).

2. Amendment of section and repealer and new Note filed 8-26-96 as an emergency; operative 9-3-96 (Register 96, No. 35). A Certificate of Compliance must be transmitted to OAL by 1-2-97 or emergency language will be repealed by operation of law on the following day.

3. Editorial correction of History 2 (Register 97, No. 7).

4. Certificate of Compliance as to 8-26-96 order, including amendment of section and Note, transmitted to OAL 12-27-96 and filed 2-11-97 (Register 97, No. 7).

5. Amendment of subsections (a)(5)(E), (a)(12) and (b)-(d) and Note filed 3-29-2010; operative 3-29-2010 pursuant to Government Code section 11343.4 (Register 2010, No. 14).

6. Amendment of subsections (b)-(e) filed 2-13-2012; operative 3-28-2012 (Register 2012, No. 7).

§2203. Fee Computation Rules.

Note • History

(a) The fee for a “policy” (including fraternal benefit society certificates) includes riders without which the policy could not be approved and applications, rates and risk classifications if required to be filed, but only if such documents are submitted before the authorization date of the policy. The fee for a group policy does not include fees for certificates. Fees for additional documents for use with a policy and submitted before the authorization date of the policy shall be charged separately. The fee charged for a “shell” policy also includes one insert page or set of insert pages which, together with the policy shell, comprises the simplest policy which the insurer intends to issue. Submitters of shell policies must stipulate which documents comprise the “simplest policy” to avoid being charged separately for each document.

(b) The fee for a revision of a document previously approved or filed by the Commissioner within 180 days of its submission shall be the lesser of the fee otherwise provided or $280 if the form is in substance the same as that previously acted upon, the only changes being minor ones to correct typographical errors or to make detailed language changes to meet the requirements of other jurisdictions.

(c) “Substantially Similar Documents.” If the cover letter states that a document is substantially similar to another document in the filing or to a document previously filed with or approved by the Commissioner within one year for the same company or an affiliated company, and the document is found to be so, the fee shall be one half of the usual fee.

(d) “Simultaneous Filings by Affiliated Insurers.” Where documents which are identical other than company name, address and officers, are submitted simultaneously by affiliated insurers and the cover letters so state, fees for one such insurer's submission shall be computed as otherwise provided and the greater of one half that amount or the minimum fee shall be charged for each other insurer's submission.

(e) Only one fee shall be charged for a document, regardless of the number of documents with which it will be used.

(f) The fee for a “wrap-around” group policy submitted at the same time as the certificate(s) which are incorporated by reference therein is one-half the fee otherwise provided for.

(g) Fees for submissions of all documents described in subdivisions (1) through (11) of Section 2202(a) shall be increased by 10 percent of their original amount for each time a submission is resubmitted following its second substantive rejection by the Commissioner. For the purpose of this subdivision, a new objection to text previously submitted as part of the filing shall not be a “substantive rejection” unless new text in the resubmission clarifies the previously submitted text so that it is now objectionable.

(h) Where a rate filing applies to multiple experience groups and the same rating methodology is applied to the rates for more than one such experience group, the fee for one experience group shall be computed as otherwise provided and the fee for each remaining experience group subject to that rating methodology shall be one-quarter of that for the first experience group.

NOTE

Authority cited: Sections 742.43, 779.21, 10192.3, 10234, 10327, 10506, 10704 and 12973.9, Insurance Code. Reference: Sections 742.42, 779.8, 795.5, 1320, 10112.5, 10163.35, 10192.15, 10192.19, 10205, 10225, 10231.2, 10231.6, 10232, 10236.11, 10236.13, 10270, 10270.1, 10270.2, 10270.3, 10270.5, 10270.507, 10270.57, 10270.9, 10270.93, 10290, 10292, 10436, 10506, 10705, 10717, 11011, 11066, 11069 and 11658, Insurance Code.

HISTORY

1. Amendment of subsections (b) (2) and (c) filed 1-9-86; designated effective 2-2-86 pursuant to Government Code Section 11346.2 (d) (Register 86, No. 2).

3. Editorial correction of History 2 (Register 97, No. 7).

4. Certificate of Compliance as to 8-26-96 order, including amendment of subsections (d) and (g), new subsection (h), and amendment of Note, transmitted to OAL 12-27-96 and filed 2-11-97 (Register 97, No. 7).

5. Amendment of subsection (b) and Note filed 3-29-2010; operative 3-29-2010 pursuant to Government Code section 11343.4 (Register 2010, No. 14).

§2204. Billing and Payment of Fees.

Note • History

(a) Fees for documents described in subdivisions (1) through (11) of § 2202(a) shall be computed and entered by the Commissioner on the Document Submission Formset accompanying the submission. One copy of the Document Submission Formset shall be returned to the submitter, who shall return it with its remittance of fees. See § 2216 for instructions on preparing the Document Submission Formset.

(b) Fees for all other documents described in this Article shall be entered on a Filing Fee Invoice supplied and prepared by the Commissioner.

(c) All filing fees shall be due and payable upon receipt of the completed Document Submission Formset or Filing Fee Invoice from the Commissioner.

NOTE

Authority cited: Sections 742.43, 779.21, 10195.1, 10234, 10327, 10506, 10704 and 12973.9, Insurance Code. Reference: Sections 742.42, 779.8, 1320, 10112.5, 10195.1, 10195.45, 10195.65, 10205, 10231.6, 10232, 10270, 10270.1, 10270.2, 10270.3, 10270.5, 10270.507, 10270.57, 10270.9, 10270.93, 10290, 10292, 10436, 10506, 10705, 10717, 11066, 11069 and 11658, Insurance Code.

HISTORY

1. Amendment of subsection (c) filed 1-9-86; designated effective 2-2-86 pursuant to Government Code Section 11346.2(d) (Register 86, No. 2).

2. Amendment of section and repealer and new Note filed 2-11-97; operative 3-13-97 (Register 97, No. 7).

§2205. Cover Letter.

Note • History

All document submissions must be accompanied by a cover letter in duplicate. The cover letter shall contain the following information.

(a) The form number(s) of one or more of the documents submitted by which the entire submission can be identified.

(b) The subdivision of Section 2202(a) which best describes the forms submitted and whether the forms are group, individual or are to be used in both contexts.

(c) Where the forms submitted provide hospital, medical or surgical coverage through employment, the minimum and the maximum sizes of the employers in terms of number of employees.

(d) Whether each document replaces a previously filed or approved document.

(e) Whether each document is in draft or printer's proof, or is in the final printed form in which it will be distributed to insureds.

(f) For each document (such as a rider) which is designed to be used with another document (such as a policy) not included in the submission, a statement of the type of documents with which it is to be used.

(g) Where a certificate is submitted for use with a previously approved “group” document, the form number and the filing or approval date of the previously approved group document.

(h) Should the submitter be unable to furnish the information requested in subdivisions (a) through (g) of this section, then the cover letter shall contain an explanation of why such information cannot be supplied.

(i) The cover letter shall be accompanied by a stamped, self-addressed business-size return envelope.

(j) Submitters wishing to receive acknowledgement of the Policy Approval Bureau's receipt of their submissions must include a self-addressed, postage pre-paid postcard or letter which the Bureau will return when it receives the submission. Acknowledgments must be drafted so that Department personnel need only enter dates of receipt before mailing; the Department will not telephone acknowledgements nor return acknowledgements by facsimile.

NOTE

Authority cited: Sections 742.43, 779.21, 10195.1, 10234, 10327, 10506 and 10704, Insurance Code. Reference: Sections 742.42, 779.8, 795.5, 1320, 10112.5, 10195.1, 10195.45, 10205, 10225, 10232, 10270, 10270.1, 10270.2, 10270.3, 10270.5, 10270.507, 10270.57, 10270.9, 10270.93, 10290, 10292, 10436, 10506, 10705, 11066, 11069 and 11658, Insurance Code.

HISTORY

1. Repealer of former section 2205 and renumbering of former section 2206 to section 2205, including amendment of section and repealer and new Note, filed 2-11-97; operative 3-13-97 (Register 97, No. 7).

§2206. Mailing Address.

Note • History

(a) Submissions of documents described in subdivisions (1) through (11) of Section 2202(a), except for subdivision (4)(C), shall be addressed to:

CALIFORNIA DEPARTMENT OF INSURANCE
POLICY APPROVAL BUREAU
45 FREMONT STREET
SAN FRANCISCO CA 94105

(b) Submissions of documents described in subdivisions (4)(C), (12) and (13) of Section 2202(a) shall be addressed to:

CALIFORNIA DEPARTMENT OF INSURANCE
OFFICE OF THE CHIEF ACTUARY
300 SOUTH SPRING STREET
LOS ANGELES CA 90013

CALIFORNIA DEPARTMENT OF INSURANCE
CORPORATE AFFAIRS BUREAU
45 FREMONT STREET
SAN FRANCISCO CA 94105

NOTE

Authority cited: Sections 742.43, 779.21, 10195.1, 10234, 10327, 10506 and 10704, Insurance Code. Reference: Sections 742.42, 779.8, 1320, 10112.5, 10195.1, 10195.45, 10195.65, 10205, 10225, 10231.6, 10232, 10270, 10270.1, 10270.2, 10270.3, 10270.5, 10270.507, 10270.57, 10270.9, 10270.93, 10290, 10292, 10436, 10506, 10705, 10717, 11066, 11069 and 11658, Insurance Code.

HISTORY

1. Renumbering and amendment of former section 2206 to section 2205 and new section 2206 filed 2-11-97; operative 3-13-97 (Register 97, No. 7).

§2207. Number of Copies Required.

Note • History

Only one copy of each document need be submitted except as otherwise provided in Section 2214; documents described in Section 2202(a)(12) shall be filed in duplicate. Only those documents in the final printed form in which they will be issued will be formally approved or accepted for filing by the Commissioner.

NOTE

HISTORY

1. Amendment of section and repealer and new Note filed 2-11-97; operative 3-13-97 (Register 97, No. 7).

§2208. Group Certificates.

Note • History

Each group policy submitted, except “wrap around” policies, must include the certificate or certificates to be issued therewith.

NOTE

Authority cited: Sections 742.43, 779.21, 10234, 10327, 10506 and 10704, Insurance Code. Reference: Sections 742.42, 779.8, 795.5, 1320, 10112.5, 10195.45, 10205, 10232, 10270, 10270.1, 10270.2, 10270.3, 10270.5, 10270.507, 10270.57, 10270.9, 10290, 10506, 10705 and 11658, Insurance Code.

HISTORY

1. Amendment of section and repealer and new Note filed 2-11-97; operative 3-13-97 (Register 97, No. 7).

§2209. Applications.

Note • History

Applications and enrollment forms which are to be incorporated in documents which must be submitted to the Commissioner shall be subject to the same filing requirements as the documents in which they are to be incorporated, except as otherwise provided. Where a previously approved application is to be incorporated in a newly submitted document, the cover letter shall state the form number of such application and the date of the Commissioner's action upon it.

NOTE

HISTORY

1. Amendment of section and repealer and new Note filed 2-11-97; operative 3-13-97 (Register 97, No. 7).

§2210. Insert Sheets and Text Cells.

Note • History

Submissions of additional or revised insert sheets for use with previously approved or filed documents must describe the types of documents with which they are to be used and the dates of such documents filing or approval by the Commissioner. Submissions of text cells must describe the types of documents in which they are to be used.

NOTE

HISTORY

1. Amendment of section heading and section and repealer and new Note filed 2-11-97; operative 3-13-97 (Register 97, No. 7).

§2211. Form Numbers Required.

Note • History

Every document submitted pursuant to this Article, except rate schedules, must have a form number which must not be identical with that on any document previously filed or approved by the Commissioner for that insurer. A reprint of a previously approved form which contains any change whatsoever (subject to Section 2202(d), of this Article) is not the same form and its issuance is unlawful unless the reprint is properly submitted and filed or approved. If such changes are editorial in nature, the former form number with an identifying edition number, date or other suffix added will be accepted.

NOTE

Authority cited: Sections 742.43, 779.21, 10195.1, 10234, 10327, 10506 and 10704, Insurance Code. Reference: Sections 742.42, 779.8, 795.5, 1320, 10112.5, 10195.1, 10195.45, 10205, 10225, 10232, 10270, 10270.1, 10270.2, 10270.3, 10270.5, 10270.507, 10270.57, 10270.9, 10290, 10292, 10436, 10506, 10705, 11066, 11069 and 11658, Insurance Code.

HISTORY

1. Amendment of section and repealer and new Note filed 2-11-97; operative 3-13-97 (Register 97, No. 7).

§2212. Blanks to Be Completed.

Note • History

All blanks in documents which are not obviously self explanatory shall be filled in with sample material which will indicate the use to be made of the blanks.

NOTE

HISTORY

1. Amendment of section and repealer and new Note filed 2-11-97; operative 3-13-97 (Register 97, No. 7).

§2213. Variable Text.

Note • History

Submissions of documents containing variable text or blanks shall include complete lists of the variable wording or accurate descriptions of the material to be inserted in lieu of the variable wording or in the blanks of such documents.

NOTE

HISTORY

1. Renumbering of former section 2213 to section 2214 and new section 2213 filed 2-11-97; operative 3-13-97 (Register 97, No. 7).

§2214. Rate Schedules.

Note • History

(a) Where the rates to be used with a submitted document are required to be filed or approved, they shall be included with the initial submission of the document.

(b) Cover letters for submissions of revisions of previously filed or approved rate schedules shall specify:

(1) The nature of the revision relative to the previously filed or approved rate schedules, including whether it will result in increases in premiums charged to existing insureds;

(2) The date of filing or approval of the rate schedule being revised; and,

(3) The form numbers and approval dates of the forms with which the revised rates are to be used.

(4) The Commissioner reserves the right to request additional information concerning revised rate schedules.

(c) Submissions of increases in previously filed or approved rate schedules which will result in increases in premiums charged to existing insureds shall be made in duplicate. Such submissions shall include copies of the revised rate schedules, but in the alternative, submitters may submit schedules displaying the revised rates to be charged to each California resident affected. Insurers desiring that rate filing supporting material be kept confidential in the Department's files must physically segregate that material from the rate schedules.

(d) Actuarially equivalent or deviated credit life and/or disability rates shall be submitted pursuant to any then-current rules of the Commissioner pertaining thereto. In the absence of such rules, submissions of such rates need not specify the form numbers of the documents with which they are to be used, but shall specify the type and amount of the deviation, the class of business, the type of coverage and the name of the creditor or creditors to which the deviated or equivalent rates will apply. Initial filings of upward deviated rates shall include copies of the policy or certificate forms to which those rates will apply.

NOTE

Authority cited: Sections 742.43, 779.21, 10195.1, 10234, 10327 and 10704, Insurance Code. Reference: Sections 742.42, 779.8, 795.5, 1320, 10112.5, 10195.1, 10270.93, 10290 and 10717, Insurance Code.

HISTORY

1. Renumbering of former section 2214 to section 2215 and renumbering of former section 2213 to section 2214, including amendment of section and repealer and new Note, filed 2-11-97; operative 3-13-97 (Register 97, No. 7).

§2215. Classifications of Risks.

Note • History

Classifications of risks which must be filed with the Commissioner may either be included with a document with which they are to be used or may be submitted separately. Once a classification of risks has been filed, it may be used with any appropriate documents filed or approved before or after its date of filing by the Commissioner.

NOTE

Authority cited: Sections 10195.1, 10234, 10327 and 10704, Insurance Code. Reference: Sections 1320, 10112.5, 10270.93, 10290 and 10717, Insurance Code.

HISTORY

1. Incorporation of former section 2215 into section 2216 and renumbering of former section 2214 to section 2215, including repealer and new Note filed 2-11-97; operative 3-13-97 (Register 97, No. 7).

§2216. Document Submission Formsets.

Note • History

(a) Submissions of all documents described in subdivisions (1) through (11) of Section 2202(a) shall include three-part Document Submission Formsets. Submitters shall provide their own supply of these formsets and shall complete them according to the instructions on the Specimen Document Submission Formset distributed with Department of Insurance Bulletin 94-6, dated July 5, 1994, available from the Department. The “Submitter and Complete Mailing Address” must be kept within the heavily-bordered box to match the Department's window envelopes. The “Submitter” is the person who should receive notice of Department action on the filing.

Document Submission Formsets shall be printe vertically on 8 1/2 inch by 11 inch paper following the exact format and content of the Specimen Document Submission Formset. Formsets must be printed on “No Carbon Required” paper or be interleaved with carbon paper, so that Department entries will print through to all copies. Formsets assembled from photocopies of the first sheet, without carbon paper interleaved, are unacceptable.

The Commissioner may note disapprovals or nonacceptances for filing on a copy of the Document Submission Formset returned to the submitter or by letter. Where a document has been rejected by notation on a Document Submission Formset, a new, properly-completed Document Submission Formset must be included if the document is resubmitted. Upon Approval or Acknowledgement for Filing, the Commissioner shall return one copy of the Document Submission Formset to the submitter. The Commissioner shall indicate his action on each document submitted in the appropriate column adjacent to the form number of the document in accordance with Section 2217.

(b) Documents described in different subdivisions of Section 2202(a) of this Article shall not be submitted with the same Document Submission Formset. Forms intended for use in both group and individual products shall be submitted only as individual forms, except where the individual form is not subject to filing; forms intended for use in both life and disability products shall be submitted only as disability forms.

(c) Document Submission Formsets accompanying rate filings shall display the form numbers of the documents to which the rates apply in the “Document Form Number” column and “Rates” in the “Doc Type” column.

(d) The Commissioner reserves the right to require Document Submission Formsets with submissions of any other documents which must be submitted for action. Such requirement may be imposed by prior notice to affected submitters by Bulletin, Notice or letter.

(e) The copy of the Document Submission Formset returned to the submitter by the Commissioner is the submitter's only evidence of the Commissioner's action on filings subject to this Section. Any conditions to the Commissioner's action may be noted either on the Formset or in a letter referred to on the Formset.

NOTE

HISTORY

1. Renumbering of former section 2216 to section 2216(e) and renumbering of former section 2215 to section 2216(a)-(d), including amendment of section heading and section and repealer and new Note filed 2-11-97; operative 3-13-97 (Register 97, No. 7).

§2217. Definitions of Actions on Submissions.

Note • History

(a) “Issue Authorized” (abbreviated as “AUT” on Document Submission Formsets) indicates that a document subject to prior approval maybe lawfully issued after the date of authorization.

(b) “Acknowledged for Filing” (abbreviated as “ACK”) indicates that a document which must be filed with but not approved by the Commissioner may be issued or used after the date upon which it is Acknowledged for Filing.

(c) “Disapproved” (abbreviated as “DIS”) indicates that a document subject to prior approval is defective and that its issue or use is unlawful.

(d) “Unacceptable for Filing” (abbreviated as “UFF”) indicates that a document which must be filed with but not approved by the Commissioner is technically defective and its issue or use may be contrary to law.

(e) “Unobjectionable as to Text” (abbreviated as “UAT”) indicates that a document subject to prior approval is free from substantive defect but its use or issue is unlawful either because it is not in final form or because another document with which it is to be used has not been Issue Authorized or Acknowledged for Filing.

(f) “Pending” (abbreviated as “PEN”) indicates that a submission is incomplete and additional information or material is required before the Commissioner can take further action.

(g) “No Action” (abbreviated as “NAC”) indicates that the document submitted is not required to be either filed with or approved by the Commissioner.

(h) “Withdrawn” (abbreviated as “WIT”) indicates that the submitter has withdrawn a document from further processing by the Commissioner. Submissions which the Commissioner has “Disapproved” or deemed to be “Unacceptable for Filing”, “Unobjectionable as to Text” or “Pending”, and which have not been resubmitted for further processing within six months of such action, shall be deemed to have been withdrawn by the submitter.

NOTE

HISTORY

1. Amendment of subsections (a)-(g), new subsection (h) and repealer and new Note filed 2-11-97; operative 3-13-97 (Register 97, No. 7).

§2218. Workers' Compensation Forms and Rates.

Note • History

(a) All workers' compensation insurance forms must be submitted in duplicate to the Workers' Compensation Insurance Rating Bureau of California for preliminary inspection. The Bureau shall review such forms and submit them to the Commissioner for final action.

(b) Workers' compensation rates shall be filed as provided in § 2509.30, et seq, of this Chapter.

NOTE

Authority cited: Sections 11658 and 11659 Insurance Code. Reference: Sections 11658, 11659 and 11735, Insurance Code; and Section 2509.30, et seq, Code of Regulations, Title 10.

HISTORY

1. Amendment filed 1-21-81; effective thirtieth day thereafter (Register 81, No. 4).

2. Amendment filed 12-30-83; designated effective 1-1-84 pursuant to Government Code Section 11346.2 (d) (Register 84, No. 1).

3. Amendment of section heading and section and repealer and new Note filed 2-11-97; operative 3-13-97 (Register 97, No. 7).

§2218.1. Effective Date.

Note • History

Sections 2200 through 2218 as amended in 1997 will govern all initial submissions and resubmissions of the documents described in Section 2202 of this Article received by the Commissioner on or after March 13, 1997.

NOTE

Authority cited: Sections 742.43, 779.21, 9080.1, 10163.3, 10195.1, 10234, 10327, 10489.93, 10506, 10704, 11027, 11029, 11066, 11069, 11521.5, 11658, 12250 and 12973.9, Insurance Code. Reference: Sections 742.42, 779.8, 795.5, 1320, 9080.1, 10112.5, 10163.3, 10195.1, 10195.45, 10195.65, 10205, 10225, 10231.6, 10232, 10270, 10270.1, 10270.2, 10270.3, 10270.5, 10270.507, 10270.57, 10270.9, 10270.93, 10290, 10292, 10436, 10489.93, 10506, 10705, 10717, 11027, 11029, 11066, 11069, 11522, 11658 and 12250, Insurance Code.

HISTORY

1. Amendment of section and repealer and new Note filed 2-11-97; operative 3-13-97 (Register 97, No. 7).

§2218.2. Authority; Purpose; Application.

Note • History

(a) This regulation is promulgated under the authority granted to the Commissioner in Section 10191 of the Insurance Code. Its purpose is to establish and maintain a procedure for the filing and approval of group and blanket life and disability documents written by admitted insurers or non-profit hospital service plans in California pursuant to the provisions of Section 10191, in lieu of the requirements for the submission, filing or approval of such documents otherwise set forth in the Insurance Code.

(b) This regulation is applicable to all insurers and non-profit hospital service plans authorized to transact life or disability business in California and to all group and blanket life and disability documents to be issued or delivered in California, excepting certificates and other documents used under policies validly authorized and issued in other jurisdictions and other documents specifically excepted herein or by statute. All documents subject to this regulation will be filed in accord with this regulation after its effective date.

NOTE

Authority cited for Sections 2218.2 through 2218.10; Section 10191, Insurance Code.

HISTORY

1. New Sections 2218.2 through 2218.10 filed 4-27-70; designated effective 7-1-70 (Register 70, No. 18).

§2218.3. Prior Inconsistent Regulation Superseded. [Repealed]

Note • History

NOTE

HISTORY

1. Repealer filed 2-11-97; operative 3-13-97 (Register 97, No. 7).

§2218.4. Insurer's Responsibility to Comply.

Approval under Section 10191 is in lieu of prior substantive review and does not constitute prior text approval except to the extent that certain language may be described or defined in any document guidelines adopted by the Department. It is the responsibility of the insurer to effect compliance with all applicable statutory provisions, regulations, and any guidelines adopted by the Department.

§2218.5. Filing Procedure; Approvals; Disapprovals.

Note • History

(a) All submissions are to include:

(1) A cover letter complying with § 2205.

(2) A Document Submission Formset complying with § 2216 and one copy of all relevant Certificates of Compliance set forth in Section 2218.9 below. When a submission does not contain a policy, one or more documents may be submitted under one Certificate of Compliance and the Document Submission Formset shall indicate the policy forms or category of forms with which each document will be used, and the Certificate shall be marked to indicate which affirmations are relevant to which document. When a submission contains a policy, only that policy and its related forms may be included.

(3) One copy of the submitted forms if the documents do not vary from applicable statutes or regulations, or two copies if there are any substantive variations. All such variations are to be clearly marked or indicated on both copies and where not inconsistent with this regulation shall be filed in conformity with Sections 2200 - 2217.

(b)(1) Except as provided in Section 2218.10, group and blanket life and group disability forms shall be approved for use without review when accompanied by a Certificate or Certificates of Compliance which conform with the requirements of this regulation. The date of approval for use will be the date stamped by the Insurance Department on the copy of the Document Submission Formset returned to the insurer. When such forms are approved for use under Section 10191, one copy of the Document Submission Formset will be returned to the insurer with that fact and the filing charges and invoice number indicated thereon.

(2) If such forms are not approved for use, that fact will be indicated on the copy of the Document Submission formset and the objections to approval will be noted either by letter or on one copy of the Document Submission Formset or on the second copy of such forms and returned to the insurer, and the Department shall specify the reasons the submitted forms do not comply with the particular sections of the statutory provisions or regulations or guidelines.

NOTE

Authority cited: Sections 10191 and 10327, Insurance Code. Reference: Sections 1320, 10112.5, 10205, 10225, 10270, 10270.1, 10270.3, 10270.5, 10270.507, 10270.57, 10270.9 and 10290, Insurance Code.

HISTORY

1. Amendment of section and new Note filed 2-11-97; operative 3-13-97 (Register 97, No. 7).

§2218.6. Subsequent Review of Approved Forms.

Documents which are returned to the insurer by the Department as approved and filed for use under Section 10191, as provided in Section 2218.5 (b) (l) of this regulation, may be subsequently reviewed by the Insurance Commissioner when he deems necessary. The review by the Commissioner shall be based upon the guidelines in effect on the date the document was filed.

§2218.7. Guidelines; Adoption by Commissioner.

To facilitate compliance with this regulation, the Commissioner will adopt which the initial guidelines were developed appropriate guidelines. The guidelines will be periodically brought to date by appropriate revisions, and such revisions will be developed in the same manner in which the initial guidelines were developed.

§2218.8. Submission Forms.

All documents submitted under this regulation shall be accompanied by a Document Submission form and the appropriate Certificate or Certificates of Compliance. In the event a document applies to both group life and group disability, it shall be accompanied by a Group Life Certificate of Compliance and a Group Disability Certificate of Compliance. Such Certificates shall use 8-point or larger type sizes.

§2218.9. Document Submission Forms and Certificates of Compliance.

Note • History

Specimen copies of the following forms are available from the Legal Division of the Department of Insurance. Submitters are responsible for obtaining their own supplies of such forms.

Document Submission Formset

Group Life Certificate of Compliance

Group Disability Certificate of Compliance

Blanket life Certificate of Compliance

Blanket Disability Certificate of Compliance

Tuition Refund Certificate of Compliance

NOTE

Authority cited: Sections 779.21, 10191, 10506 and 10507.4, Insurance Code. Reference: Sections 779.8, 779.13, 10205, 10205.5, 10205.6, 10225, 10270.1, 10270.2, 10270.3, 10270.5, 10270.57, 10270.9, 10270.91, 10270.92, 10270.93, 10290, 10292, 10506, 10507.2, 11066, 11069, 11512.4, 11513, 11513.1, 11513.2, 11515 and 11658, Insurance Code.

HISTORY

1. Repealer and new section filed 1-9-86; designated effective 2-2-86 pursuant to Government Code Section 11346.2(d) (Register 86, No. 2).

§2218.10. Forms Requiring Prior Substantive Review.

Note • History

(a) This regulation shall control the filing of all group and blanket life and group disability insurance documents required by law to be filed by the Sections cited in Ins. C. §10191 except the following which must submitted for prior substantive review in accord with contemporary Department standards:

(1) Document filings involving concepts of insurance or types of coverage which may be considered as uncommon or unusual and which are not encompassed in any form of the insurer authorized by this Department at the time of the said filing, nor in any form filed in this State from which the submitted form has been copied.

(2) Documents proposed for use in transacting either group life, group disability, blanket life insurance in California, where the submitting insurer has not been:

(A) admitted to transact the relevant classes of business in California, and

(B) actively transacting the type of insurance in question in California for three years prior to the date of the submission, unless and until such prior substantive review is expressly waived by the Commissioner in writing.

(b) The Commissioner may for reasonable cause and upon written notice to the insurer reinstate a prior substantive approval requirement as to an insurer for whatever length of time he has reasonable cause to require such prior substantive approval in the interest of the public.

NOTE

Authority cited: Sections 10191 and 10327, Insurance Code. Reference: Sections 1320, 10112.5, 10205, 10225, 10270, 10270.1, 10270.3, 10270.5, 10270.507, 10270.57, 10270.9 and 10290, Insurance Code.

HISTORY

1. Amendment of section and new Note filed 2-11-97; operative 3-13-97 (Register 97, No. 7).

Article 1.1. Insurer Notice and Consent Forms; Confidentiality Requirements

§2218.20. Informed Consent for Testing Genetic Characteristics and Confidentiality Agreement.

Note • History

(a) To obtain the informed consent to test genetic characteristics of an applicant for life or disability income insurance, or of the proposed insured if the applicant and proposed insured are not one person, and to assure confidentiality of tests of genetic characteristics, life and disability income insurers must use a document, printed in at least 10-point typeface, containing the languages set forth below (but not the instructions indicated in brackets and bold type-face). Blanks must be filled in, as indicated in the bracketed instructions, prior to delivery of the form to an applicant, or proposed insured (as appropriate), for review and signature. A life or disability income insurer that obtains an informed consent and confidentiality agreement with respect to a test of genetic characteristics must give a copy of the signed agreement to the insured.

NOTICE AND CONSENT TO TEST GENETIC CHARACTERISTICS AND CONFIDENTIALITY AGREEMENT

To determine whether or not to issue a life and/or a disability income insurance policy to you, and for purposes specified below, if any, which are related to a determination whether or not to issue a life and/or a disability income policy to you, we, [Insert full name of insurer.], require you to undergo testing of your genetic characteristics. Accordingly, we request your authorization to test you for the following scientifically or medically identifiable gene(s) or chromosome(s), or alteration(s) thereof, which is/are known to be a cause of, or which is/are determined to be associated with a statistically increased risk of development of the following disease(s) or disorder(s):

Gene/Chromosome: [Indicate gene(s) or chromosome(s).]

Disease/Disorder: [Indicate disease(s) or disorder(s).]

We will not obtain a test of any other genetic characteristics unless, in accordance with applicable law, we obtain an additional, separate written consent from you to do so. We will only test genes or chromosomes, or alterations thereof, which are presently associated with symptoms of the disease(s) or disorder(s) indicated above. We will, however, test the gene(s) or chromosome(s), or alteration(s) thereof, indicated above, which are presently associated with symptoms of the disease(s) or disorder(s) indicated above, whether or not you presently have symptoms of the disease(s) or disorder(s) with respect to which the test(s) will be conducted. We will pay the full cost for administering the test(s) of the gene(s) and/or chromosome(s) indicated above, interpreting the results of the test(s) specified above to the extent we consider necessary to make our determination whether or not to issue a life and/or disability income policy to you, and informing you about the results and interpretation of the test(s).

The following test(s) will be performed on you: [Identify each test by name and scientific reference identifier, if any.]

[Here, indicate what will be tested, and by whom, and, in plain language, the test methodology. For example, “The X laboratory will take a sample of your blood and examine it microscopically.” Also provide the address and telephone number of the tester.]

Our primary purpose of the test(s) authorized by you is to obtain information about: [State the genetic characteristic(s) which will be indicated by the test or tests listed above.], in order to determine whether or not to issue a life and/or disability income insurance policy to you.

Other uses of the test(s) authorized, which are related to making a determination whether or not to issue a life and/or disability income insurance policy to you, include: [Indicate all uses which you will make of the test results, including but not limited to a decision about underwriting, and the effect of the results of the test(s) on premiums.] We will not use the tests for any other purposes.

Limitations of the test(s) include: [For each test authorized, indicate the limitations of the test, including, but not limited to, the relative degree of accuracy of each.]

We will notify you promptly and in writing about the results of the test(s) of your genetic characteristics. Our written notice to you of those results will provide you with the interpretation of the results of the test(s) of your genetic characteristics which we obtain with respect to making a determination whether or not to issue a life and/or disability income insurance policy to you. We recommend that you give us the name and address in the space below of a physician who can explain the test results and the interpretation of those results which we obtain more fully to you. If you give us the name and address of such a person, we will send the test results and the interpretation of those results which we obtain to that person and notify you in writing that we have done so. If you do not give us the name of a physician, we will send the test results and the interpretation of those results which we obtain directly to you.

We will treat the fact that you were asked to be tested, and whether or not you agreed to be tested, and the results and interpretation of the results of your test(s) which we obtain confidentially. Only persons within our company or under contract with our company who have a need to know about the testing and the test results for our underwriting purposes, and persons necessarily involved in administering the test and interpreting the test results for us, will have access to information about our request to test your genetic characteristics, whether or not you agreed to be tested for genetic characteristics for us, or the results and interpretation of the results of the test(s) of your genetic characteristics which we obtain. We will not disclose, nor allow anyone under contract with us or in our employ to disclose, information about our request to test your genetic characteristics, whether or not you agreed to be tested for genetic characteristics for us, or the results and interpretation of the results of the test(s) of your genetic characteristics which we obtain to anyone else unless you first authorize us in writing to do so, or we are compelled by law to do so.

Your signature below indicates that you have read and you understand this Notice and Consent to Test Genetic Characteristics and Confidentiality Agreement, and the obligations imposed on us by this document, and you voluntarily agree to submit to the test(s) indicated above. Your signature also indicates that you have received a copy of this document, and that a photocopy of this document which reflects your signature may be used by us to obtain testing of your genetic characteristics, as indicated above.

This authorization to test your genetic characteristics expires ninety (90) days from the date you sign it; however, you may revoke it at any time. Our obligations set forth in this Notice and Consent to Test Genetic Characteristics and Confidentiality Agreement, including but not limited to our obligations regarding confidentiality, do not expire, nor may we revoke or amend them without your prior written consent.

_____________________________ ___________

Signature of Proposed Insured Date

_______________________________

Signature of Parent or Guardian

(When required by law)

Physician to Whom Test Results May Be Sent:

Name: ________________________ Address: ___________________ Telephone: ________________

NOTE

Authority cited: Article 2.6 of Chapter 1 of Part 2 of Division 2 and Section 10148, California Insurance Code. Reference: Article 2.6 of Chapter 1 of Part 2 of Division 2 and Sections 10146-10149.1, California Insurance Code.

HISTORY

1. New article 1.1 (section 2218.20) and section filed 3-5-98; operative 4-4-98 (Register 98, No. 10).

Article 1.3. Mandated Benefits Analysis Regulations

§2218.60. Definitions.

Note • History

(a) The term “health insurer” means any disability insurer that issues a policy of “health insurance” as defined in California Insurance Code Section 106.

(b) The term “number of covered lives” means the sum of all named insureds and all covered dependents insured by a health insurer.

(c) The term “percent to total ratio” means the total number of covered lives insured by a health insurer in the state of California divided by the total number of covered lives insured by all health insurers in the state of California.

(d) The term “total need” means the dollar amount the Department of Insurance has determined that it is responsible for and has stipulated in order to fund the University of California study of mandated benefits required by California Health and Safety Code Section 127760. The dollar amount of the “total need” shall be calculated in the manner described in 2218.61(b).

NOTE

Authority cited: Sections 127662 and 127664, Health and Safety Code; and Sections 12921 and 12926, Insurance Code. Reference: Section 106, Insurance Code; and Sections 127660, 127661, 127662, 127663 and 127664, Health and Safety Code.

HISTORY

1. New article 1.3 (sections 2218.60-2218.63) and section filed 4-1-2005; operative 5-1-2005 (Register 2005, No. 13).

§2218.61. Assessment of Fee.

Note • History

(a) Each health insurer shall be assessed, and shall pay, a fee in an amount determined by the formula set forth in Section 2218.62 for each policy written in California for insurance or group disability insurance that provides coverage for hospital, medical, or surgical benefits; however, health insurance described in Health & Safety Code Section 127662(c)(4) shall not be subject to any assessment by the Commissioner.

(b) The dollar amount of total need shall be determined by the Department of Insurance and the Department of Managed Care in consultation with the University of California and shall be limited to the amount necessary to fund the actual and necessary expenses of the university and its work in implementing Health and Safety Code Section 127660. The total amount of assessment on health insurers and health care service plans when combined together shall not exceed two million dollars ($2,000,000.00) annually. The total annual assessment of health insurers shall not exceed 12.4% of the total annual assessment of health insurers and health care services plans combined.

(c) The Commissioner shall calculate and levy an assessment of all health insurers equal to the appropriation contained in the State Budget for the administrative and operational costs arising from the provisions of Chapter 7 (commencing with Section 127660), Part 2 of Division 107 of the Health and Safety Code plus or minus such amounts as the Commissioner deems necessary as a contingency against unanticipated fluctuations in expenditures and revenues and plus or minus such amounts as the Commissioner deems necessary to correct for over-collections or under-collections in prior years.

(d) The Commissioner may adjust the amount set forth in (b) above as necessary to minimize costs by excluding assessment amounts that are too small to justify the cost of such assessment and collection or if such assessment or collection is impractical.

NOTE

HISTORY

1. New section filed 4-1-2005; operative 5-1-2005 (Register 2005, No. 13).

§2218.62. Formula for Calculating Fee.

Note • History

(a) The formula for calculating the fee assessed from each health insurer set forth pursuant to 2218.61 shall be based on the number of covered lives insured by a health insurer in the calendar year preceding the first day of the fiscal year in which the assessment is made, calculated by annual statement line of insurance.

(b) The formula for calculating the fee as described in Section 2218.61 is as follows: The aggregate of all covered lives insured by an insurer will be used to determine a percent-to-total ratio for each insurer. This ratio will be multiplied by the total need as defined in Section 2218.60(d) to calculate the amount of the fee to be assessed to each insurer.

NOTE

HISTORY

1. New section filed 4-1-2005; operative 5-1-2005 (Register 2005, No. 13).

§2218.63. Issuance of Invoice and Disposition of Assessment Proceeds.

Note • History

(a) The Department of Insurance shall issue an invoice to each health insurer setting forth the amount of the assessment owed. The invoice shall be issued no later than the fifteenth day of June for any assessment.

(b) The invoice described in Section 2218.63(a) shall assess a fee calculated in the manner described in 2218.62 from each health insurer for the Fiscal Years 2006-07, 2007-08, 2008-09 and 2009-10.

(c) Any amount set forth in the invoice described in 2218.63(a) shall be due and payable upon receipt and shall be considered delinquent if the total amount invoiced is not received within 45 days of the date that the invoice is issued.

(d) Fees assessed and collected pursuant to this section shall be deposited in the Health Care Benefits Fund for the sole purpose of collecting and disbursing funds for the administrative and operational costs arising from the provisions of Chapter 7 (commencing with Section 127660), Part 2 of Division 107 of the Health and Safety Code.

NOTE

HISTORY

1. New section filed 4-1-2005; operative 5-1-2005 (Register 2005, No. 13).

2. Amendment of subsection (b) filed 10-10-2007; operative 11-9-2007 (Register 2007, No. 41).

Article 1.5. Standards for Determining Conformity of Individual Disability Policies with the Provisions of Paragraph (7) of Subdivision (b) of Section 10291.5 of the Insurance Code

§2219. Purpose and Scope.

History

Insurance Code Section 10290 requires all individual disability policy forms must be submitted to the Insurance Commissioner for approval. The provisions of this Article, as specified, are applicable to all such disability policy forms submitted to the Insurance Commissioner for approval on and after January 1, 1973. Subdivision (c) of Section 10291.6, Insurance Code, provides that the Insurance Commissioner may promulgate rules establishing certain standards, conforming to the provisions of Subdivision (b) of said Section 10291.5, by which individual disability policies will be disapproved or approval thereof withdrawn, other than as provided in Subdivision (j) of Insurance Code Section 10291.5. This Article contains some standards of that nature, but such standards herein are limited to standards conforming to the provisions of Paragraph (7) of said Subdivision (b) by which such policies will be disapproved or approval thereof withdrawn. Such standards cannot anticipate all insurance benefits which may be contained in policies hereafter submitted for approval. Promulgation of these rules does not limit the responsibility of the Commissioner, imposed upon him by law, in respect to all such policy forms, to approve, disapprove or withdraw approval of policy forms in accordance with all applicable statutes and regulations.

HISTORY

1. New Article 1.5 (2219, 2220, 2220.1 to 2220.26, inclusive) filed 10-25-50; effective thirtieth day thereafter (Register 22, No. 2).

2. Repealer of Article 1.5 and new Article 1.5 (2219, 2220, 2220.1 through 2220.31 filed 11-3-72; effective thirtieth day thereafter (Register 72, No. 45).

DEFINITIONS

§2220. Terms Defined.

As used in this article the words and phrases defined in Sections 2220.1 to 2220.6 have the meanings set forth therein.

§2220.1. Policy.

(a) “Disability policy” or “policy” or “policy form” includes all of the following except when issued to: (1) supplement Medicare (Health Insurance for the Aged Act, Social Security Amendments of 1965, as amended) other than to the extent specified in this Article; or (2) to supplement other governmental programs; or (3) when issued as credit disability insurance written in accordance with the provisions of Article 5.9, Division 1, Part 2 of the Insurance Code; or (4) when issued as mortgage disability insurance; or (5) when issued as a conversion policy when group coverage (either insured or noninsured) is terminated, or when issued in accordance with a conversion privilege specified in any in-force individual policy:

(1) A policy of disability insurance insuring only one person;

(2) A policy of family disability insurance as defines in either Insurance Code Section 10270.7 or 10320(c);

(3) A policy of disability insurance issued on a selected group basis pursuant to Insurance Code Section 10270.97; and

(4) Any rider or other document or endorsement attached or to be attached, as a part thereof, to any policy described in (1), (2) or (3) above.

(b) A rider issued to be attached to an in-force policy is not subject to the provisions of Sections 2220.8 to 2220.30, inclusive, if the rider modifies a benefit of the same type contained in the policy by increasing its amount, extending the duration of payment, reducing the waiting period, reducing the elimination period, reducing a deductible or reducing a coinsurance percentage factor.

§2220.2. Industrial Insurance.

“Industrial Insurance” means that form of disability insurance embodied in a disability policy which is issued on an industrial debit basis and which provides, at issue, either: (a) that premiums are payable weekly, or (b) that premiums are payable monthly at a rate not greater than $15.00 per person insured per month.

It shall be presumed for the purposes of this Article that a policy will not be issued on an industrial debit basis unless:

(1) The words “Industrial Policy” are printed upon the policy as a part of the descriptive matter, or

(2) When submitted to the Commissioner, it is accompanied by a written certificate, over the signature of an executive officer of the company, to the effect that such policy will be issued on such basis only.

§2220.3. Waiting Period.

“Waiting period” means the period of time specified in a policy which must follow the issue, or reinstatement, date of the policy in respect to a particular insured person before the coverage or coverages of the policy become effective as to such insured person.

§2220.4. Elimination Period.

“Elimination period” means the initial period of time, during the continuance of a continuance insured against and specified in respect to a particular benefit, for which such benefit will not be paid.

§2220.5. Dismemberments.

“Double dismemberment” means dismemberment described and defined in Insurance Code Section 10291.5 (b) (8) (i); and “single dismemberment” means loss of one only of any of the members described in such Code Section.

§2220.6. Time and Amount Equivalents.

Periods of time or dollar amounts defining standards in this Article may also be expressed in rounded equivalents. For example, the following, respectively illustrate equivalent periods of time:

(1) One month, four weeks and thirty days.

(2) Three months, thirteen weeks and ninety days.

(3) Twelve months, one year and three hundred sixty days.The following, respectively, illustrate equivalent dollar amounts:

(1) “$100 per month” and “$25 per week.”

(2) “$300 (or $280) per month” and “$70 per week” and “$10 per day.”

A benefit payable as long as the insured shall live and remain disabled shall be deemed to be payable for a period of time not less than any period of time specified in the standards contained in this Article.

STANDARDS

§2220.7. Effect of Standards.

Any policy containing a type of coverage which, under the provisions of Sections 2220.8 to 2220.30, inclusive, shall be deemed not sufficient to be of real economic value to insureds shall be disapproved by the Commissioner unless it is specifically demonstrated to him in writing to his satisfaction that such coverage will be of real economic value to insureds under the special circumstances of issuance, in which case the Commissioner shall approve issuance of such policies only in such special circumstances. This section shall be liberally construed to permit experimentation and adaptation to economic or social changes, which the Commissioner hereby declares to be in the public interest.

§2220.8. Exceptions, Limitations and Reductions.

History

(a) A benefit shall be deemed not sufficient to be of real economic value to the insured if it is subject to exceptions, limitations or reductions concerning any subject matter other than the following:

(b) War; service in armed forces; workers' compensation; participation in a riot or insurrection; suicide or attempted suicide; intentionally self-inflicted injury; voluntary or involuntary inhalation of gas; mental or emotional disorders or functional nervous disorders; pregnancy or childbirth; treatment on or to the teeth or gums except when necessitated by accident; hallucinatory drugs; while a passenger other than a fare-paying passenger in any aircraft or while passenger in a military aircraft or acting as pilot or crew in any aircraft; facilities for treatment of armed forces members or ex-members except when an actual charge is made; services for which no charge is made in the absence of insurance; services covered under any governmental plan except those governmental plans which by law either define or specify disability insurance coverage as primary; rest cure or routine medical examinations; eye refractions or eye glasses; hearing aids; surgery for cosmetic purposes; motorcycle use; racing contests; professional athletics; hazardous avocations (when the hazardous avocation is specified specifically); reasonable territorial limits.

(c) A limitation which constitutes a reasonable definition of the losses covered and the benefits provided shall not be construed as materially lessening the value of the benefit if the definition is not otherwise inconsistent with any provision of this Article.

(d) The words “exceptions, limitations, or reductions” as used in this section shall not prohibit any provision which the Insurance Code specifies permissible or which is approved by the Insurance Commissioner, and shall not include any provision contained in any insuring paragraph or paragraphs that modifies solely the subject thereof, where such insuring paragraph or paragraphs, including such provision, constitutes, over all, an affirmative definition of one of the hazards, a class of hazards or all of the hazards which the policy insures against and which the Insurance Commissioner deems to be a reasonable definition or statement of one or more of the hazards which the policy insures against.

(e) This section shall not apply to any matter contained in any rider the original or copy of which is signed by the insured and issued for attachment to the policy when the policy is issued or reinstated when the rider is used solely to waiver coverage for existing specified medical or physical conditions which actually exist. Such a rider may also be used to waive coverage for specified hazardous avocations.

The words and phrases designated in this section as “subject matters” of exceptions, limitations and reductions are to be given a broad generic interpretation and do not control the actual words or phrases used are not less favorable to the insured person than the words or phrases used in this section.

HISTORY

1. Amendment of subsection (b) filed 12-2-75; designated effective 1-1-76 (Register 75, No.49).

§2220.9. Authority of Insurance Commissioner to Approve Other Exceptions, Limitations and Reductions.

The provisions of Section 2220.8 shall not be deemed to prohibit the Insurance Commissioner from approving the subject matter of other exceptions, limitations and reductions under the procedure specified in Section 2220.7 when the insurer demonstrates to the satisfaction of the Commissioner the need and the reasonable scope of the exception, limitation or reduction in writing to the Commissioner.

§2220.10. Waiting Periods.

A sickness benefit shall be deemed not sufficient to be of real economic value to a covered person if one or more coverages become effective more than 30 days after the effective date of the policy or rider or is subject to a waiting period greater than:

(a) Ten months for pregnancy, childbirth or miscarriage; or when the waiting period is expressed in terms of the inception of the pregnancy, 30 days after the effective date of the policy or rider; or

(b) Six months for hernia; disorder of the reproductive organs; tuberculosis; cancer; tumors; varicose veins; adenoids; appendix; tonsils; gallbladder; rectum; thyroid gland, and diseases of the heart; and

§2220.11. Loss-of-Time Generally.

A loss-of-time benefit provided by a policy shall be deemed not sufficient to be of real economic value to the insured if:

(a) Its amount is less than:

(1) $100 per month payable at ages up to 62 and $50 per month payable at ages after 62; except

(2) In the case of industrial insurance or insurance issued to cover persons not gainfully employed, if its amount is less than $60 per month payable at ages up to 62 and $30 per month payable after age 62; or

(b) Its elimination period, if any, exceeds:

(1) 90 days in the case of a policy which provides a benefit period of one year or less; or

(2) 365 days if the benefit is payable for not less than two years and is payable in an amount less than $200 per month; or

(3) 180 days in all other cases.

(c) The maximum period of time for which it is payable during disability, other than as specified in Subsection (b) of this section, is less than:

Six months, except in the case of such a benefit payable for disability arising out of pregnancy, childbirth or miscarriage the benefit period may be one month.

Subsection (a) of this section shall not apply to additional loss-of-time benefits issued by the same insurer by rider or issued by the same insurer under guaranteed insurability or future purchase option provisions which are part of the policy or benefits issued by application of a cash dividend. The Commissioner may, in accordance with the provision of Section 2220.7, in his discretion, approve other loss-of-time benefits designed and actually programmed to supplement continuance programs, California Unemployment Compensation Disability benefits and Social Security total disability benefits.

The phrase “actually programmed” as used in this section and in Section 2220.15, means an insurance program designed for a specific person in a person to person face to face interview with the individual insured or prospective insured by an insurance agent or broker.

§2220.12. Partial Disability.

Section 2220.11 shall not be applicable to a loss-of-time benefit for partial disability which complies with Subsections (b) (2) and (3) of Insurance Code Section 10291.5, irrespective of the amount of the partial disability benefit or the length of time for which is payable, when contained in a policy providing loss-of-time coverage otherwise complying with Section 2220.11.

DISMEMBERMENT AND ACCIDENTAL DEATH BENEFITS

§2220.13. Accidental Death Amounts.

A benefit for accidental death shall be deemed not sufficient to be of real economic value to the insured if its amount is less than $1000.

§2220.14. Dismemberment Amounts.

A benefit for dismemberment regardless of whether resulting from accident or sickness [excluding any such benefit for which an amount is determined in accordance with the provisions of Insurance Code Section 10291.5 (b) (8)] shall be deemed not sufficient to be of real economic value to the insured if:

(a) When a double dismemberment, its amount is less than $1000; and

(b) When a single dismemberment, its amount is less than $500.

BASIC MEDICAL BENEFITS

§2220.15. Basic Hospital Benefits.

(a) A hospital benefit, other than a benefit described in Sections 2220.17 or 2226.20, shall be deemed not sufficient to be of real economic value to the insured if:

(1) The amount of the daily hospital benefit for each covered confined person (provided on either an expense incurred basis or on other than an expense incurred basis) is less than $30.00 per day provided, however, that a policy may provide benefits on an expense incurred basis up to that amount; or

(2) The period the benefit is payable is less than 60 days; or

(3) The amount of the daily hospital benefit for each covered confined person is less than $40.00 per day for the next 53 days; or

(4) The elimination period, if any more than three days for sickness benefits and three days for accident benefits.

(b) This section does not prohibit a policy or rider designed and actually programmed to provide hospital benefit for a specified individual to supplement existing in force coverage if (i) such supplemental daily hospital benefit is not less than $10.00 and the benefit period is not less than 60 days, or (ii) the benefit period is equal to the benefit period of existing in force coverage, or (iii) is a rider issued at the same time as the policy by the same insurer to provide full coverage benefits, such as, a rider to either eliminate or reduce a deductible, waiting period or elimination period.

(c) This section does not apply to additional daily hospital benefits issued to the insured by the same insurer under guaranteed insurability, future purchase options or other similar policy provisions such as, additional benefits issued by application of a cash dividend.

(d) This section does not prohibit a hospital benefit which, in the opinion of the Commissioner, is not less than the actuarial equivalent of one of the benefits specified in Subsection (a) of this section.

§2220.16. Basic Miscellaneous Hospital Services Benefits.

Except to the extent provided otherwise in Section 2220.20, a benefit covering miscellaneous hospital services (other than a benefit described in Sections 2220.19 and 2220.22) shall be deemed not sufficient to be of real economic value to the insured if.

(a) When the benefit specifies a blanket amount for miscellaneous hospital services for unnamed items, such blanket amount is less than five times the largest daily hospital benefit of the policy; or

(b) When the benefit specifies a blanket amount for miscellaneous hospital services for a number of named items, such blanket amount is less than five times the largest daily hospital benefit of the policy, or the items named are less than six in number; or

(c) When the benefit specifies a separate limiting amount per separate item named, the amount per item is less than $15.00 and the aggregate limiting amount for all such items is less than $150 or the items named are less than seven in number and the amounts are not reasonably related; or

(d) Less than six of such items if separately named are of a reasonably normal frequency or occurrence; and

(e) It does not provide benefits under either (a) or (b) or (c) above for diagnostic X-rays, laboratory tests and electrocardiograms on an in-patient basis and also on an out-patient basis for preadmission hospital testing when the procedures are performed within 72 hours of admission to the hospital.

A policy or rider which contains the benefits of this section and Section 2220.15 may be subject to a combined deductible not in excess of $100.00, except that if the miscellaneous hospital service benefits are not less than ten times the daily hospital benefit, the combined deductible may be not in excess of $150.00. This section shall not prohibit a miscellaneous hospital services benefit which, in the opinion of the Commissioner is not less than the actuarial equivalent of one of the specified benefits in this section.

§2220.17. Basic Hospital Benefits Expressed as Increases of Loss-of-Time Benefits.

A benefit expressed as an increase of a loss-of-time benefit (Section 2220.11) during hospital confinement shall be deemed not sufficient to be of real economic value to the insured if:

(a) The increase in the loss-of-time benefit is less than either the lesser of the basic loss-of-time amount required under Section 2220.11 or, if expressed otherwise, if it is less than $300.00 per month, or if the benefit is payable for less than two months duration; except

(b) In the case of industrial insurance, if the increase in the loss-of-time benefit is less than either the lesser of the basic loss-of-time amount required under Section 2220.11 or, if expressed otherwise, it is less than $150 per month, or if the benefit is payable for less than one month duration.

§2220.18. Basic Private Duty Nurse Benefit.

A policy which provides a benefit for in hospital or out of hospital private duty nursing by either a licensed registered nurse (R.N.) or a licensed vocational nurse (L.V.N.) shall be deemed not sufficient to be of real economic value to an insured if:

(a) The amount of the daily private duty nursing benefit is less than $18.00 per shift for not less than one shift per day for a licensed registered nurse or $12.00 per shift for not less than one shift per day for a licensed vocational nurse; or

(b) The maximum period of time for which the benefit is payable is less than 10 days.

A policy which provides a nurse benefit for professional nurse home calls-by either a registered nurse or a vocational nurse shall be deemed not to be of real economic value to the insured unless the benefit equals not less than 25 percent of the benefit provided under Subsections (a) and (b) of this section and is not subject to elimination periods of more than the first three home calls for a sickness benefit and not more than the first three home calls for an accident benefit. A “home call” for the purpose of this section means a personal home visit during any one twenty-four hour period.

§2220.19. Basic Accident Emergency Treatment Benefit.

A separate basic accident emergency treatment benefit shall be deemed not sufficient to be of real economic value to the insured if:

(a) The amount of the benefit is less than one day of the loss-of-time benefit (without application of any elimination period) but in no event less than $10.00 when an emergency accident treatment benefit is provided on other than an expense incurred basis in a loss-of-time policy; or

(b) The benefit is payable on an expense incurred basis, and the amount is less than $25.00; or

(c) The benefit is payable, irrespective of the expense incurred, in other than a loss-of-time policy, and the amount payable is less than $10.00.

§2220.20. Basic Blanket Medical Expense Benefits.

A benefit providing basic blanket coverage (coverage without inside dollar limits for specific items) for basic medical expenses shall not be subject to the provisions of Sections 2220.15, 2220.16 and 2220.17 but shall be deemed not sufficient to be of real economic value to the insured if.

(a) When an accident benefit, its limit is less than $1,000 or the expenses for which it is payable are limited to those incurred within a period of less than six months following each separate accident; or

(b) When a sickness benefit, other than a benefit described in Section 2220.24, is limited to a specifically named sickness, its limit is less than $1,000 or the expenses for which it is payable are limited to those incurred within a period of less than six months following the commencement of any one period of sickness; or

(c) Payments for the expenses of each separate accident or period of sickness are subject to a deductible amount in excess of ten percent of the maximum benefit.

§2220.21. Basic Scheduled Surgical Benefits.

A basic surgical benefit in which surgical operations are listed by name or description with a limiting amount on each item shall be deemed not sufficient to be of real economic value to the insured if the amount provided for the most severe operation is less than $300.00 and the amounts provided for other operations are not reasonably related to such maximum amount and if it fails to contain a proviso that any operation not named and not otherwise excluded will be paid for in an amount which shall be objectively determined by the company on the basis of the gravity and severity of the unnamed operation as compared to analogously named operations.

§2220.22. Basic Pregnancy or Maternity Benefits.

A separate benefit for pregnancy, childbirth or miscarriage, when expressed as a specified dollar amount shall be deemed not sufficient to be of real economic value to the insured if its amount is less than $75.00 for normal delivery and $50.00 for miscarriage during the first policy year and less than $150.00 for normal delivery and $75.00 for miscarriage during subsequent policy years.

§2220.23. Basic Medical Service Benefits.

A benefit for expenses incurred for professional calls of doctors, covering home, office and hospital calls or one or more of such types of calls, shall be deemed not sufficient to be of real economic value to the insured if:

(a) More than the first three home calls, the first three hospital calls, or the first three office calls as the case may be, (counting as a call for such purpose at least one such call actually made during any one twenty-four hour period), are eliminated from the benefit; or

(b) The benefit limits payment for call made and otherwise compensable to fewer than one per twenty-four hour period; or

(c) The amount payable per compensable call is less than $6.00 per home call and less than $6.00 per office or hospital call; or

(d) Compensation provided for expenses of covered calls (whether resulting from each separate accident or sickness or occurring in each separate policy year) is limited:

(1) To a number less than 30 where the limit of such coverage is expressed in terms of number of calls, or

(2) To an amount less than $180.00 where the limit of such coverage is expressed in terms of a stated amount.

This section does not prohibit a provision which provides that physician's calls are not covered for a period after a surgical procedure is performed if the policy form provides a surgical benefit for the surgical procedure performed.

DREAD DISEASE BENEFITS

§2220.24. Dread Disease Benefits.

A sickness benefit which is limited to a delineated or defined field of sickness coverage (such as poliomyelitis, cancer or a specifically named or described disease) shall be deemed not sufficient to be of real economic value to the insured if:

(a) Its maximum limit is less than $10,000, or if the expenses for which it is payable are limited to those incurred for treatment necessitated by each such sickness within a period of less than three years following the commencement of medical treatment for such sickness, or if the benefits are subject to scheduled inside dollar limits and such limits do not meet the minimum requirements of Section 2220.25; or

(b) In lieu of the minimum benefits specified in paragraph (a) above, a policy or rider limited to cancer provides minimum benefits not less than the following: $50 a day for the first 12 days of hospitalization without any elimination period, deductible or coinsurance factor and also $30 a day for each day of continuous hospitalization thereafter with no limit on the number of days of hospitalization; X-ray, radium and cobalt therapy up to a total of $1,500; attending physician's charges in hospital (other than the operating surgeon) of $7.50 per day up to a total of $500; surgical charges in accordance with the 1964 California Relative Value Schedule; anesthetist services either up to $100 for an operation other than for a skin cancer operation for which the anesthetist fee shall be not less than $30 for an operation or in an amount consistent with the amount provided by the 1964 California Relative Value Schedule; nursing expenses of $24 per shift for not less than one shift per day up to a total of $750; blood transfusions and plasma up to a total of $500; prescribed drugs and medicines up to a total of $250; and an overall aggregate limit on all benefits of not less than $10,000.

MAJOR MEDICAL EXPENSE BENEFITS

§2220.25. Major Medical Expense Benefits.

A policy, or rider, shall be deemed to provide major medical expense benefits and shall be deemed to be of real economic value and not subject to Section 2220.15 through 2220.24 if:

(a) The aggregate maximum benefit is not less than $10,000 per covered person.

(b) The coinsurance percentage applicable to expenses covered under Items (f), (g), (h), (i) and (j) below is not more than 25 percent, and the coinsurance percentage applicable to Item (k) and any other covered expense not referred to in this section is not more than 50 percent.

(c) The deductible amount (other than as specified below in this section) is not more than 10 percent of the maximum benefit.

(d) The maximum benefit period for an “each cause” type of policy (where a separate deductible is required for different sicknesses and accidents) is not less than 18 months and the maximum benefit period for an “all cause” type of policy (where separate deductibles are not required for different sicknesses or accidents) is not less than the number of days remaining in the calendar or policy year after the deductible has been met.

(e) The period allowed to satisfy the deductible is not less than 90 days if the deductible is $500 or less, or is not less than 90 plus an additional 30 days for each additional $500, or fraction thereof, of deductible.

(f) Hospital room and board expenses are covered, prior to application of the coinsurance percentage, for not less than $50.00 daily (or in lieu thereof the cost of a semi-private room rate in the area where the insured resides), and is not less than either the cost or double the daily amount during confinement in the hospital's intensive care unit for up to 10 days.

(g) Miscellaneous hospital services are covered, prior to application of the coinsurance percentage, for an aggregate maximum of not less than $1,500.

(h) Surgical fees are covered, prior to application of the coinsurance percentage, to a maximum of not less than $750 for the most severe operation in accordance with a surgical schedule which otherwise meets the requirements of Section 2220.21; and anesthesia services are covered, prior to application of the coinsurance percentage, for a maximum of not less than 15 percent of the covered surgical fees, or, alternatively, if the surgical schedule is based on a California Relative Value Schedule, not less than the amount provided therein for anesthesia services at the same unit value as used for the surgical schedule.

(i) Doctors visits are covered, in or out of the hospital, with minimum dollar amounts per visit, prior to application of the coinsurance percentage, equal to not less than $8.00 per visit, covering not less than one visit per day and for an aggregate maximum of such covered charges of not less than $500.

(j) Out-of-hospital diagnostic X-rays and tests are covered, prior to application of the coinsurance percentage, for an aggregate maximum of not less than $500.

(k) Not fewer than three of the following additional benefits are covered, prior to application of the coinsurance percentage, for an aggregate maximum of not less than $1,000:

(1) In-hospital private duty registered nurse services.

(2) Convalescent nursing home care.

(3) Diagnosis and treatment by a radiologist or physiotherapist.

(4) Rental of special medical equipment, as defined by the insurer in the policy.

(5) Artificial limbs or eyes; casts, splints, trusses or braces.

(6) Treatment for functional nervous disorders, and mental and emotional disorders.

(7) Out-of-hospital prescription drugs and medications.

The deductible amount may be expressed as either: (1) a fixed dollar amount; or (2) the higher of a fixed dollar amount of basic deductible or the policy's covered charges paid by medical expense insurance; or (3) not more than $500 plus the policy covered charges paid by other medical expense insurance.

Notwithstanding the terminology of either this section, or any other section of this Article, this section shall not be interpreted in any manner which is or would be inconsistent with the provisions of any applicable section of the Insurance Code. A benefit under this section shall not be of real economic value to an insured person if any coinsurance percentage factor of the policy is applied as a reduction in benefits prior to application of any deductible.

If a policy, or rider, provides a fixed benefit (a benefit not subject to a coinsurance percentage) for any of the medical expenses referred to in (f), (h) or (i) above, a fixed benefit of 75 percent of the minimum covered charge specified in (f), (h) or (i) shall be acceptable; and, if coinsurance percentages of less than 25 percent are applicable, a lower covered charge will be acceptable if at least as much as 75 percent of the minimum covered charge specified in (f), (h) or (i).

CATASTROPHIC MEDICAL EXPENSE BENEFITS

§2220.26. Catastrophic Medical Expense Benefits.

A policy, or rider, shall be deemed to provide catastrophic major medical expense benefits, and shall be deemed of real economic value and not subject to Sections 2220.15 through 2220.24, if it would otherwise qualify as providing major medical expense benefits under Section 2220.25 and (1) has an aggregate maximum benefit of not less than $25,000 per covered person, and (2) includes benefits for all of the items listed in Section 2220.25 (k) (1) through (k) (6) for an aggregate maximum of not less than $5,000.

§2220.27. Deductibles and Coinsurance Prohibited Unless Specifically Permissible.

Except to the extent specifically provided otherwise in Sections 2220.7 through 2220.30, deductables and coinsurance percentage factors are prohibited by this Article unless the benefits provided are of real economic value and the use of other coinsurance percentage factors and deductibles are approved by the Commissioner in accordance with the procedure provided under Section 2220.7. The Commissioner shall consider under the provision of Section 2220.7 other deductibles and coinsurance percentage factors for basic hospital, medical and surgical coverages provided that the benefits, in the opinion of the Commissioner, are not less than the actuarial equivalent for a covered person of the minimum benefits specified in this Article for the same type of benefit.

§2220.28. Recurrent Confinements and Recurrent Disabilities.

A policy may contain provisions relating to recurrent confinements or recurrent disabilities, provided however, a recurrent confinement provision or a recurrent disability provision shall be deemed not sufficient to be of real economic value to the insured if in applying any two or more periods of confinement or disability the periods of confinement or disability must be separated by more than 6 months.

INSURANCE ISSUED TO PERSONS ELIGIBLE FOR BENEFITS UNDER MEDICARE

§2220.29. Hospital Indemnity Policies.

Note • History

A daily hospital benefit, provided on other than an expense incurred basis and issued to a person eligible for benefits under Medicare, shall be deemed not sufficient to be of real economic value to the person insured if:

(a) It provides a daily hospital benefit of less than $15, payable for less than 60 days, or if it is a hospital benefit for mental disorders, and the period of time the benefit is payable than 30 days; or

(b) The elimination period, if any, exceeds one day for sickness benefits and one day for accident benefits; or

(c) The benefits is subject to any waiting period other than a waiting period for condition specified in Section 2220.10(b); or

(d) It excludes coverages or provides reduced benefits for exceptions, limitations or reductions other than those specified in Section 2220.8; or

(e) It contains a pre-existing condition provision other than as specified in Section 2220.52(a).

A hospital indemnity policy conforming to this Section may not be labeled or described as a Medicare Supplement Policy.

NOTE

Authority cited: Section 10291.5(c), Insurance Code. Reference: Section 10291.5(b) (7), Insurance Code.

HISTORY

1. Amendment filed 4-5-78; effective thirtieth day thereafter (Register 78, No. 14).

2. Amendment of subsection (e) filed 3-31-83; effective thirtieth day thereafter (Register 83, No. 14).

§2220.30. Medicare Supplement Expense Policies. [Repealed]

Note • History

NOTE

Authority cited: Section 10291.5 (c), Insurance Code. Reference: Section 10291.5 (b) (7), Insurance Code.

HISTORY

1. Amendment filed 4-5-78; effective thirtieth day thereafter (Register 78, No. 14).

2. Repealer filed 3-31-83; effective thirtieth day thereafter (Register 83, No. 14).

§2220.31. Prior Inconsistent Regulations and Bulletins Superseded.

This regulation supersedes all prior regulations and bulletins of this Department to the extent that such prior regulations and bulletins are inconsistent with this regulation.

Article 1.6. Medicare Supplement Coverage

§2220.50. Purpose and Scope.

Note • History

This Article establishes minimum benefit and policy provision standards for Medicare supplement coverages which are equal to or exceed those applied in the voluntary certification of such coverages by the United States Secretary of Health and Human Services pursuant to Public Law 96-265.

It shall apply to all individual and group Medicare supplement insurance policies and non-profit hospital service plan benefit agreements approved by the Commissioner after its effective date its effective date. Pursuant to Insurance Code Section 10195, this Article also applies to all certificates providing Medicare supplement coverage issued to California residents pursuant to master policies delivered outside of California.

NOTE

Authority cited: Sections 10291.5 (c) and 10195, Insurance Code. Reference: Sections 10195 and 10291.5(b) (7), Insurance Code.

HISTORY

1. New Article 1.6 (Sections 2220.50--2220.57) filed 3-31-83; effective thirtieth day thereafter (Register 83, No. 14).

§2220.51. Definition.

Note

“Medicare Supplement Coverage” is accident and sickness insurance which is designed primarily to supplement Medicare, or is advertised, marketed, or otherwise purported to be a supplement to Medicare and which meets the requirements of the following rules and standards applicable to any such insurance sold to a person eligible for Medicare by reason of age. It includes any individual, family, selected group (“franchise“) or group disability insurance policy (and certificate) issued in this state, any certificate delivered in this state pursuant to a group master policy issued in another state, and any individual, family or group benefit agreement issued by a non-profit hospital service plan. It excludes group policies issued to one or more employers or labor organizations, or to the trustees of a fund established by one or more employers or labor organizations, or combinations thereof, for employees or former employees, or combinations thereof, for employees or former employees, or combinations thereof, of the labor organization. It also excludes individual policies or contracts issued pursuant to a conversion privilege in a policy or contract of group or individual insurance when the group or individual policy contract includes provisions which are inconsistent with the requirements of this Article.

NOTE

Authority cited: Section 10291.5(c), Insurance Code. Reference: Sections 10195 and 10291.5 (b) (7), Insurance Code.

§2220.52. General Policy Provisions.

Note

The following shall be applicable to “Medicare Supplement Coverage” and shall be in addition to the requirements of Article 1.5, above. These are minimum standards and do not preclude the inclusion of additional benefits in such coverages:

(a) Pre-existing condition limitations shall not exclude coverage for more than six months after the effective date of coverage under the policy for a condition for which medical advice was given or treatment was recommended by or received from a physician within six (6) months before the effect date of the coverage;

(b) The term “Medicare benefit period“shall mean the unit of time used in the Medicare program to measure use of services and availability of benefits under Part A Medicare hospital insurance;

(c) The term “Medicare eligible expenses” shall mean health care expenses of the kinds covered by Medicare, to the extent recognized as reasonable by Medicare. Payment of benefits by insurers for Medicare eligible expenses may be conditioned upon the same or less restrictive payment conditions, including determinations of medical necessity as are applicable to Medicare claims;

(d) The term “Physician” shall mean a licensed practitioner of the healing arts, practicing within the scope of his or her license. It includes all practitioners described in Insurance Code Section 10176.

(e) The term “nurse” shall mean a registered nurse (R.N.) or a licensed vocational nurse (L.V.N.).

(f) The term “Medicare” shall mean the Health Insurance for the Aged Act, Title XVIII of the Social Security Amendments of 1965 as then constituted or later amended.

(g) The terms “Medicare Supplement,” “Medigap” and words of similar import shall not be used to describe a policy unless the policy is issued in compliance with this Article.

(h) Coverage, when issued, shall not be subject to any exclusions, limitations, or reductions (other than as permitted in this Article and other applicable laws and regulations) which are inconsistent with the exclusions, limitations, or reductions permissible under Medicare, other than a provision that coverage is not provided for any expenses to the extent of any benefit available to the insured person under Medicare.

(i) Coverage shall not idemnify against losses resulting from sickness on a different basis than losses resulting from accidents;

(j) Coverage shall provide that benefits designed to cover cost sharing amounts under Medicare will be changed automatically to coincide with any changes in the applicable Medicare deductible amount and co-payment percentage factors; and

(k) Policies providing convalescent or extended care benefits shall not condition such benefits upon admission to the convalescent or extended care facility within a period of less than fourteen (14) days after discharge from the hospital, nor shall they require a hospital confinement exceeding three (3) days.

NOTE

Authority cited: Sections 10291.5 (c) and 10195 (5) (b), Insurance Code. Reference: Section 10291.5(b) (7), Insurance Code.

§2220.53. Minimum Benefit Provisions.

Note

Medicare Supplement Coverages shall provide at least the following benefits to an insured person:

(a) Coverage of Part A Medicare eligible expenses for hospitalization to the extent not covered by Medicare from the 61st day through the 90th day in any Medicare Benefit period;

(b) Coverage of Part A Medicare eligible expenses incurred as daily hospital charges during use of Medicare's lifetime hospital inpatient reserve days;

(c) Upon exhaustion of all Medicare hospital inpatient coverage, including the lifetime reserve days, coverage of 90% of all Medicare Part A eligible expenses for hospitalization not covered by Medicare, subject to a lifetime maximum benefit of an additional 365 days.

(d) Coverage of 20% of the amount of Medicare eligible expenses under Part B regardless of hospital confinement, subject to a maximum calendar year out-of-pocket deductible of $200 of such expenses and to a maximum benefit of at least $5000 per calendar year.

NOTE

Authority cited: Section 10291.5(c), Insurance Code. Reference: Sections 10195 and 10291.5 (b) (7), Insurance Code.

§2220.54. Requirements for Replacement of Medicare Supplement Coverage.

Note

(a) Application forms shall include a question designed to elicit information as to whether the insurance to be issued is intended to replace any other accident and sickness insurance presently in force. A supplementary application or other form to be signed by the applicant containing such a question may be used.

(b) Upon determining that a sale will involve replacement, an insurer, other than a direct response insurer, or its agent shall furnish the applicant, prior to issuance or delivery of the policy, the notice described in (c) below. One (1) copy of such notice shall be retained by the applicant and an additional copy signed by the applicant shall be retained by the insurer. A direct response insurer shall deliver to the applicant upon issuance of the policy, the notice described in (d) below.

(c) The notice required by (b) above for an insurer, than a direct response insurer, shall provide, in substantially the following form:

NOTICE TO APPLICANT REGARDING REPLACEMENT OF ACCIDENT AND SICKNESS INSURANCE

According to (your application) (information you have furnished), you intend to lapse or otherwise terminate existing accident and sickness insurance and replace it with a policy to be issued by (insert Company Name) Insurance Company. For your own information and protection, you should be aware of and seriously consider certain factors which may affect the insurance protection available to you under the new policy.

[1] Health conditions which you may presently have (pre-existing conditions) may not be immediately or fully covered under the new policy. This could result in denial or delay of a claim for benefits under the new policy, whereas a similar claim might have been payable under your present policy. Drafting Notes:

[a] Subsection [1] may be modified if pre-existing conditions are covered under the new policy.

[b] The term “Medicare Supplement Insurance” may be used in lieu of “Accident and Sickness Insurance.”

[2] You may wish to secure the advice of your present insurer or its agent regarding the proposed replacement of your present policy. This is not only your right, but it is also in your best interest to make sure you understand all the relevant factors involved in replacing your present coverage.

[3] If, after due consideration, you still wish to terminate your present policy and replace it with new coverage, be certain to truthfully and completely answer all questions on the application concerning your medical /health history.

Failure to include all material medical information on an application may provide a basis for the company to deny any future claims and to refund your premium as though your policy had never been in force. After the application has been completed and before you sign it, re-read it carefully to be certain that all information has been properly recorded.

The above “Notice to Applicant” was delivered to me on:

_________________

(Date)

_______________________________

(Applicant's Signature)

(d) The notice required by (b) above for a direct response insurer shall be as follows:

NOTICE TO APPLICANT REGARDING REPLACEMENT OF ACCIDENT AND SICKNESS INSURANCE

According to (your application) (information you have furnished) you intend to lapse or otherwise terminate existing accident and sickness insurance and replace it with the policy delivered herewith issued by (insert Company Name) Insurance Company. Your new policy provides 30 days within which you may decide without cost whether you desire to keep the policy. For your own information and protection you should be aware of and seriously consider certain factors which may affect the insurance protection available to you under the new policy.

[3] (To be including only if the application is attached to the policy.) If, after due consideration, you still wish to terminate your present policy and replace it with new coverage, read the copy of the application attached to your new policy and be sure that all questions are answered fully and correctly. Omissions or misstatements in the application could cause an otherwise valid claim to be denied. Carefully check the application and write to (insert Company Name and Address) within 10 days if any information is not correct and complete, or if any past medical history has been left out of the application.

_________________________________

(Company Name)

NOTE

Authority cited: Section 10195(j), Insurance Code. Reference: Section 10195(j), Insurance Code.

§2220.55. Informational Brochure.

Note

Insurers issuing policies which provide hospital or medical expense coverage on an expense incurred or indemnity basis, other than incidentally, to a person eligible for Medicare by reason of age, shall provide to the policyholder, a copy of the Guide to Health Insurance for People with Medicare, developed jointly by the National Association of Insurance Commissioners and the Health Care Financing Administration. Delivery of the Guide shall be made whether or not the policy qualifies as “Medicare Supplement Coverage” in accordance with Section 2220.51. Except in the case of a direct response insurer, delivery of the Guide shall be made at the time of application, and acknowledgment of receipt of certification of delivery of the Guide shall be provided to the insurer. Direct response insurers shall deliver the Guide upon request, but not later than at the time the policy is delivered.

NOTE

Authority cited: Section 10195(h), Insurance Code. Reference: Section 10195(h), Insurance Code.

§2220.56. Loss Ratios.

Note

Policies to supplement Medicare shall develop loss ratios as follows: individual policies 60%, group policies 75%, subject to appropriate standards set forth in Article 1.9, Subchapter 2 of this Title.

NOTE

Authority cited: Section 10195(e), Insurance Code. Reference: Section 10193(a), Section 10195(e), Insurance Code.

§2220.57. Severability.

Note

If any Section or portion of a Section of this Article or the applicability thereof to any person or circumstance, is held invalid by a court, the remainder of this Article, or the applicability of such provision to other persons or circumstances, shall not be affected thereby.

NOTE

Authority cited: Section 10291.5(c), Insurance Code. Reference: Sections 10195 and 10291.5(b)(7), Insurance Code.

§2220.58. Annual Premium Rates and Loss Ratio Experience Filing Requirements for Medicare Supplement Insurance.

Note • History

(a) This regulation applies to all insurers who offer Medicare Supplement Insurance, including pre-standardized Medicare Supplement Insurance plans, standardized Medicare Supplement Insurance plans, and Medicare SELECT plans, whether to individuals or groups.

(b) Annual premium rates and loss ratio experience filings must be made regardless of Medicare changes, an insurer's prior year loss ratio experience, future marketing plans, or whether new premium rates are being requested.

(c) Insurers offering Medicare Supplement Insurance must include the following in their annual filings with the Commissioner of Insurance:

(1) Premium Rate Schedules. Submit premium rate schedules for each individual policy or group certificate. Indicate all special rating factors used for California, such as a zip code rating factor. Indicate whether a premium rate change is requested and, if so, the percentage change.

(2) Policy Forms. Submit specimens of each individual Medicare Supplement Insurance individual policy or group certificate and outlines of coverage for each plan, if revised, new, or not included in a filing for a previous year.

(3) Loss Ratio Experience Exhibits. Provide complete loss ratio information for each Medicare Supplement Insurance plan since the inception of that plan. For rate filings made in anticipation of Medicare benefit changes, include at least nine months' of loss ratio experience (unless the plan has not been marketed for at least nine months, in which case, submit loss ratio experience information for the period the plan was marketed). First quarter filings must include the entire previous year's loss ratio experience. Such information for plans covering fewer than 100 California residents may be combined if the coverages are similar. Re-state the loss ratio information for the previous year, adjusted for run-off accruals to date. Include the number of California residents covered by the plan.

(4) Projected Loss Ratio Experience. Provide projected loss ratio experience for at least five years into the future, reflecting that projected experience both with and without any requested premium rate increase.

(5) NAIC Medicare Supplement Experience Exhibit. Provide a National Association of Insurance Commissioners (NAIC) Experience Exhibit for each individual policy form or group certificate which covers 100 or more California residents.

(6) Actuarial Memorandum. Submit an actuarial memorandum for each Medicare Supplement Insurance plan in accordance with subsection (d).

(d) Medicare Supplement Insurers must provide an actuarial analysis for each individual plan or group certificate that covers 100 or more California residents in an actuarial memorandum. More than one analysis can be combined in one memorandum. Once actuarial analysis may be provided for all individual plans or groups with certificates covering fewer than 100 California residents. Each insurer must use its own data; however, actuarial studies from other sources may be submitted to provide additional information regarding plan renewal assumptions.

Each actuarial analysis and memorandum must include:

(1) Historical and projected premium income, claims, and loss ratio experience for each plan.

(2) A description of coverage, including coverage renewability, whether marketing of the plan is continuing, the date marketing began, and the date marketing stopped, if it has stopped.

(3) For rate increase requests, the average current premium rate and the average premium rate for the proposed new premium rates for California residents, compared to the insurer's average premium rates for current and proposed new premium rates nationally.

(4) Active life reserves at the end of the prior calendar year.

(5) Monthly claim triangulation lag reports for California residents and nationally for the most recent 24 months for each plan or group policy covering 300 or more California residents. Circle or highlight the relevant data showing how the lag reports are used in developing incurred but not reported (IBNR) claims and claim reserves.

(6) A description of the experience and any premium rating request, including trend for benefits not covered by Medicare (e.g., prescription drugs).

(7) National data and rating development presented in the same format as provided for California insureds.

(8) Cost trend assumptions.

(9) Administrative costs, including, but not limited to, commissions, claims processing, customer services, and taxes.

(10) A certification that the loss ratios comply with statutory requirements for loss ratios; and, if a premium rate increase is requested, that the loss ratios will continue to comply with such statutory requirements if a premium rate increase is approved.

(11) A certification that the filed rates are reasonable in relation to benefits provided for each individual policy form or group certificate.

(e) Completion and submission to the Commissioner of the documents and information required in subsection (b), (c), and (d) above, together with evidence that statutorily required minimum loss ratios are met constitutes the minimum standards necessary for approval of a Medicare Supplement Insurance premium rate filing.

NOTE

Authority cited: Section 10195.1(d), Insurance Code. Reference: Section 10195.1, Insurance Code.

HISTORY

1. New section filed 12-11-2000; operative 1-10-2001 (Register 2000, No. 50).

Article 1.7. Transitional Requirements for the Conversion of Medicare Supplement Insurance Benefits and Premiums to Conform to Repeal of Medicare Catastrophic Coverage Act [Repealed]

HISTORY

1. Repealer of article 1.7 (sections 2221-2221.10) by operation of Government Code section 11346.1(g) filed 1-22-91 (Register 91, No. 19).

Article 1.8. Medicare Supplement Insurance--Compliance with Section 4081 of the Omnibus Budget Reconciliation Act of 1987 (Public Law 100-203) [Repealed]

HISTORY

1. Repealer of article 1.8 (sections 2221.50-2221.51) by operation of Government Code section 11346.1(g) (Register 90, No. 6).

Article 1.9. Standards for Determining Whether Benefits of an Individual Hospital, Medical or Surgical Policy Are Unreasonable in Relation to the Premium Charged Pursuant to Subdivision (c) of Section 10293

§2222.10. Applicability.

Note • History

This article is adopted pursuant to and in implementation of Section 10293(a) of the Insurance Code, is applicable to individual disability policies providing hospital, medical or surgical insurance coverages, as defined in Section 2222.11 herein, and mass-marketed policies as defined in Insurance Code section 10293(c)(1), that are either (1) delivered or issued for delivery to any person in this State on or after July 1, 2007, or (2) delivered or issued for delivery to any person in this State on or after July 1, 1962 and subject to any rate revision effective on or after July 1, 2007, and relates to standards by which the Insurance Commissioner shall withdraw approval of policy forms the benefits of which are unreasonable in relation to the premiums charged.

NOTE

Authority cited: Section 10293, Insurance Code. Reference: Section 10293(a), Insurance Code.

HISTORY

1. New Article 1.9 (Sections 2222.10 through 2222.19) filed 12-12-62; effective thirtieth day thereafter (Register 62, No. 25).

2. Amendment filed 5-6-77 as procedural and organizational; effective upon filing (Register 77, No. 19).

3. Amendment of section and Note filed 12-29-2006; operative 3-29-2007 pursuant to Insurance Code section 10293(a) (Register 2006, No. 52).

§2222.11. Definitions.

Note • History

(a) The term “hospital, medical or surgical policy” as used in this article means any disability insurance contract (whether composed solely of a policy or of a policy and one or more riders, endorsements, or amendments attached thereto) designed, constructed, advertised or sold as having as its dominant purpose the provision of benefits contingent upon the rendition of hospital, medical or surgical services. This definition includes a “mass-marketed policy,” as described in Insurance Code section 10293. This definition also includes a policy of “health insurance” as described in Insurance Code section 106(b), but does not include supplemental policies of individual health insurance that provide coverage for vision care expenses only, dental care expenses only, or short-term limited duration health insurance with coverage durations of 6 months or less.

For purposes of this article, the phrase “dominant purpose” means any disability insurance contract (whether composed solely of a policy, or of a policy and one or more riders, endorsements, or amendments attached thereto) upon which at least 50 percent of the initial premium or of any renewal premium is or may be, under the underwriting rules or practices of the insurer, allocated or apportioned or should reasonably be allocated or apportioned to the hospital, medical or surgical benefits provided therein. In case of a “hospital, medical or surgical policy” which contains, in addition to benefits contingent upon the rendition of hospital, medical or surgical services, other benefits which are not subject to this article, the insurer may segregate the earned premiums and the incurred losses for those benefits which are subject to the provision of this article, and the commissioner may require such segregation if substantial benefits not subject to this article are provided. If there is no such segregation, the experience of the policy will be considered as a unit. This definition shall not be construed to include: (1) policies which provide a benefit expressed as an increase of a loss of time benefit during hospital confinement, which is not advertised or sold as a hospital benefit, or (2) a single premium nonrenewable transportation ticket policy having as its dominant feature the protection of the insured from a transportation hazard.

(b) The term “individual” policy as used in this article means a disability policy purporting to insure only one person, except that included within this definition shall be a family policy or family expense policy defined in Section 10320(c) of the Insurance Code.

(c) Policies “issued on a mass underwriting basis” as used in this article shall mean individual hospital, medical, or surgical policies (1) conforming to all of the underwriting and renewal conditions set forth in Section 10270.97 of the Insurance Code, relating to selected group disability insurance; or (2) issued without individual underwriting pursuant to the exercise of a conversion privilege in a group policy; or (3) issued at lower than the individual policy rates otherwise charged predicated on the expectation of substantial savings in operating expenses to members of a group of individuals (such as members of a professional association), under a plan or arrangement entered into between the insurer and the association; or issued on a mass enrollment basis to members of a defined group of individuals (such as residents over age 65 in one state) under a plan whereby the insurer will not discontinue, or modify rates of, any policy, unless it simultaneously discontinues or similarly modifies all other policies in the same group; or (4) at the discretion of the commissioner, any similar policy predicated upon substantial savings in operating expense arising from mass enrollment.

(d) The terms “premiums earned” and “losses incurred” as used in this article shall be developed by a method consistent with that method used for developing such items in Schedule H of the life and accident and health annual statement blank, unless otherwise specifically indicated in this article.

(e) References to specified portions of annual statement blanks shall apply to all amendments and additions or successor provisions hereafter made.

(f) “Rate revision” means a change in premium rates that applies to existing policies.

(g) “Lifetime anticipated loss ratio” means the ratio of (i) divided by (ii), where (i) is equal to the sum of the accumulated value of past incurred claims since the inception of the policy and the present value of future anticipated claims, and (ii) is the sum of the accumulated value of past earned premiums and the present value of future anticipated premiums earnings.

(h) “Disease management expenses” means expenses incurred by an insurer for services administered to patients in order to improve their overall health and to prevent clinical exacerbations and complications utilizing cost-effective, evidence-based guidelines and patient self-management strategies.

(i) “Lifetime anticipated disease management ratio” means the ratio of (i) divided by (ii), where (i) is equal to the sum of the accumulated value of past incurred disease management expenses since the inception of the policy and the present value of future anticipated disease management expenses, and (ii) is the sum of the accumulated value of past earned premiums and the present value of future anticipated premium earnings.

NOTE

Authority cited: Section 10293, Insurance Code. Reference: Section 10293(a), Insurance Code.

HISTORY

1. Amendment of subsection (a) and new subsections (f)-(i) and Note filed 12-29-2006; operative 3-29-2007 pursuant to Insurance Code section 10293(a) (Register 2006, No. 52).

§2222.12. Standards of Reasonability.

Note • History

The authority of the commissioner under Insurance Code Section 10293 being to withdraw approval of policy forms the benefits of which are not reasonable in relation to the premium charged, whether the approval of any form of an insurer should be withdrawn pursuant to said section shall be determined by an analysis of actual loss experience, giving due consideration to all factors relevant to the determination of how the past loss experience may be used to reasonably indicate the average loss experience which should develop. Some of such factors which will be considered by the commissioner are hereinafter in this article set forth, but their listing does not preclude an insurer from urging any other factors which it considers relevant to the issue involved.

(a) Benefits provided by a hospital, medical or surgical policy shall be deemed to be reasonable in relation to premiums if both of the criteria in subdivisions (1) and (2), below, are satisfied:

(1)(A) the lifetime anticipated loss ratio is not less than 70%, and (B) in the case of a rate revision, the anticipated loss ratio over the future period for which the revised rates are computed to provide coverage is also not less than 70%, or, if the insurer chooses to include disease management expenses in determining compliance with these standards, (C) the sum of the lifetime anticipated loss ratio and the lifetime anticipated disease management ratio is not less than 70%, and (D) in the case of a rate revision, the sum of the anticipated loss ratio over the future period for which the revised rates are computed to provide coverage and the anticipated disease management ratio over the future period for which revised rates are computed to provide coverage is also not less than 70%, and;

(2) the insurer's projected medical loss ratios in the individual market, calculated using the method described in the interim final rule entitled “Health Insurance Issuers Implementing Medical Loss Ratio Requirements Under the Patient Protection and Affordable Care Act,” (45 C.F.R. §§158.220-158.232, 75 Fed. Reg. 74927-74928, (December 1, 2010)) and incorporated herein by reference, are not less than 80%.

(b) Benefits provided by a hospital, medical, or surgical policy delivered or issued for delivery to any person in this State prior to July 1, 2007 and not subject to any rate revision effective on or after July 1, 2007 shall be deemed to be reasonable in relation to premiums if the lifetime anticipated loss ratio is not less than 50%.

(c) Benefits provided by supplemental policies of individual health insurance that provide coverage for vision care expenses only, dental care expenses only, or short-term limited duration health insurance with coverage durations of 6 months or less shall be deemed to be reasonable in relation to premiums if the lifetime anticipated loss ratio is not less than 50%.

(d) Benefits provided by a hospital, medical or surgical policy designed to supplement Medicare, as defined in subdivision (l) of Insurance Code section 10192.4, must meet the loss ratio standards established in Subdivision (a)(1)(A) of Section 10192.14 of the Insurance Code.

NOTE

Authority cited: Section 10293, Insurance Code. Reference: Section 10293(a), Insurance Code.

HISTORY

1. Amendment filed 4-5-78; designated effective 1-1-79 (Register 78, No. 14).

2. Amendment filed 3-31-83; effective thirtieth day thereafter (Register 83, No. 14).

3. Amendment of section and Note filed 12-29-2006; operative 3-29-2007 pursuant to Insurance Code section 10293(a) (Register 2006, No. 52).

4. Amendment of subsections (a) and (a)(1) and new subsection (a)(2) filed 1-24-2011 as an emergency; operative 1-24-2011 (Register 2011, No. 4). A Certificate of Compliance must be transmitted to OAL by 7-25-2011 or emergency language will be repealed by operation of law on the following day.

5. Amendment of subsections (a) and (a)(1) and new subsection (a)(2) refiled 7-25-2011 as an emergency; operative 7-25-2011 (Register 2011, No. 30). A Certificate of Compliance must be transmitted to OAL by 10-24-2011 or emergency language will be repealed by operation of law on the following day.

6. Amendment of subsections (a) and (a)(1) and new subsection (a)(2) refiled 10-20-2011 as an emergency; operative 10-20-2011 (Register 2011, No. 42). A Certificate of Compliance must be transmitted to OAL by 1-18-2012 or emergency language will be repealed by operation of law on the following day.

7. Editorial correction of subsection (a)(1) (Register 2012, No. 6).

8. Certificate of Compliance as to 10-20-2011 order transmitted to OAL 12-30-2011 and filed 2-8-2012 (Register 2012, No. 6).

§2222.13. Preliminary Screening Procedure. [Repealed]

Note • History

NOTE

Authority cited: Section 10293, Insurance Code. Reference: Section 10293(a), Insurance Code.

HISTORY

1. Repealer filed 12-29-2006; operative 3-29-2007 pursuant to Insurance Code section 10293(a) (Register 2006, No. 52).

§2222.14. Credibility Factors.

Note • History

The commissioner may consider the use of credibility factors consistent with sound actuarial principles in the review of experience to recognize deviations from the loss ratio standard that may be due to chance variation.

NOTE

Authority cited: Section 10293, Insurance Code. Reference: Section 10293(a), Insurance Code.

HISTORY

1. Repealer of section and new section and Note filed 12-29-2006; operative 3-29-2007 pursuant to Insurance Code section 10293(a) (Register 2006, No. 52).

§2222.15. Communication to Insurer.

Note • History

Prior to taking any action under Section 2222.17, the commissioner will communicate with the insurer in writing, identifying those policies for which any preliminary review does not establish an inference that the benefits provided therein are reasonable in relation to the premium charged. Such communication shall be deemed confidential, and shall advise the insurer that it should inform the commissioner as to any factors applicable to the consideration of the policy under review which it considers relevant to the reasonableness of the relationship of benefits to premiums. The insurer may, from time to time, submit supplementary material which it deems to be relevant to the study of the loss ratios generated by a specific policy; and the commissioner may request such additional information as he may deem necessary to complete his consideration of such policy.

NOTE

Authority cited: Section 10293, Insurance Code. Reference: Section 10293(a), Insurance Code.

HISTORY

1. Amendment of section and new Note filed 12-29-2006; operative 3-29-2007 pursuant to Insurance Code section 10293(a) (Register 2006, No. 52).

§2222.16. Consideration of Relevant Factors.

Note • History

In reviewing any specific policy the commissioner shall consider all factors as are relevant to a determination as to whether the benefits are unreasonable in relation to the premium charged therefor. Relevant factors and the weight to be given thereto depend upon the attributes of such particular policy, as determined by the commissioner in accordance with the provisions of this article. The following is a list of relevant factors which are generally applicable to policies subject to this statute:

(a) Policy experience generated over the period of the one preceding calendar year (ending with the beginning of the year of review) in addition to the year of review may be considered as relevant in case of any policy form. Experience generated over a still longer period (ending with the year of review) may be considered in case of any policy as to which there are substantial reasons to believe, insofar as loss experience is relevant to the issue to be determined, that the experience statistics for the shorter period do not give a fair indication of the actual loss experience of the policy under review. Experience over such extended periods can be considered only if relevant experience figures are made available to the commissioner.

(b) Adjustment of experience statistics to conform to assumption of payment of premiums annually in advance. The adjustment will be that the annual premium shall be deemed to be an amount which is:

(1) 96 percent of the sum of semiannual premiums;

(2) 94 percent of the sum of quarterly premiums; or

(3) 92 1/2 percent of the sum of monthly premiums.

If the insurer desires consideration of the increase in handling expenses arising from fractional premium payments, the insurer must furnish for the experience period (i) the distribution of earned premiums according to mode of premium payment during the year, and (ii) adjusted experience statistics based upon conforming earned premiums related to premiums collected semiannually, quarterly, monthly, and upon a weekly and monthly debit basis to the earned premiums developed from the corresponding pro rata annual premium.

(c) Effect of any premium rate changes made during the experience period under review. In order that the commissioner may properly evaluate this factor, the insurer must furnish complete data thereon, including adjusted experience statistics in which earned premiums are adjusted to conform with the current rate basis.

(d) The effect of any experience refunds or dividends paid to policyholders. Insurers desiring consideration of this factor should furnish particulars with respect to such amount accrued for the period of review together with adjusted experience statistics in which such refunds or dividends are considered as a reduction of premiums earned.

(e) With respect to a policy not subject to the reserve requirements of Insurance Code Section 997(b), the loss ratio experienced and reasonably anticipated by policy year; and, where appropriate, the aggregate loss ratio excluding the first policy year. In order that the commissioner may properly evaluate these factors, the insurer must furnish in conjunction therewith data as to the persistency experienced and reasonably anticipated on the policy under review, together with a weighted average loss ratio computed over a reasonable period of time giving effect to these factors. Such weighted average should be based on the experience reasonably to be anticipated in the light of persistency actually experienced and other circumstances likely to affect future persistency. The insurer may also furnish other data relating to actuarial assumptions relevant to the experience to be expected on the policy.

(f) With respect to a policy subject to the reserve requirements of Insurance Code Section 997(b), the insurer should submit for consideration an adjusted loss ratio for the experience period based on the formula given in the footnote to Schedule H in the Life and Accident and Health Annual Statement blank relating to the development of a supplemental loss ratio for individual noncancelable accident and health policies which takes into account the reserves held pursuant to Section 997. If such adjusted loss ratio, after giving effect to such other factors as may be relevant, does not establish the reasonableness of benefits to premiums, the insurer must furnish an analysis of the relation of actuarial net annual premium rates for the policy to the corresponding gross annual premium rates established by the insurer. Such net premiums may be determined on a basis consistent with the minimum valuation standards set forth in Section 997(b) or on an appropriate alternate basis permitted by Section 997 provided details of the actuarial assumptions used are furnished the commissioner. In order that the commissioner may properly evaluate this factor, the insurer may also be required to submit an actuarial analysis of the relation of the actual morbidity experience under the policy to the assumptions used in determining the net premium rates, with an estimate of the extent of the change in the net premium rates indicated by such actual experience, with due allowance for reserves held pursuant to Section 997.

(g) Experience in any areas where different rate levels were in effect as compared with the countrywide experience on such policy of the insurer in any case in which it can be shown that such experience differs significantly from such countrywide experience.

(h) The likelihood of fluctuation in experience under the policy because of infrequency of loss occurrence or catastrophic nature of hazard covered. Insurers requesting consideration of this factor should furnish appropriate data as requested.

(i) Establishment of credibility of loss ratio experienced on policy under review, based upon available data to be furnished by the insurer for the experience period as to volume of premiums earned, average premium paid per person insured for one year's coverage, average amount of loss per claim incurred, and distribution of claims incurred by size of claim.

(j) With respect to any policy under review the commissioner may on his own initiative or at the request of the insurer consider experience and other factors on other policy forms to the extent they are relevant to determination of the reasonableness of benefits to premium; in particular, such aggregate or averages as may serve to show the reasonableness of benefits to premiums on a class of business as a whole of which the policy under review is a part.

(k) When in connection with the consideration of any policy it is established that there is a trend upward or downward in the loss experience for the type of benefits provided therein, consideration may be given to the probable effect of such trend factor on the loss experience reasonably to be anticipated under such policy.

NOTE

Authority cited: Section 10293, Insurance Code. Reference: Section 10293(a), Insurance Code.

HISTORY

1. Amendment of subsections (b)(2)-(3), repealer of subsection (b)(4) and new Note filed 12-29-2006; operative 3-29-2007 pursuant to Insurance Code section 10293(a) (Register 2006, No. 52).

§2222.17. Notice to Insurer.

Note • History

If after consideration of all relevant factors the commissioner believes that the benefits provided under an individual hospital, medical or surgical policy are not reasonable in relation to the premium charged, the commissioner shall so inform the insurer in writing. Such notification shall be deemed a confidential communication. The commissioner shall also advise the insurer that the commissioner will, at the commissioner's discretion, commence proceedings for withdrawal of authorization of the form after notice and hearing as provided by law unless, within 31 days from the date of the notification, the insurer commits itself in writing to the commissioner that it will, within 90 days, voluntarily either (1) cease further issuance of the policy form or (2) increase benefits under the policy in relation to the premiums charged in an amount sufficient to bring the policy into compliance with the standards of reasonability provided for in section 2222.12. If the insurer does not commit itself, within 31 days from the date of the notification, to discontinue issuing the policy or increase benefits under the policy in relation to premiums charged, the commissioner may commence proceedings at any time as provided by law for withdrawal of the authorization of the policy form.

NOTE

Authority cited: Section 10293, Insurance Code. Reference: Section 10293(a), Insurance Code.

HISTORY

1. Amendment of section and new Note filed 12-29-2006; operative 3-29-2007 pursuant to Insurance Code section 10293(a) (Register 2006, No. 52).

§2222.18. When Resubmission Deemed to Be Same as Withdrawn Policy.

The commissioner may consider two or more forms of the policy contracts as prepared by any one insurer or two or more affiliated insurers as one policy form for the purpose of determining under the provisions of this article whether benefits are reasonable in relation to premiums if the benefits and premiums or premium rates of such policy forms are alike in substance. Any policy form submitted by an insurer to replace a form of itself or its affiliates, the approval of which has been withdrawn under the provisions of this article, shall not be considered to be a new form or a form different from that of the form the approval of which was withdrawn, unless the benefits of the new form are sufficiently more favorable to the insured, or the premium or premium rates are sufficiently lower so as to indicate that the new form will meet the tests of this article.

§2222.19. Statement of Compliance.

Note • History

Unless requested by the commissioner to provide more specific information on policy forms subject to the standards of reasonability in Section 2222.12, a company shall, by April 1 of each year, provide a statement from a qualified actuary that lists the policy forms to which the standards apply, the lifetime anticipated loss ratio and, if applicable, the lifetime anticipated disease management ratio for each form, and a statement that the standards of reasonability have been met, for each policy form for the preceding calendar year. For policy forms to which Section 2222.12(a) applies, a company shall also submit by April 1 of each year a schedule detailing disease management expenses for the preceding calendar year, if applicable.

NOTE

Authority cited: Sections 10293 and 10608, Insurance Code. Reference: Section 10293(a), Insurance Code.

HISTORY

1. New subsection (5) filed 4-5-78; designated effective 1-1-79 (Register 78, No. 14).

2. Amendment of section heading, repealer and new section and amendment of Note filed 12-29-2006; operative 3-29-2007 pursuant to Insurance Code section 10293(a) (Register 2006, No. 52).

Article 2. Group Disability Policies [Repealed]

NOTE

Authority cited: Section 10270.93, Insurance Code. Reference: Sections 10270-10278, Insurance Code.

HISTORY

1. Repealer of Article 2 (Sections 2223 through 2232) filed 5-6-77 as procedural and organizational; effective upon filing (Register 77, No. 19). For prior history, see Registers 3; 10, No. 5; and 20, No. 5.

Article 2a. Group Disability Policies

GENERAL INSTRUCTIONS AND RULES

§2232.1. Applicability.

Note • History

This article is applicable to all group disability insurance policies delivered or issued for delivery in this State on or after January 1, 1957, and to all such policies which the issuing insurer elects, before that date, to draft in compliance with the requirements of this article in lieu of incorporating therein the standard provisions promulgated for group disability policies as set forth in Article 2 of this subchapter. No group disability policy may be issued hereafter and until January 1, 1957, unless it contains, in accordance with the instructions for their use, either the standard provisions set forth in Article 2 of this subchapter or the uniform provisions set forth in this article. (Ins. C. 10270.94).

NOTE

Authority cited for Article 2a (Sections 2232.1 through 2232.41), Section 10270.94 Insurance Code.

HISTORY

1. New Article 2a (Sections 2232.1 through 2232.41) filed 4-4-56; effective thirtieth day thereafter (Register 56, No. 6).

§2232.2. Provisions Required.

Every group disability policy subject to this article which is delivered or issued for delivery in this State shall contain certain uniform provisions which shall be set forth in the policy in accordance with the requirements and provisions of this article. (Ins. C. 10270.9.)

§2232.3. Required Changes in Uniform Language.

If any compulsory or optional uniform provision set forth in Section 2232.8 or in Sections 2232.16 to 2232.40, inclusive of this article is in whole or in part inapplicable to or inconsistent with the coverage provided in the policy, the insurer shall, with the approval of the commissioner, either omit entirely from the policy or modify any inapplicable provision or alternative provision, or shall modify any inconsistent provision or alternative provision in such manner as to make the provision as contained in the policy consistent with the coverage so provided. (Ins. C. 10323.)

§2232.4. Order of Uniform Provisions.

The compulsory and optional uniform provisions set forth in Section 2232.8 or Sections 2232.16 to 2232.40 of this article, or any corresponding provisions which are used in lieu thereof in accordance with this article, shall, in accordance with the instructions for their use, be set forth in the consecutive order in which the compulsory and optional uniform provisions are hereinafter set forth in Sections 2232.16 to 2232.40 of this article, or at the option of the insurer any such provision may appear as a unit in any part of the policy with other provisions with which it may be logically related, providing the resulting policy shall not be in whole or in part unintelligible, uncertain, ambiguous, abstruse, or likely to mislead the policyholder or any person insured thereunder. (Ins. C. 10324.)

§2232.5. Explaining Variations in Order and Wording.

If any group disability policy subject to this article submitted for approval sets forth the uniform provisions therein in any order or under any captions other than in the order or alternative order and under the captions or alternative captions as set forth in or specifically permitted by this article, or if any language for any of said uniform provisions is used other than the language or alternative language of the uniform provisions set forth in this article with only such changes therein as may be necessary to make such language harmonize with the terminology and the benefits of the policy, then in such case, the insurer in its letter submitting any such form, shall point out each such variation of order, caption or language, explaining the differences therein from the order, caption or language, as the case may be, prescribed by this article, the reason therefor, and why the insurer believes the order, caption or language of the provision as set forth in the policy is, in each case, not less favorable to the policyholder or any individual insured under the policy than the order, caption or language of the corresponding provision as prescribed by this article. (Ins. C. 10327.)

§2232.6. Compliance with Uniform Provisions.

No group disability policy provision which is not a subject of Sections 2232.16 to 2232.40, inclusive, of this article shall make any policy subject to this article or any portion thereof less favorable in any respect to the policyholder, to any person insured thereunder or to any beneficiary than the provisions which are subject to this article. (Ins. C. 10328.)

§2232.7. Alternative Permissible Order.

Alternative permissible orders, groupings and captions for the uniform provisions prescribed by this article without obtaining the prior approval of the commissioner as provided in Section 2232.5 are as hereinafter set forth in this section. If, in accordance with any of the alternatives hereinafter set forth in this section, more than one of the uniform provisions are grouped together under a principal caption, such uniform provisions shall nevertheless be set forth in the policy in their relative orders as set forth in this article, unless any such variation in order is noted, explained and approved by the commissioner as is required for other variations in order. The alternatives hereinabove referred to are as follows:

(a) The uniform provisions captioned “Notice of Claim,” “Claim Forms” and “Proofs of Loss” may be grouped together under a principal caption such as “Notice and Proof of Claim” or “Notice and Proof of Loss,” but each uniform provision shall be preceded and identified by its individual caption or subcaption.

(b) The uniform provisions captioned “Time of Payment of Claim” and “Payment of Claims” may be grouped together under a principal caption “Payment of Claim,” “Payment of Loss” or “Payment of Benefits,” but each uniform provision shall be preceded and identified by its individual caption or subcaption. The uniform provision captioned “Payment of Claims” may be set forth with the short form of proof of claim in accordance with Section 2232.8 hereof.

(c) The uniform provisions covered in paragraphs (a) and (b) above may be grouped together under a principal caption identifying the provisions as relating to notice, proof and payment of claim appropriately combining a caption permitted by paragraph (a) with caption permitted by paragraph (b) but each individual uniform provision shall be preceded and identified by it's individual caption or subcaption.

(d) The uniform provision captioned “Physical Examination and Autopsy” may be included with the uniform provisions covered in paragraph (a) or in paragraph (c) hereof, and under one of the principal captions therein permitted, but each uniform provision shall be preceded and identified by its individual caption or subcaption.

(e) The insurer may set forth the optional uniform provision captioned “Reduced Hospital Benefits in Case of Coverage Under the California Unemployment Insurance Code” in the policy as a separate uniform provision under its proper caption, or the insurer may set forth the substance or effect of such provision in the policy as a part of the statement of the hospital benefits in conformity with the instructions for its use, in which case a separate caption or subcaption for the uniform provision is not required.

(f) The uniform provisions captioned “Entire Contract; Changes,” “Time Limit on Certain Defenses,” “Grace Period,” “Legal Actions” and “Changes of Beneficiary” may be set forth in the policy separately under their individual captions, or they may be grouped in whole or in part under an appropriate principal caption, or may be set forth with other provisions of the policy with which they are logically related subject to the requirements of identical in Section 2232.5 hereof, but said provider provisions or the variations hereof.

(1) The uniform provision captioned “Entire Contract; Changes” may be set forth in the policy on the first page thereof with the insuring, consideration or execution clauses, in which case the separate caption for the uniform provision is not required; or said uniform provision may be set forth in the policy under some principal caption such as “Contract Provisions” along with the uniform provisions captioned “Time Limit on Certain Defenses” and “Legal Actions,” but each uniform provision shall, in such case, be preceded and identified by its individual caption or subcaption.

(2) The uniform provision captioned “Time Limit on Certain Defenses” may be set forth in the policy on the first page thereof with the caption or subcaption with the uniform provisions covered by paragraph (b) hereof, or may be set forth with the uniform provision captioned “Legal Actions” under an appropriate principal caption such as “Time Limits on Legal Actions and Certain Defenses,” in which case a separate caption or subcaption for the uniform provisions is not required.

(3) The uniform provision captioned “Grace Period” may be set forth in the policy with the provision thereof relative to payment of the premium by the employer, in which case a separate caption or subcaption for the uniform provision is not required if the caption for the combined provisions includes mention of a grace period.

(4) The uniform provision captioned “Change of Beneficiary” may be set forth in the policy along with the provisions thereof relative to the designation of beneficiary by the employee, in which case a separate caption or subcaption for the uniform provision is not required if the caption for the combined provisions includes mention of change of beneficiary.

(Ins. C. 10327.)

§2232.8. Short Form of Proof of Claim.

As another alternative permissive order and wording for setting forth in a group disability policy certain of the uniform provisions, the insurer may, in lieu of using the promulgated order and wording of the uniform provisions captioned “Notice of Claim,” “Claim Forms,” and “Time of Payment of Claim,” and at the option of the insurer, also in lieu of one or more or all of the uniform provisions captioned “Proof of Loss,” “Physical Examination and Autopsy” and “Legal Actions,” but subject to the instructions hereinafter set forth, use the following short form of proof of claim clause under one of the captions permitted by the instructions hereinafter set forth:

All (“benefits” or other descriptive phrase) provided in this policy shall be paid to the employee as they accrue or as stated (referring to the location in the policy of the uniform provision captioned “Payment of Claims“) upon receipt of written proof on the insurer's forms or, if such forms are not furnished by the insurer within 15 days after demand therefor, then upon receipt of written proof covering the occurrence, character and extent of the event for which claim is made.

Instructions

1. The above provision shall be preceded by a caption reading “Proof of Claim” or “Proof of Loss”; but if the uniform provision captioned “Payment of Claims” has either been omitted in accordance with Instruction 2, or if said uniform provision is set forth, in accordance with the instructions for its use, immediately following this provision, then such provision or provisions may be preceded by the caption “Payment of Benefits” or “Payment of Claims.”

2. The insurer shall omit the phrase “or as stated__________” if the uniform provision captioned “Payment of Claims” is entirely omitted from the Policy in accordance with the instructions for its use. The insurer shall include said phrase in the policy even if it uses only the second or third or the second and third paragraphs of the uniform provision captioned “Payment of Claims” in the policy.

3. The insurer has the option of including or omitting the language in the above provision concerning the forms for proof of loss reading “on the insurer's forms or, if such forms are not furnished by the insurer within 15 days after demand therefor, then upon receipt of written proof.”

4. The insurer has the option of including in, or omitting from the policy the uniform provision captioned “Proof of Loss,” but if said provision is omitted the insurer shall also omit the uniform provision captioned “Legal Actions.” However, if said Uniform Provision captioned “Proof of Loss” is included in the policy, the Uniform Provision captioned “Legal Actions” may either be included or omitted from the policy.

5. The insurer has the option of including or omitting the uniform provision captioned “Physical Examination and Autopsy.” (Ins. C. 10270.94.)

§2232.9. Order Conforms to Insurance Code.

The compulsory and optional uniform provisions for group disability insurance are set forth in this article in the order in which the corresponding provisions are set forth in the Insurance Code, and for purposes of identification and uniform reference, they are given substantially the same captions as the corresponding provisions in the Insurance Code. (Ins. C. 10270.94.)

§2232.10. Provisions Contain Instructions.

Following each of the compulsory and optional uniform provisions set forth in this article are instructions for their use. In case no uniform provision corresponding to a particular provision as set forth in the Insurance Code is set forth in this article, the instructions indicate the rules with respect to the subject matter of that uniform provision which must be conformed to in all group disability policies subject to this article. (Ins. C. 10270.94.)

§2232.11. Designation of Matters to Be Omitted or Added.

Unless the context otherwise requires, portions of provisions enclosed in parentheses may be or are required to be omitted or added under the circumstances specified in the instructions for the use of that particular uniform provision. (Ins. C. 10270.94.)

§2232.12. “Insurer” Includes.

Whenever the word “insurer” is used in a uniform provision, there may be substituted therefor “company,” ” corporation,” “association... society,” or such other word or words as will properly designate the insurer. (Ins. C. 10270.94.)

§2232.13. “Policy” Includes.

Whenever the word “policy” is used in this article reference is made to all riders, endorsements, or other forms which constitute or form a part of the contract of group disability insurance. Whenever the word “policy” is used in any of the uniform provisions, there may be substituted therefor the words “rider,” endorsement, “contract” or other proper designation of the document to which the uniform provision applies. Whenever in any form of uniform provision as set forth in this article the expression “the policy” or “this policy” is used, the terminology may be used interchangeably, with variations in the use of the term “policy” as herein permitted, insofar as consistent with the other terminology of the policy and the substantive meaning of the promulgated provisions. (Ins. C. 10270.94.)

§2232.14. “Employer” or “Policyholder” Includes.

Whenever the word “employer” or “policyholder” is used in this article, unless the text otherwise requires, reference is made to any person to whom or to which the policy is issued. Whenever the word “employer” or “policyholder” is used in any uniform provision, there may be substituted therefor the words “executive officer,” “association,” “trustee” or other proper designation of the person making application, if any, for the policy or to whom or to which the policy is issued. (Ins. C. 10270.94.)

§2232.15. “Employee” Includes.

Whenever the word “employee” is used in this article reference is made to any individual who has been, or is eligible to be insured under the policy with respect to himself, his spouse or dependents. Whenever the word “employee” is used in any uniform provision, there may be substituted therefor the word “member” or other proper designation of the individual, other than spouse or dependent, insured under a policy. (Ins. C. 10270.94.)

COMPULSORY UNIFORM PROVISIONS

§2232.16. Compulsory Uniform Provision Requirements.

Except as otherwise provided in Section 2232.1, each group disability policy delivered or issued for delivery to any person in this State shall contain the provisions or alternative provisions specified in Sections 2232.17 to 2232.28, inclusive, or in Section 2232.8 hereof in the words therein set forth, subject, however, to the “General Instructions and Rules” hereof and the instructions as to its use following each such provision; provided, nevertheless, that the insurer may at its option, subject to Section 2232.5 hereof, substitute for one or more of such provisions corresponding provisions of different wording approved by the commissioner, which are in each instance not less favorable in any respect to policyholder, any individual insured or any beneficiary. Such provisions shall be preceded individually by the caption appearing herein as the caption for each such provision or by such caption and subcaption as is herein specifically permitted, or at the option of the insurer and subject to Section 2232.5 hereof, by such appropriate individual or group captions or subcaptions as the commissioner may approve. (Ins. C. 10350.)

§2232.17. Entire Contract; Changes.

Note • History

Form A.

This policy and the application of the employer constitute the entire contract between the parties, and any statement made by the employer shall, in the absence or fraud, be deemed a representation and not a warranty. No statement made by any employee whose eligibility has been accepted by the insurer shall (avoid the insurance or reduce the benefits under this policy or) be used in defense to a claim hereunder.

Form B.

This policy constitutes the entire contract between the parties, and no statement made by the employer or by any employee whose eligibility has been accepted by the insurer shall (avoid the insurance or reduce the benefits under this policy or) be used in defense to a claim hereunder.

No change in this policy shall be valid unless approved by an executive officer of the insurer and unless such approval be endorsed hereon or attached hereto. No agent has authority to change this policy or to waive any of its provisions.

Form C.

This policy (the application of the employer, if any, and the individual applications, if any, of the employees) constitute(s) the entire contract between the parties, and any statement made by the employer or by any employee shall, in the absence of fraud, be deemed a representation and not a warranty. No such statement shall (avoid the insurance or reduce the benefits under this policy or) be used in defense to a claim hereunder unless it is contained in a written application, nor shall any such statement of the employer, except a fraudulent misstatement, be used at all to void this policy after it has been in force for three years from the date of its issue, nor shall any such statement of any employee eligible for coverage under the policy, except a fraudulent misstatement, be used at all in defense to a claim for loss incurred or disability (as defined in the policy) commencing after the insurance coverage with respect to which claim is made has been in effect for three years from the date it became effective.

No change in this policy shall be valid unless approved by an executive officer of the insurer and unless such approval be endorsed herein or attached hereto. No agent has authority to change this policy or waive any of its provisions.

Instructions

1. The insurer may, at its option, use either Form A, Form B, or Form C.

2. If the insurer uses Form A, it shall use paragraph (a), or paragraph (b) of the “Time Limit on Certain Defenses” uniform provision as is required or permitted by the instructions for their use, but revised to eliminate all reference to the statements and applications of employees. Paragraph (c) of said uniform provision shall be used or omitted in accordance with the instructions for its use.

3. If the insurer uses Form B, it shall use neither paragraph (a) nor paragraph (b) of the “Time Limit on Certain Defenses” uniform provision, and it shall use or omit paragraph (c) of said uniform provision as required in accordance with the instructions for its use.

4. If the insurer uses Form C, it may, at its option, omit therefrom at the place indicated by parentheses in the first sentence reference to the applications of employees or the application of the employer, or both if it does not desire to make the application or applications, reference to which is omitted, a part of the policy. In such case proper connective words shall be used and the verb “constitute” made singular or plural to agree with the option selected by the insurer.

5. The insurer may, at its option, include or omit the words in parentheses in the first paragraph of Form A and Form B and in the second sentence of Form C reading, “avoid the insurance or reduce the benefits under this policy or.”

6. The insurer may, at its option, substitute for the words “and unless such approval be endorsed hereon or attached hereto” at the end of the first sentence of the second paragraph of Form A, Form B, or Form C the words “and evidenced by endorsement hereon, or by amendment hereto signed by the employer and by an executive officer of the insurer.”

7. The insurer may omit the portion of the first paragraph of Form C following the phrase “unless it is contained in a written application” if the insurer uses paragraph (a) or (b) of the uniform provision captioned “Time Limit on Certain Defenses” in accordance with the instructions for their use. (Ins. C. 10270.6 (a), 10350. 1.)

NOTE

Authority cited: Section 10270.94, Insurance Code. Reference: Sections 10350 and 10351, Insurance Code.

HISTORY

1. Amendment of Form A filed 5-6-77 as procedural and organizational; effective upon filing (Register 77, No. 19).

§2232.18. Time Limit on Certain Defenses.

(a) After this policy has been in force for a period of three years, no statements of the employer contained in the application, and no statement relating to insurability made by any employee eligible for coverage under the policy shall be used to deny a claim or in contesting the validity of the insurance with respect to which such statement was made after the insurance has been in force prior to the contest for a period of three years during the lifetime of the person with respect to whom any such statement was made.

(b) After three years from the date of issue of this policy, no misstatement of the employer, except a fraudulent misstatement, made in his application shall be used to void the policy; and after three years from the effective date of the coverage with respect to which any claim is made no misstatement of any employee eligible for coverage under the policy, except a fraudulent misstatement, made in an application under the policy shall be used to deny a claim for loss incurred or disability (as defined in the policy) commencing after expiration of such three years.

(c) No claim for loss incurred or disability (as defined in the policy) commencing after three years from the effective date of the insurance coverage with respect to which the claim is made shall be reduced or denied on the ground that a disease or physical condition, not excluded from coverage by name or specific description effective on the date of loss, had existed prior to the effective date of the coverage with respect to which the claim is made:

Instructions

1. If the insurer uses Form A or Form B of the “Entire Contract; Changes” uniform provision, it may, at its option, include paragraph (a) in the policy (eliminating, if Form A is used, references to statements of employees), and the insurer shall use such paragraph, with the language appropriately adjusted, as aforesaid, in any policy which is noncancellable and guaranteed renewable for five years or more and for which the premium rate is guaranteed for five years or more. If said paragraph (a) is used, the insurer shall not use paragraph (b), and shall omit the portion of the first paragraph of Form C, if used, of the “Entire Contract; Changes” uniform provision following the phrase “unless it is contained in a written application.”

2. In case the insurer uses Form A or Form C of the “Entire Contract; Changes” uniform provision, and unless paragraph (a) of this uniform provision is included in the policy in accordance with Instruction 1, the insurer shall include paragraph (b) therein, except that if the alternative language at the end of the first paragraph of Form C of the “Entire Contract; Changes” uniform provision is used and not omitted therefrom in accordance with Instruction 7 for the use of that form of such uniform provision, then the insurer may omit both paragraph (a) and (b) hereof. If Form A of the “Entire Contract; Changes” uniform provision is used, there shall be omitted from paragraph (a) or (b) hereof, whichever is used in the policy, all portions referring to statements of the employees.

3. The insurer shall omit paragraph (c) from any policy which does not exclude coverage for pre-existing diseases or conditions. The insurer shall use said paragraph (c) in any policy which contains any exclusion of pre-existing diseases or conditions. The term “pre-existing disease or conditions, means any diseases or conditions” means any disease or condition, other than pregnancy, of any employee or other person covered by the policy which existed on, or had its inception before the effective date of the insurance coverage of such person under the policy. (Ins. C. 10350.2 Cf. Ins. C. 10206 and 10270.6.)

§2232.19. Grace Period.

A grace period of 31 days will be granted for the payment of premiums accruing after the first premium, during which grace period the policy shall continue in force, but the employer shall be liable to the insurer for the payment of the premium accruing for the period the policy continues in force.

Instructions

1. The termination of the group policy by the mutual consent of the parties, express or implied, terminates the entire contract, including the “Grace Period” uniform provision. Therefore, a provision in the policy, otherwise lawful, to the effect that the termination of the policy by the employer or by mutual consent, express or implied, of the employer and insurer, effective as of a premium due date or during a period of grace will terminate the period of grace for the payment of premiums as of the date of such termination of the policy is not inconsistent with this uniform provision.

2. The right of the insurer to cut off the grace period on five days' written notice, which is found in the corresponding individual uniform provision, is not applicable to group insurance, since five days is not sufficient time to replace a group policy, and this provision has been eliminated. Likewise, grace periods of shorter than 31 days are inappropriate to the peculiar group situation, and no provision for a shorter grace period has been permitted. Furthermore, it is inconsistent with the nature of group insurance to allow coverage during a grace period without requiring the payment of premiums accruing during such period. It follows that premiums on group policies containing the above grace period or its substance will continuously accrue until the policy is terminated, and the insurer, acting alone, cannot cut off the right of the employer to pay such accruing premiums on less than 31 days' notice. (Ins. C. 10350.3.)

§2232.20. Reinstatement.

There shall be no provision in a group disability policy relative to reinstatement of the policy after lapse because of default in the payment of premium nor shall there be any provision therein prior to the reinstatement relative to when the insurance coverage becomes effective again after such lapse and reinstatement. (Ins. C. 10350.4.)

§2232.21. Notice of Claim.

Written notice of claim must be given to the insurer within 20 days after the occurrence or commencement of any loss covered by the policy, or as soon thereafter as is reasonably possible. Notice given by or on behalf of the claimant to the insurer at ____ or to any authorized agent of the insurer, with information sufficient to identify the insured employee, shall be deemed notice to the insurer.

Instructions

1. In the blank space in this provision, the insurer shall insert the location of such office or offices as it may designate for the purpose of giving notice of claim.

2. The insurer may omit the second sentence of this provision if in the normal course of its business it makes all collections and services group disability accounts through its home office or branch offices and not through life and disability agents, and if it has conspicuously imprinted on the individual certificates (including supplemental certificates) the name of the insurer and the address of its home office and the address or addresses of the branch office or offices to which notice of claim and proof of loss may be sent. (Ins. C. 10350.5.)

§2232.22. Claims Forms.

The insurer, upon receipt of a written notice of claim, will furnish to the claimant such forms as are usually furnished by it for filing proofs of loss. If such forms are not furnished within 15 days after the giving of such notice the claimant shall be deemed to have complied with the requirements of this policy as to proof of loss upon submitting, within the time fixed in the policy for filing proofs of loss, written proof covering the occurrence, the character and the extent of the loss for which claim is made. (Ins. C. 10350.6.)

§2232.23. Proofs of Loss.

Written proof of loss must be furnished to the insurer, in case of claim for loss for which this policy provides any periodic payment contingent upon continuing loss, within 90 days after the termination of the period for which the insurer is liable, and in case of claim for any other loss, within 90 days after the date of such loss. Failure to furnish such proof within the time required shall not invalidate nor reduce any claim if it was not reasonably possible to give proof within such time, provided such proof is furnished as soon as reasonably possible and in no event, except in the absence of legal capacity of the employee, later than one year from the time proof is otherwise required.

Instructions

In any policy which provides both benefits payable periodically and benefits payable when they occur or as they accrue, the insurer shall make clear by the terms of the policy which benefits are to be paid as they accrue or when they occur. This may be done in any lawful manner. Either of the two following ways would be acceptable. First, the insurer may specify in the benefit clauses themselves those benefits which will be paid periodically and those which will be paid as they accrue or when they occur, in which case no change in the language of the uniform provision is required. Second, the insurer may, in lieu of the phrase “in case of claim for loss for which this policy provides any periodic payment contingent upon continuing loss,” identify by name or description or by place reference the benefits which will be paid periodically, and leaving unchanged the provision that as to any other loss proof is required within 90 days after the date of the loss. (Ins. C. 10350.7.)

§2232.24. Time of Payment of Claim.

Form A.

Indemnities payable under this policy for any loss other than loss for which this policy provides periodic payments will be paid (to the insured employee) as they accrue immediately upon receipt of due written proof of such loss. Subject to due written proof of loss, all accrued indemnity for loss for which this policy provides periodic payment will be paid (to the insured employee) and any balance remaining unpaid upon the termination of the period of liability will be paid immediately upon receipt of due written proof.

Form B.

Subject to due written proof of loss, all indemnities for loss for which this policy provides payment will be paid (to the insured employee) as they accrue and any balance remaining unpaid at termination of the period of liability will be paid (to the insured employee) immediately upon receipt of due written proof.

Instructions

1. The insurer may use Form A or Form B at its option.

2. The insurer shall insert in the blank space in Form A a period for payment which shall not be less frequently than monthly.

3 . If the insurer has chosen to specify ind identify in the uniform provision captioned “Proofs of Loss” the benefits for which proof of loss may be made within 90 days after termination of the period for which the insurer is liable, and if such insurer elects to use Form A, it shall in lieu of using the phrase “any loss other than loss for which this policy provides periodic payment” and “loss for which this policy provides periodic payment,” specify and identify by name or description or by place reference the benefits for which no periodic payment is provided and benefits for which a periodic payment is provided.

4. The insurer shall omit the phrase in parentheses reading: “to the insured employee” if accidental death benefits are included in the policy, in which case the first paragraph of the uniform provision captioned “Payment of Claims” shall be used. (Ins. C. 10350.8.)

§2232.25. Payment of Claims.

Indemnity for loss of life will be payable in accordance with the beneficiary designation and the provisions respecting such payment which may be prescribed herein and effective at the time of payment. If no such designation or provision is then effective, such indemnity shall be payable to the estate of the insured employee. Any other accrued indemnities unpaid at the insured employee's death may, at the option of the insurer, be paid either to such beneficiary or to such estate. All other indemnities will be payable to the insured employee.

If any indemnity of this policy shall be payable to the estate of the insured employee, or to an insured employee or beneficiary who is a minor or otherwise not competent to give a valid release, the insurer may pay. such indemnity up to an amount not exceeding $____ to any relative by blood or connection by marriage of the insured employee or beneficiary who is deemed by the insurer to be equitably entitled thereto. Any payment made by the insurer in good faith pursuant to this provision shall fully discharge the insurer to the extent of such payment.

Subject to any written direction of the insured employee in an application or otherwise all or a portion of any indemnities provided by this policy on account of hospital, nursing, medical or surgical service may, at the insurer's option, and unless the insured employee requests otherwise in writing not later than the time for filing proof of such loss, be paid directly to the hospital or person rendering such services, but it is not required that the service be rendered by a particular hospital or person.

Instructions

1. The insurer shall use the first paragraph of this provision in any policy which provides a benefit for accidental death.

2. The insurer may omit the first paragraph if the policy does not include a benefit for accidental death and no provision is made for a beneficiary, in which case the phrase “to the insured employee” shall be used in the uniform provision captioned “Time of Payment of Claims.”

3. The insurer may, at its option, use either or both of the second two paragraphs of this provision, or may omit them both, irrespective of whether the first paragraph is used or not.

4. If the insurer uses the second paragraph, there shall be inserted in the blank an amount not exceeding $1,000.

5. If the second paragraph is used and the policy makes no provision for the appointment of a beneficiary, the insurer shall omit from said second paragraph all references to payments to a beneficiary.

6. The insurer may substitute for the words “an application” in the second line of the third paragraph other words consistent with the policy terminology. (Ins. C. 10350.9)

§2232.26. Physical Examination and Autopsy.

The insurer at its own expense shall have the right and opportunity to examine the person of any individual whose injury or sickness is the basis of claim when and as often as it may reasonably require during the Pendency of a claim hereunder and to make an autopsy in case of death, where it is not forbidden by law.

Instructions

1. The clause relative to the right of the insurer to make an autopsy in case of death may be omitted from a policy which provides no benefit for accidental death.

2. The entire provision may be omitted from a policy which only provides one or more of the following benefits: hospitalization, medical expenses or surgical operations. (Ins. C. 10350.10.)

§2232.27. Legal Actions.

No action at law or in equity shall be brought to recover on this policy prior to the expiration of 60 days after written proof of loss has been furnished in accordance with the requirements of this policy. No such action shall be brought after the expiration of three years after the time written proof of loss is required to be furnished. (Ins. C. 10350.11.)

§2232.28. Change of Beneficiary.

The right to change of beneficiary is reserved to the insured employee, and the consent of the beneficiary or beneficiaries shall not be requisite to any change in beneficiary.

Instructions

The insurer shall omit this provision from any policy which makes no provision for the designation of a beneficiary. (Ins. C. 10350.12.)

OPTIONAL UNIFORM PROVISIONS

§2232.30. Optional Uniform Provision Requirements.

No group disability policy subject to this article delivered or issued for delivery in this State shall contain provisions respecting any of the matters which are the subject of Sections 2232.31 to 2232.40, inclusive, unless such provisions are set forth in the policy in accordance with the requirements of such sections, and in the words, order and under the captions of the uniform provisions as set forth in Sections 2232.32, 2232.34, 2232.37, 2232.38, 2232.39, and 2232.40, subject, however, to the “General Instructions and Rules” of this article, provided, nevertheless, that the insurer may, at its option, subject to Section 2232.5 hereof, substitute for one or more of such provisions corresponding provisions of different wording approved by the commissioner, which are in each instance not less favorable in any respect to the policyholder, any individual insured, or any beneficiary. Such provisions shall be preceded individually by the caption appearing herein as the caption for each such provision or by such other caption or subcaption as is herein specifically permitted, or, at the option of the insurer and subject to Section 2232.5 hereof, by such appropriate individual or group captions or subcaptions as the commissioner may approve.

The Optional Uniform Provisions set forth in Article 5a, Chapter 4, Part 2, Division 2 of the Insurance Code for use in individual policies, which are captioned “Change of Occupation... Other Insurance in this Insurer,” “Insurance With Other Insurers” as set forth in Section 10369.6 of the Insurance Code, “Relation of Earnings to Insurance” and “Unpaid Premiums” are not applicable to group disability insurance. Insofar as they are not applicable because the subject matter of such provisions are not consistent with group disability insurance, no provision incorporating such subject matter shall be set forth in any group disability policy. The instructions under the heading for each optional uniform provision state whether or not, or to what extent the subject matter of each such uniform provision as set forth in the Insurance Code for use in individual policies may be used in group disability policies. (Ins. C. 10369.1.)

§2232.31. Change of Occupation.

There shall be no provision in a group disability policy, other than provisions relative to eligibility or amounts or extent of coverage based on a plan precluding individual selection, reducing or prorating insurance because of change of occupation of the policyholder or any of the individuals covered under the policy. (Ins. C. 10369.2.)

§2232.32. Misstatement of Age.

Form A.

If the age of any individual covered under this policy has been misstated, the amount payable shall be such as the premium paid for the coverage of such individual would have purchased at the correct age.

Form B.

If the age of any individual covered under this policy has been misstated, there shall be an adjustment of the premium for this policy so that there shall be paid to the insurer the premium for the coverage of such individual at his correct age, and the amount of the insurance coverage shall not be affected.

Instructions

1. The insurer may not use either Form A or Form B unless the policy contains a schedule of premiums graded according to the age of all or some of the persons insured under the policy.

2. The insurer may, without regard to this uniform provision, include in a policy the premium for which is not determined by the ages of any of the individuals covered, provisions relating the amounts of insurance to the age of some or all of the individuals covered, and may provide that the true age of any such individual shall determine the amount of his insurance coverage.

3. Subject to the foregoing instructions, the insurer may, at its option, use either Form A or Form B as may be applicable. (Iris. C. 10369.3, Cf. Ins. C. 10208.)

§2232.33. Other Insurance in This Insurer.

(a) Except as provided in Section 2232.34 and as may elsewhere herein be otherwise provided, a provision in a group disability policy limiting or reducing the amount of coverage thereunder because of other coverage in the same insurer is not appropriate to or applicable for use in group disability policies and no such provision may be used therein.

(b) Except as provided in Section 2232.34 and as may elsewhere herein be otherwise provided, a provision in a group disability policy limiting coverage thereunder and under other disability policies issued by the same insurer to coverage under any one such policy is not appropriate to or applicable for use in group disability policies and may not be used therein. (Ins. C. 10369.4)

§2232.34. Insurance with Other Insurers.

Form A.

Reduced Hospital Benefits in Case of Coverage Under the California Unemployment Insurance Code. The hospital benefits otherwise payable to insured employees hereunder shall be reduced by the amounts of additional benefits during hospital confinement to which such employees shall become entitled pursuant to the California Unemployment Insurance Code or any voluntary plan approved thereunder which is specifically identified in this policy or in the application therefor or in a rider attached to this policy specifically referring to this provision, as such plan is constituted on the effective date of this policy or such rider, as the case may be.

Instructions for Use of Form A

1. The insurer may use this provision only in a policy providing hospital benefits.

2. In lieu of incorporating this uniform provision in the policy, the insurer may, at its option, incorporate the substance or effect thereof, or a provision more favorable to insured employees, in the statement of hospital benefits of the policy by way of an affirmative statement of the benefits applicable to those employees who are also entitled to additional benefits during hospital confinement under the California Unemployment Insurance Code or an existing voluntary plan proved pursuant thereto, or applicable to a period of time for which such additional benefits are payable, or to both. Such affirmative statement of benefits may specifically eliminate or reduce hospital benefits because, or by the amount of the benefits on account of hospitalization to which the employee is entitled as state plan benefits under the California Unemployment Insurance Code to make such equitable adjustment of premium and premium rate for the policy as will after giving effect to the changes in the benefits of the policy resulting from the amendments of the California Unemployment Insurance Code, make such premium and premium rate thereafter commensurate with the premium and premium rate for the benefits theretofore provided by the policy.

Form B. Insurance With Other Insurers, Expense Incurred Basis.

If there be other valid coverage, not with this insurer, on any individual with respect to whom coverage is provided by this policy, providing benefits for the same loss on a provision of service basis or an expense incurred basis and of which this insurer has not been given written notice prior to the occurrence or commencement of the loss, then the only liability under an expense incurred coverage of this policy shall be for such proportion of the loss as the amount which would otherwise have been payable hereunder plus the total like amount under all such other valid coverages for the same loss of which this insurer had notice bears to the total like amounts under all valid coverages for such loss, and for the return of each portion of the premium paid as shall exceed the prorated portion of the amount of benefits so determined. For the purpose of applying this provision when other coverage is on a provision of service basis, the “like amount” of such other coverage shall be taken as the amount which the services rendered would have cost in the absence of such coverage.

Instructions for Use of Form B

(1) The insurer may include Form B in any policy providing benefits upon an expense incurred basis. The insurer may, at its option, include in this provision a definition of “other valid coverage” approved as to form by the commissioner, which definition shall be limited in subject matter to coverage provided by organizations subject to regulation by insurance law or by insurance authorities of this or any other state of the United States or any province of Canada, or by hospital or medical service organizations, and to any other coverage, the inclusion of which may be approved by the commissioner. In the absence of such definition, such term shall not include individual insurance, automobile medical payment insurance or coverage provided by hospital or medical service organizations, or by union welfare plans or employer or employee benefit organizations. For the purpose of applying this provision with respect to any person with respect to whom insurance coverage is provided, any amount of benefit provided for such person pursuant to any compulsory benefit statute (including any workmen's compensation, or employers' liability statute) whether provided by a government agency or otherwise shall in all cases be deemed to be “other valid coverage” of which the insurer has had notice. In applying this provision no third party liability coverage shall be included as “other valid coverage.” The insurer may restrict the applicability of this provision by the definition of “other valid coverage” to other group insurance benefits.

Instructions Applicable to Form A and Form B

Except as may be herein otherwise provided, the proration of benefits of a group disability policy because of other insurance covering the same loss is not appropriate to or applicable for use in group disability policies providing benefits other than benefits upon an expense incurred basis, except to the extent that Form A above is used in accordance with the instructions for its use, and no other such provision may be used. (Ins. C. 10369.5 and 10369.6.)

§2232.35. Policy Provisions Not Deemed to Be Proration.

Note • History

(a) Notwithstanding the prohibitions of Sections 2232.33 and 2232.34, an insurer may include in the policy affirmative statements of coverage or affirmative provisions, otherwise lawful, relating to the conditions of eligibility or the conditions determining the amounts of insurance, which may refer to other insurance with the same or another insurer, if the amount of coverage of the policy and the individuals with respect to whom coverage is provided thereunder can be determined with particularity for each period of time for which premium is paid to the insurer, without having to take into consideration the probabilities of other insurance not yet in effect or not yet disclosed, but which may in the future become in effect or be disclosed, affecting the amounts of benefits payable.

(b) Group policies or contracts which are in force on January 1, 1975, and which contain either an “excess” or a “non-duplication” provision, other than as specifically provided in this section shall be brought into compliance with this section by the later of the next annual renewal date of such policies or contracts, or the expiration of a collectively bargained contract pursuant to which they were written.

NOTE

Authority cited: Section 10369.1, Insurance Code. Reference: Sections 10369.1- 10369.12, Insurance Code.

HISTORY

1. Amendment and new subsection (b) filed 11-29-74; designated effective January 1, 1975 (Register 74, No. 48).

2. Amendment filed 5-6-77 as procedural and organizational; effective upon filing (Register 77, No. 19).

§2232.36. Relation of Earnings to Insurance.

An insurer shall not include in any group disability policy any provision reducing or prorating benefits because of the earnings of the insured employee, other than as such earning may properly affect eligibility or amounts of coverage based on a plan precluding individual selection. (Ins. C. 10369.7.)

§2232.37. Unpaid Premiums.

An insurer shall not include in any group disability policy any provision for the deduction of any premium or any portion thereof from any claim upon its payment. (Ins. C. 10369.8.)

§2232.38. Cancellation.

The insurer may cancel this policy at any time by written notice delivered to the employer, or mailed to his last address as shown on the records of the insurer, stating when, not less than 31 days thereafter, such cancellation shall be effective; and after the policy has been continued beyond its original term the employer may cancel this policy at any time by written notice delivered or mailed to the insurer, effective on receipt or on such later date as may be specified in the notice. In the event of such cancellation by either the insurer or the employer, the insurer shall promptly return on a prorata basis the unearned premium paid, if any, and the employer shall promptly pay on prorata basis the earned premium which has not been paid. (In computing the prorata premium to be returned by the insurer or to be paid by the insurer or to be paid by the employer, any discounts in premium or premium rate actually allowed to the employer because of the longer periods for which premiums, at the time of the cancellation, had been paid or agreed to be paid shall be disregarded, and the prorata return or payment of premium will be computed upon the basis of the insurer's regular and customary premium or premium rate for the coverage of this policy.) Such cancellation shall be without prejudice to any claim originating prior to the effective date of such cancellation.

Instructions

1. The insurer may, at its option, omit the phrase “after the policy has been continued beyond its original term” after the “and” following the first semicolon.

2. Any provision of the policy by which the insurer is given the right to terminate coverage or increase premiums affects rights under the policy substantially similar to cancellation, and any such provision which results in the insurer having the right to terminate coverage or increase premium on less than 31 days written notice delivered or mailed to the employer at his last address as it appears on the records of the insurer is less favorable than this uniform provision and is a violation of Section 2232.6 of this article. However, termination of the entire policy or increase of premium negotiated by the mutual agreement, express or implied, of the parties terminates the entire contract including the “Cancellation” uniform provision, or modifies a provision of the policy without reference to cancellation or threat thereof. Such results may in fact be so accomplished notwithstanding the provisions of the policy relating to cancellation by the unilateral acts of the insurer or the employer. A policy provision relating to termination at a premium due date by mutual consent, irrespective of notice, or whereby the insurer gives advance consent to such a termination by the employer is not inconsistent with this uniform provision. (Ins. C. 10369.9.)

3. The insurer may, at its option, include or omit the next to the last sentence enclosed in parentheses.

§2232.39. Conformity with State Statutes.

Any provision of this policy which, on its effective date, is in conflict with the statutes of the state in which this policy was delivered or issued for delivery is hereby amended to conform to the minimum requirements of such statute. (Ins.C. 10369.10.)

§2232.40. Illegal Occupation or Commission of Felony.

The insurer shall not be liable for any loss to which a contributing cause was the commission of or attempt to commit a felony by the person whose injury or sickness is the basis of claim, or to which a contributing cause was such person's being engaged in an illegal occupation. (Ins. C. 10969.11.)

§2232.41. Intoxicants and Narcotics.

The insurer shall not be liable for any loss sustained or contracted in consequence of the person whose injury or sickness is the basis of claim being intoxicated or under the influence of any narcotic unless administered on the advice of a physician. (Ins. C. 10369.12.)

Article 2.2. Limits on Benefit Reductions in Group Disability Income Insurance Policies [Repealed]

§2232.45.1. Authority and Purpose. [Repealed]

Note • History

NOTE

HISTORY

1. New article 2.2 (sections 2232.45.1-2232.45.5) and new section filed 6-24-2008; operative 8-23-2008 (Register 2008, No. 26).

2. Repealer of article 2.2 (sections 2232.45.1-2232.45.5) and section filed 12-15-2009; operative 1-14-2010 (Register 2009, No. 51).

§2232.45.2. Benefit Reductions Shall Not Be Based on Involuntary Retirement. [Repealed]

Note • History

NOTE

Authority cited: Section 790.10, Insurance Code; CalFarm Ins. Co. v. Deukmejian, (1989) 48 Cal.3d 805; and 20th Century Ins. Co. v. Garamendi (1994) 8 Cal.4th 216. Reference: Sections 790.02 and 790.03, Insurance Code; Kalvinskas v. California Institute of Technology (9th Cir. 1996) 96 F.3d 1305; Gruenberg v. Aetna Insurance Company (1973) 9 Cal.3d 566; Smith v. Alum Rock Union Elementary School District (1992) 6 Cal. App.4th 1651.

HISTORY

1. New section filed 6-24-2008; operative 8-23-2008 (Register 2008, No. 26).

2. Repealer filed 12-15-2009; operative 1-14-2010 (Register 2009, No. 51).

§2232.45.3. Benefit Reductions Shall Not Be Based on Estimated Workers' Compensation Temporary Disability Benefits Not Actually Received by the Insured. [Repealed]

Note • History

NOTE

HISTORY

1. New section filed 6-24-2008; operative 8-23-2008 (Register 2008, No. 26).

2. Repealer filed 12-15-2009; operative 1-14-2010 (Register 2009, No. 51).

§2232.45.4. Benefit Reductions Shall Not Be Based on Workers' Compensation Permanent Disability. [Repealed]

Note • History

NOTE

Authority cited: Section 790.10, Insurance Code; CalFarm Ins. Co. v. Deukmejian, (1989) 48 Cal.3d 805; and 20th Century Ins. Co. v. Garamendi (1994) 8 Cal.4th 216. Reference: Sections 790.02 and 790.03, Insurance Code; Erreca v. Western States Life Insurance Co. (1942) 19 Cal.2d 388; Russell v. Bankers Life Co. (1975) 46 Cal. App.3d 405; and Canova v. N.L.R.B. (1983) 708 F.2d 1498.

HISTORY

1. New section filed 6-24-2008; operative 8-23-2008 (Register 2008, No. 26).

2. Repealer filed 12-15-2009; operative 1-14-2010 (Register 2009, No. 51).

§2232.45.5. Benefit Reductions Based on Earnings Received for Work Performed While Disabled. [Repealed]

Note • History

NOTE

HISTORY

1. New section filed 6-24-2008; operative 8-23-2008 (Register 2008, No. 26).

2. Repealer filed 12-15-2009; operative 1-14-2010 (Register 2009, No. 51).

Article 2.3. Forms of Standard Provisions for Coordination of Benefits

§2232.50. Authority. [Repealed]

Note • History

NOTE

Authority cited: Sections 10270.94 and 11515.5, Insurance Code. Reference: Sections 10270.98 and 11515.5, Insurance Code.

HISTORY

1. New Article 2.3 (Sections 2232.50 through 2232.60) filed 11-29-74; designated effective January 1, 1975 (Register 74, No. 48).

2. Repealer filed 1-8-86; effective thirtieth day thereafter (Register 86, No. 2).

§2232.51. Purpose. [Repealed]

History

HISTORY

1. Repealer filed 1-8-86; effective thirtieth day thereafter (Register 86, No. 2).

§2232.52. Applicability.

Note • History

These regulations do not require the use of overinsurance provisions in group disability policies or group non-profit hospital service plan contracts. If, however, such a policy or contract contains overinsurance provisions, such provisions must be consistent with and no less favorable than the Standard Group Coordination of Benefit Provisions and Instructions herein established. To this end, overinsurance provisions, or provisions for the reduction of benefits otherwise payable because of other insurance by whatever name designated, which are less favorable than the Standard Coordination of Benefit Provisions herein contained may not be used, except that plans of coverage designated to be supplementary over the policyholder's underlying basic plan of coverage may provide that its coverage shall be excess to that specific policyholder's plan of basic coverage from whatever source provided. (See Section 2232.35 of Article 2a supra.)

NOTE

Authority cited: Sections 10270.94, 10270.98, 11515 and 11515.5, Insurance Code. Reference: Sections 10270.98 and 11515.5, Insurance Code.

HISTORY

1. Amendment filed 1-8-86; effective thirtieth day thereafter (Register 86, No. 2).

§2232.53. Standard Provisions for Coordination of Benefits.

Note • History

Every group disability policy which provides hospital, medical and surgical benefits issued in this state may contain the following standard provisions relating to Coordination of Benefits, as interpreted by the special instructions hereinafter set forth.

NOTE

Authority cited: Sections 10270.94,10270.98,11515 and 11515.5, Insurance Code. Reference: Sections 10270.98 and 11515.5, Insurance Code.

HISTORY

1. Amendment filed 1-8-86; effective thirtieth day thereafter (Register 86, No. 2).

§2232.54. Benefits Subject to Coordination of Benefits Provision.

Note • History

All of the benefits provided under this policy are subject to this provision.

Instructions

When the policy or nonprofit hospital service contract provides both integrated Major Medical Expense Benefits and the Basic Benefits, but the coordination of benefit provision applies to all or some of the benefits, use appropriate alternative wording such as illustrated below:

“Only the major medical expense benefits provided under this policy are subject to this provision.”

NOTE

Authority cited: Sections 10270.94, 10270.98, 11515 and 11515.5, Insurance Code. Reference: Sections 10270.98 and 11515.5, Insurance Code.

HISTORY

1. Amendment filed 1-8-86; effective thirtieth day thereafter (Register 86, No. 2)

§2232.55. Definitions.

Note • History

(a) “Plan” means any plan providing benefits or services for or by reason of medical or dental care or treatment, which benefits or services are provided by:

(1) group, blanket or franchise insurance coverage,

(2) service plan contracts, group practice, individual practice and other prepayment coverage,

(3) any coverage under labor-management trusteed plans, union welfare plans, employer organization plans, or employee benefit organization plans, and

(4) any coverage under governmental programs, and any coverage required or provided by any statute.

The term “Plan” shall be construed separately with respect to each policy, contract, or other arrangement for benefits or services and separately with respect to that portion of any such policy, contract, or other arrangement which reserves the right to take the benefits or services of other Plans into consideration in determining its benefits and that portion which does not.

(b) “This Plan” means that portion of this policy which provides the benefits that are subject to this provision.

(c) “Allowable Expense” means any necessary, reasonable, and customary item of expense at least a portion of which is covered under at least one of the Plans covering the person for whom claim is made.

When a Plan provides benefits in the form of services rather than cash payments, the reasonable cash value of each service rendered shall be deemed to be both an Allowable Expense and a benefit paid.

(d) “Claim Determination Period” means a calendar year.

Instructions

The definition of a “Plan” within the COB provision of group contracts enumerates the types of coverage which the insurer may consider in determining whether overinsurance exists with respect to a specific claim. Such definition:

(a) May not include individual or family policies or individual or family subscriber contracts, except as otherwise provided in this special instruction.

(b) May include all group policies, group subscriber contracts, selected group disability insurance contracts issued pursuant to Section 10270.97 of the Insurance Code and blanket insurance contracts, except blanket insurance contracts issued pursuant to Section 10270.2(b) or (e) which contain nonduplication of benefits or excess policy provisions.

(c) May not include to any extent whatever any entitlements to Medi-Cal benefits under Chapter 7 (commencing with Section 14000) or Chapter 8 (commencing with Section 14500) or Part 3 of Division 9 of the Welfare and Institutions Code, or benefits under the California Crippled Children Services program under Section 10020 of the Welfare and Institutions Code or any other coverage provided for or required by law when, by law, its benefits are excess to any private insurance or other non-governmental program.

(d) May not include the medical payment benefits customarily included in the traditional automobile contracts.

(e) May include “Medicare” or any other similar governmental benefits so long as it does not expand the definition of “Allowable Expenses” beyond the hospital, medical and surgical benefits as may be provided by the government program and so long as such benefits are not by law excess to this Plan.

NOTE

Authority cited: Sections 10270.94, 10270.98, 11515 and 11515.5, Insurance Code. Reference: Sections 10270.98 and 11515.5, Insurance Code.

HISTORY

1. Amendment filed 1-8-86; effective thirtieth day thereafter (Register 86, No. 2).

§2232.56. Effect on Benefits.

Note • History

(a) This provision shall apply in determining the benefits as to a person covered under this Plan for any Claim Determination Period if, for the Allowable Expenses incurred as to such person during such period, the sum of

(1) the benefits that would be payable under this Plan in the absence of this provision, and

(2) the benefits that would be payable under all other Plans in the absence therein of provisions of similar purpose to this provision would exceed such Allowable Expenses.

(b) As to any Claim Determination Period with respect to which this provision is applicable, the benefits that would be payable under this Plan in the absence of this provision for the Allowable Expenses incurred as to such person during such Claim Determination Period shall be reduced to the extent necessary so that the sum of such reduced benefits and all the benefits payable for such Allowable Expenses under all other Plans, except as provided in paragraph (c) below, shall not exceed the total of such Allowable Expenses. Benefits payable under another Plan include the benefits that would have been payable had claim been duly made therefor.

(1) another Plan which is involved in paragraph (b) above and which contains a provision coordinating its benefits with those this Plan would, according to its rules, determine its benefits after the benefits of this Plan have been determined, and

(2) the rules set forth in paragraph (d) below would require this Plan to determine its benefits before such other Plan, then the benefits of such other Plan will be ignored for the purposes of determining the benefits under this Plan.

(d) For the purposes of paragraph (c) above, the rules establishing the order of benefit determination are:

(1) The benefits of a Plan which covers the person on whose expenses claim is based other than as a dependent shall be determined before the benefits of a Plan which covers such person as a dependent.

(2) Except for cases of a person for whom claim is made as a dependent child whose parents are separated or divorced, the benefits of a plan which covers the person on whose expenses claim is based as a dependent of a person whose date of birth, excluding year of birth, occurs earlier in a calendar year, shall be determined before the benefits of a Plan which covers such person as a dependent of a person whose date of birth, excluding year of birth, occurs later in a calendar year. If either Plan does not have the provisions of this paragraph regarding dependents, which results either in each Plan determining its benefits before the other or in each Plan determining its benefits after the other, the provisions of this paragraph shall not apply, and the rule set forth in the Plan which does not have the provisions of this paragraph shall determine the order of benefits.

(3) In the case of a person for whom claim is made as a dependent child whose parents are separated or divorced and the parent with custody of the child has not remarried, the benefits of a Plan which covers the child as a dependent of the parent with custody of the child will be determined before the benefits of a plan which covers the child as a dependent of the parent without custody.

(4) In the case of a person for whom claim is made as a dependent child whose parents are divorced and the parent with custody of the child has remarried, the benefits of a Plan which covers the child as a dependent of the parent with custody shall be determined before the benefits of a Plan which covers that child as a dependent of the stepparent, and the benefits of a Plan which covers that child as a dependent of the stepparent will be determined before the benefits of a Plan which covers that child as a dependent of the parent without custody.

(5) In the case of a person for whom claim is made as a dependent child whose parents are separated or divorced, where there is a court decree which would otherwise establish financial responsibility for the medical, dental or other health care expenses with respect to the child, then, notwithstanding paragraphs (3) and (4) above, the benefits of a Plan which covers the child as a dependent of the parent with such financial responsibility shall be determined before the benefits of any other Plan which covers the child as a dependent child.

(6) When rules (1) through (5) do not establish an order of benefit determination, the benefits of a Plan which has covered the person on whose expenses claim is based for the longer period of time shall be determined before the benefits of a Plan which has covered such person the shorter period of time, provided that:

(A) the benefits of a plan covering the person on whose expenses claim is based as a laid-off or retired employee, or dependent of such person, shall be determined after the benefits of any other Plan covering such person as an employee, other than a laid-off or retired employee, or dependent of such person; and

(B) if either Plan does not have a provision regarding laid-off or retired employees, which results in each Plan determining its benefits after the other, then the provisions of (A) above shall not apply.

(e) When this provision operates to reduce the total amount of benefits otherwise payable as to a person covered under this Plan during any Claim Determination Period, each benefit that would be payable in the absence of this provision shall be reduced proportionately, and such reduced amount shall be charged against any applicable benefit limit of this Plan.

Instructions

(a) When a claim under a Plan with a COB provision involves another Plan which also has a COB provision, the carriers involved shall use the above rules to decide the order in the which the benefits payable under the respective plans will be determined.

(b) In determining the length of time an individual has been covered under a given Plan, two successive Plans of a given group shall be deemed to be one continuous Plan so long as the claimant concerned was eligible for coverage within 24 hours after the prior Plan terminated. Thus, neither a change in the amount or scope of benefits provided by a Plan, a change in the carrier insuring the Plan, nor a change from one type of Plan to another, (e.g. single employer to multiple employer Plan, or vice versa, or single employer to a Taft-Hartley Welfare Plan) would constitute the start of a new Plan for purposes of this instruction.

(c) If a claimant's effective date of coverage under a given Plan is subsequent to the date the carrier first contracted to provide the Plan for the group concerned (employer, union, association, etc.), then, in the absence of specific information to the contrary, the carrier shall assume, for purposes of this instruction, that the claimant's length of time covered under that Plan shall be measured from claimant's effective date of coverage. If a claimant's effective date of coverage under a given Plan is the same as the date the carrier first contracted to provide the Plan for the group concerned, then the carrier shall request the group concerned to furnish the date the claimant first became covered under the earliest of any prior Plans the group may have had. If such date is not readily available, the date the claimant first became a member of the group shall be used as the date from which to determine the length of time his coverage under that Plan has been in force.

(d) It is recognized that there may be existing group plans containing provisions under which the coverage is declared to be “excess” to all other coverages, or other overinsurance provisions not consistent with the provisions of these regulations. Such plans may have been written by certain self-insured or non-regulated entities not presently subject to insurance regulation, or by insurers or service corporations under policies or contracts issued prior to the effective date of these regulations, and which have not yet been brought into conformance with these regulations. In such cases, carriers are urged to use the following claims administration procedures: A group contract should pay first if it would be primary under the COB order of benefit determination. In those cases in which it would normally be considered secondary, the carrier should make every effort to coordinate in the secondary position with benefits available through such “excess” plans. The carrier should try to secure the necessary information from the “excess” plan.

(e) Provision (c) may be omitted if the plan provides only one benefit.

(f) A group contract which includes COB and which is issued or renewed, or which has an anniversary date on or after the effective date of this section as amended in 1986 shall include the substance of the provision in subsection (c) (2) of this section. That provision shall become effective, at the option of the insurer, on January 1, 1987, or one year after the effective date of this section as amended in 1986. Until that provision becomes effective, the group contract shall, instead, use wording like this:

“(2) Except as stated in paragraphs (3), (4) and (5), below, the benefits of a Plan which covers a person as a dependent of a male are determined before those of a Plan which covers the person as a dependent of a female.”

NOTE

Authority cited: Sections 10270.94, 10270.98, 11515 and 11515.5, Insurance Code. Reference: Sections 10270.98 and 11515.5, Insurance Code.

HISTORY

1. Amendment filed 1-8-86; effective thirtieth day thereafter (Register 86, No. 2).

2. Editorial correction of printing error in subsection (d)(1) (Register 93, No. 32).

§2232.57. Right to Receive and Release Necessary Information.

Note • History

For the purpose of determining the applicability of and implementing the terms of this provision of this Plan or any provision of similar purpose of any other Plan, the insurer or service plan may, release to or obtain from any other insurance company or other organization or person any information, with respect to any person, which the insurer or service plan deems to be necessary for such purposes. Any person claiming benefits under this Plan shall furnish to the insurer or service plan such information as may be necessary to implement this provision.

Instructions

Carriers are urged to use the following claims administration procedures to expedite claim payments where COB is involved:

(a) Each carrier should establish a time limit after which full or partial payment should be made. When payment of a claim is necessarily delayed for reasons other than the application of a COB provision, investigation of other valid coverage should be conducted concurrently so as to create no further delay in the ultimate payment of benefits. Occasionally, this will necessitate a carrier making payment as the primary carrier with a right of recovery in the event that subsequent investigation proves that payment as a secondary carrier should have been made.

(b) There should be continued and improved education of claim personnel, stressing accurate and prompt completion of the HIC Duplicate Coverage Inquiry (DUP-1) Form by the inquiring carrier and the responding carrier. This education effort should also be encouraged through local claim associations. Claim personnel should be encouraged to make every effort to speed up exchange of COB information.

NOTE

Authority cited: Sections 10270.94, 10270.98, 11515 and 11515.5, Insurance Code. Reference: Sections 791.06, 10270.98 and 11515.5, Insurance Code.

HISTORY

1. Amendment filed 1-8-86; effective thirtieth day thereafter (Register 86, No. 2).

§2232.58. Facility of Payment.

Note • History

(a) Whenever payments which should have been made under this Plan in accordance with this provision have been made under any other Plans, the insurer or service plan shall have the right, exercisable alone and in its sole discretion, to pay over to any organizations making such other payments any amounts it shall determine to be warranted in order to satisfy the intent of this provision, and amounts so paid shall be deemed to be benefits paid under this Plan and, to the extent of such payments, the insurer or service plan shall be fully discharged from liability under this plan.

NOTE

Authority cited: Sections 10270.94, 10270.98, 11515 and 11515.5, Insurance Code. Reference: Sections 10270-98 and 11515.5, Insurance Code.

HISTORY

1. Amendment filed 1-8-86; effective thirtieth day thereafter (Register 86, No. 2).

§2232.59. Right of Recovery.

Note • History

Whenever payments have been made by the insurer with respect to Allowable Expenses in a total amount, at any time, in excess of the maximum amount of payment necessary at that time to satisfy the intent of this provision, the insurer or service plan shall have the right to recover such payments, to the extent of such excess, from among one or more of the following; as the insurer or service plan shall determine: any persons to or for or with respect to whom such payments were made, any other insurers, service plans or any other organizations.

NOTE

Authority cited: Sections 10270.94, 10270.98, 11515 and 11515.5, Insurance Code. Reference: Sections 10270.98 and 11515.5, Insurance Code.

HISTORY

1. Amendment filed 1-8-86; effective thirtieth day thereafter (Register 86, No. 2).

§2232.60. Effective Date.

History

HISTORY

1. Repealer filed 1-8-86; effective thirtieth day thereafter (Register 86, No. 2).

Article 3. Small Employer Health Insurance [Repealed]

HISTORY

1. New article 3 (sections 2233-2233.99) filed 6-28-93; operative 7-1-93 (Register 93, No. 27). This regulatory filing was deemed an emergency by Insurance Code section 10704. A Certificate of Compliance must be transmitted to OAL by 10-29-93 or emergency language will be repealed by operation of law on the following day. For prior history, see Register 77, No. 19.

2. Editorial correction amending article heading (Register 93, No. 44).

3. New section refiled 10-28-93 as an emergency with amendments; operative 10-29-93 (Register 93, No. 44). This filing was deemed an emergency by Insurance Code section 10704. A Certificate of Compliance must be transmitted to OAL by 2-28-94 or emergency language will be repealed by operation of law on the following day.

4. Expired by operation of Government Code section 11346.1(e) (Register 94, No. 17).

5. New section filed as an emergency 4-28-94; operative 5-1-94 (Register 94, No. 17). This filing was deemed an emergency by Insurance Code section 10704. A Certificate of Compliance must be transmitted to OAL by 8-29-94 or emergency language will be repealed by operation of law on the following day.

6. New section refiled 9-7-94 as an emergency; operative 9-6-94 (Register 94, No. 36). A Certificate of Compliance must be transmitted to OAL by 1-4-95 or emergency language will be repealed by operation of law on the following day.

7. Repealed by operation of Government Code section 11346.1(g) (Register 95, No. 12).

Article 4. Blanket Disability and Tuition Refund Policies

§2236. Forms to Which This Article Is Applicable.

Note • History

This Article comprises the Rules and Regulations of the Insurance Commissioner relating to the substance, form and issuance of tuition refund policies described in Section 10270.1 of the Insurance Code and those blanket disability policies described in Section 10270.2 of the Insurance Code except policies issued to pay benefits afforded by a voluntary plan of employment compensation disability insurance pursuant to the California Unemployment Insurance Code. The term “blanket disability policy” as used herein, unless that context otherwise requires, refers to the policies to which this Article applies, including tuition refunds policies described in Section 10270.1 of the Insurance Code. No blanket disability policy affected by this Article may be delivered or issued for delivery in this State which does not, in substance and in the method of its issuance, meet all of the applicable provisions and requirements of Section 10270.1 of the Insurance Code or Section 10270.2 of the Insurance Code, as applicable, whether or not such form has heretofore been authorized or approved by the Commissioner. The Commissioner shall not hereafter approve any such policy unless it conforms with the rules set forth in this Article, and no such form shall be issued hereafter except in conformity with the rules set forth in the Article.

NOTE

Authority cited for Article 4: Sections 10270.1 and 10270.2, Insurance Code.

HISTORY

1. Repealer of Article 4 (2236 and 2237) and new Article 4 (2236 through 2236.5) filed 4-4-56; effective thirtieth day thereafter (Register 56, No. 6).

2. Repealer of Article 4 ( 2236 through 2236.5) and new Article 4 ( 2236 through 2236.7) filed 4-27-70; designated effective 7-1-70 (Register 70, No. 18).

§2236.1. Certificates or Other Forms of Statements of Coverage.

No certificate or other form of statement of coverage need be issued under a blanket disability policy, unless the policy itself provides for the issuance of certificates or some other form of statement of coverage; in which case, certificate forms or some other form of statement of coverage adequately describing the coverage, the person covered, and the persons to whom benefits are payable must be submitted for authorization, and upon authorization must be issued in accordance with the policy provisions. Such certificates or other statements of coverage are not required to be individualized.

§2236.2. Addition of New Persons Eligible.

In the absence of a policy provision excluding coverage for otherwise covered individuals who have not individually enrolled with the policyholder and undertaken to pay all or a specified portion of the premium applicable to such individual, a blanket disability policy (but not a tuition refund policy) shall contain, in substance, a provision which provides that the described insurance covers all persons who fall within the categories of covered individuals defined in the policy, and that to the persons originally insured by the policy shall be added automatically all such persons as they come within the class of persons defined in the policy issued to the master policyholder.

§2236.3. Provisions Required.

(a) The Uniform Provisions for group disability insurance and the Instructions for their use, and the definition of words set forth in Sections 2232.1 to 2232.41, inclusive, of Article 2a of Title 10, insofar as applicable, shall be required and shall apply to disability policies; except that insofar as applicable to blanket disability policies such Uniform Provisions and Instructions for their use are hereby amended in the following respects:

(1) In a tuition refund policy in place of using the Uniform Provision captioned “Payment of Claims” the insurer may use one of the following provisions:

Form A. Payment of Claims

All benefits provided in this policy will be paid to the school hereby insured immediately after receipt of due proof of loss in repayment for the return of, or in payment of, tuition, fees, or charges of the school for the period of attendance of the pupil lost by reason of disability covered by this policy.

Form B. Payment of Claims.

All benefits provided in this policy will be paid immediately after receipt of due proof of loss, to the person paying tuition charges for the pupil suffering disability covered by this policy.

(2) In blanket disability policies issued to provide accidental death benefits, the insurer, in place of using the first paragraph of the Uniform Provision captioned “Payment of Claims,” may use the following provisions, in which case no provision may be included in the policy whereby the individual insured may appoint a beneficiary:

Payment of Claims.

Indemnity for loss of life of a minor insured will be payable to his parents or guardians, if surviving the insured, otherwise to the estate of the insured. Indemnity for loss of life of any other insured will be payable to the estate of the insured. Any other accrued indemnities unpaid at the insured's death may, at the option of the insurer, be paid either to the parents guardians or estate of the insured. All other indemnities, will be payable to insured.

The instructions for the use of said Uniform Provision in group disability policies are also applicable to the above form. In such blanket disability policies, the insurer shall omit the Uniform Provision captioned “Change of Beneficiary” if the last above form of alternative Uniform Provision captioned “Payment of Claims” is used.

(3) (i) In blanket disability policies issued to provide hospital, medical or surgical benefits resulting from accidents or sickness, in lieu of the first paragraph of the Uniform Provision captioned “Payment of Claims,” the insurer may the following paragraph:

All indemnities of this policy shall be payable to the insured and any accrued indemnities unpaid at the death of the insured (*) may be paid to the estate of the deceased (*).

(3) (ii) In lieu of the second and third paragraphs of said Uniform Provision captioned “Payment of Claims,” the insurer may use the following paragraphs: If any indemnity of this policy shall be payable to the estate of any insured (*), or to an insured (*) who is a minor or in the judgment of the insurer otherwise not competent to give valid release, the insurer may pay such indemnity to the person responsible for the insured's (**) support. Any payments made by the insurer in good faith pursuant to this provision shall fully discharge the insurer to the extent of such payment.

All or a portion of any indemnities provided by this policy on account of hospital, nursing, medical or surgical services may, at the insurer's option, and unless a person to whom benefits might otherwise be payable thereunder requests otherwise in writing not later than the time for filing proof of such loss, be paid directly to the hospital or person rendering such services; but it is not required that the services be rendered by a particular hospital or person.

___________

*Insurer shall insert the proper word or words to describe the individual or individuals insured.

**Insurer shall insert in blank space the proper word or words to describe the individual or individuals insured.

§2236.4. Insurance Code Sections Applicable.

Note • History

Section 10191, 10270.3, subdivisions (a) and (d) of Section 10270.6, subdivision (b) of Section 10290, Section 10291, paragraph (1) of subdivision (b) of Section 10291.5, subdivisions (a), (b), (d), (e), (f), (g) and (h) of Section 10320, and Sections 10321, 10322, 10326, 10326.5, 10380, 10381, and 10382 of the Insurance Code shall apply to blanket disability policies and reference in such sections to the insured shall, in applyingsuch sections to blanket disability policies, be deemed to refer also to the individuals insured under such policies.

NOTE

Authority cited: Sections 10270.1 and 10270.2, Insurance Code. Reference: Sections 10270.2 and 10270.3, Insurance Code.

HISTORY

1. Amendment filed 5-6-77 as procedural and organizational; effective upon filing (Register 77, No. 19).

§2236.5. “Employee” Includes.

Whenever the word “employee” is used in Article 2a of Subchapter 2 of Chapter 5 of Title 10, there may be substituted therefor the word “camper,” “participant,” “member,” “subscriber,” “student,” or “teacher,” or any other word or words to properly describe or designate the individual or individuals eligible for insurance under Sections 10270.1 and 10270.2 of the Insurance Code.

§2236.6. “Employer” or “Policyholder” Includes.

Whenever the word “employer” or the word “policyholder” is used in Article 2a of Subchapter 2 of Chapter 5 of Title 10, it includes any organization, entity or person to whom the policy may be issued under Sections 10270.1 or 10270.2 of the Insurance Code. Whenever the word “employer” or the word “policyholder” is used in any Uniform Provision in said Article 2a of Title 10, there may be substituted therefor any word or words which properly describe or designate any of the entities enumerated in subdivisions (a), (b), (c), (d), (e), or (f) Section 10270.2.

§2236.7. Use of Rider.

Changes in the forms of blanket disability policies submitted to the Commissioner for approval which are necessary to bring them into compliance with the rules and provisions hereby promulgated may be effected by rider.

Article 4.5. Group Disability Income Policies Insuring Employees of California School Districts

§2237. Preamble.

Note • History

Certain group disability income policies providing indemnity for loss-of-time to employees of California school districts contain provisions permitting a reduction in benefit otherwise payable by an amount equal to all or part of the benefits the insured employee receives or is entitled to receive under any other policy of group income insurance. In some cases, an employee of a school district is insured under two, or possibly more, such group disability income policies, each or all of which contain a reduction of benefits provision. Such a situation has caused delays in benefit payment and could conceivably result in the school district employee receiving no benefit payment. This action would constitute an unfair claim settlement practice within the meaning of Insurance Code Section 790.03 (h).

NOTE

Authority cited: Sections 790.10 and 10270.94, Insurance Code.

HISTORY

1. New Article 4.5 (Sections 2237-2237.4) filed 3-29-74 as an emergency; effective upon filing (Register 74, No. 13).

2. Certificate of Compliance filed 6-20-74 (Register 74, No. 25).

§2237.1. Authority.

This regulation promulgated under the authority of Insurance Code Sections 790.10 and 10270.94.

§2237.2. Definitions.

As used in this regulation:

(a) “Group disability income policy” means a group insurance policy providing indemnity for loss-of-time issued or issued for delivery in this State pursuant to the provisions of Insurance Code Section 10270.5 under which eligibility for coverage is restricted substantially to employees of California school districts, whether insured as members of an association or as employees of a school district, and which contains a reduction of benefits provision.

(b) “Reduction of benefits provision” means a provision in a group disability income policy permitting the insurer to reduce the disability income benefit payable thereunder by an amount equal to all or part of the benefits the insured receives or is entitled to receive under any other group disability income policy.

(c) “Duplicating insurance” means the coverage of the same California school district employee under two or more group disability income policies.

(d) “Net benefit” means the amount of benefit payable under a group disability income policy prior to the application of a reduction of benefits provision, but after deducting all other items to be subtracted to determine benefits as provided in the group disability income policy (e.g., Social Security payments, workmen's compensation, etc.).

(e) “Maximum net benefit” means in the case of duplicating insurance the higher or highest net benefit payable under any of the group disability income policies under which the employee is entitled to receive benefits.

§2237.3. Standards for Reduction of Benefits Provisions.

The reduction in benefits provision in each group disability income policy issued, issued for delivery or renewed in this State after the effective date of this regulation shall provide in substance that in the case of duplicating insurance the liability of the insurer under its group disability income policy shall not be less than its pro rata share of the maximum net benefit, which pro rata share shall be determined by dividing the net benefit payable by the insurer under its group disability income policy by the total of all net benefits under all group disability income policies under which the insured is entitled to receive benefits and multiplying that result by the maximum net benefit.

No reduction of benefits provision in a group disability income policy not containing the standards described in this section or standards not less favorable to the insured shall be approved by the Commissioner. The reduction of benefits provision in each group disability income policy heretofore issued in this State, which is renewed after the effective date of this regulation, shall be amended to contain the standards described in this section or standards not less favorable to the insured.

§2237.4. Exchange of Information.

Where a determination of the net benefit payable by another insurer providing duplicating insurance is required by an insurer, at the insurer's request, such other insurer shall furnish all necessary and pertinent information concerning its net benefit sufficient to permit verification of benefit determination by the insurer.

Article 5. Facility of Payment Clauses

NOTE

Authority cited: Section 10369, Insurance Code. Reference: Sections 10359-10369, Insurance Code.

HISTORY

1. Repealer of Article 5 (Section 2238) filed 5-6-77 as procedural and organizational; effective upon filing (Register 77, No. 19). For prior history, see Register 3 and Register 10, No. 5.

Article 6. Provider Network Access Standards for Disability Policies and Agreements

§2240. Definitions.

Note • History

As used in this Article:

(a) “Basic health care services” means any of the following covered health care services provided for in the applicable insurance contract or certificate of coverage:

(1) Physician services, including consultation and referral.

(2) Hospital inpatient services and ambulatory care services.

(3) Diagnostic laboratory diagnostic and therapeutic radiologic services.

(4) Home health services.

(5) Preventive health services.

(6) Emergency health care services, including ambulance services.

(7) Mental health care services including those intended to meet the requirements of Insurance Code 10144.5.

(8) Any other health care or supportive services that are covered pursuant to an insurance contract.

(b) “Certificate” means an individual or family certificate of coverage issued pursuant to an insurance contract.

(c) “Covered person” means either a primary covered person or a dependent covered person eligible to receive basic health care services under the insurance contract providing network provider services.

(d) “Dependent covered person” means someone who is eligible for coverage under an insurance contract through his or her relationship with or dependency upon a primary covered person.

(e) “Emergency health care services” means health care services rendered for any condition in which the covered person is in danger of loss of life or serious injury or illness or is experiencing severe pain and suffering.

(f) “Network provider” means an institution or a health care professional which renders health care services to covered persons pursuant to a contract to provide such services at alternative rates.

(g) “Network provider services” means health care services which are covered under an insurance contract when rendered by a network provider within the service area.

(h) “Non-network provider services” means covered health care services delivered by a health care provider who is not contracted with the insurer either directly or indirectly.

(i) “Health care professional” means a licensee or certificate holder enumerated in Insurance Code 10176 as of the effective date of this Article or as that Section may be amended thereafter.

(j) “Insurer” means an insurer who provides `health insurance” as defined in Section 106(b), and includes those who authorize insureds to select providers who have contracted with the insurer for alternative rates of payment as described in Section 10133.

(k) “Primary care physician” means a physician who is responsible for providing initial and primary care to patients, for maintaining the continuity of patient care or for initiating referral for specialist care. A primary care physician may be either a physician who has limited his practice of medicine to general practice or who is a board-certified or board-eligible internist, pediatrician, obstetrician-gynecologist or family practitioner.

(l) “Primary covered person” means a person eligible for coverage under an insurance contract or certificate.

(m) “Service area” means the State of California or any other geographic area within the state designated in the contract within which network provider services are rendered to covered persons for covered benefits.

(n) “Network” means all institutions or health care professionals that are utilized to provide medical services to covered persons pursuant to a contract with an insurer to provide such services at alternative rates as described in Insurance Code Section 10133. A network as defined herein can be directly contracted with by an insurer or leased by an insurer.

NOTE

Authority cited: Section 10133.5, Insurance Code. Reference: Sections 106(b), 10133, 10133.5, 10144.5 and 10176, Insurance Code.

HISTORY

1. New Article 6 (Sections 2240, 2240.1-2240.4) filed 1-24-84; effective thirtieth day thereafter (Register 84, No. 4). For history of former Article 6, see Register 77, No. 19.

2. Amendment of article heading, section and Note filed 1-8-2008; operative 2-7-2008 (Register 2008, No. 2).

§2240.1. Adequacy and Accessibility of Provider Services.

Note • History

(a) The provisions of this article apply to “health insurance” policies as defined by Insurance Code section 106(b). Notwithstanding the above, the provisions of this article do not apply to supplemental policies of health insurance that provide coverage for vision care expenses only or dental care expenses only.

(b) In arranging for network provider services, insurers shall ensure that:

(1) Network providers are duly licensed or accredited and that they are sufficient, in number or size, to be capable of furnishing the health care services covered by the insurance contract, taking into account the number of covered persons, their characteristics and medical needs including the frequency of accessing needed medical care within the prescribed geographic distances outlined herein and the projected demand for services by type of services.

(2) Decisions pertaining to health care services to be rendered by providers to covered persons are based on such persons' medical needs and are made by or under the supervision of licensed and appropriate health care professionals.

(3) Facilities used by providers to render basic health care services are located within reasonable proximity to the work places or the principal residences of the primary covered persons, are reasonably accessible by public transportation and are reasonably accessible to the physically handicapped.

(4) Basic health care services (excluding emergency health care services) are available at least 40 hours per week, except for weeks including holidays. Such services shall be available until at least 10:00 p.m. at least one day per week or for at least four hours each Saturday, except for Saturdays falling on holidays.

(5) Emergency health care services are available and accessible within the service area at all times.

(6) Basic health care services are accessible to covered persons through network providers, or other network arrangement.

(7) Network provider services are rendered pursuant to written procedures which include a documented system for monitoring and evaluating accessibility of such care. The monitoring of waiting time for appointments shall be a part of such a system.

(1) There is the equivalent of at least one full-time physician per 1,200 covered persons and at least the equivalent of one full-time primary care physician per 2,000 covered persons.

(2) There are primary care network providers with sufficient capacity to accept covered persons within 30 minutes or 15 miles of each covered person's residence or workplace.

(3) There are medically required network specialists who are certified or eligible for certification by the appropriate specialty board with sufficient capacity to accept covered persons within 60 minutes or 30 miles of a covered person's residence or workplace. Notwithstanding the above, the Commissioner may determine that certain medical needs require network specialty care located closer to covered persons when the nature and frequency of use of such health care services, and the standards of Insurance Code 10133.5(b) (3), support such modification.

(4) There are mental health professionals with skills appropriate to care for the mental health needs of covered persons and with sufficient capacity to accept covered persons within 30 minutes or 15 miles of a covered person's residence or workplace.

(5) There is a network hospital with sufficient capacity to accept covered persons for covered services within 30 minutes or 15 miles of a covered person's residence or workplace.

(6) Notwithstanding the above, these requirements are not intended to prevent the covered person from selecting providers as allowed by their insurance contract beyond the applicable geographic area specified by these standards.

(7) If an insurer is unable to meet the network access standard(s) required by this section due to the absence of practicing providers located within sufficient geographic proximity of the insurer's covered persons, the insurer may apply to the Commissioner for a discretionary waiver of any network access standard for the applicable geographic area. Such application should include, at a minimum, a description of the affected area and covered persons in that area and how the insurer determined the absence of practicing providers.

(d) In determining whether an insurer's arrangements for network provider services comply with these regulations, the Commissioner shall consider to the extent the Commission deems necessary, the practices of comparable health care service plans licensed under the Knox-Keene Health Care Service Plan Act of 1975 Health and Safety Code Section 1340, et seq.

NOTE

Authority cited: Section 10133.5, Insurance Code. Reference: Sections 106(b), 10133 and 10133.5, Insurance Code.

HISTORY

1. Amendment of section heading, section and Note filed 1-8-2008; operative 2-7-2008 (Register 2008, No. 2).

§2240.2. Insurance Contract Provisions.

Note • History

Insurance contracts containing provisions covering network provider services shall contain the following:

(a) A provision for coverage on an indemnity or provision of service basis for emergency health care services rendered to covered persons outside the service area.

(b) A provision that the insurer shall give written notice to the group contract holder, within a reasonable period of time, of any termination or permanent breach of contract by, or permanent inability to perform of, any network provider if such termination, breach or inability would materially and adversely affect the contract holder or covered persons.

(c) A provision that the contract holder shall distribute to the primary covered persons the substance of any notice given to the contract holder pursuant to subsection (b) not later than 30 days after its receipt.

(d) A provision that, pursuant to Insurance Code Section 10133.56, upon termination of a network provider contract, the insurer shall be liable for covered services rendered by such provider to a covered person under the care of such provider at the time of termination until such services are completed, unless reasonable and medically appropriate arrangements for assumption of such services by another network provider are made. This provision need not provide that the insurer shall be liable for any services rendered to a covered person after such person ceases to be eligible for coverage under the insurance contract.

(e) A provision defining the service area.

NOTE

Authority cited: Section 10133.5, Insurance Code. Reference: Sections 10133, 10133.5 and 10133.56, Insurance Code.

HISTORY

1. Amendment of section heading, section and Note filed 1-8-2008; operative 2-7-2008 (Register 2008, No. 2).

§2240.3. Provisions of Certificates.

Note • History

Certificates containing provisions covering network provider services shall contain the following:

(a) A description of the coverage provided by the contract for emergency health care services rendered to covered persons outside the service area.

(b) A description of the coverage, if any, provided by the contract for dependent covered persons who both live outside the service area and away from the principal residence of the primary covered person.

(c) A brief and prominent warning reflecting the limitations in the contract pertaining to network provider services. Such warning shall identify, by caption or number, the certificate provisions required by subsections (d), (e) and (f), below.

(1) Where the contract provides coverage outside the service area, the warning shall be in bold-face type or set off by other means from the surrounding text, and shall clearly specify the differences in coverage between network and non-network services in and out of the service area.

(2) Where the contract provides no coverage (except for emergency health care services) outside the service area, the warning shall include the warning required in (1) above, and shall additionally warn that no coverage is provided outside the service area, except for emergency health care services. The additional warning shall be in a point size at least twice that used in the body of the certificate (excluding captions).

(d) If applicable, a provision defining the service area wherein coverage is restricted to services provided by network providers.

(e) A provision or attachment identifying all network providers or describing where a current directory of network providers can be found on the Internet.

(f) A prominent disclosure pursuant to Insurance Code Section 510 stating that covered persons who have complaints regarding their ability to access needed health care in a timely manner may complain to the insurer and to the California Department of Insurance. The disclosure shall include the address and the customer services telephone number of the insurer and the name address and toll free telephone number of the Consumer Services Division of the Department of Insurance

NOTE

Authority cited: Section 10133.5, Insurance Code. Reference: Sections 510, 10133 and 10133.5, Insurance Code.

HISTORY

1. Amendment of section and Note filed 1-8-2008; operative 2-7-2008 (Register 2008, No. 2).

§2240.4. Contracts with Exclusive Providers.

Note • History

(a) Effective June 30, 2008, contracts between network providers and insurers or their agents shall: 1) be in writing and be fair and reasonable as to the parties to such contracts; 2) provide that network providers shall not make any additional charges for rendering network services except as provided for in the contract between the insurer and the insured; 3) include all the agreements between the parties pertaining to the rendering of network provider services; 4) recite that the provider's primary consideration shall be the quality of the health care services rendered to covered persons; 5) include provisions ensuring that providers shall not discriminate against any insured in the provision of contracted services on the basis of sex, marital status, sexual orientation, race, color, religion, ancestry, national origin, disability, health status, health insurance coverage , utilization of medical or mental health services or supplies, or other unlawful basis including without limitation, the filing by such insured of any complaint, grievance, or legal action against a provider.

NOTE

Authority cited: Section 10133.5, Insurance Code. Reference: Sections 10133 and 10133.5, Insurance Code.

HISTORY

1. Amendment of section and Note filed 1-8-2008; operative 2-7-2008 (Register 2008, No. 2).

§2240.5. Filing and Reporting Requirements.

Note • History

(a) Whenever an insurer seeks approval from the department for any policy form that relies upon or includes the option of utilizing contracted network providers to deliver basic health care services, the insurer shall at the same time file with the Policy Approval Bureau of the California Department of Insurance:

(1) A report describing the number and location of all network providers utilized by the insurer to provide services to covered persons and demonstrating that the insurer is in compliance with all the accessibility and availability requirements of these regulations, such as a report produced using GeoAccess GeoNetworks) software offered by Ingenix Corporation.

(2) An affidavit or attestation acknowledging compliance with all the requirements of this regulation.

(3) A copy of written procedures required by Section 2240.1 (b)(7).

(4) Complete copies, including all appendices, attachments and exhibits, of the most commonly utilized network provider contracts for each type of provider the insurer (or its agent if using a leased network) includes in the provider network, including but not limited to hospital, individual physician, group physician, laboratory, mental health rehabilitation and ancillary service contracts. Rates or rate schedules need not be provided with this filing. All material changes to provider contracts must be filed with the Policy Approval Bureau as they become effective.

(b) Any insurer who by June 30, 2008 has not filed all of the information required by subsection (a) (1), (2), (3), and (4) pertaining to each network of providers used for delivery of medical services under any policy of insurance in force, sold or offered for delivery in California shall do so for each such network by that date.

(c) An insurer seeking approval for a new product which will utilize a network that has previously been described to or filed with the department pursuant to subsections (a)(1) or (b), may file an affidavit or attestation stating that the network to be utilized for the new product is substantially the same as one previously filed, and that there have been no material changes to the network that would result in failure to comply with any of the provisions of this article. Such affidavit shall clearly identify the previous filing, and shall, if appropriate, recalculate the ratios required by Section 2240.1(c)(1) taking into account projected new covered lives.

(d) An insurer must notify the department immediately at any time that a material change to any of its networks results in the insurer being out of compliance with any of the provisions of these regulations and, at the same time, submit a corrective plan specifying all actions that the insurer is taking, or will take, to come into compliance with these provisions, and estimating the time required to do so.

(e) Health insurers that contract for alternative rates of payment with providers shall report annually to the Consumer Services Division of the Department of Insurance on complaints received by the insurer regarding timely access to care. This report shall include a summary of receipt and resolution of complaints regarding access to or availability of any of the following services by type of service: primary care services, specialty care services, mental health professional services and hospital services.

(f) The department shall review these complaint reports and any complaints received by the department regarding timely access to care and shall make this information public.

NOTE

Authority cited: Section 10133.5, Insurance Code. Reference: Sections 10133 and 10133.5, Insurance Code.

HISTORY

1. New section filed 1-8-2008; operative 2-7-2008 (Register 2008, No. 2).

Article 6.5. Unemployment Compensation Disability Policies

SCOPE OF ARTICLE AND DEFINITIONS

§2241. Policies Subject to Article.

Note • History

The rules and regulations contained in this article are promulgated pursuant to Section 10270.2 of the Insurance Code to apply to policies and forms providing the unemployment compensation disability benefits under voluntary plans of unemployment compensation disability insurance pursuant to Part 2, Division 1 of the California Unemployment Insurance Code. If any disability insurance other than the unemployment compensation disability benefits under the voluntary plan and other than additional benefits for loss of time is provided by the policy or any rider attached thereto, such policy or rider is governed, as respects such disability insurance, by the laws and rules and regulations applicable to such other disability policies.

Every policy issued by any insurer to provide Unemployment Compensation Disability benefits shall be issued only in conformity with this Article and the applicable laws of this State.

NOTE

Authority cited: Section 10270.2, Insurance Code. Reference: Section 10270.2 (f), Insurance Code.

HISTORY

1. New Article 6.5 (§§2241 to 2246) filed 12-1-47 (Register 10, No. 5).

2. Amended Article 6.5 (§§2241 through 2246) filed 4-4-56; effective thirtieth day thereafter (Register 56, No. 6).

3. Amendment filed 5-6-77 as procedural and organizational; effective upon filing (Register 77, No. 19).

§2241.1. Terms and Abbreviations Defined.

Note • History

Unless the context otherwise requires, when used in this article the following words or abbreviations mean or include:

(a) “C. U. I. Code” means California Unemployment Insurance Code.

(b) “U. C. D.” means California unemployment compensation disability as the words are used in the C. U. I. Code.

(e) “Voluntary plan” means a voluntary plan of U. C. D. benefits pursuant to Part 2, Division 1 of the C. U. I . Code.

(d) “Insurer” means an insurer admitted to transact disability insurance in California.

(e) “Director” means the Director of the Department of Employment Development.

(f) “Commissioner” means the Insurance Commissioner.

(g) “Employer” includes any entity or entities to which a U. C. D. policy may be issued.

(h) “Employee” includes all individuals, however named, who may be covered by a U. C. D. Policy.

(i) “Policy” includes any rider or endorsement effecting or affecting U. C. D. benefits.

NOTE

Authority cited: Sections 10270.2 and 10270.2(f), Insurance Code.

HISTORY

1. Amendment of subsection (e) filed 5-6-77 as procedural and organizational; effective upon filing (Register 77, No. 19).

FILING AND APPROVAL

§2241.3. Filing and Approval Required.

No U. C. D. policy shall be issued or delivered by any insurer until:

(a) A copy of the form thereof is filed with the commissioner

(b) Either

(1) Thirty days expires without notice from the commissioner after such copy is filed, or

(2) The commissioner gives his written approval thereof prior to that time.

§2241.5. Filing Procedure.

Note • History

U. C. D. policies and forms shall be submitted to the commissioner for filing with and approval by him in conformity with the requirements of Article 1 of this subchapter applicable to other disability policies and forms, except that in the submission of final copies for approval, each form shall be submitted in triplicate. In addition, one copy should be submitted to the Department of Employment Development, Division of Disability and Hospital Benefits, Sacramento, California.

NOTE

Authority cited: Section 10270.2, Insurance Code. Reference: Section 10270.2 (f), Insurance Code.

HISTORY

1. Amendment filed 5-6-77 as procedural and organizational; effective upon filing (Register 77, No. 19).

§2241.7. Notice of Disapproval; Contents: Withdrawal of Approval; Effect.

If the commissioner notifies an insurer, in writing, that a U. C. D. form filed by it does not comply with the requirements of law or this article, or both, specifying the respects in which it does not so comply, such insurer shall not issue any U. C. D. policy in such form. If, after having approved a U. C. D. form, the commissioner subsequently withdraws his approval pursuant to Section 12957 of the Insurance Code, such insurer shall not thereafter issue any U. C. D. policy in such form.

§2241.9. Policies Containing Misleading Provisions.

No U. C. D. policy or form will be approved by the commissioner for issuance or delivery if he finds that it contains any provision or has any title, heading, backing or other indication of its provisions which is likely to mislead a person to whom the policy is offered, delivered or issued or any employee insured or proposed to be insured thereunder.

§2242. Individual Certificates; Forms to Be Filed and Approved.

If individual certificates setting forth a statement as to the insurance whom payable are to be issued to the employees insured, the form thereof must first be filed with and approved by the commissioner in the manner provided in this article for filing and approval of policies.

§2242.1. Policies Not Conforming to C. U. I. Code or Regulations of Director.

Any U. C. D. policy or certificate which is found by the director not to conform to the requirements of the C. U. I. Code or the regulations of the director for voluntary plans, or both, will not be approved by the commissioner or, if previously approved by him, approval thereof will be withdrawn.

§2242.3. Policies to State Effective and Termination Dates: Size of Type Required.

No U. C. D. policy shall be issued or delivered by any insurer:

(a) Unless the times at which the insurance takes effect and terminates are clearly stated in the policy.

(b) Unless the policy be plainly printed in lightface type of a style in general use, the size of which shall be uniform and not less than 10-point with a lower-case unspaced alphabet length not less than 120 points.

§2242.5. Incorporated Provisions to Be Set Forth in Policies.

No U. C. D. policy shall be issued or delivered by any insurer if it contains any provisions purporting to make any portion of the charter, constitution or by-laws of the insurer a part of the policy unless such portion is set forth in full in the policy.

§2242.7. Provisions Contradictory to Required or Optional Provisions.

No U. C. D. policy shall be issued or delivered by any insurer which contains any provision contradictory, in whole or in part, of any of the required provisions or optional provisions hereinafter set forth or described or which conflicts with such required and optional provisions.

§2242.9. Foreign Insurers: What Provisions Required by State of Organization May Be Included.

U. C. D. policies issued by a foreign insurer (an insurer not organized under the laws of California) may contain any provision which is required by the law of the state or country under whose laws the insurer is organized if such provision is not inconsistent with the C. U. I. Code and the regulations of the director, and is not less favorable to the employer or any employee than the provisions of this article.

§2243. Policies Issued Out-of-State: What Provisions May Be Included.

U. C. D. policies issued outside this State may contain any provision required by the laws of the state or country where issued if such provision is not inconsistent with the C. U. I. Code and the regulations of the director.

§2243.1. In Lieu of Compliance Insurer May Comply with Article 2 Until January 1, 1957.

Note • History

NOTE

Authority cited: Section 10270.2, Insurance Code. Reference: Section 10270.2 (f), Insurance Code.

HISTORY

1. Repealer filed 5-6-77 as procedural and organizational; effective upon filing (Register 77, No. 19).

§2243.3. Substitutions Permitted in Required or Optional Provisions.

In respect to the forms for any of the required or optional provisions hereinafter set forth,

(a) Wherever the word “insurer” is used there may be substituted therefor “company,” “corporation,” “association,” “society,” or such other word as may properly designate the insurer.

(b) Wherever the word “employee” is used there may be substituted therefor “member” or other proper designation of the individual insured.

(c) Wherever the word “policy” is used there may be substituted therefor “rider,” “endorsement,” “contract,” or other proper designation of the document embodying the contract between the parties to which the provision refers.

(d) Wherever the word “employer” is used, there may be substituted therefor “executive officer,” “trustee,” or other proper designation of the person maintaining application for a U.C.D. policy on behalf of an entity to whom such policy may lawfully be issued.

(e) Blanks shall be completed with appropriate material in conformity with any special instructions relative to matter to be inserted therein.

(f) Words or phrases in parentheses may be included or omitted at the option of the insurer.

§2243.5. Policies to Contain Required Provisions and May Contain Optional Provisions; Uniform Provisions.

Note • History

Every U. C. D. policy issued or delivered by any insurer shall contain the required provisions hereinafter set forth and many contain the optional provisions hereinafter set forth either in the exact language so set forth or in the substance thereof, or in the substance thereof but more favorable to the employees insured or not less favorable to such employees and more favorable to the employer; provided it shall be presumed, subject to the approval of the commissioner, that the policy contains the substance of the required and optional provisions herein set forth if it contains therein in accordance with the rules and regulations for their use those uniform provisions promulgated for use in group disability policies which cover the same subject matter as the required and optional provisions herein set forth, with such changes in the language of such uniform provisions as are necessary to make them fit the coverage provided in the U. C. D. policy, and meet in substance the corresponding applicable requirements for such provisions as herein set forth; provided further that:

(a) The uniform provisions captioned “Entire Contract; Changes,” “Notice of Claim,” “Claims Forms,” “Proofs of Loss” and “Time of Payment of Claim” are the uniform provisions which incorporate the substance of the corresponding required provisions for U.C.D. policies herein set forth.

(b) The uniform provisions captioned “Physical Examination and Autopsy,” “Legal Actions,” “Cancellation” and “Payment of Claims” are the uniform provisions which incorporate the substance of the corresponding optional provisions herein set forth for use in U.C.D. policies.

(c) In case the uniform provision captioned “Entire Contract; Changes” is used in a U.C.D. policy, there shall be added to the language thereof promulgated for use in group disability policies a phrase reading in substance, “and the provisions of the California Unemployment Insurance Code and the regulations of the Director of the Department of Employment Development which are incorporated by reference in this policy.” This phrase shall be added to the enumeration of the writings which constitute the entire contract between the parties, and shall be used in accordance with the requirements set forth in Section 2244.1 hereof.

(d) In the blank in the uniform provision captioned “Time of Payment of Claim” there shall be entered either a period of time not greater than one week, or a period of time greater than one week, together with the phrase “or each week if the claimant so requests.”

(e) To the uniform provision captioned “Physical Examination and Autopsy” there shall be added the phrase “except where such right is limited by the California Unemployment Insurance Code.”

(f) To the uniform provision captioned “Legal Actions” there shall be added a sentence reading “This provision does not affect in any way any employee's rights to appeal under the California Unemployment Insurance Code.”

(g) The uniform provisions captioned “Other Insurance in This Insurer,” “Time Limits on Certain Defenses,” “Change of Beneficiary,” “Insurance With Other Insurers,” “Illegal Occupations” and “Intoxicants and Narcotics” may not be used in a U. C. D. policy; but this prohibition is without prejudice to the right of the insurer to include in a U. C. D. policy any provision expressly permitted by these rules and regulations, by the regulations of the director or by the C. U. I. Code.

(h) The other uniform provisions which neither cover subject matter of required or optional provisions set forth herein nor are forbidden to be used in U. C. D. policies by the immediately preceding paragraph hereof may, subject to the approval of the commissioner and insofar as consistent with the C. U. I. Code, be used in substance in a U. C. D. policy at the option of the insurer.

NOTE

Authority cited: Section 10270.2, Insurance Code. Reference: Section 10270.2 (f), Insurance Code.

HISTORY

1. Amendment filed 5-6-77 as procedural and organizational; effective upon filing (Register 77, No. 19).

FORM—REQUIRED PROVISIONS

§2243.7. Issuance of Statement of Coverage or Individual Certificate.

Every U. C. D. policy shall contain a provision that the insurer will issue to the employer, for delivery to each employee insured, either a statement of coverage or an individual certificate setting forth a statement as to the insurance protection afforded the employee and to whom payable. If the policy provides for the issuance of a statement of coverage or an individual certificate in the alternative, but does not specify which will be issued, the application shall so specify.

§2243.9. Admission of All New Employees.

Every U. C. D. policy shall contain a provision that to the group or class thereof originally insured there shall be added from time to time all employees of the employer eligible to and applying for insurance in such group or class.

§2244. Policy Not in Lieu of Workmen's Compensation.

Every U. C. D. policy shall contain a provision in the following form (or in the substance thereof):

“This policy is not in lieu of and does not affect workmen's compensation insurance.”

§2244.1. Entire Contract. Incorporation by Reference.

Note • History

Every U. C. D. policy shall contain a provision relative to the contract which shall be in one of the forms set forth in (a), (b) and (c) hereof, appropriate to the basis upon which the policy is issued (or in the substance thereof), but if the policy incorporates by reference in any lawful manner any portion of the C. U. I. Code or the regulations of the director as a part thereof, the form set forth in (c) shall be used with the alternative language noted therein appropriate to the basis upon which the policy is issued:

(a) This policy and the application of the employer constitute the entire contract between the parties.

(b) This policy constitutes the entire contract between the parties.

(c) This policy (the application of the employer) and the provisions of the California Unemployment Insurance Code and the regulations of the Director of the Department of Employment Development which are incorporated by reference in this policy constitute the entire contract between the parties.

NOTE

Authority cited: Section 10270.2, Insurance Code. Reference: Section 10270.2 (f), Insurance Code.

HISTORY

1. Amendment of subsection (c) filed 5-6-77 as procedural and organizational; effective upon filing (Register 77, No. 19).

§2244.3. Statements in Application and Changes in Policy.

Every U. C. D. policy shall contain a provision relative to statements in the applications and changes in the policy which shall be in one of the forms set forth in (a) and (b) hereof at the option of the insurer (or in the substance thereof):

(a) “In the absence of fraud, all statements made by the employer shall be deemed representations and not warranties and no such statement shall (avoid the insurance or reduce the benefits under this policy or) be used in defense to a claim hereunder unless it is contained in a written application.

“No agent has authority to change this policy or to waive any of its provisions. No change in this policy shall be valid unless approved by an executive officer of the insurer and such approval be enclosed hereon.

(b) “In the absence of fraud, all statements made by the employer shall be deemed representations and not warranties and no such statement shall (avoid the insurance or reduce the benefits under this policy or) be used in defense to a claim hereunder unless it is contained in a written application.

“No agent has authority to change this policy or to waive any of its provisions. No change in this policy shall be valid unless approved by an executive officer of the insurer and evidenced by endorsement hereon, or by amendment hereto signed by the employer and by an executive officer of the insurer.”

§2244.5. Notice and Proof of Claim; Alternative Provisions.

Every U. C. D. policy shall contain provisions relative to notice and proof of claim which, at the option of the insurer, shall be either in the short form set forth under (a) of this section (or in the substance thereof) or in all of the forms set forth under (b) of this section (or in the substance thereof) in accordance with the instructions for their use:

(a) First Alternative Required Provision Relative to Notice and Proof of Claim.

“All__________ provided in this policy shall be paid to the employee as they accrue upon receipt of written proof (on the insurer's forms or, if such forms are not furnished by the insurer within fifteen days after demand therefor, then upon receipt of written proof) covering the occurrence, character and extent of the event for which claim is made.”

Instructions for Its Use.

This provision may be used, at the option of the insurer, in lieu of any one of the following combinations of provisions under (b): (b):

(b) (1), (2) and (3)

(b) (1), (2), (3) (4) and (5)

(b) (1), (2), (3), (4), (5) and (6)

In the blank space the word “benefits” or other descriptive phrase shall be entered. If this provision is used in combination with the provision under (b) (6), there shall be substituted in lieu of the words, “to the employee as they accrue” contained in this provision, the words “as stated__________” inserting in the blank space the location in the policy of the required provision prescribed under (b) (6).

(b) Second Alternative Required Provisions Relative to Notice and Proof of Claim:

(1) “Written notice of injury or of sickness upon which claim is based must be given to the insurer within twenty days after the date of the commencement of the first loss for which benefits arising out of each such injury or sickness are claimed.”

(2) “Notice given by or in behalf of the claimant to the insurer at__________ or to any authorized agent of the insurer, with particulars sufficient to identify the insured employee, shall be deemed to be notice to the insurer.”

Instructions for Use of Form (b) (2).

In the blank space, the address at which notice may be given shall be entered. This provision may be omitted if the insurer has conspicuously imprinted on the individual certificate (including supplemental certificates) and the statements of coverage the name of the insurer and the address of its home and branch offices to which notices may be sent. Otherwise, this provision shall be incorporated in the policy if the insurer elects not to use the short form of provision relative to notice and proof of claim set forth under (a) of this section.

(3) “The insurer, upon receipt of the notice required by this policy , will furnish to the claimant such forms as are usually furnished by it for filing proof of loss. If such forms are not so furnished within fifteen days after the insurer receives such notice, the claimant shall be deemed to have complied with the requirements of this policy as to proof of loss upon submitting, within the time fixed in the policy for filing proofs of loss, written proof covering the occurrence, character and extent of the loss for which claim is made.

(4) “Affirmative proof of loss of time on account of disability for which claim is made must be furnished to the insurer within ninety days after the termination of the period for which claim is made.”

(5) “Failure to furnish notice or proof within the time provided in this policy shall not invalidate or reduce any claim if it shall be shown not to have been reasonably possible to furnish such notice or proof and that such notice or proof was furnished as soon as was reasonably possible.”

Instructions for Use of Form (b) (5).

If this provision is used in combination with the short form of provision under (a), the words “Notice or” shall be omitted.

(6) “Upon request of the insured employee and subject to due proof of loss the accrued benefits will be paid to the insured employee each __________during any period for which the insurer is liable, and any balance remaining unpaid at the termination of such period will be paid to the insurer immediately upon receipt of due proof.

Instructions for Use of Form (b) (6).

In the blank space there shall be entered either a period of time not greater than one week or a period of time not greater than two weeks together with the phrase “or each week, if the claimant so requests,.”

FORM—OPTIONAL PROVISIONS

§2244.7. Examination of Insured Employee.

At the option of the insurer, any U. C. D. policy may contain a provision relative to examination of the person of the insured employee, but any such provision shall be in the following form only or in the substance thereof:

“The insurer shall have the right and opportunity to examine the person of the insured when and so often as it may reasonably require during the pendency of claim hereunder except where such right is limited by the California Unemployment Insurance Code.”

§2244.9. Time Restriction on Institution of Suit on Policy.

At the option of the insurer, any U. C. D. policy may contain a provision relative to the time within which suit may be brought under the policy, but any such provision shall be in the following form only or in the substance thereof:

“No action at law or in equity shall be brought to recover on this policy prior to the expiration of sixty days after proof of loss has been filed in accordance with the requirements of this policy, nor shall action be brought at all unless brought within three years from the expiration of the time within which proof of loss is required by the policy. This provision does not affect inn any way any employee's right to appeal under the California Unemployment Insurance Code.”

If the insurer elects to use the short form of alternative required provision relative to notice and proof of claim set forth in (a) of Section 2244.5, and to omit the provision set forth under (b) (4) of Section 2244.5, there shall be substituted for the words “from the expiration of the time within which proof of loss is required by the policy” contained in the provision herein above set forth in this section, the words “and ninety days after the termination of the period of disability on which the cause of action is based.”

§2245. Cancellation by Insurer.

Note • History

At the option of the insurer, any U. C. D. policy may contain provision relative to the cancellation or termination of the policy at the instance of the insurer, but any such provision shall

(a) Provide for notice to the employer and such notice to the Department of Employment Development as the C. U. I. Code or the regulations of the director require.

(b) State when the cancellation or termination of the policy is to become effective.

(c) Provide for the return to the employer of pro rata unearned premium if the cancellation or termination is made effective at other than a premium due date.

NOTE

Authority cited: Section 10270.2, Insurance Code. Reference: Section 10270.2(f), Insurance Code.

HISTORY

1. Amendment of subsection (a) filed 5-6-77 as procedural and organizational; effective upon filing (Register 77, No. 19).

§2245.1. Reduction of Benefits Because of Age.

History

At the option of the insurer, any U. C. D. policy may contain a provision relative to the reduction of benefits because of age, but no such provision shall reduce benefits because of age, but no such provision shall reduce benefits below the amount to which the individual employee insured would be entitled under the C. U. I. Code if he were not covered by a voluntary plan.

HISTORY

1. Repealer of former Section 2245.1 and amendment to present Section 2245.1 (formerly Section 2245.3) filed 5-27-50; effective 30th day thereafter (Register 20, No. 5).

2. Amendment filed 4-4-56; effective thirtieth day thereafter (Register 56, No. 6).

§2245.2. Reduction or Proration of Benefits on Account of Simultaneous Coverage.

History

At the option of the insurer, any U. C. D. policy may contain a provision relative to the reduction or proration of benefits on account of simultaneous coverage under the C. U. I. Code, but any provision shall be in one of the forms set forth in (a), (b), and (c) hereof only, or in the substance thereof. Connective words or phrases may be added, and there may be substituted for such words as “per day,” “amount payable,” and the like, other words or phrases more consistent with the other terminology used in the policy, but no such additions or substitutions shall be such as to change the substantive effect of the specified provisions.

Form (a) shall be used if the additional benefit while confined to a hospital as provided in the U. C. D. policy is the amount per day provided in the C. U. I. Code for additional benefits during hospital confinement. Form (b) shall be used if the additional benefits while confined to a hospital as provided in the U. C. D. policy is more than such amount per day. There shall be inserted in the blank space in form (a) and in the second blank space in form (b) the amount of the additional benefit during hospital confinement provided at the time of the issuance of the policy by the C. U. I. Code, and in the first blank space in form (b) there shall be inserted the amount by which the additional benefit per day while confined to a hospital exceeds the amount of the additional benefit during hospital confinement as provided in the C. U. I. Code. Form (c) shall be used if the insurer desires, on account of simultaneous coverage, to reduce or prorate basic U. C. D. benefits for loss of time as well as the additional benefits while confined to a hospital. Any of such forms (a), (b) or (c) may, by the terms of the U. C. D. policy, be made applicable to all employees, or to specified classes of employees determined by conditions pertaining to their employment, or to certain specific causes of disability objectively described, or to both such specified classes of employees and such specified causes of disability. From form (c) there may be omitted paragraph (1) in those cases in which the provision is made applicable only to a specified class or classes of employees which by the terms of the policy are entitled to the same benefits to which they would be entitled under the C. U. I. Code were they not covered by any voluntary plan.

Forms:

(a) In case of any day of hospital confinement for which an employee entitled to benefits hereunder is simultaneously covered by one or more other plans (including voluntary plans and the State Unemployment Compensation Disability Fund) and is accordingly entitled to other “additional benefits during hospital confinement” on account of the same disability, then the $__________per day otherwise payable hereunder shall be divided by the number of plans (including voluntary plans and the State Unemployment Compensation Disability Fund) under which he is simultaneously entitled to “additional benefits during hospital confinement” and the quotient shall be the amount payable hereunder for such day of confinement.

(b) In case of any days of hospital confinement for which an employee entitled to benefits hereunder is simultaneously covered by one or more other plans (including voluntary plans and the State Unemployment Compensation Disability Fund) and is accordingly entitled to other “additional benefits payable during hospital confinement” on account of the same disability, the amount of the “additional benefits payable during hospital confinement” payable hereunder for such day of hospital confinement shall be $__________ plus the quotient of $__________divided by the number of plans (including voluntary plans and the State Unemployment Compensation Disability Fund) under which he is simultaneously entitled to “additional benefits on account of hospital confinement.”

(c) In case of any period for which an employee entitled to benefits hereunder is simultaneously covered by one or more other plans (including voluntary plans and the State Unemployment Compensation Disability Fund) and entitled to other Unemployment Compensation Disability benefits on account of the same disability, the amount payable for such period shall be:

(1) The amount, if any, by which the benefits to which the employee otherwise would have been entitled under this policy exceed the benefits to which he would have been entitled under the C. U. I. Code if he were not covered by any voluntary plan, plus

(2) The quotient of the amount of benefits to which the employee would have been entitled under the C. U. I. Code if he were not covered by any voluntary plan divided by the number of plans (including voluntary plans and the State Unemployment Compensation Disability Fund) under which he is simultaneously entitled to benefits.

HISTORY

1. New Sections 2245.2, 2245.3, and 2245.4 filed 5-27-50; effective 30th day thereafter (Register 20, No. 5).

2. Amendment to Sections 2245.2, 2245.3 and 2245.4 filed 4-4-56; effective thirtieth day thereafter (Register 56, No. 6).

§2245.3. Benefits Limited etc. Under C. U. I. Code.

Subject to the provisions of Sections 2245.1 and 2245.2, any U. C. D. policy may, at the option of the insurer, contain a provision which limits, reduces or eliminates benefits in the same manner, and to the same extent benefits are or may be limited, reduced or eliminated under the C. U. I. Code and the authorized rules and regulations adopted thereunder.

§2245.4. Limitation of Amount of Indemnity.

Except as provided in Sections 2245.1, 2245.2 and 2245.3, no U. C. D. policy shall contain a provision limiting the amount of indemnity to an amount less than that stated in the policy and for which the premium has been paid. A provision in a U. C. D. policy which guarantees to all employees benefits not less than they would be entitled to under the C. U. I. Code if they were not covered by such policy or which limits the benefits payable to a specified class or classes of employees to the same benefits to which they would be entitled under the C. U. I. Code if they were not covered by such policy, shall not be considered to be in conflict with this section or Sections 2245.1, 2245.2 or 2245.3.

§2245.5. Facility of Payment.

At the option of the insurer, any U. C. D. policy may contain a facility of payment provisions relative to the payment of benefits to persons other than the individual employee insured out of whose disability the insurer's liability for benefit arises, but any such provision shall be in the following form only or in the substance thereof. In the blank space an amount not exceeding $1,000 shall be inserted.

“All benefits shall be paid to the insured employee, except that (in event the insurer determines that he is incompetent or incapable of executing a valid receipt, the insurer may, during his lifetime, unless claim has been made by a duly appointed guardian or committee, pay any amount otherwise payable to the insured employee to the husband or wife or relative by blood of the insured employee, or to any other person or institution determined by the insurer to be equitably entitled thereto; or) in case of the death of the insured employee before all amounts payable under the policy have been paid, the insurer may pay any such amount to an aggregate of $__________to any person or institution determined by the insurer to be equitably entitled thereto. Any payment in accordance with this provision shall discharge the obligation of the insurer hereunder to the extent of such payment.”

ISSUANCE

§2245.7. To Whom Policy May Be Issued.

Policies providing U. C. D. benefits may be issued to any employer or association of employees that may apply for and receive approval of a voluntary plan pursuant to Part 2, Division 1 of the C. U. I. Code. Such policies may also be issued to any entity to which may be issued a group disability policy pursuant to the provisions of Section 10270.5 of the Insurance Code, subject, however, to the obtaining of the approval of the director of the voluntary plan or plans which may insured thereby.

§2245.9. Who May Be Covered.

Every U. C. D. policy may be issued to cover any person who may be included as an employee under a group disability policy in accordance with Sections 10270.5 or 10270.55 of the Insurance Code, even if not eligible for coverage under the voluntary plan approved by the director, if the purpose and scope of the policy is principally to provide U. C. D. benefits and additional benefits for loss of time on account of disability to eligible employees under an approved voluntary plan.

§2246. Insurer to Issue Statement of Coverage or Individual Certificate for Each Employee.

Every insurer shall provide or issue to the employer for delivery to each employee insured under a U. C. D. Policy issued by it, either a statement of coverage which has been approved both as to form and substance by the director or an individual certificate setting forth a statement as to the insurance protection afforded him and to whom payable, which has been approved by the Commissioner.

Article 6.7. Credit Life and Credit Disability Insurance Policy Forms and Administration

§2248. Preamble and Authority.

Note • History

(a) Credit insurance provides important stability in financing the flow of goods and services; protecting the interests of lenders and sellers by assuring payment of outstanding debts, and avoiding hardship to debtors and their families in the event of death or disability of the debtor prior to termination of the debt.

(b) In the marketing of credit insurance there have been occasions where the inferior bargaining position of the debtor creates a “captive market” which, in the absence of appropriate regulation, places the creditor in a position to dictate the choice of coverage, the premium rate, the insurer and agent, with undesirable consequences, such as: excessive coverage both as to amounts and duration; excessive charges to debtors; failure to inform debtors of their insurance coverage; and failure to provide debtors the protection purchased by the debtor.

(c) In the absence of appropriate regulations, premium rates and compensation for credit insurance tend to be set at levels determined by the rate of return desired by the creditor in the form of dividends, or experience-rating refunds or in the form of commissions either to the creditor as a licensed agent or broker controlled or owned by the creditor instead of on the basis or reasonable cost for the protection provided to the consumer, the debtor. This results in “reverse competition” which, unless properly controlled through the regulation of the premium rates charged to the debtor and the amount of compensation received by the creditor, agents and brokers results in inequitable insurance premium charges to debtors which are unreasonably high and not reasonable in relation to the premium charged for the insurance benefits received by debtors, and constitute provisions which are unjust, inequitable and unfair.

(d) These regulations are promulgated pursuant to Section 779.21 of the Insurance Code and apply to credit life insurance and credit disability insurance which is subject to the subject to the provisions of Article 5.9, Chapter 1, Part 2, Division 1, of the Insurance Code.

NOTE

Authority cited: Section 779.41, California Insurance Code.

HISTORY

1. Repealer of article 6.7 (sections 2248.1-2248.25, consecutive) and new article 6.7 (sections 2248-2248.20, consecutive) filed 12-29-78; designated effective 4-1-79 (Register 79, No. 2). For prior history, see Registers 73, No. 22; 70, No. 18.

2. Amendment of article heading filed 4-14-94; operative 5-18-94. Submitted to OAL for printing only pursuant to Government Code section 11343(a)(1) (Register 94, No. 15).

§2248.1. Table of Contents.

Note

2248. Preamble and Authority

2248.1. Table of Contents.

2248.2. Effective Date.

2248.3. Definitions.

2248.4. Premiums.

2248.5. Claims and Claim Review Procedure.

2248.6. Responsibility of Insurers, Life and Disability Insurance Agents and Insurance Agents to Make Review of Transactions.

2248.7. Provisions of Policies and Certificates of Insurance: Disclosure to Debtors.

2248.8. Refund Formula.

2248.9. Premium Rates.

2248.10. Rate Deviations.

2248.11. Compensation.

2248.12. Compensating Balances or Special Deposits Prohibited.

2248.13. Reinsurance Through Non-Admitted Insurers.

2248.14. Minimum Financial Statement Reserves.

2248.15. Annual Experience Statistics Reporting.

2248.16. Department of Insurance Form Credit Rate Certification Form CRC.

2248.17. Annual Experience Report Forms.

2248.18. Deviated date Calculation Form CDEV.

2248.19. Disabled Lives Reserve Development Form CDK.

2249.6(1). Revolving Credit Accounts.

2249.8. # 18, # 19 and # 20.

2249.9. # 18, # 19 and # 20.

2249.12. PK 1, PK 2, PK 3, PK 4, PK 5, PK 6, PK 7 and PK 8.

2249.16. Effective Date.

Credit Disability Insurance Rate Tables A through E.

Table 1: Expected Loss Ratios, Creditor Size Factors, Maximum Compensation Rates

Table 2: Sets of Credibility Factors in Order by Criteria Conditions

Table 3: Sets of Credibility Factors by Range of Average Prima Facie Premiums Earned

Table 4: Values of Surrender Charge Factors for Percentage of Unearned Premium Reserve

Form CDR Disabled Lives Reserve Development

Form CD Annual Report of Credit Disability Insurance Experience

Form CL Annual Report of Credit Life Insurance Experience

Form CDEV Deviated Rate Calculation for Credit Insurance

Form CGS Creditor Group List

NOTE

Authority cited: Section 779.21, California Insurance Code.

§2248.2. Effective Date.

Note

This Ruling shall become effective on the first day of April, 1979, and shall be applicable to all credit insurance individual policies and certificates transacted thereafter. All Bulletins issued since July 1, 1973 relating to Ruling No. 186 are hereby rescinded.

NOTE

Authority cited: Section 779.21, California Insurance Code.

§2248.3. Definitions.

Note • History

As used in these regulations:

(a) “Credit life insurance,” “credit disability insurance creditor,” “debtor” and “indebtedness” have the meanings assigned to such terms in Section 779.2 of the Insurance Code.

(b) “Credit insurance” means both credit life insurance and credit disability insurance.

(g) “Application” means any document, including a conditional sales contract, which the debtor signs and which requests credit insurance coverage the debtor, or which authorizes the financing of credit insurance premium or agrees to pay credit insurance premiums.

(h) “Actuary,” as used in these regulations, means an actuary who is:

(1) a member of the American Academy of Actuaries, or of the Society of Actuaries or

(2) a person who has engaged in the practice of actuarial science and has demonstrated by his training and experience actuarial competence to the satisfaction of the Commissioner.

NOTE

Authority cited: Section 779.21, California Insurance Code. Reference: Section 779.9, Insurance Code.

HISTORY

1. Amendment of subsections (e) and (h) filed 1-12-79; designated effective 4-1-79 (Register 79, No. 2).

2. Editorial correction of subsection designations (Register 79, No. 2).

3. Amendment filed 6-4-79; effective thirtieth day thereafter (Register 79, No. 23).

3. Repealer of subsections (c)-(f) filed 4-14-94; operative 5-16-94. Submitted to OAL for printing only pursuant to Government Code section 11343(a)(1) (Register 94, No. 15).

§2248.4. Premiums.

Note • History

(a) The amount charged to a debtor for any credit life or credit disability insurance shall not exceed the premium rates filed with the Commissioner for the coverage provided or the premiums charged by the insurer, as computed at the time the charge to the debtor is determined, whichever is less.

(b) If the creditor adds identifiable insurance charges or premiums for credit insurance to the total amount of the indebtedness and makes any direct or indirect finance, carrying, credit or service charge whatever to the debtor in connection with such insurance charge, the creditor is deemed to have loaned the premium or insurance charge to the debtor and the premium or insurance charge is deemed collected for the insurer as soon as it is added to the indebtedness, in which event, the creditor must remit and the insurer shall collect on a single premium basis only.

(d) A creditor may remit and an insurer may collect premiums on the monthly balance basis on indebtedness repayable during a fixed period (non-revolving accounts) for both credit life insurance and credit disability insurance.

(e) When premiums are remitted on the monthly balance basis, either on a revolving account or a fixed indebtedness period basis, the charge for the premium shall be shown separately from the balance of the loan and any payment received by the creditor shall first be applied to pay the credit insurance premium. Only in the event no payment is made or the payment made is insufficient to satisfy the premium charge, may the creditor add the unpaid premium to the loan and remit it to the insurers.

NOTE

Authority cited: Section 779.21, California Insurance Code. Reference: Sections 779.21 and 779.13, California Insurance Code.

HISTORY

1. Editorial correction of subsection referenced in subsection (f) (Register 79, No. 2).

2. Repealer of subsections (f)-(g) and amendment of Note filed 4-14-94; operative 5-16-94. Submitted to OAL for printing only pursuant to Government Code section 11343(a)(1) (Register 94, No. 15).

3. Amendment of subsection (c) filed 10-2-2006; operative 11-1-2006 (Register 2006, No. 40).

§2248.5. Claims and Claims Review Procedure.

Note

(a) The insurer shall be responsible for the settlement, adjustment and payment of all claims and shall establish and maintain adequate claim files, which may be reviewed and examined by the Commissioner. All claims shall be promptly reported to the insurer, or its designated claim representative, and all claims shall be settled as soon as possible in accordance with the terms of the insurance contract.

(b) All claims shall be paid, either by draft drawn upon the insurer or by check of the insurer, directly to the order of the claimant to whom payment of the claim is due under the policy, or to the payee specified by such claimant. If the insurance payable exceeds the balance which the debtor or his estate are obligated to pay to the creditor, the insurer shall pay the excess directly to the person or estate entitled to such excess, or establish procedures to be followed the creditor or make such payments, in which case the insurer must take all reasonable precautions to make certain such procedures are followed.

(c) No person, firm or corporation other than the insurer or its designated claim representative shall be authorized to settle or adjust claims. Neither the creditor nor the general agent or agent of the insurer shall be designated claim representative for the insurer in settling or adjusting claims. A group policyholder, however, by arrangement with the insurer, may draw drafts or checks in payment of claims due to the group policyholder subject to audit and review by the insurer.

NOTE

Authority cited: Section 779.21, California Insurance Code.

§2248.6. Responsibility of Insurers, Life and Disability Insurance Agents and Insurance Agents to Make Review of Transactions.

Note

(a) It shall.be the responsibility of the insurer, all creditors licensed as life and disability insurance agents and insurance agents who receive commissions on credit insurance in connection with the transaction of credit insurance to conduct a review of each creditor account within 120 days after the end of the first year and thereafter a minimum of once each two years for the purpose of assuring compliance with these regulations and all applicable provisions of the Insurance Code, including the calculation of the proper premium and the transmittal of the proper premium to the insurer, and payment of claims and refunds, and make any necessary corrections to comply with the provisions of these regulations.

NOTE

Authority cited: Section 779.21, California Insurance Code.

14 Day Retroactive Plan $2.55

§2248.7. Provisions of Policies and Certificates of Insurance: Disclosure to Debtors.

Note • History

(a) An individual credit insurance policy or a certificate of group credit insurance shall be delivered to the debtor within thirty (30) days after the debtor becomes insured in connection with the indebtedness, as evidence of such insurance.

(b) Each individual policy or group certificate of credit insurance delivered or issued for delivery in this State shall, in addition to the other requirements of law, set forth:

(1) the name and home office address of the insurer, and, on group certificates, an identification of the master policy;

(2) the identity of the insured debtor by name or any other reasonable alternative method of identification approved by the Commissioner;

(3) the full amount of premium or identifiable insurance charge to the debtor, separately for the credit life insurance and credit disability insurance; except that in lieu of so stating the full amount of premium or identifiable insurance charge, there may be set forth, separately for credit life insurance and credit disability insurance, the rate of insurance premium or payment per unit of coverage in case the indebtedness is a revolving loan or charge account or in cases where the debtor obligates himself to pay the insurance premium or payment periodically with the debt payments on the decreasing amount of the insurance;

(4) a description of the coverage including the amount and term thereof;

(5) any exceptions, reductions, limitations and restrictions;

(6) a statement that the benefits will be paid to the creditor to reduce or extinguish the indebtedness, and if the policy provides coverage which may exceed the amount to which the creditor is entitled under the contract of indebtedness, any such excess shall be paid to a beneficiary other than the creditor, named by the debtor or to his estate; and

(7) a statement that in the event the indebtedness is discharged due to renewal or refinancing prior to the scheduled maturity date, the insurance in force shall be terminated before any new insurance may be issued in connection with the renewed or refinanced indebtedness, and in the event the indebtedness is discharged due to payment prior to the scheduled maturity date, the insurance in force shall be terminated, unless payments are made to the debtor during the period of disability under the provisions of Section 2248.7(c)(2)(E).

(c) A policy, certificate of credit insurance or notice of proposed insurance shall not contain provisions which would encourage misrepresentation or which are unjust, unfair, inequitable, misleading, deceptive or contrary to law or to the public policy of this State.

(1) A credit life insurance policy violates this subsection if it contains any limitation or exclusion other than as provided in California Administrative Code, Title 10, Chapter 5, Article 6.9.

(2) A credit disability insurance policy violates this subsection if it:

(A) restricts coverage to permanent disabilities where the debtor is in fact totally disabled for the period required by the policy, although such disability may be of temporary nature;

(B) defines disability as an inability to perform any occupation. Disability may be defined as the inability to perform any occupation for which the debtor is reasonably fitted by education, training or experience after the period of total disability has existed for 18 consecutive months. During the first 18 months of disability, the definition must relate the disability to the occupation of the debtor at the time such disability occurred;

(C) restricts benefits to those periods of total disability when the insured is under the regular and continuing care of a physician, but this provision does not limit the right of the insurer to require evidence of actual disability at reasonable intervals in order to justify the continued payment of benefits;

(D) does not set forth clearly on the insured debtor's policy or certificate in bold print or in some other prominent way, the type of benefit payable, i.e., amount of monthly indemnity and a provision that the daily indemnity will be calculated at the rate of 1/30 of the monthly indemnity;

(E) does not provide that if a debtor refinances or renews his indebtedness while disabled and insured, the refinancing or renewal shall be disregarded for the purposes of applying elimination periods and applying waiting periods and applying time limitations applicable to pre-existing conditions to the extent such time limitations had expired prior to such refinancing or renewal to the extent of the amount and term of the insured indebtedness outstanding at the time of the renewal and refinancing of the debt or if the indebtedness is prepaid by the debtor during any period of disability for which benefits are payable, the disability coverage shall either continue in force and the insurer shall make periodic payments directly to the debtor until such time as the disability no longer exists or to the end of the term of insurance, whichever first occurs, or provides for refund of the unearned premium for such period of time;

(F) contains any other exclusion, reduction or limitation except as provided in California Administrative Code, Title 10, Chapter 5, Article 6.9.

(3) A credit life insurance or credit disability insurance policy violates this subsection if it:

(A) contains any exclusion because of age or other eligibility requirement (including, but not limited to employment) unless such requirement is contained in a written application for insurance signed by the insured and such requirement is set forth clearly on the insured debtor's policy or certificate in bold print or in some other prominent method, such as an appropriate caption;

(B) provides an illusory benefit because of a restrictive definition of total disability; for example, a disability policy with a definition of “total disability” which conditions benefits on ability to perform his occupation which is issued to a retired pensioner whose income comes from Social Security, or to a home-maker with no separate wage or salary, or to a member of the armed forces of the United States;

(C) provides an amount of insurance less than the amount necessary to discharge the indebtedness, when it does not set forth clearly such information on the insured debtor's policy or certificate in bold print or in other prominent method.

(4) A notice of proposed insurance violates this subsection if it does not comply with the following:

(A) provides a blank space indicated as the space for signature by the debtor;

(B) sets forth the name and home office address of the insurer, the name or names of the debtor, the premium or amount of payment by the debtor separately for credit life insurance and credit disability insurance, the amount, term and a brief description of the coverage provided;

(C) refers exclusively to insurance coverage, and shall be separate and apart from the loan, sales or other credit statement of account, instrument or agreement, unless the information required by subparagraph (B) above is prominently set forth therein.

(d) No statements made by a debtor shall be used by an insurer as a basis for denying a claim unless such statement is contained in a written application for insurance signed by the debtor, the form of which has been filed with and approved by the Commissioner for use in connection with the policy form in question.

(e) An application must identify the insurer providing the coverage. An application signed by the debtor is required whenever the policy contains an exclusion on account of age or other eligibility requirement.

(f) By accepting an application and issuing a policy, certificate or notice of proposed insurance, the insurer waives any limitations in the policy which the application revealed were breached on the date the application was made.

(g) If the insurer accepts premiums where the applicant has correctly stated his age, insurance coverage shall be effective regardless of age limitations or exclusions if a premium refund is not actually made (finance instrument amended) within the 75-day period following the date the application for insurance was signed by the debtor.

(h) A group credit insurance policy which provides for payment of single premiums to the insurer shall provide that, in the event of termination of such policy by the insurer or creditor, insurance coverage with respect to any debtor insured under such policy, shall, unless the debt is refinanced or prepaid, be continued for the entire period for which a single premium has been paid by such debtor. A group credit insurance policy under which premiums are paid to the insurer monthly on outstanding balances shall contain a provision that, in the event of termination of such policy by the insurer or creditor, thirty-one days notice of such termination shall be given to any debtor insured under the policy by the insurer where practicable, otherwise by the creditor, unless there is immediate replacement of the coverage by the same or another insurer. With respect to debtors covered at the date of termination where notice is required, coverage shall continue until notice is given as though the policy had not terminated.

(i) Currently Approved Policy Forms. Nothing in these regulations require the refiling of currently approved policy forms, riders or any other approved forms. It is recognized that certain provisions of these regulations will require the refiling of rates and the reprinting of rate charts. Such currently approved forms shall be construed, however, to be in compliance with all provisions of these regulations, or the insurer shall immediately notify the Insurance Commissioner that the insurer will not issue any such forms hereafter, and will not enroll or insure any new debtors on such forms on and after the effective date of these regulations. New policy forms, riders and applications filed for approval on and after the effective date of these regulations, April 1, 1979, shall comply with all provisions of these regulations.

NOTE

Authority cited: Section 779.21, California Insurance Code. Reference: Sections 779.5 through 779.9 and 779.14, California Insurance Code.

HISTORY

1. Amendment of subsection (b) and Note filed 4-14-94; operative 5-16-94. Submitted to OAL for printing only pursuant to Government Code section 11343(a)(1) (Register 94, No. 15).

§2248.8. Refund Formula.

Note • History

NOTE

Authority cited: Section 779.21, California Insurance Code.

HISTORY

1. Editorial correction of subsection designations (Register 79, No. 2).

2. Repealer filed 4-14-94; operative 5-16-94. Submitted to OAL for printing only pursuant to Government Code section 11343(a)(1) (Register 94, No. 15).

§2248.9. Premium Rates.

Note • History

NOTE

Authority cited: Section 779.21, California Insurance Code. Reference: Section 779.9, Insurance Code.

HISTORY

1. Amendment file 1-12-79; designated effective 4-1-79 (Register 79, No. 2).

2. Editorial correction of subsection designations (Register 79, No. 2).

3. Amendment filed 6-4-79; effective thirtieth day thereafter (Register 79, No. 23).

4. Repealer filed 4-14-94; operative 5-16-94. Submitted to OAL for printing only pursuant to Government Code section 11343(a)(1) (Register 94, No. 15).

§2248.10. Rate Deviations.

Note • History

NOTE

Authority cited: Section 779.21, California Insurance Code. Reference: Section 779.9, Insurance Code.

HISTORY

1. Amendment of subsections (b)(3)(B)2.b., (c)(1)(A) and (c)(1)(G) filed 1-12-79; designated effective 4-1-79 (Register 79, No, 2).

2. Editorial correction of subsection designations (Register 79, No. 2).

3. Amendment filed 6-4-79; effective thirtieth day thereafter (Register 79, No. 23).

4. Repealer filed 4-14-94; operative 5-16-94. Submitted to OAL for printing only pursuant to Government Code section 11343(a)(1) (Register 94, No. 15).

§2248.11. Compensation.

Note • History

NOTE

Authority cited: section 779.21, California Insurance Code. Reference: Section 779.9, Insurance Code.

HISTORY

1. Amendment filed 1-12-79; designated effective 4-1-79 (Register 79, No. 2).

2. Amendment filed 6-9-79; effective thirtieth day thereafter (Register 79, No. 23).

3. Repealer filed 10-2-2006; operative 11-1-2006 (Register 2006, No. 40).

§2248.12. Compensating Balances or Special Deposits Prohibited.

Note • History

NOTE

Authority cited: Section 779.21, California Insurance Code.

HISTORY

1. Editorial correction of subsection designations (Register 79, No. 2).

2. Repealer filed 10-2-2006; operative 11-1-2006 (Register 2006, No. 40).

§2248.13. Reinsurance Through Non-Admitted Insurers.

Note

(a) In the matter of reinsurance ceded to a non-admitted insurer, attention of all insurers writing credit insurance in this State is directed to the provisions of Sections 922.4 and 922.5 of the Insurance Code. These sections will be strictly enforced by the Commissioner. As a practical matter, an insurer will normally qualify for any reserve credits by satisfying the requirements of 922.4 (b), 922.5 (a) or 922.5 (c) of the Insurance Code.

(b) The Commissioner may require a detailed accounting of deposits to, withdrawals from, and balances of, or may at any time examine, any or all deposits or funds held by or for the admitted insurer as the basis for such claim of reinsurance credit.

NOTE

Authority cited: Section 779.21, California Insurance Code.

§2248.14. Minimum Financial Statement Reserves.

Note • History

(a) The minimum reserve standards on individual credit insurance policies and roup credit insurance policies are as follows:

(1) Credit Life Insurance.

(A) Individual policies--the reserve must not be less than a reserve based on the Commissioner's 1958 Standard Ordinary Mortality Table at 4 percent annual interest.

(B) Group Insurance--the reserve must not be less than a reserve based on the Commissioner's 1960 Standard Group Mortality Table at 4 percent annual interest.

(2) Credit Disability Insurance. The reserve must not be less than a reserve based on 130 percent of the 1964 Commissioner's Disability Table at 4 percent annual interest. However, under the provisions of Insurance Code Section 997(a), should an insurer, after establishing a credit disability reserve on the basis of 130 percent of the 1964 Commissioner's Disability Table, develop a total aggregate disability reserve for all disability policies (including non-credit disability insurance reserve) which is less than the pro rata gross unearned premium reserve for all such policies, then an additional reserve must be established so that such aggregate total shall not be less than such gross pro rata unearned premium reserve.

(b) Where a credit insurance policy provides both life insurance benefits and disability benefits, a reserve must be established separately for all the life insurance benefits and disability benefits. Life and disability insurers shall include such credit disability reserve in Exhibit 9 of the Life and Accident and Health Annual Statement.

(c) Section 997(a) of the Insurance Code provides that for statement purposes, for insolvency calculations, and for the valuation of the liabilities of insurers for all other purposes, every admitted insurer shall maintain an active life reserve which shall place a sound value on its liabilities under all disability policies which, in no event, shall be less in the aggregate than the pro rata gross unearned premium reserve for such policies.

(1) A credit disability insurance reserve deemed to satisfy the requirements of Section 997(a) of the Insurance Code for single premium credit disability insurance plans is either:

(A) the product, rounded to the next higher dollar, of

1. The gross prima facie single premium rate per thousand dollars of insured indebtedness for the term of the indebtedness remaining as of the valuation date, times

2. The number of thousands of dollars of indebtedness outstanding as of the valuation date, times

3. The ratio of the premium rate charged to the prima facie rate, or

(B) Obtained by use of tables of reserve factors available from the California Department of Insurance at a cost of $50 per set of factors.

(2) For plans with monthly premiums payable on non revolving accounts on the amount of indebtedness outstanding a credit disability insurance reserve deemed to satisfy the requirements of Section 997 (a) of the Insurance Code is defined according the following procedure for a particular plan.

(A) Determine the ratio of:

1. The gross single premium from which the monthly premiums were derived to

2. The total of the monthly premiums payable during the period of the plan.

(B) Determine the earned premium from the date of issue to the valuation date.

1. On the gross single premium basis this is the gross single premium less the unearned premium reserve as of the valuation date as defined in paragraph (1) of this subsection.

2. On the monthly premium basis this is the total of all monthly premiums collected from the issue date to the valuation date multiplied by the ratio determined in (A) above.

NOTE

Authority cited: Section 779.21, California Insurance Code. Reference: Section 779.9, Insurance Code.

HISTORY

1. Amendment filed 6-4-79; effective thirtieth day thereafter (Register 79, No. 23).

2. Amendment of subsections (c)(1)(A)1-2, repealer of subsection (c)(1)(A)3 and amendment and redesignation of subsection (c)(1)(A)4 filed 4-14-94; operative 5-16-94. Submitted to OAL for printing only pursuant to Government Code section 11343(a)(1) (Register 94, No. 15).

§2248.15. Annual Experience Statistics Reporting.

Note • History

NOTE

Authority cited: Section 779.21, California Insurance Code.

HISTORY

1. Repealer filed 4-14-94; operative 5-16-94. Submitted to OAL for printing only pursuant to Government Code section 11343(a)(1) (Register 94, No. 15).

§2248.16. Department of Insurance Form.

Note • History

NOTE

Authority cited: Section 779.21, California Insurance Code.

HISTORY

1. Repealer filed 4-14-94; operative 5-16-94. Submitted to OAL for printing only pursuant to Government Code section 11343(a)(1) (Register 94, No. 15).

§2248.17. Annual Experience Report Forms.

Note • History

NOTE

Authority cited: Section 779.21, California Insurance Code.

HISTORY

1. Repealer filed 4-14-94; operative 5-16-94. Submitted to OAL for printing only pursuant to Government Code section 11343(a)(1) (Register 94, No. 15).

§2248.18. Deviated Rate Calculation Form CDEV.

Note • History

NOTE

Authority cited: Section 779.21, California Insurance Code.

HISTORY

1. Repealer filed 4-14-94; operative 5-16-94. Submitted to OAL for printing only pursuant to Government Code section 11343(a)(1) (Register 94, No. 15).

§2248.19. Disabled Lives Reserve Development Form CDP.

Note • History

NOTE

Authority cited: Section 779.21, California Insurance Code.

HISTORY

1. Repealer filed 10-2-2006; operative 11-1-2006 (Register 2006, No. 40).

§2248.20. Rate Tables and Reporting Forms.

Note • History

NOTE

Authority cited: Section 779.21, California Insurance Code. Reference: Section 779.9, Insurance Code.

HISTORY

1. Amendment of form CDEV filed 6-4-79; effective thirtieth day thereafter (Register 79, No. 23).

2. Repealer filed 4-14-94; operative 5-16-94. Submitted to OAL for printing only pursuant to Government Code section 11343(a)(1) (Register 94, No. 15).

Article 6.8. Credit Life and Credit Disability Insurance: Premium Rates

§2248.30. Table of Contents.

Note • History

2248.31. Definitions.

2248.32. Presumptive Loss Ratios and Prima Facie Rates, Generally.

2248.33. Classes of Business.

2248.34. Prima Facie Premium Computation for Life Coverages.

2248.35. Prima Facie Premium Computation for Disability Coverages.

2248.36. Agricultural and Horticultural Loans.

2248.37. Rates by Age.

2248.38. Life and Disability Premium Refunds.

2248.39. Test for Deviated Rates.

2248.40. Calculation of the New Case Rate.

2248.41. Application of Downward Deviated Rates.

2248.42. Approval and Use of Upward Deviated Rates.

2248.43. Reduced and Actuarially Equivalent Rates and Refund Formulas.

2248.44. Annual Experience Reports.

2248.45. Effective Date.

2248.46. Severability.

2248.47. Tables.

NOTE

Authority cited: Sections 779.21 and 779.36, Insurance Code. Reference: Section 779.36, Insurance Code.

HISTORY

1. New article 6.8 and section filed 4-14-94; operative 5-16-94. Submitted to OAL for printing only pursuant to Government Code section 11343(a)(1) Register 94, No. 15).

2. Amendment deleting reference to repealed section 2248.48 filed 10-2-2001; operative 10-1-2001. Submitted to OAL for printing only pursuant to Government Code section 11340.9(g) (Register 2001, No. 40).

§2248.31. Definitions.

Note • History

All words or phrases not defined in this Section shall have the same meaning in these regulations as they have in Article 5.9 of Chapter 1 of Part 2 of Division 1 of the Insurance Code, starting with §779.1. As used in this Article:

(a) “Actuarially equivalent” means having a pattern of rates and benefits or of premium refunds and remaining coverage which can be demonstrated to be equivalent to another pattern of rates and benefits or of premium refunds and remaining coverage by the application of contingency, interest and discount factors or otherwise.

(b) “Class A Decreasing Life” provides a life insurance benefit which decreases in accordance with the scheduled decline in Closed End debt principal except that it covers any delinquent payments, pursuant to Financial Code §§18291 and 22314(e). This coverage is provided by standard policy forms ID numbers 6 through 9 in Article 6.9 of this Subchapter.

(c) A “Closed End” plan of indebtedness provides for repayment, in substantially equal payments, of a principal amount for a term and at an interest rate, all of which are fixed at the commencement of the term of the debt.

(d) “Credit Card” is an Open End plan of indebtedness based upon the use of a “credit card”, as defined in Civil Code §1747.02(a).

(e) “Credit Union Open End” is an open end plan of indebtedness extended by a credit union which provides for periodic payments, often in substantially equal amounts, which may be adjusted from time to time if the insured increases the outstanding debt or repays the loan faster than required. Coverage of this plan of indebtedness is provided by standard policy forms ID numbers 18 through 22 in Article 6.9 of this Subchapter.

(f) “Earned premium” is computed as follows:

(1) Where premiums are collected on a single premium basis for the entire term of coverage:

Single premiums which became due the insurer during the experience period

- The unearned premium reserve* at the end of the experience period

+ The unearned premium reserve* at the end of the previous experience period

- Premium refunds or adjustments resulting from termination of coverage

= Earned Premium (single premium basis)

* See subparagraph (4).

(2) Where premiums are payable monthly during the term of coverage:

Monthly premiums paid the insurer during the experience period

+ Monthly premiums due the insurer but unpaid at the end of the experience period

- Monthly premiums due the insurer but unpaid at the end of the previous experience period

- Unearned premium reserve* at the end of the experience period

+ Unearned premium reserve* at the end of the previous experience

period

- Premium refunds or adjustments resulting from termination of coverage

= Earned Premium (monthly basis)

*See subparagraph (5).

(3) Dividends, experience refunds or any other reductions of premium after issuance of coverage shall not be subtracted from earned premium nor included in benefits.

(4) The unearned premium reserve for single premium life plans equals the single premium for the amount and term of the remaining indebtedness. The unearned premium reserve for single premium disability plans is the single premium for the sum of the remaining loan payments and the remaining term of the loan.

(5) The unearned premium reserves for monthly premium life plans and disability plans equal the unearned portions of the gross premiums in force. This depends on the distribution of due dates through the month. The calculation shall be made consistently from month to month. For example, the unearned premium reserve for monthly business can only be zero if all due dates are at the first of the month.

(g) “Incurred claims” are computed as follows:

Claims paid during the experience period

+ Claim reserve at the end of the experience period

- Claim reserve at the end of the preceding experience period

= Incurred Claims

Where: “Claims” means benefits payable during the experience period because of death or disability without additions of any kind. A disability claim is deemed incurred on the date when disability commenced.

“Claim reserve” is the sum of the reserves for claim liability on disabled lives, claims incurred but not reported and claims due but unpaid. The Commissioner may disallow that part of any claim reserve which is unsupported by provable data.

(h) “Joint Disability” insures two persons jointly liable for an indebtedness on any plan. The full monthly benefit becomes payable on the disability of the first insured to become disabled.

(i) “Joint Life” insures two persons jointly liable for the indebtedness on any of the above plans. The full life insurance benefit is paid and coverage terminates on the death of the first insured. This coverage is represented by standard policy form text blocks PC 3 and PD 1 of §2249.12 of this Chapter.

(j) “Level Life” provides a constant fixed benefit over the term of coverage. This coverage is provided by standard policy forms ID numbers 16 and 17 in Article 6.9 of this Subchapter.

(k) “Line of Credit” is any Open End plan of indebtedness that is not a “Credit Union Open End” plan or a “Credit Card” plan. It includes “lines of credit”, variable interest rate loans and revolving accounts other than “credit cards”.

(l) An “Open End” plan of indebtedness is one in which one or more of the following are variable at the creditor's or the debtor's option - the principal amount, the term of the indebtedness, the number of payments, the amount of each payment or the interest rate.

(m) “Scheduled Decreasing Life” (sometimes called “net balance life”) provides a life insurance benefit which decreases in accordance with the scheduled decline in Closed End debt principal. This coverage is provided by standard policy forms ID numbers 11 through 14 and 25 through 28 in Article 6.9 of this Subchapter.

(n) “Premium” means the premium amount charged or the insurance charge made for the insurance actually provided.

(o) “Prima facie rates” means the maximum rates which reasonably can be expected to provide the presumptive loss ratio referred to in Ins. C. §779.36 and the relationship of benefits to premiums required by §779.9.

(p) “Rate” means the amount charged per unit of insurance coverage.

NOTE

Authority cited: Sections 779.21 and 779.36, Insurance Code. Reference: Sections 779.2, 779.4, 779.9, 779.30(f), 779.36, Insurance Code; Sections 18290, 18291, 22314, 22315 and 22455, Financial Code; and Section 1747.02(a), Civil Code.

HISTORY

1. New section filed 4-14-94; operative 5-16-94. Submitted to OAL for printing only pursuant to Government Code section 11343(a)(1) (Register 94, No. 15).

2. Amendment of section and Note filed 10-2-2001; operative 10-1-2001. Submitted to OAL for printing only pursuant to Government Code section 11340.9(g) (Register 2001, No. 40).

3. Editorial correction of first paragraph and subsections (b), (d), (i) and (l) (Register 2001, No. 49).

4. Amendment of subsection (f)(2) filed 1-9-2002; operative 1-9-2002. Submitted to OAL for printing only pursuant to Government Code section 11340.9(g) (Register 2002,, No. 2).

§2248.32. Presumptive Loss Ratios and Prima Facie Rates, Generally.

Note • History

(a) The Presumptive Loss Ratios (PLRs) for credit life insurance coverage and for credit disability insurance coverage shall be those indicated below. For the purpose of Insurance Code §779.9 it shall be presumed that benefits provided in a policy or certificate are not reasonable in relation to the premium charge if the claims incurred thereunder cannot be reasonably expected to equal the PLR below of the premiums earned separately thereunder for credit life insurance or for credit disability insurance.

The PLRs are shown in the table below:

Credit Life Insurance Class Single life Joint life

Closed End A-E 54.47% 54.24%

Open End Line of Credit A,B,D,E 54.71% 54.31%

Credit Card A,B,D,E 54.71% 54.31%

Credit Union Open End C 54.60% 54.35%

Credit Union Credit Card C 54.60% 54.35%

Credit disability Insurance A 58.73% 73.41%

B 56.34% 70.43%

C 59.13% 73.91%

D 59.64% 74.58%

E 54.91% 68.64%

Note the PLR can be expressed as 56.34% or .5634 when used in a formula.

(b) The prima facie rates set forth in these regulations:

(1) Assume that identical coverage (including maximum amounts and terms of coverage) is offered or provided to all debtors of age 65 or less, and Open-end coverages typically terminate at age 65;

(2) Assume that coverages are subject to the limitations and eligibility standards established for standard policy forms in Article 6.9 of this Subchapter.

(d) The Commissioner waives the filing under Insurance Code §779.8 of premium rate schedules conforming to the rates set forth in these regulations when such schedules are used with the standard policy and certificate forms set forth in Article 6.9.

NOTE

Authority cited: Sections 779.21 and 779.36, Insurance Code. Reference: Sections 779.8, 779.9, 779.13 and 779.16, Insurance Code; Sections 18290, 22458.1 and 24458.1, Financial Code; and Credit Insurance General Agents Association v. Payne, (1976) 16 Cal.3d 651.

HISTORY

1. New section filed 4-14-94; operative 5-16-94. Submitted to OAL for printing only pursuant to Government Code section 11343(a)(1) (Register 94, No. 15).

2. Amendment of subsection (a) filed 10-2-2001; operative 10-1-2001. Submitted to OAL for printing only pursuant to Government Code section 11340.9(g) (Register 2001, No. 40).

3. Editorial correction of subsection (a) (Register 2001, No. 49).

4. Amendment of subsections (a) and (b)(1) filed 1-9-2002; operative 1-9-2002. Submitted to OAL for printing only pursuant to Government Code section 11340.9(g) (Register 2002,, No. 2).

§2248.33. Classes of Business.

Note • History

“Class of Business” means credit insurance providing coverage within one of the following groupings:

Class A. Industrial Banks - credit insurance subject to Financial Code §§18290-18292; California Finance Lenders - credit insurance subject to Financial Code §§22314 and 22315. (“Regulated loans.”)

Class B. All business not otherwise classified.

Class C. Credit unions, subdivided by occupation group. Where the members of a credit union are classifiable in more than one occupation group, the credit union will be classified according to the grouping applicable to at least 60% of its members. Where this is not possible, the credit union shall be assigned to Occupation Group II.

Occupation Group I - Office Workers and Professionals. This group includes, but is not limited to, credit unions comprised of office workers and professionals employed by, or members of:

(1) Churches or religious organizations;

(2) Cooperatives;

(3) Communications industry including radio, television and telephone;

(4) Educational institutions, associations or services;

(5) Financial institutions, associations or services;

(6) Fraternal and civic groups;

(7) Government office workers (federal, state and local) excluding those related to police, fire protection, military service or postal service;

(8) Legal services;

(9) Medical institutions, associations or services;

(10) Labor unions associated with the respective occupation group served.

Occupation Group II - Light Industry, Security Services, Postal Workers. This group includes, but is not limited to, credit unions comprised of skilled and semi-skilled workers and professionals employed by, or members of:

(1) Agriculture and forestry industries;

(2) Airlines which are regularly scheduled;

(3) Apparel and garment industry;

(4) Appliance manufacturing industry;

(5) Chemical and drug industry;

(6) Construction industry (excluding unskilled laborers);

(7) Entertainment and recreation industries;

(8) Fire protection organizations;

(9) Food processing industries including meat packing, dairy, canning, beverage and grain;

(10) Government employees with inspection duties;

(11) Military and police services;

(12) Postal workers;

(13) Printing industry;

(14) Repair and maintenance industries;

(15) Tobacco industry;

(16) Labor unions associated with the respective occupation group served.

Occupation Group III - Heavy Industry and Transportation. This group includes all credit unions whose membership includes unskilled laborers or which include employees of, or members of:

(1) Automobile, truck, farm implement and equipment manufacturing industries;

(2) Leather and furniture products industry;

(3) Lumber and paper mill industry;

(4) Machinery manufacturing industry;

(5) Metal products, primary or fabricated, industry including foundries, container manufacturers, casting and drop forges, etc.;

(6) Mining industry;

(7) Ordnance industry;

(8) Petroleum, rubber and plastic products industries;

(9) Stone, clay and gypsum products industries;

(10) Transportation including nonscheduled airlines, bus, longshoreman, ocean and inland waterways, railways, urban transit, teamsters but excluding regularly scheduled airlines;

(11) Labor unions affiliated with respective occupation group served.

Class D. Finance companies - installment sales finance; Industrial Banks and California Finance Lenders - loans other than Class A or Class E.

Class E. Banks and savings and loan associations - home improvement loans, other loans secured by real estate, and mobile home loans; mobile home dealers; home improvement contractors and dealers (including swimming pool dealers); Industrial Banks and California Finance Lenders - loans secured by real estate; land development companies - loans secured by real estate; mortgage loan companies specializing in second trust deeds.

Class F. Banks and production credit associations - agricultural and horticultural loans.

NOTE

Authority cited: Sections 779.21 and 779.36, Insurance Code. Reference: Sections 779.4, 779.9 and 779.36, Insurance Code; Sections 18191, 18290-18292, 22314, 22315 and 22455, Financial Code; and Credit Insurance General Agents Association v. Payne, (1976) 16 Cal.3d 651.

HISTORY

1. New section filed 4-14-94; operative 5-16-94. Submitted to OAL for printing only pursuant to Government Code section 11343(a)(1) (Register 94, No. 15).

2. Amendment of section and Note filed 10-2-2001; operative 10-1-2001. Submitted to OAL for printing only pursuant to Government Code section 11340.9(g) (Register 2001, No. 40).

3. Editorial correction of second and fourth paragraphs (Register 2001, No. 49).

§2248.34. Prima Facie Premium Computation for Life Coverages.

Note • History

(a) Prima facie premiums for Closed End life coverages (“Scheduled Decreasing Life”, “Class A Decreasing Life” and “Level Life”) are computed as follows:

(1) Single premium single life:

Embedded Graphic 10.0169

Where: n = number of months of coverage

t varies from 1 to n

(This formula calculates the present value of monthly premiums for each month of the term of the loan. The present values are then accumulated to determine the single premium.)

(2) Monthly premium single life:

Monthly Premium = MP X Inst

1000

Where: MP is the Closed End Monthly Premium per $1000 of scheduled outstanding balance of the indebtedness from TABLE 1 in §2248.47.

Inst is the lesser of the scheduled principal balance of the debt outstanding for month “t” (not including delinquencies or unearned finance charges) or the amount of insurance for month t (for partial coverage).

(b) Prima facie monthly premiums for Open End life coverages (“Credit Union Open End”, “Line of Credit” and “Credit Card”) are computed as follows:

Monthly Premium = MP X Inst

1000

Where: MP is the Open End Monthly Premium per $1000 of scheduled outstanding balance of the indebtedness from TABLE 1 in §2248.47.

Inst the scheduled principal balance of the debt outstanding for month “t” (not including delinquencies or unearned finance charges) or the amount of insurance for month t provided for in the policy or certificate, if less.

The balance to which the rate is applied may be computed on the same basis as that used to compute interest charges on the debt.

(c) Rates for “Joint Life” coverages are computed by applying the Joint Life Multiplier In TABLE 1 to the appropriate Monthly premium.

NOTE

Authority cited: Sections 779.21 and 779.36, Insurance Code. Reference: Sections 779.4, 779.9, 779.13, 779.16 and 779.36, Insurance Code; Sections 18191, 18290-18292, 22458.1, 22458.2 and 24458.1, Financial Code; and Credit Insurance General Agents Association v. Payne, (1976) 16 Cal.3d 651.

HISTORY

1. New section filed 4-14-94; operative 5-16-94. Submitted to OAL for printing only pursuant to Government Code section 11343(a)(1) (Register 94, No. 15).

2. Amendment of Note filed 10-2-2001; operative 10-1-2001. Submitted to OAL for printing only pursuant to Government Code section 11340.9(g) (Register 2001, No. 40).

§2248.35. Prima Facie Premium Computation for Disability Coverages.

Note • History

(a) Single and monthly premiums for single disability coverage of Closed End loans, where coverage extends for a period measured from the inception of coverage, are computed as follows:

SP (for the term of coverage) x (Total of covered

Single Premium = disability benefit payments)

$1000

MP (for the initial term of coverage) x (Scheduled

Monthly Premium = total of covered disability benefit payments

for Month “t” remaining on Month “t”)

$1000

Where SP and MP are taken from the lettered Subtable, corresponding to the Class of Business, of TABLE 2 in §2248.47.

(b) Prima facie monthly premiums for single Open End disability coverages (“Credit Union Open End”, “Line of Credit” and “Credit Card”) are computed as follows:

Monthly Premium = MP X Inst

1000

Where: MP is the Open End Monthly Premium per $1000 of outstanding principal balance (not including unearned finance charges) from TABLE 3 in §2248.47.

Inst is the outstanding principal balance of the debt outstanding for month “t” (not including unearned finance charges) or the amount for month t provided for in the policy or certificate, if less.

The balance to which the rate is applied may be computed on the same basis as that used to compute interest charges on the debt.

(c) Prima facie premium rates for “Critical Period Disability” coverage, as provided for in Article 6.7, shall be actuarially equivalent to the prima facie disability rates for the corresponding coverage under subsections (a) and (b) and shall be approved by the Commissioner pursuant to §2248.43.

(d) Prima facie rates for “Joint Disability” coverages are computed by multiplying the appropriate single disability rates by 1.6.

NOTE

Authority cited: Sections 779.21 and 779.36, Insurance Code. Reference: Sections 779.9, 779.13, 779.16 and 779.36, Insurance Code; Sections 18191, 18290 - 18292, 22458.1, 22458.2, 24458.1 and 24458.2, Financial Code; and Credit Insurance General Agents Association v. Payne, (1976) 16 Cal.3d 651.

HISTORY

1. New section filed 4-14-94; operative 5-16-94. Submitted to OAL for printing only pursuant to Government Code section 11343(a)(1) (Register 94, No. 15).

2. Amendment of subsection (b) filed 1-9-2002; operative 1-9-2002. Submitted to OAL for printing only pursuant to Government Code section 11340.9(g) (Register 2002,, No. 2).

§2248.36. Agricultural and Horticultural Loans.

Note • History

(a) Rates for coverage on agricultural and horticultural loan commitments as defined in Ins. C. § 10203.35 shall be deemed not reasonable in relation to the benefits provided if they fail to attain the presumptive loss ratios established by § 2248.32(a) based upon experience developed in the preceding 3 years. Such experience may be adjusted for credibility using the Credibility Table in § 2248.40(b). Such rates shall be filed with the Commissioner annually, along with loss experience for the preceding three years, regardless of whether such rates have been adjusted for the year of filing.

(b) Section 2248.32, except for Subsection (a), and §§ 2248.34, 2248.35, 2248.37 and 2248.39 through 2248.42 do not apply to insurance covering agricultural and horticultural loan commitments as defined in Ins. C. § 10203.55.

NOTE

Authority cited: Sections 779.21 and 779.36, Insurance Code. Reference: Sections 779.9, 779.13, 779.16, 10203.5 and 10203.55, Insurance Code; and Credit Insurance General Agents Association v. Payne, (1976) 16 Cal.3d 651.

HISTORY

1. New section filed 4-14-94; operative 5-16-94. Submitted to OAL for printing only pursuant to Government Code section 11343(a)(1) (Register 94, No. 15).

§2248.37. Rates By Age.

Note • History

Age-banded rates may be used upon the Commissioner's approval. The Commissioner shall not approve such rates unless:

(a) They are actuarially equivalent to the prima facie rates established by this Article based upon demonstrated mortality or morbidity rates for each age band and the margins for insurer expenses and profit assumed in the prima facie rates;

(b) They would produce an aggregate premium which would not substantially exceed that which would be produced by the prima facie rates, assuming a normal distribution of debtors by age within the experience group for the Class of Business.

NOTE

Authority cited: Sections 779.21 and 779.36, Insurance Code. Reference Sections 779.9, 779.13, 779.16 and 779.36, Insurance Code; Sections 18191, 18290 - 18292, 22458.1, 22458.2, 24458.1, 24458.2, Financial Code; and Credit Insurance General Agents Association v. Payne, (1976) 16 Cal.3d 651.

HISTORY

1. New section filed 4-14-94; operative 5-16-94. Submitted to OAL for printing only pursuant to Government Code section 11343(a)(1) (Register 94, No. 15).

§2248.38. Life and Disability Premium Refunds.

Note • History

(a) Refunds of single premiums pursuant to Insurance Code § 779.14 shall not be less than amounts calculated as follows:

(1) For life insurance, the single premium for the scheduled remaining insured amount and term of coverage.

(2) For disability insurance:

Refund = Original Single Premium X (t/n)(SPt/SPn) - $10

Where:

t = the remaining term in months

n = the original term in months

SPt = the single premium per $1000 remaining insured amount

SPn = the original single premium per $1000 initial insured

amount

(3) Refunds of less than $5.00 per policy or certificate need not be made. If insurance has terminated due to refinancing of the covered indebtedness and new credit insurance is provided by the same insurer on the refinanced indebtedness, the entire refund amount, including the minimum refund provided for herein and the $10 retention provided for in paragraph (2) (if the terminated indebtedness was insured for disability), shall be applied toward the premium for the new credit insurance.

(b) No refund of monthly life or disability premiums is required. Any monthly premium collected on a billing date after the effective date of termination of coverage shall be refunded without any reduction whatsoever.

(d) For purposes of this Section, partial months of coverage shall be computed on a daily prorata basis. Alternatively, a partial month of coverage of 15 days or less shall be ignored; a partial month of coverage exceeding 15 days shall be counted as a whole month. Insurers shall use the same method of computing partial months of coverage for all debtors of a given creditor covered by the same plan of benefits.

(e) This Section does not supersede any other statute or regulation which would require a greater refund.

(f) The Commissioner hereby waives the filing, under Insurance Code § 779.14, of refund formulas which are the same as those set forth in this Section.

NOTE

Authority cited: Section 779.21, Insurance Code. Reference: Section 779.14, Insurance Code.

HISTORY

1. New section filed 4-14-94; operative 5-16-94. Submitted to OAL for printing only pursuant to Government Code section 11343(a)(1) (Register 94, No. 15).

§2248.39. Test for Deviated Rates.

Note • History

(a) An insurer shall use life insurance rates and disability insurance rates lower than the prima facie rates for an experience group if the credibility adjusted loss ratio for that group is equal to or less than the Presumptive Loss Ratio (PLR) less .05.

(b) An insurer may use life insurance rates and disability insurance rates higher than the prima facie rates for an experience group when the credibility adjusted loss ratio for that group equals or exceeds PLR + .05.

(c) For the purpose of applying this Section to life insurance and disability insurance, credibility adjusted loss ratios shall be computed according to §2248.40(c) for the most recent experience period, based upon the applicable prima facie rates for the experience group.

(d) Rates which are lower or higher than the prima facie rates shall not exceed the new case rates for the experience group computed according to §2248.40 and shall be administered pursuant to §2248.41 or §2248.42, respectively. Rates shall be calculated and applied separately for life and for disability.

NOTE

Authority cited: Sections 779.21 and 779.36, Insurance Code. Reference: Sections 779.9, 779.13, 779.16 and 779.36, Insurance Code; Sections 18191, 18290-18292, 22314, 22315 and 22455, Financial Code; and Credit Insurance General Agents Association v. Payne, (1976) 16 Cal. 3d 651.

HISTORY

1. New section filed 4-14-94; operative 5-16-94. Submitted to OAL for printing only pursuant to Government Code section 11343(a)(1) (Register 94, No. 15).

2. Amendment of section and Note filed 10-2-2001; operative 10-1-2001. Submitted to OAL for printing only pursuant to Government Code section 11340.9(g) (Register 2001, No. 40).

§2248.40. Calculation of the New Case Rate.

Note • History

(a) As used in §§2248.39 through 2248.42:

(1) “Experience group” means the experience under a plan of insurance of one creditor or more than one creditor. For the purpose of defining and using experience group for life insurance and for disability insurance the separate plans of insurance are: Class, as defined in §2248.33; life/disability; single life/joint life; open end/closed end; and, single premium/monthly premium. In addition, for disability insurance separate plans also include elimination period and retroactive/nonretroactive for disability. The insurance plans of each creditor in a multiple creditor group must be reasonably similar and each creditor-plan must provide the same type of life or disability coverage (from §2248.31) and be in the same Class of Business (from §2248.33).

For purposes of determining deviated rates, the Commissioner may allow a combination of experience groups for single life/joint life for life and disability insurance, and elimination period, retroactive/nonretroactive for disability insurance to maintain an appropriate relationship between rates, where such combination is justified by the carrier to the satisfaction of the Commissioner.

If an experience group has experience in more than this State, an insurer may use only the experience of the experience group in the State to rate the group or, with the approval of the Commissioner, an insurer may use the multi-State experience of the experience group for this purpose if it is more credible than the California experience and is generated by the same or similar plans of insurance and is adjusted to account for differences in premium rates.

Insurers using multiple-creditor groups for the purpose of determining downward or upward deviated rates shall establish written standards for the inclusion of individual creditor-groups within such multiple creditor groups. Such standards shall be applied uniformly regardless of the type of deviation contemplated.

(2) “Experience period” means the most recent period of time for which experience is reported, but not for a period longer than three full years. An experience period shall end on December 31st of each calendar year.

(A) If an experience group develops a Credibility Factor of 1 from TABLE 4 (“Rate Deviation Credibility Table” in §2248.47) in less than three years, the experience period for that case will be the number of full years needed to attain that Credibility Factor.

(B) An insurer may elect a level of credibility within the range of TABLE 4 for an experience group. If an experience group develops the minimum credibility elected by the insurer in less than three years, the experience period for that group may be, at the option of the insurer, either the number of full years needed to develop the elected minimum credibility or three full years. If an experience group fails to attain such minimum credibility within three full years, the credibility actually attained in that period shall be used for determining downward deviated rates.

Experience incurred in the period immediately preceding the effective date of this regulation may be used to the extent necessary to fill out the experience period.

(C) If a new experience group of an insurer has experience in this State with a prior insurer, the new insurer must use the most recent experience of the experience group with the prior insurer to the extent necessary to fill out an experience period. Other data or projections may be used if the Commissioner finds them to be more credible.

(3) “Incurred Claim Count”, as used in TABLE 4, means the number of claims incurred for the experience group during the experience period. This means the total number of claims reported during the experience period, whether paid or in the process of payment plus any incurred but not reported (IBNR) at the end of the experience period less the number of claims incurred but not reported at the beginning of the experience period. If a debtor has been issued more than one policy or certificate for the same plan of insurance, only one claim is counted. If a debtor receives disability benefits, only the initial claim payment for that period of disability is counted.

(4) “Average Number of Life years”, as used in TABLE 4, means the average number of group certificates or individual policies in force during the experience period (without regard to multiple coverage) times the number of years in the experience period, or some equivalent calculation.

(b) Find the Credibility Factor (“Z”) from TABLE 4 for the experience group. For life insurance, and for disability insurance, where actual loss ratios are less than 45%, use the Average Number of Life years; otherwise, use either the Average Number of Life Years or the Incurred Claims Count. If either of these measures cannot be directly determined, the Commissioner may accept reasonable approximations of them.

(c) For life insurance and for disability insurance, calculate the credibility adjusted loss ratio (“CLR”) for the experience group using the following formula, where ALR is the actual loss ratio for the experience group on the prima facie rate basis.

CLR = Z (ALR) + PLR(1-Z)

Calculate the new case rate (“NCR”) for the experience group according to the formulas below, where PFR is the prima facie rate for the experience group.

(1) Where CLR is equal to or less than PLR less .05, the downward deviated rate may not exceed the new case rate (“NCR”) calculated as:

NCR = PFR [1 - (PLR-CLR)]

(2) Where CLR exceeds PLR + .05, the upward deviated rate may not exceed the new case rate (“NCR”) calculated as:

NCR = PFR [1 + 1.2(CLR-PLR)]

(d) Calculations for new case rates or deviated rates under Class A shall use two adjustments, before and after applying the formulas. First, adjust the earned premiums by deducting 10 cents per 1000. Apply the formulas and then add back 10 cents per 1000 to obtain the final new case or deviated rate.

NOTE

HISTORY

1. New section filed 4-14-94; operative 5-16-94. Submitted to OAL for printing only pursuant to Government Code section 11343(a)(1) (Register 94, No. 15).

2. Amendment of section and Note filed 10-2-2001; operative 10-1-2001. Submitted to OAL for printing only pursuant to Government Code section 11340.9(g) (Register 2001, No. 40).

3. Amendment of subsections (a)(1), (c)(1) and (d) filed 1-9-2002; operative 1-9-2002. Submitted to OAL for printing only pursuant to Government Code section 11340.9(g) (Register 2002,, No. 2).

§2248.41. Application of Downward Deviated Rates.

Note • History

(a) For life insurance and disability insurance, an insurer shall submit, for the Commissioner's approval, proposed downward deviated rates for an experience group subject to §2248.39(a) within 180 days after the end of an experience period during which the credibility adjusted loss ratio for the group was equal to or less than PLR less .05.

(b) Credibility adjusted loss ratios using prima facie rates and new case rates shall be redetermined on each anniversary of the effective date of downward deviated rates for an experience group.

(1) For life insurance and disability insurance, if the credibility adjusted loss ratio for the experience group as of the time of redetermination equals at least PLR less .05, the insurer may submit, for the Commissioner's approval, a proposal for termination of downward deviated rates for the experience group.

(2) If the rates in effect as of such redetermination exceed by 10% or more the new case rates, then the insurer shall submit for the Commissioner's approval, proposed reduced rates which shall not exceed the new case rates. This submission shall be made within 180 days of the date as of which the new case rates were determined.

(3) If the new case rates exceed the rates in effect as of such redetermination, then the insurer may submit, for the Commissioner's approval, increased rates not to exceed the new case rates.

(c) The Commissioner shall disapprove submissions of proposed reduced rates pursuant to subsections (a) and (b)(2) if it is not demonstrated to him or her that they have been determined in accordance with applicable statutes and regulations. The Commissioner may approve modifications of downward deviated rates computed in accordance with §§2248.40 if it is demonstrated to his satisfaction that the rates so computed provide inadequate allowances for expenses, reserves or profits or are inconsistent with other reasonable actuarial considerations.

Approved downward deviated rates shall become effective for the experience group within 60 days of the Commissioner's approval. The Commissioner may approve a later effective date if it is demonstrated to him or her that the approved rates cannot reasonably be implemented within 60 days of his approval.

(d) The Commissioner may disapprove proposed increased deviated rates if it is not demonstrated to him or her that they have been determined in accordance with applicable statutes and regulations. The Commissioner may disapprove the termination of downward deviated rates for an experience group if it is not demonstrated to him or her that the credibility-adjusted loss ratio was calculated in accordance with applicable statutes or regulations. Increased downward deviated rates or the termination of downward deviated rates may become effective at any time after the Commissioner's approval or upon the 120th day following the submission of such proposals if they have not been disapproved by that day.

(e) An insurer assuming the business of some or all of the creditors comprising an experience group subject to downward deviated rates shall not use rates exceeding such deviated rates except as provided in subsection (b), above.

(f) An insurer may transfer a creditor from an experience group subject to downward deviated rates to another experience group only if transfer would not result in a higher rate for the remainder of the former group.

(g) Calculations for new case rates or deviated rates under Class A shall use two adjustments, before and after applying the formulas. First, adjust the earned premiums by deducting 10 cents per 1000. Apply the formulas and then add back 10 cents per 1000 to obtain the final new case or deviated rate.

NOTE

HISTORY

1. New section filed 4-14-94; operative 5-16-94. Submitted to OAL for printing only pursuant to Government Code section 11343(a)(1) (Register 94, No. 15).

2. Amendment of section and Note filed 10-2-2001; operative 10-1-2001. Submitted to OAL for printing only pursuant to Government Code section 11340.9(g) (Register 2001, No. 40).

3. Amendment of subsections (b)(1) and (g) filed 1-9-2002; operative 1-9-2002. Submitted to OAL for printing only pursuant to Government Code section 11340.9(g) (Register 2002,, No. 2).

§2248.42. Approval and Use of Upward Deviated Rates.

Note • History

(a) For life insurance and disability insurance, an insurer may submit, for the Commissioner's approval, proposed upward deviated rates for an experience group subject to §2248.39(b) after the end of an experience period during which the credibility adjusted loss ratio for the group equaled or exceeded PLR + .05.

(b) Credibility adjusted loss ratios using prima facie rates and new case rates for an experience group subject to upward deviated rates shall be redetermined as of each anniversary of the effective date of such rates for the group.

(1) For life insurance and disability insurance, if the credibility adjusted loss ratio for the experience group as of the time of redetermination does not attain at least PLR + .05, then the insurer shall terminate such upward deviated rates within 180 days of the end of the experience period during which the credibility adjusted loss ratio failed to attain PLR + .05. Insurers shall notify the Commissioner of the termination of upward deviated rates.

(2) If the rates in effect as of such redetermination exceed by 10% or more the new case rates, then the insurer shall submit, for the Commissioner's approval, proposed reduced rates which shall not exceed the new case rates. This submission shall be made within 180 days of the date as of which the new case rates were determined.

(3) If the new case rates exceed the rates in effect as of such redetermination by 10% or more, then the insurer may submit, for the Commissioner's approval, increased rates not to exceed the new case rates.

(c) The Commissioner shall disapprove submissions of proposed reduced rates pursuant to subsection (b)(2) if it is not demonstrated to him or her that they have been determined in accordance with applicable statutes and regulations.

Approved reduced rates shall become effective for the experience group within 60 days of the Commissioner's approval. The Commissioner may approve a later effective date if it is demonstrated to him or her that the approved rates cannot reasonably be implemented within 60 days of his approval.

(d) The Commissioner may disapprove proposed deviated rates if it is not demonstrated to him or her that they have been determined in accordance with applicable statutes and regulations. Upward deviated rates may become effective at any time after the Commissioner's approval or upon the 120th day following the submission of such proposals if they have not been disapproved by that day.

(e) Upward deviated rates may continue to be used where an entire experience group has transferred to a new insurer only until the next annual redetermination.

(f) No insurer shall transfer a creditor group it already insures to an experience group subject to upward deviated rates. An insurer may assign a newly insured creditor group subject to an upward deviated rate under its prior insurer into an experience group subject to upward deviated rates only if the assignment would not result in a higher rate for the newly-insured creditor group or the existing experience group.

(g) This Section shall not preclude the Commissioner from otherwise considering proposals for rates in excess of the prima facie rates for specific creditors, creditor groups or products if it is demonstrated to him or her that the prima facie rates provide inadequate allowances for claim costs, expenses, reserves or profits or are inconsistent with other reasonable actuarial considerations given the circumstances of their particular application.

(h) Calculations for new case rates or deviated rates under Class A shall use two adjustments, before and after applying the formulas. First, adjust the earned premiums by deducting 10 cents per 1000. Apply the formulas and then add back 10 cents per 1000 to obtain the final new case or deviated rate.

NOTE

HISTORY

1. New section filed 4-14-94; operative 5-16-94. Submitted to OAL for printing only pursuant to Government Code section 11343(a)(1) (Register 94, No. 15).

2. Amendment of section and Note filed 10-2-2001; operative 10-1-2001. Submitted to OAL for printing only pursuant to Government Code section 11340.9(g) (Register 2001, No. 40).

3. Amendment of subsection (h) filed 1-9-2002; operative 1-9-2002. Submitted to OAL for printing only pursuant to Government Code section 11340.9(g) (Register 2002,, No. 2).

§2248.43. Reduced and Actuarially Equivalent Rates and Refund Formulas.

Note • History

(a) Rates lower than the prima facie or downward deviated rates established by this Article shall be filed with the Commissioner no later than 30 days after their implementation.

(b) Rates which are actuarially equivalent to the prima facie or deviated rates established or allowed by this Article may be used upon the Commissioner's approval.

(c) Rates for coverage which do not qualify for the use of prima facie rates pursuant to § 2248.32(b) shall not exceed the actuarial equivalents of the prima facie rates established by this Article, and shall be approved by the Commissioner before their use. Such rates shall be subject to §§ 2248.37 through 2248.42.

(d) Refund formulas which are actuarially equivalent to, or more favorable to the insured than, the formulas established by this Article may be used upon the Commissioner's approval.

(e) The Commissioner may publish, by Bulletin, rates or refund formulas which he deems to be actuarially equivalent to the prima facie rates. Such rates and formulas may be used without filing with or approved by the Commissioner, but their use must be indicated on the annual experience report forms.

NOTE

Authority cited: Sections 779.21 and 779.36, Insurance Code. Reference: Sections 779.9, 779.13, 779.16 and 779.36, Insurance Code; Sections 18191, 18290 - 18292, 22458.1, 22458.2, 24458.1 and 24458.2, Financial Code; and Credit Insurance General Agents Association v. Payne, (1976) 16 Cal. 3d 651.

HISTORY

1. New section filed 4-14-94; operative 5-16-94. Submitted to OAL for printing only pursuant to Government Code section 11343(a)(1) (Register 94, No. 15).

§2248.44. Annual Experience Reports.

Note • History

(a) Each insurer subject to this Article shall file an annual report of its credit life and disability experience statistics with the Commissioner. Such report shall be filed no later than May 1 of the year following the calendar year reported. Each type of insurance as defined in this Article shall be reported separately on Credit Life and Disability Insurance Experience Report Forms prescribed by the Commissioner. Experience reports for insurance plans not defined in this Article shall include brief descriptions of the coverages provided. The Commissioner reserves the right to require that reports be filed in electronic media form. Each insurer shall maintain experience data on an annual basis for its business subject to this Article or to Article 6.7 of this Subchapter prior to the effective date of this Article, for at least five years.

(b) Experience statistics generated under conditions different from those assumed in § 2248.32(b), including eligibility and termination ages different than those assumed in Article 6.9, shall be reported separately.

(c) Credit insurance experience generated by business issued before the effective date of this Article shall be maintained and reported separately from experience generated under this Article.

NOTE

HISTORY

1. New section filed 4-14-94; operative 5-16-94. Submitted to OAL for printing only pursuant to Government Code section 11343(a)(1) (Register 94, No. 15).

§2248.45. Effective Date.

Note • History

(a) This Article, effective October 1, 2001 governs the premiums charged (including refunds made for early terminations) for all individual credit insurance policies and group credit insurance certificates with effective dates on or after October 1, 2001, and the premiums charged after such date under previously issued credit insurance policies or certificates covering Open End plans of indebtedness.

(b) Prior to January 1, 2002, insurers shall not be deemed to be in violation of this Article if they are in compliance with this Article as it existed on December 31, 2000.

(c) Approved upward deviated rates in effect on September 30, 2001 shall be redetermined and refiled for approval pursuant to Section 2248.42 or be reduced on January 1, 2002 to the prima facie rates herein. The calculation of loss ratio for the refiling shall use earned premium based on the prima facie rates herein.

NOTE

HISTORY

1. New section filed 4-14-94; operative 5-16-94. Submitted to OAL for printing only pursuant to Government Code section 11343(a)(1) (Register 94, No. 15).

2. Amendment of section and Note filed 10-2-2001; operative 10-1-2001. Submitted to OAL for printing only pursuant to Government Code section 11340.9(g) (Register 2001, No. 40).

§2248.46. Severability.

Note • History

If any provision of this Article or its application to any person or circumstance is held invalid for any reason, the rest of this Article and the application of such provision to any other person or circumstances shall not be affected.

NOTE

Authority cited: Section 779.21, Insurance Code. Reference: Section 779.36, Insurance Code.

HISTORY

1. New section filed 4-14-94; operative 5-16-94. Submitted to OAL for printing only pursuant to Government Code section 11343(a)(1) (Register 94, No. 15).

§2248.47. Tables.

Note • History

The rates set forth below in TABLES 1, 2 and 3 are deemed to provide, on a prima facie basis, the loss ratios established by §2248.32(a). The formulas used to derive the rates in TABLES 2 and 3 are available from the Commissioner. Disability premiums computed in accordance with such formulas for terms of insurance not specified in TABLE 2 shall be deemed to be in compliance with this Article even though they may differ from those computed by interpolation.

Table 1

Embedded Graphic 10.0170

Table 2

Embedded Graphic 10.0171

Embedded Graphic 10.0172

Embedded Graphic 10.0173

Table 3

Embedded Graphic 10.0174

Table 4

Embedded Graphic 10.0175

NOTE

Authority cited: Sections 779.21 and 779.36, Insurance Code. Reference: Sections 779.9 and 779.36, Insurance Code; Sections 18191, 18290-18292, 22314, 22315 and 22455, Financial Code; and Credit Insurance General Agents Association v. Payne, (1976) 16 Cal. 3d 651.

HISTORY

1. New section filed 4-14-94; operative 5-16-94. Submitted to OAL for printing only pursuant to Government Code section 11343(a)(1) (Register 94, No. 15).

2. Editorial correction amending Table 2, Sub Table A and Sub Table B (Register

3. Amendment of Tables 1-3, repealer of Table 5 and amendment of Note filed 10-2-2001; operative 10-1-2001. Submitted to OAL for printing only pursuant to Government Code section 11340.9(g) (Register 2001, No. 40).

4. Amendment of Tables 1 and 2 and Sub Table C filed 1-9-2002; operative 1-9-2002. Submitted to OAL for printing only pursuant to Government Code section 11340.9(g) (Register 2002,, No. 2).

§2248.48. Reporting Forms.

Note • History

NOTE

Authority cited: Sections 779.21 and 779.36, Insurance Code. Reference: Sections 779.9 and 779.36, Insurance Code; Sections 18191, 18290-18292, 22458.1, 22458.2, 24458.1 and 24458.2, Financial Code; and Credit Insurance General Agents Association v. Payne, (1976) 16 Cal. 3d 651.

HISTORY

1. New section filed 4-14-94; operative 5-16-94. Submitted to OAL for printing only pursuant to Government Code section 11343(a)(1) (Register 94, No. 15).

2. Repealer filed 10-2-2001; operative 10-1-2001. Submitted to OAL for printing only pursuant to Government Code section 11340.9(g) (Register 2001, No. 40).

Article 6.9. Standard Credit Life and Credit Disability Policy Forms

§2249. Authority and Purpose.

Note • History

NOTE

Authority cited: Sections 779.21 and 779.27, Insurance Code.

HISTORY

1. New Article 6.9 (Sections 2249-2249.17) filed 4-26-78; designated effective 6-1-78 (Register 78, No. 17). For history of former Article 6.9, see Registers 63, No. 15; 69, No. 9; and 69, No. 24.

2. Repealer filed 7-25-83; effective thirtieth day thereafter (Register 83, No. 31).

§2249.1. Table of Contents.

Note • History

2249.2. Forms Subject to Prior Substantive Review and Approval

2249.3. Administration of Forms

2249.4. Forms Subject to Prior to Presumptive Approval;

Maintenance of File; Certificate of Compliance.

2249.5. Reservation of Right to Require Prior Approval

2249.6. Instructions for Drafting and Use

2249.7. Identification Number Chart

2249.8. List of Block Numbers for Each Identification Number--

Individual Policies.

2249.9. List of Block Numbers for Each Identification Number

Group Certificates.

2249.10. Schedule Blocks

2249.11. Application Blocks

2249.12. Policy and Certificate Blocks

2249.13. Notice of Proposed Insurance Blocks

2249.14. Sample Certificate (Identification Number 11).

2249.15. Effective Date

2249.16. Severability Provision.

NOTE

Authority cited: Section 779.27, Insurance Code. Reference: Section 779.27, Insurance Code.

HISTORY

1. Amendment filed 7-25-83; effective thirtieth day thereafter (Register 83, No. 31).

2. Amendment filed 10-2-2006; operative 11-1-2006 (Register 2006, No. 40).

§2249.2. Forms Subject to Prior Substantive Review and Approval.

Note • History

The following credit life and/or credit disability insurance forms shall be submitted to the Commissioner for his prior substantive review and approval following the procedures established by Sections 2201 through 2217 of this Subchapter.

(a) Standard forms for use by an insurer which has not actively transacted a substantial volume of credit life and/or disability insurance business in the State of California for a year prior to the date upon which the forms are proposed to be issued, unless and until such prior substantive review is expressly waived by the Commissioner in writing.

(b) Forms intended for use in lieu of the standard forms established by this Article. Cover letters for submission of such forms shall prominently state that the forms are to be issued in lieu of standard forms.

(c) Forms or provisions in forms not otherwise subject to this Section which provide coverage in addition to or different from the coverage provided by the forms established by this Article.

(d) Forms described in subsections (b) and (c) of this Section shall be drafted in text designed to be readily understood and interpreted by the persons insured thereunder and shall be based, to the extent possible, upon the standard forms established. Non-standard language in such forms shall be “highlighted” when they are submitted for review. Each such form shall use the Identification Number of the standard form upon which it was based, with “NON STD” added as a prefix or suffix.

The Commissioner shall disapprove such a form:

(1) If it would produce experience statistics which would not be readily usable in developing prima facie premium rates.

(2) If it uses atypical language or format and would, therefore, hinder consumer education.

(3) If it is not established to his satisfaction that its use will be more beneficial to the citizens of this State than the use of standard forms;

(4) It does not comply with any other applicable statute or regulation.

(e) The Commissioner waives the refiling of previously-approved forms described in Subsections (b) and (c) of this Section that are changed solely to reflect the 2008 amendments of this Article.

NOTE

Authority cited: Sections 779.21 and 779.27, Insurance Code. Reference: Sections 779.8, 779.9, 779.12a and 779.27, Insurance Code.

HISTORY

1. Amendment filed 7-25-83; effective thirtieth day thereafter (Register 83, No. 31).

2. Amendment of first paragraph and subsection (a) and repealer and new Note filed 10-2-2006; operative 11-1-2006 (Register 2006, No. 40).

3. New subsection (e) filed 5-27-2008; operative 6-26-2008 (Register 2008, No. 22).

§2249.3. Administration of Forms.

Note • History

In addition to all other applicable statutes and regulations, the following rules shall be followed in administering the forms subject to this Article.

(a) Where a new policy or certificate is issued because of the renewal or refinancing of an indebtedness previously insured, any time which had accumulated toward the satisfaction of any waiting or elimination period under the preceding coverage shall be credited toward the satisfaction of such period under the new policy or certificate. Credit shall apply to the extent that the type of coverage is the same under the old and new policies or certificates and to the extent of the indebtedness carried over from the old indebtedness. Any eligibility requirement (such as “active-at-work“) which was satisfied under the preceding coverage shall be waived under the new coverage to the extent of the type and amount of coverage carried over from the old policy or certificate.

(b) If a closed-end loan terminates by pre-payment, renewal or refinancing during a period of covered disability, disability benefits shall continue to be paid as if the loan had not been prematurely terminated unless the insured requests cancellation.

(c) Termination of a group policy shall not affect the coverage provided by single premium certificates issued thereunder.

(d) A monthly premium certificate shall not be terminated due to termination of the group policy on less than 31 days advance notice given to the borrower, except where there is immediate replacement of coverage.

(e) Coverage under a certificate for which premium is collected on other than a single premium or monthly premium basis shall not terminate due to termination of the master policy before the end of the period for which premium has been paid. Coverage under such a certificate shall be continued for the next premium period, subject to payment of the premium to the insurer, either directly or through the creditor, if notice of termination is not given to the borrower at least 31 days before the end of the period for which premium was paid, except where there is immediate replacement of coverage.

(f) A copy of the Borrower's Application shall be attached when a Notice of Proposed Insurance is delivered.

NOTE

Authority cited: Sections 779.21 and 779.27, Insurance Code. Reference: Sections 779.1, 779.5, 779.7, 779.9 and 779.27, Insurance Code.

HISTORY

1. Repealer and new section filed 7-25-83; effective thirtieth day thereafter (Register 83, No. 31).

§2249.4. Forms Subject to Presumptive Approval; Maintenance of File; Certificate of Compliance.

Note • History

Unless subject to Section 2249.2 of this Article, standard forms which are drafted in accordance with this Article and forms of group master policies which provide coverage reflected in standard certificate forms established by this Article shall be deemed to be approved without filing after June 1, 1979. Forms subject to this Article shall maintained by the insurer in a file until 3 years following the date upon which coverage last terminated under each form. Such file shall be reasonably accessible to the public and insurers shall respond promptly to requests for copies of the forms contained therein. A reasonable fee may be charged for supplying such copies.

Commencing with the Annual Statement for the year of 1979, each insurer issuing forms subject to this Article shall file a Certificate of Compliance with its Annual Statement for each year in which such forms are issued. Such certificate shall be captioned “Certificate of Compliance (Credit Life and/or Credit Disability Forms) ” and shall list the form numbers of the forms issued in that year. Form numbers of group and individual policies and group certificates shall be accompanied by the Identification Numbers for the coverage provided except for those forms approved under Subsections (b) and (c) of Section 2249.2 of this Article. The Certificate of Compliance shall be executed by an authorized officer of the insurer who shall state that, to the best of his or her knowledge, information and belief, the listed forms were the only credit life and/ or disability forms issued by the insurer in that Annual Statement year and that such forms comply in all respects with this Article.

NOTE

Authority cited: Sections 779.21 and 779.27, Insurance Code. Reference: Sections 779.8, 779.9, 779.10, 779.12a, 779.18, 779.27 and 900, Insurance Code.

HISTORY

1. Amendment filed 7-25-83; effective thirtieth day thereafter (Register 83, No. 31).

§2249.5. Reservation of Right to Require Prior Approval.

Note • History

The Commissioner reserves the right to require, upon written notice to an insurer, that forms otherwise subject to Section 2249.4 of this Article, be filed with and approved by him before they are issued or delivered.

NOTE

Authority cited: Sections 779.21 and 779.27, Insurance Code. Reference: Sections 779.8, 779.9, 779.10, 779.12a, 7791.8 and 779.27, Insurance Code.

HISTORY

1. Amendment filed 7-25-83; effective thirtieth day thereafter (Register 83, No. 31).

§2249.6. Instructions for Drafting and Use.

Note • History

(a) Generally. This Article does not supersede any other statutes or regulations pertaining to the use of particular types of forms in certain circumstances. (For example, only group forms may be used by credit unions.)

The standard forms set forth below reflect 30 day elimination period coverage, but any other permissible coverage may be substituted. The designation of the coverage may be preprinted or filled in later. Terms, such as “borrower”, “creditor”, “loan” and “advance”, appearing in the standard forms may be varied, provided that such variance is required by the circumstances of use and that the substituted terms are consistent and not misleading. Age “66” may be substituted for “65” where it appears in the standard forms. Forms with ages other than those set forth in these regulations must be submitted for approval on a non-standard basis pursuant to §2249.2(d).

Standard and non-standard forms shall be printed in type which complies with the standard of Insurance Code Section 10320(d).

Where debtors may elect among several coverage, insurers may use forms which provide all the coverage offered. However, forms showing coverage which are not available to the debtors to be covered may not be used.

(b) Drafting Instructions for Individual Policies and Group Certificates. Standard policy and certificate forms shall be assembled from the blocks of text set forth in Sections 2249.10 through 2249.12 of this Article as follows:

(1) Select the appropriate Identification Number for the desired coverage from the Identification Number Chart in Section 2249.7 of this Article. (Note that the Identification Number refers to the coverage provided rather than to the type of document.)

(2) Depending upon whether an individual policy or a group certificate is being drafted, enter the appropriate List of Block Numbers for Each Identification Number (Section 2249.8 or 2249.9 of this Article) with the selected Identification Number. The sequence of text blocks is indicated by the block numbers following each Identification Number.

(3) An illustrative sample Identification Number 11 Certificate is set forth in Section 2249.14 of this Article.

(c) Schedules. Schedule blocks may appear in any sequence which is not misleading or confusing. The reference to maximum benefits in the schedule may be deleted if benefits are not subject to a maximum. Additional schedule items may be added to the schedule if the net effect of such additions is not confusing or misleading. Schedule blocks specified for each policy or certificate must not be deleted. The insurer must be able to identify the seller of any particular policy or certificate by means of the designation “Source Code.” Every policy or certificate must indicate the rate class by means of the designation of “Class of Business.”

(d) Applications. The following text may be inserted in applications:

“I want insurance._________________

I do not want insurance._____________”

“You understand you do not have to buy this insurance to get your loan approved.”

The medical application, Application Block AP 20, or any portion thereof, may be used with any form. The numbered paragraphs in the non-medical application for the type of coverage being applied for should be substituted for paragraphs 2 through 4 in the subscription agreement AP 20 when they differ from the AP 20 text. For applications to be used with ID forms 18 through 22 and 25 through 29, also replace the sentence, “You are applying for the credit insurance marked above.”, in AP 20, with the following: “You are applying for the credit insurance marked above and authorizing the Creditor to add the charges for insurance to your loan each month as they become due. You have the right to stop this authorization. Retain the second standard sentence, “You should understand that . . . cancel your insurance protection.” The medical application may be formatted so that questions apply separately to co-borrowers.

“Date of Birth” may be substituted for “age” in the signature blanks in the applications.

The phrase “(Refer to “Total Disabilities Not Covered” in your policy for details.)” shall be changed to “(Refer to the Notice of Proposed Insurance for details.)” in applications which are used with Notice of Proposed Insurance.

(e) Policy and Certificate Blocks. The sequence of these blocks must not vary from that set forth in Sections 2249.8 and 2249.9 of this Article.

Policies or certificates which include disability coverage and which are not printed on the same document as the application shall contain the following text on the front page:

“DISABILITY INSURANCE MAY NOT COVER CONDITIONS FOR WHICH YOU HAVE SEEN A DOCTOR OR A CHIROPRACTOR IN THE LAST SIX MONTHS. (Refer to “Total Disabilities Not Covered” in this policy for details.)”

(f) Dividend Provision. The following text may be inserted in an appropriate location where required by law:

“Our Board of Directors will determine annually whether a dividend will be paid on this policy.”

(g) Block Numbers. Block numbers shall not appear on forms drafted in accordance with this Article.

(h) Notices of Proposed Insurance. The standard Notices of Proposed Insurance shall be assembled from the Notice of Proposed Insurance blocks set forth in Section 2249.13 in the same manner as the standard policies and certificates. The Notice of Proposed Insurance block sequences are listed following “NOPI:” in Section 2249.9. (Notices of Proposed insurance are the same for individual policies and group certificates.) The wording “policy or certificate” may be changed to refer only to “policy” or only to “certificate” if desired.

(i) Form Numbers and Identification Numbers. All forms drafted in accordance with this Article shall be identified by a form number in the lower left corner of the front of the document. Such forms shall indicate the Identification Number of the coverage provided in the lower right corner of the page upon which the form number appears, except for those forms which do not reflect a specific coverage or coverage.

(j) Group Master Policies. Group master policies may be brought into conformity with this Article by adding an amendatory endorsement to the effect of “Policy ___________ is hereby amended to provide coverage exactly as described in Certificate(s) __________ attached.”

(k) Partial Payoff. Forms covering only a portion of a loan which exceeds the insurer's maximum benefit levels must include the paragraph captioned “Partial Payoff” as set out below. The paragraph referring to life insurance may be eliminated if only disability insurance is provided, and the paragraph referring to disability insurance may be eliminated if only life insurance is provided. The “Partial Payoff” paragraph must be the final paragraph in the section titled “WHAT WE WON'T PAY.”

Partial Payoff

If the Original Amount of Life Insurance shown in the Schedule is less than the original amount of your debt, the life insurance benefit may not completely pay off your debt. See the paragraph titled “Amount of Life Insurance” to calculate the partial payoff.

If the Monthly Total Disability Benefit shown in the Schedule is less than your Monthly Loan Payment, you will have to pay the creditor the difference each month to keep your loan from being delinquent.

In addition, the face page of the policy or certificate must have a prominent overprint or provision reading: “Warning: This insurance may not be enough to completely pay off your loan.” Also, “We will not pay more than the Maximum Amount of Life Insurance in the Schedule,” shall be added to the end of the Amount of Life Insurance provision, as appropriate.

The “Partial Payoff” provision may not be used with Identification Numbers 6 through 10.

Forms which use any other system for partial coverage must be submitted for approval pursuant to Section 2249.2 of this Article.

(l) Credit Union Open End and Credit Card Coverages.

(1) Forms providing life insurance coverage on Credit Union Open End loans, as defined in §2248.31, may use Policy and Certificate Block PC 3 in lieu of Block PE 3.

(2) Forms providing disability coverage on “credit cards” subject to Ins. C. §779.30(f) shall use Policy and Certificate Block PJ 1 in lieu of Block PJ 2. Notices of Proposed Insurance, if any, shall use Notice of Proposed Insurance Block C-1 in lieu of Block C-3.

(m) “Critical period” disability coverage may be provided by substituting Text Block PF 4 for Text Block PF 1 from Section 2249.12 and adding Schedule Block SC 37 from Section 2249.10. Where such coverage is provided, a Partial Payoff paragraph and warning overprint shall be used pursuant to subsection (k). The Partial Payoff disability paragraph shall be replaced with:

“If the remaining term of your loan exceeds the Maximum Disability Benefit Period in the Schedule when you become disabled, you will have to resume payments to the Creditor after the Maximum Disability Benefit Period ends.”

If a Notice of Proposed Insurance is used, Notice of Proposed Insurance Block C-4 shall be substituted for Notice of Proposed Insurance Block C-1.

(n) Joint disability coverage may be provided for as follows:

(1) Add the sentence, “If you are insured for joint disability, only one Monthly Total Disability Benefit will be paid for any month in which you are both disabled,” to the end of the appropriate standard Total Disability Insurance Benefit text block. If a Notice of Proposed Insurance is used, also insert the quoted sentence immediately before “We won't pay the claim if your disability:”, in the Notice provision commencing with, “If you are insured for total disability . . . .”

(2) Delete the sentence, “Only the Primary Borrower is eligible for disability insurance,” from the application.

(3) For single premium forms, use Schedule Block SC 38 in place of Schedule Block SC 15; for monthly premium forms, use Schedule Blocks SC 39 and SC 40 in place of Schedule Blocks SC 29 and SC 30.

(o) Standard language is not provided in these regulations for:

(1) Life insurance subject to pre-existing conditions limitations. Such coverages must be provided by non-standard forms approved by the Commissioner pursuant to §2249.2.

(2) Life and health insurance guarantee association summary documents required by Insurance Code §1067.17. Such documents are exempt from filing under these regulations.

(3) Notices of information practices which may be required by Ins. C. §791.04. Such notices are exempt from filing under these regulations.

(p) Consumer Contact Notices. Either the reference to the Creditor Beneficiary or the reference to the insurer may be omitted from the Department of Insurance consumer contact notice in Policy and Certificate Blocks PA 1 through PA 4 and in Notice of Proposed Insurance Blocks D-1 and D-2. A Creditor Beneficiary shall be referred to in the consumer contact notice if it is a licensed insurance agent that delivers individual policies or certificates to debtors. If a Creditor Beneficiary is referred to in the consumer contact notice, then its address and telephone number must appear in the Creditor Beneficiary Schedule Block or be included in the consumer contact notice.

NOTE

Authority cited: Sections 779.21 and 779.27, Insurance Code. Reference: Sections 510, 779.4 779.10, 779.12a, 779.14, 779.18, 779.27-779.31, 10113, 10113.5, 10203.5, 10203.55, 10207, 10208, 10209, 10270.505, 10270.94 and 10291, Insurance Code; and Sections 18290-18292, 22314, 22315 and 22455, Financial Code.

HISTORY

1. New subsection (1) filed 12-29-78; designated effective 4-1-79 (Register 79, No. 2).

2. Amendment of subsections (a),(d),(h),(k) and (1), and new subsection (m) filed 7-25-83; effective thirtieth day thereafter (Register 83, No. 31).

3. Amendment of subsections (d) and (e) filed 5-23-85; effective thirtieth day thereafter (Register 85, No. 21).

4. Editorial correction of subsection (d) (Register 2006, No. 32).

5. Editorial correction of subsection (c) (Register 2006, No. 40).

6. Amendment of section and repealer and new Note filed 10-2-2006; operative 11-1-2006 (Register 2006, No. 40).

§2249.7. Identification Number Chart.

Note • History

Embedded Graphic 10.0176

NOTE

Authority cited: Section 779.21 and 779.27, Insurance Code. Reference: Section 779.4, Insurance Code; and Sections 18290-18292, 22314, 22315 and 22455, Financial Code.

HISTORY

1. Amendment filed 7-25-83; effective thirtieth day thereafter (Register 83, No. 31).

2. Amendment filed 5-23-85; effective thirtieth day thereafter (Register 85, No. 21).

3. Amendment of section and repealer and new Note filed 10-2-2006; operative 11-1-2006 (Register 2006, No. 40).

§2249.8. List of Block Numbers for Each Identification Number--Individual Policies.

Note • History

#6--MH 1; SC 1 though SC 7; SC 9; SC 10; SC 12; SC 14 through SC 16; SC 20 through SC 22; AP 5; PA 1; PB 1; PC 1; PD 1; PE 2; PF 1; PG 1; PH 1; PI 1; PJ 1; PK 2; PL 1; PM 1; PN 1; PO 1; PP 1; PQ 1.

#7--MH 1; SC 1 through SC 7; SC 9; SC 10; SC 14; SC 18; SC 20 through SC 22; AP 6; PA 1; PB 1; PC 1; PD 1; PE 2; PH 1; PI 1; PK 2; PL 1; PN 1; PO 1; PQ 1.

#8--MH 1; SC 1; SC 3 through SC 7; SC 9; SC 10; SC 12; SC 19; SC 15 through SC 18; SC 20 through SC 22; AP 7; PA 1; PB 1; PC 1; PE 2; PF 1; PG 1; PH 2; PI 3; PJ 1; PK 2; PL 1; PM 1; PN 1; PO 1; PP 1; PQ 1.

#9--MH 1; SC 1; SC 3 through SC 7; SC 9; SC 10; SC 19 through SC 22, AP 8; PA 1; PB 1; PC 1; PE 2; PH 2; PI 3; PK 2; PL 1; PN 1; PO 1; PQ 1.

#10--MH 1; SC 1; SC 3 through SC 7; SC 9; SC 12; SC 15; SC 20 through SC 22; AP 3; PA 1; PB 1; PC 2; PE 6; PF 1; PG 1; PH 2; PJ 1; PK 2; PL 1; PM 1; PO 1; PP 1; PQ 1.

#11--MH 1; SC 1 through SC 18; AP 1; PA 1; PB 1; PC 1; PD 1; PE 4; PF 1; PG 1; PH 1; PI 1; PJ 1; PK 1; PL 1; PM 1; PN 1; PO 1; PP 1; PQ 1.

#12--MH 1; SC 1 through SC 11; SC 14; SC 18; AP 2; PA 1; PB 1; PC 1; PD 1; PE 4; PH 1; PI 1; PK 1; PL 1; PN 1; PO 1; PQ 1.

#13--MH 1; SC 1; SC 3 through SC 13; SC 15; SC 19; SC 17; SC 18; AP 3; PA 1; PB 1; PC 1; PE 4; PF 1; PG 1; PH 2; PI 3; PJ 1; PK 1; PL 1; PM 1; PN 1; PO 1; PP 1; PQ 1.

#14--MH 1; SC 1; SC 3 through SC 12; SC 18; SC 19; AP 4; PA 1; PB 1; PC 1; PE 4; PH 2; PI 3; PK 1; PL 1; PN 1; PO 1; PQ 1.

#15--MH 1; SC 1, SC 3 through SC 6; SC 8; SC 9; SC 11; SC 12; SC 13; SC 15; SC 17; AP 3; PA 1; PB 1; PC 2; PF 1; PG 1; PH 2; PJ 1; PK 1; PL 1; PM 1; PO 1; PP 1; PQ 1.

#16--MH 1; SC 1 through SC 9; SC 11; SC 18; SC 23; SC 24; AP 2; PA 1; PB 1; PC 1; PD 1; PE 5; PH 1; PI 1; PK 3; PL 1; PN 1; PO 1; PQ 1.

#17--MH 1; SC 1; SC 3 through SC 9; SC 11; SC 18; SC 23; SC 25; AP 4; PA 1; PB 1; PC 1; PE 5; PH 2; PI 3; PK 3; PL 1; PN 1; PO 1; PQ 1.

#18--MH 1; SC 1; SC 2 through SC 7; SC 9; SC 17; SC 18; SC 29; SC 30; AP 10; PA 4; PB 1; PC 1; PD 1; PE 3; PF 3; PG 1; PH 1; PI 2; PJ 2; PK 5; PL 1; PM 1; PN 1; PO 1; PP 1; PQ 1.

#19--MH 1; SC 1; SC 3 through SC 7; SC 9; SC 17; SC 18; SC 33; SC 34; AP 18; PA 4; PB 1; PC 1; PE 3; PF 3; PG 1; PH 2; PI 4; PJ 2; PK 5; PL 1; PM 1; PN 1; PO 1; PP 1; PQ 1.

#20--MH 1; SC 1; SC 3 through SC 6; SC 9; SC 15; SC 17; SC 36; AP 19; PA 4; PB 1; PC 2; PF 3; PG 1; PH 2; PJ 2; PK 5; PL 1; PM 1; PO 1; PP 1; PQ 1.

#21--MH 1; SC 1 through SC 7; SC 9; SC 18; SC 31; SC 32; AP 11; PA 4; PB 1; PC 1; PD 1; PE 3; PH 1; PI 2; PK 5; PL 1; PN 1; PO 1; PQ 1.

#22--MH 1; SC 1; SC 3 through SC 7; SC 9; SC 18; SC 35; AP 12; PA 4; PB 1; PC 1; PE 3; PH 2; PI 4; PK 5; PL 1; PN 1; PO 1; PQ 1.

#25--MH 1; SC 1 through SC 13; SC 17; SC 18; SC 29; SC 30; SC 16; AP 21; PA 4; PB 1; PC 1; PD 1; PE 4; PF 1; PG 1; PH 1; PI 1; PJ 1; PK 7; PL 1; PM 1; PN 1; PO 1; PP 1; PQ 1.

#26--MH 1; SC 1 through SC 11; SC 18; SC 31; SC 32; SC 16; AP 22; PA 4; PB 1; PC 1; PD 1; PE 4; PH 1; PI 1; PK 7; PL 1; PN 1; PO 1; PQ 1.

#27--MH 1; SC 1; SC 3 through SC 13; SC 17; SC 18; SC 33; SC 34; SC 16; AP 23; PA 4; PB 1; PC 1; PE 4; PF 1; PG 1; PH 2; PI 3; PJ 1; PK 7; PL 1; PM 1; PN 1; PO 1; PP 1; PQ 1.

#28--MH 1; SC 1; SC 3 through SC 11; SC 18; SC 35; SC 16; AP 24; PA 4; PB 1; PC 1; PE 4; PH 2; PI 3; PK 7; PL 1; PN 1; PO 1; PQ 1.

#29--MH 1; SC 1; SC 3 through SC 6; SC 8; SC 9; SC 11; SC 12; S 13; SC 17; SC 36; SC 16; AP 25; PA 4; PB 1; PC 2; PF 1; PG 1; PH 2; PJ 1; PK 7; PL 1; PM 1; PO 1; PP 1; PQ 1.

#30--MH 1; SC 1 through SC 9; SC 1 1; SC 13; SC 15; SC 24; SC 16; SC 23; AP 17; PA 1; PB 1; PC 1; PD 1; PE 5; PF 1; PG 1; PH 3; PI 1; PJ 1; PK 8; PL 3; PM 1; PN 1; PO 1; PP 1; PQ 1.

#31--MH 1; SC 1 through SC 9; SC 11; SC 24; AP 13; PA 1; PB 1; PC 1; PD 1; PE 5; PH 3; PI 1; PK 3; PL 3; PN 1; PO 1; PQ 1.

#32--MH 1; SC 1; SC 3 through SC 13; SC 19; SC 15; SC 16; AP 14; PA 1; PB 1; PC 1; PE 5; PF 1; PG 1; PH 4; PI 3; PJ 1; PK 8; PL 3; PM 1; PN 1; PO 1; PP 1; PQ 1.

#33--MH 1; SC 1; SC 3 through SC 9; SC 11; SC 23; SC 25; AP 15; PA 1; PB 1; PC 1; PE 5; PH 4; PI 3; PK 3; PL 3; PN 1; PO 1; PQ 1.

#34--MH 1; SC 1; SC 3 through SC 9; SC 11 through SC 13; SC 15; AP 16; PA 1; PB 1; PC 2; PF 1; PG 1; PH 4; PJ 1; PK 8; PL 3; PM 1; PO 1; PP 1; PQ 1.

NOTE

Authority cited: Sections 779.21 and 779.27, Insurance Code. Reference: Section 779.4, Insurance Code; and Sections 18290-18292, 22314, 22315 and 22455, Financial Code.

HISTORY

1. Amendment of paragraphs #18, #19, and #20 filed 12-29-78; designated effective 4-1-79 and for technical reasons, printed in Register 78, No. 52.

2. Amendment of paragraphs #10, #13, #16, #17, #22, and #24 through #34, filed 7-25-83; effective thirtieth day thereafter (Register 83, No. 31).

3. Amendment of paragraphs #6, #8, #10, #18-#20, #25-#29 and repealer of paragraphs #23 and #24 filed 5-23-85; effective thirtieth day thereafter (Register 85, No. 21).

4. Amendment of section and repealer and new Note filed 10-2-2006; operative 11-1-2006 (Register 2006, No. 40).

§2249.9. List of Block Numbers for Each Identification Number--Group Certificates.

Note • History

#6--MH 1; SC 1; SC 2; SC 4 through SC 7; SC 9; SC 10; SC 12; SC 14 through SC 16; SC 20 through SC 22; SC 26; SC 27; AP 5; PA 3; PB 1; PC 1; PD 1; PE 2; PF 1; PG 1; PH 1; PI 1; PJ 1; PK 2; PL 2; PM 1; PN 1; PP 1. NOPI: A-1; B-3; C-1; D-2.

#7--MH 1; SC 1; SC 2; SC 4 through SC 7; SC 9; SC 10; SC 14; SC 18; SC 20 through SC 22; SC 26; SC 27; AP 6; PA 3; PB 1; PC 1; PD 1; PE 2; PH 1; PI 1; PK 2; PL 2; PN 1; NOPI: A-2; B-3; D-2.

#8--MH 1; SC 1; SC 4 through SC 7; SC 9; SC 10; SC 12; SC 19; SC 15 through SC 18; SC 20 through SC 22; SC 26; SC 27; AP 7; PA 3; PB 1; PC 1; PE 2; PF 1; PG 1; PH 2; PI 3; PJ 1; PK 2; PL 2; PM 1; PN 1; PP 1. NOPI: A-1; B-4; C-1; D-2.

#9--MH 1; SC 1; SC 4 through SC 7; SC 9; SC 10; SC 19 through SC 22; SC 26; SC 27; AP 8; PA 3; PB 1; PC 1; PE 2; PH 2; PI 3; PK 2; PL 2; PN 1; NOPI: A-2; B-4; D-2.

#10--MH 1; SC 1; SC 4 through SC 7; SC 9; SC 12; SC 15; SC 20 through SC 22; SC 26; SC 27; AP 3; PA 3; PB 1; PC 2; PE 6; PF 1; PG 1; PH 2; PJ 1; PK 2; PL 2; PM 1; PP 1. NOPI: A-3; C-1; D-2.

#11--MH 1; SC 1; SC 2; SC 4 through SC 18; SC 26; SC 27; AP 1; PA 3; PB 1; PC 1; PD 1; PE 4; PF 1; PG 1; PH 1; PI 1; PJ 1; PK 1; PL 2; PM 1; PN 1; PP 1. NOPI: A-1; B-5; C-1; D-1.

#12--MH 1; SC 1; SC 2; SC 4 through SC 11; SC 14; SC 18; SC 26; SC 27; AP 2; PA 3; PB 1; PC 1; PD 1; PE 4; PH 1; PI 1; PK 1; PL 2; PN 1; NOPI: A-2; B-5; D-1.

#13--MH 1; SC 1; SC 4 through SC 13; SC 15; SC 19; SC 17; SC 18; SC 26; SC 27; AP 3; PA 3; PB 1; PC 1; PE 4; PF 1; PG 1; PH 2; PI 3; PJ 1; PK 1; PL 2; PM 1; PN 1; PP 1. NOPI: A-1; B-6; C-1; D-1.

#14--MH 1; SC 1; SC 4 through SC 12; SC 18; SC 19; SC 26; SC 27; AP 4; PA 3; PB 1; PC 1; PE 4; PH 2; PI 3; PK 1; PL 2; PN 1; NOPI: A-2; B-6; D-1.

#15--MH 1; SC 1; SC 4 through SC 6; SC 8; SC 9; SC 11; SC 12; SC 13; SC 15; SC 17; SC 26; SC 27; AP 3; PA 3; PB 1; PC 2; PF 1; PG 1; PH 2; PJ 1; PK 1; PL 2; PM 1; PP 1. NOPI: A-3; C-1; D-1.

#16--MH 1; SC 1; SC 2; SC 4 through SC 9; SC 11; SC 18; SC 23; SC 24; SC 26; SC 27; AP 2; PA 3; PB 1; PC 1; PD 1; PE 5; PH 1; PI 1; PK 3; PL 2; PN 1; NOPI: A-2; B-7; D-1.

#17--MH 1; SC 1; SC 4 through SC 9; SC 11; SC 18; SC 23; SC 25 through SC 27; AP 4; PA 3; PB 1; PC 1; PE 5; PH 2; PI 3; PK 3; PL 2; PN 1; NOPI: A-2; B-8; D-1.

#18--MH 1; SC 1; SC 2; SC 4 through SC 7; SC 9; SC 17; SC 18; SC 26; SC 27; SC 29; SC 30; AP 10; PA 2; PB 1; PC 1; PD 1; PE 3; PF 3; PG 1; PH 1; PI 2; PJ 2; PK 4; PL 2; PM 1; PN 1; PP 1. NOPI: A-1; B-9; C-3; D-3.

#19--H 1; SC 1; SC 4 through SC 7; SC 9; SC 17; SC 18; SC 26; SC 27; SC 33; SC 34; AP 18; PA 2; PB 1; PC 1; PE 3; PF 3; PG 1; PH 2; PI 4; PJ 2; PK 4; PL 2; PM 1; PN 1; PP 1. NOPI: A-1; B-10; C-3; D-3.

#20--MH 1; SC 1; SC 4 through SC 6; SC 9; SC 15; SC 17; SC 26; SC 27; SC 36; AP 19; PA 2; PB 1; PC 2; PF 3; PG 1; PH 2; PJ 2; PK 4; PL 2; PM 1; PP 1. NOPI: A-3; C-3; D-3.

#21--MH 1; SC 1; SC 2; SC 4 through SC 7; SC 9; SC 18; SC 26; SC 27; SC 31; SC 32; AP 11; PA 2; PB 1; PC 1; PD 1; PE 3; PH 1; PI 2; PK 4; PL 2; PN 1; NOPI: A-2; B-9; D-3.

#22--MH 1; SC 1; SC 4 through SC 7; SC 9; SC 18; SC 26; SC 27; SC 35; AP 12; PA 2; PB 1; PC 1; PE 3; PH 2; PI 4; PK 4; PL 2; PN 1; NOPI: A-2; B-10; D-3.

#25--MH 1; SC 1; SC 2; SC 4 through SC 13; SC 17; SC 18; SC 26; SC 27, SC 29; SC 30; SC 16; AP 21; PA 2; PB 1; PC 1; PD 1; PE 4; PF 1; PG 1; PH 1; PI 1; PJ 1; PK 6; PL 2; PM 1; PN 1; PP 1. NOPI: A-1; B-5; C-1; D-3.

#26--MH 1; SC 1; SC 2; SC 4 through SC 11; SC 18; SC 26; SC 27; SC 31; SC 32; SC 16; AP 22; PA 2; PB 1; PC 1; PD 1; PE 4; PH 1; PI 1; PK 6; PL 2; PN 1; NOPI A-2; B-5; D-3.

#27--MH 1; SC 1; SC 4 through SC 13; SC 17; SC 18; SC 26; SC 27; SC 33; SC 34; SC 16; AP 23; PA 2; PB 1; PC 1; PE 4; PF 1; PG 1; PH 2; PI 3; PJ 1; PK 6; PL 2; PM 1; PN 1; PP 1. NOPI: A-1; B-6; C-1; D-3.

#28--MH 1; SC 1; SC 4 through SC 11, SC 18; SC 26; SC 27; SC 35; SC 16; AP 24; PA 2; PB 1; PC 1; PE 4; PH 2; PI 3; PK 6; PL 2; PN 1; NOPI: A 2; B-6; D-3.

# 29--MH 1; SC 1; SC 4 through SC 6; SC 8; SC 9; SC 11 through SC 13; SC 17; SC 26; SC 27; SC 36; SC 16; AP 25; PA 2; PB 1; PC 2; PF 1; PG 1; PH 2; PJ 1; PK 6; PL 2; PM 1; PP 1. NOPI: A-3; C-1; D-3.

#30--MH 1; SC 1; SC 2; SC 4 through SC 9; SC 11; SC 13; SC 15; SC 24; SC 16; SC 23; SC 26; SC 27; AP 17; PA 3; PB 1; PC 1; PD 1; PE 5; PF 1; PG 1; PH 3; PI 1; PJ 1; PK 8; PL 4; PM 1; PN 1; PP 1. NOPI: A-1; B-7; C-1; D-1.

#31--MH 1; SC 1; SC 2; SC 4 through SC 9; SC 11; SC 24; SC 26; SC 27; AP 13; PA 3; PB 1; PC 1; PD 1; PE 5; PH 3; PI 1; PK 3; PL 4; PN 1; NOPI: A-2; B-7; D-1.

#32--MH 1; SC 1; SC 4 through SC 13; SC 19; SC 15; SC 16; SC 26; SC 27; AP 14; PA 3; PB 1, PC 1; PE 5; PF 1; PG 1; PH 4; PI 3; PJ 1; PK 8; PL 4; PM 1; PN 1; PP 1. NOPI: A-1; B-8; C-1; D-1.

#33--MH 1; SC 1; SC 4 through SC 9; SC 11; SC 23; SC 25; SC 26; SC 27; AP 15; PA 3; PB 1; PC 1; PE 5; PH 4; PI 3; PK 3; PL 4; PN 1; NOPI: A-2; B-8; D-1.

#34--MH 1; SC 1; SC 4 through SC 9; SC 11 through SC 13; SC 15; SC 26; SC 27; AP 16; PA 3; PB 1; PC 2; PF 1; PG 1; PH 4; PJ 1; PK 8; PL 4; PM 1; PP 1. NOPI: A-3; C-1; D-1.

NOTE

Authority cited: Sections 779.21 and 779.27, Insurance Code. Reference: Section 779.4, Insurance Code; and Sections 18290-18292, 22314, 22315 and 22455, Financial Code.

HISTORY

1. Amendment of paragraphs #18, #19, and #20 filed 12-29-78; designated effective 4-1-79 and for technical reasons printed in Register 78, No. 52.

2. Amendment of paragraphs #1 through #34 filed 7-25-83; effective thirtieth day thereafter (Register 83, No. 31).

3. Amendment of paragraphs #6, #8, #10, #21, #22 and repealer of paragraphs #23 and #24 filed 5-23-85; effective thirtieth day thereafter (Register 85, No. 21).

4. Amendment of section and repealer and new Note filed 10-2-2006; operative 11-1-2006 (Register 2006, No. 40).

5. Amendment of paragraph #11 filed 5-27-2008; operative 6-26-2008 (Register 2008, No. 22).

§2249.10. Schedule Blocks.

Note • History

MH1

Insurers Name and Complete Address

Called We or Us

SCHEDULE

SC1 Primary Borrower, called you, and Address

SC2 Co-Borrower, also called you

SC3 Policy Number

SC4 Source Code

SC5 Creditor Beneficiary and Insurance Agent's License No.

SC6 Class of Business

SC7 Secondary Beneficiary

SC8 Term of Insurance

SC9 Effective Date

SC10 Original Amount of Life Insurance

SC11 Scheduled Expiration Date

SC12 Monthly Loan Payment

SC13 Monthly Total Disability Benefit

SC14 Decreasing Life: Single ( ) joint ( ) Premium:

SC15 Disability: 30-day Elimination Period Premium:

SC16 Total Premium:SC17 Maximum Monthly Disability Benefit:

SC18 Maximum Amount of Life Insurance:

SC19 Decreasing Single Life Premium:

SC20 Number of Monthly Installments

SC21 First Installment Due Date

SC22 Final Installment Due Date

SC23 Amount of Level Life Insurance:

SC24 Level Life: Single ( ) joint ( ) Premium:

SC25 Level Life Single Premium;

SC26 Group Policy Number

SC27 Certificate Number

SC28 Date of Issue of this Certificate

SC29 Credit Insurance Applied for: ____ Single Life____Joint Life ____30 Day Elimination Disability

SC30 Monthly Premium per $100 of insured debt:

Single Life $____ Joint Life $____ Disability $____

SC31 Credit Insurance Applied for:____Single Life

____Joint Life

SC32 Monthly Premium per $100 of insured debt:

Single Life $____Joint Life $____

SC33 Credit Insurance Applied for:____Single Life____30 Day

Elimination Disability

SC34 Monthly Premium per $100 of insured debt:

Single Life $____Disability $____

SC35 Monthly Life Insurance Premium per $100 of insured debt:

$____

SC36 Monthly Disability Premium per $100 of insured debt $____SC37 Maximum Disability Benefit Period

SC 38 Disability, 30-day Elimination Period: Single ( ) Joint ( )

Premium:

SC 39 Credit Insurance Applied for: Life: Single ( ) Joint ( ); 30 Day

Elimination Disability: Single ( ) Joint ( )

SC 40 Monthly Premium per $100 of insured debt: Life: Single

$____ , Joint $____ ; Disability: Single $____ , Joint $____

NOTE

Authority cited: Sections 779.21 and 779.27, Insurance Code. Reference: Sections 779.4, 779.6 and 1758.99, Insurance Code.

HISTORY

1. Amendment filed 7-25-83; effective thirtieth day thereafter (Register 83, No. 31).

2. Amendment of section and Note filed 10-2-2006; operative 11-1-2006 (Register 2006, No. 40).

§2249.11. Application Blocks.

Note • History

AP 1

APPLICATION OF BORROWER

You are applying for the credit insurance marked above. Your signature below means that you agree that:

1. You are not eligible for insurance if you have reached your 65th birthday.

2. You are eligible for disability insurance only if you are working for wages or profit 30 hours a week or more on the Effective Date.

3. Only the Primary Borrower is eligible for disability insurance.

DISABILITY INSURANCE MAY NOT COVER CONDITIONS FOR WHICH YOU HAVE SEEN A DOCTOR OR A

CHIROPRACTOR IN THE LAST SIX MONTHS.

(Refer to “Total Disabilities Not Covered” in your certificate

for details.)

Date Primary Borrower Age

Co-Borrower Age

AP 2

APPLICATION OF BORROWER

You are applying for credit insurance marked above. Your signature below means that you agree that you are not eligible for insurance if you have reached your 65th birthday.

Date Primary Borrower Age

Co-Borrower Age

AP 3

APPLICATION OF BORROWER

You are applying for the credit insurance marked above. Your signature below means that you agree that:

1. You are not eligible for insurance if you have reached your 65th birthday.

2. You are eligible for disability insurance only if you are working for wages or profit 30 hours a week or more on the Effective Date.

3. Only the Primary Borrower is eligible for life or disability insurance.

DISABILITY INSURANCE MAY NOT COVER CONDITIONS FOR WHICH YOU HAVE SEEN A DOCTOR OR A

CHIROPRACTOR IN THE LAST SIX MONTHS.

(Refer to Total Disabilities Not Covered” in your certificate

for Details)

Date Primary Borrower Age

AP 4

APPLICATION OF BORROWER

You are applying for the credit insurance marked above. Your signature below means that:

1. You are not eligible for insurance if you have reached your 65th birthday.

2. Your co-borrower is not eligible for life or disability insurance.

Date Primary Borrower Age

AP 5

APPLICATION FOR CREDIT INSURANCE

You are applying for the insurance marked above. Your signature below means that you agree that:

1. You are not eligible for insurance if you have reached your 65th birthday.

2. You do not have to buy any life insurance to be eligible for disability coverage, or vice versa.

3. You are eligible for disability coverage only if you are working for wages or profit, for 30 hours a week or more, on the Effective Date.

4. Only the Primary Borrower is eligible for disability insurance.

DISABILITY INSURANCE MAY NOT COVER CONDITIONS FOR WHICH YOU HAVE SEEN A DOCTOR OR A

CHIROPRACTOR IN THE LAST SIX MONTHS.

(Refer to “Total Disabilities Not Covered” in your certificate

for details.)

Date Primary Borrower Age

Co-Borrower Age

THIS INSURANCE MAY BE ISSUED ONLY TO COVER

BORROWERS WHO HAVE A LOAN UNDER THE INDUSTRIAL LOAN LAW OR THE CALIFORNIA FINANCE LENDERS LAW.

AP 6

APPLICATION OF BORROWER

You are applying for the credit insurance marked above. Your signature below means that you agree that you are not eligible for insurance if you have reached your 65th birthday.

Date Primary Borrower Age

Co-Borrower Age

THIS INSURANCE MAY BE ISSUED ONLY TO COVER BORROWERS WHO HAVE A LOAN UNDER THE INDUSTRIAL LOAN LAW OR THE CALIFORNIA FINANCE LENDERS LAW.

AP 7

APPLICATION FOR CREDIT INSURANCE

You are applying for the insurance marked above. Your signature below means that you agree that:

1. You are not eligible for insurance if you have reached your 65th birthday.

2. You do not have to buy any life insurance to be eligible for disability coverage, or vice versa.

3. You are eligible for disability coverage only if you are working for wages or profit, for 30 hours a week or more, on the Effective Date.

4. Only the Primary Borrower is eligible for life or disability insurance.

DISABILITY INSURANCE MAY NOT COVER CONDITIONS FOR WHICH YOU HAVE SEEN A DOCTOR OR A

CHIROPRACTOR IN THE LAST SIX MONTHS.

(Refer to “Total Disabilities Not Covered” in your certificate

for details.)

Date Primary Borrower Age

THIS INSURANCE MAY BE ISSUED ONLY TO COVER BORROWERS WHO HAVE A LOAN UNDER THE INDUSTRIAL LOAN LAW OR THE CALIFORNIA FINANCE LENDERS LAW.

AP 8

APPLICATION FOR CREDIT INSURANCE

You are applying for the insurance marked above. Your signature below means that you agree that you are not eligible for insurance if you have reached your 65th birthday.

Date Primary Borrower Age

THIS INSURANCE MAY BE ISSUED ONLY TO COVER

BORROWERS WHO HAVE A LOAN UNDER THE INDUSTRIAL LOAN LAW OR THE CALIFORNIA FINANCE LENDERS LAW.

AP 10

APPLICATION OF BORROWER

You are applying for the credit insurance marked above and authorizing the Creditor to add the charges for insurance to your loan each month as they become due. You ha e the right to stop this authorization Your signature below means that you agree that:

1. You are eligible for insurance as to each advance only if you are working for wages or profit 30 hours a week or more on the date you sign for the advance. If you are not, that particular advance will not be insured until you return to work.

You are insured only for advances actually received by you. You are not insured for any unused credit which may be available to you.

2. Each month the insurance charge is calculated by multiplying the insured outstanding principal balance of your loan on the billing date by the rate shown in the Schedule.

We can change the rate later on. But if we do, we will let you know in advance. The new rate will apply only to charges for insurance made after the date of the rate change.

3. Only the Primary Borrower is eligible for disability insurance.

4. Neither you nor your co-borrower are eligible for insurance after you have reached your 65th birthday, and insurance will also stop when you reach that age.

DISABILITY INSURANCE MAY NOT COVER CONDITIONS FOR WHICH YOU HAVE SEEN A DOCTOR OR A CHIROPRACTOR IN THE LAST SIX MONTHS. (Refer to “Total Disabilities Not Covered” in your certificate for details.)

Date Primary Borrower Date of Birth

Co-Borrower Date of Birth

AP 11

APPLICATION OF BORROWER

You are applying for the credit insurance marked above and authorizing the Creditor to add the charges for insurance to your loan each month as they become due. You have the right to stop this authorization. Your signature below means that you agree that:

1. You are insured only for advances actually received by you. You are not insured for any unused credit which may be available to you.

2. Each month the insurance charge is calculated by multiplying the insured outstanding principal balance of your loan on the billing date by the rate shown in the Schedule.

We can change the rate later on. But if we do, we will let you know in advance. The new rate will apply only to charges made for insurance after the date of the rate change.

3. Neither you nor your co-borrower are eligible for insurance after you have reached your 65th birthday, and the insurance will also stop on the last day of the month during which you reach that age.

Date Primary Borrower Date of Birth

Co-Borrower Date of Birth

AP 12

APPLICATION OF BORROWER

1. You are insured for advances actually received by you. You are not insured for any unused credit which may be available to you.

2. Each month the insurance charge is calculated by multiplying the insured outstanding principal balance of your loan on the billing date by the rate shown in the Schedule.

We can change the rate later on. But if we do, we will let you know in advance. The new rate will apply only to charges made for insurance after the date of the rate change.

3. You are not eligible for insurance after you have reached your 65th birthday, and the insurance will also stop on the last day of the month during which you reach that age.

Date Primary Borrower Date of Birth

AP 13

APPLICATION OF BORROWER

You are applying for the credit insurance marked above. Your signature below means that you agree that the maximum amount of life insurance is $_____ for ages $_____for ages and $_____for ages_____

Date Primary Borrower Age

Co-Borrower Age

AP 14

APPLICATION OF BORROWER

You are applying for the credit insurance marked above. Your signature below means that you agree that:

1. The maximum amount of life insurance is $__________for ages__________ $__________ for ages__________and $_________for ages__________.

2. The maximum monthly total disability benefit is $__________for ages,

$__________for ages_________and

$__________for ages.

3. Only the Primary Borrower is eligible for disability insurance.

4. You are eligible for disability insurance only if you are working for wages or profit 30 hours a week or more.

DISABILITY INSURANCE MAY NOT COVER CONDITIONS FOR WHICH YOU HAVE SEEN A DOCTOR OR A

CHIROPRACTOR IN THE LAST SIX MONTHS.

(Refer to “Total Disabilities Not Covered” in your certificate for details.)

Date Primary Borrower Age

AP 15

APPLICATION OF BORROWER

You are applying for the credit insurance marked above. Your signature below means that you agree that the maximum amount of life insurance is $__________ for ages__________,$__________for ages__________and $__________for ages_________

Date Primary Borrower Age

AP 16

APPLICATION OF BORROWER

You are applying for the credit insurance marked above. Your signature below means that you agree that:

1. The maximum monthly total disability benefit is $__________ for ages__________, $_________ for ages__________ and $_________ for ages__________.

2. Only the Primary Borrower is eligible for disability insurance.

3. You are eligible for disability insurance only if you are working for wages or profit 30 hours a week or more.

DISABILITY INSURANCE MAY NOT COVER CONDITIONS FOR WHICH YOU HAVE SEEN A DOCTOR OR A

CHIROPRACTOR IN THE LAST SIX MONTHS.

(Refer to “Total Disabilities Not Covered” in your certificate

for details.)

Date Primary Borrower Age

AP 17

APPLICATION OF BORROWER

You are applying for the credit insurance marked above. Your signature below means that you agree that:

1. The maximum amount of life insurance is $__________for ages__________, $__________ for ages__________ and $__________ for ages__________.

2. The maximum monthly total disability benefit is $__________for ages__________$__________for ages__________, and $__________ for ages__________.

3. Only the Primary Borrower is eligible for disability insurance.

4. You are eligible for disability insurance only if you are working for wages or profit 30 hours a week or more.

DISABILITY INSURANCE MAY NOT COVER CONDITIONS FOR WHICH YOU HAVE SEEN A DOCTOR OR A

CHIROPRACTOR IN THE LAST SIX MONTHS.

(Refer to “Total Disabilities Not Covered” in your certificate

for details.)

Date Primary Borrower Age

Co-Borrower Age

AP 18

APPLICATION OF BORROWER

You are insured only for advances actually received by you. You are not insured for any unused credit which may be available to you.

2. Each month the insurance charge is calculated by multiplying the insured outstanding principal balance of your loan on the billing date by the rate shown in the Schedule.

We can change the rate later on. But if we do, we will let you know in advance. The new rate will apply only to charges for insurance made after the date of the rate change.

3. Only the Primary Borrower is eligible for life or disability insurance.

4. You are not eligible for insurance after you have reached your 65th birthday and insurance will also stop when you reach that age.

DISABILITY INSURANCE MAY NOT COVER CONDITIONS FOR WHICH YOU HAVE SEEN A DOCTOR OR A

CHIROPRACTOR IN THE LAST SIX MONTHS.

(Refer to “Total Disabilities Not Covered” in your certificate

for details.)

Date Primary Borrower Date of Birth

AP 19

APPLICATION OF BORROWER

You are insured only for advances actually received by you. You are not insured for any unused credit which may be available to you.

2. Each month the insurance charge is calculated by multiplying the insured outstanding principal balance of your loan on the billing date by the rate shown in the Schedule.

We can change the rate later on. But if we do, we will let you know in advance. The new rate will apply only to charges for insurance made after the date of the rate change.

3. Only the Primary Borrower is eligible for disability insurance.

4. You are not eligible for insurance after you have reached your 65th birthday and insurance will also stop when you reach that age.

DISABILITY INSURANCE MAY NOT COVER CONDITIONS FOR WHICH YOU HAVE SEEN A DOCTOR OR A

CHIROPRACTOR IN THE LAST SIX MONTHS.

(Refer to “Total Disabilities Not Covered” in your certificate

for details.)

Date Primary Borrower Date of Birth

AP 20

MEDICAL APPLICATION OF BORROWER

You are applying for the credit insurance marked above. You should understand that untruthful answers to these questions may cancel your insurance protection.

1. Date of Birth_______________ Place of Birth_________________ Height_____ft._____in. Weight_____lbs. Sex_____M_____F.

2. Occupation_________________ Employed By:______________

3. Are you now working 30 hours a week or more

at your occupation? Yes___ No___

4. Are you now in good health and free from the

effects of any illness or injury? Yes___ No___

5. Have you, during the last five years, had, or

been advised to have, advice or treatment for any of

the following:

a) Cancer, Tumor, Ulcer, Goiter, Thyroid,

Asthma, Tuberculosis, Leukemia Yes___ No___

b) Mental or Nervous Disorder, Paralysis or

Convulsions Yes___ No___

c) High Blood Pressure, Rheumatic Fever,

Heart Disease, Stroke Yes___ No___

d) Diabetes, Sugar/Albumin in Urine,

Prostate Disorder Yes___ No___

e) Impairment of Sight, Speech or Hearing Yes___ No___

f) Disease of Liver, Gall Bladder, Kidneys, or

Lungs Yes___ No___

g) Disease or impairment of Bones, Joints, Glands

or Muscles Yes___ No___

h) Strained Back, Slipped Disc or Sciatica. Yes___ No___

i) Drug Addiction or Alcoholism Yes___ No___

6. Are you now taking any kind of prescription

medication? Yes___ No___

7. Have you been told by a medical professional

that you have AIDS or ARC? Yes___ No___

8. Have you ever applied for Life, Accident and

Health or Hospital Insurance that was declined or

modified? Yes___ No___

Give details of any “No” answers to questions 3 and 4 and any “Yes” answers to questions 5, 6, 7 and 8. Include date, disease, injury or condition, and name and address of doctor or insurance company.

Your signature below means that you agree that:

1. You have read the questions and answers above and they are correct and complete, to the best of your knowledge and belief

2. You are not eligible for insurance if you have reached your 65th birthday.

3. You are eligible for disability insurance only if you are working for wages or profit 30 hours a week or more on the Effective Date.

4. Only the Primary Borrower is eligible for disability insurance.

5. AUTHORIZATION TO OBTAIN INFORMATION: You authorize any licensed physician, medical practitioner, hospital, clinic or other medical or medically related facility, insurance company, the Medical Information Bureau, consumer reporting agency, or employer having information available as to diagnosis, treatment and prognosis with respect to any physical or mental condition and/or treatment of you and any other non-medical information of you, to give to the ___________________ Insurance Company or its reinsurer any such information. You understand the information obtained by use of the Authorization will be used by the _______________________ Insurance Company or its reinsurer to determine eligibility for insurance and eligibility for benefits under the policy. Any information obtained will not be released by the ____________________ Insurance Company to any person or organization except to reinsuring companies, the Medical Information Bureau, or other persons or organizations performing business or legal services in connection with your application, claim, or as may be otherwise lawfully required or as you may further authorize.

You may request a copy of this Authorization.

This Authorization shall be valid for two and one half years from the date shown below. A photocopy of this Authorization is as valid as the original.

DISABILITY INSURANCE MAY NOT COVER CONDITIONS FOR WHICH YOU HAVE SEEN A DOCTOR OR A

CHIROPRACTOR IN THE LAST SIX MONTHS.

(Refer to your Notice of Proposed Insurance for details.)”

___________________ _______________________________

Date Primary Borrower or Co-Borrower

MEDICAL INFORMATION BUREAU PRE-NOTICE

(To be retained by Applicant or Proposed Insured)

Information which you provide will be treated as confidential except that ____________________ Insurance Company or its reinsurer may, however, make a brief report to the Medical Information Bureau, a non-profit membership organization of life insurance companies which operates an information exchange in behalf of its members. On request by another member insurance company to which you have applied for life or health insurance coverage, or to which a claim is submitted, the M.I.B. will supply such company with the information it may have in its files. Upon receipt of a request from you, the Bureau will arrange disclosure of any information it may have in your file. (Disclosure of mental health information may be limited.) If you question the accuracy of information in the Bureau's file, you may contact the Bureau and seek a correction in accordance with the procedures set forth in the Fair Credit Reporting Act.

The address of the Bureau's information office is Post Office Box 105, Essex Station, Boston, Massachusetts 02112, telephone number (617) 426-3660. ____________________Insurance Company may also release information in its file to other life insurance companies to whom you may apply for life or health insurance, or to whom a claim for benefits may be submitted.

AP 21

APPLICATION OF BORROWER

1. You are not eligible for insurance if you have reached your 65th birthday.

2. You are eligible for disability insurance only if you are working for wages or profit 30 hours a week or more on the Effective Date.

3. Each month the life insurance charge is calculated by multiplying the scheduled unpaid balance of your loan on the billing date by the rate shown in the Schedule. The monthly disability insurance charge is calculated by multiplying the total of the remaining scheduled monthly payments on your loan by the rate in the Schedule.

We can change the premium rates later on. But if we do, we will let you know in advance. The new rates will apply only to charges for insurance made after the date of the rate change.

4. Only the Primary Borrower is eligible for disability insurance.

DISABILITY INSURANCE MAY NOT COVER CONDITIONS FOR WHICH YOU HAVE SEEN A DOCTOR OR A

CHIROPRACTOR IN THE LAST SIX MONTHS.

(Refer to “Total Disabilities Not Covered” in your certificate

for details.)

Date Primary Borrower Age

Co-Borrower Age

AP 22

APPLICATION OF BORROWER

1. You are not eligible for insurance if you have reached your 65th birthday.

2. Each month the life insurance charge is calculated by multiplying the scheduled unpaid balance of your loan on the billing date by the rate shown in the Schedule.

We can change the premium rates later on. But if we do, we will let you know in advance. The new rates will apply only to charges for insurance made after the date of the rate change.

Date Primary Borrower Age

Co-Borrower Age

AP 23

APPLICATION OF BORROWER

1. You are not eligible for insurance if you have reached your 65th birthday.

2. You are eligible for disability insurance only if you are working for wages or profit 30 hours a week or more on the Effective Date.

We can change the premium rates later on. But if we do, we will let you know in advance. The new rates will apply only to charges for insurance made after the date of the rate change.

4. Only the Primary Borrower is eligible for disability insurance.

DISABILITY INSURANCE MAY NOT COVER CONDITIONS FOR WHICH YOU HAVE SEEN A DOCTOR OR A

CHIROPRACTOR IN THE LAST SIX MONTHS.

(Refer to “Total Disabilities Not Covered” in your certificate

for details.)

Date Primary Borrower Date of Birth

AP 24

APPLICATION OF BORROWER

1. You are not eligible for insurance if you have reached your 65th birthday.

2. Each month the life insurance charge is calculated by multiplying the scheduled unpaid balance of your loan on the billing date by the rate shown in the Schedule.

We can change the premium rates later on. But if we do, we will let you know in advance. The new rates will apply only to charges for insurance made after the date of the rate change.

Date Primary Borrower Age

AP 25

APPLICATION OF BORROWER

1. You are not eligible for insurance if you have reached your 65th birthday.

2. You are eligible for disability insurance only if you are working for wages or profit 30 hours a week or more on the Effective Date.

3. Each month the disability insurance charge is calculated by multiplying the scheduled monthly payments on your loan by the rate in the Schedule.

We can change the premium rates later on. But if we do, we will let you know in advance. The new rates will apply only to charges for insurance made after the date of the rate change.

DISABILITY INSURANCE MAY NOT COVER CONDITIONS FOR WHICH YOU HAVE SEEN A DOCTOR OR A

CHIROPRACTOR IN THE LAST SIX MONTHS.

(Refer to “Total Disabilities Not Covered” in your certificate

for details.)

Date Primary Borrower Date of Birth

NOTE

Authority cited: Section 779.21 and 779.27, Insurance Code. Reference: Sections 779.6, 779.7, 779.27, 791.06, 799.06 and 10127.5, Insurance Code; Sections 18290-18292, 22314, 22315 and 22455, Financial Code; and Section 120980(f), Health and Safety Code.

HISTORY

1. Amendment filed 7-25-83; effective thirtieth day thereafter (Register 83, No. 31).

2. Amendment filed 5-23-85; effective thirtieth day thereafter (Register 85, No. 21).

3. Amendment of section and Note filed 10-2-2006; operative 11-1-2006 (Register 2006, No. 40).

§2249.12. Policy and Certificate Blocks.

Note • History

PA 1

POLICY

(INSTRUCTION: The following paragraph must be printed in at least 14-point type.)

You can cancel this insurance at any time by telling the creditor that you want to do so. You will get back ALL the premium you paid for this insurance if you tell us or the creditor to cancel it within 30 days after you receive this certificate. If you cancel this insurance after 30 days, you will not get back all the premium that you paid.

(INSTRUCTION: The following paragraph must be printed in at least 14-point bold face type.)

If you have a question, problem or complaint about this insurance, please contact the Creditor Beneficiary at the address and phone number shown in the Schedule or us at (insert address and telephone number of insurer). If we do not resolve your question, problem or complaint to your satisfaction, you may then contact the

California Department of Insurance

300 South Spring Street

Los Angeles, CA 90013

(800) 927-4357 or (213) 897-8921

WHAT YOU GET

If we have been paid the premium shown in the Schedule you are insured for the coverage shown in the Schedule as provided in this policy.

PA 2

CERTIFICATE OF INSURANCE

(INSTRUCTION: The following paragraph must be printed in at least 14-point type.)

(INSTRUCTION: The following paragraph must be printed out in at least 14-point bold face type.)

California Department of Insurance

300 South Spring Street

Los Angeles, CA 90013

(800) 927-4357 or (213) 897-8921

WHAT YOU GET

We certify that while we are paid the premiums for the Group Policy by the Creditor as they become due each month you are insured for the coverage marked in the Schedule, subject to the terms of the Group Policy issued to the Creditor.

PA 3

CERTIFICATE OF INSURANCE

(INSTRUCTION: The following paragraph must be printed in at least 14-point type.)

(INSTRUCTION: The following paragraph must be printed in at least 14-point bold face type.)

California Department of Insurance

300 South Spring Street

Los Angeles, CA 90013

(800) 927-4357 or (213) 897-8921

WHAT YOU GET

We certify that if we have been paid the premium shown in the Schedule you are insured for the coverage shown in the Schedule, subject to the terms of the Group Policy issued to the Creditor.

PA 4

POLICY

(INSTRUCTION: The following paragraph must be printed in at least 14-point type.)

(INSTRUCTION: The following paragraph must be printed in at least 14-point bold face type.)

California Department of Insurance

300 South Spring Street

Los Angeles, CA 90013

(800) 927-4357 or (213) 897-8921

WHAT YOU GET

While we are paid the premiums shown in the Schedule as they become due each month you are insured for the coverage marked in the Schedule.

PB 1

WHO GETS PAID

Claim payments are made to the irrevocable Creditor Beneficiary named in the Schedule to pay off or reduce your debt. If claim payments are more than the balance of your debt, the difference will be paid to you or to the Secondary Beneficiary named in the Schedule, if any, or to your estate.

PC 1

WHAT WE WILL PAY

Single Life Insurance Benefit. If you die while you are insured for single life coverage we will pay the amount of insurance in force at the time of your death after we receive proof of your death.

PC 2

WHAT WE WILL PAY

PC 3

Amount of Life Insurance. The amount of life insurance is the outstanding principal balance of your loan on the date of your death plus not more than 2 months unpaid loan interest. But we won't pay more than the Maximum Amount of Life Insurance in the Schedule.

PD 1

Joint Life Insurance Benefit. If you or your co-borrower die while insured for joint life coverage we will pay the amount of insurance in force at the time you or your co-borrower dies after we receive proof of the death. Only one death benefit is payable under this policy.

PE 2

Term of Insurance. The term of insurance coverage starts on the Effective Date (as shown in the Schedule) and stops on the scheduled maturity date of your loan with the Creditor; except that the coverage may stop sooner as described below, under the caption “When Insurance Stops-Refunds.”

Amount of Life Insurance. The amount of life insurance is the total amount due on the loan (excluding unearned finance charges), outstanding on the date of the insured borrower's death.

PE 3

Amount of Life Insurance. The amount of life insurance is the total amount due on the loan (excluding unearned finance charges), outstanding on the date of the insured borrower's death. But we won't pay more than the Maximum Amount of Life Insurance in the Schedule.

PE 4

Amount of Life Insurance. The amount of life insurance is the scheduled unpaid balance due on the loan on the date of the insured borrower's death. The amount of life insurance does not include any delinquent payments or unearned interest.

PE 5

Amount of Life Insurance. The Amount of Level Life Insurance shown in the Schedule stays the same while the policy is in effect.

PE 6

PF 1

Total Disability Insurance Benefit. If you are insured for total disability insurance, we will pay a benefit if you file written proof that you became totally disabled while insured and continue to be totally disabled for more than 30 days. Payment will be calculated from the 31st day of disability. The benefit will be equal to 1/30th of your Monthly Total Disability Benefit in the Schedule for each day of disability to be compensated. Payments will stop when you are not totally disabled any more or when benefits are paid to the Scheduled Expiration Date, whichever comes first.

PF 3

Total Disability Insurance Benefit. If you are insured for total disability insurance, we will pay a benefit if you file written proof that you became totally disabled while insured and continue to be totally disabled for more than 30 days. Payment will be calculated from the 31st day of disability. Payments will stop when you are not totally disabled anymore or when your loan with the creditor is paid off, whichever comes first. The benefit for each day of disability to be compensated will be 1/30th of your required monthly loan payment or the Maximum Monthly Disability Benefit, whichever is less.

PF 4

1. when you are not totally disabled any more,

2. when benefits are paid to the Scheduled Expiration Date, or

3. when benefits are paid for the Maximum Disability Benefit Period in the Schedule, whichever comes first.

The amount of Monthly Total Disability Benefit is the same even though your total disability may be due to more than one cause. The Maximum Disability Benefit Period applies to each period of disability.

If benefit payments have stopped and you have recovered and then you become disabled again while still insured for total disability insurance, we may consider it a new period of disability. We will do so only if.

1. since the last period of disability, at least six straight months have passed during which you were not disabled for any period of time or,

2. the new disability is due to an entirely different cause than the previous disability.

PG 1

Definition of Total Disability. During the first 18 consecutive months of your total disability, total disability means that, because of sickness or injury, you cannot perform with reasonable continuity, the substantial and material duties that you must perform to work in your usual occupation in the usual or customary way. Substantial and material duties are duties that are normally required for the performance of your usual occupation and that cannot be reasonably omitted or changed.

After the first 18 consecutive months of your total disability, the definition of total disability changes. It requires that, because of sickness or injury, you cannot work with reasonable continuity in any occupation in which you might reasonably be expected to work satisfactorily in light of your age, education, training, experience, station in life, and physical and mental capacity.

You will be required to give us written proof of your continuing total disability from time to time.

PH 1

WHAT WE WON'T PAY

Misstated Age. If you stated you are under 65, but you are not, we will return your premium when we discover this and will not pay any benefits. This also applies to your co-borrower, if you applied for joint life coverage.

PH 2

WHAT WE WONT PAY

Misstated Age. If you stated you are under 65, but you are not, we will return your premium when we discover this and will not pay any benefits.

PH 3

Misstated Age. If you did not correctly state your age, we will only pay for the amount of insurance that the premium you paid would have bought if your age had been stated correctly. This also applies to your co-borrower, if you applied for joint life coverage.

PH 4

Misstated Age. If you did not correctly state your age, we will only pay for the amount of insurance that the premium you paid would have bought if your age had been stated correctly.

PI 1

Suicide. We won't pay any claim if you commit suicide within 6 months of the Effective Date shown in the Schedule, but we will refund the life insurance premium. This also applies to your co-borrower, if you applied for joint life coverage.

PI 2

Suicide. We won't pay a claim for an advance on your loan if you commit suicide within 6 months after the date of the advance, but we will return the life insurance charge on that advance. This also applies to your co-borrower, if you applied for joint life coverage. The time limit for “Suicide” runs separately as to each advance, but a later advance does not restart the time limit on prior advances.

PI 3

Suicide. We won't pay any claim if you commit suicide within 6 months of the Effective Date shown in the Schedule, but we will refund the life insurance premium.

PI 4

Suicide. We won't pay a claim for an advance on your loan if you commit suicide within 6 months after the date of the advance but we will return the life insurance charge on that advance. The time limit for “Suicide” runs separately as to each advance, but a later advance does not re-start the time limit on prior advances.

PJ 1

Total Disabilities Not Covered. We won't pay the claim or refund the premium if your disability:

1. is a result of normal pregnancy or childbirth or;

2. is a result of an intentionally self-inflicted injury or;

3. begins within 2 years after the Effective Date as a result of a pre-existing medical condition. A pre-existing medical condition is one for which you saw or were under treatment by a physician or a chiropractor both within the 6 months before and the 6 months after the Effective Date shown in the Schedule.

PJ 2

Total Disabilities Not Covered. We won't pay a claim or refund the disability insurance charge if your total disability:

1. is a result of normal pregnancy or childbirth or

2. is a result of intentionally self-inflicted injury or

3. as to each advance on your loan, begins within 6 months after the date of the advance as a result of a pre-existing medical condition. A pre-existing medical condition is one for which you saw or were under treatment by a physician or a chiropractor both within the 6 months before and the 6 months after the date of the advance.

PK 1

WHEN INSURANCE STOPS-REFUNDS

You can stop this insurance at any time. This insurance stops on the Scheduled Expiration Date, or when your loan is paid off, renewed, refinanced or otherwise stops, whichever happens first. If your insurance stops before the Scheduled Expiration Date in the Schedule, you will be given a refund or a credit on your account of unearned premium. This refund or credit will be calculated using a formula approved by the Insurance Commissioner, but refunds or credits of less than $5.00 won't be made.

PK 2

WHEN INSURANCE STOPS-REFUNDS

You have the right to stop this insurance at any time. This insurance stops automatically on the Final Installment Due Date of your loan with the Creditor, or when your loan is paid off, renewed, refinanced or otherwise stops, whichever happens first. Any coverage under the disability insurance will also stop in the event of your death.

If insurance stops before the Final Installment Due Date of your loan, you will be given a refund or credit on your account of unearned premium. This refund or credit will be calculated using a formula approved by the Insurance Commissioner, but refunds or credits of less than $5.00 won't be made.

PK 3

WHEN INSURANCE STOPS-REFUNDS

You can stop this insurance at any time. This insurance stops on the Scheduled Expiration Date, or when your loan is paid off, renewed, refinanced or otherwise stops, whichever happens first. If your insurance stops before the Scheduled Expiration Date in the Schedule, you will be given a refund or credit on your account of unearned premium. This refund or credit will be calculated on a pro-rata basis, but refunds or credits of less than $5.00 won't be made.

PK 4

WHEN INSURANCE STOPS

This insurance stops:

1. on the first billing date after the Creditor receives your written request to stop the insurance, or

2. on the first billing date after you withdraw your authorization for the addition of charges for the insurance to your loan, or

3. on the first billing date after you reach your 65th birthday, or

4. on the date your loan stops, or

5. on the billing date upon which you are 3 months delinquent in making a minimum monthly payment on your loan, or

6. on the date the Group Policy stops.

PK 5

WHEN INSURANCE STOPS

This insurance stops:

1. on the first billing date after the Creditor receives your written request to stop the insurance, or

2. on the first billing date after you withdraw your authorization for the addition of charges for the insurance to your loan, or

3. on the first billing date after you reach your 65th birthday, or

4. on the date your loan stops, or

5. on the billing date upon which you are 3 months delinquent in making a minimum monthly payment on your loan, or

6. on the date specified in our written notice of cancellation to you.

PK 6

WHEN INSURANCE STOPS

This insurance stops:

1. on the first billing date after the Creditor receives your written request to stop the insurance, or

2. on the Scheduled Expiration Date, or

3. on the date when your loan is paid off, renewed, refinanced or otherwise stops, or

4. on the date when you are 3 months delinquent in payment of a monthly premium for this insurance, or

5. on the date the Group Policy stops.

PK 7

WHEN INSURANCE STOPS

This insurance stops:

1. on the first billing date after the Creditor receives your written request to stop the insurance, or

2. on the Scheduled Expiration Date, or

3. on the date when your loan is paid off, renewed, refinanced or otherwise stops, or

4. on the date when you are 3 months delinquent in the payment of a monthly premium for this insurance, or

5. on the date specified in our written notice of cancellation to you.

PK 8

WHEN INSURANCE STOPS-REFUNDS

You can stop this insurance at any time. This insurance stops on the Scheduled Expiration Date, or when your loan is renewed or refinanced if new insurance is written on the new loan. If your insurance stops before the Scheduled Expiration Date in the Schedule, you will be given a refund or credit on your account of unearned premium. This refund or credit will be calculated using a formula approved by the Insurance Commissioner, but refunds or credits of less than $5.00 won't be made.

PL 1

WHAT THE CONTRACT IS AND HOW YOUR STATEMENTS AFFECT IT

This Policy and the attached Application are the complete contract of insurance. All statements made by you in the Application are considered to have been made to the best of your knowledge and belief. No statement can be used to void this Policy or deny a claim unless that statement is in your signed Application. After 2 years during your lifetime from the Effective Date, no statement made by you in your Application can be used to void this Policy or deny a claim. This does not apply to your disability coverage (if any) if that statement was made fraudulently. If you stated in your Application that you are age 65 or older and we do not return your premium within 75 days of the Effective Date, you are insured.

PL 2

WHAT THE CONTRACT IS AND HOW YOUR STATEMENTS AFFECT IT

The Group Policy, the Application for the Group Policy, and the attached Application of Borrower are the complete contract of insurance. All statements made by you in your Application are considered to have been made to the best of your knowledge and belief No statement can be used to void this insurance or deny a claim unless that statement is in your signed Application. After 2 years during your lifetime from the Date in the Application, no statement made by you in your Application can be used to void this insurance or deny a. claim. This does not apply to your disability coverage (if any) if that statement was made fraudulently. If you stated in your Application that you are age 65 or older and we do not return your premium within 75 days of the Effective Date, you are insured.

PL 3

WHAT THE CONTRACT IS AND HOW YOUR STATEMENTS AFFECT IT

This Policy and the attached Application are the complete contract of insurance. All statements made by you in the Application are considered to have been made to the best of your knowledge and belief No statement can be used to void this Policy or deny a claim unless that statement is in your signed Application. After 2 years during your lifetime from the Effective Date, no statement made by you in your Application can be used to void this Policy or deny a claim. This does not apply to your disability coverage (if any) if that statement was made fraudulently.

PL 4

WHAT THE CONTRACT IS AND HOW YOUR STATEMENTS AFFECT IT

The Group Policy, the Application for the Group Policy, and the attached Application of Borrower are the complete contract of insurance. All statements made by you in your Application are considered to have been made to the best of your knowledge and belief. No statement can be used to void this insurance or deny a claim unless that statement is in your signed Application. After 2 years during your lifetime from the Date in the Application, no statement made by you in your Application can be used to void this insurance or deny a claim. This does not apply to your disability coverage (if any) if that statement was made fraudulently.

PM 1

RULES FOR FILING A TOTAL DISABILITY CLAIM

You must write us or our agent about your total disability claim within 30 days after the beginning of your total disability or as soon after that as you can. We will send you claims forms within 15 days after you tell us about the claim. If we don't send the forms in 15 days, you can simply send us written proof of your disability. The proof must show the date and the cause of the total disability and how serious it is, and it must be signed by a physician or a chiropractor. The proof of total disability must be sent to us no later than 90 days after the end of each period for which a total disability benefit is payable. If it is impossible to file within 90 days, you must file as soon as you can. Unless you have been legally incapable of filing the proof of total disability, we won't accept if it is filed after one year from the time it should have been filed. You can't start any legal action until 60 days after you send us the proof of your total disability, and you can't start any legal action more than 3 years after the proof is filed.

PN 1

RULES FOR FILING A LIFE CLAIM

We must be given a certified copy of the death certificate as proof of a life claim.

PO 1

CONFORMITY WITH STATE STATUTES

Any part of this policy which, on the Effective Date of this Policy, conflicts with the statutes of the state where the policy was delivered to you is changed to conform to the minimum standards of those statutes.

PP 1

PHYSICAL EXAMINATION AND AUTOPSY

We at our own expense have the right, and you must allow us the opportunity, to examine your person as often as is reasonably required while a claim is pending and to make an autopsy in case of death, if it is not forbidden by law.

PQ 1

______________________ ____________________________

Secretary President

NOTE

Authority cited: Sections 779.21 and 779.27, Insurance Code. Reference: Sections 510, 779.2, 779.3, 779.4, 779.6, 779.14, 779.27, 779.28, 779.30, 779.31, 10113, 10113.5, 10203.5, 10203.55, 10207, 10208, 10209, 10270.94, 10320, 10350-10350.3, 10350.5-10350.7, 10350.10, 10350.11, 10369.1 and 10369. 10, Insurance Code; Sections 18290-18292, 22314, 22315 and 22455, Financial Code; Erreca v. Western States Life Insurance Co. (1942) 19 Cal.2d 388; and Moore v. American United Life Insurance Co. (1984), 150 Cal. App.3d 610.

HISTORY

1. Amendment of paragraphs PK 1-PK 8 filed 12-29-78; designated effective 4-1-79 and for technical reasons, printed in Register 79, No. 2.

2. Amendment filed 7-25-83; effective thirtieth day thereafter (Register 83, No. 31). 3. Amendment filed 5-23-85; effective thirtieth day thereafter (Register 85, No. 21).

3. Amendment of section and Note filed 10-2-2006; operative 11-1-2006 (Register 2006, No. 40).

4. Repealer and new paragraph PG 1 and amendment of NOTE filed 5-27-2008; operative 6-26-2008 (Register 2008, No. 22).

§2249.13. Notice of Proposed Insurance Blocks.

Note • History

A-1

NOTICE OF PROPOSED INSURANCE

The credit life and/or disability insurance you applied for will be effective only if we, _____________________________________________ Insurance Company, ________________________________________ agree to insure you. If we agree to insure you, a policy or certificate which more full; describes the benefits and limitations will be sent to you within 30 days. If we don't insure you, you will be sent a refund or credit on your account of your premium. If you do not receive a policy, a refund or a credit, contact your lender. The insurance will start on the Effective Date in the Schedule.

A-2

NOTICE OF PROPOSED INSURANCE

The credit life insurance you applied for will be effective only if we, ________________________________________ Insurance Company, ______________________________________ agree to insure you. If we agree to insure you, a policy or certificate which more fully describes the benefits and limitations will be sent to you within 30 days. If we don't insure you, you will be sent a refund or credit on your account of your premium. If you do not receive a policy, a refund or a credit, contact your lender. The insurance will start on the Effective Date in the Schedule.

A-3

NOTICE OF PROPOSED INSURANCE

The credit disability insurance you applied for will be effective only if we, ___________________________________ Insurance Company, ______________________________________ agree to insure you. If we agree to insure you, a policy or certificate which more full; describes the benefits and limitations will be sent to you within 30 days. If we don't insure you, you will be sent a refund or credit on your account of your premium. If you do not receive a policy, a refund or a credit, contact your lender. The insurance will start on the Effective Date in the Schedule.

B-3

The amount of life insurance is the total amount due on the loan (excluding unearned finance charges), outstanding on the date of the insured borrower's death. If you select joint life, only one death benefit will be payable. We won't pay any claim if you commit suicide within 6 months of the Effective Date.

B-4

The amount of life insurance is the total amount due on the loan (excluding unearned finance charges), outstanding on the date of the insured borrower's death. We won't pay any claim if you commit suicide within 6 months of the Effective Date.

B-5

The amount of decreasing life insurance will be the scheduled unpaid balance of your loan on the date of your death. If you select joint life, only one death benefit will be payable. We won't pay any claim if you commit suicide within 6 months of the Effective Date.

B-6

The amount of decreasing life insurance will be the scheduled unpaid balance of your loan on the date of your death. We won't pay any claim if you commit suicide within 6 months of the Effective Date.

B-7

The amount of level life insurance will stay the same during the Term of Insurance. If you select joint life only one death benefit will be payable. We won't pay any claim if you commit suicide within 6 months of the Effective Date.

B-8

The amount of level life insurance will stay the same during the Term of Insurance. We won't pay any claim if you commit suicide within 6 months of the Effective Date.

B-9

The amount of life insurance is the total amount due on the loan (excluding unearned finance charges), outstanding on the date of the insured borrower's death. But we won't pay more than the Maximum Amount of Life Insurance in the policy or certificate. If you select joint life, only one death benefit will be payable. We won't pay any claim on an advance if you commit suicide within 6 months after that advance.

B-10

The amount of life insurance is the total amount due on the loan (excluding unearned finance charges), outstanding on the date of the insured borrower's death. But we won't pay more than the Maximum Amount of Life Insurance in the policy or certificate. We won't pay any claim on an advance if you commit suicide within 6 months after that advance.

C-1

If you are insured for total disability insurance, we will pay a benefit if you file proof that you became totally disabled while insured and continue to be totally disabled for more than 30 days. Payment will be calculated from the 31st day of disability. We won't pay the claim if your disability:

1. is a result of normal pregnancy or childbirth or

2. is a result of an intentionally self-inflicted injury or

3. begins within 2 years after the Effective Date as a result of a pre-existing medical condition. A pre-existing medical condition is one for which you saw or were under treatment by a physician or a chiropractor both within 6 months before and 6 months after the Effective Date shown in the Schedule.

C-3

1. is a result of normal pregnancy or childbirth or

2. is a result of an intentionally self-inflicted injury or

3. as to each advance on your loan, begins within 6 months after the date of the advance as a result of pre-existing medical condition. A pre-existing medical condition is one for which you saw or were under treatment by a physician or a chiropractor both within 6 months before and 6 months after the date of the advance.

C-4

1. when you recover,

2. when benefits are paid to the Scheduled Expiration Date, or

3. when benefits are paid for the Maximum Disability Benefit Period, whichever comes first.

We won't pay the claim if your disability:

1. is a result of normal pregnancy or childbirth or

2. is a result of an intentionally self-inflicted injury or

3. begins within 2 years after the Effective Date as a result of a pre-existing medical condition. A pre-existing medical condition is one for which you saw or were under treatment by a physician or a chiropractor both within 6 months before and 6 months after the Effective Date shown in the Schedule.

D-1

If your insurance stops before the Scheduled Expiration Date in the Schedule, you will be given a refund of unearned premium.

(DRAFTING NOTE: The following paragraph must be printed in at least 14-point type.)

(DRAFTING NOTE: The following paragraph must be printed in at least 14-point bold face type.)

California Department of Insurance

300 South Spring Street

Los Angeles, CA 90013

(800) 927-4357 or (213) 897-8921

Primary Borrower

D-2

If your insurance stops before the Final Installment Due Date in the Schedule, you will be given a refund of unearned premium.

(DRAFTING NOTE: The following paragraph must be printed in at least 14-point type.)

(DRAFTING NOTE: The following paragraph must be printed in at least 14-point bold face type.)

California Department of Insurance

300 South Spring Street

Los Angeles, CA 90013

(800) 927-4357 or (213) 897-8921

Primary Borrower

D-3

(DRAFTING NOTE: The following paragraph must be printed in at least 14-point type.)

(DRAFTING NOTE: The following paragraph must be printed in at least 14-point bold face type.)

California Department of Insurance

300 South Spring Street

Los Angeles, CA 90013

(800) 927-4357 or (213) 897-8921

Primary Borrower

NOTE

Authority cited: Sections 779.21 and 779.27, Insurance Code. Reference: Sections 510, 779.3, 779.7, 779.14, 779.27 and 779.30, Insurance Code.

HISTORY

1. Repealer and new section filed 7-25-83; effective thirtieth day thereafter (Register 83, No. 31).

2. Amendment of paragraphs C-1, C-3, C-4 and repealer of paragraph C-2 filed 5-23-85; effective thirtieth day thereafter (Register 85, No. 21).

3. Amendment of section and Note filed 10-2-2006; operative 11-1-2006 (Register 2006, No. 40).

§2249.14. Sample Certificate (Identification Number 11).

Note • History

Insurer's Name and Complete Address

Called We or Us

SCHEDULE

Primary Borrower, called you, and Address

Co-Borrower, also called you

Source Code

Creditor Beneficiary and Insurance License Number

Class of Business

Secondary Beneficiary

Term of Insurance

Effective Date

Original Amount of Life Insurance

Scheduled Expiration Date

Monthly Loan Payment

Monthly Total Disability Benefit

Decreasing Life: Single ( ) joint ( ) Premium:

Disability: 30-day Elimination Period Premium:

Total Premium:

Maximum Monthly Disability Benefit:

Maximum Amount of Life Insurance:

Group Policy Number

Certificate Number

APPLICATION OF BORROWER

You are applying for the credit insurance marked above, Your signature below means that you agree that:

1. You are not eligible for insurance if you have reached your 65th birthday.

2. You are eligible for disability insurance only if you are working for wages or profit 30 hours a week or more on the Effective Date.

3. Only the Primary Borrower is eligible for disability insurance.

Date Primary Borrower Age

Co-Borrower Age

CERTIFICATE OF INSURANCE

California Department of Insurance

300 South Spring Street

Los Angeles, CA 90013

(800) 927-4357 or (213) 897-8921

WHAT YOU GET

We certify that if we have been paid the premium shown in the Schedule you are insured for the coverage shown in the Schedule, subject to the terms of the Group Policy issued to the Creditor.

WHO GETS PAID

WHAT WE WILL PAY

Single Life Insurance Benefit. If you die while you are insured for single life coverage we will pay the amount of insurance in force at the time of your death after we receive proof of your death.

Definition of Total Disability. During the first 18 consecutive months of total disability, total disability means that you are not able to perform the major duties of your occupation because of sickness or accidental injury. After the first 18 consecutive months of total disability, the definition changes and requires that you not be able to perform the duties of any occupation for which you are reasonably qualified by education, training or experience. You will be required to give us written proof of your continuing total disability from time to time.

WHAT WE WON'T PAY

Total Disabilities Not Covered. We won't pay the claim or refund the disability premium if your disability:

1. is a result of normal pregnancy or childbirth or

2. is a result of an intentionally self-inflicted injury or

3. begins within 2 years after the Effective Date as a result of a pre-existing medical condition. A pre-existing medical condition is one for which you saw, or were under treatment by a physician or a chiropractor both within the 6 months before and the 6 months after the Effective Date shown in the Schedule.

WHEN INSURANCE STOPS--REFUNDS

WHAT THE CONTRACT IS AND HOW YOUR STATEMENTS AFFECT IT

The Group Policy, the Application for the Group Policy, and the attached Application of Borrower are the complete contract of insurance. All statements made by you in your Application are considered to have been made to the best of your knowledge and belief. No statement can be used to void this insurance or deny a claim unless that statement is in your signed Application. After 2 years during your lifetime from the Date in the Application, no statement made by you in your Application can be used to void this insurance or deny a claim. This does not apply to your disability coverage (if any) if that statement was made fraudulently. If you stated in your Application that you are age 65 or older and we do not return your premium within 75 days of the Effective Date, you are insured.

RULES FOR FILING A TOTAL DISABILITY CLAIM

You must write us or our agent about your total disability claim within 30 days after the beginning of your total disability or as soon after that as you can. We will send you claims forms within 15 days after you tell us about the claim. If we don't send the forms in 15 days, you can simply send us written proof of your disability. The proof must show the date and the cause of the total disability and how serious it is, and it must be signed by a physician or a chiropractor. The proof of total disability must be sent to us no later than 90 days after the end of each period for which a total disability benefit is payable. If it is impossible to file within 90 days, you must file as soon as you can. Unless you have been legally incapable of filing the proof of total disability, we won't accept it if it is filed after one year from the time if should have been filed. You can't start any legal action until 60 days after you send us the proof of your total disability, and you can't start any legal action more than 3 years after the proof is filed.

RULES FOR FILING A LIFE CLAIM

We must be given a certified copy of the death certificate as proof of a life claim.

PHYSICAL EXAMINATION AND AUTOPSY

NOTE

Authority cited: Sections 779.21 and 779.27, Insurance Code. Reference: Sections 510, 779.2, 779.3, 779.4, 779.6, 779.14, 779.27, 779.30, 779.31, 1758.99, 10113, 10113.5, 10203.5, 10203.55, 10207, 10208, 10209, 10127.5, 10320, 10350-10350.3, 10350.5-10350.7, 10350.10, 10350.11, 10369.1 and 10369. 10, Insurance Code; and Section 120980(f), Health and Safety Code.

HISTORY

1. Amendment of paragraph captioned “When Insurance Stops-Refunds” filed 12-29-78; designated effective 4-1-79 and for technical reasons, printed in Register 79, No. 2.

2. Amendment filed 7-25-83; effective thirtieth day thereafter (Register 83, No. 31).

3. Amendment filed 5-23-85; effective thirtieth day thereafter (Register 85, No. 21).

4. Amendment of section heading, section and Note filed 10-2-2006; operative 11-1-2006 (Register 2006, No. 40).

§2249.15. Effective Date.

Note • History

(a) This Article shall be effective as of June 1, 1978. No credit life and/or disability insurance policy, certificate of insurance, notice of proposed insurance, application for insurance, endorsement or rider shall be issued or delivered after April 1, 1979 unless it complies with this Article, including applicable filing requirements. Forms which have been approved pursuant to this Article maybe issued or delivered after, June 1, 1978.

(b) The following forms shall not be issued or delivered after one year following the effective date of the 2006 amendments of this Article:

(1) Standard forms which do not comply with this Article as amended in 2006;

(2) Non-standard forms containing standard text which does not comply with this Article as amended in 2006.

(c) The following forms shall not be issued or delivered after one year following the effective date of the 2008 amendments of this Article:

(1) Standard forms which do not comply with this Article as amended in 2008.

(2) Non-standard forms containing standard text which does not comply with this Article as amended in 2008.

NOTE

Authority cited: Sections 779.21 and 779.27, Insurance Code. Reference: Section 779.27, Insurance Code.

HISTORY

1. Amendment filed 12-29-78; designated effective 4-1-79 and for technical reasons, printed in Register 79, No. 2.

2. Repealer of former Section 2249.15, and renumbering and amendment of former Section 2249.16 to Section 2249.15 filed 7-25-83; effective thirtieth day thereafter (Register 83, No. 31).

3. Amendment filed 10-2-2006; operative 11-1-2006 (Register 2006, No. 40).

4. New subsections (c)-(c)(2) filed 5-27-2008; operative 6-26-2008 (Register 2008, No. 22).

§2249.16. Severability Provision.

History

If any provision of this Article or the application thereof to any person or circumstance is for any reason held invalid, the remainder of this Article and the application of such provision to any other persons or circumstances shall not be affected thereby.

HISTORY

1. Renumbering and amendment of former Section 2249.16 to 2249.15, and renumbering of former Section 2249.17 to Section 2249.16 filed 7-25-83; effective thirtieth day thereafter (Register 83, No. 31).

Article 7. Workers' Compensation Policy Forms

§2250. Dividend Clause.

Note • History

NOTE

§§2250 and 2251 issued under authority contained in §§11630 to 11742, Insurance Code.

HISTORY

1. Repealer filed 3-3-58; effective thirtieth day thereafter (Register 58, No. 4).

§2251. Orthodox Limitations on Dividends Which Need Not Be Stated.

History

HISTORY

1. Repealer filed 3-3-58; effective thirtieth day thereafter (Register 58, No. 4).

§2251.1. Package Policies.

Note • History

NOTE

Authority cited: Section 11734, Insurance Code. Reference: Sections 11732,11732.1 and 11734, Insurance Code.

HISTORY

1. New section filed 9-20-56; designated effective 10-24-56 (Register 56, No. 18).

2. Amendment filed 11-12-76; designated effective with respect to all new policies with an inception date falling on or after January 1, 1977, and with respect to renewal policies as of the first normal anniversary date falling on or after January 1, 1977 (Register 76, No. 46).

3. Amendment filed 1-23-78 as an emergency; effective upon filing. Certificate of Compliance included (Register 78, No. 4).

4. Repealer filed 4-11-83; effective thirtieth day thereafter (Register 83, No. 16).

§2252. Limiting and Restricting Endorsements.

Note • History

Limitation or restriction of coverage for liability under the workers' compensation laws of the State of California shall be governed by Sections 2253 to 2268, inclusive.

The workers' compensation coverage provided on a policy that also provides comprehensive personal liability insurance cannot be limited or restricted.

NOTE

Authority cited: Section 11751.5, Insurance Code. Reference: Articles 2 and 3 of Chapter 3, Part 3, Division 2, Insurance Code. Additional authority cited: Sections 11650 to 11663, Insurance Code.

HISTORY

1. Amendment filed 10-4-60; designated effective 1-1-61 (Register 60, No. 21).

2. Amendment filed 11-12-76; designated effective with respect to all new Policies with an inception date falling on or after January 1, 1977, and with respect to renewal policies as of the first normal anniversary date falling on or after January 1, 1977 (Register 76, No. 46).

3. Amendment filed 1-23-78 as an emergency; effective upon filing. Certificate of Compliance included (Register 78, No. 4).

§2253. Endorsements: Attachment and Detachment: Printed or Typed.

Note • History

Approved forms of endorsement may be attached or detached from any policy at an time. Any approved endorsement may be printed or typewritten provided that wherever the specifications enumerated in Section 2257 require bold-face type, any typewritten forms shall indicate these sections in typewritten caps.

NOTE

Additional authority cited: Sections 11650 to 11663, Insurance Code.

HISTORY

1. Amendment filed 10-4-60; designated effective 1-1-61 (Register 60, No. 21).

§2254. Same: Changes in Approved Endorsements.

Note • History

Except as provided in Section 2257, approved endorsement forms must not be changed in any particular but may be combined on one page.

NOTE

Authority cited: Section 11659, Insurance Code.

HISTORY

1. Amendment filed 8-12-54; designated effective 9-15-54 (Register 54, No. 17).

§2255. Same: When Restrictions Printed in Policy: Removal.

Note • History

Limitations or restrictions of coverage, when stated in the printed body of an approved policy form, may be removed provided the provision removing such limitations or restrictions shall he clearly set forth in an endorsement forming a part of the policy.

NOTE

Additional authority cited: Sections 11650 to 11663, Insurance Code.

HISTORY

1. Amendment filed 104-60, designated effective 1-1-61 (Register 60, No. 21).

§2256. Blanks in Approved Forms: Completion and Change.

Any approved policy form may be completed by inserting in the blanks provided therefor the data required by the contract and such inserted provisions may be amended or changed by endorsement or otherwise without in any way affecting the approval of such form of policy.

§2257. Limiting and Restricting Endorsements: Specifications for Endorsements.

Note • History

Each limiting and restricting endorsement shall conform to the following specifications:

(a) It shall have printed in bold face type (or typewritten caps) at the top thereof

“ENDORSEMENT AGREEMENT LIMITING AND RESTRICTING THIS INSURANCE.”

(b) The opening statement shall contain the following language:

“The insurance under this policy is limited as follows: It is AGREED that, anything in this policy to the contrary notwithstanding, this policy (or “such insurance as is afforded by the policy by reason of the designation of California in Item 3 of the declarations“) DOES NOT INSURE” (or “DOES NOT EXTEND TO OR COVER” or DOES NOT APPLY”),

(c) It shall have a marginal notation printed in bold face type (or typewritten caps) indicating the character of the limitation or restriction stated in the endorsement.

(d) It shall have printed in bold face type (or typewritten caps) the following footnote:

“FAILURE TO SECURE THE PAYMENT OF FULL COMPENSATION BENEFITS FOR ALL EMPLOYEES AS REQUIRED BY LABOR CODE SECTION 3700 IS A VIOLATION OF LAW AND MAY SUBJECT THE EMPLOYER TO THE IMPOSITION OF A WORK STOP ORDER, LARGE FINES, AND OTHER SUBSTANTIAL PENALTIES (Labor Code Section 3710. 1, et seq.)”

(e) If the policy does not by its terms provide that remuneration when used as a premium basis shall not include the remuneration of an employee with respect to whom coverage is not afforded, Endorsement Forms Nos. 4, 10 and 11 shall include the following provision:

“It is further agreed that `remuneration' when used as a premium basis for such insurance as is afforded by this policy (or “by the policy by reason of the designation of California in Item 3 of the declarations”) shall not include the remuneration of any person excluded from coverage in accordance with the foregoing.”

(f) When appropriate, the words, “the insured” maybe substituted in any of the approved endorsements for “this employer,” “the insured employer,” “the employer,” “the named employer.”

(g) The wording and the form for that portion of each California Approved Form endorsement commencing with “Applicable to and forming a part of” and continuing to and including the signature lines are optional and may be rearranged to suit the needs of each insurer; provided that if the endorsement is not attached to the policy at original issuance it shall include provisions adequate to clearly identify the insurer, insured and policy involved, the date of the endorsement and be executed with sufficient authentication to establish its genuineness.

NOTE

Authority cited: Sections 11732, 11732. 1, and 11734, Insurance Code. Reference: Articles 2 and 3 of Chapter 3, Part 3, Division 2, Insurance Code.

HISTORY

1. Amendment filed 8-12-54; designated effective 9-15-54 (Register 54, No. 17).

2. Amendment filed 10-4-60; designated effective 1-1-61 (Register 60, No. 21).

3. Amendment to subsection (e) filed 9-18-67; designated effective with respect to all policies and endorsements with an effective date falling on or after April 1, 1968 (Register 67, No. 38).

4. Amendment of subsections (d) and (e) filed 1-21-81; effective thirtieth day thereafter (Register 81, No. 4).

§2258. Form Numbers Required.

Note • History

Each limiting and restricting endorsement form must bear the appropriate California Approved Form number. In addition, all workmen's compensation policy and endorsement forms must bear the insurer's identifying form number and imprint date.

NOTE

Authority cited: Section 11659, insurance Code.

HISTORY

1. Amendment filed 10-4-60; designated effective 1-1-61 (Register 60, No. 21).

§2259. Grounds for the Use of Limiting and Restricting Endorsements.

Note • History

A limiting and restricting endorsement other than California Approved Form Endorsement No. 11 may be used only under one or more of the following circumstances:

(a) Where the purpose of the endorsement is to limit insurance coverage to the liability for compensation to employees of the specific entity named as the insured in the policy.

(b) Where the insured seeks to exclude an individual whose relationship by blood or marriage to the insured suggests family rather than employment ties, particularly if the insured denies the existence of employment.

(c) Where the insured seeks by endorsement to negate an “election” under Labor Code Section 4151 to bring under the compensation provisions of the Labor Code persons in his employment who are excluded from the definition of “employee” by Section 3352 and other provisions of Article 2 of Chapter 2 of Part 1 of Division 4 of the Labor Code.

(d) Where the endorsement serves as a notice to the employer that any liability for additional compensation payable to his employee by reason of injury caused by the employer's serious and willful misconduct, or liability by reason of the illegal employment of a minor under 16 years of age, is uninsurable (Insurance Code Sections 11661 and 11661.5).

(e) Where the endorsement seeks to exclude only such liability of the employer for compensation as the latter affirms to the insurer in writing is otherwise secured or is lawfully uninsured (e.g., liability of the State and its political subdivisions and institutions).

(f) Where the endorsement seeks to exclude an employee who is covered for workers compensation benefits on a policy also affording comprehensive personal liability insurance.

NOTE

Authority cited: Sections 11732, 11732.1, 11734 and 11751.5, Insurance Code. Reference: Articles 2 and 3 of Chapter 3, Part 3, Division 2, Insurance Code.

HISTORY

1. New section filed 9-18-67; designated effective with respect to all policies and endorsements with an effective date failing on or after April 1, 1968 (Register 67, No. 38).

2. New subsection (g) filed 11-12-76; designated effective with respect to all new policies with an inception date falling on or after January 1, 1977, and with respect to renewal policies as of the first normal anniversary date falling on or after January 1, 1977 (Register 76, No. 46).

3. Amendment of subsection (g) filed 1-23-78 as an emergency; effective upon filing. Certificate of Compliance included (Register 78, No. 4).

4. Repealer of former subsection (b) and sequential redesignation of subsequent sub-sections filed 12-1-78 as an emergency; designated effective 1-1-79. Certificate of Compliance included (Register 78, No. 48).

§2260. California Approved Form Endorsements.

Note • History

Endorsement Forms Nos. 1C, 4, 7, 10, 11, 13 and 14, copies of which appear in Sections 2269.1 to 2269.14, inclusive, are California Approved Form Endorsements.

NOTE

Authority cited: Sections 11732,11732.1, and 11734, Insurance Code. Reference: Articles 2 and 3 of Chapter 3, Part 3, Division 2, Insurance Code.

HISTORY

1. Amendment filed 10-4-60; designated effective 1-1-61 (Register 60, No. 21).

2. Amendment and renumbering of Section 2259 filed 9-18-67; designated effective with respect to all policies and endorsements with an effective date falling on or after April 1, 1968 (Register 67, No. 38).

3. Amendment filed 1-21-81; effective thirtieth day thereafter (Register 81, No. 4).

§2261. Same: Submission Requirements.

Note • History

Each insurer must submit its California Approved Form limiting and restricting endorsement forms to the Workers' Compensation Insurance Rating.Bureau of California in duplicate for examination by the Bureau.

NOTE

Authority cited: Sections 11732,11732.1, and 11734, Insurance Code. Reference: Articles 2 and 3 of Chapter 3, Part 3, Division 2, Insurance Code.

HISTORY

1. Amendment filed 10-4-60; designated effective 1-1-61 (Register 60, No. 21). (For history of former Section 2260, see Register 54, No. 17.)

2. Amendment and renumbering of Section 2260 filed 9-18-67; designated effective with respect to all policies and endorsements with an effective date falling on or after April 1, 1968 (Register 67, No. 38).

3. Amendment filed 5-6-77 as procedural and organizational; effective upon filing (Register 77, No. 19).

4. Amendment filed 1-21-81; effective thirtieth day thereafter (Register 81, No. 4).

§2262. Other Limiting and Restricting Endorsements: Approval.

Note • History

All other limiting or restricting endorsement forms must be drafted in accordance with and subject to the specifications enumerated in Section 2257, and must be submitted in duplicate to the Workers' Compensation Insurance Rating Bureau of California for its examination and transmittal to the Insurance Commissioner. After consultation with the Workers' Compensation Appeals Board as required by law, the insurer will be notified of approval or disapproval of any such form.

NOTE

Authority cited: Sections 11732, 11732.1, and 11734, Insurance Code. Reference: Articles 2 and 3 of Chapter 3, Part 3, Division 2, Insurance Code.

HISTORY

1. Amendment filed 10-4-60; designated effective 1-1-61 (Register 60, No. 21). (Ed. Note: Similar to former Section 2263.)

2. Amendment and renumbering of Section 2261 filed 9-18-67; designated effective with respect to all policies and endorsements with an effective date falling on or after April 1, 1968 (Register 67, No. 38).

3. Amendment filed 5-6-77 as procedural and organizational; effective upon filing (Register 77, No. 19).

4. Amendment filed 1-21-81; effective thirtieth day thereafter (Register 81, No. 4).

§2263. Limiting and Restricting Provisions in Policy Forms.

Note • History

Each limiting or restricting provision which is incorporated as an integral part of policy form is subject to the standards stated in Section 2259 (a) through (f) of these rules.

NOTE

Authority cited: Sections 11732, 11732.1, and 11734, Insurance Code. Reference: Articles 2 and 3 of Chapter 3, Part 3, Division 2, Insurance Code.

HISTORY

1. New section filed 9-18-67; designated effective with respect to all policies and endorsements with an effective date falling on or after April 1, 1968 (Register 67, No. 38).

2. Amendment filed 1-21-81; effective thirtieth day thereafter (Register 81, No. 4).

§2264. Options for Form No. 10.

Note • History

California Approved Form Endorsement No. 10 may be completed by the insertion of one of the following options and none other:

(a) (Insert only the names of persons to be specifically excluded.)

(b) “Any employee engaged in any work other than directly in connection with the operation specifically described in the policy schedule (“information page” or “declarations”) or amendment of such schedule (“information page” or “declarations”) by endorsement.”

(c) “Any employees engaged in any work not directly connected with operations conducted at (or “in”) . . . ” (Insert here a careful description of the location to be excluded.)

(d) “Any employee engaged in any work directly connected with operations conducted at (or “in.”) . . . ” (Insert here a careful description of the location to be excluded.)

(e) “Any employee engaged in the following operations . . .” (Insert here a careful description of the operations to be excluded and the manual classification and code number applicable to such operations.)

(f) “Any employee engaged in the following operations: . . .” (Insert here a careful description of the operations and manual classification and code number applicable thereto) “at or from..” (Insert here a careful description of location to be excluded.)

(g) “Any employees other than those engaged in the following operations ” (Insert here a careful description of operations and manual classification and code number applicable thereto) “at or from . . .” (Insert here a careful description of the location to be covered.)

(h) “Any employee who is covered for workers' compensation benefits on a policy also affording comprehensive personal liability insurance which has been issued to this insured.”

NOTE

Authority cited: Sections 11659 and 11751.5, Insurance Code. Reference: Sections 11657, 11658 and 11659, and Articles 2 and 3 of Chapter 3, Part 3, Division 2, Insurance Code.

HISTORY

1. Amendment filed 10-4-60; designated effective 1-1-61 (Register 60, No. 21). (Ed. note: Similar to former Section 2260; for history, see Register 54, No. 17.)

2. Amendment and renumbering of Section 2263 filed 9-18-67; designated effective with respect to all policies and endorsements with an effective date falling on or after April 1, 1968 (Register 67, No. 38).

3. New subsection (h) filed 11-12-76; designated effective with respect to all new policies with an inception date failing on or after January 1, 1977, and with respect to renewal policies as of the first normal anniversary date falling on or after January 1, 1977 (Register 76, No. 46).

4. Amendment of subsection (h) filed 1-23-78 as an emergency; effective upon filing. Certificate of Compliance included (Register 78, No. 4).

5. Amendment filed 12-30-83; designated effective 1-1-84 pursuant to Government Code Section 11346.2(d) (Register 84, No. 1).

§2265. Use of Form No. 11 Restricted.

History

California Approved Form Endorsement No. 11 may be used only in those cases where other California Approved Form Endorsements are not applicable or may not be used. It shall accurately and unambiguously state the limitations or restriction and shall bear an appropriate side note descriptive of the limitations or restriction. It may be used only under one or more of the following circumstances:

(a) Where use of the Form No. 11 Endorsement is in accordance with one or more of the guiding standards set forth in Section 2259 of these rules.

(b) Where the employer's business is conducted in such a manner that it is impossible or impracticable to determine the nature, scope and extent of employment covered by the insurer without the use of a limiting and restricting endorsement.

(c) Where the use of the Form No. 11 Endorsement is for the intended purpose of preventing performance of work in such an extremely hazardous manner or under such hazardous conditions as would reflect a reckless disregard by the employer for the welfare of his employees.

(d) Where the issuance of an unrestricted policy would serve to encourage an operation which is illegal, clearly contrary to public interest, or contrary to the rules or practices of a public regulatory.

HISTORY

1. Amendment filed 10-4-60; designated effective 1-1-61 (Register 60, No. 21). (Ed. note: Similar to former Section 2261.)

2. Amendment and renumbering of Section 2264 filed 9-18-67; designated effective with respect to all policies and endorsements with an effective date falling on or after April 1, 1968 (Register 67, No. 38).

§2266. Use of Form No. 11; Notification to Insured.

Note • History

Upon issuance of any completed California Approved Form Endorsement No.11 the insurer must submit such endorsement in triplicate to the Workers' Compensation Insurance Rating Bureau of California. Upon receipt of such Form No. 11 endorsement, the Bureau shall notify the insured in writing, with duplicate copy to be furnished the Division or Industrial Accidents, of the nature of the limitation or restriction. Such notification shall also inform the insured that in the event of a claim arising within the scope of the limitations, which the Division of Industrial Accident should hold to be compensable, the employer would be directly liable under the law and not protected by the policy. Such endorsement shall then be transmitted to the Insurance Commissioner. Each such endorsement shall be deemed to be approved by the Insurance Commissioner unless, within 30 days from the date of submission by the Workers' Compensation Insurance Rating Bureau of California the Insurance Commissioner shall in writing notify the insurer submitting the endorsement that same is disapproved. If such notification of disapproval is not given within said 30 days, all such endorsements shall be deemed to be approved until 10 days after the date of written notification of disapproval.

NOTE

Authority cited: Sections 11659 and 11650-11663, Insurance Code. Reference: Section 11690--11742, Insurance Code.

HISTORY

1. Amendment filed 10-4-60; designated effective 1-1-61 (Register 60, No. 21). (Ed. note: Similar to former Section 2262.)

2. Amendment and renumbering of Section 2265 filed 9-18-67; designated effective with respect to all policies and endorsements with an effective date falling on or after April 1, 1968 (Register 67, No. 38).

3. Amendment filed 5-6-77 as procedural and organizational; effective upon filing (Register 77, No. 19).

§2267. Extension of Coverage to New Insured: Not Limiting Endorsement.

History

The extension of the policy by endorsement to cover the liability of anyone in addition to the original named insured, shall, unless otherwise stipulated in the endorsement, extend the same coverage as that provided by the policy to the original named insured. It shall not be necessary to set out in such endorsement the restrictions or limitations, if any, of the policy, nor shall such endorsements be considered limiting or restricting endorsements.

HISTORY

1. Amendment filed 10-4-60; designated effective 1-1-61 (Register 60, No. 21). (Ed. note: Same as former Section 2264.)

2. Renumbering of Section 2266 filed 9-18-67; designated effective with respect to all policies and endorsements with an effective date falling on or after April 1, 1968 (Register 67, No. 38).

§2268. Collateral Agreements Prohibited Unless Made Part of Policy.

History

No collateral agreements modifying the obligation of either the insured or the insurer shall be made unless attached to and made a part of the policy, provided, however, that if such agreements are attached and in any way restrict or limit the coverage of the policy, they shall conform in all respects with these rules.

HISTORY

1. Amendment filed 10-4-60; designated effective 1-1-61 (Register 60, No. 21). (Ed. note: Same as former Section 2265.)

2. Renumbering of Section 2267 filed 9-18-67; designated effective with respect to all policies and endorsements with an effective date falling on or after April 1, 1968 (Register 67, No. 38).

§2269.1. California Approved Form Endorsement No. 1C.

Note • History

CALIFORNIA

APPROVED FORM NO. 1C

Endorsement Agreement

Limiting and Restricting This Insurance

WORKMEN'S COMPENSATION AND EMPLOYERS' LIABILITY POLICY AMENDATORY ENDORSEMENT—CALIFORNIA

It is AGREED that such insurance as is afforded by the policy by reason of the designation of California in Item 3 of the declarations is subject to the following provisions:

1. Serious and Willful Misconduct and Additional Compensation for Minor's Illegal Employment not Insured

The policy does not apply to liability for additional compensation imposed on the insured under Sections 4553 and 4557, Division IV, Labor Code of the State of California, by reason of the serious and willful misconduct of the insured or any representative of the insured or by reason of injury to an employee under sixteen years of age and illegally employed at the time of injury.

2. Application of Policy

With respect to Coverage A, Insuring Agreement IV, “Application of Policy” is amended to read as follows:

This policy applies only to injury (1) by accident occurring during the policy period, or (2) by disease caused or aggravated by exposure during the policy period to conditions in the course of employment by the insured.

3. Exclusion under Coverage B--Employers' Liability

Exclusion (b) of the policy is amended to read as follows:

This policy does not apply under coverage B with respect to any employee employed in domestic employment not described in the declarations unless the policy applies under coverage A with respect to such employee.

It is further agreed that the policy, including all endorsements forming a part thereof, constitutes the entire contract of insurance. No condition, provision, agreement, or understanding not set forth in the policy or such endorsement shall affect such contract or any rights, duties, or privileges arising therefrom.

Applicable to and forming part of Policy No. _______________

Issued by the ______________________________________________

To_____________________________________ of _________________

Dated at _____________________this_______day of ______199___

Countersigned ______________________________________________

FAILURE TO SECURE THE PAYMENT OF FULL

COMPENSATION BENEFITS FOR ALL EMPLOYEES AS

REQUIRED BY LABOR CODE SECTION 3700 IS A VIOLATION OF LAW AND MAY SUBJECT THE EMPLOYER TO THE IMPOSITION OF A WORK STOP ORDER, LARGE FINES AND OTHER SUBSTANTIAL PENALTIES

(Labor Code Section 3710.1, et seq.).

NOTE

Authority cited: Sections 11732, 11732.1, and 11734, Insurance Code. Reference: Articles 2 and 3 of Chapter 3, Part 3, Division 2, Insurance Code.

HISTORY

1. New section filed 10-4-60; designated effective 1-1-61 (Register 60, No. 21).

2. Amendment filed 1-21-81; effective thirtieth day thereafter (Register 81, No. 4).

§2269.2. California Approved Form Endorsement No. 2. [Repealed]

History

HISTORY

1. New section filed 10-4-60; designated effective 1-1-61 (Register 60, No. 21).

2. Repealer filed 9-18-67; designated effective with respect to all policies and endorsements with an effective date failing on or after April 1, 1968 (Register 67, No. 38).

§2269.3. California Approved Form Endorsement No. 3. [Repealed]

Note • History

NOTE

Authority cited: Sections 11732, 11732.1 and 11734, Insurance Code. Reference: Articles 2 and 3 of Chapter 3, Part 3, Division 2, Insurance Code.

HISTORY

1. New section filed 10-4-60; designated effective 1-1-61 (Register 60, No. 21).

2. Amendment filed 9-18-67; designated effective with respect to all policies and endorsements with an effective data falling on or after April 1, 1968 (Register 67, No. 38).

3. Repealer filed 12-1-78 as an emergency; designated effective 1-1-79. Certificate of Compliance included (Register 78, No. 48).

§2269.4. California Approved Form Endorsements No. 4.

Note • History

CALIFORNIA

APPROVED FORM NO. 4

Endorsement Agreement

Limiting and Restricting This Insurance

If this policy is issued to an individual or to a husband and wife either as individuals or as a partnership, the insurance under this policy is limited as follows:

It is AGREED that, anything in this policy to the contrary notwithstanding, this policy DOES NOT INSURE:

Relatives Not Insured

As respects injury (or death resulting therefrom) sustained by any of the following relatives of the employer and spouse, or of either, i.e., spouse, child by birth or adoption, stepchild, grandchild, son-in-law, daughter-in-law, parent, stepparent, parent-in-law, grandparent, brother, sister, stepbrother, step-sister, half-brother, half-sister, brother-in-law, sister-in-law, uncle, aunt, nephew or niece. IF at the time of injury such relative (1) resides in the household of the employer and spouse or of either, or (2) is a child under the age of 12 years, unless such relative is included specifically by name in the schedule of operations of the declarations or is specifically insured by name in an endorsement attached to this policy.

Nothing in this endorsement contained shall be held to vary, alter, waive or extend any of the terms, conditions, agreements, or limitations of this policy other than as above stated. Nothing elsewhere in this policy shall be held to vary, alter, waive or limit the terms, conditions, agreements or limitations of this endorsement.

Applicable to and forming part of Policy No. _______________

Issued by the ______________________________________________

To_____________________________________ of _________________

Dated at _____________________this_______day of ______199___

Countersigned ______________________________________________

FAILURE TO SECURE THE PAYMENT OF FULL

COMPENSATION BENEFITS FOR ALL EMPLOYEES AS

REQUIRED BY LABOR CODE SECTION 3700 IS A VIOLATION OF LAW AND MAY SUBJECT THE EMPLOYER TO THE IMPOSITION OF A WORK STOP ORDER, LARGE FINES AND OTHER SUBSTANTIAL PENALTIES

(Labor Code Section 3710.1, et seq.).

NOTE

Authority cited: Sections 11732, 11732.1, and 11734, Insurance Code. Reference: Articles 2 and 3 of Chapter 3, Part 3, Division 2, Insurance Code.

HISTORY

1. Amendment filed 10-4-60; designated effective 1-1-61 (Register 60, No. 21).

2. Amendment filed 9-18-67; designated effective with respect to all policies and endorsements with an effective date falling on or after April 1, 1968 (Register 67, No. 38).

3. Amendment filed 1-21-81; effective thirtieth day thereafter (Register 81, No. 4).

§2269.7. California Approved Form Endorsement No. 7.

Note • History

CALIFORNIA

APPROVED FORM NO. 7

Endorsement Agreement

Limiting and Restricting This Insurance

The insurance under this policy is limited as follows:

It is AGREED that, anything in this policy to the contrary notwithstanding, this policy DOES NOT INSURE:

Medical Benefits Not Insured

To any employee any medical, surgical and hospital treatment, nursing, medicines, medical and surgical supplies, crutches and apparatus, artificial limbs and transportation charges required by Section 4600 of the Labor Code. It is agreed that said benefits shall be provided by the employer at his own expense.

It is further understood and agreed that said treatment shall be provided by the employer in accordance with the provisions of the said Labor Code, and /or rulings and orders of the Workmen's Compensation Appeals Board of the State of California, and also to the satisfaction of the said________________________ COMPANY.

It is further understood and agreed that notwithstanding this exclusion, the employer named in this policy expressly agrees, authorizes and grants to the ________________________Company, at the expense of the employer, the right to control, direct, change, supplement or modify, the medical, surgical or hospital treatment to be furnished by the employer to injured employees.

Applicable to and forming part of Policy No. _______________

Issued by the ______________________________________________

To_____________________________________ of _________________

Dated at _____________________this_______day of ______199___

Countersigned ______________________________________________

FAILURE TO SECURE THE PAYMENT OF FULL COMPENSATION BENEFITS FOR ALL EMPLOYEES AS REQUIRED BY LABOR CODE SECTION 3700 IS A VIOLATION OF LAW AND MAY SUBJECT THE EMPLOYER TO THE IMPOSITION OF A WORK STOP ORDER, LARGE FINES AND OTHER SUBSTANTIAL PENALTIES

(Labor Code Section 3710.1, et seq.).

NOTE

Authority cited: Sections 11659, 11732, 11732.1 and 11734, Insurance Code. Reference: Sections 11657,11658 and 11659 and, Articles 2 and 3 of Chapter 3, Part 3, Division 2, Insurance Code.

HISTORY

1. New section filed 10-4-60; designated effective 1-1-61 (Register 60, No. 21).

2. Amendment filed 9-18-67; designated effective with respect to all policies and endorsements with an effective date falling on or after April 1, 1968 (Register 67, No. 38).

3. Amendment filed 1-21-81; effective thirtieth day thereafter (Register 81, No. 4).

4. Amendment filed 12-30-83; designated effective 1-1-84 pursuant to Government Code Section 11346.2(d) (Register 84, No. 1).

§2269.9. California Approved Form Endorsement No. 9. [Repealed]

History

HISTORY

1. New section filed 10-4-60; designated effective 1-1-61 (Register 60, No. 21).

2. Repealer filed 9-18-67; designated effective with respect to all policies and endorsements with an effective date falling on or after April 1, 1968 (Register 67, No. 38).

§2269.10. California Approved Form Endorsement No. 10.

Note • History

CALIFORNIA

APPROVED FORM NO. 10

Endorsement Agreement Limiting and Restricting This Insurance

The insurance under this policy is limited as follows:

It is AGREED that, anything in this policy to the contrary notwithstanding, this policy DOES NOT INSURE

Applicable to and forming part of Policy No. _______________

Issued by the ______________________________________________

To_____________________________________ of _________________

Dated at _____________________this_______day of ______199___

Countersigned ______________________________________________

(Labor Code Section 3710.1, et seq.).

NOTE

Authority cited: Sections 11732,11732.1, and 11734, Insurance Code. Reference: Articles 2 and 3 of Chapter 3, Part 3, Division 2, Insurance Code.

HISTORY

1. New section filed 10-4-60; designated effective 1-1-61 (Register 60, No. 21).

2. Amendment filed 9-18-67; designated effective with respect to all policies and endorsements with an effective date falling on or after April 1, 1968 (Register 67, No. 38).

3. Amendment filed 1-21-81; effective thirtieth day thereafter (Register 81, No. 4).

§2269.11. California Approved Form Endorsement No. 11.

Note • History

CALIFORNIA

APPROVED FORM NO. 11

Endorsement Agreement

Limiting and Restricting This Insurance

The insurance under this policy is limited as follows:

It is AGREED that, anything in this policy to the contrary notwithstanding, this policy DOES NOT INSURE:

Applicable to and forming part of Policy No. _______________

Issued by the ______________________________________________

To_____________________________________ of _________________

Dated at _____________________this_______day of ______199___

Countersigned ______________________________________________

FAILURE TO SECURE THE PAYMENT OF FULL

COMPENSATION BENEFITS FOR ALL EMPLOYEES AS REQUIRED BY LABOR CODE SECTION 3700 IS A VIOLATION

OF LAW AND MAY SUBJECT THE EMPLOYER TO THE IMPOSITION OF A WORK STOP ORDER, LARGE FINES AND OTHER SUBSTANTIAL PENALTIES

(Labor Code Section 3710.1, et seq.).

NOTE

Authority cited: Sections 11732,11732.1, and 11734, Insurance Code. Reference: Articles 2 and 3 of Chapter 3, Part 3, Division 2, Insurance Code.

HISTORY

1. New section filed 10-4-60; designated effective 1-1-61 (Register 60, No. 21)

2. Amendment filed 9-18-67; designated effective with respect to all policies and endorsements with an effective date falling on or after April 1, 1968 (Register 67, No. 38).

3. Amendment filed 1-21-81; effective thirtieth day thereafter (Register 81, No. 4).

§2269.12. California Approved Form Endorsement No. 12. [Repealed]

History

HISTORY

1. New section filed 104-60; designated effective 1-1-61 (Register 60, No. 21).

2. Repealer filed 9-18-67; designated effective with respect to all policies and endorsements with an effective date falling on or after April 1, 1968 (Register 67, No. 38).

§2269.13. California Approved Form Endorsement No. 13.

Note • History

CALIFORNIA

APPROVED FORM NO. 13

Endorsement Agreement

Limiting and Restricting This Insurance

If this policy is issued to a partnership, the insurance under this policy is limited as follows:

It is AGREED that, anything in this policy to the contrary notwithstanding, this policy DOES NOT INSURE

Applicable to and forming part of Policy No. _______________

Issued by the ______________________________________________

To_____________________________________ of _________________

Dated at _____________________this_______day of ______199___

Countersigned ______________________________________________

FAILURE TO SECURE THE PAYMENT OF FULL

COMPENSATION BENEFITS FOR ALL EMPLOYEES AS REQUIRED BY LABOR CODE SECTION 3700 IS A VIOLATION

OF LAW AND MAY SUBJECT THE EMPLOYER TO THE IMPOSITION OF A WORK STOP ORDER, LARGE FINES AND OTHER SUBSTANTIAL PENALTIES

(Labor Code Section 3710.1, et seq.).

NOTE

Authority cited: Sections 11732,11732.1, and 11734, Insurance Code. Reference: Articles 2 and 3 of Chapter 3, Part 3, Division 2, Insurance Code.

HISTORY

1. New section filed 10-4-60; designated effective 1-1-61 (Register 60, No. 21).

2. Amendment filed 9-18-67; designated effective with respect to all policies and endorsements with an effective date falling on or after April 1, 1968 (Register 67, No. 38).

3. Amendment filed 1-21-81; effective thirtieth day thereafter (Register 81, No. 4).

§2269.14. California Approved Form Endorsement No. 14.

Note • History

CALIFORNIA

APPROVED FORM NO. 14

Endorsement Agreement

Limiting and Restricting This Insurance

The insurance under this policy is limited as follows:

It is AGREED that, anything in this policy to the contrary notwithstanding, this policy DOES NOT INSURE

Liability Any liability which the named employer may

Not Insured have arising out of operations conducted joint--

ly by said named employer with any other per-

son, firm or corporation, except as specifically

set forth in Item (1) of the declarations or by en--

dorsement attached to this policy.

Applicable to and forming part of Policy No. _______________

Issued by the ______________________________________________

To_____________________________________ of _________________

Dated at _____________________this_______day of ______199___

Countersigned ______________________________________________

FAILURE TO SECURE THE PAYMENT OF FULL

COMPENSATION BENEFITS FOR ALL EMPLOYEES AS REQUIRED BY LABOR CODE SECTION 3700 IS A VIOLATION

OF LAW AND MAY SUBJECT THE EMPLOYER TO THE IMPOSITION OF A WORK STOP ORDER, LARGE FINES AND OTHER SUBSTANTIAL PENALTIES

(Labor Code Section 3710.1, et seq.).

NOTE

Authority cited: Sections 11732,11732.1, and 11734, Insurance Code. Reference: Articles 2 and 3 of Chapter 3, Part 3, Division 2, Insurance Code.

HISTORY

1. New section filed 10-4-60; designated effective 1-1-61 (Register 60, No. 21).

2. Amendment filed 9-18-67; designated effective with respect to all policies and endorsements with an effective date falling on or after April 1, 1968 (Register 67, No. 38).

3. Amendment filed 1-21-81; effective thirtieth day thereafter (Register 81, No. 4).

§2269.15. California Approved Form Endorsement No. 15. [Repealed]

History

HISTORY

1. New section filed 10-4-60; designated effective 1-1-61 (Register 60, No. 21).

2. Repealer filed 9-18-67; designated effective with respect to all policies and endorsements with an effective date falling on or after April 1, 1968 (Register 67, No. 38).

Article 8. Surety Bonds

§2270. Consideration or Premium to Be Stated.

In conformity with Attorney General's Opinion No. NS-3736, it is hereby ordered that all surety bonds issued by insurers in the State of California on or after October 1 1941, comply with the following conditions:

(a) Such bonds shall state the entire consideration or premium paid therefor.

(b) Such statement of consideration, if not contained in the text of the bond, shall be attached thereto by endorsement or stamped thereon prior to delivery of said bond.

Article 9. Extension of Covering Notes

§2271. Extension of Covering Notes.

History

This article governs the extension of covering notes beyond 90 days from the effective date of the original covering note without the written approval of the Commissioner and is for the purpose of preventing the violation of any provision of the Insurance Code by such extension without such written approval.

HISTORY

1. New 2271 to 2274.5 inclusive, filed 4-30-48 (Register 12, No. 5).

§2272. Effective Date of Article.

This article shall take effect at 12.01 a.m., Pacific Standard Time, on June 1, 1948.

§2273. Definitions.

As used in this article:

(a) The term “covering note(s),” etc. includes binder, binder letters, or any similar agreement which provides temporary insurance, other than a policy or certificate of insurance.

(b) The terms “extension(s)” and “renewal(s)” are synonymous and includes any means by which coverage granted by a covering note is kept in force other than by the issuance of a policy or certificate of insurance.

RULES

§2274. Authority to Extend Beyond 90 Days.

Any insurer may extent or renew any covering note issued by it beyond 90 days from the effective date of the original cover note without the written approval of the commissioner, in accordance and subject to all conditions set forth in Sections 2274.1 to 2274.5, and said sections pertain only to such extension or renewal.

§2274.1. Terms of Coverage Limited to 150 Days.

The extension or renewal may be for a period or periods which, when added to the original 90-day period, will not grant coverage under covering notes for a period in excess of 150 days from the effective date of the original covering note.

§2274.2. Contents of Covering Note and Insurer's Record Prescribed.

The covering note and its extension or renewal must be in writing, and the insurer must maintain a permanent record of the original covering note and of all renewals or extensions thereof. Such record and the covering note must contain the following:

(a) Name of the insured.

(b) The property or liability insured.

(d) The risks insured against.

(e) The commencement and termination dates of the covering note.

(f) The basis or rates upon which the final premium is to be determined and paid. (If the risk falls within a definite schedule of rates used by the insurer, this rule may be complied with by a declaration in the note and the records that the premium will be based upon such a schedule.)

(g) If the extension or renewal is by a separate covering note, or if the entry in the records is a separate entry, such note and/or such entry must refer to and identify the original note or entry.

§2274.3. Policy Must Be Issued; Minimum Period and Risks to Be Covered by Policy Prescribed.

At or before the expiration of the extension or renewal, or at the expiration of such further extensions or renewals as may be specifically granted in writing by the Insurance Commissioner, a policy of insurance must be issued covering the insured, the risks bound by the covering note, and commencing with the effective date of the original covering note at least the period of time included in all covering notes.

§2274.4. Earned Premium Must Be Charged: Rate May Not Be Unfairly Discriminatory; When Separate Charge Need Not Be Made.

An earned premium must be charged for the insurance bound by covering notes. Such earned premium shall not be unfairly discriminatory, but shall be consistent with the premium rates usually used by the insurer for risks of the nature of that bound by the covering note. When the policy issued pursuant to Section 2274.3 covers not only the period of time included in all of the covering notes but extends beyond the termination of the last one thereof, then the earned premium may be included in the premium charged under the policy and need not be charged separately therefrom.

§2274.5. Risks Eligible for Automatic Extension Defined.

The risk to be bound under the covering note to be extended or renewed must be one for which, by reason of the unavailability of an average rate, the in ability to determine the value of the property, or the physical inability to make a survey or inspection of the hazards, it is impossible to issue an insurance policy in the ordinary course of business within 90 days. A covering note binding a risk which does not fall within on of the following categories shall not be eligible for automatic extension. A risk which does fall within one of the following categories shall be prima facie deemed to have met the requirements of this section.

(a) The property insured is in five or more separate locations.

(b) The premium which it is estimated the risk will develop will be:

(1) $400 or more per annum in the case of fire insurance.

(2) $250 or more per annum in the case of insurance other than fire.

(3) If the parties contemplate the issuance of a policy with a term other than one year, then the estimated premium must be at least in an amount which is either in the same ratio to the $400 or $250, respectively, as the term of the policy is to one year, or, if the insurer calculates its premiums for such a policy on a multiple or fraction of the one-year premium, equal to such multiple or fraction of the $400 or $250, respectively.

(c) The risk is one which normally requires a survey or inspection and is located in excess of 100 miles by usual routes of travel from any city having, by the latest regular United States census, a population of 100,000 or more.

Article 11. Standards for Health History Questionnaires in Health Insurance Applications, Pre-Issuance Medical Underwriting and Rescission of Health Insurance Policies

§2274.70. Purpose.

Note • History

The purpose of this article is to:

(a) Clarify and make specific the application of the following statutes to the medical underwriting process and the permissibility of rescission by insurers: Insurance Code sections 10113, 10119.3, 10380, 10381.5 and 10384 and related insurance policy provisions;

(b) Set forth standards for determining whether questions used to ascertain the health condition or history of an applicant for health insurance coverage are clear and unambiguous pursuant to Insurance Code section 10291.5(c)(1);

(c) Identify bases on which the Commissioner may find that provisions in a health insurance policy containing a health history questionnaire which the insurer makes part of the contract between the insurer and the insured are unintelligible, uncertain, ambiguous, abstruse or likely to mislead an applicant pursuant to Insurance Code section 10291.5(b)(1);

(d) Set forth standards for determining whether questions on a health history questionnaire, supplemental questionnaire or script used during pre-issuance underwriting are reasonable and necessary for medical underwriting purposes as required by Insurance Code section 10291.5(c)(2);

(e) Set forth requirements for the pre-issuance medical underwriting process pursuant to Insurance Code section 10384;

(f) Set forth attestation requirements for agents assisting insureds in the submission of health insurance applications; and

(g) Set forth requirements for the conduct of post-issuance rescission investigations where a claim has been submitted or the insurer has received notice of a claim.

NOTE

Authority cited: Sections 790.10, 10291.5, 10384, 12921 and 12926, Insurance Code; CalFarm Ins. Co. v. Deukmejian, 48 Cal.3d 805 (1989); and 20th Century Ins. Co. v. Garamendi, 8 Cal. 4th 216 (1994). Reference: Sections 106, 380, 730, 733, 734, 790.03, 796.04, 10113, 10291.5, 10380, 10381.5 and 10384, Insurance Code.

HISTORY

1. New article 11 (sections 2274.70-2274.78) and section filed 7-19-2010; operative 8-18-2010 (Register 2010, No. 30).

2. Change without regulatory effect amending Note filed 9-23-2010 pursuant to section 100, title 1, California Code of Regulations (Register 2010, No. 39).

§2274.71. Scope.

Note • History

(a) This article shall apply to all health insurance policies as defined in Insurance Code section 106(b) and all certificates issued under such policies where the insurer applies medical underwriting guidelines and where guaranteed issue requirements do not apply.

(b) This article is not intended to set forth an exhaustive list of all rights and responsibilities of insureds or insurers with respect to applicable statutes governing medical underwriting and rescissions of health insurance policies and related issues. This article does not preclude the insurer's use of new underwriting methods or techniques.

(c) Any provision of this article shall be inapplicable to the extent it conflicts with any provision of the Patient Protection and Affordable Care Act of 2010, 111 Pub. L. No. 148, 124 Stat. 119 (2010), as amended, or any federal regulations at any time implementing it, as amended (collectively, the “Act”), provided the provision of the Act has gone into effect and is operative. However, any provision of this article to which the preceding sentence applies shall yield to the applicable provision of the Act only to the extent necessary to avoid the conflict and otherwise shall remain in force to the fullest extent possible.

NOTE

HISTORY

1. New section filed 7-19-2010; operative 8-18-2010 (Register 2010, No. 30).

2. Change without regulatory effect amending Note filed 9-23-2010 pursuant to section 100, title 1, California Code of Regulations (Register 2010, No. 39).

§2274.72. Definitions.

Note • History

For purposes of this article,

(a) “Policy” or “policies” refers to the written instrument, which is a contract of insurance that puts insurance coverage into effect and includes group certificates and fraternal benefit society certificates.

(b) “Reasonable layperson standard” means a method of evaluating health history information that recognizes and takes into account the level of understanding and appreciation of words and terms in a health history questionnaire by the average individual who lacks professional training and experience in medicine.

(c) “Questions” means questions and all requests for information, including statements or disclosures requested of the applicant in a health history questionnaire that is part of an application for health insurance coverage.

(d) “Personal Health Record” (“PHR”) means a dynamic set of personal health history information derived from a private, secure database maintained by a health insurer or health plan and that contains medical claims and other information. A PHR may be “auto-populated” with medical and related information, including claims records reflecting diagnoses and procedure codes, dates of treatments, prescription records, medical testing and other allowed clinical information. A PHR is distinct from an electronic medical record, which is primarily intended for use by medical professionals. A PHR is designed primarily for use by the insured. As used in this article, a PHR refers exclusively to a record of health history information maintained by an insurer or health plan for use by its covered persons. An insurer may ignore any applicant-generated health information purporting to be part of a PHR.

(e) “Material”, when used to describe information relied on by an insurer, indicates specific information that would be a determining factor to the insurer in deciding whether to accept or reject a proposed insurance risk associated with a health insurance policy or in determining the rate that will be offered.

(f) “Medical Underwriting” means the process of determining the relative risks of providing health insurance coverage to an individual by examining medical and other information and applying medical underwriting guidelines. The purpose of medical underwriting is to reject or accept the proposed insurance risk and, if accepted, to set the level of coverage and the rate that will be offered.

NOTE

HISTORY

1. New section filed 7-19-2010; operative 8-18-2010 (Register 2010, No. 30).

2. Change without regulatory effect amending Note filed 9-23-2010 pursuant to section 100, title 1, California Code of Regulations (Register 2010, No. 39).

§2274.73. Standards for Health History Questions on an Application for Health Insurance Coverage.

Note • History

(a) Inquiries into an applicant's health history shall hold applicants to the reasonable layperson standard. Whenever possible, information from a PHR shall be requested and, if available, relied upon during medical underwriting in addition to self-reported information on health history questionnaires.

(b) All questions designed to ascertain the health condition or history of an applicant shall be limited to eliciting only medical information that is reasonable and necessary for medical underwriting.

(c) Medical information that is reasonable and necessary for medical underwriting means only such information that is essential to an insurer's calculation of prospective risk of the coverage being requested.

(d) Questions on an application for health insurance coverage shall:

(1) Be clear, specific, unambiguous and written to be understood by a reasonable layperson.

(2) Clearly state the period of time covered by the question. Specified time periods for each question shall be as short as possible to make a reasonable underwriting determination and must be limited to time periods required by sound actuarial underwriting standards used by the insurer.

(3) Be phrased to elicit information about diagnoses, treatments and recent consultations with health care providers known to the applicant.

(4) Provide each applicant with the opportunity to indicate whether he or she is unsure of the answer, does not know how to respond to any individual health history question, or does not understand the question. Health history questions shall offer response choices in addition to YES or NO, such as Not Sure.

(5) Offer the applicant an opportunity to indicate the applicant's inability to recall or remember the information requested. To the extent that such response choices impede the insurer's ability to apply its medical underwriting guidelines, the insurer shall pursue alternative methods of obtaining such information, including but not limited to telephone interviews, medical records or other sources of information.

(e) To avoid unclear, ambiguous and abstruse questions which may be likely to mislead, an application for health insurance coverage shall not:

(1) Include compound questions requiring a single answer or questions containing double negatives.

(2) Include questions that are unlimited in time and scope unless the insurer's medical underwriting guidelines based on sound actuarial principles reasonably require an unlimited time and scope.

(3) Include questions requiring the applicant to evaluate or understand the significance of a physical symptom or the cause of physical symptoms.

(4) Include questions requiring the applicant to guess or speculate regarding the kinds of symptoms that may be significant to the health insurer.

(5) Include questions phrased to require an applicant to guess or speculate about the significance of symptoms, conditions, disorders or impairments.

(6) Ask the applicant to make an overall appraisal of the applicant's general health or draw general conclusions about the applicant's medical or health status.

(7) Include any question which solicits or is reasonably calculated to solicit information regarding an HIV test result. Nor may any request for or use of objective, independently received information violate the statutory prohibition against an HIV test being used or required as a condition of obtaining health insurance coverage.

(f) Insurers shall use either a separate health history questionnaire for each individual applicant or a questionnaire in which each question calls for a separate, identifiable response from each applicant.

(g) An application for health insurance shall not ask any question that requires the applicant to make a determination as to whether an agent has or has not provided assistance as defined in Subdivision (c) of Section 2274.76.

NOTE

HISTORY

1. New section filed 7-19-2010; operative 8-18-2010 (Register 2010, No. 30).

2. Change without regulatory effect amending Note filed 9-23-2010 pursuant to section 100, title 1, California Code of Regulations (Register 2010, No. 39).

§2274.74. Standards for Avoiding Prohibited Postclaims Underwriting. [Repealed]

Note • History

NOTE

Authority cited: Sections 790.10, 10119.3, 10291.5, 10384, 12921 and 12926, Insurance Code; CalFarm Ins. Co. v. Deukmejian, 48 Cal.3d 805 (1989); and 20th Century Ins. Co. v. Garamendi, 8 Cal. 4th 216 (1994). Reference: Sections 106, 380, 730, 733, 734, 790.03, 796.04, 10113, 10119.3, 10291.5, 10380 and 10381.5, 10384, Insurance Code.

HISTORY

1. New section filed 7-19-2010; operative 8-18-2010 (Register 2010, No. 30).

2. Change without regulatory effect amending Note filed 9-23-2010 pursuant to section 100, title 1, California Code of Regulations (Register 2010, No. 39).

3. Change without regulatory effect pursuant to section 100(a)(3), title 1, California Code of Regulations, repealing section 2274.74 following final court judgment holding section invalid in Association of California Life & Health Insurance Companies v. California Department of Insurance, et al., Sacramento County Superior Court Case No. 34-2010-80000637, filed 5-31-2011 (Register 2011, No. 22).

§2274.75. Documentation Requirements and Examination by Commissioner.

Note • History

(a) In order to complete medical underwriting and resolve all reasonable questions arising from written information submitted on or with an application pursuant to Insurance Code section 10384, the insurer shall document the following in writing and such documentation shall be subject to examination by the Commissioner pursuant to Sections 730, 733, 734, 790.04, 791.14, 12921.1, 12924 and 12926 of the Insurance Code and Title 10, Chapter 5, Section 2695.3 California Code of Regulations:

(1) The insurer's completion of medical underwriting;

(2) The insurer's identification and resolution of all reasonable questions arising from written information submitted on or with the application for health insurance coverage;

(3) The insurer's attempts to verify the accuracy and completeness of the application;

(4) All communications relating to the processes described in this article, including communications to and from the insured;

(5) All communications with the agent assisting the applicant regarding any aspect of (1) the application, (2) the submission of the application or any supplemental information to the insurer, or (3) the underwriting of the policy based on information in the application;

(6) All communications referred to in these regulations shall include electronic records as defined in Civil Code Section 1633.2(g).

NOTE

HISTORY

1. New section filed 7-19-2010; operative 8-18-2010 (Register 2010, No. 30).

2. Change without regulatory effect amending Note filed 9-23-2010 pursuant to section 100, title 1, California Code of Regulations (Register 2010, No. 39).

§2274.76. Agent Attestation and Notification Requirements When Health Insurance Applications Are Submitted to Insurers.

Note • History

(a) Any agent, as defined in Section 1622 or 1626 of the Insurance Code assisting an applicant in submitting an application for health insurance as that phrase is defined in Subdivision (c) of this Section 2274.76 shall notify the insurer that the agent has provided such assistance.

(b) For purposes of Insurance Code Section 10119.3, an application includes an application for health insurance submitted electronically using an Internet web site provided by the insurer or any other Internet web site, such as an agent's or broker's web site, which is intended to be used for submission of health insurance applications to insurers.

(c) For purposes of Insurance Code section 10119.3, assisting an applicant in submitting an application for health insurance to a health insurer includes: (1) providing information or advice or answering the applicant's questions about any aspect of the application or its submission (2) providing information or advice or answering the applicant's questions about the medical underwriting of the application (3) providing information or advice or answering any of the applicant's questions about the health insurance coverage sought by the applicant or (4) entering information directly into or onto the application.

(d) If the agent provides assistance to the applicant as described in Subdivision (c) of this Section 2274.76 at any time prior to the date of issuance of the policy sought by the applicant, the agent is required to comply with all provisions of Insurance Code section 10119.3 and any regulation promulgated thereunder, including but not limited to Subdivision (a) of this Section 2274.76.

(e) In order to complete medical underwriting, insurers are required to obtain the written attestation of any agent who assists an applicant in submitting an application for health insurance. If the agent provided no assistance to an applicant in submitting an application for health insurance as defined in Subdivision (c), the insurer must obtain and maintain written notification from the agent of this fact, unless no agent has been involved in completing or submitting the application. Insurers may not complete medical underwriting and issue a health insurance policy without receiving an agent attestation as required by Section 10119.3 of the Insurance Code unless the insurer is processing the application without the involvement of any agent.

(f) When an insurer receives an electronically submitted application for health insurance through an agent's web site, the insurer is required to promptly provide to the agent (1) a copy of the application and (2) notification of its receipt.

(g) When an agent is notified by either the insurer or by the agent's web site that an application for health insurance has been electronically submitted to the insurer through the agent's Web Site, the agent must promptly deliver to the insurer a notification stating whether or not the agent provided assistance to the applicant. If the agent did not assist the applicant in submitting an application for health insurance within the meaning of Subdivision (c) of Section 2274.76 prior to the receipt of the application by the insurance company, but provides such assistance to the applicant thereafter and prior to the issuance of the policy, the agent must provide an attestation in order to comply with all provisions of Insurance Code section 10119.3 and any regulation promulgated thereunder, including but not limited to Subdivision (a) of this Section 2274.76.

NOTE

Authority cited: Sections 790.10, 10119.3, 10291.5, 10384, 12921 and 12926, Insurance Code; CalFarm Ins. Co. v. Deukmejian, 48 Cal.3d 805 (1989); and 20th Century Ins. Co. v. Garamendi, 8 Cal. 4th 216 (1994). Reference: Sections 106, 380, 730, 733, 734, 790.03, 796.04, 10113, 10119.3, 10291.5, 10380, 10381.5 and 10384, Insurance Code.

HISTORY

1. New section filed 7-19-2010; operative 8-18-2010 (Register 2010, No. 30).

2. Change without regulatory effect amending Note filed 9-23-2010 pursuant to section 100, title 1, California Code of Regulations (Register 2010, No. 39).

§2274.77. Return of Completed Application for Health Insurance Coverage at Time of Policy Transmission; Notice and Communication Requirements. [Repealed]

Note • History

NOTE

HISTORY

1. New section filed 7-19-2010; operative 8-18-2010 (Register 2010, No. 30).

2. Change without regulatory effect amending Note filed 9-23-2010 pursuant to section 100, title 1, California Code of Regulations (Register 2010, No. 39).

3. Change without regulatory effect pursuant to section 100(a)(3), title 1, California Code of Regulations, repealing section 2274.77 following final court judgment holding section invalid in Association of California Life & Health Insurance Companies v. California Department of Insurance, et al., Sacramento County Superior Court Case No. 34-2010-80000637, filed 5-31-2011 (Register 2011, No. 22).

§2274.78. Post-Contract Issuance Rescission or Cancellation Investigations.

Note • History

(a) This Section, 2274.78, applies only to claims investigations intended to produce facts or other information that could be used as the basis for an evaluation by the insurer of whether to rescind or cancel the policy where the insurer has either received a claim from a claimant as defined in Subdivision (c) of Section 2695.2 or a notice of a claim as defined in Section 2695.2(n).

(b) The provisions of this Section 2274.78 that follow this Subdivision (b) do not apply to claims investigations not intended to produce information that could serve as the basis for an evaluation by the insurer of whether to rescind or cancel the policy. Accordingly, claims investigations not subject to the provisions of this section include, but are not limited to, (1) investigations interpreting policy provisions such as exclusion of pre-existing conditions, exclusion of investigational or experimental treatment, exclusion of care not medically necessary and coordination of benefits provisions or (2) investigations of member or provider appeals.

(c) If an insurer receives medical or health history information about an insured after having issued health insurance coverage to the insured and such information reasonably raises a question of whether the insured misrepresented or omitted material information prior to issuance of the policy, any review or investigation conducted by the insurer shall commence immediately but in no event later than fifteen (15) calendar days from receipt of the information. The dates relevant to the conduct of the investigation and any decisions regarding the investigation shall be clearly documented in the insurer's claim file.

(d) Immediately but in no event later than seven (7) days after an insurer's decision to commence an investigation or review as described in subdivision (c), the insurer shall send a written notice to the insured that it is conducting an investigation as described in subdivision (c).

(e) In the required written notice to the insured described in subdivision (d), the insurer shall clearly describe, in lay terms, the reason for the investigation and the substantive information on which the investigation is based. The insurer shall include with the notice copies of any applicable documents, such as claims, medical records, or any other information in the insurer's possession at the time of the notice and that is included in the insurer's review and investigation. The insurer shall provide to the insured all documents the insurer uses in its investigation that provided the basis for initiating the investigation except that an insurer is not required to provide documents that are otherwise protected by law.

(f) The insurer shall conduct and diligently pursue an investigation as described in subdivision (c) of this Section 2274.78, but shall not seek information that is not reasonably required for or material to the resolution of the investigation. The insurer shall only request information from the insured that is material to its investigation and such request shall be clear and timely. The insurer shall not request information from the insured that it can obtain directly, including but not limited to medical records.

(g) The insurer's investigation as described in subdivision (c) of this Section 2274.78 shall be completed promptly, but in no event later than ninety (90) calendar days after delivery of the notice described in Subdivision (d) of this Section 2274.78, unless the insurer can demonstrate good cause for delay. The insurer shall send a written notice of the status of its investigation to the insured every thirty (30) calendar days providing the insured with detailed information and an opportunity to provide further information to the insurer regarding its investigation.

(h) Immediately, but in no event later than seven (7) calendar days after concluding its investigation, the insurer shall send a written notice to the insured, which shall include detailed findings and the insurer's final determination regarding the insured's health insurance coverage.

(i) The notice of determination pursuant to Subdivision (h) of this Section 2274.78 shall indicate that if the insured believes the decision is incorrect and wishes to dispute it, he or she may have the matter reviewed by the Department of Insurance. This notice shall include the address and telephone number of the unit of the Department of Insurance that reviews claims and underwriting practices. The insurer shall not require the rescinded former insured to file an appeal with the insurer prior to seeking assistance from the Department of Insurance.

(j) The insurer must comply at all times with applicable insurance statutes, regulations and other laws governing claims payment, claims handling, benefits, and coverage determinations including during the investigation described in Subdivision (c) of this Section 2274.78.

NOTE

HISTORY

1. New section filed 7-19-2010; operative 8-18-2010 (Register 2010, No. 30).

2. Change without regulatory effect amending Note filed 9-23-2010 pursuant to section 100, title 1, California Code of Regulations (Register 2010, No. 39).

Subchapter 3. Insurers

Article 1. Admission Requirements

§2275. General Consideration: Operating Record and Financial Condition: Minimum Capital Does Not Guarantee Admission.

The commissioner will, in considering an applicant insurer for admission to transact business in California, determine each case largely upon its individual merits as to operating record and financial condition, and a reasonable surplus sufficient to meet all ordinary contingencies will be required in every case in addition to the minimum capital requirements specified in the statutes. The applicant must establish that its financial condition is such that the policyholders and creditors with which it will deal will be reasonably safe. Compliance with the minimum capital requirements does not guarantee admission. Each application for admission is determined after a consideration of all of the qualifications of the applicant.

§2276. When Examination Required.

The examination permitted by Section 731 of the Insurance Code of the business and affairs of foreign insurers applying for admission in the State of California will be required in the case of all foreign insurers seeking admission, who do not meet all of the following requirements:

(a) Such insurer has transacted insurance business under the same corporate name and management for at least five years immediately preceding the date of its application for admission to the State of California.

(b) Such insurer is, and for at least five years immediately preceding the date of its application for admission to the State of California, has been, authorized to transact an insurance business in not less than five states.

(c) Such insurer, through its duly authorized officers who have full knowledge of the facts, files a verified statement under oath that it has never been denied admittance in any state and that its certificate of authority to transact business in any state has never been revoked or suspended.

(d) Such insurer has been officially examined by the insurance commissioner or similar official of its home state as of a date not more than two years preceding the date of its application for admission to California.

(e) Such insurer, in addition to all other papers required to be filed, files with this department a certified copy of the last report of such examination.

(f) Such insurer has a cash capital of not less than $500,000 and a surplus over all liabilities of not less than $250,000.

The foregoing regulation is not to be construed as waiving the statutory right of the Insurance Commissioner to make or cause to be made such examination in the case of any such foreign insurer who meets all of the foregoing requirements.

§2277. Compliance with Requirements of Secretary of State.

The applicant insurer shall notify the commissioner of its transmission to the Secretary of State at Sacramento of its articles of incorporation and all amendments thereto, designation of representative for process and the payment of fees required therefor. The commissioner will not issue a certificate of authority until these requirements have been met.

Article 1.1. Holocaust Era Insurance Registry [Repealed]

Note: The Department of Insurance had been enjoined from enforcing the regulations in this article. The Office of Administrative Law approved the readoption of these emergency regulations, initially adopted on 1-13-2000 and refiled on 2-8-2000, 5-30-2000, 9-20-2000, 1-16-2001, 5-11-2001, 9-4-2001, 1-2-2002, 5-1-2002, 8-28-2002, 12-26-2002, 4-24-2002 and 8-25-2003, pursuant to subdivision (h) of Government Code section 11346.1 in order to maintain the status quo pending the outcome of the litigation. The litigation has been resolved in favor of the parties seeking the injunction and the regulations have been repealed 9-9-2003 pursuant to section 100, title 1, California Code of Regulations. For prior history of article 1.1, sections 2278-2278.5, see Register 2003, No. 35.

Article 1.3. Standards for Approval of Insurer Names

§2278.50. Applicability.

Note • History

(a) These regulations apply to written applications for the use of a name by any of the following:

(1) a domestic insurer (“domestic” is defined in Insurance Code Section 26);

(2) a foreign insurer (“foreign” is defined in Insurance Code Section 27);

(3) an alien insurer (as defined in Insurance Code Section 1580);

(4) a reciprocal or interinsurance exchange (as defined in Insurance Code Section 1303);

(5) a motor club (as defined in Insurance Code Section 12142);

(6) an underwritten title company (as defined in Insurance Code Section 12340.5);

(7) a home protection company (as defined in Insurance Code Section 12740);

(8) a fraternal benefit society (as defined in Insurance Code Section 10990);

(9) two or more insurers proposing to issue an underwriter's policy as to the name or title of such policy (as specified in Insurance Code Section 882);

(10) a multiple employer welfare arrangement (as defined in Insurance Code Section 742.21);

(11) an attorney-in-fact of a reciprocal or interinsurance exchange, or an agent or other representative duly authorized and acting under a power of attorney for subscribers of a reciprocal or interinsurance exchange.

(12) any other entity for which approval of a name is required by the Insurance Code, other than an entity or person subject to Insurance Code Section 1724.5.

(b) These regulations do not apply to non-admitted persons.

(c) This Article does not apply to applications for the use of a name that have been approved by the Commissioner prior to the effective date of these regulations.

NOTE

Authority cited: Sections 700, 720 and 790.10, Insurance Code; CalFarm Ins. Co. v. Deukmejian, (1989) 48 Cal.3d 805; and 20th Century Ins. Co. v. Garamendi, (1994) 8 Cal. 4th 216. Reference: Sections 742.42, 790.02, 790.03, 880, 881, 881.1, 881.2, 881.5, 882, 882.5, 883, 10970, 12162, 12389 and 12743, Insurance Code.

HISTORY

1. New article 1.3 (sections 2278.50-2278.59) and section filed 10-11-2010; operative 11-10-2010 (Register 2010, No. 42).

§2278.51. Definitions.

Note • History

(a) The term “Licensee” refers to any type of entity specified in Section 2278.50 of this Article, regardless of the entity's form of organization, authorized by the Commissioner to transact insurance or other business in California.

(b) The term “Applicant” means any person seeking approval for the use of a name in accordance with these regulations, whether such person is proposed to be formed, in formation, or in existence.

(c) The term “Affiliate” means a person who directly or indirectly, through one or more intermediaries, controls, is controlled by, or is under common control with another person. Insurers that are within an insurance holding company system are Affiliates.

NOTE

HISTORY

1. New section filed 10-11-2010; operative 11-10-2010 (Register 2010, No. 42).

§2278.52. Written Application.

Note • History

(a) An Applicant seeking approval of a name shall submit a written application containing the information set forth below, together with any other information that is reasonably required by the Commissioner under the circumstances. An Applicant may use the Commissioner's Form N-1 for this purpose.

(1) The name for which approval is sought and up to two alternative names, if desired, in order of preference;

(2) The Applicant's state of domicile;

(3) The Applicant's Federal Employer Identification Number;

(4) The Applicant's National Association of Insurance Commissioners number and, if applicable, group number and group name;

(5) An organizational chart identifying all Affiliates, including parent companies and subsidiaries. If the Applicant has not yet been formed, the organizational chart must specify the proposed position of the Applicant on the organizational chart upon completion of the Applicant's formation;

(6) In the case of an Applicant that is not affiliated with any other company or person, the names of the owners or proposed owners of the Applicant;

(7) If the Applicant is an underwritten title company, the counties in which business is or will be transacted and the title insurers that will underwrite the policies offered by Applicant;

(8) The classes of insurance as specified in Insurance Code §100 and the classes of insurance or contracts as defined in Insurance Code Sections 101 through 124.5 and Section 12100 that the Applicant transacts or proposes to transact in California, including statutorily authorized specialty lines, such as: variable life insurance, variable annuities, modified guaranteed annuities, and universal life insurance;

(9) A list identifying every application or filing pending with the Commissioner by or pertaining to the Applicant, or by or pertaining to any Affiliate, regarding transaction of its business, or transaction of any Affiliate's business, in California. The foregoing includes, but is not limited to, an application for a certificate of authority, an amended certificate of authority, a securities permit, an application or filing required by Insurance Code Section 1011(c), and an application pursuant to Insurance Code Sections 1215 et seq. Applications pertaining to dividends, property and casualty rates, and form filings are not required to be listed;

(10) In the case of a foreign or alien insurer or other entity that will be required to use an operating name in California, a certified copy of a resolution by its board of directors (or if its form of business organization does not have a board of directors, its governing body) authorizing the use of the fictitious business name or operating name in California.

(b) An Applicant seeking approval of a name change shall submit the following information in addition to the information specified in Subdivision (a):

(1) the reason for the proposed name change (including but not limited to marketing reasons, acquisition, merger or reorganization of the Applicant);

(2) if the requirements of subdivision (q) of Section 2303.15 apply to the Applicant, then the Applicant shall submit a written commitment as set forth in subdivision (r) of Section 2303.15 that it shall comply with subdivision (q) of Section 2303.15. The written commitment does not have to be in the form of a board resolution.

(c) An Applicant whose primary business is, or will be, reinsurance and whose proposed name includes the words “reinsurer” or “reinsurance” shall submit a written commitment as set forth in subdivision (q) of Section 2303.15 (the written commitment does not have to be in the form of a board resolution), that (1) transacting reinsurance will be its primary business in California, and (2) at such time as it intends that its primary business in California will be transacting direct insurance (not reinsurance), it will submit an application to the Commissioner seeking approval of a name change that deletes the words “reinsurer” or “reinsurance,” as the case may be, and which otherwise complies with these regulations.

NOTE

HISTORY

1. New section filed 10-11-2010; operative 11-10-2010 (Register 2010, No. 42).

§2278.53. Prohibited Words or Phrases.

Note • History

(a) An application for approval of a name may not contain the following words or phrases, either singular or plural, or a derivation of one or more of such words or phrases:

(1) Federal;

(2) United States, U.S., or U.S.A.;

(3) reserve;

(4) Deposit Insurance;

(5) Federal Deposit;

(6) Olympic;

(7) Olympia;

(8) bank;

(9) savings association;

(10) savings;

(11) savings bank, unless (A) the remaining words in the name clearly demonstrate that the applicant will conduct insurance business and not a savings bank business and (B) a “no objection letter” issued by the California Department of Financial Institutions is provided to the Commissioner;

(12) savings and loan association;

(13) building and loan association;

(14) building association;

(15) trust, unless the Applicant is a Multiple Employer Welfare Association;

(16) trustee;

(17) agent;

(18) agency;

(19) society, unless the Applicant is organized, or proposes to be organized as a fraternal benefit society, pursuant to Insurance Code Sections 10970 et seq.;

(b) An application by an Applicant whose primary business is not reinsurance may not contain the words “reinsurer” or “reinsurance.”

NOTE

HISTORY

1. New section filed 10-11-2010; operative 11-10-2010 (Register 2010, No. 42).

§2278.54. Required Words or Phrases.

Note • History

(a) A proposed name for an Applicant that is, or will be, an insurer must include one of the following words: “Assurance,” “Casualty,” “Indemnity,” or “Insurance.”

(b) A proposed name for an Applicant that is, or will be, admitted to write life insurance must include the word “Life.”

(c) A proposed name for an Applicant that is, or will be, organized as a stock company must indicate that the Applicant is a stock company. The name may use the word “Company” for this purpose.

(d) A proposed name for an Applicant that is, or will be, organized as a mutual insurance company must include the word “Mutual.”

(e) A proposed name for an Applicant that is organized as a reciprocal insurer or an interinsurance exchange, must include the words “Interinsurance Exchange, “Exchange,” or “Reciprocal.”

(f) A proposed name for an Applicant that is, or will be, an underwritten title company or title insurer must include the word “Title.”

(g) A proposed name for an Applicant that writes, or will write, mortgage insurance or mortgage guaranty insurance must include the words “mortgage” or “mortgage guaranty,” as applicable.

(h) A proposed name of an Applicant that is, or will be, a motor club must include the word “Club” and the words “Motor,” “Auto,” or “Automobile.”

(i) A proposed name for an Applicant that is the United States branch of an alien insurer must include the words “United States Branch” or “U.S. Branch.”

(j) A proposed name for an Applicant that is a Multiple Employer Welfare Association must include the word “Trust.”

NOTE

HISTORY

1. New section filed 10-11-2010; operative 11-10-2010 (Register 2010, No. 42).

§2278.55. Names Which Are an Interference With or Are Too Similar to Names or Which are Likely to Mislead the Public.

Note • History

For the purpose of this Section, the meaning of the word “name” includes a name that has been reserved pursuant to Insurance Code Section 881 and includes a proposed name for which an application is pending before the Commissioner.

(a) A name is too similar to or is an interference with the name of a business, other entity or Licensee if:

(1) the first two words, initials or numbers of the proposed name are identical to the first two words, initials or numbers of the name of a business, entity or Licensee, other than an Affiliate.

(2) it contains words or phrases used in the name of another Licensee, other than an Affiliate, that are not general words or phrases or are not commonly used in the names of Licensees.

(3) it contains a coined word (i.e., a word that is made up) that is part of the name of a business, entity, or Licensee, other than an Affiliate.

(4) it is so similar in words, usage, word order, spelling, pronunciation, or appearance to the name, logo, symbol, trademark, trade name, or service mark of a well-known business or entity (other than an Affiliate) or Licensee (other than an Affiliate) as to borrow on the name of, or imply affiliation with, or create a likelihood of confusion with the name of such business, entity or Licensee. The foregoing applies regardless whether the business or entity is licensed or regulated by the Insurance Commissioner or is otherwise identified with the insurance industry.

(5) it is identical in words, regardless of order, to the name of a Licensee (including an Affiliate).

(b) a name is likely to mislead the public if:

(1) it would tend to cause the public to believe that the Applicant offers, or will offer, classes or types of insurance that it does not or will not offer.

(2) it includes the name of a state or other jurisdiction other than the state or jurisdiction in which the Applicant is domiciled.

(3) it is the same as, closely resembles, borrows on the name of, or implies affiliation with or sponsorship by a federal, state, or local governmental authority or program.

(4) it is the same as, closely resembles, borrows on the name of, implies affiliation, or is too similar to the name of a bank, savings association, trust company, industrial loan company, or other financial institution that it not an Affiliate of the Applicant.

(5) it contains words or numbers indicating or implying that it was organized or commenced transacting business prior to another Licensee or Applicant, whether or not the Licensee or other Applicant is an Affiliate.

(6) it would lead the public to believe that the Applicant is an insurance agent, life agent, insurance broker, insurance solicitor, or other holder of a license specified in Insurance Code Part 2, Chapters 5 and 7.

(c) In addition to the circumstances set forth in Subdivisions (a) and (b), the Commissioner may exercise discretion to determine that a name is too similar to or is an interference with the name of a business, other entity or Licensee, or is likely to mislead the public under other circumstances on a case by case basis.

NOTE

HISTORY

1. New section filed 10-11-2010; operative 11-10-2010 (Register 2010, No. 42).

§2278.56. Use of Names Similar to Affiliate's Name.

Note • History

Notwithstanding Subdivision (a) of Section 2278.55, a proposed name will not be considered to be an interference with or too similar to the name of an Affiliate if use of the proposed name is not likely to mislead the public, and if the following are provided to the Commissioner:

(a) a legally binding written consent from each affected Affiliate which states that the Affiliate does not object to use of the proposed name in California by the Applicant, and which states that the written consent is irrevocable and unconditional. The written consent shall be signed by each Affiliate's chairman, president or any vice president, and shall be signed by each Affiliate's corporate secretary, an assistant secretary, chief financial officer, or assistant treasurer; and

(b) a legally binding written commitment from an officer of the Applicant and a legally binding written commitment from an officer of each affected Affiliate that neither the Applicant nor the Affiliate shall use any confusion about their names as a defense in any legal or other proceeding to avoid a claim which is against the Applicant or any affected Affiliate. The written commitment shall state that it is irrevocable and unconditional. The written commitment shall be signed by the Applicant's and each Affiliate's chairman, president or any vice president, and shall be signed by the Applicant's and each Affiliate's corporate secretary, an assistant secretary, chief financial officer, or assistant treasurer.

NOTE

Authority cited: Sections 700, 720 and 790.10, Insurance Code; CalFarm Ins. Co. v. Deukmejian, (1989) 48 Cal.3d 805; and 20th Century Ins. Co. v. Garamendi, (1994) 8 Cal. 4th 216. Reference: Sections 742.42, 790.2, 790.03, 880, 881, 881.1, 881.5, 882, 882.5, 883, 10970, 12162, 12389 and 12743, Insurance Code.

HISTORY

1. New section filed 10-11-2010; operative 11-10-2010 (Register 2010, No. 42).

§2278.57. Operating Names.

Note • History

Except for filings made with the Commissioner, and except as required by Insurance Code section 702, a Licensee that is a foreign or alien insurer or other entity that conducts business in California under an operating name that has been approved by the Commissioner pursuant to Insurance Code section 881 shall conduct business in California using only its approved operating name and not its true name. The foregoing includes, but is not limited to, the name used in connection with the following:

(a) insurance policies;

(b) endorsements to insurance policies;

(d) advertising materials;

(e) brochures, sales literature, information materials;

(f) information provided or made available to the public;

(g) stock sales announcements, circulars, prospectuses, and related advertisements and literature;

(h) correspondence (including electronic mail);

(i) telephone communications.

NOTE

HISTORY

1. New section filed 10-11-2010; operative 11-10-2010 (Register 2010, No. 42).

§2278.58. Commissioner's Discretion.

Note • History

(a) The Commissioner may waive strict compliance with the requirements of this Article if the Commissioner determines, in his or her discretion, that a proposed name will not constitute or create an interference with or be too similar to the name of a business or entity (including a name that has been reserved pursuant to Insurance Code Section 881 and a proposed name for which an application is pending before the Commissioner), or when a proposed name is not likely to mislead the public in any respect.

(b) The discretion of the Commissioner in approving and disapproving names is not exhausted by these regulations.

NOTE

HISTORY

1. New section filed 10-11-2010; operative 11-10-2010 (Register 2010, No. 42).

§2278.59. Form N-1.

Note • History

REQUEST FOR NAME APPROVAL AND RESERVATION

(FORM N-1)

To: Name Reservation Unit

Legal Division

Department of Insurance

45 Fremont Street, 24th Floor

San Francisco, CA 94105

SECTION 1 -- PROPOSED NAME(S)

Requested Name:

1st Alternative Name :

2nd Alternative Name:

SECTION 2 -- BACKGROUND INFORMATION

Contact Person: Name

Title

Address email

direct phone

fax

Applicant Name and Address:

Applicant's State of

Domicile:

Applicant's Federal Employer

Identification Number:

Applicant's NAIC Number:

Applicant's NAIC Group

Name and NAIC Group

Number (if applicable):

If Applicant is not an

Affiliate (see, §2278.51(c)),

name(s) of Applicant's

owners or proposed owners: (attach separate page if needed)

Organizational Chart: Attach organizational chart that identifies all Affiliates (see, §2278.51(c)), including parent companies and subsidiaries. If Applicant has not yet been formed, the organizational chart must specify the proposed position of Applicant on the organizational chart upon completion of Applicant's formation

Classes of Insurance (per

Insurance Code) transacted

or to be transacted in California:

Specialty lines (per Insurance

Code) transacted or to be

transacted in California

SECTION 3 -- APPLICANT SEEKING A NAME CHANGE

If the Applicant is seeking approval of a proposed name change, state the reason for the proposed name change.

SECTION 4 -- APPLICANT -- UNDERWRITTEN TITLE

COMPANY

If Applicant is, or will be, an underwritten title company, state the following:

(A) all counties in which business is, or will be, transacted:

(B) all title insurers that will underwrite the policies offered by Applicant.

SECTION 5 -- PENDING APPLICATIONS (ALL APPLICANTS)

List every application or filing that is pending with the Commissioner, filed either by or pertaining to Applicant, or filed by or pertaining to an Affiliate (see, §2278.51(c)), regarding transaction of its (or its Affiliate's) business in California. This includes, but is not limited to, applications for a certificate of authority, an amended certificate of authority, a securities permit, applications or filings required by Insurance Code 1011(c), and applications pursuant to Insurance Code §§1215 et seq. The foregoing does not include applications pertaining to dividends or pertaining to property and casualty rate and form filings.

SECTION 6 -- APPLICANTS -- FOREIGN OR ALIEN

COMPANY

An Applicant that is, or will be, a foreign or alien insurer or other entity that proposes to use a fictitious business name or operating name in California, must submit a certified copy of a resolution by its board of directors (or if its form of business organization does not have a board of directors, then its governing body) authorizing the use of the fictitious business name or operating name in California.

SECTION 7 -- APPLICANT TO WHICH REGULATION SECTION 2303.15(q) APPLIES

An applicant to which the requirements of California Code of Regulations, Title 10, Chapter 5, Subchapter 3, Article 1 §2303.15(q) applies shall submit a formal commitment, as set forth in regulation §2303.15(r), that it shall comply with regulation §2303.15(q).

NOTE

HISTORY

1. New section filed 10-11-2010; operative 11-10-2010 (Register 2010, No. 42).

Article 2. Valuation of Properties and Securities

§2279. Rules and Regulations for Valuation of Securities--General.

Note • History

The rules and regulations for the valuation of securities set forth in this article are adopted and promulgated as a necessary part of, and as instructions for the proper and uniform preparation and filing of financial statements and reports required by the California Insurance Code and the Insurance Commissioner, on a uniform basis according to kinds of insurance business transacted, to insurers to elicit from them a true exhibit of their financial condition, and to make certain and uniform, and to give advance notice as to the manner in which the Insurance Commissioner will initially exercise the discretion given to him by Sections 1250 to 1253, inclusive, 1430, 11131 and 12921 of the California Insurance Code relative to valuation of securities reported by insurers in financial statements filed with him and relative to the forms of financial statement and the valuation of securities reported therein required to be filed with him by insurers, including Reciprocal Insurers and Fraternal Insurers. The duties and discretion of the Insurance Commissioner conferred on him by laws as to the proper valuation of securities and properties held by insurers cannot be, and are not exhausted by these rules and regulations.

NOTE

Authority cited: Sections 923, 1250 to 1253, inclusive, 1430, 11131 and 12921, Insurance Code.

HISTORY

1. Amendment filed 2-4-71 as an emergency; effective upon filing (Register 71, No. 6). For prior history, see Register 69, No. 13.

2. Certificate of Compliance-See. 11422.1, Government Code, filed 3-12-71 (Register 71, No. 11).

§2280. Definitions.

History

(a) The term “association value” of a particular security as used in this article means the value of such security as established, promulgated, and recommended for use by the Committee on Valuation of Securities of the National Association of Insurance Commissioners, 60 Wall Street, New York, N.Y. 10005.

(b) Except where the context provides to the contrary, the words “financial statements” as herein below used in this article mean the financial statements and reports required of any insurer admitted to do business in the State of California, for the purpose of exhibiting the company's condition and affairs which the statements and reports are or may be required to be filed with the Insurance Commissioner of the State of California.

(c) The term “subsidiary company ” shall mean a corporation more than 50% of the outstanding capital stock of which is owned or controlled, directly or indirectly, by the reporting insurer or by a corporation affiliated with the reporting corporation, or by any or all of these.

HISTORY

1. Amendment filed 2-4-71 as an emergency; effective upon filing (Register 71, No. 6). For prior history, see Register 70, No. 27.

2. Certificate of Compliance-Sec. 11422.1, Government Code, filed 3-12-71 (Register 71, No. 11).

§2281. Valuations.

(a) The Insurance Commissioner will require that in the annual statement to be filed as required by the provisions of the Insurance Code, all securities and properties be valued as herein-after prescribed or permitted.

§2282. Bonds and Stocks.

History

(a) It is the intention of the Insurance Commissioner to accept on a prima facie basis for purposes of valuation of bonds and stocks, the “association value” subject to any limitations imposed by the Insurance Code of the State of California, provided that:

(1) A stock, bond or other evidence of debt if in default as to principal or interest or if not amply secured, shall not be valued as an asset of the insurer above its market value.

(2) The amortized values of amortizable bonds received under reorganization or capital readjustments may, with the approval of the Commissioner, continue at the time of such reorganization or capital readjustments to be based on the previously existing amortized cost, rather than current market value.

(b) It is the intention of the Insurance Commissioner to require that a mandatory securities valuation reserve be established in accordance with the rules and instructions of the Committee on Valuation of the National Association of Insurance Commissioners.

HISTORY

1. Amendment filed 2-7-69 as an emergency; designated effective 2-7-69 (Register 69. No. 6).

2. Amendment filed 3-25-69 as an emergency; effective upon filing Certificate of Compliance included (Register 69, No. 13).

3. Amendment filed 2-4-71 as an emergency; effective upon filing (Register 71, No. 6).

4. Certificate of Compliance-Sec. 11422. 1, Government Code, filed 3-12-71 (Register 71, No. 11).

§2283. Mortgages: General Rules Relating to Mortgages Purchased at a Premium or at a Discount and Which Are Not More Than Three Months in Default.

Notes secured by mortgage or deed of trust on real property which are not more than three months in arrears of either principal or interest, and on the property securing which no taxes, assessments or other charges constituting liens are in arrears or have been advanced by the reporting insurer or an affiliate thereof, shall be valued at amounts equal to the unpaid principal of such notes (but not in excess of the amount permitted by law to be loaned on or invested in such notes) with the following exceptions:

(a) FHA and VA Mortgages. Premiums may be amortized and discounts accrued on FHA and VA mortgages over a five-year period from date of acquisition. Companies may adjust the asset values of these mortgages to the face amounts thereof, but any excess of aggregate value over aggregate permissive amortized value (cost of mortgages less repayments of principal, adjusted for amortization of premiums and accrual of discounts on a five-year basis) shall be treated as a “not admitted asset.”

(b) Mortgages (Insured or Guaranteed by the Federal Housing Administration or the Veterans Administration) Received in Exchange for 2 3/4% Treasury Bonds, Investment Series “B”--1975-1980, Nontransferable. Acquisition cost to insurers shall be equal to the amortized value of the bonds surrendered in the exchange at the date of exchange, provided, however, that in no event shall such acquisition cost exceed the principal amount owing upon the mortgage at the time of acquisition by the insurer.

(c) Mortgages (Other Than FHA and VA Mortgages). The book value of real estate mortgages acquired at a premium may be reported at values reflecting write-offs of such premiums over a three-year period from date of acquisition. Real estate mortgages purchased at a discount should be carried at cost.

§2284. Notes in Arrears More Than Three Months.

All notes secured by mortgage or deed of trust on real property, which are in arrears more than three months of either principal or interest, or on the property securing which any taxes, assessments or other charges constituting liens are in arrears or have been advanced by the reporting insurer or an affiliate thereof, shall be valued at amounts not in excess of the lowest of the following:

(a) 90% of the reasonable value on December 31 of the property securing such several notes, except in the case of government guaranteed or insured obligations.

(b) The unpaid principal of such several notes without addition of interest in arrears or accrued and without addition of advances made.

Advances made on such notes must not be listed elsewhere as assets unless also deducted as “Assets Not Admitted.” Interest on such notes which are in arrears shall not, unless also deducted under “Assets Not Admitted,” be listed elsewhere as an asset in excess of the amount permitted by the valuation requirements of the Department of Insurance of the reporting insurer's state of domicile, nor in excess of interest in arrears one year.

§2285. Collateral Loans: Basis of Valuation.

Notes secured by collateral other than real property shall be valued at amounts determined for each such note and each security pledged therefor, not exceeding 85% of the value of such security pledged, determined in accordance with the rules herein, applicable to securities or property owned, nor exceeding in the aggregate in the case of any such secured note, the amount of unpaid principal thereof; but no value shall be claimed or will be allow d for shares of stock of the reporting insurer's own issue pledged as such security.

§2286. Real Estate: Property Used in Business.

Real property requisite for the accommodation of the reporting insurer in the transaction of its business shall not be valued in excess of the cost thereof plus the cost of capitalized improvements, less normal depreciation.

§2287. Other Real Property.

History

All other real property not under contract of sale shall be valued as follows:

(a) Real property acquired by foreclosure or in the satisfaction of debt shall be valued at an amount not to exceed the smaller of the following: Cost plus the cost of capitalized improvements, less normal depreciation, or market value as evidenced by a current appraisal by a competent and qualified appraiser.

(b) Real property acquired for investment purposes shall be valued at an amount not to exceed the smaller of the following: Cost plus the cost of capitalized improvements, less normal depreciation, or market value as evidenced by a current appraisal by a competent and qualified appraiser.

HISTORY

1. Amendment filed 6-13-68; effective thirtieth day thereafter (Register 68, No. 22).

2. Amendment filed 2-7-69 as an emergency; designated effective 2-7-69 (Register 69, No. 6).

§2288. Appraisal: When Required.

History

The appraisal of real estate may be made, if and when, on the basis of net earnings, it is indicated that property may be worth substantially less than cost plus the cost of capitalized improvements, less normal depreciation. In determining such net income, a rental charge or estimate by the owner for its own occupancy of all or part of such real property shall be limited to a reasonable amount with due regard to what a willing tenant other than the owner would pay in a free market.

HISTORY

1. Amendment filed 6-13-68; effective thirtieth day thereafter (Register 68, No. 22).

2. Amendment filed 2-7-69 as an emergency; designated effective 2-7-69 (Register 69, No. 6).

§2289. Property Under Contract of Sale.

Real property under contract of sale shall be valued at an amount not in excess of the lowest of the following:

(a) The reasonable value thereof on December 31.

(b) The cost of acquisition, increased by so much of the book profit if any, involved in the sale price, as will bear to the total book profit the same proportion that payments received on account of the sale price bear to the total sale price.

(c) The unpaid principal of such several contracts of sale without addition of interest in arrears or accrued and without addition of advances made.

Advances made on such contracts must not be listed elsewhere as assets unless deducted as “Assets Not Admitted.” Interest on such contracts which is in arrears shall not, unless also deducted under “Assets Not Admitted,” be listed elsewhere as an asset; provided, however, if the balance due, including interest, under any contract of sale is less than 66 2/3% of the value of the underlying real estate, then interest which is in arrears on any contract may be admitted as an asset but not in excess of one year's interest.

§2290. General: Basis of Valuation Must Be Reported in Annual Statement.

The basis of valuation used for each of the classes of securities and properties herein described must be clearly reported in the annual statement, which must be accompanied by the declaration of the reporting officer or officers of insurer, to the effect that, wherever “actual market value” or “reasonable values,” as the case may be, as herein required to be reported, have been reported, they and the prescribed fractions thereof, as the case may be, have in each case been reported on the basis herein prescribed. Such declaration shall also state all cases in which a valuation of the basis herein prescribed is impossible, the reasons therefor, and shall describe the valuation actually used in such cases.

§2291. Adjustment of Values in Special Cases.

In cases where the conditions of insurance companies, societies and associations may require special consideration or the immediate disposal of assets, it shall be within the discretion of the Commissioner to vary the general procedures or formulas herein set forth to the extent deemed necessary, or to adopt prices reflected by the exchanges or markets.

Article 3. Annual Statements

PREMIUMS IN COURSE OF COLLECTION

§2300. Premiums in Course of Collection: When May Be Treated as Admitted

Note • History

For purposes of the Annual Statement required of insurers to be filed with the Insurance Commissioner of the State of California on or before March 1 of the current calendar year, the following Premiums in Course of Collection may be treated as “Admitted Assets”:

(a) Premiums in course of collection, other than life insurance and annuity premiums, and not more than 3 months past due on December 31 of the preceding calendar year.

(b) Premiums in course of collection, other than life insurance and annuity premiums, for which the Government of the United States or any of instrumentalities is directly liable to the insurer, whether or not more than 3 months past due on December 31 of the preceding calendar year.

All other Premiums in Course of Collection on December 31 of the proceeding calendar year shall be reported and will be treated as “Assets Not Admitted” unless provided otherwise in the Instructions relating to the completion of annual and quarterly statements.

All annual and quarterly statements must be completed in full compliance with the instructions attached thereto and set forth therein.

NOTE

Authority cited for 2300 to 2301; Sections 923 and 12921, Insurance Code.

HISTORY

1. Amendment filed 5-30-74 as procedural and organizational; effective upon filing (Register 74, No. 22.)

§2301. Schedule F, Life Statement.

All insurers authorized to transact life insurance or life and disability insurance in the State of California are hereby required hereafter to list in Schedule F, irrespective of the presence or absence of litigation, all claims in fact resisted or compromised during the year covered by the annual statement of which such Schedule F is a part, and all claims remaining resisted at the end of such year.

§2302. Method of Reporting Salvage or Subrogation Recoveries on Annual or Interim Financial Statements.

Note • History

For purposes of the Annual Statement required of insurers to be filed with the Commissioner on or before the first day of March of each year or any interim financial statement filed with the Commissioner during the year by an insurer, anticipated salvage recoveries or anticipated subrogation recoveries shall have been reduced to cash or any asset readily convertible to cash.

NOTE

Authority cited: Sections 923 and 12921, Insurance Code. Reference: Section 907, Insurance Code.

HISTORY

1. New section filed 11-17-76; effective thirtieth day thereafter (Register 76, No. 47).

§2303. Reinsurance Accounting, Agreements and Oversight.

Note • History

Sections 2303 through 2303.25 of this article set forth the principal requirements of substance and procedure in accounting for reinsurance on insurer financial statements, the general requirements applicable to reinsurance agreements, and related sanctions and oversight. The sections are applicable to all insurers licensed or accredited in California, the approved U.S. trusts of otherwise unauthorized reinsurers, and licensed reinsurance intermediaries. The sections may be referred to as the Reinsurance Oversight Regulations.

NOTE

Authority cited: Sections 720, 730, 736, 922.8, 923, 924, 1011.5, 1215.8, 1781.12 and 12921, Insurance Code; CalFarm Insurance Company v. Deukmejian, 48 Cal. 3d 805 (1989); and 20th Century Insurance Company v. Garamendi, 8 Cal. 4th 216 (1994). Reference: Sections 700, 701, 717, 730, 733, 736, 900, 922.1, 922.2, 922.3, 922.4, 922.5, 922.6, 922.7, 922.8, 922.9, 923, 924, 925, 925.2, 925.4, 1011, 1011.5, 1215.5(b)(3), 1215.5(f), 1781.10 and 12921, Insurance Code.

HISTORY

1. New section filed 10-24-2006; operative 11-23-2006 (Register 2006, No. 43).

§2303.1. Purpose.

Note • History

Sections 2303 through 2303.25 of this article set forth requirements for the proper and uniform preparation by licensed insurers of the financial statements required by the California Insurance Code and the requirements for acceptable reinsurance arrangements. The requirements are intended to elicit from insurers a true exhibit of their financial condition and to safeguard the solvency of licensees. The sections give notice as to the manner in which the Commissioner will exercise the discretion set forth in Code Sections 700, 701, 704, 717, 730, 733, 922.2 through 922.8, 923, 924, 925, 925.2, 925.4, 1011, 1011.5, 1215.5(b)(3), 1215.5(f), 1781.10, and Section 12921 of the Code as respects accounting for reinsurance in insurer financial statements, acceptable reinsurance arrangements, and regulatory oversight. All statutory references are to the California Insurance Code (“Code”) unless otherwise stated.

The duties and the discretion of the Insurance Commissioner conferred by statute to ensure proper accounting for reinsurance and oversight of reinsurance arrangements are not exhausted by these regulations.

NOTE

Authority cited: Sections 720, 730, 736, 922.8, 923, 924, 1011.5, 1215.8, 1781.12 and 12921, Insurance Code; CalFarm Insurance Company v. Deukmejian, 48 Cal. 3d 805 (1989); and 20th Century Insurance Company v. Garamendi, 8 Cal. 4th 216 (1994). Reference: Sections 700, 701, 717, 730, 733, 736, 900, 922.1, 922.2, 922.3, 922.4, 922.5, 922.6, 922.7, 922.8, 922.9, 923, 924, 925, 925.2, 925.4, 1011, 1011.5, 1215.5(b)(3), 1215.5(f), 1781.10 and 12921, Insurance Code.

HISTORY

1. New section filed 10-24-2006; operative 11-23-2006 (Register 2006, No. 43).

§2303.2. Definitions.

Note • History

As used in this article:

(a) “Accredited reinsurer” means an insurer that has been accredited pursuant to Code Section 922.4(b) and Section 2303.4 of this article.

(b) “Alien insurer” means an insurer organized under the laws of any jurisdiction other than a State of the United States.

(c) “Approved U.S. trust” or “U.S. trust” means the multiple beneficiary trust established by an insurer or group of insurers to secure obligations under reinsurance agreements, that has been approved pursuant to the provisions of Code Section 922.4(c) and Section 2303.5 of this article.

(d) “Assuming insurer” or “reinsurer” means the insurer to which risk is transferred under a reinsurance agreement.

(e) “Ceding insurer” means the insurer that transfers risk to another insurer under a reinsurance agreement.

(f) “Commissioner” means the California Insurance Commissioner.

(g) “Department” means the California Department of Insurance.

(h) “Domestic insurer” means a licensed insurer domiciled in this state.

(i) “Domestic ceding insurer” means a domestic insurer that is a ceding insurer.

(j) “Examine” or “examination” as used in Code Section 730 includes an examination or review of any nature, scope or frequency by the Department of a licensed insurer, regardless of the location of the review or examination.

(k) “Financial statements” mean the statements and reports of an insurer filed with the Commissioner for the purpose of exhibiting the insurer's financial condition and affairs.

(l) “Foreign ceding insurer” means a foreign insurer that is a ceding insurer.

(m) “Foreign insurer” means a licensed insurer domiciled in another state.

(n) “Insurer” includes “reinsurer” unless otherwise apparent from the context.

(o) “Licensed insurer” means an insurer that has been issued a Certificate of Authority permitting it to transact insurance business in this state.

(p) “NAIC” means the National Association of Insurance Commissioners.

(q) “NAIC Accounting Guidance” means the NAIC Accounting Practices and Procedures Manual and the NAIC annual statement blanks and instructions, as amended from time to time, as made applicable to licensed insurers pursuant to Code Section 923.

(r) “RBC Report” means the Risk Based Capital report required of domestic insurers by Code Section 739.2, and of foreign insurers by their state of domicile.

(s) “Regulatory oversight” means the exercise of any or all powers granted a regulator to monitor or control the operations of an insurer; oversight may be formal, informal or voluntary. As used in this article, regulatory oversight means any of those actions taken by a regulator in response to a hazardous financial condition of an insurer. Regulatory oversight may be preliminary in nature, such as a determination to include a licensee on a regulator's watch list.

(t) “Reinsurance contract” or “reinsurance agreement” or “reinsurance treaty” means a contract by which an insurer transfers to another insurer all or part of its risk on business it has directly written or assumed.

(u) “Reinsurance intermediary” or “intermediary” means a licensed reinsurance intermediary-broker or a licensed reinsurance intermediary-manager, as defined in Code Section 1781.2.

(v) “Unauthorized reinsurer” means a reinsurer that is not licensed nor accredited in this state, and that does not maintain an approved U.S. trust.

(w) “Volume insurer” means any foreign insurer whose average gross direct premiums written in California as reported in its three most recent annual statements, or as reported for any lesser period of time if it has been licensed in California only for such lesser period of time, (a) exceeds the average gross direct premiums written in its state of domicile for the same period, and (b) constitutes 33 percent or more of its total gross direct premiums written in the United States for such three year or lesser period.

NOTE

HISTORY

1. New section filed 10-24-2006; operative 11-23-2006 (Register 2006, No. 43).

§2303.3. Credit for Reinsurance Ceded to Admitted Insurer.

Note • History

Credit on financial statements shall be allowed for reinsurance ceded to an assuming insurer that was licensed in California as of the date on which statutory financial statement credit for reinsurance is claimed, unless (1) the assuming insurer is the subject of a regulatory order or regulatory oversight on the grounds of hazardous financial condition by any state in which it is licensed, (2) the cession is not in compliance with the applicable provisions of Sections 2303.11 through 2303.13 of this article, or (3) the assuming insurer was not licensed or otherwise permitted to write or assume the lines or classes of business in its state of domicile.

NOTE

Authority cited: Sections 922.8 and 923, Insurance Code; CalFarm Insurance Company v. Deukmejian, 48 Cal. 3d 805 (1989); and 20th Century Insurance Company v. Garamendi, 8 Cal. 4th 216 (1994). Reference: Sections 922.2, 922.3, 922.4, 922.6 and 923, Insurance Code.

HISTORY

1. New section filed 10-24-2006; operative 11-23-2006 (Register 2006, No. 43).

§2303.4. Credit for Reinsurance Ceded to Accredited Reinsurer.

Note • History

(a) Credit on financial statements shall be allowed for reinsurance ceded to an assuming insurer that is an accredited reinsurer in California as of the date on which statutory financial statement credit for reinsurance is claimed, unless (1) the assuming insurer is the subject of a regulatory order or regulatory oversight on the grounds of hazardous financial condition by any state in which it is licensed, (2) the cession is not in compliance with the applicable provisions of Sections 2303.11 through 2303.13 of this article, or (3) the assuming insurer was not licensed or otherwise permitted to write or assume the lines or classes of business in its state of domicile.

(b) A reinsurer seeking accreditation shall file an application with the Commissioner that must include:

1. An executed Certificate of Assuming Insurer Form AR-1, published in Section 2303. 25(a) of this article, wherein the reinsurer:

A. Submits to the authority of the Commissioner to examine its books and records, and agrees to bear the expense of such examination or examinations; and

B. Affirms it has attached to such Certificate a current list of its ceding insurers domiciled in California, and undertakes to submit to the Commissioner additions to or deletions from such list at least once per calendar quarter.

2. An executed Designation of Agent for Service of Process and Consent to Jurisdiction Form AR-2, published in Section 2303. 25(b) of this article;

3. A certified copy of a certificate of authority or other acceptable evidence of a license to transact insurance or reinsurance in at least one state;

4. A statement, verified by an officer of the reinsurer, disclosing whether the reinsurer, or any affiliated person with an interest of 10% or more in the reinsurer, is currently known to be the subject of any order or proceeding initiated by a regulator in any jurisdiction regarding (1) conservation, liquidation or receivership, (2) revocation or suspension of a license or accreditation, or (3) restricting or precluding the transaction of insurance based upon a hazardous financial condition. Where the regulatory action is confidential, disclosure to the Commissioner is required only if permitted by the regulator issuing the order or initiating the oversight. The statement shall affirm that no actions, proceedings or orders subject to disclosure by this paragraph are outstanding, except as disclosed in the statement. The reinsurer shall attach to the statement copies of orders and other documents initiating proceedings for matters disclosed in the statement. The statement shall be in a form acceptable to the Commissioner.

5. A copy of the reinsurer's:

A. Annual financial statements for the past 3 years and all quarterly financial statements filed since the most recent annual statement, if any. The annual statements, including any amendments and NAIC required attachments, shall be signed and verified by the reinsurer's principal executive officer or manager residing within the United States. ;

B. Most recent examination report, with an “as of” date of not more than 5 years prior to its submission;

C. Most recent independent audit report and report of internal controls, with an “as of” date of not more than 15 months prior to its submission;

D. Most recent 8-K, 10-K and 10-Q forms, if any, filed with the SEC by the applicant or any controlling person;

E. Certificate of good standing from its state of domicile, or from the state of an alien insurer's port of entry;

F. Most recent holding company registration statement and any supplements thereto filed with its state of domicile;

G. Most recent RBC report; and

H. News releases issued by or on behalf of the reinsurer within the year prior to submission.

6. Additional information or documentation as requested by the Commissioner.

1. File its quarterly and annual financial statements and its RBC report at the same time those documents are filed with its state of domicile;

2. File an updated list of domestic insurer cedants quarterly;

3. File copies of news releases as they are issued by or on behalf of the reinsurer; by prior arrangement with the Department, such filings may be made electronically; and

4. File, on or before August 15 of each year, the documents required by subdivision (b) of this section, except that it is not necessary to file duplicates of financial documents and press releases already submitted.

(d) The costs and expenses incurred by the Department to review a reinsurer's application for accreditation and subsequent filings shall be charged to and collected from the reinsurer. The application for accreditation and required filings shall be submitted in the manner set forth in Section 2303.22(c) of this article.

(e) An accredited reinsurer, authorized under Code Section 922.4(b) for the specific purpose of permitting statement credit for a cession by a licensed insurer without the security required by Code Section 922.5, is not a licensed insurer and may not solicit or transact insurance business in this state either directly or through an agent or reinsurance intermediary acting on its behalf.

NOTE

HISTORY

1. New section filed 10-24-2006; operative 11-23-2006 (Register 2006, No. 43).

§2303.5. Credit for Reinsurance Secured by an Approved U.S. Trust.

Note • History

(a) Credit on financial statements shall be allowed for reinsurance ceded to an assuming insurer that, as of any date on which statutory financial statement credit for reinsurance is claimed and thereafter for so long as credit for reinsurance is claimed, maintains an approved U.S. trust as security for the payment of the valid claims of its U.S. domiciled ceding insurers, their assigns and successors in interest, unless the cession is not in compliance with the applicable provisions of Sections 2303.11 through 2303.13 of this article. As used in this section, “assuming insurer” includes all categories of insurers described in Code Section 922.4(c)(4).

(b) An assuming insurer seeking approval of a U.S. trust under Code Section 922.4(c) may file an application with the Commissioner in the manner set forth in Section 2303.22(d) of this article. The application shall include:

1. A copy of the trust document, certified by the commissioner of the Oversight State. As used in this section, “Oversight State” means the state where the trust is domiciled or the state whose commissioner has accepted principal regulatory oversight of the trust pursuant to the terms of the trust agreement;

2. A certified copy of the approval of the form of the trust issued by the commissioner of the Oversight State;

3. An independent audit report;

4. An actuarial opinion;

5. Copies of all documents submitted to the Oversight State, unless the Commissioner has agreed that copies of specified documents need not be provided;

6. An executed Certificate of Assuming Insurer Form AR-1, published in Section 2303. 25(a) of this article, wherein the assuming insurer:

A. Submits to the authority of the Commissioner to examine its books and records, and agrees to bear the expense of any such examination; and

B. Affirms it has attached to the Certificate a current list of its ceding insurers domiciled in California, and undertakes to submit additions to or deletions from the list to the Commissioner at least once per calendar quarter, unless, for good cause shown, the Commissioner permits a different reporting interval for additions to or deletions from the list;

7. An executed Designation of Agent for Service of Process and Consent to Jurisdiction Form AR-2, published in Section 2303. 25(b) of this article; and

8. Any other documents requested by the Commissioner.

(c) The form of a trust reviewed under this section shall not be acceptable to the Commissioner unless it (1) meets the requirements of Code Sections 922.4(c)((3) and 922.4(f), (2) meets the requirements of subdivision (f) of this section if the assets of the trust include a letter of credit, and (3) provides that the trustee shall be liable for its negligence or willful misconduct.

(d) A trust shall not be deemed sufficient by the Commissioner unless it (1) is in the amount prescribed in Code Section 922.4(c)(4), (2) is held in a U.S. financial institution which meets the requirements of Code Section 922.7, and (3) consists of assets meeting the requirements of this section. Assets equal to liabilities shall be on deposit in the trust no later than 45 days after the end of each calendar quarter unless the Commissioner determines that, for good cause shown, a reasonable extension of time to fund the deposit should be granted. Trust assets shall consist only of cash in United States dollars, certificates of deposit issued by a United States financial institution as defined in Code Section 922.7(a), investments as permitted in subdivision (e) of this section, or letters of credit as permitted in subdivision (f) of this section.

(e) In determining the sufficiency of the trust, only the following investments may be considered, according to their fair market value:

1. Government obligations that are not in default as to principal or interest, that are valid and legally authorized and that are issued, assumed or guaranteed by:

A. The United States or by any agency or instrumentality of the United States;

B. Any state of the United States;

C. A territory, possession or other governmental unit of the United States;

D. An agency or instrumentality of a government unit referred to in subparagraphs (B) and (C) of this paragraph, if the obligations are by law (statutory or otherwise) payable, as to both principal and interest, from taxes levied or by law required to be levied or from adequate special revenues pledged or otherwise appropriated or by law required to be provided for the purpose of making these payments, but not including obligations payable solely out of special assessments on properties benefited by local improvements; or

E. The government of any other country that is a member of the Organisation for Economic Co-Operation and Development and whose government obligations are rated A or higher, or the equivalent, by a rating agency recognized by the Securities Valuation Office of the NAIC;

2. Obligations that are issued in the United States, or that are dollar-denominated and issued in a non-U.S. market, by a solvent United States institution (other than an insurance company) or that are assumed or guaranteed by a solvent United States institution (other than an insurance company) and that are not in default as to principal or interest if the obligations:

A. Are rated A or higher (or the equivalent) by a securities rating agency recognized by the Securities Valuation Office of the NAIC, or if not so rated, are similar in structure and other material respects to other obligations of the same institution that are so rated; or

B. Are insured by at least one authorized insurer (other than the investing insurer or parent, subsidiary or affiliate of the investing insurer) licensed to insure obligations in this state and, after considering the insurance, are rated AAA (or the equivalent) by a securities rating agency recognized by the Securities Valuation Office of the NAIC; or

C. Have been designated as Class One or Class Two by the Securities Valuation Office of the NAIC;

3. Obligations issued, assumed or guaranteed by a solvent non-United States institution chartered in a country that is a member of the Organisation for Economic Co-Operation and Development or obligations of U.S. corporations issued in a non-U.S. currency, provided that in either case the obligations are rated A or higher, or the equivalent, by a rating agency recognized by the Securities Valuation Office of the NAIC;

4. An investment made pursuant to the provisions of paragraphs (e)(1), (e)(2) or (e)(3) of this section shall be subject to the following additional limitations:

A. An investment in or loan upon the obligations of any one institution, other than an institution that issues mortgage-related securities, shall not exceed five percent (5 %) of the assets of the trust;

B. An investment in any one mortgage-related security shall not exceed five percent (5 %) of the assets of the trust;

C. The aggregate total investment in mortgage-related securities shall not exceed twenty-five percent (25 %) of the assets of the trust; and

D. Preferred or guaranteed shares issued or guaranteed by a solvent United States institution are permissible investments if all of the institution's obligations are eligible as investments under subparagraphs (e)(2)(A) and (e)(2)(C) of this section, but shall not exceed two percent (2%) of the assets of the trust;

5. As used in this subdivision:

A. “Mortgage-related security” means an obligation that is rated AA or higher (or the equivalent thereto) by a securities rating agency recognized by the Securities Valuation Office of the NAIC and:

i. Represents ownership of one or more promissory notes or certificates of interest or participation in such notes (including any rights designed to assure servicing of, or the receipt or timeliness of receipt by the holders of such notes, certificates, or participation of amounts payable under such notes, certificates or participation), which notes:

a. Are directly secured by a first lien on a single parcel of real estate, including stock allocated to a dwelling unit in a residential cooperative housing corporation, upon which is located a dwelling or mixed residential and commercial structure, or on a residential manufactured home as defined in 42 U.S.C.A. Section 5402(6), whether the manufactured home is considered real or personal property under the laws of the state in which it is located; and

b. Were originated by a savings and loan association, savings bank, commercial bank, credit union, insurance company, or similar institution that is supervised and examined by a federal or state housing authority, or by a mortgagee approved by the Secretary of Housing and Urban Development pursuant to 12 U.S.C.A. Sections 1709 and 1715b, or, where such notes involve a lien on the manufactured home, by any such institution or by any financial institution approved for insurance by the Secretary of Housing and Urban Development pursuant to 12 U.S.C.A. section 1703; or

ii. Is secured by one or more promissory notes or certificates of deposit or participation in such notes (with or without recourse to the insurer thereof) and, by its terms, provides for payments of principal in relation to payments or reasonable projections of payments, or notes meeting the requirements of subitems (e)(5)(A)(i)(a) and (e)(5)(A)(i)(b) of this section.

B. “Promissory note”, when used in connection with a manufactured home, shall also include a loan, advance or credit sale as evidenced by a retail installment sales contract or other instrument;

6. Investments in common shares or partnership interests of a solvent United States institution are permissible if:

A. Its obligations and preferred shares, if any, are eligible as investments under subdivision (e) of this section; and

B. The equity interests of the institution (except an insurance company) are registered on a national securities exchange, as provided in the Securities Exchange Act of 1934, 15 U.S.C. §§78a to 78kk or otherwise registered pursuant to that Act, and, if otherwise registered, price quotations for them are furnished through a nationwide automated quotations system approved by the National Association of Securities Dealers, Inc. A trust shall not invest in equity interests under paragraph (e)(6) of this section in an amount exceeding one percent (1 %) of the assets of the trust even though the equity interests are not so registered and are not issued by an insurance company;

7. Investments in common shares of a solvent institution organized under the laws of a country that is a member of the Organization for Economic Cooperation and Development are permissible if:

A. All its obligations are rated A or higher, or the equivalent, by a rating agency recognized by the Securities Valuation Office of the NAIC; and

B. The equity interests of the institution are registered on a securities exchange regulated by the government of a country that is a member of the Organization for Economic Cooperation and Development;

8. Obligations issued, assumed or guaranteed by a multinational development bank, provided the obligations are rated A or higher, or the equivalent, by a rating agency recognized by the Securities Valuation Office of the NAIC;

9. Securities of an investment company registered pursuant to the Investment Company Act of 1940, 15 U. S.C. §80a, are permissible investments if the investment company:

A. Invests at least ninety percent (90%) of its assets in the types of securities that qualify as an investment under paragraphs (e)(1), (e)(2) or (e)(3) of this section; or that invests in securities that are determined by the Commissioner to be substantively similar to the permitted securities; or

B. Invests at least ninety percent (90%) of its assets in the types of equity interests that qualify as an investment under paragraph (e)(6) of this section;

10. An investment in or loan upon any one institution's outstanding equity interests shall not exceed one percent (1 %) of the assets of the trust;

11. Investments in an investment company qualifying under subparagraph (e)(9)(A) of this section shall not exceed ten percent (10%) of the assets in the trust and the aggregate amount of investments in such investment companies shall not exceed twenty-five percent (25 %) of the assets in the trust. Investments in an investment company qualifying under subparagraph (e)(9)(B) of this section shall not exceed five percent (5 %) of the assets in the trust;

12. The aggregate investment in equity interests permitted under paragraphs (e)(6) and (e)(7) and subparagraph (e)(9)(B) of this section shall not exceed ten percent (10%) of the assets in the trust;

13. Investments in or issued by an entity controlling, controlled by or under common control with either the grantor or beneficiary of the trust shall not exceed five percent (5 %) of total investments; and

14. No more than twenty percent (20%) of the total of the investments in the trust may be the foreign investments authorized under subparagraph (e)(1)(E), paragraph (e)(3), subparagraph (e)(6)(B) or paragraph (e)(7) of this section, and no more than ten percent (10%) of the total of the investments in the trust may be securities denominated in foreign currencies. For purposes of applying the preceding sentence, a depository receipt denominated in United States dollars and representing rights conferred by a foreign security shall be classified as a foreign investment denominated in a foreign currency.

(f) In the determination of whether a trust is sufficient to cover the assuming insurer's liabilities, a letter of credit issued by a United States financial institution as defined in Code Section 922.7(a) may be considered, in an amount not to exceed twenty percent (20%) of the assets in the trust. In order for a letter of credit to qualify as an asset of a trust reviewed under this section the trust agreement shall provide that:

1. The trustee shall have the right and the obligation to immediately draw down the full amount of the letter of credit and hold the proceeds in trust for the beneficiaries of the trust if the letter of credit will otherwise expire without being renewed or replaced; and

2. The failure of the trustee to draw against the letter of credit in circumstances where such draw would be required shall constitute negligence and/or willful misconduct.

(g) In the determination of whether a trust is sufficient to cover the assuming insurer's liabilities, the term “liabilities” shall mean the assuming insurer's gross liabilities attributable to reinsurance ceded by United States domiciled insurers that are not otherwise secured by acceptable means, and shall include:

1. For business ceded by insurers authorized to write either disability, or property and casualty insurance, or both:

A. Losses and allocated loss expenses paid by the ceding insurer recoverable from the assuming insurer;

B. Reserves for losses reported and outstanding;

C. Reserves for losses incurred but not reported;

D. Reserves for allocated loss expenses; and

E. Unearned premiums.

2. For business ceded by insurers authorized to write life, disability and annuity insurance:

A. Aggregate reserves for life policies and contracts net of policy loans and net due and deferred premiums;

B. Aggregate reserves for accident and health policies;

C. Deposit funds and other liabilities without life or disability contingencies; and

D. Liabilities for policy and contract claims.

As used in this subdivision, “disability” means the class of insurance defined in Code Section 106.

(h) If an assuming insurer provided security meeting the requirements of Sections 2303.7, 2303.8 or 2303.9 of this article, then exhaustion of that security is a condition precedent to presentation of a claim by the ceding insurer for payment by a trustee of a U.S. trust established by the assuming insurer. The condition precedent shall be deemed satisfied if security held under Section 2303.9 of this article has been exhausted, and a demand for payment of the security established by the assuming insurer under Section 2303.7 or 2303.8 of this article has not been met within sixty (60) days of the demand.

(i) The Commissioner shall designate a trust meeting the requirements of this section as an approved U.S. trust. To retain eligibility of the trust, the assuming insurer shall file its annual and quarterly financial statements, trust statements, and lists of ceding insurers with the Commissioner at the same time such filings are made with the Oversight State. Not later than February 28 of each year, the assuming insurer shall file the trustees' report required by Code Section 922.4(c)(3)(E). Not later than August 15 of each year, the assuming insurer shall file the documents required in subdivision (b) of this section in the manner provided in Section 2303.22(d), except that it is not necessary to file duplicates of financial documents already submitted. Alien insurers shall include in the annual filings all reports required by their domiciliary countries.

(j) Pursuant to Section 922.4(c)(5) of the Code, the costs and expenses incurred by the Department to review the trust documents, reports, subsequent amendments, and periodic filings shall be charged to and collected from the assuming insurer.

(k) An assuming insurer, authorized under Code Section 922.4(c) for the specific purpose of permitting statement credit for a cession by a licensed insurer without the security otherwise required of the reinsurer by Code Section 922.5, is not a licensed insurer and may not solicit or transact insurance business in this state either directly or through an agent or reinsurance intermediary acting on its behalf.

NOTE

HISTORY

1. New section filed 10-24-2006; operative 11-23-2006 (Register 2006, No. 43).

§2303.6. Credit for Reinsurance Required by Law.

Note • History

As used in Code Section 922.4(d), “jurisdiction” means a state, district or territory of the United States.

NOTE

Authority cited: Section 922.8, Insurance Code. Reference: Section 922.4(d), Insurance Codee.

HISTORY

1. New section filed 10-24-2006; operative 11-23-2006 (Register 2006, No. 43).

§2303.7. Credit for Reinsurance Secured by a Single Beneficiary Trust.

Note • History

(a) Credit on financial statements of a domestic insurer shall be allowed for reinsurance ceded to an assuming insurer to the extent of funds held in a trust acceptable to the Commissioner for the exclusive benefit of the ceding insurer as security for the payment of obligations under the reinsurance contract, unless the cession is not in compliance with this section and the applicable provisions of Sections 2303.11 through 2303.13 of this article. The amount of the credit shall not exceed the liabilities carried by the ceding insurer.

(b) As used in this subdivision:

1. “Beneficiary” means the domestic insurer for whose sole benefit the trust has been established, and includes any successor by operation of law of the named beneficiary, including without limitation any liquidator, rehabilitator, receiver or conservator.

2. “Grantor” means the insurer that has established the trust for the sole benefit of the beneficiary.

3. “Trustee” means a qualified United States financial institution as defined in Section 922.7(b) of the Code.

(c) A trust naming a domestic insurer as beneficiary shall not be acceptable to the Commissioner unless it meets all of the following requirements:

1. The trust agreement shall be entered into between the beneficiary, the grantor and a trustee.

2. The trust agreement shall create a trust account into which assets shall be deposited.

3. All assets in the trust account shall be held by the trustee at the trustee's office in the United States, except those assets held in book-entry form;

4. The trust agreement shall provide that:

A. The beneficiary shall have the right to withdraw assets from the trust account at any time, without prior notice to the grantor, subject only to written notice from the beneficiary to the trustee;

B. No other statement or document is required to be presented in order to withdraw assets, except that the beneficiary may be required to acknowledge receipt of withdrawn assets; and

C. It is not subject to any conditions or qualifications outside of the trust agreement.

5. The trust agreement shall be established for the sole benefit of the beneficiary.

6. The trust agreement shall require the trustee to:

A. Receive and hold all assets in a safe place;

B. Determine that all assets are in such form that the beneficiary, or the trustee upon direction by the beneficiary, may whenever necessary negotiate any such assets, without consent or signature from the grantor or any other person or entity;

C. Furnish to the grantor and the beneficiary a statement of all assets in the trust account upon its inception and at intervals no less frequent than the end of each calendar quarter;

D. Notify the grantor and the beneficiary within ten (10) business days, of any deposits to or withdrawals from the trust account;

E. Upon written demand of the beneficiary, immediately take any and all steps necessary to transfer absolutely and unequivocally all right, title and interest in the assets held in the trust account to the beneficiary and deliver custody of the assets to the beneficiary; and

F. Allow no substitutions or withdrawals of assets from the trust account, except on written instructions from the beneficiary, except that the trustee may, without the consent of but with notice to the beneficiary, upon call or maturity of any trust asset, withdraw such asset upon condition that the proceeds are paid into the trust account.

7. The trust agreement shall provide that at least thirty (30) days, but not more than forty-five (45) days, prior to termination of the trust account, written notification of termination shall be delivered by the trustee to the beneficiary by registered or certified mail, return receipt requested, or by overnight courier service, signature upon delivery required.

8. The trust agreement shall prohibit invasion of the trust corpus for the purpose of paying compensation to, or reimbursing the expenses of, the trustee.

9. The trust agreement shall provide that the trustee shall be liable for its own negligence or willful misconduct.

10. The trust agreement shall not contain references to any other agreements or documents.

(d) An acceptable trust agreement naming a domestic insurer as beneficiary may contain the following provisions:

1. The trust agreement may provide that the trustee may resign upon delivery of a written notice of resignation, effective not less than ninety (90) days after the beneficiary and grantor receive the notice and that the trustee may be removed by the grantor by delivery to the trustee and the beneficiary of a written notice of removal, effective not less than ninety (90) days after the trustee and the beneficiary receive the notice, provided that no such resignation or removal shall be effective until a successor trustee has been duly appointed and approved by the beneficiary and the grantor and all assets in the trust have been duly transferred to the new trustee.

2. The grantor may have the full and unqualified right to vote any shares of stock in the trust account and to receive from time to time payments of any dividends or interest upon any shares of stock or obligations included in the trust account. Any such interest or dividends shall be either forwarded promptly upon receipt to the grantor or deposited in a separate account established in the grantor's name.

3. The trust agreement may provide that assets deposited in the trust account shall be valued according to their current fair market value and shall consist only of cash in United States dollars, certificates of deposit issued by a United States bank and payable in United States dollars, and investments permitted by the Code or any combination of the above; and may further provide that investments in or issued by an entity controlling, controlled by or under common control with either the grantor or the beneficiary of the trust shall not exceed five percent (5%) of total investments.

4. The trustee may be given authority to invest, and accept substitutions of, any funds in the account, provided that no investment or substitution shall be made without prior approval of the beneficiary, unless the trust agreement specifies categories of investments acceptable to the beneficiary and authorizes the trustee to invest funds and to accept substitutions which the trustee determines are at least equal in market value to the assets withdrawn and that are consistent with the restrictions in paragraph (d)(3) of this section.

5. The trust agreement may provide that the beneficiary may at any time designate a party to which all or part of the trust assets are to be transferred. Such transfer may be conditioned upon the trustee receiving, prior to or simultaneously, other specified assets.

6. The trust agreement may provide that, upon termination of the trust account, all assets not previously withdrawn by the beneficiary shall, with written approval by the beneficiary, be delivered over to the grantor.

7. The trust agreement may be made subject to and governed by the laws of the state in which the trust is domiciled.

(e) The trust securing the reinsurance agreement of a domestic ceding insurer shall not be acceptable unless the reinsurance agreement:

1. Provides that assets deposited in the trust account shall be valued according to their current fair market value and shall consist only of cash in United States dollars, certificates of deposit issued by a United States financial institution as defined in Code Section 922.7(a) and payable in United States dollars, and investments permitted by the California Insurance Code, or any combination of the above.

2. Provides that investments in or issued by an entity controlling, controlled by or under common control with either the grantor or the beneficiary of the trust shall not exceed five percent (5%) of total investments.

3. Requires the assuming insurer, prior to depositing assets with the trustee, to execute assignments or endorsements in blank, or to transfer legal title to the trustee of all shares, obligations or any other assets requiring assignments, in order that the ceding insurer, or the trustee upon the direction of the ceding insurer, may, whenever necessary, negotiate these assets without consent or signature from the assuming insurer or any other entity.

4. Provides that assets in the trust account shall be withdrawn only as permitted in the reinsurance agreement, without diminution because of the insolvency of the ceding insurer or the assuming insurer.

(f) A reinsurance agreement of a domestic ceding insurer secured by the trust permitted under this section may:

1. Require the assuming insurer to enter into a trust agreement to establish a trust account for the benefit of the ceding insurer, and specify what the trust agreement is to cover.

2. Require, when the trust is established in conjunction with a reinsurance agreement covering risks other than life, annuities and accident and health, that the ceding insurer shall undertake to use and apply amounts drawn upon the trust account, without diminution because of the insolvency of the ceding insurer or the assuming insurer, only for the following purposes:

A. To pay or reimburse the ceding insurer for the assuming insurer's share under the specific reinsurance agreement regarding any losses and allocated loss expenses paid by the ceding insurer, but not recovered from the assuming insurer, or for unearned premiums due to the ceding insurer if not otherwise paid by the assuming insurer;

B. To make payment to the assuming insurer of any amounts held in the trust account that exceed one hundred and two percent (102%) of the actual amount required to fund the assuming insurer's obligations under the specific reinsurance agreement;

C. To pay any other amounts necessary to secure the credit or deduction from liability for reinsurance taken by the ceding insurer; or

D. Where the ceding insurer has received notification of termination of the trust and where any of the assuming insurer's obligations under the specific reinsurance agreement remain unliquidated and undischarged ten (10) days prior to the termination date, to withdraw amounts equal to the obligations and deposit those amounts in a separate account in the name of the ceding insurer in any qualified United States financial institution as defined in Code Section 922.7(b) apart from its general assets, in trust for such uses and purposes specified in subparagraphs (f)(3)(A) and (f)(3)(B) of this section as may remain executory after such withdrawal and for any period after the termination date.

E. “Obligations” as used in this paragraph means:

i. Reinsured losses and allocated loss expenses paid by the ceding company, but not recovered from the assuming insurer;

ii. Reserves for reinsured losses reported and outstanding;

iii. Reserves for reinsured losses incurred but not reported; and

iv. Reserves for reinsured allocated loss adjustment expenses and unearned premiums.

3. Require, when a trust is established to meet the requirements of Code Section 922. 5 in conjunction with a reinsurance agreement covering life, annuities or accident and health risks, that the ceding insurer shall undertake to use and apply amounts drawn upon the trust account, without diminution because of the insolvency of the ceding insurer or the assuming insurer, only for the following purposes:

A. To pay or reimburse the ceding insurer for:

i. The assuming insurer's share under the specific reinsurance agreement of premiums returned, but not yet recovered from the assuming insurer, to the owners of policies reinsured under the reinsurance agreement on account of cancellations of the policies, and

ii. The assuming insurer's share under the specific reinsurance agreement of surrenders and benefits or losses paid by the ceding insurer, but not yet recovered from the assuming insurer, under the terms and provisions of the policies reinsured under the reinsurance agreement;

B. To pay to the assuming insurer amounts held in the trust account in excess of the amount necessary to secure the credit or deduction from liability for reinsurance taken by the ceding insurer;

C. To pay any other amounts necessary to secure the credit or deduction from liability for reinsurance taken by the ceding insurer; or

D. Where the ceding insurer has received notification of termination of the trust and where any of the assuming insurer's obligations under the specific reinsurance agreement remain unliquidated and undischarged ten (10) days prior to the termination date, to withdraw amounts equal to the assuming insurer's share of liabilities, to the extent that the liabilities have not yet been funded by the assuming insurer, and deposit those amounts in a separate account, in the name of the ceding insurer in any qualified United States financial institution apart from its general assets, in trust for such uses and purposes specified in subparagraphs (f)(4)(A) and (f)(4)(B) of this section as may remain executory after withdrawal and for any period after the termination date.

4. Give the assuming insurer the right to seek approval from the ceding insurer to withdraw from the trust account all or any part of the trust assets and transfer those assets to the assuming insurer, provided:

A. The assuming insurer shall, at the time of withdrawal, replace the withdrawn assets with other qualified assets having a market value equal to the market value of the assets withdrawn so as to maintain at all times the deposit in the required amount, or

B. After withdrawal and transfer, the market value of the trust account is no less than one hundred and two percent (102%) of the required amount.

The ceding insurer shall not unreasonably withhold its approval.

5. Provide for the return of any amount withdrawn in excess of the actual amounts required for paragraphs (f)(2) or (f)(3) of this section, and for interest payments at a rate not in excess of the prime rate of interest on the amounts held pursuant to paragraphs (f)(2) or (f)(3) of this section.

6. Require that all settlements of account between the ceding insurer and the assuming insurer be made in cash or its equivalent.

7. Permit the award by any arbitration panel or court of competent jurisdiction of:

A. Interest at a rate different from that provided in paragraph (f)(5) of this section,

B. Court or arbitration costs,

C. Attorney's fees, and

D. Other reasonable expenses.

(g) A trust in compliance with the provisions of this section may be used by a domestic insurer to reduce any liability for reinsurance ceded to an unauthorized reinsurer in financial statements required to be filed with this Department, when established on or before the date of filing of the financial statement of the ceding insurer. Further, the reduction for the existence of an acceptable trust may be up to the current fair market value of acceptable assets available to be withdrawn from the trust account at that time, but such reduction shall be no greater than the specific obligations under the reinsurance agreement that the trust was established to secure.

(h) The failure of any trust agreement or trust account established for the benefit of a domestic insurer to specifically identify the beneficiary as defined in Section 2303.7(b) of this article shall not be construed to affect any actions or rights which the Commissioner may take or possess pursuant to the provisions of the laws of this state.

(i) A denial of statement credit under this section shall be made in the manner prescribed in Section 2303.19(c) of this article.

NOTE

HISTORY

1. New section filed 10-24-2006; operative 11-23-2006 (Register 2006, No. 43).

§2303.8. Credit for Reinsurance Secured by Letter of Credit.

Note • History

(a) Credit on financial statements of a domestic insurer shall be allowed for reinsurance ceded to an assuming insurer, in an amount not exceeding the liabilities carried by the ceding insurer, to the extent that security is provided by a letter of credit satisfactory to the Commissioner, unless the cession is not in compliance with the applicable provisions of Sections 2303.11 through 2303.13 of this article.

(b) As used in this section:

1. “Beneficiary” means the domestic insurer for whose sole benefit the letter of credit has been established by an issuing or confirming bank, and includes any successor by operation of law of the named beneficiary, including without limitation any liquidator, rehabilitator, receiver or conservator.

2. “Applicant” means the reinsurer that applies for and causes the letter of credit to be issued.

(c) A letter of credit naming a domestic insurer as beneficiary shall not be satisfactory to the Commissioner unless it meets the following requirements:

1. The letter of credit shall be issued or confirmed by a qualified United States financial institution as defined in Code Section 922.7(a).

2. The letter of credit shall state that it is irrevocable and unconditional, and shall:

A. Contain no extraneous language or reference to any other agreements, documents or entities.

B. Provide that, except where the amount of the letter of credit is increased, the letter cannot be modified without the prior written consent of the beneficiary.

C. Provide that the obligation of the issuing or confirming bank is not contingent upon reimbursement or its ability to perfect a lien or obtain a security interest.

3. In order to draw funds, the letter of credit shall require only the presentation of a sight draft indicating the credit number.

4. The letter of credit shall contain an issue date and an expiration date.

5. The letter of credit shall be for a term of not less than one year.

6. The letter of credit shall contain an “evergreen” clause which provides that the term of the letter shall extend automatically without amendment for the same term as the original letter, unless at least sixty (60) days prior to the expiration date, a notice of non-renewal is sent to the beneficiary by registered or certified mail, return receipt requested, or by overnight courier service, signature upon delivery required.

7. The letter of credit shall state the address of the issuing bank or confirming bank where the letter is issued or confirmed, where it is payable, and where drafts may be presented for payment. The letter may also permit the presentation of sight drafts at other designated offices.

8. If the letter of credit is made subject to the Uniform Customs and Practice for Documentary Credits of the International Chamber of Commerce (Publication 500), or any successor publication, then the letter of credit shall specifically provide for a period of not less than sixty (60) days after the resumption of business to draw against the letter of credit in the event that one or more of the occurrences specified in Article 17 of Publication 500, or any successor publication, occur causing interruption of the business of the bank or of the beneficiary.

9. If the letter of credit is not made subject to the publication referenced in paragraph (c)(9) of this section, the letter shall provide for a period of not less than sixty (60) days after resumption of business to draw against the letter of credit in the event of an interruption of the business of the bank or of the beneficiary caused by an Act of God, riot, civil commotion, insurrection, war, terrorism or any other cause beyond control or by any strike or lockout.

10. If the letter of credit is more than one page, each page shall identify the issuing bank and the credit number.

11. The heading of the letter of credit may include a boxed section containing the name of the applicant, the beneficiary's name and state of domicile, and other appropriate notations to provide a reference for the letter of credit. The boxed section shall be clearly marked to indicate that such information is for internal identification purposes only.

(d) An optional form that meets the letter of credit requirements of this section is provided in Section 2303.25(d) of this article. A written determination that an alternate form meets the requirements of this section may be made in the manner set forth in Section 2303.22(e) of this article.

(e) A reinsurance agreement entered in conjunction with a letter of credit naming a domestic insurer as beneficiary may contain provisions that:

1. Require the assuming insurer to provide letters of credit to the ceding insurer and specify what they are to cover.

2. Stipulate that the assuming insurer and ceding insurer agree that a letter of credit provided by the assuming insurer pursuant to the provisions of the reinsurance agreement may be drawn upon at any time, notwithstanding any other provisions in the agreement, and shall be utilized by the ceding insurer or its successors in interest only for one or more of the following reasons:

A. To pay or reimburse the ceding insurer for:

ii. The assuming insurer's share, under the specific reinsurance agreement, of surrenders and benefits or losses paid by the ceding insurer, but not yet recovered from the assuming insurer, under the terms and provisions of the policies reinsured under the reinsurance agreement; and

iii. Any other amounts necessary to secure the credit or reduction from liability for reinsurance taken by the ceding insurer.

B. To secure payment of the assuming insurer's obligations where the letter of credit will expire without renewal or be reduced or replaced by a letter of credit for a reduced amount and where the assuming insurer's obligations under the reinsurance agreement remain unliquidated and undischarged ten (10) days prior to the expiration date, by withdrawing amounts equal to the assuming insurer's share of the liabilities, to the extent that the liabilities have not yet been funded by the assuming insurer and exceed the amount of any reduced or replacement letter of credit, and depositing those amounts in a separate account in the name of the ceding insurer in a qualified United States financial institution as defined in Code Section 922.7(b) apart from its general assets, in trust for such uses and purposes specified in subparagraph (f)(2)(A) of this section as may remain after withdrawal.

3. Provide for an interest payment, at a rate not in excess of the prime rate of interest, on the amounts held pursuant to paragraph (f)(2) of this section; or the return of any amounts drawn down on the letters of credit in excess of any amounts that are subsequently determined not to be due.

(f) A denial of statement credit under this section shall be made in the manner prescribed in Section 2303.19(c) of this article.

NOTE

HISTORY

1. New section filed 10-24-2006; operative 11-23-2006 (Register 2006, No. 43).

§2303.9. Credit for Reinsurance Secured by Funds Withheld.

Note • History

(a) Credit on financial statements of a domestic insurer shall be allowed for reinsurance ceded to an unauthorized reinsurer, in an amount not exceeding the liabilities carried by the ceding insurer, to the extent of unencumbered funds withheld by the ceding insurer as security for payment of the reinsurer's obligations under the reinsurance agreement, unless the cession is not in compliance with applicable requirements of Sections 2303.11 through 2303.13 of this article.

(b) As used in subdivision (a) of this section, “unencumbered funds withheld” means funds that are held in the United States solely in the name of and under the exclusive control of the ceding insurer. For purposes of this section, “exclusive control of the ceding insurer” includes (1) funds held in an escrow or trust account where the ceding insurer has the sole right to withdraw assets from the account at any time and without prior notice to the reinsurer, and (2) funds held in an escrow or trust account to secure a cession to an affiliate. The agreement establishing the escrow or trust account shall be in a form satisfactory to the Commissioner.

(c) A denial of statement credit under this section shall be made in the manner prescribed in Section 2303.19(c) of this article.

NOTE

HISTORY

1. New section filed 10-24-2006; operative 11-23-2006 (Register 2006, No. 43).

§2303.10. Credit for Reinsurance of Foreign Insurers.

Note • History

(a) Credit for reinsurance shall not be allowed a foreign insurer for an agreement not in compliance with the applicable requirements of Sections 2303.11, 2303.12 and 2303.13 of this article and the requirements of Code Section 923.

(b) Credit for reinsurance meeting the requirements of subdivision (a) of this section shall be allowed to the extent that credit is allowed by the foreign insurer's state of domicile, unless the Commissioner has made the finding permitted by Code Section 922.6(b).

(c) If the Commissioner has reason to question a claim for statement credit and elects to review the claim pursuant to the provisions of Code Section 922.6(b), a foreign insurer shall provide all information and documentation as may be requested. If the information and documentation submitted by the foreign insurer does not establish to the Commissioner's satisfaction that the requirements of subdivision (d) of this section have been met, credit for the reinsurance shall be denied in the manner prescribed in Section 2303.19(c) of this article.

(d) Where credit is claimed on the basis that an unauthorized reinsurer is either licensed or accredited in the foreign insurer's state of domicile, the reinsurer must meet the financial standards for either licensing or accreditation in California. Where credit is claimed on the basis of security in the form of a trust agreement, letter of credit, or funds held agreement, the security must, in substance, meet the standards for like security in California.

(e) A foreign insurer shall pay the cost of examination of the documents and information it submits to the Department pursuant to subdivision (c) of this section.

NOTE

HISTORY

1. New section filed 10-24-2006; operative 11-23-2006 (Register 2006, No. 43).

§2303.11. Transfer of Risk -- Life & Disability.

Note • History

(a) This section prescribes accounting and other requirements for admitted life and disability insurers and for admitted property and casualty insurers with respect to their disability business. Failure to comply with this section results in a ceding insurer improperly reducing liabilities or establishing assets for reinsurance ceded, and, pursuant to Section 922.3 of the Code, the Commissioner shall not allow credit for such reinsurance.

(b) This section shall not apply to assumption reinsurance, or non-proportional reinsurance such as stop loss or catastrophe reinsurance. Except as provided in the Statutory Account Principles (“SSAP”) 61 of the NAIC Accounting Guidance, it shall also not apply to yearly renewable term reinsurance (“YRT”), as described in SSAP 61, that provides reserve credit not greater than up to one year's valuation mortality cost.

(c) No insurer shall, for reinsurance ceded, reduce any liability or establish any asset in any statutory financial statement if, by the terms of the reinsurance agreement, in substance or effect, any of the following conditions exist:

1. Renewal expense allowances provided or to be provided to the ceding insurer by the reinsurer in any accounting period are not sufficient to cover anticipated allocable renewal expenses of the ceding insurer on the portion of the business reinsured, unless a liability is established for the present value of the shortfall (using assumptions equal to the applicable statutory reserve basis on the business reinsured). Those expenses include commissions, premium taxes and direct expenses including, but not limited to, billing, valuation, claims and maintenance expected by the company at the time the business is reinsured.

2. The ceding insurer can be deprived of surplus or assets at the reinsurer's option, at a specified time scheduled in the reinsurance agreement, or automatically upon the occurrence of some event, such as the insolvency of the ceding insurer, except that termination of the reinsurance agreement by the reinsurer for nonpayment of reinsurance premiums or other amounts due, such as modified coinsurance reserve adjustments, interest and adjustments on funds withheld, and tax reimbursements, shall not be considered to be such a deprivation of surplus or assets.

3. The ceding insurer is required to reimburse the reinsurer for negative experience under the reinsurance agreement, except that neither offsetting experience refunds against current and prior years' losses under the agreement nor payment by the ceding insurer of an amount equal to the current and prior years' losses under the agreement upon voluntary termination of in force reinsurance by the ceding insurer shall be considered such a reimbursement to the reinsurer for negative experience.

4. The ceding insurer must, at specific points in time scheduled in the agreement or at the reinsurer's option, terminate or automatically recapture all or part of the reinsurance ceded.

5. The reinsurance agreement involves the possible payment by the ceding insurer to the reinsurer of amounts other than from income realized from the reinsured policies. For example, it is improper for a ceding company to pay reinsurance premiums, or other fees or charges to a reinsurer which are greater than the direct premiums collected by the ceding company.

6. The treaty does not transfer all of the significant risks inherent in the business being reinsured. The following table identifies for a representative sampling of products or type of business, the risks which are typically considered to be significant. For products not specifically included, the risks determined to be significant shall be consistent with this table.

Table of Significant Risks

Risk Categories:

i. Morbidity

ii. Mortality

iii. Lapse

This is the risk that a policy will voluntarily terminate prior to the recoupment of a statutory surplus strain experienced at issue of the policy.

iv. Credit Quality

This is the risk that invested assets supporting the reinsured business will decrease in value. The main hazards are that assets will default or that there will be a decrease in earning power. It excludes market value declines due to changes in interest rate.

v. Reinvestment

This is the risk that interest rates will fall and funds reinvested (coupon payments or monies received upon asset maturity or call) will therefore earn less than expected. If asset durations are less than liability durations, the mismatch will increase.

vi. Disintermediation

This is the risk that interest rates rise and policy loans and surrenders increase or maturing contracts do not renew at anticipated rates of renewal. If asset durations are greater than the liability durations, the mismatch will increase. Policyholders will move their funds into new products offering higher rates. The company may have to sell assets at a loss to provide for these withdrawals.

Embedded Graphic 10.0177

7. The credit quality, reinvestment, or disintermediation risk is significant for the business reinsured and the ceding company does not either transfer the underlying assets to the reinsurer or legally segregate such assets in a trust or escrow account or otherwise establish a mechanism satisfactory to the Commissioner which segregates, by contract or contract provision, the underlying assets. Assets held to secure statement credit for a cession to an unauthorized reinsurer as permitted by Code Section 922.5(a)(1) may not be placed in a trust or escrow account unless (1) the reinsurer is an affiliate of the ceding insurer, or (2) the agreement establishing the escrow or trust account provides that the ceding insurer has the sole right to withdraw assets from the account at any time and without prior notice to the reinsurer. The agreement establishing the escrow or trust account shall be in a form satisfactory to the Commissioner.

A. This paragraph shall not apply to the assets supporting the reserves for the following classes of business:

(i) Health Insurance -- LTC/LTD

(ii) Traditional Non-Par Permanent

(iii) Traditional Par Permanent

(iv) Adjustable Premium Permanent

(v) Indeterminate Premium Permanent

(vi) Universal Life Fixed Premium

(no dump-in premiums allowed)

B. When asset segregation is not required, the associated formula for determining the reserve interest rate adjustment shall reflect the ceding company's investment earnings and incorporate all realized and unrealized gains and losses reflected in the statutory statement. The following is an acceptable formula:

Embedded Graphic 10.0178

8. Settlements are made less frequently than quarterly or amounts receivable from the reinsurer are not paid in cash within ninety (90) days of the settlement date.

9. The ceding insurer is required to make representations or warranties not reasonably related to the business being reinsured.

10. The ceding insurer is required to make representations or warranties about future performance of the business being reinsured.

11. The reinsurance agreement is entered into for the principal purpose of producing significant surplus aid for the ceding insurer, typically on a temporary basis, while not transferring all of the significant risks inherent in the business reinsured and, in substance or effect, the expected potential liability to the ceding insurer remains basically unchanged.

(d) Notwithstanding subdivision (c) of this section, the Commissioner may allow such reserve credit or establishment of such asset as the Commissioner considers appropriate. Such allowance shall not be deemed approval of the reinsurance treaty nor shall it be considered an indication that reinsurance credit may be allowed for other similar treaties.

(e) Any agreement entered into after the Effective Date of this section which involves the reinsurance of business issued prior to the effective year of the agreement, along with any subsequent amendments thereto, shall be filed by the ceding company with the Commissioner within 30 days from its date of execution if such ceding company is domiciled in this state. Each such filing shall include data detailing the financial impact of the transaction. In the case of an agreement which was entered into prior to the Effective Date of this section but was subsequently amended on or after the Effective Date of this section, such agreement and amendment shall also be filed within 30 days from the date of execution of the amendment if such amendment added business issued prior to the effective year of the amendment and if the ceding company is domiciled in this state. The requirements of this subdivision are in addition to any other filings required by the Code or this article.

(f) Any increase in surplus net of federal income tax resulting from reinsurance agreements entered into or amended after the Effective Date of this section which involve the reinsurance of business issued prior to the effective date of the agreements shall be identified separately on the insurer's statutory financial statement as a surplus item and recognition of the surplus increase as income shall be reflected on a net of tax basis as earnings emerge from the business reinsured.

For example, on the last day of calendar year N, company XYZ pays a $20 million initial commission and expense allowance to company ABC for reinsuring an existing block of business. Assuming a 34% tax rate, the net increase in surplus at inception is $13.2 million ($20 million - $6.8 million) which is reported on the “Aggregate write-ins for gains and losses in surplus” line in the Capital and Surplus account. $6.8 million (34% of $20 million) is reported as income on the “Commissions and expense allowances on reinsurance ceded” line of the Summary of Operations.

At the end of year N+1 the business has earned $4 million. ABC has paid $.5 million in profit and risk charges in arrears for the year and has received a $1 million experience refund. Company ABC's annual statement would report $1.65 million (66% of ($4 million - $1 million - $.5 million) up to a maximum of $13.2 million) on the “Commissions and expense allowance on reinsurance ceded” line of the Summary of Operations, and -$1.65 million on the “Aggregate write-ins for gains and losses in surplus” line of the Capital and Surplus account. The experience refund would be reported separately as a miscellaneous income item in the Summary of Operations.

(g) The ceding insurer's appointed actuary shall consider this section and any applicable actuarial standards of practice when determining the proper credit to take in financial statements filed with this Department. The appointed actuary should maintain adequate documentation and be prepared upon request to justify the inclusion of credit in the financial statement.

(h) If a letter of intent precedes the execution of a reinsurance agreement or amendment to a reinsurance agreement, then the agreement or the amendment must be executed within a reasonable period of time, not exceeding ninety (90) days from the execution date of the letter of intent.

(i) No reinsurance agreement or amendment to any agreement may be used to reduce any liability or to establish any asset in any financial statement filed with the Department, unless the agreement, amendment or a binding letter of intent has been duly executed by both parties no later than the “as of date” of the financial statement.

(j) The reinsurance agreement shall expressly state that it constitutes the entire agreement between the parties with respect to the business being reinsured thereunder and that there are no understandings between the parties other than as expressed in the agreement. The entire agreement clause may provide that it shall not be construed to limit the admissibility of evidence regarding the formation, interpretation, purpose or intent of the reinsurance agreement.

(k) In the review of a reinsurance agreement to determine transfer of risk, all contracts between the ceding insurer, its affiliates and the reinsurer may, in the Commissioner's discretion, be reviewed.

(l) A denial of statement credit under this section shall be made in the manner prescribed in Section 2303.19(c) of this article.

NOTE

Authority cited: Section 922.8, Insurance Code; CalFarm Insurance Company v. Deukmejian, 48 Cal. 3d 805 (1989); and 20th Century Insurance Company v. Garamendi, 8 Cal. 4th 216 (1994). Reference: Sections 922.3 and 923, Insurance Code.

HISTORY

1. New section filed 10-24-2006; operative 11-23-2006 (Register 2006, No. 43).

§2303.12. Transfer of Risk -- Property & Casualty.

Note • History

This section applies only to property and casualty insurance.

(a) Transfer of risk shall be determined by application of the risk transfer requirements of the NAIC Accounting Guidance. In the review of a reinsurance agreement to determine transfer of risk, all contracts between the ceding insurer, the reinsurer, and their respective affiliates, may, in the Commissioner's discretion, be reviewed to evaluate contractual features that may (1) limit the amount of insurance risk to which the reinsurer is subject under the agreement, or (2) delay the timely reimbursement of claims by the reinsurer.

(b) A denial of statement credit for failure of risk transfer shall be made in the manner prescribed in Section 2303.19(c) of this article.

NOTE

HISTORY

1. New section filed 10-24-2006; operative 11-23-2006 (Register 2006, No. 43).

§2303.13. Contract Requirements for Statement Credit.

Note • History

(a) Credit for reinsurance may be claimed only for an agreement that meets the requirements of this section.

(b) A reinsurance agreement of a domestic insurer or volume insurer ceding property and casualty business shall expressly state that it constitutes the entire agreement between the parties with respect to the business covered by the agreement, except for separate contracts expressly disclosed within the agreement or in an exhibit incorporated by reference. The entire agreement clause may provide that it shall not be construed to limit the admissibility of evidence regarding the formation, interpretation, purpose or intent of the reinsurance agreement.

(c) A volume insurer shall not be denied credit for a reinsurance agreement on the grounds of failure to comply with the requirements of subdivision (b) of this section if:

1. On the date of execution of a new or renewal agreement the insurer was not a volume insurer; or

2. The insurer was not a volume insurer in the year preceding the execution of a new or renewal agreement, and the agreement was executed within one hundred twenty (120) days of the “as of” date of the insurer's most recent annual statement.

(d) The agreement shall contain an acceptable insolvency clause. For a domestic insurer, the insolvency clause shall conform to the requirements of Code Section 922.2(a)(2). For a foreign insurer, the insolvency clause shall require, in substance, payment of the reinsurance by the reinsurer to the conservator, liquidator, rehabilitator or statutory successor, without diminution because of the insolvency of the ceding insurer, or because the conservator, liquidator, rehabilitator or statutory successor has failed to pay all or a portion of any claim. The insolvency clause may also provide that the conservator, liquidator, or statutory successor of a ceding insurer shall give written notice of the pendency of a claim against the ceding insurer indicating the policy or bond reinsured, within a reasonable time after such claim is filed and the reinsurer may interpose, at its own expense, in the proceeding where such claim is to be adjudicated, any defense or defenses which it may deem available to the ceding insurer or its conservator, liquidator, or statutory successor. The expense thus incurred by the reinsurer shall be payable subject to court approval out of the estate of the insolvent ceding insurer as part of the expense of conservation or liquidation to the extent of a proportionate share of the benefit which may accrue to the ceding insurer in conservation or liquidation, solely as a result of the defense undertaken by the reinsurer.

(e) The agreement shall meet the credit for reinsurance requirements of the NAIC Accounting Guidance that are not inconsistent with the requirements of this article.

(f) Reinsurance of individual risks pursuant to facultative certificates issued by the reinsurer shall not be required to comply with subdivision (b) of this section.

(g) A denial of statement credit shall be made in the manner prescribed in Section 2303.19(c) of this article.

NOTE

HISTORY

1. New section filed 10-24-2006; operative 11-23-2006 (Register 2006, No. 43).

§2303.14. Form of Agreements.

Note • History

(a) This section specifies contract provisions required to be included in a reinsurance contract for which a domestic insurer or a volume insurer claims statement credit. The failure to follow a requirement does not result in a denial of statement credit, but rather a determination that the reinsurance contract is deficient as to form. One or more reinsurance contracts that are deficient as to form may be sufficient to support a finding that the insurer's reinsurance arrangements are materially deficient for purposes of Code Section 700(c) and 717(d).

(b) A reinsurance contract shall be determined to be deficient as to form if it does not comply with each of the following requirements:

1. If an agreement contains an “early termination” provision wherein a party may terminate the agreement upon the occurrence of specified conditions, the following requirements apply to a termination by the reinsurer:

A. The basis for termination may not include the entry of an order of rehabilitation, conservation or liquidation against the ceding insurer.

B. The provision shall require written notice to the ceding insurer of not less than sixty (60) days prior to the effective date of termination,

C. The provision shall require signature upon delivery of the notice and may specify procedures to establish proof of attempted service if signature is refused.

D. The provision may state that upon receipt of a notice sent by the reinsurer, the ceding insurer may consent to a lesser notice period.

E. The provision may state that it shall not be construed to include termination of the contract for cause.

2. If the contract provides for payments between the parties to be transmitted through an intermediary, the contract shall include the following provision:

“Payments by [the ceding insurer] to the intermediary shall be deemed to constitute payment to (the reinsurer). Payments by (the reinsurer) to the intermediary shall be deemed to constitute payment to (the ceding insurer] only to the extent that such payments are actually received by (the ceding insurer].”

Notwithstanding this requirement, the parties to the reinsurance contract may agree therein that the reinsurer may make payment directly to the ceding insurer with notice of the payment sent to the intermediary.

(c) A reinsurance contract of a volume insurer is not deficient as to form on the grounds of failure to comply with the requirements of subdivision (b) of this section if:

1. On the date of execution of a new or renewal contract the insurer was not a volume insurer; or

2. The insurer was not a volume insurer in the year preceding the execution of a new or renewal contract, and the contract was executed within one hundred twenty (120) days of the “as of” date of the insurer's most recent annual statement.

(d) The reinsurance arrangements of a domestic or volume ceding insurer may be determined to be materially deficient for purposes of Code Section 700(c) and 717(d) if (1) the arrangements include one or more reinsurance contracts that are deficient as to form, and (2) the aggregate amount of business ceded by the deficient contracts is an amount that equals or exceeds 25% of either the total premium or total liabilities as reported on the ceding insurer's most recent financial statement. “Total premium” and “total liabilities” include both direct and assumed business. “Total liabilities” is defined in Section 2303.15(h) of this article.

(e) Reinsurance of individual risks pursuant to facultative certificates issued by the reinsurer shall not be required to comply with subdivision (b) of this section.

(f) Section 2303.14 of this article shall not be construed as stating the only bases for a determination by the Department that a reinsurance agreement is deficient as to form or the reinsurance arrangements of a licensed insurer are materially deficient.

NOTE

Authority cited: Section 720, Insurance Code; CalFarm Insurance Company v. Deukmejian, 48 Cal. 3d 805 (1989); and 20th Century Insurance Company v. Garamendi, 8 Cal. 4th 216 (1994). Reference: Sections 700 and 717, Insurance Code.

HISTORY

1. New section filed 10-24-2006; operative 11-23-2006 (Register 2006, No. 43).

§2303.15. Oversight of Reinsurance Transactions.

Note • History

(a) It is a condition to the issuance of a Certificate of Authority that the policyholder surplus of a licensed insurer shall at the time of admission and at all times subsequent be reasonable in relation to the insurer's outstanding liabilities and adequate to its financial needs, as determined by applying the following factors, among others:

1. The size of the insurer, as measured by its assets, capital and surplus, reserves, premium writings, insurance in force, and other appropriate criteria.

2. The extent to which the insurer's business is diversified among the several lines of insurance.

3. The number and size of risks insured in each line of business.

4. The extent of the geographical dispersion of the insurer's insured risks.

5. The nature and extent of the insurer's reinsurance program.

6. The quality, diversification, and liquidity of the insurer's investment portfolio.

7. The recent past and projected future trend in the size of the insurer's investment portfolio.

8. The recent past and projected future trend in the size of the insurer's surplus, and the policyholder surplus maintained by other comparable insurers.

9. The adequacy of the insurer's reserves.

10. The quality and liquidity of investments in subsidiaries made under Code Section 1215.1. The Commissioner may treat any such investment as a disallowed asset for purposes of determining the adequacy of the policyholder's surplus whenever, in his judgment, the investment so warrants.

11. The quality of the company's earnings and the extent to which the reported earnings include extraordinary accounting items.

(b) Except for cessions to affiliates, the failure of a domestic insurer or volume insurer to retain at least 10% of direct premium written per line of business may be grounds for a finding that the insurer's reinsurance arrangements are materially deficient for purposes of Code Section 717(d). The Commissioner may consent to a lesser percentage of retained risk upon demonstrated business necessity. If the consent permitted by this subdivision is not obtained during the review of a filing made pursuant to Code Section 1215.5(b)(3) or subdivisions (e) or (g) of this section, an application for such consent may be made in the manner provided in Section 2303.22(f) of this article.

1. “One party” includes a pool of affiliated insurers, or two or more insurers within the same group of affiliated insurers.

2. “Assumption” means assuming risk by indemnity reinsurance.

3. “Sale” or “purchase” includes the transaction commonly referred to as “assumption reinsurance.”

(d) As used in Code Section 1011(c), the term “substantially its entire property or business” means an amount of business such that the sale, cession, assumption or purchase thereof has the potential to render a company insolvent or create a hazard to its policyholders or creditors. A sale, cession, assumption or purchase that equals or exceeds either 75% of an insurer's total premium or 75% of its total liabilities, calculated before the subject transaction, shall constitute “substantially its entire property or business” for purposes of Code Section 1011(c). This subdivision shall not be construed as limiting the type of transactions within the scope of Code Section 1011(c).

(e) A licensed insurer that enters a transaction, under one or more agreements with one party, that is within the scope of subdivision (d) of this section without obtaining the prior written consent of the Commissioner as provided in this article is subject to a proceeding initiated pursuant to Code Section 1011. An application for the Commissioner's consent to such a transaction may be submitted as provided in Section 2303.22(g) of this article, and shall satisfy any filing requirement of Code Section 1215.5(b)(3) for the transaction.

Where the transaction is an affiliate transaction by a licensed insurer that is a member of an insurance holding company system and the insurer is exempt from registration pursuant to Code Section 1215.4(a), the application shall be in the form of a notice of the transaction submitted by the insurer to the Department as provided in Section 23022.22(g) of this article. The notice shall include: (1) the names and relationships of the parties to the transaction, (2) the identity of the domiciliary regulator responsible for review of the transaction pursuant to the applicable insurer holding company system act, (3) an estimate of total liabilities ceded under the agreement, and (4) a copy of the reinsurance agreement. Unless the Commissioner objects within 90 days of receipt of the notice, the Commissioner shall be deemed to have consented to the transaction.

(f) The Commissioner's consent to a cession of 100% of direct written premium on prospective business to an inter-company pool shall be conditioned upon (1) the agreement providing a retrocession to the ceding insurer of an amount not less than 10% of its direct written premium, and (2) the ceding insurer either maintaining surplus at a level sufficient to cover its direct writings, or including within the reinsurance agreement provisions that protect the ceding insurer in a manner satisfactory to the Commissioner.

(g) Unless a reinsurance agreement is filed with the Department pursuant to Code Sections 1011.5 or 1215.5(b)(3), or is an affiliate transaction by a licensed insurer that is a member of an insurance holding company system and the insurer is exempt from registration pursuant to Code Section 1215.4(a), a licensed insurer which intends to sell, cede, assume or purchase an amount of business that equals or exceeds either 50% of its total premium or 50% of its total liabilities under one or more agreements with one party, shall submit the proposed transaction to the Commissioner for his examination and a determination that the transaction is not objectionable for purposes of Code Section 717(d). The 50% calculation shall be made before the subject transaction. The transaction shall be submitted for examination as provided in Section 2303.22(h) of this article and shall be deemed not objectionable if the Commissioner has not objected within 90 days of its receipt by the Department.

(h) For purposes of the calculations required by subdivision (d) and subdivision (g) of this section:

1. “Total premium” and “total liabilities” include both direct and assumed business.

2. “Total liabilities” shall mean:

A. In the case of property and casualty business, the aggregate of the following items:

(i) Reserves for losses reported and outstanding;

(ii) Reserves for losses incurred but not reported;

(iii) Reserves for allocated loss expenses; and

(iv) Unearned premiums.

B. In the case of life and health business, the aggregate of the following items:

(i) Aggregate reserves for life policies and contracts net of policy loans and net due and deferred premiums;

(ii) Aggregate reserves for accident and health policies;

(iii) Deposit funds and other liabilities without life or disability contingencies; and

(iv) Liabilities for policy and contract claims.

3. “Liabilities” shall include modified coinsurance reserves for reinsurance assumed and shall exclude modified coinsurance reserves for reinsurance ceded.

(i) Where security for a cession is not provided because the reinsurer is a licensed insurer or an accredited reinsurer, the Commissioner may condition consent or non-objection to a transaction filed with the Department by a domestic or volume insurer pursuant to subdivision (e) or (g) of this section upon including within the reinsurance agreement provisions that protect the ceding insurer in a manner satisfactory to the Commissioner.

(j) If the ceding insurer is either a domestic insurer or a volume insurer, and the reinsurance agreement provides for the transmission of payments between the parties through an intermediary, then the following provisions shall apply:

1. Consent, approval or non-objection to the transmission of payments through the intermediary in a transaction filed with the Department pursuant to subdivision (e) or (g) of this section may be conditioned upon the intermediary providing the following documents, authenticated as required by Section 2303.17(c) of this article:

A. A copy of the intermediary's most recent financial statement provided to its client insurer;

B. A copy of the intermediary's most recent independent audit report, if any;

C. If the intermediary is not independently audited, an un-audited balance sheet, income statement, and statement of cash flow, each with an “as of” date of not more than 90 days prior to the date of filing of the reinsurance agreement under review by the Department;

D. A statement of funds the intermediary holds in fiduciary accounts; and

E. A description of any professional liability or fidelity insurance policies or bonds naming the intermediary as an insured or principal.

2. A satisfactory examination report of the intermediary issued by the Department with an “as of” date of not more than 3 years prior to the date of the filing of the reinsurance agreement under review by the Department may be submitted by the intermediary in lieu of the items listed in paragraph (1) above.

3. At his discretion, the Commissioner may initiate an examination of the intermediary and condition his consent, approval or non-objection to the transmission of payments through the intermediary upon the subsequent receipt of a satisfactory examination report. In determining whether an examination should be initiated, the Commissioner shall consider the projected aggregate amount of payments to be transmitted quarterly through the intermediary, the relative financial strength of the parties to the agreement, the availability and adequacy of any fidelity bonds or insurance, and the length of time since the last examination of the intermediary, if any. Transmission of payments through the intermediary shall be deemed non-objectionable to the Commissioner for the subject agreement, if he has not objected to the payment arrangement on the grounds of an unsatisfactory examination report within 180 days after issuing the conditional consent, approval or non-objection.

(k) The Department may coordinate the examination of a transaction with other interested state regulatory authorities. In the case of an affiliate transaction filed with the Department pursuant to subdivision (e) of this section by a licensed insurer that is a member of an insurance holding company system and is exempt from registration pursuant to Code Section 1215.4(a), the Department shall coordinate its examination of the transaction with the domestic state regulatory authority that is principally responsible for the licensed insurer's holding company system transactions.

(l) Upon denial of an application for consent filed pursuant to subdivision (e) of this section, or disapproval or objection to a transaction filed pursuant to Code Section 1215.5(b)(3) or subdivision (g) of this section, the Department shall issue a finding in the form of a written explanation setting forth the reasons for the determination. The determination may be appealed to the Chief of the Financial Surveillance Branch or to the successor position after a reorganization of the Department, in a manner consistent with making a request for a permitted accounting practice.

(m) If, subsequent to the Commissioner's consent, approval or non-objection to an agreement, the parties desire to amend the agreement, notice of the proposed amendment shall be filed with the Commissioner not less than 30 days prior to its execution for a determination of whether a new application or filing will be required. Notice shall be filed in the manner prescribed in Section 2303.22(k) of this article. A copy of the notice shall also be provided to the Department's financial analyst and attorney who had been assigned review of the initial application or filing. The notice shall include a copy of the amendment and an explanation of the reason therefor, along with a copy of the Commissioner's prior written consent or non-objection, if any. “Consent” includes transactions where consent is deemed pursuant to subdivision (e) of this section. “Non-objection” includes transactions deemed not objectionable pursuant to subdivision (g) of this section. The amendment shall not require a new application or filing if the Commissioner has not advised of the need for such within 30 days of receipt of the notice; however, the failure to timely object shall not be construed to limit the power of the Commissioner to object to the amendment upon a subsequent renewal or amendment of the amended agreement.

(n) The reporting requirements of subdivision (m) of this section shall not apply to a special acceptance. As used in this subdivision, “special acceptance” means the extension of a reinsurance contract to embrace a specific risk not automatically included within its terms, for example, a different class of business, an inordinate size of obligation, or an excluded risk, where, once accepted, all other contract terms apply.

(o) Any consent granted by the Commissioner is conditioned upon the truth and veracity of the documents and information submitted by or on behalf of the licensed insurer making the application or filing. If the Department determines that the documents or information submitted were materially false or misleading, or that material information was not disclosed, the consent granted shall be void ab initio. If the Department determines that a licensed insurer has violated the terms of the consent granted in any manner, the consent granted may be terminated immediately at the discretion of the Commissioner. As used in this subdivision, “consent granted” includes an approval, the issuance of a notice of non-objection, and the failure to timely respond to a notice or filing made pursuant to subdivisions (e), (g) or (m) of this section. Willfully providing false information to the Department for any purpose shall constitute a material deficiency under Code Section 717(e) and (h) and is grounds for revocation of a Certificate of Authority.

(p) This article shall not be construed as limiting the type of reinsurance arrangements that may be determined materially deficient for purposes of Code Section 717(d).

(q) When a licensed insurer is sold as a corporate shell, or when a sale of the insurer or other circumstance results in a significant change in the insurer's operations so that all or a majority of the documents previously submitted to the Department by the insurer concerning its operations are no longer valid:

1. The insurer shall, within 60 days after a sale or other significant change in its' operations, submit for examination by the Department all documents the Department deems necessary to determine compliance with Code Section 700(c); for good cause shown, the time to submit required documents may be extended;

2. A filing for a determination of compliance with Code Section 700(c) may be made in the manner set forth in Section 2303.22(i) of this article;

3. The insurer may continue its operations while the examination is pending;

4. With respect to a licensed insurer not seeking an amendment to its Certificate of Authority or other approval from the Department, the burden of establishing any material deficiency under Code Section 717 shall be on the Department; and

5. Notwithstanding the provisions of this subdivision, a licensed insurer shall not transact insurance, as that term is defined in Code Section 35, without first obtaining the approvals that may be required from the Department, such as prior approvals for rates or policy forms.

(r) When the Department requests a formal commitment from a licensed insurer to undertake a future act, the commitment made on behalf of the insurer shall be in the form of a certified copy of a board resolution or, at the discretion of the Department, a writing signed by (1) the insurer's chairman, president or any vice president and (2) the insurer's corporate secretary, any assistant secretary, chief financial officer or any assistant treasurer. The Department may require that signatures be notarized.

(s) The verified report of examination required by Code Section 734.1 to be issued after a regularly scheduled examination of all the affairs of a licensee shall not routinely be issued in conjunction with the limited examination of a licensee's reinsurance arrangements that is required or permitted by this article. Nor shall a verified report of examination routinely be issued for examinations that are limited in scope and undertaken in the routine oversight of a licensee's financial affairs. Notwithstanding the foregoing, a formal report of examination shall be issued upon the written request of the examined licensed insurer. The written request shall include an acknowledgement that further examination may be necessary in order to prepare the formal report of examination specified in Code Section 734.1.

NOTE

Authority cited: Sections 720, 730, 736, 923, 1011.5, 1215.8, 1781.12 and 12921, Insurance Code; CalFarm Insurance Company v. Deukmejian, 48 Cal. 3d 805 (1989); and 20th Century Insurance Company v. Garamendi, 8 Cal. 4th 216 (1994). Reference: Sections 700, 701, 717, 730, 733, 736, 923, 925, 925.2, 925.4, 1011, 1011.5, 1215.5(b)(3), 1215.5(f), 1781.10 and 12921, Insurance Code.

HISTORY

1. New section filed 10-24-2006; operative 11-23-2006 (Register 2006, No. 43).

§2303.16. List of Volume Insurers.

Note • History

(a) The definition of “volume insurer” in Section 2303.2(w) of this article uses the same threshold test as that used for a “commercially domiciled” insurer in Code Section 1215.13(a) of the Holding Company Act. By definition, all commercially domiciled insurers are volume insurers under this article. However, not all volume insurers are commercially domiciled insurers, in that a licensed insurer may meet the threshold test for volume insurer and not be a member of an insurance holding company system.

(b) On or before April 15 of each year, the Department shall publish on the Department's public website a list of foreign insurers that have attained the status of volume insurer for the year, and a list of foreign insurers that have attained the status of commercially domiciled insurer for the year.

NOTE

HISTORY

1. New section filed 10-24-2006; operative 11-23-2006 (Register 2006, No. 43).

§2303.17. Examination of Reinsurance Intermediaries.

Note • History

(a) The Commissioner may examine the business and affairs of a reinsurance intermediary whenever he deems necessary, or upon application as provided in this article. The examination shall include a determination of the intermediary's compliance with applicable provisions of the California Insurance Code and its ability to fulfill its obligations.

(b) An application for an examination by the Commissioner of a licensed reinsurance intermediary may be made by a licensed insurer on behalf of the intermediary, or by the intermediary. The application shall include:

1. A copy of each financial statement provided by the intermediary to its client insurers within the three years prior to the filing of the application;

2. A copy of each audit report with an “as of” date within the three years prior to the filing of the application, along with responses to the report findings, if any;

3. If the intermediary is not independently audited, an un-audited balance sheet, income statement, and statement of cash flow, each with an “as of” date of not more than 120 days;

4. A statement of funds held in fiduciary accounts;

5. A description of any professional liability or fidelity insurance policies or bonds naming the intermediary as an insured or principal;

6. If the application is requested by an insurer on behalf of an intermediary, a written consent by the intermediary to the examination; and

7. Additional documents and records as may be requested by the Commissioner.

(c) Each financial statement submitted to the Department by or on behalf of an intermediary shall be certified by an officer of the intermediary as being a true copy of the original, and shall contain a statement signed by the intermediary's chief financial officer under penalty of perjury attesting to the veracity of the financial statement.

(d) Following completion of an examination, the Department shall provide the intermediary with a copy of the examination report, together with a notice that the intermediary has 15 days to make a written submission or rebuttal with respect to any matters contained within the examination report. Within 15 days after expiration of the time to respond, the Commissioner shall fully consider the examination report and any responsive submissions by the intermediary and either adopt the examination report as prepared by the examiner or with modifications or corrections, or reject the examination report and require re-opening of the examination for purposes of obtaining additional information.

(e) In conducting the examination, the Commissioner shall observe those guidelines and procedures set forth in the Examiner's Handbook adopted by the NAIC as may be relevant to the examination of an intermediary, and may employ other guidelines or procedures which he deems appropriate. All documents disclosed in connection with the examination may be used by the Commissioner and shall be given confidential treatment by the Commissioner to the same extent as provided in Code Section 735.5 for documents disclosed in connection with the examination of insurers.

(f) An examination of an intermediary shall be at the expense of the intermediary, unless the examination is undertaken at the request of an insurer. The Commissioner shall not commence an examination requested by an insurer until receipt of a written commitment from the insurer, satisfactory to the Commissioner, that the insurer shall promptly pay all costs of the examination.

(g) Requests for an examination of a reinsurance intermediary shall be made following the procedures set forth in Section 2303.22(j) of this article.

(h) A licensed intermediary shall annually file with the Department a copy of the financial statement required by Code Sections 1781.6(c) or 1781.9(b), authenticated as required by subdivision (c) of this section.

NOTE

Authority cited: Section 1781.12, Insurance Code. Reference: Section 1781.10, Insurance Code.

HISTORY

1. New section filed 10-24-2006; operative 11-23-2006 (Register 2006, No. 43).

§2303.18. Reporting of Regulatory Action.

Note • History

An insurer that is either licensed or accredited in this state shall provide written notice to the Department within five (5) days of receipt of notice in any form or manner that it is the subject of a regulatory order or regulatory oversight by any state in which it is licensed concerning a hazardous financial condition. Where the regulatory action is confidential, disclosure to the Department is required only if permitted by the regulator issuing the order or initiating the oversight.

NOTE

Authority cited: Sections 720, 730, 922.8, 1011 and 12921, Insurance Code; CalFarm Insurance Company v. Deukmejian, 48 Cal. 3d 805 (1989); and 20th Century Insurance Company v. Garamendi, 8 Cal. 4th 216 (1994). Reference: Sections 700, 717, 730, 733, 922.4, 923, 925, 925.2, 925.4, 1011, 1215.5(f) and 12921, Insurance Code.

HISTORY

1. New section filed 10-24-2006; operative 11-23-2006 (Register 2006, No. 43).

§2303.19. Denial of Statement Credit and Non-Admission of Assets.

Note • History

(a) Credit on financial statements for reinsurance ceded shall be denied if the applicable requirements of Sections 2303.3 through 2303.13 of this article have not been met, by non-admission of recoverables on paid losses, disallowance of recoverables on unpaid losses, or a requirement to use deposit accounting for the cession.

(b) Reinsurance recoverables that are due more than 90 days from a reinsurer to a domestic insurer on paid losses or paid loss adjustment expenses may, in the Commissioner's discretion, be required to be reported as non-admitted assets. A domestic insurer may follow the NAIC Accounting Guidance when reporting reinsurance recoverables due more than 90 days on its financial statements, unless the Commissioner expressly requires the financial statements to reflect the subject recoverables as non-admitted assets.

(c) Upon a determination that credit for reinsurance ceded shall not be permitted or an asset is deemed non-admitted, the Department shall issue a finding in the form of a written explanation to the ceding insurer setting forth the reasons for the determination. The determination may be appealed to the Chief of the Financial Surveillance Branch or to the successor position after a reorganization of the Department, in a manner consistent with making a request for a permitted accounting practice.

(d) Denial of credits on financial statements for reinsurance ceded pursuant to subdivisions (a) and (b) of this section shall not be construed to be the only adjustments for reinsurance contemplated under the California Insurance Code. To the extent that the NAIC Accounting Guidance prescribes additional reductions in credits for reinsurance or additional liability provisions for reinsurance, the NAIC Accounting Guidance shall be followed.

(e) If a volume insurer is denied statement credit pursuant to this section or elects to forego a claim for statement credit in California to avoid compliance with a requirement of this article, the volume insurer shall report any variance between the credit claimed in California and the credit claimed in its state of domicile. The variance shall be reported on a form specified by the Department in the annual statement instructions. The Department may consider the variance in all evaluations of the financial strength of the volume insurer, including, but not limited to, whether to restrict the insurer's writing of new business in California.

NOTE

Authority cited: Sections 720, 736, 922.8, 923 and 12921, Insurance Code; CalFarm Insurance Company v. Deukmejian, 48 Cal. 3d 805 (1989); and 20th Century Insurance Company v. Garamendi, 8 Cal. 4th 216 (1994). Reference: Sections 700, 717, 730, 733, 900, 922.2, 922.3, 922.4, 922.5, 922.6, 923, 1011, 1215.5(f) and 12921, Insurance Code.

HISTORY

1. New section filed 10-24-2006; operative 11-23-2006 (Register 2006, No. 43).

§2303.20. Commissioner's Discretion.

Note • History

The Commissioner may exercise discretion in requiring strict compliance with the requirements of this article where the Commissioner determines that (1) the variance is reasonable and justifiable in relation to the insurer's overall financial condition, (2) the true financial condition of the insurer may be elicited from analysis of the financial statements and other public documents as may be filed, and (3) compliance would cause undue hardship to the insurer.

NOTE

Authority cited: Sections 720, 730, 736, 922.8, 923, 1011.5, 1215.8 and 12921, Insurance Code; CalFarm Insurance Company v. Deukmejian, 48 Cal. 3d 805 (1989); and 20th Century Insurance Company v. Garamendi, 8 Cal. 4th 216 (1994). Reference: Sections 700, 701, 717, 730, 733, 736, 900, 922.1, 922.2, 922.4, 922.5, 922.6, 923, 924, 925, 925.2, 925.4, 1011, 1011.5, 1215.5(b)(3), 1215.5(f) and 12921, Insurance Code.

HISTORY

1. New section filed 10-24-2006; operative 11-23-2006 (Register 2006, No. 43).

§2303.21. Insurer Default for Failure to Comply.

Note • History

For purposes of Code Section 701, “governmental control” includes the requirements placed upon licensed insurers by this article.

NOTE

Authority cited: Section 720, Insurance Code. Reference: Section 701, Insurance Code.

HISTORY

1. New section filed 10-24-2006; operative 11-23-2006 (Register 2006, No. 43).

§2303.22. Required Deposits, Fees and Filing Offices.

Note • History

(a) All costs and expenses incurred by the Department in connection with the review of an application, request or filing made under this article by or on behalf of an insurer or reinsurance intermediary in excess of any deposit paid shall be billed to the insurer or reinsurance intermediary making the application, request or filing. The Commissioner shall maintain a schedule of the deposits required under this article on the Department's website and, after 90 days notice provided on the website schedule, may revise the deposit amounts as necessary to substantially cover the expected costs of review.

(b) As used in Code Section 924, which assesses late fees for the failure to make timely filings, the term “statements or stipulations” shall include all filings required by this article and the filings made pursuant to Code Section 1011.5.

(c) The initial application and annual filings required by Section 2303.4 of this article for accredited reinsurers shall be submitted in duplicate, except that only one copy of the items listed in Section 2303.4(b)(5)(D) of this article is required, accompanied by a deposit of $1,500.00. The application shall consist of a cover letter transmitting the items specified in Section 2303.4

(d) The initial application and annual filings required by Section 2303.5 of this article for an approved U.S. trust, and the application for approval of trust amendments, shall be submitted in duplicate, except that with respect to financial documents provided to the Oversight State, duplicate copies are required only of the audit report, actuarial opinion and CPA report. The requesting reinsurer or group of affiliated insurers shall provide the Department with a $3,000 deposit in conjunction with the initial application for approval of a U.S. trust, a $500 deposit for review of an amendment to the form of an approved U.S. trust, and a $1,500 deposit with the annual filing. The application shall consist of a cover letter transmitting the items specified in Section 2303.5.

(e) A deposit of $500 shall accompany examination requests made pursuant to Section 2303.8(d) of this article for a determination that a letter of credit form meets the requirements of Section 2303.8(c). The application shall consist of a cover letter and a copy of the proposed letter of credit.

(f) An application for the consent required by Section 2303.15(b) of this article to retain less than 10% of direct premium written per line of business shall be submitted for examination in duplicate, accompanied by a deposit of $1,500. The application shall include a cover letter explaining the proposed reinsurance arrangements, including the business necessity for the exception.

(g) An application submitted pursuant to Section 2303.15(e) of this article concerning a reinsurance agreement subject to Code Section 1011(c) shall be submitted in duplicate, accompanied by the fee required for an application made under Code Section 1011.5. The form and instructions for applications not in the form of the notice permitted by Section 2303.15(e) may be obtained from the Corporate Affairs Bureau at the address provided in subdivision (k) of this section or from the Department's public website at www.insurance.ca.gov.

(h) An application for the determination required by Section 2303.15(g) of this article concerning specified reinsurance agreements shall be submitted for examination in duplicate, accompanied by a deposit of $1,500. The application shall include a cover letter explaining the proposed transaction, a copy of the reinsurance agreement and any other relevant documents, and pro-forma financial statements for the term of the agreement, or three years, whichever is less, with and without the reinsurance.

(i) A filing for the examination required by Section 2303.15(q) of this article for a determination of compliance with Code Section 700(c) shall include all supporting documents required for an initial application for a Certificate of Authority, shall be made in duplicate, and shall be accompanied by a deposit of $1,500. The application forms and instructions may be obtained from the Corporate Affairs Bureau at the address provided in subdivision (k) of this section or from the Department's public website at www.insurance.ca.gov.

(j) Applications made pursuant to Section 2303.17 of this article for the examination of a reinsurance intermediary shall be submitted in duplicate, accompanied by a deposit of $1,000.

(k) The applications, annual filings and requests made pursuant to subdivisions (c) through (j) of this section shall be submitted to:

CALIFORNIA DEPARTMENT OF INSURANCE
LEGAL BRANCH, CORPORATE AFFAIRS BUREAU
45 FREMONT STREET, 24TH FLOOR
SAN FRANCISCO, CA 94105

All other filings or notices required or permitted by this article shall be accompanied by an explanation of the reason for the filing or notice and shall be submitted to:

CALIFORNIA DEPARTMENT OF INSURANCE
FINANCIAL ANALYSIS DIVISION
300 SOUTH SPRING STREET, SOUTH TOWER
LOS ANGELES, CA 90013

NOTE

Authority cited: Sections 720, 730, 736, 922.8, 924, 1011.5, 1215.8, 1781.12 and 12921, Insurance Code; CalFarm Insurance Company v. Deukmejian, 48 Cal. 3d 805 (1989); and 20th Century Insurance Company v. Garamendi, 8 Cal. 4th 216 (1994). Reference: Sections 700, 717, 730, 733, 736, 922.5, 923, 924, 1011.5, 1215.5(b)(3) and 1781.10, Insurance Code.

HISTORY

1. New section filed 10-24-2006; operative 11-23-2006 (Register 2006, No. 43).

§2303.23. Severability.

Note • History

If any provision of this article, or the application of a provision to any person or circumstance, shall be held invalid, the remainder of the article, and the application of the provision to persons or circumstances other than those to which it is held invalid, shall not be affected.

NOTE

HISTORY

1. New section filed 10-24-2006; operative 11-23-2006 (Register 2006, No. 43).

§2303.24. Effective Date.

Note • History

(a) Section 2303 through Section 2303.25 of this article shall become effective on January 1, 2007, or the 30th day following the day those sections are filed with the Secretary of State, whichever is later (the “Effective Date”).

(b) No licensee may claim reserve credit for a new or renewal reinsurance agreement executed on or after the Effective Date unless the agreement and any security provided therefor conform to the applicable requirements of this article.

(c) All reinsurance agreements and any security provided therefor that are executed prior to the Effective Date shall remain subject to the requirements of Bulletin 97-5 issued pursuant to Code Section 922.8. Bulletin 97-5 is incorporated herein by reference for that limited purpose.

(d) Licensees shall continue to conform to the requirements of the NAIC Accounting Guidance, to the extent that those requirements do not conflict with applicable requirements of the Code and Bulletin 97-5, or, after the Effective Date, with this article.

NOTE

HISTORY

1. New section filed 10-24-2006; operative 11-23-2006 (Register 2006, No. 43).

§2303.25. Approved Forms.

Note • History

(a) The Certificate of Assuming Insurer Form AR-1 as published in this section is required under Section 2303.4 and 2303.5 of this article.

(b) The Designation of Agent for Service of Process and Consent to Jurisdiction Form AR-2 as published in this section is a form acceptable to the Commissioner under the requirements of Sections 2303.4 and 2303.5 of this article.

(c) The Letter of Credit for Reinsurance Form AR-3 as published in this section is a form acceptable to the commissioner for the purpose of securing ceded reinsurance under Section 2303.8 of this article.

(d) Following are Forms AR-1 through AR-3:

NOTE

HISTORY

1. New section and new Forms AR-1, AR-2 and AR-3 filed 10-24-2006; operative 11-23-2006 (Register 2006, No. 43).

FORM AR-1

CERTIFICATE OF ASSUMING INSURER

Embedded Graphic 10.0179

DESIGNATION OF AGENT FOR SERVICE OF PROCESS

AND CONSENT TO JURISDICTION

Embedded Graphic 10.0180

LETTER OF CREDIT

AS SECURITY FOR REINSURANCE CEDED

Embedded Graphic 10.0181

§2305. Documents Accompanying the Fraternal Orders Annual Statement, Blank Which Must Be Signed by an Actuary.

Note • History

(a) Documents accompanying the filing of the Fraternal Orders Annul Statement Blank with the State of California Insurance Department shall include a statement of actuarial opinion:

(1) Statement of Actuarial Opinion. The statement of actuarial opinion prepared by the actuary in accordance with the Instructions to the Fraternal Orders Annual Statement Blank.

(b) The details of actuarial analysis will be given in the statement of actuarial opinion. If it is necessary for more than one actuary to prepare statements of actuarial opinion, then each actuary shall prepare a separate statement of actuarial opinion.

(c) In preparing the statement of actuarial opinion, each actuary shall take particular care in the preparation of the opinion paragraph, making specific reference to the items and the amounts listed for which the actuary is submitting an opinion. If, for any reason, the actuary cannot render an unqualified opinion regarding any of the points defined in the instructions to the blank with respect to the opinion paragraph, specific details must be given as to why an unqualified opinion is not given. For the 1975 annual statement blank, the Department will consider restrictions of determination of opinion because of insufficient information only in those situations where the financial operations of the company appear to justify further actuarial analysis, and in those situations will require a complete statement of actuarial opinion on a delayed basis.

(d) After 1975 it is expected that the actuary will have sufficient time to prepare his statement of actuarial opinion so that each such statement of opinion will only on rare occasions be incomplete because of insufficient information.

NOTE

Authority cited: Section 12923(b), Insurance Code.

HISTORY

1. New section filed 12-5-75; effective thirtieth day thereafter (Register 75, No. 49).

§2306. Documents Accompanying the Life and Accident and Health Annual Statement Blank Which Must Be Signed by an Actuary.

Note • History

(a) Documents accompanying the filing of the Life and Accident and Health Annual Statement Blank with the State of California Insurance Department shall include a statement of actuarial opinion:

(1) Statement of Actuarial Opinion. The statement of actuarial opinion prepared by the actuary in accordance with the Instructions to the Life and Accident and Health Annual Statement Blank.

(b) The details of actuarial analysis will be given in the statement of actuarial opinion. If it is necessary for more than one actuary to prepare a statement of actuarial opinion, each actuary shall prepare a separate statement of actuarial opinion.

(c) In preparing the statement of actuarial opinion, each actuary shall take particular care in the preparation of the opinion paragraph making specific reference to the items and the amounts listed for which the actuary is submitting an opinion. If, for any reason, the actuary cannot render an unqualified opinion regarding any of the points defined in the instructions to the blank with respect to the opinion paragraph, specific details must be given as to why an unqualified opinion is not given. For the 1975 Annual Statement Blank, the Department will consider restrictions of determination of opinion because of insufficient information only in those situations where the financial operations of the company appear to justify further actuarial analysis, and in those situations will require a complete statement of actuarial opinion on a delayed basis.

(d) After 1975 it is expected that the actuary will have sufficient time to prepare the statement of actuarial opinion so that such statement of opinion will only on rare occasions be incomplete because of insufficient information.

NOTE

Authority cited: Section 12923(b), Insurance Code.

HISTORY

1. New section filed 12-5-75; effective thirtieth day thereafter (Register 75, No. 49).

§2307. California Earthquake Zoning and Probable Maximum Loss Evaluation Program.

Note • History

All insurers transacting property insurance in this State must record earthquake liabilities written in this State and develop statistics in accordance with the instructions contained in the Insurance Department, California Earthquake Liability Report Form.

Insurers specializing in the writing of unique or unusual risks may report on forms and plans that are submitted to the Insurance Department and found to be compatible with the uniform form. Exceptions will be granted only where compatibility is clearly demonstrated by the insurer.

(a) Insurers must provide their reinsurers zone, construction, PML and deductible information on the same basis and format as they submit to the Insurance Department for liabilities ceded under each reinsurance treaty other than catastrophe treaties. Reinsurers shall combine this information with their own facultative recordings for a total aggregate probable maximum loss estimate on their writings.

(b) Insurers writing risks under excess of loss, loss limit, aggregate, stop loss or similar covers must report the following information:

1. Zone designation

2. Company aggregate limit

3. Net probable Maximum Loss Insurers are expected to develop and maintain information on methodology of determining Net Probable Maximum Loss for review by the Department's examiners.

(c) Reports shall be filed with the Commissioner as an Addendum to the insurer's Annual Statement as of December 31st of each calendar year and shall be due June 30th of the following year. The first Earthquake Liability Report shall be due June 30, 1980, for the year ending December 31, 1979, and shall cover only policies written and effective on or after January 1, 1979.

NOTE

Authority cited: Sections 923 and 923.5, Insurance Code.

HISTORY

1. New section filed 8-15-78; effective thirtieth day thereafter (Register 78, No. 33).

2. Technical amendment to original filing of section filed 8-17-78 (Register 78, No. 33).

§2308.1. Electronic Filing of Annual and Quarterly Statements.

Note • History

(a) Designation: Effective with the 2008 annual statement filing due March 1, 2009, and for every annual and quarterly statement due thereafter, the Insurance Commissioner (“Commissioner”) designates the Internet-based financial filing system operated by the National Association of Insurance Commissioners (“NAIC”) as the filing system to receive and store electronic filings of annual and quarterly financial statements from all admitted insurers, as defined by Insurance Code Sections 23 and 24, on behalf of the Commissioner.

(b) Use of NAIC Electronic Filing: All admitted insurers' annual and quarterly financial statements shall be filed electronically with and transmitted to the NAIC, except as otherwise indicated in these rules. The following conditions relate to such electronic filings:

(1) When Filed: Solely for purposes of a filing made with the NAIC, a document is considered filed with the Commissioner when the filing is accepted by the NAIC.

(2) Confirmation of Filing: Admitted Foreign and Alien insurers, as defined by Insurance Code Sections 24, 27, and 1580, shall provide the Commissioner with a paper original of a properly executed Jurat page from the related financial statement filed electronically with the NAIC, as confirmation of each NAIC electronic filing, unless a paper original of such properly executed Jurat page is on file with its domestic regulator.

(3) Any financial statement required to be filed with the NAIC pursuant to this section that is not accepted for filing by the NAIC shall be filed in paper directly with the Commissioner in accordance with California Code of Regulations, Title 10, Section 2308.2.

NOTE

Authority cited: Sections 733, 900, 923, 931 and 12921(c), Insurance Code. CalFarm Insurance Company v. Deukmejian (1989) 48 Ca1.3d 805; and 20th Century Insurance Company v. Garamendi (1994) 8 Cal. 4th 216. Reference: Sections 733, 900, 903, 903.5, 923, 924, 931 and 934, Insurance Code.

HISTORY

1. New section filed 2-5-2009; operative 2-5-2009 pursuant to Government Code section 11343.4 (Register 2009, No. 6).

§2308.2. Paper Filing of Domestic Insurers' Annual and Quarterly Statements.

Note • History

In addition to filing electronically with the NAIC, pursuant to California Code of Regulations, Title 10, Section 2308.1, admitted domestic insurers, as defined by Insurance Code Sections 24 and 26, shall file all annual and quarterly financial statements in paper directly with the Commissioner.

NOTE

Authority cited: Sections 733, 900, 923 and 12921(c), Insurance Code; CalFarm Insurance Company v. Deukmejian (1989) 48 Cal.3d 805; and 20th Century Insurance Company v. Garamendi (1994) 8 Cal. 4th 216. Reference: Sections 733, 900, 903, 903.5, 923 and 924, Insurance Code.

HISTORY

1. New section filed 2-5-2009; operative 2-5-2009 pursuant to Government Code section 11343.4 (Register 2009, No. 6).

§2308.3. Paper and Electronic Filing of California Supplemental Financial Statements.

Note • History

All admitted insurers shall file their California supplemental financial statements in both electronic and paper form directly with the Commissioner.

NOTE

Authority cited: Sections 733, 900, 923 and 12921(c), Insurance Code; CalFarm Insurance Company v. Deukmejian (1989) 48 Ca1.3d 805; and 20th Century Insurance Company v. Garamendi (1994) 8 Cal. 4th 216. Reference: Sections 733, 900 and 923, Insurance Code.

HISTORY

1. New section filed 2-5-2009; operative 2-5-2009 pursuant to Government Code section 11343.4 (Register 2009, No. 6).

Article 3.3. Annual Financial Reporting

§2309.2. Purpose and Scope.

Note • History

The purpose of these regulations is to improve surveillance by the California Department of Insurance of the financial condition of insurers by requiring (1) an annual audit of financial statements reporting the financial position and the results of operations of insurers by independent certified public accountants; (2) Communication of Internal Control Related Matters Noted in an Audit; and (3) Management's Report of Internal Control over Financial Reporting.

Every insurer (as defined in Section 2309.3) shall be subject to these regulations; however, insurers having direct premiums written in this state of less than $1,000,000 in any calendar year and fewer than 1,000 policyholders or certificate holders of direct written policies nationwide at the end of the calendar year shall be exempt from these regulations for the year (unless the commissioner makes a specific finding that compliance is necessary for the commissioner to carry out statutory responsibilities) except that insurers having assumed premiums pursuant to contracts and/or treaties of reinsurance of $1,000,000 or more will not be so exempt.

Foreign or alien insurers filing the Audited financial reports in another state, pursuant to that state's requirement for filing of Audited financial reports, which has been found by the commissioner to be substantially similar to the requirements herein, are exempt from Sections 2309.4 through 2309.13 of these regulations if:

(a) A copy of the Audited financial report, Communication of Internal Control Related Matters Noted in an Audit, and the Accountant's Letter of Qualifications that are filed with the other state are filed with the commissioner in accordance with the filing dates specified in Sections 2309.4, 2309.11 and 2309.12, respectively (Canadian insurers may submit accountants' reports as filed with the Office of the Superintendent of Financial Institutions, Canada).

(b) A copy of any Notification of Adverse Financial Condition Report filed with the other state is filed with the commissioner within the time specified in Section 2309.10.

Foreign or alien insurers required to file Management's Report of Internal Control over Financial Reporting in another state are exempt from filing the Report in this state provided the other state has substantially similar reporting requirements and the Report is filed with the commissioner of the other state within the time specified.

These regulations shall not prohibit, preclude or in any way limit the commissioner from ordering or conducting or performing examinations of insurers under any provision of the California Insurance Code or the rules, regulations, practices, and procedures of the Department of Insurance.

NOTE

Authority cited: Sections 900.2 and 925.4, Insurance Code. Reference: Sections 730, 731, 732, 733, 734, 734.1, 735, 735.5, 736, 736.5, 737, 900.2 and 925.4, Insurance Code.

HISTORY

1. New article 3.3 (sections 2309.2-2309.20) and section filed 12-7-2009; operative 1-1-2010 pursuant to Government Code section 11343.4 (Register 2009, No. 50).

§2309.3. Definitions.

Note • History

The terms and definitions contained herein are intended to provide definitional guidance as the terms are used within these regulations.

(a) “Accountant” or “independent certified public accountant” means an independent certified public accountant or accounting firm in good standing with the American Institute of Certified Public Accountants (AICPA) and in all states in which he or she is licensed to practice; for Canadian and British companies, it means a Canadian-chartered or British-chartered accountant.

(b) An “affiliate” of, or person “affiliated” with, a specific person, is a person that directly, or indirectly through one or more intermediaries, controls, or is controlled by, or is under common control with, the person specified.

(c) “Audit Committee” means a committee (or equivalent body) established by the board of directors of an entity for the purpose of overseeing the accounting and financial reporting processes of an insurer or group of insurers, and audits of financial statements of the insurer or group of insurers. The Audit Committee of any entity that controls a group of insurers may be deemed to be the Audit Committee for one or more of these controlled insurers solely for the purposes of these regulations at the election of the controlling person. Refer to Section 2309.14(e) for exercising this election. If an Audit Committee is not designated by the insurer, the insurer's entire board of directors shall constitute the Audit Committee.

(d) “Audited financial report” means and includes those items specified in 2309.5 of these regulations.

(e) “Indemnification” means an agreement of indemnity or a release from liability where the intent or effect is to shift or limit in any manner the potential liability of the person or firm for failure to adhere to applicable auditing or professional standards, whether or not resulting in part from knowing of other misrepresentations made by the insurer or its representatives.

(f) “Independent board member” has the same meaning as described in 2309.14(c).

(g) “Insurer” means an insurer admitted to transact business in this state.

(h) “Group of insurers” means those licensed insurers included in the reporting requirements of California Insurance Code section 1215, et seq., or a set of insurers as identified by management, for the purpose of assessing the effectiveness of internal control over financial reporting.

(i) “Internal control over financial reporting” means a process effected by an entity's board of directors, management and other personnel designed to provide reasonable assurance regarding the reliability of the financial statements, i.e., those items specified in 2309.5(b) through 2309.5(g) of these regulations and includes those policies and procedures that:

(1) Pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of assets;

(2) Provide reasonable assurance that transactions are recorded as necessary to permit preparation of the financial statements, i.e., those items specified in 2309.5(b) through 2309.5(g) of these regulations and that receipts and expenditures are being made only in accordance with authorizations of management and directors; and

(3) Provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of assets that could have a material effect on the financial statements, i.e., those items specified in 2309.5(b) through 2309.5(g) of these regulations.

(j) “SEC” means the United States Securities and Exchange Commission.

(k) “Section 404” means Section 404 of the Sarbanes-Oxley Act of 2002 and the SEC's rules and regulations promulgated thereunder.

(l) “Section 404 Report” means management's report on “internal control over financial reporting” as defined by the SEC and the related attestation report of the independent certified public accountant.

(m) “SOX Compliant Entity” means an entity that either is required to be compliant with, or voluntarily is compliant with, all of the following provisions of the Sarbanes-Oxley Act of 2002: (i) the preapproval requirements of Section 201 (Section 10A(i) of the Securities Exchange Act of 1934); (ii) the Audit Committee independence requirements of Section 301 (Section 10A(m)(3) of the Securities Exchange Act of 1934); and (iii) the internal control over financial reporting requirements of Section 404 (Item 308 of SEC Regulation S-K).

NOTE

Authority cited: Section 900.2, Insurance Code. Reference: Sections 900.2 and 1215, Insurance Code.

HISTORY

1. New section filed 12-7-2009; operative 1-1-2010 pursuant to Government Code section 11343.4 (Register 2009, No. 50).

§2309.4. General Requirements Related to Filing and Extensions for Filing of Annual Audited Financial Reports and Audit Committee Appointment.

Note • History

(a) All insurers shall have an annual audit by an independent certified public accountant and shall file an audited financial report with the commissioner on or before June 1 for the year ended December 31 immediately preceding. The commissioner may require an insurer to file an audited financial report earlier than June 1 with ninety (90) days advance notice to the insurer.

(b) Extensions may be permitted as allowed by the statute governing audit reports.

(c) Extension(s) of the June 1 filing date of the Management's Report of Internal Control over Financial Reporting shall be granted commensurate with any extension(s) pursuant to Section 2309.4(b).

(d) Every insurer required to file an annual audited financial report pursuant to these regulations shall designate a group of individuals as constituting its Audit Committee, as defined in Section 2309.3. The Audit Committee of an entity that controls an insurer may be deemed to be the insurer's Audit Committee for purposes of these regulations at the election of the controlling person.

NOTE

Authority cited: Section 900.2, Insurance Code. Reference: Section 900.2, Insurance Code.

HISTORY

1. New section filed 12-7-2009; operative 1-1-2010 pursuant to Government Code section 11343.4 (Register 2009, No. 50).

§2309.5. Contents of Annual Audited Financial Report.

Note • History

The annual audited financial report shall report the financial position of the insurer as of the end of the most recent calendar year and the results of its operations, cash flows and changes in capital and surplus for the year then ended in conformity with statutory accounting practices prescribed, or otherwise permitted, by the Department of Insurance of the state of domicile.

The annual audited financial report shall include the following:

(a) Report of independent certified public accountant.

(b) Balance sheet reporting admitted assets, liabilities, capital and surplus.

(d) Statement of cash flows.

(e) Statement of changes in capital and surplus.

(f) Notes to financial statements. These notes shall be those required by the appropriate NAIC Annual Statement Instructions and the NAIC Accounting Practices and Procedures Manual. The notes shall include a reconciliation of differences, if any, between the audited statutory financial statements and the annual statement filed pursuant to any applicable section of the California Insurance Code, with a written description of the nature of these differences.

(g) The financial statements included in the audited financial report shall be prepared in a form and using language and groupings substantially the same as the relevant sections of the annual statement of the insurer filed with the commissioner, and the financial statement shall be comparative, presenting the amounts as of December 31 of the current year and the amounts as of the immediately preceding December 31. (However, in the first year in which an insurer is required to file an audited financial report, the comparative data may be omitted).

NOTE

Authority cited: Section 900.2, Insurance Code. Reference: Section 900.2, Insurance Code.

HISTORY

1. New section filed 12-7-2009; operative 1-1-2010 pursuant to Government Code section 11343.4 (Register 2009, No. 50).

§2309.6. Designation of Independent Certified Public Accountant.

Note • History

(a) Each insurer required by these regulations to file an annual audited financial report must within sixty (60) days after becoming subject to the requirement, register with the commissioner in writing the name and address of the independent certified public accountant or accounting firm retained to conduct the annual audit set forth in these regulations. Insurers not retaining an independent certified public accountant on the effective date of these regulations shall register the name and address of their retained independent certified public accountant not less than six (6) months before the date when the first audited financial report is to be filed.

(b) The insurer shall obtain a letter from the accountant, and file a copy with the commissioner stating that the accountant is aware of the provisions of the insurance code and the regulations of the insurance department of the state of domicile that relate to accounting and financial matters and affirming that the accountant will express his or her opinion on the financial statements in terms of their conformity to the statutory accounting practices prescribed or otherwise permitted by that insurance department, specifying such exceptions as he or she may believe appropriate.

(c) If an accountant who was the accountant for the immediately preceding filed audited financial report is dismissed or resigns, the insurer shall within five (5) business days notify the commissioner of this event. The insurer shall also furnish the commissioner with a separate letter within ten (10) business days of the above notification stating whether in the twenty-four (24) months preceding such event there were any disagreements with the former accountant on any matter of accounting principles or practices, financial statement disclosure, or auditing scope or procedure; which disagreements, if not resolved to the satisfaction of the former accountant, would have caused him or her to make reference to the subject matter of the disagreement in connection with his or her opinion. The disagreements required to be reported in response to this section include both those resolved to the former accountant's satisfaction and those not resolved to the former accountant's satisfaction. Disagreements contemplated by this section are those that occur at the decision-making level, i.e., between personnel of the insurer responsible for presentation of its financial statements and personnel of the accounting firm responsible for rendering its report. The insurer shall also in writing request the former accountant to furnish a letter addressed to the insurer stating whether the accountant agrees with the statements contained in the insurer's letter and, if not, stating the reasons for which he or she does not agree; and the insurer shall furnish the responsive letter from the former accountant to the commissioner together with its own.

NOTE

Authority cited: Section 900.2, Insurance Code. Reference: Section 900.2, Insurance Code.

HISTORY

1. New section filed 12-7-2009; operative 1-1-2010 pursuant to Government Code section 11343.4 (Register 2009, No. 50).

§2309.7. Qualifications of Independent Certified Public Accountant.

Note • History

(a) The commissioner shall not recognize a person or firm as a qualified independent certified public accountant if the person or firm:

(1) Is not in good standing with the AICPA and in all states in which the accountant is licensed to practice, or, for a Canadian or British company, that is not a chartered accountant; or

(2) Has either directly or indirectly entered into an agreement of indemnity or release from liability (collectively referred to as indemnification) with respect to the audit of the insurer.

(b) Except as otherwise provided in these regulations, the commissioner shall recognize an independent certified public accountant as qualified as long as he or she conforms to the standards of his or her profession, as contained in the Code of Professional Ethics of the AICPA and Rules and Regulations and Code of Ethics and Rules of Professional Conduct of the California Board of Public Accountancy, or similar code.

(c) A qualified independent certified public accountant may enter into an agreement with an insurer to have disputes relating to an audit resolved by mediation or arbitration. However, in the event of a delinquency proceeding commenced against the insurer under any statute of the California Insurance Code, the mediation or arbitration provisions shall operate at the option of the statutory successor.

(d)(1) The lead (or coordinating) audit partner (having primary responsibility for the audit) may not act in that capacity for more than five (5) consecutive years. The person shall be disqualified from acting in that or a similar capacity for the same company or its insurance subsidiaries or affiliates for a period of five (5) consecutive years. An insurer may make application to the commissioner for relief from the above rotation requirement on the basis of unusual circumstances. This application should be made at least thirty (30) days before the end of the calendar year. The commissioner may consider the following factors in determining if the relief should be granted:

(A) Number of partners, expertise of the partners or the number of insurance clients in the currently registered firm;

(B) Premium volume of the insurer; or

(2) The insurer shall file, with its annual statement filing, the approval for relief from Subsection (d)(1) with the states that it is licensed in or doing business in and with the NAIC. If the nondomestic state accepts electronic filing with the NAIC, the insurer shall file the approval in an electronic format acceptable to the NAIC.

(e) The commissioner shall neither recognize as a qualified independent certified public accountant, nor accept an annual audited financial report, prepared in whole or in part by, a natural person who:

(1) Has been convicted of fraud, bribery, a violation of the Racketeer Influenced and Corrupt Organizations Act, 18 U.S.C. Sections 1961 to 1968, or any dishonest conduct or practices under federal or state law;

(2) Has been found to have violated the insurance laws of this state with respect to any previous reports submitted under these regulations; or

(3) Has demonstrated a pattern or practice of failing to detect or disclose material information in previous reports filed under the provisions of these regulations.

(f) The commissioner of insurance may hold a hearing to determine whether an independent certified public accountant is qualified and, considering the evidence presented, may rule that the accountant is not qualified for purposes of expressing his or her opinion on the financial statements in the annual audited financial report made pursuant to these regulations and require the insurer to replace the accountant with another whose relationship with the insurer is qualified within the meaning of these regulations.

(g)(1) The commissioner shall not recognize as a qualified independent certified public accountant, nor accept an annual audited financial report, prepared in whole or in part by an accountant who provides to an insurer, contemporaneously with the audit, the following non-audit services:

(A) Bookkeeping or other services related to the accounting records or financial statements of the insurer;

(B) Financial information systems design and implementation;

(D) Actuarially-oriented advisory services involving the determination of amounts recorded in the financial statements. The accountant may assist an insurer in understanding the methods, assumptions and inputs used in the determination of amounts recorded in the financial statement only if it is reasonable to conclude that the services provided will not be subject to audit procedures during an audit of the insurer's financial statements. An accountant's actuary may also issue an actuarial opinion or certification (“opinion”) on an insurer's reserves if the following conditions have been met:

(i) Neither the accountant nor the accountant's actuary has performed any management functions or made any management decisions;

(ii) The insurer has competent personnel (or engages a third party actuary) to estimate the reserves for which management takes responsibility; and

(iii) The accountant's actuary tests the reasonableness of the reserves after the insurer's management has determined the amount of the reserves;

(E) Internal audit outsourcing services;

(F) Management functions or human resources;

(G) Broker or dealer, investment adviser, or investment banking services;

(H) Legal services or expert services unrelated to the audit; or

(I) Any other services that the commissioner determines, by regulation, are impermissible.

(2) In general, the principles of independence with respect to services provided by the qualified independent certified public accountant are largely predicated on three basic principles, violations of which would impair the accountant's independence. The principles are that the accountant cannot function in the role of management, cannot audit his or her own work, and cannot serve in an advocacy role for the insurer.

(h) Insurers having direct written and assumed premiums of less than $100,000,000 in any calendar year may request an exemption from Subsection (g)(1). The insurer shall file with the commissioner a written statement discussing the reasons why the insurer should be exempt from these provisions. If the commissioner finds, upon review of this statement, that compliance with these regulations would constitute a financial or organizational hardship upon the insurer, an exemption may be granted.

(i) A qualified independent certified public accountant who performs the audit may engage in other non-audit services, including tax services, that are not described in Subsection (g)(1) or that do not conflict with Subsection (g)(2), only if the activity is approved in advance by the Audit Committee, in accordance with Subsection (j).

(j) All auditing services and non-audit services provided to an insurer by the qualified independent certified public accountant of the insurer shall be pre-approved by the Audit Committee. The pre-approval requirement is waived with respect to non-audit services if the insurer is a SOX Compliant Entity or a direct or indirect wholly-owned subsidiary of a SOX Compliant entity or:

(1) The aggregate amount of all such non-audit services provided to the insurer constitutes not more than five percent (5%) of the total amount of fees paid by the insurer to its qualified independent certified public accountant during the fiscal year in which the non-audit services are provided;

(2) The services were not recognized by the insurer at the time of the engagement to be non-audit services; and

(3) The services are promptly brought to the attention of the Audit Committee and approved prior to the completion of the audit by the Audit Committee or by one or more members of the Audit Committee who are the members of the board of directors to whom authority to grant such approvals has been delegated by the Audit Committee.

(k) The Audit Committee may delegate to one or more designated members of the Audit Committee the authority to grant the pre-approvals required by Subjection (j). The decisions of any member to whom this authority is delegated shall be presented to the full Audit Committee at each of its scheduled meetings.

(l)(1) The commissioner shall not recognize an independent certified public accountant as qualified for a particular insurer if a member of the board, president, chief executive officer, controller, chief financial officer, chief accounting officer, or any person serving in an equivalent position for that insurer, was employed by the independent certified public accountant and participated in the audit of that insurer during the one-year period preceding the date that the most current statutory opinion is due. This section shall only apply to partners and senior managers involved in the audit. An insurer may make application to the commissioner for relief from the above requirement on the basis of unusual circumstances.

(2) The insurer shall file, with its annual statement filing, the approval for relief from Subsection (l)1 with the states that it is licensed in or doing business in and the NAIC. If the nondomestic state accepts electronic filing with the NAIC, the insurer shall file the approval in an electronic format acceptable to the NAIC.

NOTE

Authority cited: Section 900.2, Insurance Code. Reference: Section 900.2, Insurance Code.

HISTORY

1. New section filed 12-7-2009; operative 1-1-2010 pursuant to Government Code section 11343.4 (Register 2009, No. 50).

§2309.8. Consolidated or Combined Audits.

Note • History

An insurer may make written application to the commissioner for approval to file audited consolidated or combined financial statements in lieu of separate annual audited financial statements if the insurer is part of a group of insurance companies that utilizes a pooling or 100 percent reinsurance agreement that affects the solvency and integrity of the insurer's reserves and the insurer cedes all of its direct and assumed business to the pool. In such cases, a columnar consolidating or combining worksheet shall be filed with the report, as follows:

(a) Amounts shown on the consolidated or combined audited financial report shall be shown on the worksheet;

(b) Amounts for each insurer subject to this section shall be stated separately;

(d) Explanations of consolidating and eliminating entries shall be included; and

(e) A reconciliation shall be included of any differences between the amounts shown in the individual insurer columns of the worksheet and comparable amounts shown on the annual statements of the insurers.

NOTE

Authority cited: Section 900.2, Insurance Code. Reference: Section 900.2, Insurance Code.

HISTORY

1. New section filed 12-7-2009; operative 1-1-2010 pursuant to Government Code section 11343.4 (Register 2009, No. 50).

§2309.9. Scope of Audit and Report of Independent Certified Public Accountant.

Note • History

Financial statements furnished pursuant to Section 2309.5 shall be examined by the independent certified public accountant. The audit of the insurer's financial statements shall be conducted in accordance with generally accepted auditing standards. In accordance with AU Section 319 of the Professional Standards of the AICPA, Consideration of Internal Control in a Financial Statement Audit, the independent certified public accountant should obtain an understanding of internal control sufficient to plan the audit. To the extent required by AU 319, for those insurers required to file a Management's Report of Internal Control over Financial Reporting pursuant to Section 2309.16, the independent certified public accountant should consider (as that term is defined in Statement on Auditing Standards (SAS) No. 102, Defining Professional Requirements in Statements on Auditing Standards or its replacement) the most recently available report in planning and performing the audit of the statutory financial statements. Consideration shall be given to the procedures illustrated in the Financial Condition Examiners Handbook promulgated by the National Association of Insurance Commissioners as the independent certified public accountant deems necessary.

NOTE

Authority cited: Section 900.2, Insurance Code. Reference: Section 900.2, Insurance Code.

HISTORY

1. New section filed 12-7-2009; operative 1-1-2010 pursuant to Government Code section 11343.4 (Register 2009, No. 50).

§2309.10. Notification of Adverse Financial Condition.

Note • History

(a) The insurer required to furnish the annual audited financial report shall require the independent certified public accountant to report, in writing, within five (5) business days to the board of directors or its Audit Committee any determination by the independent certified public accountant that the insurer has materially misstated its financial condition as reported to the commissioner as of the balance sheet date currently under audit or that the insurer does not meet the minimum capital and surplus requirement of the California insurance code as of that date. An insurer that has received a report pursuant to this paragraph shall forward a copy of the report to the commissioner within five (5) business days of receipt of the report and shall provide the independent certified public accountant making the report with evidence of the report being furnished to the commissioner. If the independent certified public accountant fails to receive the evidence within the required five (5) business day period, the independent certified public accountant shall furnish to the commissioner a copy of its report within the next five (5) business days.

(b) No independent certified public accountant shall be liable in any manner to any person for any statement made in connection with the above paragraph if the statement is made in good faith in compliance with Subsection (a).

(c) If the accountant, subsequent to the date of the audited financial report filed pursuant to these regulations, becomes aware of facts that might have affected his or her report, the commissioner notes the obligation of the accountant to take such action as prescribed in Volume 1, Section AU 561 of the Professional Standards of the AICPA.

NOTE

Authority cited: Section 900.2, Insurance Code. Reference: Section 900.2, Insurance Code.

HISTORY

1. New section filed 12-7-2009; operative 1-1-2010 pursuant to Government Code section 11343.4 (Register 2009, No. 50).

§2309.11. Communication of Internal Control Related Matters Noted in an Audit.

Note • History

(a) In addition to the annual audited financial report, each insurer shall furnish the commissioner with a written communication as to any unremediated material weaknesses in its internal controls over financial reporting noted during the audit. Such communication shall be prepared by the accountant within sixty (60) days after the filing of the annual audited financial report, and shall contain a description of any unremediated material weakness (as the term “material weakness” is defined by Statement on Auditing Standard 60, Communication of Internal Control Related Matters Noted in an Audit, or its replacement) as of December 31 immediately preceding (so as to coincide with the audited financial report discussed in Section 2309.4(a)) in the insurer's internal control over financial reporting noted by the accountant during the course of the audit of the financial statements. If no unremediated material weaknesses were noted, the communication should so state.

(b) The insurer is required to provide a description of remedial actions taken or proposed to correct unremediated material weaknesses, if the actions are not described in the accountant's communication.

NOTE

Authority cited: Section 900.2, Insurance Code. Reference: Section 900.2, Insurance Code.

HISTORY

1. New section filed 12-7-2009; operative 1-1-2010 pursuant to Government Code section 11343.4 (Register 2009, No. 50).

§2309.12. Accountant's Letter of Qualifications.

Note • History

The accountant shall furnish the insurer in connection with, and for inclusion in, the filing of the annual audited financial report, a letter stating:

(a) That the accountant is independent with respect to the insurer and conforms to the standards of his or her profession as contained in the Code of Professional Ethics and pronouncements of the AICPA and the Rules of Professional Conduct of the California Board of Accountancy, or similar code;

(b) The background and experience in general, and the experience in audits of insurers of the staff assigned to the engagement and whether each is an independent certified public accountant. Nothing within these regulations shall be construed as prohibiting the accountant from utilizing such staff as he or she deems appropriate where use is consistent with the standards prescribed by generally accepted auditing standards;

(c) That the accountant understands the annual audited financial report and his opinion thereon will be filed in compliance with these regulations and that the commissioner will be relying on this information in the monitoring and regulation of the financial position of insurers;

(d) That the accountant consents to the requirements of Section 2309.13 of these regulations and that the accountant consents and agrees to make available for review by the commissioner, or the commissioner's designee or appointed agent, the workpapers, as defined in Section 2309.13;

(e) A representation that the accountant is properly licensed by an appropriate state licensing authority and is a member in good standing in the AICPA; and

(f) A representation that the accountant is in compliance with the requirements of Section 2309.7 of these regulations.

NOTE

Authority cited: Section 900.2, Insurance Code. Reference: Section 900.2, Insurance Code.

HISTORY

1. New section filed 12-7-2009; operative 1-1-2010 pursuant to Government Code section 11343.4 (Register 2009, No. 50).

§2309.13. Definition, Availability and Maintenance of Independent Certified Public Accountants Workpapers.

Note • History

(a) Workpapers are the records kept by the independent certified public accountant of the procedures followed, the tests performed, the information obtained, and the conclusions reached pertinent to the accountant's audit of the financial statements of an insurer. Workpapers, accordingly, may include audit planning documentation, work programs, analyses, memoranda, letters of confirmation and representation, abstracts of company documents and schedules or commentaries prepared or obtained by the independent certified public accountant in the course of his or her audit of the financial statements of an insurer and which support the accountant's opinion.

(b) Every insurer required to file an audited financial report pursuant to these regulations, shall require the accountant to make available for review by insurance department examiners, all workpapers prepared in the conduct of the accountant's audit and any communications related to the audit between the accountant and the insurer, at the offices of the insurer, at the insurance department or at any other reasonable place designated by the commissioner. The insurer shall require that the accountant retain the audit workpapers and communications until the insurance department has filed a report on examination covering the period of the audit but no longer than seven (7) years from the date of the audit report.

(c) In the conduct of the aforementioned periodic review by the insurance department examiners, it shall be agreed that photocopies of pertinent audit workpapers may be made and retained by the department. Such reviews by the department examiners shall be considered examinations, and all working papers and communications obtained during the course of such examinations shall be afforded the same confidentiality as other examination workpapers generated by the department.

NOTE

Authority cited: Section 900.2, Insurance Code; CalFarm Insurance Company v. Deukmejian (1989), 48 Cal.3d 805; 20th Century Insurance Company v. Garamendi (1994), 8 Cal.4th 216. Reference: Section 900.2, Insurance Code.

HISTORY

1. New section filed 12-7-2009; operative 1-1-2010 pursuant to Government Code section 11343.4 (Register 2009, No. 50).

§2309.14. Requirements for Audit Committees.

Note • History

This section shall not apply to foreign or alien insurers licensed in this state or an insurer that is a SOX Compliant Entity or a direct or indirect wholly-owned subsidiary of a SOX Compliant Entity.

(a) The Audit Committee shall be directly responsible for the appointment, compensation and oversight of the work of any accountant (including resolution of disagreements between management and the accountant regarding financial reporting) for the purpose of preparing or issuing the audited financial report or related work pursuant to these regulations. Each accountant shall report directly to the Audit Committee.

(b) Each member of the Audit Committee shall be a member of the board of directors of the insurer or a member of the board of directors of an entity elected pursuant to Subsection (e) of this section and Section 2309.3(c).

(c) In order to be considered independent for purposes of this section, a member of the Audit Committee may not, other than in his or her capacity as a member of the Audit Committee, the board of directors, or any other board committee, accept any consulting, advisory or other compensatory fee from the entity or be an affiliated person of the entity or subsidiary thereof. However, if any law requires board participation by otherwise non-independent members, that law shall prevail and such members may participate in the Audit Committee and be designated as independent for Audit Committee purposes, unless they are an officer or employee of the insurer or one of its affiliates.

(d) If a member of the Audit Committee ceases to be independent for reasons outside the member's reasonable control, that person, with notice by the responsible entity to the state, may remain an Audit Committee member of the responsible entity until the earlier of the next annual meeting of the responsible entity or one year from the occurrence of the event that caused the member to be no longer independent.

(e) To exercise the election of the controlling person to designate the Audit Committee for purposes of these regulations, the ultimate controlling person shall provide written notice to the commissioners of the affected insurers. Notification shall be made timely prior to the issuance of the statutory audit report and include a description of the basis for the election. The election can be changed through notice to the commissioner by the insurer, which shall include a description of the basis for the change. The election shall remain in effect for perpetuity, until rescinded.

(f)(1) The Audit Committee shall require the accountant that performs for an insurer any audit required by these regulations to timely report to the Audit Committee in accordance with the requirements of SAS 61, Communication with Audit Committees, or its replacement, including:

(A) All significant accounting policies and material permitted practices;

(B) All material alternative treatments of financial information within statutory accounting principles that have been discussed with management officials of the insurer, ramifications of the use of the alternative disclosures and treatments, and the treatment preferred by the accountant; and

(C) Other material written communications between the accountant and the management of the insurer, such as any management or schedule of unadjusted differences.

(2) If an insurer is a member of an insurance holding company system, the reports required by Subsection (f)(1) of this section may be provided to the Audit Committee on an aggregate basis for insurers in the holding company system, provided that any substantial differences among insurers in the system are identified to the Audit Committee.

(g) The proportion of independent Audit Committee members shall meet or exceed the following criteria:

Prior Calendar Year Direct Written and Assumed Premiums

Over $300,000,000-

$0-$300,000,000 $500,000,000 Over $500,000,000

No minimum requirements. Majority (50% or more) Supermajority of

See also Note A and of members shall be members (75% or Note B. independent. See also more) shall be

Note A and Note B. independent.

See also Note A.

Note A: Pursuant to Insurance Code Section 739 et seq., the Commissioner has authority to require the entity's board to enact improvements to the independence of the Audit Committee membership if the insurer is in a RBC action level event, meets one or more of the standards of an insurer deemed to be in hazardous financial condition, or otherwise exhibits qualities of a troubled insurer.

Note B: All insurers with less than $500,000,000 in prior year direct written and assumed premiums are encouraged to structure their Audit Committees with at least a supermajority of independent Audit Committee members.

Note C: Prior calendar year direct written and assumed premiums shall be the combined total of direct premiums and assumed premiums from non-affiliates for the reporting entities.

(h) An insurer with direct written and assumed premium, excluding premiums reinsured with the Federal Crop Insurance Corporation and Federal Flood Program, less than $500,000,000 may make application to the commissioner for a waiver from the Section 2309.14 requirements based upon hardship. The insurer shall file, with its annual statement filing, the approval for relief from Section 2309.14 with the states that it is licensed in or doing business in and the NAIC. If the nondomestic state accepts electronic filing with the NAIC, the insurer shall file the approval in an electronic format acceptable to the NAIC.

NOTE

Authority cited: Sections 900.2, 739, 739.2, 739.3, 739.4, 739.5, 739.6, 739.7, 739.8, 739.10, 739.11 and 739.12, Insurance Code. Reference: Section 900.2, Insurance Code.

HISTORY

1. New section filed 12-7-2009; operative 1-1-2010 pursuant to Government Code section 11343.4 (Register 2009, No. 50).

§2309.15. Conduct of Insurer in Connection with the Preparation of Required Reports and Documents.

Note • History

(a) No director or officer of an insurer shall, directly or indirectly:

(1) Make or cause to be made a materially false or misleading statement to an accountant in connection with any audit, review or communication required under these regulations; or

(2) Omit to state, or cause another person to omit to state, any material fact necessary in order to make statements made, in light of the circumstances under which the statements were made, not misleading to an accountant in connection with any audit, review or communication required under these regulations.

(b) No officer or director of an insurer, or any other person acting under the direction thereof, shall directly or indirectly take any action to coerce, manipulate, mislead or fraudulently influence any accountant engaged in the performance of an audit pursuant to these regulations if that person knew or should have known that the action, if successful, could result in rendering the insurer's financial statements materially misleading.

(c) For purposes of Subsection (b) of this section, actions that, “if successful, could result in rendering the insurer's financial statements materially misleading” include, but are not limited to, actions taken at any time with respect to the professional engagement period to coerce, manipulate, mislead or fraudulently influence an accountant:

(1) To issue or reissue a report on an insurer's financial statements that is not warranted in the circumstances (due to material violations of statutory accounting principles prescribed by the commissioner, generally accepted auditing standards, or other professional or regulatory standards);

(2) Not to perform audit, review or other procedures required by generally accepted auditing standards or other professional standards;

(3) Not to withdraw an issued report; or

(4) Not to communicate matters to an insurer's Audit Committee.

NOTE

Authority cited: Sections 900.2, Insurance Code. Reference: Sections 900.2 and 900.8, Insurance Code.

HISTORY

1. New section filed 12-7-2009; operative 1-1-2010 pursuant to Government Code section 11343.4 (Register 2009, No. 50).

§2309.16. Management's Report of Internal Control over Financial Reporting.

Note • History

(a) Every insurer required to file an audited financial report pursuant to these regulations that has annual direct written and assumed premiums, excluding premiums reinsured with the Federal Crop Insurance Corporation and Federal Flood Program, of $500,000,000 or more shall prepare a report of the insurer's or group of insurers' internal control over financial reporting, as these terms are defined in Section 2309.3. The report shall be filed with the commissioner along with the Communication of Internal Control Related Matters Noted in an Audit described under Section 2309.11. Management's Report of Internal Control over Financial Reporting shall be as of December 31 immediately preceding.

(b) Notwithstanding the premium threshold in Subsection (a), the commissioner may require an insurer to file Management's Report of Internal Control over Financial Reporting if the insurer is in any RBC level event, or meets any one or more of the standards of an insurer deemed to be in hazardous financial condition as defined in California Insurance Code Sections 980, et seq., section 1011, or any other statute.

(1) directly subject to Section 404;

(2) part of a holding company system whose parent is directly subject to Section 404;

(3) not directly subject to Section 404 but is a SOX Compliant Entity; or

(4) a member of a holding company system whose parent is not directly subject to Section 404 but is a SOX Compliant Entity;

may file its or its parent's Section 404 Report and an addendum in satisfaction of this Section 2309.16 requirement provided that those internal controls of the insurer or group of insurers having a material impact on the preparation of the insurer's or group of insurers' audited statutory financial statements (those items included in Section 2309.5(b) through 2309.5(g) of these regulations) were included in the scope of the Section 404 Report. The addendum shall be a positive statement by management that there are no material processes with respect to the preparation of the insurer's or group of insurers' audited statutory financial statements (those items included in Section 2309.5(b) through 2309.5(g) of these regulations) excluded from the Section 404 Report. If there are internal controls of the insurer or group of insurers that have a material impact on the preparation of the insurer's or group of insurer's audited statutory financial statements and those internal controls were not included in the scope of the Section 404 Report, the insurer or group of insurers may either file (i) a Section 2309.16 report, or (ii) the Section 404 Report and a Section 2309.16 report for those internal controls that have a material impact on the preparation of the insurer's or group of insurers' audited statutory financial statements not covered by the Section 404 Report.

(d) Management's Report of Internal Control over Financial Reporting shall include:

(1) A statement that management is responsible for establishing and maintaining adequate internal control over financial reporting;

(2) A statement that management has established internal control over financial reporting and an assertion, to the best of management's knowledge and belief, after diligent inquiry, as to whether its internal control over financial reporting is effective to provide reasonable assurance regarding the reliability of financial statements in accordance with statutory accounting principles;

(3) A statement that briefly describes the approach or processes by which management evaluated the effectiveness of its internal control over financial reporting;

(4) A statement that briefly describes the scope of work that is included and whether any internal controls were excluded;

(5) Disclosure of any unremediated material weaknesses in the internal control over financial reporting identified by management as of December 31 immediately preceding. Management is not permitted to conclude that the internal control over financial reporting is effective to provide reasonable assurance regarding the reliability of financial statements in accordance with statutory accounting principles if there is one or more unremediated material weaknesses in its internal control over financial reporting;

(6) A statement regarding the inherent limitations of internal control systems; and

(7) Signatures of the chief executive officer and the chief financial officer (or equivalent position/title).

(e) Management shall document and make available upon financial condition examination the basis upon which its assertions, required in Subsection (d) above, are made. Management may base its assertions, in part, upon its review, monitoring and testing of internal controls undertaken in the normal course of its activities.

(1) Management shall have discretion as to the nature of the internal control framework used, and the nature and extent of documentation, in order to make its assertion in a cost effective manner and, as such, may include assembly of or reference to existing documentation.

(2) Management's Report on internal control over Financial Reporting, required by Subsection (a) above, and any documentation provided in support thereof during the course of a financial condition examination, shall be kept confidential by the state insurance department.

NOTE

Authority cited: Sections 739, 739.2, 739.3, 739.4, 739.5, 739.6, 739.7, 739.8, 739.9, 739.10, 739.11, 739.12 and 900.2, Insurance Code. Reference: Sections 739, 739.2, 739.3, 739.4, 739.5, 739.6, 739.7, 739.8, 739.9, 739.10, 739.11, 739.12, 900.2, 900.9, 925, 980 and 1011, Insurance Code.

HISTORY

1. New section filed 12-7-2009; operative 1-1-2010 pursuant to Government Code section 11343.4 (Register 2009, No. 50).

§2309.17. Exemptions Due to Financial or Organizational Hardship; Effective Dates.

Note • History

(a) Upon written application of any insurer, the commissioner may grant an exemption from compliance with any and all provisions of these regulations if the commissioner finds, upon review of the application, that compliance with these regulations would constitute a financial or organizational hardship upon the insurer. An exemption may be granted at any time and from time to time for a specified period or periods. Within ten (10) days from a denial of an insurer's written request for an exemption from these regulations, the insurer may request in writing a hearing on its application for an exemption.

(b) Domestic insurers that have retained a certified public accountant on the effective date of these regulations who qualifies as independent shall comply with these regulations for the year ending December 31, 2010 and each year thereafter unless the commissioner permits otherwise.

(c) Domestic insurers that have not retained a certified public accountant on the effective date of these regulations who qualifies as independent shall meet the following schedule for compliance unless the commissioner permits otherwise.

(1) File with the Insurance Commissioner an audited financial report as of December 31, 2010.

(2) For the year ending December 31, 2010 and each year thereafter, such insurers shall file with the commissioner all reports and communication required by these regulations.

(d) Foreign insurers shall comply with these regulations for the year ending December 31, 2010 and each year thereafter, unless the commissioner permits otherwise.

(e) The requirements of Section 2309.7(d) shall be in effect for audits of the year beginning January 1, 2010 and thereafter.

(f) The requirements of Section 2309.14 are to be in effect January 1, 2010. An insurer or group of insurers that is not required to have independent Audit Committee members or only a majority of independent Audit Committee members (as opposed to a supermajority) because the total written and assumed premium is below the threshold and subsequently becomes subject to one of the independence requirements due to changes in premium shall have one (1) year following the year the threshold is exceeded (but not earlier than January 1, 2010) to comply with the independence requirements. Likewise, an insurer that becomes subject to one of the independence requirement as a result of a business combination shall have one (1) calendar year following the date of acquisition or combination to comply with the independence requirements.

(g) The requirements of Section 2309.16, except for Section 2309.14 covered above, are effective beginning with the reporting period ending December 31, 2010 and each year thereafter. An insurer or group of insurers that is not required to file a report because the total written premium is below the threshold and subsequently becomes subject to the reporting requirements shall have two (2) years following the year the threshold is exceeded (but not earlier than December 31, 2010) to file a report. Likewise, an insurer acquired in a business combination shall have two (2) calendar years following the date of acquisition or combination to comply with the reporting requirements.

NOTE

Authority cited: Section 900.2, Insurance Code. Reference: Section 900.2, Insurance Code.

HISTORY

1. New section filed 12-7-2009; operative 1-1-2010 pursuant to Government Code section 11343.4 (Register 2009, No. 50).

§2309.18. Canadian and British Companies.

Note • History

(a) In the case of Canadian and British insurers, the annual audited financial report shall be defined as the annual statement of total business on the form filed by such companies with their supervision authority duly audited by an independent chartered accountant.

(b) For such insurers, the letter required in Section 2309.6(b) shall state that the accountant is aware of the requirements relating to the annual Audited financial report filed with the commissioner pursuant to Section 2309.4 and shall affirm that the opinion expressed is in conformity with those requirements.

NOTE

Authority cited: Section 900.2, Insurance Code. Reference: Section 900.2, Insurance Code.

HISTORY

1. New section filed 12-7-2009; operative 1-1-2010 pursuant to Government Code section 11343.4 (Register 2009, No. 50).

§2309.20. Address Information.

Note • History

All reports, requests, and general correspondence sent to the commissioner pursuant to these regulations should include the specific regulation section number(s) under which the report, request, or correspondence is submitted and should be addressed as follows:

CALIFORNIA DEPARTMENT OF INSURANCE
FINANCIAL SURVEILLANCE BRANCH
RE: REGULATION SECTION NUMBER(S): XXXX.XX
300 SOUTH SPRING STREET, SOUTH TOWER - 13TH FLOOR
LOS ANGELES, CA 90013

NOTE

Authority cited: Section 900.2, Insurance Code. Reference: Section 900.2, Insurance Code.

HISTORY

1. New section filed 12-7-2009; operative 1-1-2010 pursuant to Government Code section 11343.4 (Register 2009, No. 50).

Article 3.5. Minimum Reserve Standards for Valuation Of Disability Insurance Contracts

§2310. General Rule.

Note • History

(a) Applicability

These standards apply to all individual and group disability insurance except credit insurance and disability waiver of premium, disability income, and accidental death benefit riders that are supplementary to ordinary life insurance policies or contracts.

(b) Reserve Adequacy

With respect to any block of contracts, or with respect to an insurer's disability business as a whole, a prospective gross premium valuation is a valuable test of reserve adequacy as of a given valuation date. Such a gross premiums valuation will take into account, for contracts in force, in a claims status, or in a continuation of benefits status on the valuation date, the present value as of the valuation date of: all expected benefits unpaid, all expected expenses unpaid, and all unearned or expected premiums, adjusted for future premium increases reasonably expected to be put into effect.

Such a gross premium valuation shall be performed whenever a significant doubt exists as to reserve adequacy with respect to any major block of contracts, or with respect to the insurer's disability business as a whole. In the event inadequacy is found to exist, immediate recognition shall be made and the reserves restored to adequacy. Adequate reserves (inclusive of claim, premium and contract reserves, if any) shall be held with respect to all contracts, regardless of whether contract reserves are required for such contracts under these standards.

Whenever minimum reserves, as defined in this article, exceed reserve requirements as determined by a prospective gross premium valuation, such minimum reserves remain the minimum requirement under this article.

When an insurer determines that adequacy of its disability insurance reserves requires reserves in excess of the minimum standards specified herein, such increased reserves shall be held and shall be considered the minimum reserves for that insurer.

Adequacy of an insurer's disability insurance reserves shall be determined on the basis of the following three categories: claim reserves, premium reserves and contract reserves. Adequate reserves for each of the three categories shall be separately determined.

NOTE

Authority cited: Sections 997(a) and 10489.95, Insurance Code. Reference: Sections 985, 997 and 10489.15(a), Insurance Code.

HISTORY

1. New article 3.5 and section filed 11-4-94; operative 12-5-94 (Register 94, No. 44).

§2311. Definitions.

Note • History

For purposes of this article, the following definitions apply:

(a) “Annual Claim Cost” is the net annual cost per unit of benefit before the addition of expenses, including claim settlement expenses, and a margin for profit or contingencies. For example, the annual claim cost for a $100 monthly disability benefit, for a maximum disability benefit period of one year, with an elimination period of one week, with respect to a male at age 35, in a certain occupation might be $12, while the gross premium for this benefit might be $18. The additional $6 would cover expenses and profit or contingencies.

(b) “Claims Accrued” means that portion of claims incurred on or prior to the valuation date which result in liability of the insurer for the payment of benefits for medical services which have been rendered on or prior to the valuation date, and for the payment of benefits for days of hospitalization and days of disability which have occurred on or prior to the valuation date, which the insurer has not paid as of the valuation date, but for which it is liable, and will have to pay after the valuation date. This liability is sometimes referred to as a liability for “accrued” benefits. A claim reserve, which represents an estimate of this accrued claim liability, must be established.

(c) “Claim Reported”: When an insurer has been informed that a claim has been incurred, if the date reported is on or prior to the valuation date, the claim is considered as a reported claim for annual statement purposes.

(d) “Claims Unaccrued” are the portion of claims incurred on or prior to the valuation date which result in liability of the insurer for the payment of benefits for medical services expected to be rendered after the valuation date, and for benefits expected to be payable for days of hospitalization and days of disability occurring after the valuation date. This liability is sometimes referred to as a liability for unaccrued benefits. A claim reserve, which represents an estimate of the unaccrued claim payments expected to be made (which may or may not be discounted with interest), must be established.

(e) “Claims Unreported”: When an insurer has not been informed, on or before the valuation date, concerning a claim that has been incurred on or prior to the valuation date, the claim is considered as an unreported claim for annual statement purposes.

(f) “Date of Disablement” is the earliest date the insured is considered as being disabled under the definition of disability in the contract, based on a doctor's evaluation or other evidence. Normally this date will coincide with the start of any elimination period.

(g) “Elimination Period” is a specified number of days, weeks, or months starting at the beginning of each period of loss, during which no benefits are payable.

(h) “Gross Premium” is the amount of premium charged by the insurer. It includes the net premium (based on claim-cost) for the risk, together with any loading for expenses, profit or contingencies.

(i) “Group Insurance” includes blanket insurance and franchise insurance and any other forms of group insurance.

(j) “Level Premium” is a premium calculated to remain unchanged throughout either the lifetime of the policy, or for some shorter projected period of years. The premium need not be guaranteed; in which case, although it is calculated to remain level, it may be changed if any of the assumptions on which it was based are revised at a later time.

Generally, the annual claim costs are expected to increase each year and the insurer, instead of charging premiums that correspondingly increase each year, charges a premium calculated to remain level for a period of years or for the lifetime of the contract. In this case the benefit portion of the premium is more than needed to provide for the cost of benefits during the earlier years of the policy and less than the actual cost in the later years. The building of a prospective contract reserve is a natural result of level premiums.

(k) “Long-Term Care Insurance” is as defined in Insurance Code Section 10231.2.

(l) “Modal Premium” is the premium paid on a contract based on a premium term which could be annual, semi-annual, quarterly, monthly, or weekly. Thus if the annual premium is $100 and if, instead, monthly premiums of $9 are paid then the modal premium is $9.

(m) “Negative Reserve”: Normally the terminal reserve is a positive value. If, however, the values of the benefits are decreasing with advancing age or duration it could be a negative value, called a negative reserve.

(n) “Preliminary Term Reserve Method” is a method of reserve valuation under which the valuation net premium for each year falling within the preliminary term period is exactly sufficient to cover the expected incurred claims of that year, so that the terminal reserves will be zero at the end of the year. As of the end of the preliminary term period, a new constant valuation net premium (or stream of changing valuation premiums) becomes applicable such that the present value of all such premiums is equal to the present value of all claims expected to be incurred following the end of the preliminary term period.

(o) “Present Value of Amounts Not Yet Due on Claims” is the reserve for “claims unaccrued” (as defined in subsection (d)), which may be discounted at interest.

(p) “Reserve” includes all items of benefit liability, whether in the nature of incurred claim liability or in the nature of contract liability relating to future periods of coverage, and whether the liability is accrued or unaccrued.

An insurer under its contracts promises benefits which result in:

(1) Claims which have been incurred, that is, for which the insurer has become obligated to make payment, on or prior to the valuation date. On these claims, payments expected to be made after the valuation date for accrued and unaccrued benefits are liabilities of the insurer which shall be provided for by establishing claim reserves; or

(2) Claims which are expected to be incurred after the valuation date. Any present liability of the insurer for these future claims shall be provided for by the establishment of contract reserves and unearned premium reserves.

(q) “Terminal Reserve” is the reserve at the end of a contract year, and is defined as the present value of benefits expected to be incurred after that contract year minus the present value of future valuation net premiums.

(r) “Unearned Premium Reserve” values that portion of the premium paid or due to the insurer which is applicable to the period of coverage extending beyond the valuation date. Thus if an annual premium of $120 was paid on November 1, $20 would be earned as of December 31 and the remaining $100 would be unearned. The unearned premium reserve could be on a gross basis as in this example, or on a valuation net premium basis.

(s) “Valuation Net Modal Premium” is the modal fraction of the valuation net annual premium that corresponds to the gross modal premium in effect on any contract to which contract reserves apply. Thus if the mode of payment in effect is quarterly, the valuation net modal premium is the quarterly equivalent of the valuation net annual premium.

NOTE

Authority cited: Sections 997(a) and 10489.95, Insurance Code. Reference: Sections 985, 997 and 10489.15(a), Insurance Code.

HISTORY

1. New section filed 11-4-94; operative 12-5-94 (Register 94, No. 44).

§2312. Claim Reserves.

Note • History

(a) General Rules

(1) Claim reserves are required for all incurred but unpaid claims (these include all claims accrued and unaccrued, reported and unreported) on all disability insurance policies as defined in § 2310(a).

(2) Appropriate claim expense reserves are required with respect to the estimated expense of settlement of all incurred but unpaid claims.

(3) All such reserves for prior valuation years are to be tested for adequacy and reasonableness along the lines of claim runoff schedules in accordance with the financial statement as required by Insurance Code §§900 and 923 including consideration of any residual unpaid liability.

(b) Minimum Standards for Claim Reserves

(1) Disability Income

(A) Interest. The maximum interest rate for claim reserves is specified in § 2315.

(B) Morbidity. Minimum standards with respect to morbidity are those specified in § 2315; except that, at the option of the insurer:

1. For individual disability income claims incurred on or after January 1, 2005, assumptions regarding claim termination rates for the period less than two (2) years from the date of disablement may be based on the insurer's experience, if such experience is credible, or upon other assumptions designed to place a sound value on the liabilities.

2. For group disability income claims incurred on or after January 1, 2005:

(i) Assumptions regarding claim termination rates for the period less than two (2) years from the date of disablement may be based on the insurer's experience, if the experience is considered credible, or upon other assumptions designed to place a sound value on the liabilities.

(ii) Assumptions regarding claim termination rates for the period of two (2) or more years but less than five (5) years from the date of disablement may, with the approval of the Commissioner, be based upon the insurer's experience for which the insurer maintains underwriting and claim administration control. The request for such approval of a plan of modification to the reserve basis must include:

I. An analysis of the credibility of the experience;

II. A description of how all of the insurer's experience is proposed to be used in setting reserves;

III. A description and qualification of the margins to be included;

IV. A summary of the financial impact that the proposed plan of modification would have had on the insurer's last filed annual statement;

V. A copy of the approval of the proposed plan of modification by the Commissioner of the state of domicile; and

VI. Any other information requested by the Commissioner.

3. For disability income claims incurred prior to January 1, 2005 each insurer may elect which of the following to use as the minimum morbidity standard for claim reserves:

(i) The minimum morbidity standard in effect for claim reserves as of the date the claim was incurred, or

(ii) The standards as defined in Items 1. and 2., applied to all open claims. Once an insurer elects to calculate reserves for all open claims on the standard defined in Items 1. and 2., all future valuations must be on that basis.

(C) Duration of Disablement. For contracts with an elimination period, the duration of disablement shall be measured as dating from the time that benefits would have begun to accrue had there been no elimination period.

(2) All Other Benefits

(A) Interest. The maximum interest rate for claim reserves is specified in § 2315.

(B) Morbidity or other Contingency. The reserve shall be based on the insurer's experience, if such experience is considered credible, or upon other assumptions designed to place a sound value on the liabilities.

Any generally accepted or reasonable actuarial method or combination of methods may be used to estimate all claim liabilities. The methods used for estimating liabilities generally may be aggregate methods, or various reserve items may be separately valued. Approximations based on groupings and averages may also be employed. Adequacy of the claim reserves, however, shall be determined in the aggregate.

NOTE

Authority cited: Sections 997(a) and 10489.95, Insurance Code. Reference: Sections 985, 997 and 10489.15(a), Insurance Code.

HISTORY

1. New section filed 11-4-94; operative 12-5-94 (Register 94, No. 44).

2. Amendment filed 12-13-2005; operative 12-13-2005 pursuant to Government Code section 11343.4 (Register 2005, No. 50).

§2312.3. Premium Reserves.

Note • History

(a) General Rules

(1) Unearned premium reserves are required for all contracts with respect to the period of coverage for which premiums, other than premiums paid in advance, have been paid beyond the date of valuation.

(2) If premiums due and unpaid are carried as an asset, such premiums shall be treated as premiums in force, subject to unearned premium reserve determination. The value of unpaid commissions, premium taxes, and the cost of collection associated with due and unpaid premiums shall be carried as an offsetting liability.

(3) The gross premiums paid in advance for a period of coverage commencing after the next premium due date which follows the date of valuation may be discounted, at rates not exceeding those in § 2315(b), to the valuation date and shall be held either as a separate liability or as an addition to the unearned premium reserve which would otherwise be required as a minimum.

(b) Minimum Standards for Unearned Premium Reserves

(1) The minimum unearned premium reserve with respect to any contract shall be the pro rata unearned modal premium that applies to the premium period beyond the valuation date, with such premium determined on the basis of:

(A) The valuation net modal premium on the contract reserve basis applying to the contract; or

(B) The gross modal premium for the contract if no contract reserve applies.

(2) In no event shall the sum of the unearned premium and contract reserves for all contracts of the insurer subject to contract reserve requirements be less than the gross modal unearned premium reserve on all such contracts, as of the date of valuation. Such reserve shall never be less than the expected claims for the period beyond the valuation date represented by such unearned premium reserve, to the extent not provided for elsewhere.

The insurer may employ suitable approximations and estimates, including, but not limited to groupings, averages and aggregate estimation, in computing premium reserves. Such approximations or estimates shall be tested periodically to determine their continuing adequacy and reliability.

NOTE

Authority cited: Sections 997(a) and 10489.95, Insurance Code. Reference: Sections 985, 997 and 10489.15(a), Insurance Code.

HISTORY

1. New section filed 11-4-94; operative 12-5-94 (Register 94, No. 44).

§2312.5. Contract Reserves.

Note • History

(a) General Rules

(1) Contract reserves are required, unless otherwise specified in paragraph (a)(2) for:

(A) All individual and group contracts with which level premiums are used; or

(B) All individual and group contracts with respect to which, due to the gross premium pricing structure at issue, the value of the future benefits at any time exceeds the value of any appropriate future valuation net premiums at that time. This evaluation may be applied on a rating block basis if the total premiums for the block were developed to support the total risk assumed and expected expenses for the block each year, and a qualified actuary certifies the premium development. The actuary should state in the certification that premiums for the rating block were developed such that each year's premium was intended to cover that year's costs without any prefunding. If the premium is also intended to recover costs for any prior years, the actuary should also disclose the reasons for and magnitude of such recovery. The values specified in this paragraph shall be calculated based on subsection §2312.5(b).

(2) Contracts not requiring a contract reserve are:

(A) Contracts which cannot be continued after one year from issue; or

(B) Contracts already in force on the effective date of this article for which no contract reserve is required under Section 997 of the Insurance Code.

(3) The contract reserve shall be in addition to claim reserves and premium reserves.

(4) The methods and procedures for the calculation of contract reserves shall be consistent with those for claim reserves for any contract, or else appropriate adjustment shall be made when necessary to assure provision for the aggregate liability. The definition of the date of incurral must be the same in both determinations.

(5) The total contract reserve established shall incorporate provisions for moderately adverse deviations.

(b) Minimum Standards for Contract Reserves

(1) Basis.

(A) Morbidity or other Contingency. Minimum standards with respect to morbidity are those set forth in §2315. Valuation net premiums used under each contract shall have a structure consistent with the gross premium structure at issue of the contract as this relates to advancing age of insured, contract duration and period for which gross premiums have been calculated. Contracts for which tabular morbidity standards are not specified in §2315 shall be valued using tables established for reserve purposes by a qualified actuary with the approval of the Commissioner. The morbidity tables shall contain a pattern of incurred claims cost that reflects the underlying morbidity and shall not be constructed for the primary purpose of minimizing reserves.

1. In determining the morbidity assumptions, the actuary shall use assumptions that represent the best estimate of anticipated future experience, but shall not incorporate any expectation of future morbidity improvement. Morbidity improvement is a change, in the combined effect of claim frequency and the present value of future expected claim payments given that a claim has occurred, from the current morbidity tables or experience that will result in a reduction to reserves. It is not the intent of this provision to restrict the ability of the actuary to reflect the morbidity impact for a specific known event that has occurred and that is able to be evaluated and quantified.

2. Business in force as of the effective date of §2312.5(b)(1)(C)2. may be permitted to retain the original reserve basis which may not meet the provisions of Item 1. above, subject to the acceptability to the Commissioner.

(B) Interest. The maximum interest rate is specified in §2315.

(C) Termination Rates. Termination rates used to compute reserves shall be on the basis of a mortality table as specified in § 2315 except as noted in the following paragraphs:

1. Under contracts for which premiums rates are not guaranteed, and where the effects of insurer underwriting are specifically used by policy duration in the valuation morbidity standard or for return of premium or other deferred cash benefits, total termination rates may be used at ages and durations where these exceed specified mortality table rates, but not in excess of the lesser of:

(i) Eighty percent of the total termination rate used in the calculation of the gross premiums, or

(ii) Eight percent.

2. For long-term care individual policies or group certificates issued on or after January 1, 2005, the contract reserve shall be established on the basis of:

(i) Mortality (as specified in §2315); and

(ii) Terminations other than mortality, where the terminations are not to exceed:

I. For policy year one, the lesser of eighty percent (80%) of the voluntary lapse rate used in the calculation of gross premiums and six percent (6%);

II. For policy years two (2) through four (4), the lesser of eighty percent (80%) of the voluntary lapse rate used in the calculation of gross premiums and four percent (4%); and

III. For policy years five (5) and later, the lesser of one hundred percent (100%) of the voluntary lapse rate used in the calculation of gross premiums and two percent (2%), except for group insurance as defined in Section 10231.6 of the Insurance Code, where the 2% shall be three percent (3%)

3. Where a morbidity standard specified in §2315 is on an aggregate basis, such morbidity standard may be adjusted to reflect the effect of insurer underwriting by policy duration. The adjustments shall be appropriate to the underwriting and must be approved by the Commissioner.

(2) Reserve Method.

(A) For all disability insurance as defined in § 2310(a) except for contracts issued on or after January 1, 1995, which provide long-term care and return of premium or other deferred cash benefits, the minimum reserve shall be the reserve calculated on the two-year full preliminary term method; that is, under which the terminal reserve is zero at the first and also the second contract anniversary.

(B) For long-term care insurance issued on or after January 1, 1995, the minimum reserve shall be the reserve calculated on the one-year full preliminary term method.

(C) For return of premium or other deferred cash benefits issued on or after January 1, 1995, the minimum reserve shall be the reserve calculated as follows:

1. On the one year preliminary term method if such benefits are provided at any time before the twentieth anniversary;

2. On the two year preliminary term method if such benefits are only provided on or after the twentieth anniversary.

(D) The preliminary term method may be applied only in relation to the date of issue of a contractual obligation. Reserve adjustments introduced later, as a result of rate increases, revisions in assumptions (e.g., projected inflation rates) or for other reasons, shall be applied immediately as of the effective date of adoption of the adjusted basis.

(3) Negative Reserves. Negative reserves on any benefit may be offset against positive reserves for other benefits in the same contract, but the total contract reserve with respect to all benefits combined shall not be less than zero.

(4) Nonforfeiture Benefits for Long-Term Care Insurance.

The contract reserve on a policy basis shall not be less than the net single premium for the nonforfeiture benefits at the appropriate policy duration, where the net single premium is computed according to the above specifications.

Provided the contract reserve on all contracts to which an alternative method or basis is applied is not less in the aggregate than the amount determined according to the applicable standards specified above, an insurer may use any reasonable assumptions as to interest rates, termination and/or mortality rates, and rates of morbidity or other contingency. Also subject to the preceding condition, an insurer may employ methods other than the methods stated above in determining a sound value of its liabilities under such contracts, including, but not limited to the following: the net level premium method; the one-year full preliminary term method; prospective valuation on the basis of actual gross premiums with reasonable allowance for future expenses; the use of approximations such as those involving age groupings, groupings of several years of issue, average amounts of indemnity, grouping of similar contract forms; the computation of the reserve for one contract benefit as a percentage of, or by other relation to, the aggregate contract reserves exclusive of the benefit or benefits so valued; and the use of a composite annual claim for all or any combination of the benefits included in the contracts valued.

(d) Tests For Adequacy and Reasonableness of Contract Reserves

Annually, an appropriate review shall be made of the insurer's prospective contract liabilities on contracts valued by tabular reserves, to determine the continuing adequacy and reasonableness of the tabular reserves, giving consideration to future gross premiums. The insurer shall make appropriate increases to such tabular reserves if such tests indicate that the basis of such reserves is no longer adequate subject to the minimum standards in subsection (b).

If an insurer has a contract or a group of related similar contracts, for which future gross premiums will be restricted by contract, insurance department regulations, or for other reasons, such that the future gross premiums reduced by expenses for administration, commissions and taxes will be insufficient to cover future claims, the insurer shall establish contract reserves for such shortfall in the aggregate.

NOTE

Authority cited: Sections 997(a) and 10489.95, Insurance Code. Reference: Sections 985, 997 and 10489.15(a), Insurance Code.

HISTORY

1. New section filed 11-4-94; operative 12-5-94 (Register 94, No. 44).

2. Amendment filed 12-13-2005; operative 12-13-2005 pursuant to Government Code section 11343.4 (Register 2005, No. 50).

§2313. Reinsurance.

Note • History

Increases to, or credits against, reserves carried, arising because of reinsurance assumed or reinsurance ceded, shall be determined in a manner consistent with these minimum reserve standards and with all applicable provisions of the reinsurance contracts which affect the insurer's liabilities.

NOTE

Authority cited: Sections 997(a) and 10489.95, Insurance Code. Reference: Sections 985, 997 and 10489.15(a), Insurance Code.

HISTORY

1. New section filed 11-4-94; operative 12-5-94 (Register 94, No. 44).

§2314. Reserves for Waiver of Premium.

Note • History

(a) Because the disability valuation tables promulgated by the NAIC are based on exposures that include contracts on premium waiver as in-force contracts, contract reserves based on these tables are NOT reserves on “active lives” but rather reserves on contracts “in force.” This is true for the 1964 CDT and for both the 1985 CIDA and CIDB tables.

Accordingly, tabular reserves using any of these tables shall value reserves on the following basis:

(1) Claim reserves shall include reserves for premiums expected to be waived, valuing as a minimum the valuation net premium being waived.

(2) Premium reserves shall include contracts on premium waiver as in-force contracts, valuing as a minimum the unearned modal valuation net premium being waived.

(3) Contract reserves shall include recognition of the waiver of premium benefit in addition to other contract benefits, valuing as a minimum the valuation net premium to be waived.

(b) If an insurer is, instead, valuing reserves on what is truly an active life table, or if a specific valuation table is not being used but the insurer's gross premiums are calculated on a basis that includes in the projected exposure only those contracts for which premiums are being paid, then it may not be necessary to provide specifically for waiver of premium reserves. Any insurer using such a true “active life” basis shall determine whether additional liability shall be recognized because of premiums waived during periods of disability or during claim continuation.

NOTE

Authority cited: Sections 997(a) and 10489.95, Insurance Code. Reference: Sections 985, 997 and 10489.15(a), Insurance Code.

HISTORY

1. New section filed 11-4-94; operative 12-5-94 (Register 94, No. 44).

§2315. Specific Standards for Morbidity, Interest and Mortality.

Note • History

(a) Morbidity

(1) Minimum morbidity standards for valuation of specified individual contract benefits:

(A) Disability Income Benefits Due to Accident or Sickness.

1. Contract Reserves

For contracts issued on or after January 1, 1965 and prior to January 1, 1995: use either the 1964 Commissioners Disability Table or the 1985 Tables described below.

For contracts issued on or after January 1, 1995: The 1985 Commissioners Individual Disability Tables A (85CIDA); or The 1985 Commissioners Individual Disability Tables B (85CIDB). 85 CIDA, also called the Basic Valuation Table, is found in Transactions of the Society of Actuaries, Volume XXXVII, pages 449-460. 85CIDB, also called the “83c Table”, is found in Proceedings of the NAIC, 1985, Volume 1, pages 494-540.

Each insurer shall elect, with respect to all individual contracts issued in any one statement year, either Tables A or Tables B as the minimum standard. The insurer may elect to use the other tables with respect to any subsequent statement year.

2. Claim Reserves

(i) For claims incurred on or after January 1, 2005:

The 1985 Commissioners Individual Disability Tables A (85CIDA) in 1985 Transactions of the Society of Actuaries, Volume XXXVII, pages 455-463, incorporated by reference herein, with claim termination rates multiplied by the following adjustment factors:

Adjustment Adjusted

Duration Factor Termination Rates*

Week 1 0.366 0.04831

2 0.366 0.04172

3 0.366 0.04063

4 0.366 0.04355

5 0.365 0.04088

6 0.365 0.04271

7 0.365 0.04380

8 0.365 0.04344

9 0.370 0.04292

10 0.370 0.04107

11 0.370 0.03848

12 0.370 0.03478

13 0.370 0.03034

Month 4 0.391 0.08758

5 0.371 0.07346

6 0.435 0.07531

7 0.500 0.07245

8 0.564 0.06655

9 0.613 0.05520

10 0.663 0.04705

11 0.712 0.04486

12 0.756 0.04309

13 0.800 0.04080

14 0.844 0.03882

15 0.888 0.03730

16 0.932 0.03448

17 0.976 0.03026

18 1.020 0.02856

19 1.049 0.02518

20 1.078 0.02264

21 1.107 0.02104

22 1.136 0.01932

23 1.165 0.01865

24 1.195 0.01792

Year 3 1.369 0.16839

4 1.204 0.10114

5 1.199 0.07434

6 and later 1.000 **

* The adjusted termination rates derived from the application of the adjustment factors to the DTS Valuation Table termination rates shown in exhibits 3a, 3b, 3c, 4, and 5 (1985 Transactions of the Society of Actuaries (TSA), Volume XXXVII, pp. 457-463, 465, incorporated by reference herein, are displayed. The adjustment factors for age, elimination period, class, sex, and cause displayed in exhibits 3a, 3b, 3c, and 4 should be applied to the adjusted termination rates shown in this table.

** Applicable DTS Valuation Table duration rate from exhibits 3c and 4 (1985 TSA Volume XXXVII, pp. 462-463), incorporated by reference herein.

The 85CIDA tables so adjusted for the computation of claim reserves shall be known as 85CIDC (The 1985 Commissioners Individual Disability Tables C, which is the 85CIDA tables in 1985 Transactions of the Society of Actuaries, Volume XXXVII, pp. 455-463, so adjusted, incorporated by reference herein.).

(ii) For claims incurred prior to January 1, 2005:

Each insurer may elect which of the following to use as the minimum standard for claims incurred prior to January 1, 2005:

(I) The minimum morbidity standard in effect for contract reserves on currently issued contracts, as of the date the claim is incurred, or

(II) The standard as defined in Item (i), applied to all open claims.

(III) Once an insurer elects to calculate reserves for all open claims on the standard defined in Item (i), all future valuations must be on that basis.

(B) Hospital Benefits, Surgical Benefits and Maternity Benefits (Scheduled benefits or fixed time period benefits only).

1. Contract Reserves

For contracts issued on or after January 1, 1955, and before January 1, 1982: The 1956 Intercompany Hospital-Surgical Tables.

For contracts issued on or after January 1, 1982: The 1974 Medical Expense Tables, Table A, Transactions of the Society of Actuaries, Volume XXX, pg. 63. Refer to the paper (in the same volume, pg. 9) to which this table is appended, including its discussions, for methods of adjustment for benefits not directly valued in Table A: “Development of the 1974 Medical Expense Benefits,” Houghton and Wolf.

2. Claim Reserves: No specific standard. See paragraph (E).

1. Contract Reserves

For contracts issued on or after January 1, 1986: The 1985 NAIC Cancer Claim Cost Tables.

2. Claim Reserves: No specific standard. See paragraph (E).

(D) Accidental Death Benefits

1. Contract Reserves

For contracts issued on or after January 1, 1965: The 1959 Accidental Death Benefits Table.

2. Claim Reserves: Actual amount incurred.

(E) Other Individual Contract Benefits

1. Contract Reserves

For all other individual contract benefits, morbidity assumptions are to be determined as provided in this article.

2. Claim Reserves

For all benefits other than disability income, claim reserves are to be determined as provided in this article.

(2) Minimum morbidity standards for valuation of specified group contract benefits:

(A) Disability Income Benefits Due to Accident or Sickness.

1. Contract Reserves

For contracts issued prior to January 1, 1995: The same basis, if any, as that employed by the insurer as of January 1, 1995

For contracts issued on or after January 1, 1995: The 1987 Commissioners Group Disability Income Table (87CGDT; Transactions of the Society of Actuaries, Volume XXXIX, pages 393-458).

2. Claim Reserves

For claims incurred on or after January 1, 1995: The 1987 Commissioners Group Disability Income Table (87CGDT; Transactions of the Society of Actuaries, Volume XXXIX, pages 393-458).

For claims incurred prior to January 1, 1995: Use of the 87CGDT is optional.

(B) Other Group Contract Benefits

1. Contract Reserves

For all other group contract benefits, morbidity assumptions shall be determined as provided in this article.

2. Claim Reserves

For all benefits other than disability income, claim reserves shall be determined as provided in this article.

(b) Interest

(1) For contract reserves the maximum interest rate shall be the maximum rate permitted by Insurance Code § 10489.4 in the valuation of whole life insurance issued on the same date as the disability insurance contract.

(2) For claim reserves on policies that require contract reserves, the maximum interest rate shall be the maximum rate permitted by Insurance Code § 10489.4 in the valuation of whole life insurance issued on the same date as the claim incurral date.

(3) For claim reserves on policies not requiring contract reserves, the maximum interest rate shall be the maximum rate permitted by Insurance Code § 10489.4 in the valuation of single premium immediate annuities issued on the same date as the claim incurral date, reduced by one hundred basis points.

(1) Except as provided in paragraph (3), the mortality basis used for all policies, except long-term care individual policies and group certificates issued on or after January 1, 2005, shall be:

(i) for active lives according to a table (but without use of select factors) permitted by Insurance Code §10489.2(a) for the valuation of whole life insurance issued on the same date as the disability insurance contract;

(ii) for disabled lives the mortality basis, if any, shall be according to a table (but without select factors) permitted by Insurance Code §10489.2(a) for the valuation of whole life insurance issued on the same date as the claim incurred date.

(2) For long-term care insurance individual policies or group certificates issued on or after January 1, 2005, the morbidity basis used shall be the 1994 Group Annuity Mortality Static Table, which is Table 18 in 1995 Transactions of the Society of Actuaries, Volume 47, pp. 898-899, incorporated by reference herein.

(3) Other mortality rates may be used in the calculation of the minimum reserves, if appropriate for the type of benefits and if approved by the Commissioner. The request for such approval must include the proposed mortality basis and the reason that the standard specified in paragraph (1) or (2) is inappropriate.

NOTE

Authority cited: Sections 997(a) and 10489.95, Insurance Code. Reference: Sections 985, 997 and 10489.15(a), Insurance Code.

HISTORY

1. New section filed 11-4-94; operative 12-5-94 (Register 94, No. 44).

2. Amendment filed 12-13-2005; operative 12-13-2005 pursuant to Government Code section 11343.4 (Register 2005, No. 50).

Article 4. Experience and Reserves

§2318. California Workers' Compensation Unit Statistical Plan.

Note • History

NOTE: Pursuant to the provisions of Government Code Section 11344, this regulation is not printed in full herein. The complete regulation may be examined at the offices of the Insurance Commissioner at San Francisco, Los Angeles, Sacramento, and San Diego; the Statistical Plan will be published and copies will be made available to the public at nominal cost by the Workers' Compensation Insurance Rating Bureau of California at its San Francisco, California, office.

NOTE

Authority cited: Sections 11751.5, Insurance Code. Reference: Sections 11740 and 11751.5, Insurance Code.

HISTORY

1. Amendment of Sections III, I, VI and Appendix filed 6-30-82; effective thirtieth day thereafter (Register 82, No. 27). For prior history, see Register 81, No. 50.

§2318.5. California Workers' Compensation Unit Statistical Plan.

Note • History

EDITORIAL NOTE: Pursuant to the provisions of Government Code section 11344, this regulation is not printed in full herein. This complete regulation may be examined at the offices of the Insurance Commissioner in San Francisco, Los Angeles, Sacramento, and San Diego. The statistical plan will be published and copies will be made available to the public at nominal cost by the Workers' Compensation Insurance Rating Bureau of California at its San Francisco, California office.

NOTE

Authority cited: Section 11751.5, Insurance Code. Reference: Sections 11740 and 1151.5, Insurance Code.

HISTORY

1. New section filed 1-21-81; designated effective 1-1-83 (Register 81, No. 4).

2. Amendment of sections I, II, III, IV, V and Appendices I-A and II-A through II-D filed 12-11-81; designated effective 1-1-83 (Register 81, No. 50).

3. Amendment of Introduction, sections II, III IV, and Appendix I filed 6-30-82; effective thirtieth day thereafter (Register 8, No. 27).

4. Amendment of section II filed 4-11-83; effective thirtieth day thereafter (Register 83, No. 16).

5. Amendment of sections I-III and Appendix II-B filed 12-30-83; designated effective 1-1-84 pursuant to Government Code section 11346.2(d) (Register 84, No. 1).

6. Amendment of sections II and IV filed 1-22-86; effective upon filing pursuant to Government Code section 11346.2(d) (Register 86, No. 4).

7. Amendment filed 5-4-87 with the Secretary of State without review by OAL pursuant to exemption for regulations which establish or fix rates (Government Code section 11343); operative 5-4-87 (Register 87, No. 19).

8. Amendment adopted without OAL review pursuant to exemption for regulations which establish or fix rates (Government Code section 11343); operative 1-1-88 (Register 88, No. 4).

9. Amendment filed 12-31-90 with the Secretary of State without review by OAL pursuant to exemption for regulations which establish or fix rates (Government Code section 11343); operative 1-1-91 (Register 91, No. 6).

10. Amendment filed 12-31-92 with the Secretary of State without review by OAL pursuant to exemption for regulations which establish or fix rates (Government Code section 11343); operative 1-1-93 (Register 93, No. 1).

11. Amendment filed 12-31-93 with the Secretary of State without review by OAL pursuant to exemption for regulations which establish or fix rates (Government Code section 11343); operative 1-1-94 (Register 93, No. 53).

12. Editorial correction of section heading (Register 93, No. 53).

13. Repealer filed 12-30-94; effective date 1-1-95 with respect to all new policies with an inception date on or after January 1, 1995 and with respect to renewal policies as of the first normal anniversary date falling on or after January 1, 1995. Repealer filed without review by OAL pursuant to exemption for regulations which establish or fix rates (Government Code section 11343). (Register 94, No. 52).

§2318.6. California Workers' Compensation Uniform Statistical Reporting Plan -- 1995.

Note • History

EDITORIAL NOTE: Pursuant to the provisions of Government Code section 11344.6, this regulation is not printed in full herein. The complete regulation may be examined at the offices of the Insurance Commissioner in San Francisco, Los Angeles, Sacramento, and San Diego. The complete regulation will be published and copies will be made available to the public at nominal cost by the Workers' Compensation Insurance Rating Bureau of California at its San Francisco, California office.

NOTE

Authority cited: Section 11751.5, Insurance Code. Reference: Sections 11730 and 11736, Insurance Code.

HISTORY

1. Adoption filed 12-30-94; effective 1-1-95 with respect to all new policies with an inception date on or after January 1, 1995 and with respect to renewal policies as of the first normal anniversary date falling on or after January 1, 1995. Adoption filed without review by OAL pursuant to exemption for regulations which establish or fix rates (Government Code section 11343). (Register 94, No. 52).

2. Amendments filed 12-15-95; operative 1-1-96. Amendments filed without review by OAL pursuant to the exemption for regulations which establish or fix rates, prices, or tariffs (Government Code section 11343) (Register 95, No. 50).

3. Amendment filed 12-11-96; operative 1-1-97. Amendment filed without review by OAL pursuant to the exemption for regulations which establish or fix rates, prices, or tariffs (Government Code section 11343) (Register 96, No. 50).

4. Amendment filed 12-31-97; operative 1-1-98. Amendment filed without review by OAL pursuant to the exemption for regulations which establish or fix rates, prices, or tariffs (Government Code section 11343) (Register 98, No. 1).

5. Amendment filed 1-25-99; operative 1-1-99. Amendment filed without review by OAL pursuant to the exemption for regulations which establish or fix rates, prices, or tariffs (Government Code section 11343) (Register 99, No. 5).

6. Amendment filed 12-27-99; operative 1-1-2000. Amendment filed without review by OAL pursuant to the exemption for regulations which establish or fix rates, prices, or tariffs (Government Code section 11343) (Register 99, No. 53).

7. Amendment filed 12-29-2000; operative 1-1-2001. Amendment filed without review by OAL pursuant to the exemption for regulations which establish or fix rates, prices, or tariffs (Government Code section 11343) (Register 2000, No. 52).

8. Amendment filed 1-10-2002 without review by OAL pursuant to the exemption for regulations which establish or fix rates, prices, or tariffs (Government Code section 11340.9) (Register 2002, No. 2).

9. Amendment filed 8-12-2002; operative 4-1-2002. Amendment filed without review by OAL pursuant to the exemption for regulations which establish or fix rates, prices, or tariffs (Government Code section 11343) (Register 2002, No. 33).

10. Amendment filed 8-12-2002; operative 7-1-2002. Amendment filed without review by OAL pursuant to the exemption for regulations which establish or fix rates, prices, or tariffs (Government Code section 11343) (Register 2002, No. 33).

11. Amendment filed 12-31-2002; operative 1-1-2003. Amendment filed without review by OAL pursuant to the exemption for regulations which establish or fix rates, prices, or tariffs (Government Code section 11343) (Register 2003, No. 1).

12. Amendment filed 12-31-2003; operative 7-1-2003. Amendment filed without review by OAL pursuant to the exemption for regulations which establish or fix rates, prices, or tariffs (Government Code section 11343) (Register 2004, No. 1).

13. Amendment filed 12-31-2003; operative 1-1-2004. Amendment filed without review by OAL pursuant to the exemption for regulations which establish or fix rates, prices, or tariffs (Government Code section 11343) (Register 2004, No. 1).

14. Editorial correction updating editorial note (Register 2004, No. 38).

15. Amendment filed 9-16-2004; operative 7-1-2004. Amendment filed without review by OAL pursuant to the exemption for regulations which establish or fix rates, prices, or tariffs (Government Code section 11340.9(g)) (Register 2004, No. 38).

16. Amendment filed 3-2-2005; operative 1-1-2005. Amendment filed without review by OAL pursuant to the exemption for regulations which establish or fix rates, prices, or tariffs (Government Code section 11340.9(g)) (Register 2005, No. 9).

17. Amendment filed 10-20-2005; operative 7-1-2005. Amendment filed without review by OAL pursuant to the exemption for regulations which establish or fix rates, prices or tariffs (Government Code section 11340.9(g)) (Register 2005, No. 42).

18. Amendment filed 6-19-2006; operative 1-1-2006. Amendment filed without review by OAL pursuant to the exemption for regulations which establish or fix rates, prices or tariffs (Government Code section 11340.9(g)) (Register 2006, No. 25).

19. Amendment filed 9-20-2006; operative 7-1-2006. Amendment filed without review by OAL pursuant to the exemption for regulations which establish or fix rates, prices or tariffs (Government Code section 11340.9(g)) (Register 2006, No. 38).

20. Amendment filed 4-16-2007; operative 1-1-2007. Amendment filed without review by OAL pursuant to the exemption for regulations which establish or fix rates, prices, or tariffs (Government Code section 11340.9(g)) (Register 2007, No. 16).

21. Amendment filed 10-31-2007; operative 7-1-2007. Amendment filed without review by OAL pursuant to the exemption for regulations which establish or fix rates, prices, or tariffs (Government Code section 11340.9(g)) (Register 2007, No. 44).

22. Amendment filed 6-16-2008; operative 1-1-2008. Amendment filed without review by OAL pursuant to the exemption for regulations which establish or fix rates, prices or tariffs (Government Code section 11340.9(g)) (Register 2008, No. 25).

23. Amendment filed 2-23-2009; operative 1-1-2009. Amendment filed without review by OAL pursuant to the exemption for regulations which establish or fix rates, prices or tariffs (Government Code section 11340.9(g)) (Register 2009, No. 9).

24. Amendment filed 4-28-2010; operative 1-1-2010. Amendment filed without review by OAL pursuant to the exemption for regulations which establish or fix rates, prices or tariffs (Government Code section 11340.9(g)) (Register 2010, No. 18).

25. Amendment filed 4-28-2010; operative 7-1-2010. Amendment filed without review by OAL pursuant to the exemption for regulations which establish or fix rates, prices or tariffs (Government Code section 11340.9(g)) (Register 2010, No. 18).

26. Amendment filed 9-22-2011; operative 1-1-2011. Amendment filed without review by OAL pursuant to the exemption for regulations which establish or fix rates, prices or tariffs (Government Code section 11340.9(g)) (Register 2011, No. 38).

27. Amendment filed 9-22-2011; operative 1-1-2012. Amendment filed without review by OAL pursuant to the exemption for regulations which establish or fix rates, prices or tariffs (Government Code section 11340.9(g)) (Register 2011, No. 38).

28. Amendment filed 5-31-2012; operative 1-1-2012. Amendment filed without review by OAL pursuant to exemption for regulations which establish or fix rates, prices or tariffs (Government Code section 11340.9(g)) (Register 2012, No. 22).

Article 4.5. Loss and Loss Expense Reserves

§2319. Authority.

Note • History

These regulations are promulgated pursuant to the authority granted to the Commissioner under the provisions of Section 923.5 of the Insurance Code. These regulations shall apply to each insurer transacting business in this State but shall not apply to life insurance, disability insurance, title insurance, mortgage insurance, or mortgage guaranty insurance.

NOTE

Authority cited: Section 923.5, Insurance Code.

HISTORY

1. New Article 4.5 (§2319, 2319.1-2319.4) filed 2-6-76; effective thirtieth day thereafter (Register 76, No. 6).

§2319.1. Reserve Test Method.

(a) Every insurer shall immediately establish an effective method for testing the adequacy of loss and loss expense reserves previously established and reported in the annual statement.

(b) Such method shall include provision for the estimation of the current adequacy level.

(c) Such method must be adequately describe and shall include a description of the insurer's claim practices to the extent that they affect the data used in the reserve test method. Such description shall include, among other things, the definition of a late-reported claim, the definition of a reopened claim, changes in claim practices, the procedures used to verify that the tabulation of outstanding claims at a given date contains all of the files of open claims as of such date, and other pertinent information. This description is to be continuously updated and immediately available to the Commissioner on request.

(d) Such method shall provide a means of testing as of June 30 the adequacy of each calendar year's reserves previously established.

(e) The data must be fully reconcilable to annual statement type data.

(f) If a material deficiency is indicated by the reserve test method for the reserves as established, the insurer shall take corrective action prior to the preparation of the next subsequent annual statement.

(g) Such method shall also separately estimate the deficiencies in the reserves for reported claims.

§2319.2. Reserve Computation.

(a) Reserves shall reflect inflation and development projected to date of ultimate payment.

(b) Reserves shall include provisions for an appropriate incurred-but-not-reported (IBNR) reserve based on the experience of the insurer or where experience is lacking based on reasonable actuarial assumptions applied to other experience. The reserve computation shall, where appropriate, estimate the expected number of claims yet to be reported from accident years prior to a statement date together with the corresponding incurred amount. The calculation of such expected claims shall give due consideration to changes in the exposure base.

(c) Allocated and unallocated loss expense reserves shall be based on individual company experience or other reasonable evidence which measures the probable cost of liquidating claim liability. Ratios of paid expenses to paid losses may not be modified by arbitrary factors.

§2319.3. Minimum Reserves.

The minimum reserve requirements prescribed in Section 11558 shall be increased whenever the Commissioner determines that the computations set forth in Section 11558 are inadequate as provided by Section 11557. Such increases may be based on individual company experience or reasonable actuarial assumptions in the absence of such experience. The method used by the National Association of Insurance Commissioners for calculating the excess of statutory reserves over statement reserves in the annual statement is adopted for the minimum reserve requires of Section 11558 subject to such individual determination as the Commissioner shall make.

§2319.4. Records.

All records of the reserve method including reserve tests and reports shall be retained and made available for examiners of the Commissioner, and copies thereof shall also be furnished to the Commissioner on request.

Article 5. Marine Insurance

§2320. Effective Date; Construction of Provisions.

Note • History

This article is effective January 1, 1954, and supersedes former Sections 2320, 2321 and 2322 which are hereby nullified. Insofar as the provisions of this article are substantially the same as the provisions of former Sections 2320, 2321 and 2322 prior to the effective date hereof they shall be construed as restatements and continuations thereof and not as new provisions.

NOTE

Authority cited: Sections 103, 12921, 12921.5, 12926, Insurance Code. Additional authority cited: Section 1851(c), Insurance Code.

HISTORY

1. Originally printed 5-15-46 (Register 3).

2. Repealer of Article 5 (§§ 2320 to 2322, inclusive), filed 11-30-53; designated effective 1-1-54; (Register 53, No. 22).

§2320.1. Purpose.

This article is adopted and promulgated by the Insurance Commissioner as a necessary means for the guidance of insurers and all other concerned in observing the provisions of law relating to: insuring powers of admitted marine insurers; the California Standard Form Fire Insurance policy; rates and rating and other organizations; taxation of insurers; and to assist in determining whether certain business should be reported on insurers' annual statements as ocean marine insurance or otherwise; and for the assistance and guidance of all persons concerned in all other cases where it is necessary to distinguish between marine and other classes of insurance and between inland marine risks, and other risks.

§2320.2. Scope.

Nothing in this article shall contravene, curtail or expand any statute; it is intended as a partial description of the kinds of risks and coverages presently regarded by the Insurance Commissioner as classifiable under Insurance Code Section 103. It is not an exhaustive or complete enumeration of risks and coverages which may be so classified. Inclusion herein shall not be construed as indicating that such risks and coverages are solely marine insurance. Nothing in this article shall be construed as binding or limiting any discretion or power conferred upon the Insurance Commissioner by the Legislature.

§2321.

History

Marine and/or transportation policies may cover under the following conditions:

(a) Imports

(1) Imports on consignment may be covered wherever the property may be and without restriction as to time, provided the coverage of the issuing companies includes hazards of transportation. A shipment “on consignment” shall mean property consigned and intrusted to a factor or agent to be held in his care, or under his control for sale for account of another or for exhibit or trial or approval or auction, and if not disposed of, to be returned.

(2) Imports not on consignment in such places of storage as are usually employed by importers, provided the coverage of the issuing companies includes hazards of transportation. Such policies may also include the same coverage in respect to property purchased on C.I.F. terms or “spot” purchases for inclusion with or in substitution for bona fide importations. An import, as a proper subject of marine or transportation insurance, shall be deemed to maintain its character as such so long as the property remains segregated in the original form or package in such a way that it can be identified and has not become incorporated and mixed with the general mass of property in the United States, and shall be deemed to have been completed when such property has been:

(A) Sold and delivered by the importer, factor or consignee; or

(B) Removed from place of storage as described in paragraph “2” above and placed on sale as part of importer's stock in trade at a point of sale-distribution; or

(C) Delivered for manufacture, processing or change in form to premises of the importer or of another used for any such purposes.

(b) Exports

(1) Exports may be covered wherever the property may be without restriction as to time, provided the coverage of the issuing companies includes hazards of transportation. An export, as a proper subject of marine or transportation insurance, shall be deemed to acquire its character as such when designated or while being prepared for export and retain that character unless diverted for domestic trade, and when so diverted, the provisions of this article respecting domestic shipments shall apply, provided, however, that this provision shall not apply to long established methods of insuring certain commodities, e.g., cotton.

(1) Domestic shipments on consignment, provided the coverage of the issuing companies includes hazards of transportation.

(A) Property shipped on consignment for sale or distribution, while in transit and not exceeding one hundred and twenty (120) days after arrival at consignee's premises or other place of storage or deposit; and

(B) Property shipped on consignment for exhibit, or trial, or approval, or auction, while in transit, while in the custody of others and while being returned.

(2) Domestic shipments not on consignment, provided the coverage of the issuing companies includes hazards of transportation, beginning and ending within the United States, provided that such shipments shall not be covered at manufacturing premises nor after arrival at premises owned, leased or operated by assured or purchaser, not for more than ninety (90)days at other place of storage or deposit, except in premises of transportation companies or freight forwarders, when such storage is incident to transportation.

(d) Bridges, tunnels and other instrumentalities of transportation and communication (excluding buildings, their furniture and furnishings, fixed contents and supplies held in storage) unless fire, tornado, sprinkler leakage, hail, explosion, earthquake, riot and/or civil commotion are the only hazards to be covered. Piers, wharves, docks and slips, excluding the risks of fire, tornado, sprinkler leakage, hail, explosion, earthquake, riot and/or civil commotion. Other aids to navigation and transportation, including dry docks and marine railways, against all risks. The foregoing includes:

(1) Bridges, tunnels, other similar instrumentalities, unless fire, lightning, windstorm, sprinkler leakage, hail, explosion, earthquake, riot or civil commotion are the only perils to be covered.

(2) Piers, wharves, docks and slips, but excluding the risks of fire, lightning, windstorm, sprinkler leakage, hail, explosion, earthquake, riot or civil commotion.

(3) (A) Pipelines, including on-line propulsion, regulating and other equipment appurtenant to such pipelines, but excluding all property at manufacturing, producing, refining, converting, treating or conditioning plants.

(B) Power transmission and telephone and telegraph lines, excluding all property at generating, converting or transforming stations, substations and exchanges.

(4) Radio and television communication equipment in commercial use as such including towers and antennae with auxiliary equipment, and appurtenant electrical operating and control apparatus but excluding buildings, their improvements and betterments, furniture and furnishings and supplies held in storage therein.

(5) Outdoor cranes, loading bridges and similar equipment used to load, unload and transport.

(e) Personal Property Floater Risks

(1) Covering Individuals.

(A) Tourists Floater, Personal Effects Floater Policies.

(B) The Personal Property Floater.

(D) Personal Fur Floaters.

(E) Personal Jewelry Floaters.

(F) Wedding Present Floaters for not exceeding ninety (90) days after the date of the wedding.

(G) Silverware Floaters.

(2) Covering Individuals and/or Generally.

(A) Fine Arts Floaters, Stamp and Coin Floaters. To cover objects of art such as pictures, statuary, bronzes and antiques, rare manuscripts and books, articles of virtu, etc.

(B) Musical Instrument Floaters. Radios, televisions, record players and combinations thereof are not deemed musical instruments.

(D) Physicians' and Surgeons' Instrument Floaters. Such policies may include coverage of such furniture, fixtures and tenant assured's interest in such improvements and betterments of buildings as are located in that portion of the premises occupied by the assured in the practice of his profession.

(E) Pattern and Die Floaters, excluding coverage on the owner's premises.

(F) Theatrical Floaters, excluding buildings and their improvements and betterments, and furniture and fixtures that do not travel about with theatrical troupes.

(G) Film Floaters, including builders' risk during the production and coverage on completed negatives and positives and sound records.

(H) Salesmen's Samples Floaters.

(I) Jewelers' Block Policies, including tenant assured's interest in improvements and betterments of buildings, furniture, fixtures, tools, machinery, patterns, molds and dies.

(J) Exhibition Policies on property while on exhibition and in transit to or from such exhibitions.

(K) Live Animal Floaters, covering wherever animals, wagons and mobile equipment may be.

(L) Installation risks, covering machinery and equipment including plumbing, heating, cooling and electrical systems (as distinguished from building materials) while in transit to place of installation and during the period of installation and testing. Coverage must cease:

(1) where such property is insured for the account of the seller or installer,when the interest of such insured ceases; or,

(2) in no case later than when such property has been accepted as satisfactory; whichever first occurs, as to (1) or (2).

Building materials (e.g., structural steel, lumber, bricks and mortar), while in transit to place of installation and after arrival thereat but such coverage must terminate when the materials are installed and have become a physical part of the realty or when the seller's interest ceases, whichever first occurs.

(M) Mobile Articles, Machinery and Equipment Floaters (excluding motor vehicles designed for highway use and auto homes, trailers and semitrailers except when hauled by tractors not designed for highway use and snow plows constructed exclusively for highway use), covering identified property of a mobile or floating nature, not on sale or consignment, or in course of manufacture, which has come into the custody or control of parties who intend to use such property for the purpose for which it was manufactured or created. Such policies shall not cover furniture and fixtures not customarily used away from premises where such property is usually kept.

(N) Property in transit to or from and in the custody of

(1) Bleacheries, throwsters, fumigatories, dyers, cleaners, laundries, and similar bailees;

(2) Needleworkers;

(3) Other bailees (not owned, controlled or operated by the bailor) for the purpose of performing work thereon (as distinguished from the making of a complete article) including the treatment of, or assemblage, of property on the premises of bailees. Such policies shall not cover bailee's property at his premises.

(O) Installment Sales and Leased Property. Policies covering property sold under conditional contract of sale, partial payment contract, installment sales contract, or leased but excluding motor vehicles designed for highway use. Such policies must cover in transit but shall not extend beyond the termination of the seller's or lessor's interest. This section is not intended to include machinery and equipment under certain “lease-back” contracts.

(P) Garment Contractors Floaters.

(Q) Furriers or Fur Storer's Customer's Policies (i.e., policies under which certificates or receipts are issued for furriers or fur storers) covering specified articles the property of customers.

(R) Accounts Receivable Policies, Valuable Papers and Records Policies.

(S) Cold Storage Locker Plant Policies, covering merchandise of customers consisting principally of meats, game, fish, poultry, fruit, vegetables and property of a similar nature.

(T) Floor Plan Policies, covering property for sale while in possession of dealers under a floor plan or any similar plan under which the dealer borrows money from a bank or lending institution with which to pay the manufacturer, provided:

(1) Such merchandise is specifically identifiable as encumbered to the bank or lending institution.

(2) The dealer's right to sell or otherwise dispose of such merchandise is conditioned upon its being released from encumbrance by the bank or lending institution.

(3) That such policies cover in transit and do not extend beyond the termination of the dealer's interest. Provided that such policies shall not cover automobiles or motor vehicles; merchandise for which the dealer's collateral is the stock or inventory as distinguished from merchandise specifically identifiable as encumbered to the lending institution.

(U) Sign and Street Clock Policies, covering neon signs, automatic or mechanical signs, street clocks, while in use as such.

(V) The following policies covering property which, when sold to the ultimate purchaser, may be covered specifically, by the owner, under Inland Marine Policies:

(1) Musical Instrument Dealers Policies, covering property consisting principally of musical instruments and their accessories. Radios, Telephones, recordplayers and combinations thereof are not deemed musical instruments.

(2) Camera Dealers Policies, covering property consisting principally of cameras and their accessories.

(3) Furrier's Dealers Policies, covering property consisting principally of furs and fur garments.

(4) Equipment Dealers Policies, covering mobile equipment consisting of binders, reapers, tractors, harvesters, harrows, tedders and other similar agricultural equipment and accessories therefor; construction equipment consisting of bulldozers, roadscrapers, tractors, compressors, pneumatic tools and similar equipment and accessories thereof; but excluding motor vehicles designed for highway use. All such policies shall exclude coverage of moneys and securities. Such policies may include coverage of tenant assured's interest in improvements and betterments of buildings,furniture, fixtures, tools, machinery, patterns, molds and dies.

(W) Wool Growers Floaters.

(X) Domestic Bulk Liquids Policies, covering domestic bulk liquids stored in tanks provided the risks of fire and inherent explosion, windstorm, sprinkler leakage, earthquake, hail, explosion, riot or civil commotion are excluded therefrom.

(Y) Furniture Shipment Policies, covering furniture, fixtures and equipment in bona fide course of shipment from one location to another location of the owner including in place of deposit incident to such transportation while awaiting determination or availability of final destination, in which event they must cover at time of issuance transportation to or from such place of deposit but may not cover after delivery at destination.

HISTORY

1. Amendment filed 5-31-66; effective thirtieth day thereafter (Register 66, No. 16). For prior history, see Register 61, No. 11.

§2322. Prohibited Coverage.

Unless otherwise permitted, nothing in the foregoing shall be construed to permit marine or transportation policies to cover:

(a) Storage of assured's merchandise, except as herein before provided.

(b) Merchandise in course of manufacture, the property of and on the premises of the manufacturer.

(d) Merchandise in permanent location, sold under partial payment, contract of sale, or installment sales contract, which involves protection of the purchaser's interest after seller's interest ceases.

(e) Moneys and/or securities in safes, vaults, safety deposit vaults, banks or assured's premises, except while in course of transportation.

(f) Risks of fire, windstorm, sprinkler leakage, earthquake, hail, explosion, riot, and/or civil commotion on buildings, structures, wharves, piers, docks, bulkheads and sheds and other fixed real property on land and/or over water, except as herein before provided.

Article 6. Taxation

§2324. Reporting and Allocating Risks in Federal Areas.

(a) Every insurance company or association doing business in this State is hereby required to include in its premium tax return to this department for the years 1941, et seq., all premiums received by it during each of said years upon insurance business done in all federal areas located within the exterior boundaries of the State of California.

(b) Where premiums for insurance upon the lives or health of members of the armed forces or their families are collected directly from the fiscal officer of either branch of the service under salary allotment authorizations, such premiums are to be allocated to California:

(1) In cases where the insurance was in force prior to the entry into the armed service and the last premium previous to such entry was allocable to California under the normal and usual rules for allocation of premiums.

(2) In cases of all insurance originating in federal areas located within the exterior boundaries of the State of California when, because of the peculiar status of military personnel with respect to established residence, the normal rules for allocation of premiums are impossible or impractical of application, for so long as such conditions continue to exist.

(c) The fact that premiums are collected under salary allotment authorizations does not of itself render them exempt from such tax to which they are otherwise subject under the statutes quoted, as herein construed and interpreted. (Pol. Code Sections 34, 3666a, 54 U.S. Stats., p. 1059, 4 U. S. C. A. 13a)

§2325. Filing Statement for Computation of Retaliatory Tax.

Note • History

Annually, on or before May 1st, every foreign insurer engaged in the business of insurance in the State of California in the preceding calendar year shall file with the Insurance Commissioner a statement in the form prescribed by him setting forth such information as will permit the commissioner to properly administer the retaliatory provisions of Article 1.5, Chapter 1, Part 2, Division 1 (Sections 685-685.4) of the Insurance Code. The commissioner may waive such filing with respect to the insurers of a state or province or of any class of insurers of a state or province if he determines after an analysis of the laws of such state or province relating to taxes, licenses and fees and their application by that state or province and of such laws of the State of California and their application that under no circumstances will a retaliatory tax be due from such insurers.

NOTE

Authority cited: Section 685.3, Insurance Code. Reference: Sections 685-685.4, Insurance Code.

HISTORY

1. New section filed 2-19-60 as an emergency; effective upon filing (Register 60, No. 4).

2. Amendment filed 4-26-60; effective thirtieth day thereafter (Register 60, No. 10).

Article 6.2. Reporting and Filing Premium Taxes

§2327. Definitions.

Note • History

Unless the context otherwise requires, the definitions set forth in this section govern the construction of this article.

(a) Accrual basis. Accrual basis accounting is a method of calculating premium tax based upon premiums, as identified on Schedule T of the insurer's Annual Statement, that are written by the insurer during a given tax year.

(b) Cash Basis. Cash basis accounting is a method of calculating premium tax based upon premiums that are received and collected by the insurer during a given tax year, less any premiums returned during the same tax year.

(c) Collected Direct Premiums. For purposes of this Article, the term Collected Direct Premiums or premiums received is defined as that portion of premiums directly written by the Insurer, including any consideration that was due on or before the end of the tax year for which the insurer is filing, and for which the insurer has received payment.

(d) Direct Premiums. Direct Premiums means premiums written and/or received in transactions conducted directly with the insured, but does not include premiums written on reinsurance business.

(e) Gross Premiums. For purposes of this Article, the term gross premiums as referenced in California Revenue and Taxation Code section 12221, does not include premiums received for reinsurance, ocean marine insurance, title insurance, or surplus line transactions.

(f) Insurer. For purposes of this Article, the term Insurer is defined by California Insurance Code Section 23, and includes those listed in California Revenue and Taxation Code Section 12003, however, it does not include those transacting ocean marine insurance or title insurance.

(g) NAIC. The NAIC is the National Association of Insurance Commissioners, which is an organization of insurance regulators from the 50 states, the District of Columbia and the five U.S. territories.

(h) NAIC Annual Statement Schedule T. The NAIC Annual Statement Schedule T is an NAIC schedule found in the NAIC Annual Statement Blanks that is intended to exhibit the amount of premiums written, allocated by states and territories.

(i) Open tax year. An open tax year is any taxable year that is not covered by the limitations found in California Revenue and Taxation Code Section 12978.

(j) Premium Collection Activity. For purposes of this Article, the term Premium Collection Activity includes any or all of the following: insurance lines and types, billing plans, payment plans, and bad debt percentage.

(k) Uncollected Direct Premiums. For purposes of this Article, the term Uncollected Direct Premiums is defined as that portion of premiums and consideration that was directly written by the Insurer and was due on or before the end of the tax year for which the insurer is filing, but for which the insurer has not received payment.

NOTE

Authority cited: Section 13170, Revenue and Taxation Code. Reference: Article XIII, Section 28, California Constitution; Sections 12001, 12003, 12201, 12221, 12231, 12232, 12302, 12303, 12304, 12421 and 12422, Revenue and Taxation Code; Sections 19, 20, 21, 24, 28, 47, 736, 1530 and 12740, Insurance Code.

HISTORY

1. New article 6.2 (sections 2327-2327.2) and section filed 8-22-2012; operative 9-21-2012 (Register 2012, No. 34).

§2327.1. Selection of Cash or Accrual Basis.

Note • History

(a) An insurer is required to pay taxes on all premiums received during the tax year.

(b) An insurer may file its return for premium taxes on either a cash basis or accrual basis so long as the amount of taxes paid is equivalent to or greater than the amount of taxes that would be due for premiums received by the insurer.

(c) If an insurer elects to file on an accrual basis the insurer must pay premium taxes on all Direct Premium reported on its return and the State must receive said premium taxes at the same time or earlier than if the premium taxes would have been paid by the insurer if it would have filed using a cash basis, and such a filing results in the State receiving an amount greater than or equal to the amount it would have received in premium taxes had the insurer filed using a cash basis.

(d) An insurer is permitted, but not required, to switch from an accrual basis to a cash basis under which it files its premium taxes for any open tax year. However, once an insurer elects to switch from an accrual basis to a cash basis the insurer thereafter is always required to file on a cash basis.

(c) Except in the case of a merger completed during the tax year in question between an accrual basis taxpayer and a cash basis taxpayer, it shall not be permitted for an insurer to file its premium taxes in part on an accrual and in part on a cash basis. Under such circumstances, the surviving insurer shall be permitted to file its premium taxes in part on an accrual and in part on a cash basis only for the tax year in which the merger occurred. The Commissioner, in his or her sole discretion, may allow the surviving insurer to file its premium taxes in part on an accrual basis and in part on a cash basis for a particular subsequent tax year.

NOTE

Authority cited: Section 13170, Revenue and Taxation Code. Reference: Article XIII, Section 28, California Constitution; Sections 12001, 12201, 12221, 12231, 12232, 12302, 12303, 12304, 12421 and 12422, Revenue and Taxation Code; Sections 19, 20, 21, 28, 47, 736, 1530 and 12740, Insurance Code. State Board of Equalization Memorandum Opinion in California Automobile Insurance Company (December 12, 2006).

HISTORY

1. New section filed 8-22-2012; operative 9-21-2012 (Register 2012, No. 34).

§2327.2. Insurers Filing on a Cash Basis.

Note • History

In addition to any other insurance tax premium filing requirements or instructions, any insurer that files on a cash basis shall do the following:

(a) Calculate its taxes on Collected Direct Premiums in accordance with Revenue and Taxation Code section 12221; or,

(b) As an alternative method for calculating its taxes in accordance with Revenue and Taxation Code section 12221, an insurer may calculate its taxes on Direct Premiums, subject to the requirements of Revenue and Taxation Code Section 12221, using a ratio of the insurer's Direct Premiums written upon business transacted in this State to the insurer's total Direct Premiums written, as reported on the insurer's NAIC Annual Statement Schedule T, and apply it to either the insurer's Collected Direct Premiums or the insurer's Uncollected Direct Premiums.

NOTE

Authority cited: Section 13170, Revenue and Taxation Code. Reference: Article XIII, Section 28, California Constitution; Sections 12001, 12201, 12221, 12231, 12232, 12302, 12303, 12304, 12421 and 12422, Revenue and Taxation Code; Sections 19, 20, 21, 28, 47, 736, 1530 and 12740, Insurance Code; State Board of Equalization Memorandum Opinion in California Automobile Insurance Company (December 12, 2006).

HISTORY

1. New section filed 8-22-2012; operative 9-21-2012 (Register 2012, No. 34).

Article 6.5. Guidelines for Waiver of Penalty for Non-Use of Electronic Funds Transfer or for Non-Timely Payment of Taxes

§2330.1. Electronic Funds Transfer Penalties.

Note • History

Insurers and surplus line brokers (hereafter, “taxpayers”) are required to make payment by Electronic Funds Transfer (“EFT”) if their annual taxes exceed twenty thousand dollars ($20,000). If they make payment by some method other than EFT or the payment is not timely, they will be assessed a ten percent penalty plus interest on the amount due unless the penalty is waived as set forth under Sections 2330.3 and 2330.4. If taxpayers make payment by some method other than EFT and the payment is not timely, taxpayers will be assessed a twenty percent penalty plus interest on the amount due unless the penalty is waived as set forth under Sections 2330.3 and 2330.4.

NOTE

Authority cited: Sections 1775.4(e), 1775.5(b), 1775.8 and 12976.5(a), Insurance Code; and Sections 12602(c)(1), 12631 and 12636, Revenue and Taxation Code. Reference: Sections 45, 1775.4, 1775.5, 1775.8 and 12976.5, Insurance Code; and Sections 12602 and 12631, Revenue and Taxation Code.

HISTORY

1. New article 6.5 (sections 2330.1-2330.5) and section filed 7-21-2008; operative 8-20-2008 (Register 2008, No. 30).

2. Change without regulatory effect amending section filed 9-11-2008 pursuant to section 100, title 1, California Code of Regulations (Register 2008, No. 37).

§2330.3. Waiver of Penalty for Failure to Pay Taxes by EFT.

Note • History

(a) The penalty set forth above in Section 2330.1 may be waived if the taxpayer's failure to pay taxes by EFT is due to reasonable cause or circumstances beyond the taxpayer's control.

(b) In order for the penalty to be waived, the taxpayer seeking a waiver must file with the Insurance Commissioner a written request under penalty of perjury, stating the facts upon which a request for a waiver is based. Each request for a waiver shall be evaluated on its own merits.

(c) The request for a waiver shall be granted if the taxpayer fails to make payment by electronic funds transfer under any of the following circumstances:

(1) The death or serious illness of the taxpayer or death or serious illness of a member of the taxpayer's immediate family.

(2) The death or serious illness of the person who prepares the payment on behalf of the taxpayer.

(3) Natural disaster.

(4) Incorrect advice given to the taxpayer by an employee of the Commissioner.

(5) Involuntary bankruptcy.

(6) An attachment placed against the taxpayer's bank account without the taxpayer's knowledge.

(7) The taxpayer's books and records are impounded by court order or are in the hands of a federal or state agency and are unavailable for use by the taxpayer. However, these books and records must pertain to the same period of time as the tax return or somehow relate to the payment of the tax.

(8) If the State of California does not suffer any financial loss as a result of the payment method and the taxpayer was not previously notified of the electronic funds transfer method. The taxpayer shall work with the Department of Insurance to establish an electronic funds transfer method.

(9) Other situations that clearly demonstrate that the non-use of EFT is beyond the taxpayer's control.

NOTE

Authority cited: Sections 1775.4(e), 1775.5(b), 1775.8(c)(2) and 12976.5(c)(2), Insurance Code: and Section 12602(c)(2), Revenue and Taxation Code. Reference: Sections 1775.4(e), 1775.5(b), 1775.8(c)(2) and 12976.5(c)(2), Insurance Code; and Section 12602, Revenue and Taxation Code.

HISTORY

1. New section filed 7-21-2008; operative 8-20-2008 (Register 2008, No. 30).

§2330.4. Waiver of Penalty for Failure to Timely Make Payment.

Note • History

(a) The penalty set forth above in Section 2330.1 may be waived if the surplus line broker fails to make a timely payment under any of the circumstances set forth under Section 2330.3(c)(1) through (7) above. A surplus line broker may also be relieved of the penalty for late payment if:

(1) the surplus line broker failed to receive a tax return because of a change of address and the Department has been properly informed of the change of address.

(2) for any other reason, the surplus line broker has not received a tax return from the Department where the Department is at fault.

(3) other situations that clearly demonstrate that failure to make timely payment is beyond the surplus line broker's control.

NOTE

Authority cited: Sections 1775.4(e) and 1775.5(b), Insurance Code. Reference: Sections 1775.4(e) and 1775.5(b), Insurance Code.

HISTORY

1. New section filed 7-21-2008; operative 8-20-2008 (Register 2008, No. 30).

§2330.5. Filing for Relief.

Note • History

(a) Any surplus line broker seeking to be relieved of the penalty provided in Section 2330.1 for failure to pay taxes by EFT and/or failure to timely make a payment shall file with the Department a statement under penalty of perjury setting forth the facts upon which the claim for relief is based.

(b) Any insurer seeking to be relieved of the penalty provided in Section 2330.1 for failure to pay taxes by EFT shall file with the Department a statement under penalty of perjury setting forth the facts upon which the claim for relief is based.

(c) Any insurer seeking to be relieved of the penalty provided in Section 2330.1 for failure to timely make a payment shall file with the California Board of Equalization a statement under penalty of perjury setting forth the facts upon which the claim for relief is based.

NOTE

Authority cited: Sections 1775.4(e), 1775.5(b), 1775.8(b)(2), 1775.8(c)(3) and 12976.5(c)(2), Insurance Code; and Section 12602(c)(3), Revenue and Taxation Code. Reference: Sections 1775.4(e), 1775.5(b), 1775.8(b)(2), 1775.8(b)(3) and 12976.5(c)(2), Insurance Code; Sections 12602(c)(3) and 12631, Revenue and Taxation Code.

HISTORY

1. New section filed 7-21-2008; operative 8-20-2008 (Register 2008, No. 30).

Article 7. Rates and Rating Systems

NOTE: The Insurance Commissioner has approved the manuals named in this Article 7. These manuals are filed but for the present are separately published, not as part of the California Administrative Code. Those manuals not printed herein may be examined at the offices of the Insurance Commissioner in San Francisco, Los Angeles, Sacramento and San Diego. The manuals will be published and copies will be made available to the public at nominal cost by the Workers' Compensation Insurance Rating Bureau of California at its San Francisco, California, office.

§2350. Rules, Classifications and Basic Rates for Workers' Compensation Insurance.

Note • History

EDITORIAL NOTE: Pursuant to the provisions of Government Code section 11344, this regulation is not printed in full herein. This manual may be examined at the offices of the Insurance Commissioner in San Francisco, Los Angeles, Sacramento, and San Diego. The manual will be published and copies will be made available to the public at nominal cost by the Workers' Compensation Insurance Rating Bureau of California at its San Francisco, California office.

NOTE

Authority cited: Section 11734, Insurance Code. Reference: Sections 11732, 11732.1 and 11734, Insurance Code.

HISTORY

1. Amendment filed 4-8-87; effective 1-1-87 pursuant to Government Code section 11343(a)(1) set new rates effective with respect to all new policies with an inception date on or after January 1, 1987 and with respect to renewal policies as of the first normal anniversary date falling on or after January 1, 1987. (Register 87, No. 16). For prior history see Register 86, No. 43.

2. Amendment filed 5-4-87 with the Secretary of State without review by OAL pursuant to exemption for regulations which establish or fix rates (Government Code section 11343); operative 5-4-87 (Register 87, No. 19).

3. Editorial correction of HISTORY 8 deleting reference to printing the text of section 2350 in full. The text of section 2350 is incorporated by reference; see EDITORIAL NOTE (Register 87, No. 23).

4. Amendment filed 7-2-87 pursuant to Government Code section 11346.2 (d) (Register 87, No. 29).

5. Amendment filed 9-16-87 pursuant to Government Code section 11346.2 (d) (Register 87, No. 38).

6. Amendment adopted without OAL review pursuant to exemption for regulations which establish or fix rates (Government Code section 11343); operative 1-1-88 (Register 88, No. 4).

7. Amendment filed 12-15-88 with the Secretary of State without OAL review pursuant to exemption for regulations which establish or fix rates (Government Code section 11343); operative 1-1-89 (Register 88, No. 53).

8. Amendment filed 12-21-89 with the Secretary of State without OAL review pursuant to exemption for regulations which establish or fix rates (Government Code section 11343); operative 1-1-90 (Register 90, No. 1).

9. Amendment filed 3-8-90 with the Secretary of State without OAL review pursuant to exemption for regulations which establish or fix rates (Government Code section 11343); operative 3-1-90 (Register 90, No. 12).

10. Amendment filed 12-31-90 with the Secretary of State without review by OAL pursuant to exemption for regulations which establish or fix rates (Government Code section 11343); operative 1-1-91 (Register 91, No. 6).

11. Amendment filed 8-4-92 pursuant to Government Code section 11343.8; operative 7-1-92 (Register 92, No. 32).

12. Amendment filed 12-31-92 with the Secretary of State without review by OAL pursuant to exemption for regulations which establish or fix rates (Government Code section 11343); operative 1-1-93 (Register 93, No. 1).

13. Amendment filed 12-31-93 with the Secretary of State without review by OAL pursuant to exemption for regulations which establish or fix rates (Government Code section 11343); operative 1-1-94 (Register 93, No. 53).

14. Editorial correction of section heading (Register 93, No. 53).

15. Amendment filed 11-22-94 with the Secretary of State without review by OAL pursuant to exemption for regulations which establish or fix rates (Government Code section 11343); operative 10-1-94 (Register 94, No. 47).

16. Repealer filed 12/30/94; effective 1-1-95 with respect to all new policies with an inception date on or after January 1, 1995 and with respect to renewal policies as of the first normal anniversary date falling on or after January 1, 1995. Repealer filed without review by OAL pursuant to exemption for regulations which establish or fix rates (Government Code section 11343). (Register 94, No. 52).

§2351. Industrial Compensation Rating Schedule. [Repealed]

History

HISTORY

1. Repealer filed 8-31-73; designated effective with respect to schedule ratings becoming effective on or after October 1, 1973 (Register 73, No. 35). For prior history, see Registers 72, No. 7; 70, No. 34; 69, No. 32; 68, No. 33. Original filing date: 5-10-46.

§2351.1. Chemical and Dyestuff Rating Plan. [Repealed]

History

HISTORY

1. Repealer filed 8-28-68; designated effective with respect to all new policies with an inception date falling on or after 10-1-68, and with respect to all renewal policies as of the first normal anniversary date falling on or after 10-1-68 (Register 68, No. 33). For prior history, see Registers 64, No. 18; 62, No. 16; 58, No. 12. Original filing date: 7-10-58.

§2351.2. Pneumonoconiosis Schedule Rating Plan. [Repealed]

History

HISTORY

1. Repealer filed 8-31-73; designated effective with respect to pneumonoconiosis schedule ratings becoming effective on or after October 1, 1973 (Register 72, No. 35). For prior history, see Registers 68, No. 33; 67, No. 38; 67, No. 35; 66, No. 24; 64, No. 18; 62, No. 16; 61, Nos. 6 and 15; 60, No. 19; 58, No. 12. Original filing date: 7-10-58.

§2352. Retrospective Rating Plan, Workmen's Compensation Insurance. [Repealed]

History

HISTORY

1. Repealer filed 8-29-57; designated effective 10-1-57 (Register 57, No. 14). For prior history, see Registers 53, No. 5; 29, No. 2.

§2352.1. California Workers' Compensation Retrospective Rating Plan.

Note • History

NOTE

Authority cited: Sections 11732, 11732.1 and 11734, Insurance Code. Reference: Sections 11732, 11732.1 and 11734, Insurance Code.

HISTORY

1. Amendment filed 8-13-75; designated effective with respect to retrospective ratings becoming effective on or after October 1, 1975 (Register 75, No. 33). For prior history see Register 74, No. 35.

2. Amendment filed 11-12-76; designated effective with respect to retrospective ratings becoming effective on or after January 1, 1977 (Register 76, No. 46).

3. Amendment filed 5-25-77; designated effective with respect to retrospective ratings becoming effective on or after September 1, 1977 (Register 77, No. 22).

4. Amendment filed 12-1-78; designated effective with respect to retrospective ratings becoming effective on or after January 1, 1979 (Register 78, No. 48).

5. Amendment filed 12-14-79 as an emergency; designated effective with respect to retrospective ratings becoming effective on or after January 1, 1980. Certificate of Compliance included (Register 79, No. 50).

6. Amendment filed 1-21-81; effective thirtieth day thereafter (Register 81, No. 4).

7. Amendment filed 12-30-83; designated effective 1-1-84 pursuant to Government Code section 11346.2(d) with respect to retrospective ratings becoming effective on or after January 1, 1984 (Register 84, No. 1).

8. Amendment filed 12-21-84; designated effective 1-1-85 pursuant to Government Code section 11346.2(d) with respect to retrospective ratings becoming effective on or after January 1, 1985 (Register 85, No. 1).

9. Amendment filed 1-22-86; effective upon filing pursuant to Government Code section 11346.2(d) with respect to retrospective ratings becoming effective on or after January 1, 1986 (Register 86, No. 4).

10. Amendment filed 5-4-87 with the Secretary of State without review by OAL pursuant to exemption for regulations which establish or fix rates (Government Code section 11343); operative 5-4-87 (Register 87, No. 19).

11. Amendment adopted without OAL review pursuant to exemption for regulations which establish or fix rates (Government Code section 11343); operative 1-1-88 (Register 88, No. 4).

12. Amendment filed 12-31-90 with the Secretary of State without review by OAL pursuant to exemption for regulations which establish or fix rates (Government Code section 11343); operative 1-1-91 (Register 91, No. 6).

13. Repealer filed 12-30-94; effective 1-1-95 with respect to retrospective ratings becoming effective on or after January 1, 1995. Repealer filed without review by OAL pursuant to exemption for regulations which establish or fix rates (Government Code section 11343). (Register 94, No. 52).

§2353. Experience Rating Plan, Workers' Compensation Insurance.

Note • History

EDITORIAL NOTE: Pursuant to the provisions of Government Code section 11344, this regulation is not printed in full herein. This manual may be examined at the offices of the Insurance Commissioner in San Francisco, Los Angeles, Sacramento, and San Diego. The manual will be published and copies will be made available to the public at nominal cost by the Workers' Compensation Insurance Rating Bureau of California at its San Francisco, California, office.

NOTE

Authority cited: Sections 11732, 11732.1 and 11734, Insurance Code. Reference: Sections 11732, 11732.1 and 11734, Insurance Code.

HISTORY

1. Amendment filed 12-30-83; designated effective 1-1-84 pursuant to Government Code section 11346.2(d) with respect to experience ratings becoming effective on or after January 1, 1984 (Register 84, No. 1) . For prior history, see Register 83, No. 1.

2. Amendment filed 12-21-84; designated effective 1-1-85 pursuant to Government Code section 11346.2(d) with respect to experience ratings becoming effective on or after January 1, 1985 (Register 85, No. 1).

3. Amendment filed 1-22-86; effective upon filing pursuant to Government Code section 11346.2(d) with respect to experience ratings becoming effective on or after January 1, 1986 (Register 86, No. 4).

4. Amendment filed 5-4-87 with the Secretary of State without review by OAL pursuant to exemption for regulations which establish or fix rates (Government Code section 11343); operative 5-4-87 (Register 87, No. 19).

5. Amendment adopted without OAL review pursuant to exemption for regulations which establish or fix rates (Government Code section 11343) ; operative 1-1-88 (Register 88, No. 4).

6. Amendment filed 12-15-88 with the Secretary of State without OAL review pursuant to exemption for regulations which establish or fix rates (Government code section 11343) ; operative 1-1-89 (Register 88, No. 53).

7. Amendment filed 12-21-89 with the Secretary of State without OAL review pursuant to exemption for regulations which establish or fix rates (Government Code section 11343); operative 1-1-90 (Register 90, No. 1).

8. Amendment filed 12-31-90 with the Secretary of State without review by OAL pursuant to exemption for regulations which establish or fix rates (Government Code section 11343); operative 1-1-91 (Register 91, No. 6).

9. Amendment filed 12-31-92 with the Secretary of State without review by OAL pursuant to exemption for regulations which establish or fix rates (Government Code section 11343); operative 1-1-93 (Register 93, No. 1).

10. Amendment filed 12-31-93 with the Secretary of State without review by OAL pursuant to exemption for regulations which establish or fix rates (Government Code section 11343); operative 1-1-94 (Register 93, No. 53).

11. Amendment filed 11-22-94 with the Secretary of State without review by OAL pursuant to exemption for regulations which establish or fix rates (Government Code section 11343); operative 10-1-94 (Register 94, No. 47).

12. Repealer filed 12-30-94; effective 1-1-95 with respect to experience ratings becoming effective on or after January 1, 1995. Repealer filed without review by OAL pursuant to exemption for regulations which establish or fix rates (Government Code section 11343). (Register 94, No. 52).

§2353.1. California Workers' Compensation Experience Rating Plan -- 1995.

Note • History

NOTE

Authority cited: Section 11734, Insurance Code. Reference: Sections 11730 and 11736, Insurance Code.

HISTORY

1. Adoption filed 12-30-94; effective 1-1-95 with respect to experience ratings with effective dates on or after January 1, 1995. Adoption filed without review by OAL pursuant to exemption for regulations which establish or fix rates (Government Code section 11343). (Register 94, No. 52).

2. Amendment filed 1-2-96; operative 1-2-96. Amendment filed without review by OAL pursuant to exemption for regulations which establish or fix rates (Government Code section 11343) (Register 96, No. 1).

3. Amendment filed 12-11-96; operative 1-1-97. Amendment filed without review by OAL pursuant to the exemption for regulations which establish or fix rates (Government Code section 11343) (Register 96, No. 50).

5. Amendment filed 7-21-98; operative 1-1-98. Amendment filed without review by OAL pursuant to the exemption for regulations which establish or fix rates, prices, or tariffs (Government Code section 11343) (Register 98, No. 30).

6. Amendment filed 1-25-99; operative 1-1-99. Amendment filed without review by OAL pursuant to the exemption for regulations which establish or fix rates, prices, or tariffs (Government Code section 11343) (Register 99, No. 5).

7. Amendment filed 12-27-99; operative 1-1-2000. Amendment filed without review by OAL pursuant to the exemption for regulations which establish or fix rates, prices, or tariffs (Government Code section 11343) (Register 99, No. 53).

8. Amendment filed 12-29-2000; operative 1-1-2001. Amendment filed without review by OAL pursuant to the exemption for regulations which establish or fix rates, prices, or tariffs (Government Code section 11343) (Register 2000, No. 52).

9. Amendment filed 1-10-2002 without review by OAL pursuant to the exemption for regulations which establish or fix rates, prices, or tariffs (Government Code section 11340.9) (Register 2002, No. 2).

10. Amendment filed 8-12-2002; operative 4-1-2002. Amendment filed without review by OAL pursuant to the exemption for regulations which establish or fix rates, prices, or tariffs (Government Code section 11343) (Register 2002, No. 33).

14. Editorial correction updating editorial note (Register 2004, No. 38).

25. Amendment filed 4-28-2010; operative 1-1-2011. Amendment filed without review by OAL pursuant to the exemption for regulations which establish or fix rates, prices or tariffs (Government Code section 11340.9(g)) (Register 2010, No. 18).

§2354. Recording and Reporting of Data.

Note • History

EDITORIAL NOTE: Pursuant to the provisions of Government Code section 11344, this regulation is not printed in full herein. The complete regulation may be examined at the offices of the Insurance Commissioner in San Francisco, Los Angeles, Sacramento, and San Diego. The complete regulation will be published and copies will be made available to the public at nominal cost by the Workers' Compensation Insurance Rating Bureau of California at its San Francisco, California office.

NOTE

Authority cited: Section 11751.5, Insurance Code. Reference: Sections 11730 and 11734, Insurance Code.

HISTORY

3. Amendment filed 12-29-2000; operative 1-1-2001. Amendment filed without review by OAL pursuant to the exemption for regulations which establish or fix rates, prices, or tariffs (Government Code section 11343) (Register 2000, No. 52).

4. Amendment filed 12-31-2002; operative 1-1-2003. Amendment filed without review by OAL pursuant to the exemption for regulations which establish or fix rates, prices, or tariffs (Government Code section 11343) (Register 2003, No. 1).

5. Amendment filed 12-31-2003; operative 1-1-2004. Amendment filed without review by OAL pursuant to the exemption for regulations which establish or fix rates, prices, or tariffs (Government Code section 11343) (Register 2004, No. 1).

6. Amendment filed 3-2-2005; operative 1-1-2005. Amendment filed without review by OAL pursuant to the exemption for regulations which establish or fix rates, prices, or tariffs (Government Code section 11340.9(g)) (Register 2005, No. 9).

7. Amendment filed 10-20-2005; operative 7-1-2005. Amendment filed without review by OAL pursuant to the exemption for regulations which establish or fix rates, prices or tariffs (Government Code section 11340.9(g)) (Register 2005, No. 42).

8. Amendment filed 6-19-2006; operative 1-1-2006. Amendment filed without review by OAL pursuant to the exemption for regulations which establish or fix rates, prices or tariffs (Government Code section 11340.9(g)) (Register 2006, No. 25).

9. Amendment filed 4-16-2007; operative 1-1-2007. Amendment filed without review by OAL pursuant to the exemption for regulations which establish or fix rates, prices, or tariffs (Government Code section 11340.9(g)) (Register 2007, No. 16).

10. Amendment filed 4-28-2010; operative 1-1-2010. Amendment filed without review by OAL pursuant to the exemption for regulations which establish or fix rates, prices or tariffs (Government Code section 11340.9(g)) (Register 2010, No. 18).

11. Amendment filed 9-22-2011; operative 1-1-2011. Amendment filed without review by OAL pursuant to the exemption for regulations which establish or fix rates, prices or tariffs (Government Code section 11340.9(g)) (Register 2011, No. 38).

12. Amendment filed 5-31-2012; operative 1-1-2012. Amendment filed without review by OAL pursuant to exemption for regulations which establish or fix rates, prices or tariffs (Government Code section 11340.9(g)) (Register 2012, No. 22).

Article 7.1. Title Insurance Statistical Plan and Related Rules

§2355.1. Statistical Plan and Income Statement General Provisions.

Note • History

(a) Pursuant to California Insurance Code (CIC) Section 12401.5, the Insurance Commissioner requires each Title Insurance Company licensed to transact business in California to submit a Statistical Plan and Income Statement report on the prescribed electronic forms and in accordance with these regulations. The submissions shall be reported annually.

(b) This section concerns matters relating to financial data and related information required to be collected or reported in accordance with Articles 5.5 of Chapter 1, Part 6, Division 2 of the Insurance Code and the regulations that implement, interpret or make specific those provisions.

(c) The initial submission shall cover experience from January 1, 2011 through December 31, 2011. Following the initial submission, all submissions shall cover experience in each succeeding calendar year. For example, the second annual submission shall cover January 1, 2012 through December 31, 2012. Except for the initial submission, the filings for the Income Statement (CATI-R1) and Summary of Transaction Activities (CATI-R2) shall also include the previous year's experience.

(d) A completed initial submission shall be made to the Department no later than May 31, 2012. Each following submission is due no later than May 31 of each successive year.

(e) Each submission shall be completed using the spreadsheet templates provided by the Commissioner at the “Statistical Plans” link found on the California Department of Insurance website (www.insurance. ca.gov) under the “Insurers” tab; “Data & Reports.”

(f) Each submission consists of the following:

(1) Company Information (Signature Page/Certification) form

(2) General Interrogatories Page

(3) CATI-R1: Income Statement

(4) CATI-R2: Summary of Transaction Activities

(5) CATI-R3 [Parts 1 to 6]: Summary of Rate Distribution by Type of Policy

(6) CATI-R3 Total [of Parts 1 to 6]: Summary of Rate Distribution by Type of Policy

(7) CATI-R4.1: Escrow Fee Distribution by Amount of Transaction (by County)

(8) CATI-R4.2: Summary of Escrow Fees by County

(g) Submit the completed reports to the Rate Specialist Bureau by sending either an electronic copy of the file by e-mail to: rsbTitle@ insurance.ca.gov

Subject Line: “CA Title Insurance Statistical Plan -- 2011”

OR a copy of the files on CD/DVD to the address below.

Any questions or correspondence can be directed to:

CALIFORNIA DEPARTMENT OF INSURANCE

ATTENTION: RATE SPECIALIST BUREAU

300 SOUTH SPRING STREET, SOUTH TOWER, 14TH FLOOR

LOS ANGELES, CA 90013-1230

FAX#: (213) 897-6361

E-MAIL: RSBTITLE@INSURANCE.CA.GOV

NOTE

Authority Cited: Sections 12397.5, 12401, 12401.1, 12401.3, 12401.5, 12401.7 and 12401.8, Insurance Code; and 20th Century Ins. Co. v. Garamendi (1994) 8 Cal.4th 216. Reference: Sections 730, et seq., 12401, 12401.1, 12401.2, 12401.3, 12401.7, 12401.5, 12401.8 and 12401.9, Insurance Code.

HISTORY

1. New article 7.1 (subarticles 1-5, sections 2355.1-2359.7), subarticle 1 (sections 2355.1-2355.8) and section filed 7-26-2007; operative 11-23-2007 pursuant to Government Code section 11343.4(b) (Register 2007, No. 30).

2. Amendment of article heading, repealer of subarticle 1 (sections 2355.1-2355.8) and section and new section filed 8-4-2009; operative 9-3-2009 (Register 2009, No. 32).

3. Change without regulatory effect amending subsections (a) and (g) filed 4-23-2012 pursuant to section 100, title 1, California Code of Regulations (Register 2012, No. 17).

§2355.2. Specific Instructions for the Title Insurance Statistical Plan and Income Statement Report.

Note • History

(a) Tab 1 (of the Workbook) -- Company Information (Signature Page/Certification)

The reporting company shall report the following annually with the Statistical Plan and Income Statement reports.

(1) Company name, address, group name, and NAIC code

(2) Whether a completed report is attached or, alternatively, whether the company did not write any business and has no data to report

(3) The signature, under penalty of perjury, of an officer authorized to certify that the Statistical Plan and Income Statement reported herein is accurate, true and correct, complete, and in compliance with these regulations.

(4) If a title insurance company is submitting reports of a controlled escrow company which is controlled by the reporting title insurance company, but whose experience is not otherwise included in the reports of the controlling title insurance company, a separate certification shall be submitted for the controlled escrow company reports.

(b) Tab 2 -- General Interrogatories Page

The Interrogatory Page shall be completed with the following information and submitted annually with the Statistical Plan and Income Statement report:

(1) Does your company have a controlled escrow company as defined by Insurance Code section 12340.6?

(2) If “yes” provide the complete corporate name of each.

(3) Does this report include the data for the controlled escrow company(s)?

(4) If “no” have your controlled escrow company(s) submit a completed report.

(5) Is the County data reported in CATI-R4 based on the county in which the subject property is located?

(6) If “no” explain further in the space provided. Specifically, if the County data is based on the location of the escrow office, or where the transaction was processed, etc., explain or justify why the data is not reported based on the location of the subject property.

(7) The data required in CATI-R1 shall be California specific when available; otherwise, it shall be allocated based on the ALTA method. The reporting company shall indicate, by marking in the space provided on the Interrogatory Page, whether each reported line item of data in CATI-R1 is California specific

The Income Statement page requires the company's California and Countrywide revenue and expense items for the current report year and the previous year. However, the initial submission, which is due May 31, 2012, does not require the previous year's experience. Please note that certain line items are calculated items and do not require data entry by the company.

The breakout of revenue and expense items is detailed and specific instructions for each line item are listed below. All line items are mutually exclusive of one another. Do not enter a specific expense or revenue in more than one line. The amount for each item shall be reported on an accrual basis. Use California specific data when it is available. If California specific data is not available, use the allocated amount based on the ALTA method.

Companies shall use the following standards when reporting information on this form:

• Unless otherwise specifically indicated, any allocations between states are to be based upon the methods recommended by the American Land Title Association (ALTA) Uniform Financial Reporting Plan (March, 1978). Other necessary allocations are to be made on a reasonable and equitable basis.

• Financial Statement Classifications used in this report as well as other instructions for its completion shall conform to those used in the Official NAIC Annual Statement (AS) Instructions, unless otherwise indicated herein.

• All amounts shown on this report are to be in whole dollars, with no decimal points or pennies. Round amounts of $0.50 or more up to the next highest dollar amount; round amounts of $0.49 down to the next lowest dollar amount.

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(d) CATI-R2: Summary of Transaction Activities

The Summary of Transaction Activities page requires the company's California title and escrow activities for the current report year and the previous year. However, the initial submission, which is due May 31, 2012, does not require the prior year's experience. Orders reported herein shall include those written by the reporting company's direct operations and affiliated UTCs.

Open(ed) Orders: the electronic or manual entry of an order into that system used by the company to actively track or otherwise process such order.

Close(ed) Orders: the electronic or manual removal of an order from active tracking or processing in that system used by the company to actively track or otherwise process such order.

Cancelled Orders: Cancelled Orders shall include all orders cancelled in the company's order tracking system. Use of estimates shall be noted by the reporting company.

Embedded Graphic 10.0187

(e) CATI-R3 [Parts 1 to 6]: Summary of Rate Distribution by Type of Policy

The Summary of Rate Distribution is broken down by the 6 Types of Policies for the company's California activities for the current report year. Policies reported herein shall include those written by the reporting company's direct operations and affiliated UTCs.

CATI-R3.1 Personal -- Owner's Policy

CATI-R3.2 Personal -- Lender's Policy

CATI-R3.3 Personal -- Lender's Policy Concurrent with Owner's Policy

CATI-R3.4 Commercial -- Owner's Policy

CATI-R3.5 Commercial -- Lender's Policy

CATI-R3.6 Commercial -- Lender's Policy Concurrent with Owner's Policy

Definitions

Personal: A Personal Policy is defined as any policy for a one-to-four family residential property.

Commercial: A Commercial Policy is defined as any policy not for a one-to-four family residential property.

Owner's Policy: A policy for an owner sale, purchase or lessee of a property.

Lender's Policy: A policy insuring a mortgagee or beneficiary under a deed of trust, not issued concurrent with owner's policy as part of a single order. Also include Home Equity Line of Credit (HELOC), refinance, reverse mortgage and revamp/modification loans.

Lender's Policy Concurrent with Owner's Policy: A policy insuring a mortgagee or beneficiary under a deed of trust, issued concurrent with owner's policy as part of a single order.

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(f) CATI-R3_TOTAL (of Parts 1 to 6): Summary of Rate Distribution by Type of Policy

These values pick up the totals from the previous R3.1 to R3.6 exhibits. No manual entry of data is necessary.

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(g) CATI-R4.1: Escrow Fee Distribution by Amount of Transaction (by County)

The Escrow Distribution page requires the company's California escrow activities for the current report year. Complete a form for each County in which business was written. The County data should be based on the location of the property, and not the location of the escrow office or processing center. If the data provided is not based on property location, explain further in the Interrogatory section.

Escrow fees/transactions reported herein shall include those written by the reporting company's direct operations and affiliated UTCs. There are forms for 10 counties on the worksheet. Copy and save the form/worksheet (CATI-R4) for as many Counties as you have data for.

For the Name of County -- click on the tan box and the down arrow next to it. A list of County Names will appear. Scroll down for the County you want and click again.

Definitions

Sales Escrow -- Escrow services used for the Purchase, Sale or Lease of real property.

Loan Escrow -- Escrow services used for personal and commercial loans, refinances, Home Equity Line of Credit (HELOCs), reverse mortgages and revamp/modification loans.

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The Totals for Each County must be copied over to the Summary of Escrow Fee by County worksheet.

(h) CATI-R4.2: Summary of Escrow Fees By County

The Number of Transactions & Total: Fees values are from CATI-R4.1. Copy and paste the data from CATI-R4.1 for each County you have data for.

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NOTE

Authority cited: Sections 12397.5, 12401, 12401.1, 12401.3, 12401.5, 12401.7 and 12401.8, Insurance Code; and 20th Century Ins. Co. v. Garamendi (1994) 8 Cal.4th 216. Reference: Sections 730, et seq., 12401, 12401.1, 12401.2, 12401.3, 12401.7, 12401.5, 12401.8 and 12401.9, Insurance Code.

HISTORY

1. New section filed 7-26-2007; operative 11-23-2007 pursuant to Government Code section 11343.4(b) (Register 2007, No. 30).

2. Repealer and new section filed 8-4-2009; operative 9-3-2009 (Register 2009, No. 32).

3. Change without regulatory effect amending subsections (b)(1)-(2), (b)(4), (b)(6), (c), (d), (e), (g) and (h) filed 4-23-2012 pursuant to section 100, title 1, California Code of Regulations (Register 2012, No. 17).

§2355.3. Disclosure to Consumer of Available Discounts.

Note • History

At the time a title insurer, underwritten title company, or controlled escrow company delivers escrow instructions or issues a preliminary report or commitment, a form enumerating each discount available under such company's rate filing shall be provided. A copy of the form shall be retained by the company for a period of three years. Neither provision nor acceptance of the form shall constitute waiver of the consumer's right to be charged the filed rate. This section shall apply only to transactions involving property improved with a one to four family residential dwelling. No disclosure is required if the insurer's rate filing does not include discounts.

NOTE

Authority cited: Sections 12389, 12397.5, 12401.3, 12401.5 and 12414.21, Insurance Code; and 20th Century Ins. Co. v. Garamendi (1994) 8 Cal.4th 216. Reference: Sections 12401.1 and 12401.2, Insurance Code.

HISTORY

1. New section filed 7-26-2007; operative 11-23-2007 pursuant to Government Code section 11343.4(b) (Register 2007, No. 30).

2. Repealer of section 2355.3 and renumbering and amendment of former section 2359.4 to new section 2355.3 filed 8-4-2009; operative 9-3-2009 (Register 2009, No. 32).

§2355.4. Rating Examinations.

Note • History

The Commissioner may, as often as may be reasonable and necessary to assure compliance with the standards and requirements of Article 5.5 and Article 7.1 of Chapter 1, Part 6, Division 2 of the Insurance Code and with such other provisions of the Insurance Code as relate to the business of title insurance, examine every advisory organization, title insurer, underwritten title company or controlled escrow company. Such examination of a title insurer, underwritten title company, or controlled escrow company may include a review of the books, records, accounts, rates, charges, fees, rating plans, rating systems, underwriting rules or policy forms adopted and used by such person or entity and the loss or expense experience and the data, statistics, or information collected or used by it in determining or establishing the rates, charges, fees, rating plans, rating systems, underwriting rules or policy forms which it has adopted and uses. Such examination may include a review of the statistical plan and financial data reports submitted pursuant to subarticle 2. Such examination shall not be a part of a periodic general examination participated in by a representative of more than one state.

NOTE

Authority cited: Sections 12389, 12397.5, 12401.3, 12401.5, 12414.21 and 12407, Insurance Code; and 20th Century Ins. Co. v. Garamendi (1994) 8 Cal.4th 216. Reference: Sections 12401.1 and 12401.2, Insurance Code.

HISTORY

1. New section filed 7-26-2007; operative 11-23-2007 pursuant to Government Code section 11343.4(b) (Register 2007, No. 30).

2. Repealer of section 2355.4 and renumbering of former section 2359.7 to new section 2355.4 filed 8-4-2009; operative 9-3-2009 (Register 2009, No. 32).

§2355.5. Rate and Statistical Plan Enforcement Remedies.

Note • History

(a) This section shall apply to all entities or persons that conduct the business of title insurance within the meaning of section 12340.3 of the Insurance Code.

(b) This section concerns matters relating to all of the books, records, accounts, payments, rates, charges, fees, rating plans, rating systems, underwriting rules, policy forms, financial data and related information required to be collected or reported in accordance with Articles 5.5 and 6.9 of Chapter 1, Part 6, Division 2 of the Insurance Code and the regulations that implement, interpret or make specific those provisions.

(c) In the event that an entity or person described in subsection (a) fails to collect or report any information required by the provisions of law referenced in subsection (b), the Commissioner may take the following action to ensure compliance with those provisions:

(1) The Commissioner may conduct proceedings in accordance with the provisions of Chapter 5 (commencing with section 11500) of Part 1 of Division 3 of Title 2 of the Government Code to deny, suspend or revoke any license or certificate of authority issued by the Commissioner to that entity.

(2) The Commissioner may examine the business and affairs of the entity and may analyze, inspect, collect, compile and report the data required by the provisions of subsection (b) that the entity has failed to collect or report. The costs of such examination, including the costs associated with analysis, inspection, collection, compilation and reporting shall be at the expense of the company.

(3) The Commissioner may collect a late filing fee in accordance with section 924 of the Insurance Code.

(d) All data required to be reported to the Commissioner in accordance with the provisions of law referenced in subsection (b) shall constitute “statements or stipulations required by this code” within the meaning of section 924 of the Insurance Code.

(e) Nothing in this section shall limit or preclude the Commissioner from taking other corrective action consistent with applicable law.

NOTE

Authority cited: Sections 924, 12401.1, 12401.5, 12401.7, 12401.9, 12414.17, 12414.18, 12414.20, 12414.21, 12414.22 and 12414.23, Insurance Code; and 20th Century Ins. Co. v. Garamendi (1994) 8 Ca1.4th 216. Reference: Sections 730, 924, 12401, 12401.1, 12401.2, 12401.3, 12401.5, 12401.7, 12401.8, 12401.9, 12414.15, 12414.16, 12414.17, 12414.18, 12414.23, 12414.24 and 12414.25, Insurance Code.

HISTORY

1. New section filed 7-26-2007; operative 11-23-2007 pursuant to Government Code section 11343.4(b) (Register 2007, No. 30).

2. Repealer of section 2355.5 and renumbering of former section 2359.8 to new section 2355.5 filed 8-4-2009; operative 9-3-2009 (Register 2009, No. 32).

§2355.6. Findings. [Repealed]

Note • History

NOTE

HISTORY

1. New section filed 7-26-2007; operative 11-23-2007 pursuant to Government Code section 11343.4(b) (Register 2007, No. 30).

2. Repealer filed 8-4-2009; operative 9-3-2009 (Register 2009, No. 32).

§2355.7. Public Hearing on Statistical Plan and Financial Data. [Repealed]

Note • History

NOTE

HISTORY

1. New section filed 7-26-2007; operative 11-23-2007 pursuant to Government Code section 11343.4(b) (Register 2007, No. 30).

2. Repealer filed 8-4-2009; operative 9-3-2009 (Register 2009, No. 32).

§2355.8. Public Information. [Repealed]

Note • History

NOTE

HISTORY

1. New section filed 7-26-2007; operative 11-23-2007 pursuant to Government Code section 11343.4(b) (Register 2007, No. 30).

2. Repealer filed 8-4-2009; operative 9-3-2009 (Register 2009, No. 32).

§2356.1. California Title Insurance Statistical Plan and Annual Financial Data Reporting Requirements. [Repealed]

Note • History

NOTE

HISTORY

1. New subarticle 2 (sections 2356.1-2356.9) and section filed 7-26-2007; operative 11-23-2007 pursuant to Government Code section 11343.4(b) (Register 2007, No. 30).

2. Repealer of subarticle 2 (sections 2356.1-2356.9) and section filed 8-4-2009; operative 9-3-2009 (Register 2009, No. 32).

§2356.2. Who Is Required to Report. [Repealed]

Note • History

NOTE

HISTORY

1. New section filed 7-26-2007; operative 11-23-2007 pursuant to Government Code section 11343.4(b) (Register 2007, No. 30).

2. Repealer filed 8-4-2009; operative 9-3-2009 (Register 2009, No. 32).

§2356.3. What to Report. [Repealed]

Note • History

NOTE

HISTORY

1. New section filed 7-26-2007; operative 11-23-2007 pursuant to Government Code section 11343.4(b) (Register 2007, No. 30).

2. Repealer filed 8-4-2009; operative 9-3-2009 (Register 2009, No. 32).

§2356.4. When to Report. [Repealed]

Note • History

NOTE

HISTORY

1. New section filed 7-26-2007; operative 11-23-2007 pursuant to Government Code section 11343.4(b) (Register 2007, No. 30).

2. Repealer filed 8-4-2009; operative 9-3-2009 (Register 2009, No. 32).

§2356.5. How to Report. [Repealed]

Note • History

NOTE

HISTORY

1. New section filed 7-26-2007; operative 11-23-2007 pursuant to Government Code section 11343.4(b) (Register 2007, No. 30).

2. Repealer filed 8-4-2009; operative 9-3-2009 (Register 2009, No. 32).

§2356.6. Where to Submit. [Repealed]

Note • History

NOTE

HISTORY

1. New section filed 7-26-2007; operative 11-23-2007 pursuant to Government Code section 11343.4(b) (Register 2007, No. 30).

2. Repealer filed 8-4-2009; operative 9-3-2009 (Register 2009, No. 32).

§2356.7. Data Quality Acceptance Standards. [Repealed]

Note • History

NOTE

HISTORY

1. New section filed 7-26-2007; operative 11-23-2007 pursuant to Government Code section 11343.4(b) (Register 2007, No. 30).

2. Repealer filed 8-4-2009; operative 9-3-2009 (Register 2009, No. 32).

§2356.8. Title Insurer Statistical Plan Reports. [Repealed]

Note • History

NOTE

Sections 12389, 12397.5, 12401.3, 12401.5 and 12414.21, Insurance Code; and 20th Century Ins. Co. v. Garamendi (1994) 8 Cal.4th 216. Reference: Sections 1215, 12401.1, 12401.2, 12401.8 and 12412, Insurance Code.

HISTORY

1. New section filed 7-26-2007; operative 11-23-2007 pursuant to Government Code section 11343.4(b) (Register 2007, No. 30).

2. Repealer filed 8-4-2009; operative 9-3-2009 (Register 2009, No. 32).

§2356.9. Annual Financial Data Requirements for Underwritten Title Company Reports. [Repealed]

Note • History

NOTE

Authority cited: Sections 12389, 12397.5, 12401.3, 12401.5, 12412 and 12414.21, Insurance Code; and 20th Century Ins. Co. v. Garamendi (1994) 8 Cal.4th 216. Reference: Sections 1215, 12401.1, 12401.2, 12401.8 and 12412, Insurance Code.

HISTORY

1. New section filed 7-26-2007; operative 11-23-2007 pursuant to Government Code section 11343.4(b) (Register 2007, No. 30).

2. Repealer filed 8-4-2009; operative 9-3-2009 (Register 2009, No. 32).

§2357.1. Scope. [Repealed]

Note • History

NOTE

HISTORY

1. New subarticle 3 (sections 2357.1-2352.19) and section filed 7-26-2007; operative 11-23-2007 pursuant to Government Code section 11343.4(b) (Register 2007, No. 30).

2. Repealer of subarticle 3 (sections 2357.1-2357.19) and section filed 8-4-2009; operative 9-3-2009 (Register 2009, No. 32).

§2357.2. Excessive Charges. [Repealed]

Note • History

NOTE

HISTORY

1. New section filed 7-26-2007; operative 11-23-2007 pursuant to Government Code section 11343.4(b) (Register 2007, No. 30).

2. Repealer filed 8-4-2009; operative 9-3-2009 (Register 2009, No. 32).

§2357.3. Determination of Title Insurance Totals. [Repealed]

Note • History

NOTE

HISTORY

1. New section filed 7-26-2007; operative 11-23-2007 pursuant to Government Code section 11343.4(b) (Register 2007, No. 30).

2. Repealer filed 8-4-2009; operative 9-3-2009 (Register 2009, No. 32).

§2357.4. Determination of Projected Values for Title Insurance. [Repealed]

Note • History

NOTE

HISTORY

1. New section filed 7-26-2007; operative 11-23-2007 pursuant to Government Code section 11343.4(b) (Register 2007, No. 30).

2. Repealer filed 8-4-2009; operative 9-3-2009 (Register 2009, No. 32).

§2357.5. Maximum Title Insurance Charge for a Policy. [Repealed]

Note • History

NOTE

Authority cited: Sections 12389, 12397.5, 12401.3, 12401.5 and 12414.21, Insurance Code; and 20th Century Ins. Co. v. Garamendi (1994) 8 Cal.4th 216. Reference: Sections 12401.1 and 12401.2, Insurance Code.

HISTORY

1. New section filed 7-26-2007; operative 11-23-2007 pursuant to Government Code section 11343.4(b) (Register 2007, No. 30).

2. Repealer filed 8-4-2009; operative 9-3-2009 (Register 2009, No. 32).

§2357.6. Maximum Average Title Insurance Charge. [Repealed]

Note • History

NOTE

HISTORY

1. New section filed 7-26-2007; operative 11-23-2007 pursuant to Government Code section 11343.4(b) (Register 2007, No. 30).

2. Repealer filed 8-4-2009; operative 9-3-2009 (Register 2009, No. 32).

§2357.7. Preliminary Report Charge. [Repealed]

Note • History

NOTE

HISTORY

1. New section filed 7-26-2007; operative 11-23-2007 pursuant to Government Code section 11343.4(b) (Register 2007, No. 30).

2. Repealer filed 8-4-2009; operative 9-3-2009 (Register 2009, No. 32).

§2357.8. Profit Factor. [Repealed]

Note • History

NOTE

HISTORY

1. New section filed 7-26-2007; operative 11-23-2007 pursuant to Government Code section 11343.4(b) (Register 2007, No. 30).

2. Repealer filed 8-4-2009; operative 9-3-2009 (Register 2009, No. 32).

§2357.9. Maximum Rate of Return. [Repealed]

Note • History

NOTE

HISTORY

1. New section filed 7-26-2007; operative 11-23-2007 pursuant to Government Code section 11343.4(b) (Register 2007, No. 30).

2. Repealer filed 8-4-2009; operative 9-3-2009 (Register 2009, No. 32).

§2357.10. State and Federal Income Tax Factor. [Repealed]

Note • History

NOTE

HISTORY

1. New section filed 7-26-2007; operative 11-23-2007 pursuant to Government Code section 11343.4(b) (Register 2007, No. 30).

2. Repealer filed 8-4-2009; operative 9-3-2009 (Register 2009, No. 32).

§2357.11. Investment Income Factor. [Repealed]

Note • History

NOTE

HISTORY

1. New section filed 7-26-2007; operative 11-23-2007 pursuant to Government Code section 11343.4(b) (Register 2007, No. 30).

2. Repealer filed 8-4-2009; operative 9-3-2009 (Register 2009, No. 32).

§2357.12. Sales Cost Factor. [Repealed]

Note • History

NOTE

HISTORY

1. New section filed 7-26-2007; operative 11-23-2007 pursuant to Government Code section 11343.4(b) (Register 2007, No. 30).

2. Repealer filed 8-4-2009; operative 9-3-2009 (Register 2009, No. 32).

§2357.13. Policy Charge. [Repealed]

Note • History

NOTE

HISTORY

1. New section filed 7-26-2007; operative 11-23-2007 pursuant to Government Code section 11343.4(b) (Register 2007, No. 30).

2. Repealer filed 8-4-2009; operative 9-3-2009 (Register 2009, No. 32).

§2357.14. Federal Income Tax Factor. [Repealed]

Note • History

NOTE

HISTORY

1. New section filed 7-26-2007; operative 11-23-2007 pursuant to Government Code section 11343.4(b) (Register 2007, No. 30).

2. Repealer filed 8-4-2009; operative 9-3-2009 (Register 2009, No. 32).

§2357.15. Premium Tax Rate. [Repealed]

Note • History

NOTE

Authority cited: Sections 12389, 12397.5, 12401.3, 12401.5 and 12414.2, Insurance Code; and 20th Century Ins. Co. v. Garamendi (1994) 8 Cal.4th 216. Reference: Sections 12401.1 and 12401.2, Insurance Code; and Section 12202, Revenue and Taxation Code.

HISTORY

1. New section filed 7-26-2007; operative 11-23-2007 pursuant to Government Code section 11343.4(b) (Register 2007, No. 30).

2. Repealer filed 8-4-2009; operative 9-3-2009 (Register 2009, No. 32).

§2357.16. Retention Rate. [Repealed]

Note • History

NOTE

HISTORY

1. New section filed 7-26-2007; operative 11-23-2007 pursuant to Government Code section 11343.4(b) (Register 2007, No. 30).

2. Repealer filed 8-4-2009; operative 9-3-2009 (Register 2009, No. 32).

§2357.17. Relativities. [Repealed]

Note • History

NOTE

HISTORY

1. New section filed 7-26-2007; operative 11-23-2007 pursuant to Government Code section 11343.4(b) (Register 2007, No. 30).

2. Repealer filed 8-4-2009; operative 9-3-2009 (Register 2009, No. 32).

§2357.18. Endorsements. [Repealed]

Note • History

NOTE

HISTORY

1. New section filed 7-26-2007; operative 11-23-2007 pursuant to Government Code section 11343.4(b) (Register 2007, No. 30).

2. Repealer filed 8-4-2009; operative 9-3-2009 (Register 2009, No. 32).

§2357.19. Interim Maximum Title Insurance Rates. [Repealed]

Note • History

NOTE

HISTORY

1. New section filed 7-26-2007; operative 11-23-2007 pursuant to Government Code section 11343.4(b) (Register 2007, No. 30).

2. Repealer filed 8-4-2009; operative 9-3-2009 (Register 2009, No. 32).

§2358.1. Scope. [Repealed]

Note • History

NOTE

HISTORY

1. New subarticle 4 (sections 2358.1-2358.9) and section filed 7-26-2007; operative 11-23-2007 pursuant to Government Code section 11343.4(b) (Register 2007, No. 30).

2. Repealer of subarticle 4 (sections 2358.1-2358.9) and section filed 8-4-2009; operative 9-3-2009 (Register 2009, No. 32).

§2358.2. Determination of Escrow Totals. [Repealed]

Note • History

NOTE

HISTORY

1. New section filed 7-26-2007; operative 11-23-2007 pursuant to Government Code section 11343.4(b) (Register 2007, No. 30).

2. Repealer filed 8-4-2009; operative 9-3-2009 (Register 2009, No. 32).

§2358.3. Determination of Projected Values for Escrow. [Repealed]

Note • History

NOTE

HISTORY

1. New section filed 7-26-2007; operative 11-23-2007 pursuant to Government Code section 11343.4(b) (Register 2007, No. 30).

2. Repealer filed 8-4-2009; operative 9-3-2009 (Register 2009, No. 32).

§2358.4. Maximum Charge for an Escrow Transaction. [Repealed]

Note • History

NOTE

HISTORY

1. New section filed 7-26-2007; operative 11-23-2007 pursuant to Government Code section 11343.4(b) (Register 2007, No. 30).

2. Repealer filed 8-4-2009; operative 9-3-2009 (Register 2009, No. 32).

§2358.5. Maximum Average Full Escrow Charge. [Repealed]

Note • History

NOTE

HISTORY

1. New section filed 7-26-2007; operative 11-23-2007 pursuant to Government Code section 11343.4(b) (Register 2007, No. 30).

2. Repealer filed 8-4-2009; operative 9-3-2009 (Register 2009, No. 32).

§2358.6. Maximum Average Subescrow Charge. [Repealed]

Note • History

NOTE

HISTORY

1. New section filed 7-26-2007; operative 11-23-2007 pursuant to Government Code section 11343.4(b) (Register 2007, No. 30).

2. Repealer filed 8-4-2009; operative 9-3-2009 (Register 2009, No. 32).

§2358.7. Escrow Relativities. [Repealed]

Note • History

NOTE

HISTORY

1. New section filed 7-26-2007; operative 11-23-2007 pursuant to Government Code section 11343.4(b) (Register 2007, No. 30).

2. Repealer filed 8-4-2009; operative 9-3-2009 (Register 2009, No. 32).

§2358.8. Interest-Bearing Escrow Accounts. [Repealed]

Note • History

NOTE

HISTORY

1. New section filed 7-26-2007; operative 11-23-2007 pursuant to Government Code section 11343.4(b) (Register 2007, No. 30).

2. Repealer filed 8-4-2009; operative 9-3-2009 (Register 2009, No. 32).

§2358.9. Interim Maximum Rates for Escrow. [Repealed]

Note • History

NOTE

HISTORY

1. New section filed 7-26-2007; operative 11-23-2007 pursuant to Government Code section 11343.4(b) (Register 2007, No. 30).

2. Repealer filed 8-4-2009; operative 9-3-2009 (Register 2009, No. 32).

§2359.1. Rate Filings for Existing Rate Categories. [Repealed]

Note • History

NOTE

HISTORY

1. New subarticle 5 (sections 2359.1-2359.7) and section filed 7-26-2007; operative 11-23-2007 pursuant to Government Code section 11343.4(b) (Register 2007, No. 30).

2. Repealer of subarticle 5 (sections 2359.1-2359.5) and section filed 8-4-2009; operative 9-3-2009 (Register 2009, No. 32).

§2359.2. Charges in Excess of Maximum Rates. [Repealed]

Note • History

NOTE

HISTORY

1. New section filed 7-26-2007; operative 11-23-2007 pursuant to Government Code section 11343.4(b) (Register 2007, No. 30).

2. Repealer filed 8-4-2009; operative 9-3-2009 (Register 2009, No. 32).

§2359.3. Filings for New Policy Forms, Endorsements, Other Services, Discounts, and Surcharges. [Repealed]

Note • History

NOTE

HISTORY

1. New section filed 7-26-2007; operative 11-23-2007 pursuant to Government Code section 11343.4(b) (Register 2007, No. 30).

2. Repealer filed 8-4-2009; operative 9-3-2009 (Register 2009, No. 32).

§2359.4. Disclosure to Consumer of Available Discounts. [Renumbered]

Note • History

NOTE

HISTORY

1. New section filed 7-26-2007; operative 11-23-2007 pursuant to Government Code section 11343.4(b) (Register 2007, No. 30).

2. Renumbering of former section 2359.4 to new section 2355.3 filed 8-4-2009; operative 9-3-2009 (Register 2009, No. 32).

§2359.5. Regulation of Charges for Unusual Risks or Unusual Services. [Repealed]

Note • History

NOTE

HISTORY

1. New section filed 7-26-2007; operative 11-23-2007 pursuant to Government Code section 11343.4(b) (Register 2007, No. 30).

2. Repealer filed 8-4-2009; operative 9-3-2009 (Register 2009, No. 32).

§2359.6. Hearings on Rates and Charges. [Repealed]

Note • History

NOTE

HISTORY

1. New section filed 7-26-2007; operative 11-23-2007 pursuant to Government Code section 11343.4(b) (Register 2007, No. 30).

2. Repealer filed 8-4-2009; operative 9-3-2009 (Register 2009, No. 32).

§2359.7. Rating Examinations. [Renumbered]

Note • History

NOTE

HISTORY

1. New section filed 7-26-2007; operative 11-23-2007 pursuant to Government Code section 11343.4(b) (Register 2007, No. 30).

2. Renumbering of former section 2359.7 to new section 2355.4 filed 8-4-2009; operative 9-3-2009 (Register 2009, No. 32).

§2359.8. Rate and Statistical Plan Enforcement Remedies. [Renumbered]

Note • History

NOTE

HISTORY

1. New section filed 7-14-2009; operative 11-11-2009 pursuant to Insurance Code section 12401.5 (Register 2009, No. 29).

2. Renumbering of former section 2359.8 to new section 2355.5 filed 8-4-2009; operative 9-3-2009 (Register 2009, No. 32).

Article 7.2. Objective Guidelines for Rating; Lowest Rates; Rates Charged by Insurers Which Are Members of a Group; Documentation; Upgrades.

§2360.0. Definitions.

Note • History

As used in these sections:

(a) An “Insurer Group” is any two or more insurers which exercise any authority granted in CIC Section 1853.5.

(b) “Eligibility Guidelines” are specific, objective factors, or categories of specific, objective factors, which are selected and/or defined by an insurer, and which have a substantial relationship to an insured's loss exposure.

(c) The term “Premium” shall mean the final amount charged to an insured for insurance after applying all applicable rates, factors, modifiers, credits, debits, discounts, surcharges, fees charged by the insurer and all other items which change the amount the insurer charges to the insured.

(d) A “Rating Plan” is any rating plan, rating system, or method, used by an insurer to develop a final rate or Premium.

(e) An “Insurance Marketing System” is a method of producing or selling insurance. For purposes of this Article there are only three types of Insurance Marketing Systems: (1) marketing through exclusive or captive agents; (2) marketing through independent agents and brokers; and (3) direct marketing by an insurer or non-agent employee of an insurer.

NOTE

Authority cited: Sections 1861.05, 12921, and 12926, Insurance Code. Reference: Sections 1857, 1861.05, Insurance Code.

HISTORY

1. New article 7.2 and section filed 12-12-95; operative 1-11-96 (Register 95, No. 50).

. 2 Editorial correction of subsection (e) (Register 96, No. 9).

3. Change without regulatory effect adding new Note filed 2-27-96 pursuant to section 100, title 1, California Code of Regulations (Register 96, No. 9).

§2360.1. Subject Lines of Insurance.

Note • History

This article shall apply to all lines of insurance except those which are listed in California Insurance Code (CIC) Section 1851(a) through (h).

NOTE

Authority cited: Sections 1861.05, 12921, and 12926, Insurance Code. Reference: Sections 1851, 1857, 1861.05, 1861.135(a), 1861.137(b), 11588, 12120, 12122, and 12713, Insurance Code.

HISTORY

1. New section filed 12-12-95; operative 1-11-96 (Register 95, No. 50).

2. Change without regulatory effect adding new Note filed 2-27-96 pursuant to section 100, title 1, California Code of Regulations (Register 96, No. 9).

§2360.2. Eligibility Guidelines / Qualification for Insurance and Rating Plan.

Note • History

An insurer shall maintain eligibility guidelines for every line of insurance offered for sale to the public. The Eligibility Guidelines shall be sufficiently detailed to determine the appropriate rating plan for the insured. An insured or applicant who meets the eligibility guidelines shall qualify to purchase the insurance.

NOTE

Authority cited: Sections 1861.05, 12921, and 12926, Insurance Code. Reference: Sections 1857, 1861.05, 1861.135(a), 1861.137(b), 11588, 12120, 12122, and 12713, Insurance Code.

HISTORY

1. New section filed 12-12-95; operative 1-11-96 (Register 95, No. 50).

2. Change without regulatory effect adding new Note filed 2-27-96 pursuant to section 100, title 1, California Code of Regulations (Register 96, No. 9).

§2360.3. Lowest Premium.

Note • History

An insurer shall charge each insured the lowest Premium for which the insured qualifies. At each policy renewal the insurer shall adjust the Premium charged to the insured, as necessary, to reflect the lowest Premium for which the insured qualifies at that time.

NOTE

Authority cited: Sections 1861.05, 12921, and 12926, Insurance Code. Reference: Sections 1861.05, 1861.135(a), 1861.137(b), 11588, 12120, 12122, and 12713, Insurance Code.

HISTORY

1. New section filed 12-12-95; operative 1-11-96 (Register 95, No. 50).

2. Change without regulatory effect adding new Note filed 2-27-96 pursuant to section 100, title 1, California Code of Regulations (Register 96, No. 9).

§2360.4. Insurer to Determine Lowest Premium.

Note • History

It shall be the responsibility of the insurer to determine the lowest Premium for which an insured qualifies in accordance with this chapter. If the insurer delegates this responsibility to an agent, the insurer shall remain responsible for the agent's determination. This responsibility shall not be delegated to the insured's broker.

NOTE

Authority cited: Sections 1861.05, 12921, and 12926, Insurance Code. Reference: Sections 1861.05, 1861.135(a), 1861.137(b), 11588, 12120, 12122, and 12713, Insurance Code.

HISTORY

1. New section filed 12-12-95; operative 1-11-96 (Register 95, No. 50).

2. Change without regulatory effect adding new Note filed 2-27-96 pursuant to section 100, title 1, California Code of Regulations (Register 96, No. 9).

§2360.5. Rates Charged by Insurers in Insurer Group.

Note • History

Any two or more insurers which are members of an insurer group and which use the same type of Insurance Marketing System and which maintain the same eligibility guidelines for the same or substantially similar insurance, shall place the insured with the company in the group which would charge the insured the lowest Premium. If two or more insurers in the same insurer group use the same type of Insurance Marketing System but apply different rating plans for the same or substantially similar insurance, each insurer shall maintain mutually exclusive eligibility guidelines for the insurance.

NOTE

Authority cited: Sections 1861.05, 12921, and 12926, Insurance Code. Reference: Sections 1861.05, 1861.135(a), 1861.137(b), 11588, 12120, 12122, and 12713, Insurance Code.

HISTORY

1. New section filed 12-12-95; operative 1-11-96 (Register 95, No. 50).

2. Change without regulatory effect adding new Note filed 2-27-96 pursuant to section 100, title 1, California Code of Regulations (Register 96, No. 9).

§2360.6. Documentation Supporting Rates.

Note • History

The insurer shall keep documentation in the underwriting file for every insurance policy issued to every insured, identifying all information which the insurer considered in determining the Premium charged to the insured. This documentation shall be maintained at all times during which a policy is in force and for at least three years from the policy inception date.

NOTE

Authority cited: Sections 1861.05, 12921, and 12926, Insurance Code. Reference: Sections 1857, 1861.05, 1861.135(a), 1861.137(b), 11588, 12120, 12122, and 12713, Insurance Code.

HISTORY

1. New section filed 12-12-95; operative 1-11-96 (Register 95, No. 50).

2. Change without regulatory effect adding new Note filed 2-27-96 pursuant to section 100, title 1, California Code of Regulations (Register 96, No. 9).

§2360.7. Upgrades.

Note • History

Whenever an insurer makes insurance with broadened or enhanced coverage available to new insureds, the insurer shall offer the same broadened or enhanced coverage to all existing insureds which otherwise qualify for the newly broadened or enhanced coverage, and the insurer shall apply the same rating plans to both new and existing insureds in accordance with this chapter. Any change in coverage offered to existing insureds under this section shall be offered no later than the next renewal date.

NOTE

Authority cited: Sections 1861.05, 12921, and 12926, Insurance Code. Reference: Sections 1861.05, 1861.135(a), 1861.137(b), 11588, 12120, 12122, and 12713, Insurance Code.

HISTORY

1. New section filed 12-12-95; operative 1-11-96 (Register 95, No. 50).

2. Change without regulatory effect adding new Note filed 2-27-96 pursuant to section 100, title 1, California Code of Regulations (Register 96, No. 9).

§2361. Consideration of Losses and Loss Exposure in Residential Property Insurance Rating and Underwriting. [Repealed]

Note • History

NOTE

Authority cited: Sections 679.71, 791.02, 791.12, 1857, 1857.2, 1857.3, 1857.7, 1857.9, 1861.05 and 12926, Insurance Code. Reference: Sections 675, 676, Article 6.5, 790 et seq., 791.10(a), 1861.03 and 12926, Insurance Code.

HISTORY

1. New section filed 7-21-2003 as an emergency; operative 7-21-2003 (Register 2003, No. 30). A Certificate of Compliance must be transmitted to OAL by 11-18-2003 or emergency language will be repealed by operation of law on the following day.

2. New section refiled 11-18-2003 as an emergency; operative 11-18-2003 (Register 2003, No. 47). A Certificate of Compliance must be transmitted to OAL by 3-17-2004 or emergency language will be repealed by operation of law on the following day.

3. New section refiled 3-15-2004 as an emergency; operative 3-16-2004 (Register 2004, No. 12). A Certificate of Compliance must be transmitted to OAL by 7-14-2004 or emergency language will be repealed by operation of law on the following day.

4. New section refiled 7-12-2004 as an emergency; operative 7-12-2004 (Register 2004, No. 29). A Certificate of Compliance must be transmitted to OAL by 11-9-2004 or emergency language will be repealed by operation of law on the following day.

5. Repealed by operation of Government Code section 11346.1(g) (Register 2004, No. 47).

6. New section filed 11-19-2004 as an emergency; operative 11-19-2004 (Register 2004, No. 47). A Certificate of Compliance must be transmitted to OAL by 3-21-2005 or emergency language will be repealed by operation of law on the following day.

7. Repealed by operation of Government Code section 11346.1(g) (Register 2005, No. 15).

Article 7.3. Slavery Era Insurance Policies Registry

§2393. Purpose.

Note • History

These regulations establish standards for reporting under the Slavery Era Insurance Policies statute. California Insurance Code Sections 13810, 13811, 13812 and 13813 became effective on January 1, 2001 and require insurers to provide certain information and data to the California Department of Insurance and direct the Department to provide public access to the data.

NOTE

Authority cited: Sections 12921 and 12926, Insurance Code. Reference: Sections 13810, 13811, 13812 and 13813, Insurance Code.

HISTORY

1. New article 7.3 (sections 2393-2398) and section 9-13-2001; operative 10-13-2001 (Register 2001, No. 37).

§2394. Definitions.

Note • History

(a) The term “insurer” means any insurer licensed and doing business in California on or after January 1, 2001.

(b) The term “predecessor corporation” means a corporation in the reporting insurer's family tree that existed prior in time to the reporting corporation.

(c) The term “reporting insurer”, means an insurer which has been designated by its holding company to submit a consolidated report which is responsive to these regulations.

(d) The term “slave” means a person wholly subject to the will of another, having no freedom of action and whose person and services were wholly under the control of another, and who was in a state of enforced compulsory service to another.

(e) The term “slaveholder” means owners of slaves; owners of business enterprises using slaves; owners of slave-carrying vessels or other means of transporting slaves; merchants and/or financiers dealing in the purchase, sale, or financing of the business of slaves and slavery; slave dealers and slave brokers.

(f) The term “slaveholder insurance policies” means policies issued to or for the benefit of slaveholders to insure then against the death of, or injury to, human property.

(g) The term “slavery era” means prior to 1865.

NOTE

Authority cited: Section 12921(a), Insurance Code. Reference: Sections 1215(f), 13810(e), 13811, 13812 and 13813, Insurance Code.

HISTORY

1. New section 9-13-2001; operative 10-13-2001 (Register 2001, No. 37).

§2395. Who Is Required to Submit a Report.

Note • History

(a) Every insurer must report to the Commissioner regarding slaveholder insurance policies that it wrote either directly or through a predecessor corporation during the slavery era.

(b) A consolidated report may be submitted by the reporting insurer's holding company on behalf of all members of the holding company required to file a report. A consolidated report shall designate one insurer as the reporting insurer for purposes of compliance with CCR Title 10, Sections 2393 through 2398 and shall specify which insurers are included in the report. Insurers choosing to file a consolidated report must comply with all other requirements of these regulations.

NOTE

Authority cited: Section 12921(a), Insurance Code. Reference: Sections 13810, 13811, 13812 and 13813, Insurance Code.

HISTORY

1. New section 9-13-2001; operative 10-13-2001 (Register 2001, No. 37).

§2396. Report Format.

Note • History

(a) The report shall be submitted on letterhead of the reporting insurer, dated, signed and verified as provided in California Code of Regulations, Title 10, Sections 2683.22, by an officer of the insurer who has the authority to bind the insurer (this person shall be the contact person for the purpose of implementing these regulations), with paragraphs numbered as follows:

(1) Insurer Identification

This paragraph shall state the name, address, telephone number, fax number, e-mail address, NAIC number and website URL, if any, for the main office of the insurer making the report.

(2) Contact Person

This paragraph shall state the name, address, telephone number, fax number and e-mail address for the insurer's Contact Person as set forth in California Code of Regulations Title 10 Section 2278.3(a).

(3) Research methodology

This section of the report shall contain the following information:

A description of the report shall contain the following information:

A description of the methods employed by the insurer to identify and compile the records and information that are responsive to this regulation. This section shall include a description of the research which was conducted at the insurer's own facility as well as a description of research which was conducted at other facilities known to the insurer, if any. If the insurer has found no data responsive to this statute, it shall so state.

(4) Names of Slaves:

The insurers shall submit information regarding the names of slaves alphabetically as follows: last name, first name, name of slaveholder, beneficiary and/or policyholder, county (or parish), state, any other identifying information. It is the insurers' responsibility to compile the information required herein.

(5) Names of Slaveholders:

The insurers shall submit the information regarding the names of slaveholders alphabetically as follows: last name, first name, county (or parish), state, any other identifying information. It is the insurers' responsibility to compile the information required herein.

(6) Policy information:

The insurer shall provide copies of all records and documents regarding insurance policies issued to slaveholders that provided coverage for damage to or death of slaves. If these records are in any language other than English, the insurer shall provide a copy of the document together with a certified translation.

(b) Reports shall be submitted on paper (an original plus one copy). The sections of the reports outlined in 2396(a)(4) and (a)(5) shall also be submitted in the electronic format approved by the Commissioner. The electronic format (Circular SEIR-2001 rev. 7/20/01) is available on the Department's website at www.insurance.ca.gov. Reports shall be mailed to the Department of Insurance at the address listed below. Faxed reports will not be accepted.

SLAVERY ERA INSURANCE REGISTRY
CALIFORNIA DEPARTMENT OF INSURANCE
45 FREMONT STREET, 21ST FLOOR
SAN FRANCISCO, CALIFORNIA 94105

NOTE

Authority cited: Section 12921(a), Insurance Code. Reference: Sections 13810, 13811, 13812 and 13813, Insurance Code.

HISTORY

1. New section 9-13-2001; operative 10-13-2001 (Register 2001, No. 37).

§2397. Time for Submission.

Note • History

The report shall be received at the Department on or before October 15, 2001. If the Commissioner determines that a report is incomplete, the Commissioner may require additional reports, as necessary, consistent with the requirements of Sections 13810, 13811, 13812 and 13813, Insurance Code and these regulations.

Any insurer that submits a report indicating that it has information responsive to the relevant statute and these regulations which has not been provided, must inform the Department as to the reason that the required information has not been provided and when the required information will be submitted. Insurers that fail to submit all of the information required herein on or before October 15, 2001 must submit progress reports on the first day of every month thereafter until the required information has been submitted. The required information shall be submitted no later than December 14, 2001. The progress reports shall contain an updated research methodology as required in section 2396(a)(3) of these regulations.

NOTE

Authority cited: Section 12921, Insurance Code. Reference: Sections 13810, 13811 and 13812, Insurance Code.

HISTORY

1. New section 9-13-2001; operative 10-13-2001 (Register 2001, No. 37).

§2398. Establishment of the Slavery Era Insurance Policy Registry.

Note • History

Pursuant to California Insurance Code Section 13811, the Department shall establish and report to the Legislature and make available to the public, all information received from insurers pursuant to California Insurance Code Sections 13810, 13811, 13812 and 13813 and these regulations. The lists of names of slaves and names of slaveholders and other slavery era insurance policy information shall be known as the Slavery Era Insurance Policy Registry and shall be accessible to the public at the Department's Public Viewing Rooms in Los Angeles and in San Francisco and/or pursuant to any other means as the Commissioner shall deem appropriate.

NOTE

Authority cited: Section 12921(a), Insurance Code. Reference: Sections 13810, 13811, 13812 and 13813, Insurance Code.

HISTORY

1. New section 9-13-2001; operative 10-13-2001 (Register 2001, No. 37).

Article 7.5. Automobile Insurance Cancellations--Grounds and Appeals [Repealed]

NOTE

Authority cited: Sections 660-664, Insurance Code. Reference: Sections 660-669.5, Insurance Code.

HISTORY

1. Repealer of Article 7.5 (Sections 2370 through 2373) filed 5-6-77 as procedural and organizational; effective upon filing (Register 77, No. 19). For prior history, see Registers 65, No. 17, and 66, No. 1.

Article 8. California Automobile Assigned Risk Plan

§2400. Purpose and Scope. [Repealed]

Note • History

NOTE

Authority cited for §§ 2400 to 2498, inclusive: Section 11620, Insurance code.

HISTORY

1. New §§2400 to 2498, inclusive, filed 12-17-47 designated to be effective 1-19-48 (Register 10, No. 7).

2. Amendment filed 6-24-57; designated effective 8-15-57 (Register 57, No. 10).

3. Amendment filed 3-30-71; designated effective 6-1-71 (Register 71, No. 14).

4. Repealer filed 8-25-2004; operative 9-24-2004 (Register 2004, No. 35).

§2401. Short Title. [Repealed]

History

HISTORY

1. Repealer filed 8-25-2004; operative 9-24-2004 (Register 2004, No. 35).

§2402. Effective Date. [Repealed]

Note • History

NOTE

Authority cited: Section 11620, Insurance Code. Reference: Section 11624, Insurance Code.

HISTORY

1. Amendment filed 3-30-71; designated effective 6-1-71 (Register 71, No. 14).

2. Repealer filed 12-10-86; effective thirtieth day thereafter (Register 86, No. 50).

§2403. Terms Defined. [Repealed]

History

HISTORY

1. Amendment filed 5-10-60; designated effective 7-1-60, and with respect to all policies, both new and renewal, issued pursuant to California Automobile Assigned Risk Plan, with effective dates on or after July 1, 1960 (Register 60, No. 12).

2. Amendment filed 6-28-63; designated effective 8-1-63 (Register 63, No. 11).

3. New subsection (g) filed 5-23-67; designated effective 7-1-67 with respect to all policies with effective dates on and after 7-1-67 (Register 67, No. 21).

4. New subsection (h) filed 6-4-76 as an emergency; effective upon filing. Certificate of Compliance included (Register 76, No. 23).

5. Repealer filed 8-25-2004; operative 9-24-2004 (Register 2004, No. 35).

§2404. To Whom Available. [Repealed]

History

HISTORY

1. Amendment filed 7-29-53; effective thirtieth day thereafter (Register 53, No. 13).

2. Amendment filed 2-15-62; designated effective 4-1-62 (Register 62, No. 3).

3. Amendment filed 3-30-71; designated effective 6-1-71 (Register 71, No. 14).

4. Repealer filed 8-25-2004; operative 9-24-2004 (Register 2004, No. 35).

§2405. Admitted Liability Insurers Shall Participate. [Repealed]

History

HISTORY

1. Amendment filed 3-30-71; designated effective 6-1-71 (Register 71, No. 14).

2. Repealer filed 8-25-2004; operative 9-24-2004 (Register 2004, No. 35).

§2406. Amount of Coverage. [Repealed]

History

HISTORY

1. Amendment filed 10-10-51; effective thirtieth day thereafter (Register 26, No. 1).

2. Amendment filed 5-10-60; designated effective 7-1-60, and with respect to all policies, both new and renewal, issued pursuant to California Automobile Assigned Risk Plan, with effective dates on and after July 1, 1960 (Register 60, No. 12).

3. Amendment filed 12-15-67 as an emergency; designated effective 1-1-68 (Register 67, No. 50).

4. Amendment filed 3-30-71; designated effective 6-1-71 (Register 71, No. 14).

5. Repealer filed 8-25-2004; operative 9-24-2004 (Register 2004, No. 35).

§2407. Standard Coverage to Be Afforded. [Repealed]

Note • History

NOTE

Authority cited: Section 11624(d), Insurance Code. Reference: Sections 11622 and 11624, Insurance Code.

HISTORY

1. Amendment filed 3-30-71; designated effective 6-1-71 (Register 71, No. 14).

2. Amendment filed 10-4-74; designated effective 12-1-74 (Register 74, No. 40).

3. Amendment filed 11-7-78; designated effective 1-1-79 with respect to new policies effective on or after 1-1-79 and designated effective 2-1-79 with respect to renewal policies for periods commencing on or after 2-1-79 (Register 78, No. 45).

4. Amendment of subsection (b) filed 10-18-79; designated effective 1-1-80 (Register 79, No. 42).

5. Amendment filed 5-21-81; effective thirtieth day thereafter (Register 81, No. 21).

6. Amendment filed 4-26-84; effective thirtieth day thereafter (Register 84, No. 17).

7. Repealer filed 8-25-2004; operative 9-24-2004 (Register 2004, No. 35).

§2408. Uninsured Motorist Protection. [Repealed]

History

HISTORY

1. New section filed 5-23-67; designated effective 7-1-67 with respect to all policies with effective dates on and after 7-1-67 (Register 67, No. 21).

2. Repealer filed 8-25-2004; operative 9-24-2004 (Register 2004, No. 35).

§2420. Governing Committee and Manager: Location of Offices. [Repealed]

History

HISTORY

1. Amendment filed 3-30-71; designated effective 6-1-71 (Register 71, No. 14).

2. Repealer filed 8-25-2004; operative 9-24-2004 (Register 2004, No. 35).

§2421. Governing Committee: Membership and Groups Represented. [Repealed]

Note • History

NOTE

Authority cited: Section 11620, Insurance Code. Reference: Sections 11623 and 11624, Insurance Code.

HISTORY

1. Amendment filed 10-4-74; designated effective 12-1-74 (Register 74, No. 40). For prior history, see Register 72, No. 14.

2. Amendment filed 11-7-78; designated effective 1-1-79 with respect to new policies effective on or after 1-1-79 and designated effective 2-1-79 with respect to renewal policies for periods commencing on or after 2-1-79 (Register 78, No. 45).

3. Amendment of subsection (d) filed 6-29-82; designated effective 8-1-82 (Register 82, No. 27).

4. Amendment filed 12-10-86; effective thirtieth day thereafter (Register 86, No. 50).

5. Repealer filed 8-25-2004; operative 9-24-2004 (Register 2004, No. 35).

§2421.1. Same. Election of Members. [Repealed]

History

HISTORY

1. New subsection (d) filed 2-15-62; designated effective 4-1-62 (Register 62, No. 3).

2. Repealer filed 3-30-71; designated effective 6-1-71 (Register 71, No. 14).

§2421.1a. Meetings, Time and General Purposes. [Repealed]

History

HISTORY

1. Amendment filed 3-30-71; designated effective 6-1-71 (Register 71, No. 14).

2. Repealer filed 8-25-2004; operative 9-24-2004 (Register 2004, No. 35).

§2421.2. Selection of Manager; Determination of Employees' Compensation. [Repealed]

History

HISTORY

1. Repealer filed 8-25-2004; operative 9-24-2004 (Register 2004, No. 35).

§2421.3. Same: Authority; Records. [Repealed]

History

HISTORY

1. Repealer filed 8-25-2004; operative 9-24-2004 (Register 2004, No. 35).

§2421.4. Budget; Assessments; Funds. [Repealed]

History

HISTORY

1. Repealer filed 8-25-2004; operative 9-24-2004 (Register 2004, No. 35).

§2421.5. Disbursements. [Repealed]

History

HISTORY

1. Repealer filed 8-25-2004; operative 9-24-2004 (Register 2004, No. 35).

§2421.6. Designation of Disbursing Agents; Surety Bond Requirements. [Repealed]

History

HISTORY

1. Repealer filed 8-25-2004; operative 9-24-2004 (Register 2004, No. 35).

§2421.7. Records and Reports. [Repealed]

History

HISTORY

1. Repealer filed 3-30-72; designated effective 5-1-72 (Register 72, No. 14).

§2421.8. Faithful Performance of Duties. [Repealed]

History

HISTORY

1. Repealer filed 8-25-2004; operative 9-24-2004 (Register 2004, No. 35).

§2421.9. Amendments to Plan. [Repealed]

History

HISTORY

1. Repealer filed 8-25-2004; operative 9-24-2004 (Register 2004, No. 35).

§2421.10. Annual Review of Surcharges. [Repealed]

History

HISTORY

1. New section filed 5-10-60; designated effective July 1, 1960, and with respect to all policies, both new and renewal, issued pursuant to California Automobile Assigned Risk Plan, with effective dates on and after July 1, 1960 (Register 60, No. 12).

2. Amendment filed 5-23-67; designated effective 7-1-67 with respect to all policies with effective dates on and after 7-1-67 (Register 67, No. 21).

3. Repealer filed 8-25-2004; operative 9-24-2004 (Register 2004, No. 35).

§2422. Manager: Appointment and Duties. [Repealed]

History

HISTORY

1. Repealer filed 8-25-2004; operative 9-24-2004 (Register 2004, No. 35).

§2430. To Whom Restricted: Applicant's Eligibility. [Repealed]

Note • History

NOTE

Authority cited: Section 11620, Insurance Code. Reference Sections 11620-11627, Insurance Code.

HISTORY

1. Repealer of subsection (c) filed 7-1-77; designated effective 8-1-77 with respect to all policies, both new and renewal, with effective dates on or after 8-1-77 (Register 77, No. 27). For prior history, see Register 76, No. 23.

2. Repealer filed 8-25-2004; operative 9-24-2004 (Register 2004, No. 35).

§2431. Eligibility: Exclusion of Named Driver. [Repealed]

History

HISTORY

1. New section filed 7-1-77; designated effective 8-1-77 with respect to all policies, both new and renewal, with effective dates on or after 8-1-77 (Register 77, No. 27). For former section see Register 71, No. 14.

2. Repealer filed 8-25-2004; operative 9-24-2004 (Register 2004, No. 35).

§2431.1. Producer Certification and Decertification. [Repealed]

Note • History

NOTE

Authority cited: Sections 11620, 11623 and 11624, California Insurance Code. Reference: Sections 11622.5, 11623 and 11624, California Insurance Code.

HISTORY

1. Amendment filed 6-24-57; designated effective 8-1-57 (Register 57, No. 10).

2. Amendment filed 5-10-60; designated effective 7-1-60 (Register 60, No. 12).

3. Repealer filed 6-28-63; designated effective 8-1-63 (Register 63, No. 11).

4. New section filed 11-28-95; operative 12-28-95 (Register 95, No. 48). For prior histories of sections 2431.1 and 2431.2, see Register 63, No. 11; for prior histories of sections 2431.1a, 2431.2a, 2431.3, 2431.3a, 2431.4, 2431.4a, 2431.5, 2431.5a, 2431.6, 2431.6a, 2431.7, 2431.8, 2431.8a, 2431.9, 2431.10 and 2431.11, see Register 71, No. 14; for prior history of section 2431.7a see Register 60, No. 12.

5. Repealer filed 8-25-2004; operative 9-24-2004 (Register 2004, No. 35).

§2431.2. Producer Performance Standards. [Repealed]

Note • History

NOTE

Authority cited: Sections 11620, 11623 and 11624, California Insurance Code. Reference: Sections 11622.5, 11623 and 11624, California Insurance Code.

HISTORY

1. New section filed 11-28-95; operative 12-28-95 (Register 95, No. 48). For prior history see Register 63, No. 11.

2. Repealer filed 8-25-2004; operative 9-24-2004 (Register 2004, No. 35).

§2431.3. Insurer Performance Standards. [Repealed]

Note • History

NOTE

Authority cited: Sections 11620, 11623 and 11624, California Insurance Code. Reference: Sections 11624.1, 11624.2, 11624.3, 11624.4 and 11624.7, California Insurance Code.

HISTORY

1. New section and forms filed 11-28-95; operative 12-28-95 (Register 95, No. 48). For prior history see Register 71, No. 14.

2. Repealer of section and forms filed 8-25-2004; operative 9-24-2004 (Register 2004, No. 35).

§2432. Commercial Automobile Insurance Procedure. [Repealed]

Note • History

NOTE

Authority cited: Section 11624(d), Insurance Code. Reference: Sections 11622 and 11624, Insurance Code.

HISTORY

1. New section filed 11-7-78; designated effective 1-1-79 with respect to new policies effective on or after 1-1-79 and designated effective 2-1-79 with respect to renewal policies for periods commencing on or after 2-1-79 (Register 78, No. 45). For history of former Section 2432, see Register 71, No. 14 and 57, No. 10.

2. Repealer and new section filed 4-26-84; effective 30th day thereafter (Register 84, No. 17).

3. Repealer filed 8-25-2004; operative 9-24-2004 (Register 2004, No. 35).

§2433. Performance Standards for Servicing Carriers. [Repealed]

Note • History

NOTE

Authority cited: Section 11620, Government Code. Reference: Sections 11620-11627, Government Code.

HISTORY

2. Repealer filed 4-26-84; effective thirtieth day thereafter (Register 84, No. 17).

§2434. Duties and Responsibilities of Servicing Carriers and Central Processor. [Repealed]

Note • History

NOTE

Authority cited: Section 11620, Government Code. Reference: Sections 11620-11627, Government Code.

HISTORY

2. Repealer filed 4-26-84; effective thirtieth day thereafter (Register 84, No. 17).

§2435. Special Risk Distribution Procedure. [Repealed]

Note • History

NOTE

Authority cited: Section 11620, California Insurance Code. Reference: Sections 11620-11627, California Insurance Code.

HISTORY

2. Amendment of subsection (h)(11) filed 2-5-79; designated effective 4-1-79 (Register 79, No. 6).

3. Order filed 3-8-79 redesignating effective date of previous amendment of subsection (h). New designated effective date is 7-1-79 with respect to new policies effective on or after 7-1-79; new designated effective date is 9-1-79 with respect to renewal policies for periods commencing on or after 9-1-79 (Register 79, No. 10).

4. Amendment of subsection (h)(11) filed 6-25-79 as an emergency; effective upon filing. Certificate of Compliance included (Register 79, No. 26).

5. Amendment of subsection (h)(11) filed 10-18-79; designated effective 1-1-80 (Register 79, No. 42).

6. Repealer filed 4-26-84; effective thirtieth day thereafter (Register 84, No. 17).

§2436. Epilepsy; Individual Consideration. [Repealed]

History

HISTORY

1. Amendment filed 6-24-57; designated effective 8-1-57 (Register 57, No. 10).

2. Repealer filed 3-30-71; designated effective 6-1-71 (Register 71, No. 14).

§2437. Loss or Loss of Use of Two Legs, Two Arms or Arm and Leg. [Repealed]

History

HISTORY

1. Repealer filed 3-30-71; designated effective 6-1-71 (Register 71, No. 14).

§2438. Applicant Ineligible Because of Operation by Another May Agree to Limited Coverage. [Repealed]

History

HISTORY

1. Amendment filed 2-17-65; by amendment filed 3-2-65 designated effective 3-23-65 (Register 65, No. 3).

2. Amendment filed 5-23-67; designated effective 7-1-67 with respect to all policies with effective dates on and after 7-1-67 (Register 67, No. 21).

3. Repealer filed 3-30-71; designated effective 6-1-71 (Register 71, No. 14).

§2439. Eligibility: Finding of Juvenile Court. [Repealed]

History

HISTORY

1. New section filed 2-15-62; designated effective 4-1-62 (Register 62, No. 3).

2. Amendment filed 6-28-63; designated effective 8-1-63 (Register 63, No. 11).

3. Repealer filed 3-30-71; designated effective 6-1-71 (Register 71, No. 14).

§2440. Who May Apply. [Repealed]

History

HISTORY

1. Amendment filed 6-24-57; designated effective 8-1-57 (Register 57, No. 10).

2. Repealer filed 3-30-71; designated effective 6-1-71 (Register 71, No. 14).

§2441. Application: Signature and Submission. [Repealed]

History

HISTORY

1. Repealer filed 8-25-2004; operative 9-24-2004 (Register 2004, No. 35).

§2442. Filing Application: Required Contents. [Repealed]

Note • History

NOTE

Authority cited: Section 11620, Insurance Code. Reference: Sections 11620-11627, Insurance Code.

HISTORY

1. Amendment filed 2-17-65; by amendment filed 3-2-65 designated effective 3-23-65 (Register 65, No. 3). For prior history, see Register 61, No. 1.

2. Amendment filed 5-23-67; designated effective 7-1-67 with respect to all policies with effective dates on and after 7-1-67 (Register 67, No. 21).

3. Amendment filed 3-30-71; designated effective 6-1-71 (Register 71, No. 14).

4. Amendment of subsection (c) filed 10-4-74; designated effective 12-1-74 (Register 74, No. 40).

5. New subsections (e) and (f) filed 12-10-86; effective thirtieth day thereafter (Register 86, No. 50).

6. Repealer filed 8-25-2004; operative 9-24-2004 (Register 2004, No. 35).

§2443. Filing Fee. [Repealed]

Note • History

NOTE

Authority cited: Section 11620, Insurance Code. Reference: Section 11624, Insurance Code.

HISTORY

1. Amendment of subsection (b) filed 6-29-82; designated effective 8-1-82 (Register 82, No. 27). For prior history, see Register 81, No. 21.

2. Amendment of subsection (a), repealer of subsection (b) and relettering of subsections (c)-(e) to subsections (b)-(d) filed 12-10-86; effective thirtieth day thereafter (Register 86, No. 50).

3. Repealer filed 8-25-2004; operative 9-24-2004 (Register 2004, No. 35).

§2443.1. Installment Premium Payment Option. [Repealed]

Note • History

NOTE

Authority cited: Section 11620, Insurance Code. Reference: Section 11624, Insurance Code.

HISTORY

1. New section filed 10-4-74; designated effective 12-1-74 (Register 74, No. 40).

2. Amendment filed 11-7-75; effective thirtieth day thereafter (Register 75, No. 45).

3. Amendment of subsection (a) filed 6-4-76 as an emergency; effective upon filing. Certificate of Compliance included (Register 76, No. 23).

4. Amendment of subsection (a)(7) filed 5-21-81; effective thirtieth day thereafter (Register 81, No. 21).

5. Amendment of subsection (a)(1) filed 6-29-82; designated effective 8-1-82 (Register 82, No. 27).

6. Amendment of subsection (a) filed 12-10-86; effective thirtieth day thereafter (Register 86, No. 50).

7. Repealer filed 8-25-2004; operative 9-24-2004 (Register 2004, No. 35).

§2444. Designation of Insurer and Assignment of Risk. [Repealed]

Note • History

NOTE

Authority cited: Section 11620, Government Code. Reference: Section 11624, Government Code.

HISTORY

1. Amendment filed 5-23-67; designated effective 7-1-67 with respect to all policies with effective dates on and after 7-1-67 (Register 67, No. 21).

3. Amendment filed 5-21-81; effective thirtieth day thereafter (Register 81, No. 21).

4. Amendment of subsection (c) filed 6-29-82; designated effective 8-1-82 (Register 82, No. 27).

5. Amendment of subsection (b)(2) filed 12-10-86; effective thirtieth day thereafter (Register 86, No. 50).

6. Repealer filed 8-25-2004; operative 9-24-2004 (Register 2004, No. 35).

§2444.5. Original Application and Fee to Be Sent Insurer. [Repealed]

Note • History

NOTE

Authority cited: Section 11620, Insurance Code. Reference: Sections 11620-11627, Insurance Code.

HISTORY

1. Amendment filed 5-23-67; designated effective 7-1-67 with respect to all policies with effective dates on and after 7-1-67 (Register 64, No. 21).

2. Amendment filed 10-4-74; designated effective 12-1-74 (Register 74, No. 40).

3. Amendment filed 11-7-75; effective thirtieth day thereafter (Register 75, No. 45).

4. Repealer filed 8-25-2004; operative 9-24-2004 (Register 2004, No. 35).

§2444.6. Completion of SR 22 Filings by Plan. [Repealed]

Note • History

NOTE

Authority cited: Section 11620, Insurance Code. Reference: Sections 11621, 11622, 11624, Insurance Code.

HISTORY

1. New section filed 10-4-74; designated effective 12-1-74 (Register 74, No. 40).

2. Amendment filed 5-21-81; effective thirtieth day thereafter (Register 81, No. 21).

3. Repealer filed 8-25-2004; operative 9-24-2004 (Register 2004, No. 35).

§2445. Ratio of Insurer's Premiums to Total Premiums. [Repealed]

Note • History

NOTE

Authority cited: Section 11620, Insurance Code. Reference: Sections 11621, 11622 and 11624, Insurance Code.

HISTORY

1. Amendment filed 5-23-67; designated effective 7-1-67 with respect to all policies with effective dates on and after 7-1-67 (Register 67, No. 21).

2. Amendment filed 7-1-77; designated effective 8-1-77 with respect to all policies, both new and renewal, with effective dates on or after 8-1-77 (Register 77, No. 27).

3. Repealer of subsection (b) filed 5-21-81; effective thirtieth day thereafter (Register 81, No. 21).

4. Repealer filed 8-25-2004; operative 9-24-2004 (Register 2004, No. 35).

§2445.1. Scope of Operations and Underwriting Policy of Insurer. [Repealed]

Note • History

NOTE

Authority cited: Section 11620, Insurance Code. Reference: Sections 11621, 11622, and 11624, Insurance Code.

HISTORY

1. Amendment filed 6-24-57; designated effective 8-1-57 (Register 57, No. 10).

2. Amendment filed 10-4-74; designated effective 12-1-74 (Register 74, No. 40).

3. Amendment filed 5-21-81; effective thirtieth day thereafter (Register 81, No. 21).

4. Repealer filed 8-25-2004; operative 9-24-2004 (Register 2004, No. 35).

§2445.1a. Motor Club Insurers Preferred on Member's Application. [Repealed]

History

HISTORY

1. Repealer filed 3-30-71; designated effective 6-1-71 (Register 71, No. 14).

§2446. Each Vehicle Separately Counted. [Repealed]

Note • History

NOTE

Authority cited: Section 11620, Insurance Code. Reference: Sections 11621, 11622 and 11624, Insurance Code.

HISTORY

1. Amendment filed 5-23-67; designated effective 7-1-67 with respect to all policies with effective dates on and after 7-1-67 (Register 67, No. 21).

2. Repealer filed 5-21-81; effective thirtieth day thereafter (Register 81, No. 21).

§2446.1. Double Credit for Insurance Required Under Section 2406(b). [Repealed]

History

HISTORY

1. New section filed 10-10-51; effective thirtieth day thereafter (Register 26, No. 1).

2. Amendment filed 5-23-67; designated effective 7-1-67 with respect to all policies with effective dates on and after 7-1-67 (Register 67, No. 21).

3. Repealer filed 3-30-72; designated effective 5-1-72 (Register 72, No. 14).

§2447. Each Renewal Counted. [Repealed]

History

HISTORY

1. Amendment filed 5-23-67; designated effective 7-1-67 with respect to all policies with effective dates on and after 7-1-67 (Register 67, No. 21).

2. Amendment filed 3-30-72; designated effective 5-1-72 (Register 72, No. 14).

3. Repealer filed 8-25-2004; operative 9-24-2004 (Register 2004, No. 35).

§2448. Basis for Determining Insurer's Proportion. [Repealed]

History

HISTORY

1. Amendment filed 5-23-67; designated effective 7-1-67 with respect to all policies with effective dates on and after 7-1-67 (Register 67, No. 21).

2. Amendment filed 3-30-71; designated effective 6-1-71 (Register 71, No. 14).

3. Amendment filed 3-30-72; designated effective 5-1-72 (Register 72, No. 14).

4. Amendment filed 6-4-76 as an emergency; effective upon filing. Certificate of Compliance included (Register 76, No. 23).

5. Amendment of subsection (b) filed 12-10-86; effective thirtieth day thereafter (Register 86, No. 50).

6. Repealer filed 8-25-2004; operative 9-24-2004 (Register 2004, No. 35).

§2448.1. Reimbursement of Unearned Premium Upon Insolvency of Insurer. [Repealed]

Note • History

NOTE

Authority cited: Section 11620, Insurance Code. Reference: Sections 11621, 11622 and 11624, Insurance Code.

HISTORY

1. New section filed 11-7-75; effective thirtieth day thereafter (Register 75, No. 45).

2. Repealer filed 6-29-82; designated effective 8-1-82 (Register 82, No. 27).

§2449. Insurers Not Subject to Assignment. [Repealed]

History

HISTORY

1. Repealer filed 8-25-2004; operative 9-24-2004 (Register 2004, No. 35).

§2449.1. Notification to Commissioner of Resumption of Bodily Injury and Property Damage Business. [Repealed]

History

HISTORY

1. Repealer filed 8-25-2004; operative 9-24-2004 (Register 2004, No. 35).

§2449.1a. Notification by Commissioner to Manager. [Repealed]

History

HISTORY

1. Repealer filed 8-25-2004; operative 9-24-2004 (Register 2004, No. 35).

§2449.2. Assumption of Obligations by Reinsurers. [Repealed]

Note • History

NOTE

Authority cited: Section 11620, Insurance Code.

HISTORY

1. New section filed 6-28-63; designated effective 8-1-63 (Register 63, No. 11).

2. Repealer filed 8-25-2004; operative 9-24-2004 (Register 2004, No. 35).

§2450. Notice by Insurer of Acceptance or Rejection of Assignment. [Repealed]

Note • History

NOTE

Authority cited: Section 11620, Insurance Code. Reference: Sections 11620-11627, Insurance Code.

HISTORY

1. Amendment to subsection (a)(4) filed 3-30-72; designated effective 5-1-72 (Register 71, No. 14). For prior history, see Register 71, No. 14.

2. Amendment filed 10-4-74; designated effective 12-1-74 (Register 74, No. 40).

3. Amendment filed 12-10-86; effective thirtieth day thereafter (Register 86, No. 50).

4. Repealer filed 8-25-2004; operative 9-24-2004 (Register 2004, No. 35).

§2450.1. Review by Manager After Rejection; Findings; Notification. [Repealed]

Note • History

NOTE

Authority cited: Section 11620, Insurance Code. Reference: Sections 11621, 11622 and 11624, Insurance Code.

HISTORY

1. New section filed 12-17-47; designated to be effective 1-19-48 (Register 14, No. 7).

2. Amendment filed 3-9-50; designated to be effective 4-15-50 (Register 19, No. 5).

3. Amendment filed 6-24-57; designated effective 8-1-57 (Register 57, No. 10).

4. Amendment filed 5-10-60; designated effective 7-1-60, and with respect to all policies both new and renewal, issued pursuant to California Automobile Assigned Risk Plan with effective dates on and after 7-1-60 (Register 60, No. 12).

5. Amendment filed 5-21-81; effective thirtieth day thereafter (Register 81, No. 21).

6. Repealer filed 12-10-86; effective thirtieth day thereafter (Register 86, No. 50).

§2450.2. Cancellation by Insurer upon Finding of Ineligibility by Manager. [Repealed]

Note • History

NOTE

Authority cited: Section 11620, Insurance Code. Reference: Section 11624(d), Insurance Code.

HISTORY

1. New section filed 5-23-67; designated effective 7-1-67 with respect to all policies with effective dates on and after 7-1-67 (Register 67, No. 21).

2. Amendment filed 7-1-77; designated effective 8-1-77 with respect to all policies, both new and renewal, with effective dates on or after 8-1-77 (Register 77, No. 27).

3. Repealer filed 12-10-86; effective thirtieth day thereafter (Register 86, No. 50).

§2450.3. Acceptance Required After Finding of Eligibility. [Repealed]

Note • History

NOTE

Authority cited: Section 11620, Insurance Code. Reference: Section 11624(d), Insurance Code.

HISTORY

1. Amendment filed 6-24-57; designated effective 8-1-57 (Register 57, No. 10).

2. Amendment filed 5-23-67; designated effective 7-1-67 with respect to all policies with effective dates on and after 7-1-67 (Register 67, No. 21).

3. Repealer filed 12-10-86; effective thirtieth day thereafter (Register 86, No. 50).

§2450.5. Statement of Charges; Method of Payment. [Repealed]

History

HISTORY

1. Amendment filed 1-3-61; designated effective 3-1-61, and with respect to all policies, both new and renewal, issued pursuant to the California Automobile Assigned Risk Plan, with effective dates on and after 3-1-61 (Register 61, No. 1).

. 2. Amendment filed 3-30-71; designated effective 6-1-71 (Register 71, No. 14).

3. Repealer filed 8-25-2004; operative 9-24-2004 (Register 2004, No. 35).

§2451. Issuance of Policy; Filing of Certificates. [Repealed]

History

HISTORY

1. Repealer filed 5-23-67; designated effective 7-1-67 (Register 67, No. 21).

§2452. Notice to Manager of Issuance of Policy. [Repealed]

History

HISTORY

1. Repealer filed 5-23-67; designated effective 7-1-67 (Register 67, No. 21).

§2453. Notice of Failure to Pay Premium. [Repealed]

History

HISTORY

1. Amendment filed -10-60; designated effective 7-1-60, and with respect to all policies both new and renewal, issued pursuant to California Automobile Assigned Risk Plan, with effective dates on and after 7-1-60 (Register 60, No. 12).

2. Amendment filed 6-28-63; designated effective 8-1-63 (Register 63, No. 11).

3. Amendment filed 5-23-67; designated effective 7-1-67 with respect to all policies with effective dates on and after 7-1-67 (Register 67, No. 21).

4. Amendment filed 3-30-72; designated effective 5-1-72 (Register 72, No. 14).

5. Repealer filed 8-25-2004; operative 9-24-2004 (Register 2004, No. 35).

§2454. Agreements Between Insurers Re Performance of Obligation. [Repealed]

History

HISTORY

1. New section filed 2-15-62; designated effective (Register 62, No. 3).

2. Repealer filed 8-25-2004; operative 9-24-2004 (Register 2004, No. 35).

§2460. Rates for Assigned Risks. [Repealed]

Note • History

NOTE

Authority cited: Section 11620, Insurance Code. Reference: Sections 11620-11627, Insurance Code.

HISTORY

1. Amendment of subsection (a) filed 7-1-77; designated effective 8-1-77 with respect to all policies, both new and renewal, with effective dates on or after 8-1-77 (Register 77, No. 27). For prior history, see Register 76, No. 23.

2. Repealer and new section filed 11-7-78; designated effective 1-1-79 with respect to new policies effective on or after 1-1-79 and designated effective 2-1-79 with respect to renewal policies for periods commencing on or after 2-1-79 (Register 78, No. 45).

3. Amendment filed 2-5-79; designated effective 4-1-79 (Register 78, No. 45).

4. Order filed 3-8-79 redesignating effective date of previous amendment (filed 2-5-79). New designated effective date is 7-1-79 with respect to new policies effective on or after 7-1-79; new designated effective date is 9-1-79 with respect to renewal policies for periods commencing on or after 9-1-79 (Register 79, No. 10).

5. Amendment filed 6-25-79 as an emergency; effective upon filing. Certificate of Compliance included (Register 79, No. 26).

6. Amendment filed 10-18-79; designated effective 1-1-80 (Register 79, No. 42).

7. Repealer filed 8-25-2004; operative 9-24-2004 (Register 2004, No. 35).

§2460.1. Maximum Basic Surcharge. [Repealed]

Note • History

NOTE

Authority cited: Section 11620, Insurance Code. Reference: Sections 11620-11627, Insurance Code.

HISTORY

1. Amendment filed 6-4-76 as an emergency; effective upon filing. Certificate of Compliance included (Register 76, No. 23). For prior history, see Register 72, No. 14.

2. Repealer filed 2-5-79; designated effective 4-1-79 (Register 79, No. 6).

3. Order filed 3-8-79 redesignating effective date of previous repealer (filed 2-5-79). New designated effective date is 7-1-79 with respect to new policies effective on or after 7-1-79; new designated effective date is 9-1-79 with respect to renewal policies for periods commencing on or after 9-1-79 (Register 79, No. 10).

4. New section filed 6-25-79 as an emergency; effective upon filing. Certificate of Compliance included (Register 79, No. 26).

5. Repealer filed 10-18-79; designated effective 1-1-80 (Register 79, No. 42).

§2460.2. Uninsured Motorist Coverage Rates. [Repealed]

History

HISTORY

1. Amendment filed 2-17-65; by amendment filed 3-2-65 designated effective 3-23-65 (Register 65, No. 3). For prior history, see Register 61, No. 1.

. 2.Repealer and new section filed 5-23-67; designated effective 7-1-76 with respect to all policies with effective dates on and after 7-1-67 (Register 67, No. 21).

3. Amendment filed 11-7-75; effective thirtieth day thereafter (Register 75, No. 45).

4. Repealer filed 10-18-79; designated effective 1-1-80 (Register 79, No. 42).

§2460.3. Merit/Demerit Rating Plan. [Repealed]

Note • History

NOTE

Authority cited: Section 11620, Government Code. Reference: Section 11624, Government Code.

HISTORY

1. Repealer and new section filed 11-7-78; designated effective 1-1-79 with respect to new policies effective on or after 1-1-79 and designated effective 2-1-79 with respect to renewal policies for periods commencing on or after 2-1-79 (Register 78, No. 45). For history of former Section 2460.3, see Registers 75, No. 45; 72, No. 14; 71, No. 14; 65, No. 3; 61, No. 1.

2. Amendment of subsections (b), (d), (e) and (g) filed 6-29-82; designated effective 8-1-82 (Register 82, No. 27).

3. Amendment of subsection (g) filed 12-10-86; effective thirtieth day thereafter (Register 86, No. 50).

4. Repealer filed 8-25-2004; operative 9-24-2004 (Register 2004, No. 35).

§2460.4. Additional Surcharge, Accidents, Specific Offenses. [Repealed]

Note • History

NOTE

Authority cited: Section 11620, Government Code. Reference: Sections 11620-11627, Government Code.

HISTORY

1. Amendment filed 2-17-65; by amendment filed 3-2-65 designated effective as to new policies on 3-23-65, and as to renewal policies on 5-10-65. Certificate of Compliance included (Register 65, No. 3). For prior history see Register 61, No. 1.

2. Amendment filed 5-23-67; designated effective 7-1-67 with respect to all policies with effective dates on and after 7-1-67 (Register 67, No. 21).

3. Amendment filed 3-30-71; designated effective 6-1-71 (Register 71, No. 14).

4. New subsection (c) filed 11-7-75; effective thirtieth day thereafter (Register 75, No. 45).

5. Repealer filed 11-7-78; designated effective 1-1-79 with respect to new policies effective on or after 1-1-79 and designated effective 2-1-79 with respect to renewal policies for periods commencing on or after 2-1-79 (Register 78, No. 45).

§2460.5. All Other Certificated Risks. [Repealed]

Note • History

NOTE

Authority cited: Section 11620, Insurance Code. Reference: Sections 11621, 11622 and 11624, Insurance Code.

HISTORY

1. New section filed 11-7-75; effective thirtieth day thereafter (Register 75, No. 45).

2. Amendment of subsection (a) filed 11-7-78; designated effective 1-1-79 with respect to new policies effective on or after 1-1-79 and designated effective 2-1-79 with respect to renewal policies for periods commencing on or after 2-1-79 (Register 78, No. 45).

3. Amendment of subsections (a) and (c)(1) filed 5-21-81; effective thirtieth day thereafter (Register 81, No. 21).

4. Repealer filed 8-25-2004; operative 9-24-2004 (Register 2004, No. 35).

§2461. Increased Charge for Greater Hazard Subject to Committee Approval. [Repealed]

History

HISTORY

1. Amendment filed 5-10-60; designated effective 7-1-60, and with respect to all policies both new and renewal, issued pursuant to California Automobile Assigned Risk Plan, with effective dates on and after 7-1-60 (Register 60, No. 12).

2. Repealer filed 8-25-2004; operative 9-24-2004 (Register 2004, No. 35).

§2462. Rates Fixed: Special Arrangements Subject to Committee Approval. [Repealed]

Note • History

NOTE

Authority cited: Section 11620, Insurance Code. Reference: Sections 11621, 1162 and 11624, Insurance Code.

HISTORY

2. Amendment filed 5-23-67; designated effective 7-1-67 with respect to all policies with effective dates on and after 7-1-67 (Register 67, No. 21).

3. Amendment filed 6-4-76 as an emergency; effective upon filing. Certificate of Compliance included (Register 76, No. 23).

4. Amendment filed 11-7-78; designated effective 1-1-79 with respect to new policies effective on or after 1-1-79 and designated effective 2-1-79 with respect to renewal policies for periods commencing on or after 2-1-79 (Register 78, No. 45).

5. Amendment of subsection (a)(1) filed 10-18-79; designated effective 1-1-80 (Register 79, No. 42).

6. Amendment of subsection (b) filed 5-21-81; effective thirtieth day thereafter (Register 81, No. 21).

7. Amendment filed 8-19-82; effective upon filing pursuant to Government Code Section 11346.2(d) (Register 82, No. 34).

8. Amendment of subsection (a)(2) filed 12-10-86; effective thirtieth day thereafter (Register 86, No. 50).

9. Repealer filed 8-25-2004; operative 9-24-2004 (Register 2004, No. 35).

§2463. Limited Payment to Licensed Agent. [Repealed]

History

HISTORY

1. Repealer filed 6-24-57; designated effective 8-1-57 (Register 57, No. 10).

§2470. Grounds; Statement of Grounds and Approval of Manager Required. [Repealed]

History

HISTORY

1. Amendment filed 6-24-57; designated effective 8-1-57 (Register 57, No. 10).

2. Amendment filed 3-30-71; designated effective 6-1-71 (Register 71, No. 14).

3. Repealer filed 8-25-2004; operative 9-24-2004 (Register 2004, No. 35).

§2471. Cancellation for Default in Payment. [Repealed]

History

HISTORY

2. Amendment filed 11-7-75; effective thirtieth day thereafter (Register 75, No. 45).

3. Repealer filed 8-25-2004; operative 9-24-2004 (Register 2004, No. 35).

§2471.1. Cancellation for Reasons Other Than Non-Payment of Premium. [Repealed]

Note • History

NOTE

Authority cited: Section 11620, California Insurance Code. Reference: Sections 11620-11627, California Insurance Code.

HISTORY

1. New section filed 11-7-75; effective thirtieth day thereafter (Register 75, No. 45).

2. Repealer filed 8-25-2004; operative 9-24-2004 (Register 2004, No. 35).

§2472. Copy of Notice to Producer. [Repealed]

History

HISTORY

1. Amendment filed 5-23-67; designated effective 7-1-67 with respect to all policies with effective dates on and after 7-1-67 (Register 67, No. 21).

2. Repealer filed 8-25-2004; operative 9-24-2004 (Register 2004, No. 35).

§2480. Assignment to Another Insurer. [Repealed]

History

HISTORY

1. Repealer filed 8-25-2004; operative 9-24-2004 (Register 2004, No. 35).

§2481. Voluntary Insurance at Normal Rates. [Repealed]

History

HISTORY

1. Repealer filed 8-25-2004; operative 9-24-2004 (Register 2004, No. 35).

§2482. Renewal and Refusal to Renew; Risk Under Plan Not More Than 24 Months. [Repealed]

Note • History

NOTE

Authority cited: Section 11620, Insurance Code. Reference: Sections 11620-11627, Insurance Code.

HISTORY

1. Amendment filed 6-28-63; designated effective 8-1-63 (Register 63, No. 11). For prior history see Register 62, No. 3.

2. Amendment filed 3-30-71; designated effective 6-1-71 (Register 71, No. 14).

3. Amendment filed 10-4-74; designated effective 12-1-74 (Register 74, No. 40).

5. Repealer filed 8-25-2004; operative 9-24-2004 (Register 2004, No. 35).

§2482.1. Notice of Intention; Statement of Grounds of Refusal. [Repealed]

Note • History

NOTE

Authority cited: Section 11620, Insurance Code. Reference: Sections 11621, 11622 and 11624, Insurance Code.

HISTORY

1. Amendment filed 6-24-57; designated effective 8-1-57 (Register 57, No. 10).

2. Amendment filed 5-10-60; designated effective 7-1-60, and with respect to all policies both new and renewal, issued pursuant to California Automobile Assigned Risk Plan, with effective dates on and after 7-1-60 (Register 60, No. 12).

3. Amendment filed 2-15-62; designated effective 4-1-62 (Register 62, No. 3).

4. Amendment filed 10-4-74; designated effective 12-1-74 (Register 74, No. 40).

5. Amendment filed 5-21-81; effective thirtieth day thereafter (Register 81, No. 21).

6. Repealer filed 8-25-2004; operative 9-24-2004 (Register 2004, No. 35).

§2482.3. Review of Notice of Refusal; Finding. [Repealed]

History

HISTORY

1. Amendment filed 6-24-57; designated effective 8-1-57 (Register 57, No. 10).

2. Repealer filed 8-25-2004; operative 9-24-2004 (Register 2004, No. 35).

§2482.5. Obligation to Renew. [Repealed]

History

HISTORY

1. Amendment filed 6-24-57; designated effective 8-1-57 (Register 57, No. 10).

2. Repealer filed 8-25-2004; operative 9-24-2004 (Register 2004, No. 35).

§2483. to 2483.2, inclusive. [Repealed]

History

HISTORY

1. New §§ 2483 to 2483.2, inclusive, filed 12-17-47 designated to be effective 1-19-48 (Register 10, No. 7).

2. Repealer of §§ 2483 to 2483.2, inclusive, filed 3-9-50 designated to be effective 4-15-50 (Register 19, No. 5).

§2483.3. Three Consecutive Years Limit for Assignments. [Repealed]

History

HISTORY

1. New section filed 3-9-50 designated to be effective 4-15-50 (Register 19, No. 5).

2. Amendment filed 1-25-52; effective thirtieth day thereafter (Register 27, No. 2).

3. Repealer filed 8-25-2004; operative 9-24-2004 (Register 2004, No. 35).

§2483.4. Alternative Courses upon Expiration of Policy. [Repealed]

History

HISTORY

1. New section filed 1-25-52; effective thirtieth day thereafter (Register 27, No. 2).

2. Amendment filed 6-24-57; designated effective 8-1-57 (register 57, No.10).

3. Repealer filed 8-25-2004; operative 9-24-2004 (Register 2004, No. 35).

§2483.5. Notice of Intended Procedure; Time. [Repealed]

History

HISTORY

1. New section filed 1-25-52; effective thirtieth day thereafter (Register 27, No. 2).

2. Amendment filed 6-28-63; designated effective 8-1-63 (Register 63, No. 11).

3. Amendment filed 3-30-72; designated effective 5-1-72 (Register 72, No. 14).

4. Repealer filed 8-25-2004; operative 9-24-2004 (Register 2004, No. 35).

§2483.6. Reapplication. [Repealed]

History

HISTORY

1. New section filed 1-25-52; effective thirtieth day thereafter (Register 27, No. 2).

2. Repealer filed 8-25-2004; operative 9-24-2004 (Register 2004, No. 35).

§2484. and 2485. [Repealed]

History

HISTORY

1. New sections filed 12-17-47 designated to be effective 1-19-48 (Register 10, No. 7).

2. Repealer filed 3-9-50 designated to be effective 4-15-50 (Register 19, No. 5).

§2490. Assessments; Fee. [Repealed]

History

HISTORY

1. Amendment filed 2-17-65; by amendment filed 3-2-65 designated effective 3-23-65. Certificate of Compliance included (Register 65, No. 3).

2. Amendment filed 5-23-67; designated effective 7-1-67 with respect to all policies with effective dates on and after 7-1-67 (Register 67, No. 21).

3. Repealer filed 8-25-2004; operative 9-24-2004 (Register 2004, No. 35).

§2491. Prompt Payment Required. [Repealed]

History

HISTORY

1. Repealer filed 8-25-2004; operative 9-24-2004 (Register 2004, No. 35).

§2492. Records Required. [Repealed]

Note • History

NOTE

Authority cited: Section 11620, Insurance Code. Reference: Sections 11621, 11622 and 11624, Insurance Code.

HISTORY

1. Amendment filed 5-21-81; effective thirtieth day thereafter (Register 81, No. 21).

2. Repealer filed 8-25-2004; operative 9-24-2004 (Register 2004, No. 35).

§2492.1. Annual Report of Assignments, Etc. [Repealed]

Note • History

NOTE

Authority cited: Section 11620, Insurance Code. Reference: Sections 11621, 11622 and 11624, Insurance Code.

HISTORY

1. New section filed 12-17-47 designated to be effective 1-19-48 (Register 10, No. 7).

2. Amendment filed 3-9-50 designated to be effective 4-15-50 (Register 19, No. 5).

3. Amendment filed 5-23-67; designated effective 7-11-67 with respect to all policies with effective dates on and after 7-1-67 (Register 67, No. 21).

4. Amendment filed 3-30-72; designated effective 5-1-72 (Register 72, No. 14).

5. Amendment filed 5-21-81; effective thirtieth day thereafter (Register 81, No. 21).

6. Repealer filed 8-25-2004; operative 9-24-2004 (Register 2004, No. 35).

§2492.3. Annual Report of Premiums and Losses. [Repealed]

History

HISTORY

1. Amendment filed 5-23-67; designated 7-1-67 with respect to all policies with effective dates on and after 7-1-67 (Register 67, No. 21). For prior history, see Register 62, No. 3.

2. Repealer filed 8-25-2004; operative 9-24-2004 (Register 2004, No. 35).

§2492.5. Manager: Reports and Records. [Repealed]

History

HISTORY

1. Editorial correction removing extraneous text to section 2493 (Register 99, No. 7).

2. Repealer filed 8-25-2004; operative 9-24-2004 (Register 2004, No. 35).

§2493. Insurers: Records and Reports. [Repealed]

History

HISTORY

1. Editorial correction restoring section 2493 (Register 99, No. 7).

2. Repealer filed 8-25-2004; operative 9-24-2004 (Register 2004, No. 35).

§2493.2. Reports to Governing Committee. [Repealed]

History

HISTORY

1. New section filed 5-23-67; designated effective 7-1-67 with respect to all policies with effective dates on and after 7-1-67 (Register 67, No. 21).

2. Repealer filed 8-25-2004; operative 9-24-2004 (Register 2004, No. 35).

§2493.4. Reports to Designated Statistical Agency. [Repealed]

History

HISTORY

1. New section filed 5-23-67; designated effective 7-1-67 with respect to all policies with effective dates on and after 7-1-67 (Register 67, No. 21).

2. Repealer filed 8-25-2004; operative 9-24-2004 (Register 2004, No. 35).

§2494. Committee Record of Funds. [Repealed]

History

HISTORY

1. Amendment filed 6-24-57; designated effective 8-1-57 (Register 57, No. 10).

2. Amendment filed 5-23-67; designated effective 7-1-67 with respect to all policies with effective dates on and after 7-1-67 (Register 67, No. 21).

3. Amendment filed 3-30-72; designated effective 5-1-72 (Register 72, No. 14).

4. Repealer filed 8-25-2004; operative 9-24-2004 (Register 2004, No. 35).

§2494.5. Commissioner May Require Other Reports and Records. [Repealed]

History

HISTORY

1. Repealer filed 8-25-2004; operative 9-24-2004 (Register 2004, No. 35).

§2494.6. Rejections; Notice to Department of Motor Vehicles. [Repealed]

History

HISTORY

1. New section filed 6-24-57; designated effective 8-1-57 (Register 57, No. 10).

2. Repealer filed 3-3-71; designated effective 6-1-71 (Register 71, No. 14).

§2494.7. Indemnity. [Repealed]

Note • History

NOTE

Authority cited: Section 11620, Insurance Code.

HISTORY

1. New section filed 3-30-71; designated effective 6-1-71 (Register 71, No. 14).

2. Amendment filed 7-1-77; designated effective 8-1-77 with respect to all policies, both new and renewal, with effective dates on or after 8-1-77 (Register 77, No. 27).

3. Repealer filed 8-25-2004; operative 9-24-2004 (Register 2004, No. 35).

§2495. Parties and Procedure; Disqualified Members to Be Replaced; Committee's Decision Appealable to Commissioner. [Repealed]

History

HISTORY

1. New section filed 12-17-47 designated to be effective 1-19-48 (Register 10, No. 7).

2. Amendment filed 3-9-50 designated to be effective 4-15-50 (Register 19, No. 5).

3. Repealer filed 8-25-2004; operative 9-24-2004 (Register 2004, No. 35).

§2496. Commissioner May Examine Business of Plan; Cost to Be Charged to Plan. [Repealed]

History

HISTORY

1. Repealer filed 8-25-2004; operative 9-24-2004 (Register 2004, No. 35).

§2497. Printed Copies of Forms to Be Available. [Repealed]

Note • History

NOTE

Authority cited: Section 11620, Insurance Code. Reference: Sections 11620-11627, Insurance Code.

HISTORY

1. Amendment filed 10-4-74; designated effective 12-1-74 (Register 74, No. 40).

2. Repealer filed 8-25-2004; operative 9-24-2004 (Register 2004, No. 35).

§2498. Every Liability Insurer Required to Subscribe; Form of Subscription. [Repealed]

Note • History

NOTE

Authority cited: Section 11620, Insurance Code. Reference: Sections 11621, 11622 and 11624, Insurance Code.

HISTORY

1. Amendment filed 7-29-53; designated effective 9-1-53 (Register 53, No. 13).

2. Amendment filed 5-23-67; designated effective 7-1-67 with respect to all policies with effective dates on and after 7-1-67 (Register 67, No. 21).

3. Amendment filed 5-21-81; effective thirtieth day thereafter (Register 81, No. 21).

4. Repealer filed 8-25-2004; operative 9-24-2004 (Register 2004, No. 35).

§2498.1. Supplement of Rules for Private Passenger Automobiles. [Repealed]

Note • History

NOTE

Authority cited: Section 11620, Government Code. Reference: Sections 11621, 11622 and 11624, Government Code.

HISTORY

1. New section filed 7-1-77; designated effective 8-1-77 with respect to all policies, both new and renewal, with effective dates on or after 8-1-77 (Register 77, No. 27). Note: Formerly “California Automobile Assigned Risk Plan Rate Supplement,” part of Section 2498. For prior history, see Register 74, No. 40.

2. Amendment of subsection (b)(4) filed 11-7-78; designated effective 1-1-79 with respect to new policies effective on or after 1-1-79 and designated effective 2-1-79 with respect to renewal policies for periods commencing on or after 2-1-79 (Register 78, No. 45).

3. Amendment of subsection (b)(2) filed 5-21-81; effective thirtieth day thereafter (Register 81, No. 21).

4. Repealer filed 8-25-2004; operative 9-24-2004 (Register 2004, No. 35).

§2498.2. California Territories. [Repealed]

Note • History

NOTE

Authority cited: Section 11620, Insurance Code. Reference: Section 11624, Insurance Code.

HISTORY

1. Repealer and new section filed 11-7-78; designated effective 1-1-79 with respect to new policies effective on or after 1-1-79 and designated effective 2-1-79 with respect to renewal policies for periods commencing on or after 2-1-79 (Register 78, No. 45). For prior history, see Registers 77, No. 27; 74, No. 40.

2. Amendment filed 12-29-78; effective thirtieth day thereafter (Register 79, No. 2).

3. Editorial correction of subsection designations (Register 79, No. 2).

4. Amendment of subsection (a) and (b) filed 5-21-81; effective thirtieth day thereafter (Register 81, No. 21).

5. Amendment filed 6-29-82; designated effective 8-1-82 (Register 82, No. 27).

6. Amendment filed 12-10-86; effective thirtieth day thereafter (Register 86, No. 50).

7. Change without regulatory effect redesignating subsections (a)-(c) as paragraphs 1.-3., amending newly designated paragraphs 1.-2. and amending California Automobile Association Assigned Risk Plan Manual (incorporated by reference) filed 7-3-2003 pursuant to section 100, title 1, California Code of Regulations (Register 2003, No. 27).

8. Repealer filed 8-25-2004; operative 9-24-2004 (Register 2004, No. 35).

§2498.3. Liability Rates for Private Passenger Automobile Risks Other Than Fleets. [Repealed]

Note • History

NOTE

Authority cited: Section 11624(d), Insurance Code. Reference: Sections 11622 and 11624, Insurance Code.

HISTORY

2. Amendment filed 5-21-81; effective thirtieth day thereafter (Register 81, No. 21).

3. Amendment filed 6-29-82; designated effective 8-1-82 (Register 82, No. 27).

4. Amendment filed 4-26-84; effective upon filing pursuant to Government Code Section 11346.2(d) (Register 84, No. 17).

5. Amendment filed 1-31-85; effective upon filing pursuant to Government Code Section 11346.2(d) (Register 85, No. 5).

6. Amendment filed 12-10-86; effective thirtieth day thereafter (Register 86, No. 50).

7. Amendment filed 12-16-87; operative 12-15-87 with respect to new policies; and operative 1-15-88 with respect to renewal policies (Register 87, No. 52).

8. Repealer filed 3-11-99 pursuant to Government Code section 11343.8; operative 7-1-99 (Register 99, No. 11).

§2498.3.1. Mature Driver Improvement Course Discount. [Repealed]

Note • History

NOTE

Authority cited: Section 11624(d), Insurance Code. Reference: Sections 11622 and 11624, Insurance Code.

HISTORY

1. New section not filed with Secretary of State; operative 9-1-87. Submitted to OAL for printing only pursuant to Government Code Section 11343.8 (Register 87, No. 42).

2. Repealer filed 8-25-2004; operative 9-24-2004 (Register 2004, No. 35).

§2498.4. Automobile Liability Insurance Rules and Rates for Named Non-Owner Policies. [Repealed]

History

HISTORY

1. New section filed 7-1-77; designated effective 8-1-77 with respect to all policies, both new and renewal, with effective dates on or after 8-1-77 (Register 77, No. 27).

2. Repealer filed 8-25-2004; operative 9-24-2004 (Register 2004, No. 35).

§2498.4.1. Extended Non-Owned Coverage for Named Individual or Use of Other Automobiles--Broad Form Coverage. [Repealed]

Note • History

NOTE

Authority cited: Section 11620, Insurance Code. Reference: Section 11624(e), Insurance Code.

HISTORY

1. New section filed 7-1-77; designated effective 8-1-77 with respect to all policies, both new and renewal, with effective dates on or after 8-1-77 (Register 77, No. 27).

2. Amendment filed 12-10-86; effective thirtieth day thereafter (Register 86, No. 50).

3. Repealer filed 8-25-2004; operative 9-24-2004 (Register 2004, No. 35).

§2498.4.2. “Emergency” Use of Other Automobiles. [Repealed]

History

HISTORY

1. New section filed 7-1-77; designated effective 8-1-77 with respect to all policies, both new and renewal, with effective dates on or after 8-1-77 (Register 77, No. 27). For prior history see Register 76, No. 31.

2. Repealer filed 8-25-2004; operative 9-24-2004 (Register 2004, No. 35).

§2498.4.3. Protection Against Uninsured Motorists Insurance Per Section 2408. [Repealed]

Note • History

NOTE

Authority cited: Section 11620, Government Code. Reference Sections 11620-11627, Government Code.

HISTORY

1. New section filed 7-1-77; designated effective 8-1-77 with respect to all policies, both new and renewal, with effective dates on or after 8-1-77 (Register 77, No. 27).

2. Correction of amendment to “California Assigned Risks Rate Supplement-- Protection Against Uninsured Motorists Insurance Per Section 2408,” previously filed 7-29-76, designated effective 10-1-76, filed 9-30-77 (Register 77, No.40).

3. Repealer filed 11-7-78; designated effective 1-1-79 with respect to new policies effective on or after 1-1-79 and designated effective 2-1-79 with respect to renewal policies for periods commencing on or after 2-1-79 (Register 78, No. 45).

§2498.4.9. California Automobile Assigned Risk Plan Plan of Operations.

Note • History

The Insurance Commissioner has approved a separate plan designated the “California Automobile Assigned Risk Plan Plan of Operations” under this section. This plan has been filed but for the present is separately published, not as part of the California Code of Regulations. The plan referred to in Section 2498.4.9 may be examined at the office of the Insurance Commissioner in San Francisco, and copies may be obtained from the California Automobile Assigned Risk Plan, P.O. Box 7917, San Francisco, California 94120-7917. The most current plan is effective as of September 24, 2004 with subsequent amendments with effective dates through January 18, 2012.

NOTE

Authority cited: Sections 11620 and 11624, Insurance Code. Reference: Sections 11580.9 and 11620-11627, Insurance Code.

HISTORY

1. New section and adoption of new “California Automobile Assigned Risk Plan Plan of Operations” (incorporated by reference) filed 8-25-2004; operative 9-24-2004 (Register 2004, No. 35).

2. Amendment of section and amendment of “California Automobile Assigned Risk Plan Plan of Operations” (incorporated by reference) filed 8-26-2004; operative 9-25-2004 (Register 2004, No. 35).

3. Amendment of section and amendment of “California Automobile Assigned Risk Plan Plan of Operations” filed 10-26-2004; operative 11-25-2004 (Register 2004, No. 44).

4. Change without regulatory effect amending the “California Automobile Assigned Risk Plan Plan of Operations” (incorporated by reference) filed 12-21-2004 pursuant to section 100, title 1, California Code of Regulations (Register 2004, No. 52).

5. Change without regulatory effect amending the “California Automobile Assigned Risk Plan Plan of Operations” (incorporated by reference) filed 12-22-2004 pursuant to section 100, title 1, California Code of Regulations (Register 2004, No. 52).

6. Change without regulatory effect amending the “California Automobile Assigned Risk Plan Plan of Operations -- Portfolio of Endorsements and Forms” (incorporated by reference) filed 9-28-2005 pursuant to section 100, title 1, California Code of Regulations (Register 2005, No. 39).

7. Amendment of section and amendment of “California Automobile Assigned Risk Plan Plan of Operations” (incorporated by reference) provisions “How to Apply to the Plan,” “Electronic Format,” and sections 1, 20, 41, and 46 filed 4-18-2006; operative 5-18-2006 (Register 2006, No. 16).

8. Amendment of section and amendment of “California Automobile Assigned Risk Plan Plan of Operations” (incorporated by reference) sections 14, 16, 20, 23, 37, 40, 41, 43, 47 and 54 filed 4-18-2006; operative 5-18-2006 (Register 2006, No. 16).

9. Amendment of section and amendment of “California Automobile Assigned Risk Plan Plan of Operations” (incorporated by reference) section 8 filed 7-12-2006; operative 8-11-2006 (Register 2006, No. 28).

10. Amendment of section and amendment of “California Automobile Assigned Risk Plan Plan of Operations” (incorporated by reference) filed 10-10-2006; operative 11-9-2006 (Register 2006, No. 41).

11. Amendment of section and amendment of sections 1, 26, 37, 44 and 54 of the “California Automobile Assigned Risk Plan Plan of Operations” (incorporated by reference) filed 6-28-2007; operative 7-28-2007 (Register 2007, No. 26).

12. Amendment of section and amendment of section 8 of the “California Automobile Assigned Risk Plan Plan of Operations” (incorporated by reference) filed 6-28-2007; operative 7-28-2007 (Register 2007, No. 26).

13. Amendment of section and amendment of the “California Automobile Assigned Risk Plan Plan of Operations” (incorporated by reference) filed 6-28-2007; operative 7-28-2007 (Register 2007, No. 26).

14. Amendment of section and amendment of the introduction and sections 8, 28, 33, 37, 43 and 48 of the “California Automobile Assigned Risk Plan Plan of Operations” (incorporated by reference) filed 6-28-2007; operative 7-28-2007 (Register 2007, No. 26).

15. Change without regulatory effect amending section and sections 20, 26 and 44 of the “California Automobile Assigned Risk Plan Plan of Operations” (incorporated by reference) filed 7-23-2008 pursuant to section 100, title 1, California Code of Regulations (Register 2008, No. 30).

16. Change without regulatory effect amending section and sections 28 and 46 of the “California Automobile Assigned Risk Plan Plan of Operations” (incorporated by reference) filed 7-23-2008 pursuant to section 100, title 1, California Code of Regulations (Register 2008, No. 30).

17. Change without regulatory effect amending section and Commercial Auto Endorsement forms within the “California Automobile Assigned Risk Plan Plan of Operations” (incorporated by reference) and amending Note filed 7-24-2008 pursuant to section 100, title 1, California Code of Regulations (Register 2008, No. 30).

18. Amendment of section and Section 19 of the “California Automobile Assigned Risk Plan Plan of Operations” (incorporated by reference) filed with the Secretary of State 11-12-2008; operative 12-12-2008 (Register 2008, No. 46).

19. Amendment of section and Sections 37, 44 and 54 of the “California Automobile Assigned Risk Plan Plan of Operations” (incorporated by reference) filed with the Secretary of State 11-12-2008; operative 12-12-2008 (Register 2008, No. 46).

20. Change without regulatory effect amending section and Introduction of the “California Automobile Assigned Risk Plan Plan of Operations” (incorporated by reference) filed 6-24-2009 pursuant to section 100, title 1, California Code of Regulations (Register 2009, No. 26).

21. Change without regulatory effect amending section and sections 23 and 41 of the “California Automobile Assigned Risk Plan Plan of Operations” (incorporated by reference) filed 6-24-2009 pursuant to section 100, title 1, California Code of Regulations (Register 2009, No. 26).

22. Change without regulatory effect amending section and section 41 of the “California Automobile Assigned Risk Plan Plan of Operations” (incorporated by reference) filed 6-24-2009 pursuant to section 100, title 1, California Code of Regulations (Register 2009, No. 26).

23. Change without regulatory effect amending section and sections 37 and 54 of the “California Automobile Assigned Risk Plan Plan of Operations” (incorporated by reference) filed 6-24-2009 pursuant to section 100, title 1, California Code of Regulations (Register 2009, No. 26).

24. Amendment of section and Sections 1 and 3 of the “California Automobile Assigned Risk Plan Plan of Operations” (incorporated by reference) filed 11-19-2009; operative 12-19-2009 (Register 2009, No. 47).

25. Amendment of section and Sections 26 and 44 of the “California Automobile Assigned Risk Plan Plan of Operations” (incorporated by reference) filed 11-19-2009; operative 12-19-2009 (Register 2009, No. 47)

26. Amendment of section and sections 23 and 41 of the “California Automobile Assigned Risk Plan Plan of Operations” (incorporated by reference) filed 9-20-2010; operative 10-20-2010 (Register 2010, No. 39).

27. Change without regulatory effect amending section and Introduction of the “California Automobile Assigned Risk Plan Plan of Operations” (incorporated by reference) filed 3-22-2011 pursuant to section 100, title 1, California Code of Regulations (Register 2011, No. 12).

28. Change without regulatory effect amending section and California Uninsured Motorists Property Damage Coverage endorsements within the “California Automobile Assigned Risk Plan Plan of Operations” (incorporated by reference) filed 4-6-2011 pursuant to section 100, title 1, California Code of Regulations (Register 2011, No. 14).

29. Change without regulatory effect amending section and section 25 of the “California Automobile Assigned Risk Plan Plan of Operations” (incorporated by reference) filed 4-6-2011 pursuant to section 100, title 1, California Code of Regulations (Register 2011, No. 14).

30. Amendment of section and sections 8, 19, 40 and 54 of the “California Automobile Assigned Risk Plan Plan of Operations” (incorporated by reference) filed 12-19-2011; operative 1-18-2012 (Register 2011, No. 51).

§2498.5. California Automobile Assigned Risk Plan Simplified Manual of Rules and Rates.

Note • History

The Insurance Commissioner has approved a separate manual designated the “California Automobile Assigned Risk Plan Simplified Manual of Rules And Rates” under this Section. This manual has been filed but for the present is separately published, not as part of the California Code of Regulations. The manual referred to in Section 2498.5 may be examined at the office of the Insurance Commissioner in San Francisco, and copies may be obtained from the California Automobile Assigned Risk Plan, P.O. Box 7917, San Francisco, California 94120-7917. The most current manual is effective as of July 1, 1999 with subsequent amendments with effective dates through October 1, 2012.

NOTE

Authority cited: Sections 11620 and 11624(d), Insurance Code. Reference: Sections 11622 and 11624, Insurance Code.

HISTORY

1. A new section filed 6-25-79 as an emergency; effective upon filing. Certificate of Compliance included (Register 79, No. 26). For prior history, see Register 79, No. 10; 79, No. 6; 78, No. 45; 77, No. 27; and 76, No. 23.

2. Amendment of Rule 2 filed 9-27-79 as an emergency; designated effective 10-1-79. Certificate of Compliance included (Register 79, No. 39).

3. Amendment filed 10-18-79; designated effective 1-1-80 (Register 79, No. 42).

4. Amendment of Rule 6 filed 5-21-81; effective thirtieth day thereafter (Register 81, No. 21).

5. Amendment of Rule 5 filed 11-18-81 as an emergency; designated effective 1-1-82 (Register 81, No. 48).

6. Order of Repeal of 11-18-81 emergency order filed 11-27-81 by OAL pursuant to Government Code Section 11349.6 (Register 81, No. 48).

7. Amendment of Rule 5 filed 6-29-82; designated effective 8-1-82 (Register 82, No. 27).

8. Amendment filed 4-26-84; effective upon filing pursuant to Government Code Section 11346.2(d) (Register 84, No. 17).

9. Amendment of Rule 46 of the “California Automobile Assigned Risk Plan” (incorporated by reference) filed with the Secretary of State 4-8-98 pursuant to Government Code section 11343.8; operative 5-1-98. Amendment filed without review by OAL pursuant to exemption for regulations that establish or fix rates (Government Code section 11343(a)(1)) (Register 98, No. 15).

10. Amendment of section heading and section and amended “California Automobile Assigned Risk Plan Simplified Manual of Rules and Rates” filed with the Secretary of State 3-11-99 pursuant to Government Code section 11343.8; operative 7-1-99. Amended manual filed without review by OAL pursuant to exemption for regulations that establish or fix rates (Government Code section 11343(a)(1)) (Register 99, No. 11).

11. Amendment of section and Rule 94 of the “California Automobile Assigned Risk Plan Simplified Manual of Rules and Rates” filed with the Secretary of State 8-26-2004 pursuant to Government Code section 11343.8; operative 9-25-2004. Amendment filed without review by OAL pursuant to exemption for regulations that establish or fix rates (Government Code section 11340.9(g)) (Register 2004, No. 35).

12. Amendment of section and Rule 75 of the “California Automobile Assigned Risk Plan Simplified Manual of Rules and Rates” filed with the Secretary of State 8-26-2004 pursuant to Government Code section 11343.8; operative 9-25-2004. Amendment filed without review by OAL pursuant to exemption for regulations that establish or fix rates (Government Code section 11340.9(g)) (Register 2004, No. 35).

13. Amendment of section and amended “California Automobile Assigned Risk Plan Simplified Manual of Rules and Rates” filed with the Secretary of State 10-26-2004 pursuant to Government Code section 11343.8; operative 11-25-2004. Amended manual filed without review by OAL pursuant to exemption for regulations that establish or fix rates (Register 2004, No. 44).

14. Change without regulatory effect amending Rules 24 and 55 of the “California Automobile Assigned Risk Plan Simplified Manual of Rules and Rates” (incorporated by reference) filed 12-21-2004 pursuant to section 100, title 1, California Code of Regulations (Register 2004, No. 52).

15. Change without regulatory effect amending Rule 123 of the “California Automobile Assigned Risk Plan Simplified Manual of Rules and Rates” (incorporated by reference) filed 12-21-2004 pursuant to section 100, title 1, California Code of Regulations (Register 2004, No. 52).

16. Change without regulatory effect amending Rule 54 of the “California Automobile Assigned Risk Plan Simplified Manual of Rules and Rates” (incorporated by reference) filed 12-22-2004 pursuant to section 100, title 1, California Code of Regulations (Register 2004, No. 52).

17. Change without regulatory effect amending Rule 53 of the “California Automobile Assigned Risk Plan Simplified Manual of Rules and Rates” (incorporated by reference) filed 12-22-2004 pursuant to section 100, title 1, California Code of Regulations (Register 2004, No. 52).

18. Amendment of section and Rule 122 of the California Automobile Assigned Risk Plan Simplified Manual of Rules and Rates filed with the Secretary of State 12-28-2005 pursuant to Government Code section 11343.8; operative 1-27-2006. Amendment filed without review by OAL pursuant to exemption for regulations that establish or fix rates (Government Code section 11340.9(g)) (Register 2005, No. 52).

19. Amendment of section and Rules 21, 26, 57, 94, 133 and 141 of the “California Automobile Assigned Risk Plan Simplified Manual of Rules and Rates” (incorporated by reference) filed with the Secretary of State 4-20-2006 pursuant to Government Code section 11343.8; operative 5-20-2006. Amendment filed without review by OAL pursuant to exemption for regulations that establish or fix rates (Government Code section 11340.9(g)) (Register 2006, No. 16).

20. Change without regulatory effect amending the “California Automobile Assigned Risk Plan Simplified Manual of Rules and Rates” (incorporated by reference) and amending section filed 7-18-2006 pursuant to section 100, title 1, California Code of Regulations (Register 2006, No. 29).

21. Amendment of section and Rule 50 of the “California Automobile Assigned Risk Plan Simplified Manual of Rules and Rates” (incorporated by reference) filed with the Secretary of State 10-3-2006 pursuant to Government Code section 11343.8; operative 11-2-2006. Amendment filed without review by OAL pursuant to exemption for regulations that establish or fix rates (Government Code section 11340.9(g)) (Register 2006, No. 40).

22. Amendment of section and “California Automobile Assigned Risk Plan Simplified Manual of Rules and Rates” (incorporated by reference) filed 11-9-2006 pursuant to Government Code section 11343.8; operative 11-9-2006. Amendment filed without review by OAL pursuant to exemption for regulations that establish or fix rates (Government Code section 11340.9(g)) (Register 2006, No. 45).

23. Amendment of section and Rules 5, 122 and 124 of the “California Automobile Assigned Risk Plan Simplified Manual of Rules and Rates” (incorporated by reference) filed 6-28-2007 pursuant to Government Code section 11343.8; operative 7-28-2007. Amendment filed without review by OAL pursuant to exemption for regulations that establish or fix rates (Government Code section 11340.9(g)) (Register 2007, No. 26).

24. Amendment of section and Rules 24, 55, 140 and Private Passenger Rate Pages of the “California Automobile Assigned Risk Plan Simplified Manual of Rules and Rates” (incorporated by reference) filed 6-28-2007 pursuant to Government Code section 11343.8; operative 7-28-2007. Amendment filed without review by OAL pursuant to exemption for regulations that establish or fix rates (Government Code section 11340.9(g)) (Register 2007, No. 26).

25. Amendment of section and Rule 94 of the “California Automobile Assigned Risk Plan Simplified Manual of Rules and Rates” (incorporated by reference) filed with the Secretary of State 11-3-2008 pursuant to Government Code section 11343.8; operative 12-3-2008. Amendment filed without review by OAL pursuant to exemption for regulations that establish or fix rates (Government Code section 11340.9(g)) (Register 2008, No. 45).

26. Amendment of section and Rules 57, 121 and 141 of the “California Automobile Assigned Risk Plan Simplified Manual of Rules and Rates” (incorporated by reference) filed with the Secretary of State 11-7-2008 pursuant to Government Code section 11343.8; operative 12-7-2008. Amendment filed without review by OAL pursuant to exemption for regulations that establish or fix rates (Government Code section 11340.9(g)) (Register 2008, No. 45).

27. Amendment of section and Rules 24 and 55 of the “California Automobile Assigned Risk Plan Simplified Manual of Rules and Rates”(incorporated by reference) filed with the Secretary of State 1-12-2009 pursuant to Government Code section 11343.8; operative 2-11-2009. Amendment filed without review by OAL pursuant to exemption for regulations that establish or fix rates (Government Code section 11340.9(g)) (Register 2009, No. 3).

28. Amendment of section and Rule 53 of the “California Automobile Assigned Risk Plan Simplified Manual of Rules and Rates” (incorporated by reference) filed 11-19-2009 pursuant to Government Code section 11343.8; operative 12-19-2009. Amendment filed without review by OAL pursuant to exemption for regulations that establish or fix rates (Government Code section 11340.9(g)) (Register 2009, No. 47).

29. Amendment of section and Rule 124 of the “California Automobile Assigned Risk Plan Simplified Manual of Rules and Rates” (incorporated by reference) filed 11-19-2009 pursuant to Government Code section 11343.8; operative 12-19-2009. Amendment filed without review by OAL pursuant to exemption for regulations that establish or fix rates (Government Code section 11340.9(g)) (Register 2009, No. 47).

30. Amendment of section and sections 21, 23, 25, 26, 27, 28, 29, 50 and 70 of the “California Automobile Assigned Risk Plan Simplified Manual of Rules and Rates” (incorporated by reference) filed 12-19-2011 pursuant to Government Code section 11343.8; operative 1-18-2012. Amendment filed without review by OAL pursuant to exemption for regulations that establish or fix rates (Government Code section 11340.9(g)) (Register 2011, No. 51).

31. Amendment of section and amendment of the “California Automobile Assigned Risk Plan Simplified Manual of Rules and Rates” (incorporated by reference) filed 8-30-2012 pursuant to Government Code section 11343.8; operative 10-1-2012. Amendment filed without review by OAL pursuant to exemption for regulations that establish or fix rates (Government Code section 11340.9(g)) (Register 2012, No. 35).

§2498.6. California Automobile Insurance Low Cost Program Plan of Operations.

Note • History

The Insurance Commissioner has approved and hereby incorporates by reference a separate plan designated the “California Automobile Insurance Low Cost Program Plan of Operations,” effective June 19, 2001, with amendments and effective dates through April 16, 2012. The California Automobile Insurance Low Cost Program Plan of Operations is the statutorily-required plan for the equitable apportionment, among insurers required to participate in the California Automobile Assigned Risk Plan, of persons residing in California who are eligible to purchase a low cost automobile insurance policy. The Plan also sets forth procedures which insurance producers and applicants shall follow to obtain a low cost automobile insurance policy. A low cost automobile insurance policy is available for policies issued or renewed on and after July 1, 2000. This Plan has been filed but for the present is separately published, not as part of the California Code of Regulations. The Plan may be examined at the office of the Insurance Commissioner in San Francisco and copies may be obtained from the California Automobile Assigned Risk Plan, P.O. Box 7917, San Francisco, California 94120-7917.

NOTE

Authority cited: Sections 11620, 11629.7, 11629.72, 11629.73 and 11629.79, Insurance Code. Reference: Sections 1734, 11580.2 and 11629.7-11629.85, Insurance Code.

HISTORY

1. New section and new California Low Cost Automobile Insurance Program Plan of Operations (incorporated by reference) filed 3-27-2000 as an emergency; operative 3-27-2000 (Register 2000, No. 13). A Certificate of Compliance must be transmitted to OAL by 7-25-2000 or emergency language will be repealed by operation of law on the following day.

2. New section and new California Low Cost Automobile Insurance Program Plan of Operations (incorporated by reference) refiled 7-25-2000 as an emergency; operative 7-25-2000 (Register 2000, No. 30). A Certificate of Compliance must be transmitted to OAL by 11-22-2000 or emergency language will be repealed by operation of law on the following day.

3. Certificate of Compliance as to 7-25-2000 order transmitted to OAL 11-21-2000; disapproved 1-8-2001 (Register 2001, No. 2).

4. New section and new California Low Cost Automobile Insurance Program Plan of Operations (incorporated by reference) filed 1-8-2001 as an emergency; operative 1-8-2001 (Register 2001, No. 2). A Certificate of Compliance must be transmitted to OAL by 5-8-2001 or emergency language will be repealed by operation of law on the following day.

5. Certificate of Compliance as to 1-8-2001 order, including addition of effective date of incorporated manual, transmitted to OAL 5-7-2001 and filed 6-19-2001 (Register 2001, No. 25).

6. Change without regulatory effect amending section and Note and amending California Automobile Insurance Low Cost Program Plan of Operations (incorporated by reference) filed 2-27-2002 pursuant to section 100, title 1, California Code of Regulations (Register 2002, No. 9).

7. Change without regulatory effect amending section and amending California Automobile Insurance Low Cost Program Plan of Operations (incorporated by reference) filed 6-20-2002 pursuant to section 100, title 1, California Code of Regulations (Register 2002, No. 25).

8. Amendment of section and amendment of California Automobile Insurance Low Cost Program Plan of Operations (incorporated by reference) filed 1-13-2003 as an emergency; operative 1-13-2003 (Register 2003, No. 3). A Certificate of Compliance must be transmitted to OAL by 5-13-2003 or emergency language will be repealed by operation of law on the following day.

9. Amendment of section and amendment of California Automobile Insurance Low Cost Program Plan of Operations (incorporated by reference) filed 1-16-2003; operative 2-15-2003 (Register 2003, No. 3).

10. Amendment of section, including indication of readoption of amendment of California Automobile Insurance Low Cost Program Plan of Operations (incorporated by reference) refiled 5-6-2003 as an emergency; operative 5-6-2003 (Register 2003, No. 19). A Certificate of Compliance must be transmitted to OAL by 9-3-2003 or emergency language will be repealed by operation of law on the following day.

11. Change without regulatory effect amending section and amending California Automobile Insurance Low Cost Program Plan of Operations (incorporated by reference) filed 8-28-2003 pursuant to section 100, title 1, California Code of Regulations (Register 2003, No. 35).

12. Amendment of section and amendment of California Automobile Insurance Low Cost Program Plan of Operations (incorporated by reference) filed 9-2-2003; operative 10-2-2003 (Register 2003, No. 36).

13. Certificate of Compliance as to 5-6-2003 order, including further amendment of date, transmitted to OAL 7-31-2003 and filed 9-9-2003 (Register 2003, No. 37).

14. Change without regulatory effect amending section and Note and amending California Automobile Insurance Low Cost Program Plan of Operations (incorporated by reference) filed 4-19-2004 pursuant to section 100, title 1, California Code of Regulations (Register 2004, No. 17).

15. Amendment of section and Note and amendment of California Automobile Insurance Low Cost Program Plan of Operations (incorporated by reference) filed 7-29-2004; operative 8-28-2004 (Register 2004, No. 31).

16. Change without regulatory effect amending section and amending California Automobile Insurance Low Cost Program Plan of Operations (incorporated by reference) filed 8-24-2004 pursuant to section 100, title 1, California Code of Regulations (Register 2004, No. 35).

17. Amendment of section and amendment of California Automobile Insurance Low Cost Program Plan of Operations (incorporated by reference) filed 1-14-2005; operative 2-13-2005 (Register 2005, No. 2).

18. Change without regulatory effect amending the California Low Cost Automobile Insurance Program Plan of Operations (incorporated by reference) filed 6-23-2005; operative 7-23-2005 (Register 2005, No. 25).

19. Editorial correction of History 18 (Register 2006, No. 3).

20. Amendment of section 27 of the California Low Cost Automobile Insurance Program Plan of Operations (incorporated by reference) and amendment of section and Note filed with the Secretary of State 1-26-2006 pursuant to Government Code section 11343.8; operative 1-26-2006. Amendment filed without review by OAL pursuant to exemption for regulations that establish or fix rates (Government Code section 11340.9(g)) (Register 2006, No. 3).

21. Repealer of section 27 and adoption of new section 27 of the California Low Cost Automobile Insurance Program Plan of Operations (incorporated by reference) and amendment of section filed with the Secretary of State as an emergency on 3-24-2006 pursuant to Government Code section 11343.8; operative 4-1-2006. New section 27 and amendment filed without review by OAL pursuant to exemption for regulations that establish or fix rates (Government Code section 11340.9(g)) (Register 2006, No. 12).

22. Relettering and amendment of former Exhibit K to Exhibit E in section 27 of the California Low Cost Automobile Insurance Program Plan of Operations (incorporated by reference) and amendment of section filed 5-18-2006 as an emergency; operative 6-1-2006. The establishment of rates for each county in section 27 was filed without review by OAL pursuant to Government Code section 11340.9(g). A Certificate of Compliance must be transmitted to OAL by 9-29-2006 or emergency language will be repealed by operation of law on the following day (Register 2006, No. 20).

23. Change without regulatory effect amending the “California Automobile Insurance Low Cost Program Plan of Operations” (incorporated by reference) and amending section filed 7-18-2006 pursuant to section 100, title 1, California Code of Regulations (Register 2006, No. 29).

24. Repealer of section 27 and adoption of new section 27 of the California Low Cost Automobile Insurance Program Plan of Operations (incorporated by reference) and amendment of section refiled with the Secretary of State as an emergency on 7-24-2006 pursuant to Government Code section 11343.8; operative 7-24-2006. Section 27 and amendment filed without review by OAL pursuant to exemption for regulations that establish or fix rates (Government Code section 11340.9(g)) (Register 2006, No. 30).

25. Relettering and amendment of former Exhibit K to Exhibit E in section 27 of the California Low Cost Automobile Insurance Program Plan of Operations (incorporated by reference) and amendment of section adding eight counties refiled 10-2-2006 as an emergency; operative 10-2-2006. The establishment of rates for each new county in section 27 was filed without review by OAL pursuant to Government Code section 11340.9(g). A Certificate of Compliance must be transmitted to OAL by 1-30-2007 or emergency language will be repealed by operation of law on the following day (Register 2006, No. 40).

26. Certificate of Compliance as to 7-24-2006 and 10-2-2006 orders, including amendment of rates, transmitted to OAL 11-14-2006 and filed 12-27-2006; amendment of rates exempt from the APA and OAL review pursuant to Government Code section 11340.9(g) (Register 2006, No. 52).

27. Amendment of section and Exhibit E of the California Low Cost Automobile Insurance Program Plan of Operations (incorporated by reference), adding six counties and insurance rates for those counties, filed 3-9-2007 as an emergency pursuant to Insurance Code section 11629.79; operative 3-30-2007. The establishment of rates for each new county was filed without review by OAL pursuant to Government Code section 11340.9(g). A Certificate of Compliance must be transmitted to OAL by 9-26-2007 or emergency language will be repealed by operation of law on the following day (Register 2007, No. 10).

28. Change without regulatory effect amending the California Automobile Insurance Low Cost Program Plan of Operations (incorporated by reference) and amending section and Note filed 4-24-2007 pursuant to section 100, title 1, California Code of Regulations (Register 2007, No. 17).

29. Amendment of section and amendment of section 8 of the California Low Cost Automobile Insurance Program Plan of Operations (incorporated by reference) filed 6-28-2007 pursuant to Government Code section 11343.8; operative 7-28-2007 (Register 2007, No. 26).

30. Amendment of section and amendment of sections 8, 14 and 15 of the California Low Cost Automobile Insurance Program Plan of Operations (incorporated by reference) filed 6-28-2007 pursuant to Government Code section 11343.8; operative 7-28-2007 (Register 2007, No. 26).

31. Amendment of section and amendment of section 8, subsection B.8.a. of the California Low Cost Automobile Insurance Program Plan of Operations (incorporated by reference) filed 6-28-2007 pursuant to Government Code section 11343.8; operative 7-28-2007 (Register 2007, No. 26).

32. Amendment of section and amendment of sections 4, 14, 19, 20, 26, 28, 33, 34 and 37 of the California Low Cost Automobile Insurance Program Plan of Operations (incorporated by reference) filed 6-28-2007 pursuant to Government Code section 11343.8; operative 7-28-2007 (Register 2007, No. 26).

33. Amendment of section and amendment of sections 1, 26 and 37 of the California Low Cost Automobile Insurance Program Plan of Operations (incorporated by reference) filed 6-28-2007 pursuant to Government Code section 11343.8; operative 7-28-2007 (Register 2007, No. 26).

34. Amendment of section and Exhibit E of the California Low Cost Automobile Insurance Program Plan of Operations (incorporated by reference), adding twenty counties and insurance rates for those counties, filed 9-17-2007 as an emergency pursuant to Insurance Code section 11629.79; operative 10-1-2007 (Register 2007, No. 38). The establishment of rates for each new county was filed without review by OAL pursuant to Government Code section 11340.9(g). A Certificate of Compliance must be transmitted to OAL by 3-31-2008 or emergency language will be repealed by operation of law on the following day.

35. Reinstatement of section as it existed prior to 3-9-2007 emergency amendment pursuant to Government Code section 11346.1(f) (Register 2007, No. 41).

36. Amendment of section and Exhibit E of the California Low Cost Automobile Insurance Program Plan of Operations (incorporated by reference), adding six counties and insurance rates for those counties, filed 10-10-2007; operative 10-10-2007 pursuant to Government Code section 11343.4. The establishment of rates for each new county was filed without review by OAL pursuant to Government Code section 11340.9(g) (Register 2007, No. 41).

37. Change without regulatory effect amending the “California Automobile Insurance Low Cost Program Plan of Operations” (incorporated by reference) and amending section filed 11-2-2007 pursuant to section 100, title 1, California Code of Regulations (Register 2007, No. 44).

38. Amendment of section and Exhibit E of the California Low Cost Automobile Insurance Program Plan of Operations (incorporated by reference), adding sixteen counties and insurance rates for those counties, filed 11-15-2007 as an emergency pursuant to Insurance Code section 11629.79; operative 12-10-2007. The establishment of rates for each new county was filed without review by OAL pursuant to Government Code section 11340.9(g) (Register 2007, No. 46). A Certificate of Compliance must be transmitted to OAL by 6-9-2008 or emergency language will be repealed by operation of law on the following day.

39. Amendment of section and Exhibit E of the California Low Cost Automobile Insurance Program Plan of Operations (incorporated by reference), adding twenty counties and insurance rates for those counties, refiled 3-18-2008 as an emergency pursuant to Insurance Code section 11629.79; operative 3-31-2008. The establishment of rates for each new county was filed without review by OAL pursuant to Government Code section 11340.9(g) (Register 2008, No. 12). A Certificate of Compliance must be transmitted to OAL by 6-30-2008 or emergency language will be repealed by operation of law on the following day.

40. Certificate of Compliance as to 11-15-2007 and 3-18-2008 orders, including further amendment of section, transmitted to OAL 6-5-2008 and filed 7-17-2008; the establishment of rates for each county is exempt from the APA and OAL review pursuant to Government Code section 11340.9(g) (Register 2008, No. 29).

41. Change without regulatory effect amending section and amending Exhibit C “Income Eligibility Guidelines” of the California Low Cost Automobile Insurance Program Plan of Operations (incorporated by reference) filed 7-30-2008 pursuant to section 100, title 1, California Code of Regulations (Register 2008, No. 31).

42. Amendment of section and Note, amendment of Exhibit A and amendment of sections 1, 2, 15, 20, 22, 23, 26, 28, 29, 30 and 37 of the California Low Cost Automobile Insurance Program Plan of Operations (incorporated by reference) filed 2-23-2009; operative 3-25-2009 (Register 2009, No. 9).

43. Amendment of section and Exhibit E of the California Low Cost Automobile Insurance Program Plan of Operations (incorporated by reference) filed 3-23-2009; operative 5-11-2009 pursuant to Government Code section 11343.4(b). The rate increase is exempt from the APA and OAL review pursuant to Government Code section 11340.9(g) (Register 2009, No. 13).

44. Change without regulatory effect amending Exhibit C “Income Eligibility Guidelines” of the California Low Cost Automobile Insurance Program Plan of Operations (incorporated by reference) filed 3-27-2009 pursuant to section 100, title 1, California Code of Regulations (Register 2009, No. 13).

45. Amendment of section and amendment of Introduction and sections 1 and 28 of the California Low Cost Automobile Insurance Program Plan of Operations (incorporated by reference) filed 6-1-2010; operative 6-1-2010 pursuant to Government Code section 11343.4 (Register 2010, No. 23).

46. Amendment of section and Exhibit E of the California Low Cost Automobile Insurance Program Plan of Operations (incorporated by reference) filed 10-21-2010; operative 12-20-2010 pursuant to Government Code section 11343.4(b). The rate increase is exempt from the APA and OAL review pursuant to Government Code section 11340.9(g) (Register 2010, No. 43).

47. Change without regulatory effect amending Exhibits A, B and C of the California Automobile Insurance Low Cost Program Plan of Operations (incorporated by reference) filed 5-16-2011 pursuant to section 100, title 1, California Code of Regulations (Register 2011, No. 20).

48. Amendment of section and actions taken to the following sections and incorporated documents in the California Automobile Insurance Low Cost Program Plan of Operations (incorporated by reference): amendment of Introduction, sections 8, 20, 23, 26 and 28 and Appendix heading; new Appendix Part VI; repealer of pamphlet title “Electronic Effective Date Procedure (AIP 101)”; and amendment to application form “California Low Cost Automobile Insurance Program Application for Insurance (AIP 126E)” filed 12-19-2011; operative 1-18-2012 (Register 2011, No. 51).

49. Amendment of section and Exhibit E of the “California Automobile Insurance Low Cost Program Plan of Operations” (incorporated by reference) filed 2-16-2012; operative 4-16-2012 pursuant to Government Code section 11343.4(b). The rate increase is exempt from the APA and OAL review pursuant to Government Code section 11340.9(g) (Register 2012, No. 7).

Article 8.5. Cancellation Notices—Automobile Liability Insurance Policies

§2499. Contents of Statement.

Note • History

The statement required to be contained in every notice of cancellation of an automobile liability policy pursuant to Insurance Code Section 652 shall read as follows:

“Pursuant to Section 652 of the Insurance Code you are hereby notified that:

“1. The California Automobile Assigned Risk Plan provides a means by which applicants for automobile bodily injury and property damage liability insurance may be assigned to an insurer authorized to transact liability insurance.

“2. If you are unable to procure such insurance through ordinary methods and you are in good faith eligible for such insurance in accordance with the standards of the Plan, it is possible for you to obtain it through the Plan.

“3. Application forms for insurance through the Plan may be obtained from and submitted through (a) any licensed insurance agent or broker or (b) the Plan itself at 425 California Street, P.O. Box 7917, San Francisco, CA 94120.”

Each insurer is authorized and directed to alter the above statement by inserting on its next reprint thereof any changed address of the California Automobile Assigned Risk Plan of which it may be notified by the Commissioner or by the Plan itself.

NOTE

Authority cited: Section 652 and 665, Insurance Code. Reference: Sections 660-669.5, Insurance Code.

HISTORY

1. New Article 8.5 (Sections 2499 and 2499.5) filed 9-15-61 as an emergency; effective upon filing (Register 61, No. 18).

2. Certificate of Compliance filed and refiling of Sections 2499 and 2499.5 on 11-30-61 (Register 61, No. 24).

3. Amendment filed 11-29-79 as procedural and organizational; effective upon filing (Register 79, No. 48).

§2499.5. Form of Statement.

Such statement shall be legible. The size of the type thereof shall be not less than that used in the notice of cancellation. It may be embodied in the notice of cancellation itself, printed or typed on the face or reverse side thereof, rubber stamped thereon, affixed thereto by a sticker or placed thereon in any other manner which will make it a part of said notice and render its detachment or removal thereof clearly discernible.

§2499.7. Statement: Optional Sentence.

History

Any insurer may at its option substitute for the first sentence of the statement prescribed by Section 2499 the following:

“Section 652 of the Insurance Code requires that you be notified concerning the California Automobile Assigned Risk Plan in the manner set forth in the three numbered paragraphs below. This notice does not necessarily mean that you must seek insurance through the Assigned Risk Plan or that you are necessarily eligible to secure it through the Plan.”

HISTORY

1. New section filed 11-30-61; effective thirtieth day thereafter (Register 61, No. 24).

Article 9. Workers' Compensation Insurance. Dividends (Refunds) to Policyholders. Regulations Governing Classification of Risks and Premium Rates, Policy and Endorsement Forms.

§2500. Application and Effective Date of Article.

Note • History

This article applies to all stock, mutual and reciprocal inter-insurance exchange insurers and to the State Compensation Insurance Fund. The provisions of this article are effective April 1, 1976, except as otherwise provided in Sections 2507.2 and 2508 hereof.

NOTE

Authority cited: Sections 790-790.10, 11630-11663 and 11730-11742, Insurance Code. Reference: Sections 380, 381, 383, 750-766, 780--784, 790-790.10, 1420, 11630-11663 and 11730-11742, Insurance Code.

HISTORY

1. New Article 9 (Sections 2500 through 2507) filed 3-3-58; effective thirtieth day thereafter (Register 58, No. 4).

2. Repealer of Article 9 (Sections 2500-2507) and New Article 9 (Sections 2500-2507, 2507.1-2507.2, 2508-2509) filed 2-6-76; designated effective 4-1-76 (Register 76, No. 6).

§2501. Purpose.

Compliance with and enforcement of Insurance Code Sections 380, 381, 383, 750 through 766, 780 through 784, 790 through 790.10, 1420, 11630 through 11663, 11730 through 11742, 11751.1 and 12921, and the regulations contained in this article are hereby declared to be necessary in the public interest to protect the rights of injured employees and their dependents, to protect prospective participating workers' compensation policyholders from misrepresentations and unfair practices concerning potential dividends, to prevent certain unfair and coercive practices in the payment of dividends, and to effectuate the purpose of the statutes governing the classification of risks and premium rates and policy and endorsement forms and the approval of such forms for workers' compensation insurance.

§2502. Relevant Statutes, Rules and Regulations.

All references to “section” herein refer to a section of the California Insurance Code unless otherwise stated.

Dividends: Workers' compensation insurers are authorized by Section 11738 to issue participating compensation policies. A dividend (refund) under such a policy can only be paid from surplus accumulated from premiums on workers' compensation policies issued pursuant to laws of California governing workers' compensation insurance. However, Section 1420 authorizes, in the case of reciprocal insurers, savings or credits to be returned to subscribers irrespective of the source from which such savings or credits accrue whenever such returns do not constitute an impairment of the assets or reserves required to be maintained.

Policy Forms: Under Section 11658, all workers' compensation policies and endorsement forms, including participating provisions relating to the payment of dividends thereunder, must be approved as to substance and form by the Commissioner prior to use. Rule III of the “Manual of Rules, Classification and Basic Rates for Workers' Compensation Insurance” (C.A.C. Title 10, Section 2350), provides that the entire contract of insurance, including any agreement with respect to participation thereunder, shall be set forth in the policy, including endorsements, and specifies that no agreement which is not set forth in such policy shall be valid or enforceable.

Rebate: Section 751 provides that an insurer, insurance agent, broker or solicitor, personally or otherwise, shall not offer or pay, directly or indirectly, as an inducement to enter into an insurance contract any valuable consideration which is not clearly specified, promised or provided for in the policy, or application for the insurance, and any such consideration not appearing in the policy is an unlawful rebate. Section 752 makes it a misdemeanor for the insured or any agent or representative of the insured to knowingly accept or receive any unlawful rebate. Section 763 provides that the payment of a dividend on a participating policy after expiration of the term covered by the policy is not an unlawful rebate.

Misrepresentation: Under Section 780 and Business and Professions Code Section 17500 it is unlawful for an insurance agent, broker or solicitor to misrepresent the terms or effect of an insurance policy or contract. Sections 780 and 782 make it a misdemeanor for any insurer or agent thereof, or an insurance broker or solicitor, to issue or permit to be issued, circulated or used, any misrepresentation of the terms of a policy, the benefits or privileges thereunder or the future dividends payable thereunder. Under Sections 783 and 783.5, an agent, broker or solicitor's license or an insurer's certificate of authority may be suspended, after hearing, for knowingly violating Section 780.

Unfair Practices: Section 790.03 prohibits the making, issuing, circulating or causing to be made, issued or circulated, any estimate, illustration, circular or statement misrepresenting the terms of any policy issued or to be issued or the benefits or advantages promised thereby or the dividends or share of surplus to be received thereon, or making any false or misleading statement as to the dividends or share of surplus previously paid on similar policies, or making any misleading representation or any misrepresentation as to the financial condition of any insurer. Section 790.10 empowers the Commissioner to promulgate, after notice and public hearing, reasonable rules and regulations necessary to administer the provisions of the Insurance Code dealing with unfair practices.

Rating Bureaus: Section 11751.1 provides that the California Inspection Rating Bureau shall not adopt any rule or exact any agreement the effect of which would be to prohibit or regulate the payment of dividends, savings, or unabsorbed premium deposits allowed or returned by insurers to their policyholders or members.

Group Policies: Section 11656.6 provides that an insurer may issue a workers' compensation policy insuring an organization or association of employers as a group if such organization or association complies with certain conditions. One of the conditions specified in Section 11656.6 requires the organization or association to file certified copies of its articles of incorporation, by-laws or agreements of association and its rules and regulations governing the conduct of its business. Such documents must be filed with the Commissioner or a licensed workers' compensation rating organization designated by him. Section 11656.7 states that each member of an organization insured under a group policy shall be treated as a single and separate entity as respects rates, classifications and rating plan.

§2503. Participating Workers' Compensation Policies--Required Provisions and Notice of Intent to Issue.

Note • History

Every prospective policyholder, including policyholders renewing existing policies, shall be entitled, on request, to written advice prior to the issuance of each policy, whether the policy is being issued on a participating or nonparticipating basis. Any such written advice shall be subject to the provisions of this article. Every workers' compensation policy issued on a participating basis shall include a participating provision or endorsement indicating that it is a participating policy. All workers' compensation policy forms, including any participating provisions or endorsements, must be approved as to substance and form by the Commissioner prior to use. If a policy is issued on a participating basis, the participating provision or endorsement must be designated “Participating Provision” and contain the following language:

“Under California Law it is unlawful for an insurer [us] to promise the future payment of dividends under an unexpired workers' compensation policy or to misrepresent the conditions for dividend payment. Dividends are payable only pursuant to conditions determined by the [our] Board of Directors or other governing board [of the Company] following policy expiration.”

NOTE

Authority cited: Section 11659, Insurance Code. Reference: Sections 11657, 11658 and 11659, Insurance Code.

HISTORY

1. Amendment filed 12-30-83; operative 1-1-84 pursuant to Government Code section 11346.2(d) (Register 84, No. 1).

2. Editorial correction implementing 12-30-83 amendments and adding History 1 (Register 98, No. 40).

§2504. Representations Regarding Future Payment of Dividends.

No workers' compensation insurer or officer or agent thereof or insurance broker or solicitor shall represent, either orally or in writing, as an inducement either to insure or to continue or to renew insurance, that the insurer has agreed or will agree (a) to pay a specified policyholder's dividend or (b) upon a formula, criteria or factors which set forth or can be used to determine the amount of dividend, or percentage of premium to be paid as dividend, or amount or percentage of premium to be retained by the insurer after payment of dividend.

§2505. Dividend Statements.

Note • History

(a) The employment of a “Policyholder Dividend Disclosure Statement” as hereinafter defined shall be mandatory in every circumstance that the annual premium, based upon the best information available, which will be earned during the policy period (the Estimated Annual Premium) shall equal or exceed the sum of $10,000. In all other circumstances, the employment of such “Dividend Statement” shall be optional at the discretion of the insurer. A workers' compensation insurer may advise a prospective policyholder, directly or through its agent or an insurance broker or solicitor, of the general provisions and factors, or the arrangement thereof, which are expected to be taken into consideration in regard to dividends on a given policy; provided that such provisions and factors shall not set forth or imply, directly or indirectly, the amount of dividend or percentage of premium which will be paid as dividend, or amount or percentage of premium to be retained by the insurer after payment of dividend. Any such advice or statement, whether issued directly to a prospective or current policyholder or issued by an insurer to its agent or a broker, shall be deemed a “Dividend Statement” and shall be subject to the rules set forth in this section.

(1) A Dividend Statement shall be upon a format prescribed by the Insurance Commissioner and available upon request from his San Francisco and Los Angeles offices. A Dividend Statement shall be in writing and shall include the mandatory language set forth in Section 2503 above. The mandatory language shall appear prior to, and have equal prominence as, any advice regarding such general provisions and factors set forth in the statement. Such Dividend Statement shall also contain, with equal prominence, the following language: “It is a misdemeanor for any insurer or officer or agent thereof, or any insurance broker or solicitor, to promise the payment of future workers' compensation dividends.”

(2) A Dividend Statement shall include the rate or amount of dividend previously declared or paid on a similar policy or policies or the scale or schedule previously used to determine the amount or rate of dividends. In any such case, however, the Dividend Statement shall also set forth the period covered by policies on which such dividends were paid and that past dividend performance is no guarantee of an insurer's future dividend performance.

(3) A Dividend Statement shall set forth a time schedule during which the insurer intends to consider, compute or pay any dividend.

(4) A Dividend Statement shall include a statement in compliance with Section 2507.2 that forfeiture of a right to, reduction in the amount of, or delay in the payment of, a policyholder's dividend due to the policyholder's failure to accept renewal of the policy or subsequent policies issued by the same insurer is coercive and illegal and constitutes an unfair practice. This statement shall have equal prominence as any advice regarding such general provisions and factors set forth in the Dividend Statement.

(5) A Dividend Statement shall include a statement that, in every situation where the policy develops an annual premium equal to or in excess of the amount of $10,000 as finally audited and adjusted, a “Policyholder Dividend Result Disclosure Statement,” which will provide all essential data employed to compute the dividend result, and which also will compare the factors actually employed in calculation of the dividend result to the factors presented to the policyholder in the Dividend Statement, shall accompany the dividend paid or, where no dividend is paid, shall be provided in place of a dividend.

(b) Whenever a workers' compensation policy has developed an annual premium equal to or in excess of the sum of $10,000 as finally audited and adjusted, a written form captioned “Policyholder Dividend Result Disclosure Statement” shall accompany the dividend paid or, where no dividend is paid, shall be provided in place of a dividend. This statement shall be upon a format prescribed by the Insurance Commissioner and available upon request from his San Francisco or Los Angeles office. The Policyholder Dividend Result Disclosure Statement must identify the policyholder and the insurer, the policy to which the statement applies, and the term of said policy. The Policyholder Dividend Result Disclosure Statement shall present the calculation of the dividend result, and shall provide the policyholder with all essential data provided to compute the dividend result. In the event that the insurer has also issued a Dividend Statement to the policyholder or his agent, broker, or solicitor in conjunction with the policy term for which the dividend is to be calculated and to which the Policyholder Dividend Result Disclosure Statement applies, then and in such event the Policyholder Dividend Result Disclosure Statement must also compare the factors employed in calculation of the actual dividend result to the factors presented the policyholder when the policy was issued.

In presentation of the calculation of any dividend result, the Policyholder Dividend Result Disclosure Statement shall show such calculation in columnar form in both actual dollars and percentage of earned premium, and shall present such figures and percentages for the earned premiums, the incurred losses, the Incurred But Not Reported losses (IBNR), if any, the loss Development Factor (LDF), if any, the insurer retention, and any other factors pertinent to the actual dividend result. Within the context of this paragraph, the Incurred But Not Reported losses and the Loss Development Factor are deemed pertinent factors sufficient to warrant separate identification and disclosure, if applicable. In the event that the insurer has issued a Dividend Statement in conjunction with the policy term, the Policyholder Dividend Result Disclosure Statement shall also repeat these factors in actual dollars and percentages of estimated premium for comparison purposes and disclose any differences for the benefit of the policyholder.

(c) A Dividend Statement and Policyholder Dividend Result Disclosure Statement prepared in compliance with these sections shall be delivered to the organization or association or the administrator thereof in the event that the insurer will issue a workers' compensation policy insuring an organization or association of employers as a group in compliance with Section 11656.6 of the Insurance Code.

(d) If a policy of insurance is issued, continued or renewed and a Policyholder Dividend Disclosure Statement or Policyholder Dividend Result Disclosure Statement is issued in connection therewith by the insurer, a copy of such Dividend Statements shall be retained by the insurer with a copy of the policy, and shall be available for audit by the Insurance Department. Where the Dividend Statements are provided to the policyholder through an agent, broker or solicitor, such agent, broker or solicitor shall also retain a copy of the Dividend Statements with a copy of the policy.

(e) The provisions of this section relating to the mandatory form, content, delivery or retention of a Policyholder Dividend Disclosure Statement shall be applicable to workers' compensation policies incepting or renewing on and after April 1, 1985. The provisions of this section relating to the mandatory form, content, delivery or retention of a Policyholder Dividend Result Disclosure Statement shall be applicable to dividend results arising from a workers' compensation policy expiring on or after January 1, 1985.

NOTE

Authority cited: Sections 790.10 and 11734, Insurance Code. Reference: Sections 750, 763, 780, 790.02 and 11738, Insurance Code.

HISTORY

1. Amendment filed 4-2-85; effective upon filing pursuant to Government Code Section 11346.2(d) (Register 85, No. 14).

§2506. Sanctions for Unfair Practices or Misrepresentations Regarding Workers' Compensation Dividends.

Any representation as to future dividends, or statements as to prior dividends declared or paid, issued by any insurer, agent, broker, or solicitor to induce a prospective policyholder to accept a policy, or to induce a policyholder to retain or renew a policy, failing to conform to this article shall be deemed an unfair practice or misrepresentation, subject to sanctions set forth in Insurance Code Sections 782, 783, 783.5 and 790.04 et seq.

§2507. Declaration by Board of Directors or Other Governing Board.

No right to a policyholder's dividend under a workers' compensation insurance policy, or to the application or use of any plan, scale, table, formula or schedule to determine whether any dividends shall be paid or allowed or the amount thereof, shall accrue unless and until the Board of Directors or other governing body of the insurer shall have determined that the insurer has a surplus from which dividends may lawfully be paid and shall have declared such dividends by resolution adopted after the expiration of the term covered by the policy.

Each declaration of policyholder's dividends for workers' compensation insurance policies by the Board of Directors or other governing board of the insurer shall identify by policy inception or expiration dates the body of policies to which such declaration is applicable and shall specify the dividend plans, scales, tables, formulas or schedules applied or to be applied to determine whether any dividends shall be paid or allowed or the amounts thereof to be allocated to separate policies pursuant to such declaration.

§2507.1. Prohibition Against Unfair Discrimination.

Allocation of dividends shall not be unfairly discriminatory. The dividend plans, scales, tables, formulas or schedules specified in the declaration may provide for allocation of dividends as a flat percentage of premiums or may provide for variations in the amounts of dividends or the percentages of premium paid as dividends based upon loss or expense factors or any other reasonable considerations, such as size, location, hazard, industry or trade classification, which have a probable effect on losses or expenses. Failure to apply in a consistent manner the plans, scales, tables, formulas or schedules adopted and specified in a declaration of dividends shall be prima facie evidence of unfair discrimination except that any variation from such adopted procedures set forth in a dividend statement, pursuant to Section 2505 hereof, which has been provided to the policyholder prior to inception of his policy shall not be deemed to be unfairly discriminatory.

§2507.2. Prohibition Against Unfair Forfeiture of Dividend for Failure to Renew.

Note • History

(a) Forfeiture of a right to, reduction in the amount of, or delay in the payment of, a policyholder's dividend due to the policyholder's failure to accept renewal of the policy or subsequent policies offered by the same insurer is coercive and illegal and shall constitute an unfair practice.

(b) This section shall not be deemed to prohibit a reasonable reduction in the amount of a policyholder dividend if

(1) the policyholder has elected to be considered for policyholder dividends under a plan which utilizes the premium and loss experience of the policyholder for two or more policy years, and

(2) the nature of the adjustment is set forth in a Dividend Statement which has been provided to the policyholder within thirty days after the inception of the first policy year for which such election has been made, and

(3) the policyholder does not remain insured by the same insurer during the complete term of the multi-year dividend plan. In the context of this paragraph, a “reasonable reduction” in the amount of policyholder dividends is defined as and specifically limited to the application of that most favorable dividend plan for which the policyholder then qualifies under the dividend procedures of the insurer unless some alternative dividend plan has been set forth in the Dividend Statement provided the policyholder.

(c) Paragraphs (a) and (b) herein are effective with respect to all workers' compensation dividends declared or payable after the effective date hereof.

NOTE

Authority cited: Sections 790.10 and 11734, Insurance Code. Reference: Sections 750, 763, 780, 790.02 and 11738, Insurance Code.

HISTORY

1. Amendment filed 4-2-85; effective thirtieth day thereafter (Register 85, No. 14).

§2508. Group Policies--Reduction or Forfeiture of Member's Right to Distribution of Dividend Funds.

To avoid any coercion or possible misrepresentation of dividends which may be paid to members of organizations or associations of employers insured under group workers' compensation policies, no group policy shall be issued to become effective on and after July 1, 1976, unless the articles of incorporation, by-laws, agreements of association, or rules and regulations filed pursuant to Insurance Code Section 11656.6 shall provide that (1) any distribution of funds to any member, derived from a dividend, shall not be reduced or forfeited except for reasons set forth in the articles of incorporation, by-laws, agreements of association, or rules and regulations, and (2) no such reduction or forfeiture shall be made effective unless the reasons for such reductions or forfeiture have been made known by written communication to the member prior to inception of his insurance coverage during the policy period for which such dividend adjustment is made.

§2509. False or Deceptive Documents.

No workers' compensation insurer or officer or agent thereof, or other insurance broker or solicitor shall adopt or cause or permit to be issued, circulated or used any representation, plan, schedule, letter or advertising material of any kind stating or implying that any insurer has acted or will in the future act in any manner at variance with this article.

Article 9.5. Workers' Compensation Insurance Deposits

§2509.1. Application of Article.

Note • History

This article applies to all insurers authorized to write workers' compensation insurance in this State.

NOTE

Authority cited: Section 11715, Insurance Code. Reference: Section 11715, Insurance Code.

HISTORY

1. New Article 9.5 (Sections 2509.1-2509.20, not consecutive) filed 4-15-83; effective upon filing pursuant to Government Code Section 11346.2(d) (Register 83, No. 16).

§2509.3. Purpose.

Note

Insurance Code Section 11715 permits any workers' compensation insurer in lieu of filing the surety bond required by Section 11690 of the Insurance Code, to file a clean and irrevocable letter of credit with the Commissioner, or his approved depository, or to make an acceptable deposit of securities with a bank, savings and loan association or trust company, or to make a deposit with the State Treasurer. Deposits made with the State Treasurer, pursuant to Insurance Code Section 11715, are not governed by these regulations.

NOTE

Authority cited: Section 11715, Insurance Code. Reference: Section 11715, Insurance Code.

§2509.4. Reporting of Transactions.

Note

If the insurer elects to place the required deposit with a bank, savings and loan association or trust company, information shall be submitted to the Commissioner by the insurer and the depository, where applicable, on forms approved by the Commissioner.

NOTE

Authority cited: Section 11715, Insurance Code. Reference: Section 11715, Insurance Code.

§2509.5. Classes of Securities Eligible for Deposit.

Note

Debt securities, preferred stock and common stock, subject to the requirements set forth herein, are the only classes of investment securities eligible for deposit. Debt securities secured by interest in real estate are not eligible for deposit including but not limited to investments authorized under California Insurance Code Sections 1150, 1176, 1176.1, 1176.5, 1177, 1191.1, 1192.2, 1194.4, 1194.8, 1194.95.

NOTE

Authority cited: Section 11715, Insurance Code. Reference: Section 11715, Insurance Code.

§2509.6. Acceptable Debt Securities.

Note

Subject to the limitations set forth in the California Insurance Code and this Article, the following types of securities shall be acceptable to the Insurance Commissioner:

Embedded Graphic 10.0195

Embedded Graphic 10.0196

NOTE

Authority cited: Section 11715, Insurance Code. Reference: Section 11715, Insurance Code.

§2509.7. Debt Securities Defined.

Note

Debt securities, as defined herein, include notes, bonds, debentures, or other instruments commonly used as instruments of indebtedness, and accounts, deposits, certificates and other investment securities issued by banks and savings and loans and specifically authorized for investment by insurers under the California Insurance Code; no debt securities will be acceptable for deposits if:

(a) the security is currently in default as to any principal or interest payments;

(b) the security or any security, lawfully issued by the same issuer, has been in default as to either principal or interest payments for more than ninety (90) days within the immediately past period of:

(1) two (2) years if the issuer is a county, municipality or school district in this State or in any other state, any province of Canada, or the Commonwealth of Puerto Rico; or

(2) ten (10) years if the issuer is this State or any other state.

NOTE

Authority cited: Section 11715, Insurance Code. Reference: Section 11715, Insurance Code.

§2509.8. Debt Security Rating and Listing Requirements.

Note

Any government debt security or non-government debt security listed on a national securities exchange which meets all other requirements in this Article and which has at least an “A3” rating by Moody's Investors Service, Inc., “A-” by Standard & Poor's Corporation, “A-” by Fitch Investors Service, Inc., or a comparable rating if the rating symbols are changed, is acceptable for deposit. Non-governmental debt securities which are traded over the counter and which meet all other requirements of this Article, must have at least an “Aa3” rating by Moody's Investors Service, Inc., “AA-” by Standard & Poor's Corporation or “AA-” by Fitch Investors Service, Inc. to be acceptable for deposit. Promissory notes as defined in Section 2509.6(i) or debt securities of banks and savings and loan associations need not meet the requirements contained in this section.

NOTE

Authority cited: Section 11715, Insurance Code. Reference: Section 11715, Insurance Code.

§2509.9. Preferred Stock.

Note

The following preferred stock is acceptable for workers' compensation deposits subject to the requirements set forth in this Article and the following conditions:

(a) the stock must be registered and traded on a national securities exchange as provided in the Securities Exchange Act of 1934, as amended; and

(b) within the last ten (10) years there must not have been arrears of dividend payments on such preferred stock; and

(c) the issuing corporation shall have paid dividends on its common stock in each of the last five (5) years of operation; and

(d) the issuing corporation shall have a net worth of at least one hundred million dollars ($100,000,000); and

(e) the issuing corporation shall not have incurred a net loss in any more than one (1) of the last five (5) years of operation; and

(f) the issuing corporation shall not have been in default on any of its indebtedness or any of its sinking fund requirements; and

(g) except in the case of sinking fund preferred stock, the preferred stock must have a rating of at least “a3” by Moody's Investors Service, Inc. or “A-” by either Standard & Poor's Corporation or Fitch Investors Service, Inc.; and

(h) sinking fund preferred stock must have a rating of at least “baa3” by Moody's Investors Service, Inc., “BBB-” by Standard & Poor's Corporation or Fitch Investors Service, Inc.

NOTE

Authority cited: Section 11715, Insurance Code. Reference: Section 11715, Insurance Code.

§2509.10. Common Stock.

Note

Common stock is acceptable for workers' compensation deposit subject to the requirements set forth in this Article, and all of the following requirements:

(a) the stock must be registered and traded on a national securities exchange as provided in the Securities Exchange Act of 1934, as amended; and

(b) the stock must not be stock of an affiliate of Applicant; and

(c) no more than ten percent (10%) of the deposited value shall be in the stock of any one corporation calculated on the basis of the minimum required deposit value which must be maintained by the depositing insurer; and

(d) the issuing corporation must have a net worth of at least one hundred million dollars ($100,000,000); and

(e) the issuing corporation shall have paid dividends on its common stock in each of the last five (5) years of operation; and

(f) the issuing corporation shall not have incurred a net loss in any more than one (1) of the last five (5) years of operation.

NOTE

Authority cited: Section 11715, Insurance Code. Reference: Section 11715, Insurance Code.

§2509.11. Valuation of Securities.

Note

Preferred and common stock are to be valued at market. All other securities, other than promissory notes taken for premium, for all purposes, shall be valued at the lower of par or market value. Promissory notes taken for premium shall be valued at the lowest of the following:

(a) the amount of written premium recorded by the insurer as of the valuation date less cash collected;

(b) the principal owed on the note; or

NOTE

Authority cited: Section 11715, Insurance Code. Reference: Section 11715, Insurance Code.

§2509.12. Time Limit on Valuation of Securities.

Note

Securities which are being placed on deposit shall be valued as of a date no more than thirty (30) days prior to the date of delivery to the approved depository. Securities which are on deposit on December 31, shall be valued as of December 31.

NOTE

Authority cited: Section 11715, Insurance Code. Reference: Section 11715, Insurance Code.

§2509.13. Required Value of Deposit.

Note

(a) Generally.

The value of securities to be deposited with a bank, savings and loan association or trust company shall be not less than one hundred percent (100%) of the amount required to be maintained on deposit pursuant to Sections 11699 and 11715 of the California Insurance Code. No withdrawal of securities, including preferred and common stock, shall be made by the insurer which results in the total value of the deposit being less than one hundred percent (100%) of the required deposit amount. The insurer shall, at all times, have on deposit sufficient securities to maintain the deposit value at not less than one hundred percent (100%) of the required amount.

(b) Promissory Notes Taken for Premiums --Additional Restrictions.

(1) The total deposit value of all promissory notes taken for premium and which are placed on deposit with a bank, savings and loan association or trust company may not exceed fifty percent (50%) of the amount required to be maintained on deposit by Sections 11699 and 11715 of the California Insurance Code.

(2) The insurer shall report quarterly to the Insurance Commissioner in a form prescribed by the Commissioner with regard to promissory notes taken for premium and which are placed on deposit with a bank, savings and loan association or trust company.

NOTE

Authority cited: Section 11715, Insurance Code. Reference: Section 11699 and 11715, Insurance Code.

§2509.14. Election of Depository.

Note • History

(a) Any workers' compensation insurer electing to deposit securities in the California office of a duly licensed bank, savings and loan association or trust company shall do so subject to the approval of the Commissioner. The selected Depository shall have deposits of no less than seven hundred fifty million dollars ($750,000,000). If such election is made, no more than one (1) office of any bank, savings and loan association or trust company shall be selected as the holder of the required deposit. The holder is defined herein as the center of control and reporting. All records pertaining to the deposit shall be maintained in the selected holder-office. The deposited assets shall be maintained in this State.

(b) Where a depository is used, the outside depository trust company shall be approved in advance for such purpose by the Commissioner. In such a case, book-entry accounting is acceptable for the deposit. The Federal Reserve book-entry program for deposit of federal securities may be issued through the Depository itself because it is (1) a member bank in the Federal Reserve System located in California or (2) a depository institution which has its own direct account at the Federal Reserve System located in California, whether or not the definitive certificates are available upon express request. The Depository shall monitor the transactions and maintain the book-entry securities. It shall expressly undertake the same responsibilities, obligations, duties and reporting requirements for these securities as for all other deposited securities.

(c) Subject to the bank, savings and loan association or trust company's right to terminate the agreement pursuant to which a deposit is held, no insurer may change its election more frequently than once in any twelve (12) month period. Any change in Depository shall be subject to the prior approval of the Commissioner. Notwithstanding the foregoing, an insurer may elect to file a workers' compensation bond or a letter of credit with the Commissioner, or make a securities deposit with the State Treasurer.

NOTE

Authority cited: Section 11715, Insurance Code. Reference: Section 11715, Insurance Code.

HISTORY

1. Amendment of subsection (b) filed 8-28-98; operative 9-27-98 (Register 98, No. 35).

§2509.15. Title and Location of Deposit Held by a Depository.

Note

If an insurer elects to place the required deposit with a bank, savings and loan association or trust company, all securities shall be in coupon or bearer form, negotiable form, registered to the Insurance Commissioner, or in the name of the depository bank, savings and loan association or trust company, or in the name of a nominee of such bank, savings and loan association or trust company, and shall be in accordance with the laws of this State permitting use of nominees. If registered in the depositor's name, the workers' compensation insurer shall execute and deliver, in duplicate, to the Commissioner a power of attorney in favor of the Commissioner for the purposes specified in Section 11690 of the California Insurance Code supported by a resolution of the depositor's board of directors. In the case of the deposit of a promissory note taken for a premium, the power of attorney and resolution of the board of directors shall extend to the promissory note and the supporting letter of credit or surety bond. Such power of attorney and directors' resolution shall be on a form approved by the Commissioner, and shall provide that the power of attorney cannot be revoked or withdrawn without the consent of the Commissioner, and shall contain an acknowledgment, as required by law.

NOTE

Authority cited: Section 11715, Insurance Code. Reference: Section 11690 and 11715, Insurance Code.

§2509.16. Approval by Commissioner of Depository Agreement.

Note

If an insurer elects to maintain the required deposit with a bank, savings and loan association or trust company, the written agreement with the insurer and the bank, savings and loan association or trust company, and the Commissioner shall be substantially in the form set forth in Section 2509.17 of these regulations and shall be filed with and approved by the Commissioner.

NOTE

Authority cited: Section 11715, Insurance Code. Reference: Section 11715, Insurance Code.

§2509.17. Form of Agreement.

Note

DEPOSITORY AGREEMENT

THIS AGREEMENT is made and entered into at _________________, California, on ___________________________,19____,by and among

___________________________________________,

(Insurer)

an insurer authorized to write workers' compensation insurance in the State of California, hereinafter called “Insurer,”

____________________________________________________________

(Name of Bank, Savings and Loan Association or Trust Company)

____________________________________________________________

(Address)

authorized to carry on business in the State of California, hereinafter called “Depository” and the Insurance Commissioner of the State of California, hereinafter called “Commissioner.”

WHEREAS, workers' compensation insurers writing such insurance in the State of California are authorized to establish a deposit and enter into a depository agreement with a bank, savings and loan association or trust company under Section 11715 of the Insurance Code and regulations set forth in Article 9.5, Subchapter 3, Chapter 5, Title 10, of the California Administrative Code, and

WHEREAS, said deposit placed pursuant to the requirements set forth in Sections 2509.1 through 2509.20, Title 10, of the California Administrative Code, may be retained by a bank, savings and loan association or trust company duly-licensed in California, and

WHEREAS, the Depository qualifies as such a bank, savings and loan association or trust company and is duly-licensed in California.

NOW, THEREFORE, THE PARTIES HERETO AGREE AS FOLLOWS:

ARTICLE 1

DEPOSIT

Insurer deposits with Depository and Depository accepts the securities set forth in Schedule “A,” attached hereto and made a part hereof, hereinafter called “deposit.” In accepting said deposit, Insurer and Depository agree to abide by the terms herein, the California Insurance Code, and Article 9.5, Subchapter 3, Chapter 5, Title 10, of the California Administrative Code.

ARTICLE II

DUTIES AND POWERS

A. Depository agrees to render to the Commissioner a report, as of December 31st, and at any time upon the request of the Commissioner, but in no event to exceed ten (10) business days from the date of request, containing an accounting identifying and listing the deposit. All accounting shall be certified to be true and correct according to the best information and belief of the Depository.

B. Current deposit value for securities shall be the lower of par or market, except that preferred stock and common stock are to be valued at market value. As respects promisory notes which are placed on deposit, the Depository may rely, in good faith, upon representations of the Insurer as to the deposit value of such notes. All valuations must be made within thirty (30) days prior to submission of the report. All accounting shall be certified to be true and correct according to the best information and belief of the Depository.

C. The Depository shall indemnify the Insurer for any loss, damage or injuries sustained by the Insurer with respect to any securities deposited pursuant to this Agreement including loss occasioned by employee dishonesty, burglary, robbery, theft or mysterious disappearance, unless such loss should be caused by nuclear contamination from a cause other than the industrial use of nuclear energy, expropriation by governmental authority, war, insurrection or revolution. The Depository agrees that if there is a loss of securities in its custody, the Depository will replace them or the monetary value thereof, and the monetary value of any loss of rights or privileges resulting from said loss of securities, within ten (10) business days, unless, pursuant to an agreement with the Commissioner extra time is granted, from the date that said securities cannot be accounted for by the Depository. Also, immediately upon discovery, the Depository shall notify the Commissioner of the loss and the proposed action to be taken by the Depository in connection therewith.

D. The Depository agrees to hold said deposits separate from its own assets and all of the deposits held by it, except where it uses the Federal Reserve Bank book-entry account, or, where it has its own internal FOSBI system (filing of securities by issuer), or uses an outside depository trust company previously approved by the Commissioner, which maintains its records and the insurer's deposit in this State. In using such outside depository, the Depository herein agrees to and is obligated to indemnify the Insurer for loss or damage based upon the actual omissions of its agent (here the depository utilized by the institutional Depository) so as to protect the Insurer's deposit in connection with such transaction. The Depository agrees that it shall assume the same responsibility and liability to the Insurer for the loss of such securities in connection with the entrusting to and handling of the securities by the outside depository, to the same extent that the Depository would be responsible for his handling of the securities directly and exclusively. Insurer assigns its rights, if any, to recover from the outside depository to the Depository in return for this indemnification and agrees that it will provide reasonable assistance to the Depository in order that the Depository may recover any loss or liability from the outside depository.

E. (For use where ownership is evidenced by credit on the books of account and records in the Federal Reserve Bank.) Said Depository, in the exercise of its powers as such Depository, has caused to be credited in its name on the books and records of the Federal Reserve Bank the sum of $________, representing the face amount of eligible United States Government and Agency securities listed in Schedule “B” attached hereto and made a part hereof, hereinafter called “deposit.” The Depository represents to all parties hereto that such schedule is a true and complete statement of the eligible United States Government and Agency securities included among the total of such securities held in a “General” book-entry account maintained in the name of such Depository on the books and records of the Federal Reserve Bank as of the close of business on ____. The Depository undertakes to clearly indicate in its books and records the purpose of this deposit.

F. Insurer shall submit and Depository shall accept for deposit such securities, including preferred and common stock, only in coupon or bearer form, negotiable form, registered to the Insurance Commissioner, or in the name of the Depository, or in the name of a nominee of such Depository, or its agent in accord with the laws of this State permitting use of nominees. If registered in the Insurer's name, the securities must be accompanied by a power of attorney and a board of directors' resolution on forms approved by the Commissioner, as set forth in the Insurance Commisisoner's Securities Transactions Instructions, and as required by Section 2509.15, Title 10 of the California Administrative Code.

G. Insurer agrees to submit for deposit only such securities as are acceptable for deposit pursuant to Article 9.5, Subchapter 3, Chapter 5, Title 10 of the California Administrative Code.

H. At any time, Insurer may substitute approved securities of at least equal value for those held by the Depository or place additional securities on deposit in accordance with the requirements set forth herein. Insurer shall certify that the substituted or additional deposit is in compliance with Section 943, 944, 951 and 11715 of the California Insurance Code and Article 9.5, Subchapter 3, Chapter 5, Title 10 of the California Administrative Code. The certification shall be signed by two (2) authorized officers of the Insurer and submitted to the Depository.

Withdrawal without replacement is permitted only with the Commissioner's prior written approval.

The Depository shall have no responsibilities with respect to the investment and reinvestment of the property held by it under this Agreement. All sales, purchases, exchanges or other transactions respecting securities or other property which may be made by the Depository for the account of the Insurer shall be made only pursuant to instructions of the Insurer of the Insurer's designated representative except upon written request of the Commissioner, pursuant to Article I, Chapter 3, Part 3, Division 2 of the California Insurance Code to immediately assign and deliver to the Commission upon demand any and all securities deposited or held under the terms of this Agreement. Absent such instructions, the Depository shall have no responsibility for the investment or reinvestment of such property nor liability for any omission to act in the absence of instructions.

The Insurer and not the Depository shall be responsible for all property held under this agreement paid and/or delivered to any broker or other person specified by Insurer in such manner as Insurer may direct. The Depository is directed to sell all fractional shares received by it unless notified to the contrary by the Insurer. The Depository shall not vote proxies. All proxies shall be forwarded to the Insurer.

The Depository shall either reinvest net income or distribute it as Insurer may direct from time to time. The Depository shall distribute principal cash as Insurer may direct from time to time. Securities may likewise be withdrawn pursuant to such direction subject to qualification that the Depository may retain such funds and securities as it determines to be necessary to complete any pending buy or sell transactions. The Depository shall prepare a monthly statement, in the usual form for accounts of this type and shall deliver the same to The Insurer and to any representative designated by Insurer.

I. The Insurer shall furnish to the Commissioner and the Depository its determination of its current deposit requirements under Sections 11690 through 11715 of the California Insurance Code, prior to the effective date of this Agreement, and thereafter on the same basis as reported to the Commissioner on Schedule P, as of December 31st, of each year.

J. Written notice of the same or substitution of any security or the deposit of additional security as well as an accounting which reflects a deposit value of the security being placed on deposit shall be prepared by the Insurer and signed, sealed and dated by two (2) authorized officers of the Depository and shall be provided to the Commissioner by the Depository within ten (10) business days of the settlement or deposit date.

K. Depository will, at all times and without prior notice, make available its books and records of such deposit held under this Agreement for audit, examination and inspection by the Insurer or by the Commissioner.

L. Insurer hereby directs and Depository agrees, upon written request of the Commissioner, pursuant to Article I, Chapter 3, Part 3, Division 2 of the California Insurance Code to immediately assign and deliver to the Commissioner upon demand any and all securities deposited or held under the terms of this Agreement.

M. Depository agrees that it shall not and does not have the power to use, pledge, invest, encumber or subject said deposit to any lien or claim by Depository.

ARTICLE III

EXCULPATORY CLAUSES

A. Other than under the terms of any instrument deposited pursuant to the terms of this Agreement, Depository shall not be under any liability for payment of interest on a deposit made hereunder.

B. Depository shall be entitled to reasonable compensation from Insurer for all services, ordinary and extraordinary, rendered by it pursuant to the terms of this Agreement, including reasonable attorneys' fees for services of counsel. Depository shall not be required to comply with any direction of the Insurer which in its judgment may subject it to liability or expense, or to prosecute or defend any action, unless indemnified in a manner and amount satisfactory to it.

C. Depository may terminate this Agreement and become and remain fully discharged from all further duties and liabilities hereunder upon giving at least sixty (60) days notice by certified mail in writing to the Insurer and the Commissioner. Insurer may terminate this Agreement by giving at least sixty (60) days notice by certified mail in writing to the Depository and the Commissioner. In such event, any successor Depository shall be appointed in the same mode and manner as provided for under Sections 11690 through 11715 of the California Insurance Code, Article 9.5, Subchapter 3, Chapter 5, Title 10 of the California Administrative Code and as hereinafter provided in Paragraph D next following.

D. Upon the effective date of termination and withdrawal of the deposit, Insurer shall deliver, in the required amount, a workers' compensation bond, as set forth under California Insurance Code Section 11690, a letter of credit to the Commissioner of the deposit of securities with any other approved depository, as set forth in Section 11715 of the California Insurance Code, all in compliance with the requirements set forth herein, the California Insurance Code, and the regulations of the Insurance Commissioner set forth in Article 9.5, Subchapter 3, Chapter 5, Title 10 of the California Administrative Code, and pursuant to the prior written approval of the Commissioner.

ARTICLE IV

MISCELLANEOUS

A. Nothing in this Agreement shall give, or be construed to give, any person, firm or corporation, other than the parties hereto, any legal or equitable right, remedy or claim under this Agreement or under any covenant or provisions contained herein, all the covenants and provisions being for the sole benefit of the parties hereto.

B. Depository affirms, to the best of its knowledge and belief that said securities are owned by the insurer and are free and clear of all liens, claims and encumbrances and do not constitute security for any loans.

C. This Agreement shall be executed in quadruplicate and each copy shall be deemed an original; two (2) copies shall be submitted to the Commissioner.

D. All notices, requests, consents and other communications, required or permitted with respect to the Agreement, shall be in writing and shall be addressed as follows:

Insurer:

Depository:

Insurance Commissioner

State of California:

IN WITNESS WHEREOF, the parties hereto have executed this Agreement the day and year first above written.

_______________________________

By ____________________________

(Seal) By ______________________

Insurer

_______________________________

By ____________________________

(Seal) By ______________________

Depository

Commissioner of Insurance

State of California

(Seal) By ______________________

NOTE

Authority cited: Section 11715, Insurance Code. Reference: Sections 943, 944, 951 and 11690 through 11715, Insurance Code.

§2509.18. Letter of Credit.

Note

The Commissioner will accept, in lieu of deposited securities or a surety bond, a letter of credit acceptable to and filed with the Commissioner or his approved depository, which is in full compliance with the following:

(a) Two (2) originally signed copies must be submitted, one (1) of which will be returned to the issuing bank for verification of signature authorization;

(b) The issuer must be a member bank of the Federal Reserve System with an office in this State;

(d) It must be clean and irrevocable and comply with the following:

(1) It must be an unconditional letter requiring no documentation; the beneficiary must be able to realize funds simply by drawing a draft under the credit, limited only by the amount available, as set forth in the letter of credit; and

(2) It must be expressly stated that it is clean and irrevocable and that it cannot be modified or revoked without the consent of the beneficiary, once the beneficiary is established; and

(3) It must contain an “evergreen” clause which prevents expiration of the letter of credit without some affirmative action by the issuer; the letter must be for not less than one (1) year and must provide that it will be automatically extended for the period of time stated in the original letter if the notice of expiration is not complied with by the issuer; the Commissioner-beneficiary and the insurer-account holder must be given no less than forty-five (45) days prior notice of the expiration of such letter of credit.

NOTE

Authority cited: Section 11715, Insurance Code. Reference: Section 11715, Insurance Code.

§2509.19. Permitted Combination.

Note

The Commissioner will accept, in lieu of a surety bond, a combination consisting of a letter of credit filed with him and a deposit of securities to meet the statutory deposit requirements set forth and referenced in California Insurance Code Section 11715. If such combination is used, a separate fee for review must be paid for the deposit and the letter of credit. If a surety bond is filed, no combination deposit may be used.

NOTE

Authority cited: Section 11715, Insurance Code. Reference: Section 11715, Insurance Code.

§2509.20. Withdrawal of the Commissioner's Authorization in the Event of Non-Compliance.

Note

In the event that the Commissioner determines that an insurer or depository has not fully complied with this Article, to the extent applicable to such insurer or depository, the Commissioner may withdraw any authorization granted and order such insurer to transfer all of its deposit to the Commissioner or other depository designated by the Commissioner.

NOTE

Authority cited: Section 11715, Insurance Code. Reference: Section 11715, Insurance Code.

§2509.21. Deposits of Reinsurers.

Note • History

(a) When an admitted insurer is subject to proceedings specified in Insurance Code Sections 11698(a) or 11698.3, any workers' compensation deposit made pursuant to Insurance Code Section 11691(f)(1) by any reinsurer of the insurer, which the reinsurer was required to identify to the commissioner pursuant to Insurance Code Section 11691(f)(1) and for which the ceding insurer was allowed any deposit credit, shall be deemed for the purposes of Article 1 (commencing with Section 11690), Chapter 3, Part 3, Division 2 of the Insurance Code, to be included as part of the ceding insurer's own workers' compensation deposit pursuant to Insurance Code Section 11691(a). The commissioner shall use the proceeds of any such deposit by the reinsurer, and any interest thereon, only for the payment of that portion of a workers' compensation claim which the reinsurer is required to pay as determined pursuant to Insurance Code Section 11691(f)(2). To the extent that any portion of a reinsurer's deposit is used to pay a compensable workers' compensation claim against an insurer as provided in the preceding sentence, the liability of the reinsurer with respect to the portion of the claim so paid shall be deemed fully satisfied and released. Upon request, the commissioner shall provide to any reinsurer a special certificate pursuant to Insurance Code Section 12973 that memorializes the satisfaction and release.

(b) By reason of the reinsurance agreement requirements set forth in Insurance Code Section 11691(f)(2), payment of a claim from a reinsurer's deposit shall be considered an authorized payment to an alternative payee for the purposes of Insurance Code Section 922.2(a)(2).

NOTE

Authority cited: Section 11691, Insurance Code. Reference: Sections 922.2, 11691, 11698 and 11698.3, Insurance Code.

HISTORY

1. New section filed 7-10-2006; operative 8-9-2006 (Register 2006, No. 28).

Article 9.6. Workers' Compensation Rate Filings

§2509.30. Purpose.

History

This subchapter is adopted to implement the provisions of Insurance Code Sections 11730 through 11759.1, which, among other matters, govern insurance company filing of workers' compensation insurance rates and rating plans, and to specify the handling of those filings by the Commissioner.

HISTORY

1. New article 9.6 and section filed 10-13-94; operative 10-13-94. Submitted to OAL for printing only pursuant to Statutes of 1993, Ch. 1242 (S.B. 223), section 43, subdivision 3 (Register 94, No. 41).

§2509.31. Definitions.

History

(a) “Actuary” means a member in good standing of the Casualty Actuarial Society or a member in good standing of the American Academy of Actuaries who meets the general qualification standard to present public statements of actuarial opinion.

(b) “Approved pure premium rates” means the pure premium rates prepared and submitted by the designated rating organization and approved by the Commissioner.

(d) “Deviation” means the insurer's adjustment, upward or downward, of the approved pure premium rates based only on charges in the loss cost per unit of exposure, including loss adjustment expense.

(e) “Pure premium rate modifier” means all the factors, other than deviations, if any, by which an insurer adjusts the approved pure premium rates or its independently developed pure premium rates to arrive at that insurer's filed rates.

(f) “Rating plan” means the rules and numeric values an insurer uses to calculate the premium for an insured.

HISTORY

1. New section filed 10-13-94; operative 10-13-94. Submitted to OAL for printing only pursuant to Statutes of 1993, Ch. 1242 (S.B. 223), section 43, subdivision 3 (Register 94, No. 41).

§2509.32. Insurer's Rate Filing.

History

(a) Insurance Code Sections 11734 and 11735 require an insurer to file its rates and supplementary rate information at least 30 days before their effective date, unless the Commissioner approves the insurer's request for an earlier date. Insurance Code Section 11658 provides that no insurer shall issue a workers' compensation insurance policy unless the policy is first approved by the Commissioner. Insurers shall file workers' compensation insurance rate filings with the Department of Insurance, Rate Filing Bureau for Workers' Compensation Insurance.

(b) The filing date of a rate filing is the date the Rate Filing Bureau for Workers' Compensation Insurance receives a complete rate filing. The 30-day waiting period described in Insurance Code Section 11734, subdivision (b), and Section 11735, subdivision (a), begins on the filing date.

(c) The Commissioner shall determine whether a rate filing is complete and complies with filing requirements, and the Commissioner may reject a rate filing if the insurer fails to comply with filing requirements or if the filing is incomplete.

(1) If the Commissioner rejects an insurer's rate filing because it is incomplete or otherwise fails to comply with filing requirements, any subsequent rate filing by that insurer shall be given a new filing date on its receipt by the Rate Filing Bureau for Workers' Compensation Insurance.

(2) If a rate filing needs correction of an error or filing of additional information to be complete, the Commissioner shall give the insurer an opportunity to correct the filing. If the insurer corrects the rate filing within 30 days of its original filing date, the insurer may calculate the 30-day waiting period from the original date of the rate filing. If the insurer corrects the rate filing more than 30 days from its original filing date, the Department shall assign a new filing date, which shall be the date the correction or additional information is received by the Rate Filing Bureau for Workers' Compensation Insurance. In that case, the insurer may request of the Commissioner that its rates become effective earlier than the normal 30-day waiting period.

(d) Every insurer that makes a rate filing shall complete the Workers' Compensation Insurance Rate Filing Form (“Filing Form”) provided by the Department of Insurance. The Filing Form shall be prescribed by the Commissioner. No rate filing shall be complete without a completed Filing Form.

(e) A complete rate filing is one for which the insurer has completed the Filing Form and submitted all necessary attachments and exhibits. Necessary attachments and exhibits are those materials that, together with the Filing Form, are sufficient to enable the Commissioner to determine the rates the insurer would charge its insureds. Unless the Commissioner notifies the insurer within 30 days of the filing date that its rate filing is incomplete, the rate filing will be considered complete.

(f) The insurer shall specify its pure premium rate modifier on the Filing Form.

(g) The insurer may request that any or all of its pure premium rate modifiers and deviations remain on file with the Commissioner and be applicable to subsequent approved pure premium raters. If the insurer makes that request, the following conditions shall apply:

(1) If the insurer chooses to use subsequent approved pure premium rates when they become effective, and has so indicated on the Filing Form, the insurer need file nothing additional with the Department before using those rates. Under that circumstance, the insurer's new rates will be the combination of the new approved pure premium rates and the insurer's previously filed pure premium rate modifications and deviations, if any.

(2) If the insurer chooses to use the subsequent approved pure premium rates but with a different effective date than that specified by the Commissioner, the insurer shall notify the Department of the intended effective date no less than 30 days before their actual use by the insurer, unless the Commissioner approves the insurer's request for an earlier effective date.

(h) If an insurer chooses not to apply any its pure premium rate modifiers and deviations to subsequent approved pure premium rates, it shall so indicate on the Filing Form.

(i) An insurer that wishes to adopt the approved pure premium rates or other filings of the designated rating organization shall specify the rates or other filings it is adopting and, by that reference, may incorporate those rates or other filings into its filing. Every insurer shall adhere to the experience rating plan and uniform statistical reporting plan filed by the designated rating organization and approved by the Commissioner.

(j) An insurer shall accompany each rate filing with a statement of opinion by an actuary regarding whether the filing rates include a reasonable estimate of the insurer's expected losses and expenses for the anticipated risks for the periods the insurer intends to use the filed rates.

(k) If an insurer files a classification system different from the standard classification system developed by the designated rating organization and approved by the Commissioner as part of the uniform statistical reporting plan, the insurer shall explain in detail how its classification system differs from the uniform classification system.

(1) The insurer's classification codes shall be compatible with the classification codes of the uniform classification system.

(2) The insurer shall demonstrate that the data produced by its classification system can be reported consistent with the uniform statistical reporting plan and uniform classification system. The Commissioner will accept in lieu of the insurer's demonstration a written certification from the designated rating organization that data produced by an insurer's classification system can be reported consistent with the uniform statistical reporting plan and the uniform classification system.

HISTORY

1. New section filed 10-13-94; operative 10-13-94. Submitted to OAL for printing only pursuant to Statutes of 1993, Ch. 1242 (S.B. 223), section 43, subdivision 3 (Register 94, No. 41).

§2509.33. Disapproval of an Insurer's Rates; Procedure.

History

(a) The Commissioner may commence a rate disapproval hearing by serving a notice of hearing on the insurer. The hearing notice shall state which parts of an insurer's rate filings the Commissioner proposes to disapprove and shall specify in reasonable detail the reasons for any proposed disapproval. The hearing notice shall state the date and location of the hearing. A hearing shall be commenced within a reasonable time after issuance of the hearing notice.

(b) The decision of the hearing officer shall be based on the record of the proceedings. The record of the proceedings shall consist of the written pleadings submitted by the parties, any oral testimony, the documentary evidence admitted into evidence by the hearing officer, and if a written transcription of the proceedings is made by a Certified Shorthand Reporter, the written transcription.

(c) A disapproval of a rate filing other than a rejection for incompleteness as specified in section 2509.32, subdivision (c), shall occur only by order of the Commissioner after a hearing. If the Commissioner disapproves a rate, the order shall specify when, within a reasonable time after the decision, the rate shall no longer be used.

(d) All documents admitted as evidence in the hearing shall be open to public inspection.

(e) If after a hearing the Commissioner disapproves an insurer's rate filing, it shall not have any legally effective rates. The Commissioner shall specify interim rates upon the insurer's request.

(f) If the Commissioner rejects an insurer's rate filing because of incompleteness or for failure to comply with filing requirements, its legally effective rates shall be the prior rates in effect for the insurer. “Prior rates” means the rates properly in effect for the insurer at the time of its incomplete filing.

(g) The Commissioner may serve any document concerning a rate disapproval hearing in the manner provided in Section 1013, subdivision (a), of the California Code of Civil Procedure. The address for service on an insurer shall be the address of the insurer's agent for service of process in the State of California.

(h) An insurer may serve any document concerning a rate disapproval hearing as provided in Section 1013, subdivision (a), of the California Code of Civil Procedure. The address for service on the Commissioner shall be his or her address in San Francisco.

HISTORY

1. New section filed 10-13-94; operative 10-13-94. Submitted to OAL for printing only pursuant to Statutes of 1993, Ch. 1242 (S.B. 223), section 43, subdivision 3 (Register 94, No. 41).

§2509.34. Disapproval of an Insurer's Rates; Notices to Insured.

History

Every workers' compensation policy incepting on or after January 1, 1995, shall contain a provision that the premium may be subject to midterm adjustment, for the unexpired term of the policy, pursuant to the Commissioner's power to disapprove rates.

HISTORY

1. New section filed 10-13-94; operative 10-13-94. Submitted to OAL for printing only pursuant to Statutes of 1993, Ch. 1242 (S.B. 223), section 43, subdivision 3 (Register 94, No. 41).

Article 9.7. Workers' Compensation Insurance Procedural Requirements and Standards Applicable to Employers, Insurers, and Rating Organizations in the Initiation of and Response to Requests for Review, Requests for Policyholder Information, and Requests for Reconsideration Provided in Insurance Code Sections 11737(f), 11752.6(c), 11753.1(a) and 11753.1(b), and, Rules of Practice and Procedure for Appeals to the Insurance Commissioner Pursuant to Insurance Code Sections 11737(f), 11752.6(c), 11753.1(a), 11753.1(b) and 11753.1

§2509.40. Scope.

Note • History

This article sets forth the procedural requirements and standards applicable to employers, insurers, rating organizations and other persons in the initiation of and response to requests for review, requests for policyholder information, and requests for reconsideration provided in Insurance Code sections 11737(f), 11752.6(c), 11753.1(a) and 11753.1(b), found in Articles 2 and 4 of Chapter 3 of Part 3 of Division 2 of the California Insurance Code, entitled “Regulation of Business of Workers' Compensation Insurance.” This article also sets forth the rules of practice and procedure governing appeals to the Insurance Commissioner and proceedings conducted pursuant to Insurance Code sections 11737(f), 11752.6(c), 11753.1(a) and 11753.1(b). The regulations set forth in this article supersede any previously adopted regulations regarding complaints and appeals to the extent that such previously adopted regulations are inconsistent with these regulations.

NOTE

Authority cited: Section 11400.20, Government Code; and Section 11753.1, Insurance Code. Reference: Section 11415.10, Government Code; and Sections 11734, 11737(f), 11750, 11752.6(c) and 11753.1, Insurance Code.

HISTORY

1. New article 9.7 (sections 2509.40-2509.78) and section filed 2-22-99 as an emergency; operative 2-22-99 (Register 99, No. 9). A Certificate of Compliance must be transmitted to OAL by 6-18-99 or emergency language will be repealed by operation of law on the following day.

2. New article 9.7 (sections 2509.40-2509.78) and section refiled 6-18-99 as an emergency; operative 6-18-99 (Register 99, No. 25). A Certificate of Compliance must be transmitted to OAL by 10-18-99 or emergency language will be repealed by operation of law on the following day.

3. New article 9.7 (sections 2509.40-2509.78) and section refiled 10-18-99 as an emergency; operative 10-19-99 (Register 99, No. 43). A Certificate of Compliance must be transmitted to OAL by 2-16-2000 or emergency language will be repealed by operation of law on the following day.

4. Repealed by operation of Government Code section 11346.1(g) (Register 2000, No. 6).

5. New article 9.7 (sections 2509.40-2509.78) and section filed 2-10-2000; operative 3-11-2000 (Register 2000, No. 6).

6. Change without regulatory effect amending section and Note filed 1-2-2003 pursuant to section 100, title 1, California Code of Regulations (Register 2003, No. 1).

7. Change without regulatory effect amending article heading and amending Note filed 6-3-2003 pursuant to section 100, title 1, California Code of Regulations (Register 2003, No. 23).

§2509.41. Purpose.

Note • History

(a) The purpose of this article is to establish a clear and consistent process for the initiation of requests for review, policyholder information, and reconsideration, and the responses thereto, provided in Insurance Code sections 11737(f), 11752.6(c), 11753.1(a) and 11753.1(b).

(b) The purpose of this article is also to establish a clear and consistent process for the disposition of appeals to the Insurance Commissioner provided in Insurance Code sections 11737(f), 11752.6(c), 11753.1(a) and 11753.1(b).

NOTE

HISTORY

1. New section filed 2-22-99 as an emergency; operative 2-22-99 (Register 99, No. 9). A Certificate of Compliance must be transmitted to OAL by 6-18-99 or emergency language will be repealed by operation of law on the following day.

2. New section refiled 6-18-99 as an emergency; operative 6-18-99 (Register 99, No. 25). A Certificate of Compliance must be transmitted to OAL by 10-18-99 or emergency language will be repealed by operation of law on the following day.

3. New section refiled 10-18-99 as an emergency; operative 10-19-99 (Register 99, No. 43). A Certificate of Compliance must be transmitted to OAL by 2-16-2000 or emergency language will be repealed by operation of law on the following day.

4. Repealed by operation of Government Code section 11346.1(g) (Register 2000, No. 6).

5. New section filed 2-10-2000; operative 3-11-2000 (Register 2000, No. 6).

6. Change without regulatory effect amending section and Note filed 1-2-2003 pursuant to section 100, title 1, California Code of Regulations (Register 2003, No. 1).

7. Change without regulatory effect amending Note filed 6-3-2003 pursuant to section 100, title 1, California Code of Regulations (Register 2003, No. 23).

§2509.42. Definitions.

Note • History

The following definitions shall apply to this article.

(a) “Appeal” means a written appeal to the Insurance Commissioner pursuant to the provisions of Insurance Code sections 11737(f), 11752.6(c), 11753.1(a) and 11753.1(b).

(b) “Appellant” means the party filing an appeal pursuant to the provisions of Insurance Code sections 11737(f), 11752.6(c), 11753.1(a) and 11753.1(b).

(d) “Complaint and Request for Action” means:

(1) The written request of an employer or other aggrieved person seeking an insurer's or rating organization's review of the manner in which the rating system has been applied in connection with the insurance afforded or offered, pursuant to subdivision (f) of Insurance Code section 11737.

(2) The written request of any employer insured under a workers' compensation insurance policy, served upon a licensed rating organization, for any or all policyholder information relating to the employer, as defined Insurance Code section 11752.6(b).

(3) The written request of an employer, insurer or other person seeking reconsideration of a decision, action, or omission to act of a rating organization, pursuant to Insurance Code section 11753.1(a).

(4) The written request for reconsideration of an employer, in response to receipt of the notice required by Insurance Code section 11753.1(b) concerning a change in the classification assignment of the employer that results in an increased premium.

(e) “Day,” unless otherwise specified in these regulations, means a calendar day. “Business days”, if specified, include all days except Saturdays, Sundays, and any holiday set forth in California Government Code section 6700. The time within which any document may be filed or served shall exclude the first day and include the last day; however, when the last day falls on a Saturday, Sunday or holiday the time computation shall exclude that day and include the next business day.

(f) “Department” means the California Department of Insurance.

(g) “Employer” means a person or business entity currently or formerly insured under a workers' compensation insurance policy or a person or business entity seeking such insurance coverage.

(h) “Filing” means the act of delivery of a pleading to the Department by 4:30 p.m. local time on any due date. Pleadings may be filed by facsimile transmission with the prior approval of the Department. All filed pleadings shall be accompanied by an original declaration of service. An employee of a party, or other representative of a party may sign a declaration of service. A sample declaration of service form can be found in section 2509.78.

(i) “Hearing” and “Proceeding” mean the hearing provided by Insurance Code sections 11737(f), 11752.6(c), 11753.1(a) and 11753.1(b), found in Articles 2 and 4 of Chapter 3 of Part 3 of Division 2 of the California Insurance Code, entitled “Regulation of Business of Workers' Compensation Insurance.

(j) “Hearing Officer” means the Department representative appointed by the Commissioner to preside over the hearing.

(k) “Party” means the appellant or respondent in an appeal to the Insurance Commissioner and any other person allowed to intervene or participate in the proceeding.

(l) “Pleading” means any appeal, answer, motion, reply, request, response, evidence, exhibit, brief, request for reconsideration, or other document filed with the Administrative Law Bureau pursuant to this article.

(m) “Rating Organization” means an entity licensed by the Commissioner pursuant to Insurance Code section 11751. “Designated Rating Organization” means that rating organization designated as the Commissioner's statistical agent pursuant to Insurance Code section 11751.5.

(n) “Reasonable Time” in relation to a complaint and request for action filed pursuant to Insurance Code sections 11753.1(a) and (b), and Insurance Code Section 11752.6(c) means within thirty (30) days of service of written decision rejecting a request for reconsideration or a request for policyholder information, or, if no timely rejection is served, one hundred and twenty (120) days from the date of service to the rating organization or insurer of the request for reconsideration or the request for policyholder information, unless the time limit for granting or rejecting a request has been extended pursuant to Section 2509.46.

(o) “Respondent” means an insurer or rating organization that is the subject of an appeal filed pursuant to the provisions of Insurance Code sections 11737(f), 11752.6(c), 11753.1(a) and 11753.1(b).

(p) “Service” in relation to the hearing, means to provide a copy of a document to every other party in the proceeding by personal delivery, first-class mail, registered mail, by mail delivery service, or, with permission of the Commissioner or the hearing officer, by facsimile transmission that is without error. Documents served on insurers or the designated rating organization shall be sent to an office designated for such service pursuant to Section 2509.43(a), below. When a party files a document, the party shall concurrently serve that document on all other parties in the proceeding. All served documents shall be accompanied by a copy of a declaration of service. Service by first class mail, registered mail or mail delivery service is complete at the time of deposit with the carrier, but any prescribed period of notice and any right or duty to do any act or make any response within any prescribed period or on a date certain after the service of the document served shall be extended for a period of five days.

(q) “Service” or “Serve” with regard to correspondence and action prior to the filing of an appeal, means to personally deliver a writing, response, decision or notice, or send such documents by first-class mail, registered mail, by mail delivery service or by facsimile transmission that is without error. Documents served on insurers or the designated rating organization shall be sent to an office designated for such service pursuant to Section 2509.43(a), below. Service by first class mail, registered mail or mail delivery service is complete at the time of deposit with the carrier, but any prescribed period of notice and any right or duty to do any act or make any response within any prescribed period or on a date certain after the service of the document served shall be extended for a period of five days.

NOTE

HISTORY

4. Repealed by operation of Government Code section 11346.1(g) (Register 2000, No. 6).

5. New section filed 2-10-2000; operative 3-11-2000 (Register 2000, No. 6).

6. Change without regulatory effect amending subsections (a), (b), (d)(1), (i) and (o) and amending Note filed 1-2-2003 pursuant to section 100, title 1, California Code of Regulations (Register 2003, No. 1).

7. Change without regulatory effect amending Note filed 6-3-2003 pursuant to section 100, title 1, California Code of Regulations (Register 2003, No. 23).

§2509.43. Complaints and Requests for Action. Office Designated for Receipt of Complaints and Requests for Action.

Note • History

(a) Every insurer and rating organization subject to this article shall designate an office within this state for receipt of Complaints and Requests for Action. An insurer or rating organization may designate more than one office to receive Complaints and Requests for Action.

(b) Every insurer and rating organization subject to this article shall provide the address, telephone and facsimile number of a designated office to employers, insurers, insureds, insurance agents and brokers, or other persons inquiring about or making complaints regarding the actions of the insurer or rating organization. A rating organization shall also provide such persons with the telephone number and address of its policyholder ombudsman.

(c) Every insurer subject to this article and any insurance agent or broker through which an employer's insurance was transacted, shall provide the address, telephone and facsimile number of a designated office to employers in the notice required by subdivision (b) of Insurance Code section 11753.1 when the insurer adopts a change in classification that results in an increased premium. The notice required by subdivision (b) of Insurance Code section 11753.1 shall inform the employer of the right to request reconsideration of the classification assignment, and the right to appeal a decision rejecting reconsideration to the Commissioner pursuant to Insurance Code section 11753.1 and these regulations.

(d) Every insurer subject to this article shall include a notice which includes the information set forth in section 2509.77 with each policy of insurance issued or renewed beginning May 23, 1999.

NOTE

HISTORY

4. Repealed by operation of Government Code section 11346.1(g) (Register 2000, No. 6).

5. New section filed 2-10-2000; operative 3-11-2000 (Register 2000, No. 6).

6. Change without regulatory effect amending Note filed 6-3-2003 pursuant to section 100, title 1, California Code of Regulations (Register 2003, No. 23).

§2509.44. Acknowledgment of Receipt and Notice of Review.

Note • History

(a) Within thirty (30) days after service of a Complaint and Request for Action, the insurer or rating organization shall serve the applicant with a written acknowledgment of receipt of the Complaint and Request for Action and a notice either granting or denying review of the Complaint and Request for Action. If the insurer or rating organization fails to grant or reject review of the Complaint and Request for Action within thirty (30) days after the request is served, the applicant may proceed in the same manner as if the Complaint and Request for Action had been rejected. Time limitations for an appeal to the Commissioner shall not begin to run until this acknowledgment and notice has been served, unless a decision has been served pursuant to Section 2509.45, below. The acknowledgment shall include the information specified in Section 2509.45(d) and include the following statements:

(1) The insurer or rating organization's failure to grant or reject review of the Complaint and Request for Action within thirty (30) days of service of such Complaint and Request for Action constitutes a rejection of the Complaint and Request for Action.

(2) The insurer or rating organization's failure to grant or reject the Complaint and Request for Action within sixty (60) days after the insurer or rating organization has served the applicant with a notice granting the request for review constitutes a rejection of the Complaint and Request for Action.

(3) An appeal may be taken to the Commissioner from:

(A) a written rejection of review of the Complaint and Request for Action;

(B) a written rejection of the Complaint and Request for Action;

(C) failure of an insurer or rating organization to grant or reject a review of a Complaint and Request for Action or failure to grant or reject a Complaint and Request for Action within the time specified.

(4) Time limitations for an appeal to the Commissioner do not begin to run until this acknowledgment and notice have been served on the applicant, unless a decision on the Complaint and Request for Action has been served on the applicant, in which case an appeal to the commissioner must be filed within 30 days of service of the decision. If an acknowledgment and notice have been served, but no decision has been served within the time limits specified, an appeal may be taken to the Commissioner within 120 days after service of the Complaint and Request for Action on the insurer or rating organization.

(b) Where the acknowledgement concerns a Request for Policyholder Information, the acknowledgment shall also indicate that if the request is rejected in whole or in part, the rating organization is required to provide reasons for any rejection in writing and that an appeal may be taken to the Commissioner from a complete or partial written rejection of the request pursuant to Insurance Code section 11753.1. The rating organization shall serve a copy of a Complaint and Request for Action which concerns a Request for Policyholder Information, and a copy of the acknowledgment of receipt, upon insurers to which the request for policyholder information pertains. The service of these documents satisfies the duty to notify insurers imposed upon rating organizations by subdivision (a) of Insurance Code section 11752.6.

NOTE

HISTORY

4. Repealed by operation of Government Code section 11346.1(g) (Register 2000, No. 6).

5. New section filed 2-10-2000; operative 3-11-2000 (Register 2000, No. 6).

6. Change without regulatory effect amending Note filed 6-3-2003 pursuant to section 100, title 1, California Code of Regulations (Register 2003, No. 23).

§2509.45. Decision on Complaint and Request for Action; Time for Reconsideration; Notice of Appeal Rights.

Note • History

(a) Within sixty (60) days after the insurer or rating organization serves the applicant with a notice granting review of the Complaint and Request for Action, the insurer or rating organization shall serve the applicant with a written decision upon the Complaint and Request for Action. The decision shall provide the insurer's or rating organization's evaluation of the Complaint and Request for Action and contain a recitation of the pertinent facts and a determination of the issues presented which grants or rejects in whole or in part the Complaint and Request for Action. The decision shall include a specific statement of the basis for the action taken. If an acknowledgment and notice have not been served pursuant to Section 2509.44, above, the decision shall include the statements required in the acknowledgment and notice. If the insurer or rating organization fails to grant or reject the Complaint and Request for Action within sixty (60) days after the notice granting review was served, the applicant may proceed in the same manner as if the Complaint and Request for Action had been rejected.

(b) An employer, insurer, or other aggrieved person may request reconsideration of a decision of an insurer or the designated rating organization served pursuant to subsection (a) of this section. The request for reconsideration shall be in writing and shall be served within thirty (30) days of service of the decision. The insurer or rating organization shall serve a decision on reconsideration within thirty (30) days of service of the request for reconsideration.

(c) A decision which grants a Request for Policyholder Information, or rejects the request in part, shall be accompanied by such portions of the policyholder information requested that the rating organization has agreed to make available and for which payment has been received.

(d) If review of the Complaint and Request for Action is rejected or the Complaint and Request for Action is rejected, the decision shall include a statement in substantially the following form, in bold:

You have only 30 days from the date this decision was served on you to appeal the decision to the California Insurance Commissioner. See Title 10, California Code of Regulations, section 2509.46.

Address your appeal to:

ADMINISTRATIVE HEARING BUREAU
DEPARTMENT OF INSURANCE
45 FREMONT STREET, 22ND FLOOR
SAN FRANCISCO, CA 94105
(415) 538-4102

NOTE

HISTORY

4. Repealed by operation of Government Code section 11346.1(g) (Register 2000, No. 6).

5. New section filed 2-10-2000; operative 3-11-2000 (Register 2000, No. 6).

6. Change without regulatory effect amending subsection (d) and amending Note filed 1-2-2003 pursuant to section 100, title 1, California Code of Regulations (Register 2003, No. 1).

7. Change without regulatory effect amending Note filed 6-3-2003 pursuant to section 100, title 1, California Code of Regulations (Register 2003, No. 23).

§2509.46. Appeals to the Insurance Commissioner; Time Frame for Filing Written Appeal.

Note • History

An appeal to the Insurance Commissioner from a written decision of an insurer or rating organization shall be filed within thirty (30) days after service of rejection of review of the Complaint and Request for Action or service of rejection of the Complaint or Request for Action. If an insurer or rating organization fails to serve a written decision, the appeal shall be filed within one hundred and twenty (120) days after service of the Complaint and Request for Action upon the insurer or rating organization. If a request for reconsideration was made pursuant to section 2509.45(b), an appeal shall be filed within thirty (30) days after service of the decision on reconsideration, or if the insurer or designated rating organization fails to serve a written decision on reconsideration, the appeal shall be filed within sixty (60) business days after service of the request for reconsideration. The time to appeal shall not exceed one year after the Complaint and Request for Action was served on the insurer or rating organization. However, the hearing officer may grant further time for the filing of an appeal if he or she determines that the delay was caused by the excusable neglect of the appellant or other circumstances beyond the reasonable control of the appellant.

NOTE

HISTORY

4. Repealed by operation of Government Code section 11346.1(g) (Register 2000, No. 6).

5. New section filed 2-10-2000; operative 3-11-2000 (Register 2000, No. 6).

6. Change without regulatory effect amending Note filed 6-3-2003 pursuant to section 100, title 1, California Code of Regulations (Register 2003, No. 23).

§2509.47. Form of Appeal and Information Required.

Note • History

An appeal shall be in writing. It need not be in any particular form, but must include:

(a) The name, address, telephone number, and fax number of the appellant;

(b) The name, address, telephone number, and fax number of the appellant's representative, if any;

(c) Copies of correspondence between the appellant and the insurer and/or rating organization regarding the subject of the appeal, to include: complaints, responses, inquiries, initial decisions, requests for review and action, requests for reconsideration, requests for policyholder information, acknowledgements, notices, and the written decisions of insurers and rating organizations;

(d) A statement as to why the appellant believes the insurer's or rating organization's decision or action is wrong;

(e) Any documents which support the appellant's position, which are reasonably available to the appellant at the time of the filing of the appeal, and upon which the appellant intends to rely at the hearing. The documents should be marked consecutively by letter as provided in section 2509.62(c).

(f) A statement that the appellant has or has not filed a complaint with the Department requesting review of the same transactions, actions or omissions which constitute the subject matter of the appeal. If such a complaint has been previously filed or is pending, the appellant shall provide the Department's assigned file number.

NOTE

HISTORY

4. Repealed by operation of Government Code section 11346.1(g) (Register 2000, No. 6).

5. New section filed 2-10-2000; operative 3-11-2000 (Register 2000, No. 6).

6. Change without regulatory effect amending Note filed 6-3-2003 pursuant to section 100, title 1, California Code of Regulations (Register 2003, No. 23).

§2509.48. Filing Requirements.

Note • History

An original and one copy of the appeal must be filed with the Commissioner.

NOTE

HISTORY

4. Repealed by operation of Government Code section 11346.1(g) (Register 2000, No. 6).

5. New section filed 2-10-2000; operative 3-11-2000 (Register 2000, No. 6).

6. Change without regulatory effect amending Note filed 6-3-2003 pursuant to section 100, title 1, California Code of Regulations (Register 2003, No. 23).

§2509.49. Service of Copy of the Appeal.

Note • History

The appellant shall serve a copy of the appeal on the office designated by each respondent named in the appeal for receipt of Complaints and Requests for Action, at the same time the appeal is filed with the Commissioner. All served documents shall be accompanied by a copy of a declaration of service. Service by first class mail, registered mail or mail delivery service is complete at the time of deposit with the carrier, but any prescribed period of notice and any right of duty to do any act or make any response within any prescribed period or on a date certain after mail service of the document served shall be extended for a period of five days.

NOTE

HISTORY

4. Repealed by operation of Government Code section 11346.1(g) (Register 2000, No. 6).

5. New section filed 2-10-2000; operative 3-11-2000 (Register 2000, No. 6).

6. Change without regulatory effect amending Note filed 6-3-2003 pursuant to section 100, title 1, California Code of Regulations (Register 2003, No. 23).

§2509.50. Role of Department of Insurance.

Note • History

The Department of Insurance is not a party to an appeal unless the agency specifically requests to participate in the proceedings. All such requests shall be granted.

NOTE

HISTORY

4. Repealed by operation of Government Code section 11346.1(g) (Register 2000, No. 6).

5. New section filed 2-10-2000; operative 3-11-2000 (Register 2000, No. 6).

6. Change without regulatory effect amending Note filed 6-3-2003 pursuant to section 100, title 1, California Code of Regulations (Register 2003, No. 23).

§2509.51. Designated Rating Organization.

Note • History

Whenever an appeal concerns the application of the classification system, uniform experience rating plan, uniform statistical plan or miscellaneous regulations for the recording or reporting of data developed by the designated rating organization, the Commissioner shall transmit a copy of the appeal to the designated rating organization. If the designated rating organization is not otherwise a respondent in the proceeding, the designated rating organization may participate in the proceeding.

NOTE

HISTORY

4. Repealed by operation of Government Code section 11346.1(g) (Register 2000, No. 6).

5. New section filed 2-10-2000; operative 3-11-2000 (Register 2000, No. 6).

6. Change without regulatory effect amending Note filed 6-3-2003 pursuant to section 100, title 1, California Code of Regulations (Register 2003, No. 23).

§2509.52. Representation.

Note • History

An appellant may, but need not, be represented in the proceedings before the Commissioner. A representative need not be an attorney.

NOTE

HISTORY

4. Repealed by operation of Government Code section 11346.1(g) (Register 2000, No. 6).

5. New section filed 2-10-2000; operative 3-11-2000 (Register 2000, No. 6).

6. Change without regulatory effect amending Note filed 6-3-2003 pursuant to section 100, title 1, California Code of Regulations (Register 2003, No. 23).

§2509.53. Pre-Hearing Procedural Provisions; Acknowledgment of Appeal; Assignment of Hearing Officer; Stay of Proceedings; Alternative Dispute Resolution.

Note • History

(a) The Commissioner shall acknowledge the receipt of an appeal and shall provide the appellant instructions concerning information that must be submitted to the Department.

(b) An appeal shall be considered submitted when sufficient information is received by the Commissioner from the appellant to establish the nature of the complaint and the relief requested and when the appeal has been properly served on all the parties.

(c) Upon submission of an appeal, the Commissioner shall direct the appeal to a hearing officer. The hearing officer shall notify the parties in writing of his or her assignment.

(d) If all parties agree, the hearing officer may refer an appeal for resolution to a neutral mediator for mediation or to a neutral arbitrator for arbitration pursuant to the procedures set forth in Government Code Section 11420.10.

(e) The Commissioner may deny an appeal without a hearing if he or she has information on the subject from which the appeal is taken and he or she believes that a reasonable basis for the appeal does not exist or that the appeal is not made in good faith. The denial shall be in writing and shall set forth the basis for the denial and shall be served on all parties.

NOTE

Authority cited: Sections 11400.20 and 11420.10, Government Code; and Section 11753.1, Insurance Code. Reference: Section 11415.10, Government Code; and Sections 11734, 11737(f), 11750, 11752.6(c), 11753.1(a) and 11753.1(b), Insurance Code.

HISTORY

4. Repealed by operation of Government Code section 11346.1(g) (Register 2000, No. 6).

5. New section filed 2-10-2000; operative 3-11-2000 (Register 2000, No. 6).

6. Change without regulatory effect amending Note filed 6-3-2003 pursuant to section 100, title 1, California Code of Regulations (Register 2003, No. 23).

§2509.54. Insurer or Rating Organization Response to Appeal.

Note • History

(a) The insurer or rating organization shall file and serve its response to the appeal within 14 days from the service of the appeal unless the hearing officer grants the insurer or rating organization more time pursuant to a showing of good cause. If the rating organization has joined as a party to the appeal pursuant to Section 2509.51, the rating organization shall file and serve its response within 14 days of service of notice that it has been made a party. The hearing officer may give the rating organization more time pursuant to a showing of good cause. The response shall admit or deny each material allegation in the appeal and raise any defenses or justifications. It shall also set forth any defects in the appeal.

(b) The response must include:

(1) Copies of any correspondence exchanged between the parties concerning the subject matter of the appeal, that were not filed with the appeal;

(2) Copies of any documents in the rating organization's file or the insurer's policyholder file that are relevant to the subject matter of the appeal, that were not filed with the appeal; and

(3) Copies of all statutory, regulatory, or manual provisions the rating organization or insurer relied on in taking its action.

(c) An original and two copies of the insurer's or rating organization's response shall be filed with the Hearing Officer. A copy of the response shall be served on all other parties to the appeal at the same time it is filed with the hearing officer.

NOTE

HISTORY

4. Repealed by operation of Government Code section 11346.1(g) (Register 2000, No. 6).

5. New section filed 2-10-2000; operative 3-11-2000 (Register 2000, No. 6).

6. Change without regulatory effect amending Note filed 6-3-2003 pursuant to section 100, title 1, California Code of Regulations (Register 2003, No. 23).

§2509.55. Objections to Insurer or Rating Organization's Response.

Note • History

The appellant shall have 15 days from the date of service of the response to file and serve any reply to the insurer's or rating organization's response to the appeal.

NOTE

HISTORY

4. Repealed by operation of Government Code section 11346.1(g) (Register 2000, No. 6).

5. New section filed 2-10-2000; operative 3-11-2000 (Register 2000, No. 6).

6. Change without regulatory effect amending Note filed 6-3-2003 pursuant to section 100, title 1, California Code of Regulations (Register 2003, No. 23).

§2509.56. The Hearing--When Held.

Note • History

The Commissioner shall hold a hearing within 60 days of receipt of a completed appeal, provided however that a hearing may be held later upon agreement of the parties to the appeal. The Commissioner shall give to the parties not less than 10 days written notice of a hearing.

NOTE

Authority cited: Sections 11753.1 and 11737(f), Insurance Code. Reference: Section 11415.10, Government Code; and Sections 11734, 11737(f), 11750, 11752.6(c), 11753.1(a) and 11753.1(b), Insurance Code.

HISTORY

4. Repealed by operation of Government Code section 11346.1(g) (Register 2000, No. 6).

5. New section filed 2-10-2000; operative 3-11-2000 (Register 2000, No. 6).

6. Change without regulatory effect amending Note filed 6-3-2003 pursuant to section 100, title 1, California Code of Regulations (Register 2003, No. 23).

§2509.57. The Hearing--Governing Procedure and Location.

Note • History

Hearings on appeals shall be conducted pursuant to the procedural provisions of these regulations and those provisions of Chapter 4.5 of Title 2, Division 3, Part 1 of the Government Code, commencing with section 11400 which are mandatory for these regulations, and those optional provisions of Chapter 4.5 specifically adopted herein. The provisions of Chapter 5 (commencing with Government Code section 11500) are not applicable to these proceedings. Hearings shall be conducted in either Los Angeles or San Francisco.

(a) The hearing officer may conduct a hearing using informal hearing procedures.

(b) The hearing officer may deny use of the informal hearing procedure, or may convert an informal hearing to a formal hearing after an informal hearing is commenced.

NOTE

Authority cited: Sections 11400.20, 11445.20 and 11445.50, Government Code; and Section 11753.1, Insurance Code. Reference: Section 11415.10, Government Code; and Sections 11734, 11737(f), 11750, 11752.6(c), 11753.1(a) and 11753.1(b), Insurance Code.

HISTORY

4. Repealed by operation of Government Code section 11346.1(g) (Register 2000, No. 6).

5. New section filed 2-10-2000; operative 3-11-2000 (Register 2000, No. 6).

6. Change without regulatory effect amending Note filed 6-3-2003 pursuant to section 100, title 1, California Code of Regulations (Register 2003, No. 23).

§2509.58. Hearing Officer--Authority.

Note • History

(a) The hearing officer shall exercise all powers relating to the conduct of the hearing.

(b) The hearing officer may conduct all or part of the proceeding by telephone, television, or other electronic means if each participant in the hearing has an opportunity to participate in and to hear the entire proceeding while it is taking place and to observe exhibits, which shall have been previously received by all parties and by the hearing officer.

(c) The hearing officer shall control the course of the proceedings; rule upon requests for continuances; administer oaths; issue subpoenas; rule on the various motions and objections of the parties; receive evidence, including additional documents; upon notice, hold appropriate conferences before or during hearings; receive offers of proof; hear argument; approve or reject proposed stipulations; and, fix the time and place for the filing of written comment or briefs.

(d) The hearing officer may limit the use of witnesses, testimony, evidence, argument, pleadings, and intervention. However, the parties must be given a reasonable opportunity to be heard, including the opportunity to present and rebut evidence.

(e) The hearing officer shall take any other action necessary or appropriate to the discharge of his or her duties, consistent with the statutory or other authority under which the Commissioner functions. The hearing officer may issue such orders compelling the compliance of the parties and other persons subject to the jurisdiction of the Commissioner as are necessary to the discharge of his or her official duties. Article 12 of Chapter 4.5 of the Administrative Procedure Act (commencing with Government Code section 11455.10), is adopted, and is applicable to these proceedings.

(f) The Commissioner shall exercise all authority set forth in this section until a proceeding is assigned to a hearing officer.

NOTE

HISTORY

4. Repealed by operation of Government Code section 11346.1(g) (Register 2000, No. 6).

5. New section filed 2-10-2000; operative 3-11-2000 (Register 2000, No. 6).

6. Change without regulatory effect amending Note filed 6-3-2003 pursuant to section 100, title 1, California Code of Regulations (Register 2003, No. 23).

§2509.59. Discovery.

Note • History

Formal discovery by the parties will be permitted by the hearing officer only upon written notice and a showing of good cause.

NOTE

HISTORY

4. Repealed by operation of Government Code section 11346.1(g) (Register 2000, No. 6).

5. New section filed 2-10-2000; operative 3-11-2000 (Register 2000, No. 6).

6. Change without regulatory effect amending Note filed 6-3-2003 pursuant to section 100, title 1, California Code of Regulations (Register 2003, No. 23).

§2509.60. Subpoenas.

Note • History

Pursuant to Insurance Code section 12924, subpoenas and subpoenas duces tecum may be issued at the discretion of the hearing officer for the attendance of witnesses and production of documents at the hearing. Any party requesting the issuance of a subpoena must submit a written subpoena request to the hearing officer. The provisions of Article 11 of Chapter 4.5 (commencing with section 11450.05 of the Government Code) are not applicable to these proceedings.

NOTE

HISTORY

4. Repealed by operation of Government Code section 11346.1(g) (Register 2000, No. 6).

5. New section filed 2-10-2000; operative 3-11-2000 (Register 2000, No. 6).

6. Change without regulatory effect amending Note filed 6-3-2003 pursuant to section 100, title 1, California Code of Regulations (Register 2003, No. 23).

§2509.61. Burden of Proof.

Note • History

(a) A party has the burden of proof as to each fact the existence or nonexistence of which is essential to the claim for relief or defense that he or she is asserting.

(b) A party claiming that a party has engaged in subterfuge or fraud, or asserting an affirmative defense, has the burden of proof on that issue.

NOTE

Authority cited: Section 11400.20, Government Code; and Section 11753.1, Insurance Code. Reference: Section 500, Evidence Code; Section 11415.10, Government Code; and Sections 11734, 11737(f), 11750, 11752.6(c), 11753.1(a) and 11753.1(b), Insurance Code.

HISTORY

4. Repealed by operation of Government Code section 11346.1(g) (Register 2000, No. 6).

5. New section filed 2-10-2000; operative 3-11-2000 (Register 2000, No. 6).

6. Change without regulatory effect amending Note filed 6-3-2003 pursuant to section 100, title 1, California Code of Regulations (Register 2003, No. 23).

§2509.62. Evidence.

Note • History

(a) Oral evidence, if taken, shall be taken only on oath or affirmation.

(b) Each party shall have these rights: to present evidence, to argue a case to the hearing officer and to rebut the evidence against the party.

(c) Documentary exhibits shall be legible and reduced to 8-1/2 inches wide and 11 inches long and shall be marked for identification consecutively as follows: appellant's exhibits by letter; respondent's exhibits by number. The moving party shall furnish the original and one copy to the hearing officer, one copy to each party or its representative of record, and one copy for use by a witness, if appropriate. Each page of multi-page exhibits shall be numbered. Copies of exhibits shall be clear and legible. Exhibits introduced at the hearing shall not duplicate the documents filed with the appeal or the response. The parties shall exchange their exhibits with each other five (5) business days prior to the hearing.

(d) The hearing need not be conducted according to technical rules relating to evidence and witnesses, except as hereinafter provided. Any relevant evidence shall be admitted if it is the sort of evidence on which responsible persons are accustomed to rely in the conduct of serious affairs, regardless of the existence of any common law or statutory rule which might make improper the admission of evidence over objection in civil actions.

(e) The rules of privilege shall be effective to the extent that they are otherwise required by law to be recognized at the hearing.

(f) The hearing officer has the discretion to exclude evidence if its probative value is substantially outweighed by the probability that its admission will necessitate undue consumption of time.

NOTE

HISTORY

4. Repealed by operation of Government Code section 11346.1(g) (Register 2000, No. 6).

5. New section filed 2-10-2000; operative 3-11-2000 (Register 2000, No. 6).

6. Change without regulatory effect amending Note filed 6-3-2003 pursuant to section 100, title 1, California Code of Regulations (Register 2003, No. 23).

§2509.63. Order of Proof.

Note • History

In the absence of a contrary order by the hearing officer, the appellant shall present its evidence first.

NOTE

HISTORY

4. Repealed by operation of Government Code section 11346.1(g) (Register 2000, No. 6).

5. New section filed 2-10-2000; operative 3-11-2000 (Register 2000, No. 6).

6. Change without regulatory effect amending Note filed 6-3-2003 pursuant to section 100, title 1, California Code of Regulations (Register 2003, No. 23).

§2509.64. Hearing Reporter.

Note • History

The proceedings at the hearing shall be reported by a hearing reporter. However, upon the consent of all the parties, the proceedings may be reported electronically. Parties must make their own arrangements with the reporter if they wish to obtain a copy of the reporter's transcript.

NOTE

HISTORY

4. Repealed by operation of Government Code section 11346.1(g) (Register 2000, No. 6).

5. New section filed 2-10-2000; operative 3-11-2000 (Register 2000, No. 6).

6. Change without regulatory effect amending Note filed 6-3-2003 pursuant to section 100, title 1, California Code of Regulations (Register 2003, No. 23).

§2509.65. Continuances; Good Cause.

Note • History

(a) A continuance for any act occurring under this article may be granted by the Commissioner or the hearing officer for good cause shown.

(b) When seeking a continuance, a party shall apply for the continuance within ten (10) business days following the time the party discovered or reasonably should have discovered the event or occurrence which establishes the good cause for the continuance. A continuance may be granted for good cause after the ten (10) business days have lapsed if the party seeking the continuance is not responsible for or has made a good faith effort to prevent the condition or event establishing the good cause.

NOTE

HISTORY

4. Repealed by operation of Government Code section 11346.1(g) (Register 2000, No. 6).

5. New section filed 2-10-2000; operative 3-11-2000 (Register 2000, No. 6).

6. Change without regulatory effect amending Note filed 6-3-2003 pursuant to section 100, title 1, California Code of Regulations (Register 2003, No. 23).

§2509.66. Additional Evidence or Briefing.

Note • History

(a) At the hearing, the hearing officer may require the production of further evidence or briefing on any issue. If the hearing officer determines that specific evidence or briefing is necessary as a part of the record, the hearing officer shall set a deadline for filing of the requested evidence or briefing.

(b) Unless ordered by the hearing officer, or upon written motion for good cause shown, no additional evidence shall be introduced after the close of the evidentiary hearing.

NOTE

HISTORY

4. Repealed by operation of Government Code section 11346.1(g) (Register 2000, No. 6).

5. New section filed 2-10-2000; operative 3-11-2000 (Register 2000, No. 6).

6. Change without regulatory effect amending Note filed 6-3-2003 pursuant to section 100, title 1, California Code of Regulations (Register 2003, No. 23).

§2509.67. Official Notice.

Note • History

In reaching a decision, official notice may be taken, either before or after submission of the case for decision, of any fact which may be judicially noticed by the courts of this state. The parties shall be informed of the matters to be noticed, and those matters shall be noted in the record, referred to therein, or appended thereto. Each party shall be given a reasonable opportunity on request to refute the officially noticed matters by evidence or by written or oral presentation of authority, the manner of such refutation to be determined by the hearing officer.

NOTE

HISTORY

4. Repealed by operation of Government Code section 11346.1(g) (Register 2000, No. 6).

5. New section filed 2-10-2000; operative 3-11-2000 (Register 2000, No. 6).

6. Change without regulatory effect amending Note filed 6-3-2003 pursuant to section 100, title 1, California Code of Regulations (Register 2003, No. 23).

§2509.68. Proposal of Stipulations or Settlements.

Note • History

(a) Parties may stipulate to the resolution of an issue of fact or the applicability of a provision of law material to a proceeding, or may agree to settlement on a mutually acceptable outcome to a proceeding, with or without resolving material issues.

(b) Stipulations shall be filed with the hearing officer, or the Commissioner if a hearing officer has not been designated, for acceptance or rejection.

(c) No evidence of an offer of compromise or settlement made in settlement negotiations is admissible in a hearing, whether as affirmative evidence, by way of impeachment, or for any other purpose.

NOTE

HISTORY

4. Repealed by operation of Government Code section 11346.1(g) (Register 2000, No. 6).

5. New section filed 2-10-2000; operative 3-11-2000 (Register 2000, No. 6).

6. Change without regulatory effect amending Note filed 6-3-2003 pursuant to section 100, title 1, California Code of Regulations (Register 2003, No. 23).

§2509.69. The Insurance Commissioner's Decision.

Note • History

(a) Within 60 days after the case is submitted for decision, the hearing officer shall prepare and deliver to the Commissioner a proposed decision in a form that may be adopted as the decision in the case. Failure of the hearing officer to deliver a proposed decision within the time required does not prejudice the rights of the Department in the case.

(b) The Commissioner shall issue his or her decision within 60 days of receipt of the proposed decision.

(c) The Commissioner may adopt the proposed decision in its entirety or he may make technical or other minor changes in the proposed decision and adopt it as the decision. Action by the Commissioner under this subsection is limited to a clarifying change or a change of a similar nature that does not affect the factual or legal basis of the proposed decision.

(d) If the proposed decision is not adopted as provided in subsection (c), the Commissioner may decide the case upon the record, including the transcript, or an agreed statement of the parties, with or without taking additional evidence, or may refer the case to the same hearing officer if reasonably available, otherwise to another hearing officer, to take additional evidence. Upon request, a copy of the record shall be made available to the parties, at their cost.

(e) If the case is assigned to a hearing officer, he or she shall prepare a proposed decision as provided in subsection (a) upon the additional evidence and the transcript and other papers which are part of the record of the prior hearing.

(f) The Commissioner shall decide no case provided for in subsection (e) without affording the parties the opportunity to present either oral or written argument before the Commissioner.

(g) The proposed decision shall be deemed adopted by the Commissioner 60 days after delivery by the hearing officer, unless within that time

(1) the Commissioner notifies the parties that the proposed decision is not adopted as provided in subsection (d) and commences proceedings to decide the case upon the record, including the transcript, or

(2) the Commissioner refers the case to the hearing officer to take additional evidence.

(h) If the Commissioner finds that a further delay is required by special circumstances, he or she shall issue an order delaying the decision for no more than 30 days and specifying the reasons therefor.

(i) The final decision of the Commissioner, or the proposed decision that was deemed adopted pursuant to subsection (g) above, shall be a public record and a copy shall be served on each party and his or her representative of record by registered or certified mail.

NOTE

HISTORY

4. Repealed by operation of Government Code section 11346.1(g) (Register 2000, No. 6).

5. New section filed 2-10-2000; operative 3-11-2000 (Register 2000, No. 6).

6. Change without regulatory effect amending Note filed 6-3-2003 pursuant to section 100, title 1, California Code of Regulations (Register 2003, No. 23).

§2509.70. Appeals for Correction of Mistake or Clerical Error.

Note • History

(a) Within fifteen (15) days after service of a copy of the decision on a party, but not later than the effective date of the decision, the party may apply to the Commissioner for correction of a mistake or clerical error in the decision, stating the specific ground on which the application is made. Notice of the application shall be given to the other parties to the proceeding. The application is not a prerequisite for seeking judicial review.

(b) The Commissioner may refer the application to the hearing officer who formulated the proposed decision or may delegate his or her authority under this section to one or more persons.

(c) The Commissioner may deny the application, grant the application and modify the decision, or grant the application and set the matter for further proceedings. The application is considered denied if the Commissioner does not dispose of it within fifteen (15) days after it is served on the Commissioner and the other parties.

(d) Nothing in this section precludes the Commissioner, on his or her own motion or on motion of the hearing officer, from modifying the decision to correct a mistake or clerical error. A modification under this subsection shall be made within 30 days after issuance of the decision.

(e) The hearing officer or the Commissioner shall, within fifteen 15 days after correction of a mistake or clerical error in the decision, serve a copy of the correction on each party on which a copy of the decision was previously served.

NOTE

HISTORY

4. Repealed by operation of Government Code section 11346.1(g) (Register 2000, No. 6).

5. New section filed 2-10-2000; operative 3-11-2000 (Register 2000, No. 6).

6. Change without regulatory effect amending Note filed 6-3-2003 pursuant to section 100, title 1, California Code of Regulations (Register 2003, No. 23).

§2509.71. Effective Date of Decision.

Note • History

The decision shall become effective 30 days after it is delivered or mailed to the parties unless a reconsideration is ordered within that time, or the Commissioner orders that the decision shall become effective sooner.

NOTE

HISTORY

4. Repealed by operation of Government Code section 11346.1(g) (Register 2000, No. 6).

5. New section filed 2-10-2000; operative 3-11-2000 (Register 2000, No. 6).

6. Change without regulatory effect amending Note filed 6-3-2003 pursuant to section 100, title 1, California Code of Regulations (Register 2003, No. 23).

§2509.72. Reconsideration.

Note • History

The Commissioner may order a reconsideration of all or part of the case on his or her own motion or on petition of any party. Petitions for reconsideration must be served on all parties. The power to order a reconsideration shall expire 30 days after service of a decision on the parties, or on the date set by the Commissioner as the effective date of the decision if that date occurs prior to the expiration of the 30-day period or at the termination of a stay of not to exceed 30 days which the Commissioner may grant for the purpose of filing an application for reconsideration.

NOTE

HISTORY

4. Repealed by operation of Government Code section 11346.1(g) (Register 2000, No. 6).

5. New section filed 2-10-2000; operative 3-11-2000 (Register 2000, No. 6).

6. Change without regulatory effect amending Note filed 6-3-2003 pursuant to section 100, title 1, California Code of Regulations (Register 2003, No. 23).

§2509.73. Contents of Petition.

Note • History

Petitions for reconsideration shall be based solely upon, and shall set forth specifically, the grounds upon which the decision of the Commissioner allegedly is contrary to law or is erroneous. A petition for reconsideration shall not refer to, or introduce, any evidence which was not part of the record of the evidentiary hearing. Any such evidence nonetheless provided shall be accorded no weight. Copies of documents received in evidence or already part of the record shall be referenced and attached as exhibits.

NOTE

HISTORY

4. Repealed by operation of Government Code section 11346.1(g) (Register 2000, No. 6).

5. New section filed 2-10-2000; operative 3-11-2000 (Register 2000, No. 6).

6. Change without regulatory effect amending Note filed 6-3-2003 pursuant to section 100, title 1, California Code of Regulations (Register 2003, No. 23).

§2509.74. Response.

Note • History

A response of other parties to a petition for reconsideration is not required. However, if a response is provided, it must be filed and served within fifteen (15) days of service of the petition for reconsideration.

NOTE

HISTORY

4. Repealed by operation of Government Code section 11346.1(g) (Register 2000, No. 6).

5. New section filed 2-10-2000; operative 3-11-2000 (Register 2000, No. 6).

6. Change without regulatory effect amending Note filed 6-3-2003 pursuant to section 100, title 1, California Code of Regulations (Register 2003, No. 23).

§2509.75. Hearing on Petition.

Note • History

The Commissioner may, but is not required to hold a hearing or accept argument on the petition for reconsideration.

NOTE

HISTORY

4. Repealed by operation of Government Code section 11346.1(g) (Register 2000, No. 6).

5. New section filed 2-10-2000; operative 3-11-2000 (Register 2000, No. 6).

6. Change without regulatory effect amending Note filed 6-3-2003 pursuant to section 100, title 1, California Code of Regulations (Register 2003, No. 23).

§2509.76. Judicial Review.

Note • History

Judicial review of the Commissioner's final decision may be had by filing a petition for a writ of mandate in accordance with the provisions of section 1094.5 of the Code of Civil Procedure. The right to petition shall not be affected by the failure to seek reconsideration before the Commissioner.

(a) Except as otherwise provided in this section the petition shall be filed within ninety (90) days after the last day on which reconsideration can be ordered.

(b) On request of the petitioner for a record of the proceedings, the complete record of the proceedings, or the parts thereof as are designated by the petitioner in the request, shall be prepared by the Department and shall be delivered to petitioner, within 30 days after the request. The time shall be extended for good cause shown. The petitioner shall pay the fee for the transcript and the cost of preparation of the other portions of the record. The hearing officer shall determine the cost of preparation of other portions of the record.

(c) The complete record includes the pleadings, all notices and orders issued by the Department, any proposed decision by a hearing officer, the final decision, a transcript of all proceedings, the exhibits admitted or rejected, the written evidence and any other papers in the case.

(d) Where petitioner, within 10 days after the last day on which reconsideration can be ordered, requests the Commissioner or Hearing Officer to prepare all or any part of the record the time within which a petition may be filed shall be extended until 30 days after delivery of the record.

(e) The Commissioner may file with the court the original of any document in the record in lieu of a copy thereof.

NOTE

HISTORY

4. Repealed by operation of Government Code section 11346.1(g) (Register 2000, No. 6).

5. New section filed 2-10-2000; operative 3-11-2000 (Register 2000, No. 6).

6. Change without regulatory effect amending Note filed 6-3-2003 pursuant to section 100, title 1, California Code of Regulations (Register 2003, No. 23).

§2509.77. Forms—Notice of Policyholder Appeal Rights.

Note • History

The Notice required by subsection 2509.43(d) shall include:

1. Notice of the right to receive policyholder information from the rating organization pursuant to Insurance Code section 11752.6 (Include name, address, phone and fax number.)

2. Notice of the right to contact the rating organization's policyholder ombudsman pursuant to Insurance Code section 11752.6(g) and (h)(1). (Include name, address, phone and fax number.) (The Notice should also include the language required by subdivisions (h)(2) and (h)(3) of section 11752.6)

3. Notice of the right to dispute the actions of the insurer or rating organization pursuant to Insurance Code sections 11737(f) and 11753.1. (Include name, address, phone and fax numbers for office designated for receipt of complaints for both insurer and rating organization.)

4. Notice of the right to appeal to the Insurance Commissioner from the actions of the insurer or rating organization pursuant to the provisions of Insurance Code sections 11737(f), 11752.6(c), 11753.1 and these regulations.

5. Notice of the right to a hearing before the Insurance Commissioner

6. The filing address for all appeals to the Commissioner is:

ADMINISTRATIVE HEARING BUREAU
CALIFORNIA DEPARTMENT OF INSURANCE
45 FREMONT STREET, 22ND FLOOR
SAN FRANCISCO, CA 94105

NOTE

HISTORY

4. Repealed by operation of Government Code section 11346.1(g) (Register 2000, No. 6).

5. New section filed 2-10-2000; operative 3-11-2000 (Register 2000, No. 6).

6. Change without regulatory effect amending section and Note filed 1-2-2003 pursuant to section 100, title 1, California Code of Regulations (Register 2003, No. 1).

7. Change without regulatory effect amending Note filed 6-3-2003 pursuant to section 100, title 1, California Code of Regulations (Register 2003, No. 23).

§2509.78. Forms—Declaration of Service by Mail.

Note • History

The following form may be used by a party when serving other parties.

DECLARATION OF SERVICE BY MAIL

In the Matter of

______________________

Appellant

vs.

______________________

Respondent

(Insurer or Rating Organization)

I am over the age of 18 years and not a party to this case. On the ____ day of _________________, in the year ________, at _______________ (city), _________ (state), I sealed into an envelope and deposited in the United States mail, postage thereon fully prepaid, true copies of the following documents in the above-entitled matter. The original or a true copy of each document served is attached hereto. Said copies were addressed as follows:

_______________________________________________________________________________Certified/Registered Mail

Number (if applicable)

I declare under penalty of perjury that the foregoing is true and correct. Executed on ____________________ (month, day), __________ (year)

at ____________________ (city), ______________ (state).

______________________________________

(print name)

Declarant

NOTE

HISTORY

4. Repealed by operation of Government Code section 11346.1(g) (Register 2000, No. 6).

5. New section filed 2-10-2000; operative 3-11-2000 (Register 2000, No. 6).

6. Change without regulatory effect amending Note filed 6-3-2003 pursuant to section 100, title 1, California Code of Regulations (Register 2003, No. 23).

Article 10. Mortgage Guaranty Insurers

§2510. Purpose and Authority.

Note • History

The rules and regulations set forth in this article are necessary to carry out the provisions of Chapter 2A, Part 6, Division 2 of the Insurance Code.

NOTE

Authority cited for Article 10: Sections 12640.04, 12640.16 and 12640.18, Insurance Code.

HISTORY

1. New article 10 (Sections 2510 through 2521) filed 6-14-62; designated effective July 15, 1962 (Register 62, No. 12).

§2510.1. Financial Statements.

History

The financial statements required by Section 12640.16(a) of the Insurance Code and quarterly statements with complete schedules shall be furnished on the form of financial statements prescribed for use by fire and casualty insurers; except that the unearned premium reserves, the contingency reserves, and the loss reserves required by Sections 12640.16(b), 12640.04 and 12640.16(c), respectively, of the Insurance Code shall be shown in accordance with the provisions of said sections of the Insurance Code and Sections 2513, 2514 and 2515 hereof.

HISTORY

1. Renumbering of Section 2511 to 2510.1 filed 8-23-78; effective thirtieth day thereafter (Register 78, No. 34).

§2510.2. Same; Reporting of Expenses.

History

Expenses shall be recorded and reported in accordance with the “Uniform Classification of Expenses of Fire and Marine Casualty and Surety Insurers” as required in said annual statement.

HISTORY

1. Renumbering of Section 2512 to Section 2510.2 filed 8-23-78; effective thirtieth day thereafter (Register 78, No. 34).

§2510.3. Computation of Unearned Premium Reserve.

History

Mortgage Guaranty insurers shall compute the unearned premium reserve on a monthly pro rata basis, except in the case of premiums paid in advance for four, five, six, seven, eight, nine, ten, eleven, twelve, thirteen, fourteen, or fifteen-year policies the annual unearned premium factors specified below shall apply (or comparable factors to be applied monthly consistent with the schedule below on the basis that one-twelfth of the earned premium for each contract year is earned during each month therein):

Embedded Graphic 10.0197

Whenever the laws of any other jurisdiction in which a mortgage guaranty insurer subject to the requirements of this section is also licensed to transact mortgage guaranty insurance require a larger unearned premium reserve in the aggregate than that set forth herein, the establishment of such larger unearned premium reserve shall be deemed to be compliance with this section.

HISTORY

1. Amendment filed 10-25-74; designated effective 1-1-75 (Register 74, No. 43).

2. Renumbering of Section 2513 to Section 2510.3 filed 8-23-78; effective thirtieth day thereafter (Register 78, No. 34).

§2510.4. Reporting of Contingency Reserve.

History

The contingency reserve established and maintained as required by Section 12640.04 of the Insurance Code shall be reported in the annual statement as a liability, but this requirement shall not affect the computation of the amount of mortgage guaranty insurance which may be written in accordance with the provisions of Sections 12640.05 or 12640.08 of the Insurance Code.

HISTORY

1. Renumbering of Section 2514 to Section 2510.4 filed 8-23-78; effective thirtieth day thereafter (Register 78, No. 34).

§2510.5. Determination of Actual Loss; Valuation of Loss Reserves.

History

The actual loss of the mortgage guaranty insurer on any claim shall be determined as of the time of the settlement of the loss with the insured. In setting up the loss reserves on the case basis as required by Section 12640.16(c), any estimate of loss expected to be paid on any claim, or ultimately to be suffered on any claim settled by acquisition of title to the encumbered real estate or the authorized real estate security (as the term is defined in Section 12640.02(b) of the Insurance Code) shall be the maximum liability of the insurer under its policy of mortgage guaranty insurance until a different estimate of any such loss is supported by an appraisal by a qualified real estate appraiser of the real estate so acquired or which secures the authorized real estate security. No real property or authorized real estate security may be valued at an amount greater than that permitted for the valuation thereof by fire and casualty insurers.

HISTORY

1. Renumbering of Section 2515 to Section 2510.5 filed 8-23-78; effective thirtieth day thereafter (Register 78, No. 34).

§2510.6. Withdrawal from Contingency Reserve.

History

Withdrawals shall be made from the contingency reserve required to be maintained under Insurance Code Section 12640.04 of that portion of such reserve which has been established more than 120 months prior to the date of any such withdrawal, and shall no longer constitute any part of the contingency reserve.

HISTORY

1. Amendment filed 5-28-74 as procedural and organizational; effective upon filing (Register 74, No. 22).

2. Renumbering of Section 2516 to Section 2510.6 filed 8-23-78; effective thirtieth day thereafter (Register 78, No. 34).

§2510.7. Use of Contingency Reserves for Loss Payments.

History

Subject to the written consent of the Insurance Commissioner or supervisory official of the jurisdiction in which a mortgage guaranty insurer is domiciled, the contingency reserve shall be available for loss payments only when and to the extent that the incurred losses in any calendar year exceed expected losses for such year. The term “expected losses” as used herein and in Section 12640.04 of the Insurance Code is defined to mean an amount equal to 20 percent of the premium earned during such calendar year without diminution because of contributions to the contingency reserve.

HISTORY

1. Renumbering of Section 2517 to Section 2510.7 filed 8-23-78; effective thirtieth day thereafter (Register 78, No. 34).

§2510.8. Same; Accounting Basis.

History

Release of moneys from the contingency reserve for payment of losses in accordance with Section 2517 shall be on the first-in-first-out basis.

HISTORY

1. Renumbering of Section 2518 to Section 2510.8 filed 8-23-78; effective thirtieth day thereafter (Register 78, No. 34).

§2510.9. Policy Form Requirements.

History

Mortgage guaranty insurance policy forms, defined in Section 12640.02(a) of the California Insurance Code and issued for delivery in this State, shall contain the following:

(a) An insuring clause;

(b) A schedule specifying the effective date of coverage, the policy period, and the insurance premium applied;

(d) Definitions;

(e) Conditions precedent to filing a claim, if applicable, including but not necessarily limited to:

(1) The presence of adequate hazard insurance covering damage to the property at the time of loss;

(2) Payment of all taxes;

(3) Payment of all sales expenses;

(4) Payment of all foreclosure costs;

(f) A condition precedent to payment in the event of default providing the insured must restore the property to its condition at the time of issuance of the policy, reasonable wear and tear being expected;

(g) A condition describing in full detail the loss provisions and recoveries to be received by the insured or its beneficiary on both settlement options applicable to the insurer as provided for under Section 12640.09 (a) of the California Insurance Code;

(h) A provision that the insurer has the option to pay the loss limits or acquire title. If a claim is submitted for settlement, the option may be elected and exercised only by the insurer who shall use its best judgement in determining the method of settlement that will minimize its loss;

(i) A filing of claims provision which shall set forth the place of filing and reporting, and to whom it is applicable;

(j) The legal rights agreement, if any;

(k) A waiver of conditions provision, if applicable;

(l) A conflict of laws provision providing for conformity with California law;

(m) In addition to the other policy form requirements set forth in this Section, a pool insurance policy shall be subject to the following:

(1) The aggregate loss limits provision contained in a policy covering a pool of mortgages shall not be made subject to adjustment, either directly or indirectly, to reflect the profit or excess of net proceeds received by the insurer from the sale of the property over and above the actual loss of the lender, when the insurer has elected to acquire the property in settlement of a claim, and the insurer shall not be permitted, directly or indirectly, to credit or refund any such excess or profit to the insured or any other party to the pooled insurance arrangement, and

(2) It must contain a provision setting forth the insurer's conditions established pursuant to Section 2510.18 of this Article, as well as the procedures under which the final premium will be charged against the equivalent amount available under the aggregate loss limit set forth in the pool insurance policy, or any other method agreeable to the insurer and the insured which satisfies the requirements of Section 2510.18 of this Article.

HISTORY

1. New section filed 8-23-78; effective thirtieth day thereafter (Register 78, No. 34).

§2510.10. Specific Requirements Applicable to Pool Insurance Policies.

History

In addition to the other requirements of this Article, Sections 2510.11 through 2510.22 are added and made applicable exclusively to mortgage guaranty insurers engaged in writing or reinsuring mortgage guaranty insurance pursuant to pool insurance policies.

HISTORY

1. New section filed 8-23-78; effective thirtieth day thereafter (Register 78, No. 34).

§2510.11. Definition of Pool Insurance Policy.

History

A pool insurance policy is a policy of mortgage guaranty insurance which insures the individual loans in a pool of mortgage loans that are secured by real property in California and that collarteralize a mortgage--backed security and which covers the losses on individual loans, subject to an aggregate loss limit, for the benefit of the insured or its named beneficiary.

HISTORY

1. New section filed 8-23-78; effective thirtieth day thereafter (Register 78, No. 34).

§2510.12. Limitation on Exposure.

History

HISTORY

1. New section filed 8-23-78; effective thirtieth day thereafter (Register 78, No. 34).

2. Repealer filed 9-5-85; effective thirtieth day thereafter (Register 85, No. 36).

§2510.13. Substitution of Mortgage Loans.

History

Any pool mortgage loans insured must be on a “closed end” basis and no substitution of mortgage loans will be allowed; provided, however, if a loan in the pool is paid in full by the borrower, within thirty (30) days after inception of the insurance policy another loan may be substituted to replace the original loan; the substituted mortgage loan must be made subject to underwriting and review by the mortgage guaranty insurer and be found acceptable to the insurer prior to being added to the pool.

HISTORY

1. New section filed 8-23-78; effective thirtieth day thereafter (Register 78, No. 34).

§2510.14. Assumption or Substitution of Borrowers.

History

Assumption without the release of the original borrower is permitted. Any assumption that leads to the release of the original borrower and substitution of a new borrower shall be considered a termination of the insurance coverage extended under the pool insurance policy as to that particular loan unless all of the following conditions are met:

(a) At the time of substitution, the loan is for no greater than the amount of outstanding balance on the original loan insured;

(b) It is limited to the same property as originally insured;

(c) The interest rate is the same as the interest rate on the original loan if fixed, or if it is a variable interest rate, it does not exceed the maximum interest rate allowable under law on the original mortgage loan insured;

(d) The criteria applied in the underwriting and credit evaluation of the substituted borrower is not less favorable to the insurer than that criteria applied to the original borrower;

(e) The substitution is made subject to the prior approval of the mortgage guaranty insurer;

(f) The existing coverage is not, in whole or in part, changed or affected as to the individual insured mortgage loan to be substituted or as to the overall pool insurance policy, and

(g) No substitution mortgage loan in any one pool shall remain covered under the pool insurance policy if its remaining principal balance at the time the substitution occurs, when added to the then current remaining principal balances of all previously substituted mortgage loans, exceeds the unexhausted and available aggregate ceiling of loss under the same pool insurance policy at the time of such calculation.

HISTORY

1. New section filed 8-23-78; effective thirtieth day thereafter (Register 78, No. 34).

§2510.15. Minimum Requirements.

Note • History

NOTE

Authority cited: Section 12640.18, Insurance Code. Reference: Sections 12640.01-12640.19, Insurance Code.

HISTORY

1. New section filed 8-23-78; effective thirtieth day thereafter (Register 78, No. 34).

2. Repealer of subsection (d) and consecutive relettering of subsection (e) filed 11-21-80 as an emergency; effective upon filing (Register 80, No. 47). A Certificate of Compliance must be transmitted to OAL within 120 days or emergency language will be repealed on 3-21-81.

3. Certificate of Compliance transmitted to OAL 3-20-81 and filed 4-17-81 (Register 81, No. 16).

4. Repealer filed 11-13-81; effective thirtieth day thereafter (Register 81, No. 46).

§2510.16. Liability Limitations.

History

The total liability of mortgage guaranty insurer under a pool insurance policy shall be limited as follows:

(a) To the maximum aggregate ceiling of loss;

(b) If a mortgage guaranty insurer agrees to write in excess of twenty--five percent (25%) at risk of the entire indebtedness on individual mortgage loans, through utilization of reinsurance, as provided for in Section 12640.09(c) of the California Insurance Code, the total net liability of such insurer under the pool insurance policy, both directly and indirectly, shall be limited to the actual amount of loss to the insured on each individual loan insured;

(c) The determination of the actual amount of loss to the insured shall not be subject to any adjustment resulting in any credit due to deductions, netting, or otherwise, upon resale of the property in the event that the mortgage guaranty insurer exercises its option during the claims period to acquire the property to mitigate its losses, other than that which is described under Section 2510.9(m)(1) of this Article, and

(d) The maximum liability of the insurer will be reached when the cumulative actual amount of loss to the insured equals the initial aggregate loss limit under the pool insurance policy.

HISTORY

1. New section filed 8-23-78; effective thirtieth day thereafter (Register 78, No. 34).

§2510.17. Assignments of Title to Mortgage Properties.

History

Upon claim and foreclosure all titles to the mortgaged properties insured must be freely assignable to the mortgage guaranty insurer without any conditions, restrictions or limitations, whether contractual or otherwise, being imposed by any party who is or might be involved in any capacity under the pool insurance policy or the pool loan arrangement.

HISTORY

1. New section filed 8-23-78; effective thirtieth day thereafter (Register 78, No. 34).

§2510.18. Premium.

History

A mortgage guaranty insurer is entitled to receive the full premium agreed upon under the pool insurance policy. Upon achieving the aggregate ceiling of loss under the policy, the insurance coverage terminates automatically. The mortgage guaranty insurer is then entitled to accelerate and call for the balance of the premium if the aggregate ceiling of loss is reached prior to the twelfth (12th) contract year of such insurance policy. Assuming that the premium for the policy has been prepaid for a twelve (12) year period, the premium is then adjusted by the premium actually paid under the policy. The resulting balance then must be reduced to the present value by applying a reasonable rate of interest. The following steps are used in the additional premium calculation:

(a) Average monthly premium collected to date multiplied by 144 months = Total expected premium for 12 year period.

(b) Multiply “total expected premium” from subsection (a) of this Section by the appropriate cumulative earned factor from the following table (as specified in the California Administrative Code, Title 10, Chapter 5, Subchapter 3, Article 10, Section 2513). The result will equal the total premium to be earned between inception and termination as follows:

Termination at End Cumulative Earned

of Contract Year Factor

1 .044

2 .195

3 .360

4 .506

5 .630

6 .735

7 .823

8 .890

9 .938

10 .970

11 .989

12 1.000

(Total premium earned (Total expected (Cumulative

between inception = premium from x earned

and termination) subsection (a) factor)

of this Section)

If this step results in a negative figure, this subsection is to be disregarded.

this Section less premium already paid)

(d) Additional premium due (Total premium from x 1

(1 + i)n

mortgage guaranty insurer = subsection (c) of this Section)

whereby:

i = annual rate of interest.

n = years from termination to end of assumed 12 year period.

HISTORY

1. New section filed 8-23-78; effective thirtieth day thereafter (Register 78, No. 34).

§2510.19. Proration of Earned Premium Factor.

History

Pursuant to subsection (b) of Section 2510.18 of this Article, if termination of the pool insurance policy occurs during the year, the earned premium factor of the current year must be prorated and added to the cumulative earned premium factor of the prior year.

HISTORY

1. New section filed 8-23-78; effective thirtieth day thereafter (Register 78, No. 34).

§2510.20. Limitations on Assuming Mortgage Guaranty Insurers Under Reinsurance Contracts.

History

The assuming insurer to a reinsurance agreement under a pool insurance policy, as described in Section 12640.09(a) of the California Insurance Code, shall be subject to the same limitations and restrictions on its portion of retention or assumed insurance writings as the direct writer and shall retain only a maximum of twenty-five percent (25%) at risk of the entire indebtedness on individual mortgage loans and must reinsure the excess. No reinsurer shall retain more than twenty-five percent (25%) of the amount at risk on individual mortgage loans.

HISTORY

1. New section filed 8-23-78; effective thirtieth day thereafter (Register 78, No. 34).

§2510.21. Affiliated Mortgage Guaranty Insurers.

History

A ceding insurer shall not reinsure any pooled mortgage loans under a pool insurance policy with an affiliated company. A mortgage guaranty insurer shall not participate in any reinsurance contract under pooled mortgage loans, directly or indirectly, with an affiliated insurance company.

HISTORY

1. New section filed 8-23-78; effective thirtieth day thereafter (Register 78, No. 34).

§2510.22. Filing of Reinsurance Contracts, Prospectus and Private Placement Memorandum.

History

Within thirty (30) days after a pool insurance policy is issued, reinsurance contracts, final prospectus and private placement memorandum must be filed with the Insurance Commissioner for reporting purposes and the Commissioner may request such other information and documentation as he deems necessary and proper.

HISTORY

1. New section filed 8-23-78; effective thirtieth day thereafter (Register 78, No. 34).

§2519. Filing of Policy Forms.

History

HISTORY

1. Repealer filed 8-23-78; effective thirtieth day thereafter (Register 78, No. 34). For history of former section see Register 62, No. 12.

§2520. Licensing of Producers.

Any person engaging in the transaction of mortgage guaranty insurance with or on behalf of a mortgage guaranty insurer is subject to the provisions of Chapter 5, Part 2, Division 1 (commencing at Section 1621) of the Insurance Code. Any person not exempt from licensing pursuant to the provisions of such chapter shall obtain the requisite fire and casualty license pursuant thereto before engaging in any such transaction.

§2521. Limitation Investments Mortgage Guaranty Insurer.

No mortgage guaranty insurer may invest in notes or other evidences of indebtedness secured by a mortgage or other lien upon real property. This section shall not apply to obligations secured by, or contracts for the sale of, real property, which obligations or contracts of sale are acquired in the course of the good faith settlement of claims under policies of insurance issued by the mortgage guaranty insurer, or in the good faith disposition of real property so acquired.

Article 10.1. Investment Annuities

§2522. Authority.

Note • History

This Article is promulgated pursuant to the authority granted to the Insurance Commissioner under the provisions of Section 790.10 of the Insurance Code.

NOTE

Authority cited: Section 790.10, Insurance Code.

HISTORY

1. New Article 10.1 (Sections 2522, 2522.1-2522.16) filed 8-19-76; effective thirtieth day thereafter (Register 76, No. 34).

§2522.1. Prior Inconsistent Bulletins Superseded.

This Article supersedes Bulletin No. 73-14 and Bulletin No. 74-5, previously issued by this Department relating to the subject matter of investment annuities.

§2522.2. Purpose.

The purpose of this Article is to establish qualification procedures for the transaction of an investment annuity business in this State, policy form approval and advertising guidelines applicable to the issuance of investment annuity policies, and requirements for the establishment of segregated custodian accounts. This Department's review of and experience with investment annuities indicates that this Article is necessary due to the complexity of the product, the potential for abuses in marketing, and the possible effect upon the financial condition of the insurer. This Article establishes specific standards and guidelines for the transaction of an investment annuity business under the general authority of the Unfair Practices provisions of the Insurance Code in Sections 790 through 790.10.

§2522.3. Applicability.

This Article shall apply to all persons and entities specified in Insurance Code Section 790.01 and authorized to transact life insurance in this State.

§2522.4. General Requirements.

(a) An investment annuity policy is an individual policy or a group policy providing annuity payments to the annuitant(s) covered thereunder beginning immediately, or at some time in the future, based upon the value of a segregated custodian account, the assets of which are not managed by the insurer and which are irrevocably committed to the insurer as specified in the following subsection of this Article.

(b) Under investment annuity policies annuity purchase contributions consisting of cash, securities, or other assets, are the financial consideration for the investment annuity, and must be made to a segregated custodian account or accounts established pursuant to a written agreement with a fiduciary bank or trust company unaffiliated with the insurer or any affiliates of the insurer. The assets of the account must be irrevocably committed to the insurer and must be used, according to the provisions of the policy, to pay all current and deferred premiums, as due, to the insurer, taxes as applicable to the account, investment expenses relating to the account such as brokerage commissions and the charges of the custodian. Policies, other than when annuity benefit payments have commenced, shall provide for a cash surrender.

(c) Such investment annuity policies may provide benefits based on a single contribution (single purchase policies), or a series of contributions, reasonably anticipated to be made in predetermined specified amounts at predetermined specified times (recurring purchase policies), either of which may permit additional contributions at any time.

(d) The insurer must establish an Accepted Assets List, in accordance with Section 2522.10 of this Article, which is extensive in nature and expressed generally as to the kinds of investments acceptable to the insurer. The selection of investments within the account may be made by the annuitant in accordance with the Accepted Assets List of the insurer; provided, however, if the policyowner is other than the annuitant, and the policyowner has the investment discretion of the account, the policy may provide that the policyowner, rather than the annuitant, will select the investments. The selection of investments may be delegated to an appointed investment manager of the policyowner. The insurer shall not, directly or indirectly, manage the investment or reinvestment of assets in the account.

(e) The assets in the account shall be valued by the custodian at the end of each calendar year at fair market value on the date of valuation. “Account Market Value,” as used in this Article, means the value, net of due or accrued taxes, custodian charges, investment expenses, and account market value premiums. The assets of any such account are not chargeable with liabilities arising out of any other business the insurer may conduct. Neither policyowners nor annuitants shall share in any of the profits or the losses of the insurer. There shall be no sharing of profits or losses among accounts. All policies shall be non-participating. If the insurer reduces premiums on larger annuity purchase contributions for a specified class of annuitants, such reduction shall be applicable to all members of the class.

(f) Premiums from the account may become due and payable to the insurer upon the receipts of annuity purchase contributions by the custodian, upon stated intervals based on the account market value, upon the death of the annuitant, upon the annuitant reaching a predetermined age, upon cash withdrawals or surrender of the policy or group certificate, upon such dates that immediately precede any benefit interval, or upon such other due date as specified in the policy. If after payment of premiums on a due date, obligations to an annuitant or a beneficiary continue which are not funded by the premium payments, the proper amount of assets to fulfill such continuing benefit obligations shall remain in the account.

(g) All premiums, current or deferred, prescribed by the policy shall be actuarially determined to provide benefits for annuitants with allowance to the insurer for expenses, contingencies, and profits. Premiums reflect the fact that the account market value on which benefits are based may change at stated intervals. Premiums may be expressed either as percentages or stated dollar amounts, or a combination thereof.

(h) The schedule of premium rates and annuity rates applicable during the annuity payout period shall be constructed to provide a level fixed dollar annuity for a benefit interval and such benefit amounts will remain the same for successive benefit intervals so long as the account market value increases at a rate equal to the net assumed investment increment rate stated in the policy. If the account market value increases at a higher rate, the annuity payments in the succeeding benefit interval will be increased. If the account market value increases at a lower rate, the annuity payments in the succeeding benefit interval will be decreased.

(i) The insurer shall establish reserves for its benefit obligations, and the premiums received by the insurer for such obligations shall be invested by the insurer in the manner specified by statute for fixed dollar annuity reserves.

§2522.5. Qualification to Transact Investment Annuity Business in This State.

(a) No investment annuity policy shall be delivered or issued for delivery in this State by an insurer until the Commissioner is satisfied that the issuance of such policy is not hazardous to either the public or to the annuitants of such insurer. An insurer shall not be authorized to deliver or issue for delivery in this State an investment annuity policy unless the insurer has filed in form and substance, to the satisfaction of the Commissioner, the following:

(1) A statement of the actuarial assumptions upon which the investment annuities are to be issued and the plan and methods of administration and marketing of investment annuities, including advertising materials;

(2) A statement of the method of control, management and administration of the segregated custodian accounts, including the account reporting procedures to annuitants and to policyowners, if the policyowner has the investment discretion as to the account;

(3) Evidence of compliance with relevant tax laws and regulations and any relevant federal securities laws and regulations. Such evidence of compliance must be to the satisfaction of the Insurance Commissioner, and different standards of compliance may be required depending upon the scope of the Accepted Assets List and the types of assets appearing on such list, and the arrangement, if any, to offer or sell assets to fund the custodian account or accounts, or provide investment advice or investment management with respect to such assets (this includes affiliated broker-dealers licensed as life insurance agents);

(4) A full disclosure statement with respect to any person (including life agents) associated with the insurer and any broker-dealer who may recommend securities to annuitants, effect securities transactions on their behalf, or undertake to act as investment manager to the annuitant, in connection with the funding or maintaining of the segregated custodian accounts, and a commitment to provide disclosure with respect to any changes in such relationships;

(5) A full disclosure statement revealing the relationship with such custodian or any organization that may sell, issue or provide securities or other assets which may be held in any custodian account of any officers, directors or person owning or controlling 10% or more of the stock of the insurer or the proposed custodian and a commitment to provide disclosure of any subsequent changes in such relationships;

(6) A certification that there is no commitment, nor will the insurer at any time enter into a commitment, with any person to subsidize in any manner or by any means the cost of producing or handling the investment annuity business (including the custodian, transfer agent, service organizations but excluding any commission or other compensation to the producing life agent);

(7) A five (5) year projection, in a form prescribed by the Insurance Commissioner, of the development of statutory surplus arising from the operations of investment annuity contracts, which must include, but not necessarily be limited to, sufficient details of the methods employed in determining the separate items to enable the Department of Insurance to independently verify the application of the assumptions. The financial projections shall include the cost of commissions, data processing, salaries, general administration, and the resultant effect on surplus, and be based upon three separate assumptions with respect to the rate of writings:

(A) As developed assuming a level annual dollar amount of investment over the initial five (5) year period;

(B) Assuming an increase in the annual dollar amount of investment over the initial five (5) years increasing at the rate of 20% per year compounded annually;

(C) Assuming a decrease in the annual dollar amount of investment over the initial five (5) years, at the rate of 20% so that each year's dollar amount is 80% of the previous year's dollar amount of investment as each relates to the previous year's dollar amount of investment, as each relates to the consideration received by the insurer; and

(8) A statement that the insurer has complied with all of the other requirements of this Article.

§2522.6. Financial Reports and Projections Subsequent to Qualification.

(a) For the first five (5) years after qualification, the insurer shall file quarterly financial reports covering its investment annuity business separate and apart from all other business of the insurer, on a form provided by the Commissioner. Such quarterly reports must be related to the previously filed projections. The five (5) year projections initially submitted with the qualification material must be revised and resubmitted annually for the first five (5) years.

(b) The first quarterly report after qualification shall be due following the first full quarter after the original qualification to transact an investment annuity business.

(c) After the insurer has been qualified to transact such business for five (5) years, it will be required to file its financial report of investment annuity business on an annual basis, unless the Insurance Commissioner requests the insurer to file more frequently, together with its projections for the next year and verification of the projections for the previous years.

(d) The Department's review of the verification may result in additional capital and surplus requirements, restriction on writings or both.

§2522.7. Filing of Sales Materials.

(a) The word “advertisement,” as used in this article, means any advertisement material, illustration, descriptive literature or other sales material of any kind relating to investment annuities. An insurer authorized to transact investment annuity business in this state is responsible for all advertisements of its product and shall not use in this state any advertisement which is false, misleading, deceptive or inaccurate. All investment annuity advertisements shall be filed with the commissioner not less than thirty (30) days prior to use. Revised versions of such filed advertisements shall be filed with the commissioner not less than thirty (30) days prior to use. A filed advertisement may be used if either: (1) thirty (30) days expire without notice from the commissioner that the advertisement is objectionable, or (2) the commissioner prior to that time indicates the advertisement is unobjectionable. The commissioner shall require an insurer to cease the use of any advertisement if any such advertisement is false, misleading, deceptive or inaccurate.

(b) All advertisements used in this state relating to investment annuities shall clearly state that the product being advertised is an investment annuity and an insurance product. An investment annuity shall be advertised in the name of the insurer; provided, however, that a life insurance agent appointed to represent the life insurer may advertise investment annuities of such insurer if the advertisement has been approved as to form and content by such insurer and the advertisement discloses the name of the insurer. All agreements between the insurer and the custodian shall provide that the custodian shall not advertise investment annuities.

(c) An insurer shall not describe its investment annuity as a “Savings Annuity Plan,” “Securities Annuity Plan,” “Certificate of Deposit Annuity,” a “Tax Saver Plan” or use words or phrases of similar import describing the assets which are on its Accepted Assets List. The insurer may describe its investment annuity as “investment directed,” “investment annuity,” “personal investment annuity,” “retirement investment annuity,” or other words or phrases of similar import. The use of any advertisement with the terms “low” or “low plan fees” or “low premiums” is a question of fact which will be determined based upon comparative information filed with the commissioner. Such terms as “tax deferred” or “tax sheltered” investing to provide the basis for future annuity payments may be used; provided, however, that earnings excludable from income tax shall not be described as “tax free.” Annuity premiums shall not be described as “fees.”

(d) All advertisements of investment annuities, other than invitations to inquire, shall contain a specific and complete disclosure explanation of all of the usual and customary charges made by a representative custodian for each type of investment transaction and clearly describe the initial premiums, and annual account market value premiums, and any other type of premium charges payable to the insurer, other than those required to provide benefits, and shall also disclose the amount payable as a sales commission or commissions. The disclosure of the amounts of commissions shall be stated either in dollars or in percentages related to the amount of the annuity purchase contribution or the amount of premium on the annuity purchase contribution. All advertisements must clearly state which charges are payable to the custodian by the policyowner.

(e) Illustrations of benefits payable under an investment annuity policy shall not include projections of past investment experience into the future or attempted predictions of future investment experience; provided, however, that nothing contained herein prohibits the use of hypothetical assumed rates of return to illustrate possible levels of benefits if it is clear that such assumed investment rates of return are hypothetical only. Such illustrations, if used, shall be prepared by the insurer or approved by the insurer prior to use. If assumed investment rates are used, at least one illustration must show the results if the net investment rate of return is one-half of the highest assumed investment return.

(f) Neither the insurer nor the life insurance agent shall describe or refer to any asset on the Accepted Assets List as assets, investments or securities approved by the Commissioner.

(g) Every insurer offering an investment annuity in this State shall establish and maintain a system of control over the content, form, and method of dissemination of all advertisements of its investment annuity policies. All such advertisements, regardless of by whom written, created, designed or presented, shall be the responsibility of the insurer whose policies are so advertised. In addition to filing all such advertisements with this Department, all such advertisements shall be maintained by the insurer for a period of either four (4) years subsequent to use or until the filing of the next regular Report of Examination of the insurer, whichever is the longer period of time.

§2522.8. Filing and Approval of Policy Forms.

(a) Since an investment annuity policy, the custodian account agreement and other related documents are complex, and since the annuity benefits vary from year to year based upon the premium payable from the segregated account which will reflect the investment performance of the assets in the segregated custodian account, it is in the public interest to require the filing and approval of investment annuity policy forms delivered or issued for delivery in this State and also the filing and approval of all documents whether attached to or used in conjunction with the policy.

(1) Investment annuity policy forms, as used in this paragraph and the preceding subsection, mean any individual policy or group policy, any application form and any documents, rider or endorsement attached to and made a part of the policies or used in conjunction with the policies, including the custodian account agreement form, the group certificate, the group enrollment card or form and the form or forms used to direct the investment of account assets. No such form shall be delivered or issued for delivery in this State, after the effective date of this Article, unless and until the policy form and any other documents described in this paragraph have been filed with and approved in writing by the Commissioner.

(2) While for the purpose of the insurance laws an investment annuity is not a variable annuity, the fees for approval of such policy forms shall be the same as the fees set forth in Section 2201(10), California Administrative Code, Title 10, Chapter 5, Subchapter 2, whether it is a group or an individual policy. In determining the applicable charge the Commissioner will consider all of the sections of Subchapter 2. The provisions of Insurance Code Section 12957 shall be applicable to withdrawal of approval of such investment annuity policy forms.

(3) Investment annuity policy forms shall contain provisions which comply with the following requirements:

(A) Group policies may be issued to employers or an association of employers to insure the employees of the employer(s) only, and shall provide that in the event the group policyholder terminates the group policy, the annuitant has the right to obtain an individual policy on terms not less favorable than those of the group policy. Group policies shall not contain any type of an experience rating provision or dividend provision. The approval of a group policy by the Commissioner for issuance to groups other than an employer or an association of employers will be on an instant case filing basis only.

(B) The policy shall provide that, in the event a prescribed premium is not received either because of a breach of the custodian's obligations under the custodian agreement or because of loss in the account other than loss from depreciation in the investment value, the insurer shall not be relieved of its obligation to make annuity payments thereunder.

(C) Neither the custodian account agreement nor the annuity policy shall impose a penalty on the annuitant for failure or delay of the custodian to pay to the insurer any premiums or taxes due the insurer, except the insurer may defer the payment of annuity benefits or other benefits for a period not to exceed sixty (60) days following receipt of such premium or tax payment, at which time all delayed annuity payments shall be made.

(D) All policy forms shall specify that the forms shall be construed according to and be governed by the laws and regulations of the state where the policy is delivered. When the policy or an application attached to the individual policy clearly states the actual state of delivery of the policy, the requirement of the preceding sentence may be complied with by a reference to the documents being construed according to and governed by the laws and regulations of the state where the policy is delivered.

(E) An investment annuity policy shall be either a Single Purchase Investment Annuity Policy or a Recurring Purchase Investment Annuity Policy. Single purchase policies shall have a minimum single initial annuity purchase contribution of not less than ten thousand dollars ($10,000.00), and subsequent optional annuity purchase contributions, if any, shall not be less than one thousand dollars ($1,000.00). The insurer may, in the policy, set forth the maximum amounts of permissible additional purchase contributions. Recurring purchase policies shall have anticipated minimum purchase contributions of not less than twelve hundred dollars ($1,200.00) per year, payable at such specified frequencies within each year as permitted by the policy.

(F) The insurer may issue recurring purchase annuities of less than twelve hundred dollars ($1,200.00) per year on a payroll deduction or reduction basis or an employer contribution basis, if the insurer files with the Commissioner, in addition to the information otherwise required, a justification of such lower contribution levels, including that the issuance of such annuities will not adversely affect the solvency or operations of the insurer, explaining the relevant characteristics of the market to be serviced, the need for the lower contribution level, and any other information which the Commissioner may require. Such approvals, if granted by the Commissioner, will be granted on an instant case basis only for the employees of the specified employer.

(G) Every individual investment annuity policy shall have printed on the application furnished to the applicant a notice stating, in substance, that, at any time within ten (10) days after the signing of the application, the applicant may request cancellation of the application by delivering or mailing notice to that effect to the insurer or to the life insurance agent through whom the policy was purchased, and that all annuity purchase contributions paid shall be returned to the applicant. Neither the insurer nor the custodian shall be required to comply with any investment instructions during such ten (10) day period, and any such annuity purchase contributions which are received may remain unprocessed during such ten (10) day period, unless such ten (10) day period to request cancellation is specifically and separately waived in writing on the application by the applicant.

(H) A clear and prominent statement shall appear on the first page of the policy and the group certificate and clearly and prominently in the application stating:

1. That the policy is an investment annuity policy; and

2. That the annuity benefits payable will vary at established intervals and are based upon the premiums payable from the segregated account which will reflect the net investment performance of the assets in the segregated custodian account.

(I) The policy shall contain a provision which clearly specifies and defines the assumed investment increment factor to be used in computing the dollar amount of investment annuity benefits or other contractual payments or value thereunder, and a provision which shall guarantee that neither the expenses of the insurer nor the mortality experience of the insurer shall adversely affect such dollar amounts. “Expenses,” as used herein, may exclude some or all taxes, as stipulated in the policy.

(J) The policy shall contain a provision which provides that in computing the dollar amount of investment annuity benefits or other contractual payments or values under an investment annuity policy, the assumed investment increment rate established by the insurer shall not exceed 6% per annum. A higher rate or lower rate may be selected by the policyowner, subject to the approval of the insurer.

(K) The policy shall contain a table of the premiums payable and the annuity benefits provided during the lifetime of the annuitant and, if the policy or annuity continues after the death of the annuitant, the premiums payable, if any, and the annuity benefits provided. Such table shall specify the net assumed investment increment rate used by the insurer. In the event the policyowner selects an assumed investment increment rate higher or lower than the rate stated in the policy, an appropriate premium and annuity schedule, based upon the rate selected, shall be issued by the insurer as an amendment to the policy and furnished to the policyowner and to the annuitant if the annuitant is a person other than the policyowner.

(L) The policy and the group certificate shall contain a provision stating that annuity benefits are based upon premiums paid from the segregated custodian account.

(M) The policy shall contain a provision that the policyowner, or the policyowner's chosen investment manager, and not the insurer, shall direct the custodian as to the investment of the assets in the account from time to time during the time the annuity policy remains in force.

(N) In the event a policy provides any penalty for a default in the payment of annuity purchase contributions or of premiums from the account, the following non-forfeiture provisions shall be included in the policy giving the policyowner the right to correct such default.

1. A provision that there shall be a period of grace of one (1) month within which any payment may be made and during which period of grace the policy shall continue in force. The policy shall include a statement of the basis for determining the date as of which any such payment received during the period of grace shall be applied to produce the values, if any, under the policy and arising therefrom.

2. A provision providing that at any time within two (2) years from the date of default in making payments during the life of the annuitant under a recurring purchase contract, unless the policy has been surrendered and the surrender value has been paid, the policy may be reinstated upon payment of such overdue payments, and of any indebtedness to the insurer on the policy, including interest on such indebtedness at a rate not to exceed 6%. The policy shall include a statement of the basis for determining the date as of which the amount to cover such overdue payments and indebtedness shall be applied to produce the values under the policy and arising therefrom. In lieu of a reinstatement provision, the policy may contain another provision more favorable to the policyowner and annuitant.

3. A provision specifying the options available in the event of default in annuity purchase contributions or premium payments. Such provision may include an option to request either a partial or a complete surrender of the policy for account market value, less a surrender charge to the insurer. Such a provision may also include an option to receive a paid-up annuity if the policy has not been surrendered. The amount of such paid-up annuity may be subject to a minimum established by the insurer and shall be determined by applying the account market value at the annuity commencement date. The minimum partial cash surrender may be a reasonable amount of the market value of the segregated account of the annuitant, and the policy may contain other reasonable restrictions if the market value of the segregated account is less than five thousand dollars ($5,000.00).

(O) The policy shall contain a provision that it is incontestable by the insurer after the policy has been in force for two (2) years during the lifetime of the annuitant.

(P) The policy shall contain a provision or provisions clearly stating the premiums charged on annuity purchase contributions, the premiums charged on the account market value and the calculation of any other premiums or charges made by the insurer to provide benefits under the policy.

(Q) The policy shall contain in addition to the other provisions required by this Article, but not necessarily limited to, the following appropriate provisions relating to: Entire Contract; Beneficiary Designation; Ownership; Assignment; Misstatement of Age or Sex; Proof of Death; Proof of Survival and Identity, and Facility of Payment.

(R) Subject to other provisions of this Article the policy shall contain a provision for the partial or the complete surrender of the policy prior to the commencement of life contingency annuity benefits.

(S) Each group certificate shall contain in addition to other group certificate provisions required by this Article, but not necessarily limited to, the following:

1. The name and home office address of the insurer;

2. Identification of the master policy;

3. A description of the coverages and benefits offered thereunder together with any exceptions, limitations, and restrictions;

4. Appropriate provisions with respect to assignment and beneficiary designations, incontestability and conversion;

5. Provisions with respect to the right to terminations, withdrawal and cash surrender benefits, if any, of the certificateholders;

6. Optional annuity date provisions, if any, and

7. Settlement options.

(T) A group investment annuity policy shall not contain any provision which permits or provides in any manner whatsoever for any reimbursement to the group policyholder or certificateholder of the expenses of administration or any other form of compensation, directly or indirectly, from the insurer. This provision shall not prohibit the payment of commission to a life agent who may be a policyholder or certificateholder.

(U) 1. If the policyowner is other than the annuitant, the policy shall state (i) whether the policyowner or the annuitant shall select the investments, and (ii) whether the policyowner, the annuitant, or both, may make annuity purchase contributions under the policy.

2. All custodian reports shall be furnished to the person who has the right to direct the investments in the account.

3. In the event the policy is a group policy, the group policyholder shall not exercise the right of selection of investments unless the group policyholder makes a contribution to the segregated custodian account.

§2522.9. Custodian Account Agreements.

(a) A custodian account agreement to be used in conjunction with an investment annuity policy shall be filed by the insurer with the Commissioner for approval and shall be attached to and made a part of the policy. If the policy is a group policy, a copy of the custodian account agreement shall be delivered to the annuitant with the group certificate. A custodian agreement shall not relieve the insurer from any responsibilities or obligations imposed upon the operations of its investment annuities by any law or regulation.

(b) Until transmitted to the insurer as premium payments, the assets supporting the benefits provided to each annuitant shall be maintained in a segregated custodian account with an independent bank or trust company having authority to act in a fiduciary capacity and not affiliated with the insurer or any of the affiliates of the insurer.

(c) The choice of the custodian is to be made by the policyowner subject to the approval of the insurer; however, the insurer may recommend one or more of its approved custodians, or it may, for reasonable and just cause, refuse to approve a proposed custodian selected by the policyowner, or as provided in paragraph (26) of subsection (d) of this Section, the insurer may give written notice to the policyowner requiring the appointment of a successor custodian. The reason of the insurer for any such action shall be neither arbitrary nor capricious.

(d) A custodian account agreement shall clearly identify the custodian and either the custodian agreement or the policy (except where otherwise herein stated) shall contain provisions relating to the authority, responsibility and duties of the custodian and shall comply with the following requirements and contain the following provisions.

(1) The policyowner, or the policyowner's chosen investment manager, and not the insurer, shall direct the custodian as to the investment of the assets in the account from time to time during the time the annuity policy remains in force. This requirement must be stated in the custodian account agreement.

(2) A provision in the agreement that all assets in an account including dividends, interest and other income or distributions from the assets, shall be irrevocably committed to the payment of premiums under the annuity policy, the payment of charges of the custodian, investment expenses such as broker's commissions and the remittance to the insurer of such amounts necessary for any state or federal tax applicable to the account and any other necessary and proper charges, and the custodian may be authorized to apply cash and other assets held in the account to the payment thereof or to reimburse itself therefrom.

(3) A provision providing for access to the records of the custodian by the insurer or its designee during reasonable business hours for the purpose of verifying all matters relating to the segregated accounts.

(4) The custodian agreement shall contain a provision providing that in the event of a change of custodian, the custodian shall continue to hold and administer the custodian account until the successor custodian has been appointed, approved by the insurer, and the successor has accepted the transfer of the account and the assets therein.

(5) A provision that in the event the custodian resigns, the custodian shall give not less than ninety (90) days notice, and, if the custodian resigns, or the insurer removes the custodian, either the custodian or the insurer shall bear the expenses resulting from such change of custodian. If the policyowner removes the custodian, the agreement shall specify who shall bear the expenses and it may provide that the custodian account shall bear the expenses resulting from such change of custodian. If the custodian is removed, the policyowner shall appoint a successor custodian acceptable to the insurer within forty-five (45) days. If the custodian resigns, the policyowner shall appoint a successor custodian acceptable to the insurer within ninety (90) days from the date of the resignation notice. If the policyowner fails to appoint such a successor custodian within the respective number of days set forth herein in the case of removal or resignation, the insurer may appoint a successor custodian.

(6) A provision in the agreement that it shall be the responsibility of the custodian to value the assets in the account at the end of each calendar year and at such other times as contractually required to carry out the provisions of the policy. Such valuation shall be based on the fair market value of such assets on the date of valuation. The custodian shall remit promptly to the insurer the premiums due under the terms of the policy; provided, however, that the agreement may provide that the custodian may rely upon written statements of the insurer as to premiums due or any other amounts due to the insurer.

(7) A provision in the agreement that within thirty (30) days after the receipt of notice from the insurer that a premium is due and payable by reason of the death of the annuitant or the annuitant having attained a predetermined age or date, the custodian shall furnish the insurer and the insurer shall furnish the annuitant or whoever then shall have succeeded to the annuitant's rights and obligations under the custodian account agreement:

(A) A statement listing all the assets in the account, the fair market value of each asset and the aggregate fair market value of all assets in the account, all as of the premium due date; and

(B) A statement setting forth the premiums due and related benefit payments.

(8) A provision in the agreement stating the usual and customary charges made by the custodian for the various types of transactions. Such statement shall provide that the custodian shall not increase the schedule of charges more often than once every twelve (12) months. The statement of charges of the selected custodian shall be either in the custodian account agreement or in a rider attached thereto.

(9) Provide for the safekeeping and custody of the securities and other assets in the custodian account.

(10) Provide for the execution of all declarations, affidavits, certificates of ownership and other necessary documents required in collecting principal and income payments.

(11) Provide for collection of the annuity purchase contributions, the recording of dividends, interest, proceeds of maturing or called securities and other income to be credited to the segregated custodian account in accordance with the agreement.

(12) Provide for exchanging temporary securities certificates for permanent certificates.

(13) Provide for selling all stock rights and warrants, as these occur.

(14) Provide for notifying the annuitant with respect to requests for tender of assets and offers to exchange assets as they occur.

(15) Provide for the registration of assets by the custodian and that any re-registration, transfer or deposit shall not relieve the custodian of any of its duties or obligations under the agreement.

(16) Provide that the custodian shall execute orders for purchase, sale or exchange of assets and make settlement in accordance with the normal rules applicable to such commercial transactions.

(17) Provide for maintaining a complete record of all transactions with respect to the account.

(18) Provide for determining the fair market value of the first annuity purchase contribution as of the effective date of the agreement, any subsequent annuity purchase contribution or contributions as of the date when deposited in the account, and the assets held in the account at the end of each calendar year as provided above.

(19) Provide that the custodian will determine, based on the information received from the insurer, the premiums due, as provided above in paragraph 6, and the applicable annual annuity as contemplated by the policy.

(20) Provide that the custodian shall be required to carry out investment instructions received in writing from the policyowner or his authorized investment manager, in a timely and responsible manner, unless such instructions are not in accordance with the terms of the agreement. The custodian shall issue a quarterly written report to the policyowner or investment manager not more than thirty (30) days after the end of the quarter confirming that the investment instructions received within thirty (30) days prior to the end of the quarter have been executed and performed.

(21) Provide that the custodian shall agree to sell, purchase or exchange for the benefit of the account, assets held in the account pursuant to instructions received from the policyowner and in the compliance with the agreement.

(22) Provide for making available the listing of accepted assets in generic form which may be held in the custodian account by the policyowner and specifying any limitations on the investing power of the policyowner. The agreement shall contain or have attached to it the Accepted Assets List and provide that, if the Accepted Assets List is amended by the insurer, the amendments will be furnished to the person who has the investment discretion.

(23) Specify the grounds upon which an asset may be removed from the Accepted Assets List of the insurer, including the time to be given to the policyowner to direct sale of such asset after notice from the insurer to both the annuitant and the custodian to remove the asset and the action, if any, that the custodian will take if the asset is not sold within the specified time. (Limitations may be based upon the compatibility of the insurer and the custodian's administrative procedures for investing and accounting, and upon the asset having a reasonably ascertainable market price available from regular market activity as specified in Section 2522.10(a) of the Article.)

(24) Provide that, in connection with the voting of shares, it shall be provided that, if the custodian reserves the right to execute proxies to vote shares, it must be pursuant to the annuitant's or, when the policyowner has the investment discretion as to the account, the policyowner's right at any time to give instructions regarding the execution of proxies.

(25) Provide that, in connection with premiums and disbursements, the custodian shall agree to promptly remit premiums, taxes and assessments from the account in cash to the insurer as provided in the policy. The assets held in the account and the dividends, income and distributions on such assets shall be applied only to the payment of the annuity premiums to the insurer under the policy, the charges of the custodian and other charges as may be specifically set forth in the agreement. It shall be clearly set forth that none of the assets, dividends, interest, income and distributions thereon shall be distributed or distributable by the custodian to any owner, annuitant, joint annuitant (or their respective heirs, executors, administrators or personal representatives) or to any beneficiary or assignee. When cash funds are required for any purpose provided in the agreement and such funds are not currently available out of annuity purchase contributions and out of dividends, interest, income and distribution, and the custodian has not received specific selling instructions from the annuitant as to particular assets, the custodian must sell assets pursuant to a fair, just, equitable and objective standard which shall be set forth in the agreement, and the agreement may provide for the custodian to sell the most recently acquired asset.

(26) Provide that the insurer retains the right to give written notice to the policyowner that it no longer approves of the custodian and that the insurer may require the removal of the custodian for any reason which is not arbitrary or capricious, including the following reasons:

(A) Failure of the custodian to provide all necessary information to the insurer or the policyowner or the annuitant in a timely and accurate manner;

(B) Failure of the custodian to remit any and all charges, premiums, annuity purchase contributions, assessments, taxes and similar items;

(C) The occurrence of any event that would have a material affect upon the financial condition or business reputation of the custodian including, but not necessarily limited to, its bankruptcy, material litigation against the custodian, state or federal regulatory action against the custodian, and

(D) Any other reasonable, just or good cause.

(27) Except as to amounts due to the insurer, provide that the assets held in the account shall not be sold, assigned, discounted or pledged as collateral for any purpose nor shall they be subject to any legal process to levy upon or cash the same for payment of any claims against the policyowner, the annuitant, the joint annuitant, if any, beneficiary or other person entitled thereto except as to the extent permitted by law.

(28) Provide that the agreement shall be binding upon the assignees, executors, administrators, personal representative and heirs of the policyowner, annuitant, the joint annuitants, if any, any beneficiary and any other person or persons entitled thereto.

(29) The agreement shall provide with respect to policy ownership and assignment that:

(A) If the annuity policy, when issued, is owned by a person other than the annuitant, all rights, titles, interest and obligations under the agreement with respect to such annuitant shall vest in the owner, and

(B) Any and all rights, title and interest may be assigned and the assignment shall be effective when notice of such assignment is received at the home office of the insurer.

(30) The agreement shall provide that it is to be construed and governed in accordance with the laws of the state where the policy is delivered.

(31) The agreement shall provide that the custodian shall perform all other duties and services consistent with the purposes and intent of the agreement.

(32) The custodian account agreement shall contain all of the applicable provisions provided in this Article, but is not necessarily limited thereto, and may contain other provisions or contractual requirements.

§2522.10. Accepted Assets List.

(a) The insurer shall establish and file for approval by the Insurance Commissioner a listing of accepted assets which may be held as investments in a segregated custodian account. The Accepted Assets List shall be extensive and expressed generally as to kinds of investments acceptable. Acceptability as to either a class of asset or as to any specific assets within a class shall be based upon the asset having a reasonably ascertainable market value available from reports of regular market trading or established by recurring commercial transactions not involving trading in assets, and compatibility of the asset with administrative procedures established by the insurer for the investing and accounting of assets within the account.

(b) The insurer shall also file with the Commissioner its standards for the amendment of its Accepted Assets List by the addition or deletion of classes of assets. The procedures for the addition or deletion of specific assets within a class shall also be filed at the time of filing the Accepted Assets List. In the event an asset is deleted as an acceptable asset, such asset may be required to be sold and the proceeds reinvested or its acceptability may be terminated with regard to future investments only.

(c) In the event that the insurer amends the Accepted Assets List or deletes a specific asset, it shall file notice of such action and the reason for such action, as specified in subsection (h) below, with the Insurance Commissioner.

(d) The following is an example of an Accepted Assets List:

(1) Securities listed and traded on the New York Stock Exchange, the American Stock Exchange or regional stock exchanges or successors to such exchanges having the same or similar qualifications;

(2) Securities listed on the NASDAQ System;

(3) Shares of an investment company registered pursuant to the Investment Company Act of 1940 other than an investment company affiliated with either the insurer or the custodian. Where such an investment company issues book shares in lieu of share certificates, such book shares shall be deemed to be adequate evidence of ownership;

(4) Obligations of or guaranteed by the United States government, the Canadian government, any state (or province of Canada), or municipality or governmental subdivision of a state;

(5) Savings accounts, passbook accounts and certificates of deposit issued by financial institutions which are insured by the FDIC or FSLIC, cash, and credit union loan accounts as such credit union loan accounts are otherwise permitted;

(6) New bond or debt issues which may reasonably be expected to be listed on an exchange regulated by the Securities Exchange Act of 1934;

(7) Life insurance the face amount of which is incidental in relationship to the anticipated annuity benefit payments. In accordance with current Internal Revenue Rulings and for the purpose of this Article, the word “incidental” as used in the preceding sentence means that life insurance shall be considered incidental if the face amount does not exceed one hundred(100) times the anticipated monthly annuity computed as if the percentage of net annual increase in the account value will be equal to the assumed investment increment rate underlying the actuarial assumption on which the amount of monthly annuity is based;

(8) Such other classes of assets which meet the standards of acceptability of the insurer after filing of such list with the Insurance Commissioner.

(e) The above example of classifications indicates the general classes of acceptable assets within which most individual assets will be acceptable. Acceptance of any particular assets, however, may be made dependent on its procedural compatibility with the insurer's systems and the insurer's general standards of acceptability.

(f) The policyowner shall have only one custodian at any one time. It is recognized that operational differences exist among different custodians and, therefore, some particular assets within an insurer's general class of accepted assets may not be available as investments with all custodians.

(g) The policy or the custodian account agreement, or both, may provide that it shall be the responsibility of the policyowner or the annuitant or the investment manager, if any, to determine, prior to purchase or exchange of an asset, that it is an acceptable asset.

(h) The insurer shall not reserve the right to approve the selection of assets within any account if such asset is being currently accepted for any segregated custodian account, The insurer may amend its Accepted Assets List in accordance with standards filed pursuant to subsection (b) of this Section and shall file notice of such changes in accordance with subsection (c) of this Section as follows:

(1) If an asset is removed as an accepted asset for future purchases because the asset is no longer available for purchase due to the suspension of trading in the asset, the withdrawal from sale of the asset by the issuer of the asset or for similar reasons, the insurer may take removal action without prior notice to the Commissioner; the insurer shall notify the Commissioner of such action as soon as reasonably possible.

(2) If the asset is removed as an accepted asset for future purchase because the asset no longer meets the standards of the insurer of acceptability as filed with the Commissioner, the insurer may take such removal action and must file notice of such action within seven (7) business days of the time of such action;

(3) If the asset is removed as an accepted asset for future purchase and the insurer requires the sale of such asset, the insurer may take such action thirty (30) days after the filing of notice with the Commissioner of such intended action if the Commissioner has not given notice of objection to such action prior to such thirty (30) days or has indicated no objection prior to such thirty (30) days.

§2522.11. A Statement Shall Be Furnished Applicants for Investment Annuities.

(a) A statement containing the following information shall be furnished to an applicant upon request and prior to the execution of an application or group enrollment form.

(1) A summary explanation in non-technical terms of the principal features of the policy and of the manner in which any benefits will vary based upon premiums payable from the segregated custodian account which will reflect the investment experience of the assets in the account.

(2) A listing of the kinds of assets (investments) which are acceptable investments within a custodian account.

(3) A specific and complete schedule of all premiums and a specific and complete current custodian fee schedule which clearly discloses the usual and customary charges imposed by the custodian, including the charges for each type of investment transaction. Such custodian fee schedule shall specify that the custodian shall not increase the custodian account charges more than once each twelve months. A disclosure of the amount of the premiums payable as commissions for the sale of the investment annuity. Such disclosures shall comply with the requirements of subsection (d) of Section 2522.7 of this Article.

(4) A statement of the federal income tax liabilities applicable to the policy, and an explanation of the state premium tax.

(5) A prominent statement with respect to the fact that the custodian cannot return any assets of the account to the policyholder, policyowner or annuitant.

(6) Subject to the approval of the Commissioner, the insurer may include such other relevant information as the insurer deems appropriate.

(b) The form or forms containing the above specified information required to be furnished to applicants shall be filed with the Commissioner prior to any use thereof and shall not be used until approved in writing by the Commissioner.

§2522.12. Custodian Reports.

(a) Any insurer delivering or issuing for delivery in this State any investment annuity policy shall require the custodian to provide the policyowner, if the policyowner has the investment discretion as to the account, and to the annuitant at his or her last known address a report containing, at a minimum, the following information:

(1) Within thirty (30) days after the end of each calendar year, the custodian shall furnish the policyowner, if the policyowner has the investment discretion as to the account, and to the annuitant, if other than the policyowner, and the insurer with a statement of:

(A) Premiums, taxes, charges, assessments, if any, and transactions within the account since the last such statement, and

(B) A list in detail of all of the dividends, interest and other income and other assets in the account, the market value of each asset of the annuitant, and the aggregate fair market value of all of the assets in the annuitant's account, all as of the end of such calendar year.

(2) The term “transactions” includes, but is not limited to, the sale of assets sold or liquidated for the purpose of providing the necessary funds to pay such premiums, taxes, charges, expenses and assessments.

(3) Within thirty (30) days after the date any premium, based on the value of the account, falls due, the custodian shall furnish the insurer, and the insurer shall furnish the annuitant with:

(A) A statement listing all the assets in the account, the fair market value of each asset, and the aggregate fair market value of all assets in the accounts, all as of the premium due date, and

(B) A statement setting forth premiums due and related annuity payments.

§2522.13. Premium Tax.

No charge shall be made against the segregated custodian account for a premium tax until such a premium tax is actually due and payable. Section 28 of Article XIII of the Constitution is applicable to investment annuities.

§2522.14. Definitions.

The use in this Article of any definition or statement which directly or indirectly defines a word or phrase in the provisions of policy forms and the custodian agreement does not prohibit the insurer from using other words or phrases with the same generic source or meaning to state or define the same subject matter in the provisions of policy forms and the custodian agreement if the words or phrases are not misleading or are defined to clearly state the meaning of such words or phrases.

§2522.15. Agent Licensing Procedure.

The sale of investment annuity policies by a life insurance agent does not require licensing as a Variable Contract Agent.

§2522.16. Severability Provision.

If any section or portion of a section of this Article, or the applicability thereof to any person or circumstance is held invalid by a court of competent jurisdiction, the remainder of this Article, or the applicability of such provisions to other persons or circumstances, shall not be affected thereby.

Article 11. Separate Account or Accounts--Variable Contracts

§2525. Authority.

Note • History

These regulations are promulgated pursuant to the authority granted the Insurance Commissioner by the provisions of Section 10506(h) of the Insurance Code.

NOTE

Authority cited: Section 10506, Insurance Code.

HISTORY

1. New Article 11 (Sections 2525, 2525.1, 2525.2, 2526, 2526.1-2526.3, 2527-2530, 2530.1, 2531-2533, 2533.1) filed 4-4-72 as an emergency; effective upon filing (Register 72, No. 15).

2. Certificate of Compliance filed 7-17-72 (Register 72, No 30).

§2525.1. Purpose.

History

The purposes of these regulations are to set forth rules and procedural requirements which the Insurance Commissioner deems necessary to implement the provisions of Section 10506 of the Insurance Code concerning the issuance and delivery of variable contracts in California, the payment of benefits thereunder, the manner in which the separate accounts required thereunder shall be established, maintained and administered and the administration of Article 16 (commencing with Section 1758.1), Chapter 5, Part 2, Division 1, of the Insurance Code relating to variable contract agents.

HISTORY

1. Amendment filed 7-19-72; effective thirtieth day thereafter (Register 72, No. 30).

§2525.2. Definitions.

(a) The term “variable contract,” when used in these regulations shall mean any policy or contract which provides for life insurance or annuity benefits which vary according to the investment experience of any separate account or accounts maintained by the insurer as to such policy or contract, in accordance with Section 10506 of the Insurance Code. A policy or contract providing fixed annuity benefits during the annuity payment period shall be deemed to be a “variable contract” if the amount of such benefits depends, prior to the commencement date of the annuity payments, upon the investment experience of any separate account or accounts maintained for such policy or contract.

(b) “Agent,” when used in these regulations, shall mean any person licensed as a life and disability or life only agent under the provisions of Chapter 5 (commencing with Section 1621), Part 2, Division 1, of the Insurance Code, more particularly defined in Section 1626 thereof.

(c) “Variable contract agent,” when used in these regulations, shall mean an agent licensed to transact, or required to be licensed to transact, variable life insurance or variable annuity contracts by Article 16 (commencing with Section 1758.1), Chapter 5, Part 2, Division 1, of the Insurance Code.

§2526. Obtaining Certificate Permitting Transaction of Variable Contract Business.

No insurer shall deliver or issue for delivery in this State any variable contract until it has received in writing from the Insurance Commissioner a certification that he is satisfied that such insurer meets all the standards for transacting such business required by Section 10506. Such certification may be obtained by filing an application with the Insurance Commissioner together with supporting documents and paying the minimum $100 filing fee therefor required by Section 10506.1; and in case of a domestic insurer, agreeing to pay such additional amount as may be assessed by the Insurance Commissioner pursuant to said Section 10506.1. Such application shall be verified by an executive officer of the insurer.

§2526.1. Application of Domestic Insurers.

History

The application of a domestic insurer to write any variable contract shall include the following:

(a) A copy of the resolution of its board of directors, certified by the secretary or equivalent officer under corporate seal to be a full and true copy thereof, authorizing the establishing of one or more separate accounts for the purposes authorized by Section 10506.

(b) A copy of each written agreement in accordance with which each such separate account is to be established, maintained and administered, including for informational purposes a copy of each variable contract proposed to be delivered or issued for delivery in California.

(c) A statement of the additional amount, if any, of the insurer's assets, not otherwise received from variable contract holders for deposit in such a separate account, which have been allocated to a separate account pursuant to the authority of Section 10506(b). No more than 1% of its admitted assets, or 5% of the excess of its admitted assets over its liabilities and required reserves, both as of the preceding December 31, whichever is the smaller, may be so allocated.

(d) A statement of the history, organization, and ownership and control of the insurer. Any changes in organization, ownership and control which are contemplated shall also be set forth. Reference to past official examination reports, whether by California or other insurance regulatory authority, if appropriately brought up to date, is acceptable. Similarly, reference to other records bearing upon such matters, which have become part of the Commissioner's official files, are acceptable.

(e) A brief balance sheet statement of assets, liabilities, capital and surplus, as shown by its last filed Annual Statement. The Annual Statement filed will be relied upon for details.

(f) A complete statement of the plan and methods, including the marketing methods for the transaction of the variable contract and related business, which shall show:

(1) The status of the insurer of each of the separate accounts with the Federal Securities and Exchange Commission, including

(A) Any exemption granted under Section 3(c) (11) of the Investment Company Act of 1940 and Section 3(a) (2) of the Securities Act of 1933;

(B) The current prospectus and registration statement required by the Securities Act of 1933.

(2) If any variable contract is to be issued without a prospectus, an explanation as to marketing methods, and the Commissioner may request, for informational purposes, a copy of the advertising or solicitation material.

(3) The methods of control and management of each separate account, including the voting rights, if any, of participants, how they are exercised and their relation to the voting rights, if any, of members and shareholders of the insurer.

(g) If the insurer has not been engaged actively in the insurance business for at least five years under substantially the same management and control, a biographical affidavit on form prescribed by the Commissioner may, in the discretion of the Insurance Commissioner, be required for each of the executive officers, members of the board of directors and each natural person who owns 10% or more of the voting stock of the insurer.

(h) The identity and the experience and qualification of each of the persons charged with the investment management of each separate account, together with any other presentation which the insurer desires to make to establish the adequacy of the investment management which the insurer is providing. Such showing shall be such as to satisfy the Insurance Commissioner as to the experience and qualification of such management to effectively manage the investment program or programs envisaged by the agreement under which the separate account is established and maintained. A biographical affidavit in the form required by Paragraph (g) hereof may be required for each such manager.

(i) If the insurer is a subsidiary of an admitted insurer, or affiliated with such insurer by common control or management, it may be deemed by the Commissioner that the history, the reputation, the character, responsibility and general fitness of officers and directors, the adequacy of investment management as evidenced by past results, and the basic financial soundness of the parent insurer or the controlling affiliate satisfy these regulations.

Subsequent to qualification, any amendments to the above mentioned resolution of the Board of Directors, agreement establishing a separate account, variable contract, registration statement or prospectus, and any substantial change in management shall promptly be filed with the Commissioner for review as to continuance of qualification standards required by law.

HISTORY

1. Amendment filed 7-19-72; effective thirtieth day thereafter (Register 72, No. 30).

§2526.2. Application of Foreign Insurer.

The application of a foreign insurer, including a Canadian insurer, shall include all of the matters required of a domestic insurer, except those specified in Paragraph (a) of Section 2526.1 hereof. The Commissioner shall give due regard to the regulatory activities of the applicant's domiciliary state in passing upon the qualifications of such foreign insurer to do a variable contract business in California. If the Commissioner requires, a foreign insurer shall furnish a copy of the statutes and regulations of its domiciliary state under which it is authorized to transact a variable contract business and which regulate such transaction.

§2526.3. Certificate of Qualification Required.

If the Commissioner, after review of the application for certification of qualification to engage in the variable contract business, is satisfied that the insurer meets the statutory requirements of Section 10506 and its proposed operations will not be such as to be hazardous to the public or its policyholders in this State, he shall issue his certification of such conclusion as provided in Section 2526 hereof.

§2527. Separate Account or Accounts: Non-Variable Contracts.

A domestic insurer may file under Section 10506 of the Insurance Code resolutions and agreements for any separate account or accounts maintained for policies and contracts which provide only fixed dollar annuities. These regulations being designed primarily for variable policies or contracts, are applicable to such a fixed dollar separate account only insofar as these regulations are relevant to that type of operation. The required approval by the Commissioner can be granted when filings are made in compliance with the basic requirements of subsections (a), (b), (c), (d), (e), (g) and the first sentence of (h) of Section 10506 of the Insurance Code to the extent such requirements are relevant to any such fixed dollar separate account.

§2528. Separate Account or Accounts.

History

A domestic insurer issuing variable contracts shall establish one or more separate accounts pursuant to Section 10506 of the Insurance Code, subject to the following provisions:

(a) Except as may be provided with respect to reserves for guaranteed benefits and funds referred to in Paragraph (b), (i) amounts allocated to any separate account and accumulations thereon may be invested and reinvested without regard to any requirements or limitations prescribed by the laws of this State governing the investments of life insurance companies and (ii) the investments in such separate account or accounts shall not be taken into account in applying the investment limitations otherwise applicable to the investments of the company.

(b) Reserves for

(i) benefits guaranteed as to dollar amount and duration and

(ii) funds guaranteed as to principal amount or stated rate of interest may be maintained in a separate account if a portion of the assets of such separate account at least equal to such reserve liability is invested in accordance with the laws and regulations of this State governing the investments of life insurance companies. Such portion of the assets also shall not be taken into account in applying the investment limitations otherwise applicable to the investments of the company. If a variable contract includes incidental minimum guarantees as referred to in Section 2530(d) (3), this paragraph shall apply only to the reserve for any excess of such minimum guarantees over the reserves for the benefits that would be payable under the contract if there were no such minimum guarantees.

(c) With respect to 75% of the market value of the total assets in a separate account no insurer shall purchase or otherwise acquire the securities of any insurer, other than securities issued or guaranteed as to principal or interest by the United States, if immediately after such purchase or acquisition the market value of such investment, together with prior investments of such separate account in such security taken at market, would exceed 10% of the market value of the assets of said separate account; provided, however, that the Commissioner may waive such limitation if, in his opinion, such waiver will not render the operation of such separate account hazardous to the public or the policyholders in this State.

(d) Unless otherwise permitted by law or approved by the Commissioner, no insurer shall purchase or otherwise acquire for its separate accounts the voting securities of any issuer if as a result of such acquisition the insurance company and its separate accounts, in the aggregate, will own more than 10% of the total issued and outstanding voting securities of such issuer; provided, that the foregoing shall not apply with respect to securities held in separate accounts, the voting rights in which are exercisable only in accordance with instructions from persons having interests in such accounts.

(e) The same separate account may not be used for both variable annuities and variable life insurance.

(f) The limitations provided in Paragraphs (c), (d), and (e) above shall not apply to the investment with respect to a separate account in the securities of an investment company registered under the Investment Company Act of 1940, Section 1, et seq., Title 15, USC, provided that the investments of such investment company comply in substance with Paragraphs (c) and (d) hereof.

(g) Unless otherwise approved by the Commissioner, assets allocated to a separate account shall be valued at their market value on the date of valuation, or if there is no readily available market, then as provided under the terms of the contract or the rules or other written agreement applicable to such separate account; provided, that unless otherwise approved by the Commissioner, the portion, if any, of the assets of such separate account equal to the insurer's reserve liability with regard to the benefits and funds referred to in clauses (i) and (ii) of Paragraph (b) shall be valued in accordance with the rules otherwise applicable to the insurer's assets.

(h) If and to the extent so provided under the applicable contacts, that portion of the assets of any such separate account equal to the reserves and other contract liabilities with respect to such account shall not be chargeable with liabilities arising out of any other business the insurer may conduct.

(i) Notwithstanding any other provisions of law an insurer may

(1) with respect to any separate account registered with the Securities and Exchange Commission as a unit investment trust exercise voting rights in connection with any securities of a regulated investment company registered under the Investment Company Act of 1940 and held in such separate accounts in accordance with instructions from persons having interest in such accounts ratably as determined by the company, or

(2) with respect to any separate account registered with the Securities and Exchange Commission as a management investment company, establish for such account a committee, board, or other body, the members of which may or may not be otherwise affiliated with such company and may be elected to such membership by the vote of persons having interests in such account ratably as determined by the company. Such committee, board or other body may have the power, exercisable alone or in conjunction with others to manage such separate account and the investment of its assets.

(j) No sale, exchange or other transfer of assets may be made by an insurer between any of its separate accounts or between any other investment account and one or more of its separate accounts unless, in case of a transfer into a separate account, such transfer is made solely to establish the account or to support the operation of the contracts with respect to the separate account to which the transfer is made, and unless such transfer, whether into or from a separate account, is made (i) by a transfer of cash, or (ii) by a transfer of securities having a valuation which could be readily determined in the market place, provided that such transfer of securities is approved by the Commissioner. The Commissioner may authorize other transfers among such accounts if, in his opinion, such transfers would not be inequitable.

(k) The insurer shall maintain in each such separate account assets with a value at least equal to the reserves and other contract liabilities with respect to such account, except as may otherwise be approved by the Commissioner.

(l) The provisions of Sections 1101 through 1106 of the Insurance Code relating to conflicts in interest of officers and directors and other persons with authority in the management of the insurer's funds shall, in substance and insofar as they are reasonably applicable, apply to the investments of separate accounts and to members of any separate account's committee, board or body who have any function in relation to the investment of the account assets. No officer or director of such insurer nor any member of the committee, board or body of a separate account shall receive directly or indirectly any commission or any other compensation with respect to the purchase or sale of assets of such separate account.

HISTORY

1. Amendment of subsections (i) and (l) filed 7-19-72; effective thirtieth day thereafter (Register 72, No. 30).

§2529. Filing and Approval of Policy Forms.

Note • History

All variable contract policy forms (The term “policy forms” as used in this Section means any individual policy delivered or issued for delivery in this State and any document attached to and made a part of such policy, and any group policy delivered or issued for delivery in this State and any document attached to and made a part of such group policy and any group certificate delivered pursuant to the provisions of such group policy.), including contracts providing fixed dollar benefits as may be included in the operation of any separate account, shall be submitted to the Commissioner prior to delivery or issuance for delivery in this State, and no such form shall be delivered or issued for delivery in this State until the use of such form has been approved in writing by the Commissioner. The fees for such approval shall be the fees set forth in Section 2202(a) (10), California Administrative Code, Title 10, Chapter 5, Subchapter 2. The provisions of Section 12957 of the Insurance Code shall be applicable to variable contract forms.

NOTE

Authority cited: Sections 10506(h), 12973.9, California Insurance Code. Reference: Section 10506, Insurance Code.

HISTORY

1. Amendment filed 7-19-72; effective thirtieth day thereafter (Register 72, No. 30).

2. Amendment filed 10-4-79; designated effective 1-2-80 (Register 79, No. 40)

§2530. Contracts Providing for Variable Benefits.

History

(a) Any variable contract delivered or issued for delivery in this State shall contain a statement of the essential features of the procedures to be followed by the insurer in determining the dollar amount of such variable or fixed benefits. Any variable contract providing benefits payable in variable amounts, including such a group contract and any certificate in evidence of variable benefits issued thereunder, shall state that such dollar amount will vary to reflect investment experience and shall contain on its first page a clear statement to the effect that the benefits thereunder are on a variable basis. As to any contract providing benefits payable in fixed amounts during the annuity payment period, such statements may be modified to reflect that the benefits, although guaranteed after the annuity commencement date, depend upon the experience of the separate account prior to the annuity commencement date.

(b) Illustrations of benefits payable under any variable contract shall not include projections of past investment experience into the future or attempted predictions of future investment experience; provided that nothing contained herein is intended to prohibit use of hypothetical assumed rates of return to illustrate possible levels of benefits.

(c) No individual variable annuity contract providing for the payment of periodic stipulated payments shall be delivered or issued for delivery in this State unless it contains in substance the following provisions or provisions which in the opinion of the Commissioner are more favorable to the holders of such contracts:

(1) A provision that there shall be a period of grace of 30 days or of one month, within which any stipulated payment to the insurer falling due after the first payment may be made, during which period of grace the contract shall continue in force. The contract may include a statement of the basis for determining the date as of which any such payment received during the period of grace shall be applied to produce the values under the contract arising therefrom:

(2) A provision that, at any time within 2 years from the date of default, in making periodic stipulated payments to the insurer during the life of the annuitant unless the cash surrender value has been paid, the contract may be reinstated upon payment to the insurer of such overdue payments as required by the contract, and of all indebtedness to the insurer on the contract, including interest. The contract may include a statement of the basis for determining the date as of which the amount to cover such overdue payments and indebtedness shall be applied to produce the values under the contract arising therefrom;

(3) A provision specifying the options available in the event of default in a periodic stipulated payment. Such options may include an option to surrender the contract for a cash value as determined by the contract, and shall include an option to receive a paid-up annuity if the contract is not surrendered for cash, the amount of such paid-up annuity being determined by applying the value of the contract at the annuity commencement date in accordance with the terms of the contract.

(d) No individual variable life insurance policy shall be delivered or issued for delivery in this State unless it contains in substance the following provisions or provisions which in the opinion of the Commissioner are more favorable to the holders of such policies:

(1) A provision that there shall be a period of grace of 30 days or one month, within which payment of any premium after the first may be made, during which period of grace the policy shall continue in force, but if a claim arises under the policy during such period of grace before the overdue premiums of the deferred premiums of the current policy year, if any, are paid, the amount of such premiums, together with interest not in excess of 6 per centum per annum, may be deducted from any amount payable under the policy in settlement. The policy may contain a statement of the basis for determining any variation in benefits that may occur as a result of the payment of premium during the period of grace;

(2) A provision that the policy will be reinstated at any time within 2 years from the date of default, unless the cash surrender value has been paid or unless the period of extended insurance has expired, upon the application of the insured and the production of evidence of insurability, including good health, satisfactory to the insurer and the payment of an amount not exceeding the greater of (i) all overdue premiums and the payment of any other indebtedness to the insurer upon said policy with interest at a rate not exceeding 6 per centrum per annum compounded annually, or (ii) 110% of the increase in cash surrender value resulting from reinstatement;

(3) A provision for cash surrender values and paid-up insurance benefits available as nonforfeiture options under the policy in the event of default in a premium payment after premiums have been paid for a specified period. If the policy does not include a table of figures for the options so available, the policy shall provide that the company will furnish at least once in each policy year a statement showing the cash value as of a date no earlier that the prior policy anniversary.

The method of computation of cash values and other nonforfeiture benefits, as described either in the policy or in a statement filed with the Commissioner of the jurisdiction in which the policy is delivered, shall be in accordance with actuarial procedures that recognize the variable nature of the policy. The method of computation must be such that, if the net investment return credited to the contract at all times from the date of issue should be equal to the assumed investment increment factor if the contract provides for such a factor, or 3 1/2 if not, with premiums and benefits determined accordingly under the terms of the policy, the resulting cash values and other nonforfeiture benefits would be a least equal to the minimum values required by Sections 10159.1 through 10167 of the Insurance Code for a fixed dollar policy with such premiums and benefits. The method of computation may disregard incidental minimum guarantees as to the dollar amounts payable. Incidental minimum guarantees include, for example, but are not to be limited to, a guarantee under a policy which provides for an assumed investment increment factor that the amount payable at death or maturity shall be at least equal to the amount that otherwise would have been payable if the net investment return credited to the contract at all times from the date of issue had been equal to such factor.

(e) Any variable annuity contract delivered or issued for delivery in this State shall stipulate the investment increment factors to be used in computing the dollar amount of variable benefits or other variable contractual payments or values thereunder, and may guarantee that expense and/or mortality results shall not adversely affect such dollar amounts. In the case of an individual variable annuity contract under which the expense and mortality results may adversely affect the dollar amount of benefits, the expense and mortality factors shall be stipulated in the contract.

In computing the dollar amount of variable benefits or other contractual payments or values under an individual variable annuity contract:

(1) The annual net investment increment assumption shall not exceed 5%, except with the approval of the Commissioner;

(2) To the extent that the level of benefits may be affected by future mortality results, the mortality factor shall be determined from the Annuity Mortality Table for 1949, Ultimate, or any modification of that table not having a lower life expectancy at any age, or, if approved by the Commissioner, from another table.

“Expense,” as used in this Paragraph, may exclude some or all taxes, as stipulated in the contract.

(f) Any individual variable life insurance policy delivered or issued for delivery in this State shall stipulate the investment increment factor to be used in computing the dollar amount of variable benefits or other variable contractual payments or values thereunder and shall guarantee that expense and mortality results shall not adversely affect such dollar amounts.

(g) The reserve liability for variable contracts shall be established pursuant to the requirements of the Standard Valuation Law (Insurance Code Section 10489.1 through 10489.6) in accordance with actuarial procedures that recognize the variable nature of the benefits provided and any mortality guarantees.

HISTORY

1. Amendment filed 7-19-72; effective thirtieth day thereafter (Register 72, No. 30)

§2530.1. Disclosure Requirements for Variable Life Contracts.

The following information shall be furnished to an applicant for a contract of variable life insurance prior to execution of the application:

(a) A summary description of the insurance company and its principal activities.

(b) A summary explanation in non-technical terms of the principal variable features of the contract and of the manner in which any variable benefits reflect the investment experience of a separate account.

(d) A list of investments in the separate account as of a date not earlier than the end of the last year for which an annual statement has been filed with the Commissioner of the state of domicile.

(e) Summary financial statements of the insurance company and such separate account based upon the last annual statement filed with such Commissioner, except that for a period of four months after the filing of any annual statement the summary required hereby may be based upon the annual statement, immediately preceding such last annual statement, filed with such Commissioner.

The insurer may include such additional information as it deems appropriate.

A copy of the statement containing the foregoing information shall be filed with such Commissioner prior to any use thereof and shall be subject to disapproval if found to be misleading or inaccurate.

§2531. Required Reports.

(a) Any insurer issuing individual variable contracts shall mail to the contractholder at least once in each contract year after the first, at his last address known to the insurer, a statement or statements reporting the investments held in the separate account. The insurer shall submit annually to the Insurance Commissioner a statement of the business of its separate account or accounts in such form as may be prescribed by the National Association of Insurance Commissioners.

(b) Any insurer issuing individual variable contracts shall mail to the contractholder at least once in each contract year after the first, at his last address known to the insurer, a statement reporting as of a date not more than four months previous to the date of mailing: (1) in the case of an annuity contract under which payments have not yet commenced, (i) the number of accumulation units credited to such contract and the dollar value of a unit, or (ii) the value of the contractholder's account; and (2) in the case of a life insurance policy, the dollar amount of the death benefit.

§2532. Foreign Insurers.

If the law or regulation in the place of domicile of a foreign insurer or the state of entry or a Canadian insurer provides a degree of protection to the policyholders and the public which is substantially equal to that provided by these regulations, the Commissioner, to the extent deemed appropriate by him in his discretion, may consider compliance with such law or regulation as compliance with these regulations.

§2533. Examination of Agents and Other Persons.

(a) Except as permitted by the next Section hereof and Article 16 (commencing with Section 1758.1), Chapter 5, Part 2, Division 1, of the Insurance Code, no person may act as an agent for a life insurer in the transaction of variable contracts unless and until he has received from the Commissioner a license as a Variable Contract Agent pursuant to said Article 16.

(b) A person otherwise properly licensed as a life agent may, without qualifying as a variable contract agent, transact for a life insurer such variable contracts as are exempt from filing under the Securities Act of 1933 and the Investment Company Act of 1940.

§2533.1. Agent Licensing Procedures.

History

(a) A person may obtain a license as a variable contract agent by:

(1) filing a completed application upon the form prescribed by the Commissioner,

(2) paying the statutory fees with such application,

(3) taking and passing the qualifying examination prescribed by the Commissioner, and

(4) submitting written evidence to the Commissioner that he is registered to sell securities in accordance with the rules of the United States Securities and Exchange Commission or the National Association of Securities Dealers, Inc.

(b) The examination will be given in such places and at such times as the Commissioner shall from time to time designate. After filing a completed application for license as a variable contract agent, the applicant shall be notified of the date of the examination for which he is scheduled.

(c) Evidence must be presented that the applicant (1) has complied with the requirements provided in Subsection (a) (4); or (2) is currently registered with the Securities and Exchange Commission or the National Association of Securities Dealers, Inc. as a broker-dealer; or (3) is currently associated with a broker-dealer or is an NASD-registered representative and has met qualification requirements with respect to such association.

(d) Every applicant applying for license as a variable contract agent shall satisfactorily complete the examination required by Subsection (a) (3) with a grade of at least seventy percent (70%), or shall present evidence of successful completion of a variable contract examination given under the supervision of an insurance department of any State or Territory of the United States during any part of the license year in which the application is filed or the immediately preceding license year.

(e) Examination results will be reported by this Department to any other State Insurance Department requesting confirmation of the examination grade, either upon request of such Department or upon request of the applicant or his appointing company on payment of the fee provided in Section 12973 of the Insurance Code.

(f) Records of the examination grade of each applicant upon an examination administered by this Department, or upon an examination administered by another agency or authority and reported to this Department, will be retained in the file pertaining to said applicant.

(g) Any person licensed in this State as a variable contract agent shall immediately report to the Commissioner (1) any suspension or revocation of his variable contract agent's license or life agent's license in any other State or Territory of the United States; (2) the imposition of any disciplinary sanction (including suspension or expulsion from membership, suspension or revocation of or denial of registration) imposed upon him by any national securities exchange, or national securities association, or any federal, or state or territorial agency with jurisdiction over securities or contracts on a variable basis, any order, judgment or injunction entered against him on the basis of conduct deemed to have involved fraud, deceit, misrepresentation, or violation of any insurance or securities law or regulation.

(h) The Commissioner may reject any application or suspend or revoke or refuse to renew any variable contract agent's license upon any ground that would bar such applicant or such agent from being licensed to sell life insurance contracts in this State. The rules governing any proceeding relating to the suspension or revocation of a life insurance agent's license shall also govern any proceeding for suspension or revocation of a variable contract agent's license.

(i) Renewal of a variable contract agent's license shall follow the same procedure established for renewal of an agent's license to sell life insurance contracts in this State.

HISTORY

1. Amendment of subsection (c) filed 7-19-72; effective thirtieth day thereafter (Register 72, No. 30).

Article 11.1. Separate Account or Accounts--Variable Life Insurance Contracts

§2534. Authority.

Note • History

The following regulation applicable to variable life insurance policies is promulgated under the authority of Section 10506(h), of the Insurance Code of California, and repeals Ruling No. 177-A to the extent that Ruling No. 177-A was applicable to variable life insurance.

NOTE

Authority cited: Section 10506, Insurance Code.

HISTORY

1. New Article 11.1 (Sections 2534, 2534.1 through 2534.10) filed 12-20-73 as an emergency; effective upon filing (Register 73, No. 51).

2. New Article 11.1 (Sections 2534, 2534.1 through 2534.10) filed 4-19-74 as an emergency; effective upon filing. Certificate of Compliance included (Register 74, No. 16).

§2534.1. Definitions.

As used in this regulation:

(a) “Affiliate” of an insurer means any person, directly or indirectly, controlling, controlled by or under common control with such insurer, any person who regularly furnishes investment advice to such insurer with respect to its variable life insurance separate accounts for which a specific fee or commission is charged or any director, officer, partner or employee of any such insurer, controlling or controlled person, or person providing investment advice or any member of the immediate family of such person.

(b) “Agent” means any person, corporation, partnership, or other legal entity which is licensed by this State as a life insurance agent.

(c) “Assumed investment rate” means the rate of investment return which would be required to be credited to a variable life insurance policy, after deduction of charges for taxes, investment expenses and mortality and expense guarantees to maintain the variable death benefit equal at all times to the amount of death benefit, other than incidental insurance benefits, which would be payable under the plan of insurance if the death benefit did not vary according to the investment experience of the separate account.

(d) “Benefit base” means the amount not less than the amount specified under Section 2534.5(b) (2) specified by the terms of the variable life insurance policy to which the difference between the net investment return and the assumed investment rate is applied in determining the variable benefits of the policy.

(e) “Commissioner” means the Insurance Commissioner of this State.

(f) “Control” (including the terms “controlling,” “controlled by” and “under common control with”) means the possession, direct or indirect, of the power to direct or cause the direction of the management and policies of a person, whether through the ownership of voting securities, by contract other than a commercial contract for goods or non-management services, or otherwise, unless the power is the result of an official position with or corporate office held by the person. Control shall be presumed to exist if any person, directly or indirectly owns, controls, holds with the power to vote, or holds proxies representing more than ten (10) percent of the voting securities of any other person. This presumption may be rebutted by a showing made to the satisfaction of the Commissioner that control does not exist in fact. The Commissioner may determine, after furnishing all persons in interest notice and opportunity to be heard and making specific findings of fact to support such determination, that control exists in fact, notwithstanding the absence of a presumption to that effect.

(g) “General account” means all assets of the insurer other than assets in separate accounts established pursuant to Section 10506 of the Insurance Code of this State, whether or not for variable life insurance.

(h) “Incidental insurance benefit” means all insurance benefits in a variable life insurance policy, other than the variable death benefit and the minimum death benefit, including but not limited to accidental death and dismemberment benefits, disability income benefits, guaranteed insurability options, family income or fixed benefit term riders.

(i) “May” is permissive.

(j) “Minimum death benefit” means the amount of the guaranteed death benefit, other than incidental insurance benefits, payable under a variable life insurance policy regardless of the investment performance of the separate account.

(k) “Net investment return” means the rate of investment return actually credited to a variable life insurance policy, after deduction of charges for taxes, investment expenses and mortality and expense guarantees in accordance with the terms of the policy.

(l) “Person” means an individual, corporation, partnership, association, trust or fund.

(m) “Separate account” means a separate account established under Section 10506 of the Insurance Code of this State for variable life insurance.

(n) “Shall” is mandatory.

(o) “Variable death benefit” means the amount of the death benefit, other than incidental insurance benefits, payable under a variable life insurance policy dependent on the investment performance of the separate account which the insurer would have to pay in the absence of the minimum death benefit.

(p) “Variable life insurance policy” means any individual policy which provides for life insurance which varies according to the investment experience of any separate account or accounts established and maintained by the insurer as to such policy, as provided for in Section 10506 of the Insurance Code of this State.

§2534.2. Qualification of Insurer to Issue Variable Life Insurance.

The following requirements are applicable to all insurers either seeking authority to issue variable life insurance in this State or which have authority to issue variable life insurance in this State.

(a) Licensing and Approval to Do Business in This State. An insurer shall not deliver or issue for delivery in this State any variable life insurance policy unless:

(1) The insurer is licensed or organized to do a life insurance business in this State;

(2) The state of domicile of such insurer requires that permissible investments be substantially the same as provided in Section 2534.5(c) and that changes in the investment policy of the variable life insurance separate account be regulated in a manner substantially similar to that required under Section 2534.5 for such separate accounts operated by insurers domiciled in this State, and

(3) The insurer has obtained the written approval of the Commissioner for the issuance of variable life insurance policies in this State. The Commissioner shall grant such written approval only after he has found that:

(A) The plan of operation for the issuance of variable life insurance policies is not unsound;

(B) The general character, reputation and experience of the management and those persons or firms proposed to supply consulting, investment, administrative or custodial services to the insurer are such as to reasonably assure competent operation of the variable life insurance business of the insurer in this State, and

(C) The present and foreseeable future financial condition of the insurer and its method of operation in connection with the issuance of such policies is not likely to render its operation hazardous to the public or its policyholders in this State. The Commissioner shall consider, among other things:

1. The history of operation and financial condition of the insurer;

2. The qualifications, fitness, character, responsibility, reputation and experience of the officers and directors and other management of the insurer and those persons or firms proposed to supply consulting, investment, administrative, or custodial services to the insurer;

3. The applicable law and regulations under which the insurer is authorized in its state of domicile to issue variable life insurance policies. The state of entry of an alien insurer shall be deemed its state of domicile for this purpose, and

4. If the insurer is a subsidiary of, or is affiliated by common management or ownership with another company, its relationship to such other company and the degree to which the requesting insurer, as well as the other company, meet these standards.

(b) Filing for Approval to Do Business in This State. Before any insurer shall deliver or issue for delivery any variable life insurance policy in this State it must file with this Department the following information for the consideration of the Commissioner in making the determination required by subsection (a) (3) of this Section:

(1) Copies of and a general description of the variable life insurance policies it intends to issue;

(2) A general description of the methods of operation of the variable life insurance business of the insurer, including the names of those persons or firms proposed to supply consulting, investment, administrative or custodial services to the insurer;

(3) With respect to any separate account maintained by an insurer for any variable life insurance policy, a statement of the investment policy the insurer intends to follow for the investment of the assets held in such separate account. The statement shall include a description of the investment objective and orientation intended for the separate account;

(4) A description of any investment advisory services contemplated as required by Section 2534.5(j);

(5) If requested by the Commissioner, a copy of the statutes and regulations of the state of domicile of the insurer under which it is authorized to issue variable life insurance policies, and

(6) If requested by the Commissioner, biographical data with respect to officers and directors of the insurer on the National Association of Insurance Commissioners Uniform Biographical Data Form.

(c) Standards of Suitability. Every insurer seeking approval to enter into the variable life insurance business in this State shall adopt by formal action of its Board of Directors and file with the Commissioner a written statement specifying the Standards of Suitability to be used by the insurer, and applicable to its officers, directors, employees, affiliates, and agents with respect to the suitability of variable life insurance for the applicant. Such Standards of Suitability shall be binding on the insurer and those to whom it refers, and shall specify that no recommendation shall be made to an applicant to purchase a variable life insurance policy and that no variable life insurance policy shall be issued in the absence of reasonable grounds to believe that the purchase of such policy is not unsuitable for such applicant on the basis of information furnished after reasonable inquiry of such applicant concerning the applicant's insurance and investment objectives, financial situation and needs, and any other information known to the insurer or to the agent making the recommendation.

Lapse rates for variable life insurance within the first two policy years, which are significantly higher than both those encountered by the insurer or any affiliate thereof for corresponding fixed benefit life insurance policies and lapse rates of other insurers issuing variable life insurance policies shall be considered in determining whether the guidelines adopted by the insurer are reasonable and also whether the insurer and its agents are engaging, as a general business practice, in the sale of variable life insurance to persons for whom it is unsuitable. For purposes of this subsection, conversions from variable life insurance to fixed benefit life insurance policies pursuant to this regulation, shall not be considered lapses.

(d) Use of Sales Materials. An insurer authorized to transact variable life insurance business in this State shall not use any sales material, advertising material or descriptive literature or other materials of any kind in connection with its variable life insurance business in this State which is false, misleading, deceptive or inaccurate.

(1) All variable life insurance sales material, advertising material and descriptive literature shall be filed 30 business days prior to use with the Commissioner who shall require an insurer to cease the use of any such materials upon finding that any such materials are false, misleading or inaccurate. Revised versions of such materials containing changes of substantial import from versions on file with the Commissioner shall be filed with the Commissioner.

(2) For purposes of this regulation, variable life insurance sales material, advertising material, or descriptive literature shall include but is not limited to:

(A) Printed and published material, audio-visual material, and descriptive literature of an insurer used in direct mail, newspapers, magazines, radio scripts, TV and film scripts, billboards, and similar displays for variable life insurance;

(B) Descriptive literature and sales aids of all kinds used to sell variable life insurance by or on behalf of an insurer or any person authorized to sell variable life insurance for presentation to members of the insurance buying public, including but not limited to circulars, leaflets, booklets, depictions, illustrations, and form letters, and

(C) Prepared sales talks, presentations, and material for use in the sale of variable life insurance by any person authorized to sell variable life insurance.

(e) Requirements Applicable to Contractual Services:

(1) Any contract between an insurer and suppliers of consulting, investment, administrative, sales, marketing, custodial, or other services which are material with respect to variable life insurance operations shall be in writing and provide that the supplier of such services shall furnish the Commissioner with any information or reports in connection with such services which the Commissioner may request in order to ascertain whether the variable life insurance operations of the insurer are being conducted in a manner consistent with this regulation and any other applicable law or regulations.

(2) Such contract shall be fair and equitable to all parties and not endanger any policyholders of the insurer in this State.

(3) Such contract shall not relieve the insurer from any responsibilities or obligations imposed upon the operations of its variable life insurance business by this regulation or any other law or regulation.

(f) Reports to the Commissioner. Any insurer authorized to transact the business of variable life insurance in this State shall submit to the Commissioner, in addition to any other materials which may be required by this regulation or any other applicable laws or regulations:

(1) An Annual Statement of the business of its variable life insurance separate account or accounts in such form as may be prescribed by the National Association of Insurance Commissioners, and

(2) Prior to the use in this State any Information Furnished to Applicants as provided for in Section 2534.6, and

(3) Prior to the use in this State the form of any of the Reports to Policyholders as provided for in Section 2534.8, and

(4) Such additional information concerning its variable life insurance operations or its variable life insurance separate accounts as the Commissioner shall deem necessary.

Any material submitted to the Commissioner under this Section shall be disapproved if it is found to be false, misleading, deceptive or inaccurate in any material respect and, if previously distributed, the Commissioner shall require the distribution of an amended report.

(g) Authority of Commissioner to Disapprove. Any material required to be filed with the Commissioner, or approved by him, shall be subject to disapproval if at any time it is found by him not to comply with the standards established by this regulation.

§2534.3. Insurance Policy Requirements.

Policy Qualification. The Commissioner shall not approve any variable life insurance form filed pursuant to this regulation unless it conforms to the requirements of this Section.

(a) Filing of Variable Life Insurance Policies. All variable life insurance policies, riders, endorsements, applications and other related documents which are to be attached to and made a part of the policy shall be filed with the Commissioner and approved by him in writing prior to delivery or issuance for delivery in this State.

(1) The procedures and requirements for such filing and approval shall be, to the extent appropriate and not inconsistent with this regulation, the same as those otherwise applicable to other life insurance policies.

(2) The Commissioner may approve variable life insurance policies and related forms which provisions the Commissioner deems to be not less than favorable to the policyholder and the beneficiary than those required by this regulation.

(3) The requirements of subsections (b)(1), (b)(4), and (c)(16) of this Section shall not apply to variable life insurance policies and related forms issued in connection with corporate pension and profit sharing plans and retirement income H.R. 10 pension plans which are exempt pursuant to Section 3(c)(11) of the Investment Company Act of 1940 and where applicable other provisions of the Federal securities laws because of their tax qualified status.

(b) Mandatory Policy Benefit and Design Requirements. Variable life insurance policies delivered or issued for delivery in this State shall comply with the following minimum requirements:

(1) Coverage shall be provided for the lifetime of the insured with the mortality and expense risk borne by the insurance company;

(2) Gross premiums for death benefits shall be a level amount for the duration of the premium payment period, but this subparagraph shall not be construed to prohibit temporary or permanent additional premiums for incidental insurance benefits or substandard risks. This subparagraph shall not be deemed to prohibit the use of fixed benefit preliminary term insurance for a period not to exceed 120 days from the date of the application for a variable life insurance policy. The premium rate for such preliminary term insurance shall be stated separately in the application or receipt.

(3) A minimum death benefit is provided in an amount at least equal to the initial face amount of the policy so long as premiums are paid when due (subject to the provisions of subsection (a)(2) of this Section).

(4) The amount payable upon the death of the insured so long as premiums are paid when due (subject to the provisions of subsection (d)(2) of this Section) shall be not less than a minimum multiple of the gross premium payable in that year, exclusive of that portion allocable to any incidental insurance benefit, by a person who meets standard underwriting requirements, as shown in the following table:

Issue Ages Multiples

0-05 80

6-10 71

11-15 63

16-20 55

21-25 47

26-30 40

31-35 33

36-40 27

41-45 21

46-50 15

51-55 13

56-60 11

61-65 9

66-70 8

71 and over 7

(5) The variable death benefit shall reflect the investment experience of the variable life insurance separate account established and maintained by the insurer and that the excess, positive or negative, of the net investment return over the assumed investment rate, as applied to the benefit base of each variable life insurance policy shall be used to provide either:

(A) Fully paid-up variable life insurance providing coverage for the same period as the basic insurance under the policy or fully paid-up fixed benefit term insurance amounts, positive or negative, as the case may be, or a combination thereof, or

(B) Variable life insurance amounts, positive or negative, as the case may be, so that the reserve maintains the same percentage relationship to the variable death benefit as it would have on a corresponding fixed benefit policy.

(6) Each variable life insurance policy shall be credited with the full amount of the net investment return applied to the benefit base.

(7) Changes in variable death benefits of each variable life insurance policy shall be determined at least annually.

(8) The cash value of each variable life insurance policy shall be determined at least monthly. The method of computation of cash values and other non-forfeiture benefits, as described either in the policy or in a statement filed with the Commissioner of the state in which the policy is delivered, or issued for delivery, shall be in accordance with the actuarial procedures that recognize the variable nature of the policy. The method of computation must be such that, if the net investment return credited to the policy at all times from the date of issue should be equal to the assumed investment rate with premiums and benefits determined accordingly under the terms of the policy, then the resulting cash values and other non-forfeiture benefits must be at least equal to the minimum values required by Sections 10159.1 through 10167 of the Insurance Code of this State (Standard Non-Forfeiture Law) for a fixed benefit policy with such premiums and benefits. The assumed investment rate shall not exceed the maximum interest rate permitted under the Standard Non-Forfeiture Law of this State. The method of computation may disregard incidental minimum guarantees as to the dollar amount payable. Incidental minimum guarantees, include, for example, but are not to be limited to, a guarantee that the amount payable at death or maturity shall be at least equal to the amount that otherwise would have been payable if the net investment return credited to the policy at all times from the date of issue had been equal to the assumed investment rate.

(9) The computation of values required for each variable life insurance policy may be based upon such reasonable and necessary approximations as are acceptable to the Commissioner.

(10) (A) If the gross premiums for any variable life insurance policy delivered or issued for delivery in this State produce an excess of 1. over 2. as defined in (B) below, the present value as of the date of issue of the adjusted premiums used in determining the minimum cash values required by subsection (b)(8) of this Section shall be decreased by such excess by decreasing each adjusted premium by a uniform percentage.

(B) The excess of 1. over 2. referred to in (A) above shall be determined as of the date of issuance on the basis of the mortality table and maximum rate of interest permitted by Sections 10159.1 through 10167 of the Insurance Code of this State (Standard Non-Forfeiture Law), and

1. Is the present value of the gross premiums for the policy, decreased by one dollar per thousand of equivalent uniform account for policies with an equivalent uniform amount of less than ten thousand, payable on an annual basis (exclusive of those portions of the gross premiums allocable to any incidental insurance benefits) by a person who meets standard underwriting requirements, and

2. Is the product of (1) times (2) where (1) is the present value of the maximum premium rates per thousand of insurance shown below payable at the beginning of each policy year to attained age 65 of the insured for issue ages below age 51, for fifteen years for issue ages 51 to 70 and for life for issue ages above age 70 and (2) is the ratio of (i) the present value of the benefits under the policy to (ii) the present value of an insurance of one thousand for the whole of life.

TABLE OF RATES

Age at Premium Age at Premium

Issue Rate Issue Rate

0 $11.50 41 $38.65

1 11.60 42 40.45

2 11.76 43 42.51

3 11.97 44 44.89

4 12.22 45 47.62

5 12.50 46 50.71

6 12.80 47 54.17

7 13.11 48 58.00

8 13.43 49 62.18

9 13.75 50 66.67

10 14.08 51 68.58

11 14.42 52 70.54

12 14.77 53 72.57

13 15.13 54 74.69

14 15.49 55 76.92

15 15.87 56 79.29

16 16.27 57 81.84

17 16.70 58 84.61

18 17.16 59 87.63

19 17.65 60 90.91

20 18.18 61 94.45

21 18.74 62 98.25

22 19.34 63 102.31

23 19.97 64 106.61

24 20.62 65 111.11

25 21.28 66 115.48

26 21.95 67 119.39

27 22.64 68 122.51

28 23.37 69 124.50

29 24.15 70 125.00

30 25.00 71 118.86

31 25.92 72 123.96

32 26.91 73 129.66

33 27.97 74 135.96

34 29.10 75 142.86

35 30.30 76 150.36

36 31.55 77 158.46

37 32.84 78 167.16

38 34.17 79 176.46

39 35.56 80 186.36

40 37.04

(C) For purposes of this subsection, any portion of the premium set aside to support a guarantee that any surrender value shall not be less than a specified amount or for any other benefit that the Commissioner shall deem to be excludable, shall not be included.

(c) Mandatory Policy Provisions. Every variable life insurance policy filed for approval in this State shall contain at least the following:

(1) The cover page or pages corresponding to the cover page of each such policy shall contain:

(A) A prominent statement in either contrasting color or in boldface type at least four points larger than the type size of the largest type used in the text of any provision on that page, that the death benefit may be variable or fixed under specified conditions;

(B) A prominent statement in either contrasting color or in boldface type at least four points larger than the type size of the largest type size used in the text of any provision on that page, that cash values may increase or decrease in accordance with the experience of the separate account (subject to any specified minimum guarantees);

(C) A statement that the minimum death benefit will be at least equal to the initial face amount at the date of issue if premiums are paid when due and if there are no outstanding policy loans, partial withdrawals, or partial surrenders;

(D) The rule, or a reference to the policy provision, which describes the method for determining the variable amount of insurance payable at death;

(E) A captioned provision which provides that the policyholder may return the variable life insurance policy within 45 days of the date of the execution of the application or within 10 days of receipt of the policy by the policyholder, whichever is later, and receive a refund of all premium payments for such policy, and

(F) Such other items as are currently required for fixed benefit life insurance policies and which are not inconsistent with this regulation.

(2) A provision for a grace period of not less than thirty-one days from the premium due date which shall provide that where the premium is paid within the grace period, policy values will be the same, except for the deduction of any overdue premium, as if the premium were paid on or before the due date;

(3) A provision that the policy will be reinstated at any time within two years from the date of default upon the written application of the insured and evidence of insurability, including good health, satisfactory to the insurer, unless the cash surrender value has been paid or the period of extended insurance has expired, upon the payment of any outstanding indebtedness arising subsequent to the end of the grace period following the date of default together with accrued interest thereon to the date of reinstatement and payment of an amount not exceeding the greater of:

(A) All overdue premiums and any other indebtedness in effect at the end of the grace period following the date of default with interest at a rate not exceeding 6% per annum compounded annually, or

(B) 110% of the increase in cash surrender value resulting from reinstatement.

(4) A full description of the benefit base and of the method of calculation and application of any factors used to adjust variable benefits under the policy.

(5) A provision designating the separate account to be used and stating that:

(A) Such separate account shall be used to fund only variable life insurance benefits, except to the extent permitted by subsection (e)(3)(F) of this Section;

(B) The assets of such separate account shall be available to cover liabilities of the general account of the insurer only to the extent that the assets of the separate account exceed the liabilities of the separate account arising under the variable life insurance policies supported by the separate account, and

(C) The assets of such separate account shall be valued at least as often as any policy benefits vary but at least monthly.

(6) The policy shall also contain a provision that any time during the first eighteen months of the variable life insurance policy the owner may exchange the policy for a policy of permanent fixed benefits insurance for the same initial amount of insurance as the variable life insurance policy provided that the new policy:

(A) Shall bear the same date of issue and age at issue as the original variable life insurance policy;

(B) Is issued on any plan of permanent insurance offered by the insurer or an affiliate on the date of issue of the variable life insurance policy and premium rates in effect on that date for the same class of insurance.

(C) Include such riders and incidental insurance benefits as were included in the original policy if such riders and incidental insurance benefits are issued with the fixed benefit policy. If the exchange results in an increase or decrease in cash value such increase or decrease will be payable to the insurer or the insured as the case may be.

(D) The insurer must apply as an advance premium on the new policy any excess of the accrued premium on the original variable life insurance policy from the date of issue to the date of request for exchange over the corresponding accrued premium on the new fixed benefit policy except that any portion on such excess which is less than a regular mode premium on the new policy may either be applied as an advance premium or refunded in cash at the option of the insurer.

(E) The insurer shall not require evidence of insurability for this exchange.

(7) A provision that the policy and any papers attached thereto by the insurer, including the application if attached, constitute the entire insurance contract;

(8) A designation of the officers of the insurer who are empowered to make an agreement or representation on behalf of the insurer and an indication that statements by the insured, or on his behalf, shall be considered as representations and not warranties;

(9) An identification of the owner of the insurance contract;

(10) A provision setting forth conditions or requirements as to the designation, or change of designation of a beneficiary and a provision for disbursement of benefits in the absence of a beneficiary designation;

(11) A statement of any conditions or requirements concerning the assignment of the policy;

(12) A description of any adjustments in policy values to be made in the event of misstatement of age or sex of the insured;

(13) A provision that the policy shall be incontestable by the insurer after it has been in force for two years during the lifetime of the insured;

(14) A provision stating that the investment policy of the separate account shall not be changed without the approval of the Insurance Commissioner of the state of domicile of the insurer, and that the approval process is on file with the Commissioner of this State;

(15) A provision that payment of variable death benefits in excess of the minimum death benefits, cash values, policy loans or partial withdrawals (except when used to pay premiums) or partial surrenders may be deferred:

(A) For up to six months from the date of request, or

(B) For any period during which the New York Stock Exchange is closed for trading (except for normal holiday closing) or when the Securities and Exchange Commission has determined that a state of emergency exists which may make such payment impractical.

(16) Settlement options shall be provided on a fixed basis only;

(17) A description of the basis for computing the cash surrender value under the policy shall be included. Such surrender value may be expressed as either:

(A) A schedule of cash value amounts per one thousand dollars of variable death benefit at each attained age or policy year for at least 20 years from issue, or for the premium paying period, if less than 20 years, or

(B) One cash value schedule as described in paragraph (A) for the death benefit, or for each one thousand dollars of death benefit, which would be in effect if the net investment return is always equal to the assumed investment rate and a second schedule applicable to any adjustments to the death benefit (disregarding the minimum death benefit guarantee and term insurance amounts) if the net investment return does not equal the assumed investment rate at each age for at least 20 years from issue, or for the premium paying period if it is less than 20 years.

(18) Premiums for incidental insurance benefits shall be stated separately.

(19) Any other policy provisions required by this regulation.

(20) Such other items as are currently required for fixed benefit life insurance policies and are not inconsistent with this regulation.

(d) Non-Forfeiture, Partial Withdrawal, Policy Loan and Partial Surrender Provisions. Every variable life insurance policy delivered or issued for delivery in this State shall contain provisions which are not less favorable to the policyholder than the following:

(1) A provision for non-forfeiture insurance benefits so that at least one such benefit is offered on a fixed basis from the due date of the premium in default.

(A) Variable extended term insurance may not be offered.

(B) A given non-forfeiture insurance benefit need not be offered on both a fixed and a variable basis.

(C) The insurer may establish a reasonable minimum cash surrender value below which any such non-forfeiture insurance options will not be available.

(2) A provision for policy loans (which may at the option of the insurer be entitled and referred to as a partial withdrawal provision) not less favorable to the policyholder than the following:

(A) Up to 75%, but if the loan is made from the general account, not more than 90% of the policy's cash value may be borrowed;

(B) The amount borrowed, or any repayment thereof, shall not affect the amount of the premium payable under the policy;

(D) The proceeds payable on death after the exercise of the policy loan provision shall equal the greater of the minimum death benefit or the variable death benefit, less the indebtedness outstanding;

(E) Any indebtedness shall be deducted from the cash value upon surrender or in determining any non-forfeiture benefit;

(F) Whenever the indebtedness exceeds the cash value, the insurer shall give notice of intent to cancel the policy if the excess indebtedness is not repaid within thirty-one days after the date of mailing of such notice;

(G) The policy may provide that if, at any time, the variable death benefit is less than it would have been if no loan or withdrawal had ever been made, the policyholder may increase such variable death benefit up to what it would have been if there had been no loan or withdrawal by paying an amount not exceeding 110% of the corresponding increase in cash value and by furnishing such evidence of insurability as the insurer may request;

(H) The policy may specify a reasonable minimum amount which may be borrowed at any time but such minimum shall not apply to any automatic premium loan provision;

(I) No policy loan provision is required if the policy is under the extended term non-forfeiture insurance benefit;

(J) In addition to the foregoing the policy may contain a partial surrender provision; however, any such provision shall provide that the policyholder may request part of the cash value and both the variable and minimum death benefits will be reduced in proportion to the percentage of the cash value received by the policyholder and the premium for the remaining amount of insurance will also be reduced to the appropriate rates for the reduced amount of insurance. The policy may provide that a partial surrender provision shall not require the insurer to reduce the amount of the minimum death benefit to less than the lowest amount of minimum death benefit which would have been issued to the insured under the insurance plans of the insurer at the time the policy was issued. The policy must clearly provide that the policyholder has the option of electing to exercise the cash value privileges of the policy loan or partial withdrawal provision rather than the partial surrender provision.

(K) All policy loan, partial withdrawal or partial surrender provisions shall be constructed so that variable life insurance policy-holders who have not exercised such provision are not disadvantaged by the exercise thereof.

(L) Monies paid to the policyholders upon the exercise of any policy loan, partial withdrawal or partial surrender provision shall be withdrawn from the separate account and shall be returned to the separate account upon repayment except that a stock insurer may provide the monies for policy loans from the general account.

(e) Other Policy Provisions. The following provisions may in substance be included in a variable life insurance policy or related form delivered or issued for delivery in this State:

(1) An exclusion for suicide within two years of the policy issue date;

(2) Incidental insurance benefits may be offered on a fixed basis only;

(3) Policies issued on a participating basis shall offer to pay dividend amounts in cash. In addition such policies may offer the following dividend options:

(A) The amount of the dividend may be credited against premium payments;

(B) The amount of the dividend may be applied to provide paid-up amounts of additional fixed benefit whole life insurance;

(D) The amount of the dividend may be deposited in the general account at a specified minimum rate of interest;

(E) The amount of the dividend may be applied to provide paid-up amounts of fixed benefit one-year term insurance;

(F) The amount of the dividend may be deposited as a variable deposit in the separate account in the case of variable life insurance policies exempt pursuant to Section 3(c)(11) of the Investment Company Act of 1940 because of their tax qualified status.

(4) A provision allowing the policyholder to elect in writing in the application for the policy or thereafter an automatic premium loan on a basis not less favorable than that required of policy loans or partial withdrawals under subsection (d) of this Section, except that a restriction that no more than two consecutive premiums can be paid under this provision may be imposed.

§2534.4. Reserve Liabilities for Variable Life Insurance.

(a) Reserve liabilities for variable life insurance policies shall be established under Section 10489.1 et seq. of the California Insurance Code (Standard Valuation Law) in accordance with actuarial procedures that recognize the variable nature of the benefits provided and any mortality guarantees.

(b) Reserve liabilities for the guaranteed minimum death benefit shall be the reserve needed to provide for the contingency of death occurring when the guaranteed minimum death benefit exceeds the death benefit that would be paid in the absence of the guarantee, and shall be maintained in the general account of the insurer and shall be not less than the greater of the following minimum reserves:

(1) The aggregate total of the term costs, if any, covering a period of one full year from the valuation date, of the guarantee on each variable life insurance contract, assuming an immediate one-third depreciation in the current value of the assets of the separate account followed by a net investment return equal to the assumed investment rate, or

(2) The aggregate total of the “attained age level” reserves on each variable life insurance contract. The “attained age level” reserve on each variable life insurance contract shall not be less than zero and shall equal the “residue,” as described in subparagraph (A), of the prior year's “attained age level” reserve on the contract, with any such “residue” increased or decreased by a payment computed on an attained age basis as described in subparagraph (B) below.

(A) The “residue” of the prior year's “attained age level” reserve on each variable life insurance contract shall not be less than zero and shall be determined by adding interest at the valuation interest rate to such prior year's reserve, deducting the tabular claims based on the “excess,” if any, of the guaranteed minimum death benefit over the death benefit that would be payable in the absence of such guarantee, and dividing the net result by the tabular probability of survival. The “excess” referred to in the preceding sentence shall be based on the actual level of death benefits that would have been in effect during the preceding year in the absence of the guarantee, taking appropriate account of the reserve assumptions regarding the distribution of death payments over the year;

(B) The payment referred to in subsection (b)(2) of this Section shall be computed so that the present value of a level payment of that amount each year over the future premium paying period of the contract is equal to (A) minus (B) minus (C), where (A) is the present value of the future guaranteed minimum death benefits, (B) is the present value of the future death benefits that would be payable in the absence of such guarantee and (C) is any “residue,” as described in subparagraph (A), of the prior year's “attained age level” reserve on such variable life insurance contract. If the contract is paid-up, the payment shall equal (A) minus (B) minus (C). The amounts of future death benefits referred to in (B) shall be computed assuming a net investment return of the separate account which may differ from the assumed investment rate and/or the valuation interest rate but in no event may exceed the maximum interest rate permitted for the valuation of life insurance contracts.

(3) The valuation interest rate and mortality table used in computing the two minimum reserves described in (1) and (2) above shall conform to permissible standards for the valuation of life insurance contracts. In determining such minimum reserve, the company may employ suitable approximations and estimates, including but not limited to groupings and averages.

(c) Reserve liabilities for all fixed incidental insurance benefits shall be maintained in the general account in amounts determined in accordance with the actuarial procedures appropriate to such benefit.

§2534.5. Separate Accounts.

The following requirements apply to the establishment and administration of variable life insurance separate accounts:

(a) Establishment and Administration of Separate Accounts. An insurer issuing variable life insurance in this State shall establish one or more separate accounts pursuant to Section 10506 of the Insurance Code of this State.

(1) If no law or other regulation provides for the custody of separate account assets and if the insurer itself is not the custodian of such assets, all contracts for such custody shall be in writing and the Commissioner of the insurer's state of domicile shall approve of both the terms of any such contract and the proposed custodian prior to the transfer of custody.

(2) An insurer shall not, without the prior written approval of the Commissioner, employ in any material connection with the handling of separate account assets any person who:

(A) Within the last ten years has been convicted of any felony or a misdemeanor arising out of such persons conduct involving embezzlement, fraudulent conversion, or misappropriation of funds or securities or involving violation of Sections 1341, 1342, or 1343 of Title 18, United States Code, or

(B) Within the last ten years has been found by any state regulatory authority to have violated or has acknowledged violation of any provision of any state insurance law involving fraud, deceit or knowing misrepresentation, or

(C) Within the last ten years has been found by federal or state regulatory authorities to have violated or has acknowledged violation of any provision of federal or state securities laws involving fraud, deceit or knowing misrepresentation.

(3) All persons with access to the cash, securities or other assets of the separate account shall be under bond in an amount of not less than the following amounts for each separate account:

TOTAL ASSETS MINIMUM AMOUNT OF BOND

Under $100,000 $10,000

But Not

More Than: More Than:

$100,000 $600,000 $10,000 plus 4% of assets

over $100,000

600,000 1,200,000 $30,000 plus 3-1/3% of assets

over $600,000

1,200,000 3,200,000 $50,000 plus 2-1/2% of assets

over $1,200,000

3,200,000 4,450,000 $100,000 plus 2% of assets

over $3,200,000

4,450,000 6,450,000 $125,000 plus 1-1/4% of assets

over $4,450,000

6,450,000 90,450,000 $150,000 plus 5/8% of assets

over $6,450,000

90,450,000 350,450,000 $675,000 plus 3/8% of assets

over $90,450,000

350,450,000 1,070,450,000 $1,625,000 plus 3/16% of assets

over $350,450,000

1,070,450,000 ------ $3,075,000 plus 3/32% of assets

over $1,070,450,000 until total

bond equals $5,000,000

(4) If an insurer establishes more than one separate account for variable life insurance, justification for the establishment of each additional separate account shall also be filed with the Commissioner and shall be subject to his approval. The creation of additional separate accounts to avoid lower maximum charges against the separate account is prohibited.

(5) The assets of such separate accounts established for variable life insurance policies shall be valued at least as often as variable benefits are determined but in any event at least monthly.

(6) The same separate account shall not be used to fund both variable life insurance policies which are exempt pursuant to Section 3(c)(11) of the Investment Company Act of 1940 because of their tax qualified status and other variable life insurance policies not so exempt.

(7) Except as provided in Section 2534.3(e)(3)(F), variable life insurance separate accounts shall not be used for variable annuities or for the investment of funds corresponding to dividend accumulations or other policyholder liabilities not involving life contingencies.

(b) Amounts in the Separate Account.

(1) The insurer shall maintain in each variable life insurance separate account assets with a fair market value at least equal to the greater of the valuation reserves for the variable portion of the variable life insurance policies or the benefit base for such policies.

(2) The benefit base of any variable life insurance policy as of the beginning of any valuation period shall not be less than the sum of the following factors after deducting amounts of any indebtedness pursuant to Section 2534.3(d)(2):

(A) The valuation net premium for such period based upon the initial amount insured, and

(B) The valuation terminal reserve at the end of the immediately preceding valuation period based upon the amount insured at the end of such period less the discounted cost of term insurance for the next period based upon tabular mortality and the interest rate used for such valuation reserves.

(3) In lieu of the minimum benefit base requirement specified above, an insurer may otherwise qualify under this Section if it can be demonstrated, to the satisfaction of the Commissioner, that the policy benefits obtained over a 20-year period from the date of issue by the use of the insurer's benefit base are at least substantially equivalent in value to the benefits obtained by the use of the minimum benefit base specified above. The Commissioner may specify the range of net investment return to be used in this demonstration.

(4) Notwithstanding the actual reserve basis used for policies that do not meet standard underwriting requirements, the benefit base for such policies may be the same as for corresponding policies which do meet standard underwriting requirements.

(1) No sale, exchange or other transfer of assets may be made by an insurer or any of its affiliates between any of its separate accounts or between any other investment account and one or more of its separate accounts unless:

(A) In case of a transfer into a separate account, such transfer is made solely to establish the account or to support the operation of the policies with respect to the separate account to which the transfer is made, and

(B) Such transfer, whether into or from a separate account, is made by a transfer of cash, but other assets may be transferred if approved by the Commissioner in advance.

(2) Assets allocated to a variable life insurance separate account shall be held in cash or investments having a reasonably ascertainable market price. For the purposes of this subsection, only the following shall be considered “investments having a reasonably ascertainable market price”:

(A) Liens in favor of the insurer against separate account policy reserves resulting from use by policyholders of cash values;

(B) Securities listed and traded on the New York Stock Exchange, the American Stock Exchange or regional stock exchanges or successors to such exchanges having the same or similar qualifications;

(D) Shares of an investment company registered pursuant to the Investment Company Act of 1940. Where such an investment company issues book shares in lieu of share certificates, such book shares shall be deemed to be adequate evidence of ownership;

(E) Obligations of or guaranteed by the United States government, the Canadian government, any state, or municipality or governmental subdivision of a state;

(F) Commercial paper issued by business corporations when the total of such paper issued by the corporation does not exceed in value a guaranteed short line of credit by a bank.

(G) Certificates of deposit issued by financial institutions the deposits of which are insured by the FDIC or FSLIC, and

(H) New bond or debt issues which may reasonably be expected to be listed on an exchange regulated by the Securities Exchange Act of 1934.

(3) Notwithstanding any other provision of law or the provisions of paragraph (2) above, assets allocated to a variable life insurance separate account shall not be invested in:

(A) Commodities or commodity contracts;

(B) Put and call options or combinations of such options;

(D) Purchases on margins;

(E) Letter or restricted stock;

(F) Units or other evidences of ownership of a separate account of another insurer, except those registered under the Investment Company Act of 1940, or

(G) Real estate other than shares of a real estate investment trust listed as described in paragraph (2) above.

(d) Limitations on Ownership.

(1) A variable life insurance separate account shall not purchase or otherwise acquire the securities of any issuer, other than securities issued or guaranteed as to principal and interest by the United States, if immediately after such purchase or acquisition the value of such investment, together with prior investments of such separate account in such security valued as required by this regulation, would exceed 10% of the value of the assets of the separate account. The Commissioner may waive this limitation in writing if he believes such waiver will not render the operation of the separate account hazardous to the public or the policyholders in this State.

(2) No separate account shall purchase or otherwise acquire the voting securities of any issuer if as a result of such acquisition the insurer and its separate accounts, in the aggregate, will own more than 10% of the total issued and outstanding voting securities of such issuer. The Commissioner may waive this limitation in writing if he believes such waiver will not render the operation of the separate account hazardous to the public or the policyholders in this State or jeopardize the independent operation of the issuer of such securities.

(3) The percentage limitation specified in paragraph (1) above, shall not be construed to preclude the investment of the assets of separate accounts in shares of investment companies registered pursuant to the Investment Company Act of 1940 if the investments and investment policies of such investment companies comply substantially with the provisions of subsection (c) of this Section and other applicable portions of this regulation.

(e) Valuation of Assets of a Variable Life Insurance Separate Account.

(1) Investments of the separate account shall be valued at their market value on the date of valuation.

(A) Market value for investments traded on the recognized exchanges means the last reported sale price on the date of valuation. If there has been no sale on that date, the market value means the last report bid quotation on the date of valuation.

(B) Market value for investments listed on the NASDAQ System means the last representative bid quotation on the valuation date. If an investment ceases to be listed but continues to be traded over the counter, it shall be valued at the lowest bid quotation as it appears on the National Quotation Bureau sheets.

(C) If the valuation date referred to in subparagraphs (A) and (B) above is a day when the exchange or the NASDAQ System is not open for business, the valuation date shall be the last date when the exchange or the NASDAQ System was open for business.

(2) If an investment ceases to be traded, it shall be valued at fair value as determined in good faith by or at the direction of the Board of Directors of the insurer but not in excess of the last reported bid quotation. Within thirty days notification of cessation of trading of any investment shall be reported by the insurer to the Insurance Commissioner of the state of domicile of the insurer. Such Commissioner shall within a reasonable period of time determine the method of valuation or disposition of such investment.

(f) Separate Account Investment Policy.

(1) The investment policy of a separate account operated by a domestic insurer filed under Section 2534.2(b)(3) shall not be changed without the approval of the Commissioner.

(2) With respect to changes of investment policy for which the Commissioner must give his approval, the following regulations shall apply:

(A) Such approval shall be deemed to be given sixty days after the date the request for approval was filed with the Commissioner, unless he notifies the insurer before the end of such sixty day period of his determination that the proposed change is a material change in the investment policy.

(B) If the change is deemed material by the Commissioner, he shall approve such change only if he determines, after a public hearing, that the change does not appear to be detrimental to the interest of the policyholders of the insurer.

(C) At least thirty days prior to any public hearing under subparagraph (B), the insurer shall mail a notice to each policyholder and to the Insurance Commissioner of each state in which the affected variable life insurance policies are being sold. Such notice shall describe the proposed change in investment policy, list the reasons therefor, designate the date and place of the public hearing, inform the policyholder of the procedures to be followed in commenting on the change, and describe the conduct of the meeting. Any such notice shall be in a form approved by the Commissioner.

(D) Within sixty days after such public hearing the Commissioner must approve or deny the proposed change in investment policy.

(E) Should any policyholder object to the proposed change and the change is allowed by the Commissioner, the objecting policyholder shall be given the option within sixty days of notification to the policyholder of the approval by the Commissioner of such change, of converting, without evidence of insurability, under one of the following options, to a fixed benefit life insurance policy issued by the insurer or an affiliate:

(1) As of the original issue age to a permanent form of life insurance, based on the insurer's premium rates for fixed life insurance at the original issue age, for an amount of insurance not exceeding the death benefit of the variable life insurance policy on the date of conversion. If the cash value of the variable life insurance policy exceeds the cash value of the fixed life insurance policy, the difference shall be paid to the policyholder. If the cash value of the fixed life insurance policy exceeds the cash value of the variable life insurance policy, the difference shall be paid by the policyholder;

(2) As of the attained age to a substantially comparable permanent form of life insurance for an amount of insurance not exceeding the excess of the death benefit of the variable life insurance policy over:

(i) Its cash value on the date of conversion if the withdrawing policyholder elects the cash surrender option, or

(ii) The death benefit payable under any paid-up insurance option if the withdrawing policyholder elects such option.

(g) Charges Against a Variable Life Insurance Separate Account.

(l) The insurer may deduct only the following from the separate account:

(A) Taxes or reserves for taxes attributable to investment gains and income of the separate account;

(B) Actual cost of reasonable brokerage fees and similar direct acquisition and sales costs incurred in the purchase or sale of separate account assets;

(C) Actuarially determined costs of insurance (tabular costs) and the release of reserves on the termination or partial surrender of the variable life insurance policy;

(D) Charges for investment management expenses, including internal costs attributable to the investment management of assets of the separate account, not exceeding the following percentages, on an annual basis, of the average net asset value of the separate account as of the dates of valuation under subsection (a)(5) of this Section:

1. .75% of that portion of separate account assets valued under $75,000,000; and;

2. .50% of that portion of separate account assets valued at or in excess of $75,000,000 but less than $150,000,000; and;

3. .40% of that portion of separate account assets valued at or in excess of $150,000,000 but less than $400,000,000; and;

4. .35% of that portion of separate account assets valued at or in excess of $400,000,000 but less than $800,000,000; and;

5. .30% of that portion of separate account assets valued at or in excess of $800,000,000.

(E) A charge, at a rate specified in the policy, not to exceed .50% per year of the average net asset value of the separate account as of the dates of valuation under subsection (a)(5) of this Section for mortality and expense guarantees.

(2) Any charges against the separate account made by either an affiliate of the insurer or an unaffiliated fund shall be considered part of the charges limited by paragraphs (1)(d) and (1)(E) of subsection (g) above. Any charge against the separate account, excluding taxes, shall not vary in accordance with the difference between the investment performance of the separate account and any index of securities prices or other measure of investment performance.

(h) Standards of Conduct. Every insurer seeking approval to enter into the variable life insurance business in this State shall adopt by formal action of its Board of Directors and file with the Commissioner, a written statement specifying the Standards of Conduct of the insurer, its officers, directors, employees, and affiliates with respect to investments of variable life insurance separate accounts and variable life insurance operations. Such Standards of Conduct shall be binding on the insurer and those to whom it refers, and must contain at a minimum the items contained in subsection (i)(2) of this Section.

(i) Conflicts of Interest.

(1) Rules under any provision of the Insurance Code of this State or any regulation applicable to the officers and directors of insurance companies with respect to conflicts of interest shall also apply to members of any separate account's committee or other similar body. No officer or director of such company nor any member of any managing committee or body of a separate account shall receive directly or indirectly any commission or any other compensation with respect to the purchase or sale of assets of such separate account. The Board of Directors of the insurer shall be responsible for all acts concerning the separate account.

(2) Unless otherwise approved in writing by the Commissioner in advance of the transaction, with respect to variable life insurance separate accounts, an insurer or affiliate thereof shall not:

(A) Sell to or purchase from any such separate account established by the insurer any securities or other property, other than variable life insurance policies;

(B) Purchase or allow to be purchased for any such separate account any securities of which the insurer or an affiliate is the issuer;

(C) Accept any compensation, other than a regular salary or wages from such insurer or affiliate, for the sale or purchase of securities to or from any such separate account other than as provided in subsection (i)(3)(C) of this Section;

(D) Engage in any joint transaction, participation or common undertaking whereby such insurer or an affiliate participates with such a separate account in any transaction in which an insurer or any of its affiliates obtains an advantage in the price or quality of the item purchased, in the service received, or in the cost of such service and the insurer or any of its other affiliates is disadvantaged in any of these respects by the same transaction;

(E) Borrow money or securities from any such separate account other than under a policy loan provision.

(3) No provision of this regulation shall be construed to prohibit:

(A) The investment of separate account assets in securities issued by one or more investment companies pursuant to the Investment Company Act of 1940 which is sponsored or managed by the insurer or an affiliate, and the payment of investment management or advisory fees on such assets;

(B) The combination of orders for the purchase or sale of securities for the insurer, an affiliate thereof, any separate account, or any one or more of them, which is for their mutual benefit or convenience so long as any securities so purchased or the proceeds of any sale thereof are allocated among the participants on some predetermined basis expressed in writing which is designed to assure the equitable treatment of all participants;

(C) An insurer or an affiliate to act as a broker or dealer in connection with the sale of securities to or by such separate account; however, any commission, fee or other remuneration charged therefor shall not exceed the minimum broker's commission established for any such transaction by any national securities exchange through which such transaction could be effected or where such charges prevailing, in the ordinary course of business in the community where such transaction is effected;

(D) The rendering of investment management or investment advisory services by an insurer or affiliate, for a fee, subject to the provisions of this regulation.

(4) The Commissioner may, upon the written request of an insurer or an affiliate, approve a particular transaction or series of proposed transactions which would otherwise be prohibited under paragraph (2) if he determines such transaction is not unfair or inequitable to persons affected under the circumstances of such transactions.

(j) Investment Advisory Services to a Separate Account.

(1) An insurer shall not enter into a contract under which any person undertakes, for a fee, to regularly furnish investment advice to such insurer with respect to its separate accounts maintained for variable life insurance policies unless:

(A) The person providing such advice is registered as an investment advisor under the Investment Advisors Act of 1940, or

(B) The insurer has filed with the Commissioner and continues to file annually the following information and statements concerning the proposed advisor:

1. The name and form of organization, state of organization, and its principal place of business;

2. The names and addresses of its partners, officers, directors, and persons performing similar functions or, if such an investment advisor be an individual, of such individual;

3. A written Standard of Conduct complying in substance with the requirements of subsection (h) of this Section which has been adopted by the investment advisor and is applicable to the investment advisor, its officers, directors, and affiliates;

4. A statement provided by the proposed advisor as to whether the advisor or any person associated therewith:

(i) Has, within the last ten years, been convicted or has acknowledged violation of any felony or misdemeanor arising out of such person's conduct as an employee, salesman, officer or director of an insurance company, a bank, an insurance agent, a securities broker, or an investment advisor; involving embezzlement, fraudulent conversion, or misappro-- priation of funds or securities, or involving the violation of Sections 1341, 1342, or 1343 of Title 18 of the United States Code;

(ii) Has been permanently or temporarily enjoined by order, judgment, or decree of any court of competent jurisdiction from acting as an investment advisor, underwriter, broker, or dealer, or as an affiliated person or as an employee of any investment company, bank, or insurance company, or from engaging in or continuing any conduct or practice in connection with any such activity;

(iii) Has been found by federal or state regulatory authorities to have willfully violated or has acknowledged willful violation of any provision of federal or state securities laws or state insurance laws or of any rule or regulation under any such laws, or

(iv) Has been censured, denied an investment advisor registration, had a registration as an investment advisor revoked or suspended or been barred or suspended from being associated with an investment advisor by order of federal or state regulatory authorities, and

(C) Such investment advisory contract shall be in writing and provide that it may be terminated by the insurer without penalty to the insurer or the separate account upon no more than sixty days written notice to the investment advisor.

(2) The Commissioner may, after notice and opportunity for hearing, by order require such investment advisory contract to be terminated if he deems continued operation thereunder to be hazardous to the public or the insurance company's policyholders.

§2534.6. Information Furnished to Applicants.

An insurer delivering or issuing for delivery in this State any variable life insurance policies shall deliver to the applicant for the policy, and obtain a written acknowledgement of receipt from such applicant coincident with or prior to the execution of the application, the following information. The requirements of this Section shall be deemed to have been satisfied by the delivery to the applicant of a prospectus included in a registration statement which satisfies the requirements of the Securities Act of 1933 and which was declared effective by the Securities and Exchange Commission to the extent that the prospectus contains the information required by this Section.

(a) A summary explanation, in non-technical terms, of the principal features of the policy, including a description of the manner in which the variable benefits will reflect the investment experience of the separate account and the factors which affect such variation;

(b) A statement of the investment policy of the separate account, including:

(1) A description of the investment objective and orientation intended for the separate account and the principal types of investments intended to be made, and

(2) Any restriction or limitations on the manner in which the operations of the separate account are intended to be conducted;

(c) A statement of the net investment return of the separate account for each of the last ten years for which the separate account was in existence;

(d) A statement describing, as an approximate percentage of an annual gross premium for each year and for the life of the policy, all commission or equivalent payments to be paid to all agents or other persons as a result of the proposed sale for each year of the policy for which such payments are to be made. As used in this subsection, “commissions” mean all monies and other valuable consideration, including but not limited to prizes, bonuses paid directly or indirectly to, for, or on behalf of the selling agent as compensation for services in the sale of variable life insurance;

(e) A statement of the annual taxes, brokerage fees, and similar costs, and the charges expressed as an annual percentage, levied against the separate account during the previous year;

(f) A summary of the method to be used in valuing assets held by the separate account;

(g) A summary of the federal income tax liabilities of the policy applicable to the insured, the policy owner, and the beneficiary;

(h) If the applicant is furnished illustrations of benefits payable under any variable life insurance contract, such illustrations shall be prepared by the insurer and shall not include projections of past investment experience into the future or attempted predictions of future investment experience; provided that nothing contained herein prohibits use of hypothetical assumed rates of return to illustrate possible levels of benefits, and that it is made clear that such assumed rates are hypothetical only;

(i) A prominent statement either in contrasting color or in boldface type at least four points larger than the type size of the largest type used in the text of any provision on the page providing in substance the following information:

The purpose of this variable life insurance policy is to provide insurance protection for the beneficiary named therein.

No claim is made that this variable life insurance policy is in any way similar or comparable to a systematic investment plan of a mutual fund.

§2534.7. Applications.

The application for a variable life insurance policy shall contain:

(a) A prominent statement that the death benefit may be variable or fixed under specified conditions;

(b) A prominent statement that cash values may increase or decrease in accordance with the experience of the separate account (subject to any specified minimum guarantees), and

(c) Questions designed to elicit information which enables the insurer to determine the suitability of variable life insurance for the applicant.

§2534.8. Reports to Policyholders.

Any insurer delivering or issuing for delivery in this State any variable life insurance policies shall mail to each variable life insurance policyholder at his or her last known address the following reports:

(a) Within thirty days after each anniversary of the policy, a statement or statements of the cash surrender value, death benefit, any partial withdrawal or policy loan, any interest charge, and any optional payments allowed pursuant to Section 2534.3(d) under the policy computed as of the policy anniversary date. Provided however that such statement may be furnished within thirty days after a specified date in each policy year so long as the information contained therein is computed as of a date not more than forty-five days prior to the mailing of such notice. This statement shall state in contrasting color or distinctive type that, in accordance with the investment experience of the separate account, the cash values and the variable death benefit may increase or decrease, and shall prominently identify any value described therein which may be recomputed prior to the next statement required by this Section. If the policy guarantees that the variable death benefit on the next policy anniversary date will not be less than the variable death benefit specified in such statement, the statement shall be modified to so indicate.

(b) Annually, a statement or statements including:

(1) A summary of the financial statement of the separate account based on the Annual Statement last filed with the Commissioner;

(2) The net investment return of the separate account for the last year and, for each year after the first, a comparison of the investment rate of the separate account during the last year with the investment rate during prior years, up to a total of five years when available;

(3) A list of investments held by the separate account as of a date not earlier than the end of the last year for which an Annual Statement was filed with the Commissioner;

(4) Any charges, taxes, and brokerage fees determined on an accrual basis payable by the separate account during the previous year, each expressed as a dollar amount and a percentage, and the total expressed as a dollar amount and as a percentage of the assets of the separate account;

(5) A statement of the portfolio turnover rate as defined herein during the preceding fiscal year of investments allocated to the separate account:

(A) The rate shall be calculated by dividing (A) the lesser of purchases or sales of portfolio securities for the particular fiscal year by (B) the monthly average of the value of the portfolio securities owned by the separate account during the particular fiscal year. Such monthly average shall be calculated by totaling the values of the portfolio securities as of the beginning and end of the first month of the particular fiscal year and as of the end of each of the succeeding eleven months, and dividing the sum by 13, except that the average value of securities for which market quotations are not available may be based upon the value of such securities as of the end of the preceding fiscal quarters.

(B) For the purposes of this item, there shall be excluded from both the numerator and the denominator all U. S. Government securities (short-term and long-term) and all other securities whose maturities at the time of acquisition were one year or less. Purchases shall include any cash paid upon the conversion of one portfolio security into another. Purchases shall also include the cost of rights or warrants purchased. Sales shall include the net proceeds of the sale of rights or warrants. Sales shall also include the net proceeds of redemptions of portfolio securities by call or maturity.

(C) The insurer shall show, in addition to the calculated portfolio turnover rate, both the amount of the purchases and the amount of the sales (calculated as prescribed in (B) above) and the monthly average (but not the individual monthly figures) of the value of the portfolio securities owned by the separate account during the fiscal year.

(D) The insurer may if it wishes make any statement or explanation with respect to any significant variations in the portfolio turnover rate during the three fiscal years next preceding;

(6) A statement of any change, since the last report, in the investment objective and orientation of the separate account, in any investment restriction or material quantitative or qualitative investment requirement applicable to the separate account, or in the investment advisor of the separate account;

(7) The name of each broker or dealer handling portfolio transactions on behalf of the separate account in which the insurer or an affiliate has any material, direct or indirect, interest and the nature of such transactions and the amount of compensation received by each such broker or dealer from business originating with the separate account during the preceding fiscal year;

(8) The names and principal occupations of each principal executive officer and each director of the insurer, and

(9) The names of all parents of the insurer and the basis of control of the insurer, and the name of any person who is known to own, of record or beneficially, 10% or more of the outstanding voting securities of the company.

§2534.9. Qualification of Agents for the Sale of Variable Life Insurance.

(a) Qualification to Sell Variable Life Insurance.

(1) No person may sell or offer for sale in this State any variable life insurance policy unless such person is an agent and has filed with the Commissioner, in a form satisfactory to the Commissioner, evidence that such person holds any license or authorization which may be required for the solicitation or sale of variable life insurance by any federal or state securities law.

(2) Any examination administered by the Department for the purpose of determining the eligibility of any person for licensing as an agent shall, after the effective date of this regulation, include such questions concerning the history, purpose, regulation, and sale of variable life insurance as the Commissioner deems appropriate.

(b) Reports of Disciplinary Actions. Any person qualified in this State under this Section to sell or offer to sell variable life insurance shall immediately report to the Commissioner:

(1) Any suspension or revocation of his agent's license in any other state or territory of the United States;

(2) The imposition of any disciplinary sanction, including suspension or expulsion from membership, suspension or revocation of or denial of registration, imposed upon him by any national securities exchange, or national securities association, or any federal, state, or territorial agency with jurisdiction over securities or variable life insurance, and

(3) Any judgment or injunction entered against him on the basis of conduct deemed to have involved fraud, deceit, misrepresentation, or violation of any insurance or securities law or regulation.

(c) Refusal to Qualify Agent to Sell Variable Life Insurance. Suspension, Revocation, or Nonrenewal of Qualification. The Commissioner may reject any application or suspend or revoke or refuse to renew any agent's qualification under this Section to sell or offer to sell variable life insurance upon any ground that would bar such applicant or such agent from being licensed to sell other life insurance contracts in this State. The rules governing any proceeding relating to the suspension or revocation of an agent's license shall also govern any proceeding for suspension or revocation of an agent's qualification to sell or offer to sell variable life insurance.

§2534.10. Separability Provisions.

If any provision of this regulation or the application thereof to any person or circumstance is for any reason held to be invalid, the remainder of the regulation and the application of such provision to other persons or circumstances shall not be affected thereby.

Article 11.2. Separate Account or Accounts--Modified Guaranteed Annuities

§2534.20. Purpose.

Note • History

The purpose of this article is to set forth rules and procedural requirements which are necessary to implement the provisions of California Insurance Code Section 10506 concerning the issuance and delivery of modified guaranteed annuity contracts in California, the payment of benefits thereunder, the manner in which the separate accounts required thereunder shall be established, maintained and administered and the administration of Article 16 (commencing with Section 1758.1), Chapter 5, Part 2, Division 1, of the Insurance Code relating to modified guaranteed annuity agents.

NOTE

Authority cited: Sections 10506(h) and 10506.3(a), Insurance Code. Reference: Sections 10506(h), 10506.3(a) and 1758.1 Insurance Code.

HISTORY

1. New section filed 2-6-92; operative 3-9-92 (Register 92, No. 13).

2. Editorial correction adding inadvertently omitted Article heading (Register 95, No. 13).

§2534.21. Definitions.

Note • History

As used in this article:

(a) “Modified guaranteed annuity” means a deferred annuity contract, individual or group, the underlying assets of which are held in a separate account, and the values of which are guaranteed if held for specified periods. The contract contains nonforfeiture values that are based upon a market-value adjustment formula if held for shorter periods. This formula may, or may not, reflect the value of assets held in the separate account. The assets underlying the contract must be in a separate account during the period, or periods, when the contract holder can surrender the contract;

(b) “Agent” means any person licensed as a life and disability or life only agent under the provisions of Chapter 5 (commencing with Section 1621), Part 2, Division 1, of the Insurance Code, more particularly defined in Section 1626 thereof;

(c) “Variable Contract Agent” means an agent licensed to transact, or required to be licensed to transact variable contracts by Article 16 (commencing with Section 1758.1), Chapter 5, Part 2, Division 1, of the Insurance Code;

(d) “Interest Credits” means all interest that is credited to the contract;

(e) “Separate Account” means a separate account established according to Section 10506, or pursuant to the corresponding section of the insurance laws of the state of domicile of a foreign or alien insurer;

NOTE

Authority cited: Sections 10506(h) and 10506.3(a), Insurance Code. Reference: Sections 10506(h), 10506.3(a), 1621-1630, 1758.1-1758.5 and 10506, Insurance Code.

HISTORY

1. New section filed 2-6-92; operative 3-9-92 (Register 92, No. 13).

§2534.22. Obtaining Certification Permitting Transaction of Modified Guaranteed Annuity Business.

Note • History

No insurer shall deliver or issue for delivery in this State any modified guaranteed annuity until it has received in writing from the Commissioner a certification that such insurer meets all the standards for transacting business required by California Insurance Code Section 10506. A certification may be obtained by filing an application (which includes the information specified in section 2534.23 or section 2534.24 of this article) with the Commissioner; payment of the minimum filing fee required by California Insurance Code Section 10506.1; and in the case of a domestic insurer, payment of an additional amount as may be assessed by the Commissioner pursuant to said California Insurance Code Section 10506.1. The application shall be verified by an executive officer of the insurer. The Commissioner shall advise applicants in writing within 90 days of receipt of the application whether the application is complete and accepted for filing; or, if the application is deficient the Commissioner shall advise the applicant what specific information is required. After a completed application is received, the Commissioner shall advise applicants, in writing, within one year whether certification is granted or denied.

NOTE

Authority cited: Sections 10506(h) and 10506.3(a), Insurance Code. Reference: Sections 10506(h), 10506.3(a), 10506, 10506.1, Insurance Code.

HISTORY

1. New section filed 2-6-92; operative 3-9-92 (Register 92, No. 13).

§2534.23. Application of Domestic Insurers.

Note • History

The application of a domestic insurer to write any modified guaranteed annuity shall include the following:

(b) A copy of each written agreement specifying how each such separate account is to be established, maintained and administered, including for information purposes a copy of each modified guaranteed annuity proposed to be delivered or issued for delivery in California;

(c) A statement of the additional amount, if any, of the insurer's assets, other than those amounts received from modified guaranteed annuity holders for deposit in such a separate account, which have been allocated to a separate account pursuant to the authority of California Insurance Code Section 10506(b). No more than 1% of its admitted assets, or 5% of the excess of its admitted assets over its liabilities and required reserves, both as of the preceding December 31, whichever is the smaller, may be so allocated;

(d) A statement of the history, organization, ownership and control of the insurer. Any changes in organization, ownership or control which are contemplated shall also be set forth. Reference to past official examination reports, whether by California or other insurance regulatory authority, if appropriately brought up to date, is acceptable. Similarly, reference to other records bearing upon such matters, which have become part of the Commissioner's official files, are acceptable;

(e) A brief balance sheet statement of assets, liabilities, capital and surplus, as shown by its last filed Annual Statement. The Annual Statement filed will be relied upon for details;

(f) A complete statement of the plan and methods, including the marketing methods for the transaction of the modified guaranteed annuity and related business, which shall show:

(1) The status of the insurer of each of the separate accounts with the Federal Securities and Exchange Commission, including;

(A) Any exemption granted under Section 3(c)(11) of the Investment Company Act of 1940 and Section 3(a)(2) of the Securities Act of 1933;

(2) If any modified guaranteed annuity is to be issued without a prospectus, an explanation as to marketing methods, and upon request, for informational purposes, a copy of the advertising or solicitation material;

(g) If the insurer has not engaged actively in the insurance business for at least five years under substantially the same management and control, a biographical affidavit in a format prescribed by the Commissioner may, in the discretion of the Commissioner, be required for each of the executive officers, members of the board of directors and each natural person who owns 10% or more of the voting stock of the insurer;

(h) The identity, the experience and qualification of each of the persons charged with the investment management of each separate account, together with any other presentation which the insurer desires to make to establish the adequacy of the investment management which the insurer is providing. Such showing shall be such as to satisfy the Commissioner as to the experience and qualification of such management to effectively manage the investment program or programs envisaged by the agreement under which the separate account is established and maintained. A biographical affidavit in the format required by Paragraph (g) hereof may be required for each such manager;

Subsequent to qualification, any amendments to the above-mentioned resolution of the Board of Directors, agreement establishing a separate account, modified guaranteed annuity, registration statement or prospectus, and any substantial change in management shall promptly be filed with the Commissioner for review as to continuance of qualification standards required by law.

NOTE

Authority cited: Sections 10506.3(a) and 10506(h), Insurance Code. Reference: Sections 10506, 10506(b), 10506(h) and 10506.3(a), Insurance Code.

HISTORY

1. New section filed 2-6-92; operative 3-9-92 (Register 92, No. 13).

§2534.24. Application of Foreign Insurer.

Note • History

The application of a foreign insurer, including a Canadian insurer, shall include all of the matters required of a domestic insurer, except those specified in Paragraph (a) of Section 2534.23 hereof. The Commissioner shall give due regard to the regulatory activities of the applicant's domiciliary state in passing upon the qualifications of such foreign insurer to transact a modified guaranteed annuity business in California. If the Commissioner requires, a foreign insurer shall furnish a copy of the statutes and regulations of its domiciliary state under which it is authorized to transact a modified guaranteed annuity business and which regulate such transaction.

NOTE

Authority cited: Sections 10506(h) and 10506.3(a), Insurance Code. Reference: Sections 10506, 10506(h) and 10506.3(a), Insurance Code.

HISTORY

1. New section filed 2-6-92; operative 3-9-92 (Register 92, No. 13).

§2534.25. Certificate of Qualification Required.

Note • History

If the Commissioner is satisfied after review of the application described in sections 2534.22, 2534.23, and 2534.24 of this article that the insurer meets the statutory requirements of California Insurance Code Section 10506 and that its proposed operations will not be hazardous to the public or its policyholders in this state, the Commissioner shall issue a certificate pursuant to Section 2634.22 of this article.

NOTE

Authority cited: Sections 10506(h) and 10506.3(a), Insurance Code. Reference: Sections 10506(h), 10506.3(a), and 10506, Insurance Code.

HISTORY

1. New section filed 2-6-92; operative 3-9-92 (Register 92, No. 13).

§2534.26. Separate Account or Accounts.

Note • History

A domestic insurer issuing modified guaranteed annuities shall establish one or more separate accounts pursuant to California Insurance Code Section 10506, subject to the following provisions:

(a) Separate account assets relating to modified guaranteed annuities will be subject to the investment laws of this state governing the investments of the insurer's general account assets. Separate account assets relating to modified guaranteed annuities shall be added to the insurer's general account assets in order to test conformity with investment laws governing general account assets.

(b) The same separate account may not be used for both variable annuities and variable life insurance, both variable annuities and modified guaranteed annuities or both variable life insurance and modified guaranteed annuities.

(c) Unless otherwise approved by the Commissioner, assets allocated to a separate account shall be valued at their market value on the date of valuation, or if there is no readily available market, then as provided under the terms of the contract or the rules or other written agreement applicable to such separate account.

(d) If and to the extent so provided under the applicable contracts, that portion of the assets of any such separate account equal to the reserves and other contract liabilities with respect to such account shall not be chargeable with liabilities arising out of any other business the insurer may conduct.

(e) No sale, exchange or other transfer of assets may be made by an insurer between any of its separate accounts or between any other investment account and one or more of its separate accounts unless, in case of a transfer into a separate account, such transfer is made solely to establish the account or to support the operation of the contracts with respect to the separate account to which the transfer is made, and unless such a transfer, whether into or from a separate account, is made either by a transfer of cash or by a transfer of securities having a valuation which could be readily determined in the marketplace, provided that such transfer of securities is approved by the Commissioner. The Commissioner may authorize other transfers among such accounts if, in the Commissioner's opinion, such transfers would not be inequitable.

(f) The provisions of California Insurance Code Sections 1101 through 1106 relating to conflicts of interest pertaining to officers and directors and other persons with authority in the management of the insurer's funds shall, in substance and insofar as they are reasonably applicable, apply to the investments of separate accounts and to members of any separate account committee, board or body who have any function in relation to the investment of the account assets. No officer or director of such insurer nor any member of the committee, board or body of a separate account shall receive directly or indirectly any commission or any other compensation with respect to the purchase or sale of assets of such separate account.

NOTE

Authority cited: Sections 10506(h) and 10506.3(a), Insurance Code. Reference: Sections 1101-1106, 10506, 10506(h) and 10506.3(a), Insurance Code.

HISTORY

1. New section filed 2-6-92; operative 3-9-92 (Register 92, No. 13).

§2534.27. Filing and Approval of Policy Forms.

Note • History

All modified guaranteed annuity policy forms (the term “policy forms” as used in this Section means any individual policy delivered or issued for delivery in this State and any document attached to and made a part of such policy, and any group policy delivered or issued for delivery in this state and any document attached to and made a part of such group policy and any group certificate delivered pursuant to the provisions of such group policy), including contracts providing fixed dollar benefits as may be included in the operation of any separate account shall be submitted to the Commissioner prior to delivery or issuance for delivery in this State, and no such form shall be delivered or issued for delivery in this State until the use of such form has been approved in writing by the Commissioner. Filings shall include a demonstration in a form satisfactory to the Commissioner that the nonforfeiture provisions of the contracts comply with Section 2534.28(b), as well as a certification by a member of the American Academy of Actuaries as to the compliance with Section 2534.28(b).

The Commissioner may disapprove any policy form which is unfair, unreasonable, or otherwise inconsistent with the provisions of the California Insurance Code. The fees for such approval shall be the fees set forth in California Code of Regulations, Title 10, Chapter 5, Subchapter 2, Section 2202(a)(10). The provisions of California Insurance Code Section 12957 shall be applicable to modified guaranteed annuity forms.

NOTE

Authority cited: Sections 10506(h) and 10506.3(a), Insurance Code. Reference: Sections 10506(h), 10506.3(a) and 12957, Insurance Code.

HISTORY

1. New section filed 2-6-92; operative 3-9-92 (Register 92, No. 13).

2. Amendment of section and Note filed 11-9-2006; operative 11-9-2006 pursuant to Government Code section 11343.4 (Register 2006, No. 45).

§2534.28. Modified Guaranteed Annuity Contract Requirements.

Note • History

(a) Mandatory Contract Benefit and Design Requirements.

(1) Any modified guaranteed annuity contract delivered or issued in this state shall contain a statement of the essential features of the procedures to be followed by the insurance company in determining the dollar amount of nonforfeiture benefits.

(2) No modified guaranteed annuity contract calling for the payment of periodic stipulated payments shall be delivered or issued for delivery in this state unless it contains in substance the following provisions:

(A) A provision that there shall be a grace period of thirty (30) days or of one month during which the contract shall remain in force and, within which any payment due to the insurer other than the first may be made. The contract may include a statement of the basis for determining the date as of which any such payment received during the grace period shall be applied to produce the values under the contract;

(B) A provision that, at any time within one year from the date of default, the contract may be reinstated upon payment to the insurer of such overdue payments as required by contract, and of all indebtedness to the insurer on the contract, including interest. Reinstatement may not occur if the cash value has been paid. The contract may include a statement of the basis for determining the date as of which the amount to cover such overdue payments and indebtedness shall be applied to produce the values under the contract;

(C) A provision that, except and to the extent set out in contracts, the portion of the assets of any separate account which equal the reserves and other contract liabilities of the account shall not be chargeable with liabilities arising out of any other business of the company;

(3) The market-value adjustment formula, used in determining nonforfeiture benefits, must be stated in the contract and must be applicable for both upward and downward adjustments. When a contract is filed, it must be accompanied by an actuarial statement indicating the basis for the market-value adjustment formula and that the formula provides reasonable equity to both the contract holder and the insurance company.

(b) Nonforfeiture Benefits.

(1) This section shall not apply to any of the following:

(A) Reinsurance;

(B) Group annuity contracts purchased in connection with one or more retirement plans or deferred compensation plans established or maintained by or for one or more employers (including partnerships or sole proprietorships), employee organizations, or any combinations thereof, other than plans providing individual retirement accounts or individual retirement annuities under Section 408 of the Internal Revenue Code;

(D) Investment annuity;

(E) Immediate annuity;

(F) Deferred annuity contract after annuity payments have commenced;

(G) Reversionary annuity; or

(H) Any contract which is to be delivered outside this state by an agent or other representative of the company issuing the contract.

(2) No modified guaranteed annuity contract shall be delivered or issued for delivery in this state unless it contains in substance the following provisions:

(A) When premium payments cease under a contract, the insurer will grant a paid-up annuity benefit on a plan described in the contract that complies with Paragraph (5) below. The provision will include a statement of the mortality table, if any, and guaranteed or assumed interest rates used in calculating annuity payments.

(B) If a contract provides for a lump sum settlement at maturity, or at any other time, upon surrender of the contract at or prior to the commencement of any annuity payments, the insurer will pay, in lieu of any paid-up annuity benefit, a cash surrender benefit as described in the contract that complies with Paragraph (8) below. The company may reserve the right to defer the payment of the cash surrender benefit for a period not to exceed six (6) months after demand thereof with surrender of the contract after making written request and receiving written approval of the commissioner. The request shall address the necessity and equitability to all policyholders of the deferral.

(3) The minimum values, as specified in this section, of any paid-up annuity, cash surrender or death benefits available under a modified guaranteed annuity contract shall be based upon nonforfeiture amounts meeting the requirements of this paragraph. In addition, pursuant to Insurance Code section 10506.3(a), the provisions of Insurance Code Article 3B (commencing with section 10168) of Chapter 1 of Part 2 of Division 2 with regard to nonforfeiture values shall apply to the Unadjusted Minimum Nonforfeiture Amount, as an absolute minimum. The Unadjusted Minimum Nonforfeiture Amount on any date prior to the annuity commencement date shall be an amount equal to the net considerations (as specified in Paragraph (6) below) increased by the interest credits as defined in Section 2534.21 of these regulations allocated to the net considerations, which amount shall be reduced to reflect the effect of Subparagraphs (A), (B), (C), and (D) below:

(A) Any prior withdrawals from or partial surrenders of the contract increased by the interest credits defined in Section 2534.21;

(B) An annual contract charge of $50, increased by the interest credits defined in Section 2534.21;

(C) Any premium tax paid by the company for the contract, increased by the interest credits defined in Section 2534.21. The premium tax credit is only permitted if the tax is actually paid by the company. If the tax is paid and subsequently credited back to the company, such as upon early termination of the contract, the tax credit may not be taken; and

(D) The amount of any indebtedness to the company on the contract, including interest due and accrued.

(4) Guaranteed interest credits in each year for any period of time for which interest credits are guaranteed shall be reasonably related to the average guaranteed interest credits over that period of time.

(5) The Minimum Nonforfeiture Amount shall be the Unadjusted Minimum Nonforfeiture Amount adjusted by the market-value adjustment formula contained in the contract.

(6) The net considerations for a given contract year used to define the minimum nonforfeiture amount in subsection 2534.28(b)(3) shall be an amount equal to eighty-seven and one-half percent (87.5%) of the gross considerations credited to the contract during that contract year.

(7) Any paid-up annuity benefit available under a modified guaranteed annuity contract shall be such that its present value on the annuity commencement date is at least equal to the Minimum Nonforfeiture Amount on that date. Such present value shall be computed using the mortality table, if any, and the guaranteed or assumed interest rates used in calculating the annuity payments.

(8) For modified guaranteed annuity contracts which provide cash surrender benefits, the cash surrender benefit at any time prior to the annuity commencement date shall not be less than the Minimum Nonforfeiture Amount next computed after the request for surrender is received by the insurer. The death benefit under such contracts shall be at least equal to the cash surrender benefit.

(9) Any modified guaranteed annuity contract which does not provide cash surrender benefits, or does not provide death benefits at least equal to the Minimum Nonforfeiture Amount, prior to the annuity commencement date shall include a statement in a prominent place in the contract that such benefits are not provided.

(10) Notwithstanding the requirements of this section, a modified guaranteed annuity contract may provide under the situations specified in Subparagraphs (A) or (B) below that the insurer, at its option, may cancel the annuity and pay the contract holder the larger of the Unadjusted Minimum Nonforfeiture Amount and the Minimum Nonforfeiture Amount, and by such payment be released of any further obligation under the contract:

(A) If, at the time the annuity becomes payable, the larger of the Unadjusted Minimum Nonforfeiture Amount and the Minimum Nonforfeiture Amount is less than $2,000, or would provide an income the initial amount of which is less than $20 per month; or

(B) If, prior to the time the annuity becomes payable under a periodic payment contract no considerations have been received under the contract for a period of two (2) full years and both:

(i) The total considerations paid prior to such period, reduced to reflect any partial withdrawals from or partial surrenders of the contract, and

(ii) The larger of the Unadjusted Minimum Nonforfeiture Amount and the Minimum Nonforfeiture Amount is less than $2,000.

(11) For any modified guaranteed annuity contract which provides, within the same contract by rider or supplemental contract provision, both annuity benefits and life insurance benefits that are in excess of the greater of cash surrender benefits or a return of the gross considerations with interest, the minimum nonforfeiture benefits shall be equal to the sum of the minimum nonforfeiture benefits for the annuity portion and the minimum nonforfeiture benefits, if any, for the life insurance portion computed as if each portion were a separate contract. Notwithstanding the provisions of Subparagraph 2534.28(b) additional benefits are payable under the following conditions:

(A) In the event of total and permanent disability,

(B) As reversionary annuity or deferred reversionary annuity benefits, or

(C) As other policy benefits additional to life insurance, endowment, and annuity benefits, and considerations for all such additional benefits shall be disregarded in ascertaining the minimum nonforfeiture amounts, paid-up annuity, cash surrender and death benefits that may be required by this section. The inclusion of such additional benefits shall not be required in any paid-up benefits, unless the additional benefits separately would require Minimum Nonforfeiture Amounts, paid-up annuity, cash surrender and death benefits.

(c) The Application. The application for a modified guaranteed annuity shall prominently set forth language substantially stating that amounts payable under the contract are subject to a market-value adjustment prior to a date or dates specified in the contract. The statement shall be placed immediately above the signature line.

NOTE

Authority cited: Sections 10506(h) and 10506.3(a), Insurance Code. Reference: Sections 10506(h) and 10506.3(a), Insurance Code.

HISTORY

1. New section filed 2-6-92; operative 3-9-92 (Register 92, No. 13).

2. Amendment of section and Note filed 11-9-2006; operative 11-9-2006 pursuant to Government Code section 11343.4 (Register 2006, No. 45).

§2534.29. Reserve Liabilities.

Note • History

The reserve liabilities for modified guaranteed annuities shall be established in accordance with actuarial procedures that recognize:

(a) That assets of the separate account are based on market values;

(b) The variable nature of benefits provided; and

As a minimum, the separate account liability will equal the surrender value based upon the market-value adjustment formula contained in the contract. If that liability is greater than the market value of the assets, a transfer of assets will be made into the separate account so that the market value of the assets at least equals that of the liabilities. Also, any additional reserve that is needed to cover future guaranteed benefits will also be set up by the valuation actuary.

The market-value adjustment formula, the interest guarantees, and the degree to which projected cash flow of assets and liabilities are matched must also be considered. Each year, the valuation actuary must provide an opinion on whether the assets in the separate account are adequate to provide all future benefits that are guaranteed.

NOTE

Authority cited: Sections 10506(h) and 10506.3(a), Insurance Code. Reference: Sections 10506(h) and 10506.3(a), Insurance Code.

HISTORY

1. New section filed 2-6-92; operative 3-9-92 (Register 92, No. 13).

§2534.30. Required Reports.

Note • History

Any insurer issuing individual modified guaranteed annuities shall mail to the contractholder at least once in each contract year at his or her last known address, a report showing both the account value and the cash surrender value. The insurer shall not be required to mail such a report during the first contract year. The report shall clearly indicate the account value prior to the application of any surrender charges or market value adjustment formula. It shall also specify the surrender charge and market value adjustment used to determine the cash surrender value.

NOTE

Authority cited: Sections 10506(h) and 10506.3(a), Insurance Code. Reference: Sections 10506(h) and 10506.3(a), Insurance Code.

HISTORY

1. New section filed 2-6-92; operative 3-9-92 (Register 92, No. 13).

§2534.31. Foreign Insurers.

Note • History

If the law or regulation in the place of domicile of a foreign insurer or the state of entry of a Canadian insurer provides a degree of protection to the policyholders and the public which is substantially equal to that provided by this article, the Commissioner, to the extent deemed appropriate by him in his discretion, may consider compliance with such law or regulation as compliance with this article.

NOTE

Authority cited: Sections 10506(h) and 10506.3(a), Insurance Code. Reference: Sections 10506(h) and 10506.3(a), Insurance Code.

HISTORY

1. New section filed 2-6-92; operative 3-9-92 (Register 92, No. 13).

§2534.32. Authorization of Agents.

Note • History

No person may act as an agent for a life insurer in the transaction of modified guaranteed annuities unless and until he has received from the Commissioner a license as a variable contract agent pursuant to Article 16 (commending with Section 1758.1), Chapter 5, Part 2, Division 1, of the Insurance Code.

NOTE

Authority cited: Sections 10506(h) and 10506.3(a), Insurance Code. Reference: Sections 10506(h), 10506.3(a) and 1758.1 through 1758.5, Insurance Code.

HISTORY

1. New section filed 2-6-92; operative 3-9-92 (Register 92, No. 13).

Article 11.3. Mutual Fund Investments in Variable Products

§2534.40. Purpose.

Note • History

The purpose of this article is to implement the provisions of Insurance Code Section 10506, subdivision (h) as amended by Assembly Bill 2778 (Calderon) (Statutes of 2002, Chapter 347). Pursuant to the statute, these regulations supersede Insurance Department Bulletin 97-2.

NOTE

Authority cited: Section 10506(h), Insurance Code. Reference: Section 10506(h), Insurance Code.

HISTORY

1. New article 11.3 (sections 2534.40-2534.46) and section filed 12-13-2006; operative 1-12-2007 (Register 2006, No. 50).

§2534.41. Definitions.

Note • History

(a) For purposes of this article, “Mutual Fund Investments” include but are not limited to, investments that are registered with the Securities and Exchange Commission pursuant to the Investment Company Act of 1940 (15 U.S.C. 80a-1). Private placement investments involving non-mutual fund investments are specifically excluded from this definition.

(b) Filings with the Commissioner, pursuant to Section 2534.46 of this article, are deemed to be notifications as delineated in Insurance Code Section 10506, subdivision (h).

(d) For purposes of this article, the term “variable product” is defined as any group or individual variable life insurance policy or variable annuity contract as described in Insurance Code Section 10506.

(e) For purposes of this article, the term “hazardous operation” is defined as the issuance of any contract that may pose a hazard to California policyholders or the public, that fails to adequately disclose any material risk, or contains any of the factors delineated in Section 2534.44 of this article.

NOTE

Authority cited: Section 10506(h), Insurance Code. Reference: Section 10506(h), Insurance Code.

HISTORY

1. New section filed 12-13-2006; operative 1-12-2007 (Register 2006, No. 50).

§2534.42. Notifications and Procedures Concerning Hazardous Operations.

Note • History

(a) Variable products may be reviewed to determine if the investments involve hazardous operations.

(b) Hazardous operations shall not exist if the variable product issued, or issued for delivery, in this state:

(1) has underlying investment portfolio(s) that are registered under the Investment Company Act of 1940, regardless of whether such underlying portfolio(s) meet the criteria set forth in Section 2534.45 of these regulations;

(2) is issued in connection with a plan that is subject to the fiduciary standards of the Employee Retirement Income Security Act of 1974 (ERISA) or is issued in connection with a welfare benefit, deferred compensation, pension, profit sharing, or retirement plan established or maintained by or for a plan sponsor;

(3) is a variable life insurance contract issued under California Insurance Code Section 10506.3;

(4) is issued under California Insurance Code Section 10541 to entities such as a trust or foundation;

(5) or is issued only to “accredited investors” as that term is defined in Section 501(a) of Regulation D, promulgated under the Securities Act of 1933, (17 CFR Section 230.501(a)) or to “qualified purchasers” as that term is defined in Section 2(a)(51)(A) of the Investment Company Act of 1940, (15 USC §80a-2(a)(51)(A)).

(c) Notwithstanding the above, the Commissioner reserves the right to review any variable product falling into any of the above categories for possible hazardous operations where he deems there is good cause to believe that the issuance of such a product may pose a hazard to California policyholders or the public, or where he finds that any material risk is not adequately disclosed.

(d) If the Commissioner determines that hazardous operations are involved, the following procedure will be utilized:

(1) The insurer will be notified of the Commissioner's initial finding regarding hazardous operations. At that time, the insurer will be given a reasonable opportunity to present a response consisting of evidence to refute the Commissioner's initial findings. Such response shall be given within 30 days of the service of the Commissioner's initial findings.

(2) If the insurer fails to provide satisfactory evidence that hazardous operations are not involved in the variable product, pursuant to the authority of Article 14.5., Chapter 1., Part 2., Division 1. of the Insurance Code, commencing with section 1065.1, the Commissioner shall issue such order or orders as are necessary to support his or her findings regarding hazardous operations. Such orders shall include, but not be limited to, the prohibition of the sale, issuance and delivery of an insurance policy or contract. The Commissioner may exercise all other powers provided in Article 14.5. Any hearing held pursuant to this article shall be before an administrative law judge of the Administrative Hearing Bureau of the Department of Insurance.

NOTE

Authority cited: Sections 1065.1 and Section 10506(h), Insurance Code. Reference: Sections 1065.1 and Section 10506(h), Insurance Code.

HISTORY

1. New section filed 12-13-2006; operative 1-12-2007 (Register 2006, No. 50).

§2534.43. [Reserved.]

§2534.44. Factors Determining the Existence of Hazardous Operations.

Note • History

(a) When a variable annuity is utilized for retirement purposes, it shall be deemed that the prospective purchaser or contract holder holds the viewpoints and expectations of a reasonably prudent investor. The reasonably prudent investor generally does not participate in highly speculative investments, but does have expectations of a reasonable rate of return on his or her investment. Over the long term, such an investor expects to see moderate growth in his or her investment, over a time frame consistent with his or her retirement plans and taking into account his or her ability to make appropriate investment strategy changes as conditions and expectations change over time.

(b) However, the types of investments and degrees of investment risks appropriate for a reasonably prudent investor should be determined in light of the specific situation and characteristics of a given individual. Factors to be considered include the individual's age, wealth, other investments, dependents and financial obligations, long term financial prospects, lifestyle preferences, and tolerance of risk.

(c) In addition, brokers and agents selling variable products must comply with suitability standards. Such standards obligate the broker or agent to make certain that there are reasonable grounds for believing that a variable contract recommended to a customer is suitable for that customer. It is expected that due diligence will be given to the consideration of suitability by brokers and agents licensed to sell variable contracts in California.

(d) A variable annuity shall be considered to have hazardous operations when the variable annuity contract, viewed as a whole, and from the viewpoint of a reasonably prudent investor, is so risky an investment that it seriously jeopardizes the retirement expectations of the investor. If the investor's reasonable retirement expectations are in jeopardy of remaining substantially unfulfilled, the presumption could arise that the contact is hazardous.

(e) A variable life insurance contract shall be considered to have hazardous operations when the variable life insurance contract, viewed as a whole, and from the viewpoint of a reasonably prudent investor, contains risky investment options which the Commissioner deems excessive. In addition, such options jeopardize the realization of a fair, investment return, over a long period of time. Where the insurer informs the investor of a significant number of risks and uses an unusually large number of caveats in its explanation of the policy and its investment options, a presumption shall arise that the policy is hazardous.

(f) To the extent that an insurer's financial condition, or methods of operation, places the reasonable prudent investor in jeopardy of having his or her investment expectations substantially unfulfilled, that financial condition or business operation shall be presumed to involve hazardous operations.

(g) The presence of the following factors may raise a presumption that hazardous operations are involved in a variable product, fund or subaccount.

(1) Operations are delegated to a third party that is not a lawfully licensed agent of the company.

(2) The name of the subaccount is deceptive.

(3) The investment restrictions of the subaccount permit it to invest more than 20% of its assets in bonds rated less than investment grade, by a bond-rating agency such as Moody's or Standard and Poors. Such an investment will not be permitted unless the subaccount specifically identifies and discloses the nature of the investment and the attendant risks associated with it.

(4) The investment restrictions of the subaccount permit borrowings to reach a level greater than 33 1/3% of its total assets.

(5) The investment restrictions of the subaccount permit it to hedge by purchasing put and call options, futures contracts, or derivative instruments on securities in an aggregate amount equivalent to more than 10% of its total assets.

(6) The investment adviser or subadviser does not possess sufficient investment experience in order to render reliable investment advice. Advisers must be of good professional character and in good standing with the securities licensing authorities having jurisdiction over them.

(7) The portfolio turnover rate is excessive in relation to the investment goals of the subaccount. A high portfolio turnover rate shall not be considered excessive if it is consistent with the investment objectives of the portfolio or subaccount.

(8) An index subaccount must substantially mirror the stock index upon which it is based.

(9) References to rating services, such as A.M. Best, in advertising must explain the nature and purpose of the rating. The reference must clearly indicate that the rating does not apply to the insurer's Separate Account(s).

(10) Hazardous operations may exist if the entire assets of the Separate Account are composed wholly, or in very large part, of investments in other Separate Accounts, not under the direct control of the insurer. In such situations, hazard will exist if the liquidity of the Separate Account is impaired.

(11) Hazardous operations may exist if investments are made directly in gold and/or silver bullion which, when combined, exceed 10% of the assets of the underlying subaccount.

(12) Hazardous operations may exist in non-income producing real estate. Such investments will be presumed speculative.

Concerning International and Global Portfolios or Subaccounts:

(13) Such subaccounts must be sufficiently diversified. Diversification requires that investments must be made in a minimum of three different countries at all times. The subaccount must not invest more than 50% of its assets in any second tier country or more than 25% of its assets in any third tier country. First tier countries are defined as Germany, the United Kingdom, Japan, the United States, France, Canada, and Australia. Second tier countries are all countries not in the first or third tier. Third tier countries are defined as countries identified as “emerging” or “developing” by the International Bank for Reconstruction and Development (also known as the “World Bank”) or the International Finance Corporation.

(14) Regional subaccounts must be invested in a minimum of three countries and the name of the subaccount must accurately describe the subaccount. Similarly, a subaccount that uses the name of a single country to describe it must make substantial investments in that country and the name of the subaccount must accurately describe the nature of the subaccount.

(h) Notwithstanding the above presumptive factors, the Commissioner reserves the right to review for possible hazardous conditions any variable contract if there is good cause to believe that the issuance of such contract may pose a hazard to California policyholders or the public. The Commissioner may also review any variable contract if there is good cause to find that any material risk is not being adequately disclosed.

NOTE

Authority cited: Section 10506(h), Insurance Code. Reference: Section 10506(h), Insurance Code.

HISTORY

1. New section filed 12-13-2006; operative 1-12-2007 (Register 2006, No. 50).

§2534.45. Completeness Review of Variable Product Filings.

Note • History

(a) The following documents, fully and accurately completed, must be included in a submission of an amended variable annuity or amended variable life application. All documents in a submission must be presented in the same order as indicated below. Any submission not in compliance with the following requirements or presented in the following order will be returned to the filer.

(1) Filings must contain a cover letter explaining the nature of the filing. The letter should explicitly indicate the names of each Mutual Fund being used as an underlying investment for the variable product. The letter must explain if the subject of the filing is a new product, fund and/or subaccount. The letter must clearly indicate the nature of the proposed changes to the company's variable authority, and identify the category in 10 CCR 2534.42(b) which applies to the investments. For example, if the filer is using the Other Material Changes form, the nature of the changes to the insurer's variable authority must be clearly described in the cover letter. The letter shall name the person responsible for the filing and provide contact information for the responsible person. Such contact information shall contain an electronic mail address, if available.

(2) Filings must include a Certificate of Compliance as set forth in section 2534.46(a)(1) of this article. The Certificate must be notarized, dated and executed over the corporate seal. The Certificate must be executed by an executive officer of the insurer, who has responsibility for the insurer's variable contract operations. By executing the Certificate, the officer is attesting that he or she has read Title 10 Code of California Regulations sections 2534.40-2534.46. A New Matters Form, as set forth in section 2534.46(a)(2) of this article, must be completed setting out the changes being made in the variable product.

(3) If a new product is being introduced, a New Product Form, as set forth in section 2534.46(a)(3) of this article, must be completed. In addition, a currently effective product prospectus and Statement of Additional Information, as filed with the Securities and Exchange Commission, for the new product must be filed. The prospectus and Statement of Additional Information may be provided in CD-ROM form.

(4) If a new fund is being added, a New Fund Form, as set forth in section 2534.46(a)(4) of this article, must be completed. A currently effective Fund Prospectus and Statement of Additional Information must be included. If there have been any supplements to the prospectus or Statement of Additional Information, they must also be included. Such documents may be provided in CD-ROM form.

(5) If a new subaccount or portfolio is being added, a New Subaccount Form, as set forth in section 2534.46(a)(5) of this article, must be completed.

(6) For all other material changes, an Other Material Changes form, as set forth in section 2534.46(a)(6) of this article, must be completed.

(7) Filings concerning new subaccounts may not contain more than 25 new subaccounts per product and a New Subaccount Form should be completed for each new subaccount. If an insurer is adding more than 25 new subaccounts, the filing must be divided into two or more separate filings. For example, a filing adding 30 new subaccounts must be divided into one filing with 25 new subaccounts and another filing with five new subaccounts.

(8) Copies of any previous acknowledgment letters for the new fund(s) and/or subaccount(s) that were issued pursuant to Insurance Department Bulletin 97-2.

(9) If there are investment guidelines or restrictions that are not contained in the currently effective Fund Prospectus and Statement of Additional Information, they must be filed at the time of the application.

(10) The applicable fees pursuant to Insurance Code sections 10506.2 and 12978.

(11) The Commissioner shall determine whether a filing for a material change is complete and complies with filing requirements. If the filing for a material change includes the forms listed in sections 2534.46 and 2534.47 of this article and the data required therein, the filing is complete.

(b) Filings shall be addressed to California Department of Insurance, Policy Approval Bureau, 45 Fremont Street, 24th Floor, San Francisco, California 94105.

(c) If the Commissioner determines that a filing for a material change fails to comply with filing requirements or is incomplete, the Commissioner shall issue a letter rejecting the filing for a material change.

NOTE

Authority cited: Section 10506(h), Insurance Code. Reference: Section 10506(h), Insurance Code.

HISTORY

1. New section filed 12-13-2006; operative 1-12-2007 (Register 2006, No. 50).

§2534.46. Forms.

Note • History

(a) The following forms shall be used pursuant to this article:

(1) Certificate of Compliance:

VARIABLE CONTRACT CERTIFICATE OF COMPLIANCE

Name of Applicant Company:

Address:

Date:

Person to Whom Correspondence Should Be Addressed:

(Directions: This Certificate may be utilized in lieu of applicant seeking a prior approval of its changes in its variable contract operation; such an approval being based upon a full review by the Department. This Certificate must be executed by an executive officer of the applicant, who has responsibility for applicant's variable contract operation. Please answer each question in the accompanying Forms completely. If more room is needed, attach a sheet of paper indicating the question being responded to.)

TO THE INSURANCE COMMISSIONER OF THE

STATE OF CALIFORNIA

I, [__________________], a duly appointed executive officer of the Applicant Company, having responsibility for its variable contract operation, do state, under oath, that I have carefully read this Certification and the attached Forms, and that the information and answers to questions herein is true to the best of my own knowledge, except as to those specifically stated to be upon information and belief, and as to those I believe the answers to be true.

Further I state that the variable contract changes described herein comply with pertinent statutes, regulations, and bulletins, and have been reviewed by me, or that I have been advised by competent legal counsel, representing the company, that the changes are in full compliance with the California Insurance Code, Regulations, Bulletins, and underlying guidelines. In particular, I state that this filing complies with Title 10 California Code of Regulations sections 2534.40-2534.46.

All material changes occurring since my company's most recent amendment of its variable contract qualification, (and the approval or acknowledgment by the Department of that amendment), are explained and described herein, or in accompanying materials and documentation. The information given here does not relate to any changes previously submitted to the Department and disapproved by the Department, unless corrective action has been taken by my company to meet the objections previously stated by the Department to those changes.

I understand and acknowledge that false statements which are intended to mislead or deceive the Commissioner, or the willful omission of any material fact with the same intent, may be punishable under such sections of the Insurance Code as may be applicable.

WITNESS MY SIGNATURE this [__________] day of [_______], [___], at [______________________________].

Signature [________________________________]

(Affiant)

[________________________________]

(Printed or typed name and title)

SUBSCRIBED AND SWORN TO before me on the date and year above written.

[_______________________________________________]

(Notary Public in and for said County and State)

My commission expires [_____________]

(2) New Matters Form:

DESCRIPTION OF NEW MATTERS FORM

1. Background Information:

a. Applicant's name:

b. Applicant's state of domicile:

c. Date of applicant's California Certificate of Authority:

d. Date of applicant's original qualification for California Variable Authority:

e. Date and type of applicant's last amendment to its California Variable Authority:

f. What variable products is the applicant currently offering in California?

g. Has the applicant ever been subject to a regulatory disciplinary action, at either a state or federal level, for actions arising out of its variable annuity or variable life business? If yes, identify each action:

2. What amendments to the applicant's current variable qualification are being requested in this application? (Be sure to include a new product form, new fund form, new subaccount/portfolio form and/or other material changes form for each applicable amendment).

a. New Product:

b. New Fund:

c. New Subaccount/Portfolio:

d. Other Material Changes:

3. Has the applicant included an original certificate of compliance?

4. Please identify the type(s) of investments presented in this application (for example):

a. Mutual Fund (2534.42 (b)(1))

b. ERISA or Other Plan (2534.42.(b)(2))

c. California Insurance Code Section 10506.3 Product (2534.42(b)(3))

d. Issued to a trust under California Insurance Code Section 10541 (2534.42(b)(4)

e. Private Placement (2534.42(b)(5))?

5. If the amendments set forth in the application require a filing with the Securities and Exchange Commission, the application must include an effective prospectus and statement of additional information. Applications for amended variable qualification will not be accepted for filing until an effective prospectus has been submitted.

6. If the amendments set forth in the application do not require a filing with the Securities and Exchange Commission, the application must include a private placement memorandum or comparable disclosure documentation available to purchasers of the product(s). Applications for amended variable qualification will not be accepted for filing until disclosure documents have been submitted

(3) New Product Form

NEW PRODUCT FORM

1. PRODUCT NAME: What is the name of the New Product?

2. PRODUCT DESCRIPTION: Provide a brief description of the New Product.

3. POLICY FORM: Attach a specimen copy of the New Product policy form.

4. MARKETING: How will this new product be marketed? Who will be the target market for this new product? Attach copies of any advertising or marketing information that will be distributed to the applicant's marketing agents and/or sales force.

5. DISTRIBUTION: How will the New Product be distributed? Will a third party handle distribution? If yes, attach a copy of the distribution agreement.

6. ADMINISTRATION: Will the administration of this New Product be delegated to a third party? If yes, attach a copy of the administration agreement. Administration of a life or annuity product by a third party will require a third party administrator's license (California Insurance Code Section 1759).

7. SALES COMMISSION: What is the sales commission on this New Product?

8. SURRENDER CHARGE: What is the surrender charge on the New Product?

9. CONTRACT FEE: What is the annual contract fee on this New Product?

10. MORTALITY AND EXPENSE RISK CHARGES: What are the mortality and expense risk charges on this New Product?

11. PRODUCT PROSPECTUS AND STATEMENT OF ADDITIONAL INFORMATION: Does this new product require the filing of a prospectus with the Securities and Exchange Commission? If yes, attach a copy of the product prospectus and statement of additional information. (All insurers must provide an effective product prospectus and statement of additional information before an application to amend their variable qualification will be accepted for filing).

12. PLAN DOCUMENTS: If this New Product is not subject to filing with the Securities and Exchange Commission, attach a copy of the Plan Documents or other documentation which provides information about the new product.

(4) New Fund Form:

NEW FUND FORM

1. FUND NAME: What is the name of the New Fund?

2. INVESTMENT ADVISOR: Who is the investment advisor for the new fund? Attach a copy of the investment advisory agreement.

3. DISTRIBUTOR: Who is the distributor (broker/dealer) for the New Fund?

4. USE OF FUND(S) BY OTHER INSURANCE COMPANIES: Has this New Fund ever been qualified for use in California as an investment for variable products? If yes, please provide the names of the insurance companies you know are qualified to offer this fund.

5. DISCIPLINARY ACTIONS: Has this New Fund, its investment advisor or its broker-dealer been subject to any disciplinary action by the Securities and Exchange Commission, the California Department of Corporations or any other State securities regulator, the National Association of Securities Dealers or any other self-regulatory organizations, or the Commodities Futures Trading Commission within the past ten years? If yes, attach a copy of each action.

6. FUND PROSPECTUS AND STATEMENT OF ADDITIONAL INFORMATION: Does this New Fund require a filing with the Securities and Exchange Commission? If yes, attach a copy of the effective fund prospectus and statement of additional information. The fund prospectus and statement of additional information must be effective before the application for amended variable qualification will be accepted for filing.

7. PLAN DOCUMENTS: If the New Fund is not subject to filing with the Securities and Exchange Commission, attach a copy of the Plan Documents or other documentation which provides information about the New Fund.

(5) New Subaccount Form:

NEW SUBACCOUNT FORM

1. SUBACCOUNT NAME: What is the name of the New Subaccount?

2. INVESTMENT OBJECTIVE: What is the principal investment objective of the New Subaccount?

3. SUBACCOUNT MANAGER: Who is the Subaccount manager for the New Subaccount?

4. FEES: Are any fees charged by the New Subaccount? If yes, identify each charge.

5. DISCIPLINARY ACTIONS: Has the New Subaccount or its portfolio manager been subject to any disciplinary action by the Securities and Exchange Commission, the California Department of Corporations or any other State securities regulator, the National Association of Securities Dealers or any other self-regulatory organizations, or the Commodities Futures Trading Commission within the past ten years? If yes, attach a copy of the action.

6. PROSPECTUS AND STATEMENT OF ADDITIONAL INFORMATION: Does the New Subaccount require a filing with the Securities and Exchange Commission? If yes, attach a copy of the effective product and/or fund prospectus and statement of additional information relating to the addition of this New Subaccount. The product and/or fund prospectus must be effective before the application for amended variable qualification will be accepted for filing.

7. PLAN DOCUMENTS OR OTHER INFORMATIONAL MATERIAL: If the New Subaccount is not subject to Securities and Exchange Commission filing, attach a copy of the Plan Documents or other informational material which provides information about the subaccount/portfolio.

(6) Other Material Changes Form:

OTHER MATERIAL CHANGES

1. OTHER MATERIAL CHANGES: Identify any material changes to the applicant's current variable qualification.

(Examples of material changes are as follows: 1) change of custodian; 2) change of administrator; 3) change of broker/dealer; 4) change of investment advisor; 5) change of portfolio manager; 6) change in fund or portfolio name; 7) change in fund or portfolio investment objective; 8) disciplinary action taken by the Securities and Exchange Commission, the California Department of Corporations or any other State securities regulator, the National Association of Securities Dealers or any other self-regulatory organizations, or the Commodities Futures Trading Commission against fund, investment advisor, portfolio manager or broker/dealer; 9) regulatory action against the insurer arising out of its variable annuity or variable life business; 10) amendments to: a) the Board of Directors resolutions, b) the agreement establishing the separate account, c) the variable contract, or d) registration statement or prospectus; and 11) any substantial change in management of the Separate Account).

2. PROSPECTUS AND STATEMENT OF ADDITIONAL INFORMATION: If filing with the Securities and Exchange Commission is required for any of the changes listed above, attach a copy of the effective prospectus and statement of additional information which reflects these changes.

3. PLAN DOCUMENTS: If filing with the Securities and Exchange Commission for any of the changes identified above is not required, attach a copy of the Plan Documents or other documentation which provides information about these changes.

NOTE

Authority cited: Section 10506(h), Insurance Code. Reference: Section 10506(h), Insurance Code.

HISTORY

1. New section filed 12-13-2006; operative 1-12-2007 (Register 2006, No. 50).

Article 12. Disability Insurance Advertisements

§2535. Authority.

Note • History

These regulations are promulgated pursuant to the authority granted to the Insurance Commissioner under the provisions of Section 790.10 of the Insurance Code.

NOTE

Authority cited: Section 790.10, Insurance Code. Reference: Section 790.03, Insurance Code.

HISTORY

1. New Article 12 (Sections 2535, 2535.1, 2535.2, 2536, 2536.1-2536.15, 2537, 2537.1) filed 5-12-72; effective thirtieth day thereafter (Register 72, No. 20).

2. Repealer of Article 12 and new Article 12 (Sections 2535, 2535.1-2535.3, 2536, 2536.1-2536.12, 2537.1, 2537.2) filed 4-2-73; effective thirtieth day thereafter (Register 73, No. 14).

§2535.1. Purpose.

History

The purpose of these regulations is to assure truthful and adequate disclosure of all material and relevant information in the advertising of disability insurance. This purpose is intended to be accomplished by the establishment of, and adherence to, certain minimum standards and guidelines of conduct in the advertising of disability insurance in a manner which prevents unfair competition among insurers and is conducive to the accurate presentation and description to the insurance buying public of a policy of such insurance offered through various advertising media. Subdivisions (a), (b) and (c) of Insurance Code Section 790.03 prohibit the transmitting or use of information in the form of advertisements or otherwise in this State in such a manner or of such substance that the insurance buying public may be deceived or misled. Since such sections of the Insurance Code establish only general standards, these regulations establish specific standards for advertisements relating to individual, group, blanket and selected group (franchise) disability insurance. These regulations are applicable to all persons and entities specified in Insurance Code Section 790.01 authorized to transact disability insurance in this State. The following specific standards for advertisements of disability insurance are hereby adopted.

GUIDELINE 2535.1

Disclosure is one of the principal objectives of these regulations and this Section states specifically that the rules shall assure “truthful and adequate disclosure of all material and relevant information.” These rules specifically prohibit some previous advertising techniques.

HISTORY

1. Amendment filed 11-29-74; effective thirtieth day thereafter (Register 74, No. 48).

§2535.2. Applicability.

History

(a) These regulations shall apply to any disability insurance “advertisement,” as that term is hereinafter defined in Sections 2535.3(a), (g), (h) and (i), unless otherwise specified in these regulations, intended for presentation, distribution or dissemination in this State when such presentation distribution or dissemination is made either directly or indirectly by or on behalf of an insurer, agent, broker or solicitor as those terms are defined in the Insurance Code of this State and these regulations.

GUIDELINE 2635.2(a)

These regulations apply to any “advertisement” as that term is defined in Sections 2535.3(a), (g), (h) and (i), unless otherwise specified in these regulations. These regulations apply to group and blanket as well as individual accident and sickness insurance. Certain distinctions, however, are applicable to these categories. Among them is the level of conversance with insurance, a factor which is covered by Section 2536.1 of these regulations.

(b) Every insurer shall establish and at all times maintain a system of control over the content, form and method of dissemination of all advertisements of its policies. All such advertisements, regardless of by whom written, created, designed or presented, shall be the responsibility of the insurer whose policies are so advertised.

GUIDELINE 2535.2(b)

Advertising materials which are reproduced in quantity shall be identified by form numbers or other identifying means in the case of advertisements not subject to the requirements of Section 2536.9. Such identification shall be sufficient to distinguish an advertisement from any other advertising materials, policies, applications or other materials used by the insurer.

HISTORY

1. Amendment filed 11-29-74; effective thirtieth day thereafter (Register 74, No. 48).

§2535.3. Definitions.

History

(a) An advertisement for the purpose of these regulations shall include:

(1) Printed and published material, audio visual material, and descriptive literature of an insurer used in direct mail, newspapers, magazines, radio scripts, TV scripts, billboards and similar displays; and

(2) Descriptive literature and sales aids of all kinds issued by an insurer, agent or broker for presentation to members of the insurance buying public, including but not limited to circulars, leaflets, booklets, depictions, illustrations, and form letters; and

(3) Prepared sales talks, presentations and material for use by agents, brokers and solicitors.

GUIDELINE 2535.3(a)

The scope of the term “advertisement” extends to the use of all media for communication to the general public (Section 2535.3(a)(1), to the use of all media forcommunication to specific members of the general public (Section 2535.3(a)(2) and to the use of all media for communication by agents, brokers and solicitors.

The definition of “advertisement” includes advertising material included with a policy when the policy is delivered and material used in the solicitation of renewals and reinstatements.

The definition of “advertisement” does not include: (1) material to be used solely for the training and education of an insurer's employees, agents or brokers; (2) material in house organs of insurers; (3) communications within an insurer's own organization not intended for dissemination to the public; (4) individual communications of a personal nature with current policyholders other than material urging such policyholders to increase or expand coverages; (5) correspondence between a prospective group or blanket policyholder and an insurer in the course of negotiating a group or blanket contract; (6) court approved material ordered by a court to be disseminated to policyholders; or (7) a general announcement from a group or blanket policyholder to eligible individuals on an employment or membership list that a contract or program has been written or arranged; provided, the announcement clearly indicates that it is preliminary to the issuance of a booklet.

(b) “Policy” for the purpose of these regulations shall include any policy, plan, certificate, contract, agreement, statement of coverage, rider or endorsement which provides disability benefits, or medical, surgical or hospital expense benefits, whether on an indemnity, reimbursement, service or prepaid basis, except when issued in connection with another kind of insurance other than life, and except disability, waiver of premium and double indemnity benefits included in life insurance and annuity contracts.

GUIDELINE 2535.3(b)

In Section 2535.3(b), the language “except disability, waiver of premium and double indemnity benefits included in life insurance and annuity contracts” means except disability, waiver of premium and double indemnity benefits included in life insurance, endowment or annuity contracts or contracts supplemental thereto which contain only such provisions which: (a) provide additional benefits in case of death or dismemberment or loss of sight by accident or as (b) operate to safeguard such contracts against lapse or to give a special surrender value or special benefit or an annuity in the event that the insured or annuitant shall become totally and permanently disabled as defined by the contract or supplemental contract.

The term “disability benefits” includes benefits for death or dismemberment or loss of sight by accident.

(c) “Insurer” for the purpose of these regulations shall include any individual, corporation, association, partnership, reciprocal exchange, inter-insurer, Lloyd's, fraternal benefit society, and any other legal entity which is defined as an “insurer” in the Insurance Code of this State and is engaged in the advertisement of a policy as “policy” is defined in these regulations.

(d) “Exception” for the purpose of these regulations shall mean any provision in a policy whereby coverage for a specified hazard is entirely eliminated; it is a statement of a risk not assumed under the policy.

(e) “Reduction” for the purpose of these regulations shall mean any provision which reduces the amount of the benefit; a risk of loss is assumed but payment upon the occurrence of such loss is limited to some amount or period less than would be otherwise payable had such reduction not been used.

(f) “Limitation” for the purpose of these regulations shall mean any provision which restricts coverage under the policy other than an exception or a reduction.

(g) “Institutional Advertisement” for the purpose of these regulations shall mean an advertisement having as its sole purpose the promotion of the reader's or viewer's interest in the concept of accident and sickness insurance, or the promotion of the insurer.

(h) “Invitation to Inquire” for the purpose of these regulations shall mean an advertisement having as its objective the creation of a desire to inquire further about the product and which is limited to a brief description of the loss for which the benefit is payable, and which may contain:

(1) The dollar amount of benefit payable, and/or

(2) The period of time during which the benefit is payable; provided the advertisement does not refer to cost.

An advertisement which specifies either the dollar amount of benefit payable or the period of time during which the benefit is payable shall contain a provision in effect as follows:

“For costs and further details of the coverage, including exclusions, any reductions or limitations and the terms under which the policy may be continued in force, see your agent or write to the company.”

(i) “Invitation to Contract” for the purpose of these regulations shall mean an advertisement which is neither an invitation to inquire nor an institutional advertisement.

GUIDELINES 2535.3(c) THROUGH 2535.3(i)

These subsections are self-explanatory.

HISTORY

1. Amendment and new subsections (g), (h), and (i) filed 11-29-74; effective thirtieth day thereafter (Register 74, No. 48).

§2536. Method of Disclosure of Required Information.

History

All information required to be disclosed by these regulations shall be set out conspicuously and in close conjunction with the statements to which such information relates or under appropriate captions of such prominence that it shall not be minimized, rendered obscure or presented in an ambiguous fashion or intermingled with the context of the advertisement so as to be confusing or misleading.

GUIDELINE 2536

This Section permits the use of either of the following alternative methods of disclosure:

(1) The first alternative provides for the disclosure of exceptions, limitations, reductions and other restrictions conspicuously and in close conjunction with the statements to which such information relates. This may be accomplished by disclosure in the description of the related benefits or in a paragraph set out in close conjunction with the description of policy benefits.

(2) The second alternative provides for the disclosure of exceptions, limitations, reductions and other restrictions not in conjunction with the provisions describing policy benefits but under appropriate captions of such prominence that the information shall not be minimized, rendered obscure or otherwise made to appear unimportant. The phrase “under appropriate captions” means that the title must be accurately descriptive of the captioned material. Appropriate captions include the following: “Exceptions,” “Exclusions,” “Conditions Not Covered” and “Exceptions and Reductions.” The use of captions such as, or similar to, the following are not acceptable because they do not provide adequate notice of the significance of the material: “Extent of Coverage,” “Only these Exclusions” or “Minimum Limitations.”

In considering whether an advertisement complies with the disclosure requirements of this Section, the Section must be applied in conjunction with the form and content standards contained in Section 2536.1.

HISTORY

1. Amendment filed 11-29-74; effective thirtieth day thereafter (Register 74, No. 48).

§2536.1. Form and Content of Advertisements.

History

(a) The format and content of an advertisement of a disability insurance policy shall be sufficiently complete and clear to avoid deception or the capacity or tendency to mislead or deceive. Whether an advertisement has a capacity or tendency to mislead or deceive shall be determined by the Commissioner of Insurance from the overall impression that the advertisement may be reasonably expected to create upon a person of average education or intelligence, within the segment of the public to which it is directed.

GUIDELINE 2536.1(a)

This Section must be applied in conjunction with Sections 2535.1 and 2536 of the regulations. This Section refers specifically to “format and content” of the advertisement and the “overall” impression created by the advertisement. This involves factors such as, but not limited to, the size, color and prominence of type used to describe benefits. The word “format” means the arrangement of the text and the captions.

This rule requires distinctly different advertisements for publication in newspapers or magazines of general circulation as compared to scholarly, technical or business journals or newspapers. Where an advertisement consists of more than one piece of material, each piece of material must, independently of all other pieces of material, conform to the disclosure requirements applicable to the appropriate form of advertisement as defined in Section 2536.3(g) through (i) of these regulations.

(b) Advertisements shall be truthful and not misleading in fact or in implication. Words or phrases, the meaning of which is clear only by implication or by familiarity with insurance terminology, shall not be used.

GUIDELINE 2536.1(b)

The Section prohibits the use of incomplete statements and words or phrases which have the tendency or capacity to mislead or deceive because of the reader's unfamiliarity with insurance terminology. Therefore, words, phrases and illustrations used in an advertisement must be clear and unambiguous and, if the advertisement uses insurance terminology, sufficient description of a word, phrase or illustration shall be provided by definition or description in the context of the advertisement. As implied in Section 2536.1(a), distinctly different levels of comprehension may be anticipated of the subscribers of various publications.

HISTORY

1. Amendment filed 11-29-74; effective thirtieth day thereafter (Register 74, No. 48).

§2536.2. Advertisements of Benefits Payable, Losses Covered or Premiums Payable.

Note • History

(a) Deceptive Words, Phrases or Illustrations Prohibited.

(1) No advertisement shall omit information or use words, phrases, statements, references or illustrations if the omission of such information or use of such words, phrases, statements, references or illustrations has the capacity, tendency or effect of misleading or deceiving purchasers or prospective purchasers as to the nature or extent of any policy benefit payable, loss covered or premium payable. The fact that the policy offered is made available to a prospective insured for inspection prior to consummation of the sale or an offer is made to refund the premium if the purchaser is not satisfied, does not remedy misleading statements.

GUIDELINE 2536.2(a)(1)

This section prohibits words, phrases or illustrations which create deception to the reader by omission or commission. The following examples are illustrations of the prohibitions created by the Subsection:

1. An advertisement which describes any benefits that vary by age must disclose that fact.

2. An advertisement which uses a phrase such as “no age limit,” if benefits or premiums vary by age or if age is an underwriting factor, must disclose that fact.

3. Advertisements, applications, requests for additional information and similar materials are unacceptable if they state or imply that the recipient has been individually selected to be offered insurance or has had his eligibility for such insurance individually determined in advance, when the advertisement is directed to all persons in a group or to all persons whose names appear on a mailing list.

4. Advertisements which indicate that a particular coverage or policy is exclusively for “preferred risks” or a particular segment of the population or that a particular segment of the population are acceptable risks, when such distinctions are not maintained in the issuance of policies, are not acceptable.

5. Advertisements for group or franchise group plans which provide a common benefit or a common combination of benefits shall not imply that the insurance coverage is tailored or designed specifically for that group, unless such is the fact.

6. It is unacceptable to use terms such as “enroll” or “join” to imply group or blanket insurance coverage when such is not the fact.

7. Any advertisement which contains statements such as “anyone can apply” or “anyone can join,” other than with respect to a guaranteed issue policy for which administrative procedures exist to assure that the policy is issued within a reasonable period of time after the application is received by the insurer, is unacceptable.

8. An advertisement which states or implies immediate coverage or guaranteed issuance of a policy is unacceptable unless suitable administrative procedures exist so that the policy is issued within a reasonable period of time after the application is received by the insurer.

9. Any advertisement which uses any phrase or term such as “here is all you do to apply,” “simply” or “merely” to refer to the act of applying for a policy which is not a guaranteed issue policy is unacceptable unless it refers to the fact that the application is subject to acceptance or approval by the insurer.

10. Applications, request forms for additional information and similar related materials are unacceptable if they resemble paper currency, bonds, stock certificates, etc.

11. No advertisement shall employ devices which are designed to create undue fear or anxiety in the minds of those to whom they are directed. Unacceptable examples of such devices are:

a) The use of phrases such as “cancer kills somebody every two minutes” and “total number of accidents” without reference to the total population from which such statistics are drawn. (As an example of a permissible device, data prepared by the American Cancer Society are acceptable provided their source is noted and they are not over-emphasized);

b) The use of phrases such as “the finest kind of treatment,” implying that such treatment would be unavailable without insurance;

c) The reproduction of newspaper articles, etc., containing irrelevant facts and figures;

d) The use of illustrations which unduly emphasize automobile accidents, cripples or persons confined to beds who are in obvious distress or receiving hospital or medical bills or persons being evicted from their homes due to their hospital bills;

e) The use of phrases such as “financial disaster,” “financial distress,” “financial shock,” or other phrases implying that financial ruin is likely without insurance where used in an advertisement which comes within Section 2536.2(a)(7) relating to policies covering specified illnesses or specified accidents only.

12. An advertisement which uses the word “plan” without identifying it as an “insurance plan” is not permissible.

13. An advertisement which implies in any manner that the prospective insured may realize a profit from obtaining hospital, medical or surgical insurance coverage is not acceptable.

14. An advertisement shall not state or imply by word, phrase or illustration that the benefits being offered will supplement any other insurance policy, insurance-type concept, or governmental plan if such is not the fact.

15. An advertisement of a hospital or other similar facility confinement benefit that makes reference to the benefit being paid directly to the policyholders is misleading unless, in making such a reference, the advertisement includes a statement that the benefits may be paid directly to the hospital or other health care facility if an assignment of benefits is made by the policyholders. An advertisement of medical and surgical expense benefits shall comply with this rule in regard to the disclosure of assignments of benefits to providers of services. Phrases such as “you collect,” “you get paid,” “pays you,” or other words or phrases of similar import are acceptable so long as the advertisement indicates that benefits are payable to the insured or someone designated by the insured.

16. An advertisement which refers to “hospitalizations for injury or sickness” omitting the word “covered” when the policy excludes certain sicknesses or injuries is unacceptable. Continued reference to “covered injury or sickness” is not necessary where this fact has been prominently disclosed in the advertisement and where the description of sicknesses or injuries not covered is prominently set forth.

17. An advertisement which refers to “whenever you are hospitalized” or “while you are confined in the hospital” omitting the phrase “for covered injury or sickness,” if the policy excludes certain injuries or sickness, is unacceptable. Continued reference to “covered injury or sickness” is not necessary where this fact has been prominently disclosed in the advertisement and where the description of sickness or injuries not covered is prominently set forth.

18. Advertisements which state that benefits are provided when “you” go to the hospital” are unacceptable unless the advertisement clearly sets forth the extent of the coverage.

19. An advertisement which fails to disclose that the definition of “hospital” does not include a nursing home, convalescent home or extended care facility, as the case may be, is unacceptable.

20. An advertisement which fails to disclose any waiting or elimination periods for specific benefits is unacceptable.

21. An advertisement for a limited policy, or a hospital indemnity policy, or a plan of insurance which covers only certain causes of loss (such as dread disease) or which covers only a certain type of loss (such as hospital confinement) is unacceptable if:

a) the advertisement refers to a total benefit maximum limit payable under the policy in any headline, lead-in or caption without also in the same headline, lead-in or caption specifying the applicable daily limits and other internal limits;

b) the advertisement states any total benefit limit without stating the periodic benefit payment, if any, and the length of time the periodic benefit would be payable to reach the total benefit limit;

c) the advertisement prominently displays a total benefit limit which would not, as a general rule, be payable under an average claim.

22. Advertisements which emphasize total amounts payable under hospital, medical or surgical coverage or other benefits in a policy, such as benefits for private duty nursing, are unacceptable unless the actual amounts payable per day for such indemnity or benefits are stated.

23. Examples of what benefits may be paid under a policy shall not disclose only maximum benefits unless such maximum benefits are paid for loss from common and probable illnesses or accidents rather than exceptional or rare illnesses or accidents or periods of confinement for such exceptional or rare accidents or illnesses.

24. When a range of benefit levels is set forth in an advertisement, it must be made clear that the insured will receive only the benefit level written or printed in the policy selected and issued. Language which implies that the insured may select the benefit level at the time of filing claims is unacceptable.

25. Language which implies that the amount of benefits payable under a loss-of-time policy may be increased at the time of claim or disability according to the needs of the insured is unacceptable.

26. An advertisement for loss-of-time coverage which is an invitation to contract and which sets forth a range of amounts of benefit levels is unacceptable unless it also states that eligibility for the benefits is based upon condition of health, income, other economic conditions, or other underwriting standards of the insurer if such is the fact.

27. The term “confining sickness” is an abbreviated expression and must be explained in an advertisement containing the term. Such an explanation might be as follows: “Benefits are payable for total disability due to confining sickness only so long as the insured is necessarily confined indoors.” Captions such as “Lifetime Sickness Benefits” or “Five-Year Sickness Benefits” are incomplete if such benefits are subject to confinement requirements. When sickness benefits are subject to confinement requirements, captions such as “Lifetime House Confining Sickness Benefits” or “Five Year House Confining Sickness Benefits” would be permissible.

28. Advertisements for policies whose premiums are modest because of their limited coverage or limited amount of benefits shall not describe premiums as “low,” “low cost,” “budget” or use qualifying words of similar import. This rule also prohibits the use of words such as “only” and “just” in conjunction with statements of premium amounts when used to imply a bargain.

29. Advertisements which state or imply that premiums will not be changed in the future are not acceptable unless the advertised policies so provide.

30. An advertisement which does not require the premium to accompany the application must not over-emphasize the fact and must make the effective date of the coverage clear.

31. An advertisement which exaggerates the effect of statutorily mandated benefits or required policy provisions or which implies that such provisions are unique to the advertised policy is unacceptable. For example, the phrase, “Money Back Guarantee” is an exaggerated description of the ten-day right to examine the policy and is not acceptable.

32. An advertisement which implies that a common type of policy or a combination of common benefits is “new,” “unique,” “a bonus,” “a breakthrough,” or is otherwise unusual is acceptable. Also, the addition of a novel method of premium payment to an otherwise common plan of insurance does not render it “new.”

33. An advertisement which is an invitation to contract and which fails to disclose the amount of any deductible and/or the percentage of any co-insurance factor is unacceptable.

34. An advertisement which fails to state clearly the type of insurance coverage being offered is not acceptable.

35. Language which states or implies that each member under a “family” contract is covered as to the maximum benefits advertised, where such is not the fact, is unacceptable.

36. The importance of diseases rarely or seldom found in the class of person to whom the policy is offered shall not be exaggerated in an advertisement.

37. A television, radio, mail or newspaper advertisement which is designed to produce leads either by use of a coupon or a request to write to the company or a subsequent advertisement prior to contact must include information disclosing that an agent may contact the applicant if such is the fact.

38. Advertisements for policies designed to supplement Medicare or which are otherwise designed for issue to the elderly shall not employ devices which are designed to create undue anxiety in the minds of such persons. Such phrases as “here is where most people over 65 learn about the gaps in Medicare” or “Medicare is great, but ..” or which otherwise exaggerate the gaps in Medicare coverage are unacceptable. Phrases or devices which unduly excite fear and dependence upon relatives or charity are unacceptable. Phrases or devices which imply that long sicknesses or hospital stays are common among the elderly are unacceptable.

39. An advertisement implying that the coverage is supplemental to Medicare, if it does not explain the manner in which it is supplemental to Medicare coverage, is not acceptable.

40. An advertisement for a policy designed to supplement benefits under Medicare is unacceptable if the advertisement:

a) fails to disclose in clear language which of the Medicare benefits the policy is designed to supplement and which of the Medicare benefits the policy is not designed to supplement or if it otherwise implies that Medicare provides only those benefits which the policy is designed to supplement;

b) describes the in-patient hospital coverage of Medicare as “hospital Medicare” or “Medicare Part A” when the policy does not supplement the non-hospital or the psychiatric hospital benefits of Medicare Part A (phrases to the effect of “the in-hospital portion of Medicare Part A” are acceptable);

c) fails to clearly describe the operation of the Part or Parts of Medicare which the policy is designated to supplement;

d) describes those Medicare benefits not supplemented by the policy in such a way as to minimize their importance relative to the Medicare benefits which are supplemented;

e) prominently displays a total benefit limit which would not, as a general rule, be payable for an average claim;

f) fails to clearly describe the operation of the Medicare Part A “lifetime reserve” (currently 60 days) and initial “benefit period” (currently 90 days) or fails to state that Medicare Part A provides benefits for psychiatric hospital confinement, where the policy supplements Medicare Part A.

41. Advertisements which employ fictitious narratives are unacceptable; however, hypothetical claims may be used to illustrate the operation of the policies advertised.

(2) No advertisement shall contain or use words or phrases such as, “all”; “full”; “complete”; “comprehensive”; “unlimited”; “up to”; “as high as”; “this policy will help pay your hospital and surgical bills”; “this policy will help fill some of the gaps that Medicare and your present insurance leave out”; “this policy will help to replace your income” (unless used to express loss of time benefits); or similar words and phrases, in a manner which exaggerates any benefits beyond the term of the policy.

GUIDELINE 2536.2(a)(2)

This Subsection recognizes that certain words and phrases in advertising may have a tendency to mislead the public as to the extent of benefits under an advertised policy. Consequently, such terms (and those specified in the rule do not represent a comprehensive list but only examples) must be used with caution to avoid any tendency to exaggerate benefits and must not be used unless the statement is literally true in every instance. The use of the following phrases based on such terms or having the same effect must be similarly restricted: “pays hospital, surgical, etc., bills,” “pays dollars to offset the cost of medical care,” “safeguards your standard of living,” “pays full coverage,” “pays complete coverage,” “pays for financial needs,” “provides for replacement of your lost paycheck,” “replaces income” or “emergency paycheck.” Other phrases may or may not be acceptable depending upon the nature of the coverage being advertised. For example, the phrase “this policy will help to replace your income” is acceptable in advertising for loss-of-time coverage but is unacceptable in advertising for hospital confinement (including “hospital indemnity”) coverage.

This rule also prohibits words or phrases which exaggerate the effect of benefit payment on the insured's general well-being, such as “worry-free savings plan,” “guaranteed savings,” “financial peace of mind” and “you will never have to worry about hospital bills again.”

Advertisements for policies designed to supplement Medicare benefits are unacceptable if they fail to disclose that no hospital confinement benefits will be payable for that portion of a Medicare benefit period for which Medicare pays all hospital confinement expenses, currently 60 days, other than the initial deductible, if the policy so provides. The length of said period must be stated in days.

(3) An advertisement shall not contain descriptions of a policy limitation, exception, or reduction, worded in a positive manner to imply that it is a benefit, such as, describing a waiting period as a “benefit builder,” or stating “even pre-existing conditions are covered after two years.” Words and phrases used in an advertisement to describe such policy limitations, exceptions and reductions shall fairly and accurately describe the negative features of such limitations, exceptions and reductions of the policy offered.

GUIDELINE 2536.2(a)(3)

Explanations must not minimize nor describe restrictive provisions in a positive manner. Negative features must be accurately set forth. Any limitation on benefits excluding pre-existing conditions also must be restated under a caption concerning exclusions or limitations, notwithstanding that the pre-existing condition exclusion has been disclosed elsewhere in the advertisement. (See Guidelines for Section 2536.2(c) for additional comments on pre-existing conditions.)

(4) No advertisement of a benefit for which payment is conditional upon confinement in a hospital or similar facility shall use words or phrases such as “tax free”; “extra cash”; “extra income”; “extra pay”; or substantially similar words or phrases because such words and phrases have the capacity, tendency or effect of misleading the public into believing that the policy advertised will, in some way, enable them to make a profit from being hospitalized.

GUIDELINE 2536.2(a)(4)

The words, phrases, illustrations and concepts listed are illustrations of the words, phrases, illustrations and concepts prohibited by the Subsection which create the impression of a profit or gain to be realized by the insured when hospitalized.

Illustrations which depict paper currency or checks showing an amount payable are deceptive and misleading and are not permissible.

A hospital indemnity advertisement shall not include language such as “pay for a trip to Florida,” “buy a new television” or otherwise imply that the insured will make profit on hospitalization.

An advertisement which uses words such as “extra,” “special” or “added” to describe any benefit in the policy is unacceptable.

Although the Subsection prohibits the use of the phrase “tax free,” it does not prohibit the use of complete and accurate terminology explaining the Internal Revenue Service rules applicable to the taxation of accident and sickness benefits. The IRS rules provide that the premiums paid for and the benefits received from hospital indemnity policies are subject to the same rules as loss of time premiums and benefits and are not afforded the same favorable tax treatment as premiums for expense incurred hospital, medical and surgical benefit coverages. (Currently, Rev. Rul. 68-451 and Rev. Rul. 69-154.) Prominence either by caption, lead-in, bold-face or large type shall be given in any manner to any statements relating to the tax status of such benefits.

(5) No advertisement of a hospital or other similar facility confinement benefit shall advertise that the amount of the benefit is payable on a monthly or weekly basis when, in fact, the amount of the benefit payable is based upon a daily pro rata basis relating to the number of days of confinement unless such statements of such monthly or weekly benefit amounts are followed immediately by equally prominent statements of the benefit payable on a daily basis; for example, either of the following statements is acceptable: “$1,000.00 a Month ($33.33 a Day)” or “$33.33 a Day ($1,000.00 a Month).” When the policy contains a limit on the number of days of coverage provided, such limit must appear in the advertisement.

(6) No advertisement of a policy covering only one disease or a list of specified diseases shall imply coverage beyond the terms of the policy. Synonymous terms shall not be used to refer to any disease so as to imply broader coverage than is the fact.

(7) An advertisement for a policy providing benefits for specified illnesses only, such as cancer, or for specified accidents only, such as automobile accidents, shall clearly and conspicuously in prominent type state the limited nature of the policy. The statement shall be worded in language identical to, or substantially similar to the following: “THIS IS A LIMITED POLICY”; “THIS IS A CANCER ONLY POLICY”; “THIS IS AN AUTOMOBILE ACCIDENT ONLY POLICY.”

GUIDELINES 2536.2(a)(5) through 2536.2 (a)(7)

These Subsections are self-explanatory.

(8) An advertisement of a direct response insurance product shall not imply that because “no insurance agent will call and no commissions will be paid to agents” that it is “a low cost plan,” or use other similar words or phrases because the cost of advertising and servicing such policies is a substantial cost in the marketing of a direct response insurance product.

GUIDELINE 2536.2(a)(8)

This Subsection should be applied in conjunction with Section 2536.7.

Phrases such as “we cut costs to the bone” or “we deal direct with you so our costs are lower” shall not be used.

(b) Exceptions, Reductions and Limitations.

(1) When an advertisement which is an invitation to contract refers to either a dollar amount, or a period of time for which any benefit is payable, or the cost of the policy, or specific policy benefit, or the loss for which such benefit is payable, it shall also disclose those exceptions, reductions and limitations affecting the basic provisions of the policy without which the advertisement would have the capacity or tendency to mislead or deceive.

GUIDELINE 2536.2(b)(1)

The extent of disclosure required by this rule depends upon the type of advertisement. An institutional advertisement as defined in Section 2535.3(g) is not subject to this rule. An advertisement which is an invitation to inquire as defined in Section 2535.3(h) which mentions either the dollar amount of benefit payable and/or the period of time during which the benefit is payable must include a reference to the existence of exceptions, reductions and limitations in the manner required by Section 2535.3(h). An advertisement which is an invitation to contract as defined in Section 2535.3(i) must recite the exceptions, reductions and limitations as required by the rule and in a manner consistent with Section 2536.

If an exception, reduction or limitation is important enough to use in a policy, it is of sufficient importance that its existence in the policy should be referred to in the advertisement regardless of whether it may also be the subject matter of a provision of Insurance Code Sections 10350.1 through 10350.12 and 10369.2 through 10369.12.

Some advertisements disclose exceptions, reductions and limitations as required, but the advertisement is so lengthy as to obscure the disclosure. Where the length of an advertisement has this effect, special emphasis must be given by changing the format to show the restrictions in a manner which does not minimize, render obscure or otherwise make them appear unimportant.

(2) When a policy contains a waiting, elimination, probationary or similar time period between the effective date of the policy and the effective date of coverage under the policy or a time period between the date a loss occurs and the date benefits begin to accrue for such loss, an advertisement which is subject to the requirements of the preceding paragraph shall disclose the existence of such periods.

GUIDELINE 2536.2(b)(2)

This Subsection imposes the same disclosure standards as the preceding paragraph with respect to policy provisions providing for waiting, elimination, probationary or similar time periods between the effective date of the policy and the effective date of coverage under the policy or a time period between the date a loss occurs and the date benefits begin to accrue for such loss. The comments under Subsection 2536.2(b)(1) are equally applicable to this Subsection. Where a policy has waiting, elimination, probationary or other such time periods, such provisions must be stated in negative terms. This requirement is comparable to that contemplated in Section 2536.2(a)(3) as to exceptions, reductions and limitations.

An advertisement for a policy designed to supplement Medicare benefits is unacceptable if it fails to disclose that no hospital confinement benefits will be payable for that portion of a Medicare benefit period, currently 60 days, for which Medicare pays all hospital confinement expenses other than the initial deductible, if the policy so provides. The length of said period must be stated in days.

(3) An advertisement shall not use the words “only”; “just”; “merely”; “minimum” or similar words or phrases to describe the applicability of any exceptions and reductions, such as: “This policy is subject to the following minimum exceptions and reductions.”

GUIDELINE 2536.2(b)(3)

This Subsection is similar to Section 2536.2(a)(3) and requires a fair and accurate description of exceptions, limitations and reductions in a manner which does not minimize, render obscure or otherwise make them appear unimportant.

Advertisements must state exceptions, limitations and reductions in the negative and must not understate any exception, limitation or reduction or qualify any exception, limitation or reduction to emphasize coverage described elsewhere (i.e., “Does not pay for __________________, however, Medicare pays this” is not acceptable, nor is “Does not pay for the first four days in hospital for sickness, but pays for accident from first day”). (Underscoring indicates the manner in which statements are sometimes emphasized.)

This Subsection prohibits the use of any term, such as “just,” “only,” “merely,” “necessary” or “minimum” to describe any exclusion, limitation, reduction or exception.

(4) When a group disability income insurance policy contains provisions which reduce the amount of maximum benefit payable, any invitation to contract for the policy as defined in Subsection 2535.3(i) shall contain an example of how at least two common reductions would reduce the dollar amount of the maximum benefit that an insured would receive. This example shall be placed in the part of the invitation to contract in which the maximum benefit amount is described, and shall be as prominent as the maximum benefit amount. The example may be coupled with a disclaimer which explains that the example is for purposes of illustrating the effect of benefit reductions and is not intended to reflect the situation of a particular claimant under the policy.

GUIDELINE 2536.2(b)(4)

This Subsection is designed to ensure that insurers will better explain the effect of benefit reductions, sometimes known as “offsets,” on the maximum benefit amounts set forth in their invitations to contract. It is not sufficient under subsection (4) to state the amount of the maximum benefit available under a policy without also showing, in a dollar amount example, how the maximum benefit amount might be reduced by at least two common reductions which are provided for in the policy. An example of how two common reductions would reduce the amount of the maximum benefit that an insured would receive is set forth below. The example assumes that the policy provides for a long term disability benefit payment of 60% of pre-disability earnings. This percentage may vary, depending on the terms of the policy.

Insured's monthly predisability earnings $3,000

Long term disability benefit percentage x 60%

Unreduced maximum benefit $1,800

Less Social Security disability benefit per month - 900

Less state disability income benefit per month - 300

Amount of long term disability benefit per month $ 600

(1) An advertisement which is subject to the requirements of Section 2536.2(b) shall, in negative terms, disclose the extent to which any loss is not covered if the cause of such loss is traceable to a condition existing prior to the effective date of the policy. The term “pre-existing condition” without an appropriate definition or description shall not be used.

GUIDELINE 2536.2(c)(1)

This Subsection imposes the same disclosure standards with respect to pre--existing conditions provisions as noted in Guideline 2536.2(b)(1). The comments under that Guideline are equally applicable to this Subsection of the rules since the pre-existing conditions provision is an exception under the rules.

This rule implements the objective of Section 2536.2(a)(3) by requiring in negative terms a description of the effect of a pre--existing condition exclusion because such an exclusion is a restriction on coverage. The subdivision also prohibits the use of the phrase “pre--existing condition” without an appropriate definition or description of the term and prohibits stating a reduction in the statutory time limit (such as a reduction from three years to two years or to one year) as an affirmative benefit. The words “appropriate definition or description” mean that the term “pre-existing condition” must be defined as it is used by the company's claims department.

(2) When a policy does not cover losses resulting from pre--existing conditions, no advertisement of the policy shall state or imply that the applicant's physical condition or medical history will not affect the issuance of the policy or payment of a claim thereunder. This prohibits the use of the phrase “no medical examination required” and phrases of similar import, but does not prohibit explaining “automatic issue.” If an insurer requires a medical examination for a specific policy, the advertisement, if it is an invitation to contract, shall disclose that a medical examination is required.

GUIDELINE 2535.2(c)(2)

The phrase “no health questions” or words of similar import shall not be used if the policy excludes pre-existing conditions.

Use of a phrase such as “guaranteed issue” or “automatic issue,” if the policy excludes pre-existing conditions for a certain period, must be accompanied by a statement disclosing the fact in a manner which does not minimize, render obscure, or otherwise make it appear unimportant and is otherwise consistent with Section 2536.

(3) When an advertisement contains an application form to be completed by the applicant and returned by mail for a direct response insurance product, such application form shall contain a question or statement which reflects the pre-existing condition provisions of the policy immediately preceding the blank space for the applicant's signature. For example, such an application form shall contain a question or statement substantially as follows:

“Do you understand that this policy will not pay benefits during the first ___ year(s) after the issue date for a disease or physical condition which you now have or have had in the past?” [ ] YES;

Or substantially the following statement:

“I understand that the policy applied for will not pay benefits for any loss incurred during the first ___ year(s) after the issue date on account of disease or physical condition which I now have or have had in the past.”

GUIDELINE 2536.2(c)(3)

This subsection is self-explanatory.

NOTE

Authority cited: Section 790.10, Insurance Code; CalFarm Ins. Co. v. Deukmejian, (1989) 48 Cal.3d 805; and 20th Century Ins. Co. v. Garamendi (1994) 8 Cal.4th 216. Reference: Sections 790.02 and 790.03, Insurance Code.

HISTORY

1. Amendment filed 11-19-74; effective thirtieth day thereafter (Register 74, No. 48).

2. Amendment of Guideline 2536.2(b)(3), new Guideline 2536.2(b)(4) and new Note filed 6-24-2008; operative 8-23-2008 (Register 2008, No. 26).

§2536.3. Necessity for Disclosing Policy Provisions Relating to Renewability, Cancellability and Termination.

History

When an advertisement, which is an invitation to contract, refers to either a dollar amount or a period of time for which any benefit is payable, or the cost of the policy, or specific policy benefit, or the loss for which such benefit is payable, it shall disclose the provisions relating to renewability, cancellability and termination and any modification of benefits, losses covered or premiums because of age or for other reasons, in a manner which shall not minimize or render obscure the qualifying conditions.

GUIDELINE 2536.3

This Section imposes the same disclosure standards with respect to policy provisions relating to renewability, cancellability and termination, modification of benefits, losses or premiums because of age or otherwise as stated in Guideline 2536.2(b)(1). The comments in that Guideline are equally applicable to this Section. Advertisements of cancellable policies must state that the contract is cancellable or renewable at the option of the company as the case may be. For example the following represent illustrations: A policy which is cancellable shall be advertised in a manner similar to “This policy can be cancelled by the company at any time.” A policy which is renewable at the option of the insurance company shall be advertised in a manner similar to “This policy is renewable at the option of the company” or “The company has the right to refuse renewal of this policy” or “Renewable at the option of the insurer.” Advertisements of such policies must indicate that the insurer has the right to increase premium rates.

With respect to non-cancellable policies and guaranteed renewable policies, the section requires a summary of the policy provisions with respect to renewability must be set forth and defined where appropriate. The disclosure of provisions relating to renewability requires the use of language such as “non-cancellable,” “non-cancellable and guaranteed renewable,” or “guaranteed renewable.” The use of those terms and the definitions provided shall be consistent with Insurance Code Sections 10273 and 10273.3.

The Section also requires a statement of the qualifying conditions which constitute limitations on the permanent nature of the coverage. These customarily fall into three categories; (1) age limits, (2) reservation of a right to increase premiums and (3) the establishment of aggregate limits. For example, “non-cancellable and guaranteed renewable” does not fulfill the requirement of the section if the policy contains a terminal age of 65. In such a case, a proper statement would be “non-cancellable and guaranteed renewable to age 65.” If a guaranteed renewable policy reserves the right to increase premiums, the statement must be expanded into language similar to “guaranteed renewable to age 65 but the Company reserves the right to increase premium rates on a class basis.” If the contract contains an aggregate limit after which no further benefits are payable, the above statement must be amplified with the phrase “subject to a maximum aggregate amount of $50,000” or similar language. A policy may have one or more than three basic limitations and an advertisement must describe each of those which the policy contains. Currently over 50% of new individual policy issues are guaranteed renewable, therefore, the fact that a policy is guaranteed renewable shall not be exaggerated.

This rule also requires the disclosure of any modification of benefits or losses covered because of age or for other reasons. Provisions for reduction of benefits at stated ages must be set forth. For example, a policy may contain a provision which reduces benefits 50% after age 60 although it is renewable to age 65. Such a reduction would have to be set forth. Also, a provision for the elimination of certain hazards at any specific ages or after the policy has been in force for a specified time would have to be set forth.

An advertisement for a policy which provides for step-rated premium rates based upon the policy year or the insured's attained age must disclose such rate increases and the times or ages at which such premiums increase.

This Section requires that the qualifying conditions of renewability must be disclosed in a manner which does not minimize or render obscure the qualifying conditions of renewal.

HISTORY

1. Amendment filed 11-29-74; effective thirtieth day thereafter (Register 74, No. 48).

§2536.4. Testimonials or Endorsements by Third Parties.

History

(a) Testimonials used in advertisements must be genuine, represent the current opinion of the author, be applicable to the policy advertised and be accurately reproduced. The insurer, in using a testimonial, makes as its own all of the statements contained therein, and the advertisement, including such statement, is subject to all the provisions of these regulations.

GUIDELINE 2536.4(a)

This Subsection must be applied in conjunction with Section 2536.5 and requires that all such statements must be genuine and not fictitious. Under this subsection, the manufacturing, substantive editing or “doctoring up” of a testimonial is clearly prohibited as being false and misleading to the insurance buying public. However, language which would be unacceptable under these rules must be edited out of a testimonial.

A testimonial must also represent the current opinion of the author. While an insurer is not required in each instance to check with the author each time the testimonial is used to ascertain that the views expressed have not altered, a testimonial should be checked before use in those instances when a change in views might be probable or reasonable to assume. When a testimonial is used more than one year after it was originally given, a confirmation must be obtained.

The Subsection does not prohibit testimonials of a general nature in which the author expresses appreciation for courteous treatment received or prompt payment of claims.

(b) If the person making a testimonial, an endorsement or an appraisal has a financial interest in the insurer or a related entity as a stockholder, director, officer, employee, or otherwise, such fact shall be disclosed in the advertisement. If a person is compensated for making a testimonial, endorsement or appraisal, such fact shall be disclosed in the advertisement by language substantially as follows: “Paid Endorsement” or other words of similar import. This does not require disclosure of union “scale” wages required by union rules if the payment is actually for such “scale” for TV or radio performances. The payment of substantial amounts, directly or indirectly, for “travel and entertainment” for filming or recording of TV or radio advertisements removes the filming or recording from the category of an unsolicited testimonial and requires disclosure of such compensation. This subsection does not apply to an institutional advertisement which has as its sole purpose the promotion of the insurer.

GUIDELINE 2536.4(b)

This Subsection requires the disclosure of any financial interest of a person making a testimonial, endorsement or appraisal. Any payment, direct or indirect, whether specifically for the testimonial or endorsement or for any other services or relationship, is required to be disclosed. Reimbursement for substantial travel and entertainment expenses is also required to be disclosed; however, union scale wages required by union rules are not required to be disclosed. Travel away from the home of the person giving the testimonial or endorsement to a distant location involving transportation expenses, lodging expenses or expenses for meals constitutes payment and must be reflected as a paid endorsement. The requirement of disclosure may be fulfilled by use of the phrase “Paid Endorsement” or words of similar import in a type style and size that is identical to the endorser's name. In the case of television or radio advertising, the paid nature of the advertisement must be given prominence.

(c) An advertisement shall not state or imply that an insurer or a policy has been approved or endorsed by an individual, group of individuals, society, association or other organization, unless such is the fact, and unless any proprietary relationship between an organization and the insurer is disclosed. If the entity making the endorsement or testimonial has been formed by the insurer or is owned or controlled by the insurer or the person or persons who own or control the insurer, such fact shall be disclosed in the advertisement.

GUIDELINE 2536.4(c)

This Subsection requires both that approval or endorsement of a policy by an individual, group of individuals, society, association or other organization be factual and that any proprietary relationship between the sponsoring or endorsing organization and the insurer be disclosed. For example, if the dividend under an association group case is payable to the association, disclosure of that fact is required. Also, if the insurer or an officer of the insurer formed or controls the association, that fact must be disclosed.

(d) When a testimonial refers to benefits received under a policy, the specific claim data, including claim number, date of loss, and other pertinent information shall be retained by the insurer for inspection for a period of four years or until the filing of the next regular report on examination of the insurer, whichever is the longer period of time.

GUIDELINE 2536.4(d)

This Subsection provides the Insurance Commissioner with the means to verify the authenticity of testimonials used in advertising efforts.

The use of testimonials which do not correctly reflect the present practices of the insurer or which are not applicable to the policy or benefit being advertised is not permissible.

HISTORY

1. Amendment filed 11-29-74; effective thirtieth day thereafter (Register 74, No. 48).

§2536.5. Use of Statistics.

History

(a) An advertisement relating to the dollar amounts of claims paid, the number of persons insured, or similar statistical information relating to any insurer or policy shall not use irrelevant facts and shall not be used unless it accurately reflects all of the relevant facts. Such an advertisement shall not imply that such statistics are derived from the policy advertised unless such is the fact, and when applicable to other policies or plans shall specifically so state.

GUIDELINE 2536.5(a)

This Subsection prohibits the use of statistics in a manner which is misleading and deceptive. It requires the disclosure of all relevant facts and prohibits the use of irrelevant facts. An advertisement shall specifically identify the policy to which statistics relate and, where statistics are given which are applicable to a different policy, it must be stated clearly that the data do not relate to the policy being advertised.

Statistics which describe the insurer, such as assets, corporate structure, financial standing, age, product lines or relative position in the insurance business, may be irrelevant and, if used at all, must be used with extreme caution because of their potential for misleading the public. As a specific example, an advertisement for a health insurance policy which refers to the amount of life insurance which the company has in force or the amounts paid out in life insurance benefits is not permissible unless the advertisement clearly indicates the amount paid out for each line of insurance.

An advertisement which states the dollar amount of claims paid must also indicate the period over which such claims have been paid.

If the term “loss ratio” is used, it shall be properly explained in the context of the advertisement and, unless a regulation is subsequently issued otherwise defining the term, it shall be calculated on the basis of premiums earned to losses incurred and shall not be on a yearly run-off basis.

(b) An advertisement shall not represent or imply that claim settlements by the insurer are “liberal” or “generous,” or use words of similar import, or that claim settlements are or will be beyond the actual terms of the contract. An unusual amount paid for a unique claim for the policy advertised is misleading and shall not be used.

GUIDELINES 2536.5(b)

This Subsection prohibits deceptive or misleading statements in an advertisement regarding an insurer's claim settlement practices. It also prohibits the use of an unusual amount paid for a unique claim or an unusual claim whether actual or hypothetical.

GUIDELINE 2536.5(c)

This Subsection requires any advertisement which uses statistics to cite the source. The rule does not require that statistics for this State be used since such statistics as hospital charges and average stays may vary from state to state. When nationwide statistics are used such fact should be noted as such unless the statistics on the particular point are substantially the same as those for this State. Statistics may be used only if they are credible.

HISTORY

1. Amendment filed 11-29-74; effective thirtieth day thereafter (Register 74, No. 48).

§2536.6. Identification of Plan or Number of Policies.

History

(a) When a choice of the amount of benefits is referred to, an advertisement which is an invitation to contract shall disclose that the amount of benefits provided depends upon the plan selected and that the premium will vary with the amount of the benefits selected.

(b) When an advertisement which is an invitation to contract refers to various benefits which may be contained in two or more policies, other than group master policies, the advertisement shall disclose that such benefits are provided only through a combination of such policies.

GUIDELINE 2536.6

This Section imposes the same disclosure standards as stated in Guideline 2536.2(b)(1). The comments in that Guideline are equally applicable to this Section.

HISTORY

1. Amendment filed 11-29-74; effective thirtieth day thereafter (Register 74, No. 48).

§2536.7. Disparaging Comparisons and Statements.

History

An advertisement shall not directly or indirectly make unfair or incomplete comparisons of policies or benefits or comparisons of noncomparable policies of other insurers, and shall not disparage competitors, their policies, services or business methods, and shall not disparage or unfairly minimize competing methods of marketing insurance.

GUIDELINE 2536.7

This Section prohibits unfair or incomplete comparisons of products, insurers or business methods. It specifically prohibits comparisons of non-comparable policies and provides that advertisements shall not unfairly minimize nor disparage competing types of insurance coverages or competing methods of marketing insurance.

An advertisement should not contain statements such as “no red tape” or “here is all you do to receive benefits.”

Advertisements which state or imply that competing insurance coverages customarily contain certain exceptions, reductions or limitations not contained in the advertised policies are unacceptable unless such exceptions, reductions or limitations are contained in a substantial majority of such competing coverages.

Advertisements which state or imply that an insurer's premiums are lower or that its loss ratios are higher because its organizational structure differs from that of competing insurers are unacceptable.

HISTORY

1. Amendment filed 11-29-74; effective thirtieth day thereafter (Register 74, No. 48).

§2536.8. Jurisdictional Licensing and Status of Insurer.

History

(a) An advertisement which is intended to be seen or heard beyond the limits of the jurisdiction in which the insurer is licensed shall not imply licensing beyond those limits.

GUIDELINE 2536.8(a)

This Subsection prohibits advertisements which imply that an insurer is licensed beyond the limits of those jurisdictions where it is actually licensed. An advertisement which contains testimonials from persons who reside in a state in which the insurer is not licensed or which refers to claims of persons residing in states in which the insurer is not licensed implies licensing in those states and therefore is in violation of this rule unless the advertisement states that the insurer is not licensed in those states.

(b) An advertisement shall not create the impression directly or indirectly that the insurer, its financial condition or status, or the payment of its claims, or the merits, desirability, or advisability of its policy forms or kinds or plans of insurance are approved, endorsed, or accredited by any division or agency of this State or the United States Government.

GUIDELINE 2536.8(b)

This Subsection prohibits advertisements implying that approval, endorsement or accreditation of policy forms or advertising has been granted by any division or agency of the state or federal governments. “Approval” of either policy forms or advertising shall not be used by an insurer to imply or state that a governmental agency has endorsed or recommended the insurer, its policies, advertising or its financial condition.

Although the Subsection permits a reference to an insurer being licensed in a state where the advertisement appears, it does not allow exaggeration of the fact of such licensing nor does it permit the suggestion that competing insurers may not be so licensed because, in most states, an insurer must be licensed in the state to which it directs its advertising.

Terms such as “official,” or words of similar import, used to describe any policy or application form are not permissible because of the potential for deceiving or misleading the public.

HISTORY

1. Amendment filed 11-29-74; effective thirtieth day thereafter (Register 74, No. 48).

§2536.9. Identity of Insurer.

(a) The name of the actual insurer shall be stated in all of its advertisements. The form number or numbers of the policy advertised shall be stated in an advertisement which is an invitation to contract. An advertisement shall not use a trade name, any insurance group designation, name of the parent company of the insurer, name of a particular division of the insurer, service mark, slogan, symbol or other device which without disclosing the name of the actual insurer would have the capacity and tendency to mislead or deceive as to the true identity of the insurer.

(b) No advertisement shall use any combination of words, symbols, or physical materials which by their content, phraseology, shape, color or other characteristics are so similar to combination of words, symbols, or physical materials used by agencies of the federal government or of this State, or otherwise appear to be of such a nature that it tends to confuse or mislead prospective insureds into believing that the solicitation is in some manner connected with an agency of the municipal, state, or federal government.

GUIDELINE 2536.9

This Section prohibits the use of an advertisement which has the capacity or tendency to mislead or deceive as to the true identity of the insurer. The section recognizes the existence of holding companies. The requirement that the advertisement refer to the policy form number is applicable to individual and franchise policies only.

However, the requirement of the policy form number is not applicable to those advertisements for individual and franchise policies not required to disclose information under Sections 2536.2(b)(1) and (7). Subsection (a) and Subsection (b) prohibit misleading practices of insurers in connection with the sale of insurance to supplement Federal Medicare benefits and confusion by insurers with advertising material used by hospital service corporations or pre-paid health plans.

This Section prohibits advertisements, envelopes or stationery which employ words, letters, initials, symbols or other devices which are so similar to those used by governmental agencies or other insurers, including hospital service corporations and pre-paid health plans, that the public may be confused into believing:

(a) that the advertised coverages are somehow provided by or are endorsed by such governmental agencies or such other insurers;

(b) that the advertised coverages are the same as those provided by such governmental agencies or such other insurers;

(c) that the advertiser is the same as, is connected with or is endorsed by such governmental agencies or such other insurers.

It is unacceptable for an advertisement to use the name of a state or a political subdivision thereof in a policy name or description. For example, “XYZ Insurance Company's California Hospital Confinement Policy” is unacceptable.

This Section prohibits an insurer from using envelopes or stationery which have printed thereon any name, service mark, slogan, symbol or using any other device in such a manner that it implies that the insurer or the policy advertised is connected with a governmental agency such as the Social Security Administration or the Veterans Administration.

Policies advertised to supplement Medicare benefits are unacceptable if they incorporate the word “Medicare” in the title of the plan or policy being advertised unless, wherever it appears, said word is qualified by language differentiating it from Medicare. Such phrases as “Medicare Insurance Supplement” or “insurance to supplement Medicare” are acceptable. Such an advertisement, however, shall not use the phrase” ___ Medicare Department of the XYZ Insurance Company,” or language of similar import.

Advertisements for policies designed to supplement Medicare benefits are unacceptable if they fail to contain a disclaimer to the effect of “Not connected with or endorsed by the U.S. Government or the Federal Medicare program.”

This section prohibits an advertisement which implies that the reader may lose a right, privilege or benefit under Federal, state or local law if he fails to respond to the advertisement.

If the use of letters, initials or symbols of the corporate name or trademark would have the capacity or tendency to mislead or deceive the public as to the true identity of the insurer, this Section prohibits the use of such letters, initials, or symbols without disclosing in a close conjunction the true and correct complete name of the insurer which will issue the policy.

This rule prohibits the use of the name of an agency or “___ Underwriters” or “___ Plan” in type, size and location so as to have the capacity and tendency to mislead or deceive as to the true identity of the insurer and also prohibits an insurer from using an address so as to mislead or deceive as to its true identity, location or licensing status.

§2536.10. Group or Quasi—Group Implications.

History

An advertisement of a particular policy shall not state or imply that prospective insurers become group or quasi-group members covered under a group policy and as such enjoy special rates or underwriting privileges, unless such is the fact.

GUIDELINE 2536.10

This Section prohibits the use of representations to any segment of the population that a particular policy or coverage is available only to that or similar segments of the population as preferred risks when actually such policy or coverage is available to members of the public at large at the same rates. This rule prohibits an advertisement labeled “Now for Readers of X Magazine.”

This Section prohibits the solicitation of a particular class, such as governmental employees, by use of advertisements which state or imply that their occupational status entitles them to reduced rates on a group or other basis when, in fact, the policy being advertised is sold only on an individual basis at regular rates.

HISTORY

1. Amendment filed 11-29-74; effective thirtieth day thereafter (Register 74, No. 48).

§2536.11. Introductory, Initial or Special Offers.

History

(a)(1) An advertisement of an individual policy shall not directly or by implication represent that a contract or combination of contracts is an introductory, initial or special offer, or that applicants will receive substantial advantages not available at a later date, or that the offer is available only to a specified group of individuals, unless such is the fact. An advertisement shall not contain phrases describing an enrollment period as “special,” “limited,” or similar words or phrases when the insurer uses such enrollment periods as the usual method of advertising disability insurance.

GUIDELINE 2536.11(a)(1)

This Subsection prohibits advertising representing that a product is offered on an introductory, initial, special offer basis or otherwise which (a) will not be available later; or (b) is available only to certain individuals unless such is the fact. This rule prohibits the repetitive use of such advertisements. Where an insurer uses enrollment periods as the usual method of advertising these policies, the rule prohibits describing an enrollment period as a special opportunity or offer for the applicant.

(2) An enrollment period during which a particular insurance product may be purchased on an individual basis shall not be offered within a specified geographical area in this State unless there has been a lapse of not less than three months between the close of the immediately preceding enrollment period for the same product and the opening of the new enrollment period. The phrase “a specified geographical area” means one or more of the following groups of counties:

(A) San Francisco, Marin, Sonoma, Napa, Solano, Alameda, Contra Costa and San Mateo,

(B) Sacramento, Amador, Alpine and North to the Oregon border,

(D) San Joaquin, Stanislaus, Merced, Fresno, Kings, Kern and East to the Nevada border. Kern County may be included in either this Area (D) or in Area (E) below at the option of the insurer.

(E) San Luis Obispo, Santa Barbara and Ventura,

(F) Los Angeles, Orange, Riverside and San Bernardino,

(G) San Diego and Imperial.

The advertisement shall indicate the date by which the applicant must mail the application which shall be not less than ten days and not more than forty days from the date that such enrollment period is advertised for the first time. This applies to all advertising media, i.e., mail, newspapers, radio, television, magazines and periodicals, used by any one insurer. The phrase “any one insurer” includes all the affiliated companies of a group of insurance companies under common management or control. This is inapplicable to solicitations of employees or members of a particular group or association which otherwise would be eligible under specific provisions of the Insurance Code for group, blanket or selected group (franchise) insurance.

GUIDELINE 2536.11(a)(2)

This Subsection restricts the repetitive use of enrollment periods. The requirement of reasonable closing dates and waiting periods between enrollment periods was adopted to eliminate the abuses which formerly existed. This rule does not limit just the use of enrollment periods. It requires that a particular insurance product offered in an enrollment period through any advertising media, including the prepared presentations of agents, cannot be offered again in a specified geographical area in this State until three months from the close of the enrollment period have expired. Thus, an insurer must choose whether to use enrollment periods or open enrollment for a product. (See Subsection 2536.11(a)(4) for definition of “a particular insurance product.”)

This Subsection gives an insurer the option of applying the three month rule on a state-wide basis or on the basis of the geographical areas specified therein.

This Subsection does not prohibit multiple advertising during an enrollment period through any and all media published or transmitted within a specified geographical area in this state as long as the enrollment periods for all such advertisements have the same expiration date.

This Subsection does not prohibit the solicitation of members of a group or association for the same product even though there has not been a lapse of three months since the close of a preceding enrollment period which was open to the general public for the same product.

This Subsection does not require separation by three months of enrollment periods for the same insurance product in this state if the advertising material is directed by an admitted insurer to persons by direct mail on the basis that a common relationship exists with an entity, such as a bank and its depositors, a department store and its charge account customers or an oil company and its credit card holders, and more than one of such organizations is sponsoring such insurance product at different times if providing such insurance under such a method is not otherwise prohibited by law; provided, however, the three month rule does apply to one specific sponsor and the same persons in a specified geographical area in this state on the basis of their status as customers of that one specific entity only.

(3) This prohibits any statement or implication to the effect that only a specific number of policies will be sold, or that a time is fixed for the discontinuance of the sale of the particular policy advertised because of special advantages available in the policy, unless such is the fact.

GUIDELINE 2536.11(a)(3)

This Subsection is self-explanatory.

(4) The phrase “a particular insurance product” in subdivision (2) of this Section means an individual policy which provides substantially different benefits than those contained in any other policy. Different terms of renewability; an increase or decrease in the dollar amounts of benefits; an increase or decrease in any elimination period or waiting period from those available during an enrollment period for another policy shall not be sufficient to constitute the product being offered as a different product eligible for concurrent or overlapping enrollment periods.

GUIDELINE 2536.11(a)(4)

This Subsection defines the meaning of “a particular insurance product” in Section 2536.11(a)(2) and prohibits advertising of products having minor variations, such as different elimination periods or different amounts of daily hospital indemnity benefits, in a succession of enrollment periods.

(b) An advertisement shall not offer a policy which utilizes a reduced initial premium rate in a manner which overemphasizes the availability and the amount of the initial reduced premium. When an insurer charges an initial premium that differs in amount from the amount of the renewal premium payable on the same mode, the advertisement shall not display the amount of the reduced initial premium either more frequently or more prominently than the renewal premium, and both the initial reduced premium and the renewal premium must be stated in juxtaposition in each portion of the advertisement where the initial reduced premium appears.

GUIDELINE 2536.11(b)

This Subsection prohibits advertising which overemphasizes an initial reduced premium. The rule requires the renewal premium to appear as frequently as, as prominently as and in juxtaposition with the initial reduced premium wherever and as often as it appears. The term “juxtaposition” means side by side or immediately above or below.

(c) Special awards, such as a “safe drivers' award” shall not be used in connection with advertisements of disability insurance.

GUIDELINE 2536.11(c)

This Subsection prohibits the use in advertisements of so--called awards as an inducement to the purchase of insurance.

HISTORY

1. Amendment filed 11-29-74; effective thirtieth day thereafter (Register 74, No. 48).

§2536.12. Statements About an Insurer.

History

An advertisement shall not contain statements which are untrue in fact, or by implication misleading, with respect to the assets, corporate structure, financial standing, age or relative position of the insurer in the insurance business. An advertisement shall not contain a recommendation by any commercial rating system unless it clearly indicates the purpose of the recommendation and the limitations of the scope and extent of the recommendation.

GUIDELINE 2536.12

This Subsection is closely related to the requirements of Section 2536.5 concerning the use of statistics. The Subsection prohibits insurers which have been organized for only a brief period of time advertising that they are “old” and also prohibits the use of illustrations of a “home office” building in a manner which is misleading with respect to the actual size and magnitude of the insurer. Also, the occupations of the persons comprising the insurer's board of directors or the public's familiarity with their names or reputations is irrelevant and must not be emphasized. The preponderance of a particular occupation or profession among the board of directors of an insurer does not justify the advertisement of a plan of insurance offered to the general public as insurance designed or recommended by members of that occupation or profession.

For example, it is unacceptable for an insurance company to advertise a policy offered to the general public as “The Physicians' Policy” or “The Doctors' Plan” simply because there is a preponderance of physicians or doctors on the board of directors of the insurer. The rule prohibits the use of a recommendation of a commercial rating system unless the purpose, meaning and limitations of the recommendation are clearly indicated.

HISTORY

1. Amendment filed 11-29-74; effective thirtieth day thereafter (Register 74, No. 48).

§2537. Enforcement Procedures.

History

(a) Advertising File: Each insurer shall maintain at its home or principal office a complete file containing every printed, published or prepared advertisement of its individual policies and typical printed, published or prepared advertisements of its blanket, selected group (franchise) and group policies hereafter disseminated in this or any other state whether or not licensed in such other state, with a notation attached to each such advertisement which shall indicate the manner and extent of distribution and the form number of any policy advertised. Such file shall be subject to regular and periodical inspection by this Department. All such advertisements shall be maintained in said file for a period of either four years or until the filing of the next regular report on examination of the insurer, whichever is the longer period of time.

GUIDELINE 2537(a)

This Subsection is self-explanatory.

(b) Certificate of Compliance: Each insurer required to file an Annual Statement which is now or which hereafter becomes subject to the provisions of these regulations must file with this Department with its Annual Statement a Certificate of Compliance executed by an authorized officer of the insurer wherein it is stated that to the best of his knowledge, information and belief the advertisements of disability insurance which were disseminated by the insurer in this State during the preceding statement year complied or were made to comply in all respects with the provisions of these regulations and the Insurance Laws of this State as implemented and interpreted by these regulations.

GUIDELINE 2537(b)

Insurers become subject to the requirements of this Subsection by disseminating within this State advertisements of disability insurance which are not exempted from these regulations.

HISTORY

1. Amendment filed 11-29-74; effective thirtieth day thereafter (Register 74, No. 48).

§2537.1. Prior Inconsistent Regulations and Bulletins Superseded.

History

These regulations supersede all prior regulations and bulletins of this Department on the subject matter of disability insurance advertisements to the extent that such prior regulations and bulletins are inconsistent with these regulations. These regulations do not supersede Bulletin No. NS-3 issued by the Commissioner on May 18, 1956, except to the extent the Bulletin was applicable to disability insurance.

GUIDELINE 2537.1

This Section is self-explanatory.

HISTORY

1. Amendment filed 11-29-74; effective thirtieth day thereafter (Register 74, No. 48).

§2537.2. Severability Provision.

History

If any Section or portion of a Section of these regulations, or the applicability thereof to any person or circumstance is held invalid by a court, the remainder of the regulations, or the applicability of such provision to other persons or circumstances, shall not be affected thereby.

GUIDELINE 2537.2

This Section is self-explanatory.

HISTORY

1. Amendment filed 11-29-74; effective thirtieth day thereafter (Register 74, No. 48).

Article 12.1. Health Care Language Assistance Program

§2538.1. Authority and Purpose.

Note • History

(a) These regulations are promulgated pursuant to authority granted to the Insurance Commissioner under the provisions of California Insurance Code sections 10133.8 and 10133.9 to establish standards and requirements to provide insureds, free of charge, with appropriate access to translated written materials and oral interpretation services in obtaining covered benefits. These regulations are applicable to all individual and group policies of health insurance and to all health insurers, as defined in section 106 of the California Insurance Code. Every health insurer shall comply with the requirements and standards established by Insurance Code sections 10133.8 and 10133.9 and these regulations.

(b) The purpose of these regulations is to accomplish maximum accessibility to language assistance services by limited English proficient insureds, including oral interpretation and written translation assistance and to set forth: a) the methods of surveying the language preferences and linguistic needs of insureds; b) the requirements, standards and quality assurance for translation of vital documents; c) the requirements, standards and quality assurance for individual access to oral interpretation services; and d) the reporting and data collection requirements for health insurers.

NOTE

Authority cited: Sections 10133.8 and 10133.9, Insurance Code. Reference: Sections 10133.8 and 10133.9, Insurance Code.

HISTORY

1. New article 12.1 (sections 2538.1-2538.8) and new section filed 9-19-2007; operative 10-19-2007 (Register 2007, No. 38).

§2538.2. Definitions.

Note • History

For the purposes of these regulations, the following definitions apply:

(a) “Demographic profile” means, at a minimum, primary/preferred spoken and written language of insureds, race and ethnicity.

(b) “Indicated/threshold language(s)” means the language(s) identified by a health insurer pursuant to California Insurance Code section 10133.8 and these regulations into which vital documents shall be translated.

(c) “Individual access to interpretation services” means an insured's ability to receive oral interpretation services in their primary/preferred language in the provision of their health care.

(d) “Interpreting” or “interpretation” means the process of listening, understanding and analyzing something spoken or reading something written in one language (source language) and orally re-expressing that message faithfully, accurately and objectively in another spoken language (target language), taking the cultural and social context into account.

(e) “Language assistance services” means oral interpreting and written translation services provided free of charge to insureds.

(f) “Language preferences and linguistic needs assessment” means assessing and determining the spoken and written language preferences of the insured population.

(g) “Limited English Proficiency (LEP)” means a limited ability or inability to speak, read, write, or understand the English language at a level that permits the insured to interact effectively with his or her health care providers or health insurer.

(h) “Point(s) of Contact” means an instance in which an insured accesses the services covered under a health insurer's policy or certificate, including administrative and clinical services, telephonic and in-person contacts.

(i) “Remote interpreting” means interpreting provided by an interpreter who is not in the presence of the speaker, e.g., interpreting via telephone or videoconferencing.

(j) “Translating” or “translation” means the conversion of a written text in one language into a written text in a second language corresponding to and equivalent in meaning to the text in the first language.

(k) “Vital Documents” includes but is not limited to the following documents when produced by the health insurer including when the production or distribution is delegated by the health insurer to a third party:

(1) Applications;

(2) Consent forms, including health insurer authorization forms;

(3) Letters containing important information regarding eligibility and participation criteria;

(4) Notices pertaining to the denial, reduction, modification, or termination of services and benefits, and the right to file a complaint or appeal;

(5) Notices advising LEP persons of the availability of free language assistance and other outreach materials that are provided to insureds;

(6) An insurer's explanation of benefits or claims processing information that is sent to an insured if the document requires a response from the insured;

(7) A matrix of the categories of health insurance benefits outlined in the insurance contract including co-payments and coinsurance, exclusions and limitations in the following sequence: deductibles; lifetime maximums; professional services; outpatient services; hospitalization services; diagnostic and therapeutic radiological services; preventive health services; emergency health care coverage including ambulance services; prescription drug coverage; durable medical equipment; mental health services; chemical dependency services; home health services; other services.

NOTE

Authority cited: Sections 10133.8 and 10133.9, Insurance Code. Reference: Sections 10133.8 and 10133.9, Insurance Code.

HISTORY

1. New section filed 9-19-2007; operative 10-19-2007 (Register 2007, No. 38).

§2538.3. Language Assistance Program.

Note • History

(a) By April 1, 2009, every health insurer shall have established and implemented a Language Assistance Program (LAP) that complies with the requirements of Insurance Code sections 10133.8 and 10133.9 and this regulation. The Commissioner shall allow health insurers a reasonable degree of flexibility in the methods by which they achieve compliance.

(b) The LAP shall be documented in a plan with comprehensive written policies and procedures that describe, at a minimum, the following elements: assessment of insureds; provision of language assistance services; staff training; and compliance monitoring. In addition, the policies and procedures shall include the following:

(1) How insureds will be informed of the availability of language assistance services at no charge to insureds and how to access those services;

(2) How contracting providers will be notified of the health insurer's LAP requirements for provision of language assistance services including the notice of the availability of language assistance services;

(3) How a survey of the language preferences and assessment of the linguistic needs of the insured population will be conducted including an explanation of the methodology for collection of relevant data;

(4) How vital documents will be translated into the indicated/threshold languages including standards to ensure the quality and accuracy of the written translation;

(5) How the insurer will provide individual access to interpretation services including an explanation of the standards to ensure the quality and timeliness of oral interpretation services;

(6) A training plan for the provision of adequate and ongoing training regarding the LAP for all health insurer staff who have contact with LEP persons. The training shall include instruction on, among other things, the health insurer's policies and procedures for accessing language assistance, working effectively with LEP persons, working effectively with in-person and telephonic interpreters, and, cultural differences among and diversity of the health insurer's insured population; and,

(7) How the insurer will evaluate the LAP including an analysis of complaints and satisfactions surveys.

(c) Every health insurer shall develop a written notice that discloses the availability of language assistance services to insureds and explains how to access those services.

(1) A copy of this notice shall be included with all vital documents and all new and renewing insured welcome packets or similar correspondence from the health insurer confirming a new or renewed enrollment. The notice of availability of translated vital documents shall be translated into the threshold languages; however, nothing in this section shall prohibit an insurer from translating the notice into additional languages. A written notice shall also advise LEP insureds of the availability of interpreter services in his/her preferred spoken language at all points of contact.

(2) The Commissioner may develop the notice advising LEP insureds of the availability of language assistance services. Insurer specific information regarding how to access those services shall be provided by the health insurer. If the notice is developed by the Commissioner, it shall reflect that access to oral interpretation services requires informing insureds of the availability of interpreter services in his/her preferred spoken language and that availability of translated vital documents requires informing insured in the threshold languages that vital documents are available in specifically identified threshold languages. Health insurers shall provide the Commissioner's notice to their insureds as specified in these regulations.

(d) Health insurers shall require compliance with their language assistance program developed pursuant to these regulations by every contractor, health care provider, and any network that is contracted to provide health care to insureds. Health insurers who directly contract with health care providers or who lease networks of health care providers shall use these contracts to implement the specific provisions of the health insurer's LAP, seeking amendments to such contracts as needed within a reasonable time of the effective date of these regulations. Health insurers shall retain financial responsibility for the implementation of the LAP except to the extent that delegated financial responsibility has been negotiated separately and incorporated by reference into its contract.

(e) By December 1, 2008, every health insurer shall file their LAPplan with the Commissioner, in accordance with sections 10133.8 and 10133.9 of the Insurance Code.

(1) The plan shall include but is not limited to the written LAP policies and procedures, together with information and documents sufficient to demonstrate compliance with the requirements and standards of Insurance Code sections 10133.8 and 10133.9 and these regulations. The filing shall include the section 10133.8(b)(3)(B)(v) notice to insureds regarding the availability of language assistance services and how to access those services. All material filed with the Commissioner that contains documents in non-English languages shall include the English version of each non-English document as well as an attestation by the translator stating the qualifications of the translator and affirming that the non-English translation is an accurate translation of the English version.

(2) The Commissioner shall evaluate the totality of the health insurer's LAP to determine whether the program as a whole provides meaningful access for LEP insureds. This evaluation shall include a review of the information obtained from health insurer's biennial reporting to the Commissioner as required by these regulations and may consider relevant operational and demographic factors, including but not limited to:

(A) The nature of insureds points of contact;

(B) The frequency with which particular languages are encountered including specific challenges encountered in providing meaningful access and the process by which insurers address these challenges;

(D) The variations and character of a health insurer's service area;

(E) The availability of translation and interpretation services and professionals;

(F) The health insurer's implementation of best practices and utilization of existing and emerging technologies to increase access to language assistance services, such as video interpreting programs, language translation software, collaboration with other health insurers to share a pool of interpreters, and other methods and technologies.

(3) The Commissioner shall periodically review health insurer compliance with the standards and requirements of section 10133.8 and 10133.9 of the Insurance Code and these regulations by methods that may include, but are not limited to, market conduct exams, reviews of consumer grievances and complaints and health provider complaints to the Department of Insurance. The Commissioner may also periodically request that health insurers submit information and data regarding insureds language needs and demographic profile.

NOTE

Authority cited: Sections 10133.8 and 10133.9, Insurance Code. Reference: Sections 10133.8 and 10133.9, Insurance Code.

HISTORY

1. New section filed 9-19-2007; operative 10-19-2007 (Register 2007, No. 38).

§2538.4. Needs Assessment of Insured Population.

Note • History

(a) Every health insurer shall survey the language preferences and assess the linguistic needs of insureds within one year of the effective date of these regulations. Health insurers may utilize various survey methods, including, but not limited to, the use of existing enrollment and renewal processes, newsletters, or other mailings. Health insurers shall update the linguistic needs assessment, demographic profile, and language translation requirements of their insured population every three years.

(b) The LAP shall describe the health insurer's methods and timelines for surveying and assessing the language preferences and linguistic needs of the insured population, the calculations to be used to determine indicated/threshold languages, the method for collecting, summarizing and reporting the data to the Department, and how the health insurer shall advise limited English proficient insureds of the availability of translation and interpretation services.

NOTE

Authority cited: Sections 10133.8 and 10133.9, Insurance Code. Reference: Sections 10133.8 and 10133.9, Insurance Code.

HISTORY

1. New section filed 9-19-2007; operative 10-19-2007 (Register 2007, No. 38).

§2538.5. Written Translation of Vital Documents.

Note • History

(a) Every health insurer shall translate vital documents, as defined above, into languages other than English, hereinafter called “indicated/threshold languages” as follows:

(1) A health insurer with an insured population of 1,000,000 or more shall translate vital documents into the top two languages other than English as determined by the needs assessment and any additional languages when 0.75 percent or 15,000 of the insured population, whichever number is less, indicates in the needs assessment a preference for written materials in that language.

(2) A health insurer with an insured population of 300,000 or more but less than 1,000,000 shall translate vital documents into the top one language other than English as determined by the needs assessment and any additional languages when 1 percent or 6,000 of the insured population, whichever number is less, indicates in the needs assessment a preference for written materials in that language.

(3) A health insurer with an insured population of less than 300,000 shall translate vital documents into a language other than English when 3,000 or more or five percent of the insured population, whichever number is less, indicates in the needs assessment a preference for written materials in that language.

(b) For those vital documents that contain insured-specific information, health insurers shall provide the English language document together with the written notice of the availability of interpretation services and translation services in the indicated/threshold languages identified by the needs assessment.

(1) Upon request, the insured shall receive a written translation of the documents. The health insurer shall have 21 (twenty-one) days after receipt of the request to provide the written translation to the insured.

(2) Whenever a requested document requires that an insured take action within a certain period of time, that period of time shall not begin to elapse until the health insurer issues to the insured a translation of that document in accordance with the provisions of this article. For appeals that require expedited review and response, the health insurer may satisfy this requirement by providing the notice of the availability and access to oral interpretation services.

(c) Health insurers may request a phase-in of the translation of vital documents by submitting a written request to the Commissioner at the time of submission of their LAP plan. The request shall detail the plan, timeframe, rationale and projected impact of the phase-in on the receipt of culturally and linguistically competent health care by insureds. The translation of all vital documents shall be completed by the implementation date for the LAP as determined by these regulations.

(d) Every health insurer shall develop policies and procedures to ensure the quality and accuracy of written translations and that each translated document meets the same standards as are required for the English version of the document. The policies and procedures shall include mechanisms for ensuring the proficiency of the individual providing translation services, including a documented and demonstrated proficiency in the source and target languages and knowledge of applicable specialized terminology in both the source and target languages.

(e) This section is not intended to prohibit or discourage a health insurer from providing translation of vital documents into a greater number of languages than the indicated/threshold languages.

NOTE

Authority cited: Sections 10133.8 and 10133.9, Insurance Code. Reference: Sections 10133.8 and 10133.9, Insurance Code.

HISTORY

1. New section filed 9-19-2007; operative 10-19-2007 (Register 2007, No. 38).

§2538.6. Individual Access to Oral Interpretation Services.

Note • History

(a) Every health insurer shall provide timely individual access to interpretation services at no cost to LEP insureds at all points of contact where language assistance is needed in accordance with these regulations. For purposes of this section, “timely” means in a manner appropriate for the situation in which language assistance is needed. Interpreter services are not timely if delay results in the effective denial of the service, benefit, or right at issue or the imposition of an undue burden on or delay in important rights, benefits, or services to the LEP insured.

(b) Every health insurer shall develop policies and procedures that describe the health insurer's methods for providing timely interpretation services, including, but not limited to the following:

(1) The points of contact where the need for interpreting may be reasonably anticipated;

(2) The types of resources necessary in order to provide effective interpreting to the health insurer's insureds;

(3) The arrangements that the health insurer will make to inform insureds of oral interpretation services and to provide timely access to interpreting at all points of contact at no charge to insureds;

(4) The range of interpreting services that will be provided by trained and competent individuals to insureds as appropriate for the particular point of contact. The range of services may include, but is not limited to:

(A) Bilingual health insurer or contractor/health care provider staff available for the duration of the need;

(B) Hiring staff interpreters;

(D) Making volunteer interpreters available; and

(E) Contracting for remote interpreting, as defined, for an LEP person.

(c) Every health insurer shall develop policies and procedures for the use of family, friends, and minors as interpreters. The intent of these regulations is to provide qualified interpreting for all LEP insureds, in their primary/preferred spoken language, at no cost to the LEP insureds at all points of contact where language assistance is needed. It is the intent of these regulations to discourage the use of family members and friends and strongly discourage the use of minors as interpreters; however, nothing in this section is intended to create a barrier to care for LEP insureds.

(1) In a non-emergency situation, an insured may request the use of a family member or friend as the interpreter. Once the insured has requested the use of a family member or friend as his or her interpreter, the insured shall be fully informed in his or her primary/preferred spoken language that a qualified interpreter is available at no charge to the insured. If the insured refuses the offer of the qualified interpreter, the offer of a qualified interpreter and the insured's decision to use the family member or friend as the interpreter shall be documented in the medical record file.

(2) In an emergency situation, a minor may be used as an interpreter if the following conditions are met:

(A) The minor demonstrates the ability to interpret complex medical information in an emergency/critical situation; and,

(B) The insured is fully informed in his or her primary/preferred spoken language that a qualified interpreter is available at no charge to the insured. If the insured refuses the offer of the qualified interpreter, the offer of a qualified interpreter and the insured's decision to use the minor as the interpreter shall be documented in the medical record file.

(d) Every health insurer shall develop policies and procedures to ensure the quality and timeliness of oral interpretation services provided to insureds. The policies and procedures shall include mechanisms for ensuring the proficiency of the individual providing interpretation services, including a documented and demonstrated proficiency in the source and target languages, sensitivity to the LEP person's culture and a demonstrated ability to convey information accurately in both languages. A health insurer may develop and apply appropriate criteria for ensuring the proficiency of interpreter services. Criteria for interpreter ethics, conduct and qualifications adapted by the insurer from standards promulgated by the California Healthcare Interpreters Association or the National Council on Interpreting in Health Care shall be accepted by the Commissioner.

NOTE

Authority cited: Sections 10133.8 and 10133.9, Insurance Code. Reference: Sections 10133.8 and 10133.9, Insurance Code.

HISTORY

1. New section filed 9-19-2007; operative 10-19-2007 (Register 2007, No. 38).

§2538.7. Health Insurer Monitoring, Evaluation & Reporting.

Note • History

(a) Every health insurer shall monitor the implementation and provision of its LAP and make modifications as necessary to ensure compliance with Insurance Code sections 10133.8 and 10133.9 and these regulations. The health insurer's policies and procedures shall include a description of the health insurer's method of (1) monitoring health insurer, contractor, health care provider, and network compliance with the health insurer's standards for the LAP Assistance Program, including the availability, quality and utilization of language assistance services, (2) tracking grievances and complaints related to its LAP Assistance Program, and (3) documenting actions taken to correct problems.

(b) Every health insurer shall evaluate the effectiveness of its LAP with regard to the following:

(1) Assessing indicated/threshold language(s) based on data collected;

(2) Assessing current language assistance needs of its insureds who are LEP persons;

(3) Documenting and responding to requests for translation and interpretation services;

(4) Whether the existing LAP Assistance Program meets the needs of its insureds who are LEP insureds;

(5) Whether health insurer staff know the health insurer's policies and procedures and how to implement them;

(6) Whether the resources and arrangements for language assistance identified in the health insurer's policies and procedures are still current and available; and

(7) Responding to communications from insureds, including via surveys and complaints.

(c) Every health insurer shall report the information and data requested by the Department of Insurance in a timely manner. Health insurers who do not report in a timely manner shall be subject to fines and penalties as authorized by the Insurance Code.

(1) By December 1, 2007, every health insurer shall report to the Department of Insurance on the status of the implementation of its LAP Assistance Program;

(2) Within one year after the health insurer's initial assessment but no later than December 1, 2009 and biennially by December 1st thereafter, every health insurer shall report to the Department of Insurance on its internal policies and procedures related to cultural appropriateness and any other information related to the health insurer's LAP as requested by the Commissioner, in a format specified by the department that shall include at least the following information:

(A) The data regarding the insured population based on the needs assessment as required by paragraph (2) of subdivision (b) of Insurance Code section 10133.8;

(B) The education of health insurer staff who have routine contact with insureds regarding the diverse needs of the insured population;

(D) An evaluation of the health insurer's language assistance programs and services with respect to the health insurer's insured population, using processes such as an analysis of complaints and satisfaction survey results;

(E) The periodic provision of information regarding the ethnic diversity of the health insurer's insured population and any related strategies to health insurer's providers. Health insurers may use existing means of communication;

(F) The periodic provision of educational information to insureds on the health insurer's services and programs.

NOTE

Authority cited: Sections 10133.8 and 10133.9, Insurance Code. Reference: Sections 10133.8 and 10133.9, Insurance Code.

HISTORY

1. New section filed 9-19-2007; operative 10-19-2007 (Register 2007, No. 38).

§2538.8. Department of Insurance Reporting.

Note • History

Beginning on January 1, 2008, the Department shall report biennially to the Legislature regarding health insurer compliance with the standards established by Insurance Code section 10133.8 and these regulations including results of compliance audits made in conjunction with other audits and reviews. The Commissioner shall ensure that the reports required by this section as well as the data collected from health insurers for the reports do not require duplicative or conflicting data collection from health insurers. The Commissioner shall use the reported information from health insurers to make recommendations to health insurers for changes to their LAP, including the development of forms to notify insureds of their rights under these regulations and to further promote the purpose of these regulations.

NOTE

Authority cited: Sections 10133.8 and 10133.9, Insurance Code. Reference: Sections 10133.8 and 10133.9, Insurance Code.

HISTORY

1. New section filed 9-19-2007; operative 10-19-2007 (Register 2007, No. 38).

Article 12.2. Standard Supplemental Disclosure Forms for Disability Insurance

§2540. Authority.

Note • History

This Article is promulgated pursuant to the authority granted to the Insurance Commissioner under the provisions of Sections 790.10 and 10608 of the Insurance Code.

NOTE

Authority cited: Section 10608, Insurance Code.

HISTORY

1. New Article 12.2 (Sections 2540, 2540.1-2540.5) filed 4-10-75 as an emergency; designated effective 4-15-75 (Register 75, No. 15).

2. Certificate of Compliance filed 7-22-75 (Register 75, No. 30).

3. Amendment filed 1-8-76; effective thirtieth day thereafter (Register 76, No. 2)

§2540.1. Purpose.

History

The purpose of this Article is to establish standard supplemental disclosure forms for disability insurance as required by Chapter 7 of Part 2 of Division 2 of the Insurance Code, known as the “Health Insurance Disclosure Act of 1974.” In enacting that Chapter, the Legislature declared that consumers seeking adequate health care insurance at prices they could afford were faced with considerable difficulty in making optimum choices among the great number of health care insurance coverages available. Confusing claims, obscure language and inconspicuous policy details often resulted in uniformed and inappropriate choices by the consumer. The availability of certain minimum information relative to the benefits, limitations and costs of health insurance coverages in a standard, readily comparable form would assist consumers in making the best choices among such insurance coverages commensurate with their respective incomes.

HISTORY

1. Amendment filed 1-8-76; effective thirtieth day thereafter (Register 76, No. 2).

§2540.2. Definitions.

History

As used in this Article:

(a) “Policy” means any individual, family or selected group (“franchise“) disability insurance policy and any individual or family benefit agreement issued by a non-profit hospital service plan.

(b) “Certificate” means any certificate of insurance issued pursuant to a blanket or group master disability insurance policy, any benefit certificate issued pursuant to a group benefit agreement issued by a non-profit hospital service plan and any document issued to an employee setting forth the details of disability coverage under any self-insured employee welfare plan.

HISTORY

1. Amendment filed 1-8-76; effective thirtieth day thereafter (Register 76, No. 2).

§2540.3. Disclosure Forms for Use with Policies.

History

Supplemental disclosure forms for use with policies shall contain the text and shall be in the format of the prototype forms set forth in Section 2540.5 and shall contain no material of an advertising nature, except for the insurer's logotype. Such forms shall be plainly printed in no smaller than 11-point type. Text which is capitalized or underscored in the prototype forms may be emphasized by other means which provide prominence equivalent to such capitalization or underscoring. Disclosure forms which are physically incorporated into advertisements shall not be intermingled with the text of such advertisements and shall be given prominence relative to that of surrounding text.

Where a policy is issued with benefits, exceptions, reductions, limitations, renewal provisions or premiums different from those in the policy as applied for, an amendment to the original disclosure form or a new disclosure form shall be delivered with the policy. Such amendment, together with the original disclosure form, or such new disclosure form shall properly describe the policy as issued and shall contain a statement, which shall be given prominence relative to that of surrounding text, to the following effect: “NOTICE: Read this outline of coverage carefully. It is not identical to the outline of coverage provided upon application and the coverage originally applied for has not been issued.” Where the only difference between the policy as applied for and the policy as issued is the premium, the foregoing statement may be modified appropriately. An amendment to the disclosure form or a new disclosure form need not be delivered with the policy where modification of the policy features set forth above is effected by a rider to the policy which must be signed by the insured upon delivery of the policy.

HISTORY

1. Amendment filed 1-8-76; effective thirtieth day thereafter (Register 76, No. 2).

§2540.4. Disclosure Forms for Use with Policies: Drafting Instructions.

Note • History

Disclosure forms for use with policies shall be drafted in accordance with the following subsections, which refer to the paragraphs identified by bracketed numbers in the prototype disclosure forms set forth in Section 2540.5. Text in parentheses in the prototype forms may be varied as specified, except that the word “policy” may be replaced by an appropriate term such as “benefit agreement” where coverage is provided by a non-profit hospital service plan. Bracketed text in the prototype forms is instructional and need not appear in the forms as issued.

(a) Drafting Instructions for Paragraph [1]. The insurer's name may be substituted for the phrase, “your insurance company.” This paragraph may be omitted from disclosure forms used with or incorporated into advertisements.

(b) Drafting Instructions for Paragraphs [2]. Each benefit enumerated in the prototype description of the category of coverage shall be stated, regardless of whether the policy with which the disclosure form is to be used provides that benefit. Unless provided otherwise, this paragraph may be omitted if the optional text appearing in parentheses in Paragraph [4] is used in that paragraph. This paragraph may also be omitted if no such optional text appears in Paragraph [4] of the appropriate prototype form.

(c) Drafting Instructions for Paragraph [3]. This paragraph shall set forth, in the order prescribed, a brief specific description of the benefits, including dollar amounts and number of days duration where applicable, provided by the policy with which the disclosure form is to be used. The description shall be stated clearly and concisely and shall include a description of any elimination periods, deductible amounts or co-payment requirements applicable to the benefits described. Where a benefit enumerated in this paragraph is not provided by the policy, it shall be listed with a notation to the effect that no coverage is provided therefor. Where the policy information required to be disclosed in this paragraph is variable at the option of the applicant, a disclosure form used with or incorporated into an advertisement may set forth the ranges over which such information may vary.

(d) Drafting Instructions for Paragraph [4]. This paragraph shall set forth a description of any policy provisions which exclude, eliminate, restrict, reduce, limit or in any other manner operate to reduce or deny payment of the benefits described in Paragraph [3]. Limitations on coverage for pre-existing conditions and any Uniform Policy Provisions which may have the effect of reducing or denying payment of benefits shall be briefly described in this paragraph. Provisions which may have the effect of reducing benefits otherwise payable because of other coverage shall be briefly described in this paragraph. Where Paragraph [2] is omitted, the optional text, if any, appearing in parentheses in this paragraph shall be used in this paragraph.

(e) Drafting Instructions for Paragraph [5]. A description of policy provisions respecting renewability or continuation of coverage shall appear in this paragraph. Where coverage is provided by a non-profit hospital service plan, an appropriate phrase, such as “term of coverage,” many be substituted for the word “renewability.”

(f) Drafting Instructions for Paragraph [6]. The total premium payable by the insured for the coverage shall be stated in this paragraph. The mode of payment for the premium specified shall be prominently disclosed in conjunction with the premium. Initial policy fees may be stated separately, but recurring policy fees must be included within the total premium. If premiums are “step-rated,” the premium for each step may be disclosed or the initial premium may be disclosed, accompanied by a statement to the effect of, “Renewal premiums for this policy will increase periodically depending upon (your age) (the policy year). Refer to the policy schedule for details.” Unless a policy is issued with guaranteed premium rates, this paragraph must contain the statement, “Premiums are subject to change.” Where coverage is provided by a non-profit hospital service plan, an appropriate phrase, such as “subscription charge,” may be substituted for the word, “premium.” Disclosure forms used with or incorporated into advertisements may refer to accompanying rate schedules in lieu of setting forth such schedules.

NOTE

Authority cited: Sections 10293(a) and 10608, Insurance Code.

HISTORY

1. Amendment filed 1-8-76; effective thirtieth day thereafter (Register 76, No. 2).

2. Amendment of subsection (b) filed 4-5-78; designated effective 1-1-79 (Register 78, No. 14).

§2540.5. Prototype Standard Supplemental Disclosure Forms for Use with Policies.

Note • History

(a) Policies which provide more than one category of coverage shall be accompanied by the disclosure form for the category of coverage most appropriate to the coverage provided. Benefits not included in the category selected shall be set forth in an orderly manner following the disclosure of the benefits included in the category selected. Where no prototype disclosure form is appropriate to the coverage provided, a disclosure form shall be used which is based, to the extent possible, upon the prototype forms set forth herein. Such disclosure form shall contain information relative to benefits, exceptions, reductions, limitations, renewability and premiums in the order set forth in the prototype forms and shall disclose such information in accordance with subsection (a) and subsections (c) through (f) of Section 2540.4, above.

(b) Prototype Standard Supplemental Disclosure Form for Policies Providing Basic Hospital Expense Coverage. “Basic Hospital Expense Coverage” provides benefits for expenses incurred for daily hospital room and board and miscellaneous hospital services incurred as a result of covered accident or sickness. Benefits may be subject to a deductible amount and to a co-payment requirement.

(COMPANY NAME)

BASIC HOSPITAL EXPENSE COVERAGE

OUTLINE OF COVERAGE

[1] Read Your (Policy) Carefully. This outline of coverage provides a very brief description of some important features of your (policy). This is not the insurance contract and only the actual (policy) provisions will control. The (policy) itself sets forth, in detail, the rights and obligations of both you and (your insurance company). It is, therefore, important that you Read Your (Policy) Carefully!

[2] Basic Hospital Expense Coverage. This category of coverage is designed to provide to persons insured benefits for hospital expenses incurred as a result of a covered accident or sickness. Benefits may be provided for daily hospital room and board, miscellaneous hospital services, and hospital outpatient services, subject to any limitations, deductibles and co-payment requirements set forth in the (policy). Benefits are not provided for physicians; or surgeons; fees or unlimited hospital expenses.

[3] Benefits of This (Policy).

(a) [Daily hospital room and board and benefit period;]

(b) [Miscellaneous hospital services;]

(d) [Other benefits, if any.]

[4] Exceptions, Reductions and Limitations of This (Policy).

(Benefits are not provided for physicians' or surgeons' fees.)

[5] (Renewability) of This (Policy).

[6] (Premium) for This (Policy).

(c) Prototype Standard Supplemental Disclosure Form for Policies Providing Basic Medical-Surgical Expense Coverage. “Basic Medical--Surgical Expense Coverage” provides benefits for expenses incurred for surgical, anesthesia and in-hospital medical services incurred as a result of covered accident or sickness. Benefits may be subject to a deductible amount and to a co-payment requirement.

(COMPANY NAME)

BASIC MEDICAL-SURGICAL EXPENSE COVERAGE

OUTLINE OF COVERAGE

[2] Basic Medical-Surgical Expense Coverage. This category of coverage is designed to provide to persons insured benefits for medical-surgical expenses incurred as a result of a covered accident or sickness. Benefits may be provided for surgical services, anesthesia services, and in-hospital medical services, subject to any limitations, deductibles and co-payment requirements set forth in the (policy). Benefits are not provided for unlimited hospital expenses or medical-surgical expenses.

[3] Benefits of This (Policy).

(a) [Surgical services;]

(b) [Anesthesia services;]

(d) [Other benefits, if any.]

[4] Exceptions, Reductions and Limitations of This (Policy).

(Benefits are not provided for hospital expenses)

[5] (Renewability) of This (Policy).

[6] (Premium) for This (Policy).

(d) Prototype Standard Supplemental Disclosure Form for Policies Providing Basic Hospital and Medical-Surgical Expense Coverage. “Basic Hospital and Medical-Surgical Coverage” provides benefits for expenses incurred for daily hospital room and board, miscellaneous hospital services, surgical, anesthesia and in-hospital medical services incurred as a result of covered accident or sickness. Benefits may be subject to a deductible amount and to a co-payment requirement.

(COMPANY NAME)

BASIC HOSPITAL AND MEDICAL-SURGICAL EXPENSE

COVERAGE OUTLINE OF COVERAGE

[2] Basic Hospital and Medical-Surgical Expense Coverage. This category of coverage is designed to provide to persons insured benefits for hospital and medical-surgical expenses incurred as a result of a covered accident or sickness. Benefits may be provided for daily hospital room and board, miscellaneous hospital services, hospital outpatient services, surgical services, anesthesia services, and in--hospital medical services, subject to any limitations, deductibles and co-payment requirements set forth in the (policy). Benefits are not provided for unlimited hospital or medical-surgical expenses.

[3] Benefits of this (Policy)

(a) [Daily hospital room and board;]

(b) [Miscellaneous hospital services;]

(d) [Surgical services;]

(e) [Anesthesia services;]

(f) [In-hospital medical services;]

(g) [Other benefits, if any.]

[4] Exceptions, Reductions and Limitations of This (Policy).

[5] (Renewability) of This (Policy).

[6] (Premium) for This (Policy).

(e) Prototype Standard Supplemental Disclosure Form for Policies Providing Hospital Confinement Indemnity Coverage. “Hospital Confinement Indemnity Coverage” provides a stipulated daily benefit for hospital confinement as a result of covered accident or sickness. Benefits may be subject to elimination periods.

(COMPANY NAME)

HOSPITAL CONFINEMENT INDEMNITY

COVERAGE OUTLINE OF COVERAGE

[2] Hospital Confinement Indemnity Coverage. This category of coverage is designed to provide, to persons insured, a fixed daily benefit during periods of hospitalization resulting from a covered accident or sickness, subject to any limitations set forth in the (policy). This coverage does not provide any benefits other than the fixed daily indemnity for hospital confinement. [The last sentence may be omitted or modified to reflect the benefits provided by the policy.]

[3] Benefits of This (Policy).

(a) [Daily benefit payable during hospital confinement and duration of such benefit;]

(b) [Elimination period, if any;]

[4] Exceptions, Reductions and Limitations of This (Policy). (Benefits are not provided for physicians' or surgeons' fees nor for miscellaneous hospital services.) [The foregoing sentence may be modified to reflect the benefits provided by the policy.]

[5] (Renewability) of This (Policy).

[6] (Premiums for This (Policy).

(f) Prototype Standard Supplemental Disclosure Form for Policies Providing Major Medical Expense Coverage. “Major Medical Expense Coverage” provides benefits for major hospital, medical and surgical expenses incurred as a result of covered accident or sickness. Benefits are provided for daily hospital room and board, miscellaneous hospital services, surgical and anesthesia services, in-hospital medical services and prosthetic appliances, among other expenses. The maximum benefit for covered charges must at least equal $10,000. Benefits are subject to substantial fixed or variable deductibles, and may be subject to a co-payment requirement.

(COMPANY NAME)

MAJOR MEDICAL EXPENSE COVERAGE

OUTLINE OF COVERAGE

[2] Major Medical Expense Coverage. This category of coverage is designed to provide, to persons insured, benefits for major hospital, medical, and surgical expenses incurred as a result of a covered accident or sickness. Benefits may be provided for daily hospital room and board, miscellaneous hospital services, surgical services, anesthesia services, in-hospital medical services, out of hospital care, and prosthetic appliances, subject to any deductibles, co-payment provisions, or other limitations which may be set forth in the (policy). Basic hospital or basic medical insurance coverage is not provided.

[3] Benefits of This (Policy).

(a) [Daily hospital room and board;]

(b) [Miscellaneous hospital services;]

(d) [Anesthesia services;]

(e) [In-hospital medical services;]

(f) [Out-of-hospital care;]

(g) [Prosthetic appliances;]

(h) [Maximum dollar amount for covered charges;]

(i) [Other benefits, if any.]

[4] Exceptions, Reductions and Limitations of This (Policy). (This coverage does not provide basic hospital and medical coverage.)

[5] (Renewability) of This (Policy).

[6] (Premium) for This (Policy).

(g) Prototype Standard Supplemental Disclosure Form for Policies Providing Disability Income Protection Coverage. “Disability Income Protection provides benefits on account of the insured's inability, as a result of covered accident or sickness, to perform certain activities as defined in the policy.

(COMPANY NAME)

DISABILITY INCOME PROTECTION COVERAGE

OUTLINE OF COVERAGE

[2] Disability Income Protection Coverage. This category of coverage is designed to provide, to persons insured, benefits for disabilities resulting from a covered accident or sickness, subject to any limitations set forth in the (policy). Benefits are not provided for basic hospital, basic medical-surgical, or major-medical expenses.

[3] Benefits of This (Policy). [The benefit description shall briefly describe the definition or definitions of total disability used in the policy. Benefit and elimination periods may be stated in the time units used in the policy.]

[4] Exceptions, Reductions and Limitations of This (Policy).

(No benefits are provided for hospital, medical or surgical expenses.) [The foregoing sentence may be omitted or modified to reflect the benefits provided by the policy.]

[5] (Renewability) of This (Policy).

[6] (Premium for This (Policy).

(h) Prototype Standard Supplemental Disclosure Form for Policies Providing Accident Only Coverage. “Accident Only Coverage” provides benefits of the nature specified in the policy for losses resulting to the insured from covered accidents. Any policy whose principal benefits are limited to accidental losses shall be included in this category, unless it falls within the following subsection. Benefits payable may vary according to accidental cause.

(COMPANY NAME)

ACCIDENT ONLY COVERAGE

OUTLINE OF COVERAGE

[2] Accident Only Coverage. This category of coverage is designed to provide, to persons insured, benefits for certain losses resulting from a covered accident ONLY, subject to any limitations contained in the (policy). Benefits are not provided for basic hospital, basic medical-surgical, or major-medical expenses.

[3] Benefits of This (Policy). [Prototype disclosure forms for other types of coverage should be used as guides in drafting the benefit description, where appropriate. Where policy benefits vary according to accidental cause, this paragraph shall prominently set forth the circumstances under which benefits are payable which are lesser than the maximum amount payable under the policy.]

[4] Exceptions, Reductions and Limitations of This (Policy). (No benefits are provided for any loss resulting from sickness.) [The foregoing sentence may be omitted or modified to reflect the benefits provided by the policy.]

[5] (Renewability) of This (Policy).

[6] (Premium for This (Policy).

(i) Prototype Standard Supplemental Disclosure Form for Policies Providing Specified Disease or Specified Accident Coverage.

“Specified Disease or Specified Accident Coverage” provides benefits of the nature specified in the policy only for losses resulting from the disease or type of accident specified in the policy.

(COMPANY NAME)

(SPECIFIED DISEASE)

(SPECIFIED ACCIDENT) COVERAGE

OUTLINE OF COVERAGE

[2] (Specified Disease) (Specified Accident) Coverage. This category of coverage is designed to provide, to persons insured, benefits ONLY when certain losses occur as a result of (specified diseases) (specified accidents). Benefits are not provided for basic hospital, basic medical-surgical, or major-medical expenses.

[3] Benefits of This (Policy). [Prototype disclosure forms for other types of coverage should be used as guides in drafting the benefit description, where appropriate. Where specified accident policy benefits vary according to accidental cause, this paragraph shall prominently set forth the circumstances under which benefits are payable which are lesser than the maximum amount payable under the policy.]

[4] Exceptions, Reductions and Limitations of This (Policy). (Benefits are not provided for losses caused by anything other than [specified diseases][specified accidents].)

[5] (Renewability) of This (Policy).

[6] (Premium for This (Policy).

(j) Prototype Standard Supplemental Disclosure Form for Policies Providing Comprehensive Major Medical Expense Coverage.

“Comprehensive Major Medical Expense Coverage” provides those benefits enumerated in subsection (f) of this section, except that coverage is not designed to supplement other coverage and may be subject only to modest fixed deductible amounts. Benefits may also be subject to a co-payment requirement.

(COMPANY NAME)

COMPREHENSIVE MAJOR MEDICAL EXPENSE COVERAGE

OUTLINE OF COVERAGE

[2] Comprehensive Major Medical Expense Coverage. This category of coverage is designed to provide, to persons insured, benefits for major hospital, medical, and surgical expenses incurred as a result of a covered accident or sickness. Benefits may be provided for daily hospital room and board, miscellaneous hospital services, surgical services, anesthesia services, in-house medical services, out of hospital care, and prosthetic appliances, subject to any deductibles, co-payment provisions, or other limitations which may be set forth in the (policy).

[3] Benefits of This (Policy).

(a) [Daily hospital room and board;]

(b) [Miscellaneous hospital services;]

(d) [Anesthesia services;]

(e) [In-hospital medical services;]

(f) [Out-of-hospital care;]

(g) [Prosthetic appliances;]

(i) [Other benefits, if any.]

[4] Exceptions, Reductions and Limitations of This (Policy).

[5] (Renewability) of This (Policy).

[6] (Premium) for This (Policy).

(k) Disclosure Forms for Medicare Supplement Policies: Special Instructions. The name, address and telephone number of a representative of the insurer or the General Agent shall be inserted in the blank in the sentence following Paragraph (8). (Such representative may not be the agent, if any, who solicited or delivered the policy.) Such representative shall be located in this State unless a toll-free “800” telephone number is specified.

Insurers shall establish affirmative procedures for insuring that Medicare Supplement Policy Disclosure Forms are properly delivered pursuant to Insurance Code Sections 10601(e) and 10605, where solicitation is made on an other-than-direct response basis. Such procedures could include physically attaching disclosure forms to field-issued policies; requiring return to the insurer of copies of disclosure forms signed by prospective insureds; or requiring separately signed acknowledgments of receipt on application for insurance when such applications are returned to the insurer. (This requirement shall not be construed to mean that insurers need not establish reasonable procedures for insuring that other categories of disclosure forms are properly delivered to prospective insureds.)

(l) Prototype Standard Supplemental Disclosure Form for Policies Providing Medicare Supplement Coverage.

(COMPANY NAME)

MEDICARE SUPPLEMENT COVERAGE

OUTLINE OF COVERAGE

[2] Medicare Supplement Coverage--Policies of this category are designed to supplement Medicare by covering some hospital, medical, and surgical services which are partially covered by Medicare. Coverage is provided for hospital in-patient charges and some physician charges, subject to any deductibles and co-payment provisions which may be in addition to those provided by Medicare, and subject to other limitations which may be set forth in the policy. The policy does not provide benefits for custodial care such as help in walking, getting in and out of bed, eating, dressing, bathing and taking medicine (delete if such coverage is provided).

[3] (a) (For agents:) Neither (insert company's name) nor its agents are connected with Medicare.

(b) (For direct response:) (insert company's name) is not connected with Medicare.

[4] (A brief summary of the major benefit gaps in Medicare Parts A and B with a parallel description of supplemental benefits, including dollar amounts, provided by the Medicare Supplement Coverage in the following order:)

This

Policy You

Service Benefit Medicare pays Pays Pay

HOSPITALIZATION--

Semiprivate room and

board, general

nursing and First 60 days All But $( )

miscellaneous

hospital services and

supplies Includes meals, 61st to All but $( )

90th day a day

special care units, drugs, lab

tests, diagnostic X-rays,

medical supplies, 90th to All but $( )

150th day a day

operating and recovery

room, anesthesia and

rehabilitation services Beyond 150 Nothing

days

POST HOSPITAL

SKILLED NURSING

CARE--In a

facility approved by First 20 100% of costs

days

Medicare you must have

been in a hospital for at

least Additional All but $( )

80 days a day

three days and enter the

facility within 14 days

after hospital discharge Beyond 100 Nothing

days

MEDICAL EXPENSE Physician's 80% of reasonable

services in- charge [after $( )

patient and deductible]

out-patient

medical

services and

supplies at a

hospital, physical

and Speech

therapy and

ambulance.

[5] (A statement that the policy does or does not cover the following:)

(a) Private duty nursing.

(b) Skilled nursing home care costs (beyond what is covered by Medicare).

(d) Intermediate nursing home care costs.

(e) Home health care (above number of visits covered by Medicare).

(f) Physician charges (above Medicare's reasonable charge).

(g) Drugs (other than prescription drugs furnished during a hospital or skilled nursing facility stay).

(h) Care received outside of U.S.A.

(i) Dental care or dentures, checkups, routine immunizations, cosmetic surgery, routine foot care, examinations for the cost of eyeglasses or hearing aids.

[6] (A description of any policy provisions which excludes, eliminates, resists, reduces, limits, delays or in any other manner operates to qualify payment of the benefits described in (4) above, including conspicuous statements:)

(a) (That the chart summarizing Medicare benefits only briefly described such benefits.)

(b) (That the Health Care Financing Administration or its Medicare publications should be consulted for further details and limitation.)

[7] (A description of policy provisions respecting renewability or continuation of coverage, including any reservation of right to change premium.)

[8] (The amount of premium for this policy.)

If you have questions about this (policy), please write or call___.

NOTE

Authority cited: Sections 790.10, 10608 and 10195(g), Insurance Code. Reference: Sections 10195(g) and 10603, Insurance Code.

HISTORY

1. Amendment filed 1-8-76; effective thirtieth day thereafter (Register 76, No. 2).

2. Amendment of subsections (e)(4), (h)(4), repealer and new subsection (k) and new subsections (l), (m) and (n) filed 4-5-78; designated effective 1-1-79 (Register 78, No. 14).

3. Repealer of subsections (k)-(n) and new subsections (k) and (l) filed 3-31-83; effective thirtieth day thereafter (Register 83, No. 14).

§2540.6. Standard Supplemental Disclosure Forms for Use with Certificates.

Note • History

(a) Generally. Supplemental disclosure forms for use with certificates shall be in the format set forth below and shall contain no material of an advertising nature except for the logotype of the organization or organizations providing the coverage. Disclosure forms which are physically incorporated into certificates, advertisements or advance announcements of coverage shall not be intermingled with the text of such documents and shall be given prominence relative to that of surrounding text. Disclosure forms which are delivered with certificates shall appear on or be attached to the front cover or inside front pages of the certificates or they may precede the portions of the certificates which set forth the benefits subject to this Article. Disclosure forms for use with “blanket” coverages shall accompany certificates or memorandums of coverage if or when they are delivered to insurers, subscribers or employees.

(b) Drafting Instructions. Supplemental disclosure forms for use with certificates shall be plainly printed in no smaller than 11-point type and shall contain an appropriate caption or heading such as “Outline of Coverage.” Such forms shall prominently state the organization or organizations providing the coverage and shall be introduced by a brief statement to the effect that the form is only a summary of the provisions of the certificate which, itself, must be consulted for the important details of the coverage provided. The information required to be disclosed by this section shall be set forth in separate provisions which shall be in the order set forth below. Each provision shall contain a caption or heading which reflects its subject matter.

(1) Categories of Coverage. The first provision shall state the category or categories of coverage provided by the certificate, selected from those defined in Section 2540.5, subsections (b) through (k), above.

(2) Benefits. The second provision shall briefly describe the benefits provided by the coverage or shall state the location or locations in the certificate where such benefits are disclosed. If benefits are set forth in the disclosure form, they shall be accompanied by disclosure of any elimination periods, deductible amounts or co-payment requirements applicable to the benefits described.

(3) Exceptions, Reductions and Limitations. The third provision shall briefly describe the exceptions, reductions and limitations to which the coverage is subject or shall state the location or locations in the certificate where such exceptions, reductions or limitations are described. Provisions which may have the effect of reducing benefits otherwise payable because of other coverage are deemed to be “reductions” for the purpose of this provision. Where exceptions, reductions and limitations are described in the certificate in conjunction with the description of benefits, this provision may contain a statement directing the covered person to refer to the benefit descriptions in the certificate.

(4) Continuation of Coverage. The fourth provision shall briefly describe the provisions in the certificate relating to eligibility for coverage and continuation and termination of coverage or shall state the location or locations of such provisions in the certificate.

(5) Premium or Contribution. The fifth provision shall disclose information relative to the premium or contribution paid by the insured, subscriber or employee for disability coverage. Where such premium or contribution is identifiable, its amount in effect at the time the disclosure form is delivered shall be disclosed. Alternatively, this provision may state where such information may be obtained (for example, statements of wages and deductions accompanying employee paychecks or premium notices). Where the premium or contribution for disability coverage is not identifiable because it is combined with the costs of other coverages not subject to this Article, this provision may be limited to a statement to the effect that the cost of the coverage is included within the premium or contribution paid by the insured, subscriber or employee for his benefit plan. This paragraph may be omitted if the coverage is provided without charge to the insured, subscriber or employee.

(c) Medicare Supplement Coverage. Supplemental disclosure forms for use with certificates providing Medicare supplement coverage as defined in Section 2220.51 shall comply with Sections 2540.3 and 2540.5 in lieu of subsections (a) and (b) of this Section. Such disclosure forms may (1) use terms appropriate to group coverage in place of terms more appropriate to individual coverage and (2) may identify the master policyholder, but not so as to give more prominence to the master policyholder than to the insurer. Supplemental disclosure forms for use with combination certificates which provide comprehensive or major medical hospital, medical and surgical coverage to those under 65 and Medicare supplement coverage to those over age 65 are exempt from this subsection.

NOTE

Authority cited: Sections 790.10, 10195(g) and 10608, Insurance Code. Reference: Sections 10195 (g) and 10603, Insurance Code.

HISTORY

1. New section filed 1-8-76; effective thirtieth day thereafter (Register 76, No.2).

2. New subsection (c) filed 3-31-83; effective thirtieth day thereafter (Register 83, No. 14).

§2540.7. Prior Regulations Not Superseded.

Note • History

This Article does not supersede Article 12 of this Subchapter or Article 1.5 of Subchapter 2 of this Title.

NOTE

Authority cited: Section 10608, Insurance Code. Reference: Section 10603, Insurance Code.

HISTORY

1. New section filed 1-8-76; effective thirtieth day thereafter (Register 76, No. 2).

§2540.8. Severability.

Note • History

NOTE

Authority cited: Section 10608, Insurance Code. Reference: Section 10603, Insurance Code.

HISTORY

1. New section filed 1-8-76; effective thirtieth day thereafter (Register 76, No. 2).

Article 12.3. Valuation of Life Insurance Policies

§2542. Preamble.

Note • History

Section 10489.94 of the California Insurance Code authorizes the commissioner to promulgate regulations to provide tables of select mortality factors and rules for their use, rules concerning a minimum standard for the valuation of plans with nonlevel premiums or benefits, and rules concerning a minimum standard for the valuation of plans with secondary guarantees.

This Article 12.3 shall supersede Department of Insurance Bulletin Number 2000-02, effective July 1, 2000, issued by the commissioner under the authority of Section 10489.94 of the California Insurance Code.

NOTE

Authority cited: Section 10489.94, Insurance Code. Reference: Section 10489.94, Insurance Code.

HISTORY

1. New article 12.3 (sections 2542-2542.8) and section filed 11-19-2002; operative 1-1-2003 (Register 2002, No. 47).

§2542.1. Purpose.

Note • History

(a) The purpose of this article is to provide:

(1) Tables of select mortality factors and rules for their use;

(2) Rules concerning a minimum standard for the valuation of plans with nonlevel premiums or benefits; and

(3) Rules concerning a minimum standard for the valuation of plans with secondary guarantees.

(b) The method for calculating Basic Reserves defined in this article will constitute the commissioners reserve valuation method for policies to which this article is applicable.

NOTE

Authority cited: Section 10489.94, Insurance Code. Reference: Sections 10489.2, 10489.5 and 10489.94, Insurance Code.

HISTORY

1. New section filed 11-19-2002; operative 1-1-2003 (Register 2002, No. 47).

§2542.2. Applicability.

Note • History

This Article 12.3 shall apply to all life insurance policies, with or without nonforfeiture values, issued on or after the effective date of this article, subject to the following exceptions and conditions.

(a) Exceptions

(1) This article shall not apply to any individual life insurance policy issued on or after the effective date of this article if the policy is issued in accordance with and as a result of the exercise of a reentry provision contained in the original life insurance policy of the same or greater face amount, issued before the effective date of this article, that guarantees the premium rates of the new policy. This article also shall not apply to subsequent policies issued as a result of the exercise of such a provision, or a derivation of the provision, in the new policy.

(2) This article shall not apply to any universal life policy that meets all the following requirements:

(A) Secondary guarantee period, if any, is five (5) years or less;

(B) Specified premium for the secondary guarantee period is not less than the net level reserve premium for the secondary guarantee period based on the CSO valuation tables as defined in Section 2542.3(f) and the applicable valuation interest rate; and

(C) The initial surrender charge is not less than 100 percent of the first year annualized specified premium for the secondary guarantee period.

(3) This article shall not apply to any variable life insurance policy that provides for life insurance, the amount or duration of which varies according to the investment experience of any separate account or accounts.

(4) This article shall not apply to any variable Universal Life Insurance Policy that provides for life insurance, the amount or duration of which varies according to the investment experience of any separate account or accounts.

(5) This article shall not apply to a group life insurance certificate unless the certificate provides for a stated or implied schedule of maximum gross premiums required in order to continue coverage in force for a period in excess of one year.

(b) Conditions

(1) Calculation of the minimum valuation standard for policies with guaranteed nonlevel gross premiums or guaranteed nonlevel benefits (other than universal life policies), or both, shall be in accordance with the provisions of Section 2542.5.

(2) Calculation of the minimum valuation standard for flexible premium and fixed premium Universal Life Insurance Policies that contain provisions resulting in the ability of a policyholder to keep a policy in force over a secondary guarantee period shall be in accordance with the provisions of Section 2542.6.

NOTE

Authority cited: Section 10489.94, Insurance Code. Reference: Section 10489.94, Insurance Code.

HISTORY

1. New section filed 11-19-2002; operative 1-1-2003 (Register 2002, No. 47).

§2542.3. Definitions.

Note • History

For purposes of this article:

(a) “Basic Reserves” means reserves calculated in accordance with California Insurance Code Section 10489.5.

(b) “Contract Segmentation Method” means the method of dividing the period from issue to mandatory expiration of a policy into successive segments, with the length of each segment being defined as the period from the end of the prior segment (from policy inception, for the first segment) to the end of the latest policy year as determined below. All calculations are made using the 1980 CSO Valuation Tables, as defined in Subdivision (f) of this Section 2542.3 (or any other valuation mortality table adopted by the National Association of Insurance Commissioners (NAIC) after July 1, 2000 and approved by regulation promulgated or bulletin issued by the commissioner for this purpose), and, if elected, the optional minimum mortality standard for Deficiency Reserves stipulated in Section 2542.4(b) of this article.

The length of a particular contract segment shall be set equal to the minimum of the value t for which Gt is greater than Rt (if Gt never exceeds Rt the segment length is deemed to be the number of years from the beginning of the segment to the mandatory expiration date of the policy), where Gt and Rt are defined as follows:

Embedded Graphic 10.0198

(1) Minimum reserves calculated in accordance with California Insurance Code Section 10489.9 over

(2) Basic Reserves.

(d) “Guaranteed Gross Premiums” means the premiums under a policy of life insurance that are guaranteed and determined at issue.

(e) “Maximum Valuation Interest Rates” means the interest rates defined in California Insurance Code Section 10489.4 (Computation of Minimum Standard by Calendar Year of Issue) that are to be used in determining the minimum standard for the valuation of life insurance policies.

(f) “1980 CSO Valuation Tables” means the Commissioners' 1980 Standard Ordinary Mortality Table (1980 CSO Table) (1981 Transactions of the Society of Actuaries, Volume 33, pp. 618, 673), without select factors, incorporated into the 1980 amendments to the NAIC Standard Valuation Law, and variations of the 1980 CSO Table approved by the NAIC and approved by regulation promulgated or bulletin issued by the commissioner. “1980 CSO Valuation Tables” includes the 1980 CSO Female Smoker and Non-smoker Mortality Rates, and the 1980 CSO Male Smoker and Non-smoker Mortality Rates, tables approved by the NAIC in December 1983 (1984 Proceedings of the National Association of Insurance Commissioners, I, pp. 406-407, 410-411), which tables are approved by the commissioner for purposes of this article. For valuation under this article of life insurance contracts issued pursuant to arrangements which may be considered terms, conditions, or privileges of employment within the meaning of Subdivision (f) of Insurance Code Section 790.03, “1980 CSO Valuation Tables” also includes the Blended 1980 CSO Tables B through F, approved by the NAIC in December 1983 (1984 Proceedings of the National Association of Insurance Commissioners, I, pp. 396-400), which tables are approved by the commissioner for purposes of this article only for use with such contracts. The 1980 CSO Valuation Tables are hereby incorporated herein by reference.

(g) “Scheduled Gross Premium” means the smallest illustrated gross premium at issue for other than Universal Life Insurance Policies. For Universal Life Insurance Policies, Scheduled Gross Premium means the smallest specified premium described in Section 2542.6(a)(3), if any, or else the minimum premium described in Section 2542.6(a)(4).

(h)(1) “Segmented Reserves” means reserves, calculated using segments produced by the Contract Segmentation Method, equal to the present value of all future guaranteed benefits less the present value of all future net premiums to the mandatory expiration of a policy, where the net premiums within each segment are a uniform percentage of the respective Guaranteed Gross Premiums within the segment. The uniform percentage for each segment is such that, at the beginning of the segment, the present value of the net premiums within the segment equals:

(A) The present value of the death benefits within the segment, plus

(B) The present value of any unusual guaranteed cash value (see Section 2542.5(d)) occurring at the end of the segment, less

(D) For the first segment only, the excess of Item 1. over Item 2., as follows:

1. A net level annual premium equal to the present value, at the date of issue, of the benefits provided for in the first segment after the first policy year, divided by the present value, at the date of issue, of an annuity of one per year payable on the first and each subsequent anniversary within the first segment on which a premium falls due. However, the net level annual premium shall not exceed the net level annual premium on the nineteen-year premium whole life plan of insurance of the same renewal year equivalent level amount at an age one year higher than the age at issue of the policy.

2. A net one year term premium for the benefits provided for in the first policy year.

(2) The length of each segment is determined by the “Contract Segmentation Method,” as defined in this Section 2542.3.

(3) The interest rates used in the present value calculations for any policy may not exceed the Maximum Valuation Interest Rates determined with a guarantee duration equal to the sum of the lengths of all segments of the policy.

(4) For both Basic Reserves and Deficiency Reserves computed by the segmented method, present values shall include future benefits and net premiums in the current segment and in all subsequent segments.

(i) “Tabular Cost of Insurance” means the net single premium at the beginning of a policy year for one-year term insurance in the amount of the guaranteed death benefit in that policy year.

(j) “Ten-year Select Factors” means the select factors (1981 Transactions of the Society of Actuaries, Volume 33, p. 669) adopted with the 1980 amendments to the NAIC Standard Valuation Law. The Ten-year Select Factors are hereby incorporated herein by reference.

(k)(1) “Unitary Reserves” means the present value of all future guaranteed benefits less the present value of all future modified net premiums, where:

(A) Guaranteed benefits and modified net premiums are considered to the mandatory expiration of the policy; and

(B) Modified net premiums are a uniform percentage of the respective Guaranteed Gross Premiums, where the uniform percentage is such that, at issue, the present value of the net premiums equals the present value of all death benefits and pure endowments, plus the excess of Item 1. over Item 2., as follows:

1. A net level annual premium equal to the present value, at the date of issue, of the benefits provided for after the first policy year, divided by the present value, at the date of issue, of an annuity of one per year payable on the first and each subsequent anniversary of the policy on which a premium falls due. However, the net level annual premium shall not exceed the net level annual premium on the nineteen-year premium whole life plan of insurance of the same renewal year equivalent level amount at an age one year higher than the age at issue of the policy.

2. A net one year term premium for the benefits provided for in the first policy year.

(2) The interest rates used in the present value calculations for any policy may not exceed the Maximum Valuation Interest Rates determined with a guarantee duration equal to the length from issue to the mandatory expiration of the policy.

(l) “Universal Life Insurance Policy” means any individual life insurance policy under the provisions of which separately identified interest credits (other than in connection with dividend accumulations, premium deposit funds, or other supplementary accounts) and mortality or expense charges are made to the policy.

NOTE

Authority cited: Section 10489.94, Insurance Code. Reference: Sections 790.03, 10489.15, 10489.2, 10489.4, 10489.5, 10489.7, 10489.9 and 10489.94, Insurance Code.

HISTORY

1. New section filed 11-19-2002; operative 1-1-2003 (Register 2002, No. 47).

§2542.4. General Calculation Requirements for Basic Reserves and Premium Deficiency Reserves.

Note • History

(a) At the election of the company for any one or more specified plans of life insurance, the minimum mortality standard for Basic Reserves may be calculated using the 1980 CSO Valuation Tables, with or without select mortality factors (or any other valuation mortality table adopted by the NAIC after July 1, 2000 and approved by regulation promulgated or bulletin issued by the commissioner for this purpose). If select mortality factors are elected, they may be:

(1) The Ten-year Select Factors;

(2) The select mortality factors in Section 2542.8 of this article; or

(3) Any other table of select mortality factors adopted by the NAIC after July 1, 2000 and approved by regulation promulgated or bulletin issued by the commissioner for the purpose of calculating Basic Reserves.

(b) Deficiency Reserves, if any, are calculated for each policy as the excess, if greater than zero, of the quantity A over the Basic Reserve. The quantity A is obtained by recalculating the Basic Reserve for the policy using Guaranteed Gross Premiums instead of net premiums when the Guaranteed Gross Premiums are less than the corresponding net premiums. At the election of the company for any one or more specified plans of insurance, the quantity A and the corresponding net premiums used in the determination of quantity A may be based upon the 1980 CSO Valuation Tables with or without select mortality factors (or any other valuation mortality table adopted by the NAIC after July 1, 2000 and approved by regulation promulgated or bulletin issued by the commissioner). If select mortality factors are elected, they may be:

(1) The Ten-year Select Factors; or

(2) The select mortality factors in Section 2542.8 of this article, which may be modified as specified in Paragraph (3) below;

(3) For durations in the first segment, X percent of the select mortality factors in Section 2542.8, subject to the following:

(A) X may vary by policy year, policy form, underwriting classification, issue age, or any other policy factor expected to affect mortality experience;

(B) X is such that, when using the valuation interest rate used for Basic Reserves, Item 1. below is greater than or equal to Item 2. below:

1. The actuarial present value of future death benefits, calculated using the mortality rates resulting from the application of X;

2. The actuarial present value of future death benefits calculated using anticipated mortality experience without recognition of mortality improvement beyond the valuation date;

(C) X is such that the mortality rates resulting from the application of X are at least as great as the anticipated mortality experience, without recognition of mortality improvement beyond the valuation date, in each of the first five (5) years after the valuation date;

(D) The appointed actuary shall increase X at any valuation date where it is necessary in order to continue to meet all the requirements of this Paragraph (b)(3);

(E) The appointed actuary may decrease X at any valuation date as long as X continues to meet all the requirements of this Paragraph (b)(3); and

(F) The appointed actuary shall specifically take into account the adverse effect on expected mortality and lapsation of any anticipated or actual increase in gross premiums.

(G) If X is less than 100 percent at any duration for any policy, the requirements of Items 1., 2., and 3. below shall be met:

1. The appointed actuary shall annually prepare an actuarial opinion and memorandum for the company in conformance with the requirements of Article 17 of this Subchapter 3, as amended, commencing with Section 2580.1;

2. The appointed actuary shall disclose, in the regulatory asset adequacy issues summary pursuant to Section 2580.6, the impact of the insufficiency of assets to support the payment of benefits and expenses and the establishment of statutory reserves during one or more interim periods; and

3. The appointed actuary shall annually opine for all policies subject to this article as to whether the mortality rates resulting from the application of X meet the requirements of this Paragraph (b)(3). This opinion shall be supported by an actuarial report, subject to appropriate Actuarial Standards of Practice promulgated by the Actuarial Standards Board of the American Academy of Actuaries. The X factors shall reflect anticipated future mortality, without recognition of mortality improvement beyond the valuation date, taking into account relevant emerging experience; or

(4) Any other table of select mortality factors adopted by the NAIC after July 1, 2000 and approved by regulation promulgated or bulletin issued by the commissioner for the purpose of calculating deficiency reserves.

(c) This Subdivision (c) applies to both Basic Reserves and Deficiency Reserves. Any permissible set of select mortality factors may be used only for the first segment. However, if the first segment is less than ten (10) years, the appropriate Ten-year Select Factors may be used thereafter through the tenth policy year from the date of issue.

(d) In determining Basic Reserves or Deficiency Reserves, Guaranteed Gross Premiums without policy fees may be used where the calculation involves the guaranteed gross premium but only if the policy fee is a level dollar amount after the first policy year. In determining Deficiency Reserves, policy fees may be included in Guaranteed Gross Premiums, even if not included in the actual calculation of Basic Reserves.

(e) Reserves for policies that have changes to Guaranteed Gross Premiums, guaranteed benefits, guaranteed charges, or guaranteed credits that are unilaterally made by the insurer after issue and that are effective for more than one year after the date of the change shall be the greatest of the following: (1) reserves calculated ignoring the guarantee, (2) reserves assuming the guarantee was made at issue, and (3) reserves assuming that the policy was issued on the date of the guarantee.

(f) The commissioner may require that the company document the extent of the adequacy of reserves for specified blocks, including but not limited to policies issued prior to the effective date of this article. This documentation may include a demonstration of the extent to which aggregation with other nonspecified blocks of business is relied upon in the formation of the appointed actuary opinion pursuant to and consistent with the requirements of Article 17 of this Subchapter 3, as amended, commencing with Section 2580.1.

NOTE

Authority cited: Section 10489.94, Insurance Code. Reference: Sections 790.03, 10489.15, 10489.2, 10489.5, 10489.7, 10489.9 and 10489.94, Insurance Code.

HISTORY

1. New section filed 11-19-2002; operative 1-1-2003 (Register 2002, No. 47).

2. Repealer of subsections (b)(3)(B)-(C), subsection relettering, amendment of newly designated subsections (b)(3)(E) and (b)(3)(G)-(b)(3)(G)1. and new subsection (b)(3)(G)2. filed 12-29-2010; operative 12-29-2010 pursuant to Government Code section 11343.4 (Register 2010, No. 53).

§2542.5. Calculation of Minimum Valuation Standard for Policies with Guaranteed Nonlevel Gross Premiums or Guaranteed Nonlevel Benefits (Other than Universal Life Policies).

Note • History

(a) Basic Reserves. Basic Reserves shall be calculated as the greater of the Segmented Reserves and the Unitary Reserves. Both the Segmented Reserves and the Unitary Reserves for any policy shall use the same valuation mortality table and select factors. At the option of the insurer, in calculating Segmented Reserves and net premiums, either the adjustment described in Paragraph (1) below or the adjustment described in Paragraph (2) below may be made:

(1) Treat the Unitary Reserve, if greater than zero, applicable at the end of each segment as a pure endowment and subtract the Unitary Reserve, if greater than zero, applicable at the beginning of each segment from the present value of guaranteed life insurance and endowment benefits for each segment.

(2) Treat the guaranteed cash surrender value, if greater than zero, applicable at the end of each segment as a pure endowment; and subtract the guaranteed cash surrender value, if greater than zero, applicable at the beginning of each segment from the present value of guaranteed life insurance and endowment benefits for each segment.

(b) Deficiency Reserves

(1) The Deficiency Reserve at any duration shall be calculated:

(A) On a unitary basis if the corresponding basic reserve determined by Subdivision (a) of this Section 2542.5 is unitary;

(B) On a segmented basis if the corresponding basic reserve determined by Subdivision (a) of this Section 2542.5 is segmented; or

(C) On the segmented basis if the corresponding basic reserve determined by Subdivision (a) of this Section 2542.5 is equal to both the Segmented Reserve and the Unitary Reserve.

(2) This Subdivision (b) shall apply to any policy for which the guaranteed gross premium at any duration is less than the corresponding modified net premium calculated by the method used in determining the Basic Reserves but using the minimum valuation standards of mortality (specified in Subdivision (b) of Section 2542.4) and rate of interest.

(3) Deficiency Reserves, if any, shall be calculated for each policy as the excess if greater than zero, for the current and all remaining periods, of the quantity A over the basic reserve, where A is obtained as indicated in Subdivision (b) of Section 2542.4.

(4) For Deficiency Reserves determined on a segmented basis, the quantity A is determined using segment lengths equal to those determined for segmented Basic Reserves.

(c) Minimum Value. Basic Reserves may not be less than the Tabular Cost of Insurance for the balance of the policy year, if mean reserves are used. Basic Reserves may not be less than the Tabular Cost of Insurance for the balance of the current modal period or to the paid-to date, if later, but not beyond the next policy anniversary, if mid-terminal reserves are used. The Tabular Cost of Insurance shall use the same valuation mortality table and interest rates as that used for the calculation of the Segmented Reserves. However, if select mortality factors are used, they shall be the Ten-year Select Factors. In no case may total reserves (including Basic Reserves, Deficiency Reserves and any reserves held for supplemental benefits that would expire upon contract termination) be less than the amount that the policyowner would receive (including the cash surrender value of the supplemental benefits, if any, referred to above), exclusive of any deduction for policy loans, upon termination of the policy.

(d) Unusual Pattern of Guaranteed Cash Surrender Values

(1) For any policy with an unusual pattern of guaranteed cash surrender values, the reserves actually held prior to the first unusual guaranteed cash surrender value shall not be less than the reserves calculated by treating the first unusual guaranteed cash surrender value as a pure endowment and treating the policy as an n year policy providing term insurance plus a pure endowment equal to the unusual cash surrender value, where n is the number of years from the date of issue to the date the unusual cash surrender value is scheduled.

(2) The reserves actually held subsequent to any unusual guaranteed cash surrender value shall not be less than the reserves calculated by treating the policy as an n year policy providing term insurance plus a pure endowment equal to the next unusual guaranteed cash surrender value, and treating any unusual guaranteed cash surrender value at the end of the prior segment as a net single premium, where

(A) n is the number of years from the date of the last unusual guaranteed cash surrender value prior to the valuation date to the earlier of:

1. The date of the next unusual guaranteed cash surrender value, if any, that is scheduled after the valuation date; or

2. The mandatory expiration date of the policy; and

(B) The net premium for a given year during the n year period is equal to the product of the net to gross ratio and the respective gross premium; and

1. The present value, at the beginning of the n year period, of death benefits payable during the n year period plus the present value, at the beginning of the n year period, of the next unusual guaranteed cash surrender value, if any, minus the amount of the last unusual guaranteed cash surrender value, if any, scheduled at the beginning of the n year period.

2. The present value, at the beginning of the n year period, of the Scheduled Gross Premiums payable during the n year period.

(3) For purposes of this Subdivision (d), a policy is considered to have an unusual pattern of guaranteed cash surrender values if any future guaranteed cash surrender value exceeds the prior year's guaranteed cash surrender value by more than the sum of:

(A) One hundred ten percent (110%) of the Scheduled Gross Premium for that year;

(B) One hundred ten percent (110%) of one year's accrued interest on the sum of the prior year's guaranteed cash surrender value and the Scheduled Gross Premium using the nonforfeiture interest rate used for calculating policy guaranteed cash surrender values; and

(e) Optional Exemption for Yearly Renewable Term (YRT) Reinsurance. At the option of the company, the following approach for reserves on YRT reinsurance may be used:

(1) Calculate the valuation net premium for each future policy year as the Tabular Cost of Insurance for that future year.

(2) Basic Reserves shall never be less than the Tabular Cost of Insurance for the appropriate period, as defined in Subdivision (c) of this Section 2542.5.

(3) Deficiency Reserves.

(A) For each policy year, calculate the excess, if greater than zero, of the valuation net premium over the respective maximum guaranteed gross premium.

(B) Deficiency Reserves shall never be less than the sum of the present values, at the date of valuation, of the excesses determined in accordance with Subparagraph (e)(3)(A) above.

(4) For purposes of this Subdivision (e), the calculations use the Maximum Valuation Interest Rate and the 1980 CSO Valuation Tables with or without Ten-year Select Factors, or any other table adopted by the NAIC after July 1, 2000 and approved by regulation promulgated or bulletin issued by the commissioner for this purpose.

(5) A reinsurance agreement shall be considered YRT reinsurance for purposes of this Subdivision (e) if only the mortality risk is reinsured.

(6) If the assuming company chooses this optional exemption, the ceding company's reinsurance reserve credit shall be limited to the amount of reserve held by the assuming company for the affected policies.

(f) Optional Exemption for Attained-Age-Based Yearly Renewable Term Life Insurance Policies. At the election of the company, the following approach for reserves for attained-age-based YRT life insurance policies may be used:

(1) Calculate the valuation net premium for each future policy year as the Tabular Cost of Insurance for that future year.

(2) Basic Reserves shall never be less than the Tabular Cost of Insurance for the appropriate period, as defined in Subdivision (c) of this Section 2542.5.

(3) Deficiency Reserves.

(A) For each policy year, calculate the excess, if greater than zero, of the valuation net premium over the respective maximum guaranteed gross premium.

(B) Deficiency Reserves shall never be less than the sum of the present values, at the date of valuation, of the excesses determined in accordance with Subparagraph (A) above.

(4) For purposes of this Subdivision (f), the calculations use the Maximum Valuation Interest Rate and the 1980 CSO Valuation Tables with or without Ten-year Select Factors, or any other table adopted by the NAIC after July 1, 2000 and approved by regulation promulgated or bulletin issued by the commissioner for this purpose.

(5) A policy shall be considered an attained-age-based YRT life insurance policy for purposes of this Subdivision (f) if:

(A) The premium rates (on both the initial current premium scale and the guaranteed maximum premium scale) are based upon the attained age of the insured such that the rate for any given policy at a given attained age of the insured is independent of the year the policy was issued; and

(B) The premium rates (on both the initial current premium scale and the guaranteed maximum premium scale) are the same as the premium rates for policies covering all insureds of the same sex, risk class, plan of insurance and attained age.

(6) For policies that become attained-age-based YRT policies after an initial period of coverage, the approach of this Subdivision (f) may be used after the initial period if:

(A) After the initial period of coverage, the policy meets the conditions of Paragraph (5) above; and

(B) The conditions of either Item 1. or Item 2. below are satisfied:

1. The initial period runs to a common attained age for all insureds of the same sex, risk class and plan of insurance; or

2. The initial period is constant for all insureds of the same sex, risk class and plan of insurance.

(7) If this election is made, this approach shall be applied in determining reserves for all attained-age-based YRT life insurance policies issued on or after the effective date of this article.

(g) Exemption from Unitary Reserves for Certain n-Year Renewable Term Life Insurance Polices. Unitary Basic Reserves and unitary Deficiency Reserves need not be calculated for a policy if the following conditions are met:

(1) The policy consists of a series of n-year periods, including the first period and all renewal periods, where n is the same for each period, except that for the final renewal period, n may be truncated or extended to reach the expiry age, provided that this final renewal period is less than 10 years and less than twice the length of the earlier n-year periods, and for each period, the premium rates on both the initial current premium scale and the guaranteed maximum premium scale are level;

(2) The Guaranteed Gross Premiums in all n-year periods are not less than the corresponding net premiums based upon the 1980 CSO Table with or without Ten-year Select Factors; and

(3) There are no cash surrender values in any policy year.

(h) Exemption from Unitary Reserves for Certain Juvenile Policies. Unitary Basic Reserves and unitary Deficiency Reserves need not be calculated for a policy if the following conditions are met, based upon the initial current premium scale at issue:

(1) At issue, the insured is age twenty-four (24) or younger;

(2) Until the insured reaches the end of the juvenile period, which shall occur at or before age twenty-five (25), the gross premiums and death benefits are level, and there are no cash surrender values; and

(3) After the end of the juvenile period, gross premiums are level for the remainder of the premium paying period, and death benefits are level for the remainder of the life of the policy.

NOTE

Authority cited: Section 10489.94, Insurance Code. Reference: Sections 790.03, 10489.15, 10489.2, 10489.4, 10489.5, 10489.7, 10489.9 and 10489.94, Insurance Code.

HISTORY

1. New section filed 11-19-2002; operative 1-1-2003 (Register 2002, No. 47).

§2542.6. Calculation of Minimum Valuation Standard for Flexible Premium and Fixed Premium Universal Life Insurance Policies that Contain Provisions Resulting in the Ability of a Policyowner to Keep a Policy in Force Over a Secondary Guarantee Period.

Note • History

(a) General

(1) Policies with a secondary guarantee include:

(A) A policy with a guarantee that the policy will remain in force at the original schedule of benefits, subject only to the payment of specified premiums;

(B) A policy in which the minimum premium at any duration is less than the corresponding one year valuation premium, calculated using the Maximum Valuation Interest Rates and the 1980 CSO Valuation Tables with or without Ten-year Select Factors, or any other table adopted by the NAIC after July 1, 2000 and approved by regulation promulgated or bulletin issued by the commissioner for this purpose; or

(2) A secondary guarantee period is the period for which the policy is guaranteed to remain in force subject only to a secondary guarantee. When a policy contains more than one secondary guarantee, the minimum reserve shall be the greatest of the respective minimum reserves at that valuation date of each unexpired secondary guarantee, ignoring all other secondary guarantees. Secondary guarantees that are unilaterally changed by the insurer after issue shall be considered to have been made at issue. Reserves described in Subdivisions (b) and (c) below shall be recalculated from issue to reflect these changes.

(3) Specified premiums are the premiums specified in the policy, the payment of which guarantees that the policy will remain in force for a secondary guarantee period at the original schedule of benefits, but which otherwise would be insufficient to keep the policy in force in the absence of the guarantee if maximum mortality and expense charges and minimum interest credits were made and any applicable surrender charges were assessed. Specified premiums may be stated directly or implied. For example, specified premiums may be implied via a guarantee that the policy will not lapse if the accumulation of premiums less withdrawals as of any given date exceeds a certain dollar amount. Such accumulation may or may not reflect interest and/or deductions for cost of insurance or expense.

(4) For purposes of this Section 2542.6, the minimum premium for any policy year is the premium that, when paid into a policy with a zero account value at the beginning of the policy year, produces a zero account value at the end of the policy year. The minimum premium calculation shall use the policy cost factors (including mortality charges, loads and expense charges) and the interest crediting rate which are all guaranteed at issue.

(5) The one-year valuation premium is the net one-year premium based upon the original schedule of benefits for a given policy year. The one-year valuation premiums for all policy years are calculated at issue. The select mortality factors defined in Paragraphs (b)(2), (b)(3) or (b)(4) of Section 2542.4 may not be used to calculate the one-year valuation premiums.

(6) The one-year valuation premium should reflect the frequency of fund processing, as well as the distribution of deaths assumption employed in the calculation of the monthly mortality charges to the fund.

(b) Basic Reserves for the Secondary Guarantees. Basic Reserves for the secondary guarantees shall be the Segmented Reserves for the secondary guarantee period. In calculating the segments and the Segmented Reserves, the gross premiums shall be set equal to the specified premiums, if any, or otherwise to the minimum premiums, that keep the policy in force and the segments will be determined according to the Contract Segmentation Method as defined in Section 2542.3(b). Any contract provision guaranteeing that the death benefit will be kept in force even when the policy account or cash value is zero must be valued consistently with the principles underlying this article.

(c) Deficiency Reserves for the Secondary Guarantees. Deficiency Reserves, if any, for the secondary guarantees shall be calculated for the secondary guarantee period in the same manner as described in Section 2542.5(b) with gross premiums set equal to the specified premiums, if any, or otherwise to the minimum premiums that keep the policy in force.

(d) Recognition of Actual Premiums Paid. If the accumulation of actual premiums paid up through the valuation date is a factor in determining the amount of future premiums necessary to satisfy the secondary guarantee requirement, then the Basic and Deficiency Reserves must be adjusted to reflect this factor.

(e) Minimum Reserves. The minimum reserves during the secondary guarantee period are the greater of:

(1) The Basic Reserves for the secondary guarantee plus the deficiency reserve, if any, for the secondary guarantees; or

(2) The minimum reserves required by other rules or regulations governing universal life plans.

NOTE

Authority cited: Section 10489.94, Insurance Code. Reference: Sections 790.03, 10489.15, 10489.2, 10489.4, 10489.5, 10489.7 and 10489.94, Insurance Code.

HISTORY

1. New section filed 11-19-2002; operative 1-1-2003 (Register 2002, No. 47).

§2542.7. Effective Date.

Note • History

This article shall become effective January 1, 2003.

NOTE

Authority cited: Section 10489.94, Insurance Code. Reference: Section 10489.94, Insurance Code.

HISTORY

1. New section filed 11-19-2002; operative 1-1-2003 (Register 2002, No. 47).

§2542.8. Select Mortality Factors.

Note • History

This Section 2542.8 contains tables of select mortality factors that are the bases to which the respective percentages of Paragraph (b)(3) of Section 2542.4 are applied.

The six tables of select mortality factors contained herein include: (1) male aggregate, (2) male nonsmoker, (3) male smoker, (4) female aggregate, (5) female nonsmoker, and (6) female smoker.

These tables apply to both age last birthday and age nearest birthday mortality tables.

For sex-blended mortality tables, compute select mortality factors in the same proportion as the underlying mortality. For example, for Table B of the Blended 1980 CSO Tables, the calculated select mortality factors are eighty percent (80%) of the appropriate male table in this Section 2542.8, plus twenty percent (20%) of the appropriate female table in this Section 2542.8.

NOTE

Authority cited: Sections 10489.2 and 10489.94, Insurance Code. Reference: Sections 790.03, 10489.2 and 10489.94, Insurance Code.

HISTORY

1. New section filed 11-19-2002; operative 1-1-2003 (Register 2002, No. 47).

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Article 12.4. Valuation of Universal Life Insurance Policies

§2544. Preamble.

Note • History

Section 10489.10 of the California Insurance Code authorizes the Commissioner to promulgate regulations concerning minimum reserves in the case of any plan of life insurance which provides for future premium determination, the amounts of which are to be determined by the insurance company based on then estimates of future experience, or in the case of any plan of life insurance or annuity which is of such a nature that the minimum reserves cannot be determined by the methods described in Sections 10489.5, 10489.6 and 10489.9. Universal life insurance plans come within the category of plans defined by Section 10489.10.

The purpose of these regulations is to delineate certain methods for determining minimum reserves specifically applicable to universal life insurance policies in accordance with California Insurance Code Section 10489.10.

NOTE

Authority cited: Sections 790.10, 10489.10, 12921 and 12926, California Insurance Code. Reference: Section 10489.10, California Insurance Code.

HISTORY

1. New section filed 10-17-91; operative 11-18-91 (Register 92, No. 3).

§2544.1. Effective Date.

Note • History

All insurance companies authorized to write life insurance in the State of California shall set up reserves on Universal Life Insurance Policies according to the specifications set forth in these regulations. These specifications will be effective for all policies issued after December 31, 1991.

NOTE

Authority cited: Sections 790.10, 10489.10, 12921 and 12926, California Insurance Code. Reference: Section 10489.10, California Insurance Code.

HISTORY

1. New section filed 10-17-91; operative 11-18-91 (Register 92, No. 3).

§2544.2. Definitions.

Note • History

As used in these regulations:

(a) “Universal Life Insurance Policy” means any individual or group life insurance policy under the provisions of which separately identified interest credits (other than in connection with dividend accumulations, premium deposit funds, or other supplementary accounts) and mortality and expense charges are made to the policy. A universal life insurance policy may provide for other credits and charges for the cost of benefits provided by rider;

(b) “Flexible Premium Universal Life Insurance Policy” means a universal life insurance policy which permits the policyowner to vary, independently of each other, the amount or timing of one or more premium payments or the amount of insurance;

(c) “Fixed Premium Universal Life Insurance Policy” means a universal life insurance policy other than a flexible premium universal life insurance policy;

(d) “Net Cash Surrender Value” means the maximum amount payable to the policyowner upon surrender;

(e) “Cash Surrender Value” means the net cash surrender value plus any amounts outstanding as policy loans;

(f) “Policy Value” means the amount to which separately identifiable interest credits and mortality, expense, or other charges are made under a universal life insurance policy.

NOTE

Authority cited: Sections 790.10, 10489.10, 12921 and 12926, California Insurance Code. Reference: Section 10489.10, California Insurance Code.

HISTORY

1. New section filed 10-17-91; operative 11-18-91 (Register 92, No. 3).

§2544.3. Reserve Requirements.

Note • History

(a) The minimum valuation standard for universal life insurance policies shall be the Commissioner's Reserve Valuation Method, as described below for such policies, and the tables and interest rates specified below. The terminal reserve for the basic policy, and any benefits and/or riders for which premiums are not paid separately as of any policy anniversary, shall be equal to the net level premium reserves less S and less T, as hereinafter specified:

The net level premium reserve shall be equal to [Q - R] r where Q, R and r are as defined below:

(1) Q is the present value of all future guaranteed benefits at the date of valuation;

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(3) r is equal to one, unless the policy is a flexible premium policy and the policy value is less than the Guaranteed Maturity Fund, in which case r is the ratio of the policy value to the Guaranteed Maturity Fund;

(4) The Guaranteed Maturity Fund at any duration is that amount which, together with future Guaranteed Maturity Premiums, will mature the policy based on all policy guarantees at issue;

(5) The Guaranteed Maturity Premium for flexible premium universal life insurance policies shall be that level gross premium, paid at issue and periodically thereafter over the period during which premiums are allowed to be paid, which will mature the policy on the latest maturity date, if any, permitted under the policy (otherwise at the highest age in the valuation mortality table), for an amount which is in accordance with the policy structure. The Guaranteed Maturity Premium is calculated at issue based on all policy guarantees at issue (excluding guarantees linked to an external referent);

(6) The Guaranteed Maturity Premium for fixed premium universal life insurance policies shall be the premium defined in the policy which at issue provides the minimum policy guarantees;

(7) The maturity amount shall be the initial death benefit where the death benefit is level over the lifetime of the policy except for the existence of a minimum-death-benefit corridor, or, shall be the specified amount where the death benefit equals a specified amount plus the policy value or cash surrender value except for the existence of a minimum-death-benefit corridor;

(8) The death benefit corridor is defined by the minimum death benefit payable under the terms of the policy;

(9) The Guaranteed Maturity Premium for both flexible and fixed premium policies shall be adjusted for death benefit corridors provided by the policy. The Guaranteed Maturity Premium may be less than the premium necessary to pay all charges. This can especially happen in the first year for policies with large first year expense charges;

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(11) T is the sum of any additional quantities analogous to S which arise because of structural changes in the policy, with each such quantity being determined on a basis consistent with that of S using the maturity date in effect at the time of the change;

(A) Structural changes are those changes which are separate from the automatic workings of the policy. Such changes usually would be initiated by the policyowner and include changes in the guaranteed benefits, changes in latest maturity date, or changes in allowable premium payment period. For fixed premium universal life policies with redetermination of all credits and charges no more frequently that annually, on policy anniversaries, structural changes also include changes in guaranteed benefits, or in fixed premiums, unanticipated by the guaranteed maturity premium for such policies at the date of issue, even if such changes arise from automatic workings of the policy. The computation of R above, for fixed premium universal life structural changes shall exclude from the present value of future guaranteed benefits those guaranteed benefits which are funded by the excess of the insurer's declared guarantees of interest, mortality and expenses, over the guarantees contained in the policy at the date of issue.

(B) In effecting structural changes, consistent methods shall be used to calculate reserves. Such methods may include that of maintaining proportionality between the Guaranteed Maturity Fund and Guaranteed Maturity Premium. Values may be calculated per dollar of face amount and multiplied by the new face amount. This method eliminates much of the complexity involved in other methods.

(b) The Guaranteed Maturity Premium, the Guaranteed Maturity Fund and R above shall be recalculated to reflect any structural changes in the policy. This recalculation shall be done in a manner consistent with the descriptions above.

(1) Projecting the greater of the Guaranteed Maturity Fund and the policy value, taking into account future Guaranteed Maturity Premiums, if any, and using all guarantees of interest, mortality, expense deductions, or other guarantees contained in the policy or declared by the insurer; and,

(2) Taking into account any benefits guaranteed in the policy or by declaration which do not depend on the policy value.

(d) All present values shall be determined using:

(1) The lesser of the interest rate (or rates) specified by Section 10489.4 of the California Insurance Code for the calculation of minimum reserve values on policies issued in the same year, or the guaranteed accumulation rate (or rates) of interest specified by the policy form; and,

(2) The statutory mortality rates specified in the policy as required by Section 10160(e) of the California Insurance Code.

(e) As an approximation and a simplification and in lieu of the methods described in this section, a company may use the mean of the cash surrender value and the policy value as the reserve. This shall be known as the California method. Upon request and with approval of the Commissioner, a company may use this method on all its universal life business it issues before as well as after December 31, 1991.

NOTE

Authority cited: Sections 790.10, 10489.10, 12921 and 12926, California Insurance Code. Reference: Section 10489.10, California Insurance Code.

HISTORY

1. New section filed 10-17-91; operative 11-18-91 (Register 92, No. 3).

§2544.4. Alternate Minimum Reserves.

Note • History

If, in any policy year, the Guaranteed Maturity Premium on any universal life insurance policy is less than the valuation net premium for such policy, calculated by the valuation method actually used in calculating the reserve thereon but using the minimum valuation standards of mortality and rate of interest, the minimum reserve required for such contract shall be the greater of subparts (1) or (2) of this section:

(1) The reserve calculated according to the method, the mortality table, and the rate of interest actually used; or,

(2) The reserve calculated according to the method actually used, but using the minimum valuation standards of mortality and rate of interest and replacing the valuation net premium by the Guaranteed Maturity Premium in each policy year for which the valuation net premium exceeds the Guaranteed Maturity Premium.

Embedded Graphic 10.0213

NOTE

Authority cited: Sections 790.10, 10489.10, 12921 and 12926, California Insurance Code. Reference: Section 10489.10, California Insurance Code.

HISTORY

1. New section filed 10-17-91; operative 11-18-91 (Register 92, No. 3).

§2544.5. Excess Interest Guarantee Reserves.

Note • History

In the event a guarantee of interest greater than the maximum valuation interest rate permitted by Section 10489.4 of the California Insurance Code extends more than one year beyond the policy anniversary date previous to the date of valuation, the greatest of the present values of future guaranteed cash values and death benefits payable less required future premiums will be determined at the date of valuation using such maximum valuation interest rate (or rates) for policies issued in the same year as the year of issue of the policy valued and the mortality rates specified by Section 10489.2 of the California Insurance Code. The minimum reserve shall be the greatest of the values calculated in accordance with Sections 2544.3, 2544.4 or 2544.5 of this Regulation.

NOTE

Authority cited: Sections 790.10, 10489.10, 12921 and 12926, California Insurance Code. Reference: Section 10489.10, California Insurance Code.

HISTORY

1. New section filed 10-17-91; operative 11-18-91 (Register 92, No. 3).

§2544.6. Scope.

Note • History

These regulations are applicable to all individual and group universal life insurance policies except variable life insurance (covered by Bulletin 87-3).

NOTE

Authority cited: Sections 790.10, 10489.10, 12921 and 12926, California Insurance Code. Reference: Section 10489.10, California Insurance Code.

HISTORY

1. New section filed 10-17-91; operative 11-18-91 (Register 92, No. 3).

§2545. Authority. [Repealed]

Note • History

NOTE

Authority cited: Section 790.10, Insurance Code.

HISTORY

1. New article 12.5 (Sections 2545, 2545.1-2545.5) filed 7-17-94; effective thirtieth day thereafter (Register 74, No. 29).

2. Amendment of article title filed 6-9-78; effective thirtieth day thereafter (Register 78, No. 23).

3. Repealer of article 12.5 and section filed 4-28-94; operative 11-24-94 (Register 94, No. 17).

§2545.1. Purpose. [Repealed]

History

HISTORY

1. Repealer filed 4-28-94; operative 11-24-94 (Register 94, No. 17).

§2545.2. Disclosure Requirements. [Repealed]

History

HISTORY

1. Amendment filed 6-7-78; effective thirtieth day thereafter (Register 78, No. 23).

2. Repealer filed 4-28-94; operative 11-24-94 (Register 94, No. 17).

§2545.3. Life Insurance Surrender Cost Index Defined. [Repealed]

History

HISTORY

1. Amendment filed 6-9-78; effective thirtieth day thereafter (Register 78, No. 23).

2. Repealer filed 4-28-94; operative 11-24-94 (Register 94, No. 17).

§2545.4. Limitations. [Repealed]

History

HISTORY

1. Amendment filed 6-9-78; effective thirtieth day thereafter (Register 78, No. 23).

2. Repealer filed 4-28-94; operative 11-24-94 (Register 94, No. 17).

§2545.5. Applicability. [Repealed]

History

HISTORY

1. Amendment of subsection (b)7 filed 6-9-78; effective thirtieth day thereafter (Register 78, No. 23).

2. Repealer filed 4-28-94; operative 11-24-94 (Register 94, No. 17).

Article 12.6. Life Insurance Yield Comparison Index and Net Payment Cost Comparison Index [Repealed]

HISTORY

1. New article 12.6 (sections 2546-2546.8) and section filed 4-28-94; operative 11-24-94 (Register 94, No. 17).

2. Change without regulatory effect repealing article 12.6 (sections 2546-2546.8) filed 3-24-2006 pursuant to section 100, title 1, California Code of Regulations (Register 2006, No. 12).

Article 12.7. Life Insurance Advertisements

§2547. Authority.

Note • History

These regulations are promulgated pursuant to the authority granted to the Insurance Commissioner under the provisions of Section 790.10 of the Insurance Code.

NOTE

Authority cited: Section 790.10, Insurance Code. Reference: Section 790.03, Insurance Code.

HISTORY

1. New Article 12.7 (Sections 2547, 2547.1-2547.11) filed 8-13-75; effective thirtieth day thereafter (Register 75, No. 33).

§2547.1. Purpose.

The purpose of these regulations is to set forth minimum standards and guidelines to assure a full and truthful disclosure to the public of all material and relevant information in the advertising of life insurance policies and annuity contracts.

§2547.2. Definitions.

For the purpose of these regulations:

(a) “Policy” shall include any policy, plan, certificate, contract, agreement, statement of coverage, rider or endorsement which provides for life insurance or annuity benefits.

(b) “Insurer” shall include any organization or person which issues life insurance or annuities to residents of this state.

(c) “Advertisement” shall be material designed to create public interest in life insurance or annuities or in an insurer, or to induce the public to purchase, increase, modify, reinstate or retain a policy including:

(1) printed and published material, audiovisual material, and descriptive literature of an insurer used in direct mail, newspapers, magazines, radio and television scripts, billboards and similar displays;

(2) descriptive literature and sales aids of all kinds issued by an insurer or agent, including but not limited to circulars, leaflets, booklets, depictions, illustrations and form letters;

(3) material used for the recruitment, training, and education of an insurer's sales personnel, agents, solicitors and brokers which is designed to be used or is used to induce the public to purchase, increase, modify, reinstate or retain a policy;

(4) prepared sales talks, presentations, and material for use by sales personnel, agents, solicitors and brokers.

(d) “Advertisement” for the purpose of these regulations shall not include:

(1) communications or materials used within an insurer's own organization and not intended for dissemination to the public;

(2) communications with policyholders other than material urging policyholders to purchase, increase, modify, reinstate or retain a policy;

(3) a general announcement from a group or blanket policyholder to eligible individuals on an employment or membership list that a policy or program has been written or arranged; provided the announcement clearly indicates that it is preliminary to the issuance of a booklet explaining the proposed coverage.

§2547.3. Applicability.

(a) These regulations shall apply to any life insurance or annuity advertisement intended for dissemination in this State.

§2547.4. Form and Content of Advertisements.

(a) Advertisements shall be truthful and not misleading in fact or by implication. The form and content of an advertisement of a policy shall be sufficiently complete and clear so as to avoid deception. It shall not have the capacity or tendency to mislead or deceive. Whether an advertisement has the capacity or tendency to mislead or deceive shall be determined by the Insurance Commissioner from the overall impression that the advertisement may be reasonably expected to create upon a person of average education or intelligence within the segment of the public to which it is directed.

(b) No advertisement shall use the terms “investment,” “investment plan,” “founder's plan,” “charter plan,” “expansion plan,” “profit,” “profits,” “profit sharing,” “interest plan,” “savings,” “savings plan,” or other similar terms in connection with a policy in a context or under such circumstances or conditions as to have the capacity or tendency to mislead a purchaser of such policy to believe that he will receive, or that it is possible that he will receive, something other than a policy or some benefit not available to other persons of the same class and equal expectation of life.

§2547.5. Disclosure Requirements.

(a) The information required to be disclosed by these regulations shall not be minimized, rendered obscure or presented in an ambiguous fashion or intermingled with the text of the advertisement so as to be confusing or misleading.

(b) No advertisement shall omit material information or use words, phrases, statements, references or illustrations if such omission or such use has the capacity, tendency or effect of misleading or deceiving purchasers or prospective purchasers as to the nature or extent of any policy benefit payable, loss covered, premium payable or state or federal tax consequences. The fact that the policy offered is made available to a prospective insured for inspection prior to consummation of the sale, or an offer is made to refund the premium if the purchaser is not satisfied, does not remedy misleading statements.

(c) In the event an advertisement uses “Non-Medical,” “No Medical Examination Required,” or similar terms where issue is not guaranteed, such terms shall be accompanied by a further disclosure of equal prominence and in juxtaposition thereto, to the effect that issuance of the policy may depend upon the answers to the health questions.

(d) An advertisement shall not use as the name or title of a life insurance policy or an annuity, any phrase which does not include the words “life insurance” or “annuity” unless accompanied by other language clearly indicating it is life insurance or an annuity.

(e) An advertisement shall prominently describe the type of policy advertised.

(f) An advertisement of an insurance policy marketed by direct response techniques shall not state or imply that because there is no agent or commission involved there will be a cost savings to prospective purchasers unless such is the fact. No such cost savings may be stated or implied without justification satisfactory to the Insurance Commissioner prior to use.

(g) An advertisement for a policy containing graded or modified benefits shall prominently display any limitation of benefits. If the premium is level and coverage decreases or increases with age or duration, such fact shall be prominently disclosed.

(h) An advertisement for a policy with non-level premiums shall prominently describe the premium changes.

(i) Dividends.

(1) An advertisement shall not utilize or describe dividends in a manner which is misleading or has the capacity or the tendency to mislead.

(2) An advertisement shall not state or imply that the payment or amount of dividends is guaranteed. If dividends are illustrated, they must be based on the insurer's current dividend scale and the illustrations must contain a statement to the effect that they are not to be construed as guarantees or estimates of dividends to be paid in the future.

(3) An advertisement shall not state or imply that illustrated dividends under a participating policy and/or pure endowments will be or can be sufficient at any future time to assure, without the further payment of premiums, the receipt of benefits, such as a paid-up policy, unless the advertisement clearly and precisely explains (1) what benefits or coverage would be provided at such time and (2) under what conditions this would occur.

(j) An advertisement shall not state that a purchaser of a policy will share in or receive a stated percentage or portion of the earnings on the general account assets of the company.

(k) Testimonials or Endorsements by Third Parties.

(1) Testimonials used in advertisements must be genuine; represent the current opinion of the author; be applicable to the policy advertised, if any; and be accurately reproduced. In using a testimonial the insurer makes as its own all of the statements contained therein and such statements are subject to all the provisions of these regulations.

(2) If the individual making a testimonial or an endorsement has a financial interest in the insurer or a related entity as a stockholder, director, officer, employee or otherwise, or receives any benefit directly or indirectly other than required union scale wages, such fact shall be disclosed in the advertisement.

(3) An advertisement shall not state or imply that an insurer or a policy has been approved or endorsed by a group of individuals, society, association or other organization unless such is the fact and unless any proprietary relationship between an organization and the insurer is disclosed. If the entity making the endorsement or testimonial is owned, controlled or managed by the insurer, or receives any payment or other consideration from the insurer for making such endorsement or testimonial, such fact shall be disclosed in the advertisement.

(1) An advertisement shall not contain statistical information relating to any insurer or policy unless it accurately reflects recent and relevant facts. The source of any such statistics used in an advertisement shall be identified therein.

(m) Introductory, Initial or Special Offers and Enrollment Periods.

(1) An advertisement of an individual policy or combination of such policies shall not state or imply that such policy or combination of such policies is an introductory, initial or special offer, or that applicants will receive substantial advantages not available at a later date, or that the offer is available only to a specified group of individuals, unless such is the fact. An advertisement shall not describe an enrollment period as “special” or “limited” or use similar words or phrases in describing it when the insurer uses successive enrollment periods as its usual method of marketing its policies.

(2) An advertisement shall not state or imply that only a specific number of policies will be sold or that a time is fixed for the discontinuance of the sale of the particular policy advertised because of special advantages available in the policy.

(3) An advertisement shall not offer a policy which utilizes a reduced initial premium rate in a manner which overemphasizes the availability and the amount of the reduced initial premium. When an insurer charges an initial premium that differs in amount from the amount of the renewal premium payable on the same mode, all references to the reduced initial premium shall be followed by an asterisk or other appropriate symbol which refers the reader to that specific portion of the advertisement which contains the full rate schedule for the policy being advertised.

(4) An enrollment period during which a particular insurance policy may be purchased on an individual basis shall not be offered within this State unless there has been a lapse of not less than three months between the close of the immediately preceding enrollment period for the same policy and the opening of the new enrollment period. The advertisement shall specify the date by which the applicant must mail the application, which shall be not less than ten days and not more than forty days from the date of which such enrollment period is advertised for the first time. This rule applies to all advertising media, i.e., mail, newspapers, radio, television, magazines and periodicals, used by any one insurer. The phrase “any one insurer” includes all the affiliated companies of a group of insurance companies under common management or control. This rule does not apply to the use of a termination or cutoff date beyond which an individual application for a guaranteed issue policy will not be accepted by an insurer in those instances where the application has been sent to the applicant in response to his/her request. It is also inapplicable to solicitations of employees or members of a particular group or association which otherwise would be eligible under specific provisions of the Insurance Code for group, blanket or franchise insurance. In cases where an insurance product is marketed on a direct mail basis to prospective insureds by reason of some common relationship with a sponsoring organization, this rule shall be applied separately to each such sponsoring organization.

(n) An advertisement of a particular policy shall not state or imply that prospective insureds shall be or become members of a special class, group or quasi-group and as such enjoy special rates, dividends or underwriting privileges, unless such is the fact.

(o) An advertisement shall not make unfair or incomplete comparisons of policies, benefits, dividends or rates of other insurers. An advertisement shall not falsely or unfairly describe other insurers, their policies, services or methods of marketing.

§2547.6. Identity of Insurer.

(a) The name of the insurer shall be clearly identified, and if any specific individual policy is advertised it shall be identified either by form number or other appropriate description. An advertisement shall not use a trade name, an insurance group designation, name of the parent company of the insurer, name of a particular division of the insurer, service mark, slogan, symbol or other device or reference without disclosing the name of the insurer, if the advertisement would have the capacity or tendency to mislead or deceive as to the true identity of the insurer or create the impression that a company other than the insurer would have any responsibility for the financial obligation under a policy.

(b) No advertisement shall use any combination of words, symbols or physical materials which by their content, phraseology, shape, color or other characteristics are so similar to a combination of words, symbols or physical materials used by a governmental program or agency or otherwise appear to be of such a nature that they tend to mislead prospective insureds into believing that the solicitation is in some manner connected with such governmental program or agency.

§2547.7. Jurisdictional Licensing and Status of Insurer.

(a) An advertisement which is intended to be seen or heard beyond the limits of the jurisdiction in which the insurer is licensed shall not imply licensing beyond such limits.

(b) An advertisement may state that an insurer is licensed in the state where the advertisement appears, provided it does not exaggerate such fact or suggest or imply that competing insurers may not be so licensed.

(c) An advertisement shall not create the impression that the insurer, its financial condition or status, the payment of its claims, or the merits, desirability or advisability of its policy forms or kinds of plans of insurance are recommended or endorsed by any governmental entity. However, where a governmental entity has recommended or endorsed a policy form or plan, such fact may be stated if the entity authorizes its recommendation or endorsement to be used in an advertisement.

§2547.8. Statements About the Insurer.

An advertisement shall not contain statements, pictures or illustrations which are false or misleading, in fact or by implication, with respect to the assets, liabilities, insurance in force, corporate structure, financial condition, age or relative position of the insurer in the insurance business. An advertisement shall not contain a recommendation by any commercial rating system unless it clearly defines the scope and extent of the recommendation.

§2547.9. Enforcement Procedures.

(a) Each insurer shall maintain at its home or principal office a complete file containing a specimen copy of every printed, published or prepared advertisement of its individual policies and specimen copies of typical printed, published or prepared advertisements of its blanket, franchise and group policies, hereafter disseminated in this State with a notion indicating the manner and extent of distribution and the form number of any policy advertised. Such file shall be subject to inspection by this Department. All such advertisements shall be maintained in said file for a period of either four years or until the filing of the next regular report on examination of the insurer, whichever is the longer period of time.

(b) Each insurer subject to the provisions of these regulations shall file with this Department with its Annual Statement a certificate of compliance executed by an authorized officer of the insurer wherein it is stated that, to the best of his knowledge, information and belief, the advertisements which were disseminated by or on behalf of the insurer in this State during the preceding statement year, or during the portion of such year when these regulations were in effect, complied or were made to comply in all respects with the provisions of these regulations and the insurance laws of this State as interpreted by these regulations.

§2547.10. Conflict with Other Regulations.

It is not intended that these regulations conflict with or supersede any regulations currently in force or subsequently adopted in this State governing specific aspects of the sale or replacement of life insurance including, but not limited to, rules dealing with life insurance cost comparison indices, deceptive practices in the sale of life insurance and replacement of life insurance policies. Consequently, no disclosure required under any such regulations shall be deemed to be an advertisement within the meaning of these regulations.

§2547.11. Severability Provision.

If any Section or portion of a Section of these regulations or the applicability thereof to any person or circumstance is held invalid by a court, the remainder of the regulations or the applicability of such provision to other persons or circumstances, shall not be affected thereby.

Article 12.9. Viatical Settlements

§2548.1. Authority and Purpose.

Note • History

These regulations are effective pursuant to the authority granted to the Insurance Commissioner by Insurance Code section 10113.35. The purpose of these regulations is to implement and clarify Insurance Code sections 10113.1, 10113.2 and 10113.3.

NOTE

Authority cited: Section 10113.35, Insurance Code; CalFarm Ins. Co. v. Deukmejian, 48 Cal.3d 805 (1989); 20th Century Ins. Co. v. Garamendi, 8 Cal.4th 216 (1994). Reference: Sections 10113.1, 10113.2 and 10113.3, Insurance Code.

HISTORY

1. New article 12.9 (sections 2548.1-2548.8) and section filed 12-22-2006; operative 1-21-2007 (Register 2006, No. 51).

2. Repealer of article 12.9 (sections 2548.1-2548.8) and section and new article 12.9 (sections 2548.1-2548.31) and section filed 7-29-2010 as an emergency; operative 7-29-2010. Emergency regulation shall remain in effect, not to be repealed by the Office of Administrative Law, unless repealed by the Department of Insurance pursuant to Insurance Code section 10113.35 (Register 2010, No. 31).

3. Change without regulatory effect amending article heading, section and Note filed 1-24-2012 pursuant to section 100, title 1, California Code of Regulations (Register 2012, No. 4).

§2548.2. Definitions.

Note • History

(a) As used in this article:

(1) Broker. A life settlement broker as defined at Insurance Code section 10113.1(b).

(2) Insured. The person covered under the policy to be settled as defined at Insurance Code section 10113.1(h).

(3) Life Insurance Producer. A life insurance producer as defined at Insurance Code section 10113.1(j).

(4) Owner. A life insurance owner as defined at Insurance Code section 10113.1(m)

(5) Provider. A life settlement provider as defined at Insurance Code section 10113.1(r).

NOTE

HISTORY

1. New section filed 12-22-2006; operative 1-21-2007 (Register 2006, No. 51).

2. Repealer and new section filed 7-29-2010 as an emergency; operative 7-29-2010. Emergency regulation shall remain in effect, not to be repealed by the Office of Administrative Law, unless repealed by the Department of Insurance pursuant to Insurance Code section 10113.35 (Register 2010, No. 31).

3. Change without regulatory effect amending Note filed 1-24-2012 pursuant to section 100, title 1, California Code of Regulations (Register 2012, No. 4).

§2548.3. Licensing of Provider.

Note • History

(a) Any person acting as a provider in California pursuant to Insurance Code section 10113.2(b)(1) shall submit to the California Insurance Commissioner an application for a license on the application form referenced at Section 2548.16, along with the application fee of $3,180. The Commissioner shall have the authority to require Applicant to fully disclose the identification of all stockholders who hold more than 10 percent of the shares of the company, as well as all partners, directors, members and key management personnel. The Commissioner may refuse to issue a license to the entity if the Commissioner believes that any stockholder, partner, director, member or person in a key management position fails to meet the standards of Insurance Code sections 10113.2(b)(1) and 10113.2(b)(2).

(b) The Commissioner's issuance of a provider's license to a legal entity authorizes all officers, partners, and key management personnel to act as a provider.

(c) On each year following the issuance of the original license, a provider shall pay the renewal fee of $199 and shall renew its license.

NOTE

HISTORY

1. New section filed 12-22-2006; operative 1-21-2007 (Register 2006, No. 51).

3. Change without regulatory effect amending Note filed 1-24-2012 pursuant to section 100, title 1, California Code of Regulations (Register 2012, No. 4).

§2548.4. Grandfathering of Viatical Settlement Providers.

Note • History

Any natural person or business entity licensed to act as a viatical settlement provider as of December 31, 2009, shall be issued by the Commissioner a provider's license effective July 1, 2010, and shall thereafter be subject to the renewal requirements for such license as if the person or entity were originally licensed as a life settlement provider.

NOTE

HISTORY

1. New section filed 12-22-2006; operative 1-21-2007 (Register 2006, No. 51).

3. Change without regulatory effect amending Note filed 1-24-2012 pursuant to section 100, title 1, California Code of Regulations (Register 2012, No. 4).

§2548.5. Sale of Shares or Change in Control of Provider.

Note • History

The provider shall provide to the Commissioner new or revised information about officers, stockholders who hold more than 10 percent of the shares of the company, partners, directors, or key management personnel within 30 days of change. Furthermore, those providers that are either incorporated in California or otherwise conducting a substantial portion of their life settlement business within this state shall submit a new life settlement application to the Commissioner if such provider sells or transfers 10 percent or more of its stock to another entity that is not, at the time of the transfer, licensed as a California life settlement provider. The provider cannot transact new business within the state until the Commissioner approves the new provider application. For purposes of this section, “substantial portion” is defined as life settlement business transacted in California constituting more than 50 percent of the provider's total business as reported in Section 5.d. of the licensee's most recent annual statement.

NOTE

HISTORY

1. New section filed 12-22-2006; operative 1-21-2007 (Register 2006, No. 51).

3. Change without regulatory effect amending Note filed 1-24-2012 pursuant to section 100, title 1, California Code of Regulations (Register 2012, No. 4).

§2548.6. Provider Escrow Requirements.

Note • History

(a) Within three (3) business days of a provider's receipt of documents to effect the transfer of a legal or beneficial interest in the life insurance policy which is the subject of the life settlement agreement, the provider shall deposit the proceeds payable to the owner under the life settlement into an escrow or trust account in a state or federally chartered financial institution whose deposits are insured by the Federal Deposit Insurance Corporation (FDIC).

(b) The escrow or trust account shall be managed by a trustee or escrow agent independent of the parties to the life settlement contract and shall be pursuant to a written agreement signed by the provider and the owner. An attorney or law firm representing the provider shall not be the escrow agent for the provider.

(c) All persons receiving any form of compensation under the escrow or trust agreement must be clearly identified, including the name, business address, telephone number, tax identification number and compensation amount.

(d) The trustee or escrow agent shall transfer the proceeds to the owner within three (3) business days following provider's receipt of acknowledgement of the transfer of ownership or beneficial rights to the insurance policy.

NOTE

HISTORY

1. New section filed 12-22-2006; operative 1-21-2007 (Register 2006, No. 51).

3. Change without regulatory effect amending Note filed 1-24-2012 pursuant to section 100, title 1, California Code of Regulations (Register 2012, No. 4).

§2548.7. Licensing of Broker; Life Insurance Producer Notification of Brokering Life Settlements.

Note • History

Any person acting as a broker in California pursuant to Insurance Code sections 10113.2(b)(1) or 10113.2(b)(1)(D)(ii) shall submit to the Commissioner an application for a one-year life settlement broker's license as referenced at Section 2548.17 or a two-year life settlement broker notification as referenced at Section 2548.19 herein. Persons who have not been licensed as either a resident or non-resident California life agent for at least one year shall submit the life settlement broker application referenced at Section 2548.17 herein. Life agents who have been licensed in California for at least one year may submit the life settlement broker notification referenced at Section 2848.19 herein.

NOTE

HISTORY

1. New section filed 12-22-2006; operative 1-21-2007 (Register 2006, No. 51).

3. Change without regulatory effect amending Note filed 1-24-2012 pursuant to section 100, title 1, California Code of Regulations (Register 2012, No. 4).

§2548.8. Grandfathering of Viatical Settlement Brokers.

Note • History

(a) Any natural person licensed to act as a viatical settlement broker as of December 31, 2009, shall be issued by the Commissioner a broker's license effective July 1, 2010. Such individuals shall be exempted from the life settlement continuing education requirement in Insurance Code section 10113.2(b)(1)(A), and shall be subject to the renewal of such license just as if the person were originally licensed as a broker. Natural persons currently licensed as a viatical settlement broker shall be either issued a one-year life settlement broker's license or a two-year life settlement broker notification. Current viatical settlement brokers who are unlicensed as a life producer or have held a life producer license less than one year shall be issued a one-year life settlement broker license. Current viatical settlement brokers that are also licensed as a life producer for at least one year shall be issued a two-year life settlement broker license which corresponds to their life producer license.

(b) Any business entity, including corporations, partnerships and limited liability companies licensed as a viatical settlement broker by the Commissioner on December 31, 2009, shall be either issued a one-year business entity life settlement broker's license or a two-year life settlement broker notification, effective July 1, 2010. Current viatical settlement broker business entities that are unlicensed as a life producer or have held a life producer license less than one year shall be issued a one-year life settlement broker license. Current viatical settlement broker business entities that are also licensed as a life producer for at least one year shall be issued a two-year life settlement broker license which corresponds to their life producer license. Such entities shall have 30 days from the effective date of this regulation to submit to the Commissioner a list of all individuals authorized to act pursuant to the entity's broker's license as of June 30, 2010, and the individuals shall thereafter be issued individual life settlement broker's licenses. Such individuals shall be exempted from the life settlement continuing education requirement in Insurance Code section 10113.2(b)(1)(A) but shall thereafter be subject to the renewal of such license just as if the person were originally licensed as a broker. The business entity license shall also be subject to the renewal of such license just as if the entity were originally licensed as a broker.

NOTE

HISTORY

1. New section filed 12-22-2006; operative 1-21-2007 (Register 2006, No. 51).

3. Change without regulatory effect amending Note filed 1-24-2012 pursuant to section 100, title 1, California Code of Regulations (Register 2012, No. 4).

§2548.9. Provider and Broker Form Filing Requirements.

Note • History

(a) All life settlement providers and brokers including life producers complying with the notification procedure in Insurance Code section 10113.2(b)(1)(D)(ii) shall file all forms used in this State with the Commissioner. Life settlement providers shall file such forms by filling out and submitting the cover sheet referenced in section 2548.26 herein (“Life Settlement Form Filing Pursuant to California Insurance Code, section 10113.2(c)”), along with a copy of the form/s to be filed with the Commissioner. The cover letter and a copy of the form/s shall be submitted to the Commissioner by uploading the documents utilizing the OASIS system located on the Department of Insurance's website at www.insurance.ca.gov or a similar system the Department should adopt in the future.

(b) Life settlement brokers shall file such forms by filling out and submitting the cover sheet referenced in section 2548.26 herein (“Life Settlement Form Filing Pursuant to California Insurance Code, section 10113.2(c)”), along with a copy of the form/s to be filed with the Commissioner. The cover letter and a copy of the form/s shall be submitted to the Commissioner by uploading the documents utilizing the OASIS system located on the Department of Insurance's website at www.insurance.ca.gov or a similar system the Department should adopt in the future.

(c) Any person or entity licensed as a viatical settlement provider or broker as of December 31, 2009 and grandfathered in as a life settlement provider or broker pursuant to Insurance Code sections 10113.2(b)(1)(C) shall file copies of all life settlement forms currently in use in this State with the Commissioner within 60 days of the effective date of these regulations. Such licensees shall use the filing procedures described in section 2548.9(a) herein. Such licensees shall have a continuing obligation to file all life settlement forms used in this State pursuant to Insurance Code section 10113.2(c) and this Regulation.

NOTE

HISTORY

1. New section filed 7-29-2010 as an emergency; operative 7-29-2010. Emergency regulation shall remain in effect, not to be repealed by the Office of Administrative Law, unless repealed by the Department of Insurance pursuant to Insurance Code section 10113.35 (Register 2010, No. 31).

2. Change without regulatory effect amending Note filed 1-24-2012 pursuant to section 100, title 1, California Code of Regulations (Register 2012, No. 4).

§2548.10. Provider and Broker Records Retention Requirements.

Note • History

(a) All providers transacting business in this State shall retain copies of all records as further defined at Insurance Code section 10113.2(t).

(b) All brokers shall retain copies of all records reflecting the transaction of their life settlement business in this State for not less than five years. Such records shall include, but not be limited to the disclosures pursuant to Insurance Code sections 10113.2(d) and (f), documentation of the broker's efforts to shop the market to obtain a competitive provider bid, and a copy of the executed life settlement purchase agreement.

(c) All records required to be maintained pursuant to this section shall be made available to the Commissioner for inspection during reasonable business hours. The Commissioner may initiate proceedings to revoke, suspend or refuse to renew the license of any licensee failing to comply with the Commissioner's request to review the records.

NOTE

HISTORY

2. Change without regulatory effect amending Note filed 1-24-2012 pursuant to section 100, title 1, California Code of Regulations (Register 2012, No. 4).

§2548.11. Disclosures Required at the Time of Application.

Note • History

Any person brokering a life settlement shall provide the disclosures listed at Insurance Code section 10113.2(d) no later than the time of an owner's application for a life settlement. The life settlement broker may but is not required to use the form captioned “Life Settlement Licensee Disclosure to Life Settlement Applicant” at section 2548.27 herein. For those transactions in which there is no life settlement broker, the life settlement provider shall provide the disclosures listed in Insurance Code section 10113.2(d) and may, but is not required to use the form at section 2548.27 herein.

NOTE

HISTORY

2. Change without regulatory effect amending Note filed 1-24-2012 pursuant to section 100, title 1, California Code of Regulations (Register 2012, No. 4).

§2548.12. Disclosures Required Prior to Execution of Contract.

Note • History

(a) Any person brokering a life settlement shall provide the disclosures listed at Insurance Code section 10113.2(f) prior to the time of an owner's execution of a life settlement contract. The broker may but is not required to use the form captioned “Life Settlement Broker Disclosure to Owner and Insured” at Section 2548.28 herein.

(b) Prior to the execution of the life settlement contract, the provider shall provide the disclosures listed at Insurance Code section 10113.2(e). The provider may but is not required to use the form captioned “Life Settlement Provider Disclosure to Owner” referenced at Section 2548.29 herein.

(c) If the provider elects to use its own form, such form shall include a clear itemization of the following amounts paid in a life settlement transaction: the gross purchase price the life settlement provider is paying for the policy, the amount of the purchase price to be paid to the owner, and the amount of the purchase price to be paid to the owner's life settlement broker.

NOTE

HISTORY

2. Change without regulatory effect amending Note filed 1-24-2012 pursuant to section 100, title 1, California Code of Regulations (Register 2012, No. 4).

§2548.13. Provider's Obligation to Notify Insured of Sale of Policy.

Note • History

If the provider transfers ownership or changes the beneficiary of the insurance policy, the provider shall communicate in writing the change in ownership or beneficiary to the insured within 20 days after the change. The written communication shall identify the new owner or beneficiary.

NOTE

HISTORY

2. Change without regulatory effect amending Note filed 1-24-2012 pursuant to section 100, title 1, California Code of Regulations (Register 2012, No. 4).

§2548.14. Provider Annual Statement.

Note • History

(a) All licensed providers shall submit an Annual Statement to the Commissioner on the form captioned “State of California Department of Insurance Life Settlement Provider Annual Statement” referenced in section 2548.30 herein. The initial Annual Statement shall be filed no later than March 1, 2011 and shall cover the reporting period January 1, 2010 through December 31, 2010. Each Annual Statement thereafter shall be due no later than March 1 and shall cover the period in the preceding calendar year.

(b) All Annual Statements shall be accompanied by an audited financial statement The audited financial statement shall be received in confidence within the meaning of subdivision (d) of section 6254 of the Government Code and exempt from disclosure pursuant to the Public Records Act (Chapter 3.5 (commencing with section 6250) of Division 7 of Title 1 of the Government Code).

(c) Any provider's failure to timely file an annual statement shall be grounds for the immediate suspension of the provider's license until such time that the annual statement has been filed.

NOTE

HISTORY

2. Change without regulatory effect amending Note filed 1-24-2012 pursuant to section 100, title 1, California Code of Regulations (Register 2012, No. 4).

§2548.15. Verification of Coverage Form.

Note • History

Providers shall file verification of coverage forms with the Commissioner for approval pursuant to Insurance Code section 10113.3(b). If the licensee uses the form referenced at Section 2548.31 herein, the Commissioner's approval shall be deemed, and the licensee can use such form without receiving formal notification from the Commissioner as to its approval. If the licensee instead opts to use a form other than that referenced in section 2548.31, it shall file such form with the Commissioner for approval and shall use the procedure identified in section 2548.9 herein.

NOTE

HISTORY

2. Change without regulatory effect amending Note filed 1-24-2012 pursuant to section 100, title 1, California Code of Regulations (Register 2012, No. 4).

§2548.16. Life Settlement Provider Application.

Note • History

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NOTE

HISTORY

2. Change without regulatory effect amending Note filed 1-24-2012 pursuant to section 100, title 1, California Code of Regulations (Register 2012, No. 4).

§2548.17. Application for Life Settlement Broker's License.

Note • History

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NOTE

HISTORY

2. Change without regulatory effect amending Note filed 1-24-2012 pursuant to section 100, title 1, California Code of Regulations (Register 2012, No. 4).

§2548.18. Required Fingerprinting for Life Settlement Broker's License Applicants.

Note • History

(a) All applicants for a life settlement broker's license who do not currently hold an active California life agent license and have not submitted fingerprints to the California Department of Insurance within the previous 12 months for other licensing purposes are required to submit fingerprint impressions by following the procedure specified below.

(1) The applicant must obtain a hardcopy of the Department's Live Scan request form either from the Department's contracted Live Scan vendor, in the event the applicant has made an appointment with that vendor, or by downloading and printing the form from the Department's website: insurance.ca.gov.

(2) The applicant must complete the applicant's portion of the Department's Live Scan request form by providing on the form the following information:

A. Full legal name;

B. Any former names or aliases;

C. Date of birth,

D. Gender,

E. Height,

F. Weight,

G. Eye Color,

H. Hair Color, and

I.. Place of Birth;

J. Social Security number;

K. Driver's license number;

L. Daytime telephone number; and

M. Resident address.

(3) The applicant must present to a Live Scan vendor the completed Live Scan request form and obtain from that vendor the requisite fingerprint impression services.

(4) The applicant must retain, until the license is issued, the information that will be provided on the Department's Live Scan request form by the Live Scan vendor, including but not limited to the Applicant Transmission Identifier (ATI).

(b) Live Scan impressions obtained without providing the Department's Live Scan request form to the Live Scan vendor will not satisfy the requirements of this Section 2548.18, and any ATI provided by a Live Scan vendor to which the applicant did not submit the Department's Live Scan request form at the time of fingerprinting will be deemed invalid for purposes of subparagraph (a)(1) of Section 2548.18.

NOTE

HISTORY

2. Change without regulatory effect amending Note filed 1-24-2012 pursuant to section 100, title 1, California Code of Regulations (Register 2012, No. 4).

§2548.19. Life Producer Notification of Brokering Life Settlements.

Note • History

Embedded Graphic 10.0221

NOTE

HISTORY

2. Change without regulatory effect amending Note filed 1-24-2012 pursuant to section 100, title 1, California Code of Regulations (Register 2012, No. 4).

§2548.20. Notification/License Terms.

Note • History

(a) A life producer who has complied with the procedure in Section 2548.19 herein will be granted a two-year life settlement broker notification which will coincide with the terms of his or her two-year life producer license. The license renewal date for the life settlement broker notification is the same date as that of the individual's life producer license;

(b) A life settlement broker who has complied with the procedure in Section 2548.17 herein will have a one-year license term. The license renewal date for this license is the last day of the month in the year following the year of the license's issuance.

(c) A life settlement broker or a life producer who has notified the Commissioner that he or she is brokering life settlements who has not renewed on or before the applicable renewal date expires must discontinue transacting life settlements. To resume brokering life settlements, such individuals must either re-apply or re-notify the Commissioner as applicable per Section 2548.7.

NOTE

Authority cited: Section 10113.35, Insurance Code; CalFarm Ins. Co. v. Deukmejian, 48 Cal.3d 805 (1989); 20th Century Ins. Co. v. Garamendi, 8 Cal. 4th 216 (1994). Reference: Section 10113.2, Insurance Code.

HISTORY

2. Change without regulatory effect amending Note filed 1-24-2012 pursuant to section 100, title 1, California Code of Regulations (Register 2012, No. 4).

§2548.21. Fees.

Note • History

(a) An individual or business entity applying for the life settlement broker license shall pay a one-year license fee of $128.

(b) An individual or business entity licensed as life insurance producer who notifies the Commissioner that he or she is brokering life settlements shall pay a two-year notification fee of $128.

(d) An individual or business entity licensed as a life insurance producer who notifies the Commissioner that he or she is brokering life settlements shall pay a two-year renewal fee of $128.

(e) No license application or notification for which the Commissioner does not receive payment of the appropriate fee or fees as specified in Section 2548.21 shall under any circumstances be accepted for filing.

(f) An individual applying for the life settlement broker license is responsible for paying to the Live Scan vendor including the vendor's rolling fee and the criminal history processing fees collected by the California Department of Justice and the Federal Bureau of Investigation.

NOTE

Authority cited: Section 10113.35, Insurance Code; CalFarm Ins. Co. v. Deukmejian, 48 Cal.3d 805 (1989); 20th Century Ins. Co. v. Garamendi, 8 Cal. 4th 216 (1994). Reference: Section 10113.2, Insurance Code.

HISTORY

2. Change without regulatory effect amending Note filed 1-24-2012 pursuant to section 100, title 1, California Code of Regulations (Register 2012, No. 4).

§2548.22. Business Entity Application.

Note • History

(a) Any business entity acting as a life settlement broker in California pursuant to Insurance Code section 10113.2(b)(1) or 10113.2(b)(1)(D)(ii) shall submit to the California Insurance Commissioner an application for a license, by submitting the form referenced at Section 2548.23 herein. The Commissioner shall have the authority to require an applicant to fully disclose the identification of all stockholders who hold more than 10 percent of the shares of the company, as well as all partners, directors, members, officers, managers, controlling persons, or designated employees. The commissioner may refuse to issue a license to the business entity if the commissioner is not satisfied that any stockholder, partner, director, member, officer, manager, controlling person, or designated employee meets the standards of Insurance Code sections 10113.2(b)(1) and 10113.2(b)(2).

(b) Business entities shall submit to the commissioner the form referenced at section 2548.24 (“Business Entity Endorsement”) that permits individually licensed life settlement brokers to exercise the brokerage powers of the business entity. Upon the termination of employment of any life settlement broker, business entities shall submit to the commissioner a notice that terminates these individuals' authority to exercise the brokerage powers of the business entity on the form referenced at section 2548.25 herein (“Business Entity Endorsement Termination”).

NOTE

Authority cited: Section 10113.35, Insurance Code; CalFarm Ins. Co. v. Deukmejian, 48 Cal.3d 805 (1989); 20th Century Ins. Co. v. Garamendi, 8 Cal. 4th 216 (1994). Reference: Sections 10113.1 and 10113.2, Insurance Code.

HISTORY

2. Change without regulatory effect amending Note filed 1-24-2012 pursuant to section 100, title 1, California Code of Regulations (Register 2012, No. 4).

§2548.23. Business Entity Application Form.

Note • History

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NOTE

HISTORY

2. Change without regulatory effect amending Note filed 1-24-2012 pursuant to section 100, title 1, California Code of Regulations (Register 2012, No. 4).

§2548.24. Business Entity Endorsement Form.

Note • History

Embedded Graphic 10.0226

NOTE

HISTORY

2. Change without regulatory effect amending Note filed 1-24-2012 pursuant to section 100, title 1, California Code of Regulations (Register 2012, No. 4).

§2548.25. Business Entity Endorsement Termination.

Note • History

Embedded Graphic 10.0227

NOTE

HISTORY

2. Change without regulatory effect amending Note filed 1-24-2012 pursuant to section 100, title 1, California Code of Regulations (Register 2012, No. 4).

§2548.26. Life Settlement Licensee Form Filings.

Note • History

Embedded Graphic 10.0228

NOTE

HISTORY

2. Change without regulatory effect amending Note filed 1-24-2012 pursuant to section 100, title 1, California Code of Regulations (Register 2012, No. 4).

§2548.27. Life Settlement Licensee Disclosure to Life Settlement Applicant.

Note • History

State of California

Department of Insurance

Life Settlement Licensee

Disclosure to Life Settlement Applicant

(To be provided no later than at time of application

for any life settlement contract)

IMPORTANT: READ THIS DISCLOSURE FORM BEFORE SIGNING ANY LIFE SETTLEMENT CONTRACT.

You should carefully read all of the following points and seek financial, insurance, tax and other advice where appropriate.

1. There may be possible alternatives to life settlements which exist and include, but are not limited to, accelerated benefits options that may be offered by your life insurer.

2. Some or all of the proceeds of a life settlement may be taxable. Assistance should be sought from a professional tax adviser.

3. There may be an impact on the receipt of public assistance. The recipient should contact the State Department of Health Care Services and the State Department of Social Services under Section 11022 of the Welfare and Institutions Code for further information.

4. Proceeds from a life settlement could be subject to the claims of creditors.

5. Entering into a life settlement contract may cause other rights or benefits, including conversion rights and waiver of premium benefits that may exist under the policy or certificate of a group policy to be forfeited. Assistance should be sought from a financial adviser.

6. Entering into a life settlement could limit the insured's ability to purchase life insurance in the future because there is a limit to how much coverage insurers will issue on one life.

7. The owner has a right to rescind a life settlement contract within thirty (30) days of the date it is executed by all parties and the owner has received all required disclosures, or fifteen (15) days from receipt by the owner of the proceeds of the life settlement, whichever is sooner. Rescission will only be effective if both notice of rescission is given and all proceeds and any premiums, loans, and loan interest paid on account of the provider are repaid within the rescission period. If the insured dies during the rescission period, the contract shall be deemed to have been rescinded subject to repayment by the owner or the owner's estate of all proceeds and any premiums, loans, and loan interest to the provider.

8. Proceeds will be sent to the owner within three (3) business days after the provider has received the insurer or group administrator's acknowledgement that ownership of the policy of the interest in the certificate has been transferred and the beneficiary has been designated in accordance with the terms of the life settlement contract.

9. All medical, financial, or personal information solicited or obtained by a provider or broker about an insured, including the insured's identity or the identity of family members, a spouse, or a significant other may be disclosed as necessary to effect the life settlement contract between the owner and provider. If you are asked to provide this information, you will be asked to consent to the disclosure. The information may be provided to someone who buys the policy or provides funds for the purchase. You may be asked to renew your permission to share information every two (2) years.

10. The insured may be contacted by either the provider or the broker or its authorized representative for the purpose of determining the insured's health status or to verify the insured's address. This contact is limited to once every three (3) months if the insured has a life expectance of more than one (1) year, and no more than once per month if the insured has a life expectance of one (1) year or less.

11. The broker represents the owner, exclusively, and not the insurer or the provider or any other person, and owes a fiduciary duty to the owner, including a duty to act at any times according to the owners' instructions and in the best interest of the owner.

12. The name, business address, and telephone number of the life settlement broker are as follows:

(brokers' printed name)

(address)

(telephone number)

LIFE INSURANCE POLICY OWNER'S ACKNOWLEDGMENT: I have read and fully understand this disclosure form. I have received a copy of this disclosure to keep for my records.

LIFE INSURANCE POLICY LIFE SETTLEMENT PROVIDER

OWNER OR BROKER

By: By:

Printed Name: Printed Name:

Date: Date:

NOTE

HISTORY

2. Change without regulatory effect amending Note filed 1-24-2012 pursuant to section 100, title 1, California Code of Regulations (Register 2012, No. 4).

§2548.28. Life Settlement Broker Disclosure to Owner and Insured.

Note • History

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NOTE

HISTORY

2. Change without regulatory effect amending Note filed 1-24-2012 pursuant to section 100, title 1, California Code of Regulations (Register 2012, No. 4).

§2548.29. Life Settlement Provider Disclosure to Owner.

Note • History

Embedded Graphic 10.0230

NOTE

HISTORY

2. Change without regulatory effect amending Note filed 1-24-2012 pursuant to section 100, title 1, California Code of Regulations (Register 2012, No. 4).

§2548.30. Life Settlement Provider Annual Statement.

Note • History

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NOTE

HISTORY

2. Change without regulatory effect amending Note filed 1-24-2012 pursuant to section 100, title 1, California Code of Regulations (Register 2012, No. 4).

§2548.31. Verification of Coverage for Life Insurance Policies.

Note • History

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NOTE

HISTORY

2. Change without regulatory effect amending Note filed 1-24-2012 pursuant to section 100, title 1, California Code of Regulations (Register 2012, No. 4).

Article 13. Exemption from Limitations on Cancellation and Nonrenewal of Coverage

§2550. Exemptions.

Note • History

(a) Insurance in respect to any risk or class of risks described in (b) and (c) is exempt from those provisions of Chapter 11, Part 1, Division 1, of the Insurance Code (commencing with Section 675) other than Section 679.6.

(b) The exemption granted in (a) shall apply to insurance (whether on an all-risks basis or a named perils basis) against loss of or damage to personal property under scheduled or blanket personal property floaters whether written separately or as a supplemental contract or endorsement when the aggregate amount of insurance on the schedule or policy exceeds $25,000 or when a single risk exceeds $5,000.

NOTE

Authority cited: Section 679.6, Insurance Code.

HISTORY

1. New Article 13 (Section 2550) filed 7-19-72; effective thirtieth day thereafter (Register 72, No. 30).

Article 14. Title Insurance

§2555. Authority. [Repealed]

Note • History

NOTE

Authority cited: Section 12389, 12401.5 and 12414.21, Insurance Code.

HISTORY

1. New Article 14 (Sections 2555-2556.2, not consecutive) filed 3-29-74; designated effective 5-1-74 (Register 74, No. 13).

2. Repealer of article 14 and repealer of section filed 7-26-2007; operative 11-23-2007 pursuant to Government Code section 11343.4(b) (Register 2007, No. 30).

§2555.1. Purpose. [Repealed]

History

HISTORY

1. Repealer filed 7-26-2007; operative 11-23-2007 pursuant to Government Code section 11343.4(b) (Register 2007, No. 30).

§2556. Maintenance of Records. [Repealed]

History

HISTORY

1. Repealer filed 7-26-2007; operative 11-23-2007 pursuant to Government Code section 11343.4(b) (Register 2007, No. 30).

§2556.1. Filing of Rates and Reporting of Statistics. [Repealed]

History

HISTORY

1. Repealer filed 7-26-2007; operative 11-23-2007 pursuant to Government Code section 11343.4(b) (Register 2007, No. 30).

§2556.2. Rating Examinations. [Repealed]

History

HISTORY

1. Repealer filed 7-26-2007; operative 11-23-2007 pursuant to Government Code section 11343.4(b) (Register 2007, No. 30).

Article 15. Discrimination on Account of Sex and/or Marital Status

§2560. Authority.

Note • History

This Article is promulgated pursuant to the authority granted to the Insurance Commissioner under the provisions of Section 790.10 of the Insurance Code.

NOTE

Authority cited: Section 790.10, Insurance Code.

HISTORY

1. New Article 15 (Sections 2560, 2560.1-2560.6) filed 12-2-75; designated effective 1-1-75 (Register 75, No. 49).

§2560.1. Purpose.

The purpose of this Article is to eliminate unfair discrimination based upon sex, marital status or sexual orientation in the terms and conditions of insurance contracts and in the underwriting criteria of insurance carriers.

§2560.2. Definition of Contract.

For the purpose of this Article, the term “contract” includes any insurance policy, plan, certificate, subscriber agreement, statement of coverage, binder, rider or endorsement offered by any person or entity engaged in the business of insurance in this State.

§2560.3. Prohibited Practices.

No person or entity engaged in the business of insurance in this State shall refuse to issue any contract of insurance or shall cancel or decline to renew such contact because of the sex, marital status or sexual orientation of the insured or prospective insured. The amount of benefits payable, or any term, condition or type of coverage shall not be restricted, modified, excluded or reduced on the basis of the sex, marital status or sexual orientation of the insured or prospective insured. (However, marital status may be considered for the purpose of determining eligibility for dependents' or family coverage.) Examples of the practices prohibited by this section include, but are not limited to:

(a) Denying, cancelling or refusing to renew coverage, or providing coverage on different terms, because the insured or prospective insured is residing with another person or persons not related to him or her by blood or marriage;

(b) Offering coverage to males gainfully employed at home, employed part-time or employed by relatives while denying or offering reduced coverage to females similarly employed;

(c) Reducing disability benefits for females who become disabled while not gainfully employed full-time outside the home when a similar reduction is not applied to males;

(d) Denying females waiver of premium provisions that are available to males or offering such provisions to females only for contract limits that are lower than those available to males;

(e) Refusing to offer maternity benefits to insureds or prospective insureds purchasing individual contracts when comparable family coverage contracts offer maternity benefits;

(f) Denying, under group contracts, dependent's coverage to husbands of female employees when dependent's coverage is available to wives of male employees;

(g) Offering coverage to males in certain occupations while denying coverage or offering more limited coverage to females in the same occupational categories;

(h) Offering males higher benefit levels and/or longer benefit periods than are offered to females in the same classifications;

(i) Offering contracts containing different definitions of disability for females and males in the same classifications;

(j) Offering contracts containing different waiting and elimination periods for females and males;

(k) Requiring female applicants to submit to medical examinations while not requiring males to submit to such examinations for the same coverage;

(l) Establishing different benefit options for females and males;

(m) Denying to divorced or single persons coverage available to married persons;

(n) Limiting the amount of coverage available to an insured or prospective insured based upon his or her marital status;

(o) Denying employees of one sex insurance benefits that are offered to dependents who are of the same sex as the employees;

(p) Denying a married or separated female the right to obtain coverage in her own name;

(q) Establishing different issue age requirements for females and males;

(r) Establishing different occupational classifications for females and males;

(s) Denying coverage to unwed mothers and/or their dependents;

(t) Refusing to continue coverage on a spouse or ex-spouse while continuing coverage on the other spouse or ex-spouse following separation or dissolution of a married couple previously covered under a family or household contract.

§2560.4. Remedy for Past Discriminations.

Any person who, prior to the effective date of this Article, has been denied insurance coverage on the basis of sex, marital status or sexual orientation may submit to the Commissioner, within one year following the effective date of this Article, a complaint setting forth the details of such denial to the best of such person's knowledge and belief. The Commissioner shall investigate the facts set forth in such complaint and shall take such action as he deems appropriate.

§2560.5. Severability Provision.

§2560.6. Effective Date.

This Article shall be effective on January 1, 1976. Provisions which are contained in group contracts in force on the effective date of this Article and which are not in compliance with this Article may continue in effect until no later than the renewal anniversaries of such contracts next following the effective date of this Article.

Article 15.1. Gender Nondiscrimination in Health Insurance

§2561.1. Definitions.

Note • History

The following terms have the following meanings as used in this article.

(a) “Actual gender identity” means a person's internal sense of being: (1) male, (2) female, (3) a gender different from the gender assigned to the person at birth, (4) a transgender person, or (5) neither male nor female.

(b) “Perceived gender identity” means an observer's impression of another's internal sense of being: (1) male, (2) female, (3) a gender different from the gender assigned at birth, (4) a transgender person, or (5) neither male nor female. The term also includes an observer's impression that another is: (1) male, (2) female, (3) a gender different from the gender assigned at birth, (4) a transgender person, or (5) neither male nor female.

(c) A “transgender person” is a person (1) who has, or has been diagnosed with, gender identity disorder or gender dysphoria; (2) who has received health care services, including counseling, related to gender transition; (3) who adopts the dress, appearance, or behavior of the opposite sex; or (4) who otherwise identifies himself or herself as a gender different from the gender assigned to that person at birth.

(d) “Gender transition” means the process of changing one's outward appearance, including physical sex characteristics, to accord with his or her actual gender identity.

NOTE

Authority cited: Sections 10140 and 10140.2, Insurance Code; CalFarm Ins. Co. v. Deukmejian, 48 Cal.3d 805 (1989); 20th Century Ins. Co. v. Garamendi, 8 Cal. 4th 216 (1994). Reference: Sections 10140 and 10140.2, Insurance Code.

HISTORY

1. New article 15.1 (sections 2561.1-2561.2) and section filed 8-3-2012; operative 9-2-2012 (Register 2012, No. 31).

§2561.2. Discrimination on the Basis of Actual or Perceived Gender Identity.

Note • History

(a) An admitted insurer shall not, in connection with health insurance as defined in subdivision (b) of Insurance Code section 106, discriminate on the basis of an insured's or prospective insured's actual or perceived gender identity, or on the basis that the insured or prospective insured is a transgender person. The discrimination prohibited by this Section 2561.2 includes any of the following:

(1) Denying, cancelling, limiting or refusing to issue or renew an insurance policy on the basis of an insured's or prospective insured's actual or perceived gender identity, or for the reason that the insured or prospective insured is a transgender person;

(2) Demanding or requiring a payment or premium that is based in whole or in part on an insured's or prospective insured's actual or perceived gender identity, or for the reason that the insured or prospective insured is a transgender person;

(3) Designating an insured's or prospective insured's actual or perceived gender identity, or the fact that an insured or prospective insured is a transgender person, as a preexisting condition for which coverage will be denied or limited; or

(4) Denying or limiting coverage, or denying a claim, for services including but not limited to the following, due to an insured's actual or perceived gender identity or for the reason that the insured is a transgender person:

(A) Health care services related to gender transition if coverage is available for those services under the policy when the services are not related to gender transition, including but not limited to hormone therapy, hysterectomy, mastectomy, and vocal training; or

(B) Any health care services that are ordinarily or exclusively available to individuals of one sex when the denial or limitation is due only to the fact that the insured is enrolled as belonging to the other sex or has undergone, or is in the process of undergoing, gender transition.

(b) This Section 2561.2 shall have no bearing on the question of whether or not a particular health care service is medically necessary in any individual case.

NOTE

HISTORY

1. New section filed 8-3-2012; operative 9-2-2012 (Register 2012, No. 31).

Article 16. Home Protection Companies

§2570. Authority.

Note • History

This Article is promulgated pursuant to the authority granted to the Commissioner under the provisions of Part 7, Division 2 of the Insurance Code.

NOTE

Authority cited: Section 2570, California Insurance Code. Reference: Sections 771.1, 831.1, 881.1, 882.5, 988, 1215.13 1/2, 1634, 1635, Part 7 commencing with Section 12740 of Division 2, Insurance Code.

HISTORY

1. New Article 16 (Sections 2570-2570.09, not consecutive) filed 3-8-79; effective thirtieth day thereafter (Register 79, No. 10).

2. New Article 16 (Sections 2570-2570.09, not consecutive) refiled 3-16-79 as an emergency; effective upon filing (Register 79, No. 10).

§2570.01. Purpose.

Note

The purpose of this Article is to implement the provisions of Part 7 (commencing with Section 12740) to Division 2 of the Insurance Code, relating to home protection companies. This law was added to the Insurance Code effective September 26, 1978, as an urgency statute to give the Commissioner regulatory authority over home protection companies conducting a home protection business in this State.

NOTE

§2570.02. Definitions.

Note

(a) “Unearned home protection contract fees” as used in Section 2570.06(g)(2) (B)7 and the reserves contemplated in Section 985 of the Insurance Code as required by Section 12751 of the Insurance Code means that a home protection company must make provision for reinsurance of the outstanding risk on policies which provide that premiums are fully earned at inception and on policies which for any other reason do not provide for a return premium to the insured on cancellation prior to expiration.

Standards for reasonably estimating the amount required to reinsure under Sections 980 through 988 of the Insurance Code to provide adequate safeguards for the contract holders, creditors and the public will be provided from time to time by the Commissioner after giving consideration to the developing experience of the home protection business.

(b) “Service claims adjusted and unpaid or in the process of adjustment” as used in Section 2570.06(g)(2) (B)1 means a reserve estimated in the aggregate to provide for the payment of all service claims for which a home protection company may be liable and to provide for the expense of adjustment or settlement of all service claims. This includes the cost to purchase home appliances, systems or components and to pay for installation and service.

“Service claim” as used herein means a claim by the holder of a home protection contract for the provision of service for the replacement or repair of a covered appliance, system or component pursuant to a home protection contract.

NOTE

Authority cited: Section 2570, California Insurance Code. Reference: Sections 771.831.1, 881.1, 882.5, 988, 1215.13 1/2, 1634, 1635, Part 7 commencing with Section 12740 of Division 2, Insurance Code.

§2570.03. Home Protection Company License Requirement.

Note

No person shall issue or offer to issue home protection contracts in this state unless such person (1) holds a valid home protection company license issued by the Commissioner, or (2) holds a valid Certificate of Authority to transact miscellaneous insurance under Insurance Code Section 120.

NOTE

§2570.04. Application Procedure for Home Protection Companies.

Note

(a) A domestic home protection company incorporated and capitalized prior to January 1, 1979 or a foreign home protection company incorporated, capitalized and conducting a home protection company business in California prior to January 1, 1979 shall file with the Commissioner an application on the form furnished by the Commissioner and submit the exhibits specified in Section 2570.06 on or before March 31, 1979.

(b) A domestic home protection company not incorporated and capitalized prior to January 1, 1979 shall comply with the following procedures prior to the commencement of business:

(1) Apply for a corporate name approval from the Commissioner pursuant to Insurance Code Section 880 et seq.;

(2) Incorporate under the California General Corporations Law;

(3) File an application for a security permit with the Commissioner pursuant to Section 2570.08;

(4) Capitalize in accordance with the terms and conditions of the security permit issued;

(5) Correct any deficiencies found during field examination conducted by the Commissioner; and

(6) File an application on a form furnished by the Commissioner for a license pursuant to Section 2570.06 and obtain a license from the Commissioner to conduct a home protection company business.

(c) A foreign home protection company not conducting a home protection company business in California prior to January 1, 1979 shall file with the Commissioner an application on the form furnished by the Commissioner and submit the exhibits specified in Section 2570.06.

NOTE

§2570.06. Exhibits to Be Submitted by Applicant.

Note

An applicant for a license to conduct a home protection company business shall submit the following exhibits with its application.

(a) Fees.

(1) Application fee.

(2) Name(s) of marketing representatives (Make check payable to the California Department of Insurance.)

(b) Taxes.

Executed tax bond or security deposit.

(1) Request for corporate name approval letter.

(2) Request for marketing representatives name(s) approval letter.

(d) Authorization for Disclosure of Financial Records.

Executive disclosure of financial records authorization.

(e) Organization.

(1) Articles of incorporation and all amendments certified by the secretary of state.

(2) By-laws certified by the corporate secretary.

(3) Minutes of initial meeting of the incorporators or board of directors certified by the corporate secretary if the applicant is being organized on or after January 1, 1979.

(4) Completed registration statement Form “B,” if your company is a member of a holding company system.

(5) Functional staffing organization chart showing the name and title of all directors, officers and key managerial personnel.

(6) Biographical affidavit on a form furnished by the Commissioner for each person controlling 10% or more of applicant's stock directly or indirectly and each person named on the applicant's functional staffing organization chart who does not have a recent biographical affidavit on file with the Commissioner.

(7) The name of each director of the applicant who is a director of any insurer or other home protection company together with the name of all such insurers or other home protection companies.

(8) Procedures of the applicant to determine the existence of possible conflicts of interest with directors, officers or key managerial personnel.

(9) Copy of any current or proposed outside management, consulting, employment or administration agreement certified by the corporate secretary.

(10) Certificate of good standing from the home state.

(f) Plan of Operation.

(1) The plan of operation exhibit may be submitted in a narrative form and should include information with regard to the following:

(A) Products. Briefly explain the applicant's home protection contract in regard to coverage, exclusions, terms, average price and other relevant items.

(B) Marketing. Describe the manner in which these products will be marketed. Submit copies of applicant's marketing material such as pamphlets, brochures, handbooks and advertising.

(C) Underwriting and Rating. Describe the applicant's underwriting and rating practices and procedures. Include a copy of the following:

1. All contracts, applications, endorsements, amendments or rider forms intended for use in California.

2. Underwriting manual or underwriting guidelines intended for use in California.

3. Rate charts intended for use in California.

4. Copy of any actuarial study, market research study, or summary of experience upon which applicant's proposed rates are based.

5. Copy of applicant's rating manual or a description of applicant's rate making methodology.

(D) Provision of Service. Briefly explain how and by whom service claims will be processed and service performed. Indicate whether applicant's service providers will be employees or independent contractors and explain how service providers will be compensated. Describe the extent of authority delegated to independent service providers and explain what check is made on the quality of service rendered. Include a copy of the applicant's service manual and service agreements.

(g) Financial Reporting Requirements.

(l) A copy of applicant's most recent audited financial statement prepared by an independent certified public accountant or independent licensed public account. If applicant's financial statement was not audited, it must be verified by the applicant's president and secretary.

(2) A financial statement prepared in accordance with statutory requirements as of the date of application showing:

(A) Assets.

1. Bonds.*

2. Stocks.*

a. preferred stocks.

b. common stocks.

3. Mortgage loans on real estate.

a. first liens.

b. other than first liens.

4. Real estate,* less encumbrances.

5. Collateral loans.

6. Cash on hand and on deposit.

a. cash in company's office.

b. cash on deposit.

7. Other invested assets.

8. Protection contract fees receivable.**

9. Service fees receivable.***

10. Federal income tax recoverable.

11. Electronic data processing equipment.

12. Interest, dividends and real estate income due and accrued.

13. Prepaid claim expense.****

14. Total assets.

(B) Liabilities, Surplus and Other Funds.

1. Service claims adjusted and unpaid or in process of adjustment.

2. Other expenses (excluding taxes, licenses and fees).

3. Taxes, licenses and fees (excluding federal and foreign income taxes).

4. Federal and foreign income taxes (excluding deferred taxes).

5. Borrowed money.

6. Interest payable.

7. Unearned home protection contract fees.

8. Dividends declared and unpaid to stockholders.

9. All other liabilities.

10. Total liabilities.

11. Capital paid-up.

12. Gross paid-in and contributed surplus.

13. Unassigned funds (surplus).

14. Less treasury stock, at cost.

15. Surplus as regards contract holders.

16. Totals.

Provide the following information:

California Other States Total

Date that home protection company business in California commenced.

Number of contracts issued or renewed during the preceding calendar year

Number of contracts in force

Number of months of liability under unexpired contracts.

Average price per contract

Average amount expended per contract for direct provision of service.

Average amount per contract expended for acquisition and administration expenses

(3) Audited or verified financial statement for 1977 and 1978 for those companies conducting a home protection company business in California prior to January 1, 1979.

(4) Copy of any actuarial study or market research report upon which the applicant's financial projection was based

(5) Copy of any contract by which business is shared or pooled with another home protection company or insurer

(6) Salaries and compensation paid or payable to directors, officers and key managerial personnel

(7) Estimate of all organizational expenses incurred or to be incurred, from initial promotion to issuance of a home protection company license for a company organized on or after January 1, 1979.

* State basis of valuation.

** Home protection contract fees receivable are allowed as assets to the extent that such fees are actually received subsequent to the end of the statement period on contracts which became effective prior to the end of the statement period.

*** Service fees receivable are allowable as an asset to the extent that such fees are actually received within 15 days following the end of the statement period.

**** Furniture, fixtures, office equipment and supplies, leasehold improvements, organization expenses, intangible assets, deferred charges and prepaid expenses are not allowable assets except that prepaid claims expense consisting of automobiles, trucks and appliances used solely and directly in servicing claims may be taken as an asset at depreciated cost.

NOTE

§2570.07. Additional Requirements for Foreign Applicants.

Note

A foreign applicant shall also file the following exhibits.

(a) Notice of appointment of agent for service of process.

(b) Latest annual and quarterly statements to date certified by applicant's home state regulatory official to be true and correct copies.

NOTE

§2570.08. Exhibits to Be Submitted in Support of a Security Permit Application.

Note

A home protection company applying for a security permit shall submit the following:

(a) Security permit application fee.

(b) A voided specimen of any share certificate or other security which applicant proposes to issue.

(c) If the sale is by subscription, a list of all proposed share purchasers, the amount of shares to be purchased by each subscriber, the aggregate consideration to be paid by each subscriber and identification of the promoters by means of an asterisk.

(d) Prospectus or offering circular, or a statement why it should not be required. No prospectus or offering circular is required if the entire issue will be made to three or less subscribers, all of whom are promoters.

(e) Copy of any letter to stockholders, offering letter or other solicitation material.

(f) Stock subscription agreement.

(g) Agreement restricting transfer of shares.

(h) Impound agent instructions and letters of consent to act as escrow agent.

(i) Underwriter's agreement concerning the issue or providing for sale or disposition of applicant's shares.

(j) Names of all persons who will solicit the sale of these securities and their addresses, relationships to the applicant, production and securities licenses held and compensation for the sale of these securities, if any.

(k) The plan of operation as specified in Section 2570.06 (f).

(l) A two-year financial projection.

NOTE

§2570.09. Filing Instructions.

Note

(a) All applications for a home protection company license shall be filed with the Corporate Affairs Bureau, Legal Division, San Francisco Office.

(b) Submit an original and one copy of the application, index of exhibits and all exhibits.

(1) The documents should be arranged as follows:

Application

Index of Exhibits

Exhibits (lower right hand side of the exhibits should indicate the number or description corresponding to the index).

(2) In the event that an exhibit is not submitted with the application, please so indicate.

(3) Supplements or amendments to exhibits should be submitted and marked in the same manner as original exhibits. Each supplement or amendment should consist of a whole document or complete pages of a document paginated to correspond to existing exhibits so that the new material can be readily inserted into the existing file.

(4) Every application will be assigned a file number. Applicants will be notified on the file number and filing date, and all subsequent correspondence shall bear the file number.

(5) The application, amendments and supplements shall be verified as required by the Code of Civil Procedures Sections 446 and 2015.5.

NOTE

Article 17. Actuarial Opinion and Memorandum Regulation

§2580.1. Purpose.

Note • History

The purpose of this regulation is to prescribe:

(a) Requirements for statements of actuarial opinion that are to be submitted in accordance with Section 10489.15 of the Insurance Code, and for memoranda in support thereof;

(b) Rules applicable to the appointment of an appointed actuary; and

NOTE

Authority cited: Section 10489.15, Insurance Code. Reference: Section 10489.15, Insurance Code.

HISTORY

1. New article and section filed 12-6-94; operative 1-5-95 (Register 94, No. 49).

2. Amendment filed 12-27-2004; operative 1-1-2005 pursuant to Government Code section 11343.4 (Register 2004, No. 53).

§2580.2. Scope.

Note • History

This regulation shall apply to all life insurance companies and fraternal benefit societies doing business in this State and to all life insurance companies and fraternal benefit societies that are authorized to reinsure life insurance, annuities or accident and health insurance business in this State. This regulation shall be applied in a manner that allows the Appointed Actuary to utilize his or her professional judgment in performing the Asset Adequacy Analysis and developing the Actuarial Opinion and supporting memoranda, consistent with relevant actuarial standards of practice. However, the Commissioner shall have the authority to specify specific methods of actuarial analysis and actuarial assumptions when, in the Commissioner's judgment, these specifications are necessary for an acceptable opinion to be rendered relating to the adequacy of reserves and related items.

This regulation shall be applicable to all annual statements filed with the office of the Commissioner after the effective date of this regulation. A statement of opinion on the adequacy of the reserves and related actuarial items based on an Asset Adequacy Analysis in accordance with Section 2580.5 of this regulation, and a memorandum in support thereof in accordance with Section 2580.6 of this regulation, shall be required each year.

NOTE

Authority cited: Section 10489.15, Insurance Code. Reference: Section 10489.15, Insurance Code.

HISTORY

1. New section filed 12-6-94; operative 1-5-95 (Register 94, No. 49).

2. Amendment filed 12-27-2004; operative 1-1-2005 pursuant to Government Code section 11343.4 (Register 2004, No. 53).

§2580.3. Definitions.

Note • History

(a) “Actuarial Opinion” means the opinion of an Appointed Actuary regarding the adequacy of the reserves and related actuarial items based on an Asset Adequacy Analysis test in accordance with Section 2580.5 of this regulation and with applicable Actuarial Standards of Practice.

(b) “Actuarial Standards Board” is the board established by the American Academy of Actuaries to develop and promulgate standards of actuarial practice.

(c) “Annual Statement” means that statement required by Section 900 of the Insurance Code to be filed by the Company with the office of the Commissioner annually.

(d) “Appointed Actuary” means any individual who is appointed or retained in accordance with the requirements set forth in Subsection 2580.4(c) of this regulation to provide the Actuarial Opinion and supporting memorandum as required by Section 10489.15 of the Insurance Code.

(e) “Asset Adequacy Analysis” means an analysis that meets the standards and other requirements referred to in Subsection 2580.4(d) of this regulation.

(f) “Commissioner” means the Insurance Commissioner of the State of California.

(g) “Company” means a life insurance company, fraternal benefit society or reinsurer subject to the provisions of this regulation.

(h) “Qualified Actuary” means any individual who meets the requirements set forth in Subsection 2580.4(b) of this regulation.

NOTE

Authority cited: Section 10489.15, Insurance Code. Reference: Section 10489.15, Insurance Code.

HISTORY

1. New section filed 12-6-94; operative 1-5-95 (Register 94, No. 49).

2. Amendment filed 12-27-2004; operative 1-1-2005 pursuant to Government Code section 11343.4 (Register 2004, No. 53).

§2580.4. General Requirements.

Note • History

(a) Submission of Statement of Actuarial Opinion.

(1) There is to be included on or attached to Page 1 of the Annual Statement for each year beginning with the year in which this regulation becomes effective the statement of an Appointed Actuary, entitled “Statement of Actuarial Opinion,” setting forth an opinion relating to reserves and related actuarial items held in support of policies and contracts, in accordance with Section 2580.5 of this regulation.

(2) Upon written request by the Company, the Commissioner may grant an extension of the date for submission of the Statement of Actuarial Opinion.

(b) A “qualified actuary” is an individual who:

(1) Is a member in good standing of the American Academy of Actuaries; and

(2) Is qualified to sign statements of actuarial opinion for life and health insurance company annual statements in accordance with the American Academy of Actuaries qualification standards for actuaries signing such statements;

(3) Is familiar with the valuation requirements applicable to life and health insurance companies;

(4) Has not been found by the Commissioner (or if so found has subsequently been reinstated as a qualified actuary), following appropriate notice and hearing to have:

(A) Violated any provision of, or any obligation imposed by, the Insurance Law or other law in the course of his or her dealings as a qualified actuary;

(B) Been found guilty of fraudulent or dishonest practices;

(D) Submitted to the Commissioner during the past five years, pursuant to this regulation, an actuarial opinion or memorandum that the Commissioner rejected because it did not meet the provisions of this regulation including standards set by the Actuarial Standards Board; or

(E) Resigned or been removed as an actuary within the past five years as a result of acts or omissions indicated in any adverse report on examination or as a result of failure to adhere to generally acceptable actuarial standards; and

(5) Has not failed to notify the Commissioner of any action taken by any Commissioner of any other state similar to that under Paragraph (4) above.

(c) An “appointed actuary” is a Qualified Actuary who is appointed or retained to prepare the Statement of Actuarial Opinion required by this regulation, either directly by or by the authority of the board of directors through an executive officer of the Company who is not said Qualified Actuary. The Company shall mail the Commissioner timely notice of the name, title (and, in the case of a consulting actuary, the name of the firm) and manner of appointment or retention of each person appointed or retained by the Company as an appointed actuary and shall state in the notice that such person meets the requirements set forth in Subsection 2580.4(b). Once notice is furnished, no further notice is required with respect to this person, provided that the Company shall inform the Commissioner by written notice postmarked or received within sixty calendar days of the event, in the event the actuary ceases to be appointed or retained as an appointed actuary or to meet the requirement set forth in Subsection 2580.4(b). If any person appointed or retained as an appointed actuary replaces a previously appointed actuary, the notice shall so state and give the reasons for replacement.

(d) Standards for Asset Adequacy Analysis.

The asset adequacy analysis required by this regulation:

(1) Shall conform to the Standards of Practice as promulgated from time to time by the Actuarial Standards Board and any additional standards under this regulation, which standards are to form the basis of the statement of Actuarial Opinion in accordance with this regulation; and

(2) Shall be based on methods of analysis as are deemed appropriate for such purposes by the Actuarial Standards Board.

(e) Liabilities to be Covered.

(1) Under the authority of Section 10489.15 of the Insurance Code, the statement of Actuarial Opinion shall apply to all in force business on the statement date, whether directly issued or assumed, regardless of when or where issued, namely, reserves of Exhibits 5, 6, and 7, and claim liabilities in Exhibit 8, Part 1 and any other policy or contract liabilities and equivalent items in the separate account statement or statements. Exhibits 5, 6, 7, and 8 are included in the chart attached to Paragraph 2580.5(b)(2).

(2) If the Appointed Actuary determines as the result of Asset Adequacy Analysis that a reserve should be held in addition to the aggregate reserve held by the Company and calculated in accordance with methods set forth in Division 2, Part 2, Chapter 5, Article 3A (Section 10489.1, et seq.) of the Insurance Code, the Company shall establish the additional reserve.

(3) Additional reserves established under Paragraph (2) above and deemed not necessary in subsequent years may be released. Any amounts released must be disclosed in the Actuarial Opinion for the applicable year. The release of such reserves would not be deemed an adoption of a lower standard of valuation.

NOTE

Authority cited: Section 10489.15, Insurance Code. Reference: Section 10489.15, Insurance Code.

HISTORY

1. New section filed 12-6-94; operative 1-5-95 (Register 94, No. 49).

2. Amendment filed 12-27-2004; operative 1-1-2005 pursuant to Government Code section 11343.4 (Register 2004, No. 53).

§2580.5. Statement of Actuarial Opinion Based on an Asset Adequacy Analysis.

Note • History

(a) General Description.

The statement of Actuarial Opinion submitted in accordance with this section shall consist of:

(1) A paragraph identifying the Appointed Actuary and his or her qualifications (see Paragraph 2580.5(b)(1));

(2) A scope paragraph identifying the subjects on which an opinion is to be expressed and describing the scope of the Appointed Actuary's work, including a tabulation delineating the reserves and related actuarial items that have been analyzed for asset adequacy and the method of analysis, (see Paragraph 2580.5(b)(2)) and identifying the reserves and related actuarial items covered by the opinion that have not been so analyzed;

(3) A reliance paragraph describing those areas, if any, where the Appointed Actuary has deferred to other experts in developing data, procedures or assumptions, (e.g., anticipated cash flows from currently owned assets, including variation in cash flows according to economic scenarios (see Paragraph 2580.5(b)(3)), supported by a statement of each such expert in the form prescribed by Subsection 2580.5(e); and

(4) An opinion paragraph expressing the Appointed Actuary's opinion with respect to the adequacy of the supporting assets to mature the liabilities (see Paragraph 2580.5(b)(6)).

(5) One or more additional paragraphs will be needed in individual Company cases as follows:

(A) If the Appointed Actuary considers it necessary to state a qualification of his or her opinion.

(B) If the Appointed Actuary must disclose an inconsistency in the method of analysis or basis or asset allocation used at the prior opinion date with that used for this opinion.

(C) If the Appointed Actuary must disclose whether additional reserves as of the prior opinion date are released as of this opinion date, and the extent of the release.

(D) If the Appointed Actuary chooses to add a paragraph briefly describing the assumptions which form the basis for the Actuarial Opinion.

(b) Recommended Language.

The following paragraphs are to be included in the statement of Actuarial Opinion in accordance with this section. Language is that which in typical circumstances should be included in a statement of Actuarial Opinion. The language may be modified as needed to meet the circumstances of a particular case, but the Appointed Actuary should use language that clearly expresses his or her professional judgment. However, in any event the opinion shall retain all pertinent aspects of the language provided in this section.

(1) The opening paragraph should generally indicate the Appointed Actuary's relationship to the Company and his or her qualifications to sign the opinion. For a Company actuary, the opening paragraph of the Actuarial Opinion should include a statement such as:

“I, [name of actuary], am [title] of [insurance company name] and a member of the American Academy of Actuaries. I was appointed by, or by the authority of, the Board of Directors of said insurer to render this opinion as stated in the letter to the Commissioner dated [insert date]. I meet the Academy qualification standards for rendering the opinion and am familiar with the valuation requirements applicable to life and health insurance companies.”

For a consulting actuary, the opening paragraph should include a statement such as:

“I, [name], a member of the American Academy of Actuaries, am associated with the firm of [name of consulting firm]. I have been appointed by, or by the authority of, the Board of Directors of [name of company] to render this opinion as stated in the letter to the Commissioner dated [insert date]. I meet the Academy qualification standards for rendering the opinion and am familiar with the valuation requirements applicable to life and health insurance companies.”

(2) The scope paragraph should include a statement such as:

“I have examined the actuarial assumptions and actuarial methods used in determining reserves and related actuarial items listed below, as shown in the Annual Statement of the Company, as prepared for filing with state regulatory officials, as of December 31, 20[ ]. Tabulated below are those reserves and related items which have been subjected to Asset Adequacy Analysis.

Reserves and Liabilities

Asset Adequacy Tested Amounts

Formula Additional Analysis Other Total

Reserves Actuarial Method (b) Amount Amount

Reserves (a) (1)+ (2) + (4)

Statement Item (1) (2) (3) (4) (5)

Exhibit 5

Life Insurance

Annuities

Supplementary

Contracts Involving

Life Contingencies

Accidental Death

Benefit

Disability - Active

Disability - Disabled

Miscellaneous

Total (Exhibit 5

Item 1, Page 3)

Exhibit 6

Active Life Reserve

Claim Reserve

Total (Exhibit 6

Item 1, Page 3)

Exhibit 7

Premiums and Other

Deposit Funds

(Column 5, Line 14)

Guaranteed Interest

Contracts

(Column 2, Line 14)

Other

(Column 6,

Line 14)

Supplemental

Contracts and

Annuities Certain

(Column 3, Line 14)

Dividends and

Accumulations or Refunds

(Column 4, Line 14)

Total Exhibit 7 (Column 1,

Line 14)

Exhibit 8 Part 1

Life (Page 3,

Line 4.1)

Health (Page 3,

Line 4.2)

Total Exhibit 11,

Part 1

Other (Specify)

Separate Accounts

(Page 3 of the Annual

Statement of the Separate

Accounts, Lines 1 and 2,

Column 3)

TOTAL RESERVES

Reserves and Liabilities

Asset Adequacy Tested Amounts

Formula Additional Analysis Other Total

Reserves Actuarial Method (b) Amount Amount

Reserves (a) (1)+ (2) + (4)

Statement Item (1) (2) (3) (4) (5)

IMR (General Account,

Page ___ Line ___ )

(Separate Accounts,

Page ___ Line ___ ) (c)

AVR (Page ___ Line ___ )

Net Deferred and

Uncollected Premium

Notes:

(a) The additional actuarial reserves are the reserves established under Section 2580.4(e)

(b) The Appointed Actuary should indicate the method of analysis, determined in accordance with the standards for asset analysis referred to in Section 2580.4(d) of this regulation, by means of symbols that should be defined in a footnote to the table.

(3) If the Appointed Actuary has relied on other experts to develop certain portions of the analysis, the reliance paragraph should include a statement such as:

“I have relied on [name], [title] for [e.g., “anticipated cash flows from currently owned assets, including variations in cash flows according to economic scenarios,” or “certain critical aspects of the analysis performed in conjunction with forming my opinion”], as certified in the attached statement. I have reviewed the information relied upon for reasonableness.”

A statement of reliance on other experts should be accompanied by a statement by each of such experts in the form prescribed by Subsection 2580.5(e).

(4) If the Appointed Actuary has examined the underlying asset and liability records, the reliance paragraph should also include the following:

“My examination included such review of the actuarial assumptions and actuarial methods and of the underlying basic asset and liability records and such tests of the actuarial calculations as I considered necessary. I also reconciled the underlying basic asset and liability records to [exhibits and schedules listed as applicable] of the company's current annual statement.”

(5) If the Appointed Actuary has not examined the underlying records, but has relied upon data (e.g., listings and summaries of policies in force and/or asset records) prepared by the Company, the reliance paragraph should include a statement such as:

“In forming my opinion on [specifying types of reserves] I relied upon data prepared by [name and title of company officer certifying in force records or other data] as certified in the attached statements. I evaluated that data for reasonableness and consistency. I also reconciled that data to [exhibits and schedules to be listed as applicable] of the company's current annual statement. In other respects, my examination included review of the actuarial assumptions and actuarial methods used, and included such tests of the calculations as I considered necessary.”

The section must be accompanied by a statement by each person relied upon in the form prescribed by Subsection 2580.5(e).

(6) The opinion paragraph should include the following:

“In my opinion the reserves and related actuarial values concerning the statement items identified above:

(A) Are computed in accordance with presently accepted actuarial standards consistently applied and are fairly stated, in accordance with sound actuarial principles;

(B) Are based on actuarial assumptions that produce reserves at least as great as those called for in any contract provision as to reserve basis and method, and are in accordance with all other contract provisions;

(C) Meet the requirements of the Insurance Law and regulation of the state of [state of domicile] and are at least as great as the minimum aggregate amounts required by the state in which this statement is filed;

(D) Are computed on the basis of assumptions consistent with those used in computing the corresponding items in the Annual Statement of the preceding year-end (with any exceptions noted below); and

(E) Include provision for all actuarial reserves and related statement items which ought to be established.

1. The reserves and related items, when considered in light of the assets held by the Company with respect to such reserves and related actuarial items including, but not limited to, the investment earnings on the assets, and the considerations anticipated to be received and retained under the policies and contracts, make adequate provision, according to presently accepted actuarial standards of practice, for the anticipated cash flows required by the contractual obligations and related expenses of the company. (At the discretion of the Commissioner, the preceding sentence may be omitted for an opinion filed on behalf of a domestic Company doing business only in this state and in no other state.)

2. The actuarial methods, considerations and analyses used in forming my opinion conform to the appropriate Standards of Practice as promulgated by the Actuarial Standards Board, which standards form the basis of this statement of opinion.

3.(i) This opinion is updated annually as required by statute. To the best of my knowledge, there have been no material changes from the applicable date of the annual statement to the date of the rendering of this opinion which should be considered in reviewing this opinion.

(ii) The following material change(s) which occurred between the date of the statement for which this opinion is applicable and the date of this opinion should be considered in reviewing this opinion: (Describe the change or changes.)

Note: Choose Subitem (i) or Subitem (ii) above, whichever is applicable.

4. The impact of unanticipated events subsequent to the date of this opinion is beyond the scope of this opinion. The analysis of asset adequacy portion of this opinion should be viewed recognizing that the company's future experience may not follow all the assumptions used in the analysis.

Signature of Appointed Actuary

Address of Appointed Actuary

Telephone Number of Appointed Actuary

E-mail Address of Appointed Actuary

Date”

The adoption for new issues or new claims or other new liabilities of an actuarial assumption that differs from a corresponding assumption used for prior new issues or new claims or other new liabilities is not a change in actuarial assumptions within the meaning of this Section 2580.5.

(d) Adverse Opinions.

If the Appointed Actuary is unable to form an opinion, then he or she shall refuse to issue a statement of Actuarial Opinion. If the Appointed Actuary's opinion is adverse or qualified, then he or she shall issue an adverse or qualified Actuarial Opinion explicitly stating the reason(s) for the opinion.

This statement should follow the scope paragraph and precede the opinion paragraph.

(e) Reliance on Information Furnished by Other Persons.

If the Appointed Actuary relies on the certification of others on matters concerning the accuracy or completeness of any data underlying the Actuarial Opinion, or the appropriateness of any other information used by the Appointed Actuary in forming the Actuarial Opinion, the Actuarial Opinion should so indicate the persons the actuary is relying upon and a precise identification of the items subject to reliance. In addition, the persons on whom the Appointed Actuary relies shall provide a certification that precisely identifies the items on which the person is providing information and a statement as to the accuracy, completeness or reasonableness, as applicable, of the items. This certification shall include the signature, title, company, address, e-mail address and telephone number of the person rendering the certification, as well as the date on which it is signed.

NOTE

Authority cited: Section 10489.15, Insurance Code. Reference: Section 10489.15, Insurance Code.

HISTORY

1. New section filed 12-6-94; operative 1-5-95 (Register 94, No. 49).

2. Repealer of former section 2580.5 and renumbering and amendment of former section 2580.7 to section 2580.5 filed 12-27-2004; operative 1-1-2005 pursuant to Government Code section 11343.4 (Register 2004, No. 53).

§2580.6. Description of Actuarial Memorandum Including an Asset Adequacy Analysis and Regulatory Asset Adequacy Issues Summary.

Note • History

(a) General

(1) In accordance with Section 10489.15 of the Insurance Code, the Appointed Actuary shall prepare a memorandum to the Company describing the analysis done in support of his or her opinion regarding the reserves. The memorandum shall be made available for examination by the Commissioner upon his or her request but shall be returned to the Company after such examination and shall not be considered a record of the insurance department or subject to automatic filing with the Commissioner.

(2) In preparing the memorandum, the Appointed Actuary may rely on, and include as a part of his or her own memorandum, memoranda prepared and signed by other actuaries who are qualified within the meaning of Section 2580.4(b) of this regulation, with respect to the areas covered in such memoranda, and so state in their memoranda.

(3) If the Commissioner requests a memorandum and no such memorandum is received within 60 calendar days of the date of mailing the request, or if the Commissioner finds that the analysis described in the memorandum fails to meet the standards of the Actuarial Standards Board or the standards and requirements of this regulation, the Commissioner may designate a Qualified Actuary to review the opinion and prepare such supporting memorandum as is required for review. The reasonable and necessary expense of such independent review shall be paid by the Company but shall be directed and controlled by the Commissioner.

(4) The reviewing actuary shall have the same status as an examiner for purposes of obtaining data from the Company and the work papers and documentation of such reviewing actuary shall be retained by the Commissioner; provided, however, that any information provided by the Company to such reviewing actuary and included in the work papers shall be considered as material provided by the Company to the Commissioner and shall be kept confidential to the same extent as is prescribed by law with respect to other material provided by the Company to the Commissioner pursuant to the statute governing this regulation. The reviewing actuary shall not be an employee of a consulting firm involved with the preparation of any prior memorandum or opinion for the insurer pursuant to this regulation for any one of the current year or the preceding three years.

(5) In accordance with Section 10489.15 of the Insurance Code, the Appointed Actuary shall prepare a regulatory asset adequacy issues summary, the contents of which are specified in Subsection 2580.6(c). The regulatory asset adequacy issues summary will be submitted no later than March 15 of the year following the year for which a statement of Actuarial Opinion based on asset adequacy is required. The regulatory asset adequacy issues summary is to be kept confidential to the same extent and under the same conditions as the actuarial memorandum.

(b) Details of the Memorandum Section Documenting Asset Adequacy Analysis.

When an Actuarial Opinion under Section 2580.5 is provided, the memorandum shall demonstrate that the analysis has been done in accordance with the standards for Asset Adequacy Analysis referred to in Subsection 2580.4(d) of this regulation and any additional standards under this regulation. It shall specify:

(1) For reserves:

(A) Product descriptions including market description, underwriting and other aspects of a risk profile and the specific risks the Appointed Actuary deems significant;

(B) Source of liability in force;

(D) Investment reserves;

(E) Reinsurance arrangements;

(F) Identification of any explicit or implied guarantees made by the general account in support of benefits provided through a separate account or under a separate account policy or contract and the methods used by the Appointed Actuary to provide for the guarantees in the Asset Adequacy Analysis; and

(G) Documentation of assumptions to test reserves for the following:

1. Lapse rates (both base and excess);

2. Interest crediting rate strategy;

3. Mortality;

4. Policyholder dividend strategy;

5. Competitor or market interest rate;

6. Annuitization rates;

7. Commissions and expenses; and

8. Morbidity.

The documentation of the assumptions shall be such that an actuary reviewing the actuarial memorandum could form a conclusion as to the reasonableness of the assumptions.

(2) For assets:

(A) Portfolio descriptions, including a risk profile disclosing the quality, distribution and types of assets;

(B) Investment and disinvestment assumptions;

(D) Asset valuation bases; and

(E) Documentation of assumptions made for:

1. Default costs;

2. Bond call function;

3. Mortgage prepayment function;

4. Determining market value for assets sold due to disinvestment strategy; and

5. Determining yield on assets acquired through the investment strategy.

The documentation of the assumptions shall be such that an actuary reviewing the actuarial memorandum could form a conclusion as to the reasonableness of the assumptions.

(3) For the analysis basis:

(A) Methodology;

(B) Rationale for inclusion or exclusion of different blocks of business and how pertinent risks were analyzed;

(C) Rationale for degree of rigor in analyzing different blocks of business (include in the rationale the level of “materiality” that was used in determining how rigorously to analyze different blocks of business);

(D) Criteria for determining asset adequacy (include in the criteria the precise basis for determining if assets are adequate to cover reserves under “moderately adverse conditions” or other conditions as specified in relevant Actuarial Standards of Practice); and

(E) Whether the impact of federal income taxes was considered and the method of treating reinsurance in the Asset Adequacy Analysis;

(4) Summary of material changes in methods, procedures, or assumptions from prior year's Asset Adequacy Analysis;

(5) Summary of results; and

(6) Conclusions.

(1) The regulatory asset adequacy issues summary shall include:

(A) Descriptions of the scenarios tested (including whether those scenarios are stochastic or deterministic) and the sensitivity testing done relative to those scenarios. If aggregate negative ending surplus results under certain tests, the actuary should describe those tests and the amount of additional reserve as of the valuation date which, if held, would eliminate the negative aggregate surplus values. Ending surplus values shall be determined by either extending the projection period until the in force and associated assets and liabilities at the end of the projection period are immaterial or by adjusting the surplus amount at the end of the projection period by an amount reflecting an appropriate estimate of the value that can reasonably be expected to arise from the assets and liabilities remaining in force.

(B) The extent to which the Appointed Actuary uses assumptions in the Asset Adequacy Analysis that are materially different from the assumptions used in the previous Asset Adequacy Analysis;

(C) The amount of reserves and the identity of the product lines that had been subjected to Asset Adequacy Analysis in the prior opinion but were not subject to analysis for the current opinion;

(D) Comments on any interim results that may be of significant concern to the Appointed Actuary;

(E) The methods used by the actuary to recognize the impact of reinsurance on the Company's cash flows, including both assets and liabilities, under each of the scenarios tested;

(F) Whether the actuary has been satisfied that all options, whether explicit or embedded, in any asset or liability (including but not limited to those affecting cash flows embedded in fixed income securities) and equity-like features in any investments have been appropriately considered in the Asset Adequacy Analysis; and

(G) Any other items that the Commissioner may request.

(2) The regulatory asset adequacy issues summary shall contain the name of the Company for which the regulatory asset adequacy issues summary is being supplied and shall be signed and dated by the Appointed Actuary rendering the Actuarial Opinion.

(d) Conformity to Standards of Practice.

The memorandum shall include a statement:

“Actuarial methods, considerations and analyses used in the preparation of this memorandum conform to the appropriate Standards of Practice as promulgated by the Actuarial Standards Board, which standards form the basis for this memorandum.”

(e) Use of Assets Supporting the Interest Maintenance Reserve and the Asset Valuation Reserve.

An appropriate allocation of assets in the amount of the Interest Maintenance Reserve (IMR), whether positive or negative, must be used in any Asset Adequacy Analysis. Analysis of risks regarding asset default may include an appropriate allocation of assets supporting the Asset Valuation Reserve (AVR); these AVR assets may not be applied for any other risks with respect to reserve adequacy. Analysis of these and other risks may include assets supporting other mandatory or voluntary reserves available to the extent not used for risk analysis and reserve support.

The amount of the assets used for the AVR must be disclosed in the Table of Reserves and Liabilities of the opinion and in the memorandum. The method used for selecting particular assets or allocated portions of assets must be disclosed in the memorandum.

(f) Documentation.

The Appointed Actuary shall retain on file, for at least seven years, sufficient documentation so that it will be possible to determine the procedures followed, the analyses performed, the bases for assumptions and the results obtained.

NOTE

Authority cited: Section 10489.15, Insurance Code. Reference: Section 10489.15, Insurance Code.

HISTORY

1. New section filed 12-6-94; operative 1-5-95 (Register 94, No. 49).

2. Repealer of former section 2580.6 and renumbering of former section 2580.8 and portions of former section 2580.9 to section 2580.6, including amendment of section heading and section, filed 12-27-2004; operative 1-1-2005 pursuant to Government Code section 11343.4 (Register 2004, No. 53).

§2580.7. Statement of Actuarial Opinion Based on an Asset Adequacy Analysis. [Renumbered]

Note • History

NOTE

Authority cited: Section 10489.15, Insurance Code. Reference: Section 10489.15, Insurance Code.

HISTORY

1. New section filed 12-6-94; operative 1-5-95 (Register 94, No. 49).

2. Renumbering of former section 2580.7 to section 2580.5 filed 12-27-2004; operative 1-1-2005 pursuant to Government Code section 11343.4 (Register 2004, No. 53).

§2580.8. Description of Actuarial Memorandum Including an Asset Adequacy Analysis and Regulatory Asset Adequacy Issues Summary. [Renumbered]

Note • History

NOTE

Authority cited: Section 10489.15, Insurance Code. Reference: Section 10489.15, Insurance Code.

HISTORY

1. New section filed 12-6-94; operative 1-5-95 (Register 94, No. 49).

2. Renumbering of former section 2580.8 to section 2580.6 filed 12-27-2004; operative 1-1-2005 pursuant to Government Code section 11343.4 (Register 2004, No. 53).

§2580.9. Additional Considerations for Analysis. [Repealed]

Note • History

NOTE

Authority cited: Section 10489.15, Insurance Code. Reference: Section 10489.15, Insurance Code.

HISTORY

1. New section filed 12-6-94; operative 1-5-95 (Register 94, No. 49).

2. Repealer of section, including renumbering of portions of former section 2580.9 to section 2580.6, filed 12-27-2004; operative 1-1-2005 pursuant to Government Code section 11343.4 (Register 2004, No. 53).

Article 17.2. Actuarial Confidentiality and Conflict of Interest Regulation

§2581.1. Purpose.

History

These regulations are mandated by Section 10236.12 of the California Insurance Code. The purpose of these regulations is to ensure that independent actuaries, who are retained by the California Department of Insurance to examine long-term care insurance rate filings, maintain the confidentiality of long-term care insurance rate filings and proprietary insurer information, and avoid actual or potential conflicts of interest.

HISTORY

1. New article 17.2 (sections 2581.1-2581.4) and section filed 2-26-2002; operative 3-28-2002 (Register 2002, No. 9).

§2581.2. Maintenance of Confidentiality.

History

Before retaining an independent actuary for examination of long-term care insurance rates, the Commissioner shall require a written declaration by the actuary that:

1. the actuary shall not disclose to another party, other than the California Department of Insurance, and shall protect from unauthorized use, any confidential information obtained in the course of examining long-term care insurance rate filings, unless authorized to do so by the company or required by law; and

2. the actuary shall not disclose to another party and shall protect from unauthorized use, all confidential information obtained from the California Department of Insurance in the course of examining long-term care insurance rate filings.

With respect to this Section, “confidential information” means information not in the public domain, including information of a proprietary nature and information that is legally restricted from circulation.

HISTORY

1. New section filed 2-26-2002; operative 3-28-2002 (Register 2002, No. 9).

§2581.3. Avoidance of Conflict of Interest.

History

Before retaining an independent actuary for examination of long-term care insurance rate filings, the California Department of Insurance shall require a written declaration by the actuary that:

1. the actuary will not perform professional services involving an actual or potential conflict of interest unless:

(a) the actuary's ability to act fairly is unimpaired;

(b) there has been disclosure of the conflict to all present, or known prospective, clients or employers of the actuary's services whose interests would be affected by the conflict; and

(c) all such present, or known prospective, clients or employers of the actuary's services have expressly agreed to the performance of the services by the actuary.

2. The actuary or actuarial firm with which the actuary is affiliated was not involved in establishing the long-term care insurance rates under consideration by the actuary.

3. The actuary has disclosed any financial interest in the company filing the long-term care insurance rates.

HISTORY

1. New section filed 2-26-2002; operative 3-28-2002 (Register 2002, No. 9).

§2581.4. Billing of Actuarial Services.

Note • History

The costs and expenses of all examinations by independent actuaries of such long-term care insurance rate filings shall be paid in accordance with California Insurance Code Sections 733(g) and 736.

NOTE

Authority cited: Section 10236.12, Insurance Code.

HISTORY

1. New section filed 2-26-2002; operative 3-28-2002 (Register 2002, No. 9).

Article 17.3. Recognition of Preferred Mortality Tables for Use in Determining Minimum Reserve Liabilities

§2582. Purpose.

Note • History

The purpose of this article is to recognize and permit the use of mortality tables that reflect differences in mortality between preferred and standard lives in determining minimum reserve liabilities in accordance with California Insurance Code Section 10489.2(a) of California's “Standard Valuation Law,” California Insurance Code Section 11136(b)(1) of California's “Fraternal Benefit Societies” statutes, and California Code of Regulations Title 10, Chapter 5, Subchapter 3, Article 12.3 “Valuation of Life Insurance Policies,” Sections 2542.4(a) and 2542.4(b).

NOTE

Authority cited: Sections 10489.2 and 11136, Insurance Code. Reference: Sections 10489.2 and 11136, Insurance Code.

HISTORY

1. New article 17.3 (sections 2582-2582.3) and section filed 12-31-2010; operative 12-31-2010 pursuant to Government Code section 11343.4 (Register 2010, No. 53).

§2582.1. Definitions.

Note • History

(a) “2001 CSO Mortality Table,” incorporated by reference herein, means that mortality table, consisting of separate rates of mortality for male and female lives, developed by the American Academy of Actuaries CSO Task Force from the Valuation Basic Mortality Table developed by the Society of Actuaries Individual Life Insurance Valuation Mortality Task Force, and adopted by the National Association of Insurance Commissioners (“NAIC”) in December 2002. The 2001 CSO Mortality Table is included in the Proceedings of the NAIC (2nd Quarter 2002) and supplemented by the 2001 CSO Preferred Class Structure Mortality Table defined below in subsection (b). Unless the context indicates otherwise, the “2001 CSO Mortality Table” includes both the ultimate form of that table and the select and ultimate form of that table and includes both the smoker and nonsmoker mortality tables and the composite mortality tables. It also includes both the age-nearest-birthday and age-last-birthday bases of the mortality tables. Mortality tables in the 2001 CSO Mortality Table include the following:

(1) “2001 CSO Mortality Table (F)” means that mortality table consisting of the rates of mortality for female lives from the 2001 CSO Mortality Table.

(2) “2001 CSO Mortality Table (M)” means that mortality table consisting of the rates of mortality for male lives from the 2001 CSO Mortality Table.

(3) “Composite Mortality Tables” means mortality tables with rates of mortality that do not distinguish between smokers and nonsmokers.

(4) “Smoker and Nonsmoker Mortality Tables” means mortality tables with separate rates of mortality for smokers and nonsmokers.

(b) “2001 CSO Preferred Class Structure Mortality Table,” incorporated by reference herein, means mortality tables with separate rates of mortality for Super Preferred Nonsmokers, Preferred Nonsmokers, Residual Standard Nonsmokers, Preferred Smokers, and Residual Standard Smoker splits of the 2001 CSO Nonsmoker and Smoker tables, as adopted by the NAIC at the September, 2006 national meeting and published in the Proceedings of the NAIC (3rd Quarter 2006). Unless the context indicates otherwise, the “2001 CSO Preferred Class Structure Mortality Table” includes both the ultimate form of that table and the select and ultimate form of that table. It includes both the smoker and nonsmoker mortality tables. It includes both the male and female mortality tables and the gender composite mortality tables. It also includes both the age-nearest birthday and age-last-birthday bases of the mortality table.

NOTE

Authority cited: Sections 10489.2 and 11136, Insurance Code. Reference: Sections 10489.2 and 11136, Insurance Code.

HISTORY

1. New section filed 12-31-2010; operative 12-31-2010 pursuant to Government Code section 11343.4 (Register 2010, No. 53).

§2582.2. 2001 CSO Preferred Class Structure Mortality Table.

Note • History

At the election of the company, for each calendar year of issue, for any one or more specified plans of insurance and subject to satisfying the conditions stated in this article, the 2001 CSO Preferred Class Structure Mortality Table may be substituted in place of the 2001 CSO Smoker or Nonsmoker Mortality Table as the minimum valuation standard for policies issued on or after January 1, 2007 and, subject to commissioner approval, for policies issued prior to January 1, 2007 which were valued using the 2001 CSO Mortality Table. No such election shall be made until the company demonstrates at least 20% of the business to be valued on this table is in one or more of the preferred classes. A table from the 2001 CSO Preferred Class Structure Mortality Table used in place of a 2001 CSO Mortality Table, pursuant to the requirements of this article, will be treated as part of the 2001 CSO Mortality Table only for purposes of reserve valuation pursuant to the requirements of California Department of Insurance Bulletin No. 2003-05, Recognition of the 2001 CSO Mortality Table for Use in Determining Minimum Reserve Liabilities and Nonforfeiture Benefits (effective January 1, 2004), incorporated by reference herein. Bulletin 2003-05 is applicable except as provided specifically herein.

NOTE

Authority cited: Sections 10489.2 and 11136, Insurance Code. Reference: Sections 10489.2 and 11136, Insurance Code.

HISTORY

1. New section filed 12-31-2010; operative 12-31-2010 pursuant to Government Code section 11343.4 (Register 2010, No. 53).

§2582.3. Conditions.

Note • History

(a) For each plan of insurance with separate rates for preferred and standard nonsmoker lives, an insurer may use the Super Preferred Nonsmoker, Preferred Nonsmoker, and Residual Standard Nonsmoker tables to substitute for the nonsmoker mortality table found in the 2001 CSO Mortality Table to determine minimum reserves. At the time of election and annually thereafter, except for business valued under the Residual Standard Nonsmoker Table, the appointed actuary shall certify that:

(1) The present value of death benefits over the next ten years after the valuation date, using the anticipated mortality experience without recognition of mortality improvement beyond the valuation date for each class, is less than the present value of death benefits using the valuation basic table corresponding to the valuation table being used for that class.

(2) The present value of death benefits over the future life of the contracts, using anticipated mortality experience without recognition of mortality improvement beyond the valuation date for each class, is less than the present value of death benefits using the valuation basic table corresponding to the valuation table being used for that class.

(b) For each plan of insurance with separate rates for preferred and standard smoker lives, an insurer may use the Preferred Smoker and Residual Standard Smoker tables to substitute for the smoker mortality table found in the 2001 CSO Mortality Table to determine minimum reserves. At the time of election and annually thereafter, for business valued under the Preferred Smoker Table, the appointed actuary shall certify that:

(1) The present value of death benefits over the next ten years after the valuation date, using the anticipated mortality experience without recognition of mortality improvement beyond the valuation date for each class, is less than the present value of death benefits using the preferred smoker valuation basic table corresponding to the valuation table being used for that class.

(c) Unless specific approval is given by the commissioner of this state, the use of the 2001 CSO Preferred Class Structure Mortality Table shall not be permitted for the valuation of reserves in any statutory financial statement in which a company reports either of the following:

(1) a deferred premium asset that is based on the valuation net premium, even when greater than the policy gross premium, and the reduction in the deferred premium asset resulting from reinsurance is based on the modal premium payments to the reinsurer, or

(2) a reserve credit that exceeds the gross reserve, prior to the reduction for reinsurance, on the proportion of the policies reinsured.

NOTE

Authority cited: Sections 10489.2 and 11136, Insurance Code. Reference: Sections 10489.2 and 11136, Insurance Code.

HISTORY

1. New section filed 12-31-2010; operative 12-31-2010 pursuant to Government Code section 11343.4 (Register 2010, No. 53).

Article 18. The California FAIR Plan Association

§2590. Definitions.

Note • History

As used in this Article:

(a) “The Association” is as defined in California Insurance Code Section 10091(a).

(b) “Basic Property Insurance” is as defined in California Insurance Code Section 10091(c).

(c) “Brush Hazard Areas” are those areas designated by the Insurance Services Office “(ISO”) or its successor entity as brush hazard areas subject to catastrophic brush fires.

(d) “Inner City Areas” are those specific areas, which the Commissioner designates within the geographic or urban areas under Insurance Code Section 10091(c) that are underserved by the member insurers, except that Brush Hazard Areas are not Inner City Areas.

(e) “Method” refers to the method for proportionately relieving insurers from participation in the Association pursuant to Insurance Code Section 10094.2 and this article. A method is proportionate if the more an insurer has qualifying premiums the greater that insurer's relief from participation in the Association. Nothing in the Method shall preclude an insurer who qualifies from being wholly relieved of its participation in the Association.

(f) “Qualifying Premiums” are those premiums that a participating insurer derives from risks insured in brush hazard or inner city areas as defined under Sections 2590(c) and (d) above.

NOTE

Authority cited: Section 10094.2, Insurance Code. Reference: Sections 10090, 10091 and 10094.2, Insurance Code.

HISTORY

1. New article 18 (sections 2590-2590.1) and section filed 11-24-99; operative 12-24-99 (Register 99, No. 48).

§2590.1. Adoption of Method for Calculating Insurer Credits for Relief from Participation in the Association.

Note • History

(a) The Association shall adopt and implement a fair and reasonable Method, consistent with Insurance Code Section 10094.2 and this article, that allows eligible insurers whole or partial relief from participation in the Association. Under the Method, an insurer shall be eligible for relief in proportion to the insurer's total premium writings in the following categories, but credit for premium writings in these categories need not be equally weighted:

(1) Basic Property Insurance on risks located in Brush Hazard Areas;

(2) Basic Property Insurance on risks located in Inner City Areas; and

(3) Business owners package insurance on risks located in Inner City Areas.

(b) The Method shall require insurers to apply for any credits granted under Insurance Code Section 10094.2 or this article. The Method shall require applicant insurers to report their voluntary premium writings in each of the categories specified in sub-paragraph (a) to the Association separately in an annual report by a specified date and shall establish binding rules regarding the treatment of late reports.

(c) The Association shall submit a proposed Method to the Commissioner within 90 days of the effective date of this regulation. The Association may submit proposed changes to the Method to the Commissioner at any time. The Method, as well as any proposed changes, must be approved by the Commissioner. Concurrent with any submission, under this subsection, the Association shall notify its member companies of the submission and make the text of the submission available to them.

(d) Within 30 days after the Commissioner notifies the Association that he or she has approved the Method or that he or she requires any change to the Method, the Association shall notify all participating insurers of the approval or change by mail. The Method and changes shall become effective 30 days after the Association mails notification to all participating insurers or on a date specified by the Commissioner, whichever is later. The Commissioner may relieve the Association of the requirement of notifying insurers of any change to the Method if the Commissioner views the change as non-substantive or de minimus. If the Commissioner relieves the Association of the requirement of notifying insurers of a change to the Method, the change shall become effective 30 days after the Commissioner notifies the Association of approval of the change.

(e) If the Association fails to submit a Method to the Commissioner as required by this article, the Commissioner may promulgate another method as he or she may deem necessary to carry out the purpose of Section 10094.2.

(f) If the Commissioner disapproves, withdraws or revokes his or her approval of the Method, the Association shall, within 90 days from the date of the disapproval, withdrawal or revocation, submit to the Commissioner for review an appropriately revised proposed Method, and if the Association fails to do so, the Commissioner may promulgate another method as he or she may deem necessary to carry out the purpose of Insurance Code Section 10094.2.

NOTE

Authority cited: Section 10094.2, Insurance Code. Reference: Sections 10090, 10091, 10094.2 and 10095, Insurance Code.

HISTORY

1. New section filed 11-24-99; operative 12-24-99 (Register 99, No. 48).

Article 19. Regulations for Enforcement Actions and Penalties

§2591. Preamble.

Note • History

(a) The purpose of this article is to meet the requirements of Insurance Code section 12921.1, paragraph (a)(7). This statute pertains to violations of statutes or regulations which are discovered in the investigation of consumer complaints and requires that the commissioner establish a list of criteria to determine which violations by insurers should be pursued through enforcement action and to establish enforcement guidelines that set forth appropriate penalties for violations based on the nature, severity, and frequency of the violations.

(b) Pursuant to the commissioner's authority to enforce the Insurance Code, this article shall also apply to actions arising from findings generated by other regulatory activities that allege violations of statutes or regulations. These activities include but are not limited to market conduct examinations or other Department investigations, examinations, or reviews of insurer conduct. This article is intended to provide greater uniformity in enforcement and in the general assessment of penalties imposed upon insurers.

NOTE

Authority cited: Sections 790.10 and 12921.1, Insurance Code; CalFarm Insurance Company v. Deukmejian, 48 Cal.3d 805 (1989); and 20th Century Insurance Company v. Garamendi, 8 Cal. 4th 216 (1994). Reference: Sections 704.7, 769.86, 789.3, 790.035, 790.036, 790.07, 790.10, 1858.07, 1858.1, 1858.3, 1859.1, 1861.14, 10140.1, 10140.5, 10149.1, 10199.7, 10234.3, 10509.9, 11756, 12414.25 and 12921.1, Insurance Code.

HISTORY

1. New article 19 (sections 2591-2591.4) and section filed 12-15-2003; operative 1-14-2004 (Register 2003, No. 51).

§2591.1. Scope and Purpose.

Note • History

(a) This article applies to those provisions of the California Insurance Code that allow the commissioner discretion in pursuing a penalty against an insurer or in setting the penalty amount. The Department shall apply the criteria provided in Section 2591.3 of this article to determine whether a particular violation warrants an enforcement action and to determine the amount of penalty within the applicable statutory range of penalties. The provisions of this article are appropriate for determining the penalty imposed in those cases which are resolved through settlement.

(b) Enforcement action.

(1) For purposes of this article, enforcement action means any action based on an allegation by the Department that an insurer has committed a violation to which a penalty provision set forth in any of the statutes listed in subdivision (c) below applies, over the course of which action one or both of the following is to occur:

(A) The execution of a Stipulation and Consent Order or other settlement document.

(B) The issuance of a Notice of Noncompliance, Order to Show Cause, Accusation, Statement of Issues, or other legal pleading.

(2) For purposes of this article, regulatory activity such as warning letters, verbal warnings, market conduct examinations or market conduct examination reports does not constitute an enforcement action.

(c) This article applies to any insurer subject to penalty under any of the following statutes: Insurance Code sections 704.7, 769.86, 789.3, 790.035, 790.036, 790.07, 1858.07, 1858.1, 1858.3, 1859.1, 1861.14, 10140.1, 10140.5, 10149.1, 10199.7, 10234.3, 10509.9, 11756, and 12414.25.

(d) The provisions of this article are not intended to be consulted by a hearing officer, judge or trier of fact in connection with an action brought by the Department. The provisions of this article are not intended to be used in determining an appropriate settlement in connection with a settlement conference ordered pursuant to any applicable rule of court or provision of the Administrative Procedure Act. To the extent that the provisions of this article conflict with the provisions of any statute or other regulation that more specifically addresses a particular violation, this article shall be inapplicable.

NOTE

HISTORY

1. New section filed 12-15-2003; operative 1-14-2004 (Register 2003, No. 51).

§2591.2.

Note • History

The Department shall examine the violations committed by the insurer. The Department shall take into consideration the criteria listed in Section 2591.3 and any other relevant considerations to determine if the seriousness of the insurer's act warrants an enforcement action. If after a review of those criteria the Department determines that an enforcement action is warranted, the Department shall take into consideration the criteria listed in Section 2591.3 and any other relevant considerations to determine an appropriate penalty for each act in violation of the law from within the applicable statutory penalty range or ranges. In addition to the actual penalty amount, the Department may also recover its costs associated with the enforcement action, including but not limited to attorneys' fees.

NOTE

HISTORY

1. New section filed 12-15-2003; operative 1-14-2004 (Register 2003, No. 51).

§2591.3.

Note • History

In determining that an enforcement action should be pursued and in selecting the appropriate amount of the penalty from the applicable range of penalty amounts that could be assessed, the Department shall consider:

(a) The nature of the violation, including but not limited to adverse actions such as overcharge of premium, unlawful denials or terminations of coverage, placement in a program or tier with a higher rate level or less coverage than the most favorable for which the insured would qualify, misrepresentations of terms, unlawful denial or delay of claims, unreasonably low claims offers or settlements, improper sharing of personal information, acts of unfair competition and acts of unfair discrimination.

(b) The severity of the violation.

(1) Severity of the violation includes but is not limited to:

(A) the extent of harm revealed through a consumer complaint or otherwise brought to the attention of the Department;

(B) the amount of premium overcharge or undercharge;

(D) a comparison of the length of the delay to the time reasonably necessary or legally required to conduct the process or transaction;

(E) the significance of the amount of premium involved in relation to the total premium for the coverage; and

(F) the significance of the amount of underpayment of the loss settlement offer or final settlement involved in relation to the total loss settlement determined to be reasonable.

(2) Consideration may also be given to the necessary complexity of the transaction.

(c) The frequency of the occurrence of the violation. In determining the frequency, consideration may be given to the number of violations specifically identified and the number of persons reasonably determined to have been impacted over a given period of time by such violations within the insurer's population of applicants, insureds, claimants, potential applicants or among its competitors and to the number of files in which the violation takes place compared to the number of files with a similar transaction but no violation.

(d) The knowledge or willfulness of the non-compliant act.

(1) Violations that may be considered willful or knowingly committed include but are not limited to the following:

(A) When the insurer is aware at the time of the act that it is violating the law;

(B) When the insurer reasonably should have known of the act's unlawfulness when the non-compliant act occurred;

(D) When the insurer has failed to adopt, communicate and implement reasonable standards for consistent, compliant activity; or

(E) When the insurer has failed to take effective remedial measures when a violation was identified or discovered.

(2) In the case of an employee, agent or contract entity conducting business on the insurer's behalf, knowledge or willfulness shall be attributed to the insurer unless the employee, agent or contract entity has acted outside the scope of the employment, agency or contract.

(e) The monetary effect of the violation on the insurer. For purposes of this criterion, consideration will be given to the amount of monetary gain or loss experienced by the insurer as a result of the violation.

(f) The compliance record of the insurer. The compliance record includes but is not limited to the following:

(1) The number and type of violations identified in the investigation of consumer complaints generated by the insurer over a given period of time or the number and type of violations reported in a previous examination or investigatory report;

(2) The insurer's cooperation and prompt, good-faith actions taken to provide restitution and correct any non-compliant activity including where the noncompliance is discovered and resolved prior to the Department's involvement;

(3) The insurer's failure to take action in response to previous notifications identifying the non-compliant activity;

(4) The insurer's failure to implement its express commitments to take corrective action; and

(5) Any previous action taken against the insurer.

(g) The duration of the non-compliant activity. For purposes of this criterion, consideration will be given as to whether the violation was a single event or violations continued repeatedly over a given period of time.

(h) The existence of extraordinary circumstances. Extraordinary circumstances are circumstances outside of the control of the insurer that severely and materially affect the insurer's ability to comply with the law. Extraordinary circumstances do not include circumstances which the insurer could reasonably anticipate and prepare for or prevent.

(i) Previous actions taken by the Department against other insurers for similar noncompliance. For purposes of this criterion, consideration shall be given to previous actions for similar violations by insurers of similar size and circumstance. However, such consideration shall not preclude the Department from taking an enforcement action where no previous action had been taken or from seeking an increased or decreased penalty amount relative to a previous penalty amount.

NOTE

HISTORY

1. New section filed 12-15-2003; operative 1-14-2004 (Register 2003, No. 51).

§2591.4.

Note • History

(a) Equal consideration need not be given to each criterion described in Section 2591.3. The Department shall determine which criteria are relevant under the circumstances and shall determine the appropriate consideration to be given to those criteria. Neither inapplicability of one or more criteria nor absence of harm shall mitigate the effect of any relevant criterion.

(b) The determinations made regarding the criteria that are relevant for purposes of the decision as to whether an enforcement action is to be pursued may differ from the determinations made in the same case regarding the criteria that are relevant for purposes of the decision as to the appropriate penalty. Likewise, the amount of consideration any relevant criterion is to receive for purposes of determining whether an enforcement action is to be pursued may, in the same case, differ from the amount of consideration, if any, which that criterion is to receive for purposes of determining the appropriate penalty.

(c) In determining whether to pursue an enforcement action and in determining an appropriate penalty, the Department may, in circumstances it deems appropriate, consider matters not listed in Section 2591.3. When such other considerations enter into the settlement process, the basis for those considerations will be stated during the course of any settlement negotiations.

(d) The provisions of this article do not affect the commissioner's discretion to take any other measures such as seeking an order requiring specific corrective action, a hearing in accordance with statute, or the suspension or revocation of an entity's license or certificate of authority. Nothing in this article shall, in any manner, abridge or constitute a waiver of the attorney-client, work product, deliberative process or other privilege, or other right of confidentiality, afforded by rule, regulation, case law or statute, including but not limited to the California Evidence Code and the Federal Rules of Evidence.

NOTE

Authority cited: Sections 790.10 and 12921.1, Insurance Code; CalFarm Insurance Company v. Deukmejian, 48 Cal.3d 805 (1989); and 20th Century Insurance Company v. Garamendi, 8 Cal. 4th 216 (1994). Reference: Sections 704.7, 769.86, 789.3, 790.035, 790.036, 790.07, 790.10, 1858.07, 1858.1, 1858.3, 1859.1, 1861.14, 10140.1, 10140.5, 10149.1, 10199.7, 10234.3, 10509.9, 11756, 12414.25 and 12921.1, Insurance Code.

HISTORY

1. New section filed 12-15-2003; operative 1-14-2004 (Register 2003, No. 51).

Article 20. Standards Applicable to Workers' Compensation Claims Adjusters and Medical Billing Entities and Certification of Those Standards by Insurers

§2592. Authority and Purpose.

Note • History

These regulations are promulgated pursuant to authority granted to the Insurance Commissioner under the provisions of Section 11761 of the California Insurance Code. The purpose of these regulations is to set forth the minimum standards of training, experience, and skill that workers' compensation claims adjusters, including adjusters working for medical billing entities, must possess to perform their duties with regard to workers' compensation claims and to specify how insurers must meet and certify those standards to the Insurance Commissioner.

NOTE

Authority cited: Section 11761, Insurance Code. Reference: Section 11761, Insurance Code.

HISTORY

1. New article 20 (sections 2592-2592.14) and section filed 1-23-2006; operative 2-22-2006 (Register 2006, No. 4).

§2592.01. Definitions.

Note • History

As used in this article:

(a) “Certify” means a written statement made under penalty of perjury.

(b) “Claims adjuster” means a person who, on behalf of an insurer, including an employee or agent of an entity that is not an insurer, is responsible for determining the validity of a workers' compensation claim. The claims adjuster may also establish a case reserve, approve and process all workers' compensation benefits, may hire investigators, attorneys or other professionals and may negotiate settlements of claims. “Claims adjuster” also means a person who is responsible for the immediate supervision of a claims adjuster but does not mean an attorney representing the insurer or a person whose primary function is clerical. “Claims adjuster” also includes an experienced claims adjuster. “Claims adjuster” does not include the medical director or physicians utilized by an insurer for the utilization review process pursuant to Labor Code section 4610.

(c) “Classroom” means any space sufficiently designed so that the instructor and students can communicate with a high degree of privacy and relative freedom from outside interference. The instructor or the person or persons assisting the instructor may be physically present or may communicate with students by means of an electronic medium, including, but not limited to, audio, video, computer, or Internet.

(d) “Course” means any program of instruction taken or given to satisfy the requirements of Insurance Code Section 11761.

(e) “Curriculum” means a course of study that satisfies the requirements of Insurance Code Section 11761. The curriculum must provide sufficient content, including time allocated to each subject area, to enable claims adjusters, medical-only claims adjusters, and medical bill reviewers to meet minimum standards of training, experience, and skill to perform their duties with regard to workers' compensation claims.

(f) “Experienced claims adjuster” means a person who has had at least five (5) years within the past eight (8) years of on-the-job experience adjusting California workers' compensation claims or supervising claims adjusters handling California workers' compensation claims and is designated as an experienced claims adjuster by an insurer. A person who has successfully completed the written examination specified by Title 8, Section 15452 of the California Code of Regulations is also considered an experienced claims adjuster, provided that he or she has either (1) worked as a workers' compensation claims adjuster or supervised workers' compensation claims adjusters continuously since passing the examination and is designated as an experienced claims adjuster by an insurer or (2) passed the examination within the previous five (5) years and is designated as an experienced claims adjuster by an insurer. “Experienced claims adjuster” also includes a person who has already been trained and designated a claims adjuster and now meets the requirements of experience or examination completion noted above and is designated an experienced claims adjuster by an insurer.

(g) “Experienced medical-only claims adjuster” means a person who has had at least three (3) years within the past five (5) years of on-the-job experience adjusting California workers' compensation medical-only claims and is designated as an experienced medical-only claims adjuster by an insurer.

(h) “Experienced medical bill reviewer” means a person who has had at least three (3) years within the past five (5) years of on-the-job experience reviewing California workers' compensation medical bills and is designated as an experienced medical bill reviewer by a medical billing entity or by an insurer.

(i) “Instructor” means a person who conveys curriculum content to students on behalf of an insurer, a training entity, or a medical billing entity. An instructor shall have had at least five (5) years within the past eight (8) years of on-the-job experience adjusting California workers' compensation claims and have been designated as a claims adjuster by an insurer or be an individual who has had at least eight (8) years of experience in California workers' compensation within the past twelve (12) years. Persons knowledgeable about specific workers' compensation issues who are not instructors may train students under the direction of an instructor.

(j) “Insurer” means an insurance company admitted to transact workers' compensation insurance in California, the State Compensation Insurance Fund, an employer that has secured a certificate of consent to self-insure from the Department of Industrial Relations pursuant to Labor Code Section 3700(b) or (c), or a third party administrator that has secured a certificate of consent pursuant to Labor Code Section 3702.1.

(k) “Medical bill reviewer” means a person who is not a claims adjuster or medical-only claims adjuster and who only reviews or adjusts workers' compensation medical bills on behalf of an insurer, including employees or agents of the insurer or employees or agents of a medical billing entity. “Medical bill reviewer” also includes an experienced medical bill reviewer.

(l) “Medical billing entity” means a third party that reviews or adjusts workers' compensation medical bills for insurers.

(m) “Medical-only claims adjuster” means a person who, on behalf of an insurer, including an employee or agent of an entity that is not an insurer, is responsible for determining the validity of workers' compensation claims only involving medical workers' compensation benefits, as defined under Article 2 (commencing with Labor Code section 4600) of Chapter 2 of Part 2 of Division 4 of the Labor Code. The medical-only claims adjuster may also establish medical treatment reserves, approve and process medical benefits, and negotiate settlement of medical benefit claims. “Medical-only claims adjuster” also means a person who is responsible for the immediate supervision of a medical-only claims adjuster but does not mean an attorney representing the insurer or a person whose primary function is clerical. “Medical-only claims adjuster” also includes an experienced medical-only claims adjuster. “Medical-only claims adjuster” does not include the medical director or physicians utilized by an insurer for the utilization review process pursuant to Labor Code section 4610.

(n) “Post-designation training” means a course of study provided to trained or experienced workers' compensation claims adjusters and medical-only claims adjusters who have been designated by an insurer or provided to trained or experienced medical bill reviewers who have been designated by an insurer or medical billing entity. Post-designation training also includes seminars, workshops, or other informational meetings pertaining to California workers' compensation.

(o) “Student” or “trainee” means an individual taking a course that is required for that person in order to be a workers' compensation claims adjuster, medical-only claims adjuster, or medical bill reviewer.

(p) “Training” means to provide a course of instruction that includes the topics specified in Sections 2592.03 and 2592.04.

(q) “Training entity” means any person or organization that provides instructors or curriculum to an insurer or medical billing entity.

NOTE

Authority cited: Section 11761, Insurance Code. Reference: Section 11761, Insurance Code.

HISTORY

1. New section filed 1-23-2006; operative 2-22-2006 (Register 2006, No. 4).

§2592.02. Training Required for Claims Adjusters and Medical-Only Claims Adjusters.

Note • History

(a) Every insurer shall require all claims adjusters and medical-only claims adjusters who handle workers' compensation claims on the insurer's behalf, other than those who are defined in subdivisions (f) and (g) of Section 2592.01, to be trained pursuant to these subparagraphs:

(1) The insurer shall require at least 160 hours of training for claims adjusters, at least 120 hours of which shall be conducted in a classroom with an instructor. The insurer shall require at least 80 hours of training for medical-only claims adjusters, at least 50 hours of which shall be conducted in a classroom with an instructor. Any training not conducted in a classroom with an instructor may be done on the job under the supervision of an instructor or an experienced claims adjuster.

(2) A medical-only claims adjuster who has completed 80 hours of training pursuant to this section may be designated as a claims adjuster upon completion of 80 additional hours of workers' compensation claims training, 70 hours of which shall be in a classroom with an instructor, provided that such training is completed within six months of the claims adjuster beginning to adjust claims that include more than medical benefits.

(b) The training required by this section shall be completed within a twelve (12) consecutive month period, during which time a claims adjuster or medical-only claims adjuster trainee may adjust claims under the supervision of an instructor or experienced claims adjuster. No individual may adjust claims on behalf of one or more insurers for a combined total of more than twelve (12) months unless such individual has been trained pursuant to this article. However, if a claims adjuster or medical-only claims adjuster trainee requires leave from his or her employment because of illness, disability, military service, or leave required or permitted by state or federal law, and the leave has begun after the training has started, the training shall be completed within a period not to exceed 24 months after the commencement of the training.

(c) Any classes or courses taken within three (3) years before the effective date of these regulations that satisfy the curriculum requirement may be used to meet the hourly requirements upon verification by the student to the insurer of the type of course taken, the course of study, the date or dates taken, the person or organization providing the class or course, and the number of hours taken.

(d) Upon the effective date of these regulations, every insurer shall require a minimum of 30 hours of post-designation training every two (2) years for all claims adjusters and 20 hours of training every two (2) years for all medical-only claims adjusters.

(e) Post-designation training may include seminars, workshops, or other informational meetings pertaining to California workers' compensation and need not be in a classroom with an instructor. Such training shall be verified by the insurer with the type of course taken, the subject matter, the date or dates taken, the location of the training, the person or organization providing the training, and the number of hours taken.

(f) Failure of a claims adjuster or medical-only claims adjuster who has received a designation pursuant to subdivisions (a) or (b) of section 2592.05 to fulfill the requirements for post-designation training every two years pursuant to subdivisions (d) and (e) above shall result in that person being no longer considered a designated claims adjuster or medical-only claims adjuster. That person shall not be authorized to adjust claims until the requisite number of hours of post-designation training is completed.

(g) The insurer may provide the designation training directly or by sending its employees or its agents to be trained by a training entity for the entire designation curriculum. An insurer shall certify to the Insurance Commissioner that the course of instruction provided for training meets all the requirements set forth in this article and that all of the claims adjusters and medical-only claims adjusters who adjust claims on behalf of the insurer have actually attended the training for the required number of hours, in the manner provided for in sections 2592.07 and 2592.08.

(h) A claims adjuster or medical-only claims adjuster who has completed the training required by this section shall not be required to be re-trained and re-designated in order to adjust claims for a different insurer.

(i) An insurer may not authorize an individual to act in the capacity of claims adjuster or medical-only claims adjuster who has not been trained and designated pursuant to this article or who is not an experienced claims adjuster or an experienced medical-only claims adjuster and designated pursuant to this article, except that an individual who is undergoing training may adjust claims under the direct supervision of an instructor or experienced claims adjuster.

NOTE

Authority cited: Section 11761, Insurance Code. Reference: Section 11761, Insurance Code.

HISTORY

1. New section filed 1-23-2006; operative 2-22-2006 (Register 2006, No. 4).

§2592.03. Curriculum.

Note • History

(a) The course of study required by Section 2592.02 for claims adjusters shall include, but not be limited to, the following topics:

(1) Historical overview of the workers' compensation system.

(2) Organizational structure of the system.

(3) The workers' compensation insurance policy, its forms and endorsements, insurance principles of compensation.

(4) Concepts and terminology.

(5) Benefit provisions.

(6) Compensability.

(7) Notice requirements.

(8) Temporary disability.

(9) Permanent disability, including evaluation and rating.

(10) Death benefits.

(11) Return to work and vocational rehabilitation.

(12) Cumulative trauma.

(13) Serious and willful misconduct.

(14) Workers' Compensation Appeals Board procedures, forms, hearings, and penalties.

(15) Investigation.

(16) Fraud.

(17) Medical terminology.

(18) Knowledge and use of utilization guidelines (American College of Occupational and Environmental Medicine or other guidelines approved by the Administrative Director of the Division of Workers' Compensation.)

(19) Medical evidence.

(20) Medical dispute resolution (Qualified Medical Examiners, spinal surgery second opinions, pre-designation of physicians, independent medical reviewers, utilization review.)

(21) Fee schedules.

(22) Liens.

(23) Apportionment.

(24) Subrogation.

(25) Reserving.

(26) Ethical issues.

(b) The course of study required for the training of medical-only claims adjusters shall include, at a minimum, all the topics specified in subdivision (a) above, with the exception of (8), (9), (10), (11), (13), and (23).

(c) The course of study required by Section 2592.02(d) for post-designation training shall include changes in the law that affect workers' compensation claims and any other topics relevant to the work of a claims adjuster or medical-only claims adjuster as specified in subdivision (a) above.

NOTE

Authority cited: Section 11761, Insurance Code. Reference: Section 11761, Insurance Code.

HISTORY

1. New section filed 1-23-2006; operative 2-22-2006 (Register 2006, No. 4).

§2592.04. Training Required for Medical Bill Reviewers.

Note • History

(a) Every insurer shall require all medical bill reviewers, other than those defined in section 2592.01(h), including employees and agents of medical billing entities used by the insurer, to be trained. The insurer shall require at least 40 hours of training for medical bill reviewers, at least 30 hours of which shall be conducted in a classroom by an instructor. No more than ten (10) hours of training may be done on the job.

(b) The training required by this section shall be completed within a twelve (12) month period, during which time a medical bill review trainee may review bills under the supervision of an instructor, experienced medical bill reviewer, or experienced claims adjuster. No individual may review medical bills on behalf of one or more insurers for a combined total of more than twelve (12) months unless the individual has been trained pursuant to this article.

(c) Any classes or courses taken within one (1) year before the effective date of these regulations that satisfy the curriculum requirement of subdivision (h) below may be used to meet the hourly requirements upon verification by the student to the insurer or medical billing entity of the type of course taken, the course of study, the date or dates taken, the person or organization providing the class or course, and the number of hours taken.

(d) Upon the effective date of these regulations, every insurer shall require a minimum of 16 hours every two (2) years of post-designation training for all medical bill reviewers and shall include in the post-designation training changes in the law affecting medical bill reviewers and topics as specified in subdivision (h) below.

(e) Failure of a medical bill reviewer designated pursuant to subdivisions (a) or (c) of section 2592.05 to fulfill the requirements for post-designation training every two years pursuant to subdivision (d) above shall result in that person being no longer considered a designated medical bill reviewer. That person shall not be authorized to review medical bills until the requisite number of hours of post-designation training is completed.

(f) The insurer may provide the designation training directly or by sending its employees or agents to be trained by a training entity for the entire designation curriculum. The insurer shall require all medical billing entities that review or adjust medical billings on its behalf to have the medical billing entities' employees or agents trained directly by the medical billing entity, the insurer, or by a training entity for the entire designation curriculum. The insurer shall certify, in the manner provided for in sections 2592.07 and 2592.09, that the course of instruction provided or that is provided by its medical billing entities meets all the requirements set forth in this article and that all medical bill reviewers of the insurer and its medical billing entities have actually attended the training for the required number of hours.

(g) A medical bill reviewer who has received a Designation as having completed the training required by this article shall not be required to be re-trained and re-designated in order to review medical bills for a different insurer.

(h) The curriculum for the training of medical bill reviewers shall include, but not be limited to, the following topics:

(1) The correct use of billing codes and detection of improper use of billing codes.

(2) All fee schedules applicable in California to workers' compensation medical care, including statutes and regulations authorizing the fee schedules.

(3) Workers' compensation benefit provisions.

(4) Fraud.

(5) Medical terminology.

(6) Utilization guidelines (American College of Occupational and Environmental Medicine or other guidelines approved by the Administrative Director of the Division of Workers' Compensation.)

(7) Medical evidence.

(8) Liens.

(9) Ethical issues.

(i) An insurer may not authorize an individual to act in the capacity of a medical bill reviewer who has not been trained pursuant to this article or who is not an experienced medical bill reviewer, except that an individual who is undergoing training may review medical bills under the direct supervision of an instructor, experienced medical bill reviewer or experienced claims adjuster.

NOTE

Authority cited: Section 11761, Insurance Code. Reference: Section 11761, Insurance Code.

HISTORY

1. New section filed 1-23-2006; operative 2-22-2006 (Register 2006, No. 4).

§2592.05. Designation.

Note • History

(a) A Designation shall be provided by the insurer to any person who successfully completes the claims adjuster, medical-only claims adjuster, or medical bill reviewer training required by sections 2592.02 and 2592.03 or section 2592.04, respectively. The Designation for a claims adjuster, medical-only claims adjuster or a medical bill reviewer shall be in the form specified in Section 2592.10 or 2592.11, respectively.

(b) An Experienced Claims Adjuster or Experienced Medical-Only Claims Adjuster Designation shall be provided by the insurer to a person as defined in Section 2592.01(f) or (g), respectively. The Experienced Claims Adjuster or Experienced Medical-Only Claims Adjuster Designation shall be in the form specified in Section 2592.12.

(c) An Experienced Medical Bill Reviewer Designation shall be provided by the insurer to a person as defined in Section 2592.01(h). The Experienced Medical Bill Reviewer Designation shall be in the form specified in Section 2592.13.

(d) An insurer shall provide to the claims adjuster, medical-only claims adjuster or medical bill reviewer a Post-Designation Training Form that states the course and hours taken for the post-designation training following the completion of the required training. The Post-Designation Training Form shall be on the form specified in Section 2592.14.

(e) A medical billing entity may provide medical bill reviewer and experienced medical bill reviewer Designations and Post-Designation Training Forms to its employees or agents that meet the requirements of this article so long as the insurer using the medical billing entity confirms that the medical billing entity has met all requirements of this article and obtains copies of all records required by this article.

NOTE

Authority cited: Section 11761, Insurance Code. Reference: Section 11761, Insurance Code.

HISTORY

1. New section filed 1-23-2006; operative 2-22-2006 (Register 2006, No. 4).

§2592.06. Maintenance of Records.

Note • History

(a) An insurer shall maintain copies of the Designation forms pertaining to trained and experienced claims adjusters, medical-only claims adjusters and medical bill reviewers in its employ or acting on its behalf, notwithstanding whether or not that person was designated by it or was employed or trained by or on behalf of another insurer or a medical billing entity, as long as the claims adjuster, medical-only claims adjuster, or medical bill reviewer is in its employ or acting on its behalf and thereafter for five (5) years.

(b) An insurer shall maintain copies of the Post-Designation Training Forms as long as the claims adjuster, medical-only claims adjuster, or medical bill reviewer is in its employ or acting on its behalf, notwithstanding whether or not that person received post-designation training by that insurer or was employed or trained by or on behalf of another insurer or medical billing entity, and thereafter for five (5) years.

(c) If a trained or experienced claims adjuster, medical-only claims adjuster, or medical bill reviewer is employed by or works on behalf of an insurer that did not designate him or her, the insurer that did designate the claims adjuster, medical-only claims adjuster, or medical bill reviewer shall send copies of the Designation Forms to the current insurer within 20 working days after a request for the Designation Forms has been received.

(d) All insurers shall maintain a record of all courses given or taken by claims adjusters, medical-only claims adjusters, or medical bill reviewers to comply with this article. The record shall include:

(1) The name and business address of all students, along with the beginning and ending date of the training of the student and a statement of whether or not the student has completed the training in all topic areas required to be covered.

(2) A complete description of the curriculum, including all topics covered with a detailed statement of how much time was spent training students in each topic, the name of the entity providing the instruction, and the name of the instructor or instructors and any persons who instructed under the direction of the instructor.

(e) All insurers shall maintain a record of all post-designation courses, seminars, workshops, or other training taken by claims adjusters, medical-only claims adjusters, and medical bill reviewers employed by or acting on their behalf. The record shall also include the dates of such training, the time spent in the training, and the topics covered.

(f) All records maintained pursuant to this article shall be made available to the Insurance Commissioner and to the Administrative Director of the Division of Workers' Compensation. Copies of all Designation Forms maintained pursuant to the article and issued to a claims adjuster, medical-only claims adjuster, or medical bill reviewer shall be provided by the insurer that issued the forms to that person within 20 working days of a request for copies of the forms from the claims adjuster, medical-only claims adjuster, or medical bill reviewer.

(g) Upon the request of a policyholder or an injured worker whose claim is being adjusted, the insurer shall provide to the requesting policyholder or injured worker a copy of the Designation Form of the claims adjuster, medical-only claims adjuster, or medical bill reviewer handling the claim demonstrating that person's qualifications in adjusting that claim.

NOTE

Authority cited: Section 11761, Insurance Code. Reference: Section 11761, Insurance Code.

HISTORY

1. New section filed 1-23-2006; operative 2-22-2006 (Register 2006, No. 4).

§2592.07. Certification and Submission of Documents.

Note • History

(a) Each insurer shall submit to the commissioner annually by July 1 of each year a document certifying the following:

(1) the total number of persons adjusting claims on its behalf;

(2) the total number of claims adjusters and medical-only claims adjusters who are trained or experienced;

(3) the percentage of the claims adjusters and medical-only claims adjusters who are trained or experienced;

(4) all persons adjusting claims on behalf of the insurer are designated to do so or are in training; and

(5) the course of instruction provided for training of all claims adjusters and medical-only claims adjusters meets all requirements of this article and that all claims adjusters and medical-only claims adjusters have attended training for the required number of hours to be qualified to adjust workers' compensation claims.

The document, which shall be on the form specified in Section 2592.08, shall be signed under penalty of perjury by the person or executive officer responsible for the insurer's claims operations. The commissioner shall publish the information contained in this document on the Department of Insurance public website.

(b) Each insurer shall submit to the commissioner annually by July 1 of each year a document certifying the following:

(1) the total number of medical bill reviewers reviewing medical bills on its behalf;

(2) the total number of medical bill reviewers who are trained or experienced;

(3) the percentage of the medical bill reviewers who are trained or experienced medical bill reviewers;

(4) all persons reviewing medical bills on its behalf are designated to do so or are in training; and

(5) the course of instruction provided for training of all medical bill reviewers of the insurer and of medical billing entities used by the insurer meets all requirements set forth in this article and that all medical bill reviewers of the insurer and of medical billing entities used by the insurer have attended training for the required number of hours to be qualified to perform medical bill review.

The document, which shall be on the form specified in Section 2592.09, shall be signed under penalty of perjury by the person or executive officer responsible for the insurer's claims operations. The commissioner shall publish the information contained in this document on the Department of Insurance public website.

NOTE

Authority cited: Section 11761, Insurance Code. Reference: Section 11761, Insurance Code.

HISTORY

1. New section filed 1-23-2006; operative 2-22-2006 (Register 2006, No. 4).

§2592.08. Insurer Annual Certification Form--Claims Adjusters and Medical-Only Claims Adjusters.

Note • History

Embedded Graphic 10.0239

NOTE

Authority cited: Section 11761, Insurance Code. Reference: Section 11761, Insurance Code.

HISTORY

1. New section filed 1-23-2006; operative 2-22-2006 (Register 2006, No. 4).

§2592.09. Insurer Annual Certification Form--Medical Bill Reviewers.

Note • History

Embedded Graphic 10.0240

NOTE

Authority cited: Section 11761, Insurance Code. Reference: Section 11761, Insurance Code.

HISTORY

1. New section filed 1-23-2006; operative 2-22-2006 (Register 2006, No. 4).

§2592.10. Designation--Claims Adjuster and Medical-Only Claims Adjuster.

Note • History

Embedded Graphic 10.0241

NOTE

Authority cited: Section 11761, Insurance Code. Reference: Section 11761, Insurance Code.

HISTORY

1. New section filed 1-23-2006; operative 2-22-2006 (Register 2006, No. 4).

§2592.11. Designation--Medical Bill Reviewer.

Note • History

Embedded Graphic 10.0242

NOTE

Authority cited: Section 11761, Insurance Code. Reference: Section 11761, Insurance Code.

HISTORY

1. New section filed 1-23-2006; operative 2-22-2006 (Register 2006, No. 4).

§2592.12. Designation--Experienced Claims Adjuster and Medical-Only Claims Adjuster.

Note • History

Embedded Graphic 10.0243

NOTE

Authority cited: Section 11761, Insurance Code. Reference: Section 11761, Insurance Code.

HISTORY

1. New section filed 1-23-2006; operative 2-22-2006 (Register 2006, No. 4).

§2592.13. Designation--Experienced Medical Bill Reviewer.

Note • History

Embedded Graphic 10.0244

NOTE

Authority cited: Section 11761, Insurance Code. Reference: Section 11761, Insurance Code.

HISTORY

1. New section filed 1-23-2006; operative 2-22-2006 (Register 2006, No. 4).

§2592.14. Post-Designation Training Form.

Note • History

Embedded Graphic 10.0245

NOTE

Authority cited: Section 11761, Insurance Code. Reference: Section 11761, Insurance Code.

HISTORY

1. New section filed 1-23-2006; operative 2-22-2006 (Register 2006, No. 4).

Article 21. Workers' Compensation Rating Organization Internet Web Sites

§2593. Authority and Purpose.

Note • History

The regulations set forth in this article are required to carry out the provisions of Section 11752.75 of Article 3 of Chapter 3 of Part 3 of Division 2 of the Insurance Code. The purpose of these regulations is to provide the standards required to allow a person to submit a query on a rating organization's Internet Web site for workers' compensation insurance coverage information concerning a specified employer on a specified date and to allow for employers to dispute with the rating organization or the employer's insurance company incorrect information displayed on the Internet Web site.

NOTE

Authority cited: Section 11752.75, Insurance Code. Reference: Section 11752.75, Insurance Code.

HISTORY

1. New article 21 (sections 2593-2593.7) and section filed 2-10-2011; operative 3-12-2011 (Register 2011, No. 6).

§2593.1. Definitions.

Note • History

For purposes of this Article:

(a) “Coverage Information” means the name of the employer, the employer's address or other identifying information, the date specified in the query for coverage information, and the name of the insurer on the date specified in the query for the coverage information.

(b) “Employer” means the person or entity that is a named insured on the workers' compensation insurance policy for which a query regarding coverage information is being made.

(d) “Insurer” means a California admitted workers' compensation insurance company that provided workers' compensation coverage to the specified employer on the specified date.

(e) “Policy” means a workers' compensation insurance policy issued by a California admitted workers' compensation insurance company.

(f) “Policy Information” means workers' compensation insurance policy data reported by a California admitted insurance company to a rating organization.

(g) “Query” means an inquiry on the rating organization's insurance coverage Internet Web site regarding workers' compensation coverage information for a specified employer on a specified date.

NOTE

Authority cited: Section 11752.75, Insurance Code. Reference: Section 11752.75, Insurance Code.

HISTORY

1. New section filed 2-10-2011; operative 3-12-2011 (Register 2011, No. 6).

§2593.2. Employer Query Identifying Information.

Note • History

A query shall allow for, but is not limited to, the following identifying information on an employer to inquire about the employer's coverage information on a specified date: Name of the employer; Name of the employer and a full or partial address of the employer, including, but not limited to, street name, city, and state; or FEIN.

NOTE

Authority cited: Section 11752.75, Insurance Code. Reference: Section 11752.75, Insurance Code.

HISTORY

1. New section filed 2-10-2011; operative 3-12-2011 (Register 2011, No. 6).

§2593.3. Web Site Access Restrictions.

Note • History

(a) A rating organization may establish protocols, rules, or other limitations and restrictions on its coverage Internet Web site to limit access to information concerning employer workers' compensation insurance coverage so as to allow for only queries for a specified employer on a specified date.

(b) The coverage Internet Web site shall prohibit the automated retrieval of information and shall give clear notice on the Internet Web site of this prohibition.

(c) The rating organization shall limit a person's use of the coverage Internet Web site to prevent unlimited or multiple queries of the information that could be used to determine policy inception or expiration dates or policy numbers or used for other purposes for which it was not intended by employing reasonable security or authentication measures to prevent multiple or automated retrieval of employer coverage information while not hindering the public's access to it. Such measures may include limiting the amount of time a person may use the Web site, limiting the number of queries in a single session, employing a challenge-response system, or any other criteria that meets generally accepted industry practices for limiting access to information on a Web site.

(d) The rating organization shall limit query results to identify as best as possible the specified employer being sought and to avoid query results that may list employers related by other criteria, such as employer safety groups or clients of labor contractors and professional employer organizations.

(1) When an employer is being queried for by using the employer's name, only employers with similar names or a portion of that name may be displayed as a result of the query.

(2) When an employer is being queried for by FEIN, only the employer associated with that FEIN may be displayed as a result of the query.

NOTE

Authority cited: Section 11752.75, Insurance Code. Reference: Section 11752.75, Insurance Code.

HISTORY

1. New section filed 2-10-2011; operative 3-12-2011 (Register 2011, No. 6).

§2593.4. Disclaimers.

Note • History

(a) The rating organization may provide disclaimers in its coverage Internet Web site regarding the limitations or deficiencies of the coverage information available on the Internet Web site or the policy information it collects from insurers.

(b) In addition to the disclaimers required pursuant to Insurance Code Section 11752.75, the rating organization shall also provide disclaimers regarding the following:

(1) The result of a query is not evidence or verification of workers' compensation insurance coverage, which should be obtained from or verified by the insurer directly.

(2) The results of a query should be confirmed both with the employer and the insurer before it is used for any purpose.

(3) Coverage information may not be available or complete for all employers due to limitations with the policy information, such as similar or duplicate employer names, multiple or alternate locations and addresses for employers, or more than one named insured employer on an insurance policy.

(4) The coverage Internet Web site may only provide coverage information for five years prior to the date of the query.

(5) If employer coverage information is not found on the coverage Internet Web site it may be due to the employer being self-insured, and inquiries concerning self-insured employers should be directed to the California Office of Self Insurance Plans.

NOTE

Authority cited: Section 11752.75, Insurance Code. Reference: Section 11752.75, Insurance Code.

HISTORY

1. New section filed 2-10-2011; operative 3-12-2011 (Register 2011, No. 6).

§2593.5. Updating Coverage Information.

Note • History

The rating organization shall post, update, or correct coverage information for an employer on its coverage Internet Web site in a timely manner following the submission of the policy information by insurers. The time to post, update, or correct the information on the web site shall not be more than thirty (30) days from the time the information is received from the insurer.

NOTE

Authority cited: Section 11752.75, Insurance Code. Reference: Section 11752.75, Insurance Code.

HISTORY

1. New section filed 2-10-2011; operative 3-12-2011 (Register 2011, No. 6).

§2593.6. Disputes.

Note • History

(a) An employer may dispute the accuracy of its coverage information displayed on a rating organization's Internet Web site by either contacting the insurer who provided the policy information for the coverage period or contacting the rating organization.

(b) If the insurer is contacted by an employer regarding the accuracy of its coverage information displayed on the rating organization's coverage Internet Web site, the insurer shall have thirty (30) days from the date it receives the employer's dispute to review and respond to the employer in writing and, if applicable, to provide corrected policy information to the rating organization. The response to the employer shall include the following:

(1) Whether or not the coverage information is accurate and, if applicable, any corrections that are being made.

(2) The name and contact information of the representative of the insurer who handled the dispute.

(c) The rating organization shall provide a toll-free telephone number and an email address that shall be conspicuously posted on its coverage Internet Web site for employers to contact the rating organization regarding the accuracy of coverage information displayed on the rating organization's coverage Internet Web site.

(d) If the rating organization is contacted by an employer regarding the accuracy of the coverage information displayed on its coverage Internet Web site, the rating organization shall have thirty (30) days from the date it receives the employer's dispute to confirm with the appropriate insurer that the coverage information displayed correctly reflects the policy information reported and respond to the employer in writing. The response to the employer shall include the following:

(1) Whether or not the coverage information correctly reflects the policy information reported and, if applicable, what is being corrected.

(2) The name and contact information of the representative of the insurer who handled the dispute.

(3) A notice that if the employer continues to believe the coverage information is inaccurate, that the employer should contact the insurer and its representative to determine if any further changes to the policy information are needed.

(e) Only the employer to whom the coverage information pertains may dispute with the insurer or the rating organization the accuracy of the coverage information displayed on the rating organization's coverage Internet Web site. The insurer or the rating organization may take reasonable steps to determine that the person disputing the accuracy of the information on the coverage Internet Web site is the employer, or a representative of the employer, for whom the information pertains.

(f) Only disputes regarding the accuracy of the policy information reported to the rating organization by the insurer and the coverage information displayed on the rating organization's Internet Web site shall be subject to this Article. Any disputes concerning the existence or extent of an insurance contract or the terms of either the contract or its insurance coverage shall not be subject to this Article.

NOTE

Authority cited: Section 11752.6 and 11752.75, Insurance Code. Reference: Section 11752.75, Insurance Code.

HISTORY

1. New section filed 2-10-2011; operative 3-12-2011 (Register 2011, No. 6).

§2593.7. Statistics To Be Maintained by the Rating Organization.

Note • History

The rating organization shall maintain statistics on usage, user complaints, and employer complaints or disputes to the rating organization or insurers concerning coverage information, along with any resulting correction of the policy or coverage information by the insurer or the rating organization for the coverage Internet Web site, to provide the necessary information to the insurance commissioner to monitor, evaluate, and report on whether the coverage Internet Web site is achieving its intended purpose.

NOTE

Authority cited: Section 11750.3, 11751.1 and 11752.75, Insurance Code. Reference: Section 11752.75, Insurance Code.

HISTORY

1. New section filed 2-10-2011; operative 3-12-2011 (Register 2011, No. 6).

Subchapter 4. Insurer Securities Permits

Article 1. General Provisions

§2600. Authority for Regulations.

Note • History

These regulations are promulgated pursuant to the rule-making power conferred upon the Insurance Commissioner by the Legislature in Section 843 of the Insurance Code (formerly Political Code Section 594c; Chapter 730, page 1355, Stats. 1929). Any express statutory basis for each regulation is cited either at the end of each section hereof or after that portion of a section to which it particularly relates, whichever is more appropriate. All statutory references herein are to the California Insurance Code unless otherwise stated.

NOTE

Authority cited for new Subchapter 4: Section 843, Insurance Code.

HISTORY

1. Repealer of former Subchapter 4 (Sections 2600 through 2680) and new Subchapter 4 (2600, 2601, 2601-2601.04, 2602.01-2602.09, 2603.01-2603.21, 2604.01-2604.07, 2605.01-2605.06, 2606.01-2606.03, 2607.01-2607.06, 2608.01-2608.08, 2609.01-2609.08, 2610.01-2610.03, 2611.01-2611.03, 2612.01-2612.05, 2613.01-2613.08) filed 12-1-66; effective thirtieth day thereafter (Register 66, No. 42). For history of former Subchapter 4, see Registers 58, No. 17, and 59, Nos. 2 and 3.

§2601. Citation.

These regulations may be referred to and cited as the Insurer Securities Permit Regulations; the abbreviated citation is ISPR.

§2601.01. Purpose.

The object of these regulations is to provide in a readily accessible form for the guidance and assistance of all who are subject to, practice under or administer the Insurance Securities Law the principal requirements of substance and procedure governing applications for and the granting of insurer securities permits.

It is impossible to foresee every contingency and provide a regulation in anticipation thereof. These regulations are designed to be applied to the situations most frequently arising under that portion of the Insurance Securities Law governing applications for and issuance of insurer securities permits. They shall not contravene or curtail any statute. Furthermore, the duties and discretion of the Insurance Commissioner conferred upon him by statute in administering the Insurance Securities Law are not and cannot be exhausted by these regulations. Each application will continue to be analyzed individually and judged on its own merits, in the lawful discretion of the Commissioner, after application of the provisions of the Insurance Securities Law.

§2601.02. Definitions.

Note • History

A. “Commissioner” means the Insurance Commissioner of the State of California (Section 20)

B. “Department” means the Insurance Department of the State of California as constituted by statute. (Sections 21 and 12906)

C. “Insurer” for the purpose of these rules includes every organization organized for the purpose of assuming the risk of loss under contracts of insurance or reinsurance, and also includes any of the following organizations:

1. An admitted insurer;

2. A nonadmitted domestic insurer;

3. A nonadmitted foreign insurer;

4. A nonadmitted alien insurer;

5. An underwritten title company, or an organization organized for the purpose of doing an underwritten title business, whether licensed or not;

6. An attorney-in-fact of a reciprocal or interinsurance exchange, whether it be admitted or not, or an organization organized for the purpose of acting as the attorney-in-fact of a reciprocal or interinsurance exchange, whether the same be admitted or not; and

D. “Security” means every instrument commonly known by that term, including but not limited to the instruments enumerated in Section 821.5, but excepting the commercial paper, promissory notes and mortgage participation certificates described in Section 821.

E. “Insurer security permit” is used in these regulations to describe any and all types of security permits applied for by or issued to an “insurer” as that term is defined by Insurance Code Section 826 (See paragraph C of this Section 2601.02) irrespective of whether the applicant is or will be engaged in issuing contracts of insurance.

F. “Insurance company” as used in these regulations means an entity engaged or to be engaged in the business of assuming the risk of loss under contracts of insurance.

G. “Insurance” includes reinsurance.

NOTE

Authority cited: Section 843, Insurance Code. Reference: Sections 820-860, Insurance Code.

HISTORY

1. Repealer of subparagraph 7 of subsection C filed 5-6-77 as procedural and organizational; effective upon filing (Register 77, No. 19).

§2601.03. Terminology in General.

Unless the context otherwise requires, the terminology and nomenclature used throughout these rules are the same as in the Insurance Code of the State of California. See especially Sections 1 to 42, inclusive, ib. containing definitions; also Sections 101 to 123 ib. defining classes of insurance. Words of art are used with the meaning currently attributable to them in the insurance industry.

§2601.04. Offices.

Note • History

Insurance Code Section 12905 specifies that “The Commissioner shall keep his office in the City of San Francisco and shall also keep an office in the City of Sacramento and an office in the City of Los Angeles.” Office addresses of the Department are:

100 VAN NESS AVENUE
SAN FRANCISCO, CALIFORNIA 94102

600 SO. COMMONWEALTH AVENUE
LOS ANGELES, CALIFORNIA 90005

700 L STREET, 3RD FLOOR
SACRAMENTO, CALIFORNIA 95814

1350 FRONT STREET, ROOM 3020
SAN DIEGO, CALIFORNIA 92101

NOTE

Authority cited: Section 843, Insurance Code. Reference: Sections 820-860, Insurance Code.

HISTORY

1. Amendment filed 5-6-77 as procedural and organizational; effective upon filing (Register 77, No. 19).

Article 2. The Insurance Securities Law (Insurance Code Sections 820-860)

§2602.01. Stock Permit Jurisdiction.

The insurance Securities Law applies to the original issue of their own securities anywhere (including sale of treasury stock) by domestic insurers. It applies to foreign and alien admitted and nonadmitted insurers alike wherever acts concerning the original issue of their own securities to which jurisdiction of this sovereign state attaches are performed within the state. It also forbids certain secondary sales as hereinafter explained. Except as provided by Insurance Code Sections 845, 12393 and 12395, and Financial Code Sections 350-407 (especially Sec. 402) with respect to a title insurer doing or preparing to do a trust business, there is not an overlapping or dual jurisdiction with any other agency. If the applicant is an “insurer” and if it is to “offer for sale, negotiate for the sale of, or take subscriptions for any security of its own issue” (except upon a sale pursuant to Sections 2700 et seq., Corporations Code, for delinquent assessment) within the meaning of Section 827, the Corporate Securities Law does not apply. See Corporations Code Section 25100(h). Underwritten title companies, attorneys-in-fact for reciprocals, and exclusive management corporations for domestic insurers are included in the definition of “insurer.” Refer to Insurance Code Section 826 and to Section 2601.02C, supra, for definition. Choice of the wrong agency for issuance of insurer security permits will apparently result in issue of void securities, according to statute (Sections 826, 827, 831 and Corporations Code Section 25100(h)), unless and until such issue is subsequently validated by legislative act.

§2602.02. Secondary Sales of Securities.

Note • History

Section 845 of the Insurance Code prohibits sale or resale of any security of a domestic, foreign, or alien insurer (as “insurer” is defined by Section 826 ib.; compare Paragraph C of Section 2601.02 of these regulations) as an agent of an insurer, as a broker or an agent of a broker, except under the authority therein specified; and it describes the conditions under which resale by a bona fide owner is valid.

The statute provides:

845. (a) No person may sell or resell any security of a domestic, foreign, or alien insurer:

(1) As an insurer with respect to securities of its own issue without securing the permit of the Commissioner as provided in this article.

(2) As an agent of such insurer except under authority of a certificate issued by the Commissioner under this code.

(3) As a broker or as an agent for a broker except under authority of a certificate or license issued by the Commissioner of Corporations under the provisions of the Corporations Code and in full conformity with all provisions of the Corporations Code.

(b) Subdivision (a) shall not prohibit a bona fide owner of securities of an insurer from selling or reselling such securities if:

(1) Such securities were originally issued under the authority of a permit of the Commissioner and such sale or resale is made in conformity with the conditions, if any, in such permit effective at the time of such sale or resale; or

(2) Such securities were originally issued in a jurisdiction other than California in full conformity with the applicable laws, if any, governing such issuance in such jurisdiction.

A sale or resale of securities of an insurer by the owner of the securities which is made for the purpose of evading the provisions of this article requiring an insurer to secure a permit from the Commissioner or for any other fraudulent purpose shall, however, be null and void and a violation of the criminal provisions of this article.

(c) Any sale or resale permitted by this section is subject to the stop power of the Commissioner under Section 854 and the similar powers of the Commissioner of Corporations pursuant to the provisions of the Corporations Code.

(d) Any violation of this section is subject to the penalties provided in Section 833.

NOTE

Authority cited: Section 843, Insurance Code.

HISTORY

1. Amendment filed 12-20-67; effective thirtieth day thereafter (Register 67. No. 51).

§2602.03. Secondary Sales by Person Acting as an Agent, Broker, or Agent of a Broker. [Repealed]

History

HISTORY

1. Repealer filed 12-20-67; effective thirtieth day thereafter (Register 67. No. 51).

§2602.04. Where Applicable.

The Insurance Securities Law (Insurance Code Sections 820-860) literally applies and requires the Commissioner's permit for any of the following to be done in this State: solicitation, sale or issuance of its securities by any insurer when such sale is an original issue not a secondary sale. Refer to Code Sections 821.5, 822, 827, and Opinion of California Attorney General No. 50/70, June 22, 1951, 17 Opinions California Attorney General 217, the cases cited therein and any subsequent decisions bearing on the subject. In addition, the matter of “commercial domicile” of a foreign corporation in this State may be determinative. See Western Air Lines vs. Sobieski (2nd District Court of Appeals--4/20/61), 12 Cal. Rptr. 719, 191 Cal. App. 2d 399.

§2602.05. When Permit Required--In General.

A permit is necessary for the sale by an insurer in this state of its treasury shares. A permit is required of domestic insurers, but is not normally required of foreign insurers, for stock splits, stock dividends, and amending articles of incorporation so as to change the rights, preferences and privileges or restrictions on outstanding securities. (There is no provision in the Insurance Securities Law comparable to subparagraphs (a) through (d) of Corporations Code Section 25500.) Insurers are further advised that in the opinion of this Department a permit is required where any of the following to be done by or on behalf of an insurer in connection with the original issue of its own securities will take place within the state: solicitation of the sale and purchase of a security; any act essential to sale or issuance of a security. Reference is suggested to the relevant court decisions, including Western Air Lines vs. Sobieski, 12 Cal. Rptr. 719, 191 Cal. App. 2d 399. (Secs. 821.5, 822, 827, 17 Ops. Cal. Atty. Gen. 217.)

§2602.06. When Permit Required--Mergers.

A. In case of a merger, an appropriate permit should be and customarily is obtained before any of the following are mailed in or into this state by the proposed issuer or anyone on its behalf to its own or any other constituent's stockholders: proxy statement or offering circular, proxy, fractional share buy and sell order form, letter of tender of shares for surrender and exchange. The proxy statement is the primary sales document and, as a practical matter, it is impossible to separate the solicitation for votes respecting the merger from solicitation for exchange of shares. (Sections 821.5, 822, and 827) Irrespective of the fact that the entire transaction may be conducted by use of the United States mail (interstate commerce), the foregoing rule represents the regular practice before this department and should be followed in order to cope with factual situations which may otherwise invalidate the issue of shares.

B. Where a merger will change the rights, privileges or preferences of California stockholders, a domestic insurer shall, and a foreign insurer ought to, procure an appropriate permit prior to soliciting California stockholders of itself or of a proposed constituent corporation to the merger. (Sections 821.5, 822, and 827). It is permissible for both constituents to join in the one application under most circumstances.

§2602.07. Effect of Sale Without Permit.

The law provides that issuance of a security by an insurer without a permit in force at the time of issuance, under the circumstances such that one is required, shall be void. Every security issued by an insurer under the Commissioner's permit shall be void unless its provisions conform to the provisions, if any, required by the permit. (Sec. 831) Cf. Reed vs. Norman (1953) 41 Cal. 2d 17, 256 Pac. 2d 930; Wells vs. Comstock (1956) 46 Cal. 2d 528, 531, 297 Pac. 2d 961. An insurer is itself responsible for making a correct determination of whether under the circumstances a permit is required.

§2602.08. Penalty for Unauthorized Sale by Insurer.

For an insurer to sell or issue a security not in conformity with the Commissioner's permit, or contrary to the Insurance Securities Law, is a public offense and punishable by a fine not exceeding $10,000. (Section 832)

§2602.09. Penalty for Unauthorized Sale by Individual.

Every person who knowingly authorizes, directs, aids, causes or assists in causing the issue, execution or sale of any security in nonconformity with a Commissioner's permit then in effect and authorizing such issue, or contrary to the provision of the Insurance Securities Law, is guilty of a public offense punishable by a fine not exceeding $5,000 or by imprisonment in the state prison not exceeding five years or in a county jail not exceeding one year, or by both such fine and imprisonment. (Section 833)

Article 3. Applications--In General

§2603.01. Made by Whom.

Unless otherwise specified by statute or these regulations, an application for an insurer securities permit shall be made as follows:

A. Where an existing insurer, as defined by paragraph C of Section 2601.02, supra, proposes to sell and issue its securities, by the insurer entity.

B. For a preorganization permit, by the individual or individuals seeking to organize the insurer.

C. For a subscription permit, by the corporate entity which seeks to solicit subscriptions for its stock.

D. For a negotiating permit, by the insurer which seeks directly or indirectly to solicit, offer, sell and issue or exchange its securities. See also Section 2602.06A, supra.

E. For a permit to solicit powers of attorney and applications for policies of insurance to organize a reciprocal insurer pursuant to Insurance Code Section 1511, by its Attorney-in-Fact. (Section 1322)

F. For a permit authorizing a reciprocal insurer to issue its securities, by the interinsurance exchange itself.

§2603.02. Where Filed.

Subject to specific directives of the Commissioner or assignment of companies for cause, the following will otherwise govern:

A. Admitted domestic insurers whose home offices are south of the north border of San Luis Obispo, Kern and San Bernardino Counties or in Mono or Inyo Counties shall apply through the Commissioner's Los Angeles office; other admitted domestic insurers shall apply through the Commissioner's San Francisco office. Applications for securities permits will not be accepted for filing at the Sacramento and San Diego offices.

B. Nonadmitted domestic applicants seeking organizational or similar permits shall file according to the foregoing rule applied to where their principal California offices will be when they are organized and admitted.

C. Admitted foreign insurers shall apply through the appropriate filing office determined by applying the rule of paragraph A above to their principal California base of operations, unless activities of affiliates predominant in the group are centered in another part of the state, in which event they shall file in the Commissioner's appropriate office in such other part of the state.

D. Nonadmitted foreign insurers shall file in the San Francisco office unless they have an application for Certificate of Authority pending in, or have previously applied for admission or a permit through, the Los Angeles office, in which event they shall apply through that office. (Section 843)

E. The Commissioner reserves the right to transfer an application from one office to another for the convenience of the Department or for cause.

§2603.03. Description of Physical Requirements.

An application for an insurer securities permit shall be typewritten in the English language on 8-1/2” x 13” paper. They shall be substantially in the form prescribed by this Article. Applications filed in the Los Angeles office shall be in duplicate. Applications filed in the San Francisco office may be in singular copy only.

The ribbon copy shall be bond; the carbon copy shall be on paper of a weight not less than 11 pounds per ream. Both copies shall be stapled securely at the upper left and upper right corners. There shall be no staple, rivet or other device in the upper central portion of the page which will interfere with punching for clipping the application into a manila folder with an Acco fastener. Use of an attorney's “legal back” or cover of heavy paper is unnecessary and is discouraged except in the case of bulky applications (more than 15 pages in length) that reasonably need a durable binding.

An “application” within the meaning of these regulations includes the formally entitled, captioned and duly verified typewritten allegations and request (prayer) described in this Article, together with the exhibits attached thereto or referred to and incorporated therein.

§2603.04. Name and Address of Legal Counsel.

The office address of any legal counsel representing applicant in the application matter shall plainly appear on the first page of the application or on the letterhead of the letter transmitting it for filing.

§2603.05. Substitution of Legal Counsel--Warrant of Authority.

In the event of appearance of new legal counsel after the filing of the initial application, authentic written authority from applicant for the appearance or substitution, as the case may be, shall accompany the first paper filed by the new or substituted attorney at law or shall be presented at his earliest appearance, whichever shall first occur. Whenever it appears that two or more different attorneys at law (exclusive of “House Counsel”) or other attorneys, or firms of attorneys at law are filing or have filed papers or originated correspondence on behalf of an applicant, the Commissioner reserves the right to require a warrant of authority from any or all of such attorneys before recognizing or responding to such papers or correspondence.

§2603.06. File Number.

Every application duly filed will be assigned a number in the office where it is filed. Applicant will be notified of the file number assigned and all subsequent correspondence relating thereto shall bear such file number.

§2603.07. Caption.

Every application for an insurer securities permit shall be captioned thusly:

BEFORE THE DEPARTMENT OF INSURANCE

OF THE

STATE OF CALIFORNIA

§2603.08. Entitlement.

Every application for an insurer securities permit shall be appropriately entitled below the caption. An example of the most common entitlement is:

BEFORE THE DEPARTMENT OF INSURANCE

OF THE

STATE OF CALIFORNIA

Embedded Graphic 10.0246

For additional examples refer to the composite sample forms of applications in the addenda to these regulations.

§2603.09. Name or Label.

Every application for an insurer securities permit shall be descriptively named or labeled so as to identify its nature, e.g.: “Application for Preorganization Permit,” “Application for Subscription Permit,” “Application for Organizational Permit” (for initial sale of stock), “Application for Negotiating Permit,” and in all cases where a definitive permit is sought, “Application for Permit.” Such descriptive names or labels shall be placed preferably opposite and to the right of the box containing the entitlement, unless space does not permit. In such latter event the label may be typed across the center of the page below the entitlement and file number and above the opening paragraph of the body of the paper in capital letters.

Applications filed subsequently to the original shall be appropriately identified, e.g.: “First (Second, or Third, etc.) Supplemental Application for Permit,” “Application for Third Amendment to Permit,” or “First Supplement to Application for Third Amendment to Permit,” etc.

§2603.10. Verification.

Insurance Code Section 834 requires that the application shall be verified as required by the Code of Civil Procedure. All material information submitted shall be verified; otherwise it may be regarded as having no probative value.

When an application is executed in this state or in another state whose law is similar to the California statute on the subject, the truth of the allegations made may either be verified under oath or certified to under penalty of perjury (Code of Civil Procedure Sections 446 and 2015.5); otherwise, it shall be duly sworn to under oath before a public officer lawfully authorized to administer oaths and his certificate evidencing such fact shall be attached thereto. Applications and reports of transaction not verified in accordance with law will be rejected.

An acceptable form of California verification is:

Embedded Graphic 10.0247

John Smith, the undersigned, hereby certifies under penalty of perjury that he is the President of ABC Insurance Company, applicant in the foregoing application; that he has read the said application and knows the contents thereof and that the same are true of his own knowledge.

Dated this ____ day of ___________, 19__, at Redwood City, California.

/s/John Smith

/t/John Smith, President”

An acceptable form of verification by a foreign applicant is as follows:

Embedded Graphic 10.0248

John Smith, first being duly sworn, deposes and says that he is the President of ABC Insurance Company, applicant in the foregoing application; that he has read the said application and knows the contents thereof and that the same are true of his own knowledge.

/s/John Smith

/t/John Smith, President

Subscribed and sworn to before me

this ______day of ___________,19___.

/s/_______________(Notarial Seal)

Notary Public in and for said

County and State

My commission expires___________”

The examples set forth above do not forbid verification of certain allegations on the basis of affiant's information and belief where this is permissible according to all; nor do they preclude verification by an attorney at law under the circumstances and in the manner provided by law; but an application containing allegations requiring proof before a permit is issued and verified wholly on the basis of information and belief will not be accepted; or, if accepted, will not be acted on favorably without independent satisfactory proof of the essential allegations thereof and the pertinent supporting data.

§2603.11. Legal Style; Prayer.

An application for an insurer securities permit shall assume the form of a sound legal pleading; it shall allege the facts essential to jurisdiction, the information required by the Insurance Code and these regulations, and (except in the case of applications for preorganization, subscription or certain negotiating permits) such additional facts and data as are reasonably necessary to enable the Commissioner to make the findings required by Section 839 and, when so requested by the Commissioner, Section 839.1.

Each such application shall conclude with an appropriate request that a permit issue, specifying what is sought to be authorized thereby, the number and description of shares or other securities asked to be authorized, the selling price thereof, and for what period of time the permit is warranted, giving commencement and termination dates where feasible. (Section 843)

§2603.12. Formal Allegations and Exhibits Required for All Applications.

History

Unless otherwise provided by these regulations or permitted by statute, every application for an insurer securities permit shall conform to the basic requirements prescribed in this section. It shall set forth, either in the body of the application or by appropriate exhibits attached thereto and incorporated therein by reference, the information and data specified in paragraphs A. through D. of this section. It shall also be supported by the items described in paragraphs E. through M. hereof. Such latter items may be attached as exhibits and appropriately referred to and incorporated in the body of the application. (Sections 834, 835, 836, 887, 889, 889.1, 839.5, 840 and 843)

A. Names and addresses of the applicant's officers.

B. The street number, city and state of applicant's home office (which shall be the state of incorporation, unless there is a separate executive office, in which event both shall be listed); also the mailing address, if different from the home or executive office address.

C. An itemized account of applicant's financial condition, including the amount and character of its assets and liabilities. Admitted insurers may refer to attached current financial statement or statements already on file with the Commissioner and incorporate them by reference. Nonadmitted insurance companies shall furnish their latest annual statements in the form prescribed by the N.A.I.C. Blanks Committee, both copies signed and verified by appropriate officers of the company, one copy of which shall be certified by applicant's home state insurance Commissioner as being a true copy of the same on file in his office. If such statement is not available (as in the case of underwritten title companies, attorneys-in-fact of reciprocal insurers, exclusive managers of domestic insurers-elsewhere defined as “insurers” but not as “insurance companies”), furnish independent audit or other recent financial statement. A copy of a recent Registration Statement, Form S-1, filed with and acceptable to the Securities and Exchange Commission, will normally suffice in lieu of an annual statement unless the condition of applicant's finances or its book of business is unsatisfactory or cannot be accurately ascertained from such Registration Statement, in which event the Commissioner will insist upon a certified annual or more recent statement in the form of the annual statement prescribed by the N.A.I.C. Blanks Committee.

D. A detailed statement of the plan upon which applicant is transacting or proposes to transact business. Admitted applicants may refer to and incorporate by reference their latest report of examination and financial statement filed with the Commissioner. Any substantial new departure in plan of business or method of operation shall be fully alleged. Nonadmitted insurance companies shall attach reports of most recent examination, one copy of which shall be certified by applicant's home state Commissioner as a true copy of the same on file in his office. Nonadmitted insurers in most cases may attach as an exhibit to their application and incorporate a copy of a recent Registration Statement, Form S-1, filed with and acceptable to the Securities and Exchange Commission in lieu of a certified Report of Examination, if such a Registration Statement is available.

E. A voided specimen of any certificate for shares of stock, subscription warrant, option, contribution certificate, or other security which applicant proposes to issue.

F. A copy of any underwriting agreement, agreement among underwriters, selected dealer agreement, or any other contract applicant has made or proposes to make concerning the issue or providing for sale or disposition of the shares. Press proofs are acceptable for initial filing, but may be required to be supplemented by reprints completed as to dates, commissions, expenses, etc. (but not necessarily as to price), before a permit is issued. If final prints cannot be supplied before issuance of the permit on account of the fact that price and commissions are to be set immediately prior to the proposed offering, the Commissioner may act on the basis of such information supplied orally to be subsequently confirmed in writing by telegram or letter. When, in the Commissioner's judgment a copy of the papers as finally completed is essential to establish compliance with the law or to complete the record, the permit may require mailing to the Commissioner of a reproduction of the executed document for filing. In that event such copy shall be certified by an officer of applicant, attested by its corporate seal, to be a true copy of the document relied on by the parties thereto.

G. A copy of any prospectus or advertisement or other description of the securities sought to be issued, which applicant will circulate or publish. File preliminary prospectus and Registration Statement, Form S-1 (if any) with application and supplement by all amendments thereto. The Commissioner reserves the right to require the (final) prospectus to be filed before his (definitive) permit is issued. However, in the case of nationwide issues where time is an important factor, the permit can be issued before receipt of the (final) prospectus if the Commissioner is satisfied that it will be unchanged from the latest approved preliminary prospectus already on file except for changes required by S.E.C. rules. In such event, the permit will require that two copies of the (final) prospectus be mailed to the Commissioner for filing simultaneously with mailing to the offerees. Applications for organizational permits are required to include a prospectus or offering circular if there is to be a public sale of securities.

H. A copy of any letter to stockholders, offering letter, letter of solicitation, proxy, proxy statement, letter of extension or other circular concerning the securities to be issued. Final prints shall be filed before permit is issued, if at all possible. Otherwise, the permit will require mailing of duplicate final prints in the same form and text as the latest version on file to the Commissioner for filing simultaneously with mailing to the offerees. If a copy bearing the “Approved” stamp is desired for applicant's records, applicant shall mail the Commissioner three copies.

I. Applicant's articles of incorporation. Admitted insurance companies with articles as amended to date already on file in the Commissioner's office where the application for permit is filed may refer to and incorporate same by reference. Nonadmitted applicants must file their articles of incorporation, or comparable documents, as currently amended. One copy shall bear the original certificate of the official governmental custodian of the original thereof to the effect that it is a true copy of the same on file in his office. If a former application filed in the same office within two years prior to the instant application contained articles of incorporation so authenticated, they may be identified by specific reference to the file by entitlement, file number and date of filing, and may be incorporated by reference when so identified. Any amendment made since such prior filing, unless already officially filed with the Commissioner, shall be attached to or accompany the application. It shall be similarly authenticated. This portion of the application shall positively allege that the articles attached by exhibit, or incorporated by specific reference, or both, are applicant's articles of incorporation as currently amended to date of the application. (Sec. 836)

J. By-laws or comparable governing rules shall be attached or incorporated by reference. This exhibit may be cared for under similar circumstances in the same manner as required of articles of incorporation by the preceding paragraph hereof. Both copies shall be authenticated by the certificate of a corporate Secretary or Assistant Secretary attested by the company seal to the effect that they are true copies of the company by-laws currently in force.

K. A copy of the pertinent minutes of any proceeding of applicant's directors, stockholders, or members relating to or affecting the current issue of securities or transaction sought to be authorized. They are to be certified over the original signature of a Secretary or Assistant Secretary, attested by the corporate seal, to be true copies of true excerpts. (Section 836)

L. Foreign applicants (not organized under the laws of this state must file, either with their application or separately, before a permit can be granted, an original certificate of their domiciliary insurance commissioner or other proper officer of the jurisdiction in which they are organized certifying that applicant is on the date of the certificate duly authorized to transact business in its domiciliary state. Such certificate will not be acceptable if issued more than 30 days prior to the date on which such application is filed with this Department. (Section 837(a))

M. Section 837(b) requires that nonadmitted applicants (not holding a California Certificate of Authority) must file a stipulation or agreement for service of process. As a practical matter, admitted insurance companies who have on file with the Insurance Commissioner a current appointment of agent for service of process, as required by Insurance Code Sections 1600-1603 and the stipulation required by section 1604 ibid., as those sections provided on or after September 30, 1963, need not file the stipulation described in section 837(b); otherwise, insurers shall make and file the stipulation required by said section 837(b). Forms may be obtained from the Department.

HISTORY

1. Editorial correction of subsection M. (Register 91, No. 15).

§2603.13. Other Allegations Required in All Applications.

Unless otherwise provided by these regulations or authorized by statute, every application for an insurer securities permit shall allege under oath or lawful verification as to the truth thereof the following information, either in the body of the application or by exhibits referred to and incorporated therein so as to be included within the scope of the oath or other verification:

A. The number, class or kind, par value (or, in case of noninsuring “insurers” with no par stock, the stated value) and amount of securities applicant proposes to sell.

B. The sale price or other consideration to be paid therefor per share and in gross for the total number of shares or other securities sought to be authorized by the permit applied for.

C. The selling commission and any other compensation, including but not limited to stock options, to be paid or allowed, directly or indirectly, and to whom.

D. Applicant's best estimate of the total expenses to be incurred on account of such sale.

E. The purpose of the sale and issue, exchange or other action for which a permit is sought, what is expected to be accomplished thereby and the anticipated effect thereof upon applicant's financial position, including capital paid up and unassigned surplus in the case of insurance companies, and capital, or capital and surplus in the case of underwritten title companies and other noninsuring “insurers.” Detailed pro forma financial statements are not ordinarily required, but may be, particularly in the case of insurance companies.

F. In the case of an application for any kind of stock option plan, a copy of the plan with evidence of its lawful adoption by applicant's board of directors and stockholders--subject to any lawfully required approval of appropriate securities regulatory authorities--, and a copy of each form of security, option or contract for a security proposed to be issued in connection therewith.

G. In case of an application for a negotiating permit, a description of the matters desired to be negotiated.

H. Any other, different, additional facts, data or information which the Commissioner may reasonably request as needed for him to make and substantiate findings, affirmative or negative, required by law to be made by him before a permit may issue, or authorized to be made in respect to the transaction for some part of which the permit applied for is needed. (Sections 839, 839.1, 839.5, 715, 840, 842, 843)

§2603.14. Financial Data--In General.

A. Applications filed by insurance companies with capital stock shall set forth both the number and par value of shares outstanding and the amount of capital paid up as of the date of the application. Both stock and mutual (including inter-insurance exchange) applicants shall state their total assets, total liabilities exclusive of capital, unassigned surplus and surplus as regards policyholders as of the most recent financial reporting date. If there have been significant changes between that date and the date of filing the application, the application shall include applicant's best estimate of the amount of unassigned surplus as of the date of such application.

B. Applications filed by insurers other than insurance companies (i.e. by non-insuring “insurers”) shall show the most recent balance sheet and operating statement of applicant that are available. If such papers are stale or unreliable, the Commissioner may require current balance sheets and current operation statements.

C. In the case of any application lawfully filed (whether described in paragraph A or paragraph B above), the Commissioner, after examining it and the other papers and documents filed with it, may if he deems it advisable, cause a detailed examination, audit and investigation to be made of applicant and its affairs (Section 838). Such examination, audit or investigation shall be at the expense of applicant (Section 859(d)).

§2603.15. Company Information--In General.

The size, age and financial condition of insurers vary so greatly, and the kinds of permits applied for are so different, it is impracticable to prescribe regulations covering all situations. However, every application should allege enough facts to show the nature and extent of applicant's business, its present financial condition, whether a sale of the company, or merger, consolidation, reorganization, change of management or control or other major management or financial change is planned or pending, and whether any large acquisition, sale, or cession is contemplated in the near future. (Sects. 839, 843).

§2603.16. Exhibits.

Exhibits shall be consecutively numbered or lettered. Plainly legible numbering or lettering shall be placed consistently either in the bottom center or at the lower right-hand corner of the face or first page of each exhibit. If there are no more than three exhibits they need not be separately tabbed. If there are four or more exhibits or, in any event, if the application and exhibits exceed fifteen pages in length, exhibits shall be labeled by index tabs affixed either to the right-hand margins or at the bottom of the face pages in a consistent fashion so that the tabs will be visible when the application is punched and affixed in a manila folder with an Acco fastener.

Exhibits shall normally be arranged and attached to the typewritten application so they can be opened and read without taking the file apart. Bulky or cumbersome exhibits, such as quarterly or annual financial statements, registration statements (with S.E.C.), underwriters' agreements and ratebooks and other similar items, not easily capable of being fastened in a manila folder with the typewritten application may remain separate.

§2603.17. Findings Required by Statute.

Every application for a securities permit must show either in the body of the application or by exhibits sufficient facts to enable the Commissioner to make the findings required by Insurance Code Section 839, to wit:

A. That the proposed plan of business of the applicant and the proposed issuance of securities are fair, just and equitable;

B. That applicant intends fairly and honestly to transact its business; and

C. That the securities applicant proposes to issue and the methods to be used by it in issuing or disposing of them are such as, in his opinion, will not work a fraud upon the purchasers of the securities or upon policyholders or other security holders of applicant.

§2603.18. Optional Findings, Anti-Trust.

“(a) In any case where a domestic insurer is directly affected by the total transaction for some part of which the permit applied for is needed, and the Commissioner in his discretion determines that reasonable grounds exist for contentions that such total transaction or any part thereof:

(1) Is a combination of capital, skill, or acts to create or carry out restrictions on or to prevent competition in the insurance business; or

(2) Is a combination (in the form of a trust or otherwise) in restraint of the insurance business; or

(3) Is an attempt to monopolize the insurance business; or

(4) Is a conspiracy to create any of the foregoing; or

(5) That such total transaction, or any part thereof, if consummated will create or result in any of the foregoing or will substantially lessen competition in the insurance business;--

Then, in such event, the Insurance Commissioner may make findings with respect to whether such total transaction, or any part thereof, would or would not do or be any of the foregoing.

(b) In the event the Insurance Commissioner makes affirmative findings as provided in subdivision (a) of this section, he may deny the permit applied for.” (Section 839.1)

§2603.19. Filing Fees.

Note • History

The filing fees required by Insurance Code Sections 857 to 859, inclusive, shall be paid not later than concurrently with the filing of the application. Applications transmitted by mail for filing should be accompanied by a check made payable to the order of the State of California Insurance Commissioner for the full amount of the filing fee. The Commissioner reserves the right to reject any application not so accompanied by the correct filing fee.

Such fees are for filing and are not refundable in the event a permit is refused. The statute should always be consulted in case of doubt as to the amount. A summary of the filing fee requirements with illustrative computations follows (Section 857):

Original application or supplemental application for permit to issue securities (except application for permit to issue securities evidencing any change in the rights, preferences, privileges or restrictions on outstanding securities): ___________________$75.00 plus the sum of the following computed on the aggregate value of the securities to be issued:--

20/100 of 1% of any excess over $1,000

and not exceeding $50,000 ($98)

10/100 of 1% of any excess over $50,000

and not exceeding $100,000 ($50)

5/100 of 1% of any excess over $100,000

and not exceeding $500,000 ($200)

2/100 of 1% of any excess over $500,000

and not exceeding $5,000,000 ($900)

1/100 of 1% of any excess over $5,000,000

and not exceeding $10,000,000 ($500)

1/500 of 1% of any excess over $10,000,000

Application for permit to issue securities evidencing any change in the rights, preferences, privileges, or restrictions on outstanding securities (Section 857(b)): $75.00.

Application for permit to issue rights, warrants, etc., except where the market price is higher than the selling price: $50.00

Application to amend existing permit (Section 859(a): $37.50

Application for preorganization, subscription or negotiating permit (Section 859(a)): $37.50

The following paragraphs summarize applicable Insurance Code sections governing the determination of value of the securities involved (Section 858):

A. Take par or face value, unless the consideration alleged in the application or as found by Commissioner is in excess thereof, or unless the securities when issued will have a value as determined by the Commissioner in excess of their par or face value,--in either of which events,take the larger figure. (Section 858(a))

B. If the securities have no nominal or par value and if issuance is otherwise lawful (Section 690), the value shall be taken as the proposed sale price, or the value alleged in the application, or the actual value of the consideration (if other than money) as determined by the Commissioner, or the value of the security when issued, whichever is greatest. (Section 858(b)) For securities reported on stock exchange, take value based on stock exchange price. For securities traded substantially over-the-counter, take average of recent daily mean between bid and asked. (Section 843)

C. In calculating the fee on stock rights, subscription warrants, stock options, etc., compute value at difference between the selling price of the securities represented thereby and market value of such securities on day before application was filed, provided the market price is higher than the selling price; otherwise, the rights, warrants, options, etc., shall be deemed to have no value and the fee for filing such application shall be $50.00. (Sections 858(c), 843)

D. In case of an application to issue securities containing conversion rights, compute value of securities to be issued at twice the amount of the consideration to be received therefor. (Section 858(d))

E. In case of a share dividend or share split, value of the securities to be issued shall be the amount of the surplus proposed to be transferred to paid-in capital. (Section 858(e))

NOTE

Authority cited: Section 857, Insurance Code. Reference: Sections 820-860, Insurance Code.

HISTORY

1. Amendment filed 5-6-77 as procedural and organizational; effective upon filing (Register 77, No. 19).

§2603.20. Grounds for Denial.

If an application that otherwise complies with the law and these regulations is insufficient to enable the Commissioner to make the findings required by Insurance Code Section 839 and, if in his discretion he so determines and requires, the findings (affirmative or negative) authorized by Section 839.1 ibid., he will notify applicant in writing of his objections. If they are not cured by supplement or amendment within a reasonable time, he will deny the application and notify applicant in writing of his decision. (Sections 839, 839.1)

§2603.21. Denial for Laches.

Applications will not be allowed to pend indefinitely or for an unreasonable length of time. An application will also be subject to denial if it reasonably appears that applicant is not actively correcting reported defects and remedying reported deficiencies in good faith, or that it will be impossible for applicant within a reasonable time to comply with the Commissioner's appropriate lawful requirements. (Section 843)

Article 4. Preorganization, Subscription and Negotiating Permits

§2604.01. Prepermit Activities.

Prior to issuance of an appropriate permit promoters may not lawfully do anything in this state which produces an agreement, express or implied, to buy an identified security. People vs. Jacques (1955) 138 Cal. App. 2d 823, 291 Pac. 2d. 124; Ogier vs. Pacific Oil and Gas Development Corporation (1955) 138 Cal. App. 2d 775, 779, 288 Pac. 2d 101. But a business conversation preliminary to any fixed plan is not prohibited. B. C. Turf and Country Club vs. Daugherty (1949), 94 Cal. App. 2d 320, 210 Pac. 2d 760. The promoters themselves and their legal counsel are responsible for determining how far they may go in the talking stage without a permit. Refer to Sections 2602.01 to and including 2602.08, supra, and the statutes and decisions cited; also to any subsequent controlling decisions.

§2604.02. Applications for Preorganization Permits.

Note • History

NOTE: Applicants most commonly apply directly for a definitive permit without any intervening formal steps or preliminary permits. The sections herein provided relative to preorganization and subscription permits are only designed to accommodate the limited situations described therein. Definitive permits regularly authorize the taking of subscriptions.

A. Except as may otherwise be specifically provided by law, when individuals in the course of organizing a proposed insurer expect to engage in solicitation or obtain commitments which cannot lawfully be done without an appropriate permit, but will not take subscriptions for the purchase of securities, they should apply for a preorganization permit.

B. The fee for filing an application for a preorganization permit is $37.50 (Section 859(a)). Formal requirements, such as verification, number of copies, filing office, etc., are governed by Article 3 of these regulations.

C. Such an application shall set forth:

1. The names and addresses of the proposed organizers. It shall also incorporate by reference biographical affidavits on a form prescribed and furnished by the Commissioner, one of which shall be completed and sworn to by each organizer. The form of biographical affidavit is found in Section 2613.07, infra. (Sections 704.5, 717, 718, 843)

2. The names and addresses of all persons then known who are expected to be associated as officers, directors, or as key managerial personnel.

3. The kind of insurer to be organized, the nature of the business to be done and where.

4. The reason why such an insurer is proposed to be organized; any particular advantage it would enjoy; why, in the opinion of the promoters, it should succeed.

5. The capital structure of the proposed insurer, the par value (if any; see Section 690 for insurance companies) and the selling price of its shares, the number of shares proposed to be sold, by whom, where and how they are proposed to be sold and the commission to be paid or allowed thereon, the amounts of capital paid up and of unassigned surplus (if applicable) with which it is proposed to start business; also, the estimated expenses of organization and promotion.

6. The names and qualifications or, if it is not possible to identify them, a description by class of the persons to be solicited, the purpose of such solicitation, and the proposed dates of commencement and conclusion thereof.

D. Such permits may be issued without findings being made pursuant to Sections 839 and 839.1 of the Insurance Code, and will not authorize the taking of subscriptions for issuance or sale of any security, or the collection of any consideration for purchase of securities. (Sections 827.7, 843)

NOTE

Authority cited: Section 843, Insurance Code. Reference: Section 859(a), Insurance Code.

HISTORY

1. Amendment of subsection B filed 5-6-77 as procedural and organizational; effective upon filing (Register 77, No. 19).

§2604.03. Application for Subscription Permits.

A. Applications for a permit of this nature presuppose a corporate applicant with or without assets but with officers and directors, a well--defined plan of operation and an application with substantially all of the exhibits required in the case of an application for a permit authorizing a newly organized insurer to sell its first issue of shares. (See Section 2605.01, infra, on “Applications for Organizational Permits.”) Such a permit will authorize the taking of conditional subscriptions for the purchase of a particular security at a stated price, but will not authorize the collection of stock purchase money. All subscriptions shall recite substantially the conditions set forth in the specimen form set forth in Section 2613.05, infra, except that the time limits may be reasonably varied to suit applicant's plans. It is possible to issue such a permit prior to the making of findings required by Insurance Code Section 839. (Section 827.7, 843) However, in the event a permit is issued on the latter basis without such findings, it may under the circumstances hereinafter specified require that each subscriber be afforded an opportunity, within a reasonable time after receipt by him of a copy of the Commissioner's definitive permit and of the prospectus as finally approved by that permit, to disaffirm and cancel his subscription. The circumstances referred to in the preceding sentence are these:--where in the Commissioner's judgment there has been a change between the dates of issuance of the subscription permit and of the definitive permit in the proposed venture which would render it unfair, unjust or inequitable not to allow the subscriber to withdraw; such changes include, but are not limited to, a substantial change in applicant's plan of financing or plan of operation, or among the organizers, promoters, original officers, directors or proposed key managerial personnel.

The filing fee is $25 payable at the time of filing the application. (Section 859(a))

B. Except as otherwise authorized by statute and these regulations, applications for subscription permits shall:

1. Comply with Sections 2603.01 to and including 2603.11; paragraphs A., B., D., G., H., I., and K., and if applicable L. and M. of Section 2603.12; paragraphs A. through E. of Section 2603.13 and Sec. 2603.16.

2. Attach the form of subscription (see Sec. 2613.05 for sample) and any other proposed contract, and all advertising or solicitation material proposed to be used. Such materials may not be used unless a permit is issued and their use has been approved by the Commissioner in writing.

3. State the desired commencement and termination dates of the subscription effort.

§2604.04. Applications for Negotiating Permits.

NOTE: The presence in these regulations of this and the following section in this article does not mean that a negotiating permit is a necessary precedent to a definitive permit. A definitive permit may always and quite often does authorize negotiations. Where applicant is confident its “negotiations” will succeed, it customarily skips the negotiating permit stage and applies directly for a definitive permit. These sections represent the present practice and, in accordance with the Code, only provide for an intermediate step where applicant is not ready to proceed on the ultimate definitive permit basis.

Except as may otherwise be provided by law or these regulations, under the appropriate circumstances applications for negotiating permits may properly be filed by authorized insurers, admitted or nonadmitted. If an application seeks authorization to solicit or “negotiate” for acceptance of a proposal whose terms, conditions, value and consideration are already fixed and no substantial part of which is to be arrived at through bargaining, then such application must make the showing needed upon which to base findings required by Insurance Code Section 839 and, if the Commissioner requires, authorized by Section 839.1 ibid. Otherwise, if the application shows that the terms and conditions of the proposal sought to be negotiated, or the value or consideration to be paid are still to be agreed upon through genuine bargaining, then such application need not show the basis for findings under said Sections 839 and 839.1. In the latter event a permit issued in response to such an application will make no findings under said sections and will authorize negotiations only.

§2604.05. Application Not to Be Ambiguous.

An application of the type described in the sections immediately preceding and following this section shall be for a negotiating permit or for a definitive permit but not for both unless the appropriate filing fee for a definitive permit is paid. If it requests two permits, a negotiating and a definitive permit, then the appropriate filing fees for both shall be paid when the application is filed. If it cannot be told from the application itself what kind of a permit is wanted, no permit will issue. The Commissioner will endeavor to reject ambiguous applications in advance of filing. (Section 843)

§2604.06. When Negotiating Permits Are Appropriate.

Negotiating permits are appropriate under the following circumstances:

A. Applicant desires to approach the governing body of another entity concerning a proposal which, if duly adopted by the parties, will require the commissioner's (definitive) permit in order lawfully to effectuate the same.

B. Applicant has in another state reached an agreement or tentative agreement with the governing body of another entity as to the terms of such a proposal and desires to present the same to California stockholders by mail, or otherwise, for their votes thereon.

C. Applicant for any legitimate reason needs to negotiate concerning the terms and conditions of a proposal the consummation of which, if agreed upon, will require a definitive permit; or needs to submit a definitive proposal to a vote of stockholders or members preliminary to the action for which a definitive permit will be needed.

§2604.07. Regulations Governing Applications for Negotiating Permits.

Except where herein otherwise noted, applications for negotiating permits are governed by the same statutes and regulations as are other applications. Applications for negotiating permits shall comply with the applicable portions of the following sections hereof: 2603.01 to and including 2603.16. The application shall describe the matters to be negotiated and attach a copy of the plan of reorganization, agreement of merger, or other proposal, and copies of all solicitation material to be used in this state. The filing fee is $25.00. See Insurance Code Section 859. (Sections 827.7, 834, 835, 836, 837, 843)

Article 5. Organizational and Other Definitive Permits

§2605.01. Applications for Organizational Permits.

Applications by underwritten title companies, attorneys-in-fact of reciprocal insurers, and exclusive managers of domestic insurance companies for permits to sell their stock for initial capitalization purposes, are subject to and shall comply with the applicable portions of Articles 1 through 4, paragraphs B., C., E., G., and H., of this Section 2605.01, and paragraph B. of Section 2605.02. Similar applications by insurance companies (organizations organized to assume the risk of loss under contracts of insurance) in addition to complying with the last aforementioned sections and articles hereof, shall (Sections 717, 718, 721, 839, 843):

A. Comply with Article 3, except Sections 2603.14 and 2603.15, of these regulations and with the additional requirements set forth in this section.

B. Attach as an exhibit and incorporate by reference on a form provided by the Commissioner, a biographical affidavit of every officer, director, trustee, each proposed principal supervising or managerial personnel, and of each known proposed investor who is expected to purchase or hold or control for himself or otherwise, directly or indirectly, 10% or more of applicant's stock when it is sold and issued. Such affidavit shall be completed by the individual concerned and, if executed in this state, shall be either certified to under penalty of perjury or sworn to before an officer duly authorized to administer oaths; and if executed in any other place than the State of California, shall be duly sworn to under oath according to the law of the place where the affidavit is made. The form and text of such affidavit shall be as set forth in Section 2613.07, infra. (Sections 704.5, 717, 718, 843) It may be filed in a singular copy only.

C. Allege or attach as an exhibit incorporated by reference a plan of operation explaining fully at least the following to the extent that these items are appropriate to the nature of the applicant.

Note: All items are appropriate to an organization expecting to transact “insurance” as the same is defined by Insurance Code Section 22):

1. Kind of business the company will transact; if “insurance” as defined by Insurance Code Section 22, name the classes as they are defined by Insurance Code Section 101-120; otherwise, describe it. Specify where and with what facilities business will be transacted and the estimated premium volume of such transactions by month or year.

2. Whether company will operate on the American Agency System or as direct writers.

3. Where and how it will recruit its agents or other producers. How and by whom they will be trained.

4. Commission rates or salaries to be paid. Attach sample contract forms and commission schedule, including those for general agents.

5. Where and how business will be developed.

6. Sales techniques to be used.

7. Advertising methods to be employed.

8. Whether applicant will control agents' advertising and sales methods and, if so, how.

9. How and by whom claims will be processed and losses adjusted and paid; the relationship of such adjusters to company.

10. How claims adjusting personnel will be compensated.

11. If applicable, whether applicant will comply with Insurance Code Sections 815 and/or 816, as appropriate.

12. How and by whom applications will be underwritten.

13. Initial salaries proposed to be paid.

14. How and by whom the company's investments will be managed and, if by other than a company officer, for what compensation.

15. If applicant expects to transact life or disability insurance, whether it will pay or contract to pay directly or indirectly to any officer, director, trustee, medical director, actuary or investment committeeman any commission or compensation contingent on life or disability business written, renewed or paid for and, if so, at what rate or rates and under what circumstances.

16. What procedure, if any, company will have to ascertain whether its officers and directors occupy positions in other businesses or have other financial interests such that applicant's business or investment transactions or conduct of its business will directly or indirectly affect them or their other financial interest, and vice versa. (Sections 843, 1101 and Ops. Cal. Atty. Gen. No. 64/230, Sept. 24, 1965.) (Sections 839, 843 and Corporations Code Sec. 820 as to noninsuring insurers.)

D. Attach as an exhibit and incorporate by reference its principal policy or policies (usually not more than two) to be sold and the rates therefor. Typewritten forms are acceptable for application purposes. Statutory forms may be identified by reference to the statute. Standard forms and Bureau forms may be identified by form number and printed copies attached.

In the case of nonstandard policies, there shall be included an actuarial demonstration of the financial soundness of such policy or policies and rates.

The requirements of this paragraph D are customarily waived as to other than life and disability applicants if they can otherwise demonstrate the financial soundness of their policies and rates.

E. Attach as an exhibit and incorporate by reference a financial projection, based on reasonable and practicable assumptions of every applicable factor, including volume and kind of business to be produced, premiums to be collected and disbursements to be made, all year by year, showing separately: (1) all elements of income, (2) all elements of disbursement and reserves, and (3) unassigned surplus at the end of each year. Such projection shall cover a period of years from inception to and including a year when it shows applicant is definitely producing a net gain from operations after dividends to policyholders and excluding capital gains and losses. (Secs. 839, 843)

F. Actuarial computations and estimates are not acceptable unless signed and certified to by a qualified actuary.

G. Attach as an exhibit and incorporate by reference a detailed estimate of all expenses incurred or to be incurred, beginning with the cost of incorporation and extending to and including the procuring of a Certificate of Authority. (Secs. 839.5, 715) Limit to expenses of organization and stock selling in case of noninsuring insurers.

H. Attach as an exhibit and incorporate by reference applicant's proposed reinsurance contracts. (Insurance contracts in case of underwritten title companies.) If the text of these is not available, attach written commitments and typical contract; otherwise, attach analysis of bids for reinsurance and statement of company's choice and include terms. (Sections 717, 839, 843)

§2605.02. Amount of Proof Required.

A. In the case of domestic applicants being organized for the purpose of assuming the risk of loss under contracts of insurance, the quantum of proof customarily needed pursuant to Insurance Code Section 839 must be sufficient to satisfy the commissioner of at least the following with respect to applicant:

1. That it has a practicable, workable organization and plan of operation with honest, experienced, competent persons in charge;

2. That it has actuarial sound policies to sell at merchantable rates;

3. That it will employ lawful sales methods;

4. That its underwriting and rating will be lawful and practicable;

5. That its reinsurance arrangements are provident and lawful;

6. That it has access to or can develop sufficient premium income to survive;

7. That it will promptly and fairly adjust claims by its policyholders and will fully pay such claims in accordance with law and the terms of the policies;

8. That its investments will be lawfully made and skillfully managed;

9. That its operations and business ought to produce a fair profit within a reasonable period; and

10. That its plan of financing and stock selling will produce enough funds so that applicant can and will maintain statutory financial requirements and avoid a hazardous condition until earned premium income plus investment income exceeds all expenditures. (Sections 717, 839, 843)

B. In the case of applicants described in paragraph C. of Section 2601.02 hereof other than those mentioned in paragraph A. of this section, the quantum or proof required shall be such as by a preponderance of evidence will enable the Commissioner to make all findings necessary or appropriate under the circumstances.

C. The quantum of proof required of foreign or alien applicants shall in no event be less than that required of a similar domestic applicant applying for a similar permit. (California Constitution, Article XII, Section 15.) The proceeds of California stock sales by such applications shall be subject to the impound requirements of these regulations the same as if they were domestic applicants. Cf. Section 2606.01, infra.

§2605.03. Special Provisions for Certain Nonorganizational Permits.

A. Already organized and licensed applicants, domestic or foreign, whose operations and management have not consistently proven financially successful will be required to substantiate their applications with such of the items listed in paragraphs (Omit D. and F. for noninsuring “insurers.”) B., C., D., D., E., F., G., and H. of Section 2605.01 above as are appropriate and necessary to induce the findings needed pursuant to Insurance Code Section 839. Such applicants are commonly requested to furnish the following additional verified information in their applications:

1. When applicant was last examined by its own state regulator authority or by N.A.I.C. Zone Examiners.

2. Whether applicant is presently engaged in a controversy with any state or federal regulatory agency. (Application for admission is not deemed a “controversy.”)

3. Whether applicant has within five (5) calendar years last preceding the filing of the instant application been: (a) denied a certificate of authority or a license to transact insurance or has withdrawn an application therefor in any jurisdiction; (b) denied authorization to sell its securities; or (c) ordered to cease and desist from selling its securities in any jurisdiction. If the answer to any of the questions in this paragraph is affirmative, state the circumstances.

4. A list of pending lawsuits including those arising under its policies of insurance (other than liability, surety, workmen's compensation policies and subrogation suits) against the applicant, together with an estimate of the probable outcome and liability under each. (Sections 839, 843)

B. Applications by licensed but relatively new companies for permits to sell securities for the purpose of raising supplemental capital or surplus to meet statutory requirements, or additional funds to finance current or future expenses, ordinarily need to devote special attention to the selling price of shares, condition of applicant's business and affairs, and results shown by the expenditure of surplus to date. The Commissioner has the power to review price. (Sections 839, 840)

§2605.04. Applications by Noninsuring Organizations.

Applications for permits by underwritten title companies, attorneys-in-fact for reciprocal or interinsurance exchanges, or exclusive managers of domestic insurers, or by any organization formed for the purpose of acting as any of the foregoing, shall be subject to and shall comply with Article 3 of these regulations, supra. They shall also be required to furnish such additional data, information and documents as the Commissioner may reasonably deem necessary in order to make possible affirmative or negative findings on the matters essential to issuance of the permit applied for.

§2605.05. Applications by Established Insurers.

A. In the case of insurance company applicants who have the following qualifications, their applications and exhibits may be simplified to the extent hereinafter permitted. The qualifications for such an applicant are that (Section 843):

1. It has, prior to filing the application, made a registration filing with the Securities and Exchange Commission for a public offering of securities and a copy of its latest complete filing is attached to and incorporated by reference in the application.

2. It (or a predecessor by merger, sale and purchase transformation or other reorganization, provided that at least 50% of the gross business in force and at least 50% of the management--including total number of officers and directors--of applicant are in such case each comprised in excess of 50% of the business and management of the merged, purchased, transformed or reorganized predecessor) has been lawfully engaged in the insurance business for at least five years and currently is admitted to transact insurance in at least five states;

3. It currently has admitted assets of at least five million ($5,000,000) dollars; and

4. It has, prior to filing the application, obtained a written permit or consent to issue such securities from the authority in its domiciliary state having jurisdiction over issuance of its securities, and the statutory standards for obtaining such a permit or consent are comparable to the like standards of this state. The statutes of another state are not deemed “comparable” within the meaning of this subparagraph 4 unless they include requirements substantially like Insurance Code Section 839 (the “fair, just and equitable” section). See Section 2603.17, supra. (Section 843)

B. Applications for permits by insurers which allege and prove the qualifications set forth in paragraph A of this section are subject to and shall comply with Article 3 of these rules, except paragraphs D., I., J. and K. of Section 2603.12.

C. Any foreign applicant relying on this section shall allege that the statutes of its domiciliary state provide standards for obtaining such prior permit or consent that are comparable to the like standards of this state, and as proof thereof shall attach a copy of the statute and relevant regulations of its domiciliary state to its application.

§2605.06. Applications by Large Established Insurers.

A. In the case of those insurers who have any four of the following five qualifications, their applications may be simplified to the extent hereinafter permitted. Insofar as in the Commissioner's discretion may prove feasible, permits issued to such insurers will be abbreviated or simplified. The qualifications for such an insurer are that:

1. It (or a predecessor by merger, consolidation, sale and purchase, transformation or other reorganization, provided that at least 50% of the gross business in force and at least 50% of the management--counting the total number of officers and directors--of applicant are in such case each comprised in excess of 50% of the business and management of the merged, purchased, transformed or reorganized predecessor) has been continuously engaged in the insurance business for not less than 40 years.

2. It is, according to its latest annual statement on file with the Commissioner, admitted to do business in not less than 40 states of the United States of America.

3. It has, according to its latest annual statement on file with the Commissioner, a surplus as regards policyholders of not less than $50,000,000.

4. As part of the same transaction for which a permit is sought from the Commissioner, it has on file a current Registration Statement with the Securities and Exchange Commission for a public offering of securities; and applicant has made a registration of its shares effective with the Securities and Exchange Commission for such purpose on at least two prior occasions within the ten calendar years last preceding the current application to the Commissioner.

5. Trading in and market prices of its stock are regularly listed in at least one newspaper with nationwide circulation.

B. The application of any insurer described in paragraph A, above, may be abbreviated to the following extent:

1. It shall be subject to and comply with Sections 2603.01 through 2603.11, and 2603.16 through 2603.21 of Article 3, ante.

2. In addition, it shall allege: class or kind, par value (or face value), and number or amount of its securities applicant proposed to offer and sell to or exchange with California residents; the price per share and the expected gross California proceeds of such sale or other gross consideration expected therefor.

3. It shall refer to and incorporate the following exhibits which shall be attached to the application: (a) a voided specimen of the certificate or paper representing each class or kind of security proposed to be issued; (b) a copy of its Registration Statement to become currently effective; and (c) the written communications, solicitations, or advertising sought to be approved.

4. If applicant is a foreign corporation, admitted or nonadmitted, it must file the certificate required by Insurance Code Section 837(a). See Sec. 2603.12, paragraph L., ante. If it is a foreign nonadmitted corporation, it must also comply with paragraph M. of Section 2603.12, ante.

5. The application shall be verified positively; a “verification” solely on information and belief is not acceptable. Section 2603.10, ante, contains forms of verification, q.v.

6. The application and all exhibits required to be filed (or incorporated by reference) shall be filed in duplicate by applicants filing in Los Angeles and in singular copy by applicants filing in San Francisco.

Article 6. Impounding of Stock Sale Proceeds

§2606.01. When Required.

Permits issued to domestic applicants prior to a certificate of authority will normally require 100% of all stock sale proceeds to be impounded until release upon written order of the Commissioner. The same shall be required of the proceeds of stock sales in California by foreign applicants under similar circumstances. If applicant does not qualify for a certificate of authority within a reasonable time, subscription moneys will be returned in full to the subscribers without deduction of expenses. Extensions beyond such time will not be granted without the consent of all subscribers. The form of subscription agreement shall recite all of the foregoing. (A composite example of a subscription agreement is found in Section 2613.06, infra.)

A “reasonable time” as used in this section is ordinarily considered one year from the date the definitive permit is issued.

Impounding of funds may be dispensed with in cases of closed permits where applicant can demonstrate to the Commissioner's satisfaction that the protection of an impound to guarantee full return of stock purchase moneys in event no certificate of authority is granted is unnecessary. (Section 843)

§2606.02. Impound Agent.

Applications for permits which will entail impoundment of stock sale proceeds shall name a duly authorized federal or state bank within the state which has consented to act as impound agent. An originally signed letter of consent by the bank shall be attached to the application. (Section 843)

§2606.03. Certificate of No Lien.

Before an order is made releasing stock sales proceeds from impoundment, written assurance in letter form will be requested from the bank serving as impound agent that it has no lien, general, special, bankers, or otherwise, against said funds or any thereof, and knows of no claims asserted against funds or any thereof. (Section 843)

Article 7. Promoters

§2607.01. Promotional Stock Not Allowed.

Various statutory provisions relating to paid-in capital, investments, insolvency and paid-up or unassigned surplus applicable to insurance companies (see especially Section 700.02(b)) render purely promotional securities difficult and impracticable. They were uniformally disapproved pursuant to Section 839. Fair, just, and equitable stock option plans for promoters, officers and employees are presently not regarded with disfavor.

§2607.02. Sales to Promoters.

In the event of a public offering, no securities will be authorized for promoters at less than the net public offering price.

§2607.03. Investment Required of Promoters.

Before any shares are offered to the public, except by conditional subscriptions without cash payment (Cf. Section 2613.05 infra) or are sold to the public, the promoters, organizers and all initial officers and directors as a group shall purchase and pay for in cash a substantial portion of the original issue on the same terms and conditions as share are offered to other investors. Ordinarily, such portion of the issue to be purchased by such persons as a group shall be not less than the sum of the following: 25% of the first million dollars and 15% of all amounts over one million dollars. Although such persons need not divide such purchase among themselves equally, ordinarily each shall make a substantial investment unless persuasive reasons why he cannot do so are shown. Absent good cause the size of such group shall ordinarily not exceed twenty in number.

§2607.04. Restriction of Sale of Promoters' Shares.

The persons investing pursuant to this article shall be required to execute an appropriate agreement with the company for the benefit of the company and all of its shareholders providing that the periods hereinafter specified from the date of completion of the original issue or granting of a Certificate of Authority, whichever is later, they and each of them will not sell, transfer, or encumber, except by operation of law, any shares acquired by them in satisfaction of the foregoing requirement or by exercise of promotional options without the written consent of the Commissioner. It will be permissible for each such person to dispose of the following amounts of the aggregate of his said shares after elapsation of the following indicated periods: 5% after one year; an additional 5% after two years; an additional 10% after three years; an additional 20% after four years and the remainder after five years. A restrictive legend prescribed by the permit shall be placed on each stock certificate representing such shares. A composite example of such a contract is found in Section 2613.08, infra.

§2607.05. Options to Promoters.

A. Issuance of options to promoters will not be authorized except in connection with an original issue and then only when it is satisfactorily demonstrated that the promoters have rendered a genuine service of value to the company for which they have not otherwise been fully compensated.

1. The issuance thereof will not ordinarily be regarded as fair, just and equitable unless:

(a) The total number of shares subject to such options will not exceed 10% of the number of shares initially sold and issued for cash.

(b) The exercise price stated in such options to be issued by other than a life insurer is not less than the net price at which shares are sold to the public investors at the time such options are granted, plus an increase of 5% thereof for each year thereafter elapsing during the life of such options.

(c) The exercise price stated in such options to be issued by a life insurer is not less than the net price at which shares are sold to public investors at the time such options are granted, plus an increase of 10% thereof for each year thereafter elapsing during the life of such options.

(d) The options are nontransferable except upon death of the optionee or by operation of law.

(e) The options by their terms are not exercisable more than five years after date of issue.

B. The intention to issue such options and the approximate extent thereof shall be fully disclosed in the prospectus.

C. Such options are a form of promotional expense and must be justified as such by a showing of the nature of the service rendered or other consideration justifying the grant of the options. The aggregate of all organizational expenses and promotional expenses, including the value of such options (as determined by the Board of Directors and subject to review by the Commissioner), shall not exceed 10% of the total amount actually paid for the insurer's capital stock. (Sections 839.5, 715)

§2607.06. Attorneys and Underwriters.

A. Stock options to attorneys at law for applicants are disfavored. (Section 839)

B. Stock options to underwriters are not permitted. (Section 839)

Article 8. Stock Purchase and Stock Option Plans

§2608.01. Officers, Directors and Employee Stock Option Plans.

Stock options of this nature are generally looked upon with favor where they conform to the following specifications:

A. They are provided for by a fair and reasonable plan to be fairly administered which has been submitted to and approved by the directors and stockholders. The Commissioner will insist on proof that a full and fair disclosure of outstanding options, the details of the plan and its intended operation has been made to applicant's stockholders, and that adoption thereof was in accordance with any applicable statutes.

B. The granting thereof bears a reasonable incentive relationship to the continued employment of the optionee.

C. They are for a stated number of shares, to be paid for in cash.

D. They are for 100% of the fair market value of the shares optioned as of the time they are granted, if issued pursuant to a plan which is by law subject to such requirement. If the stock is not widely traded, they are for a lawful price fixed by company's board of directors and concurred in by the Commissioner. If issued pursuant to an employees' stock purchase plan available to all of applicant's employees, they are for a price of not less than 85% of fair market value of the shares optioned as of the time they are granted. (Cf. Cal. Rev. & T.C. Sections 17534 and 17632)

E. They fully set forth employment qualifications, conditions for complete exercise of the option, conditions under which cessation of employment will terminate the option, the effect of death, resignation, etc.

F. They contain an anti-dilution or pro-ration clause in substance to the effect that the number of shares allocated to the Plan and the number of shares covered by each individual option, and the price per share, all shall be proportionately adjusted automatically for any increase or decrease in the number of issued and outstanding shares of the corporation accomplished without a corresponding increase or decrease in the corporation's paid-in capital.

G. Only the optionee (or a court appointed guardian) can exercise the option during the optionee's lifetime, and only his heirs, administrator or executor for a limited time after his death.

H. They provide in substance that the company will diligently endeavor to comply with all applicable securities laws before any such options are issued and before any shares will be issued pursuant to such options.

I. The term thereof is for not longer than five years.

J. The total number of shares set aside at any one time for such purpose or expected to be optioned for such purpose within the foreseeable future is not inequitably disparate to the number of shares issued and outstanding. Refer to Section 2608.04, infra. (Sects. 839, 843)

§2608.02. For Investment.

The Commissioner favors a requirement in such stock options plans and options issued thereunder that the optionee sign a stipulation when he exercises the option that he is purchasing for investment and not for resale (Sects. 839, 843)

§2608.03. Pro-Rata Exercise.

The Commissioner does not object to a requirement in such plans or options that the optionee shall exercise a pro-rata portion of his options each year or such portion shall automatically expire and thereafter be null and void. (Sects. 839, 843)

§2608.04. Overall Limitation on Options.

It is considered prima facie unfair, unjust and inequitable if the total number of shares subject at any one time to outstanding unexercised option rights of all types, including but not limited to promotional option, employee incentive options and life agents production options, exceeds or will exceed 20% of the number of the then issued and outstanding shares.

§2608.05. Procedure.

The Commissioner cannot and will not abdicate his authority and duty under Insurance Code Section 839. Hence, blanket permits for unlimited numbers of shares to be sold for unstated prices to undetermined people pursuant to exercise of options granted for undescribed reasons or under undisclosed circumstances will not be granted. The alternative procedures prescribed in this section will care for the most commonly encountered situations involving long term plans of this type, e.g., restricted or qualified stock options plans.

A. Applicant may apply for and obtain a negotiating permit for approval of its plan; and thereafter, from year to year as options are voted to be granted to employees, apply for and obtain a separate (definitive) permit for each year to issue options to the persons and for the number of shares specified in its board of directors' resolution and, upon due exercise thereof, to issue and sell shares accordingly. Such an application shall allege the exercise price to be stated in the options and shall by appropriate means show that it is fair, just and equitable.

B. An applicant having a long term plan, not desiring to follow the system outlined in Paragraph A of this Section, and which can satisfy other requirements, may proceed thusly:

1. It may apply for and secure a permit approving the plan for circularization and authorizing the form of option to be issued. Such permit will also authorize issue of options for a period of not to exceed one year after date of the permit at an exercise price per share alleged in the application and satisfactorily proved.

2. Thereafter, it may apply for yearly extensions (amendments) of the permit at exercise prices duly alleged and proved.

3. The filing fee for an application for amendment is as stated in Section 2603.19 of Article 3, supra. Other portions of said Article are also applicable, especially Sections 2603.06-2603.11.

C. Applicant may obtain a permit authorizing the issuance of options at a named initial option price, during a designated term, conditioned on clearance by the Commissioner of any subsequent issue of options for a different option price. Clearance will be presumed if the Commissioner does not reject the new price within 30 days after applicant has filed with him a notice, supported by appropriate proof, of the new option price. As an alternative to clearance of subsequent option prices by the Commissioner, applicant may propose the determination of such subsequent option prices by the Board of Directors or Option Committee in accordance with a formula. If the Commissioner finds such formula will result in the fixing of an actual price which will be fair, just and equitable, he will authorize its use in lieu of requiring that he pass upon the actual option price subsequently determined. If the stock to be optioned is shown to the Commissioner's satisfaction to have an established market, the formula may be in terms of averages of bid and asked prices at such times and places as to assure that true free market values will result from application of the formula. The foregoing method may be used in appropriate cases to procure authorization for issuance of options at 100% of fair market value of the shares optioned; or, in appropriate cases at some other figure fixed with reference to the fair market value. If a reliable market has not yet been established to the Commissioner's satisfaction, other methods, or combinations of methods to determine fair, just and equitable values will be considered.

Submission of at least annual reports of transactions will, in either event, be required.

§2608.06. Life Agents Production Stock Options Plans.

In order to be found fair, just and equitable, any plan of this nature shall ordinarily do not less than the following:

A. Be clear and unambiguous in its terms and as simple as the subject matter permits.

B. Provide that it shall be submitted to and approved by company's directors and stockholders before it becomes effective. Any definitive permit approving such a plan will require said prior submission and approval as a condition precedent to effectiveness of the authorization. The Commissioner may require satisfactory evidence that full and fair disclosure of outstanding options, the details of the plan and its intended operation was made to the stockholders prior to their approval of the plan.

C. Provide that no securities (either rights to options or options) will be issued thereunder without a prior permit of the Insurance Commissioner authorizing such issue; that company will promptly and diligently endeavor to procure the necessary authorizations contemplated by the plan.

D. Provide that business written will serve as a basis for earning options only after such business shall have been in full force and effect for three full policy years and premiums thereon for such period shall have been fully paid. Prepayment of premiums shall not accelerate the running of the persistency period. A policy that terminates in a death claim prior to expiration of the persistency period may be regarded as having run the full three years.

E. Govern the earning of conditional rights to options and the grant of options by a conservative formula based on one of the following:

1. The amount of premiums written (adjusted to an annual premium payment basis) and paid on policies issued during a given calendar quarter;

2. Commissions earned per calendar quarter; or

3. Some other reliable criterion of production of business (per calendar quarter) having intrinsic value to the company.

F. Provide for notifying each participating agent with reasonable promptness after the close of each calendar quarter of the number of shares to which he has earned conditional rights by virtue of his production for such calendar quarter, according to the stated formula. Such notification shall constitute evidence of his conditional rights to receive options for an appropriate number of shares after expiration of the persistency period and subject to all other conditions precedent. No form of said notification shall be used without prior approval thereof in writing by the Insurance Commissioner.

G. Provide for the issuance of options with reasonable promptness after expiration of the persistency period, according to the formula applied to business produced during the particular quarter, and subject to fulfillment of all other conditions precedent.

H. Specify that options to be granted thereunder shall be exercisable for not longer than 180 days after issuance thereof after which they shall become null and void.

I. Specify that options granted thereunder shall be nonassignable and non-transferable except by will or by the laws of descent and distribution.

J. Limit the maximum number of shares optionable at any given time to a number equivalent to 10% of company's then issued and outstanding shares.

K. Provide that options shall not be granted to any agent on the basis of personal or controlled business.

L. Provide in effect that agents appointed by the same company shall not transact insurance on each other or on each other's families for the purpose of avoiding the foregoing provision.

M. Provide that no agent shall be required to purchase any insurance on himself or his family in order to participate therein.

N. Provide for determination of price by a method appropriate to the company as set forth in the next succeeding section hereof.

O. Provide that rights to options for shares ostensibly earned by an agent's production, in accordance with the production formula, shall abate pro-rata at conclusion of the persistency period and prior to issuance of the actual options in any case where issuance of options otherwise required by rights earned would exceed the amount authorized by permit of the Insurance Commissioner.

P. Specify, and require options to be issued thereunder to specify, that, after due notice to the persons concerned and hearing, the Commissioner may for cause modify or terminate any or all of the following upon a finding as hereinafter indicated with respect thereto:

1. The plan, upon a finding that continuation thereof is unfair, unjust or inequitable.

2. Rights to options, upon a finding that issuance of options upon maturity thereof is or will be unfair, unjust or inequitable.

3. Outstanding (issued but unexercised) options, upon a finding that issuance of shares upon exercise thereof is or will be unfair, unjust or inequitable.

§2608.07. Price.

The exercise price to be stated in options issued pursuant to an authorized plan of the kind described in Section 2608.06, supra, shall bear a reasonable relationship to the actual value of the shares to be optioned. “Reasonable relationship” is understood to be not less than 75% of such value and not so great as to be unfair, unjust or inequitable. Actual value shall be determined in a manner appropriate to the status of the company as found by the Commissioner in accordance with the following:

A. In the case of an insurer which alleges and proves to the Commissioner's reasonable satisfaction that its shares, through substantial trading in a free market involving willing sellers and willing and able buyers, have achieved a recognized value in the market place; the plan shall provide that:

1. Company will average bona fide trading prices in the last available reported transactions on not less than one trading day per month each month during the production quarter. The selection of such trading day shall be on a consistent basis. The application for price clearance shall state such price so found and substantiate the same by reasonable evidence.

2. Company shall with reasonable promptness after expiration of each calendar quarter report such price to the Commissioner, and apply for clearance of the price related thereto (rounded off to the nearest tenth of a dollar) which it proposes under the plan to state in options ultimately to be issued after expiration of the persistency period, such options to be based on production during the quarter to which the price relates.

3. If the Commissioner does not within 30 days thereafter object, said price shall automatically, after expiration of 30 days from and after receipt by the Commissioner of such application for price clearance, be deemed acceptable. Whereupon, or upon specific clearance thereof, company will proceed to notify its agents of their production during such calendar quarter and the conditional rights which such production has ostensibly earned according to the formula.

B. In the case of an insurer which is unable to allege and prove to the Commissioner's reasonable satisfaction that its shares have achieved a recognized value in the market place as described in Paragraph A of this Section 2608.07, the plan shall provide for an appropriate mathematical formula, concurred in by the Commissioner, for determination of price pending such time as the Commissioner shall agree that said insurer's publicly traded stock has attained the status described in Paragraph A of this Section. Such formula shall:

1. Take into account at least the following items:

(a) capital and surplus

(b) non-admitted assets

(d) value of business on its books.

2. Give recognition to company's age and the persistency of its business.

3. Provide that as company progresses in age and financial condition and its shares are publicly traded in increasing volume, such recognition as is concurred in by the Commissioner shall be given to the price arrived at in the market place. (Prices artificially created, influenced or sustained in a rigged or controlled market will not be accorded weight by the Commissioner.) (Secs. 839, 843)

§2608.08. Directors' Resolution as to Fairness of Price.

Any application for authorization to issue options, whether pursuant to a plan described in this Article or otherwise, shall be supported by a certified copy of a resolution of applicant's board of directors containing its findings, as follows:

A. In the case of an applicant who alleges and proves to the Commissioner's reasonable satisfaction that its shares have, through substantial trading in a free market involving willing sellers and willing and able buyers, achieved a recognized value in the market place--that the market price reported as a bona fide market price; that in the opinion of its board of directors said price represents the fair value of the shares; and that such issuance at the proposed price will be fair, just and equitable to the company, to its present and future stockholders, and to other optionees.

B. In the case of an applicant which is either newly organized, or, if not newly organized, whose shares have not yet achieved a recognized value in the market place as described in Paragraph A of this Section--that the value of the shares as stated represents, in the judgment of its board of directors, the true, fair value of the same; and that the option price sought to be authorized is a fair, just, and equitable price with respect to the company, to its present and future stockholders, and to other optionees.

Article 9. Miscellaneous Requirements

§2609.01. Capital Stock, One Class Of.

Complex capital structures involving more than one class of capital stock are disfavored. (Secs. 839, 843)

§2609.02. Shares of Stock, Par Value Of.

All shares of insurance companies admitted or to be admitted must have a specified par value. (Sec. 690. Does not apply to noninsuring “insurers.”)

§2609.03. Shares of Stock, Price Of.

A. The price per share of the initial issue of stock of a newly organized domestic insurer, as “insurer” is defined by Insurance Code Section 826 and paragraph C of Section 2601.02 of these regulations, shall be not less that $50.00 a share. (Secs. 839, 843)

B. Absent special circumstances compelling the same, stock splits or other actions to reduce the value and price of its shares will not be authorized for a domestic insurer unless and until:

1. It has filed successive annual statements with the Department which, after audit, constitute satisfactory evidence in the Commissioner's judgement that the applicant's operations have been and are financially safe; and

2. Its shares have acquired a reasonably stable value in the market place. (Section 839)

C. Permits authorizing already licensed and operating foreign insurance companies to sell their shares in this State at less than $50.00 a share, except in pre-emptive or comparable offerings, will not ordinarily be granted unless the applicant and its shares shall have attained the condition described in paragraph B of this section relating to domestic insurers. (California Constitution, Article XII, Section 15) The Commissioner will rely on financial statements (after audit) filed in this state if the applicant is admitted. A nonadmitted foreign applicant may prove its financial condition by copies of its annual statements filed with the regulatory authority of its home state, such copies to be certified by him as true copies of the same on file in his office. Such statements shall be subject to reasonable audit by this Department.

D. Newly organized foreign applicants for permits to offer their securities in this state shall be subject to requirements not more favorable to the transaction of such business than are comparable domestic applicants under the preceding paragraphs of this section. (California Constitution, Article XII, Section 15)

§2609.04. Price--Fair, Just and Equitable.

The following general principles are observed in the determination of price:

A. The price stated in the application of an operating but unseasoned insurer will be judged with reference to Section 839 by the tangible results produced by applicant with the surplus expended during the time it has been in business. (Secs. 839, 840)

B. Market transactions of significant volume in a free market are given primary weight.

C. In the case of stocks widely traded, allegation of current bid and asked prices is usually sufficient in the absence of recent substantial fluctuations.

D. Where there is an impending merger or some other factor strongly influencing market price, the showing of market transactions should extend from a period antedating such influence down to the filing date, or as near thereto as practicable. (Secs. 839, 843)

E. In the case of an operating insurer whose stock is substantially traded but has not acquired a stable market price, the application should be supported by evidence covering a period of usually not less than three months showing approximately the number of shares traded and the prices paid. (Secs. 839, 843)

§2609.05. Certificate for Shares, Contents Of.

Every form of certificate for shares submitted for authorization shall make provision for stating all of the following:

A. The name of the record holder of the shares represented thereby.

B. The number, designation, if any, and class or series of shares represented thereby.

C. The par value of the shares represented thereby if applicant is subject to Section 690 of the Insurance Code; otherwise, the par value, if any, of the shares represented thereby, or a statement that the shares are without par value.

Note: Underwritten title companies, attorneys in fact of reciprocal insurers, and exclusive managers of domestic insurers are not subject to said Section 690. (Sec. 690 and Corporations Code Sec. 2401)

§2609.06. Certificate for Shares, Not to Be Misleading.

Inclusion on share certificates of a caption stating “$___________ Capital” is regarded as misleading unless the amount of capital paid in is equivalent to the figure shown therein. Captions of this nature desired to be included on share certificates may state “Authorized Capital $__________.” (Sec. 843)

§2609.07. Expense Ratio.

A permit will not issue where the Commissioner finds:

A. In the case of an application by a domestic insurer, as “insurer” is defined in Section 826 of the Insurance Code, for an organizational permit, that all expenses of every kind (including but not limited to expenses of incorporation, promotion, stock selling, legal and filing fees, commissions, costs of printing, engraving and postage) from incorporation to and including the obtaining of a certificate of authority chargeable currently or in the future to applicant for matters occurring prior to the issuance of a certificate of authority will exceed 10% of the total amount actually to be paid for applicant's securities. Assumption of any of such expenses by a person other than the applicant is not deemed to avoid the ban of the statute. (Secs. 839.5, 715 and 843). Obligations attempted to be incurred by the promoters for applicant, or incurred by the Directors on applicant's behalf for durable goods, equipment or facilities having a permanent usable value to an operating insurer, prior to issuance of a certificate of authority and without the Commissioner's prior authorization and disclosure in the prospectus, are regarded with disfavor.

B. In the case of a domestic insurer's application for other than an organizational permit, that all expenses of the stock sale (including but not limited to promotion, stock sales commission, printing, engraving, postage, legal, accounting, auditing and governmental filing fees) will exceed 10% of the amount actually to be paid for applicant's securities. Assumption of any of such expenses by a person other than the applicant is not deemed to avoid the ban of the statute. (Secs. 839.5, 843)

C. In the case of a foreign applicant, that the expenses described in A. or B. above, as appropriate, are such as to make applicant's plan of business unfair, unjust, or inequitable, or are such in the Commissioner's opinion that the sale of applicant's securities under the circumstances will work a fraud upon the purchasers thereof or upon other stockholders of applicant. Applications revealing such an expense ratio in excess of 10% are regarded with disfavor and will normally be disapproved on the grounds that to do otherwise would be to allow such foreign applicants to do business in California under terms and conditions more favorable than are domestic applicants. Assumption of any of such expenses by a person other than the applicant is not deemed to avoid application of any lawful rule in this respect. (Section 843 and California Constitution, Article XII, Section 15).

D. Each application for a securities permit and each authorized issue shall be judged independently insofar as expense ratio is concerned. There shall be no carryover from one issue to another of an unused allowance or of an overage; and there shall be no averaging of expenses between or among transactions authorized by successive permits.

§2609.08. Holding Company Expenses Included.

In calculating the expenses described in the preceding section, holding company expenses shall be included. Where organization of a holding company and its subsidiary or subsidiaries are not substantially concurrent, such expenses attributable to the holding company as may be reasonably and fairly allocated to the insurer applicant shall be included. In determining what is “substantially concurrent” the practicabilities of the situation and the objective of the holding company for the reasonably foreseeable future will be considered. (Section 715)

Article 10. Underwritten Title Companies and Other Noninsuring “Insurers”

§2610.01. Purpose and Scope.

As may be seen from Insurance Code Section 826, Chapter 395 of the Statutes of 1965, effective September 17, 1965, extended the definition of “insurer” as used in the Insurance Securities Law to include underwritten title companies, attorneys-in-fact of reciprocal or interinsurance exchanges, and exclusive manager of domestic insurers. Compare paragraph C of Section 2601.02 of these regulations which accurately states the Insurance Code definition.

Because a distinction has to be made in nomenclature throughout these regulations to differentiate between the old type of entities organized to assume the risk of loss under contracts of insurance and the three newly included types of noninsuring “insurers,” the term “insurance company” is used herein to designate the former type; refer to paragraph F of Section 2601.01 of these regulations. Where the Insurance Code term “insurer” appears, it is employed in the full statutory sense and includes both types; refer to paragraph C, ibid.

The remainder of this article is devoted to pointing out those portions of these regulations which do and which do not apply to underwritten title companies, attorneys-in-fact of reciprocal insurers and exclusive managers of domestic insurers. This article should produce the same result as mere reliance upon the distinguishing terminology in the text of these regulations, and vice versa.

§2610.02. Articles and Sections of Regulations Applicable.

Insofar as the nature of the subject matter permits and unless otherwise specifically provided by law, the following portions of these regulations apply to underwritten title companies and other noninsuring “insurers”:

Article 1

Article 2

Article 3, except paragraph A. of Section 2603.14. In connection with this section see also Section 2610.03, infra.

Article 4

Article 5, the first sentence of Section 2605.01; paragraph B.of Section 2605.02; and, if applicable, paragraph C., ibid; Sections 2605.03 and 2605.04. In connection with Section 2605.01, see also Section 2610.03, infra.

Article 6

Article 7

Article 8, Sections 2608.01 through 2608.05, and 2608.08.

Article 9, except Section 2609.02.

Article 11 and

Article 13.

§2610.03. Proving Required Minimum Capital and Surplus or Net Worth.

A. The application of an underwritten title company applying for a securities permit, unless applicant possesses the largest amount of capital and surplus or net worth specified by Insurance Code Section 12396(a)(1) appropriate under the circumstances, shall allege and prove to the Commissioner's reasonable satisfaction:

1. The names of all of the counties wherein applicant is transacting any business of examining public records affecting titles to real property, preparing reports of title searches, certificates or abstracts of title, upon the basis of which a title insurer regularly issues policies of title insurance.

2. With respect to each county named pursuant to subparagraph (1) above, the serial number stamped by the County Recorder on the last document recorded by him in the official records of his office on the last recording day of the calendar year preceding the filing with the Commissioner of such application (i.e., the total number of documents so recorded in said year). The Commissioner will accept a letter from a County Recorder setting forth such information as satisfactory proof. This provision does not foreclose or prevent other methods of proving such number to the Commissioner's satisfaction.

3. The total of all of the numbers alleged pursuant to subparagraph (2) above.

B. Paragraph A of this Section shall not be deemed to restrict the meaning of the phrase “ . . for each county in which it operates” as such phrase is used in Insurance Code Section 12396(b)(3) governing deposit of securities with the Commissioner by an underwritten title company as a prerequisite to engaging in the escrow business.

Article 11. Reports of Transactions

§2611.01. Report of Transactions Required.

Reports of Transactions shall be made in duplicate and shall be sworn (or, where so authorized by statute in the place where the verification is made, certified under penalty of perjury) to be true and correct. They shall allege sufficient facts to show the following:

A. The number and amount of each kind of securities sold.

B. The gross proceeds and the net proceeds of such sale.

C. The disposition of such proceeds.

D. Whether conditions of the permit governing the authorized transactions were complied with.

E. In the case of preorganization, soliciting or negotiating permit, the results of the authorized action.

F. Any other specific information required by the permit. (Secs. 844, 843)

§2611.02. Report of Transaction to Be Captioned, Entitled and Labeled.

Every Report of Transaction shall be captioned as specified in Section 2603.07 for applications. It shall bear the same entitlement as a properly entitled application in the matter reported on (refer to Sec. 2603.08, ante). It shall be plainly labeled “REPORT OF TRANSACTIONS” if the instant report is the only report to be filed; otherwise, it shall be labeled “FIRST REPORT OF TRANSACTIONS,” “SECOND REPORT. . . . ,” etc., “PRELIMINARY REPORT. . . .,” etc., “INTERIM REPORT. . . .,” etc., or “FINAL REPORT. . . . ,” etc., as may be appropriate under the circumstances.

§2611.03. Report of Transactions, to Be Timely Filed.

Applicants should take care to make and timely file the verified report of transactions in duplicate lawfully required by the permit, since failure to do so is a violation which could give rise to litigation and may have other consequences. (Secs. 844, 833(i), 843) The Commissioner may withhold favorable action on a subsequent application until any material delinquency with respect to a prior report has been remedied.

Article 12. Contribution Certificates

§2612.01. In General.

Applications for permits to issue contribution certificates are customarily granted authorizing sale of such certificates to financially interested parties under conditions requiring emergency financing. Contribution certificates only evidence a contingent promise to repay; they are not regarded as a commercially salable security.

Such form of evidence of contribution (not an “evidence of debt” in the sense commonly understood) will not ordinarily be authorized in denominations of less than $5,000 and their sale to the general public will not be permitted. (Secs. 839(a) and (c), 843)

§2612.02. Form of.

The body of the form of contribution certificate, when authorized, shall be substantially as shown herein. The following form is for an interinsurance exchange; other entities having to resort to this device shall adapt the substance thereof.

ABC INSURANCE EXCHANGE

1 Market Street

__________, California

CERTIFICATE OF CONTRIBUTION

Certificate No. ________

THIS IS TO CERTIFY THAT XYZ UNDERWRITERS (hereinafter called “Contributor”), Attorney-in-Fact for ABC INSURANCE EXCHANGE, has advanced to ABC INSURANCE EXCHANGE, a reciprocal insurer (hereinafter called the “Exchange”), the sum of _____________Thousand Dollars ($______) in cash, lawful money of the United States (hereinafter called the “Principal Sum”).

This Certificate of Contribution is used pursuant to the authority granted by Permit No.__________ of the Insurance Commissioner of the State of California and is hereby designated “Certificate Number __________”*

The Principal Sum of this Certificate, to wit, _______________Thousand Dollars ($__________) shall, upon presentation of this Certificate for endorsement of any partial payment, or upon complete surrender for cancellation in return for final payment in full, be payable by the Exchange at its Home Office at __________, California, only out of the excess of the admitted assets of the Exchange over the sum of:

1. All liabilities (including, but not limited to claims, losses, reserves, reinsurance, dividends, production and administrative expenses, taxes, loans, and advances), but excluding any amounts for or on account of any outstanding Certificates of Contribution, including this Certificate; and

2. An amount (of surplus) equal to the largest of (a) or (b) or (c) hereinafter:

a) One and one-half times the amount required by the laws of California at the time of such repayment for the issuance of a Certificate of Authority to transact the classes of insurance which it is then transacting anywhere, or which it is authorized to transact in California, or the amount required by the laws of any other jurisdiction for the retention of its Certificate of Authority in that jurisdiction, whichever is the largest amount; or

b) In the event the exchange at the time of repayment of this or any other Contribution Certificate has any non-assessable policies outstanding, an amount equal to one and one-half times the minimum paid-in capital required of incorporated insurers issuing policies on a reserve basis and transacting the same classes of insurance; or

c) $__________

*NOTE: In any case here contribution certificates are to be issued to more than one lender, a paragraph or paragraphs will be inserted containing the following provisions and information:

There are __________certificates in an aggregate amount of $__________ already issued and outstanding that are senior to all certificates bearing the same issue date as this certificate bears. __________certificates in an aggregate amount of $__________ were issued on the same date as this certificate.

III

The Principal Sum of this Certificate shall not be payable in whole or in part, except upon approval in writing by the Insurance Commissioner given after the decision of a majority of the Governing Board of the Exchange made and recorded at a regular or special meeting; provided, however, that the Governing Board of Exchange shall be required to exercise such option and vote payment of such Principal Sum, either in whole or in part, whenever the condition of the Exchange is such that it no longer reasonably requires the sum proposed to be paid upon the Principal Sum of this Certificate.

Interest at the rate of _____% per annum, not compounded shall be due and payable semi-annually by the Exchange at its Home Office at __________, California upon the unpaid balance of the Principal Sum of this Certificate to the extent, and only to the extent, that funds of the Exchange exist on each such due date to discharge all liabilities within the meaning of Paragraph II (1) herein above plus the sum of $__________ (the minimum surplus required by law to be maintained over and above all liabilities for the classes of insurance it is transacting) or the amount of surplus required by the laws of any jurisdiction in which it is licensed to do business to retain unimpaired its Certificate of Authority there, whichever is the larger amount. If no such funds in whole or in part exist on any such due date, such interest for which no funds for payment exist shall not become due or payable but shall accrue and shall become due and payable when and to the extent such funds do come into existence thereafter. Any interest both due and payable by the terms of this paragraph shall create a cause of action in the Contributor and be a liability of the Exchange.

The obligation evidenced by this Certificate shall not be a liability or claim against the Exchange or its funds or assets at any time except to the extent that the Principal Sum hereof, in whole or in part, shall be due and payable in accordance with the provisions of Paragraphs II and III hereof and except to the extent that interest on this Certificate, in whole or in part, shall be due and payable in accordance with the provisions of Paragraph IV hereof.

Should the Exchange at any time discontinue the insurance business, then, after the payment or provision for payment of all the obligations described in subdivision (1) of Paragraph II hereof, following the determination of such facts by the Insurance Commissioner of the State of California, any remaining funds or assets of the Exchange shall first be applied to the payment of any interest accrued hereon, then to the remaining unpaid balance of the Principal Sum of this Certificate.

**VII

Nothing in this shall be construed to prevent the Governing Board of the Exchange from declaring and paying dividends or savings to the policyholders in the manner and to the extent permitted by law.

VIII

It is understood and agreed that the Contributor has made the foregoing contribution upon the terms and conditions herein set forth, after having been furnished with a copy of the permit of the Insurance Commissioner of the State of California authorizing the issuance of this Certificate and having read the same, and that this Certificate evidences the complete understanding and agreement between the Contributor and the Exchange.

IN WITNESS WHEREOF, ABC INSURANCE EXCHANGE has executed this Certificate

at __________, California, this __________ day of __________, 19_____.

ABC INSURANCE EXCHANGE

By______________________________

Chairman-Board of Governors

______________________________

Secretary

APPROVED AND ACCEPTED:

XYZ UNDERWRITERS, Contributor

By ______________________________

President

By ______________________________

Secretary

**See above Note and the following paragraph:

The order of repayment of this and other contribution certificates bearing the same date hereof shall be simultaneous in time and equal in amount. This certificate and others, if any, issued on the same date as this certificate shall be senior to other contribution certificates that may be issued hereafter, and junior to already issued and outstanding certificates.

Embedded Graphic 10.0249

On this __________ day of __________, 19_____, personally appeared_____ _____ and __________ known to me to be the person whose names are subscribed above as Chairman and Secretary, respectively, of ABC Insurance Exchange, and they and each of them duly acknowledged to me that they and each of them executed this instrument pursuant to authority granted by the Board of Governors of ABC INSURANCE EXCHANGE.

IN WITNESS WHEREOF, I have hereunto set my hand and affixed my official seal this day and year.

Date __________

______________________________

Notary Public in and for said

County and State

“RESOLVED:

That __________ and __________ are hereby authorized to apply to the Insurance Commission of the State of California for authority to issue (additional) Contribution Certificates of ABC Insurance Exchange to XYZ Underwriters in an amount not to exceed $ __________.”

Embedded Graphic 10.0250

__________, being first duly sworn, deposes and says:

That he is the Assistant Secretary of the Board of Governors of ABC Insurance Exchange; and that the resolution stated above was passed and adopted by the Executive Committee of the Board of Governors of ABC Insurance Exchange at a special meeting on _______________, __________ 19_____.

Subscribed and sworn to before me this __________ day of _____19_____.

______________________________

NOTARY PUBLIC in and for the County of __________

State of California

My Commission expires __________

§2612.03. Application to Be Made by Exchange.

In the case of borrowing by a reciprocal or inter-insurance exchange, an application for authorization to issued and sell contribution certificates shall be made by the exchange itself, rather than by the attorney in fact. Application for the Commissioner's approval to pay outstanding contribution certificates shall likewise be made by the exchange.

§2612.04. Interest Rate On.

The rate of interest to be paid for such borrowing is a matter of private contract, but agreement to pay an excessive rate may invoke the ban of Section 839. Absent unusual circumstances, a rate of not more than 1 1/2 % above the prevailing prime bank rate is not regarded as excessive. (Secs. 839, 843)

§2612.05. Reporting in Annual Statements.

A permit authorizing issuance of contribution certificates will provide substantially as follows:

In any financial statement required by law to be filed by applicant with any public officer, or which may be published or distributed by applicant, the principal sum of and accrued interest on these and any other outstanding contribution certificates, which has not become a liability in accordance with the terms thereof and is not reported in such financial statement as a liability, shall be reported according to the appropriate “Instructions for Completing Fire and Casualty Annual Statement” blank promulgated by the Insurance Commissioner. Such amount shall be reported on the appropriate line on page 3 of the annual statement either as “contribution certificates,” “outstanding contribution certificates,” or “contributed surplus.” Other descriptions, such as “debentures,” “surplus notes,” “guaranty fund,” or “guaranteed certificates,” are deemed misleading and are not permitted.

Article 13. Forms and Addenda

§2613.01. Application for Permit Authorizing Rights Offering.

For the convenience of attorneys at law unfamiliar with the customary style and manner of drafting California applications, a sample of an average, successful application by a foreign insurer for a permit to make a rights offering is furnished herewith:

BEFORE THE INSURANCE DEPARTMENT

OF THE

STATE OF CALIFORNIA

In the Matter of the Application of

XYZ INSURANCE COMPANY,

New York, New York

For a Permit Authorizing the Sale

and Issuance of Its Securities

FILE NO. __________

FILED: __________

APPLICATION

FOR PERMIT

TO THE INSURANCE COMMISSIONER OF THE STATE OF CALIFORNIA: The application of XYZ Insurance Company respectfully shows:

Applicant was duly incorporated under the laws of the State of New York on July 1, 1910, and ever since has been and now is in good standing in said State.

Applicant was duly authorized to transact the business of insurance in its home state on August 2, 1910, and in the State of California on September 6, 1928; and ever since said dates has continued to transact insurance business in said states, respectively. Applicant is now duly admitted in 49 states.

III

Applicant's domiciliary and executive offices are located at 99999 Lexington Avenue, New York City, 10017.

The names and addresses of Applicant's officers and directors are listed on pages 14-15 of the Prospectus hereinafter referred to.

An itemized account of Applicant's financial condition and a detailed statement of its plan of doing business are found in its current (1965) annual statement and its latest report of examination (as of December 3, 1964) on file with the Insurance Commissioner of the State of California, and they are hereby incorporated herein.

The securities to be issued are:

Transferable subscription warrant with fractional share buy and sell order form, marked “Exhibit A.”

Specimen certificate for shares (voided), marked “Exhibit B.”

Said exhibits are by this reference incorporated herein.

VII

The prospectus, President's letter to stockholders, and all other non-individual and non-unique communications concerning or descriptions of the securities which Applicant has prepared to distribution or publication are attached hereto, labeled as indicated, and are by this reference incorporated herein:

Preliminary prospectus dated March 1, 1966, “Exhibit C.”

President's letter to shareholders, dated March _____, 1966, “Exhibit D.”

VIII

No underwriters or other brokers will participate in this offering, and Applicant has not entered into and will not enter into any contract with underwriters or brokers in connections with this issue.

A certificate in good standing issued by the New York Superintendent of Insurance within 30 days prior to the filing of this application is attached hereto, marked “Exhibit E,” and is by this reference incorporated herein.

A current appointment by Applicant of the California Insurance Commissioner and his successor in office as agent for service of process as required by California Insurance Code Section 837(b) is attached hereto, marked “Exhibit F,” and is by this reference incorporated herein.

Applicant proposes, on or about March 25, 1966, and continuing for thirty days, to make a rights offering to its California stockholders of record on March 1, 1966. Subscription rights will be evidence by transferable subscription warrants like Exhibit A, each designating the total number of rights to which the shareholder is entitled on the basis of one right for each share of stock held as of the record date. Ten rights will be required to subscribe for each new share of Applicant's $12.50 per value capital stock. No underwriters will participate in this offering, and a privilege of over subscription will be available to offerees wishing to subscribe for shares not taken up through the exercise of primary subscription rights. For further details of the terms of the offer and the time within which it is expected to be made, reference is made to “offer to Stockholders” on pages 3 and 4 of the prospectus, Exhibit C.

XII

Registration Statement, Form S-1, and Amendments Nos. 1 and 2 are also attached hereto, marked “Exhibit G-1,” “Exhibit G-2,” and “Exhibit G-3,” respectively, and they are by this reference incorporated herein. Registration with the Securities and Exchange Commission is expected to become effective 10 A.M. on Friday, March 25, 1966. Duplicate copies of the registration and final prints of the subscription warrant form and of the President's letter to stockholders will be mailed to you for filing herein as substituted exhibits as soon as they are available after such effective date.

XIII

As of a recent date there were 907 stockholders of Applicant with California addresses of record. Said stockholders held an aggregate of 4,800 shares of applicant's capital stock. Allowing a margin of safety on account of migratory stockholders and because of trading in warrants due to the later closing hours of stock exchanges in California in reference to Eastern stock exchanges, Applicant believes that a permit for 5,000 shares will be adequate.

XIV

Applicant's capital stock is widely traded and transactions therein are reported daily in newspapers of nationwide circulation. Recent price ranges are shown on page 17 of Exhibit C. The closing price on the New York Stock Exchange the day before the date of this application was $87. The offering price to Applicant's stockholders will be $3 below the expected market price when registration with S.E.C. becomes effective, or approximately $84. Applicant will notify you by telephone, confirmed by air mail letter, of the effective date and price per share.

The filing fee paid upon the filing of this application was computed on the basis of 5,000 shares valued at $87, or a total value of $435,000.

--oOo--

WHEREFORE, Applicant respectfully requests the Insurance Commissioner of the State of California, as soon as reasonably possible after receipt of notice of the offering price and filing herein of duplicate copies of the aforementioned substituted exhibits, to issue his permit authorizing Applicant to offer, sell and issue not to exceed 5,000 shares of its $12.50 par value capital stock for the uses and purposes, and in the time and manner described in Exhibit C.

Dated at New York, N.Y., this 15th day of March, 1966.

XYZ INSURANCE COMPANY

By John J. Smith

President

(Verification as in

Sec. 2603.10, supra)

§2613.02. Application for Permit to Exchange Shares.

For the guidance of out-of-state attorneys or other unfamiliar with the style of applications for California insurance securities permits, the following composite example of an application by a non-admitted foreign insurer for a permit to offer and exchange securities is furnished:

BEFORE THE DEPARTMENT OF INSURANCE

OF THE

STATE OF CALIFORNIA

Embedded Graphic 10.0251

To the Insurance Commissioner of The State of California:

ACME INSURANCE COMPANY, an Alaskan insurer not admitted to the State of California, with its home office in The Acme Building at 100 “A” Street in the City of Nome, State of Alaska, hereby applies for a permit authorizing it to offer to the California resident shareholders of Ace Insurance Company, Fairbanks, Alaska, to exchange, not to exceed 5,000 shares of Applicant's $10.00 par value capital stock for the shares of Ace Insurance Company's $5.00 par value capital stock owned by said California shareholders, at the rate and on the basis of 1 share of Applicant's stock for each 2 shares of Ace Insurance Company stock. The present market price of Ace Insurance Company shares is $11.22 per share as shown by page 23 of Exhibit I; and the total consideration expected to be paid or exchanged for Applicant's shares pursuant to the permit applied for is $112,200. The filing fee paid herewith is calculated on the basis of said $112,200.

In support of this application, Applicant attaches the following exhibits, which by this reference are incorporated herein, and alleges:

A. The names and addresses of applicant's officers and directors are set forth in Exhibit A.

B. An itemized account of Applicant's financial condition showing the amount and character of its assets and liabilities is supplied in Applicant's verified Convention form annual statement as of December 31, 1965. A signed, verified copy thereof certified by the Alaska Insurance Commissioner to be a true copy of the same on file in his office is attached hereto marked Exhibit B: Applicant's financial condition has materially changed since the date of said statement on account of Applicant's merger effective January 30, 1966, with A.A.A. Insurance Company, Sitka, Alaska, with Applicant as survivor. These additional exhibits show the terms and conditions, financial details and effect of said merger:-Exhibit C, a copy of the Agreement of Merger as approved and filed with the Alaska Insurance Commissioner and bearing his original, true copy certificate to that effect.

Exhibit D, an annual statement of A.A.A. Insurance Company as of said January 30, 1966, before merger.

Exhibit E, an annual statement of Applicant as of said January 30, 1966, before merger; and

Exhibit F, an annual statement of Applicant as of said January 30, 1966, after merger.

C. A detailed statement of the plan upon which Applicant transacts business is provided in last said annual statement and in the Alaska Insurance Department Report of Examination as of December 31, 1964, dated May 1, 1965, a copy of which, certified by the original certificate of the Alaska Insurance Commissioner to be a true copy of said report on file in his office, is marked Exhibit G.

D. A specimen copy of the certificate of shares of Applicant's $10.00 par value capital stock, which is the only security Applicant proposes to issue in this transaction, is marked Exhibit H.

E. There is no contract with underwriters or brokers. There will be no sale of stock for cash, merely an issue and exchange of shares of Applicant for share of Ace Insurance Company. No commissions or fees will be paid with respect to the distribution of shares asked to be authorized by the permit applied for.

F. The only writings describing the securities to be offered or other written solicitations for exchange of Applicant's shares are:

1. Exhibit I, Registration Statement, Form S-1 (including preliminary prospectus) under the Securities Act of 1933; and Exhibit J, Amendment No. 1 to said Registration Statement.

2. Exhibit K, the form of Acceptance of Offer, in duplicate.

3. Exhibit L, a letter of solicitation and transmittal of the Plan of Exchange and Acceptance of offer form by John Smith, President of Applicant herein, dated April 2, 1966, which is proposed to be mailed to all shareholders of both companies with the Prospectus on the day Applicant's registration with S.E.C. becomes effective, which is expected to be on or about April 1, 1966.

4. Exhibit M, a letter of solicitation addressed to all shareholders of Ace Insurance Company, Fairbanks, Alaska, by its President, Richard Roe, dated April 2, 1966, which is proposed to be mailed on its behalf to shareholders of record of that company.

G. A copy of Applicant's articles of incorporation as amended to date of this application, certified by the original certificate of the official custodian of the original thereof in the State of Alaska to be a true copy of the same on file in his office, is marked Exhibit N.

H. A copy of Applicant's by-laws certified over the signature of Applicant's Assistant Secretary, attested by its corporate seal, to be a true copy of the same as amended to date, is marked Exhibit O.

I. Certified copes (certified by the corporation Secretary, attested by its corporate seal) of the resolutions of applicant's Board of Directors and of its annual meeting of shareholders authorizing this offer and exchange and this application are marked Exhibits P and Q, respectively.

J. A certificate in good standing issued by the appropriate regulatory authority of Applicant's home state within 30 days prior to the filing of this application and showing that Applicant is duly authorized to transact business in that jurisdiction, is marked Exhibit R.

K. A properly executed, duly acknowledged power of attorney irrevocably appointing the California Insurance Commissioner and his successor in office as Applicant's true and lawful attorney upon whom all process in any action or proceeding against it can be served with the same effect as if the Applicant were a California Domestic insurer lawfully served with process in the State of California, is market Exhibit S. The certificate of conformity of the Clerk of an Alaska court of record as required by California Civil Code Section 1189 is attached to the Notary's certificate of acknowledgement at the foot of said power of attorney.

Applicant transacts multiple lines of insurance, as may be seen from its annual statement. Operations are and have been profitable. The purpose of the offering herein sought to be authorized is to acquire the shares of Ace Insurance Company and eventually merge that corporation into Applicant. Such merger will result in acquisition of additional agents and business and tend to reduce unit cost of operation. After such acquisition and merger, Applicant intends to continue to operate as at present.

III

With respect to the fairness, justness and equitableness of the ratio of exchange, reference is made to the following pages of the Plan of Exchange for comparative data about the two insurers under these topics:

History and Business p.13

Growth and Assets and Premiums Written p.14

Loss and Expense Ratios p.14

Management and Investment p.15

Balance Sheets pp. 16-17

Profit and Loss Statements pp. 18-19

Surplus Statements and Book Value pp. 20-22

See also page 23 for list of securities dealers making an over-the-counter market in the stock of either or both companies, and the bid and asked prices during the last six months.

Applicant further alleges that the price of its shares of capital stock in terms of the exchange offer is fair, just and equitable, and that the terms and conditions of the exchange offer are fair, just and equitable. According to the terms of the offer, no fractional shares will be issued. Provision is made for buying or selling fractions, as shown in the Plan of Exchange and The Acceptance of Offer form.

Applicant believes that the averments made herein concerning said ACE Insurance Company are true and correct, said averments being made in reliance on information supplied by officers of said company and its officially filed reports and financial statements.

As of the end of the calendar month last preceding the filing of this application, there were, according to the books and records of the Ace Insurance Company, 110 of its stockholders with California addresses owning 9,100 shares of its capital stock. Allowing for a slight increase during the pendency of this offer as a margin of safety, Applicant needs a permit to offer not to exceed 5,000 of its shares.

WHEREFORE, Applicant respectfully requests that it be granted a permit until August 1, 1966, to offer to the California resident shareholders of Ace Insurance Company to exchange, and to exchange, in whole share lots, not to exceed 5,000 shares of Applicants' $10.00 par value capital stock for the share of the $5.00 par value capital stock of said Ace Insurance Company owned by said California stockholders on the basis and at the rate of 1 share of Applicant's stock for each 2 shares of Ace Insurance Company capital stock surrendered and tendered for exchange, fractional shares to be cared for as provided in the terms of the offer set forth in the Plan of Exchange.

Dated March 15, 1966, at Nome, Alaska.

ACME INSURANCE COMPANY

(SEAL) By John Smith

President

Attest:

______________________________

Secretary

(Verification as in Section 2603.10, supra)

§2613.03. Permit Authorizing Exchange of Shares in Connection with a Merger.

For the information of those doing business with this department who are unfamiliar with the terms of permits issued by the Insurance Commissioner, a simple example of a recent permit authorizing sale and exchange of shares in connection with a merger is provided, as follows:--

STATE OF CALIFORNIA

Department of Insurance

Embedded Graphic 10.0252

THE ISSUANCE OF THIS PERMIT IS PERMISSIVE ONLY AND DOES NOT CONSTITUTE A RECOMMENDATION

OR ENDORSEMENT OF THE SECURITIES PERMITTED TO BE ISSUED HEREUNDER

Pursuant to its verified application filed herein October 22, 1964, and thereafter supplemented by additional and current exhibits, good cause therefore, appearing, I hereby authorize and permit

AETNA LIFE INSURANCE COMPANY

a Connecticut insurer with its home office at 151 Farmington Avenue, Hartford, Connecticut, duly admitted to transact life and disability insurance in the State of California, to sell and issue its securities in California for the uses and purposes stated in said application and the exhibits thereto, as follows:

AUTHORIZATION: To issue and exchange not to exceed 1,200,000 shares of applicant's new $2.50 par value common stock with California residents who own shares of The Aetna Casualty and Surety Company, Hartford, Connecticut, on the scheduled date of delivery. Such exchange shall be made in connection with the lawful consummation of a proposed merger of said The Aetna Casualty and Surety Company with and into Farmington Valley Insurance Company, Hartford, Connecticut (to be known as The Aetna Casualty and Surety Company from and after the effective date of such merger), substantially as disclosed by the exhibits on file herein; such exchange shall be made on the basis and at the rate of 1.9 shares of applicant's $2.50 par value capital stock for each $3.50 par value share of The Aetna Casualty and Surety Company stock surrendered and tendered in exchange, all in accordance with applicant's instructions to said stockholders substantially as shown by the exhibits on file herein.

THIS PERMIT IS ISSUED UPON THE FOLLOWING CONDITIONS AND IS EFFECTIVE ONLY AS TO TRANSACTIONS SUBJECT TO CALIFORNIA LAW PERFORMED IN CONFORMITY THEREWITH:

CONDITION ONE: No certificate for shares shall be issued except substantially in the text of the appropriate form or forms comprising Exhibit B (as amended December 2, 1964) to the application herein or substantially in the text of a certificate hereafter approved by the Insurance Commissioner.

CONDITION TWO: No commission, selling expense,or other remuneration is to be paid to any person in respect to any transaction authorized by this permit, except that the regular salaried employees of applicant may perform any and all acts necessary, convenient, or advisable in connection with the transactions authorized by this permit, and fees may be paid for the necessary services and expenses of legal counsel, transfer agents, stock agents, registrars, proxy solicitors or for services of a similar nature.

CONDITION THREE: No advertisement, proxy,or solicitation material of any nature concerning the securities hereby authorized shall be issued, circulated or published unless the same shall first have been filed in duplicate with the Insurance Commissioner and its use approved by him in writing. Papers heretofore filed herein have been approved for such purpose.

CONDITION FOUR: Applicant shall within 30 days from and after January 28, 1965 make and file with the Insurance Commissioner its verified report alleging the transactions had and done pursuant to authority hereof, including the total number of shares issued, the consideration received therefor, and the disposition thereof; also, whether the preceding conditions of this permit were complied with. In addition thereto, applicant shall file a further verified report of transactions upon completion of the transactions herein authorized; also at such other time as the Commission may request in writing.

CONDITION FIVE: The Insurance Commissioner may from time to time for cause amend, continue, or alter this permit, or temporarily suspend the rights of applicant hereunder, or may revoke this permit.

CONDITION SIX: Unless theretofore suspended or revoked, all authority to issue securities under this permit shall automatically expire upon completion of the transactions hereby authorized.

IN WITNESS WHEREOF, I have hereunto set my hand and affixed by official seal this 14th day of December, 1964.

(SEAL) ______________________________

Insurance Commissioner

§2613.04. Application by Domestic Corporation for Organizational Permit.

The following form represents a composite of several acceptable applications by domestic California corporations for organizational permits. Use herein for illustrative purposes of certain components of a plan of operation should not be regarded as an expression by this department of a preference in operational details.

BEFORE THE DEPARTMENT OF INSURANCE

OF THE

STATE OF CALIFORNIA

Embedded Graphic 10.0253

TO THE INSURANCE COMMISSIONER OF

THE STATE OF CALIFORNIA:

ABC LIFE INSURANCE COMPANY, a newly organized California corporation with its home office temporarily at No. 1 Market Street, San Francisco, California, was incorporated January 2, 1964, for the purpose of transacting a life insurance business (including the disability supplements described in Insurance Code Sections 10271 and 106), and to that end applies for a permit authorizing it to see and issue 80,000 shares of its $10.00 per value capital stock at a price of $50.00 per share, cash, lawful money of the United States so as to capitalize itself in order that it may be eligible to apply for an receive a certificate of authority authorizing it to transact the classes of life and disability insurance in the State of California.

In support of this application, Applicant attaches the following exhibits and by these references incorporates them herein and makes them a part of this application, and alleges:

Exhibit A is a copy of Applicant's articles of incorporation filed with the Honorable Secretary of State at Sacramento on January 2, 1964, originally certified by his Deputy to be a true copy of the same on file in his office.

Exhibit B is a copy of Applicant's by-laws certified by the original signature of Applicant's secretary and attested by its corporate seal to be a true copy of the by-laws currently in force.

III

The names and addresses of applicant's officers and directors are as follows:

Biographies of Applicant's officers, directors and key managerial personnel are attached hereto, marked Exhibit C-1 through C-11 and by this reference are incorporated herein and made a part hereof. Each of said biographies is on the Departmental form required by Paragraph B of Section 2605.01 and found in Section 2613.07 I.S.P.R. and is signed by the individual concerned and certified by him under penalty of perjury to be true and correct.

If its stock is sold successfully and Applicant is fully capitalized according to its plan as hereinafter set forth, and if Applicant is granted a Certificate of Authority by the Insurance Commissioner in response to due application therefor, Applicant intends to transact the usual business of a life insurer in the manner, with the means, and to the extent hereinafter shown and demonstrated by the exhibits attached hereto. In further elaboration of its plan of operation, Applicant alleges as follows:

A. Applicant can obtain adequate office quarters on the 15th floor of No. 1 Market Street, in the City of San Francisco, Applicant will retain (if it is successful in its stock sales and in obtaining a certificate of authority) the firm of White and Black as consulting actuaries who will supervise the setting up of Applicant's books and records and the operation of Applicant's internal office procedure, accounting and financial reporting until Applicant develops sufficient skilled personnel of its own to take over these functions.

B. Applicant will operated on the American Agency System through individual life and disability agents compensated by commissions in the usual manner, such agents to be supervised by general agents and home office personnel.

C. Applicant intends to transact only through duly licensed life and disability agents and will, if it is granted a certificate of authority by the Insurance Commissioner, initially appoint only experienced agents. It expects to recruit such agents from among the personal friends and acquaintances of its officers, directors, and key managerial personnel who have extensive acquaintance in the life insurance industry.

D. A sample General Agent's Contract form, and sample Agent's Contract form, each complete with commission schedules, are attached hereto, marked Exhibits D-1 and D-2, respectively.

E. Applicant expects to develop its business from the following sources: from such leads as its agents and others connected with the company can furnish; from vital statistics publicized in the press; from automobile registration lists, and other merchandising information that can be obtained readily; and by cold canvassing.

F. Applicant expects its agents to sell policies only by personal interview and advertising through the press; no solicitation by mail is planned. Agents will not be provided with “canned” sales talks; rather, agents will be instructed to sell directly from the policy or policies concerned. Applicant will use no “gimmicks” or trick devices in the sale of its policies.

G. No institutional advertising is presently planned; and any and all advertising proposed to be used by general agents or individual agents must first be submitted to and approved by the Company, as may be seen by reference to the contracts alluded to in paragraph D above. It is expected that Applicant ultimately will develop and provide its agents with certain brochures, advertising, and sales kits, all of which will be patterned after those employed by the Red, White and Blue Life Insurance Company of Sacramento, California, which Applicant is informed and believes, and therefore alleges, is a nationally known, reputable life insurer whose advertising conforms with all applicable California laws.

H. Applicant has reserved the right to supervise and control the sales techniques employed by its agents and general agents; reference may be made to the contract forms attached hereto as Exhibits D-1 and D-2.

I. Death claims will be paid either by mail or by local agents of Applicant upon receipt at Applicant's home office of acceptable proof of death of a policyholder; no compensation for such service will be paid to Applicant's agents. Claims under the disability supplements to individual life policies will be handled through Applicant's home office.

J. The salaries Applicant initially proposes to pay its officers are set forth in a schedule, marked Exhibit E, attached hereto. Directors will receive no salaries or fees for attending meetings during the first two years; however, it is proposed that their traveling expenses, if any, will be paid.

K. Applicant's investments will be managed by its Executive Vice-President who, as may be seen by referring to his biography in Exhibit C to this application, has had extensive experience in the investment field and is himself a financier of substantial means. Said individual is fully familiar with Insurance Code Sections 1153, 1153.5, 1170-1202 and with California Administrative Code Sections 2279 to and including 2283, such investment duties will be part of said officer's regular duties and will entail no extra compensation.

L. No officer, director, trustee, investment committee member, medical director, or actuary of the company, will receive directly or indirectly a commission on any business written for this Applicant.

M. Applicant has a procedure for ascertaining whether there will be any conflict of interest between the business of the Company and the private interests of its officers and directors. This consists of a confidential questionnaire answered under oath in writing by each such officer and director. A copy of the form thereof marked Exhibit F is attached hereto. Said questionnaire inquiries into all relevant financial business, stock and property interests and corporate directorships which might be affected within the scope of Insurance Code Section 1101 by any and all business which the Company transacts or will transact.

Applicant's leading policy form is attached hereto as Exhibit G. It is a non-standard reducing term policy with a return-of-premium clause and a rider providing double indemnity for accidental death of either the policyholder or his beneficiary.

There is attached hereto, marked Exhibit H, an actuarial computation made and signed by a Fellow of the Society of Actuaries computing the reserves under Applicant's leading policy, Exhibit G, and demonstrating the actuarial soundness of the rates attached thereto.

Other policies which Applicant expects to sell initially are attached hereto, marked Exhibits I-1 and I-2. They are standard policies with no novel provisions.

VII

There is attached hereto, marked Exhibit J, a financial projection, based on reasonable and practicable assumptions as to volume of business expected to be transacted year by year, showing separately (1) all elements of income, (2) all elements of estimated expense, including reserves and premium taxes, and (3) unassigned surplus at the end of each year. Such projection assumes that 70 per cent of Applicant's business will be transacted on its leading policy, Exhibit G, and 15 per cent each on policy forms I-1 and I-2. There are separate exhibits attached hereto, marked Exhibits K and L, showing respectively the revenue expected to be developed under policies I--1 and I-2. Based on the actuarial results of the three policies from the business reasonably expected to be written, and adjusted for the volume to be written on each policy, the projection marked Exhibit J shows, at the end of the eighth year of production, that Applicant should make a small net gain from operations, excluding capital gains and losses. There will be no dividends to policyholders. Last said exhibit also shows that such net gain should increase during the ninth and tenth years of operation. It also shows that Applicant's net expenditure of surplus should not exceed $2,400,000 during its first eight years of operation and that it will, therefore, based on these estimates, be in a solvent condition at all times up to and including the end of its eighth year of operation, retaining its paid-in capital unimpaired at all times and at all times during the first five years of its operation having an unassigned surplus of not less than $500,000 and not less than $250,000 at all times after its first five years of operation. Such results are expected to be obtained without the sale of additional stock at any time during the period covered by said financial projection.

VIII

Attached hereto as Exhibit M are copies of the bids of three reinsurers, together with their sample contracts and an actuarial analysis of such bids. Applicant has tentatively elected to accept the reinsurance arrangements offered by XYZ Reinsurance Company. Its contract, if entered into, will embody the terms set forth in its sample contract included in Exhibit M.

Applicant expects to sell stock through the personal solicitation of Applicant's President, Vice-President, and Agency Director, all of whom have had prior experience in selling insurance securities, as may be seen by reference to their biographies included in Exhibit C to this application. No commission will be paid to those individuals for selling the shares of Applicant's capital stock. Applicant's organizers, officers and original directors have executed an agreement conforming to Section 2613.08 I.S.P.R. whereby they agree to purchase 14,000 shares of applicant's capital stock for$700,000 cash, lawful money of the United States, before any shares are offered to the public. Said agreement, marked Exhibit N, is attached hereto and is by this reference incorporated herein and made a part hereof. It is expected that the remainder of Applicant's total stock offering of $4,000,000 will be purchased by members of the general public.

Applicant proposes to sell 80,000 shares of its $10.00 par value capital stock at a price of $50.00 per share. All expenses of incorporation, organization, promotion and stock selling, including, but not limited to governmental filing fees, legal fees, and actuarial fees from incorporation up to and including the obtaining of a certificate of authority from the Insurance Commissioner, if such certificate of authority is issued in response to due application therefor, will not exceed 10 per cent of the total amount paid for Applicant's capital stock. A detailed analysis of the expected fees, costs and expenses is attached hereto as Exhibit O.

As of the date of this application, Applicant has no assets and no liabilities. A pro forma balance sheet showing Applicant's estimated paid-in capital, liabilities, unassigned surplus and surplus to policyholders as of the commencement of business is attached hereto as Exhibit P. Said balance sheet is compiled on the basis of the following assumptions: that the sale of Applicant's shares will be completed as planned; that Applicant will apply for and receive a certificate of authority; and that Applicant's Board of Directors will vote to pay, and the Treasurer will pay, all duly supported expense vouchers presented by the organizers and promoters.

XII

An originally signed letter of acceptance by ABC Bank and Trust Company of San Francisco agreeing to act as impound agent herein is attached hereto, marked Exhibit Q-1. A copy of said bank's agreement with applicant is marked Exhibit Q-2.

XIII

A draft of a prospectus which Applicant desires to use in the sale of its stock is attached hereto, marked Exhibit R. Applicant herewith submits the same for the Insurance Commissioner's authorization in the permit applied for. A copy of the proposed stock subscription form is attached hereto, marked Exhibit S. At the present time, Applicant does not plan to use any other written description of the stock proposed to be sold or any other written solicitation for the purchase thereof.

XIV

Attached hereto, marked Exhibits T-1 and T-2, are certified true copies of the minutes of the organizational meeting of Applicant's Board of Directors and of a special meeting of its Board authorizing the proposed stock sale and this application, respectively.

Applicant expects to complete the sale of stock contemplated by this application in a period of six months from the date the permit is issued. No stock will be sold except within the state of California, and there will be no registration with the Securities and Exchange Commission.

WHEREFORE, Applicant respectfully requests that the Insurance Commissioner grant its application for a permit, extending six months from the date of issue thereof, authorizing Applicant to sell 14,000 shares of its capital stock to the persons described in Paragraph IX hereof, at $50 per share cash, and to sell not to exceed 66,000 shares of its $10.00 par value capital stock at a price of $50.00 per share, cash, lawful money of the United States, to the general public in this state; and requests that the proposed prospectus and the subscription form attached to this application be authorized for use by Applicant.

Dated at ____________, California, this _______day of _________, 19______.

ABC LIFE INSURANCE COMPANY

(Seal) By

Secretary President

(Verification as in Section 2603.10, supra)

§2613.05. Sample Form of Conditional Subscription for Stock (Without Cash Payment).

For convenient reference, see the following composite example of a form of subscription for stock to be used pursuant to a subscription permit.

CONDITIONAL SUBSCRIPTION FOR STOCK

TO: ABC Life Insurance Company

_________ Wilshire Boulevard

Los Angeles, California 90005

I hereby conditionally offer to purchase ____ shares of the $10 par value capital stock of ABC Life Insurance Company (hereinafter referred to as “Company”) for the cash price of $50 per share upon the terms and under the conditions hereinafter set forth. Receipt of a copy of the California Insurance Commissioner's Subscription Permit No. _____, and a copy of this subscription agreement is herewith acknowledged.

It is agreed that the Company has the right to reject this offer, or, in its absolute discretion, to accept it for a number of shares less than the number above indicated.

It is understood that no certificate for shares or other security will be issued by ABC Life Insurance Company, nor will any consideration be collected on account of the shares herewith subscribed for, unless and until within one year from the date of the Subscription Permit Company shall have first applied for and duly obtained a definitive permit from the Insurance Commissioner. It is also understood that any such definitive permit will have additional requirements governing the issue of said shares including, among other things, the impounding of funds until a certificate of authority shall have been duly issued to Company by said Insurance Commissioner.

It is further understood that the shares herein applied for will be subject to all current regulations of the Insurance Commissioner. Those regulations include a requirement that the promoters, organizers, original directors and officers as a group shall purchase for cash at least 25% of the first $1,000,000 and 15% of all amounts of stock in excess of $1,000,000 (net of any commission) worth of stock offered; that such persons are required to execute an agreement providing that, with certain exceptions, for the periods hereinafter specified from and after issuance of a certificate of authority by the Insurance Commissioner (or completion of the original issue,whichever is later) they and each of them will not sell, transfer or encumber, except by operation of law, any shares acquired by them in satisfaction of said requirement or by exercise of promotional options without the Insurance Commissioner's written consent. Said agreement will permit each such person to dispose of the following amounts of the aggregate of said shares after elapsation of the following indicated periods: 5% after one year; an additional 5% after two years; an additional 10% after three years; an additional 20% after four years; and the remainder after five years.

Effectiveness of this subscription is expressly conditioned upon the promoters, organizers, original officers and directors purchasing shares in full compliance with the above mentioned requirement. However, upon the completion by them of such purchase, following the fulfillment of other conditions set forth herein, this subscription shall be irrevocable; whereupon, subscriber agrees to pay the purchase price in cash at Company's home office for shares subscribed to the extend accepted by company, within 30 days after Company's written request therefor subsequent to delivery to me of a copy of the (final)prospectus and the Insurance Commissioner's (definitive) permit and notification by Company that the promoters, organizers and original officers and directors have purchased and paid for their shares.

Provided always, that in the event the Insurance Commissioner's permit (receipt of a copy of which is acknowledged herein above) recites that no findings have as yet been made by him to the effect that sale and issuance of the securities thereby authorized to be subscribed for will be fair, just and equitable; and in the event the permit also specifies that each subscriber shall have an opportunity, within a reasonable time after receipt by him of a copy of the Insurance Commissioner's definitive permit and a copy of the prospectus approved by it, at the subscriber's election to disaffirm and cancel his subscription; --then, in such event, this subscription shall not become binding on me unless I shall receive (a) a copy of the Insurance Commissioner's permit containing such findings, (b) a copy of the prospectus approved by the last-mentioned permit, and (c) notification from Company that the organizers,promoters, original officers and directors have purchased and paid for their shares according to the conditions of said permit; and further, this subscription shall not become binding on me until, within twenty (20) days after receipt of items (a), (b) and (c) above, I shall have reaffirmed this subscription in writing and shall have actually communicated my reaffirmation to Company. In the event I do so, I hereby agree to pay in full as stated above, to the extent my subscription is accepted,within ten (10) days after Company's written request therefor.

Mail any further papers to me at

Dated __________, 19__

________________________________

Subscriber(s)

Accepted for ________ shares

ABC LIFE INSURANCE COMPANY

By ___________________________

(Title)

§2613.06. Sample Form of Unconditional Subscription to Purchase Stock (With Cash Payment).

For convenient reference the following composite example of a form of subscription agreement for use under an organizational permit is provided. It is required that the substance of the last three paragraphs thereof be contained in any form of subscription agreement used where purchase money is collected and impounded.

SUBSCRIPTION TO PURCHASE STOCK OF A.B.C.

INSURANCE COMPANY

I would like to purchase _____ shares of common capital stock of A.B.C. Insurance Company at $50.00 per share. The Stock Certificate should be registered as follows:

Address

I hereby acknowledge receipt of a copy of Company's Prospectus dated __________, a copy of the Insurance Commissioner's Permit No. ___________, and a copy of this subscription agreement.

Enclosed is my check (payable to A.B.C. Insurance Company) in the amount of $___________.

It is understood that the proceeds of my attached check or money order and all other stock purchase monies will be deposited in an impound with XYZ BANK, whose address is __________. In any event, the permit provides that stock purchase monies will not be impounded longer than one year without the consent of all subscribers.

Since there is a certain mutuality among subscribers, once a subscriber's deposit is made, it will not ordinarily be released from impound until the impound is terminated or the other subscribers consent to such release.

The impound will normally be terminated upon issuance of a certificate of authority to Company, whereupon all monies in impound will be paid over in full to Company and certificates for shares mailed to the purchasers. If the impound should be terminated for any other reason, stock purchase monies will be returned in full without interest to the subscribers, respectively, or in case of necessity to their successors in interest lawfully entitled thereto.

Signature

Address

Received check for $________

this _______ day of _________,199__.

A.B.C. INSURANCE COMPANY

(Title or other description)

§2613.07. Biographical Affidavit Form.

The following affidavit will be required of the organizers, promoters,original officers and directors of all applicants for organizational permits, and may be required in the case of unseasoned applicants.

-oOo-

Permit

or Admission

Name of Company applying for Permit or Certificate of Authority:

In connection with the application of the above named company to the California Insurance Commissioner for a permit or admission, I herewith make representations and supply information about myself as hereinafter set forth. I make these statements under oath. (Attach addenda on separate sheet if space hereon is insufficient to answer any question fully. If answer is “None” or “No exceptions,” so state.

1. Affiant's Full Name:

2. Aliases used at any time:

3. Born ________________ (Date) at _(Place)

4. Color of Hair ___________, Eyes____________, Height

5. Schooling (check those applicable) High School

College

Graduate or

Professional

Degrees (list)

6. Member of Professional Societies or Associations. List:

7. I control directly or indirectly, or own legally or beneficially 10% or more of the outstanding capital stock (in voting power) of, the following insurers:

8. Present Chief Occupation.

Position or Title:

Employer:Name

Address

How long in this position?

How long with this employer?

Where?

9 .Other jobs, positions, directorates, or officership concurrently held at present:

10.Others held in the past:

11.If the answers to the foregoing do not show your complete experience in or with the insurance industry, detail the remainder on the back of this page. List names and addresses of insurance employers and positions held and approximate dates.

12. For the last 10 years, I have lived at the following address or addresses:

13. I have never been adjudicated a bankrupt, except as follows:

14. I have never been convicted or had a sentence imposed suspended or had pronouncement of a sentence suspended or been pardoned for conviction of, or pleaded guilty of or nole contendere to an information or an indictment charging a felony for embezzlement, theft or larceny, mail fraud, or violating any corporate securities statute or any insurance law, except as follows:

15. I presently hold or have held in the past the following professional, occupational and vocational licenses issued by public or governmental licensing agencies or authorities (state date license issued, issuer of license, date terminated, reason for termination)

16. During the last 10 years I have neither been refused a professional, occupational or vocational license by any public or governmental licensing agency or regulatory authority, nor has such a license held by me ever been suspended or revoked, except as follows:

17.I have never been named defendant in a suit brought by any public or governmental licensing agency or regulatory authority for violation of or to prevent the violation of any securities or insurance law, except as follows:

18. I have never been made the subject of a cease and desist order by any federal or state securities regulatory agency, except as follows:

19. I have never been an officer, director, trustee, investment committee member, key employee or controlling stockholder of an insurer which, while I occupied any such position or capacity with respect to it, became insolvent or was placed in conservatorship, or was enjoined from or ordered to cease and desist from violating any securities or insurance law, except as follows:

20. The certificate of authority or license to do business of any insurance company of which I was an officer or director or key management person has never been suspended or revoked while I occupied such position, except as follows:

21. No insurer of which I was an officer, director or key management person at the time has ever been denied or refused a license or certificate of authority or withdrawn an application therefor, except as follows:

22. (Complete for Permits only) The shares in the original issue (the subject of this organizational permit), subscribed for by me as a member of the group consisting of promoters, organizers, initial officers and directors, will be purchased with funds that are now, or will at the time of purchase be, my property, and no other person will have any legal or equitable interest in said shares, after purchase except as follows:

(Signature of Affiant)

NOTE: If this is executed in a state other than California, it is to be sworn to before a Notary Public and his official certificate attached hereto. If executed in California, affiant shall certify to the truth of the statements contained hereon and attached hereto, by completing and subscribing to the following:

Embedded Graphic 10.0254

I hereby certify under penalty of perjury that the foregoing statements are true and correct.

(Signature of Affiant)

Insurance Code Section 717, 718, 843.

§2613.08. Agreement by Organizers, Promoters, Original Officers and Directors Restricting Transfer of Shares.

The following represents a composite, sample form of an agreement the nature of which has been approved by the Commissioner:AGREEMENT RESTRICTING TRANSFER OF SHARES

This Agreement made and entered into this ______ day of ________________, 199 __, by and between ABC LIFE INSURANCE COMPANY, a California corporation (hereinafter called “Company”) and ___________________ (hereinafter called “Shareholder”),

WITNESSETH:

WHEREAS, Company has obtained a permit from the Insurance Commissioner of the state of California (hereinafter called “Commissioner”), being No, ____ issued __________, authorizing the sale and issuance of company's shares; and

WHEREAS, Condition __________ of said permit required the promoters, organizers and all original officers and directors of Company before any public offering and sale is made to purchase a certain number of the shares sought to be authorized and requires certain restrictions to be placed upon transfer of their said shares for varying periods of time; and

WHEREAS, Shareholder has purchase, or has agreed to purchase, from Company certain of its shares which will be subject to said restrictions, and the number of shares to be purchased and restricted is enumerated on an addendum attached hereto:

NOW, THEREFORE, the parties hereto agree as follows:

1. That, except as stated in Paragraph 2 hereof, Shareholder will not sell, transfer, or encumber any of the restricted shares without prior written consent of the Commissioner.

2. The exceptions referred to in Paragraph 1 above are as follows:

a. The following percentages to the nearest whole share of the restricted shares shall be released automatically from the restrictions set forth in this Agreement without further approval or consent by the Insurance Commissioner, or any other party, at the following respective times: 5% at the end of the first year of the 5-year restriction period; an additional 5% at the end of the second year; an additional 10% at the end of the third year; an additional 20% at the end of the fourth year; and the remainder at the end of the fifth year.

b. Any or all of the restricted shares may be transferred by Shareholder at any time by gift to the following described person or persons: Shareholder's spouse, child, or grandchildren; Shareholder or spouse's parent, brother, sister, or child of brother or sister. (It is understood that the singular includes the plural, and vice versa,in this Agreement.)

c. Any or all of the restricted shares may be transferred at any time by operation of law, pursuant to last will and testament of Shareholder, or pursuant to the laws of descent and distribution.

d. Any or all of the restricted shares may be transferred at any time with the prior written consent of the Commissioner, and Company hereby consents to such transfers. It is understood that among the reasons which may, but not necessarily will, cause the Commissioner to give such consent are the following:

(1) Significant change in the financial position or affairs of Shareholder, not within the control of Shareholder, that would otherwise result in hardship;

(2) Proposed pledging of any or all of the restricted shares as collateral for a loan to be made to shareholder;

(3) A transfer of any or all of the restricted shares by Shareholder to another Shareholder, some or all of whose shares are subject to the restrictions of this Agreement, or similar restrictions;

(4) The transfer of any or all of the restricted shares by Shareholder to a transferee having a sufficient financial sophistication and/or knowledge of the insurance industry and such insurance securities to satisfy the Commissioner that such transfer would be in the proper interest of Company, its policyholders and other shareholders. Any such transfer which would destroy or impair desirable leadership of the Company, or be conducive to internal dissension will be disfavored.

3. Any of the restricted shares which are transferred pursuant to the provisions of Paragraph 2 above, except shares automatically released from these (or similar) restrictions upon elapsation of the periods stated in subparagraph (a) of said Paragraph 2 above, and restricted shares transferred pursuant to last will and testament of Shareholder,or the laws of descent and distribution, shall continue to be subject to the provisions of this Agreement after such transfer, as if such transfer had not occurred.

4. Each certificate representing restricted shares shall bear the following legend until the shares represented by such certificate are released from the aforementioned restrictions: Not transferable except per Condition _________ of Insurance Commissioner's Permit No. ____, prior to _____________________.”

IN WITNESS WHEREOF, the parties hereto have executed this Agreement on the date and year first above written.

ABC LIFE INSURANCE COMPANY

Officer

______________________________

Shareholder

Subchapter 4.3. Procedures for Noncompliance Hearings

Article 1. Governing Procedure for Noncompliance Hearings

§2614. Definitions and Applicability.

Note • History

In this subchapter unless the context or subject matter otherwise requires:

(a) “Department” means the California Department of Insurance.

(b) “Commissioner” means the Insurance Commissioner.

(c) “Enforcement action” means any action based upon an allegation by the Department that an insurer, organization, group or association, or any rate, rating plan, rating system, or underwriting rule does not comply with the requirements and standards of Chapter 9 of the California Insurance Code entitled Rates and Rating and Other Organizations.

(d) “Party” includes the Department, the respondent, intervenors, and any person, other than an officer or an employee of the Department in his or her official capacity, who has been allowed to appear or participate in the proceeding.

(e) “Respondent” means any person or entity against whom a Notice of Noncompliance is filed.

(f) “Intervenor” means any person or entity whose petition to intervene pursuant to California Insurance Code section 1861.10 has been granted.

(g) “Notice of noncompliance” means the administrative document issued by the Commissioner. A notice of noncompliance shall set forth in ordinary and concise language in what manner and to what extent noncompliance is alleged to exist.

(h) “Administrative Hearing Bureau” means that office, within the office of the Commissioner and, except where otherwise specified in this subchapter, designated for receipt of all pleadings filed pursuant to this subchapter.

(i) “Administrative law judge” means a judge in the Administrative Hearing Bureau within the office of the Commissioner.

(j) “Hearing Officer” means a person appointed by the Commissioner to conduct a noncompliance hearing.

NOTE

Authority cited: Section 11400.20, Government Code. Reference: Sections 1858, 1858.01, 1858.1 and 1858.2, Insurance Code.

HISTORY

1. New subchapter 4.3, article 1 (sections 2614-2614.27) and section filed 12-20-2006; operative 1-19-2007 (Register 2006, No. 51).

2. Amendment of section heading and first paragraph filed 12-30-2010; operative 12-30-2010 pursuant to Government Code section 11343.4 (Register 2010, No. 53).

§2614.1. Authority of Administrative Law Judge or Hearing Officer.

Note • History

(a) To the extent not otherwise specified by law or regulation, the administrative law judge or hearing officer shall: control the course of proceedings; grant or deny requests for continuances; administer oaths; issue subpoenas; rule on motions to compel discovery; receive evidence; upon notice, hold appropriate conferences before or during hearings; rule upon all objections or motions which do not involve final determination of proceedings; receive offers of proof; hear argument; recommend to the Commissioner approval or disapproval of proposed stipulations and settlements; and fix the time and place for the filing of briefs.

(b) The administrative law judge or hearing officer shall eliminate unnecessary delay in the progress and ultimate resolution of the proceeding, assume and maintain control over the pace of the proceeding, actively manage the proceeding from commencement to disposition, and compel all parties to prepare and resolve all issues without delay. The administrative law judge or hearing officer shall discourage continuances, only granting continuances for good cause shown. Good cause includes circumstances such as serious illness of a participant in the proceeding, death in the family of a participant in the proceeding, or jury duty obligations of a participant in the proceeding.

(c) The chief administrative law judge shall exercise all authority set forth in this section until a proceeding is assigned to an administrative law judge or hearing officer.

NOTE

Authority cited: Section 11400.20, Government Code. Reference: Sections 1858, 1858.01, 1858.1 and 1858.2, Insurance Code.

HISTORY

1. New section filed 12-20-2006; operative 1-19-2007 (Register 2006, No. 51).

§2614.2. Commencement of Proceedings.

Note • History

(a) An enforcement action is commenced when the Department serves a written notice of noncompliance pursuant to California Insurance Code section 1858.1, which shall state in what manner and to what extent noncompliance is alleged to exist; specifying a reasonable time, not less than 10 days thereafter, in which that noncompliance may be corrected; and specifying the amount of any penalty that may be due under Insurance Code section 1858.07.

(b) An administrative proceeding is commenced when the Department files a request for hearing pursuant to California Insurance Code section 1858.2 with the Administrative Hearing Bureau. The request for hearing shall include copies of any notice of noncompliance served on respondent by the Department and any written response thereto by respondent.

NOTE

Authority cited: Section 11400.20, Government Code. Reference: Sections 1858, 1858.01, 1858.1 and 1858.2, Insurance Code.

HISTORY

1. New section filed 12-20-2006; operative 1-19-2007 (Register 2006, No. 51).

§2614.3. Amended or Supplemental Notice of Noncompliance.

Note • History

At any time before the matter is submitted for decision the Department may file an amended or supplemental notice of noncompliance. If the amended or supplemental notice of noncompliance presents new charges, respondent shall be afforded a reasonable opportunity to prepare a defense thereto, but respondent shall not be entitled to file a further pleading unless the administrative law judge or hearing officer in its discretion so orders. Any new charges shall be deemed controverted, and any objections to the amended or supplemental pleading shall be in writing.

NOTE

Authority cited: Section 11400.20, Government Code. Reference: Sections 1858, 1858.01, 1858.1 and 1858.2, Insurance Code.

HISTORY

1. New section filed 12-20-2006; operative 1-19-2007 (Register 2006, No. 51).

§2614.4. Consolidation and Bifurcation.

Note • History

(a) When proceedings that involve a common question of law or fact are pending, the administrative law judge or hearing officer on the judge's or officer's own motion or on motion of a party may order a joint hearing of any or all the matters at issue in the proceedings. The administrative law judge or hearing officer may order all the proceedings consolidated and may make orders concerning the procedure that may tend to avoid unnecessary costs or delay.

(b) The administrative law judge or hearing officer, on the judge's or officer's own motion or on motion of a party, in furtherance of convenience or to avoid prejudice, or when separate hearings will be conducive to expedition and economy, may order a separate hearing of any issue.

NOTE

Authority cited: Section 11400.20, Government Code. Reference: Sections 1858, 1858.01, 1858.1 and 1858.2, Insurance Code.

HISTORY

1. New section filed 12-20-2006; operative 1-19-2007 (Register 2006, No. 51).

§2614.5. Continuances.

Note • History

(a) When an administrative law judge or hearing officer has been assigned to a proceeding, no continuance may be granted except by him or her, and only for good cause shown.

(b) When seeking a continuance, a party shall apply for the continuance within 10 working days following the time the party discovered or reasonably should have discovered the event or occurrence that establishes the good cause for the continuance. A continuance may be granted for good cause after the 10 working days have elapsed if the party seeking the continuance is not responsible for and has made a good faith effort to prevent the condition or event establishing the good cause.

NOTE

Authority cited: Section 11400.20, Government Code. Reference: Sections 1858, 1858.01, 1858.1 and 1858.2, Insurance Code.

HISTORY

1. New section filed 12-20-2006; operative 1-19-2007 (Register 2006, No. 51).

§2614.6. Burden and Order of Proof.

Note • History

(a) The Department or intervenor has the burden of proving, by a preponderance of the evidence, every fact necessary to show in what manner and to what extent noncompliance is alleged to exist.

(b) In addition to its burden of proof, the Department or intervenor shall have the burden of presenting its evidence and witnesses first.

NOTE

Authority cited: Section 11400.20, Government Code. Reference: Sections 1858, 1858.01, 1858.1 and 1858.2, Insurance Code.

HISTORY

1. New section filed 12-20-2006; operative 1-19-2007 (Register 2006, No. 51).

§2614.7. Discovery: Exclusive Provisions.

Note • History

The provisions of Section 2614.8 provide the exclusive right to and method of discovery as to any proceeding governed by this subchapter.

NOTE

Authority cited: Section 11400.20, Government Code. Reference: Sections 1858, 1858.01, 1858.1 and 1858.2, Insurance Code.

HISTORY

1. New section filed 12-20-2006; operative 1-19-2007 (Register 2006, No. 51).

2. Amendment filed 12-30-2010; operative 12-30-2010 pursuant to Government Code section 11343.4 (Register 2010, No. 53).

§2614.8. Requests for Discovery.

Note • History

(a) A party, upon written request made to another party, prior to the hearing and within 30 days after a request for hearing has been served, is entitled to obtain the names and addresses of witnesses to the extent known to the other party, including, but not limited to, those intended to be called to testify at the hearing; and inspect and make a copy of any of the following in the possession or custody or under the control of the other party:

(1) A statement pertaining to the subject matter of the proceeding made by any party to another party or person;

(2) statements of witnesses then proposed to be called by the party and of other persons having personal knowledge of the acts, omissions or events which are the basis for the proceeding, not included in (1) above;

(3) investigative reports made by or on behalf of the Department or other party pertaining to the subject matter of the proceeding, to the extent that these reports contain the names and addresses of witnesses or of persons having personal knowledge of the acts, omissions or events which are the basis for the proceeding; or reflect matters perceived by the investigator in the course of his or her investigation; or contain or include by attachment any statement or writing described in (1) or (2) or summary thereof;

(4) any other document or thing which is relevant and which would be admissible in evidence.

(b) For the purpose of this section, “documents” means a writing as defined in Evidence Code section 250 and “statements” includes written statements by the person signed or otherwise authenticated by him or her, stenographic, mechanical, electrical or other recordings, or transcripts thereof, of oral statements by the person, and written reports or summaries of these oral statements.

(c) The written response to any discovery request shall be served on the requesting party within fifteen (15) days of service of the discovery request. Upon mutual agreement of all parties and interveners: 1) written documents may be converted into another mutually agreeable format, such as electronic or magnetic, and made readily available, or 2) a depository of original items may be used in place of delivery of copies, but the depository shall be open beyond regular business hours upon request of a party or intervener. The parties shall have an ongoing duty to produce additional items pursuant to whichever method is agreed upon as new items become relevant.

(d) When a party withholds information otherwise discoverable by claiming it is privileged, that party shall make the claim expressly and shall describe the nature of the documents, communications, or things not produced or disclosed in a manner that, without revealing information itself privileged or protected, will enable other parties to assess the applicability of the specifically asserted privilege or protection. Simultaneously, the withholding party shall also draft and provide a confidentiality agreement to the other parties and the administrative law judge or hearing officer if a confidentiality agreement can protect the interest in nondisclosure.

(e) If new information is discovered at any time during the course of the hearing, it shall be called to the attention of the administrative law judge or hearing officer immediately, who may grant discovery thereon if requested by a party. The administrative law judge or hearing officer shall specify the scope and timing of any such additional discovery.

(f) Nothing in this section shall require any party to disclose information contained in a document that is privileged from disclosure by law or otherwise made legally confidential or protected as an attorney's work product.

(g) Nothing in this section shall limit the Commissioner's investigatory powers as otherwise provided by statute including, but not limited to, Insurance Code Section 12924.

NOTE

Authority cited: Section 11400.20, Government Code. Reference: Sections 1858, 1858.01, 1858.1 and 1858.2, Insurance Code.

HISTORY

1. New section filed 12-20-2006; operative 1-19-2007 (Register 2006, No. 51).

§2614.9. Compelling Discovery.

Note • History

(a) Any party claiming that a request for discovery has not been complied with shall, within five (5) business days of receipt of the responses, meet and confer with the party from whom discovery is sought to attempt to resolve the discovery dispute.

(b) Any party claiming that a request for discovery has not been complied with following the meet and confer session shall, within five (5) business days of the meet and confer session, file and serve a motion to compel discovery accompanied by a copy of the original discovery request and response thereto. The motion to compel discovery shall specify why the requested information is sought, and include facts showing a reasonable and good faith attempt at an informal resolution of each issue presented by the motion.

(c) The party from whom discovery is sought shall file and serve any additional response within five (5) business days of service of the motion. The administrative law judge or hearing officer shall set a hearing on the motion for a time within ten (10) business days after filing of the response or at a later time that the administrative law judge or hearing officer, on the judge's or officer's own motion, for good cause determines. At or before the commencement of the hearing, the administrative law judge or hearing officer shall inform the parties of his or her tentative ruling on the motion. The administrative law judge or hearing officer shall issue a decision on the motion to compel discovery within five (5) business days of the date of the hearing on the motion to compel discovery.

NOTE

Authority cited: Section 11400.20, Government Code. Reference: Sections 1858, 1858.01, 1858.1 and 1858.2, Insurance Code.

HISTORY

1. New section filed 12-20-2006; operative 1-19-2007 (Register 2006, No. 51).

§2614.10. Prehearing Conference.

Note • History

(a) On motion of a party or by order of an administrative law judge or hearing officer, the administrative law judge or hearing officer may conduct one or more prehearing conferences. The administrative law judge or hearing officer shall set the times and places for the prehearing conferences, and shall give reasonable written notice to all parties.

(b) The prehearing conferences may address one or more of the following matters:

(1) Exploration of settlement possibilities.

(2) Preparation of stipulations.

(3) Clarification of issues.

(4) Rulings on identity and limitation of the number of witnesses.

(5) Objections to proffers of evidence.

(6) Order of presentation of evidence and cross-examination.

(7) Rulings regarding issuance of subpoenas and protective orders.

(8) Schedules for the submission of written briefs and schedules for the commencement and conduct of the hearing.

(9) Exchange of witness lists and of exhibits or documents to be offered in evidence at the hearing.

(10) Motions for intervention.

(11) Any other matters as shall promote the orderly and prompt conduct of the hearing.

(c) The administrative law judge or hearing officer may conduct all or part of a prehearing conference by telephone or other electronic means if each participant in the conference has an opportunity to participate in and to hear the entire proceeding while it is taking place.

(d) The administrative law judge or hearing officer shall issue a prehearing order incorporating the matters determined at the prehearing conferences. The administrative law judge or hearing officer may direct one or more of the parties to prepare a prehearing order.

NOTE

Authority cited: Section 11400.20, Government Code. Reference: Sections 1858, 1858.01, 1858.1 and 1858.2, Insurance Code.

HISTORY

1. New section filed 12-20-2006; operative 1-19-2007 (Register 2006, No. 51).

§2614.11. Exchange of Witness Lists.

Note • History

(a) Upon a date agreed upon by all parties or ordered by the administrative law judge or hearing officer, all parties who have appeared in the action shall exchange information concerning witnesses. The exchange of information may occur at a meeting of the attorneys for the parties involved or by a mailing on an agreed upon date.

(b) The exchange of witness information shall include the following:

(1) A list setting forth the name of any person who will be offering testimony.

(2) A brief narrative statement of the general substance of the testimony that each witness is expected to give.

(3) A brief narrative statement of the qualifications of each expert witness.

(4) All discoverable reports and writings, if any, made by each expert witness.

NOTE

Authority cited: Section 11400.20, Government Code. Reference: Sections 1858, 1858.01, 1858.1 and 1858.2, Insurance Code.

HISTORY

1. New section filed 12-20-2006; operative 1-19-2007 (Register 2006, No. 51).

§2614.12. Supplemental Witness List Exchange.

Note • History

Within 30 days after the exchange described in 2614.11, any party who engaged in the exchange may submit a supplemental witness list containing the name of any witness who will provide testimony on a subject to be covered by a witness designated by an adverse party to the exchange, if the party supplementing a witness list has not previously designated a witness to testify on that subject, and shall include all discoverable reports and writings, if any, made by each additional designated expert witness.

NOTE

Authority cited: Section 11400.20, Government Code. Reference: Sections 1858, 1858.01, 1858.1 and 1858.2, Insurance Code.

HISTORY

1. New section filed 12-20-2006; operative 1-19-2007 (Register 2006, No. 51).

§2614.13. Prepared Testimony.

Note • History

(a) Prepared direct testimony, in narrative statement or question and answer format, of each direct witness expected to be called to testify by the Department or intervenor or participant in a proceeding, shall be filed and served on all parties at least forty (40) business days before the first day of the evidentiary hearing. Prepared direct testimony, in narrative statement or question and answer format, of each direct witness expected to be called to testify in a proceeding by respondent, shall be filed and served on all parties no later than twenty (20) business days after service of the prepared direct testimony by the Department or intervenor or participant. Prepared direct testimony shall be signed under penalty of perjury under the laws of the state of California. Expert witness testimony shall be accompanied by the witnesses' curriculum vitae and list of authored or co-authored publications. Additionally, any documents reviewed by the expert for purposes of testifying in the specific case that were not previously provided to the other parties shall be produced with the testimony. Prepared direct testimony is required only for witnesses who, at the time the testimony is offered, are employees, agents, officers, directors, or independent contractors of the party offering the testimony or experts retained by the party offering the testimony.

(b) Within ten (10) business days of service of any prepared direct testimony, any party may file a motion to strike all or part of the testimony and object to admission of exhibits referenced in such testimony. The motion shall state the specific page(s) and line(s) to which the party is objecting, and the specific legal authority for the objection. Within five (5) business days of service of a motion to strike, the party filing the prepared direct testimony may respond to the motion to strike. A hearing on any motion to strike shall be held within five (5) business days of service of any response to the motion to strike. At or before the commencement of the hearing on the motion to strike, the administrative law judge or hearing officer shall inform the parties of his or her tentative ruling on the motion. The administrative law judge or hearing officer shall rule on the motion to strike no later than three (3) business days after the hearing on the motion to strike. Any testimony not objected to and any testimony not stricken, together with exhibits referenced in that testimony, shall be deemed admitted.

(c) If rebuttal prepared testimony is allowed, motions to strike may be made orally and ruled upon immediately in order to expedite the proceeding.

(d) At the evidentiary hearing, the person whose prepared testimony is being offered shall be available for cross-examination by all parties.

(e) Prepared testimony of more than twenty (20) pages shall contain a subject index.

NOTE

Authority cited: Section 11400.20, Government Code. Reference: Sections 1858, 1858.01, 1858.1 and 1858.2, Insurance Code.

HISTORY

1. New section filed 12-20-2006; operative 1-19-2007 (Register 2006, No. 51).

2. Amendment of subsection (a) filed 12-30-2010; operative 12-30-2010 pursuant to Government Code section 11343.4 (Register 2010, No. 53).

§2614.14. Additional Direct Testimony.

Note • History

Prior to his or her cross-examination, any witness may provide additional direct testimony responding to testimony elicited of any other witness. Any additional direct testimony which is likely to take more than one hour of hearing time to present shall meet all requirements applicable to direct testimony, shall be in the format specified in section 2614.13, and shall be filed and served on all parties at least two (2) business days before the witness is called to testify.

NOTE

Authority cited: Section 11400.20, Government Code. Reference: Sections 1858, 1858.01, 1858.1 and 1858.2, Insurance Code.

HISTORY

1. New section filed 12-20-2006; operative 1-19-2007 (Register 2006, No. 51).

§2614.15. Rebuttal Testimony.

Note • History

At the conclusion of the direct presentations of all parties, the parties may file written rebuttal testimony or provide oral rebuttal testimony. Rebuttal testimony shall be subject to cross examination as provided in section 2614.13(d). The rebuttal testimony shall meet all requirements applicable to direct testimony, and shall be in the format specified in section 2614.13 and if in written format shall be filed and served on all parties at least two (2) business days before the rebuttal witness is called to testify. The rebuttal testimony shall only respond to testimony of another party or witness.

NOTE

Authority cited: Section 11400.20, Government Code. Reference: Sections 1858, 1858.01, 1858.1 and 1858.2, Insurance Code.

HISTORY

1. New section filed 12-20-2006; operative 1-19-2007 (Register 2006, No. 51).

§2614.16. Exhibits.

Note • History

(a) Any exhibit that a party wishes to be part of the evidentiary record of this proceeding shall be lodged with the administrative hearing bureau and served on all other parties in the manner and by the date directed by the administrative law judge or hearing officer.

(b) A party offering a document in excess of ten (10) pages shall designate specifically the relevant and material portions, and shall provide a copy of the entire document to every other party prior to the offer in evidence. The other parties shall be provided five (5) business days to examine the document, from the date of receipt of the document, and to offer in evidence other relevant and material portions of the document.

(c) Exhibits shall be legible and whenever practicable either prepared on paper not exceeding 8-1/2 inches wide and 11 inches long, or bound or folded to that approximate size. Exhibits may be created during the hearing, but shall be recreated for the record on paper not exceeding 8-1/2 inches wide and 11 inches long. Wherever practicable, the sheets of each exhibit shall be numbered. Copies of exhibits shall be clear and legible.

NOTE

Authority cited: Section 11400.20, Government Code. Reference: Sections 1858, 1858.01, 1858.1 and 1858.2, Insurance Code.

HISTORY

1. New section filed 12-20-2006; operative 1-19-2007 (Register 2006, No. 51).

§2614.17. Oral Evidence.

Note • History

(a) Oral testimony shall be taken only on oath or affirmation.

(b) Each party shall have these rights: to call and examine witnesses; to introduce exhibits; to cross-examine opposing witnesses on any matter relevant to the issues even though that matter was not covered in the direct examination; to impeach any witness regardless of which party first called him or her to testify; and to rebut the evidence against him or her. If respondent does not testify in his or her own behalf, he or she may be called and examined as if under cross-examination.

(c) The hearing need not be conducted according to technical rules relating to evidence and witnesses, except as hereinafter provided.

(d) Hearsay evidence may be used to supplement or explain other evidence but over timely objection shall not be sufficient in itself to support a finding unless it would be admissible over objection in civil actions. An objection is timely if made before submission of the case.

(e) The rules of privilege shall be effective to the extent that they are otherwise required by statute to be recognized at the hearing.

(f) The administrative law judge or hearing officer has discretion to limit oral testimony and to exclude evidence if its probative value is substantially outweighed by the probability that its admission will necessitate undue consumption of time.

NOTE

Authority cited: Section 11400.20, Government Code. Reference: Sections 1858, 1858.01, 1858.1 and 1858.2, Insurance Code.

HISTORY

1. New section filed 12-20-2006; operative 1-19-2007 (Register 2006, No. 51).

§2614.18. Official Notice.

Note • History

In reaching a decision, official notice may be taken, either before or after submission of the case for decision, of any generally accepted technical or scientific matter within the Department's special field, and of any fact that may be judicially noticed by the courts of this State. Parties present at the hearing shall be informed of the matters to be noticed, and those matters shall be noted in the record, referred to therein, or appended thereto. Any such party shall be given a reasonable opportunity on request to refute the officially noticed matters by evidence or by written or oral presentation of authority, the manner of such refutation to be determined by the administrative law judge or hearing officer.

NOTE

Authority cited: Section 11400.20, Government Code. Reference: Sections 1858, 1858.01, 1858.1 and 1858.2, Insurance Code.

HISTORY

1. New section filed 12-20-2006; operative 1-19-2007 (Register 2006, No. 51).

§2614.19. Settlement Conferences.

Note • History

(a) The administrative law judge or hearing officer may order the parties to attend and participate in a settlement conference. The chief administrative law judge shall assign an administrative law judge or hearing officer to conduct the settlement conference, other than the administrative law judge or hearing officer assigned to the case; set the time and place for the settlement conference; and give reasonable written notice to all parties.

(b) The administrative law judge or hearing officer assigned to conduct the settlement conference may conduct all or part of the settlement conference by telephone or other electronic means if each participant in the conference has an opportunity to participate in and to hear the entire proceeding while it is taking place.

(c) Discussions, admissions, concessions, or offers to stipulate or settle, whether oral or written, made during any negotiation or settlement conference are confidential and inadmissible for any purpose in any proceeding.

NOTE

Authority cited: Section 11400.20, Government Code. Reference: Sections 1858, 1858.01, 1858.1 and 1858.2, Insurance Code.

HISTORY

1. New section filed 12-20-2006; operative 1-19-2007 (Register 2006, No. 51).

§2614.20. Stipulations and Settlements.

Note • History

(a) Parties may stipulate to the resolution of an issue of fact or the applicability of a provision of law material to a proceeding or may agree to settlement on a mutually acceptable outcome to a proceeding, with or without resolving material issues.

(b) If the parties agree to settlement on a mutually acceptable outcome to a proceeding, with or without resolving material issues, they shall obtain an order approving their settlement from the Commissioner. Immediately following the Commissioner's approval of a settlement, the parties shall file a signed request to withdraw their request for hearing with the Administrative Hearing Bureau.

NOTE

Authority cited: Section 11400.20, Government Code. Reference: Sections 1858, 1858.01, 1858.1 and 1858.2, Insurance Code.

HISTORY

1. New section filed 12-20-2006; operative 1-19-2007 (Register 2006, No. 51).

§2614.21. Additional Evidence.

Note • History

(a) The administrative law judge or hearing officer may require the production of further evidence on any issue until the record is closed. If the administrative law judge or hearing officer determines that specific documentary evidence is necessary as a part of the record, the administrative law judge or hearing officer shall set a deadline for filing, reserving exhibit numbers therefor. Copies of all documents produced shall be served on all parties.

(b) If the administrative law judge or hearing officer requires the production of further evidence, that evidence shall be provided no later than ten (10) days from the date the administrative law judge notifies the party from whom the evidence is sought that additional evidence is required.

(c) Any objections to admitting the evidence produced upon the order of the administrative law judge or hearing officer shall be filed no later than five (5) days after the evidence is served.

(d) Unless ordered by the administrative law judge or hearing officer, evidence other than matters that can be officially noticed shall not be provided after the close of the evidentiary hearing.

NOTE

Authority cited: Section 11400.20, Government Code. Reference: Sections 1858, 1858.01, 1858.1 and 1858.2, Insurance Code.

HISTORY

1. New section filed 12-20-2006; operative 1-19-2007 (Register 2006, No. 51).

§2614.22. Submission of Proceeding.

Note • History

A proceeding shall stand submitted when the record is closed by the administrative law judge or hearing officer.

NOTE

Authority cited: Section 11400.20, Government Code. Reference: Sections 1858, 1858.01, 1858.1 and 1858.2, Insurance Code.

HISTORY

1. New section filed 12-20-2006; operative 1-19-2007 (Register 2006, No. 51).

§2614.23. Amendment to Notice of Noncompliance After Submission of Case for Decision.

Note • History

The Department may request leave to amend the notice of noncompliance to conform to proof, after submission of the case for decision. Each party shall be given notice of the intended amendment and opportunity to show that it will be prejudiced thereby unless the case is reopened to permit the introduction of evidence on the party's behalf. If such prejudice is shown, the ALJ may either deny leave to amend or reopen the case to permit introduction of additional evidence.

NOTE

Authority cited: Section 11400.20, Government Code. Reference: Sections 1858, 1858.01, 1858.1 and 1858.2, Insurance Code.

HISTORY

1. New section filed 12-20-2006; operative 1-19-2007 (Register 2006, No. 51).

§2614.24. Proposed Decision.

Note • History

(a) The administrative law judge or hearing officer shall prepare within 60 days after the record is closed a proposed decision in a form that may be adopted by the Commissioner as the final decision in the case. Failure of the administrative law judge or hearing officer to deliver a proposed decision within the time required does not prejudice the rights of the Commissioner in the case.

(b) Within 100 days of receipt by the Commissioner of the administrative law judge's proposed decision, the Commissioner may act as prescribed in subparagraphs (b)(1) to (5), inclusive. If the Commissioner fails to act as prescribed in subparagraphs (b)(1) to (5), inclusive, within 100 days of receipt of the proposed decision, the proposed decision shall be deemed adopted by the Commissioner. The Commissioner may do any of the following:

(1) Adopt the proposed decision in its entirety.

(2) Reduce or otherwise mitigate the proposed penalty and adopt the balance of the proposed decision.

(3) Make technical or other minor changes in the proposed decision and adopt it as the decision. Action by the Commissioner under this paragraph is limited to a clarifying change or a change of a similar nature that does not affect the factual or legal basis of the proposed decision.

(4) Reject the proposed decision and refer the case to the same administrative law judge or hearing officer if reasonably available, otherwise to another administrative law judge or hearing officer, to take additional evidence. If the case is referred to an administrative law judge or hearing officer pursuant to this subparagraph, he or she shall prepare a revised proposed decision based upon the additional evidence and the transcript and other papers that are part of the record of the prior hearing. A copy of the revised proposed decision shall be furnished to each party or his or her attorney as prescribed in subparagraph (c).

(5) Reject the proposed decision, and decide the case upon the record, including the transcript, or upon an agreed statement of the parties, with or without taking additional evidence.

(c) The decision of the Commissioner shall be filed immediately by the Department as a public record and a copy shall be served on each party or the party's attorney.

NOTE

Authority cited: Section 11400.20, Government Code. Reference: Sections 1858, 1858.01, 1858.1, 1858.2 and 1858.3, Insurance Code.

HISTORY

1. New section filed 12-20-2006; operative 1-19-2007 (Register 2006, No. 51).

§2614.25. Petition for Reconsideration.

Note • History

(a) Within 15 days after service of a copy of the decision on a party, but not later than the effective date of the decision, a party may apply to the Commissioner for correction of a mistake or clerical error in the decision, stating the specific ground on which the application is made. Notice of the application shall be served on the other parties to the proceeding, with a copy filed with the Administrative Hearing Bureau. The application is not a prerequisite for seeking judicial review.

(b) The Commissioner may deny the application, grant the application and modify the decision, or grant the application and set the matter for further proceedings. The application is considered denied if the Commissioner does not dispose of it within 15 days after it is made.

(c) Nothing in this section precludes the Commissioner from modifying the decision to correct a mistake or clerical error. A modification under this subdivision shall be made within 15 days after issuance of the decision.

(d) The Commissioner shall, within 15 days after correction of a mistake or clerical error in the decision, serve a copy of the correction on each party on which a copy of the decision was previously served.

NOTE

Authority cited: Section 11400.20, Government Code. Reference: Sections 1858, 1858.01, 1858.1 and 1858.2, Insurance Code.

HISTORY

1. New section filed 12-20-2006; operative 1-19-2007 (Register 2006, No. 51).

§2614.26. Effective Date of Decision.

Note • History

(a) The decision shall become effective 30 days after it is delivered or mailed to the parties unless: reconsideration is ordered within that time, or the administrative law judge or hearing officer or Commissioner orders that the decision shall become effective sooner.

NOTE

Authority cited: Section 11400.20, Government Code. Reference: Sections 1858, 1858.01, 1858.1 and 1858.2, Insurance Code.

HISTORY

1. New section filed 12-20-2006; operative 1-19-2007 (Register 2006, No. 51).

§2614.27. Default Proceedings.

Note • History

(a) If a respondent fails to appear at the hearing, the administrative law judge or hearing officer may take action based upon the respondent's express admissions or upon other evidence and affidavits may be used as evidence without any notice to respondent.

(b) Notwithstanding the default of the respondent, the administrative law judge or hearing officer, before a proposed decision is issued, has the discretion to grant a hearing on reasonable notice to the parties. The administrative law judge or hearing officer may order the respondent, or the respondent's attorney or other authorized representative, or both, to pay reasonable expenses, including attorney's fees, incurred by another party as a result of the respondent's failure to appear at the hearing.

(c) Within seven days after service on the respondent of a decision based on the respondent's default, the respondent may serve a written motion requesting that the decision be vacated and stating the grounds relied on. The administrative law judge or hearing officer may vacate the decision and grant a hearing on a showing of good cause. As used in this subdivision, good cause includes, but is not limited to, any of the following: mistake, inadvertence, surprise, or excusable neglect.

NOTE

Authority cited: Section 11400.20, Government Code. Reference: Sections 1858, 1858.01, 1858.1 and 1858.2, Insurance Code.

HISTORY

1. New section filed 12-20-2006; operative 1-19-2007 (Register 2006, No. 51).

Subchapter 4.5. General Provisions

Article 1. Governing Procedure for Hearings

§2615. Authority.

Note • History

These regulations are promulgated pursuant to the authority granted to the Insurance Commissioner under the provisions of Section 11400.20 of the Government Code.

NOTE

Authority cited: Sections 11400.20 and 11415.10, Government Code. Reference: Section 21.5, Insurance Code.

HISTORY

1. Change without regulatory effect amending subchapter and article headings, renumbering former subchapter 11, article 1 (sections 2698.99.10-2698.99.13) to subchapter 4.5, article 1 (sections 2615-2615.3) and renumbering section 2698.99.10 to section 2615 filed 6-3-2003 pursuant to section 100, title 1, California Code of Regulations (Register 2003, No. 23).

§2615.1. Purpose.

Note • History

The purpose of these regulations is to provide a general governing procedure for Department of Insurance adjudicative hearings. However, when other regulations set forth a procedure for an adjudicative hearing explicitly provided for in the Insurance Code, the regulations implementing the specific Insurance Code provision will govern. Additionally, these regulations do not apply to those adjudicative hearings that, by statute, are subject to the provisions of Chapter 5 of the Government Code.

NOTE

Authority cited: Section 11415.10, Government Code. Reference: Section 21.5, Insurance Code.

HISTORY

1. Change without regulatory effect renumbering section 2698.99.11 to section 2615.1 filed 6-3-2003 pursuant to section 100, title 1, California Code of Regulations (Register 2003, No. 23). For prior history of section 2615.1, see Register 96, No. 45.

§2615.2. Governing Procedure: Requirements.

Note • History

All Department of Insurance adjudicative hearings not governed by other procedural regulations shall allow the use of both written and live witness testimony, subject to motions to strike and cross-examination. However, the presiding officer shall have the authority to limit the length and repetitiveness of all testimony, and to control the order and manner of presentation of witnesses.

NOTE

Authority cited: Section 11415.10, Government Code. Reference: Section 21.5, Insurance Code.

HISTORY

1. Change without regulatory effect renumbering section 2698.99.12 to section 2615.2 filed 6-3-2003 pursuant to section 100, title 1, California Code of Regulations (Register 2003, No. 23).

§2615.3. Governing Procedure: Pre-Hearing Order.

Note • History

In addition to the procedures set forth and referenced in §2615.2, the presiding officer shall have the authority to prescribe the procedure for an adjudicative hearing more specifically in a Pre-Hearing Order. Scheduling, allowable pleadings and motions, use of discovery, if any, scope of relevant evidence, rebuttal rights, if any, briefing, if any, and all other procedural matters may be addressed in a pre-hearing order.

NOTE

Authority cited: Section 11415.10, Government Code. Reference: Section 21.5, Insurance Code.

HISTORY

1. Change without regulatory effect renumbering section 2698.99.13 to section 2615.3 filed 6-3-2003 pursuant to section 100, title 1, California Code of Regulations (Register 2003, No. 23).

2. Change without regulatory effect amending section filed 8-12-2003 pursuant to section 100, title 1, California Code of Regulations (Register 2003, No. 33).

Article 2. Definitions

§2616.1. Definitions.

Note • History

NOTE

Authority cited: Sections 1861.055, 1861.10, 12921 and 12926, Insurance Code; and section 11152, Government Code. Reference: Sections 791.15, 12096 and 1861.10(a), Insurance Code; and CalFarm, et al. v. Deukmejian, et al., 48 Cal.3d 805 (1989).

HISTORY

1. New article and section filed 2-1-93; operative 2-1-93 (Register 93, No. 6). For prior history, see Register 92, No. 39.

2. Renumbering and amendment of former section 2616.1 to new section 2661.1 filed 8-18-95 as an emergency; operative 8-18-95 (Register 95, No. 33). A Certificate of Compliance must be transmitted to OAL by 12-16-95 or emergency language will be repealed by operation of law on the following day.

3. Renumbering and amendment of former section 2616.1 to new section 2661.1 refiled 12-19-95 as an emergency; operative 12-19-95 (Register 95, No. 51). A Certificate of Compliance must be transmitted to OAL by 4-17-96 or emergency language will be repealed by operation of law on the following day.

4. Certificate of Compliance as to 12-19-95 order transmitted to OAL April 17, 1996; disapproved by OAL and order of repeal as to 12-19-95 order filed 5-30-96 (Register 96, No. 22).

5. Renumbering and amendment of former section 2616.1 to new section 2661.1 filed 5-30-96 as an emergency; operative 5-30-96 (Register 96, No. 22). A Certificate of Compliance must be transmitted to OAL by 9-27-96 or emergency language will be repealed by operation of law on the following day.

6. Certificate of Compliance as to 5-30-96 order transmitted to OAL 9-26-96 and filed 11-5-96 (Register 96, No. 45).

Article 3. Intervention in Quasi-Judicial Proceedings

§2617.1. Intervention Under Chapter 9 of Part 2 of Division 1 of the California Insurance Code.

Note • History

NOTE

Authority cited: Sections 1861.10, 12921 and 12926, Insurance Code; and section 11152, Government Code. Reference: Section 1861.10(a), Insurance Code; and CalFarm, et al. v. Deukmejian, et al., 48 Cal.3d 805 (1989).

HISTORY

1. New article and section filed 2-1-93; operative 2-1-93 (Register 93, No. 6). For prior history, see Register 92, No. 39.

2. Repealer filed 8-18-95 as an emergency; operative 8-18-95 (Register 95, No. 33). A Certificate of Compliance must be transmitted to OAL by 12-16-95 or emergency language will be repealed by operation of law on the following day.

3. Repealer refiled 12-19-95 as an emergency; operative 12-19-95 (Register 95, No. 51). A Certificate of Compliance must be transmitted to OAL by 4-17-96 or emergency language will be repealed by operation of law on the following day.

4. Certificate of Compliance as to 12-19-95 order transmitted to OAL April 17, 1996; disapproved by OAL and order of repeal as to 12-19-95 order filed 5-30-96 (Register 96, No. 22).

5. Repealer filed 5-30-96 as an emergency; operative 5-30-96 (Register 96, No. 22). A Certificate of Compliance must be transmitted to OAL by 9-27-96 or emergency language will be repealed by operation of law on the following day.

6. Certificate of Compliance as to 5-30-96 order transmitted to OAL 9-26-96 and filed 11-5-96 (Register 96, No. 45).

§2617.2. Other Intervention.

Note • History

NOTE

Authority cited: Sections 12921 and 12926, Insurance Code; and section 11152, Government Code. Reference: Sections 791.15, 1861.10(b), 12096 and 12925, Insurance Code; and CalFarm, et al. v. Deukmejian, et al., 48 Cal.3d 805 (1989).

HISTORY

1. New section filed 2-1-93; operative 2-1-93 (Register 93, No. 6). For prior history, see Register 92, No. 39.

2. Repealer filed 11-5-96; operative 11-5-96 (Register 96, No. 45).

§2617.3. Procedure for Intervention.

Note • History

NOTE

Authority cited: Sections 1861.10, 12921 and 12926, Insurance Code; and section 11152, Government Code. Reference: Sections 791.15, 1861.10(a), 12096, 12921.5 and 12925, Insurance Code; and CalFarm, et al. v. Deukmejian, et al., 48 Cal.3d 805 (1989).

HISTORY

1. New section filed 2-1-93; operative 2-1-93 (Register 93, No. 6). For prior history, see Register 92, No. 39.

2. Renumbering and amendment of former section 2617.3 to new section 2661.3 filed 8-18-95 as an emergency; operative 8-18-95 (Register 95, No. 33). A Certificate of Compliance must be transmitted to OAL by 12-16-95 or emergency language will be repealed by operation of law on the following day.

3. Renumbering and amendment of former section 2617.3 to new section 2661.3 refiled 12-19-95 as an emergency; operative 12-19-95 (Register 95, No. 51). A Certificate of Compliance must be transmitted to OAL by 4-17-96 or emergency language will be repealed by operation of law on the following day.

4. Certificate of Compliance as to 12-19-95 order transmitted to OAL April 17, 1996; disapproved by OAL and order of repeal as to 12-19-95 order filed 5-30-96 (Register 96, No. 22).

6. Certificate of Compliance as to 5-30-96 order transmitted to OAL 9-26-96 and filed 11-5-96 (Register 96, No. 45).

§2617.4. Rights and Duties of Intervenors.

Note • History

NOTE

Authority cited: Sections 1861.10, 12921 and 12926, Insurance Code; and section 11152, Government Code. Reference: Sections 791.15, 1861.10(a), 12096, 1292.5 and 12925, Insurance Code; and CalFarm, et al. v. Deukmejian, et al., 48 Cal.3d 805 (1989).

HISTORY

1. New section filed 2-1-93; operative 2-1-93 (Register 93, No. 6). For prior history, see Register 92, No. 39.

4. Certificate of Compliance as to 12-19-95 order transmitted to OAL April 17, 1996; disapproved by OAL and order of repeal as to 12-19-95 order filed 5-30-96 (Register 96, No. 22).

6. Certificate of Compliance as to 5-30-96 order transmitted to OAL 9-26-96 and filed 11-5-96 (Register 96, No. 45).

§2617.5. Participation Without Intervention.

Note • History

NOTE

Authority cited: Sections 12921 and 12926, Insurance Code; and section 11152, Government Code. Reference: Sections 791.15, 838.5, 12096, 12921.5 and 12925, Insurance Code.

HISTORY

1. New section filed 2-1-93; operative 2-1-93 (Register 93, No. 6). For prior history, see Register 92, No. 39.

4. Certificate of Compliance as to 12-19-95 order transmitted to OAL April 17, 1996; disapproved by OAL and order of repeal as to 12-19-95 order filed 5-30-96 (Register 96, No. 22).

6. Certificate of Compliance as to 5-30-96 order transmitted to OAL 9-26-96 and filed 11-5-96 (Register 96, No. 45).

§2617.6. Service.

Note • History

NOTE

Authority cited: Sections 12921 and 12926, Insurance Code. Reference: Sections 1861.05(c), and 1861.08 and 1861.10(a), Insurance Code; and CalFarm Insurance Company, et al. v. George Deukmejian, et al., May 4, 1989, Supreme Court No. S007838, pp. 24-25, 89 Daily Journal DAR 5837.

HISTORY

1. New section filed 5-30-89 as an emergency; operative 5-30-89 (Register 89, No. 24). A Certificate of Compliance must be transmitted to OAL within 120 days or emergency language will be repealed on 9-27-89.

2. Request to readopt section on an emergency basis pursuant to Government Code section 11346.1 granted and filed 9-27-89 as an emergency; operative 9-27-89 (Register 89, No. 40). A Certificate of Compliance must be transmitted to OAL within 120 days or emergency language will be repealed on 1-25-90.

3. Request to readopt section on an emergency basis pursuant to Government Code section 11346.1 granted and filed 1-23-90; operative 1-25-90 (Register 90, No. 8). A Certificate of Compliance must be transmitted to OAL within 120 days or emergency language will be repealed on 5-25-90.

4. Request to readopt section on an emergency basis pursuant to Government Code section 11346.1 granted and filed 5-24-90; operative 5-25-90 (Register 90, No. 27). A Certificate of Compliance must be transmitted to OAL within 120 days or emergency language will be repealed on 9-24-90.

5. Request to readopt section on an emergency basis pursuant to Government Code section 11346.1 granted and filed 9-24-90; operative 9-24-90 (Register 90, No. 47). A Certificate of Compliance must be transmitted to OAL by 1-22-91 or emergency language will be repealed by operation of law on the following day.

6. Certificate of Compliance as to 9-24-90 order submitted to OAL 10-12-90 and disapproved by OAL 11-13-90 (Register 90, No. 47).

7. Request to readopt section on an emergency basis pursuant to Government Code section 11346.1 granted and filed 11-13-90; operative 11-13-90 (Register 90, No. 47). A Certificate of Compliance must be transmitted to OAL by 3-13-91 or emergency language will be repealed by operation of law on the following day.

8. Request to readopt section on an emergency basis pursuant to Government Code section 22346.1 granted and filed 3-13-91; operative 3-13-91 (Register 91, No. 17). A Certificate of Compliance must be transmitted to OAL by 7-11-91 or emergency language will be repealed by operation of law on the following day.

9. Repealed by operation of Government Code section 11346.1(g) (Register 92, No. 39).

§2617.7. Certificate of Service.

Note • History

NOTE

Authority cited: Sections 12921 and 12926, Insurance Code. Reference: Sections 1861.05(b), (c), 1861.08 and 1861.10(a), Insurance Code; and CalFarm Insurance Company, et al. v. George Deukmejian, et al., May 4, 1989, Supreme Court No. S007838, pp. 24-25, 89 Daily Journal DAR 5837.

HISTORY

6. Certificate of Compliance as to 9-24-90 order submitted to OAL 10-12-90 and disapproved by OAL 11-13-90 (Register 90, No. 47).

9. Repealed by operation of Government Code section 11346.1(g) (Register 92, No. 39).

§2617.8. Filing Office.

Note • History

NOTE

HISTORY

6. Certificate of Compliance as to 9-24-90 order submitted to OAL 10-12-90 and disapproved by OAL 11-13-90 (Register 90, No. 47).

9. Repealed by operation of Government Code section 11346.1(g) (Register 92, No. 39).

§2617.9. Submission of Pleadings.

Note • History

NOTE

Authority cited: Sections 12921 and 12926, Insurance Code. Reference: Sections 1861.05(b),(c), 1861.08 and 1861.10(a), Insurance Code; and CalFarm Insurance Company, et al. v. George Deukmejian, et al., May 4, 1989, Supreme Court No. S007838, pp. 24-25, 89 Daily Journal DAR 5837.

HISTORY

6. Certificate of Compliance as to 9-24-90 order submitted to OAL 10-12-90 and disapproved by OAL 11-13-90 (Register 90, No. 47).

9. Repealed by operation of Government Code section 11346.1(g) (Register 92, No. 39).

Article 4. Participation in Quasi-Legislative Proceedings

§2618.1. Adopting, Amending or Repealing a Regulation.

Note • History

NOTE

Authority cited: Sections 12921 and 12926, Insurance Code; and section 11152, Government Code. Reference: Section 11340 et seq., Government Code.

HISTORY

1. New article and section filed 2-1-93; operative 2-1-93 (Register 93, No. 6). For prior history, see Register 92, No. 39.

2. Repealer filed 11-5-96; operative 11-5-96 (Register 96, No. 45).

§2618.2. Title and File Number.

Note • History

NOTE

Authority cited: Sections 12921 and 12926, Insurance Code. Reference: Sections 1861.05(b), (c), 1861.08 and 1861.10(a), Insurance Code; and CalFarm Insurance Company, et al. v. George Deukmejian, et al., May 4, 1989, Supreme Court, No. S007838, pp. 24-25, 89 Daily Journal DAR 5837.

HISTORY

6. Certificate of Compliance as to 9-24-90 order submitted to OAL 10-12-90 and disapproved by OAL 11-13-90 (Register 90, No. 47).

9. Repealed by operation of Government Code section 11346.1(g) (Register 92, No. 39).

§2618.3. Signatures.

Note • History

NOTE

HISTORY

6. Certificate of Compliance as to 9-24-90 order submitted to OAL 10-12-90 and disapproved by OAL 11-13-90 (Register 90, No. 47).

9. Repealed by operation of Government Code section 11346.1(g) (Register 92, No. 39).

§2618.4. Verification.

Note • History

NOTE

HISTORY

6. Certificate of Compliance as to 9-24-90 order submitted to OAL 10-12-90 and disapproved by OAL 11-13-90 (Register 90, No. 47).

9. Repealed by operation of Government Code section 11346.1(g) (Register 92, No. 39).

§2618.5. Signature and Verification by Attorney.

Note • History

NOTE

Authority cited: Sections 12921 and 12926, Insurance Code. Reference: Sections 1861.05(c), 1861.08 and 1861.10(a), Insurance Code; and CalFarm Insurance Company, et al. v. George Deukmejian, et al., May 4, 1989, Supreme Court No. S007838, pp. 24-25, 89 Daily Journal DAR 5837.

HISTORY

6. Certificate of Compliance as to 9-24-90 order submitted to OAL 10-12-90 and disapproved by OAL 11-13-90 (Register 90, No. 47).

9. Repealed by operation of Government Code section 11346.1(g) (Register 92, No. 39).

§2618.6. Service of Filings.

Note • History

NOTE

HISTORY

6. Certificate of Compliance as to 9-24-90 order submitted to OAL 10-12-90 and disapproved by OAL 11-13-90 (Register 90, No. 47).

9. Repealed by operation of Government Code section 11346.1(g) (Register 92, No. 39).

§2618.7. Copies.

Note • History

NOTE

Authority cited: Sections 12921 and 12926, Insurance Code. Reference: Sections 1861.05(b), (c), 1861.08, 1861.10(a) and 12979, Insurance Code; Section 6256, Government Code; and CalFarm Insurance Company, et al. v. George Deukmejian, et al., May 4, 1989, Supreme Court No. S007838, pp. 24-25, 89 Daily Journal DAR 5837.

HISTORY

6. Certificate of Compliance as to 9-24-90 order submitted to OAL 10-12-90 and disapproved by OAL 11-13-90 (Register 90, No. 47).

9. Repealed by operation of Government Code section 11346.1(g) (Register 92, No. 39).

§2618.8. Amended Pleadings.

Note • History

NOTE

HISTORY

6. Certificate of Compliance as to 9-24-90 order submitted to OAL 10-12-90 and disapproved by OAL 11-13-90 (Register 90, No. 47).

9. Repealed by operation of Government Code section 11346.1(g) (Register 92, No. 39).

§2618.9. Form of Application.

Note • History

NOTE

Authority cited: Sections 12921 and 12926, Insurance Code. Reference: Section 1861.05(b), Insurance Code; and CalFarm Insurance Company, et al. v. George Deukmejian, et al., May 4, 1989 Supreme Court No. S007838, pp. 24-25, 89 Daily Journal DAR 5837.

HISTORY

6. Certificate of Compliance as to 9-24-90 order submitted to OAL 10-12-90 and disapproved by OAL 11-13-90 (Register 90, No. 47).

8. Editorial correction to Graphic (Register 91, No. 17).

9. Request to readopt section including editorial correction of form CA-R2 on an emergency basis pursuant to Government Code section 22346.1 granted and filed 3-13-91; operative 3-13-91 (Register 91, No. 17). A Certificate of Compliance must be transmitted to OAL by 7-11-91 or emergency language will be repealed by operation of law on the following day.

10. Repealed by operation of Government Code section 11346.1(g) (Register 92, No. 39).

§2618.10. Place of Filing.

Note • History

NOTE

Authority cited: Sections 12921 and 12926, Insurance Code. Reference: Sections 1861.05(c), 1861.07, 1861.08 and 1861.10(a), Insurance Code; and CalFarm Insurance Company, et al. v. George Deukmejian, et al., May 4, 1989, Supreme Court No. S007838, pp. 24-25, 89 Daily Journal DAR 5837.

HISTORY

6. Certificate of Compliance as to 9-24-90 order submitted to OAL 10-12-90 and disapproved by OAL 11-13-90 (Register 90, No. 47).

9. Repealed by operation of Government Code section 11346.1(g) (Register 92, No. 39).

§2618.11. Time of Filing.

Note • History

NOTE

HISTORY

3. Request to readopt section on an emergency basis pursuant to Government Code section 11346.1 granted and filed 1-23-90; operative 1-25-90 (Register 90, No. 8). A Certificate of Compliance will be transmitted to OAL within 120 days or emergency language will be repealed on 5-25-90.

6. Certificate of Compliance as to 9-24-90 order submitted to OAL 10-12-90 and disapproved by OAL 11-13-90 (Register 90, No. 47).

9. Repealed by operation of Government Code section 11346.1(g) (Register 92, No. 39).

§2618.12. Rejection of Documents.

Note • History

NOTE

HISTORY

6. Certificate of Compliance as to 9-24-90 order submitted to OAL 10-12-90 and disapproved by OAL 11-13-90 (Register 90, No. 47).

9. Repealed by operation of Government Code section 11346.1(g) (Register 92, No. 39).

§2618.13. Acknowledgments.

Note • History

NOTE

Authority cited: Sections 12921 and 12926, Insurance Code. Reference: Sections 1861.05(b), (c), 1861.08 and 1861.10(a), Insurance Code; CalFarm Insurance Company, et al. v. George Deukmejian, et al., May 4, 1989 Supreme Court No. S007838, pp. 24-25, 89 Daily Journal DAR 5837.

HISTORY

6. Certificate of Compliance as to 9-24-90 order submitted to OAL 10-12-90 and disapproved by OAL 11-13-90 (Register 90, No. 47).

9. Repealed by operation of Government Code section 11346.1(g) (Register 92, No. 39).

§2618.14. Computation of Time.

Note • History

NOTE

Authority cited: Sections 12921 and 12926, Insurance Code. Reference: Sections 1861.05(c), 1861.08 and 1861.10(c), Insurance Code; and CalFarm Insurance Company, et al. v. George Deukmejian, et al., May 4, 1989 Supreme Court No. S007838, pp. 24-25, Daily Journal DAR 5837.

HISTORY

6. Certificate of Compliance as to 9-24-90 order submitted to OAL 10-12-90 and disapproved by OAL 11-13-90 (Register 90, No. 47).

9. Repealed by operation of Government Code section 11346.1(g) (Register 92, No. 39).

§2618.16. List of Filings.

Note • History

NOTE

Authority cited: Sections 12921, 12926 and 12973.7, Insurance Code. Reference: Sections 1861.05(c), 1861.06, 1861.07 and 12973.7, Insurance Code; and CalFarm Insurance Company, et al. v. George Deukmejian, et al., May 4, 1989, Supreme Court No. S007838, pp. 24-25, Daily Journal DAR 5837.

HISTORY

6. Certificate of Compliance as to 9-24-90 order submitted to OAL 10-12-90 and disapproved by OAL 11-13-90 (Register 90, No. 47).

9. Repealed by operation of Government Code section 11346.1(g) (Register 92, No. 39).

§2618.17. Public Inspection.

Note • History

NOTE

Authority cited: Sections 12921 and 12926, Insurance Code. Reference: Section 1861.07, Insurance Code; and CalFarm Insurance Company, et al. v. George Deukmejian, et al., May 4, 1989, Supreme Court No. S007838, pp. 24-25, Daily Journal DAR 5837.

HISTORY

6. Certificate of Compliance as to 9-24-90 order submitted to OAL 10-12-90 and disapproved by OAL 11-13-90 (Register 90, No. 47).

9. Repealed by operation of Government Code section 11346.1(g) (Register 92, No. 39).

Article 5. Eligibility for Compensation

§2619.1. Request for Eligibility to Seek Compensation.

Note • History

NOTE

Authority cited: Sections 1861.10 and 12921, Insurance Code; and section 11152, Government Code. Reference: Section 1861.10(b), Insurance Code; and CalFarm, et al. v. Deukmejian, et al., 48 Cal.3d 805 (1989).

HISTORY

1. New article and section filed 2-1-93; operative 2-1-93 (Register 93, No. 6). For prior history, see Register 92, No. 39.

2. Repealer of article 5 and section filed 8-18-95 as an emergency; operative 8-18-95 (Register 95, No. 33). A Certificate of Compliance must be transmitted to OAL by 12-16-95 or emergency language will be repealed by operation of law on the following day.

3. Repealer of article 5 and section refiled 12-19-95 as an emergency; operative 12-19-95 (Register 95, No. 51). A Certificate of Compliance must be transmitted to OAL by 4-17-96 or emergency language will be repealed by operation of law on the following day.

4. Certificate of Compliance as to 12-19-95 order transmitted to OAL April 17, 1996; disapproved by OAL and order of appeal as to 12-19-95 order filed 5-30-96 (Register 96, No. 22).

5. Repealer of article 5 and section filed 5-30-96 as an emergency; operative 5-30-96 (Register 96, No. 22). A Certificate of Compliance must be transmitted to OAL by 9-27-96 or emergency langauge will be repealed by operation of law on the following day.

6. Certificate of Compliance as to 5-30-96 order transmitted to OAL 9-26-96 and filed 11-5-96 (Register 96, No. 45).

§2619.2. Finding of Eligibility to Receive Compensation.

Note • History

NOTE

HISTORY

1. New article and section filed 2-1-93; operative 2-1-93 (Register 93, No. 6). For prior history, see Register 92, No. 39.

4. Certificate of Compliance as to 12-19-95 order transmitted to OAL April 17, 1996; disapproved by OAL and order of repeal as to 12-19-95 order filed 5-30-96 (Register 96, No. 22).

6. Certificate of Compliance as to 5-30-96 order transmitted to OAL 9-26-96 and filed 11-5-96 (Register 96, No. 45).

§2619.3. Time Limitations.

Note • History

NOTE

Authority cited: Sections 12921 and 12926, Insurance Code. Reference: Section1861.10(a), Insurance Code; and CalFarm Insurance Company, et al. v. George Deukmejian, et al., May 4, 1989, Supreme Court No. S007838, pp. 24-25, 89 Daily Journal DAR 5837.

HISTORY

6. Certificate of Compliance as to 9-24-90 order submitted to OAL 10-12-90 and disapproved by OAL 11-13-90 (Register 90, No. 47).

9. Repealed by operation of Government Code section 11346.1(g) (Register 92, No. 39).

§2619.4. Service of Petition.

Note • History

NOTE

Authority cited: Sections 12921 and 12926, Insurance Code. Reference: Sections 1861.05(c) and 1861.08, Insurance Code; and CalFarm Insurance Company, et al. v. George Deukmejian, et al., May 4, 1989, Supreme Court No. S007838, pp. 24-25, 89 Daily Journal DAR 5837.

HISTORY

6. Certificate of Compliance as to 9-24-90 order submitted to OAL 10-12-90 and disapproved by OAL 11-13-90 (Register 90, No. 47).

9. Repealed by operation of Government Code section 11346.1(g) (Register 92, No. 39).

§2619.5. Time for Answer.

Note • History

NOTE

Authority cited: Sections 12921 and 12926, Insurance Code. Reference: Section 1861.05(c), Insurance Code; and CalFarm Insurance Company, et al. v. George Deukmejian, et al., May 4, 1989, Supreme Court No. S007838, pp. 24-25, 89 Daily Journal DAR 5837.

HISTORY

6. Certificate of Compliance as to 9-24-90 order submitted to OAL 10-12-90 and disapproved by OAL 11-13-90 (Register 90, No. 47).

9. Repealed by operation of Government Code section 11346.1(g) (Register 92, No. 39).

§2619.6. Contents of Answer.

Note • History

NOTE

Authority cited: Sections 12921 and 12926, Insurance Code. Reference: Sections 1861.05(c) and 1861.08, Insurance Code; Section 11506, Government Code; and CalFarm Insurance Company, et al. v. George Deukmejian, et al., May 4, 1989, Supreme Court No. S007838, pp. 24-25, 89 Daily Journal DAR 5837.

HISTORY

6. Certificate of Compliance as to 9-24-90 order submitted to OAL 10-12-90 and disapproved by OAL 11-13-90 (Register 90, No. 47).

9. Repealed by operation of Government Code section 11346.1(g) (Register 92, No. 39).

Article 6. Compensation in Other Quasi-Judicial Proceedings

§2620.1. Purpose.

Note • History

NOTE

Authority cited: Sections 1861.10, 12921 and 12926, Insurance Code; and section 11152, Government Code. Reference: Section 1861.10(b), Insurance Code; and CalFarm, et al. v. Deukmejian, et al., 48 Cal.3d 805 (1989).

HISTORY

1. New article and section filed 2-1-93; operative 2-1-93 (Register 93, No. 6). For prior history, see Register 92, No. 39.

4. Certificate of Compliance as to 12-19-95 order transmitted to OAL April 17, 1996; disapproved by OAL and order of repeal as to 12-19-95 order filed 5-30-96 (Register 96, No. 22).

6. Certificate of Compliance as to 5-30-96 order transmitted to OAL 9-26-96 and filed 11-5-96 (Register 96, No. 45).

§2620.2. Notice of Intent to Claim Compensation.

Note • History

NOTE

HISTORY

1. New section filed 2-1-93; operative 2-1-93 (Register 93, No. 6). For prior history, see Register 92, No. 39.

2. Renumbering of former section 2620.2 to new section 2621.10--Appendix A filed 8-18-95 as an emergency; operative 8-18-95 (Register 95, No. 33). A Certificate of Compliance must be transmitted to OAL by 12-16-95 or emergency language will be repealed by operation of law on the following day. The text of former section 2620.2 is incorporated by reference only for the purposes of subchapter 4.5, article 7.

3. Repealer filed 12-19-95 as an emergency; operative 12-19-95 (Register 95, No. 51). A Certificate of Compliance must be transmitted to OAL by 4-17-96 or emergency language will be repealed by operation of law on the following day.

4. Editorial correction of History 3.

5. Certificate of Compliance as to 12-19-95 order transmitted to OAL April 17, 1996; disapproved by OAL and order of repeal as to 12-19-95 order filed 5-30-96 (Register 96, No. 22).

6. Repealer filed 5-30-96 as an emergency; operative 5-30-96 (Register 96, No. 22). A Certificate of Compliance must be transmitted to OAL by 9-27-96 or emergency language will be repealed by operation of law on the following day.

7. Certificate of Compliance as to 5-30-96 order transmitted to OAL 9-26-96 and filed 11-5-96 (Register 96, No. 45).

§2620.3. Response.

Note • History

NOTE

HISTORY

1. New section filed 2-1-93; operative 2-1-93 (Register 93, No. 6).

4. Certificate of Compliance as to 12-19-95 order transmitted to OAL April 17, 1996; disapproved by OAL and order of repeal as to 12-19-95 order filed 5-30-96 (Register 96, No. 22).

6. Certificate of Compliance as to 5-30-96 order transmitted to OAL 9-26-96 and filed 11-5-96 (Register 96, No. 45).

§2620.4. Preliminary Determination.

Note • History

NOTE

HISTORY

1. New section filed 2-1-93; operative 2-1-93 (Register 93, No. 6).

4. Certificate of Compliance as to 12-19-95 order transmitted to OAL April 17, 1996; disapproved by OAL and order of repeal as to 12-19-95 order filed 5-30-96 (Register 96, No. 22).

6. Certificate of Compliance as to 5-30-96 order transmitted to OAL 9-26-96 and filed 11-5-96 (Register 96, No. 45).

§2620.5. Request for Interim Funding.

Note • History

NOTE

HISTORY

1. New section filed 2-1-93; operative 2-1-93 (Register 93, No. 6).

4. Certificate of Compliance as to 12-19-95 order transmitted to OAL April 17, 1996; disapproved by OAL and order of repeal as to 12-19-95 order filed 5-30-96 (Register 96, No. 22).

6. Certificate of Compliance as to 5-30-96 order transmitted to OAL 9-26-96 and filed 11-5-96 (Register 96, No. 45).

§2620.6. Awards of Interim Funding.

Note • History

NOTE

HISTORY

1. New section filed 2-1-93; operative 2-1-93 (Register 93, No. 6).

4. Certificate of Compliance as to 12-19-95 order transmitted to OAL April 17, 1996; disapproved by OAL and order of repeal as to 12-19-95 order filed 5-30-96 (Register 96, No. 22).

6. Certificate of Compliance as to 5-30-96 order transmitted to OAL 9-26-96 and filed 11-5-96 (Register 96, No. 45).

§2620.7. Request for Final Compensation.

Note • History

NOTE

HISTORY

1. New section filed 2-1-93; operative 2-1-93 (Register 93, No. 6).

4. Certificate of Compliance as to 12-19-95 order transmitted to OAL April 17, 1996; disapproved by OAL and order of repeal as to 12-19-95 order filed 5-30-96 (Register 96, No. 22).

6. Certificate of Compliance as to 5-30-96 order transmitted to OAL 9-26-96 and filed 11-5-96 (Register 96, No. 45).

§2620.8. Order for Compensation.

Note • History

NOTE

HISTORY

1. New section filed 2-1-93; operative 2-1-93 (Register 93, No. 6).

2. Renumbering of former section 2620.8 to new section 2621.10--Appendix A filed 8-18-95 as an emergency; operative 8-18-95 (Register 95, No. 33). A Certificate of Compliance must be transmitted to OAL by 12-16-95 or emergency language will be repealed by operation of law on the following day. The text of former section 2620.8 is incorporated by reference only for the purposes of subchapter 4.5, article 7.

4. Editorial correction of History 3.

5. Certificate of Compliance as to 12-19-95 order transmitted to OAL April 17, 1996; disapproved by OAL and order of repeal as to 12-19-95 order filed 5-30-96 (Register 96, No. 22).

7. Certificate of Compliance as to 5-30-96 order transmitted to OAL 9-26-96 and filed 11-5-96 (Register 96, No. 45).

§2620.9. Petition for Rehearing.

Note • History

NOTE

HISTORY

1. New section filed 2-1-93; operative 2-1-93 (Register 93, No. 6).

4. Certificate of Compliance as to 12-19-95 order transmitted to OAL April 17, 1996; disapproved by OAL and order of repeal as to 12-19-95 order filed 5-30-96 (Register 96, No. 22).

6. Certificate of Compliance as to 5-30-96 order transmitted to OAL 9-26-96 and filed 11-5-96 (Register 96, No. 45).

§2620.10. Payment of Compensation.

Note • History

NOTE

Authority cited: Sections 1859.1, 1861.05, 1861.10, 12921 and 12926, Insurance Code; and section 11152, Government Code. Reference: Section 1861.10(b), Insurance Code; and CalFarm, et al. v. Deukmejian, et al., 48 Cal.3d 805 (1989); and sections 685.010 and 917.1(b), Code of Civil Procedure.

HISTORY

1. New section filed 2-1-93; operative 2-1-93 (Register 93, No. 6).

4. Certificate of Compliance as to 12-19-95 order transmitted to OAL April 17, 1996; disapproved by OAL and order of repeal as to 12-19-95 order filed 5-30-96 (Register 96, No. 22).

6. Certificate of Compliance as to 5-30-96 order transmitted to OAL 9-26-96 and filed 11-5-96 (Register 96, No. 45).

§2620.11. Awards for Judicial Proceedings.

Note • History

(a) A party seeking compensation for work performed in judicial proceedings shall also apply for attorneys' fees and other costs of litigation available under statutory and common law provisions for attorneys' fees and costs. Any award received pursuant to such an application shall be used to reimburse the Department for compensation paid pursuant to these regulations.

NOTE

HISTORY

1. New section filed 2-1-93; operative 2-1-93 (Register 93, No. 6).

2. Renumbering of former section 2620.11 to new section 2621.10--Appendix A filed 8-18-95 as an emergency; operative 8-18-95 (Register 95, No. 33). A Certificate of Compliance must be transmitted to OAL by 12-16-95 or emergency language will be repealed by operation of law on the following day. The text of former section 2620.11 is incorporated by reference only for the purposes of subchapter 4.5, article 7.

3. Editorial correction deleting erroneous History.

4. Reinstatement of section as it existed prior to emergency renumbering filed 8-18-95 by operation of Government Code Section 11346.1(f) (Register 96, No. 22).

Article 7. Compensation in Quasi-Legislative Proceedings

§2621.1. Purpose.

Note • History

NOTE

HISTORY

1. New article and section filed 2-1-93; operative 2-1-93 (Register 93, No. 6). For prior history, see Register 92, No. 39.

2. Repealer of article 7 and section filed 11-5-96; operative 11-5-96 (Register 96, No. 45).

§2621.2. Notice of Intent to Claim Compensation.

Note • History

NOTE

HISTORY

1. New section filed 2-1-93; operative 2-1-93 (Register 93, No. 6). For prior history, see Register 92, No 39.

2. Repealer filed 11-5-96; operative 11-5-96 (Register 96, No. 45).

§2621.3. Preliminary Determination of Eligibility to Receive Compensation.

Note • History

NOTE

HISTORY

1. New section filed 2-1-93; operative 2-1-93 (Register 93, No. 6). For prior history, see Register 92, No 39.

2. Amendment of subsection (a) filed 8-18-95 as an emergency; operative 8-18-95 (Register 95, No. 33). A Certificate of Compliance must be transmitted to OAL by 12-16-95 or emergency language will be repealed by operation of law on the following day.

3. Editorial correction deleting erroneous History.

4. Reinstatement of section as it existed prior to emergency amendment filed 8-18-95 by operation of Government Code section 11346.1(f) (Register 96, No. 22).

5. Repealer filed 11-5-96; operative 11-5-96 (Register 96, No. 45).

§2621.4. Request for Interim Funding.

Note • History

NOTE

Authority cited: Sections 1861.10, 12921, 12926, Insurance Code; and section 11152, Government Code. Reference: Section 1861.10(b), Insurance Code; and CalFarm, et al. v. Deukmejian, et al., 48 Cal. 3d 805 (1989).

HISTORY

1. New section filed 2-1-93; operative 2-1-93 (Register 93, No. 6). For prior history, see Register 92, No 39.

2. Amendment of subsections (a) and (d) filed 8-18-95 as an emergency; operative 8-18-95 (Register 95, No. 33). A Certificate of Compliance must be transmitted to OAL by 12-16-95 or emergency language will be repealed by operation of law on the following day.

3. Editorial correction deleting erroneous History.

4. Reinstatement of section as it existed prior to emergency amendment filed 8-18-95 by operation of Government Code section 11346.1(f) (Register 96, No. 22).

5. Repealer filed 11-5-96; operative 11-5-96 (Register 96, No. 45).

§2621.5. Awards of Interim Funding.

Note • History

NOTE

HISTORY

1. New section filed 2-1-93; operative 2-1-93 (Register 93, No. 6). For prior history, see Register 92, No 39.

2. Repealer filed 11-5-96; operative 11-5-96 (Register 96, No. 45).

§2621.6. Request for Final Compensation.

Note • History

NOTE

HISTORY

1. New section filed 2-1-93; operative 2-1-93 (Register 93, No. 6).

2. Amendment of subsections (a)(3) and (b) filed 8-18-95 as an emergency; operative 8-18-95 (Register 95, No. 33). A Certificate of Compliance must be transmitted to OAL by 12-16-95 or emergency language will be repealed by operation of law on the following day.

3. Editorial correction deleting erroneous History.

4. Reinstatement of section as it existed prior to emergency amendment filed 8-18-95 by operation of Government Code section 11346.1(f) (Register 96, No. 22).

5. Repealer filed 11-5-96; operative 11-5-96 (Register 96, No. 45).

§2621.7. Order for Compensation.

Note • History

NOTE

HISTORY

1. New section filed 2-1-93; operative 2-1-93 (Register 93, No. 6).

2. Amendment of subsection (c) filed 8-18-95 as an emergency; operative 8-18-95 (Register 95, No. 33). A Certificate of Compliance must be transmitted to OAL by 12-16-95 or emergency language will be repealed by operation of law on the following day.

3. Editorial correction deleting erroneous History.

4. Reinstatement of section as it existed prior to emergency amendment filed 8-18-95 by operation of Government Code section 11346.1(f) (Register 96, No. 22).

5. Repealer filed 11-5-96; operative 11-5-96 (Register 96, No. 45).

§2621.8. Petition for Rehearing.

Note • History

NOTE

HISTORY

1. New section filed 2-1-93; operative 2-1-93 (Register 93, No. 6).

3. Editorial correction deleting erroneous History.

4. Reinstatement of section as it existed prior to emergency amendment filed 8-18-95 by operation of Government Code section 11346.1(f) (Register 96, No. 22).

5. Repealer filed 11-5-96; operative 11-5-96 (Register 96, No. 45).

§2621.9. Payment of Compensation.

Note • History

NOTE

HISTORY

1. New section filed 2-1-93; operative 2-1-93 (Register 93, No. 6).

2. Repealer filed 11-5-96; operative 11-5-96 (Register 96, No. 45).

§2621.10. Awards for Judicial Proceedings.

Note • History

NOTE

HISTORY

1. New section filed 2-1-93; operative 2-1-93 (Register 93, No. 6).

2. New Appendix A to Article 7 filed 8-18-95 as an emergency; operative 8-18-95 (Register 95, No. 33). A Certificate of Compliance must be transmitted to OAL by 12-16-95 or emergency language will be repealed by operation of law on the following day. The text of former sections 2620.2, 2620.8 and 2620.11 is incorporated by reference only for the purposes of subchapter 4.5, article 7.

3. Editorial correction deleting erroneous History.

4. Appendix A repealed by operation of Government Code section 11346.1(g) (Register 96, No. 22).

5. Repealer of section and appendix filed 11-5-96; operative 11-5-96 (Register 96, No. 45).

Article 8. Public Advisor

§2622.1. Purpose

Note • History

NOTE

Authority cited: Sections 1861.10, 12903, 12921 and 12921.3, Insurance Code; and section 11152, Government Code. Reference: Sections 12921.3 and 12921.5, Insurance Code.

HISTORY

1. New Article and section filed 2-1-93; operative 2-1-93 (Register 93, No. 6). For prior history, see Register 92, No. 39.

2. Repealer of article 8 and section filed 11-5-96; operative 11-5-96 (Register 96, No. 45).

§2622.2. Overall Duty of the Public Advisor.

Note • History

NOTE

Authority cited: Sections 1861.055, 1861.10, 12903, 12921 and 12926, Insurance Code; and section 11152, Government Code. Reference: Sections 1858, 1861.10, 12921.3 and 12921.5, Insurance Code.

HISTORY

1. New section filed 2-1-93; operative 2-1-93 (Register 93, No. 6). For prior history, see Register 92, No. 39.

2. Repealer filed 11-5-96; operative 11-5-96 (Register 96, No. 45).

§2622.3. The Public Advisor's Duty to Refrain from Advocating Substantive Positions.

Note • History

NOTE

Authority cited: Sections 12903, 12921 and 12926, Insurance Code; and section 11152, Government Code. Reference: Sections 12921.3 and 12921.5, Insurance Code.

HISTORY

1. New section filed 2-1-93; operative 2-1-93 (Register 93, No. 6). For prior history, see Register 92, No. 39.

2. Repealer filed 11-5-96; operative 11-5-96 (Register 96, No. 45).

§2622.4. The Public Advisor's Duty within the Department of Insurance.

Note • History

NOTE

Authority cited: Sections 1858, 1861.10, 12903, 12921, 12921.3 and 12926, Insurance Code; and section 11152, Government Code. Reference: Sections 1858, 1861.10, 12921.3 and 12921.5, Insurance Code.

HISTORY

1. New section filed 2-1-93; operative 2-1-93 (Register 93, No. 6). For prior history, see Register 92, No. 39.

2. Repealer filed 11-5-96; operative 11-5-96 (Register 96, No. 45).

§2622.5. The Public Advisor's Duties in Advising Members of the Public.

Note • History

NOTE

Authority cited: Sections 1858, 1861.055, 1861.06, 1861.10, 12921, 12921.3 and 12926, Insurance Code; and section 11152, Government Code. Reference: Sections 1861.10(a), 1861.10(b), 12921.3 and 12921.5, Insurance Code.

HISTORY

1. New section filed 2-1-93; operative 2-1-93 (Register 93, No. 6). For prior history, see Register 92, No. 39.

2. Repealer filed 11-5-96; operative 11-5-96 (Register 96, No. 45).

Article 9. Forms

§2623.1. Petition to Intervene

Note • History

Embedded Graphic 10.0255

NOTE

Authority cited: Sections 1861.10, 12921 and 12926, Insurance Code. Reference: Section 1861.10(a), Insurance Code; and CalFarm Insurance Company, et al. v. George Deukmejian, et al., 48 Cal.3d 805 (1989).

HISTORY

1. New article and section filed 2-1-93; operative 2-1-93 (Register 93, No. 6). For prior history, see Register 92, No. 39.

§2623.2. Request for Finding of Eligibility to Seek Compensation.

Note • History

Embedded Graphic 10.0256

NOTE

HISTORY

1. New section filed 2-1-93; operative 2-1-93 (Register 93, No. 6).

§2623.3. Notice of Intent to Seek Compensation.

Note • History

Embedded Graphic 10.0257

Embedded Graphic 10.0258

NOTE

HISTORY

1. New section filed 2-1-93; operative 2-1-93 (Register 93, No. 6).

§2623.4. Request for Interim Funding.

Note • History

Embedded Graphic 10.0259

Embedded Graphic 10.0260

NOTE

HISTORY

1. New section filed 2-1-93; operative 2-1-93 (Register 93, No. 6).

§2623.5. Request for Award of Compensation.

Note • History

Embedded Graphic 10.0261

Embedded Graphic 10.0262

NOTE

HISTORY

1. New section filed 2-1-93; operative 2-1-93 (Register 93, No. 6).

§2623.6. Verification (for Corporation).

Note • History

Embedded Graphic 10.0263

NOTE

Authority cited: Sections 1861.10, 12921 and 12926, Insurance Code. Reference: Sections 1861.05(b) and (c), 1861.08 and 1861.10(a), (b), Insurance Code; and CalFarm Insurance Company, et al. v. George Deukmejian, et al., 48 Cal.3d 805 (1989).

HISTORY

1. New section filed 2-1-93; operative 2-1-93 (Register 93, No. 6).

§2623.7. Verification Where Applicant is Absent from County of Attorney's Office.

Note • History

Embedded Graphic 10.0264

NOTE

Authority cited: Sections 1861.10, 12921 and 12926, Insurance Code. Reference: Sections 1861.05(b), (c), 1861.08 and 1861.10(a), (b), Insurance Code and; CalFarm Insurance Company, et al. v. George Deukmejian, et al., 48 Cal.3d 805 (1989).

HISTORY

1. New section filed 2-1-93; operative 2-1-93 (Register 93, No. 6).

§2623.8. Verification (for Individuals or Partnerships).

Note • History

Embedded Graphic 10.0265

NOTE

Authority cited: Sections 1861.10, 12921 and 12926, Insurance Code. Reference: Sections 1861.05(b) and (c), 1861.08 and 1861.10(a) and (b), Insurance Code; and CalFarm Insurance Company, et al. v. George Deukmejian, et al., 48 Cal.3d 805 (1989).

HISTORY

1. New section filed 2-1-93; operative 2-1-93 (Register 93, No. 6).

§2623.9. Certificate of Service by Mail.

Note • History

Embedded Graphic 10.0266

NOTE

HISTORY

1. New section filed 2-1-93; operative 2-1-93 (Register 93, No. 6).

Article 10. Motions to Dismiss

§2624.1. Time for Filing; Basis.

Note • History

NOTE

Authority cited: Sections 12921 and 12926, Insurance Code. Reference: Section 1861.08, Insurance Code; and CalFarm Insurance Company, et al. v. George Deukmejian, et al., May 4, 1989, Supreme Court No. S007838, pp. 24-25, 89 Daily Journal DAR 5837.

HISTORY

6. Certificate of Compliance as to 9-24-90 order submitted to OAL 10-12-90 and disapproved by OAL 11-13-90 (Register 90, No. 47).

9. Repealed by operation of Government Code section 11346.1(g) (Register 92, No. 39).

Article 11. Briefs and Oral Arguments

§2625.1. Briefs.

Note • History

NOTE

HISTORY

6. Certificate of Compliance as to 9-24-90 order submitted to OAL 10-12-90 and disapproved by OAL 11-13-90 (Register 90, No. 47).

9. Repealed by operation of Government Code section 11346.1(g) (Register 92, No. 39).

§2625.2. Oral Argument.

Note • History

NOTE

HISTORY

6. Certificate of Compliance as to 9-24-90 order submitted to OAL 10-12-90 and disapproved by OAL 11-13-90 (Register 90, No. 47).

9. Repealed by operation of Government Code section 11346.1(g) (Register 92, No. 39).

Article 12. Submission of Proceeding

§2626.1. Submission of Proceeding.

Note • History

NOTE

HISTORY

6. Certificate of Compliance as to 9-24-90 order submitted to OAL 10-12-90 and disapproved by OAL 11-13-90 (Register 90, No. 47).

9. Repealed by operation of Government Code section 11346.1(g) (Register 92, No. 39).

Article 13. Petitions for Reconsideration

§2627.1. Filing.

Note • History

NOTE

HISTORY

6. Certificate of Compliance as to 9-24-90 order submitted to OAL 10-12-90 and disapproved by OAL 11-13-90 (Register 90, No. 47).

9. Repealed by operation of Government Code section 11346.1(g) (Register 92, No. 39).

§2627.2. Contents.

Note • History

NOTE

HISTORY

6. Certificate of Compliance as to 9-24-90 order submitted to OAL 10-12-90 and disapproved by OAL 11-13-90 (Register 90, No. 47).

9. Repealed by operation of Government Code section 11346.1(g) (Register 92, No. 39).

§2627.3. Response.

Note • History

NOTE

HISTORY

6. Certificate of Compliance as to 9-24-90 order submitted to OAL 10-12-90 and disapproved by OAL 11-13-90 (Register 90, No. 47).

9. Repealed by operation of Government Code section 11346.1(g) (Register 92, No. 39).

Article 14. Intervention

§2628.1. Intervention of Right.

Note • History

NOTE

HISTORY

6. Certificate of Compliance as to 9-24-90 order submitted to OAL 10-12-90 and disapproved by OAL 11-13-90 (Register 90, No. 47).

9. Repealed by operation of Government Code section 11346.1(g) (Register 92, No. 39).

§2628.2. Common Legal Representative.

Note • History

NOTE

HISTORY

6. Certificate of Compliance as to 9-24-90 order submitted to OAL 10-12-90 and disapproved by OAL 11-13-90 (Register 90, No. 47).

9. Repealed by operation of Government Code section 11346.1(g) (Register 92, No. 39).

§2628.3. Procedure.

Note • History

NOTE

HISTORY

6. Certificate of Compliance as to 9-24-90 order submitted to OAL 10-12-90 and disapproved by OAL 11-13-90 (Register 90, No. 47).

9. Repealed by operation of Government Code section 11346.1(g) (Register 92, No. 39).

Article 15. Intervenor's Fees and Expenses

§2629.1. Purpose.

Note • History

NOTE

HISTORY

6. Certificate of Compliance as to 9-24-90 order submitted to OAL 10-12-90 and disapproved by OAL 11-13-90 (Register 90, No. 47).

9. Repealed by operation of Government Code section 11346.1(g) (Register 92, No. 39).

§2629.2. Definitions.

Note • History

NOTE

HISTORY

6. Certificate of Compliance as to 9-24-90 order submitted to OAL 10-12-90 and disapproved by OAL 11-13-90 (Register 90, No. 47).

9. Repealed by operation of Government Code section 11346.1(g) (Register 92, No. 39).

§2629.3. Requirements for Awards.

Note • History

NOTE

HISTORY

6. Certificate of Compliance as to 9-24-90 order submitted to OAL 10-12-90 and disapproved by OAL 11-13-90 (Register 90, No. 47).

9. Repealed by operation of Government Code section 11346.1(g) (Register 92, No. 39).

§2629.4. Request for Finding of Eligibility; Time; Contents.

Note • History

NOTE

HISTORY

6. Certificate of Compliance as to 9-24-90 order submitted to OAL 10-12-90 and disapproved by OAL 11-13-90 (Register 90, No. 47).

9. Repealed by operation of Government Code section 11346.1(g) (Register 92, No. 39).

§2629.5. Response.

Note • History

NOTE

HISTORY

6. Certificate of Compliance as to 9-24-90 order submitted to OAL 10-12-90 and disapproved by OAL 11-13-90 (Register 90, No. 47).

9. Repealed by operation of Government Code section 11346.1(g) (Register 92, No. 39).

§2629.6. Motion to Change Time Periods.

Note • History

NOTE

HISTORY

6. Certificate of Compliance as to 9-24-90 order submitted to OAL 10-12-90 and disapproved by OAL 11-13-90 (Register 90, No. 47).

9. Repealed by operation of Government Code section 11346.1(g) (Register 92, No. 39).

§2629.7. Ruling.

Note • History

NOTE

HISTORY

6. Certificate of Compliance as to 9-24-90 order submitted to OAL 10-12-90 and disapproved by OAL 11-13-90 (Register 90, No. 47).

9. Repealed by operation of Government Code section 11346.1(g) (Register 92, No. 39).

§2629.8. Request for Award.

Note • History

NOTE

HISTORY

6. Certificate of Compliance as to 9-24-90 order submitted to OAL 10-12-90 and disapproved by OAL 11-13-90 (Register 90, No. 47).

9. Repealed by operation of Government Code section 11346.1(g) (Register 92, No. 39).

§2629.9. Amended Request for Award.

Note • History

NOTE

HISTORY

6. Certificate of Compliance as to 9-24-90 order submitted to OAL 10-12-90 and disapproved by OAL 11-13-90 (Register 90, No. 47).

9. Repealed by operation of Government Code section 11346.1(g) (Register 92, No. 39).

§2629.10. Decision Awarding Compensation.

Note • History

NOTE

Authority cited: Sections 12921 and 12926, Insurance Code. Reference: Section 1861.10(b), Insurance Code, CalFarm Insurance Company, et al. v. George Deukmejian, et al., May 4, 1989, Supreme Court No. S007838, pp. 24-25, 89 Daily Journal DAR 5837.

HISTORY

6. Certificate of Compliance as to 9-24-90 order submitted to OAL 10-12-90 and disapproved by OAL 11-13-90 (Register 90, No. 47).

7. Request to readopt section on an emergency basis pursuant to Government Code section 11346.1 and with an editorial correction granted and filed 11-13-90; operative 11-13-90 (Register 90, No. 47). A Certificate of Compliance must be transmitted to OAL by 3-13-91 or emergency language will be repealed by operation of law on the following day.

9. Editorial correction of HISTORY 7. and text (Register 91, No. 17).

10. Repealed by operation of Government Code section 11346.1(g) (Register 92, No. 39).

§2629.11. Computation of Compensation.

Note • History

NOTE

Authority cited: Sections 12921 and 12926, Insurance Code. Reference: Section 1861.08, Insurance Code; and CalFarm Insurance Company, et al. v. George Deukmejian, et al., May 4, 1989, Supreme Court No. S007838, pp. 24-25, 89 Daily Journal DAR 5837.

HISTORY

6. Certificate of Compliance as to 9-24-90 order submitted to OAL 10-12-90 and disapproved by OAL 11-13-90 (Register 90, No. 47).

9. Repealed by operation of Government Code section 11346.1(g) (Register 92, No. 39).

§2629.12. Time for Payment; Allowance of Award.

Note • History

NOTE

HISTORY

6. Certificate of Compliance as to 9-24-90 order submitted to OAL 10-12-90 and disapproved by OAL 11-13-90 (Register 90, No. 47).

9. Repealed by operation of Government Code section 11346.1(g) (Register 92, No. 39).

Article 16. Sample Forms

§2630.1. Forms.

Note • History

NOTE

HISTORY

6. Certificate of Compliance as to 9-24-90 order submitted to OAL 10-12-90 and disapproved by OAL 11-13-90 (Register 90, No. 47).

9. Repealed by operation of Government Code section 11346.1(g) (Register 92, No. 39).

§2630.2. Petition for Hearing.

Note • History

NOTE

Authority cited: Sections 12921 and 12926, Insurance Code. Reference: Sections 1861.05(c), and 1861.10(a), Insurance Code, CalFarm Insurance Company, et al. v. George Deukmejian, et al., May 4, 1989, Supreme Court No. S007838, pp. 24-25, 89 Daily Journal DAR 5837.

HISTORY

6. Certificate of Compliance as to 9-24-90 order submitted to OAL 10-12-90 and disapproved by OAL 11-13-90 (Register 90, No. 47).

9. Editorial correction of form (Register 91, No. 17).

10. Repealed by operation of Government Code section 11346.1(g) (Register 92, No. 39).

§2630.3. Answer.

Note • History

NOTE

HISTORY

6. Certificate of Compliance as to 9-24-90 order submitted to OAL 10-12-90 and disapproved by OAL 11-13-90 (Register 90, No. 47).

9. Editorial correction of form (Register 91, No. 17).

10. Repealed by operation of Government Code section 11346.1(g) (Register 92, No. 39).

§2630.4. Motion to Conduct Prehearing Conference.

Note • History

NOTE

HISTORY

6. Certificate of Compliance as to 9-24-90 order submitted to OAL 10-12-90 and disapproved by OAL 11-13-90 (Register 90, No. 47).

9. Repealed by operation of Government Code section 11346.1(g) (Register 92, No. 39).

§2630.5. Motion to Dismiss.

Note • History

NOTE

HISTORY

6. Certificate of Compliance as to 9-24-90 order submitted to OAL 10-12-90 and disapproved by OAL 11-13-90 (Register 90, No. 47).

9. Repealed by operation of Government Code section 11346.1(g) (Register 92, No. 39).

§2630.6. Petition to Intervene.

Note • History

NOTE

HISTORY

6. Certificate of Compliance as to 9-24-90 order submitted to OAL 10-12-90 and disapproved by OAL 11-13-90 (Register 90, No. 47).

9. Repealed by operation of Government Code section 11346.1(g) (Register 92, No. 39).

§2630.7. Request for Finding of Eligibility to Seek Compensation.

Note • History

NOTE

HISTORY

6. Certificate of Compliance as to 9-24-90 order submitted to OAL 10-12-90 and disapproved by OAL 11-13-90 (Register 90, No. 47).

9. Editorial correction of form (Register 91, No. 17).

10. Repealed by operation of Government Code section 11346.1(g) (Register 92, No. 39).

§2630.8. Request for Award of Compensation.

Note • History

NOTE

HISTORY

6. Certificate of Compliance as to 9-24-90 order submitted to OAL 10-12-90 and disapproved by OAL 11-13-90 (Register 90, No. 47).

9. Repealed by operation of Government Code section 11346.1(g) (Register 92, No. 39).

§2630.9. Verification (for Corporation).

Note • History

NOTE

HISTORY

6. Certificate of Compliance as to 9-24-90 order submitted to OAL 10-12-90 and disapproved by OAL 11-13-90 (Register 90, No. 47).

9. Repealed by operation of Government Code section 11346.1(g) (Register 92, No. 39).

§2630.10. Verification Where Applicant Is Absent from County of Attorney's Office.

Note • History

NOTE

HISTORY

5. Request to readopt section on an emergency basis pursuant to Government Code section 11346.1 granted and filed 9-24-90; operative 9-24-90 (Register 90,No. 47). A Certificate of Compliance must be transmitted to OAL by 1-22-91 or emergency language will be repealed by operation of law on the following day.

6. Certificate of Compliance as to 9-24-90 order submitted to OAL 10-12-90 and disapproved by OAL 11-13-90 (Register 90, No. 47).

9. Repealed by operation of Government Code section 11346.1(g) (Register 92, No. 39).

§2630.11. Verification (for Individuals or Partnerships).

Note • History

NOTE

HISTORY

6. Certificate of Compliance as to 9-24-90 order submitted to OAL 10-12-90 and disapproved by OAL 11-13-90 (Register 90, No. 47).

9. Repealed by operation of Government Code section 11346.1(g) (Register 92, No. 39).

§2630.12. Certificate of Service by Mail.

Note • History

NOTE

HISTORY

6. Certificate of Compliance as to 9-24-90 order submitted to OAL 10-12-90 and disapproved by OAL 11-13-90 (Register 90, No. 47).

9. Repealed by operation of Government Code section 11346.1(g) (Register 92, No. 39).

Article 17. Intervenor Compensation in Departmental Proceedings

§2631.1. Purpose.

Note • History

NOTE

Authority cited: Sections 12921 and 12926, Insurance Code. Reference: Section 1861.10(b), Insurance Code; and CalFarm, et al. v. Deukmejian, et al., 48 Cal.3d 805 (1989).

HISTORY

1. Repealer and new section filed 11-14-91 as an emergency; operative 11-15-91 (Register 92, No. 7). A Certificate of Compliance must be transmitted to OAL 3-16-92 or emergency language will be repealed by operation of law on the following day.

2. New section refiled 3-13-92 as an emergency; operative 3-13-92 (Register 92, No. 15). A Certificate of Compliance must be transmitted to OAL 7-13-92 or emergency language will be repealed by operation of law on the following day.

3. Certificate of Compliance as to 3-13-92 order transmitted to OAL 7-9-92; disapproved by OAL and order of repeal as to 3-13-92 order filed on 8-20-92 (Register 92, No. 34).

4. New section filed 8-20-92 as an emergency; operative 8-20-92 (Register 92, No. 34). A Certificate of Compliance must be filed with OAL 12-18-92 or emergency language will be repealed by operation of law on the following day.

5. Certificate of Compliance as to 8-20-92 order transmitted to OAL 2-1-93; disapproved by OAL and order of repeal as to 8-20-92 order filed on 2-1-93 (Register 93, No. 6).

§2631.2. Definitions.

Note • History

NOTE

Authority cited: Sections 12921 and 12926, Insurance Code. Reference: Section 1861.10(b), Insurance Code; and CalFarm, et al. v. Deukmejian, et al., 48 Cal.3d 805 (1989).

HISTORY

2. New section refiled 3-13-92 as an emergency; operative 3-13-92 (Register 92, No. 15). A Certificate of Compliance must be transmittted to OAL 7-13-92 or emergency language will be repealed by operation of law on the following day.

3. Certificate of Compliance as to 3-13-92 order transmitted to OAL 7-9-92; disapproved by OAL and order of repeal as to 3-13-92 order filed on 8-20-92 (Register 92, No. 34).

5. Certificate of Compliance as to 8-20-92 order transmitted to OAL 2-1-93; disapproved by OAL and order of repeal as to 8-20-92 order filed on 2-1-93 (Register 93, No. 6).

§2631.3. Request for Eligibility.

Note • History

NOTE

Authority cited: Sections 12921 and 12926, Insurance Code. Reference: Section 1861.10(b), Insurance Code; and CalFarm, et al. v. Deukmejian, et al., 48 Cal.3d 805 (1989).

HISTORY

1. New section filed 7-18-91 as an emergency; operative 7-18-91 (Register 91, No. 46). A Certificate of Compliance must be transmitted to OAL by 11- 15-91 or emergency language will be repealed by operation of law on the following day.

2. Repealer and new section filed 11-14-91 as an emergency; operative 11-15-91 (Register 92, No. 7). A Certificate of Compliance must be transmitted to OAL 3-16-92 or emergency language will be repealed by operation of law on the following day.

3. New section refiled 3-13-92 as an emergency; operative 3-13-92 (Register 92, No. 15). A Certificate of Compliance must be transmittted to OAL 7-13-92 or emergency language will be repealed by operation of law on the following day.

4. Certificate of Compliance as to 3-13-92 order transmitted to OAL 7-9-92; disapproved by OAL and order of repeal as to 3-13-92 order filed on 8-20-92 (Register 92, No. 34).

5. New section filed 8-20-92 as an emergency; operative 8-20-92 (Register 92, No. 34). A Certificate of Compliance must be filed with OAL 12-18-92 or emergency language will be repealed by operation of law on the following day.

6. Certificate of Compliance as to 8-20-92 order transmitted to OAL 2-1-93; disapproved by OAL and order of repeal as to 8-20-92 order filed on 2-1-93 (Register 93, No. 6).

§2631.4. Finding of Eligibility.

Note • History

NOTE

Authority cited: Sections 12921 and 12926, Insurance Code. Reference: Section 1861.10(b), Insurance Code; and CalFarm, et al. v. Deukmejian, et al., 48 Cal.3d 805 (1989).

HISTORY

4. Certificate of Compliance as to 3-13-92 order transmitted to OAL 7-9-92; disapproved by OAL and order of repeal as to 3-13-92 order filed on 8-20-92 (Register 92, No. 34).

6. Certificate of Compliance as to 8-20-92 order transmitted to OAL 2-1-93; disapproved by OAL and order of repeal as to 8-20-92 order filed on 2-1-93 (Register 93, No. 6).

§2631.5. Request for Compensation.

Note • History

NOTE

Authority cited: Sections 12921 and 12926, Insurance Code. Reference: Section 1861.10(b), Insurance Code; and CalFarm, et al. v. Deukmejian, et al., 48 Cal.3d 805 (1989).

HISTORY

4. Certificate of Compliance as to 3-13-92 order transmitted to OAL 7-9-92; disapproved by OAL and order of repeal as to 3-13-92 order filed on 8-20-92 (Register 92, No. 34).

6. Certificate of Compliance as to 8-20-92 order transmitted to OAL 2-1-93; disapproved by OAL and order of repeal as to 8-20-92 order filed on 2-1-93 (Register 93, No. 6).

§2631.6. Order for Compensation.

Note • History

NOTE

Authority cited: Sections 12921 and 12926, Insurance Code. Reference: Section 1861.10(b), Insurance Code; and CalFarm, et al. v. Deukmejian, et al., 48 Cal.3d 805 (1989).

HISTORY

4. Certificate of Compliance as to 3-13-92 order transmitted to OAL 7-9-92; disapproved by OAL and order of repeal as to 3-13-92 order filed on 8-20-92 (Register 92, No. 34).

6. Certificate of Compliance as to 8-20-92 order transmitted to OAL 2-1-93; disapproved by OAL and order of repeal as to 8-20-92 order filed on 2-1-93 (Register 93, No. 6).

Subchapter 4.7. Private Passenger Automobile Rating Factors

Article 1. Scope

§2632.1. Scope.

Note • History

This subchapter sets forth the criteria to be used for setting rates and premiums for private passenger automobile insurance as defined in California Insurance Code Section 660; said criteria do not apply to private passenger automobiles insured pursuant to commercial policies. This subchapter also sets forth criteria pertaining to good driver discounts, the availability of good driver discount policies from insurers, and the determination of chargeable principally at-fault accidents.

NOTE

Authority cited: Sections 1861.02, 12921 and 12926, Insurance Code; and Calfarm Insurance Company v. Deukmejian, 48 Cal.3d 805 (1989). Reference: Sections 1861.02(a) and (b), 1861.025 and 1861.05, Insurance Code.

HISTORY

1. Certificate of Compliance as to 3-17-94 order including repealer and new article 1 and section transmitted to OAL 7-12-94 and filed 8-23-94; operative 9-22-94 (Register 94, No. 34). For prior history, see Register 94, No. 11.

Article 2. Definitions

§2632.2. Rating Factors.

Note • History

(a) The term “rating factor” is defined as any factor, including discounts, used by an insurer which establishes or affects the rates, premiums, or charges assessed for a policy of automobile insurance.

(b) Notwithstanding subsection (a), the following matters are not rating factors and nothing in this section shall prevent or limit an insurer from considering such matters, with the prior approval of the Commissioner, in the development of rates and premiums:

(1) type or limits of coverage or deductibles;

(2) for automobile collision coverage, as described in California Insurance Code Section 660, the value, the cost of repair, or the auto symbol of the insured vehicles. The term “auto symbol” as used in these regulations means any symbol based on vehicle price, repair cost, or damageability which is used to calculate any rate or premium for private passenger automobile insurance;

(3) for automobile physical damage coverage, as described in California Insurance Code Section 660, or comprehensive coverage, as described in California Insurance Code Section 11580.07, the make, model, value, cost of repair, or the auto symbol of the insured vehicles.

NOTE

Authority cited: Sections 1861.02, 12921 and 12926, Insurance Code. Reference: Section 1861.02(a), Insurance Code.

HISTORY

1. Certificate of Compliance as to 3-17-94 order including repealer and new article 2 and section transmitted to OAL 7-12-94 and filed 8-23-94; operative 9-22-94 (Register 94, No. 34). For prior history, see Register 94, No. 11.

§2632.3. Class Plan.

Note • History

The term “class plan” means the following:

(a) the schedule of rating factors and discounts, and their order and manner of analysis as required by Section 2632.7, in the development of rates and premiums charged for a policy of automobile insurance.

(b) in accordance with Section 2632.2, the analysis or consideration of types or limits of coverage or deductibles, make, model, value, cost of repair, and auto symbols of the insured vehicles.

NOTE

Authority cited: Sections 1861.02, 12921 and 12926, Insurance Code. Reference: Sections 1861.02 and 1861.05, Insurance Code.

HISTORY

1. Certificate of Compliance as to 3-17-94 order including repealer and new section transmitted to OAL 7-12-94 and filed 8-23-94; operative 9-22-94 (Register 94, No. 34). For prior history, see Register 94, No. 11.

Article 3. Rating Factors

§2632.4. Use of Rating Factors.

Note • History

(a) No insurer shall use a rating factor which is not set forth in these regulations and no insurer shall adopt any rating factor based in whole or in part upon the race, language, color, religion, national origin, ancestry, age, political affiliation, or sexual orientation of any person.

(b) No insurer shall use a rating factor, discount, types of limits of coverages or deductibles, make, model, value, cost of repair, or auto symbol of the insured vehicle in the development of rates in a manner that does not bear a substantial relationship to loss.

NOTE

Authority cited: Sections 1861.02, 12921 and 12926, Insurance Code. Reference: Sections 1861.02(a) and 1861.05, Insurance Code.

HISTORY

1. Certificate of Compliance as to 3-17-94 order including repealer and new article 3 and section transmitted to OAL 7-12-94 and filed 8-23-94; operative 9-22-94 (Register 94, No. 34). For prior history, see Register 94, No. 11.

2. Amendment of subsection (a) filed 7-5-96; operative 8-4-96 (Register 96, No. 27).

§2632.5. Rating Factors.

Note • History

(a) Every insurer offering or issuing a policy of automobile insurance shall establish a class plan for the calculation of rates that specifies rating factors in accordance with this section and which complies with the good driver discount requirements of California Insurance Code Section 1861.02 and all other statutes providing discounts in automobile insurance rates and premiums.

(b) Each insurer may only use the characteristics of one driver to rate each vehicle except as provided for in section 2632.5(d)(13) and section 2632.5(c)(2). If there are more vehicles on a policy than drivers, the insurer shall assign either a rate for an undesignated driver or the lowest rate for all driver related factors to the excess vehicles.

(c) An insurer's class plan, and all rates and premiums determined in accordance therewith, shall utilize the following rating factors (the “Mandatory Factors”) for bodily injury liability, property damage liability, medical payments, uninsured motorist, collision, and comprehensive coverages:

(1) “First Mandatory Factor,” as used in subchapter 4.7, is the insured's driving safety record per California Insurance Code Section 1861.02(a)(1). This factor means the following for the driver rated on the insured vehicle:

(A) the public record of traffic violation convictions available from the California Department of Motor Vehicles, together with similar public records of traffic violation convictions that are available from other jurisdictions (hereinafter sometimes referred to as the “Motor Vehicle Report” or “MVR”). To determine a driver's safety record for purposes of California Insurance Code Sections 1861.02(a)(1) and 1861.025, each insurer shall verify a driver's current driving safety record as contained in the MVR for every driver listed on the policy at the time of policy application, and for each new driver added to the policy at the time the driver is added, and no less frequently than every 36 months thereafter, if the policy remains in effect. No insurer shall rate or underwrite a renewal policy based upon an MVR older than 36 months at the time the policy is renewed. However, nothing in this section shall be construed to preclude an insurer from obtaining, for the time periods set forth in this regulation, a report from an insurance-support organization or other third party which establishes that a new MVR would contain only the information already found on the MVR the insurer most recently obtained. When an insurer has such a report for a particular driver, the insurer is not required to obtain a new MVR for that driver. Additionally, nothing in this section shall be construed to preclude an insurer from granting a discount based on a driving record longer than 36 months as long as the insurer verifies a driver's record as set forth in this section;

(B) the principally at-fault accidents, as determined pursuant to section 2632.13;

(C) all convictions for violations of Vehicle Code Sections 23140, 23152, or 23153 must be treated as the highest surchargeable violation; however, other Vehicle Code convictions may receive equal treatment.

(2) “Second Mandatory Factor” as used in Subchapter 4.7, is the number of miles he or she drives annually, per California Insurance Code Section 1861.02(a)(2).

Except as provided in section (c)(2)(F) this factor means the estimated annual mileage for the insured vehicle during the 12 month period following the inception of the policy. Insurers may not retroactively or prospectively adjust premiums based on actual miles driven unless notice is provided to the policyholder prior to the effective date of the policy. Estimated annual mileage shall be determined only as follows and except as otherwise set forth in this section, an insurer shall use the applicant's estimated annual mileage:

(A) For new business or vehicles added during the term of the policy:

(i) During the application process, or when a vehicle is being added or replaced during the term of the policy, the applicant shall provide the miles he or she expects each vehicle to be insured will be driven during the 12 month period following policy inception. The insurer may also require or request, as set forth in sections (C) and (D) below, information from the applicant during this process necessary to support the estimate.

(ii) If an applicant does not provide the estimated annual miles he or she expects to drive or the information required pursuant to (C) below or if the information provided does not support the applicant's estimated annual miles, an insurer may issue a policy using a reasonable objective mileage estimate based upon the information provided pursuant to sections (C), (D) and (E) below or, if a reasonable estimate cannot be determined, using a default annual mileage figure which has been filed with and approved by the Commissioner pursuant to California Insurance Code Section 1861.02. Before doing so, the insurer shall inform the applicant of the mileage figure which it will use to rate the policy.

(iii) For the purposes of this section, when one or more vehicles are added during the term of the policy, “applicant” shall be construed to mean “policyholder” when the context so requires.

(B) For renewal business:

(i) During the renewal process, an insurer shall, at least every three years, request a policyholder to provide the estimated annual miles he or she expects each vehicle to be insured will be driven during the 12 month period following policy renewal. The insurer may also require or request, as set forth in sections (C) and (D) below, information from the policyholder necessary to support the estimate. The request may be made with the renewal notice. An insurer may, if not requesting updated information, use the mileage figure from the expiring policy or use a reasonable objective mileage estimate solely based upon the information set forth in (C), (D) and (E) below.

(ii) If, during the renewal process the insurer receives none or only some of the information requested in (i) above:

1. The insurer may renew the policy using either the mileage figure from the expiring policy or using a reasonable objective mileage estimate based upon the information set forth in (C), (D) and (E) below, whichever it determines is the most reasonable.

2. The insurer may, if it lacks sufficient information to determine a reasonable estimate, renew the policy using a default annual mileage figure which has been filed with and approved by the Commissioner pursuant to California Insurance Code Section 1861.02.

(iii) Before renewing a policy, the insurer shall provide the applicant written notice that highlights the mileage figure for the expiring policy and the mileage figure for the renewal policy.

1. If the vehicle is used for commute purposes, the location of the workplace, school, or other destination where the vehicle will be driven and, if applicable, an estimate of the number of miles the vehicle will be driven in the course of employment;

2. The number of days per week the vehicle will be used for commuting;

3. An estimate of the number of miles to be driven for pleasure or other purposes;

4. The approximate total number of miles driven for any time period within, but not to exceed, the previous 24 months;

5. The reason for any differences between the estimate for the upcoming 12 months and the miles driven the previous 12 months; and

6. The current odometer reading of the vehicle to be insured.

(D) An insurer may request but shall not require an applicant or policyholder to provide the following information:

1. Service records which document the odometer reading of the vehicle to be insured.

2. The use of technological devices provided by the insurer or otherwise made available to the insured that accurately collect vehicle mileage information.

(E) An insurer may obtain and use smog check odometer readings from the California Bureau of Automotive Repair, the California Department of Motor Vehicles, or any other governmental agency that maintains odometer readings to estimate annual miles driven.

(F) The Commissioner finds that basing the Second Mandatory Rating Factor on verified actual miles driven, rather than on estimated miles driven, may enable policyholders to reduce their premiums by driving less and create incentives for innovation in automobile insurance rating in California with numerous attendant benefits. Therefore, notwithstanding sections (c)(2)(A), (B), (C), (D) and (E), an insurer may offer an automobile insurance program that uses verified actual mileage rather than estimated mileage to determine the Second Mandatory Factor.

An insurer may offer a verified actual mileage program instead of, or in addition to, an estimated mileage program offered pursuant to sections (c)(2)(A), (B), (C), (D) and (E). An insurer offering both estimation and verification methods for determining mileage for the second mandatory rating factor may require an insured who chooses verified mileage for one vehicle to choose verified mileage for all vehicles insured under the same policy.

(i) For any verified mileage program an insurer offers pursuant to section (c)(2)(F), the Second Mandatory Factor shall be verified by one or more of the following methods as specified by the insurer in its class plan:

1. by odometer readings of the insured vehicle or vehicles, made by an employee of the insurer, an agent of the insurer; or a third-party vendor retained by the insurer;

2. by odometer readings recorded by an automotive repair dealer, as defined by section 9880.1 of the Business and Professions Code, in the ordinary course of the business of servicing a vehicle, provided to the insurer by the policyholder or by a vendor retained by the insurer.

3. by odometer readings obtained from smog check stations licensed by the California Bureau of Automotive Repair, from the California Department of Motor Vehicles, or any other governmental agency that maintains public records of vehicle odometer readings. Any odometer readings obtained pursuant to this section shall be provided to the insurer by the policyholder, the California Bureau of Automotive Repair, the California Department of Motor Vehicles, any government agency that maintains odometer readings, or a vendor retained by the insurer.

4. by odometer readings reported to the insurer by the insured or by an agent of the insured.

5. by a technological device pursuant to section (c)(2)(D)2.

a. Except as provided in subsection b.:

• An insurer shall only use a technological device to collect information for determining actual miles driven under the Second Mandatory Factor.

• An insurer shall not use a technological device to collect or store information about the location of the insured vehicle.

b. Nothing in this section shall prevent a motor club or insurer from using a technological device to collect information about the location of the insured vehicle as part of an emergency road service, theft service, map service or travel service.

6. by any other method approved by the Commissioner.

(ii) An insurer employing verified actual mileage pursuant to section 2632.5(c)(2)(F) may retroactively or prospectively adjust premiums based on actual miles driven provided notice is given to the policyholder prior to the effective date of the policy.

(iii) An insurer that offers both a mileage estimation program and a verified actual mileage program may provide a discount to a policyholder who participates in a verified actual mileage program. Any discount provided under section (c)(2)(F) shall be based on demonstrated cost savings or actuarial accuracy associated with obtaining and using actual miles driven rather than estimated mileage. If an insurer offers a discount, under section (c)(2)(F) all policyholders in the verified actual mileage program, regardless of the method of verification used, shall qualify for a discount.

(iv) If an insurer offers both an estimated mileage program and a verified actual mileage program, participation by a policyholder in a program to determine actual mileage shall be voluntary. An insurer offering an estimated mileage program shall not require any policyholder to participate in a program to provide verified actual mileage.

(v) An insurer employing verified actual mileage pursuant to section (c)(2)(F) shall make available all verification methods it offers to all insureds equally. No insurer shall offer or use a verification method that is not uniformly offered to the public.

(vi) An insurer offering both a mileage estimation program and a verified actual mileage program shall include both programs in one class plan.

(vii) An insurer employing verified actual mileage pursuant to section (c)(2)(F) may offer the policyholder an option to purchase coverage for a specified price per mile (“Price Per Mile Option”) provided the Price Per Mile Option complies with all applicable laws.

(viii) An insurer employing verified actual mileage pursuant to section (c)(2)(F) may combine Percent Use, Academic Standing, Gender, Marital Status, and Driver Training with the Second Mandatory Rating Factor. If an insurer elects to do so, the insurer shall demonstrate in its class plan that the rating factors used in combination, when considered individually, comply with the weight ordering requirements of Section 2632.8.

(G) All mileage rating rules that direct the selection of a mileage rating relativity shall be filed with and approved by the Commissioner in a class plan filing. This includes use of multiple mileage rating bands and use of default and/or average mileage rating relativities.

(H) In no event shall an insurer require a policyholder to provide information from a prior insurer to confirm mileage estimated or driven.

(I) Nothing in this section shall be construed to affect the ability of an insurer to decline to issue, cancel, or nonrenew a policy in accordance with any other applicable provision of California law.

(3) “Third Mandatory Factor” as used in Subchapter 4.7, is the number of years of driving experience the insured has, per California Insurance Code Section 1861.02(a)(3). This factor means number of years of experience that the driver rated on the insured vehicle has been licensed to drive in any jurisdiction. To the extent that a policy provides coverage for motorcycles or motor-driven cycles, as defined in California Vehicle Code Sections 400 and 405, this factor shall refer to the number of years that the driver rated on the insured vehicle has been licensed to drive such vehicles in any jurisdiction.

(d) In addition to the rating factors set forth in subdivision (c), an insurer's class plan, and all rates and premiums determined in accordance therewith, may utilize the following optional rating factors (the “Optional Factors”):

(1) Type of vehicle;

(2) Vehicle performance capabilities, including alterations made subsequent to original manufacture;

(3) Type of use of vehicle (pleasure only, commute, business, farm, commute mileage, etc.);

(4) Percentage use of the vehicle by the rated driver;

(5) Multi-vehicle households;

(6) Academic standing of the rated driver;

(7) Completion of driver training or defensive driving courses by the rated driver;

(8) Vehicle characteristics, including engine size, safety and protective devices, damageability, repairability, and theft deterrent devices;

(9) Gender of the rated driver;

(10) Marital status of the rated driver;

(11) Persistency:

(A) At policy renewal, persistency credit may be applied by an insurer or affiliate for the current named insured. Persistency credit may also be applied when issuing a separate new automobile policy for a person who is not the named insured on a policy, but is otherwise currently insured.

(B) An insurer shall not apply a persistency credit for a new policy issued to an individual, unless that individual is currently insured. Nor shall any insurer apply persistency, at any time, when based in whole or in part upon automobile insurance coverage provided by a non-affiliated insurer.

(C) This subsection shall not be construed to expand or restrict an insurer's ability to obtain evidence of a person's driving safety record. However, when such evidence concerns proof of prior insurance, this subsection shall apply.

(D) For purposes of this subsection, “currently insured” means a person who is presently covered for automobile insurance by the insurer or affiliate, other than as an unnamed person who is covered under a permissive user or similar provision.

(E) As used in this subsection, “affiliate” has the same meaning as defined in California Insurance Code section 1215.

(12) Non-smoker;

(13) Secondary Driver Characteristics. For drivers not assigned as a primary or secondary driver to another vehicle, this factor may be composed of a combination of the following factors: Safety Record, Years Licensed, Gender, Martial Status, Driver Training, and Academic Status;

(14) Multi-policies with the same, or an affiliated, company;

(15) Relative claims frequency. This factor shall contain a maximum of twenty categories and shall reflect where the insured vehicle is garaged. These categories shall be based on grouping the zip codes in the state into bands. Alternately, the bands could be based on grouping the census tracts in the state. Each band shall contain areas with a similar average claims frequency. In the event that the data for a zip code or census tract is not fully credible, the adjustment process described in Section 2632.9(d) shall be followed;

(16) Relative claims severity. This factor shall contain a maximum of twenty categories and shall reflect where the insured vehicle is garaged. These categories shall be based on grouping the zip codes in the state into bands. Alternately, the bands could be based on grouping the census tracts in the state. Each band shall contain areas with a similar average claims severity. In the event that the data for a zip code or census tract is not fully credible, the adjustment process described in Section 2632.9(d) shall be followed.

(e) Except as expressly provided in this subsection and in section 2632.5(c)(2)(F)(viii) the three mandatory factors may not be combined with any other factor. Optional rating factors for Percent Use, Academic Standing, Gender, Marital Status, and Driver Training may be combined with number of years of driving experience. If an insurer elects to combine number of years of driving experience with Percent Use, Academic Standing, Gender, Marital Status, or Driver Training, the insurer shall demonstrate in its class plan that the rating factors used in combination, when considered individually, comply with the weight ordering requirements of Section 2632.8.

NOTE

Authority cited: Section 1861.02, Insurance Code; and CalFarm Insurance Company v. Deukmejian (1989) 48 Cal. 3d 805. Reference: Sections 1861.02, 1861.025, 1861.05, 11628 and 11628.3, Insurance Code.

HISTORY

1. New section filed 12-15-89 as an emergency; operative 12-15-89 (Register 90, No. 3). A Certificate of Compliance must be transmitted to OAL within 120 days or emergency language will be repealed on 4-14-90.

2. New section filed 4-13-90 as an emergency; operative 4-15-90 (Register 90, No. 17). A Certificate of Compliance must be transmitted to OAL within 120 days or emergency language will be repealed on 8-13-90.

3. New section filed 8-6-90 as an emergency; operative 8-6-90 (Register 90, No. 43). A Certificate of Compliance must be transmitted to OAL by 12-4-90 or emergency language will be repealed by operation of law on the following day.

4. New section refiled 8-13-90 as an emergency; operative 8-13-90 (Register 90, No. 43). A Certificate of Compliance must be transmitted to OAL by 12-12-90 or emergency language will be repealed by operation of law on the following day.

5. Readoption of 8-6-90 emergency order filed 11-30-90 as an emergency; operative 11-30-90 (Register 91, No. 4). A Certificate of Compliance must be transmitted to OAL by 4-1-91 or emergency language will be repealed by operation of law on the following day.

6. Readoption of 8-13-90 emergency order filed 12-12-90 as an emergency; operative 12-12-90 (Register 91, No. 4). A Certificate of Compliance must be transmitted to OAL by 4-11-91 or emergency language will be repealed by operation of law on the following day.

7. Editorial correction of HISTORY 6 correcting operative date (Register 91, No. 21).

8. Readoption of 11-30-90 emergency order filed 3-29-91 as an emergency; operative 3-29-91 (Register 91, No. 21). A Certificate of Compliance must be transmitted to OAL by 7-29-91 or emergency language will be repealed by operation of law on the following day.

9. Readoption of emergency order filed 7-26-91 as an emergency; operative 7-26-91 (Register 92, No. 4). A Certificate of Compliance must be transmitted to OAL 11-25-91 or emergency language will be repealed by operation of law on the following day.

10. Readoption of emergency order filed 11-27-91 as an emergency; operative 11-27-91 (Register 92, No. 13). A Certificate of Compliance must be transmitted to OAL 3-26-92 or emergency language will be repealed by operation of law on the following day.

11. Readoption of emergency order, including repealer of italicized text, filed 3-25-92; operative 3-25-92 (Register 92, No. 20). A Certificate of Compliance must be transmitted to OAL 7-23-92 or emergency language will be repealed by operation of law on the following day.

12. Editorial correction restoring article 3 heading (Register 92, No. 20).

13. Readoption of emergency order filed 7-22-92 as an emergency; operative 7-22-92 (Register 92, No. 30). A Certificate of Compliance must be transmitted to OAL 11-19-92 or emergency language will be repealed by operation of law on the following day.

14. Readoption of emergency order filed 11-19-92 as an emergency; operative 11-19-92 (Register 92, No. 47). A Certificate of Compliance must be transmitted to OAL 3-19-92 or emergency language will be repealed by operation of law on the following day.

15. Readoption of emergency order filed 3-26-93 as an emergency; operative 3-26-93 (Register 93, No. 13). A Certificate of Compliance must be transmitted to OAL 7-26-93 or emergency language will be repealed by operation of law on the following day.

16. Readoption of emergency order filed 7-22-93 as an emergency; operative 7-22-93 (Register 93, No. 30). A Certificate of Compliance must be transmitted to OAL by 11-19-93 or emergency language will be repealed by operation of law on the following day.

17. Readoption of emergency order filed 11-18-93 as an emergency; operative 11-18-93 (Register 93, No. 47). A Certificate of Compliance must be transmitted to OAL by 3-18-94 or emergency language will be repealed by operation of law on the following day.

18. Readoption of emergency order filed 3-17-94 as an emergency; operative 3-17-94 (Register 94, No. 11). A Certificate of Compliance must be transmitted to OAL by 7-14-94 or emergency language will be repealed by operation of law on the following day.

19. Certificate of Compliance as to 3-17-94 order including repealer and new section transmitted to OAL 7-12-94; disapproved by OAL 8-23-94 (Register 94, No. 34).

20. New section filed 2-23-95 as an emergency; operative 2-23-95 (Register 95, No. 8). A Certificate of Compliance must be transmitted to OAL by 6-23-95 or emergency language will be repealed by operation of law on the following day.

21. New section including amendment of subsection (c)(22) refiled 7-5-95 as an emergency; operative 7-5-95 (Register 95, No. 27). A Certificate of Compliance must be transmitted to OAL by 11-2-95 or emergency language will be repealed by operation of law on the following day.

22. Repealed by operation of Government Code section 11346.1(g) 11-3-95 (Register 96, No. 37).

23. Editorial correction of subsection (c)(22) and History 21 (Register 95, No. 49).

24. New section refiled 12-5-95 as an emergency; operative 12-5-95 (Register 95, No. 49). A Certificate of Compliance must be transmitted to OAL by 4-3-96 or emergency language will be repealed by operation of law on the following day.

25. Repealed by operation of Government Code section 11346.1(g) (Register 96, No. 27).

26. New section filed 7-5-96; operative 8-4-96 (Register 96, No. 27).

27. Editorial correction of subsection (d)(10) and adding new History 22 and History renumbering (Register 96, No. 37).

28. Repealer of subsection (d)(14) and new subsection (d)(14) filed 5-5-97 as an emergency; operative 5-5-97 (Register 97, No. 19). A Certificate of Compliance must be transmitted to OAL by 9-2-97 or emergency language will be repealed by operation of law on the following day.

29. Reinstatement of subsection (d)(14) as it existed prior to 5-5-97 emergency amendment by operation of Government Code section 11346.1(f) (Register 97, No. 38).

30. Repealer of subsection (d)(14) and new subsection (d)(14) filed 9-15-97; operative 9-15-97 (Register 97, No. 38). A Certificate of Compliance must be transmitted to OAL by 1-13-98 or emergency language will be repealed by operation of law on the following day.

31. Reinstatement of subsection (d)(14) as it existed prior to 9-15-97 emergency amendment by operation of Government Code section 11346.1(f) (Register 98, No. 10).

32. Repealer and new subsection (d)(14) filed 3-5-98; operative 3-5-98 pursuant to Government Code section 11343.4(d) (Register 98, No. 10).

33. Editorial correction inserting word inadvertently omitted from subsection (b) (Register 99, No. 41).

34. Editorial correction of subsection (b) (Register 2002, No. 17).

35. Amendment of subsection (d)(11) and new subsections (d)(11)(A)-(E) filed 8-27-2002; operative 9-26-2002 (Register 2002, No. 35).

36. Amendment of subsection (c)(1)(A) and Note filed 2-27-2006; operative 4-28-2006 (Register 2006, No. 9).

37. Amendment of subsections (d)(15)-(e) filed 7-14-2006; operative 8-13-2006 (Register 2006, No. 28).

38. Amendment of subsection (c)(2) and new subsections (c)(2)(A)-(H) filed 12-29-2006; operative 2-27-2007 (Register 2006, No. 52).

39. Amendment of subsections (b), (c)(2) and (c)(2)(E), new subsections (c)(2)(F)-(c)(2)(F)(viii), subsection relettering and amendment of subsection (e) filed 10-15-2009; operative 10-15-2009 pursuant to Government Code section 11343.4 (Register 2009, No. 42).

§2632.6. Discounts.

Note • History

(a) Insurers may offer discounts to premiums for any of the following:

(1) completion of driver training or defensive driving courses;

(2) any other discount provided by law.

(b) Notwithstanding subsection (a), no discount shall be offered or used by any insurer that is not uniformly promoted and offered to the public.

(c) The insurer's class plan shall specify the nature of the discounts and the manner in which they will be promoted and offered to the public.

NOTE

Authority cited: Sections 1861.02, 11628, 12921 and 12926, Insurance Code. Reference: Sections 1861.02, 1861.05 and 11628, Insurance Code.

HISTORY

§2632.7. Analysis of Rating Factors.

Note • History

(a) The determination of the initial relativities to associate with a rating factor shall be established by performing a sequential analysis. The sequential analysis shall remove the variation in loss costs already explained by prior factors.

(b) The sequential analysis shall analyze the rating factors one at a time, in the following order:

1. The first mandatory factor;

2. The second mandatory factor;

3. The third mandatory factor;

4. Any and all optional factors used by the insurer in accordance with subsection 2632.5(d). The order of analysis of the optional factors shall be determined by the insurer, with the exception that frequency band and severity band shall be analyzed last.

(c) The initial relativities, as developed, shall be balanced to a weighted average of 1.0 for multiplicative factors or balanced to a weighted average of 0.0 for additive factors. The weighting factor for the weighted average shall be the number of exposures from the data chosen for use in section 2632.8(b).

(d) The results of the sequential analysis shall be submitted to the Department in a computer file in a format specified by the Commissioner. Individual policy holder's name and street address need not be submitted provided the insurer includes a unique identifying number which permits tracking of the information should questions concerning data quality arise.

NOTE

Authority cited: Section 1861.02, Insurance Code; and CalFarm Insurance Company v. Deukmejian (1989) 48 Cal.3d 805. Reference: Sections 1861.02 and 1861.05, Insurance Code.

HISTORY

1. New section heading and text filed 9-26-94 as an emergency; operative 9-26-94 (Register 94, No. 39). A Certificate of Compliance must be transmitted to OAL by 1-24-95 or emergency language will be repealed by operation of law on the following day. For prior history, see Register 94, No. 34.

2. Repealed by operation of Government Code section 11346.1(g) (Register 95, No. 5).

3. New section filed 2-2-95 as an emergency; operative 2-2-95 (Register 95, No. 5). A Certificate of Compliance must be transmitted to OAL by 6-2-95 or emergency language will be repealed by operation of law on the following day.

4. New section refiled 6-2-95 as an emergency; operative 6-2-95 (Register 95, No. 22). A Certificate of Compliance must be transmitted to OAL by 10-2-95 or emergency language will be repealed by operation of law on the following day.

5. New section refiled 10-12-95 as an emergency; operative 10-12-95 (Register 95, No. 41). A Certificate of Compliance must be transmitted to OAL by 2-9-96 or emergency language will be repealed by operation of law on the following day.

6. Repealed by operation of Government Code section 11346.1(g) (Register 96, No. 27).

7. New section filed 7-5-96; operative 8-4-96 (Register 96, No. 27).

8. New subsection (b) filed 9-11-96; operative 9-11-96 pursuant to Government Code section 11343.4(d) (Register 96, No. 37).

§2632.8. Factor Weights.

Note • History

(a) For each type of coverage, factor weights shall be calculated for each of the three mandatory factors listed in Section 2632.5(c)(1) through (3) and for each of the optional factors the insurer elects to utilize in its class plan from Section 2632.5(d). Solely for the purpose of calculating factor weights, bodily injury coverage may be combined with property damage coverage and comprehensive coverage may be combined with collision coverage.

(b) The data used to compute the weight shall be based on one of the following:

(1) all of the subject company's currently insured vehicles;

(2) the same data set used to perform the sequential analysis in Section 2632.7; or

(3) the set of insured vehicles that may be published by the Department of Insurance.

For additive and multiplicative factors, the weight of Rating Factor j = Σ|(Ri -- R)|*Ei*B. For additive and multiplicative factors, compute, |(Ri -- R)| *Ei *B for each category of rating factor j. The weight for rating factor j is then the sum of all these numbers (as i runs across all categories of rating factor j).

Where Ri -- Balanced relativity of the ith category of rating factor j (the superscript j is omitted, the same below)

R -- Weighted average relativity (the balanced relativities are weighted by the percent of exposure so that R should be equal to 0 for additive factors and 1 for multiplicative factors)

Ei -- Percent of exposure in the ith category of rating factor j

B --Base rate

(d) The weights of the factors, as calculated in subdivision (c), must align in decreasing order of importance as follows: driving safety record must have the most weight followed by annual miles driven followed by years of driving experience followed by each individual weight of each optional factor. If the weights are not in the order as specified herein then the insurer must correct the relativities of the rating factors as follows:

(1) Select the rating factors to be modified.

(A) Compute the weighted average of the initial relativities for the factor over the data set selected in subdivision (b) herein;

(B) Subtract the weighted average from each initial relativity;

(D) Add the result of step (C) to the weighted average.

The formula for this correction is:

NR = (IR - WA) * CF) + WA

Where: NR = New Relativity

IR = Initial Relativity

CF = Correction Factor

WA = Weighted Average

(2) Repeat process of subdivision (d)(1)(A) through (D) if it is necessary to correct the weight of any of the rating factors.

(3) The weight of a corrected rating factor may not exceed the corrected weight of the succeeding rating factor, in decreasing order of importance, by more than 0.25.

(4) If two rating factor weights are not in the order specified in this Section, the subject company shall have the right to increase or decrease the weight of either factor to achieve compliance. This right shall apply to both the optional rating factors and the mandatory rating factors.

NOTE

Authority cited: Section 1861.02, Insurance Code; and CalFarm Insurance Company v. Deukmejian, (1989) 48 Cal.3d 805. Reference: Sections 1861.02 and 1861.05, Insurance Code.

HISTORY

1. Certificate of Compliance as to 3-17-94 order including repealer and new section heading transmitted to OAL 7-12-94 and filed 8-23-94; operative 9-22-94 (Register 94, No. 34). For prior history, see Register 94, No. 11.

2. New section filed 7-5-96; operative 8-4-96 (Register 96, No. 27).

3. Amendment filed 12-12-2002; operative 1-11-2003 (Register 2002, No. 50).

4. Amendment of subsections (a), (c) and (d) and new subsection (d)(4) filed 7-14-2006; operative 8-13-2006 (Register 2006, No. 28).

§2632.9. Use of Data.

Note • History

(a) An insurer that does not currently have credible data to support any of the categories for any of the rating factors listed in section 2632.5(c) and (d) may use the following for each such factor in their class plans filed within three years of the effective date of these regulations. An insurer may elect to use more than one of the listed data sources, provided each data source is identified as being primary, secondary, or third etc. The primary data source must be used for all rating factors included in that data source. The secondary data source can be used only if the primary data source does not have information on a specific rating factor or as needed to supplement credibility. The secondary data source must be used for all rating factors included in that data source before using a third data source. Similarly, the third data source can only be used if the secondary data source does not have information on a specific rating factor or as needed to supplement credibility, etc.:

(1) their own data, interpolating or otherwise actuarially adjusting the data to fit the categories; or

(2) data from another company; or

(3) data from an advisory organization; or

(4) the indicated relativity from another insurer with a similar book of business; or

(5) data that may be published by the Department; or

(6) approved relativities from another insurer's approved class plan.

(b) For class plans filed more than three years after the effective date of this regulation, an insurer may use only one of the following for every rating factor:

(1) the insurer's own data; or

(2) the insurer's own data and the data from a single alternative source of primary data; or,

(3) data from a single alternative source of primary data, such as an advisory organization; or,

(4) the indicated relativity from the approved plan of another insurer with a similar book of business; or

(5) data that may be published by the Department; or,

(6) data that may be published by the Department and the insurer's own data.

(c) When an insurer uses data from another source (as allowed in 2632.9(a) & (b)) they may use only the raw data before any adjustment factors have been applied (e.g., loss adjustment expenses, trending, loss development, etc.).

(d) If an insurer elects to use the optional factors average relative frequency band and severity band as listed in Section 2632.5(d)(15) and (16), the bands described in Section 2632.9(e) may be used. Use of the data described in section 2632.9(e) shall not be considered a data source for the purposes of section 2632.9(b) and restrict an insurer from selecting one of the options listed there. An insurer may also elect to use their own data for developing the frequency and severity bands. In the event that an insurer lacks credible data at the census tract level, they shall use zip code data. If the insurer's own zip code data is not fully credible, it shall use the claims frequency and severity for the zip code that is published in the manual described in Section 2632.9(e) either:

(1) directly as it is published, or

(2) to credibility adjust their own data. In the case where the manual indicates that the rate published in the manual has been credibility adjusted, an insurer may:

(A) use the credibility adjusted rate in the manual as the complement of credibility, or

(B) combine the unadjusted data published in the manual with its own unadjusted data. If this combined data is still not credible, then an insurer may elect to use as the compliment of credibility either:

1. the rate published in the manual for the CAARP territory that the zip code is a member of, or

2. the rate based on their own data or data from the manual from another grouping of contiguous whole zip codes, selected by the insurer, that is fully credible and contains said zip code.

(e) The frequency and severity rates and possible band assignments for each zip code in California are shown in the manual entitled “The 2008 California Private Passenger Auto Frequency and Severity Bands Manual, revised May 15, 2008”, and are in their entirety hereby incorporated by reference. This regulation manual is not printed in the California Code of Regulations, but may be examined on our public website.

(f) Zip codes not included in the manual described under (e) shall be assigned to bands as follows:

(1) new zip codes that were split off from an old zip code, shall use the band of the former zip code for that area;

(2) new zip codes that combined all or parts of other zip codes shall be assigned to one of the old zip codes that was used to make the new zip code;

(3) all other zip codes not in (e) shall be assigned by the insurer based on the band of any zip code that borders it.

(4) for assignments made under (2) or (3), insurers must choose the same zip code to be used for all band assignments.

NOTE

Authority cited: Section 1861.02, Insurance Code; and Calfarm Insurance Company v. Deukmejian (1989) 48 Cal.3d 805. Reference: Sections 1861.02 and 1861.05, Insurance Code.

HISTORY

2. New section filed 7-5-96; operative 8-4-96 (Register 96, No. 27).

3. Amendment of subsection (e) filed 10-26-2009; operative 10-26-2009 pursuant to Government Code section 11343.4 (Register 2009, No. 44).

§2632.10. Approval of Class Plan.

Note • History

(a) Except as provided in subpart (b) of this section, no insurer may hereafter use a class plan, or charge or collect a premium which does not comply with the provisions of this subchapter or with the provisions of the California Insurance Code. No insurer may offer, sell or renew a policy of automobile insurance, or collect a premium for a policy of automobile insurance which is not calculated in accordance with a class plan that complies with this subchapter.

(b) Prior to the approval of a class plan which has been submitted to the Commissioner in good faith and which complies with the provisions of this chapter and the Insurance Code, an insurer may continue to use rates and premiums that are calculated pursuant to a class plan that has been approved by the Commissioner.

NOTE

Authority cited: Sections 1861.02, 12921 and 12926, Insurance Code. Reference: Sections 1861.02 and 1861.05, Insurance Code.

HISTORY

§2632.11. Submission of Class Plans, Symbols, and Implementation Data.

Note • History

(a) Every insurer offering or selling a policy of private passenger automobile insurance shall submit a class plan which complies with this subchapter to the Commissioner for review. The following shall apply to all class plans submitted in accordance with this subchapter:

(1) A class plan shall be considered to have been received by the Commissioner on the date that it is received by the Department's Rate Filing Bureau in San Francisco.

(2) Within 15 working days of receipt, the Commissioner shall review filings submitted pursuant to this subchapter for completeness. If the Commissioner determines that the class plan is not complete, notice stating the grounds for incompleteness will be given to the insurer within the 15 working day period and the filing of the class plan will be rejected.

(3) Rejection of the filing of a class plan for incompleteness shall not relieve any insurer of the duty to file a complete class plan.

(b) Class plans submitted for review shall contain a completed class plan application, in a form prescribed by the Commissioner, and underwriting guidelines.

(c) For class plan changes submitted in accordance with the 2006 amendments to Section 2632.8, every class plan shall be submitted in conjunction with an accompanying rate filing and shall be subject to the following conditions:

(1) Class plan applications submitted in accordance with subdivision (c) shall include a transition plan. The transition plan shall consist of at least two annual class plan filings. The first of the two annual class plan filings shall be submitted within 30 days of the date the 2006 amendments to Section 2632.8 are filed with the Secretary of State. Insurers must fully comply with Section 2632.8 within two years of the date the 2006 amendments to Section 2632.8 are filed with the Secretary of State.

(2) An insurer shall revise factor weights in each of the annual class plan filings to correct non-compliance with Section 2632.8.

(3) The amount of non-compliance shall be based upon the insurer's class plan in effect on December 31, 2005.

(A) The amount of non-compliance shall be established by comparing the factor weight for each optional rating factor to the factor weight for the third mandatory factor, years driving experience.

(B) The formula for establishing the amount of non-compliance shall be: (weight of optional factor divided by weight of years driving experience) minus 1.00.

(C) If the resulting calculation is greater than or equal to zero, the optional factor does not comply and must be corrected. If the calculation is less than zero, the factor is in compliance.

(4) The first annual filing must correct at least 15% of the current amount of non-compliance for every rating factor that is not in compliance. The transition plan shall be demonstrated in each filing as follows:

(A) The insurer must demonstrate that it has achieved the required amount of correction in each filing. This shall be done by calculating the formula in subdivision (c)(3)(B) of this Section for the current class plan and newly-submitted class plan for each optional rating factor to show that the required amount of correction has been made. The required amount of correction to be demonstrated in the newly-submitted class plan can be achieved by tempering the optional rating factor or pumping years driving experience and the mandatory factors as necessary, relative to the rating factor weights used in the formula specified in subdivision (c)(3)(B) of this Section. Alternatively, the required amount of correction can be achieved by simultaneously tempering the optional rating factor and pumping years driving experience and other mandatory factors as necessary, relative to the rating factor weights used in the formula specified in subdivision (c)(3)(B) of this Section.

(B) For each filing submitted on an annual or more frequent basis to comply with subdivision (c) of this Section, the insurer must perform the weight test and correction calculation with a set of policies with effective dates no more than six months prior to the date of filing.

(5) The annual corrections described in subdivision (c) of this Section shall apply to each individual coverage or combination of coverages as described in Section 2632.8(a).

(6) The annual corrections described in subdivision (c) of this Section shall apply to the factor weights of each optional rating factor, as listed in Section 2632.5(d).

(7) The factor weights for the three mandatory rating factors in each filing shall be in the order specified in Section 2632.8(d).

(8) An insurer may choose to make more than one class plan filing during each annual period, however, the first annual filing must correct at least 15% of the current amount of non-compliance as provided in subdivision (c) of this Section. An insurer may also choose to achieve full compliance at any date prior to the end of the two-year transition period.

(d) Any class plan change approved by the Commissioner shall be implemented no later than 90 days after the date the plan is approved by the Commission. Implementation, as referred to herein, shall apply to both the issuance of new policies and renewals, and the implementation shall not result in unfair discrimination between insureds that are issued new and renewal policies.

(e) The Commissioner shall approve or reject a class plan submitted by an insurer within 90 days of the date a completed class plan application is received by the Commissioner.

(f) An insurer whose class plan has been rejected by the Commissioner may, within 30 days of the date of such rejection, request a hearing before the Commissioner. Such hearing shall be conducted in compliance with California Insurance Code section 1861.08, and the insurer requesting such hearing shall have the burden of proving that the rejected class plan complied with all applicable statutes and regulations.

(g) Any change to an approved class plan or values assigned to the rating factors, and any change to the values assigned to the make, model, value, cost of repair, or auto symbol for the insured vehicles requires the prior approval of the Commissioner. Proposed changes must be submitted with a class plan application.

(h) Every insurer that uses auto symbols for any vehicle must submit its methodology for determining such symbols, and all values and relativities associated therewith, to the Commissioner for approval prior to use. Any subsequent changes in methodology must also be submitted to the Commissioner for approval prior to use. Further, every insurer that uses auto symbols must submit the following to the Commissioner, annually, on a date to be agreed upon between the insurer and the Commissioner, or if no agreement is reached, on a date to be specified by the Commissioner:

(1) all auto symbols, and the values and relativities associated therewith, that the insurer proposes to use during the ensuing 12 months. For a new auto model which becomes available after the date upon which the submission is made, the insurer shall assign a symbol according to the insurer's approved symbol methodology, and the insurer may then commence using the symbol. Such symbols shall be submitted for approval to the Commissioner with the insurer's next annual submission of all auto symbols.

(2) data sufficient to support any proposed changes in auto symbols, or changes in the values or relativities associated with any auto symbols, including but not limited to, damageability studies;

(3) data sufficient to show the anticipated impact of any class changes in auto symbols upon the total revenue generated by the insurer's private automobile insurance business.

(i) Every insurer that does not use auto symbols, but which uses make, model, value, cost of repair, as factors in determining rates and premiums for private passenger automobile insurance must submit its methodology for determining such factors, and all values and relativities associated therewith, to the Commissioner for approval prior to use. Any subsequent changes in methodology must also be submitted to the Commissioner for approval prior to use. Further, every insurer that uses such factors must submit the following to the Commissioner, annually, on a date to be agreed upon between the insurer and the Commissioner, or if no agreement is reached, on a date to be specified by the Commissioner:

(1) All factors, and the values and relativities associated therewith, that the insurer proposes to use during the ensuing 12 months. For a new auto model which becomes available after the date upon which the submission is made, the insurer shall determine factors according to the insurer's approved methodology, and the insurer may the commence using the factors. Such factors shall be submitted for approval to the Commission with the insurer's next annual submission of all factors;

(2) data sufficient to support any proposed changes in such factors, or changes in the values or relativities associated therewith, including, but not limited to, damageability studies;

(3) data sufficient to show the anticipated impact of any changes in factors upon the total revenue generated by the insurer's private passenger automobile insurance business.

(j) Insurers may use auto symbols determined by advisory organizations that are in compliance with Insurance Code Section 1855, et seq. In lieu of the requirements of subpart (h) above, insurers shall submit to the Commissioner, annually, on a date to be agreed upon between the insurer and the Commissioner, or if no agreement is reached, on a date to be specified by the Commissioner, the following:

(1) a statement that the insurer proposes to use the symbols of an advisory organization;

(2) the identity of the advisory organization;

(3) sufficient information to identify the auto symbols of the organization that the insurer proposes to use.

NOTE

Authority cited: Section 1861.02, Insurance Code; and Calfarm Insurance Company v. Deukmejian (1989) 48 Cal.3d 805. Reference: Section 1861.02, Insurance Code.

HISTORY

2. New subsection (a) and amendment of Note filed 7-5-96; operative 8-4-96 (Register 96, No. 27).

3. Amendment of subsections (a), (a)(3) and (c)-(d) and amendment of Note filed 7-14-2006; operative 8-13-2006 (Register 2006, No. 28).

Article 4. Good Driver Discount Policy

§2632.12. Good Driver Discount.

Note • History

(a) Every insurer offering a policy of automobile insurance shall set its rates so that a good driver, as defined in Section 1861.025 of the California Insurance Code, shall be charged a rate that is at least 20 percent less than the lowest rate available to a comparable driver who is not a good driver. The good driver discount must be applied after the total premium is developed under the class plan, including any policy fees that apply to the issuance of the policy.

(b) If a good driver as determined pursuant to California Insurance Code Section 1861.025 is not eligible to purchase a good driver discount policy because of the driving safety record or years of driving experience of any other person, then the good driver shall be eligible to purchase a good driver discount policy which excludes such other persons from coverage.

NOTE

Authority cited: Sections 1861.02, 1861.025, 12921 and 12926, Insurance Code. Reference: Sections 1861.02 and 1861.05, Insurance Code.

HISTORY

1. Certificate of Compliance as to 3-17-94 order including new article 4 and repealer and new section transmitted to OAL 7-12-94 and filed 8-23-94; operative 9-22-94 (Register 94, No. 34). For prior history, see Register 94, No. 11.

2. Editorial correction of subsection lettering (Register 97, No. 19).

§2632.12.1. Use of Rates Pursuant to Approved Rating Plans. [Repealed]

Note • History

NOTE

Authority cited: Sections 1861.02, 12921 and 12926, Insurance Code; and Calfarm Ins. Co. v. Deukmejian 48 Cal.3d 805 (1989). Reference: Section 1861.02, Insurance Code.

HISTORY

1. New section filed 12-14-90 as an emergency; operative 12-14-90 (Register 91, No. 6). A Certificate of Compliance must be transmitted to OAL by 4-15-91 or emergency language will be repealed by operation of law on the following day.

2. Amendment filed 3-18-91 as an emergency; operative 3-18-91 (Register 91, No. 14). A Certificate of Compliance must be transmitted to OAL by 7-16-91 or emergency language will be repealed by operation of law on the following day.

3. Readoption of 3-18-91 emergency order filed 3-29-91 as an emergency; operative 3-29-91 (Register 91, No. 21). A Certificate of Compliance must be transmitted to OAL by 7-29-91 or emergency language will be repealed by operation of law on the following day.

4. Readoption of emergency order filed 7-26-91 as an emergency; operative 7-26-91 (Register 92, No. 4). A Certificate of Compliance must be transmitted to OAL 11-25-91 or emergency language will be repealed by operation of law on the following day.

5. Readoption of emergency order filed 11-27-91 as an emergency; operative 11-27-91 (Register 92, No. 13). A Certificate of Compliance must be transmitted to OAL 3-26-92 or emergency language will be repealed by operation of law on the following day.

6. Readoption of emergency order filed 3-25-92; operative 3-25-92 (Register 92, No. 20). A Certificate of Compliance must be transmitted to OAL 7-23-92 or emergency language will be repealed by operation of law on the following day.

7. Readoption of emergency order filed 7-22-92 as an emergency; operative 7-22-92 (Register 92, No. 30). A Certificate of Compliance must be transmitted to OAL 11-19-92 or emergency language will be repealed by operation of law on the following day.

8. Readoption of emergency order filed 11-19-92 as an emergency; operative 11-19-92 (Register 92, No. 47). A Certificate of Compliance must be transmitted to OAL 3-19-92 or emergency language will be repealed by operation of law on the following day.

9. Readoption of emergency order including amendment of subsection (b) filed 3-26-93 as an emergency; operative 3-26-93 (Register 93, No. 13). A Certificate of Compliance must be transmitted to OAL 7-26-93 or emergency language will be repealed by operation of law on the following day.

10. Readoption of emergency order filed 7-22-93 as an emergency; operative 7-22-93 (Register 93, No. 30). A Certificate of Compliance must be transmitted to OAL by 11-19-93 or emergency language will be repealed by operation of law on the following day.

11. Readoption of emergency order filed 11-18-93 as an emergency; operative 11-18-93 (Register 93, No. 47). A Certificate of Compliance must be transmitted to OAL by 3-18-94 or emergency language will be repealed by operation of law on the following day.

12. Readoption of emergency order filed 3-17-94 as an emergency; operative 3-17-94 (Register 94, No. 11). A Certificate of Compliance must be transmitted to OAL by 7-14-94 or emergency language will be repealed by operation of law on the following day.

13. Certificate of Compliance as to 3-17-94 order including repealer transmitted to OAL 7-12-94 and filed 8-23-94; operative 9-22-94 (Register 94, No. 34).

§2632.13. Eligibility to Purchase Good Driver Discount Policy and Guidelines for Determination of “Principally At-Fault.” [Effective until 12-11-2011]

Note • History

(a) In determining a driver's qualification to purchase a good driver discount policy pursuant to California Insurance Code Section 1861.025, an insurer shall determine the driver's violation points and principally at-fault accidents as set forth in this section. This section shall also apply in determining whether a driver was principally at-fault in an accident for the purpose of determining the driver's safety record (First Mandatory Factor).

(b) Violation point counts and principally at-fault accidents shall be determined as follows:

(1) The insurer may count one violation point count for each violation point count which has been assessed by the California Department of Motor Vehicles under California Vehicle Code section 12810, Subsections (a), (b), (c), (d), (e), (g) and (h), for traffic violation convictions with conviction dates not more than three years preceding the effective or renewal date of the policy, and which have not been made confidential under the California Vehicle Code;

(2) For violations not occurring in California, the insurer may count one violation point count for each violation point count which would have been counted under subsection (1) above had the violation occurred in California. Violation points shall not be counted pursuant to this Subsection if violation points were counted for the violation pursuant to Subsection (b)(1) above;

(3) The insurer may count one violation point if a driver was involved in an accident which resulted only in damage to property if the driver was principally at fault in the accident, as defined in Subsection (c). A driver may be determined to be principally at fault for such an accident where the accident was a solo vehicle accident, subject to the exceptions set forth in subsection (d).

(c) a driver may be considered to be principally at fault in an accident if the driver's actions or omissions were at least 51 percent of the proximate cause of the accident, subject to the exceptions set forth in Subsection (d), and, in accidents not resulting in death, if the damage to the property of any one person caused by the accident exceeded $750.00.

(d) A driver shall not be considered to be principally at-fault if the accident occurred under any of the following circumstances:

(1) The vehicle was lawfully parked at the time of the accident. A vehicle rolling from a parked position shall not be considered to be lawfully parked, but shall be considered as in the operation of the last operator;

(2) The vehicle was struck in the rear by another vehicle, and the driver has not been convicted of a moving traffic violation in connection with the accident;

(3) The driver was not convicted of a moving traffic violation and the operator of another vehicle involved in the accident was convicted of a moving traffic violation;

(4) The driver's vehicle was damaged as a result of contact with a vehicle operated by a “hit and run” operator of another vehicle and the accident was reported to legal authorities within a reasonable time after the accident;

(5) The accident resulted from contact with animals, birds, or falling objects;

(6) The driver was responding to a call of duty as a paid or volunteer member of any police or fire department, first aid squad, or of any law enforcement agency, while performing any other governmental function in a public emergency.

(7) The accident was a solo vehicle accident that was principally caused by a hazardous condition of which a driver, in the exercise of reasonable care, would not have noticed (for example, “black ice.”)

(e) An insurer providing insurance coverage at the time of an accident shall not make a determination that a driver was principally at-fault for an accident, other than an indisputably solo vehicle accident and which is not of the type specified in subpart (d), unless the insurer first does the following:

(1) the insurer shall make an investigation of the accident;

(2) the insurer shall provide written notice to the insured of the result of such investigation, including any determination that the insured was principally at fault. The notice shall specify the basis of any determination that a driver was principally at fault. The notice shall advise the insured of the right to reconsideration of the determination of fault, as set forth for in Subsection (e)(3);

(3) Within 30 days of receipt by the insured of a written notice required by Subsection (e)(2), the insured may request reconsideration of the insurer's determination that the insured was principally at-fault. The insurer shall provide written notice of its decision upon reconsideration within 30 days of the insured's request therefor and the notice shall state the reasons for its decision upon reconsideration. The reconsideration shall be made by an employee or agent of the insurer other than the employee or agent who made the determination being reconsidered. The right to reconsideration set forth herein shall not affect any other rights of the insured.

(f) If a driver had insurance that provided coverage for an accident, a subsequent insurer which did not provide coverage at the time of the accident and to whom an application for the issuance of a policy of insurance is made, or from whom a renewal policy is offered, may not consider the driver to be principally at-fault for the accident unless the following circumstances apply:

(1) if the insurer that provided coverage at the time of the accident charged the driver with a violation point for the accident in accordance with this Section, or the predecessor of this Section; or,

(2) if the driver was not covered by an automobile insurance policy delivered or issued for delivery in California and issued and in force pursuant to the laws of California at the time of the accident, and the insurer determines that the driver was principaly at-fault as provided for in Subsection (g); or,

(3) if the insurer of the driver at the time of the accident did not have notice of the accident and no other insurer of any person involved in the accident made a determination that any other driver was at least 51% of the proximate cause of the accident, and the insurer determines that the driver was principally at fault as provided for in Subsection (g).

(g) If a driver did not have insurance that provided coverage for an accident, and if no other insurer of any person involved in the accident made a determination that any other driver was at least 51% of the proximate cause of the accident, an insurer to whom an application for the issuance or renewal of a policy of automobile insurance is made may consider a driver to be principally at-fault if the insurer has sufficient information to make that determination. For the purpose of this Subsection, the following shall apply:

(1) the insurer shall make reasonable efforts to obtain information concerning the accident from any insurer of a person involved in the accident;

(2) the insurer shall request sufficient information from the driver;

(3) upon reasonable request by the insurer, a driver shall provide sufficient information concerning the accident to the insurer for the insurer to determine whether the driver was principally at-fault. If the driver fails or refuses to provide such information, then the insurer may count a violation point for the accident or may consider the driver to be principally at-fault.

(h) An insurer that has made a determination that its insured was principally at-fault in an accident shall not refuse to disclose that determination to any person involved in that accident, to any person legally responsible for damages resulting from that accident, or to an insurer or prospective insurer of any such person. The requirement for disclosure shall pertain only to the ultimate determination of its insured's fault, and disclosure shall not be required of any other information in its possession or any determination of fault of any person other than the insured.

(i) Notwithstanding any other provision of this section, in determining a driver's at-fault accident history, a driver's declaration, under penalty of perjury, attesting to his or her at-fault accident history, shall be sufficient proof of that accident history in the absence of contrary information from an independent source. If an insurer discovers that the declaration contains a fraudulent or material misrepresentation, the insurer may use that information to rate the policy, may cancel the policy pursuant to California Insurance Code sections 661 and 1861.03(c)(1) and take any other action authorized by law.

Nothing in this subdivision shall prevent an insurer from using information available from the public record of traffic violation convictions as set forth in section 2632.5(c)(1)(A), principally at-fault accidents as set forth in this section, or information from a subscribing loss underwriting exchange carrier. Nothing in this subdivision shall prevent an insurer from asking follow-up questions about the information contained in the declaration, and nothing in this subdivision shall authorize a driver to refuse to answer a reasonable follow-up question.

If an insurer discovers contrary information from an independent source disputing the driver's declaration, the insurer shall so notify the driver within ten days of discovery of the contrary information and allow the driver at least five days to provide a response.

Within 45 days of the effective date of this subsection, each insurer writing private passenger automobile insurance shall file with the Department's Rate Filing Bureau (1) evidence demonstrating its compliance with this subsection or (2) a plan demonstrating how it will comply with this subsection. If the insurer files a plan demonstrating how it will comply with this subsection, it shall, within 120 days of the effective date of this subsection, file class plan and/or rate applications which are in compliance with this subsection. For insurers whose plan requires the Commissioner's prior approval of a revised class plan and/or rate application to achieve compliance, the insurer shall implement the revised class plan and/or rate application in accordance with the terms of the Commissioner's approval of the revised class plan and/or rate application.

(j) In determining eligibility to purchase a good driver discount policy, the requirement that the driver have been licensed to drive a motor vehicle for the previous three years shall mean that the driver has been licensed to drive in any jurisdiction.

NOTE

Authority cited: Sections 1861.02, 1861.025, 12921 and 12926, Insurance Code; and Calfarm Insurance Company v. Deukmejian 48 Cal.3d 805 (1989). Reference: Sections 488.5, 1861.02 and 1861.025, Insurance Code; and Sections 12810 and 16000, Vehicle Code.

HISTORY

1. Certificate of Compliance as to 3-17-94 order including repealer of article 4 heading and repealer and new section filed transmitted to OAL 7-12-94 and filed 8-23-94; operative 9-22-94 (Register 94, No. 34). For prior history, see Register 94, No. 11.

2. New subsection (i) and subsection relettering filed 10-31-2002; operative 11-30-2002 (Register 2002, No. 44).

3. Change without regulatory effect amending subsection (c) and Note filed 12-5-2002 pursuant to section 100, title 1, California Code of Regulations (Register 2002, No. 49).

4. Amendment of subsections (e)(2)-(3) filed 10-4-2004; operative 11-3-2004 (Register 2004, No. 41).

5. Amendment of section heading filed 3-16-2011; provisions of this version of section 2632.13 are effective until 12-11-2011. A new version of section 2632.13, effective 12-11-2011, follows this section (Register 2011, No. 11).

§2632.13. Determination of “Principally At-Fault” Accidents. [Effective 12-11-2011]

Note • History

(a) This section sets forth the procedures an insurer shall follow to determine whether an insured driver or a driver listed on an insurance application (hereinafter referred to as “driver”) may be considered to be principally at-fault for an accident for the purpose of:

(1) Determining the driver's driving safety record (First Mandatory Factor) pursuant to section 2632.5, and

(2) Determining the driver's eligibility for the Good Driver Discount policy pursuant to Insurance Code Section 1861.025 and Section 2632.13.1.

(b) An insurer shall not make a determination that a driver is principally at-fault for an accident unless the driver's actions or omissions were at least 51 percent of the legal cause of the accident, subject to the presumptions set forth in Subsections (c) and (d) and either the accident resulted in bodily injury or death or, for an accident that resulted only in damage to property, the total loss or damage caused by the accident exceeded $1000. No determination made in accordance with the prior version of this regulation is affected by the 2011 amendment to this regulation.

(c) It shall be rebuttably presumed as provided in Evidence Code Section 603 that a driver is not principally at-fault for an accident under any of the following circumstances:

(2) The vehicle was struck in the rear by another vehicle and the driver has not been convicted of a moving traffic violation in connection with the accident;

(3) The driver was not convicted of a moving traffic violation and the operator of another vehicle involved in the accident was convicted of a moving traffic violation;

(5) The accident resulted from contact with animals, birds, or falling objects;

(6) The accident was a solo vehicle accident that was principally caused by a hazardous condition of which a driver, in the exercise of reasonable care, would not have noticed (for example, “black ice”) or in the exercise of reasonable care could not have avoided (for example, avoiding a child running into the street).

(d) It shall be conclusively presumed that a driver is not principally at-fault for an accident if the provisions of Insurance Code Section 488.5 apply.

(e) An insurer providing insurance coverage at the time of an accident shall not make a determination that a driver was principally at-fault for an accident unless the insurer first conducts an investigation. In conducting an investigation and determining whether the driver is principally at-fault for an accident, the insurer shall diligently pursue a thorough, fair and objective investigation and shall maintain records detailing the investigation.

(1) The insurer shall provide written notice to the insured of the result of such investigation, including any determination that the driver was principally at-fault. The notice shall specify the basis of any determination that a driver was principally at-fault, including the basis of any determination that the accident resulted in bodily injury or death. The notice shall advise the insured of the right to reconsideration of the determination of fault, as set forth in Subsection (e)(2);

(2) Within 30 days of receipt by the insured of a written notice required by Subsection (e)(1), the insured may request reconsideration of the insurer's determination that the driver was principally at-fault. Within 30 days of receipt of the insured's request for reconsideration, the insurer shall provide the insured with a written decision, stating the reasons for its decision upon reconsideration. The reconsideration shall be made by an employee or agent of the insurer other than the employee or agent who made the determination being reconsidered. The right to reconsideration set forth herein shall not affect any other rights of the insured.

(3) An insurer shall not report to a subscribing loss underwriting exchange carrier that a driver is principally at-fault for an accident unless it has complied with subsections (b) and (e) in making its determination. If after reporting a principally at-fault determination to a subscribing loss underwriting exchange carrier an insurer modifies its principally at-fault determination, it shall within twenty days report any such modification to the subscribing loss underwriting exchange carrier.

(f) An insurer who did not provide coverage at the time of the accident (hereinafter referred to as a “subsequent insurer”) shall not consider a driver to be principally at-fault for the accident unless:

(1) The subsequent insurer contacts any insurer who provided coverage at the time of the accident and confirms its principally at-fault determination as defined in subsection (b); or,

(2) The subsequent insurer obtains and relies on subscribing loss underwriting exchange carrier data that:

(A) For an accident under a policy governed by the laws of the State of California, includes all of the following information:

1. The policyholder's address,

2. Identification of the driver,

3. A principally at-fault determination that establishes that the driver was at least 51 percent at-fault for the accident and that the presumptions under subsection (c) and (d), above, were considered,

4. For an accident that resulted only in damage to property, the total loss or damage caused by the accident, or

5. If applicable, information establishing that the accident resulted in bodily injury or death;

(B) For an accident under a policy governed by the laws of another state, includes all of the following information:

1. The policyholder's address,

2. Identification of the driver

3. A determination of fault for the accident made according to the laws of the state governing the accident,

4. For an accident that resulted only in damage to property, a property damage claims payment, or

5. If applicable, a bodily injury claims payment; or,

(3) The driver confirms and the subsequent insurer records facts sufficient to find that the driver was principally at-fault for the accident as defined in subsection (b); or

(4) The subsequent insurer obtains sufficient information to determine that the driver is principally at-fault for the accident as provided in subsection (b); or

(5) The subsequent insurer obtains the driver's declaration, under penalty of perjury, attesting to his or her own principally at-fault accident history as provided under subsection (b), which shall be sufficient proof of that accident history in the absence of contrary information from an independent source.

(A) Nothing in subdivision (f)(5) shall prevent a subsequent insurer from asking follow-up questions about the information contained in the declaration, and nothing in this subdivision shall authorize a driver to refuse to answer a reasonable follow-up question.

(B) If a subsequent insurer discovers that the declaration contains a fraudulent or material misrepresentation, the insurer may cancel the policy pursuant to California Insurance Code sections 661 and 1861.03(c)(1) and take any other action authorized by law.

(C) If an insurer discovers contrary information from an independent source disputing the driver's declaration, the insurer shall determine whether the driver is principally at-fault for the accident as provided in subsections (f)(1) through (f)(4), above.

(g) Any insurer may use facts available from the public record of traffic violation convictions available from the California Department of Motor Vehicles and similar public records of traffic violation convictions available from other jurisdictions (hereinafter referred to as the “motor vehicle report” or “MVR”) to support a determination that a driver is principally at-fault for an accident; provided that:

(1) An insurer may not rely on a traffic violation point count pursuant to California Vehicle Code Section 12810(g) or on any finding of responsibility for an accident by a public agency that may be found in a driver's MVR, and

(2) In order to rely solely on a driver's MVR to support a principally at-fault determination, the MVR must contain all information required for such a finding as provided in subsection (b).

(h) Any subsequent insurer may use data available from a subscribing loss underwriting exchange carrier to support a determination that a driver is principally at-fault for an accident. However, except as otherwise permitted in subsection (f)(2), an insurer may not rely solely on subscribing loss underwriting exchange data to support a principally at-fault determination. Whenever an insurer relies on any data obtained from a subscribing loss underwriting exchange carrier to determine that a driver is principally at-fault for an accident, it shall inform the driver or applicant of the source of the information upon which it relies and provide contact information for the source.

(i) An insurer that has made a determination that its insured was principally at-fault for an accident shall not refuse to disclose that determination to any person involved in that accident, to any person legally responsible for damages resulting from that accident, or to an insurer or prospective insurer of any such person. The requirement for disclosure shall pertain only to the ultimate determination of its insured's fault and the resulting bodily injury or death or the total amount of property damage, and disclosure shall not be required of any other information in its possession or any determination of fault of any person other than the insured.

(j) If a driver fails or refuses to respond to an insurer's reasonable request for information that is material to its principally at-fault determination and the insurer has complied with the requirements of Section 2632.19(b)(1), the insurer may cancel the policy as authorized by Insurance Code Section 1861.03(c)(1).

NOTE

Authority cited: Sections 791.10, 1861.02, 1861.025, 12921 and 12926, Insurance Code; and Calfarm Insurance Company v. Deukmejian 48 Cal.3d 805 (1989). Reference: Sections 488.5, 1861.02 and 1861.025, Insurance Code; and Section 12810, Vehicle Code.

HISTORY

1. New section filed 3-16-2011; operative 12-11-2011, at which time the previous version of section 2632.13 is inoperative (Register 2011, No. 11).

§2632.13.1. Eligibility to Purchase Good Driver Discount Policy.

Note • History

(a) In determining eligibility to purchase a Good Driver Discount policy, the requirement that the driver have been licensed to drive a motor vehicle for the previous three years shall mean that the driver has been licensed to drive in any jurisdiction.

(b) This subsection clarifies the application of Insurance Code Subsections 1861.025(b)(1), (3) and (d), criteria for eligibility for a Good Driver Discount policy. All other eligibility criteria for Good Driver Discount policies that are provided in Insurance Code Section 1861.025 shall also be followed.

(1) Subject to the prohibitions of Insurance Code Sections 488 and 488.5, the insurer may assign one violation point for each violation point that the California Department of Motor Vehicles has assessed under California Vehicle Code Subsections 12810(a), (b), (c), (d), (f), (i)(1), and (j) for traffic violation convictions with conviction dates not more than three years preceding the effective or renewal date of the policy, and which have not been made confidential under the California Vehicle Code;

(2) For violations not occurring in California, the insurer may assign one violation point for each violation point which would have been assessed under subsection (b)(1) above had the violation occurred in California. Violation points shall not be counted pursuant to this Subsection if violation points were counted for the violation pursuant to Subsection (b)(1) above;

(3) For accidents, the insurer shall do the following to determine eligibility for the Good Driver Discount policy:

(A) Assign one violation point for each accident that a driver has been involved in during the previous three years for which he or she was principally at-fault that resulted only in damage to property pursuant to section 2632.13(b), or

(B) Determine that the driver is ineligible to purchase a Good Driver Discount policy if, during the previous three years, the driver has been involved in an accident for which he or she was principally at-fault that resulted in a death or bodily injury.

NOTE

Authority cited: Sections 1861.02, 1861.025, 12921 and 12926, Insurance Code; and Calfarm Insurance Company v. Deukmejian 48 Cal. 3d 805 (1989). Reference: Sections 488, 488.5, 1861.02 and 1861.025, Insurance Code; and Section 12810, Vehicle Code.

HISTORY

1. New section filed 3-16-2011; operative 12-11-2011 (Register 2011, No. 11). For prior history, see Register 94, No. 34.

§2632.14. Policies Offered to Good Drivers and Nondiscrimination.

Note • History

(a) Except as provided by Insurance Code section 1861.15(d) every insurer required to offer a good driver discount policy of automobile insurance pursuant to section 1861.02(b) of the California Insurance Code shall offer to sell each of the following to a good driver:

(1) a good driver discount policy that contains only the minimum limits of liability coverage specified in Section 16056 of the California Vehicle Code;

(2) a good driver discount policy that contains comprehensive coverage or automobile collision coverage, or both of such coverages, in addition to automobile liability coverage;

(3) a good driver discount policy that contains any of the limits of coverage, the types of coverage, and amounts of deductibles that the insurer offers to sell to the public.

(b) Insurers required to offer good driver discount policies pursuant to section 1861.02(b) of the California Insurance Code shall offer and sell good driver discount policies under the same terms and conditions and with the same options and services that the insurer offers and sells to the public for any other automobile insurance policy. The foregoing includes but is not limited to terms for payment of premiums and the payment of commissions to agents.

NOTE

Authority cited: Sections 1861.02, 1861.15, 12921 and 12926, Insurance Code. Reference: Section 1861.02, Insurance Code.

HISTORY

§2632.14.1. Policies Offered to Good Drivers and Nondiscrimination. [Repealed]

Note • History

NOTE

Authority cited: Sections 1861.02, 1861.15, 12921 and 12926, Insurance Code. Reference: Section 1861.02, Insurance Code.

HISTORY

1. New section filed 3-12-90 as an emergency; operative 3-12-90 (Register 90, No. 12). A Certificate of Compliance must be transmitted to OAL within 120 days or emergency language will be repealed on 7-10-90.

2. New section filed 7-5-90 as an emergency readoption; operative 7-11-90 (Register 90, No. 35). A Certificate of Compliance must be transmitted to OAL by 11-8-90 or emergency language will be repealed by operation of law on the following day.

4. Readoption of 8-6-90 emergency order filed 11-30-90 as an emergency; operative 11-30-90 (Register 91, No. 4). A Certificate of Compliance must be transmitted to OAL by 4-1-91 or emergency language will be repealed by operation of law on the following day.

5. Editorial correction restoring HISTORY 1 dropped in printing (Register 91, No. 15).

6. Readoption of 11-30-90 emergency order, including amendment of subsection (a), filed 3-29-91 as an emergency; operative 3-29-91 (Register 91, No. 21). A Certificate of Compliance must be transmitted to OAL by 7-29-91 or emergency language will be repealed by operation of law on the following day.

7. Readoption of emergency order filed 7-26-91 as an emergency; operative 7-26-91 (Register 92, No. 4). A Certificate of Compliance must be transmitted to OAL 11-25-91 or emergency language will be repealed by operation of law on the following day.

8. Readoption of emergency order filed 11-27-91 as an emergency; operative 11-27-91 (Register 92, No. 13). A Certificate of Compliance must be transmitted to OAL 3-26-92 or emergency language will be repealed by operation of law on the following day.

9. Readoption of emergency order filed 3-25-92; operative 3-25-92 (Register 92, No. 20). A Certificate of Compliance must be transmitted to OAL 7-23-92 or emergency language will be repealed by operation of law on the following day.

10. Readoption of emergency order filed 7-22-92 as an emergency; operative 7-22-92 (Register 92, No. 30). A Certificate of Compliance must be transmitted to OAL 11-19-92 or emergency language will be repealed by operation of law on the following day.

11. Readoption of emergency order filed 11-19-92 as an emergency; operative 11-19-92 (Register 92, No. 47). A Certificate of Compliance must be transmitted to OAL 3-19-92 or emergency language will be repealed by operation of law on the following day.

12. Readoption of emergency order filed 3-26-93 as an emergency; operative 3-26-93 (Register 93, No. 13). A Certificate of Compliance must be transmitted to OAL 7-26-93 or emergency language will be repealed by operation of law on the following day.

13. Readoption of emergency order filed 7-22-93 as an emergency; operative 7-22-93 (Register 93, No. 30). A Certificate of Compliance must be transmitted to OAL by 11-19-93 or emergency language will be repealed by operation of law on the following day.

14. Readoption of emergency order filed 11-18-93 as an emergency; operative 11-18-93 (Register 93, No. 47). A Certificate of Compliance must be transmitted to OAL by 3-18-94 or emergency language will be repealed by operation of law on the following day.

15. Readoption of emergency order filed 3-17-94 as an emergency; operative 3-17-94 (Register 94, No. 11). A Certificate of Compliance must be transmitted to OAL by 7-14-94 or emergency language will be repealed by operation of law on the following day.

16. Certificate of Compliance as to 3-17-94 order including repealer transmitted to OAL 7-12-94 and filed 8-23-94; operative 9-22-94 (Register 94, No. 34).

§2632.14.2. Good Driver Discount Policies from Companies Within Insurance Groups. [Repealed]

Note • History

NOTE

Authority cited: Sections 1861.02, 12921 and 12926, Insurance Code. Reference: Section 1861.02, Insurance Code.

HISTORY

5. Editorial correction restoring HISTORY 1 dropped in printing (Register 91, No. 15).

6. Readoption of 11-30-90 emergency order, including amendment to Authority cites, filed 3-29-91 as an emergency; operative 3-29-91 (Register 91, No. 21). A Certificate of Compliance must be transmitted to OAL by 7-29-91 or emergency language will be repealed by operation of law on the following day.

16. Certificate of Compliance as to 3-17-94 order including repealer transmitted to OAL 7-12-94 and filed 8-23-94; operative 9-22-94 (Register 94, No. 34).

§2632.14.3. Letter of Refusal for Good Driver.

Note • History

(a) As used in Insurance Code section 658, “refuses to accept an applicant” means a failure or refusal, either by an insurer or any of its appointed agents, to allow an applicant for a Good Driver discount policy, as defined in Insurance Code section 1861.025, to complete an application for insurance, or to respond to a telephone inquiry about obtaining insurance coverage within three business days of receipt of the inquiry. It also means any attempt or act on the part of an insurer or any of its appointed agents to dissuade an applicant for a Good Driver discount policy from completing an application for insurance, other than statements which inform the applicant about how he or she can obtain insurance on more advantageous terms from another insurer.

(b) As used in Insurance Code section 658, “refuses to issue a good driver discount policy” includes an insurer's failure or refusal to bind coverage within fifteen business days of the date of receipt, by the insurer or any of its appointed agents, of the insurer's application completed by or on behalf of the applicant. The fifteen business day time period shall begin from the date either the insurer or any of its appointed agents receives the completed application, whichever date is earliest. The fifteenth day of the fifteen business day time period shall be deemed the date on which the insurer “refuses to issue a good driver discount policy.”

(c) When an insurer's appointed agent refuses to accept an applicant for a Good Driver discount policy or refuses to issue a Good Driver discount policy when written application has been made by a Good Driver, that agent shall provide the written statement required by Insurance Code section 658 explaining the reason for the refusal.

(d) As used in Insurance Code section 658, the requirements that an insurer “shall furnish the applicant for insurance a written statement within 10 days of the refusal” means that the insurer or agent shall provide the written statement to the applicant by personal delivery within ten calendar days of the refusal date, or if the written statement is provided by mail, shall mail the written statement to the applicant by first class U.S. mail postage prepaid within ten calendar days of the refusal date.

(e) As used in Insurance Code section 658, the requirement that the written statement explain the “reason or reasons relied upon for denying insurance coverage” means that the written statement shall set forth in detail all of the facts on which the refusal is based. Mere conclusory statements unsupported by a statement of facts pertaining to the particular applicant shall be insufficient to satisfy the requirements of the statute.

(f) Every applicant who meets the criteria for purchase of a Good Driver discount policy shall be provided, at the time he or she first inquires about obtaining an automobile liability policy from the insurer or any of its appointed agents, with the following statement:

An insurer which refuses to provide coverage to an applicant who is a “Good Driver” must provide the applicant with a written statement of the reasons it denied coverage. In general, under California law a Good Driver is a person who has not had more than one violation point or more than one at-fault accident resulting in only property damage in the last three years.

Every such applicant inquiring about coverage in person or by mail shall be provided with a written copy of the statement, which shall appear in at least ten-point type. Every such applicant inquiring about coverage by telephone shall be provided with the statement by telephone.

(g) This section shall apply to applications for private passenger automobile insurance only.

(h) This section shall apply only to persons qualified to purchase a Good Driver Discount policy as defined in Insurance Code section 1861.025.

NOTE

Authority cited: Sections 12921 and 12926, Insurance Code; CSAA v. Garamendi (1992) 6 Cal.App.4th 1409. Reference: Sections 658, 1861.02 and 1861.025, Insurance Code.

HISTORY

1. New section filed 4-5-94; operative 5-5-94 (Register 94, No. 14).

§2632.15. Data Retention.

Note • History

(a) Every insurer offering or issuing a policy of automobile insurance shall collect and retain the data listed in this subsection. All data requirements apply only to an insurer's direct business. If an insurer does not in any way use or collect an item listed in subsection (3) below for any individual insured, they are not required to collect and report the item. This file will be referred to as the “Current File”. Insurers are required to collect and retain data on the listed factors, they are not required to use these factors in calculating premiums.

(1) All data must be kept in a computer file that allows for the insurer to place the data on computer media (tape, cartridge or disk). All data must be recorded in a raw, ungrouped format in a manner specified by the Commissioner.

(2) Every insurer shall begin collecting the data for current policy holders, beginning with all renewals effective on or after 180 days after the effective date of these regulations.

(3) The following items shall be kept for every currently insured vehicle:

(A) The latest effective or renewal date of the policy;

(B) The number of drivers assigned to this vehicle;

(C) The following information for the rated driver on this vehicle (as of the last renewal date for this policy or date of latest coverage or vehicle change). To the extent that it is available, all violation and accident data shall cover a minimum of six years.

1. The total number of convictions.

2. The date and California vehicle code section (or its equivalent) of each violation.

3. The total number of at-fault BI accidents with over $500 damage.

4. The date of each at-fault BI accidents with over $500 damage.

5. The total number of at-fault non-BI accidents with over $500 damage.

6. The date of each at-fault non-BI accidents with over $500 damage.

7. Number of years since the last at-fault BI accident with over $500 in damage.

8. Number of years since the last at-fault non-BI accident with over $500 in damage.

9. Number of years since the last convictions.

10. Gender.

11. Martial status (legally married, single or widowed only).

12. Percentage use this driver.

13. Years licensed to drive.

14. Age.

15. Smoker status.

16. Academic status. Indicator to describe if the driver is a student and if so if they qualify for a good student discount.

17. Senior defensive driver discount eligibility.

18. Driver training status.

19. Any other driver related factors the Commissioner has approved and the insurer uses.

(D) The same information listed under (C) shall also be kept for every driver assigned to this vehicle. Data for each driver shall only be kept for one vehicle, unless there are excess vehicles in which case the data under (C) shall include the data for the driver that puts the most mileage on the excess vehicle.

(E) Additional vehicle indicator. This is used for insureds that have more vehicles than drivers where there is no rated driver.

(F) Zip Code of the vehicle's location.

(G) Type of use indicator (pleasure only, business, commute, etc.).

(H) Weekly commute miles.

(I) Vehicle model year.

(J) Vehicle value (price group) code.

(K) Vehicle type; auto, light pickup truck, van, heavy truck, Motorcycle, antique auto or other.

(L) Vehicle performance type.

(M) Limits and deductibles, separately for all coverages.

(N) Good driver discount status.

(O) Multi-vehicle household.

(P) The number of semi-annual renewals for this policy.

(Q) Vehicle safety and anti-theft equipment, including but not limited to:

1. Anti-lock brake, including number of wheels covered;

2. Air bags, including number and location;

3. Automatic seat belts;

4. Anti-theft devices, including type;

5. Vehicle garaging status.

(R) Premiums, separately for each coverage.

(S) Actual previous years mileage, rounded to the nearest hundred miles.

(T) Estimated current years mileage for the 12 month period beginning with the start of this policy, rounded to the nearest hundred miles.

(U) Any other vehicle related factors the Commissioner has approved and the insurer uses.

(V) Any other factor the Commissioner has adopted by regulation.

(W) VIN.

(X) Policy number and vehicle number.

(4) Insurers shall maintain these data so that they are able to provide them to the Commissioner within three months of receipt of a request for the data.

(b) Every insurer issuing a policy of automobile insurance shall maintain historical underwriting, loss and exposure data for each calendar year for each of the latest four years for every insured vehicle. All data requirements apply only to an insurer's direct business. If an insurer does not in any way use or collect an item listed in subsection (6) and (7) below for any individual insured, they are not required to collect and report the item. This data shall be kept in two files with records kept by each vehicle. One file will be referred to as the “Historical Exposure File”, and the other file will be referred to as the “Historical Losses File”.

(1) All data must be kept in a computer file that allows for the insurer to place each Calendar year's data on computer media (tape, cartridge or disk). All data must be recorded in a raw, ungrouped format in a manner specified by the Commissioner.

(2) The data shall be kept for a minimum of four years after the end of each calendar year.

(3) Every insurer shall begin collecting the data for all policies in effect beginning the first of the quarter after the effective date of these regulations.

(4) All loss and loss reserve information shall reflect the loss and loss reserve estimates as of the latest calendar quarter. The data on losses occurring four years ago shall reflect the reserve estimates as of the latest quarter. All loss data shall be based on claims received by the insurer for that coverage as the consequence of a single incident regardless of the number of claimants.

(5) In the event of a change in any risk related factors, multiple records per vehicle shall be generated for the calendar year. A new record shall be generated for the “Historical Exposure File” each time any of the data in (a)(3)(C) through (V) changes.

(6) The “Historical Exposure File” shall contain the following items for every insured vehicle for all exposure during each calendar year:

(A) The data item listed in Section 2632.15(a);

(B) The termination date of the policy or a code indicating the policy is still in effect;

(D) Earned exposure listed separately for each coverage.

(7) The “Historical Losses File” shall contain the following information for each claim as a result of incidents occurring during the calendar year:

(A) Policy number and vehicle number. These numbers must match the policy number and vehicle number in the “Historical Exposure File” for the vehicle to which the loss is assigned;

(B) Date of accident;

(D) Total dollar amount of incurred losses listed separately by coverage and including the latest estimate of the ultimate loss reserves and loss adjustment reserves as described in Section 2632.15(b) Paragraph (4).

(E) Capped losses for bodily injury liability coverages.

(F) Closed claim indicator by coverage.

(8) Insurers shall maintain these data so that they are able to provide them to the Commissioner within three months of receipt of a request for the data.

NOTE

Authority cited: Sections 1861.02 and 1861.03, Insurance Code; and CalFarm Insurance v. Deukmejian (1989) 48 Cal.3d 805. Reference: Sections 1861.02 and 1861.03, Insurance Code.

HISTORY

1. Certificate of Compliance as to 3-17-94 order including repealer of article 5 heading and repealer and new section heading transmitted to OAL 7-12-94 and filed 8-23-94; operative 9-22-94 (Register 94, No. 34). For prior history, see Register 94, No. 11.

2. New section filed 7-5-96; operative 8-4-96 (Register 96, No. 27).

§2632.16. Severability.

Note • History

If the provisions of this Subchapter, or the application of any provisions of this Subchapter to any person or to any circumstances is held invalid, that invalidity shall not affect other provisions or applications of these regulations which can be given effect without the invalid provisions or application, and to this end the provisions of these regulations are severable

NOTE

Authority cited: Sections 12921 and 12926, Insurance Code. Reference: Sections 1861.02, 1861.025, 1861.15 and 11628, Insurance Code.

HISTORY

§2632.17. Effective Date and Interim Rates. [Repealed]

Note • History

NOTE

Authority cited: Sections 1861.02, 1861.05, 12921 and 12926, Insurance Code; and Calfarm Insurance Company v. Deukmejian 48 Cal.3d 805 (1989). Reference: Sections 1861.02 and 1861.05, Insurance Code.

HISTORY

7. Editorial correction of HISTORY 6 correcting operative date (Register 91, No. 21).

12. Editorial correction restoring article 6 heading (Register 92, No. 20).

19. Certificate of Compliance as to 3-17-94 order including repealer of article 6 heading and section transmitted to OAL 7-12-94 and filed 8-23-94; operative 9-22-94 (Register 94, No. 34).

§2632.18. Severability. [Repealed]

Note • History

NOTE

Authority cited: Sections 12921 and 12926, Insurance Code. Reference: Sections 1861.02, 1861.025, 1861.03 and 1861.05, Insurance Code.

HISTORY

1. New section filed 4-13-90 as an emergency; operative 4-15-90 (Register 90, No. 17). A Certificate of Compliance must be transmitted to OAL within 120 days or emergency language will be repealed on 8-13-90.

2. New section filed 8-6-90 as an emergency; operative 8-6-90 (Register 90, No. 43). A Certificate of Compliance must be transmitted to OAL by 12-4-90 or emergency language will be repealed by operation of law on the following day.

3. New section refiled 8-13-90 as an emergency; operative 8-13-90 (Register 90, No. 43). A Certificate of Compliance must be transmitted to OAL by 12-12-90 or emergency language will be repealed by operation of law on the following day.

5. Readoption of 8-13-90 emergency order filed 12-12-90 as an emergency; operative 12-12-90 (Register 91, No. 4). A Certificate of Compliance must be transmitted to OAL by 4-11-91 or emergency language will be repealed by operation of law on the following day.

6. Editorial correction of HISTORY 5 correcting operative date (Register 91, No. 21).

7. Readoption of 11-30-90 emergency order filed 3-29-91 as an emergency; operative 3-29-91 (Register 91, No. 21). A Certificate of Compliance must be transmitted to OAL by 7-29-91 or emergency language will be repealed by operation of law on the following day.

8. Readoption of emergency order filed 7-26-91 as an emergency; operative 7-26-91 (Register 92, No. 4). A Certificate of Compliance must be transmitted to OAL 11-25-91 or emergency language will be repealed by operation of law on the following day.

9. Readoption of emergency order filed 11-27-91 as an emergency; operative 11-27-91 (Register 92, No. 13). A Certificate of Compliance must be transmitted to OAL 3-26-92 or emergency language will be repealed by operation of law on the following day.

10. Readoption of emergency order, including repealer of italicized text, filed 3-25-92; operative 3-25-92 (Register 92, No. 20). A Certificate of Compliance must be transmitted to OAL 7-23-92 or emergency language will be repealed by operation of law on the following day.

11. Readoption of emergency order filed 7-22-92 as an emergency; operative 7-22-92 (Register 92, No. 30). A Certificate of Compliance must be transmitted to OAL 11-19-92 or emergency language will be repealed by operation of law on the following day.

12. Readoption of emergency order filed 11-19-92 as an emergency; operative 11-19-92 (Register 92, No. 47). A Certificate of Compliance must be transmitted to OAL 3-19-92 or emergency language will be repealed by operation of law on the following day.

13. Readoption of emergency order filed 3-26-93 as an emergency; operative 3-26-93 (Register 93, No. 13). A Certificate of Compliance must be transmitted to OAL 7-26-93 or emergency language will be repealed by operation of law on the following day.

14. Readoption of emergency order filed 7-22-93 as an emergency; operative 7-22-93 (Register 93, No. 30). A Certificate of Compliance must be transmitted to OAL by 11-19-93 or emergency language will be repealed by operation of law on the following day.

15. Readoption of emergency order filed 11-18-93 as an emergency; operative 11-18-93 (Register 93, No. 47). A Certificate of Compliance must be transmitted to OAL by 3-18-94 or emergency language will be repealed by operation of law on the following day.

16. Readoption of emergency order filed 3-17-94 as an emergency; operative 3-17-94 (Register 94, No. 11). A Certificate of Compliance must be transmitted to OAL by 7-14-94 or emergency language will be repealed by operation of law on the following day.

17. Certificate of Compliance as to 3-17-94 order including repealer transmitted to OAL 7-12-94 and filed 8-23-94; operative 9-22-94 (Register 94, No. 34).

§2632.19. Substantial Increase in Hazard Insured Against.

Note • History

(a) For the purpose of cancellation or nonrenewal pursuant to Insurance Code Section 1861.03(c), none of the following events or characteristics constitutes a substantial increase in the hazard insured against:

(1) the physical or mental health of the either the insured or any principal or occasional driver of the insured vehicle, unless the Department of Motor Vehicles has suspended, revoked, or refused to issue a license pursuant to suspension of a license, the suspension is not removed prior to the time that the nonrenewal or cancellation of the policy becomes effective;

(2) a physical disability of the insured or any principal or occasional driver of the insured vehicle, unless the insured, principal or occasional driver has failed to comply with a requirement of the California Department of Motor Vehicles, or the appropriate agency in the state that has issued the driver's license for the insured, regarding vehicle equipment or modification of the vehicle;

(3) the occupation or change in the occupation of the insured or any principal or occasional driver of the insured vehicle;

(4) the age of the insured or any principal or occasional driver of the insured vehicle;

(5) the age of the insured vehicle;

(6) the cosmetic appearance of the insured vehicle. “Cosmetic appearance” means damage that does not affect the safe operation of the insured vehicle;

(7) the termination or other change in the relationship between the insurer and the insurer's agent that issued, renewed, serviced or was otherwise responsible in any manner for the insured's policy.

(8) addition, deletion, substitution or replacement of vehicle. Notwithstanding the foregoing, an insurer may cancel or nonrenew a policy under the following circumstances:

(A) for an insurer that does not insure motorcycles or motor-driven cycles, if a motorcycle or motor-driven cycle would be added to the policy, whether by substitution, replacement, or otherwise; or,

(B) for an insurer that does not insure four-wheeled private passenger automobiles, if a four-wheeled private passenger automobile would be added to the policy, whether by substitution, replacement or otherwise;

(9) except as provided for in subpart (b), change in the use of the vehicle.

(b) For the purpose of cancellation or nonrenewal pursuant to Insurance Code Section 1861.03(c), the following events or characteristics shall constitute a substantial increase in the hazard insured against:

(1) the refusal or failure by the insured to provide to the insurer, within 30 days after reasonable written request to the insured, information necessary to accurately underwrite or classify the risk. Every written request for information to an insured shall contain a prominent notice, in both English and Spanish, advising the insured that his or her failure to provide the requested information within the time required may result in the cancellation or nonrenewal of his or her policy;

(2) permissive use of the insured vehicle by persons other than the insured and principal or occasional drivers of the insured vehicle, to an extent that indicates regular use of the vehicle by such persons;

(3) the failure of the insured vehicle to comply with California or federal safety requirements if such failure is not removed prior to the time that the insurer's nonrenewal or cancellation of the policy becomes effective;

(4) the alteration of the insured vehicle in order to increase speed or acceleration capabilities which renders the insured vehicle unsafe in violation of California Vehicle Code Section 24002;

(5) suspension of the license of the insured if such suspension is not removed prior to the time that the insurer's nonrenewal or cancellation of the policy becomes effective. Notwithstanding the foregoing, a suspension shall not be grounds for cancellation or nonrenewal if it is based on the insurer's failure to make a filing required by the California Insurance or Vehicle Codes, and if a request for such a filing was made by the insured;

(6) revocation of the license of the insured for any reason other than an insurer's failure to make a filing required by the California Insurance Code.

(7) expiration of the license of the insured if the insured has not obtained a valid license prior to the time that the insurer's nonrenewal or cancellation of the policy becomes effective.

(8) change in the use of the insured vehicle to commercial use, if such a change in use is prohibited under the terms of the policy of insurance or binder issued to the policyholder.

(9) a conviction of any alcohol-related offense specified in Sections 23152; 23153; 23220; 23221; 23222; 23224; or 23226 of the California Vehicle Code, provided the person does not otherwise qualify to purchase a good driver discount policy pursuant to Section 1861.025.

(c) For the purpose of nonrenewal pursuant to Insurance Code Section 1861.03(c), the following circumstances shall constitute a substantial increase in the hazard insured against:

(1)(A) the insured or principal or occasional driver of the insured vehicle has been assessed a total of three or more violation points under Section 2632.13 within the preceding 36 months. For the purpose of this subpart, traffic violation points may be counted only for violations that have conviction dates not more than 36 months preceding the renewal date of the policy; and

(B) at the time of the expiration of the insured's current policy, the insured is not eligible under the insurer's then-current underwriting rules to purchase a policy of private passenger automobile insurance from the insurer;

(2) the assessment of two points by the insurer under Section 2632.13 for the insured or any principal or occasional driver of the insured vehicle, as a result of a violation of the California Vehicle Code for which two points are assessed under California Vehicle Code Section 12810. For the purpose of this subpart, traffic violation points may be counted only for violations that have conviction dates not more than 36 months preceding the renewal date of the policy.

(d) For the purpose of Subsection (c)(1) only, an insurer may count two violation points for each accident in which, in accordance with Section 2632.13, the insured or any principal or occasional driver of the insured vehicle was determined to be principally at fault and which resulted in bodily injury or in the death of any person. In bodily injury accidents not resulting in death, the total loss or damage caused by the accident must exceed $500.00.

(e) Notwithstanding any other provision of this Section, an insurer may not consider there to be a substantial increase in the hazard insured against unless part of the circumstances which constitute the substantial increase in the hazard insured against occurred after the most recent issuance or renewal of the policy, or unless part of the circumstances which constitute the substantial increase in hazard meet the following criteria:

(1) the circumstance is a traffic violation conviction that,

(A) did not appear on the public record of traffic violation convictions available from the California Department of Motor Vehicles, or did not appear on the public records of other jurisdictions, for which violation points would be counted under Section 2632.13; and,

(B) the insurer obtained the public record not more than 75 days before the most recent renewal or effective date of the policy; and,

(C) the insurer had no notice of the traffic violation conviction when the most recent offer of insurance or renewal was made; or,

(2) the circumstance occurred during the 60 days preceding the most recent renewal or effective date of the policy, and the insurer had no notice thereof.

(f) Notwithstanding any other provision of this Section, if a substantial increase in the hazard insured against exists because of the violation points or circumstances of any person other than the insured, then a substantial increase in the hazard insured against shall not exist if the insured excludes such other person from coverage.

NOTE

Authority cited: Sections 1861.03, 12921 and 12926 of the California Insurance Code. Reference: Section 1861.03 of the California Insurance Code.

HISTORY

1. New section filed 12-2-93; operative 1-3-94 (Register 93, No. 49).

2. Amendment of subsections (a)(2), (a)(8)(B) and (b)(4), new subsection (b)(6), subsection renumbering, and amendment of subsections (c)(1)(A)-(C), (d) and (e)(1)(A) filed 10-5-98; operative 11-4-98 (Register 98, No. 41).

3. Amendment of subsection (b)(3), new subsection (b)(4), subsection renumbering, new subsection (b)(9), repealer of subsection (c)(1)(A), subsection relettering, amendment of newly designated subsection (c)(1)(A), and amendment of subsection (c)(2) filed 10-5-98; operative 11-4-98 (Register 98, No. 41).

Subchapter 4.8. Review of Rates

Article 1. Scope

§2641.1. Implementation of Proposition 103.

Note • History

This subchapter is adopted to implement the provisions of Proposition 103 governing approval of insurance rates.

NOTE

Authority cited: Sections 1861.01 and 1861.05, Insurance Code; 20th Century v. Garamendi, 8 Cal.4th 216 (1994). Reference: Sections 1861.01 and 1861.05, Insurance Code; Calfarm Insurance Company v. Deukmejian (1989) 48 Cal.3d 805.

HISTORY

1. Repealer of former subchapters 4.8. and 4.9. filed pursuant to Government Code section 11346.1(g) (Register 92, No. 3). For prior history, see Register 91, No. 8 and 13, respectively.

2. New section filed 8-13-91 as an emergency; operative 8-13-91 (Register 92, No. 3). A Certificate of Compliance must be transmitted to OAL 12-11-91 or emergency language will be repealed by operation of law on the following day.

3. Repealed by operation of Government Code section 11346.1(g) (Register 92, No. 15).

4. New section refiled 2-14-92 as an emergency; operative 2-14-92 (Register 92, No. 15). A Certificate of Compliance must be transmittted to OAL 6-15-92 or emergency language will be repealed by operation of law on the following day.

5. Repealed by operation of Government Code section 11346.1(g) and new section filed 3-15-95; operative 3-15-95. Submitted to OAL for printing only pursuant to Government Code section 11343(a)(1) (Register 95, No. 11).

§2641.2. Applicability.

Note • History

This subchapter applies to all rates charged for insurance on risks or on operations in this state except insurance exempted by Insurance Code section 1851, insurance for which rates are set by the federal government, and, to the extent provided herein, surety, credit, and financial guaranty insurance.

NOTE

Authority cited: Sections 1861.01 and 1861.05, Insurance Code; 20th Century v. Garamendi, 8 Cal.4th 216 (1994). Reference: Sections 1851, 1861.01, 1861.05, 1861.13, 1861.135, 1861.137 and 12120, Insurance Code; Calfarm Insurance Company v. Deukmejian (1989) 48 Cal.3d 805.

HISTORY

1. New section filed 8-13-91 as an emergency; operative 8-13-91 (Register 92, No. 3). A Certificate of Compliance must be transmitted to OAL 12-11-91 or emergency language will be repealed by operation of law on the following day.

2. Repealed by operation of Government Code section 11346.1(g) (Register 92, No. 15).

3. New section refiled 2-14-92 as an emergency; operative 2-14-92 (Register 92, No. 15). A Certificate of Compliance must be transmittted to OAL 6-15-92 or emergency language will be repealed by operation of law on the following day.

4. Repealed by operation of Government Code section 11346.1(g) and new section filed 3-15-95; operative 3-15-95. Submitted to OAL for printing only pursuant to Government Code section 11343(a)(1) (Register 95, No. 11).

§2641.3. Purpose.

Note • History

The purpose of this subchapter is to establish the process and policies the Commissioner shall employ to determine whether proposed rates are excessive or inadequate.

NOTE

HISTORY

2. Repealed by operation of Government Code section 11346.1(g) (Register 92, No. 15).

Article 2. Definitions

§2642.1. Excessive.

Note • History

“Excessive” rates are rates that are expected to yield the reasonably efficient insurer a profit that exceeds a fair return on the investment used to provide the insurance. In determining whether a rate is excessive, the Commissioner shall consider the competing interests of consumers in lower prices and of investors in prices that yield high returns, and the Commissioner shall consider the fact that insurance is imbued with the public interest and is sometimes legally required.

NOTE

HISTORY

2. Repealed by operation of Government Code section 11346.1(g) (Register 92, No. 15).

§2642.2. Fair Return.

Note • History

A fair return is the profit an investor can reasonably expect to earn from an investment in a business other than insurance subject to regulation under this subchapter presenting investment risks comparable to the risks presented by insurance subject to this subchapter.

NOTE

HISTORY

2. Repealed by operation of Government Code section 11346.1(g) (Register 92, No. 15).

§2642.3. Inadequate.

Note • History

“Inadequate” rates are rates under which a reasonably efficient insurer is not expected to have the opportunity to earn a fair return on the investment that is used to provide the insurance. In determining whether a rate is inadequate, the Commissioner shall consider the competing interests of consumers in lower prices and of investors in prices that yield high returns, and the Commissioner shall consider that insurance is imbued with the public interest and sometimes legally required.

NOTE

HISTORY

2. Repealed by operation of Government Code section 11346.1(g) (Register 92, No. 15).

§2642.4. Pure Premium. [Repealed]

Note • History

NOTE

Authority cited: Sections 1861.01 and 1861.05, Insurance Code; and 20th Century v. Garamendi, 8 Cal.4th 216 (1994). Reference: Sections 1861.01 and 1861.05, Insurance Code; and Calfarm Insurance Company v. Deukmejian (1989) 48 Cal.3d 805.

HISTORY

2. Repealed by operation of Government Code section 11346.1(g) (Register 92, No. 15).

5. Repealer filed 1-3-2007; operative 4-3-2007. Submitted to OAL for printing only pursuant to Government Code section 11340.9(g) (Register 2007, No. 1).

§2642.5. Rating Period.

Note • History

“Rating period” means the period that must be accounted for in the application. The rating period shall be one year commencing on the effective date of the rates. Nothing in this section shall be construed to specify the frequency of rate filings.

NOTE

HISTORY

2. Repealed by operation of Government Code section 11346.1(g) (Register 92, No. 15).

5. Amendment filed 1-3-2007; operative 4-3-2007. Submitted to OAL for printing only pursuant to Government Code section 11340.9(g) (Register 2007, No. 1).

§2642.6. Recorded Period.

Note • History

“Recorded period” means the historical period from which data are taken to provide the basis for the proposed rate. The recorded period shall be the most recent three years for which reliable data are available, unless

(1) the credibility of that experience is less than the value contained in section 2644.23(i). In that case, additional years shall be added to the recorded period until sufficient years are used to reach the credibility standard set forth in section 2644.23(i). In no case shall the recorded period exceed six years.

(2) the data is fully credible with fewer than three years experience. In that case, only as many years as needed to be fully credible shall be used.

NOTE

Authority cited: Sections 1861.01 and 1861.05, Insurance Code; and 20th Century v. Garamendi, 8 Cal.4th 216 (1994). Reference: Sections 1861.01 and 1861.05, Insurance Code; and Calfarm Insurance Company v. Deukmejian (1989) 48 Cal.3d 805.

HISTORY

2. Repealed by operation of Government Code section 11346.1(g) (Register 92, No. 15).

5. Amendment filed 1-3-2007; operative 4-3-2007. Submitted to OAL for printing only pursuant to Government Code section 11340.9(g) (Register 2007, No. 1).

6. Amendment of subsection (1) filed 5-16-2008; operative 5-16-2008. Submitted to OAL for printing only pursuant to Government Code section 11340.9(g) (Register 2008, No. 20).

§2642.7. Lines of Insurance.

Note • History

(a) Wherever in this subchapter insurance is required to be classified by line, the classification shall be into one of the following categories:

(1) Fire

(2) Allied Lines

(3) Farmowners multiple peril

(4) Homeowners multiple peril

(5) Commercial multiple peril liability

(6) Commercial multiple peril non-liability

(7) Inland marine

(8) Medical malpractice

(9) Earthquake

(10) Other liability

(11) Products liability

(12) Private passenger automobile liability

(13) Private passenger automobile physical damage

(14) Commercial automobile liability

(15) Commercial automobile physical damage

(16) Aircraft

(17) Fidelity

(18) Surety

(19) Burglary and theft

(20) Boiler and machinery.

(b) For purposes of this subchapter, mechanical breakdown and similar insurance covering loss caused by the failure or malfunction of a component or system of a motor vehicle, as described in California Insurance Code Section 116(c), shall be classified as other liability occurrence.

(c) Any insurer or the Commissioner may disaggregate any of the foregoing lines, except homeowners multiple peril, private passenger automobile liability, and private passenger automobile physical damage, into two subcategories, “commodity” and “specialty.” Rates for specialty insurance shall be approved or disapproved using the most sound actuarial method, consistent with California law, in accordance with the Actuarial Standards of Practice, and relevant and accepted actuarial principles, guidelines, and literature.

(d) Specialty insurance shall include:

(1) Any single policy having an annual premium over $75,000;

(2) Any policy having a deductible or self-insured retention of $100,000 or more;

(3) Any excess property, excess liability, or umbrella policy, where none of the underlying policies include private passenger automobile liability, private passenger automobile physical damage, or homeowners coverage, or where the underlying policy is written by an unaffiliated insurer and covers at least the first $500,000 in losses;

(4) All policies for

(A) nuclear risks,

(B) pollution legal liability,

(D) kidnap and ransom,

(E) political risks,

(F) directors' and officers' liability,

(G) boiler and machinery insurance,

(H) fidelity insurance,

(I) mortgage guaranty insurance,

(J) employer liability under the United States Longshoremen's and Harbor Workers' Compensation Act (33 U.S.C. section 901 et seq.), the Jones Act (46 U.S.C. section 688), the Federal Employer Liability Act (45 U.S.C. section 51 et. seq.), or any similar statute,

(K) excess employer's liability over workers' compensation insurance,

(L) differences in conditions coverage,

(M) surety,

(N) credit, and

(O) aviation.

(e) Commodity insurance shall include all policies in the line that are not defined in this section as specialty.

NOTE

HISTORY

2. Repealed by operation of Government Code section 11346.1(g) (Register 92, No. 15).

5. Amendment filed 1-3-2007; operative 4-3-2007. Submitted to OAL for printing only pursuant to Government Code section 11340.9(g) (Register 2007, No. 1).

6. New subsection (a)(18), subsection renumbering, amendment of subsections (d)(4)(K)-(L) and new subsections (d)(4)(M)-(O) filed 5-16-2008; operative 5-16-2008. Submitted to OAL for printing only pursuant to Government Code section 11340.9(g) (Register 2008, No. 20).

§2642.8. Most Actuarially Sound.

Note • History

The “most actuarially sound” choice is the most appropriate choice within the range of permissible actuarially sound choices, considering both the relative likelihood of all choices within the range and the context in which the choice will be employed.

NOTE

HISTORY

1. New section filed 5-16-2008; operative 5-16-2008. Submitted to OAL for printing only pursuant to Government Code section 11340.9(g) (Register 2008, No. 20).

Article 3. General Provisions

§2643.1. Common Methodology for Review.

Note • History

While companies remain free to formulate their rates under any methodology, the Commissioner's review of those rates must use a single, consistent methodology.

NOTE

HISTORY

2. Repealed by operation of Government Code section 11346.1(g) (Register 92, No. 15).

§2643.2. Rating Basis. [Repealed]

Note • History

NOTE

HISTORY

2. Repealed by operation of Government Code section 11346.1(g) (Register 92, No. 15).

5. Repealer filed 1-3-2007; operative 4-3-2007. Submitted to OAL for printing only pursuant to Government Code section 11340.9(g) (Register 2007, No. 1).

§2643.3. Total Aggregate Earned Premiums.

Note • History

(a) The determination whether rates are excessive or inadequate is made on the basis of the aggregate earned premiums the rates are expected to produce. Thus, the proposed and approved rates are required to reflect the actual distribution of premiums, including discounts, dividends, credits, and other rating factors affecting aggregate premiums. Rates that are neither excessive nor inadequate may still be unlawful and disapproved if they are unfairly discriminatory or otherwise violate chapter 9 (commencing with section 1851) of part 2 of division 1 of the Insurance Code.

(b) Rate applications (Form CAR-1 (last revised 1/94)) shall be filed on a line-by-line basis, as set forth in section 2642.7. The application shall be accompanied by the rating manual, rating plan, all policy forms to which changes would have a rate impact, or such other documents as may be necessary to show the distribution of premium within the line. The Commissioner shall require the filing of such other information as he or she deems necessary to review the application.

NOTE

HISTORY

2. Repealed by operation of Government Code section 11346.1(g) (Register 92, No. 15).

§2643.4. Line-by-Line Ratemaking. [Repealed]

Note • History

NOTE

Authority cited: Sections 1861.01, 1861.05, 12921 and 12926 of the Insurance Code; sections 11152 and 11342.2 of the Government Code. Reference: Sections 1861.01 and 1861.05, Insurance Code; Calfarm Insurance Company v. Deukmejian (1989) 48 Cal.3d 805.

HISTORY

2. Repealed by operation of Government Code section 11346.1(g) (Register 92, No. 15).

§2643.5. Accounting Principles.

Note • History

Statutory accounting principles (“SAP”), rather than generally accepted accounting principles (“GAAP”), shall be used to measure equity.

NOTE

HISTORY

2. Repealed by operation of Government Code section 11346.1(g) (Register 92, No. 15).

§2643.6. Interjurisdictional Allocations.

Note • History

(a) Data shall be submitted with a rate application. Where reliable data exist for California losses, defense and cost containment expenses, ancillary income, commissions, state premium taxes, loss reserves, and unearned premium reserves, those data shall be used. Where data are maintained on a multi-state basis only, or where California data are not reliable, the multi-state data shall be allocated to California as follows:

(1) Defense and cost containment and adjusting and other expenses: By dollars of incurred losses.

(2) Commissions and brokerage: By earned premium.

(3) Taxes, licenses, and fees: By actual statutory tax rate for premium tax; by premium for licenses and fees.

(4) Other Acquisition: By number of written exposures or policies.

(5) General: By number of earned exposures or policies.

For purposes of this subsection, the determination whether data are “reliable” shall be made on the basis of whether the Commissioner finds, under the circumstances, that the data are authentic and believable. In making that finding, the Commissioner shall consider, among other things, whether the data were recorded by persons and under circumstances likely to produce accurate data, whether the data were relied upon by the party in its business, and whether the data are consistent with other data.

(b) Where an insurer submits recorded California data that varies from the California allocation of multi-state data allocated as specified in this section, the Commissioner shall require the insurer to demonstrate the accuracy of the data and to justify any deviation from the insurer's experience in other states. Where the Commissioner finds the demonstration or justification inadequate, he or she shall require the use of allocations rather than the submitted recorded data for California. Where the data are expressed as a percentage of earned premium, and are therefore mathematically related to the other components of premium, and the use of data other than the California allocation of multi-state data is authorized, appropriate adjustments shall be made to any related data and to any applicable regulatory standards.

(c) Where an insurer or the Commissioner elects to disaggregate a line of insurance into commodity and specialty categories pursuant to section 2642.7, allocations between commodity and specialty shall be in the same proportion as specified in subdivision (a) of this section.

NOTE

HISTORY

2. Repealed by operation of Government Code section 11346.1(g) (Register 92, No. 15).

5. Amendment of subsections (a), (a)(1) and (c) filed 1-3-2007; operative 4-3-2007. Submitted to OAL for printing only pursuant to Government Code section 11340.9(g) (Register 2007, No. 1).

§2643.7. Data Availability.

Note • History

Where an insurer can demonstrate that data required by these regulations are not available, the Commissioner shall authorize the use of substitute data. An insurer seeking authority under this section shall include with its request

(a) the reasons why the data are unavailable to it, with appropriate reference to the practices of other, comparably situated insurers;

(b) justification for use of the substitute data proposed, together with a discussion of other feasible alternatives;

(c) a plan for providing the data required by these regulations, taking into account the practical requirements of full compliance and the size and scope of the insurer's affected operations.

NOTE

HISTORY

2. Repealed by operation of Government Code section 11346.1(g) (Register 92, No. 15).

§2643.8. Factors Calculated by Commissioner.

Note • History

Where regulations within Article 4 of this title specify that the Commissioner calculate and publish values for use in review of rate applications, the values used shall be the most recently published values, provided that the values were published at least 45 days before the receipt of the rate application by the Department's Rate Filing Bureau in San Francisco. Otherwise, the values used shall be those published immediately prior to publication of the most recent values.

If the Commissioner does not publish the values required by these regulations within the prescribed time period, the Rate Filing Bureau and, if applicable, the Administrative Hearing Bureau shall review the application by performing the calculations in the manner set forth in these regulations. Values used by the Rate Filing Bureau shall be updated by the Administrative Hearing Bureau before the close of the evidentiary hearing if one year or more has passed since the application was received.

NOTE

HISTORY

1. New section filed 1-3-2007; operative 4-3-2007. Submitted to OAL for printing only pursuant to Government Code section 11340.9(g) (Register 2007, No. 1).

Article 4. Determination of Reasonable Rates

§2644.1. Excessive or Inadequate Rates.

Note • History

No rate shall be approved or remain in effect that is above the maximum permitted earned premium, as defined in section 2644.2, or is below the minimum permitted earned premium, as defined in section 2644.3. Where the Commissioner finds that a rate or proposed rate is excessive or inadequate, the rate or proposed rate shall not be used nor remain in effect. If the rate or proposed rate is excessive, the Commissioner shall indicate the highest rate that would not be excessive, which the insurer may adopt by amendment to its application, or the Commissioner shall reject the rate in its entirety. If the rate or proposed rate is inadequate, the Commissioner shall indicate the lowest rate that would not be inadequate, which the insurer may adopt by amendment to its application, or the Commissioner shall reject the rate in its entirety.

NOTE

HISTORY

2. Repealed by operation of Government Code section 11346.1(g) (Register 92, No. 15).

§2644.2. Maximum Permitted Earned Premium.

Note • History

The maximum permitted earned premium is calculated as follows:

(a) the quotient of

(1) the sum of

(A)(i) projected losses, as defined in section 2644.4,

(ii) plus projected defense and cost containment expenses, as defined in section 2644.8,

(B) multiplied by 1 minus the fixed investment income factor as defined in section 2644.19(a),

(2) minus projected ancillary income, as defined in section 2644.13,

(b) divided by the maximum denominator, as defined in section 2644.2(c).

Stated as a formula:

Embedded Graphic 10.0267

(1) 1.0,

(2) minus the efficiency standard, as defined in section 2644.12,

(3) minus the maximum profit factor, as defined in section 2644.15,

(4) plus the variable investment income factor, as defined in section 2644.19(b).

Stated as a formula:

Max denom =1 - eff std - profit factor + var invest inc factor

NOTE

HISTORY

2. Repealed by operation of Government Code section 11346.1(g) (Register 92, No. 15).

5. Amendment filed 1-3-2007; operative 4-3-2007. Submitted to OAL for printing only pursuant to Government Code section 11340.9(g) (Register 2007, No. 1).

6. Amendment filed 5-16-2008; operative 5-16-2008. Submitted to OAL for printing only pursuant to Government Code section 11340.9(g) (Register 2008, No. 20).

§2644.3. Minimum Permitted Earned Premium.

Note • History

The minimum permitted earned premium is calculated as follows:

(a) the quotient of

(1) the sum of

(A)(i) projected losses, as defined in section 2644.4,

(ii) plus projected defense and cost containment expenses, as defined in section 2644.8,

(B) multiplied by 1 minus the fixed investment income factor as defined in section 2644.19(a),

(2) minus projected ancillary income, as defined in section 2644.13,

(b) divided by the minimum denominator, as defined in section 2644.3(c).

Stated as formula:

Embedded Graphic 10.0268

(1) 1.0,

(2) minus the efficiency standard, as defined in section 2644.12,

(3) minus the minimum profit factor, as defined in section 2644.15,

(4) plus the variable investment income factor, as defined in section 2644.19(b).

Stated as a formula:

Min denom =1- eff std - profit factor + var invest inc factor

NOTE

HISTORY

2. Repealed by operation of Government Code section 11346.1(g) (Register 92, No. 15).

5. Amendment filed 1-3-2007; operative 4-3-2007. Submitted to OAL for printing only pursuant to Government Code section 11340.9(g) (Register 2007, No. 1).

6. Amendment filed 5-16-2008; operative 5-16-2008. Submitted to OAL for printing only pursuant to Government Code section 11340.9(g) (Register 2008, No. 20).

§2644.4. Projected Losses.

Note • History

(a) “Projected losses” means the insurer's historic losses per exposure, adjusted by catastrophe adjustment, as prescribed in section 2644.5, by loss development, as prescribed in section 2644.6, and by loss trend, as prescribed in section 2644.7.

(b) Projected losses shall be calculated by applying the loss trend factor separately to data from each accident-year in the recorded period. However, for claims-made policies projected losses shall be calculated on a report-year basis.

(c) For policies providing multi-year coverage, such as mechanical breakdown, projected losses may be calculated on a policy-year basis.

(d) For professional liability and errors and omissions coverage, the insurer shall, in lieu of the computation of projected losses specified in sections 2644.5 through 2644.7, tender an alternative computation of projected losses, which the Commissioner shall approve if he or she finds the projection to have been made in the most sound actuarial manner. Nothing in this section precludes the Commissioner from requiring the additional filing of projected losses computed in the manner specified in sections 2644.5 through 2644.7.

(e) For the earthquake line of business and for the fire following earthquake exposure in other lines, projected losses and defense and cost containment expenses may be based on complex catastrophe models using geological and structural engineering science and insurance claim expertise. The use of such models shall conform to the standards of practice as set forth by the Actuarial Standards Board and the applicant shall have the burden of proving, by a preponderance of the evidence, that the model is based upon the best available scientific information for assessing earthquake frequency, severity, damage and loss, and that the projected losses derived from the model meet all applicable statutory standards.

NOTE

HISTORY

2. Repealed by operation of Government Code section 11346.1(g) (Register 92, No. 15).

5. Amendment filed 1-3-2007; operative 4-3-2007. Submitted to OAL for printing only pursuant to Government Code section 11340.9(g) (Register 2007, No. 1).

§2644.5. Catastrophe Adjustment.

Note • History

In those insurance lines and coverages where catastrophes occur, the catastrophic losses of any one accident year in the recorded period are replaced by a loading based on a multi-year, long-term average of catastrophe claims. The number of years over which the average shall be calculated shall be at least 20 years for homeowners multiple peril fire, and at least 10 years for private passenger auto physical damage. Where the insurer does not have enough years of data, the insurer's data shall be supplemented by appropriate data. The catastrophe adjustment shall reflect any changes between the insurer's historical and prospective exposure to catastrophe due to a change in the mix of business. There shall be no catastrophe adjustment for private passenger auto liability.

NOTE

HISTORY

2. Repealed by operation of Government Code section 11346.1(g) (Register 92, No. 15).

5. Amendment filed 1-3-2007; operative 4-3-2007. Submitted to OAL for printing only pursuant to Government Code section 11340.9(g) (Register 2007, No. 1).

§2644.6. Loss Development.

Note • History

“Loss development” is the process by which reported losses are adjusted for anticipated payout patterns. Loss development shall be presented as a loss-development triangle, based on the dollar-weighted average of the ratios of losses for the three most recent accident-years, policy-years or report-years available for a reporting interval. Filings shall contain both paid losses and case-specific reserves, stated separately. Loss development shall employ either paid losses or the sum of paid losses and case-specific reserves. The insurer shall submit both the factors and ultimate losses or claims for the paid and incurred loss and the reported and the paid claims development calculations, and shall demonstrate that its selection is the most actuarially sound. Loss development data shall exclude catastrophes. Where the loss development factors within a given line significantly vary by subline, by size of loss, or by coverage, separate loss development factors shall be calculated in accordance with that evidence.

NOTE

HISTORY

2. Repealed by operation of Government Code section 11346.1(g) (Register 92, No. 15).

5. Amendment filed 1-3-2007; operative 4-3-2007. Submitted to OAL for printing only pursuant to Government Code section 11340.9(g) (Register 2007, No. 1).

6. Amendment filed 5-16-2008; operative 5-16-2008. Submitted to OAL for printing only pursuant to Government Code section 11340.9(g) (Register 2008, No. 20).

§2644.7. Loss and Premium Trend.

Note • History

(a) “Loss trend” and “premium trend” is the process by which forces not reflected in historical loss and premium data are expected to affect losses and premiums in the rating period.

(b) Trend factors shall be based on the exponential curve of best fit. Companies shall file the most recent 8, 12, 16, 20, and 24 quarters of rolling calendar year data excluding catastrophes. The premium and loss trend factors shall be developed using the insurer's most actuarially sound company-specific rolling calendar year data excluding catastrophes, for the most recent 8, 12, 16, 20, or 24 quarters. The insurer shall file its rate change application using the single data period that it determines to be the most actuarially sound. The Commissioner may require the use of an alternative data period if the Commissioner determines that use of the alternative is the most actuarially sound. Frequency trend shall be calculated as reported or closed claims divided by exposures. Severity trend shall be calculated on paid losses divided by closed claims or total paid losses, including partial payments in previous calendar years, on closed claims divided by closed claims. The insurer shall submit the frequency and severity calculations on all bases, and shall demonstrate that its selection is the most actuarially sound. Premium trend factors shall be developed using company-specific premium per exposure data.

(c) Where the trend factor within a given line significantly varies by subline, by policy limits, by region of the state, or by coverage, separate trend factors shall be calculated in accordance with that evidence.

(d) For homeowners multiple peril and private passenger automobile liability and physical damage, the standard for full credibility for loss trend shall be 6000 total claims over the same number of quarters as used in subsection (b) for each form for homeowners and for each coverage for private passenger automobile. Partial credibility shall be the square root of the ratio of the actual number of claims divided by the full credibility standard. For private passenger automobile other than motorcycle, the complement of credibility for loss trend shall be calculated using the latest available California Fast Track paid loss, closed claim count and earned exposure data, The complement shall be based on the exponential curve of best fit to the most recent rolling calendar year data for the same number of quarters as used in subsection (b). For uninsured and underinsured motorist bodily injury and medical payments coverages, the complement shall use the California Fast Track bodily injury data. For uninsured and underinsured motorist property damage coverages, the complement shall use the California Fast Track property damage data. The Commissioner may modify the result of the calculation from California Fast Track data to take into account factors not reflected in the historical data, pursuant to section 2646.3.

(e) For lines of business other than homeowners multiple peril and private passenger automobile liability and physical damage, the standard for full credibility for loss trend shall be determined using the most actuarially sound method. For lines of business other than private passenger automobile liability and physical damage, the standard for the complement of credibility for loss trend shall be determined using the most actuarially sound method.

NOTE

HISTORY

2. Repealed by operation of Government Code section 11346.1(g) (Register 92, No. 15).

5. Amendment of section heading and section filed 1-3-2007; operative 4-3-2007. Submitted to OAL for printing only pursuant to Government Code section 11340.9(g) (Register 2007, No. 1).

6. Amendment filed 5-16-2008; operative 5-16-2008. Submitted to OAL for printing only pursuant to Government Code section 11340.9(g) (Register 2008, No. 20).

§2644.8. Projected Defense and Cost Containment Expenses.

Note • History

(a) “Projected defense and cost containment expenses” means the company's historic costs per exposure associated with the defense and cost containment of claims, adjusted for catastrophes, developed and trended in the manner described in sections 2644.5, 2644.6 and 2644.7.

(b) Defense and cost containment expenses may be added to losses for loss development and trend or may be developed using ratios of defense and cost containment expenses to losses. The insurer shall demonstrate that its selection is the most actuarially sound.

(c) For professional liability and errors and omissions coverage, the insurer shall tender an alternative computation of projected defense and cost containment expenses, which the Commissioner shall approve if he or she finds the projection to have been made in the most sound actuarial manner. Nothing in this section precludes the Commissioner from requiring the additional filing of projected defense and cost containment expenses computed in the manner specified in sections (a) and (b).

NOTE

HISTORY

2. Repealed by operation of Government Code section 11346.1(g) (Register 92, No. 15).

5. Amendment of section heading and section filed 1-3-2007; operative 4-3-2007. Submitted to OAL for printing only pursuant to Government Code section 11340.9(g) (Register 2007, No. 1).

6. Amendment of subsection (b) and repealer and new subsection (c) filed 5-16-2008; operative 5-16-2008. Submitted to OAL for printing only pursuant to Government Code section 11340.9(g) (Register 2008, No. 20).

§2644.9. Projected Fixed Expenses. [Repealed]

Note • History

NOTE

HISTORY

2. Repealed by operation of Government Code section 11346.1(g) (Register 92, No. 15).

5. Repealer filed 1-3-2007; operative 4-3-2007. Submitted to OAL for printing only pursuant to Government Code section 11340.9(g) (Register 2007, No. 1).

§2644.10. Excluded Expenses.

Note • History

The following expense items shall not be allowed for ratemaking purposes:

(a) Political contributions and lobbying.

(b) Executive compensation that exceeds the reasonable amount for such compensation.

For purposes of this computation, the following shall apply:

(1) “Executive” means the insurer's five highest-paid policymaking positions in each insurance group.

(2) “Compensation” means the total cash paid, including salary and bonus.

(3) “Maximum permissible executive compensation” means:

(A) For the highest paid executive in the group:

max comp = 1077(101.4600 + 0.4060 log X)

(B) For the second-highest paid executive in the group:

max comp = 1077(101.4140 + 0.3490 log X)

max comp = 1077(101.2310 + 0.3820 log X)

(D) For the fourth-highest paid executive in the group:

max comp= 1077(101.2470 + 0.3580 log X)

(E) For the fifth-highest paid executive in the group:

max comp = 1077(101.2460 + 0.3420 log X)

where X is the greater of (i) the insurer's total countrywide direct earned premium for the most recent completed calendar year for lines of business subject to Proposition 103 divided by 1,000,000 or (ii) 70.

(d) All costs attendant to the unsuccessful defense of discrimination claims.

(e) Fines and penalties.

(f) Institutional advertising expenses. “Institutional advertising” means advertising not aimed at obtaining business for a specific insurer and not providing consumers with information pertinent to the decision whether to buy the insurer's product.

(g) All payments to affiliates, to the extent that such payments exceed the fair market rate or value of the goods or services in the open market.

Except as allocated pursuant to section 2643.6, calculation of the amounts expended on the foregoing expense items shall be based on the insurer's national expenditures, allocated among states in proportion to earned premium.

The disallowance shall be effected by reducing the efficiency standard by the ratio of the insurer's national excluded expenses to its national direct earned premium.

NOTE

HISTORY

2. Repealed by operation of Government Code section 11346.1(g) (Register 92, No. 15).

5. Amendment of subsections (b), (c) and (g) and new subsections (b)(1)-(b)(3)(E) filed 1-3-2007; operative 4-3-2007. Submitted to OAL for printing only pursuant to Government Code section 11340.9(g) (Register 2007, No. 1).

§2644.11. Expense Trend. [Repealed]

Note • History

NOTE

HISTORY

2. Repealed by operation of Government Code section 11346.1(g) (Register 92, No. 15).

5. Repealer filed 1-3-2007; operative 4-3-2007. Submitted to OAL for printing only pursuant to Government Code section 11340.9(g) (Register 2007, No. 1).

§2644.12. Efficiency Standard.

Note • History

(a) The Commissioner shall calculate the efficiency standard annually, within 45 days of the publication of the necessary source data, which shall be expressed as a maximum allowable ratio of historic underwriting expenses, including adjusting and other expenses, to historic earned premiums, which represents the fixed and variable cost for a reasonably efficient insurer to provide insurance and to render good service to its customers.

(b) The efficiency standard shall be set separately for each insurance line, and separately for insurers distributing through independent agents and brokers, through exclusive agents, and through employees of the insurer selling insurance on a direct basis. For an insurer using more than one distribution system, the efficiency standard shall consist of an average weighted by earned premium for each distribution system. In setting the efficiency standard, the Commissioner shall determine whether, in the long-term, efficiency will be enhanced and premiums lowered by adopting a separate standard for insurers writing large and small amounts of insurance in the line. If the Commissioner determines that such separate standards would have such long-term effects, he or she shall set the standard separately according to the amount of insurance being written in the line, pursuant to section 2646.3. In lines where the number of insurers employing a given distribution system is, in the judgment of the Commissioner, inadequate for the calculation of a mean that provides a useful efficiency standard, the Commissioner shall adopt a single efficiency standard for that line, pursuant to section 2646.3, which shall apply to all insurers writing in that line regardless of distribution system. For lines of business that combine personal and commercial exposures, the commissioner may set separate efficiency standards, pursuant to section 2646.3.

(c) The efficiency standard shall be calculated as the arithmetic average of the latest three years for which data are available.

(d) For farmowners, the efficiency standard for captive insurers shall be the average for all distribution systems combined.

(e) For earthquake, the efficiency standard shall exclude adjusting and other expenses. Adjusting and other expenses shall be added to defense and cost containment expenses.

(f) For burglary and theft, all distribution systems shall be combined, and a five-year average shall be used.

(g) In each category, the efficiency standard shall be set at the weighted mean (weighted by earned premium in California) expense ratio of insurers in that category. In calculating the average, the Commissioner may exclude insurers for which reliable data are not readily available.

(h) All data shall be taken from the National Association of Insurance Commissioners database of the statutory annual statement state page and of the Insurance Expense Exhibit, Part III.

(i) A company's data shall be included in the calculation only if

(1) The company is licensed in California;

(2) The company's California direct earned premium is greater than zero;

(3) The company's countrywide direct earned premium is greater than zero;

(4) The company's countrywide direct losses incurred is greater than zero; and

(5) The company's ratio of underwriting expenses, including adjusting and other expenses, to earned premium is greater than zero and less than 65%.

(j) If a company's commission expense is less than zero, the negative amount shall be set to zero.

(k) If a company's California allocated other acquisition expense is less than zero, the negative amount shall be set to zero.

(l) If a company's California allocated general expense is less than zero, the negative amount shall be set to zero.

(m) If a company's tax, licenses and fees expense is less than zero, the negative amount shall be set to zero.

(n) Countrywide expenses for general and other acquisition expenses shall be allocated to California on the basis of direct earned premium. Countrywide expenses for adjusting and other expenses shall be allocated to California on the basis of direct incurred losses.

NOTE

HISTORY

2. Repealed by operation of Government Code section 11346.1(g) (Register 92, No. 15).

5. Repealer of subsections (a)-(a)(3)(D), subsection relettering, amendment of newly designated subsections (a), (b) and (d) and new subsections (c) and (e)-(k) filed 1-3-2007; operative 4-3-2007. Submitted to OAL for printing only pursuant to Government Code section 11340.9(g) (Register 2007, No. 1).

6. New subsections (d)-(f), subsection relettering and amendment of newly designated subsection (n) filed 5-16-2008; operative 5-16-2008. Submitted to OAL for printing only pursuant to Government Code section 11340.9(g) (Register 2008, No. 20).

§2644.13. Projected Ancillary Income.

Note • History

“Projected ancillary income” means projected net income to the insurer, or an affiliate of the insurer, not derived from insurance premiums subject to this subchapter but derived from operations directly related to insurance subject to this subchapter. Projected ancillary income shall be expressed on a per-exposure basis. Premium financing revenues and membership dues shall be included within projected ancillary income. “Affiliate” means a company having common management, ownership, or control with the insurer.

NOTE

Authority cited: Section 1861.01 and 1861.05, Insurance Code; 20th Century v. Garamendi, 8 Cal.4th 216 (1994). Reference: Section 1861.01 and 1861.05, Insurance Code; Calfarm Insurance Company v. Deukmejian (1989) 48 Cal.3d 805.

HISTORY

2. Repealed by operation of Government Code section 11346.1(g) (Register 92, No. 15).

5. Editorial correction amending section (Register 2005, No. 18).

§2644.14. Variable Expense Factor.

Note • History

The “variable expense factor” means the sum of the commission rate and the state premium tax rate.

NOTE

HISTORY

2. Repealed by operation of Government Code section 11346.1(g) (Register 92, No. 15).

§2644.15. Profit Factors.

Note • History

(a) The “maximum profit factor” means

(1) The maximum permitted after-tax rate of return, as defined in section 2644.16,

(2) divided by the product of

(A) the leverage factor, as defined in section 2644.17,

(B) multiplied by the underwriting federal income tax factor, as defined in section 2644.18.

(b) The “minimum profit factor” means

(1) the minimum permitted after-tax rate of return, as defined in section 2644.16,

(2) divided by the product of

(A) the leverage factor, as defined in section 2644.17,

(B) multiplied by the underwriting federal income tax factor, as defined in section 2644.18.

NOTE

HISTORY

2. Repealed by operation of Government Code section 11346.1(g) (Register 92, No. 15).

5. Amendment of subsections (a)(2)(B) and (b)(2)(B) filed 1-3-2007; operative 4-3-2007. Submitted to OAL for printing only pursuant to Government Code section 11340.9(g) (Register 2007, No. 1).

§2644.16. Rate of Return.

Note • History

(a) The maximum permitted after-tax rate of return means the risk-free rate, as defined in section 2644.20(d), plus 6%.

(b) The minimum permitted after-tax rate of return shall be -6%, which the Commissioner finds is high enough to prevent any undue risk of insolvency and to prevent injury to competition through predatory pricing.

(c) The Commissioner may increase or decrease the maximum permitted after-tax rate of return by not more than 2% if he finds financial market conditions to be such that the difference between the risk-free rate and the cost of capital is significantly different from its historical average.

NOTE

HISTORY

2. Repealed by operation of Government Code section 11346.1(g) (Register 92, No. 15).

5. Repealer and new section filed 1-3-2007; operative 4-3-2007. Submitted to OAL for printing only pursuant to Government Code section 11340.9(g) (Register 2007, No. 1).

6. New subsection (c) filed 5-16-2008; operative 5-16-2008. Submitted to OAL for printing only pursuant to Government Code section 11340.9(g) (Register 2008, No. 20).

§2644.17. Leverage Factor and Surplus.

Note • History

(a) “Leverage factor” means the ratio of earned premiums to the average of year-beginning and year-end surplus.

(b) The Commissioner shall calculate industry-wide leverage factors for each insurance line annually, within 45 days of the publication of the necessary source data. The factors shall be calculated using the consolidated underwriting and investment exhibit as published in Best's Aggregates and Averages. The allocation of the commercial multiple peril data to liability and non-liability and the allocation of the automobile physical damage data to private passenger and commercial shall be done using data from the Exhibit of Premiums and losses (Statutory Page 14 Data) as published in Best's Aggregates and Averages. For medical malpractice, other liability and product liability, there shall be separate leverage factors for claims-made and occurrence. Total national industry surplus shall be allocated to lines of business in proportion to the sum of the national industry-wide earned premium, unearned premium, loss and loss adjustment expense reserves. The leverage factor for each line of business shall be the national premium divided by the allocated surplus.

Notwithstanding the result of the calculation, the leverage factor for earthquake shall be 1.0. For other lines of business subject to catastrophes, mass torts and other unusual events, the Commissioner shall modify the leverage factors where he finds that they do not provide a reliable estimate of future risk, pursuant to section 2646.3.

(c) The Commissioner finds that investors' perceived investment risk may vary from line to line. Thus, while the rate of return does not vary by line, insurance perceived to have a greater risk will yield higher returns per premium dollar.

NOTE

HISTORY

2. Repealed by operation of Government Code section 11346.1(g) (Register 92, No. 15).

5. Amendment filed 1-3-2007; operative 4-3-2007. Submitted to OAL for printing only pursuant to Government Code section 11340.9(g) (Register 2007, No. 1).

6. Amendment of subsection (b) filed 5-16-2008; operative 5-16-2008. Submitted to OAL for printing only pursuant to Government Code section 11340.9(g) (Register 2008, No. 20).

§2644.18. Federal Income Tax Factors.

Note • History

(a) “Underwriting federal income tax factor” means 1.0 minus the prospective federal income tax rate on underwriting. The Commissioner finds that the prospective federal income tax rate on underwriting is 35%.

(b) “Investment federal income tax factor” means 1.0 minus the prospective federal income tax rate on investment income. The prospective federal income tax rate on investment income shall be calculated using the weighted yield, adjusted for investment expenses, computed in section 2644.20 and shall take into account any tax preferences and exemptions for the income from each asset class and from each category of bond issuer. The Commissioner finds that the prospective federal income tax rate on the investment income from taxable bonds, mortgage loans, real estate, cash and short-term investments and on investment expenses is 35%, on capital gains is 34.1%, on tax-exempt bond interest is 5.25% and on stock dividends is 14.175%. For investment income on other invested assets, the prospective federal income tax rate shall be the weighted average of the tax rates on the above categories.

NOTE

HISTORY

2. Repealed by operation of Government Code section 11346.1(g) (Register 92, No. 15).

5. Amendment of section heading and repealer and new section filed 1-3-2007; operative 4-3-2007. Submitted to OAL for printing only pursuant to Government Code section 11340.9(g) (Register 2007, No. 1).

§2644.19. Investment Income Factors.

Note • History

(a) “Fixed investment income factor” means the projected yield, as defined in section 2644.20,

(1) multiplied by the ratio of the investment federal income tax factor and the underwriting federal income tax factor, as defined in section 2644.18,

(2) multiplied by the loss reserves ratio, as defined in section 2644.21.

Stated as a formula:

Embedded Graphic 10.0269

(b) “Variable investment income factor” means the projected yield, as defined in section 2644.20,

(1) multiplied by the ratio of the investment federal income tax factor and the underwriting federal income tax factor, as defined in section 2644.18,

(2) multiplied by the sum of

(A) the unearned premium reserves ratio, as defined in section 2644.21,

(B) plus the surplus ratio, as defined in section 2644.22.

Stated as a formula:

Embedded Graphic 10.0270

NOTE

HISTORY

2. Repealed by operation of Government Code section 11346.1(g) (Register 92, No. 15).

6. Amendment filed 5-16-2008; operative 5-16-2008. Submitted to OAL for printing only pursuant to Government Code section 11340.9(g) (Register 2008, No. 20).

§2644.20. Projected Yield.

Note • History

(a) “Projected yield” means the weighted average yield computed using the insurer's actual portfolio and yields currently available on securities in US capital markets. The weights shall be determined using the insurer's most recent consolidated statutory annual statement, and shall be computed by dividing the insurer's assets in each separate asset class shown on page 2, lines 1 through 9 of the insurer's consolidated statutory annual statement, by the total of lines 1 through 9. The yields for each asset class shall be based on an average of the most recent available 3 complete months, as of the date of filing.

(b) The bond asset class shall be subdivided into the issuer categories of US government bonds, other taxable bonds and tax exempt bonds and into the maturity categories of short, intermediate and long-term shown. For the purposes of this section, “US government” means the sum of rows 1.7, U.S. governments, and 2.7, all other governments, of schedule D, part 1A, section 1 of the insurer's consolidated statutory annual statement, “other taxable” means the sum of rows 6.7, public utilities, 7.7, industrial and miscellaneous, 8.7, credit tenant loans, 9.7, parent subsidiaries and affiliates and half of row 5.7, special revenue and special assessments and “tax-exempt” means the sum of rows 3.7, states, territories and possessions, 4.7, political subdivision of states, territories and possessions, and half of row 5.7. For the purposes of this section, “short-term” means one year or less, “intermediate-term” means more than one year through 10 years, and “long-term” means more than 10 years.

(1) US government bonds

(A) Short: yield on the nominal 3-month constant maturity US Treasury bill as provided in the Federal Reserve H.15 statistical release

(B) Intermediate: yield on the nominal 10-year constant maturity US Treasury bond as provided in the Federal Reserve H.15 statistical release

(C) Long: yield on the nominal 20-year constant maturity US Treasury bond as provided in the Federal Reserve H.15 statistical release

(2) Other taxable bonds

(A) Short: yield on 3-month financial commercial paper as provided in the Federal Reserve H.15 statistical release

(B) Intermediate: average yield on 10-year corporate A and AA rated bonds as provided by Valu/Bond on Yahoo.com

(3) Tax exempt bonds

(A) Short: yield on short-term other taxable bonds times 1 minus the federal income tax rate of 35%

(B) Intermediate: average yield on 10-year municipal A and AA rated bonds as provided by Valu/Bond on Yahoo.com

(4) Common stock

(A) Dividends: ten-year average income return as provided in the Ibbotson yearbook

(B) Capital gains: the risk-free rate, below, plus 8%, which the Commissioner finds represents the risk-premium for common stock investments generally, minus dividends, above

(5) Preferred stock dividends: average yield on Moody's A-rated public utility preferred stocks as provided by Mergent Bond Record

(6) Mortgage loans: yield on long-term other taxable bonds, above

(7) Real estate: the risk-free rate, below, plus 2%, which the Commissioner finds represents the risk-premium for real estate investments

(8) Cash and short term: yield on short-term US Treasury bills, above

(9) Other: yield on common stock, above

(d) The “risk-free rate” means the average of the short, intermediate and long-term US government bonds, above, except that the short-term shall be one month instead of three and the intermediate term shall be five years instead of ten.

(e) The projected yield shall be reduced by the ratio of incurred investment expenses, page 11, line 25, column 3, of the insurer's consolidated statutory annual statement, divided by the total of cash and invested assets, page 2, line 10.

(f) The projected yield shall be multiplied by the ratio of cash and invested assets, page 2, line 10 of the insurer's consolidated statutory annual statement, divided by the sum of reserves, page 3, lines 1, 3 and 9, and surplus, page 3, line 35.

NOTE

HISTORY

2. Repealed by operation of Government Code section 11346.1(g) (Register 92, No. 15).

5. Repealer and new section filed 1-3-2007; operative 4-3-2007. Submitted to OAL for printing only pursuant to Government Code section 11340.9(g) (Register 2007, No. 1).

6. Amendment of subsection (c)(5) filed 5-16-2008; operative 5-16-2008. Submitted to OAL for printing only pursuant to Government Code section 11340.9(g) (Register 2008, No. 20).

§2644.21. Reserves Ratio.

Note • History

(a) “Unearned premium reserves ratio” means

(1) the average of the last two years ending unearned premium reserves

(2) divided by the earned premium for the most recent year for which data are available.

(b) “Loss reserves ratio” means

(1) the average of the last two years ending

(A) loss reserves plus

(B) loss adjustment expense reserves

(2) divided by the incurred loss and defense and cost containment expense for the most recent year for which data are available.

(c) For burglary and theft, the loss reserve ratio shall be the dollar-weighted average of the loss reserve ratios for fire, allied lines and inland marine.

There shall be one industry-wide unearned premium reserves ratio and one loss reserves ratio for each line of business. The industry-wide numbers shall be the sum of all such numbers taken from the California state page of the statutory annual statement for all insurers doing business in California. Countrywide adjusting and other expense reserves from Best's Aggregates & Averages shall be allocated to California by loss and defense and cost containment reserves. For medical malpractice, other liability and products liability, California premium and reserves shall be allocated between occurrence and claims-made using countrywide numbers from Best's Aggregates & Averages. The Commissioner shall perform the calculation within 45 days of the publication of the necessary source data. Notwithstanding the result of the calculation, the loss reserves ratio for earthquake shall be 1.0. For other lines of business subject to catastrophes, mass torts and other unusual events, the Commissioner shall modify the industry-wide numbers where he finds that they do not provide a reliable estimate of future expectations of the reserve ratios, pursuant to section 2646.3.

NOTE

HISTORY

2. Repealed by operation of Government Code section 11346.1(g) (Register 92, No. 15).

5. Repealer and new section filed 1-3-2007; operative 4-3-2007. Submitted to OAL for printing only pursuant to Government Code section 11340.9(g) (Register 2007, No. 1).

6. New subsection (c) and redesignation of former second paragraph of subsection (b)(2) as second paragraph of subsection (c) filed 5-16-2008; operative 5-16-2008. Submitted to OAL for printing only pursuant to Government Code section 11340.9(g) (Register 2008, No. 20).

§2644.22. Surplus Ratio.

Note • History

“Surplus ratio” means the reciprocal of the leverage factor.

Stated as a formula:

Embedded Graphic 10.0271

NOTE

HISTORY

2. Repealed by operation of Government Code section 11346.1(g) (Register 92, No. 15).

§2644.23. Credibility Adjustment.

Note • History

(a) To the extent that the maximum and minimum permitted earned premiums are based upon data that lack credibility, a credibility adjustment shall be made.

(b) For each form for homeowners multiple peril and for each coverage for private passenger auto liability and physical damage the standard for full credibility shall be 3000 claims. Partial credibility shall be the square root of the ratio of the actual number of incurred claims in the experience period divided by the full credibility standard. For lines of business other than homeowners multiple peril and private passenger automobile liability and physical damage, the standard for full and partial credibility shall be determined using the most actuarially sound method.

(c) When the loss and defense and cost containment expense data is less than fully credible, in the maximum and minimum premium formulas in sections 2644.2 and 2644.3, the following shall be substituted:

(1) The sum of

(A) the credibility weight, as defined in section 2644.23(b),

(B) multiplied by the sum of

(i) projected loss, as defined in section 2644.4,

(ii) plus projected defense and cost containment expense, as defined in section 2644.8,

(2) plus

(A) the difference of

(i) 1.0

(ii) minus the credibility weight, as defined in section 2644.23(b),

(B) multiplied by the complementary loss and defense cost containment expense, as defined in section 2644.23(d).

Stated as a formula:

Credibility weight x (loss + DCCE) + (1- credibility weight) x comp loss DCCE

(d) The complementary loss and defense and cost containment expense means

(1) the quotient of

(A) the sum of

(i) the trended current rate level premium, as defined in section 2644.24,

(ii) multiplied by 1.0 plus the complement trend, as defined in section 2644.23(g),

(iii) multiplied by the maximum denominator, as defined in section 2644.2(c).

(B) plus

(i) the ancillary income, as defined in section 2644.13

(2) divided by 1 minus the fixed investment income factor, as defined in section 2644.19.

Stated as a formula:

Comp loss DCCE = (TCRLP x (1 + comp trend) x max denom + ancil income) /(1 - fixed invest inc factor)

(e) Where the cost of reinsurance is allowed, as provided in section 2644.25, the credibility adjustment in subsection (c) shall be made to loss plus defense and cost containment expense minus reinsurance recoverable, as defined in section 2644.26.

(f) Where the cost of reinsurance is allowed, as provided in section 2644.25, the complementary loss and defense and cost containment expense means

(1) The quotient of

(A) The sum of

(i) the trended current rate level premium, as defined in section 2644.24,

(ii) multiplied by 1.0 plus the complement trend, as defined in section 2644.23(g),

(iii) Multiplied by the maximum denominator, as defined in section 2644.2(c).

(B) plus the ancillary income, as defined in section 2644.13,

(I) the reinsurance premium, as used in section 2644.25, divided by 1 minus the variable expense factor, as defined in section 2644.14,

(Ii) multiplied by the maximum denominator, as defined in section 2644.2(c),

(2) Divided by 1 minus the fixed investment income factor, as defined in section 2644.19.

Stated as a formula:

Comp loss DCCE = (TCRLP x (1 + comp trend) x max demon + ancil income - reins perm / (1 - vary exp factor) x max demon)/ (1 - fixed invest Inc factor)

(g) The complement trend means the annual net trend plus one, raised to the power of the number of years from the effective date of the current rate to the proposed effective date of the proposed rates, minus one.

Stated as a formula:

Comp trend = ((annual net trend+1)^number of years) -1

If the number of years from the effective date of the current rate to the proposed effective date of the proposed rates exceeds four, the complement trend shall be the annual net trend plus one, raised to the fourth power, minus one.

(h) The annual net trend is the ratio of the loss trend, as defined in section 2644.7, annualized, plus one, divided by the premium trend, as defined in section 2644.7, annualized, plus one, minus one.

Stated as a formula:

Annual net trend = ((annual loss trend +1)/(annual premium trend +1))-1

(i) If the credibility weight is less than 25% the applicant or the Commissioner may use an alternative complementary loss and defense and cost containment expense, provided that the alternative is the most actuarially sound method.

NOTE

HISTORY

2. Repealed by operation of Government Code section 11346.1(g) (Register 92, No. 15).

5. Amendment of subsection (a), repealer and new subsections (b) and (c) and new subsections (c)(1)-(g) filed 1-3-2007; operative 4-3-2007. Submitted to OAL for printing only pursuant to Government Code section 11340.9(g) (Register 2007, No. 1).

6. Amendment filed 5-16-2008; operative 5-16-2008. Submitted to OAL for printing only pursuant to Government Code section 11340.9(g) (Register 2008, No. 20).

§2644.24. Trended Current Rate Level Earned Premium.

Note • History

“Trended current rate level earned premium” means the earned premium per exposure for the recorded period adjusted to the current rate level based on subsequent rate changes and further adjusted for premium trend. The trend adjustment shall be calculated by applying the premium trend factor separately to data from each year in the recorded period.

NOTE

HISTORY

1. New section filed 1-3-2007; operative 4-3-2007. Submitted to OAL for printing only pursuant to Government Code section 11340.9(g) (Register 2007, No. 1).

§2644.25. Reinsurance.

Note • History

(a) For all lines and sublines except for those listed in the next subparagraph, ratemaking shall be on a direct basis, with no consideration for the cost or benefits of reinsurance.

(b) For earthquake and for medical malpractice facultative reinsurance with attachment points above one million dollars, the maximum permitted earned premium is calculated as follows:

The sum of

(1) the quotient of

(A) the difference of

(i) the product of

a. the projected losses, as defined in section 2644.4, plus the projected defense and cost containment expense, as defined in section 2644.8, minus the projected reinsurance recoverables, as defined in section 2644.26,

b. multiplied by 1 minus the fixed investment income factor, as defined in section 2644.19(a),

(ii) minus the projected ancillary income, as defined in section 2644.13,

(B) divided by the sum of

(i) 1.0,

(ii) minus the efficiency standard, as defined in section 2644.12,

(iii) minus the maximum profit factor, as defined in section 2644.15,

(iv) plus the variable investment income factor, as defined in section 2644.19(b).

(2) plus the quotient of

(A) the reinsurance premium, net of ceding and contingent commissions,

(B) divided by the difference of

(i) 1.0,

(ii) minus the variable expense factor, as defined in section 2644.14.

Stated as a formula:

Embedded Graphic 10.0272

(c) For the calculation of fixed investment income factor, the numerator and denominator of the loss reserves ratio shall be adjusted for projected reinsurance recoverables, and for the variable investment income factor, the numerator and denominator of the unearned premium reserve ratio shall be adjusted to reflect the cash flows of the unearned reinsurance premium.

(d) Reinsurance costs shall be allowed for ratemaking purposes as set forth in this section only if: (1) the reinsurance agreement was entered into in good faith in an arms-length transaction and at fair market value for the coverage provided, and (2) the reinsurance meets the statement credit requirements of Sections 2303 through 2303.25.

(e) There will be no allowance for reinsurance between affiliated entities as set forth in Schedule Y of the Annual Statement.

(f) Copies of the reinsurance agreements shall be submitted with the filing.

(g) For the purposes of this section and section 2644.26, reinsurance shall include other risk financing mechanisms, such as catastrophe bonds.

(h) For the earthquake line, if at least 30% of the requested rate results from the cost of reinsurance, and a consumer or his or her representative requests a hearing within 45 days of public notice, the Commissioner shall hold a hearing on the issue of the reasonableness of the reinsurance costs, as defined in section (d), and whether some or all of those costs shall be reflected in the proposed rate change. An insurer's rate application shall indicate whether at least 30% of the requested rate results from the cost of reinsurance.

(i) For the medical malpractice line, if at least 30% of the requested rate is attributable to the cost of facultative reinsurance with attachment points above one million dollars, and a consumer or his or her representative requests a hearing within 45 days of public notice, the Commissioner shall hold a hearing on the issue of the reasonableness of the reinsurance costs, as defined in section (d), and whether some or all of those costs shall be reflected in the proposed rate change. An insurer's rate application shall indicate whether at least 30% of the requested rate results from the cost of reinsurance.

NOTE

HISTORY

1. New section filed 1-3-2007; operative 4-3-2007. Submitted to OAL for printing only pursuant to Government Code section 11340.9(g) (Register 2007, No. 1).

2. Amendment filed 5-16-2008; operative 5-16-2008. Submitted to OAL for printing only pursuant to Government Code section 11340.9(g) (Register 2008, No. 20).

§2644.26. Reinsurance Recoverables.

Note • History

“Reinsurance recoverables” means all amounts recoverable from reinsurers for paid and unpaid losses and loss adjustment expenses per exposure, including estimated amounts receivable for unsettled claims and claims incurred but not reported as provided under reinsurance agreements.

NOTE

HISTORY

1. New section filed 1-3-2007; operative 4-3-2007. Submitted to OAL for printing only pursuant to Government Code section 11340.9(g) (Register 2007, No. 1).

§2644.27. Variance Request.

Note • History

(a) A request that the maximum permitted earned premium or minimum permitted earned premium should be adjusted is referred to as a “variance request.”

(b) Requests for variances shall be filed with the Rate Filing Bureau on pages 11a and 11b of the Prior Approval Rate Application. All such variance requests shall specifically:

(i) identify each and every variance request;

(ii) identify the extent or amount of the variance requested and the applicable component of the ratemaking formula;

(iii) set forth the expected result or impact on the maximum and minimum permitted earned premium that the granting of the variance will have as compared to the expected result if the variance is denied; and

(iv) identify the facts and their source justifying the variance request and provide the documentation supporting the amount of the change to the component of the ratemaking formula.

(c) Requests for variances shall be filed at the same time as the prior approval application to which it applies or after the filing of the rate application and before any final determination regarding that application. Public notice of all variance requests shall be provided as set forth in California Insurance Code Sections 1861.05(c) and 1861.06.

(d) A variance request shall be deemed approved sixty days after public notice unless:

(i) a consumer or his or her representative requests a hearing within forty-five days of public notice and the Commissioner grants the hearing, or determines not to grant the hearing and issues written findings in support of that decision, or

(ii) the Commissioner on his or her own motion determines to hold a hearing.

(e) Variance requests shall be determined in conjunction with the related prior approval application or rate hearing thereon.

(f) The following are the valid bases for requesting a variance:

(1) That the insurer should be allowed relief from the efficiency standard for bona fide loss-prevention and loss-reduction activities as set forth below.

(A) The insurer meeting the qualifications set forth below may obtain an increase in the applicable efficiency standard by the amount of its “Allocated Costs” for its Special Investigations Unit (“SIU”) expense for the most recent year. The term SIU as used in this section has the same meaning as that term has in Section 2698.30(o). The term “Allocated Costs” means those costs set forth in subsection (iii) and attributable to investigations of claims made on the line of insurance subject to Insurance Code section 1861.05(b) for which the variance is sought.

(i) An insurer may recover its “Allocated Costs” for its SIU expenses only in its approved rate filing for the line of insurance affected by the SIU investigation costs.

(ii) Affiliated insurers who utilize the same SIU unit may recover the portion of their “Allocated Costs” for their SIU expenses attributable to investigations of claims made on the line of insurance in the rate application only in one approved rate application for the line affected by the Allocated SIU costs. The term “Affiliated Insurers” has the same meaning as that term has in Insurance Code Section 1215.

(iii) The only recoverable SIU expenses are those expended for investigators whose sole duties are investigation of insurance fraud, software dedicated solely to analysis of data for indications of insurance fraud, training of employees whose sole duty is the investigation of fraud and equipment to be used solely by the insurer's SIU. The recoverable expenses do not include the costs of employing or other costs for adjustors or underwriters.

(iv) The only recoverable SIU expenses are for SIU's dedicated to investigation of insurance fraud within the State of California or for the portion of an SIU's operations within California. The burden of demonstrating the amount of SIU expenses, and that those expenses are for the investigation of insurance fraud within the State of California is the insurers.

(v) An insurer may recover the “Allocated Costs” of retaining an independent contractor to perform SIU services as described in sub-paragraph (iii). The variance shall be calculated by multiplying the fees paid for the independent agency with whom the insurer contracts by the percentage of referrals of claims made on the line of insurance for which the rate application and variance application are made and that the contracted agency investigates in California on behalf of the insurer seeking the variance.

(vi) No expense that is included within the Defense and Cost Containment Expense portion of an insurer's rate application can be included in whole or in part as the basis for a variance based on SIU expenses. The terms “Defense and Cost Containment Expense” or “DCCE” when used with regard to any variance have the same meaning as those terms have in section 2644.23(c).

(vii) An insurer that asserts that payments to: (1) an independent contractor; or (2) an SIU owned by an Affiliated Insurer; or (3) an SIU independent of an insurer, but which is owned directly or indirectly, in whole or part by the insurer applying for a variance or by an Affiliated Insurer, shall in its variance request, provide the Department of Insurance with documentation showing the costs of investigation for the purported “Allocated Costs” claimed in the variance request. The payments constituting the basis for the variance must be bona fide payments for investigation of individual cases of suspected insurance fraud. It shall be the burden of the insurer to demonstrate that the costs are bona fide costs for investigation of insurance fraud in the State of California.

(B) An insurer meeting the qualifications set forth below will be allowed to recover its expenses for the most recent year for dedicated loss prevention programs such as brush clearance, driver education, risk management, hazard mitigation or accident prevention. Loss prevention expenses do not include SIU expenses under subsection (A).

(i) An insurer may recover its “Allocated Costs” for its loss prevention expenses only in its approved rate for the line of insurance affected by the loss prevention expenses.

(ii) The insurer must provide documentation detailing the loss prevention program, what additional costs are being incurred and what losses are being prevented.

(iii) Recoverable loss prevention expenses are those expended for employees whose duties are loss prevention, software dedicated to loss prevention, and equipment to be used for loss prevention. Recoverable loss prevention expenses do not include the routine and customary costs of marketing or employing underwriters or adjusters.

(iv) The only loss prevention expenses recoverable are for loss prevention programs dedicated to loss prevention in the State of California or for the portion of the program within California. The burden of demonstrating the amount of loss prevention costs, and that those costs are expended for loss prevention in the State of California is on the insurer.

(2) That the insurer should be allowed relief from the efficiency standard due to any or all of the following:

(A) Higher quality of service, as demonstrated by objective measures of consumer satisfaction; or

(B) Demonstrated superior service to underserved communities, as defined in section 2646.6; or

(C) Significantly smaller or larger than average California policy premium, including any applicable fees. These fees include but are not limited to: policy fees, installment fees, endorsement fees, inspection fees, cancellation fees, reinstatement fees, late fees, SR-22, and other similar charges.

(3) That the insurer should be authorized leverage factor different from the leverage factor determined pursuant to section 2644.17 on the basis that the insurer either writes at least 90% of its direct earned premium in one line or writes at least 90% of its direct earned premium in California and its mix of business presents investment risks different from the risks that are typical of the line as a whole. The leverage factor shall be adjusted by multiplying it by 0.85. The surplus ratio in section 2644.22 shall likewise be divided by 0.85. If an insurer writes at least 90% of its direct earned premium in one line and writes at least 90% of its direct earned premium in California, the insurer will only be authorized one leverage factor adjustment of 0.85.

(4) That the insurer should be granted relief from operation of the efficiency standard for a line of insurance in which the insurer has never previously written over $1 million in earned premiums annually and in which the insurer has made or is making a substantial investment in order to enter the market. Any such request shall be accompanied by a proposed amortization schedule to distribute the start-up investment.

(5) That the minimum permitted earned premium should be lowered on the basis of the insurer's certification, and the Commissioner's finding, that the rate will not cause the insurer's financial condition to present an undue risk to its solvency and will not otherwise be in violation of the law.

(6) That the insurer's financial condition is such that its maximum permitted earned premium should be increased in order to protect the insurer's solvency. Any application for authorization under this subsection shall include:

(A) A showing of the insurer's condition, based on generally accepted standards such as the National Association of Insurance Commissioners' Insurance Regulatory Information System;

(B) A plan to restore the financial condition;

(C) A showing that, consistent with the claimed condition, the insurer has reduced or foregone dividends to stockholders or policyholders; and

(D) A plan to reduce rates once the insurer's condition is restored, in order to compensate consumers for excessive charges.

(7) That the loss development formula in section 2644.6 does not produce an actuarially sound result because

(A) There is not enough data to be credible;

(B) There are not enough years of data to fully calculate the development to ultimate;

(D) There are changes in coverage or other policy terms that significantly affect the data; or

(E) There are changes in the law that significantly affect the data; or

(F) There is a significant increase or decrease in the amount of business written or significant changes in the mix of business.

(8) That the trend formula in section 2644.7 does not produce the most actuarially sound result because

(A) There is a significant increase or decrease in the amount of business written or significant changes in the mix of business;

(B) There are not enough years of data to calculate the trend factor;

(D) It can be shown that a trend calculated over a period of at least 4 quarters other than a period permitted pursuant to section 2644.7(b) is more reliable prospectively;

(E) There are changes in the insurer's claims closing practices that significantly affect the data; or

(F) There are changes in coverage or other policy terms that significantly affect the data.

(9) That the maximum permitted earned premium would be confiscatory as applied. This is the constitutionally mandated variance articulated in 20th Century v. Garamendi (1994) 8 Cal.4th 216 which is an end result test applied to the enterprise as a whole. Use of this variance requires a hearing pursuant to 2646.4.

(g) If there is more than one actuarial analysis of a variance, each of which is based on reliable data and utilizes methods which are shown by qualified expert evidence to be generally accepted as sound by the actuarial community and the appropriate methods for the particular variance, then the variance shall be granted, denied or calculated utilizing the actuarial proposition that results in the soundest actuarial result.

(h) Notwithstanding any other section of these regulations, the aggregate total adjustment to the efficiency standard for all variances combined shall not exceed the difference between the insurer's most recent year total expense ratio excluding defense and cost containment expenses and the efficiency standard.

NOTE

HISTORY

1. New section filed 1-3-2007; operative 4-3-2007. Submitted to OAL for printing only pursuant to Government Code section 11340.9(g) (Register 2007, No. 1).

2. Amendment filed 5-16-2008; operative 5-16-2008. Submitted to OAL for printing only pursuant to Government Code section 11340.9(g) (Register 2008, No. 20).

§2644.28. Prospective Application of Revisions to Regulations.

Note • History

Any amendment to this subchapter shall only apply prospectively. A rate change application shall be subject to the rules of this subchapter that are in effect on the date the application is received by the Commissioner pursuant to section 1861.05(c) of the Insurance Code.

NOTE

HISTORY

1. New section filed 5-16-2008; operative 5-16-2008. Submitted to OAL for printing only pursuant to Government Code section 11340.9(g) (Register 2008, No. 20).

Article 4.5. Refiling of Approved Rates

§2644.50. Refiling of Approved Rates.

Note • History

As a means to determine whether a rate previously approved remains in compliance with the statutory standard set forth in California Insurance Code Section 1861.05(a), for an insurer operating with a rate approved three years ago or longer in the homeowners multiple peril and private passenger auto liability and physical damage lines, the Commissioner may require an insurer to file a rate application.

Nothing in this section shall be construed to specify how often an insurer may make a rate application filing.

NOTE

Authority cited: Sections 1857.2, 1857.3, 1861.01, 1861.05 and 12921, Insurance Code; and 20th Century v. Garamendi, 8 Cal.4th 216 (1994). Reference: Sections 1861.01 and 1861.05, Insurance Code; and Calfarm Insurance Company v. Deukmejian (1989) 48 Cal.3d 805.

HISTORY

1. New article 4.5 (section 2644.50) and new section filed 1-3-2007; operative 4-3-2007. Submitted to OAL for printing only pursuant to Government Code section 11340.9(g) (Register 2007, No. 1).

Article 5. Determination of Rates for Rollback Period

§2645.1. Scope.

Note • History

This article applies to all rates charged for insurance issued or renewed on or after November 8, 1988, and not after November 7, 1989.

NOTE

HISTORY

2. Repealed by operation of Government Code section 11346.1(g) (Register 92, No. 15).

§2645.2. Findings.

Note • History

The Commissioner finds:

(a) Proposition 103 requires that all rates charged during the rollback period be reduced by 20% from their November 8, 1987, levels. Consumers are entitled to receive, and insurers are obligated to give, this reduction, except to the extent that it violates the insurers' constitutional rights.

(b) Insurers are entitled to rates during the rollback period that are not confiscatory. Rates are confiscatory if and only if all the rates charged by an entire group of insurance companies sharing a single ownership or control are, taken as a whole, confiscatory.

(c) To the extent that the rates specified by Proposition 103 for the rollback period are confiscatory, insurers are entitled to a rate above the level prescribed by the initiative, but no higher than necessary for the rates not to be confiscatory.

(d) Historical data shall be used in lieu of forecasts for the rollback period because actual historical data exist for many of the figures that are forecast in prior-approval ratemaking, making it possible to avoid the errors inherent in forecasting and resulting in greater accuracy.

NOTE

HISTORY

2. Repealed by operation of Government Code section 11346.1(g) (Register 92, No. 15).

§2645.3. General.

Note • History

(a) Except as otherwise specified in this article, rates for the rollback period shall be evaluated in the manner specified in article 4 of this subchapter. To the extent that the rates charged during the rollback period exceeded the minimum permitted earned premium, the excess shall be refunded to consumers with interest as set forth in section 2544.9.

(b) Rollback calculations shall be made on an aggregate basis, rather than on a per-exposure basis. Interjurisdictional allocations shall be made as specified in section 2643.6, except that calculations specified in subdivisions (a)(4) and (a)(5) of section 2643.6 shall be made on the basis of earned premium. Leverage factors shall be computed in accordance with section 2644.17.

(c) While premiums paid for surety, credit, and financial guaranty insurance have been exempted by the Legislature from the requirement that they be rolled back, the amount of the rollback due on other property-casualty insurance, to the extent that the rollback is constrained by constitutional limits, is properly determined by evaluating the profitability of all the insurer's California property-casualty insurance not excluded by section 1851 of the Insurance Code. Accordingly, the minimum earned premium shall be calculated on all property-casualty insurance not excluded by section 1851 of the Insurance Code, including surety, credit, and financial guaranty.

(d) The option to disaggregate data within lines as provided by section 2642.7 shall not apply to rollback year calculations.

(e) Minimum permitted earned premium shall be determined on an all-lines combined, groupwide basis.

NOTE

Authority cited: Sections 1861.01 and 1861.05, Insurance Code; 20th Century v. Garamendi, 8 Cal.4th 216 (1994). Reference: Sections 1861.01, 1861.05, 1861.135, 1861.137 and 12120 of the Insurance Code, Calfarm Insurance Company v. Deukmejian (1989) 48 Cal.3d 805.

HISTORY

2. Repealed by operation of Government Code section 11346.1(g) (Register 92, No. 15).

§2645.4. Losses and Allocated Loss Adjustment Expenses.

Note • History

In lieu of projected losses and loss adjustment expenses, actual loss and loss adjustment expense data for calendar year 1989 shall be used.

(a) Catastrophe adjustment. No adjustment of losses for catastrophes shall be made.

(b) Loss development and trending. Actual incurred losses shall be used, subject to validation by the Commissioner to ensure that there has not been inappropriate reserves-strengthening. Because incurred losses for calendar year 1989 are now known, no loss development is necessary or appropriate and loss and loss adjustment expense trend would have so insubstantial an effect on rates that no adjustment shall be made.

(c) Reserves-strengthening. The Commissioner will not adjust an insurer's 1989 reserves when any of the following conditions are found:

(1) Reserves: Premium, One-Year Test. When the year-end 1989 loss reserves to 1989 earned premiums is less than or equal to the year-end 1989 loss reserves to 1988 earned premiums.

(2) Reserves: Premium Four-Year Test. When the 1989 reserves- to-premium ratio is less than or equal to the average of the reserves-to-premium ratios for 1985 through 1988.

(3) Incurred Versus Paid Test. When the ratio of 1989 incurred losses to 1988 incurred losses was no greater than the ratio of the payments on 1989-incurred losses was to payments on 1988-incurred losses.

(d) If the insurer satisfies none of the three tests in subdivision (c) of this section, unless the Commissioner finds, based on evidence proffered by the insurer and any other party, that some other number better reflects appropriate reserve levels, the insurer's reserves shall be adjusted, on a line-by-line, company-specific basis, to the same multiple of earned premium as the 1985 through 1988 reserves had to 1985 through 1988 earned premium. The adjustment, stated as a formula, is as follows:

Embedded Graphic 10.0273

NOTE

Authority cited: Sections 1861.01 and 1861.05, Insurance Code. Reference: Sections 1861.01 and 1861.05, Insurance Code; Calfarm Insurance Company v. Deukmejian (1989) 48 Cal.3d 805.

HISTORY

2. New subsections (c) and (d) filed 10-8-91 as an emergency; operative 10-8-91 (Register 92, No. 13). A Certificate of Compliance must be transmitted to OAL 2-5-92 or emergency language will be repealed by operation of law on the following day.

3. Editorial correction of operative date in History 2. (Register 92, No. 19).

4. New section filed 2-20-92 as an emergency; operative 2-20-92 (Register 92, No. 19). A Certificate of Compliance must be transmitted to OAL 6-19-92 or emergency language will be repealed by operation of law on the following day.

5. Certificate of Compliance as to 2-20-92 order transmitted to OAL 6-19-92 and filed 7-28-92 (Register 92, No. 31).

§2645.5. Fixed Expenses.

Note • History

(a) Executive compensation in excess of the insurer's maximum permissible executive compensation shall be deducted from fixed expenses. For purposes of this computation, the following shall apply:

(1) “Executive” means the insurer's five highest-paid policymaking positions in each insurance group.

(2) “Compensation” means the total cash paid, including salary and bonus.

(3) “Maximum permissible executive compensation” means:

(A) For the highest paid executive in the group:

max comp = 1077(101.4600 + 0.4060 logX)

(B) For the second-highest paid executive in the group:

max comp = 1077(101.4140 + 0.3490 logX)

max comp = 1077(101.2310 + 0.3820 logX)

(D) For the fourth-highest paid executive in the group:

max comp = 1077(101.2470 + 0.3580 logX)

(E) For the fifth-highest paid executive in the group:

max comp = 1077(101.2460 + 0.3420 logX)

where X is the greater of (i) the insurer's total 1989 countrywide direct earned premium for lines of business subject to Proposition 103 divided by 1,000,000 or (ii) 70.

(b) For rollback calculations, fixed expenses for each line shall be set at the lower of the quantity specified in section 2644.12, subdivision (a), or actual recorded expenses for calendar year 1989. For rollback calculations the term “maximum profit factor” in section 2644.12 means “profit factor” as defined in section 2645.6.

Captive Direct Independ

Line Writer Writer Agency

Fire 41.50% 28.83% 41.88%

Allied Lines 36.65% 29.54% 33.20%

Farmowners Multiple Peril 36.16% 36.16% 36.16%

Homeowners Multiple Peril 32.77% 24.28% 40.86%

Commercial Multiple Peril 34.02% 30.13% 39.59%

Inland Marine 32.91% 33.99% 33.10%

Financial Guaranty 15.01% 15.01% 15.01%

Captive Direct Independ

Line Writer Writer Agency

Medical Malpractice 18.36% 18.36% 18.36%

Earthquake 41.13% 17.35% 30.94%

Other Liability 35.01% 14.92% 28.63%

Pvt Pass Auto Liability 27.01% 19.01% 33.16%

Comml Auto Liab 33.86% 19.78% 31.63%

Pvt Pass Auto Phys Damage 27.13% 19.87% 34.49%

Comml Auto Phys Damage 31.81% 17.04% 35.97%

Captive Direct Independ

Line Writer Writer Agency

Aircraft 24.07% 29.22% 24.27%

Fidelity 26.84% 26.84% 26.84%

Surety 42.56% 51.77% 53.76%

Glass 39.97% 39.97% 39.97%

Burglary & Theft 27.48% 27.48% 27.48%

Boiler & Machinery 27.86% 31.76% 52.54%

Credit 44.69% 44.69% 44.69%

NOTE

Authority cited: Sections 1861.01 and 1861.05, Insurance Code. Reference: Sections 1861.01 and 1861.05, Insurance Code; Calfarm Insurance Company v. Deukmejian (1989) 48 Cal.3d 805.

HISTORY

2. New subsections (a) and (c) filed 10-8-91 as an emergency; operative 10-8-91 (Register 92, No. 13). A Certificate of Compliance must be transmitted to OAL 2-5-92 or emergency language will be repealed by operation of law on the following day.

3. Editorial correction of file and operative dates in History 2. (Register 92, No. 19).

5. Certificate of Compliance as to 2-20-92 order transmitted to OAL 6-19-92 and filed 7-28-92 (Register 92, No. 31).

§2645.6. Profit Factor.

Note • History

(a) The after-tax rate of return for property and casualty insurance, corresponding to the lower boundary of the range of reasonable returns, is 10.0 percent.

(b) For the rollback period, leverage factor for each line shall be determined on a groupwide basis from the following table:

Line Leverage Ratio

Fire 3.50:1

Allied Lines 3.50:1

Farmowner Multiple Peril 2.50:1

Homeowner Multiple Peril 2.50:1

Commercial Multiple Peril 1.75:1

Inland Marine 3.50:1

Medical Malpractice 1.00:1

Earthquake 2.00:1

Other Liability 1.00:1

Private Passenger Auto Liability 2.00:1

Commercial Auto Liability 2.00:1

Private Passenger Auto Physical Damage 5.50:1

Commercial Auto Physical Damage 5.50:1

Aircraft 1.00:1

Fidelity 2.00:1

Glass 5.50:1

Burglary & Theft 4.00:1

Boiler & Machinery 2.50:1

(c) To the extent that an insurer has operated during calendar-year 1989 on less surplus than the leverage factor would prescribe, the insurer's actual leverage ratio shall be used. The insurer's actual leverage ratio shall be computed by allocating the insurer's surplus to lines in proportion to the insurer's average 1989 reserves as specified in section 2644.21.

NOTE

Authority cited: Sections 1861.01 and 1861.05, Insurance Code. Reference: Sections 1861.01 and 1861.05, Insurance Code; Calfarm Insurance Company v. Deukmejian (1989) 48 Cal.3d 805.

HISTORY

2. Amendment of subsection (a), new subsection (b) and renumbering filed 10-8-91 as an emergency; operative 10-8-91 (Register 92, No. 13). A Certificate of Compliance must be transmitted to OAL 2-5-92 or emergency language will be repealed by operation of law on the following day.

3. New section filed 2-20-92 as an emergency; operative 2-20-92 (Register 92, No. 19). A Certificate of Compliance must be transmitted to OAL 6-19-92 or emergency language will be repealed by operation of law on the following day.

4. Certificate of Compliance as to 2-20-92 order transmitted to OAL 6-19-92 and filed 7-28-92 (Register 92, No. 31).

§2645.7. Credibility.

Note • History

No adjustment shall be made for credibility in rollback calculations.

NOTE

HISTORY

2. Repealed by operation of Government Code section 11346.1(g) (Register 92, No. 15).

§2645.8. Investment Income.

Note • History

The insurer's imbedded yield, plus the five-year average (1985 through 1989) of realized capital gains, shall be used in lieu of the projected yield. Imbedded yield shall be calculated as the insurer's net investment income, excluding capital gains, divided by the average of the insurer's year-end surplus and reserves for 1988 and 1989. The insurer's five-year average realized capital gains shall be calculated as the mean of the quotients, for each year 1985 through 1989, of the annual realized capital gains and the average of the insurer's year-end surplus and reserves for that year and the previous year.

NOTE

HISTORY

2. Repealed by operation of Government Code section 11346.1(g) (Register 92, No. 15).

§2645.9. Amount of Refund.

Note • History

(a) “Statutory percentage” means the larger of

(1)(A)(i) total 1989 direct premium earned, excluding surety, credit, and financial guaranty insurance,

(ii) minus total 1989 direct premium earned, excluding surety, credit, and financial guaranty insurance, adjusted to be on the rate level of November 8, 1987, multiplied by 0.8,

(B) divided by total 1989 direct premium earned, excluding surety, credit, and financial guaranty insurance, or

(2) zero.

(b) “Constitutional percentage” means the larger of

(1)(A)(i) total 1989 direct premium earned, including surety, credit, and financial guaranty insurance,

(ii) minus the minimum permitted earned premium, including surety, credit, and financial guaranty insurance,

(B) divided by total 1989 direct premium earned, excluding surety, credit, and financial guaranty insurance, or

(2) zero.

(d) For purposes of determining the insurer's rollback obligation, policyholder dividends paid during calendar year 1989 by the insurer shall be treated as follows:

(1) as a refund of premium to the extent that they do not exceed the average dividend, computed as a percent of earned premium, paid in calendar years 1986 through 1988;

(2) as a voluntary rollback and a credit against the rollback obligation owed to consumers who received the dividend to the extent that the dividends exceed the amount specified in subparagraph (1), above.

(e) Each person from whom premiums were collected for policies issued or renewed during the rollback period for coverages other than surety, credit, or financial guaranty insurance shall receive the amount equal to the premiums paid on such policies multiplied by the refund percent--age. To this amount shall be added interest, calculated at 10% per annum, from May 8, 1989, to the date of payment.

(f) Every insurer ordered to make a rollback refund shall, on the first three anniversaries of the date of the order, file a report with the Department of Insurance showing the status of the refund payments.

(g) The Commissioner shall require the insurer to file periodic reports establishing its diligent efforts to deliver the refund to each person entitled to a refund before the refund becomes subject to the Unclaimed Property Law, Code of Civil Procedure section 1500 et seq. The Commissioner shall require that the periodic reports be filed quarterly unless the Commissioner finds that more frequent reports are necessary to ensure compliance.

NOTE

Authority cited: Sections 1861.01, 1861.05, 1861.135, 1861.137 and 12120 of the Insurance Code; 20th Century v. Garamendi, 8 Cal.4th 216 (1994). Reference: Sections 1861.01 and 1861.05, Insurance Code; section 1500 et seq. of the Code of Civil Procedure; Calfarm Insurance Company v. Deukmejian (1989) 48 Cal.3d 805.

HISTORY

2. Repealed by operation of Government Code section 11346.1(g) (Register 92, No. 15).

Article 6. Procedures for Determination of Rates

§2646.1. Hearings.

Note • History

(a) Except under extraordinary circumstances, as found by the Commissioner or administrative law judge, direct testimony shall be given in writing and shall not be delivered orally. Where a party has shown that the purposes of the Administrative Procedure Act, Government Code section 11500 et seq., would be frustrated by requiring it to provide a witness' testimony in writing, that witness shall be permitted to give his or her direct testimony orally.

(b) The Commissioner or administrative law judge may limit the time for oral examination, may curtail repetitive arguments, and may require persons representing common positions to coordinate their presentations and to designate a common representative. In the interest of time, and consistent with the Administrative Procedure Act, Government Code section 11500 et seq., the Commissioner or administrative law judge may require matters to be submitted in writing in lieu of oral proceedings. Where necessary to a timely decision, the Commissioner or administrative law judge may direct that oral examination of witnesses be conducted by deposition and introduced in the record in writing, subject to the objections of all parties.

(c) Any order to expedite proceedings, such as by simultaneous examination of witnesses by deposition rather than in the hearing, shall not be entered without first giving due consideration to the effects on parties that may lack the resources to participate on such an expedited basis.

NOTE

Authority cited: Sections 1861.01 and 1861.05, Insurance Code; 20th Century v. Garamendi, 8 Cal.4th 216 (1994). Reference: Sections 1861.01, 1861.05 and 1861.08 of the Insurance Code; Calfarm Insurance Company v. Deukmejian (1989) 48 Cal.3d 805.

HISTORY

2. Repealed by operation of Government Code section 11346.1(g) (Register 92, No. 15).

§2646.2. Certification of Questions to the Commissioner.

Note • History

(a) In any hearing before an administrative law judge, the administrative law judge may, on the motion of any party or on his or her own motion, certify a question to the Commissioner for determination during the proceedings before the administrative law judge.

(b) Certification shall be limited to matters that either (1) apply to numerous pending hearings; (2) are substantially in doubt and are so fundamental to the instant proceeding that absent certification there is a substantial risk that hearing time would be wasted; or (3) in the opinion of the administrative law judge, require immediate determination by the Commissioner in the interests of justice.

(c) The Commissioner may decline to answer the certified question without specifying any grounds. Denial of certification without reaching the merits is without prejudice to the party's right to raise the matter before the administrative law judge or the Commissioner.

NOTE

Authority cited: Sections 1861.01, 1861.05 and 1861.055, Insurance Code; 20th Century v. Garamendi, 8 Cal.4th 216, 281 (1994). Reference: Sections 1861.01 and 1861.05, Insurance Code; Calfarm Insurance Company v. Deukmejian (1989) 48 Cal.3d 805; and Fireman's Fund Insurance Companies v. Charles Quackenbush (1997) 52 Cal.App.4th 599, 607.

HISTORY

2. Repealed by operation of Government Code section 11346.1(g) (Register 92, No. 15).

5. Repealer of subsection (d) and amendment of Note filed 10-16-2002; operative 11-15-2002 (Register 2002, No. 42).

§2646.3. Generic Determinations.

Note • History

(a) “Generic determination” means a finding the Commissioner is required or authorized by these regulations to make, which finding is intended to apply to the rate applications of several or all insurers.

(b) The generic determination shall be adopted as a regulation pursuant to chapter 3.5 (sections 11340 through 11356 of the Government Code), upon final decision of the Commissioner, and shall be binding in hearings on individual insurers' rates.

(c) In a hearing convened for the purpose of making a generic determination, any person may propose that the pertinent data be disaggregated by geographic region, policy limits and deductibles, or amount of premium the insurer writes in the line and that separate determinations be made for each category. This subsection does not authorize insurer-by-insurer generic determinations.

(d) The Commissioner may, from time to time, review generic determinations to assess whether they are still sound. Such review may be on the Commissioner's own motion or on the petition of any person. Any such petition shall specify the changes in circumstances giving rise to the need for a revised determination.

NOTE

HISTORY

2. Repealed by operation of Government Code section 11346.1(g) (Register 92, No. 15).

5. Amendment of subsection (b) and repealer of subsections (e)-(e)(2) filed 1-3-2007; operative 4-3-2007. Submitted to OAL for printing only pursuant to Government Code section 11340.9(g) (Register 2007, No. 1).

§2646.4. Hearings on Individual Insurers' Rates.

Note • History

(a) This section applies to any request for a hearing on an individual insurer's rates, and applies to both requests made prior to a rate becoming effective and to requests concerning a rate in effect.

(1) A request for a hearing on a rate application shall be either delivered or mailed to the Department of Insurance within 45 days of the public notice specified in subdivision (c) of Insurance Code section 1861.05.

(2) A request for a hearing at any other time shall be based on the allegation that, pursuant to subdivision (a) of Insurance Code section 1861.05, a rate is “in effect which is excessive, inadequate, unfairly discriminatory or otherwise in violation of” chapter 9 (commencing with section 1851) of part 2 of division 1 of the Insurance Code.

(b) A hearing on a rate application, and a hearing based on the allegation that a rate in effect is excessive, inadequate, unfairly discriminatory or otherwise in violation of chapter 9 (commencing with section 1851) of part 2 of division 1 of the Insurance Code shall be for the purpose of determining whether

(1) the insurer has properly applied the statute and these regulations in calculating the maximum or minimum permitted earned premium; or

(2) the maximum permitted earned premium or minimum permitted earned premium calculated on the basis of the statute and these regulations, should be adjusted as provided in section 2644.27. A request that the maximum permitted earned premium or minimum permitted earned premium should be adjusted is referred to as a “variance request.”

(c) Relitigation in a hearing on an individual insurer's rates of a matter already determined either by these regulations or by a generic determination is out of order and shall not be permitted. However, the administrative law judge shall admit evidence he or she finds relevant to the determination of whether the rate is excessive or inadequate (or, in the case of a proceeding under Article 5, relevant to the determination of the minimum nonconfiscatory rate), whether or not such evidence is expressly contemplated by these regulations, provided the evidence is not offered for the purpose of relitigating a matter already determined by these regulations or by a generic determination.

NOTE

HISTORY

2. Repealed by operation of Government Code section 11346.1(g) (Register 92, No. 15).

5. Amendment of subsections (b)(1) and (b)(2), repealer of subsections (c)-(d) and subsection relettering filed 1-3-2007; operative 4-3-2007. Submitted to OAL for printing only pursuant to Government Code section 11340.9(g) (Register 2007, No. 1).

§2646.5. Burden of Proof.

Note • History

The insurer has the burden of proving, by a preponderance of the evidence, every fact necessary to show that its rate is not excessive, inadequate, unfairly discriminatory, or otherwise in violation of chapter 9 (commencing with section 1851) of part 2 of division 1 of the Insurance Code.

NOTE

HISTORY

2. Repealed by operation of Government Code section 11346.1(g) (Register 92, No. 15).

§2646.6. Commissioner's Report on Underserved Communities.

Note • History

Definitions

For the purpose of these regulations, the following terms are construed as defined herein:

“Insurer” means those carriers admitted to transact the business of insurance in California and the California Fair Access to Insurance Requirements (FAIR) Plan.

“Underserved Community” means those communities which the Commissioner has determined are underserved as set forth in the “Commissioner's Report on Underserved Communities”.

(a) Each insurer writing in any one of the lines of insurance set forth in Section 2646.6(b)(1)(A) through (D) below, with the exception of umbrella, excess or reinsurance coverages, shall compile and maintain, by experience year the information required by this section for that line of business, and on or before April 1 of every odd-numbered year each insurer shall file a Community Service Statement with the Department of Insurance's Statistical Analysis Division in Los Angeles. The Community Service Statement shall contain a verification of an executive officer of the insurer, under penalty of perjury under the laws of the State of California, that the information contained therein is true and correct.

(b) Such information shall be compiled and maintained in a manner which will allow the insurer to report the information to the Commissioner for each Zone Identification Program (“ZIP”) code in every county in California in which the insurer sells insurance or maintains agents:

(1) Premium Written & Earned; Exposure Written & Earned;

(A) private passenger automobile liability (including policies issued through the California Automobile Assigned Risk Plan);

(B) homeowners multiple peril (including policies submitted to, and/or gathered by the California FAIR Plan);

(D) fire (commercial and personal lines fire coverages should be maintained and compiled in such a manner as to allow them to be reported separately) including policies submitted to, and/or gathered by the California FAIR Plan;

(2) the Community Service Statement shall contain the number of service offices maintained in the ZIP code during the reporting period; (For purposes of this section, “service” means claims service, and sales service.) Where more than one service is performed at an office, the insurer shall categorize the office based upon the service or services provided at that office.

(3) the number of independent, employed or captive agents or agencies in the ZIP code during the reporting period;

To be counted for purposes of this section, an office must be open to the general public no fewer than 37.5 hours per week at least 50 weeks per year. A new office opened at any time during the reporting period shall be counted if it has been open at least 60 consecutive business days during the reporting period. An office closed at any time during the reporting period shall be counted unless it has been closed for more than 60 consecutive business days during the reporting period.

(4) for an insurer distributing through direct solicitation, the number of direct mail and telephone solicitations for new insurance business made during the reporting period to addresses in the ZIP code;

(5) the number of agents or agencies maintaining offices in the ZIP code during the reporting period that are identified as being conversant in a language other than English, or as having agents conversant in languages other than English, as specified by the listed languages below:

(A) Spanish

(B) Chinese

(D) Filipino

(E) Korean

(F) Vietnamese

(G) Other Language Not Listed

(6) the race or national origin, and gender, of each new policyholder (including new co-policyholder) who is a natural person, as provided by the policyholder on a separate, detachable form that refers to the application. The form shall state that this information is requested by the State of California in order to monitor the insurer's compliance with the law, that the policyholder is not required to provide this information but is encouraged to do so, and that the insurer may not use this information for underwriting or rating purposes. The Department's form is available on the Department's website. No such information shall be used for purposes of underwriting or rating any applicant or policyholder.

For purposes of this section, race or national origin means one of the following:

(A) American Indian or Alaskan Native

(B) Asian or Pacific Islander

(D) Latino

(E) White

(F) Other

(G) Information not provided by policyholder.

(c) The Community Service Statement shall be subject to California Insurance Code section 1861.07. The Department will release the Commissioner's Report on Underserved Communities after the collected data has been validated. At that time, two years' worth of data will be released. The Commissioner's Report on Underserved Communities will report those communities within California, designated by ZIP code, that the Commissioner finds to be underserved by the insurance industry. A community shall be deemed to be underserved by the insurance industry if the Commissioner finds:

(1)(A) the proportion of uninsured motorists is ten percentage points above the statewide average as reflected in the most recent Department of Insurance statistics regarding the statewide average of uninsured motorists; and

(B) the per capita income of the community, as measured in the most recent U.S. Census, is below the fiftieth percentile for California; and

(C) the community, as measured in the most recent U.S. Census, is predominately minority. Predominately minority community can be quantified as any community that is composed of two-thirds or more minorities as those groups are defined in subsection (b)(6)(A) through (D) herein; or

(2) the proportion of uninsured businesses or residences is ten percentage points above the statewide and/or Standard Metropolitan Statistical Area (“SMSA”) average as determined by the Commissioner following a public hearing convened for the purpose of determining the number of uninsured businesses or residences in this state.

(d) The Commissioner's Report on Underseved Communities shall list for each insurance company doing business in California:

(1) the number and percentage of total exposures the company has in force insuring risks in the underserved communities and in all other communities, stated separately by line as listed in (b)(1) above;

(2) the number and percentage of offices maintained in the underserved communities and in all other communities;

(3) for an insurer distributing principally through means other than direct solicitation, the number and percentage of its agents maintaining offices in the underserved communities and in all other communities.

(e) The remedies in this section are in addition to any other remedy available to the Commissioner or to any other person.

NOTE

Authority cited: Sections 12921 and 12926, Insurance Code; CalFarm v. Deukmejian, 48 Cal.3d 805 (1989). Reference: Sections 679.71, 1861.02, 1861.03, 1861.05 and 11628, Insurance Code.

HISTORY

1. New section filed 4-20-94; operative 5-20-94 (Register 94, No. 16).

2. Change without regulatory effect adding new subsections (b)(3) and (e)(3) and subsection renumbering, and amendment of newly designated subsection (b)(6) filed 10-7-94 pursuant to section 100, title 1, California Code of Regulations (Register 94, No. 40).

3. Editorial correction of subsection (e)(3) (Register 96, No. 19).

4. Amendment of subsections (a) and (b), repealer of and new subsection (b)(1), amendment of subsections (b)(1)(D)-(b)(1)(G), repealer of subsection (b)(1)(H) and subsection relettering, amendment of newly designated subsection (b)(1)(H) and subsections (b)(2)-(b)(6) and (b)(6)(F), new subsection (b)(7) and subsection renumbering, and amendment of subsections (c) and (e) filed 5-6-96; operative 5-6-96 pursuant to Government Code section 11343.4(d) (Register 96, No. 19).

5. New section heading and definitions, amendment of subsection (a) and repealer of subsection (f) and subsection relettering filed 5-15-96; operative 6-14-96 (Register 96, No. 20).

6. Amendment of subsection (a) and repealer of paragraph following (b)(8) filed 6-4-96; operative 6-14-96 pursuant to Government Code section 11343.4(d) (Register 96, No. 23).

7. Amendment filed 2-11-2003; operative 3-15-2003 (Register 2003, No. 7).

8. Amendment filed 8-5-2010; operative 9-4-2010 (Register 2010, No. 32).

§2646.7. Strategic Plans for Underserved Communities. [Repealed]

Note • History

NOTE

Authority cited: California Insurance Code Sections 12921 and 12926; CalFarm v. Deukmejian, 48 Cal.3d 805 (1989); Reference: California Insurance Code Sections 679.71, continually 1861.02, 1861.03, 1861.05 and 11628.

HISTORY

1. New section filed 5-15-96; operative 6-14-96 (Register 96, No. 20).

2. Repealer filed 2-11-2003; operative 3-15-2003 (Register 2003, No. 7).

§2646.8. Submission of Evidence Demonstrating an Existing Presence in Underserved Communities. [Repealed]

Note • History

NOTE

HISTORY

1. New section filed 5-15-96; operative 6-14-96 (Register 96, No. 20).

2. Repealer filed 2-11-2003; operative 3-15-2003 (Register 2003, No. 7).

§2646.9. Consumer Participation in the Commissioner's Decision to Accept or Reject a Strategic Plan for Underserved Communities or Evidence Demonstrating an Existing Presence. [Repealed]

Note • History

NOTE

HISTORY

1. New section filed 5-15-96; operative 6-14-96 (Register 96, No. 20).

2. Repealer filed 2-11-2003; operative 3-15-2003 (Register 2003, No. 7).

§2646.10. Timelines for Commissioner's Review; Procedures for Submission of Corrective Plans or Revised Evidence. [Repealed]

Note • History

NOTE

HISTORY

1. New section filed 5-15-96; operative 6-14-96 (Register 96, No. 20).

2. Repealer filed 2-11-2003; operative 3-15-2003 (Register 2003, No. 7).

§2646.11. Failure to Comply with Provisions of an Accepted Strategic Plan for Underserved Communities or Material Misstatement of Evidence Demonstrating an Existing Presence. [Repealed]

Note • History

NOTE

HISTORY

1. New section filed 5-15-96; operative 6-14-96 (Register 96, No. 20).

2. Repealer filed 2-11-2003; operative 3-15-2003 (Register 2003, No. 7).

Article 7. Cost of Administration

§2647.1. Costs of Administration and Operation.

Note • History

(a) For purposes of this section, “insurer” means every person holding a certificate of authority and writing insurance on risks on operations in this state, except those insurers exclusively writing insurance on lines or classes specified in section 1851 of the Insurance Code, including credit, and financial guaranty insurance.

(b) Fees assessed and collected pursuant to this section shall be deposited in a sub-account within the Insurance Fund (“the Sub-Account”), for the sole purpose of collecting and disbursing funds for the administrative and operational costs arising from the provisions of article 10 of division 1, part 2, chapter 9 of the Insurance Code.

(c) Each insurer shall be assessed, and shall pay, in quarterly installments as specified in this section, an annual fee, in the amount determined as specified in this section, for each line of insurance written in California (including surety, credit, and financial guaranty insurance), excluding policies written in lines or classes specified in section 1851 of the Insurance Code.

(1) The Department shall adopt a Base Rate, which shall be calculated to produce a total assessment equal to the appropriation contained in the State Budget for the administrative and operational costs arising from the provisions of article 10 of division 1, part 2, chapter 9 of the Insurance Code, plus or minus such amounts as the Commissioner deems necessary as a contingency against unanticipated fluctuations in expenditures and revenues and plus or minus such amounts as the Commissioner deems necessary to correct for over-collections or under-collections in prior years. The Base Rate shall reflect any revenues, other than revenues from the assessment specified in this section, which revenues are properly attributable to the administrative and operational costs arising from the provisions of article 10 of division 1, part 2, chapter 9 of the Insurance Code.

(2) The amount of fee shall be based on the insurer's California derived direct premiums written in the calendar year preceding the first day of the fiscal year in which the assessment is made, calculated by annual statement line of insurance.

(3) For each line of insurance, the assessment shall equal the Base Rate multiplied by the Assessment Factor contained in the following table:

Embedded Graphic 10.0274

(d) Each quarterly installment shall be in the amount of one-quarter of the annual fee, except when the Commissioner determines that it is necessary, due to operational requirements and the timing of liabilities, to collect more than one-quarter of the annual fee in a given quarter, in which case the installment may be in an amount no greater than one-half of the annual fee, provided that in no event shall the sum of the quarterly installment exceed the annual fee.

(e) If, at the end of any fiscal year, the Sub-Account contains a surplus in excess of 25 percent of the administrative and operational costs arising from the provisions of article 10 of division 1, part 2, chapter 9 of the Insurance Code, as determined from the prior year's actual costs and any budgeted additional or reduced costs, the Commissioner shall credit the amount in excess of 25 percent against future assessments and shall review the Base Rate to determine whether an adjustment is necessary to reduce the surplus in the Sub-Account to no more than 25 percent of the expected annual administrative and operational costs arising from the provisions of article 10 of division 1, part 2, chapter 9 of the Insurance Code.

NOTE

Authority cited: Sections 1861.01, 1861.05, 12979 and 12992, Insurance Code. Reference: Section 12979, Insurance Code; and Calfarm Insurance Company v. Deukmejian (1989) 48 Cal.3d 805.

HISTORY

2. Repealed by operation of Government Code section 11346.1(g) (Register 92, No. 15).

3. New section refiled 2-14-92 as an emergency; operative 2-14-92 (Register 92, No. 15). A Certificate of Compliance must be transmitted to OAL 6-15-92 or emergency language will be repealed by operation of law on the following day.

4. Certificate of Compliance as to 2-14-92 order transmitted to OAL 7-27-92 and filed 7-27-92 (Register 92, No. 31).

5. Amendment of subsection (a), repealer of subsection (b), and amendment of new subsections (b)-(e) and Note filed 9-11-95 as an emergency; operative 9-11-95 (Register 95, No. 37). A Certificate of Compliance must be transmitted to OAL by 1-9-96 or emergency language will be repealed by operation of law on the following day.

6. Reinstatement of section as it existed prior to emergency amendment filed 9-11-95 by operation of Government Code section 11346.1(f) Register 96, No. 14).

7. Amendment of section heading and subsection (a), repealer of subsection (b), new subsections (b)-(e) and amendment of Note filed 4-1-96 as an emergency; operative 4-1-96 (Register 96, No. 14). A Certificate of Compliance must be transmitted to OAL by 7-30-96 or emergency language will be repealed by operation of law on the following day.

8. Editorial correction of Note (Register 96, No. 18).

9. Certificate of Compliance as to 4-1-96 order, including amendment of subsection (a), transmitted to OAL 3-20-96 and filed 5-1-96 (Register 96, No. 18).

Article 8. Timelines for Scheduling and Commencing Hearings.

§2648.1. Scope.

Note • History

(a) Except as provided for herein, this article applies to proceedings commenced by the issuance of a notice of hearing, or other notice or order commencing a proceeding on a rate application issued by the Commissioner pursuant to Insurance Code Section 1861.05, subdivision (c).

(b) This article shall not apply to applications for exemption from Insurance Code Section 1861.01(a), file and use rate applications filed prior to November 8, 1989, or applications for rate changes pursuant to Insurance Code Section 1861.05 which are filed prior to July 1, 1993. Refiling of applications for rate changes pursuant to Insurance Code Section 1861.05 shall be made by filing the Department cover sheet entitled “Cover Sheet for Re-Filing of Application for Approval of Insurance Rates,” Department form number CA-RA1, dated May 1, 1993, which is incorporated by reference. In addition, for those applications which were submitted with data that is no longer current, updated data must also be submitted with the cover sheet.

NOTE

Authority cited: Sections 1861.05 and 1861.055 California Insurance Code. Reference: Sections 1861.05 and 1861.055, California Insurance Code.

HISTORY

1. New article 8 (sections 2648.1-2648.4) filed 7-12-93 as an emergency; operative 7-12-93 (Register 93, No. 29). A Certificate of Compliance must be transmitted to OAL 11-8-93 or emergency language will be repealed by operation of law on the following day.

2. Certificate of Compliance as to 7-12-93 order including amendment of subsection (b) transmitted to OAL 11-3-93 and filed 12-17-93 (Register 93, No. 51).

§2648.2. Receipt of Rate Change Application By Commissioner.

Note • History

(a) For the purpose of Insurance Code Section 1861.05(c), a rate change application shall be considered to have been received by the Commissioner on the date that it is received by the Department's Rate Filing Bureau in San Francisco.

(b) Within 14 days of receipt, the Commissioner shall review rate applications for completeness as required by Insurance Code Section 1861.05(b). If the application includes the forms and exhibits listed in the Filing Checklist, as provided in Section 2648.4, and the data required therein, it is complete. If the Commissioner determines that the application is not complete because it does not include such forms, exhibits, or the data required therein, notice stating the grounds for incompleteness will be given to the insurer within the 14 day period and the application will be rejected. Within 10 days of the date that such notice is given, the insurer may request a hearing on the rejection.

(c) The hearing shall be held within 10 days of receipt of the request by the Department's Rate Enforcement Bureau. The scope of the hearing shall be limited to the completeness of the application.

(d) If, after a hearing, an application is determined to have been complete when filed, then the 180 day period specified in Insurance Code Section 1861.05 shall have commenced on the date the application was first filed. If the application is determined to be incomplete, then it shall remain rejected.

(e) Rejection of an application for incompleteness shall not bar the refiling of a complete application.

(f) Public notice required by Insurance Code Section 1861.05 shall be made within 10 days after the Commissioner determines that an application is complete.

NOTE

Authority cited: Sections 1861.05 and 1861.055, California Insurance Code. Reference: Sections 1861.05 and 1861.055, California Insurance Code.

HISTORY

1. New section filed 7-12-93 as an emergency; operative 7-12-93 (Register 93, No. 29). A Certificate of Compliance must be transmitted to OAL 11-8-93 or emergency language will be repealed by operation of law on the following day.

2. Certificate of Compliance as to 7-12-93 order transmitted to OAL 11-3-93 and filed 12-17-93 (Register 93, No. 51).

§2648.3. Scheduling Conference.

Note • History

(a) If the Commissioner decides to hold a hearing pursuant to Insurance Code Section 1861.05, a notice of hearing, or other notice or order commencing a proceeding under Insurance Code Section 1861.05., shall be provided within 60 days after public notice has been given. After such notice has been issued, and within 20 days after the time for filing a notice of defense or other response by respondent as provided for in Government Code Section 11506, the administrative law judge assigned to hear the matter, or the Commissioner if no judge has been assigned, shall give written notice of a scheduling conference to all parties to the proceeding and to all persons having advised the Commissioner of an interest in intervening in the proceeding. The notice shall provide that the scheduling conference shall be held within 30 days of the date of said notice.

(b) The scheduling conference shall consider such issues as may be raised by the administrative law judge, the parties, or persons interested in intervening in the proceeding, including the following: the scope of issues; the scope of discovery that has been conducted and the scope of anticipated discovery; discovery schedule; schedule for bringing motions; schedule for submission of prefiled testimony; matters pertaining to intervention; the date for the evidentiary hearing.

(c) During the scheduling conference, the administrative law judge shall set a date for commencement of the evidentiary hearing that is less than 180 days from the date the application was received by the Department.

(d) Upon good cause shown during the scheduling conference, or upon subsequent motion, the date for the evidentiary hearing may be set or continued, to a date that is more than 180 days from the date the application was received by the Department. In determining the existence of good cause, the administrative law judge may consider any pertinent matter. A continuance may be granted if the party seeking the continuance is not responsible for and made a good faith effort to prevent the condition or event establishing good cause.

NOTE

Authority cited: Sections 1861.05 and 1861.055, California Insurance Code. Reference: Sections 1861.05 and 1861.055, California Insurance Code.

HISTORY

2. Certificate of Compliance as to 7-12-93 order including amendment of subsection (d) and Note transmitted to OAL 11-3-93 and filed 12-17-93 (Register 93, No. 51).

§2648.4. Complete Application.

Note • History

(a) In order to be complete, a rate application must include the following forms, exhibits, data and documentation, which are incorporated by reference: application for approval (form CA-RA1, 5-1-96 ed.), duplicate of form CA-RA1 for return copy, self-addressed envelope with sufficient postage to return the duplicate copy of CA-RA1, Rate/Rule/Underwriting Rule Submission Data Sheet (form CA-RA2, 5-1-96 ed.), Line of Business (form CA-RA3, 5-1-96 ed.), Filing Checklist (form CA-RA4, 5-1-96 ed.), Ratemaking Data (form CA-RA5, 5-1-96 ed.), Reconciliation Report (form CA-RA6, 5-1-96 ed.), Additional Data Required by Statute (form CA-RA7, 5-1-96 ed.), Miscellaneous Data (form CA-RA8, 5-1-96 ed.), Filing History (to be labeled Exhibit 1), Rate Level History (to be labeled Exhibit 2), Premium Adjustment Factor (to be labeled Exhibit 3), Premium Trend Factor (to be labeled Exhibit 4), Allocated Loss Adjustment Expense (to be labeled Exhibit 5), Loss Development Factors (to be labeled Exhibit 6), ALAE Development Factors (to be labeled Exhibit 7), Loss Trend, ALAE Trend, and Expense Trend (to be labeled Exhibit 8), Catastrophe Adjustment (to be labeled Exhibit 9), Policy Term Distribution (to be labeled Exhibit 10), Credibility Adjustment (to be labeled Exhibit 11), Data Availability Report (to be labeled Exhibit 12), Interjurisdictional Expense Allocations (to be labeled Exhibit 13), Unallocated Loss Adjustment Expense (to be labeled Exhibit 14), Other Expense Items (to be labeled Exhibit 15), Ancillary Income (to be labeled Exhibit 16), Federal Income Tax Rate (to be labeled Exhibit 17), Projected Investment Income Ratio (to be labeled Exhibit 18), Loss Reserves, Loss Adjustment Expense Reserves, and Unearned Premium Reserves (to be labeled Exhibit 19), Insurer's Ratemaking Calculations (to be labled Exhibit 20), Rate Distribution (to be labeled Exhibit 21), Rate Classification Relativities (to be labeled Exhibit 22), New Program (to be labeled Exhibit 23), Group Filing (to be labeled Exhibit 24), rating rules, and rate pages. The application must also contain a summary and explanation of the purpose for the filing. The Filing Instructions (forms CA-IA1--CA-I8, 5-1-96, ed.) for these forms and exhibits are incorporated by reference.

(b) Notwithstanding the completeness determination, the Commissioner may later require the submission of relevant underwriting rules and other relevant documents from an applicant in order to perform a complete analysis of an application.

STATE OF CALIFORNIA Insurer Name

DEPARTMENT OF INSURANCE Line of Business

Request for Variance

1. Identify each variance requested.

2. Identify the extent or amount of the variance requested and the applicable efficiency standard, rate of return, loss development factors or trend which will result if the variance is granted.

3. Set forth the expected result or impact on the maximum and minimum permitted earned premium that the granting of the variance will have as compared to the expected result if the variance is denied.

4. Identify the facts and their source justifying the variance request and provide the documentation supporting the amount of the change in the applicable efficiency standard, rate of return, loss development factors or trend that is being proposed.

xx-xx-06 ed. CA-RA9

NOTE

Authority cited: Sections 1861.01 and 1861.055, Insurance Code. Reference: Sections 1861.05, 1861.07 and 1861.055, Insurance Code.

HISTORY

2. Certificate of Compliance as to 7-12-93 order including amendment of subsection (a) and Note transmitted to OAL 11-3-93 and filed 12-17-93 (Register 93, No. 51).

3. Change without regulatory effect amending subsection (a) filed 5-15-96 pursuant to section 100, title 1, California Code of Regulations (Register 96, No. 20).

4. Amendment of subsection (b) filed 10-16-2002; operative 11-15-2002 (Register 2002, No. 42).

5. New subsection (c) and amendment of Note filed 1-3-2007; operative 4-3-2007. Submitted to OAL for printing only pursuant to Government Code section 11340.9(g) (Register 2007, No. 1).

Subchapter 4.9 Rules of Practice and Procedure for Rate Proceedings

Article 1. Preamble

§2649.1. Scope.

Note • History

This subchapter sets forth the rules of practice and procedure governing proceedings conducted pursuant to Article 10 of Chapter 9 of Part 2 of Division 1 of the California Insurance Code, entitled “Reduction and Control of Insurance Rates.”

NOTE

Authority cited: Section 1861.055, Insurance Code, CalFarm Insurance Company, et al. v. George Deukmejian, et al., 48 Cal.3d 805, 824 (1989), 20th Century Insurance Company v. John Garamendi, 8 Cal.4th 216, 281, 32 Cal.Rptr.2d 807, 847 (1994). Reference: Sections 1861.05(b), (c), 1861.055, 1861.08 and 1861.10(a), Insurance Code, CalFarm Insurance Company, et al. v. George Deukmejian, et al., 48 Cal.3d 805 (1989), 20th Century Insurance Company v. John Garamendi, 8 Cal.4th 216, 281, 32 Cal.Rptr.2d 807, 847 (1994).

HISTORY

1. New subchapter 4.9, article 1 and section filed 8-18-95 as an emergency; operative 8-18-95 (Register 95, No. 33). A Certificate of Compliance must be transmitted to OAL by 12-16-95 or emergency language will be repealed by operation of law on the following day.

2. Certificate of Compliance as to 8-18-95 order transmitted to OAL 12-18-95 and filed 2-1-96 (Register 96, No. 5).

Article 2. Responsibilities of Parties

§2650.1. Responsibilities of Parties.

Note • History

(a) Any person representing a party in a proceeding as defined in section 2651.1 shall, no later than the next appearance of that party, file and serve notification of that representation to all other parties.

(b) Any party who has initiated or intervened in any proceeding as defined in section 2651.1 shall, within five (5) days of determining to withdraw from participation in the proceeding, file and serve notification of that fact to all other parties.

NOTE

Authority cited: Section 1861.055, Insurance Code, CalFarm Insurance Company, et al. v. George Deukmejian, et al., 48 Cal.3d 805, 824 (1989), 20th Century Insurance Company v. John Garamendi, 8 Cal.4th 216, 281, 32 Cal.Rptr.2d 807, 847 (1994). Reference: Sections 1861.05(b), (c), 1861.055 and 1861.10(a), Insurance Code, CalFarm Insurance Company, et al. v. George Deukmejian, et al., 48 Cal.3d 805 (1989), 20th Century Insurance Company v. John Garamendi, 8 Cal.4th 216, 281, 32 Cal.Rptr.2d 807, 847 (1994).

HISTORY

1. New article 2 and section filed 8-18-95 as an emergency; operative 8-18-95 (Register 95, No. 33). A Certificate of Compliance must be transmitted to OAL by 12-16-95 or emergency language will be repealed by operation of law on the following day.

2. Certificate of Compliance as to 8-18-95 order transmitted to OAL 12-18-95 and filed 2-1-96 (Register 96, No. 5).

Article 3. Definitions

§2651.1. Definitions.

Note • History

The following definitions shall apply to Subchapter 4.9.

(a) “Administrative Hearing Bureau” means that office within the office of the Commissioner at 45 Fremont Street, 22nd Floor, San Francisco, CA 94105 and, except where otherwise specified in this subchapter, designated for receipt of all pleadings filed pursuant to this subchapter.

(b) “Applicant” means the insurer presenting, on the form prescribed by the Commissioner and specified in section 2648.4, an application to

change any rate pursuant to California Insurance Code section 1861.05(b).

(c) “Application” means the form prescribed by the Commissioner and specified in section 2648.4, together with all supporting information included with that form, which every insurer seeking to change any rate pursuant to California Insurance Code section 1861.05(b) must provide.

(d) “Day”, unless otherwise specified in these regulations, means a calendar day. “Business days” include all days except Saturdays, Sundays, and any holiday set forth in California Government Code section 6700.

The time within which any pleading may be filed or served shall exclude the first day and include the last day; however, when the last day falls on a Saturday, Sunday or holiday the time computation shall exclude that day and include the next business day.

(e) “Filing” means the act of delivery of a paper pleading to the Administrative Hearing Bureau. An original and one (1) copy of each pleading shall be filed with the Administrative Hearing Bureau. A specific pleading may be filed by facsimile or electronic transmission only when authorized by the administrative law judge.

(f) “Party” means the insurer whose rates are the subject of the proceeding, any person whose petition to intervene in the proceeding has been granted pursuant to section 2661.3(g), and the Department.

(g) “Pleading” means any petition, notice of hearing, notice of defense, answer, motion, request, response, brief, or other formal document filed with the Administrative Hearing Bureau pursuant to this subchapter. The original of each pleading shall be signed by each party or the party's attorney or representative.

(h) “Proceeding” means any action conducted pursuant to Article 10 of Chapter 9 of Part 2 of Division 1 of the California Insurance Code, entitled “Reduction and Control of Insurance Rates,” including a rate proceeding established upon the submission of a petition for hearing pursuant to California Insurance Code section 1861.05 and section 2653.1 of this subchapter.

(i) “Service” means to provide a copy of a pleading to every other party in the proceeding in conformity with California Code of Civil Procedure sections 1011 and 1013. When a party files a pleading, the party shall concurrently serve that pleading on all other parties in the proceeding.

All filed pleadings shall be accompanied by an original declaration of service in conformity with California Code of Civil Procedure sections 1011 and 1013. All served pleadings shall be accompanied by a copy of the declaration of service. An employee of a party may sign a declaration of service.

A specific pleading may be served by facsimile or electronic transmission when authorized by the receiving party.

A sample declaration of service form can be found in section 2623.9.

(j) “Settlement” means an agreement among some or all of the parties to a proceeding on a mutually acceptable outcome to the proceeding.

(k) “Stipulation” means an agreement among some or all of the parties to a proceeding on the resolution of any issue of fact or the applicability of any provision of law material to the proceeding.

(l) “Submit” means the act of delivery of a pleading to the Rate Enforcement Bureau.

NOTE

Authority cited: Sections 1861.05 and 1861.055, Insurance Code, CalFarm Insurance Company, et al. v. George Deukmejian, et al., 48 Cal.3d 805, 824 (1989), 20th Century Insurance Company v. John Garamendi, 8 Cal.4th 216, 281, 32 Cal.Rptr.2d 807, 847 (1994). Reference: Sections 1861.05(c), 1861.055 and 1861.08, Insurance Code, CalFarm Insurance Company, et al. v. George Deukmejian, et al., 48 Cal.3d 805 (1989), 20th Century Insurance Company v. John Garamendi, 8 Cal.4th 216, 281, 32 Cal.Rptr.2d 807, 847 (1994).

HISTORY

1. New article 3 and section filed 8-18-95 as an emergency; operative 8-18-95 (Register 95, No. 33). A Certificate of Compliance must be transmitted to OAL by 12-16-95 or emergency language will be repealed by operation of law on the following day.

2. Editorial correction of second paragraph of subsection (d) (Register 96, No. 5).

3. Certificate of Compliance as to 8-18-95 order transmitted to OAL 12-18-95 and filed 2-1-96 (Register 96, No. 5)

4. Amendment of subsections (a), (e), (g) and (i) filed 10-16-2002; operative 11-15-2002 (Register 2002, No. 42).

5. Amendment of subsection (h) filed 12-29-2006; operative 1-28-2007 (Register 2006, No. 52).

6. Change without regulatory effect amending subsection (e) filed 1-7-2010 pursuant to section 100, title 1, California Code of Regulations (Register 2010, No. 2).

Article 4. Procedural Requirements

§2652.1. Form and Size.

Note • History

Pleadings shall comply with Rules 2.101 through 2.108 of the California Rules of Court, except that the use of recycled paper and printing on both sides (flip-up) is encouraged.

NOTE

Authority cited: Section 1861.055, Insurance Code, CalFarm Insurance Company, et al. v. George Deukmejian, et al., 48 Cal.3d 805, 824 (1989), 20th Century Insurance Company v. John Garamendi, 8 Cal.4th 216, 281, 32 Cal.Rptr.2d 807, 847 (1994). Reference: Sections 1861.05(b), (c), 1861.055 and 1861.08, Insurance Code, CalFarm Insurance Company, et al. v. George Deukmejian, et al., 48 Cal.3d 805 (1989), 20th Century Insurance Company v. John Garamendi, 8 Cal.4th 216, 281, 32 Cal.Rptr.2d 807, 847 (1994).

HISTORY

1. New article 4 and section filed 8-18-95 as an emergency; operative 8-18-95 (Register 95, No. 33). A Certificate of Compliance must be transmitted to OAL by 12-16-95 or emergency language will be repealed by operation of law on the following day.

2. Certificate of Compliance as to 8-8-95 order transmitted to OAL 12-18-95 and filed 2-1-96 (Register 96, No. 5).

3. Change without regulatory effect amending section filed 12-2-2008 pursuant to section 100, title 1, California Code of Regulations (Register 2008, No. 49).

4. Change without regulatory effect amending section filed 1-7-2010 pursuant to section 100, title 1, California Code of Regulations (Register 2010, No. 2).

§2652.2. Title and Case Number.

Note • History

(a) Any pleading filed shall show the full name, mailing address, street address if different than the mailing address, and telephone number of the person filing it or that person's attorney or representative, if any, the caption of the proceeding, the case number (if assigned), and the title of the pleading. Not less than a three-inch square of the upper right-hand corner of the first page shall be available for the use of the Department.

(b) Pleadings initiating new proceedings shall leave a space for the case number.

NOTE

Authority cited: Section 1861.055, Insurance Code, CalFarm Insurance Company, et al. v. George Deukmejian, et al., 48 Cal.3d 805, 824 (1989), 20th Century Insurance Company v. John Garamendi, 8 Cal.4th 216, 281, 32 Cal.Rptr.2d 807, 847 (1994). Reference: Sections 1861.05(b), (c), 1861.055 and 1861.08, Insurance Code, CalFarm Insurance Company, et al. v. George Deukmejian, et al., 48 Cal.3d 805 (1989), 20th Century Insurance Company v. John Garamendi, 8 Cal.4th 216, 281, 32 Cal.Rptr.2d 807, 847 (1994).

HISTORY

1. New section filed 8-18-95 as an emergency; operative 8-18-95 (Register 95, No. 33). A Certificate of Compliance must be transmitted to OAL by 12-16-95 or emergency language will be repealed by operation of law on the following day.

2. Certificate of Compliance as to 8-18-95 order transmitted to OAL 12-18-95 and filed 2-1-96 (Register 96, No. 5).

§2652.3. Verification.

Note • History

(a) Petitions and Answers, Requests for Findings of Eligibility to Seek Compensation, and Requests for Award, or amendments thereto, shall be verified. Verification may be made by the party's attorney or advocate and shall be made by declaration under penalty of perjury under California law.

(b) Sample verification forms can be found in sections 2623.6, 2623.7, and 2623.8.

NOTE

Authority cited: Section 1861.055, Insurance Code, CalFarm Insurance Company, et al. v. George Deukmejian, et al., 48 Cal.3d 805, 824 (1989), 20th Century Insurance Company v. John Garamendi, 8 Cal.4th 216, 281, 32 Cal.Rptr.2d 807, 847 (1994). Reference: Sections 1861.05(b), (c), 1861.055 and 1861.08, Insurance Code, CalFarm Insurance Company, et al. v. George Deukmejian, et al., 48 Cal.3d 805 (1989), 20th Century Insurance Company v. John Garamendi, 8 Cal.4th 216, 281, 32 Cal.Rptr.2d 807, 847 (1994).

HISTORY

2. Certificate of Compliance as to 8-18-95 order transmitted to OAL 12-18-95 and filed 2-1-96 (Register 96, No. 5).

§2652.4. Good Faith Requirement.

Note • History

Any person filing a pleading is thereby certifying that, to the best of the person's knowledge, information, and belief, the pleading is not being presented for any improper purpose, such as to delay, harass, or intimidate. The administrative law judge shall strike any pleading filed for an improper purpose such as to delay, harass, or intimidate. No pleading shall be stricken except on written request of a party, filed no later than ten (10) days after service of the pleading and following notice and an opportunity to be heard. The hearing shall be held no later than ten (10) business days after filing of the request. Any party may file a written response to a request within five (5) business days of filing of the request.

NOTE

Authority cited: Section 1861.055, Insurance Code, CalFarm Insurance Company, et al. v. George Deukmejian, et al., 48 Cal.3d 805, 824 (1989), 20th Century Insurance Company v. John Garamendi, 8 Cal.4th 216, 281, 32 Cal.Rptr.2d 807, 847 (1994). Reference: Sections 1861.05(c), 1861.055 and 1861.08, Insurance Code, CalFarm Insurance Company, et al. v. George Deukmejian, et al., 48 Cal.3d 805 (1989), 20th Century Insurance Company v. John Garamendi, 8 Cal.4th 216, 281, 32 Cal.Rptr.2d 807, 847 (1994).

HISTORY

2. Editorial correction of Note (Register 96, No. 5).

3. Certificate of Compliance as to 8-18-95 order transmitted to OAL 12-18-95 and filed 2-1-96 (Register 96, No. 5)

§2652.5. Place of Filing.

Note • History

Unless otherwise directed, all pleadings filed pursuant to this subchapter shall be filed with the Administrative Hearing Bureau, 45 Fremont Street, 22nd Floor, San Francisco, CA 94105. However, petitions for hearing shall be submitted to the California Department of Insurance, Rate Enforcement Bureau, 45 Fremont Street, 21st Floor, San Francisco, CA 94105, and shall not be filed with the Administrative Hearing Bureau.

(b) Filing and service shall be accomplished by 4:30 p.m. local time on any due date.

NOTE

Authority cited: Section 1861.055, Insurance Code, CalFarm Insurance Company, et al. v. George Deukmejian, et al., 48 Cal.3d 805, 824 (1989), 20th Century Insurance Company v. John Garamendi, 8 Cal.4th 216, 281, 32 Cal.Rptr.2d 807, 847 (1994). Reference: Sections 1861.05(c), 1861.055, 1861.07, 1861.08 and 1861.10(a), Insurance Code, CalFarm Insurance Company, et al. v. George Deukmejian, et al., 48 Cal.3d 805 (1989), 20th Century Insurance Company v. John Garamendi, 8 Cal.4th 216, 281, 32 Cal.Rptr.2d 807, 847 (1994).

HISTORY

2. Certificate of Compliance as to 8-18-95 order transmitted to OAL 12-18-95 and filed 2-1-96 (Register 96, No. 5).

3. Amendment of first paragraph filed 10-16-2002; operative 11-15-2002 (Register 2002, No. 42).

§2652.6. Amendment of Pleadings.

Note • History

The filing of a pleading does not establish that it complies with all requirements, and its receipt is not a waiver of those requirements. The administrative law judge may, within five (5) business days after filing of a pleading, require amendment of a pleading. Any amendment shall be filed within five (5) business days of service of the order requiring amendment.

NOTE

HISTORY

2. Certificate of Compliance as to 8-18-95 order transmitted to OAL 12-18-95 and filed 2-1-96 (Register 96, No. 5).

§2652.7. Acknowledgments.

Note • History

Any person who desires an acknowledgment of the filing of a pleading shall so request and shall furnish an extra copy of the letter of transmittal or of the first page of the pleading. A self-addressed envelope with postage fully prepaid shall be provided if the party requests that a conformed copy be returned by mail.

NOTE

HISTORY

2. Certificate of Compliance as to 8-18-95 order transmitted to OAL 12-18-95 and filed 2-1-96 (Register 96, No. 5).

§2652.8. Public Notice of Rate Applications.

Note • History

A list of all rate change applications proposed within the previous thirty-six (36) months shall be available for public inspection at the public viewing rooms in San Francisco and Los Angeles. A copy of this Public Notice of Insurance Company Rate Application list (“List”) shall be mailed weekly without charge to any person who makes a written request therefor with the Rate Filing Bureau, 45 Fremont Street, 23rd Floor, San Francisco, CA 94105. The Commissioner shall annually notify those receiving the list that, in order to continue to receive the list, they must provide written confirmation to the Rate Filing Bureau, within thirty (30) days of the date of the notice, that they wish to continue to receive the list.

NOTE

Authority cited: Section 1861.06, Insurance Code, CalFarm Insurance Company, et al. v. George Deukmejian, et al., 48 Cal.3d 805, 824 (1989), 20th Century Insurance Company v. John Garamendi, 8 Cal.4th 216, 281, 32 Cal.Rptr.2d 807, 847 (1994). Reference: Sections 1861.05(c), 1861.055, 1861.06, 1861.07 and 12973.7, Insurance Code, CalFarm Insurance Company, et al. v. George Deukmejian, et al., 48 Cal.3d 805 (1989), 20th Century Insurance Company v. John Garamendi, 8 Cal.4th 216, 281, 32 Cal.Rptr.2d 807, 847 (1994).

HISTORY

2. Certificate of Compliance as to 8-18-95 order transmitted to OAL 12-18-95 and filed 2-1-96 (Register 96, No. 5).

§2652.9. Public Inspection.

Note • History

In addition to the information set forth in California Insurance Code section 1861.07, all pleadings filed pursuant to this subchapter shall be available for public inspection at the Department's public viewing rooms in Los Angeles and San Francisco.

NOTE

Authority cited: Section 1861.07, Insurance Code, CalFarm Insurance Company, et al. v. George Deukmejian, et al., 48 Cal.3d 805, 824 (1989), 20th Century Insurance Company v. John Garamendi, 8 Cal.4th 216, 281, 32 Cal.Rptr.2d 807, 847 (1994). Reference: Sections 1861.055 and 1861.07, Insurance Code, CalFarm Insurance Company, et al. v. George Deukmejian, et al., 48 Cal.3d 805 (1989), 20th Century Insurance Company v. John Garamendi, 8 Cal.4th 216, 281, 32 Cal.Rptr.2d 807, 847 (1994).

HISTORY

2. Certificate of Compliance as to 8-18-95 order transmitted to OAL 12-18-95 and filed 2-1-96 (Register 96, No. 5).

§2652.10 Contact With Department Staff.

Note • History

Once a Notice of Hearing has been filed regarding an application, neither the applicant nor any intervenor shall discuss the application, or any issues related to the application, with the Commissioner or any employee of the Department of Insurance other than employees of the Rate Enforcement Bureau, employees of the Administrative Law Bureau other than any administrative law judge, and/or the Public Advisor.

NOTE

Authority cited: Section 1861.055, Insurance Code, CalFarm Insurance Company, et al. v. George Deukmejian, et al., 48 Cal.3d 805, 824 (1989), 20th Century Insurance Company v. John Garamendi, 8 Cal.4th 216, 281, 32 Cal.Rptr.2d 807, 847 (1994). Reference: Sections 1861.055 and 1861.08, Insurance Code, CalFarm Insurance Company, et al. v. George Deukmejian, et al., 48 Cal.3d 805 (1989), 20th Century Insurance Company v. John Garamendi, 8 Cal.4th 216, 281, 32 Cal.Rptr.2d 807, 847 (1994).

HISTORY

2. Certificate of Compliance as to 8-18-95 order transmitted to OAL 12-18-95 and filed 2-1-96 (Register 96, No. 5).

§2652.10. Contact With Department Staff.

Note • History

Once a Notice of Hearing has been filed regarding an application, neither the applicant nor any intervenor shall discuss the application, or any issues related to the application, with the Commissioner or any employee of the Department of Insurance other than employees of the Rate Enforcement Bureau, employees of the Administrative Hearing Bureau other than any administrative law judge, and/or the Public Advisor.

NOTE

Authority cited: Section 1861.055, Insurance Code, CalFarm Insurance Company, et al. v. George Deukmejian, et al., 48 Cal.3d 805, 824 (1989), 20th Century Insurance Company v. John Garamendi, 8 Cal.4th 216, 281, 32 Cal.Rptr.2d 807, 847 (1994). Reference: Sections 1861.055 and 1861.08, Insurance Code, CalFarm Insurance Company, et al. v. George Deukmejian, et al., 48 Cal.3d 805 (1989), 20th Century Insurance Company v. John Garamendi, 8 Cal.4th 216, 281, 32 Cal.Rptr.2d 807, 847 (1994).

HISTORY

2. Certificate of Compliance as to 8-18-95 order transmitted to OAL 12-18-95 and filed 2-1-96 (Register 96, No. 5).

3. Change without regulatory effect amending section filed 1-7-2010 pursuant to section 100, title 1, California Code of Regulations (Register 2010, No. 2).

Article 5. Petition for Hearing

§2653.1. Petition for Hearing.

Note • History

(a) Any person, whether as an individual, representative of an organization, or on behalf of the general public, may request a hearing by submitting a petition for hearing (“petition”), which is a pleading containing:

(1) An objection to the granting, in whole or in part, of the rate requested in an application, or other request to initiate a proceeding and the basis therefor; and

(2) A request for a public hearing; and

(3) An offer of the evidence which the person requesting the hearing would present or elicit at the public hearing.

(b) A petition for hearing shall state, in plain language, the facts constituting grounds for the request for hearing, and the relief sought. A petition submitted in response to an application shall list the line(s) of insurance for which the rate change is sought, the percentage rate change for each line, and the Department's Rate Filing Bureau application number(s).

(d) All petitions for hearing shall be available for public inspection at the Department's public viewing rooms in Los Angeles and San Francisco.

(e) A sample petition for hearing form can be found in section 2660.2.

NOTE

Authority cited: Sections 1861.05(c) and 1861.055, Insurance Code, CalFarm Insurance Company, et al. v. George Deukmejian, et al., 48 Cal.3d 805, 824 (1989), 20th Century Insurance Company v. John Garamendi, 8 Cal.4th 216, 281, 32 Cal.Rptr.2d 807, 847 (1994). Reference: Sections 1858, 1861.05(c), 1861.055 and 1861.10, Insurance Code, CalFarm Insurance Company, et al. v. George Deukmejian, et al., 48 Cal.3d 805 (1989), 20th Century Insurance Company v. John Garamendi, 8 Cal.4th 216, 281, 32 Cal.Rptr.2d 807, 847 (1994).

HISTORY

1. New article 5 and section filed 8-18-95 as an emergency; operative 8-18-95 (Register 95, No. 33). A Certificate of Compliance must be transmitted to OAL by 12-16-95 or emergency language will be repealed by operation of law on the following day.

2. Certificate of Compliance as to 8-18-95 order transmitted to OAL 12-18-95 and filed 2-1-96 (Register 96, No. 5).

§2653.2. Time Limitations.

Note • History

Except for a petition submitted in response to an application, no petition for hearing regarding any rate shall be considered by the Commissioner if that rate has been approved by the Commissioner after a hearing, and the effective date of approval is within the preceding 12 months, unless the petition sets forth relevant circumstances which have changed since that approval. Relevant changed circumstances include, but are not limited to, changes in the law such as that created by Moradi-Shalal v. Fireman's Fund Insurance Companies, 46 Cal.3d 287 (1988) and Garvey v. State Farm Fire & Casualty Company, 48 Cal.3d 395 (1989) which can be expected to have a substantial effect on insurer payouts, or any other change which would result in an approved rate being excessive, inadequate, unfairly discriminatory, or otherwise in violation of Chapter 9 of Part 2 of Division 1 of the California Insurance Code.

NOTE

Authority cited: Sections 1861.05(a) and (c), 1861.055 and 1861.10, Insurance Code, CalFarm Insurance Company, et al. v. George Deukmejian, et al., 48 Cal.3d 805, 824 (1989), 20th Century Insurance Company v. John Garamendi, 8 Cal.4th 216, 281, 32 Cal.Rptr.2d 807, 847 (1994). Reference: Sections 1861.05, 1861.055, 1861.08 and 1861.10(a), Insurance Code, CalFarm Insurance Company, et al. v. George Deukmejian, et al., 48 Cal.3d 805 (1989), 20th Century Insurance Company v. John Garamendi, 8 Cal.4th 216, 281, 32 Cal.Rptr.2d 807, 847 (1994).

HISTORY

2. Certificate of Compliance as to 8-18-95 order transmitted to OAL 12-18-95 and filed 2-1-96 (Register 96, No. 5).

§2653.3. Response to Petition.

Note • History

The Department's Rate Enforcement Bureau may, within three (3) days of submission of the petition for hearing, provide the Commissioner with a response to the petition for hearing. A copy of any response shall be served on the person submitting the petition for hearing and any insurer named in the petition, but shall not be filed with the Administrative Hearing Bureau.

NOTE

Authority cited: Section 1861.055, Insurance Code, CalFarm Insurance Company, et al. v. George Deukmejian, et al., 48 Cal.3d 805, 824 (1989), 20th Century Insurance Company v. John Garamendi, 8 Cal.4th 216, 281, 32 Cal.Rptr.2d 807, 847 (1994). Reference: Sections 1861.055 and 1861.08, Insurance Code, CalFarm Insurance Company, et al. v. George Deukmejian, et al., 48 Cal.3d 805 (1989), 20th Century Insurance Company v. John Garamendi, 8 Cal.4th 216, 281, 32 Cal.Rptr.2d 807, 847 (1994).

HISTORY

2. Certificate of Compliance as to 8-18-95 order transmitted to OAL 12-18-95 and filed 2-1-96 (Register 96, No. 5).

3. Change without regulatory effect amending section filed 1-7-2010 pursuant to section 100, title 1, California Code of Regulations (Register 2010, No. 2).

§2653.4. Answer to Petition.

Note • History

(a) An insurer served with a petition for hearing may submit and serve an answer to the petition. If the insurer chooses to answer the petition, it must do so within five (5) business days of the date of service of the petition.

(b) The answer shall admit or deny each material allegation in the petition and raise any defenses or justifications. It shall also set forth any defects in the petition which require amendment or clarification. Answers shall comply with the requirements of sections 2652.1-2652.3 of this subchapter.

(d) A sample answer form can be found in section 2660.3.

NOTE

Authority cited: Section 1861.055, Insurance Code, CalFarm Insurance Company, et al. v. George Deukmejian, et al., 48 Cal.3d 805, 824 (1989), 20th Century Insurance Company v. John Garamendi, 8 Cal.4th 216, 281, 32 Cal.Rptr.2d 807, 847 (1994). Reference: Sections 1861.055 and 1861.08, Insurance Code, Section 11506, Government Code, CalFarm Insurance Company, et al. v. George Deukmejian, et al., 48 Cal.3d 805 (1989), 20th Century Insurance Company v. John Garamendi, 8 Cal.4th 216, 281, 32 Cal.Rptr.2d 807, 847 (1994).

HISTORY

2. Certificate of Compliance as to 8-18-95 order transmitted to OAL 12-18-95 and filed 2-1-96 (Register 96, No. 5).

3. Change without regulatory effect amending subsection (c) filed 1-7-2010 pursuant to section 100, title 1, California Code of Regulations (Register 2010, No. 2).

§2653.5. Granting of Hearing.

Note • History

The Commissioner shall determine whether to grant or deny a hearing under Insurance Code section 1861.05(c)(1) based upon the content of the petition, the application, and any officially noticeable information.

The petition for hearing, any response, any answer, and the Commissioner's determination whether to grant or deny a hearing shall be part of the record in the proceeding and, if the Commissioner grants a hearing, shall be filed by the Rate Enforcement Bureau with the Administrative Hearing Bureau.

NOTE

Authority cited: Section 1861.055, Insurance Code, CalFarm Insurance Company, et al. v. George Deukmejian, et al., 48 Cal.3d 805, 824 (1989), 20th Century Insurance Company v. John Garamendi, 8 Cal.4th 216, 281, 32 Cal.Rptr.2d 807, 847 (1994). Reference: Sections 1861.055 and 1861.08, Insurance Code, CalFarm Insurance Company, et al. v. George Deukmejian, et al., 48 Cal.3d 805 (1989), 20th Century Insurance Company v. John Garamendi, 8 Cal.4th 216, 281, 32 Cal.Rptr.2d 807, 847 (1994).

HISTORY

2. Certificate of Compliance as to 8-18-95 order transmitted to OAL 12-18-95 and filed 2-1-96 (Register 96, No. 5).

3. Change without regulatory effect amending second paragraph filed 1-7-2010 pursuant to section 100, title 1, California Code of Regulations (Register 2010, No. 2).

Article 6. Administrative Law Judges

§2654.1. Authority.

Note • History

(a) To the extent not otherwise specified by law or regulation, the administrative law judge shall: control the course of proceedings; grant or deny requests for continuances; administer oaths; issue subpoenas; rule on motions to compel discovery; receive evidence; upon notice, hold appropriate conferences before or during hearings; rule upon all objections or motions which do not involve final determination of proceedings; receive offers of proof; hear argument; recommend to the Commissioner approval or disapproval of proposed stipulations and settlements; and, except as set forth in section 2657.1, fix the time and place for the filing of briefs.

(b) The administrative law judge shall eliminate unnecessary delay in the progress and ultimate resolution of the proceeding, assume and maintain control over the pace of the proceeding, actively manage the proceeding from commencement to disposition, and compel all parties to prepare and resolve all issues without delay. The administrative law judge shall discourage continuances, only granting continuances for good cause shown. Good cause includes circumstances such as serious illness of a participant in the proceeding, death in the family of a participant in the proceeding, or jury duty obligations of a participant in the proceeding.

(c) The administrative law judge shall, when appropriate, consolidate cases and/or require coordination and cooperation among multiple intervenors. The administrative law judge may limit the number of witnesses, the time for testimony upon a particular issue, and use other procedures in order to avoid unnecessarily cumulative evidence or the undue consumption of time. The administrative law judge shall take any other action necessary or appropriate to the discharge of his or her duties, consistent with the statutory or other authority under which the Commissioner functions.

(d) The presiding administrative law judge, who directs the Administrative Hearing Bureau and all other administrative law judges, shall exercise all authority set forth in this section until a proceeding is assigned to an administrative law judge.

NOTE

Authority cited: Section 1861.055, Insurance Code, CalFarm Insurance Company, et al. v. George Deukmejian, et al., 48 Cal.3d 805, 824 (1989), 20th Century Insurance Company v. John Garamendi, 8 Cal.4th 216, 281, 32 Cal.Rptr.2d 807, 847 (1994). Reference: Sections 1861.055 and 1861.08(a), Insurance Code, Sections 11512 and 11513, Government Code, CalFarm Insurance Company, et al. v. George Deukmejian, et al., 48 Cal.3d 805 (1989), 20th Century Insurance Company v. John Garamendi, 8 Cal.4th 216, 281, 32 Cal.Rptr.2d 807, 847 (1994).

HISTORY

1. New article 6 and section filed 8-18-95 as an emergency; operative 8-18-95 (Register 95, No. 33). A Certificate of Compliance must be transmitted to OAL by 12-16-95 or emergency language will be repealed by operation of law on the following day.

2. Certificate of Compliance as to 8-18-95 order transmitted to OAL 12-18-95 and filed 2-1-96 (Register 96, No. 5).

3. Change without regulatory effect amending subsection (d) filed 1-7-2010 pursuant to section 100, title 1, California Code of Regulations (Register 2010, No. 2).

§2654.2. Decisions Regarding Certification of Questions to the Commissioner.

Note • History

Certification requests made pursuant to Title 10, California Code of Regulations, section 2646.2 shall be granted or declined within fifteen (15) days of the request for certification. The Commissioner's denial of a certification request shall be without prejudice to any party or the right of any party to raise the question again in the same or future proceedings.

NOTE

Authority cited: Section 1861.055, Insurance Code, CalFarm Insurance Company, et al. v. George Deukmejian, et al., 48 Cal.3d 805, 824 (1989), 20th Century Insurance Company v. John Garamendi, 8 Cal.4th 216, 281, 32 Cal.Rptr.2d 807, 847 (1994). Reference: Sections 1861.055 and 1861.08, Insurance Code, CalFarm Insurance Company, et al. v. George Deukmejian, et al., 48 Cal.3d 805 (1989), 20th Century Insurance Company v. John Garamendi, 8 Cal.4th 216, 281, 32 Cal.Rptr.2d 807, 847 (1994).

HISTORY

2. Certificate of Compliance as to 8-18-95 order transmitted to OAL 12-18-95 and filed 2-1-96 (Register 96, No. 5).

Article 7. Evidence

§2655.1. Discovery.

Note • History

(a) The Department may include a discovery request with a notice of hearing. If it does so within twenty (20) days following the service of a discovery request, the insurer shall deliver to the Department and any interveners copies of all items requested that meet the standards of discoverable items in Government Code section 11507.6, liberally construed. The insurer and any intervener may also request discovery concurrently with the filing and service of each party's initial pleading. The written response to any discovery request other than a discovery request served with the Notice of Hearing shall be served on the requesting party within ten (10) days of service of the discovery request. Upon mutual agreement of all parties and interveners: 1) written documents may be converted into another mutually agreeable format, such as electronic or magnetic, and made readily available, or 2) a depository of original items may be used in place of delivery of copies, but the depository shall be open beyond regular business hours upon request of a party or intervener. The parties shall have an ongoing duty to produce additional items pursuant to whichever method is agreed upon as new items become relevant.

(b) A response shall also contain a list specifically identifying the items not produced that are responsive to the request, in a form that can be read in connection with the specifically stated objections for each requested item that is not made available. The withholding party shall specify precisely why the stated objection applies to the specific item withheld.

When a party withholds information otherwise discoverable by claiming it is privileged, that party shall make the claim expressly and shall describe the nature of the documents, communications, or things not produced or disclosed in a manner that, without revealing information itself privileged or protected, will enable other parties to assess the applicability of the specifically asserted privilege or protection. Simultaneously, the withholding party shall also draft and provide a confidentiality agreement to the other parties and the administrative law judge if a confidentiality agreement can protect the interest in nondisclosure.

Nothing in this section shall require any party to disclose information contained in a document which is privileged from disclosure by law or otherwise made legally confidential or protected as an attorney's work product.

(c) Any party claiming that a request for discovery has not been complied with shall, within five (5) business days of receipt of the responses referred to in (b) above, meet and confer with the party from whom discovery is sought to attempt to resolve the discovery dispute.

(d) Any party claiming that a request for discovery has not been complied with following the meet and confer session shall, within five (5) business days of the meet and confer session, file and serve a motion to compel discovery accompanied by a copy of the original discovery request and response thereto. The motion to compel discovery shall contain a statement specifying why the requested information is sought, and include facts showing a reasonable and good faith attempt at an informal resolution of each issue presented by the motion. The party from whom discovery is sought shall file and serve any additional response within five (5) business days of service of the motion. The administrative law judge shall set a hearing on the motion for a time within ten (10) business days after filing of the response. At or before the commencement of the hearing, the administrative law judge shall inform the parties of his or her tentative ruling on the motion. The administrative law judge shall issue a decision on the motion to compel discovery within five (5) business days of the date of the hearing on the motion to compel discovery.

(e) Nothing in this section shall prohibit the administrative law judge, in appropriate circumstances, from ordering in camera inspection of documents or entering a protective order for documents not subject to California Insurance Code section 1861.07. Nothing in this section shall prohibit the administrative law judge from extending the time frame for discovery for good cause shown.

(f) Any party who disagrees with a decision of the administrative law judge on a motion to compel discovery and desires review of the decision may, within five (5) business days of the date of service of the decision regarding discovery, request the Commissioner to review the discovery decision of the administrative law judge. The request shall be provided to the San Francisco office of the Commissioner, 45 Fremont Street, 23rd Floor, San Francisco, CA 94105 and served on all parties and the administrative law judge. The request shall specify why the party believes the decision of the administrative law judge is in error. The Commissioner shall review the decision of the administrative law judge, as well as all pleadings filed in connection with the motion to compel discovery and the transcript of the hearing on the motion to compel discovery, and issue a decision within fifteen (15) days of receipt of the request to review. The hearing schedule shall be stayed during the time of the Commissioner's review.

(g) All discovery requests, responses, and/or motions to compel discovery shall be made in good faith, and the administrative law judge shall strike any discovery request, response, and/or motion to compel intended only to delay, harass, or intimidate. No discovery request or response shall be stricken except on written request of a party, filed no later than five (5) business days after service of the discovery request, response, or motion to compel discovery and following notice and an opportunity to be heard. The hearing shall be held no later than ten (10) business days after filing of the request. Any party may file a written response to a request within five (5) business days of filing of the request.

(h) Unless a party files a motion to compel discovery, discovery requests, responses thereto, and lists of items not produced shall not be filed with the Administrative Hearing Bureau.

NOTE

Authority cited: Section 1861.055, Insurance Code, CalFarm Insurance Company, et al. v. George Deukmejian, et al., 48 Cal.3d 805, 824 (1989), 20th Century Insurance Company v. John Garamendi, 8 Cal.4th 216, 281, 32 Cal.Rptr.2d 807, 847 (1994). Reference: Sections 1861.055 and 1861.08(e), Insurance Code, Sections 11507.6, 11507.7 and 11511, Government Code, CalFarm Insurance Company, et al. v. George Deukmejian, et al., 48 Cal.3d 805 (1989), 20th Century Insurance Company v. John Garamendi, 8 Cal.4th 216, 281, 32 Cal.Rptr.2d 807, 847 (1994).

HISTORY

1. New article 7 and section filed 8-18-95 as an emergency; operative 8-18-95 (Register 95, No. 33). A Certificate of Compliance must be transmitted to OAL by 12-16-95 or emergency language will be repealed by operation of law on the following day.

2. Editorial correction of subsection (e) (Register 96, No. 5).

3. Certificate of Compliance as to 8-18-95 order; including amendment of subsection (e), transmitted to OAL 12-18-95 and filed 2-1-96 (Register 96, No. 5)

4. Amendment of section and Note filed 10-16-2002; operative 11-15-2002 (Register 2002, No. 42).

§2655.2. Documentary Evidence.

Note • History

Documents offered in evidence shall not contain significant amounts of irrelevant or immaterial information. A party offering a document in excess of ten (10) pages shall designate specifically the relevant and material portions, and shall provide a copy of the entire document to every other party prior to the offer in evidence. The other parties shall be provided five (5) business days to examine the document from the date of receipt of the document, and to offer in evidence other relevant and material portions of the document. If admission of the entire document would unnecessarily encumber the record, the document shall not be received in evidence, but the relevant and material portions shall be received as an exhibit or exhibits of the parties.

NOTE

Authority cited: Section 1861.055, Insurance Code, CalFarm Insurance Company, et al. v. George Deukmejian, et al., 48 Cal.3d 805, 824 (1989), 20th Century Insurance Company v. John Garamendi, 8 Cal.4th 216, 281, 32 Cal.Rptr.2d 807, 847 (1994). Reference: Sections 1861.055 and 1861.08, Insurance Code, Section 11513, Government Code, CalFarm Insurance Company, et al. v. George Deukmejian, et al., 48 Cal.3d 805 (1989), 20th Century Insurance Company v. John Garamendi, 8 Cal.4th 216, 281, 32 Cal.Rptr.2d 807, 847 (1994).

HISTORY

2. Certificate of Compliance as to 8-18-95 order transmitted to OAL 12-18-95 and filed 2-1-96 (Register 96, No. 5).

§2655.3. Exhibits.

Note • History

Exhibits shall be legible and whenever practicable either prepared on paper not exceeding 8-1/2 inches wide and 11 inches long and printed on both sides, or bound or folded to that approximate size. Exhibits may be created during the hearing, but shall be recreated for the record on paper not exceeding 8-1/2 inches wide and 11 inches long. Wherever practicable, the sheets of each exhibit shall be numbered. Copies of exhibits shall be clear and legible.

NOTE

Authority cited: Section 1861.055, Insurance Code, CalFarm Insurance Company, et al. v. George Deukmejian, et al., 48 Cal.3d 805, 824 (1989), 20th Century Insurance Company v. John Garamendi, 8 Cal.4th 216, 281, 32 Cal.Rptr.2d 807, 847 (1994). Reference: Sections 1861.055 and 1861.08, Insurance Code, Section 11513, Government Code, CalFarm Insurance Company, et al. v. George Deukmejian, et al., 48 Cal.3d 805 (1989), 20th Century Insurance Company v. John Garamendi, 8 Cal.4th 216, 281, 32 Cal.Rptr.2d 807, 847 (1994).

HISTORY

2. Certificate of Compliance as to 8-18-95 order transmitted to OAL 12-18-95 and filed 2-1-96 (Register 96, No. 5).

3. Change without regulatory effect amending section filed 1-7-2010 pursuant to section 100, title 1, California Code of Regulations (Register 2010, No. 2).

§2655.4. Copies to All Parties.

Note • History

Except for exhibits created during the course of the hearing, when exhibits are marked for identification, the original and one (1) copy shall be furnished to the administrative law judge and one (1) copy furnished to each party or attorney, the witness, and two (2) copies to the court reporter. For exhibits created during the course of the hearing: Within five (5) days of the date of their completion, one (1) copy shall be furnished to the administrative law judge and one (1) copy shall be furnished to each party or attorney and two (2) copies to the court reporter. One (1) additional copy of each exhibit shall be filed with the Administrative Hearing Bureau within ten (10) days of the date the exhibit is marked for identification or completed during the proceeding.

NOTE

Authority cited: Section 1861.055, Insurance Code, CalFarm Insurance Company, et al. v. George Deukmejian, et al., 48 Cal.3d 805, 824 (1989), 20th Century Insurance Company v. John Garamendi, 8 Cal.4th 216, 281, 32 Cal.Rptr.2d 807, 847 (1994). Reference: Sections 1861.055 and 1861.08, Insurance Code, CalFarm Insurance Company, et al. v. George Deukmejian, et al., 48 Cal.3d 805 (1989), 20th Century Insurance Company v. John Garamendi, 8 Cal.4th 216, 281, 32 Cal.Rptr.2d 807, 847 (1994).

HISTORY

2. Certificate of Compliance as to 8-18-95 order transmitted to OAL 12-18-95 and filed 2-1-96 (Register 96, No. 5).

3. Change without regulatory effect amending section filed 1-7-2010 pursuant to section 100, title 1, California Code of Regulations (Register 2010, No. 2).

§2655.5. Additional Evidence.

Note • History

(a) The administrative law judge may require the production of further evidence on any issue until the record is closed. If the administrative law judge determines that specific documentary evidence is necessary as a part of the record, the administrative law judge shall set a deadline for filing, reserving exhibit numbers therefor. Copies of all documents produced shall be served on all parties.

(b) If the administrative law judge requires the production of further evidence, that evidence shall be provided no later than ten (10) days from the date the administrative law judge notifies the party from whom the evidence is sought that additional evidence is required.

(c) Any objections to admitting the evidence produced upon the administrative law judge's order shall be filed no later than five (5) days after the evidence is served.

(d) Unless ordered by the administrative law judge, evidence other than matters that can be officially noticed shall not be provided after the close of the evidentiary hearing.

(e) In no event shall the record close more than fifteen (15) days after oral argument.

NOTE

Authority cited: Section 1861.055, Insurance Code, CalFarm Insurance Company, et al. v. George Deukmejian, et al., 48 Cal.3d 805, 824 (1989), 20th Century Insurance Company v. John Garamendi, 8 Cal.4th 216, 281, 32 Cal.Rptr.2d 807, 847 (1994). Reference: Sections 1861.055 and 1861.08, Insurance Code, CalFarm Insurance Company, et al. v. George Deukmejian, et al., 48 Cal.3d 805 (1989), 20th Century Insurance Company v. John Garamendi, 8 Cal.4th 216, 281, 32 Cal.Rptr.2d 807, 847 (1994).

HISTORY

2. Certificate of Compliance as to 8-18-95 order transmitted to OAL 12-18-95 and filed 2-1-96 (Register 96, No. 5).

3. Amendment filed 10-16-2002; operative 11-15-2002 (Register 2002, No. 42).

§2655.6. Prepared Testimony.

Note • History

(a) Prepared direct testimony, in narrative statement or question and answer format, of each direct witness expected to be called to testify by the applicant in a proceeding, shall be filed and served on all parties at least forty (40) business days before the first day of the evidentiary hearing. Prepared direct testimony, in narrative statement or question and answer format, of each direct witness expected to be called to testify in a proceeding by any party other than the applicant, shall be filed and served on all parties no later than twenty (20) business days after service of the applicant's prepared direct testimony. Prepared direct testimony shall be signed under penalty of perjury under the laws of the state of California. Expert witness testimony shall be accompanied by the witnesses' curriculum vitae and list of authored or co-authored publications. Additionally, any documents reviewed by the expert for purposes of testifying in the specific case that were not previously provided to the other parties shall be produced with the testimony.

(b) Within five (5) business days of service of any prepared direct testimony, any party may file a motion to strike all or part of the testimony. The motion shall state the specific page(s) and line(s) to which the party is objecting, and the specific legal authority for the objection. Within five (5) business days of service of a motion to strike, the party filing the prepared direct testimony may respond to the motion to strike. A hearing on any motion to strike shall be held within five (5) business days of service of any response to the motion to strike. At or before the commencement of the hearing on the motion to strike, the administrative law judge shall inform the parties of his or her tentative ruling on the motion. The administrative law judge shall rule on the motion to strike no later than two (2) business days after the hearing on the motion to strike. Any testimony not objected to and any testimony not stricken, together with exhibits referenced in that testimony, shall be deemed admitted.

(c) If rebuttal prepared testimony is allowed, motions to strike may be made orally and ruled upon immediately in order to expedite the proceeding.

(d) At the evidentiary hearing, the person whose prepared testimony is being offered shall be available for cross-examination by all parties.

(e) Prepared testimony of more than twenty (20) pages shall contain a subject index.

(f) This section is not intended to replace the provisions of Government Code section 11514.

NOTE

Authority cited: Section 1861.055, Insurance Code, CalFarm Insurance Company, et al. v. George Deukmejian, et al., 48 Cal.3d 805, 824 (1989), 20th Century Insurance Company v. John Garamendi, 8 Cal.4th 216, 281, 32 Cal.Rptr.2d 807, 847 (1994). Reference: Sections 1861.055 and 1861.08, Insurance Code; Sections 11507.6, 11511 and 11513, Government Code; Section 801(b), Evidence Code; CalFarm Insurance Company, et al. v. George Deukmejian, et al., 48 Cal.3d 805 (1989), 20th Century Insurance Company v. John Garamendi, 8 Cal.4th 216, 281, 32 Cal.Rptr.2d 807, 847 (1994).

HISTORY

2. Certificate of Compliance as to 8-18-95 order transmitted to OAL 12-18-95 and filed 2-1-96 (Register 96, No. 5).

3. Amendment of section and Note filed 10-16-2002; operative 11-15-2002 (Register 2002, No. 42).

§2655.7. Order of Proof.

Note • History

In addition to its burden of proof, the applicant shall have the burden of presenting its evidence and witnesses first.

NOTE

Authority cited: Sections 1861.05 and 1861.055, Insurance Code, CalFarm Insurance Company, et al. v. George Deukmejian, et al., 48 Cal.3d 805, 824 (1989), 20th Century Insurance Company v. John Garamendi, 8 Cal.4th 216, 281, 32 Cal.Rptr.2d 807, 847 (1994). Reference: Sections 1861.05, 1861.055 and 1861.08, Insurance Code, CalFarm Insurance Company, et al. v. George Deukmejian, et al., 48 Cal.3d 805 (1989), 20th Century Insurance Company v. John Garamendi, 8 Cal.4th 216, 281, 32 Cal.Rptr.2d 807, 847 (1994).

HISTORY

2. Certificate of Compliance as to 8-18-95 order transmitted to OAL 12-18-95 and filed 2-1-96 (Register 96, No. 5).

§2655.8. Additional Direct Testimony.

Note • History

(a) Prior to his or her cross-examination, any witness may provide additional direct testimony responding to testimony elicited of any other witness. Any additional direct testimony which is likely to take more than one hour of hearing time to present shall meet all requirements applicable to direct testimony, shall be in the format specified in section 2655.6, and shall be filed and served on all parties at least two (2) business days before the witness is called to testify.

(b) If updated data underlying the application becomes available during the course of the hearing, the applicant shall provide the updated data as additional direct testimony as soon as practical after the updated data becomes available. This additional direct testimony shall meet all requirements applicable to direct testimony, shall be in the format specified in section 2655.6, and shall be filed and served on all parties at least two (2) business days before the witness is called to testify on the updated data.

NOTE

Authority cited: Section 1861.055, Insurance Code, CalFarm Insurance Company, et al. v. George Deukmejian, et al., 48 Cal.3d 805, 824 (1989), 20th Century Insurance Company v. John Garamendi, 8 Cal.4th 216, 281, 32 Cal.Rptr.2d 807, 847 (1994). Reference: Sections 1861.055 and 1861.08, Insurance Code, CalFarm Insurance Company, et al. v. George Deukmejian, et al., 48 Cal.3d 805 (1989), 20th Century Insurance Company v. John Garamendi, 8 Cal.4th 216, 281, 32 Cal.Rptr.2d 807, 847 (1994).

HISTORY

2. Certificate of Compliance as to 8-18-95 order transmitted to OAL 12-18-95 and filed 2-1-96 (Register 96, No. 5).

§2655.9 Rebuttal Testimony.

Note • History

At the conclusion of the direct presentations of all parties, the parties may file written rebuttal testimony. The rebuttal testimony shall meet all requirements applicable to direct testimony, shall be in the format specified in section 2655.6 and shall be filed and served on all parties at least two (2) business days before the rebuttal witness is called to testify. The rebuttal testimony shall only respond to testimony of another party or witness.

NOTE

Authority cited: Section 1861.055, Insurance Code, CalFarm Insurance Company, et al. v. George Deukmejian, et al., 48 Cal.3d 805, 824 (1989), 20th Century Insurance Company v. John Garamendi, 8 Cal.4th 216, 281, 32 Cal.Rptr.2d 807, 847 (1994). Reference: Sections 1861.055 and 1861.08, Insurance Code, CalFarm Insurance Company, et al. v. George Deukmejian, et al., 48 Cal.3d 805 (1989), 20th Century Insurance Company v. John Garamendi, 8 Cal.4th 216, 281, 32 Cal.Rptr.2d 807, 847 (1994).

HISTORY

2. Certificate of Compliance as to 8-18-95 order transmitted to OAL 12-18-95 and filed 2-1-96 (Register 96, No. 5).

§2655.10. Official Notice.

Note • History

No party shall file a Request for Official Notice after it files its opening brief as authorized by section 2657.1(d). Objections to official notice requests shall be filed no later than with reply briefs; any written refutation shall accompany the objection. If the administrative law judge determines, without a request, to take official notice of a matter, notice shall be given to the parties, who shall have five (5) days to offer objections or written refutation.

NOTE

Authority cited: Section 1861.055, Insurance Code, CalFarm Insurance Company, et al. v. George Deukmejian, et al., 48 Cal.3d 805, 824 (1989), 20th Century Insurance Company v. John Garamendi, 8 Cal.4th 216, 281, 32 Cal.Rptr.2d 807, 847 (1994). Reference: Sections 1861.055 and 1861.08, Insurance Code, Section 11515, Government Code, CalFarm Insurance Company, et al. v. George Deukmejian, et al., 48 Cal.3d 805 (1989), 20th Century Insurance Company v. John Garamendi, 8 Cal.4th 216, 281, 32 Cal.Rptr.2d 807, 847 (1994).

HISTORY

2. Certificate of Compliance as to 8-18-95 order transmitted to OAL 12-18-95 and filed 2-1-96 (Register 96, No. 5).

3. Amendment filed 10-16-2002; operative 11-15-2002 (Register 2002, No. 42).

Article 8. Stipulations and Settlements

§2656.1. Proposal of Stipulations or Settlements.

Note • History

(b) Notice of the stipulation and a copy of the stipulation shall be served on any intervenor at the time of filing. However, no party to a proceeding pending before the Commissioner shall compensate or agree to compensate an intervenor, and no intervenor shall receive or agree to receive compensation from any party in connection with a proceeding pending before the Commissioner, other than a compensation award approved by the Commissioner in accordance with Article 14 of Subchapter 4.9. No agreement concerning the merits of any matter pending before the Commissioner may be conditioned upon the payment of compensation to an intervenor.

(c) Stipulations and settlements shall be filed with the administrative law judge for proposed acceptance or rejection. When a stipulation or settlement is filed with the administrative law judge, it shall also be served on all parties. If a stipulation dispositive of the case or a settlement is proposed prior to the taking of any testimony, the parties supporting the stipulation or settlement shall file and serve supporting declarations indicating the reasons that the settlement or stipulation is fundamentally fair, adequate, reasonable and in the interests of justice. The administrative law judge shall reject any stipulation or settlement which includes an agreement regarding intervenor fees.

(d) Stipulations shall be limited to the issues in the proceeding and shall have no precedential value for future proceedings.

(e) A settlement or stipulation involving an agreed-upon rate change shall list, for each applicable subline and overall, the California written premium for the prior calendar year, the rate change proposed in the rate application, and the agreed-upon rate change.

(f) Any party may discuss stipulations or settlement with any other party without involving all parties.

(g) Any party objecting to a proposed settlement or stipulation may, within five (5) days of service of the proposed settlement or stipulation, file a written objection and may request a hearing before the administrative law judge on the proposed settlement or stipulation. When a hearing is requested, the administrative law judge shall hold a hearing on the objections within ten (10) business days of the filing of the request.

NOTE

Authority cited: Section 1861.055, Insurance Code, CalFarm Insurance Company, et al. v. George Deukmejian, et al., 48 Cal.3d 805, 824 (1989), 20th Century Insurance Company v. John Garamendi, 8 Cal.4th 216, 281, 32 Cal.Rptr.2d 807, 847 (1994). Reference: Sections 1861.055 and 1861.08, Insurance Code, Section 11511.5, Government Code, CalFarm Insurance Company, et al. v. George Deukmejian, et al., 48 Cal.3d 805 (1989), 20th Century Insurance Company v. John Garamendi, 8 Cal.4th 216, 281, 32 Cal.Rptr.2d 807, 847 (1994).

HISTORY

1. New article 8 and section filed 8-18-95 as an emergency; operative 8-18-95 (Register 95, No. 33). A Certificate of Compliance must be transmitted to OAL by 12-16-95 or emergency language will be repealed by operation of law on the following day.

2. Certificate of Compliance as to 8-18-95 order transmitted to OAL 12-18-95 and filed 2-1-96 (Register 96, No. 5).

3. Amendment filed 10-16-2002; operative 11-15-2002 (Register 2002, No. 42).

§2656.2. Rejection of Stipulation or Settlement.

Note • History

(a) The administrative law judge shall reject a proposed stipulation or settlement whenever, in his or her judgment, the stipulation or settlement is not in the public interest and is not, taken as a whole, fundamentally fair, adequate, and reasonable. Upon rejection, the administrative law judge may propose acceptable alternative terms to the parties and allow the parties reasonable time to consider those terms. Any party may, in writing and within three (3) days of the administrative law judge's rejection of a proposed stipulation or settlement, request the Commissioner's review of that rejection. A copy of any request shall be filed with the Administrative Hearing Bureau.

NOTE

Authority cited: Section 1861.055, Insurance Code, CalFarm Insurance Company, et al. v. George Deukmejian, et al., 48 Cal.3d 805, 824 (1989), 20th Century Insurance Company v. John Garamendi, 8 Cal.4th 216, 281, 32 Cal.Rptr.2d 807, 847 (1994). Reference: Sections 1861.055 and 1861.08, Insurance Code, CalFarm Insurance Company, et al. v. George Deukmejian, et al., 48 Cal.3d 805 (1989), 20th Century Insurance Company v. John Garamendi, 8 Cal.4th 216, 281, 32 Cal.Rptr.2d 807, 847 (1994).

HISTORY

2. Certificate of Compliance as to 8-18-95 order transmitted to OAL 12-18-95 and filed 2-1-96 (Register 96, No. 5).

3. Amendment filed 10-16-2002; operative 11-15-2002 (Register 2002, No. 42).

§2656.3. Adoption of Stipulation or Settlement.

Note • History

(a) Adoption of a stipulation or settlement by the administrative law judge alone does not constitute approval of, or precedent regarding, any principle or issue in the proceeding or in any future proceeding.

(b) The terms of a stipulation or settlement adopted by the administrative law judge shall be included in any proposed decision provided to the Commissioner.

NOTE

Authority cited: Section 1861.055, Insurance Code, CalFarm Insurance Company, et al. v. George Deukmejian, et al., 48 Cal.3d 805, 824 (1989), 20th Century Insurance Company v. John Garamendi, 8 Cal.4th 216, 281, 32 Cal.Rptr.2d 807, 847 (1994). Reference: Sections 1861.055 and 1861.08, Insurance Code, Section 11511.5, Government Code, CalFarm Insurance Company, et al. v. George Deukmejian, et al., 48 Cal.3d 805 (1989), 20th Century Insurance Company v. John Garamendi, 8 Cal.4th 216, 281, 32 Cal.Rptr.2d 807, 847 (1994).

HISTORY

2. Certificate of Compliance as to 8-18-95 order transmitted to OAL 12-18-95 and filed 2-1-96 (Register 96, No. 5).

3. Amendment filed 10-16-2002; operative 11-15-2002 (Register 2002, No. 42).

§2656.4. Inadmissibility.

Note • History

(a) Discussions, admissions, concessions or offers to stipulate or settle, whether oral or written, made during any negotiation or settlement conference are confidential and inadmissible for any purpose in any proceeding.

(b) If a stipulation or settlement is not adopted by the administrative law judge, no evidence regarding the terms of the proposed stipulation or settlement shall be admissible for any purpose in any proceeding.

(c) The Commissioner's approval of an insurer's application or amended application without a hearing and without specific findings of fact and determinations of issues shall not constitute approval of or precedent regarding any principle or issue in any other proceeding.

NOTE

Authority cited: Section 1861.055, Insurance Code, CalFarm Insurance Company, et al. v. George Deukmejian, et al., 48 Cal.3d 805, 824 (1989), 20th Century Insurance Company v. John Garamendi, 8 Cal.4th 216, 281, 32 Cal.Rptr.2d 807, 847 (1994). Reference: Sections 1861.055 and 1861.08, Insurance Code, Sections 11511.5 and 11513, Government Code, CalFarm Insurance Company, et al. v. George Deukmejian, et al., 48 Cal.3d 805 (1989), 20th Century Insurance Company v. John Garamendi, 8 Cal.4th 216, 281, 32 Cal.Rptr.2d 807, 847 (1994); and RLI Insurance Co. Group v. Superior Court, 51 Cal.App.4th 415 (1996).

HISTORY

2. Certificate of Compliance as to 8-18-95 order transmitted to OAL 12-18-95 and filed 2-1-96 (Register 96, No. 5).

3. Amendment of subsection (c) and amendment of Note filed 10-16-2002; operative 11-15-2002 (Register 2002, No. 42).

Article 9. Post-Hearing Briefs and Oral Arguments

§2657.1. Post-Hearing Briefs.

Note • History

(a) Except as otherwise specified in this subchapter, the administrative law judge shall fix all dates for the filing and service of post-hearing briefs.

(b) Citations to the transcript of a proceeding shall indicate the transcript page number.

(d) All parties shall file concurrent opening briefs thirty (30) days after the close of the evidentiary hearing and all parties shall file concurrent reply briefs fifteen (15) days after filing of the opening briefs.

(e) Exclusive of the table of contents and table of authorities, opening briefs shall not exceed 50 pages, and reply briefs shall not exceed 25 pages. Upon written motion and for good cause shown, these page limits may be increased in cases which present novel or extremely technical issues, and they may be decreased in cases that do not present such issues. However, briefs exceeding the page limits set forth in this section are to be discouraged.

(f) Briefs, and exhibits to briefs, shall not refer to, or introduce, any evidence whatsoever which was not admitted at the evidentiary hearing or which is not officially noticeable.

NOTE

Authority cited: Section 1861.055, Insurance Code, CalFarm Insurance Company, et al. v. George Deukmejian, et al., 48 Cal.3d 805, 824 (1989), 20th Century Insurance Company v. John Garamendi, 8 Cal.4th 216, 281, 32 Cal.Rptr.2d 807, 847 (1994). Reference: Sections 1861.055 and 1861.08, Insurance Code, Section 11511.5, Government Code, CalFarm Insurance Company, et al. v. George Deukmejian, et al., 48 Cal.3d 805 (1989), 20th Century Insurance Company v. John Garamendi, 8 Cal.4th 216, 281, 32 Cal.Rptr.2d 807, 847 (1994).

HISTORY

1. New article 9 and section filed 8-18-95 as an emergency; operative 8-18-95 (Register 95, No. 33). A Certificate of Compliance must be transmitted to OAL by 12-16-95 or emergency language will be repealed by operation of law on the following day.

2. Certificate of Compliance as to 8-18-95 order transmitted to OAL 12-18-95 and filed 2-1-96 (Register 96, No. 5)

§2657.2. Oral Argument.

Note • History

When, after the close of the evidentiary hearing and the filing of post-hearing briefs, the administrative law judge believes that the complexity or importance of the issues so warrant, the administrative law judge may require or permit the presentation of oral argument within 25 days after the filing of reply briefs. At least ten (10) days prior to the date set for oral argument, the administrative law judge shall serve a list of questions and/or issues that shall be addressed at the oral argument.

NOTE

Authority cited: Section 1861.055, Insurance Code, CalFarm Insurance Company, et al. v. George Deukmejian, et al., 48 Cal.3d 805, 824 (1989), 20th Century Insurance Company v. John Garamendi, 8 Cal.4th 216, 281, 32 Cal.Rptr.2d 807, 847 (1994). Reference: Sections 1861.055 and 1861.08, Insurance Code, CalFarm Insurance Company, et al. v. George Deukmejian, et al., 48 Cal.3d 805 (1989), 20th Century Insurance Company v. John Garamendi, 8 Cal.4th 216, 281, 32 Cal.Rptr.2d 807, 847 (1994).

HISTORY

2. Certificate of Compliance as to 8-18-95 order; including amendment of subsection (f), transmitted to OAL 12-18-95 and filed 2-1-96 (Register 96, No. 5).

3. Amendment filed 10-16-2002; operative 11-15-2002 (Register 2002, No. 42).

Article 10. Submission of Proceeding

§2658.1. Submission of Proceeding.

Note • History

A proceeding shall stand submitted when the record closes.

NOTE

Authority cited: Section 1861.055, Insurance Code, CalFarm Insurance Company, et al. v. George Deukmejian, et al., 48 Cal.3d 805, 824 (1989), 20th Century Insurance Company v. John Garamendi, 8 Cal.4th 216, 281, 32 Cal.Rptr.2d 807, 847 (1994). Reference: Sections 1861.055 and 1861.08, Insurance Code, Section 11517, Government Code, CalFarm Insurance Company, et al. v. George Deukmejian, et al., 48 Cal.3d 805 (1989), 20th Century Insurance Company v. John Garamendi, 8 Cal.4th 216, 281, 32 Cal.Rptr.2d 807, 847 (1994).

HISTORY

1. New article 10 and section filed 8-18-95 as an emergency; operative 8-18-95 (Register 95, No. 33). A Certificate of Compliance must be transmitted to OAL by 12-16-95 or emergency language will be repealed by operation of law on the following day.

2. Certificate of Compliance as to 8-18-95 order transmitted to OAL 12-18-95 and filed 2-1-96 (Register 96, No. 5).

3. Amendment filed 10-16-2002; operative 11-15-2002 (Register 2002, No. 42).

Article 11. Petitions for Reconsideration

§2659.1. Petitions for Reconsideration.

Note • History

Petitions for reconsideration of the Commissioner's final decision shall be provided, within the time set forth in Government Code section 11521, to the Commissioner, filed with the Administrative Hearing Bureau and served on all parties.

NOTE

Authority cited: Section 1861.055, Insurance Code, CalFarm Insurance Company, et al. v. George Deukmejian, et al., 48 Cal.3d 805, 824 (1989), 20th Century Insurance Company v. John Garamendi, 8 Cal.4th 216, 281, 32 Cal.Rptr.2d 807, 847 (1994). Reference: Sections 1861.055 and 1861.08, Insurance Code, Section 11521, Government Code, CalFarm Insurance Company, et al. v. George Deukmejian, et al., 48 Cal.3d 805 (1989), 20th Century Insurance Company v. John Garamendi, 8 Cal.4th 216, 281, 32 Cal.Rptr.2d 807, 847 (1994).

HISTORY

1. New article 11 and section filed 8-18-95 as an emergency; operative 8-18-95 (Register 95, No. 33). A Certificate of Compliance must be transmitted to OAL by 12-16-95 or emergency language will be repealed by operation of law on the following day.

2. Certificate of Compliance as to 8-18-95 order transmitted to OAL 12-18-95 and filed 2-1-96 (Register 96, No. 5).

3. Amendment of section heading and section filed 10-16-2002; operative 11-15-2002 (Register 2002, No. 42).

§2659.2. Contents.

Note • History

Petitions for reconsideration shall be based solely upon, and shall set forth specifically, the grounds upon which the decision of the Commissioner allegedly is contrary to law or is erroneous. A petition for reconsideration shall not refer to, or introduce, any evidence whatsoever which was not presented at the evidentiary hearing. Any such evidence nonetheless provided shall be accorded no weight. The purpose of a petition for reconsideration is to alert the Commissioner to an error so that the error may be corrected expeditiously. Copies of documents received in evidence or already part of the record shall not be attached as exhibits.

NOTE

Authority cited: Section 1861.055, Insurance Code, CalFarm Insurance Company, et al. v. George Deukmejian, et al., 48 Cal.3d 805, 824 (1989), 20th Century Insurance Company v. John Garamendi, 8 Cal.4th 216, 281, 32 Cal.Rptr.2d 807, 847 (1994). Reference: Sections 1861.055 and 1861.08, Insurance Code, Section 11521, Government Code, CalFarm Insurance Company, et al. v. George Deukmejian, et al., 48 Cal.3d 805 (1989), 20th Century Insurance Company v. John Garamendi, 8 Cal.4th 216, 281, 32 Cal.Rptr.2d 807, 847 (1994).

HISTORY

2. Certificate of Compliance as to 8-18-95 order transmitted to OAL 12-18-95 and filed 2-1-96 (Register 96, No. 5).

§2659.3. Response.

Note • History

A response to a petition for reconsideration is not necessary. However, if a response is provided, it must be provided within the time set forth in Government Code section 11521, and filed and served in the same manner as the petition for reconsideration.

NOTE

Authority cited: Section 1861.055, Insurance Code, CalFarm Insurance Company, et al. v. George Deukmejian, et al., 48 Cal.3d 805, 824 (1989), 20th Century Insurance Company v. John Garamendi, 8 Cal.4th 216, 281, 32 Cal.Rptr.2d 807, 847 (1994). Reference: Sections 1861.055 and 1861.08, Insurance Code, Section 11521, Government Code, CalFarm Insurance Company, et al. v. George Deukmejian, et al., 48 Cal.3d 805 (1989), 20th Century Insurance Company v. John Garamendi, 8 Cal.4th 216, 281, 32 Cal.Rptr.2d 807, 847 (1994).

HISTORY

2. Certificate of Compliance as to 8-18-95 order transmitted to OAL 12-18-95 and filed 2-1-96 (Register 96, No. 5).

§2659.4. Hearing on Petition.

Note • History

The Commissioner may, but is not required to, hold a hearing or accept argument on the petition for reconsideration.

NOTE

Authority cited: Section 1861.055, Insurance Code, CalFarm Insurance Company, et al. v. George Deukmejian, et al., 48 Cal.3d 805, 824 (1989), 20th Century Insurance Company v. John Garamendi, 8 Cal.4th 216, 281, 32 Cal.Rptr.2d 807, 847 (1994). Reference: Sections 1861.055 and 1861.08, Insurance Code, Section 11521, Government Code, CalFarm Insurance Company, et al. v. George Deukmejian, et al., 48 Cal.3d 805 (1989), 20th Century Insurance Company v. John Garamendi, 8 Cal.4th 216, 281, 32 Cal.Rptr.2d 807, 847 (1994).

HISTORY

2. Certificate of Compliance as to 8-18-95 order transmitted to OAL 12-18-95 and filed 2-1-96 (Register 96, No. 5).

Article 11.5. Judicial Review

§2660. Served on the Administrative Hearing Bureau.

Note • History

Any party petitioning for trial court or appellate review of a Commissioner's decision arising from a rate hearing shall serve on the Administrative Hearing Bureau a copy of the petition and the final decision from each reviewing court.

NOTE

Authority cited: Sections 1861.055, 1861.09 and 1858.6, Insurance Code; CalFarm Insurance Company, et al. v. George Deukmejian, et al., 48 Cal.3d 805, 824 (1989); and 20th Century Insurance Company v. John Garamendi, 8 Cal.4th 216, 281, 32 Cal.Rptr.2d 807, 847 (1994). Reference: Sections 1858.6, 1861.055 and 1861.09, Insurance Code; CalFarm Insurance Company, et al. v. George Deukmejian, et al., 48 Cal.3d 805 (1989); and 20th Century Insurance Company v. John Garamendi, 8 Cal.4th 216, 281, 32 Cal.Rptr.2d 807, 847 (1994).

HISTORY

1. New article 11.5 (section 2660) and section filed 10-16-2002; operative 11-15-2002 (Register 2002, No. 42).

Article 12. Sample Forms

§2660.1. Forms.

Note • History

The following forms are merely illustrative as to general format. The content of a particular pleading may vary, depending upon the subject matter and applicable rules.

NOTE

Authority cited: Section 1861.055, Insurance Code, CalFarm Insurance Company, et al. v. George Deukmejian, et al., 48 Cal.3d 805, 824 (1989), 20th Century Insurance Company v. John Garamendi, 8 Cal.4th 216, 281, 32 Cal.Rptr.2d 807, 847 (1994). Reference: Sections 1861.05(b), (c), 1861.055, 1861.08 and 1861.10(a), (b), Insurance Code, CalFarm Insurance Company, et al. v. George Deukmejian, et al., 48 Cal.3d 805 (1989), 20th Century Insurance Company v. John Garamendi, 8 Cal.4th 216, 281, 32 Cal.Rptr.2d 807, 847 (1994).

HISTORY

1. New article 12 and section filed 8-18-95 as an emergency; operative 8-18-95 (Register 95, No. 33). A Certificate of Compliance must be transmitted to OAL by 12-16-95 or emergency language will be repealed by operation of law on the following day.

2. Certificate of Compliance as to 8-18-95 order transmitted to OAL 12-18-95 and filed 2-1-96 (Register 96, No. 5).

§2660.2. Petition for Hearing.

Note • History

Name

Address

Telephone Number of Petitioner or Advocate

BEFORE THE INSURANCE COMMISSIONER

OF THE STATE OF CALIFORNIA

In the Matter of ) Case No.

)

Insurance Company, ) PETITION FOR HEARING

)

Applicant. )

)

The petition of (exact legal name, mailing address and telephone number of petitioner) respectfully shows:

(Here, and in succeeding numbered paragraphs, set forth fully and clearly the facts constituting the grounds for the petition. Additionally, list the line(s) of insurance for which the rate change is sought, the percentage rate change for each line, and the Department's Rate Filing Bureau application number(s).)

Petitioner hereby requests the Insurance Commissioner to schedule a public hearing at which time ___________________ Insurance Company will be directed to appear, respond to the issues raised in this petition and .

III

At that hearing, petitioner will present or elicit evidence that .

This petition does not involve a rate which has been specifically approved by the Insurance Commissioner within the preceding months (or relevant changed circumstances are ).

If the Insurance Commissioner grants a hearing on petitioner's request, petitioner will seek to intervene in that hearing pursuant to Insurance Code section 1861.10.

WHEREFORE .

DATED:

Signature

NOTE

Authority cited: Section 1861.055, Insurance Code, CalFarm Insurance Company, et al. v. George Deukmejian, et al., 48 Cal.3d 805, 824 (1989), 20th Century Insurance Company v. John Garamendi, 8 Cal.4th 216, 281, 32 Cal.Rptr.2d 807, 847 (1994). Reference: Sections 1861.05(c), 1861.055, 1861.08 and 1861.10(a), Insurance Code, CalFarm Insurance Company, et al. v. George Deukmejian, et al., 48 Cal.3d 805 (1989), 20th Century Insurance Company v. John Garamendi, 8 Cal.4th 216, 281, 32 Cal.Rptr.2d 807, 847 (1994).

HISTORY

2. Certificate of Compliance as to 8-18-95 order transmitted to OAL 12-18-95 and filed 2-1-96 (Register 96, No. 5).

§2660.3. Answer.

Note • History

Name

Address

Telephone Number of Insurer or Attorney

BEFORE THE INSURANCE COMMISSIONER

OF THE STATE OF CALIFORNIA

In the Matter of ) Case No.

)

Insurance Company, ) ANSWER TO PETITION

) FOR HEARING

Applicant. )

)

Insurance Company alleges:

Applicant admits the allegations contained in paragraphs of the petition for hearing.

Applicant denies the allegations contained in paragraphs of the petition for hearing.

III

The allegations contained in paragraphs of the petition for hearing are justified because .

Applicant raises the following affirmative defenses .

Defects in the petition requiring amendment or clarification are .

WHEREFORE, Applicant requests .

DATED:

Signature

NOTE

Authority cited: Section 1861.055, Insurance Code, CalFarm Insurance Company, et al. v. George Deukmejian, et al., 48 Cal.3d 805, 824 (1989), 20th Century Insurance Company v. John Garamendi, 8 Cal.4th 216, 281, 32 Cal.Rptr.2d 807, 847 (1994). Reference: Sections 1861.055, 1861.08 and 1861.05(c), Insurance Code, CalFarm Insurance Company, et al. v. George Deukmejian, et al., 48 Cal.3d 805 (1989), 20th Century Insurance Company v. John Garamendi, 8 Cal.4th 216, 281, 32 Cal.Rptr.2d 807, 847 (1994).

HISTORY

2. Certificate of Compliance as to 8-18-95 order transmitted to OAL 12-18-95 and filed 2-1-96 (Register 96, No. 5).

Article 13. Intervention

§2661.1. Definitions.

Note • History

The following definitions shall apply to Articles 13 and 14 of this subchapter.

(a) “Advocacy Fees” means costs, incurred or billed, by a party for the services of an advocate in the proceeding. An advocate need not be an attorney. Advocacy fees shall not exceed market rates as defined in this section.

(b) “Compensation” means payment for all or part of advocacy fees, witness fees, and other expenses of participation and intervention in any rate hearing or proceeding other than a rate hearing.

(c) “Market Rate” means, with respect to advocacy and witness fees, the prevailing rate for comparable services in the private sector in the Los Angeles and San Francisco Bay Areas at the time of the Commissioner's decision awarding compensation for attorney advocates, non-attorney advocates, or experts with similar experience, skill and ability. Billing rates shall not exceed the market rate.

(d) “Other Expenses” means reasonable, actual out-of-pocket costs of an intervenor or petitioner. Out-of-pocket costs include but are not limited to expenses such as travel costs, transcript charges, postage charges, overnight delivery charges, telephone charges and copying expenses. Out-of-pocket costs also includes the costs incurred in preparing a request or amended request for award, defined in sections 2662.3 and 2662.4. The intervenor or petitioner has the burden of substantiating any costs incurred, including providing supporting documentation as requested by the Public Advisor.

(e) “Proceeding” includes those proceedings set forth in Insurance Code Section 1861.10(a).

(f) “Proceeding Other Than a Rate Proceeding” means any proceeding, including those described in subdivision (e) above, conducted pursuant to Chapter 9 of Part 2 of Division 1 of the Insurance Code which is not a rate proceeding as defined in this section.

(g) “Public Advisor” means that official of the Department of Insurance who monitors and assists participation by members of the public in the Department of Insurance's proceedings. The Public Advisor shall not represent any member of the public and shall not advocate any substantive position on behalf of the public on any issues before the Commissioner.

(h) “Rate Proceeding” means any proceeding conducted pursuant to Insurance Code Sections 1861.01 and 1861.05. For purposes of section 1861.05, a “rate proceeding” is established upon the submission of a petition for hearing in accordance with section 2653.1 of this subchapter, or if no petition for hearing is filed, upon notice of hearing.

(i) “Rate Hearing” means a hearing noticed by the Commissioner on his own motion or in response to a petition for hearing pursuant to Insurance Code section 1861.05, which is conducted pursuant to the applicable procedural requirements of Insurance Code section 1861.08, and subchapters 4.8. and 4.9 of this chapter.

(j) “Represents the Interests of Consumers” means that the intervenor represents the interests of individual insurance consumer[s], or the intervenor is a group organized for the purpose of consumer protection as demonstrated by, but is not limited to, a history of representing consumers in administrative, legislative or judicial proceedings.

A party which represents, in whole or in part, any entity regulated by the Commissioner shall not be eligible for compensation. However, nothing in this subsection shall be construed to prohibit any person from intervening or participating if that person is not seeking compensation.

(k) “Substantial Contribution” means that the intervenor substantially contributed, as a whole, to a decision, order, regulation, or other action of the Commissioner by presenting relevant issues, evidence, or arguments which were separate and distinct from those emphasized by the Department of Insurance staff or any other party, such that the intervenor's participation resulted in more relevant, credible, and non-frivolous information being available for the Commissioner to make his or her decision than would have been available to a Commissioner had the intervenor not participated. A substantial contribution may be demonstrated without regard to whether a petition for hearing is granted or denied.

(l) “Witness Fees” means recorded or billed costs for a witness, together with associated expenses. Costs and expenses for a witness shall not exceed market rate as defined in this section.

NOTE

Authority cited: Section 1861.10, Insurance Code; and CalFarm Insurance Company, et al. v. George Deukmejian, et al., 48 Cal.3d 805, 824 (1989), 20th Century Insurance Company v. John Garamendi, 8 Cal.4th 216, 281, 32 Cal. Rptr. 2d 807, 847 (1994). Reference: Sections 1861.10(a) and 1861.10(b), Insurance Code; and CalFarm Insurance Company, et al. v. George Deukmejian, et al., 48 Cal.3d 805 (1989), 20th Century Insurance Company et al. v. John Garamendi 8 Cal. 4th 216, 32 Cal. Rptr. 2d 807 (1994).

HISTORY

1. Renumbering and amendment of former section 2616.1 to new section 2661.1 filed 8-18-95 as an emergency; operative 8-18-95 (Register 95, No. 33). A Certificate of Compliance must be transmitted to OAL by 12-16-95 or emergency language will be repealed by operation of law on the following day.

2. Renumbering and amendment of former section 2616.1 to new section 2661.1 refiled 12-19-95 as an emergency; operative 12-19-95 (Register 95, No. 51). A Certificate of Compliance must be transmitted to OAL by 4-17-96 or emergency language will be repealed by operation of law on the following day.

3. Certificate of Compliance as to 12-19-95 order transmitted to OAL April 17, 1996; disapproved by OAL and order of repeal as to 12-19-95 order filed 5-30-96 (Register 96, No. 22).

4. Renumbering and amendment of former section 2616.1 to new section 2661.1 filed 5-30-96 as an emergency; operative 5-30-96 (Register 96, No. 22). A Certificate of Compliance must be transmitted to OAL by 9-27-96 or emergency language will be repealed by operation of law on the following day.

5. Certificate of Compliance as to 5-30-96 order, including amendments to subsections (c), (d), (e) and (i), transmitted to OAL 9-26-96 and filed 11-5-96 (Register 96, No. 45).

6. Amendment of subsections (d), (f) and (h), new subsection (i), subsection relettering and amendment of newly designated subsection (k) filed 12-29-2006; operative 1-28-2007 (Register 2006, No. 52).

§2661.2. Intervention of Right.

Note • History

Any person shall be permitted to intervene in any proceeding on any rate application or in any proceeding subject to Chapter 9 of Part 2 of Division 1 of the California Insurance Code if the issues to be raised by the intervenor or participant are relevant to the issues of the proceeding. A person desiring to intervene or participate in any proceeding shall use the forms set forth in sections 2623.1 through 2623.9 of this subchapter, which shall be verified.

NOTE

HISTORY

2. New section refiled 12-19-95 as an emergency; operative 12-19-95 (Register 95, No. 51). A Certificate of Compliance must be transmitted to OAL by 4-17-96 or emergency language will be repealed by operation of law on the following day.

3. Certificate of Compliance as to 12-19-95 order transmitted to OAL April 17, 1996; disapproved by OAL and order of repeal as to 12-19-95 order filed 5-30-96 (Register 96, No. 22).

4. New section filed 5-30-96 as an emergency; operative 5-30-96 (Register 96, No. 22). A Certificate of Compliance must be transmitted to OAL by 9-27-96 or emergency language will be repealed by operation of law on the following day.

5. Certificate of Compliance as to 5-30-96 order, including amendment of section, transmitted to OAL 9-26-96 and filed 11-5-96 (Register 96, No. 45).

§2661.3. Procedure for Intervention in a Rate or Class Plan Proceeding.

Note • History

(a) A person desiring to intervene and become a party to a rate or class plan proceeding shall file a petition to intervene which shall be drafted in compliance with sections 2652.1-2652.4 of this subchapter. A person who petitions for a hearing may combine a petition to intervene with a petition for hearing in one pleading.

(b) The Petition shall cite the law authorizing the proposed intervention and shall contain the petitioner's interest in the proceeding, the specific issues to be raised and the positions to be taken on each issue to the extent then known, and the name, address, and telephone number of the petitioner. The verified petition shall include a statement that the intervenor or advocate will be able to attend and participate in the proceeding without delaying the proceeding or any other proceedings before the Commissioner.

(c) The Petition shall also state whether the petitioner intends to seek compensation in the proceeding, and, if so, contain an itemized estimated budget for the participation in the proceeding, which shall set forth the following:

(1) separate listings of the rates for each attorney advocate or non-attorney advocate, including:

(A) the names of each attorney advocate or non-attorney advocate,

(B) the rates to be claimed for each attorney advocate or non-attorney advocate,

(C) a description of the work to be performed by each attorney advocate or non-attorney advocate, an estimate of the time to be spent to perform that work and the rates, fees and costs associated with that work; and,

(2) separate listings of the rates for each witness, including:

(A) the names of each witness and their areas of expertise,

(B) the rates to be claimed for each witness,

(C) a description of the work to be performed by each witness, an estimate of the time to be spent to perform that work and the rates, fees and costs associated with that work;

Rates contained in the estimated budget shall not exceed market rates. Submission of the budget shall not guarantee the payment of the dollar amounts set forth in the budget. The lack of objection to any item in the budget shall not imply approval of the budget.

(d) An amended budget shall be submitted as soon as possible when the intervenor learns that the total estimated budget amount increases by $10,000 or more.

(e) A Petition to Intervene in a rate or class plan proceeding may be submitted to the Rate Enforcement Bureau concurrently with a petition for hearing submitted pursuant to section 2653.1 of this subchapter or filed with the Administrative Hearing Bureau after a hearing is granted, and shall be considered an “additional pleading” within the meaning of Government Code Section 11507.6. A copy of the Petition to Intervene shall be served on the Public Advisor and all of the parties to the proceeding.

(f) Within five (5) days after filing of the Petition to Intervene, any other party may file a response to the Petition to Intervene. Any party claiming that the petitioner does not represent the interests of consumers shall so state in the response, which shall include any supporting documentation. The petitioner may reply to any allegation in the response and may reply to the allegation that it does not represent the interests of consumers within three (3) days of filing of the response.

(g) If a person who files a petition for a hearing and a Petition to Intervene meets the requirements of this section, represents the interests of consumers pursuant to Insurance Code section 1861.10(b) and is otherwise eligible to seek compensation in proceedings before the Department pursuant to section 2662.2 of this subchapter, that person's Petition to Intervene shall be granted within fifteen (15) days of its submission. If a petition for a hearing has already been granted, the administrative law judge shall rule on any Petition to Intervene subsequently filed by any person within 20 days of its filing with the Administrative Hearing Bureau.

(h) No person whose petition has been granted shall be permitted to reopen matters decided before the petition is granted without a showing of good cause.

NOTE

HISTORY

1. Renumbering and amendment of former section 2617.3 to new section 2661.3 filed 8-18-95 as an emergency; operative 8-18-95 (Register 95, No. 33). A Certificate of Compliance must be transmitted to OAL by 12-16-95 or emergency language will be repealed by operation of law on the following day.

2. Renumbering and amendment of former section 2617.3 to new section 2661.3 refiled 12-19-95 as an emergency; operative 12-19-95 (Register 95, No. 51). A Certificate of Compliance must be transmitted to OAL by 4-17-96 or emergency language will be repealed by operation of law on the following day.

3. Certificate of Compliance as to 12-19-95 order transmitted to OAL April 17, 1996; disapproved by OAL and order of repeal as to 12-19-95 order filed 5-30-96 (Register 96, No. 22).

5. Certificate of Compliance as to 5-30-96 order, including amendment to subsections (b), (f) and (g), transmitted to OAL 9-26-96 and filed 11-5-96 (Register 96, No. 45).

6. Amendment of subsections (e) and (g) filed 10-16-2002; operative 11-15-2002 (Register 2002, No. 42).

7. Amendment of section heading and subsections (a), (e) and (h)-(g) filed 12-29-2006; operative 1-28-2007 (Register 2006, No. 52).

8. Change without regulatory effect amending subsections (a) and (e) filed 3-25-2009 pursuant to section 100, title 1, California Code of Regulations (Register 2009, No. 13).

§2661.4. Procedure for Participation in a Proceeding Other Than a Rate Hearing.

Note • History

(a) A person desiring to participate in a proceeding other than a rate hearing shall file a petition to participate which shall be drafted in compliance with sections 2652.1-2652.4 and 2661.3(b) through (e) of this subchapter. A Petition to Participate shall be submitted to the contact person for the proceeding, and served on the Public Advisor.

(b) A ruling on a Petition to Participate shall be made within 15 days of its submission to the contact person for the proceeding.

(c) No person whose petition has been granted shall be permitted to reopen matters decided before the petition is granted without a showing of good cause.

(d) Nothing in this section shall be construed to prohibit any person from providing relevant comments in a proceeding other than a rate hearing if that person is not seeking compensation.

NOTE

HISTORY

3. Certificate of Compliance as to 12-19-95 order transmitted to OAL April 17, 1996; disapproved by OAL and order of repeal as to 12-19-95 order filed 5-30-96 (Register 96, No. 22).

5. Certificate of Compliance as to 5-30-96 order transmitted to OAL 9-26-96 and filed 11-5-96 (Register 96, No. 45).

6. Change without regulatory effect amending subsection (a) filed 3-25-2009 pursuant to section 100, title 1, California Code of Regulations (Register 2009, No. 13).

Article 14. Intervenor's and Participant's Fees and Expenses

§2662.1. Purpose.

Note • History

The purpose of this Article is to establish procedures for awarding advocacy fees, witness fees and other expenses to petitioners, intervenors and participants in proceedings, including proceedings other than rate proceedings, before the Insurance Commissioner in accordance with Section 1861.10(b) of the Insurance Code. The definitions set forth in section 2661.1 apply to Article 14 of this subchapter.

NOTE

HISTORY

1. New article 14 and section filed 8-18-95 as an emergency; operative 8-18-95 (Register 95, No. 33). A Certificate of Compliance must be transmitted to OAL by 12-16-95 or emergency language will be repealed by operation of law on the following day.

2. New article 14 and section refiled 12-19-95 as an emergency; operative 12-19-95 (Register 95, No. 51). A Certificate of Compliance must be transmitted to OAL by 4-17-96 or emergency language will be repealed by operation of law on the following day.

3. Certificate of Compliance as to 12-19-95 order transmitted to OAL April 17, 1996; disapproved by OAL and order of repeal as to 12-19-95 order filed 5-30-96 (Register 96, No. 22).

4. New article 14 and section filed 5-30-96 as an emergency; operative 5-30-96 (Register 96, No. 22). A Certificate of Compliance must be transmitted to OAL by 9-27-96 or emergency language will be repealed by operation of law on the following day.

5. Certificate of Compliance as to 5-30-96 order, including amendment of article heading and section, transmitted to OAL 9-26-96 and filed 11-5-96 (Register 96, No. 45).

6. Amendment filed 12-29-2006; operative 1-28-2007 (Register 2006, No. 52).

7. Change without regulatory effect amending section filed 3-25-2009 pursuant to section 100, title 1, California Code of Regulations (Register 2009, No. 13).

§2662.2. Request for Finding of Eligibility; Time; Contents; Effective for Two Years.

Note • History

(a) A person or group representing the interests of consumers may provide to the Public Advisor a request for finding of eligibility to seek compensation. The request shall be verified and may be verified by the intervenor's or participant's attorney and shall be submitted, at any time, in conjunction with an ongoing proceeding in which the individual or organization seeks to intervene. The request shall comply with sections 2652.1-2652.4 of this subchapter and shall include:

(1) a showing by the intervenor or participant that it represents the interests of consumers, including a description of the previous work of the intervenor or participant; and,

(2) in the case of groups representing the interests of consumers, the request shall include the following as exhibits:

(A) a copy of the group's articles of incorporation, by-laws, or (for groups not organized as corporations) other organizational documents,

(B) if the group has members, the approximate number of current members,

(C) composition of the group's current Board of Directors -- including the name and business address of each director and/or the name and business address of the principals of the group if it is not a corporation,

(D) newsletter circulation, if any, along with a representative sample of newsletters and/or any other publications issued by the intervenor in California during the previous twelve (12) months,

(E) any annual or year-end report for the prior year,

(F) a statement as to whether or not the group has been granted non-profit status under Internal Revenue Code Section 501(c), and

(G) In order to allow a determination whether the group actually does represent the interests of consumers, a listing, by general category, of the group's funding sources for the prior twenty-four (24) months and the approximate total percentage of the group's annual budget from each funding category. Each foundation, corporate, business, or government grant shall be separately listed by name of foundation, corporation, business, or government agency and amount of grant. For each individual who contributed at least five percent of the group's annual budget, the name of the individual and the total amount of the annual contribution shall be separately listed.

The Public Advisor may require additional information regarding the request at any time, but not more than twice during any one calendar year from a given intervenor or participant.

(b) Within 10 days of receipt of a request for finding of eligibility to seek compensation, the Public Advisor shall review the request for completeness. If the request includes all of the information required by subdivision (a) above, it is complete. If the Public Advisor determines that the request is not complete because it does not include all of the information required by subdivision (a), notice stating the grounds for incompleteness will be given to the person or group who submitted the request within the 10 day period and the request will be rejected.

(c) The Commissioner shall rule on the request for a finding of eligibility to seek compensation in writing not later than 15 days from the receipt of a complete request.

(d) A Finding of Eligibility to Seek Compensation shall be valid in any proceeding in which the intervenor's participation commences within two years of the Finding of Eligibility so long as the intervenor( or participant) still meets the requirements of subdivision (a). A Finding of Eligibility to Seek Compensation in no way ensures compensation.

(e) Nothing in the Finding of Eligibility shall prohibit or limit any person or group from making any presentation or advocating any position which is otherwise admissible.

NOTE

Authority cited: Section 1861.10, Insurance Code; and CalFarm Insurance Company, et al. v. George Deukmejian, et al., 48 Cal.3d 805, 824 (1989), 20th Century Insurance Company v. John Garamendi, 8 Cal.4th 216, 281, 32 Cal. Rptr. 2d 807, 847 (1994). Reference: Sections 1861.10(a) and 1861.10(b), Insurance Code; Sections 446 and 2015, Code of Civil Procedure; and CalFarm Insurance Company, et al. v. George Deukmejian, et al., 48 Cal.3d 805 (1989), 20th Century Insurance Company et al. v. John Garamendi 8 Cal. 4th 216, 32 Cal. Rptr. 2d 807 (1994).

HISTORY

3. Certificate of Compliance as to 12-19-95 order transmitted to OAL April 17, 1996; disapproved by OAL and order of repeal as to 12-19-95 order filed 5-30-96 (Register 96, No. 22).

5. Certificate of Compliance as to 5-30-96 order, including amendment of section, transmitted to OAL 9-26-96 and filed 11-5-96 (Register 96, No. 45).

§2662.3. Request for Award.

Note • History

(a) A petitioner, intervenor or participant whose Petition to Intervene or Participate has been granted and who has been found eligible to seek compensation may submit to the Public Advisor, within 30 days after the service of the order, decision, regulation or other action of the Commissioner in the proceeding for which intervention was sought, or at the requesting petitioner's, intervenor's or participant's option, within 30 days after the conclusion of the entire proceeding, a request for an award of compensation. A petitioner, intervenor or participant requesting that any award ordered be made payable to a specific person or entity, other than the petitioner, intervenor or participant, that represented or advocated on behalf of the intervenor or participant during the proceeding shall include verified authorization to that effect in the request.

(b) The request shall be verified and shall be in compliance with sections 2652.1-2652.4 of this subchapter and shall include, at a minimum:

(1) a detailed description of services and expenditures;

(2) legible time and/or billing records, created as soon as possible after the work was performed, which show the date and the exact amount of time spent on each specific task; and

(3) a description of the petitioner's, intervenor's or participant's substantial contribution citing to the record, including, but not limited to, documents such as: declarations by advocates and/or witnesses, written or oral comments of the petitioner or intervenor or its witnesses regarding a rate application provided to the Department, correspondence with the parties, stipulations or settlement agreements regarding the outcome or material issues in the proceeding, and decision or order by the Department or Commissioner concerning a petition for hearing or rate or class plan application issued without a formal hearing, transcripts, proposed decisions of the Administrative Law Judge and orders demonstrating that a substantial contribution was made for the purpose of complying with section 2661.1(j). Notwithstanding section 2656.4, any confidential correspondence, documents, or declarations referencing confidential information, including but not limited to confidential settlement communications, may be submitted to the Public Advisor with a request for an award of compensation. Any such confidential material submitted to the Public Advisor will retain its confidential status. Nothing in this subsection shall require disclosure of privileged information.

The phrase “exact amount of time spent” as used in this subdivision refers either to five (5) minute or tenth (10th) of an hour increments.

(c) Parties may stipulate to a person's status as an intervenor. Parties shall not enter into a stipulation regarding whether a person has made a substantial contribution for the purpose of complying with section 2661 of this subchapter.

(d) The phrase “each specific task,” as used in this subdivision refers to activities including, but is not limited to: (A) telephone calls or meetings/conferences, identifying the parties participating in the telephone call, meeting or conference and the subject matter discussed; (B) legal pleadings or research, identifying the pleading or research and the subject matter; (C) letters, correspondence or memoranda, identifying the parties and the subject matter; and, (D) attendance at hearings, specifying when the hearing occurred, the subject matter of the hearing and the names of witnesses who appeared at the hearing, if any.

(e) Within 15 days after service of the request, any other party may submit a response to the request. The response shall be submitted to the Public Advisor and a copy shall also be provided to all parties to the proceeding. The intervenor or participant may reply to any such response within 15 days after service of the response. The reply shall be submitted to the Public Advisor and a copy shall also be provided to all parties to the proceeding.

(f) The Public Advisor shall require an audit and/or may inspect the books and records of the intervenor or participant to the extent necessary to verify the basis for the award. The Public Advisor shall maintain the confidentiality of the intervenor's books and records to the extent allowed by law.

(g) Any party questioning the market rate or reasonableness of any amount set forth in the request shall, at the time of questioning the market rate or reasonableness of that amount, provide a statement setting forth the fees, rates, and costs it expects to expend in the proceeding.

NOTE

HISTORY

3. Certificate of Compliance as to 12-19-95 order transmitted to OAL April 17, 1996; disapproved by OAL and order of repeal as to 12-19-95 order filed 5-30-96 (Register 96, No. 22).

5. Certificate of Compliance as to 5-30-96 order, including amendment of section, transmitted to OAL 9-26-96 and filed 11-5-96 (Register 96, No. 45).

6. Amendment filed 12-29-2006; operative 1-28-2007 (Register 2006, No. 52).

§2662.4. Amended Request for Award.

Note • History

An intervenor or participant may submit amended requests for an award whenever it incurs additional fees or costs subsequent to the submission of a previous request for award. Any amended request shall meet the requirements of Section 2662.3 of this subchapter. Responses to an amended request, if any, shall meet the requirements of section 2662.3.

NOTE

Authority cited: Section 1861.10, Insurance Code; and CalFarm Insurance Company, et al. v. George Deukmejian, et al., 48 Cal.3d 805, 824 (1989), 20th Century Insurance Company v. John Garamendi, 8 Cal.4th 216, 281, 32 Cal. Rptr. 807, 847 (1994). Reference: Sections 1861.10(a) and 1861.10(b), Insurance Code; and CalFarm Insurance Company, et al. v. George Deukmejian, et al., 48 Cal.3d 805 (1989), 20th Century Insurance Company et al. v. John Garamendi 8 Cal. 4th 216, 32 Cal. Rptr. 2d 807 (1994).

HISTORY

3. Certificate of Compliance as to 12-19-95 order transmitted to OAL April 17, 1996; disapproved by OAL and order of repeal as to 12-19-95 order filed 5-30-96 (Register 96, No. 22).

5. Certificate of Compliance as to 5-30-96 order transmitted to OAL 9-26-96 and filed 11-5-96 (Register 96, No. 45).

§2662.5. Requirements for Awards.

Note • History

(a) Subject to subdivision (b) herein, advocacy fees, witness fees, and other expenses of participation in a proceeding shall be awarded to any petitioner, intervenor or participant who complies with section 2662.3 and satisfies both of the following requirements:

(1) The petitioner, intervenor or participant's presentation makes a substantial contribution as evidenced by specific citations to the petitioner's, intervenor's or participant's direct testimony, cross-examination, legal arguments, briefs, motions, discovery, declarations by advocates and/or witnesses, written or oral comments of the intervenor or its witnesses regarding a rate application provided to the Department, correspondence with the parties, stipulations or settlement agreements, and decision or order by the Department or the Commissioner on a petition for hearing or rate or class plan application issued without a formal hearing, or any other appropriate evidence; and,

(2) The petitioner, intervenor or participant represents the interests of consumers.

(b) To the extent the substantial contribution claimed by a petitioner, intervenor or participant duplicates the substantial contribution of another party to the proceeding and was not authorized in the ruling on the Petition to Intervene or Participate, the petitioner's, intervenor's or participant's compensation may be reduced. Participation by the Department of Insurance staff does not preclude an award of compensation, so long as the petitioner's, intervenor's, or participant's substantial contribution to the proceeding does not merely duplicate the participation by the Department of Insurance's staff. In assessing whether there was duplication, the Commissioner will consider whether or not the petitioner, intervenor or participant presented relevant issues, evidence, or arguments which were separate and distinct from those presented by any party or the Department of Insurance staff.

NOTE

HISTORY

3. Certificate of Compliance as to 12-19-95 order transmitted to OAL April 17, 1996; disapproved by OAL and order of repeal as to 12-19-95 order filed 5-30-96 (Register 96, No. 22).

5. Certificate of Compliance as to 5-30-96 order, including amendment of subsection (b), transmitted to OAL 9-26-96 and filed 11-5-96 (Register 96, No. 45).

6. Amendment filed 12-29-2006; operative 1-28-2007 (Register 2006, No. 52).

§2662.6. Decision Awarding Compensation; Allowance of Award.

Note • History

(a) In a written decision, the Commissioner shall determine whether or not the intervenor or participant has made a substantial contribution. The decision shall be issued within 90 days of receipt of all information required by Section 2662.3.

(b) If the Commissioner determines that the intervenor or participant has made a substantial contribution, the Commissioner shall set forth this substantial contribution and shall set forth the amount of compensation to be paid. The compensation awarded shall equal the market rate of the services provided.

(d) Any award paid by an applicant pursuant to this Article shall be allowed by the Insurance Commissioner as an expense for the purpose of establishing rates of the applicant as a dollar-for-dollar adjustment to rates approved by the Insurance Commissioner immediately on the determination of the amount of the award, so that the amount of the award shall be fully recovered within two years from the date of the award.

NOTE

HISTORY

3. Certificate of Compliance as to 12-19-95 order transmitted to OAL April 17, 1996; disapproved by OAL and order of repeal as to 12-19-95 order filed 5-30-96 (Register 96, No. 22).

5. Certificate of Compliance as to 5-30-96 order transmitted to OAL 9-26-96 and filed 11-5-96 (Register 96, No. 45).

§2662.7. Time for Payment.

Note • History

(a) Any award payable by an applicant shall be paid within 30 days of the decision awarding compensation. If an insurance company fails to pay an award within 30 days, the insurance company shall also pay interest on the amount awarded, at the legal rate, until the date on which the award is paid.

(b) For the purpose of this section, the phrase “within 30 days” shall mean within 30 days after the Insurance Commissioner issues a decision awarding compensation, unless the insurance company submits a timely petition for reconsideration or judicial challenge of the decision or any part for which compensation is sought by the intervenor, in which case no payment shall be required until 30 days after a decision on reconsideration or judicial challenge.

NOTE

HISTORY

3. Certificate of Compliance as to 12-19-95 order transmitted to OAL April 17, 1996; disapproved by OAL and order of repeal as to 12-19-95 order filed 5-30-96 (Register 96, No. 22).

5. Certificate of Compliance as to 5-30-96 order transmitted to OAL 9-26-96 and filed 11-5-96 (Register 96, No. 45).

§2662.8. Securing Payment.

Note • History

The Commissioner shall make every reasonable effort to secure payment of award, including cooperating with other agencies of the state.

NOTE

HISTORY

3. Certificate of Compliance as to 12-19-95 order transmitted to OAL April 17, 1996; disapproved by OAL and order of repeal as to 12-19-95 order filed 5-30-96 (Register 96, No. 22).

5. Certificate of Compliance as to 5-30-96 order transmitted to OAL 9-26-96 and filed 11-5-96 (Register 96, No. 45).

Subchapter 4.10. Rates for Credit Property Insurance and Credit Unemployment Insurance

Article 1. Scope

§2670.1. Authority.

Note • History

This Subchapter is promulgated pursuant to the authority granted to the Insurance Commissioner under the provisions of Sections 779.21, 779.36, 12921, and 12926 of the California Insurance Code, Credit Insurance General Agents Association v. Payne, 16 Cal.3d 651 (1976), and 20th Century v. Garamendi, 8 Cal.4th 216 (1994).

NOTE

Authority cited: Sections 779.21, 779.36, 12921 and 12926, Insurance Code; Credit Insurance General Agents Association v. Payne, 16 Cal.3d 651 (1976); and 20th Century v. Garamendi, 8 Cal.4th 216 (1994). Reference: Sections 779.36, 1861.01 and 1861.05, Insurance Code.

HISTORY

1. New subchapter 4.10 (articles 1-7, sections 2670.1-2670.24), article 1 (sections 2670.1-2670.3) and section filed 3-10-2003; operative 4-9-2003. Submitted to OAL for printing only pursuant to Government Code section 11343.8 as a regulation that establishes rates in accordance with Government Code section 11340.9(g) (Register 2003, No. 11).

2. Change without regulatory effect withdrawing and repealing subchapter 4.10 (articles 1-7, sections 2670-.1-2670.24), article 1 (sections 2670.1-2670.3) and section pursuant to settlement agreement in Consumer Credit Insurance Association v. John Garamendi (California Superior Court No. 03CS00533) filed 5-27-2004 pursuant to section 100, title 1, California Code of Regulations (Register 2004, No. 22).

3. New subchapter 4.10 (articles 1-7, sections 2670.1-2670.24), article 1 (sections 2670.1-2670.3) and section filed 4-28-2006; operative 5-28-2006. Submitted to OAL for printing only pursuant to Government Code section 11343.8 as a regulation that establishes rates in accordance with Government Code section 11340.9(g) (Register 2006, No. 17).

§2670.2. Purpose.

Note • History

The purpose of this Subchapter is to implement the provisions of Insurance Code Section 779.36 which apply to credit property insurance, joint credit property insurance, credit unemployment insurance and joint credit unemployment insurance.

NOTE

HISTORY

1. New section filed 3-10-2003; operative 4-9-2003. Submitted to OAL for printing only pursuant to Government Code section 11343.8 as a regulation that establishes rates in accordance with Government Code section 11340.9(g) (Register 2003, No. 11).

2. Change without regulatory effect withdrawing and repealing section pursuant to settlement agreement in Consumer Credit Insurance Association v. John Garamendi (California Superior Court No. 03CS00533) filed 5-27-2004 pursuant to section 100, title 1, California Code of Regulations (Register 2004, No. 22).

3. New section filed 4-28-2006; operative 5-28-2006. Submitted to OAL for printing only pursuant to Government Code section 11343.8 as a regulation that establishes rates in accordance with Government Code section 11340.9(g) (Register 2006, No. 17).

§2670.3. Applicability.

Note • History

This Subchapter applies to all credit property insurance, joint credit property insurance, credit unemployment insurance, and joint credit unemployment insurance on risks or on operations in this state.

NOTE

HISTORY

Article 2. Definitions

§2670.4. Definitions Applicable to This Subchapter.

Note • History

(a) “Credit property insurance” means insurance that provides coverage (generally coverage to repair or replace) on personal property pledged or offered as collateral for securing a personal or consumer loan, or personal property purchased under an installment sales agreement or through a credit transaction. Credit property insurance provides coverage for loss or damage to personal property caused by the perils set forth in the credit property insurance policy. Credit property insurance does not include creditor-placed insurance which is “force-placed” by a lender or creditor in the event the borrower or debtor fails to maintain insurance as required under his or her agreement with the lender or creditor. Credit property insurance does not include insurance which covers physical damage to an automobile or other motor vehicle, watercraft, or aircraft as a part of or in conjunction with a liability insurance policy.

(b) “Joint credit property insurance” means credit property insurance which insures two persons who are jointly liable to a lender or creditor. For purposes of these regulations, references to “credit property insurance” shall encompass both credit property insurance and joint credit property insurance.

(c) “Credit unemployment insurance” is insurance which provides coverage for periodic payments or payment of an outstanding balance on a specific loan or other credit transaction while the debtor is involuntarily unemployed, as defined in the policy.

(d) “Joint credit unemployment insurance” means credit unemployment insurance which insures two persons who are jointly liable to a lender or creditor. For purposes of these regulations, references to “credit unemployment insurance” shall encompass both credit unemployment insurance and joint credit unemployment insurance.

(e) “Closed end” plan of indebtedness is defined in CCR Section 2248.31(c).

(f) “Earned premium” means gross premium earned, including policy and membership fees, less return premium and premium on policies not taken.

(g) “Experience group” means the experience under a program of insurance of one creditor or more than one creditor. For purposes of defining and using the term “experience group,” the following are separate programs of insurance: property; unemployment; open end or closed end; single premium or monthly premium; elimination period for unemployment; and retroactive or nonretroactive for unemployment. The insurance programs of each creditor in a multiple creditor group must be reasonably similar and each creditor's program must contain the same type of coverages and exclusions. If an experience group has experience in more than this State, an insurer may use only the experience of the experience group in California to rate the group or, with the approval of the Commissioner, an insurer may use the multi-state experience of the experience group for this purpose if it is more credible than the California experience and is generated by the same or similar programs of insurance and is adjusted to account for differences in premium rates. Insurers using multiple-creditor groups for the purpose of determining rates shall establish written standards for the inclusion of individual creditor-groups within such multiple creditor groups.

(h) “Experience period” means the most recent period of time for which experience is reported, but not for a period longer than three full years. If an experience group develops a Credibility Factor of 1 from TABLE 1 (the “Credibility Table” in Section 2670.9) in less than three years, the experience period for that case will be the number of full years needed to attain full credibility. Experience incurred in the period immediately preceding the effective date of this regulation may be used to the extent necessary to fill out the experience period. If a new experience group of an insurer has experience in this State with a prior insurer, the new insurer must use the most recent experience of the experience group with the prior insurer to the extent necessary to fill out an experience period. Other data or projections may be used if the Commissioner finds them to be more credible.

(i) “Reported Claim Count”, as used in TABLE 1 (Section 2670.9), means the number of claims reported for the experience group during the experience period. This means the total number of claims reported during the experience period, whether paid or in the process of payment excluding claims without payment.

(j) “Open end” plan of indebtedness is defined in CCR Section 2248.31(l).

(k) “Prima facie rate” means the maximum rate which reasonably can be expected to provide the permissible loss ratio set forth in 2670.6. Prima Facie Rates and Permissible Loss Ratio for Benchmark Programs and which is not excessive, inadequate, unfairly discriminatory or otherwise in violation of Chapter 9 of the Insurance Code

NOTE

HISTORY

1. New article 2 (section 2670.4) and section filed 3-10-2003; operative 4-9-2003. Submitted to OAL for printing only pursuant to Government Code section 11343.8 as a regulation that establishes rates in accordance with Government Code section 11340.9(g) (Register 2003, No. 11).

2. Change without regulatory effect withdrawing and repealing article 2 (section 2670.4) and section pursuant to settlement agreement in Consumer Credit Insurance Association v. John Garamendi (California Superior Court No. 03CS00533) filed 5-27-2004 pursuant to section 100, title 1, California Code of Regulations (Register 2004, No. 22).

3. New article 2 (section 2670.4) and section filed 4-28-2006; operative 5-28-2006. Submitted to OAL for printing only pursuant to Government Code section 11343.8 as a regulation that establishes rates in accordance with Government Code section 11340.9(g) (Register 2006, No. 17).

Article 3. Regulation of Rates

§2670.5. Presumptive Loss Ratios and Prima Facie Rates, Generally.

Note • History

For the purpose of implementing Insurance Code Section 779.36, the presumptive loss ratio for credit property insurance coverage or for credit unemployment insurance coverage shall be the permissible loss ratio set forth in Section 2670.6, Prima Facie Rates and Permissible Loss Ratio for Benchmark Program computed by dividing incurred losses by earned premiums, using calendar year data. For the purpose of Insurance Code Section 1861.05, it shall be presumed that a rate is excessive if incurred losses cannot be reasonably expected to equal the appropriate percent of the earned premiums for each credit property insurance experience group or for each credit unemployment insurance experience group. These regulations contain prima facie rates and loss ratios based on the benchmark programs set forth in this Subchapter. An insurer may use a program which is different from a benchmark program provided the insurer shows that the proposed rate for the program is expected to produce a loss ratio of at least the appropriate percent set forth in Section 2670.6, Prima Facie Rates and Permissible Loss for Benchmark Programs.

NOTE

HISTORY

1. New article 3 (sections 2670.5-2670.11) and section filed 3-10-2003; operative 4-9-2003. Submitted to OAL for printing only pursuant to Government Code section 11343.8 as a regulation that establishes rates in accordance with Government Code section 11340.9(g) (Register 2003, No. 11).

2. Change without regulatory effect withdrawing and repealing article 3 (sections 2670.5-2670.11) and section pursuant to settlement agreement in Consumer Credit Insurance Association v. John Garamendi (California Superior Court No. 03CS00533) filed 5-27-2004 pursuant to section 100, title 1, California Code of Regulations (Register 2004, No. 22).

3. New article 3 (sections 2670.5-2670.11) and section filed 4-28-2006; operative 5-28-2006. Submitted to OAL for printing only pursuant to Government Code section 11343.8 as a regulation that establishes rates in accordance with Government Code section 11340.9(g) (Register 2006, No. 17).

§2670.6. Prima Facie Rates and Permissible Loss Ratio for Benchmark Programs.

Note • History

The prima facie rates and permissible loss ratio for the benchmark programs set forth in Sections 2670.12 through Section 2670.20 of these regulations are as follows:

(a) The prima facie rate for benchmark number one, Dual Interest Credit Property Insurance on Open End Plan of Indebtedness, is 2.9 cents per $100.00 of the monthly outstanding balance. The permissible loss ratio is 67%.

(b) The prima facie rate for benchmark number two, Dual Interest Credit Property Insurance on a Closed End Plan of Indebtedness, is $1.60 per $100.00 of the unpaid balance due at the time coverage attaches. The permissible loss ratio is 66%.

(c) The prima facie rate for benchmark number three, Dual Interest Credit Property Insurance on a Closed End Loan Secured by Personal Property, Invoiced Monthly, is 14 cents per $100.00 of the unpaid balance due at the time coverage attaches. The permissible loss ratio is 74%.

(d) [Reserved.]

(e) [Reserved.]

(f) The prima facie rate for benchmark number six, 30-Day Retroactive Credit Unemployment Insurance on an Open End Plan of Indebtedness, and Paying Minimum Monthly Payment, is 4.1 cents per $100.00 of the monthly outstanding balance. The permissible loss ratio is 64%.

(g) The prima facie rate for benchmark number seven, 30-Day Non-Retroactive Credit Unemployment Insurance on an Open End Plan of Indebtedness, and Paying Minimum Monthly Payment for Six Months, is 2.9 cents per $100.00 of the monthly outstanding balance. The permissible loss ratio is 65%.

(h) The prima facie rate for benchmark number eight, 30-Day Retroactive Credit Unemployment Insurance on an Installment Loan Plan of Indebtedness, paying Monthly Payment on Installment Loan Payments is $1.22 per $100.00 of the unpaid balance due at the time coverage attaches. The permissible loss ratio is 70%.

(i) The prima facie rate for benchmark number nine, 30-Day Non-Retroactive Credit Unemployment Insurance on an Open End Plan of Indebtedness, and Paying Outstanding Balance Up To Policy Limit, is 7 cents per $100.00 of the monthly outstanding balance. The permissible loss ratio is 66.

NOTE

HISTORY

§2670.7. Calculation of the Maximum Permitted Premium.

Note • History

(a) Find the Credibility Factor (“Z”) from TABLE 1 (Section 2670.9) for the experience group. Where actual loss ratios are less than 45%, use the premium earned for the experience group during the experience period; otherwise, use the Reported Claims Count. If either of these measures cannot be directly determined, the Commissioner may accept reasonable approximations of them.

(b) Calculate the credibility adjusted loss ratio (“CLR”) for the experience group using the following formula, where ALR is the actual loss ratio for the experience group for the experience period adjusted to the prima facie rate level for the initial annual review and adjusted to the current effective rate level for subsequent annual reviews.

For credit unemployment insurance, the actual loss ratio for each year of the experience period shall be multiplied by the ratio of the prospective unemployment rate minus 3.0% to the historical unemployment rate for that year minus 3.0%. Each year the Commissioner shall determine the prospective and historical unemployment rates to be used.

CLR = Z (ALR) + .60(1-Z)

For the initial review:

MaxPP = CLR x Prima Facie Rate/ .6

For subsequent reviews:

MaxPP = CLR x Current Approved Rate/ .6

Rates shall be calculated and applied separately for property and unemployment.

(d) Credibility adjusted loss ratios and maximum permitted premium rates shall be redetermined annually.

(e) For the initial review, rates for programs whose provisions differ significantly from the benchmarks shall be set so that the loss ratio shall not be less than the permissible loss ratio set forth in Section 2670.6. Prima Facie Rates and Permissible Loss Ratio for Benchmark Programs and shall be approved by the Commissioner before their use. For subsequent reviews, the maximum permitted premium rate shall be calculated as above.

NOTE

HISTORY

§2670.8. Rate Changes.

Note • History

(a) An insurer shall submit, for the Commissioner's approval, a proposed rate decrease for an experience group subject to this Subchapter within 180 days after the end of an experience period during which the credibility adjusted loss ratio for the group was less than the permissible loss ratio set forth in Section 2670.6. Prima Facie Rates and Permissible Loss Ratio for Benchmark Programs.

(b) An insurer may submit, for the Commissioner's approval, a proposed rate increase for an experience group subject to this Subchapter after the end of an experience period during which the credibility adjusted loss ratio for the group exceeded the permissible loss ratio set forth in Section 2670.6. Prima Facie Rates and Permissible Loss Ratio for Benchmark Programs.

(d) The Commissioner shall disapprove submission of a proposed rate if it is not demonstrated to him or her that the rate has been determined in accordance with applicable statutes and regulations. The Commissioner may approve a rate higher than the maximum permitted premium rate if it is demonstrated to his or her satisfaction that the maximum permitted premium rate provides inadequate allowances for acquisition costs, including commissions and other forms of compensation, expenses, profits, loss ratios, reserves, and other reasonable actuarial considerations.

(e) An approved rate decrease shall become effective for the experience group within 90 days of the Commissioner's approval. The Commissioner may approve a later effective date if it is demonstrated to him or her that the approved rate cannot reasonably be implemented within 90 days of his or her approval.

(f) An approved rate increase may become effective at any time after the Commissioner's approval or upon the 120th day after the submission of such proposal if it has not been disapproved by that day.

(g) An insurer assuming the business of some or all of the creditors comprising an experience group shall not use rates exceeding the rates of the prior insurer, except as provided in this Subchapter.

(h) An insurer may transfer a creditor from an experience group with a rate lower than the prima facie rate to another experience group only if the transfer would not result in a higher rate for the remainder of the former group.

(i) No insurer shall transfer a creditor group it already insures to an experience group with a rate higher than the prima facie rate. An insurer may assign a newly insured creditor group subject to a rate higher than the prima facie rate under its prior insurer into an experience group subject to a rate higher than the prima facie rate only if the assignment would not result in a higher rate for the newly-insured creditor group or the existing experience group.

(j) The Commissioner may consider proposals for rates in excess of the maximum permitted premium rates for specific creditors, creditor groups or products, if it is demonstrated to him or her that the maximum permitted premium rates provide inadequate allowances for acquisition costs, including commissions and other forms of compensation, expenses, profits, loss ratios, reserves, and other reasonable actuarial considerations, given the circumstances of the particular rate application.

NOTE

HISTORY

§2670.9. Table.

Note • History

Table 1

Credibility Table

Earned Reported Credibility

Premium Claim Count Factor (“Z”)

1 1 .00

56,000 17 .25

81,000 24 .30

111,000 33 .35

145,000 43 .40

183,000 55 .45

226,000 68 .50

273,000 82 .55

325,000 98 .60

382,000 114 .65

443,000 133 .70

508,000 152 .75

578,000 173 .80

653,000 196 .85

732,000 220 .90

815,000 245 .95

903,000 271 1.00

The above integers represent the lower end of the bracket for each “Z” factor. The upper end is 1 less than the lower end for the next higher “Z” factor.

NOTE

HISTORY

§2670.10. Certificate of Insurance; Filing Requirements.

Note • History

All coverages, exclusions, and limits of liability applicable to the certificate of insurance must be set forth in the certificate of insurance issued to the certificate holder. The coverages, exclusions, and limits of liability in the master policy which pertain to the certificate of insurance issued under the master policy must conform to the coverages, exclusions, and limits of liability set forth in the certificate of insurance issued under the master policy. Every rate filing subject to this Subchapter shall include copies of the certificate of insurance and master policy used in the program for which the rate filing is made.

NOTE

HISTORY

§2670.11. Cancellation of Coverage and Return Premium.

Note • History

This section applies to all credit property insurance and credit unemployment insurance coverages except single interest credit property insurance coverage on closed end plans of indebtedness. In the event the certificate holder cancels coverage, any return premium shall be computed on a prorata basis if the premium is paid monthly, and by the Rule of 78's if the premium is a single payment premium and the coverage provided pays off the entire balance of the certificate holder's indebtedness.

NOTE

HISTORY

Article 4. Benchmark Programs for Credit Property Insurance

§2670.12. Benchmark Number One: Provisions for Dual Interest Credit Property Insurance on an Open End Plan of Indebtedness.

Note • History

(a) When Coverage Is In Effect. Coverage is effective on the date the certificate of insurance holder's (the “certificate holder's”) account has a balance, and continues for as long as there is an open balance in the account(s). Coverage ends on the date the certificate holder's account does not reflect an open balance, and is automatically reinstated when there is an open balance. Coverage will continue for up to 36 months from the date the item of personal property was financed. Coverage covers the insured property anywhere in the world.

(b) Coverage Provided. The insurance covers the interest of the master policyholder and the certificate holder in personal property purchased by the certificate holder and financed under an open end plan of indebtedness. In the event of a loss to a pair, set, or parts, the insurer will provide the following coverage: (1) For any article(s) that is a part of a pair or set: the insurer will pay a reasonable and fair proportion of the total value of the pair or set, with consideration given to the importance of such article(s). In no event will such loss mean total loss of the pair or set; (2) For any part of property which consists of several parts when complete: the insurer will be liable only for the value of the part lost or damaged.

(c) Perils Insured. The insurance provides coverage for direct and accidental loss or damage to insured personal property by fire; smoke; lightning; windstorm; cyclone; tornado; flood; hail; earthquake; explosion; riot; riot attending a strike; civil commotion; marine perils while on ferries and/or in cars or transfers in connection with land conveyances; aircraft; vehicles; collision; vandalism and malicious mischief; and burglary (of which there must be visible evidence of forced entry).

(d) Exclusions. Coverage will not apply to purchases made while the certificate holder is receiving benefits under the certificate.

(e) Limit of Liability. The insurance covers the interest of the master policy holder and the certificate holder up to the maximum(s) stated in the certificate of insurance. Coverage for any one account will be limited to the maximum amount per account as stated in the certificate of insurance. If the certificate holder has more than one account, the maximum limit stated in the certificate of insurance applies, and the total insurance provided under all of a certificate holder's accounts cannot exceed this amount. The insurer's limit of liability for loss is the cost to repair or replace the property insured at the time of the loss, not to exceed the following maximum limits: (1) for the first 60 days after enrollment for the insurance: an amount up to the highest balance in the certificate holder's open ended account during that 60-day period; and (2) after the first 60 days after enrollment for the insurance: an amount up to the highest balance on which a premium has been assessed during the 36 months before the date of loss. It is the insurer's option, after giving notice of its intention to do so within 60 days after the receipt of proof of loss to: (1) take all or any part of the property at the agreed or appraised value; or (2) repair, rebuild or replace the destroyed or damaged property with other of like kind and quality within a reasonable time.

NOTE

HISTORY

1. New article 4 (sections 2670.12-2670.14) and section filed 3-10-2003; operative 4-9-2003. Submitted to OAL for printing only pursuant to Government Code section 11343.8 as a regulation that establishes rates in accordance with Government Code section 11340.9(g) (Register 2003, No. 11).

2. Change without regulatory effect withdrawing and repealing article 4 (sections 2670.12-2670.14) and section pursuant to settlement agreement in Consumer Credit Insurance Association v. John Garamendi (California Superior Court No. 03CS00533) filed 5-27-2004 pursuant to section 100, title 1, California Code of Regulations (Register 2004, No. 22).

3. New article 4 (sections 2670.12-2670.14) and section filed 4-28-2006; operative 5-28-2006. Submitted to OAL for printing only pursuant to Government Code section 11343.8 as a regulation that establishes rates in accordance with Government Code section 11340.9(g) (Register 2006, No. 17).

§2670.13. Benchmark Number Two: Provisions for Dual Interest Credit Property Insurance on a Closed End Plan of Indebtedness.

Note • History

(a) When Coverage Is In Effect. Coverage is effective at 12:01 a.m. on the effective date specified in the certificate. The insurance attaches from the time the personal property is purchased or encumbered until the termination of the master policy holder's financial interest therein. Coverage applies within the United States and Canada, during transportation or otherwise, while the property is in the custody of the seller for packing or awaiting shipment or for repair or adjustment, and while in the custody of the certificate holder.

(b) Coverage Provided. The insurance covers the interests of the master policy holder and the certificate holder in personal property which is purchased by the certificate holder, in which the master policyholder has a financial interest, and which is financed under a closed end plan of indebtedness.

(c) Perils Insured. The insurance provides coverage for direct loss or damage to insured personal property by fire and lightning; collision (the coming together of cars during coupling not to be deemed a collision), derailment or overturning of a vehicle, collapse of bridges, while being transported by land conveyances; marine perils while on ferries and/or in cars or transfers in connection with land conveyances; burglary from within a building or room (of which there must be signs of forcible entry); and vandalism and malicious mischief. The insurance also provides extended coverage covering earthquake, windstorm, cyclone, tornado, hail, explosion, riot, riot attending a strike, civil commotion, aircraft, vehicles, smoke, flood rising waters, tidal wave, high water or overflow, whether driven by wind or not, falling objects, collapse of building caused by weight of ice, snow, sleet or otherwise, rupture, cracking, burning or freezing of plumbing, heating or air-conditioning systems or domestic appliances, excluding domestic appliances for heating water for domestic consumption.

(d) Exclusions. Loss or damage to goods by decay, wet or dampness, or by being marred, scratched, spotted, discolored, moldy, rusty, frosted, rotted, steamed or changed in flavor; unless the same is the direct result of a peril insured against; mechanical breakdown; against loss or damage due to short-circuiting, blowout or other electrical disturbances within the article(s) insured; loss or damage caused by the neglect of the master policyholder or certificate holder to use all reasonable means to save and preserve the property at and after any disaster insured against, or when the property is endangered by fire in neighboring premises; loss or damage caused by or resulting from: (1) hostile or warlike action in time of peace or war, including action in hindering, combating or defending against an actual, impending or expected attack (a) by any government or sovereign power (de jure or de facto), or by any authority maintaining or using military, naval or air forces; or (b) by military, naval, or air forces; or (c) by an agent of any such government, power, authority or forces; (2) any weapon of war employing atomic fission or radioactive force whether in time of peace or war; (3) insurrection, rebellion, revolution, civil war, usurped power, or action taken by governmental authority in hindering, combating or defending against such an occurrence, seizure or destruction under quarantine or Customs regulations, confiscation by order of any governmental or public authority, or risks of contraband or illegal transportation or trade; loss or damage under any coverage due to radioactive contamination; loss or damage to aircraft, motor vehicles, and boats and any equipment pertaining thereto.

(e) Limit of Liability. The insurer shall not be liable for more than the amount stated in the certificate of insurance on property sold or encumbered for any one certificate holder. The insurer's limit of liability for loss or damage in the event of a partial loss is the cost to effect repair of the insured property, if the property is repairable. If the property is not repairable, the insurer will pay the cost of replacing the insured property with no deduction for depreciation. The insurer will not be liable for more than the original amount of insurance stated in the certificate of insurance. The insurer's limit of liability for a total loss shall be the original amount of insurance stated in the certificate of insurance.

NOTE

HISTORY

§2670.14. Benchmark Number Three: Provisions for Dual Interest Credit Property Insurance on a Closed End Loan Secured by Personal Property.

Note • History

(a) When Coverage Is In Effect. Coverage is in effect for the term of years set forth in the certificate of insurance, from 12:01 a.m. on the effective date of coverage to 12:01 a.m. on the expiration date of coverage.

(b) Coverage Provided. The insurance covers the interest of the master policy holder and the certificate holder in personal property pledged as security for a closed end loan made by the master policy holder to the certificate holder, which property is specifically described in the security agreement.

(c) Perils Insured. The insurance provides coverage for loss or damage caused by fire and lighting; and collision or overturn, stranding, sinking, burning, or derailment, while the insured property is in transit. Extended coverage covers loss or damage due to: windstorm, cyclone, tornado, hail, rising water, tidal wave, overflow of water, earthquake, collapse of bridges, falling objects, or explosion; riot, riot attending a strike and civil commotion; aircraft or private passenger type vehicles; smoke; flood; collapse of building; rupture, cracking, burning or freezing of plumbing, heating or air conditioning systems and domestic appliances except for water heaters; and robbery or burglary with evidence of forced entry.

(d) Exclusions. Loss or damage due to: decay, wet or dampness, or by being marred, scratched, spotted, discolored, moldy, rusted or rotted unless the same is the direct result of a peril insured against; frost, cold weather, ice, snow or sleet; motor vehicles, land conveyances, farm equipment, aircraft or boats unless this coverage is provided; deterioration unless it results from insured perils; defective manufacturing, mechanical or electrical breakdown; the certificate holder's neglect of the property during and after any covered loss to the extent of the certificate holder's neglect; hostile or warlike action by any government or sovereign power, legal or actual, or their military authority or agent or by any armed forces; action taken by governmental authority in hindering, combating, or defending against such an occurrence; by nuclear reaction, nuclear radiation, or radioactive contamination; to all forms of money or instruments; or to television antennas and outside wiring.

(e) Limit of Liability. The insurer's limit of liability for loss or damage in the event of a partial loss will be equal to the actual cash value of the insured property, not to exceed the cost to repair or replace the insured property with property of like kind or quality. The insurer's limit of liability in the event of a total loss will be equal to the lesser of the actual cash value of the insured property or the original amount of insurance. Coverage will not exceed the maximum limit of liability stated in the certificate of insurance.

NOTE

HISTORY

Article 5. Benchmark Provisions for Credit Unemployment Insurance

§2670.17. Benchmark Number Six: Provisions for 30-Day Retroactive Credit Unemployment Insurance on an Open End Plan of Indebtedness, and Paying Minimum Monthly Payment.

Note • History

(a) When Coverage Is In Effect. Coverage is in effect from the time the certificate holder's account has a balance and continues as long as there is an open balance in the account(s). Insurance coverage will cease when the certificate holder's account does not reflect an open balance, and will be automatically reinstated when there is an open balance.

(b) Coverage Provided. The insurance covers the interests of the master policyholder and the certificate holder in connection with purchases under an account agreement. All benefits apply to account payments and will be paid to the master policy holder to pay off or reduce the certificate holder's debt. The insurer will pay the minimum monthly payment on the certificate holder's account if he or she is unemployed for more than 30 consecutive days. After the 30-day waiting period benefits will be paid retroactively to the first day of unemployment and while the unemployment continues.

(c) Perils Insured. The insurer will pay benefits for loss of the certificate holder's employment income resulting from involuntary loss of employment, or unemployment due to labor disputes, strikes, or lockouts.

(d) Exclusions. Coverage will not apply to loss of income due to retirement or disability. Coverage will not apply to purchases made while the certificate holder is receiving benefits under his or her certificate.

(f) Eligibility. To be eligible for loss of employment income benefits, as of the effective date of the certificate the certificate holder must be insured under the plan and gainfully employed on a full-time basis in a nonseasonal occupation. To receive loss of employment income benefits, the certificate holder must verify that he or she registered with his or her state's unemployment office or a recognized employment agency. Registration must begin within 15 days after the date of involuntary unemployment and continue for the entire period of the claim. Coverage will not be denied if the certificate holder does not qualify because his or her former employer was not required to contribute to the state unemployment fund. A certificate holder will be reeligible for unemployment benefits after the completion of payments under a loss of employment claim if he or she has been gainfully employed on a full-time basis in a nonseasonal occupation for a period of 30 consecutive days.

NOTE

HISTORY

1. New article 5 (sections 2670.17-2670.20) and section filed 3-10-2003; operative 4-9-2003. Submitted to OAL for printing only pursuant to Government Code section 11343.8 as a regulation that establishes rates in accordance with Government Code section 11340.9(g) (Register 2003, No. 11).

2. Change without regulatory effect withdrawing and repealing article 5 (sections 2670.17-2670.20) and section pursuant to settlement agreement in Consumer Credit Insurance Association v. John Garamendi (California Superior Court No. 03CS00533) filed 5-27-2004 pursuant to section 100, title 1, California Code of Regulations (Register 2004, No. 22).

3. New article 5 (sections 2670.17-2670.20) and section filed 4-28-2006; operative 5-28-2006. Submitted to OAL for printing only pursuant to Government Code section 11343.8 as a regulation that establishes rates in accordance with Government Code section 11340.9(g) (Register 2006, No. 17).

§2670.18. Benchmark Number Seven: Provisions for 30-Day Non-Retroactive Credit Unemployment Insurance on an Open End Plan of Indebtedness, and Paying Minimum Monthly Payment for Six Months.

Note • History

(b) Coverage Provided. The insurance covers the interests of the master policyholder and the certificate holder in connection with purchases under an account agreement. All benefits apply to account payments and will be paid to the master policyholder to pay off or reduce the certificate holder's debt. The insurer will pay the minimum monthly payment on the certificate holder's account if he or she is unemployed for more than 30 consecutive days. After the 30-day waiting period, benefits will be paid beginning on the 31st day, and while the unemployment continues, up to a maximum of six months.

(d) Exclusions. Coverage will not apply to loss of income due to retirement. Coverage will not apply to purchases made while the certificate holder is receiving benefits under his or her certificate.

NOTE

HISTORY

§2670.19. Benchmark Number Eight: Provisions for 30-Day Retroactive Credit Unemployment Insurance on an Installment Loan Plan of Indebtedness, Paying Monthly Payment on Installment Loan up to Twelve Monthly Payments.

Note • History

(b) Coverage Provided. The insurer will pay loss payment benefits to the master policyholder for the benefit of the certificate holder's account on a loan agreement or sales contract between the certificate holder and the master policyholder. The loan agreement or sales contract must provide for equal monthly installment payments or loans with a variable interest feature, or loans with a balloon payment. For loans with a variable interest rate of loans with a balloon payment the monthly benefit will not exceed the original monthly payment amount. The balloon payment is not covered. The insurer will pay the certificate holder's scheduled monthly payment on the loan agreement or sales contract if the certificate holder is involuntarily unemployed for at least 30 consecutive days. After the 30-day waiting period the insurer will pay the scheduled monthly payment retroactively to the first day of unemployment and while the unemployment continues. The scheduled monthly payment on the certificate holder's indebtedness must be at least 30 days delinquent for coverage to begin.

(d) Exclusions. Coverage does not apply to voluntary forfeiture of salary, wages, or employment income; resignation; retirement whether voluntary or mandatory; disability caused by accident, sickness, disease or pregnancy; or termination as the result of willful misconduct or criminal misconduct.

(e) Limit of Liability. The insurer will pay the scheduled monthly benefit or an amount equal to 1/30th of the scheduled monthly benefit for each day of a period less than thirty days which the certificate holder are involuntarily unemployed. The insurer will go back to the first day of the certificate holder's eligibility to count the number of days. The total of all payments is limited to the schedule shown in the table below. If the certificate holder's loss of employment occurs during the first 60 days after inception of coverage the maximum number of payment benefits payable during that period of involuntary unemployment will be one-half of the total benefits payable as provided in the schedule.

The maximum number of monthly benefits provided shall not exceed the remaining originally scheduled total of loan payments at the time of loss. In the event that the certificate holder's loan or credit agreement is extended or modified in any manner, the insurer's liability will never be more that the total amount of monthly benefits that would have been provided without such modification or extension.

Maximum Benefits Maximum Number of

Payable for Loss After Benefits Payable for Loss

Term of Loan 60 Days Within the 1st 60 days

1-13 months 4 2

14-19 months 5 2.5

20-25 months 6 3

26-31 months 7 3.5

32-37 months 8 4

38-43 months 9 4.5

44-49 months 10 5

50-55 months 11 5.5

56-61 months 12 6

No more that the total monthly benefits shown above will be payable during the term of coverage. It will include all amounts paid for involuntary unemployment, whether during one or more periods of unemployment.

(f) Eligibility

To be eligible for loss of employment income benefits, as of the effective date of the certificate the certificate holder must be gainfully employed for at least 12 consecutive months except for vacation time, prior to the effective date of this coverage, except employment interruption for less than 30 consecutive days during the previous 12 month period or employment interrupted by lockout, general strike, or unionized labor dispute shall not eliminate a certificate holder from eligibility. Self-employed individuals or independent contractors or seasonal employees are not eligible for coverage. To receive loss of income benefits, the certificate holder must qualify for unemployment benefits under his or her state's unemployment laws and must register for work with his or her state employment office or a recognized employment agency within 15 days after the last day employed and remain so registered during the claim period if the loss of employment occurred as the result of either layoff or employer termination; or provide the insurer with verification of loss which occurred as the result of a general strike, unionized labor dispute or lockout from sources as determined by the insurer at the time of loss. Coverage will not be denied if the certificate holder does not qualify for state unemployment benefits because his or her former employer was not required to contribute to the state unemployment fund. Re-eligibility for remaining benefits will begin on the 1st day of unemployment if the employment period is less than 30 days. If the unemployment period is greater than 30 days, eligibility for payment will begin after the 30th day of unemployment.

NOTE

HISTORY

§2670.20. Benchmark Number Nine: Provisions for 30-Day Non-Retroactive Credit Unemployment Insurance on an Open End Plan of Indebtedness, and Paying Outstanding Balance up to Policy Limit.

Note • History

(a) When Coverage Is In Effect. Coverage is in effect from the time the account has an open balance and continues as long as there is an open balance in the certificate holder's account(s). The insurance will cease when the certificate holder's account does not reflect an open balance, and will be automatically reinstated when there is an open balance.

(b) Coverage Provided. The insurance covers the interests of the master policyholder and the certificate holder in connection with purchases under an account agreement. The insurer will pay benefits for loss of employment income of the certificate holder resulting from involuntary unemployment. The benefits payable will apply to account payments. The benefit provided will be the amount of the outstanding balance as of the date of loss, or the maximum amount per account indicated in the certificate, whichever is less. Benefits will be paid after expiration of the 30-day waiting period specified in the certificate.

(c) Perils Insured. The insurer will pay a loss of employment income benefit if the certificate holder (1) has an involuntary loss of employment; or (2) is unemployed due to labor disputes; and (3) remains involuntarily unemployed for longer than the benefit waiting period of 30 days.

(d) Exclusions. There is no coverage for loss of income due to retirement. Coverage will not apply to purchases made by the certificate holder during the claim period.

(e) Limit of Liability. The insurance covers the interests of the master policyholder and the certificate holder up to the maximum(s) stated in the certificate. Coverage for any one account will be limited to the maximum amount per account as shown in the certificate. If the certificate holder has more than one account, the maximum limit shown in the certificate applies, and the total insurance provided under all of a certificate holder's accounts cannot exceed this amount.

(f) Eligibility

To be eligible for loss of employment income benefits, the certificate holder must be insured under the plan and gainfully employed on a full-time basis in a nonseasonal occupation at the time of loss. To receive loss of income benefits, the certificate holder must verify during the specified period of unemployment that he or she registered with his or her state unemployment office or a recognized employment agency. Registration must begin within 15 days after the date of involuntary unemployment and continue for the entire period of the claim Coverage will not be denied if the certificate holder does not qualify for state unemployment benefits because his or her former employer was not required to contribute to the state unemployment fund.

NOTE

HISTORY

Article 6. Reporting Requirements

§2670.21. Annual Experience Reports.

Note • History

(a) Each insurer subject to this Subchapter shall file an annual report of its credit property insurance and credit unemployment insurance experience statistics with the Commissioner no later than May 1 of the year following the calendar year reported. All annual reports of experience statistics shall be filed with the California Department of Insurance, Rate Regulation Division, Rate Specialist Bureau, 300 South Spring Street, 14th Floor, Los Angeles, California 90013.

(b) Each type of insurance as defined in this Subchapter shall be reported separately on the Credit Property Insurance Experience Report and Credit Unemployment Insurance Experience Report forms prescribed by the Commissioner. The experience report for insurance programs not defined in this Subchapter shall include brief descriptions of the coverages provided. The experience for each type of coverage shall be reported separately. The Commissioner reserves the right to require that the reports be filed in electronic media form. Each insurer shall maintain experience data on an annual basis for its business subject to this Subchapter for at least five (5) years. Experience statistics generated under conditions different from those assumed in this Subchapter shall be reported separately.

(c) Credit insurance experience generated by business issued before the effective date of this Subchapter shall be maintained and reported separately from experience generated under this Subchapter.

NOTE

HISTORY

1. New article 6 (sections 2670.21-2670.22) and section filed 3-10-2003; operative 4-9-2003. Submitted to OAL for printing only pursuant to Government Code section 11343.8 as a regulation that establishes rates in accordance with Government Code section 11340.9(g) (Register 2003, No. 10).

2. Change without regulatory effect withdrawing and repealing article 6 (sections 2670.21-2670.22) and section pursuant to settlement agreement in Consumer Credit Insurance Association v. John Garamendi (California Superior Court No. 03CS00533) filed 5-27-2004 pursuant to section 100, title 1, California Code of Regulations (Register 2004, No. 22).

3. New article 6 (sections 2670.21-2670.22) and section filed 4-28-2006; operative 5-28-2006. Submitted to OAL for printing only pursuant to Government Code section 11343.8 as a regulation that establishes rates in accordance with Government Code section 11340.9(g) (Register 2006, No. 17).

§2670.22. Reporting Forms.

Note • History

The Credit Property Insurance Experience Report form and the Credit Unemployment Insurance Experience Report form are available as downloadable forms on the Department of Insurance web site at http://www.insurance.ca.gov. If the forms cannot be successfully downloaded from the web site, they may be obtained by contacting the address below:

CALIFORNIA DEPARTMENT OF INSURANCE
RATE REGULATION BRANCH, RATE SPECIALIST BUREAU
300 SOUTH SPRING STREET, 14TH FLOOR
LOS ANGELES, CA 90013.

NOTE

HISTORY

Article 7. Effective Date and Severability

§2670.23. Effective Date.

Note • History

Every insurer subject to this Subchapter shall seek approval of its rates sixty (60) days after the effective date of these regulations. Credit property and credit unemployment rate filings shall be reviewed under Insurance Code Sections 779.36, 1861.01(c), 1861.05, and any other applicable law.

NOTE

HISTORY

1. New article 7 (section 2670.23-2670.24) and section filed 3-10-2003; operative 4-9-2003. Submitted to OAL for printing only pursuant to Government Code section 11343.8 as a regulation that establishes rates in accordance with Government Code section 11340.9(g) (Register 2003, No. 11).

2. Change without regulatory effect withdrawing and repealing article 7 (sections 2670.23-2670.24) and section pursuant to settlement agreement in Consumer Credit Insurance Association v. John Garamendi (California Superior Court No. 03CS00533) filed 5-27-2004 pursuant to section 100, title 1, California Code of Regulations (Register 2004, No. 22).

3. New article 7 (section 2670.23-2670.24) and section filed 4-28-2006; operative 5-28-2006. Submitted to OAL for printing only pursuant to Government Code section 11343.8 as a regulation that establishes rates in accordance with Government Code section 11340.9(g) (Register 2006, No. 17).

§2670.24. Severability.

Note • History

If any provision of this Subchapter or its application to any person or circumstance is held invalid for any reason, the rest of this Subchapter shall not be affected.

NOTE

Authority cited: Sections 779.21, 779.36, 12921 and 12926, Insurance Code; Credit Insurance General Agents Association v. Payne, 16 Cal.3d 651 (1976); and 20th Century v. Garamendi, 8 Cal.4th 216 (1994). Reference: Sections 779.36, 1861.01 and 1861.05, Insurance Code.

HISTORY

Subchapter 5. Stock Insurers--Corporate Affairs

Article 1. Proxies, Consents and Authorizations of Domestic Insurers

§2680.1. Application of Article.

Note • History

This Article is applicable to all domestic stock insurers having 100 or more stockholders; provided, however, that this Article shall not apply to any insurer if 95% or more of its stock is owned or controlled by a parent or an affiliated insurer and the remaining shares are held by less than 500 stockholders. A domestic stock insurer which files with the Securities and Exchange Commission forms of proxies, consents and authorizations complying with the requirements of the Securities Exchange Act of 1934 and the Securities Exchange Act Amendments of 1964 and Regulation X-14 of the Securities and Exchange Commission promulgated thereunder shall be exempt from the provisions of this Article.

NOTE

Authority cited: Section 1140.5, Insurance Code.

HISTORY

1. New Subchapter 5 (Sections 2680.1 through 2680.7, 2680.9 through 2680.13) filed 9-20-65; effective thirtieth day thereafter (Register 65, No. 18).

§2680.2. Proxies, Consents and Authorizations.

No domestic stock insurer, or any director, officer or employee of such insurer subject to Section 2680.1 hereof, or any other person, shall solicit, or permit the use of his name to solicit by mail or otherwise, any proxy, consent or authorization in respect of any stock of such insurer in contravention of this Article and Schedules A and B hereof as set forth in Section 2680.12 and 2680.13, respectively.

§2680.3. Disclosure of Equivalent Information.

Unless proxies, consents or authorizations in respect of a stock of a domestic insurer subject to Section 2680.1 hereof are solicited by or on behalf of the management of such insurer from the holders of record of stock of such insurer in accordance with this Article and the Schedules hereunder prior to any annual or other meeting, such insurer shall, in accordance with this Article and/or such amendments hereto as the Commissioner may adopt, file with the Commissioner and transmit to all stockholders of record information substantially equivalent to the information which would be required to be transmitted if a solicitation were made.

§2680.4. Definitions.

(1) The definitions and instructions set out in Schedule Stockholder Information Supplement, as promulgated by the National Association of Insurance Commissioners, shall be applicable for purposes of this Article.

(2) The terms “solicit” and “solicitation” for purposes of this Article shall include:

(a) any request for a proxy, whether or not accompanied by or included in a form of proxy; or

(b) any request to execute or not to execute, or to revoke, a proxy; or

(c) the furnishing of a proxy or other communication to stockholders under circumstances reasonably calculated to result in the procurement, withholding or revocation of a proxy.

(3) The terms “solicit” and “solicitation” shall not include:

(a) any solicitation by a person in respect to stock of which he is the beneficial owner;

(b) action by a broker or other person in respect to stock carried in his name or in the name of his nominee in forwarding to the beneficial owner of such stock soliciting material received from the company, or impartially instructing such beneficial owner to forward a proxy to the person, if any, to whom the beneficial owner desires to give a proxy, or impartially requesting instructions from the beneficial owner with respect to the authority to be conferred by the proxy and stating that a proxy will be given if the instructions are received by a certain date;

(c) the furnishing of a form of proxy to a stockholder upon the unsolicited request of such stockholder, or the performance by any person of ministerial acts on behalf of a person soliciting a proxy.

(4) Unless the context otherwise requires, the words used in this Article which are defined in Sections 1 to 42 of the Insurance Code shall, insofar as applicable, have the same meanings as therein defined, and the following words shave have meanings as follows:

(a) The words “parent” and “subsidiary” as applied to corporations shall have the same meanings as “holdings corporation” and “subsidiary corporation,” respectively, as defined in Section 118 of the Corporations Code.

(b) The word “affiliate” means any person that directly, or indirectly, through one or more intermediaries, controls, or is controlled by, or is under common control with the person to which such “affiliate” is related.

(1) any corporation or organization (other than the issuer of the securities as to which a proxy hereunder is solicited, or a majority-owned subsidiary of such issuer) of which such person is an officer or partner or is, directly or indirectly, the beneficial owner of ten percent or more of any class of equity securities,

(2) any trust or other estate in which such person has a substantial beneficial interest or as to which such person serves as trustee or in a similar fiduciary capacity, and

(3) any relative or spouse of such person, or any relative of such spouse, who has the same home as such person, or any relative of such spouse, who has the same home as such person or who is a director or officer of the issuer or any of its parents or subsidiaries.

§2680.5. Information to Be Furnished to Stockholders.

(1) No solicitation subject to this Article shall be made unless each person solicited is concurrently furnished or has previously been furnished with as a written proxy statement containing the information specified in Schedule A as set forth in Section 2680.12 hereof.

(2) If the solicitation is made on behalf of the management of the insurer and relates to an annual meeting of stockholders at which directors are to be elected, each proxy statement furnished pursuant to subsection 1 hereof shall be accompanied or preceded by an annual report (in preliminary or final form) to such stockholders containing such financial statements for the last fiscal year as are referred to in Schedule Stockholder Information Supplement under heading “Financial Reporting to Stockholders.” Subject to the foregoing requirements with respect to financial statements, the annual report to stockholders may be in any form deemed suitable by the management.

(3) Two copies of each report sent to the stockholders pursuant to this section shall be mailed to the Commissioner not later than the date on which such report is first sent or given to stockholders or the date on which preliminary copies of solicitation material are filed with the Commissioner pursuant to subsection 1 of Section 2680.7, whichever date is later.

§2680.6. Requirements As to Proxy.

(1) The form of proxy

(a) shall indicate in boldface type whether or not the proxy is solicited on behalf of the management,

(b) shall provide a specifically designated blank space for dating the proxy and

(c) shall identify clearly and impartially each matter or group of related matters intended to be acted upon, whether proposed by the management, or stockholders.

No reference need to be made to proposals as to which discretionary authority is conferred pursuant to Subsection 3 hereof.

(2) Means shall be provided in the proxy for the person solicited to specify by ballot a choice between approval or disapproval of each matter or group of related matters referred to therein, other than elections to office. A proxy may confer discretionary authority with respect to matters as to which a choice is not so specified if the form of proxy states in boldface type how it is intended to vote the shares or authorization represented by the proxy in each such case.

(3) A proxy may confer discretionary authority with respect to other matters which may come before the meeting, provided the persons on whose behalf the solicitation is made are not aware a reasonable time prior to the time the solicitation is made that any other matters are to be presented for action at the meeting and provided further that a specific statement to that effect is made in the proxy statement or in the form of proxy.

(4) No proxy subject to Section 1140.5 of the Insurance Code and this Article shall confer authority

(a) to vote for the election of any person to any office for which a bona fide nominee is not named in the proxy statement, or

(b) to vote at any annual meeting other than the next annual meeting (or any adjournment thereof) to be held after the date on which the proxy statement and form of proxy are first sent or given to stockholders.

(5) The proxy statement or form of proxy shall provide, subject to reasonable specified conditions, that the proxy will be voted and that where the person solicited specified by means of ballot provided pursuant to

subsection 2 hereof a choice with respect to any matter to be acted upon, the vote will be in accordance with the specifications so made.

(6) The information included in the proxy statement shall be clearly presented and the statements made shall be divided into groups according to subject matter, with appropriate headings. All printed proxy statements shall be clearly and legibly presented.

§2680.7. Material Required to Be Filed.

(1) Two preliminary copies of the proxy statement and form of proxy and any other soliciting material to be furnished to stockholders concurrently therewith shall be filed with the Commissioner at least 10 days prior to the date definitive copies of such material are first sent or given to stockholders, or such shorter period prior to that date as the Commissioner may authorize upon a showing of good cause thereof.

(2) Two preliminary copies of any additional soliciting material relating to the same meeting or subject matter to be furnished to stockholders subsequent to the proxy statements shall be filed with the Commissioner at least two days (exclusive of Saturdays, Sundays or holidays) prior to the date copies of this material are first sent or given to stockholders or a shorter period prior to such date as the Commissioner may authorize upon a showing of good cause therefor.

(3) Two definitive copies of the proxy statement, form of proxy and all other soliciting material, in the form in which this material is furnished to stockholders, shall be filed with, or mailed for filing to, the Commissioner not later than the date such material is first sent or given to the stockholders.

(4) Where any proxy statement, form of proxy or other material filed pursuant to these rules is amended or revised, two of the copies shall be marked to clearly show such changes.

(5) Copies of replies to inquires from stockholders requesting further information and copies of communications which do no more than request that forms of proxy theretofore solicited be signed and returned need not be filed pursuant to this section.

(6) Notwithstanding the provisions of subsections 1 and 2 hereof and of Subsection 5 of Section 2680.11, copies of soliciting material in the form of speeches, press releases and radio or television scripts may, but need not, be filed with the Commissioner prior to use or publication. Definitive copies, however, shall be filed with or mailed for filing to the Commissioner as required by Subsection 3 hereof not later than the date such material is used or published. The provisions of subsections 1 and 2 hereof and Subsection 5 of Section 2680.11 shall apply, however, to any reprints or reproductions or all or any part of such material.

§2680.9. False or Misleading Statements.

No solicitation subject to this Article shall be made by means of any proxy statement, form of proxy, notice of meeting, or other communication, written or oral, containing any statement which at the time and in the light of the circumstances under which it is made, is false or misleading with respect to any material fact, or which omits to state any material fact necessary in order to make the statements therein not false or misleading or necessary to correct any statement in any earlier communication with respect to the solicitation of a proxy for the same meeting or subject matter which has become false or misleading.

§2680.10. Prohibition of Certain Solicitations.

No person making a solicitation which is subject to this Article shall solicit any undated or postdated proxy or any proxy which provides that it shall be deemed to be dated as of any date subsequent to the date on which it is signed by the stockholder.

§2680.11. Special Provisions Applicable to Election Contests.

(1) Applicability.

This section shall apply to any solicitation subject to this Article by any person or group for the purpose of opposing a solicitation subject to this regulation by any other person or group with respect to the election or removal of directors at any annual or special meeting of stockholders.

(2) Participant or Participant in a Solicitation.

(a) for purposes of this section the terms “participant” “participant in a solicitation” include:

(i) the insurer;

(ii) any director of the insurer, and any nominee for whose election as a director proxies are solicited;

(iii) any other person, acting alone or with one or more other persons, committees or groups, in organizing, directing or financing the solicitation.

(b) For the purpose of this section the terms “participant” and “participant in a solicitation” do not include:

(i) a bank, broker or dealer who, in the ordinary course of business, lends money or executes orders for the purchase or sale of stock and who is not otherwise a participant;

(ii) any person or organization retained or employed by a participant to solicit stockholders or any person who merely transmits proxy soliciting material or performs ministerial or clerical duties;

(iii) any person employed in the capacity of attorney, accountant, or advertising, public relations or financial adviser, and whose activities are limited to the performance of his duties in the course of such employment;

(iv) any person regularly employed as an officer or employee of the insurer or any of its subsidiaries or affiliates who is not otherwise a participant; or

(v) any officer or director of, or any person regularly employed by any other participant, if such officer, director, or employee is not otherwise a participant.

(3) Filing of Information Required by Schedule B.

(a) No solicitation subject to this section shall be made by any person other than the management of an insurer unless at least five business days prior thereto, or such shorter period as the Commissioner may authorize upon a showing of good cause therefor, there has been filed with the Commissioner by or on behalf of each participant in such solicitation a statement in duplicate containing the information specified by Schedule B and a copy of any material proposed to be distributed to stockholders in furtherance of such solicitation. Where preliminary copies of any materials are filed, distribution to stockholders should be deferred until the Commissioner's comments have been received and complied with.

(b) Within five business days after a solicitation subject to this section is made by the management of an insurer, or such longer period therefor, there shall be filed with the Commissioner by or on behalf of each participant in such solicitation, other than the insurer, and by or on behalf of each management nominee for director, a statement in duplicate containing the information specified by Schedule B.

(c) If any solicitation on behalf of management or any other person has been made, or if proxy material is ready for distribution, then, prior to a solicitation subject to this section in opposition thereto, a statement in duplicate containing the information specified in Schedule B shall be filed with the Commissioner by or on behalf of each participant in such prior solicitation, other than the insurer, as soon as reasonably practicable after the commencement of the solicitation in opposition thereto.

(d) If, subsequent to the filing of the statements required by paragraphs (a) (b) and (c) of this subsection, additional persons become participants in a solicitation subject to this rule, there shall be filed with the Commissioner, by or on behalf of each such person, a statement in duplicate containing the information specified by Schedule B, within three business days after such person becomes a participant, or such longer period as the Commissioner may authorize upon a showing of good cause therefor.

(e) If any material change occurs in the facts reported in any statement filed by or on behalf of any participant, an appropriate amendment to such statement shall be filed promptly with the Commissioner.

(f) Each statement and amendment thereto filed pursuant to this paragraph shall be part of the public files of the Commissioner.

(4). Solicitations Prior to Furnishing Required Written Proxy Statement.

Notwithstanding the provisions of subsection 1 of Section 2680.6, a solicitation subject to this section may be made prior to furnishing stockholders a written proxy statement containing the information specified in Schedule A with respect to such solicitation. provided that--

(a) The statements required by subsection 3 hereof are filed by or on behalf of each participant in such solicitation.

(b) No form of proxy is furnished to stockholders prior to the time the written proxy statement required by subsection 1 of Section 2680.5 is furnished to such persons; provided, however, that this paragraph (b) shall not apply where a proxy statement then meeting the requirements of Schedule A has been furnished to stockholders.

(c) At least the information specified in paragraphs (b) and (c) of the statements required by subsection 3 hereto to be filed by each participant, or an appropriate summary thereof, are included in each communication sent or given to stockholders in connection with the solicitation.

(d) A written proxy statement containing the information specified in Schedule A with respect to a solicitation is sent or given stockholders at the earliest practicable date.

(5) Solicitations Prior to Furnishing Required Written Proxy Statement--Filing Requirements.

Two copies of any soliciting material proposed to be sent or given to stockholders prior to the furnishing of the written proxy statement required by subsection 1 of Section 2680.5 shall be filed with the Commissioner in preliminary form at least five business days prior to the date definitive copies of such material are first sent or given to such persons, or shorter period as the Commissioner may authorize upon a showing of good cause therefor.

(6) Application of This Section to Report.

Notwithstanding the provisions of subsections 2 and 3 of Section 2680.5, two copies of any portion of the report referred to in subsection 2 of Section 2680.5 which comments upon or refers to any solicitation subject to this section, or to any participant in such solicitation, other than the solicitation by the management, shall be filed with the Commissioner as proxy material subject to this regulation. Such portion of the report shall be filed with the Commissioner in preliminary form at least five business days prior to the date copies of the report are first sent or given to stockholders.

SCHEDULE A

INFORMATION REQUIRED IN

PROXY STATEMENT

§2680.12. Items of Information Required.

Item 1. Revocability of Proxy.

State whether or not the person giving the proxy has the power to revoke it. If the right or revocation before the proxy is exercised is limited or is subject to compliance with any formal procedure, briefly describe such limitation or procedure.

Item 2. Dissenters' Right of Appraisal.

Outline briefly the rights of appraisal or similar rights of dissenting stockholders with respect to any matter to be acted upon and indicate any statutory procedure required to be followed by such stockholders in order to perfect their rights. Where such rights may be exercised only within a limited time after the date of the adoption of a proposal, the filing of a charter amendment, or other similar act, state whether the person solicited will be notified of such date.

Item 3. Persons Making Solicitations Not Subject to Section 2680.11.

(1) If the solicitation is made by the management of the insurer, so state. Give the name of any director of the insurer who has informed the management in writing that he intends to oppose any action intended to be taken by the management and indicate the action which he intends to oppose.

(2) If the solicitation is made otherwise than by the management of the insurer, state the names and addresses of the persons by whom and on whose behalf it is made and the names and addresses of the persons by whom the cost of solicitation has been or will be borne, directly or indirectly.

(3) If the solicitation is to be made by specially engaged employees or paid solicitor, state

(i) the material features of any contract or arrangement for such solicitation and identify the parties, and

(ii) the cost or anticipated cost thereof.

Item 4. Interest of Certain Persons in Matters to Be Acted Upon.

Describe briefly any substantial interest, direct or indirect, by stockholders or otherwise, of any director, nominee for election for director, officer and, if the solicitation is made otherwise than on behalf of management, each person on whose behalf the solicitation is made, in any matter to be acted upon other than elections to office.

Item 5. Stocks and Principal Stockholders.

(1) State, as to each class of voting stock of the insurer entitled to be voted at the meeting, the number of shares outstanding and the number of votes to which each class is entitled.

(2) Give the date as of which the record list of stockholders entitled to vote at the meeting will be determined. If the right to vote is not limited to stockholders of record on that date, indicate the conditions under which other stockholders may be entitled to vote.

(3) If action is to be taken with respect to the election of directors and if the persons solicited have cumulative voting rights, make a statement that they have such rights and state briefly the conditions precedent to the exercise thereof.

Item 6. Nominees and Directors.

If action is to be taken with respect to the election of directors furnish the following information, in tabular form to the extent practicable, with respect to each person nominated for election as a director and each other person whose term of office as a directors at the meeting.

(a) Name each such person, state when his term of office or the term of office for which he is a nominee will expire, and all other positions and officer with the insurer presently held by him, and indicate which persons are nominees for election as directors at the meeting.

(b) State his present principal occupation or employment and give the name and principal business of any corporation or other organization in which such employment is carried on. Furnish similar information as to all of his principal occupations or employments during the last five years, unless he is now a director and was elected to his present term of office by a vote of stockholders at a meeting for which proxies were solicited under this Article.

(c) If he is or has previously been a director of the insurer, state the period or periods during which he has served as such.

(d) State, as of the most recent practicable date, the approximate number, and the approximate portion thereof to the total number, of each class of stock of the insurer or any of its parents, subsidiaries or affiliates other than directors' qualifying shares, beneficially owned directly or indirectly by him. If he is not the beneficial owner of any such stocks make a statement to that effect.

Item 7. Remuneration and Other Transactions with Management and Others.

Furnish the information reported or required in Item 1 of Schedule Stockholder Information Supplement under the heading “Information Regarding Management and Directors” if action is to be taken with respect to

(a) the election of directors,

(b) any remuneration plan, contract or arrangement in which any director, nominee for election as a director, or officer of the insurer will participate,

(d) the granting of extension to any such person of any options, warrants or rights to purchase any stocks, other than warrants or rights issued to stockholders, as such, on a pro rata basis. If the solicitation is made on behalf of persons other than the management information shall be furnished only as to Item IA of the aforesaid heading of Schedule Stockholder Information Supplement. (Note that said Schedule “SIS” requires that the remuneration, direct and by other means is required to be shown as to each director, irrespective of the amount thereof).

Item 8. Bonus, Profit-Sharing and Other Remuneration Plans.

If action is to be taken with respect to any bonus, profit-sharing, or other remuneration plan of the insurer, furnish the following information:

(a) A brief description of the material features of the plan, each class of persons who will participate therein, the approximate number of persons in each such class, and the basis of such participation.

(b) The amounts which would have been distributable under the plan during the last calendar year to

(1) each person named in Item 7 of this Schedule,

(2) directors and officers as a group, and

(3) to all other employees as a group, if the plan had been in effect.

(c) If the plan to be acted upon may be amended (other than by a vote of stockholders) in a manner which would materially increase the cost thereof to the insurer or to materially alter the allocation of the benefits as between the groups specified in Paragraph (b) of this item, the nature of such amendments should be specified.

Item 9. Pension and Retirement Plans.

If action is to be taken with respect to any pension or retirement plan of the insurer, furnish the following information:

(b) State

(1) the approximate total amount necessary to fund the plan with respect to past services, the period over which such amount is to be paid, and the estimated annual payments necessary to pay the total amount over such period;

(2) the estimated annual payment to be made with respect to current services;

(3) the amount of such annual payments to be made for the benefit of

(i) each person named in Item 7 of this Section,

(ii) directors and officers as a group, and

(iii) employees as a group.

(c) If the plan to be acted upon may be amended (other than by a vote of stockholders) in a manner which would materially increase the cost thereof to the insurer or to materially alter the allocations of the benefits as between the groups specified in subparagraph (b) (3) of this Item, the nature of such amendments should be specified.

Item 10. Options, Warrants, or Rights.

If action is to be taken with respect to the granting or extension of any options, warrants or rights (all referred to herein as “warrants“) to purchase stock of the insurer or any subsidiary or affiliate, other than warrants issued to all stockholders on a pro rata basis, furnish the following information:

(a) The title and amount of stock called for or to be called for, the prices, expiration dates and other material conditions upon which the warrants may be exercised, the consideration received or to be received by the insurer, subsidiary or affiliate for the granting or extension of the warrants and the market value of the stock called for or to be called for by the warrants, as of the latest practicable date.

(b) If known, state separately the amount of stock called for or to be called for by warrants received or to be received by the following persons, naming each such person:

(1) each person named in Item 7 of this Schedule, and

(2) each other person who will be entitled to acquire five percent or more of the stock called for or be called for by such warrants.

(c) If known, state also the total amount of stock called for or to be called for by such warrants, received or to be received by all directors and officers of the company as a group and all employees, without naming them.

Item 11. Authorization or Issuance of Stock.

(1) If action is to be taken with respect to the authorization or issuance of any stock of the insurer furnish the title, amount and description of the stock to be authorized or issued.

(2) If the shares of stock are other than additional shares of common stock if a class outstanding, furnish a brief summary of the following, if applicable: dividend, voting, liquidation, preemptive, and conversion rights, redemption and sinking fund provisions, interest rate and date of maturity.

(3) If the shares of stock to be authorized or issued are other than additional shares of common stock of a class outstanding, the Commissioner may require financial statements comparable to those contained in the annual statement filed by the insurer with him.

Item 12. Mergers, Consolidations, Acquisitions and Similar Matters.

(1) If action is to be taken with respect to a merger, consolidation, acquisition or similar matter, furnish in brief outline the following information:

(a) The rights of appraisal or similar rights of dissenters with respect to any matters to be acted upon. Indicate any procedure required to be followed by dissenting stockholders in order to perfect such rights.

(b) The material features of the plan or agreement.

(d) If available, the high and low sales prices for each quarterly period within two years.

(e) The percentage of outstanding shares which must approve the transaction before it is consummated.

(2) For each company involved in a merger, consolidation or acquisition, the following financial statements should be furnished:

(a) A comparative balance sheet as of the close of the last two fiscal years.

(b) A comparative statement of operating income and expenses for each of the last two years and, as a continuation of each statement, a statement of earning per share, after related taxes, and cash dividends paid per share.

(c) A pro forma combined balance sheet and income and expenses statement for the last fiscal year giving effect to the necessary adjustments with respect to the resulting company.

Item 13. Restatement of Accounts.

If action is to be taken with respect to the restatement of any asset, capital, or surplus of the insurer, furnish the following information:

(a) State the nature of the restatement and the date as of which it is to be effective.

(b) Outline briefly the reasons for the restatement and for the selection of the particular effective date.

Item 14. Matters Not Required to Be Submitted.

If action is to be taken with respect to any matter which is not required to be submitted to a vote of stockholders, state the nature of such matter, the reason for submitting it to a vote of stockholders and what action is intended to be taken by the management in the event of a negative vote on the matter by the stockholders.

Item 15. Amendment of Charter, By-Laws, or Other Documents.

If action is to be taken with respect to any amendment of the insurer's charter, by-laws or other documents as to which information is not required above, state briefly the reasons for and general effect of such amendment and the vote needed for its approval.

SCHEDULE B

INFORMATION TO BE INCLUDED IN STATEMENTS FILED BY OR ON BEHALF OF A PARTICIPANT (OTHER THAN THE

INSURER) IN A PROXY SOLICITATION IN AN ELECTION CONTEST

§2680.13. Items of Information Required--Election Contest.

Item 1. Insurer.

State the name and address of the insurer.

Item 2. Identity and Background.

(a) State the following:

(1) Your name and business address

(2) Your present principal occupation or employment and the name, principal business and address of any corporation or other organization in which such employment is carried on.

(b) State the following:

(1) Your residence address.

(2) Information as to all material occupations, positions, offices or employments during the last 10 years, giving starting and ending dates of each and the name, principal business and address of any business corporation or other business organization in which each such occupation, position, office or employment was carried on.

(c) State whether or not you are or have been a participant in any other proxy contest involving this company or other companies within the past ten years. If so, identify the principals, the subject matter and your relationship to the parties and the outcome.

(d) State whether or not, during the past 10 years, you have been convicted in a criminal proceeding (excluding traffic violations or similar misdemeanors) and, if so, give dates, nature of conviction, name and location of court, and penalty imposed or other disposition of the case. A negative answer to this sub-item need not be included in the proxy statement or other proxy soliciting material.

Item 3. Interest in Stock of the Insurer.

(a) State the amount of each class of stock of the insurer which you own beneficially, directly or indirectly.

(b) State the amount of each class of stock of the insurer which you own of record but not beneficially.

(c) State with respect to the stock specified in (a) and (b) the amounts acquired within the past two years, the dates of acquisition and the amounts acquired on each date.

(d) If any part of the purchase price or market value of any of the stock specified in Paragraph (c) is represented by funds borrowed or otherwise obtained for the purpose of acquiring or holding such stock, so state and indicate the amount of the indebtedness as of the latest practicable date. If such funds were borrowed or obtained otherwise than pursuant to a margin account or bank loan in the regular course of business of a bank, broker or dealer, briefly describe the transaction, and state the names of the parties.

(e) State whether or not you are a party to any contracts, arrangements or understandings with any person with respect to any stock of the insurer, including but not limited to joint ventures, loan or option arrangements, puts or calls, guarantees against loss or guarantees of profits, division of losses or profits, or the giving or withholding of proxies. If so, name the persons with whom such contracts, arrangements or understanding exist and give the details thereof.

(f) State the amount of stock of the insurer owned beneficially, directly or indirectly, by each of your associates and the name and address of each such associate.

(g) State the amount of each class of stock of any parent, subsidiary or affiliate of the insurer which you own beneficially, directly or indirectly.

Item 4. Further Matters.

(a) Describe the time and circumstances under which you became a participant in the solicitation and state the nature and extent of your activities or proposed activities as a participant.

(b) Describe briefly, and where practicable state the approximate amount of, any material interest, direct or indirect, of yourself and of each of your associates in any material transactions since the beginning of the company's last fiscal year, or in any material proposed transactions, to which the company or any of its subsidiaries or affiliates was or is to be a party.

(1) with respect to any future employment by the insurer or its subsidiaries or affiliates; or

(2) with respect to any future transactions to which the insurer or any of its subsidiaries or affiliates will or may be a party.

If so, describe such arrangement or understanding and state the names of the parties thereof.

Item 5. Signature.

The statement shall be dated and signed in the following manner:

Signed at _________________________________________, __________________________________________

(City) (State)

On ________________________________________________

(Date)

____________________________________________

(Signature of Participant

or Authorized Representative)

Article 2. Insider Trading

§2682.1. Definition of Certain Terms.

Note • History

(a) “Insurer” means any domestic stock insurance company, with an equity security subject to the provisions of Section 1104.2 to 1104.8, both inclusive, of the California Insurance Code, and not exempt thereunder.

(b) Section numbers refer to sections of the California Insurance Code unless the context of the reference otherwise requires. Sections 1104.2 to 1104.8, both inclusive, are the provisions relating to insider trading enacted by Chapter 38 of the Statutes of 1965.

(c) “Officer” means a president, vice president, treasurer, actuary, secretary, controller and any other person who performs for the insurer functions corresponding to those performed by the foregoing officers.

(d) “Equity security” means any stock or similar security; or any voting trust certificate or certificate of deposit for such a security; or any security convertible, with or without consideration into such a security, or carrying any warrant or right to subscribe to or purchase such a security; or any such warrant or right.

(e) Securities “held of record.”

(1) For the purpose of determining whether Section 2682.2 herein is applicable to the equity security holders of an insurer because, pursuant to the provisions of Section 1104.8 the equity securities of such insurer are held of record by one hundred or more persons, securities shall be deemed to be “held of record” by each person who is identified as the owner of such securities on record of security holders maintained by or on behalf of the insurer, subject to the following:

(a) In any case where the records of security holders have not been maintained in accordance with accepted practice, any additional person who would be identified as such as owner on such records if they had been maintained in accordance with accepted practice shall be included as a holder of record.

(b) Securities identified as held of record by a corporation, a partnership, a trust whether or not the trustees are named, or other organization shall be included as so held by one person.

(c) Securities identified as held of record by one or more persons in trustees, executors, guardians, custodians or in other fiduciary capacities with respect to a single trust, estate or account shall be included as held of record by one person.

(d) Securities held by two or more persons as co-owners shall be included as held by one person.

(e) Each outstanding unregistered or bearer certificate shall be included as held of record by a separate person, except to the extent that the insurer can establish that, if such securities were registered, they would be held of record, under the provisions of this rule, by a lesser number of persons.

(f) Securities registered in substantially similar names where the insurer has reason to believe because of the address or other indications that such names represent the same person, may be included as held of record by one person.

(2) Notwithstanding subsection (1) of this paragraph:

(a) Securities held, to the knowledge of the insurer, subject to a voting trust, deposit, agreement or similar arrangement shall be included as held of record by the record holders of the voting trust certificates, certificates of deposit, receipts or similar evidences of interest in such securities; provided however, that the insurer may rely in good faith on such information as it received in response to its request from a non-affiliated insurer of the certificates or evidences of interest.

(b) If the insurer knows or has reason to know that the form of holding securities of record is used primarily to circumvent the provisions of Section 1104.2 to 1104.8, the beneficial owners of such securities shall be deemed to be the record owners thereof.

(f) “Class” means all securities of an insurer which are of substantially similar character and the holders of which enjoy substantially similar rights and privileges.

NOTE

Authority cited for Article 2: Sections 1104.2, 1104.3, 1104.5, 1104.6 and 1104.7, Insurance Code.

HISTORY

1. New Section 2682.1 filed 11-10-65; effective thirtieth day thereafter (Register 65, No. 18).

2. Repealer of Section 2682.1 and new Article 2 (Sections 2682.1 through 2682.22) filed 1-18-66; effective thirtieth day thereafter (Register 66, No. 2).

§2682.2. Transactions Exempted from the Operation of Section 1104.3.

Any acquisition or disposition of any equity security by a director or officer or an insurer within six months prior to the date on which Sections 1104.2 and 1104.8 shall first become applicable with respect to the equity securities of such insurer shall not be subject to the operation of Section 1104.3.

§2682.3. Filing of Statements.

Note • History

Initial statements of beneficial ownership of equity securities required by Section 1104.2 shall be filed on Form A, attached hereto. Statements of changes in such beneficial ownership required by said Section 1104.2 shall be filed on Form B, attached hereto. All such statements shall be prepared and filed in accordance with the requirements of the applicable form.

Embedded Graphic 10.0275

FORM A

INSTRUCTIONS

1. PERSONS REQUIRED TO FILE STATEMENTS.

A statement on this form is required to be filed by every person who is directly or indirectly the beneficial owner of more than 10 percent of any class of any equity security of a California stock insurance company, or who is director or an officer of such a company.

2. WHEN STATEMENTS ARE TO BE FILED.

(a) Persons who hold any of the relationships specified in Instruction 1 are required to file a statement within 10 days after assuming such relationship.

(b) Statements are not deemed to have been filed with the Commissioner until they have actually been received by him.

3. WHERE STATEMENTS ARE TO BE FILED.

One signed copy of each statement shall be filed with the Commissioner of Insurance, 600 South Commonwealth Avenue, Los Angeles, CA 90005.

4. SEPARATE STATEMENTS FOR EACH COMPANY.

A separate statement shall be filed with respect to the securities of each company.

5. RELATIONSHIP OF REPORTING PERSON TO COMPANY.

Indicate clearly the relationship of the reporting person to the company; for example, “Director,” “Director and Vice President,” “Beneficial owner of more than 10 percent of the company's common stock,” etc.

6. DATE AS OF WHICH BENEFICIAL OWNERSHIP IS TO BE GIVEN.

The information as to beneficial ownership of securities shall be given as of the date that relationship was assumed.

7. TITLE OF SECURITY.

The statement of the title of a security shall be such as clearly to identify the security even though there may be only one class; for example, “Class A Common Stock,” “$6 Convertible Preferred Stock,” “5% Debentures Due 1965,” etc.

8. NATURE OF OWNERSHIP.

Under “Nature of ownership,” state whether ownership of the securities is “direct” or “indirect.” If the ownership is indirect, i.e., through a partnership, corporation, trust or other entity, indicate, in a footnote or other appropriate manner, the name or identity of the medium through which the securities are indirectly owned. The fact that securities are held in the name of a broker or other nominee does not, of itself, constitute indirect ownership. Securities owned indirectly shall be reported on separate lines from those owned directly and also from those owned through a different type of indirect ownership.

9. STATEMENT OF AMOUNT OWNED.

In stating the amount of securities beneficially owned, give the face amount of debt securities or the number of shares or other units of other securities. In the case of securities owned indirectly, the entire amount of securities owned by the partnership, corporation, trust or other entity shall be stated. The person whose ownership is reported may, if he so desires, also indicate in a footnote, or other appropriate manner, the extent of his interest in the partnership, corporation, trust or other entity.

10. INCLUSION OF ADDITIONAL INFORMATION.

A statement may include any additional information or explanation deemed relevant by the person filing the statement.

11. SIGNATURE.

If the statement is filed for a corporation, partnership, trust, etc., the name of the organization shall appear over the signature of the officer or other person authorized to sign the statement. If the statement is filed for an individual, it shall be signed by him or specially on his behalf by a person authorized to sign for him.

Embedded Graphic 10.0276

FORM B

INSTRUCTIONS

1. PERSONS REQUIRED TO FILE STATEMENTS.

Statements on this form are required to be filed by every person who at any time during any calendar month was directly or indirectly the beneficial owner of more than 10 percent of any class of equity security of a California stock insurance company, or a director or officer of the company which is the issuer of such securities, and who during such month had any change in his beneficial ownership of any class of equity security of such company.

2. WHEN STATEMENTS ARE TO BE FILED.

Statements are required to be filed on or before the 10th day after the end of each month in which any change in beneficial ownership has occurred. Statements are not deemed to have been filed with the Commissioner until they have actually been received by him.

3. WHERE STATEMENTS ARE TO BE FILED.

One signed copy of each statement shall be filed with the Commissioner of Insurance, 600 South Commonwealth Avenue, Los Angeles, CA 90005.

4. SEPARATE STATEMENTS FOR EACH COMPANY.

A separate statement shall be filed with respect to the securities of each company.

5. RELATIONSHIP OF REPORTING PERSON TO COMPANY.

6. TRANSACTIONS AND HOLDINGS TO BE REPORTED.

Every transaction shall be reported even though purchases and sales during the month are equal or the change involves only the nature of ownership; for example, from direct to indirect ownership. Beneficial ownership at the end of the month of all classes of securities required to be reported shall be shown even though there has been no change during the month in the ownership of securities of one or more classes.

7. TITLE OF SECURITY.

8. DATE OF TRANSACTION.

The exact date (month, day and year) of each transaction shall be stated opposite the amount involved in the transaction.

9. STATEMENT OF AMOUNTS OF SECURITIES.

In stating the amount of securities acquired, disposed of or beneficially owned, give the face amount of debt securities or the number of shares or other units of other securities. In the case of securities owned indirectly, i.e., through a partnership, corporation, trust or other entity, the entire amount of securities owned by the partnership, corporation, trust or other entity shall be stated. The person whose ownership is reported may, if he so desires, also indicate in a footnote, or other appropriate manner, the extent of his interest in the transaction or holding of the partnership, corporation, trust or other entity.

10. NATURE OF OWNERSHIP.

11. CHARACTER OF TRANSACTION.

If the transaction was with the issuer of the securities, so state. If it involved the purchase of securities through the exercise of options, so state and give the exercise price per share. If any other purchase or sale was effected otherwise than in the open market, that fact shall be indicated. If the transaction was not a purchase or sale, indicate its character; for example, gift, 5% stock dividend, etc., as the case may be. The foregoing information may be appropriately set forth in the table or under “Remarks” at the end of the table.

12. INCLUSION OF ADDITIONAL INFORMATION.

A statement may include any additional information or explanation deemed relevant by the person filing the statement.

13. SIGNATURE.

NOTE

Authority cited: Sections 1104.2, Insurance Code. Reference: Sections 1104.2-1104.8, Insurance Code.

HISTORY

1. Amendment of Forms A and B filed 11-29-79 as procedural and organizational; effective upon filing (Register 79, No. 48).

§2682.4. Ownership of More Than 10 Percent of an Equity Security.

In determining, for the purpose of Section 1104.2 whether a person is the beneficial owner, directly or indirectly, of more than 10 percent of any class of any equity security, such class shall be deemed to consist of the total amount of such class outstanding, exclusive of any securities of such class held by or for the account of the insurer or a subsidiary of the insurer; except that for the purpose of determining percentage ownership of voting trust certificates or certificates of deposit for equity securities, the class of voting trust certificates or certificates of deposit shall be deemed to consist of the amount of voting trust certificates or certificates of deposit issuable with respect to the total amount of outstanding equity securities of the class which may be deposited under the voting trust agreement or deposit agreement in question, whether or not all of such outstanding securities have been so deposited. For the purpose of this section a person acting in good faith may rely on the information contained in the latest Convention Form Statement filed with the Insurance Commissioner with respect to the amount of securities of a class outstanding; or in the case of voting trust certificates or certificates of deposit, the amount thereof issuable.

§2682.5. Disclaimer of Beneficial Ownership.

Any person filing a statement may expressly declare therein that the filing of such statement shall not be construed as an admission that such person, is for the purpose of Sections 1104.2 to 1104.8, the beneficial owner of any equity securities covered by the statement.

§2682.6. Exemptions from Section 1104.3.

(a) During the period of 12 months following their appointment and qualification, securities held by the following persons shall be exempt from Section 1104.3:

(1) Executors or administrators of the estate of a decedent;

(2) Guardians or committees for an incompetent; and

(3) Receivers, trustees in bankruptcy, assignees for the benefit of creditors, conservators, liquidating agents, and other similar persons duly authorized by law to administer the estate or assets of other persons.

(b) After the 12-month period following their appointment or qualification the foregoing persons shall be required to file reports with respect to the securities held by the estate which they administer under Section 1104.2 and shall be liable for profits realized from trading in such securities pursuant to Section 1104.3 only when the estate being administered is a beneficial owner of more than 10 percent of any class of equity security of an insurer subject to Sections 1104.2 to 1104.8.

(c) Securities re-acquired by or for the account of an insurer and held by it for its account shall be exempt from Section 1104.3 during the time they are held by the insurer.

§2682.7. Exemption of Securities Purchased or Sold by Odd-Lot Dealers.

Securities purchased or sold by an odd-lot dealer (1) in odd lots so far as reasonably necessary to carry on odd-lot transactions or (2) in round lots to offset odd-lot transactions previously or simultaneously executed or reasonably anticipated in the usual course of business, shall be exempt from Section 1104.3 with respect to participation by such odd-lot dealer in such transactions.

§2682.8. Transferable Options, Puts, Calls, Spreads and Straddles.

The acquisition or disposition of any transferable option, put, call, spread or straddle shall be deemed such a change in the beneficial ownership of the security to which such privilege relates as to be included in the requirement for the filing of a statement reflecting the acquisition or disposition of such privilege set forth in Section 2682.3 hereof. Nothing in this section, however, shall exempt any person from filing the statements required upon the exercise of such option, put, call, spread or straddle.

§2682.9. Ownership of Securities Held in Trust.

(a) Beneficial ownership of a security shall include:

(1) the ownership of securities as a trustee where either the trustee or member of his immediate family have a vested interest in the income or corpus of the trust.

(2) the ownership of a vested beneficial interest in trust, and

(3) the ownership of securities as a settlor of a trust in which the settlor has the power to revoke the trust without obtaining the consent of all the beneficiaries.

(b) Except as provided in paragraph (c) hereof, beneficial ownership of securities solely as a settlor or beneficiary of a trust shall be exempt from the provisions of Section 1104.3 where less than twenty percent in market value of the securities having a readily ascertainable market value by such trust, determined as of the end of the preceding fiscal year of the trust, consists of equity securities with respect to which reports would otherwise be required. Exemption is likewise accorded from Section 1104.3 with respect to any obligation which would otherwise be imposed solely by reason of ownership as settlor or beneficiary of securities held in trust, where the ownership, acquisition, or disposition of such securities by the trust is made without prior approval by the settlor or beneficiary. No exemption pursuant to this subsection shall, however, be acquired or lost solely as a result of changes in the value of the trust assets during any fiscal year or during any time when there is no transaction by the trust in the securities otherwise subject to the reporting requirements of Section 1104.2.

(c) In the event that 10 percent of any class of any equity security of an insurer is held in trust, that trust and the trustees thereof as such shall be deemed a person required to file the reports required by Section 1104.2, and on the forms prescribed by Section 2682.3 hereof, and transactions therein shall be subject to Section 1104.3.

(d) The forms of statements prescribed by Section 2682.3 hereof do not require that more than one report be filed to report any holdings or with respect to any transaction in securities held by a trust, regardless of the number of officers, directors or ten percent stockholders who are either trustees, settlors, or beneficiaries of a trust, provided that the report filed shall disclose the names of all trustees, settlors and beneficiaries who are officers, directors or 10 percent stockholders. A person having an interest only as a beneficiary of a trust shall not be required to file any such report so long as he relies in good faith upon an understanding that the trustee of such trust will file whatever reports might otherwise be required of such beneficiary.

(e) As used in this section the “immediate family” of a trustee means:

(1) a son or daughter of the trustee, or a descendant of either.

(2) a stepson or stepdaughter of the trustee.

(3) the father or mother of the trustee, or an ancestor or either,

(4) a stepfather or stepmother of the trustee.

(5) a spouse of the trustee.

For the purpose of determining whether any of the foregoing relations exists, a legally adopted child of a person shall be considered a child of such person by blood.

(f) In determining, for the purposes of the statements prescribed by Section 2682.3 hereof, whether a person is the beneficial owner, directly or indirectly, of more than 10 percent of any class of any equity security, the interest of such person in the remainder of a trust shall be excluded from the computation.

(g) No person shall be subject to Section 1104.3, whether or not he is otherwise subject to the reporting requirements of Section 1104.2, with respect to his indirect interest in portfolio securities held by:

(1) a pension or retirement plan holding securities of an insurer whose employees generally are the beneficiaries of the plan,

(2) a business trust with over 25 beneficiaries.

(h) Nothing in this section shall be deemed to impose any duties or liabilities with respect to any transaction or holding prior to its effective date.

§2682.10. Exemptions for Small Transactions.

(a) Any acquisition of securities shall be exempt from Section 1104.3 where

(1) The person effecting the acquisition does not within six months thereafter effect any disposition, otherwise than by way of gift, of securities of the same class, and

(2) The person effecting such acquisition does not participate in acquisitions or in dispositions of securities of the same class having a total market value in excess of $3,000 for any six months' period during which the acquisition occurs.

(b) any acquisition or disposition of securities by way of gift, where the total amount of such gifts does not exceed $3,000 in market value for any six months' period, shall be exempt from Section 1104.3 and may be excluded from the computations prescribed in paragraph (a) (2).

(c) Any person exempted by paragraph (a) or (b) of this section shall include in the first report otherwise required by Section 1104.2 to be filed by him on the form of statement prescribed by Section 2682.3 hereof, which report is filed after a transaction within the exemption, a statement showing his acquisitions and dispositions for each six month period or portion thereof which has elapsed since his last filing.

§2682.11. Exemption from Section 1104.2 of Certain Transactions Exempted from Section 1104.3.

Any transaction which has been or shall be exempted by the foregoing sections hereof from Section 1104.3 shall, insofar as it is otherwise subject to the requirements of Section 1104.2, be likewise exempted from Section 1104.2.

§2682.12. Exemption from Section 1104.3 of Certain Transactions Effected in Connection with Distribution.

(a) Any transaction of purchase and sale, or sale and purchase, of a security which is effected in connection with the distribution of a substantial block of securities shall be exempt from the provisions of Section 1104.3 to the extent specified in this section as not comprehended within the purpose of said section, upon the following conditions:

(1) The person effecting the transaction is engaged in the business of distributing securities and is participating in good faith, in the ordinary course of such business, in the distribution of such block of securities;

(2) The security involved in the transaction is

(A) a part of such block of securities and is acquired by the person effecting the transaction, with a view to the distribution thereof, from the insurer or other person on whose behalf such securities are being distributed or from a person who is participating in good faith in the distribution of such block of securities or

(B) a security purchased in good faith by or for the account of the person effecting the transaction for the purpose of stabilizing the market price of securities of the class being distributed or to cover an over-allotment or other short position created in connection with such distribution; and

(3) Other persons not within the purview of Section 1104.3 are participating in the distribution of such block of securities on terms at least as favorable as those on which such person is participating and to an extent at least equal to the aggregate participation of all persons exempted from the provisions of Section 1104.3 by this section. However, the performance of the functions of manager of a distributing group and the receipt of a bona fide payment for performing such functions shall not preclude an exemption which would otherwise be available under this section.

(b) The exemption of a transaction pursuant to this section with respect to the participation therein of one party thereto shall not render such transaction exempt with respect to participation of any other party therein unless such other party also meets these conditions of this section.

§2682.13. Exemption from Section 1104.3 of Acquisitions of Shares of Stock and Stock Options Under Certain Stock Bonus, Stock Option of Similar Plans.

Any acquisition of shares of stock (other than stock acquired upon the exercise of an option, warrant or right) pursuant to a stock bonus, profit sharing, retirement, incentive, thrift, savings or similar plan, or any acquisition of a qualified or a restricted stock option pursuant to a qualified or a restricted stock option plan, or a stock option pursuant to an employee stock purchase plan, by a director or officer of an insurer issuing such stock or stock option shall be exempt from operation of Section 1104.3 if the plan meets the following conditions:

(a) The plan has been approved, directly or indirectly,

(1) by the affirmative votes of the holders of a majority of the securities of such insurer present, or represented, and entitled to a vote at a meeting duly held in accordance with the applicable laws of this State, or

(2) by the written consent of the holders of a majority of the securities of such insurer entitled to vote: provided, however, that if such vote or written consent was not solicited substantially in accordance with the proxy rules and regulations prescribed by Article 1, Subchapter 5, Chapter 5, of Title 10 of the California Administrative Code commencing at Section 2680.1, in effect at the time of such vote or written consent, the insurer shall furnish in writing to the holders of record of the securities entitled to vote for the plan substantially the same information concerning the plan which would be required by said Article as in effect at the time such information is furnished, if proxies to be voted with respect to the approval or disapproval of the plan were then being solicited, on or prior to the date of the first annual meeting of security holders held subsequent to the later of

(a) the date Sections 1104.2 to 1104.8 first apply to such insurer, or

(b) the acquisition of an equity security for which exemption is claimed. Such written information may be furnished by mail to the last known address of the security holders of record within 30 days prior to the date of mailing. Four copies of such written information shall be filed with, or mailed for filing to, the Insurance Commissioner not later than the date on which it is first sent or given to security holders of the insurer. For the purposes of this paragraph, the term “insurer” includes a predecessor corporation if the plan or obligations to participate thereunder were assumed by the insurer in connection with the succession.

(b) If the selection of any director or officer of the insurer to whom stock may be allocated or to whom qualified, restricted or employee stock purchase plan stock options may be granted pursuant to the plan, or the determination of the number or maximum number of shares of stock which may be allocated to any such director or officer or which may be covered by qualified, restricted or employee stock purchase plan stock options granted to any such director or officer, is subject to the discretion of any person, then such discretion shall be exercised only as follows:

(1) With respect to the participation of directors--

(A) by the board of directors of the insurer, a majority of which board and a majority of the directors acting in the matter are disinterested persons;

(B) by, or only in accordance with the recommendations of a committee of three or more persons having full authority to act in the matter, all of the members of which committee are disinterested persons; or

(i) specifies the number or maximum number of shares of stock which directors may acquire or which may be subject to qualified, restricted or employee stock purchase plan stock options granted to directors and the terms upon which, and the times at which, or the periods within which, such stock may be acquired and exercised; or

(ii) sets forth, by formula or otherwise, effective and determinable limitations with respect to the foregoing based upon earnings of the insurer, dividends paid, compensation received by participants, option prices, market value of shares, outstanding shares or percentages thereof outstanding from time to time, or similar factors.

(2) With respect to the participation of officers who are not directors--

(a) by the board of directors of the insurer or a committee of three or more directors; or

(b) by, or only in accordance with the recommendations of, a committee of three or more persons having full authority to act in the matter, all of the members of which committee are disinterested persons.

For the purpose of this paragraph, a director or committee member shall be deemed to be a disinterested person only if such person is not at the time such discretion is exercised eligible and has not at any time within one year prior thereto been eligible for selection as a person to whom stock may be allocated or to whom qualified, restricted or employee stock purchase plan stock options may be granted pursuant to the plan or any other plan of the insurer of any of its affiliates entitling the participants therein to acquire stock or qualified, restricted or employee stock purchase plan stock options of the insurer or any of its affiliates.

(3) The provisions of this paragraph shall not apply with respect to any option granted, or other equity security acquired, prior to the date that Sections 1104.2, 1104.3 and 1104.4 first became applicable with respect to any class of equity securities of any insurer.

(c) As to each participant or as to all participants the plan effectively limits the aggregate dollar amount or the aggregate number of shares of stock which may be allocated, or which may be subject to qualified, restricted, or employee stock purchase plan stock options granted, pursuant to the plan. The limitations may be established on an annual basis, or for the duration of the plan, whether or not the plan has a fixed termination date; and may be determined either by fixed or maximum dollar amounts or fixed or maximum numbers of shares or by formulas based upon earnings of the insurer, dividends paid, compensation received by participants, option prices, market value of shares, outstanding shares or percentages thereof outstanding from time to time, or similar factors which will result in an effective and determinable limitation. Such limitations may be subject to any provisions for adjustment of the plan or of stock allocable or options outstanding thereunder to prevent dilution or enlargement of rights.

(d) Unless the context otherwise requires, all terms used in this section shall have the same meaning as in Sections 1104.2 to 1104.8 or elsewhere in these regulations. In addition, the following definitions apply:

(1) The term “plan” includes any plan, whether or not set forth in any formal written document or documents and whether or not approved in its entirely at one time.

(2) The definition of the terms “qualified stock option” and “employee stock purchase plan” that are set forth in Sections 422 and 423 of the Internal Revenue Code of 1954, as amended, are to be applied to those terms where used in this section. The term “restricted stock option” as defined in Section 424 (b) of the Internal Revenue Code of 1954, as amended, shall be applied to that term as used in this section, provided, however, that for the purposes of this section an option which meets all of the conditions of that section, other than the date of issuance shall be deemed to be a “restricted stock option.”

§2682.14. Exemption from Section 1104.3 of Certain Transactions in Which Securities Are Received by Redeeming Other Securities.

Any acquisition of an equity security (other than a convertible security or right to purchase a security) by a director or officer of the insurer issuing such security shall be exempt from the operation of Section 1104.3 upon condition that

(a) the equity security is acquired by way of redemption of another security of an insurer substantially all of whose assets other than cash (or Government bonds) consist of securities of the insurer issuing the equity security so acquired and which

(1) represented substantially and in practical effect a stated or readily ascertainable amount of such equity security,

(2) had a value which was substantially determined by the value of such equity security, and

(3) conferred upon the holder the right to receive such equity security without the payment of any consideration other than the security redeemed.

(b) no security of the same class as the security redeemed was acquired by the director or officer within six months prior to such redemption;

(c) the insurer issuing the equity security acquired has recognized the applicability of paragraph (a) of this section by appropriate corporate action.

§2682.15. Exemption of Long Term Profits Incident to Sales Within Six Months of the Exercise of an Option.

(a) To the extent specified in paragraph (b) of this section, there is hereby exempted, as not comprehended within the purposes of Section 1104.3 any transaction or transactions involving the purchase and sale, or sale and purchase, of any equity security where such purchase is pursuant to the exercise of an option or similar right either

(1) acquired more than six months before its exercise, or

(2) acquired pursuant to the terms of an employment contract entered into more than six months before its exercise.

(b) In respect of transactions specified in paragraph (a) the profits inuring to the insurer shall not exceed the difference between the proceeds of sale and the lowest market price of any security of the same class within six months before or after the date of the sale. Nothing in this section shall be deemed to enlarge the amount of profit which would inure to such insurer in the absence of this section.

(c) There is also exempted, as not comprehended within the purposes of Section 1104.3, the disposition of a security, purchased in a transaction specified in paragraph (a) of this section, pursuant to a plan or agreement for merger or consolidation, or reclassification of the insurer's securities, or for the exchange of its securities for the securities of another person which has acquired its assets, or which is in control, as defined in Section 368 (c) of the Internal Revenue Code of 1954, of a person which has acquired its assets, where the terms of such plan or agreement are binding upon all stockholders of the insurer except to the extent that dissenting stockholders may be entitled, under statutory provisions contained in the certificate of incorporation, to receive the appraised or fair value of their holdings.

(d) The exemptions proved by this section shall not apply to any transaction made unlawful by Section 1104.4 or by any rules and regulations thereunder.

(e) The burden of establishing market price of a security for the purpose of this section shall rest upon the person claiming the exemption.

§2682.16. Exemptions from Section 1104.3 of Certain Acquisitions and Dispositions of Securities Pursuant to Merger or Consolidation.

(a) The following transactions shall be exempt from the provisions of Section 1104.3 as not comprehended within the purpose of said Section:

(1) the acquisition of a security of an insurer, pursuant to a merger or consolidation, in exchange for a security of a company which, prior to said merger or consolidation, owned 85 percent or more of the equity securities of all other companies involved in the merger or consolidation except, in the case of consolidation, the resulting company;

(2) The disposition of a security, pursuant to a merger or consolidation of an insurer which, prior to said merger or consolidation, owned 85 percent or more of the equity securities of all other companies involved in the merger of consolidation except, in the case of consolidation, the resulting company;

(3) The acquisition of a security of an insurer, pursuant to a merger or consolidation, in exchange for a security of a company which, prior to said merger or consolidation, held over 85 percent of the combined assets of all the companies undergoing merger or consolidations, computed according to their book values prior to the merger or consolidation as determined by reference to their most recent available financial statements for a 12-month period prior to the merger or consolidation.

(4) The disposition of a security, pursuant to a merger or consolidation, of an insurer which, prior to said merger or consolidation, held over 85 percent of the combined assets of all the companies undergoing merger or consolidation, computed according to their book values prior to merger or consolidation, as determined by reference to their most recent available financial statements for a 12-month period prior to the merger or consolidation.

(b) A merger within the meaning of this section shall include the sale or purchase of substantially all the assets of one insurer by another in exchange for stock which is then distributed to the security holders of the insurer which sold its assets.

(c) Not withstanding the foregoing, if an officer or stockholder shall make any purchase (other than a purchase exempted by this section) of a security in any company involved in the merger or consolidation and any sale (other than a sale exempted by this section) of a security in any other company involved in the merger or consolidation within any period of less than six months during which the merger or consolidation took place, the exemption provided by this section shall be unavailable to such officer, director, or stockholder.

§2682.17. Exemption from Section 1104.3 of Certain Securities Received upon Surrender of Similar Equity Securities.

Any receipt by a person from an insurer of shares of stock of a class having general voting power, upon the surrender by such person of an equal number of shares of stock of the insurer of a class which does not have general voting power pursuant to provisions of the insurer's certificate of incorporation, for the purpose of and accompanied simultaneously or followed immediately by the sale of the shares so received, shall be exempt from the operation of Section 1104.3 as a transaction not comprehended within the purpose of said section, if the following conditions exist:

(a) The person so receiving such shares is not an officer or director, or the beneficial owner, directly or indirectly, immediately prior to such receipt, of more than 10 percent of an equity security of the insurer;

(b) The shares surrendered and the shares issued upon such surrender shall be classes which are freely transferable and entitle the holders thereof to participate equally per share in all distribution of earnings and assets;

(c) The surrender and issuance are made pursuant to provisions of a certificate of incorporation which require that the shares issued upon such surrender shall be registered upon issuance in the name of a person or persons other than the holder of the shares surrendered and may be required to be issued as of right only in connection with the public offering, sale and distribution of such shares and the immediate sale by such holder of such shares for that purpose, or in connection with a gift of such shares.

(d) Neither the shares so surrendered nor any shares of the same class, nor other shares of the same class as those issued upon such surrender, have been or are purchased (otherwise than in a transaction exempted by this section), by the person surrendering such shares, within six months before or after such surrender or issuance.

§2682.18. Exemption from Section 1104.3 of Certain Transactions Involving an Exchange of Similar Securities.

Any acquisition or disposition of securities made in an exchange of shares of a class (or series thereof) of stock of an insurer for an equivalent number of shares of another class (or series thereof) of stock of the same insurer, pursuant to a right of conversion under the terms of the insurer's charter or other governing instruments shall be exempt from the operation of Section 1104.3 if--

(1) The shares surrendered and those acquired in exchange therefor evidence substantially the same rights and privileges except that, pursuant to the provisions of the insurer's charter of other governing instruments, the board of directors may declare and pay a lesser dividend per share on shares of the class surrendered than on shares of the class acquired in exchange therefor, or may declare and pay no dividend on shares of the class surrendered; and

(2) The transaction was effected in contemplation of a public sale of the shares acquired in the exchange; provided that this section shall not be construed to exempt from the operation of Section 1104.3 any purchase or sale of shares of the class surrendered and any sale or purchase of shares of the class acquired in the exchange (otherwise than in the transaction of exchange exempted by this section) within a period of less than six months.

§2682.19. Exemption of Certain Transactions by a Dealer in Securities in Which He Has No Interest.

Transactions in any security shall be exempt from the operation of Section 1104.4 to the extent necessary to render lawful under such section the execution by a broker of an order for an account in which he has no direct or indirect interest.

§2682.20. Exemption from Section 1104.4 of Certain Transactions Effected in Connection with a Distribution.

Any security shall be exempt from the operation of Section 1104.4 to the extent necessary to render lawful under such section any sale made by or on behalf of a dealer in connection with a distribution of a substantial block of securities, upon the following conditions:

(a) The sale is represented by an over-allotment in which the dealer is participating as a member of an underwriting group, or the dealer or a person acting on his behalf intends in good faith to offset such sale with a security to be acquired by or on behalf of the dealer as a participant in an underwriting, selling or soliciting-dealer group of which the dealer is a member at the time of the sale, whether or not the security to be so acquired is subject to a prior offering to existing security holders or some other class of persons; and

(b) Other persons not within the purview of Section 1104.4 are participating in the distribution of such block of securities on terms at least as favorable as those on which such dealer is participating and to an extent at least equal to the aggregate participation of all persons exempted from the provisions of Section 1104.4 by this section. However, the performance of the functions of manager of a distributing group and the receipt of a bona fide payment for performing such functions shall not preclude an exemption which would otherwise be available under this section.

§2682.21. Exemption from Section 1104.4 of Sales of Securities to be Acquired.

(a) Whenever any person is entitled, as an incident to his ownership of an issued security and without the payment of consideration, to receive another security “when issued” or “when distributed,” the security to be acquired shall be exempt from the operation of Section 1104.4. provided that:

(1) the sale is made subject to the same conditions as those attaching to the right of acquisition, and

(2) such person exercises reasonable diligence to deliver such security to the purchaser promptly after his right of acquisition matures, and

(3) such person reports the sale on the appropriate form for reporting transactions by persons subject to Section 1104.2.

(b) This section shall not be construed as exempting transactions involving a sale of a security “when issued” or “when distributed” and a sale of the security by virtue of which the seller expects to receive the “when-issued” or “when-distributed” security, if the two transactions combined result in a sale of more units than the aggregate of those owned by the seller plus those to be received by him pursuant to his right of acquisition.

§2682.22. Arbitrage Transactions Under Section 2682.7.

It shall be unlawful for any director or officer of an insurer to effect any foreign or domestic arbitrage transaction in any equity security of such insurer, unless he shall include such transaction in the statements required by Section 1104.2 and shall account to such insurer for the profits arising from such transaction, as provided in Section 1104.3. The provisions of Section 1104.4 shall not apply to such arbitrage transactions. The provisions of Section 1104.2 to 1104.8 shall not apply to any bona fide foreign or domestic arbitrage transaction insofar as it is effected by any person other than such director or officer of the insurer.

Article 3. Insurance Holding Company Systems--Reporting and Disclosure Forms

§2683. Authority.

Note • History

These regulations are promulgated pursuant to the authority granted the Insurance Commissioner by the Insurance Holding Company System Regulatory Act (sometimes referred to herein as “the Act,” “said Act” or “said Article 4.7”), Chapter 1275, Statutes of 1969, now Insurance Code Sections 1215 through 1215.14, which becomes effective November 10, 1969. Reference herein to said Act are to the same as it now exists or may hereafter be amended.

NOTE

Authority cited for Article 3 (Sections 2683 through 2683.15): Sec. 1215.8 Insurance Code.

HISTORY

1. New Article 3 (Sections 2683 through 2683.15) filed 12-18-9 as an emergency; designated effective 12-22-69 (Register 69, No. 15).

2. Certificate of Compliance --Sec. 11422.1, Gov. C. filed 3-20-70 (Register 70, No. 12).

3. Amendment of Article 3 (Sections 2683 through 2683.23) filed 3-20-70; effective thirtieth day thereafter (Register 70, No. 12).

§2683.1. Purpose.

The purpose of these regulations are: to set forth rules and procedural requirements which the Commissioner deems necessary to carry out the provisions of the Act. The information called for by these regulations is hereby declared to be necessary and appropriate in the public interest and for the protection of policy holders and shareholders in this State. These regulations shall not curtail or contravene any statute.

§2683.2. Severability Clause.

If any provisions of these regulations, or the application thereof to any person or circumstances, is held invalid, such invalidity shall not affect other provisions or applications of these regulations which can be given effect without the invalid provision or application, and to that end the provisions of these regulations are severable.

§2683.3. Reporting to Be in English Language; Financial Statements in U.S. of A. Dollars and Cents.

The forms and any exhibits filed pursuant to these regulations shall be in the English language. Any exhibit submitted in a foreign language shall be accompanied by an accurate translation into English. Monetary value shown on all forms and exhibits shall be stated in dollars and cents of the United States of America monetary system.

§2683.4. Definitions.

(a) “Executive officer” means any individual charged with active management and control in an executive capacity (including a president, vice president, treasurer, secretary, controller, or other individual performing like functions) of the person registering, reporting or filing under these regulations, whether such reporting person is incorporated or unincorporated.

(b) “Ultimate controlling person” means that controlling person within an insurance holding company system, which controlling person is not controlled by any other person.

(c) Unless the context otherwise requires, other terms found in these regulations and in Section 1215 of the Insurance Code are used as defined in last said section. Other nomenclature or terminology is according to the Insurance Code, or industry usage if not defined by the Code.

§2683.5. Letter of Transmittal.

Each form or amendment filed pursuant to these regulations shall be accompanied by a letter of transmittal which letter shall include a statement of the name, title, address and telephone number of the individual to whom communications concerning the paper filed should be addressed.

§2683.6. Forms--In General.

(a) The forms set forth in these regulations are intended as a guide in determining and preparing the information to be supplied and the order in which it is to be listed.

(b) Any form set forth in these regulations may be reproduced at the user's discretion so as to provide additional space after item as may be needed for entry of information thereon. Information that is capable of being stated briefly may be filled out on the form. Other required information which must be specially prepared should be presented on separate exhibits identified and referred to in the appropriate place or places on the form being filed. Such a specially prepared exhibit need not repeat the language of the item on the form in response to which it is supplied, but the exhibit should be captioned with reference to the form, the numbered item on the form and the nature of the information contained in the exhibit.

(c) Papers filed shall normally be limited to 8 1/2” x 13” in size and preferably bound at the top. National Association of Insurance Commissioners convention form annual statements may be furnished in their full size, but any such applicable current statements already on file may be incorporated by reference. The instructions contained in subdivision (b) of this section pertaining to special exhibits likewise apply. Each such completed filing shall either be captioned with reference to the appropriate Department form or shall otherwise be clearly labeled as to its nature.

(d) Every filing, report, or request made pursuant to these regulations shall state on the face page thereof the names and addresses of all persons on whose behalf the same is made and filed.

§2683.7. Incorporation by Reference.

(a) Except as otherwise provided in this section, a person making any report, request, or filing required by the Act may incorporate therein by reference any required then current appropriate information already on file with the Commissioner, or any diagram or chart previously filed. In such event, the person filing shall cause the paper filed to identify the report, statement, document, instrument, diagram, chart or other paper to which reference is made, the approximate date it was filed with the Commissioner, and the page or pages thereof wherein is shown the information incorporated by reference.

(b) Subdivision (a) above shall not apply to the Information Statement and accompanying papers (see Form A) reburied by Insurance Code Section 1215.2 of the Act and these regulations in connection with a tender offer, an offer of acquisition and the like. Such Information Statements shall be complete in themselves.

(c) Whenever any action authorized to be taken by the commissioner under said Act may be done only after notice and hearing, all information required by the Act and these regulations to be filed in connection with such action by the Commissioner shall be provided in full without incorporation by reference.

(d) In the event that a finding or determination or any action made or taken by the Commissioner pursuant to the Act appears to be the probable subject of judicial review, the admitted insurer or person making the filing on the basis of which such finding or determination was made or such action is to be taken shall, at the Commissioner's request, file the required information in full without incorporation by reference.

§2683.8. Who Must Register.

Except as in this section otherwise provided, the following described admitted insurers are required to register pursuant to Section 1215.4 of the Act and these regulations, and to maintain their registration in a current state:

(a) Every admitted domestic insurer which is a member of an insurance holding company system, i.e., generally one which owns or controls one or more subsidiaries (insurers or not), or is owned or controlled by, or is under common control with, another person; and

(b) Every admitted foreign insurer which is a member of an insurance holding company system and whose domiciliary state does not have statutory or regulatory disclosure requirements and standards substantially similar to those contained in Section 1215.4 of the Insurance Code.

§2683.9. Special Provisions for Individual Person Affiliates.

(a) An individual person who directly or indirectly owns or exercises voting control or more than ten percent of the voting securities of any member of an insurance holding company system may either:

(1) File a disclaimer in conformity with Insurance Code Section 1215.4 (i) and these regulations, if in fact such individual person's ownership of securities or exercise of voting power does not in the particular case result in effective control of the other member; or

(2) If such a person's ownership of securities or exercise of voting power does in fact result in control of the other member, such individual may file an abbreviated registration statement as hereinafter provided in this section.

(b) An individual person who, according to law (Insurance Code Section 1215 (a), (b), (c) and (d)), is a member of an insurance holding company system shall be required to register pursuant to Section 1215.4 (a) of the Insurance Code under the same circumstances as other “persons” are. Such an individual need file only the following in his registration statement, certified under penalty of perjury as being true and correct in relation to all matters which are or reasonably should be within his personal knowledge, and true and correct according to his information and belief (stating the source of his information) as to any other matters:

(1) The name and address of the other member or members of the insurance holding company system whose securities he owns or has the authority to vote, and the amount or number of each kind of voting securities (describing the same) which he holds or votes, and the approximate percentage of the insurer's outstanding voting securities which his holdings, including shares he is authorized to vote, represent;

(2) When and from whom such voting authority (e.g., proxies) and/or shares were acquired, whether such shares were acquired at the then market price, and whether they are presently hypothecated;

(3) Whether the registrant (individual) is under contract to or has an understanding with any other person to vote any of such shares as directed by such other person;

(4) Registrant's own name, address, and the names and addresses of all insurers with whom he is now or has been affiliated, employed by, or served as officer or director of during the ten years last preceding;

(5) Whether registrant has been convicted, or had sentence imposed, suspended, or been pardoned for conviction of, or pleaded guilty to or nolo contendere to, an information or indictment charging a felon for any of the following: theft or larceny; mail fraud; violation of any state or federal corporate securities law or insurance law; also, whether he has been the subject of a cease and desist order by any state or federal securities regulatory agency. In any instance where the answer is affirmative, identify the court or agency, nature of the action or proceeding, give case or file number, the place, date, and summarize the facts, including final disposition;

(6) Whether affiant has been an officer, director, trustee, general manager, investment committee member or controlling stockholder of an insurer which, while he occupied such position or within one year thereafter, was taken into conservatorship, declared insolvent; or while he occupied such position was enjoined from violating or ordered to cease and desist from violating any securities or insurance law, or whose license or certificate of authority as an insurer was revoked or suspended for a like cause.If any answer is affirmative, explain fully, giving names, places, dates, circumstances and ultimate disposition.

(7) Such other information as the Commissioner may reasonably deem necessary.

(c) Except as above set forth the requirements of Insurance Code Section 1215.4 (b) are deemed inapplicable to individual person affiliates as not comprehended within the purpose of said Section 1215.4.

§2683.10. When to Register.

Every insurer subject to registration pursuant to Insurance Code Section 1215.4 shall register within 15 days after it becomes subject to these requirements, unless the Commissioner for good cause shown extends the time for registration.

§2683.11. Where and How to File Registration Statement.

(a) Each registration statement and accompanying exhibits filed pursuant to the Act and these regulations may be filed by delivering or mailing a single copy to the Insurance Commissioner of the State of California, Attention of Company Information and Analysis Division, at the Commissioner's office in San Francisco, California.

(b) The information supplied shall be current according to the company's (or the individual's, as appropriate) most recent records. Where underwriting information and surplus condition is not reflected in the latest quarterly statement, an accurate interpolation may be used. Indicate figures arrived at by interpolation.)

§2683.12. Consolidated Registrations.

Two or more affiliated insurers subject to registration under the Act may, unless the Commissioner directs otherwise, file a consolidated registration statement and consolidated supplements or reports amending their consolidated registration or their individual registration statement. In any such case the statement or supplement filed shall clearly identify all constituents or affiliates, and the Commissioner may require a separate statement of the assets and liabilities of each.

§2683.13. Substituted Registration.

When two or more admitted insurers of an insurance holding company system are subject to registration under said Act, and one of them is organized under the laws of this State, the domestic insurer may, if a consolidated registration is not made, file its own registration statement and that of any of its affiliates subject to registration hereunder.

§2683.14. Notification by Foreign Insurer of Registration In Its State of Domicile; Discontinance.

(a) If the state of domicile of an admitted insurer subject to Section 2683.8 (b) applies statutory or regulatory registration and disclosure requirements substantially similar to those of this State, and such insurer files its initial registration statement in accordance with its domiciliary state's requirements, or such registration statement has been filed on its behalf, the insurer shall notify the Commissioner in writing of such fact and of the date such filing was made, by whom, and where. Said communication may contain a statement to the effect that the insurer by virtue of such filing considers itself not subject to California Insurance Code Section 1215.4 (a).

(b) Whenever any admitted former member of an insurance holding company system ceases to be a member thereof, it shall promptly notify the Commissioner.

§2683.15. Registration Statements of Nonadmitted Members of a Holding Company System.

In the event the Commissioner requires copies of the registration statements or other information filed by members of a holding company system with their domiciliary insurance regulatory authorities, which members are not prima facie subject to registration under Insurance Code Section 1215.4 (a), such copies shall be provided and filed by an admitted insurer of the system. Said copies may be conformed copies but shall be certified to by an executive officer of the filing (admitted) insurer as being a full, true and correct copy of the registration statement or other information filed with the aforementioned domiciliary insurance regulatory authority or authorities.

§2683.16. Annual Supplements and Reporting of Material Changes; Dividends.

(a) Annual supplements to its original registration or a complete new registration statement (as the filing registrant may find more suitable or convenient) shall be filed by or on behalf of each registrant subject to these registration provisions within 120 days after the end of the filing registrant's fiscal year. Such supplement shall report any material changes in the information required to be shown in a registration statement hereunder, which changes are not clearly reflected in the insurer's annual statement filed each March 1st with the Commissioner.

(b) Each registrant shall keep current the information required to be shown in its original registration statement by reporting all material changes or additions. Such amendments, consecutively numbered, shall be filed within 15 days after the end of the calendar month in which the registrant learns of each such material change or addition.

(c) Notwithstanding the foregoing, each registrant shall report on all dividends (including regular dividends) and other distributions to shareholders promptly upon the declaration thereof. (But see Section 2683.23 (b), infra.)

§2683.17. Registration--How and When Terminated.

Ten days after receipt by the Commissioner, absent notice to the contrary, of a written verified statement which may be in letter form, containing satisfactory proof that a registrant is no longer a member of an insurance holding company system, such registrant's registration shall be deemed terminated and it shall no longer be subject to the obligations of registering and keeping current its registration hereunder, unless and until it again becomes subject to registration under said Act.

§2683.18. Information Statement--Offer of Acquisition.

(a) No tender offer for, or request or invitation for tenders of, and no agreement shall be made to exchange securities for, or to acquire in the open market, any voting security or any security convertible into a voting security of a domestic insurer or of any other person controlling a domestic insurer under the circumstances described in (1) and (2) of this subdivision, unless the conditions set forth in subdivision (b) of this section are complied with.

(1) The circumstances alluded to in (a) above are that as a result of the consummation of such offer, the Offeror would directly or indirectly acquire control of the domestic insurer; and

(2) The “other person” controlling the domestic insurer whom the offer will affect is not substantially engaged in non-insurance businesses either directly or through its affiliates.

(b) No offer, request, initiation or agreement described in (a) of this section shall be made or entered into unless, at the time such is done, the following conditions are met:

(1) Not later than the date when copies of the offer of purchase or request or invitation are first published or sent or given to holders of the securities sought to be obtained, or the agreement or transaction is entered into, the Offeror shall file with the Commissioner and shall have transmitted to the said domestic insurer a statement containing the information specified by Form A hereinafter set forth in these regulations.

(c) Copies of any additional material soliciting or requesting such tender offers subsequent to the original solicitation on request, and copies of any amendments to any such agreement changing any of the information therein required shall be filed in complete up-to-date form and content with the Commissioner and sent to such insurer not later than the time copies of such material are first published or sent or given to security holders or immediately after such amendment is entered into.

(d) If the offer, invitation or agreement described therein is proposed to be made by means of a registration statement under the Federal Securities Act of 1933, or in circumstances requiring the disclosure of similar and equivalent information under the Securities Exchange Act of 1934, or under a state law requiring similar registration or equivalent disclosure, the Offeror (or person required by Insurance Code Section 1215.2 (a) to file this statement) may file that registration statement with the Commissioner in lieu of this Information Statement and may send or give the same to the security holders being solicited in this State in full satisfaction of the requirements hereof. The burden is on any Offeror (or other person so required to file) relying on a disclosure pursuant to a state law to show that the disclosure requirements under it are similar and equivalent to those of the California law.

(e) If the person required to file this statement is a partnership, limited partnership, syndicate or other group, the information called for in Items II, III, IV, V, VII, and VIII hereinafter shall be furnished with respect to: (a) each partner ; (b) each member of such syndicate or group; and (c) each person who controls such partner or member (control of more than ten percent of its outstanding voting securities, by proxy or otherwise, results in “control” of such a person).

(f) If a person referred to in subdivision (e) above is a corporation, the information called for by said Paragraphs II, III, IV, V, VII, and VIII hereinafter shall be furnished to the extent applicable with respect to such corporation and each officer and director of such corporation and each person who is directly or indirectly the beneficial owner of more than ten percent of the outstanding voting securities of such corporation.

(g) No transaction shall be consummated until the Commissioner either approves the same within 60 days after the Information Statement herein required shall have been filed with him, or until he fails to disapprove same within such 60-day period. Grounds for disapproval are as prescribed by statute. Any disapproval shall be in writing stating the reasons therefore.

§2683.19. Extraordinary Dividends and Distributions.

(a) Requests pursuant to the provisions of Insurance Code Section 1215.5 (c) for approval of extraordinary dividends or extraordinary distributions (hereinafter in this Section referred to as “dividend(s)”) to stockholders shall include the following:

(1) The amount and date established for payment thereof;

(2) A statement whether payment is to be in cash or property, and if in property, the fair market value of that property, and an explanation of the valuation basis.

(3) The amounts and dates of all dividends (including regular dividends) paid within the period of 12 consecutive months ending on the date fixed for payment of the proposed dividend for which approval is sought and commencing on the day after the same day of the same month in the last preceding year.

(4) A balance sheet and statement of income for the period intervening between the end of the year covered in the last annual statement filed with the Commissioner and the end of the last calendar quarter prior to the date on which the request for approval is filed with him, plus such additional financial information, if any, as the Commissioner may require.

(5) A brief statement as to the effect of the proposed dividend upon the insurer's surplus and reasonableness of its remaining surplus in relationship to its outstanding liabilities, and upon the adequacy of its remaining surplus in relationship to its financial needs.

(b) The payment of an extraordinary dividend, as defined in Insurance Code Section 1215.5 (c), by a company which is qualified according to Section 1215.1 (b) (2) ibid., both before and after payment thereof is deemed automatically approved. The registrant shall give written notice (by letter) to the Commissioner of the declaration thereof, pursuant to Section 1215.4 (d) ibid.

§2683.20. Disclaimers.

(a) Any person filing a disclaimer as permitted by Insurance Code Section 1215.4 (i) may use either Form D or Form DD to the extent that the form selected accommodates recitation of the facts by virtue of which affiliation with any authorized (admitted) insurer is disclaimed. In the event neither form is reasonably appropriate, the person wishing to disclaim affiliation may file a written disclaimer duly executed by its (or his) executive officer in any other form that supplies the information required in such instance by said Section 1215.4 (i).

(b) In the event several persons of a holding company system wish to disclaim affiliation with anther person or persons, a single disclaimer may be filed for the several disclaiming persons under the following circumstances:

(1) The persons with whom relationship is disclaimed are identical in the case of every person on whose behalf the disclaimer is filed; and

(2) The facts on which disclaimer is based are substantially identical with respect to each such disclaiming person; and

(3) The disclaimer is executed by an executive officer of the ultimate controlling person or of an admitted insurer, which officer knows the facts of his own knowledge.

§2683.21. Additional Information.

Each person filing under these regulations shall, in addition to the information called for by the regulations and instructions, furnish any other or further information and material as may be needed to make the information otherwise to be contained in such filing not misleading.

§2683.22. Verification of Forms Required.

History

(a) Information statements, registration statements, annual supplements, reports of extraordinary dividends and distributions, reports of material changes, and disclaimers all shall be verified as follows:

(1) Those executed by domestic insurers shall be verified as provided in the Code of Civil Procedure for the verification of pleadings (Sections 446 and 2015.5 CCP); the same shall apply to such papers executed in a jurisdiction whose law on the subject of verification of pleadings is the same as that of this State.

(2) Otherwise, such papers shall be duly sworn to under oath before a public officer lawfully authorized to administer oaths, and his certificate evidencing such fact shall be attached thereto;

(b) Reports of declaration of regular dividends may be in unverified letter form by an executive officer of the declarant or the filing member who knows the facts. A single such report may be made for all members of an insurance holding company system provided the officer making the same knows the facts. However, each member reported for must be listed by name and the amount of its dividend separately stated.

Embedded Graphic 10.0277

John Smith, the undersigned, hereby certifies under penalty of perjury that he is the President of ABC Insurance Company, registrant in the foregoing registration statement; that he has read the said registration statement and knows the contents thereof and that the same are true of his own knowledge.

Dated this __________ day of_________ 19___, at Redwood City, California.

/S/ John Smith

/T/ John Smith President”

An acceptable form of verification by a foreign applicant is as follows:

Embedded Graphic 10.0278

John Smith, first being duly sworn, deposes and says that he is the President of ABC Insurance Company, the person preparing and filing the attached paper (s); that he has read the same and knows the contents thereof and that the contents are true of his own knowledge.

/S/ John Smith

/T/ John Smith President

Subscribed and sworn to before me this

____________day of____________, 19____.

___________________ (Notarial Seal)

Notary Public in and for said County

and State

My commission expires ”

The examples set forth above do not forbid verification of certain allegations on the basis of affiant's information and belief where that is permissible according to law.

(d) In the case of papers described in (a) of this section filed by foreign insurers they shall be verified (except as provided in (b) above) according to the applicable law and regulations of the place where the same were signed by the executive officer of the person making the filing.

HISTORY

1. Editorial correction of subsection (c) (Register 95, No. 42).

§2683.23. Promulgated Forms.

Note • History

Various forms which said Act requires the Commissioner to prescribe, and others deemed necessary or convenient for accomplishing registration, reporting, disclosure and other portions of the Act which require implementations, are set forth in this section as follows:

FORM A (3-20-70)

To: The Insurance Commissioner of the State of California

Attention: Surveillance and analysis Division

600 South Commonwealth Avenue--14th Floor

Los Angeles, CA 90005

INFORMATION STATEMENT

(Name and address of Offeror)

concerning an offer to acquire control of

an insurer (as defined by California Insurance Code Section 826, excluding subdivision (f) thereof) organized under the laws of the State of California.

The above-captioned contemplated transaction involves an offer to acquire voting securities of the above-named domestic insurer of such controlling corporation through the means of a

(Explain, e.g.: purchase on open market, exchange of holding company shares, creation of new corporation and exchange of holding company shares, creation of new corporation and exchange, etc.)

Filed pursuant to Insurance Code Section 1215.2 and Sections 2683, et seq., Title 10, California Administrative Code.

The undersigned hereby states as follows:

ITEM I

The Offer to Purchase or Exchange Shares, or the Agreement of Merger or Plan of Reorganization

1. True copies of the written offer, agreement, or plan, complete with proxy, proxy statement, letter to stockholders, letter of transmittal, tender forms, fractional buy and sell order forms, etc., are attached hereto marked ________.

ITEM II

Identity and Background of the Offeror (Section 1215.2 (a)(1))

(a) State the name and address of the Offeror seeking to acquire control over the insurer.

(b) If the Offeror is not an individual, state the nature of its business operations for the past five years or for such lesser period as such person and any predecessors thereof shall have been in existence. Briefly describe the business intended to be done by the Offeror and the Offeror's subsidiaries.

(c) Furnish a chart or listing clearly presenting the identities of, and interrelationships (including the percentage of each class of voting securities) among the Offeror and all persons known to control the Offeror. If control is maintained other than by the ownership or control of voting securities, indicate the basis of such control. As to each person specified in such chart, indicate the type of organization (e.g.--corporation, trust, partnership) and the state or other jurisdiction of domicile. If court proceedings looking toward a reorganization or liquidation are pending with respect to any such person, indicate which person, and set forth the location and title of the court, nature of the proceedings, and the date when commenced.

ITEM III

Identity and Background of Individuals Associated with Offeror (Section 1215.2 (a) (1)

State the following with respect to

(a) the Offeror if he is an individual or

(2) all persons who are directors, executive officers, or owners of ten percent of more of the voting securities of the Offeror if the Offeror is not an individual:

(a) Name and business address;

(b) Present principal business activity, occupation or employment, including positions and offices held, and the name, principal business and address of any corporation or other organization by which such person or persons are employed;

(c) Major occupations, positions, offices or employment during the last five years, giving the starting and ending dates of each and the name, principal business and address of any business corporation or other organization in which each such occupation, position, office or employment was carried on; and if any such occupation, position, office or employment was carried on; and if any such occupation, position, office or employment required licensing by or registration with any federal, state, county or municipal government agency, indicate such fact, the current status of such licensing or registration, and an explanation of any surrender, revocation, suspension or disciplinary proceedings in connection therewith.

(d) Whether such person has during the last ten years been convicted in a criminal proceeding (excluding minor traffic violations) If so, give the date, nature of the offense for which convicted, name and location of the court, penalty imposed, or other disposition of the case.

ITEM IV

Nature, Source and Amount of Consideration (Section 1215.2 (a) (2))

(a) Describe the nature, source and amount of funds or other considerations used or to be used in effecting the purchase, exchange, merger or other acquisition of control.

If any part of the funds or other consideration has been or is to be borrowed or otherwise obtained for the purpose of making the purchase, or effecting the exchange, merger, or other acquisition of control, furnish a description of the transaction, the names of the parties thereto, the relationship if any between the borrower and the lender, the amounts to be borrowed from each, and copies of all agreements, promissory notes and security arrangements relating thereto.

(b) An explanation of the criterion or criteria used in determining the value of any consideration to be used other than money.

(c) If the source of the consideration is a loan made in the lender's ordinary course of business and if the Offeror wishes the source to remain confidential, he must specifically request that the identity of the source be kept confidential.

(d) If the consideration is to consist in whole or part of the insurance business and assets of the Offeree or of a person controlled by the Offeree, state the value thereof and how such value was arrived at. The Commissioner may request a valuation by a qualified actuary.

ITEM V

Future Plans for Insurer (Section 1215.2 (a) (3))

1. Describe any plans or proposals which the Offeror may have to liquidate such insurer, to sell its assets to or merge it with any person, or to make any other major change in its business operations of corporate structure or management.

2. Explain fully all phases of any merger, acquisition or reorganization.

3. Compare the financial and legal position, equities, rights and relationships of the Offeree(s) (individual, corporation or stockholder, as applicable) before or after consummation of the proposal, assuming it will be effectuated.

4. Describe all changes planned to be made after consummation of the acquisition with respect to personnel comprising the board of directors and executive officers of the domestic insurer sought to be acquired, or those of the organization which will succeed the latter as a result of the acquisition, as appropriate. State the nature, extent and amount of any commitments to the present officers and directors of the domestic insurer. Attach copies of all actual or contemplated employment contracts, contracts for consultation, advice, management or services.

ITEM VI

Voting Securities to be Acquired

State the number of shares of the insurer's voting securities which the Offeror, its affiliates and any person listed in Item III plan to acquire, and the terms of the offer, request, invitation, agreement or acquisition, and a statement of the method by which the Offeror arrived at the value assigned to the securities sought to be acquired.

ITEM VII

Ownership of Voting Securities (Section 1215.2 (a) (4))

State the amount of each class of voting securities or securities which may be converted into voting securities of such insurer or such controlling person which are beneficially owned or concerning which there is a right to acquire beneficial ownership by the Offeror, its affiliates or any person listed in Item II above, together with the name and address of each such affiliate.

ITEM VIII

Contracts, Agreements, or Understandings with Respect to Voting

Securities of the Insurer (Section 1215.2 (a) (5))

Give a full description of any contracts, arrangements or understandings with respect to any voting security of the insurer in which Offeror, its affiliates or any person listed in Item III above are involved, including but not limited to, transfer of any of the securities, joint ventures, loan or option arrangements, puts or calls, guarantees of loans, guarantees against loss or guarantees of profits, division of losses or profits, or the giving or withholding of proxies. Name and identify the person with whom such contracts arrangements or understandings have been entered into.

ITEM IX

Recent Purchases of Voting Securities

Describe all purchases by the Offeror, its affiliates or any person listed in Item III of any voting securities of the insurer during the 12 calendar months preceding the filing of this Statement. State the number of shares acquired in each transaction, the dates of purchase, names of the purchasers, and the consideration paid or agreed to be paid thereof. State whether any such shares so purchased are hypothecated.

ITEM X

Recent Recommendations to Purchase

Describe all recommendations made by Offeror or anyone in its behalf during the 12 calendar months preceding the filing of this Statement to purchase any voting security of the insurer control of which is sought to be acquired.

ITEM XI

Agreements with Broker-Dealers

Describe the terms of or attach a copy of any agreement, contract or understanding made with any broker-dealer as to solicitation of voting securities of the insurer for tender, and the amount of any fees, commissions or other commissions or other compensation to be paid to broker-dealers with regards thereto.

ITEM XII

Financial Statements and Exhibits

(a) Offeror's annual financial statements for the last five years and annual Reports to Stockholders for the last two fiscal years, plus any in the process of distribution by Offeror to its stockholders, shall be attached to this statement as exhibits; listed under this item the exhibits so attached.

(b) The financial statements shall contain accurate financial information as to the earnings and financial condition of the Offeror and its affiliates for the preceding five fiscal years (or for such lesser period as such affiliate and any predecessors thereof shall have been in existence), and similar information as of a date not earlier than 90 days prior to the filing of the information statement.

IN WITNESS WHEREOF the person making and filing this information statement hereby incorporates herein all exhibits attached hereto and all writings referred to herein, and declares that the matters stated herein and in the attached exhibits and in the writings incorporated herein are true and correct. In witness whereof the Offeror hereunto affixes its (or his) signature and seal at________this___________day of______________, 19___.

______________________________________________

(Exact name of Offeror or other person filing)

(ATTACH VERIFICATION)

By_________________________________________

(Refer to Section 2683.22) (Name and title of officer executing)

FORM B (3-20-70)

To State of California Insurance Commissioner:

INSURANCE HOLDING COMPANY SYSTEM

Embedded Graphic 10.0279

The above named Registrant(s) hereby report(s) to the Insurance Commissioner for the purpose of registering as required by California Insurance Code Section 1215.4 as follows:

ITEM I

Identity and Control of Registrant

Furnish the exact name of each insurer registering or being registered (hereinafter called “the Registrant”); the domiciliary address and the principal office address of each; the date on which each Registrant became part of the insurance holding company system; and the method (s) by which control of each Registrant was acquired and is maintained.

ITEM II

Organizational Chart

Furnish a chart or listing clearly presenting the identities of and interrelationships (including the percentage of each class of voting securities) among the Registrant and all affiliated persons known to control the Registrant. If control is maintained other than by the ownership or control of voting securities, indicate the basis of such control.

ITEM III

The Ultimate Controlling Person

As to the ultimate controlling person, furnish the following information:

(a) Name.

(b) Address of principal office.

(d) The principal business of said person.

(e) The name and address of any person who holds 10 percent or more of any class of voting security, the class of such security, the number of shares held of record or known to be beneficially owned, and the percentage of class so held or owned.

(f) If court proceedings looking toward a reorganization or liquidation are pending, indicate the title and location of the court, the nature of proceedings and the date when commenced.

ITEM IV

Biographical Information

Furnish the following information for the directors and executive officers of the ultimate controlling person: the individual's name and address, his principal occupation and all offices and positions held during the past five years, and any conviction of crimes other than minor traffic violations during the past ten years.

ITEM V

Transactions, Relationships and Agreements

(a) Briefly describe the following agreements in force, relationships subsisting, and transactions currently outstanding between the Registrant and its affiliates;

(1) loans, other investments, or pending purchases, sales or exchanges of securities of its affiliates by the Registrant or of the Registrant by any of its affiliates;

(2) other purchases, sales or exchanges of assets uncompleted or being negotiated;

(3) transactions not in the ordinary course of business;

(4) guarantees or undertakings for the benefit of an affiliate which result in an actual contingent exposure of the Registrant's assets to liability, other than insurance contracts entered into in the ordinary course of the Registrant's business;

(5) all management and service contracts and all cost-sharing arrangements, other than cost allocation arrangements based upon generally accepted accounting principals; and

(6) reinsurance agreements, whether already in force or entered into but not yet effective, covering all or substantially all of one or more lines of insurance of the ceding company.

No information need be disclosed if such information is not material. Sales, purchases, exchanges, loans or extensions of credit or investments involving one-half of one percent or less of the Registrant's admitted assets as of the 31st day of December next preceding shall not be deemed material.

The description shall be in a manner so as to enable proper evaluation thereof by the Commissioner and shall include at least the following: the nature and purpose of the transaction; the nature and amounts of any payments or transfers of assets between the parties; and the identity of all parties to such transactions.

ITEM VI

Litigation or Administrative Proceedings

A brief description of any litigation or administrative proceedings of the following types, either then pending or concluded within the preceding fiscal year, to which any person reporting herewith or any of its directors or executive officers was a party or of which the property of any such person is or was the subject; given the names of the parties and the court or agency in which such litigation or proceeding is or was pending.

(a) Criminal prosecutions or administrative proceedings by any government agency or authority which may be relevant to the trustworthiness of any party thereto; and

(b) Proceedings which may have a material effect upon the solvency or capital structure of any admitted insurer member of the holding company system including, but not necessarily limited to, bankruptcy, receivership, other corporate reorganizations, and litigation drawing in question the validity of the issued and outstanding shares of any such admitted or nonadmitted insurer member, or of the ultimate controlling person.

ITEM VII

Financial Statements and Exhibits

(a) Financial statements and exhibits of each person reporting herewith should be attached to this Statement as an appendix, but list under this item the financial statements and exhibits so attached.

(b) The financial statements shall include a balance sheet of the ultimate controlling person as of the end of such person's latest completed fiscal year ended 120 days or more prior to the filing of this form in California and related statements of income and surplus for the year then ended, and for any subsequent period for which such financial and related statements are available. in lieu of an individual statement, Registrant may, unless the Commissioner requires otherwise, furnish a certified consolidated financial statement for the ultimate controlling person prepared in its usual course of business.

(c) Exhibits shall include copies of the latest annual reports to shareholders of the ultimate controlling person and any proxy solicitation material distributed by it during the preceding year or prepared for current use.

The undersigned hereby incorporates in this report any and all addenda, contracts, treaties, or exhibits attached hereto or incorporated herein by reference, and declares that the same are true, and are correctly represented as currently in force.

IN WITNESS WHEREOF, the undersigned registrant hereby affixes its name and corporate seal this________day of_________, 19_____at__________ in the State of_______________

Name of Company

(President or Vice President)

(CORPORATE SEAL)

(Secretary or Treasurer)

(Attach verification)(See Section 2683.22).FORM C (3-20-70)

To: The Insurance Commissioner of the State of California

Embedded Graphic 10.0280

The above named Registrant hereby makes and files this amendment No. _________ as provided by California Insurance Code Section 1215.4(d), to its registration statement heretofore filed on or about __________ (date) with the California Insurance Commissioner pursuant to Section 1215.4(a) of the Insurance Code.

Changes in or additions to the matters set forth in registrant's last prior registration statement or such statement as amended have occurred, or dividends and other distributions to shareholders have been made as follows:

The undersigned hereby incorporates in this report any and all addenda, contracts, treaties, or exhibits attached hereto and by this reference incorporates them herein. Registrant declares that the same are true, and are correctly represented as currently in force.

IN WITNESS WHEREOF, the undersigned Registrant hereby affixes its name and corporate seal this ________ day of ________, 19 ____, at __________ in the State of ___________

Name of company

(CORPORATE SEAL) (Position or title. Must be an executive officer.)

FORM D (3-20-70)

To: The Insurance Commissioner of the State of California

DISCLAIMER (Insurance Code Section 1216.4(i))

of affiliation with

Dated _______________________ , 19 _____ at

The undersigned hereby alleges:

1. It does not directly, or indirectly through one ore more subsidiaries, control (within the meaning of California Insurance Code Section 1215 (b))

(Name of the admitted insurer with whom affiliation is disclaimed)

(Give domiciliary city and state)

2. It is not directly or indirectly (through one or more subsidiaries) controlled by or under common control with the last above-named insurer.

3. Insofar as known to the undersigned, all material relationships and bases for asserted affiliation between the undersigned and said insurer are:

(a) The total number of authorized, issued and outstanding voting securities

of said insurer is

(b) Of such number of shares, the undersigned own or control the voting

rights (by proxy or otherwise) of _________ shares, or approximately

__________ % of the total number of issued and outstanding shares of

said insurer.

of persons who control said insurer is:

(d) Of such latter number of shares, the undersigned and its affiliates (if any)

own or control the voting rights (by proxy or otherwise) of ____________

shares, or approximately ___________ %.

(e) Other:

4. The basis for disclaiming affiliation between the undersigned and said insurer is (state and explain)

5. The announced plan

(specify, e.g.: purchase of shares, exchange of shares, mergers, formation of a holding company) by the undersigned and relating to the above-named insurer, will not result in affiliation, without the meaning of California Insurance Code Section 1215, of the undersigned with said insurer, or vice versa, for the reason that:

IN WITNESS WHEREOF, the undersigned has hereunto signed its name and affixed its corporate seal at _________ in the State of _________ this ________ day of ________, 19 ____.

(CORPORATE SEAL) Name of person making disclaimer

Title or position. Must be an

executive officer.

(1) DISCLAIMER ALLOWED this_______day of __________, 19___, on the basis of the evidence presented herein.

Insurance Commissioner of the State of California

Deputy

(2) NOTICE OF HEARING--RE DISALLOWANCE

You are hereby notified that there will be a public hearing in my offices, Room___ at ______on _________, 19___ commencing at __________o'clock ___M for the purpose of determining whether the within disclaimer should be disallowed. At such hearing all parties in interest may appear and present relevant evidence and argument to that end.

Dated__________, 19___.

Insurance Commissioner of the State of California

Deputy

FORM DD (3-20-70)

To: The Insurance Commissioner of the State of California

Attn: Company Information and Analysis Division

1407 Market Street

San Francisco, California 94103

DISCLAIMER OF

FILED PURSUANT TO CALIFORNIA INSURANCE CODE SECTION 1215.4(i)

The undersigned hereby makes and files with the California Insurance Commissioner its disclaimer pursuant to the above mentioned Code section and declares that it is not affiliated with __________, an insurer holding a California certificate of authority. The undersigned hereby alleges that all material relationships and bases for affiliation between the undersigned and such insurer are:

The undersigned further declares that the basis for disclaiming any such affiliation is:

This disclaimer is filed in duplicate so that, if the Commissioner allows the same, he may endorse this form accordingly and return a copy hereof for the company's records.

We hereby declare under penalty of perjury that the matters set forth above or in any exhibits, by reference, or incorporated herein, are true and correct.

Witness of signature and seal this __________ day of ________, 19 ______, at __________ in the State of ____________

Name of company

(CORPORATE SEAL) By

President or Vice-President

Secretary or Treasurer

INSTRUCTIONS

This disclaimer form may also be filed by an admitted insurer or any member of an insurance holding company system, within the meaning of the Insurance Holding Company system Regulatory Act by “x-ing” out the phrase “an insurer holding a California certificate of authority” in the fourth and fifth lines of the first paragraph of the body of the form. In such event, the company executing this form should describe itself as an insurer, or noninsurer, admitted or not admitted to this State, as appropriate.

* * * * * * *

Receipt of copy hereof is acknowledged. On the basis of the evidence presented hereby, the disclaimer is allowed. Unless, after due notice to and hearing of all parties in interest, and after making appropriate findings of fact, the Commissioner disallows the disclaimer, the above-named insurer is from the date its disclaimer was filed relieved of further duty to register or report under California Insurance Code Section 1215.4 until further notice.

Dated __________

Insurance Commissioner of the State of California

By:

Deputy

Notice of Hearing--Re Disallowance

Please take notice that a public hearing will be held in my offices, Room______at______________, California on___________,19___, commencing at__________o'clock ___m; for the purpose of determining whether the within disclaimer should be disallowed. At said hearing all parties in interest may appear and present relevant evidence, oral or written, and argument tending to show whether said __________ is or is not affiliated with _______________________.

Dated_________,________

Insurance Commissioner

Deputy

NOTE

Authority cited: Section 1215.8 Insurance Code. Reference: Sections 1215-1215.15 Insurance Code.

HISTORY

1. Amendment filed 11-29-79 as procedural and organizational; effective upon filing (Register 79, No. 48).

Subchapter 5.9. Privacy of Nonpublic Personal Information

Article 1. General Provisions

§2689.1. Authority and Purpose.

Note • History

The Commissioner promulgates these regulations pursuant to the implied authority granted by California Insurance Code Sections 791 et seq. and 15 U.S.C. Sections 6801(b) and 6805(b) to implement California Insurance Code and Gramm-Leach-Bliley privacy provisions consistent with providing individuals the maximum privacy protections permitted by those laws.

NOTE

Authority cited: Sections 791-791.27, Insurance Code; and 15 U.S.C. Sections 6801, 6805 and 6807. Reference: Sections 791-791.27, Insurance Code.

HISTORY

1. New subchapter 5.9 (articles 1-5, sections 2689.1-2689.24), article 1 (sections 2689.1-2689.4) and section filed 11-22-2002; operative 3-24-2003 (Register 2002, No. 47).

§2689.2. Scope.

Note • History

These regulations govern the treatment of nonpublic personal information about individuals who obtain or are claimants or beneficiaries of products or services primarily for personal, family, or household purposes. These regulations shall apply to all licensees of the California Department of Insurance subject to California Insurance Code Sections 791 et seq., namely insurance institutions, agents, and insurance support organizations. Licensees not subject to California Insurance Code Sections 791 et seq., but subject to Gramm-Leach-Bliley (GLBA), 15 U.S.C. Sections 6801-6810, shall comply with GLBA privacy provisions and with Sections 2689.12 through 2689.20 of these regulations.

Licensees shall also comply with California Civil Code Section 1798.85 (SB 168, Chapter 720, Statutes of 2001), Business and Professions Code Sections 17590 through 17595 (SB 771, Chapter 695, Statutes of 2001), and all other applicable privacy and confidentiality provisions.

NOTE

Authority cited: Sections 791-791.27, Insurance Code; and 15 U.S.C. Sections 6801, 6805 and 6807. Reference: Sections 791.01 and 791.02, Insurance Code; Section 1798.85, Civil Code; Sections 17590, et seq., Business and Professions Code; and 15 U.S.C. Section 6803.

HISTORY

1. New section filed 11-22-2002; operative 3-24-2003 (Register 2002, No. 47).

§2689.3. Disclosure of Information.

Note • History

Nonpublic personal information shall not be disclosed in a manner not permitted by California law or these regulations.

NOTE

Authority cited: Sections 791-791.27, Insurance Code; and 15 U.S.C. Sections 6801, 6805 and 6807. Reference: Section 791.13, Insurance Code.

HISTORY

1. New section filed 11-22-2002; operative 3-24-2003 (Register 2002, No. 47).

§2689.4. Definitions.

Note • History

As used in these regulations, unless the context requires otherwise:

(a) “Clear and conspicuous” means that a notice is “reasonably understandable” and “designed to call attention to the nature and significance of the information” in the notice. All notices must be clear and conspicuous and accurately reflect the licensee's privacy policies and practices.

A notice is “reasonably understandable” if it:

(1) Presents information in clear, concise sentences, paragraphs, and sections;

(2) Uses short explanatory sentences (an average of 15-20 words) or bullet lists whenever possible;

(3) Uses definite, concrete, everyday words and active voice whenever possible;

(4) Avoids multiple negatives;

(5) Avoids legal and highly technical business terminology whenever possible;

(6) Avoids explanations that are imprecise and readily subject to different interpretations; and

(7) Achieves a minimum Flesch Reading Ease Score of 50. (The Flesch Reading Ease Score rates text on a 100-point scale -- the higher the score, the easier it is to understand the document. The formula for the Flesch Reading Ease score is:

206.835 - (1.015 x ASL) - (84.6 x ASW)

where:

ASL = average sentence length (the number of words divided by the number of sentences)

ASW = average number of syllables per word (the number of syllables divided by the number of words).)

A notice is “designed to call attention to the nature and significance of the information” in it if it:

(8) Uses a plain-language heading to call attention to the notice;

(9) Uses an easy-to-read typeface and type size (at least 10 point);

(10) Provides wide margins and ample line spacing;

(11) Uses boldface or italics for key words;

(12) In a form that combines the licensee's notice with other information, uses distinctive type size, style, and graphic devices, such as shading or sidebars; and

(13) If on the back or inside of a multi-page form, is accompanied by a prominent notice on the front of the form directing the reader's attention to the privacy notice and where it may be found.

A notice on a web site is “designed to call attention to the nature and significance of the information” in it if it is rendered as a page using Hypertext Markup Language (html) in addition to any other webpage formats used, is at least the equivalent point size and type as the standard text on the licensee's web site, and, uses text or visual cues to encourage scrolling down the page if necessary to view the entire notice and ensures that other elements on the web site (such as text, graphics, hyperlinks or sound) do not distract attention from the notice, and the notice is either:

(14) Placed on a screen that consumers frequently access, such as a page on which transactions are conducted; or

(15) Accessed from a screen that consumers frequently access through a link that connects directly to the notice and is labeled appropriately to convey the importance, nature and relevance of the notice.

(b) “Collect” means to obtain information that the licensee organizes or can retrieve by the name of an individual or by identifying number, symbol or other identifying particular assigned to the individual, regardless of the source of the underlying information.

(c) “Consumer” means an individual who seeks to obtain, obtains or has obtained an insurance product or service from a licensee that is to be used primarily for personal, family or household purposes, and about whom the licensee has nonpublic personal information. “Consumer” includes that individual's legal representative. Examples include, but are not limited to, the following:

(1) An individual who provides nonpublic personal information to a licensee in connection with obtaining or seeking to obtain financial, investment or economic advisory services relating to an insurance product or service, is a consumer regardless of whether the licensee establishes an ongoing relationship.

(2) An applicant for insurance prior to the inception of insurance coverage is a consumer.

(3) An individual who is a consumer of another financial institution is not a licensee's consumer solely because the licensee is acting as agent for, or provides processing or other services to, that financial institution.

(4) An individual is a licensee's consumer if the individual is a beneficiary of a life insurance policy underwritten by the licensee, a claimant under an insurance policy issued by the licensee, an insured or an annuitant under an insurance policy or an annuity issued by the licensee, a certificate holder under an employee or other group policy, a bodily injury claimant against a commercial liability policy, a worker's compensation claimant, or a mortgagor of a mortgage covered under a mortgage insurance policy; and the licensee discloses nonpublic personal information about the individual to a nonaffiliated third party other than as permitted by California Insurance Code Section 791.13.

(5) If the licensee provides initial, annual and revised notices to the plan sponsor, group or blanket insurance policyholder, group annuity contractholder, or workers' compensation plan participant, and does not disclose to a nonaffiliated third party nonpublic personal information about such an individual other than as permitted under California Insurance Code Section 791.13, an individual is not the consumer of the licensee solely because of that relationship. If the licensee does not meet all the conditions of this paragraph, the described individuals are consumers of a licensee.

(6) An individual is not a licensee's consumer solely because he or she is a beneficiary of a trust for which the licensee is a trustee or because he or she has designated the licensee as trustee for a trust.

(d) “Customer” means a consumer who has a continuing relationship with a licensee under which the licensee provides one or more insurance products or services to the consumer that are to be used primarily for personal, family or household purposes.

A consumer has a continuing relationship with a licensee if the consumer is a current policyholder of an insurance product issued by or through the licensee; or the consumer obtains financial, investment or economic advisory services relating to an insurance product or service from the licensee for a fee.

A consumer does not have a continuing relationship with a licensee, and therefore is not a customer, if, for example:

(1) The consumer applies for insurance but does not purchase the insurance;

(2) The licensee sells the consumer travel insurance in an isolated transaction;

(3) The consumer is no longer a current policyholder of an insurance product or no longer obtains insurance services with or through the licensee;

(4) The consumer is a beneficiary or claimant under a policy and has submitted a claim under a policy choosing a settlement option involving an ongoing relationship with the licensee;

(5) The consumer is a beneficiary or a claimant under a policy and has submitted a claim under that policy choosing a lump sum settlement option;

(6) The customer's policy is lapsed, expired, or otherwise inactive or dormant under the licensee's business practices, and the licensee has not communicated with the customer about the relationship for a period of twelve (12) consecutive months, other than annual privacy notices, material required by law or regulation, communication at the direction of a state or federal authority, or promotional materials;

(7) The consumer is an insured or an annuitant under an insurance policy or annuity but is not the policyholder or owner of the insurance policy or annuity; or

(8) The consumer's last known address according to the licensee's records is deemed invalid. An address of record is deemed invalid if mail sent to that address by the licensee has been returned by the postal authorities as undeliverable and if subsequent good faith attempts by the licensee to obtain a current valid address for the individual have been unsuccessful. If so, and if the consumer has not opted out, the licensee shall, at least annually, remove the consumer's name from any list for marketing purposes for disclosure to a nonaffiliated third party.

(e) “Financial institution” means any institution engaged in activities that are financial in nature or incidental to such financial activities as described in Section 4(k) of the Bank Holding Company Act of 1956 (12 US.C. 1843(k)).

Financial institution does not include:

(1) Any person or entity with respect to any financial activity that is subject to the jurisdiction of the Commodity Futures Trading Commission under the Commodity Exchange Act (7 U.S.C. 1 et seq);

(2) The Federal Agricultural Mortgage Corporation or any entity charged and operating under the Farm Credit Act of 1971 (12 U.S.C. 2001 et seq); or

(3) Institutions chartered by Congress specifically to engage in securitizations, secondary market sales (including sales of servicing rights) or similar transactions related to a transaction of a consumer, as long as the institutions do not sell or transfer nonpublic personal information to a nonaffiliated third party.

(f) “Financial product or service” means any product or service that a financial holding company could offer by engaging in an activity that is financial in nature or incidental to such a financial activity under Section 4(k) of the Bank Holding Company Act of 1956 (12 U.S.C. 1843(k)). Financial service includes a financial institution's evaluation or brokerage of information that the financial institution collects in connection with a request or an application from a consumer or a financial product or service.

(g) “Nonaffiliated third party” means any person or entity that is not an affiliate of, or related by common ownership or affiliated by corporate control with, a licensee. Nonaffiliated third party includes any company that is an affiliate solely by virtue of the direct or indirect ownership or control of the company by the licensee or its affiliate in conducting merchant banking or investment banking activities of the type described in Section 4(k)(4)(H) or insurance company investment activities of the type described in Section 4(k)(4)(I) of the federal Bank Holding Company Act (12 U.S.C. 1843(k)(4)(H) and (I)).

(h) “Nonpublic personal financial information” means personally identifiable financial information a consumer provides to a licensee to obtain an insurance product or service from the licensee, information about a consumer resulting from a transaction involving an insurance product or service between a licensee and a consumer, or information the licensee obtains about a consumer in connection with providing an insurance product or service to that consumer.

“Nonpublic personal financial information” includes any list, description or other grouping of consumers that is derived using any personally identifiable financial information that is not publicly available. “Nonpublic personal financial information” does not include medical record information.

(i) “Nonpublic personal information” means “personal information” as defined in California Insurance Code Section 791.02(s). “Nonpublic personal information” includes “nonpublic personal financial information” and “medical record information” (as defined in California Insurance Code Section 791.02(q).

“Nonpublic personal information” includes any list, description or other grouping of consumers that is derived using any personally identifiable information that is not publicly available. “Nonpublic personal information” also includes any information about the licensee's consumer if it is disclosed in a manner that indicates that the individual is or has been the licensee's consumer; any information the licensee collects through an Internet cookie (an information-collecting device from a web survey); and information from a consumer report.

If information about individuals associated with a business entity is collected or accessed in connection with a consumer transaction, or is used for marketing products or services intended for personal, family, or household purposes, it is nonpublic personal information for purposes of these regulations. Insurance transactions relating to products obtained by a policyholder for business, commercial, or agricultural purposes, but which actually provide insurance primarily for personal, family, or household purposes, involve nonpublic personal information for purposes of these regulations.

A dual purpose policy providing only incidental or supplemental commercial coverages is still a policy primarily for personal, family or household purposes for purposes of these regulations.

(j) “Opt-In” means that a licensee must obtain a consumer's permission before sharing certain nonpublic personal information with others.

(k) “Opt-Out” means that a licensee must allow a consumer the opportunity to prevent the sharing of certain nonpublic personal financial information with others.

(l) “Ownership of voting securities,” as used in California Insurance Code Section 791.02(g), means ownership or power to vote twenty-five percent (25%) or more of the outstanding shares of any class of voting security of the person or entity, directly or indirectly, or acting through one or more other persons, and includes power in any manner over the election of a majority of the directors, trustees or general partners (or individuals exercising similar functions) of the person or entity.

(m) “Publicly available information” means any information that a licensee has a reasonable basis to believe is lawfully made available to the general public from federal, state or local government records; widely distributed media; or disclosures to the general public that are required to be made by federal, state or local law.

A licensee has a reasonable basis to believe that information is lawfully made available to the general public if the licensee has taken steps to determine that the information is of the type that is available to the general public; and when an individual can direct that the information not be made available to the general public, the individual has not done so.

NOTE

Authority cited: Sections 791-791.27, Insurance Code; and 15 U.S.C. Sections 6801, 6805 and 6807. Reference: Section 791.04, Insurance Code; 15 U.S.C. Sections 6801, 6802, 6803 and 6809.

HISTORY

1. New section filed 11-22-2002; operative 3-24-2003 (Register 2002, No. 47).

Article 2. Privacy Notices; Opt Out Notices for Nonpublic Personal Financial Information

§2689.5. Initial Privacy Notice.

Note • History

(a) In addition to any notice of information practices required by California Insurance Code Section 791.04, licensees shall provide notice as required by this section. Licensees may provide the notices required by California Insurance Code Section 791.04 and this section in a single combined notice or in separate notices, so long as all the requirements of California Insurance Code Section 791.04 and these regulations are satisfied. If a licensee uses a California notice and another separate notice, the California notice shall clearly state that any rights a consumer, claimant, or beneficiary may have as described in the California notice are not limited by the standard privacy notice that the licensee also uses.

A licensee shall provide a clear and conspicuous notice that accurately reflects its privacy policies and practices to:

(1) A customer, not later than when the licensee establishes a customer relationship, except as provided in subsection (c) of this section: and

(2) A consumer, claimant, or beneficiary before the licensee discloses any nonpublic personal information about the consumer, claimant, or beneficiary to any nonaffiliated third party, if the licensee makes a disclosure other than as authorized by California Insurance Code Section 791.13(a) through (j) or (l) through (r), unless the licensee has a customer relationship with the consumer, claimant, or beneficiary, or a notice has been provided by an affiliated licensee, the notice clearly identifies all licensees to whom the notice applies, and is accurate with respect to the licensee and the other institutions.

(b) When an existing customer obtains a new insurance product or service, intended primarily for personal, family, or household purposes, the licensee need not provide a new initial notice if the notice most recently provided by the licensee or an affiliate is accurate with respect to the licensee and the affiliate.

(c) A licensee may provide the initial notice required by subsection (a)(1) within a reasonable time after the licensee establishes a customer relationship if:

(1) Establishing the customer relationship is not at the customer's election; for example, if a licensee acquires or is assigned a customer's policy from another licensee or residual market mechanism and the customer does not have a choice about the licensee's acquisition or assignment.

(2) Providing notice not later than when the licensee establishes a customer relationship would substantially delay the customer's transaction; for example, when the licensee and the individual agree over the telephone to enter into a customer relationship involving prompt delivery of the insurance product or service. In that case, the customer shall be provided with oral notice of the licensee's privacy policies, provided that the privacy notice is mailed or provided in electronic form within fourteen (14) business days after the sale, and documentation is maintained showing that oral disclosure was provided to the customer. For licensees who do not disclose personal information other than as permitted by California Insurance Code Section 791.13, an oral disclosure is not required.

The customer's transaction is not substantially delayed when the relationship is initiated in person at the licensee's office or through other means by which the customer may view the notice, such as on a web site.

NOTE

Authority cited: Sections 791-791.27, Insurance Code; and 15 U.S.C. Sections 6801, 6805 and 6807. Reference: Section 791.04, Insurance Code; 15 U.S.C. Section 6803.

HISTORY

1. New article 2 (sections 2689.5-2689.10) and section filed 11-22-2002; operative 3-24-2003 (Register 2002, No. 47).

§2689.6. Annual Privacy Notice.

Note • History

In addition to any notice of information practices required by California Insurance Code Section 791.04, licensees shall provide notice as required by this section. Licensees may provide the notices required by California Insurance Code Section 791.04 and this section in a single combined notice or in separate notices, so long as all the requirements of California Insurance Code Section 791.04 and these regulations are satisfied. If a licensee uses a California notice and another separate notice, the California notice shall clearly state that any rights a consumer, claimant, or beneficiary may have as described in the California notice are not limited by the standard privacy notice that the licensee also uses.

A licensee shall provide a clear and conspicuous notice to customers that accurately reflects its privacy policies and practices not less than annually during the continuation of the customer relationship. Annually means at least once in any period of twelve (12) consecutive months during which that relationship exists. A licensee may define the twelve-consecutive-month period, but the licensee shall apply it to the customer on a consistent basis. A licensee is not required to provide an annual notice to a former customer with whom it no longer has a continuing relationship.

NOTE

Authority cited: Sections 791-791.27, Insurance Code; and 15 U.S.C. Sections 6801, 6805 and 6807. Reference: Section 791.04, Insurance Code; and 15 U.S.C. Section 6803.

HISTORY

1. New section filed 11-22-2002; operative 3-24-2003 (Register 2002, No. 47).

§2689.7. Information To Be Included in Privacy Notices.

Note • History

(a) The initial, annual and revised privacy notices that a licensee provides under Sections 2689.5, 2689.6, and 2689.9 shall, at a minimum, include each of the following that applies to the licensee and to the consumers to whom the licensee sends its privacy notice:

(1) The categories of nonpublic personal information that the licensee collects;

(2) The categories of nonpublic personal information that the licensee discloses;

(3) The categories of affiliates and nonaffiliated third parties to whom the licensee discloses nonpublic personal information, and the general types of businesses in which the third parties engage if the information is disclosed pursuant to California Insurance Code Section 791.13(k);

(4) The categories of nonpublic personal information about the licensee's former customers that the licensee discloses and the categories of affiliates and nonaffiliated third parties to whom the licensee discloses nonpublic personal information about the licensee's former customers, if the information is disclosed pursuant to California Insurance Code Section 791.13(k);

(5) If a licensee wishes to disclose or reserve the right to disclose nonpublic personal financial information to an affiliate for marketing purposes without affirmative authorization or the right to opt out of that disclosure, a statement explaining that the licensee may disclose nonpublic personal financial information to affiliates for marketing purposes without obtaining prior authorization and the law does not allow customers to restrict that disclosure.

(6) An explanation of the consumer's right to opt out of the disclosure of nonpublic personal financial information to nonaffiliated third parties, including the methods by which the consumer may exercise that right at that time;

(7) Any disclosures that the licensee makes under Section 603(d)(2)(A)(iii) of the federal Fair Credit Reporting Act (15 U.S.C. 1681a(d)(2)(A)(iii)) regarding the ability to opt out of disclosures of information among affiliates;

(8) The licensee's policies and practices with respect to protecting the confidentiality and security of nonpublic personal information, including a general description as to who is authorized to have access to the information;

(9) If applicable, a statement that the consumer has the right to access and request correction of recorded nonpublic personal information and a brief description of the manner in which those rights may be exercised; and

(10) The categories of disclosures that the licensee makes under California Insurance Code Section 791.13.

(11) If applicable, the statement required by California Insurance Code Section 791.04(b)(5).

(12) A licensee does not adequately categorize the information that it discloses if the licensee uses only general terms, such as transaction information about the consumer.

(b) If prior authorization is not required and a licensee reserves the right to disclose all of the nonpublic personal information about consumers that it collects, the licensee may simply state that fact without describing the categories or examples of nonpublic personal information that the licensee discloses.

(c) An abbreviated notice, as provided for in California Insurance Code Section 791.04(c), shall comply with California Insurance Code Section 791.04(c) and:

(1) Be clear and conspicuous;

(2) Describe a reasonable means by which the consumer may obtain the notice prescribed by California Insurance Code Section 791.04(b), such as calling a toll-free telephone number to request the notice. If the consumer is provided the abbreviated notice in person at the licensee's office, the abbreviated notice may state that the licensee maintains copies of the notice on hand which will be provided to the consumer immediately upon request; and

(3) If applicable, contain an opt-out notice complying with these regulations.

This section does not prohibit the use of multiple links on a website to different categories or levels of information, as long as they are designed to facilitate rather than impede access.

NOTE

Authority cited: Sections 791-791.27, Insurance Code; and 15 U.S.C. Sections 6801, 6805 and 6807. Reference: Sections 791.04, 791.05, 791.06 and 791.13, Insurance Code.

HISTORY

1. New section filed 11-22-2002; operative 3-24-2003 (Register 2002, No. 47).

§2689.8. Form of Opt Out Notice and Opt Out Methods.

Note • History

(a) If a licensee is required to provide an opportunity to opt-out before it shares any nonpublic personal financial information with a nonaffiliated third party, it shall provide a clear and conspicuous notice to the consumer, that clearly states in 16-point boldface type “IMPORTANT PRIVACY CHOICES”, or similarly highlights the purpose of the notice, so that the consumer may make a decision and provide direction to the licensee regarding the sharing of his or her nonpublic personal financial information.

If a licensee provides the opt out notice later than the initial notice, the licensee shall also include, with the opt-out notice, a copy of the initial notice in writing or, if the consumer agrees, electronically.

The notice shall state that the licensee discloses or reserves the right to disclose nonpublic personal financial information about its consumers to nonaffiliated third parties, that the consumer has the right to opt out of that disclosure, and set forth reasonable means by which the consumer may exercise the opt out right.

A licensee provides adequate notice that the consumer can prevent the disclosure of nonpublic personal financial information to a nonaffiliated third party if the licensee (1) identifies all of the categories of nonpublic personal financial information which it discloses or reserves the right to disclose, (2) all of the categories of nonaffiliated third parties to which it discloses the information, (3) states that the consumer can prevent the disclosure of that information, and identifies the insurance products or services that the consumer obtains from the licensee to which the opt out direction would apply.

A licensee provides a reasonable means to exercise an opt out right if it designates check-off boxes in a prominent position on the relevant forms with the opt out notice; includes a reply form together with the opt-out notice; provides an electronic means to opt out, such as a form that can be sent via electronic mail or a process at the licensee's web site, if the consumer agrees to the electronic delivery of information. Unless the consumer agrees to an electronic opt-out method, the licensee shall provide a self-addressed postage prepaid return envelope or a toll-free telephone number that consumers may use to opt out.

A licensee does not provide a reasonable means of opting out if, for example, the only means of opting out is for the consumer to write his or her own letter to exercise that opt out right, or the only means of opting out as described in any notice subsequent to the initial notice is to use a check-off box that the licensee provided with the initial notice but did not include with the subsequent notice.

(b) If a licensee mails the opt-out notice with information that is not a bill or renewal offer, the opt-out notice shall be the first page of the mailing.

(c) A licensee is not subject to the notice and opt out requirements for nonpublic personal financial information if the licensee is an employee or agent of another licensee (“the principal”) and:

(1) The principal otherwise complies with, and provides the required notices; and

(2) The licensee does not disclose any nonpublic personal financial information to any person other than the principal or its affiliates in a manner permitted by California Insurance Code Sections 791-791.27 or these regulations.

For purposes of these regulations, “agent” is defined in California Insurance Code Section 791.02(c) to include any person licensed pursuant to Chapters 5, 5A, 6, 7, or 8 and thus includes an insurance broker.

(d) When a consumer has declined to exercise the right to opt out in accordance with this section, the nonpublic personal financial information disclosed:

(1) May not exceed the scope of disclosure stated in the licensee's opt-out notice;

(2) May not include account number, or policy number information; and

(3) Shall comply with California Insurance Code Section 791.13(k)(1).

(e) If two or more consumers jointly obtain an insurance product or service from a licensee, the licensee may provide a single opt out notice, as long as the licensee gives clear and conspicuous notice that the notice is being provided on a joint basis and the consumers have given the licensee a single address of record or the licensee has other reasonable basis to believe that the notice will be adequately communicated to each individual entitled to receive notice.

The licensee's opt out notice shall explain how the licensee will treat an opt out direction by a joint consumer. Any of the joint consumers may exercise the right to opt out. The licensee may either treat an opt out direction by a joint consumer as applying to all of the associated joint consumers or permit each joint consumer to opt out separately. If a licensee permits each joint consumer to opt out separately, the licensee shall permit one of the joint consumers to opt out on behalf of all of the joint consumers. A licensee may not require all joint consumers to opt out before it implements any opt out direction. If one joint policyholder opts out and the other does not, the licensee may only disclose nonpublic personal financial information about the policyholder who did not opt out and may not disclose information relating to the policyholders jointly.

(f) A consumer may exercise the right to opt out at any time. A licensee may share marketing information with nonaffiliated third parties if a consumer does not respond within 30 days. A licensee shall not share information for marketing purposes before the conclusion of the 30-day time period. If a consumer provides an opt-out direction after the licensee has begun sharing nonpublic personal financial information, the licensee shall comply with the opt-out direction no later than 30 days after the licensee receives the opt out direction.

(g) A consumer's direction to opt out under this section is effective until the consumer revokes it in writing or electronically, at the consumer's choice.

When a customer relationship terminates, the customer's opt out direction continues to apply to the nonpublic personal financial information that the licensee collected during or related to that relationship. If the individual subsequently establishes a new customer relationship with the licensee, the opt out direction that applied to the former relationship does not apply to the new relationship.

(h) Any authorized representative may opt out on behalf of the consumer. A licensee receiving notice that a consumer has opted out shall not require proof of authorization unless it has a reasonable basis for believing that the person submitting the opt-out direction was acting contrary to the wishes of the consumer.

NOTE

Authority cited: Sections 791-791.27, Insurance Code; and 15 U.S.C. Sections 6801, 6805 and 6807. Reference: Section 791.13. Insurance Code; Section 4056.5, Financial Code; and 15 U.S.C. Section 6802.

HISTORY

1. New section filed 11-22-2002; operative 3-24-2003 (Register 2002, No. 47).

2. Change without regulatory effect amending subsection (c)(2), repealing subsection (c)(3) and amending Note filed 11-4-2010 pursuant to section 100, title 1, California Code of Regulations (Register 2010, No. 45).

§2689.9. Revised Privacy Notices.

Note • History

(a) Except as otherwise authorized, a licensee shall not, directly or through an affiliate, disclose any nonpublic personal information about a consumer to a nonaffiliated third party other than as described in the notice provided to that consumer unless:

(1) The licensee has provided to the consumer a clear and conspicuous revised notice that accurately describes its policies and practices;

(2) The licensee has provided to the consumer a new opt out notice which complies with section 2689.8 and;

(3) The consumer does not opt out in accordance with section 2689.8.

NOTE

Authority cited: Sections 791-791.27, Insurance Code; and 15 U.S.C. 6801, 6805 and 6807. Reference: Section 791.13, Insurance Code; and 15 U.S.C. Section 6802.

HISTORY

1. New section filed 11-22-2002; operative 3-24-2003 (Register 2002, No. 47).

§2689.10. Delivery of Notices.

Note • History

(a) A licensee shall provide any required notices, including notices provided at the consumer's request, so that each consumer can reasonably be expected to receive actual notice in writing or, if the consumer agrees, electronically. Notices must be made available in a form capable of retention by the consumer.

A licensee may reasonably expect that a consumer will receive actual notice if the licensee, for example:

(1) Hand-delivers a printed copy of the notice to the consumer;

(2) Mails a printed copy of the notice to the last known address of the consumer separately, or in a policy, billing or other written communication;

(3) For a consumer who conducts transactions electronically, posts the notice on the electronic site in accordance with section 2689.4(a) and requires the consumer to acknowledge receipt of the notice as a necessary step to obtaining a particular insurance product or service;

(4) For an isolated transaction with a consumer, such as the licensee providing an insurance quote or selling the consumer travel insurance, posts the notice in a conspicuous location and requires the consumer to acknowledge receipt of the notice as a necessary step to obtaining the particular insurance product or service.

A licensee may not reasonably expect that a consumer will receive actual notice if it:

(5) Only posts a sign in its office or generally publishes advertisements of its privacy policies and practices; or

(6) Sends the notice via electronic mail to a consumer who does not obtain an insurance product or service from the licensee electronically.

(b) A licensee may not provide any notice required by these regulations solely by orally explaining the notice, either in person or over the telephone.

NOTE

Authority cited: Sections 791-791.27, Insurance Code; and 15 U.S.C. Sections 6801, 6805 and 6807. Reference: Section 791.04, Insurance Code; and 15 U.S.C. Sections 6802 and 6803.

HISTORY

1. New section filed 11-22-2002; operative 3-24-2003 (Register 2002, No. 47).

Article 3. Limits on Disclosures of Medical Record Information

§2689.11. Disclosure of Medical Record Information.

Note • History

(a) A licensee shall not disclose nonpublic personal medical record information about a consumer to affiliated or nonaffiliated third parties without the consumer's prior written authorization.

(b) This section does not prohibit or restrict the disclosure of nonpublic personal medical record information as permitted by California Insurance Code Section 791.13 or require an authorization for disclosure of nonpublic personal medical record information other than as required by California Insurance Code Section 791.13.

NOTE

Authority cited: Sections 791-791.27, Insurance Code; and 15 U.S.C. Sections 6801, 6805 and 6807. Reference: Section 791.13, Insurance Code.

HISTORY

1. New article 3 (section 2689.11) and section filed 11-22-2002; operative 3-24-2003 (Register 2002, No. 47).

Article 4. Standards for Safeguarding Nonpublic Personal Information

§2689.12. General Provisions.

Note • History

(a) This article establishes standards for developing and implementing administrative, technical, and physical safeguards to protect the security, confidentiality, and integrity of nonpublic personal information, pursuant to California Insurance Code Section 791 and sections 501, 505(b), and 507, codified at 15 U.S.C. 6801, 6805(b) and 6807, of GLBA.

(b) The actions and procedures described in sections 2689.16, 2689.17, 2689.18, and 2689.19 are examples of methods of implementation of the requirements of sections 2689.14 and 2689.15. These examples are non-exclusive illustrations of actions and procedures that licensees may follow to implement sections 2689.14 and 2689.15 of these regulations.

NOTE

Authority cited: Sections 791-791.27, Insurance Code; and 15 U.S.C. Sections 6801, 6805, 6807 and 6824. Reference: Section 791, Insurance Code; and 15 U.S.C. Sections 6801, 6805 and 6807.

HISTORY

1. New article 4 (sections 2689.12-2689.20) and section filed 11-22-2002; operative 3-24-2003 (Register 2002, No. 47).

§2689.13. Definitions.

Note • History

For purposes of this article, the following definitions apply:

(a) “Customer information systems” means the electronic or physical methods used to access, collect, store, use, transmit, protect, or dispose of nonpublic personal information, whether that information is maintained in paper, electronic, or other form.

(b) “Service provider” means any person or entity that maintains, processes, or otherwise is permitted access to customer information through its provision of services directly to the licensee.

NOTE

Authority cited: Sections 791-791.27, Insurance Code; and 15 U.S.C. Sections 6801, 6805, 6807 and 6824. Reference: Section 791, Insurance Code; and 15 U.S.C. Section 6827.

HISTORY

1. New section filed 11-22-2002; operative 3-24-2003 (Register 2002, No. 47).

§2689.14. Information Security Program.

Note • History

Each licensee shall implement a comprehensive written information security program that includes administrative, technical and physical safeguards for the protection of customer information. The administrative, technical, and physical safeguards included in the information security program shall be appropriate to the size and complexity of the licensee and the nature and scope of its activities.

NOTE

Authority cited: Sections 791-791.27, Insurance Code; and 15 U.S.C. Sections 6801, 6805, 6807 and 6824. Reference: Section 791, Insurance Code; and 15 U.S.C. Section 6825.

HISTORY

1. New section filed 11-22-2002; operative 3-24-2003 (Register 2002, No. 47).

§2689.15. Objectives of Information Security Program.

Note • History

A licensee's information security program shall be designed to:

(a) Ensure the security and confidentiality of customer information;

(b) Protect against any anticipated threats or hazards to the security or integrity of such information; and

(c) Protect against unauthorized access to or use of such information that could result in substantial harm or inconvenience to any customer.

NOTE

Authority cited: Sections 791-791.27, Insurance Code; and 15 U.S.C. 6801, 6805, 6807 and 6824. Reference: Section 791, Insurance Code; and 15 U.S.C. Section 6825.

HISTORY

1. New section filed 11-22-2002; operative 3-24-2003 (Register 2002, No. 47).

§2689.16. Assess Risk.

Note • History

The licensee:

(a) Identifies reasonably foreseeable internal and external threats that could result in unauthorized disclosure, misuse, alteration, or destruction of customer information or customer information systems;

(b) Assesses the likelihood and potential damage of these threats, taking into consideration the sensitivity of customer information; and

(c) Assesses the sufficiency of policies, procedures, customer information systems, and other safeguards in place to control risks.

NOTE

Authority cited: Sections 791-791.27, Insurance Code; and 15 U.S.C. Sections 6801, 6805, 6807 and 6824. Reference: Section 791, Insurance Code; and 15 U.S.C. Section 6825.

HISTORY

1. New section filed 11-22-2002; operative 3-24-2003 (Register 2002, No. 47).

§2689.17. Manage and Control Risk.

Note • History

The licensee:

(a) Designs its information security program to control the identified risks, commensurate with the sensitivity of the information as well as the complexity and scope of the licensee's activities.

(b) Trains staff, as appropriate, to implement the licensee's information security program; and

(c) Regularly tests or otherwise regularly monitors the key controls, systems and procedures of the information security program. The frequency and nature of the tests are determined by the licensee's risk assessment.

NOTE

Authority cited: Sections 791-791.27, Insurance Code; and 15 U.S.C. Sections 6801, 6805, 6807 and 6824. Reference: Section 791, Insurance Code; and 15 U.S.C. Section 6825.

HISTORY

1. New section filed 11-22-2002; operative 3-24-2003 (Register 2002, No. 47).

§2689.18. Service Providers.

Note • History

The licensee:

(a) Exercises appropriate due diligence in selecting its service providers; and

(b) Requires its service providers, by contract, to implement appropriate measures designed to meet the objectives of this article, and, where indicated by the licensee's risk assessment, takes appropriate steps to confirm that its service providers have satisfied such obligations.

NOTE

Authority cited: Sections 791-791.27, Insurance Code; and 15 U.S.C. Sections 6801, 6805, 6807 and 6824. Reference: Section 791, Insurance Code; and 15 U.S.C. Section 6825.

HISTORY

1. New section filed 11-22-2002; operative 3-24-2003 (Register 2002, No. 47).

§2689.19. Adjust the Program.

Note • History

A licensee monitors, evaluates, and adjusts, as appropriate, the information security program in light of any relevant changes in technology, the sensitivity of its customer information, internal or external threats to information, and the licensee's own changing business arrangements, such as mergers and acquisitions, outsourcing arrangements, and changes to customer information systems.

NOTE

Authority cited: Sections 791-791.27, Insurance Code; and 15 U.S.C. Sections 6801, 6805, 6807 and 6824. Reference: Section 791, Insurance Code; and 15 U.S.C. Section 6825.

HISTORY

1. New section filed 11-22-2002; operative 3-24-2003 (Register 2002, No. 47).

§2689.20. Enforcement.

Note • History

The Commissioner shall audit a licensee's compliance with this article in a manner and with such frequency as the Commissioner deems necessary. Violations of this article are subject to California Insurance Code Section 791.15, et seq. and any other enforcement provisions available to the Commissioner.

NOTE

Authority cited: Sections 791-791.27, Insurance Code; and 15 U.S.C. Sections 6801, 6805, 6807 and 6824. Reference: Section 791.15, Insurance Code.

HISTORY

1. New section filed 11-22-2002; operative 3-24-2003 (Register 2002, No. 47).

Article 5. Additional Provisions

§2689.21. Protection of Fair Credit Reporting Act.

Note • History

Nothing in these regulations shall be construed to modify, limit or supersede the operation of the federal Fair Credit Reporting Act (15 U.S.C. 1681 et seq.), and no inference shall be drawn on the basis of the provisions of these regulations regarding whether information is transaction or experience information under Section 603 of that Act.

NOTE

Authority cited: Sections 791-791.27, Insurance Code; and 15 U.S.C. Sections 6801, 6805 and 6807. Reference: 15 U.S.C. Section 6806.

HISTORY

1. New article 5 (sections 2689.21-2689.24) and section filed 11-22-2002; operative 3-24-2003 (Register 2002, No. 47).

§2689.22. Nondiscrimination.

Note • History

A licensee shall not unfairly discriminate against any consumer or customer because that consumer or customer has opted out from the disclosure of his or her nonpublic personal information pursuant to the provisions of these regulations.

A licensee shall not unfairly discriminate against a consumer or customer because that consumer or customer has not granted authorization for the disclosure of his or her nonpublic personal medical record information pursuant to the provisions of these regulations.

As used in this section, “unfairly discriminate” includes denying a consumer or customer a product or service because he or she has not provided the consent required to authorize the financial institution to disclose or share his or her nonpublic personal information as provided in California Insurance Code Section 791.13(k).

NOTE

Authority cited: Sections 791-791.13, Insurance Code; and 15 U.S.C. Sections 6801, 6805 and 6807. Reference: Section 791.13, Insurance Code.

HISTORY

1. New section filed 11-22-2002; operative 3-24-2003 (Register 2002, No. 47).

§2689.23. Severability.

Note • History

If any section or portion of a section of these regulations or its applicability to any person or circumstance is held invalid by a court, the remainder of the regulation or the applicability of the provision to other persons or circumstances shall not be affected.

NOTE

Authority cited: Sections 791-791.27, Insurance Code; and 15 U.S.C. Sections 6801, 6805 and 6807. Reference: Section 791, Insurance Code.

HISTORY

1. New section filed 11-22-2002; operative 3-24-2003 (Register 2002, No. 47).

§2689.24. Effective Date; Contracts with Nonaffiliated Third Parties.

Note • History

These regulations are effective one hundred and twenty (120) days after they are filed with the Secretary of State. If that day falls on a Saturday, Sunday, or any holiday set forth in California Government Code Section 6700, the regulations shall become effective on the next business day.

Within 90 days of the effective date of these regulations, all contracts that a licensee enters into or has entered into with a nonaffiliated third party to perform services for the licensee or functions on the licensee's behalf shall include or be amended to include a written requirement that the third party maintain the confidentiality of nonpublic personal information where the nonaffiliated third party obtains confidential nonpublic personal information in connection with the contract.

NOTE

Authority cited: Sections 791-791.27, Insurance Code; and 15 U.S.C. Sections 6801, 6805 and 6807. Reference: Section 791, Insurance Code.

HISTORY

1. New section and Appendix A filed 11-22-2002; operative 3-24-2003 (Register 2002, No. 47).

Appendix A -- Sample Clauses

If applicable, a licensee may use the following sample clauses in its notices. A group of financial holding company affiliates using a common privacy notice may use these clauses if accurate for each company. These clauses are not exclusive. (Note that disclosure of certain information, such as assets, income and information from a consumer reporting agency, may result in obligations under the federal Fair Credit Reporting Act.)

Categories of information collected

The following language may be used to describe the categories of personal information collected.

We collect personal information about you from:

• Applications or other forms you complete;

• Your business dealings with us and other companies; and

• Consumer reporting agencies.

Categories of information disclosed

The following language may be used to describe the categories of personal information disclosed.

Alternative 1:

We may disclose the following personal information about you:

• Information from your application or other forms, such as your name, address, social security number, assets, income, and beneficiaries;

• Information about your transactions with us, our affiliates or others, such as your policy coverage, premiums, and payment history; and

• Information from consumer reporting agencies, such as your credit history.

Alternative 2:

We may disclose all the information that we collect about you.

To whom information is disclosed

The following language may be used to describe the persons to whom the licensee discloses information.

Alternative 1:

We do not disclose any personal information about you to anyone unless allowed by law. The law allows us to share your financial information with our affiliates to market products or services to you. You cannot prevent those disclosures.

Alternative 2:

We may disclose personal information about you to:

• Financial companies, such as life insurers, automobile insurers, mortgage bankers, securities broker-dealers, and insurance agents;

• Companies, such as retailers, direct marketers, airlines, and publishers; and

• Others, such as non-profit organizations.

Alternative 3:

We may also disclose personal information about you as allowed by law. The law allows us to share your financial information with our affiliates to market products or services to you. You cannot prevent those disclosures.

Explanation of opt out right

The following language may be used to explain the consumer's right to opt out of the disclosure of personal financial information to nonaffiliated third parties and how the consumer may exercise that right, when the licensee discloses personal information as permitted by California Insurance Code Section 791.13(k)(2).

If you don't want us to disclose personal information about you to nonaffiliated companies, you may tell us so. This is known as “opting out”. If you wish to opt out, call us at 1-800___-____ or complete and return the enclosed form. We may share information about you if we do not hear from you within 30 days. However, you may opt-out at any time. Just call or write us. Even if you opt-out, we may still disclose information as allowed by law. This includes disclosing information to our affiliates to market other products or services to you.

Confidentiality and security

The following language may be used to describe how a licensee protects the confidentiality and security of personal information.

We protect your nonpublic personal information. The only employees who have access to that information are those who must have it to provide products or services to you.

Subchapter 6. The Department of Insurance Conflict-of-Interest Code

§2690. Introduction.

Note • History

The Political Reform Act (Government Code Section 81000, et seq.) requires state and local government agencies to adopt and promulgate conflict-of-interest codes. The Fair Political Practices Commission has adopted a regulation (2 Cal. Code of Regs. Sec. 18730) that contains the terms of a standard conflict-of-interest code, which can be incorporated by reference in an agency's code. After public notice and hearing, the standard code may be amended by the Fair Political Practices Commission to conform to amendments in the Political Reform Act. Therefore, the terms of 2 California Code of Regulations Section 18730 and any amendments to it duly adopted by the Fair Political Practices Commission are hereby incorporated by reference. This regulation and the attached Appendices, designating positions and establishing disclosure categories, shall constitute the conflict-of-interest code of the Department of Insurance (Department).

Individuals holding designated positions shall file their statement of economic interests with the Department, which will make the statements available for public inspection and reproduction (Government Code Section 81008). Upon receipt of the statements of the Insurance Commissioner, Chief Deputy Insurance Commissioner, and members of all Board and Commissions, the Department shall make and retain a copy and forward the original of these statements to the Fair Political Practices Commission. All other statements will be retained by the Department.

NOTE

Authority cited for Subchapter 6: Section 87300, Government Code. Reference; Section 87302 (a), (b) and (c), Government Code.

HISTORY

1. New Subchapter 6 (Sections 2690-2690.65) filed 5-2-77; effective thirtieth day thereafter. Approved by Fair Political Practices Commission 3-17-77 (Register 77, No. 19).

2. Repealer of section and new introductory paragraphs filed 10-17-95; operative 11-16-95. Approved by Fair Political Practices Commission 8-7-95. Submitted to OAL for printing only (Register 95, No. 42).

3. Amendment of introductory paragraphs filed 1-21-2003; operative 2-20-2003. Approved by Fair Political Practices Commission 11-12-2002 (Register 2003, No. 4).

4. Amendment filed 4-12-2010; operative 5-12-2010. Approved by Fair Political Practices Commission 3-3-2010 (Register 2010, No. 16).

§2690.1. Designated Positions.

Appendix A

Designated Positions

Disclosure

Category

Executive Office

Chief Deputy Commissioner (Exempt) 1

Chief, Office of Strategic Planning (CEA) 1

Chief, Organizational Accountability Office

(Staff Management Auditor) 1

Chief, Office of Civil Rights (Staff Services Manager [SSM] II) 2

Administration and Licensing Services Branch

Deputy Commissioner (CEA) 1

Chief, Financial Management Division (CEA) 1

Chief, Budget and Revenue Management Bureau (SSM II) 4

Chief, Accounting Services Bureau (Accounting

Administrator III) 4

Chief, Business Management Bureau (SSM III) 4

Assistant Chief, Business Management Bureau (SSM I) 4

Associate Governmental Program Analyst, Contracts Unit 2

Staff Services Analyst, Contracts Unit/Special Projects 2

Business Services Officer I, Purchasing Unit 2

Business Services Assistant, Purchasing Unit 2

Chief, Human Resources Management Division (CEA) 1

Assistant Personnel Officer (SSM II) 6

All Staff Services Managers 6

All Labor Relations Staff (regardless of rank) 6

Chief, Information Technology Division (CEA) 1

All Data Processing Managers 2

All Software Specialists I, II and III (Technical/Supervisory) 6

All Staff Information Systems Analysts (Specialist/Supervisor) 6

All Senior Information Systems Analysts (Specialist/

Supervisor) 6

All Staff Programmer Analysts (Specialist) 6

All Assistant Information Systems Analysts 6

Chief, Licensing Services Division (CEA) 1

All Staff Services Managers 3

All Associate Governmental Program Analysts 3

All Staff Services Analysts 3

Rate Regulation Branch

Deputy Commissioner (CEA) 1

All Bureau Chiefs (SSM I and above) 2

All Actuaries (regardless of rank) 2

All Insurance Rate Analysts (regardless of rank) 2

Consumer Services and Market Conduct Branch

Deputy Commissioner (CEA) 1

Manager, Administrative Unit (Licensing Program Manager I) 2

Chief, Consumer Services Division 2

Chief, Consumer Communications Bureau 2

Chief, Claims Services Bureau 2

Chief, Rating and Underwriting Services Bureau 2

All Insurance Compliance Officers (regardless of rank) 2

Chief, Market Conduct Division (CEA) 1

Chief, Field Claims Bureau 2

Chief, Field Rating and Underwriting Bureau SF/LA (Supv.

Ins. Rate Analyst) 2

Chief, Field Rating and Underwriting Bureau Sac/LA (Supv.

Ins. Rate Analyst) 2

All Insurance Compliance Officers (regardless of rank) 2

Financial Surveillance Branch

Deputy Commissioner (CEA) 1

All Insurance Examiners (regardless of rank) 2

Chief, Field Examinations Division (CEA) 1

All Insurance Claims Specialists 2

Chief, Financial Analysis Division (CEA) 1

Chief Actuary (CEA) 1

All Actuaries (regardless of rank) 2

Enforcement Branch

Deputy Commissioner (CEA) 1

Chief, Enforcement Branch Headquarters (SSM II) 4

Chief, Fraud Division (CEA) 1

All Fraud Investigators (regardless of rank) 5

Chief, Investigations Division (CEA) 1

All Investigators (regardless of rank) 2

All Fraud Investigators (regardless of rank) 5

Legal Branch

Deputy Commissioner/General Counsel (Exempt) 1

Deputy Chief Counsel (Staff Counsel) 2

Chief, Government Law Bureau (Staff Counsel) 2

Chief, Fraud Liaison Bureau (Staff Counsel) 2

Chief, Enforcement Bureau (Staff Counsel) 2

Chief, Information Security Office (SSM I) 2

Chief, Auto Enforcement Bureau (Staff Counsel) 2

Chief, Rate Enforcement Bureau (Staff Counsel) 2

Chief, Corporate Affairs Bureau I (Staff Counsel) 2

Chief, Corporate Affairs Bureau II (Staff Counsel) 2

Chief, Policy Approval Bureau (Staff Counsel) 2

Chief, San Francisco Enforcement/Sacramento Health

Enforcement Bureau (Staff Counsel) 2

All Staff Counsels (regardless of rank) 2

Policy and Planning Branch

Deputy Commissioner (Exempt) 1

Chief, Special Projects Division (SSM I) 2

Chief, Policy Research Division (Research Manager II) 2

Chief, Statistical Division (Research Manager II) 1

Community Programs Branch

Deputy Commissioner (Exempt) 1

Chief, Consumer Education and Outreach Bureau 2

Supervising Insurance Compliance Officer, Consumer

Education and Outreach Bureau 2

Chief, California Organized Investment Network 2

All Investment Officers (regardless of rank) 2

Chief, Office of the Ombudsman (SSM I) 2

Chief, Administrative Hearing Bureau (Administrative Law Judge) 1

All Administrative Law Judges 1

Legislative Branch

Deputy Commissioner/Legislative Director (Exempt) 1

Assistant Legislative Director (Exempt) 2

Communications and Press Relations

Deputy Commissioner (Exempt) 2

Senior Press Secretary (Exempt) 2

All Information Officers 2

Health Policy Branch

Deputy Commissioner (Exempt) 1

Special Counsel to the Commissioner

Deputy Commissioner (Exempt) 1

Committee/Boards/Commissions

Members, Advisory Committee on Automobile Insurance

Fraud (ACAIF) 2

Members, Agents and Brokers Advisory Committee (ABAC) 2

Other Committees/Boards/Commissions 2

Members, California Automobile Assigned Rick Plan (CAARP)

Members, California Insurance Guarantee Association (CIGA)

Board of Governors

Members, California Life and Health Insurance Guarantee Association

(CLHIGA)

Members, California Organized Investment Network (COIN)

Advisory Board

Members, California Workers' Compensation Insurance

Rating Bureau (WCIRB) Curriculum Board

Members, Fraud Assessment Commission

All Consultants/New Positions *

*Consultants/New Positions shall be included in the list of designated positions and shall disclose pursuant to the broadest disclosure category in the code, subject to the following limitation:

The Commissioner may determine in writing that a particular consultant or new position, although a “designated position,” is hired to perform a range of duties that is limited in scope and thus is not required to fully comply with the disclosure requirements described in this section. Such written determination shall include a description of the consultant's or new position's duties and, based on that description, a statement of the extent of the disclosure requirements. The Commissioner's determination is a public record and shall be retained for public inspection in the same manner and location as this conflict-of-interest code. (Gov. Code. Sec. 81008.)

Note: The Insurance Commissioner is an elected state officer listed in Government Code Section 87200. As such, the Insurance Commissioner must file a statement of economic interests pursuant to Government Code Section 87200 and not to the Department's conflict-of-interest code.

NOTE

Authority cited: Section 87300, Government Code. Reference: Section 87302 (a), (b) and (c), Government Code.

HISTORY

1. Repealer and new section filed 10-17-95; operative 11-16-95. Approved by Fair Political Practices Commission 8-7-95. Submitted to OAL for printing only (Register 95, No. 42).

2. Amendment filed 1-21-2003; operative 2-20-2003. Approved by Fair Political Practices Commission 11-12-2002 (Register 2003, No. 4).

3. Amendment filed 11-15-2005; operative 12-15-2005. Approved by Fair Political Practices Commission 9-30-2005 (Register 2005, No. 46).

4. New appendix A heading, amendment of section heading and repealer and new section filed 4-12-2010; operative 5-12-2010. Approved by Fair Political Practices Commission 3-3-2010 (Register 2010, No. 16).

5. Amendment filed 3-15-2012; operative 4-14-2012. Approved by Fair Political Practices Commission 1-11-2012 (Register 2012, No. 11).

§2690.2. Disclosure Categories.

Note • History

Appendix B

Disclosure Categories

Designated positions in Category 1 shall report the following:

• Any investments in business entities.

• Interests in real property.

• Sources of income, including gifts, loans and travel payments, from any source.

• Business positions.

Designated positions in Category 2 shall report the following:

• Any investments, business positions in business entities, and sources of income, including gifts, loans, and travel payments, from entities, which, within the preceding 24 months, have been subject to regulation by or under the jurisdiction of the Department.

• Any investment in a business entity, or source of income, including gifts, loans, and travel payments, from any source of the type, which, within the preceding 24 months, has provided goods, services, or equipment to the Department.

Designated positions in Category 3 shall report the following:

• Any investment or business position in a business entity required to be licensed by the Department, or that provides education or training, which, within the preceding 24 months, has been required by the Department to qualify for or maintain a license.

• Sources of income, including gifts, loans, and travel payments from any source, provided that the income was furnished by or on behalf of any person who, within the preceding 24 months:

(a.) Has been licensed by the Department;

(b.) Has provided education or training required by the Department.

Designated positions in Category 4 shall report the following:

• Any investment or business position in a business entity, or source of income, including gifts, loans, and travel payments, from any source of the type, which, within the preceding 24 months, has provided goods, services, or equipment to the Department.

• Any interest in real property, which, within the preceding 24 months, has been purchased, leased, or rented by the Department or any unit within the Department.

Designated positions in Category 5 shall report the following:

• Any investment or business position in a business entity or source of income, including gifts, loans, and travel payments, from any source, which has been the subject of investigation, or reviewed by, the designated employee during the past 12 months.

Designated positions in Category 6 shall report the following:

• Any investment or business position in a business entity, or source of income, including gifts, loans, and travel payments, from any entity of the type that, within the preceding 24 months, has provided goods, services, or equipment to the designated position's bureau/division.

NOTE

Authority cited: Section 87300, Government Code. Reference: Section 87302 (a), (b) and (c), Government Code.

HISTORY

1. Repealer and new section filed 10-17-95; operative 11-16-95. Approved by Fair Political Practices Commission 8-7-95. Submitted to OAL for printing only (Register 95, No. 42).

2. Amendment filed 1-21-2003; operative 2-20-2003. Approved by Fair Political Practices Commission 11-12-2002 (Register 2003, No. 4).

3. New appendix B heading and amendment of section filed 4-12-2010; operative 5-12-2010. Approved by Fair Political Practices Commission 3-3-2010 (Register 2010, No. 16).

§2690.3. Designated Employees; Scope of Disclosure. [Repealed]

Note • History

HISTORY

1. Repealer filed 10-17-95; operative 11-16-95. Approved by Fair Political Practices Commission 8-7-95. Submitted to OAL for printing only (Register 95, No. 42).

§2690.4. Requirement That Each Designated Employee File an Annual Statement of Economic Interest.

(a) Manner of Disclosing Reportable Items.

Disclosure statements shall be made on forms supplied by the Department and shall contain the following information:

(1) Contents of Investment and Real Property Statements:

When an investment or an interest in real property is required to be disclosed under this section, the statement shall contain:

(A) A statement of the nature of the investment or interest;

(B) The name of the business entity in which each investment is held, and a general description of the business activity in which the business entity is engaged;

(C) The address or other precise location of the real property provided, however, that an interest in real property does not include the principal residence of the filer;

(D) A statement whether the fair market value of the investment or interest in real property exceeds ten thousand dollars ($10,000), and whether it exceeds one hundred thousand dollars ($100,000);

(E) In the case of an investment which constitutes fifty percent or more of the ownership interest in a business entity, disclosure of the investments and interest in real property of the business entity;

(F) In the case of an annual or leaving office statement, if the investment or interest in real property was partially or wholly acquired or disposed of during the period covered by the statement, the date of acquisition or disposal.

(2) Contents of Income Statements.

When income is required to be reported under this section, the statement shall contain:

(A) The name and address of each source of income aggregating two hundred and fifty dollars ($250) or more in value, or twenty five dollars ($25) or more in value if the income was a gift, and a general description of the business activity, if any, of each source.

(B) A statement whether the aggregate value of income from each source was greater than one thousand dollars ($1,000), and whether it was greater than ten thousand dollars ($10,000);

(D) In the case of a gift, the amount and the date on which the gift was received;

(E) Notwithstanding the above, income does not include salary and reimbursement for expenses or per diem received from a federal government agency.

(3) Contents of Business Entity Income Reports:

When income of a business entity, including income of a sole proprietorship, is required to be reported, the statement shall contain:

(A) The name, address, and a general description of the business activity of the business entity;

(B) In the case of a business entity which provides legal or brokerage services, the name of every person who paid fees to the business entity if the filer's pro rata share of fees from such person was equal to or greater than one thousand dollars ($1,000);

(C) In the case of a business entity not covered by paragraph (B), the name of every person from whom the business entity received payments if the filer's pro rata share of gross receipts from such person was equal to or greater than ten thousand dollars ($10,000) during the calendar year.

(b) Place and Time for Filing.

(1) All designated employees required to submit a statement of financial interests shall file the original with the Chief, Staff Services and Producer Licensing Division, who shall be the filing officer. Upon receipt of the statement the filing officer shall date stamp and retain the original and return a copy to the employee, provided, however, that with regard to the statement filed by the Commissioner, the filing officer shall forward the original to the Fair Political Practices Commission, retain one copy, and return a copy to the Commissioner.

(2) The initial statement shall be filed within thirty days after the effective date of this Conflict of Interest Code. The designated employee shall disclose any reportable investment and interest in real property held on the effective date. Thereafter, new civil service designated employees shall file an initial statement within thirty days after assuming employment. Persons holding the position of Commissioner, Chief Deputy Insurance Commissioner, or Chief Assistant Insurance Commissioner shall file a statement not less than ten days before assuming office.

(3) An annual statement shall be filed annually by the last day of February. The annual statement shall include any investments and interests in any real property held and income received at any time during the period covered by the statement whether or not such reportable items are still held at the time of filing.

(4) Every employee who leaves a designated position shall file a leaving office statement within thirty days after leaving, disclosing any reportable investments, and interests in real property held and income received during the period since the closing date of the previous statement and the date of termination, whether or not such reportable items are still held at the time of filing.

§2690.5. Circumstances Under Which Designated Employees Must Disqualify Themselves from Making or Participation in the Making of Government Decisions.

(a) When Disqualification Required.

Designated employees must disqualify themselves from making or participating in the making of a governmental decision when the designated employee has a financial interest, as set forth below, which it is reasonably foreseeable may be affected materially by the decision.

For purposes of this section, a designated employee has a financial interest in a decision if it is reasonably foreseeable that the decision will have a material financial effect, distinguishable from its effect on the public generally, on:

(1) Any business entity in which the designated employee has a direct or indirect investment worth more than one thousand dollars ($1,000);

(2) Any real property in which the designated employee has a direct or indirect investment worth more than one thousand dollars ($1,000);

(3) Any source of income, other than loans by a commercial lending institution in the regular course of business, aggregating two hundred fifty dollars ($250) or more in value received by or promised to the designated employee within twelve months prior to the time when the decision is made; or

(4) Any business entity in which the designated employee is a director, officer, partner, trustee, employee, or holds any position of management.

For the purpose of this section, in determining the existence of a material effect upon a financial interest, consideration should be given, but not limited to, an analysis of the following factors:

(1) In the case of a business entity in which the public official has a direct or indirect investment worth more than one thousand dollars ($1,000), or in the case of a public official who is a director, officer, partner, trustee, employee or holds any position of management in a business entity:

(A) Whether the effect of the decision will be to increase or decrease the annualized gross revenue of the business entity by one percent or more or the annual net income of the business entity by .5 percent or more;

(B) Whether the effect of the decision will be to increase or decrease the assets or liabilities of the business entity by $50,000 or more or by .5 percent of its current assets or liabilities, whichever is less;

(2) In the case of any real property in which the public official has a direct or indirect interest worth more than one thousand dollars ($1,000);

(A) Whether the effect of the decision will be to increase the income-producing potential of the real property by $100 or five percent per month, whichever is less.

(B) Whether the effect of the decision will be to increase the fair market value of the real property by $1,000 or more or by .5 percent, whichever is greater;

(3) In the case of a source of income of a public official as defined in Government Code Section 87103(c):

(A) The decision will affect the source of income in the manner described in subsection (1) above;

(B) Whether the governmental decision will directly affect the amount of income to be received by the official;

The specific dollars or percentage amounts set forth above do not constitute either absolute maximum or minimum levels, but are merely intended to provide guidance and should be considered along with other relevant factors in determining whether a financial interest may interfere with the official's exercise of his or her duties in rendering a decision.

For purposes of this section, indirect investment or interest means any investment or interest owned by the spouse or dependent child of a designated employee, by an agent on behalf of a designated employee, by any business entity controlled by the designated employee or by a trust in which he has a substantial interest. A business entity is controlled by a designated employee if the designated employee, his agents, spouse and dependent children hold more than fifty percent of the ownership interest in the entity. A designated employee has a substantial interest in a trust when the employee, his spouse and dependent children have a present future interest worth more than one thousand dollars ($1,000).

(b) Manner of Disqualification.

In the event a designated employee is assigned a matter which requires his or her disqualification, the employee shall execute a disqualification statement. The employee shall give the statement to the immediate supervisor. The supervisor shall return one copy to the designated employee, forward a copy to the filing officer of the Department and one copy shall be placed in the assignment's file. Upon receipt of such statement, the supervisor shall immediately reassign the matter to another employee.

If the designated employee is in doubt whether to disqualify, the employee shall, by written memorandum, request a determination to be made by the supervisor. The supervisor shall record the determination made on the memorandum submitted by the employee.

One copy shall be given to the employee, a copy shall be directed to Personnel, and one copy shall be placed in the assignment's file.

If, after a designated employee has requested a determination as to whether he must disqualify himself from making or participating in the making of a governmental decision, the Commissioner determines the designated employee's financial interest is not such that the employee's official duties would have, or foreseeably have, a material financial effect on such interest, or the effect of the employee's decision as to the financial interest would be indistinguishable from its effect on the public generally, then the employee shall proceed with his official duties with respect to the matter.

A designated employee who has complied in good faith with a determination made by supervisor or by the Commissioner shall not be subject to any disciplinary action by the Department in connection with the assignment regarding which advice was sought, provided that the facts concerning the employee's financial interest were fairly represented by the employee.

§2690.6. Duties of the Filing Officer.

The filing officer shall:

(a) Supply the necessary forms and manuals prescribed by the Commission;

(b) Determine whether required documents have been filed and, if so, whether they conform on their face with the requirements of this title;

(c) Notify promptly all persons and known committees who have failed to file a report or statement in the form and at the time required by this title;

(d) Report apparent violations of this title to the appropriate agencies; and

(e) Compile and maintain a current list of all reports and statements filed with this office.

§2690.65. Disclosure Statement a Public Record.

Financial statements filed pursuant to this Code are public records open for public inspection and reproduction during regular business hours, commencing as soon as practicable, but in any event not later than the second business day following the day on which received. No conditions whatsoever shall be imposed upon persons desiring to inspect or reproduce such statements filed under this Code, no shall any information or identification be required from such persons. Copies shall be provided at a charge not to exceed ten cents ($0.10) per page.

Subchapter 6.5. Financial Examinations of Derivative Transactions

Article 1. Conflicts of Interest

§2690.90. Purpose.

Note • History

Insurance Code section 1211 authorizes a domestic incorporated insurer to engage in derivative transactions, as defined, subject to specified conditions.

Subsection (l) of section 1211 provides that the Commissioner may adopt rules and issue guidelines establishing standards and requirements relative to practices authorized by section 1211. In connection with any of the actions contemplated by section 1211 to be taken by the Commissioner, including review of an insurer's written guidelines with respect to derivative transactions and review of the documentation maintained by an insurer with respect to derivative transactions, the Commissioner may deem the actions to be an examination of an insurer subject to the provisions of sections 730 to 738, inclusive.

Further, subsection (l) requires the Commissioner to issue regulations establishing requirements regarding the disclosure of affiliations and conflicts of interest between an insurer and the person(s) assigned to perform such examinations.

NOTE

Authority cited: Section 1211(l), Insurance Code. Reference: Sections 730, 733, 734, 734.1, 735, 735.5, 736, 737 and 1211, Insurance Code.

HISTORY

1. New subchapter 6.5, article 1 (sections 2690.90-2690.94) and section filed 12-19-2006; operative 1-18-2007 (Register 2006, No. 51).

§2690.91. Definitions.

Note • History

For purposes of section 2690.94, the following terms shall have the respective meanings hereinafter set forth:

(a) “Investment Consultant” shall refer, as appropriate, to either a natural person or a company engaged in the evaluation and assessment of derivative transactions, assigned by the Commissioner to perform the work authorized under section 1211.

(b) “Affiliate” or “affiliation” is defined as follows:

(1) Parent subsidiary. A parent subsidiary relationship exists when one corporation directly or indirectly owns shares possessing more than 10 percent of the voting power of another corporation.

(2) Otherwise related business entity. Business entities, including corporations, partnerships, joint ventures and any other organizations and enterprises operated for profit, which do not have a parent subsidiary relationship are otherwise related if any one of the following three tests is met:

(A) One business entity has a controlling ownership interest in the other business entity.

(B) There is shared management and control between the entities. In determining whether there is shared management and control, consideration shall be given to the following factors:

1. The same person or substantially the same person owns and manages the two entities;

2. There are common or commingled funds or assets;

3. The business entities share the use of the same offices or employees, or otherwise share activities, resources or personnel on a regular basis;

4. There is otherwise a regular and close working relationship between the entities;

(C) A controlling owner (50% or greater interest as a shareholder or as a general partner) in one entity also is a controlling owner in the other entity.

(c) “Conflict of interest” -- an Investment Consultant has reportable conflicts of interest with regard to a particular company if the Investment Consultant has one or more economic interests in that company.

(1) “Economic interests” -- there are three types of economic interests.

(A) Investment in the Company -- The Investment Consultant has a direct or indirect investment worth two thousand dollars ($2,000) or more in the Company.

(B) Sources of Income --

1. The Investment Consultant has received income from the Company, or affiliated company, within the last 12 months or during the period of time for which the examination will apply.

2. The Investment Consultant holds or held a position in the Company, or affiliated company, within the last 12 months or during the period of time for which the examination will apply. Such position includes, but is not limited to, director, officer, partner, trustee, employee, or any position of management.

(C) Sources of Gifts -- The Investment Consultant has received from the Company, or affiliated company, gifts with a fair market value of three hundred sixty dollars ($360)1 or more within the last 12 months or during the period of time for which the examination will apply.

(d) “Company” is a domestic insurance company, or a group of insurance companies that includes a domestic insurance company, being examined and also includes those entities contracted by insurance company (ies) to perform investment management, provide investment advice, and any other related investment services.

________

1 This threshold amount is linked to the threshold established by the Fair Political Practices Commission in California Code of Regulations, Title 2, Division 6, Section 18703.4. The terms of section 18703.4 and any amendments to it duly adopted by the FPPC are hereby incorporated by reference.

NOTE

Authority cited: Section 1211(l), Insurance Code. Reference: Section 1211, Insurance Code; and California Code of Regulations, Title 2, Chapter 7, Sections 18703.1 and 18703.4.

HISTORY

1. New section filed 12-19-2006; operative 1-18-2007 (Register 2006, No. 51).

§2690.92. Disclosure.

Note • History

Prior to assigning an Investment Consultant to conduct examinations of matters authorized by section 1211, the Department of Insurance shall require the Investment Consultant to complete the Conflict of Interest and Disclosure of Affiliation Form.

NOTE

Authority cited: Section 1211(l), Insurance Code. Reference: Section 1211, Insurance Code.

HISTORY

1. New section filed 12-19-2006; operative 1-18-2007 (Register 2006, No. 51).

§2690.93. Confidentiality.

Note • History

The Conflict of Interest and Disclosure of Affiliation Form shall be confidential in accordance with Insurance Code section 735.5(c).

NOTE

Authority cited: Sections 735.5(c) and 1211(l), Insurance Code. Reference: Section 1211, Insurance Code.

HISTORY

1. New section filed 12-19-2006; operative 1-18-2007 (Register 2006, No. 51).

§2690.94. Conflict of Interest and Disclosure of Affiliation Form.

Note • History

COMPANY (COMPANIES)

Examination Period

Investment Consultant:

1. Does the Investment Consultant have a written policy to define conflicts of interest and a process in place to check for and detect actual or potential conflicts of interest? If yes, please describe the process in detail:

2. Does the Investment Consultant, or any employee of the Investment Consultant who is assigned to the examination of the COMPANY, have a direct or indirect investment in the COMPANY, or did the Investment Consultant or any employee of Investment Consultant assigned to the examination of the COMPANY have a direct or indirect investment in the COMPANY within the last 12 months or during the period of time for which the examination will apply? If yes, please explain:

3. Does the Investment Consultant have a direct or indirect affiliation with the COMPANY, or did the Investment Consultant have a direct or indirect affiliation with the COMPANY within the last 12 months or during the period of time for which the examination will apply? If yes, please explain:

4. Has the Investment Consultant, or any employee of the Investment Consultant who is assigned to the examination of the COMPANY, performed any services and/or received any income from the COMPANY within the last 12 months or during the period of time for which the examination will apply? If yes, please explain:

5. Does the Investment Consultant, or any employee of the Investment Consultant who is assigned to the examination of the COMPANY, hold any current position with the COMPANY, or has the Investment Consultant, or any employee of the Investment Consultant who is assigned to the examination of the COMPANY, held any position with the COMPANY within the last 12 months or during the period of time for which the examination will apply?

If yes, please explain:

6. Does the Investment Consultant, or any employee of the Investment Consultant who is assigned to the examination of the COMPANY, have any financial relationship with the COMPANY, or did the Investment Consultant, or any employee of the Investment Consultant assigned to the examination of the COMPANY, have any financial relationship with the Company within the last 12 months or during the period of time for which the examination will apply?

If yes, please explain:

7. Has the Investment Consultant, or any employee of the Investment Consultant who is assigned to the examination of the COMPANY, received any gifts, compensation, services, or any other thing of monetary value from the COMPANY within the last 12 months or during the period of time for which the examination will apply?

If yes, please list the items and explain:

8. Was the Investment Consultant, or any employee of the Investment Consultant who is assigned to the examination of the COMPANY, involved in any way with the investments that are the subject of this examination?

If yes, please explain:

9. Does the Investment Consultant have any potential engagements or contracts that are currently being considered which would result in an affirmative response to any of the questions above? If yes, please explain.

Circle one attestation clause as appropriate:

I have used all reasonable diligence in preparing this statement. I have reviewed this statement and to the best of my knowledge the information contained herein is true and complete.

I _________________________ (name of Officer), hereby represent and warrant that I am authorized to complete this Conflict of Interest and Disclosure of Affiliation Form on behalf of _____________ (name of company). I do so in my capacity as ______________________ (title of Officer).

Investment Consultant Date

Reviewed by:

Department of Insurance Date

NOTE

Authority cited: Section 1211(l), Insurance Code. Reference: Section 1211, Insurance Code; and California Code of Regulations, Title 2, Chapter 7, Sections 18703.1 and 18703.4.

HISTORY

1. New section filed 12-19-2006; operative 1-18-2007 (Register 2006, No. 51).

Subchapter 7. Insurance Adjusters

Article 1. Classification of Licensees

§2691. Classes.

Note • History

Licenses shall be classified according to the nature of the business entity and according to the general or usual nature of the business conducted, or to be conducted, determined by the usual clientele of the licensee.

(a) Classes, according to the nature of the business entity are:

(1) Individual;

(2) Partnership;

(3) Corporation;

(4) Unincorporated association.

Unincorporated associations include all associations other than partnerships and corporations and shall not be licensed unless each member or associate thereof is licensed in the same capacity.

(b) Licenses classified by the nature of business are the following:

(1) Independent adjusters, which are those licensees principally engaged by insurance companies;

(2) Public adjusters, which are those licensees principally engaged by insured persons.

NOTE

Authority cited: Section 14013, Insurance Code. Reference: Section 14024, Insurance Code.

HISTORY

1. New Subchapter 7 (Articles 1-10, Sections 2691 and 2691.1--2691.24) filed 2-11-82; effective thirtieth day thereafter (Register 82, No. 7).

Article 2. License Applications

§2691.1. Change in Legal Entity.

Note

A change in the organization of a licensee which results in a legal entity other than the one licensed requires the filing of an original license application for the new legal entity, and for such branch office licenses as may be applicable, and payment of the fee required for such original license and branch office licenses.

NOTE

Authority cited: Section 14013 (c) and 14097 (e), Insurance Code. Reference: Section 14013 (c) and 14027, Insurance Code.

§2691.2. Disclosure of Ten Percent Ownership Interest.

Note

Every application for a license shall disclose, in addition to those matters required by statute, the full name and residence address of each person who directly or indirectly owns, controls, holds with power to vote, or holds proxies representing, ten percent or more of the voting securities of the licensee.

NOTE

Authority cited: Section 14013, 14023, 14024 (h) and14025 (d), Insurance Code. Reference: Sections 14029 (b)(2) and 14039 (a) and (c), Insurance Code.

§2691.3. Ten Percent Owners Must Meet Certain Qualifications.

Note

The Commissioner may, in addition to other grounds set forth in the Insurance Code, deny an application or suspend or revoke the license, if a person who directly or indirectly owns, controls, holds with power to vote, or holds proxies representing ten percent or more of the voting securities of the applicant or licensee does not meet the qualifications for such license which are set forth in Insurance Code Sections 14028 and 14061.

NOTE

Authority cited: Section 14013, 14025 (d), Insurance Code. Reference: Sections 14028 and 14061, Insurance Code.

§2691.4. Qualifications and Experience.

Note

(a) Applicants for an insurance adjusters license must possess the qualifications required by Section 14025 at the time the application is filed.

(b) One year of experience shall consist of not less than 2,000 hours of actual compensated work performed by each applicant preceding the filing of the application. Applicants shall substantiate claimed years and hours of qualifying experience and the exact details as to the character and nature thereof by written certifications from employers, subject to independent verification by the Commissioner. In the event of inability of applicants to supply such written certifications from employers in whole or in part, applicants may offer written certifications from other than employers to substantiate claimed qualifying experience for consideration by the Commissioner.

NOTE

Authority cited: Section 14013 (a), 14025, Insurance Code. Reference: Section 14025, Insurance Code.

Article 3. License Examinations

§2691.5. Complete Application Required.

Note

An applicant for a license as an insurance adjuster is not eligible for examination or re-examination until he has filed a complete application accompanied by the appropriate fee.

NOTE

Authority cited: Section 14013, Insurance Code. Reference: Section 14023, 14027, and 14097, Insurance Code.

§2691.6. Time and Place of Examination.

Note

(a) The Commissioner will give qualifying examinations to insurance adjuster applicants at least once each month in each of the cities in which he has an office. He may give such examinations at more frequent intervals or in other places throughout the State.

(b) At a reasonable time before an applicant is required to appear for a qualifying examination, the Commissioner will send written notice thereof. Such notice will set forth the time and place of such examination.

NOTE

Authority cited: Section 14013, Insurance Code. Reference: Section 14026, Insurance Code.

§2691.7. Written Examination Required.

Note

Every qualifying examination for an insurance adjuster's license shall be in writing and shall be of sufficient scope to satisfy the Commissioner that the applicant has sufficient knowledge of and is reasonably familiar with the insurance laws of this State and with the provisions, terms and conditions of the insurance contracts for which settlement of claims may be made pursuant to the license sought, and has a general and fair understanding of the obligations and duties of the holder of such license.

NOTE

Authority cited: Section 14013, Insurance Code. Reference: Section 14029, Insurance Code.

§2691.8. Failure of Examination.

Note

(a) If the applicant fails the qualifying examination, the Commissioner shall give written notice of such failure and the applicant may retake such qualifying examination, upon filing the appropriate application and fee therefore and taking such examination within the period prescribed in Section 2691.9.

(b) If the applicant fails to appear at the time and place set for the examination the applicant shall be deemed to have failed the examination.

NOTE

Authority cited: Section 14013, Insurance Code. Reference: Section 14097, Insurance Code.

§2691.9. Automatic Denial of Application After One Year.

Note

If an applicant fails to complete the application or fails to take and pass the examination, nor fails to fully qualify for or receive such license within one year after filing the application, the application is automatically denied without prejudice to the filing of a new application for such license. This section shall not apply when the application has been formally denied nor when a Statement of Issues is pending against the license application.

NOTE

Authority cited: Section 14013, Insurance Code. Reference: Section 14023, Insurance Code.

Article 4. Continuation of License Pending Qualification of New Manager

§2691.10. Notice of Separation of Qualifying Person.

Note

When the manger or person on the basis of whose qualifications a license as an insurance adjuster has been obtained ceases to be connected with the licensee, the licensee shall notify the Commissioner, in writing, within 30 days from such cessation. If the licensee fails to notify the Commissioner within the 30 day period, the license is automatically suspended at the end of such 30 day period and may be reinstated only upon the filing of an application for reinstatement, payment of renewal fees and delinquency fees due, if any, and the qualification of an individual as provided in Insurance Code Sections 14025 or 14029 (b).

NOTE

Authority cited: Section 14029 (c) and 14030, Insurance Code. Reference: Section 14025, 14029 (c), 14030 and 14035, Insurance Code.

§2691.11. Continuation of Business upon Notice.

Note

If notice is given in accordance with Section 2691.10 within 30 days of such cessation, the license shall remain in force, pending the qualification of a manager, for not more than 60 days from the date the previous manager ceased to be connected with the licensee.

NOTE

Authority cited: Section 14030, Insurance Code. Reference: Section 14030, Insurance Code.

Article 5. Information About Employees

§2691.12. List of Employees.

Note

Every applicant for a new or renewal license shall file with such application a list of the full names of all employees who are authorized to negotiate claim settlements, and every licensee shall inform the Commissioner in writing within 30 days from the date of the occurrence of the name of any employee hired or terminated subsequent to the filing of the initial list.

NOTE

Authority cited: Sections 14013 (b) and 14041, Insurance Code. Reference: Section 14041, Insurance Code.

Article 6. Branch Office Requirements

§2691.13. Branch Office Under Control of Designated Person.

Note

A branch office shall be under the active management, direction and control of the licensee or his manager, with a designated person in charge of such branch office. The licensee shall report to the Commissioner the name of each person appointed as branch office manager within 10 days of such appointment.

NOTE

Authority cited: Sections 14013 (b) and 14041 and 14045, Insurance Code. Reference: Sections 14038 (h), 14041 and 14045, Insurance Code.

§2691.14. Records.

Note

A copy of all records relating to claims or loss adjusted or investigated and all activities in connection with investigating, adjusting, appraising or otherwise participating in the disposal, settlement, or investigation of any claim under or in connection with a policy of insurance or any other activity set forth in Insurance Code Section 14021, shall be maintained at and shall be available for inspection by the Department of Insurance at the location from which the business was conducted or transacted for at least five years from the date such business was conducted or transacted. Personnel and financial records may be maintained at the principal office of the licensee but must be furnished to the Commissioner within ten days of his request for production of such records.

NOTE

Authority cited: Section 14045, Insurance Code. Reference: Section 14045, Insurance Code.

§2691.15. Branch Office Must Be a Bonafide Place of Business.

Note

A branch office must be a bonafide place of business maintaining reasonable hours for service to customers. A telephone answering service or mail service at any office or location which is not under the active direction, control, charge and management of the licensee or the licensee's manager does not qualify as a branch office.

NOTE

Authority cited: Section 14013 (b), Insurance Code. Reference: Section 14045, Insurance Code.

§2691.16. Branch Office Application Required.

Note

An application to conduct business from any location other than the principal place of business shall be submitted on a form prescribed by the Commissioner and accompanied by the prescribed fee.

NOTE

Authority cited: Sections 14023, 14024, 14045, Insurance Code. Reference: Sections 14090, 14091, 14093 and 14094, Insurance Code.

Article 7. Advertisements

§2691.17. Advertisement Defined.

Note

(a) The word “advertisement” as used in Section 14044 means:

(1) Any written or printed communication for the purpose of soliciting, describing, or promoting the licensed business of the licensee, including a brochure, letter, pamphlet, newspaper, periodical, publication, or other writing.

(2) A directory listing caused or permitted by the licensee which indicates his licensed activity.

(3) A radio, television or similar airwaves transmission which solicits or promotes the licensed business of the licensee.

(b) The word “advertisement” as used in Section 14044 shall not include the following:

(1) Any printing or writing on buildings used as the licensee's place of business or branch office.

(2) Any printing or writing on communications, memorandum, or any other writings used in the ordinary course of business, where the purpose of the writing is other than the solicitation or promotion of business.

(3) Any printing or writing on novelty objects used in the promotion of the licensee's business where the printing of the information required by Section 14044 will be impractical due to the limited area or surface available.

NOTE

Authority cited: Section 14044, Insurance Code. Reference: Section 14044, Insurance Code.

Article 8. Substantial Relationship Criteria for Crimes of Wrongful Acts [Repealed]

HISTORY

1. Repealer of article 8 (section 2691.18) and section filed 1-23-2007; operative 2-22-2007 (Register 2007, No. 4).

Article 9. Criteria for Evaluating Rehabilitation [Repealed]

HISTORY

1. Repealer of article 9 (section 2691.19) and section filed 1-23-2007; operative 2-22-2007 (Register 2007, No. 4).

Article 10. Fees

§2691.20. Change of Classification.

Note • History

The fee for making a change in a license from one classification to another is the same as for an original license to do business under the new classification.

NOTE

Authority cited: Sections 14013(c) and 14097 (e), Insurance Code. Reference: Sections 14013 (a) (c) and 14097 (e), Insurance Code.

§2691.21. Renewal Fees.

Note

(a) The renewal fee for a license as an insurance adjuster shall be one hundred dollars.

(b) The renewal fee for a branch office certificate shall be twenty dollars.

NOTE

Authority cited: Sections 14097 (d) (1), (2) and (e) and 14013(c), Insurance Code. Reference: Sections 14097 (d) (1), (2) and (e) and 14013 (c), Insurance Code.

§2691.22. Partnership, Corporation or Unincorporated Association

Note

Before a partnership, corporation or unincorporated association license may be granted, each partner of a partnership, each officer of a corporation, and each member of an unincorporated association, shall file a separate application for such license on the form prescribed by the Commissioner. However, only one officer or partner or manager is required to meet the qualification requirements of Insurance Code Section 14025 in order to qualify for a partnership or corporation license. A separate application fee is required for every partner, officer, or member who is a person named to operate or manage the business of the licensee under the requirements of Insurance Code Sections 14025 and 14029.

NOTE

Authority cited: Sections 14013 (b) and 14025 (d), Insurance Code. Reference: Sections 14029, 14035 and 14097, Insurance Code.

§2691.23. Duplicate Copies of License or Identification Card.

Note • History

The fee for a duplicate copy of an insurance adjuster's license, branch office certificate, or identification card is ten dollars ($10.00).

NOTE

Authority cited: Section 14013 (b), Insurance Code. Reference: Section 12973.7, Insurance Code.

HISTORY

1. Editorial correction of printing error (Register 93, No. 13).

§2691.24. No Refunds of Fees.

Note

Application fees, renewal fees, branch office fees or any other fees provided for by statute or regulation shall not be refunded whether or not a license is granted or the examination taken, except under the provisions of Insurance Code Section 12977.

NOTE

Authority cited: Sections 14013 and 14097, Insurance Code; and Section 158, Business and Professions Code. Reference: Sections 14097 and 14099, Insurance Code.

Subchapter 7.4. Consumer Complaints

§2694. Criteria for Determining Whether a Consumer Complaint Is Justified.

Note • History

(a) A consumer complaint shall be deemed justified within the meaning of California Insurance Code section 12921.1(b) where it meets any one or more of the following criteria:

(1) the Department determines that the licensee's act, acts, omission or omissions were in noncompliance with a specific provision or provisions of the California Insurance Code, California Code of Regulations, or other applicable laws and/or regulations;

(2) the Department determines that the licensee's act, acts, omission or omissions were in contravention of an approved rate filing or filings;

(3) the Department determines that the licensee's act, acts, omission or omissions were in contravention of the licensee's rules, policies, procedures or guidelines as relates to sales, marketing, advertising, underwriting, rating, claims and/or customer service, including rate manual filings, underwriting guidelines and/or other filings, statements or guidelines either submitted to the Department or to which the Department would have access during a market conduct examination and the Department determines that there was no substantial justification for deviation from such rules, policies, procedures or guidelines on the facts presented. For purposes of this subsection, all time restrictions or requirements for reply, response, or other legally required insurer action, shall be measured as against applicable time restrictions or parameters established in the California Insurance Code, California Code of Regulations, or other applicable laws and/or regulations.

(4) the Department determines that the licensee's act, acts, omission or omissions were in contravention of, or were otherwise inconsistent with, a provision or provisions of the insurance policy, contract, bond, or other agreement entered into by the relevant parties;

(5) the Department determines that after receiving a written or documented oral communication related to a claim, benefit underwriting or rating transaction, from a policyholder, insured, applicant, third party claimant, beneficiary, principal, or other party with a legitimate interest in the transaction, where that communication reasonably suggests that a response is expected, the licensee has failed to respond or did not provide a complete response, based on the facts then known by the licensee, within the applicable time restrictions established in the California Insurance Code, California Code of Regulations, other applicable laws and/or regulations or, in the absence of such restrictions, the licensee fails to respond within 15 days. A complete response is defined as one that addresses all issues raised and includes copies of any documentation needed to support the licensee's position.

(6) the Department determines that the specific facts surrounding the complaint as against an insurer merit remedial action within the authority of the Commissioner.

NOTE

Authority cited: Section 12921.1(b), California Insurance Code. Reference: Sections 12921, 12921.1, 12921.3 and 12921.4, California Insurance Code.

HISTORY

1. New subchapter 7.4 (section 2694) and section filed 3-11-98; operative 3-11-98 pursuant to Government Code section 11343.4(d) (Register 98, No. 11).

Subchapter 7.5. Unfair or Deceptive Acts or Practices in the Business of Insurance

Article 1. Fair Claims Settlement Practices Regulations

§2695.1. Preamble.

Note • History

(a) Section 790.03(h) of the California Insurance Code enumerates sixteen claims settlement practices that, when either knowingly committed on a single occasion, or performed with such frequency as to indicate a general business practice, are considered to be unfair claims settlement practices and are, thus, prohibited by this section of the California Insurance Code. The Insurance Commissioner has promulgated these regulations in order to accomplish the following objectives:

(1) To delineate certain minimum standards for the settlement of claims which, when violated knowingly on a single occasion or performed with such frequency as to indicate a general business practice shall constitute an unfair claims settlement practice within the meaning of Insurance Code Section 790.03(h);

(2) To promote the good faith, prompt, efficient and equitable settlement of claims on a cost effective basis;

(3) To discourage and monitor the presentation to insurers of false or fraudulent claims; and,

(4) To encourage the prompt and thorough investigation of suspected fraudulent claims and ensure the prompt and comprehensive reporting of suspected fraudulent claims as required by Insurance Code Section 1872.4.

(b) These regulations are not meant to provide the exclusive definition of all unfair claims settlement practices. Other methods, act(s), or practices not specifically delineated in this set of regulations may also be unfair claims settlement practices and subject to California Insurance Code Section 790.03(h) and/or California Insurance Code Section 790.06. These regulations are applicable to the handling or settlement of all claims subject to Article 6.5 of Division 1, Part 2, Chapter 1 of the California Insurance Code, commencing with Section 790, except as specifically provided below:

(1) Workers' compensation insurance;

(2) Liability insurance for the professional malpractice of health care providers as defined in California Code of Civil Procedure Section 364(f)(1);

(3) Self insured or self funded plans which are bona fide Employee Retirement Income Security Act (“ERISA”) plans which are not also multiple employer welfare arrangements, to the extent that these ERISA plans are not covered by insurance;

(4) Any other self funded or self insured plan, to the extent it is not covered by insurance, which is lawfully conducting business in this state.

(c) In recognition of both the unique relationship which exists under a surety bond between the surety, the obligee or beneficiary, and the principal, and the fact that the processing of surety claims is subject to the Unfair Practices Act, beginning with California Insurance Code Section 790, only sections 2695.1 through 2695.6, inclusive, section 2695.10, and sections 2695.12, 2695.13 and 2695.14, inclusive, shall apply to the handling or settlement of claims brought under surety bonds.

(d) These regulations apply to home protection contracts and home protection companies defined in California Insurance Code Section 12740.

(e) All licensees, as defined in these regulations, shall have thorough knowledge of the regulations contained in this subchapter.

(f) Policy provisions relating to the investigation, processing and settlement of claims shall be consistent with or more favorable to the insured than the provisions of these regulations.

(g) The California Insurance Code provides the commissioner with access to all records of an insurer and the power to examine the affairs of every person engaged in the business of insurance to determine if such person is engaged in any unfair or deceptive act or practice. California Insurance Code Section 790.03(h) requires all persons engaged in the business of insurance to effectuate prompt, fair and equitable settlements of claims and to otherwise process claims in a fair and reasonable manner. The Department considers the use of reliable information to be an essential element of the fair and equitable settlement of claims. The fact that information, data or statistical methods used or relied upon by a licensee to process or establish the value of insurance claims is obtained through a third party source shall not absolve the licensee of its legal responsibility to comply with these regulations or to effectuate prompt, fair and equitable settlements of claims. Failure of a licensee to provide the commissioner with requested information sufficient to examine the licensee's claims handling practices may justify a finding that the licensee was in non-compliance with these regulations or other applicable insurance code provisions. Any and all information received pursuant to the Department's request shall be given confidential treatment, as provided in California Insurance Code section 735.5 and California Government Code Section 11180 et seq. When processing or establishing the value of a claim, a licensee shall not be responsible for the accuracy of information provided by a governmental entity, unless the licensee has discovered or been notified of the inaccuracy and has continued to use the information.

NOTE

Authority cited: Sections 790.034, 790.10, 1871.1, 12340-12417, inclusive, 12921 and 12926, Insurance Code; and Sections 11152 and 11342.2, Government Code. Reference: Sections 735.5, 790.03(h) and 12740, Insurance Code; and Section 11180, Government Code.

HISTORY

1. New subchapter 7.5 (sections 2695.1-2695.17) filed 12-15-92; operative 1-14-93 (Register 92, No. 52).

2. Editorial correction of printing error in History 1. (Register 93, No. 4).

3. Amendment of subchapter heading and subsection (b), new subsections (b)(1)-(b)(4), repealer and new subsection (c), amendment of subsection (d), repealer of subsection (e) and subsection relettering filed 1-10-97; operative 5-10-97 (Register 97, No. 2).

4. Amendment of subchapter heading and new article 1 heading filed 2-13-2001 as an emergency; operative 2-13-2001 (Register 2001, No. 7). A Certificate of Compliance must be transmitted to OAL by 6-13-2001 or emergency language will be repealed by operation of law on the following day.

5. Amendment of subchapter heading and new article 1 heading refiled 6-1-2001 as an emergency; operative 6-13-2001 (Register 2001, No. 22). A Certificate of Compliance must be transmitted to OAL by 10-11-2001 or emergency language will be repealed by operation of law on the following day.

6. Amendment of subchapter heading and new article 1 heading refiled 10-11-2001 as an emergency; operative 10-11-2001 (Register 2001, No. 41). A Certificate of Compliance must be transmitted to OAL by 2-8-2002 or emergency language will be repealed by operation of law on the following day.

7. Certificate of Compliance as to 10-11-2001 order transmitted to OAL 11-14-2001 and filed 12-31-2001 (Register 2002, No. 1).

8. Amendment of section and Note filed 4-24-2003; operative 7-23-2003 (Register 2003, No. 17).

9. Inclusion of informational note following article heading filed 3-1-2004 (Register 2004, No. 10).

10. Change without regulatory effect filed 8-4-2004 repealing the informational note following article heading; depublishing the amendments to the insurance claims handling practices regulations that were approved by OAL 4-24-2003, but were enjoined in Personal Insurance Federation and The Surety Association of America v. John Garamendi; and reinstating replacement regulations that were either (1) in effect prior to OAL's 4-24-2003 approval of the amendments to the regulations or (2) were found by the court to be valid, as amended, all pursuant to a court-approved settlement agreement dated 6-7-2004 (Register 2004, No. 32).

11. Amendment of subsection (b), repealer and new subsection (c), new subsection (g) and amendment of Note filed 6-1-2006; operative 8-30-2006 (Register 2006, No. 22).

§2695.2. Definitions.

Note • History

As used in these regulations:

(a) “Beneficiary” means:

(1) for the purpose of life and disability claims, the party or parties entitled to receive the proceeds or benefits occurring under the policy in lieu of the insured; or,

(2) for the purpose of surety claims, a person who is within the class of persons intended to benefit from the bond;

(b) “Calendar days” means each and every day including Saturdays, Sundays, Federal and California State Holidays, but if the last day for performance of any act required by these regulations falls on a Saturday, Sunday, Federal or State Holiday, then the period of time to perform the act is extended to and including the next calendar day which is not a Saturday, Sunday, or Federal or State holiday;

(c) “Claimant” means a first or third party claimant as defined in these regulations, any person who asserts a right of recovery under a surety bond, an attorney, any person authorized by operation of law to represent the claimant, or any of the following persons properly designated by the claimant in the manner specified in subsection 2695.5(c): an insurance adjuster, a public adjuster, or any member of the claimant's family.

(d) “Claims agent” means any person employed or authorized by an insurer, to conduct an investigation of a claim on behalf of an insurer or a person who is licensed by the Commissioner to conduct investigations of claims on behalf of an insurer. The term “claims agent”, however, shall not include the following:

(1) an attorney retained by an insurer to defend a claim brought against an insured; or,

(2) persons hired by an insurer solely to provide valuation as to the subject matter of a claim.

(e) “Extraordinary circumstances” means circumstances outside of the control of the licensee which severely and materially affect the licensee's ability to conduct normal business operations;

(f) “First party claimant” means any person asserting a right under an insurance policy as a named insured, other insured or beneficiary under the terms of that insurance policy, and including any person seeking recovery of uninsured motorist benefits;

(g) “Gross settlement amount” means the amount tendered plus the amount deducted as provided in the policy in the settlement of an automobile total loss claim;

(h) “Insurance agent” means:

(1) the term “insurance agent” as used in section 31 of the California Insurance Code; or,

(2) the term “life agent” as used in section 32 of the California Insurance Code; or,

(3) any person who has authority or responsibility to notify an insurer of a claim upon receipt of a notice of claim by a claimant; or,

(4) an underwritten title company.

(i) “Insurer” means a person licensed to issue or that issues an insurance policy or surety bond in this state, or that otherwise transacts the business of insurance in the state, including reciprocal and interinsurance exchanges, fraternal benefit societies, stock and mutual insurance companies, risk retention groups, California county mutual fire insurance companies, grants and annuities societies, entities holding certificates of exemption, non-profit hospital service plans, multiple employer welfare arrangements holding certificates of compliance pursuant to Article 4.7 of the California Insurance Code, and motor clubs, to the extent that they transact the business of insurance in the State. The term “insurer” for purposes of these regulations includes non-admitted insurers, the California FAIR Plan, the California Earthquake Authority, those persons licensed to issue or that issue an insurance policy pursuant to an assignment by the California Automobile Assigned Risk Plan, home protection companies as defined under California Insurance Code Section 12740, and any other entity subject to California Insurance Code Section 790.03(h). The term “insurer” shall not include insurance agents and brokers, surplus line brokers and special lines surplus line brokers.

(j) “Insurance policy” or “policy” means the written instrument in which any certificate of group insurance, contract of insurance, or non-profit hospital service plan is set forth. For the purposes of these regulations the terms insurance policy or policy do not include “surety bond” or “bond”. For the purposes of these regulations the term insurance policy or policy includes a home protection contract or any written instrument in which any certificate of insurance or contract of insurance is set forth that is issued pursuant to the California Automobile Assigned Risk Plan, the California Earthquake Authority, or the California FAIR Plan;

(k) “Investigation” means all activities of an insurer or its claims agent related to the determination of coverage, liabilities, or nature and extent of loss or damage for which benefits are afforded by an insurance policy, obligations or duties under a bond, and other obligations or duties arising from an insurance policy or bond.

(l) “Knowingly committed” means performed with actual, implied or constructive knowledge, including, but not limited to, that which is implied by operation of law.

(m) “Licensee” means any person that holds a license or Certificate of Authority from the Insurance Commissioner, or any other entity for whom the Insurance Commissioner's consent is required before transacting business in the State of California or with California residents. The term “licensee” for purpose of these regulations does not include an underwritten title company if the underwriting agreement between the underwritten title company and the title insurer affirmatively states that the underwritten title company is not authorized to handle policy claims on behalf of the title insurer.

(n) “Notice of claim” means any written or oral notification to an insurer or its agent that reasonably apprises the insurer that the claimant wishes to make a claim against a policy or bond issued by the insurer and that a condition giving rise to the insurer's obligations under that policy or bond may have arisen. For purposes of these regulations the term “notice of claim” shall not include any written or oral communication provided by an insured or principal solely for informational or incident reporting purposes.

(o) “Notice of legal action” means notice of an action commenced against the insurer with respect to a claim, or notice of action against the insured received by the insurer, or notice of action against the principal under a bond, and includes any arbitration proceeding;

(p) “Obligee” means the person named as obligee in a bond;

(q) “Person” means any individual, association, organization, partnership, business, trust, corporation or other entity;

(r) “Principal” means the person whose debt or other obligation is secured or guaranteed by a bond and who has the primary duty to pay the debt or discharge the obligation;

(s) “Proof of claim” means any evidence or documentation in the possession of the insurer, whether as a result of its having been submitted by the claimant or obtained by the insurer in the course of its investigation, that provides any evidence of the claim and that reasonably supports the magnitude or the amount of the claimed loss.

(t) “Remedial measures” means those actions taken by an insurer to correct or cure any error or omission in the handling of claims on the part of its insurance agent as defined in subsection 2695.2(h), including, but not limited to:

(1) written notice to the insurance agent that he/she is in violation of the regulations contained in this subchapter;

(2) transmission of a copy of the regulations contained in this subchapter and instructions for their implementation;

(3) reporting the error or omission in the handling of claims by the insurance agent to the Department of Insurance;

(u) “Replacement crash part” means a replacement for any of the nonmechanical sheet metal or plastic parts which generally constitute the exterior of a motor vehicle, including inner and outer panels;

(v) “Single act” for the purpose of determining any penalty pursuant to California Insurance Code Section 790.035 is any commission or omission which in and of itself constitutes a violation of California Insurance Code Section 790.03 or this subchapter;

(w) “Surety bond” or “bond” means the written instrument in which a contract of surety insurance, as defined in California Insurance Code Section 105, is set forth;

(x) “Third party claimant” means any person asserting a claim against any person or the interests insured under an insurance policy;

(y) “Willful” or “Willfully” when applied to the intent with which an act is done or omitted means simply a purpose or willingness to commit the act, or make the omission referred to in the California Insurance Code or this subchapter. It does not require any intent to violate law, or to injure another, or to acquire any advantage.

NOTE

Authority cited: Sections 132(d), 790.10, 12340-12417, inclusive, 12921 and 12926, Insurance Code; Section 995.130, Code of Civil Procedure; and Sections 11152 and 11342.2, Government Code. Reference: Sections 31, 32, 101, 106, 675.5(b), (c) and (d), 676.6, 790.03(h) and 10082, Insurance Code.

HISTORY

1. New section filed 12-15-92; operative 1-14-93 (Register 92, No. 52).

2. Amendment filed 1-10-97; operative 5-10-97 (Register 97, No. 2).

3. Amendment of subsections (a)(2), (g) and (i)-(l) and amendment of Note filed 4-24-2003; operative 7-23-2003 (Register 2003, No. 17).

4. Amendment of subsection (s) filed 6-5-2003; operative 9-3-2003 pursuant to title 10, section 2695.14, California Code of Regulations (Register 2003, No. 23).

5. Change without regulatory effect filed 8-4-2004 depublishing the amendments to the insurance claims handling practices regulations that were approved by OAL 4-24-2003, but were enjoined in Personal Insurance Federation and The Surety Association of America v. John Garamendi, and reinstating replacement regulations that were either (1) in effect prior to OAL's 4-24-2003 approval of the amendments to the regulations or (2) were found by the court to be valid, as amended, all pursuant to a court-approved settlement agreement dated 6-7-2004 (Register 2004, No. 32).

6. Amendment of subsection (s) filed 6-1-2006; operative 8-30-2006 (Register 2006, No. 22).

§2695.3. File and Record Documentation.

Note • History

(a) Every licensee's claim files shall be subject to examination by the Commissioner or by his or her duly appointed designees. These files shall contain all documents, notes and work papers (including copies of all correspondence) which reasonably pertain to each claim in such detail that pertinent events and the dates of the events can be reconstructed and the licensee's actions pertaining to the claim can be determined;

(b) To assist in such examination all insurers shall:

(1) maintain claim data that are accessible, legible and retrievable for examination so that an insurer shall be able to provide the claim number, line of coverage, date of loss and date of payment of the claim, date of acceptance, denial or date closed without payment. This data must be available for all open and closed files for the current year and the four preceding years;

(2) record in the file the date the licensee received, date(s) the licensee processed and date the licensee transmitted or mailed every material and relevant document in the file; and

(3) maintain hard copy files or maintain claim files that are accessible, legible and capable of duplication to hard copy; files shall be maintained for the current year and the preceding four years.

(c) The requirements of this section shall be satisfied where the licensee provides documentation evidencing inability to obtain data, nonexistence of data, or difficulty in obtaining clear documentary support for actions due to catastrophic losses, or other unusual circumstances providing the licensee establishes to the satisfaction of the Commissioner that the circumstances alleged by the licensee do exist and have materially affected the licensee's ability to comply with this regulation. Any licensee that alleges an inability to comply with this section shall establish and submit to the Commissioner a plan for file and record documentation to be used by such licensee while the circumstances alleged to preclude compliance with this subsection continue to exist.

NOTE

Authority cited: Sections 790.04, 790.10, 12340-12417, inclusive, 12921 and 12926, Insurance Code; and Sections 11342.2 and 11152, Government Code. Reference: Section 790.03(h), Insurance Code.

HISTORY

1. New section filed 12-15-92; operative 1-14-93 (Register 92, No. 52).

2. Amendment of subsections (b)(1) and (b)(2) filed 1-10-97; operative 5-10-97 (Register 97, No. 2).

3. Amendment of subsection (b)(1) and amendment of Note filed 4-24-2003; operative 7-23-2003 (Register 2003, No. 17).

§2695.4. Representation of Policy Provisions and Benefits.

Note • History

(a) Every insurer shall disclose to a first party claimant or beneficiary, all benefits, coverage, time limits or other provisions of any insurance policy issued by that insurer that may apply to the claim presented by the claimant. When additional benefits might reasonably be payable under an insured's policy upon receipt of additional proofs of claim, the insurer shall immediately communicate this fact to the insured and cooperate with and assist the insured in determining the extent of the insurer's additional liability.

(b) No insurer shall misrepresent or conceal benefits, coverages, time limits or other provisions of the bond which may apply to the claim presented under a surety bond.

(c) No insurer shall deny a claim on the basis of the claimant's failure to exhibit property, unless there is documentation in the file (1) of reasonable demand by the insurer, and unfounded refusal by the claimant, to exhibit property, or (2) of the breach of any policy provision providing for the exhibition of property.

(d) Except where a time limit is specified in the policy, no insurer shall require a first party claimant under a policy to give notification of a claim or proof of claim within a specified time.

(e) No insurer shall:

(1) request that a claimant sign a release that extends beyond the subject matter which gave rise to the claim payment unless, prior to execution of the release, the legal effect of the release is disclosed and fully explained by the insurer to the claimant in writing. For purposes of this subsection, an insurer shall not be required to provide the above explanation or disclosure to a claimant who is represented by an attorney at the time the release is presented for signature;

(2) be precluded from including in any release a provision requiring the claimant to waive the provisions of California Civil Code Section 1542 provided that, prior to execution of the release, the legal effect of the release is disclosed and fully explained by the insurer to the claimant in writing. For purposes of this subsection, an insurer shall not be required to provide the above explanation or disclosure to a claimant who is represented by an attorney at the time the release is presented for signature.

(f) No insurer shall issue checks or drafts in partial settlement of a loss or claim that contain or are accompanied by language releasing the insurer, the insured, or the principal on a surety bond from total liability unless the policy or bond limit has been paid, or there has been a compromise settlement agreed to by the claimant and the insurer as to coverage and amount payable under the insurance policy or bond.

(g) No insurer shall require a first party claimant or beneficiary to submit duplicative proofs of claim where coverage may exist under more than one policy issued by that insurer.

NOTE

Authority cited: Sections 790.10, 12340-12417, inclusive, 12921 and 12926, Insurance Code; and Sections 11152 and 11342.2, Government Code. Reference: Sections 790.03(h)(1), (3) and (4), Insurance Code.

HISTORY

1. New section filed 12-15-92; operative 1-14-93 (Register 92, No. 52).

2. Amendment of section heading and subsection (a), repealer and new subsection (b), repealer of subsection (f) and subsection relettering filed 1-10-97; operative 5-10-97 (Register 97, No. 2).

3. Amendment filed 4-24-2003; operative 7-23-2003 (Register 2003, No. 17).

4. Change without regulatory effect filed 8-4-2004 depublishing the amendments to the insurance claims handling practices regulations that were approved by OAL 4-24-2003, but were enjoined in Personal Insurance Federation and The Surety Association of America v. John Garamendi, and reinstating replacement regulations that were either (1) in effect prior to OAL's 4-24-2003 approval of the amendments to the regulations or (2) were found by the court to be valid, as amended, all pursuant to a court-approved settlement agreement dated 6-7-2004 (Register 2004, No. 32).

5. Amendment of subsections (b) and (c) filed 6-1-2006; operative 8-30-2006 (Register 2006, No. 22).

§2695.5. Duties upon Receipt of Communications.

Note • History

(a) Upon receiving any written or oral inquiry from the Department of Insurance concerning a claim, every licensee shall immediately, but in no event more than twenty-one (21) calendar days of receipt of that inquiry, furnish the Department of Insurance with a complete written response based on the facts as then known by the licensee. A complete written response addresses all issues raised by the Department of Insurance in its inquiry and includes copies of any documentation and claim files requested. This section is not intended to permit delay in responding to inquiries by Department personnel conducting a scheduled examination on the insurer's premises.

(b) Upon receiving any communication from a claimant, regarding a claim, that reasonably suggests that a response is expected, every licensee shall immediately, but in no event more than fifteen (15) calendar days after receipt of that communication, furnish the claimant with a complete response based on the facts as then known by the licensee. This subsection shall not apply to require communication with a claimant subsequent to receipt by the licensee of a notice of legal action by that claimant.

(c) The designation specified in subsection 2695.2(c) shall be in writing, signed and dated by the claimant, and shall indicate that the designated person is authorized to handle the claim. All designations shall be transmitted to the insurer and shall be valid from the date of execution until the claim is settled or the designation is revoked. A designation may be revoked by a writing transmitted to the insurer, signed and dated by the claimant, indicating that the designation is to be revoked and the effective date of the revocation.

(d) Upon receiving notice of claim, every licensee or claims agent shall immediately transmit notice of claim to the insurer.

(e) Upon receiving notice of claim, every insurer shall immediately, but in no event more than fifteen (15) calendar days later, do the following unless the notice of claim received is a notice of legal action:

(1) acknowledge receipt of such notice to the claimant unless payment is made within that period of time. If the acknowledgement is not in writing, a notation of acknowledgement shall be made in the insurer's claim file and dated. Failure of an insurance agent or claims agent to promptly transmit notice of claim to the insurer shall be imputed to the insurer except where the subject policy was issued pursuant to the California Automobile Assigned Risk Program.

(2) provide to the claimant necessary forms, instructions, and reasonable assistance, including but not limited to, specifying the information the claimant must provide for proof of claim;

(3) begin any necessary investigation of the claim.

(f) An insurer may not require that the notice of claim under a policy be provided in writing unless such requirement is specified in the insurance policy or an endorsement thereto.

NOTE

Authority cited: Sections 790.04, 790.10, 12340-12417, inclusive, 12921, 12926, Insurance Code; and Sections 11342.2 and 11152, Government Code. Reference: Sections 790.03(h)(2) and (3), Insurance Code.

HISTORY

1. New section filed 12-15-92; operative 1-14-93 (Register 92, No. 52).

2. Amendment of section heading and section filed 1-10-97; operative 5-10-97 (Register 97, No. 2).

3. Amendment of subsections (d) and (e), repealer of subsection (e)(4) and amendment of Note filed 4-24-2003; operative 7-23-2003 (Register 2003, No. 17).

§2695.6. Training and Certification.

Note • History

(a) Every insurer shall adopt and communicate to all its claims agents written standards for the prompt investigation and processing of claims, and shall do so within ninety (90) days after the effective date of these regulations or any revisions thereto.

(b) All licensees shall provide thorough and adequate training regarding the regulations to all their claims agents. Licensees shall certify that their claims agents have been trained regarding these regulations and any revisions thereto. However, licensees need not provide such training or certification to duly licensed attorneys.

A licensee shall demonstrate compliance with this subsection by the following methods:

(1) where the licensee is an individual, the licensee shall annually certify in writing under penalty of perjury that he or she has read and understands the regulations and any and all amendments thereto;

(2) where the licensee is an entity, the annual written certification shall be executed, under penalty of perjury, by a principal of the entity as follows:

(A) that the licensee's claims adjusting manual contains a copy of these regulations and all amendments thereto; and,

(B) that clear written instructions regarding the procedures to be followed to effect proper compliance with this subchapter were provided to all its claims agents;

(3) where the licensee retains insurance adjusters as defined in California Insurance Code Section 14021, the licensee must provide training to the insurance adjusters regarding these regulations and annually certify, in a declaration executed under penalty of perjury, that such training is provided. Alternately, the insurance adjuster may annually certify in writing, under penalty of perjury, that he or she has read and understands these regulations and all amendments thereto or has successfully completed a training seminar which explains these regulations;

(4) a copy of the certification required by subsections 2695.6(b)(1), (2) or (3) shall be maintained at all times at the principal place of business of the licensee, to be provided to the Commissioner only upon request.

(5) the annual certification required by this subsection shall be completed on or before September 1 of each calendar year.

NOTE

Authority cited: Sections 790.10, 12340-12417, inclusive, 12921 and 12926, Insurance Code; and Sections 11342.2 and 11152, Government Code. Reference: Section 790.03(h)(3), Insurance Code.

HISTORY

1. New section filed 12-15-92; operative 1-14-93 (Register 92, No. 52).

2. Amendment of section heading and section filed 1-10-97; operative 5-10-97 (Register 97, No. 2).

3. Amendment of subsection (b)(3) filed 4-24-2003; operative 7-23-2003 (Register 2003, No. 17).

§2695.7. Standards for Prompt, Fair and Equitable Settlements.

Note • History

(a) No insurer shall discriminate in its claims settlement practices based upon the claimant's age, race, gender, income, religion, language, sexual orientation, ancestry, national origin, or physical disability, or upon the territory of the property or person insured.

(b) Upon receiving proof of claim, every insurer, except as specified in subsection 2695.7(b)(4) below, shall immediately, but in no event more than forty (40) calendar days later, accept or deny the claim, in whole or in part. The amounts accepted or denied shall be clearly documented in the claim file unless the claim has been denied in its entirety.

(1) Where an insurer denies or rejects a first party claim, in whole or in part, it shall do so in writing and shall provide to the claimant a statement listing all bases for such rejection or denial and the factual and legal bases for each reason given for such rejection or denial which is then within the insurer's knowledge. Where an insurer's denial of a first party claim, in whole or in part, is based on a specific statute, applicable law or policy provision, condition or exclusion, the written denial shall include reference thereto and provide an explanation of the application of the statute, applicable law or provision, condition or exclusion to the claim. Every insurer that denies or rejects a third party claim, in whole or in part, or disputes liability or damages shall do so in writing.

(2) Subject to the provisions of subsection 2695.7(k), nothing contained in subsection 2695.7(b)(1) shall require an insurer to disclose any information that could reasonably be expected to alert a claimant to the fact that the subject claim is being investigated as a suspected fraudulent claim.

(3) Written notification pursuant to this subsection shall include a statement that, if the claimant believes all or part of the claim has been wrongfully denied or rejected, he or she may have the matter reviewed by the California Department of Insurance, and shall include the address and telephone number of the unit of the Department which reviews claims practices.

(4) The time frame in subsection 2695.7(b) shall not apply to claims arising from policies of disability insurance subject to Section 10123.13 of the California Insurance Code, disability income insurance subject to Section 10111.2 of the California Insurance Code or mortgage guaranty insurance subject to Section 12640.09(a) of the California Insurance Code, and shall not apply to automobile repair bills arising from policies of automobile collision and comprehensive insurance subject to Section 560 of the California Insurance Code. All other provisions of subsections 2695.7(b)(1), (2), and (3) are applicable.

(c)(1) If more time is required than is allotted in subsection 2695.7(b) to determine whether a claim should be accepted and/or denied in whole or in part, every insurer shall provide the claimant, within the time frame specified in subsection 2695.7(b), with written notice of the need for additional time. This written notice shall specify any additional information the insurer requires in order to make a determination and state any continuing reasons for the insurer's inability to make a determination. Thereafter, the written notice shall be provided every thirty (30) calendar days until a determination is made or notice of legal action is served. If the determination cannot be made until some future event occurs, then the insurer shall comply with this continuing notice requirement by advising the claimant of the situation and providing an estimate as to when the determination can be made.

(2) Subject to the provisions of subsection 2695.7(k), nothing contained in subsection 2695.7(c)(1) shall require an insurer to disclose any information that could reasonably be expected to alert a claimant to the fact that the claim is being investigated as a possible suspected fraudulent claim.

(d) Every insurer shall conduct and diligently pursue a thorough, fair and objective investigation and shall not persist in seeking information not reasonably required for or material to the resolution of a claim dispute.

(e) No insurer shall delay or deny settlement of a first party claim on the basis that responsibility for payment should be assumed by others, except as may otherwise be provided by policy provisions, statutes or regulations, including those pertaining to coordination of benefits.

(f) Except where a claim has been settled by payment, every insurer shall provide written notice of any statute of limitation or other time period requirement upon which the insurer may rely to deny a claim. Such notice shall be given to the claimant not less than sixty (60) days prior to the expiration date; except, if notice of claim is first received by the insurer within that sixty days, then notice of the expiration date must be given to the claimant immediately. With respect to a first party claimant in a matter involving an uninsured motorist, this notice shall be given at least thirty (30) days prior to the expiration date; except, if notice of claim is first received by the insurer within that thirty days, then notice of the expiration date must be given to the claimant immediately. This subsection shall not apply to a claimant represented by counsel on the claim matter.

(g) No insurer shall attempt to settle a claim by making a settlement offer that is unreasonably low. The Commissioner shall consider any admissible evidence offered regarding the following factors in determining whether or not a settlement offer is unreasonably low:

(1) the extent to which the insurer considered evidence submitted by the claimant to support the value of the claim;

(2) the extent to which the insurer considered legal authority or evidence made known to it or reasonably available;

(3) the extent to which the insurer considered the advice of its claims adjuster as to the amount of damages;

(4) the extent to which the insurer considered the advice of its counsel that there was a substantial likelihood of recovery in excess of policy limits;

(5) the procedures used by the insurer in determining the dollar amount of property damage;

(6) the extent to which the insurer considered the probable liability of the insured and the likely jury verdict or other final determination of the matter;

(7) any other credible evidence presented to the Commissioner that demonstrates that (i) any amount offered by the insurer in settlement of a first-party claim to an insured not represented by counsel, or (ii) the final amount offered in settlement of a first-party claim to an insured who is represented by counsel or (iii) the final amount offered in settlement of a third party claim by the insurer is below the amount that a reasonable person with knowledge of the facts and circumstances would have offered in settlement of the claim.

(h) Upon acceptance of the claim in whole or in part and, when necessary, upon receipt of a properly executed release, every insurer, except as specified in subsection 2695.7(h)(1) and (2) below, shall immediately, but in no event more than thirty (30) calendar days later, tender payment or otherwise take action to perform its claim obligation. The amount of the claim to be tendered is the amount that has been accepted by the insurer as specified in subsection 2695.7(b). In claims where multiple coverage is involved, and where the payee is known, amounts that have been accepted by the insurer shall be paid immediately, but in no event more than thirty (30) calendar days, if payment would terminate the insurer's known liability under that individual coverage, unless impairment of the insured's interests would result. The time frames specified in this subsection shall not apply where the policy provides for a waiting period after acceptance of claim and before payment of benefits.

(1) The time frame specified in subsection 2695.7(h) shall not apply to claims arising from policies of disability insurance subject to Section 10123.13 of the California Insurance Code, disability income insurance subject to Section 10111.2 of the California Insurance Code, or of mortgage guaranty insurance subject to Section 12640.09(a) of the California Insurance Code, and shall not apply to automobile repair bills subject to Section 560 of the California Insurance Code. All other provisions of Section 2695.7(h) are applicable.

(2) Any insurer issuing a title insurance policy shall either tender payment pursuant to subsection 2695.7(h) or take action to resolve the problem which gave rise to the claim immediately upon, but in no event more than thirty (30) calendar days after, acceptance of the claim.

(i) No insurer shall inform a claimant that his or her rights may be impaired if a form or release is not completed within a specified time period unless the information is given for the purpose of notifying the claimant of any applicable statute of limitations or policy provision or the time limitation within which claims are required to be brought against state or local entities.

(j) No insurer shall request or require an insured to submit to a polygraph examination unless authorized under the applicable insurance contract and state law.

(k) Subject to the provisions of subsection 2695.7(c), where there is a reasonable basis, supported by specific information available for review by the California Department of Insurance, for the belief that the claimant has submitted or caused to be submitted to an insurer a suspected false or fraudulent claim as specified in California Penal Code Section 550 or California Insurance Code Section 1871.4(a), the number of calendar days specified in subsection 2695.7(b) shall be:

(1) increased to eighty (80) calendar days; or,

(2) suspended until otherwise ordered by the Commissioner, provided the insurer has complied with California Insurance Code Section 1872.4 and the insurer can demonstrate to the Commissioner that it has made a diligent attempt to determine whether the subject claim is false or fraudulent within the eighty day period specified by subsection 2695.7(k)(1).

(l) No insurer shall deny a claim based upon information obtained in a telephone conversation or personal interview with any source unless the telephone conversation or personal interview is documented in the claim file pursuant to the provisions of Section 2695.3.

(m) No insurer shall make a payment to a provider, pursuant to a policy provision to pay medical benefits, and thereafter seek recovery or set-off from the insured on the basis that the amount was excessive and/or the services were unnecessary, except in the event of a proven false or fraudulent claim, subject to the provisions of Section 10123.145 of the California Insurance Code.

(n) Every insurer requesting a medical examination for the purpose of determining liability under a policy provision shall do so only when the insurer has a good faith belief that such an examination is reasonably necessary.

(o) No insurer shall require that a claimant withdraw, rescind or refrain from submitting any complaint to the California Department of Insurance regarding the handling of a claim or any other matter complained of as a condition precedent to the settlement of any claim.

(p) Every insurer shall provide written notification to a first party claimant as to whether the insurer intends to pursue subrogation of the claim. Where an insurer elects not to pursue subrogation, or discontinues pursuit of subrogation, it shall include in its notification a statement that any recovery to be pursued is the responsibility of the first party claimant. This subsection does not require notification if the deductible is waived, the coverage under which the claim is paid requires no deductible to be paid, the loss sustained does not exceed the applicable deductible, or there is no legal basis for subrogation.

(q) Every insurer that makes a subrogation demand shall include in every demand the first party claimant's deductible. Every insurer shall share subrogation recoveries on a proportionate basis with the first party claimant, unless the first party claimant has otherwise recovered the whole deductible amount. No insurer shall deduct legal or other expenses from the recovery of the deductible unless the insurer has retained an outside attorney or collection agency to collect that recovery. The deduction may only be for a pro rata share of the allocated loss adjustment expense. This subsection shall not apply when multiple policies have been issued to the insured(s) covering the same loss and the language of these contracts prescribe alternative subrogation rights. Further, this subsection shall not apply to disability and health insurance as defined in California Insurance Code Section 106.

NOTE

Authority cited: Sections 553, 554, 790.03(h)(5), 790.03(h)(12), 790.10, 1861.03(a), 10350.10, 10111.2, 11580.2(k), 12340-12417, inclusive, 12921 and 12926, Insurance Code; Sections 11152 and 11342.2, Government Code; Egan v. Mutual of Omaha Insurance Company (1979) 24 Cal.3d 809 [169 Cal.Rptr. 691]; KPFF, Inc. v. California Union Insurance Company (1997) 56 Cal.App.4th 963 [66 Cal.Rptr.2d 36] (certified for partial publication); and Betts v. Allstate Ins. Co. (1984) 154 Cal.App.3d 688 [201 Cal.Rptr. 528]. Reference: Section 790.03(h)(2), (3), (4), (5), (13) and (15) and 1872.4, Insurance Code; Section 6149.5, Business and Professions Code; and Section 550, Penal Code.

HISTORY

1. New section filed 12-15-92; operative 1-14-93 (Register 92, No. 52).

2. Amendment of section heading, section and Note filed 1-10-97; operative 5-10-97 (Register 97, No. 2).

3. Amendment of section and Note filed 4-24-2003; operative 7-23-2003 (Register 2003, No. 17).

4. Editorial correction of subsection (b) inserting phrase inadvertently omitted from text approved 4-24-2003; filed 7-8-2003; operative 7-23-2003 (Register 2003, No. 28).

5. Change without regulatory effect filed 8-4-2004 depublishing the amendments to the insurance claims handling practices regulations that were approved by OAL 4-24-2003, but were enjoined in Personal Insurance Federation and The Surety Association of America v. John Garamendi, and reinstating replacement regulations that were either (1) in effect prior to OAL's 4-24-2003 approval of the amendments to the regulations or (2) were found by the court to be valid, as amended, all pursuant to a court-approved settlement agreement dated 6-7-2004 (Register 2004, No. 32).

6. Amendment of subsections (b)(1) and (g)(7) and amendment of Note filed 6-1-2006; operative 8-30-2006 (Register 2006, No. 22).

§2695.8. Additional Standards Applicable to Automobile Insurance.

Note • History

(a) This section enumerates standards which apply to adjustment and settlement of automobile insurance claims.

(1) the words “automobile” and “vehicle” are used synonymously.

(b) In evaluating automobile total loss claims the following standards shall apply:

(1) The insurer may elect a cash settlement that shall be based upon the actual cost of a “comparable automobile” less any deductible provided in the policy. This cash settlement amount shall include all applicable taxes and one-time fees incident to transfer of evidence of ownership of a comparable automobile. This amount shall also include the license fee and other annual fees to be computed based upon the remaining term of the loss vehicle's current registration. This procedure shall apply whether or not a replacement automobile is purchased.

(A) If the insured chooses to retain the loss vehicle or if the third party claimant retains the loss vehicle, the cash settlement amount shall include the sales tax associated with the cost of a comparable automobile, discounted by the amount of sales tax attributed to the salvage value of the loss vehicle. The cash settlement amount shall also include all fees incident to transfer of the claimant's vehicle to salvage status. The salvage value may be deducted from the settlement amount and shall be determined by the amount for which a salvage pool or a licensed salvage dealer, wholesale motor vehicle auction or dismantler will purchase the salvage. If requested by the claimant, the insurer shall provide the name, address and telephone number of the salvage dealer, salvage pool, motor vehicle auction or dismantler who will purchase the salvage. The insurer shall disclose in writing to the claimant that notice of the salvage retention by the claimant must be provided to the Department of Motor Vehicles and that this notice may affect the loss vehicle's future resale and/or insured value. The disclosure must also inform the claimant of his or her right to seek a refund of the unused license fees from the Department of Motor Vehicles.

(2) A “comparable automobile” is one of like kind and quality, made by the same manufacturer, of the same or newer model year, of the same model type, of a similar body type, with options and mileage similar to the insured vehicle. Newer model year automobiles may not be used as comparable automobiles unless there are not sufficient comparable automobiles of the same model year to make a determination as set forth in Section 2695.8(b)(4), below. In determining the cost of a comparable automobile, the insurer may use either the asking price or actual sale price of that automobile. Any differences between the comparable automobile and the insured vehicle shall be permitted only if the insurer fairly adjusts for such differences. Any adjustments from the cost of a comparable automobile must be discernible, measurable, itemized, and specified as well as appropriate in dollar amount and so documented in the claim file. Deductions taken from the cost of a comparable automobile that cannot be supported shall not be used. The actual cost of a comparable automobile shall not include any deduction for the condition of a loss vehicle unless the documented condition of the loss vehicle is below average for that particular year, make and model of vehicle. This subsection shall not preclude deduction for prior and/or unrelated damage to the loss vehicle. A comparable automobile must have been available for retail purchase by the general public in the local market area within ninety (90) calendar days of the final settlement offer. The comparable automobiles used to calculate the cost shall be identified by the vehicle identification number (VIN), the stock or order number of the vehicle from a licensed dealer, or the license plate number of that comparable vehicle if this information is available. The identification shall also include the telephone number (including area code) or street address of the seller of the comparable automobile.

(3) Notwithstanding subsection (2), above, upon approval by the Department of Insurance, an insurer may use private sales data from the Department of Motor Vehicles, or other approved sources, which does not contain the seller's telephone number or street address. Approval by the Department of Insurance shall be contingent on the Department's determination that reasonable steps have been taken to limit the use of private sales data that may be inaccurately reported to the Department of Motor Vehicles, or other approved sources.

(4) The insurer shall take reasonable steps to verify that the determination of the cost of a comparable vehicle is accurate and representative of the market value of a comparable automobile in the local market area. Upon its request, the department shall have access to all records, data, computer programs, or any other information used by the insurer or any other source to determine market value. The cost of a comparable automobile shall be determined as follows and, once determined, shall be fully itemized and explained in writing for the claimant at the time the settlement offer is made:

(A) when comparable automobiles are available or were available in the local market area in the last 90 days, the average cost of two or more such comparable automobiles; or,

(B) when comparable automobiles are not available or were not available in the local market area in the last 90 days, the average of two or more quotations from two or more licensed dealers in the local market area; or,

(C) the cost of a comparable automobile as determined by a computerized automobile valuation service that produces statistically valid fair market values within the local market area; or

(D) if it is not possible to determine the cost of a comparable automobile by using one of the methods described in subsections (b)(3)(A), (b)(3)(B) and (b)(3)(C) of this section, the cost of a comparable automobile shall otherwise be supported by documentation and fully explained to the claimant. Any adjustments to the cost of a comparable automobile shall be discernible, measurable, itemized, and specified as well as appropriate in dollar amount and so documented in the claims file. Deductions taken from the cost of a comparable automobile that cannot be supported shall not be used

(5) In first party automobile total loss claims, the insurer may elect to offer a replacement automobile which is a specified comparable automobile available to the insured with all applicable taxes, license fees and other fees incident to transfer of evidence of ownership of the automobile paid by the insurer at no cost other than any deductible provided in the policy. The offer and any rejection thereof must be documented in the insurer's claim file. A replacement automobile must be in as good or better overall condition than the insured vehicle and available for inspection within a reasonable distance of the insured's residence.

(6) Subsection 2695.8(b) applies to the evaluation of third party automobile total loss claims, but does not change existing law with respect to the obligations of an insurer in settling such claims with a third party.

(c) In first party automobile total loss claims, every insurer shall provide notice to the insured at the time the settlement payment is sent or final settlement offer is made that if notified by the insured within thirty-five (35) calendar days after the insured receives the claim payment or final settlement offer that he or she cannot purchase a comparable automobile for the gross settlement amount, the insurer will reopen its claim file. If subsequently notified by the insured the insurer shall reopen its claim file and utilize the following procedures:

(1) The insurer shall locate a comparable automobile for the gross settlement amount determined by the company at the time of settlement and shall provide the insured with the information required in (c)(4), below, or offer a replacement vehicle in accordance with section 2695.8(b)(4). Any such vehicle must be available in the local market area; or,

(2) The insurer shall either pay the insured the difference between the amount of the gross settlement and the cost of the comparable automobile which the insured has located, or negotiate and purchase this vehicle for the insured; or,

(3) The insurer shall invoke the appraisal provision of the insurance policy.

(4) No insurer is required to take action under this subsection if its documentation to the insured at the time of final settlement offer included written notification of the identity of a specified comparable automobile which was available for purchase at the time of final settlement offer for the gross settlement amount determined by the insurer. The documentation shall include the telephone number (including area code) or street address of the seller of the comparable automobile and:

(A) the vehicle identification number (VIN) or,

(B) the stock or order number of the vehicle from a licensed dealer, or

(d) No insurer shall, where liability and damages are reasonably clear, recommend that the third party claimant make a claim under his or her own policy to avoid paying the claim under the policy issued by that insurer.

(e) No insurer shall:

(1) require that an automobile be repaired at a specific repair shop; or,

(2) suggest or recommend that an automobile be repaired at a specific repair shop, unless all of the requirements set forth in California Insurance Code Section 758.5 have been met.

(3) require a claimant to travel an unreasonable distance either to inspect a replacement automobile, to conduct an inspection of the vehicle, to obtain a repair estimate or to have the automobile repaired at a specific repair shop.

(f) If partial losses are settled on the basis of a written estimate prepared by or for the insurer, the insurer shall supply the claimant with a copy of the estimate upon which the settlement is based. The estimate prepared by or for the insurer shall be of an amount which will allow for repairs to be made in a workmanlike manner. If the claimant subsequently contends, based upon a written estimate which he or she obtains, that necessary repairs will exceed the written estimate prepared by or for the insurer, the insurer shall:

(1) pay the difference between the written estimate and a higher estimate obtained by the claimant; or,

(2) if requested by the claimant, promptly provide the claimant with the name of at least one repair shop that will make the repairs for the amount of the insurer's written estimate. The insurer shall cause the damaged vehicle to be restored to its condition prior to the loss at no additional cost to the claimant other than as stated in the policy or as otherwise allowed by law. The insurer shall maintain documentation of all such communications; or,

(3) reasonably adjust any written estimates prepared by the repair shop of the claimant's choice and provide a copy of the adjusted estimate to the claimant.

(g) No insurer shall require the use of non-original equipment manufacture replacement crash parts in the repair of an automobile unless:

(1) the parts are at least equal to the original equipment manufacturer parts in terms of kind, quality, safety, fit, and performance;

(2) insurers specifying the use of non-original equipment manufacturer replacement crash parts shall pay the cost of any modifications to the parts which may become necessary to effect the repair; and,

(3) insurers specifying the use of non-original equipment manufacture replacement crash parts warrant that such parts are of like kind, quality, safety, fit, and performance as original equipment manufacturer replacement crash parts; and,

(4) all original and non-original manufacture replacement crash parts, manufactured after the effective date of this subchapter, when supplied by repair shops shall carry sufficient permanent, non-removable identification so as to identify the manufacturer. Such identification shall be accessible to the greatest extent possible after installation; and,

(5) the use of non-original equipment manufacturer replacement crash parts is disclosed in accordance with section 9875 of the California Business and Professions Code.

(h) No insurer shall require an insured or claimant to supply parts for replacement.

(i) When the amount claimed is adjusted because of betterment or depreciation, all justification shall be contained in the claim file. Any adjustments shall be discernable, measurable, itemized, and specified as to dollar amount, and shall accurately reflect the value of the betterment or depreciation. This subsection shall not preclude deduction for prior and/or unrelated damage to the loss vehicle. The basis for any adjustment shall be fully explained to the claimant in writing and shall:

(1) reflect a measurable difference in market value attributable to the condition and age of the vehicle, and

(2) apply only to parts normally subject to repair and replacement during the useful life of the vehicle such as, but not limited to, tires, batteries, et cetera.

(j) In a first party partial loss claim, the expense of labor necessary to repair or replace the damage is not subject to depreciation or betterment unless the insurance contract contains a clear and unambiguous provision permitting the depreciation of the expense of labor.

(k) After a covered loss under a policy of automobile collision coverage or automobile physical damage coverage as defined in California Insurance Code Section 660, where towing and storage are reasonably necessary to protect the vehicle from further loss, the insurer shall pay reasonable towing and storage charges incurred by the claimant. The insurer shall provide reasonable notice to the claimant before terminating payment for storage charges, so that the claimant has time to remove the vehicle from storage. This subsection shall also apply to a third party claim filed under automobile liability coverage as defined in California Insurance Code section 660, however, payment to a third party claimant may be prorated based upon the comparative fault of the parties.

NOTE

Authority cited: Sections 790.10, 12921 and 12926, Insurance Code; Section 3333, Civil Code; and Sections 11152 and 11342.2, Government Code. Reference: Sections 758.5, 790.03(c) and 790.03(h)(3), Insurance Code; and Section 9875, Business and Professions Code.

HISTORY

1. New section filed 12-15-92; operative 1-14-93 (Register 92, No. 52).

2. Editorial correction of subsection (i) (Register 95, No. 42).

3. Amendment of section heading and section filed 1-10-97; operative 5-10-97 (Register 97, No. 2).

4. Amendment of section and Note filed 4-24-2003; operative 7-23-2003 (Register 2003, No. 17).

5. Change without regulatory effect filed 8-4-2004 depublishing the amendments to the insurance claims handling practices regulations that were approved by OAL 4-24-2003, but were enjoined in Personal Insurance Federation and The Surety Association of America v. John Garamendi, and reinstating replacement regulations that were either (1) in effect prior to OAL's 4-24-2003 approval of the amendments to the regulations or (2) were found by the court to be valid, as amended, all pursuant to a court-approved settlement agreement dated 6-7-2004 (Register 2004, No. 32).

6. Change without regulatory effect amending subsection (b) filed 9-15-2004 pursuant to section 100, title 1, California Code of Regulations (Register 2004, No. 38).

7. Amendment of section and Note filed 6-1-2006; operative 8-30-2006 (Register 2006, No. 22).

8. Change without regulatory effect amending subsection (b)(2) filed 3-23-2007 pursuant to section 100, title 1, California Code of Regulations (Register 2007, No. 12).

§2695.85. Auto Body Repair Consumer Bill of Rights.

Note • History

(a) Every insurer that issues automobile liability or collision insurance policies shall provide the named insured(s) with an Auto Body Repair Consumer Bill of Rights either at the time of application for an automobile insurance policy, at the time a policy is issued, or following an accident or loss that is reported to the insurer. If the insurer provides the insured with an electronic copy of a policy, the bill of rights may also be transmitted electronically. If the insurer provides the bill of rights following an accident or loss, the insurer shall also provide the bill of rights to the particular insured filing the insurance claim. If the insurer provides the bill of rights at the time of application or policy issuance, all named insureds that have not previously received the bill of rights shall be provided with a copy upon renewal of the policy.

(b) The requirements set forth in subsection 2695.85(a), above, shall apply to all automobile liability and collision insurance policies issued in California including commercial automobile, private passenger automobile, and motorcycle insurance policies.

(c) The Auto Body Repair Consumer Bill of Rights shall be a separate standardized document and plainly printed in no less than ten-point type. An insurer may distribute the form using its own letterhead, but the language of the Auto Body Repair Consumer Bill of Rights shall be developed by the California Department of Insurance and shall read as follows:

AUTO BODY REPAIR CONSUMER BILL OF RIGHTS

A CONSUMER IS ENTITLED TO:

1. SELECT THE AUTO BODY REPAIR SHOP TO REPAIR AUTO BODY DAMAGE COVERED BY THE INSURANCE COMPANY. AN INSURANCE COMPANY SHALL NOT REQUIRE THE REPAIRS TO BE DONE AT A SPECIFIC AUTO BODY REPAIR SHOP.

2. AN ITEMIZED WRITTEN ESTIMATE FOR AUTO BODY REPAIRS AND, UPON COMPLETION OF REPAIRS, A DETAILED INVOICE. THE ESTIMATE AND THE INVOICE MUST INCLUDE AN ITEMIZED LIST OF PARTS AND LABOR ALONG WITH THE TOTAL PRICE FOR THE WORK PERFORMED. THE ESTIMATE AND INVOICE MUST ALSO IDENTIFY ALL PARTS AS NEW, USED, AFTERMARKET, RECONDITIONED, OR REBUILT.

3. BE INFORMED ABOUT COVERAGE FOR TOWING AND STORAGE SERVICES.

4. BE INFORMED ABOUT THE EXTENT OF COVERAGE, IF ANY, FOR A REPLACEMENT RENTAL VEHICLE WHILE A DAMAGED VEHICLE IS BEING REPAIRED.

5. BE INFORMED OF WHERE TO REPORT SUSPECTED FRAUD OR OTHER COMPLAINTS AND CONCERNS ABOUT AUTO BODY REPAIRS.

6. SEEK AND OBTAIN AN INDEPENDENT REPAIR ESTIMATE DIRECTLY FROM A REGISTERED AUTO BODY REPAIR SHOP FOR REPAIR OF A DAMAGED VEHICLE, EVEN WHEN PURSUING AN INSURANCE CLAIM FOR REPAIR OF THE VEHICLE.

COMPLAINTS WITHIN THE JURISDICTION OF THE BUREAU OF AUTOMOTIVE REPAIR

Complaints concerning the repair of a vehicle by an auto body repair shop should be directed to:

Toll Free (866) 799-3811

California Department of Consumer Affairs

Bureau of Automotive Repair

10240 Systems Parkway

Sacramento, CA 95827

The Bureau of Automotive Repair can also accept complaints over its web site at: www.autorepair.ca.gov

COMPLAINTS WITHIN THE JURISDICTION OF THE

CALIFORNIA INSURANCE COMMISSIONER

Any concerns regarding how an auto insurance claim is being handled should be submitted to the California Department of Insurance at:

(800) 927-HELP or (213) 897-8921

California Department of Insurance

Consumer Services Division

300 South Spring Street

Los Angeles, CA 90013

The California Department of Insurance can also accept complaints over its web site at: www.insurance.ca.gov

NOTE

Authority cited: Sections 790.10, 1874.85 and 1874.87, Insurance Code. Reference: Sections 790.03(c), 790.03(h)(3) and 1874.87, Insurance Code; Sections 9884.8 and 9884.9, Business and Professions Code; and California Code of Regulations, Title 10, Chapter 5, Subchapter 7.5, Section 2695.8(j).

HISTORY

1. New section filed 4-24-2003; operative 7-23-2003 (Register 2003, No. 17).

2. Change without regulatory effect filed 8-4-2004 depublishing the amendments to the insurance claims handling practices regulations that were approved by OAL 4-24-2003, but were enjoined in Personal Insurance Federation and The Surety Association of America v. John Garamendi, and reinstating replacement regulations that were either (1) in effect prior to OAL's 4-24-2003 approval of the amendments to the regulations or (2) were found by the court to be valid, as amended, all pursuant to a court-approved settlement agreement dated 6-7-2004 (Register 2004, No. 32).

3. Change without regulatory effect adding item 6. and amending toll free number on the Auto Body Repair Consumer Bill of Rights filed 10-26-2009 pursuant to section 100, title 1, California Code of Regulations (Register 2009, No. 44).

4. Change without regulatory effect amending subsection (c) filed 2-3-2010 pursuant to section 100, title 1, California Code of Regulations (Register 2010, No. 6).

§2695.9. Additional Standards Applicable to First Party Residential and Commercial Property Insurance Policies.

Note • History

(a) When a residential or commercial property insurance policy provides for the adjustment and settlement of first party losses based on replacement cost, the following standards apply:

(1) When a loss requires repair or replacement of an item or part, any consequential physical damage incurred in making the repair or replacement not otherwise excluded by the policy shall be included in the loss. The insured shall not have to pay for depreciation nor any other cost except for the applicable deductible.

(2) When a loss requires replacement of items and the replaced items do not match in quality, color or size, the insurer shall replace all items in the damaged area so as to conform to a reasonably uniform appearance.

(b) No insurer shall require that the insured have the property repaired by a specific individual or entity.

(c) No insurer shall suggest or recommend that the insured have the property repaired by a specific individual or entity unless:

(1) the referral is expressly requested by the claimant; or

(2) the claimant has been informed in writing of the right to select a repair individual or entity and, if the claimant accepts the suggestion or recommendation, the insurer shall cause the damaged property to be restored to no less than its condition prior to the loss and repaired in a manner which meets accepted trade standards for good and workmanlike construction at no additional cost to the claimant other than as stated in the policy or as otherwise allowed by these regulations.

(d) If losses are settled on the basis of a written scope and/or estimate prepared by or for the insurer, the insurer shall supply the claimant with a copy of each document upon which the settlement is based. The estimate prepared by or for the insurer shall be in accordance with applicable policy provisions, of an amount which will restore the damaged property to no less than its condition prior to the loss and which will allow for repairs to be made in a manner which meets accepted trade standards for good and workmanlike construction. The insurer shall take reasonable steps to verify that the repair or rebuilding costs utilized by the insurer or its claims agents are accurate and representative of costs in the local market area. If the claimant subsequently contends, based upon a written estimate which he or she obtains, that necessary repairs will exceed the written estimate prepared by or for the insurer, the insurer shall:

(1) pay the difference between its written estimate and a higher estimate obtained by the claimant; or,

(2) if requested by the claimant, promptly provide the claimant with the name of at least one repair individual or entity that will make the repairs for the amount of the written estimate. The insurer shall cause the damaged property to be restored to no less than its condition prior to the loss and which will allow for repairs in a manner which meets accepted trade standards for good and workmanlike construction at no additional cost to the claimant other than as stated in the policy or as otherwise allowed by these regulations; or,

(3) reasonably adjust any written estimates prepared by the repair individual or entity of the insured's choice and provide a copy of the adjusted estimate to the claimant.

(e) Once the appraisal provision under an insurance policy is invoked, the appraisal process shall not include any legal proceeding or procedure not specified under California Insurance Code Section 2071. Nothing herein is intended to preclude separate legal proceedings on issues unrelated to the appraisal process.

(f) When the amount claimed is adjusted because of betterment, depreciation, or salvage, all justification for the adjustment shall be contained in the claim file. Any adjustments shall be discernable, measurable, itemized, and specified as to dollar amount, and shall accurately reflect the value of the betterment, depreciation, or salvage. Any adjustments for betterment or depreciation shall reflect a measurable difference in market value attributable to the condition and age of the property and apply only to property normally subject to repair and replacement during the useful life of the property. The basis for any adjustment shall be fully explained to the claimant in writing.

(1) Under a policy, subject to California Insurance Code Section 2071, where the insurer is required to pay the expense of repairing, rebuilding or replacing the property destroyed or damaged with other of like kind and quality, the measure of recovery is determined by the actual cash value of the damaged or destroyed property, as set forth in California Insurance Code Section 2051. Except for the intrinsic labor costs that are included in the cost of manufactured materials or goods, the expense of labor necessary to repair, rebuild or replace covered property is not a component of physical depreciation and shall not be subject to depreciation or betterment.

NOTE

Authority cited: Sections 790.10, 2051, 2051.5, 2071, 12921 and 12926, Insurance Code; Section 7109, Business and Professions Code; and Sections 11152 and 11342.2, Government Code. Reference: Sections 790.03(h)(3), (5) and (7), Insurance Code.

HISTORY

1. New section filed 12-15-92; operative 1-14-93 (Register 92, No. 52).

2. Amendment of section heading and section filed 1-10-97; operative 5-10-97 (Register 97, No. 2).

3. Amendment of section heading, section and Note filed 4-24-2003; operative 7-23-2003 (Register 2003, No. 17).

5. Amendment of subsections (c)(2) and (e), new subsections (f)-(f)(1) and amendment of Note filed 6-1-2006; operative 8-30-2006 (Register 2006, No. 22).

§2695.10. Additional Standards Applicable to Surety Insurance.

Note • History

(a) No insurer shall base or vary its claims settlement practices, or its standard of scrutiny and review, upon the claimant's age, gender, income, religion, language, sexual orientation, ancestry, national origin, or physical disability, or upon the territory of the property or person insured.

(b) As soon as possible, but in no event later than forty (40) calendar days after receipt by the insurer of proof of claim, and provided the claim is not in litigation or arbitration, the insurer shall accept or deny the claim, in whole or in part, and affirm or deny liability. Every insurer that denies or rejects a claim in whole or in part, or disputes liability or damages, shall provide to the claimant a written statement listing all bases for such rejection or denial, and the factual and legal bases for each reason given for each rejection or denial, which are within the insurer's knowledge. If an insurer's denial of a claim in whole or in part is based on a specific statute or specific bond provisions, the denial shall include reference thereto and provide an explanation of the application of the statute or bond provision to the claim. Written notification pursuant to this subsection shall also include a notification that the claimant may have the matter reviewed by the California Department of Insurance and shall provide the address and telephone number of the unit of the Department which reviews complaints regarding claims practices.

(1) A principal's absence, non-cooperation, or failure to meet the bonded obligation shall not excuse unreasonable delay by the insurer in determining whether a claim should be accepted or denied.

(2) While an insurer may consider all information provided by a principal, absent reasonable factual and/or legal bases for denying a claim, no insurer shall deny a claim based solely upon a principal's protest of a claim or denial of liability for a claim.

(c) In the event an insurer requires more time than is allotted in subsection 2695.10(b) to determine whether a claim should be accepted and/or denied, in whole or in part, the insurer shall provide the claimant with written notice of the need for such additional time within the time specified in subsection 2695.10(b). Such written notice shall specify the reasons for the need for such additional time, including specification of any additional information the insurer requires in order to make such determination. The insurer shall provide the claimant with written notice as to the continuing reasons for the insurer's inability to make such a determination. Except in cases where extraordinary circumstances are present which materially affect the insurer's ability to comply, such written notice shall be provided within 30 calendar days of the date of the initial notification, and every 30 calendar days thereafter until such determination is made or notice of legal action is received. If the determination cannot be made until some event, process, or third party determination is made, then the insurer shall comply with this requirement by advising the claimant of the situation and provide an estimate as to when the determination can be made.

(d) No insurer shall fail to pursue diligently an investigation of a claim, or persist in seeking information not reasonably required for or material to resolution of a claim dispute.

(e) No insurer shall deny a claim upon information obtained in a telephone conversation or personal interview with any source unless the telephone conversation or personal interview is documented in the claim file pursuant to the provisions of section 2695.3.

(f) Where the claim is to be settled by payment, and where neither the claim nor the amount is in dispute, such payment shall be tendered (1) within 15 calendar days following affirmation of liability where the insurer does not require the claimant to execute a release, or (2) within 15 calendar days following the insurer's receipt of a release properly executed by the claimant, where such release is required by the insurer. Such release shall be provided to the claimant within ten (10) calendar days following affirmation of liability. Where multiple claimants are involved, payment shall be made pursuant to this subsection, provided such payment shall not increase the insurer's liability, or impair the rights of other claimants under the bond.

(g) Except where a claim has been settled by payment, every insurer shall provide written notice of any statute of limitations or other time period requirement upon which the insurer may rely to deny a claim. Such notice shall be given to the claimant no less than sixty (60) days prior to the expiration date. If notice of claim is first received by the insurer within sixty (60) days of the expiration date and such date is known to the insurer, then notice of the expiration date must be given to the claimant immediately. This subsection shall not apply to a claimant represented by counsel on the claim matter or to a claim already time barred when first received by the insurer.

(h) No insurer shall attempt to settle a claim by making a settlement offer that is unreasonably low. The Commissioner shall consider any admissible evidence offered regarding the following factors in determining whether or not a settlement offer is unreasonably low:

(1) the extent to which the insurer considered evidence submitted by the claimant to support the value of the claim;

(2) the extent to which the insurer considered legal authority or evidence made known to it or reasonably available;

(3) the procedures used by the insurer in determining the dollar amount of damages;

(4) any other credible evidence presented to the Commissioner that demonstrates that the final amount offered by the insurer in settlement of a claim is below the amount that a reasonable person with knowledge of the facts and circumstances would have offered in settlement of the claim.

NOTE

Authority cited: Sections 790.10, 12921, 12921.1 and 12926, Insurance Code. Reference: Sections 790.03(h)(3), (4) and (15) and 12921.3, Insurance Code; and Section 2807, Civil Code.

HISTORY

1. New section filed 12-15-92; operative 1-14-93 (Register 92, No. 52).

2. Amendment of section heading, repealer and new section, and amendment of Note filed 1-10-97; operative 5-10-97 (Register 97, No. 2).

3. Amendment of section heading, repealer and new section and amendment of Note filed 4-24-2003; operative 7-23-2003 (Register 2003, No. 17).

5. Amendment of subsections (a) and (b) and new subsections (b)(1)-(2) and (g)-(h)(4) filed 6-1-2006; operative 8-30-2006 (Register 2006, No. 22).

§2695.11. Additional Standards Applicable to Life and Disability Insurance Claims.

Note • History

(a) No insurer shall seek reimbursement of an overpayment or withhold any portion of any benefit payable as a result of a claim on the basis that the sum withheld or reimbursement sought is an adjustment or correction for an overpayment made under the same policy unless:

(1) the insurer's files contain clear, documented evidence of an overpayment and written authorization from the insured or assignee, if applicable, permitting the reimbursement or withholding procedure, or

(2) the insurer's files contain clear, documented evidence pursuant to section 2695.3 of all of the following:

(A) The overpayment was erroneous under the provisions of the policy.

(B) The error which resulted in the payment is not a mistake of the law.

(C) The insurer notifies the insured within six (6) months of the date of the error, except that in instances of error prompted by representations or nondisclosure of claimants or third parties, the insurer notifies the insured within fifteen (15) calendar days after the date of discovery of such error. For the purpose of this subsection, the date of the error shall be the day on which the draft for benefits is issued.

(D) Such notice states clearly the cause of the error and states the amount of the overpayment.

(E) The procedure set forth above in (a)(2)(A) through (D) above may not be used if the overpayment is the subject of a reasonable dispute as to facts.

(b) With each claim payment, the insurer shall provide to the claimant and assignee, if any, an explanation of benefits which shall include, if applicable, the name of the provider or services covered, dates of service, and a clear explanation of the computation of benefits.

(c) An insurer may not impose a penalty upon any insured for noncompliance with insurer requirements for precertification of benefits unless such penalties are specifically and clearly set forth in writing in the policy or certificate of insurance.

(d) An insurer that contests a claim under California Insurance Code Section 10123.13 shall subsequently affirm or deny the claim within thirty (30) calendar days from the original notification. In the event an insurer requires additional time to affirm or deny the claim, it shall notify the claimant and assignee in writing. This written notice shall specify any additional information the insurer requires in order to make a determination and shall state any continuing reasons for the insurer's inability to make a determination. This notice shall be given within thirty (30) calendar days of the notice (required under Insurance Code Section 10123.13) that the claim is being contested and every thirty (30) calendar days thereafter until a determination is made or legal action is served. If the determination cannot be made until some future event occurs, the insurer shall comply with this continuing notice requirement by advising the claimant and assignee of the situation and providing an estimate as to when the determination can be made.

(e) When a policy requires preauthorization of non-emergency medical services, the preauthorization must be given immediately but in no event more than five (5) calendar days after the request for preauthorization. The preauthorization shall be communicated or confirmed in writing to the insured and the medical service provider, and shall explain the scope of the preauthorization and whether the preauthorization is or is not a guarantee of acceptance of the claim. In the event the preauthorization is denied, the reason(s) for the denial shall be communicated in writing to the insured and the medical service provider.

(f) No preauthorization shall be required by an insurer for emergency medical services.

(g) An insurer shall reimburse the insured or medical service provider for reasonable expenses incurred in copying medical records requested by the insurer.

NOTE

Authority cited: Sections 790.10, 12921 and 12926, Insurance Code; and Sections 11342.2 and 11152, Government Code. Reference: Sections 790.03(h)(1), (2), (3), (5) and (13) and 10123.13, Insurance Code.

HISTORY

1. New section filed 12-15-92; operative 1-14-93 (Register 92, No. 52).

2. Repealer of former section 2695.11 and renumbering and amendment of former section 2695.12 to new section 2695.11 filed 1-10-97; operative 5-10-97 (Register 97, No. 2).

3. Amendment of section and Note filed 4-24-2003; operative 7-23-2003 (Register 2003, No. 17).

§2695.12. Penalties.

Note • History

(a) In determining whether to assess penalties and if so the appropriate amount to be assessed, the Commissioner shall consider admissible evidence on the following:

(1) the existence of extraordinary circumstances;

(2) whether the licensee has a good faith and reasonable basis to believe that the claim or claims are fraudulent or otherwise in violation of applicable law and the licensee has complied with the provisions of Section 1872.4 of the California Insurance Code;

(3) the complexity of the claims involved;

(4) gross exaggeration of the value of the property or severity of the injury, or amount of damages incurred;

(5) substantial mischaracterization of the circumstances surrounding the loss or the alleged default of the principal;

(6) secreting of property which has been claimed as lost or destroyed.

(7) the relative number of claims where the noncomplying act(s) are found to exist, the total number of claims handled by the licensee and the total number of claims reviewed by the Department during the relevant time period;

(8) whether the licensee has taken remedial measures with respect to the noncomplying act(s);

(9) the existence or nonexistence of previous violations by the licensee;

(10) the degree of harm occasioned by the noncompliance;

(11) whether, under the totality of circumstances, the licensee made a good faith attempt to comply with the provisions of this subchapter;

(12) the frequency of occurrence and/or severity of the detriment to the public caused by the violation of a particular subsection of this subchapter;

(13) whether the licensee's management was aware of facts that apprised or should have apprised the licensee of the act(s) and the licensee failed to take any remedial measures; and

(14) the licensee's reasonable mistakes or opinions as to valuation of property, losses or damages.

(b) This section shall not bar, obstruct or restrict any right to administrative due process an insurer may be afforded under California Insurance Code Sections 790.05, 790.06, and 790.07.

NOTE

Authority cited: Sections 704, 780-784, 790.035, 790.07, 790.08, 790.09, 790.10, 1011, 1065, 1872.4, 11690, 12340-12417, inclusive, 12921, 12926 and 12928.6, Insurance Code; and Sections 11152 and 11342.2, Government Code. Reference: Sections 790.03(h), 790.035(a), 790.04, 790.05, 790.06, 790.08 and 790.10, Insurance Code.

HISTORY

1. New section filed 12-15-92; operative 1-14-93 (Register 92, No. 52).

2. Renumbering and amendment of former section 2695.12 to new section 2695.11, and renumbering and amendment of former section 2695.14 to new section 2695.12, including amendment of section heading and Note, filed 1-10-97; operative 5-10-97 (Register 97, No. 2).

3. Amendment of section heading and section filed 4-24-2003; operative 7-23-2003 (Register 2003, No. 17).

5. Amendment of subsections (a) and (a)(7) and new subsection (b) filed 6-1-2006; operative 8-30-2006 (Register 2006, No. 22).

§2695.13. Severability.

Note • History

If any provision or clause of this rule or the application thereof to any person or situation is held invalid, such invalidity shall not affect any other provision or application of this rule which can be given effect without the invalid provision or application, and to this end the provisions of this rule are declared to be severable.

NOTE

Authority cited: Sections 790.10, 12340-12417, inclusive, 12921 and 12926, Insurance Code; and Sections 11342.2 and 11152, Government Code. Reference: Section 790.03(h), Insurance Code.

HISTORY

1. New section filed 12-15-92; operative 1-14-93 (Register 92, No. 52).

2. Editorial correction of Authority cite (Register 95, No. 42).

3. Repealer of former section 2695.13 and renumbering of former section 2695.16 to new section 2695.13 filed 1-10-97; operative 5-10-97 (Register 97, No. 2).

§2695.14. Compliance Date.

Note • History

(a) Any amendments to these regulations shall be complied with within ninety (90) calendar days after they are filed with the Secretary of State.

(b) Prior to the compliance date of these regulations, licensees shall, pursuant to Section 2695.6, adopt and communicate to their claims agents standards for the prompt investigation and processing of claims, and provide training and instruction on these regulations.

(c) These regulations shall apply to any claims handling that takes place on or after the compliance date set forth under subsection 2695.14(a).

NOTE

Authority cited: Sections 790.10, 12921 and 12926, Insurance Code; and Section 11343.4, Government Code. Reference: Section 790.03(h), Insurance Code.

HISTORY

1. New section filed 6-1-2006; operative 8-30-2006 (Register 2006, No. 22). For prior history, see Register 2004, No. 32.

§2695.15. Penalties. [Repealed]

Note • History

NOTE

Authority cited: Sections 790.035, 790.07, 790.08, 790.09, 790.10, 1872.4, 12340-12417, inclusive, 12921, 1065, 704, 780-784, 1011, 11690, 12926 and 12928.6, Insurance Code; and Sections 11342.2 and 11152, Government Code. Reference: Sections 790.03(h), 790.035(a), 790.04, 790.05, 790.06, 790.08 and 790.10, Insurance Code.

HISTORY

1. New section filed 12-15-92; operative 1-14-93 (Register 92, No. 52).

2. Repealer filed 1-10-97; operative 5-10-97 (Register 97, No. 2).

§2695.16. Severability. [Repealed]

Note • History

NOTE

Authority cited: Sections 790.10, 12340-12417, inclusive, 12921 and 12926, Insurance Code; and Sections 11342.2 and 11152, Government Code. Reference: Section 790.03(h), Insurance Code.

HISTORY

1. New section filed 12-15-92; operative 1-14-93 (Register 92, No. 52).

2. Renumbering of former section 2695.16 to new section 2695.13 filed 1-10-97; operative 5-10-97 (Register 97, No. 2).

§2695.17. Effective Date. [Repealed]

Note • History

NOTE

Authority cited: Sections 790.10, 11346.2, 12340-12417, inclusive, 12921 and 12926, Insurance Code; and Sections 11342.2 and 11152, Government Code. Reference: Section 790.03(h), Insurance Code.

HISTORY

1. New section filed 12-15-92; operative 1-14-93 (Register 92, No. 52).

2. Renumbering and amendment of former section 2695.17 to new section 2695.14 filed 1-10-97; operative 5-10-97 (Register 97, No. 2).

3. Editorial correction repealing inadvertently retained text of renumbered section (Register 99, No. 50).

Article 1.3. Valuation of Homes

§2695.180. Definitions.

Note • History

As used in this article and in California Insurance Code section 1749.85 the following terms have the following meanings:

(a) “Homeowners' insurance policy” shall have the same meaning as a “policy of residential property insurance” as defined in subdivision (a) of Insurance Code section 10104. A “homeowners' insurance policy” does not include:

(A) a tenant's policy;

(B) a policy covering an individually owned mobilehome and its contents;

(D) a renter's policy; or

(E) a policy insuring an individually owned condominium unit that does not provide dwelling structure coverage.

(b) “Replacement value” shall have the same meaning as “replacement cost” and is defined as the amount it would cost to repair, construct, rebuild or replace a damaged or destroyed structure.

(c) “Fire and casualty broker-agent” and “personal lines broker-agent” mean holders of the licenses defined in Insurance Code sections 1625 and 1625.5, respectively. Fire and casualty broker-agents and personal lines broker-agents are also referred to as “broker-agent” in this article.

(d) “Licensee” means

(1) any person or entity that holds a license or certificate of authority issued by the Department of Insurance;

(2) a broker-agent; or

(3) any other entity for whom the Insurance Commissioner's consent is required before transacting business in the State of California or with California residents.

(e) “Estimate of replacement value” shall have the same meaning as “estimate of replacement cost” and means any estimate, statement, calculation, approximation or opinion, whether expressed orally or in writing, regarding the projected replacement value of a particular structure or structures.

NOTE

Authority cited: Sections 790.10, 1749.7, 1749.85 and 2051.5, Insurance Code. Reference: Sections 790.03, 1625, 1625.5, 1749.85, 2051.5, 10087 and 10104, Insurance Code.

HISTORY

1. New article 1.3 (sections 2695.180-2695.183) and section filed 12-29-2010; operative 6-27-2011 pursuant to Government Code section 11343.4(b) (Register 2010, No. 53).

2. Change without regulatory effect amending subsection (a) and adding subsections (a)(A)-(E) filed 4-18-2011 pursuant to section 100, title 1, California Code of Regulations (Register 2011, No. 16).

§2695.181. Standards for Real Estate Appraisers.

Note • History

Subdivision (d) of Insurance Code 1749.85 provides that if the Department of Insurance, by adopting a regulation, establishes standards for the calculation of estimates of replacement value of a structure by appraisers, then on and after the effective date of the regulation a real estate appraiser's estimate of replacement cost shall be calculated in accordance with the regulation. A real estate appraiser, whether or not a licensee, shall not estimate the replacement cost of a structure for use in connection with a homeowner's insurance policy unless the estimate of replacement cost complies with the provisions of subdivisions (a) through (e) of Section 2695.183. Appropriate licensure by the Department of Insurance is required in order to lawfully explain levels of coverage under a homeowners' insurance policy.

NOTE

Authority cited: Sections 35, 790.10, 1631, 1633, 1749.7, 1749.85 and 2051.5, Insurance Code. Reference: Sections 35, 790.03, 1631, 1625, 1625.5, 1633, 1749.85, 2051.5, 10087 and 10104, Insurance Code.

HISTORY

1. New section filed 12-29-2010; operative 6-27-2011 pursuant to Government Code section 11343.4(b) (Register 2010, No. 53).

§2695.182. Documentation of Person Making Estimate.

Note • History

(a) In the event an estimate of replacement cost is provided or communicated by a licensee to an applicant or insured in connection with an application for or renewal of a homeowners' insurance policy that provides coverage on a replacement cost basis, the licensee shall document and maintain in the applicant's or insured's file the following information:

(1) The status of the person preparing the estimate of replacement value, as the insurer underwriter or actuary or other person identified by the insurer, a broker-agent, a contractor, an architect, a real estate appraiser, or other person or entity permitted to make such an estimate by Insurance Code section 1749.85;

(2) The name, job title, address, telephone number, and license number, if applicable, of the person preparing the estimate of replacement value;

(3) The source from which or method by which the estimate of replacement cost was prepared, to include any replacement cost calculator, contractor's estimate, architectural report, real estate appraisal, or other source or method; and

(4) A copy of any reports, inspection reports, contractor's estimates, or other documents used to prepare the estimate of replacement value.

(b) In the event the estimate of replacement cost is provided by a licensee to an applicant or insured in connection with an application for or renewal of a homeowners' insurance policy that provides coverage on a replacement cost basis, the licensee shall maintain in the insured's file the records specified in subdivision (a) of this Section 2695.182 for the entire term of the insurance policy or the duration of coverage, whichever terminates later in time, and for five years thereafter. In the event the estimate of replacement cost is provided by a licensee to an applicant to whom an insurance policy is never issued, subdivision (a) of this Section 2695.182 shall not apply.

(c) Notwithstanding any other provision of this Section 2695.182, this section shall impose no duty upon a broker-agent to obtain from the insurer and maintain any information or document that in the absence of this section would not come into the possession of the broker-agent in the ordinary course of business.

NOTE

Authority cited: Sections 730, 790.04, 790.10, 1727, 1749.7 and 1749.85, Insurance Code. Reference: Sections 730, 790.03, 790.04 and 1749.85, Insurance Code.

HISTORY

1. New section filed 12-29-2010; operative 6-27-2011 pursuant to Government Code section 11343.4(b) (Register 2010, No. 53).

§2695.183. Standards for Estimates of Replacement Value.

Note • History

No licensee shall communicate an estimate of replacement cost to an applicant or insured in connection with an application for or renewal of a homeowners' insurance policy that provides coverage on a replacement cost basis, unless the requirements and standards set forth in subdivisions (a) through (e) below are met:

(a) The estimate of replacement cost shall include the expenses that would reasonably be incurred to rebuild the insured structure(s) in its entirety, including at least the following:

(1) Cost of labor, building materials and supplies;

(2) Overhead and profit;

(3) Cost of demolition and debris removal;

(4) Cost of permits and architect's plans; and

(5) Consideration of components and features of the insured structure, including at least the following:

(A) Type of foundation;

(B) Type of frame;

(D) Siding materials and type of siding;

(E) Whether the structure is located on a slope;

(F) The square footage of the living space;

(G) Geographic location of property;

(H) Number of stories and any nonstandard wall heights;

(J) Age of the structure or the year it was built; and

(K) Size and type of attached garage.

(b) The estimate of replacement cost shall be based on an estimate of the cost to rebuild or replace the structure taking into account the cost to reconstruct the single property being evaluated, as compared to the cost to build multiple, or tract, dwellings.

(c) The estimate of replacement cost shall not be based upon the resale value of the land, or upon the amount or outstanding balance of any loan.

(d) The estimate of replacement cost shall not include a deduction for physical depreciation.

(e) The licensee shall no less frequently than annually take reasonable steps to verify that the sources and methods used to generate the estimate of replacement cost are kept current to reflect changes in the costs of reconstruction and rebuilding, including changes in labor, building materials, and supplies, based upon the geographic location of the insured structure. The estimate of replacement cost shall be created using such reasonably current sources and methods.

(f) Except as provided in subdivision (k) of this Section 2695.183, the provisions of this article are binding upon licensees, notwithstanding the fact that information, data or statistical methods used or relied upon by a licensee to estimate replacement cost may be obtained through a third party source. Any and all information received by the Department pursuant to this article shall be accorded the degree of confidential treatment required by section 735.5 of the Insurance Code or Chapter 2 of Part 1 of Division 3 of Title 2 of the Government Code, commencing at section 11180.

(g)(1) If a licensee communicates an estimate of replacement cost to an applicant or insured in connection with an application for or renewal of a homeowners' insurance policy that provides coverage on a replacement cost basis, the licensee must provide a copy of the estimate of replacement cost to the applicant or insured at the time the estimate is communicated. However, in the event the estimate of replacement cost is communicated by a licensee to an applicant to whom the licensee determines an insurance policy shall not be issued, then the licensee is not required pursuant to the preceding sentence to provide a copy of the estimate of replacement cost. In the event the estimate of replacement cost is communicated by telephone to an insured, the copy of the estimate shall be mailed to the insured no later than three business days after the time of the telephone conversation. In the event the estimate of replacement cost is communicated by telephone to an applicant, the copy of the estimate shall be mailed to the applicant no later than three business days after the applicant agrees to purchase the coverage.

(2) An estimate of replacement cost provided in connection with an application for or renewal of a homeowners' insurance policy that provides coverage on a replacement cost basis must itemize the projected cost for each element specified in paragraphs (a)(1) through (a)(4), and shall identify the assumptions made for each of the components and features listed in paragraph (a)(5), of this Section 2695.183.

(h) If an estimate of replacement cost is updated or revised by, or on behalf of, the licensee and the revised estimate of replacement cost is communicated to the applicant or insured in connection with an application for or renewal of a homeowners' insurance policy that provides coverage on a replacement cost basis, the licensee shall provide a copy of the revised or updated estimate of replacement cost to the applicant as provided in paragraph (g)(1) of this Section 2695.183, or to the insured simultaneously with the renewal offer, as the case may be. This subdivision (h) shall not apply when the update or revision to the estimate of replacement cost or the policy limit results solely from the application of an inflationary provision in a policy or an inflation factor. This subdivision (h) shall not obligate a licensee to recalculate an estimate of replacement cost on an annual basis.

(i) Licensees shall maintain (1) a record of the information supplied by the applicant or insured that is used by the licensee to generate the estimate of replacement cost, and (2) a copy of any estimate of replacement cost supplied to the applicant or insured pursuant to paragraph (g)(1), or subdivision (h), of this Section 2695.183. If a policy is issued, these records and copies shall be maintained for the entire term of the insurance policy or the duration of coverage, whichever terminates later in time, and for five years thereafter. However, if the estimate of replacement cost is provided to an applicant to whom an insurance policy is never issued, the records and copies referred to in the first sentence of this subdivision (i) shall be maintained for the period of time the licensee ordinarily maintains applicant files in the normal course of business, provided that such period of time shall be at least sufficient to ensure that the licensee is able to comply with the provisions of this subdivision in the event the policy is issued to the applicant.

(j) To communicate an estimate of replacement value not comporting with subdivisions (a) through (e) of this Section 2695.183 to an applicant or insured in connection with an application for or renewal of a homeowners' insurance policy that provides coverage on a replacement cost basis constitutes making a statement with respect to the business of insurance which is misleading and which by the exercise of reasonable care should be known to be misleading, pursuant to Insurance Code section 790.03.

(k) When an insurer identifies one or more specific sources or tools that a broker-agent must use to create an estimate of replacement cost,

(1) the insurer shall prescribe complete written procedures to be followed by broker-agents when they use the sources or tools,

(2) the insurer shall provide the broker-agent with the training and written training materials necessary to properly utilize the sources or tools according to the insurer's prescribed procedures, and

(3) the insurer, and not the broker-agent, shall be responsible for any noncompliance with this Section 2695.183 that results from the failure of the estimate to satisfy the requirements of subdivisions (a) through (e), unless that noncompliance results from failure by the broker-agent to follow the insurer's prescribed written procedures when using the source or tool.

(l) This Section 2695.183 applies to all communications by a licensee, verbal or written, with the sole exception of internal communications within an insurer, or confidential communications between an insurer and its contractor, that concern the insurer's underwriting decisions and that never come to the attention of an applicant or insured.

(m) No provision of this article shall be construed as requiring a licensee to estimate replacement cost or to set or recommend a policy limit to an applicant or insured. No provision of this article shall be construed as requiring a licensee to advise the applicant or insured as to the sufficiency of an estimate of replacement cost.

(n) No provision of this article shall limit or preclude a licensee from providing and explaining the California Residential Property Insurance Disclosure, as cited in Insurance Code section 10102, explaining the various forms of replacement cost coverage available to an applicant or insured, or explaining how replacement cost basis policies operate to pay claims.

(o) No provision of this article shall limit or preclude an applicant or insured from obtaining his or her own estimate of replacement cost from an entity permitted to make such an estimate by Insurance Code section 1749.85.

(p) For purposes of this subdivision (p), “minimum amount of insurance” shall mean the lowest amount of insurance that an insurer requires to be purchased in order for the insurer to underwrite the coverage on a particular property, based upon an insurer's eligibility guidelines, underwriting practices and/or actuarial analysis. An insurer may communicate to an applicant or insured that an applicant or insured must purchase a minimum amount of insurance that does not comport with subdivisions (a) through (e) of this Section 2695.183; however, if the minimum amount of insurance that is communicated is based in whole or in part on an estimate of replacement value, the estimate of replacement value shall also be provided to the applicant or insured and shall comply with all applicable provisions of this article. Nothing in this article shall limit or preclude an insurer from agreeing to provide coverage for a policy limit that is greater than or less than an estimate of replacement cost provided pursuant to this article.

(q) This article shall apply only to estimates of replacement value that are prepared, communicated or used by a licensee on or after June 27, 2011.

NOTE

Authority cited: Sections 730, 790.03, 790.04, 790.10, 1749.7, 1749.85, 1861.05 and 2051.5, Insurance Code. Reference: Sections 730, 790.03, 790.04, 735.5 and 1749.85, Insurance Code.

HISTORY

1. New section filed 12-29-2010; operative 6-27-2011 pursuant to Government Code section 11343.4(b) (Register 2010, No. 53).

Article 1.5. Sales to Military Personnel

§2695.20. Purpose.

Note • History

The purpose of this article is to set forth standards to protect active duty service members of the United States Armed Forces from dishonest and predatory insurance sales practices by declaring certain identified practices to be false, misleading, deceptive or unfair. However, no exemption, exclusion or silence in this article as to any act or practice shall be construed to suggest that such act or practice, when performed or engaged in by an insurer or insurance producer, is not otherwise in violation of underlying statute or other applicable law.

NOTE

Authority cited: Sections 720, 790.10, 10168.92, 10206.5, 10506 and 10506.3, Insurance Code; CalFarm Ins. Co. v. Deukmejian, 48 Cal.3d 805 (1989); 20th Century Ins. Co. v. Garamendi, 8 Cal. 4th 216 (1994). Reference: Sections 32, 101, 330, 331, 332, 333, 334, 350, 351, 358, 359, 360, 700, 730, 733, 780, 781, 783, 783.5, 790.03, 791.02, 791.03, 1626, 10159.1, 10165, 10168, 10206.5, 10506, 10506.3, 10509.8, 10509.9 and 10540, Insurance Code; Section 823.5, Military and Veterans Code.

HISTORY

1. New article 1.5 (sections 2695.20-2695.28) and section filed 2-22-2008; operative 2-22-2008 pursuant to Government Code section 11343.4 (Register 2008, No. 8).

§2695.21. Scope.

Note • History

With the exception of subdivision (l) of Section 2695.24, this article shall apply only to the solicitation or sale of any annuity product or other life insurance by an insurer or insurance producer to an active duty service member of the United States Armed Forces.

NOTE

HISTORY

1. New section filed 2-22-2008; operative 2-22-2008 pursuant to Government Code section 11343.4 (Register 2008, No. 8).

§2695.22. Authority.

Note • History

This article is issued under the express authority of Insurance Code sections 720, 790.10, 10168.92, 10206.5, 10506 and 10506.3.

NOTE

HISTORY

1. New section filed 2-22-2008; operative 2-22-2008 pursuant to Government Code section 11343.4 (Register 2008, No. 8).

§2695.23. Exemptions.

Note • History

(a) Sections 2695.25, 2695.26 and 2695.27 of this article shall not apply to solicitations or sales involving:

(1) Credit insurance;

(2) Group life insurance (or group annuities) where there is no in-person, face-to-face solicitation of individuals by an insurance producer and the contract or certificate does not include a side fund;

(3) An application to the existing insurer that issued the existing policy or contract when a contractual change or a conversion privilege is being exercised; or, when the existing policy or contract is being replaced by the same insurer pursuant to a program filed with and approved by the commissioner; or, when a term conversion privilege is exercised among corporate affiliates;

(4) Individual stand-alone health policies, including disability income policies;

(5) Contracts offered by Servicemembers' Group Life Insurance (SGLI) or Veterans' Group Life Insurance (VGLI), as authorized by 38 U.S.C. Section 1965 et seq.;

(6) Life insurance contracts offered through or by a nonprofit military association, qualifying under Section 501(c)(23) of the Internal Revenue Code (IRC), and which are not underwritten by an insurer; or

(7) Contracts used to fund:

(A) An employee pension or welfare benefit plan that is covered by the Employee Retirement and Income Security Act (ERISA);

(B) A plan described by Sections 401(a), 401(k), 403(b), 408(k) or 408(p) of the IRC, as amended, if established or maintained by an employer;

(C) A government or church plan defined in Section 414 of the IRC, a government or church welfare benefit plan, or a deferred compensation plan of a state or local government or tax exempt organization under Section 457 of the IRC;

(D) A nonqualified deferred compensation arrangement established or maintained by an employer or plan sponsor;

(E) Settlements of or assumptions of liabilities associated with personal injury litigation or any dispute or claim resolution process; or

(F) Prearranged funeral contracts.

(b) Nothing herein shall be construed to abrogate the ability of nonprofit organizations (and/or other organizations) to educate members of the United States Armed Forces in accordance with Department of Defense DoD Instruction 1344.07 - PERSONAL COMMERCIAL SOLICITATION ON DOD INSTALLATIONS or any successor directive.

(c) For purposes of this article, general advertisements, direct mail and internet marketing shall not constitute “solicitation.” Telephone marketing shall not constitute “solicitation” provided the caller explicitly and conspicuously discloses that the product concerned is life insurance and makes no statements that avoid a clear and unequivocal statement that life insurance is the subject matter of the solicitation. Provided, however, nothing in this subdivision (c) shall be construed to exempt an insurer or insurance producer from this article in any in-person, face-to-face meeting established as a result of the “solicitation” exemptions identified in this subdivision.

NOTE

HISTORY

1. New section filed 2-22-2008; operative 2-22-2008 pursuant to Government Code section 11343.4 (Register 2008, No. 8).

§2695.24. Definitions.

Note • History

(a) “Active duty” means full-time duty in the active military service of the United States and includes members of the reserve component (National Guard and Reserve) while serving under published orders for active duty or full-time training. The term does not include members of the reserve component who are performing active duty or active duty for training under military calls or orders specifying periods of less than 31 calendar days.

(b) “Department of Defense (DoD) personnel” means all active duty service members and all civilian employees, including nonappropriated fund employees and special government employees, of the Department of Defense.

(c) “Door to door” means a solicitation or sales method whereby an insurance producer proceeds randomly or selectively from household to household without prior specific appointment.

(d) “General advertisement” means an advertisement having as its sole purpose the promotion of the reader's or viewer's interest in the concept of insurance, or the promotion of the insurer or the insurance producer.

(e) “Individually issued annuity” means any annuity that neither directly nor indirectly includes, is part of or is attached by rider, endorsement or other mechanism to another life insurance product of any kind.

(f) “Insurer” means an insurance company required to be licensed under the laws of this state to provide life insurance products, including annuities.

(g) “Insurance producer” means a person required to be licensed under the laws of this state to sell, solicit or negotiate life insurance, including annuities.

(h) “Known” or “knowingly” means, depending on its use herein, the insurance producer or insurer had actual awareness, or in the exercise of ordinary care should have known, at the time of the act or practice complained of, that the person solicited is a service member.

(i) “Life insurance” means insurance coverage on human lives including benefits of endowment and annuities, and may include benefits in the event of death or dismemberment by accident and benefits for disability income and, unless otherwise specifically excluded, includes individually issued annuities.

(j) “Military installation” means any federally owned, leased, or operated base, reservation, post, camp, building, or other facility to which service members are assigned for duty, including barracks, transient housing, and family quarters.

(k) “MyPay” is a Defense Finance and Accounting Service (DFAS) web-based system that enables service members to process certain discretionary pay transactions or provide updates to personal information data elements without using paper forms.

(l) As used in this article, in Sections 2534.28, 2542.3 and 2544.2, and in Insurance Code section 10168, “premium deposit fund” means amounts paid in (including any interest credited thereon) and held for payments of future contractual obligations of policyholders or contractholders under an individual life insurance policy (or individual annuity contract). The term does not include paid-in amounts, or interest credited thereon, held for the purchase at a future date of annuity benefits for the policyholder of an individual life insurance policy (or the contractholder of an individual annuity contract).

(m) “Service member” means any active duty officer (commissioned and warrant) or enlisted member of the United States Armed Forces.

(n) “Side fund” is defined as a fund or reserve that is part of or otherwise attached to a life insurance policy (which life insurance policy is not an individually issued annuity) by rider, endorsement or other mechanism and which accumulates premium or deposits with interest or by other means. Three exceptions are added to the definition of “side fund” that is stated in the preceding sentence, and these exceptions are described in paragraphs (n)(1), (n)(2) and (n)(3) of this subdivision (n), respectively. For purposes of paragraphs (n)(1) and (n)(2) below, the term “presumptive side fund” means a fund or reserve that, before any of the three exceptions is added, satisfies the definition stated in the first sentence of this subdivision (n).

(1) The following values or guarantees provided by a universal life policy are excepted from the definition of “side fund”: accumulated value, cash surrender value or secondary guarantees. However, unless the statement in subparagraph (n)(1)(A) below or the statement in subparagraph (n)(1)(B) below is true, a presumptive side fund constitutes a “side fund,” regardless of whether amounts held in such presumptive side fund are taken into account in the method by which accumulated value, cash surrender value or secondary guarantees are calculated:

(A) the presumptive side fund in question is itself nothing other than an accumulated value, cash surrender value or secondary guarantee, each provided by a universal life policy, or

(B) the presumptive side fund in question is pursuant to paragraph (n)(2) below or paragraph (n)(3) below excepted from the definition of “side fund.”

(2) Cash surrender values provided by a whole life policy which are subject to Article 3A of Chapter 1 of Part 2 of Division 2, commencing at section 10159.1, of the Insurance Code are excepted from the definition of “side fund.” However, unless the statement in subparagraph (n)(2)(A) below or the statement in subparagraph (n)(2)(B) below is true, a presumptive side fund constitutes a “side fund,” regardless of whether amounts held in such presumptive side fund are taken into account in the method by which cash surrender values are calculated:

(A) the presumptive side fund in question is itself nothing other than a cash surrender value as described in the first sentence of this paragraph (n)(2), or

(B) the presumptive side fund in question is pursuant to paragraph (n)(1) above or paragraph (n)(3) below excepted from the definition of “side fund.”

(3) The following is excepted from the definition of “side fund”: a premium deposit fund which:

(A) contains only premiums paid in advance which accumulate at interest;

(B) imposes no penalty for withdrawal;

(D) is not marketed or intended as an investment; and

(E) does not carry a commission, either paid or calculated.

(o) “Specific appointment” means a prearranged appointment agreed upon by both parties and definite as to place and time.

(p) “United States Armed Forces” means all components of the Army, Navy, Air Force, Marine Corps, and Coast Guard.

NOTE

HISTORY

1. New section filed 2-22-2008; operative 2-22-2008 pursuant to Government Code section 11343.4 (Register 2008, No. 8).

§2695.25. Practices Declared False, Misleading, Deceptive or Unfair on a Military Installation.

Note • History

(a) The following acts or practices when committed on a military installation by an insurer or insurance producer with respect to the in-person, face-to-face solicitation of life insurance are declared to be false, misleading, deceptive or unfair:

(1) Knowingly soliciting the purchase of any life insurance product “door to door” or without first establishing a specific appointment for each meeting with the prospective purchaser.

(2) Soliciting service members in a group or “mass” audience or in a “captive” audience where attendance is not voluntary.

(3) Knowingly making appointments with or soliciting service members during their normally scheduled duty hours.

(4) Making appointments with or soliciting service members in barracks, day rooms, unit areas, or transient personnel housing or other areas where the installation commander has prohibited solicitation.

(5) Soliciting the sale of life insurance without first obtaining permission from the installation commander or the commander's designee.

(6) Posting unauthorized bulletins, notices or advertisements.

(7) Failing to present DD Form 2885, Personal Commercial Solicitation Evaluation, to service members solicited or encouraging service members solicited not to complete or submit a DD Form 2885.

(8) Knowingly accepting an application for life insurance or issuing a policy of life insurance on the life of an enlisted member of the United States Armed Forces without first obtaining for the insurer's files a completed copy of any required form which confirms that the applicant has received counseling or fulfilled any other similar requirement for the sale of life insurance established by regulations, directives or rules of the DoD or any branch of the Armed Forces.

(b) The following acts or practices when committed on a military installation by an insurer or insurance producer constitute corrupt practices, improper influences or inducements and are declared to be false, misleading, deceptive or unfair:

(1) Using DoD personnel, directly or indirectly, as a representative or agent in any official or business capacity with or without compensation with respect to the solicitation or sale of life insurance to service members.

(2) Using an insurance producer to participate in any United States Armed Forces sponsored education or orientation program.

NOTE

HISTORY

1. New section filed 2-22-2008; operative 2-22-2008 pursuant to Government Code section 11343.4 (Register 2008, No. 8).

§2695.26. Practices Declared False, Misleading, Deceptive or Unfair Regardless of Location.

Note • History

(a) The following acts or practices by an insurer or insurance producer constitute corrupt practices, improper influences or inducements and are declared to be false, misleading, deceptive or unfair:

(1) Submitting, processing or assisting in the submission or processing of any allotment form or similar device used by the United States Armed Forces to direct a service member's pay to a third party for the purchase of life insurance. The foregoing includes, but is not limited to, using or assisting in using a service member's “MyPay” account or other similar internet or electronic medium for such purposes. This subsection does not prohibit assisting a service member by providing insurer or premium information necessary to complete any allotment form.

(2) Knowingly receiving funds from a service member for the payment of premium from a depository institution with which the service member has no formal banking relationship. For purposes of this section, a formal banking relationship is established when the depository institution:

(A) provides the service member a deposit agreement and periodic statements and makes the disclosures required by the Truth in Savings Act, 12 U.S.C. §4301 et seq. and the regulations promulgated thereunder; and

(B) permits the service member to make deposits and withdrawals unrelated to the payment or processing of insurance premiums.

(3) Employing any device or method or entering into any agreement whereby funds received from a service member by allotment for the payment of insurance premiums are identified on the service member's Leave and Earnings Statement or equivalent or successor form as “Savings” or “Checking” and where the service member has no formal banking relationship as defined in Paragraph (a)(2) of this Section 2695.26.

(4) Entering into any agreement with a depository institution for the purpose of receiving funds from a service member whereby the depository institution, with or without compensation, agrees to accept direct deposits from a service member with whom it has no formal banking relationship.

(5) Using DoD personnel, directly or indirectly, as a representative or agent in any official or unofficial capacity with or without compensation with respect to the solicitation or sale of life insurance to service members who are junior in rank or grade, or to the family members of such personnel.

(6) Offering or giving anything of value, directly or indirectly, to DoD personnel to procure their assistance in encouraging, assisting or facilitating the solicitation or sale of life insurance to another service member.

(7) Knowingly offering or giving anything of value to a service member for his or her attendance to any event where an application for life insurance is solicited.

(8) Advising a service member to change his or her income tax withholding or State of legal residence for the sole purpose of increasing disposable income to purchase life insurance.

(b) The following acts or practices by an insurer or insurance producer lead to confusion regarding source, sponsorship, approval or affiliation and are declared to be false, misleading, deceptive or unfair:

(1) Making any representation, or using any device, title, descriptive name or identifier that has the tendency or capacity to confuse or mislead a service member into believing that the insurer, insurance producer or product offered is affiliated, connected or associated with, endorsed, sponsored, sanctioned or recommended by the U.S. Government, the United States Armed Forces, or any state or federal agency or government entity. Examples of prohibited insurance producer titles include, but are not limited to, “Battalion Insurance Counselor,” “Unit Insurance Advisor,” “Servicemen's Group Life Insurance Conversion Consultant” or “Veteran's Benefits Counselor.”

Nothing herein shall be construed to prohibit a person from using a professional designation awarded after the successful completion of a course of instruction in the business of insurance by an accredited institution of higher learning. Such designations include, but are not limited to, Chartered Life Underwriter (CLU), Chartered Financial Consultant (ChFC), Certified Financial Planner (CFP), Master of Science In Financial Services (MSFS), or Masters of Science Financial Planning (MS).

(2) Soliciting the purchase of any life insurance product through the use of or in conjunction with any third party organization that promotes the welfare of or assists members of the United States Armed Forces in a manner that has the tendency or capacity to confuse or mislead a service member into believing that either the insurer, insurance producer or insurance product is affiliated, connected or associated with, endorsed, sponsored, sanctioned or recommended by the U.S. Government, or the United States Armed Forces.

(c) The following acts or practices by an insurer or insurance producer lead to confusion regarding premiums, costs or investment returns and are declared to be false, misleading, deceptive or unfair:

(1) Using or describing the credited interest rate on a life insurance policy in a manner that implies that the credited interest rate is a net return on premium paid.

(2) Excluding individually issued annuities, misrepresenting the mortality costs of a life insurance product, including stating or implying that the product “costs nothing” or is “free.”

(d) The following acts or practices by an insurer or insurance producer regarding SGLI or VGLI are declared to be false, misleading, deceptive or unfair:

(1) Making any representation regarding the availability, suitability, amount, cost, exclusions or limitations to coverage provided to a service member or dependents by SGLI or VGLI, which is false, misleading or deceptive.

(2) Making any representation regarding conversion requirements, including the costs of coverage, or exclusions or limitations to coverage of SGLI or VGLI to private insurers which is false, misleading or deceptive.

(3) Suggesting, recommending or encouraging a service member to cancel or terminate his or her SGLI policy or issuing a life insurance policy which replaces an existing SGLI policy unless the replacement shall take effect upon or after the service member's separation from the United States Armed Forces.

(e) The following acts or practices by an insurer and or insurance producer regarding disclosure are declared to be false, misleading, deceptive or unfair:

(1) Deploying, using or contracting for any lead generating materials designed exclusively for use with service members that do not clearly and conspicuously disclose that the recipient will be contacted by an insurance producer, if that is the case, for the purpose of soliciting the purchase of life insurance.

(2) Failing to disclose that a solicitation for the sale of life insurance will be made when establishing a specific appointment for an in-person, face-to-face meeting with a prospective purchaser.

(3) Excluding individually issued annuities, failing to clearly and conspicuously disclose the fact that the product being sold is life insurance.

(4) Failing to make, at the time of sale or offer to an individual known to be a service member, the written disclosures required by Section 10 of the “Military Personnel Financial Services Protection Act,” Pub. L. No. 109-290, p.16 (109 P.L. 290; 120 Stat. 1317).

(5) Excluding individually issued annuities, when the sale is conducted in-person face-to-face with an individual known to be a service member, failing to provide the applicant at the time the application is taken:

(A) an explanation of any free look period with instructions on how to cancel if a policy is issued; and

(B) either a copy of the application or a written disclosure. The copy of the application or the written disclosure shall clearly and concisely set out the type of life insurance, the death benefit applied for and its expected first year cost. A basic illustration that meets the requirements of Chapter 5.5 of Part 2 of Division 2 of the Insurance Code, commencing at section 10109.950, shall be deemed sufficient to meet this requirement for a written disclosure.

(f) The following acts or practices by an insurer or insurance producer with respect to the sale of certain life insurance products are declared to be false, misleading, deceptive or unfair:

(1) Excluding individually issued annuities, recommending the purchase of any life insurance product which includes a side fund to a service member unless the insurer has reasonable grounds for believing that the life insurance death benefit, standing alone, is suitable. Offering for sale or selling a life insurance product which includes a side fund to a service member who is currently enrolled in SGLI is presumed unsuitable unless, after the completion of a needs assessment, the insurer demonstrates that the applicant's SGLI death benefit, together with any other military survivor benefits, savings and investments, survivor income, and other life insurance are insufficient to meet the applicant's insurable needs for life insurance.

(A) “Insurable needs” are the risks associated with premature death taking into consideration the financial obligations and immediate and future cash needs of the applicant's estate and/or survivors or dependents.

(B) “Other military survivor benefits” include, but are not limited to: the Death Gratuity, Funeral Reimbursement, Transition Assistance, Survivor and Dependents' Educational Assistance, Dependency and Indemnity Compensation, TRICARE Healthcare benefits, Survivor Housing Benefits and Allowances, Federal Income Tax Forgiveness, and Social Security Survivor Benefits.

(2) Excluding individually issued annuities, offering for sale or selling any life insurance contract which includes a side fund unless:

(A) interest credited accrues from the date of deposit to the date of withdrawal and permits withdrawals without limit or penalty;

(B) the applicant has been provided with a schedule of effective rates of return based upon cash flows of the combined product. For this disclosure, the effective rate of return will consider all premiums and cash contributions made by the policyholder and all cash accumulations and cash surrender values available to the policyholder in addition to life insurance coverage. This schedule will be provided for at least each policy year from one (1) to ten (10) and for every fifth policy year thereafter ending at age 100, policy maturity or final expiration; and

(C) funds accumulated in the side fund cannot be diverted or transferred by default to pay, reduce or offset any premiums due.

(3) Excluding individually issued annuities, offering for sale or selling any life insurance contract which after considering all policy benefits, including but not limited to endowment, return of premium or persistency, violates Article 3A of Chapter 1 of Part 2 of Division 2, commencing at section 10159.1, or Article 3B of Chapter 1 of Part 2 of Division 2, commencing at section 10168, of the Insurance Code.

(4) Selling any life insurance product to an individual known to be a service member that excludes coverage if the insured's death is related to war, declared or undeclared, or any act related to military service. However, a life insurance product that provides for an increased benefit (e.g., double indemnity) in the event of accidental death may exclude coverage for such an increase if the insured's death is related to war, declared or undeclared, or any act related to military service, so that when death is so related to war or military service the product will pay an amount equal to the primary coverage amount (and not, for example, twice that amount, as would ordinarily be the case with a product providing for double indemnity in the event of accidental death), even though the cause of death is accident.

NOTE

HISTORY

1. New section filed 2-22-2008; operative 2-22-2008 pursuant to Government Code section 11343.4 (Register 2008, No. 8).

§2695.27. Severability.

Note • History

If any provision of these sections or the application thereof to any person or circumstance is held invalid for any reason, the invalidity shall not affect the other provisions or any other application of these sections which can be given effect without the invalid provisions or application. To this end all provisions of these sections are declared to be severable.

NOTE

HISTORY

1. New section filed 2-22-2008; operative 2-22-2008 pursuant to Government Code section 11343.4 (Register 2008, No. 8).

§2695.28. Effective Date.

Note • History

This article shall become effective upon filing with the Secretary of State and shall apply to acts or practices committed on or after the effective date.

NOTE

HISTORY

1. New section filed 2-22-2008; operative 2-22-2008 pursuant to Government Code section 11343.4 (Register 2008, No. 8).

Article 2. Public Inspection and Publication of Examinations of Unfair or Deceptive Practices in the Business of Insurance Regulations

§2695.30. Comments of Examined Insurers Relating to Adopted Examination Reports.

Note • History

(a) Comments submitted by examined insurers in relation to adopted reports of examination of unfair or deceptive practices shall be submitted to the Commissioner in a typewritten or printed format that conforms to the following specifications, and must also be submitted through the use of electronic media calculated to produce an original document. Faxed submissions will not be accepted for posting or inspection.

(1) Comments shall relate directly to the adopted report of examination and shall use “Plain English,” so that the meaning of the comments will be easily understood by the public.

(2) Comments shall be submitted in letter form, with the letterhead of the examined insurer or similar identifying information, including the true name of the insurer, appearing prominently at the top of the first page.

(3) Comments shall be submitted on opaque, unglazed paper, white or unbleached, of standard quality not less than 20-pound weight, 8-1/2 by 11 inches in size. The typeface shall be essentially equivalent to Courier, Times, or Helvetica, and the font used shall not be smaller than 12 point. The color of print shall be blue-black or black.

(4) Only one side of the paper shall be used, and the lines on each page shall be one and one-half spaced or double spaced; but footnotes and quotations may be single spaced. The left margin shall be at least one inch from the left edge of the paper and the right margin at least one-half inch from the right edge of the paper. Top and bottom margins shall be no smaller than one-half inch. Each page shall be numbered consecutively at the bottom.

(5) Comments, including appendices, exhibits or other supplemental documents, shall be no longer than twenty (20) pages, or the length of the adopted examination report to which the comments relate, whichever is greater. Each supplemental document shall conform to the specifications of this section.

NOTE

Authority cited: Sections 12921, 12921.7, 12926 and 12938, Insurance Code. Reference: Sections 734.1, 790.03 and 12938, Insurance Code.

HISTORY

1. New article 2 (section 2695.30) and section filed 2-13-2001 as an emergency; operative 2-13-2001 (Register 2001, No. 7). A Certificate of Compliance must be transmitted to OAL by 6-13-2001 or emergency language will be repealed by operation of law on the following day.

2. New article 2 (section 2695.30) and section refiled 6-1-2001 as an emergency; operative 6-13-2001 (Register 2001, No. 22). A Certificate of Compliance must be transmitted to OAL by 10-11-2001 or emergency language will be repealed by operation of law on the following day

3. New article 2 (section 2695.30) and section refiled 10-11-2001 as an emergency; operative 10-11-2001 (Register 2001, No. 41). A Certificate of Compliance must be transmitted to OAL by 2-8-2002 or emergency language will be repealed by operation of law on the following day.

4. Certificate of Compliance as to 10-11-2001 order transmitted to OAL 11-14-2001 and filed 12-31-2001 (Register 2002, No. 1).

Subchapter 7.5.1. Insurance Adjuster Training for Evaluating Earthquake Damage

§2695.40. Authority and Purpose.

Note • History

These regulations are promulgated pursuant to the authority granted to the Insurance Commissioner under the provisions of Insurance Code Section 10089.3. The purpose of these regulations is to set forth standards governing the training of insurance adjusters in evaluating damage caused by earthquakes and the procedures for reporting unaccredited adjusting.

NOTE

Authority cited: Section 10089.3, California Insurance Code. Reference: Section 10089.3, California Insurance Code.

HISTORY

1. New subchapter 7.5.1 (sections 2695.40-2695.45) and section filed 3-25-2004; operative 3-25-2004 pursuant to Government Code section 11343.4 (Register 2004, No. 13).

§2695.41. Definitions.

Note • History

As used in these regulations and in Section 10089.3 of the California Insurance Code.

(a) “Accreditation” means certification that a person has received training that meets the standards set forth in this subchapter.

(b) “Insurance adjuster” or “adjuster” is any person included in California Insurance Code Section 10089.3(b).

(c) “Insurer” means an “admitted” or “nonadmitted” insurer, as defined in California Insurance Code Sections 23, 24 and 25, that issues or delivers a policy of insurance in this state covering the peril of earthquake.

(d) “Training” or “train” means to provide a course of instruction that meets the standards prescribed in Section 2695.42 for those adjusters who evaluate earthquake damage.

NOTE

Authority cited: Section 10089.3, California Insurance Code. Reference: Sections 23, 24, 25 and 10089.3, California Insurance Code.

HISTORY

1. New section filed 3-25-2004; operative 3-25-2004 pursuant to Government Code section 11343.4 (Register 2004, No. 13).

§2695.42. Training Standards.

Note • History

Every insurer shall provide training regarding the handling of earthquake claims to insurance adjusters who evaluate earthquake claims for or on behalf of the insurer. The insurer may provide the training directly or have the training provided by another entity. The insurer shall ensure that the course of instruction meets all requirements set forth in this Section 2695.42. An adjuster trained and accredited by one insurer shall be deemed accredited in order to adjust claims for a different insurer unless such insurer includes additional requirements. The content of the training required by this section shall include the following topics:

(a) The California Fair Claims Settlement Practices Regulations, California Code of Regulations, Title 10, Chapter 5, Subchapter 7.5, Section 2695.1 - 2696.14, inclusive. Demonstration of compliance with the annual training and certification requirements of 10 CCR 2695.6 shall satisfy an insurance adjuster's training requirements prescribed by this subsection.

(b) Determination of Scope of Loss: Adjusters shall be trained how to conduct a thorough examination of the property to be inspected including but not limited to: attics, crawlspaces, roofs, chimneys, foundations, and structural areas. The adjuster shall be trained how to make a complete listing of all recent earthquake damage. Training pursuant to this subsection shall include building code upgrade issues and procedures to be followed if additional hidden earthquake damage is found after repair of earthquake damage has begun.

(c) Loss Estimation Techniques: Adjusters shall be trained how to create or obtain an accurate estimate of all covered earthquake damage. The adjuster shall be trained regarding the appropriate level of detail to be contained in the estimate and the documentation necessary to support the estimate. Adjusters shall be trained to reevaluate the estimate if the actual costs of repair differ from the costs listed on the original estimate.

(d) Determination of Necessity for Engineer or Expert: Adjusters shall be trained how to evaluate visible damage and indicia of hidden damage to determine when to consult with an engineer or other expert.

(e) California Department of Insurance Earthquake Mediation Program: Adjusters shall receive training regarding the Earthquake Claims Mediation Program of the California Department of Insurance set forth at California Insurance Code Section 10089.70 and California Code of Regulations, Title 10, Chapter 5, Subchapter 7.6, Sections 2696.1 through 2696.10, inclusive.

(f) Assessment of Damage to Concrete Surfaces and Foundations: Adjusters shall be trained on the basic techniques used to determine the difference between preexisting cracks in the concrete of structures and new cracks caused by an earthquake. Complete training pursuant to this subsection shall include methodology for determining when repair or replacement of the concrete is appropriate and proper methods for concrete repair including, but not limited to injected epoxy methods.

(g) Subsequently Discovered Earthquake Damage: Adjusters shall be trained on the basic requirements of current law regarding the obligation of the insurer to investigate any earthquake damage that is discovered or reported and when it may be appropriate to seek legal counsel to assist in making this determination.

(h) Programs Designed to Assist Earthquake Victims: Adjusters shall be trained regarding the existence of United States Small Business Administration and Federal Emergency Management Agency or other similar programs intended to assist earthquake victims. Training pursuant to this subsection shall include an overview of these programs and deadlines, and how these programs and deadlines interact with the underlying earthquake insurance claim.

NOTE

Authority cited: Section 10089.3, California Insurance Code. Reference: Sections 790.03(h), 10089.3 and 10089.70, California Insurance Code; and Sections 2695.1-2695.14 and 2696.1-2696.10, Title 10, California Code of Regulations.

HISTORY

1. New section filed 3-25-2004; operative 3-25-2004 pursuant to Government Code section 11343.4 (Register 2004, No. 13).

§2695.43. Accreditation.

Note • History

(a) Certificates shall be provided by the insurer or the training entity to any student successfully completing the adjuster training and shall contain the following information:

(1) name, address and telephone number of the insurer or other entity providing the adjuster training required by this subchapter;

(2) full name of adjuster, and license number if applicable;

(3) a statement certifying that the adjuster completed training that meets the standards set forth in these regulations;

(4) signatures of both adjuster and trainer; and

(5) completion date of training.

(b) Accreditation must be renewed every three years by completing the training required by Subsection 2695.42.

NOTE

Authority cited: Section 10089.3, California Insurance Code. Reference: 10089.3, California Insurance Code.

HISTORY

1. New section filed 3-25-2004; operative 3-25-2004 pursuant to Government Code section 11343.4 (Register 2004, No. 13).

§2695.44. Maintenance of Records.

Note • History

(a) Insurers or other entities providing adjuster training must maintain records of all adjusters completing the program, for a period of five years. An insurer using an adjuster to evaluate earthquake damage must keep a record of that adjuster's accreditation for a period of five years. These records must contain the following information:

(1) name of adjuster and license number if applicable;

(2) date training completed;

(3) name, address and telephone number of training entity.

NOTE

Authority cited: Section 10089.3, California Insurance Code. Reference: Section 10089.3, California Insurance Code.

HISTORY

1. New section filed 3-25-2004; operative 3-25-2004 pursuant to Government Code section 11343.4 (Register 2004, No. 13).

§2695.45. Reporting Requirements for Unaccredited Adjusters.

Note • History

(a) An insurer using one of more adjusters to evaluate damage caused by earthquakes who are not trained and accredited in accordance with the standards set forth in this subchapter shall comply with the following requirements:

(1) annually submit a list of those adjusters who have not completed the training to the Department of Insurance. Each list of adjusters shall include the name of the adjuster, license number (if any), and claim number of the earthquake claim evaluated by that adjuster; and

(2) each list of adjusters described above must be submitted to the Department of Insurance within 30 calendar days from the end of the reporting period and shall cover the preceding twelve-month period. The initial reporting period begins January 1, 2005 and ends December 31, 2005.

NOTE

Authority cited: Section 10089.3, California Insurance Code. Reference: Section 10089.3, California Insurance Code.

HISTORY

1. New section filed 3-25-2004; operative 3-25-2004 pursuant to Government Code section 11343.4 (Register 2004, No. 13).

Subchapter 7.6. Insurance Mediation Program

§2696.1. Purpose.

Note • History

The purpose of these regulations is to interpret, clarify and make specific the Department's program relating to the mediation of earthquake, homeowners and automobile collision and physical damage claims pursuant to Insurance Code section 10089.70.

NOTE

Authority cited: Section 10089.83, Insurance Code. Reference: Sections 10089.70 and 10089.83, Insurance Code.

HISTORY

1. New subchapter 7.6 (sections 2696.1 through 2696.10) and section filed 10-15-96; operative 10-15-96 (Register 96, No. 42). A Certificate of Compliance must be transmitted to OAL by 2-12-97 or emergency language will be repealed by operation of law on the following day.

2. Subchapter 7.6 (sections 2696.1-2696.10) and section repealed by operation of Government Code section 11346.1(g) (Register 97, No. 10).

3. New subchapter 7.6 (sections 2696.1-2696.10) and section filed 3-4-97 as an emergency; operative 3-4-97 (Register 97, No. 10). A Certificate of Compliance must be transmitted to OAL by 7-2-97 or emergency language will be repealed by operation of law on the following day.

4. Certificate of Compliance as to 3-4-97 order transmitted to OAL 7-3-97 and filed 8-13-97 (Register 97, No. 33).

5. Amendment of subchapter heading, section and Note filed 12-29-2006; operative 1-28-2007 (Register 2006, No. 52).

§2696.2. Definitions.

Note • History

For the purposes of these regulations:

(a) “Residential Coverage” means insurance coverage for individually owned:

(1) One to four family dwellings, used exclusively for residential purposes; or,

(2) Manufactured homes, used exclusively for residential purposes; or,

(3) A single family unit within a row house, town house, condominium, planned unit development, or cooperative and used exclusively for residential purposes; or,

(4) Tenant residences located within any residential unit;

(b) “Question of major insurance coverage” shall mean the core determination of whether earthquake, residential property, or automobile collision or physical damage insurance coverage is or is not in dispute. All disputes relating to canceled or non-renewed policies, non-mandated building code upgrades, and claims for damage where there is no underlying coverage involve a question of major insurance coverage and will not be referred to mediation. Disputes including, but not limited to, scope of damage, scope or method of repairs, cause of damage, asbestos or other contaminations, additional living expenses, aftershock damage and disputes over preexisting damage do not concern a question of major insurance coverage and are eligible for referral to mediation;

(c) “Purely legal interpretation” means where the resolution of the dispute rests solely upon interpretation of law, including but not limited to statutes, regulations or case law. All disputes including but not limited to statutes of limitation, contractual deadlines, and allegations of bad faith, the resolution of which involves only a question of law, fall within a purely legal interpretation and will not be referred to mediation. Disputes including, but not limited to, questions of fact and questions of liability do not involve a purely legal interpretation and are eligible for referral to mediation;

(d) “Disputes involving the action of an agent or broker” means where the insurer is not alleged to have been directly involved in the conduct of an agent or broker;

(e) “Frivolous complaint” means any complaint which includes, but is not limited to, a complaint designed to vex or harass or concerns matters of a wholly trivial nature.

(f) “Disputes in which a party is alleged to have committed fraud” means complaints in which the insurer is actively investigating the claim for fraud, including the insurer's compliance with Insurance Code section 1872.4, and there is no possibility of resolving the claim until the fraud investigation has been completed.

(g) “Calendar day” means each and every day including Saturdays, Sundays, Federal and California State Holidays, but if the last day for performance of any act required by these regulations falls on a Saturday, Sunday, Federal or State Holiday, then the period of time to perform the act is extended to and includes the next calendar day which is not a Saturday, Sunday, or Federal or State holiday;

(h) “Mediation” means the good faith participation by an insurer and insured, and their representatives, in a non-binding procedure before a neutral third party directed toward the resolution of a pending claim for damages caused by an earthquake or eligible homeowners, automobile collision, or automobile physical damage loss under a policy of insurance.

(i) “Policy” means the written contract between an insured and an insurance company stating the obligations and responsibilities of each party. A policy may include any applications, binders, declaration forms, endorsements, certificates, and any other documents which describe, affect or limit coverage under the policy;

(j) “Business day” means each and every day except Saturdays, Sundays, Federal and California State Holidays;

(k) “In writing”, as referenced in this subchapter, includes transmission by facsimile (fax).

(l) “Homeowners” means insurance that covers:

(1) Loss of or damage to real property which is used predominantly for residential purposes and which consists of not more than four dwelling units.

(2) Loss of or damage to personal property in which natural persons resident in specifically described real property of the kind described in paragraph (1) have an insurable interest, except personal property used in the conduct of a commercial or industrial enterprise.

(m) An eligible homeowners loss is either a claim that arises under a homeowners insurance policy and that involves a loss due to a fire for which the Governor has declared a state of emergency pursuant to Section 8558 of the Government Code; or a claim that arises under a policy covering earthquake damage and involves loss due to an earthquake for which the Governor has declared a state of emergency pursuant to Section 8558 of the Government Code.

(n) An eligible automobile collision or automobile physical damage claim is a claim that arises under automobile collision coverage or automobile physical damage coverage, in a policy as defined in Section 660 of the Insurance Code.

NOTE

Authority cited: Section 10089.83, Insurance Code. Reference: Sections 660, 675, 10089.7, 10089.70 and 10089.83, Insurance Code.

HISTORY

1. New section filed 10-15-96; operative 10-15-96 (Register 96, No. 42). A Certificate of Compliance must be transmitted to OAL by 2-12-97 or emergency language will be repealed by operation of law on the following day.

2. Repealed by operation of Government Code section 11346.1(g) (Register 97, No. 10).

3. New section filed 3-4-97 as an emergency; operative 3-4-97 (Register 97, No. 10). A Certificate of Compliance must be transmitted to OAL by 7-2-97 or emergency language will be repealed by operation of law on the following day.

4. Editorial correction of subsection (c) (Register 97, No. 33).

5. Certificate of Compliance as to 3-4-97 order transmitted to OAL 7-3-97 and filed 8-13-97 (Register 97, No. 33).

6. Amendment of subsections (b) and (h), new subsections (l)-(n) and amendment of Note filed 12-29-2006; operative 1-28-2007 (Register 2006, No. 52).

§2696.3. Determination of Eligibility.

Note • History

(a) The following will not be referred to mediation under this subchapter:

(1) Disputes that turn on a question of major insurance coverage as that term is defined in Section 2696.2(b) of this subchapter;

(2) Disputes involving a purely legal interpretation as that term is defined in Section 2696.2(c) of this subchapter;

(3) Disputes involving the actions or conduct of an agent or broker, unless there are allegations that the insurer is responsible for the actions or conduct;

(4) Disputes in which a party is alleged to have committed fraud as defined in Section 2696.2(f) of this subchapter;

(5) Disputes involving allegations of bad faith, or other claims for extra contractual damages;

(6) Disputes concerning which a lawsuit has already been filed;

(7) Those requests for mediation determined by the Department to be frivolous or to have been filed in bad faith.

(b) Notwithstanding subsection (a), should a claim involve more than one disputed issue and one or more of those issues are not eligible for referral to mediation, nothing in this subchapter shall preclude the commissioner from referring to mediation only those issues eligible for mediation. However, the Commissioner shall not refer to mediation those issues which are rendered moot by the determination that a question of major insurance coverage or purely legal interpretation exists.

NOTE

Authority cited: Section 10089.83, Insurance Code. Reference: Sections 10089.7, 10089.72 and 10089.74, Insurance Code.

HISTORY

2. Repealed by operation of Government Code section 11346.1(g) (Register 97, No. 10).

4. Certificate of Compliance as to 3-4-97 order, including amendments to subsections (b)(5) and (c), transmitted to OAL 7-3-97 and filed 8-13-97 (Register 97, No. 33).

5. Amendment of section and Note filed 12-29-2006; operative 1-28-2007 (Register 2006, No. 52).

§2696.4. Selection of Mediator; Objections.

Note • History

(a) Immediately upon referral of a dispute to mediation, the Department shall transfer all information it deems necessary concerning the disputed claim to a mediator of its choosing, provided that such mediator has otherwise met the standards and qualifications set forth in Insurance Code Section 10089.77. Such information shall include, but not be limited to, the name of the insured, the address of the insured, the name of the insurer, and the address of the insurer.

(b) The Department shall select the mediator primarily on a rotation basis. The Department shall select a mediator that has expressed availability to conduct the mediation in the county of the insured's residence. The process of selecting a mediator, and the manner in which the mediator is assigned to mediate a dispute, shall be within the sole discretion of the Department, provided that such mediators have otherwise met the standards and qualifications set forth in Insurance Code Section 10089.77.

(c) After a mediator has been selected by the Department, either party to the mediation may object once to the selection of that mediator. If either party conveys that objection directly to the Department, in writing, the Department shall notify the other party and the mediator, and shall dismiss that mediator and select another mediator within 5 calendar days. If either party conveys an objection to the mediator directly to that mediator, then that mediator shall immediately notify, in writing or otherwise, the Department and the Department shall, within 5 calendar days, dismiss that mediator and select another mediator. Nothing in this subsection shall effect the right of a party to exercise their right to object pursuant to Insurance Code Section 10089.77(b).

NOTE

Authority cited: Section 10089.83, Insurance Code. Reference: Sections 10089.71, 10089.72, 10089.73 and 10089.74, Insurance Code.

HISTORY

2. Repealed by operation of Government Code section 11346.1(g) (Register 97, No. 10).

4. Certificate of Compliance as to 3-4-97 order, including amendment of subsection (c), transmitted to OAL 7-3-97 and filed 8-13-97 (Register 97, No. 33).

5. Repealer of former section 2696.4 and renumbering of former section 2696.5 to new section 2696.4 filed 12-29-2006; operative 1-28-2007 (Register 2006, No. 52).

§2696.5. Mandatory Participation; Appeal.

Note • History

(a) No insurer may be compelled to participate in mediation except where the Commissioner finds that the insurer has engaged in an arbitrary or unreasonable refusal or refusals to mediate a dispute which the Commissioner has deemed appropriate for mediation. Where the Commissioner so finds, he shall issue upon the insurer an Order to Participate, citing his reasons therein.

(b) Any insurer to whom an Order to Participate has been issued may seek a review of said Order by filing in a court of competent jurisdiction within 30 calendar days of the issuance of that Order. The Commissioner's Order to Participate, however, may not be stayed during the pendency of any judicial proceeding for any period beyond 60 calendar days after the initial date of the Order to Participate. The basis for the Commissioner's decision to require an insurer to participate in the mediation program shall not be made public unless review is sought.

(c) Any insured whose request to mediate his or her claim under this subchapter was declined by an insurer may file a written request to the Commissioner to require the insurer to participate in the mediation program. Upon receipt of such request, the Commissioner shall either:

(1) Issue an Order to Participate pursuant to subsection 2696.5(a); or

(2) Make a written inquiry to the insurer to determine the reasons for declining mediation; or

(3) Issue to the insured a Decision Not to Compel Mediation which sets forth the basis of the Commissioner's decision not to require the insurer to participate in mediation of that dispute.

(d) Any insured to whom a Decision Not to Compel Mediation has been issued, may seek a review of said Decision by filing in a court of competent jurisdiction within 30 calendar days of the issuance of that Decision.

NOTE

Authority cited: Section 10089.83, Insurance Code. Reference: Sections 10089.76 and 10089.77, Insurance Code.

HISTORY

2. Repealed by operation of Government Code section 11346.1(g) (Register 97, No. 10).

4. Certificate of Compliance as to 3-4-97 order transmitted to OAL 7-3-97 and filed 8-13-97 (Register 97, No. 33).

5. Renumbering of former section 2696.5 to section 2696.4 and renumbering of former section 2696.6 to new section 2696.5, including amendment of section, filed 12-29-2006; operative 1-28-2007 (Register 2006, No. 52).

§2696.6. Pre-Mediation Procedures; Telephone Conference; Notice of Commencement; Written Statement.

Note • History

(a) Upon receipt of the Referral to Mediation from the Department, the mediator shall hold a telephone conference prior to the mediation conference to discuss items necessary to the mediation. Necessary items include, but are not limited to:

(1) The date, time, and location of the mediation conference;

(2) Whether the insured will be represented by counsel at the mediation conference and, if so, whether the insurer will be represented by counsel;

(3) What documents will be produced at the mediation conference and whether there is any dispute with respect to the production of documents;

(4) Any other matters as shall promote an effective mediation conference, including attendance and participation of non-parties at the mediation conference.

(b) During the telephone conference, or at any time before the mediation conference commences, the mediator may, in his or her discretion, order either party to produce other documents that the mediator determines to be relevant to the issues under mediation.

(c) Upon completion of the telephone conference, the mediator shall issue a written notice to the insured and the insurer. Such notice shall:

(1) Contain the date, time and location for commencement of the mediation conference;

(2) Advise the parties that the cost of the mediation will be borne by the insurer, except to the extent provided in Insurance Code section 10089.81 and the applicable regulations contained in this subchapter;

(3) State that, in the event of the proposed settlement, the insured may have three business days to rescind the agreement, as specified in subdivision (c) of Insurance Code Section 10089.82.

(d) Within 5 calendar days of the date of the mediation conference, the insurer shall provide the insured and the mediator a written statement of the facts concerning the dispute. Within 5 calendar days before the date of mediation, the insured shall provide the insurer and the mediator a written statement setting forth the allegations and the issues which are the subject of the mediation.

NOTE

Authority cited: Section 10089.83, Insurance Code. Reference: Section 10089.75, Insurance Code.

HISTORY

2. Repealed by operation of Government Code section 11346.1(g) (Register 97, No. 10).

4. Certificate of Compliance as to 3-4-97 order transmitted to OAL 7-3-97 and filed 8-13-97 (Register 97, No. 33).

5. Renumbering of former section 2696.6 to section 2696.5 and renumbering of former section 2696.7 to new section 2696.6, including amendment of section, filed 12-29-2006; operative 1-28-2007 (Register 2006, No. 52).

§2696.7. Mediation Conference; Failure to Appear; Confidentiality Agreement.

Note • History

(a) To the extent possible the mediation conference shall be held within 21 calendar days of the date of transmission of the notice referenced in section 2696.6(c) of this subchapter. If the mediation cannot be commenced within 21 calendar days of this notice, then it shall be commenced as soon as practicable for all parties, as determined by the mediator. To the extent possible, the mediation conference shall be held in the county where the insured resides.

(b) The parties are required to appear for the mediation conference at the date, time, and location set forth on the notice referenced in subsection 2696.6(c). For the purposes of this subchapter, a party has failed to appear at the mediation conference if it:

(1) Fails to be physically present at the conference within 30 (thirty) minutes of the scheduled time;

(2) Fails to send to the conference a representative with full authority to bind settlements.

(1) Should either party fail to appear at the mediation conference without good cause, that party shall bear all actual expenses charged by the mediator.

(2) Should both parties fail to appear at the mediation conference without good cause, then all actual expenses charged by the mediator shall be borne equally between the parties.

(d) “Good cause,” for the purposes of subsection 2696.7(c), shall include, but not be limited to, the unforeseen circumstances, especially medical emergencies, which preclude the physical presence of a party. The Department, upon review of the facts and circumstances provided by the parties to the mediation, including the mediator, shall decide whether good cause has been demonstrated.

(e) In order to participate in the mediation conference and before the mediation conference commences, each party to the mediation, as well as the mediator, must sign a “Confidentiality Agreement”, wherein the parties and the mediator agree that, pursuant to Insurance Code Sections 10089.80(c) and 10089.80(d), as well as California Evidence Code Sections 1115 through and including 1128, the statements made by the parties to the conference, negotiations between the parties, and documents produced at the mediation conference are confidential; and, that the mediator may not file and a court may not consider any declaration or finding of any kind by the mediator, other than a required statement of agreement or nonagreement, unless all parties to the mediation expressly agree otherwise in writing prior to the commencement of the mediation; and that the mediator shall not voluntarily testify on behalf of a party.

(f) Notwithstanding Section 2696.7(e), nothing in this subchapter shall preclude the Department from obtaining the information referenced in Section 2696.8.

NOTE

Authority cited: Section 10089.83, Insurance Code. Reference: Sections 10089.78 and 10089.80, Insurance Code.

HISTORY

2. Repealed by operation of Government Code section 11346.1(g) (Register 97, No. 10).

4. Certificate of Compliance as to 3-4-97 order, including amendment of subsection (d), transmitted to OAL 7-3-97 and filed 8-13-97 (Register 97, No. 33).

5. Renumbering of former section 2696.7 to section 2696.6 and renumbering of former section 2696.9 to new section 2696.7, including amendment of section, filed 12-29-2006; operative 1-28-2007 (Register 2006, No. 52).

§2696.8. Post Mediation; Cooling-Off Period; Reporting Requirements.

Note • History

(a) The insured may be represented at the mediation conference by any person of his or her own choosing. If the parties agree to a settlement agreement, the insured, or their representative, shall have three business days to rescind the agreement. If the agreement is not rescinded by the insured, it is binding on the insured and the insurer, and acts as a release of all specific claims for damages known at the time of the mediation presented and agreed upon in the mediation conference. If counsel for the insured is present at the mediation conference and a settlement is agreed upon that is signed by the insured's counsel, the agreement is immediately binding on the insured and may not be rescinded.

(b) Within 10 calendar days of the conclusion of the mediation, the mediator shall furnish to the department a completed Form CCB-023 B, ([Mediator Report Form] Rev. 11/14/05) incorporated by reference herein.

(c) The completed mediator reports received by the Department pursuant to these regulations shall be used by the Department only for its use in compiling required reports for the legislature and for evaluating the status of the program. The mediator report forms, papers, and any other documents provided by the mediators to the Department in accordance with this subchapter, shall not be subject to subpoena or subpoena duces tecum.

NOTE

Authority cited: Section 10089.83(c), Insurance Code. Reference: Section 10089.80(a), Insurance Code.

HISTORY

2. Repealed by operation of Government Code section 11346.1(g) (Register 97, No. 10).

4. Certificate of Compliance as to 3-4-97 order transmitted to OAL 7-3-97 and filed 8-13-97 (Register 97, No. 33).

5. Repealer of former section 2696.8 and renumbering of former section 2696.10 to new section 2696.8, including amendment of section, filed 12-29-2006; operative 1-28-2007 (Register 2006, No. 52).

§2696.9. Mediation Conference; Failure to Appear; Confidentiality Agreement.

Note • History

NOTE

Authority cited: Section 10089.83, Insurance Code. Reference: Sections 10089.78 10089.79, 10089.80 and 10089.81, Insurance Code.

HISTORY

2. Repealed by operation of Government Code section 11346.1(g) (Register 97, No. 10).

4. Certificate of Compliance as to 3-4-97 order transmitted to OAL 7-3-97 and filed 8-13-97 (Register 97, No. 33).

5. Change without regulatory effect amending subsection (f) filed 5-20-98 pursuant to section 100, title 1, California Code of Regulations (Register 98, No. 21).

6. Renumbering of former section 2696.9 to section 2696.7 filed 12-29-2006; operative 1-28-2007 (Register 2006, No. 52).

§2696.10. Post Mediation; Cooling-Off Period; Reporting Requirements.

Note • History

NOTE

Authority cited: Section 10089.83, Insurance Code. Reference: Sections 10089.82 and 10089.83, Insurance Code.

HISTORY

1. New section and Form EQM-1 filed 10-15-96; operative 10-15-96 (Register 96, No. 42). A Certificate of Compliance must be transmitted to OAL by 2-12-97 or emergency language will be repealed by operation of law on the following day.

2. Repealed by operation of Government Code section 11346.1(g) (Register 97, No. 10).

4. Certificate of Compliance as to 3-4-97 order transmitted to OAL 7-3-97 and filed 8-13-97 (Register 97, No. 33).

5. Renumbering of former section 2696.10 to section 2696.8 filed 12-29-2006; operative 1-28-2007 (Register 2006, No. 52).

Subchapter 7.7. California Earthquake Authority

§2697. Authority.

Note • History

These regulations are promulgated pursuant to the authority granted the Insurance Commissioner by the provisions of California Insurance Code Sections 10089.11, and 10089.28(b).

NOTE

Authority cited: Sections 10089.11(a) and 10089.28(b), Insurance Code. Reference: Sections 10089.11(a), 10089.28(b) and 12921, Insurance Code.

HISTORY

1. New subchapter 7.7 (sections 2697-2697.9) and new section filed 11-18-96 as an emergency; operative 11-18-96 (Register 96, No. 47). A Certificate of Compliance must be transmitted to OAL by 3-18-97 or emergency language will be repealed by operation of law on the following day.

2. Repealed by operation of Government Code section 11346.1(g) (Register 97, No. 14).

3. New subchapter 7.7 (sections 2697-2697.9) and new section filed 4-1-97 as an emergency; operative 4-1-97 (Register 97, No. 14). A Certificate of Compliance must be transmitted to OAL by 7-30-97 or emergency language will be repealed by operation of law on the following day.

4. Repealed by operation of Government Code section 11346.1(g) (Register 97, No. 32).

5. New subchapter 7.7 (sections 2697-2697.9) and section filed 8-4-97 as an emergency; operative 8-4-97 (Register 97, No. 32). A Certificate of Compliance must be transmitted to OAL by 12-2-97 or emergency language will be repealed by operation of law on the following day.

6. Certificate of Compliance as to 8-4-97 order transmitted to OAL 11-26-97 and filed 1-13-98 (Register 98, No. 3).

§2697.1. Purpose.

Note • History

The purpose of the regulations is to specify procedures for ratemaking and forms approval, define the type and quality of investments the Authority is authorized to make, define coverage types and limits, set forth producer compensation rates, specify the procedures to be followed by the Authority following an earthquake where the magnitude of losses make it likely that prorated benefits may be paid, and instruct participating insurers how and when to notify each of its insureds that the Authority is the provider of earthquake coverage. Promulgation of these regulations, as required by statute, acts to implement, interpret, and make specific Chapter 8.6 (commencing with Section 10089.1) of Part 1 of Division 2 of the California Insurance Code.

NOTE

Authority cited: Sections 10089.11(a) and 10089.28(b), Insurance Code. Reference: Sections 10089.11(a), 10089.28(b) and 12921, Insurance Code.

HISTORY

1. New section filed 11-18-96 as an emergency; operative 11-18-96 (Register 96, No. 47). A Certificate of Compliance must be transmitted to OAL by 3-18-97 or emergency language will be repealed by operation of law on the following day.

2. Repealed by operation of Government Code section 11346.1(g) (Register 97, No. 14).

3. New section filed 4-1-97 as an emergency; operative 4-1-97 (Register 97, No. 14). A Certificate of Compliance must be transmitted to OAL by 7-30-97 or emergency language will be repealed by operation of law on the following day.

4. Repealed by operation of Government Code section 11346.1(g) (Register 97, No. 32).

5. New section filed 8-4-97 as an emergency; operative 8-4-97 (Register 97, No. 32). A Certificate of Compliance must be transmitted to OAL by 12-2-97 or emergency language will be repealed by operation of law on the following day.

6. Certificate of Compliance as to 8-4-97 order transmitted to OAL 11-26-97 and filed 1-13-98 (Register 98, No. 3).

§2697.2. Definitions.

Note • History

(a) “Authority” means the California Earthquake Authority as created in and authorized by Insurance Code Section 10089.6, subdivision (a).

(b) “Basic residential earthquake insurance policy” means the policy of residential earthquake insurance described in Insurance Code Section 10089, as augmented by the provisions of Insurance Code Section 10089.5, subdivision (c).

(d) “Board” or “Governing Board” means the Governing Board of the Authority as authorized and required by Insurance Code Section 10089.7, subdivision (a).

(e) “Participating insurer” means an insurer that has elected to join the Authority and, in accordance with all applicable statutory, regulatory, and contractual requirements, has agreed to contribute start-up and contingent capital to the Authority and place all its basic residential earthquake insurance business with the Authority.

(f) “Residential property insurance policy” means those policies described in Insurance Code Section 10087.

(g) A “qualifying residential property” is any residential dwelling described in Insurance Code Section 10087.

NOTE

Authority cited: Sections 10087, 10089, 10089.5(a) and (c), 10089.6(a) and 10089.7(a), Insurance Code. Reference: Sections 10089.11(a) and 12921, Insurance Code.

HISTORY

2. Repealed by operation of Government Code section 11346.1(g) (Register 97, No. 14).

4. Repealed by operation of Government Code section 11346.1(g) (Register 97, No. 32).

6. Certificate of Compliance as to 8-4-97 order transmitted to OAL 11-26-97 and filed 1-13-98 (Register 98, No. 3).

7. Amendment of section and Note filed 5-11-99; operative 6-10-99 (Register 99, No. 20).

§2697.3. Ratemaking.

Note • History

(a) In setting its rates, the Authority shall be governed by the provisions of Insurance Code Section 10089.40.

(b) In order to establish or change any rate, the Authority shall file a complete rate application with the Commissioner. A complete rate application shall include: (1) all the data referred to in Insurance Code Sections 1857.7, provided, however, that the Commissioner may permit the Authority to state that required data in terms that are applicable to and reflective of the Authority's enabling statutes, its status as an instrumentality of the State of California, and its inherent characteristics; (2) the data referred to in Insurance Code Section 1857.9(a); (3) the data required by Insurance Code Section 1864; and (4) such other information as the Commissioner may require.

(c) The Commissioner shall notify the public of any application by the Authority to establish or change any rate. The application shall be deemed approved 60 (sixty) days after that public notice unless (1) a consumer or his or her representative requests a hearing within 45 (forty-five) days of public notice and the Commissioner grants the hearing, or determines not to grant the hearing and issues written findings in support of that decision, or (2) the Commissioner on his or her own motion determines to hold a hearing, or (3) the proposed rate adjustment exceeds 7% of the then applicable rate, in which case the Commissioner must hold a hearing upon a timely request. In any event, a rate change application shall be deemed approved 180 (one-hundred eighty) days after the rate application is received by the Commissioner (A) unless that application has been disapproved by a final order of the Commissioner subsequent to a hearing, or (B) extraordinary circumstances exist. For purposes of this section, “received” means the date received by the Department's Rate Filing Bureau in San Francisco.

(d) For purposes of subdivision (c), extraordinary circumstances include the following:

(1) Rate change application hearings commenced during the 180-day period provided by subdivision (c). If a hearing is commenced during the 180-day period, the rate change application shall be deemed approved upon expiration of the 180-day period or 60 days after the close of the record of the hearing, whichever is later, unless disapproved prior to that date.

(2) Rate change applications that are not approved or disapproved within the 180-day period provided by subdivision (c) as a result of a judicial proceeding directly involving the application and initiated by the applicant or an intervenor. During the pendency of the judicial proceedings, the 180-day period is tolled, except that in no event shall the Commissioner have less than 30 days after conclusion of the judicial proceedings to approve or disapprove the application. Notwithstanding any other provision of law, nothing shall preclude the Commissioner from disapproving an application without a hearing if a stay is in effect barring the Commissioner from holding a hearing within the 180-day period.

(3) The hearing has been continued pursuant to Section 11524 of the Government Code. The 180-day period provided by subdivision (c) shall be tolled during any period in which a hearing is continued pursuant to Section 11524 of the Government Code. A continuance pursuant to Section 11524 of the Government Code shall be decided on a case-by-case basis. If the hearing is commenced or continued during the 180-day period, the rate change application shall be deemed approved upon the expiration of the 180-day period or 100 days after the record is closed, whichever is later, unless disapproved prior to that date.

(e) Public notice required by this Section shall be made as required by Insurance Code Section 1861.06.

(f) With the exception of proprietary materials and documents owned or licensed by third parties, all information the Authority provides to the Commissioner pursuant to this Section shall be available for public inspection, and the provisions of Section 6254(d) of the Government Code and Section 1857.9 of the Insurance Code shall not apply to that information.

(g) Hearings shall be conducted pursuant to Sections 11500 through 11528 of the Government Code, except that: (1) hearings shall be conducted by administrative law judges for purposes of Sections 11512 and 11517, chosen under Section 11502 or appointed by the Commissioner; (2) hearings are commenced by a filing of a Notice in lieu of Sections 11503 and 11504; (3) the Commissioner shall adopt, amend or reject a decision only under Section 11517(c) and (e) and solely on the basis of the record; (4) Section 11513.5 shall apply to the Commissioner; (5) discovery shall be liberally construed and disputes determined by the administrative law judge.

(h) Judicial review shall be in accordance with Insurance Code Section 1858.6. For purposes of judicial review, a decision to hold a hearing is not a final order or decision; however, a decision not to hold a hearing is final.

(i) The rights provided by Insurance Code Section 1861.10 shall apply to all proceedings pursuant to which the Authority acts to establish its rates for earthquake insurance.

(j) If at any time the Authority for any reason has no valid rates in effect, or has rates in effect that are shown to be excessive, inadequate, or unfairly discriminatory, the Insurance Commissioner may approve, based on a complete rate application filed by the Authority, interim rates for Authority policies of residential earthquake insurance, and those interim rates shall remain in effect until the Commissioner approves an Authority rate that complies with the provisions of this Section.

NOTE

Authority cited: Sections 1861.05, 1861.06, 1861.10, 10089.11(d), 10089.40 and 12921, Insurance Code; and Calfarm Ins. Co. v. Deukmejian (1989) 48 Cal.3d 805, 771 P.2d 1247, 258 Cal. Rptr. 161. Reference: Sections 1857.7, 1857.9, 1864, 10089.11(a) and 12921, Insurance Code.

HISTORY

2. Repealed by operation of Government Code section 11346.1(g) (Register 97, No. 14).

4. Repealed by operation of Government Code section 11346.1(g) (Register 97, No. 32).

6. Certificate of Compliance as to 8-4-97 order transmitted to OAL 11-26-97 and filed 1-13-98 (Register 98, No. 3).

7. Amendment of subsections (d)(3) and (f) filed 10-16-2002; operative 11-15-2002 (Register 2002, No. 42).

§2697.4. Forms Approval and Filing.

Note • History

(a) The Authority shall draft policies of earthquake insurance that are consistent with its enabling statutes and Plan of Operation. Before the Authority issues any policy of earthquake insurance, the policy shall first be considered and specifically approved by the Governing Board.

(b) After the Governing Board's approval, the Authority shall file the approved policies with the Department of Insurance and shall not offer any policy for sale until the Insurance Commissioner has approved its form and content.

NOTE

Authority cited: Sections 10089.11 and 10089.28, Insurance Code. Reference: Sections 10089.11(a) and 12921, Insurance Code.

HISTORY

2. Repealed by operation of Government Code section 11346.1(g) (Register 97, No. 14).

4. Repealed by operation of Government Code section 11346.1(g) (Register 97, No. 32).

6. Certificate of Compliance as to 8-4-97 order transmitted to OAL 11-26-97 and filed 1-13-98 (Register 98, No. 3).

§2697.5. Investments.

Note • History

(a) The investments of the Authority shall be limited to those securities eligible under Section 16430 of the Government Code.

(b) The California Earthquake Authority shall invest moneys that are deposited in the California Earthquake Authority Fund according to the investment policies and guidelines adopted from time to time by the Board. Moneys of the Authority may be invested and deposited according to the provisions of Insurance Code Section 10089.22(c).

NOTE

Authority cited: Sections 10089.6 and 10089.22(c), Insurance Code; and Section 16430, Government Code. Reference: Sections 10089.7, 10089.11 and 12921, Insurance Code.

HISTORY

2. Repealed by operation of Government Code section 11346.1(g) (Register 97, No. 14).

4. Repealed by operation of Government Code section 11346.1(g) (Register 97, No. 32).

6. Certificate of Compliance as to 8-4-97 order transmitted to OAL 11-26-97 and filed 1-13-98 (Register 98, No. 3).

§2697.6. Earthquake Policies, Coverage Types and Limits.

Note • History

(a) The Authority must offer, in accordance with the provisions of Division 2, Part 1, Chapter 8.5, of the Insurance Code, a basic residential earthquake insurance policy to any owner of a qualifying residential property, as long as the qualifying residential property meets the eligibility standards of the Authority and the owner has first secured a residential property insurance policy from a participating insurer.

(b) The Authority must renew any basic residential earthquake insurance policy it has written, provided that the Authority receives payment of the applicable renewal premium on or before the expiration date stated in the policy. The Authority must nonrenew, rescind, or cancel a policy on any otherwise qualified residential property whenever the property is no longer covered by an underlying residential property insurance policy issued by a participating insurer.

(c) No policy issued by the Authority will provide coverage in the event there is no underlying residential property insurance policy issued by a Participating Insurer at the time of loss. In that case, any unearned premium shall be returned to the policyholder on a pro rata basis.

(d) The types of policies, base-limits policy coverage limits, and base-limits policy deductibles of Authority policies shall be as follows:

1. Dwelling policy:

Coverage A (Dwelling) Limit of insurance

equal to the stated

Coverage A limit

(however the

limit on liability

for the structure

may be

denominated in

the residential

property insurance

policy, without

adjustment of the

stated dollar

amount for

inflation or similar

modification) of

underlying

residential

property insurance

policy; maximum

deductible 15% of

Coverage A limit

Coverage B Limited coverage,

included in

Coverage A limit

and subject to

Coverage A

deductible

Coverage C (Personal Property/Contents) No less than

$5,000 limit of

insurance; no

payment unless

structural loss

meets Coverage

A deductible

Coverage D (Loss of Use) No less than

$1,500 limit of

insurance; no

deductible

Limited Building Code Upgrade No less than

$10,000 limit of

insurance, subject

to Coverage A

deductible

2. Individual condominium or cooperative unit policy:

Coverage A (Real Property) No less than

$25,000 limited of

insurance;

maximum

deductible 15% of

Coverage A limit;

plus no less than

$10,000 Limited

Building Code

Upgrade coverage

as additional

insurance, subject

to Coverage A

deductible

Coverage C (Personal Property/Contents) No less than

$5,000 limit of

insurance;

maximum

deductible 15% of

Coverage C limit

Coverage D (Loss of Use) No less than

$1,500 limit of

coverage; no

deductible

Coverage E (Loss Assessment) For condominium

units valued at

$135,000 or more,

no less than

$50,000 limit of

coverage; for

condominium

units valued at less

than $135,000, no

less than $25,000

limit of coverage;

maximum

deductible 15% of

Coverage E limit

3. Renter's policy:

Coverage C (Personal Property) No less than

$5,000 limit of

insurance;

maximum

deductible 15% of

Coverage C limit

Coverage D (Loss of Use) No less than

$1,500 limit of

insurance; no

deductible

(e) The Authority may issue basic residential earthquake insurance policies with limits of insurance greater than the required minimum limits of insurance set forth in subdivision (d) or with lower deductibles than the maximum deductibles set forth in subdivision (d), referred to in this Chapter as “optional limits basic residential earthquake insurance.” In issuing its optional-limits basic residential earthquake insurance policies, the Authority must provide full financial backing in accordance with a written plan of finance. The plan of finance may include the purchase by the Authority of reinsurance and financial guaranty insurance on terms and at the limits that the Authority may find reasonable and appropriate, to secure the payment of claims obligations and expenses that may arise under its optional-limits basic residential earthquake insurance policies.

(f) With respect to individual condominium unit policies, the value of the land on which a condominium unit is constructed is to be excluded when determining the value of that condominium unit for the purpose of determining the minimum limit of insurance for Coverage E (Loss Assessment).

NOTE

Authority cited: Sections 10087, 10089.5(c), 10089.11, 10089.20 and 10089.26(a)(1), Insurance Code. Reference: Sections 10089, 10089.11(a), 10089.28(b) and 12921, Insurance Code.

HISTORY

2. Repealed by operation of Government Code section 11346.1(g) (Register 97, No. 14).

4. Repealed by operation of Government Code section 11346.1(g) (Register 97, No. 32).

6. Certificate of Compliance as to 8-4-97 order transmitted to OAL 11-26-97 and filed 1-13-98 (Register 98, No. 3).

7. Amendment of section and Note filed 5-11-99; operative 6-10-99 (Register 99, No. 20).

8. Amendment of subsections (d) and (e) filed 3-9-2006 as an emergency; operative 3-9-2006 (Register 2006, No. 10). A Certificate of Compliance must be transmitted to OAL by 7-7-2006 or emergency language will be repealed by operation of law on the following day.

9. Certificate of Compliance as to 3-9-2006 order transmitted to OAL 6-13-2006 and filed 7-12-2006 (Register 2006, No. 28).

10. Amendment of subsection (e) filed 11-15-2006 as an emergency; operative 11-15-2006 (Register 2006, No. 46). A Certificate of Compliance must be transmitted to OAL by 3-15-2007 or emergency language will be repealed by operation of law on the following day.

11. Certificate of Compliance as to 11-15-2006 order, including further amendment of subsection (e), transmitted to OAL 3-15-2007 and filed 4-25-2007 (Register 2007, No. 17).

12. Amendment filed 4-30-2008; operative 5-30-2008 (Register 2008, No. 18).

§2697.61. Additional Requirements for Offer of Optional-Limits Basic Residential Earthquake Insurance Policies.

Note • History

(a) Before the Authority may offer optional-limits basic residential earthquake insurance policies, the governing board must first certify that selling such insurance furthers the Authority's charge in Insurance Code Section 10089.10 to achieve maximum capacity for writing earthquake coverage. The sale by the Authority of any optional-limits basic residential earthquake insurance policies must be actuarially sound.

(b) The Commissioner finds that integrating the formerly separate optional-limits program that had been in operation from 1999 through 2007 with the base-limits program serves the public interest by permitting the two programs to be financed together at an expected overall saving and by simplifying the program for the Authority, participating insurers, and consumers. This integration renders the former maintenance of separate funds within the Authority unnecessary and inappropriate. Any inter-fund transfer obligation that may exist at the time of integration will cease to exist.

NOTE

Authority cited: Sections 10087, 10089.5(c), 10089.11, 10089.20 and 10089.26(a)(1), Insurance Code. Reference: Sections 10089, 10089.11(a), 10089.28(b) and 12921, Insurance Code.

HISTORY

1. New section filed 5-11-99; operative 6-10-99 (Register 99, No. 20).

2. New subsections (b)(iii)-(v) filed 11-15-2006 as an emergency; operative 11-15-2006 (Register 2006, No. 46). A Certificate of Compliance must be transmitted to OAL by 3-15-2007 or emergency language will be repealed by operation of law on the following day.

3. Certificate of Compliance as to 11-15-2006 order, including further amendment of subsection (b), redesignation and amendment of former subsection (b)(iii), (b)(iv) and (b)(v) as new subsections (c), (c)(i) and (c)(ii) and subsection relettering, transmitted to OAL 3-15-2007 and filed 4-25-2007 (Register 2007, No. 17).

4. Amendment of subsection (a), repealer of former subsections (b)-(e) and new subsection (b) filed 4-30-2008; operative 5-30-2008 (Register 2008, No. 18).

§2697.7. Producer Compensation.

Note • History

(a) The rate of commission payable by the Authority as producer compensation shall be 10% (ten percent) of the gross written premium for the policy.

(b) In the event of cancellation of a basic residential earthquake insurance policy issued by the Authority, or the issuance by the Authority of an endorsement that requires a premium to be returned to the insured, the producer shall refund to the insured or the Authority, as applicable and on a pro rata basis, commissions on the unearned premium.

NOTE

Authority cited: Section 10089.11(b), Insurance Code. Reference: Sections 10089.11 and 12921, Insurance Code.

HISTORY

2. Amendment of subsection (a) filed 12-19-96 as an emergency; operative 12-19-96 (Register 96, No. 51). A Certificate of Compliance must be transmitted to OAL by 4-18-97 or emergency language will be repealed by operation of law on the following day.

3. Repealed by operation of Government Code section 11346.1(g) (Register 97, No. 14).

4. New section filed 4-1-97 as an emergency; operative 4-1-97 (Register 97, No. 14). A Certificate of Compliance must be transmitted to OAL by 7-30-97 or emergency language will be repealed by operation of law on the following day.

5. Repealed by operation of Government Code section 11346.1(g) (Register 97, No. 32).

6. New section filed 8-4-97 as an emergency; operative 8-4-97 (Register 97, No. 32). A Certificate of Compliance must be transmitted to OAL by 12-2-97 or emergency language will be repealed by operation of law on the following day.

7. Certificate of Compliance as to 8-4-97 order transmitted to OAL 11-26-97 and filed 1-13-98 (Register 98, No. 3).

§2697.8. Payment Plan Following Losses that Exceed the Authority's Available Assets.

Note • History

(a) Upon the occurrence of any earthquake event in the State that is likely to give rise to significant covered losses, the staff of the Authority shall, within seven (7) calendar days of the date of the earthquake event, cause to be created a scientific model of anticipated, covered losses from that event. The output of the model for that event, as interpreted by Authority staff and retained actuary, shall be presented forthwith to the Board, which shall within 72 (seventy-two) hours of receipt of that output convene as a group in a formal meeting, either in person or by teleconference, to consider the information presented. At the outset of the Board meeting contemplated by this Section, the Board shall hold a vote to make a finding that the meeting about to occur as a result of an “emergency situation,” within the meaning of Government Code Section 11125.5, subdivisions (a) and (b). In the absence of a finding of an “emergency situation” for that meeting, the Board shall adjourn forthwith and reconvene after providing public notice of that reconvened meeting in accordance with Government Code Section 11125, subdivision (a).

(b) In the event the Board in its sole discretion determines that anticipated covered losses following an earthquake may exhaust the Authority's capital and that no additional source of funds such as available insurer assessments, proceeds of reinsurance contracts, proceeds of capital markets contracts, and all other funds available to or due the Authority, will be available to the Authority to pay policyholder claims, the Board shall draw up and present to the Insurance Commissioner a plan to pay covered earthquake claims against the Authority on a pro rata or installment basis.

(c) The payment plan shall ensure the equitable distribution of available CEA assets to all policyholders who have covered earthquake claims against the Authority. Upon approval of the plan by the Commissioner, the Board shall implement the plan. The plan shall be updated and resubmitted to the Commissioner for his or her approval at the end of every succeeding 30-day period until all outstanding CEA claims have been closed or otherwise discharged.

(d) The plan shall ensure the maintenance of sufficient capital to ensure the continued operation of the Authority for the purpose of paying claims; discharging Authority debts, including bonded indebtedness; and paying or providing for other obligations of the Authority.

(e) The Authority's Plan of Operation shall be consistent with the provisions of this Section.

NOTE

Authority cited: Section 10089.11(b) and 10089.35(a), Insurance Code. Reference: Sections 10089.11 and 12921, Insurance Code.

HISTORY

2. Repealed by operation of Government Code section 11346.1(g) (Register 97, No. 14).

4. Repealed by operation of Government Code section 11346.1(g) (Register 97, No. 32).

6. Certificate of Compliance as to 8-4-97 order transmitted to OAL 11-26-97 and filed 1-13-98 (Register 98, No. 3).

§2697.9. Notice Requirements.

Note • History

(a) All participating insurers shall comply with the notice requirements imposed by subdivision (a) of Section 10083 of the Insurance Code.

(b) Upon the acceptance by an insured of an offer of earthquake insurance and issuance of a policy of basic residential earthquake insurance by the Authority, the participating insurer shall provide the following notice to the policyholder in at least 14-point, boldface type on the declarations page of the policy or on the policy jacket:

CALIFORNIA EARTHQUAKE AUTHORITY POLICY DISCLOSURE

THIS POLICY IS BEING PURCHASED FROM THE CALIFORNIA EARTHQUAKE AUTHORITY (“CEA”). THE COVERAGE IN THIS CEA POLICY SUBSTANTIALLY DIFFERS FROM THE COVERAGES PROVIDED IN YOUR HOMEOWNER'S POLICY. THE CEA IS NOT PART OF OR ASSOCIATED WITH YOUR HOMEOWNER'S INSURANCE COMPANY. IF LOSSES AS A RESULT OF AN EARTHQUAKE OR A SERIES OF EARTHQUAKES EXCEED THE AVAILABLE RESOURCES OF THE CEA, THIS POLICY IS NOT COVERED BY THE CALIFORNIA INSURANCE GUARANTY ASSOCIATION. THEREFORE, THE CALIFORNIA INSURANCE GUARANTY ASSOCIATION WILL NOT PAY YOUR CLAIMS OR PROTECT YOUR ASSETS IF THE CEA BECOMES INSOLVENT AND IS UNABLE TO MAKE PAYMENTS AS PROMISED. IN ADDITION, YOUR CEA POLICY MAY BE SUBJECT TO FUTURE SURCHARGES OF THE POLICY PREMIUM IN CERTAIN CASES WHERE AN EARTHQUAKE OR SERIES OF EARTHQUAKES HAS EXCEEDED AVAILABLE RESOURCES TO PAY CLAIMS. IN THAT CASE, THIS MEANS THAT IN ADDITION TO THE ANNUAL PREMIUM, YOU MAY BE CHARGED UP TO AN ADDITIONAL 20% OF THE PREMIUM.

(c) The Authority and each participating insurer shall comply with the requirements imposed by Insurance Code Section 10086(a)(3) for all policies of basic residential earthquake insurance issued by the Authority.

(d) If a policy issued by the Authority includes a premium surcharge, the participating insurer shall provide the insured a notice in a stand-alone document which states that the policyholder may cancel or nonrenew the basic residential earthquake policy. The participating insurer shall provide the statement with the premium billing. The notice shall include the following statement in 14-point, boldface type:

NOTICE OF SURCHARGE ON CEA EARTHQUAKE INSURANCE POLICY AND RIGHT TO CANCEL

A SURCHARGE HAS BEEN INCLUDED IN THE PREMIUM FOR YOUR CEA EARTHQUAKE INSURANCE POLICY. YOU MAY CHOOSE TO RENEW THIS POLICY AT THE NEW RATE OR YOU MAY CANCEL OR NONRENEW YOUR CEA EARTHQUAKE INSURANCE POLICY. CANCELLATION OR NONRENEWAL OF YOUR CEA POLICY WILL HAVE NO EFFECT ON YOUR HOMEOWNER'S OR FIRE INSURANCE POLICY. HOWEVER, IF YOU WANT EARTHQUAKE INSURANCE TO BE PROVIDED BY THE CEA, YOU MUST PAY THE FULL PREMIUM FOR THE CEA POLICY, INCLUDING THE SURCHARGE.

The participating insurer may add explanatory language approved by the Commissioner to augment and explain the mandatory notice language in this paragraph (d).

NOTE

Authority cited: Sections 10086(a)(3), 10089.11, 10089.28(b) and 10089.29(b)(2), Insurance Code. Reference: Sections 10089.6, 10089.11, 10089.28 and 12921, Insurance Code.

HISTORY

2. Repealed by operation of Government Code section 11346.1(g) (Register 97, No. 14).

4. Repealed by operation of Government Code section 11346.1(g) (Register 97, No. 32).

6. Editorial correction of Note (Register 98, No. 3).

7. Certificate of Compliance as to 8-4-97 order transmitted to OAL 11-26-97 and filed 1-13-98 (Register 98, No. 3).

Subchapter 8. California Residential Earthquake Recovery Fund

Article 1. Definitions

§2698. Definitions.

Note • History

NOTE

Authority cited: Sections 5001.5, 5003(g) and 5010, Insurance Code. Reference: Sections 5000, 5001, 5001.5, 5003(a), 5003(b), 5003(g), 5004, 5005(a), 5005(c), 5008 and 5010, Insurance Code.

HISTORY

1. Repealer of subchapter 8 (sections 2692-2692.2) by operation of law. For prior history, see Register 91, No. 40. New subchapter 8 (sections 2698-2698.21) filed 9-16-91 as an emergency; operative 9-16-91 (Register 92, No. 12). A Certificate of Compliance must be transmitted to OAL 1-14-92 or emergency language will be repealed by operation of law on the following day.

2. New section filed 2-26-92 as an emergency; operative 2-26-92 (Register 92, No. 19). A Certificate of Compliance must be transmitted to OAL 6-25-92 or emergency language will be repealed by operation of law on the following day.

3. Certificate of Compliance as to 2-26-92 order transmitted to OAL 3-19-92 and filed 4-22-92 (Register 92, No. 23).

4. Change without regulatory effect repealing subchapter 8, article 1 and section filed 5-1-95 pursuant to section 100, title 1, California Code of Regulations (Register 95, No. 18).

Article 2. Collections

§2698.1. Determination to Collect.

Note • History

NOTE

Authority cited: Section 5010, Insurance Code. Reference: Sections 5001(c), 5003(c) and 5008, Insurance Code.

HISTORY

1. New section filed 9-16-91 as an emergency; operative 9-16-91 (Register 92, No. 12). A Certificate of Compliance must be transmitted to OAL 1-14-92 emergency language will be repealed by operation of law on the following day.

3. Certificate of Compliance as to 2-26-92 order transmitted to OAL 3-19-92 and filed 4-22-92 (Register 92, No. 23).

4. Change without regulatory effect repealing article 2 and section filed 5-1-95 pursuant to section 100, title 1, California Code of Regulations (Register 95, No. 18).

§2698.2. Collection Procedures.

Note • History

NOTE

Authority cited: Sections 5003(a), 5003(g), 5005(c) and 5010, Insurance Code. Reference: Sections 5003 and 5005(c), Insurance Code.

HISTORY

3. Certificate of Compliance as to 2-26-92 order transmitted to OAL 3-19-92 and filed 4-22-92 (Register 92, No. 23).

4. Change without regulatory effect repealing section filed 5-1-95 pursuant to section 100, title 1, California Code of Regulations (Register 95, No. 18).

§2698.3. Administrative Fees.

Note • History

NOTE

Authority cited: Section 5010, Insurance Code. Reference: Section 5003(b), Insurance Code.

HISTORY

3. Certificate of Compliance as to 2-26-92 order transmitted to OAL 3-19-92 and filed 4-22-92 (Register 92, No. 23).

4. Change without regulatory effect repealing section filed 5-1-95 pursuant to section 100, title 1, California Code of Regulations (Register 95, No. 18).

Article 3. Remittance of Surcharge and Information

§2698.4. Remittance of Surcharge.

Note • History

NOTE

Authority cited: Sections 5003(a) and 5010, Insurance Code. Reference: Sections 5003(a) and 5003(c), Insurance Code.

HISTORY

3. Certificate of Compliance as to 2-26-92 order transmitted to OAL 3-19-92 and filed 4-22-92 (Register 92, No. 23).

4. Change without regulatory effect repealing article 3 and section filed 5-1-95 pursuant to section 100, title 1, California Code of Regulations (Register 95, No. 18).

§2698.5. Remittance of Information.

Note • History

NOTE

Authority cited: Section 5010, Insurance Code. Reference: Section 5003(c), Insurance Code.

HISTORY

3. Certificate of Compliance as to 2-26-92 order transmitted to OAL 3-19-92 and filed 4-22-92 (Register 92, No. 23).

4. Change without regulatory effect repealing section filed 5-1-95 pursuant to section 100, title 1, California Code of Regulations (Register 95, No. 18).

Article 4. Duties and Liability for Surcharge

§2698.6. Duties.

Note • History

NOTE

Authority cited: Section 5010, Insurance Code. Reference: Section 5003, Insurance Code.

HISTORY

3. Certificate of Compliance as to 2-26-92 order transmitted to OAL 3-19-92 and filed 4-22-92 (Register 92, No. 23).

4. Change without regulatory effect repealing article 4 and section filed 5-1-95 pursuant to section 100, title 1, California Code of Regulations (Register 95, No. 18).

§2698.7. Liability for Surcharge.

Note • History

NOTE

Authority cited: Section 5010, Insurance Code. Reference: Section 5003, Insurance Code.

HISTORY

3. Certificate of Compliance as to 2-26-92 order transmitted to OAL 3-19-92 and filed 4-22-92 (Register 92, No. 23).

4. Change without regulatory effect repealing section filed 5-1-95 pursuant to section 100, title 1, California Code of Regulations (Register 95, No. 18).

Article 5. Claims and Appeals

§2698.8. Filing Claims and Late Appeals.

Note • History

NOTE

Authority cited: Assembly Bill No. 2049, Chapter 1251. Reference: An act to repeal Chapter 4.5 (Commencing with Section 5000) of Part 1 of division 2 of the Insurance Code, relating to insurance and making an appropriation therfor. (Approved by Governor September 29, 1992. Filed with Secretary of State September 30, 1992.)

HISTORY

3. Editorial correction amending Register number in History 1 (Register 92, No. 19).

4. Certificate of Compliance as to 2-26-92 order transmitted to OAL 3-19-92 and filed 4-22-92 (Register 92, No. 23).

5. Amendment of article heading, section heading, text and repealer and new Note filed 4-13-94 as an emergency; operative 4-13-94 (Register 94, No. 15). A Certificate of Compliance must be transmitted to OAL by 8-11-94 or emergency language will be repealed by operation of law on the following day.

6. Change without regulatory effect repealing article 5 and section filed 5-1-95 pursuant to section 100, title 1, California Code of Regulations (Register 95, No. 18).

§2698.9. Claims Adjustment.

Note • History

NOTE

HISTORY

3. Editorial correction amending Register number in History 1 (Register 92, No. 19).

4. Certificate of Compliance as to 2-26-92 order transmitted to OAL 3-19-92 and filed 4-22-92 (Register 92, No. 23).

5. Amendment of section and repealer and new Note filed 4-13-94 as an emergency; operative 4-13-94 (Register 94, No. 15). A Certificate of Compliance must be transmitted to OAL by 8-11-94 or emergency language will be repealed by operation of law on the following day.

6. Change without regulatory effect repealing section filed 5-1-95 pursuant to section 100, title 1, California Code of Regulations (Register 95, No. 18).

§2698.10. Eligibility Appeal.

Note • History

NOTE

HISTORY

3. Editorial correction amending Register number in History 1 (Register 92, No. 19).

4. Certificate of Compliance as to 2-26-92 order transmitted to OAL 3-19-92 and filed 4-22-92 (Register 92, No. 23).

6. Change without regulatory effect repealing section filed 5-1-95 pursuant to section 100, title 1, California Code of Regulations (Register 95, No. 18).

§2698.11. Payment Appeal.

Note • History

NOTE

HISTORY

3. Certificate of Compliance as to 2-26-92 order transmitted to OAL 3-19-92 and filed 4-22-92 (Register 92, No. 23).

4. Amendment of section and repealer and new Note filed 4-13-94 as an emergency; operative 4-13-94 (Register 94, No. 15). A Certificate of Compliance must be transmitted to OAL by 8-11-94 or emergency language will be repealed by operation of law on the following day.

5. Change without regulatory effect repealing section filed 5-1-95 pursuant to section 100, title 1, California Code of Regulations (Register 95, No. 18).

§2698.12. Determination of Appeal.

Note • History

NOTE

HISTORY

3. Certificate of Compliance as to 2-26-92 order transmitted to OAL 3-19-92 and filed 4-22-92 (Register 92, No. 23).

4. Amendment of section heading and text and repealer and new Note filed 4-13-94 as an emergency; operative 4-13-94 (Register 94, No. 15). A Certificate of Compliance must be transmitted to OAL by 8-11-94 or emergency language will be repealed by operation of law on the following day.

5. Change without regulatory effect repealing section filed 5-1-95 pursuant to section 100, title 1, California Code of Regulations (Register 95, No. 18).

Article 6. Payments

§2698.13. Distributions.

Note • History

NOTE

Authority cited: Section 5010, Insurance Code. Reference: Section 5005, Insurance Code.

HISTORY

3. Certificate of Compliance as to 2-26-92 order transmitted to OAL 3-19-92 and filed 4-22-92 (Register 92, No. 23).

4. Change without regulatory effect repealing article 6 and section filed 5-1-95 pursuant to section 100, title 1, California Code of Regulations (Register 95, No. 18).

§2698.14. Limitations.

Note • History

NOTE

Authority cited: Sections 5003(g) and 5010, Insurance Code. Reference: Sections 5003(g), 5005, 5005.1, 5005.2 and 5007, Insurance Code.

HISTORY

3. Certificate of Compliance as to 2-26-92 order transmitted to OAL 3-19-92 and filed 4-22-92 (Register 92, No. 23).

4. Change without regulatory effect repealing section filed 5-1-95 pursuant to section 100, title 1, California Code of Regulations (Register 95, No. 18).

Article 7. Records, Accounting, Inspections and Audits

§2698.15. Records.

Note • History

NOTE

Authority cited: Section 5010, Insurance Code. Reference: Sections 5002, 5003 and 1727, Insurance Code.

HISTORY

3. Certificate of Compliance as to 2-26-92 order transmitted to OAL 3-19-92 and filed 4-22-92 (Register 92, No. 23).

4. Change without regulatory effect repealing article 7 and section filed 5-1-95 pursuant to section 100, title 1, California Code of Regulations (Register 95, No. 18).

§2698.16. Accounting.

Note • History

NOTE

Authority cited: Section 5010, Insurance Code. Reference: Sections 5002 and 5003, Insurance Code.

HISTORY

3. Certificate of Compliance as to 2-26-92 order transmitted to OAL 3-19-92 and filed 4-22-92 (Register 92, No. 23).

4. Change without regulatory effect repealing section filed 5-1-95 pursuant to section 100, title 1, California Code of Regulations (Register 95, No. 18).

§2698.17. Inspections and Audits.

Note • History

NOTE

Authority cited: Section 5010, Insurance Code. Reference: Sections 5002 and 5003, Insurance Code.

HISTORY

3. Certificate of Compliance as to 2-26-92 order transmitted to OAL 3-19-92 and filed 4-22-92 (Register 92, No. 23).

4. Change without regulatory effect repealing section filed 5-1-95 pursuant to section 100, title 1, California Code of Regulations (Register 95, No. 18).

Article 8. Notices

§2698.18. Notices.

Note • History

NOTE

Authority cited: Section 5010, Insurance Code. Reference: Section 5009, Insurance Code.

HISTORY

3. Certificate of Compliance as to 2-26-92 order transmitted to OAL 3-19-92 and filed 4-22-92 (Register 92, No. 23).

4. Change without regulatory effect repealing article 8 and section filed 5-1-95 pursuant to section 100, title 1, California Code of Regulations (Register 95, No. 18).

Article 9. Confidentiality

§2698.19. Information Confidential.

Note • History

NOTE

Authority cited: Section 5010, Insurance Code. Reference: Section 5002, Insurance Code.

HISTORY

3. Certificate of Compliance as to 2-26-92 order transmitted to OAL 3-19-92 and filed 4-22-92 (Register 92, No. 23).

4. Change without regulatory effect repealing article 9 and section filed 5-1-95 pursuant to section 100, title 1, California Code of Regulations (Register 95, No. 18).

§2698.20. Disclosure.

Note • History

NOTE

Authority cited: Section 5010, Insurance Code. Reference: Section 5003, Insurance Code; and section 1798.24, Civil Code.

HISTORY

3. Certificate of Compliance as to 2-26-92 order transmitted to OAL 3-19-92 and filed 4-22-92 (Register 92, No. 23).

4. Change without regulatory effect repealing section filed 5-1-95 pursuant to section 100, title 1, California Code of Regulations (Register 95, No. 18).

Article 10. Enforcement

§2698.21. Failures to Pay, Collect or Remit.

Note • History

NOTE

Authority cited: Section 5010, Insurance Code. Reference: Sections 5003 and 5005(c), Insurance Code.

HISTORY

3. Certificate of Compliance as to 2-26-92 order transmitted to OAL 3-19-92 and filed 4-22-92 (Register 92, No. 23).

4. Change without regulatory effect repealing article 10 and section filed 5-1-95 pursuant to section 100, title 1, California Code of Regulations (Register 95, No. 18).

Subchapter 9. Insurance Fraud

Article 2. Special Investigative Unit Regulations

§2698.30. Definitions.

Note • History

As used in this article, the following definitions shall apply:

(a) “Act” means any violation of California Code of Regulations, Title 10, Chapter 5, Section 2698.30-42, inclusive.

(b) “Authorized governmental agency (agencies)” shall have the same meaning as used in the Insurance Frauds Prevention Act (IFPA).

(c) “Claims handler” means every employee and agent of an insurer whose principal responsibilities include the investigation, adjustment, settlement and resolution of claims.

(d) “Commissioner” means the Insurance Commissioner of the State of California.

(e) “Communication” includes the referral of suspected insurance fraud to the Department of Insurance and providing information and documents requested by the Fraud Division.

(f) “Department” means the California Department of Insurance.

(g) “Fraud Division” means the California Department of Insurance Fraud Division formerly known as the Bureau of Fraudulent Claims.

(h) “Hearing” means an adjudicative proceeding initiated by the Insurance Commissioner pursuant to the provisions of California Insurance Code Section 1875.24(d).

(i) “Inadvertent” means unintentional.

(j) “Insurer” means every insurer admitted to do business in this state except the following:

(1) Reinsurers.

(2) Title insurers.

(3) Fraternal fire insurers.

(4) Fraternal benefit societies.

(5) Firemen, policemen, or peace officer benefit and relief associations.

(6) Grant and annuity societies.

(7) Home protection.

(k) “Integral anti-fraud personnel” includes insurer personnel who the insurer has not identified as being directly assigned to its SIU but whose duties may include the processing, investigating, or litigation pertaining to payment or denial of a claim or application for adjudication or claim or application for insurance. These personnel may include claims handlers, underwriters, policy handlers, call center staff within the claims or policy function, legal staff, and other insurer employee classifications that perform similar duties.

(l) “Reasonable belief” is a level of belief that an act of insurance fraud may have or might be occurring for which there is an objective justification based on articulable fact(s) and rational inferences therefrom.

(m) “Red flag” or “red flag event” means facts, circumstances or events which, singly or in combination, support(s) an inference that insurance fraud may have been committed.

(n) “Regulations” means these regulations, California Code of Regulations, Title 10, Chapter 5, Subchapter 9, Article 2.

(o) “Special Investigative Unit” (SIU) means an insurer's unit or division that is established to investigate suspected insurance fraud. The SIU may be comprised of insurer employees or by contracting with other entities for the purpose of complying with applicable sections of the Insurance Frauds Prevention Act (IFPA) for the direct responsibility of performing the functions and activities as set forth in these regulations.

(p) “Suspected insurance fraud” includes any misrepresentation of fact or omission of fact pertaining to a transaction of insurance including claims, premium and application fraud. These facts may include evidence of doctoring, altering or destroying forms, prior history of the claimant, policy holder, applicant or provider, receipts, estimates, explanations of benefits (EOB), medical evaluations or billings, medical provider notes (commonly known as SOAPE notes); Subjective complaint, Objective findings, Assessment, Plan and Evaluation, Health Care Financing Administration (HCFA) forms, police and/or investigative reports, relevant discrepancies in written or oral statements and examinations under oath (EUO), unusual policy activity and falsified or untruthful application for insurance. An identifiable pattern in a claim history may also suggest the possibility of suspected fraudulent claims activity. A claim may contain evidence of suspected insurance fraud regardless of the payment status.

(q) “The Insurance Frauds Prevention Act” or “(IFPA)” shall refer to California Insurance Code section 1871-1879.8.

(r) “Willful” means a purpose or willingness to commit the act or make the omission referred to in the California Insurance Code or in these regulations. The Commissioner shall use the factors set forth at California Code of Regulations Section 2591.3(d)(1)(A-E) to determine whether or not an act is willful.

NOTE

Authority cited: Sections 1872.4, 1875.24, 1877.3, 1879.5 and 1879.6, Insurance Code; Calfarm Ins. Co. v. Deukmejian (1989) 48 Cal.3d. 805, 824, 258 Cal. Rptr. 161, 771 P.2d 1247; Credit Ins. Gen. Agents Assn. v. Payne (1976) 16 Cal.3d 651, 656, 128 Cal. Rptr. 881, 547 P.2d 993; and Garris v. Carpenter (1939) 33 Cal. App. 2d. 649, 653, 92 P.2d 688. Reference: Sections 1875.20, 1875.21, 1875.24, 1879.5, 9080, 10970, 11400, 11520, 11760, 11880, 12400.1, 12743, 12921(a) and 12926, Insurance Code.

HISTORY

1. Repealer of article 2 (sections 2698.40-2698.45), new article 2 (sections 2698.30-2698.42) and new section filed 9-4-2003 as an emergency; operative 9-4-2003 (Register 2003, No. 36). A Certificate of Compliance must be transmitted to OAL by 1-2-2004 or emergency language will be repealed by operation of law on the following day.

2. Repealer of of article 2 (sections 2698.40-2698.45), new article 2 (sections 2698.30-2698.42) and new section refiled 1-2-2004 as an emergency; operative 1-3-2004. (Register 2004, No. 1). A Certificate of Compliance must be transmitted to OAL by 5-3-2004 or emergency language will be repealed by operation of law on the following day.

3. Repealer of of article 2 (sections 2698.40-2698.45), new article 2 (sections 2698.30-2698.42) and new section refiled 5-4-2004 as an emergency; operative 5-4-2004 (Register 2004, No. 19). A Certificate of Compliance must be transmitted to OAL by 9-1-2004 or emergency language will be repealed by operation of law on the following day.

4. Editorial correction of History 3 (Register 2004, No. 36).

5. Repealer of of article 2 (sections 2698.40-2698.45), new article 2 (sections 2698.30-2698.42) and new section refiled 9-1-2004 as an emergency; operative 9-1-2004 (Register 2004, No. 36). A Certificate of Compliance must be transmitted to OAL by 12-30-2004 or emergency language will be repealed by operation of law on the following day.

6. Repealer of article 2 (sections 2698.40-2698.45), new article 2 (sections 2698.30-2698.42) and new section refiled 12-28-2004 as an emergency; operative 12-30-2004 (Register 2004, No. 53). A Certificate of Compliance must be transmitted to OAL by 4-29-2005 or emergency language will be repealed by operation of law on the following day.

7. Repealer of article 2 (sections 2698.40-2698.45), new article 2 (sections 2698.30-2698.42) and new section refiled 4-29-2005 as an emergency; operative 4-29-2005 (Register 2005, No. 17). A Certificate of Compliance must be transmitted to OAL by 8-29-2005 or emergency language will be repealed by operation of law on the following day.

8. Certificate of Compliance as 4-29-2005 order, including repealer and new section, transmitted to OAL 8-26-2005 and filed 10-7-2005 (Register 2005, No. 40).

§2698.31. Insurer Responsibility.

Note • History

The insurer shall comply with applicable sections of the IFPA and these regulations regarding the establishment, operation and continuous existence of an SIU.

NOTE

Authority cited: Sections 1875.24, 1879.5 and 1879.6, Insurance Code; Calfarm Ins. Co. v. Deukmejian (1989) 48 Cal.3d. 805, 824, 258 Cal. Rptr. 161, 771 P.2d 1247; Credit Ins. Gen. Agents Assn. v. Payne (1976) 16 Cal.3d 651, 656, 128 Cal. Rptr. 881, 547 P.2d 993; and Garris v. Carpenter (1939) 33 Cal. App. 2d. 649, 653, 92 P.2d 688. Reference: Sections 1875.20, 1875.21, 1875.24, 1879.5, 12921(a) and 12926, Insurance Code.

HISTORY

1. New section filed 9-4-2003 as an emergency; operative 9-4-2003 (Register 2003, No. 36). A Certificate of Compliance must be transmitted to OAL by 1-2-2004 or emergency language will be repealed by operation of law on the following day.

2. New section refiled 1-2-2004 as an emergency; operative 1-3-2004. (Register 2004, No. 1). A Certificate of Compliance must be transmitted to OAL by 5-3-2004 or emergency language will be repealed by operation of law on the following day.

3. New section refiled 5-4-2004 as an emergency; operative 5-4-2004 (Register 2004, No. 19). A Certificate of Compliance must be transmitted to OAL by 9-1-2004 or emergency language will be repealed by operation of law on the following day.

4. Editorial correction of History 3 (Register 2004, No. 36).

5. New section refiled 9-1-2004 as an emergency; operative 9-1-2004 (Register 2004, No. 36). A Certificate of Compliance must be transmitted to OAL by 12-30-2004 or emergency language will be repealed by operation of law on the following day.

6. New section refiled 12-28-2004 as an emergency; operative 12-30-2004 (Register 2004, No. 53). A Certificate of Compliance must be transmitted to OAL by 4-29-2005 or emergency language will be repealed by operation of law on the following day.

7. New section refiled 4-29-2005 as an emergency; operative 4-29-2005 (Register 2005, No. 17). A Certificate of Compliance must be transmitted to OAL by 8-29-2005 or emergency language will be repealed by operation of law on the following day.

8. Certificate of Compliance as 4-29-2005 order, including repealer and new section, transmitted to OAL 8-26-2005 and filed 10-7-2005 (Register 2005, No. 40).

§2698.32. SIU Staffing.

Note • History

(a) Adequacy. The adequacy of an insurer's SIU staffing shall be determined by its demonstrated ability to establish, operate and maintain an SIU that is in compliance with these regulations. Factors that may be considered in staffing the SIU include, but not limited to, the number of policies written and individuals insured in California, number of claims received with respect to California insureds on an annual basis, volume of suspected fraudulent California claims currently being detected and other factors relating to the vulnerability of the insurer to insurance fraud.

(b) Knowledge. An SIU shall be composed of employees who have knowledge and/or experience in general claims practices, the analysis of claims for patterns of fraud, and current trends in insurance fraud, education and training in specific red flags, red flag events, and other criteria indicating possible fraud. They shall have the ability to conduct effective investigations of suspected insurance fraud and be familiar with insurance and related law and the use of available insurer related database resources.

NOTE

HISTORY

4. Editorial correction of History 3 (Register 2004, No. 36).

8. Certificate of Compliance as 4-29-2005 order, including repealer and new section, transmitted to OAL 8-26-2005 and filed 10-7-2005 (Register 2005, No. 40).

§2698.33. SIU Contracted Responsibilities.

Note • History

(a) Any contract entered into by an insurer, or an entity under contract with an insurer as provided under these regulations, shall not relieve the insurer of any obligation under these regulations or the IFPA.

(b) Notwithstanding any other provisions of these regulations, a complete and executed copy of any such agreement, including all attachments, exhibits and amendments thereto, shall be provided to the Fraud Division on execution.

(1) Specify all SIU duties and functions to be performed by the parties to the contract and how the insurer monitors performance of the contract responsibilities;

(2) Not include provisions that could provide disincentives to the referral and/or investigation of suspected insurance fraud;

(3) Not include provisions that purport to relieve an insurer of any obligation to comply with the requirements of these regulations and the IFPA.; and

(4) Expressly include a provision to require the contracted entity to comply with all applicable provisions of the IFPA and these regulations.

NOTE

HISTORY

4. Editorial correction of History 3 (Register 2004, No. 36).

8. Certificate of Compliance as 4-29-2005 order, including repealer and new section, transmitted to OAL 8-26-2005 and filed 10-7-2005 (Register 2005, No. 40).

§2698.34. Communication with the Fraud Division and Authorized Governmental Agencies.

Note • History

(a) The insurer and any entity performing the SIU function(s) shall comply with specific sections of the IFPA regarding communication with the Fraud Division and authorized governmental agencies.

(b) On written request by the Fraud Division or an authorized governmental agency, an insurer or its agents, shall release in a timely and complete manner any or all relevant information deemed important that the insurer may possess relating to any specific incident of insurance fraud. Such information shall include:

(1) Insurance policy information;

(2) Applications;

(3) Policy premium payment records;

(4) History of claims;

(5) Information relating to the carrier's investigation, including statements, proof and notice of loss;

(6) Claim file documents;

(7) Claim notes;

(8) Investigation files;

(9) Investigator notes; and

(10) Other information which the Fraud Division or an Authorized Governmental Agency may deem relevant and important.

(c) For the purpose of this section, timely release of information means immediate, but no more than thirty (30) calendar days after the request unless otherwise agreed to by the Fraud Division.

(c) A single written request shall be considered sufficient to compel production of all information deemed relevant by the requesting governmental agency relating to any specific insurance fraud investigation. The single request is applicable throughout the duration of the investigation and is applicable to the requested records of the insurer named in the request and the records of all persons, agents and brokers employed by and conducting business on behalf of the insurer.

NOTE

Authority cited: Sections 1872.4, 1875.24, 1877.3, 1879.5 and 1879.6, Insurance Code; Calfarm Ins. Co. v. Deukmejian (1989) 48 Cal.3d. 805, 824, 258 Cal. Rptr. 161, 771 P.2d 1247; Credit Ins. Gen. Agents Assn. v. Payne (1976) 16 Cal.3d 651, 656, 128 Cal. Rptr. 881, 547 P.2d 993; and Garris v. Carpenter (1939) 33 Cal. App. 2d. 649, 653, 92 P.2d 688. Reference: Sections 1872.3, 1873, 1874.2, 1874.4, 1875.4, 1875.20, 1875.21, 1875.24, 1877.1, 1877.2, 1877.3, 1877.4, 1877.5, 1879.5, 12921(a) and 12926, Insurance Code.

HISTORY

4. Editorial correction of History 3 (Register 2004, No. 36).

8. Certificate of Compliance as 4-29-2005 order, including repealer and new section, transmitted to OAL 8-26-2005 and filed 10-7-2005 (Register 2005, No. 40).

§2698.35. Detecting Suspected Insurance Fraud.

Note • History

(a) An insurer's integral anti-fraud personnel are responsible for identifying suspected insurance fraud during the handling of insurance transactions and referring it to the SIU as part of their regular duties.

(b) The SIU shall establish, maintain, distribute and monitor written procedures to be used by the integral anti-fraud personnel to detect, identify, document and refer suspected insurance fraud to the SIU. The written procedures shall include a listing of the red flags to be used to detect suspected insurance fraud for the insurer.

(c) The procedures for detecting suspected insurance fraud shall provide for comparison of any insurance transaction against:

(1) Patterns or trends of possible fraud;

(2) Red flags;

(3) Events or circumstances present on a claim;

(4) Behavior or history of person(s) submitting a claim or application; and

(5) Other criteria that may indicate possible fraud.

NOTE

HISTORY

4. Editorial correction of History 3 (Register 2004, No. 36).

8. Certificate of Compliance as 4-29-2005 order, including repealer and new section, transmitted to OAL 8-26-2005 and filed 10-7-2005 (Register 2005, No. 40).

§2698.36. Investigating Suspected Insurance Fraud.

Note • History

(a) The SIU shall establish, maintain, distribute and adhere to written procedures for the investigation of possible suspected insurance fraud. An investigation of possible suspected insurance fraud shall include:

(1) A thorough analysis of a claim file, application, or insurance transaction.

(2) Identification and interviews of potential witnesses who may provide information on the accuracy of the claim or application.

(3) Utilizing industry-recognized databases.

(4) Preservation of documents and other evidence.

(5) Writing a concise and complete summary of the investigation, including the investigator's findings regarding the suspected insurance-fraud and the basis for their findings.

NOTE

HISTORY

4. Editorial correction of History 3 (Register 2004, No. 36).

8. Certificate of Compliance as 4-29-2005 order, including repealer and new section, transmitted to OAL 8-26-2005 and filed 10-7-2005 (Register 2005, No. 40).

§2698.37. Referral of Suspected Insurance Fraud.

Note • History

(a) The SIU shall provide for the referral of acts of suspected insurance fraud to the Fraud Division and, as required, district attorneys.

(b) Referrals shall be submitted in any insurance transaction where the facts and circumstances create a reasonable belief that a person or entity may have committed or is committing insurance fraud.

(d) The requirements of this section do not affect the immunity granted under California Insurance Code section 1872.5 or other such similar codes contained in the Insurance Frauds Prevention Act.

(e) The requirements of this section do not diminish statutory requirements contained in the Insurance Frauds Prevention Act regarding the confidentiality of any information provided in connection with an investigation.

NOTE

Authority cited: Section 1708, Civil Code; Sections 1872.4, 1874.6, 1875.24, 1875.4, 1877.3, 1877.5, 1879.5 and 1879.6, Insurance Code; Calfarm Ins. Co. v. Deukmejian (1989) 48 Cal.3d. 805, 824, 258 Cal. Rptr. 161, 771 P.2d 1247; Credit Ins. Gen. Agents Assn. v. Payne (1976) 16 Cal.3d 651, 656, 128 Cal. Rptr. 881, 547 P.2d 993; and Garris v. Carpenter (1939) 33 Cal. App. 2d. 649, 653, 92 P.2d 688. Reference: Sections 1872.5, 1873.2, 1874.2, 1874.4, 1875.20, 1875.21, 1875.24, 1877.3, 1879.5, 12921(a) and 12926, Insurance Code.

HISTORY

4. Editorial correction of History 3 (Register 2004, No. 36).

8. Certificate of Compliance as 4-29-2005 order, including repealer and new section, transmitted to OAL 8-26-2005 and filed 10-7-2005 (Register 2005, No. 40).

§2698.38. Referral Content.

Note • History

A referral of an act of suspected insurance fraud to the Fraud Division shall be legible and on a form as directed by the Department and contain the information and data to the extent applicable, as provided in the following:

(a) Fraud and referral type

(1) Fraud type

(2) New referral/amended referral indicator

(b) Reporting party information

(1) Reporting party type

(2) Reporting party name

(3) Reporting party California Company number

(4) Reporting self-insured/contracted third party license number, as appropriate

(5) Reporting party address, city, state and zip code

(6) Reporting party email address (generally, contact address)

(1) Alleged victim company name

(2) Alleged victim California Company number

(3) Alleged victim self-insured number

(4) Alleged victim address, city, state and zip code

(d) Insurance policy or claim information, as appropriate

(1) Claim number associated with referral

(2) Insurance policy number associated with referral

(3) Date of loss or injury

(4) Geographic location where loss or injury occurred

(5) Insurance premium dollar loss

(6) Total potential loss on claim prior to the identification of fraud

(7) Total claim loss paid to date

(8) Actual suspected fraudulent loss amount paid to date

(9) A complete synopsis of all the facts on which the reasonable belief of the insurance fraud is based.

(10) Disaster claim indicator

(e) Other agency referral information, as appropriate

(1) Names of other authorized governmental agencies receiving this referral

(2) Names of any District Attorney's Office receiving this referral

(3) National Insurance Crime Bureau (NICB) referral indicator

(4) The names of any other agencies receiving this referral

(f) Referral contact information, as appropriate

(1) Referral contact name and phone number

(2) Claim or case file handler and phone number

(3) Name and phone number of person who completed referral

(4) Date referral was completed

(g) Information for each party associated with the referral

(1) Identification of the role of the party to the loss

(2) Phone number

(3) Address, city, state and zip code

(4) Date of birth or age

(5) Social security number

(6) Tax identification number

(7) Drivers license number

(8) State of party's drivers license

(9) Vehicle license plate number

(10) Vehicle license plate state

(11) Vehicle identification number

(12) Other names or identifiers used by the party

(13) Claim of injury indicator

NOTE

Authority cited: Sections 1872.4, 1874.2, 1875.24, 1877.3, 1879.5 and 1879.6, Insurance Code; Calfarm Ins. Co. v. Deukmejian (1989) 48 Cal.3d. 805, 824, 258 Cal. Rptr. 161, 771 P.2d 1247; Credit Ins. Gen. Agents Assn. v. Payne (1976) 16 Cal.3d 651, 656, 128 Cal. Rptr. 881, 547 P.2d 993; and Garris v. Carpenter (1939) 33 Cal. App. 2d. 649, 653, 92 P.2d 688. Reference: Sections 1875.20, 1875.21, 1875.24, 1877.3, 1879.5, 12921(a) and 12926, Insurance Code.

HISTORY

4. Editorial correction of History 3 (Register 2004, No. 36).

8. Certificate of Compliance as 4-29-2005 order, including repealer and new section, transmitted to OAL 8-26-2005 and filed 10-7-2005 (Register 2005, No. 40).

§2698.39. Anti-Fraud Training.

Note • History

Requirements for training provided by and for the SIU shall include:

(a) The insurer shall establish and maintain an ongoing anti-fraud training program, planned and conducted to develop and improve the anti-fraud awareness skills of the integral anti-fraud personnel

(b) The insurer shall designate an SIU staff person to be responsible for coordinating the ongoing anti-fraud training program.

(1) All newly-hired employees shall receive an anti-fraud orientation within ninety (90) days of commencing assigned duties. The orientation shall provide information regarding:

(A) the function and purpose of the SIU;

(B) an overview of fraud detection and referral of suspected insurance

fraud to the SIU for investigation;

(D) an organization chart depicting the insurer's SIU; and

(E) SIU contact telephone numbers.

(2) Integral anti-fraud personnel shall receive annual anti-fraud in-service training, which shall include:

(A) review of the function and purpose of the SIU;

(B) introduction/review of the written procedures established by the SIU regarding the identification, documentation and referral of incidents of suspected fraud to the SIU;

(D) any changes to current procedures for identifying, documenting and referring incidents of suspected insurance fraud to the SIU;

(E) Fraud Division insurance fraud reporting requirements; and

(F) introduction/review of existing and new, emerging insurance fraud trends.

(3) The SIU personnel shall receive continuing anti-fraud training that includes;

(A) investigative techniques;

(B) communication with the Fraud Division and authorized governmental agencies;

(D) emerging fraud trends; and

(E) legal and related issues.

(d) Records of the anti-fraud training provided to all staff shall be prepared at the time training is provided and be maintained and available for inspection by the Department on request. The training records shall include the title and date of the anti-fraud training course, name and title and contact information of the instructor(s), description of the course content, length of the training course, and the name and job title(s) of participating personnel.

NOTE

HISTORY

4. Editorial correction of History 3 (Register 2004, No. 36).

8. Certificate of Compliance as 4-29-2005 order, including repealer and new section, transmitted to OAL 8-26-2005 and filed 10-7-2005 (Register 2005, No. 40).

§2698.40. SIU Annual Report.

Note • History

(a) Each insurer shall file a report as prescribed herein, at the time its initial Certificate of Authority is issued, and annually thereafter. The annual report shall be due no later than 90 days after the date of mailing of the notification by the Department. The Department shall issue the notification in June of each year.

(b) A complete, accurate and truthful annual report shall be submitted on a form as prescribed by the Department and shall include the following information.

(1) The name(s), title(s) and contact information of the insurer's SIU personnel; or

(2) The name of the organization and organizational contacts with whom the insurer has contracted for the maintenance of the SIU or any function thereof; and

(3) The names of personnel whose duties include communication with the Fraud Division on matters related to the reporting, investigation and prosecution of suspected fraudulent claims or other suspected insurance fraud.

(4) A description of the insurer's methods and written procedures used for detecting, investigating and reporting suspected insurance fraud.

(5) A description of the insurer's plan for initial and on-going fraud education and training for integral anti-fraud personnel pursuant to these regulations.

(6) A written description or chart outlining the organizational arrangement of the insurer's anti-fraud personnel who are responsible for the investigation and reporting of suspected insurance fraud.

(7) A description of how the SIU is adequately staffed to meet the requirements herein and the expertise of the staff.

(8) The number of claims processed by the insurer and the number of claims referred to the SIU, for each reported company, for the past calendar year.

(9) The number of incidents of suspected insurance fraud reported to the Department and to district attorney offices, for each reported company, for the past calendar year.

(10) A description of any significant, anticipated changes to the insurer's structure and operations.

(11) Insurers who enter into contracts for the purpose of compliance with these regulations shall provide a complete copy of the fully executed, existing contract, including all attachments and addendum, to the Department and shall specify the manner in which the contract is monitored.

(12) The number and type of civil actions initiated by each reported company alleging acts of insurance fraud during the preceding calendar year.

(c) A statement signed under penalty of perjury pursuant to the laws of the state of California, must accompany all reports mentioned herein. This statement must be signed by an officer of the holder of or applicant for the Certificate of Authority who attests to the accuracy of the reported information and the signor's personal knowledge of the existence and proper maintenance of an SIU described in this report and these regulations.

(d) The insurer is to maintain a copy of the annual report that will be available for review during examinations as conducted pursuant to section 2698.41 of these regulations or as otherwise requested by the Department.

(e) For the purpose of these regulations, the name(s) of the insurer's personnel who will communicate with the Fraud Division shall not be made part of the public record and shall be released only pursuant to the provisions of CIC Section 1873.1 applicable to information acquired pursuant to Article 3 of the Insurance Frauds Prevention Act.

NOTE

HISTORY

1. New article and section filed 5-3-94; operative 6-2-94 (Register 94, No. 18).

2. Repealer of article 2 (sections 2698.40-2698.45) and repealer and new section filed 9-4-2003 as an emergency; operative 9-4-2003 (Register 2003, No. 36). A Certificate of Compliance must be transmitted to OAL by 1-2-2004 or emergency language will be repealed by operation of law on the following day.

3. Repealer of article 2 (sections 2698.40-2698.45) and repealer and new section refiled 1-2-2004 as an emergency; operative 1-3-2004. (Register 2004, No. 1). A Certificate of Compliance must be transmitted to OAL by 5-3-2004 or emergency language will be repealed by operation of law on the following day.

4. Repealer of article 2 (sections 2698.40-2698.45) and repealer and new section refiled 5-4-2004 as an emergency; operative 5-4-2004 (Register 2004, No. 19). A Certificate of Compliance must be transmitted to OAL by 9-1-2004 or emergency language will be repealed by operation of law on the following day.

5. Editorial correction of History 4 (Register 2004, No. 36).

6. Repealer of article 2 (sections 2698.40-2698.45) and repealer and new section refiled 9-1-2004 as an emergency; operative 9-1-2004 (Register 2004, No. 36). A Certificate of Compliance must be transmitted to OAL by 12-30-2004 or emergency language will be repealed by operation of law on the following day.

7. Repealer of article 2 (sections 2698.40-2698.45) and repealer and new section refiled 12-28-2004 as an emergency; operative 12-30-2004 (Register 2004, No. 53). A Certificate of Compliance must be transmitted to OAL by 4-29-2005 or emergency language will be repealed by operation of law on the following day.

8. Repealer of article 2 (sections 2698.40-2698.45) and repealer and new section refiled 4-29-2005 as an emergency; operative 4-29-2005 (Register 2005, No. 17). A Certificate of Compliance must be transmitted to OAL by 8-29-2005 or emergency language will be repealed by operation of law on the following day.

9. Certificate of Compliance as 4-29-2005 order, including repealer and new section, transmitted to OAL 8-26-2005 and filed 10-7-2005 (Register 2005, No. 40).

§2698.41. Examinations.

Note • History

(a) The commissioner may conduct examinations of an insurer's SIU and related operations, including operations undertaken by entities under contract with the insurer, as deemed necessary to determine compliance with the requirements of this article.

(b) A written report of examination, including identification of violations of these applicable provisions of statute and regulation and required corrective action, if any, will be provided to the insurer on completion of the examination.

(c)(1) Notwithstanding any penalty imposed pursuant to the regulations, within thirty (30) days of receipt of a written report identifying any violation(s) of these regulations, an insurer shall submit to the Department a plan demonstrating how the insurer will correct such violation(s) and achieve compliance. Such plan shall be subject to examination by the Department. If accepted by the Department, the plan shall be submitted as a supplement to any existing annual report and shall be accompanied by a statement of an officer of the insurer as otherwise required for annual reports. Failure to submit a corrective action and compliance plan or to comply with such plan when accepted by the Department shall be considered a violation of these regulations.

(2) Any insurer submitting a written report pursuant to Subsection 2698.41(c)(1) setting forth a corrective action plan may also submit any of the following information to the Commissioner in conjunction with the report required by Subsection 2698.41(c)(1):

(A) any written material that may rebut any matters contained in the examination report.

NOTE

Authority cited: Sections 730 et. seq, 1875.24, 1879.5 and 1879.6, Insurance Code; Calfarm Ins. Co. v. Deukmejian (1989) 48 Cal.3d. 805, 824, 258 Cal. Rptr. 161, 771 P.2d 1247; Credit Ins. Gen. Agents Assn. v. Payne (1976) 16 Cal.3d 651, 656, 128 Cal. Rptr. 881, 547 P.2d 993; and Garris v. Carpenter (1939) 33 Cal. App. 2d. 649, 653, 92 P.2d 688. Reference: Sections 1875.20, 1875.21, 1875.24, 1879.5, 12921(a) and 12926, Insurance Code.

HISTORY

1. New section filed 5-3-94; operative 6-2-94 (Register 94, No. 18).

2. Repealer and new section filed 9-4-2003 as an emergency; operative 9-4-2003 (Register 2003, No. 36). A Certificate of Compliance must be transmitted to OAL by 1-2-2004 or emergency language will be repealed by operation of law on the following day.

3. Repealer and new section refiled 1-2-2004 as an emergency; operative 1-3-2004. (Register 2004, No. 1). A Certificate of Compliance must be transmitted to OAL by 5-3-2004 or emergency language will be repealed by operation of law on the following day.

4. Repealer and new section refiled 5-4-2004 as an emergency; operative 5-4-2004 (Register 2004, No. 19). A Certificate of Compliance must be transmitted to OAL by 9-1-2004 or emergency language will be repealed by operation of law on the following day.

5. Editorial correction of History 4 (Register 2004, No. 36).

6. Repealer and new section refiled 9-1-2004 as an emergency; operative 9-1-2004 (Register 2004, No. 36). A Certificate of Compliance must be transmitted to OAL by 12-30-2004 or emergency language will be repealed by operation of law on the following day.

6. Repealer and new section refiled 12-28-2004 as an emergency; operative 12-30-2004 (Register 2004, No. 53). A Certificate of Compliance must be transmitted to OAL by 4-29-2005 or emergency language will be repealed by operation of law on the following day.

7. Repealer and new section refiled 4-29-2005 as an emergency; operative 4-29-2005 (Register 2005, No. 17). A Certificate of Compliance must be transmitted to OAL by 8-29-2005 or emergency language will be repealed by operation of law on the following day.

8. Certificate of Compliance as 4-29-2005 order, including repealer and new section, transmitted to OAL 8-26-2005 and filed 10-7-2005 (Register 2005, No. 40).

§2698.42. Penalties.

Note • History

(a) If the Commissioner acts pursuant to the provisions of California Insurance Code Section 1875.24( c) or (d) and finds that the insurer has failed to comply with the provisions of this article, the Commissioner shall impose a monetary penalty in an amount not to exceed $5,000 for each act of non-compliance. Where the Commissioner determines that an insurer has willfully failed to comply with this article, the Commissioner may impose a monetary penalty in an amount not to exceed $10,000 for each willful act of non-compliance. The Commissioner shall consider the factors enumerated at California Code of Regulations Title 10 Chapter 5, Subchapter 3,Section 2591.3(a)-(f) and determine if any of the enumerated factors are applicable to the insurer's conduct in the establishment and operation of its special investigative unit. If the Commissioner finds such factors are applicable to the insurer's conduct, the Commissioner may reduce the amount of the monetary penalty prescribed in subsection 2698.42(a).

(b) If the Commissioner acts pursuant to the provisions of California Insurance Code Section 1875.24(c) or (d) and determines that the acts of non-compliance are inadvertent and are solely relative to the maintenance and operation of the special investigative unit of the insurer, then the Commissioner shall consider such violations to be a single act for the purposes of imposition of a monetary penalty that is no greater than $5,000 for that single act. For all other inadvertent acts, the Commissioner shall impose a penalty in the amount of up to $5,000 per inadvertent act that is not in compliance with this article.

NOTE

HISTORY

1. New section filed 5-3-94; operative 6-2-94 (Register 94, No. 18).

5. Editorial correction of History 4 (Register 2004, No. 36).

7. Reinstatement of section as it existed prior to 9-4-2003 emergency action by operation of Government Code section 11346.1(f) (Register 2004, No. 53).

8. Repealer filed 12-28-2004 as an emergency; operative 12-30-2004 (Register 2004, No. 53). A Certificate of Compliance must be transmitted to OAL by 4-29-2005 or emergency language will be repealed by operation of law on the following day.

9. Repealer refiled 4-29-2005 as an emergency; operative 4-29-2005 (Register 2005, No. 17). A Certificate of Compliance must be transmitted to OAL by 8-29-2005 or emergency language will be repealed by operation of law on the following day.

10. Certificate of Compliance as 4-29-2005 order, including new section heading and section, transmitted to OAL 8-26-2005 and filed 10-7-2005 (Register 2005, No. 40).

§2698.43. Hearings.

Note • History

(a) Any hearing conducted pursuant to these regulations shall be governed by the provisions of California Government code Section 11425.10(a).

(b) The Commissioner shall give 30 days written notice of any hearing held pursuant to these regulations.

NOTE

Authority cited: Section 11425.10(a), Government Code; Sections 1875.24, 1879.5 and 1879.6, Insurance Code; Calfarm Ins. Co. v. Deukmejian (1989) 48 Cal.3d. 805, 824, 258 Cal. Rptr. 161, 771 P.2d 1247; Credit Ins. Gen. Agents Assn. v. Payne (1976) 16 Cal.3d 651, 656, 128 Cal. Rptr. 881, 547 P.2d 993; and Garris v. Carpenter (1939) 33 Cal. App. 2d. 649, 653, 92 P.2d 688. Reference: Section 11425.10(a), Government Code; and Sections 1875.20, 1875.21, 1875.24, 1879.5, 12921(a) and 12926, Insurance Code.

HISTORY

1. New section filed 5-3-94; operative 6-2-94 (Register 94, No. 18).

2. Repealer filed 9-4-2003 as an emergency; operative 9-4-2003 (Register 2003, No. 36). A Certificate of Compliance must be transmitted to OAL by 1-2-2004 or emergency language will be repealed by operation of law on the following day.

3. Repealer refiled 1-2-2004 as an emergency; operative 1-3-2004. (Register 2004, No. 1). A Certificate of Compliance must be transmitted to OAL by 5-3-2004 or emergency language will be repealed by operation of law on the following day.

4. Repealer refiled 5-4-2004 as an emergency; operative 5-4-2004 (Register 2004, No. 19). A Certificate of Compliance must be transmitted to OAL by 9-1-2004 or emergency language will be repealed by operation of law on the following day.

5. Editorial correction of History 4 (Register 2004, No. 36).

6. Repealer refiled 9-1-2004 as an emergency; operative 9-1-2004 (Register 2004, No. 36). A Certificate of Compliance must be transmitted to OAL by 12-30-2004 or emergency language will be repealed by operation of law on the following day.

7. Repealer refiled 12-28-2004 as an emergency; operative 12-30-2004 (Register 2004, No. 53). A Certificate of Compliance must be transmitted to OAL by 4-29-2005 or emergency language will be repealed by operation of law on the following day.

8. Repealer refiled 4-29-2005 as an emergency; operative 4-29-2005 (Register 2005, No. 17). A Certificate of Compliance must be transmitted to OAL by 8-29-2005 or emergency language will be repealed by operation of law on the following day.

9. Certificate of Compliance as 4-29-2005 order, including new section heading and section, transmitted to OAL 8-26-2005 and filed 10-7-2005 (Register 2005, No. 40).

§2698.44. Oversight of Special Investigative Unit Maintenance and Operations.

Note • History

NOTE

Authority cited: Sections 1872, 1875.20, 1875.21, 1875.22 and 1875.23, Insurance Code; Calfarm Ins. Co. v. Deukmejian (1989) 48 Cal.3d. 805, 824, 258 Cal. Rptr. 161, 771 P.2d 1247; Credit Ins. Gen. Agents Assn. v. Payne (1976) 16 Cal.3d 651, 656, 128 Cal. Rptr. 881, 547 P.2d 1247; Garris v. Carpenter (1939) 33 Cal. App. 2d 649, 653, 92 P.2d 688. Reference: Sections 1875.20, 1875.21, 1875.22 and 1875.23, Insurance Code.

HISTORY

1. New section filed 5-3-94; operative 6-2-94 (Register 94, No. 18).

5. Editorial correction of History 4 (Register 2004, No. 36).

9. Certificate of Compliance as 4-29-2005 order transmitted to OAL 8-26-2005 and filed 10-7-2005 (Register 2005, No. 40).

§2698.45. Penalties.

Note • History

NOTE

Authority cited: Sections 700, 704, 704.7, 1872, 1875.20, 1875.21, and 1875.22, Insurance Code; Calfarm Ins. Co. v. Deukmejian (1989) 48 Cal.3d. 805, 824, 258 Cal. Rptr. 161, 771 P.2d 1247; Credit Ins. Gen. Agents Assn. v. Payne (1976) 16 Cal.3d 651, 656, 128 Cal. Rptr. 881, 547 P.2d 993; Garris v. Carpenter (1939) 33 Cal. App. 2d. 649, 653, 92 P.2d 688. Reference: Sections 1875.20, 1875.21, 1875.22 and 1875.23, Insurance Code.

HISTORY

1. New section filed 5-3-94; operative 6-2-94 (Register 94, No. 18).

2. Change without regulatory effect amending subsection (c), filed 3-19-96 pursuant to section 100, title 1, California Code of Regulations (Register 96, No. 12).

3. Repealer filed 9-4-2003 as an emergency; operative 9-4-2003 (Register 2003, No. 36). A Certificate of Compliance must be transmitted to OAL by 1-2-2004 or emergency language will be repealed by operation of law on the following day.

4. Repealer refiled 1-2-2004 as an emergency; operative 1-3-2004. (Register 2004, No. 1). A Certificate of Compliance must be transmitted to OAL by 5-3-2004 or emergency language will be repealed by operation of law on the following day.

5. Repealer refiled 5-4-2004 as an emergency; operative 5-4-2004 (Register 2004, No. 19). A Certificate of Compliance must be transmitted to OAL by 9-1-2004 or emergency language will be repealed by operation of law on the following day.

6. Editorial correction of History 5 (Register 2004, No. 36).

7. Repealer refiled 9-1-2004 as an emergency; operative 9-1-2004 (Register 2004, No. 36). A Certificate of Compliance must be transmitted to OAL by 12-30-2004 or emergency language will be repealed by operation of law on the following day.

8. Repealer refiled 12-28-2004 as an emergency; operative 12-30-2004 (Register 2004, No. 53). A Certificate of Compliance must be transmitted to OAL by 4-29-2005 or emergency language will be repealed by operation of law on the following day.

10. Certificate of Compliance as 4-29-2005 order transmitted to OAL 8-26-2005 and filed 10-7-2005 (Register 2005, No. 40).

Article 3. Program for Investigation and Prosecution of Workers' Compensation Insurance Fraud.

§2698.50. Authority and Purpose.

Note • History

These regulations are promulgated pursuant to authority granted to the Insurance Commissioner under the provisions of Section 1872.83 of the California Insurance Code. The purpose of these regulations is to set forth the criteria for distribution of funds to district attorneys for enhanced investigation and prosecution of workers' compensation insurance fraud cases, including an application process and subsequent reporting requirements.

NOTE

Authority cited: Section 1872.83, Insurance Code; CalFarm Insurance Company, et al. v. Deukmejian, et al. (1989) 48 Cal.3d 805, 824. Reference: Sections 1872.83 and 1872.9, Insurance Code.

HISTORY

1. New article 3 and section filed 10-8-93; operative 11-8-93 (Register 93, No. 41).

§2698.51. Definitions.

Note • History

For the purposes of these regulations:

(a) “Application” means the written document submitted to the Commissioner by which a local district attorney requests program funding, including a plan setting forth the district attorney's intended use of funds to enhance investigation and prosecution of workers' compensation insurance fraud.

(b) “Assessment” means the surcharge collected from insurers and self-insured employers to support the program to enhance investigation and prosecution of workers' compensation fraud.

(c) “Case” means the file set up by the California Department of Insurance Fraud Division (formerly, the Bureau of Fraudulent Claims) and/or the California Department of Insurance Investigations Bureau, and/or district attorney in the course of and for the purpose of investigation, development of evidence and prosecution of individual or consolidated activities of suspected workers' compensation fraud.

(d) “Claim” means the request for payment of workers' compensation benefits which has been submitted to an insurer as defined in Section 1877.1(c) of the Insurance Code.

(e) “Commissioner” means the Insurance Commissioner of the state of California.

(f) “County Plan” means the plan submitted to the Commissioner as part of the application process by the local district attorney which details the projected use of the funds sought pursuant to these regulations.

(g) “Department” means the California Department of Insurance.

(h) “District Attorney” means the prosecuting officer of a California county jurisdictional district.

(i) “Division” means the California Department of Insurance Fraud Division, formerly known as the Bureau of Fraudulent Claims. The former Bureau was designated a Division subsequent to the implementation of CIC sections 1872.8 et seq. The California Department of Insurance Investigations Bureau is responsible for investigating premium fraud.

(j) “Incidental Expenses” means those costs incurred by the California Department of Insurance and the California Department of Industrial Relations to administer the program and may include Fraud Assessment Commission expenses, costs of collection of assessments, administrative support of the Fraud Division program component, management of the distribution and oversight of monies allocated to the district attorneys.

(k) “Local Program Funding” means that portion of the funds collected and distributed to district attorneys pursuant to section 1872.83 of the Insurance Code.

(l) “Premium Fraud”, also commonly called “employer fraud”, are those acts of fraud, including and not limited to under-reporting payroll, misclassification of employees' duties, experience modification evasion, committed by or at the direction of an employer, for the purpose and with the effect of reducing premium liability.

(m) “Program” means those activities conducted by the Department, the Department of Industrial Relations, and any other agency which are necessary to fund or administer enhanced investigation and prosecution of workers' compensation insurance fraud through assessments on insurers as defined in Section 1877.1(c) of the Insurance Code and the distribution of funds to the Fraud Division to district attorneys for the purpose of investigation and prosecution of workers' compensation insurance fraud.

(n) “Regulations” means these regulations, California Code of Regulations, Title 10, Chapter 5, Subchapter 9, Article 3.

(o) “Suspected Fraudulent Claim” means a claim referred to the Fraud Division because the insurer, employer or claims administrator suspects, knows or reasonably believes that the claim involves a person who has committed a fraudulent act related to workers' compensation insurance.

NOTE

Authority cited: Section 1872.83, Insurance Code; CalFarm Insurance Company, et al. v. Deukmejian, et al. (1989) 48 Cal.3d 805, 824. Reference: Sections 1872.83 and 1872.9, Insurance Code.

HISTORY

1. New section filed 10-8-93; operative 11-8-93 (Register 93, No. 41).

2. Change without regulatory effect amending subsection (n) filed 11-9-93 pursuant to title 1, section 100, California Code of Regulations (Register 93, No. 46).

§2698.52. Application Procedure.

Note • History

(a) A Request for Application (RFA) shall be distributed annually on or before April 1, to each county district attorney in the state and shall include county data indicators, as outlined in Section 2693.5, which form the basis for each district attorney's base allocation.

(b) The RFA shall specify a deadline for submission of applications to the Commissioner, which shall be 30 days after distribution of the RFA.

(c) Any district attorney who fails to submit an application, or whose application is not received by the Commissioner at the address specified in the RFA, by the deadline date and time set forth in the RFA, shall not be considered for funding.

(d) Applications for funding submitted by the district attorneys shall list the County Plan and budget elements as outlined in Section 2693.6 and shall include a Table of Contents to facilitate plan review.

(e) Two or more counties may coordinate planning and submit applications addressing a multi-county area so long as each individual county plan identifies its proportion of the budget.

(f) At such time as the Fraud Assessment Commission makes funds available through initiating an assessment to augment fund availability, the Review Panel, as established by section 2698.52(f) of these regulations, shall analyze applications for the purpose of assisting the Commissioner in making funding determinations using the criteria set forth in section 2698.54 of these regulations. The Commissioner shall make his or her determination and shall obtain the advice and consent of the Fraud Division and the Fraud Assessment Commission, as to the most effective distribution of moneys.

NOTE

Authority cited: Section 1872.83, Insurance Code; CalFarm Insurance Company, et al. v. Deukmejian, et al. (1989) 48 Cal.3d 805, 824. Reference: Section 1872.83, Insurance Code.

HISTORY

1. New section filed 10-8-93; operative 11-8-93 (Register 93, No. 41).

2. Amendment of subsection (c) filed 3-30-2006 as an emergency; operative 3-30-2006 (Register 2006, No. 13). A Certificate of Compliance must be transmitted to OAL by 7-28-2006 or emergency language will be repealed by operation of law on the following day.

3. Amendment of subsection (c) refiled 7-28-2006 as an emergency; operative 7-28-2006 (Register 2006, No. 30). A Certificate of Compliance must be transmitted to OAL by 11-27-2006 or emergency language will be repealed by operation of law on the following day.

4. Certificate of Compliance as to 7-28-2006 order transmitted to OAL 11-22-2006 and filed 1-8-2007 (Register 2007, No. 2).

§2698.53. Funding Procedure.

Note • History

(a) Funding shall be in the form of a Grant Award Agreement and shall require an enabling resolution approving and authorizing execution of the agreement by the county Board of Supervisors.

(b) Funding shall be distributed on an annual basis in July and funding shall be contingent upon the adoption of each annual State Budget Act and the collection of assessments.

(c) Any portion of distributed funds not used for local program purposes at the termination of each program period as specified in the Request for Application shall be returned to the Workers' Compensation Fraud Account in the Insurance Fund to be reprogrammed for use in the subsequent program year for local program purposes. Counties shall provide the Department with an estimate of unused funds within sixty (60) days after the termination of the program period and shall complete the transfer of funds to the Insurance Fund within thirty (30) days after the completion of the final audit.

(d) A district attorney who has undertaken investigations and prosecutions which will continue into a subsequent year may carry over into the subsequent year distributed but unused funds not exceeding twenty-five percent (25%) of the total annual finding, provided that the district attorney specifies and justifies in writing to the Commissioner how those funds will be used (1) at the end of the program period and (2) at the time of the subsequent application. In the event that distributed, but unused, funds exceed twenty-five (25%) of the previous total annual funding, due to extenuating circumstances, the Commissioner shall consider and approve requests for carry-over to the extent that the district attorney provides justification.

NOTE

Authority cited: Section 1872.83, Insurance Code; CalFarm Insurance Company, et al. v. Deukmejian, et al. (1989) 48 Cal.3d 805, 824. Reference: Section 1872.83, Insurance Code.

HISTORY

1. New section filed 10-8-93; operative 11-8-93 (Register 93, No. 41).

2. Amendment of subsection (b) filed 3-30-2006 as an emergency; operative 3-30-2006 (Register 2006, No. 13). A Certificate of Compliance must be transmitted to OAL by 7-28-2006 or emergency language will be repealed by operation of law on the following day.

3. Amendment of subsection (b) refiled 7-28-2006 as an emergency; operative 7-28-2006 (Register 2006, No. 30). A Certificate of Compliance must be transmitted to OAL by 11-27-2006 or emergency language will be repealed by operation of law on the following day.

4. Certificate of Compliance as to 7-28-2006 order transmitted to OAL 11-22-2006 and filed 1-8-2007 (Register 2007, No. 2).

§2698.54. Criteria for Distribution of Funds to the District Attorneys.

Note • History

Each district attorney's allocation shall consist of two parts: a base allocation and a program award, both made as a result of the evaluation of the county plans. The base allocation shall be made from fifty percent (50%) of the total funds and allocated according to the following “caseload estimate”, an estimate of the district attorney's proportional share of the state's workers' compensation fraud investigation and prosecution caseload:

(a) The county's proportion of the state's annual average number of workers engaged in wage and salary employment for the most recent year of report shall receive the greatest weight and shall account for sixty-six percent (66%) of the base allocation funding. The employment data source is the Employment Development Department Annual Planning Information.

(b) The county's proportion of the state's workers' compensation suspected fraudulent claims as reported to the California Department of Insurance over the previous three years shall account for thirty-four percent (34%) of the base allocation funding. The source for data on the number of suspected fraudulent claims reported to the Division is the California Department of Insurance.

NOTE

Authority cited: Section 1872.83, Insurance Code; CalFarm Insurance Company, et al. v. Deukmejian, et al. (1989) 48 Cal.3d 805, 824. Reference: Section 1872.83, Insurance Code.

HISTORY

1. New section filed 10-8-93; operative 11-8-93 (Register 93, No. 41).

2. Change without regulatory effect amending section heading filed 12-13-93 pursuant to section 100, title 1, California Code of Regulations (Register 93, No. 51).

§2698.55. County Plan.

Note • History

Each district attorney's program award shall be based on the evaluation of the County Plan. The County Plan shall be evaluated by a Review Panel to be comprised of two members of the Fraud Assessment Commission, the Chief of the Fraud Division or his or her designee, the Director of the Department of Industrial Relations or his or her designee, and an expert in consumer crime investigation and prosecution to be designated by the Commissioner.

The County Plan shall include but need not be limited to the following elements detailing the county's qualifications and the manner in which the district attorney will use the funds to investigate and prosecute workers' compensation insurance fraud:

(a) Qualifications.

(1) A description of the district attorney's experience in investigating and prosecuting workers' compensation insurance fraud. Relationships with other public or private entities which may be useful to the program should also be included.. Specific activity during the past two years should be detailed as follows:

(A) Number of investigations initiated, specifying number of identified suspects per investigation;

(B) Number of warrants or indictments issued, specifying number of suspects and/or defendants;

(D) Number of convictions obtained, specifying number of defendants, number obtained by trial verdict and number obtained by plea or settlement;

(E) Amount of fines and penalty assessments ordered and collected, specifying number of defendants; and

(F) Amount of restitution ordered and collected, specifying number of defendants and victims.

(2) The panel shall consider each applicant county's population size in proportion to its historic commitment of resources to insurance fraud investigation and prosecution.

(b) Plan. The district attorney's plan for investigation and prosecution of workers' compensation fraud, including, at a minimum, the following elements:

(1) Problem Statement. A description of the extent and nature of the problem in the county, including its sources and causes, its economic and social impact, its unique aspects, if any, and what is needed to resolve the problem. Supporting data, evidence, or indicators of fraudulent activity related to workers' compensation insurance should be included. The data and information may be derived from third party administrators, self-insured employers, other local law enforcement entities, insurers or the Fraud Division or the Investigation Bureau of the California Department of Insurance.

(2) Program Strategy. This section shall specify how the district attorney will use prgram funds to address the problem defined above including:

(A) Outreach. A description of the manner in which the district attorney will develop his or her caseload, the source(s) for referrals of cases for investigation and/or prosecution, whether directly from the Division and/or directly from self-insured employers, third-party administrators and insurers or a combination;

(B) Personnel. The number, position titles and position justification of personnel to be funded fully or in part through grant funds, including descriptions of the qualifications of personnel to be assigned to the program and an organization chart identifying positions to be funded;

(C) Program Coordination. A description of the manner in which the district attorney plans to coordinate involved sectors, including employers, insurers, medical and legal provider communities, the Fraud Division and the Investigation Bureau of the California Department of Insurance;

(D) Management Plan. The detailed plan and schedule of the steps the district attorney will complete in achieving the objectives of the program and a discussion of how the program will be organized and what internal quality control and budget monitoring procedures will be employed. This part should also include how this program will be integrated with any other anti-fraud program(s) maintained within the district attorney's office;

(E) Staff Development. The plan for ongoing training of personnel on the workers' compensation system and the investigation and prosecution of fraud. Staff development may be addressed through coordination with the Division insurers or other entities.

(3) Objectives. This section shall outline the district attorney's anticipated achievements in the following areas:

(A) Estimated number of investigations to be initiated during the grant period, including a separate estimate of the number resulting from carryover investigations; and

(B) Estimated number of prosecutions to be initiated during the grant period.

NOTE

Authority cited: Section 1872.83, Insurance Code; CalFarm Insurance Company, et al. v. Deukmejian, et al. (1989) 48 Cal.3d 805, 824. Reference: Section 1872.83, Insurance Code.

HISTORY

1. New section filed 10-8-93; operative 11-8-93 (Register 93, No. 41).

§2698.56. Budget Proposal.

Note • History

The proposed budget forms the basis for program management and audit and must be presented in line-item detail and cover the period from July 1 through June 30. The budget may include a line item for an independent audit to be completed at the end of the program period. The district attorney's budget shall include, but need not be limited to, the following:

(a) Those salaries and benefits which are computed at the county salary and benefit schedule.

(b) Operation support costs.

(1) Estimated costs shall be listed by line item.

(2) Itemized costs shall conform to county policy regarding appropriateness of expenditures.

(3) Allowable costs are those costs incurred in district support of local program activities, including program related travel, equipment costs proportional to their program-related use, facilities cost, expert witness fees, audits.

(c) Indirect costs, including those costs not readily itemized but necessary to the local program operation may not exceed ten percent (10%) of personnel salaries (excluding benefits and overtime) or five percent (5%) of total direct program costs (excluding equipment). Counties must have on file an approved indirect cost allocation plan specifying how the rate was established, supported by formal accounting records to substantiate the charges. Indirect costs may not include any line item charged as a direct cost.

(d) Non-allowable budget items include:

(1) Real property purchases ands improvements;

(2) Aircraft or motor vehicles, except the purchase of motor vehicles which is specifically justified to the Commissioner;

(3) Interest payments;

(4) Food and beverages, except as purchased in connection with program-related travel;

(5) Weapons or ammunition unless included as part of a benefit package.

(e) Program funds must be used to support enhanced investigation and prosecution of workers' compensation insurance fraud and shall not be used to supplant funds which, in the absence of program funds, would be made available for any portion of the local workers' compensation insurance fraud program. Budget modifications are allowable so long as they do not change the grant award amount.

(f) Budget modifications are allowable so long as they do not change the grant award amount.

NOTE

Authority cited: Section 1872.83, Insurance Code; CalFarm Insurance Company, et al. v. Deukmejian, et al. (1989) 48 Cal.3d 805, 824. Reference: Section 1872.83, Insurance Code.

HISTORY

1. New section filed 10-8-93; operative 11-8-93 (Register 93, No. 41).

4. Certificate of Compliance as to 7-28-2006 order, including further amendment of subsection (c), transmitted to OAL 11-22-2006 and filed 1-8-2007 (Register 2007, No. 2).

§2698.57. Funding Recommendations.

Note • History

Based on the Review Panel's evaluation of each County Plan, the Panel will forward funding recommendations to the Commissioner. If the County Plan fails to respond adequately to the required items as specified in Sections 2693.6 and 2693.7, the Panel may recommend funding at the district attorney's base allocation level; however, the Panel shall consider the importance of establishing a program presence in a county to increase community awareness and deter workers' compensation fraud. However, Applications which fail to meet the specified criteria may be recommended for no funding.

NOTE

Authority cited: Section 1872.83, Insurance Code; CalFarm Insurance Company, et al. v. Deukmejian, et al. (1989) 48 Cal.3d 805, 824. Reference: Section 1872.83, Insurance Code.

HISTORY

1. New section filed 10-8-93; operative 11-8-93 (Register 93, No. 41).

§2698.58. Fraud Assessment Commission Review and Consent.

Note • History

(a) Before funds can be distributed to the District Attorneys, the Commissioner shall make a determination, based on the recommendation of the Review Panel and with the advice and consent of the Fraud Division as to the most effective distribution of moneys, and shall forward his or her decision on the funding distribution to the Chair of the Fraud Assessment Commission within five business days of the date of the Review Panel's recommendation on funding for the Commission's advice on and consent to the funding distribution. The Fraud Assessment Commission shall notify the Commissioner in writing within ten business days of receipt of the Commissioner's decision whether it agrees or if it does not agree with the recommended funding distribution.

(b) In the event that the Commission does not agree with the Commissioner's recommended funding distribution, the Commission shall set forth, in writing, the basis upon which its consent has been withheld and shall forward such written decision to the Commissioner within ten business days along with a written request for reconsideration. If the Commission indicates that it does not agree with the Commissioner's funding distribution, the Commissioner shall reconsider the distribution based upon the written advice of the Commission.

(c) After reconsideration of the distribution, the Commissioner shall forward to the Commission, within ten business days, his or her written recommendation upon reconsideration. If the Commission withholds its consent to the Commissioner's reconsidered funding distribution, the Commission shall set forth, in writing, the basis upon which its consent has been withheld and shall forward such written decision within ten business days, along with a request for submission of a revised County Plan, to the District Attorney(s) submitting the disapproved County Plan.

NOTE

Authority cited: Section 1872.83, Insurance Code; CalFarm Insurance Company, et al. v. Deukmejian, et al. (1989) 48 Cal.3d 805, 824. Reference: Section 1872.83, Insurance Code.

HISTORY

1. New section filed 10-8-93; operative 11-8-93 (Register 93, No. 41).

2. Change without regulatory effect amending subsection (c) filed 12-13-93 pursuant to section 100, title 1, California Code of Regulations (Register 93, No. 51).

§2698.59. District Attorney Reporting.

Note • History

Each district attorney receiving regular annual funds and/or augmentation funds pursuant to Section 1872.83 shall submit an annual report at the close of the regular annual funding program period, within the deadlines specified in subsection (d), below, to the Commissioner on the local program and its accomplishments. Failure to submit the annual report shall be considered in subsequent funding decisions. At a minimum the report shall include the following items:

(a) An Expenditure Report, which shall include the following:

(1) Personnel: salaries and benefits.

(2) Operations cost breakdown.

(3) Explanation of any significant variances from the district attorney's plan as approved.

(b) A financial report prepared by an independent auditor who is a qualified state or local government auditor or independent public accountant licensed by the State of California or the County Auditor Controller. The audit report shall certify that local expenditures were made for the purposes of the program as specified in Section 1872.83 of the Insurance Code, the regulations as adopted, the guidelines in the Request for Application, and the County Plan.

(1) The auditor shall use county policies and procedures as the standard for verifying appropriateness of personnel and support costs.

(2) In the event the program audit is included as part of an organization-wide audit, revenues and expenditures for the local program must be shown separately.

(1) Number of investigations initiated related to workers' compensation insurance fraud, with number of defendants indicated;

(2) Number of arrests or civil suit filings related to workers' compensation insurance fraud, with number of defendants indicated;

(3) Number of convictions or civil awards related to workers' compensation insurance fraud, with number of defendants, number of trials, number of pleas and/or settlements indicated;

(4) Dollar savings realized as a result of workers' compensation insurance fraud case prosecutions, including fines and penalty assessments ordered and collected and restitution ordered and collected, with number of defendants indicated;

(5) Summary of activity with respect to pursuing a reduction of workers' compensation fraud in coordination with the following:

(A) Fraud Division.

(B) Insurance companies.

(C) Employers, as defined in Section 3300 of the Labor Code, who are self-insured for workers' compensation and doing business in the state.

(d) The deadlines for submission are as follows:

(1) Expenditure Reports and Audit Reports must be submitted to the Commissioner no later than four (4) months after the close of the program period as specified in the Request for Application. A county may report an extension of time for the submission of the Expenditure and/or Budget Report in the event an organization-wide audit will delay the submission of either or both of the said reports.

(2) Program Reports must be submitted to the Commissioner no later than two months after the close of the program period as specified in the Request for Application.

(e) There shall be a grant liquidation period for ninety (90) days following the termination of the program period during which costs incurred but not paid may be paid and deducted from the program budget.

(f) The Commissioner may perform such additional audits or reviews of any local program as he or she may deem necessary and shall have access to all reports, working papers, correspondence, or other documents, including audit reports and audit working papers related to the audit report or local program.

NOTE

Authority cited: Section 1872.83, Insurance Code; CalFarm Insurance Company, et al. v. Deukmejian, et al. (1989) 48 Cal.3d 805, 824. Reference: Section 1872.83, Insurance Code.

HISTORY

1. New section filed 10-8-93; operative 11-8-93 (Register 93, No. 41).

Article 4. Program for Investigation and Prosecution of Automobile Insurance Fraud

§2698.60. Authority and Purpose.

Note • History

These regulations are promulgated pursuant to authority granted to the Insurance Commissioner under the provisions of Section 1872.8 of the California Insurance Code. The purpose of these regulations is to establish the level of annual assessment per insured vehicle in the state and to set forth the intended and allowable use of funds to be distributed to district attorneys for purposes of investigation and prosecution of automobile insurance fraud, including an application process and subsequent reporting requirements.

NOTE

Authority cited: Section 1872.8, Insurance Code; CalFarm Insurance Company et al. v. Deukmejian, et al. (1989) 48 Cal.3d 805, 824. Reference: Section 1872.8, Insurance Code.

HISTORY

1. New subchapter 9, article 4 and section filed 10-8-93; operative 11-7-93 (Register 93, No. 41).

§2698.61. Definitions.

Note • History

For the purposes of these regulations:

(a) “Application” means the written document submitted to the Commissioner by which a local district attorney requests program funding, including a plan setting forth the district attorney's intended use of funds to enhance the investigation and prosecution of automobile insurance fraud.

(b) “Assessment” means the annual fee paid by insurers for each vehicle insured under an insurance policy in the state to support enhanced investigation and prosecution of automobile insurance fraud.

(c) “Case” means the file set up by the Division or district attorney(s) of the suspected fraudulent claims for the purpose of investigation, development of evidence and prosecution.

(d) “Claim” means the request for payment of automobile insurance benefits which has been submitted to an insurer.

(e) “Commissioner” means the Insurance Commissioner of the state of California.

(g) “Department” means the California Department of Insurance.

(h) “District Attorney” means the prosecuting officer of a California county jurisdictional district as provided in Government Code section 26500.

(i) “Fraud Division” or “Division” means the California Department of Insurance Fraud Division, formerly known as the Bureau of Fraudulent Claims. The Bureau was designated the Fraud Division subsequent the to the enactment of CIC Section 1872.8.

(j) “Grantee” means a grant-funded applicant.

(k) “In force” means an insurance policy, covering note or binder that has been issued and put into effect on a vehicle in this state.

(l) “Incidental Expenses” means those costs incurred by the California Department of Insurance to administer the program and may include reasonable costs for collection of assessments, administrative support of the Fraud Division program component, management of the distribution and oversight of monies allocated to the district attorneys.

(m) “Program” means those activities conducted by the Department, or any other agency, which are directed toward the enhanced investigation and prosecution of automobile insurance fraud and which require funding or administration through assessments and the distribution of funds to the Fraud Division, Department of California Highway Patrol and to district attorneys.

(n) “Insurer” shall have the same meaning as used in California Insurance Code section 23.

(o) “Regulations” means these regulations, California Code of Regulations Title 10, Chapter 5, Subchapter 9, Article 4.

(p) “Suspected Fraudulent Claim” means a claim which has been referred to the Division because the insurer reasonably believes that the claim involves a person who has committed a fraudulent act related to automobile insurance.

(q) “Transaction Date” means the date, by month, day and year, on which a vehicle is added to the Automobile Assessment File.

(r) “Vehicle” shall have the same meaning as defined in Section 670 of the Vehicle Code and shall include commercial and non-commercial vehicles.

(s) “Vehicle identification number (VIN)” means a series of Arabic number and Roman letter that is assigned to a motor vehicle by its manufacturer for identification purposes.

NOTE

Authority cited: Section 1872.8, Insurance Code; CalFarm Insurance Company et al. v. Deukmejian, et al. (1989) 48 Cal.3d 805, 824. Reference: Section 1872.8, Insurance Code.

HISTORY

1. New section filed 10-8-93; operative 11-7-93 (Register 93, No. 41).

2. Amendment of subsections (b) and (h), new subsections (j), (m) and (p), subsection relettering and amendment of newly designated subsection (l) filed 10-12-2001; operative 11-11-2001 (Register 2001, No. 41).

3. New subsections (k), (q) and (s) and subsection relettering filed 6-3-2005; operative 7-3-2005 (Register 2005, No. 22).

§2698.62. Setting of the Annual Fee.

Note • History

(a) Each insurer will be assessed and will pay a fee of twenty-five ($.25) cents per vehicle for each quarter of a calendar year or any part thereof that it insures under a policy of insurance issued in this state. The assessment shall be made as provided in paragraph (b) of this section.

(b) The Commissioner will invoice for the assessment specified in subsection (a) quarterly. The assessment shall be due on each vehicle, identified by its vehicle identification number for each quarter that a policy is in force on such vehicle and when a vehicle is added to or replaces one under an existing policy. Each quarterly assessment payment shall be submitted with a certification by an Officer of the insurer, under penalty of perjury under the laws of the State of California, that the number of vehicles reported therein is accurate and has been calculated in conformity with these regulations. The insurer shall, on request by the Commissioner, provide verification of the number of vehicles insured under a policy of insurance.

(c) Subject to the prior written approval of the department, an insurer may use a method to identify the vehicles subject to this assessment other than provided in subsection (b) if, prior to using such methodology, the insurer:

(1) demonstrates that it can not identify the vehicles it insures in this state by their individual vehicle identification number;

(2) submits a detailed description of proposed method,

(3) demonstrates the proposed alternative method is as accurate a method as that described in subsection (b) of this section, and

(4) agrees to use any method approved under this subsection until another method may otherwise be approved in writing by the department.

(d) In order to verify of the number of vehicles for which an assessment is due and has been paid under this section, each insurer shall maintain a file known as the Automobile Assessment File. The Auto Assessment File shall contain the vehicle identification, policy number and transaction date for every vehicle for which a policy of insurance was in force for each quarter or any part thereof. For group insurers, the information shall be maintained on an individual company basis. The data shall be kept in a computer format that allows for the insurer to place each calender year quarter data on a computer media format in a format specified by the Commissioner. The data in the file shall be kept for a minimum of five years after each calendar year quarter.

(e) A separate assessment need not be paid on a vehicle insured on:

(1) A renewal policy issued within the same quarter of a calendar year, on the same vehicle by the same insurer or insurer with the same group.

(2) A multi-peril, umbrella or excess coverage policy where the vehicle is already covered under a primary policy.

(3) A road-side or mechanical breakdown policy that does not provide coverage for collision or other-than-collision (comprehensive) losses.

(4) A vehicle for which a policy has been written but was not put in force.

(f) Payment of the assessment shall be considered delinquent if not paid by the insurer within forty-five (45) days of the invoice date. Any amount not paid within this period shall be charged a late fee in accordance with CIC section 12995.

(g) Notwithstanding subdivision (a) of this section, if the Commissioner determines that the amount to be collected will exceed the amount to be expended from the annual Budget Act appropriation to fund the program under this article, the Commissioner may discount the amount of the assessment to be collected to more closely meet the expenditures authorized by the annual Budget Act.

NOTE

Authority cited: Section 1872.8, Insurance Code; CalFarm Insurance Company et al. v. Deukmejian, et al. (1989) 48 Cal.3d 805, 824. Reference: Sections 1872.8 and 12995, Insurance Code.

HISTORY

1. New section filed 10-8-93; operative 11-7-93 (Register 93, No. 41).

2. Repealer and new section and amendment of Note filed 10-12-2001; operative 11-11-2001 (Register 2001, No. 41).

3. Editorial correction of subsections (a), (c) and (e) (Register 2001, No. 45).

4. Repealer of subsections (a)-(b), new subsections (a)-(d), subsection relettering, amendment of newly designated subsections (e) and (f) and new subsection (e)(4) filed 6-3-2005; operative 7-3-2005 (Register 2005, No. 22).

§2698.63. Application Procedure.

Note • History

(a) A Request for Application (RFA) shall be distributed annually to each county district attorney in the state.

(b) The RFA shall specify a deadline for submission which shall be 30 days after distribution.

(c) Any district attorney who fails to submit an application, or whose application is not received by the Commissioner at the address specified in the RFA, by the close of business on the deadline date set forth in the RFA, may be subject to delay in receiving any funding award. Any district attorney from whom an application is not received within the ninety day period following the deadline set forth in the RFA shall not be considered for funding.

(d) Applications for funding submitted by the district attorneys shall list the County Plan and budget elements as outlined in Section 2698.65 and shall include a Table of Contents to facilitate plan review.

(e) Two or more counties may coordinate planning and submit plans addressing a multi-county area so long as each individual county plan identifies that county's proportion of the budget.

NOTE

Authority cited: Section 1872.8, Insurance Code; CalFarm Insurance Company et al. v. Deukmejian, et al. (1989) 48 Cal.3d 805, 824. Reference: Section 1872.8, Insurance Code.

HISTORY

1. New section filed 10-8-93; operative 11-7-93 (Register 93, No. 41).

§2698.64. Funding Procedure.

Note • History

(a) Funding shall be in the form of a Grant Award Agreement and shall require an enabling resolution by the county Board of Supervisors approving and authorizing execution of the agreement.

(b) Subsequent to the initial grant award, funding shall be distributed on a semi-annual basis, in July and January unless otherwise specified and justified in the Request for Application by the district attorney and contingent upon the adoption of each annual State Budget Act and the collection of assessments.

(c) Any portion of distributed funds not used for local program purposes at the termination of each annual funding cycle shall be returned to the Insurance Fund to be reprogrammed for use in the subsequent program year for local program purposes. Counties shall provide the Department with an estimate of unused funds within sixty (60) days after the termination of the program period and shall complete the transfer of funds back to the Insurance Fund within thirty (30) days after the completion of the final audit.

(d) A district attorney who has undertaken investigations and prosecutions which will carryover into a subsequent program year may carryover into the subsequent year distributed but unused funds not exceeding twenty-five percent (25%) of the total annual funding, provided that the district attorney files a written plan which specifies and justifies to the Commissioner how those funds will be used at the end of the program period and at the time of the subsequent application. In the event that, due to extenuating circumstances, distributed funds exceeding twenty-five percent (25%) of the previous total annual funding are unused, the Commissioner shall consider and approve requests for carry-over of the unused funds to the extent that the district attorney provides justification.

NOTE

Authority cited: Section 1872.8, Insurance Code; CalFarm Insurance Company et al. v. Deukmejian, et al. (1989) 48 Cal.3d 805, 824. Reference: Section 1872.8, Insurance Code.

HISTORY

1. New section filed 10-8-93; operative 11-7-93 (Register 93, No. 41).

§2698.65. County Plan and Criteria for Distribution of Funds to the District Attorney Grantee.

Note • History

In order to be considered for funding, the local district attorney must submit a plan outlining the projected and prior use of funds for the purposes of the program. Funds assessed after January 1, 1993 shall be distributed among these district attorneys who have submitted a plan. Seventy percent (70%) of available funds will be distributed based on the applicant's proportionate share of the state's population, twenty percent (20%) will be distributed based on the applicant's proportionate share of the automobile insurance suspected fraudulent claims submitted to the Fraud Division during the prior three years and ten percent (10%) will be based on the Commissioner's analysis of the County Plan. The plan must be submitted within the statutory time-frame and must include the following elements:

(a) Problem Statement. A description of the problem in the county, including how it arose, why it is important, its unique aspects, if any, and what is needed to resolve the problem, including supporting data, evidence, or indicators of fraudulent activity related to automobile insurance.

(b) Qualifications. A description of the applicant's experience in operating the auto insurance fraud program using funds authorized under Section 1872.8 of the Insurance Code since 1989 including:

(1) The total amount of funds received by the local district attorney since 1989.

(2) The total amount expended to support the district attorney's investigation and prosecution of auto insurance fraud, including details of the following items:

(A) Personnel costs including salaries and benefits.

(B) Operations expenses, including space, equipment, travel and other expenses in support of the program.

(3) The results obtained through implementation of the program, including:

(A) The number of investigations initiated or coordinated with other law enforcement agencies.

(B) The number of arrests and convictions.

(D) A comparison of the amounts originally claimed in cases determined to be fraudulent compared to payments actually made.

(1) Outreach. A description of the manner in which the district attorney will develop his or her caseload, the source(s) for referrals for cases for investigation or prosecution, whether directly from the Fraud Division or from other law enforcement agencies and/or insurers.

(2) Personnel. Justification for the number of personnel, position titles and position justification of personnel which will be funded fully or in part through grant funds, including descriptions of the qualifications of personnel to be assigned to the program and an organization chart identifying positions to be funded.

(3) Program Coordination. A description of the manner in which the district attorney plans to coordinate involved sectors, including insurers, medical and legal provider communities, auto repair facility operators, the Division, the California Highway Patrol, local law enforcement and community safety agencies.

(4) Management Plan. A detailed plan and schedule of the steps the district attorney will complete in achieving the objectives of the program and a discussion of how the program staff will be organized and what internal quality control and budget monitoring procedures will be employed. This part shall also include how this program will be integrated with any other anti-fraud program(s) maintained within the district attorney's office;

(5) Staff development. The plan for ongoing training of personnel on the investigation and prosecution of automobile insurance fraud. Staff development may be addressed through coordination with the Division, insurers, or other entities.

(d) Objectives. This section shall outline the district attorney's anticipated achievements in the following areas:

(1) Estimated number of investigations to be initiated during the grant period, including separate estimate of the number resulting from carryover investigations; and

(2) Estimated number of prosecutions to be initiated during the grant period.

NOTE

Authority cited: Section 1872.8, Insurance Code; CalFarm Insurance Company et al. v. Deukmejian, et al. (1989) 48 Cal.3d 805, 824. Reference: Section 1872.8, Insurance Code.

HISTORY

1. New section filed 10-8-93; operative 11-7-93 (Register 93, No. 41).

2. Amendment of section heading, amendment of subsections (b) and (b)(3)(A)-(B) and amendment of Note filed 10-12-2001; operative 11-11-2001 (Register 2001, No. 41).

§2698.66. Budget Proposal.

Note • History

The proposed budget forms the basis for program management and audit and must be presented in line-item detail and cover a one year program period from July through June. Annual budget levels shall be included in the RFA. The budget may include a line item for an independent audit to be completed at the end of each annual program period or as specified in the RFA. The district attorney's budget shall include the following:

(a) Salaries and benefits computed at the county salary and benefit schedule.

(b) Operation support costs.

(1) Estimated costs shall be listed by line item.

(2) Itemized costs shall conform to county policy regarding appropriateness of expenses.

(3) Allowable costs are those costs incurred in direct support of local program activities, including program related travel, equipment costs proportional to program-related use of the equipment, facilities cost, expert witness fees and audits.

(c) Indirect costs: indirect costs are those not capable of being assigned to a particular project or program, but necessary to the operation of the organization and the performance of the program. The costs of operating and maintaining facilities, accounting services, and administrative salaries are examples of indirect costs. Indirect costs shall not exceed 10 percent of personnel salaries (excluding benefits and overtime) or 5 percent of total direct program costs (excluding equipment).

(d) Non-allowable budget items include:

(1) Real property purchases and improvements.

(2) Aircraft or motor vehicles, except the purchase of motor vehicles which is specifically justified to the Commissioner.

(3) Interest payments.

(4) Food and beverages, except as purchased in connection with program-related travel. Food and beverages costs shall not exceed the applicant's per diem schedule.

(5) Weapons or ammunition unless included as part of a benefit package.

(e) Program funds must be used to support enhanced investigation and prosecution of insurance fraud and shall not be used to supplant funds which in the absence of program funds would be made available for any portion of the local automobile insurance fraud program.

(f) Budget modifications are allowable so long as they do not change the grant award amount.

(g) The annual and proposed use of these funds are subject to full public disclosure.

NOTE

Authority cited: Section 1872.8, Insurance Code; CalFarm Insurance Company et al. v. Deukmejian, et al. (1989) 48 Cal.3d 805, 824. Reference: Section 1872.8, Insurance Code.

HISTORY

1. New section filed 10-8-93; operative 11-7-93 (Register 93, No. 41).

2. Amendment of subsections (c) and (d)(4) filed 10-12-2001; operative 11-11-2001 (Register 2001, No. 41).

§2698.67. District Attorney Reporting and Commissioner's Audit.

Note • History

Each district attorney receiving funds pursuant to Section 1872.8 shall submit an annual report to the Commissioner regarding the local program and its accomplishments. Failure to submit the annual report shall affect subsequent funding decisions. The report shall include the following items:

(a) An expenditure Report, which shall include information for the following:

(1) Personnel: salaries and benefits.

(2) Operations cost breakdown.

(3) Explanation of any significant variances from the county's plan as approved.

(b) A financial audit report prepared by an independent, qualified state or local government auditor or independent public accountant licensed by the State of California or the county Auditor Controller. The audit report shall certify that local expenditures were made for the purposes of the program as specified in Section 1872.8 of the Insurance Code, these Regulations, the guidelines in the Request for Application and the County Plan.

(1) The auditor shall use county policies and procedures as the standard for verifying appropriateness of personnel and support costs.

(2) In the event that the program audit is included as part of an organization-wide audit, revenues and expenditures for the local program must be shown separately.

(c) Except as provided in this section, financial audits under this program shall be performed in accordance with the standards set forth in Government Accounting Standards Revised (August 1999) published by the Controller General of the United States, General Accounting Office. The above General Accounting Standards Revised (1999) are incorporated herein by this reference.

(d) A Program Report which shall include the following:

(1) The number of investigations initiated related to automobile insurance fraud.

(2) The number of arrests related to automobile insurance fraud.

(3) The number of prosecutions related to automobile insurance fraud.

(4) The number of convictions related to automobile insurance fraud.

(5) The dollar savings realized as a result of automobile insurance fraud case prosecutions.

(6) A summary of the activity directed toward the reduction of automobile insurance fraud with the following:

(A) Fraud Division.

(B) Insurance companies.

(e) The deadlines for submission are as follows:

(1) Expenditure Reports and Audit reports must be submitted to the Commissioner no later than four (4) months after the close of the program period as specified in the Request for Application. A county may request an extension in the event an organization-wide audit will delay submission of the audit.

(2) Program Reports must be submitted to the Commissioner no later than two (2) months after the close of the program period as specified in the Request for Application.

(f) There shall be a grant liquidation period of ninety (90) days following the termination of the program period during which costs incurred but not paid may be paid and deducted from the program budget.

(g) The Commissioner may perform such additional audits or reviews of any local program as he or she may deem necessary and shall have access to all working papers, correspondence, or other documents, including audit reports and audit working papers related to the audit report or local program.

(h) Notwithstanding any other provision of the law, the Commissioner shall perform a fiscal audit of the program administered under this section once every three years. The cost of a fiscal audit shall be shared equally between the department and the grantee.

NOTE

Authority cited: Section 1872.8, Insurance Code; CalFarm Insurance Company et al. v. Deukmejian, et al. (1989) 48 Cal.3d 805, 824. Reference: Section 1872.8, Insurance Code.

HISTORY

1. New section filed 10-8-93; operative 11-7-93 (Register 93, No. 41).

2. Amendment of section heading and first paragraph, new subsections (c) and (h) and subsection relettering filed 10-12-2001; operative 11-11-2001 (Register 2001, No. 41).

§2698.68. Assessment of Annual Fee.

Note • History

The fee imposed pursuant to California Insurance Code Section 1872.81 shall be calculated and assessed in the same manner as set forth in Section 2698.62 of this Title and will be paid in annualized increments of seven and one half cents ($.075) for each calendar year quarter or any part thereof.

NOTE

Authority cited: Section 1872.81, Insurance Code; CalFarm Insurance Company et al. v. Deukmejian, et al. (1989) 48 Cal.2d 805, 824. Reference: Section 1872.81, Insurance Code.

HISTORY

1. New section filed 6-24-2002; operative 7-24-2002 (Register 2002, No. 26).

Article 5. Organized Automobile Insurance Fraud Interdiction Program

§2698.70. Definitions.

Note • History

For the purposes of these regulations:

(a) “Applicant” means one or more district attorneys.

(b) “Application” means a document submitted by an applicant for the purpose of requesting funding under this program.

(c) “Assessment” means an annual fee paid by insurers for each vehicle insured under an insurance policy in the state to support the enhanced interdiction of organized automobile fraud activity.

(d) “Commissioner” means the Insurance Commissioner of the California Department of Insurance.

(e) “Department” means the California Department of Insurance.

(f) “District Attorney” means the prosecuting officer of a California county as provided in Government Code section 26500.

(g) “Fraud Division” means the California Department of Insurance Fraud Division, also known as the Bureau of Fraudulent Claims.

(h) “Funding Cycle” means a consecutive 12-month period within a grant period. The funding cycle will commence with the first month of a grant period.

(i) “Grant Award” means an award of funds to be used by the Grantee pursuant to Insurance Code sections 1874.8 and 1874.81.

(j) “Grant Period” means a consecutive 36-month period commencing with the month as provided in a grant award.

(k) “Grantee” means a grant-funded applicant.

(l) “Insurer” shall have the same meaning as provided under California Insurance Code section 23.

(m) “Memorandum of Understanding” means a document, including any attachment or addendum, reflecting the agreed upon operational commitments and obligations between a grantee, the Fraud Division and the California Highway Patrol for a coordinated effort aimed at the investigation and prosecution of organized automobile fraud activity including a description of specific program objectives.

(n) “Organized automobile fraud activity” shall have the same meaning as set forth in Section 1874.8, subdivision (g) of the Insurance Code.

(o) “Program” means those activities conducted by the Fraud Division, the California Highway Patrol, and grantees which support the Organized Automobile Fraud Activity Interdiction Program.

(p) “Vehicle” shall have the same meaning as defined in Section 670 of the Vehicle Code and shall include commercial and non-commercial vehicles.

(q) “In force” means an insurance policy, covering note or binder that has been issued and put into effect on a vehicle in this state.

(r) “Vehicle identification number (VIN)” means a series of Arabic numbers and Roman letters that is assigned to a motor vehicle for identification purposes.

(s) “Transaction Date” means the date, by month, day and year, on which a vehicle is added to the Automobile Assessment File.

NOTE

Authority cited: Sections 1874.8 and 1874.81, Insurance Code. Reference: Section 26500, Government Code; and Sections 1874.8(a) and (g) and 1874.81, Insurance Code.

HISTORY

1. New article 5 (sections 2698.70-2698.77) and section filed 7-7-2000 as an emergency; operative 7-7-2000 (Register 2000, No. 27). A Certificate of Compliance must be transmitted to OAL by 11-6-2000 or emergency language will be repealed by operation of law on the following day.

2. Certificate of Compliance as to 7-7-2000 order, including amendment of subsection (m), transmitted to OAL 10-12-2000 and filed 11-21-2000 (Register 2000, No. 47).

3. Amendment of subsection (p) filed 12-26-2001 as an emergency; operative 12-26-2001 (Register 2001, No. 52). A Certificate of Compliance must be transmitted to OAL by 4-25-2002 or emergency language will be repealed by operation of law on the following day.

4. Reinstatement of section as it existed prior to 12-26-2001 emergency amendment by operation of Government Code section 11346.1(f) (Register 2002, No. 23).

5. Amendment of subsection (p) filed 6-6-2002; operative 6-6-2002 pursuant to Government Code section 11343.4 (Register 2002, No. 23).

6. New subsections (q)-(s) filed 6-3-2005; operative 7-3-2005 (Register 2005, No. 22).

§2698.71. Annual Fee.

Note • History

(a) Each insurer shall pay an annual fee of fifty cents ($.50) for each vehicle it insures under a policy of insurance issued in this state. This annual fifty cent fee shall be paid in increments of twelve and one-half cents ($.125) for each quarter of a calendar year or any part thereof. The assessment shall be made on a quarterly basis. The fee imposed pursuant to California Insurance Code Section 1874.8 shall be calculated and assessed in the same manner as set forth in title 10 California Code of Regulations section 2698.62.

NOTE

Authority cited: Sections 1874.8 and 1874.81, Insurance Code. Reference: Section 26500, Government Code; Sections 1874.8, 1874.81 and 12995, Insurance Code; and Section 670, Vehicle Code.

HISTORY

1. New section filed 7-7-2000 as an emergency; operative 7-7-2000 (Register 2000, No. 27). A Certificate of Compliance must be transmitted to OAL by 11-6-2000 or emergency language will be repealed by operation of law on the following day.

2. Certificate of Compliance as to 7-7-2000 order, including amendment of section, transmitted to OAL 10-12-2000 and filed 11-21-2000 (Register 2000, No. 47).

3. Amendment filed 12-26-2001 as an emergency; operative 12-26-2001 (Register 2001, No. 52). A Certificate of Compliance must be transmitted to OAL by 4-25-2002 or emergency language will be repealed by operation of law on the following day.

4. Reinstatement of section as it existed prior to 12-26-2001 emergency amendment by operation of Government Code section 11346.1(f) (Register 2002, No. 23).

5. Amendment filed 6-6-2002; operative 6-6-2002 pursuant to Government Code section 11343.4 (Register 2002, No. 23).

6. Amendment of subsection (a) and repealer of subsections (b)-(e) filed 6-3-2005; operative 7-3-2005 (Register 2005, No. 22).

§2698.72. Application Procedure and Contents.

Note • History

(a) The Commissioner shall designate a date for the submission of an application requesting grant funding under this program. Notice of the date for submission shall be mailed to each district attorney at least 60 days before the date set for submission of an application. Applications received after the date set for submission will not be considered for funding.

(b) An application shall include:

(1) a “strategic plan” as more specifically described in section 2698.74.

(2) a “budget proposal” as more specifically described in section 2698.75.

(3) a list of program contacts for the applicant that shall include the name, position, business address, telephone and fax number for each individual.

(d) A joint application addressing a multi-county area may be submitted. Joint applications and accompanying documents as provided in subsection (a) shall, in addition to the items specified in subsection (b) of this section, address the use of funds by and between each participating county and designate a lead county for the purpose of receipt and distribution of the grant funding and to serve as the responsible entity for the administration of the grant.

NOTE

Authority cited: Sections 1874.8 and 1874.81, Insurance Code. Reference: Sections 1872.8(b)(1), 1874.8(d) and (e) and 1874.81, Insurance Code.

HISTORY

2. Certificate of Compliance as to 7-7-2000 order transmitted to OAL 10-12-2000 and filed 11-21-2000 (Register 2000, No. 47).

§2698.73. Funding Procedure.

Note • History

(a) Funding of a grant shall be in the form of a grant award agreement. Each applicant whose application has been approved for grant funding shall submit an enabling resolution by the county Board of Supervisors approving and authorizing execution of a grant award agreement.

(b) Distribution of grant award funds shall be on a quarterly basis. Funding and dates of distribution shall be contingent upon the adoption of an annual State Budget Act and the collection of assessments. Funds to be distributed for the California Highway Patrol shall be deposited in the motor vehicle account.

(c) Within 60 days after the end of each funding cycle, a grantee shall provide the Department with an estimate of any unexpended and/or unencumbered funds.

(d) A grantee who has undertaken investigations and prosecutions which will carry-over into a subsequent funding cycle may carry-over into the subsequent funding cycle distributed but unused funds not exceeding twenty-five percent (25%) of the total funding cycle, provided that the grantee files a written plan, at the end of the funding cycle, which specifies and justifies to the Commissioner how those funds will be used. In the event that, due to extenuating circumstances, distributed funds exceeding twenty-five percent (25%) of the previous total funding cycle are unused, the Commissioner may consider and approve requests for carry-over of the unused funds to the extent that the grantee provides justification.

NOTE

Authority cited: Sections 1874.8 and 1874.81, Insurance Code. Reference: Sections 1872.8(b)(1), 1874.8 and 1874.81, Insurance Code.

HISTORY

2. Certificate of Compliance as to 7-7-2000 order transmitted to OAL 10-12-2000 and filed 11-21-2000 (Register 2000, No. 47).

3. Repealer and new subsection (d) filed 4-16-2002 as an emergency; operative 4-16-2002 (Register 2002, No. 16). A Certificate of Compliance must be transmitted to OAL by 8-14-2002 or emergency language will be repealed by operation of law on the following day.

4. Certificate of Compliance as to 4-16-2002 order transmitted to OAL 7-24-2002 and filed 8-28-2002 (Register 2002, No. 35).

§2698.74. Strategic Plan.

Note • History

A strategic plan shall include the following elements:

(a) Table of Contents.

(b) Problem Statement: Each application shall include for the applicable county:

(1) A narrative description of the organized automobile insurance fraud activity in the county, including any supporting data, evidence, or indicators of fraudulent related activity.

(2) A description of the general criminal activity, based upon the most recent California Crime Index Annual Report by the California Attorney General.

(3) Population density, based upon the most recent annual report compiled by the California Department of Finance, Demographic Research Unit.

(4) Automobile insurance claims frequency.

(5) Number of automobile fraud suspected fraudulent claims reported to the Division during a 36-month period immediately preceding the submission of the application.

(6) Evidence of prior and current organized automobile insurance fraud activity.

(c) Qualifications: A description of the applicant's experience in prosecuting automobile insurance fraud which for the purpose of this section shall include economic auto theft cases, for a three-year period preceding the application. The applicant shall include in this section:

(1) The number of automobile insurance fraud investigations initiated and/or coordinated with the Fraud Division, California Highway Patrol and other law enforcement agencies.

(2) The number of automobile insurance fraud related complaints and/or indictments.

(3) The number of automobile insurance fraud related arrests and convictions.

(4) A statement of the amount of charged fraud from the investigations and prosecutions identified in item (1)-(3).

(5) The complexity of the investigations and prosecutions, including the number of claims directly related to such automobile insurance fraud investigation and prosecution.

(d) Program Strategy: A statement of program strategy shall include:

(1) Outreach: Descriptions of the manner in which the grantee will develop its caseload referrals, whether directly from the Fraud Division, California Highway Patrol and from other law enforcement agencies and/or insurers.

(2) The number and ratio of the applicant's investigators to attorney to be funded by the grant award which reflect the most effective use of those resources under a coordinated investigation and prosecution program.

(3) List of personnel, by position title and function, that will be funded in full or in part through a grant award, including descriptions of the qualifications of personnel to be assigned to the program and an organization chart identifying those positions.

(e) Program Coordination: A description of the manner in which each grantee plans to coordinate its efforts and work with the Fraud Division, the California Highway Patrol and other participating agencies and interested insurers.

(f) Management Plan: A detailed plan and schedule of the steps the grantee will complete in achieving the objectives of the program and a discussion of how the program staff will be organized and what internal quality control and budget monitoring procedures will be employed. This part shall also include how this program will be integrated with any other anti-fraud program(s) maintained within the grantee's office.

(g) Staff development: The plan for ongoing training of personnel in the prosecution of organized automobile insurance fraud. Staff development may be addressed through coordination with the Fraud Division, insurers, or other entities.

(h) Objectives: An outline of the applicant's program goals for each funding cycle of the grant period. Applicants must state how these goals will be achieved in coordination with the Fraud Division, the California Highway Patrol and other law enforcement agencies.

NOTE

Authority cited: Sections 1874.8 and 1874.81, Insurance Code. Reference: Sections 1874.8(b) and (c) and 1874.81(a)(3) and (5), Insurance Code.

HISTORY

2. Certificate of Compliance as to 7-7-2000 order transmitted to OAL 10-12-2000 and filed 11-21-2000 (Register 2000, No. 47).

§2698.75. Budget Proposal.

Note • History

(a) A proposed budget shall be presented in line-item detail and cover each funding cycle. The applicant's proposed budget shall include the following estimates:

(1) Salaries and benefits computed at the county salary and benefit schedule. A current copy of the pertinent schedule shall be submitted with the proposed budget.

(2) Support costs.

(b) Each applicant shall use the following guidelines in preparing its proposed budget:

(1) Itemized costs shall conform to applicant's policy regarding appropriateness of expenses.

(2) Allowable costs are those direct and indirect operating costs incurred in the support of program activities, including program related travel, equipment costs proportional to program-related use of the equipment, facilities cost, expert witness fees and audits.

(3) Non-allowable costs include:

(A) Real property purchases and improvements.

(B) Aircraft or motor vehicles except the purchase of motor vehicles specifically justified to and approved in advance by the Commissioner.

(D) Food and beverages, except as purchased in connection with program-related travel. Food and beverages costs shall not exceed the applicant's per diem schedule.

(E) Weapons or ammunition unless included as part of a benefit package.

(c) Indirect costs: Indirect costs are those not capable of being assigned to a particular project or program, but necessary to the operation of the organization and the performance of the program. The costs of operating and maintaining facilities, accounting services, and administrative salaries are examples of indirect costs. Indirect costs shall not exceed 10 percent of personnel salaries (excluding benefits and overtime) or 5 percent of total direct program costs (excluding equipment).

(d) Program funds of grantees may only be used to support the grantee's activity in the investigation, prosecution of organized automobile fraud activity.

(e) Budget modifications must be pre-approved in writing by the Commissioner.

NOTE

Authority cited: Sections 1874.8 and 1874.81, Insurance Code. Reference: Sections 1872.8(b)(1), 1874.8 and 1874.81(a)(2) and (5), Insurance Code.

HISTORY

2. Certificate of Compliance as to 7-7-2000 order transmitted to OAL 10-12-2000 and filed 11-21-2000 (Register 2000, No. 47).

§2698.76. Determination and Criteria for Awarding of Grants.

Note • History

(a) In determining to award a grant under this program, the Commissioner shall consider the information provided in an application and may consider the recommendations and advice of the Fraud Division and the Commissioner of the Highway Patrol.

(b) Priority shall be given to those grant applications which, in the determination of the Commissioner, have the potential to have the greatest impact on organized automobile insurance fraud activity.

NOTE

Authority cited: Sections 1874.8 and 1874.81, Insurance Code. Reference: Sections 1872.8(b)(1), 1874.8(b) and (c) and 1874.81(a), Insurance Code.

HISTORY

2. Certificate of Compliance as to 7-7-2000 order transmitted to OAL 10-12-2000 and filed 11-21-2000 (Register 2000, No. 47).

§2698.77. Grant Reporting and Audit.

Note • History

(a) Each grantee shall submit annual reports to the Commissioner covering the preceding funding cycle. The reports shall consist of:

(1) An expenditure report, which shall include:

(A) All operation costs.

(B) Personnel: salaries and benefits.

(C) Explanation of any material variances from the proposed budget and strategic plan submitted with the grant application.

(2) A financial audit report prepared by an independent, qualified state or local government auditor or independent public accountant licensed by the State of California or the county auditor controller. The audit report shall certify that local expenditures were in conformance with the purposes of the program as specified in Section 1874.8 of the Insurance Code, these regulations, and the application for grant funding as approved by the grant award agreement.

(A) The auditor shall use county policies and procedures as the standard for verifying appropriateness of personnel and support costs.

(B) In the event that the program audit is included as part of an organization-wide audit, revenues and expenditures for the local program must be shown separately.

(3) A program report which shall identify and discuss the following items as they relate to the program:

(A) The number of investigations initiated and/or coordinated with the Fraud Division, California Highway Patrol and other law enforcement agencies.

(B) The number of arrests.

(D) The number of convictions.

(E) The charged fraud and dollar savings realized as a result of reported prosecutions.

(F) The goals and objectives achieved by the grantees as set forth in the strategic plan including an explanation of any goal not achieved as identified in the strategic plan.

(G) A summary of the other activities directed toward the reduction of organized automobile insurance fraud activity in coordination with all interested insurers and other participating agencies.

(b) The annual reports shall be submitted to the Commissioner no later than two (2) months after the close of the grant funding cycle as specified in the application. A county may request, in writing, a single limited extension to a date certain for submission of the annual reports, in the event an organization-wide audit would delay submission of the required report(s).

(c) There shall be a grant liquidation period of sixty (60) days following the termination of the grant period during which costs incurred but not paid may be paid and deducted from the program budget.

(d) Except as provided in this section, financial audits under this program shall be performed in accordance with the standards set forth in the Government Accounting Standards Revised (July 1999) published by the Comptroller General of the United States, General Accounting Office. The above General Accounting Standards Revised (1999) are incorporated herein by this reference.

(e) The Commissioner shall perform the following audits and reviews:

(1) Fiscal audit of each grant program at least once every three years.

(2) An annual review of the grantee performance under the program

(3) Any additional audits or reviews of a grantee's program as are necessary for the effective and efficient administration of the program.

(f) The grantee shall cooperate with the Commissioner in the performance of the audits and reviews. The grantee shall provide access to all documents related to the program and fiscal operation of the grant program as deemed necessary by the Commissioner. Refusal to cooperate with the Commissioner under this subsection may constitute good cause for redistribution of the grant funding.

NOTE

Authority cited: Sections 1874.8 and 1874.81, Insurance Code. Reference: Sections 1872.8(b)(1), 1874.8(b) and (d) and 1874.81, Insurance Code.

HISTORY

2. Certificate of Compliance as to 7-7-2000 order, including amendment of subsection (f), transmitted to OAL 10-12-2000 and filed 11-21-2000 (Register 2000, No. 47).

Article 6. Law Enforcement Access to Insurance Claims Information

§2698.80. Definitions.

Note • History

(a) “Claims Analysis Bureau” (CAB) means a licensed, non-profit corporation, organized for the purpose of fraud prevention or is a corporation that has made the filings required by Section 1855.2 that receives, compiles and transmits insurance claims information pursuant to California Insurance Code (CIC) Sections 1875. 14.

(b) “Commissioner” means the Commissioner of the Department of Insurance of the State of California.

(d) “Fraud Division” means the Department of Insurance of the State of California Fraud Division, formerly known as the Bureau of Fraudulent Claims.

(e) “Insurance claims information” means any bodily injury, medical payment or uninsured motorist claim made under a policy of automobile insurance.

(f) “Insurer” shall have the same meaning as is given by CIC Section 1874.1.

(g) “Law Enforcement” shall have the same meaning as is given by Penal Code Section 830.1, 830.32, 830.3, 830.8, 830.37 and 830.39 and shall also include investigators for the Department of Consumer Affairs Bureau of Automotive Repair.

(h) “Match Report” or “Matched Claims Data Format” means the manner in which data is provided to insurers by the Claims Analysis Bureau as a result of a match between insurance claims information submitted by one insurer and information previously submitted by another insurer.

(i) “Supplemental Information” means any insurance claims information provided to the insurer after the initial insurance claims information is filed.

NOTE

Authority cited: Section 1875.18(d)(2), Insurance Code. Reference: Section 1875.18, Insurance Code.

HISTORY

1. New article 6 (sections 2698.80-2698.86) and section filed 5-19-97; operative 6-18-97 (Register 97, No. 21).

2. Repealer of article 6 (sections 2698.80-2698.86) and section and new article 6 (sections 2698.80-2698.89.1) and section filed 12-26-2006; operative 1-25-2006 (Register 2006, No. 52).

§2698.81. Prior Approval of Plan of Operation for Claims Analysis Bureau.

Note • History

(a) Every CAB shall obtain the prior approval of a plan of operation as a CAB from the Insurance Commissioner before it may perform any of the functions described in California Insurance Code Section 1875.11.

(b) Every plan of operation as a CAB submitted to the Insurance Commissioner for approval pursuant to Section 2698.81 shall:

(1) set forth written procedures and physical controls to: prevent the unauthorized access to its system of records, to prevent unauthorized disclosure of records and to prevent physical damage to or destruction of records. At a minimum the administrative policies and procedures and physical controls shall fully comply with the requirements set forth at Section 2698.87(a) (1)-(5);

(2) set forth written procedures regarding the use of subcontractors to perform any function described in CIC 1875.11 (b). At a minimum, such administrative policies and procedures and physical controls shall fully comply with the requirements set forth at Section 2698.87(c) (1)-(2).

NOTE

Authority cited: Section 1875.18(d)(2), Insurance Code. Reference: Section, 1875.18(d), Insurance Code.

HISTORY

1. New section filed 5-19-97; operative 6-18-97 (Register 97, No. 21).

2. Repealer and new section filed 12-26-2006; operative 1-25-2006 (Register 2006, No. 52).

§2698.82. Deposit of Information to Claims Analysis Bureaus.

Note • History

(a) Insurers shall deposit insurance claims information to a licensed insurance CAB within sixty (60) calendar days of receipt of that insurance claims information.

(b) Any supplemental insurance claims information provided to the insurer during the life of the claim shall be reported within sixty (60) calendar days of receipt of that supplemental insurance claims information.

(c) No Claims Analysis Bureau shall charge any fee to any insurer for depositing the information required by this section including supplemental insurance claim information.

(d) The Commissioner reserves the right to perform such audits as he or she may deem necessary to determine that appropriate insurance claims information is deposited within the time frames specified in these regulations.

NOTE

Authority cited: Section 1875.18(d)(2), Insurance Code. Reference: Section 1875.18, Insurance Code.

HISTORY

1. New section filed 5-19-97; operative 6-18-97 (Register 97, No. 21).

2. Repealer and new section filed 12-26-2006; operative 1-25-2006 (Register 2006, No. 52).

3. Amendment of subsection (b) and Note filed 12-19-2007; operative 1-18-2008 (Register 2007, No. 51).

§2698.83. Law Enforcement Access to Claims Analysis Bureau Insurance Claims Information.

Note • History

(a) Access to insurance claims information shall be made available to law enforcement solely for the purpose of detection and investigation of insurance fraud.

(b) No claims analysis bureau shall charge any fee to any law enforcement agency for access to any insurance claims information as defined in these regulations.

(c) A claims analysis bureau shall provide insurance claims information in the form match report to law enforcement entities within 10 calendar days of receipt of a complete and properly executed written request for information.

(d) A written request by law enforcement entities for insurance claims information shall contain the following information:

(1) the specific insurance claims information requested; and

(2) the identity of the requesting party including contact information.

(e) If a claims analysis bureau receives a written request for information from a law enforcement agency that does not comply with the provisions of 2698.83 (d) (1)-(2) the Claims Analysis Bureau shall specify the manner or non-compliance and return the request to the law enforcement agency for correction amendment and re-submittal.

NOTE

Authority cited: Section 1875.18(d)(2), Insurance Code. Reference: Section 1875.18, Insurance Code.

HISTORY

1. New section filed 5-19-97; operative 6-18-97 (Register 97, No. 21).

2. Repealer and new section filed 12-26-2006; operative 1-25-2006 (Register 2006, No. 52).

§2698.84. Procedure for Correction of Incorrect Information Deposited In a Claims Analysis Bureau.

Note • History

(a) Any person who believes that any insurance claims information maintained by a Claims Analysis Bureau is incorrect may request in writing that the CAB investigate whether or not the information is correct.

(b) Within 30 days from the date of receipt of a written request pursuant to subsection 2698.84(a), a CAB shall either:

(1) Correct, amend or delete the portion of the insurance claims information in dispute; or

(2) Notify the individual of:

(A) The CAB's refusal to make such correction, amendment or deletion.

(B) The reasons for the refusal.

(c) If the CAB corrects, amends or deletes recorded insurance claims information in accordance with this subsection, the CAB shall notify the individual in writing and furnish the correction, amendment or fact of deletion to any person specifically designated by the individual who may have, within the preceding two years, received the incorrect information.

(d) Whenever an individual disagrees with a CAB's refusal to correct, amend or delete insurance claims information, the individual shall be permitted to file with the CAB:

(1) A concise statement setting forth what the individual asserts is the correct, insurance claims information; and

(2) A concise statement of the reasons why the individual disagrees with the insurance claims information maintained by the CAB.

(e) In the event an individual files either statement as described in subdivision (d), the CAB shall file the statement with the disputed insurance claims information and provide a means by which anyone reviewing the disputed insurance claims information will be made aware of the individual's statement and have access to it.

NOTE

Authority cited: Section 1875.18(d)(2), Insurance Code. Reference: Section 1875.18(d)(2), Insurance Code.

HISTORY

1. New section filed 5-19-97; operative 6-18-97 (Register 97, No. 21).

2. Repealer and new section filed 12-26-2006; operative 1-25-2006 (Register 2006, No. 52).

§2698.85. Examination by the Insurance Commissioner of Insurance Claims Information Transmitted to Claims Analysis Bureau.

Note • History

(a) The Commissioner may perform an examination of any insurance claims information transmitted to any CAB he or she may deem necessary and shall have access to all non-privileged reports, working papers, correspondence, or other documents, including audit reports and audit working papers relating to the insurer's receipt, compilation and transmission of insurance claims information.

(b) The expenses of any examination of insurance claims information conducted pursuant to subsection 2698.85 (a) shall be borne by the organization that is the subject of the examination.

NOTE

Authority cited, 1875.18(d)(2), Insurance Code. Reference: Sections 736 and 1875.18, Insurance Code.

HISTORY

1. New section filed 5-19-97; operative 6-18-97 (Register 97, No. 21).

2. Repealer and new section filed 12-26-2006; operative 1-25-2006 (Register 2006, No. 52).

§2698.86. Public Records Act Requests and Subpoenas Seeking Insurance Claims Information from Claims Analysis Bureaus.

Note • History

(a) A Claims Analysis Bureau shall not release any insurance claims information in response to a Public Records Act Request.

(b) A Claims Analysis Bureau shall not release any insurance claims information received pursuant to the provisions of California Insurance Code 1875.18 to public inspection until such time as the release of the information is required in connection with a criminal or civil proceeding.

NOTE

Authority cited: Section 1875.18(d)(2), Insurance Code. Reference: Sections 1875.16 and 1875.18, Insurance Code.

HISTORY

1. New section filed 5-19-97; operative 6-18-97 (Register 97, No. 21).

2. Repealer and new section filed 12-26-2006; operative 1-25-2006 (Register 2006, No. 52).

§2698.87. Security Procedures Applicable To Information Deposited To A Claims Analysis Bureau.

Note • History

(a) Every CAB shall establish and adopt administrative policies and procedures and physical controls to: prevent the unauthorized access to its system of records; to prevent unauthorized disclosure of records; and to prevent physical damage to or destruction of records. At a minimum the administrative policies and procedures and physical controls shall require that:

(1) records are protected from public view;

(2) the area in which records are kept is supervised during business hours to prevent unauthorized persons from having access to them;

(3) records are inaccessible to unauthorized persons outside of business hours;

(4) records are not disclosed to unauthorized persons or under unauthorized circumstances in either oral or written form; and,

(5) direct access to records is restricted to only those individuals who must have direct access to records in order to perform their duties.

(b) Every Claims Analysis Bureau shall provide annual training regarding its administrative policies and procedures and physical controls to all employees to prevent: unauthorized access to its system of records; unauthorized disclosure of records; and physical damage to or destruction of records.

(1) the CAB provides annual training and instruction required by subsection 2698.87 (b) to all individuals performing any aspect of the function delegated by the CAB; and,

(2) the CAB annually provides to the Insurance Commissioner a list of the names, addresses and the Taxpayer Identification Number (TIN) of the individuals that perform any aspect of the function delegated by the CAB to the entity.

(d) Every Claims Analysis Bureau shall maintain records establishing full compliance with the applicable provisions of Section 2698.87 and shall immediately provide any requested information regarding information deposited with the CAB to the Insurance Commissioner upon request.

NOTE

Authority cited: Section 1875.18(d)(2), Insurance Code. Reference: Section 1875.18, Insurance Code

HISTORY

1. New section filed 12-26-2006; operative 1-25-2006 (Register 2006, No. 52).

2. Amendment of Note filed 12-19-2007; operative 1-18-2008 (Register 2007, No. 51).

§2698.88. Immunity From Defamation, Invasion of Privacy or Negligence.

Note • History

(a) A Claims Analysis Bureau or any person employed therein that provides insurance claims information to any other person or entity pursuant to California Insurance Code Section 1875.18 shall have the same immunity provided under California Insurance Code Section 791.21 to any person that discloses personal or privileged information; however, this subsection does not provide immunity for disclosing or furnishing false information with malice or willful intent to injure any person.

NOTE

Authority cited: Sections 1875.18(d)(2), Insurance Code. Reference: Section 1875.18(c)(2) and (d)(2), Insurance Code.

HISTORY

1. New section filed 12-26-2006; operative 1-25-2006 (Register 2006, No. 52).

§2698.89. Penalties.

Note • History

(a) The Commissioner may suspend or revoke the license of any CAB if the CAB fails to comply with any provisions of this subchapter.

(b) The Commissioner shall conduct any proceeding to suspend or revoke any license granted to a CAB in accordance with the Administrative Procedures Act, Chapter 5(commencing with Section 11500) of Part 1 of Division 3 of Title 2 of the Government Code.

(c) Penalties for noncompliance are cumulative and shall be in addition to any other penalties or remedies provided by the Insurance Code.

NOTE

Authority cited: Section 1875.18, Insurance Code. Reference: Sections 1875.18, 12921 and 12926, Insurance Code.

HISTORY

1. New section filed 12-26-2006; operative 1-25-2006 (Register 2006, No. 52).

§2698.89.1. Effective Date.

Note • History

(a) The regulations set forth in this subchapter shall become effective upon filing with the Secretary of State.

(b) All persons or entities subject to the regulations set forth in this subchapter shall have until July 1, 2007 to fully comply with the provisions of this subchapter.

NOTE

Authority cited: Section 1875.18, Insurance Code. Reference: Section 1875.18, Insurance Code

HISTORY

1. New section filed 12-26-2006; operative 1-25-2006 (Register 2006, No. 52).

2. Amendment of Note filed 12-19-2007; operative 1-18-2008 (Register 2007, No. 51).

Article 7. Direct Repair Programs and Auto Body Repair Labor Rate Surveys

§2698.90. Direct Repair Programs.

Note • History

(a) As used in this Article, a “Direct Repair Program” includes any program under which an insurer refers, suggests, or recommends an auto body repair facility to insureds or claimants and the insurer has a formal agreement, whether written or otherwise, with the repair facility to provide auto body repair services to such insureds or claimants.

(b) Auto body repair shops reporting a denial to participate in an insurer's Direct Repair Program pursuant to Insurance Code section 758 shall make such reports to the Market Conduct Division/Field Claims Bureau of the Department of Insurance.

NOTE

Authority cited: Sections 758, 12921 and 12926, Insurance Code. Reference: Section 758, Insurance Code.

HISTORY

1. New article 7 (sections 2698.90-2698.91) and section filed 9-25-2002; operative 10-25-2002 (Register 2002, No. 39).

§2698.91. Auto Body Repair Labor Rate Surveys.

Note • History

(a) An “auto body repair labor rate survey” is any gathering of information from auto body repair shops regarding what auto body repair labor rate the repair shops charge to determine and set a specified prevailing auto body repair rate in a specific geographic area.

(b) “Prevailing auto body rate” means the rate determined and set by an insurer as a result of conducting an auto body labor rate survey of auto body repair shops in a particular geographic area and used by the insurer as a basis for determining the cost to settle automobile collision, physical damage, and liability claims for auto body repairs.

(c) Any labor rate survey results reported to the Department of Insurance pursuant to Insurance Code section 758 shall include the following:

(1) The name of each auto body repair shop surveyed in the labor rate survey;

(2) The address of each auto body repair shop surveyed in the labor rate survey;

(3) The total number of shops surveyed in the labor rate survey;

(4) The prevailing rate established by the insurer for each geographic area surveyed;

(5) A description of the specific geographic area covered by the prevailing labor rate reported.

(6) A description of the formula or method the insurer used to calculate or determine the specific prevailing auto body rate reported for each specific geographic area.

Any confidential information not required by this section should be removed from the labor rate survey results prior to submitting the survey to the Department of Insurance.

(d) Insurers shall send the results of their labor rate survey to the Market Conduct Division of the Department of Insurance.

(e) The Department of Insurance will make the reports available upon written request to the Custodian of Record pursuant to the Public Records Act.

NOTE

Authority cited: Sections 758, 12921 and 12926, Insurance Code. Reference: Section 758, Insurance Code; sections 6250-6276.48, Government Code.

HISTORY

1. New section filed 9-25-2002; operative 10-25-2002 (Register 2002, No. 39).

Article 8. Disability Insurance Fraud Assessment Grant Program

§2698.95. Annual Fee.

Note • History

(a) Each admitted disability insurer, as provided for by Insurance Code section 1872.85, shall pay an annual fee of ten cents ($.10) for each insured person that is covered by an individual or group disability insurance policy issued in this state during each calendar year or any part thereof. Such assessment shall also be paid by any other entity, doing business in this state, which is liable for any loss due to health insurance fraud.

(b) For purposes of group disability insurance policies, an insured person shall be deemed to include any person that is issued an individual certificate of coverage.

(c) Insurers shall report to the Commissioner by December 31 of each calendar year on the number of insured persons that are covered by an individual or group disability policy.

(d) The annual fee shall be payable upon presentation of an invoice by the Commissioner. Payment of the annual fee shall be considered delinquent if not paid by the insurer within forty-five (45) days of the invoice date and any amount not paid within this period shall be charged a late fee in accordance with Insurance Code section 12995.

NOTE

Authority cited: Section 1872.85, Insurance Code; and CalFarm Insurance Company, et al. v. Deukmejian, et al. (1989) 48 Cal.3d 805, 824. Reference: Sections 1872.85 and 12995, Insurance Code.

HISTORY

1. New article 8 (section 2698.95) and section filed 8-31-2004; operative 8-31-2004 pursuant to Government Code section 11343.4 (Register 2004, No. 36).

2. Amendment of article heading, new subsection (b), subsection relettering and amendment of Note filed 11-3-2005; operative 12-3-2005 (Register 2005, No. 44).

§2698.95.1. Authority and Purpose.

Note • History

These regulations are promulgated pursuant to authority granted to the Insurance Commissioner under the provisions of Insurance Code section 1872.85. The purpose of these regulations is to set forth the intended and allowable use of funds to be distributed to district attorneys for purposes of enhanced investigation and prosecution of disability insurance fraud cases, including an application process and subsequent reporting requirements.

NOTE

Authority cited: Section 1872.85, Insurance Code; and CalFarm Insurance Company, et al. v. Deukmejian, et al. (1989) 48 Cal.3d 805 and 824. Reference: Section 1872.85, Insurance Code.

HISTORY

1. New section filed 11-3-2005; operative 12-3-2005 (Register 2005, No. 44).

§2698.95.11. Determination and Criteria for Award of Grants.

Note • History

(a) Pursuant to Insurance Code section 1872.85(b) and (c), the Commissioner shall distribute funds under this program to district attorneys who are able to show a likely positive outcome that will enhance the prosecution of disability insurance fraud in their jurisdiction. In order to obtain funds under this program, a district attorney must submit an application pursuant to Insurance Code section 1872.85(b).

(b) In determining to award a grant under this program, the Commissioner shall consider the information provided in an application and may consider the recommendations and advice of the Fraud Division.

(c) Priority shall be given to those grant applications which, in the determination of the Commissioner, have the potential to have the greatest impact on disability insurance fraud activity.

NOTE

Authority cited: Section 1872.85, Insurance Code; and CalFarm Insurance Company, et al. v. Deukmejian, et al. (1989) 48 Cal.3d 805 and 824. Reference: Section 1872.85, Insurance Code.

HISTORY

1. New section filed 11-3-2005; operative 12-3-2005 (Register 2005, No. 44).

§2698.95.12. Definitions.

Note • History

For the purposes of these regulations:

(b) “Assessment” means the surcharge collected from insurers and self-insured employers to support the program to enhance investigation and prosecution of disability insurance fraud.

(c) “Case” means the file set up by the California Department of Insurance Fraud Division (formerly, the Bureau of Fraudulent Claims), and/or district attorney in the course of and for the purpose of investigation, development of evidence and prosecution of individual or consolidated activities of suspected disability insurance fraud.

(d) “Claim” means the request for payment of disability benefits which has been submitted to an insurer.

(e) “Commissioner” means the Insurance Commissioner of the state of California.

(g) “Department” means the California Department of Insurance.

(h) “District Attorney” means the prosecuting officer of a California county jurisdictional district.

(i) “Fraud Division” or “Division” means the California Department of Insurance Fraud Division, formerly known as the Bureau of Fraudulent Claims. The former Bureau was designated a Division subsequent to the original enactment of section 1872.85 of the Insurance Code.

(j) “Funding cycle” means a period of one fiscal year.

(k) “Grantee” means a grant-funded applicant.

(l) “Incidental Expenses”, as used in Insurance Code section 1872.85(a), means those costs incurred by the California Department of Insurance to administer the program and may include reasonable costs for collection of assessments, administrative support of the Fraud Division program component, and management of the distribution and oversight of monies allocated to the district attorneys.

(m) “Program” means those activities conducted by the Department, or any other agency, which are directed toward the enhanced investigation and prosecution of disability insurance fraud and which require funding or administration through assessments and the distribution of funds to the Fraud Division and to district attorneys.

(n) “Insurer” shall have the same meaning as used in Insurance Code section 23.

(o) “Regulations” means these regulations, California Code of Regulations Title 10, Chapter 5, Subchapter 9, Article 8.

NOTE

Authority cited: Section 1872.85, Insurance Code; CalFarm Insurance Company, et al. v. Deukmejian, et al. (1989) 48 Cal.3d 805 and 824. Reference: Section 1872.85, Insurance Code.

HISTORY

1. New section filed 11-3-2005; operative 12-3-2005 (Register 2005, No. 44).

§2698.96. Application Procedure and Contents.

Note • History

(a) A Request for Application (RFA) shall be distributed annually to each county district attorney in the state. The Commissioner shall designate a date for the submission of an application requesting grant funding under this program. Notice of the date for submission shall be mailed to each district attorney at least 30 days before the date set for submission of an application. Applications received after the date set for submission will not be considered for funding.

(b) An application shall include:

(1) a “county plan” as more specifically described in section 2698.97.1.

(2) a “budget proposal” as more specifically described in section 2698.98.

(3) a list of program contacts for the applicant that shall include the name, position, business address, telephone, email address and fax number for each individual.

(c) In addition to an application, each applicant shall submit as a separate document a memorandum of understanding, which sets forth the commitments of the grantee and the Division under the program.

NOTE

Authority cited: Section 1872.85, Insurance Code; and CalFarm Insurance Company, et al. v. Deukmejian, et al. (1989) 48 Cal.3d 805 and 824. Reference: Section 1872.85, Insurance Code.

HISTORY

1. New section filed 11-3-2005; operative 12-3-2005 (Register 2005, No. 44).

§2698.97. Funding Procedure.

Note • History

(b) Distribution of grant award funds shall be on a quarterly basis. Funding and dates of distribution shall be contingent upon the adoption of an annual State Budget Act and the collection of assessments. The duration of a grant, otherwise known as a funding cycle, shall be one fiscal year.

(c) Within 60 days after the end of each funding cycle, a grantee shall provide the Department with an estimate of any unexpended and/or unencumbered funds. A grantee who has undertaken investigations and prosecutions which will carry-over into a subsequent funding cycle may carry-over into the subsequent funding cycle distributed but unused funds not exceeding twenty-five percent (25%) of the total funding award, provided that the grantee files a written plan, at the end of the funding cycle, which specifies and justifies to the Commissioner how those funds will be used. In the event that, due to extenuating circumstances, distributed funds exceeding twenty-five percent (25%) of the previous total funding award are unused, the Commissioner may consider and approve requests for carry-over of the unused funds to the extent that the grantee provides justification.

NOTE

Authority cited: Section 1872.85, Insurance Code; and CalFarm Insurance Company, et al. v. Deukmejian, et al. (1989) 48 Cal.3d 805 and 824. Reference: Section 1872.85, Insurance Code.

HISTORY

1. New section filed 11-3-2005; operative 12-3-2005 (Register 2005, No. 44).

§2698.97.1. County Plan.

Note • History

A county plan shall include the following elements:

(a) Problem Statement: A description of the disability insurance fraud problem in the county, including how it arose, why it is important, its unique aspects, if any, and what is needed to resolve the problem, including supporting data, evidence, or indicators of fraudulent activity related to disability insurance.

(b) Supporting data may include the following items:

(1) A narrative description of the disability insurance fraud activity in the county, including any supporting data, evidence or indicators of fraudulent related activity.

(2) A description of the general criminal activity, based upon the most recent California Crime Index Annual Report by the California Attorney General.

(3) Population density, based upon the most recent report compiled by the California Department of Finance, Demographic Research Unit.

(4) Disability insurance claims frequency.

(5) Number of disability fraud suspected fraudulent claims reported to the Division during a 36-month period immediately preceding the submission of the application.

(6) Evidence of prior and current disability insurance fraud activity.

(1) The total amount expended to support the district attorney's investigation and prosecution of disability insurance fraud, including the details of the following items:

(A) Personnel costs including salaries and benefits.

(B) Operations expenses, including space, equipment, travel and other expenses in support of the program.

(2) For applications submitted after fiscal year 2005-2006, the following factors shall be included in the County Plan:

(A) The total amount of funds received from the Disability Insurance Fraud Program by the local district attorney in previous years and a copy of the most recent annual report.

(B) The results obtained through implementation of the program, including:

1. The number of investigations initiated or coordinated with other law enforcement agencies.

2. The number of arrests or convictions.

3. The number of indictments or complaints.

4. A comparison of the amounts originally claimed in cases determined to be fraudulent compared to payments actually made.

(d) Program Strategy:

(2) Personnel. Justification for the number of personnel, position titles and position justification for personnel which will be funded fully or in part through grant funds, including descriptions of the qualifications of personnel to be assigned to the program and an organization chart identifying positions to be funded.

(5) Staff Development. The plan for ongoing training of personnel on the investigation and prosecution of disability insurance fraud. Staff development may be addressed through coordination with the Division, insurers, or other entities.

(6) Objectives. This section shall outline the district attorney's anticipated achievements in the following areas:

(A) Estimated number of investigations to be initiated during the funding cycle, including separate estimate of the number resulting from carryover investigations; and

(B) Estimated number of prosecutions to be initiated during the funding cycle.

NOTE

Authority cited: Section 1872.85, Insurance Code; and CalFarm Insurance Company, et al. v. Deukmejian, et al. (1989) 48 Cal.3d 805 and 824. Reference: Section 1872.85, Insurance Code.

HISTORY

1. New section filed 11-3-2005; operative 12-3-2005 (Register 2005, No. 44).

§2698.98. Budget Proposal.

Note • History

The proposed budget forms the basis for program management and audit and must be presented in line-item detail and cover a one year program period from July through June of each fiscal year. Annual budget levels shall be included in the Request for Application (RFA). The budget may include a line item for an independent audit to be completed at the end of each annual program period or as specified in the RFA. The district attorney's budget shall include the following:

(a) Salaries and benefits computed at the county salary and benefit schedule. A current copy of the pertinent schedule shall be submitted with the proposed budget.

(b) Operation support costs.

(1) Estimated costs shall be listed by line item.

(2) Itemized costs shall conform to county policy regarding appropriateness of expenses.

(c) Indirect costs are those not capable of being assigned to a particular project or program, but necessary to the operation of the organization and the performance of the program. The costs of operating and maintaining facilities, accounting services, and administrative salaries are examples of indirect costs. Indirect costs shall not exceed 10 percent of personnel salaries (excluding benefits and overtime) or 5 percent of total direct program costs (excluding equipment).

(d) Non-allowable budget items include:

(1) Real property purchases and improvements.

(2) Aircraft or motor vehicles, except the purchase of motor vehicles which is specifically justified to the Commissioner.

(3) Interest payments.

(4) Food and beverages, except as purchased in connection with program-related travel. Food and beverages costs shall not exceed the applicant's per diem schedule.

(5) Weapons or ammunition unless included as part of a benefit package.

(e) Program funds must be used to support enhanced investigation and prosecution of disability insurance fraud and cannot be used to supplant funds which in the absence of program funds would be made available for any portion of the local disability insurance program.

(f) Budget modifications are allowable so long as they do not change the grant award amount.

(g) The annual and proposed use of these funds are subject to full public disclosure.

NOTE

Authority cited: Section 1872.85, Insurance Code; and CalFarm Insurance Company, et al. v. Deukmejian, et al. (1989) 48 Cal.3d 805 and 824. Reference: Section 1872.85, Insurance Code.

HISTORY

1. New section filed 11-3-2005; operative 12-3-2005 (Register 2005, No. 44).

§2698.98.1. District Attorney Reporting and Commissioner's Audit.

Note • History

Each district attorney receiving funds pursuant to Insurance Code section 1872.85 shall submit an annual report to the Commissioner regarding the local program and its accomplishments. Failure to submit the annual report shall affect subsequent funding decisions. The report shall include the following items:

(a) An Expenditure Report, which shall include information for the following:

(1) Personnel: salaries and benefits.

(2) Operations costs breakdown.

(3) Explanation of any significant variances from the county's application as approved.

(b) A financial Audit Report prepared by an independent, qualified state or local government auditor or independent public accountant licensed by the State of California or the county Auditor Controller. The Audit Report shall reflect that local expenditures were made for the purposes of the program as specified in section 1872.85 of the Insurance Code, these Regulations, the guidelines in the Request for Application and the county's application.

(1) The auditor shall use county policies and procedures as the standard for verifying appropriateness of personnel and support costs.

(2) In the event that the program audit is included as part of an organization-wide audit, revenues and expenditures for the local program must be shown separately.

(c) Except as provided in this section, financial audits under this program shall be performed in accordance with the standards set forth in Government Auditing Standards (Revised June 2003) published by the Comptroller General of the United States, General Accounting Office. The above Government Auditing Standards (Revised June 2003) are incorporated herein by this reference.

(d) A Program Report which shall include the following:

(1) The number of investigations initiated related to disability insurance fraud.

(2) The number of arrests related to disability insurance fraud.

(3) The number of prosecutions related to disability insurance fraud.

(4) The number of convictions related to disability insurance fraud.

(5) The dollar savings realized as a result of disability insurance fraud case prosecutions.

(6) A summary of the activity directed toward the reduction of disability insurance fraud with the following:

(A) Fraud Division.

(B) Insurance companies.

(e) The deadlines for submissions are as follows:

(1) Expenditure Reports and Audit Reports must be submitted to the Commissioner no later than four (4) months after the close of the funding cycle as specified in the Request for Application. A county may request an extension in the event an organization-wide audit will delay submission of the audit.

(2) Program Reports must be submitted to the Commissioner no later than (2) months after the close of the funding cycle as specified in the Request for Application.

(f) There shall be a grant liquidation period of ninety (90) days following the termination of the funding cycle during which costs incurred but not paid may be paid and deducted from the program budget.

(g) The Commissioner may perform such additional audits or reviews of any local programs as he or she may deem necessary and shall have access to all working papers, correspondence, or other documents, including audit reports and audit working papers related to the audit report or local program.

(h) Notwithstanding any other provision of the law, the Commissioner shall perform a fiscal audit of the program administered under this section once every three years.

NOTE

Authority cited: Section 1872.85, Insurance Code; and CalFarm Insurance Company, et al. v. Deukmejian, et al. (1989) 48 Cal.3d 805 and 824. Reference: Section 1872.85, Insurance Code.

HISTORY

1. New section filed 11-3-2005; operative 12-3-2005 (Register 2005, No. 44).

Subchapter 10. Conservation and Liquidation Office

Article 1. Conservation and Liquidation Office

§2698.99. Conflict-of-Interest Code for the Conservation and Liquidation Office.

Insurance Code Section 1035.2 and The Political Reform Act (Government Code Section 81000, et seq.) require the California Department of Insurance (“CDI”) to promulgate and adopt a conflict-of-interest code pertaining to the officers and employees of the CDI's Conservation & Liquidation Office. The Fair Political Practices Commission has adopted a regulation (2 California Code of Regulations Section 18730) that contains the terms of a standard conflict-of-interest code which can be incorporated by reference in an agency's code. After public notice and hearing, the standard code may be amended by the Fair Political Practices Commission to conform to amendments in the Political Reform Act (Government Code Sections 81000, et seq.). Therefore, the terms of 2 California Code of Regulations Section 18730 and any amendments to it duly adopted by the Fair Political Practices Commission are hereby incorporated by reference. This regulation and the attached Appendices designating positions and establishing disclosure categories, shall constitute the conflict-of-interest code of the CDI's Conservation and Liquidation Office (CLO).

Individuals holding designated positions shall file their statements of economic interests with the CLO, which will make the statements available for public inspection and reproduction. (Gov. Code Section 81008.) Upon receipt of the statement for the Chief Executive Officer, the CLO shall make and retain copies and forward the originals to the Fair Political Practices Commission. All other statements will be retained by the CLO.

Appendix A--Designated Positions

Designated Positions Assigned Disclosure Category

Chief Executive Officer 1

Operations Officer 1

Chief Financial Officer 1

Vice-President Reinsurance 1

Chief Estate Trust Officer 1

Claims Officer CLO 1

Vice-President of Finance 1

Estate Trust Officer 1

Estate Trust Manager 1

Business Analyst Manager 1

All Consultants* 1

Reinsurance Manager 1

Claims Manager 1

Administration Manager 2

Executives of Conserved/Liquidated Same as CLO counterpart,

Insurance Company e.g., CFO of conserved/

liquidated company is in

Disclosure Category 1

________

*With respect to consultants, the Chief Executive Officer may determine in writing that a particular consultant, although a “designated position,” is hired to perform a range of duties that is limited in scope and thus is not required to comply with the disclosure requirements described in these categories. Such determination shall include a description of the consultant's duties and, based upon that description, a statement of the extent of disclosure requirements. The Chief Executive Officer's determination is a public record and shall be retained for public inspection in the same manner and location as this conflict-of-interest code. (Gov. Code Sec. 81008.) Nothing herein excuses any such consultant from any other provision of the Conflict of Interest Code.

Disclosure Categories

Designated positions in Category 1 shall report all interests in real property in the State of California, as well as investments, business positions and sources of income, including gifts, loans and travel payments.

Designated positions in Category 2 shall report all investments, business positions and income, including gifts, loans and travel payments, from sources that provide leased facilities, goods, equipment, vehicles, machinery or services, including training or consulting services, of the type utilized by the designated employee's department or area of authority.

NOTE

Authority cited: Section 87300, Government Code; and Section 1035.2, Insurance Code. Reference: Sections 87300-87302 and 87306, Government Code; and California Code of Regulations, Title 2, Section 18730, et seq.

HISTORY

1. New subchapter 10 (article 1), article 1 (section 2698.99) and section filed 11-4-2002; operative 12-4-2002. Approved by Fair Political Practices Commission 9-17-2002 (Register 2002, No. 45).

2. Amendment of section and Appendix filed 1-23-2006; operative 2-22-2006. Approved by Fair Political Practices Commission 11-4-2005 (Register 2006, No. 4).

3. Amendment of section and Appendix A filed 5-23-2011; operative 6-22-2011. Approved by Fair Political Practices Commission 3-2-2011 (Register 2011, No. 21).

Subchapter 11. Governing Procedure for Hearings [Renumbered]

Article 1. Governing Procedure for Hearings [Renumbered]

NOTE

Authority cited: Sections 11400.20 and 11415.10, Government Code. Reference: Section 21.5, Insurance Code.

HISTORY

1. New subchapter 11 (article 1), article 1 (sections 2698.99.10-2698.99.13) and section filed 3-20-2003; operative 4-19-2003 (Register 2003, No. 12).

2. Change without regulatory effect renumbering former subchapter 11, article 1 (sections 2698.99.10-2698.99.13) to subchapter 4.5, article 1 (sections 2615-2615.3) filed 6-3-2003 pursuant to section 100, title 1, California Code of Regulations (Register 2003, No. 23).

Chapter 5.5. Major Risk Medical Insurance Board

Article 1. Definition

§2698.100. Definitions.

Note • History

For the purpose of this part:

(a) “Appellant” means an applicant, subscriber, enrolled dependent, or dependent subscriber who has filed an appeal with the program.

(b) “Applicant” means an individual who has filed an application for major risk medical coverage with the program.

(c) “Authorized Representative” means any person or entity who has been designated, in writing, by the appellant to act on his/her behalf or individuals who have appropriate power of attorney or legal conservatorship.

(d) “Board” means the Managed Risk Medical Insurance Board.

(e) “Certificate of Program Completion” means a certificate issued by the Program to persons leaving the Program after 36 consecutive months of coverage.

(f) “Coverage” means the payment by the program or other health plan or insurer for medically necessary services provided by institutional and professional providers.

(g) “Creditable coverage” means:

(1) Any individual or group policy, contract or program, that is written or administered by a disability insurer, health care service plan, fraternal benefits society, self-insured employer plan, or any other entity, in this state or elsewhere, and that arranges or provides medical, hospital and surgical coverage not designed to supplement other private or governmental plans. The term includes continuation or conversion coverage but does not include accident only, credit, disability income, Civilian Health and Medical Program of the Uniformed Services (CHAMPUS) supplement, Medicare supplement, long-term care, dental, vision, coverage issued as a supplement to liability insurance, insurance arising out of a workers' compensation or similar law, automobile medical payment insurance, or insurance under which benefits are payable with or without regard to fault and that is statutorily required to be contained in any liability insurance policy or equivalent self-insurance.

(2) The federal Medicare program pursuant to Title XVIII of the Social Security Act.

(3) The Medicaid program pursuant to Title XIX of the Social Security Act.

(4) Any other publicly sponsored program, provided in this state or elsewhere of medical, hospital and surgical care.

(5) 10 U.S.C.A. Chapter 55 (commencing with Section 1071) Civilian Health and Medical Program of the Uniformed Services (CHAMPUS).

(6) A medical care program of the Indian Health Service or of a tribal organization.

(7) A state health benefits risk pool.

(8) A health plan offered under 5 U.S.C.A. Chapter 89 (commencing with Section 8901)(FEHBP).

(9) A public health plan as defined in federal regulations authorized by Section 2701(c)(1)(l) of the Public Health Service Act, as amended by Public Law 104-191.

(10) A health benefit plan under Section 5(e) of the Peace Corps Act (22 U.S.C.A. 2504(e)).

(h) “Day” means calendar day unless specified otherwise.

(i) “Dependent” means:

(1) The spouse or registered domestic partner of a subscriber or applicant at the time of application.

(2) A child under the age of 23 at the time of application, who is an adopted child or stepchild pursuant to subsection (C) below, or a natural child who:

(A) is neither married nor a registered domestic partner, and

(B)(1) lives with the subscriber or applicant; or

(2) is economically dependent upon the subscriber or the applicant.

(C) 1. A child shall be considered to be adopted from the date on which the adoptive child's birth parents or other appropriate legal authority signs a written document, including, but not limited to, a health facility minor release report, a medical authorization form, or a relinquishment form, granting the subscriber or applicant, or the spouse or registered domestic partner of a subscriber or applicant, the right to control health care for the adoptive child or, absent this written document, on the date there exists evidence of the right of the subscriber or applicant, or the spouse or registered domestic partner of a subscriber or applicant, to control the health care of the child placed for adoption.

2. A child shall be considered a stepchild upon the subscriber's or applicant's marriage to the child's natural or adoptive parent or when the subscriber or applicant becomes the registered domestic partner of the child's natural or adoptive parent.

(3) A child over the age of 23 at the time of application, who is:

(A) an adopted child or stepchild pursuant to (2)(C) of this section, or a natural child,

(B) neither married nor a registered domestic partner, and

(C) at the time of attaining age 23 was incapable of self-support because of physical or mental disability which has existed continuously from a date prior to attainment of age 23.

(j) “Dependent Subscriber” means an enrolled dependent that has maintained eligibility pursuant to section 2698.205.

(k) “Disenroll” means termination from coverage by the program.

(l) “Eligible” means the applicant is qualified to be enrolled along with dependents in a participating health plan.

(m) “Enroll” means to accept an individual as a subscriber or as a dependent by notifying a participating health plan to accept the applicant and dependents, if any, for coverage.

(n) “Executive Director” means the Executive Director for the Board.

(o) “Fee-for-service plan” means either of the following:

(1) Service benefit plans under which retrospective payment is made by a carrier under contracts with physicians, hospitals, or other providers of health services rendered to subscribers.

(2) Indemnity benefit plans under which a carrier agrees to pay retrospectively certain sums of money, not in excess of actual expenses incurred, for health services.

(p) “Health maintenance organization” means either of the following:

(1) Comprehensive group-practice prepayment plans which offer benefits, in whole or substantial part, on a prepaid basis, with professional services thereunder provided by physicians or other providers of health services practicing as a group in a common center or centers. This group shall include physicians representing at least three major medical specialties who receive all or a substantial part of their professional income from the prepaid funds.

(2) Individual practice prepayment plans or network model prepayment plans which offer health services in whole or in part on a prepaid basis, with professional services thereunder provided by individual physicians or groups of physicians or other providers of health services who agree to accept the payments provided by the plans as full payment for covered services rendered by them.

(q) “Health plan” means a private insurer holding a valid outstanding certificate of authority from the Insurance Commissioner, a nonprofit hospital service plan qualifying under chapter 11A (commencing with section 11491) of part 2 of division 2 of the Insurance Code, a nonprofit membership corporation lawfully operating under the Nonprofit Corporation Law (division 2 (commencing with section 5000) of the Corporations Code), or a health care service plan as defined under subdivision (f) of section 1345 of the Health and Safety Code, which is lawfully engaged in providing, arranging, paying for, or reimbursing the cost of personal health care services under insurance policies or contracts, medical and hospital service agreements, or membership contracts, in consideration of premiums or other periodic charges payable to it.

(r) “Medicare” means the Health Insurance for The Aged provided under title XVIII of the Social Security Act; “Part A” means Hospital Insurance as defined in title XVIII of the Social Security Act; and “Part B” means Medical Insurance as defined in title XVIII of the Social Security Act.

(s) “Participating health plan” means a health plan which has a contract with the program to administer major risk medical coverage for program subscribers. Participating health plans are categorized as either fee-for-service plans or health maintenance organizations as defined in section 2698.100(p) or (q) respectively.

(t) “Pilot Program” means the program established by Health and Safety Code section 1373.62 and Insurance Code section 10127.15.

(u) “Pilot Program health plan” means any health care service plan or health insurer who has enrolled a program graduate into the Pilot Program and a Pilot Program standard benefit plan.

(v) “Pilot Program standard benefit plan” means a benefit package that meets the criteria of Health and Safety Code section 1373.62(c) or Insurance Code section 10127.15 (c).

(w) “Pre-existing condition” means any condition for which medical advice, diagnosis, care, or treatment was recommended or received during a six month period immediately preceding the effective date of coverage.

(x) “Pre-existing condition exclusion period” means that period of time for which there is no coverage for a pre-existing condition.

(y) “Post-enrollment waiting period” means that period of time between the date of enrollment and the date coverage begins.

(z) “Program” means the California Major Risk Medical Insurance Program.

(aa) “Program Graduate” means:

(1) A subscriber in the Program who has completed 36 consecutive months of coverage and has been issued a Certificate of Program Completion by the Program; or

(2) A dependent subscriber who has completed a total of 36 consecutive months of coverage in the program, and has been issued a Certificate of Program Completion by the Program.

(bb) “Program Graduate dependent” means an enrolled dependent who has completed 36 consecutive months of coverage and has been issued a Certificate of Program Completion by the Program at the same time as the subscriber.

(cc) “Registered domestic partner” means a person who either (1) has filed a Declaration of Domestic Partnership with the Secretary of State which meets the criteria specified by Family Code section 297 and the partnership has not been terminated pursuant to Family Code section 299, or (2) is a member of a domestic partnership validly formed in another jurisdiction which is cognizable as a valid domestic partnership in this state pursuant to Family Code section 299.2.

(dd) “Resident of the State of California” means a person who is present in California with intent to remain present except when absent for transitory or temporary purposes. However, a person who is absent from the state for a consecutive period greater than 210 days shall not be considered a resident.

(ee) “Standard average individual rate” means that rate a participating health plan estimates it would charge the general public for individual, non-group coverage for the benefits described in the program contract with the participating health plan.

(ff) “Standard monthly administrative fee” means the weighted monthly average per person administrative fee paid by the Pilot Program to participating Pilot Program health plans and calculated in accordance with section 2698.602(d).

(gg) “Subscriber” means an individual who is eligible for and receives major risk medical coverage through the program. “Subscriber” does not include an individual receiving major risk medical coverage through the program as an enrolled dependent of a subscriber. An individual who is enrolled but not yet receiving coverage due to a post-enrollment waiting period is considered a subscriber.

(hh) “Subscriber contribution” means the amount paid by a subscriber or a dependent subscriber on a periodic basis to the program for coverage for a subscriber and/or enrolled dependents, if any, or for a dependent subscriber.

(ii) “Unique Identification Number (UIN)” means a number assigned by the Program to each Program Graduate's Certificate of Program Completion to be used in the Pilot Program to track each Program Graduate for payment and reporting purposes.

NOTE

Authority cited: Sections 12711 and 12712, Insurance Code; and ASSEM. Bill No. 1401 (stats. 2002, ch. 794, Sec. 21). Reference: Sections 10900, 10127.15, 12705, 12711, 12712, 12725, 12726 and 12730, Insurance Code; and Section 1373.62, Health and Safety Code; and Sections 297, 299 and 299.2, Family Code.

HISTORY

1. New section filed 12-20-90 as an emergency; operative 12-20-90 (Register 91, No. 11). A Certificate of Compliance must be transmitted to OAL by 4-19-91 or emergency language will be repealed by operation of law on the following day.

2. Certificate of Compliance as to 12-20-90 order including amendment of subsections (f) and (g) and NOTE transmitted to OAL 4-18-91 and filed 5-17-91 (Register 91, No. 27).

3. Editorial correction of printing errors (Register 91, No. 27).

4. New subsection (y) filed 6-27-91 as an emergency; operative 6-27-91 (Register 91, No. 40). A Certificate of Compliance must be transmitted to OAL by 10-25-91 or emergency language will be repealed by operation of law on the following day.

5. Certificate of Compliance as to 6-27-91 order including amendment of subsection (y) transmitted to OAL 10-23-91 and filed 11-22-91 (Register 92, No. 11).

6. Amendment of subsection (f) and Note filed 12-19-91 as an emergency; operative 12-19-91 (Register 92, No. 19). A Certificate of Compliance must be transmitted to OAL 4-17-92 or emergency language will be repealed by operation of law on the following day.

7. Certificate of Compliance as to 12-19-91 order transmitted to OAL 4-8-92 and filed 5-12-92 (Register 92, No. 23).

8. Amendment of subsections (d), (f) and (p), new subsections (s)-(s)(4), subsection relettering, and amendment of newly designated subsection (z) and Note filed 5-19-95; operative 6-19-95 (Register 95, No. 20).

9. Editorial correction of article 1 heading (Register 96, No. 17).

10. Amendment of subsections (t) and (w) and repealer of subsection (z) filed 4-23-96; operative 5-23-96 (Register 96, No. 17).

11. Amendment of section and Note filed 8-4-2003 as an emergency; operative 8-4-2003 (Register 2003, No. 32). Amendments to remain in effect for 180 days pursuant to section 21, chapter 794, Statutes of 2002 (AB 1401). A Certificate of Compliance must be transmitted to OAL by 2-2-2004 or emergency language will be repealed by operation of law on the following day.

12. Certificate of Compliance as to 8-4-2003 order transmitted to OAL 1-23-2004 and filed 3-1-2004 (Register 2004, No. 10).

13. Amendment of subsections (i)(1)-(3), new subsections (i)(3)(A)-(C) and (cc), subsection relettering and amendment of Note filed 1-14-2009; operative 2-13-2009 (Register 2009, No. 3).

§2698.102. Terms.

Note • History

For the purposes of this part:

(a) “Tenses and Number.” The present tense includes the past and future, and the future the present; the singular includes the plural and the plural the singular.

(b) “Time.” Whenever in this chapter a time is stated in which an act is to be done, the time is computed by excluding the first day and including the last day. If the last day is a holiday it is also excluded.

NOTE

Authority cited: Sections 12711 and 12712, Insurance Code. Reference: Sections 12711 and 12712, Insurance Code.

HISTORY

1. New section filed 8-4-2003 as an emergency; operative 8-4-2003 (Register 2003, No. 32). Amendments to remain in effect for 180 days pursuant to section 21, chapter 794, Statutes of 2002 (AB 1401). A Certificate of Compliance must be transmitted to OAL by 2-2-2004 or emergency language will be repealed by operation of law on the following day.

2. Certificate of Compliance as to 8-4-2003 order transmitted to OAL 1-23-2004 and filed 3-1-2004 (Register 2004, No. 10).

Article 2. Eligibility, Application, and Enrollment

§2698.200. Basis of Eligibility.

Note • History

(a) All eligibility requirements contained herein shall be applied without regard to sex, race, creed, color, sexual orientation, health status, national origin, occupation, or occupational history of the individual applying for the program.

(b) To be eligible for the program, an applicant shall meet the requirements of either (1) or (2):

(1) Meet all of the following requirements;

(A) Be a resident of the State of California; and

(B) Not be eligible for Part A and Part B of Medicare, except those applicants on Medicare solely because of end-stage renal disease; and

(C) Not be eligible to purchase any health insurance for continuation of benefits under the provisions of Health and Safety Code section 1366.20 et. seq., or under the provisions of Insurance Code section 10128.50 et. seq. or have exhausted any health insurance for continuation of benefits under the provisions of 29 US Code 1161 et. seq.; and

(D) Be unable to secure adequate private coverage. An individual shall be deemed unable to secure adequate private health coverage if the individual within the previous 12 months:

1. Has been denied individual coverage; or

2. Has been involuntarily terminated from health insurance coverage for reasons other than nonpayment of premium or fraud; or

3. Has been offered an individual, not a group, health insurance premium rate in excess of the subscriber rate for the individual's first choice participating health plan.

(2) Be a dependent of an individual meeting the requirements of (b)(1) of this section.

(1) Remain a resident of the State of California; and

(2) Not become eligible for Part A and Part B of Medicare, except those applicants who become eligible for Medicare solely because of end-stage renal disease; and

(3) Not exceed a total of 36 consecutive months of enrollment from his/her respective start of coverage date in the program as required by section 2698.204(a)(7); and

(4) Make subscriber contribution payments as required by section 2698.403.

NOTE

Authority cited: Sections 12711 and 12712, Insurance Code. Reference: Sections 12711, 12725 and 12733, Insurance Code; and Sections 297, 299 and 299.2, Family Code.

HISTORY

2. Certificate of Compliance as to 12-20-90 order including amendment of subsections (a) and (b) transmitted to OAL 4-18-91 and filed 5-17-91 (Register 91, No. 27).

3. Amendment of subsection (b) filed 6-27-91 as an emergency; operative 6- 27-91 (Register 91, No. 40). A Certificate of Compliance must be transmitted to OAL by 10-25-91 or emergency language will be repealed by operation of law on the following day.

4. Certificate of Compliance as to 6-27-91 order transmitted to OAL 10-23-91 and filed 11-22-91 (Register 92, No. 11).

5. Amendment of subsections (b)(1)(B), (b)(1)(D)5., (c)(2) and Note filed 5-19-95; operative 6-19-95 (Register 95, No. 20).

6. Editorial correction inserting inadvertently omitted article 2 heading (Register 96, No. 17).

7. Repealer of subsection (b)(1)(D)4. and subsection renumbering, and amendment of newly designated subsection (b)(1)(D)4. filed 4-23-96; operative 5-23-96 (Register 96, No. 17).

8. Amendment of subsection (b)(1)(D)3. and repealer of subsection (b)(1)(D)4. filed 3-22-2002 as an emergency; operative 3-22-2002 (Register 2002, No. 12). A Certificate of Compliance must be transmitted to OAL by 7-22-2002 or emergency language will be repealed by operation of law on the following day.

9. Editorial correction of History 8 (Register 2002, No. 35).

10. Certificate of Compliance as to 3-22-2002 order transmitted to OAL 7-19-2002 and filed 8-29-2002 (Register 2002, No. 35).

11. Amendment of subsections (b)(1)(C) and (c)-(c)(2) and new subsections (c)(3)-(4) filed 8-4-2003 as an emergency; operative 8-4-2003 (Register 2003, No. 32). Amendments to remain in effect for 180 days pursuant to section 21, chapter 794, Statutes of 2002 (AB 1401). A Certificate of Compliance must be transmitted to OAL by 2-2-2004 or emergency language will be repealed by operation of law on the following day.

12. Certificate of Compliance as to 8-4-2003 order transmitted to OAL 1-23-2004 and filed 3-1-2004 (Register 2004, No. 10).

13. Amendment of Note filed 1-14-2009; operative 2-13-2009 (Register 2009, No. 3).

§2698.201. Application.

Note • History

(a) The Board shall establish an application review process which assures timely action on applications. The program shall complete the application review process within 30 days of the receipt of the application and payment of the initial subscriber contribution.

(b) To apply for the program an individual shall submit:

(1) all information, documentation, and declarations necessary to determine program eligibility as set forth in subsection (d) of this section, and

(2) a check or money order for an amount equal to the initial subscriber contribution for the individual's first choice participating health plan.

(c) A complete application is one that meets the requirements of (b)(1) and (b)(2) of this section. All applications shall be reviewed for completeness upon receipt by the program.

(1) If the application is complete, it will be reviewed for an eligibility determination.

(2) An incomplete application shall be returned to the individual and shall not be processed.

(d)(1) The applicant shall use the application form entitled California Major Risk Medical Insurance Program Enrollment Application.

(2) The applicant shall provide the following information:

(A) The applicant's full name.

(B) The applicant's current home address including house or unit number, street, city, county, state, and zip code.

(D) The applicant's sex.

(E) The applicant's marital or registered domestic partnership status.

(F) The applicant's home and/or business telephone number.

(G) If dependents are to be included in the coverage, the full names, dates of birth, sex, and relationship of the dependents to be covered.

(H) The name and address to which the bills for the subscriber contribution are to be sent, if different from the applicant's.

(I) Proof of rejection within 12 months of the date of application for health insurance coverage for reasons other than fraud or nonpayment of premium. The proof shall include a letter or other formal written communication from a health plan, documenting one or more of the following:

1. Having been denied health insurance coverage as an individual.

2. Having been involuntarily terminated from health insurance coverage.

3. Having been offered an individual, not a group, health insurance premium rate in excess of the subscriber rate for the individual's first choice participating health plan.

(J) An initialed declaration that the applicant is not eligible for Part A and Part B of Medicare, in accordance with subsection 2698.200(b)(1)(B).

(K) An initialed declaration that the applicant is a resident of the State of California.

(L) An initialed declaration that the applicant will abide by the rules of participation, utilization review process, and dispute resolution process of any participating health plan in which the applicant is enrolled.

(M) An initialed declaration that the applicant is not, to the applicant's knowledge, being excluded from a group for the purpose of being made eligible for the program.

(N) An initialed declaration that the applicant has reviewed the benefits offered by the participating health plans and the subscriber contribution rates.

(O) An initialed declaration that the applicant understands and will follow the rules and regulations of the program.

(P) Name and address of the applicant's primary employer, if employed.

(Q) The applicant's occupation, if employed.

(R) An initialed declaration that the applicant is not currently eligible to purchase any health insurance for continuation of benefits under the provisions of Health and Safety Code section 1366.20 et. seq., or under the provisions of Insurance Code section 10128.50 et. seq. or has exhausted any health insurance for continuation of benefits under the provisions of 29 US Code 1161 et. seq.

(S) An initialed declaration that the applicant has not been terminated from a standard benefit plan available under the provisions of Health and Safety Code section 1373.62 or Insurance code section 10127.15 within the last 12 months due to non-payment of premiums or as a result of the applicant's request to voluntarily disenroll or as a result of fraud.

(T) An indication of the applicant's selected participating health plan.

(U) If an applicant is not currently eligible for the program, but anticipates becoming eligible, the applicant shall explain and document the reason or reasons, and provide the date on which, eligibility will occur.

(V) The applicant or the applicant's parent, conservator, or guardian shall sign and date the application stating that the information given is true and correct.

(3) The following information is requested but not mandatory, and will be used for identification and administrative purposes:

(A) The applicant's ethnicity.

(B) The applicant's social security number.

(e) In order for the program to determine that a pre-existing condition exclusion or a post-enrollment waiting period should be waived, or partially waived, each individual applying for coverage must provide one of the following:

(1) Documentation that the individual had prior creditable coverage, or

(2) Documentation that the individual has been covered by a similar plan sponsored by another state before becoming a resident of the State of California.

(f) Applications may be submitted at any time. An applicant shall not be enrolled nor shall the applicant be placed on a waiting list until the applicant has fulfilled all of the requirements for eligibility. Once the requirements for eligibility are fulfilled, applicants shall be enrolled or placed on a waiting list in order of the date of receipt of the completed application.

NOTE

Authority cited: Sections 12711 and 12712, Insurance Code. Reference: Sections 12711, 12725 and 12728, Insurance Code; and Sections 297, 299 and 299.2, Family Code.

HISTORY

2. Certificate of Compliance as to 12-20-90 order including amendment of subsections (a) and (e) transmitted to OAL 4-18-91 and filed 5-17-91 (Register 91, No. 27).

3. Amendment of subsection (e) filed 6-27-91 as an emergency; operative 6- 27-91 (Register 91, No. 40). A Certificate of Compliance must be transmitted to OAL by 10-25-91 or emergency language will be repealed by operation of law on the following day.

4. Certificate of Compliance as to 6-27-91 order transmitted to OAL 10-23-91 and filed 11-22-91 (Register 92, No. 11).

5. Amendment of subsection (e)(1)(Q) and Note filed 8-11-92; operative 9-11-92 pursuant to Government Code section 11346.2(d) (Register 92, No. 34).

6. Amendment of subsections (e)(1)(H)5., (e)(1)(I), and (f)-(f)(1), repealer of subsection (f)(2) and subsection renumbering filed 5-19-95; operative 6-19-95 (Register 95, No. 20).

7. Amendment of subsection (e)(1), repealer of subsection (e)(1)(H)4. and subsection renumbering, and amendment of newly designated subsection (e)(1)(H)4. filed 4-23-96; operative 5-23-96 (Register 96, No. 17).

8. Repealer of subsection (e)(1)(H)4. filed 3-22-2002 as an emergency; operative 3-22-2002 (Register 2002, No. 12). A Certificate of Compliance must be transmitted to OAL by 7-22-2002 or emergency language will be repealed by operation of law on the following day.

9. Certificate of Compliance as to 3-22-2002 order transmitted to OAL 7-19-2002 and filed 8-29-2002 (Register 2002, No. 35).

10. Amendment filed 8-4-2003 as an emergency; operative 8-4-2003 (Register 2003, No. 32). Amendments to remain in effect for 180 days pursuant to section 21, chapter 794, Statutes of 2002 (AB 1401). A Certificate of Compliance must be transmitted to OAL by 2-2-2004 or emergency language will be repealed by operation of law on the following day.

11. Certificate of Compliance as to 8-4-2003 order, including further amendment of subsection (d)(1), transmitted to OAL 1-23-2004 and filed 3-1-2004 (Register 2004, No. 10).

12. Amendment of subsections (d)(1) and (d)(2)(E) and amendment of Note filed 1-14-2009; operative 2-13-2009 (Register 2009, No. 3).

§2698.202. Determination of Eligibility.

Note • History

(a) Upon receipt of a complete application the program shall determine an applicant's eligibility based upon the criteria specified in section 2698.200.

(b)(1) Applicants determined ineligible shall be notified in writing by the program, except as in (2) below. The notice shall include the reason for the determination of ineligibility and an explanation of the appeal process. The applicant's initial subscriber contribution shall be refunded.

(2) If an applicant is determined to be currently ineligible, but the applicant has documented pursuant to section 2698.201(d)(2)(U) that he/she will become eligible, the applicant shall be notified that the application will be held until the eligibility date specified, and on that date the applicant will be determined eligible. The applicant's initial subscriber contribution shall not be refunded, unless the applicant's eligibility date is more than 60 days from the date of the notification.

(c) Applicants and any dependents determined eligible shall be either enrolled or placed on a waiting list and shall be notified of their status.

(d) Eligible applicants and any dependents shall be enrolled in accordance with section 2698.203, unless one of the following circumstances exist:

(1) There are no participating health plans offered in the applicant's county of residence.

(2) A program funding shortfall has been projected.

(e) When the circumstances in (d)(1) or (2) exist, applicants and any dependents shall be placed on a waiting list in the order in which their completed applications were received by the program. When health plans are offered or funds become available, whichever is applicable, applicants and any dependents shall be enrolled in accordance with section 2698.203 based upon the order in which they appear on the program's waiting list.

(f) The program shall refund the initial subscriber contribution to all applicants who have been on the program's waiting list for more than 60 days from the date their completed applications were received. Such applicants shall, within 30 days of notification by the program that enrollment is possible, pay the initial subscriber contribution and notify the program of any additional dependents to be enrolled.

(g) The program shall complete the enrollment of an applicant on the waiting list within 15 days of receipt of payment of the initial subscriber contribution that has met the requirements of (f) of this section.

NOTE

Authority cited: Sections 12711 and 12712, Insurance Code. Reference: Sections 12711, 12725 and 12728, Insurance Code.

HISTORY

2. Certificate of Compliance as to 12-20-90 order transmitted to OAL on 4-18-91 and filed 5-17-91 (Register 91, No. 27).

3. Editorial correction of printing error (Register 91, No. 27).

4. New subsection (g) filed 12-19-91 as an emergency; operative 12-19-91 (Register 92, No. 11). A Certificate of Compliance must be transmitted to OAL 4-17-92 emergency language will be repealed by operation of law on the following day.

5. Amendment of subsection (f) filed 3-10-92 as an emergency; operative 3-10-92 (Register 92, No. 19). A Certificate of Compliance must be transmitted to OAL 7-8-92 or emergency language will be repealed by operation of law on the following day.

6. Certificate of Compliance as to 12-19-91 order including amendment of subsection (g) transmitted to OAL 4-8-92 and filed 5-20-92 (Register 92, No. 24).

7. Certificate of Compliance as to 3-10-92 order transmitted to OAL 6-30-92 and filed 7-29-92 (Register 92, No. 31).

8. Amendment of subsection (d), new subsection (e) and relettering and amendment of subsection (h) and Note filed 8-11-92; operative 9-11-92 pursuant to Government Code section 11346.2(d) (Register 92, No. 34).

9. Amendment filed 8-4-2003 as an emergency; operative 8-4-2003 (Register 2003, No. 32). Amendments to remain in effect for 180 days pursuant to section 21, chapter 794, Statutes of 2002 (AB 1401). A Certificate of Compliance must be transmitted to OAL by 2-2-2004 or emergency language will be repealed by operation of law on the following day.

10. Certificate of Compliance as to 8-4-2003 order transmitted to OAL 1-23-2004 and filed 3-1-2004 (Register 2004, No. 10).

§2698.203. Enrollment.

Note • History

(a) Providing neither of the circumstances specified in section 2698.202(d) exists, applicants determined eligible for the program shall be enrolled in an available participating health plan of the applicant's choice in the applicant's county of residence.

(b) If an applicant applied to have dependents covered, dependents shall also be enrolled in the subscriber's participating health plan.

(c) The date on which the coverage shall begin, subject to the provisions of section 2698.303, shall be the first day of the month following enrollment.

(d) An applicant shall be notified in writing by the program of enrollment with a participating health plan, the beginning date of coverage by the participating health plan, and of any pre-existing condition exclusion period or post-enrollment waiting period. The notice shall caution the applicant about discontinuing any existing coverage until full coverage by the participating health plan has begun.

NOTE

Authority cited: Sections 10127.15, 12711, 12712 and 12712.5, Insurance Code. Reference: Sections 12711, 12725 and 12728, Insurance Code.

HISTORY

2. Certificate of Compliance as to 12-20-90 order transmitted to OAL on 4-18-91 and filed 5-17-91 (Register 91, No. 27).

3. Editorial correction of subsection (d) (Register 95, No. 13).

4. Amendment of section and Note filed 8-4-2003 as an emergency; operative 8-4-2003 (Register 2003, No. 32). Amendments to remain in effect for 180 days pursuant to section 21, chapter 794, Statutes of 2002 (AB 1401). A Certificate of Compliance must be transmitted to OAL by 2-2-2004 or emergency language will be repealed by operation of law on the following day.

5. Certificate of Compliance as to 8-4-2003 order transmitted to OAL 1-23-2004 and filed 3-1-2004 (Register 2004, No. 10).

§2698.204. Disenrollment.

Note • History

(a) Disenrollment shall occur when:

(1) The subscriber requests in writing to be disenrolled or that an enrolled dependent be disenrolled.

(2) The enrolled dependent requests in writing to be disenrolled.

(3) The dependent subscriber requests in writing to be disenrolled.

(4) The subscriber or dependent subscriber fails to make subscriber contributions in accordance with section 2698.403.

(5) The subscriber, enrolled dependent or dependent subscriber no longer meets the residency requirement.

(6) The subscriber, enrolled dependent or dependent subscriber has notified the program in writing of his/her eligibility for Part A and Part B of Medicare or the program becomes aware of his/her eligibility for Part A and Part B of Medicare, except subscribers, enrolled dependents or dependent subscribers on Medicare solely because of end-stage renal disease.

(7) The subscriber, enrolled dependent or dependent subscriber has been enrolled in the program for a period of 36 consecutive months from his/her respective start of coverage date.

(A) If the subscriber, enrolled dependent or dependent subscriber was initially subject to a post-enrollment waiting period, the length of that post-enrollment waiting period shall not be calculated as part of his/her 36 consecutive months of enrollment.

(B) If the subscriber, enrolled dependent or dependent subscriber was initially subject to a pre-existing condition exclusion period, the length of that pre-existing condition exclusion period shall be calculated as a part of his/her 36 consecutive months of enrollment.

(8) The subscriber, enrolled dependent or dependent subscriber has committed an act of fraud to circumvent the statutes or regulations of the program.

(9) Death of a subscriber, enrolled dependent or dependent subscriber.

(b) The subscriber or dependent subscriber shall be notified by the program in writing of the disenrollment of the subscriber and/or enrolled dependents or the dependent subscriber, the reason for the disenrollment, the effective date of the disenrollment, and shall be given an explanation of the appeals process.

(c) Disenrollment pursuant to (a)(1) and (a)(2) and (a)(3) of this section shall be effective on the last day of the month in which the written request was received.

(d) Disenrollment pursuant to (a)(4) of this section shall be retroactive to the last day of the month for which the required subscriber contribution was paid in full.

(e) Disenrollment pursuant to (a)(5) of this section shall be effective on the last day of the month in which the program determines that the subscriber, enrolled dependent or dependent subscriber no longer meets the residency requirement.

(f) Disenrollment pursuant to (a)(6) of this section shall be effective on the last day of the month in which the subscriber's or the dependent subscriber's written notification that the subscriber and/or the enrolled dependent or the dependent subscriber is now eligible for Medicare Part A and Part B was received or on the last day of the month in which the program becomes aware of the subscriber's, enrolled dependent's or dependent subscriber's eligibility for Medicare Part A and Part B.

(g) Disenrollment pursuant to (a)(7) of this section shall be effective on the last day of the subscriber's, enrolled dependent's or dependent subscriber's 36th consecutive month of enrollment.

(1) The subscriber, enrolled dependent or dependent subscriber shall be notified by the program in writing of their disenrollment from the program, pursuant to (a)(7) of this section, 90 days in advance of the end of his/her 36th consecutive month of enrollment. The notice shall contain his/her effective date of disenrollment and shall provide information regarding the availability of guaranteed coverage in the private insurance market pursuant to Health and Safety Code section 1373.62 and Insurance Code section 10127.15.

(2) The program shall mail a second notice to the subscriber, enrolled dependent or dependent subscriber no less than 45 days in advance of the end of his/her 36th consecutive month of enrollment. The notice shall contain his/her effective date of disenrollment and a Certificate of Program Completion.

(h) Disenrollment pursuant to (a)(8) of this section shall be effective on the last day of the month in which the program determines that the subscriber, enrolled dependent or dependent subscriber has committed an act of fraud to circumvent the statutes or regulations of the program.

(i) Disenrollment pursuant to (a)(9) of this section shall be effective on the last day of the month in which death occurred.

(j) If disenrolled for any reason, a subscriber and enrolled dependent, if any, or a dependent subscriber shall not be eligible for enrollment in the program for 12 months from the date of disenrollment.

(k) Subscribers, enrolled dependents or dependent subscribers disenrolled pursuant to (a)(7) of this section who are eligible for the Pilot Program and elect that coverage, shall not be eligible for enrollment in the program for a period of 12 months from the date of disenrollment from the Pilot Program standard benefit plan if the disenrollment from the Pilot Program standard benefit plan was a result of:

(1) A request to voluntarily disenroll; or

(2) Non-payment of premiums due for the Pilot Program standard benefit plan; or

(3) An act of fraud.

NOTE

Authority cited: Sections 12711 and 12712, Insurance Code; and ASSEM. Bill No. 1401 (stats. 2002, ch. 794, Sec. 21). Reference: Sections 10127.15, 12711, 12733 and 12735, Insurance Code; and Section 1363.62, Health and Safety Code.

HISTORY

2. Certificate of Compliance as to 12-20-90 order transmitted to OAL on 4-18-91 and filed 5-17-91 (Register 91, No. 27).

3. Editorial correction of printing error (Register 91, No. 27).

4. Amendment of subsections (a), (a)(3)-(a)(3)(B) and Note filed 12-19-91 as an emergency; operative 12-19-91 (Register 92, No. 19). A Certificate of Compliance must be transmitted to OAL 4-17-92 or emergency language will be repealed by operation of law on the following day.

5. Certificate of Compliance as to 12-19-91 order including amendment of subsection (a)(3)(B) transmitted to OAL 4-8-92 and filed 5-12-92 (Register 92, No. 23).

6. New subsection (a)(5) and amendment of Note filed 8-11-92; operative 9-11-92 pursuant to Government Code section 11346.2(d) (Register 92, No. 34).

7. Amendment of subsection (a)(3)(B) filed 5-19-95; operative 6-19-95 (Register 95, No. 20).

8. Amendment of subsections (a)(2) and (b) filed 4-23-96; operative 5-23-96 (Register 96, No. 17).

9. Amendment of section and Note filed 8-4-2003 as an emergency; operative 8-4-2003 (Register 2003, No. 32). Amendments to remain in effect for 180 days pursuant to section 21, chapter 794, Statutes of 2002 (AB 1401). A Certificate of Compliance must be transmitted to OAL by 2-2-2004 or emergency language will be repealed by operation of law on the following day.

10. Certificate of Compliance as to 8-4-2003 order transmitted to OAL 1-23-2004 and filed 3-1-2004 (Register 2004, No. 10).

§2698.205. Continuation of Benefits.

Note • History

(a) If a subscriber is disenrolled pursuant to section 2698.204(a)(5) or 2698.204(a)(6) 2698.204(a)(7) or 2698.204(a)(9), an enrolled dependent shall be eligible for continued coverage in the program as a dependent subscriber for as long as he/she continues to meet the requirements of section 2698.200(c).

(b) If an enrolled dependent loses his or her dependent status due to divorce from the subscriber, the enrolled dependent shall be eligible for continued coverage in the program as a dependent subscriber for as long as he/she continues to meet the requirements of section 2698.200(c).

(c) An enrolled dependent that remains eligible pursuant to this section shall become a dependent subscriber and be subject to section 2698.204(a)(7), but shall not be required to demonstrate independent eligibility for the program.

NOTE

Authority cited: Sections 12711, 12712 and 12712.5, Insurance Code. Reference: Section 12730, Insurance Code.

HISTORY

2. Certificate of Compliance as to 12-20-90 order transmitted to OAL on 4-18-91 and filed 5-17-91 (Register 91, No. 27).

3. Amendment filed 12-19-91 as an emergency; operative 12-19-91 (Register 92, No. 19). A Certificate of Compliance must be transmitted to OAL 4-17-92 or emergency language will be repealed by operation of law on the following day.

4. Certificate of Compliance as to 12-19-91 order transmitted to OAL 4-8-92 and filed 5-12-92 (Register 92, No. 23).

5. Repealer and new section filed 8-4-2003 as an emergency; operative 8-4-2003 (Register 2003, No. 32). Amendments to remain in effect for 180 days pursuant to section 21, chapter 794, Statutes of 2002 (AB 1401). A Certificate of Compliance must be transmitted to OAL by 2-2-2004 or emergency language will be repealed by operation of law on the following day.

6. Certificate of Compliance as to 8-4-2003 order transmitted to OAL 1-23-2004 and filed 3-1-2004 (Register 2004, No. 10).

§2698.206. Dependent Coverage.

Note • History

(a)(1) Dependents may be enrolled:

(A) Within sixty (60) days of the date the individual became the subscriber's dependent; or

(B) Within sixty (60) days of the termination of a dependent's other health care coverage.

(2) A subscriber wishing to enroll additional dependents shall notify the program in writing of the full names, dates of birth, sex, social security numbers (not mandatory), and relationship of the dependents to be enrolled. Social Security numbers and other personal information are used for identification and administrative purposes.

(3) In order for the program to determine that a pre-existing condition exclusion or post-enrollment waiting period should be waived, or partially waived, the subscriber may also provide the documentation required by section 2698.201(e) for each dependent to be added. If no documentation is provided, the dependent shall be subject to the maximum pre-existing condition exclusion or post-enrollment waiting period described in section 2698.303. Dependents age 18 and under are not subject to pre-existing condition exclusion or post-enrollment waiting periods.

(4)(A) Coverage for newborns and adopted children eligible pursuant to (a)(1) of this section shall begin upon birth or the date on which the adoptive child's birth parents or other appropriate legal authority signs a written document, including, but not limited to, a health facility minor release report, a medical authorization form, or a relinquishment form, granting the subscriber or the subscriber' spouse or registered domestic partner, the right to control health care for the adoptive child or, absent this written document, on the date there exists evidence of the right of the subscriber or the subscriber's spouse or registered domestic partner, to control the health care of the child placed for adoption.

(B) Coverage for all other dependents eligible pursuant to (a)(1) of this section shall begin within 3 months of receipt of the notification to the program from the subscriber, and shall begin on the first day of a month, subject to the provisions of section 2698.303.

(5) Subscribers shall be notified in writing by the program of the beginning date of coverage by the subscriber's health plan for enrolled dependents, and, if applicable, of any pre-existing condition exclusion period or post-enrollment waiting period. The notice shall caution the subscriber about discontinuing any existing coverage for dependents until full coverage by the subscriber's health plan has begun.

(6) The subscriber contribution shall be adjusted as of a dependent's beginning date of coverage by the program; unless the dependent added was a newborn or an adopted child.

(7) The subscriber contribution for a newborn or an adopted child who is enrolled pursuant to (a)(1)(A) of this section shall be adjusted as of the first day of the month following the child's birth or first day of the month following the date on which the adoptive child's birth parents or other appropriate legal authority signs a written document, including, but not limited to, a health facility minor release report, a medical authorization form, or a relinquishment form, granting the subscriber or the subscriber' spouse or registered domestic partner, the right to control health care for the adoptive child or, absent this written document, on the first day of the month following the date there exists evidence of the right of the subscriber or the subscriber's spouse or registered domestic partner, to control the health care of the child placed for adoption.

(b)(1) A subscriber wishing to disenroll dependents shall notify the program of the full names, dates of birth, sex, social security numbers, and relationship of the dependents to be disenrolled. Disenrollment of dependents shall be subject to sections 2698.204(a)(1), 2698.204(a)(2) and 2698.204(c).

(2) The subscriber contribution shall be adjusted, if applicable, as of the date of a dependent's disenrollment by the program.

NOTE

Authority cited: Sections 12711 and 12712, Insurance Code. Reference: Section 12729, Insurance Code; and Sections 297, 299 and 299.2, Family Code.

HISTORY

2. Certificate of Compliance as to 12-20-90 order including amendment of subsection (a) transmitted to OAL on 4-18-91 and filed 5-17-91 (Register 91, No. 27).

3. Editorial correction of printing error (Register 91, No. 27).

4. Amendment of subsection (b)(3) and Note filed 4-23-96; operative 5-23-96 (Register 96, No. 17).

5. Amendment of section heading and section filed 8-4-2003 as an emergency; operative 8-4-2003 (Register 2003, No. 32). Amendments to remain in effect for 180 days pursuant to section 21, chapter 794, Statutes of 2002 (AB 1401). A Certificate of Compliance must be transmitted to OAL by 2-2-2004 or emergency language will be repealed by operation of law on the following day.

6. Certificate of Compliance as to 8-4-2003 order transmitted to OAL 1-23-2004 and filed 3-1-2004 (Register 2004, No. 10).

7. Amendment of subsections (a)(4)(A) and (a)(7) and amendment of Note filed 1-14-2009; operative 2-13-2009 (Register 2009, No. 3).

§2698.207. Transfer of Enrollment.

Note • History

(a) A subscriber and enrolled dependents, if any, or a dependent subscriber shall be transferred from one participating health plan to another if any of the following occurs:

(1) The subscriber or dependent subscriber so requests, in writing, during an open enrollment period established by the Board. The program shall inform each subscriber or dependent subscriber of each open enrollment period.

(2) The subscriber or dependent subscriber so requests, in writing, because the subscriber or dependent subscriber has moved and no longer resides in an area served by the participating health plan in which the subscriber or dependent subscriber is enrolled, and there is at least one participating health plan serving the area in which the subscriber or dependent subscriber now resides that is accepting new enrollees.

(3) The subscriber or dependent subscriber or the participating health plan so requests, in writing, because of failure to establish a satisfactory subscriber-plan relationship and the executive director determines that the transfer is in the best interests of the program, and there is at least one participating health plan serving the area in which the subscriber or dependent subscriber resides that is accepting new enrollees.

(b) Subscribers, enrolled dependents and dependent subscribers who transfer enrollment pursuant to this section shall not be subject to pre-existing condition exclusions or post-enrollment waiting periods as specified in section 2698.303.

(c) Transfer of enrollment pursuant to (a)(1) shall take effect 30 days after the termination of an open enrollment period. Transfer of enroll-- ment pursuant to (a)(2) or (a)(3) shall take effect within 35 days of approval of the request.

(d) Subscribers or dependent subscribers and participating health plans shall be notified in writing of any transfer of enrollment.

(e) If applicable, the subscriber contribution shall be adjusted as a result of a transfer of enrollment.

NOTE

Authority cited: Sections 12711, 12712 and 12712.5, Insurance Code. Reference: Section 12731, Insurance Code.

HISTORY

2. Certificate of Compliance as to 12-20-90 order transmitted to OAL on 4-18-91 and filed 5-17-91 (Register 91, No. 27).

3. Editorial correction of printing error (Register 91, No. 27).

4. Amendment filed 8-4-2003 as an emergency; operative 8-4-2003 (Register 2003, No. 32). Amendments to remain in effect for 180 days pursuant to section 21, chapter 794, Statutes of 2002 (AB 1401). A Certificate of Compliance must be transmitted to OAL by 2-2-2004 or emergency language will be repealed by operation of law on the following day.

5. Certificate of Compliance as to 8-4-2003 order transmitted to OAL 1-23-2004 and filed 3-1-2004 (Register 2004, No. 10).

§2698.208. Payment to Insurance Agents and Brokers.

Note • History

(a) If authorized by the board, the program shall pay an insurance agent as defined in section 31 of the Insurance Code or broker as defined in section 33 of the Insurance Code for assisting an individual in completing the application form, if the following conditions are met:

(1) The individual is enrolled as a result of the application;

(2) The agent or broker requests such payment in writing; and

(3) Such request accompanies the application and includes the name, license number, tax identification number or social security number, telephone number, and fax number (if available), signature, and address of the agent or broker.

(b) The amount of such payment shall be $100.00.

NOTE

Authority cited: Sections 12711 and 12712, Insurance Code. Reference: Sections 12711 and 12711.5, Insurance Code.

HISTORY

2. Certificate of Compliance as to 12-20-90 order transmitted to OAL on 4-18-91 and filed 5-17-91 (Register 91, No. 27).

3. Amendment of subsection (a)(3) filed 8-4-2003 as an emergency; operative 8-4-2003 (Register 2003, No. 32). Amendments to remain in effect for 180 days pursuant to section 21, chapter 794, Statutes of 2002 (AB 1401). A Certificate of Compliance must be transmitted to OAL by 2-2-2004 or emergency language will be repealed by operation of law on the following day.

4. Certificate of Compliance as to 8-4-2003 order transmitted to OAL 1-23-2004 and filed 3-1-2004 (Register 2004, No. 10).

5. Amendment of subsection (b) and Note filed 5-9-2012; operative 7-1-2012 (Register 2012, No. 19).

Article 3. Minimum Scope of Benefits

§2698.300. Deductible and Copayment.

Note • History

(a) Benefits shall be subject to such required copayments and deductibles as the Board may authorize subject to the following limits:

(1) The copayment shall not exceed 25 percent of the cost of covered services.

(2) Notwithstanding the provision contained in subsection (1), the Board may authorize health plans not utilizing a deductible to charge an office visit copayment of up to twenty-five dollars ($25).

(3) The deductible shall not exceed $500 annually for a household, which consists of a subscriber and any enrolled dependents or of a dependent subscriber.

(4) The sum of the copayment and deductible shall not exceed $2,500 annually for a subscriber or dependent subscriber or $4,000 annually for a subscriber and enrolled dependents.

(b) When a subscriber's or dependent subscriber's selected participating health plan is a plan that has contracts with certain listed providers from whom care is to be received for non-emergency conditions, and there are additional subscriber payments to providers other than those listed, such additional subscriber payments shall not be subject to the limits of this section.

NOTE

Authority cited: Sections 12711 and 12712, Insurance Code. Reference: Section 12718, Insurance Code.

HISTORY

2. Certificate of Compliance as to 12-20-90 order transmitted to OAL on 4-18-91 and filed 5-17-91 (Register 91, No. 27).

3. Editorial correction of printing error in subsection (b) (Register 91, No. 27).

4. Amendment of subsections (a)(1) and (a)(3) and amendment of Note filed 11-26-96 as an emergency; operative 1-1-97 (Register 96, No. 48). A Certificate of Compliance must be transmitted to OAL by 5-1-97 or emergency language will be repealed by operation of law on the following day.

5. Certificate of Compliance as to 11-26-96 order transmitted to OAL 3-3-97 and filed 3-31-97 (Register 97, No. 14).

6. Amendment filed 8-4-2003 as an emergency; operative 8-4-2003 (Register 2003, No. 32). Amendments to remain in effect for 180 days pursuant to section 21, chapter 794, Statutes of 2002 (AB 1401). A Certificate of Compliance must be transmitted to OAL by 2-2-2004 or emergency language will be repealed by operation of law on the following day.

7. Certificate of Compliance as to 8-4-2003 order transmitted to OAL 1-23-2004 and filed 3-1-2004 (Register 2004, No. 10).

8. Amendment of subsection (a), new subsection (a)(2) and subsection renumbering filed 1-14-2009; operative 2-13-2009 (Register 2009, No. 3).

§2698.301. Minimum Scope of Benefits.

Note • History

(a) The basic minimum scope of benefits offered by participating health plans to subscribers, dependent subscribers and enrolled dependents must comply with all requirements of the Knox-Keene Health Care Service Plan Act of 1975 including amendments as well as its applicable regulations, and shall include all of the benefits and services listed in this section. Except as required by the applicable statute and regulations, no other benefits shall be permitted to be offered by a participating health plan unless specifically provided for in the program contract with the participating health plan. The basic minimum scope of benefits shall be as follows:

(1) Hospital inpatient care in a hospital licensed pursuant to subdivision (a) of section 1250 of the Health and Safety Code, including all of the following benefits and services:

(A) Semi-private room, including meals and general nursing services; and private room and special diets when prescribed as medically necessary.

(B) Hospital services, including use of operating room and related facilities, intensive care unit and services, labor and delivery room, and anesthesia.

(D) Dressings, casts, equipment, oxygen services, and radiation therapy.

(E) Respiratory and physical therapy.

(F) Diagnostic laboratory and x-ray services.

(G) Special duty nursing as medically necessary.

(H) Administration of blood and blood products.

(I) Other diagnostic, therapeutic or rehabilitative services (including occupational, physical and speech therapy) as appropriate.

(J) Medically necessary inpatient alcohol and substance abuse detoxification.

(K) General anesthesia and associated facility charges in connection with dental procedures rendered in a hospital, when the clinical status or underlying medical condition of a subscriber, enrolled dependent or dependent subscriber requires dental procedures that ordinarily would not require general anesthesia to be rendered in a hospital. This benefit is only available to subscribers, enrolled dependents or dependent subscribers under seven years of age; the developmentally disabled, regardless of age; and subscribers, enrolled dependents or dependent subscribers whose health is compromised and for whom general anesthesia is medically necessary, regardless of age.

Nothing in this section shall require a participating health plan to cover any charges for the dental procedure itself, including, but not limited to, the professional fee of the dentist.

(2) Medical and surgical services, provided on an outpatient basis whenever medically appropriate, including all of the following:

(A) Physician services including consultations, referrals, office and hospital visits and surgical services performed by a physician and surgeon.

(B) Diagnostic laboratory services, diagnostic and therapeutic radiological services and other diagnostic services that shall include but not limited to nuclear medicine, ultrasound, electrocardiography and electroencephalography.

(D) Blood, blood derivatives and their administration.

(E) Radiation therapy and chemotherapy, of proven benefit.

(F) Comprehensive preventive care of adults and children.

1. Comprehensive preventive care of children shall be consistent with the Recommendations for Preventive Pediatric Health Care as adopted by the American Academy of Pediatrics in September of 1987.

2. Comprehensive preventive care services for adults and children shall in include periodic health evaluations, immunizations and laboratory services in connection with periodic health evaluations.

3. Immunizations for children shall:

a. Be consistent with the most current version of the Recommended Childhood Immunization Schedule/United States, jointly adopted by the American Academy of Pediatrics, the Advisory Committee on immunizations Practices (ACIP) and the American Academy of Family Physicians, unless the State Department of Health Care Services determines, within 45 days of the published date of the schedule, that the schedule is not consistent with the purposes of this section.

b. Include immunizations required for travel as recommended by the ACIP.

iv. Immunizations for adults shall include:

a. Immunizations for adults as recommended by the U.S. Public Health Service.

b. Immunizations required for travel as recommended by the ACIP.

(G) General anesthesia and associated facility charges in connection with dental procedures rendered in a surgery center setting, when the clinical status or underlying medical condition of a subscriber, enrolled dependent or dependent subscriber requires dental procedures that ordinarily would not require general anesthesia to be rendered in a surgery center setting. This benefit is only available to subscribers, enrolled dependents or dependent subscribers under seven years of age; the developmentally disabled, regardless of age; and subscribers, enrolled dependents or dependent subscribers whose health is compromised and for whom general anesthesia is medically necessary, regardless of age.

Nothing in this section shall require a participating health plan to cover any charges for the dental procedure itself, including, but not limited to, the professional fee of the dentist.

(H) Nothing in this section shall preclude the reimbursement of physician assistants, nurse practitioners or other advanced practice nurses who provide covered services within their scope of licensure.

(3) Family planning services including a variety of prescriptive contraceptive methods approved by the federal Food and Drug Administration, and reproductive sterilization.

(4) Comprehensive maternity and perinatal care, including the services of a physician and surgeon, certified nurse midwife or nurse practitioner, and all necessary hospital services, including services relating to complications of pregnancy, are covered services. Nothing in this section shall preclude the direct reimbursement of nurse practitioners or other advanced practice nurses in providing covered services.

(5) Emergency care including out-of-area coverage. Emergency ambulance transportation including transportation provided through the “911” emergency response system.

(6) Reconstructive Surgery: Surgery to correct or repair abnormal structures of the body caused by congenital defects, developmental abnormalities, trauma, infection, tumors, or disease to do either of the following;

(A) improve function.

(B) create a normal appearance to the extent possible.

Includes reconstructive surgery to restore and achieve symmetry incident to mastectomy.

(7) Prescription drugs, limited to drugs approved by the federal Food and Drug Administration, generic equivalents approved as substitutable by the federal Food and Drug Administration, or drugs approved by the federal Food and Drug Administration as Treatment Investigational New Drugs. Also includes insulin, glucagon, syringes and needles and pen delivery systems for the administration of insulin, blood glucose testing strips, ketone urine testing strips, lancets and lancet puncture devices in medically appropriate quantities for the monitoring and treatment of insulin dependent, non-insulin dependent and gestational diabetes.

(8) Mental Health benefits, are covered as follows:

(A) For severe mental illnesses, and serious emotional disturbances of children, inpatient services, outpatient services, partial hospitalization services and prescription medications. Severe mental illnesses include schizophrenia, schizoaffective disorder, bipolar disorder, major depressive disorders, panic disorder, obsessive-compulsive disorder, pervasive developmental disorder or autism, anorexia nervosa, bulimia nervosa.

(B) Except as specified in Subsection (A) above, mental health benefits are limited to the following:

1. Inpatient care for a period of 10 days in each calendar year.

2. 15 outpatient visits in each calendar year.

(9) Medical rehabilitation and the services of occupational therapists, physical therapists, and speech therapists as appropriate on an outpatient basis.

(10) Durable medical equipment, including prosthetics to restore and achieve symmetry incident to a mastectomy and to restore a method of speaking incident to a laryngectomy. Covered services also include blood glucose monitors and blood glucose monitors for the visually impaired for insulin dependent, non-insulin dependent and gestational diabetes; insulin pumps and all related necessary supplies; visual aids to assist the visually impaired with proper dosing of insulin and podiatric devices to prevent or treat diabetes complications.

(11) Home Health Services: Health services provided at the home by health care personnel. Includes visits by Registered Nurses, Licensed Vocational Nurses, and home health aides; physical, occupational and speech therapy; and respiratory therapy when prescribed by a licensed practitioner acting within the scope of his or her licensure.

(12) The following human organ transplants: corneal, human heart, heart-lung, liver, bone-marrow and kidney transplantation. Transplants other than corneal shall be subject to the following restrictions:

(A) Pre-operative evaluation, surgery, and follow-up care shall be provided at centers that have been designated by the participating health plan as having documented skills, resources, commitment and record of favorable outcomes to qualify the centers to provide such care.

(B) Patients shall be selected by the patient-selection committee of the designated centers and subject to prior authorization.

(C) Only anti-rejection drugs, biological products, and other procedures that have been established as safe and effective, and no longer investigational, are covered.

(13) Hospice services pursuant to Health and Safety Code section 1368.2.

(14) This part shall not be construed to prohibit a plan's ability to impose cost-control mechanisms. Such mechanisms may include but are not limited to requiring prior authorization for benefits or providing benefits in alternative settings or using alternative methods.

NOTE

Authority cited: Sections 12711 and 12712, Insurance Code. Reference: Sections 12711 and 12712, Insurance Code.

HISTORY

2. Certificate of Compliance as to 12-20-90 order including amendment of subsections (a)(3), (8) and (11), transmitted to OAL on 4-18-91 and filed 5-17-91 (Register 91, No. 27).

3. Editorial correction of printing error in subsection (a)(1)(C) (Register 91, No. 27).

4. Amendment of section and Note filed 3-22-2002 as an emergency; operative 3-22-2002 (Register 2002, No. 12). A Certificate of Compliance must be transmitted to OAL by 7-22-2002 or emergency language will be repealed by operation of law on the following day.

5. Certificate of Compliance as to 3-22-2002 order, including further amendment of subsections (a)(1)(I), (a)(9) and (a)(11) transmitted to OAL 7-19-2002 and filed 8-29-2002 (Register 2002, No. 35).

6. Amendment of subsections (a), (a)(1)(K), (a)(2)(G) and (a)(8)(A), repealer of subsection (a)(12)(C) and subsection relettering filed 8-4-2003 as an emergency; operative 8-4-2003 (Register 2003, No. 32). Amendments to remain in effect for 180 days pursuant to section 21, chapter 794, Statutes of 2002 (AB 1401). A Certificate of Compliance must be transmitted to OAL by 2-2-2004 or emergency language will be repealed by operation of law on the following day.

7. Certificate of Compliance as to 8-4-2003 order transmitted to OAL 1-23-2004 and filed 3-1-2004 (Register 2004, No. 10).

8. Amendment of subsection (a)(2)(F) and new subsections (a)(2)(F)1.-3.iv.b. filed 1-14-2009; operative 2-13-2009 (Register 2009, No. 3).

§2698.302. Excluded Benefits.

Note • History

(a) Plans offered under this program shall exclude the following benefits unless specifically provided for in the program contract with the participating health plan:

(1) Services that are not medically necessary. “Medically necessary” as applied to the diagnosis or treatment of illness is an article or service that is not investigational and is necessary because:

(A) It is appropriate and is provided in accordance with accepted medical standards in the state of California, and could not be omitted without adversely affecting the patient's condition or the quality of medical care rendered; and

(B) As to inpatient care, it could not have been provided in a physician's office, in the outpatient department of a hospital, or in a lesser facility without adversely affecting the patient's condition or the quality of medical care rendered; and

(C) If the proposed article or service is not commonly used, its application or proposed application has been preceded by a thorough review and application of conventional therapies; and

(D) The service or article has been demonstrated to be of significantly greater therapeutic value than other, less expensive, services or articles.

(2) Any services which are received prior to the enrollee's effective date of coverage.

(3) Custodial, domiciliary care, or rest cures for which facilities of a general acute care hospital are not medically required. Custodial care is care that does not require the regular services of trained medical or health professionals and that is designed primarily to assist in activities of daily living. Custodial care includes, but is not limited to, help in walking, getting in and out of bed, bathing, dressing, preparation and feeding of special diets, and supervision of medications which are ordinarily self-administered.

(4) Personal or comfort items, or a private room in a hospital unless medically necessary.

(5) Emergency facility services for nonemergency conditions.

(6) Those medical, surgical (including implants), or other health care procedures, services, drugs, or devices which are either:

(A) Services, products, drugs or devices which are experimental or investigational or which are not recognized in accord with generally accepted medical standards as being safe and effective for use in the treatment in question.

(B) Outmoded or not efficacious.

(7) Transportation except as specified in section 2698.301(a)(5).

(8) Implants, except cardiac pacemakers, intraocular lenses, screws, nuts, bolts, bands, nails, plates, and pins used for the fixation of fractures or osteotomies and artificial knees and hips; and except as specified in section 2698.301(a)(6).

(9) Sex change operations, investigation of or treatment for infertility, reversal of sterilization, and conception by artificial means.

(10) Eyeglasses, contact lenses (except the first intraocular lens following cataract surgery), routine eye examinations, including eye refractions, except when provided as part of a routine examination under “preventive care for minors,” hearing aids, orthopedic shoes, orthodontic appliances, and routine foot care are excluded.

(11) Long-term care benefits including home care, skilled nursing care, and respite care, are excluded except as a participating health plan shall determine they are less costly alternatives to the basic minimum benefits.

(12) Dental services and services for temporomandibular joint problems are excluded, except for repair necessitated by accidental injury to sound natural teeth or jaw, provided that the repair commences within 90 days of the accidental injury or as soon thereafter as is medically feasible.

This language shall not be construed to exclude surgical procedures for any condition directly affecting the upper or lower jawbone, or associated bone joints.

(13) Treatment of chemical dependency except as specified in section 2698.301(a)(1)(J).

(14) Cosmetic surgery, except as specifically provided in section 2698.301(a)(6).

(15) (A) Maternity care for a subscriber who (a) enrolled in the program with an effective date on or after February 1, 2012, and (b) has entered into an agreement to serve as a paid surrogate mother. For purposes of this section, an agreement to serve as a paid surrogate mother is an agreement entered into, in advance of the pregnancy, under which the subscriber agrees to become pregnant and deliver a child for another person as the intended parent, in exchange for monetary compensation other than actual medical or living expenses.

(B) Participating health plans shall not withhold, or seek reimbursement from, a participating provider who rendered maternity services excluded pursuant to this section when the provider had not been notified that the Subscriber had entered into an agreement to serve as a paid surrogate mother.

(b) Benefits which exceed $75,000 in a calendar year under the program for a subscriber, a subscriber's enrolled dependent or a dependent subscriber shall be excluded.

(c) Benefits which exceed $750,000 in a lifetime under the program for a subscriber, a subscriber's enrolled dependent or dependent subscriber shall be excluded. Benefits received prior to January 1, 1999 shall be counted toward the $750,000 lifetime maximum.

NOTE

Authority cited: Sections 12711 and 12712, Insurance Code. Reference: Sections 12711 and 12712, Insurance Code.

HISTORY

2. Certificate of Compliance as to 12-20-90 order transmitted to OAL on 4-18-91 and filed 5-17-91 (Register 91, No. 27).

3. Editorial correction of printing error in subsection (a)(8) (Register 91, No. 27).

4. Amendment of subsection (a)(14) and Note filed 1-14-93; operative 2-16-93 (Register 93, No. 3).

5. Amendment of subsections (b) and (c) filed 12-24-98 as an emergency; operative 12-24-98 (Register 98, No. 52). A Certificate of Compliance must be transmitted to OAL by 4-23-99 or emergency language will be repealed by operation of law on the following day.

6. Certificate of Compliance as to 12-24-98 order transmitted to OAL 4-6-99 and filed 5-10-99 (Register 99, No. 20).

7. Amendment of subsections (a)(7)-(10), (a)(12)-(13), (a)(15) and (b)-(c) filed 3-22-2002 as an emergency; operative 3-22-2002 (Register 2002, No. 12). A Certificate of Compliance must be transmitted to OAL by 7-22-2002 or emergency language will be repealed by operation of law on the following day.

8. Certificate of Compliance as to 3-22-2002 order, including further amendment of subsection (a)(13), repealer of subsection (a)(14), subsection renumbering and amendment of newly designated subsection (a)(15), transmitted to OAL 7-19-2002 and filed 8-29-2002 (Register 2002, No. 35).

9. Amendment of subsections (a)(11) and (a)(13)-(14), repealer of subsection (a)(15) and amendment of subsections (b)-(c) filed 8-4-2003 as an emergency; operative 8-4-2003 (Register 2003, No. 32). Amendments to remain in effect for 180 days pursuant to section 21, chapter 794, Statutes of 2002 (AB 1401). A Certificate of Compliance must be transmitted to OAL by 2-2-2004 or emergency language will be repealed by operation of law on the following day.

10. Certificate of Compliance as to 8-4-2003 order transmitted to OAL 1-23-2004 and filed 3-1-2004 (Register 2004, No. 10).

11. New subsection (a)(15) filed 12-9-2011 as an emergency; operative 12-9-2011 (Register 2011, No. 49). A Certificate of Compliance must be transmitted to OAL by 6-6-2012 or emergency language will be repealed by operation of law on the following day.

12. Certificate of Compliance as to 12-9-2011 order, including redesignation of subsection (a)(15) as subsection (a)(15)(A) and new subsection (a)(15)(B), transmitted to OAL 6-6-2012 and filed 7-19-2012 (Register 2012, No. 29).

§2698.303. Pre-Existing Condition Exclusion and Post-Enrollment Waiting Period.

Note • History

(a) Unless a waiver is granted pursuant to subsection (c), subscribers and enrolled dependents who enroll in a health maintenance organization participating health plan shall be subject to a post-enrollment waiting period. The post-enrollment waiting period shall apply to all subscribers and enrolled dependents. Subscribers shall not be required to pay subscriber contributions during the waiting period. The post-enrollment waiting period shall be 3 months unless reduced pursuant to subsection (d).

(b) Unless a waiver is granted pursuant to subsection (c), subscribers and enrolled dependents who enroll in a fee-for-service participating health plan shall be subject to a pre-existing condition exclusion period. During the pre-existing condition exclusion period no benefits or services related to a pre-existing condition shall be covered. Subscribers shall be required to pay subscriber contributions during the pre-existing condition exclusion period. The pre-existing condition exclusion period shall be 3 months unless reduced pursuant to subsection (d).

(c) Waivers or partial waivers to the post-enrollment waiting period or pre-existing condition exclusion period shall be granted for each individual subscriber or enrolled dependent providing any of the following criteria are met:

(1) The subscriber and/or enrolled dependent applies for the program within 180 days of the termination of prior creditable coverage, and such coverage was terminated due to:

(A) a loss of employment,

(B) the employer stopped offering or sponsoring health coverage, or

(2) If the subscriber or enrolled dependent applies for the program within 63 days of the termination of prior creditable coverage and such coverage was terminated due to reasons other than:

(A) the criteria in (c)(1)(A), (B), or (C) of this section;

(B) non-payment of premiums; or

(3) The subscriber or dependent(s) who had previously received coverage under a similar program in another state within the last 12 months, shall be granted a full waiver of 3 months.

(4) A dependent age 18 and under who enrolled pursuant to section 2698.206 shall be granted a full waiver of 3 months.

(5) The subscriber who was on the program waiting list in accordance with Section 2698.202 for 180 days or longer shall be granted a full waiver of 3 months. A full waiver of 3 months shall also be granted for any dependents enrolled at the same time as the subscriber.

(d) Waivers or partial waivers to the post-enrollment waiting period or pre-existing condition exclusion period for individuals meeting the requirements of (c)(1) or (c)(2) of this section shall be calculated as follows:

(1) If the prior creditable coverage was for 3 consecutive months or more, a full waiver of 3 consecutive months shall be granted.

(2) If the prior creditable coverage was for 2 consecutive months, a partial waiver of 2 consecutive months shall be granted.

(3) If the prior creditable coverage was for 1 month, a partial waiver of 1 month shall be granted.

(4) If the prior creditable coverage was for less than 1 month, no waiver shall be granted.

(e) The program shall fully explain to applicants the type of health care coverage offered by each participating health plan, including the applicable waiting/exclusion periods specified in this section.

NOTE

Authority cited: Sections 12711 and 12712, Insurance Code. Reference: Section 12726, Insurance Code.

HISTORY

2. Certificate of Compliance as to 12-20-90 order transmitted to OAL on 4- 18-91 and filed 5-17-91 (Register 91, No. 27).

3. Amendment of subsection (c)(4) filed 7-10-91 as an emergency; operative 7-10-91 (Register 91, No. 43). A Certificate of Compliance must be transmitted to OAL by 11-7-91 or emergency language will be repealed by operation of law on the following day.

4. Certificate of Compliance as to 7-10-91 order including amendment of subsection (c)(4) transmitted to OAL 10-23-91 and filed 11-21-91 (Register 92, No. 8).

5. New subsection (c)(5) filed 3-10-92 as an emergency; operative 3-10-92 (Register 92, No 19). A Certificate of Compliance must be transmitted to OAL 7-8-92 or emergency language will be repealed by operation of law on the following day.

6. Certificate of Compliance as to 3-10-92 order transmitted to OAL 6-30-92 and filed 7-29-92 (Register 92, No. 31).

7. Amendment of section and Note filed 5-19-95; operative 6-19-95 (Register 95, No. 20).

8. Amendment of section heading and section filed 8-4-2003 as an emergency; operative 8-4-2003 (Register 2003, No. 32). Amendments to remain in effect for 180 days pursuant to section 21, chapter 794, Statutes of 2002 (AB 1401). A Certificate of Compliance must be transmitted to OAL by 2-2-2004 or emergency language will be repealed by operation of law on the following day.

9. Certificate of Compliance as to 8-4-2003 order transmitted to OAL 1-23-2004 and filed 3-1-2004 (Register 2004, No. 10).

Article 4. Risk Categories and Subscriber Contributions

§2698.400. Risk Categories.

Note • History

(a) The risk categories on which the program and subscriber contributions are to be determined shall be the following;

(1) Six (6) geographic regions:

(A) Area 1 shall include the counties of Alpine, Amador, Butte, Calaveras, Colusa, Del Norte, El Dorado, Glenn, Humboldt, Inyo, Kings, Lake, Lassen, Mendocino, Modoc, Mono, Monterey, Nevada, Placer, Plumas, San Benito, Shasta, Sierra, Siskiyou, Sutter, Tehama, Trinity, Tulare, Tuolumne, Yuba, and Yolo.

(B) Area 2 shall include the counties of Fresno, Imperial, Kern, Madera, Mariposa, Merced, Napa, Sacramento, San Joaquin, San Luis Obispo, Santa Cruz, Solano, Sonoma, and Stanislaus.

(D) Area 4 shall include the counties of Orange, Santa Barbara, and Ventura.

(E) Area 5 shall include the county of Los Angeles.

(F) Area 6 shall include the counties of Riverside, San Bernardino, and San Diego.

(2) twelve (12) age groups:

(A) Under 15 years of age;

(B) 15-29 years of age;

(D) 35-39 years of age;

(E) 40-44 years of age;

(F) 45-49 years of age;

(G) 50-54 years of age;

(H) 55-59 years of age;

(I) 60-64 years of age;

(J) 65-69 years of age;

(K) 70-74 years of age; and

(L) 75 years of age and over.

(b) No other risk categories shall be allowed for the purpose of this program.

NOTE

Authority cited: Sections 12711, 12712 and 12712.5, Insurance Code. Reference: Section 12736, Insurance Code.

HISTORY

2. Certificate of Compliance as to 12-20-90 order transmitted to OAL on 4-18-91 and filed 5-17-91 (Register 91, No. 27).

§2698.401. Determination of Subscriber Contribution.

Note • History

(a) Each participating health plan shall provide an annual estimate of the standard average individual rate for the minimum benefits provided for in the contract with the participating health plan for each risk category specified in section 2698.400. Without applying risk categories to dependents or dependent subscribers, each participating health plan shall also provide an estimate of the standard average rate for covering a subscriber in each risk category and the subscriber's dependents as follows:

(1) A subscriber and one dependent; and

(2) A subscriber and two or more dependents.

(b) For those participating health plans which have been offered through the program for two or more years, the Board shall calculate a loss ratio for each participating health plan for the prior calendar year. The loss ratio shall be calculated using 125 percent of the estimated rates provided by the participating plan as the denominator, and the sum of all medical costs for subscribers, dependent subscribers and dependents enrolled in the plan and all administration fees and risk payments to the plan as the numerator.

(c) For those participating health plans which have been offered through the program for two or more years, the Board shall calculate a percentage average subsidy amount per subscriber dollar contributed for each participating health plan for the prior calendar year by subtracting 100 percent from the program loss ratio percentage.

(d) The Board shall calculate the program loss ratio for the prior calendar year in the following manner:

(1) Participating health plans with an average monthly number of enrollees of fewer than 1,000 in the prior calendar year shall be excluded from the calculation.

(2) If a participating health plan's loss ratio is less than 100 percent it shall be deemed to be 100 percent for purposes of the calculation.

(3) The weighted average of the participating health plans' loss ratios is the program loss ratio.

(e) The Board shall calculate the program average subsidy for the prior calendar year by subtracting 100 percent from the program loss ratio percentage.

(f) For each participating health plan with an average subsidy percentage amount higher than the program average subsidy percentage, that difference shall be called the excess subsidy.

(g) The Board shall determine the subscriber contribution for each participating health plan that did not have an excess subsidy in the prior calendar year by multiplying the estimated rates provided by the participating health plan by 125 percent.

(h) The Board shall determine the base subscriber contribution for each participating health plan that did have an excess subsidy in the prior calendar year by multiplying the estimated rates provided by the participating health plan by an additional 25 percent and then adding the excess subsidy amount. However, the actual subscriber contribution shall be subject to the following limitations:

(1) No subscriber contribution will be more than 10 percent above 125 percent of the estimated rates provided by the participating plan. (See Title 10, section 2698.100(dd).)

(2) If all participating health plans available in a county have an excess subsidy amount, the subscriber contribution for the plan with the lowest excess subsidy amount will not include the excess subsidy amount.

(i) Subscriber contribution for participating health plans joining the program after January 1, 1997, shall be established at 125 percent of the estimated rates provided by the participating plan for the first two benefit years the plan participates in the program. (See Title 10, section 2698.100(dd).)

(j) Subscriber contributions shall be adjusted annually in accordance with this section.

(k) Subscribers and dependent subscribers shall be informed by the program of the annually adjusted subscriber contribution at least one month prior to the effective date of the rate change.

NOTE

Authority cited: Sections 12711 and 12712, Insurance Code. Reference: Sections 12713, 12736, 12737 and 12738, Insurance Code.

HISTORY

2. Certificate of Compliance as to 12-20-90 order transmitted to OAL on 4-18-91 and filed 5-17-91 (Register 91, No. 27).

3. Repealer and new subsection (b), new subsections (c)-(i), subsection relettering, amendment of newly designated subsection (j), and amendment of Note filed 11-26-96 as an emergency; operative 1-1-97 (Register 96, No. 48). A Certificate of Compliance must be transmitted to OAL by 5-1-97 or emergency language will be repealed by operation of law on the following day.

4. Certificate of Compliance as to 11-26-96 order transmitted to OAL 3-3-97 and filed 3-31-97 (Register 97, No. 14).

5. Amendment of subsections (a)-(b), (h)(1), (i) and (k) filed 8-4-2003 as an emergency; operative 8-4-2003 (Register 2003, No. 32). Amendments to remain in effect for 180 days pursuant to section 21, chapter 794, Statutes of 2002 (AB 1401). A Certificate of Compliance must be transmitted to OAL by 2-2-2004 or emergency language will be repealed by operation of law on the following day.

6. Certificate of Compliance as to 8-4-2003 order transmitted to OAL 1-23-2004 and filed 3-1-2004 (Register 2004, No. 10).

§2698.403. Subscriber Contribution Payments.

Note • History

Subscriber contribution payment procedures shall be as follows:

(a) Each month the program shall determine the amount of the subscriber contribution in accordance with sections 2698.400 and 2698.401 and notify the subscriber or dependent subscriber of the subscriber contribution amount due to the program and the due date. The program shall send the notice at least 30 days in advance of the due date.

(b) A subscriber or dependent subscriber shall submit the subscriber contribution to the program each month so that it is received no later than the first of each month for that month of coverage.

(c) The obligation to submit the subscriber contribution amount required by subsection (b) above is not contingent upon receipt of the notice specified in subsection (a). If the subscriber or dependent subscriber does not receive the notice specified in subsection (a) above, the subscriber or dependent subscriber shall make a good faith effort to determine the amount of the subscriber contribution and shall submit a payment of that amount by the due date.

(d) The subscriber contribution amount shall be calculated based on the subscriber's or the dependent subscriber's age as defined in section 2698.400.

(e) Adjustments to the subscriber contribution amount due to a change in the subscriber's or the dependent subscriber's age group as defined in section 2698.400 shall occur on the first day of the month following the subscriber's or the dependent subscriber's birth date.

(f) The subscriber contribution amount for a dependent subscriber shall be adjusted on the first of the month following the dependent's divorce, or the subscriber's disenrollment from the program. The adjusted subscriber contribution amount shall be calculated based on the dependent subscriber's age as defined in section 2698.400.

NOTE

Authority cited: Sections 12711 and 12712, Insurance Code. Reference: Section 12737, Insurance Code.

HISTORY

1. New section filed 4-23-96; operative 5-23-96 (Register 96, No. 17).

2. Amendment filed 8-4-2003 as an emergency; operative 8-4-2003 (Register 2003, No. 32). Amendments to remain in effect for 180 days pursuant to section 21, chapter 794, Statutes of 2002 (AB 1401). A Certificate of Compliance must be transmitted to OAL by 2-2-2004 or emergency language will be repealed by operation of law on the following day.

3. Certificate of Compliance as to 8-4-2003 order transmitted to OAL 1-23-2004 and filed 3-1-2004 (Register 2004, No. 10).

§2698.405. Overdue Payments.

Note • History

(a) A subscriber or dependent subscriber whose subscriber contribution is not paid in full for any reason by the due date shall be considered to be overdue.

(b) The program shall notify the subscriber or dependent subscriber of the overdue subscriber contribution payment amount and the potential for disenrollment from the program on the 10th day following the due date when the current month's premium is paid before the next month's due date. An exception to this is specified in subsection (c).

(c) When the previous month's subscriber contribution is received on the due date for the current month, a final notice notice will be generated on the 15th day following the due date for the current month.

(d) Subscriber contributions more than 31 days overdue shall result in the subscriber and any enrolled dependents or the dependent subscriber being disenrolled pursuant to section 2698.204.

NOTE

Authority cited: Sections 12711 and 12712, Insurance Code. Reference: Section 12735, Insurance Code.

HISTORY

1. New section filed 4-23-96; operative 5-23-96 (Register 96, No. 17).

3. Certificate of Compliance as to 8-4-2003 order transmitted to OAL 1-23-2004 and filed 3-1-2004 (Register 2004, No. 10).

§2698.407. Reinstatement.

Note • History

(a) A subscriber and enrolled dependents, if any, or a dependent subscriber who is disenrolled for nonpayment of the subscriber contribution may be reinstated once during a rolling twelve (12) month period if the subscriber or dependent subscriber requests reinstatement within sixty (60) days of the date of the disenrollment action and brings all delinquent payments up to date.

(b) A subscriber and enrolled dependents, if any, or a dependent subscriber who is disenrolled more than once during a rolling twelve (12) month period for nonpayment of the subscriber contribution may only be reinstated through an appeal to the board as set forth in Section 2698.500 except as specified in subsection (c).

(c) A subscriber and enrolled dependents, if any, or a dependent subscriber who has been disenrolled due to the submission of two checks which were returned for insufficient funds during a rolling twelve (12) month period will not be reinstated.

NOTE

Authority cited: Sections 12711 and 12712, Insurance Code. Reference: Section 12735, Insurance Code.

HISTORY

1. New section filed 4-23-96; operative 5-23-96 (Register 96, No. 17).

2. Amendment of subsection (a), new subsection (b), and subsection relettering filed 12-10-97; operative 1-9-98 (Register 97, No. 50).

3. Amendment filed 8-4-2003 as an emergency; operative 8-4-2003 (Register 2003, No. 32). Amendments to remain in effect for 180 days pursuant to section 21, chapter 794, Statutes of 2002 (AB 1401). A Certificate of Compliance must be transmitted to OAL by 2-2-2004 or emergency language will be repealed by operation of law on the following day.

4. Certificate of Compliance as to 8-4-2003 order transmitted to OAL 1-23-2004 and filed 3-1-2004 (Register 2004, No. 10).

Article 5. Appeals

§2698.500. Appeals to the Board.

Note • History

(a) Any subscriber, enrolled dependent or dependent subscriber who is dissatisfied with any action or failure to act which has occurred in connection with a participating health plan's coverage may file an appeal with the Board.

(b) In addition, the following decisions may be appealed to the Executive Director only:

(1) A program determination as to eligibility of any applicant or the applicant's dependents.

(2) A program determination to disenroll a subscriber, enrolled dependent or dependent subscriber from the program.

(3) A program determination to deny a subscriber or dependent subscriber request or to grant a participating health plan request to transfer the subscriber to a different participating health plan.

NOTE

Authority cited: Sections 12711 and 12712, Insurance Code. Reference: Sections 12711 and 12732, Insurance Code.

HISTORY

2. Certificate of Compliance as to 12-20-90 order transmitted to OAL on 4-18-91 and filed 5-17-91 (Register 91, No. 27).

3. Amendment of subsection (b) and Note filed 1-10-95 as an emergency; operative 1-10-95 (Register 95, No. 2). A Certificate of Compliance must be transmitted to OAL 5-10-95 or emergency language will be repealed by operation of law on the following day.

4. Certificate of Compliance as to 1-10-95 order transmitted to OAL 4-25-95 and filed 6-7-95 (Register 95, No. 23).

5. Amendment of subsections (a), (b)(2) and (b)(3) filed 8-4-2003 as an emergency; operative 8-4-2003 (Register 2003, No. 32). Amendments to remain in effect for 180 days pursuant to section 21, chapter 794, Statutes of 2002 (AB 1401). A Certificate of Compliance must be transmitted to OAL by 2-2-2004 or emergency language will be repealed by operation of law on the following day.

6. Certificate of Compliance as to 8-4-2003 order transmitted to OAL 1-23-2004 and filed 3-1-2004 (Register 2004, No. 10).

§2698.501. Dispute Resolution.

Note • History

Notwithstanding other sections in this Article, when a subscriber, enrolled dependent or dependent subscriber is dissatisfied with any action, or inaction, of the program's participating health plan in which he/she is enrolled, the subscriber, enrolled dependent or dependent subscriber shall first attempt to resolve the dispute with the participating health plan according to its established policies and procedures.

NOTE

Authority cited: Sections 12711, 12712 and 12712.5, Insurance Code. Reference: Sections 12711 and 12732, Insurance Code.

HISTORY

2. Certificate of Compliance as to 12-20-90 order transmitted to OAL on 4-18-91 and filed 5-17-91 (Register 91, No. 27).

4. Certificate of Compliance as to 8-4-2003 order transmitted to OAL 1-23-2004 and filed 3-1-2004 (Register 2004, No. 10).

§2698.502. Filing an Appeal.

Note • History

(a) An appeal shall be filed in writing with the Executive Director within sixty (60) days of the action or failure to act or receipt of notice of the decision being appealed.

(b) An appeal shall include all of the following:

(1) A copy of any decision being appealed; or a written statement of the action or failure to act being appealed;

(2) A statement specifically describing the issues which are disputed by the appellant;

(3) A statement of the resolution requested by the appellant; and

(4) Any other relevant information the appellant wants to include.

(c) Any appeal that does not include all necessary information shall be returned to the appellant without review. The appellant may re-submit the appeal within the time limits of subsection (a) or within twenty (20) days of the receipt of the returned appeal, whichever is later.

NOTE

Authority cited: Sections 12711 and 12712, Insurance Code. Reference: Sections 12711 and 12732, Insurance Code.

HISTORY

2. Certificate of Compliance as to 12-20-90 order transmitted to OAL on 4-18-91 and filed 5-17-91 (Register 91, No. 27).

3. Repealer of subsections (c)-(c)(2), subsection relettering, and amendment of Note filed 1-10-95 as an emergency; operative 1-10-95 (Register 95, No. 2). A Certificate of Compliance must be transmitted to OAL 5-10-95 or emergency language will be repealed by operation of law on the following day.

4. Certificate of Compliance as to 1-10-95 order transmitted to OAL 4-25-95 and filed 6-7-95 (Register 95, No. 23).

5. Amendment of subsections (a) and (c) filed 8-4-2003 as an emergency; operative 8-4-2003 (Register 2003, No. 32). Amendments to remain in effect for 180 days pursuant to section 21, chapter 794, Statutes of 2002 (AB 1401). A Certificate of Compliance must be transmitted to OAL by 2-2-2004 or emergency language will be repealed by operation of law on the following day.

6. Certificate of Compliance as to 8-4-2003 order transmitted to OAL 1-23-2004 and filed 3-1-2004 (Register 2004, No. 10).

§2698.503. Administrative Review.

Note • History

(a) Any appeal filed pursuant to this Article will be given an administrative review.

(b) Administrative reviews of appeals shall be conducted by the Executive Director.

(c) In conducting an administrative review of an appeal, the Executive Director may contact the appellant and/or the participating health plan for further information.

(d) The Executive Director's decision shall be in writing.

(e) If an appeal was filed pursuant to section 2698.500(a), the appellant retains the right to request an administrative hearing if the appellant is not satisfied with the decision of the Executive Director. Such a request shall be filed within thirty (30) days of receipt of the Executive Director's decision. It shall include a clear and concise statement of what action is being appealed, and the reason(s) the Executive Director's decision is not correct.

NOTE

Authority cited: Sections 12711 and 12712, Insurance Code. Reference: Sections 12711 and 12732, Insurance Code.

HISTORY

2. Certificate of Compliance as to 12-20-90 order transmitted to OAL on 4-18-91 and filed 5-17-91 (Register 91, No. 27).

3. Amendment of subsections (a), (e) and Note filed 1-10-95 as an emergency; operative 1-10-95 (Register 95, No. 2). A Certificate of Compliance must be transmitted to OAL 5-10-95 or emergency language will be repealed by operation of law on the following day.

4. Certificate of Compliance as to 1-10-95 order transmitted to OAL 4-25-95 and filed 6-7-95 (Register 95, No. 23).

5. Amendment of subsection (e) filed 8-4-2003 as an emergency; operative 8-4-2003 (Register 2003, No. 32). Amendments to remain in effect for 180 days pursuant to section 21, chapter 794, Statutes of 2002 (AB 1401). A Certificate of Compliance must be transmitted to OAL by 2-2-2004 or emergency language will be repealed by operation of law on the following day.

6. Certificate of Compliance as to 8-4-2003 order transmitted to OAL 1-23-2004 and filed 3-1-2004 (Register 2004, No. 10).

§2698.504. Hearings.

Note • History

Upon receipt of an appeal which requests an administrative hearing, the Board shall determine the appropriate forum as follows:

(a) An appeal filed pursuant to subsection (a) of section 2698.500 shall be reviewed by the Board to determine whether it is practicable to have the hearing conducted by an Administrative Law Judge employed by the Office of Administrative Hearings pursuant to the provisions of Chapter 5 (commencing with Section 11500) of Part 1 of Division 3 of Title 2 of the Government Code. The Board will determine practicability by considering such issues as timing, location and costs to the parties. If it is determined to be practicable, such a hearing shall be scheduled. If it is determined not to be practicable, the appeal shall be heard in accordance with subsection (b) of this Section.

(b) An appeal filed pursuant to subsection (a) of section 2698.500 but which it has been determined by the Board should be heard in accordance with this subsection, shall be heard according to the appeal procedures, including pre- and post-hearing procedures, set forth in Chapter 2.5 (commencing with section 251) of Division 2 of Title 1 of the California Code of Regulations. Chapter 2.5, as adopted on June 4, 1984, is hereby incorporated by reference, subject to the following modifications:

(1) Reference to the Health and Welfare Agency or the component department shall be deemed reference to the Managed Risk Medical Insurance Board.

(2) Reference to the private non-profit human service organization shall be deemed reference to the petitioner.

(3) Reference to the grievance procedure established in accordance with Health and Safety Code section 38036 shall be deemed reference to the administrative review process set forth in section 2698.503.

(4) Reference to Health and Safety Code sections providing the bases, grounds, authorization or procedures for appeals shall be deemed reference to the bases and authorization for appeal found in section 2698.500, and the appeal procedures found in this section.

(5) The 30-day time period specified in section 251(b) shall be extended to 60 days, and the 10-day time period in section 252(a) shall be extended to 30 days.

(6) If the proposed decision submitted to the Board is not adopted as the decision, the Board may itself decide the case on the record, or may refer the case to the same hearing officer to take additional evidence. If the case is referred back to the hearing officer, the hearing officer shall prepare a new proposed decision based on the additional evidence and the record of the prior hearing.

(7) The decision of the Board shall be issued within 90 days following the initial hearing or, if the case is referred back to the hearing officer, within 90 days of the second hearing.

NOTE

Authority cited: Sections 12711 and 12712, Insurance Code. Reference: Sections 12711 and 12732, Insurance Code.

HISTORY

1. New section filed 12-20-90 as an emergency; operative 18-20-90 (Register 91, No. 11). A Certificate of Compliance must be transmitted to OAL by 4-19-91 or emergency language will be repealed by operation of law on the following day.

2. Certificate of Compliance as to 12-20-90 order transmitted to OAL on 4-18-91 and filed 5-17-91 (Register 91, No. 27).

3. Editorial correction of printing error in subsection (b) (Register 91, No. 27).

4. Amendment of subsection (b), new subsections (b)(1)-(7) and amendment of Note filed 1-10-95 as an emergency; operative 1-10-95 (Register 95, No. 2). A Certificate of Compliance must be transmitted to OAL 5-10-95 or emergency language will be repealed by operation of law on the following day.

5. Certificate of Compliance as to 1-10-95 order including amendment of subsections (a)-(b) transmitted to OAL 4-25-95 and filed 6-7-95 (Register 95, No. 23).

6. Amendment of subsections (a) and (b) filed 8-4-2003 as an emergency; operative 8-4-2003 (Register 2003, No. 32). Amendments to remain in effect for 180 days pursuant to section 21, chapter 794, Statutes of 2002 (AB 1401). A Certificate of Compliance must be transmitted to OAL by 2-2-2004 or emergency language will be repealed by operation of law on the following day.

7. Certificate of Compliance as to 8-4-2003 order transmitted to OAL 1-23-2004 and filed 3-1-2004 (Register 2004, No. 10).

§2698.505. Conduct of Hearing by Hearing Officer. [Repealed]

Note • History

NOTE

Authority cited: Sections 12711 and 12712, Insurance Code. Reference: Sections 12711 and 12732, Insurance Code.

HISTORY

1. Certificate of Compliance as to 12-20-90 order repealing former section 2698.505 and renumbering former section 2698.506 to section 2698.505 transmitted to OAL 4-18-91 and filed 5-17-91 (Register 91, No. 27). For prior history, see Register 91, No. 11.

2. Amendment of subsection (b) and Note filed 1-11-93; operative 2-10-93 (Register 93, No. 3).

3. Repealer filed 1-10-95 as an emergency; operative 1-10-95 (Register 95, No. 2). A Certificate of Compliance must be transmitted to OAL 5-10-95 or emergency language will be repealed by operation of law on the following day.

4. Certificate of Compliance as to 1-10-95 order transmitted to OAL 4-25-95 and filed 6-7-95 (Register 95, No. 23).

§2698.506. Decision on Appeal Hearing by Hearing Officer. [Repealed]

Note • History

NOTE

Authority cited: Sections 12711, 12712 and 12712.5, Insurance Code. Reference: Sections 12711 and 12732, Insurance Code.

HISTORY

1. Certificate of Compliance as to 12-20-90 order renumbering former section 2698.506 to section 2698.505 and renumbering former section 2698.507 to section 2698.506 transmitted to OAL on 4-18-91 and filed 5-17-91 (Register 91, No. 27). For prior history, see Register 91, No. 11.

2. Editorial correction of subsection (b) (Register 91, No. 27).

4. Editorial correction of History 1 (Register 95, No. 13).

5. Certificate of Compliance as to 1-10-95 order transmitted to OAL 4-25-95 and filed 6-7-95 (Register 95, No. 23).

§2698.507. Decision on Appeal Hearing by Hearing Officer. [Repealed]

Note • History

NOTE

Authority cited: Sections 12711, 12712 and 12712.5, Insurance Code. Reference: Sections 12711 and 12732, Insurance Code.

HISTORY

2. Certificate of Compliance as to 12-20-90 order renumbering former section 2698.507 to section 2698.506 transmitted to OAL 5-17-90 and filed 5-17-91 (Register 91, No. 27).

Article 6. Pilot Program Payments

§2698.600. Semiannual Interim Payment and Reporting Procedures for Pilot Program Health Plans.

Note • History

(a) The semiannual interim payment process for Pilot Program payment shall occur starting at the end of the first reporting period, September 1, 2003 through December 31, 2003, and on June 30 and December 31 of each year thereafter, as long as there are Program Graduates or Program Graduate dependents enrolled. In order to qualify for a semiannual interim payment a Pilot Program health plan shall submit a semiannual interim enrollment report no later than 90 days after the semiannual reporting period as established above in this section. If a Pilot Program health plan does not submit a semiannual interim enrollment report by the end of the 90 day period, the plan will not receive an interim payment for that period.

(b) The semiannual interim enrollment report shall be submitted for each program graduate enrolled in the Pilot Program standard benefit plan during the semiannual interim period, and consist of:

(1) A signed certification that all program graduates for whom the Pilot Program health plan has made claim are enrolled in a Pilot Program standard benefit plan.

(2) The following information, to be submitted electronically, in a format specified by the Board, which consists of the following elements for each Program Graduate enrolled in the Pilot Program standard benefit plan during the semiannual interim period:

(A) The Program Graduate's unique identification number,

(B) The Pilot Program health plan's own identification number for the Program Graduate,

(D) The Program Graduate's home address including house or unit number, street, city, county, state, and zip code,

(E) The name of each Program Graduate dependent who is covered under the Pilot Program at the same time as the program graduate,

(F) The date of birth of each Program Graduate and Program Graduate dependent,

(G) The Program Graduate's and any Program Graduate dependent's date of disenrollment from the Program, as indicated on the Certificate of Program Completion,

(H) The Program Graduate's and any Program Graduate dependent's date of enrollment in the Pilot Program health plan,

(I) The Program Graduate's and any Program Graduate dependent's date of enrollment in the Pilot Program health plan, when transferred from one Pilot Program health plan to another.

(J) The Program Graduate's and any Program Graduate dependent's date of disenrollment in the Pilot Program health plan, if disenrollment has occurred during the interim semiannual reporting period.

(3) The semiannual interim enrollment report shall include an estimate, adjusted for incurred but not reported (IBNR) costs, of the amount expended for program graduates and program graduate dependents, and the total amount of premium payments received to the Pilot Program health plan during the reporting period.

(c) The Board will issue an interim payment no later then 45 days after receipt of a valid semiannual interim payment report, consisting of all the elements as stated above in subsection (b). The payment will be determined using the following formula for each individual:

the most recent average premium as established by the Board during its semiannual determination of estimated enrollment times one half (the absolute value of the prior calendar year loss ratio minus 110 percent)

(d) The semiannual interim payment reporting process shall be subject to review and/or audit by the Board or its authorized representative in order to verify Program Graduates, and Program Graduate dependents, enrollment through a Pilot Program health plan in the Pilot Program standard benefit plan, for a period of four years after an interim payment has been made.

NOTE

Authority cited: Section 1373.62, Health and Safety Code; and Sections 10127.15, 12711 and 12712, Insurance Code. Reference: Sections 1373.62 and 1373.622, Health and Safety Code; and Sections 10127.15, 12711 and 12712, Insurance Code.

HISTORY

1. New article 6 (sections 2698.600-2698.604) and section filed 8-4-2003 as an emergency; operative 8-4-2003 (Register 2003, No. 32). Amendments to remain in effect for 180 days pursuant to section 21, chapter 794, Statutes of 2002 (AB 1401). A Certificate of Compliance must be transmitted to OAL by 2-2-2004 or emergency language will be repealed by operation of law on the following day.

2. Certificate of Compliance as to 8-4-2003 order transmitted to OAL 1-23-2004 and filed 3-1-2004 (Register 2004, No. 10).

3. Amendment of subsection (c) filed 12-3-2009 as an emergency; operative 12-3-2009 (Register 2009, No. 49). A Certificate of Compliance must be transmitted to OAL by 6-1-2010 or emergency language will be repealed by operation of law on the following day.

4. Certificate of Compliance as to 12-3-2009 order transmitted to OAL 5-28-2010 and filed 7-12-2010 (Register 2010, No. 29).

§2698.602. Annual Reconciliation Reporting and Payment Process for Pilot Program Health Plans.

Note • History

(a) The time period for annual reconciliation, reports and payment shall be as follows:

(1) The annual reconciliation reporting and payment process shall start one year after the end of each reporting period established in Health and Safety Code Section 1373.62(g)(1) and Insurance Code 10127.15 (g)(1). These periods are as follows:

September 1, 2003, to December 31, 2003, inclusive,

January 1, 2004, to December 31, 2004, inclusive,

January 1, 2005, to December 31, 2005, inclusive,

January 1, 2006, to December 31, 2006, inclusive,

January 1, 2007, to August 30, 2007, inclusive.

(2) However, for the purpose of reconciliation and payment, the January 1, 2007 to August 30, 2007 reporting period shall be extended through December 31, 2007, and shall include Program Graduates and Program Graduate dependents that remain enrolled in a Pilot Program health plan's standard benefit plan on September 1, 2007 (the day the Pilot Program becomes inoperative). Pilot Program health plans with such program graduates or program graduate dependents may continue to report, and be eligible for reconciliation and payment, one year after the close of each calendar year until the plan no longer has any remaining program graduates or program graduate dependents.

(b) In order to qualify for annual reconciliations, a Pilot Program health plan shall submit an annual report for each calendar year by December 31 of the following year, starting with a December 31, 2004 due date for calendar year 2003.

(1) For reconciliations addressing calendar years 2003 through 2007 inclusive, Pilot Program health plans that submit these reports by the December 31 due date will be given priority for reconciliation and any resulting payments. Pilot Program health plans that submit reports after the established due dates will be reconciled, and any resulting payments made from available funds, in order of the day of receipt of the report.

(2) For reconciliations addressing calendar year 2008 and all subsequent calendar years, a Pilot Program health plan that submits the required report after the December 31 due date shall not be entitled to be paid any amount pursuant to this section for the applicable calendar year and shall refund to the board, within thirty-five days of notification by the board, any amount previously paid to the plan for the applicable calendar year pursuant to section 2698.600.

(1) For a Program Graduate and a Program Graduate dependent enrolled in a Pilot Program standard benefit plan, an enrollment and program report to be submitted electronically, in a format to be specified by the Board, for the reporting periods established above in subsection (a)(1) and (2):

(A) The Program Graduate's unique identification number,

(B) The Pilot Program health plan's own identification number for the Program Graduate.

(D) The Program Graduate's home address including house or unit number, street, city, county, state and zip code,

(E) The name of each Program Graduate dependent who is covered under the Pilot Program at the same time as the Program Graduate,

(F) The date of birth of each Program Graduate and Program Graduate dependent,

(G) The Program Graduate's and any Program Graduate dependent's date of disenrollment from the Program, as indicated on the Certificate of Program Completion,

(H) The Program Graduate's and any Program Graduate dependent's date of enrollment in the Pilot Program health plan,

(I) The Program Graduate's and any Program Graduate dependent's date of enrollment in the Pilot Program health plan, when transferred from one Pilot Program health plan to another.

(J) The Program Graduate's and any Program Graduate dependent's date of disenrollment in the Pilot Program health plan, if disenrollment has occurred during the annual reporting period, and if disenrollment was the result of any of the following:

1. Program Graduate's request;

2. eligibility for Medicare Part A and Part B;

3. eligibility for other health insurance;

4. non-payment of premiums;

5. fraud;

6. death; or

7. other.

(K) Dollar amount of all premiums paid by, or on behalf of each Program Graduate, and Program Graduate dependent for coverage in the Pilot Program standard benefit plan during the reporting period.

(2) A claims report, to be provided electronically for each program graduate and program graduate dependent enrolled with the Pilot Program health plan for service provided and expense payments made during the annual reporting period. The reporting expense payments shall be limited to expense payments made to providers of services and shall not include the Pilot Program health plan administrative expenses, and shall not include incurred but not reported costs. The report, entitled “Major Risk Medical Insurance Pilot Program Health Plan and Claims Reporting File Layout and Field Description,” dated September, 2003 is hereby incorporated by reference.

(3) A signed certification that all program graduates for whom the Pilot Program health plan has made claim are enrolled in a Pilot Program standard benefit plan.

(4) An incomplete report shall be returned with an explanation to the Pilot Program health plan of the reasons for incompleteness.

(d) The Board will review and reconcile each annual complete report within 120 days of receipt to the Pilot Program health plan of the findings based on the following formula:

one half (aggregate claims plus aggregate standard monthly administrative fee minus aggregate premiums) minus semiannual interim payments paid for that reporting period equals Final Payment.

In order to determine an aggregate monthly administrative fee for individuals in the Pilot Program, the Board will use a weighted average, weighted by plan population and adjusted by a factor of the number of dependents in the Program, of the current administrative fees for plans participating in the Program.

(1) The Board may make adjustments in determining the final payment to any Pilot Program health plan as follows:

(A) to delete any payments for persons who cannot be determined to be a Program Graduate or Program Graduate dependent during the reporting period,

(B) to delete expenses for services beyond the date of disenrollment during a reporting period for a Program Graduate or Program Graduate dependent,

(C) to delete expenses for services for the Program Graduate or Program Graduate dependent beyond the date of eligibility for Medicare Part A and Medicare Part B, and who are not in Medicare solely because of end stage renal disease,

(D) to delete expenses that occurred for services outside of the reporting period, and

(E) to delete all expenses beyond the $200,000 annual and $750,000 lifetime benefit limits for each individual in a Pilot Program standard benefit plan.

(2) If the current reconciliation indicates that further payment is owed to the Pilot Program health plan, the payment shall be made 30 days after notification of the reconciliation results. If the annual reconciliation indicates that an overpayment has been made through the semiannual interim payment process, the Pilot Program health plan shall pay the overpayment to the Board within 35 days after the notification of reconciliation.

(e) The annual reconciliation, reporting and payment process shall be subject to review and/or audit by the Board or its authorized representatives, for a period of four years after a reconciliation payment by either the Board or a Pilot Program health plan has been made.

NOTE

HISTORY

2. Certificate of Compliance as to 8-4-2003 order transmitted to OAL 1-23-2004 and filed 3-1-2004 (Register 2004, No. 10).

3. Amendment of subsection (b), including redesignation of portion of former subsection (b) as new subsection (b)(1), new subsection (b)(2) and amendment of subsections (c)(2) and (d) filed 12-3-2009 as an emergency; operative 12-3-2009 (Register 2009, No. 49). A Certificate of Compliance must be transmitted to OAL by 6-1-2010 or emergency language will be repealed by operation of law on the following day.

4. Certificate of Compliance as to 12-3-2009 order transmitted to OAL 5-28-2010 and filed 7-12-2010 (Register 2010, No. 29).

§2698.604. Excess State Liability in the Pilot Program.

Note • History

(a) The Board shall determine at least semiannually at a public meeting of the Board, the viability of the Major Risk Medical Insurance Fund, or other funding sources made available to the Board to make interim semiannual or final annual payments to Pilot Program health plans.

(b) If the Board determines that funds for the Pilot Program or for payments beyond the term of the Pilot Program are in a state of excess liability, the Board shall notify the Department of Managed Health Care, the Department of Insurance, and all Pilot Program health plans known to the Board, of the state of excess liability, within 30 days of the determination. The notification shall include a determination of the allowable premium rates change that may be charged to program graduates, to the amount the Board would charge without a state subsidy for the applicable standard benefit plan within the Major Risk Medical Insurance Program. Pilot Program health plans shall be allowed to charge these rates, consistent with the policies and procedures for rate increase notifications of the state department (either Department of Managed Health Care or Department of Insurance) which regulates the Pilot Program health plan.

NOTE

HISTORY

2. Certificate of Compliance as to 8-4-2003 order transmitted to OAL 1-23-2004 and filed 3-1-2004 (Register 2004, No. 10).

Chapter 5.6. Access for Infants and Mothers Program

Article 1. Definitions

§2699.100. Definitions.

Note • History

(a) “Appellant” means an applicant or subscriber who has filed an appeal with the program.

(b) “Applicant” means a pregnant woman 18 years of age or older who is applying on her own behalf, or a legal guardian or a natural parent, foster parent, or stepparent with whom the child resides, who applies for coverage under the program on behalf of a child. “Applicant” also means a pregnant woman who is applying for coverage on her own behalf who is under 18 years of age, or who is an emancipated minor, or who is a minor not living in the home of a natural or adoptive parent, a legal guardian, foster parent or stepparent.

(c) “Application Date” means the date an application is sent to the program as evidenced by the U.S. postmark date on the application envelope, or documentation from other delivery services including fax delivery.

(d) “Board” means the Managed Risk Medical Insurance Board.

(e) “Coverage” means the payment for benefits provided through the program.

(f) “Disenroll” means to terminate coverage by the program.

(g) “Eligible” means the applicant is qualified to be enrolled in a participating health plan.

(h) “Enroll” means to accept an applicant as a subscriber by notifying a participating health plan to accept the applicant.

(i) “Executive Director” means the executive director for the Board.

(j) “Family member” means the following persons living in the individual's home:

(1) Children under age 21, of married or unmarried parents living in the home.

(2) The married or unmarried parents of the child or sibling children.

(3) The stepparents of the sibling children.

(4) The separate children of either an unmarried parent or a married parent or stepparent.

(5) An unborn child of the pregnant woman who is applying for coverage on her own behalf or on whose behalf an application has been submitted.

(6) Children under the age of 21, of married or unmarried parents, away at school who are claimed as tax dependents.

(7) The spouse of the pregnant woman.

(k) “Federal poverty level” means the level determined by the “Poverty Guidelines for the 48 Contiguous States and the District of Columbia” as contained in the Annual Update of HHS Poverty Guidelines as published in the Federal Register by the U.S. Department of Health and Human Services.

(l) “First trimester” means the first 13 weeks starting with the first day of a pregnant woman's last menstrual period and ending at the end of the 13th week, or the first 13 weeks of a 40-week, full-term pregnancy as documented by a licensed health care professional.

(m) “Gross household income” means the total annual gross income of all family members except dependent children. Income includes before tax earnings from a job, including cash, wages, salary, commissions and tips, self-employment net profits, Social Security, State Disability Insurance (SDI), Retirement Survivor Disability Insurance (RSDI), veterans benefits, Railroad Retirement, disability worker's compensation, unemployment benefits, alimony, spousal support, pensions and retirement benefits, grants that cover living expenses, settlement benefits, rental income, gifts, lottery/bingo winnings and interest income. Income excludes child support, public assistance program benefits such as SSI/SSP and CalWORKS payments, foster care payments, general relief, loans, grants or scholarships applied toward college expenses, or earned income of a child aged 13 or under, or a child attending school. Income does not include income exclusions applicable to all federal means tested programs such as, disaster relief payments, per capita payments to Native Americans from proceeds held in trust and/or arising from use of restricted lands, Agent Orange payments, Title IV student assistance, energy assistance payments to low income families, relocation assistance payments, victims of crime assistance program, Spina Bifida payments, earned income tax credit and Japanese reparation payments.

(n) “Healthy Families Program” (HFP) means the Federal/State funded program that is operated pursuant to Title XXI of the Social Security Act and Part 6.2 (commencing with Section 12693) of Division 2 of the California Insurance Code, and that provides low cost health, dental and vision insurance coverage to eligible children.

(o) “Income deduction” means any of the following:

(1) Work expenses of $90 per month for each family member except dependent children working or receiving disability workers' compensation or State Disability Insurance. If a family member earns less than $90, the deduction can only be for the amount earned.

(2) Child care expenses while a family member works or trains for a job of up to $200 per month for each family member under age 2, up to $175 per month for each family member over age 2 and disabled dependent care expenses of up to $175 for a disabled dependent living in the home.

(3) The amount paid by a family member per month for any court ordered alimony or child support.

(4) $50 for alimony payments received by the pregnant woman. If a woman receives less than $50, the deduction can only be for the amount received.

(p) “Infant” means a subscriber's child born to a subscriber while the subscriber is enrolled in the program.

(q) “Living in the home” means using the home as the primary place of residence.

(r) “Medi-Cal” means the California health care services program under Title XIX of the Social Security Act.

(s) “Medicare” means the Health Insurance for the aged and permanently disabled provided under Title XVIII of the Social Security Act; “Part A” means Hospital Insurance as defined in Title XVIII of the Social Security Act; and “Part B” means Medical Insurance as defined in Title XVIII of the Social Security Act.

(t) “Participating health plan” means any of the following plans which are lawfully engaged in providing, arranging, paying for, or reimbursing the cost of personal health care services under insurance policies or contracts, medical and hospital service arrangements, or membership contracts, in consideration of premiums or other periodic charges payable to it, and that contracts with the program to provide coverage to program subscribers:

(1) A private insurer holding a valid outstanding certificate of authority from the Insurance Commissioner.

(2) A nonprofit hospital service plan qualifying under Chapter 11a (commencing with Section 11491) of Part 2 of Division 2 of the Insurance Code.

(3) A nonprofit membership corporation lawfully operating under the Nonprofit Corporation Law (Division 2 (commencing with Section 5000) of the Corporations Code).

(4) A health care service plan as defined under subdivision (f) of Section 1345 of the Health and Safety Code.

(5) A county or a city and county, in which case no license or approval from the Department of Insurance or the Department of Corporations shall be required to meet the requirements of this part.

(6) A comprehensive primary care licensed community clinic that is an organized outpatient freestanding health facility and is not part of a hospital that delivers comprehensive primary care services, in which case, no license or approval from the Department of Insurance or the Department of Corporations shall be required to meet the requirements of this part.

(u) “Program” means the Access for Infants and Mothers Program.

(v) “Resident” means a person who is present in California with intent to remain present except when absent for transitory or temporary purposes.

(w) “State supported services” mean abortion services provided to the subscribers through the program.

(x) “Subscriber” means an individual who is eligible for and enrolled in the program.

(y) “Subscriber contribution” means the cost to the subscriber to participate in the program.

(z) “Tenses and Number”. The present tense includes the past and future, and the future the present; the singular includes the plural and the plural the singular.

(aa) “Time.” Whenever in this chapter a time is stated in which an act is to be done, the time is computed by excluding the first day and including the last day. If the last day is a holiday it is also excluded.

NOTE

Authority cited: Section 12696.05, Insurance Code. Reference: Sections 12695, 12695.06, 12695.08, 12695.18, 12695.20, 12695.22, 12695.24, 12696 and 12698, Insurance Code.

HISTORY

1. New section filed 12-12-91 as an emergency; operative 12-12-91 (Register 92, No. 10). A Certificate of Compliance must be transmitted to OAL 4-10-92 or emergency language will be repealed by operation of law on the following day.

2. Certificate of Compliance as to 12-12-91 order including amendment of subsections (j), (k)(1), (k)(4) and (p) transmitted to OAL 4-8-92 and filed 5-20-92 (Register 92, No. 21).

3. Change without regulatory effect amending subsection (j) filed 4-5-93 pursuant to title 1, section 100, California Code of Regulations (Register 93, No. 15).

4. Amendment of subsections (c) and (j) filed 8-29-94 as an emergency; operative 9-1-94 (Register 94, No. 35). A Certificate of Compliance must be transmitted to OAL by 12-30-94 or emergency language will be repealed by operation of law on the following day.

5. Certificate of Compliance as to 8-29-94 order transmitted to OAL 12-9-94 and filed 1-23-95 (Register 95, No. 4).

6. Change without regulatory effect amending subsection (j) filed 4-25-95 pursuant to section 100, title 1, California Code of Regulations (Register 95, No. 17).

7. Change without regulatory effect amending subsection (j) filed 5-14-96 pursuant to section 100, title 1, California Code of Regulations (Register 96, No. 20).

8. Change without regulatory effect amending subsection (j) filed 4-28-97 pursuant to section 100, title 1, California Code of Regulations (Register 97, No. 18).

9. Change without regulatory effect amending subsection (j) filed 5-10-99 pursuant to section 100, title 1, California Code of Regulations (Register 99, No. 20).

10. Repealer and new subsection (j), new subsections (l) and (n)-(n)(4), subsection relettering, and amendment of newly designated subsection (m) filed 3-17-2000 as an emergency; operative 3-17-2000 (Register 2000, No. 11). A Certificate of Compliance must be transmitted to OAL by 7-17-2000 or emergency language will be repealed by operation of law on the following day.

11. Certificate of Compliance as to 3-17-2000 order transmitted to OAL 6-12-2000 and filed 7-10-2000 (Register 2000, No. 28).

12. Change without regulatory effect amending subsections (l) and (x) filed 5-23-2001 pursuant to section 100, title 1, California Code of Regulations (Register 2001, No. 21).

13. Amendment filed 5-20-2003; operative 5-20-2003 pursuant to Government Code section 11343.4 (Register 2003, No. 21).

14. New subsections (j)(7) and (m) and subsection relettering filed 7-1-2004 as an emergency; operative 7-1-2004 (Register 2004, No. 27). Pursuant to Section 80, A.B. 1762 (Chapter 230, Stats. 2003) a Certificate of Compliance must be transmitted to OAL by 12-28-2004 or emergency language will be repealed by operation of law on the following day.

15. Certificate of Compliance as to 7-1-2004 order transmitted to OAL 11-24-2004 and filed 1-7-2005 (Register 2005, No. 1).

16. New subsection (v) and subsection relettering filed 3-12-2008; operative 4-11-2008 (Register 2008, No. 11).

17. New subsection (l) and subsection relettering filed 8-14-2008; operative 8-14-2008 pursuant to Government Code section 11343.4 (Register 2008, No. 33).

Article 2. Eligibility, Application, and Enrollment

§2699.200. Basis of Eligibility.

Note • History

(a) All eligibility requirements contained herein shall be applied without regard to race, creed, color, sexual orientation, health status, national origin, occupation, or occupational history of the individual applying for the program.

(b) To be eligible for the program, an individual shall meet the requirements of either (1) or (2):

(1) Meet all of the following requirements:

(A) Be certified as pregnant by a staff person authorized by the Planned Parenthood Organization or a licensed or certified healthcare professional, including, but not limited to a medical doctor, doctor of osteopathy, registered nurse, physician's assistant, nurse midwife, vocational nurse, or medical assistant, and have a reasonable good faith belief that the pregnancy is not beyond the 30th week of gestation as of the application date; and

(B) Be a resident of the state of California; and

(C) Have a monthly household income after income deductions that is above 200 percent of the federal poverty level but does not exceed 300 percent of the federal poverty level at the time of application; and

(D) Pay the first portion of the subscriber contribution, which shall be fifty dollars ($50), and agree to the payment of the complete subscriber contribution; and

(E) Not be reimbursed by any health care provider or any state or local governmental entity for payment of the subscriber contribution and not have any health care provider or state or local governmental entity pay the subscriber contribution; and

(F) Not be a beneficiary of either no-cost Medi-Cal or Medicare Part A and Part B as of the application date; and

(G) Not be covered for maternity benefits in a private insurance arrangement as of the application date. A pregnant woman in a private insurance arrangement with a separate maternity only deductible or copayment greater than $500 shall be deemed not covered for maternity benefits for purposes of determining eligibility.

(2) Be an infant of less than two (2) years of age born to a program subscriber who was enrolled prior to July 1, 2004, and reside in California.

NOTE

Authority cited: Section 12696.05, Insurance Code. Reference: Sections 12696.05, 12698(b), 12698(c), 12698.05, 12698(c) and 12698.06, Insurance Code; and Maternal and Child Health Access, Petitioner, vs. Managed Risk Medical Insurance Board, et al, Respondents (Superior Court of the State of California, City and County of San Francisco, Case No. CPF-08-508296).

HISTORY

2. Certificate of Compliance as to 12-12-91 order transmitted to OAL 4-8-92 and filed 5-20-92 (Register 92, No. 21).

3. Amendment of subsection (b)(1)(E) filed 6-8-92 as an emergency; operative 6-8-92 (Register 92, No. 24). A Certificate of Compliance must be transmitted to OAL 10-6-92 or emergency language will be repealed by operation of law on the following day.

4. Amendment of subsection (b)(1)(G) filed 10-28-92 as an emergency; operative 10-28-92 (Register 92, No. 44). A Certificate of Compliance must be transmitted to OAL 3-1-93 or emergency language will be repealed by operation of law on the following day.

5. Certificate of Compliance as to 6-8-92 order transmitted to OAL 9-24-92 and filed 11-5-92 (Register 92, No. 45).

6. Certificate of Compliance as to 10-28-92 order transmitted to OAL 2-9-93 and filed 3-24-93 (Register 93, No. 13).

7. Amendment of subsection (b)(1)(C) filed 8-29-94 as an emergency; operative 9-1-94 (Register 94, No. 35). A Certificate of Compliance must be transmitted to OAL by 12-30-94 or emergency language will be repealed by operation of law on the following day.

8. Certificate of Compliance as to 8-29-94 order transmitted to OAL 12-9-94 and filed 1-23-95 (Register 95, No. 4).

9. Amendment of subsections (b)(1)(C) and (b)(1)(E) filed 8-29-95 as an emergency; operative 8-29-95 (Register 95, No. 35). A Certificate of Compliance must be transmitted to OAL by 12-27-95 or emergency language will be repealed by operation of law on the following day.

10. Certificate of Compliance as to 8-29-95 order transmitted to OAL 12-11-95 and filed 1-22-96 (Register 96, No. 4).

11. Amendment of subsections (b)(1)(C) and (b)(1)(G) filed 3-17-2000 as an emergency; operative 3-17-2000 (Register 2000, No. 11). A Certificate of Compliance must be transmitted to OAL by 7-17-2000 or emergency language will be repealed by operation of law on the following day.

12. Certificate of Compliance as to 3-17-2000 order transmitted to OAL 6-12-2000 and filed 7-10-2000 (Register 2000, No. 28).

13. Amendment filed 5-20-2003; operative 5-20-2003 pursuant to Government Code section 11343.4 (Register 2003, No. 21).

14. Amendment of subsection (b)(2) filed 7-1-2004 as an emergency; operative 7-1-2004 (Register 2004, No. 27). Pursuant to Section 80, A.B. 1762 (Chapter 230, Stats. 2003) a Certificate of Compliance must be transmitted to OAL by 12-28-2004 or emergency language will be repealed by operation of law on the following day.

15. Certificate of Compliance as to 7-1-2004 order transmitted to OAL 11-24-2004 and filed 1-7-2005 (Register 2005, No. 1).

16. Amendment of subsection (b)(1)(B) and amendment of Note filed 12-1-2009 as an emergency; operative 12-1-2009 (Register 2009, No. 49). A Certificate of Compliance must be transmitted to OAL by 6-1-2010 or emergency language will be repealed by operation of law on the following day.

17. Certificate of Compliance as to 12-1-2009 order transmitted to OAL 5-28-2010 and filed 7-1-2010 (Register 2010, No. 27).

§2699.201. Application.

Note • History

(a) To apply for the program an individual shall submit:

(1) All information, documentation, and declarations necessary to determine program eligibility as set forth in subsection (d) of this section; and

(2) A cashier's check or money order for fifty dollars ($50.00); and

(3) A statement signed by the applicant agreeing that if the pregnant woman is enrolled, the applicant will pay the full subscriber contribution and acknowledging that the program will take aggressive action to collect the full subscriber contribution.

(b) The applicant shall sign and date a declaration stating that the information is true and accurate to the best of his or her knowledge.

(c) The applicant will be notified in writing that the application is incomplete and what documentation is required for completion.

(d)(1) The application, entitled Access for Infants and Mothers (AIM) Application (rev 12.02.2008), which is incorporated by reference, shall contain the following:

(A) The pregnant woman's full name,

(B) The pregnant woman's current living address including house or building number (and unit number if applicable), street, city, county, state, and zip code, and phone number,

(D) The pregnant woman's social security number (provision of the Social Security number is not mandatory),

(E) The pregnant woman's ethnicity and primary language (not mandatory),

(F) Certification by a staff person authorized by the Planned Parenthood Organization or a licensed or certified healthcare professional, including, but not limited to a medical doctor, doctor of osteopathy, registered nurse, physician's assistant, nurse midwife, vocational nurse, or medical assistant, that the woman on whose behalf the application is filed is pregnant,

(G) The first day of the pregnant woman's last menstrual period,

(H) A declaration that the pregnant woman is not, to the best of the applicant's knowledge, beyond the 30th week of gestation in a current pregnancy, as of the application date,

(I) Information about whether the applicant or anyone in the household smokes,

(J) The address to which the bills for the subscriber's contribution are to be sent, if different from the current living address,

(K) The first and last name, and date of birth of the baby's father if living with the pregnant woman,

(L) Information about whether the father of the baby is married to the pregnant woman,

(M) A list of all family members living in the home, their ages, and relationship to the pregnant woman,

(N) A list of those family members, and their social security numbers excluding dependent children, living in the home who had income in the previous or current calendar year, (provision of the social security number is not mandatory),

(O) Documentation of the total monthly gross household income for either the previous or current calendar year. For each person listed in (N) above, provide documentation for each source of income. Such documentation shall be provided for the previous or current year as indicated below:

1. For the previous calendar year:

a. Federal tax return. If self-employed, a schedule C must be included.

b. All of the following that are applicable and that reflect the current benefit amount: copies of award letters, checks, bank statements, passbooks, or internal revenue service (IRS) 1099 forms showing the amount of Social Security, State Disability Insurance (SDI), Retirement Survivor Disability Insurance (RSDI), veterans benefits, Railroad Retirement, disability workers' compensation, unemployment benefits, alimony, spousal support, pensions and retirement benefits, loans to meet personal needs, grants that cover living expenses, settlement benefits, rental income, gifts, lottery/bingo winnings, dividends, or interest income.

2. For the current calendar year:

a. A letter from the person's current employer. The letter shall be dated and written on the employer's letterhead, and shall include the following:

i. The employee's name.

ii. The employer's business name, business address and phone number.

iii. A statement of the person's current gross monthly income for a period ending within 45 days of the date the program receives the document.

iv. A statement that the information presented is true and correct to the best of the signer's knowledge.

v. A signature by someone authorized to sign such letters by the employer. The signer shall include his or her position name or job title and shall not be the person whose income is being disclosed.

b. Paystub or unemployment stub showing gross income for a period ending within 45 days of the date the program receives the document.

c. If self-employed, a profit and loss statement for the most recent three (3) month period prior to the date the program receives the document. A profit and loss statement must include the following:

i. Date.

ii. Name, address and telephone number of the business.

iii. Gross income, gross expenses, and net profit itemized on a monthly basis.

iv. A statement on the profit and loss, signed by the person who earned the income, which states, “the information provided is true and correct.”

d. A letter or Notice of Action from the County Welfare Office issued within the last two (2) months that includes:

i. For each person for whom application is being made, a statement that the person is eligible for share-of-cost Medi-Cal,

ii. A determination of total monthly household income and monthly household income after income deductions as defined in Section 2699.100, and

iii. A determination of the number of family members living in the household.

e. All of the following that are applicable and that reflect the current benefit amount: copies of award letters, checks, bank statements, or passbooks showing the amount of Social Security, State Disability Insurance (SDI), Retirement Survivor Disability Insurance (RSDI), veterans benefits, Railroad Retirement, disability workers' compensation, unemployment benefits, alimony, spousal support, pensions and retirement benefits, loans to meet personal needs, grants that cover living expenses, settlement benefits, rental income, gifts, lottery/bingo winnings, dividends, or interest income for the previous month.

(P) The name of each family member living in the home who pays court ordered child support or court ordered alimony. The name and age of each person for whom payments are made for child care and/or disabled dependent care by a family member living in the home and the monthly amount paid. Documentation of alimony paid, child care and/or disabled dependent care expenses paid. Documentation includes copies of court orders, cancelled checks, receipts, statements from the District Attorney's Family Support Division or other equivalent document.

(Q) A declaration that the pregnant woman is not a beneficiary of either no-cost Medi-Cal or Part A and Part B of Medicare,

(R) A declaration that the pregnant woman is a resident of the State of California,

(S) A declaration that the applicant will abide by the rules of participation, utilization review process, and dispute resolution process of any participating health plan in which the pregnant woman is enrolled,

(T) Information about any health coverage that is in effect for the pregnant woman or will be in effect for the infant, including the name, address, and policy number of the current insurance or health plan,

(U) A declaration that the pregnant woman is not, to the best of the applicant's knowledge, covered for maternity benefits in a private insurance arrangement. A pregnant woman with a separate, maternity only deductible or co-payment greater than $500 shall be deemed not covered for maternity benefits for purposes of this declaration,

(V) Name, address and phone number of the primary employer of each adult family member who is employed,

(W) Information about health coverage available to the applicant, spouse, or father of the baby who is in the household,

(X) A declaration that the applicant has reviewed the benefits offered by the participating health plans,

(Y) A declaration that the applicant understands and will follow the rules and regulations of the program,

(Z) A declaration that the applicant is giving permission for the program to verify family income, health insurance, residence, and other circumstances,

(AA) A declaration that the subscriber is not being, and will not be, reimbursed by any health care provider or any state and local governmental entity for payment of the subscriber contribution and that no health care provider or state or local governmental entity is paying or will pay the subscriber contribution,

(BB) An indication of the pregnant woman's first choice and second choice participating health plans,

(CC) A declaration that the subscriber agrees to pay the required subscriber contribution, even if the subscriber does not take full advantage of the coverage or services.

(DD) A declaration that the information and documentation submitted is true and correct to the best of the applicant's knowledge.

(2) The Social Security number and other personal information are needed for identification and administrative purposes.

(3) If applicable, the applicant's signed authorization to forward the application to the Medi-Cal Program in the county in which the applicant resides for a determination of eligibility for no-cost Medi-Cal.

NOTE

Authority cited: Section 12696.05, Insurance Code. Reference: Sections 12698(b), 12698(c) and 12698.05, Insurance Code; and Maternal and Child Health Access, Petitioner, vs. Managed Risk Medical Insurance Board (Superior Court of the State of California, City and County of San Francisco, Case No. CPF-08-508296).

HISTORY

2. Certificate of Compliance as to 12-12-91 order transmitted to OAL 4-8-92 and filed 5-20-92 (Register 92, No. 21).

3. Amendment of subsection (d)(1)(W) filed 6-8-92 as an emergency; operative 6-8-92 (Register 92, No. 24). A Certificate of Compliance must be transmitted to OAL 10-6-92 or emergency language will be repealed by operation of law on the following day.

4. Amendment of subsection (d)(1)(Q) filed 10-28-92 as an emergency; operative 10-28-92 (Register 92, No. 44). A Certificate of Compliance must be transmitted to OAL 3-1-93 or emergency language will be repealed by operation of law on the following day.

5. Certificate of Compliance as to 6-8-92 order transmitted to OAL 9-24-92 and filed 11-5-92 (Register 92, No. 45).

6. Certificate of Compliance as to 10-28-92 order transmitted to OAL 2-9-93 and filed 3-24-93 (Register 93, No. 13).

7. Amendment of subsections (d)(1), (d)(1)(L) and (d)(1)(L)4 and new subsection (d)(1)(Y) filed 8-29-94 as an emergency; operative 9-1-94 (Register 94, No. 35). A Certificate of Compliance must be transmitted to OAL by 12-30-94 or emergency language will be repealed by operation of law on the following day.

8. Certificate of Compliance as to 8-29-94 order, including amendment of subsection (d)(1)(L), transmitted to OAL 12-9-94 and filed 1-23-95 (Register 95, No. 4).

9. Amendment of subsections (a)(1)-(2) and (d)(1) filed 8-29-95 as an emergency; operative 8-29-95 (Register 95, No. 35). A Certificate of Compliance must be transmitted to OAL by 12-27-95 or emergency language will be repealed by operation of law on the following day.

10. Certificate of Compliance as to 8-29-95 order including amendment of (d)(1)(F) transmitted to OAL 12-11-95 and filed 1-22-96 (Register 96, No. 4).

11. Amendment of subsections (d)(1), (d)(1)(L) and (d)(1)(L)3. and new subsections (d)(1)(L)3.a-f. filed 8-9-96 as an emergency; operative 8-9-96 (Register 96, No. 32). A Certificate of Compliance must be transmitted to OAL by 12-9-96 or emergency language will be repealed by operation of law on the following day.

12. Certificate of Compliance as to 8-9-96 order, including amendment of subsection (d)(1)(k), transmitted to OAL 11-19-96 and filed 1-6-97 (Register 97, No. 2).

13. Amendment of subsections (d)-(d)(2) filed 3-17-2000 as an emergency; operative 3-17-2000 (Register 2000, No. 11). A Certificate of Compliance must be transmitted to OAL by 7-17-2000 or emergency language will be repealed by operation of law on the following day.

14. Certificate of Compliance as to 3-17-2000 order, including further amendment of subsections (d)(1)(M)2.a.i.(iv). and (d)(1)(M)2.a.ii., transmitted to OAL 6-12-2000 and filed 7-10-2000 (Register 2000, No. 28).

15. Amendment filed 5-20-2003; operative 5-20-2003 pursuant to Government Code section 11343.4 (Register 2003, No. 21).

16. Amendment of subsections (d)(1) and (d)(1)(M)-(N) filed 7-1-2004 as an emergency; operative 7-1-2004 (Register 2004, No. 27). Pursuant to Section 80, A.B. 1762 (Chapter 230, Stats. 2003) a Certificate of Compliance must be transmitted to OAL by 12-28-2004 or emergency language will be repealed by operation of law on the following day.

17. Certificate of Compliance as to 7-1-2004 order, including further amendment of subsection (d)(1), transmitted to OAL 11-24-2004 and filed 1-7-2005 (Register 2005, No. 1).

18. Amendment of subsection (d)(1), new subsections (d)(1)(K)-(L), subsection relettering and amendment of newly designated subsections (d)(1)(O) and (d)(1)(V) filed 8-14-2008; operative 8-14-2008 pursuant to Government Code section 11343.4 (Register 2008, No. 33).

19. Amendment of subsections (d)(1) and (d)(1)(R) and amendment of Note filed 12-1-2009 as an emergency; operative 12-1-2009 (Register 2009, No. 49). A Certificate of Compliance must be transmitted to OAL by 6-1-2010 or emergency language will be repealed by operation of law on the following day.

20. Certificate of Compliance as to 12-1-2009 order transmitted to OAL 5-28-2010 and filed 7-1-2010 (Register 2010, No. 27).

§2699.202. Board Determinations of Program Funding and Initial Review of Applications.

Note • History

(a) If the Board makes a finding that sufficient funds are not available to cover the estimated costs of program expenditures and that it is necessary to limit enrollment in the program to ensure that expenditures do not exceed amounts available for the program, the program shall be closed to new enrollment.

(b)(1) If the Executive Director determines that, in addition to sufficient funds for all eligible subscribers, sufficient funds are available to cover the estimated cost of program expenditures for some new eligible applicants, the program shall be open to new enrollment for the number of eligible applicants for whom the Executive Director determines there are sufficient funds available.

(2) If the Executive Director determines that sufficient funds are available to cover the estimated costs of program expenditures, the program shall be open to new enrollment.

(c) If the Board has made a finding pursuant to subsection (a) that sufficient funds are not available, all applications shall be denied due to insufficient funds, unless the program is open to new enrollment for some or all applicants pursuant to subsection (b).

(d) If, and to the extent that, the program is open to new enrollment, the application shall be reviewed for completeness.

(1) If it is not complete a telephone call will be placed to the applicant to request the missing information and documentation. If the applicant is reached, the applicant will be asked to provide the necessary information and documentation. If the applicant is not reached by telephone, a letter will be mailed to the applicant indicating the required information and/or documentation needed to complete the application. The applicant must provide all information and/or documentation necessary for the application to be completed within 17 calendar days from the date the application was received by the program and prior to the 30th week of gestation, and the applicant will be so notified.

(2) If the application submitted is not complete and it is not completed within seventeen (17) calendar days and prior to the 30th week of gestation, the application shall be denied. The applicant shall be sent a notice indicating that their application is denied on the basis that the program could not make an eligibility determination because of missing information or documentation.

(3) If it is complete it will be reviewed for an eligibility determination pursuant to Section 2699.203.

NOTE

Authority cited: Section 12696.05, Insurance Code. Reference: Sections 12696, 12696.05 and 12696.15, Insurance Code.

HISTORY

2. Certificate of Compliance as to 12-12-91 order transmitted to OAL 4-8-92 and filed 5-20-92 (Register 92, No. 21).

3. Amendment of subsection (b)(1), new subsection (b)(2) and subsection renumbering filed 5-20-2003; operative 5-20-2003 pursuant to Government Code section 11343.4 (Register 2003, No. 21).

4. Amendment of section heading, repealer of first paragraph and repealer and new subsection (a), new subsections (b)(1)-(c), subsection relettering and amendment of newly designated subsection (d) filed 4-21-2010 as an emergency; operative 4-21-2010 (Register 2010, No. 17). A Certificate of Compliance must be transmitted to OAL by 10-18-2010 or emergency language will be repealed by operation of law on the following day.

§2699.203. Determination of Eligibility.

Note • History

(a) The program shall determine the applicant's eligibility based upon the criteria specified in Section 2699.200. The program shall complete the application review process within 10 calendar days of receipt of the complete application.

(b) Applicants determined ineligible shall be notified in writing by the program. The notice shall include the reason for the determination of ineligibility and an explanation of the appeal process. The first portion of the applicant's subscriber contribution shall be refunded.

NOTE

Authority cited: Section 12696.05, Insurance Code. Reference: Sections 12696 and 12696.05, Insurance Code.

HISTORY

2. Certificate of Compliance as to 12-12-91 order transmitted to OAL 4-8-92 and filed 5-20-92 (Register 92, No. 21).

§2699.204. Enrollment.

Note • History

(a) Applicants determined eligible for the program shall be enrolled in their:

(1) First choice participating health plan, unless that plan is currently serving the number of subscribers which it has contracted with the program to serve.

(2) Second choice participating health plan when the first choice plan is currently serving the number of subscribers which it has contracted with the program to serve.

(b) An applicant shall be notified in writing by the program of enrollment with a participating health plan and the beginning date of coverage by the participating health plan.

NOTE

Authority cited: Section 12696.05, Insurance Code. Reference: Sections 12696 and 12696.05, Insurance Code.

HISTORY

2. Certificate of Compliance as to 12-12-91 order transmitted to OAL 4-8-92 and filed 5-20-92 (Register 92, No. 21).

§2699.205. Registration of Infants.

Note • History

(a) For infants born to subscribers who are enrolled on or after July 1, 2004, the subscriber shall register the infant in the Healthy Families Program as follows:

(1) Upon the birth of the infant, the subscriber shall provide to the Healthy Families Program the following information about the infant:

(A) Name; and

(B) Date of birth; and

(D) For infants born on or after July 1, 2007:

1. Information on whether or not the infant currently is enrolled in employer sponsored health coverage and the date coverage began; and

2. Information on whether or not the infant was previously enrolled in employer sponsored health coverage, the date coverage began, the date in which coverage terminated, and the reason for termination.

(2) The Healthy Families Program shall request the infant's birth weight and primary care provider from the subscriber.

(3) Subject to all requirements specified in the statute and regulations governing the Healthy Families Program, the infant will be enrolled in the Healthy Families Program with coverage effective on the date of the infant's birth.

NOTE

Authority cited: Section 12696.05, Insurance Code. Reference: Sections 12693.765 and 12696, Insurance Code.

HISTORY

2. Certificate of Compliance as to 12-12-91 order including amendment of subsection (b) transmitted to OAL 4-8-92 and filed 5-20-92 (Register 92, No. 21).

3. Amendment of subsection (a) filed 8-29-94 as an emergency; operative 9-1-94 (Register 94, No. 35). A Certificate of Compliance must be transmitted to OAL by 12-30-94 or emergency language will be repealed by operation of law on the following day.

4. Certificate of Compliance as to 8-29-94 order transmitted to OAL 12-9-94 and filed 1-23-95 (Register 95, No. 4).

5. Amendment of subsection (b) filed 5-20-2003; operative 5-20-2003 pursuant to Government Code section 11343.4 (Register 2003, No. 21).

6. Amendment of section heading, section and Note filed 7-1-2004 as an emergency; operative 7-1-2004 (Register 2004, No. 27). Pursuant to Section 80, A.B. 1762 (Chapter 230, Stats. 2003) a Certificate of Compliance must be transmitted to OAL by 12-28-2004 or emergency language will be repealed by operation of law on the following day.

7. Certificate of Compliance as to 7-1-2004 order transmitted to OAL 11-24-2004 and filed 1-7-2005 (Register 2005, No. 1).

8. Amendment of subsections (b)(1) and (b)(1)(C) and new subsections (b)(1)(D)-(b)(1)(D)2. deemed an emergency and exempt from OAL review pursuant to Section 75 of Chapter 74, Statutes of 2006, filed 7-31-2007; operative 7-31-2007 (Register 2007, No. 31). A Certificate of Compliance must be transmitted to OAL by 1-28-2008 or emergency language will be repealed by operation of law on the following day.

9. Certificate of Compliance as to 7-31-2007 order transmitted to OAL 1-28-2008 and filed 3-12-2008; (Register 2008, No. 11).

10. Repealer of subsections (a)-(a)(2), subsection renumbering and amendment of newly designated subsection (a)(1) filed 8-14-2008; operative 8-14-2008 pursuant to Government Code section 11343.4 (Register 2008, No. 33).

§2699.206. Change of Address and/or Phone Number.

Note • History

An applicant shall notify the program in writing within thirty (30) days of any change of the applicant's billing address or any change of residence or phone number of a person participating in the program.

NOTE

Authority cited: Section 12696.05, Insurance Code. Reference: Section 12696, Insurance Code.

HISTORY

2. Certificate of Compliance as to 12-12-91 order transmitted to OAL 4-8-92 and filed 5-20-92 (Register 92, No. 21).

3. Amendment of section heading and section filed 5-20-2003; operative 5-20-2003 pursuant to Government Code section 11343.4 (Register 2003, No. 21).

§2699.207. Disenrollment.

Note • History

(a) A subscriber shall be disenrolled from the program and from the program's participating health plan when any of the following occur:

(1) The subscriber so requests in writing.

(2) The subscriber becomes ineligible because:

(A) The subscriber fails to meet the residency requirement; or

(B) The subscriber has committed an act of fraud to circumvent the statutes or regulations of the program,

(C) The subscriber is no longer pregnant on her effective date of coverage. If notification to the program is received after the effective date, documentation by a licensed or certified healthcare professional must be submitted indicating the date of the miscarriage.

(D) More than 60 days have elapsed since the end of the pregnancy for which the subscriber enrolled in the program. As a condition of receiving the premium reduction described in Section 2699.400(a)(5), documentation by a licensed or certified healthcare professional must be submitted to the program indicating the date the pregnancy ended.

(b) When a subscriber is disenrolled pursuant to subsection (a) of this section, the program shall notify the subscriber of the disenrollment. The notice shall be in writing and include the following information:

(1) The reason for the disenrollment.

(2) The effective date of the disenrollment.

(3) An explanation of the appeals process.

(c) Disenrollment pursuant to (a)(1), shall take effect at the end of the calendar month in which the request was received or at the end of a future calendar month as requested by the subscriber.

(d) Disenrollment pursuant to (a)(2)(A), shall take effect as follows:

1. If the program provides notification to the subscriber on or before the 10th of the month, disenrollment shall take effect at the end of the calendar month.

2. If the program provides notification to the subscriber after the 10th of the month, disenrollment shall take effect at the end of the following calendar month.

(e) Disenrollment pursuant to (a)(2)(B), shall take effect as follows:

1. If the program provides notification to the subscriber on or before the 10th of the month, disenrollment shall take effect at the end of the calendar month.

2. If the program provides notification to the subscriber after the 10th of the month, disenrollment shall take effect at the end of the following calendar month.

(f) Disenrollment pursuant to (a)(2)(C), shall take effect upon the date that would have been the effective date of coverage.

(g) Disenrollment pursuant to (a)(2)(D), shall take effect on the 61st day following the date the subscriber's pregnancy ended.

(h) Once a subscriber is disenrolled pursuant to Section 2699.207(a), the subscriber cannot be re-enrolled for the same pregnancy.

NOTE

Authority cited: Section 12696.05, Insurance Code. Reference: Sections 12696.05 and 12698, Insurance Code.

HISTORY

2. Certificate of Compliance as to 12-12-91 order transmitted to OAL 4-8-92 and filed 5-20-92 (Register 92, No. 21).

3. New subsections (a)(2)(C) and (d) and amendment of subsection (c) filed 8-29-94 as an emergency; operative 9-1-94 (Register 94, No. 35). A Certificate of Compliance must be transmitted to OAL by 12-30-94 or emergency language will be repealed by operation of law on the following day.

4. Certificate of Compliance as to 8-29-94 order transmitted to OAL 12-9-94 and filed 1-23-95 (Register 95, No. 4).

5. Amendment filed 5-20-2003; operative 5-20-2003 pursuant to Government Code section 11343.4 (Register 2003, No. 21).

6. Amendment filed 8-14-2008; operative 8-14-2008 pursuant to Government Code section 11343.4 (Register 2008, No. 33).

§2699.208. Continuation of Benefits.

Note • History

Infants shall be eligible to continue coverage in the program from a participating health plan if the subscriber is deceased or becomes ineligible for reasons other than an act of fraud while the infant is otherwise eligible.

NOTE

Authority cited: Section 12696.05, Insurance Code. Reference: Section 12696.05, Insurance Code.

HISTORY

2. Certificate of Compliance as to 12-12-91 order transmitted to OAL 4-8-92 and filed 5-20-92 (Register 92, No. 21).

§2699.209. Coverage.

Note • History

(a) The date on which the coverage shall begin shall be no later than ten (10) calendar days from the date the applicant is enrolled. Coverage shall not begin if the pregnancy terminates prior to the effective date of coverage.

(b) Unless the subscriber is otherwise disenrolled pursuant to Section 2699.207, coverage in the program for the subscriber shall be for one pregnancy and shall include services following the pregnancy for sixty (60) days. The subscriber shall notify the program of the date on which the pregnancy for which she enrolled ends. She shall provide this notification by the thirtieth day after the end of the pregnancy.

NOTE

Authority cited: Section 12696.05, Insurance Code. Reference: Sections 12696.05 and 12698.30, Insurance Code.

HISTORY

2. Certificate of Compliance as to 12-12-91 order transmitted to OAL 4-8-92 and filed 5-20-92 (Register 92, No. 21).

4. Certificate of Compliance as to 8-29-94 order transmitted to OAL 12-9-94 and filed 1-23-95 (Register 95, No. 4).

5. Amendment of subsection (c) filed 7-1-2004 as an emergency; operative 7-1-2004 (Register 2004, No. 27). Pursuant to Section 80, A.B. 1762 (Chapter 230, Stats. 2003) a Certificate of Compliance must be transmitted to OAL by 12-28-2004 or emergency language will be repealed by operation of law on the following day.

6. Certificate of Compliance as to 7-1-2004 order transmitted to OAL 11-24-2004 and filed 1-7-2005 (Register 2005, No. 1).

7. Amendment of subsection (b) and repealer of subsections(c)-(d) filed 8-14-2008; operative 8-14-2008 pursuant to Government Code section 11343.4 (Register 2008, No. 33).

§2699.210. Transfer of Enrollment.

Note • History

(a) A subscriber and/or infant, if any, shall be transferred from one participating health plan to another if any of the following occurs:

(1) A subscriber so requests, in writing, because the subscriber and/or infant, if any, has moved and no longer resides in an area served by the participating health plan in which the subscriber and/or infant, if any, is enrolled, and there is at least one participating health plan serving the area in which the subscriber and/or infant now resides that is accepting new enrollees.

(2) The subscriber or the participating health plan so requests, in writing, because of failure to establish a satisfactory subscriber-plan relationship and the Executive Director determines that the transfer is in the best interests of the program, and there is at least one other participating health plan serving the area in which the subscriber resides that is accepting new enrollees.

(3) The program contract with the participating health plan in which the subscriber is enrolled is canceled or not renewed.

(b) The effective date of transfers pursuant to subsection (a)(1) of this section shall be:

(1) On the first day of a month following the transfer request for an infant, if the request is received on or before the 10th of the month. Transfer of enrollment shall take effect on the first day of the second month following the transfer request for an infant, if the request is received after the 10th of the month.

(2) Within seventeen (17) calendar days of receipt of the transfer request for the subscriber.

(1) On the first day of a month following the approval of the transfer request for an infant, if the approval is made on or before the 10th of the month. Transfer of enrollment shall take effect on the first day of the second month following the approval of the transfer request for an infant, if the approval is made after the 10th of the month.

(2) Within fifteen (15) calendar days from approval of the transfer request for the subscriber.

(d) The effective date of transfers pursuant to subsection (a)(3) of this section shall be prior to the end of the contract.

NOTE

Authority cited: Section 12696.05, Insurance Code. Reference: Sections 12696 and 12697.10, Insurance Code.

HISTORY

2. Certificate of Compliance as to 12-12-91 order transmitted to OAL 4-8-92 and filed 5-20-92 (Register 92, No. 21).

3. Amendment filed 5-20-2003; operative 5-20-2003 pursuant to Government Code section 11343.4 (Register 2003, No. 21).

§2699.211. Payment for Application Assistance.

Note • History

(a) The program shall pay an insurance agent as defined in Section 31 of the Insurance Code, or broker as defined in Section 33 of the Insurance Code, or a licensed general acute care hospital, or a licensed medical doctor, or a licensed doctor of osteopathy, or a registered nurse, or a county health department, or a county welfare department, or a licensed day care operator, or a licensed primary care community clinic, or a direct state maternal and child health contractor, or a participating health plan, or a licensed chiropractor for assisting an individual in completing the application form, if the following conditions are met:

(1) The individual is enrolled as a result of the application; and

(2) The request for payment is made in writing and specifies to whom the payment shall be made; and

(3) Such request accompanies the application and includes the name, position/title and address and, if applicable, the license number of the person who assists in the completion of the application and the tax identification number of the person/entity to be paid. An incomplete request will be rejected; information missing from the application cannot be submitted at a later date.

(b) The amount of such payment shall be fifty dollars ($50.00).

NOTE

Authority cited: Section 12696.05, Insurance Code. Reference: Section 12696, Insurance Code.

HISTORY

2. Certificate of Compliance as to 12-12-91 order transmitted to OAL 4-8-92 and filed 5-20-92 (Register 92, No. 21).

3. Amendment of subsections (a) and (a)(3) filed 8-29-94 as an emergency; operative 9-1-94 (Register 94, No. 35). A Certificate of Compliance must be transmitted to OAL by 12-30-94 or emergency language will be repealed by operation of law on the following day.

4. Certificate of Compliance as to 8-29-94 order transmitted to OAL 12-9-94 and filed 1-23-95 (Register 95, No. 4).

Article 3. Scope of Benefits

§2699.300. Minimum Scope of Benefits.

Note • History

(a) The basic scope of benefits offered by participating health plans to subscribers and infants must comply with all requirements of the Knox-Keene Health Care Service Plan Act of 1975 including amendments as well as its applicable regulations, and shall include all of the benefits and services listed in this section, subject to the exclusions listed in this section and Section 2699.301. No other benefits shall be permitted to be offered by a participating health plan unless specifically provided for in the program contract with the participating health plan. The basic scope of benefits shall be as follows:

(1) Health Facilities

(A) Inpatient Hospital Services: General hospital services, in a room of two or more, with customary furnishings and equipment, meals (including special diets as medically necessary), and general nursing care. All medically necessary ancillary services such as: use of operating room and related facilities; intensive care unit and services; drugs, medications, and biologicals; anesthesia and oxygen; diagnostic laboratory and x-ray services; special duty nursing as medically necessary; physical, occupational, and speech therapy, respiratory therapy; administration of blood and blood products; other diagnostic, therapeutic and rehabilitative services as appropriate; and coordinated discharge planning, including the planning of such continuing care as may be necessary.

Exclusions: Personal or comfort items or a private room in a hospital are excluded unless medically necessary.

(B) Outpatient Services: Diagnostic, therapeutic and surgical services performed at a hospital or outpatient facility. Includes physical, occupational, and speech therapy as appropriate; and those hospital services, which can reasonably be provided on an ambulatory basis. Related services and supplies in connection with these services including operating room, treatment room, ancillary services, and medications which are supplied by the hospital or facility for use during the subscriber's stay at the facility.

(2) Durable medical equipment: Medical equipment appropriate for use in the home which: 1) is intended for repeated use; 2) is generally not useful to a person in the absence of illness or injury; and 3) primarily serves a medical purpose. The health plan may determine whether to rent or purchase standard equipment. Repair or replacement is covered unless necessitated by misuse or loss. Oxygen and oxygen equipment; blood glucose monitors and blood glucose monitors for the visually impaired as medically appropriate for insulin dependent, non-insulin dependent, and gestational diabetes; insulin pumps and all related supplies; visual aids, excluding eyewear, to assist the visually impaired with proper dosing of insulin, and apnea monitors; podiatric devices to prevent or treat diabetes complications; pulmoaides and related supplies; nebulizer machines, tubing and related supplies, and spacer devices for metered dose inhalers; ostomy bags and urinary catheters and supplies.

Exclusions: Coverage for comfort or convenience items; disposable supplies except ostomy bags and urinary catheters and supplies consistent with Medicare coverage guidelines; exercise and hygiene equipment; experimental or research equipment; devices not medical in nature such as sauna baths and elevators, or modifications to the home or automobile; deluxe equipment; or more than one piece of equipment that serve the same function.

(3) Medical Transportation Services: Emergency ambulance transportation in connection with emergency services to the first hospital, which actually accepts the subscriber for emergency care. Includes ambulance and ambulance transport services provided through “911” emergency response system.

Non-emergency transportation for the transfer of a subscriber from a hospital to another hospital or facility or facility to home when:

(A) medically necessary, and

(B) requested by a plan provider, and

Exclusions: Coverage for transportation by airplane, passenger car, taxi or other form of public conveyance.

(4) Emergency Health Care Services: Twenty-four hour emergency care for a medical condition manifesting itself by acute symptoms of a sufficient severity (including severe pain) such that the absence of immediate medical attention could reasonably be expected to result in any of the following:

(A) Placing the patient's health in serious jeopardy.

(B) Serious impairment to bodily functions.

This must be provided both in and out of the health plan service area and in and out of the health plan's participating facilities.

(5) Professional Services: Medically necessary professional services and consultations by a physician or other licensed health care provider acting within the scope of his or her license. Surgery, assistant surgery and anesthesia (inpatient or outpatient); inpatient hospital and skilled nursing facility visits; professional office visits including visits for allergy tests and treatments, radiation therapy, chemotherapy, and dialysis treatment; and home visits when medically necessary. In addition, professional services include:

(A) Eye Examinations: Eye refractions to determine the need for corrective lenses, and dilated retinal eye exams.

(B) Hearing tests, hearing aids and services: Hearing tests, hearing aids and services: Audiological evaluation to measure the extent of hearing loss and a hearing aid evaluation to determine the most appropriate make and model of hearing aid. Hearing aid: Monaural or binaural hearing aids including ear mold(s), the hearing aid instrument, the initial battery, cords and other ancillary equipment. Visits for fitting, counseling, adjustments, repairs, etc., at no charge for a one-year period following the provision of a covered hearing aid.

Exclusions: The purchase of batteries or other ancillary equipment, except those covered under the terms of the initial hearing aid purchase and charges for a hearing aid which exceeds specifications prescribed for correction of a hearing loss. Replacement parts for hearing aids, repair of hearing aid after the covered one-year warranty period, replacement of a hearing aid more than once in any period of thirty-six months, and surgically implanted hearing devices.

(C) Immunizations for infants: Immunizations consistent with the most current version of the Recommended Childhood Immunization Schedule/United States adopted by the American Academy of Pediatrics, the Advisory Committee on Immunization Practices (ACIP), and the American Academy of Family Physicians. Immunizations required for travel as recommended by the ACIP, and other age appropriate immunizations as recommended by the ACIP.

Immunizations for Subscribers: Immunizations for adults as recommended by the ACIP. Immunizations required for travel as recommended by the ACIP. Immunizations such as Hepatitis B for individuals at occupational risk, and other age appropriate immunizations as recommended by the ACIP.

(D) Periodic health examinations for infants: periodic health examinations, including all routine diagnostic testing and laboratory services appropriate for such examinations consistent with the most current Recommendations for Preventative Pediatric Health Care, as adopted by the American Academy of Pediatrics; and the current version of the Recommended Childhood Immunization Schedule/United States, adopted by the American Academy of Pediatrics, the Advisory Committee on Immunization Practices, and the American Academy of Family Physicians.

The frequency of such examinations shall not be increased for reasons which are unrelated to the medical needs of the infant including: a subscriber's desire for physical examinations; or reports or related services for the purpose of obtaining or maintaining employment, licenses, insurance, or a school sports clearance.

Periodic Health Examinations for Subscribers: Periodic health examinations including all routine diagnostic testing and laboratory services appropriate for such examinations.

The frequency of such examinations shall not be increased for reasons which are unrelated to the medical needs of the subscriber including: a subscriber's desire for physical examinations; or reports or related services for the purpose of obtaining or maintaining employment, licenses, insurance, or a school sports clearance.

(E) Well baby care during the first two years of life, including newborn hospital visits, health examinations and other office visits.

(6) Health education services: Effective health education services, including information regarding personal health behavior and health care, and recommendations regarding the optimal use of health care services provided by the plan or health care organizations affiliated with the plan. Health education services include services related to tobacco use and drug and alcohol abuse.

Health education services relating to tobacco use means tobacco use prevention and education services including tobacco use cessation services.

(7) Nutrition Services: Direct patient care nutrition services, including nutritional assessment.

(8) Prescription Drugs: Medically necessary prescription drugs, when prescribed by a licensed practitioner acting within the scope of his or her licensure. Includes injectable medication and needles and syringes necessary for the administration of the covered injectable medication. Also includes insulin, glucagon, syringes and needles and pen delivery systems for the administration of insulin, blood glucose testing strips, ketone urine testing strips, lancets and lancet puncture devices in medically appropriate quantities for the monitoring and treatment of insulin dependent, non-insulin dependent and gestational diabetes. Prenatal vitamins and fluoride supplements included with vitamins or independent of vitamins, if such vitamins require a prescription. Medically necessary drugs administered while a subscriber is a patient or resident in a rest home, nursing home, convalescent hospital or similar facility when prescribed by a plan physician in connection with a covered service and obtained through a plan designated pharmacy. Health plans may specify that generic equivalent prescription drugs must be dispensed if available, provided that no medical contraindications exist. The use of a formulary, maximum allowable cost (MAC) method, and mail order programs by health plans is encouraged.

Contraceptive Drugs and Devices: All FDA approved oral and injectable contraceptive drugs and prescription contraceptive devices are covered including internally implanted time release contraceptives such as Norplant.

Exclusions: Experimental or investigational drugs, unless accepted for use by the standards of the medical community; drugs or medications for cosmetic purposes; patent or over-the-counter medicines, including non-prescription contraceptive jellies, ointments, foams, condoms, etc.; medicines not requiring a written prescription order (except insulin and smoking cessation drugs as previously described); and dietary supplements (except for formulas or special food products to treat phenylketonuria or PKU), and appetite suppressants or any other diet drugs or medications.

(9) Reconstructive Surgery: Reconstructive surgery to restore and achieve symmetry and surgery performed to correct or repair abnormal structures of the body caused by congenital defects, developmental abnormalities, trauma, infection, tumors or disease to do any of the following:

(A) To improve function

(B) To create a normal appearance to the extent possible

(C) To restore and achieve symmetry incident to mastectomy. Services for this purpose include reconstructive surgery and associated procedures following a mastectomy which resulted from disease, illness, or injury, and breast prosthesis required incidental to the surgery.

(10) Transplants:

Coverage for medically necessary organ transplants and bone marrow transplants which are not experimental or investigational in nature. Reasonable medical and hospital expenses of a donor or an individual identified as a prospective donor if these expenses are directly related to the transplant for a subscriber.

Charges for testing of relatives for matching bone marrow transplants. Charges associated with the search and testing of unrelated bone marrow donors through a recognized Donor Registry and charges associated with the procurement of donor organs through a recognized Donor Transplant Bank, if the expenses are directly related to the anticipated transplant of a subscriber.

(11) Maternity Care: Medically necessary professional and hospital services relating to maternity care including: pre-natal and post-natal care and complications of pregnancy; newborn examinations and nursery care while the mother is hospitalized. Includes providing coverage for participation in the statewide prenatal testing program administered by the State Department of Health Services known as the Expanded Alpha Feto Protein Program.

(12) Family Planning: Voluntary family planning services including counseling and surgical procedures for sterilization as permitted by state and federal law, diaphragms, and coverage for other federal Food and Drug Administration approved devices and contraceptive drugs pursuant to the prescription drug benefit.

(13) Diagnostic X-ray and laboratory Services: Diagnostic laboratory services, diagnostic and therapeutic radiological services necessary to appropriately evaluate, diagnose, treat, and follow-up on the care of subscribers. Other diagnostic services, which shall include, but not be limited to, electrocardiography, electro-encephalography, prenatal diagnosis of genetic disorders of the fetus in cases of high-risk pregnancy, and mammography for screening or diagnostic purposes. Laboratory tests appropriate for the management of diabetes, including at a minimum: cholesterol, triglycerides, microalbuminuria, HDL/LDL and Hemoglobin A-1C (Glycohemoglobin).

(14) Home Health Services: Health services provided at the home by health care personnel. Includes visits by Registered Nurses, Licensed Vocational Nurses, and home health aides; physical, occupational and speech therapy); and respiratory therapy when prescribed by a licensed practitioner acting within the scope of his or her licensure.

Home health services are limited to those services that are prescribed or directed by the attending physician or other appropriate authority designated by the plan. If a basic health service can be provided in more than one medically appropriate setting, it is within the discretion of the attending physician or other appropriate authority designated by the plan to choose the setting for providing the care. Plans shall exercise prudent medical case management to ensure that appropriate care is rendered in the appropriate setting. Medical case management may include consideration of whether a particular service or setting is cost-effective when there is a choice among several medically appropriate alternative services or settings. Exclusions: Custodial care

(15) Physical, Occupational, and Speech Therapy: Therapy may be provided in a medical office or other appropriate outpatient setting, hospital, skilled nursing facility or home. Plans may require periodic evaluations as long as therapy, which is medically necessary, is provided.

(16) Blood and Blood Products: Processing, storage, and administration of blood and blood products in inpatient and outpatient settings. Includes the collection and storage of autologous blood when medically indicated.

(17) Cataract Spectacles and Lenses: Cataract spectacles, cataract contact lenses, or intraocular lenses that replace the natural lens of the eye after cataract surgery are covered. Also one pair of conventional eyeglasses or conventional contact lenses are covered if necessary after cataract surgery with insertion of an intraocular lens.

(18) Skilled Nursing: Services prescribed by a plan physician or nurse practitioner and provided in a licensed skilled nursing facility when medically necessary. Skilled nursing on a 24-hour per day basis; bed and board; x-ray and laboratory procedures; respiratory therapy; physical, occupational and speech therapy; medical social services; prescribed drugs and medications; medical supplies; and appliances and equipment ordinarily furnished by the skilled nursing facility. This benefit shall be limited to a maximum of 100 days per benefit year.

(19) Hospice: The hospice benefit shall include nursing care, medical social services, home health aide services, physician services, drugs, medical supplies and appliances, counseling and bereavement services. The benefit shall also include physical therapy; occupational therapy, speech therapy, short-term inpatient care, pain control and symptom management. The hospice benefit may include, at the option of the health plan, homemaker services; services of volunteers, and short-term inpatient respite care. The hospice benefit is limited to those individuals who are diagnosed with a terminal illness with a life expectancy of twelve months or less and who elect hospice care for such illness instead of the traditional services covered by the plan.

Individuals who elect hospice care are not entitled to any other benefits under the plan for the terminal illness while the hospice election is in effect. The hospice election may be revoked at any time.

(20) Orthotics and Prosthetics: Orthotics and prosthetics including medically necessary replacement prosthetic devices as prescribed by a licensed practitioner acting within the scope of his or her licensure, and medically necessary replacement orthotic devices when prescribed by a licensed practitioner acting within the scope of his or her license. Coverage for the initial and subsequent prosthetic devices and installation accessories to restore a method of speaking incident to a laryngectomy, and therapeutic footwear for diabetics. Also includes prosthetic devices to restore and achieve symmetry incident to mastectomy.

Exclusions: Corrective shoes and arch supports, except for therapeutic footwear and inserts for individuals with diabetes; non-rigid devices such as elastic knee supports, corsets, elastic stockings, and garter belts; dental appliances; electronic voice producing machines; or more than one device for the same part of the body. Also does not include eyeglasses (except for eyeglasses or contact lenses necessary after cataract surgery).

(21) Mental Health:

(A) Inpatient: Plans must provide services with no visit limits for severe mental illnesses including Schizophrenia, Schizoaffective disorder, Bipolar disorder (manic-depressive illness), major depressive disorders, panic disorder, obsessive-compulsive disorder, pervasive developmental disorder or autism, Anorexia nervosa, Bulimia nervosa, and services for serious emotional disturbances in children. Plans must provide coverage for up to 30 days per benefit year for illnesses that do not meet the criteria for severe mental illnesses, and for conditions that do not meet the criteria for serious emotional disturbances of a child.

Plans, with the agreement of the subscriber or applicant or other responsible adult if appropriate, may substitute for each day of inpatient hospitalization any of the following: two (2) days of residential treatment, three (3) days of day care treatment, or four (4) outpatient visits.

(B) Outpatient: Plans must provide services with no visit limits for severe mental illnesses including Schizophrenia, Schizoaffective disorder, Bipolar disorder (manic-depressive illness), major depressive disorders, panic disorder, obsessive-compulsive disorder, pervasive developmental disorder or autism, Anorexia nervosa, Bulimia nervosa, and services for serious emotional disturbances in children.

Plans must provide up to 20 visits per benefit year for illnesses that do not meet the criteria for severe mental illness or serious emotional disturbances of a child. Participating plans may elect to provide additional visits. Plans may provide group therapy at a reduced copayment.

(22) Alcohol and Drug Abuse:

(A) Inpatient: Hospitalization for alcoholism or drug abuse as medically appropriate to remove toxic substances from the system.

(B) Outpatient: Crisis intervention and treatment of alcoholism or drug abuse on an outpatient basis as medically appropriate. Participating health plans shall offer at least 20 visits per benefit year. Participating health plans may elect to provide additional visits.

(b) This part shall not be construed to prohibit a plan's ability to impose cost-control mechanisms. Such mechanisms may include but are not limited to requiring prior authorization for benefits or providing benefits in alternative settings or using alternative methods.

NOTE

Authority cited: Section 12696.05, Insurance Code. Reference: Sections 12696.05 and 12698.30, Insurance Code.

HISTORY

2. Certificate of Compliance as to 12-12-91 order including amendment of subsections (a)(1) and (a)(10)(D) transmitted to OAL 4-8-92 and filed 5-20-92 (Register 92, No. 21).

3. Amendment filed 5-20-2003; operative 5-20-2003 pursuant to Government Code section 11343.4 (Register 2003, No. 21).

§2699.301. Excluded Benefits.

Note • History

(a) Plans offered under this program shall exclude the following benefits unless specifically provided for in the program contract with the participating health plan:

(1) Services which are not medically necessary. “Medically necessary” as applied to the diagnosis or treatment of illness is an article or service that is not investigational and is necessary because:

(C) If the proposed article or service is not commonly used, its application or proposed application has been preceded by a thorough review and application of conventional therapies; and

(D) The service or article has been demonstrated to be of significantly greater therapeutic value than other, less expensive, services or articles.

(2) Any services which are received prior to the enrollee's effective date of coverage, except as provided in Section 2699.303.

(3) Custodial care, domiciliary care, or rest cures, for which facilities of a general acute care hospital are not medically required. Custodial care is care that does not require the regular services of trained medical or health professionals and that is designed primarily to assist in activities of daily living. Custodial care includes, but is not limited to, help in walking, getting in and out of bed, bathing, dressing, preparation and feeding of special diets, and supervision of medications which are ordinarily self-administered.

(4) Personal or comfort items, or a private room in a hospital unless medically necessary.

(5) Emergency facility services for nonemergency conditions.

(6) Those medical, surgical (including implants), or other health care procedures, services, products, drugs, or devices which are either:

(A) Experimental or investigational or which are not recognized in accord with generally accepted medical standards as being safe and effective for use in the treatment in question.

(B) Outmoded or not efficacious.

(7) Transportation except as specified in Section 2699.300(a)(3).

(9) Eyeglasses, except those eyeglasses or contact lenses necessary after cataract surgery, which are covered under Subsection 2699.300(a)(17).

(10) Long-term care benefits including long-term skilled nursing care in a licensed facility and respite care are excluded except as a participating health plan shall determine they are less costly, satisfactory alternatives to the basic minimum benefits. This section does not exclude short-term skilled nursing care or hospice benefits as provided pursuant to Subsection 2699.300(a)(18) and (19).

(11) Dental services, including dental treatment for temporomandibular joint problems, except for repair necessitated by accidental injury to sound natural teeth or jaw, provided that the repair commences within ninety (90) days of the accidental injury or as soon thereafter as is medically feasible. This language shall not be construed to exclude surgical procedures for any condition directly affecting the upper or lower jawbone, or associated bone joints.

(12) Cosmetic surgery, including treatment for complications of cosmetic surgery, that is solely performed to alter or reshape normal structures of the body in order to improve appearance, except as specifically provided in Section 2699.300(a)(9).

(13) Any services or items specified as excluded within Section 2699.300.

(14) Any benefits in excess of limits specified in Section 2699.300.

(15) Treatment for infertility is excluded. Diagnosis of infertility is not covered unless provided in conjunction with covered gynecological services. Treatments of medical conditions of the reproductive system are not excluded.

(16) Treatment for any bodily injury or sickness arising from or sustained in the course of any occupation or employment for compensation, profit, or gain for which such benefits are provided or payable under any Worker's Compensation benefit plan. The participating health plan shall provide the services at the time of need, and the subscriber or applicant shall cooperate to assure that the participating health plan is reimbursed for such benefits.

(17) Services which are eligible for reimbursement by insurance or covered under any other insurance or health care service plan. The participating health plan shall provide the services at the time of need, and the subscriber or applicant shall cooperate to assure that the participating health plan is reimbursed for such benefits.

(18)(A) Maternity care for a subscriber who (a) enrolled in the program with an effective date on or after February 1, 2012, and (b) has entered into an agreement to serve as a paid surrogate mother. For purposes of this section, an agreement to serve as a paid surrogate mother is an agreement entered into, in advance of the pregnancy, under which the subscriber agrees to become pregnant and deliver a child for another person as the intended parent, in exchange for monetary compensation other than actual medical or living expenses.

NOTE

Authority cited: Section 12696.05, Insurance Code. Reference: Section 12696.05, Insurance Code.

HISTORY

2. Certificate of Compliance as to 12-12-91 order transmitted to OAL 4-8-92 and filed 5-20-92 (Register 92, No. 21).

3. Amendment filed 5-20-2003; operative 5-20-2003 pursuant to Government Code section 11343.4 (Register 2003, No. 21).

4. New subsection (a)(18) filed 12-9-2011 as an emergency; operative 12-9-2011 (Register 2011, No. 49). Pursuant to Insurance Code section 12696.05(h)(2) this action is a deemed emergency and exempt from OAL review. A Certificate of Compliance must be transmitted to OAL by 6-6-2012 or emergency language will be repealed by operation of law on the following day.

5. Certificate of Compliance as to 12-9-2011 order, including redesignation of subsection (a)(18) as subsection (a)(18)(A) and new subsection (a)(18)(B), transmitted to OAL 6-6-2012 and filed 7-19-2012 (Register 2012, No. 29).

§2699.302. Pre-Existing Conditions Exclusion and Postenrollment Waiting Period.

Note • History

Subscribers and infants shall not be subject to any pre-existing condition exclusion period or postenrollment waiting period.

NOTE

Authority cited: Section 12696.05, Insurance Code. Reference: Section 12696.05, Insurance Code.

HISTORY

2. Certificate of Compliance as to 12-12-91 order transmitted to OAL 4-8-92 and filed 5-20-92 (Register 92, No. 21).

§2699.303. Services Received Prior to Enrollment.

Note • History

(a) Subscribers may be reimbursed up to a total of one hundred and twenty-five dollars ($125.00) for pregnancy-related medically necessary services, including but not limited to pregnancy test and initial prenatal visit, received in the time period beginning forty (40) calendar days prior to the application date that a complete application is received by the program and ending on the beginning date of coverage.

(b) Requests for payment pursuant to this section shall be submitted by the subscriber within ninety (90) calendar days of the date service was provided and shall include the following information:

(1) An original bill which includes the name and business address of the medical doctor, doctor of osteopathy, registered nurse, pharmacist or physician's assistant, or laboratory providing the service,

(2) Name, address, date of birth and social security number (not mandatory) of the subscriber for whom services were provided,

(3) Date service was provided,

(4) Type of service provided,

NOTE

Authority cited: Section 12696.05, Insurance Code. Reference: Section 12698.25, Insurance Code.

HISTORY

2. Certificate of Compliance as to 12-12-91 order transmitted to OAL 4-8-92 and filed 5-20-92 (Register 92, No. 21).

3. Amendment of subsections (b)-(b)(1) and repealer of subsection (b)(5) filed 8-29-94 as an emergency; operative 9-1-94 (Register 94, No. 35). A Certificate of Compliance must be transmitted to OAL by 12-30-94 or emergency language will be repealed by operation of law on the following day.

4. Certificate of Compliance as to 8-29-94 order transmitted to OAL 12-9-94 and filed 1-23-95 (Register 95, No. 4).

5. Amendment filed 5-20-2003; operative 5-20-2003 pursuant to Government Code section 11343.4 (Register 2003, No. 21).

§2699.304. Order of Benefit Determination.

Note • History

The coverage of this program shall not duplicate and shall pay secondary to any other valid and collectible medical coverage, except Medi-Cal.

NOTE

Authority cited: Section 12696.05, Insurance Code. Reference: Section 12698.06, Insurance Code.

HISTORY

2. Certificate of Compliance as to 12-12-91 order transmitted to OAL 4-8-92 and filed 5-20-92 (Register 92, No. 21).

3. Amendment filed 5-20-2003; operative 5-20-2003 pursuant to Government Code section 11343.4 (Register 2003, No. 21).

Article 4. Subscriber Contributions and Payment for Services

§2699.400. Subscriber Contributions.

Note • History

(a) Subscriber contributions shall be:

(1) An initial fifty dollars ($50.00) to be submitted with the application, and

(2) For subscribers who are enrolled prior to July 1, 2004, the difference between two per cent (2%) of the subscriber's gross household income, less deductions, as documented with the application and fifty dollars ($50.00), which amount shall be due in twelve (12) equal monthly installments beginning with the first month following enrollment; and

(3) For infants born to subscribers who are enrolled prior to July 1, 2004, one hundred dollars ($100.00) which shall be due on the infant's first birthday unless either of following apply:

(A) The infant is disenrolled from the program prior to the infant's first birthday, or

(B) The subscriber provides written proof that the infant is current for the infant's first year immunizations. Such immunizations shall be consistent with the most current version of the Recommended Childhood Immunization Schedule jointly adopted by the Advisory Committee on Immunization Practices, the American Academy of Pediatrics, and the American Academy of Family Physicians. The written proof of completed current first year immunizations shall be signed by a licensed medical doctor, licensed doctor of osteopathy, registered nurse, or licensed physician's assistant. When such written notice is provided the amount shall be fifty dollars ($50.00).

(4) For subscribers who are enrolled on or after July 1, 2004, the difference between one and one-half percent (1.5%) of the subscriber's gross household income, less deductions, as documented with the application and fifty dollars ($50.00), which amount shall be due in twelve (12) equal monthly installments beginning with the first month following enrollment.

(5)(A) For subscribers who are enrolled on or after July 1, 2008, and no longer pregnant by the end of their first trimester, the subscriber contribution shall be reduced and shall be one-third (1/3) of the subscriber contribution calculated pursuant to subsections (a)(1) and (a)(4) of this section.

(B) As a condition of receiving this reduction, documentation by a licensed or certified healthcare professional must be submitted to the program indicating the date the pregnancy ended.

(b) There shall be no penalty for early payment of any portion of the subscriber contribution.

(c) In cases of multiple births to a subscriber, the $100 payment shall apply to each infant born to a subscriber who is enrolled prior to July 1, 2004.

(d) Subscribers shall not be reimbursed by any health care provider or state or local governmental entity for payment of the subscriber contribution and shall not have any health care provider or state or local governmental entity pay the subscriber contribution.

(e) No portion of the subscriber contribution is refundable except as provided in Sections 2699.202 and 2699.203, unless the subscriber is disenrolled pursuant to Subsection 2699.207(a)(2)(C), or unless the subscriber contribution is reduced pursuant to Section 2699.400(a)(5).

(f) A federally recognized California Indian Tribal Government may make required subscriber and infant contributions on behalf of a member of the tribe.

(g) An applicant in arrears of subscriber contributions shall be sent a reminder notice. Applicants who become ninety (90) days in arrears on subscriber contributions will be reported to a credit reporting agency. If accounts are paid in full at a later date, the credit reporting agency's records shall be updated.

NOTE

Authority cited: Section 12696.05, Insurance Code. Reference: Sections 12696, 12696.05 and 12698, Insurance Code.

HISTORY

1. New article 4 and section filed 12-12-91 as an emergency; operative 12-12-91 (Register 92, No. 10). A Certificate of Compliance must be transmitted to OAL 4-10-92 or emergency language will be repealed by operation of law on the following day.

2. Certificate of Compliance as to 12-12-91 order including amendment of subsection (a)(3)(B) transmitted to OAL 4-8-92 and filed 5-20-92 (Register 92, No. 21).

3. Amendment of subsection (c) filed 6-8-92 as an emergency; operative 6-8-92 (Register 92, No. 24). A Certificate of Compliance must be transmitted to OAL 10-6-92 or emergency language will be repealed by operation of law on the following day.

4. Certificate of Compliance as to 6-8-92 order transmitted to OAL 9-24-92 and filed 11-5-92 (Register 92, No. 45).

5. Amendment of subsection (a)(3)(A), new subsection (c) and subsection redesignation, and amendment of subsection (e) filed 8-29-94 as an emergency; operative 9-1-94 (Register 94, No. 35). A Certificate of Compliance must be transmitted to OAL by 12-30-94 or emergency language will be repealed by operation of law on the following day.

6. Editorial correction inserting article heading and amending History 1 (Register 94, No. 35).

7. Certificate of Compliance as to 8-29-94 order transmitted to OAL 12-9-94 and filed 1-23-95 (Register 95, No. 4).

8. Amendment of subsection (a)(2) filed 3-17-2000 as an emergency; operative 3-17-2000 (Register 2000, No. 11). A Certificate of Compliance must be transmitted to OAL by 7-17-2000 or emergency language will be repealed by operation of law on the following day.

9. Certificate of Compliance as to 3-17-2000 order transmitted to OAL 6-12-2000 and filed 7-10-2000 (Register 2000, No. 28).

10. Amendment of subsections (a)(2) and (a)(3)(B) and new subsections (f) and (g) filed 5-20-2003; operative 5-20-2003 pursuant to Government Code section 11343.4 (Register 2003, No. 21).

11. Amendment of subsections (a)(2)-(3), new subsection (a)(4) and amendment of subsection (c) filed 7-1-2004 as an emergency; operative 7-1-2004 (Register 2004, No. 27). Pursuant to Section 80, A.B. 1762 (Chapter 230, Stats. 2003) a Certificate of Compliance must be transmitted to OAL by 12-28-2004 or emergency language will be repealed by operation of law on the following day.

12. Certificate of Compliance as to 7-1-2004 order transmitted to OAL 11-24-2004 and filed 1-7-2005 (Register 2005, No. 1).

13. Amendment of article heading filed 3-12-2008; operative 4-11-2008 (Register 2008, No. 11).

14. New subsections (a)(5)(A)-(B) and amendment of subsection (e) filed 8-14-2008; operative 8-14-2008 pursuant to Government Code section 11343.4 (Register 2008, No. 33).

§2699.401. Discount for Prepayment of Subscriber Contribution.

Note • History

The subscriber contribution amount shall be reduced by fifty dollars ($50) if the subscriber submits the total annual subscriber contribution amount described in Section 2699.400(a)(2) and Section 2699.400(a)(4), with her application.

NOTE

Authority cited: Section 12696.05, Insurance Code. Reference: Section 12696, Insurance Code.

HISTORY

2. Certificate of Compliance as to 12-12-91 order transmitted to OAL 4-8-92 and filed 5-20-92 (Register 92, No. 21).

3. Repealer and new section filed 7-1-2004 as an emergency; operative 7-1-2004 (Register 2004, No. 27). Pursuant to Section 80, A.B. 1762 (Chapter 230, Stats. 2003) a Certificate of Compliance must be transmitted to OAL by 12-28-2004 or emergency language will be repealed by operation of law on the following day.

4. Certificate of Compliance as to 7-1-2004 order transmitted to OAL 11-24-2004 and filed 1-7-2005 (Register 2005, No. 1).

§2699.402. Payment of State Supported Services.

Note • History

State supported services shall be paid for by State dollars only. No Federal dollars provided to the State pursuant to Title XXI of the Social Security Act shall be used.

NOTE

Authority cited: Section 12696.05, Insurance Code. Reference: Section 12696.05, Insurance Code; and 42 CFR Section 457.475.

HISTORY

1. New section filed 3-12-2008; operative 4-11-2008 (Register 2008, No. 11).

Article 5. Appeals

§2699.500. Appeals to the Board.

Note • History

(a) If a subscriber is dissatisfied with any action or failure to act which has occurred in connection with a participating health plan's coverage the subscriber's remedy shall be to file an appeal with the Board.

(b) In addition, the following decisions may be appealed to the Executive Director only:

(1) A program determination as to eligibility of any applicant.

(2) A program determination to disenroll a subscriber or infant from the program.

(3) A program determination to deny a subscriber request or to grant a participating health plan request to transfer the subscriber to a different participating health plan.

NOTE

Authority cited: Section 12696.05, Insurance Code. Reference: Sections 12696 and 12698.20, Insurance Code.

HISTORY

2. Certificate of Compliance as to 12-12-91 order transmitted to OAL 4-8-92 and filed 5-20-92 (Register 92, No. 21).

3. Amendment of subsection (b) filed 1-10-95 as an emergency; operative 1-10-95 (Register 95, No. 2). A Certificate of Compliance must be transmitted to OAL 5-10-95 or emergency language will be repealed by operation of law on the following day.

4. Editorial correction of Reference cite (Register 95, No. 13).

5. Certificate of Compliance as to 1-10-95 order transmitted to OAL 4-25-95 and filed 6-7-95 (Register 95, No. 23).

§2699.501. Dispute Resolution.

Note • History

Notwithstanding other sections in this Article, when a subscriber is dissatisfied with any action, or inaction, of the program's participating health plan in which she is enrolled, the subscriber shall first attempt to resolve the dispute with the participating health plan according to its established policies and procedures.

NOTE

Authority cited: Section 12696.05, Insurance Code. Reference: Section 12696, Insurance Code.

HISTORY

2. Certificate of Compliance as to 12-12-91 order transmitted to OAL 4-8-92 and filed 5-20-92 (Register 92, No. 21).

§2699.502. Filing an Appeal.

Note • History

(a) An appeal shall be filed in writing with the Executive Director within sixty (60) calendar days of the action or failure to act or receipt of notice of the decision being appealed.

(b) An appeal shall include all of the following:

(1) A copy of any decision being appealed; or a written statement of the action or failure to act being appealed;

(2) A statement specifically describing the issues which are disputed by the appellant;

(3) A statement of the resolution requested by the appellant; and

(4) Any other relevant information the appellant wants to include.

(c) Any appeal that does not include all necessary information shall be returned to the applicant or subscriber without review. The applicant or subscriber may re-submit the appeal. The resubmittal shall be filed within the time limits of subsection (a) or within twenty (20) calendar days of the receipt of the returned appeal, whichever is later.

NOTE

Authority cited: Section 12696.05, Insurance Code. Reference: Sections 12696 and 12698.20, Insurance Code.

HISTORY

2. Certificate of Compliance as to 12-12-91 order transmitted to OAL 4-8-92 and filed 5-20-92 (Register 92, No. 21).

3. Repealer of subsections (c)-(c)(2) and subsection relettering filed 1-10-95 as an emergency; operative 1-10-95 (Register 95, No. 2). A Certificate of Compliance must be transmitted to OAL 5-10-95 or emergency language will be repealed by operation of law on the following day.

4. Certificate of Compliance as to 1-10-95 order transmitted to OAL 4-25-95 and filed 6-7-95 (Register 95, No. 23).

§2699.503. Administrative Review.

Note • History

(a) Any appeal filed pursuant to this Article will be given an administrative review.

(b) Administrative reviews of appeals shall be conducted by the Executive Director.

(c) In conducting an administrative review of an appeal, the Executive Director may contact the appellant and/or the participating health plan for further information.

(d) The Executive Director's decision shall be in writing.

(e) If an appeal was filed pursuant to section 2699.500(a), the appellant retains the right to request an administrative hearing if the appellant is not satisfied with the decision of the Executive Director. Such a request shall be filed within thirty (30) calendar days of receipt of the Executive Director's decision. It shall include a clear and concise statement of what action is being appealed, and the reason(s) the Executive Director's decision is not correct.

NOTE

Authority cited: Section 12696.05, Insurance Code. Reference: Sections 12696 and 12698.20, Insurance Code.

HISTORY

2. Certificate of Compliance as to 12-12-91 order transmitted to OAL 4-8-92 and filed 5-20-92 (Register 92, No. 21).

3. Amendment of subsections (a) and (e) filed 1-10-95 as an emergency; operative 1-10-95 (Register 95, No. 2). A Certificate of Compliance must be transmitted to OAL 5-10-95 or emergency language will be repealed by operation of law on the following day.

4. Certificate of Compliance as to 1-10-95 order transmitted to OAL 4-25-95 and filed 6-7-95 (Register 95, No. 23).

§2699.504. Hearings.

Note • History

When an appeal which requests an administrative hearing is received, the appeal shall be set for hearing as follows:

(a) Administrative hearings of appeals will be conducted according to the appeal procedures, including pre- and post-hearing procedures, set forth in Chapter 2.5, adopted (commencing with section 251) of Division 2 of Title 1 of the California Code of Regulations. Chapter 2.5, as adopted on June 4, 1984, is hereby incorporated by reference, subject to the following modifications:

(1) Reference to the Health and Welfare Agency or the component department shall be deemed reference to the Managed Risk Medical Insurance Board.

(2) Reference to the private non-profit human service organization shall be deemed reference to the petitioner.

(4) Reference to Health and Safety Code sections providing the bases, grounds, authorization or procedures for appeals shall be deemed reference to the bases and authorization for appeal found in section 2699.500, and the appeal procedures found in this section.

(5) The 30-day time period specified in section 251(b) shall be extended to 60 days, and the 10-day time period in section 252(a) shall be extended to 30 days.

(7) The decision of the Board shall be issued within 90 days following the initial hearing or, if the case is referred back to the hearing officer, within 90 days of the second hearing.

(b) The Board may elect to have a hearing conducted by an Administrative Law Judge employed by the Office of Administrative Hearings pursuant to the provisions of Chapter 5 (commencing with Section 11500) of Part 1 of Division 3 of Title 2 of the Government Code.

NOTE

Authority cited: Section 12696.05, Insurance Code. Reference: Sections 12696 and 12698.20, Insurance Code.

HISTORY

2. Certificate of Compliance as to 12-12-91 order transmitted to OAL 4-8-92 and filed 5-20-92 (Register 92, No. 21).

3. Amendment of subsection (a) and new subsections (a)(1)-(a)(7) filed 1-10-95 as an emergency; operative 1-10-95 (Register 95, No. 2). A Certificate of Compliance must be transmitted to OAL 5-10-95 or emergency language will be repealed by operation of law on the following day.

4. Certificate of Compliance as to 1-10-95 order transmitted to OAL 4-25-95 and filed 6-7-95 (Register 95, No. 23).

§2699.505. Conduct of Hearing by Hearing Officer. [Repealed]

Note • History

NOTE

Authority cited: Section 12696.05, Insurance Code. Reference: Sections 12696 and 12698.20, Insurance Code.

HISTORY

2. Certificate of Compliance as to 12-12-91 order including amendment of subsection (b) transmitted to OAL 4-8-92 and filed 5-20-92 (Register 92, No. 21).

4. Certificate of Compliance as to 1-10-95 order transmitted to OAL 4-25-95 and filed 6-7-95 (Register 95, No. 23).

§2699.506. Decision on Appeal Hearing by Hearing Officer. [Repealed]

Note • History

NOTE

Authority cited: Section 12696.05, Insurance Code. Reference: Sections 12696 and 12698.20, Insurance Code.

HISTORY

2. Certificate of Compliance as to 12-12-91 order transmitted to OAL 4-8-92 and filed 5-20-92 (Register 92, No. 21).

4. Certificate of Compliance as to 1-10-95 order transmitted to OAL 4-25-95 and filed 6-7-95 (Register 95, No. 23).

Chapter 5.7. Voluntary Alliance Uniting Employers Purchasing Pool (The Health Insurance Plan of California)

§2699.610. Definitions.

Note • History

NOTE

Authority cited: Section 10731, Insurance Code. Reference: Section 10731, Insurance Code.

HISTORY

1. New chapter 5.7 (sections 2699.610-2699.655), article 1 and section filed 5-5-93 as an emergency; operative 7-1-93 (Register 93, No. 19). A Certificate of Compliance must be transmitted to OAL 10-29-93 or emergency language will be repealed by operation of law on the following day.

2. Certificate of Compliance as to 5-5-93 order transmitted to OAL 8-27-93 and filed 10-12-93 (Register 93, No. 42).

3. Amendment filed 12-30-93 as an emergency; operative 12-30-93 (Register 93, No. 53). A Certificate of Compliance must be transmitted to OAL by 4-28-94 or emergency language will be repealed by operation of law on the following day.

4. Certificate of Compliance as to 12-30-93 order including relocation of article heading, renumbering and amending former section 2699.610 to section 2699.6000 transmitted to OAL 4-25-94 and filed 5-27-94 (Register 94, No. 21).

5. Amendment of Chapter 5.7 heading filed 5-22-95; operative 5-22-95 pursuant to Government Code section 11343.4(d) (Register 95, No. 21).

§2699.620. Non-Discrimination.

Note • History

NOTE

Authority cited: Section 10731, Insurance Code. Reference: Section 10731, Insurance Code.

HISTORY

1. New article 2 and section filed 5-5-93 as an emergency; operative 7-1-93 (Register 93, No. 19). A Certificate of Compliance must be transmitted to OAL 10-29-93 or emergency language will be repealed by operation of law on the following day.

2. Certificate of Compliance as to 5-5-93 order transmitted to OAL 8-27-93 and filed 10-12-93 (Register 93, No. 42).

3. Relocation of article heading and renumbering of former section 2699.620 to section 2699.6100 filed 5-27-94; operative 5-27-94 (Register 94, No. 21).

§2699.621. Participation Requirements for Sole Employers.

Note • History

NOTE

Authority cited: Section 10731, Insurance Code. Reference: Sections 10731 and 10741, Insurance Code.

HISTORY

1. New section filed 5-5-93 as an emergency; operative 7-1-93 (Register 93, No. 19). A Certificate of Compliance must be transmitted to OAL 10-29-93 or emergency language will be repealed by operation of law on the following day.

2. Certificate of Compliance as to 5-5-93 order, including amendment of subsection (b)(4)(A), transmitted to OAL 8-27-93 and filed 10-12-93 (Register 93, No. 42).

4. Certificate of Compliance as to 12-30-93 order including renumbering and amending former section 2699.621 to section 2699.6107 transmitted to OAL 4-25-94 and filed 5-27-94 (Register 94, No. 21).

§2699.621.5. Participation Requirements for Guaranteed Associations.

Note • History

NOTE

Authority cited: Section 10731, Insurance Code. Reference: Section 10731, Insurance Code.

HISTORY

1. New section filed 12-30-93 as an emergency; operative 12-30-93 (Register 93, No. 53). A Certificate of Compliance must be transmitted to OAL by 4-28-94 or emergency language will be repealed by operation of law on the following day.

2. Certificate of Compliance as to 12-30-93 order including renumbering and amending former section 2699.621.5 to section 2699.6109 transmitted to OAL 4-25-94 and filed 5-27-94 (Register 94, No. 21).

§2699.621.6. Participation Requirements for Member Employers.

Note • History

NOTE

Authority cited: Section 10731, Insurance Code. Reference: Section 10731, Insurance Code.

HISTORY

2. Certificate of Compliance as to 12-30-93 order including renumbering and amending former section 2699.621.6 to section 2699.6111 transmitted to OAL 4-25-94 and filed 5-27-94 (Register 94, No. 21).

§2699.621.7. Participation Requirements of Individual Members.

Note • History

NOTE

Authority cited: Section 10731, Insurance Code. Reference: Sections 10731 and 10741, Insurance Code.

HISTORY

2. Certificate of Compliance as to 12-30-93 order including renumbering and amending former section 2699.621.7 to section 2699.6113 transmitted to OAL 4-25-94 and filed 5-27-94 (Register 94, No. 21).

§2699.622. Annual Requalification for Sole Employers.

Note • History

NOTE

Authority cited: Section 10731, Insurance Code. Reference: Sections 10731 and 10741, Insurance Code.

HISTORY

2. Certificate of Compliance as to 5-5-93 order transmitted to OAL 8-27-93 and filed 10-12-93 (Register 93, No. 42).

4. Certificate of Compliance as to 12-30-93 order including renumbering and amending former section 2699.622 to section 2699.6117 transmitted to OAL 4-25-94 and filed 5-27-94 (Register 94, No. 21).

§2699.622.5. Annual Requalification for Guaranteed Associations and Guaranteed Association Members.

Note • History

NOTE

Authority cited: Section 10731, Insurance Code. Reference: Sections 10731 and 10741, Insurance Code.

HISTORY

2. Certificate of Compliance as to 12-30-93 order including renumbering and amending former section 2699.622.5 to section 2699.6119 transmitted to OAL 4-25-94 and filed 5-27-94 (Register 94, No. 21).

§2699.623. Application for Sole Employers.

Note • History

NOTE

Authority cited: Section 10731, Insurance Code. Reference: Section 10731, Insurance Code.

HISTORY

2. Certificate of Compliance as to 5-5-93 order, including amendment of subsection (d)(2)(I), transmitted to OAL 8-27-93 and filed 10-12-93 (Register 93, No. 42).

3. Amendment of section heading and text filed 12-30-93 as an emergency; operative 12-30-93 (Register 93, No. 53). A Certificate of Compliance must be transmitted to OAL by 4-28-94 or emergency language will be repealed by operation of law on the following day.

4. Certificate of Compliance as to 12-30-93 order including renumbering and amending former section 2699.623 to section 2699.6121 transmitted to OAL 4-25-94 and filed 5-27-94 (Register 94, No. 21).

§2699.623.5. Application for Guaranteed Association.

Note • History

NOTE

Authority cited: Section 10731, Insurance Code. Reference: Section 10731, Insurance Code.

HISTORY

2. Certificate of Compliance as to 12-30-93 order including renumbering and amending former section 2699.623.5 to section 2699.6123 transmitted to OAL 4-25-94 and filed 5-27-94 (Register 94, No. 21).

§2699.623.6. Member Employer Application.

Note • History

NOTE

Authority cited: Section 10731, Insurance Code. Reference: Section 10731, Insurance Code.

HISTORY

2. Certificate of Compliance as to 12-30-93 order including renumbering and amending former section 2699.623.6 to section 2699.6125 transmitted to OAL 4-25-94 and filed 5-27-94 (Register 94, No. 21).

§2699.623.8. Application for Individual Members.

Note • History

NOTE

Authority cited: Section 10731, Insurance Code. Reference: Section 10731, Insurance Code.

HISTORY

2. Certificate of Compliance as to 12-30-93 order including renumbering and amending former section 2699.623.8 to section 2699.6127 transmitted to OAL 4-25-94 and filed 5-27-94 (Register 94, No. 21).

§2699.624. Initial Sole Employer Qualification and Sole Employee Enrollment Period.

Note • History

NOTE

Authority cited: Section 10731, Insurance Code. Reference: Sections 10731 and 10741, Insurance Code.

HISTORY

2. Certificate of Compliance as to 5-5-93 order transmitted to OAL 8-27-93 and filed 10-12-93 (Register 93, No. 42).

4. Certificate of Compliance as to 12-30-93 order including renumbering and amending former section 2699.624 to section 2699.6131 transmitted to OAL 4-25-94 and filed 5-27-94 (Register 94, No. 21).

§2699.624.5. Initial Qualification for the Program for Guaranteed Associations and Association Members.

Note • History

NOTE

Authority cited: Section 10731, Insurance Code. Reference: Sections 10731 and 10741, Insurance Code.

HISTORY

2. Certificate of Compliance as to 12-30-93 order including renumbering and amending former section 2699.624.5 to section 2699.6133 transmitted to OAL 4-25-94 and filed 5-27-94 (Register 94, No. 21).

§2699.625. Effective Date of Coverage for Sole Employees.

Note • History

NOTE

Authority cited: Section 10731, Insurance Code. Reference: Section 10731, Insurance Code.

HISTORY

2. Certificate of Compliance as to 5-5-93 order transmitted to OAL 8-27-93 and filed 10-12-93 (Register 93, No. 42).

4. Certificate of Compliance as to 12-30-93 order including renumbering and amending former section 2699.625 to section 2699.6159 transmitted to OAL 4-25-94 and filed 5-27-94 (Register 94, No. 21).

§2699.625.5. Effective Date of Coverage for Member Employers.

Note • History

NOTE

Authority cited: Section 10731, Insurance Code. Reference: Section 10731, Insurance Code.

HISTORY

2. Certificate of Compliance as to 12-30-93 order including renumbering and amending former section 2699.625.5 to section 2699.6161 transmitted to OAL 4-25-94 and filed 5-27-94 (Register 94, No. 21).

§2699.625.6. Effective Date of Coverage for Individual Members.

Note • History

NOTE

Authority cited: Section 10731, Insurance Code. Reference: Section 10731, Insurance Code.

HISTORY

2. Certificate of Compliance as to 12-30-93 order including renumbering and amending former section 2699.625.6 to section 2699.6163 transmitted to OAL 4-25-94 and filed 5-27-94 (Register 94, No. 21).

§2699.626. Participating Employer Disqualification.

Note • History

NOTE

Authority cited: Section 10731, Insurance Code. Reference: Sections 10731 and 10743, Insurance Code.

HISTORY

2. Certificate of Compliance as to 5-5-93 order transmitted to OAL 8-27-93 and filed 10-12-93 (Register 93, No. 42).

3. Amendment of section heading and text filed 12-30-93 as an emergency; operative 12-20-93 (Register 93, No. 53). A Certificate of Compliance must be transmitted to OAL by 4-28-94 or emergency language will be repealed by operation of law on the following day.

4. Certificate of Compliance as to 12-30-93 order including renumbering and amending former section 2699.626 to section 2699.6167 transmitted to OAL 4-25-94 and filed 5-27-94 (Register 94, No. 21).

§2699.626.1. Disqualification of Guaranteed Associations.

Note • History

NOTE

Authority cited: Section 10731, Insurance Code. Reference: Section 10731, Insurance Code.

HISTORY

2. Certificate of Compliance as to 12-30-93 order including renumbering and amending former section 2699.626.1 to section 2699.6169 transmitted to OAL 4-25-94 and filed 5-27-94 (Register 94, No. 21).

§2699.626.15.

Note • History

NOTE

Authority cited: Section 10731, Insurance Code. Reference: Section 10731, Insurance Code.

HISTORY

2. Certificate of Compliance as to 12-30-93 order including renumbering and amending former section 2699.626.15 to section 2699.6171 transmitted to OAL 4-25-94 and filed 5-27-94 (Register 94, No. 21).

§2699.626.2. Disqualification of Member Employers.

Note • History

NOTE

Authority cited: Section 10731, Insurance Code. Reference: Section 10731, Insurance Code.

HISTORY

2. Certificate of Compliance as to 12-30-93 order including renumbering and amending former section 2699.626.2 to section 2699.6173 transmitted to OAL 4-25-94 and filed 5-27-94 (Register 94, No. 21).

§2699.626.3. Disqualification of Individual Members.

Note • History

NOTE

Authority cited: Section 10731, Insurance Code. Reference: Sections 10731 and 10743, Insurance Code.

HISTORY

2. Certificate of Compliance as to 12-30-93 order including renumbering and amending former section 2699.626.3 to section 2699.6175 transmitted to OAL 4-25-94 and filed 5-27-94 (Register 94, No. 21).

§2699.627. Transfer of Enrollment for Sole and Member Employees.

Note • History

NOTE

Authority cited: Section 10731, Insurance Code. Reference: Section 10731, Insurance Code.

HISTORY

2. Certificate of Compliance as to 5-5-93 order transmitted to OAL 8-27-93 and filed 10-12-93 (Register 93, No. 42).

4. Certificate of Compliance as to 12-30-93 order including renumbering and amending former section 2699.627 to section 2699.6187 transmitted to OAL 4-25-94 and filed 5-27-94 (Register 94, No. 21).

§2699.627.5. Transfer of Enrollment for Individual Members.

Note • History

NOTE

Authority cited: Section 10731, Insurance Code. Reference: Section 10731, Insurance Code.

HISTORY

2. Certificate of Compliance as to 12-30-93 order including renumbering and amending former section 2699.627.5 to section 2699.6189 transmitted to OAL 4-25-94 and filed 5-27-94 (Register 94, No. 21).

§2699.628. Payment to Insurance Agents and Brokers for Sole Employers.

Note • History

NOTE

Authority cited: Section 10731, Insurance Code. Reference: Section 10731, Insurance Code.

HISTORY

2. Certificate of Compliance as to 5-5-93 order transmitted to OAL 8-27-93 and filed 10-12-93 (Register 93, No. 42).

4. Certificate of Compliance as to 12-30-93 order including renumbering and amending former section 2699.628 to section 2699.6194 transmitted to OAL 4-25-94 and filed 5-27-94 (Register 94, No. 21).

§2699.628.5. Payment to Insurance Agents and Brokers for Member Employers and Individual Members When Premiums Collected by Guaranteed Association.

Note • History

NOTE

Authority cited: Section 10731, Insurance Code. Reference: Section 10731, Insurance Code.

HISTORY

2. Certificate of Compliance as to 12-30-93 order including renumbering and amending former section 2699.628.5 to section 2699.6195 transmitted to OAL 4-25-94 and filed 5-27-94 (Register 94, No. 21).

§2699.628.6. Payment to Insurance Agents and Brokers for Member Employers When Premium Collected by Program.

Note • History

NOTE

Authority cited: Section 10731, Insurance Code. Reference: Section 10731, Insurance Code.

HISTORY

2. Certificate of Compliance as to 12-30-93 order including renumbering and amending former section 2699.628.6 to section 2699.6196 transmitted to OAL 4-25-94 and filed 5-27-94 (Register 94, No. 21).

§2699.628.7. Payment to Insurance Agents and Brokers for Individual Members When Premium Collected by Program.

Note • History

NOTE

Authority cited: Section 10731, Insurance Code. Reference: Section 10731, Insurance Code.

HISTORY

2. Certificate of Compliance as to 12-30-93 order including renumbering and amending former section 2699.628.7 to section 2699.6197 transmitted to OAL 4-25-94 and filed 5-27-94 (Register 94, No. 21).

§2699.630. Scope of Benefits.

Note • History

NOTE

Authority cited: Section 10731, Insurance Code. Reference: Section 10731, Insurance Code.

HISTORY

1. New article 3 and section filed 5-5-93 as an emergency; operative 7-1-93 (Register 93, No. 19). A Certificate of Compliance must be transmitted to OAL 10-29-93 or emergency language will be repealed by operation of law on the following day.

2. Certificate of Compliance as to 5-5-93 order, including amendment of subsection (a)(2)(B), transmitted to OAL 8-27-93 and filed 10-12-93 (Register 93, No. 42).

3. Relocation of article heading and renumbering of former section 2699.630 to section 2699.6200 filed 5-27-94; operative 5-27-94 (Register 94, No. 21).

§2699.631. Excluded Benefits.

Note • History

NOTE

Authority cited: Section 10731, Insurance Code. Reference: Section 10731, Insurance Code.

HISTORY

2. Certificate of Compliance as to 5-5-93 order transmitted to OAL 8-27-93 and filed 10-12-93 (Register 93, No. 42).

3. Renumbering of former section 2699.631 to section 2699.6203 filed 5-27-94; operative 5-27-94 (Register 94, No. 21).

§2699.632. Administration of Benefits.

Note • History

NOTE

Authority cited: Section 10731, Insurance Code. Reference: Section 10731, Insurance Code.

HISTORY

2. Certificate of Compliance as to 5-5-93 order transmitted to OAL 8-27-93 and filed 10-12-93 (Register 93, No. 42).

3. Renumbering of former section 2699.632 to section 2699.6207 filed 5-27-94; operative 5-27-94 (Register 94, No. 21).

§2699.633. Enrollee Share of Cost.

Note • History

NOTE

Authority cited: Section 10731, Insurance Code. Reference: Section 10731, Insurance Code.

HISTORY

2. Certificate of Compliance as to 5-5-93 order, including amendment of subsection (b)(2)(B), transmitted to OAL 8-27-93 and filed 10-12-93 (Register 93, No. 42).

4. Certificate of Compliance as to 12-30-93 order including renumbering and amending former section 2699.633 to section 2699.6209 transmitted to OAL 4-25-94 and filed 5-27-94 (Register 94, No. 21).

§2699.634. Pre-Existing Condition Exclusions.

Note • History

NOTE

Authority cited: Section 10731, Insurance Code. Reference: Sections 10731 and 10741, Insurance Code.

HISTORY

2. Certificate of Compliance as to 5-5-93 order transmitted to OAL 8-27-93 and filed 10-12-93 (Register 93, No. 42).

3. Amendment of subsection (a) filed 12-30-93 as an emergency; operative 12-30-93 (Register 93, No. 53). A Certificate of Compliance must be transmitted to OAL by 4-28-94 or emergency language will be repealed by operation of law on the following day.

4. Certificate of Compliance as to 12-30-93 order including renumbering and amending former section 2699.634 to section 2699.6213 transmitted to OAL 4-25-94 and filed 5-27-94 (Register 94, No. 21).

§2699.635. Benefit Appeals.

Note • History

NOTE

Authority cited: Section 10731, Insurance Code. Reference: Sections 10731 and 10733, Insurance Code.

HISTORY

2. Certificate of Compliance as to 5-5-93 order transmitted to OAL 8-27-93 and filed 10-12-93 (Register 93, No. 42).

4. Certificate of Compliance as to 12-30-93 order including renumbering and amending former section 2699.635 to section 2699.6217 transmitted to OAL 4-25-94 and filed 5-27-94 (Register 94, No. 21).

§2699.640. Risk Categories.

Note • History

NOTE

Authority cited: Section 10731, Insurance Code. Reference: Sections 10731 and 10746, Insurance Code.

HISTORY

1. New article 4 and section filed 5-5-93 as an emergency; operative 7-1-93 (Register 93, No. 19). A Certificate of Compliance must be transmitted to OAL 10-29-93 or emergency language will be repealed by operation of law on the following day.

2. Certificate of Compliance as to 5-5-93 order transmitted to OAL 8-27-93 and filed 10-12-93 (Register 93, No. 42).

4. Certificate of Compliance as to 12-30-93 order including relocation of article heading, renumbering and amending former section 2699.640 to section 2699.6300 transmitted to OAL 4-25-94 and filed 5-27-94 (Register 94, No. 21).

§2699.641. Annual Health Benefit Plan Rates.

Note • History

NOTE

Authority cited: Section 10731, Insurance Code. Reference: Section 10731, Insurance Code.

HISTORY

2. Certificate of Compliance as to 5-5-93 order transmitted to OAL 8-27-93 and filed 10-12-93 (Register 93, No. 42).

3. Renumbering of former section 2699.641 to section 2699.6303 filed 5-27-94; operative 5-27-94 (Register 94, No. 21).

§2699.642. Change of Risk Category.

Note • History

NOTE

Authority cited: Section 10731, Insurance Code. Reference: Section 10731, Insurance Code.

HISTORY

2. Certificate of Compliance as to 5-5-93 order transmitted to OAL 8-27-93 and filed 10-12-93 (Register 93, No. 42).

4. Certificate of Compliance as to 12-30-93 order including renumbering and amending former section 2699.642 to section 2699.6305 transmitted to OAL 4-25-94 and filed 5-27-94 (Register 94, No. 21).

§2699.643. Program Participation Fee.

Note • History

NOTE

Authority cited: Section 10731, Insurance Code. Reference: Section 10731, Insurance Code.

HISTORY

2. Certificate of Compliance as to 5-5-93 order transmitted to OAL 8-27-93 and filed 10-12-93 (Register 93, No. 42).

4. Certificate of Compliance as to 12-30-93 order including renumbering former section 2699.643 to section 2699.6307 transmitted to OAL 4-25-94 and filed 5-27-94 (Register 94, No. 21).

§2699.644. Notification of Rate Changes.

Note • History

NOTE

Authority cited: Section 10731, Insurance Code. Reference: Section 10731, Insurance Code.

HISTORY

2. Certificate of Compliance as to 5-5-93 order transmitted to OAL 8-27-93 and filed 10-12-93 (Register 93, No. 42).

4. Certificate of Compliance as to 12-30-93 order including renumbering former section 2699.644 to section 2699.6309 transmitted to OAL 4-25-94 and filed 5-27-94 (Register 94, No. 21).

§2699.645. Premium Payment to Program.

Note • History

NOTE

Authority cited: Section 10731, Insurance Code. Reference: Sections 10731 and 10742, Insurance Code.

HISTORY

2. Certificate of Compliance as to 5-5-93 order transmitted to OAL 8-27-93 and filed 10-12-93 (Register 93, No. 42).

3. Amendment of section heading and text filed 12-30-93 as an emergency; operative 12-30-93 (Register 93, NO. 53). A Certificate of Compliance must be transmitted to OAL by 4-28-94 or emergency language will be repealed by operation of law on the following day.

4. Certificate of Compliance as to 12-30-93 order including renumbering former section 2699.645 to section 2699.6311 transmitted to OAL 4-25-94 and filed 5-27-94 (Register 94, No. 21).

§2699.646. Overdue Payments; Late Fees; Disqualification for Participating Employers.

Note • History

NOTE

Authority cited: Section 10731, Insurance Code. Reference: Section 10731, Insurance Code.

HISTORY

2. Certificate of Compliance as to 5-5-93 order transmitted to OAL 8-27-93 and filed 10-12-93 (Register 93, No. 42).

4. Certificate of Compliance as to 12-30-93 order including renumbering and amending former section 2699.646 to section 2699.6313 transmitted to OAL 4-25-94 and filed 5-27-94 (Register 94, No. 21).

§2699.646.5. Overdue Payments; Late Fees; Disqualification for Individual Members.

Note • History

NOTE

Authority cited: Section 10731, Insurance Code. Reference: Section 10731, Insurance Code.

HISTORY

2. Certificate of Compliance as to 12-30-93 order including renumbering and amending former section 2699.646.5 to section 2699.6315 transmitted to OAL 4-25-94 and filed 5-27-94 (Register 94, No. 21).

§2699.650. Appeals to the Board.

Note • History

NOTE

Authority cited: Section 10731, Insurance Code. Reference: Sections 10731 and 10748, Insurance Code.

HISTORY

1. New article 5 and section filed 5-5-93 as an emergency; operative 7-1-93 (Register 93, No. 19). A Certificate of Compliance must be transmitted to OAL 10-29-93 or emergency language will be repealed by operation of law on the following day.

2. Certificate of Compliance as to 5-5-93 order transmitted to OAL 8-27-93 and filed 10-12-93 (Register 93, No. 42).

4. Certificate of Compliance as to 12-30-93 order including relocation of article heading, renumbering and amending former section 2699.650 to section 2699.6400 transmitted to OAL 4-25-94 and filed 5-27-94 (Register 94, No. 21).

§2699.651. Filing an Appeal.

Note • History

NOTE

Authority cited: Section 10731, Insurance Code. Reference: Sections 10731 and 10748, Insurance Code.

HISTORY

2. Certificate of Compliance as to 5-5-93 order transmitted to OAL 8-27-93 and filed 10-12-93 (Register 93, No. 42).

3. Amendment of subsection (c) filed 12-30-93 as an emergency; operative 12-30-93 (Register 93, No. 53). A Certificate of Compliance must be transmitted to OAL by 4-28-94 or emergency language will be repealed by operation of law on the following day.

4. Certificate of Compliance as to 12-30-93 order including renumbering former section 2699.651 to section 2699.6401 transmitted to OAL 4-25-94 and filed 5-27-94 (Register 94, No. 21).

§2699.652. Administrative Review.

Note • History

NOTE

Authority cited: Section 10731, Insurance Code. Reference: Section 10731, Insurance Code.

HISTORY

2. Certificate of Compliance as to 5-5-93 order transmitted to OAL 8-27-93 and filed 10-12-93 (Register 93, No. 42).

3. Amendment of subsection (a) filed 12-30-93 as an emergency; operative 12-30-93 (Register 93, No. 53). A Certificate of Compliance must be transmitted by 4-28-94 or emergency language will be repealed by operation of law on the following day.

4. Certificate of Compliance as to 12-30-93 order including renumbering former section 2699.652 to section 2699.6403 transmitted to OAL 4-25-94 and filed 5-27-94 (Register 94, No. 21).

§2699.653. Hearings.

Note • History

NOTE

Authority cited: Section 10731, Insurance Code. Reference: Section 10731, Insurance Code.

HISTORY

2. Certificate of Compliance as to 5-5-93 order transmitted to OAL 8-27-93 and filed 10-12-93 (Register 93, No. 42).

3. Renumbering of former section 2699.653 to section 2699.6405 filed 5-27-94; operative 5-27-94 (Register 94, No. 21).

§2699.654. Conduct of Hearing by Hearing Officer.

Note • History

NOTE

Authority cited: Section 10731, Insurance Code. Reference: Sections 10731 and 10748, Insurance Code.

HISTORY

2. Certificate of Compliance as to 5-5-93 order transmitted to OAL 8-27-93 and filed 10-12-93 (Register 93, No. 42).

3. Renumbering of former section 2699.654 to section 2699.6407 filed 5-27-94; operative 5-27-94 (Register 94, No. 21).

§2699.655. Decision By Appeal Hearing by Hearing Officer.

Note • History

NOTE

Authority cited: Section 10731, Insurance Code. Reference: Sections 10731 and 10748, Insurance Code.

HISTORY

2. Certificate of Compliance as to 5-5-93 order transmitted to OAL 8-27-93 and filed 10-12-93 (Register 93, No. 42).

3. Renumbering of former section 2699.655 to section 2699.6409 filed 5-27-94; operative 5-27-94 (Register 94, No. 21).

4. Editorial correction of printing error (Register 94, No. 23).

Article 1. Definitions

§2699.6000. Definitions.

Note • History

(a) “Benefit year” means the twelve (12) month period commencing July 1 of each year at 12:01 a.m.

(b) “Board” means the Managed Risk Medical Insurance Board.

(c) “Comprehensive individual dental premium” means the individual dental plan rate for an enrolled employee or individual member and enrolled dependents, agent and program participation fees.

(d) “Comprehensive individual medical premium” means the individual medical plan rate for an enrolled employee or individual member and enrolled dependents, agent and program participation fees.

(e) “Dental coverage” means the state of being eligible to receive specified dental benefits under the terms of a dental benefits plan.

(f) “Dental benefit plan” means a policy or a contract written or administered by a participating dental carrier that arranges or provides health care benefits for enrollees.

(g) “Dental benefits premium” means that portion of the employer premium or individual member premium that is owed each month by the participating employer or individual member to the program for coverage of dental benefits. It includes any portion of the participation fee that is for participation in the dental benefits option.

(h) “Dental carrier” means any disability insurance company, health care service plan, specialized health care service plan, or any other entity that writes, issues, or administers group health benefit plans that cover sole employees or guaranteed association members.

(i) “Carrier” means any disability insurance company, health care service plan, nonprofit hospital service plan, or any other entity that writes, issues, or administers group health benefit plans that cover the employees of sole employers or guaranteed association members.

(j) “Coverage” means the state of being eligible to receive specified health benefits under the terms of a health benefit plan.

(k) “Dependent” means a sole employee's or guaranteed association member's spouse and any unmarried dependent child who is an adopted child, a stepchild, or a recognized natural child. A child attains the status of “dependent” at birth or upon legal adoption. A child shall be considered to be adopted upon the sole employee or guaranteed association member receiving physical custody of the child to be adopted. A stepchild attains the status of “dependent” upon the sole employee's or guaranteed association member's marriage to the natural or adopted stepchild's parent. A child ceases to be a “dependent” upon marriage, or attainment of age 23, whichever first occurs; except that an unmarried child who at the time of attaining age 23 is incapable of self-support because of physical or mental disability which existed continuously from a date prior to attainment of age 23 continues in dependent status until termination of such incapacity.

(l) “Disenroll” means termination of coverage in the program for an enrolled sole employee and dependents, if any, or guaranteed association member and dependents, if any.

(m) “Eligible employee” means a sole employee or a member employee. An employee is not an eligible employee until the employee has completed any employer imposed waiting period.

(n) “Employer imposed waiting period” means the period of time an employer requires a new employee to wait before being sponsored for coverage.

(o) “Employer premium” means either:

(1) For participating sole employers who have an effective date of coverage prior to September 1, 1998, who have not made an election pursuant to Section 2699.6116, and participating member employers whose guaranteed association has an effective date of coverage prior to September 1, 1998, and did not make an election pursuant to Section 2699.6116, the dollar amount owed each month by the participating employer to the program. It includes program participation fees, any required late fees, any required reinstatement fees, any required agent, or broker fees, and the sum of individual premiums. It includes the sum of individual premiums for dental benefits if the employer has elected to participate for dental benefits.

(2) For participating sole employers who have an effective date of coverage on or after September 1, 1998, or who have made an election pursuant to Section 2699.6116, and participating member employers whose guaranteed association has an effective date of coverage on or after September 1, 1998, or made an election pursuant to Section 2699.6116, the dollar amount owed each month by the participating employer to the program. It includes the sum of comprehensive individual medical premiums and the sum of comprehensive individual dental premiums if the employer has elected to participate for dental benefits. It includes any required late fees and any required reinstatement fees.

(p) “Enroll” means either:

(1) To accept into the program the eligible employees of a qualified small employer who have applied for coverage and their dependents, or

(2) To accept into the program the qualified individual members of a qualified guaranteed association who have applied for coverage and their dependents.

(q) “Enrollee” means either:

(1) An eligible employee or dependent who receives coverage through the program from a participating carrier, or

(2) A qualified individual member or dependent who receives coverage through the program from a participating carrier.

(r) “Exclusive provider organization” means any disability insurance company or non-profit hospital service plan that limits payments under a policy to services secured by insureds from institutional and professional providers charging alternative rates pursuant to the contract with the insurer.

(s) “Executive Director” means the Executive Director of the Board.

(t) “Fee-for-service dental organization” means dental benefit plans under which retrospective payment is made by a dental carrier on a fee-for-service basis for dental care benefits and services.

(u) “Guaranteed association” means an organization which is a nonprofit organization as determined by the Internal Revenue Service and comprised of a group of individuals or employers who associate based solely on participation in a specified profession or industry, accepting for membership any individual or employer meeting its membership criteria which (1) includes one or more small employers, (2) does not condition membership directly or indirectly on the health or claims history of any person, (3) uses membership dues solely for and in consideration of the membership and membership benefits, except that the amount of the dues shall not depend on whether the member applies for or purchases insurance offered by the association, (4) is organized and maintained in good faith for purposes unrelated to insurance, (5) has been in active existence on January 1, 1992, and for at least five years prior to that date, (6) has been offering health insurance to its members for at least five years prior to January 1, 1992, (7) has a constitution and bylaws, or other analogous governing documents that provide for election of the governing board of the association by its members, (8) offers any health benefits plan that is purchased to all individual members and employer members in this state, (9) includes any member choosing to enroll in a health benefits plan offered to the association provided the member has agreed to make the required premium payments, and (10) covers at least 1,000 persons with each carrier with which it contracts. The requirement of 1,000 persons may be met if component chapters of a statewide association contracting separately with the same carrier cover at least 1,000 persons in the aggregate. This definition applies regardless of whether a contract issued by a plan is with an association or a trust formed for, or sponsored by, an association to administer benefits for guaranteed association members. For purposes of this definition, an association formed by a merger of two or more associations after January 1, 1992, and otherwise meeting the criteria of this definition shall be deemed to have been in active existence on January 1, 1992, if its predecessor organization(s) had been in active existence on January 1, 1992, and for at least five years prior to that date and otherwise met the criteria of this definition.

(v) “Guaranteed association member” means an individual member or member employee of a qualified guaranteed association.

(w) “Health Benefits Plan” means a policy or contract written or administered by a participating carrier that arranges or provides health care benefits for enrollees.

(x) “Health maintenance organization” means either of the following:

(1) Comprehensive group practice prepayment plans which offer benefits, in whole or in substantial part, on a prepaid basis, with professional services thereunder provided by physicians or other providers of health services practicing as a group in a common center or centers. This group shall include physicians representing at least three major medical specialties who receive all or a substantial part of their professional income from the prepaid funds.

(2) Individual practice prepayment plans or network model prepayment plans which offer health services in whole or in part on a prepaid basis, with professional services thereunder provided by individual physicians or groups of physicians or other providers of health services who agree to accept the payment provided by the plans as full payment for covered services rendered by them.

(y) “Indemnity plan” means health benefit plans under which retrospective payment is made by a carrier on a fee-for-service basis for health care benefits and services.

(z) “Individual member” means a person who is sponsored for coverage by a qualified guaranteed association and who is not a member employee.

(aa) “Individual member premium” means either:

(1) For individual members whose guaranteed association has an effective date of coverage prior to September 1, 1998, and did not make an election pursuant to Section 2699.6116, the dollar amount owed each month to the program for coverage of an enrolled individual member and an individual member's enrolled dependents. It includes the amount for dental benefits coverage if the individual member's guaranteed association has elected to participate for dental benefits. It includes program participation fees, any required late fees, any required reinstatement fees, and any required agent or broker fees; or

(2) For individual members whose guaranteed association has an effective date of coverage on or after September 1, 1998, or made an election pursuant to Section 2699.6116, the amount owed each month to the program by the individual member. It includes the comprehensive individual medical premium and the comprehensive individual dental premium if the individual member's guaranteed association has elected to participate for dental benefits. In includes any required late fees and any required reinstatement fees.

(bb) “Individual premium” means the dollar amount owed to the program for health or health and dental coverage of an enrolled employee and the employee's enrolled dependents.

(cc) “Late applicant” means either:

(1) An eligible employee or dependent who declined health coverage in the program at the time it was last offered to them by the small employer sponsoring their coverage, and who subsequently applies for enrollment in the program. Otherwise eligible employees or dependents who previously certified to their employer that they had other employer sponsored health coverage or coverage under the federal Medicare program pursuant to Title XVIII of the Social Security Act and waived coverage in the program and who apply for coverage in the program within thirty (30) calendar days of a loss of the other coverage will not be considered to be late applicants; or

(2) An individual member or dependent who did not apply for health coverage at the time it was offered by the guaranteed association and subsequently applies for enrollment in the program. Individual members or dependents who did not apply for health coverage at the time it was last offered by the guaranteed association but at that time had other employer sponsored health coverage or coverage under the federal Medicare program pursuant to Title XVIII of the Social Security Act, who apply for coverage in the program within thirty (30) calendar days of a loss of the other coverage will not be considered to be a late applicant if the member or dependent can demonstrate that he or she had other coverage at the time the guaranteed association offered coverage.

(dd) “Member employee” means any permanent employee employed by a member employer for at least thirty (30) consecutive calendar days who is actively engaged on a full-time basis in the conduct of the business of the member employer with a normal workweek of at least thirty (30) hours, at the member employer's regular place or places of business. The term includes sole proprietors or partners in a partnership, if they are actively engaged on a full time basis with a normal work week of at least 30 hours in the member employer's business and included as employees under a health care plan contract of a member employer, but does not include employees who work on a part-time, temporary, or substitute basis. To be considered a member employee an employee shall be paid by the member employer as a permanent employee. An employee who has been on paid leave for more than ninety (90) days in a year from the effective date of coverage in the program or more than ninety (90) days in any subsequent twelve month period of coverage in the program shall cease to be considered a member employee unless on leave pursuant to the federal Family and Medical Leave Act of 1993 (P.L. 103-3), and/or California Government Code Sections 12945 and 12945.2. An employee on unpaid leave shall not be considered a member employee unless on leave pursuant to the federal Family and Medical Leave Act of 1993 and/or California Government Code Sections 12945 and 12945.2. Employees who waive coverage on the grounds that they have other employer sponsored health coverage or coverage under the federal Medicare program pursuant to Title XVIII of the Social Security Act shall not be considered or counted as member employees.

(ee) “Member employer” means either a sole employer which purchases coverage in the program as a member of a qualified guaranteed association or an employer which would be a sole employer if it had no more than 50 eligible employees which purchases coverage in the program as a member of a qualified guaranteed association.

(ff) “Participating carrier” means a carrier that has entered into a contract with the program to provide health benefits coverage.

(gg) “Participating dental carrier” means a dental carrier that has entered into a contract with the program to provide dental benefits coverage.

(hh) “Participating employer” means a small employer who has been accepted into the program.

(ii) “Preexisting condition” means a condition for which medical advice, diagnosis, care, or treatment, including the use of prescription medications, was recommended or received from a licensed health practitioner during the six months immediately preceding the effective date of coverage.

(jj) “Preexisting condition provision” means a policy provision that excludes coverage for charges or expenses incurred during a specified period following the insured's effective date of coverage for any preexisting condition.

(kk) “Preferred provider organization” means health benefits plans under which retrospective payment is made by a carrier under contracts that define rates of payment with physicians, hospitals, or other providers of health services rendered to subscribers.

(ll) “Pre-paid dental organization” means individual practice prepayment plans or network model prepayment plans which offer dental services in whole or in part on a prepaid basis, with professional services thereunder provided by individual dentists or groups of dentists or other providers of dental services who agree to accept the payment provided by the plans as full payment for covered services rendered by them.

(mm) “Program participation fee” means the amount charged to a small employer or individual member to participate in the program pursuant to Section 2699.6307.

(nn) “Program” means the Voluntary Alliance Uniting Employers Purchasing Program which shall be known as “The Health Insurance Plan of California.”

(oo) “Qualified guaranteed association” means an association that has been determined to be in compliance with the participation requirements of Section 2699.6109 of this part.

(pp) “Qualified individual member” means an individual member that has been determined to be in compliance with the participation requirements of Section 2699.6113 of this part.

(qq) “Qualified member employer” means a member employer that has been determined to be in compliance with the participation requirements of Section 2699.6111.

(rr) “Qualified sole employer” means a sole employer that has been determined to be in compliance with the participation requirements of Section 2699.6107 of this part.

(ss) “Qualifying prior coverage” means:

(1) Any individual or group policy, or contract, or program, this is written or administered by a disability insurer, nonprofit hospital service plan, health care service plan, fraternal benefits society, self insured employer plan, or any other entity, in this state or elsewhere, and that arranges or provides medical, hospital, and surgical coverage not designed to supplement other private or governmental plans. The term includes continuation or conversion coverage but does not include accident only, credit, disability income, Medicare supplement, long term care, dental, vision, coverage issued as a supplement to liability insurance, insurance arising out of a workers' compensation or similar law, automobile medical payment insurance, or insurance under which benefits are payable with or without regard to fault and that is statutorily required to be contained in any liability insurance policy or equivalent self insurance.

(2) The federal Medicare program pursuant to Title XVIII of the Social Security Act.

(3) The Medicaid program pursuant to Title XIX of the Social Security Act.

(4) Any other publicly sponsored program, provided in this state or elsewhere, of medical, hospital and surgical care.

(tt) “Qualifying prior dental coverage” means:

(1) Any individual or group policy, or contract, or program, that is written or administered by a disability insurer, nonprofit dental service plan, dental service plan, fraternal benefits society, self-insured employer dental plan, or any other entity, in this state or elsewhere, and that arranges or provides dental coverage not designed to supplement other private or governmental plans. The term includes continuation or conversion coverage but does not include accident only, credit, disability income, Medicare supplement, longterm care, vision, coverage issued as a supplement to liability insurance, insurance arising out of a workers' compensation or similar law, automobile medical payment insurance, or insurance under which benefits are payable with or without regard to fault and that is statutorily required to be contained in any liability insurance policy or equivalent self-insurance.

(2) Any other publicly sponsored program, provided in this state or elsewhere, of dental care.

(uu) “Rating period” means the period for which premium rates for a participating carrier are in effect.

(vv) Rounding of percentage. Whenever in this part a percentage is calculated or referenced the resulting number will be rounded to the nearest whole integer.

(ww) “Small employer” means a sole employer or member employer.

(xx) “Sole employee” means any permanent employee employed by a qualified sole employer for at least thirty (30) consecutive calendar days who is actively engaged on a full-time basis in the conduct of the business of the qualified sole employer with a normal workweek of at least thirty (30) hours, at the qualified sole employer's regular place or places of business. The term includes sole proprietors or partners in a partnership, if they are actively engaged on a full time basis with a normal work week of at least 30 hours in the qualified sole employer's business and included as employees under a health care plan contract of a qualified sole employer, but does not include employees who work on a part-time, temporary, or substitute basis. To be considered a sole employee an employee shall be paid by the sole employer as a permanent employee. An employee who has been on paid leave for more than ninety (90) days in a year from the effective date of coverage in the program or for more than ninety (90) days in any subsequent twelve month period shall cease to be considered a sole employee unless on leave pursuant to the federal Family and Medical Leave Act of 1993 (P.L. 103-3), and/or California Government Code Sections 12945 and 12945.2. An employee on unpaid leave shall not be considered a member employer unless on leave pursuant to the federal Family and Medical Leave Act of 1993 and/or California Government Code Sections 12945 and 12945.2. Employees who waive coverage on the grounds that they have other employer sponsored health coverage or coverage under the federal Medicare program pursuant to Title XVIII of the Social Security Act shall not be considered or counted as sole employees.

(yy) “Sole employer” means any person, firm, proprietary or nonprofit corporation, partnership, public agency, or association that is actively engaged in business or service that, on at least 50% of its working days during the preceding calendar quarter employed at least two, but no more than 50, eligible employees, the majority of whom were employed within this state, which was not formed primarily for the purposes of buying health coverage and in which a bona fide employer-employee relationship exists. However, the definition shall include employers with at least four eligible employees until July 1, 1995, three eligible employees until July 1, 1997 and two eligible employees thereafter. In determining the number of eligible employees, companies that are affiliated companies and that are eligible to file a combined tax return for purposes of state taxation shall be considered one employer. For purposes of these regulations sole employers who participate in the program as member employers will be considered member employers.

(zz) “Social Security Number” means the account number assigned to an individual by the United States Social Security Administration in order to make payments and obtain benefits under the Social Security Act. The Social Security Number is necessary for use by the program as a unique identifier in order to track an enrollee's status in the program, and for ongoing administration. The Social Security Number will be shared with the program's central enroller contractor and with the carrier contractor selected by the enrollee. The use of the Social Security Number in the program is protected under The Federal Privacy Act of 1974 (Public Law 93-579) and the State Information Practices Act of 1977 (Civil Code Section 1798 et seq.).

(aaa) “Tenses, and Number.” The present tense includes the past and future, and the future the present; the singular includes the plural and the plural the singular.

(bbb) “Time.” Whenever in this chapter a time is stated in which an act is to be done, the time is computed by excluding the first day and including the last day. If the last day is a holiday it is also excluded.

NOTE

Authority cited: Section 10731, Insurance Code. Reference: Section 10731, Insurance Code.

HISTORY

1. Relocating of article heading and renumbering and amendment of former section 2699.610 to section 2699.6000 filed 5-27-94; operative 5-27-94 (Register 94, No. 21).

2. Amendment filed 5-23-94 as an emergency; operative 5-23-94 (Register 94, No. 21). A Certificate of Compliance must be transmitted to OAL by 9-20-94 or emergency language will be repealed by operation of law on the following day.

3. Certificate of Compliance as to 5-23-94 order transmitted to OAL 9-16-94 and filed 10-27-94 (Register 94, No. 43).

4. Amendment of subsection (k), new subsection (l), subsection relettering, and amendment of newly designated subsections (o)(1), (q), (r), (s), (x), (mm), (oo)(2), (pp)(1) and (uu) filed 12-29-94 as an emergency; operative 12-29-94 (Register 94, No. 52). A Certificate of Compliance must be transmitted to OAL 4-28-95 or emergency language will be repealed by operation of law on the following day.

5. Certificate of Compliance as to 12-29-94 order including amendment of subsections (r) and (oo)(1) transmitted to OAL 4-12-95 and filed 5-22-95 (Register 95, No. 21).

6. Amendment of subsections (z) and (tt) filed 6-16-95 as an emergency; operative 6-16-95 (Register 95, No. 24). A Certificate of Compliance must be transmitted to OAL by 10-16-95 or emergency language will be repealed by operation of law on the following day.

7. Certificate of Compliance as to 6-16-95 order transmitted to OAL 9-26-95 and filed 10-18-95 (Register 95, No. 42).

8. New subsection (p) and subsection relettering filed 5-2-96; operative 6-1-96 (Register 96, No. 18).

9. Amendment of subsections (i) and (vv) filed 5-5-97; operative 7-1-97 (Register 97, No. 19).

10. Amendment filed 7-3-98 as an emergency; operative 7-3-98 (Register 98, No. 27). A Certificate of Compliance must be transmitted to OAL by 11-2-98 or emergency language will be repealed by operation of law on the following day.

11. Certificate of Compliance as to 7-3-98 order, including amendment of section, transmitted to OAL 10-2-98 and filed 11-16-98 (Register 98, No. 47).

12. Editorial correction (Register 99, No. 6).

Article 2. Participation Requirements, Application And Enrollment

§2699.6100. Non-Discrimination.

Note • History

(a) The program shall be administered without regard to sex, race, creed, color, sexual orientation, national origin, disability, or occupation.

NOTE

Authority cited: Section 10731, Insurance Code. Reference: Section 10731, Insurance Code.

HISTORY

1. Relocation of article heading and renumbering of former section 2699.620 to section 2699.6100 filed 5-27-94; operative 5-27-94 (Register 94, No. 21).

§2699.6103. Availability of Benefit Plan Designs.

Note • History

The program may make available to eligible employees and dependents health benefits plans which are health maintenance organizations, preferred provider organizations or exclusive provider organizations. For eligible employees and dependents who reside in the United States of America but outside the state of California, the program may also make available health benefits plans which are indemnity plans.

NOTE

Authority cited: Section 10731, Insurance Code. Reference: Section 10731, Insurance Code.

HISTORY

1. Renumbering of former section 2699.6205 to section 2699.6103 filed 5-27-94; operative 5-27-94 (Register 94, No. 21).

2. Amendment of section and new Note filed 5-2-96; operative 6-1-96 (Register 96, No. 18).

§2699.6105. Availability of Dental Benefit.

Note • History

The program may make available to sole employees and guaranteed association members, and their dependents, who reside in the state, dental benefit plans which are pre-paid dental organizations or fee-for-service dental organizations.

NOTE

Authority cited: Section 10731, Insurance Code. Reference: Section 10731, Insurance Code.

HISTORY

1. New section filed 5-23-94 as an emergency; operative 5-23-94 (Register 94, No. 21). A Certificate of Compliance must be transmitted to OAL by 9-20-94 or emergency language will be repealed by operation of law on the following day.

2. Certificate of Compliance as to 5-23-94 order transmitted to OAL 9-16-94 and filed 10-27-94 (Register 94, No. 43).

§2699.6107. Participation Requirements for Sole Employers.

Note • History

(a) Qualified sole employers shall be eligible to participate in the program to provide health benefits coverage for sole employees and their dependents.

(b) To be a qualified sole employer, a sole employer shall be a sole employer as defined as of the effective date of coverage and shall meet the following requirements:

(1) Inform all potential sole employees of the employer's intention to purchase coverage through the program and provide them the opportunity to apply for coverage.

(2) Provide all potential sole employees with at least thirty (30) calendar days to decide whether to apply for coverage and choose their health benefit plan; this shall be done for all potential sole employees in a consistent time and manner.

(3) Inform all potential sole employees of the amount the employer will contribute toward the purchase of coverage.

(4) For each potential sole employee who declines to apply for coverage or who fails to request coverage for all of his or her dependents, the employer shall do one of the following:

(A) For an employee waiving because the employee and/or the employee's dependents have health coverage under the terms of another employer benefit plan or coverage under the federal Medicare program pursuant to Title XVIII, the employer shall obtain from the employee a certification that the employee is waiving because the employee and/or his or her dependents have coverage under another health benefit plan.

(B) For any employee declining coverage who fails to make the certification in (A) above, require the employee to sign a written statement, the content of which will be provided by the program, which informs the employee that failure to enroll for coverage during the enrollment period will result in the employee being unable to enroll himself or herself or dependents with the program until the program's next open enrollment period. The form is contained in the HIPC application booklet.

(5) Maintain at the sole employer's principal place of business copies of the certifications and written statements required by (4) above for a period of one (1) year.

(6)(A) For sole employers who have an effective date of coverage prior to September 1, 1998, who have not made an election pursuant to Section 2699.6116, for every employee who enrolls in the program, the sole employer shall contribute an amount equal to at least 50% of the monthly “employee only” rate of the lowest “employee only” rate available to the eligible employee.

(B) For sole employers who have an effective date of coverage on or after September 1, 1998, and sole employers who made an election pursuant to Section 2699.6116, for every employee who enrolls in the program, the sole employer shall contribute an amount equal to at least 50% of the lowest available monthly employee only comprehensive individual medical premium.

(7) For sole employers of four (4) or more eligible employees, at least 70% of the eligible employees shall be enrolled in the program unless the sole employer contributes 100% of the “employee only” rate in which case 100% of the eligible employees shall be enrolled in the program. For sole employers of two (2) or three (3) eligible employees, all of the eligible employees shall be enrolled in the program. At the time of the initial application, this determination shall be made as of the effective day of coverage for the group.

(8) One hundred percent of the eligible employees enrolling in the program shall be covered by workers' compensation insurance except those eligible employees who are not legally required to be covered by workers' compensation insurance.

(9) Inform the program when an eligible sole employee or dependent ceases to be eligible by the end of the month in which the event occurs.

NOTE

Authority cited: Section 10731, Insurance Code. Reference: Sections 10731 and 10741, Insurance Code.

HISTORY

1. Renumbering and amendment of former section 2699.621 to section 2699.6107 filed 5-27-94; operative 5-27-94 (Register 94, No. 21).

2. Amendment of subsections (b), (b)(4)(A), (b)(4)(B), (b)(7), and (b)(8) filed 12-29-94 as an emergency; operative 12-29-94 (Register 94, No. 52). A Certificate of Compliance must be transmitted to OAL 4-28-95 or emergency language will be repealed by operation of law on the following day.

3. Certificate of Compliance as to 12-29-94 order transmitted to OAL 4-12-95 and filed 5-22-95 (Register 95, No. 21).

4. Amendment of subsections (b), (b)(7) and (b)(9) filed 6-16-95 as an emergency; operative 6-16-95 (Register 95, No. 24). A Certificate of Compliance must be transmitted to OAL by 10-16-95 or emergency language will be repealed by operation of law on the following day.

5. Certificate of Compliance as to 6-16-95 order transmitted to OAL 9-26-95 and filed 10-18-95 (Register 95, No. 42).

6. Amendment of subsection (b)(7) filed 5-5-97; operative 7-1-97 (Register 97, No. 19).

7. Redesignation and amendment of former subsection (b)(6) to new subsection (b)(6)(A) and new subsection (b)(6)(B) filed 7-3-98 as an emergency; operative 7-3-98 (Register 98, No. 27). A Certificate of Compliance must be transmitted to OAL by 11-2-98 or emergency language will be repealed by operation of law on the following day.

8. Certificate of Compliance as to 7-3-98 order transmitted to OAL 10-2-98 and filed 11-16-98 (Register 98, No. 47).

§2699.6109. Participation Requirements for Guaranteed Associations.

Note • History

(a) Qualified guaranteed associations shall be eligible to participate in the program to provide health benefits coverage for member employees and individual members. To be a qualified guaranteed association, a guaranteed association shall meet the following requirements:

(1) Send a notice to all members of the association, as well as any other person known to the association who although not an association member is in a category of persons who pursuant to (a)(9) below will be eligible for coverage through the guaranteed association, at their last known address that they may elect coverage through the guaranteed association, and that if they meet the qualifications to be a member employer, they may elect to provide coverage for their member employees through the guaranteed association. The notice shall state in bold face type that failure to elect coverage during the enrollment period permits the program to impose, at the time of the employer or person's later decision to elect coverage, an exclusion from coverage until the next open enrollment period, as well as, depending on the participating carrier selected by the person, a six months preexisting condition exclusion once enrolled, unless the individual member can demonstrate that he or she had other employer health coverage during the time of the enrollment period, or has been directed by court order to provide coverage for a spouse or minor child and the person has applied within thirty (30) days of losing that coverage. In addition to the initial notice, such notice shall be provided to all members who later join the guaranteed association and persons who become members of a sponsored category within 30 days of the date they become members of the guaranteed association or sponsored category.

(2) Provide all potentially qualified member employers and individual members with at least thirty (30) calendar days to decide whether to apply for coverage through the program.

(3) Maintain for a period of one (1) year at the guaranteed association's principal place of business a copy of any notice required by (1) above as well as a list detailing to whom the notice was mailed and when.

(4) Not offer coverage anywhere but in the program.

(5) Provide coverage in the program to at least 1000 persons except for the following:

(A) Sixty (60) days prior to the expiration of an existing plan contract that expires prior to July 1, 1994, or, for plan contracts expiring after July 1, 1994, sixty (60) days prior to July 1, 1994 an association that meets the definition of a guaranteed association pursuant to Section 2699.6000 of this part, except for the requirements that one thousand (1,000) persons be covered, shall be able to participate in the program as if the association were a qualified guaranteed association if the persons sponsored by the association satisfy the criteria specified in (B) below.

(B) Persons determined to be eligible pursuant to (9) below applying to the program pursuant to (A) above shall not be qualified unless they:

1. Have been receiving coverage or had successfully applied for coverage through the association as of June 30, 1993, or

2. Have been receiving coverage through the association as of December 31, 1992, and whose coverage lapsed at any time thereafter because the employment through which coverage was received ended or an employer's contribution to health coverage ended, or

3. Have been covered at any time between June 30, 1993, and July 1, 1994, under a contract that was in force on June 30, 1993.

(6) Maintain at the guaranteed association's principal place of business and provide to the program upon request documents that verify that:

(A) The guaranteed association membership includes one or more employers meeting the criteria of a sole employer as defined in Section 2699.6000.

(B) The guaranteed association does not condition membership directly or indirectly on the health claims history of any person,

(C) The guaranteed association uses membership dues solely for and in consideration of the membership and membership benefits,

(D) The guaranteed association is organized and maintained for purposes unrelated to insurance,

(E) The guaranteed association was in active existence on January 1, 1992, and for at least five (5) years prior to that date,

(F) The guaranteed association has been offering health insurance to its members that reside in California for at least five (5) years prior to January 1, 1992, and

(G) The guaranteed association has governing documents that provide for the election of its governing board by the membership of the association.

(7) For a guaranteed association that has provided coverage to its members through the mechanism of a trust, the guaranteed association shall provide at the program's request documentation that membership in the trust is coincidental with membership in the guaranteed association or that individual members are retired members or the spouse or dependents of a deceased member.

(8) Provide to the program documents that illustrate that the member employers and individual members purchasing coverage through the program are bona fide members of the guaranteed association or that individual members are retired members or a spouse of a deceased member, and provide to the program the beginning date of membership for each member employer and individual member.

(9) Determine what categories of persons who are not otherwise association members the guaranteed association will sponsor for coverage as members. These may only include employees of members, association staff, retired members, retired employees of members, and surviving spouses and dependents of deceased members. The guaranteed association shall commit to the program that the specified offering will continue until the guaranteed association's annual requalification.

NOTE

Authority cited: Section 10731, Insurance Code. Reference: Sections 10731 and 10741, Insurance Code.

HISTORY

1. Renumbering and amendment of former section 2699.621.5 to section 2699.6109 filed 5-27-94; operative 5-27-94 (Register 94, No. 21).

2. Amendment of subsections (a)(1)-(3) and Note filed 12-29-94 as an emergency; operative 12-29-94 (Register 94, No. 52). A Certificate of Compliance must be transmitted to OAL 4-28-95 or emergency language will be repealed by operation of law on the following day.

3. Certificate of Compliance as to 12-29-94 order transmitted to OAL 4-12-95 and filed 5-22-95 (Register 95, No. 21).

4. Amendment of subsection (a)(9) filed 4-25-96; operative 5-25-96 (Register 96, No. 17).

§2699.6111. Participation Requirements for Member Employers.

Note • History

(a) Qualified member employers shall be eligible to participate in the program to provide health benefits coverage for member employees and their dependents.

(b) To be a qualified member employer, a member employer shall meet the following requirements:

(1) Be a member employer of a qualified guaranteed association before applying to the participate in the program and continue to be a member employer of a qualified guaranteed association while participating in the program.

(2) Meet the requirements specified for sole employers in Section 2699.6107(b), except that in Subsection 2699.6107(b)(6), the effective date of coverage shall refer to that of the guaranteed association, not the member employer.

NOTE

Authority cited: Section 10731, Insurance Code. Reference: Section 10731, Insurance Code.

HISTORY

1. Renumbering and amendment of former section 2699.621.6 to section 2699.6111 filed 5-27-94; operative 5-27-94 (Register 94, No. 21).

2. Amendment of subsection (b)(2) filed 7-3-98 as an emergency; operative 7-3-98 (Register 98, No. 27). A Certificate of Compliance must be transmitted to OAL by 11-2-98 or emergency language will be repealed by operation of law on the following day.

3. Certificate of Compliance as to 7-3-98 order transmitted to OAL 10-2-98 and filed 11-16-98 (Register 98, No. 47).

§2699.6113. Participation Requirements of Individual Members.

Note • History

(a) Qualified individual members of a qualified guaranteed association shall be eligible to participate in the program.

(b) To be a qualified individual member an individual member shall be:

(1) A resident of the State of California and

(2) In a category of persons the guaranteed association has designated to be sponsored for coverage.

NOTE

Authority cited: Section 10731, Insurance Code. Reference: Sections 10731 and 10741, Insurance Code.

HISTORY

1. Renumbering and amendment of former section 2699.621.7 to section 2699.6113 filed 5-27-94; operative 5-27-94 (Register 94, No. 21).

§2699.6115. Participation Requirements for Dental Benefits Option.

Note • History

(a) Only enrollees who qualify for and receive health benefits coverage in the program shall be eligible to receive dental benefits coverage through the program.

(b) If a small employer elects the dental benefit option:

(1) 100% of the eligible employees participating in the program for health benefits shall participate in the program for dental benefits, and any dependents enrolled for health benefits shall be enrolled for dental benefits, with the exception that dependents under the age of two years are not required to participate, and

(2)(A) For sole employers who have an effective date of coverage prior to September 1, 1998, who have not made an election pursuant to Section 2699.6116, and member employers whose guaranteed association has an effective date of coverage prior to September 1, 1998 and did not make an election pursuant to Section 2699.6116, for each such employee a small employer shall contribute an amount equal to at least 50% of the monthly “employee only” rate of the lowest “employee only” rate available to the employee for dental benefits.

(B) For sole employers who have an effective date of coverage on or after September 1, 1998, or who have made an election pursuant to Section 2699.6116, and member employers whose guaranteed association has an effective date of coverage on or after September 1, 1998, or made an election pursuant to Section 2699.6116, for each such employee a small employer shall contribute an amount equal to at least 50% of the lowest available monthly employee only comprehensive individual dental premium.

(c) If a qualified guaranteed association elects to make the dental benefit option available to individual members, 100% of the individual members of the qualified guaranteed association participating in the program for health benefits shall participate in the program for dental benefits and any dependents enrolled for health benefits shall be enrolled for dental benefits, with the exception that dependents under the age of two years are not required to participate.

NOTE

Authority cited: Section 10731, Insurance Code. Reference: Sections 10731 and 10741, Insurance Code.

HISTORY

2. Certificate of Compliance as to 5-23-94 order transmitted with amendment of subsection (b)(1) to OAL 9-16-94 and filed 10-27-94 (Register 94, No. 43).

3. Redesignation and amendment of former subsection (b)(2) to new subsection (b)(2)(A) and new subsection (b)(2)(B) filed 7-3-98 as an emergency; operative 7-3-98 (Register 98, No. 27). A Certificate of Compliance must be transmitted to OAL by 11-2-98 or emergency language will be repealed by operation of law on the following day.

4. Certificate of Compliance as to 7-3-98 order transmitted to OAL 10-2-98 and filed 11-16-98 (Register 98, No. 47).

§2699.6116. Fee Structure Election.

Note • History

(a) Participating sole employers and guaranteed associations with an effective date of coverage prior to September 1, 1998, may elect to participate under the agent fee and program participation fee structures applicable to sole employers and guaranteed associations with an effective date of coverage on or after September 1, 1998. If a guaranteed association makes an election, each member employer and individual member of that association shall be deemed to have made an election. If such an election is made it must be made in writing by October 1, 1998 and is irrevocable.

NOTE

Authority cited: Section 10731, Insurance Code. Reference: Section 10731, Insurance Code.

HISTORY

1. New section filed 7-3-98 as an emergency; operative 7-3-98 (Register 98, No. 27). A Certificate of Compliance must be transmitted to OAL by 11-2-98 or emergency language will be repealed by operation of law on the following day.

2. Certificate of Compliance as to 7-3-98 order transmitted to OAL 10-2-98 and filed 11-16-98 (Register 98, No. 47).

§2699.6117. Annual Requalification for Sole Employers.

Note • History

(a) Each participating sole employer will be reevaluated annually to determine if it continues to be a qualified sole employer as defined in Section 2699.6000. If a participating sole employer has at least two (2) eligible employees at the time of the sole employer's annual requalification and if the participating sole employer meets the requirements of Section 2699.6107, then the participating sole employer shall continue to be qualified. For purposes of this subsection only, a sole employee who is not an eligible employee at the time of the annual re-evaluation solely because of an employer-imposed waiting period but who will complete the waiting period within 30 days of the anniversary of the group's participation, and who has submitted a complete application to the program, shall be deemed an eligible employee.

(b) A participating sole employer must provide to the program all information necessary for the program's annual determination and all information necessary to verify the status of eligible employees and dependents. This information shall include a listing of all potentially eligible employees and dependents as well as a certification that the sole employer has met the requirements of Section 2699.6107.

NOTE

Authority cited: Section 10731, Insurance Code. Reference: Sections 10731 and 10741, Insurance Code.

HISTORY

1. Renumbering and amendment of former section 2699.622 to section 2699.6117 filed 5-27-94; operative 5-27-94 (Register 94, No. 21).

2. Amendment of subsection (a) filed 5-5-97; operative 7-1-97 (Register 97, No. 19).

§2699.6119. Annual Requalification for Guaranteed Associations and Guaranteed Association Members.

Note • History

(a) Each participating association will be reevaluated annually to determine if it continues to be a qualified guaranteed association. If the participating guaranteed association meets the requirements of Section 2699.6109, then the participating guaranteed association shall continue to be qualified. As part of this process the participating guaranteed association shall specify the categories of persons to be sponsored for coverage.

(b) Each participating member employer will be reevaluated annually to determine if it continues to be a qualified member employer. If a participating member employer has at least two eligible employees at the time of the participating member employer's annual requalification and if the participating member employer meets the requirements of Section 2699.6111, then the participating member employer shall continue to be qualified. For purposes of this subsection only, a member employee who is not an eligible employee at the time of the annual re-evaluation solely because of an employer-imposed waiting period but who will complete the waiting period within 30 days of the anniversary of the group's participation, and who has submitted a complete application to the program, shall be deemed an eligible employee. A participating member employer must provide to the program all information necessary for the program's annual determination and all information necessary to verify the status of eligible employees and dependents. This information shall include a listing of all potentially eligible employees and dependents as well as a certification that the member employer has met the requirements of Section 2699.6111.

(c) Each participating individual member will be reevaluated annually to determine if he or she continues to be a qualified individual member. If the participating individual member meets the requirements of Section 2699.6113, then the participating individual member shall continue to be qualified.

NOTE

Authority cited: Section 10731, Insurance Code. Reference: Sections 10731 and 10741, Insurance Code.

HISTORY

1. Renumbering and amendment of former section 2699.622.5 to section 2699.6119 filed 5-27-94; operative 5-27-94 (Register 94, No. 21).

2. Amendment of subsection (b) filed 5-5-97; operative 7-1-97 (Register 97, No. 19).

§2699.6121. Application for Sole Employers.

Note • History

(a) To apply for the program a sole employer shall submit:

(1) All information, documentation, and declarations necessary to determine program qualification and employee eligibility as set forth in subsection (d) of this section, and

(2) The name, position, and phone number of a designated contact person, and

(3) One check or money order for an amount equal to the initial one month employer premium. If the check is returned for non-sufficient funds, the application shall be considered incomplete.

(b) The sole employer shall designate a person legally authorized to sign and date required declarations on behalf of the sole employer stating that the information given is accurate and complete to the best of their knowledge.

(d)(1) The application shall contain the following:

(A) The sole employer's complete name.

(B) The sole employer's current business address including unit number, street, city, county, state, and zip code.

(D) The sole employer's federal tax identification number.

(E) The sole employer's telephone number.

(F) The industry type of the sole employer.

(G) A copy of the sole employer's most recent state Employment Development Department's (EDD) Form DE6 (entitled “Quarterly Wage Report”) Form DE 3B (entitled “Report of Wages”) or Form DE 3DP (entitled “Quarterly Contribution Report”) as submitted to EDD and a copy of the Federal W-4 form or employer payroll records for any employee not listed on the EDD forms submitted to the program.

(H) The name and address of the sole employer's worker's compensation carrier, and the policy number.

(I) The number of eligible employees, or employees who will be eligible by the effective date of coverage, employed by the sole employer and the number of eligible employees, or employees who will be eligible by the effective date of coverage, applying for enrollment in the program.

(J) A notification to the program of persons, if any, who can be demonstrated to have legal access to replacement coverage pursuant to California Insurance Code Section 10128.3 or California Health and Safety Code Section 1399.63.

(K) A declaration that the sole employer has informed every potential sole employee of the opportunity to obtain coverage from the participating carriers in the program and that each potential sole employee was given at least thirty (30) calendar days to respond to the opportunity.

(L) A declaration that the sole employer will inform and invite potential sole employees to respond in a consistent time and manner.

(M) A declaration that 100% of the eligible employees enrolling in the program legally required to be covered by workers' compensation insurance are so covered.

(N) A declaration that each of the employees applying for enrollment in the program is an eligible employee or will be an eligible employee by the effective date of coverage.

(O)(1) For sole employers who have an effective date of coverage prior to September 1, 1998, who have not made an election pursuant to Section 2699.6116, a declaration that the employer will contribute an amount equal to at least 50% of the lowest available employee only rate for each applying employee. If the sole employer will contribute 100% of the employee only rate, the declaration must so state.

(2) For sole employers who have an effective date of coverage on or after September 1, 1998, or who have made an election pursuant to Section 2699.6116, a declaration that the employer will contribute an amount equal to at least 50% of the lowest available employee only comprehensive individual medical premium for each applying employee. If the sole employer will contribute 100% of the employee only comprehensive individual medical premium, the declaration must so state.

(P) For sole employees with four (4) or more eligible employees, a declaration that at least 70% of the eligible employees, or employees who will be eligible as of the effective date of coverage, are applying for enrollment in the program. If the sole employer contributes 100% of the “employee only” rate or the “employee only” comprehensive individual medical premium or if the sole employer has two (2) or three (3) eligible employees, a declaration that 100% of employees who will be eligible employees as of the effective date of coverage, are applying for enrollment.

(Q) A declaration that the sole employer will abide by the rules of participation and premium payment requirements of the program.

(R) A declaration that those eligible employees who have declined coverage in the program for themselves or for any of their dependents have signed a form explaining to them that they will be unable to enroll in the program until the program's next open enrollment period.

(S) A declaration by a legally authorized representative of the sole employer stating that the information is accurate and complete to the best of their knowledge.

(T)(1) For sole employers who have an effective date of coverage prior to September 1, 1998 who have not made an election pursuant to Section 2699.6116, either the agent/broker payment request specified in Section 2699.6194(a)(1) or the sole employer certification specified in Section 2699.6194(a)(2).

(2) For sole employers who have an effective date of coverage on or after September 1, 1998 or who have made an election pursuant to Section 2699.6116, the agent/broker payment request specified in Section 2699.6194(b)(2).

(2) The sole employer shall submit information for each eligible employee who is applying for enrollment that includes the following:

(A) The employee's full name.

(B) The employee's current residence address including house or unit number, street, city, county, state, and zip code.

(D) The employee's date of birth.

(E) The employee's sex.

(F) The employee's social security number, as defined in Section 2699.6000.

(G) The employee's medical insurance information, including the carrier name and address of:

1. Any current medical insurance or other health benefits including coverage under the federal Medicare program pursuant to Title XVIII,

2. Most recent prior medical insurance or other health benefits.

(H) The employee's date of employment with the sole employer, the number of hours in the employee's normal workweek, and the date, if different from the employment date, that the employee began a normal workweek of at least thirty (30) hours.

(I) If dependents are to be included in the coverage, the full names, dates of birth, sex, social security numbers as defined in Section 2699.6000, if available, relationship of the dependents to be covered and medical insurance information for each dependent as specified in (G) above.

(J) The participating carrier and health benefits plan that the eligible employee is selecting for coverage.

(K) A signed and dated declaration by the eligible employee that declares the following:

1. The employee will follow the rules and regulations of the program.

2. The employee has reviewed the services and coverage offered by the participating carriers and the premium rates of the participating carriers.

3. The employee resides in the service area of his/her selected participating carrier.

4. The employee will abide by the rules, utilization review process, and dispute resolution process of the participating carrier which the eligible employee has selected.

5. The employee understands that he or she meets the program requirements to be an eligible employee.

6. The information given is true and correct.

NOTE

Authority cited: Section 10731, Insurance Code. Reference: Section 10731, Insurance Code.

HISTORY

1. Renumbering and amendment of former section 2699.623 to section 2699.6121 filed 5-27-94; operative 5-27-94 (Register 94, No. 21).

2. Amendment of subsections (d)(1)(I), (d)(1)(M) and (d)(1)(O) filed 12-29-94 as an emergency; operative 12-29-94 (Register 94, No. 52). A Certificate of Compliance must be transmitted to OAL 4-28-95 or emergency language will be repealed by operation of law on the following day.

3. Change without regulatory effect amending subsection (d)(1)(G) filed 5-5-95 pursuant to section 100, title 1, California Code of Regulations (Register 95, No. 18).

4. Certificate of Compliance as to 12-29-94 order including amendment of subsection (d)(1)(O) transmitted to OAL 4-12-95 and filed 5-22-95 (Register 95, No. 21).

5. Amendment of subsections (d)(1)(G), new subsection (d)(1)(J), subsection relettering, and amendment of newly designated subsection (d)(1)(P) filed 6-16-95 as an emergency; operative 6-16-95 (Register 95, No. 24). A Certificate of Compliance must be transmitted to OAL by 10-16-95 or emergency language will be repealed by operation of law on the following day.

6. Certificate of Compliance as to 6-16-95 order transmitted to OAL 9-26-95 and filed 10-18-95 (Register 95, No. 42).

7. Amendment of subsection (d)(1)(P) filed 5-5-97; operative 7-1-97 (Register 97, No. 19).

8. Redesignation and amendment of former subsection (d)(1)(O) to new subsection (d)(1)(O)(1), new subsection (d)(1)(O)(2), amendment of subsection (d)(1)(P), redesignation and amendment of former subsection (d)(1)(T) to new subsection (d)(1)(T)(1) and new subsection (d)(1)(T)(2) filed 7-3-98 as an emergency; operative 7-3-98 (Register 98, No. 27). A Certificate of Compliance must be transmitted to OAL by 11-2-98 or emergency language will be repealed by operation of law on the following day.

9. Certificate of Compliance as to 7-3-98 order transmitted to OAL 10-2-98 and filed 11-16-98 (Register 98, No. 47).

§2699.6123. Application for Guaranteed Associations.

Note • History

(a) To apply for the program a guaranteed association shall submit:

(1) The name, position, and phone number of a designated contact person who is legally authorized to sign and date required declarations on behalf of the guaranteed association stating that the information given is true and correct and complete to the best of their knowledge.

(2) All information, documentation, and declarations necessary to determine program qualification as follows:

(A) A list of all members of the association including their name, address, beginning date of membership, membership category and tax identification number, if available.

(B) A list of the member employers, member employees and dependents, and individual members and dependents who currently have coverage sponsored by the guaranteed association or through the guaranteed association's trust through which the guaranteed association sponsors coverage.

(C) A declaration that the guaranteed association has one or more employers which meets the definition of a sole employer.

(D) A declaration that the guaranteed association does not condition membership directly or indirectly on the health or claims history of any person.

(E) A declaration that the guaranteed association uses membership dues solely for and in consideration of the membership and membership benefits, except that the amount of the dues shall not depend on whether the member applies for or purchases insurance offered by the association.

(F) A declaration that the guaranteed association is organized and maintained in good faith for purposes unrelated to providing insurance to members.

(G) A declaration that the guaranteed association has a constitution and bylaws or other analogous governing documents that provide for election of the governing board of the association by its members.

(H) Written proof that the guaranteed association was in active existence on January 1, 1992 and for at least five years prior to that date.

(I) Written proof that the guaranteed association has been offering health insurance to its members for at least five years prior to January 1, 1992.

(J) A declaration by the guaranteed association that the guaranteed association will notify all association members as well as any other person known to the association who, although not an association member, is in a category of persons who pursuant to Section 2699.6109(a)(9) will be eligible for coverage through the guaranteed association of the guaranteed association's intention to offer coverage through the program and provide member employers and individual members with at least a 30 day period to respond.

(K) A declaration stating when the period for informing member employers and individual members of the availability of coverage in the program will be and for how long it will be.

(L) A declaration stating that the guaranteed association will meet the requirements of Section 2699.6109(a)(2) and (a)(3).

(M) A declaration that the guaranteed association will not offer coverage to member employers and their employees or to individual members anywhere but in the program.

(N) A declaration disclosing to the program the number of persons currently receiving coverage through the guaranteed association and when that coverage commenced.

(O) A specification by the guaranteed association of which of the members, employees of members, association staff, retired members, retired employees of members, and surviving spouses and dependents of deceased members the association shall commit to offering coverage to in the program.

(3) A description of the guaranteed association's plan for offering coverage. This shall include at least the following:

(A) The method for providing notice of the offering of coverage in the program.

(B) The date the initial offering by the guaranteed association will expire.

(D) If the applications and premiums will be submitted through the guaranteed association, whether the guaranteed association will be utilizing the services of an agent or broker. If the guaranteed association will be utilizing the services of an agent or broker, the name, license number, tax identification number, and address of the agent or broker.

NOTE

Authority cited: Section 10731, Insurance Code. Reference: Section 10731, Insurance Code.

HISTORY

1. Renumbering and amendment of former section 2699.623.5 to section 2699.6123 filed 5-27-94; operative 5-27-94 (Register 94, No. 21).

2. Amendment of subsection (a)(2)(O) filed 4-25-96; operative 5-25-96 (Register 96, No. 17).

3. Amendment of subsection (a)(3)(D) filed 7-3-98 as an emergency; operative 7-3-98 (Register 98, No. 27). A Certificate of Compliance must be transmitted to OAL by 11-2-98 or emergency language will be repealed by operation of law on the following day.

4. Certificate of Compliance as to 7-3-98 order transmitted to OAL 10-2-98 and filed 11-16-98 (Register 98, No. 47).

§2699.6125. Member Employer Application.

Note • History

(a) To apply for the program a member employer shall comply with the requirements set forth in Section 2699.6121, except that in (d)(1)(O), the effective date of coverage shall refer to that of the guaranteed association, not the member employer, and shall provide the name of the member employer's qualified guaranteed association.

(b) Applications shall be submitted to the guaranteed association if the guaranteed association has so elected. If the guaranteed association has not so elected the application shall be submitted to the program.

NOTE

Authority cited: Section 10731, Insurance Code. Reference: Section 10731, Insurance Code.

HISTORY

1. Renumbering and amendment of former section 2699.623.6 to section 2699.6125 filed 5-27-94; operative 5-27-94 (Register 94, No. 21).

2. Amendment of subsection (a) filed 7-3-98 as an emergency; operative 7-3-98 (Register 98, No. 27). A Certificate of Compliance must be transmitted to OAL by 11-2-98 or emergency language will be repealed by operation of law on the following day.

3. Certificate of Compliance as to 7-3-98 order transmitted to OAL 10-2-98 and filed 11-16-98 (Register 98, No. 47).

§2699.6127. Application for Individual Members.

Note • History

(a) To apply for the program an individual member shall submit:

(1) All information, documentation, and declarations as set forth in Section 6121(d)(2) for sole employees except for Section 6121(d)(2)(H).

(2) The name of the individual member's qualified guaranteed association.

(3) A declaration by the individual member stating the relationship of the individual member to her or his guaranteed association as determined by the guaranteed association pursuant to Section 2699.6109(a)(9).

(4) One check or money order for an amount equal to the initial one month individual premium. If the check is returned for non-sufficient funds, the application will be considered incomplete.

NOTE

Authority cited: Section 10731, Insurance Code. Reference: Section 10731, Insurance Code.

HISTORY

1. Renumbering and amendment of former section 2699.623.8 to section 2699.6127 filed 5-27-94; operative 5-27-94 (Register 94, No. 21).

§2699.6129. Application for Dental Benefits Coverage.

Note • History

(a) Applications for dental benefits shall be in addition to the applications for participation in the program pursuant to Sections 2699.6121, 2699.6123, 2699.6125, and 2699.6127.

(b) Small employers or guaranteed associations may elect the dental coverage option at the following times:

(1) During the special initial election for dental benefits coverage pursuant to Section 2699.6157, or

(2) At the time of application for the program, or

(3) During open enrollment pursuant to Section 2699.6143.

(1) A declaration that 100% of the eligible employees participating in the program for health benefits will purchase dental benefits.

(2)(A) For small employers who have an effective date of coverage prior to September 1, 1998, who have not made an election pursuant to Section 2699.6116, a declaration that the small employer is contributing an amount equal to at least 50% of the monthly “employee only” rate of the lowest “employee only” rate available to the eligible employee for dental benefits coverage.

(B) For small employers who have an effective date of coverage on or after September 1, 1998, or who have made an election pursuant to Section 2699.6116, a declaration that the small employer is contributing an amount equal to at least 50% of the lowest available monthly “employee only” comprehensive individual dental premium.

(3) Payment of an amount equal to the initial one month dental benefits premium or the sum of the initial one month comprehensive individual dental premiums as applicable. This shall be paid as part of the employer premium except during the special initial election for dental benefits coverage pursuant to Section 2699.6157 when the initial one month dental benefits premium may be paid before the employer premium to facilitate an earlier effective date for dental benefits.

(4) An application for each eligible employee which indicates:

(A) Name, address, and Social Security Number, as defined in Section 2699.6000, of each eligible employee applying for dental benefits.

(B) The employee's and dependent's, if applicable, dental insurance information, including the carrier name and address of:

1. Any current dental insurance or other dental benefits.

2. Most recent prior dental insurance or other dental benefits.

(d) Individual members shall submit the following in an application for dental benefits:

(1) Name, address, and Social Security Number, as defined in Section 2699.6000, of the individual member,

(2) The individual member's and dependent's, if applicable, dental insurance information, including the carrier name and address of:

(A) Any current dental insurance or other dental benefits.

(B) Most recent prior dental insurance or other dental benefits.

(3) Which dental benefit plan the individual member is selecting for dental benefits.

(4) Payment of an amount equal to the initial one month dental benefit premium or the comprehensive individual dental premium as applicable. This shall be paid as part of the individual member premium, except during the special initial election for dental benefits coverage pursuant to Section 2699.6157 when the initial one month dental benefits premium may be paid before the individual member premium to facilitate an earlier effective date for dental benefits.

(e) If a guaranteed association elects the dental benefit option, a guaranteed association shall certify in its application that all individual members of the guaranteed association will be purchasing dental benefits from the program.

NOTE

Authority cited: Section 10731, Insurance Code. Reference: Section 10731, Insurance Code.

HISTORY

2. Certificate of Compliance as to 5-23-94 order transmitted with amendment of subsections (b)(1), (c)(3) and (d)(4) to OAL 9-16-94 and filed 10-27-94 (Register 94, No. 43).

3. Amendment of subsection (b)(3) filed 12-29-94 as an emergency; operative 12-29-94 (Register 94, No. 52). A Certificate of Compliance must be transmitted to OAL 4-28-95 or emergency language will be repealed by operation of law on the following day.

4. Certificate of Compliance as to 12-29-94 order transmitted to OAL 4-12-95 and filed 5-22-95 (Register 95, No. 21).

5. Redesignation and amendment of former subsection (c)(2) to new subsection (c)(2)(A), new subsection (c)(2)(B), and amendment of subsections (c)(3) and (d)(4) filed 7-3-98 as an emergency; operative 7-3-98 (Register 98, No. 27). A Certificate of Compliance must be transmitted to OAL by 11-2-98 or emergency language will be repealed by operation of law on the following day.

6. Certificate of Compliance as to 7-3-98 order transmitted to OAL 10-2-98 and filed 11-16-98 (Register 98, No. 47).

§2699.6131. Initial Sole Employer Qualification and Sole Employee Enrollment Period.

Note • History

(a) Upon receipt of a complete application, the program shall determine the sole employer's qualification for the program, determine the eligibility of each of the sole employer's employees that apply for coverage, and determine whether each person for whom coverage as a dependent has been requested is a dependent. The program may rely upon the application to determine the sole employer's qualification; this determination shall be made within ten calendar days of receipt of the complete application.

(b) Sole employers determined not qualified for the program will be notified in writing by the program. The notice shall include the reason for the determination of disqualification and an explanation of the appeal process. The sole employer's initial premium shall be refunded.

(c) If an employee of a qualified sole employer is determined by the program not to be a sole employee as of the effective date of coverage, or if a person for whom coverage as a dependent has been requested is determined not to be a dependent, the sole employer shall be notified of the determination and the sole employer shall notify the employee. The notice shall include the reason for the determination of ineligibility and an explanation of the appeal process. The portion of the sole employer's initial premium covering amounts owed for coverage to persons found either to be ineligible or not a dependent shall be refunded.

NOTE

Authority cited: Section 10731, Insurance Code. Reference: Sections 10731 and 10741, Insurance Code.

HISTORY

1. Renumbering and amendment of former section 2699.624 to section 2699.6131 filed 5-27-94; operative 5-27-94 (Register 94, No. 21).

2. Amendment of subsection (c) filed 12-29-94 as an emergency; operative 12-29-94 (Register 94, No. 52). A Certificate of Compliance must be transmitted to OAL 4-28-95 or emergency language will be repealed by operation of law on the following day.

3. Certificate of Compliance as to 12-29-94 order transmitted to OAL 4-12-95 and filed 5-22-95 (Register 95, No. 21).

§2699.6133. Initial Qualification for the Program for Guaranteed Associations and Association Members.

Note • History

(a) Upon receipt of a complete application from a guaranteed association, the program shall determine tentatively the guaranteed association's qualification for the program subject to compliance with Subsection 2699.6109(a)(5). Upon tentative determination that the guaranteed association is a qualified guaranteed association, the program in consultation with the qualified guaranteed association shall institute a process for gathering applications from member employers, member employees, and individual members. No application from a member employer, member employee, or individual member shall be considered complete until the guaranteed association is determined to be qualified for participation in the program.

(b) Upon receipt of a complete application from a member employer, at any time other than open enrollment, the program shall determine the member employer's qualification for the program, determine the eligibility of each of the employees that apply for coverage, and determine whether each person for whom coverage as a dependent has been requested is a dependent. The program may rely upon the application to determine the employer member's qualification. The determination shall be made:

(1) Within ten calendar days of receipt of a complete application from a member employer and member employees.

(c) Upon receipt of a complete application from an individual member during the initial open enrollment period of their guaranteed association, the program shall determine the individual member's qualification for the program and determine whether each person for whom coverage as a dependent has been requested is a dependent. The program may rely upon the application to determine the individual member's qualification. The determination shall be made after sixty (60) calendar days and within seventy (70) calendar days of receipt of a complete application from an individual member. However, if the individual member has qualifying prior coverage at the time of application the determination shall be made within ten (10) calendar days.

(d) Guaranteed association members determined not qualified for the program will be notified in writing by the program. The guaranteed association shall also be notified. The notice shall include the reason for the determination of disqualification and an explanation of the appeal process. The guaranteed association member's initial premium shall be refunded.

(e) If an employee of a qualified member employer is determined not to be a sole employee by the program, or if a person for whom coverage as a dependent has been requested is determined not to be a dependent, the member employer shall be notified of the determination and the member employer shall notify the employee. The notice shall include the reason for the determination of ineligibility and an explanation of the appeal process. The portion of the member employer's initial premium covering amounts owed for coverage to persons found either to be ineligible or not a dependent shall be refunded.

NOTE

Authority cited: Section 10731, Insurance Code. Reference: Sections 10731 and 10741, Insurance Code.

HISTORY

1. Renumbering of former section 2699.624.5 to section 2699.6133 filed 5-27-94; operative 5-27-94 (Register 94, No. 21).

2. Amendment of subsections (a), (b), (c) and (e) filed 12-29-94 as an emergency; operative 12-29-94 (Register 94, No. 52). A Certificate of Compliance must be transmitted to OAL 4-28-95 or emergency language will be repealed by operation of law on the following day.

3. Certificate of Compliance as to 12-29-94 order transmitted to OAL 4-12-95 and filed 5-22-95 (Register 95, No. 21).

§2699.6135. Waiting Period for Sole Employees.

Note • History

Sole employees who decline coverage under the program or any dependents for whom sole employees decline coverage shall be ineligible to enroll in the program until the program's next open enrollment period.

NOTE

Authority cited: Section 10731, Insurance Code. Reference: Section 10731, Insurance Code.

HISTORY

1. Renumbering of former section 2699.6241 to section 2699.6135 filed 5-27-94; operative 5-27-94 (Register 94, No. 21).

§2699.6137. Waiting Period for Guaranteed Association Members.

Note • History

Employee members or dependents who decline coverage under the program or individual members or dependents who do not apply during the enrollment period shall be ineligible to enroll in the program until the program's next open enrollment period.

NOTE

Authority cited: Section 10731, Insurance Code. Reference: Section 10731, Insurance Code.

HISTORY

1. Renumbering of former section 2699.6241.5 to section 2699.6137 filed 5-27-94; operative 5-27-94 (Register 94, No. 21).

§2699.6139. Open Enrollment Period for Sole Employers.

Note • History

(a) The program shall provide for an annual open enrollment period which shall last for at least thirty (30) consecutive days. During this period, enrolled sole employees may transfer from one health benefits plan to another, sole employees may choose to enroll themselves and their dependents in the program and enrolled sole employees may choose to enroll their dependents.

(b) Late applicants may enroll during this period.

(c) If a sole employee of a qualified sole employer is determined not to be a sole employee by the program, or if a person for whom coverage as a dependent has been requested is determined not to be a dependent, the sole employer shall be notified of the determination and the sole employer shall notify the sole employee. The notice shall include the reason for the determination of ineligibility and an explanation of the appeal process. The portion of the sole employer's premium covering amounts owed for coverage to persons found either to be ineligible or not a dependent shall be refunded.

(d) For sole employees applying during an open enrollment period, the sole employer shall provide the following:

(1) For sole employees transferring to a new health benefits plan:

(A) Name.

(B) Address.

(D) Current Health Benefits Plan.

(E) New Health Benefits Plan.

(F) Name and social security number, as defined in Section 2699.6000, and, if available, for enrolled dependents.

(2) For sole employees or dependents who have not previously been enrolled:

(A) The information required by Section 2699.6121(d)(2) of this part,

(3) The sole employer's most recent state EDD Form DE-6 (entitled “Quarterly Wage Report”) or Form DE3B (entitled “Report of Wages”) or DE3DP (entitled “Quarterly Contribution Report”) as submitted to the EDD and a copy of the Federal W-4 form or employer payroll records for any employee not listed on the EDD forms submitted to the program.

NOTE

Authority cited: Section 10731, Insurance Code. Reference: Section 10731, Insurance Code.

HISTORY

1. Renumbering and amendment of former section 2699.6242 to section 2699.6139 filed 5-27-94; operative 5-27-94 (Register 94, No. 21).

2. Amendment of subsection (d)(2)(A)(3) filed 10-18-95; operative 10-18-95 pursuant to Government Code section 11343.4(d) (Register 95, No. 42).

§2699.6141. Open Enrollment Period for Guaranteed Association Members.

Note • History

(a) The program shall provide for an annual open enrollment period which shall last for at least thirty (30) calendar days for guaranteed association members. During this period, enrolled member employees or individual members may transfer from one health benefits plan to another, member employees or individual members may choose to enroll themselves and their dependents in the program and enrolled member employees or individual members may choose to enroll their dependents.

(b) Late applicants may enroll during this period.

(c) If an employee of a qualified member employer or an individual member who applies during open enrollment is determined not to be eligible by the program, or if a person for whom coverage as a dependent has been requested is determined not to be a dependent, the individual member or the member employer shall be notified of the determination. The member employer shall notify the member employees. The notice shall include the reason for the determination of ineligibility and an explanation of the appeal process. The portion of the individual premium covering amounts owed for coverage to persons found either to be ineligible or not a dependent shall be refunded.

(d) For member employees or individual members applying during an open enrollment period, the information required by Section 2699.6139(d) shall be submitted by the employer or individual member. Individual members shall not be required to submit state EDD wage reporting forms.

NOTE

Authority cited: Section 10731, Insurance Code. Reference: Section 10731, Insurance Code.

HISTORY

1. Renumbering and amendment of former section 2699.6242.5 to section 2699.6141 filed 5-27-94; operative 5-27-94 (Register 94, No. 21).

2. Amendment of subsection (d) filed 10-18-95; operative 10-18-95 pursuant to Government Code section 11343.4(d) (Register 95, No. 42).

§2699.6143. Open Enrollment for Dental Benefits.

Note • History

(a) The program shall provide for an annual open enrollment period for dental benefits which shall last for at least (30) thirty consecutive days.

(b) During open enrollment the following may occur:

(1) Eligible employees and individual members, and dependents, who are enrolled for dental benefits may transfer from one dental benefits plan to another.

(2) Small employers and guaranteed associations may elect the dental benefit option.

(c) Small employers and individual members shall provide the following for employees or individual members transferring to a new dental benefits plan:

(1) Name.

(2) Address.

(3) Social Security Number, as defined in Section 2699.6000.

(4) Current dental benefits plan.

(5) New dental benefits plan.

(6) Name and Social Security Number, as defined in Section 2699.6000, if available, for enrolled dependents.

(d) Small employers which elect the dental benefit option during open enrollment shall submit an application for dental benefits pursuant to Subsection 2699.6129(c).

(e) Individual members of a guaranteed association that has elected the dental benefit option during open enrollment shall submit an application for dental benefits pursuant to Subsection 2699.6129(d).

NOTE

Authority cited: Section 10731, Insurance Code. Reference: Sections 10731 and 10743, Insurance Code.

HISTORY

1. New section filed 5-23-94 as an emergency; operate 5-23-94 (Register 94, No. 21). A Certificate of Compliance must be transmitted to OAL by 9-20-94 or emergency language will be repealed by operation of law on the following day.

2. Certificate of Compliance as to 5-23-94 order transmitted to OAL 9-16-94 and filed 10-27-94 (Register 94, No. 43).

§2699.6145. Other Enrollment Additions by Sole Employers for Employees.

Note • History

The following shall apply to applications for coverage in the program for sole employees and/or their dependents who are not late applicants and which were not part of the initial application of the qualified sole employer or submitted during an open enrollment process. An application for coverage shall be made within 45 days prior to or 60 days after the date the employee becomes an eligible employee. If the application is not made by 60 days after the employee became eligible, the employee shall be considered a late applicant, and also:

(a) For each sole employee whom the sole employer seeks to add, a sole employer shall notify the program in the manner specified by the program of:

(1) The information required by Section 2699.6121(d)(2) of this part.

(2) A declaration that the sole employee is an eligible employee.

(3) If the sole employee for whom coverage is requested previously waived or dropped coverage because he or she had coverage under another employer's sponsored group plan, a copy of the certification signed by the eligible employee attesting to his or her coverage if applicable, written proof of the eligible employee's previous coverage, and the date of termination of the previous coverage.

(b) A sole employer, wishing to enroll additional dependents of enrolled employees shall notify the program in the manner specified by the program of:

(1) The information required by Section 2699.6121(d)(2)(I) of this part,

(2) If the sole employee requesting coverage previously waived or dropped coverage for the dependent because the dependent had coverage under another employer's sponsored group plan, a copy of the certification signed by the sole employee attesting to the dependent's coverage, written proof of the dependent's previous coverage, and the date of termination of the previous coverage,

(3) The birth or adoption of a child, or the addition of a stepchild or spouse, within thirty (30) calendar days of the event to continue coverage of the newborn, adopted child, stepchild, or spouse.

(4) If a court has ordered an enrolled sole employee to enroll the dependent(s) in his or her health benefit plan, a written statement by the employee that a court has ordered the employee to provide the coverage.

(c) If an employee of a qualified sole employer is determined not to be an eligible employee by the program, or if a person for whom coverage as a dependent has been requested is determined not to be an eligible dependent, the sole employer shall be notified of the determination and the sole employer shall notify the employee. The notice shall include the reason for the determination of ineligibility and an explanation of the appeal process. The portion of the sole employer's premium covering amounts owed for coverage to persons found either to be ineligible or not an eligible dependent shall be refunded.

(d) The sole employer premium shall be adjusted, if applicable, as of the date of any change in enrollment of sole employees and/or dependents.

(e) Late applicants may not apply pursuant to this section.

NOTE

Authority cited: Section 10731, Insurance Code. Reference: Sections 10731 and 10743, Insurance Code.

HISTORY

1. Renumbering and amendment of former section 2699.6243 to section 2699.6145 filed 5-27-94; operative 5-27-94 (Register 94, No. 21).

2. Amendment of section heading, first paragraph and subsections (b) and (c) filed 12-29-94 as an emergency; operative 12-29-94 (Register 94, No. 52). A Certificate of Compliance must be transmitted to OAL 4-28-95 or emergency language will be repealed by operation of law on the following day.

3. Certificate of Compliance as to 12-29-94 order including amendment of subsecdtion (b) transmitted to OAL 4-12-95 and filed 5-22-95 (Register 95, No. 21).

§2699.6146. Later Addition of Member Employers and Individual Members.

Note • History

The following shall apply to application for participation for member employers and individual members who did not apply during the initial enrollment of their guaranteed association:

(a) For member employers:

(1) A new member of the guaranteed association shall apply to participate as a member employer within 90 days of joining the guaranteed association.

(2) A current member of a guaranteed association who becomes eligible to participate as a member employer shall apply to participate as a member employer within 90 days of becoming eligible.

(3) A member of a guaranteed association who elected not to participate as a member employer during the guaranteed association's initial enrollment or open enrollment shall not be eligible to participate as a member employer until the next open enrollment.

(b) A new individual member shall apply to participate after 60 days, but within 120 days of becoming a member of the guaranteed association or of a group sponsored for coverage by the guaranteed association.

NOTE

Authority cited: Section 10731, Insurance Code. Reference: Sections 10731 and 10743, Insurance Code.

HISTORY

1. New section filed 12-29-94 as an emergency; operative 12-29-94 (Register 94, No. 52). A Certificate of Compliance must be transmitted to OAL 4-28-95 or emergency language will be repealed by operation of law on the following day.

2. Certificate of Compliance as to 12-29-94 order transmitted to OAL 4-12-95 and filed 5-22-95 (Register 95, No. 21).

§2699.6147. Other Enrollment Additions by Member Employers for Member Employees.

Note • History

The following shall apply to applications for coverage in the program for member employees and/or their dependents who are not late applicants and which were not part of the initial application period of the qualified guaranteed association or submitted during an open enrollment process. An application for coverage shall be made within 45 days prior to or 60 days after the date the employee becomes an eligible member employee. If the application is not made by 60 days after the employee became eligible, the employee shall be considered a late applicant, and also:

(a) For each member employee whom the member employer seeks to add, a member employer shall notify the program in the manner specified by the program of:

(1) The information required by Section 2699.6121(d)(2) of this part.

(2) A declaration that the employee is an eligible employee.

(3) If the employee for whom coverage is requested previously waived coverage because he or she had coverage under another employer's sponsored group plan, a copy of the certification signed by the employee attesting to his or her coverage if applicable, written proof of the eligible employee's previous coverage, and the date of termination of the previous coverage.

(b) A member employer wishing to enroll additional dependents of enrolled employees shall notify the program on an enrollment application of:

(1) The information required by Section 2699.6121(d)(2)(I) of this part,

(2) If the employee requesting coverage previously waived or dropped coverage for the dependent because the dependent had coverage under another employer's sponsored group plan, a copy of the certification signed by the employee attesting to the dependent's coverage, written proof of the dependent's previous coverage, and the date of termination of the previous coverage.

(3) The birth or adoption of a child, or the addition of a stepchild or spouse, within thirty (30) calendar days of the event to continue coverage of the newborn, adopted child, stepchild, or spouse, and

(4) If a court has ordered a member employee to enroll the dependent(s) in his or her health benefit plan, a written statement by the employee that a court has ordered the employee to provide the coverage.

(c) If an employee of a qualified member employer is determined not be an eligible employee by the program, or if a person for whom coverage as a dependent has been requested is determined not to be an eligible dependent, the member employer shall be notified of the determination and the member employer shall notify the employee. The notice shall include the reason for the determination of ineligibility and an explanation of the appeal process. The portion of the member employer's premium covering amounts owed for coverage of persons found either to be ineligible or not an eligible dependent shall be refunded.

(d) The member employer's premium shall be adjusted, if applicable, as of the date of any change in enrollment of eligible employee members and/or dependents.

(e) Late applicants may not apply pursuant to this section.

NOTE

Authority cited: Section 10731, Insurance Code. Reference: Sections 10731 and 10743, Insurance Code.

HISTORY

1. Renumbering and amendment of former section 2699.6243.5 to section 2699.6147 filed 5-27-94; operative 5-27-94 (Register 94, No. 21).

2. Amendment of section heading, first paragraph, subsection (a) and Note filed 12-29-94 as an emergency; operative 12-29-94 (Register 94, No. 52). A Certificate of Compliance must be transmitted to OAL 4-28-95 or emergency language will be repealed by operation of law on the following day.

3. Certificate of Compliance as to 12-29-94 order transmitted to OAL 4-12-95 and filed 5-22-95 (Register 95, No. 21).

§2699.6149. Other Enrollment Additions for Individual Members.

Note • History

The following shall apply to applications for coverage in the program for individual members and/or their dependents who are not late applicants and which were not part of the initial application of the qualified guaranteed association or submitted during an open enrollment process:

(a) Each application for individual members shall include:

(1) The information required by Section 2699.6127 of this part.

(2) If the individual member for whom coverage is requested previously had coverage under another employer's sponsored group plan at the time of notification by the guaranteed association, the individual member shall provide written proof of the individual member's previous coverage, and the date of termination of the previous coverage.

(b) An individual member wishing to enroll additional dependents shall provide to the program on an enrollment application:

(1) The information required by Section 2699.6127 of this part,

(2) If the individual member requesting coverage previously did not elect or dropped coverage for the dependent because the dependent had coverage under another employer's sponsored group plan at the time of notification by the guaranteed association, the individual member shall provide written proof of the dependent's previous coverage, and the date of termination of the previous coverage,

(3) Notification of the birth or adoption of a child, or the addition of a stepchild or spouse, within thirty (30) calendar days of the event to continue coverage of the newborn, adopted child, stepchild, or spouse, and

(4) If a court has ordered an enrolled individual member to enroll the dependent(s) in his or her health benefit plan, a written statement by the individual member that a court has ordered the individual member to provide the coverage.

(c) If an individual member of a qualified guaranteed association is determined not to be eligible by the program, or if a person for whom coverage as a dependent has been requested is determined not to be an eligible dependent, the individual member and the qualified guaranteed association shall be notified of the termination. The notice shall include the reason for the determination of ineligibility and an explanation of the appeal process. The portion of the individual member's premium covering amounts owed for coverage to persons found either to be ineligible or not an eligible dependent shall be refunded.

(d) The individual member's premium shall be adjusted, if applicable, as of the date of any change in enrollment of the individual member and/or dependents.

(e) Late applicants may not apply pursuant to this section.

NOTE

Authority cited: Section 10731, Insurance Code. Reference: Sections 10731 and 10743, Insurance Code.

HISTORY

1. Renumbering and amendment of former section 2699.6243.6 to section 2699.6149 filed 5-27-94; operative 5-27-94 (Register 94, No. 21).

§2699.6151. Other Applications for Dental Benefits.

Note • History

(a) Sole employers who have elected the dental benefits option who are applying for coverage for sole employees or dependents pursuant to Section 2699.6145 and member employers who have elected the dental benefits option who are applying for coverage for member employees or dependents pursuant to Section 2699.6147 shall comply with the application requirements of Subsection 2699.6129(c)(3) and (4).

(b) Individual members and dependents whose guaranteed association has elected the dental benefits option who are applying for coverage pursuant to Section 2699.6149 shall comply with the application requirements of Subsection 2699.6129(d).

NOTE

Authority cited: Section 10731, Insurance Code. Reference: Section 10731, Insurance Code.

HISTORY

2. Certificate of Compliance as to 5-23-94 order transmitted to OAL 9-16-94 and filed 10-27-94 (Register 94, No. 43).

§2699.6153. Enrollment.

Note • History

Sole employees and their dependents and guaranteed association members and their dependents who have applied to the program and have been accepted into the program shall be enrolled in a health benefit plan of the sole employee's or guaranteed association member's choice available in the service area of the sole employee's or guaranteed association member's residence.

NOTE

Authority cited: Section 10731, Insurance Code. Reference: Sections 10731 and 10733, Insurance Code.

HISTORY

1. Renumbering of former section 2699.6244 to section 2699.6153 filed 5-27-94; operative 5-27-94 (Register 94, No. 21).

§2699.6155. Selection of Dental Benefit Plan.

Note • History

Sole employees and their dependents and guaranteed association members and their dependents who have applied to the program for dental benefits and have been accepted by the program for dental benefits shall be enrolled in a dental benefit plan of the sole employee's or guaranteed association member's choice available in the service area of the sole employee's or guaranteed association member's residence.

NOTE

Authority cited: Section 10731, Insurance Code. Reference: Sections 10731 and 10733, Insurance Code.

HISTORY

§2699.6157. Special Initial Election for Dental Benefits.

Note • History

NOTE

Authority cited: Section 10731, Insurance Code. Reference: Sections 10731 and 10733, Insurance Code.

HISTORY

2. Certificate of Compliance as to 5-23-94 order transmitted to OAL 9-16-94 and filed 10-27-94 (Register 94, No. 43).

3. Repealer filed 10-18-95; operative 10-18-95 pursuant to Government Code section 11343.4(d) (Register 95, No. 42).

§2699.6159. Effective Date of Coverage for Sole Employees.

Note • History

(a) For enrolled sole employees and dependents, the effective date of coverage shall be as follows:

(1) For enrollees whose eligibility determination was made pursuant to Section 2699.6131(a) the effective date of coverage shall be within twenty (20) calendar days of a determination of eligibility.

(2) For enrollees who enroll or transfer pursuant to Section 2699.6139 the effective date of coverage shall be established by the program and shall be no later than forty-five (45) calendar days following the end of the open enrollment period.

(3) For enrollees who were enrolled pursuant to Section 2699.6145 the effective date of coverage shall be determined by the program and shall be no later than forty-five (45) calendar days from the receipt of a complete application.

(4) For newborn or adopted children that are dependents, the effective date of coverage shall be upon birth or adoption of the child. The effective date for coverage for stepchildren that are dependents shall be upon marriage by a sole employee to the stepchild's parent. The effective date for coverage of a spouse shall be upon marriage.

(b) The program shall notify the sole employer of the effective date and the program shall also notify the participating carrier(s) of the effective date of coverage.

NOTE

Authority cited: Section 10731, Insurance Code. Reference: Section 10731, Insurance Code.

HISTORY

1. Renumbering and amendment of former section 2699.625 to section 2699.6159 filed 5-27-94; operative 5-27-94 (Register 94, No. 21).

§2699.6161. Effective Date of Coverage for Member Employees.

Note • History

(a) For enrolled member employees and their dependents the effective date of coverage shall be as follows:

(1) For enrollees whose eligibility determination was made pursuant to Section 2699.6133(b) the effective date of coverage shall be within twenty (20) calendar days of a determination of eligibility.

(2) For enrollees who enroll or transfer pursuant to Section 2699.6141 the effective date of coverage shall be established by the program and shall be no later than forty-five (45) calendar days following the end of the open enrollment period.

(3) For enrollees who were enrolled pursuant to Section 2699.6147 the effective date of coverage shall be determined by the program and shall be no later than forty-five (45) calendar days from the receipt of a complete application.

(4) For newborn or adopted children that are dependents, the effective date of coverage shall be upon birth or adoption of the child. The effective date for coverage for stepchildren that are dependents shall be upon marriage by a member employee or individual member to the stepchild's parent. The effective date for coverage of a spouse shall be upon marriage.

(b) The program shall notify the member employer and the qualified guaranteed association of the effective date and the program shall also notify the participating carrier(s) of the effective date of coverage.

NOTE

Authority cited: Section 10731, Insurance Code. Reference: Section 10731, Insurance Code.

HISTORY

1. Renumbering and amendment of former section 2699.625.5 to section 2699.6161 filed 5-27-94; operative 5-27-94 (Register 94, No. 21).

2. Amendment of section heading and subsection (a)(3) filed 12-29-94 as an emergency; operative 12-29-94 (Register 94, No. 52). A Certificate of Compliance must be transmitted to OAL 4-28-95 or emergency language will be repealed by operation of law on the following day.

3. Certificate of Compliance as to 12-29-94 order transmitted to OAL 4-12-95 and filed 5-22-95 (Register 95, No. 21).

§2699.6163. Effective Date of Coverage for Individual Members.

Note • History

(a) For enrolled individual members and their dependents the effective date of coverage shall be as follows:

(1) For enrollees whose eligibility determination was made pursuant to Section 2699.6133(c) the effective date of coverage shall be within twenty (20) calendar days of a determination of eligibility.

(3) For enrollees who enroll or transfer pursuant to Section 2699.6149 the effective date of coverage shall be established by the program and shall be no later than forty-five (45) calendar days from the receipt of a complete application.

(4) For newborn or adopted children that are dependents, the effective date of coverage shall be upon birth or adoption of the child. The effective date for coverage for stepchildren that are dependents shall be upon marriage by a member employee or individual member to the stepchild's parent. The effective date for coverage of a spouse shall be upon marriage.

(b) The program shall notify the individual member and the qualified guaranteed association of the effective date and the program shall also notify the participating carrier(s) of the effective date of coverage.

NOTE

Authority cited: Section 10731, Insurance Code. Reference: Section 10731, Insurance Code.

HISTORY

1. Renumbering and amendment of former section 2699.625.6 to section 2699.6163 filed 5-27-94; operative 5-27-94 (Register 94, No. 21).

2. Amendment of subsection (a)(3) filed 12-29-94 as an emergency; operative 12-29-94 (Register 94, No. 52). A Certificate of Compliance must be transmitted to OAL 4-28-95 or emergency language will be repealed by operation of law on the following day.

3. Certificate of Compliance as to 12-29-94 order transmitted to OAL 4-12-95 and filed 5-22-95 (Register 95, No. 21).

§2699.6165. Effective Date of Coverage for Dental Benefits.

Note • History

(a) The effective date of dental coverage for an enrollee whose complete application is received by the program on or before the fifteenth day of the month shall be the first day of the next month.

(b) The effective date of dental coverage for an enrollee whose complete application is received by the program after the fifteenth day of the month shall be the first day of the month following the next month.

NOTE

Authority cited: Section 10731, Insurance Code. Reference: Section 10731, Insurance Code.

HISTORY

2. Certificate of Compliance as to 5-23-94 order transmitted to OAL 9-16-94 and filed 10-27-94 (Register 94, No. 43).

§2699.6167. Participating Sole Employer Disqualification.

Note • History

(a) A sole employer shall be disqualified from participation in the program if any of the following occur:

(1) It is found by the program pursuant to Section 2699.6117 to no longer be a qualified sole employer. However, an employer shall not be determined to be no longer eligible to participate in the program solely because the employer employs more than 50 eligible employees, provided the employer employs no more than 100 eligible employees.

(2) It is found by the program to no longer be in compliance with the participation requirements as set forth in Section 2699.6107.

(3) It fails to pay the monthly employer premium for the enrolled sole employees and enrolled dependents as set forth in Section 2699.6311 and 2699.6313 of this chapter.

(4) It so requests in writing. Such requests shall be provided to the program at least thirty (30) calendar days prior to the effective date of the requested disqualification.

(5) It has committed an act of fraud or misrepresentation to circumvent the statutes or regulations of the program.

(b) When a participating employer is disqualified pursuant to (a)(1), (a)(2), (a)(3), or (a)(5) above, the program shall notify the employer and each enrolled sole employee of the disqualification. Notices sent to enrolled sole employees shall be sent to their addresses of record.

(1) The notice shall be in writing and include the following information:

(A) The reason for the disqualification,

(B) The effective date of disqualification, and

(2) When an employer is disqualified pursuant to (a)(2), the notice shall be sent after thirty-one (31) calendar days following the premium due date and also include a statement that the employer may again be qualified if the employer meets the requirements of Section 2699.6319 and a statement of the requirements of Section 2699.6319.

(c) An employer which is disqualified pursuant to (a)(1) above may reapply to the program whenever it again meets the requirements to be a qualified sole employer.

(d) An employer which is disqualified pursuant to (a)(2), (a)(4) or (a)(5) above, or an employer disqualified pursuant to (a)(3) above which does not reinstate pursuant to Section 2699.6319, cannot participate in the program for one (1) year from the date of disqualification.

NOTE

Authority cited: Section 10731, Insurance Code. Reference: Sections 10731, 10733.5 and 10743, Insurance Code.

HISTORY

1. Renumbering and amendment of former section 2699.626 to section 2699.6167 filed 5-27-94; operative 5-27-94 (Register 94, No. 21).

2. Amendment of subsections (a)(1), (a)(2), (b), and Note filed 12-29-94 as an emergency; operative 12-29-94 (Register 94, No. 52). A Certificate of Compliance must be transmitted to OAL 4-28-95 or emergency language will be repealed by operation of law on the following day.

3. Certificate of Compliance as to 12-29-94 order including amendment of subsection (a)(1) transmitted to OAL 4-12-95 and filed 5-22-95 (Register 95, No. 21).

4. Amendment of subsection (a)(1), new subsection (a)(2) and subsection renumbering, and amendment of subsections (b) and (d) filed 5-5-97; operative 7-1-97 (Register 97, No. 19).

§2699.6169. Disqualification of Guaranteed Associations.

Note • History

(a) A guaranteed association shall be disqualified from participation in the program if any of the following occur:

(1) It is found by the program to no longer be a qualified guaranteed association.

(2) It so requests in writing. Such requests shall be provided to the program at least sixty (60) calendar days prior to the effective date of the requested disqualification.

(3) It has committed an act of fraud or misrepresentation to circumvent the statutes or regulations of the program.

(b) When a participating guaranteed association is disqualified, the program shall notify the guaranteed association of the disqualification.

(1) The notice shall be in writing and include the following information:

(A) The reason for the disqualification,

(B) The effective date of disqualification, and

(C) That all guaranteed association members and dependents shall be disenrolled and the final day of coverage provided by the program through the guaranteed association.

NOTE

Authority cited: Section 10731, Insurance Code. Reference: Section 10731, Insurance Code.

HISTORY

1. Renumbering of former section 2699.626.1 to section 2699.6169 filed 5-27-94; operative 5-27-94 (Register 94, No. 21).

§2699.6171. Continuation of Coverage Upon Disqualification of Guaranteed Association.

Note • History

(a) If a guaranteed association is disqualified a member employer which meets the definition of sole employer set forth in Section 2699.6000 may continue coverage in the program without the sponsorship of a guaranteed association by notifying the program in writing of the member employer's change in status to sole employer. All member employees of the employer will become sole employees.

(b) Individual members shall not be continued in the program without the sponsorship of a qualified guaranteed association.

NOTE

Authority cited: Section 10731, Insurance Code. Reference: Section 10731, Insurance Code.

HISTORY

1. Renumbering and amendment of former section 2699.626.15 to section 2699.6171 filed 5-27-94; operative 5-27-94 (Register 94, No. 21).

§2699.6173. Disqualification of Member Employers.

Note • History

(a) A member employer shall be disqualified from participation in the program if any of the following occur:

(1) Their guaranteed association is disqualified and the member employer does not change its status to sole employer pursuant to 2699.6171.

(2) It is found by the program pursuant to Section 2699.6119(b) to no longer be a qualified member employer.

(3) It is found by the program to no longer be in compliance with the participation requirements as set forth in Section 2699.6111.

(4) It fails to pay the monthly employer premium for the enrolled member employees and enrolled dependents as set forth in Sections 2699.6311 and 2699.6315 of this part.

(5) It so requests in writing. Such requests shall be provided to the program at least thirty (30) calendar days prior to the effective date of the requested disqualification.

(6) It has committed an act of fraud or misrepresentation to circumvent the statutes or regulations of the program.

(b) When a participating member employer is disqualified pursuant to (a)(1), (a)(2), (a)(3), or (a)(4) above, the program shall notify the employer, each enrolled member employee and the qualified guaranteed association of the disqualification and the fact that all member employees and dependents will be disenrolled. Notices sent to enrolled member employees shall be sent to their addresses of record.

(1) The notice shall be in writing and include the following information:

(A) The reason for the disqualification,

(B) The effective date of disqualification, and

(2) When an employer is disqualified pursuant to (a)(4), the notice shall be sent after thirty-one (31) calendar days following the premium due date and also include a statement that the employer may again be qualified if the employer meets the requirements of Section 2699.6323 and a statement of the requirements of Section 2699.6323.

(c) An employer which is disqualified pursuant to (a)(1), (a)(2) or, (a)(3) above may reapply to the program whenever it again meets the requirements to be a qualified sole employer or it again meets the requirements to be a qualified member employer.

(d) An employer which is disqualified pursuant to (a)(5) or (a)(6) above, or an employer disqualified pursuant to (a)(4) above which does not reinstate pursuant to Section 2699.6319, cannot participate in the program for one (1) year from the date of disqualification.

(e) Member employees of member employers which are disqualified may apply to be individual members sponsored by a qualified guaranteed association if the individuals have not committed fraud or violated the program's rules to the detriment of the program.

NOTE

Authority cited: Section 10731, Insurance Code. Reference: Section 10731, Insurance Code.

HISTORY

1. Renumbering and amendment of former section 2699.626.2 to section 2699.6173 filed 5-27-94; operative 5-27-94 (Register 94, No. 21).

2. Amendment of subsection (a)(2), new subsection (a)(3) and subsection renumbering, and amendment of subsections (b), (b)(2), (c) and (d) filed 5-5-97; operative 7-1-97 (Register 97, No. 19).

§2699.6175. Disqualification of Individual Members.

Note • History

(a) An individual member shall be disqualified from participation in the program if any of the following occur:

(1) If the guaranteed association is disqualified.

(2) He or she is found by the program to no longer be a qualified individual member.

(3) The individual member fails to pay the monthly individual member premium for the enrolled individual member and enrolled dependents as set forth in Sections 2699.6311 and 2699.6313 of this part.

(4) The individual member so requests in writing. Such requests shall be provided to the program at least thirty (30) calendar days prior to the effective date of the requested disqualification.

(5) The individual member has committed an act of fraud or misrepresentation to circumvent the statutes or regulations of the program.

(b) When a participating individual member is disqualified pursuant to (a) above, the program shall notify the individual member and the qualified guaranteed association of the disqualification.

(1) The notice shall be in writing and include the following information:

(A) The reason for the disqualification,

(B) The effective date of disqualification, and

(2) When an individual member is disqualified pursuant to (a)(3), the notice shall be sent after thirty-one (31) calendar days following the premium due date and also include a statement that the individual member may again be qualified if the individual member meets the requirements of Section 2699.6462 and a statement of the requirements of Section 2699.6319.

(c) An individual member which is disqualified pursuant to (a)(2), (a)(4) or (a)(5) above, or is disqualified pursuant to (a)(3) above and does not reinstate pursuant to Section 2699.6319, cannot participate in the program for one (1) year from the date of disqualification.

NOTE

Authority cited: Section 10731, Insurance Code. Reference: Sections 10731 and 10743, Insurance Code.

HISTORY

1. Renumbering and amendment of former section 2699.626.3 to section 2699.6175 filed 5-27-94; operative 5-27-94 (Register 94, No. 21).

§2699.6176. Disqualification for Dental Benefits Coverage.

Note • History

(a) A small employer or individual member shall be disqualified from participation in the dental benefits option in the program if any of the following occur:

(1) It is disqualified by the program pursuant to Sections 2699.6167, 2699.6173, or 2699.6175 from participation for health benefits coverage.

(2) The small employer or guaranteed association of an individual member fails to meet the requirements of Section 2699.6115

(3) It so requests in writing. Such requests shall be provided to the program in writing before the due date of the dental benefits premium.

(b) When a small employer or individual member is disqualified from participating for the dental benefits option, the small employer or individual member shall be notified in writing of the disqualification and effective date of the disqualification.

(c) A small employer or individual member disqualified pursuant to (a)(2) or (a)(3) above cannot participate for the dental benefits option for one year from the date of disqualification.

NOTE

Authority cited: Section 10731, Insurance Code. Reference: Sections 10731 and 10743, Insurance Code.

HISTORY

2. Certificate of Compliance as to 5-23-94 order transmitted to OAL 9-16-94 and filed 10-27-94 (Register 94, No. 43).

§2699.6177. Disenrollment of Sole Employees.

Note • History

(a) Sole employees and their dependents, if any, shall be disenrolled from the program and from the program's participating carriers when any of the following occur:

(1) The enrolled sole employee's participating employer is disqualified from the program.

(2) The enrolled sole employee or dependents, if any, has committed an act of fraud or misrepresentation to circumvent the statutes or regulations of the program or the rules of the participating carrier selected by the sole employee.

(3) The enrolled sole employee requests disenrollment through a participating employer of him or herself and the employee's dependents or the dependents only, either

(A) Because the sole enrollee or dependents have obtained coverage under another employer sponsored plan or,

(B) For any other reason.

(4) The employee ceases to be a sole employee of the participating employer. However, the former employee and the former employee's qualified dependents may continue in the program pursuant to Section 2699.6191, COBRA Benefits. The employer shall inform the program when an eligible sole employee ceases to be eligible by the end of the month in which the event occurs.

(5) A dependent ceases to be a dependent as defined in Section 2699.6000. The employer shall inform the program when an eligible dependent ceases to be eligible by the end of the month in which the event occurs.

(b) The program shall disenroll an enrollee pursuant to (a)(1) or (a)(2) above within sixty (60) calendar days of the program's determination to disenroll unless disenrollment is retroactive. If the program determines that an enrolled sole employee and/or dependent has committed an act of fraud or misrepresentation, the program may disenroll the employee and/or dependent as early as the date of the act of fraud or misrepresentation.

(c) To request to disenroll enrollees pursuant to (a)(3), (a)(4), or (a)(5) above, a participating employer shall notify the program of the full names, addresses, dates of birth, sex, and social security numbers of the enrollees to be disenrolled. If disenrolled pursuant to (a)(3), the effective date of the disenrollment shall be no later than 60 days from receipt of the notice. Disenrollment will be no earlier than the end of the month in which notice is received. However, if notice is received by the first working day of a month, the disenrollment may be effective on the last day of the previous calendar month. If disenrolled pursuant to (a)(4) or (a)(5), the disenrollment shall be no later than 60 days from receipt of the request unless disenrollment is retroactive, in accordance with (d) below.

(d) If the program determines that an employee is or was not a qualified sole employee of a participating employer or a dependent is or was not a dependent of a sole employee, the program may disenroll the employee or dependent. The disenrollment may take place as early as the date the employee ceased being a sole employee or the dependent ceased being a dependent. If the program determines that the enrolled person never had qualifying status as a sole employee or dependent, the disenrollment may take place as early as that person's original effective date of coverage.

(e) A participating employer shall be notified by the program in writing of the disenrollment and effective date of disenrollment of a sole employee and/or dependents and the reason for the disenrollment.

(f) The program shall notify the participating carrier of the date of disenrollment.

(g) The sole employer's premium shall be adjusted, if applicable, as of the effective date of any disenrollment.

(h) If disenrolled pursuant to (a)(2) or (a)(3)(B) above, an individual sole employee and dependents, if any, shall not be eligible for enrollment in the program through the same participating employer for one year from the date of disenrollment. If disenrolled pursuant to (a)(3)(A), an employee or dependent who subsequently loses his or her coverage under another employer sponsored health plan can be re-enrolled in the program if the employee or dependent is otherwise eligible and applies for enrollment pursuant to Section 2699.6145 within thirty (30) calendar days of losing coverage.

NOTE

Authority cited: Section 10731, Insurance Code. Reference: Sections 10731 and 10743, Insurance Code.

HISTORY

1. Renumbering and amendment of former section 2699.6261 to section 2699.6177 filed 5-27-94; operative 5-27-94 (Register 94, No. 21).

2. Amendment of subsections (a)(4)-(5), (b)-(d), subsection relettering, and new subsection (g) filed 6-16-95 as an emergency; operative 6-16-95 (Register 95, No. 24). A Certificate of Compliance must be transmitted to OAL by 10-16-95 or emergency language will be repealed by operation of law on the following day.

3. Certificate of Compliance as to 6-16-95 order transmitted to OAL 9-26-95 and filed 10-18-95 (Register 95, No. 42).

§2699.6181. Disenrollment of Member Employees and Dependents.

Note • History

(a) Member employees and their dependents, if any, shall be disenrolled from the program and from the program's participating carriers when any of the following occur:

(1) The member employee's guaranteed association is disqualified. However, the member employee shall not be disenrolled if the member employer notifies the program that the member employer is changing to sole employer status.

(2) The enrolled member employee's participating employer is disqualified from the program.

(3) The enrolled member employee or dependents, if any, has committed an act of fraud or misrepresentation to circumvent the statutes or regulations of the program or the rules of the participating carrier selected by the sole employee.

(4) The enrolled member employee requests disenrollment through a participating employer of him or herself and the member's dependents or the dependents only, either

(A) Because the enrollee or dependents have obtained coverage under another employer sponsored plan or,

(B) For any other reason.

(5) The employee ceases to be a member employee of the participating employer. However, the former employee and the former employee's qualified dependents may continue in the program pursuant to Section 2699.6191, COBRA Benefits. The employer shall inform the program when an eligible member employee ceases to be eligible by the end of the month in which the event occurs.

(6) A dependent ceases to be a dependent as defined in Section 2699.6000. The employer shall inform the program when an eligible dependent ceases to be eligible by the end of the month in which the event occurs.

(b) The program shall disenroll an enrollee pursuant to (a)(1) or (a)(2) or (a)(3) above within sixty (60) calendar days of the program's determination to disenroll unless disenrollment is retroactive. If the program determines that an enrolled member employee and/or dependent has committed an act of fraud or misrepresentation, the program may disenroll the employee and/or dependent as early as the date of the act of fraud or misrepresentation.

(c) To request to disenroll enrollees pursuant to (a)(4), (a)(5), or (a)(6) above, a participating employer shall notify the program of the full names, addresses, dates of birth, sex, and social security numbers of the enrollees to be disenrolled. If disenrolled pursuant to (a)(4), the effective date of the disenrollment shall be no later than 60 days from receipt of the notice. Disenrollment will be no earlier than the end of the month in which notice is received. However, if notice is received by the first working day of a month, the disenrollment may be effective on the last day of the previous calendar month. If disenrolled pursuant to (a)(5) or (a)(6) the disenrollment shall be no later than 60 days from receipt of the request unless disenrollment is retroactive, in accordance with (d) below.

(d) If the program determines that an employee is or was not a qualified member employee of a participating employer or a dependent is or was not a dependent of a member employee, the program may disenroll the employee or dependent. The disenrollment make take place as early as the date the employee ceased being a member employee or the dependent ceased being a dependent. If the program determines that the enrolled person never had qualifying status as a member employee or dependent, the disenrollment may take place as early as that person's original effective date of coverage.

(e) A participating member employer and the participating guaranteed association shall be notified by the program in writing of the disenrollment and effective date of disenrollment of an sole employee and/or dependents and the reason for the disenrollment.

(f) The program shall notify the participating carrier of the date of disenrollment.

(g) The member employer's premium shall be adjusted, if applicable, as of the effective date of any disenrollment.

(h) If disenrollment pursuant to (a)(3) or (a)(4)(B) above, an member employee and dependents, if any, shall not be eligible for enrollment in the program through the same participating employer for one (1) year from the date of disenrollment. If disenrolled pursuant to (a)(4)(A), an employee or dependent who subsequently loses his or her coverage under another employer sponsored health plan can be re-enrolled in the program if the employee or dependent is otherwise eligible and applies for enrollment pursuant to Section 2699.6147 within thirty (30) calendar days of losing coverage.

NOTE

Authority cited: Section 10731, Insurance Code. Reference: Sections 10731 and 10743, Insurance Code.

HISTORY

1. Renumbering and amendment of former section 2699.6261.5 to section 2699.6181 filed 5-27-94; operative 5-27-94 (Register 94, No. 21).

2. Amendment of subsections (a)(5)-(c), new subsection (d) and subsection relettering filed 6-16-95 as an emergency; operative 6-16-95 (Register 95, No. 24). A Certificate of Compliance must be transmitted to OAL by 10-16-95 or emergency language will be repealed by operation of law on the following day.

3. Certificate of Compliance as to 6-16-95 order transmitted to OAL 9-26-95 and filed 10-18-95 (Register 95, No. 42).

§2699.6183. Disenrollment of Individual Members and Dependents.

Note • History

(a) Individual members and their dependents, if any, shall be disenrolled from the program and from the program's participating carriers when any of the following occur:

(1) The individual member's participating guaranteed association is disqualified from the program.

(2) The individual member or dependents, if any, has committed an act of fraud or misrepresentation to circumvent the statutes or regulations of the program or the rules of the participating carrier selected by the individual member.

(3) The individual member requests disenrollment of him or herself and the individual member's dependents or the dependents only, either

(A) Because the enrollee or dependents have obtained coverage under another employer sponsored plan or,

(B) For any other reason.

(4) The individual member ceases to be a member of or sponsored for coverage by the participating guaranteed association. The individual member shall inform the program if the member ceases to be eligible by the end of the month in which the event occurs.

(5) A dependent ceases to be a dependent as defined in Section 2699.6000. The individual member shall inform the program when an eligible dependent ceases to be eligible by the end of the month in which the event occurs.

(b) The program shall disenroll an enrollee pursuant to (a)(1) or (a)(2) above within sixty (60) calendar days of the program's determination to disenroll unless disenrollment is retroactive. If the program determines fraud or misrepresentation, the program may disenroll the member and/or dependent as early as the date of the act of fraud or misrepresentation.

(c) To request to disenroll pursuant to (a)(3), (a)(4), or (a)(5) above, a participating individual member shall notify the program of the full names, addresses, dates of birth, sex, and social security numbers of the enrollees to be disenrolled. If disenrolled pursuant to (a)(3), the effective date of the disenrollment shall be no later than 60 days from receipt of the notice. Disenrollment will be no earlier than the end of the month in which notice is received. However, if notice is received by the first working day of a month, the disenrollment may be effective on the last day of the previous calendar month. If disenrolled pursuant to (a)(4) or (a)(5), the disenrollment shall be no later than 60 days from receipt of the request unless disenrollment is retroactive.

(d) If the program determines that an individual member is or was not a qualified individual member or a dependent is or was not a qualified dependent of the individual member, the program may disenroll the member or dependent. The disenrollment may take place as early as the date the individual member ceased being an individual member or dependent ceased being a dependent. If the program determines that the enrolled person never had qualifying status as an individual member or dependent, the disenrollment may take place as early as that person's original effective date of coverage.

(e) An individual member and the participating guaranteed association shall be notified by the program in writing of the disenrollment and effective date of disenrollment of an individual member and/or dependents and the reason for the disenrollment.

(f) The program shall notify the participating carrier of the date of disenrollment.

(g) The individual member's premium shall be adjusted, if applicable, as of the effective date of any disenrollment.

(h) If disenrollment pursuant to (a)(2) or (a)(3)(B) above, an individual member and dependents, if any, shall not be eligible for enrollment in the program for one (1) year from the date of disenrollment. If disenrolled pursuant to (a)(3)(A), an individual member or dependent who subsequently loses his or her coverage under an employer sponsored health plan can be re-enrolled in the program if the individual member or dependent is otherwise eligible and applies for enrollment pursuant to Section 2699.6149 within thirty (30) calendar days of losing coverage.

NOTE

Authority cited: Section 10731, Insurance Code. Reference: Sections 10731 and 10743, Insurance Code.

HISTORY

1. Renumbering and amendment of former section 2699.6262.5 to section 2699.6183 filed 5-27-94; operative 5-27-94 (Register 94, No. 21).

2. Amendment of subsections (a)(4)-(c), new subsection (d) subsection relettering and amendment of newly designated subsection (h) filed 6-16-95 as an emergency; operative 6-16-95 (Register 95, No. 24). A Certificate of Compliance must be transmitted to OAL by 10-16-95 or emergency language will be repealed by operation of law on the following day.

3. Certificate of Compliance as to 6-16-95 order transmitted to OAL 9-26-95 and filed 10-18-95 (Register 95, No. 42).

§2699.6185. Discontinuance of Dental Benefits Coverage.

Note • History

(a) Sole employees and individual members, and their dependents shall be discontinued from dental coverage under the following circumstances:

(1) The enrollee is disenrolled from health benefits coverage in the program.

(2) The participating employer of an eligible employee is disqualified for the dental benefits option.

(3) The guaranteed association of an individual member is disqualified for the dental benefits option.

(b) The final date of dental coverage shall be the last day for which the dental benefits premium is paid.

(c) Enrollees discontinued from dental coverage in the program pursuant to (a)(2) or (a)(3) above shall not be eligible for dental coverage for one year.

NOTE

Authority cited: Section 10731, Insurance Code. Reference: Sections 10731 and 10743, Insurance Code.

HISTORY

2. Certificate of Compliance as to 5-23-94 order transmitted to OAL 9-16-94 and filed 10-27-94 (Register 94, No. 43).

§2699.6187. Transfer of Enrollment for Sole and Member Employees.

Note • History

(a) Other than transfers requested during an open enrollment period, an enrolled member or sole employee and enrolled dependents shall be transferred from one participating carrier to another if any of the following occurs:

(1) The participating employer so requests, in writing, because the employee has moved and no longer resides in an area served by the participating carrier in which the enrolled employee is enrolled, and there is at least one participating carrier serving the area in which the enrolled employee now resides.

(2) The participating employer so requests, in writing, on behalf of the employee, or the participating carrier so requests, in writing, because of failure to establish a satisfactory relationship between the enrolled employee or enrolled dependent and the participating carrier, and the Executive Director determines that the transfer is in the best interests of the program, and there is at least one other participating carrier serving the area in which the enrolled employee resides.

(b) Transfer of enrollment shall take effect within thirty (30) calendar days of approval of the request.

(c) The enrolled employee's participating employer and the affected participating carriers shall be notified in writing of any transfer of enrollment, and the effective date.

NOTE

Authority cited: Section 10731, Insurance Code. Reference: Section 10731, Insurance Code.

HISTORY

1. Renumbering of former section 2699.627 to section 2699.6187 filed 5-27-94; operative 5-27-94 (Register 94, No. 21).

§2699.6189. Transfer of Enrollment for Individual Members.

Note • History

(a) Other than transfers requested during an open enrollment period, enrolled individual members and enrolled dependents shall be transferred from one participating carrier to another if any of the following occurs:

(1) The individual member so requests, in writing, because the individual member has moved and no longer resides in an area served by the participating carrier in which the individual member is enrolled, and there is at least one participating carrier serving the area in which the individual member now resides.

(2) The individual member so requests, in writing, or the participating carrier so requests, in writing, because of failure to establish a satisfactory relationship between the individual member and the participating carrier, and the Executive Director determines that the transfer is in the best interests of the program, and there is at least one other participating carrier serving the area in which the individual member resides.

(b) Transfer of enrollment shall take effect within thirty (30) calendar days of approval of the request.

(c) The individual member and the affected participating carriers shall be notified in writing of any transfer of enrollment, and the effective date.

NOTE

Authority cited: Section 10731, Insurance Code. Reference: Section 10731, Insurance Code.

HISTORY

1. Renumbering of former section 2699.627.5 to section 2699.6189 filed 5-27-94; operative 5-27-94 (Register 94, No. 21).

§2699.6191. COBRA Benefits.

Note • History

(a) Qualified small employers that have enrollees who qualify for extended coverage under the Consolidated Omnibus Budget Reconciliation Act (COBRA) of 1985 as amended shall be permitted to obtain such coverage by notifying the program in writing of the enrollees' intent to obtain COBRA coverage and the information required by Section 2699.6177(c).

(b) The program shall notify the employer consistent with the requirements of COBRA of any necessary procedures for obtaining enrollee COBRA coverage within fifteen (15) calendar days of notification pursuant to (a) above.

(c) The COBRA eligible former employee will be individually billed and shall be responsible for making all premium payments pursuant to the same standards of payment for employers in Article 4 (Sections 2699.6300 et seq.) and the payment requirements of COBRA, for as long as the former employee and enrolled dependents remain eligible for COBRA coverage.

(d) Nothing in this part shall relieve any small employer or any participating carrier of their obligations as set forth in the Consolidated Omnibus Reconciliation Act of 1986 as amended.

NOTE

Authority cited: Section 10731, Insurance Code. Reference: Section 10731, Insurance Code.

HISTORY

1. Renumbering and amendment of former section 2699.6271 to section 2699.6191 filed 5-27-94; operative 5-27-94 (Register 94, No. 21).

2. Amendment of subsection (b) filed 12-29-94 as an emergency; operative 12-29-94 (Register 94, No. 52). A Certificate of Compliance must be transmitted to OAL 4-28-95 or emergency language will be repealed by operation of law on the following day.

3. Certificate of Compliance as to 12-29-94 order transmitted to OAL 4-12-95 and filed 5-22-95 (Register 95, No. 21).

§2699.6193. Transfer of Enrollment for Dental Benefits.

Note • History

(a) Other than transfers requested during an open enrollment period, an enrollee shall be transferred from one participating carrier to another if any of the following occurs:

(1) The participating employer on behalf of the employee, or the individual member, so requests, in writing, because the enrollee has moved and no longer resides in an area served by the participating dental benefits carrier in which the enrollee is enrolled, and there is at least one participating dental benefits carrier serving the area in which the enrollee now resides.

(2) The participating employer on behalf of the employee, or the individual member, so requests, in writing, or the participating dental benefits carrier so requests, in writing, because of failure to establish a satisfactory relationship between the enrollee and the participating dental benefits carrier, and the Executive Director determines that the transfer is in the best interests of the program, and there is at least one other participating dental carrier serving the area in which the enrolled employee resides.

(b) Transfer of enrollment for dental benefits shall take effect within 31 calendar days of approval of the request.

(c) The participating employer or individual member and the affected participating dental carrier shall be notified in writing of any transfer of enrollment, and the effective date.

NOTE

Authority cited: Section 10731, Insurance Code. Reference: Section 10731, Insurance Code.

HISTORY

2. Certificate of Compliance as to 5-23-94 order transmitted to OAL 9-16-94 and filed 10-27-94 (Register 94, No. 43).

§2699.6194. Payment to Insurance Agents and Brokers for Sole Employers.

Note • History

(a) This subsection applies to sole employers who have an effective date of coverage prior to September 1, 1998 who have not made an election pursuant to Section 2699.6116.

(1) Except as specified in (2) below, the employer premium shall include an agent and broker fee if an insurance agent as defined in Section 31 of the Insurance Code or broker as defined in Section 33 of the Insurance Code assisted the sole employer in applying for the program, and if the sole employer is determined to be qualified as a result of the application, and the agent or broker requests such payment in writing as part of the application and includes his or her name, license number, tax identification number, and address.

(2) The employer premium shall include an agent or broker fee unless the sole employer's application includes the employer's certification that an agent or broker did not perform all of the following services:

(A) Assist the sole employer in completing the application,

(B) Calculate or determine the cost of program participation for the sole employer,

(3) For sole employers who have made application to the program prior to July 1, 1996, the amount of the payment until the time of the qualified sole employer's first annual requalification pursuant to Section 2699.6117 shall be:

(A) For qualified sole employers that have, at the time of application, 2-25 enrollees, the payment shall be $50 for the sole employer per month and $4 per enrollee per month.

(B) For qualified sole employers that have 26-50 enrollees at the time of application the payment shall be $75 for the sole employer per month and $4 per enrollee per month.

(C) For qualified sole employers that have 51 or more enrollees at the time of application the payment shall be $100 for the sole employer per month and $4 per enrollee per month.

(4) For sole employers who have made application to the program on or after July 1, 1996, the amount of the payment until the time of the qualified sole employer's first annual requalification pursuant to Section 2699.6117 shall be:

(A) For qualified sole employers that have, at the time of the application, 2-9 enrollees, the payment shall be $50 for the sole employer per month and $4 per enrollee per month.

(B) For qualified sole employers that have, at the time of the application, 10-20 enrollees, the payment shall be $75 for the sole employer per month and $4 per enrollee per month.

(C) For qualified sole employers that have, at the time of the application, 21-30 enrollees, the payment shall be $100 for the sole employer per month and $4 per enrollee per month.

(D) For qualified sole employers that have, at the time of the application, 31-40 enrollees, the payment shall be $125 for the sole employer per month and $4 per enrollee per month.

(E) For qualified sole employers that have, at the time of the application, 41-50 enrollees, the payment shall be $150 for the sole employer per month and $4 per enrollee per month.

(F) For qualified sole employers that have, at the time of the application, 51 or more enrollees, the payment shall be $175 for the sole employer per month and $4 per enrollee per month.

(5)(A) Except as specified in (D) below, the sole employer premium shall continue to include an agent and broker fee after the employer's annual requalification pursuant to Section 2699.6117.

(B) For sole employers who had an effective date of coverage before July 1, 1997, the amount of the agent or broker fees after the time of the qualified sole employer's first annual requalification pursuant to Section 2699.6117 shall be as follows:

1. For qualified sole employers that have 2-25 enrollees at the time of application the payment shall be $30 for the sole employer per month and $4 per enrollee per month.

2. For qualified sole employers that have 26-50 enrollees at the time of application the payment shall be $40 for the sole employer per month and $4 per enrollee per month.

3. For qualified sole employers that have 51 or more enrollees at the time of application the payment shall be $50 for the sole employer per month and $4 per enrollee per month.

(C) For sole employers who had an effective date of coverage on or after July 1, 1997, the amount of the agent or broker fees after the time of the qualified sole employer's first annual requalification pursuant to Section 2699.6117 shall be as follows:

1. For qualified sole employers that have, at the time of the application, 2-9 enrollees, the payment shall be $30 for the sole employer per month and $4 per enrollee per month.

2. For qualified sole employers that have, at the time of the application, 10-20 enrollees, the payment shall be $50 for the sole employer per month and $4 per enrollee per month.

3. For qualified sole employers that have, at the time of the application, 21-30 enrollees, the payment shall be $70 for the sole employer per month and $4 per enrollee per month.

4. For qualified sole employers that have, at the time of the application, 31-40 enrollees, the payment shall be $80 for the sole employer per month and $4 per enrollee per month.

5. For qualified sole employers that have, at the time of the application, 41-50 enrollees, the payment shall be $100 for the sole employer per month and $4 per enrollee per month.

6. For qualified sole employers that have, at the time of the application, 51 or more enrollees, the payment shall be $115 for the sole employer per month and $4 per enrollee per month.

(D) The employer premium for an annual period shall normally include an agent or broker fee. However, such fees may be terminated commencing with the second year of enrollment for sole employers who made application to the program prior to July 1, 1996, and with the third year of enrollment for sole employers who applied on or after July 1, 1996 and had an effective date of coverage before July 1, 1997, if the sole employer's requalification request includes the employer's certification that an agent or broker provided neither of the following types of services:

1. Assist the sole employer in completing the requalification and/or assist the sole employer's enrollees with the open enrollment process pursuant to Section 2699.6139.

2. Assist the sole employer or enrollees in resolving enrollment, billing, claims or other program issues.

(6) The sole employer may redirect any payment made pursuant to this section to another agent or broker by submitting written notice signed by the employer to the program and providing the program with the information required under (a)(1) of this section. The effective date of the redirection shall be within ninety (90) calendar days following receipt of the notice.

(7) Payment to agents and brokers shall be terminated if one of the following occurs:

(A) The agent or broker is no longer a licensed agent or broker.

(B) The agent or broker materially violates any law or regulation regarding the sale of insurance or fails to comply with any court order.

(C) The agent or broker commits any willful or dishonest act resulting in injury to the program, a participating carrier, or an enrollee.

(8) For sole employers who apply on or after July 1, 1996, when agent or broker fees are terminated pursuant to (7)(A), (B) or (C) above within the first two years, the sole employer shall pay the equivalent monthly amount to the program as part of the program participation fee in accordance with Section 2699.6307, for the remainder of the first two years of enrollment.

(b) This subsection applies to sole employers who have an effective date of coverage on or after September 1, 1998 and sole employers who have made an election pursuant to Section 2699.6116.

(1) For sole employers who have an effective date of coverage on or after September 1, 1998 and sole employers who have made an election pursuant to Section 2699.6116, the amount of the agent or broker fee shall be an amount equal to eight percent of the comprehensive individual medical premium and comprehensive individual dental premium of each enrolling employee.

(2) If an insurance agent as defined in Section 31 of the Insurance Code or broker as defined in Section 33 of the Insurance Code assisted the sole employer in applying for the program, and if the sole employer is determined to be qualified as a result of the application, and the agent or broker requests such payment in writing as part of the application and includes his or her name, license number, tax identification number, and address, then the agent or broker fee shall be paid to the identified agent or broker.

(3) The sole employer may redirect any payment made pursuant to this section to another agent or broker by submitting a written notice signed by the employer to the program and providing the program with the information required under (2) of this section. The effective date of the redirection shall be within ninety (90) calendar days following receipt of the notice.

(4) Payment to agents and brokers shall be terminated if one of the following occurs:

(A) The agent or broker is no longer a licensed agent or broker.

(B) The agent or broker materially violates any law or regulation regarding the sale of insurance or fails to comply with any court order.

(C) The agent or broker commits any willful or dishonest act resulting in injury to the program, a participating carrier, or an enrollee.

(5) If the agent or broker fee is not directed to a particular agent or broker then the agent or broker fee shall be retained by the program as part of the program participation fee.

NOTE

Authority cited: Section 10731, Insurance Code. Reference: Section 10731, Insurance Code.

HISTORY

1. Renumbering and amendment of former section 2699.628 to section 2699.6194 filed 5-27-94; operative 5-27-94 (Register 94, No. 21).

2. Amendment of subsections (a)(2)(B), (c)(2), new subsections (c)(2)(A)-(C), and amendment of subsection (d) filed 12-29-94 as an emergency; operative 12-29-94 (Register 94, No. 52). A Certificate of Compliance must be transmitted to OAL 4-28-95 or emergency language will be repealed by operation of law on the following day.

3. Certificate of Compliance as to 12-29-94 order including amendment of subsections (b)(1), (c)(2)(A) and (c)(2)(C) transmitted to OAL 4-12-95 and filed 5-22-95 (Register 95, No. 21).

4. Amendment filed 4-25-96; operative 5-25-96 (Register 96, No. 17).

5. Amendment of subsections (b)(1), (c)(2), and (d)(2) filed 5-5-97; operative 7-1-97 (Register 97, No. 19).

6. Amendment filed 6-3-97; operative 7-1-97 pursuant to Government Code section 11343.4(d) (Register 97, No. 23).

7. Amendment filed 7-3-98 as an emergency; operative 7-3-98 (Register 98, No. 27). A Certificate of Compliance must be transmitted to OAL by 11-2-98 or emergency language will be repealed by operation of law on the following day.

8. Editorial correction of subsection (b)(3) (Register 98, No. 47).

9. Certificate of Compliance as to 7-3-98 order transmitted to OAL 10-2-98 and filed 11-16-98 (Register 98, No. 47).

§2699.6195. Payment to Insurance Agents and Brokers for Member Employers and Individual Members When Premiums Collected by Guaranteed Association.

Note • History

(a) This subsection applies to guaranteed associations with an effective date of coverage prior to September 1, 1998 that have not made an election pursuant to Section 2699.6116.

(1) When the qualified guaranteed association collects the employer premium and individual member premium from the member employers and the individual members it shall be as follows:

(A) The guaranteed association may collect from its members and pay to agents as defined in Section 31 of the Insurance Code or brokers as defined in Section 33 of the Insurance Code an amount consistent with the policies and practices of the qualified guaranteed association.

(B) The employer premium or individual member premium shall include an agent or broker fee if the guaranteed association has elected to utilize the services of an agent or broker.

(b) This subsection applies to guaranteed associations with an effective date of coverage on or after September 1, 1998 and guaranteed associations who have made an election pursuant to Section 2699.6116.

(1) When the qualified guaranteed association collects the employer premiums and individual member premiums from the member employers and the individual members, the agent or broker fee shall be seven percent of the comprehensive individual medical premiums and comprehensive individual dental premiums for individual members and the agent or broker fee shall be eight percent of the comprehensive individual medical premiums and comprehensive individual dental premiums for member employers.

(2) The guaranteed association may designate an agent or broker as defined in Sections 31 and 33 of the Insurance Code to whom the agent or broker fee shall be paid.

(3) If the guaranteed association does not designate an agent or broker then the agent or broker fee shall be retained by the program as part of the program participation fee.

NOTE

Authority cited: Section 10731, Insurance Code. Reference: Section 10731, Insurance Code.

HISTORY

1. Renumbering of former section 2699.628.5 to section 2699.6195 filed 5-27-94; operative 5-27-94 (Register 94, No. 21).

2. Amendment filed 7-3-98 as an emergency; operative 7-3-98 (Register 98, No. 27). A Certificate of Compliance must be transmitted to OAL by 11-2-98 or emergency language will be repealed by operation of law on the following day.

3. Certificate of Compliance as to 7-3-98 order transmitted to OAL 10-2-98 and filed 11-16-98 (Register 98, No. 47).

§2699.6196. Payment to Insurance Agents and Brokers for Member Employers When Premium Collected by Program.

Note • History

(a) This section applies to guaranteed associations with an effective date of coverage prior to September 1, 1998 that have not made an election pursuant to Section 2699.6116.

(1) Guaranteed associations may designate one or more insurance agents, as defined in Section 31 of the Insurance Code, or brokers, as defined in Section 33 of the Insurance Code, for guaranteed association members who participate in the program. When the program collects the employer premium from the member employers of the guaranteed association premium collection shall be as follows:

(A) Except as specified in (B) below, the employer premium shall include an agent and broker fee if a designated insurance agent or, if none is designated, any other insurance agent as defined in Section 31 of the Insurance Code or a designated broker or, if none was designated, any other insurance broker as defined in Section 33 of the Insurance Code assisted the member employer in applying for the program, and if the member employer is determined to be qualified as a result of the application, and the agent or broker requests such payment in writing as part of the application and includes his or her name, license number, tax identification number, and address.

(B) The employer premium shall include an agent or broker fee unless the member employer's application includes the member employer's certification that an agent or broker did not perform all of the following services:

1. Assist the member employer in completing the application,

2. Calculate or determine the cost of program participation for the member employer,

3. Assist the member employer in enrolling the sole employees of the member employer.

(C) For member employers who have made application to the program prior to July 1, 1996, the amount of the payment until the time of the qualified member employer's first annual requalification pursuant to Section 2699.6119 shall be:

1. For qualified member employers that have, at the time of application, 2-25 enrollees, the payment shall be $50 for the member employer per month and $4 per enrollee per month.

2. For qualified member employers that have 26-50 enrollees at the time of application the payment shall be $75 for the member employer per month and $4 per enrollee per month.

3. For qualified member employers that have 51 or more enrollees at the time of application the payment shall be $100 for the member employer per month and $4 per enrollee per month.

(D) For member employers who have made application to the program on or after July 1, 1996, the amount of the payment until the time of the member employer's first annual requalification pursuant to Section 2699.6119 shall be:

1. For qualified member employers that have, at the time of application, 2-9 enrollees, the payment shall be $50 for the member employer per month and $4 per enrollee per month.

2. For qualified member employers that have, at the time of application, 10-20 enrollees, the payment shall be $75 for the member employer per month and $4 per enrollee per month.

3. For qualified member employers that have, at the time of application, 21-30 enrollees, the payment shall be $100 for the member employer per month and $4 per enrollee per month.

4. For qualified member employers that have, at the time of application, 31-40 enrollees, the payment shall be $125 for the member employer per month and $4 per enrollee per month.

5. For qualified member employers that have, at the time of application, 41-50 enrollees, the payment shall be $150 for the member employer per month and $4 per enrollee per month.

6. For qualified member employers that have, at the time of application, 51 or more enrollees, the payment shall be $175 for the member employer per month and $4 per enrollee per month.

(E)1. Except as specified in (4) below, the member employer premium shall continue to include an agent and broker fee after the employer's annual requalification pursuant to Section 2699.6119.

2. For member employers who had an effective date of coverage before July 1, 1997, the amount of the agent or broker fees after the time of the qualified member employer's first annual requalification pursuant to Section 2699.6119 shall be as follows:

a. For qualified member employers that have, at the time of application 2-25 enrollees, the payment shall be $30 for the member employer per month and $4 per enrollee per month.

b. For qualified member employers that have 26-50 enrollees at the time of application the payment shall be $40 for the member employer per month and $4 per enrollee per month.

c. For qualified member employers that have 51 or more enrollees at the time of application the payment shall be $50 for the member employer per month and $4 per enrollee per month.

3. For member employers who had an effective date of coverage on or after July 1, 1997, the amount of the agent or broker fees after the time of the qualified member employer's first annual requalification pursuant to Section 2699.6117 shall be as follows:

a. For qualified member employers that have, at the time of the application, 2-9 enrollees, the payment shall be $30 for the sole employer per month and $4 per enrollee per month.

b. For qualified member employers that have, at the time of the application, 10-20 enrollees, the payment shall be $50 for the sole employer per month and $4 per enrollee per month.

c. For qualified member employers that have, at the time of the application, 21-30 enrollees, the payment shall be $70 for the sole employer per month and $4 per enrollee per month.

d. For qualified member employers that have, at the time of the application, 31-40 enrollees, the payment shall be $80 for the sole employer per month and $4 per enrollee per month.

e. For qualified member employers that have, at the time of the application, 41-50 enrollees, the payment shall be $100 for the sole employer per month and $4 per enrollee per month.

f. For qualified member employers that have, at the time of the application, 51 or more enrollees, the payment shall be $115 for the sole employer per month and $4 per enrollee per month.

4. The employer premium for an annual period shall normally include an agent or broker fee. However, such fee may be terminated commencing with the second year of enrollment for member employers who made application to the program prior to July 1, 1996, and with the third year of enrollment for member employers who applied on or after July 1, 1996 and had an effective date of coverage before July 1, 1997, if the member employer's requalification request includes the employer's certification that an agent or broker provided neither of the following types of services:

a. Assist the member employer in completing the requalification and/or assist the member employer's enrollees with the open enrollment process pursuant to Section 2699.6139.

b. Assist the member employer or enrollees in resolving enrollment, billing, claims or other program issues.

(F) The member employer may redirect any payment made pursuant to this section to another designated agent or broker or, if none is designated, any agent or broker, by submitting written notice signed by the employer to the program and providing the program with the information required under (a)(1)(A) of this section. The effective date of the redirection shall be within ninety (90) calendar days following receipt of the notice.

(G) Payment to agents and brokers shall be terminated if one of the following occurs:

1. The agent or broker is no longer a licensed agent or broker.

2. The agent or broker materially violates any law or regulation regarding the sale of insurance or fails to comply with any court order.

3. The agent or broker commits any willful or dishonest act resulting in injury to the program, a participating carrier, or an enrollee.

(H) For member employers who apply on or after July 1, 1996, when agent or broker fees are terminated pursuant to (G)(1), (2), or (3) above within the first two years, the member employer shall pay the equivalent monthly amount to the program as part of the program participation fee in accordance with Section 2699.6307, for the remainder of the first two years of enrollment.

(b) This subsection applies to guaranteed associations with an effective date of coverage on or after September 1, 1998 and guaranteed associations that have made an election pursuant 2699.6116.

(1) This section applies to guaranteed associations with effective dates of coverage on or after September 1, 1998 and guaranteed associations that have made an election pursuant to Section 2699.6116. For member employers of such guaranteed associations, the amount of the agent or broker fee shall be eight percent of the comprehensive individual medical premiums and comprehensive individual dental premiums.

(2) Guaranteed associations may designate one or more insurance agents, as defined in Section 31 of the Insurance Code, or brokers, as defined in Section 33 of the Insurance Code, for guaranteed association members who participate in the program.

(3) If a designated agent or broker, or if none is designated, any other insurance agent as defined in Section 31 of the Insurance Code or broker as defined in Section 33 of the Insurance Code assisted the member employer in applying for the program, and if the member employer is determined to be qualified as a result of the application, and the agent or broker requests such payment in writing as part of the application and includes his or her name, license number, tax identification number, and address then the agent or broker fee shall be paid to the identified agent or broker.

(4) The member employer may redirect any payment made pursuant to this section to another designated agent or broker, or if none is designated, any other agent or broker, by submitting a written notice signed by the member employer to the program and providing the program with the information required under (b)(3) of this section. The effective date of the redirection shall be within ninety (90) calendar days following receipt of the notice.

(5) Payment to agents and brokers shall be terminated if one of the following occurs:

(A) The agent or broker is no longer a licensed agent or broker.

(B) The agent or broker materially violates any law or regulation regarding the sale of insurance or fails to comply with any court order.

(C) The agent or broker commits any willful or dishonest act resulting in injury to the program, a participating carrier, or an enrollee.

(6) If the agent or broker fee is not directed to a particular agent or broker then the agent or broker fee shall be retained by the program as part of the program participation fee.

NOTE

Authority cited: Section 10731, Insurance Code. Reference: Section 10731, Insurance Code.

HISTORY

1. Renumbering and amendment of former section 2699.628.6 to section 2699.6196 filed 5-27-94; operative 5-27-94 (Register 94, No. 21).

2. Amendment filed 12-29-94 as an emergency; operative 12-29-94 (Register 94, No. 52). A Certificate of Compliance must be transmitted to OAL 4-28-95 or emergency language will be repealed by operation of law on the following day.

3. Certificate of Compliance as to 12-29-94 order including amendment of subsections (a)(1), (a)(3)(A) and (a)(4)(B)1. transmitted to OAL 4-12-95 and filed 5-22-95 (Register 95, No. 21).

4. Amendment filed 4-25-96; operative 5-25-96 (Register 96, No. 17).

5. Amendment of subsections (a)(3)(A), (a)(4)(A) and (a)(5)(B)1. filed 5-5-97; operative 7-1-97 (Register 97, No. 19).

6. Amendment filed 6-3-97; operative 7-1-97 pursuant to Government Code section 11343.4(d) (Register 97, No. 23).

8. Editorial correction of subsection (a)(1)(E)1. (Register 98, No. 47).

9. Certificate of Compliance as to 7-3-98 order, including amendment of subsections (a)(1)(F) and (b)(4), transmitted to OAL 10-2-98 and filed 11-16-98 (Register 98, No. 47).

§2699.6197. Payment to Insurance Agents and Brokers for Individual Members When Premium Collected by Program.

Note • History

(a) This section applies to guaranteed associations with an effective date of coverage prior to September 1, 1998 that have not made an election pursuant to Section 2699.6116.

(1) Guaranteed associations may designate one or more insurance agents, as defined in Section 31 of the Insurance Code, or brokers, as defined in Section 33 of the Insurance Code, for guaranteed association members who participate in the program. When the program collects the individual member premium from the individual members it shall be as follows:

(A) Except as specified in (B) below, the individual member premium shall include an agent and broker fee if a designated insurance agent or, if none is designated, any other insurance agent as defined in Section 31 of the Insurance Code or a designated broker or, if none was designated, any other insurance broker as defined in Section 33 of the Insurance Code assisted the individual member in applying for the program, and if the individual member is determined to be qualified as a result of the application, and the agent or broker requests such payment in writing as part of the application and includes his or her name, license number, tax identification number, and address.

(B) The individual member premium shall include an agent or broker fee unless the individual member's application includes the individual member's certification that an agent or broker did not perform all of the following services:

1. Assist the individual member in completing the application,

2. Calculate or determine the cost of program participation for the individual member.

(C) The amount of the payment until the time of the qualified individual member's first annual requalification pursuant to Section 2699.6119 of this part shall be:

1. For qualified individual members the payment shall be $14 for the individual member per month and $4 per enrolled dependent per month.

(D)1. Except as specified in (3) below, the individual member premium shall continue to include an agent and broker fee after the individual member's annual requalification pursuant to Section 2699.6119.

2. The amount of the fee after the time of the qualified individual member's first annual requalification pursuant to Section 2699.6119 shall be $9 for the individual member and $4 for each enrolled dependent per month.

3. The individual member premium for an annual period shall normally include an agent or broker fee. However, such fee may be terminated commencing with the second year of enrollment for individual member who made application to the program prior to July 1, 1996 and with the third year of enrollment for individual members who applied on or after July 1, 1996 and had an effective date of coverage before July 1, 1997, if the individual member requalification request includes the member's certification that the agent or broker provided neither of the following types of services:

i. Assist the individual member in completing the requalification and/or assist the individual member with the open enrollment process pursuant to Section 2699.6139.

ii. Assist the individual member resolving enrollment, billing, claims or other program issues.

(E) The individual member may redirect any payment made pursuant to this section to another designated agent or broker or, if none is designated, any agent or broker by submitting written notice signed by the individual member to the program and providing the program with the information required under (a)(1) of this section. The effective date of the redirection shall be within ninety (90) calendar days following receipt of the notice.

(F) Payment to agents and brokers shall be terminated if one of the following occurs:

1. The agent or broker is no longer a licensed agent or broker.

2. The agent or broker materially violates any law or regulation regarding the sale of insurance or fails to comply with any court order.

3. The agent or broker commits any willful or dishonest act resulting in injury to the program, a participating carrier, or an enrollee.

(G) For individual members who apply on or after July 1, 1996, when agent or broker fees are terminated pursuant to (F)(1), (2), or (3) above within the first two years, the individual member shall pay the equivalent amount monthly to the program as part of the program participation fee in accordance with Section 2699.6307 for the remainder of the first two years of enrollment.

(b) This subsection applies to guaranteed associations with an effective date of coverage on or after September 1, 1998 and guaranteed associations that have made an election pursuant 2699.6116.

(1) This section applies to guaranteed associations with effective dates of coverage on or after September 1, 1998 and guaranteed associations that have made an election pursuant to Section 2699.6116. For individual members of such guaranteed associations, the amount of the agent or broker fee shall be seven percent of the comprehensive individual medical premiums and comprehensive individual dental premiums.

(3) If a designated agent or broker, or if none is designated, any other insurance agent as defined in Section 31 of the Insurance Code or broker as defined in Section 33 of the Insurance Code assisted the individual member in applying for the program, and if the individual member is determined to be qualified as a result of the application, and the agent or broker requests such payment in writing as part of the application and includes his or her name, license number, tax identification number, and address then the agent or broker fee shall be paid to the identified agent or broker.

(4) The individual member may redirect any payment made pursuant to this section to another designated agent or broker, or if none is designated, any other agent or broker, by submitting a written notice signed by the individual member to the program and providing the program with the information required under (b)(3) of this section. The effective date of the redirection shall be within ninety (90) calendar days following receipt of the notice.

(5) Payment to agents and brokers shall be terminated if one of the following occurs:

(A) The agent or broker is no longer a licensed agent or broker.

(B) The agent or broker materially violates any law or regulation regarding the sale of insurance or fails to comply with any court order.

(C) The agent or broker commits any willful or dishonest act resulting in injury to the program, a participating carrier, or an enrollee.

(6) If the agent or broker fee is not directed to a particular agent or broker then the agent or broker fee shall be retained by the program as part of the program participation fee.

NOTE

Authority cited: Section 10731, Insurance Code. Reference: Section 10731, Insurance Code.

HISTORY

1. Renumbering and amendment of former section 2699.628.7 to section 2699.6197 filed 5-27-94; operative 5-27-94 (Register 94, No. 21).

3. Certificate of Compliance as to 12-29-94 order including amendment of subsections (a)(1) and (a)(4)(A)-(B) transmitted to OAL 4-12-95 and filed 5-22-95 (Register 95, No. 21).

4. Amendment of subsections (a)(4)(A)-(C) and new subsection (a)(7) filed 4-25-96; operative 5-25-96 (Register 96, No. 17).

5. Amendment of subsections (a)(4)(C) and (a)(4)(C)1., repealer and new subsection (a)(4)(C)2., and repealer of subsection (a)(4)(C)3. filed 6-3-97; operative 7-1-97 pursuant to Government Code section 11343.4(d) (Register 97, No. 23).

6. Amendment filed 7-3-98 as an emergency; operative 7-3-98 (Register 98, No. 27). A Certificate of Compliance must be transmitted to OAL by 11-2-98 or emergency language will be repealed by operation of law on the following day.

7. Certificate of Compliance as to 7-3-98 order, including amendment of subsection (b)(4), transmitted to OAL 10-2-98 and filed 11-16-98 (Register 98, No. 47).

§2699.6198. Payment to Insurance Agents and Brokers for Dental Benefits.

Note • History

(a) If the employer premium or individual member premium includes an agent or broker fee pursuant to the provisions of Sections 2699.6194, 2699.6196, and 2699.6197, the employer premium or the individual member premium shall include an additional $1.00 per month agent or broker fee for each enrollee receiving dental coverage in the program.

(b) An employer premium or individual member premium paid as described in Section 2699.6195 shall include an agent or broker fee for the dental benefits option as determined by the qualified guaranteed association.

NOTE

Authority cited: Section 10731, Insurance Code. Reference: Section 10731, Insurance Code.

HISTORY

2. Certificate of Compliance as to 5-23-94 order transmitted to OAL 9-16-94 and filed 10-27-94 (Register 94, No. 43).

Article 3. Benefits

§2699.6200. Scope of Benefits.

Note • History

(a) The basic scope of benefits offered by participating carriers as a health benefits plan shall include all of the benefits and services listed in this section, subject to the exclusions listed in Section 2699.6203. No other benefits shall be permitted to be offered by a participating carrier. The basic scope of benefits shall be as follows:

(1) Those benefits described in Section 1300.67 of Title 10 of the California Code of Regulations.

(2) Plastic and reconstructive surgical services limited to the following:

(A) Surgery to correct a physical functional disorder resulting from a disease or congenital anomaly.

(B) Surgery to correct a physical functional disorder following either an injury or incidental to any other surgery.

(C) Reconstructive surgery and associated procedures following a mastectomy which resulted from disease, illness, or injury, and internal breast prosthesis required incidental to the surgery.

(3) Prescription drugs, limited to drugs approved by the federal Food and Drug Administration, generic equivalents approved as substitutable by the federal Food and Drug Administration, or drugs approved by the federal Food and Drug Administration as Treatment Investigational New Drugs or classified as Group C cancer drugs by the National Cancer Institute to be used only for the purposes approved by the federal Food and Drug Administration or the National Cancer Institute.

(4) Mental Health benefits, limited to the following:

(A) Inpatient care in a health facility licensed pursuant to Chapter 2 of Division 2 of the Health and Safety Code (Section 1250 et seq.), for a total of ten (10) days in each benefit year,

1. Residential treatment may be substituted for inpatient care days at a ratio of two (2) residential treatment days to one (1) inpatient day, and

2. Intensive outpatient treatment may be substituted for inpatient care days at a ratio of three (3) intensive outpatient days to one (1) inpatient day.

(B) Twenty (20) outpatient visits in each benefit year.

(5) Outpatient medical rehabilitation and the outpatient services of occupational therapists, physical therapists, and speech therapists for treatment of acute conditions or the acute phase of chronic conditions if such conditions are subject to continuing significant improvement within a period of two (2) months.

(6) Durable medical equipment, prosthetic devices, orthotic devices and oxygen and oxygen equipment, limited to equipment and devices which:

(A) are intended for repeated use over a prolonged period,

(B) are not considered disposable, with the exception of ostomy bags,

(D) are intended for the exclusive use of the enrollee,

(E) do not duplicate the function of another piece of equipment or device covered by the carrier for the enrollee,

(F) are generally not useful to a person in the absence of illness or injury,

(G) primarily serve a medical purpose, and

(H) are appropriate for use in the home.

Medically necessary repair or replacement of covered durable medical equipment, prosthetic devices, and orthotic devices is a benefit when prescribed by a physician or ordered by a licensed health care provider acting within the scope of his or her license, and when not caused by misuse or loss.

(7) Human organ transplants, including reasonable medical and hospital expenses of a donor or individual identified as a prospective donor if the expenses are directly related to the transplant, other than corneal, shall be subject to the following restrictions:

(A) Preoperative evaluation, surgery, and follow-up care shall be provided at centers that have been designated by the participating carrier as having documented skills, resources, commitment and record of favorable outcomes to qualify the centers to provide such care.

(B) Patients shall be selected by the patient-selection committee of the designated centers and subject to prior authorization.

(C) Only anti-rejection drugs, biological products, and other procedures that have been established as safe and effective, and no longer investigational, are covered.

(8) Chemical dependency and alcoholism benefits, limited to the following:

(A) Detoxification of chemical dependency or alcohol abuse,

(B) Outpatient treatment limited, at the participating carrier's discretion, to either of the following:

1. A maximum payment of $20 per day, and a maximum payment of $400 per person for all outpatient chemical dependency and alcoholism benefits in each benefit year, or

2. Alternative arrangements that have been approved by the program and are described in the carrier's evidence of coverage document.

(9) Hospice care when a participating health plan determines it is a less costly alternative to other of the basic minimum benefits.

(10) Home health care and home health services as described in Section 1374.10(b) of the California Health and Safety Code. This does not preclude a carrier from providing other health care benefits in the home.

(11) Supplies, equipment, and services for the treatment and/or control of diabetes, even when such items, tests and services are available without a prescription, including:

(A) Supplies and equipment such as:

1. insulin,

2. syringes,

3. lancets,

4. insulin pumps and all related necessary supplies,

5. ketone urine testing strips for type I diabetes,

6. blood glucose meters, and

7. blood glucose meter testing strips in medically appropriate quantities for:

a. the monitoring and treatment of insulin dependent diabetes

b. the monitoring and treatment of non-insulin dependent diabetes

c. the monitoring and treatment of diabetes in pregnancy

(B) Diabetes education programs,

(C) Laboratory tests appropriate for the management of diabetes, including at a minimum: cholesterol, triglycerides, microalbuminuria, HDL/LDL and Hemoglobin A-1C (Glycohemogolobin), and

(D) Dilated retinal eye exam

(12) Short-term skilled nursing care provided in a skilled nursing facility or a skilled nursing bed in an acute care hospital, limited to a maximum of sixty (60) days in each benefit year.

This benefit does not cover conditions which are long-term or chronic in nature and require ongoing inpatient skilled nursing care, other than care for an acute phase of such a condition, or care at the inception of such a condition which is appropriate for stabilization prior to release from inpatient care.

(13) This part shall not be construed to prohibit a plan's ability to impose cost-control mechanisms. Such mechanisms may include but are not limited to requiring prior authorization for benefits or providing benefits in alternative settings or using alternative methods.

(14) Nothing in this section shall preclude the direct reimbursement of physician assistants, nurse practitioners or other advanced practice nurses who provide covered services within their scope of licensure.

NOTE

Authority cited: Section 10731, Insurance Code. Reference: Section 10731, Insurance Code.

HISTORY

1. Relocation of article heading and renumbering of former section 2699.630 to section 2699.6200 filed 5-27-94; operative 5-27-94 (Register 94, No. 21).

2. Amendment of subsection (a) filed 5-23-94 as an emergency; operative 5-23-94 (Register 94, No. 21). A Certificate of Compliance must be transmitted to OAL by 9-20-94 or emergency language will be repealed by operation of law on the following day.

3. Certificate of Compliance as to 5-23-94 order transmitted to OAL 9-16-94 and filed 10-27-94 (Register 94, No. 43).

4. Amendment of subsection (a)(6), new subsections (a)(6)(A)-(H), (a)(10)-(12) and subsection renumbering filed 5-8-97; operative 7-1-97 (Register 97, No. 19).

§2699.6201. Scope of Dental Benefits.

Note • History

(a) The basic scope of benefits offered by a participating dental carrier as a dental benefit plan shall include all of the benefits and services listed in this section, subject to the exclusions listed in Section 2699.6205. No other dental benefits shall be permitted to be offered by a participating dental carrier. The basic scope of dental benefits shall be as follows:

(1) Diagnostic and Preventive Benefits

(A) Initial, periodic and emergency oral examinations, limited as follows:

1. Routine oral examinations: one every six months per enrollee.

(B) Palliative treatment.

(D) Roentgenology, limited as follows:

1. Bitewing x-rays in conjunction with period examinations are limited to one series of four films in any 12 consecutive month period.

2. Full mouth x-rays in conjunction with period examinations are limited to once every 60 consecutive months.

3. Panoramic film x-rays are limited to once every 60 consecutive months.

4. Isolated bitewing or periapical films are allowed on an emergency or episodic basis.

(E) Prophylaxis services, limited as follows:

1. Not to exceed once in a six month period.

(F) Fluoride treatment, limited as follows:

1. Only for dental benefit plan enrollees under the age of 18.

2. One every 12 months.

(G) Dental sealant treatments, limited as follows:

1. Only for dental plan enrollees under the age of 14.

2. Permanent first and second molars only.

3. One treatment per tooth in a 36 consecutive month period.

(H) Space maintainers, limited as follows:

1. Only for dental plan enrollees under the age of 14.

(I) Preventive dental education and oral hygiene instruction

(J) Study models

(2) Restorative Dentistry

(A) Restorations, limited as follows:

1. The covered dental benefit is limited to the benefit level for the least costly dentally appropriate alternative. If a more costly alternative is chosen by the patient, the patient will be responsible for all additional charges.

2. Replacement of a restoration is covered only when it is defective, as evidenced by conditions such as recurrent caries or fracture, and replacement is necessary for the enrollee's dental health.

(B) Use of pins in conjunction with a restoration.

(3) Oral Surgery

(A) Extractions, including surgical extractions

(B) Removal of impacted teeth, limited as follows:

1. Surgical removal of impacted teeth is a covered benefit only when evidence of pathology exists.

(D) Alveolectomies

(E) Excision of cysts and neoplasms

(F) Treatment of palatal torus if interfering with a prosthesis

(G) Treatment of mandibular torus if interfering with a prosthesis

(H) Frenulectomy

(I) Incision and drainage of abscesses

(J) Post-operative services including exams, suture removal and treatment of complications.

(4) Endodontics

(A) Direct pulp capping

(B) Therapeutic pulpotomy

(E) Root amputation and Hemisection

(F) Root canal therapy

(G) Apicoectomy

(H) Retrograde filling

(I) Vitality tests

(5) Periodontics

(A) Periodontal scaling performed in the presence of gingival inflammation

(B) Periodontal scaling and root planing, gingival flap procedure, and subgingival curettage, limited as follows:

1. Four quadrant treatments in any 12 consecutive months.

(D) Osseous or muco-gingival surgery

(E) Correction of occlusion, limited to occlusal adjustment.

(6) Crowns and Fixed Bridges

(A) Crowns, limited as follows:

1. Replacement of each unit is limited to once every 60 consecutive months, with the exception of prefabricated stainless steel crowns.

(B) Fixed bridges, limited as follows:

1. Fixed bridges are a covered benefit when there are one or two missing teeth in any one quadrant.

2. Other than in one (1) above, fixed bridges will be covered only when a partial denture cannot satisfactorily restore the case. If a fixed bridge is used when a partial could satisfactorily restore the case, coverage will be provided at the level it would have been for a partial denture.

3. Replacement of an existing fixed bridge is covered only when it cannot be made satisfactory by repair.

4. Replacement of bridge pontic and bridge abutment units is limited to once every 60 consecutive months.

(D) Inlays and onlays, limited as follows:

1. Replacement of each unit is limited to once every 60 consecutive months.

(E) Prefabricated, cast or laboratory posts and cores for crowns or bridges

(F) Repair or replacement of crowns, abutments or pontics.

(7) Removable Prosthetics

(A) Dentures, full or partials, teeth, and clasps, limited as follows:

1. Partial dentures are not to be replaced within 60 consecutive months, unless:

a. it is necessary due to natural tooth loss where the addition or replacement of teeth to the existing partial is not feasible, or

b. the denture is unsatisfactory and cannot be made satisfactory.

2. Full upper and/or lower dentures are not to be replaced within 60 consecutive months unless the existing denture is unsatisfactory and cannot be made satisfactory.

3. The covered dental benefit for complete dentures will be limited to the benefit level for a standard procedure. If a more personalized or specialized treatment is chosen by the patient and the dentist, the patient will be responsible for all additional charges.

4. The covered dental benefit for partial dentures will be limited to the charges for a cast chrome or acrylic denture if this would satisfactorily restore an arch. If a more elaborate or precision appliance is chosen by the patient and the dentist, and is not necessary to satisfactorily restore an arch, the patient will be responsible for all additional charges.

(B) Office or laboratory relines or rebases, limited as follows:

1. One per arch in any 24 consecutive months for a standard procedure.

2. One per arch may be performed during the 6 consecutive months after an immediate procedure. After this initial period, this benefit is limited to one per arch in any 24 consecutive months.

(D) Denture adjustment

(E) Tissue conditioning

(8) Orthodontia

(A) The basic benefit shall cover a treatment program and shall include:

1. Start-up records, examination, consultation, x-rays, study models, photographs.

2. Final exam, x-rays, study models, photographs.

3. Post-treatment retention

(B) Interceptive orthodontic treatment shall be a benefit if, in the opinion of the dental professional and the dental carrier, alternative interceptive orthodontic treatment would be a more appropriate course of treatment for an enrollee under the age of 18 than the customary orthodontic program described in (A) above.

(9) Other Dental Benefits

(A) Local anesthetics.

(B) Injection of antibiotic drugs.

(10) This part shall not be construed to prohibit a dental plan's ability to impose cost-control mechanisms. Such mechanisms may include but are not limited to requiring prior authorization for benefits or providing alternative treatments or services.

(11) The level of benefits covered under a fee-for-service dental benefit plan shall be limited to usual, customary or reasonable (UCR) charges.

NOTE

Authority cited: Section 10731, Insurance Code. Reference: Section 10731, Insurance Code.

HISTORY

2. Certificate of Compliance as to 5-23-94 order transmitted to OAL 9-16-94 and filed 10-27-94 (Register 94, No. 43).

3. Editorial correction of subsection (a)(7)(A)4 (Register 94, No. 43).

§2699.6203. Excluded Health Benefits.

Note • History

(a) Health benefits plans offered under this program shall exclude the following benefits:

(1) Services, supplies, items, procedures or equipment which are not medically necessary. “Medically necessary” as applied to the diagnosis or treatment of illness is an article or service that is not investigational and is necessary because:

(B) As to inpatient care, it could not have been provided in a physician's office, in the outpatient department of a hospital, or in a less costly facility without adversely affecting the patient's condition or the quality of medical care rendered; and

(C) If the proposed article or service is not commonly used, its application or proposed application has been preceded by a thorough review and application of conventional therapies; and

(D) The service or article has been demonstrated to be of significantly greater therapeutic value than other, less expensive, services or articles.

(2) Any services which are received prior to the enrollee's effective date of coverage.

(3) Custodial, domiciliary care, or rest cures for which facilities and/or services of a general acute care hospital are not medically required. Custodial care is care that does not require the regular services of trained medical or health professionals and that is designed primarily to assist in activities of daily living. Custodial care includes, but is not limited to, help in walking, getting in and out of bed, bathing, dressing, preparation and feeding of special diets, and supervision of medications which are ordinarily self-administered.

(4) Personal or comfort items or a private room in a hospital unless medically necessary.

(5) Emergency facility services for nonemergency conditions.

(6) Those medical, surgical (including implants), or other health care procedures, services, products, drugs, or devices which are either:

(A) Experimental or investigational or which are not recognized in accord with generally accepted medical standards as being safe and effective for use in the treatment in question, or

(B) Outmoded or not efficacious.

(7) Transportation except as specified in Section 1300.67(g) of Title 10 of the California Code of Regulations.

(8) Implants, except those that are medically necessary and are neither cosmetic, experimental, or investigational.

(9) Sex change operations, reversal of voluntary sterilization, conception by artificial means, and non-prescription contraceptive supplies and devices.

(10) Eye glasses, contact lenses, routine eye examinations (including eye refractions) except when provided as part of routine examination under preventive care for minors, hearing aids, orthopedic shoes, orthodontic appliances, and routine foot care.

(11) Long-term care benefits, including long-term skilled nursing care in a licesed facility and respite care are excluded except as a participating health plan shall determine they are less costly alternatives to the basic minimum benefits. This section does not exclude short-term skilled nursing care benefits as provided pursuant to Section 2699.6200(a)(12).

(12) Dental Services and dental appliances.

(13) Treatment of obesity by medical and surgical means, except for treatment of morbid obesity. In no instance shall treatment for morbid obesity be provided primarily for cosmetic reasons.

(14) Cosmetic surgery, except as specifically provided in Section 2699.6200(a)(2).

(15) Conditions resulting from acts of war (declared or not).

(16) Treatment for any bodily injury or sickness arising from or sustained in the course of any occupation or employment for compensation, profit or gain for which benefits are provided or payable under any Worker's Compensation benefit plan.

(b) A health benefit plan with a point of service option that is offered by a health maintenance organization or a health benefit plan with a point of service option that is offered by an exclusive provider organization may exclude the following benefits and services when the enrollee receives them from providers who do not contract with the health maintenance organization or exclusive provider organization or when the enrollee receives them in violation of the health benefit plan's established procedures:

(1) outpatient prescription drugs,

(2) human organ transplants,

(3) treatment for infertility, including tests,

(4) mental health benefits,

(5) outpatient chemical dependency and alcoholism benefits,

(6) preventive and health education services.

(c) A health benefit plan with a point of service option that is offered by a health maintenance organization or a health benefit plan with a point of service option that is offered by an exclusive provider organization may exclude coverage for durable medical equipment prescribed by a provider who does not contract with the health maintenance organization or exclusive provider organization. However, if the prescription is obtained in accordance with established health plan procedures coverage shall not be excluded.

NOTE

Authority cited: Section 10731, Insurance Code. Reference: Section 10731, Insurance Code.

HISTORY

1. Renumbering and amendment of former section 2699.631 to section 2699.6203 filed 5-27-94; operative 5-27-94 (Register 94, No. 21).

2. Amendment of section heading and new subsections (b)-(c) filed 5-2-96; operative 6-1-96 (Register 96, No. 18).

3. Amendment of subsections (a)(1), (a)(11) and (b)(3) filed 5-8-97; operative 7-1-97 (Register 97, No. 19).

§2699.6205. Excluded Dental Benefits.

Note • History

(a) Dental benefits plans offered under this program shall exclude the following benefits:

(1) Procedures, treatment or products which are not necessary for the patient's dental health. Procedures, treatments, or products are considered necessary for the patient's dental health if they are not investigational and are necessary because:

(A) They are appropriate and are provided in accordance with accepted dental care standards in the state of California, and could not be omitted without adversely affecting the patient's condition or the quality of dental care rendered; and

(B) If the proposed article or service is not commonly used, its application or proposed application has been preceded by a thorough review and application of conventional therapies; and

(C) The service or article has been demonstrated to be of significantly greater therapeutic value than other, less expensive, services or articles.

(2) Any procedure, service, product, treatment, or drug which is either:

(A) Experimental or investigational or which is not recognized in accord with generally accepted dental care standards as being safe and effective for use in the treatment in question, or

(B) Outmoded or not efficacious.

(3) Treatment for any dental condition arising from or sustained in the course of any occupation or employment for compensation, profit or gain for which benefits are provided or payable under any Worker's Compensation benefit plan.

(4) Services related to acts of war, or needed while in the service of the armed forces of any country.

(5) Treatments or services provided by persons other than licensed dentists or licensed dental professionals practicing under the supervision of a licensed dentist.

(6) Dispensing of drugs which are not normally supplied in dental offices.

(7) Hospital charges of any kind.

(8) Treatment by any method of any condition of the temporomandibular joint.

(9) Elective or cosmetic dentistry. This includes personalization or characterization of dentures, porcelain veneers on molar teeth, and tooth color restorations on molar teeth, but does not include porcelain veneers on other teeth and tooth color restorations on other teeth.

(10) Oral surgery requiring the setting of fractures or dislocations.

(11) Orthognathic surgery.

(12) Removable orthodontic appliances, and fixed or removable orthodontic retainers, except as provided in the retention phase of the orthodontic benefit.

(13) The replacement of fixed prosthodontics and removable prosthetic devices that are rendered nonfunctional due to patient abuse, misuse, or neglect.

(14) Replacement of prosethetic devices such as full or partial dentures due to loss or theft.

(15) General anesthesia, intravenously administered conscious sedation, or other conscious sedation including nitrous oxide.

(16) Any procedure performed for the purpose of achieving full mouth occlusal equilibration to alter the bite.

(17) Services or supplies solely to increase vertical dimension. These may include dentures, crowns, inlays and onlays, fixed bridges or any other appliance or service.

(18) Services related to or treatment of malignancies, with the exception of biopsies.

(19) Treatment of congenital malformations.

(20) Tooth replantation.

(21) Supplies used for self-administered services or treatments which are related to dietary counseling, oral hygiene, plaque control, chemical analysis, or saliva.

(22) Implants and the removal of implants are not covered benefits. However, if implants are determined to be less a costly alternative to a covered benefit by the dental carrier, they may be provided pursuant to Subsection 2699.6201(a)(10). Removal of an implant provided as a less costly alternative is a covered benefit. Replacement of an implant provided as a less costly alternative is limited to once every 60 consecutive months.

(23) Restorations provided pursuant to Subsection 2699.6201(a)(2) utilizing gold, porcelain, and restorative materials other than amalgam or like materials are not covered benefits except as specified in Subsection 2699.6201(a)(2)(A)(1).

(24) Grafting tissues from outside the mouth to tissue inside the mouth.

(25) Services which are benefits under the medical insurance portion of the program.

(26) For benefits received under fee-for-service dental benefit plans, all charges exceeding those considered usual, customary or reasonable.

NOTE

Authority cited: Section 10731, Insurance Code. Reference: Section 10731, Insurance Code.

HISTORY

1. Renumbering of former section 2699.6205 to section 2699.6103 and new section filed 5-23-94 as an emergency; operative 5-23-94 (Register 94, No. 21). A Certificate of Compliance must be transmitted to OAL by 9-20-94 or emergency language will be repealed by operation of law on the following day.

2. Certificate of Compliance as to 5-23-94 order transmitted with amendment of subsection (a)(21) to OAL 9-16-94 and filed 10-27-94 (Register 94, No. 43).

3. Amendment of subsection (a)(23) filed 10-18-95; operative 10-18-95 pursuant to Government Code section 11343.4(d) (Register 95, No. 42).

§2699.6207. Administration of Benefits.

Note • History

A participating carrier shall administer each of its health benefits plans pursuant to the carrier's administrative procedures, medical protocols and medical review criteria and procedures.

NOTE

Authority cited: Section 10731, Insurance Code. Reference: Section 10731, Insurance Code.

HISTORY

1. Renumbering of former section 2699.632 to section 2699.6207 filed 5-27-94; operative 5-27-94 (Register 94, No. 21).

§2699.6209. Enrollee Share of Cost For Health Benefits.

Note • History

Every participating carrier shall require copayments and deductibles for health benefits provided to enrollees subject to the following:

(a) For enrollees in health maintenance organizations, exclusive provider organizations, preferred provider organizations, health maintenance organizations with a point of service option, and exclusive provider organizations with a point of service option, the sum of the in-network copayments and deductibles shall not exceed $2,000 in a benefit year for an enrollee or $4,000 in a benefit year for an enrolled sole employee and enrolled dependents or for a guaranteed association member and enrolled dependents for covered benefits and services provided by a provider who contracts with the carrier to provide health care benefits and services. In any benefit year that an enrollee has paid the maximum copayments described in Section 2699.6209(b)(4)(B)(1)(a) or Section 2699.6209(b)(4)(D)(1)(a), the enrollee shall be deemed to have met the maximum in -network copayment requirement described in this section. For enrollees in indemnity plans the sum of all copayments and deductibles shall not exceed $2,000 in a benefit year for an enrollee or $4,000 in a benefit year for an enrolled sole employee and enrolled dependents or for a guaranteed association member and enrolled dependents for covered benefits and services.

(b) Participating carriers shall offer two options for enrollee share of cost: a standard option and a preferred option.

(1) In the case of participating carriers which are health maintenance organizations or exclusive provider organizations:

(A) A preferred option shall consist of the following elements:

1. A $5 copayment per visit for office or home visits, with the following exceptions:

a. treatment for infertility, including tests, shall be subject to a copayment of 50% of the carrier's contracted or scheduled rate of payment, and

b. outpatient mental health visits shall be subject to a $20 per visit copayment;

2. A $10 copayment per outpatient prescription for up to a 31 day supply of a prescription drug. A $10 copayment shall apply to additional supplies of the prescription in up to 31 day increments. However this amount shall be $5 per prescription for up to a 31 day supply of a prescription drug when a generic prescription drug is utilized or when a participating carrier has a mandatory generic prescription drug substitution program which has been approved by the program. A $5 copayment shall apply to additional supplies of such a prescription in up to 31 day increments.

An exception to the above is that a $20 copayment per prescription shall apply for a 90 day supply of a prescription drug. However, this amount shall be $10 per prescription for a 90 day supply of a generic prescription drug. A participating carrier may limit availability of these 90 day supply discounts to prescriptions obtained through a mail order prescription drug program.

3. A $50 copayment whenever use of a hospital emergency room does not result in admission to a hospital.

(B) A standard option shall consist of the following elements:

1. A $15 copayment per visit for office or home visits, with the following exceptions:

a. treatment for infertility, including tests, shall be subject to a copayment of 50% of the carrier's contracted or scheduled rate of payment; and

b. visits for prenatal care and pediatric visits up to the age of two (2) will be subject to a $5 copayment per visit; and

c. outpatient mental health visits shall be subject to a $20 per visit copayment;

2. A $15 copayment per outpatient prescription for up to a 31 day supply of a prescription drug. A $15 copayment shall apply to additional supplies of the prescription in up to 31 increments. However this amount shall be $10 per prescription for up to a 31 day supply of a prescription drug when a generic prescription drug is utilized or when a participating carrier has a mandatory generic prescription drug substitution program which has been approved by the program. A $10 copayment shall apply to additional supplies of such a prescription in up to 31 day increments.

An exception to the above is that a $30 copayment per prescription shall apply for a 90 day supply of a prescription drug. However, this amount shall be $20 per prescription for a 90 day supply of a generic prescription drug. A participating carrier may limit availability of these 90 day supply discounts to prescriptions obtained through a mail order prescription drug program.

3. A $100 copayment for each hospital or skilled nursing facility admission; and

4. A $50 copayment whenever use of a hospital emergency room does not result in admission to a hospital.

(2) In the case of participating carriers which are preferred provider organizations:

(A) A preferred option shall consist of the following elements:

1. A copayment which shall be 20% of the contracted rate for covered benefits and services provided by a provider who contracts with the preferred provider organization to provide health care benefits and services other than outpatient prescription drugs, with the following exceptions:

a. treatment for infertility (including tests) provided by a provider who contracts with the preferred provider organization to provide health care benefits and services shall be subject to a copayment of 50% of the carrier's contracted rate of payment, and

b. outpatient mental health visits provided by a provider who contracts with the preferred provider organization to provide health care benefits and services shall be subject to a copayment of 50% of the carrier's contracted rate of payment, and

c. visits for prenatal care and pediatric visits up to the age of two for covered benefits and services provided by a provider who contracts with the preferred provider organization to provide health care benefits and services will not be subject to a copayment.

2. A copayment which shall be 40% of the scheduled rate of payment established by the participating carrier for covered benefits and services provided by a provider who does not contract with the preferred provider organization to provide health care benefits and services, with the following exceptions:

a. treatment for infertility (including tests) provided by a provider who does not contract with the preferred provider organization to provide health care benefits and services shall be subject to a copayment of 50% of the carrier's scheduled rate of payment.

b. outpatient mental health visits provided by a provider who does not contract with the preferred provider organization to provide health care benefits and services shall be subject to a copayment of 50% of the carrier's scheduled rate of payment.

c. the copayments described in 2., 2.a. and 2.b. above shall be limited to $5,000 in a benefit year for an enrollee or $10,000 in a benefit year for an enrolled sole employee and dependents or guaranteed association members and dependents.

d. enrollees are responsible for 100% of the charges in excess of the carrier's scheduled rate of payment for health care benefits and services provided by a provider who does not contract with the preferred provider organization to provide health care benefits and services. These amounts are not subject to the limitations in 2.c. on copayment expenses.

3. A $50 copayment whenever use of a hospital emergency room does not result in admission to a hospital;

4. A copayment which shall be 30% of the contracted rate for prescription drugs provided by a provider who contracts with the preferred provider organization to provide prescription drugs. However this amount shall be 20% when a generic prescription drug is utilized or when a participating carrier has a mandatory generic prescription drug substitution program which has been approved by the program; and a copayment equivalent to that for a 60 day supply of a prescription shall apply to a 90 day supply of the same prescription drug. A participating carrier may limit availability of these 90 day supply discounts to prescriptions obtained through a mail order prescription drug program; and

5. A deductible which shall be $250 per enrollee in a benefit year. The deductible may be reduced by an amount equal to the amount an enrollee with qualifying prior coverage paid toward a deductible under the qualifying prior coverage for services rendered within the 90 days immediately prior to the enrollee's effective date of enrollment in the program. Such reduction may only be applied for the first full or partial benefit year that the enrollee is enrolled in the program.

(B) A standard option shall consist of the following elements:

3. A $50 copayment whenever use of a hospital emergency room does not result in admission to a hospital;

5. A deductible which shall be $500 per enrollee in a benefit year. The deductible may be reduced by an amount equal to the amount an enrollee with qualifying prior coverage paid toward a deductible under the qualifying prior coverage for services rendered within the 90 days immediately prior to the enrollee's effective date of enrollment in the program. Such reduction may only be applied for the first full or partial benefit year that the enrollee is enrolled in the program.

(3) In the case of participating carriers which offer indemnity plans:

(A) A preferred option shall consist of the following elements:

1. A copayment which shall be 20% of the scheduled rate of payment established by the participating carrier for covered benefits and services, with the following exceptions:

a. treatment for infertility (including tests) shall be subject to a copayment of 50% of the carrier's scheduled rate of payment.

b. outpatient mental health visits shall be subject to a copayment of 50% of the carrier's scheduled rate of payment.

c. enrollees are responsible for 100% of the charges in excess of the carrier's scheduled rate of payment for health care benefits and services. These amounts are not subject to the limitations in Section 2699.6209(a) on copayment expenses.

2. A $50 copayment whenever use of a hospital emergency room does not result in admission to a hospital;

3. A copayment which shall be 30% of the scheduled rate for prescription drugs. However this amount shall be 20% when a generic prescription drug is utilized; and a copayment equivalent to that for a 60 day supply of a prescription shall apply to a 90 day supply of the same prescription drug. A participating carrier may limit availability of these 90 day supply discounts to prescriptions obtained through a mail order prescription drug program; and

4. A deductible which shall be $250 per enrollee in a benefit year. The deductible may be reduced by an amount equal to the amount an enrollee with qualifying prior coverage paid toward a deductible under the qualifying prior coverage for services rendered within the 90 days immediately prior to the enrollee's effective date of enrollment in the program. Such reduction may only be applied for the first full or partial benefit year that the enrollee is enrolled in the program.

(B) A standard option shall consist of the following elements:

1. A copayment which shall be 20% of the scheduled rate of payment established by the participating carrier for covered benefits and services, with the following exceptions:

a. treatment for infertility (including tests) shall be subject to copayment of 50% of the carrier's scheduled rate of payment, and

b. outpatient mental health visits shall be subject to a copayment of 50% of the carrier's scheduled rate of payment, and

2. A $50 copayment whenever use of a hospital emergency room does not result in admission to a hospital;

3. A copayment which shall be 30% of the scheduled rate for prescription drugs. However this amount shall be 20% when a generic prescription drug is utilized; and a copayment equivalent to that for a 60 day supply of a prescription drug shall apply to a 90 day supply of the same prescription drug. A participating carrier may limit availability of these 90 day supply discounts to prescriptions obtained through a mail order prescription drug program; and

4. A deductible which shall be $500 per enrollee in a benefit year. The deductible may be reduced by an amount equal to the amount an enrollee with qualifying prior coverage paid toward a deductible under the qualifying prior coverage for services rendered within the 90 days immediately prior to the enrollee's effective date of enrollment in the program. Such reduction may only be applied for the first full or partial benefit year that the enrollee is enrolled in the program.

(4) In the case of participating carriers which are health maintenance organizations offering a point of service option or exclusive provider organizations offering a point of service option:

(A) A preferred option shall consist of the following elements:

1. When the enrollee receives covered benefits and services in accordance with the health maintenance organization's or exclusive provider organization's established procedures from providers who contract with the health maintenance organization or exclusive provider organization or when the enrollee, with health plan approval, receives covered benefits and services from providers who do not contract with the health maintenance organization or exclusive provider organization:

a. A $10 copayment per visit for office or home visits, with the following exceptions:

i. treatment for infertility, including tests, shall be subject to a copayment of 50% of the carrier's contracted or scheduled rate of payment,

ii. visits for prenatal care and pediatric visits up to the age of two (2) will be subject to a $5 copayment per visit; and

iii. outpatient mental health visits shall be subject to a $20 per visit copayment;

b. A $15 copayment per outpatient prescription for up to a 31 day supply of a prescription drug. A $15 copayment shall apply to additional supplies of the prescription in up to 31 day increments. However, this amount shall be $10 per prescription for up to 31 days of a prescription drug when a generic prescription drug is utilized or when a participating carrier has a mandatory generic prescription drug substitution program which has been approved by the program. A $10 copayment shall apply to additional supplies of such a prescription in up to 31 day increments.

c. A $100 copayment for each hospital or skilled nursing facility admission; and

d. A $50 copayment whenever use of a hospital emergency room does not result in admission to a hospital.

2. When the enrollee, without health plan approval, receives covered benefits and services from providers who do not contract with the health maintenance organization or exclusive provider organization or when the enrollee receives covered benefits and services in violation of the health plan's established procedures:

a. A copayment which shall be 30% of the scheduled rate of payment established by the participating carrier for covered benefits and services with the following exceptions:

i. the copayments described in 1. above shall be limited to $5,000 in a benefit year for an enrollee or $10,000 in a benefit year for an enrolled sole employee and dependents or guaranteed association members and dependents.

ii. enrollees are responsible for 100% of the charges in excess of the carrier's scheduled rate of payment for health care benefits and services. These amounts are not subject to the limitations in subsection “a” immediately above.

b. A $50 copayment whenever use of a hospital emergency room does not result in admission to a hospital; and

c. A deductible which shall be $250 per enrollee in a benefit year for an enrolled employee and the employee's enrolled dependents. The deductible may be reduced by an amount equal to the amount an enrollee with qualifying prior coverage paid toward a deductible under the qualifying prior coverage for services rendered within the 90 days immediately prior to the enrollee's effective date of enrollment in the program. Such reductions may only be applied for the first full or partial benefit year that the enrollee is enrolled in the program.

(B) A standard option shall consist of the following elements:

1. When the enrollee receives covered benefits and services in accordance with the health maintenance organization's or exclusive provider organization's established procedures from providers who contract with the health maintenance organization or exclusive provider organization or when the enrollee, with health plan approval, receives covered benefits services from providers who do not contract with the health maintenance organization or exclusive provider organization:

a. A $10 copayment per visit for office or home visits, with the following exceptions:

i. treatment for infertility, including tests, shall be subject to a copayment of 50% of the carrier's contracted or scheduled rate of payment;

ii. visits for prenatal care and pediatric visits up to the age of two (2) will be subject to a $5 copayment per visit; and

iii. outpatient mental health visits shall be subject to a $20 per visit copayment.

b. A $15 copayment per outpatient prescription for up to 31 days of a prescription drug. A $15 copayment shall apply to additional supplies of the prescription in up to 31 day increments. However, this amount shall be $10 per prescription for up to 31 days of a prescription drug when a generic prescription drug is utilized or when a participating carrier has a mandatory generic prescription drug substitution program which has been approved by the program; and a $30 copayment per prescription shall apply for a 90 day supply of a prescription drug. However, this amount shall be $20 per prescription for a 90 day supply of a generic prescription drug. A participating carrier may limit availability of these 90 day supply discounts to prescriptions obtained through a mail order prescription drug program.

c. A $100 copayment for each hospital or skilled nursing facility admission; and

d. A $50 copayment whenever use of a hospital emergency room does not result in admission to a hospital.

a. A copayment which shall be 30% of the scheduled rate of payment established by the participating carrier for covered benefits and services with the following exceptions:

b. A $50 copayment whenever use of a hospital emergency room does not result in admission to a hospital; and

c. A deductible which shall be $500 per enrollee in a benefit year for an enrolled employee and the employee's enrolled dependents. The deductible may be reduced by an amount equal to the amount an enrollee with qualifying prior coverage paid toward a deductible under the qualifying prior coverage for services rendered within the 90 days immediately prior to the enrollee's effective date of enrollment in the program. Such reductions may only be applied for the first full or partial benefit year that the enrollee is enrolled in the program.

NOTE

Authority cited: Section 10731, Insurance Code. Reference: Section 10731, Insurance Code.

HISTORY

1. Renumbering and amendment of former section 2699.633 to section 2699.6209 filed 5-27-94; operative 5-27-94 (Register 94, No. 21).

3. Certificate of Compliance as to 12-29-94 order including amendment of subsections (b)(2)(A)2., (b)(2)(B)2., (b)(3)(A)1., and (b)(3)(B)1. transmitted to OAL 4-12-95 and filed 5-22-95 (Register 95, No. 21).

4. Amendment of section heading and section filed 5-2-96; operative 6-1-96 (Register 96, No. 18).

5. Amendment filed 5-8-97; operative 7-1-97 (Register 97, No. 19).

§2699.6211. Enrollee Share of Cost for Dental Health Benefit.

Note • History

(a) Every participating dental health carrier shall require copayments for the dental benefits listed in Subsection 2699.6201(a) of these regulations provided to enrollees subject to the following:

(1) In the case of dental health benefit plans offered by participating carriers which are pre-paid dental organizations:

(A) No copayments are charged for benefits listed under Subsection 2699.6201(a)(1), “Diagnostic and Preventive Benefits”, with the following exceptions:

1. Emergency oral exams are subject to a $15 copayment.

2. Palliative treatment is subject to a copayment of $10 per office visit.

3. Specialist consultations are subject to a copayment of $30.

4. Roentgenology is only subject to copayments as follows:

a. Full mouth x-rays -- $5 per set.

b. Panoramic films -- $5 per set.

5. Dental sealant treatments are subject to a copayment of $5 per tooth.

6. Space maintainers are subject to a $50 copayment.

(B) Copayments for benefits listed under Subsection 2699.6201(a)(2), “Restorative Dentistry”, are as follows:

1. Amalgam restorations on primary teeth are subject to a copayment of $14 per tooth including one surface plus $4 per each additional surface.

2. Amalgam restorations on permanent teeth are subject to a copayment of $19 per tooth including one surface plus $4 per each additional surface.

3. Plastic composite, composite resin, or other restorations are subject to a copayment of $22 per tooth including one surface plus $4 per each additional surface. In addition to the copayments, if a precious metal (defined as a metal containing in excess of 50 percent gold or highly noble gold alloy) is used instead of a non-precious metal, charges for the precious metal are the responsibility of the enrollee.

4. Sedative fillings are subject to a copayment of $10.

5. Pin use in conjunction with a restoration is subject to a copayment of $20 per tooth.

1. Extractions (uncomplicated) are subject to a copayment of $15.

2. Extractions solely for orthodontic purposes are subject to a copayment of $20 per tooth.

3. Surgical extractions are subject to a copayment of $30.

4. Removal of impacted teeth is subject to a copayment per tooth as follows:

a. Soft tissue impaction -- $35.

b. Partially bony impaction -- $50.

c. Completely bony impaction -- $75.

5. Biopsy of soft or hard oral tissues is subject to a copayment of $20.

6. Alveolectomies are subject to a copayment of $60 in conjunction with an extraction, and $80 without an extraction.

7. Excision of a cyst or neoplasm in conjunction with an extraction is not subject to a copayment. Excision of cysts and neoplasms as a separate procedure is subject to copayments as follows:

a. Cysts -- $25.

b. Neoplasms of no more than 1.25 centimeters -- $30.

c. Neoplasms larger than 1.25 centimeters -- $60.

8. Removal of palatal torus is subject to a copayment of $50.

9. Removal of mandibular torus is subject to a copayment of $50.

10. Frenulectomy is subject to a copayment of $20.

11. Copayments are not required for incisions and drainage of abscesses.

12. Copayments are not required for post-operative services.

(D) Copayments for benefits listed under Subsection 2699.6201(a)(4), “Endodontics”, are as follows:

1. Direct pulp capping is subject to a copayment of $10.

2. Therapeutic pulpotomy is subject to a copayment of $15.

3. Apexification filling with calcium hydroxide is subject to a copayment of $10.

4. Root amputation is subject to a copayment of $60 per root.

5. Root canal therapy is subject to copayments as follows:

a. Bicuspid root canal--$75

b. Molar root canal with one canal--$100.

c. Molar root canal with two canals--$125.

d. Molar root canal with three canals--$150.

e. Molar root canal with four canals--$175.

f. Anterior root canal--$50.

6. An apicoectomy and/or retrograde filling performed in conjunction with root canal therapy is subject to a copayment of $50 per canal. When performed as a separate procedure, an apicoectomy and/or retrograde filling is subject to a copayment of $75 for the first canal and $60 for each additional canal.

7. Vitality tests are not subject to a copayment.

(E) Copayments for benefits listed under Subsection 2699.6201(a)(5), “Periodontics”, are as follows:

1. Periodontal scaling performed in the presence of gingival inflammation is subject to a copayment of $15 per quadrant.

2. Periodontal scaling and root planing, gingival flap procedure, and subgingival curettage, are collectively subject to a copayment of $50 per quadrant.

3. Gingivectomy or gingivoplasty is subject to a copayment of the lesser of $100 per quadrant or $35 per tooth.

4. Osseous or muco-gingival surgery is subject to a copayment of the lesser $200 per quadrant or $75 per tooth.

5. Limited occlusal adjustment is subject to a copayment of $20.

(F) Copayments for benefits listed under Subsection 2699.6201(a)(6), “Crown and Fixed Bridges”, are as follows:

1. Stainless steel crowns (prefabricated) are subject to a copayment of $25.

2. Laboratory processed composite resin crowns, inlays or onlays are subject to a copayment of $180.

3. Porcelain or ceramic crowns, porcelain fused to metal crowns, full and 3/4 cast metal crowns, and metallic, porcelain, or ceramic inlays or onlays, are subject to a copayment of $200.

4. Prefabricated post and core for crowns or bridges, including canal preparation, build up material, and any pins, is subject to a copayment of $50.

5. Cast or laboratory post and core for crowns or bridges, including canal preparations, build up material, and any pins, is subject to a copayment of $75.

6. Recementation of crowns, inlays or onlays is subject to a copayment of $10.

7. Repair of a crown is subject to a copayment of $25.

8. Bridge pontics and bridge abutments made of metal, porcelain or ceramic, porcelain fused to metal, and full cast metal are subject to a copayment of $200 for each unit.

9. Recementation of bridges is subject to a copayment of $10 per abutment.

10. Repair of abutments or pontics is subject to a copayment of $25 per unit.

11. Repair or replacement of pontic veneer is subject to a copayment of $40.

(G) Copayments for benefits listed under Subsection 2699.6201(a)(7), “Removable Prosthetics”, are as follows:

1. Dentures are subject to copayments as follows:

a. Partial upper or lower without clasps--$50.

b. Partial upper or lower with metal lingual or palatal bar, clasps and acrylic saddles, and acrylic base or cast metal framework--$250.

c. Full upper or lower dentures, standard procedure--$230.

d. Full upper or lower dentures, immediate procedure--$250.

2. Reline or rebase for an upper, lower or partial denture is subject to a copayment per unit as follows:

a. Office--$30.

b. Laboratory--$60.

3. Repair of, or addition to, complete upper or lower, or partial dentures is subject to a copayment per unit as follows:

a. Repair of broken unit--$25

b. Replacement of a tooth or addition of a tooth--$25.

4. Tissue conditioning for complete upper or lower, or for partial dentures is subject to a copayment per unit of $25.

5. Copayments are not required for denture adjustments.

(H) Copayments for benefits listed under Subsection 2699.6201(a)(8), “Orthodontia”, are as follows:

1. Treatment for the initial 24 months of an orthodontic treatment program is subject to a $350 start-up fee per patient, and is also subject to a copayment of $1,150 for enrollees up to age 18, and a copayment of $1,500 for enrollees 18 years of age and older.

2. Treatment beyond the initial 24 months is subject to an additional copayment of $50 per month, until active treatment is concluded.

3. The retention phase of an orthodontic treatment program shall be subject to a copayment of up to $350.

4. Alternative, partial or interceptive orthodontic treatment is subject to a copayment of 50% of usual, customary or reasonable charges.

(I) There are no copayments for benefits listed under Subsection 2699.6201(a)(9), “Other Dental Benefits.”

(J) Other charges shall apply as follows:

1. Failure to cancel an appointment 24 hours in advance of the appointment may incur a charge of up to $20.

(K) Enrollees are responsible for 100% of any additional charges for services provided in excess of the benefit level.

(2) In the case of dental benefit plans offered by participating dental carriers which are fee-for-service dental organizations:

(A) Exclusive of orthodontia, the sum of the benefits provided in a benefit year shall not exceed $1,000 for a person enrolled in the dental benefits plan.

(B) The sum of lifetime benefits provided for orthodontia shall not exceed $1,500 for a person enrolled in the dental benefits plan.

(C) An annual benefit year deductible per enrollee shall apply. The deductible per enrollee shall be $50, with a family maximum of $150. No deductible shall apply for services for which no copayment is required.

(D) Copayments are listed as a percentage of the covered benefit, which is limited to usual, customary or reasonable charges.

(E) No copayments are charged for benefits listed under Subsection 2699.6201(a)(1), “Diagnostic and Preventive Benefits”, with the following exceptions:

1. Emergency oral examinations are subject to a 20% copayment per occurrence.

2. Palliative treatments are subject to a copayment of 20%.

3. Specialist consultations are subject to a copayment of 20%.

4. Roentgenology is only subject to copayments for full mouth x-rays and panoramic films, which are each subject to a copayment of 20%.

5. Dental sealant treatments are subject to a copayment of 20% per tooth.

6. Space maintainers are subject to a 50% copayment.

(F) Copayments for benefits listed under Subsection 2699.6201(a)(2), “Restorative Dentistry”, are 20%. In addition to the copayments, if a precious metal (defined as a metal containing in excess of 50 percent gold or highly noble gold alloy) is used instead of a non-precious metal, charges for the precious metal are the responsibility of the enrollee.

(G) Copayments for benefits listed under Subsection 2699.6201(a)(3), “Oral Surgery”, are 20%, with the following exceptions:

1. Extractions solely for orthodontic purposes are subject to a copayment of 50%.

2. Excisions of cysts or neoplasms in conjunction with an extraction are not subject to a copayment.

3. Incisions and drainage of abscesses are not subject to a copayment.

4. Post-operative services are not subject to a copayment.

(H) Copayments for benefits listed under Subsection 2699.6201(a)(4), “Endodontics”, are 20%, with the following exceptions:

1. Root amputations are subject to a copayment of 50%.

2. Apicoectomy and/or retrograde fillings are subject to a copayment of 50%.

3. Vitality tests are not subject to a copayment.

(I) Copayments for benefits listed under Subsection 2699.6201(a)(5), “Periodontics”, shall be 20%, with the following exceptions:

1. Gingivectomy or gingivoplasty is subject to a copayment of 50%.

2. Osseous or muco-gingival surgery is subject to a copayment of 50%.

(J) Copayments for benefits listed under Subsection 2699.6201(a)(6), “Crowns and Fixed Bridges”, shall be 50%.

(K) Copayments for benefits listed under Subsection 2699.6201(a)(7), “Removable Prosthetics”, shall be 50% with the following exception:

1. Copayments are not required for denture adjustments.

(L) Copayments for benefits listed under Subsection 2699.6201(a)(8), “Orthodontia”, shall be subject to a copayment of 50%.

(M) There are no copayments for benefits listed under Subsection 2699.6201(a)(9), “Other Dental Benefits.”

(N) Other charges shall apply as follows:

1. Failure to cancel an appointment 24 hours in advance of the appointment may incur a charge of up to $20.

(O) Enrollees are responsible for 100% of any additional charges for services provided in excess of the benefit level.

NOTE

Authority cited: Section 10731, Insurance Code. Reference: Section 10731, Insurance Code.

HISTORY

2. Certificate of Compliance as to 5-23-94 order transmitted with amendment of subsection (a)(2)(G)4 to OAL 9-16-94 and filed 10-27-94 (Register 94, No. 43).

3. Editorial correction of subsection (a)(1)(F)11 (Register 94, No. 43).

4. Amendment of subsection (a)(1)(A) filed 10-18-95; operative 10-18-95 pursuant to Government Code section 11343.4(d) (Register 95, No. 42).

§2699.6213. Pre-Existing Condition Exclusions.

Note • History

(a) Participating carriers who are health maintenance organizations, exclusive provider organizations, health maintenance organizations offering a point of service option or exclusive provider organization's offering a point of service option may not subject enrollees to a pre-existing condition exclusion period.

(b) Participating carriers who are preferred provider organizations or who offer an indemnity plan in the program may subject enrollees to a pre-existing condition exclusion period. During the pre-existing condition exclusion period, no benefits or services related to a pre-existing condition shall be covered.

(c) The pre-existing condition exclusion period shall be six (6) months following the individual's effective date of coverage.

(d) In determining whether a preexisting condition provision applies to any person, a participating carrier shall credit the time the person was covered under qualifying prior coverage, provided the person becomes eligible for coverage under the succeeding plan contract within 30 days of termination of prior coverage, exclusive of any waiting period, and applies for coverage with the succeeding plan contract within the applicable enrollment period. However, if a person's employment has ended, the availability of health coverage offered through employment or sponsored by an employer has terminated, or an employer's contribution toward health coverage has terminated, a plan shall credit the time the person was covered under qualifying prior coverage if the person becomes eligible for health coverage offered through employment or sponsored by an employer within one hundred eighty (180) calendar days, exclusive of any waiting period, and applies for coverage under the succeeding health benefit plan within the applicable period.

NOTE

Authority cited: Section 10731, Insurance Code. Reference: Sections 10731 and 10741, Insurance Code.

HISTORY

1. Renumbering of former section 2699.634 to section 2699.6213 filed 5-27-94; operative 5-27-94 (Register 94, No. 21).

2. New subsection (a) and subsection relettering filed 5-2-96; operative 6-1-96 (Register 96, No. 18).

3. Amendment of subsection (d) filed 5-5-97; operative 7-1-97 (Register 97, No. 19).

§2699.6215. Waiting Periods for Specific Dental Benefits.

Note • History

Enrollees of the dental benefits plans provided through the Program who have not had qualifying prior dental coverage for the 6 consecutive months prior to enrollment in the program shall be subject to a waiting period of 6 months, for benefits listed under Sub-sections 2699.6201(a)(6) and (7). A waiting period of 12 months shall apply to all enrollees for benefits listed under Subsection 2699.6201(a)(8). However, participating dental plans shall credit time enrolled in dental benefits through the program with other participating dental plans toward this waiting period.

NOTE

Authority cited: Section 10731, Insurance Code. Reference: Sections 10731 and 10741, Insurance Code.

HISTORY

2. Certificate of Compliance as to 5-23-94 order transmitted to OAL 9-16-94 and filed 10-27-94 (Register 94, No. 43).

3. Amendment filed 4-25-96; operative 5-25-96 (Register 96, No. 17).

§2699.6217. Benefit Appeals.

Note • History

When a small employer, employee, or dependent is dissatisfied with any action, or inaction, of the program's participating carrier or participating dental carrier with which he or she is enrolled, the person shall resolve the dispute with the participating carrier or participating carrier according to its established policies and procedures.

NOTE

Authority cited: Section 10731, Insurance Code. Reference: Sections 10731 and 10733, Insurance Code.

HISTORY

1. Renumbering and amendment of former section 2699.635 to section 2699.6217 filed 5-27-94; operative 5-27-94 (Register 94, No. 21).

3. Certificate of Compliance as to 5-23-94 order transmitted to OAL 9-16-94 and filed 10-27-94 (Register 94, No. 43).

§2699.6241. Waiting Period for Sole Employees.

Note • History

NOTE

Authority cited: Section 10731, Insurance Code. Reference: Section 10731, Insurance Code.

HISTORY

2. Certificate of Compliance as to 5-5-93 order transmitted to OAL 8-27-93 and filed 10-12-93 (Register 93, No. 42).

4. Certificate of Compliance as to 12-30-93 order including renumbering and amending former section 2699.6241 to section 2699.6135 transmitted to OAL 4-25-94 and filed 5-27-94 (Register 94, No. 21).

§2699.6241.5. Waiting Period for Guaranteed Association Members.

Note • History

NOTE

Authority cited: Section 10731, Insurance Code. Reference: Section 10731, Insurance Code.

HISTORY

2. Certificate of Compliance as to 12-30-93 order including renumbering and amending former section 2699.6241.5 to section 2699.6137 transmitted to OAL 4-25-94 and filed 5-27-94 (Register 94, No. 21).

§2699.6242. Open Enrollment Period for Sole Employers.

Note • History

NOTE

Authority cited: Section 10731, Insurance Code. Reference: Section 10731, Insurance Code.

HISTORY

2. Certificate of Compliance as to 5-5-93 order transmitted to OAL 8-27-93 and filed 10-12-93 (Register 93, No. 42).

4. Certificate of Compliance as to 12-30-93 order including renumbering and amending former section 2699.6242 to section 2699.6139 transmitted to OAL 4-25-94 and filed 5-27-94 (Register 94, No. 21).

§2699.6242.5. Open Enrollment Period for Guaranteed Association Members.

Note • History

NOTE

Authority cited: Section 10731, Insurance Code. Reference: Section 10731, Insurance Code.

HISTORY

2. Certificate of Compliance as to 12-30-93 order including renumbering and amending former section 2699.6242.5 to section 2699.6141 transmitted to OAL 4-25-94 and filed 5-27-94 (Register 94, No. 21).

§2699.6243. Other Enrollment Additions for Sole Employees and Dependents.

Note • History

NOTE

Authority cited: Section 10731, Insurance Code. Reference: Sections 10731 and 10743, Insurance Code.

HISTORY

2. Certificate of Compliance as to 5-5-93 order, including amendment of subsections (a)(3) and (b)(2), transmitted to OAL 8-27-93 and filed 10-12-93 (Register 93, No. 42).

4. Certificate of Compliance as to 12-30-93 order including renumbering and amending former section 2699.6243 to section 2699.6145 transmitted to OAL 4-25-94 and filed 5-27-94 (Register 94, No. 21).

§2699.6243.5. Other Enrollment Additions for Member Employers.

Note • History

NOTE

Authority cited: Section 10731, Insurance Code. Reference: Section 10731, Insurance Code.

HISTORY

2. Certificate of Compliance as to 12-30-93 order including renumbering and amending former section 2699.6243.5 to section 2699.6147 transmitted to OAL 4-25-94 and filed 5-27-94 (Register 94, No. 21).

§2699.6243.6. Other Enrollment Additions for Individual Members.

Note • History

NOTE

Authority cited: Section 10731, Insurance Code. Reference: Sections 10731 and 10743, Insurance Code.

HISTORY

2. Certificate of Compliance as to 12-30-93 order including renumbering and amending former section 2699.6243.6 to section 2699.6149 transmitted to OAL 4-25-94 and filed 5-27-94 (Register 94, No. 21).

§2699.6244. Enrollment.

Note • History

NOTE

Authority cited: Section 10731, Insurance Code. Reference: Sections 10731 and 10733, Insurance Code.

HISTORY

2. Certificate of Compliance as to 5-5-93 order transmitted to OAL 8-27-93 and filed 10-12-93 (Register 93, No. 42).

4. Certificate of Compliance as to 12-30-93 order including renumbering and amending former section 2699.6244 to section 2699.6153 transmitted to OAL 4-25-94 and filed 5-27-94 (Register 94, No. 21).

§2699.6261. Disenrollment of Sole Employees.

Note • History

NOTE

Authority cited: Section 10731, Insurance Code. Reference: Sections 10731 and 10743, Insurance Code.

HISTORY

2. Certificate of Compliance as to 5-5-93 order transmitted to OAL 8-27-93 and filed 10-12-93 (Register 93, No. 42).

3. Amendment of section heading and text filed 12-30-94 as an emergency; operative 12-30-93 (Register 93, No. 53). A Certificate of Compliance must be transmitted to OAL by 4-28-94 or emergency language will be repealed by operation of law on the following day.

4. Certificate of Compliance as to 12-30-93 order including renumbering and amending former section 2699.6261 to section 2699.6177 transmitted to OAL 4-25-94 and filed 5-27-94 (Register 94, No. 21).

§2699.6261.5. Disenrollment of Member Employees and Dependents.

Note • History

NOTE

Authority cited: Section 10731, Insurance Code. Reference: Sections 10731 and 10743, Insurance Code.

HISTORY

2. Certificate of Compliance as to 12-30-93 order including renumbering and amending former section 2699.6261.5 to section 2699.6181 transmitted to OAL 4-25-94 and filed 5-27-94 (Register 94, No. 21).

§2699.6262.5. Disenrollment of Individual Members and Dependents.

Note • History

NOTE

Authority cited: Section 10731, Insurance Code. Reference: Sections 10731 and 10743, Insurance Code.

HISTORY

2. Certificate of Compliance as to 12-30-93 order including renumbering and amending former section 2699.6262.5 to section 2699.6183 transmitted to OAL 4-25-94 and filed 5-27-94 (Register 94, No. 21).

§2699.6271. COBRA Benefits.

Note • History

NOTE

Authority cited: Section 10731, Insurance Code. Reference: Section 10731, Insurance Code.

HISTORY

2. Certificate of Compliance as to 5-5-93 order transmitted to OAL 8-27-93 and filed 10-12-93 (Register 93, No. 42).

3. Renumbering of former section 2699.6271 to section 2699.6191 filed 5-27-94; operative 5-27-94 (Register 94, No. 21).

Article 4. Employer Premiums

§2699.6300. Risk Categories.

Note • History

Health benefits plan rates shall be based exclusively on the following risk categories:

(a) Geographic region of sole employee's or guaranteed association member's residence.

(1) The six geographic regions for sole employee's or guaranteed association members residing within the State of California shall be as follows:

(B) Area 2 shall include the counties of Fresno, Imperial, Kern, Madera, Mariposa, Merced, Napa, Sacramento, San Joaquin, San Luis Obispo, Santa Cruz, Solano, Sonoma, and Stanislaus.

(D) Area 4 shall include the counties of Orange, Santa Barbara, and Ventura.

(E) Area 5 shall include the county of Los Angeles.

(F) Area 6 shall include the counties of Riverside, San Bernardino, and San Diego.

(2) The eight geographic regions for sole employees or member employees residing in areas of the United States except the State of California shall be as follows:

(A) Area A shall consist of the States of Maine, New Hampshire, Vermont, the State of New York except Bronx, Kings, Manhattan, Nassau, Queens, Richmond, Rockland, Westchester and Suffolk Counties and the Territory of Guam.

(B) Area B shall consist of the States of Arkansas, Iowa, Kentucky, Montana, North Carolina, Oregon, South Carolina, and the Commonwealth of Puerto Rico.

(C) Area C shall consist of the States of Delaware, Hawaii, Idaho, Mississippi, Nebraska, North Dakota, Ohio, South Dakota, Tennessee, Washington, West Virginia, Wisconsin, and the State of Illinois except the counties of Cook, Dupage, Kane, Lake and McHenry.

(D) Area D shall consist of the States of Colorado, Georgia, Indiana, Kansas, Maryland, Massachusetts, Michigan, Missouri, Oklahoma, Pennsylvania, Rhode Island, Utah, Wyoming, and the State of Florida except Dade and Broward counties.

(E) Area E shall consist of the States of Alabama, Connecticut, Minnesota, New Jersey, New Mexico, Virginia, and counties of Cook, Dupage, Kane, Lake, and McHenry in the State of Illinois.

(F) Area F shall consist of the States of Alaska, Arizona, Louisiana, and the District of Columbia, and the State of Texas except Galveston and Harris counties.

(G) Area G shall consist of the State of Nevada and the counties of Bronx, Kings, Manhattan, Nassau, Queens, Richmond, Rockland, Westchester and Suffolk in the State of New York, and the counties of Galveston and Harris in the State of Texas.

(H) Area H shall consist of the counties of Dade and Broward in the State of Florida.

(b) Age of enrolled sole employee or guaranteed association member. The seven (7) age groups shall be as follows:

(1) Under 30;

(2) 30-39 years of age;

(3) 40-49 years of age;

(4) 50-54 years of age;

(5) 55-59 years of age;

(6) 60-64 years of age; and

(7) 65 years of age and over.

(c) Family size category of enrolled sole employee or guaranteed association member. The four (4) family size categories shall be as follows:

(1) Sole employee or guaranteed association member only.

(2) Sole employee or guaranteed association member and spouse.

(3) Sole employee and dependent child or dependent children, or guaranteed association member and dependent child or dependent children.

(4) Sole employee and spouse, and dependent child or dependent children, or guaranteed association member and spouse and dependent child or dependent children.

NOTE

Authority cited: Section 10731, Insurance Code. Reference: Sections 10731 and 10746, Insurance Code.

HISTORY

1. Relocation of article heading and renumbering and amendment of former section 2699.640 to section 2699.6300 filed 5-27-94; operative 5-27-94 (Register 94, No. 21).

§2699.6301. Risk Categories for Dental benefits.

Note • History

Dental benefits plan rates shall be based exclusively on the following risk categories:

(a) Geographic region of sole employee's or guaranteed association member's residence within the state of California. The six geographic regions shall be as specified in Subsection 2699.6300(a)(1).

(b) Family size category of enrolled sole employee or guaranteed association member. The four (4) family size categories shall be as specified in Subsection 2699.6300(c).

NOTE

Authority cited: Section 10731, Insurance Code. Reference: Sections 10731 and 10746, Insurance Code.

HISTORY

2. Certificate of Compliance as to 5-23-94 order transmitted to OAL 9-16-94 and filed 10-27-94 (Register 94, No. 43).

§2699.6303. Annual Health Benefit Plan Rates.

Note • History

Health benefit plan rates and dental benefit plan rates shall be established for each rating period and the rating period for the program shall be a twelve (12) month period.

NOTE

Authority cited: Section 10731, Insurance Code. Reference: Section 10731, Insurance Code.

HISTORY

1. Renumbering of former section 2699.641 to section 2699.6303 filed 5-27-94; operative 5-27-94 (Register 94, No. 21).

3. Certificate of Compliance as to 5-23-94 order transmitted to OAL 9-16-94 and filed 10-27-94 (Register 94, No. 43).

§2699.6305. Change of Risk Category.

Note • History

(a) When an enrolled sole employee, member employee, or individual member changes age groups as specified in Section 2699.6300(b) the rate change shall go into effect at the beginning of the next rating period.

(b) When an enrolled sole employee, member employee, or individual member changes geographic region of residence as specified in Section 2699.6300(a) but is not transferring from one participating carrier or participating dental carrier to another, or changes family size category as specified in Section 2699.6300(c), the change in the employer premium or individual member premium shall be calculated for and included in the next employer premium or individual member premium following the change.

NOTE

Authority cited: Section 10731, Insurance Code. Reference: Section 10731, Insurance Code.

HISTORY

1. Renumbering and amendment of former section 2699.642 to section 2699.6305 filed 5-27-94; operative 5-27-94 (Register 94, No. 21).

3. Certificate of Compliance as to 5-23-94 order transmitted with amendment of subsection (b) to OAL 9-16-94 and filed 10-27-94 (Register 94, No. 43).

§2699.6307. Program Participation Fee.

Note • History

(a) This subsection applies to sole employers and guaranteed associations with effective dates of coverage prior to September 1, 1998 who have not made an election pursuant to Section 2699.6116.

(1) The program shall establish a program participation fee to be paid as part of the employer premium or individual member premium. The program shall include an amount to be paid for participation for dental coverage if the employer or individual member participates in the dental benefits option. The amount of the fee shall be sufficient to cover necessary administrative costs in connection with the program. Small employers enrolling after July 1, 1996 and before July 1, 1997 who do not utilize the services of an agent or broker shall pay, as an additional part of their program participation fee, a monthly amount equal to the monthly amounts specified in subsections 2699.6194(a)(4) and 2699.6196(a)(1)(D) for the first year and subsections 2699.6194(a)(5)(B) and 2699.6196(a)(1)(E)2. for the second year to compensate for the program's application, open enrollment and requalification assistance. Small employers enrolling on or after July 1, 1997 who do not utilize the services of an agent or a broker shall pay, as an additional part of their program participation fee, a monthly amount equal to the monthly amount specified in subsections 2699.6194(a)(4) and 2699.6196(a)(1)(D) for the first year and subsections 2699.6194(a)(5)(C) and 2699.6195(a)(1)(E)3. for the second year to compensate for these services.

(b) This section applies to sole employers and guaranteed associations with effective dates of coverage on or after September 1, 1998 or who have made an election pursuant to Section 2699.6116.

(1) The program shall establish a program participation fee that is a percentage of the comprehensive individual medical premium and the comprehensive individual dental premium.

(2) For sole employers and member employers the program participation fee shall be an amount equal to three and one half percent of the comprehensive individual medical premium and the comprehensive individual dental premium.

(3) For individual members the program participation fee shall be an amount equal to ten percent of the comprehensive individual medical premium and the comprehensive individual dental premium.

(4) The program participation fee shall also include all amounts so designated pursuant to Sections 2699.6194(b), 2699.6195(b), 2699.6196(b) and 2699.6197(b).

NOTE

Authority cited: Section 10731, Insurance Code. Reference: Section 10731, Insurance Code.

HISTORY

1. Renumbering and amendment of former section 2699.643 to new section 2699.6307 filed 5-23-94 as an emergency; operative 5-23-94 (Register 94, No. 21). A Certificate of Compliance must be transmitted to OAL by 9-20-94 or emergency language will be repealed by operation of law on the following day.

2. Certificate of Compliance as to 5-23-94 order transmitted to OAL 9-16-94 and filed 10-27-94 (Register 94, No. 43).

3. Editorial correction of History 1 (Register 94, No. 43).

4. Amendment filed 4-25-96; operative 5-25-96 (Register 96, No. 17).

5. Amendment filed 6-3-97; operative 7-1-97 pursuant to Government Code section 11343.4(d) (Register 97, No. 23).

7. Certificate of Compliance as to 7-3-98 order, including amendment of subsection (a)(1), transmitted to OAL 10-2-98 and filed 11-16-98 (Register 98, No. 47).

§2699.6309. Notification of Rate Changes.

Note • History

The program shall notify guaranteed associations, participating employers and participating individual members of plan rates no later than thirty (30) calendar days prior to the start of the rating period for which the rates are in effect.

NOTE

Authority cited: Section 10731, Insurance Code. Reference: Section 10731, Insurance Code.

HISTORY

1. Renumbering of former section 2699.644 to section 2699.6309 filed 5-27-94; operative 5-27-94 (Register 94, No. 21).

2. Amendment filed 5-23-94 as an emergency; operative 5-23-94 (Register 94, No. 21). A Certificate of Compliance must be tranmitted to OAL by 9-20-94 or emergency language will be repealed by operation of law on the following day.

§2699.6311. Premium Payment to Program.

Note • History

Premium payment procedures for sole employers and for member employers and for individual members which submit premiums directly to the program shall be as follows:

(a) Participating employers and participating individual members shall submit their employer premium or individual member premium to the program each month so that it is received no later than the due date set by the program.

(b) Each month the program shall notify participating employers or participating individual members of the employer premium or individual member premium due to the program, the due date of the employer premium or individual member premium, and the enrollees for whom payment is included in the employer premium or individual member premium. This notification shall be made at least fifteen (15) calendar days in advance of the employer premium due date.

(c) The participating employer's or participating individual member's obligation to submit the employer premium or individual member premium required by paragraph (a) above is not contingent upon receipt of the notice specified in paragraph (b) above. If the participating employer or participating individual member does not receive the notice specified in paragraph (b) above, the participating employer or participating individual member shall made a good faith effort to determine the amount of the employer premium or individual member premium and shall submit a payment of that amount.

(d) The due date for employer premiums and individual premiums is the first day covered by the premium.

NOTE

Authority cited: Section 10731, Insurance Code. Reference: Sections 10731 and 10742, Insurance Code.

HISTORY

1. Renumbering of former section 2699.645 to section 2699.6311 filed 5-27-94; operative 5-27-94 (Register 94, No. 21).

§2699.6313. Overdue Payments; Late Fees; Disqualification for Participating Employers.

Note • History

(a) Participating employers whose employer premiums are not paid in full by the due date shall be considered to be overdue. No act or failure to act on the part of a guaranteed association that is collecting premiums for the guaranteed association's members shall encumber the program from proceeding as herein set forth.

(b) The program shall notify participating employers of the overdue premium payment and the potential of disqualification from the program within fifteen (15) calendar days following the due date.

(d) Employer premiums more than thirty-one (31) calendar days overdue shall result in the participating employer being disqualified pursuant to Section 2699.6167(a)(2) or Section 2699.6173(a)(3). The final date of coverage for participating employers who are disqualified pursuant to Section 2699.6167(a)(2) or Section 2699.6173(a)(3) shall be retroactive to the last day for which the employer premium was paid in full.

NOTE

Authority cited: Section 10731, Insurance Code. Reference: Section 10731, Insurance Code.

HISTORY

1. Renumbering and amendment of former section 2699.646 to section 2699.6313 filed 5-27-94; operative 5-27-94 (Register 94, No. 21).

§2699.6315. Overdue Payments; Late Fees; Disqualification for Individual Members.

Note • History

(a) A participating individual member whose individual member premium is not paid in full by the due date shall be considered to be overdue. No act or failure to act on the part of a guaranteed association that is collecting premium for the guaranteed association's members shall encumber the program from proceeding as herein set forth.

(b) The program shall notify participating individual members of the overdue premium payment and the potential of disqualification from the program within fifteen (15) calendar days following the due date.

(c) Overdue employer premiums or individual member premiums shall be subject to a late fee equal to 5% of the employer or individual member premium.

(d) Individual member premiums more than thirty-one (31) calendar days overdue shall result in the member employer or individual member being disqualified pursuant to Section 2699.6175. The final date of coverage for member employers or individual members who are disqualified pursuant to Section 2699.6173 or 2699.6175 shall be retroactive to the last day for which individual member premium was paid in full.

NOTE

Authority cited: Section 10731, Insurance Code. Reference: Section 10731, Insurance Code.

HISTORY

1. Renumbering and amendment of former section 2699.646.5 to section 2699.6315 filed 5-27-94; operative 5-27-94 (Register 94, No. 21).

§2699.6317. Program Reinstatement Fee.

Note • History

The program reinstatement fee shall be equal to 10% of the employer premium or individual premium.

NOTE

Authority cited: Section 10731, Insurance Code. Reference: Section 10731, Insurance Code.

HISTORY

1. Renumbering of former section 2699.6461 to section 2699.6317 filed 5-27-94; operative 5-27-94 (Register 94, No. 21).

§2699.6319. Reinstatement Following Disqualification for Non-Payment of Premium.

Note • History

(a) Unless precluded by subsection (c) below, participating employers and individual members disqualified for nonpayment of their monthly premium may reinstate in the program if the participating employer or individual member remits the employer or individual member premium, the late fee, the program reinstatement fee, and the subsequent month's employer or individual member premium and any applicable late fee to the program no later than fifteen (15) calendar days following the issuance of the notice of disenrollment for nonpayment of premium. Payment to the program shall be made either directly or through a qualified guaranteed association according to normal premium payment practice.

(b) If an amount is received pursuant to (a) above later than fifteen (15) calendar days following the issuance of the notice, of disenrollment for nonpayment, then the program shall return the amount within 20 calendar days of receiving it.

(c) A participating employer or individual member shall not be reinstated more than twice in a twelve month period of time.

NOTE

Authority cited: Section 10731, Insurance Code. Reference: Section 10731, Insurance Code.

HISTORY

1. Renumbering of former section 2699.6462 to section 2699.6319 filed 5-27-94; operative 5-27-94 (Register 94, No. 21).

§2699.6321. Participating Employer Payment Requirement.

Note • History

(a) A participating employer shall pay the employer premium unless the employer requests disqualification pursuant to Section 2699.6167(a)(3).

(b) A participating employer shall pay each individual premium until the effective date of disenrollment.

NOTE

Authority cited: Section 10731, Insurance Code. Reference: Section 10731, Insurance Code.

HISTORY

1. Renumbering and amendment of former section 2699.6463 to section 2699.6321 filed 5-27-94; operative 5-27-94 (Register 94, No. 21).

§2699.6323. Individual Member Payment Requirement.

Note • History

An individual member shall pay the individual member premium due for the individual member and dependents, if any, until the effective date of disenrollment.

NOTE

Authority cited: Section 10731, Insurance Code. Reference: Section 10731, Insurance Code.

HISTORY

1. Renumbering and amendment of former section 2699.6463.5 to section 2699.6323 filed 5-27-94; operative 5-27-94 (Register 94, No. 21).

Article 5. Appeals

§2699.6400. Appeals to the Board.

Note • History

Certain program decisions may be appealed to the Board. If a guaranteed association, member employer, member employee, individual member, sole employer, or sole employee believes that a written decision on one of the following specified issues was made in violation of the program statutes or regulations, or other written representation of program policy made to the entity or individual by the program or the Board, that entity or individual may file an appeal with the Board.

Decisions that may be appealed are:

1. A decision that an association or employer is not qualified to participate or continue to participate in the program.

2. A decision that an association member or employee, or dependent of either, is not eligible for enrollment or continuing enrollment in the program.

3. A decision as to the effective date of health plan coverage.

NOTE

Authority cited: Section 10731, Insurance Code. Reference: Sections 10731 and 10748, Insurance Code.

HISTORY

1. Relocation of article heading and renumbering and amendment of former section 2699.650 to section 2699.6400 filed 5-27-94; operative 5-27-94 (Register 94, No. 21).

2. Repealer and new section filed 5-5-97; operative 7-1-97 (Register 97, No. 19).

§2699.6401. Filing an Appeal.

Note • History

(a) An appeal shall be filed in writing with the Executive Director within sixty (60) calendar days of the date of the notice of the decision being appealed.

(b) An appeal shall include all of the following:

(1) A copy of any decision being appealed, or a written statement of the action or failure to act being appealed;

(2) A statement specifically describing the issues which are disputed by the appellant;

(3) A statement specifically describing the program statute or regulation, or other written representation of program policy, that the appellant believes the program violated.

(4) A statement of the resolution requested by the appellant; and

(5) Any other relevant information the appellant wants to include.

(c) Any appeal that does not specifically allege a violation of a program statute or regulation, or other written representation of program policy, will be deemed to be a request for program review pursuant to Section 2699.6404.

(d) Any appeal that does specifically allege a violation of program statutes or regulation or other written representation of program policy, but fails to include any other necessary information shall be returned to the appellant without review. The appellant may resubmit the appeal. The resubmittal shall be filed within the time limits of subsection (a) or within twenty (20) calendar days of the receipt of the returned appeal, whichever is later.

NOTE

Authority cited: Section 10731, Insurance Code. Reference: Sections 10731 and 10748, Insurance Code.

HISTORY

1. Renumbering of former section 2699.651 to section 2699.6401 filed 5-27-94; operative 5-27-94 (Register 94, No. 21).

2. Amendment filed 5-5-97; operative 7-1-97 (Register 97, No. 19).

§2699.6403. Administrative Review.

Note • History

(a) Any appellant who files an appeal pursuant to Section 2699.6400 shall receive an initial administrative review of the appeal.

(b) Administrative reviews of appeals shall be conducted in two steps. Each appeal will be reviewed by the program to determine if the requested resolution is required by the statutes and regulations governing the program, or required in order to be consistent with a written representation of program policy made by the program or the Board. If so, the appropriate action will be taken and the appellant will be notified. If not, the appellant will be so notified and informed that they may request review by the Executive Director. Such a request must be filed in writing with the Executive Director within 30 days of the date of the notice of the program determination, and shall include the information specified in Subsection 2699.6401(b).

(c) In conducting an administrative review of an appeal, the Executive Director may contact the appellant and/or the participating health plan for further information.

(d) The Executive Director's decision shall be in writing.

(e) The appellant retains the right to request an administrative hearing if the appellant is not satisfied with the decision of the Executive Director. Such a request shall be filed within thirty (30) calendar days of receipt of the Executive Director's decision. It shall include a clear and concise statement of what action is being appealed, and the reason(s) the Executive Director's decision is not correct.

NOTE

Authority cited: Section 10731, Insurance Code. Reference: Sections 10731 and 10748, Insurance Code.

HISTORY

1. Renumbering of former section 2699.652 to section 2699.6403 filed 5-27-94; operative 5-27-94 (Register 94, No. 21).

2. Amendment of subsection (e) filed 1-10-95 as an emergency; operative 1-10-95 (Register 95, No. 2). A Certificate of Compliance must be transmitted to OAL 5-10-95 or emergency language will be repealed by operation of law on the following day.

3. Certificate of Compliance as to 1-10-95 order transmitted to OAL 4-25-95 and filed 6-7-95 (Register 95, No. 23).

4. Amendment of subsections (a) and (b) and amendment of Note filed 5-5-97; operative 7-1-97 (Register 97, No. 19).

§2699.6404. Program Review.

Note • History

In addition to the appeal process established above, the Board has established a program review process. If a guaranteed association, member employer, member employee, individual member, sole employer, or sole employee is not eligible to file an appeal pursuant to Section 2699.6400, but wants to have any program decision reviewed, the person or entity may request that the program review the decision. A review pursuant to this section is separate from and independent of an appeal pursuant to Section 2699.6400 and a person or entity that files a request pursuant to this section shall not thereby gain any right of appeal. Pursuant to Section 2699.6217, any dissatisfaction with an action of a participating carrier or participating dental carrier shall be resolved with the carrier rather than by requesting program review.

NOTE

Authority cited: Section 10731, Insurance Code. Reference: Sections 10731 and 10748, Insurance Code.

HISTORY

1. New section filed 5-5-97; operative 7-1-97 (Register 97, No. 19).

§2699.6405. Hearings.

Note • History

When an appeal which requests an administrative hearing is received, the appeal shall be set for hearing as follows:

(a) Administrative hearings of appeals will be conducted according to the appeal procedures, including pre- and post-hearing procedures, set forth in Chapter 2.5 (commencing with section 251) of Division 2 of Title 1 of the California Code of Regulations. Chapter 2.5 is hereby incorporated by reference, subject to the following modifications:

(1) Reference to the Health and Welfare Agency or the component department shall be deemed reference to the Managed Risk Medical Insurance Board.

(2) Reference to the private non-profit human service organization shall be deemed reference to the petitioner.

(4) Reference to Health and Safety Code sections providing the bases, grounds, authorization or procedures for appeals shall be deemed reference to the bases and authorization for appeal found in section 2699.6400, and the appeal procedures found in this section.

(5) The 30-day time period specified in section 251(b) shall be extended to 60 days, and the 10-day time period in section 252(a) shall be extended to 30 days.

(7) The decision of the Board shall be issued within 90 days following the initial hearing or, if the case is referred back to the hearing officer, within 90 days of the second hearing.

NOTE

Authority cited: Section 10731, Insurance Code. Reference: Sections 10731 and 10748, Insurance Code.

HISTORY

1. Renumbering of former section 2699.653 to section 2699.6405 filed 5-27-94; operative 5-27-94 (Register 94, No. 21).

2. Amendment of subsection (a) and new subsections (a)(1)-(a)(7) filed 1-10-95 as an emergency; operative 1-10-95 (Register 95, No. 2). A Certificate of Compliance must be transmitted to OAL 5-10-95 or emergency language will be repealed by operation of law on the following day.

3. Certificate of Compliance as to 1-10-95 order including amendment of subsection (a) transmitted to OAL 4-25-95 and filed 6-7-95 (Register 95, No. 23).

§2699.6407. Conduct of Hearing by Hearing Officer.

Note • History

NOTE

Authority cited: Section 10731, Insurance Code. Reference: Sections 10731 and 10748, Insurance Code.

HISTORY

1. Renumbering of former section 2699.654 to section 2699.6407 filed 5-27-94; operative 5-27-94 (Register 94, No. 21).

2. Repealer filed 1-10-95 as an emergency; operative 1-10-95 (Register 95, No. 2). A Certificate of Compliance must be transmitted to OAL 5-10-95 or emergency language will be repealed by operation of law on the following day.

3. Certificate of Compliance as to 1-10-95 order transmitted to OAL 4-25-95 and filed 6-7-95 (Register 95, No. 23).

§2699.6409. Decision by Appeal Hearing by Hearing Officer.

Note • History

NOTE

Authority cited: Section 10731, Insurance Code. Reference: Sections 10731 and 10748, Insurance Code.

HISTORY

1. Renumbering of former section 2699.655 to section 2699.6409 filed 5-27-94; operative 5-27-94 (Register 94, No. 21).

3. Certificate of Compliance as to 1-10-95 order transmitted to OAL 4-25-95 and filed 6-7-95 (Register 95, No. 23).

§2699.6461. Program Reinstatement Fee.

Note • History

NOTE

Authority cited: Section 10731, Insurance Code. Reference: Section 10731, Insurance Code.

HISTORY

2. Certificate of Compliance as to 5-5-93 order transmitted to OAL 8-27-93 and filed 10-12-93 (Register 93, No. 42).

4. Certificate of Compliance as to 12-30-93 order including renumbering former section 2699.6461 to section 2699.6317 transmitted to OAL 4-25-94 and filed 5-27-94 (Register 94, No. 21).

§2699.6462. Reinstatement Following Disqualification for Non-Payment of Premium.

Note • History

NOTE

Authority cited: Section 10731, Insurance Code. Reference: Section 10731, Insurance Code.

HISTORY

2. Certificate of Compliance as to 5-5-93 order transmitted to OAL 8-27-93 and filed 10-12-93 (Register 93, No. 42).

4. Certificate of Compliance as to 12-30-93 order including renumbering and amending former section 2699.6462 to section 2699.6319 transmitted to OAL 4-25-94 and filed 5-27-94 (Register 94, No. 21).

§2699.6463. Participating Employer Payment Requirement.

Note • History

NOTE

Authority cited: Section 10731, Insurance Code. Reference: Section 10731, Insurance Code.

HISTORY

2. Certificate of Compliance as to 5-5-93 order transmitted to OAL 8-27-93 and filed 10-12-93 (Register 93, No. 42).

4. Certificate of Compliance as to 12-30-93 order including renumbering and amending former section 2699.650 to section 2699.6400 transmitted to OAL 4-25-94 and filed 5-27-94 (Register 94, No. 21).

3. Amendment of section heading and subsection (b) filed 12-30-93 as an emergency; operative 12-30-93 (Register 93, No. 53). A Certificate of Compliance must be transmitted to OAL by 4-28-94 or emergency language will be repealed by operation of law on the following day.

4. Certificate of Compliance as to 12-30-93 order including renumbering and amending former section 2699.6463 to section 2699.6321 transmitted to OAL 4-25-94 and filed 5-27-94 (Register 94, No. 21).

§2699.6463.5. Individual Member Payment Requirement.

Note • History

NOTE

Authority cited: Section 10731, Insurance Code. Reference: Section 10731, Insurance Code.

HISTORY

2. Certificate of Compliance as to 12-30-93 order including renumbering former section 2699.6463.5 to section 2699.6323 transmitted to OAL 4-25-94 and filed 5-27-94 (Register 94, No. 21).

Chapter 5.8. Managed Risk Medical Insurance Board Healthy Families Program

Article 1. Definitions

§2699.6500. Definitions.

Note • History

(a) “Access for Infants and Mothers (AIM) Program” means the State funded program operated pursuant to Part 6.3 (commencing with Section 12695) of Division 2 of the California Insurance Code, and that provides low-cost health care coverage for pregnant women and the newborns of subscribers who are enrolled in the AIM program prior to July 1, 2004.

(b) “Agriculture” means farming in all its branches and includes; the cultivation and tillage of the soil, the production of dairy products, the production, cultivation growing, and harvesting of any agricultural or horticultural commodities, the raising of livestock, bees, forbearing animals, or poultry, any practice performed by a farmer or on a farm as an incident to or in conjunction with such farming operations, including preparation for market, delivery to storage or to market or to carriers for transportation to market.

(d) “Alaskan Native” means any person who is an Eskimo or Aleut or other Alaska Native enrolled by the Secretary of the Interior pursuant to the Alaska Native Claims Settlement Act, 43 U.S.C. 1601.

(e) “American Indian” means any person who is eligible under federal law (25 U.S.C. Section 1603) to receive health services provided directly by the United States Department of Health and Human Services, Indian Health Service, or by a tribal or an urban Indian health program funded by the Indian Health Service to provide health services to eligible individuals either directly or by contract.

(f) “Anniversary date” means the day each year that corresponds to the day and month a person's coverage began in the program.

(g) “Applicant” means:

(1) A person age 18 or over who is a parent; a legal guardian; or a caretaker relative, foster parent, or stepparent with whom the child resides, who applies for coverage under the program on behalf of a child.

(2) A person who is applying for coverage on his or her own behalf and who is 18 years of age; or an emancipated minor; or a minor not living in the home of a parent, a legal guardian, caretaker relative, foster parent, or stepparent.

(3) A minor who is applying for coverage on behalf of his or her child.

(4) A person who is age 19 or over and who is applying for coverage on his or her own behalf and/or that of another child-linked adult.

(h)(1) “Benefit year” means the twelve (12) month period commencing July 1 of each year at 12:01 a.m.

(2) For the benefit year commencing July 1, 2009, “benefit year” shall mean the fifteen (15) month period commencing July 1, 2009 at 12:01 a.m. and ending October 1, 2010 at 12:01 a.m.

(3) Commencing October 1, 2010, “benefit year” shall mean the twelve (12) month period commencing October 1 of each year at 12:01 a.m. and ending the following October 1 at 12:01 a.m.

(i) “Board” means the Managed Risk Medical Insurance Board.

(j) “Caretaker relative” means a relative who provides care and supervision to a child if there is no parent living in the home. The caretaker relative may be any relation by blood, marriage, or adoption.

(k) “Child-linked adult” means:

(1) A parent living in the home with his or her child under age 19 who is enrolled in the program, or in no-cost Medi-Cal, or is eligible and applying for no-cost Medi-Cal.

(2) A stepparent living in the home with the parent described in (1).

(3) A caretaker relative living in the home with a child under age 19 who is enrolled in the program, or in no-cost Medi-Cal, or is eligible and applying for no-cost Medi-Cal. For any child or group of siblings, only one (1) caretaker relative may be eligible as a child-linked adult.

(4) A legal guardian living in the home with a child under age 19 who is enrolled in the program, or in no-cost Medi-Cal, or is eligible and applying for no-cost Medi-Cal. For any child or group of siblings, only one (1) legal guardian may be eligible as a child-linked adult.

(l) “Community provider plan” means that participating health plan in each county that has been so designated by the Board pursuant to Section 2699.6805.

(m) “Family contributions” means the monthly cost to an applicant for “family child contributions” and “family parent contributions.” Family contributions do not include copayments for services.

(n) “Family child contributions” means the monthly cost to an applicant to enable a subscriber child or subscriber children to participate in the program. Family child contributions do not include copayments for services.

(o) “Family parent contributions” means the monthly cost to an applicant to enable a subscriber parent or subscriber parents to participate in the program. Family parent contributions do not include copayments for services.

(p) “Family contribution sponsor” means a person or entity that is registered with the Program and that pays the family child contributions and/or family parent contributions on behalf of an applicant for any twelve (12) consecutive months of the subscriber child or subscriber parent's participation in the program. A family contribution sponsor may sponsor a subscriber parent linked to a subscriber child enrolled in the program if the subscriber child is sponsored, or may sponsor only the subscriber parent if the subscriber parent is not linked to any subscriber children enrolled in the program and instead is linked to a child enrolled in no-cost Medi-Cal.

(q) “Family member” means the following persons living in the home, unless the individual receives public assistance benefits such as SSI/SSP:

(1) Children under age 21 of married or unmarried parents living in the home.

(2) The married or unmarried parents of the child or sibling children.

(3) The stepparents of the child or sibling children.

(4) An unborn child of any family member.

(5) Children under age 21 who are away at school and who are claimed as tax dependents.

(r) “Family value package” means the combination of participating health, dental, and vision plans available to subscribers in each county offering the lowest price and each of the combinations offering a price within seven and one half percent (7.5%) of the average price of the lowest priced combination and the second lowest price combination of health, dental, and vision plans. The second lowest price combination is calculated by summing the second lowest price health plan, the second lowest price dental plan, and the second lowest price vision plan. If only one health, dental, or vision plan is available to subscribers in a county, the price of the one available plan shall be used in the calculations of the second lowest price combination. A health, dental, or vision plan with a service area which does not include zip codes in which at least eighty-five percent (85%) of the residents of the county reside or that has enrollment limits unrelated to network capacity shall not be considered the lowest or second lowest price plan, unless it is the only health, dental or vision plan in the county. In addition, any combination of health, dental, and vision plans in which the health, dental, and vision plan are each available in at least one plan combination that is within seven and one half percent (7.5%) of the average price of the lowest and second lowest price combination of health, dental, and vision plans, is a family value package. In all family value package calculations, the health plan rate to be used is the rate for subscriber children from one year old up to the age of nineteen. The dental and vision plan rates to be used are the rates for subscriber children. When the Board calculates the family value package, it shall base the calculation on the plan prices expected to be available for the anticipated health, dental and vision plan contract terms. Calculations will not be redone if plans are later dropped from or added to a county. However, if the Board at any time determines that the seven and one half percent (7.5%) level is insufficient to assure that adequate network capacity exists in a specified county so that all subscribers may be enrolled in a family value package, the Board may increase the percentage for that county to a percentage at which sufficient capacity is assured. Such increased percentage shall be in effect only for the benefit year in which the increase is made. The Board may determine, if requested as a part of a rural demonstration project for a special population, that a combination of health, dental, and vision plans in a county with a price higher than the family value package may still be deemed a family value package for applicants and subscribers that are members of the special population; in addition the Board may determine, if requested as part of a rural demonstration project for rural area residents, that a combination of health, dental, and vision plans in a county with a price higher than the family value package may still be deemed a family value package for subscribers that are residents of the rural area. The Board may determine that a combination of health, dental, and vision plans in a county that includes health and vision plans available in at least one family value package plan combination is deemed a family value package even if the dental plan is not in any other family value package plan combination, but only for applicants with subscribers who are enrolled prior to the beginning of the benefit year in that dental plan, and only if the Board determines it necessary in order to avoid requiring fifty percent (50%) of subscribers or one-thousand (1,000) subscribers in a county to change their dental plan.

(s) “Federal Poverty Level” means the level determined by the “Poverty Guidelines for the 48 Contiguous States and the District of Columbia” as contained in the Annual Update of HHS Poverty Guidelines as published in the Federal Register by the U.S. Department of Health and Human Services.

(t) “Household income” means the total annual income of all family members in a household. Income includes before tax earnings from a job, including cash, wages, salary, commissions and tips, self-employment net profits, Social Security, State Disability Insurance (SDI), Retirement Survivor Disability Insurance (RSDI), veterans benefits, Railroad Retirement, disability workers' compensation, unemployment benefits, child support, alimony, spousal support, pensions and retirement benefits, loans to meet personal needs, grants that cover living expenses, settlement benefits, rental income, gifts, lottery/bingo winnings and interest income. Income excludes public assistance program benefits such as SSI/SSP and CalWORKS payments, foster care payments, general relief, loans, grants or scholarships applied toward college expenses, or earned income of a child aged 13 or under, or a child attending school. Income does not include income exclusions applicable to all federal means tested programs such as, disaster relief payments, per capita payments to Native Americans from proceeds held in trust and/or arising from use of restricted lands, Agent Orange payments, Title IV student assistance, energy assistance payments to low income families, relocation assistance payments, victims of crime assistance program, Spina Bifida payments, earned income tax credit and Japanese reparation payments.

(u) “Income deduction” means any of the following:

(1) Work expenses of $90 per month for each family member working or receiving disability worker's compensation or State Disability Insurance. If a family member earns less than $90, the deduction can only be for the amount earned.

(2) Child care expenses while a family member works or trains for a job of up to $200 per month for each family member under age 2, up to $175 per month for each family member over age 2 and dependent care expenses of up to $175 for a disabled dependent.

(3) The amount paid by a family member per month for any court ordered alimony or child support.

(4) A maximum of $50 for child support payments or alimony received. If less than $50 in child support and/or alimony is received, the deduction can only be for the amount received.

(v) “Indian Health Service Facility” means a tribal or urban Indian organization operating health care programs or facilities with funds from the United States Department of Health and Human Service's Indian Health Service, pursuant to the Indian Health Care Improvement Act (25 U.S.C. Section 1601) or the Snyder Act (25 U.S.C. Section 13).

(w) “Living in the home” means all of the following:

(1) Physically present in the home;

(2) Temporarily absent from the home because of hospitalization, visiting, vacation, work-related trips, or other similar reasons. A temporary absence is normally one where a person leaves and returns to the home in the same or the following month.

(3) Away at school or vocational training if the person will resume living in the home as evidenced by the person's return to the home for vacations, weekends, and other times.

(4) When a child stays alternately with each of his or her parents and the child's parents are separated or divorced, the home in which the child is living shall be determined as follows:

(A) The child is determined to be living in the home of the parent with whom the child stays for the majority of the time.

(B) If the child spends an equal amount of time with each parent, the child is determined to be living in the home of the parent who has the majority of the responsibility for the care of the child. Factors that determine majority responsibility include but are not limited to which parent decides where the child attends school, deals with the school on educational decisions and problems, controls participation in extracurricular and recreational activities, arranges medical and dental care services, claims the child as a tax dependent, and purchases and maintains the child's clothing.

(C) If both parents exercise an equal share of responsibility for the child and the child spends an equal amount of time with each parent, the child is determined to be living in the home of the parent who meets one of the following conditions in the order specified:

1. Is designated, through mutual agreement of both parents, as the primary parent for purposes of the program or Medi-Cal.

2. Is otherwise eligible for the program.

3. If both parents are eligible for the program then the child is determined to be living in the home of the parent who first applied for the program or Medi-Cal on behalf of the child.

(x) “Migratory worker” means an individual whose principal employment is in agriculture, fishing, and/or forestry, on a seasonal basis, as opposed to year-round employment; and who, for purposes of employment, does establish a temporary place of residence. Migrant workers live in a work area temporarily. Such employment must have been within the last twenty-four months.

(y) “Parent” means the natural or adoptive parent of a child.

(z) “Parental coverage start date” means the effective date for which the State of California enacts appropriation for the coverage of child linked adults pursuant to a budget act and/or any other applicable state statute.

(aa) “Participating dental plan” means any of the following plans that is lawfully engaged in providing, arranging, paying for, or reimbursing the cost of personal dental services under insurance policies or contracts, or membership contracts, in consideration of premiums or other periodic charges payable to it, and that contract with the Board to provide coverage to program subscribers:

(1) A dental insurer holding a valid outstanding certificate of authority from the Insurance Commissioner.

(2) A specialized health care service plan as defined under subdivision (o) of Section 1345 of the Health and Safety Code.

(bb) “Participating health plan” means any of the following plans that is lawfully engaged in providing, arranging, paying for, or reimbursing the cost of personal health care services under insurance policies or contracts, medical and hospital service arrangements, or membership contracts, in consideration of premiums or other periodic charges payable to it, and that contracts with the Board to provide coverage to program subscribers:

(1) A private health insurer holding a valid outstanding certificate of authority from the Insurance Commissioner.

(2) A health care service plan as defined under subdivision (f) of Section 1345 of the Health and Safety Code. The term health care service plan shall include a plan operating as a geographic managed care plan as defined in Insurance Code Section 12693.16, in the area which it operates pursuant to a contract entered into under Article 2.91 (commencing with Section 14089 of Chapter 7 of Part 3 of Division 9 of the Welfare and Institutions Code.

(3) A county organized health system as defined in Insurance Code Section 12693.05, in the county in which it provides comprehensive health care to eligible Medi-Cal beneficiaries.

(4) A local initiative as defined in Insurance Code Section 12693.08, in the region in which it provides comprehensive health care to eligible Medi-Cal beneficiaries.

(cc) “Participating plan” means a participating health, participating dental or participating vision care plan.

(dd) “Participating vision care plan” means any of the following plans that is lawfully engaged in providing, arranging, paying for, or reimbursing the cost of personal vision services under insurance policies or contracts, or membership contracts, in consideration of premiums or other periodic charges payable to it, and that contract with the board to provide coverage to program subscribers:

(1) A vision insurer holding a valid outstanding certificate of authority from the Insurance Commissioner.

(2) A specialized health care service plan as defined under subdivision (o) of Section 1345 of the Health and Safety Code.

(ee) “Program” means the Healthy Families Program.

(ff)(1) “Qualified alien” means an alien who, at the time he or she applies for, receives, or attempts to receive program benefits, is, under Section 431 of the Personal Responsibility and Work Opportunity Reconciliation Act of 1996 (PRWORA) (8 U.S.C. Section 1641), any of the following:

(A) An alien lawfully admitted for permanent residence under the Immigration and Naturalization Act (INA) (8 U.S.C. Section 1101 et seq.).

(B) An alien who is granted asylum under Section 208 of the INA (8 U.S.C. Section 1158).

(D) An alien who is paroled into the United States under Section 212(d)(5) of the INA (8 U.S.C. Section 1182 (d)(5)) for a period of at least one year.

(E) An alien whose deportation is withheld under Section 243(h) of the INA (8 U.S.C. Section 1253(h), as in effect immediately before the effective date (April 1, 1997) of Section 307 of Division C of Public Law 104-208, or Section 241(b)(3) of such Act (8 U.S.C. Section 1251(b)(3)) (as amended by Section 305(a) of Division C of Public Law 104-208).

(F) An alien who is granted conditional entry pursuant to Section 203(a)(7) of the INA as in effect prior to April 1, 1980 (8 U.S.C. Section 1153(a)(7)). (See editorial note under 8 U.S.C. Section 1101, “Effective Date of 1980 Amendment.”)

(G) An alien who is a Cuban and Haitian entrant (as defined in Section 501(e) of the Refugee Education Assistance Act of 1980) (8 U.S.C. Section 1522nt.).

(H) An alien who, under Section 431(c)(1) of PRWORA (8 U.S.C. Section 1641 (c)(1)), meets all of the conditions of subparagraphs 1., 2., 3., and 4. below:

1. The alien has been battered or subjected to extreme cruelty in the United States by a spouse or a parent, or by a member of the spouse's or parent's family residing in the same household as the alien, and the spouse or parent of the alien consented to, or acquiesced in, such battery or cruelty.

2. There is a substantial connection between such battery or cruelty and the need for the benefits to be provided.

3. The alien has been approved or has a petition pending which sets forth a prima facie case for any of the following:

a. Status as a spouse or child of a United States citizen pursuant to clause (ii), (iii), or (iv) of Section 204(a)(1)(A) of the INA (8 U.S.C. Section 1154(a)(1)(A)(ii), (iii) or (iv)).

b. Classification pursuant to clause (ii) or (iii) of Section 204(a)(1)(B) of the INA (8 U.S.C. Section 1154 (a)(1)(B)(ii)or (iii)).

c. Cancellation of removal under Section 240A of the INA (8 U.S.C. Section 1229b) (as in effect prior to April 1, 1997).

d. Status as a spouse or child of a United States citizen pursuant to clause (i) of Section 204(a)(1)(A) of the INA (8 U.S.C. Section 1154(a)(1)(A)(i)) or classification pursuant to clause (i) of Section 204(a)(1)(B) of the INA (8 U.S.C. Section 1154(a)(1)(B)(i)).

e. Cancellation of removal pursuant to Section 240A(b)(2) of the INA (8 U.S.C. Section 1229b(b)(2)).

4. For the period for which benefits are sought, the individual responsible for the battery or cruelty does not reside in the same household or family eligibility unit as the individual subjected to the battery or cruelty.

(I) An alien who, under Section 431(c)(2) of the PRWORA (8 U.S.C. Section 1641 (c)(2)), meets all of the conditions of subparagraphs 1., 2., 3., 4. and 5. below:

1. The alien has a child who has been battered or subjected to extreme cruelty in the United States by a spouse or a parent of the alien (without the active participation of the alien in the battery or cruelty), or by a member of the spouse's or parent's family residing in the same household as the alien, and the spouse or parent consented or acquiesced to such battery or cruelty.

2. The alien did not actively participate in such battery or cruelty.

3. There is a substantial connection between such battery or cruelty and the need for the benefits to be provided.

4. The alien meets the requirements of subparagraph (H)(3) above.

5. For the period for which benefits are sought, the individual responsible for the battery or cruelty does not reside in the same household or family eligibility unit as the individual subjected to the battery or cruelty.

(J) An alien child who meets all of the conditions of subparagraphs 1., 2., 3., and 4. below:

1. The alien child resides in the same household as a parent who has been battered or subjected to extreme cruelty in the United States by that parent's spouse or by a member of the spouse's family residing in the same household as the parent and the spouse consented or acquiesced to such battery or cruelty.

2. There is a substantial connection between such battery or cruelty and the need for the benefits to be provided.

3. The alien child meets the requirements of subparagraph (H)(3) above.

(2) For purposes of subparagraphs (1)(H), (1)(I), and (1)(J), there is a “substantial connection between such battery or cruelty and the need for benefits to be provided” if the alien declares, and the program verifies, any of the following circumstances:

(A) The alien or the alien's child is receiving cash assistance based on the battery or extreme cruelty.

(B) The benefits are needed due to a loss of financial support resulting from the alien's and/or his or her child's separation from the abuser.

(C) The benefits are needed because the alien or his or her child requires medical attention or mental health counseling, or has become disabled, as a result of the battery or cruelty.

(D) The benefits are needed to provide medical care during an pregnancy resulting from the abuser's sexual assault or abuse of, or relationship with, the alien or his or her child, and/or to care for any resulting children.

(E) The medical coverage and/or health care services are needed to replace medical coverage or health care services the applicant or child had when living with the abuser.

(3) An alien who is a qualified alien pursuant to subparagraphs (1)(H), (1)(I), or (1)(J), will remain eligible for the program as long as the need for benefits related to the battery or cruelty is necessary as determined by the program, and the alien continues to meet all other program eligibility requirements. The program shall review the alien's circumstances to evaluate the subscriber's continued need for program benefits at the annual eligibility review.

(gg) “Qualifying event” means one of the following situations in which a child-linked adult may enroll in the program:

(1) A subscriber child through whom the child-linked adult is eligible enrolls in no-cost Medi-Cal or the program and the child-linked adult requests enrollment at the same time as the child. If the child-linked adult is not the applicant on behalf of the subscriber child, the child-linked adult may request enrollment within 2 months of the subscriber child's enrollment in no-cost Medi-Cal or the program.

(2) A subscriber child through whom the child-linked adult is eligible qualifies for an additional year of coverage under no-cost Medi-Cal or the program pursuant to Section 2699.6625 and the child-linked adult requests enrollment at the time of the child's annual eligibility review. If the child-linked adult is not the applicant on behalf of the subscriber child, the child-linked adult may request enrollment within 2 months of the subscriber child's qualification for an additional year of coverage through no-cost Medi-Cal or the program.

(3) A child-linked adult loses no-cost Medi-Cal coverage and requests enrollment within 2 months after notification of this loss of coverage.

(4) A subscriber child turns 19 and qualifies to participate in the program as a subscriber parent, and requests enrollment within 2 months of his or her 19th birthday.

(5) A child-linked adult has lost or will lose coverage under employer sponsored coverage as a result of one of the following and the child-linked adult requests enrollment within 2 months of the termination of coverage.

(A) The child-linked adult or other individual through whom the child-linked adult was covered lost employment or experienced a change in employment status.

(B) The child-linked adult or other individual through whom the child-linked adult was covered changed address to a zip code that is not covered by the employer-sponsored coverage.

(C) The employer of the child-linked adult or other individual through whom the child-linked adult was covered discontinued health benefits to all employees or dependents, or ceased to provide coverage or contributions for one or more categories of employees or dependents.

(D) Death of the individual through whom the child-linked adult was covered, or a legal separation or divorce from the individual through whom the child-linked adult was covered.

(E) The child-linked adult was covered under a COBRA policy, and the COBRA coverage period has ended.

(6) A subscriber parent's period of disqualification pursuant to Subsection 2699.6611(d) has expired and enrollment is requested within 2 months of the end of the period of disqualification.

(7) The household income for a child-linked adult falls to a level at or below 200% of the federal poverty level and the child-linked adult requests enrollment within 2 months of this change in income.

(8) A subscriber parent marries and his or her spouse requests enrollment within 2 months of newly obtaining the status of a child-linked adult.

(9) A subscriber child begins living in the home with a parent, caretaker relative, or legal guardian and the parent, caretaker relative, or legal guardian requests enrollment within 2 months of newly obtaining the status of a child-linked adult.

(10) The program informs a child-linked adult who previously applied at a time when the program was closed to new enrollment that he or she may apply and he or she requests enrollment within 2 months of notification of the program's opening to new enrollment for child-linked adults.

(hh) “Rural demonstration projects” means health, dental and vision plan projects approved by the Board to address the unique access needs of special population and/or residents of rural medical service study areas.

(ii) “Rural Medical Service Study Area” means an area with (1) a population density of less than 250 persons per square mile; and (2) no town with a population in excess of 50,000 within the area, as determined by the Office of Statewide Health Planning and Development.

(jj) “Seasonal worker” means an individual whose principal employment is in agriculture, fishing and/or forestry, on a seasonal basis, as opposed to year-round employment; and who, for purposes of employment, does not establish a temporary place of residence. Seasonal workers commute to work in the area of their permanent address. Such employment must have been within the last twenty-four months.

(kk) “Special population” means seasonal workers, migratory workers or American Indians.

(ll) “State Supported Services” means abortions that are not the result of incest or rape, and are not necessary to save the life of the mother.

(mm) “Stepparent” means a person who is married to the parent of a child and who is not the other parent of the child.

(nn) “Subscriber” means either a “subscriber child” or a “subscriber parent.”

(oo) “Subscriber child” means a person age 18 or a child who is eligible for and participates in the program.

(pp) “Subscriber parent” means a child-linked adult age 19 or over who is eligible for and participates in the program.

(qq) Tenses, and Number. The present tense includes the past and future, and the future the present; the singular includes the plural and the plural the singular.

NOTE

Authority cited: Sections 12693.21, 12693.22 and 12693.755, Insurance Code. Reference: Sections 12693.02, 12693.03, 12693.045, 12693.06, 12693.065, 12693.08, 12693.09, 12693.10, 12693.70, 12693.105, 12693.11, 12693.12, 12693.13, 12693.14, 12693.16, 12693.17, 12693.22, 12693.755 and 12693.91, Insurance Code.

HISTORY

1. New chapter 5.8 (sections 2699.6500-2699.6815), article 1 (section 2699.6500) and section filed 2-20-98 as an emergency; operative 2-20-98 (Register 98, No. 8). A Certificate of Compliance must be transmitted to OAL by 6-22-98 or emergency language will be repealed by operation of law on the following day.

2. Certificate of Compliance as to 2-20-98 order transmitted to OAL 6-5-98 and filed 7-15-98 (Register 98, No. 29).

3. Amendment of subsections (i), (k) and (o)(2)-(4) and amendment of Note filed 12-14-98 as an emergency; operative 12-14-98 (Register 98, No. 51). A Certificate of Compliance must be transmitted to OAL by 4-13-99 or emergency language will be repealed by operation of law on the following day.

4. Certificate of Compliance as to 12-14-98 order transmitted to OAL 3-25-99 and filed 5-6-99 (Register 99, No. 19).

5. Amendment of subsection (s)(J)(3) filed 5-26-99 as an emergency; operative 5-26-99 (Register 99, No. 22). A Certificate of Compliance must be transmitted to OAL by 9-23-99 or emergency language will be repealed by operation of law on the following day.

6. New subsections (a), (o) and (v)-(y), subsection relettering, and amendment of Note filed 8-5-99 as an emergency; operative 8-5-99 (Register 99, No. 32). A Certificate of Compliance must be transmitted to OAL by 12-3-99 or emergency language will be repealed by operation of law on the following day.

7. Amendment of newly designated subsection (j) filed 8-5-99 as an emergency; operative 8-5-99 (Register 99, No. 32). A Certificate of Compliance must be transmitted to OAL by 12-3-99 or emergency language will be repealed by operation of law on the following day.

8. Certificate of Compliance as to 5-26-99 order transmitted to OAL 9-17-99 and filed 10-28-99 (Register 99, No. 44).

9. Certificate of Compliance as to 8-5-99 order (amending subsection (j)) transmitted to OAL 11-2-99 and filed 12-1-99 (Register 99, No. 49).

10. Certificate of Compliance as to 8-5-99 order (adopting new subsections (a), (o) and (v)-(y), relettering subsections, and amending Note) transmitted to OAL 10-29-99 and filed 12-3-99 (Register 99, No. 49).

11. Amendment of subsections (d), (l) and (m) and amendment of Note filed 1-10-2000 as an emergency; operative 1-10-2000 (Register 2000, No. 2). A Certificate of Compliance must be transmitted to OAL by 5-9-2000 or emergency language will be repealed by operation of law on the following day.

12. New subsection (b) and subsection relettering filed 3-21-2000 as an emergency; operative 3-21-2000 (Register 2000, No. 12). A Certificate of Compliance must be transmitted to OAL by 7-19-2000 or emergency language will be repealed by operation of law on the following day.

13. Certificate of Compliance as to 1-10-2000 order transmitted to OAL 5-5-2000 and filed 6-16-2000 (Register 2000, No. 24).

14. Amendment of subsection (k) filed 6-20-2000 as an emergency; operative 6-20-2000 (Register 2000, No. 25). A Certificate of Compliance must be transmitted to OAL by 10-18-2000 or emergency language will be repealed by operation of law on the following day.

15. Certificate of Compliance as to 3-21-2000 order transmitted to OAL 6-23-2000 and filed 7-17-2000 (Register 2000, No. 29).

16. New subsection (j), subsection relettering and amendment of Note filed 9-5-2000; operative 9-5-2000 pursuant to Government Code 11343.4(d) (Register 2000, No. 36).

17. Certificate of Compliance as to 6-20-2000 order transmitted to OAL 10-12-2000; disapproval and reinstatement of text as it existed prior to emergency amendment pursuant to Government Code section 11349.6(d) filed 11-27-2000 (Register 2000, No. 48).

18. Amendment of subsection (l) filed 11-28-2000 as an emergency; operative 11-28-2000 (Register 2000, No. 48). A Certificate of Compliance must be transmitted to OAL by 3-28-2001 or emergency language will be repealed by operation of law on the following day.

19. Certificate of Compliance as to 11-28-2000 order transmitted to OAL 1-31-2001 and filed 2-20-2001 (Register 2001, No. 8).

20. Amendment of section and Note filed 4-29-2002 as an emergency; operative 4-29-2002 (Register 2002, No. 18). Pursuant to Chapter 946, Statutes of 2000, section 2, a Certificate of Compliance must be transmitted to OAL by 10-28-2002 or emergency language will be repealed by operation of law on the following day.

21. Certificate of Compliance as to 4-29-2002 order, including further amendment of subsections (i)(1), (3) and (4), (o)-(o)(1), (s)(4), (x) and (ee)(5)(E), transmitted to OAL 10-28-2002 and filed 12-12-2002 (Register 2002, No. 50).

22. Amendment of subsection (n), new subsection (jj) and subsection relettering filed 7-31-2003 as an emergency; operative 7-31-2003 (Register 2003, No. 31). A Certificate of Compliance must be transmitted to OAL by 1-27-2004 or emergency language will be repealed by operation of law on the following day.

23. Certificate of Compliance as to 7-31-2003 order transmitted to OAL 11-17-2003 and filed 12-30-2003 (Register 2004, No. 1).

24. New subsections (a) and (c) and subsection relettering filed 7-1-2004 as an emergency; operative 7-1-2004 (Register 2004, No. 27). Pursuant to Section 80, A.B. 1762 (Chapter 230, Stats. 2003) a Certificate of Compliance must be transmitted to OAL by 12-28-2004 or emergency language will be repealed by operation of law on the following day.

25. Certificate of Compliance as to 7-1-2004 order transmitted to OAL 11-24-2004 and filed 1-7-2005 (Register 2005, No. 1).

26. Amendment of subsection (r) filed 3-27-2008 as an emergency; operative 3-27-2008 (Register 2008, No. 13). A Certificate of Compliance must be transmitted to OAL by 9-23-2008 or emergency language will be repealed by operation of law on the following day.

27. Certificate of Compliance as to 3-27-2008 order transmitted to OAL 8-15-2008 and filed 9-22-2008 (Register 2008, No. 39).

28. Redesignation of former subsection (h) as subsection (h)(1), new subsections (h)(2)-(3) and amendment of Note filed 6-24-2010 as an emergency; operative 7-1-2010 pursuant to Government Code section 11346.1(d) (Register 2010, No. 26). A Certificate of Compliance must be transmitted to OAL by 12-28-2010 or the emergency action will be repealed by operation of law on the following day.

29. Certificate of Compliance as to 6-24-2010 order transmitted to OAL 12-21-2010 and filed 2-2-2011 (Register 2011, No. 5).

Article 2. Eligibility, Application, and Enrollment

§2699.6600. Application.

Note • History

(a) To apply for the program:

(1) An applicant shall submit all information, documentation, and declarations required in subsection (c) of this section.

(2) Payment in full of the following arrears, incurred within the prior twelve (12) months, by the applicant is required prior to enrollment of a person under age 19:

(A) Family child contributions owed on behalf of any person under age 19 for whom the same applicant previously applied;

(B) Family child contributions owed on behalf of a person under age 19 for whom the applicant did not previously apply but for whom the applicant is currently requesting coverage if the applicant:

1. Is the parent of the person under age 19 for whom premiums are owed; and

2. Lived in the same home as the person under age 19 when the premiums were incurred.

(3) Payment in full of the following arrears, incurred within the prior twelve (12) months, by the applicant is required prior to enrollment of a person age 19 or over:

(A) Family contributions owed on behalf of any person for whom the same applicant previously applied;

(B) Family child contributions owed on behalf of a person under age 19 for whom the applicant did not previously apply but for whom the applicant is currently requesting coverage if the applicant:

1. Is the parent of the person under age 19 for whom premiums are owed; and

2. Lived in the same home as the person under age 19 when the premiums were incurred.

(C) Family parent contributions owed on behalf of a person for whom the applicant is requesting coverage for coverage provided on or after the person's 19th birthday.

(4) The program application, entitled “Family Health Coverage Mail-In Application, for Medi-Cal and Healthy Families” (MC321 HFP, 4/06), is hereby incorporated by reference. Alternatively, the program shall utilize the on-line application submitted electronically via the internet and the school lunch application and any supplemental forms received pursuant to Section 14005.41 of the Welfare and Institutions Code to make an eligibility determination.

(b) The applicant shall sign and date the following declaration: I declare under penalty of perjury under the laws of the State of California that the answers I have given in this Application and the documents given are correct and true to the best of my knowledge and belief. I declare that I have read and understand the Application Instructions, the declarations, and all information printed on this Application.

(c)(1) The application shall contain the following:

(A) The applicant's full name.

(B) The applicant's date of birth.

(D) The home and mailing address for the applicant and for all persons for whom application is being made, the applicant's county of residence and phone number(s), and the applicant's e-mail address (optional).

(E) An indication of whether the applicant is over the age of 18 years and applying on behalf of a child or children, and/or on behalf of a child-linked adult. An indication of whether the applicant is an 18 year old applying on his or her own behalf; the applicant is an emancipated minor applying on his or her own behalf; the applicant is a minor who is not living in the home of a parent, legal guardian, caretaker relative, foster parent, or stepparent and is applying on his or her own behalf; or the applicant is a minor who is applying on behalf of his or her child.

(F) For each person for whom the applicant is applying, the following information is requested:

1. name (first, middle and last) including full birth name if different (not required for a child not yet born)

2. marital status and spouse's name

3. birth date (not required for a child not yet born)

4. birth place (not required for a child not yet born)

5. mother's first and last name and whether living in the child's household (optional for a person age 19 or over)

6. father's first and last name if living in the child's household (optional for a person age 19 or over)

7. an indication of whether the mother and father are deceased or disabled (optional for a person age 19 or over)

8. gender (not required for a child not yet born)

9. Social Security Number (optional)

10. ethnicity (optional unless the person is an American Indian),

11. relationship to applicant.

12. if the person lives away from home (optional for a person age 19 or over)

13. if the person is going to school

14. if the person has a physical, mental or emotional disability

15. if any person in the home is pregnant and if so, the expected due date

(G) A declaration that the applicant is applying to enroll in the program all of the applicant's eligible children who are not already enrolled in the program, unless the applicant is applying only on his or her own behalf.

(H) An identification of individuals living together in the home and their relationships. If an individual is pregnant, it should be indicated, along with the expected due date.

(I) A list of family members identified in (F) and (H) above, who live in the home and who had income in the previous or current calendar year.

1. If the applicant is a parent or stepparent, an 18 year old applying on their own behalf, a child-linked adult applying on his or her own behalf or that of another child-linked adult or a minor applying on his or her own behalf or on behalf of his or her child, for the household of each person applied for, the first, middle initial, last name, gender and date of birth of all family members living in the household, each person's relationship to the person applied for and their monthly income.

2. If the applicant is applying as a foster parent, caretaker relative, or legal guardian applying only on behalf of an 18 year old or a child, a statement of the monthly income of each person applied for, for whom they are a foster parent, caretaker relative, or legal guardian.

3. If the person for whom application is being made is a qualified alien with an affidavit of support pursuant to section 213A of the Immigration and Naturalization Act, the calculation of household income must include the sponsor's income as set forth in Section 421 of the Personal Responsibility and Work Opportunity Reconciliation Act of 1996 (PRWORA), unless the person is eligible pursuant to Insurance Code Section 12693.76.

(J) Beginning one year after the parental coverage start date, for each child-linked adult for whom application is being made, an indication of his or her qualifying event as defined in Section 2699.6500.

(K) Documentation of the total monthly gross household income for either the previous or current calendar year. For each person listed pursuant to subsections (F) and (H) above, provide social security number (optional) and documentation for each source of income. Such documentation shall be provided for the previous or current year as indicated below:

1. For the previous calendar year:

a. Federal tax return. If self-employed, a schedule C must be included. If a person with reported income on the federal tax return is a step-parent, the step-parent's W-2 form is required to determine the amount of income associated with the financially responsible parent of the child being applied for.

b. All of the following that are applicable and that reflect the current benefit amount: copies of award letters, checks, bank statements, passbooks, or internal revenue service (IRS) 1099 forms showing the amount of Social Security, State Disability Insurance (SDI), Retirement Survivor Disability Insurance (RSDI), veterans benefits, Railroad Retirement, disability workers' compensation, unemployment benefits, child support, alimony spousal support, pensions and retirement benefits, loans to meet personal needs, grants that cover living expenses, settlement benefits, rental income, gifts, lottery/bingo winnings, dividends, or interest income.

2. For the current calendar year:

a. Paystub or unemployment stub showing gross income for a period ending within 45 days of the date the program receives the document.

b. A letter from the person's current employer. The letter shall be dated and written on the employer's letterhead, and shall include the following:

i. The employee's name.

ii. The employer's business name, business address, and phone number.

iii. A statement of the person's current gross monthly income for a period ending within 45 days of the date the program receives the document.

iv. A statement that the information presented is true and correct to the best of the signer's knowledge.

v. A signature by someone authorized to sign such letters by the employer. The signer shall include his or her position name or job title and shall not be the person whose income is being disclosed.

c. If self employed, a profit and loss statement for the most recent three (3) month period prior to the date the program receives the document. A profit and loss statement must include the following:

i. Date.

ii. Name, address, and telephone number of the business.

iii. Gross income, gross expenses, and net profit itemized on a monthly basis.

iv. A statement on the profit and loss, signed by the person who earned the income, which states, “the information provided is true and correct.”

d. A letter or Notice of Action from the County Welfare Office issued within the last two (2) months that includes:

i. For each person for whom application is being made, a statement that the person is eligible for share-of-cost Medi-Cal,

ii. A determination of total monthly household income and monthly household income after income deductions as defined in Section 2699.6500, and

iii. A determination of the number of family members living in the household.

e. All of the following that are applicable and that reflect the current benefit amount: copies of award letters, checks, bank statements, or passbooks showing the amount of Social Security, State Disability Insurance (SDI), Retirement Survivor Disability Insurance (RSDI), veterans benefits, Railroad Retirement, disability workers' compensation, unemployment benefits, child support, alimony, spousal support, pensions and retirement benefits, loans to meet personal needs, grants that cover living expenses, settlement benefits, rental income, gifts, lottery/bingo winnings, dividends, or interest income for the previous month.

3. If documentation pursuant to 1. or 2. cannot be provided, an affidavit of income written by hand by the recipient of the income. If the individual who receives the income is unable to write the affidavit by hand because of physical or literacy limitations, the individual will sign an affidavit written on his or her behalf with a mark (unless physically incapable) and include the printed name and signature of a witness. The affidavit of income shall include the following:

a. A statement of the amount and frequency of the income received,

b. A declaration that the individual cannot provide other documentation of his or her income at the time of application to the program and that the information provided is true and correct to the best of the individual's knowledge and belief,

c. An acknowledgment that the individual understands that the information contained in his or her affidavit may be subject to a verification by the State, and

d. The signature of the individual providing the affidavit of income and the date of signature.

(L) The name of each family member living in the home who pays court ordered child support, court ordered alimony, or health insurance and the monthly amount paid. The name and age of each person for whom payments are made for child care and/or disabled dependent care by a family member living in the home and the monthly amount paid. Documentation of court ordered child support and/or alimony paid, health insurance paid, and child care and/or disabled dependent care expenses paid. Documentation includes copies of court orders, cancelled checks, receipts, statements from the District Attorney's Family Support Division or other equivalent document.

(M) A declaration that each person for whom application is being made is not eligible for Part A and Part B of Medicare.

(N) A declaration that each person for whom application is being made is a resident of the State of California pursuant to Section 244 of the Government Code; or is physically present in California and entered the state with a job commitment or to seek employment.

(O) A declaration that the applicant will notify the program within 30 days of any change of home or mailing address of any person applied for who is accepted into the program and any change in the applicant's home or mailing address.

(P) A declaration that the applicant and each person for whom application is being made will abide by the rules of participation of the program.

(Q) A declaration that the applicant and each person for whom application is being made will abide by the rules and adhere to the policies and procedures, including dispute resolution processes, of any participating plan in which such persons are enrolled.

(R) For each person for whom application is being made, indicate current employer sponsored health coverage or employer sponsored health coverage that was terminated in the last three months, including the reason for and date of the termination.

(S) For each person for whom application is being made, the applicant's declaration that the person is:

1. a citizen or national of the United States, or

2. a qualified alien who entered the United States prior to August 22, 1996 or who entered on or after August 22, 1996 and meets one of the criteria listed in Subsection 2699.6607(e)(2)(B), or

3. a qualified alien who does not meet the criteria specified in subsection (S)2. above.

(T) For each declaration made pursuant to (S), documentation of the individual's status. If documentation is unavailable at the time of application, persons declaring a status listed under subsection (S) above may submit documentation within two months from the date of enrollment. If any person for whom application is being made was previously disenrolled pursuant to Section 2699.6611(a)(3), documentation for that person shall be submitted with the application.

(U) A declaration that each person for whom application is being made is not eligible for any California Public Employees Retirement System Health Benefits Program(s) or is eligible for a California Public Employees Retirement Health Benefits Program but the employer contribution for dependent(s) is less than $10.

(V) A declaration that each person for whom application is being made is not an inmate in a public correctional institution, or a patient in an institution for mental illness.

(W) A declaration that the applicant gives permission for the program to verify family income, health coverage, immigration status of each person for whom application is being made, California residence and other facts stated in the application.

(X) For each person for whom application is being made, an indication of whether the person has other health, dental or vision insurance.

(Y) An indication of whether anyone has filed a lawsuit because of an accident or injury on behalf of any person for whom application is being made.

(Z) An indication of whether the applicant wants to apply for Medi-Cal coverage for any unpaid medical expenses in the last three months prior to application for any person for whom application is being made.

(AA) The applicant shall provide all of the following:

1. A declaration that the applicant has reviewed the benefits offered by the participating health, dental and vision plans.

2. A declaration that the applicant agrees to pay the required family contribution for a period of six months, unless the applicant has a family contribution sponsor.

(BB) The applicant may provide the following optional information:

1. The applicant's choice of participating health, dental and/or vision plans.

a.i. In any geographic region or portion thereof, the program may designate one or more participating dental plans with the lowest per-subscriber costs to the program. For purposes of this section, “designated dental plan” means a participating dental plan that the program has designated in accordance with this section.

ii. Except as otherwise provided in this section, designated dental plans, where available, shall be the only available dental plans for a household where no subscriber has at any time been enrolled in the program for two consecutive years following the subscriber's effective date.

b. An applicant may choose from all available participating dental plans for the household and shall not be limited to designated dental plans in the following circumstances:

i. There is no designated dental plan in the area where the subscribers reside.

ii. (A) On November 1, 2009, one or more subscribers in the household were enrolled in the program since before November 1, 2009; and (B) at all times after November 1, 2009, there has been at least one subscriber in the household.

iii. At least one subscriber in the household currently is enrolled in a participating dental plan that is not a designated dental plan. This exception shall apply even if (A) the subscribers move to an area where there is a designated dental plan; (B) the program makes a designated dental plan available in the area where the subscribers reside; or (C) the applicant must make a new choice of dental plan because the dental plan in which the subscribers were enrolled no longer is available.

2. The applicant's choice of primary care provider/clinic and provider/clinic code, and dentist/clinic and dentist/clinic code for the person(s) for whom application is being made.

3. An indication of whether there is more than one car in the children's household.

4. An indication of whether there is more than $3,150 cash in bank accounts in the children's household.

5. An indication if the applicant does not want the application reviewed for eligibility for Medi-Cal or the Program.

(CC) If assistance in completing the application was provided by an eligible individual, a statement by the applicant that such assistance was provided.

(DD) If applicable, a declaration that the applicant is a migratory worker or seasonal worker as defined in Section 2699.6500.

(EE) If applicable, the applicant's signed authorization that the program may release information over the telephone about the application status of the individual(s) applied for by the applicant to a representative of the enrollment entity designated by the applicant on the application. This permission will end on the date the program mails the results of the eligibility determination on this application.

(FF) If the applicant received assistance from a certified application assistant, the applicant's signed authorization (if applicable) that the program may release information notifying the entity with whom the certified application assistant is affiliated of the applicant's Annual Eligibility Review date.

(GG) If an applicant or the person for whom application is being made is American Indian or Alaska Native, acceptable documentation must be submitted to exempt the applicant from family contribution payments and benefit copayments. The exemption from family contributions and benefit copayments shall occur after receipt of such documentation. Notwithstanding the previous sentence, the exemption from family contributions will begin on the date of enrollment and continue for two months pending the receipt of acceptable documentation. If acceptable documentation is not received at the end of the two month exemption period, the appropriate family contribution will be assessed pursuant to Subsection 2699.6813(a). The applicant must indicate on the application that he or she is requesting a waiver of the family contributions. Acceptable documentation for the applicant or the child includes:

1. An American Indian or Alaskan Native enrollment document from a federally recognized tribe, or

2. A Certificate Degree of Indian Blood (CDIB) from the Bureau of Indian Affairs, or

3. A letter of Indian heritage from an Indian Health Service supported facility operating in the State of California.

(HH) An indication of how the applicant learned about Medi-Cal and the program.

(II) An indication whether the applicant would like information sent to them regarding the Child Health and Disability Prevention Program (CHDP) for children and youth or the Women, Infants and Children (WIC) program.

(2) The Social Security numbers and other personal information are needed for identification and administrative purposes.

(d) For children referred pursuant to Section 14005.41 of the Welfare and Institutions Code, the program shall use the following to make an eligibility determination:

(1) For each child for whom the applicant is applying, the child's school lunch application forwarded pursuant to Section 49557.2 of the Education Code and Section 14005.41 of the Welfare and Institutions Code; and

(2) Supplemental Form for Express Enrollment Applicants (MC 368 (06/05)); and

(3) A letter or Notice of Action from the County Welfare Office issued within the last two (2) months that includes:

(A) For each person for whom application is being made, a statement that the person is eligible for share-of-cost Medi-Cal; and

(B) A determination of total monthly household income and monthly household income after income deductions as defined in Section 2699.6500; and

(4) Any additional information requested by the program pursuant to Subsection 2699.6600(c)(1)(C), (F)15., (G), (M)-(Q), (U)-(W), (AA), (BB)1.-2., (DD), (GG).

NOTE

Authority cited: Sections 12693.21, 12693.22, 12693.75 and 12693.755, Insurance Code; and Section 14005.41, Welfare and Institutions Code. Reference: Sections 12693.02, 12693.21, 12693.22, 12693.43, 12693.46, 12693.70, 12693.71, 12693.73, 12693.74, 12693.75 and 12693.755, Insurance Code.

HISTORY

1. New article 2 (sections 2699.6600-2699.6629) and section filed 2-20-98 as an emergency; operative 2-20-98 (Register 98, No. 8). A Certificate of Compliance must be transmitted to OAL by 6-22-98 or emergency language will be repealed by operation of law on the following day.

2. Certificate of Compliance as to 2-20-98 order transmitted to OAL 6-5-98 and filed 7-15-98 (Register 98, No. 29).

3. Amendment filed 12-14-98 as an emergency; operative 12-14-98 (Register 98, No. 51). A Certificate of Compliance must be transmitted to OAL by 4-13-99 or emergency language will be repealed by operation of law on the following day.

4. Certificate of Compliance as to 12-14-98 order transmitted to OAL 3-25-99 and filed 5-6-99 (Register 99, No. 19).

5. Amendment filed 5-26-99 as an emergency; operative 5-26-99 (Register 99, No. 22). A Certificate of Compliance must be transmitted to OAL by 9-23-99 or emergency language will be repealed by operation of law on the following day.

6. New subsection (c)(1)(EE) filed 8-5-99 as an emergency; operative 8-5-99 (Register 99, No. 32). A Certificate of Compliance must be transmitted to OAL by 12-3-99 or emergency language will be repealed by operation of law on the following day.

7. Certificate of Compliance as to 5-26-99 order transmitted to OAL 9-17-99 and filed 10-28-99 (Register 99, No. 44).

8. Certificate of Compliance as to 8-5-99 order, including new text for subsection (c)(1)(J), transmitted to OAL 10-29-99 and filed 12-3-99 (Register 99, No. 49).

9. Amendment of section and Note filed 1-10-2000 as an emergency; operative 1-10-2000 (Register 2000, No. 2). A Certificate of Compliance must be transmitted to OAL by 5-9-2000 or emergency language will be repealed by operation of law on the following day.

10. Amendment of subsection (a) and new subsections (c)(1)(FF)-(c)(1)(FF)3. filed 3-21-2000 as an emergency; operative 3-21-2000 (Register 2000, No. 12). A Certificate of Compliance must be transmitted to OAL by 7-19-2000 or emergency language will be repealed by operation of law on the following day.

11. Certificate of Compliance as to 1-10-2000 order transmitted to OAL 5-5-2000 and filed 6-16-2000 (Register 2000, No. 24).

12. Certificate of Compliance as to 3-21-2000 order, including further amendment of subsections (c)(1)(FF)2.-3., transmitted to OAL 6-23-2000 and filed 7-17-2000 (Register 2000, No. 29).

13. Amendment of subsections (a) and (c)(AA)3. filed 9-5-2000; operative 9-5-2000 pursuant to Government Code 11343.4(d) (Register 2000, No. 36).

14. Amendment of section and Note filed 4-29-2002 as an emergency; operative 4-29-2002 (Register 2002, No. 18). Pursuant to Chapter 946, Statutes of 2000, section 2, a Certificate of Compliance must be transmitted to OAL by 10-28-2002 or emergency language will be repealed by operation of law on the following day.

15. Certificate of Compliance as to 4-29-2002 order, including further amendment of subsections (c)(1)(N) and (c)(1)(EE), transmitted to OAL 10-28-2002 and filed 12-12-2002 (Register 2002, No. 50).

16. Amendment of subsections (a)(3), (a)(4), (a)(5) and (c)(1)(Q), repealer of subsections (c)(1)(Z)4. and (c)(1)(BB) and subsection relettering filed 7-31-2003 as an emergency; operative 7-31-2003 (Register 2003, No. 31). A Certificate of Compliance must be transmitted to OAL by 1-27-2004 or emergency language will be repealed by operation of law on the following day.

17. Certificate of Compliance as to 7-31-2003 order transmitted to OAL 11-17-2003 and filed 12-30-2003 (Register 2004, No. 1).

18. Amendment filed 7-1-2004 as an emergency; operative 7-1-2004 (Register 2004, No. 27). Pursuant to Section 80, A.B. 1762 (Chapter 230, Stats. 2003) a Certificate of Compliance must be transmitted to OAL by 12-28-2004 or emergency language will be repealed by operation of law on the following day.

19. Certificate of Compliance as to 7-1-2004 order, including amendment of subsection (c)(1)(S)(3)., transmitted to OAL 11-24-2004 and filed 1-7-2005 (Register 2005, No. 1).

20. Amendment of subsection (a)(3) filed 6-30-2005 as an emergency; operative 6-30-2005 (Register 2005, No. 26). Pursuant to Insurance Code section 12693.43(h), a Certificate of Compliance must be transmitted to OAL by 12-27-2005 or emergency language will be repealed by operation of law on the following day.

21. Certificate of Compliance as to 6-30-2005 order transmitted to OAL 10-5-2005 and filed 11-16-2005 (Register 2005, No. 46).

22. Amendment of subsection (a)(6), new subsections (d)-(d)(4) and amendment of Note filed 2-9-2006 as an emergency; operative 2-9-2006 (Register 2006, No. 6). Pursuant to subsection (c) of section 12693.75 of the Insurance Code, the adoption of this regulatory action is deemed an emergency, exempt from review by the Office of Administrative Law, and shall remain in effect for not more than 180 days unless readopted.

23. Certificate of Compliance as to 2-9-2006 order transmitted to OAL 7-21-2006 and filed 8-29-2006 (Register 2006, No. 35).

24. Amendments to subsection (a) deemed an emergency and exempt from OAL review pursuant to Section 75 of Chapter 74, Statutes of 2006, filed 7-31-2007; operative 7-31-2007 (Register 2007, No. 31). A Certificate of Compliance must be transmitted to OAL by 1-28-2008 or emergency language will be repealed by operation of law on the following day. Amendments of subsection (c)(1)(AA)(2) and (c)(1)(BB)(1) filed 7-31-2007 as an emergency; operative 7-31-2007 (Register 2007, No. 31). A Certificate of Compliance must be transmitted to OAL by 1-28-2008 or emergency language will be repealed by operation of law on the following day.

25. Certificate of Compliance as to 7-31-2007 order, including amendment of subsection (a)(4) operative 4-11-2008, transmitted to OAL 1-28-2008 and filed 3-12-2008 (Register 2008, No. 11).

26. New subsections (c)(1)(BB)1.a.i.-(c)(1)(BB)1.b.iii and amendment of Note filed 10-29-2009; operative 11-1-2009 pursuant to Government Code section 11346.1(d) (Register 2009, No. 44). A Certificate of Compliance must be transmitted to OAL by 4-30-2010 or emergency action will be repealed by operation of law on the following day. This regulatory action is deemed to meet the emergency standard and is exempt from OAL review pursuant to Insurance Code section 12693.22.

27. Certificate of Compliance as to 10-29-2009 order transmitted to OAL 4-27-2010 and filed 6-9-2010 (Register 2010, No. 24).

§2699.6602. Early Applications.

Note • History

An applicant may apply to the program in advance for persons who are not eligible at the time of application, but who the applicant believes will become eligible within three (3) months because of one of the following:

(a) They are currently enrolled in the Medi-Cal 200% Program and will become one year old.

(b) They are currently enrolled in the Medi-Cal 133% Program and will become age 6.

(c) They are currently on Medi-Cal for at least one month of continued eligibility under no cost, full scope Medi-Cal and have been notified by the county welfare office that coverage is ending.

(d) It is anticipated that the child will be born. When the child is born, an applicant must submit documentation of the child's birth to the program, and must include the child's name, place and date of birth, and gender. The documentation and information must be received by the program within thirty (30) days from the birth for a child to be eligible pursuant to this section. Acceptable forms of documentation include a certificate of birth provided by a hospital or other health care facility, a signed statement by the health practitioner who presided over the delivery, or an equivalent document.

NOTE

Authority cited: Section 12693.21, Insurance Code. Reference: Sections 12693.21 and 12693.70 Insurance Code.

HISTORY

1. Renumbering of former section 2699.6603 to new section 2699.6602 filed 11-30-2007 as an emergency; operative 11-30-2007 (Register 2007, No. 48). A Certificate of Compliance must be transmitted to OAL by 5-28-2008 or emergency language will be repealed by operation of law on the following day.

2. Certificate of Compliance as to 11-30-2007 order transmitted to OAL 5-28-2008 and filed 7-7-2008 (Register 2008, No. 28).

§2699.6603. Board Determinations.

Note • History

(b)(1) If the Board makes a finding that sufficient funds are not available to cover the estimated cost of program expenditures and that, in addition to limiting new enrollment in the program, it is necessary to terminate subscribers in the program to ensure that expenditures do not exceed amounts available for the program, subscriber children shall be disenrolled from the program at the end of the month of their anniversary date following their Annual Eligibility Reviews. The program shall not effectuate disenrollments pursuant to this subsection unless it also has established a waiting list pursuant to subsection (a) of this section and is not currently enrolling additional children on the basis of new applications or Add-A-Person forms.

(2) Subscriber children who are determined by the California Children's Services Program (CCS) to be currently enrolled for benefits under CCS pursuant to Article 5 (commencing with Section 123800) of Chapter 3 of Part 2 of Division 106 of the Health and Safety Code and financially eligible solely because they are deemed to be income-eligible for CCS pursuant to paragraph 2 of subdivision (a) of Section 123870 of the Health and Safety Code shall not be subject to disenrollment pursuant to this section.

(c) If the Executive Director determines that sufficient funds are available to cover the estimated cost of program expenditures for all eligible subscriber children, the program shall cease the disenrollment of eligible subscriber children pursuant to subsection (b) of this section during Annual Eligibility Review.

(d)(1) If the Executive Director determines that in addition to sufficient funds for all eligible subscriber children, sufficient funds are available to cover the estimated cost of program expenditures for some or all children on the waiting list, the program shall review applications for children on the waiting list in the order of their effective dates on the waiting list.

(2) If the Executive Director determines that sufficient funds are available to cover the estimated costs of program expenditures, the program shall cease to operate a waiting list after processing the applications, including Annual Eligibility Review submissions, and Add-A-Person forms of all children on the waiting list.

(e) The provisions of subsection (f) of this section shall apply only if terms or conditions applicable to the finding provided for program expenditures do not apply uniformly to all applicants and subscriber children and if, as a result, funding for program expenditures is not available to be spent for the benefit of all applicants and subscriber children equally.

(f) If necessary, and to the extent necessary, to reflect terms or conditions applicable to the funding provided for program expenditures, the Board or the Executive Director, as applicable pursuant to subsections (a) through (d), inclusive, of section 2699.6603, shall apply the provisions of this section and of section 2699.6604 to one or more groups of applicants or subscriber children independent of the provisions' application to other applicants or subscribers children.

NOTE

Authority cited: Section 12693.21, Insurance Code. Reference: Sections 12693.21 and 12693.96, Insurance Code.

HISTORY

1. New section filed 2-20-98 as an emergency; operative 2-20-98 (Register 98, No. 8). A Certificate of Compliance must be transmitted to OAL by 6-22-98 or emergency language will be repealed by operation of law on the following day.

2. Certificate of Compliance as to 2-20-98 order transmitted to OAL 6-5-98 and filed 7-15-98 (Register 98, No. 29).

3. Amendment of subsection (a) and new subsection (d) filed 1-10-2000 as an emergency; operative 1-10-2000 (Register 2000, No. 2). A Certificate of Compliance must be transmitted to OAL by 5-9-2000 or emergency language will be repealed by operation of law on the following day.

4. Certificate of Compliance as to 1-10-2000 order transmitted to OAL 5-5-2000 and filed 6-16-2000 (Register 2000, No. 24).

5. Renumbering of former section 2699.6603 to section 2699.6602 and new section 2699.6603 filed 11-30-2007 as an emergency; operative 11-30-2007 (Register 2007, No. 48). A Certificate of Compliance must be transmitted to OAL by 5-28-2008 or emergency language will be repealed by operation of law on the following day.

6. Certificate of Compliance as to 11-30-2007 order transmitted to OAL 5-28-2008 and filed 7-7-2008 (Register 2008, No. 28).

7. Redesignation and amendment of former subsection (b) as new subsection (b)(1) and new subsections (b)(2), (e) and (f) filed 5-1-2009 as an emergency; operative 5-1-2009 (Register 2009, No. 18). A Certificate of Compliance must be transmitted to OAL by 10-28-2009 or emergency language will be repealed by operation of law on the following day.

8. Certificate of Compliance as to 5-1-2009 order transmitted to OAL 10-28-2009 and filed 12-8-2009 (Register 2009, No. 50).

§2699.6604. Waiting List for Children.

Note • History

(a) If the program has established and is operating a waiting list pursuant to Section 2699.6603, children for whom the program has received applications or Add-A-Person forms shall be placed on the waiting list in the order their applications or Add-A-Person forms were received. A child's effective date on the waiting list shall be the date on which the program received the child's application. An eligibility determination shall not be made until the Executive Director has made a determination pursuant to Section 2699.6603(d) and the applicant provides all supporting documentation pursuant to subsection (d)(2) of this section.

(b) If the Board makes a finding pursuant to Section 2699.6603(b), each subscriber child disenrolled at Annual Eligibility Review pursuant to Section 2699.6603(b) shall be placed on the waiting list and the subscriber child's effective date on the waiting list shall be his or her disenrollment date.

(c) When the program places a child on the waiting list pursuant to subsections (a) or (b) of this section, the program shall provide the applicant with written notification of the child's placement on the waiting list.

(d) When the Executive Director determines, pursuant to Section 2699.6603(d), that sufficient funds are available to cover some or all eligible children who are not currently enrolled, the program shall enroll the number of eligible wait-listed children for whom sufficient funds are available, as follows:

(1) (A) The program shall first enroll those children who are on the waiting list because they were disenrolled at Annual Eligibility Review pursuant to Section 2699.6603(b). The program shall enroll these children in the order of their effective dates on the waiting list, starting with those who have the earliest effective date.

(B) If and when there are no remaining children who are on the waiting list because they were disenrolled at Annual Eligibility Review pursuant to Section 2699.6603(b), the program shall, to the extent that sufficient funds are available, enroll additional wait-listed children in the order of their effective dates on the waiting list, starting with those who have the earliest effective date.

(2) When sufficient funds are available to enroll a child based on that child's placement on the waiting list, the program shall provide the applicant with written notification. In that notice, the program shall request any necessary information pursuant to Sections 2699.6600 and 2699.6606 and any updates to information that no longer is current, pursuant to Section 2699.6600. The program shall then make an eligibility determination in accordance with Sections 2699.6606 and 2699.6607 and shall enroll the child if he or she is eligible.

NOTE

Authority cited: Section 12693.21, Insurance Code. Reference: Sections 12693.21 and 12693.96, Insurance Code

HISTORY

1. New section filed 11-30-2007 as an emergency; operative 11-30-2007 (Register 2007, No. 48). A Certificate of Compliance must be transmitted to OAL by 5-28-2008 or emergency language will be repealed by operation of law on the following day.

2. Certificate of Compliance as to 11-30-2007 order transmitted to OAL 5-28-2008 and filed 7-7-2008 (Register 2008, No. 28).

§2699.6605. Initial Review of Application for Child-Linked Adults.

Note • History

(a) Upon receipt of an application or an Add a Person Application form, the program shall determine if there is funding available for additional enrollment of child-linked adults in the program.

(b)(1) If there is no funding available for coverage of child-linked adults and the Board estimates that the program will be closed to new enrollment of child-linked adults for less than six (6) consecutive weeks, applications will be reviewed for completeness as set forth in Section 2699.6606 below and if complete, for eligibility. For persons age 19 and over who are determined to be eligible, the program will retain the applicant's family parent contributions payment to use to enroll the eligible child-linked adult(s) in the program once a vacancy opens in the program. The applicant may request a refund of the family parent contributions payment but the child-linked adult for whom enrollment was requested will be removed from the program waiting list. Persons age 19 and over for whom application is being made who are determined to be eligible will be placed on a waiting list in the following categories:

(A) Child-linked adults with an annual household income after income deductions of up to and including 100 percent of the federal poverty level.

(B) Child-linked adults with an annual household income after income deductions greater than 100 percent and up to and including 150 percent of the federal poverty level.

(C) Child-linked adults with an annual household income after income deductions greater than 150 percent and up to and including 200 percent of the federal poverty level.

(2) The waiting list will be maintained as follows:

(A) Child-linked adults in category (b)(1)(B) will be placed ahead of child-linked adults in category (b)(1)(C) on the waiting list. Child-linked adults in category (b)(1)(A) will be placed ahead of child-linked adults in category (b)(1)(B) on the waiting list.

(B) Within each category, persons for whom application is being made who are determined to be eligible will be listed in the order in which completed applications were received by the program.

(C) Each applicant shall be notified of placement on the waiting list. When a vacancy occurs or funds become available, whichever is applicable, persons for whom application is being made shall be enrolled in the order in which they appear on the waiting list.

(c) If there is no funding available and the Board estimates that the program will be closed to new enrollment for six (6) consecutive weeks or more for child-linked adults, the program will so notify applicants on behalf of child-linked adults. The program will apply the family parent contributions to the family child contributions for that household unless the applicant request a refund of the family parent contributions. The program shall refund the applicant's family parent contributions if there is no subscriber child in the household. When funds become available, the program will notify these applicants that the program is opening for new enrollment. To request coverage when the program opens for new enrollment, an applicant who previously applied for enrollment for a child-linked adult when the program was closed to new enrollment for six (6) consecutive weeks or more will be required to submit a new application pursuant to Section 2699.6600.

(d) If there is funding available, or there is no funding available for coverage of child-linked adults but the Board estimates that the program will be closed to such new enrollment for less than six (6) consecutive weeks, the application shall be reviewed for completeness pursuant to Section 2699.6606.

NOTE

Authority cited: Sections 12693.21 and 12693.755, Insurance Code. Reference: Sections 12693.21 and 12693.755, Insurance Code.

HISTORY

2. Certificate of Compliance as to 2-20-98 order transmitted to OAL 6-5-98 and filed 7-15-98 (Register 98, No. 29).

3. Amendment filed 5-26-99 as an emergency; operative 5-26-99 (Register 99, No. 22). A Certificate of Compliance must be transmitted to OAL by 9-23-99 or emergency language will be repealed by operation of law on the following day.

4. Certificate of Compliance as to 5-26-99 order, including further amendment of subsections (b)(1)-(3), transmitted to OAL 9-17-99 and filed 10-28-99 (Register 99, No. 44).

5. Amendment of section and Note filed 4-29-2002 as an emergency; operative 4-29-2002 (Register 2002, No. 18). Pursuant to Chapter 946, Statutes of 2000, section 2, a Certificate of Compliance must be transmitted to OAL by 10-28-2002 or emergency language will be repealed by operation of law on the following day.

6. Certificate of Compliance as to 4-29-2002 order transmitted to OAL 10-28-2002 and filed 12-12-2002 (Register 2002, No. 50).

7. Amendment of section heading filed 11-30-2007 as an emergency; operative 11-30-2007 (Register 2007, No. 48). A Certificate of Compliance must be transmitted to OAL by 5-28-2008 or emergency language will be repealed by operation of law on the following day.

8. Certificate of Compliance as to 11-30-2007 order transmitted to OAL 5-28-2008 and filed 7-7-2008 (Register 2008, No. 28).

§2699.6606. Review of Applications for Completeness.

Note • History

(a) All applications and Add a Person Forms shall be reviewed for completeness, except for applications, Add a Person Forms, and documentation solely applicable to child-linked adults if there is no funding available and the Board estimates that the program will be closed to new enrollment for six (6) consecutive weeks or more.

(b) An application that is complete except for documentation required by Section 2699.6600(c)(1)(T) shall be considered complete.

(1) If the application is incomplete, a telephone call will be placed to the applicant to request the missing information and documentation. If the applicant is reached, the applicant will be asked to provide the necessary information and documentation. If the applicant is not reached by telephone, a notice indicating the required information and documentation will be mailed. The applicant must provide all information and documentation necessary for the application to be complete within seventeen (17) calendar days from the date the application was received by the program, and the applicant will be so notified.

(2) If the application submitted is not complete and it is not completed within seventeen (17) calendar days, the application shall be denied. The applicant shall be sent a notice indicating that their application is denied on the basis that the program could not make an eligibility determination because of missing information or documentation.

(3) If the application is complete or is completed within seventeen (17) calendar days, it will be reviewed for an eligibility determination.

NOTE

Authority cited: Sections 12693.21 and 12693.755, Insurance Code. Reference: Section 12693.21, Insurance Code.

HISTORY

1. New section filed 4-29-2002 as an emergency; operative 4-29-2002 (Register 2002, No. 18). Pursuant to Chapter 946, Statutes of 2000, section 2, a Certificate of Compliance must be transmitted to OAL by 10-28-2002 or emergency language will be repealed by operation of law on the following day.

2. Certificate of Compliance as to 4-29-2002 order transmitted to OAL 10-28-2002 and filed 12-12-2002 (Register 2002, No. 50).

3. Amendment of subsections (a)-(b) filed 7-1-2004 as an emergency; operative 7-1-2004 (Register 2004, No. 27). Pursuant to Section 80, A.B. 1762 (Chapter 230, Stats. 2003) a Certificate of Compliance must be transmitted to OAL by 12-28-2004 or emergency language will be repealed by operation of law on the following day.

4. Certificate of Compliance as to 7-1-2004 order transmitted to OAL 11-24-2004 and filed 1-7-2005 (Register 2005, No. 1).

§2699.6607. Determination of Eligibility.

Note • History

(a) Except as specified in Section 2699.6605, the program shall complete the application review process within ten (10) calendar days of receipt of the complete application or Add a Person Form unless the program is waiting for necessary information pursuant to Subsection 2699.6606(b)(1) and (2) or is requesting information pursuant to Subsection 2699.6600(c)(1)(BB)(1). For those applications, the program shall complete the application review process within twenty (20) calendar days of receipt of the original application or Add a Person Form.

(1) The program shall determine eligibility for each person age 18 or under based upon the criteria specified in Insurance Code Sections 12693.70, 12693.73 and 12693.76 and this section.

(2) The program shall determine eligibility for each person age 19 and over based on the criteria specified in this section. Notwithstanding any other provision of this Chapter, the first date on which any person age 19 or over shall be eligible for the program is the parental coverage start date. In addition to the criteria applicable to all potential subscribers, to be a child-linked adult eligible to participate in the program, a person age 19 or over must meet all the following requirements:

(A) Is not eligible for no-cost full-scope, or pregnancy-related, Medi-Cal or Medicare Part A and B at the time of enrollment in the program.

(B) Is a resident of the State of California pursuant to Section 244 of the Government Code; or is physically present in California and entered the state with a job commitment or to seek employment.

(C) Is in a family with an annual or monthly household income after income deductions of up to and including 200 percent of the federal poverty level. Any income deduction that is applicable to a child under Medi-Cal shall be applied in determining the annual or monthly household income.

(D) If a person age 19 or over for whom enrollment in the program is requested has an annual or monthly household income after income deductions of 100 percent of the federal poverty level or below, a letter or Notice of Action from the County Welfare Office issued within the last two (2) months must state that the individual is not eligible for no-cost Medi-Cal for a reason other than:

1. failure to provide information requested by Medi-Cal or

2. termination from no-cost Medi-Cal at his or her own request.

(E) Notwithstanding 2699.6607(a)(2)(D), legal guardians applying to the program for coverage with an annual household income after income deductions of 100 percent of the federal poverty level or below do not need to provide a Notice of Action from the County Welfare Office.

(F) Meets the definition of child-linked adult as defined in Section 2699.6500.

(G) Has a qualifying event as defined in Section 2699.6500 or applies pursuant to Section 2699.6631 for the first year following the parental coverage start date.

(3) If the program does not have the documentation required by Subsection 2699.6600(c)(1)(T), the person shall be temporarily deemed to meet citizenship or immigration criteria until such documentation is submitted or until the time for submitting documentation established in Subsection 2699.6600(c)(1)(T) has expired, whichever is sooner.

(b) The program shall disregard any stepparent's income in determining income eligibility for a stepchild.

(d) If any persons for whom application is being made currently have employer sponsored health coverage, these persons shall be determined ineligible. If employer sponsored health coverage was terminated for any persons for whom application is being made within the last three (3) months, these persons shall be determined ineligible, unless the reason for the termination is one of the following:

(1) The person through whom the employer sponsored coverage had been available either

(A) lost employment or experienced a change in employment status,

(B) changed address to a zip code that is not covered by the employer-sponsored coverage,

(C) lost health benefits because the person's employer discontinued health benefits to all employees or dependents, or ceased to provide coverage or contributions for one or more categories of employees or dependents, or

(D) lost coverage because of death of the individual through whom the children or child-linked adults were covered, or a legal separation or divorce from the individual through whom the children or child-linked adults were covered.

(2) The person for whom application is being made was covered under a COBRA policy, and the COBRA coverage period has ended.

(3) The person for whom application is being made had coverage provided under an exemption authorized under subdivision (i) of Section 1367 of the Health and Safety Code.

(e)(1) Subject to paragraph (2) below, an alien shall only be eligible for the program if the alien is a qualified alien.

(2)(A) In any fiscal year that the annual Budget Act provides the necessary funding, a person who is a qualified alien shall not be determined ineligible solely on the basis on his or her date of entry into the United States. If the annual Budget Act does not provide the necessary funding, and except as provided in subparagraph (B) below, a person who is a qualified alien and who entered or enters the United States on or after August 22, 1996, is not eligible for a period of five years beginning on the date of the alien's entry into the United States with a status within the meaning of the term qualified alien.

(B) The limitation under paragraph (2)(A) above shall not apply to the following aliens:

1. An alien who is admitted to the United States as refugee under Section 207 of the Immigration and Naturalization Act (INA).

2. An alien who is granted asylum under Section 208 of the INA.

3. An alien whose deportation is being withheld under Section 243(h) of the INA (8 U.S.C. Section 1230(h)) (as in effect immediately before the effective date (April 1, 1997) of Section 307 of Division (C) of Public Law 104-208) or Section 241(b)(3) of the INA (8 U.S.C. Section 1251(b)(3) (as amended by Section 305(a) of Division C of Public Law 104-208).

4. An alien who is a Cuban or Haitian entrant as defined in Section 501(e) of the Refugee Education Assistance Act of 1980.

5. An alien admitted to the United States as an Amerasian immigrant as described in Section 1612(a)(2)(A)(v.) of Title 8 of the United States Code.

6. An alien who is lawfully residing in any state and is any of the following:

a. A veteran (as defined in Section 101, 1101, or 1301, or as described in Section 107 of Title 38 of the United States Code) with a discharge characterized as an honorable discharge and not on account of alienage and who fulfills the minimum active-duty service requirement of Section 5303A(d) of Title 38 of the United States Code.

b. On active duty (other than active duty for training) in the Armed Forces of the United States.

c. The spouse or unmarried dependent child of an individual described in subparagraph a. or b. or the unremarried surviving spouse of an individual described in subparagraph a. or b. who is deceased if the marriage fulfills the requirements of Section 1304 of Title 38 of the United States Code.

(3) The program shall verify the status of any person for whom application is being made to confirm that the person is a citizen, a non-citizen national of the United States, or a qualified alien.

(f) If the applicant does not select a health, dental and/or vision plan and the person being applied for is eligible for the program, the program shall assign the health, dental and/or vision plan as follows:

(1) Automatic assignment of the health plan to the community provider plan. If the community provider plan is not available, alternate assignment to an available health plan; and/or

(2) Alternate assignment of the dental and/or vision plan.

(3) Assignment of the dental plan shall be made pursuant to Section 2699.6600(c)(1)(BB)1. and 2699.6623.

(g) If application was made pursuant to Section 2699.6602(d), eligibility is contingent upon receipt by the program of documentation of the child's birth within thirty (30) days of the birth.

(h) Applicants will be notified in writing of the eligibility determination for each person applied for. If a person is determined ineligible the notice shall include the reason for the determination of ineligibility and an explanation of the appeal process. The family contribution for any persons determined ineligible which was included with the application shall be refunded. If appropriate, and if permission is given by the applicant, the application shall be forwarded to the Medi-Cal program for eligibility determination.

NOTE

Authority cited: Sections 12693.21, 12693.22 and 12693.755, Insurance Code. Reference: Sections 12693.21, 12693.22, 12693.70, 12693.71, 12693.73 and 12693.755, Insurance Code.

HISTORY

2. Certificate of Compliance as to 2-20-98 order transmitted to OAL 6-5-98 and filed 7-15-98 (Register 98, No. 29).

3. Amendment of subsection (a) filed 12-14-98 as an emergency; operative 12-14-98 (Register 98, No. 51). A Certificate of Compliance must be transmitted to OAL by 4-13-99 or emergency language will be repealed by operation of law on the following day.

4. Certificate of Compliance as to 12-14-98 order transmitted to OAL 3-25-99 and filed 5-6-99 (Register 99, No. 19).

5. Amendment of subsections (a) and (e) filed 5-26-99 as an emergency; operative 5-26-99 (Register 99, No. 22). A Certificate of Compliance must be transmitted to OAL by 9-23-99 or emergency language will be repealed by operation of law on the following day.

6. Certificate of Compliance as to 5-26-99 order, including further amendment of subsections (a) and (c), transmitted to OAL 9-17-99 and filed 10-28-99 (Register 99, No. 44).

7. Amendment of subsections (a) and (d)(1), new subsection (e) and subsection relettering filed 1-10-2000 as an emergency; operative 1-10-2000 (Register 2000, No. 2). A Certificate of Compliance must be transmitted to OAL by 5-9-2000 or emergency language will be repealed by operation of law on the following day.

8. Certificate of Compliance as to 1-10-2000 order, including amendment of subsections (d)(2)(B)4. and (f), transmitted to OAL 5-5-2000 and filed 6-16-2000 (Register 2000, No. 24).

9. Amendment of subsection (f) filed 9-5-2000; operative 9-5-2000 pursuant to Government Code 11343.4(d) (Register 2000, No. 36).

10. Amendment of section and Note filed 4-29-2002 as an emergency; operative 4-29-2002 (Register 2002, No. 18). Pursuant to Chapter 946, Statutes of 2000, section 2, a Certificate of Compliance must be transmitted to OAL by 10-28-2002 or emergency language will be repealed by operation of law on the following day.

11. Certificate of Compliance as to 4-29-2002 order, including new subsection (a)(2)E), subsection relettering and amendment of newly designated subsection (a)(2)(G) and subsection (d)(2), transmitted to OAL 10-28-2002 and filed 12-12-2002 (Register 2002, No. 50).

12. Amendment of subsections (a)(1)-(2) and (e)(2)(B)5. filed 7-31-2003 as an emergency; operative 7-31-2003 (Register 2003, No. 31). A Certificate of Compliance must be transmitted to OAL by 1-27-2004 or emergency language will be repealed by operation of law on the following day.

13. Certificate of Compliance as to 7-31-2003 order transmitted to OAL 11-17-2003 and filed 12-30-2003 (Register 2004, No. 1).

14. Amendment of subsections (a) and (a)(3) filed 7-1-2004 as an emergency; operative 7-1-2004 (Register 2004, No. 27). Pursuant to Section 80, A.B. 1762 (Chapter 230, Stats. 2003) a Certificate of Compliance must be transmitted to OAL by 12-28-2004 or emergency language will be repealed by operation of law on the following day.

15. Certificate of Compliance as to 7-1-2004 order transmitted to OAL 11-24-2004 and filed 1-7-2005 (Register 2005, No. 1).

16. Editorial correction of subsection (g) (Register 2007, No. 30).

17. Amendment of subsections (a) and (f) filed 7-31-2007 as an emergency; operative 7-31-2007 (Register 2007, No. 31). A Certificate of Compliance must be transmitted to OAL by 1-28-2008 or emergency language will be repealed by operation of law on the following day.

18. Amendment of subsection (g) filed 11-30-2007 as an emergency; operative 11-30-2007 (Register 2007, No. 48). A Certificate of Compliance must be transmitted to OAL by 5-28-2008 or emergency language will be repealed by operation of law on the following day.

19. Certificate of Compliance as to 7-31-2007 order transmitted to OAL 1-28-2008 and filed 3-12-2008 (Register 2008, No. 11).

20. Certificate of Compliance as to 11-30-2007 order transmitted to OAL 5-28-2008 and filed 7-7-2008 (Register 2008, No. 28).

21. New subsection (f)(3) and amendment of Note filed 10-29-2009; operative 11-1-2009 pursuant to Government Code section 11346.1(d) (Register 2009, No. 44). A Certificate of Compliance must be transmitted to OAL by 4-30-2010 or emergency action will be repealed by operation of law on the following day. This regulatory action is deemed to meet the emergency standard and is exempt from OAL review pursuant to Insurance Code section 12693.22.

22. Certificate of Compliance as to 10-29-2009 order transmitted to OAL 4-27-2010 and filed 6-9-2010 (Register 2010, No. 24).

§2699.6608. Enrollment of AIM Infants.

Note • History

(a) An AIM infant, who is born prior to July 1, 2007, shall be enrolled without application when the program receives the required family child contribution beginning with the first full month of coverage pursuant to Section 2699.6613(g), and the following information about the infant from the AIM infant's mother at any time through the end of the eleventh month following the month of birth:

(1) Name; and

(2) Date of birth; and

(3) Sex.

(b) An AIM infant, who is born on or after July 1, 2007, shall be enrolled without application provided the infant is not enrolled in no-cost full scope Medi-Cal, meets the eligibility requirements pursuant to Section 2699.6607(d), and the following information about the infant from the AIM infant's mother is provided at any time through the end of the eleventh month following the month of birth. Coverage shall begin pursuant to Subsection 2699.6613(h).

(1) Name; and

(2) Date of birth; and

(3) Sex; and

(4) Information on whether or not the infant currently is enrolled in employer sponsored health coverage and the date coverage began; and

(5) Information on whether or not the infant was previously enrolled in employer sponsored health coverage, the date coverage began, the date in which coverage terminated, and the reasons for termination.

(c) The program shall request information from the AIM infant's mother, on the AIM infant's weight at birth and primary care provider.

(d) In lieu of reporting by the AIM infant's mother, the program must also accept the information specified in subsections (a) and (c) from the AIM infant's mother's health plan or a health care provider that provided services to the AIM infant's mother or the AIM infant.

(e) Upon receipt of the family child contribution and the information specified in subsection (a), or the information as specified in subsection (b), the program shall automatically enroll the eligible infant in the same health plan within the Healthy Families Program that the AIM infant's mother is enrolled in through the AIM program.

(f) Automatic enrollment of AIM infants (born before July 1, 2007) is subject to payment of family child contributions and timely notification of the infant's birth as provided in (a).

(g) Enrollment of eligible AIM infants (born on or after July 1, 2007) is subject to timely notification of the infant's borth as provided in (b).

(h) Notwithstanding subsection (a) or (b) of this section, infants in need of immediate health care services will be immediately enrolled in the program if: (1) the AIM infant's mother's health plan notifies the program in writing of the need for services and provides the information specified in subsection (a) or (b) of this section; and (2) this written notification occurs no later than the 10th day of the second full calendar month of the infant's life. For infants enrolled pursuant to this subsection (h), the required family child contribution shall be billed to the AIM mother. If the required family child contribution is not paid, the provisions of this article concerning disenrollment for failure to pay the required family child contribution shall govern.

NOTE

Authority cited: Sections 12693.21 and 12693.755, Insurance Code. Reference: Sections 12693.21, 12693.70, 12693.71, 12693.73, 12693.755 and 12693.756, Insurance Code.

HISTORY

1. New section filed 7-1-2004 as an emergency; operative 7-1-2004 (Register 2004, No. 27). Pursuant to Section 80, A.B. 1762 (Chapter 230, Stats. 2003) a Certificate of Compliance must be transmitted to OAL by 12-28-2004 or emergency language will be repealed by operation of law on the following day.

2. Certificate of Compliance as to 7-1-2004 order transmitted to OAL 11-24-2004 and filed 1-7-2005 (Register 2005, No. 1).

3. Amendment deemed an emergency and exempt from OAL review pursuant to Section 75 of Chapter 74, Statutes of 2006, filed 7-31-2007; operative 7-31-2007 (Register 2007, No. 31). A Certificate of Compliance must be transmitted to OAL by 1-28-2008 or emergency language will be repealed by operation of law on the following day.

4. Amendment of subsections (a) and (b) filed 11-30-2007 as an emergency; operative 11-30-2007 (Register 2007, No. 48). A Certificate of Compliance must be transmitted to OAL by 5-28-2008 or emergency language will be repealed by operation of law on the following day.

5. Certificate of Compliance as to 7-31-2007 order transmitted to OAL 1-28-2008 and filed 3-12-2008 (Register 2008, No. 11).

6. Certificate of Compliance as to 11-30-2007 order transmitted to OAL 5-28-2008 and filed 7-7-2008 (Register 2008, No. 28).

§2699.6609. Change of Address.

Note • History

An applicant shall notify the program in writing within thirty (30) days of any change of the applicant's billing address or any change of residence of a person participating in the program.

NOTE

Authority cited: Section 12693.21, Insurance Code. Reference: Section 12693.21, Insurance Code.

HISTORY

2. Certificate of Compliance as to 2-20-98 order transmitted to OAL 6-5-98 and filed 7-15-98 (Register 98, No. 29).

§2699.6611. Disenrollment.

Note • History

(a) A subscriber shall be disenrolled from participation in the program if any of the following occur:

(1) The subscriber is found by the program to no longer be eligible during the annual eligibility review period.

(2) The Board has made a finding pursuant to Section 2699.6603(b) and subscriber children are disenrolled from the program at Annual Eligibility Review. Each subscriber child disenrolled pursuant to Section 2699.6603(b) shall be placed on the waiting list and the subscriber child's effective date on the waiting list shall be his or her disenrollment date.

(3) The subscriber child attains the age of 19. A subscriber child who attains the age of 19 will not be disenrolled from the program if he or she applies to the program pursuant to Section 2699.6600 and is determined to be eligible for the program as a subscriber parent pursuant to Section 2699.6607 before his or her effective date of disenrollment.

(4) A subscriber is determined by the program to not be a citizen, non-citizen national, or a qualified alien eligible to participate in the program or fails to provide documentation required pursuant to Subsection 2699.6600(c)(1)(T) within the required time period.

(5) The applicant fails to pay the required family contribution for the subscriber for two (2) consecutive calendar months.

(6) The applicant so requests in writing on behalf of himself or herself or on behalf of another subscriber for whom he or she applied.

(7) The applicant has intentionally made false declarations in order to establish program eligibility for any person.

(8) The applicant fails to provide the necessary information for the subscriber to be requalified.

(9) Death of a subscriber.

(10) The child through whom the subscriber parent became eligible as a child-linked adult as defined in Section 2699.6500 is no longer enrolled in no-cost Medi-Cal and has not enrolled in the program.

(11) The child through whom the subscriber parent became eligible as a child-linked adult as defined in Section 2699.6500 did not enroll in no-cost Medi-Cal, or the program, and the subscriber parent has no other children enrolled in the program or no-cost Medi-Cal.

(12) The child through whom the subscriber parent became eligible as a child-linked adult as defined in Section 2699.6500 attains the age of 19 and the subscriber parent has no other children enrolled in the program or no cost Medi-Cal.

(13) The child through whom the subscriber parent became eligible as a child-linked adult as defined in Section 2699.6500 no longer lives with the subscriber parent and another adult with whom the child now lives applies and is found eligible for enrollment as a child-linked adult through the same child.

(14) The child through whom the subscriber parent became eligible as a child-linked adult as defined in Section 2699.6500 is no longer enrolled in the program, and the subscriber parent has no other children enrolled in the program or no-cost Medi-Cal.

(b)(1) Prior to disenrolling a subscriber pursuant to (a)(5), the program shall provide written notification to the applicant no less than thirty (30) days prior to disenrollment. Such notice shall clearly indicate all of the following:

(A) The disenrollment will not occur if payment in full is made as required.

(B) If disenrollment for non-payment occurs, coverage will be terminated at the end of the second consecutive month for which the family contribution was not paid.

(2) Prior to disenrolling a subscriber pursuant to subsection (a)(2) of this section, the program shall provide written notification to the applicant no less than fifteen (15) days prior to disenrollment. Such notice shall clearly indicate all of the following:

(A) The reason for the disenrollment.

(B) The effective date of disenrollment.

(c) When a subscriber is disenrolled pursuant to (a) above, the program shall notify the applicant of the disenrollment. The notice shall be in writing and include the following information:

(1) The reason for the disenrollment.

(2) The effective date of disenrollment.

(3) The final day of coverage provided through the program.

(4) An explanation of the appeals process including the right to request continued enrollment pursuant to Section 2699.6612.

(d) Disenrollment pursuant to (a)(5) shall be effective as of the end of the second consecutive calendar month for which the required monthly contributions were not paid in full.

(e) Disenrollment pursuant to (a)(1), (a)(2) and (a)(8) shall be effective at the end of the month of the subscriber's anniversary date.

(f) Disenrollment pursuant to (a)(4) shall be effective at the end of the calendar month in which the conclusion of the two-month period falls pursuant to Subsection 2699.6600(c)(1)(T).

(g) Disenrollment pursuant to (a)(6) shall be effective at the end of the month in which the applicant's request was received. The applicant will be notified of the amount of family contribution due to the program for coverage through the subscriber's effective date of disenrollment.

(h) Disenrollment pursuant to (a)(7) shall be effective at the end of the month in which the determination was made.

(i) Disenrollment pursuant to (a)(3) and (a)(12) shall be effective on the last day of the month the subscriber child or the child through whom the subscriber parent became eligible as a child-linked adult attains the age of 19.

(j) Disenrollment pursuant to (a)(9) shall be effective at the end of the month in which death occurred.

(k) Disenrollment pursuant to (a)(10) shall be effective at the end of the month following the program's notification of the subscriber child's disenrollment from no-cost Medi-Cal.

(l) Disenrollment pursuant to (a)(11) shall be effective at the end of the month following the second month from the date in which the application was received.

(m) Disenrollment pursuant to (a)(13) shall be effective at the end of the month following the program's determination that the subscriber child has departed from the subscriber parent's household and is living with another adult who has applied for enrollment and is eligible as a child-linked adult through that same child.

(n) Disenrollment pursuant to (a)(14) shall be effective at the end of the month following the program's determination that the adult is no longer child linked.

NOTE

Authority cited: Sections 12693.21 and 12693.755, Insurance Code. Reference: Sections 12693.21, 12693.45, 12693.74, 12693.77, 12693.755, 12693.96, 12693.98 and 12693.981, Insurance Code.

HISTORY

2. Certificate of Compliance as to 2-20-98 order transmitted to OAL 6-5-98 and filed 7-15-98 (Register 98, No. 29).

3. Amendment of subsection (f) filed 12-14-98 as an emergency; operative 12-14-98 (Register 98, No. 51). A Certificate of Compliance must be transmitted to OAL by 4-13-99 or emergency language will be repealed by operation of law on the following day.

4. Certificate of Compliance as to 12-14-98 order transmitted to OAL 3-25-99 and filed 5-6-99 (Register 99, No. 19).

5. Amendment of subsections (a)(1) and (a)(3), new subsection (a)(8), amendment of subsection (d) and new subsection (i) filed 5-26-99 as an emergency; operative 5-26-99 (Register 99, No. 22). A Certificate of Compliance must be transmitted to OAL by 9-23-99 or emergency language will be repealed by operation of law on the following day.

6. Certificate of Compliance as to 5-26-99 order, including further amendment of subsection (f), transmitted to OAL 9-17-99 and filed 10-28-99 (Register 99, No. 44).

7. New subsection (f), subsection relettering, and amendment of newly designated subsection (g) filed 1-10-2000 as an emergency; operative 1-10-2000 (Register 2000, No. 2). A Certificate of Compliance must be transmitted to OAL by 5-9-2000 or emergency language will be repealed by operation of law on the following day.

8. Certificate of Compliance as to 1-10-2000 order, including amendment of subsections (e) and (f), new subsection (h) and subsection relettering, transmitted to OAL 5-5-2000 and filed 6-16-2000 (Register 2000, No. 24).

9. Amendment of section and Note filed 4-29-2002 as an emergency; operative 4-29-2002 (Register 2002, No. 18). Pursuant to Chapter 946, Statutes of 2000, section 2, a Certificate of Compliance must be transmitted to OAL by 10-28-2002 or emergency language will be repealed by operation of law on the following day.

10. Certificate of Compliance as to 4-29-2002 order, including further amendment of subsections (a)(10)-(11), new subsection (a)(13), amendment of subsection (n) and new subsection (p), transmitted to OAL 10-28-2002 and filed 12-12-2002 (Register 2002, No. 50).

11. Amendment filed 7-31-2003 as an emergency; operative 7-31-2003 (Register 2003, No. 31). A Certificate of Compliance must be transmitted to OAL by 1-27-2004 or emergency language will be repealed by operation of law on the following day.

12. Certificate of Compliance as to 7-31-2003 order, including further amendment of subsection (d), transmitted to OAL 11-17-2003 and filed 12-30-2003 (Register 2004, No. 1).

13. Amendment of subsections (a)(3) and (g) filed 7-1-2004 as an emergency; operative 7-1-2004 (Register 2004, No. 27). Pursuant to Section 80, A.B. 1762 (Chapter 230, Stats. 2003) a Certificate of Compliance must be transmitted to OAL by 12-28-2004 or emergency language will be repealed by operation of law on the following day.

14. Certificate of Compliance as to 7-1-2004 order transmitted to OAL 11-24-2004 and filed 1-7-2005 (Register 2005, No. 1).

15. Amendment of subsection (e), repealer of subsection (f) and subsection relettering filed 11-30-2007 as an emergency; operative 11-30-2007 (Register 2007, No. 48). A Certificate of Compliance must be transmitted to OAL by 5-28-2008 or emergency language will be repealed by operation of law on the following day.

16. Amendment of section and Note filed 11-30-2007 as an emergency; operative 11-30-2007 (Register 2007, No. 48). A Certificate of Compliance must be transmitted to OAL by 5-28-2008 or emergency language will be repealed by operation of law on the following day.

17. Certificate of Compliance as to 11-30-2007 order transmitted to OAL 5-28-2008 and filed 7-7-2008 (Register 2008, No. 28).

18. Certificate of Compliance as to 11-30-2007 order transmitted to OAL 5-28-2008 and filed 7-10-2008 (Register 2008, No. 28).

§2699.6612. Appeals.

Note • History

(a) The following program decisions may be appealed to the board:

(1) A decision that an individual is not qualified to participate or continue to participate in the program.

(2) A decision that an individual is not eligible for enrollment or continuing enrollment in the program.

(3) A decision as to the effective date of coverage.

(b) An appeal shall be filed in writing with the program within sixty (60) calendar days of the date of the notice of the decision being appealed.

(1) First level appeals shall be filed with the program, and the program shall make a determination on the appeal within thirty (30) calendar days from the receipt of the appeal. The program shall notify the appellant in writing of the programs decision and that he or she may request a second level review by the Executive Director.

(2) Second level appeals shall be filed with the Executive Director within thirty (30) calendar days of the date of the notice of the determination concerning the first level appeal. The program may contact the appellant to get clarification and additional information to make a determination. The program shall notify the appellant in writing of the Executive Director's decision and that he or she may request an administrative hearing.

(3) As determined by the program, an administrative hearing shall be conducted by an Administrative Law Judge employed by the Office of Administrative Hearings pursuant to the provisions of Chapter 5 (commencing with Section 11500) of Part 1 of Division 3 of Title 2 of the Government Code, or pursuant to the pre- and post-hearing procedures set forth in Article 3 (commencing with Section 1140) of Chapter 2 of Division 2 of Title 1 of the California Code of Regulations as modified by Section 12693.89 of the Insurance Code. Requests for administrative hearings shall be filed with the program within thirty (30) calendar days of receipt of the determination concerning the second level appeal.

(d) An appeal shall include all of the following:

(1) A copy of any decision being appealed, or a written statement of the action or failure to act being appealed.

(2) A statement describing the issues that are being disputed.

(3) A statement describing the program statute, regulation, or other written representation of program policy that the program or board violated.

(4) A statement of the resolution being requested.

(5) Any other relevant information.

(e) An appellant may request continued enrollment while the appeal is being determined. The enrollment shall continue until a determination is made. Family contributions and copays are required during the continued enrollment period. An appeal that requests continued enrollment shall:

(1) Be limited to appeals filed pursuant to subsection (c)(1) of this section.

(2) Be filed in writing with the program within fifteen (15) calendar days of the date the notice of the decision being appealed.

(3) Meet all other requirements described in this section.

NOTE

Authority cited: Sections 12693.21 and 12693.41, Insurance Code. Reference: Sections 12693.85, 12693.86, 12693.87 and 12693.89, Insurance Code; and 42 CFR Section 457.1170.

HISTORY

1. New section filed 7-31-2003 as an emergency; operative 7-31-2003 (Register 2003, No. 31). A Certificate of Compliance must be transmitted to OAL by 1-27-2004 or emergency language will be repealed by operation of law on the following day.

2. Certificate of Compliance as to 7-31-2003 order transmitted to OAL 11-17-2003 and filed 12-30-2003 (Register 2004, No. 1).

§2699.6613. Starting Date of Coverage for Subscribers.

Note • History

(a) Coverage shall begin for subscribers no later than ten (10) calendar days from the date the person is determined to be eligible unless any of the following applies:

(1) A person for whom application is being made is eligible for continued eligibility under no-cost, full scope Medi-Cal and that eligibility will continue for more than ten (10) calendar days from the date the person is determined to be eligible.

(2) Application is being made on behalf of a child less than 12 months of age for coverage to begin on the child's first birthday pursuant to Section 2699.6603(a).

(3) Application is being made on behalf of a child who is currently enrolled in the Medi-Cal 133 percent program.

(4) Application is being made on behalf of a newborn prior to birth.

(5) Payment of in arrears family contributions is required prior to enrollment of the person pursuant to Section 2699.6600(a)(2) or (3).

(6) The subscriber is an AIM infant.

(b) Coverage shall begin for subscribers under (a)(1) on the first day after the end of the subscriber's continued eligibility period under Medi-Cal.

(d) Coverage shall begin for subscribers under (a)(3) on their sixth birthday.

(e) Coverage shall begin for subscribers under (a)(4) no less than eleven (11) calendar days but within thirteen (13) calendar days after the program receives documentation of the birth.

(f) Coverage shall begin for subscribers under (a)(5) no later than thirteen 13 calendar days from the date the program receives a payment for the complete amount of family contributions owed by the applicant.

(g) Coverage shall begin for subscribers pursuant to (a)(6), who are born before July 1, 2007, on the infant's date of birth.

(h) Coverage shall begin for subscribers pursuant to (a)(6), who are born on or after July 1, 2007, on the following day:

(1) On the infant's date of birth, so long as the subscriber is not enrolled in the no-cost full scope Medi-Cal program or employer sponsored health coverage on his/her birth date.

(2) After the subscriber's date of birth when the subscriber's no-cost full scope Medi-Cal program or employer sponsored health coverage ends.

(i) The program shall notify applicants in writing of health coverage enrollment dates for all persons determined to be eligible.

NOTE

Authority cited: Section 12693.21, Insurance Code. Reference: Sections 12693.21, Insurance Code

HISTORY

2. Certificate of Compliance as to 2-20-98 order transmitted to OAL 6-5-98 and filed 7-15-98 (Register 98, No. 29).

3. New subsections (a)(4) and (e) and subsection relettering filed 1-10-2000 as an emergency; operative 1-10-2000 (Register 2000, No. 2). A Certificate of Compliance must be transmitted to OAL by 5-9-2000 or emergency language will be repealed by operation of law on the following day.

4. Certificate of Compliance as to 1-10-2000 order transmitted to OAL 5-5-2000 and filed 6-16-2000 (Register 2000, No. 24).

5. Amendment filed 4-29-2002 as an emergency; operative 4-29-2002 (Register 2002, No. 18). Pursuant to Chapter 946, Statutes of 2000, section 2, a Certificate of Compliance must be transmitted to OAL by 10-28-2002 or emergency language will be repealed by operation of law on the following day.

6. Certificate of Compliance as to 4-29-2002 order, including further amendment of subsection (f), transmitted to OAL 10-28-2002 and filed 12-12-2002 (Register 2002, No. 50).

7. New subsections (a)(6) and (g) and subsection relettering filed 7-1-2004 as an emergency; operative 7-1-2004 (Register 2004, No. 27). Pursuant to Section 80, A.B. 1762 (Chapter 230, Stats. 2003) a Certificate of Compliance must be transmitted to OAL by 12-28-2004 or emergency language will be repealed by operation of law on the following day.

8. Certificate of Compliance as to 7-1-2004 order transmitted to OAL 11-24-2004 and filed 1-7-2005 (Register 2005, No. 1).

9. Amendment deemed an emergency and exempt from OAL review pursuant to Section 75 of Chapter 74, Statutes of 2006, filed 7-31-2007; operative 7-31-2007 (Register 2007, No. 31). A Certificate of Compliance must be transmitted to OAL by 1-28-2008 or emergency language will be repealed by operation of law on the following day.

10. Certificate of Compliance as to 7-31-2007 order transmitted to OAL 1-28-2008 and filed 3-12-2008 (Register 2008, No. 11).

§2699.6617. Additional Enrollments.

Note • History

(a) To apply to the program for additional persons, the applicant shall submit an application pursuant to Section 2699.6600 or the “Add a Person Form” (HF FM 067 EN, 11/17/2003), which requests information pursuant to Section 2699.6600(b), 6600(c)(1)(A), (D), (F)1., (F)3., (F)11., (F)15., (I), (K), (L), (R), (S), and (T).

(b) Eligibility for the program will be determined pursuant to Section 2699.6607.

NOTE

Authority cited: Section 12693.21, Insurance Code. Reference: Section 12693.21, Insurance Code

HISTORY

2. Certificate of Compliance as to 2-20-98 order transmitted to OAL 6-5-98 and filed 7-15-98 (Register 98, No. 29).

3. Amendment filed 4-29-2002 as an emergency; operative 4-29-2002 (Register 2002, No. 18). Pursuant to Chapter 946, Statutes of 2000, section 2, a Certificate of Compliance must be transmitted to OAL by 10-28-2002 or emergency language will be repealed by operation of law on the following day.

4. Certificate of Compliance as to 4-29-2002 order transmitted to OAL 10-28-2002 and filed 12-12-2002 (Register 2002, No. 50).

5. Amendment of subsections (a) and (c) filed 7-1-2004 as an emergency; operative 7-1-2004 (Register 2004, No. 27). Pursuant to Section 80, A.B. 1762 (Chapter 230, Stats. 2003) a Certificate of Compliance must be transmitted to OAL by 12-28-2004 or emergency language will be repealed by operation of law on the following day.

6. Certificate of Compliance as to 7-1-2004 order transmitted to OAL 11-24-2004 and filed 1-7-2005 (Register 2005, No. 1).

§2699.6619. Transfer of Enrollment.

Note • History

(a) A subscriber shall be transferred from one participating health, dental, or vision plan to another if any of the following occurs:

(1) The applicant so requests in writing because the subscriber no longer resides in an area served by the participating plan in which the subscriber is enrolled, and there is at least one other participating plan serving the area in which the subscriber now resides.

(A) If the program learns that the subscriber no longer resides in an area served by the participating health plan in which the subscriber is enrolled, but the applicant does not choose a new health plan within thirty (30) days of a written notice from the program, the program will enroll the subscriber in the Community Provider Plan in the subscriber's county of residence.

(B) If the program learns that the subscriber no longer resides in an area served by the participating dental plan in which the subscriber is enrolled, but the applicant does not choose a new dental plan within thirty (30) days of a written notice from the program, the program will enroll the subscriber in a participating dental plan in the subscriber's county of residence. If there is more than one (1) participating dental plan in the subscriber's county of residence, the program will alternate assignments between the participating dental plans so that the transfers are evenly distributed among the participating dental plans.

(C) If the program learns that the subscriber no longer resides in an area served by the participating vision plan in which the subscriber is enrolled, but the applicant does not choose a new vision plan within thirty (30) days of a written notice from the program, the program will enroll the subscriber in a participating vision plan in the subscriber's county of residence. If there is more than one (1) participating vision plan in the subscriber's county of residence, the program will alternate assignments between the participating vision plans so that the transfers are evenly distributed among the participating vision plans.

(2) The applicant or the participating plan so requests in writing because of failure to establish a satisfactory subscriber-plan relationship and the Executive Director of the Board or designee determines that the transfer is in the best interests of the subscriber and the program, and there is at least one other participating plan serving the area in which the subscriber resides.

(3) The program contract with the participating plan in which the subscriber is enrolled is canceled or not renewed.

(A) If the applicant does not choose a new health plan in response to two (2) written notices and three (3) phone calls from the program by the necessary date of transfer, the program will enroll the subscriber in the Community Provider Plan in the subscriber's county of residence.

(B) If the applicant does not choose a new dental plan in response to two (2) written notices and three (3) phone calls from the program by the necessary date of transfer, the program will enroll the subscriber in a participating dental plan in the subscriber's county of residence. If there is more than one (1) participating dental plan in the subscriber's county of residence, the program will alternate assignments between the participating dental plans so that the transfers are evenly distributed among the participating dental plans.

(C) If the applicant does not choose a new vision plan in response to two (2) written notices and three (3) phone calls from the program by the necessary date of transfer, the program will enroll the subscriber in a participating vision plan in the subscriber's county of residence. If there is more than one (1) participating vision plan in the subscriber's county of residence, the program will alternate assignments between the participating vision plans so that the transfers are evenly distributed among the participating vision plans.

(4) An open enrollment request is submitted pursuant to Section 2699.6621.

(5) An AIM infant subscriber has a sibling(s) that is enrolled in a different health plan and is transferred pursuant to subsection (e).

(b) A subscriber shall be transferred from one participating health, dental, or vision plan to another once for any reason upon the applicant's request as follows:

(1) Within the first three (3) months from the effective date of coverage after original enrollment into the program or re-enrollment into the program after a period of disenrollment.

(2) Within the first thirty (30) days from the effective date of coverage in a new plan following open enrollment.

(c) If a subscriber is transferred pursuant to (a) or (b) above, all other subscribers of the same applicant who live in the same household will also be transferred, unless the subscriber was transferred because the subscriber moved from the household.

(d) Transfer of enrollment shall take effect on the first day of a month and shall be within forty (40) days of approval of the request, or, if the transfer is pursuant to subsection (a)(3) above, shall take effect prior to the end of the contract. However, subscribers in inpatient facilities on the scheduled date of transfer shall not be transferred to a new health plan until the first day of the month following completion of their inpatient stay.

(e) The following provisions apply to the transfer of AIM infants from one participating health, dental, or vision plan to another:

(1) An AIM infant subscriber will be automatically transferred to the same health, dental, and vision plan that his or her sibling(s) is enrolled in, effective on the first day of the infant's third calendar month of birth, unless one of the following occurs:

(A) The applicant submits a letter stating that the infant has a physical, developmental, behavioral, or emotional condition that requires continuity of care, and requests that the infant's sibling(s) be transferred to the infant's health plan, or

(B) The applicant submits a letter stating that the infant has a physical, developmental, behavioral, or emotional condition that requires continuity of care, and requests that the infant remain with the current health plan and the sibling(s) remain with his or her current health plan. For siblings enrolled in different health plans, the applicant must choose the same health plan for all children living in the household during the Open Enrollment period after the AIM infant's first birthday.

(2) An AIM infant subscriber shall be transferred from one participating health, dental, or vision plan to another if the applicant so requests in writing once within the first three (3) months from the date of the infant's birth and the infant subscriber has no sibling(s) in the program. The transfer of enrollment shall take effect on the first day of a month and shall be within forty (40) days after the approval of the request but not earlier than the third calendar month of the infant's enrollment in the program.

(f) The transfers of enrollment shall comply with Sections 2699.6600(c)(1)(BB)1. and 2699.6623.

NOTE

Authority cited: Sections 12693.21 and 12693.22, Insurance Code. Reference: Sections 12693.21, 12693.22, 12693.326 and 12693.51, Insurance Code.

HISTORY

2. Certificate of Compliance as to 2-20-98 order transmitted to OAL 6-5-98 and filed 7-15-98 (Register 98, No. 29).

3. Amendment of section and Note filed 10-23-2001; operative 11-22-2001 (Register 2001, No. 43).

4. New subsections (a)(5) and (f)-(f)(2) filed 7-1-2004 as an emergency; operative 7-1-2004 (Register 2004, No. 27). Pursuant to Section 80, A.B. 1762 (Chapter 230, Stats. 2003) a Certificate of Compliance must be transmitted to OAL by 12-28-2004 or emergency language will be repealed by operation of law on the following day.

5. Certificate of Compliance as to 7-1-2004 order transmitted to OAL 11-24-2004 and filed 1-7-2005 (Register 2005, No. 1).

6. Amendment of subsections (a)(5)-(b), repealer of subsection (c), subsection relettering and amendment of newly designated subsection (c) filed 9-15-2008; operative 10-15-2008 (Register 2008, No. 38).

7. Repealer of subsection (b), new subsections (b)-(b)(2) and (f)(3) and amendment of Note filed 10-29-2009; operative 11-1-2009 pursuant to Government Code section 11346.1(d) (Register 2009, No. 44). A Certificate of Compliance must be transmitted to OAL by 4-30-2010 or emergency action will be repealed by operation of law on the following day. This regulatory action is deemed to meet the emergency standard and is exempt from OAL review pursuant to Insurance Code section 12693.22.

8. Certificate of Compliance as to 10-29-2009 order transmitted to OAL 4-27-2010 and filed 6-9-2010 (Register 2010, No. 24).

§2699.6621. Open Enrollment Period.

Note • History

(a) The program shall provide for an annual open enrollment period of at least forty-five (45) calendar days. During this period, applicants may for any reason request that subscribers be transferred from one participating health, dental, or vision plan to another. Open enrollment plan selection shall comply with Sections 2699.6600(c)(1)(BB)1. and 2699.6623.

(b) For each subscriber for whom an applicant is requesting to change plans during an open enrollment period, the applicant shall provide the following:

(1) Full name

(2) Address

(3) Social Security Number (optional)

(4) Home telephone number

(5) Current participating plan(s)

(6) New participating plan(s)

(7) The applicant's choice of primary care provider/clinic (optional) and dentist (optional) for each child for whom application is being made.

(8) A declaration that the applicant understands that a change of participating plans may result in a change in the required family contribution.

NOTE

Authority cited: Sections 12693.21 and 12693.22, Insurance Code. Reference: Sections 12693.21, 12693.22 and 12693.51, Insurance Code.

HISTORY

2. Certificate of Compliance as to 2-20-98 order transmitted to OAL 6-5-98 and filed 7-15-98 (Register 98, No. 29).

3. Amendment of subsection (a) and Note filed 10-29-2009; operative 11-1-2009 pursuant to Government Code section 11346.1(d) (Register 2009, No. 44). A Certificate of Compliance must be transmitted to OAL by 4-30-2010 or emergency action will be repealed by operation of law on the following day. This regulatory action is deemed to meet the emergency standard and is exempt from OAL review pursuant to Insurance Code section 12693.22.

4. Certificate of Compliance as to 10-29-2009 order transmitted to OAL 4-27-2010 and filed 6-9-2010 (Register 2010, No. 24).

§2699.6623. Choosing Plans.

Note • History

(a) If all persons for whom the applicant applies live in the same household, the applicant shall enroll all persons in the same participating health plan, the same participating dental plan, and the same participating vision plan.

(b) If the persons for whom the applicant applies live in more than one household, the applicant shall enroll all persons living in each household in the same participating health plan, the same participating dental plan and the same participating vision plan.

NOTE

Authority cited: Section 12693.21, Insurance Code. Reference: Section 12693.21 Insurance Code.

HISTORY

2. Certificate of Compliance as to 2-20-98 order transmitted to OAL 6-5-98 and filed 7-15-98 (Register 98, No. 29).

4. Certificate of Compliance as to 4-29-2002 order transmitted to OAL 10-28-2002 and filed 12-12-2002 (Register 2002, No. 50).

§2699.6625. Annual Eligibility Review for Subscribers.

Note • History

(a) Except as specified in (c), each subscriber will be re-evaluated annually prior to his or her anniversary date in the program to determine continued eligibility for the program. Applicants shall be notified of the annual eligibility review process at least sixty (60) calendar days prior to the anniversary date.

(b) Notwithstanding (a), as a condition of continuing coverage beyond the age of twelve (12) months, an applicant who enrolls an AIM infant into the program after nine months of age shall provide the information necessary to determine the infant's eligibility for ongoing coverage after the age of twelve (12) months at the time of enrollment.

(c) If subscribers for whom an applicant has applied have different anniversary dates, the annual eligibility review will be based on the anniversary date of the last subscriber to be enrolled, except as described in Subsection 2699.6631(f).

(d) To requalify, an applicant must provide to the program all of the following information which is required to reestablish eligibility: the applicant's name and account number as stated on their billing statement; name and address of each enrolled person, documentation of gross income of each enrolled person's household as described in Subsection 2699.6600(c)(1)(K), documentation of the subscriber's status as described in Subsection 2699.6600(c)(1)(T), if requested in order to verify that the subscriber continues to reside lawfully in the United States, documentation of court ordered child support, and/or alimony paid, and child care and/or disabled dependent care expenses paid in order to determine income deductions as described in Subsection 2699.6600(c)(1)(L), an indication of any pregnant family member living in the home and her expected due date, and a statement indicating which person(s) is currently enrolled in an employer sponsored health insurance plan. To avoid a break in coverage, all required information must be submitted at least ten (10) calendar days before the end of the month in which the anniversary date falls.

(e) Continued eligibility will be determined pursuant to Sections 2699.6607 and 2699.6611(a)(2).

(f) Unless disenrolled pursuant to Section 2699.6611, persons shall continue to be considered eligible for the program for one year from the effective date of coverage, or if a later annual eligibility review date is established under (c), until that date.

NOTE

Authority cited: Section 12693.21, Insurance Code. Reference: Sections 12693.21, 12693.74 and 12693.96, Insurance Code.

HISTORY

2. Certificate of Compliance as to 2-20-98 order transmitted to OAL 6-5-98 and filed 7-15-98 (Register 98, No. 29).

3. Amendment of section heading and section filed 5-26-99 as an emergency; operative 5-26-99 (Register 99, No. 22). A Certificate of Compliance must be transmitted to OAL by 9-23-99 or emergency language will be repealed by operation of law on the following day.

4. Certificate of Compliance as to 5-26-99 order transmitted to OAL 9-17-99 and filed 10-28-99 (Register 99, No. 44).

5. Amendment of subsection (d) filed 1-10-2000 as an emergency; operative 1-10-2000 (Register 2000, No. 2). A Certificate of Compliance must be transmitted to OAL by 5-9-2000 or emergency language will be repealed by operation of law on the following day.

6. Certificate of Compliance as to 1-10-2000 order transmitted to OAL 5-5-2000 and filed 6-16-2000 (Register 2000, No. 24).

7. Amendment filed 4-29-2002 as an emergency; operative 4-29-2002 (Register 2002, No. 18). Pursuant to Chapter 946, Statutes of 2000, section 2, a Certificate of Compliance must be transmitted to OAL by 10-28-2002 or emergency language will be repealed by operation of law on the following day.

8. Certificate of Compliance as to 4-29-2002 order transmitted to OAL 10-28-2002 and filed 12-12-2002 (Register 2002, No. 50).

9. Amendment of subsection (c) filed 7-1-2004 as an emergency; operative 7-1-2004 (Register 2004, No. 27). Pursuant to Section 80, A.B. 1762 (Chapter 230, Stats. 2003) a Certificate of Compliance must be transmitted to OAL by 12-28-2004 or emergency language will be repealed by operation of law on the following day.

10. Certificate of Compliance as to 7-1-2004 order, including amendment of subsection (a), new subsection (b), subsection relettering and amendment of newly designated subsections (c) and (f), transmitted to OAL 11-24-2004 and filed 1-7-2005 (Register 2005, No. 1).

11. Amendment of subsection (e) and Note filed 11-30-2007 as an emergency; operative 11-30-2007 (Register 2007, No. 48). A Certificate of Compliance must be transmitted to OAL by 5-28-2008 or emergency language will be repealed by operation of law on the following day.

12. Certificate of Compliance as to 7-31-2007 order transmitted to OAL 1-28-2008 and filed 3-12-2008 (Register 2008, No. 11).

13. Certificate of Compliance as to 11-30-2007 order transmitted to OAL 5-28-2008 and filed 7-7-2008 (Register 2008, No. 28).

14. Amendment of subsection (d) filed 9-29-2009 as an emergency; operative 9-29-2009 (Register 2009, No. 40). A Certificate of Compliance must be transmitted to OAL by 3-29-2010 or emergency language will be repealed by operation of law on the following day.

15. Certificate of Compliance as to 9-29-2009 order transmitted to OAL 3-29-2010 and filed 5-4-2010 (Register 2010, No. 19).

§2699.6629. Payment for Application Assistance.

Note • History

(a) The program shall pay an application assistance fee to an eligible entity that assists an applicant in completing a program application or assists an applicant in completing annual eligibility review, if the following conditions are met:

(1) A child or a child-linked adult are enrolled or requalified as a result of the application;

(2) The request for payment is made in writing and specifies the entity to which the payment shall be made and includes:

(A) The certified application assistant identification number of the person who assisted the applicant.

(B) The entity identification number.

(3) The application includes a signed and dated declaration by the applicant stating that the certified application assistant helped the applicant complete the application.

(4) The certified application assistant has successfully completed a state-sponsored or approved training course, which may include continuing education courses.

(b) The following entities are eligible to receive application assistance fees:

(1) an insurance agent as defined in Section 31 of the Insurance Code, or a broker as defined in Section 33 of the Insurance Code;

(2) a licensed health care provider;

(3) a tax preparer as defined in Section 22251(a)(1)(A) of the Business and Professions Code;

(4) a licensed health care institution;

(5) a licensed health care clinic;

(6) a county department of public health, a city health department, or a county department that delivers health services;

(7) an Indian Health Service Facility;

(8) a school;

(9) a faith-based organization;

(10) a licensed day-care provider;

(11) a direct state Maternal and Child Health Contractor;

(12) a WIC Supplemental Food and Nutrition program for Women, Infants and Children;

(13) a Parent Teacher Organization;

(14) An organization meeting all of the following criteria:

(A) The organization has significant interaction with children or parents of children who represent the target market for the program or for children's Medi-Cal;

(B) The organization is not a licensed health, dental or vision plan, or an organization providing health, dental or vision care to children; and

(C) The organization has a federal tax identification number and is a bona fide non-profit entity as determined by the Internal Revenue Service.

(c) An incomplete request will not be processed for reimbursement; missing information cannot be submitted at a later date.

(d) The amount of the application assistance fee shall be as follows:

(1) Fifty ($50.00) dollars per successful mail-in application made pursuant to Section 2699.6600 where a child successfully enrolls in no-cost Medi-Cal or the program. If the application is submitted electronically via the internet, the fee shall be sixty ($60.00) dollars per successful application, effective July 1, 2006.

(2) Fifty ($50.00) dollars per successful mail-in application made pursuant to Section 2699.6600 where a child-linked adult successfully enrolls in no-cost Medi-Cal or the program when a request for enrollment is made at the same time for the child through whom the subscriber parent became eligible as a child-linked adult as defined in Section 2699.6500.

(3) If children or child-linked adults on one application are enrolled in no-cost Medi-Cal or the program, a fifty ($50.00) dollar payment will be made for the mail-in application for each program pursuant to (1) and (2). A sixty ($60.00) dollar payment will be made for each program pursuant to (1), effective July 1, 2006.

(4) Payment will only be made on one successful application for no-cost Medi-Cal and one successful application for the program per enrollment entity for a household in a year.

(5) Fifty ($50.00) dollars for a successful Annual Eligibility Review for the program, effective July 1, 2006.

(e) The program shall monitor the payment of application assistance fees to assure the integrity of the process.

(1) The program may determine at any time that an individual will no longer be eligible to be a certified application assistant and/or an entity will no longer be eligible to receive application assistance fees.

(2) Notice of such determination shall be provided within five (5) calendar days.

(f) Entities applying for application assistance fees and certified application assistants are prohibited from assisting applicants in choosing a health, dental, or vision plan for persons for whom application is being made. The person or entity may direct the applicant to that part of the program materials that describes health, dental, and vision plans. Nothing in this subdivision shall be construed to prohibit an application assistant or entity from providing factual information comparing, contrasting, and explaining the differences between plans and/or provider networks when assisting an applicant. In no instance may an application assistant or entity suggest which plan or provider an applicant should choose.

(g) Participating dental and vision plans shall be prohibited from directly, indirectly, or through their agents conducting in-person, door-to-door, mail, or phone solicitation of applicants for enrollment, or from assisting applicants to apply for the program except as permitted by California Insurance Code Section 12693.325.

(h) Participating health plans shall be prohibited from directly, indirectly, or through their agents conducting in-person, door-to-door, mail, or phone solicitation of applicants for enrollment, or from assisting applicants to apply for the program except as permitted by California Insurance Code Section 12693.325.

(i) Nothing in this section shall prohibit licensed health, dental or vision care providers who are not claiming an application assistance fee from otherwise distributing program applications and providing assistance to applicants.

NOTE

Authority cited: Sections 12693.21 and 12693.755, Insurance Code. Reference: Sections 12693.21, 12693.32, 12693.325 and 12693.755, Insurance Code.

HISTORY

2. Certificate of Compliance as to 2-20-98 order transmitted to OAL 6-5-98 and filed 7-15-98 (Register 98, No. 29).

3. Amendment of subsection (a)(3), repealer and new subsections (a)(3)(A)-(B), new subsections (a)(3)(C)-(G), and amendment of subsections (b)(1)-(2) and (d) filed 12-14-98 as an emergency; operative 12-14-98 (Register 98, No. 51). A Certificate of Compliance must be transmitted to OAL by 4-13-99 or emergency language will be repealed by operation of law on the following day.

4. Certificate of Compliance as to 12-14-98 order transmitted to OAL 3-25-99 and filed 5-6-99 (Register 99, No. 19).

6. Certificate of Compliance as to 5-26-99 order transmitted to OAL 9-17-99 and filed 10-28-99 (Register 99, No. 44).

7. Amendment of subsection (g), new subsection (h), subsection relettering and amendment of Note filed 10-23-2001; operative 11-22-2001 (Register 2001, No. 43).

8. Amendment of section and Note filed 4-29-2002 as an emergency; operative 4-29-2002 (Register 2002, No. 18). Pursuant to Chapter 946, Statutes of 2000, section 2, a Certificate of Compliance must be transmitted to OAL by 10-28-2002 or emergency language will be repealed by operation of law on the following day.

9. Certificate of Compliance as to 4-29-2002 order, including repealer of subsection (d)(4), subsection renumbering and amendment of newly designated subsection (d)(4), transmitted to OAL 10-28-2002 and filed 12-12-2002 (Register 2002, No. 50).

10. Amendment of subsections (d)(1)-(3) and (d)(5) deemed an emergency and exempt from OAL review pursuant to Section 75 of Chapter 74, Statutes of 2006, filed 7-31-2007; operative 7-31-2007 (Register 2007, No. 31). A Certificate of Compliance must be transmitted to OAL by 1-28-2008 or emergency language will be repealed by operation of law on the following day.

11. Certificate of Compliance as to 7-31-2007 order transmitted to OAL 1-28-2008 and filed 3-12-2008 (Register 2008, No. 11).

§2699.6631. Initial Enrollment Period for Child-Linked Adults.

Note • History

There shall be an initial enrollment period for child linked adults ending one year after the parental coverage start date. Thereafter, enrollment may only occur at a qualifying event as defined in Section 2699.6500.

(a) The program shall provide notification to the applicants of subscriber children enrolled prior to the parental coverage start date in households with incomes at or below 200 percent of the federal poverty level. Notification shall be sent to the address on record and shall include an explanation of program expansions to include child-linked adults, and instructions to complete and return to the program the form provided by the program, documentation of citizenship or immigration status pursuant to 2699.6600(c)(1)(T), and the appropriate family contribution for enrollment.

(b) For the first year following the parental coverage start date, for all applications for the program for children only where one or more children enrolled in the program live in households with incomes at or below 200 percent of the federal poverty level, the applicant shall be notified of program expansions to include child-linked adults and shall be provided the opportunity to submit the additional information to the program. The notification shall include instructions to complete and return to the program the form provided by the program, documentation of citizenship or immigration status pursuant to 2699.6600(c)(1)(T), and the appropriate family contribution for enrollment.

(c) For the first year following the parental coverage start date, the applicant shall be provided the opportunity to submit the form provided by the program pursuant to this section and the appropriate family contribution. Beginning one year after the parental coverage start date, applicants must use an application or an Add a Person Form to request enrollment for a child or child-linked adult in the program.

(d) Except as provided in this section, the program shall determine eligibility and enroll child-linked adults pursuant to the process established for application to the program.

(e) Notwithstanding Section 2699.6625(e), the annual eligibility review date for the subscriber parent enrolled pursuant to Section 2699.6631 shall be the same as for the subscriber child through whom the subscriber parent became eligible.

NOTE

Authority cited: Sections 12693.21 and 12693.755, Insurance Code. Reference: Sections 12693.21 and 12693.755, Insurance Code.

HISTORY

2. Certificate of Compliance as to 4-29-2002 order transmitted to OAL 10-28-2002 and filed 12-12-2002 (Register 2002, No. 50).

3. Amendment of subsections (a)-(c) filed 7-1-2004 as an emergency; operative 7-1-2004 (Register 2004, No. 27). Pursuant to Section 80, A.B. 1762 (Chapter 230, Stats. 2003) a Certificate of Compliance must be transmitted to OAL by 12-28-2004 or emergency language will be repealed by operation of law on the following day.

4. Certificate of Compliance as to 7-1-2004 order transmitted to OAL 11-24-2004 and filed 1-7-2005 (Register 2005, No. 1).

Article 3. Health, Dental and Vision Benefits

§2699.6700. Scope of Health Benefits.

Note • History

(a) The basic scope of benefits offered by participating health plans must comply with all requirements of the Knox-Keene Health Care Service Plan Act of 1975 including amendments as well as its applicable regulations, and shall include all of the benefits and services listed in this section, subject to the exclusions listed in this section and Section 2699.6703. No other benefits shall be permitted to be offered by a participating health plan as part of the program. The basic scope of benefits shall include:

(1) Health Facilities

(A) Inpatient Hospital Services: General hospital services, in a room of two or more, with customary furnishings and equipment, meals (including special diets as medically necessary), and general nursing care. All necessary ancillary services such as: use of operating room and related facilities; intensive care unit and services; drugs, medications, and biologicals; anesthesia and oxygen; diagnostic laboratory and x-ray services; special duty nursing; physical, occupational, and speech therapy, respiratory therapy; administration of blood and blood products; other diagnostic, therapeutic and rehabilitative services as appropriate; and coordinated discharge planning, including the planning of such continuing care as may be necessary.

Exclusions: Personal or comfort items or a private room in a hospital are excluded unless medically necessary.

(B) Outpatient Services: Diagnostic, therapeutic and surgical services performed at a hospital or outpatient facility. Includes hospital services which can reasonably be provided on an ambulatory basis and related services and supplies in connection with these services including operating room, treatment room, ancillary services, and medications which are supplied by the hospital or facility for use during the subscriber's stay at the facility. Includes physical, occupational, and speech therapy, if necessary.

(C) Inpatient and Outpatient Services include coverage for general anesthesia and associated facility charges, and outpatient services in connection with dental procedures when the use of a hospital or surgery center is necessary because of the subscriber's medical condition or clinical status or because of the severity of the dental procedure. This benefit is only available to subscribers under seven years of age; the developmentally disabled, regardless of age; and subscribers whose health is compromised and for whom general anesthesia is medically necessary, regardless of age.

Participating health plans shall coordinate such services with the subscriber's participating dental plan. Services of the dentist or oral surgeon for dental procedures are excluded.

(2) Professional Services: Services and consultations by a physician or other licensed health care provider acting within the scope of his or her license. Includes services of a surgeon, assistant surgeon and anesthesiologist (inpatient or outpatient); inpatient hospital and skilled nursing facility visits; professional office visits including visits for examinations, allergy tests and treatments, radiation therapy, chemotherapy, and dialysis treatment; specialist office visits, and home visits.

(3) Preventive Services: Services for the detection and treatment of asymptomatic diseases including:

(A) Vision Services: For subscriber children, vision testing, eye refractions to determine the need for corrective lenses, and dilated retinal eye exams. For subscriber parents, eye refraction is optional for plan. Includes cataract spectacles, cataract contact lenses, or intraocular lenses that replace the natural lens of the eye after cataract surgery. Also one pair of conventional eyeglasses or conventional contact lenses are covered if necessary after cataract surgery with insertion of an intraocular lens.

(B) Hearing Services: Includes hearing testing, an audiological evaluation to measure the extent of hearing loss and a hearing aid evaluation to determine the most appropriate make and model of hearing aid.

Hearing Aid: Monaural or binaural hearing aids including ear mold(s), the hearing aid instrument, the initial battery, cords and other ancillary equipment. Visits for fitting, counseling, adjustments, repairs, etc., at no charge for a one-year period following the provision of a covered hearing aid.

Limitation: For subscriber parents, this benefit is limited to a maximum of $1000 per member every thirty-six months for the hearing instrument and ancillary equipment.

Exclusions: The purchase of batteries or other ancillary equipment, except those covered under the terms of the initial hearing aid purchase, charges for a hearing aid which exceeds specifications prescribed for correction of a hearing loss. Replacement parts for hearing aids, repair of hearing aid after the covered one-year warranty period, replacement of a hearing aid more than once in any period of thirty-six months, and surgically implanted hearing devices.

(C) Immunizations for Subscriber Children: Immunizations consistent with the most current version of the Recommended Childhood Immunization Schedule/United States adopted by the Advisory Committee on Immunization Practices (ACIP). Includes immunizations required for travel as recommended by the ACIP, and other age appropriate immunizations as recommended by the ACIP.

Immunizations for Subscriber Parents: Immunizations for adults as recommended by the ACIP. Immunizations required for travel as recommended by the ACIP. Immunizations such as Hepatitis B for individuals at occupational risk, and other age appropriate immunizations as recommended by the ACIP.

(D) Periodic Health Examinations:

1. For subscriber children: periodic health examinations shall include:

(a) Health examinations.

(b) All routine diagnostic testing and laboratory services appropriate for such examinations consistent with the most current Recommendations for Preventative Pediatric Health Care, as adopted by the American Academy of Pediatrics, and

2. For subscriber parents: shall include:

(a) Health Examinations.

(b) All routine diagnostic testing and laboratory services appropriate for such examinations. This includes coverage for the screening and diagnosis of prostate cancer including but not limited to, prostate-specific antigen testing and digital rectal examination, when medically necessary and consistent with good medical practice.

3. The frequency of health examinations described in subsections (a)(3)(D)1.(a) and (a)(3)(D)2.(a) shall not be increased for reasons which are unrelated to the medical needs of the subscriber including: a subscriber's desire for physical examinations; or reports or related services for the purpose of obtaining or maintaining employment, licenses, insurance, or a school sports clearance.

(E) Well baby care during the first two years of life, including newborn hospital visits, health examinations and other office visits.

(F) Family Planning Services: Voluntary family planning services including, counseling and surgical procedures for sterilization as permitted by state and federal law, diaphragms, and coverage for other federal Food and Drug Administration approved devices and contraceptive drugs pursuant to the prescription drug benefit.

(G) Maternity Services: Professional and hospital services relating to maternity care including pre-natal and postpartum care and complications of pregnancy, prenatal diagnosis of genetic disorders of the fetus by means of diagnostic procedures in cases of high-risk pregnancy, labor and delivery care, newborn examinations and nursery care while the mother is hospitalized, and coverage for participation in the statewide prenatal testing program administered by the State Department of Health Services known as the Expanded Alpha Feto Protein Program.

(H) Sexually Transmitted Disease (STD) Testing and Treatment.

(I) Health Education Services: Includes information regarding personal health behavior and health care, and recommendations regarding the optimal use of health care services. Includes diabetes outpatient self-management training, education, and medical nutrition therapy necessary to enable a subscriber to properly use equipment and supplies provided for the management and treatment of insulin-using diabetes, non-insulin using diabetes, and gestational diabetes.

(J) Cytology Examinations on a reasonable periodic basis.

(K) Gynecological Examinations: Yearly pelvic examination, Pap smear, breast exam, and any other gynecological service as appropriate.

(L) Cancer Screening: Medically accepted cancer screening tests including, but not limited to, breast, prostate, and cervical cancer screening.

(4) Diagnostic Laboratory Services: Diagnostic laboratory services, diagnostic imaging, and diagnostic and therapeutic radiological services necessary to appropriately evaluate, diagnose, treat, and follow-up on the care of subscribers. Other diagnostic services, which shall include, but not be limited to, elecrocardiography, electro-encephalography, and mammography for screening or diagnostic purposes. Laboratory tests appropriate for the management of diabetes, including at a minimum: cholesterol, triglycerides, microalbuminuria, HDL/LDL and Hemoglobin A-1C (Glycohemoglobin).

(5) Prescription Drugs: Drugs when prescribed by a licensed practitioner acting within the scope of his or her licensure. Includes injectable medication and needles and syringes necessary for the administration of the covered injectable medication.

Insulin, glucagon, syringes and needles and pen delivery systems for the administration of insulin, blood glucose testing strips, kerotine urine testing strips, lancets and lancet puncture devices in medically appropriate quantities for the monitoring and treatment of insulin dependent, non-insulin dependent and gestational diabetes.

Prenatal vitamins and fluoride supplements included with vitamins or independent of vitamins which require a prescription.

All FDA approved oral and injectable contraceptive drugs and prescription contraceptive devices are covered including internally implanted time release contraceptives.

One cycle or course of treatment of tobacco cessation drugs in each twelve (12) consecutive month period. The health plan must also require the subscriber to attend tobacco use cessation classes or programs in conjunction with tobacco cessation drugs.

For subscriber parents, plans can require subscribers to pay a portion or all the cost of the smoking cessation classes or programs. Plans can also require the subscriber parent to pay the cost of the smoking cessation drug initially and reimburse the subscriber parent minus the copayment(s) upon the successful completion of a smoking cessation program.

Drugs administered while a subscriber is a patient or resident in a rest home, nursing home, convalescent hospital or similar facility when prescribed by a plan physician in connection with a covered service and obtained through a plan designated pharmacy.

Health plans may specify that generic equivalent prescription drugs must be dispensed if available, provided that no medical contraindications exist. The use of a formulary, maximum allowable cost (MAC) method, and mail order programs by health plans is encouraged.

Exclusions: Experimental or investigational drugs; drugs or medications prescribed solely for cosmetic purposes; patent or over-the-counter medicines, including non-prescription contraceptive jellies, ointments, foams, condoms, etc., even if prescribed by a doctor; medicines not requiring a written prescription order (except insulin and smoking cessation drugs as previously described); and dietary supplements (except for formulas or special food products to treat phenylketonuria or PKU); and appetite suppressants or any other diet drugs or medications, unless necessary for the treatment of morbid obesity.

(6) Durable Medical Equipment: Medical equipment appropriate for use in the home which: 1) is intended for repeated use; 2) is generally not useful to a person in the absence of illness or injury; and 3) primarily serves a medical purpose. The health plan may determine whether to rent or purchase standard equipment. Repair or replacement is covered unless necessitated by misuse or loss.

Includes oxygen and oxygen equipment; blood glucose monitors and blood glucose monitors for the visually impaired as medically appropriate for insulin dependent, non-insulin dependent, and gestational diabetes; insulin pumps and all related supplies; visual aids, excluding eyewear, to assist the visually impaired with proper dosing of insulin; apnea monitors; podiatric devices to prevent or treat diabetes complications; pulmoaides and related supplies; nebulizer machines, face masks, tubing and related supplies, peak flow meters and spacer devices for metered dose inhalers; ostomy bags and urinary catheters and supplies.

(7) Orthotics and Prosthetics: Orthotics and prosthetics including replacement prosthetic devices, and replacement orthotic devices when prescribed by a licensed provider acting within the scope of his or her licensure. Coverage for the initial and subsequent prosthetic devices and installation accessories to restore a method of speaking incident to a laryngectomy, and therapeutic footwear for diabetics. Also includes prosthetic devices to restore and achieve symmetry incident to mastectomy.

(8) Medical Transportation Services: Emergency ambulance transportation in connection with emergency services to the first hospital which actually accepts the subscriber for emergency care. Includes ambulance and ambulance transport services provided through the “911” emergency response system.

Non-emergency transportation for the transfer of a subscriber from a hospital to another hospital or facility or facility to home when the transportation is:

(A) Medically necessary, and

(B) Requested by a plan provider, and

Exclusions: Coverage for public transportation, including transportation by airplane, passenger car, taxi or other form of public conveyance.

(9) Emergency Health Care Services: Twenty-four hour emergency care for a medical or psychiatric condition, including active labor or severe pain, manifesting itself by acute symptoms of a sufficient severity such that the absence of immediate medical attention could reasonably be expected to result in any of the following:

(A) Serious jeopardy to the patient's health, or

Serious impairment to bodily functions, or

Coverage must be provided both inside and outside of the health plan's service area and in participating and non-participating facilities.

(10) Mental Health

(A) Inpatient:

1. Mental health care during a certified confinement in a participating hospital when ordered and performed by a participating mental health provider for the treatment of a mental health condition.

2.a. Plans shall be responsible for identifying subscriber children who may have a Serious Emotional Disturbances (SED) condition, as defined in California Health and Safety Code section 1374.72, or may have a serious mental disorder, as defined in Welfare and Institutions Code section 5600.3, and shall refer these individuals to their respective county mental health department for evaluation. The plan and the county shall coordinate services for the subscriber.

b. The plan is excused from responsibility for providing a covered service to treat a subscriber child's serious emotional disturbance or serious mental disorder only to the extent that the treatment is authorized and provided by a County Mental Health Department as defined in Welfare and Institutions Code Section 5600.3.

3. Plans must provide services with no inpatient day limits for severe mental illnesses including schizophrenia, schizoaffective disorder, bipolar disorder, major depressive disorders, panic disorder, obsessive-compulsive disorder, pervasive developmental disorder or autism, anorexia nervosa, and bulimia nervosa.

4.a. For the benefit year commencing July 1, 2009, plans may limit inpatient coverage to 38 days per benefit year for illnesses that meet neither the criteria for severe mental illnesses nor the criteria for SED of a child or for a serious mental disorder. Plans, with the agreement of the subscriber or applicant or other responsible adult if appropriate, may substitute for each day of inpatient hospitalization any of the following: two (2) days of residential treatment, three (3) days of day care treatment, or four (4) outpatient visits.

b. Effective October 1, 2010, plans shall provide services with no day limits for in patient mental health treatment.

(B) Outpatient:

1. Mental health care when ordered and performed by a participating mental health provider. This includes the treatment of children who have experienced family dysfunction or trauma, including child abuse and neglect, domestic violence, substance abuse in the family, or divorce and bereavement. Family members may be involved in the treatment to the extent the plan determines it is appropriate for the health and recovery of the child.

2.a. Plans shall be responsible for identifying subscriber children who may have a Serious Emotional Disturbances (SED) condition, as defined in California Health and Safety Code section 1374.72, or may have a serious mental disorder, as defined in Welfare and Institutions Code section 5600.3, and shall refer these individuals to their county mental health department for evaluation. The plan and the county shall coordinate services for the subscriber.

3. Plans must provide services with no out patient visit limits for severe mental illnesses including schizophrenia, schizoaffective disorder, bipolar disorder, major depressive disorders, panic disorder, obsessive-compulsive disorder, pervasive developmental disorder or autism, anorexia nervosa, and bulimia nervosa.

4.a. For the benefit year commencing July 1, 2009, plans must provide up to 25 visits per benefit year for illnesses that meet neither the criteria for severe mental illnesses, nor the criteria for SED of a child or a serious mental disorder. Participating plans may elect to provide additional visits. Plans may provide group therapy at a reduced copayment.

b. Effective October 1, 2010, plans shall provide services with no visit limits for out patient mental health treatment.

(11) Alcohol and Drug Abuse Treatment Services:

(A) Inpatient: Hospitalization for alcoholism or drug abuse to remove toxic substances from the system.

(B) Outpatient: Crisis intervention and treatment of alcoholism or drug abuse on an outpatient basis.

For the benefit year commencing July 1, 2009, participating health plans shall provide at least 25 visits per benefit year. Participating health plans may elect to provide additional visits.

(12) Home Health Services: Health services provided at the home by health care personnel. Includes visits by Registered Nurses, Licensed Vocational Nurses, and home health aides; physical, occupational and speech therapy; and respiratory therapy when prescribed by a licensed practitioner acting within the scope of his or her licensure.

Exclusions: Custodial care.

(13) Skilled Nursing Care:

(A) Services prescribed by a plan physician or nurse practitioner and provided in a licensed skilled nursing facility. Includes skilled nursing on a 24-hour per day basis; bed and board; x-ray and laboratory procedures; respiratory therapy; physical, occupational and speech therapy; medical social services; prescribed drugs and medications; medical supplies; and appliances and equipment ordinarily furnished by the skilled nursing facility. This benefit shall be limited to a maximum of 100 days per benefit year.

(B) For the benefit year commencing July 1, 2009, this benefit shall be limited to a maximum of 125 days per benefit year.

(14) Physical, Occupational, and Speech Therapy: Therapy may be provided in a medical office or other appropriate outpatient setting, hospital, skilled nursing facility or home. Plans may require periodic evaluations as long as therapy is provided.

(15) Acupuncture and Chiropractic:

(A) These are optional benefits which plans may offer. If offered, the plan must provide a self referral benefit, and cannot require referral from a primary care or other physician or health professional. Coverage is limited to a maximum of 20 visits each per benefit year. Plans may provide a combined chiropractic/acupuncture benefit with a minimum of 20 visits allowed for both disciplines.

(B) For the benefit year commencing July 1, 2009, coverage is limited to a maximum of 25 visits each benefit year. Plans may provide a combined chiropractic/acupuncture benefit with a minimum of 25 visits allowed for both disciplines.

(16) Biofeedback is an optional benefit which health plans may offer.

(17) Blood and Blood Products: Processing, storage, and administration of blood and blood products in inpatient and outpatient settings. Includes the collection and storage of autologous blood when medically indicated.

(18) Hospice: The hospice benefit is provided to subscribers who are diagnosed with a terminal illness with a life expectancy of twelve months or less and who elect hospice care for such illness instead of the traditional services by the plan.

The hospice benefit shall include nursing care, medical social services, home health aide services, physician services, drugs, medical supplies and appliances, counseling and bereavement services, physical therapy, occupational therapy, speech therapy, short-term inpatient care, pain control, and symptom management.

The hospice benefit may include, at the option of the health plan, homemaker services, services of volunteers, and short-term inpatient respite care.

(19) Transplants: Coverage for organ transplants and bone marrow transplants which are not experimental or investigational. Includes reasonable medical and hospital expenses of a donor or an individual identified as a prospective donor if these expenses are directly related to the transplant for a subscriber.

Charges for testing of relatives for matching bone marrow transplants.

Charges associated with the search and testing of unrelated bone marrow donors through a recognized Donor Registry and charges associated with the procurement of donor organs through a recognized Donor Transplant Bank, if the expenses are directly related to the anticipated transplant of a subscriber.

(20) Reconstructive Surgery: Surgery to restore and achieve symmetry and surgery performed to correct or repair abnormal structures of the body caused by congenital defects, developmental abnormalities, trauma, infection, tumors or disease to do either of the following:

(A) Improve function

(B) Create a normal appearance to the extent possible. Includes reconstructive surgery to restore and achieve symmetry incident to mastectomy.

(21) Clinical Trial for Cancer Patients: Coverage for a subscriber's participation in a clinical trial when the subscriber has been diagnosed with cancer and has been accepted into a phase I through phase IV clinical trial for cancer, and the subscriber's treating physician recommends participation in the clinical trial after determining that participation will have a meaningful potential to benefit the subscriber. Coverage includes the payment of costs associated with the provision of routine patient care, including drugs, items, devices and services that would otherwise be covered if they were not provided in connection with an approved clinical trial program; services required for the provision of the investigational drug, item, device or service; services required for the clinically appropriate monitoring of the investigational drug, item, device, or service; services provided for the prevention of complications arising from the provision of the investigational drug, item, device, or service; and services needed for the reasonable and necessary care arising from the provision of the investigational drug, item, device, or service, including diagnosis or treatment of complications.

Exclusions: Provisions of non-FDA-approved drugs or devices that are the subject of the trial; services other than health care services, such as travel, housing, and other non-clinical expenses that a member may incur due to participation in the trial; any item or service that is provided solely to satisfy data collection and analysis needs and that is not used in the clinical management of the patient; services that are otherwise not a benefit (other than those excluded on the basis that they are investigational or experimental); and services that are customarily provided by the research sponsors free of charge for any enrollee in the trial. Coverage for clinical trials may be restricted to participating hospitals and physicians in California, unless the protocol for the trial is not provided in California.

(22) Phenylketonuria (PKU): Testing and treatment of PKU, including those formulas and special food products that are part of a diet prescribed by a licensed physician and managed by a health care professional in consultation with a physician who specializes in the treatment of metabolic disease, provided that the diet is deemed necessary to avert the development of serious physical or mental disabilities or to promote normal development or function as a consequence of PKU.

(23)(A) Participating health plans shall be responsible for identifying subscribers under the age of 21 who have conditions for which they may be eligible to receive services under the California Children's Services (CCS) Program and shall refer these individuals to the local CCS Program for determination of eligibility.

(B) The plan is excused from responsibility from providing a covered service to treat the subscriber's CCS condition only to the extent that the treatment is authorized by the CCS program and provided by a CCS provider as described in the California Code of Regulations, Title 22, Division 2, Part 2, Subdivision 7, Section 41412.

(C) If a subscriber is determined by the CCS Program to be eligible for CCS benefits, participating health plans shall provide primary care and services unrelated to the CCS eligible condition and shall ensure coordination of services between plan providers, CCS providers, and the local CCS Program.

(24) Participating health plans shall be responsible for identifying subscriber children who are severely emotionally disturbed and shall refer these individuals to their county mental health department for continued treatment of the condition.

(c)(1) The scope of benefits shall include all benefits which are covered under the California Children's Services (CCS) Program (Health and Safety Code Section 123800, et seq.), provided the subscriber meets the medical eligibility requirements of that program, as determined by that program.

(2) When a subscriber under the age of 21 is determined by the CCS Program to be eligible for benefits under that program, a participating health plan shall not be responsible for the provision of, or payment for, the particular services authorized by the CCS Program for the particular subscriber for the treatment of CCS eligible medical condition. All other services provided under the participating health plan shall be available to the subscriber.

(d)(1) The scope of benefits shall include benefits provided by a county mental health department to a subscriber child the department has determined is seriously emotionally disturbed or has a serious mental disorder pursuant to Section 5600.3 of the Welfare and Institutions Code.

(2) The plan is excused from responsibility for providing a covered service to treat a subscriber child's serious emotional disturbance or serious mental disorder only to the extent that the treatment is authorized and provided by a County Mental Health Department as defined in Welfare and Institutions Code Section 5600.3.

(e) If, pursuant to any Workers' Compensation, Employer's Liability Law, or other legislation of similar purpose or import, benefits are provided or payable or payable to treat any bodily injury or sickness arising from or sustained in the course of any occupation or employment for compensation, profit or gain, the participating health plan shall provide the services at the time of need, and the subscriber or applicant shall cooperate to assure that the participating health plan is reimbursed for such services.

(f) Coverage provided under the Healthy Families Program is secondary to all other coverage, except Medi-Cal. Benefits paid under this Program are determined after benefits have been paid as a result of a subscriber's enrollment in any other health care program. If medical services are eligible for reimbursement by insurance or covered under any other insurance or health care service plan, the participating health plan shall provide the services at the time of need, and the subscriber or applicant shall cooperate to assure that the participating health plan is reimbursed for such services.

NOTE

Authority cited: Sections 12693.21, 12693.22, 12693.62 and 12693.755, Insurance Code. Reference: Sections 12693.21, 12693.22, 12693.60, 12693.61, 12693.62 and 12693.755, Insurance Code.

HISTORY

1. New article 3 (sections 2699.6700-2699.6721) and section filed 2-20-98 as an emergency; operative 2-20-98 (Register 98, No. 8). A Certificate of Compliance must be transmitted to OAL by 6-22-98 or emergency language will be repealed by operation of law on the following day.

2. Certificate of Compliance as to 2-20-98 order transmitted to OAL 6-5-98 and filed 7-15-98 (Register 98, No. 29).

3. Editorial correction of article heading (Register 2001, No. 43).

4. Amendment of section and Note filed 4-29-2002 as an emergency; operative 4-29-2002 (Register 2002, No. 18). Pursuant to Chapter 946, Statutes of 2000, section 2, a Certificate of Compliance must be transmitted to OAL by 10-28-2002 or emergency language will be repealed by operation of law on the following day.

5. Certificate of Compliance as to 4-29-2002 order, including amendment of subsections (a)(12)(A)-(B), transmitted to OAL 10-28-2002 and filed 12-12-2002 (Register 2002, No. 50).

6. Amendment filed 9-15-2008; operative 10-15-2008 (Register 2008, No. 38).

7. Amendment of subsections (a)(5) and (a)(10)(A), new subsections (a)(10)(A)1.-4.b., amendment of subsection (a)(10)(B), new subsections (a)(10)(B)1.-4.b., amendment of subsections (a)(11) and (a)(11)(B), new subsection (a)(11)(C), amendment of subsection (a)(13), new subsections (a)(13)(A)-(C), amendment of subsection (a)(15), new subsections (a)(15)(A)-(B), repealer and new subsection (d)(2) and amendment of Note filed 6-24-2010 as an emergency; operative 7-1-2010 pursuant to Government Code section 11346.1(d) (Register 2010, No. 26). A Certificate of Compliance must be transmitted to OAL by 12-28-2010 or the emergency action will be repealed by operation of law on the following day.

8. Amendment of subsection (a)(3)(B) and redesignation and amendment of subsection (a)(3)(D) as subsections (a)(3)(D)-(a)(3)(D)3. filed 7-30-2010; operative 8-29-2010 (Register 2010, No. 31).

9. Editorial correction of subsections (a)(10)(B)3. and (a)(1)(B)4.b. (Register 2011, No. 5).

10. Certificate of Compliance as to 6-24-2010 order transmitted to OAL 12-21-2010 and filed 2-2-2011 (Register 2011, No. 5).

11. Redesignation and amendment of former subsection (a)(23) as subsection (a)(23)(A), new subsections (a)(23)(B)-(C) and amendment of Note filed 6-30-2011, deemed an emergency pursuant to Insurance Code section 12693.22; operative 6-30-2011 (Register 2011, No. 26). A Certificate of Compliance must be transmitted to OAL by 12-27-2011 or the emergency action will be repealed by operation of law on the following day.

12. Certificate of Compliance as to 6-30-2011 order transmitted to OAL 12-20-2011 and filed 2-3-2012 (Register 2012, No. 5).

§2699.6703. Excluded Health Benefits.

Note • History

(a) Health benefit plans offered under this program shall exclude all of the following:

(1) Any benefits specified as excluded within Section 2699.6700.

(2) Any benefits in excess of limits specified in Section 2699.6700.

(3) Services, supplies, items, procedures or equipment, which are not medically necessary as determined by the plan, unless otherwise specified in Section 2699.6700.

(4) Any benefits that are received prior to the subscriber's effective date of coverage. This exclusion does not apply to covered benefits to treat complications arising from services received prior to the subscriber's effective date of coverage.

(5) Any benefits that are received subsequent to the time the subscriber's coverage ends.

(6) Experimental or investigational services, including any treatment, therapy, procedure, drug or drug usage, facility or facility usage, equipment or equipment usage, device or device usage, or supply which is not recognized as being in accordance with generally accepted professional medical standards, or for which the safety and efficiency have not been determined for use in the treatment of a particular illness, injury or medical condition for which the item or service in question is recommended or prescribed. This section does not exclude clinical trials for cancer patients as provided pursuant to subsection 2699.6700(a)(21).

(7) Medical services that are received in an emergency care setting for conditions that are not emergencies if the subscriber reasonably should have known that an emergency care situation did not exist.

(8) Eyeglasses, except for those eyeglasses or contact lenses necessary after cataract surgery which are covered under Subsection 2699.6700(a)(3)(A).

(9) The diagnosis and treatment of infertility is not covered unless provided in conjunction with covered gynecological services. Treatments of medical conditions of the reproductive system are not excluded.

(11) Cosmetic surgery that is solely performed to alter or reshape normal structures of the body in order to improve appearance.

NOTE

Authority cited: Sections 12693.21 and 12693.755, Insurance Code. Reference: Sections 12693.21, 12693.60 and 12693.755, Insurance Code.

HISTORY

2. Certificate of Compliance as to 2-20-98 order transmitted to OAL 6-5-98 and filed 7-15-98 (Register 98, No. 29).

3. Amendment of subsections (a)(8)-(a)(11), new subsection (a)(13) and amendment of Note filed 4-29-2002 as an emergency; operative 4-29-2002 (Register 2002, No. 18). Pursuant to Chapter 946, Statutes of 2000, section 2, a Certificate of Compliance must be transmitted to OAL by 10-28-2002 or emergency language will be repealed by operation of law on the following day.

4. Certificate of Compliance as to 4-29-2002 order, including repealer of subsection (a)(10) and subsection renumbering, transmitted to OAL 10-28-2002 and filed 12-12-2002 (Register 2002, No. 50).

5. Amendment filed 9-15-2008; operative 10-15-2008 (Register 2008, No. 38).

§2699.6705. Share of Cost for Health Benefits.

Note • History

(a) Every participating health plan shall require copayments for benefits provided to subscribers, except as provided under federal law to subscribers who are American Indians or Alaska Natives receiving services at an Indian Health Service Facility, subject to the following:

(1) In any benefit year that the applicant has incurred $250 in health benefit copayments for services received by subscribers who live in one household and for whom the applicant applied to the program, the applicant shall be deemed to have met the copayment maximum.

(2) No deductibles shall be charged to subscribers for health benefits.

(3) The following specific copayments shall apply except that subscribers with household income at or below 150% of the Federal Poverty Level shall pay a $5 copayment when a copayment is required.

(A) Inpatient Facility Services provided in a licensed hospital, skilled nursing facility, hospice, or mental health facility: No copayment.

(B) Inpatient Professional Services provided in a licensed hospital, skilled nursing facility, hospice, or mental health facility: No copayment.

(C) Facility Services on an Outpatient Basis for Subscribers: No copayment, except for a $15 copayment per visit for Emergency Health Care Services. The emergency health care services copayment is waived if the subscriber is hospitalized.

(D) Outpatient Professional Services: $10 copayment per office or home visit. No copayment for surgery or anesthesia; radiation, chemotherapy, or dialysis treatments.

(E) Outpatient Mental Health: $10 copayment per visit.

(F) Home Health Care: No copayment except for $10 per visit for physical, occupational, and speech therapy visits performed in the home.

(G) Alcohol and Drug Abuse Services: No copayment for inpatient services. $10 per visit for outpatient services.

(H) Hospice: No copayment for any services provided under this benefit.

(I) Transplants: No copayment for any services provided under this benefit.

(J) Physical, Occupational, and Speech Therapy: No copayment for therapy performed on an inpatient basis. $10 copayment per visit for therapy performed in the home or other outpatient setting.

(K) Biofeedback, Acupuncture, and Chiropractic Visits, when offered at the participating health plan's option: $10 copayment per visit. For subscriber parents, copayment of $10 for each biofeedback visit for mental health.

(L) Diagnostic Laboratory Services, diagnostic and therapeutic radiological services, and other diagnostic services; durable medical equipment, prosthetics and orthotics; blood and blood products; medical transportation services: No copayment.

(M) Prescription Drugs:

1. No copayment for prescription drugs provided in an inpatient setting, or for drugs administered in the doctor's office or in an outpatient facility setting during the subscriber's stay at the facility. For subscriber children, no copayment for FDA approved contraceptive drugs.

2. For subscribers with household income at or below 150% of the Federal Poverty Level: a $5 copayment per prescription for up to 30 day supply for brand name or generic drugs, including tobacco use cessation drugs. $5 copayment per 90 day supply of maintenance drugs purchased either through a participating health plan's participating pharmacies or through its mail order program.

3. For subscribers with household income greater than 150% of the Federal Poverty Level:

a. $10 copayment per prescription for up to 30 day supply for generic drugs, including tobacco use cessation drugs. $10 copayment per 90 day supply of generic maintenance drugs purchased either through a participating health plan's participating pharmacies or through its mail order program.

b. $15 copayment per prescription for up to 30 day supply for brand name drugs, including tobacco use cessation drugs. $10 copayment if no generic equivalent is available for the drug prescribed or if the use of a brand name drug is medically necessary.

c. $15 copayment per 90 day supply of brand name maintenance drugs purchased either through a participating health plan's participating pharmacies or through its mail order program. $10 copayment per 90 day supply of brand name maintenance drugs purchased either through a participating health plan's participating pharmacies or through its mail order program if no generic equivalent is available for the drug prescribed or if the use of a brand name drug is medically necessary.

4. Maintenance drugs are drugs that are prescribed for 60 days or longer and are usually prescribed for chronic conditions such as arthritis, heart disease, diabetes or hypertension.

5. For subscriber parents, $5 copayment for 90 day supply of FDA approved oral and injectable contraceptives and contraceptive devices. No refund if the medication is removed. (Represents the copayment for oral contraceptives at $5 copayment for each 90-day supply for the approximate number of months the medication will be effective).

(4) Preventive services

(A) Periodic Health Exams; No copayment for subscriber children; $5 copayment per exam for subscriber parents.

(B) A variety of voluntary family planning services; including contraceptive services: No copayment for subscriber children. For subscriber parents $5 copayment per office visit and $5 copayment per device.

(D) Vision Services: No copayment for subscriber children. For subscriber parents, $5 copayment per visit.

Eye refraction to determine the need for corrective lenses -- No copayment for subscriber children. For subscriber parents, optional with $5 copayment per exam and limited to one visit per year.

(E) Hearing Services and Hearing Aids: No copayment.

(F) Immunizations; No copayment for subscriber children. $5 copayment per visit for subscriber parent.

(G) Sexually Transmitted Disease Testing: No copayment for subscriber children. $5 copayment for subscriber parents.

(H) Cytology Examinations on a reasonable periodic basis: No copayment for subscriber children. For subscriber parents, $5 copayment per exam.

(I) Health Education Services: No copayment for subscriber children.

For subscriber parents, up to $5 copayment for diabetes outpatient self-management training, education, and medical nutrition therapy services. Charge may vary for other education services.

(J) Well Baby Care, Health Examinations and Other Office Visits for subscribers 24 months of age and under: No copayment.

(K) Gynecological Examinations and Cancer Screening: No copayment.

(5) No copayments shall apply if the applicant has submitted acceptable documentation as described in Subsection 2699.6600(c)(1)(GG) that the applicant or the subscriber is American Indian or Alaska Native.

(6) Reconstructive Surgery: No copayment

NOTE

Authority cited: Sections 12693.21, 12693.22 and 12693.755, Insurance Code. Reference: Sections 12693.21, 12693.22, 12693.615 and 12693.755, Insurance Code.

HISTORY

2. Certificate of Compliance as to 2-20-98 order transmitted to OAL 6-5-98 and filed 7-15-98 (Register 98, No. 29).

3. New subsection (a)(6) filed 3-21-2000 as an emergency; operative 3-21-2000 (Register 2000, No. 12). A Certificate of Compliance must be transmitted to OAL by 7-19-2000 or emergency language will be repealed by operation of law on the following day.

4. Certificate of Compliance as to 3-21-2000 order transmitted to OAL 6-23-2000 and filed 7-17-2000 (Register 2000, No. 29).

6. Certificate of Compliance as to 4-29-2002 order transmitted to OAL 10-28-2002 and filed 12-12-2002 (Register 2002, No. 50).

7. Amendment of subsection (a)(6) filed 7-31-2003 as an emergency; operative 7-31-2003 (Register 2003, No. 31). A Certificate of Compliance must be transmitted to OAL by 1-27-2004 or emergency language will be repealed by operation of law on the following day.

8. Certificate of Compliance as to 7-31-2003 order transmitted to OAL 11-17-2003 and filed 12-30-2003 (Register 2004, No. 1).

9. Amendment of subsection (a)(6) filed 7-1-2004 as an emergency; operative 7-1-2004 (Register 2004, No. 27). Pursuant to Section 80, A.B. 1762 (Chapter 230, Stats. 2003) a Certificate of Compliance must be transmitted to OAL by 12-28-2004 or emergency language will be repealed by operation of law on the following day.

10. Certificate of Compliance as to 7-1-2004 order transmitted to OAL 11-24-2004 and filed 1-7-2005 (Register 2005, No. 1).

11. Amendment filed 9-15-2008; operative 10-15-2008 (Register 2008, No. 38).

12. Amendment of section and Note filed 10-29-2009; operative 11-1-2009 pursuant to Government Code section 11346.1(d) (Register 2009, No. 44). A Certificate of Compliance must be transmitted to OAL by 4-30-2010 or emergency action will be repealed by operation of law on the following day. This regulatory action is deemed to meet the emergency standard and is exempt from OAL review pursuant to Insurance Code section 12693.22.

13. Certificate of Compliance as to 10-29-2009 order transmitted to OAL 4-27-2010 and filed 6-9-2010 (Register 2010, No. 24).

§2699.6707. Annual or Lifetime Benefit Maximums.

Note • History

(a) There shall be no annual or lifetime financial benefit maximums in any of the coverage under the program.

(b)(1) For the benefit year commencing July 1, 2009, the covered dental benefit for each subscriber shall be limited to eighteen hundred seventy-five dollars ($1,875) per benefit year.

(2) Effective October 1, 2010, through and including September 30, 2011, the covered dental benefit for each subscriber shall be limited to fifteen hundred dollars ($1,500) per benefit year. Effective October 1, 2011, there shall be no annual limit on covered dental benefits for subscribers

(3) The limitations contained in this subsection shall not apply to dental benefits provided to a subscriber under the age of 21 who is determined by the California Children's Services Program (Health and Safety Code Section 123800 et seq.) to be eligible for dental benefits under that program and the particular services are authorized by the California Children's Services Program for the particular subscriber for the treatment of a California Children's Services Program eligible medical condition.

NOTE

Authority cited: Sections 12693.21 and 12693.22, Insurance Code. Reference: Sections 12693.21, 12693.22, 12693.60, 12693.615, 12693.63 and 12693.64, Insurance Code.

HISTORY

2. Certificate of Compliance as to 2-20-98 order transmitted to OAL 6-5-98 and filed 7-15-98 (Register 98, No. 29).

3. Amendment of section and Note filed 1-15-2009, deemed an emergency pursuant to Chapter 758, Statutes of 2008; operative 1-15-2009 (Register 2009, No. 3). A Certificate of Compliance must be transmitted to OAL by 7-14-2009 or emergency language will be repealed by operation of law on the following day.

4. Certificate of Compliance as to 1-15-2009 order, including amendment of Note, transmitted to OAL 7-13-2009 and filed 8-19-2009 (Register 2009, No. 34).

5. Redesignation of former subsection (b) as subsection (b)(1), new subsections (b)(2)-(3) and amendment of Note filed 6-24-2010 as an emergency; operative 7-1-2010 pursuant to Government Code section 11346.1(d) (Register 2010, No. 26). A Certificate of Compliance must be transmitted to OAL by 12-28-2010 or the emergency action will be repealed by operation of law on the following day.

6. Certificate of Compliance as to 6-24-2010 order transmitted to OAL 12-21-2010 and filed 2-2-2011 (Register 2011, No. 5).

7. Amendment of subsection (b)(2) filed 7-8-2011, deemed an emergency pursuant to Insurance Code section 12693.22; operative 7-8-2011 (Register 2011, No. 27). A Certificate of Compliance must be transmitted to OAL by 1-4-2012 or emergency language will be repealed by operation of law on the following day.

8. Certificate of Compliance as to 7-8-2011 order transmitted to OAL 12-22-2011 and filed 1-9-2012 (Register 2012, No. 2).

§2699.6709. Scope of Dental Benefits for Subscriber Children.

Note • History

(a) The basic scope of benefits for subscriber children offered by a participating dental plan must comply with all requirements of the Knox-Keene Health Care Service Plan Act of 1975, including amendments as well as its applicable regulations, and shall include all of the benefits and services listed in this section, subject to the exclusions listed in Section 2699.6713.

The covered dental benefit is limited to the benefit level for the least costly dentally appropriate alternative. If a more costly, optional alternative is chosen by the applicant, the applicant will be responsible for all charges in excess of the covered dental benefit.

No other dental benefits shall be permitted to be offered by a participating dental plan as part of the program. The basic scope of dental benefits shall be as follows:

(1) Diagnostic and Preventive Benefits

(A) Initial and periodic oral examinations.

(B) Consultations, including specialist consultations.

1. Bitewing x-rays in conjunction with periodic examinations are limited to one series of four films in any 6 consecutive month period. Isolated bitewing or periapical films are allowed on an emergency or episodic basis.

2. Full mouth x-rays in conjunction with periodic examinations are limited to once every 24 consecutive months.

3. Panoramic film x-rays are limited to once every 24 consecutive months.

(D) Prophylaxis services, limited as follows:

Not to exceed two in a twelve month period.

(E) Topical fluoride treatment.

(F) Dental sealant treatments, limited as follows:

Permanent first and second molars only.

(G) Space maintainers, including removable acrylic and fixed band type.

(H) Preventive dental education and oral hygiene instruction.

(2) Restorative Dentistry

(A) Restorations, limited as follows:

1. Amalgam, composite resin, acrylic, synthetic or plastic restorations for treatment of caries. If the tooth can be restored with such materials, any other restoration such as a crown or jacket is considered optional.

2. Composite resin or acrylic restorations in posterior teeth are optional.

3. Micro filled resin restorations which are non-cosmetic.

4. Replacement of a restoration is covered only when it is defective, as evidenced by conditions such as recurrent caries or fracture, and replacement is dentally necessary.

(B) Use of pins and pin build-up in conjunction with a restoration.

(3) Oral Surgery

(A) Extractions, including surgical extractions

(B) Removal of impacted teeth, limited as follows: Surgical removal of impacted teeth is a covered benefit only when evidence of pathology exists.

(D) Alveolectomies

(E) Excision of cysts and neoplasms

(F) Treatment of palatal torus

(G) Treatment of mandibular torus

(H) Frenectomy

(I) Incision and drainage of abscesses.

(J) Post-operative services including exams, suture removal and treatment of complications.

(K) Root recovery (separate procedure).

(4) Endodontics

(A) Direct pulp capping

(B) Pulpotomy and vital pulpotomy

(D) Root amputation

(E) Root canal therapy, including culture canal, and retreatment of previous root canal therapy limited as follows: Retreatment of root canals is a covered benefit only if clinical or radiographic signs of abscess formation are present, and/or the patient is experiencing symptoms. Removal or retreatment of silver points, overfills, underfills, incomplete fills, or broken instruments lodged in a canal, in the absence of pathology, is not a covered benefit.

(F) Apicoectomy

(G) Vitality tests

(5) Periodontics

(A) Emergency treatment, including treatment for periodontal abscess and acute periodontitis.

(B) Periodontal scaling and root planing, and subgingival curettage, limited as follows:

Five quadrant treatments in any 12 consecutive months.

(D) Osseous or muco-gingival surgery

(6) Crowns and Fixed Bridges

(A) Crowns, including those made of acrylic, acrylic with metal, porcelain, porcelain with metal, full metal, gold onlay or three-quarter crown, and stainless steel. Related dowel pins and pin build-up are also included. Crowns are limited as follows:

1. Replacement of each unit is limited to once every 36 consecutive months, except when the crown is no longer functional as determined by the dental plan.

2. Only acrylic crowns and stainless steel crowns are a benefit for children under 12 years of age. If other types of crowns are chosen as an optional benefit for children under 12 years of age, the covered dental benefit level will be that of an acrylic crown.

3. Crowns will be covered only if there is not enough retentive quality left in the tooth to hold a filling. For example, if the buccal or lingual walls are either fractured or decayed to the extent that they will not hold a filling.

4. Veneers posterior to the second bicuspid are considered optional. An allowance will be made for a cast full crown.

(B) Fixed bridges, which are cast, porcelain baked with metal, or plastic processed to gold, are limited as follows:

1. Fixed bridges will be used only when a partial cannot satisfactorily restore the case. If fixed bridges are used when a partial could satisfactorily restore the case, it is considered optional treatment.

2. A fixed bridge is covered when it is necessary to replace a missing permanent anterior tooth in a person 16 years of age or older and the patient's oral health and general dental condition permits. Under the age of 16, it is considered optional dental treatment. If performed on a subscriber under the age of 16, the applicant must pay the difference in cost between the fixed bridge and a space maintainer.

3. Fixed bridges used to replace missing posterior teeth are considered optional when the abutment teeth are dentally sound and would be crowned only for the purpose of supporting a pontic.

4. Fixed bridges are optional when provided in connection with a partial denture on the same arch.

5. Replacement of an existing fixed bridge is covered only when it cannot be made satisfactory by repair.

(C) The program allows up to five units of crown or bridgework per arch. Upon the sixth unit, the treatment is considered full mouth reconstruction which is optional treatment.

(D) Recementation of crowns, bridges, inlays and onlays.

(E) Cast post and core, including cast retention under crowns.

(F) Repair or replacement of crowns, abutments or pontics.

(7) Removable Prosthetics

(A) Dentures, full maxillary, full mandibular, partial upper, partial lower, teeth, clasps and stress breakers, limited as follows:

1. Partial dentures are not to be replaced within 36 consecutive months, unless:

a. It is necessary due to natural tooth loss where the addition or replacement of teeth to the existing partial is not feasible, or

b. The denture is unsatisfactory and cannot be made satisfactory

2. The covered dental benefit for partial dentures will be limited to the charges for a cast chrome or acrylic denture if this would satisfactorily restore an arch. If a more elaborate or precision appliance is chosen by the patient and the dentist, and is not necessary to satisfactorily restore an arch, the patient will be responsible for all additional charges.

3. A removable partial denture is considered an adequate restoration of a case when teeth are missing on both sides of the dental arch. Other treatments of such cases are considered optional.

4. Full upper and/or lower dentures are not to be replaced within 36 consecutive months unless the existing denture is unsatisfactory and cannot be made satisfactory by reline or repair.

5. The covered dental benefit for complete dentures will be limited to the benefit level for a standard procedure. If a more personalized or specialized treatment is chosen by the patient and the dentist, the applicant will be responsible for all additional charges.

(B) Office or laboratory relines or rebases, limited as follows:

One per arch in any 12 consecutive months.

(D) Denture adjustment.

(E) Tissue conditioning, limited to two per denture.

(F) Denture duplication.

(G) Implants are considered an optional benefit.

(H) Stayplates, limited as follows:

Stayplates are a benefit only when used as anterior space maintainers for children.

(8) Orthodontic Treatment, limited as follows:

If the subscriber child meets the eligibility requirements for medically necessary orthodontia coverage under the California Children's Services program, benefits shall be provided and determined by the California Children's Services program.

(9) Other Dental Benefits

(A) Local anesthetics.

(B) Oral sedatives when dispensed in a dental office by a practitioner acting within the scope of their licensure.

(D) Emergency treatment, palliative treatment.

(E) Coordination of benefits with subscriber's health plan in the event hospitalization or out-patient surgery setting is medically appropriate for dental services.

(10) This part shall not be construed to prohibit a dental plan's ability to impose cost control mechanisms. Such mechanisms may include but are not limited to requiring prior authorization for benefits or providing alternative treatments or services.

(11)(A) Participating dental plans shall be responsible for identifying subscribers who have conditions for which they may be eligible to receive services under the California Children's Services (CCS) Program, and shall refer these individuals to the local CCS Program for determination of eligibility.

(C) If a subscriber is determined by the CCS Program to be eligible for CCS benefits, participating dental plans shall provide primary care and services unrelated to the CCS eligible condition and shall ensure coordination of services between plan providers, CCS providers, and the local CCS program.

(b)(1) The scope of dental benefits shall also include all dental benefits which are covered under the California Children's Services program (Health and Safety Code Section 123800 et seq.), provided the subscriber meets the medical eligibility requirements of that program, as determined by that program.

(2) When a subscriber is determined by the California Children's Services Program (Health and Safety Code Section 123800 et seq.) to be eligible for benefits under that program, a participating dental plan shall not be responsible for the provision of, or payment for, the particular services authorized by the California Children's Services Program for the particular subscriber for the treatment of a California Children's Services Program eligible medical condition. All other services provided under the participating dental plan shall be available to the subscriber.

(c) If, pursuant to any Workers' Compensation, Employer's Liability Law, or other legislation of similar purpose or import, a third party is responsible for all or part of the cost of dental services to treat any bodily injury or sickness arising from or sustained in the course of any occupation or employment for compensation, profit or gain, the participating dental plan shall provide the services at the time of need, and the subscriber or applicant shall cooperate to assure that the participating dental plan is reimbursed for such services.

(d) Coverage provided under the Healthy Families Program is secondary to all other coverage, except Denti-Cal. Benefits paid under this Program are determined after benefits have been paid as a result of a subscriber's enrollment in any other dental care program. If dental services are eligible for reimbursement by insurance or covered under any other insurance or dental care service plan, the participating dental plan shall provide the services at the time of need, and the subscriber or applicant shall cooperate to assure that the participating dental plan is reimbursed for such services.

NOTE

Authority cited: Sections 12693.21, 12693.22, 12693.62 and 12693.755, Insurance Code. Reference: Sections 12693.21, 12693.62, 12693.63 and 12693.64, Insurance Code.

HISTORY

2. Certificate of Compliance as to 2-20-98 order transmitted to OAL 6-5-98 and filed 7-15-98 (Register 98, No. 29).

3. Amendment of section heading, section and Note filed 4-29-2002 as an emergency; operative 4-29-2002 (Register 2002, No. 18). Pursuant to Chapter 946, Statutes of 2000, section 2, a Certificate of Compliance must be transmitted to OAL by 10-28-2002 or emergency language will be repealed by operation of law on the following day.

4. Certificate of Compliance as to 4-29-2002 order transmitted to OAL 10-28-2002 and filed 12-12-2002 (Register 2002, No. 50).

5. Amendment of subsections (a) and (a)(3)(B), repealer of subsection (a)(3)(B)1., amendment of subsections (a)(4)(E), (a)(11) and (b)(2), new subsections (c) and (d) and amendment of Note filed 9-15-2008; operative 10-15-2008 (Register 2008, No. 38).

6. Redesignation and amendment of former subsection (a)(11) as subsection (a)(11)(A), new subsections (a)(11)(B)-(C) and amendment of Note filed 6-30-2011, deemed an emergency pursuant to Insurance Code section 12693.22; operative 6-30-2011 (Register 2011, No. 26). A Certificate of Compliance must be transmitted to OAL by 12-27-2011 or the emergency action will be repealed by operation of law on the following day.

7. Certificate of Compliance as to 6-30-2011 order transmitted to OAL 12-20-2011 and filed 2-3-2012 (Register 2012, No. 5).

§2699.6711. Scope of Dental Benefits for Subscriber Parents.

Note • History

(a) The basic scope of benefits for subscriber parents offered by a participating dental plan must comply with all requirements of the Knox-Keene Health Care Service Plan Act of 1975, including amendments as well as its applicable regulations, and shall include all of the benefits and services listed in this section, subject to certain exclusions as listed in Section 2699.6713.

The covered dental benefit for each subscriber is limited to fifteen hundred dollars ($1,500) per benefit year effective July 1, 2009.

No other dental benefits shall be permitted to be offered by a participating dental plan as part of the program. The basic scope of dental benefits shall be as follows:

(1) Diagnosis and Preventive Benefits

(A) Initial and periodic oral examinations -- oral examinations are benefits only twice in a benefit year.

(B) Consultations, including specialist consultations

1. Bitewing x-rays in conjunction with periodic examinations are limited to one series of four films in a benefit year.

2. Full mouth x-rays in conjunction with periodic examinations are limited to once in a three-year period unless special need is shown.

3. Panoramic film x-rays are limited to once in a three year-period.

(D) Prophylaxis services, not to exceed two in a twelve month period. A third cleaning will be provided as a benefit for high-risk patients in the following categories:

1. Women who are pregnant

2. Subscribers undergoing cancer chemotherapy

3. Subscribers with compromising systemic diseases such as diabetes as determined to be medically necessary for appropriate dental care by the provider and approved by the plan.

(E) Space maintainers, including removable acrylic and fixed band type.

(F) Preventive dental education and oral hygiene instructions

(2) Restorative Dentistry

(A) Restorations, limited as follows:

2. Composite resin or acrylic restorations in posterior teeth are optional.

3. Micro filled resin restorations which are non-cosmetic

4. Replacement of a restoration is covered only when it is defective, as evidenced by conditions such as recurrent caries or fracture, and replacement is dentally necessary.

(B) Use of pins and pin build-up in conjunction with a restoration.

(3) Oral Surgery

(A) Extractions, including surgical extractions.

(B) Removal of impacted teeth. Surgical removal of impacted teeth is a covered benefit only when evidence of pathology exists.

(D) Alveolectomies

(E) Excision of cysts and neoplasms

(F) Treatment of palatal torus

(G) Treatment of mandibular torus

(H) Frenectomy

(I) Incision and drainage of abscesses

(J) Post-operative services including exams, suture removal and treatment of complications.

(K) Root recovery (separate procedure)

(4) Endodontics

(A) Direct pulp capping

(B) Pulpotomy and vital pulpotomy

(D) Root amputation

(E) Root canal therapy, including culture canal, and retreatment of previous root canal therapy limited as follows.

Retreatment of root canals is a covered benefit only if clinical or radiographic signs of abscess formation are present, and/or the patient is experiencing symptoms. Removal or retreatment of silver points, overfills, underfills, incomplete fills, or broken instruments lodged in a canal, in the absence of pathology is not a covered benefit.

(F) Apicoectomy

(G) Vitality tests

(5) Periodontics

(A) Emergency treatment, including treatment for periodontal abscess and acute periodontitis.

(B) Periodontal scaling and root planing, and subgingival curettage, limited as follows: Five quadrant treatments in any 12 consecutive months.

(D) Osseous or Muco-Gingival Surgery.

(E) Periodontal procedures which include cleanings are subject to the limitations described in Subsection 2699.6711(a)(1)(D).

(6) Crown, Jackets, Cast and Fixed Bridges

1. Replacement of each unit is limited to once every five years.

2. Crowns will be covered only if there is not enough retentive quality left in the tooth to hold a filling. For example, if the buccal or lingual walls are either fractured or decayed to the extent that they will not hold a filling.

3. Veneers posterior to the second biscupid are considered optional. An allowance will be made for a cast full crown.

(B) Fixed bridges, which are cast, porcelain baked with metal, or plastic processed to gold, are limited as follows:

2. A fixed bridge is covered when it is necessary to replace a missing permanent anterior tooth and the patient's oral health and general dental condition permits.

3. Fixed bridges used to replace missing posterior teeth are considered optional when the abutment teeth are dentally sound and would be crowned only for the purpose of supporting a pontic.

4. Fixed bridges are optional when provided in connection with a partial denture on the same arch.

5. Replacement of an existing fixed bridge is covered only when it cannot be made satisfactory by repair.

(C) The program allows up to five units of crown or bridgework per arch. Upon the sixth unit, the treatment is considered full mouth reconstruction which is an optional treatment.

(D) Recementation of crowns, bridges, inlays and onlays.

(E) Cast post and core, including cast retention under crowns.

(F) Repair or replacement of crowns, abutments or pontics.

(7) Removable Prosthetics

(A) Dentures, full maxillary, full mandibular, partial upper, partial lower, teeth, clasps and stress breakers, limited as follows:

1. Partial dentures are not to be replaced within five years unless:

a. It is necessary due to natural tooth loss where the addition or replacement of teeth to the existing partial is not feasible, there has been such an extensive loss of remaining teeth, or a change in supporting tissues, or

b. The denture is unsatisfactory and cannot be made satisfactory.

3. A removable partial denture is considered an adequate restoration of a case when teeth are missing on both sides of the dental arch. Other treatments of such cases are considered optional.

4. Full upper and/or lower dentures are not to be replaced within five years unless the existing denture is unsatisfactory and cannot be made satisfactory by reline or repair, the plan determines that there has been such an extensive loss of remaining teeth, or a change in supporting tissue that the existing appliance cannot be made satisfactory.

5. The covered dental benefit for complete dentures will be limited to the benefit level for a standard procedure. The plan will pay the applicable percentage of the dentist's fee for a standard partial or complete denture up to a maximum fee allowance (or established UCR fee). If a more personalized or specialized treatment is chosen by the patient and the dentist, the applicant will be responsible for all additional charges.

(B) Office or laboratory relines or rebases, limited to one per arch in any 12 consecutive months.

(D) Denture adjustment

(E) Tissue conditioning, limited to two per denture

(F) Denture duplication

(G) Implants (appliances inserted into bone or soft tissue in the jaw usually to anchor a denture) are covered.

(H) Stayplates -- provided as a benefit only when used to replace extracted anterior teeth for adults during a healing period.

(8) Other Dental Benefits

(A) Local anesthetics

(B) Oral sedatives when dispensed in a dental office by a practitioner acting within the scope of their licensure.

(D) Emergency treatment, palliative treatment.

(E) Coordination of benefits with subscriber's health plan in the event hospitalization or outpatient surgery setting is medically appropriate for dental services.

(9) This part shall not be construed to prohibit a dental plan's ability to impose cost control mechanisms. Such mechanisms may include but are not limited to requiring prior authorization for benefits or providing alternative treatments or services.

(10) Participating dental plans shall be responsible for identifying subscribers under the age of 21 who have conditions for which they may be eligible to receive services under the California Children's Services (CCS) Program and shall refer these individuals to the local CCS Program for determination of eligibility. If a subscriber is determined by the CCS Program to be eligible for CCS benefits, participating dental plans shall provide primary care and services unrelated to the CCS eligible condition and shall ensure coordination of services between plan providers, CCS providers, and the local CCS program.

(2) When a subscriber under the age of 21 is determined by the California Children's Services Program (Health and Safety Code Section 123800 et seq.) to be eligible for benefits under that program, a participating dental plan shall not be responsible for the provision of, or payment for, the particular services authorized by the California Children's Services Program for the particular subscriber for the treatment of a California Children's Services Program eligible medical condition. All other services provided under the participating dental plan shall be available to the subscriber.

NOTE

Authority cited: Sections 12693.21 and 12693.755, Insurance Code. Reference: Sections 12693.21, 12693.63, 12693.64 and 12693.755, Insurance Code.

HISTORY

2. Certificate of Compliance as to 2-20-98 order, including new subsection (a) and redesignation of former subsections (a)-(t) to new subsections (a)(1)-(20), transmitted to OAL 6-5-98 and filed 7-15-98 (Register 98, No. 29).

3. Renumbering of former section 2699.6711 to section 2699.6713 and new section 2699.6711 filed 4-29-2002 as an emergency; operative 4-29-2002 (Register 2002, No. 18). Pursuant to Chapter 946, Statutes of 2000, section 2, a Certificate of Compliance must be transmitted to OAL by 10-28-2002 or emergency language will be repealed by operation of law on the following day.

4. Certificate of Compliance as to 4-29-2002 order transmitted to OAL 10-28-2002 and filed 12-12-2002 (Register 2002, No. 50).

5. Amendment of subsections (a), (a)(2), (a)(3), (a)(4), (a)(4)(E), (a)(5) and (a)(5)(D), new subsection (a)(5)(E), amendment of subsection (a)(6), new subsections (c) and (d) and amendment of Note filed 9-15-2008; operative 10-15-2008 (Register 2008, No. 38).

6. Amendment of subsection (a) filed 1-15-2009, deemed an emergency pursuant to Chapter 758, Statutes of 2008; operative 1-15-2009 (Register 2009, No. 3). A Certificate of Compliance must be transmitted to OAL by 7-14-2009 or emergency language will be repealed by operation of law on the following day.

7. Certificate of Compliance as to 1-15-2009 order transmitted to OAL 7-13-2009 and filed 8-19-2009 (Register 2009, No. 34).

§2699.6713. Excluded Dental Benefits for All Subscribers.

Note • History

(a) A dental benefits plan offered under this program shall exclude:

(1) Any benefits specified as excluded within Section 2699.6709 or Section 2699.6711.

(2) Any benefits in excess of limits specified in Section 2699.6709 or Section 2699.6711.

(3) Services, supplies, items, procedures or equipment, which are not medically necessary as determined by the plan, unless otherwise specified in Section 2699.6709 or Section 2699.6711.

(4) Any benefits received or costs that were incurred in connection with any dental procedures started prior to the subscriber's effective date of coverage. This exclusion does not apply to covered services to treat complications arising from services received prior to the subscriber's effective date of coverage.

(5) Any benefits that are received subsequent to the time the subscriber's coverage ends.

(7) Dental services that are received in an emergency care setting for conditions that are not emergencies if the subscriber reasonably should have known that an emergency care situation did not exist.

(8) Procedures, appliances, or restorations to correct congenital or developmental malformations are not covered benefits unless specifically listed in Section 2699.6709 or Section 2699.6711.

(9) Cosmetic dental care.

(10) General anesthesia or intravenous/conscious sedation unless specifically listed as a benefit or is given by a dentist for covered oral surgery.

(11) Hospital charges of any kind.

(12) Major surgery for fractures and dislocations.

(13) Loss or theft of dentures or bridgework.

(14) Malignancies.

(15) Dispensing of drugs not normally supplied in a dental office.

(16) Additional treatment costs incurred because a dental procedure is unable to be performed in the dentist's office due to the general health and physical limitations of the subscriber.

(17) The cost of precious metals used in any form of dental benefits.

(18) The surgical removal of implants.

(19) Services of a pedodontist/pediatric dentist for subscriber children except when a subscriber child is unable to be treated by his or her panel provider, or treatment by a pedodontist/pediatric dentist is medically necessary, or his or her panel provider is a pedodontist/pediatric dentist.

NOTE

Authority cited: Sections 12693.21 and 12693.755, Insurance Code. Reference: Sections 12693.21, 12693.63 and 12693.755, Insurance Code.

HISTORY

2. Certificate of Compliance as to 2-20-98 order transmitted to OAL 6-5-98 and filed 7-15-98 (Register 98, No. 29).

3. New subsection (d) filed 3-21-2000 as an emergency; operative 3-21-2000 (Register 2000, No. 12). A Certificate of Compliance must be transmitted to OAL by 7-19-2000 or emergency language will be repealed by operation of law on the following day.

4. Certificate of Compliance as to 3-21-2000 order transmitted to OAL 6-23-2000 and filed 7-17-2000 (Register 2000, No. 29).

5. Renumbering of former section 2699.6713 to section 2699.6715 and renumbering of former section 2699.6711 to section 2699.6713, including amendment of section heading, section and Note, filed 4-29-2002 as an emergency; operative 4-29-2002 (Register 2002, No. 18). Pursuant to Chapter 946, Statutes of 2000, section 2, a Certificate of Compliance must be transmitted to OAL by 10-28-2002 or emergency language will be repealed by operation of law on the following day.

6. Certificate of Compliance as to 4-29-2002 order, including repealer of subsection (a)(8) and subsection renumbering, transmitted to OAL 10-28-2002 and filed 12-12-2002 (Register 2002, No. 50).

7. Amendment filed 9-15-2008; operative 10-15-2008 (Register 2008, No. 38).

§2699.6715. Share of Cost for Dental Benefits for Subscriber Children.

Note • History

(a) Every participating dental plan shall require copayments for the dental benefits listed in Subsection 2699.6709 (a) of these regulations provided to subscribers subject to the following except that subscribers with household income at or below 150% of the Federal Poverty Level shall pay a $5 copayment when a copayment is required:

(1) No copayments shall be charged for benefits listed under Subsection 2699.6709(a)(1), “Diagnostic and Preventive Benefits.”

(2) No copayments shall be charged for benefits listed under Subsection 2699.6709(a)(2), “Restorative Dentistry.”

(3) No copayments shall be charged for benefits listed under Subsection 2699.6709(a)(3), “Oral Surgery”, with the following exceptions:

(A) Removal of impacted teeth is subject to a copayment per tooth as follows:

1. Soft tissue impaction -- No copayment.

2. Bony impaction -- $10 copayment per tooth.

(B) Root recovery -- $10 per root.

(4) No copayments shall be charged for benefits listed under Subsection 2699.6709(a)(4), “Endodontics”, with the following exceptions:

(A) Root canal therapy -- $10 per canal. $10 copayment per canal for retreatment of previous root canal.

(B) An apicoectomy performed in conjunction with root canal therapy is subject to a copayment of $10 per canal. When performed as a separate procedure, an apicoectomy is subject to a copayment of $10 per canal.

(5) No copayments shall be charged for benefits listed under Subsection 2699.6709(a)(5), “Periodontics”, with the following exceptions:

(A) Osseous or muco-gingival surgery -- $10 per quadrant.

(B) Gingivectomy -- no copayment.

(6) No copayments shall be charged for benefits listed under Subsection 2699.6709(a)(6), “Crowns and Fixed Bridges” with the following exceptions:

(A) Porcelain crowns; porcelain fused to metal crowns; full metal crowns; and gold onlays or 3/4 crowns; are each subject to a copayment of $10.

(B) Pontics are each subject to a copayment of $10.

(7) No copayments shall be charged for benefits listed under Subsection 2699.6709(a)(7), “Removable Prosthetics”, with the following exceptions:

(A) Dentures are subject to copayments as follows:

1. Complete maxillary denture -- $10.

2. Complete mandibular denture -- $10.

3. Partial acrylic upper or lower denture with clasps -- $10.

4. Partial upper or lower denture with chrome cobalt alloy lingual or palatal bar, clasps and acrylic saddles -- $10.

5. Removable unilateral partial denture -- $10.

(B) Reline for an upper, lower or partial denture is subject to a copayment per unit as follows:

1. Office reline -- No copayment.

2. Laboratory reline -- $10.

(8) No copayments shall be charged for benefits listed under Subsection 2699.6709(c)(8), “Orthodontia.”

(9) No copayments shall be charged for benefits listed under Subsection 2699.6709(a)(9), “Other”.

(10) The copayment for any precious (noble) metals used in any crown or bridge will be the full cost of the actual precious metal used.

(11) Notwithstanding any other provision in this section, an alternative copayment shall apply under the following circumstances: For children under six years of age, who are unable to be treated by their panel provider, and who have been referred to a pedodontist/pediatric dentist, the copayment is $10.

(b) A fee of $10 shall be charged for failure to cancel an appointment without 24 hours prior notification.

(d) No copayments or fees shall apply if the applicant has submitted acceptable documentation as described in Subsection 2699.6600(c)(1)(GG) that the applicant or the subscriber is American Indian or Alaska Native.

NOTE

Authority cited: Sections 12693.21 and 12693.22, Insurance Code. Reference: Sections 12693.21, 12693.22 and 12693.63, Insurance Code.

HISTORY

2. Certificate of Compliance as to 2-20-98 order transmitted to OAL 6-5-98 and filed 7-15-98 (Register 98, No. 29).

3. Renumbering of former section 2699.6715 to section 2699.6719 and renumbering of former section 2699.6713 to section 2699.6715, including amendment of section heading, section and Note, filed 4-29-2002 as an emergency; operative 4-29-2002 (Register 2002, No. 18). Pursuant to Chapter 946, Statutes of 2000, section 2, a Certificate of Compliance must be transmitted to OAL by 10-28-2002 or emergency language will be repealed by operation of law on the following day.

4. Certificate of Compliance as to 4-29-2002 order transmitted to OAL 10-28-2002 and filed 12-12-2002 (Register 2002, No. 50).

5. Amendment of subsection (d) filed 7-31-2003 as an emergency; operative 7-31-2003 (Register 2003, No. 31). A Certificate of Compliance must be transmitted to OAL by 1-27-2004 or emergency language will be repealed by operation of law on the following day.

6. Certificate of Compliance as to 7-31-2003 order transmitted to OAL 11-17-2003 and filed 12-30-2003 (Register 2004, No. 1).

7. Amendment of subsection (d) filed 1-7-2005; operative 1-7-2005 (Register 2005, No. 1).

8. Amendment of subsection (a)(4)(A) filed 9-15-2008; operative 10-15-2008 (Register 2008, No. 38).

9. Amendment of section and Note filed 10-29-2009; operative 11-1-2009 pursuant to Government Code section 11346.1(d) (Register 2009, No. 44). A Certificate of Compliance must be transmitted to OAL by 4-30-2010 or emergency action will be repealed by operation of law on the following day. This regulatory action is deemed to meet the emergency standard and is exempt from OAL review pursuant to Insurance Code section 12693.22.

10. Certificate of Compliance as to 10-29-2009 order transmitted to OAL 4-27-2010 and filed 6-9-2010 (Register 2010, No. 24).

§2699.6717. Share of Cost for Dental Benefits for Subscriber Parents.

Note • History

(a) Every participating dental plan shall require copayments for the dental benefits provided to subscriber parents subject to the following:

(1) No copayments shall be charged for benefits listed under Subsection 2699.6711(a)(1), “Diagnostic and Preventive.”

(2) No copayments shall be charged for benefits listed under Subsection 2699.6711(a)(2), “Restorative Dentistry”, with the following exceptions:

(A) Micro filled resin restorations (non-cosmetic, acid etched, bonded, light cured):

1. $40 per surface

2. $65 for two or more surfaces

(3) No copayments shall be charged for benefits listed under subsection 2699.6711(a)(3), “Oral Surgery”, with the following exceptions:

(A) Removal of impacted teeth is subject to a copayment per tooth as follows:

1. Partially bony impaction -- $15 copayment.

2. Complete bony impaction -- $15 copayment.

(B) Root recovery as a separate procedure -- $5 per root.

(4) No copayments shall be charged for benefits listed under Subsection 2699.6711(a)(4), “Endodontics” with the following exceptions:

(A) Root canal therapy or retreatment of previous root canal therapy (excluding restoration) is subject to copayments as follows:

1. 1 canal -- $20

2. 2 canals -- $40

3. 3 canals -- $60

4. 4 canals -- $80

(B) An apicoectomy performed in conjunction with filling or root canal therapy at the same time is subject to a copayment of $60 per canal. When performed as a separate procedure, an apicoectomy is subject to a copayment of $50 per canal.

(5) No copayments shall be charged for benefits listed under subsection 2699.6711(a)(5), “Periodontics”, with the following exceptions:

(A) Osseous or muco-gingival surgery is subject to a copayment of $150 per quadrant (includes post surgical visits).

(B) Gingivectomy is subject to a $5 copayment per tooth (fewer than six teeth).

(6) No copayments shall be charged for benefits listed under subsection 2699.6711(a)(6), “Crowns and Bridges” (per unit), with the following exceptions:

(A) Porcelain crowns; porcelain fused to metal crowns (excluding molars) full crowns, or 3/4 crowns; are each subject to a copayment of $50. Cast post and core are subject to $40 per unit copayment, and bonded Maryland Bridge is subject to $50 copayment per unit.

(B) Pontics are each subject to a copayment of $50.

(7) “Removable Prosthetics” as listed under Subsection 2699.6711(a)(7) are subject to the following copayments:

(A) Dentures are subject to copayments as follows:

1. Complete upper denture (3 adjustments within 60 days) -- $65.

2. Complete lower denture (3 adjustments within 60 days) -- $65.

3. Partial acrylic upper or lower denture with clasps -- $5.

4. Partial acrylic upper or lower denture with 2 chrome cobalt allow clasps is subject to a base fee of $65.

5. Partial lower or upper denture with chrome cobalt allow, lingual or palatal bar, clasps and acrylic saddles -- $65 base fee (included two clasps).

6. Removable unilateral partial denture -- $50.

7. Stayplate (maximum two teeth included) -- $60.

(B) Reline for an upper, lower or partial denture is subject to a copayment per unit as follows:

1. Office reline -- No copayment.

2. Laboratory reline -- $15 copayment.

(D) Denture Repairs

1. Adding teeth to partial denture to replace natural tooth:

First tooth -- $10 copayment.

Each additional tooth -- $5 copayment.

2. Broken partial denture (no teeth involved) Replacement broken clasp -- $5 copayment.

3. Add clasp with rest -- $5 copayment.

(8) Other Services After hour visit -- $35 copayment.

Broken appointment -- $5 copayment.

(9) Implants -- If implants are utilized, the plan will apply the cost of a standard full or partial denture towards the cost of implants and appliances constructed thereon, and if performed, subscriber parent must pay the difference plus any applicable copayment. Surgical removal of implants is not covered.

(b) No deductibles shall be charged to subscriber parents for dental benefits.

(c) No copayments or fees shall apply if the applicant has submitted acceptable documentation as described in Subsection 2699.6600(c)(1)(GG) that the applicant or subscriber is American Indian or Alaska Native.

(d) Note: Any procedure not listed in the EOC is available on a fee-for-service basis.

NOTE

Authority cited: Sections 12693.21 and 12693.755, Insurance Code. Reference: Sections 12693.21, 12693.63 and 12693.755, Insurance Code.

HISTORY

2. Certificate of Compliance as to 2-20-98 order transmitted to OAL 6-5-98 and filed 7-15-98 (Register 98, No. 29).

3. Renumbering of former section 2699.6717 to section 2699.6721 and new section 2699.6717 filed 4-29-2002 as an emergency; operative 4-29-2002 (Register 2002, No. 18). Pursuant to Chapter 946, Statutes of 2000, section 2, a Certificate of Compliance must be transmitted to OAL by 10-28-2002 or emergency language will be repealed by operation of law on the following day.

4. Certificate of Compliance as to 4-29-2002 order transmitted to OAL 10-28-2002 and filed 12-12-2002 (Register 2002, No. 50).

5. Amendment of subsection (c) filed 7-31-2003 as an emergency; operative 7-31-2003 (Register 2003, No. 31). A Certificate of Compliance must be transmitted to OAL by 1-27-2004 or emergency language will be repealed by operation of law on the following day.

6. Certificate of Compliance as to 7-31-2003 order transmitted to OAL 11-17-2003 and filed 12-30-2003 (Register 2004, No. 1).

7. Amendment of subsection (c) filed 7-1-2004 as an emergency; operative 7-1-2004 (Register 2004, No. 27). Pursuant to Section 80, A.B. 1762 (Chapter 230, Stats. 2003) a Certificate of Compliance must be transmitted to OAL by 12-28-2004 or emergency language will be repealed by operation of law on the following day.

8. Certificate of Compliance as to 7-1-2004 order transmitted to OAL 11-24-2004 and filed 1-7-2005 (Register 2005, No. 1).

9. Amendment of subsection (a)(4)(A) filed 9-15-2008; operative 10-15-2008 (Register 2008, No. 38).

§2699.6719. Waiting Periods for Receipt of Specified Benefits.

Note • History

Participating dental plans may not subject enrollees to waiting periods for receipt of specified benefits.

NOTE

Authority cited: Section 12693.21, Insurance Code. Reference: Sections 12693.21 and 12693.63, Insurance Code.

HISTORY

2. Certificate of Compliance as to 2-20-98 order transmitted to OAL 6-5-98 and filed 7-15-98 (Register 98, No. 29).

3. Renumbering of former section 2699.6719 to section 2699.6723 and renumbering of former section 2699.6715 to section 2699.6719 filed 4-29-2002 as an emergency; operative 4-29-2002 (Register 2002, No. 18). Pursuant to Chapter 946, Statutes of 2000, section 2, a Certificate of Compliance must be transmitted to OAL by 10-28-2002 or emergency language will be repealed by operation of law on the following day.

4. Certificate of Compliance as to 4-29-2002 order transmitted to OAL 10-28-2002 and filed 12-12-2002 (Register 2002, No. 50).

§2699.6721. Scope of Vision Benefits.

Note • History

(a) The basic scope of benefits offered by a participating vision plan must comply with all requirements of the Knox-Keene Health Care Service Plan Act of 1975, including amendments as well as its applicable regulations, and shall include all of the benefits and services listed in this section, subject to the exclusions listed in Section 2699.6723. No other vision benefits shall be permitted to be offered by a participating vision plan as part of the program. The basic scope of vision benefits shall be as follows:

(1) Examinations: Each subscriber shall be entitled to a comprehensive vision examination, including a complete analysis of the eyes and related structures, as appropriate, to determine the presence of vision problems or other abnormalities as follows:

(A) Case history: Review of subscriber's main reason for the visit, past history, medications, general health, ocular symptoms, and family history.

(B) Evaluation of the health status of the visual system; including:

1. External and internal examination, including direct and/or indirect ophthalmoscopy;

2. Assessment of neurological integrity, including that of pupillary reflexes and extraocular muscles;

3. Biomicroscopy of the anterior segment of the eye, including observation of the cornea, lens, iris, conjunctiva, lids and lashes;

4. Screening of gross visual fields; and

5. Pressure testing through tonometry.

1. Evaluation for visual acuity;

2. Evaluation of subjective, refractive, and accommodative function; and

3. Objective testing of a patient's prescription through retinoscopy.

(D) Binocular function test.

(E) Diagnosis and treatment plan, if needed.

(F) Examinations are limited to once each twelve consecutive month period.

(2) When the vision examination indicates that corrective lenses are necessary, each subscriber is entitled to necessary frames and lenses, including coverage for single vision, bifocal, trifocal, lenticular, and polycarbonate lenses as appropriate.

Frames and lenses are limited to once each twelve consecutive month period.

(3) Contact lenses shall be covered as follows:

(A) Necessary contact lenses shall be covered in full upon prior authorization from the vision plan, for certain conditions. These conditions may include the following:

1. Following cataract surgery;

2. To correct extreme visual acuity problems that cannot be corrected with spectacle lenses;

3. Certain conditions of Anisometropia; and

4. Keratoconus.

(B) Elective contact lenses may be chosen instead of corrective lenses and a frame a maximum benefit allowance of $100, which includes examinations, fittings and lenses.

(4) A low vision benefit shall be provided to subscribers who have severe visual problems that are not correctable with regular lenses. This benefit requires prior approval from the participating vision plan. With this prior approval, supplementary testing and supplemental care, including low vision therapy as visually necessary or appropriate, shall be provided.

For subscriber parents, the covered person is required to pay a $5 copayment for any approved Low Vision services.

(5)(A) Participating vision plans shall be responsible for identifying subscribers under the age of 21 who have conditions for which they may be eligible to receive services under the California Children's Services (CCS) Program, and shall refer these individuals to the local CCS program for determination of eligibility.

(C) If a subscriber is determined by the CCS Program to be eligible for CCS benefits, participating vision plans shall provide services unrelated to the CCS eligible condition and shall ensure coordination of services between plan providers, CCS providers, and the local CCS program.

(b)(1) The scope of vision benefits shall also include all vision benefits which are covered under the California Children's Services Program (Health and Safety Code Section 123800 et seq.) provided the subscriber meets the medical eligibility requirements of that program, as determined by that program.

(2) When a subscriber under the age of 21 is determined by the California Children's Services Program to be eligible for vision benefits under that program, a participating vision plan shall not be responsible for the provision of, or payment for, the particular services authorized by the California Children's Services Program for the particular subscriber for the treatment of a California Children's Services Program eligible medical condition. All other services provided under the participating vision plan shall be available to the subscriber.

(c) If, pursuant to any Workers' Compensation, Employer's Liability Law, or other legislation of similar purpose or import, a third party is responsible for all or part of the cost of vision services to treat any bodily injury or sickness arising from or sustained in the course of any occupation or employment for compensation, profit or gain, the participating vision plan shall provide the services at the time of need, and the subscriber or applicant shall cooperate to assure that the participating vision plan is reimbursed for such services.

(d) Coverage provided under the Healthy Families Program is secondary to all other coverage, except Medi-Cal. Benefits paid under this Program are determined after benefits have been paid as a result of a subscriber's enrollment in any other vision care program. If vision services are eligible for reimbursement by insurance or covered under any other insurance or vision care service plan, the participating vision plan shall provide the services at the time of need, and the subscriber or applicant shall cooperate to assure that the participating vision plan is reimbursed for such services.

NOTE

Authority cited: Sections 12693.21, 12693.22, 12693.62 and 12693.755, Insurance Code. Reference: Sections 12693.21, 12693.22, 12693.62, 12693.65, 12693.66 and 12693.755, Insurance Code.

HISTORY

2. Certificate of Compliance as to 2-20-98 order transmitted to OAL 6-5-98 and filed 7-15-98 (Register 98, No. 29).

4. Certificate of Compliance as to 3-21-2000 order transmitted to OAL 6-23-2000 and filed 7-17-2000 (Register 2000, No. 29).

5. Renumbering of former section 2699.6721 to section 2699.6725 and renumbering of former section 2699.6717 to section 2699.6721, including amendment of section and Note, filed 4-29-2002 as an emergency; operative 4-29-2002 (Register 2002, No. 18). Pursuant to Chapter 946, Statutes of 2000, section 2, a Certificate of Compliance must be transmitted to OAL by 10-28-2002 or emergency language will be repealed by operation of law on the following day.

6. Certificate of Compliance as to 4-29-2002 order transmitted to OAL 10-28-2002 and filed 12-12-2002 (Register 2002, No. 50).

7. Amendment filed 9-15-2008; operative 10-15-2008 (Register 2008, No. 38).

8. Amendment of subsection (a)(2) filed 1-15-2009, deemed an emergency pursuant to Chapter 758, Statutes of 2008; operative 1-15-2009 (Register 2009, No. 3). A Certificate of Compliance must be transmitted to OAL by 7-14-2009 or emergency language will be repealed by operation of law on the following day.

9. Certificate of Compliance as to 1-15-2009 order transmitted to OAL 7-13-2009 and filed 8-19-2009 (Register 2009, No. 34).

10. Amendment of subsections (a)(1)(F), (a)(2) and (a)(3)(C) and amendment of Note filed 6-24-2010 as an emergency; operative 7-1-2010 pursuant to Government Code section 11346.1(d) (Register 2010, No. 26). A Certificate of Compliance must be transmitted to OAL by 12-28-2010 or the emergency action will be repealed by operation of law on the following day.

11. Certificate of Compliance as to 6-24-2010 order transmitted to OAL 12-21-2010 and filed 2-2-2011 (Register 2011, No. 5).

12. Redesignation and amendment of former subsection (a)(5) as subsection (a)(5)(A), new subsections (a)(5)(B)-(C) and amendment of Note filed 6-30-2011, deemed an emergency pursuant to Insurance Code section 12693.22; operative 6-30-2011 (Register 2011, No. 26). A Certificate of Compliance must be transmitted to OAL by 12-27-2011 or the emergency action will be repealed by operation of law on the following day.

13. Certificate of Compliance as to 6-30-2011 order transmitted to OAL 12-20-2011 and filed 2-3-2012 (Register 2012, No. 5).

§2699.6723. Excluded Vision Benefits.

Note • History

(a) A vision benefits plan offered under this program shall exclude:

(1) Any benefits specified as excluded within Section 2699.6721.

(2) Any benefits in excess of limits specified in Section 2699.6721.

(3) Services, supplies, items, procedures or equipment, which are not medically necessary as determined by the plan, unless otherwise specified in Section 2699.6721.

(4) Any benefits that were received prior to the subscriber's effective date of coverage.

(5) Any benefits that were received subsequent to the time the subscriber's coverage ends.

(6) Benefits that are not obtained in compliance with the rules and policies of the subscriber's vision plan.

(7) Orthopics or vision training and any associated supplemental testing.

(8) Aniseikonic lenses.

(9) Plano lenses.

(10) Tinted or photochromic lenses unless otherwise deemed medically necessary.

(11) Two pairs of glasses in lieu of bifocals, unless medically necessary and with the prior authorization of the vision plan.

(12) Replacement or repair of lost or broken lenses or frames.

(13) Medical or surgical treatment of the eyes.

(14) Eye examinations required as a condition of employment.

(15) Any additional costs over and above the plan's frame allowance, as specified in subsections 2699.6725(a)(2) and 2699.6725(b)(2).

NOTE

Authority cited: Sections 12693.21 and 12693.755, Insurance Code. Reference: Sections 12693.21, 12693.65 and 12693.755, Insurance Code.

HISTORY

1. Renumbering of former section 2699.6719 to section 2699.6723, including amendment of section and Note, filed 4-29-2002 as an emergency; operative 4-29-2002 (Register 2002, No. 18). Pursuant to Chapter 946, Statutes of 2000, section 2, a Certificate of Compliance must be transmitted to OAL by 10-28-2002 or emergency language will be repealed by operation of law on the following day.

2. Certificate of Compliance as to 4-29-2002 order transmitted to OAL 10-28-2002 and filed 12-12-2002 (Register 2002, No. 50).

3. Amendment filed 9-15-2008; operative 10-15-2008 (Register 2008, No. 38).

4. New subsection (a)(10) and subsection renumbering filed 1-15-2009, deemed an emergency pursuant to Chapter 758, Statutes of 2008; operative 1-15-2009 (Register 2009, No. 3). A Certificate of Compliance must be transmitted to OAL by 7-14-2009 or emergency language will be repealed by operation of law on the following day.

5. Certificate of Compliance as to 1-15-2009 order transmitted to OAL 7-13-2009 and filed 8-19-2009 (Register 2009, No. 34).

§2699.6725. Share of Cost for Vision Benefits.

Note • History

(a) A participating vision plan shall require copayments for benefits provided to subscribers utilizing the services of the vision plan's panel of approved providers subject to the following except that subscribers with household income at or below 150% of the Federal Poverty Level shall pay a $5 copayment when a copayment is required:

(1) Examinations: $10 copayment per examination.

(2) Frames and lenses: $10 copayment, for frames with lenses, or for frames or lenses when purchased separately. No additional copayment for tinted or photochromic lenses when otherwise deemed medically necessary, or polycarbonate lenses.

A frame allowance of $35 is provided by the vision plan. The subscriber is responsible for any costs exceeding this allowance. The participating vision plan shall ensure that a selection of frames that do not cost more than the frame allowance is available to all subscribers.

The following options are considered cosmetic and any costs associated with the selection of these options will be the financial responsibility of the applicant.

(A) Blended lenses (bifocals which do not have a visible dividing line).

(B) Contact lenses except as specified in Section 2699.6721(a)(3).

(D) Progressive multifocal lenses.

(E) Coated or laminated lenses.

(F) UV protected lenses.

(G) Other optional cosmetic processes.

(H) A frame that costs more than the plan's allowance.

(3) Necessary contact lenses, as defined in Subsection 2699.6721(a)(3): No copayment.

(4) Elective contact lenses: an allowance of $100 will be provided by the vision plan toward the cost of an examination, contact lens evaluation, fitting costs and materials. This allowance will be in lieu of all benefits including examination and material costs. The subscriber is responsible for any costs exceeding this allowance.

(5) Low vision benefits:

(A) Supplementary testing: No copayment; and

(B) Supplemental care: $10 copayment.

(b) Services from providers not included in the vision plan's panel of approved providers:

When a subscriber obtains services from a provider not included in the vision plan's panel of approved providers, the applicant will be responsible for paying the provider for all services and materials received at the time of their appointment. The participating vision plan will reimburse the applicant within fourteen (14) calendar days after receipt of the paid itemized bill or statement, according to the schedule of allowances as follows:

(1) Professional fees:

(A) Vision exams, up to $35.00

(2) Materials:

(A) Each single vision lens -- up to $7.50 or a pair of single vision lenses up to $15.00.

(B) Each bifocal lens -- up to $15.00 or a pair of bifocal lenses up to $30.00.

(D) Each lenticular lens -- up to $45.00 or a pair of lenticular lenses up to $90.00.

(E) Frame up to $25.00.

(F) Tinted or photochromic lenses when otherwise deemed medically necessary -- up to $5.00.

(G) Polycarbonate lenses -- up to $10.00.

(H) Each pair of necessary contact lenses -- up to $250.00.

(I) Each pair of elective contact lenses -- up to $100.00. Determination of whether contact lenses are necessary or elective when obtained from providers not included in the vision plan's panel of approved providers will be the responsibility of the vision plan. Reimbursement for elective contact lenses is in lieu of all benefits, including examination and materials.

(3) Low vision benefits: Low vision benefits obtained from a provider not included in the vision plan's panel of approved providers will be reimbursed in accordance with what the participating vision plan would pay a provider included in the vision plan's panel of approved providers for this benefit.

(d) For subscriber parents who receive vision services from one of the participating member doctors, covered services as described are provided with no additional out-of-pocket costs after an applicable copayment. Additional services selected for cosmetic purposes are the financial responsibility of the patient.

(e) No copayments shall apply if the applicant has submitted acceptable documentation as described in Section 2699.6600(c)(1)(GG) that the applicant or the subscriber is American Indian or Alaska Native. However, there is no limitation on the payments required under Subsection (b) above.

NOTE

Authority cited: Sections 12693.21, 12693.22, 12693.62 and 12693.755, Insurance Code. Reference: Sections 12693.21, 12693.22, 12693.62, 12693.65 and 12693.755, Insurance Code.

HISTORY

1. Renumbering of former section 2699.6721 to section 2699.6725, including amendment of section and Note, filed 4-29-2002 as an emergency; operative 4-29-2002 (Register 2002, No. 18). Pursuant to Chapter 946, Statutes of 2000, section 2, a Certificate of Compliance must be transmitted to OAL by 10-28-2002 or emergency language will be repealed by operation of law on the following day.

2. Certificate of Compliance as to 4-29-2002 order transmitted to OAL 10-28-2002 and filed 12-12-2002 (Register 2002, No. 50).

3. Amendment of subsection (e) filed 7-31-2003 as an emergency; operative 7-31-2003 (Register 2003, No. 31). A Certificate of Compliance must be transmitted to OAL by 1-27-2004 or emergency language will be repealed by operation of law on the following day.

4. Certificate of Compliance as to 7-31-2003 order transmitted to OAL 11-17-2003 and filed 12-30-2003 (Register 2004, No. 1).

5. Amendment of subsection (e) filed 7-1-2004 as an emergency; operative 7-1-2004 (Register 2004, No. 27). Pursuant to Section 80, A.B. 1762 (Chapter 230, Stats. 2003) a Certificate of Compliance must be transmitted to OAL by 12-28-2004 or emergency language will be repealed by operation of law on the following day.

6. Certificate of Compliance as to 7-1-2004 order transmitted to OAL 11-24-2004 and filed 1-7-2005 (Register 2005, No. 1).

7. Amendment filed 9-15-2008; operative 10-15-2008 (Register 2008, No. 38).

8. Amendment of subsections (a)(2) and (b)(2)(F) filed 1-15-2009, deemed an emergency pursuant to Chapter 758, Statutes of 2008; operative 1-15-2009 (Register 2009, No. 3). A Certificate of Compliance must be transmitted to OAL by 7-14-2009 or emergency language will be repealed by operation of law on the following day.

9. Certificate of Compliance as to 1-15-2009 order transmitted to OAL 7-13-2009 and filed 8-19-2009 (Register 2009, No. 34).

10. Amendment of subsections (a)-(a)(2) and (a)(5)(B) and amendment of Note filed 10-29-2009; operative 11-1-2009 pursuant to Government Code section 11346.1(d) (Register 2009, No. 44). A Certificate of Compliance must be transmitted to OAL by 4-30-2010 or emergency action will be repealed by operation of law on the following day. This regulatory action is deemed to meet the emergency standard and is exempt from OAL review pursuant to Insurance Code section 12693.22.

11. Certificate of Compliance as to 10-29-2009 order transmitted to OAL 4-27-2010 and filed 6-9-2010 (Register 2010, No. 24).

12. Amendment of subsections (a)(2), (a)(4), (b)(2)(A)-(E) and (b)(2)(I) and amendment of Note filed 6-30-2011, deemed an emergency pursuant to Insurance Code section 12693.22; operative 6-30-2011 (Register 2011, No. 26). A Certificate of Compliance must be transmitted to OAL by 12-27-2011 or the emergency action will be repealed by operation of law on the following day.

13. Certificate of Compliance as to 6-30-2011 order transmitted to OAL 12-20-2011 and filed 2-3-2012 (Register 2012, No. 5).

Article 4. Risk Categories and Family Contributions

§2699.6800. Risk Categories Dental and Vision.

Note • History

(a) Subscriber child rates are as follows:

(1) Dental and vision benefits plan rates shall be based exclusively on one risk category: geographic region of the subscriber's residence. The six geographic regions for subscribers residing within the State of California shall be as follows unless they are altered pursuant to (2) below:

(B) Area 2 shall include the counties of Fresno, Imperial, Kern, Madera, Mariposa, Merced, Napa, Sacramento, San Joaquin, San Luis Obispo, Santa Cruz, Solano, Sonoma, and Stanislaus.

(D) Area 4 shall include the counties of Orange, Santa Barbara, and Ventura.

(E) Area 5 shall include the county of Los Angeles.

(F) Area 6 shall include the counties of Riverside, San Bernardino, and San Diego.

(2) The Board may allow one or more dental and vision plans to subdivide one or more geographic regions. The Board shall determine which region or regions may be subdivided and the number of subregions into which a region will be divided. No subregion shall be smaller than one county. Plans rates may differ between subregions.

(3) Dental and vision plan rates shall be paid on a per capita basis and the per capita rate shall not be differentiated on the basis of age or number of subscribers covered by one family contribution.

(b) Subscriber parent rates are as follows:

(B) Area 2 shall include the counties of Fresno, Imperial, Kern, Madera, Mariposa, Merced, Napa, Sacramento, San Joaquin, San Luis Obispo, Santa Cruz, Solano, Sonoma, and Stanislaus.

(D) Area 4 shall include the counties of Orange, Santa Barbara, and Ventura.

(E) Area 5 shall include the county of Los Angeles.

(F) Area 6 shall include the counties of Riverside, San Bernardino, and San Diego.

(3) Dental and Vision plan rates shall be paid on a per capita basis and the per capita rate shall not be differentiated on the basis of age or number of subscribers covered by one family contribution.

NOTE

Authority cited: Sections 12693.21 and 12693.755, Insurance Code. Reference: Sections 12693.21, 12693.34, 12693.615 and 12693.755, Insurance Code.

HISTORY

1. New article 4 (sections 2699.6800-2699.6815) and section filed 2-20-98 as an emergency; operative 2-20-98 (Register 98, No. 8). A Certificate of Compliance must be transmitted to OAL by 6-22-98 or emergency language will be repealed by operation of law on the following day.

2. Certificate of Compliance as to 2-20-98 order transmitted to OAL 6-5-98 and filed 7-15-98 (Register 98, No. 29).

3. Amendment of subsection (a), new subsection (b) and subsection relettering filed 8-5-99 as an emergency; operative 8-5-99 (Register 99, No. 32). A Certificate of Compliance must be transmitted to OAL by 12-3-99 or emergency language will be repealed by operation of law on the following day.

4. Certificate of Compliance as to 8-5-99 order transmitted to OAL 11-2-99 and filed 12-1-99 (Register 99, No. 49).

5. Amendment of section heading and subsections (a), (b) and (c) filed 1-10-2000 as an emergency; operative 1-10-2000 (Register 2000, No. 2). A Certificate of Compliance must be transmitted to OAL by 5-9-2000 or emergency language will be repealed by operation of law on the following day.

6. Certificate of Compliance as to 1-10-2000 order transmitted to OAL 5-5-2000 and filed 6-16-2000 (Register 2000, No. 24).

7. Amendment of section and Note filed 4-29-2002 as an emergency; operative 4-29-2002 (Register 2002, No. 18). Pursuant to Chapter 946, Statutes of 2000, section 2, a Certificate of Compliance must be transmitted to OAL by 10-28-2002 or emergency language will be repealed by operation of law on the following day.

8. Certificate of Compliance as to 4-29-2002 order transmitted to OAL 10-28-2002 and filed 12-12-2002 (Register 2002, No. 50).

§2699.6801. Risk Categories Health.

Note • History

(a) Subscriber child rates are as follows:

(1) With the exception of rates applicable to AIM infants in the first two calendar months of life, health benefit plan rates shall be based on two risk categories: geographic region of the subscriber's residence and the age of the subscriber. Health plan benefit rates for subscribers entering the program as AIM infants shall initially be determined in accordance with subsection (c).

(2) The age categories for subscriber children shall be as follows:

(A) The first age category is subscribers under the age of one.

(B) The second age category is subscribers of the age of one and over.

(3) The six geographic regions for subscribers residing within the State of California shall be as follows unless they are altered pursuant to (4) below:

(B) Area 2 shall include the counties of Fresno, Imperial, Kern, Madera, Mariposa, Merced, Napa, Sacramento, San Joaquin, San Luis Obispo, Santa Cruz, Solano, Sonoma, and Stanislaus.

(D) Area 4 shall include the counties of Orange, Santa Barbara, and Ventura.

(E) Area 5 shall include the county of Los Angeles.

(F) Area 6 shall include the counties of Riverside, San Bernardino, and San Diego.

(4) The Board may allow one or more health plans to subdivide one or more geographic regions. The Board shall determine which region or regions may be subdivided and the number of subregions into which a region will be divided. No subregion shall be smaller than one county. Plans rates may differ between subregions.

(5) Health plan rates shall be paid on a per capita basis and the per capita rate shall not be differentiated on the basis of the number of subscribers covered by one family contribution.

(b) Subscriber parent rates are as follows:

(1) Health benefit plan rates shall be based on two risk categories; geographic region of the subscriber's residence and age of the subscriber parent.

(2) The age categories for subscriber parents shall be as follows:

(A) The first age category is subscribers under the age of forty-five.

(B) The second age category is subscribers age forty-five and over.

(3) Health plans shall also be paid an additional lump sum payment for each delivery of one or more newborns to a subscriber parent while enrolled in the program.

(4) The six geographic regions for subscribers residing within the State of California shall be as follows unless they are altered pursuant to (5) below:

(B) Area 2 shall include the counties of Fresno, Imperial, Kern, Madera, Mariposa, Merced, Napa, Sacramento, San Joaquin, San Luis Obispo, Santa Cruz, Solano, Sonoma, and Stanislaus.

(D) Area 4 shall include the counties of Orange, Santa Barbara, and Ventura.

(E) Area 5 shall include the county of Los Angeles.

(F) Area 6 shall include the counties of Riverside, San Bernardino, and San Diego.

(5) The Board may allow one or more health plans to subdivide one or more geographic regions. The Board shall determine which region or regions may be subdivided and the number of subregions into which a region will be divided. No subregion shall be smaller than one county. Plans rates may differ between subregions.

(6) Health plan rates shall be paid on a per capita basis and the per capita rate shall not be differentiated on the basis of number of subscribers covered by one family contribution.

(1) The initial rate for subscribers entering the program as AIM infants shall be determined as follows:

(A) The rate shall be available only to health plans participating as contractors in the AIM Program and shall cover a health plan's entire service area.

(B) The rate shall cover the birth month through the end of the AIM infant's second month of life. After this period, a health plan shall be paid rates in accordance with the age and geographic region categories in subsections (a)(2), (3) and (4).

NOTE

Authority cited: Sections 12693.21 and 12693.755, Insurance Code. Reference: Sections 12693.21, 12693.34, 12693.615 and 12693.755, Insurance Code.

HISTORY

1. New section filed 1-10-2000 as an emergency; operative 1-10-2000 (Register 2000, No. 2). A Certificate of Compliance must be transmitted to OAL by 5-9-2000 or emergency language will be repealed by operation of law on the following day.

2. Certificate of Compliance as to 1-10-2000 order transmitted to OAL 5-5-2000 and filed 6-16-2000 (Register 2000, No. 24).

3. Amendment of section and Note filed 4-29-2002 as an emergency; operative 4-29-2002 (Register 2002, No. 18). Pursuant to Chapter 946, Statutes of 2000, section 2, a Certificate of Compliance must be transmitted to OAL by 10-28-2002 or emergency language will be repealed by operation of law on the following day.

4. Certificate of Compliance as to 4-29-2002 order transmitted to OAL 10-28-2002 and filed 12-12-2002 (Register 2002, No. 50).

5. Amendment of subsection (a)(1) and new subsections (c)-(c)(1)(B) filed 7-1-2004 as an emergency; operative 7-1-2004 (Register 2004, No. 27). Pursuant to Section 80, A.B. 1762 (Chapter 230, Stats. 2003) a Certificate of Compliance must be transmitted to OAL by 12-28-2004 or emergency language will be repealed by operation of law on the following day.

6. Certificate of Compliance as to 7-1-2004 order transmitted to OAL 11-24-2004 and filed 1-7-2005 (Register 2005, No. 1).

§2699.6803. Annual Health, Dental and Vision Benefit Plan Rates.

Note • History

Health, dental and vision benefit plan rates shall be established for each contract term.

NOTE

Authority cited: Section 12693.21, Insurance Code. Reference: Section 12693.21, Insurance Code.

HISTORY

2. Certificate of Compliance as to 2-20-98 order transmitted to OAL 6-5-98 and filed 7-15-98 (Register 98, No. 29).

3. Amendment filed 3-27-2008 as an emergency; operative 3-27-2008 (Register 2008, No. 13). A Certificate of Compliance must be transmitted to OAL by 9-23-2008 or emergency language will be repealed by operation of law on the following day.

4. Certificate of Compliance as to 3-27-2008 order transmitted to OAL 8-15-2008 and filed 9-22-2008 (Register 2008, No. 39).

§2699.6804. Rural Demonstration Project(s) Payments.

Note • History

In addition to plan rates, the Board may:

(a) Pay plan rates enhancement(s) to a health, dental or vision benefits plan based on the plan's participation in a rural demonstration project(s). Such rate enhancements shall be for the same period as the annual health, dental and vision benefit plan rates.

(b) Provide a grant(s) to a health, dental or vision plan based on the plan's participation in a rural demonstration project(s).

NOTE

Authority cited: Section 12693.21, Insurance Code. Reference: Section 12693.91, Insurance Code.

HISTORY

1. New section filed 8-5-99 as an emergency; operative 8-5-99 (Register 99, No. 32). A Certificate of Compliance must be transmitted to OAL by 12-3-99 or emergency language will be repealed by operation of law on the following day.

2. Certificate of Compliance as to 8-5-99 order transmitted to OAL 10-29-99 and filed 12-3-99 (Register 99, No. 49).

§2699.6805. Designation of Community Provider Plan.

Note • History

(a) For each benefit year, the Board will designate as the community provider plan in each county the participating health plan with a service area that includes zip codes in which at least eighty-five percent (85%) of the residents of the county reside and that has the highest percentage of traditional and safety net providers pursuant to the calculation in subsection (g) below.

(b) In November of the benefit year immediately preceding the benefit year described in subsection (a), the Board shall compile and make available a list for each county of all Child Health and Disability Prevention Program (CHDP), clinic and hospital traditional and safety net providers.

(1) The CHDP list shall include all CHDP providers, except for clinical laboratories, that were on the Department of Health Care Services (DHCS) CHDP Master File as of October 1st of the benefit year immediately preceding the benefit year described in subsection (a) and that provided a State-only funded CHDP service as identified on the CHDP Paid Claims Tape to at least one (1) child aged one (1) through eighteen (18) in the state fiscal year that ended immediately prior to the most recently ended state fiscal year. For each listed provider, the list shall indicate the percentage of county children that received State-only funded CHDP services from the listed provider. The percentage shall be calculated by dividing the number of county children receiving State-only funded services from the listed provider by the total number of county children receiving State-only funded services from all listed providers in the county.

(2) The clinic list shall include all Community Outpatient Hospital Based Clinics, Rural Health Clinics, Federally Qualified Health Centers, Free Clinics, Community Clinics, Clinics Exempt from Licensure, County Clinics Not With Hospital and County Hospital Outpatient Clinics, in the county, that were so identified by the Medi-Cal program as of October 1st of the benefit year immediately preceding the benefit year described in subsection (a) and were identified on the Medi-Cal Paid Claims Tape as having provided at least (1) service to a child aged one (1) through eighteen (18) in the state fiscal year that ended immediately prior to the most recently ended state fiscal year. The list shall indicate a percentage for each clinic which shall be equal to one (1) divided by the number of listed clinics in the county.

(3) The hospital list shall be compiled as follows:

(A) For a county that has, located in the county, at least one hospital which, as of October 1st of the benefit year immediately preceding the benefit year described in subsection (a), was a hospital eligible for the inpatient disproportionate share hospital payment program as reported by the Department of Health Care Services (DHCS), a University teaching hospital, a Children's Hospital (as defined in Section 10727 of the Welfare and Institutions Code), or a county owned and operated general acute care hospital, the list shall include all hospitals of one of these types whether or not they are located in the county and which reported to the Office of Statewide Health Planning and Development (OSHPD) discharging at least one resident of the county who was a Medi-Cal, county indigent, or charity care patient aged one (1) through eighteen (18) in the year for which OSHPD most recently released its annual compilation of Discharge Data. The list shall indicate, for each hospital, the percentage of the Medi-Cal, county indigent, and charity care discharges of county residents aged one (1) through eighteen (18) from the listed hospital. The hospital list shall not include acute psychiatric hospitals (as defined in Section 1250(b) of the Health and Safety Code), psychiatric health facilities (as defined in Section 1250.2(a) of the Health and Safety Code), or chemical dependency recovery hospitals (as defined in Section 1250.3(a) of the Health and Safety Code).

(B) For all other counties, the list shall include all hospitals located in the county and all hospitals located outside the county, which, as of October 1st of the benefit year immediately preceding the benefit year described in subsection (a), discharged at least one resident of the county who was a Medi-Cal, county indigent, or charity care patient aged one (1) through eighteen (18) in the year for which OSHPD most recently released its annual compilation of Discharge Data and which were hospitals eligible for the inpatient disproportionate share hospital payment program as reported by the DHCS, a university teaching hospital, a children's hospital (as defined in Section 10727 of the Welfare and Institutions Code), or a county owned and operated general acute care hospital. The list shall indicate, for each hospital, the percentage of the Medi-Cal, county indigent, and charity care discharges of county residents aged one (1) through eighteen (18) from the listed hospital. The hospital list shall not include acute psychiatric hospitals (as defined in Section 1250(b) of the Health and Safety Code, psychiatric health facilities (as defined in Section 1250.2(a) of the Health and Safety Code), or chemical dependency recovery hospitals (as defined in Section 1250.3(a) of the Health and Safety Code).

(d) The lists of CHDP providers, clinics and hospitals described in subsection (c) shall be revised only under the following circumstances:

(1) Any CHDP provider not included on a county list pursuant to subsection (c)(1) or any participating health plan that asserts the CHDP provider met the specified criteria to be on that list and was excluded in error may, within thirty (30) calendar days after the list described in subsection (b) is released by the Board, provide written documentation to the Board demonstrating that the CHDP provider met the criteria described in subsection (c)(1). If the Executive Director of the Board finds that the CHDP provider met the specified criteria then the CHDP provider shall be added to the county list.

(2) Any clinic not included on a county list pursuant to subsection (c)(2) or any participating health plan that asserts the clinic met the specified criteria to be on that list and was excluded in error may, within thirty (30) calendar days after the list described in subsection (b) is released by the Board, provide written documentation to the Board demonstrating that the clinic met the criteria as described in subsection (c)(2). If the Executive Director of the Board finds that the clinic met the specified criteria then the clinic shall be added to the county list.

(3) Any hospital not included on a county list pursuant to subsection (c)(3) or any participating health plan that asserts the hospital met the specified criteria to be on that list and was excluded in error may, within thirty (30) calendar days after the list described in subsection (b) is released by the Board, provide written documentation to the Board demonstrating that the hospital met the criteria described in subsection (c)(3). If the Executive Director of the Board finds that the hospital met the specified criteria then the hospital shall be added to the county list.

(e) The Board shall compile and make available a final list for each county of CHDP, clinic, and hospital traditional and safety net providers after the revision period described in subsection (d) has expired. For the benefit year described in section (a) that commences July 1, 2009 only, the final list shall be the list made available January 22, 2009.

(f) By January 15th of the benefit year immediately preceding the benefit year described in subsection (a), each participating health plan shall submit the following to the Board for each county:

(1) A list of the CHDP providers identified by the Board pursuant to subsection (e) that have a contractual relationship with the participating health plan for the provision of services to program subscribers.

(2) A list of the clinics identified by the Board pursuant to subsection (e) that have a contractual relationship with the participating health plan for the provision of services to program subscribers.

(3) A list of the hospitals identified by the Board pursuant to subsection (e) that have a contractual relationship with the participating health plan for the provision of services to program subscribers.

(4) For the benefit year described in section (a) that commences July 1, 2009 only, the lists described in subsections (f)(1), (2) and (3) shall be those lists submitted by the health plans prior to the effective date of this subsection.

(g) The percentage of traditional and safety net providers in the provider network of each participating health plan will be calculated by summing the CHDP percentage, the clinic percentage, and the hospital percentage.

(1) The CHDP percentage is calculated by summing the percentages assigned to the CHDP providers pursuant to Section (c)(1) that were identified by the plan pursuant to (f)(1), and multiplying that number by 0.35.

(2) The clinic percentage is calculated by summing the percentages assigned to each listed clinic in the county pursuant to subsection (c)(2) that was identified by the plan pursuant to subsection (f)(2) and multiplying that number by 0.45.

(3) The hospital percentage is calculated by summing the percentages assigned to each hospital pursuant to subsection (c)(3) identified by the plan pursuant to (f)(3), and multiplying that number by 0.2.

(h) The Board shall designate a community provider plan for each county for the benefit year described in subsection (a). Notwithstanding subsection (h) of section 2600.6500, the designation shall take effect on the day the open enrollment transfers described in section 2699.6621 take effect, and the previous designation shall remain in effect until that time. Prior to designation, each plan's relationships with traditional and safety net providers may be verified by the Board.

NOTE

Authority cited: Section 12693.21, Insurance Code. Reference: Sections 12693.21 and 12693.37, Insurance Code.

HISTORY

2. Certificate of Compliance as to 2-20-98 order transmitted to OAL 6-5-98 and filed 7-15-98 (Register 98, No. 29).

3. Amendment of subsections (c)(2) and (c)(3)(A)-(B) filed 12-14-98 as an emergency; operative 12-14-98 (Register 98, No. 51). A Certificate of Compliance must be transmitted to OAL by 4-13-99 or emergency language will be repealed by operation of law on the following day.

4. Certificate of Compliance as to 12-14-98 order transmitted to OAL 3-25-99 and filed 5-6-99 (Register 99, No. 19).

5. Amendment filed 6-20-2000 as an emergency; operative 6-20-2000 (Register 2000, No. 25). A Certificate of Compliance must be transmitted to OAL by 10-18-2000 or emergency language will be repealed by operation of law on the following day.

6. Certificate of Compliance as to 6-20-2000 order transmitted to OAL 10-12-2000; disapproval and reinstatement of text as it existed prior to emergency amendment pursuant to Government Code section 11349.6(d) filed 11-27-2000 (Register 2000, No. 48).

7. Amendment filed 11-28-2000 as an emergency; operative 11-28-2000 (Register 2000, No. 48). A Certificate of Compliance must be transmitted to OAL by 3-28-2001 or emergency language will be repealed by operation of law on the following day.

8. Certificate of Compliance as to 11-28-2000 order transmitted to OAL 1-31-2001 and filed 2-20-2001 (Register 2001, No. 8).

9. Amendment of subsections (c)(1), (c)(3)(A)-(B) and (f) filed 3-27-2008 as an emergency; operative 3-27-2008 (Register 2008, No. 13). A Certificate of Compliance must be transmitted to OAL by 9-23-2008 or emergency language will be repealed by operation of law on the following day.

10. Certificate of Compliance as to 3-27-2008 order, including further amendment of section, transmitted to OAL 8-15-2008 and filed 9-22-2008 (Register 2008, No. 39).

11. Amendment of subsections (b), (c)(2) and (e), new subsection (e)(4), amendment of subsections (g)(1)-(2), repealer of subsections (g)(2)(A)-(B) and amendment of subsection (g)(3) filed 2-26-2009 as an emergency; operative 2-26-2009 (Register 2009, No. 9). A Certificate of Compliance must be transmitted to OAL by 8-25-2009 or emergency language will be repealed by operation of law on the following day.

12. Certificate of Compliance as to 2-26-2009 order transmitted to OAL 8-24-2009 and filed 9-17-2009 (Register 2009, No. 38).

§2699.6807. Change of Risk Category.

Note • History

When a subscriber changes county of residence as specified in Section 2699.6800, or transfers between health plans pursuant to Section 2699.6619, the family contributions amount shall be recalculated and changed as of the first of the following month, unless the applicant has a family contribution sponsor.

NOTE

Authority cited: Section 12693.21, Insurance Code. Reference: Section 12693.21, Insurance Code.

HISTORY

2. Certificate of Compliance as to 2-20-98 order transmitted to OAL 6-5-98 and filed 7-15-98 (Register 98, No. 29).

3. Amendment filed 9-5-2000; operative 9-5-2000 pursuant to Government Code 11343.4(d) (Register 2000, No. 36).

4. Amendment filed 4-29-2002 as an emergency; operative 4-29-2002 (Register 2002, No. 18). Pursuant to Chapter 946, Statutes of 2000, section 2, a Certificate of Compliance must be transmitted to OAL by 10-28-2002 or emergency language will be repealed by operation of law on the following day.

5. Certificate of Compliance as to 4-29-2002 order transmitted to OAL 10-28-2002 and filed 12-12-2002 (Register 2002, No. 50).

§2699.6809. Determination of Family Contribution for the Program.

Note • History

(a) Family child contributions for the program shall consist of one of the following:

(1) A flat fee in each county for a family value package:

(A) Seven dollars ($7) per subscriber child with a maximum required contribution of fourteen dollars ($14) per month for subscriber children with annual household incomes after income deductions of up to and including 150 percent of the federal poverty level.

(B) Through January 31, 2009, nine dollars ($9) per subscriber child with a maximum required contribution of twenty-seven dollars ($27) per month for subscriber children with annual household incomes after income deductions if greater than 150 percent and up to and including 200 percent of the federal poverty level; these rates are also applicable for subscribers who entered the program as AIM infants. On and after February 1, 2009, and through October 31, 2009, twelve dollars ($12) per subscriber child with a maximum required contribution of thirty-six dollars ($36) per month. On and after November 1, 2009, sixteen dollars ($16) per subscriber child with a maximum required contribution of forty-eight dollars ($48) per month.

(C) Through January 31, 2009, fifteen dollars ($15) per subscriber child with a maximum required contribution of forty-five dollars ($45) per month for subscriber children with annual household incomes after income deductions greater than 200 percent and up to and including 250 percent of the federal poverty level; these rates are also applicable, through the first year of eligibility, for subscribers who entered the program as AIM infants and for those AIM infants whose annual household income after deductions remains above 200 percent of the federal poverty level after each Annual Eligibility Review. On and after February 1, 2009, and through October 31, 2009, seventeen dollars ($17) per subscriber child with a maximum required contribution of fifty-one dollars ($51) per month. On and after November 1, 2009, twenty-four dollars ($24) per subscriber child with a maximum required contribution of seventy-two dollars ($72) per month.

(2) A flat fee in each county for a family value package that includes a community provider plan:

(A) Four dollars ($4) per subscriber child with a maximum required contribution of eight dollars ($8) per month for subscriber children with annual household incomes after income deductions of up to and including 150 percent of the federal poverty level,

(B) Through January 31, 2009, six dollars ($6) per subscriber child with a maximum required contribution of eighteen dollars ($18) per month for subscriber children with annual household incomes after income deductions of greater than 150 percent and up to and including 200 percent of the federal poverty level; these rates are also applicable for subscribers who entered the program as AIM infants. On and after February 1, 2009, and through October 31, 2009, nine dollars ($9) per subscriber child with a maximum required contribution of twenty-seven dollars ($27) per month. On and after November 1, 2009, thirteen dollars ($13) per subscriber child with a maximum required contribution of thirty-nine dollars ($39) per month.

(C) Through January 31, 2009, twelve dollars ($12) per subscriber child with a maximum required contribution of thirty-six ($36) per month for subscriber children with annual household incomes after income deductions of greater than 200 percent and up to and including 250 percent of the federal poverty level; these rates are also applicable, through the first year of eligibility, for subscribers who entered the program as AIM infants and for those AIM infants whose annual household income after income deductions remains above 200 percent of the federal poverty level after each Annual Eligibility Review. On and after February 1, 2009, and through October 31, 2009, fourteen dollars ($14) per subscriber child with a maximum required contribution of forty-two dollars ($42) per month. On and after November 1, 2009, twenty-one dollars ($21) per subscriber child with a maximum required contribution of sixty-three dollars ($63) per month.

(b) Family parent contributions for the program shall consist of one of the following:

(1) A flat fee in each county for a family value package:

(A) Ten dollars ($10) per month per subscriber parent with an annual household income after income deductions of up to and including 150 percent of the federal poverty level.

(B) Twenty dollars ($20) per month per subscriber parent with an annual household income after income deductions greater than 150 percent and up to and including 200 percent of the federal poverty level.

(2) A flat fee in each county for a family value package that includes a community provider plan:

(A) Seven dollars ($7) per month per subscriber parent with an annual household income after income deductions of 150 percent of the federal poverty level.

(B) Seventeen dollars ($17) per subscriber parent with an annual household income after income deductions of greater than 150 percent and up to and including 200 percent of the federal poverty level.

(c) Applicants who pay in advance the amount of three (3) months of family child contributions shall receive the fourth consecutive month of coverage for a subscriber child with no family child contributions required.

(d) Applicants who pay in advance the amount of three (3) months of family parent contributions shall receive the fourth consecutive month of coverage for a subscriber parent with no family parent contributions required if the subscriber child contributions (if applicable) are also paid in advance, at the same time for the same three month period.

(e) Applicants who pay the family child contributions (if applicable) and the family parent contributions (if applicable) by electronic fund transfer or scheduled credit card payment shall receive a twenty-five (25) percent discount off the monthly combined total of the family child contributions and family parent contributions.

(f) If the applicant is applying for children in more than one household, the income of the household with the lowest annual income after income deductions will be used to determine the family contributions.

(g) If an applicant has a family contribution sponsor, family child contributions and/or family parent contributions that are to be paid by the family contribution sponsor for any twelve (12) consecutive months in the program shall be established based on subsections (a) and (b) above.

(h) If an AIM infant is enrolled in a different health plan from his or her siblings until the Open Enrollment period after the AIM infant's first birthday, the family child contribution will be the family child contribution for the siblings, plus the contribution rate for one more child at the same rate, up to the maximum required contribution.

NOTE

Authority cited: Sections 12693.21, 12693.22 and 12693.755, Insurance Code. Reference: Sections 12693.21, 12693.22, 12693.43, 12693.53 and 12693.755, Insurance Code.

HISTORY

2. Certificate of Compliance as to 2-20-98 order transmitted to OAL 6-5-98 and filed 7-15-98 (Register 98, No. 29).

4. Certificate of Compliance as to 12-14-98 order transmitted to OAL 3-25-99 and filed 5-6-99 (Register 99, No. 19).

5. Repealer of subsections (a)(3)-(a)(3)(B) filed 8-5-99 as an emergency; operative 8-5-99 (Register 99, No. 32). A Certificate of Compliance must be transmitted to OAL by 12-3-99 or emergency language will be repealed by operation of law on the following day.

6. Certificate of Compliance as to 5-26-99 order, including further amendment of subsection (c), transmitted to OAL 9-17-99 and filed 10-28-99 (Register 99, No. 44).

7. Certificate of Compliance as to 8-5-99 order transmitted to OAL 11-2-99 and filed 12-1-99 (Register 99, No. 49).

8. Amendment of subsections (a)(1)B. and (a)(2)B. filed 6-20-2000 as an emergency; operative 6-20-2000 (Register 2000, No. 25). A Certificate of Compliance must be transmitted to OAL by 10-18-2000 or emergency language will be repealed by operation of law on the following day.

9. New subsection (d) filed 9-5-2000; operative 9-5-2000 pursuant to Government Code 11343.4(d) (Register 2000, No. 36).

10. Certificate of Compliance as to 6-20-2000 order transmitted to OAL 10-12-2000; disapproval and reinstatement of text as it existed prior to emergency amendment pursuant to Government Code section 11349.6(d) filed 11-27-2000 (Register 2000, No. 48).

11. Amendment of subsections (a)(1)B. and (a)(2)B. filed 11-28-2000 as an emergency; operative 11-28-2000 (Register 2000, No. 48). A Certificate of Compliance must be transmitted to OAL by 3-28-2001 or emergency language will be repealed by operation of law on the following day.

12. Certificate of Compliance as to 11-28-2000 order transmitted to OAL 1-31-2001 and filed 2-20-2001 (Register 2001, No. 8).

13. Amendment of section and Note filed 4-29-2002 as an emergency; operative 4-29-2002 (Register 2002, No. 18). Pursuant to Chapter 946, Statutes of 2000, section 2, a Certificate of Compliance must be transmitted to OAL by 10-28-2002 or emergency language will be repealed by operation of law on the following day.

14. Certificate of Compliance as to 4-29-2002 order transmitted to OAL 10-28-2002 and filed 12-12-2002 (Register 2002, No. 50).

15. Amendment of subsections (a)(1)(B) and (a)(2)(B) and new subsection (h) filed 7-1-2004 as an emergency; operative 7-1-2004 (Register 2004, No. 27). Pursuant to Section 80, A.B. 1762 (Chapter 230, Stats. 2003) a Certificate of Compliance must be transmitted to OAL by 12-28-2004 or emergency language will be repealed by operation of law on the following day.

16. Certificate of Compliance as to 7-1-2004 order transmitted to OAL 11-24-2004 and filed 1-7-2005 (Register 2005, No. 1).

17. Amendment of subsection (e) filed 6-30-2005 as an emergency; operative 6-30-2005 (Register 2005, No. 26). A Certificate of Compliance must be transmitted to OAL by 10-28-2005 or emergency language will be repealed by operation of law on the following day.

18. Amendment of subsection (a)(1)(B), new subsection (a)(1)(C), amendment of subsection (a)(2)(B) and new subsection (a)(2)(C) filed 6-30-2005 as an emergency; operative 6-30-2005 (Register 2005, No. 26). Pursuant to Insurance Code section 12693.43(h), a Certificate of Compliance must be transmitted to OAL by 12-27-2005 or emergency language will be repealed by operation of law on the following day.

19. Certificate of Compliance as to 6-30-2005 order transmitted to OAL 10-5-2005 and filed 11-16-2005 (Register 2005, No. 46).

20. Amendment of subsections (a)(1)(B)-(C) and (a)(2)(B)-(C) filed 1-15-2009, deemed an emergency pursuant to Chapter 758, Statutes of 2008; operative 1-15-2009 (Register 2009, No. 3). A Certificate of Compliance must be transmitted to OAL by 7-14-2009 or emergency language will be repealed by operation of law on the following day.

21. Certificate of Compliance as to 1-15-2009 order transmitted to OAL 7-13-2009 and filed 8-19-2009 (Register 2009, No. 34).

22. Amendment of subsections (a)(1)(B)-(C) and (a)(2)(B)-(C) and amendment of Note filed 10-29-2009; operative 11-1-2009 pursuant to Government Code section 11346.1(d) (Register 2009, No. 44). A Certificate of Compliance must be transmitted to OAL by 4-30-2010 or emergency action will be repealed by operation of law on the following day. This regulatory action is deemed to meet the emergency standard and is exempt from OAL review pursuant to Insurance Code section 12693.22.

23. Certificate of Compliance as to 10-29-2009 order transmitted to OAL 4-27-2010 and filed 5-26-2010 (Register 2010, No. 22).

§2699.6811. Notification of Family Contributions Changes.

Note • History

The program shall notify applicants in writing of change in family child contributions and/or family parent contributions.

NOTE

Authority cited: Sections 12693.21 and 12693.755, Insurance Code. Reference: Sections 12693.21 and 12693.755, Insurance Code.

HISTORY

2. Certificate of Compliance as to 2-20-98 order transmitted to OAL 6-5-98 and filed 7-15-98 (Register 98, No. 29).

4. Certificate of Compliance as to 4-29-2002 order transmitted to OAL 10-28-2002 and filed 12-12-2002 (Register 2002, No. 50).

§2699.6813. Family Contribution Payment for the Program.

Note • History

Family contribution payment procedures for applicants shall be as follows unless the applicant or person for whom application is being made is an American Indian or Alaska Native and submits acceptable documentation as described in Subsection 2699.6600(c)(1)(GG), or unless the applicant has a family contribution sponsor:

(a) The family child contributions and family parent contributions will be applied for one (1) month or four (4) months, as applicable, starting with the first day of the first full month of coverage. If the applicant or person for whom application is being made is an American Indian or Alaska Native, the family contributions shall not be assessed until the first day of the first full month following the end of the second month of enrollment during which the applicant has not provided acceptable documentation as described in Subsection 2699.6600(c)(1)(GG).

(b) Applicants shall submit their subsequent family contributions to the program so that they are received no later than the monthly due date set by the program.

(c) The program shall apply monies paid first to the family child contributions due, then to the family parent contributions due. Remaining monies shall be applied first to the family child contribution up to the level necessary to earn a free month of coverage, then to the family parent contribution up to the level necessary to earn a free month of coverage, except as provided under Subsection 2699.6605(b)(1).

(d) Applicants who want to receive the one month family contribution discount pursuant to Subsection 2699.6809(c) and (d) must submit their family child contributions, if applicable, and/or family parent contributions, if applicable, at the same time and for the same three (3) month period so that they are received no later than the due date set by the program for the first of the three (3) months.

(e) For each month any family contributions are due, the program shall notify the applicant of the amount of the family contributions due to the program, the due date, and the subscribers for whom the family contributions are being paid. This notification shall be made at least fifteen (15) calendar days in advance of the family contributions due date.

(f) The applicant's obligation to submit the family contributions is not contingent upon receipt of the notice specified in subdivision (d) above. If the applicant does not receive the notice specified in subdivision (d) above, the applicant shall call the program to determine the amount of the family contributions and shall submit a payment of that amount.

(g) Applicants shall make family contributions in one or more of the following ways: personal check, cashiers check, money order, credit card, debit card, electronic fund transfer, or in cash at designated locations. If a family contribution is paid by a personal check that has been returned for non-sufficient funds, the Program may specify the form of payment that it will accept for the overdue family contribution.

(h) If a subscriber is disenrolled pursuant to Subsection 2699.6611(a), the applicant will be refunded the unused portion of the family contributions, except as provided in Section 2699.6815(e) and Section 2699.6819(c).

NOTE

Authority cited: Sections 12693.21 and 12693.755, Insurance Code. Reference: Sections 12693.21, 12693.43 and 12693.755, Insurance Code.

HISTORY

2. Certificate of Compliance as to 2-20-98 order transmitted to OAL 6-5-98 and filed 7-15-98 (Register 98, No. 29).

3. Amendment of first paragraph filed 3-21-2000 as an emergency; operative 3-21-2000 (Register 2000, No. 12). A Certificate of Compliance must be transmitted to OAL by 7-19-2000 or emergency language will be repealed by operation of law on the following day.

4. Certificate of Compliance as to 3-21-2000 order transmitted to OAL 6-23-2000 and filed 7-17-2000 (Register 2000, No. 29).

5. Amendment of first paragraph and subsection (a) filed 9-5-2000; operative 9-5-2000 pursuant to Government Code 11343.4(d) (Register 2000, No. 36).

6. Amendment of section and Note filed 4-29-2002 as an emergency; operative 4-29-2002 (Register 2002, No. 18). Pursuant to Chapter 946, Statutes of 2000, section 2, a Certificate of Compliance must be transmitted to OAL by 10-28-2002 or emergency language will be repealed by operation of law on the following day.

7. Certificate of Compliance as to 4-29-2002 order, including amendment of subsection (c), transmitted to OAL 10-28-2002 and filed 12-12-2002 (Register 2002, No. 50).

8. Amendment of first paragraph and subsection (a) filed 7-31-2003 as an emergency; operative 7-31-2003 (Register 2003, No. 31). A Certificate of Compliance must be transmitted to OAL by 1-27-2004 or emergency language will be repealed by operation of law on the following day.

9. Certificate of Compliance as to 7-31-2003 order transmitted to OAL 11-17-2003 and filed 12-30-2003 (Register 2004, No. 1).

10. Amendment of first paragraph and subsection (a) filed 7-1-2004 as an emergency; operative 7-1-2004 (Register 2004, No. 27). Pursuant to Section 80, A.B. 1762 (Chapter 230, Stats. 2003) a Certificate of Compliance must be transmitted to OAL by 12-28-2004 or emergency language will be repealed by operation of law on the following day.

11. Certificate of Compliance as to 7-1-2004 order transmitted to OAL 11-24-2004 and filed 1-7-2005 (Register 2005, No. 1).

12. Amendment of subsection (a) deemed an emergency and exempt from OAL review pursuant to Section 75 of Chapter 74, Statutes of 2006, filed 7-31-2007; operative 7-31-2007 (Register 2007, No. 31). A Certificate of Compliance must be transmitted to OAL by 1-28-2008 or emergency language will be repealed by operation of law on the following day.

13. Certificate of Compliance as to 7-31-2007 order transmitted to OAL 1-28-2008 and filed 3-12-2008 (Register 2008, No. 11).

§2699.6815. Overdue Payments; Disenrollment.

Note • History

(a) Applicants whose family child or parent contributions are not paid in full by the due date shall be considered to be overdue.

(b) The program shall notify applicants of the overdue family child and/or parent contributions and the potential for disenrollment from the program within fifteen (15) calendar days following the due date.

(c) No less than thirty (30) calendar days prior to the date of potential disenrollment pursuant to (e) and (f) below, the program shall provide notice to the applicant of the potential disenrollment as specified in Subsection 2699.6611(b).

(d) If the amount of family contributions paid by an applicant is not adequate to cover the combined amount of the family child contributions and family parent contributions, the program will first apply the monies paid toward the family child contributions with any remainder applied toward the family parent contributions.

(e) If family parent contributions are not paid for two (2) consecutive calendar months, the subscriber parents covered by the family contribution shall be disenrolled pursuant to Section 2699.6611. Termination of coverage shall be at the end of the second consecutive month for which the family parent contributions were not paid in full. Any credit remaining from the family parent contributions after a subscriber parent's disenrollment from the program will be applied toward any family child contributions applicable to a subscriber child who is enrolled in the program and to whom the subscriber parent is linked.

(f) If family child contributions are not paid for two (2) consecutive calendar months, all subscriber children covered by the family child contributions shall be disenrolled pursuant to Section 2699.6611. Termination of coverage shall be at the end of the second consecutive month for which the family child contributions were not paid in full.

NOTE

Authority cited: Sections 12693.21 and 12693.755, Insurance Code. Reference: Sections 12693.21, 12693.45 and 12693.755, Insurance Code.

HISTORY

2. Certificate of Compliance as to 2-20-98 order transmitted to OAL 6-5-98 and filed 7-15-98 (Register 98, No. 29).

4. Certificate of Compliance as to 4-29-2002 order transmitted to OAL 10-28-2002 and filed 12-12-2002 (Register 2002, No. 50).

5. Amendment of subsections (e)-(f) filed 7-31-2003 as an emergency; operative 7-31-2003 (Register 2003, No. 31). A Certificate of Compliance must be transmitted to OAL by 1-27-2004 or emergency language will be repealed by operation of law on the following day.

6. Certificate of Compliance as to 7-31-2003 order transmitted to OAL 11-17-2003 and filed 12-30-2003 (Register 2004, No. 1).

§2699.6817. Family Contribution Sponsor Registration.

Note • History

(a) Family contribution sponsors must register with the Board.

(b) To be registered, a family contribution sponsor must:

(1) complete and return a Healthy Families Program Family Contribution Sponsor Registration form (HFP-Sponsor 1 (new 7/00)), which is hereby incorporated by this reference, and

(2) receive a sponsor identification number from the Board.

NOTE

Authority cited: Section 12693.21, Insurance Code. Reference: Section 12693.21, Insurance Code.

HISTORY

1. New section filed 9-5-2000; operative 9-5-2000 pursuant to Government Code 11343.4(d) (Register 2000, No. 36).

§2699.6819. Family Contribution Sponsor Payments.

Note • History

(a) For each applicant being sponsored, the family contribution sponsor shall submit payment for twelve (12) months of family child contributions if the family contribution sponsor is sponsoring a subscriber child, and twelve (12) months of family parent contributions if the family contribution sponsor is sponsoring a subscriber parent. The family contribution sponsor shall also submit the completed and signed Healthy Families Program Family Contribution Sponsorship Payment form (HFP-Sponsor 2 (new 7/00)) which is hereby incorporated by this reference.

(b) The payment for twelve (12) months of family child contributions shall be the family child contributions amount determined pursuant to Subsection 2699.6809(e) multiplied by 12. The payment for twelve (12) months of family parent contributions shall be the family parent contributions amount determined pursuant to Subsection 2699.6809(f) multiplied by 12.

(c) Payment of the amount specified in subsection (b) above shall be considered payment in full for the applicant for the twelve (12) consecutive months in the Program or, as of the parental coverage start date, for any twelve consecutive months in the program. No premium adjustments will be made for any reason during the period.

NOTE

Authority cited: Sections 12693.21 and 12693.755, Insurance Code. Reference: Sections 12693.21 and 12693.755, Insurance Code.

HISTORY

1. New section filed 9-5-2000; operative 9-5-2000 pursuant to Government Code 11343.4(d) (Register 2000, No. 36).

2. Amendment of section and Note filed 4-29-2002 as an emergency; operative 4-29-2002 (Register 2002, No. 18). Pursuant to Chapter 946, Statutes of 2000, section 2, a Certificate of Compliance must be transmitted to OAL by 10-28-2002 or emergency language will be repealed by operation of law on the following day.

3. Certificate of Compliance as to 4-29-2002 order transmitted to OAL 10-28-2002 and filed 12-12-2002 (Register 2002, No. 50).

4. Amendment of subsection (c) filed 7-31-2003 as an emergency; operative 7-31-2003 (Register 2003, No. 31). A Certificate of Compliance must be transmitted to OAL by 1-27-2004 or emergency language will be repealed by operation of law on the following day.

5. Certificate of Compliance as to 7-31-2003 order transmitted to OAL 11-17-2003 and filed 12-30-2003 (Register 2004, No. 1).

§2699.6821. Eligibility as a Family Contribution Sponsor.

Note • History

(a) The following persons or entities are not eligible to be family Contribution sponsor:

(1) a person that is a health care, dental care or vision care provider that participates in the Healthy Families Program or an organization composed primarily of or controlled by such persons,

(2) an entity, including governmental, school, non-profit and charitable organizations, that is, or that operates, an institution or facility that is a health care, dental care or vision care provider that participates in the Healthy Families Program.

(3) a participating plan.

(4) any person or entity acting on behalf of or representing a person or entity identified in (1) through (3) above.

NOTE

Authority cited: Section 12693.21, Insurance Code. Reference: Section 12693.21, Insurance Code.

HISTORY

1. New section filed 9-5-2000; operative 9-5-2000 pursuant to Government Code 11343.4(d) (Register 2000, No. 36).

§2699.6823. Family Contribution Sponsor Certification Requirement.

Note • History

(a) Any person or entity seeking to provide payment as a family contribution sponsor must certify both of the following:

(1) that the person or entity is not ineligible to be a family contribution sponsor under Section 2699.6821, and

(2) that the person or entity acknowledges that the Board has taken no position as to whether payment of premiums as a family contribution sponsor by any person or entity would be in violation of federal fraud and abuse laws.

(b) The certification shall be made on the Healthy Family Program Family Contribution Registration form (HFP-Sponsor 1 (new 7/00)).

NOTE

Authority cited: Section 12693.21, Insurance Code. Reference: Section 12693.21, Insurance Code.

HISTORY

1. New section filed 9-5-2000; operative 9-5-2000 pursuant to Government Code 11343.4(d) (Register 2000, No. 36).

§2699.6825. Family Contribution Sponsor Disqualification.

Note • History

The Board may refuse to allow a registered family contribution sponsor to sponsor any additional applicants if the Board determines that the sponsor has violated or encouraged an applicant to violate program rules. The sponsor will be notified in writing of such a determination. The sponsor may appeal the determination by filing a written request for review by the Executive Director.

NOTE

Authority cited: Section 12693.21, Insurance Code. Reference: Section 12693.21, Insurance Code.

HISTORY

1. New section filed 9-5-2000; operative 9-5-2000 pursuant to Government Code 11343.4(d) (Register 2000, No. 36).

§2699.6827. Payment of State Supported Services.

Note • History

State Supported Services shall be paid for by State dollars only. No Federal dollars provided to the State pursuant to title XXI of the Social Security Act shall be used.

NOTE

Authority cited: Section 12693.21, Insurance Code. Reference: Section 12693.21, Insurance Code; and 42 CFR Section 457.475.

HISTORY

2. Certificate of Compliance as to 7-31-2003 order transmitted to OAL 11-17-2003 and filed 12-30-2003 (Register 2004, No. 1).

Article 5. Child Health and Disability Prevention Program Payments

§2699.6900. Child Health and Disability Prevention Program Providers.

Note • History

(a) For purposes of meeting the requirements of Insurance Code Section 12693.41, regarding reimbursement of providers who participate in the Child Health and Disability Prevention (CHDP) Program, providers are defined as:

(1) CHDP health assessment providers, are those individuals and entities described in Title 17, California Code of Regulations, Section 6860 and 6862, who provide well-child health assessment and immunizations.

(2) CHDP initial treatment providers, are those providers that participate in the Medi-Cal and Denti-Cal program and provide initial treatment of a condition that has been identified during the well-child health assessment.

NOTE

Authority cited: Section 12693.21, Insurance Code. Reference: Section 12693.41, Insurance Code.

HISTORY

1. New article 5 (sections 2699.6900-2699.6905) and section filed 8-28-98 as an emergency; operative 8-28-98 (Register 98, No. 35). A Certificate of Compliance must be transmitted to OAL by 12-28-98 or emergency language will be repealed by operation of law on the following day.

2. Certificate of Compliance as to 8-28-98 order transmitted to OAL 12-18-98 and filed 2-2-99 (Register 99, No. 6).

§2699.6903. Reimbursable Services.

Note • History

(a) For purposes of meeting the requirements of Insurance Code Section 12693.41 relating to the Healthy Families Program reimbursements, a “CHDP well-child health assessment” is as defined in Title 17, California Code of Regulations, Section 6800 and shall include those services specified in Title 17, California Code of Regulations, Section 6846.

(b) For purposes of meeting the requirements of Insurance Code Section 12693.41 relating to the Healthy Families Program reimbursement, “initial treatment” means those services provided in the 90 days prior to a person's effective date of coverage by a Healthy Families Program participating health plan that are necessary for diagnosis and treatment of a condition identified during the “CHDP well-child health assessment”. These services may include, but are not limited to:

(1) Outpatient physician services including referral to outpatient specialty care, laboratory services, x-ray services, prescription drugs and those medical supplies and equipment necessary to administer prescribed medication.

(2) Inpatient hospital care.

(3) Emergency dental services that are medically necessary for the relief of pain and treatment of infection.

NOTE

Authority cited: Section 12693.21, Insurance Code. Reference: Section 12693.41, Insurance Code.

HISTORY

1. New section filed 8-28-98 as an emergency; operative 8-28-98 (Register 98, No. 35). A Certificate of Compliance must be transmitted to OAL by 12-28-98 or emergency language will be repealed by operation of law on the following day.

2. Certificate of Compliance as to 8-28-98 order, including amendment of subsection (b)(3), transmitted to OAL 12-18-98 and filed 2-2-99 (Register 99, No. 6).

3. Amendment of subsection (b) filed 1-10-2000 as an emergency; operative 1-10-2000 (Register 2000, No. 2). A Certificate of Compliance must be transmitted to OAL by 5-9-2000 or emergency language will be repealed by operation of law on the following day.

4. Certificate of Compliance as to 1-10-2000 order transmitted to OAL 5-5-2000 and filed 6-16-2000 (Register 2000, No. 24).

§2699.6905. Reimbursement Rates.

Note • History

(a) For the purposes of meeting the requirement of Insurance Code section 12693.41 relating to the Healthy Families Program, well-child health assessments and immunizations provided to persons who subsequently enroll in the Healthy Families Program pursuant to Article 2, shall be reimbursed at the rates specified in Title 17, California Code of Regulations, Section 6868. CHDP health assessment providers shall submit claims for these services in accordance with Title 17, California Code of regulations, Section 6866 to the State Department of Health Services (DHS).

(b) For the purposes of meeting the requirement of Insurance Code Sections 12693.41 relating to the Healthy Families Program, providers shall be reimbursed for initial treatment provided to persons who subsequently enroll in the Healthy Families Program pursuant to Article 2, at the Medi-Cal rate, as specified in Title 22, California Code of Regulations, Sections 51501 et. seq. A county that reimburses a provider at a county-specific rate that is less than the Medi-Cal rate for treatment services for a condition identified in a CHDP health assessment will be reimbursed by the Healthy Families Program at the rate the county reimburses the treatment provider. Providers shall submit claims to the DHS for these services on the Health Insurance Claim Form (HCFA 1500, revised version 12/90), accompanied by a legible copy of any DHS approved version of the Confidential Screening/Billing Report (PM 160).

NOTE

Authority cited: Section 12693.21, Insurance Code. Reference: Section 12693.41, Insurance Code.

HISTORY

2. Certificate of Compliance as to 8-28-98 order, including amendment of subsection (b), transmitted to OAL 12-18-98 and filed 2-2-99 (Register 99, No. 6).

Chapter 6. Real Estate Commissioner

(Originally Printed 3-22-45)

Article 1. General Provisions

§2700. Offices. [Repealed]

Note • History

NOTE

Authority cited: Sections 10080, 10170.4, 10226, 10249.2, 10312, 11001, 11011.8 and 11018.9, Business and Professions Code. Reference: Section 10077, Business and Professions Code.

HISTORY

1. Amendment filed 11-30-77; effective thirtieth day thereafter (Register 77, No. 49). For prior history, see Register 77, No. 7.

2. Amendment filed 1-17-80; effective thirtieth day thereafter (Register 80, No. 3).

3. Repealer filed 7-1-83; effective thirtieth day thereafter (Register 83, No. 30).

§2705. General Definitions and Short Form References.

Note • History

Unless otherwise expressly indicated or compelled by the context in which used, words, phrases and short form references appearing in this Chapter shall have meanings as ascribed herein.

(a) “Advertising.” Any written or printed communication, or oral communication made in accordance with a text or outline that has been reduced to written form, which is published for the purpose of inducing persons to purchase or use a product or service.

(b) “Applicant.” A person applying to the Department of Real Estate for a license, permit, public report or other entitlement.

(d) “Commissioner.” The Real Estate Commissioner of the State of California.

(e) “Department.” The Department of Real Estate of the State of California.

(f) “Examination.” Any examination to qualify for any license issued under authority of the Real Estate Law.

(g) “License.” Any license issued under authority of the Real Estate Law.

(h) “Permit.” Any authorization or entitlement issued by the commissioner to engage in a transaction or course of conduct for which a permit is required under the Real Estate Law or Subdivided Lands Law.

(i) “Public Report.” The report issued by the commissioner under authority of Section 11018 of the Code.

(j) “Real Estate Law.” Part 1 of Division 4 of the Code.

(k) “Subdivision Interests.” Lots, parcels, units, undivided interest shares, time-share estates or time-share uses subject to regulation under the provisions of Chapter 1, Part 2, Division 4 of the Code.

(l) “Subdivision Law” or “Subdivided Lands Law.” Chapter 1 of Part 2 of Division 4 of the Code.

(m) “Common Interests.” Property owned or controlled by, and/or services furnished to, owners, lessees or persons having the exclusive right to the use of subdivision interests, by an association comprising the separate owners of said interests in those subdivisions enumerated in Section 11004.5 of the Code.

NOTE

Authority cited: Section 10080, 11001, Business and Professions Code. Reference: Section 11000 (Ch. 601, Stats. 1980), Business and Professions Code.

HISTORY

1. Amendment filed 12-10-71; effective thirtieth day thereafter (Register 71, No. 50). For prior history see Register 68, No. 39.

2. Repealer and new section filed 12-7-73; effective thirtieth day thereafter (Register 73, No. 49).

3. New subsection (m) filed 1-16-76; effective thirtieth day thereafter (Register 76, No. 3).

4. Amendment of subsection (k); effective thirtieth day thereafter (Register 80, No. 49).

§2708. Permit Reform Act Definitions. [Repealed]

Note • History

NOTE

Authority cited: Section 10080, Business and Professions Code; Section 15376, Government Code. Reference: Section 15376, Government Code.

HISTORY

1. New section filed 5-26-92; operative 6-25-92 (Register 92, No. 22).

2. Repealer filed 2-28-2006; operative 3-30-2006 (Register 2006, No. 9).

§2709. Permit Processing Times. [Repealed]

Note • History

NOTE

Authority cited: Section 10080, Business and Professions Code; Section 15376, Government Code. Reference: Section 15376, Government Code.

HISTORY

1. New section filed 5-26-92; operative 6-25-92 (Register 92, No. 22).

2. Amendment filed 11-27-96; operative 12-27-96 (Register 96, No. 48).

3. Amendment filed 12-30-97; operative 1-29-98 (Register 98, No. 1).

4. Repealer filed 2-28-2006; operative 3-30-2006 (Register 2006, No. 9).

Article 3. License Applications, Fees and Changes

§2710. Applications and Notices of Change of Status.

Note • History

(a) A person shall apply for an original license under the provisions of the Real Estate Law on the form of application prescribed by the Department. The applicant shall complete and sign the application form and submit it and the fee for the license in question to an office of the Department.

(b) A licensee applying for renewal of a real estate license shall comply with the provisions of subdivision (a) and with the following provisions:

(1) The application shall be submitted to the Department not more than 90 days before the expiration of the license to be renewed.

(2) The applicant shall submit on forms prescribed by the Department, information to establish that the applicant has satisfied the continuing education prerequisites for license renewal in Article 2.5 of Chapter 3 of the Real Estate Law.

(c) Notice of changes in license information or status required to be submitted to the Department under provisions of the Real Estate Law and regulations of the Commissioner shall be given on forms prescribed by the Department not later than five days after the effective date of the change unless otherwise provided in the applicable statute or regulation.

NOTE

Authority cited: Section 10080, Business and Professions Code. Reference: Sections 10150, 10151, 10156.2, 10161.8, 10167.3 and 10515, Business and Professions Code.

HISTORY

1. Amendment filed 10-14-68; effective thirtieth day thereafter (Register 68, No. 39).

2. Amendment filed 12-30-70; effective thirtieth day thereafter (Register 71, No. 1).

3. Repealer and new section filed 7-1-83; effective thirtieth day thereafter (Register 83, No. 30).

4. Amendment of subsection (b)(1) filed 10-26-99; operative 11-25-99 (Register 99, No. 44).

§2711. Fingerprints. [Repealed]

History

HISTORY

1. Amendment filed 3-1-68; effective thirtieth day thereafter (Register 68, No. 9).

2. Amendment filed 10-14-68; effective thirtieth day thereafter (Register 68, No. 39).

3. Amendment filed 1-16-76; effective thirtieth day thereafter (Register 76, No. 3).

4. Repealer filed 7-1-83; effective thirtieth day thereafter (Register 83, No. 30).

§2712. Fingerprints.

Note • History

An original applicant for a real estate license may submit his or her fingerprints (a) with the application to take the license examination; (b) at anytime after submitting the application to take the license examination; or (c) with the application for a real estate license.

NOTE

Authority cited: Section 10080, Business and Professions Code. Reference: Section 10152, Business and Professions Code.

HISTORY

1. New section filed 3-17-2005; operative 4-16-2005 (Register 2005, No. 11). For prior history, see Register 83, No. 30.

§2713. Electronic Signature.

Note • History

When a signature is required in an electronic transaction through the Department of Real Estate Web site the person seeking to submit the transaction shall make the certification(s) in the appropriate fields and in the manner specified by the Department on the Department's Web site. Submission of a transaction in this manner through the Department's Web site shall constitute irrefutable evidence of legal signature by any individual submitting such transaction to the Department.

NOTE

Authority cited: Section 10080, Business and Professions Code. Reference: Sections 10150 and 10151, Business and Professions Code.

HISTORY

1. New section filed 2-28-2006; operative 3-30-2006 (Register 2006, No. 9). For prior history, see Register 83, No. 30.

§2714. Successive Original Licenses. [Repealed]

History

HISTORY

1. New section filed 2-19-57; effective thirtieth day thereafter (Register 57, No. 4).

2. Amendment filed 2-25-60; effective thirtieth day thereafter (Register 60, No. 4).

3. Repealer filed 9-17-65; designated effective 1-2-66 (Register 65, No. 17).

§2715. Business and Residence Addresses of Licensees.

Note • History

Every broker, except a broker acting in the capacity of a salesperson to another broker under written agreement, shall maintain on file with the commissioner the address of his principal place of business for brokerage activities, the address of each branch business office and his current mailing address, if different from the business address.

Every broker who is acting in the capacity of a salesperson to another broker under written agreement shall maintain on file with the commissioner the address of the business location where he expects to conduct most of the activities for which a license is required and his current mailing address.

A real estate salesperson shall maintain on file with the commissioner his current mailing address, and when applicable, the address of the principal business office of the broker to whom the salesperson is at the time licensed.

Whenever there is a change in the location or address of the principal place of business or of a branch office of a broker, he shall notify the commissioner thereof not later than the next business day following the change.

This section shall apply to the holder of a real estate license who fails to renew it prior to the period for which it was issued and who is otherwise qualified for such license as set forth in Section 10201 of the Code.

NOTE

Authority cited: Section 10080, Business and Professions Code. Reference: Sections 10162, 10163 and 10201, Business and Professions Code.

HISTORY

1. New section filed 7-16-64; effective thirtieth day thereafter (Register 64, No. 15).

2. Repealer and new section filed 10-14-68; effective thirtieth day thereafter (Register 68, No. 39).

3. Repealer and new section filed 12-7-73; effective thirtieth day thereafter (Register 73, No. 49).

4. Amendment filed 2-10-77; effective thirtieth day thereafter (Register 77, No. 7).

5. Amendment filed 1-17-80; effective thirtieth day thereafter (Register 80, No. 3).

6. Amendment filed 1-9-85; effective thirtieth day thereafter (Register 85, No. 2).

7. Amendment of section and Note filed 4-1-93; operative 5-1-93 (Register 93, No. 14).

8. Amendment filed 11-13-96; operative 11-13-96 pursuant to Government Code section 11343.4(d) (Register 96, No. 46).

9. Amendment of second paragraph filed 10-26-99; operative 11-25-99 (Register 99, No. 44).

§2715.5. Additional Information -- Examination and License Applications.

Note • History

The Commissioner may require a person, who has filed a salesperson exam/license application or a broker exam/license application, to file updated information concerning the applicant's mailing address, main office address, broker affiliation of record, prior criminal history, or professional license disciplinary history.

NOTE

Authority cited: Section 10080, Business and Professions Code. Reference: Sections 10150, 10151 and 10152, Business and Professions Code.

HISTORY

1. New section filed 2-28-2006; operative 3-30-2006 (Register 2006, No. 9).

§2716. License Fees. [Repealed]

Note • History

NOTE

Authority cited: Sections 10080 and 10226, Business and Professions Code. Reference: Sections 10153.4, 10201, 10209.5, 10210, 10214.5 and 10215, Business and Professions Code.

HISTORY

1. New section filed 12-10-71; designated effective 4-1-72 (Register 71, No. 50).

2. Amendment and new subsection (3) filed 12-2-74; effective thirtieth day thereafter (Register 74, No. 49).

3. Amendment filed 7-9-80; designated effective thirtieth day thereafter (Register 80, No. 28).

4. Amendment filed 1-21-83; effective thirtieth day thereafter (Register 83, No. 4).

5. Repealer of section, new section and amendment of Note filed 11-1-96; operative 1-1-97 (Register 96, No. 44).

6. Amendment of subsection (4), new subsections (5) and (6), and subsection renumbering filed 12-30-97; operative 1-29-98 (Register 98, No. 1).

7. Amendment of subsections (1)-(6) filed 6-18-98; operative 8-1-98. Submitted to OAL for printing only pursuant to Business and Professions Code section 10226 (Register 98, No. 26).

8. Amendment of subsections (1)-(6) filed 6-1-99; amended and refiled 7-14-99; operative 8-1-99. Submitted to OAL for printing only pursuant to Business and Professions Code section 10226 (Register 99, No. 29).

9. Amendment of subsections (1)-(6) filed 5-16-2001; operative 6-15-2001 (Register 2001, No. 20).

10. Repealer filed 5-1-2007; operative 5-31-2007 (Register 2007, No. 18).

§2716.1. License Fees.

Note • History

(1) The license fee for the real estate broker license under Section 10210 of the Code shall be $300.

(2) The license fee for the real estate salesperson license under Section 10215 of the Code shall be $245.

(3) The salesperson license fee, under Section 10215 of the Code, for an applicant qualifying pursuant to Section 10153.4 of the Code who has not satisfied all of the educational requirements prior to issuance of the license, shall be $275.

(4) The late license renewal fee under Section 10201 of the Code shall be $450 for a real estate broker or restricted real estate broker license and $367 for a real estate salesperson or restricted real estate salesperson license.

(5) The license fee for the restricted real estate broker license under Section 10209.5 of the Code shall be $300.

(6) The license fee for the restricted real estate salesperson license under Section 10214.5 of the Code shall be $245.

(7) The fees for all licenses or examinations, except those specified in this regulation or as otherwise specifically provided for in the regulations, shall be as follows: broker examination or reexamination: $95; first reschedule of broker examination: $20; subsequent reschedules: $30; salesperson examination or reexamination: $60; first reschedule of salesperson examination: $15; subsequent reschedules: $30.

NOTE

Authority cited: Sections 10080 and 10226, Business and Professions Code. Reference: Sections 10153.4, 10201, 10209.5, 10210, 10214.5 and 10215, Business and Professions Code.

HISTORY

1. New section filed 7-15-2003; operative 8-31-2003 (Register 2003, No. 29).

2. Repealer of subsections (a) and (b) filed 5-1-2007; operative 5-31-2007 (Register 2007, No. 18).

3. Amendment filed 5-12-2009; operative 5-12-2009 pursuant to Government Code section 11343.4 (Register 2009, No. 20).

§2716.5. Special Fee.

Note • History

A licensee or applicant who is named on a certified list or supplemental list pursuant to Section 17520 of the Family Code shall pay a special fee in the amount of ninety-five dollars ($95.00) for each time his or her name is placed on such list. If the licensee or applicant fails to pay such fee, the commissioner shall refuse to issue a license or temporary license or to reinstate a suspended license.

NOTE

Authority cited: Section 10080, Business and Professions Code. Reference: Section 17520, Family Code.

HISTORY

1. New section filed 11-13-96; operative 11-13-96 pursuant to Government Code section 11343.4(d) (Register 96, No. 46).

2. Amendment of section and Note filed 2-28-2006; operative 3-30-2006 (Register 2006, No. 9).

§2717. Allocation of Fees to Education and Research Account.

Note • History

Pursuant to Section 10450.6 of the Code, no portion of the amount of the license fee collected under Part 1 of Division 4 of the Code shall be credited to the Education and Research Account.

NOTE

Authority cited: Section 10080, Business and Professions Code. Reference: Section 10450.6, Business and Professions Code.

HISTORY

1. New section filed 12-7-94; operative 1-6-95 (Register 94, No. 49).

2. Amendment filed 11-13-96; operative 11-13-96 pursuant to Government Code section 11343.4(d) (Register 96, No. 46).

§2718. Legal Presence Requirements.

Note • History

(a) All eligibility requirements contained herein shall be applied without regard to the race, creed, color, gender, religion, or national origin of the individual applying for a benefit.

(b) Pursuant to Section 411 of the Personal Responsibility and Work Opportunity Reconciliation Act of 1995, (Pub. L. No. 104-193 (PRWORA)), (8 U.S.C. §1621), and notwithstanding any other provision of law, aliens who are not qualified aliens, nonimmigrant aliens under the Immigration and Nationality Act (INA) (8 U.S.C. §1101 et seq.), or aliens paroled into the United States under Section 212(d)(5) of the INA (8 U.S.C. §1182(d)(5)), for less than one year, are not eligible to receive benefits as defined in this Section and as set forth in Sections 10000 and following of the Code.

(c) For purposes of this Section, a benefit is an original real estate broker license, real estate broker officer license, real estate salesperson license, prepaid rental listing service license, mineral, oil, and gas broker license and a renewal of such licenses which has not been previously qualified pursuant to this Section. A qualified alien without permanent status shall provide proof of qualification for each renewal of a license. A benefit does not include a payment from the Real Estate Recovery Account.

(d) A qualified alien is an alien who, at the time he or she applies for, receives, or attempts to receive a benefit, is, under Section 431(b) of the PRWRORA (8 U.S.C. §1641(b)), any of the following:

(1) An alien lawfully admitted for permanent residence under the INA (8 U.S.C. §1101 et seq.).

(2) An alien who is granted asylum under Section 208 of the INA (8 U.S.C. §1158).

(3) A refugee who is admitted to the United States under Section 207 of the INA (8 U.S.C. §1157).

(4) An alien who is paroled into the United States under Section 212(d)(5) of the INA (8 U.S.C. §1182(d)(5)) for a period of at least one year.

(5) An alien whose deportation is being withheld under Section 243(h) of the INA (8 U.S.C. §1253(h)) (as in effect immediately before the effective date of Section 307 of division C of Public Law 104-208) or Section 241(b)(3) of such Act (8 U.S.C. §1251(b)(3)) (as amended by Section 305(a) of division C of Public Law 104-208).

(6) An alien who is granted conditional entry pursuant to Section 203(a)(7) of the INA as in effect prior to April 1, 1980. (8 U.S.C. §1153(a)(7)) (See editorial note under 8 U.S.C. §1101, “Effective Date of 1980 Amendment.”)

(7) An alien who is a Cuban or Haitian entrant (as defined in Section 501(e) of the Refugee Education Assistance Act of 1980 (8 U.S.C. §1522 note)).

(8) An alien who meets all of the conditions of subparagraphs (A), (B), (C), and (D) below:

(A) The alien has been battered or subjected to extreme cruelty in the United States by a spouse or a parent, or by a member of the spouse's or parent's family residing in the same household as the alien, and the spouse or parent of the alien consented to, or acquiesced in, such battery or cruelty. For purposes of this subsection, the term “battered or subjected to extreme cruelty” includes but is not limited to being the victim of any act or threatened act of violence including any forceful detention, which results or threatens to result in physical or mental injury. Rape, molestation, incest (if the victim is a minor), or forced prostitution shall be considered as acts of violence.

(B) There is a substantial connection between such battery or cruelty and the need for the benefits to be provided in the opinion of the Department. For purposes of this subsection, the following circumstances demonstrate a substantial connection between the battery or cruelty and the need for the benefits to be provided:

1. The benefits are needed to enable the alien to become self-sufficient following separation from the abuser.

2. The benefits are needed to enable the alien to escape the abuser and/or the community in which the abuser lives, or to ensure the safety of the alien from the abuser.

3. The benefits are needed due to a loss of financial support resulting from the alien's separation from the abuser.

5. The benefits are needed because the alien requires medical attention or mental health counseling, or has become disabled, as a result of the battery or extreme cruelty.

6. The benefits are needed because the loss of a dwelling or source of income or fear of the abuser following separation from the abuser jeopardizes the alien's ability to care for his or her children (e.g., inability to house, feed, or clothe children or to put children into day care for fear of being found by the abuser).

7. The benefits are needed to alleviate nutritional risk or need resulting from the abuse or following separation from the abuser.

9. Where medical coverage and/or health care services are needed to replace medical coverage or health care services the alien had when living with the abuser.

1. status as a spouse or child of a United States citizen pursuant to clause (ii), (iii), or (iv) of Section 204(a)(1)(A) of the INA (8 U.S.C. §1154(a)(1)(A)(ii), (iii) or (iv),

2. classification pursuant to clause (ii) or (iii) of Section 204(a)(1)(B) of the INA (8 U.S.C. §1154(a)(1)(B)(ii) or (iii).

3. suspension of deportation and adjustment of status pursuant to section 244(a)(3) of the INA (as in effect prior to April 1, 1997) [Pub.L. 104-208, sec. 501 (effective Sept. 30, 1996, pursuant to sec. 304), Pub.L. 105-33, sec. 81 (effective pursuant to sec. 5582)] (codified as cancellation of removal under section 240A of such Act” [8 U.S.C. § 1229b] (as in effect prior to April 1, 1997).

4. status as a spouse or child of a United States citizen pursuant to clause (i) of Section 204(a)(1)(A) of the INA (8 U.S.C. §1154(a)(1)(A)(i)) or classification pursuant to clause (i) of Section 204(a)(I)(B) of the INA (8 U.S.C. § 1154(a)(1)(B)(i)), or

5. cancellation or removal pursuant to Section 240A(b)(2) of the INA (8 U.S.C. §1229b(b)(2)),

(9) An alien who meets all of the conditions of subparagraphs (A), (B), (C), (D) and (E) below:

(A) The alien has a child who has been battered or subjected to extreme cruelty in the United States by a spouse or a parent of the alien (without the active participation of the alien in the battery or cruelty), or by a member of the spouse's or parent's family residing in the same household as the alien, and the spouse or parent consented or acquiesced to such battery or cruelty. For purposes of this subsection, the term “battered or subjected to extreme cruelty” includes but is not limited to being the victim of any act or threatened act of violence including any forceful detention, which results or threatens to result in physical or mental injury. Rape, molestation, incest (if the victim is a minor), or forced prostitution shall be considered acts of violence.

(B) The alien did not actively participate in such battery or cruelty.

(C) There is a substantial connection between such battery or cruelty and the need for the benefits to be provided in the opinion of the Department. For purposes of this subsection, the following circumstances demonstrate a substantial connection between the battery or cruelty and the need for the benefits to be provided:

1. The benefits are needed to enable the alien's child to become self-sufficient following separation from the abuser.

2. The benefits are needed to enable the alien's child to escape the abuser and/or the community in which the abuser lives, or to ensure the safety of the alien's child from the abuser.

3. The benefits are needed due to a loss of financial support resulting from the alien's child's separation from the abuser.

4. The benefits are needed because the battery or cruelty, separation from the abuser, or work absences or lower job performance resulting from the battery or extreme cruelty or from legal proceedings relating thereto (including resulting child support, child custody, and divorce actions) cause the alien's child to lose his or her job or to earn less or to require the alien's child to leave his or her job for safety reasons.

5. The benefits are needed because the alien's child requires medical attention or mental health counseling, or has become disabled, as a result of the battery or extreme cruelty.

6. The benefits are needed because the loss of a dwelling or source of income or fear of the abuser following separation from the abuser jeopardizes the alien's child's ability to care for his or her children (e.g., inability to house, feed, or clothe children or to put children into day care for fear of being found by the abuser).

7. The benefits are needed to alleviate nutritional risk or need resulting from the abuse or following separation from the abuser.

9. Where medical coverage and/or health care services are needed to replace medical coverage or health care services the alien's child had when living with the abuser.

(D) The alien meets the requirements of subsection (d)(8)(C) above.

(e) For purposes of this section, “nonimmigrant” is defined the same as in Section 101(a)(15) of the INA (8 U.S.C. §1101(a)(15)).

(f) A person applying for a benefit for which the applicant is otherwise qualified, must do all of the following:

(1) Declare himself or herself to be a citizen of the United States or a qualified alien under subsection (c), a nonimmigrant alien under subsection (d), or an alien paroled into the United States for less than one year under Section 212(d)(5) of the INA (8 U.S.C. § 1182(d)(5)). The applicant shall declare that status by completing and signing the “State Public Benefits Statement” (DRE Form 205).

(2) Present documents of a type acceptable to the Immigration and Naturalization Services (INS) and as set forth in List A or List B of DRE Form 205 and which serve as reasonable evidence of the applicant's declared status.

(3) Where the documents presented do not on their face appear to be genuine or to relate to the individual presenting them, the government entity that originally issued the documents shall be contacted for verification. With regard to naturalized citizens and derivative citizens presenting certificates of citizenship and aliens, the INS is the appropriate government entity to contact for verification. The Department shall request verification from the INS by filing INS Form G-845 with copies of the pertinent documents provided by the applicant with the local INS office. If the applicant has lost his or her original documents or presents expired documents or is unable to present any documentation evidencing his or her immigration status, the applicant shall be referred to the local INS office to obtain documentation.

(g) Where authorized by the INS, the information presented by an alien as reasonable evidence of the alien's declared immigration status must be submitted to the INS for verification through the Systematic Alien Verification for Entitlements (SAVE) system procedures as follows:

(1) Unless the primary SAVE system is unavailable for use, the primary SAVE system verification must be used to access the biographical/immigration status computer record contained in the Alien Status Verification Index maintained by the INS. Subject to subparagraph (2), this procedure must be used to verify the status of all aliens who claim to be qualified aliens and who present an INS-issued document that contains an alien registration or alien admission number.

(2) In any of the following cases, the secondary SAVE system verification procedure must be used to forward to INS copies of INS documents evidencing an alien's status as a qualified alien, as a nonimmigrant alien under the INA, or as an alien paroled into the United States under Section 212(d)(5) of the INA (8 U.S.C. § 1182(d)(5)), for less than one year:

(A) The primary SAVE system is unavailable for verification.

(B) A primary check of the Alien Status Verification Index instructs the Department to “institute secondary verification.”

(C) The document presented indicates immigration status but does not include an alien registration or alien admission number.

(D) The Alien Status Verification Index record includes the alien registration or admission number on the document presented by the alien but does not match other information contained in the document.

(E) The document is suspected to be counterfeit or to have been altered.

(F) The document includes an alien registration number in the A60 000 000 (not yet issued) or A80 000 000 (illegal border crossing) series.

(G) The document is a fee receipt from INS for replacement of a lost, stolen, or unreadable INS document and the applicant has failed to submit his or her registration or alien admission number.

(H) The document is one of the following: an INS Form I-181b notification letter issued in connection with an INS Form I-181 Memorandum of Creation of Record of Permanent Residence, an Arrival-Departure Record (INS Form I-94) or a foreign passport stamped “PROCESSED FOR I-551, TEMPORARY EVIDENCE OF LAWFUL PERMANENT RESIDENCE” that INS issued more than one year before the date of application for a benefit.

(I) If the secondary SAVE system is available and is used to verify status, provided that the alien has completed and signed Form 205 under penalty of perjury, and has presented documents of a type acceptable to the Immigration and Naturalization Services (INS) and as set forth in List B of DRE Form 205 and which serve as reasonable evidence of the applicant's declared status, eligibility for the benefit shall not be delayed, denied, reduced or terminated while the status of the alien is verified. If the Department determines that any documents have been falsified or that the applicant is not entitled to the benefit, the Department shall suspend such benefit.

(h) The applicant may present documents described in subparagraphs (f)(1), (2) and (3) above which serve as reasonable evidence of the applicant's declared status prior to applying for a benefit or prior to applying for the renewal of a benefit.

(i) If the primary and secondary SAVE systems are unavailable for verification for purposes of establishing an alien's eligibility for a benefit for which the applicant is otherwise qualified, all of the following must be met:

(1) The applicant who is not a citizen of the United States must declare himself or herself to be a qualified alien under subsection (d), a nonimmigrant alien under subsection (e), or an alien paroled into the United States for less than one year under Section 212(d)(5) of the INA (8 U.S.C. § 1182(d)(5)). The alien shall declare that status through use of the DRE Form 205.

(2) The alien must present documents or temporary documents issued by the INS which serve as reasonable evidence of the applicant's declared status. A fee receipt from the INS for replacement of a lost, stolen, or unreadable INS document and an alien registration or alien admission number from INS are temporary documents considered reasonable evidence of the alien's declared status.

(3) Upon receipt of the documents described in subparagraphs (1) and (2) above, and provided that the alien has completed and signed Form 205 under penalty of perjury, eligibility for the benefit shall not be delayed, denied, reduced or terminated while the status of the alien is verified. If the Department determines that any such documents have been falsified or that the applicant is not entitled to the benefit, the Department shall suspend such benefit.

(j) Where the documents presented to verify status do not on their face appear to be genuine or to relate to the individual presenting them, the government entity that originally issued the documents shall be contacted for verification. With regard to naturalized citizens and derivative citizens presenting certificates of citizenship and aliens, the INS is the appropriate government entity to contact for verification. The Department shall request verification from the INS by filing INS Form G-845 with copies of the pertinent documents provided by the applicant with the local INS office. If the applicant has lost his or her original documents or presents expired documents or is unable to present any documentation evidencing his or her immigration status, the applicant shall be referred to the local INS office to obtain documentation.

(k) If the INS advises that the applicant has citizenship status or immigration status which makes him or her a qualified alien under the PRWORA, the INS verification shall be accepted. If the INS advises that it cannot verify that the applicant has citizenship status or an immigration status that makes him or her a qualified alien, benefits shall be denied and the applicant notified pursuant to Section 10100 of the Code of his or her rights to appeal the denial of benefits.

(l) Provided that the alien has completed and signed Form 205 under penalty of perjury and presented documents issued by the INS which serve as reasonable evidence of the applicant's declared status, eligibility for the benefit shall not be delayed, denied, reduced or terminated while the status of the alien is verified.

(m) Pursuant to Section 434 of the PRWORA (8 U.S.C. § 1644), where the Department reasonably believes that an alien is unlawfully in the State based on the failure of the alien to provide reasonable evidence of the alien's declared status, after an opportunity to do so, said alien shall be reported to the INS.

(n)(1) If an applicant for the timely renewal of a benefit has submitted, in good faith, evidence of eligibility pursuant to this section which he had reason to believe would qualify him for renewal of a benefit, but the Department finds that the evidence submitted may not qualify, the Department may, nonetheless, extend the benefit for 90 days in order to allow the applicant to submit additional evidence of eligibility, which satisfies the requirements of this section.

(2) Upon written request, which establishes good cause, from an applicant who has received an extension pursuant to subparagraph (l)(1), and upon proof that the applicant has complied with the continuing education requirements of Article 2.5 of Chapter 3 of the Code, the Department may, grant an additional extension not to exceed 60 days in order to allow the applicant to submit additional evidence of eligibility, which satisfies the requirements of this section.

(3) When the benefit is issued during or at the end of the extension provided for in this section it shall expire four years from the date otherwise applicable as if no extension had been granted.

(o) Any denial of a benefit pursuant to this Section shall be subject to Section 10100 of the Code.

(p) This Section does not apply to the issuance of a professional license to, or the renewal of a professional license by, a foreign national not physically present in the United States.

NOTE

Authority cited: Section 10080, Business and Professions Code. Reference: 8 U.S.C. Sections 1621, 1641 and 1642.

HISTORY

1. New section filed 3-12-98; operative 8-1-98 (Register 98, No. 11).

2. Amendment of section heading and new subsection (p) filed 10-26-99; operative 11-25-99 (Register 99, No. 44).

3. Amendment of subsections (c), (g)(2)(I), (i)(3) and (l) filed 11-9-2000; operative 12-9-2000 (Register 2000, No. 45).

Article 4. Brokers

§2720. Minimum Age.

History

A real estate broker license shall not be issued to a person who has not attained the age of 18 years.

HISTORY

1. Amendment filed 12-27-72; effective thirtieth day thereafter (Register 72, No. 53).

§2721. Character References. [Repealed]

History

HISTORY

1. Repealer filed 10-16-58; effective thirtieth day thereafter (Register 58, No. 19).

§2722. Investigation Period. [Repealed]

History

HISTORY

1. Amendment filed 8-21-63; designated effective 9-20-63 (Register 63, No. 14).

2. Repealer filed 3-1-68; effective thirtieth day thereafter (Register 68, No. 9).

§2723. Inactive Broker Must File Address. [Repealed]

History

HISTORY

1. New section filed 8-17-53; effective thirtieth day thereafter (Register 53, No. 14).

2. Amendment filed 8-21-63; designated effective 9-20-63 (Register 63, No. 14).

3. Repealer filed 10-14-68; effective thirtieth day thereafter (Register 68, No. 39).

§2724. Minimum Requirements for Supervision Under Section 10131.01.

Note • History

A broker may delegate the responsibility and authority to supervise and control the activities of nonlicensed persons acting under Section 10131.01:

(a) To a real estate broker acting in the capacity of a salesperson to the employing broker and who has entered into a written agreement relating thereto with the employing broker.

(b) To a real estate salesperson licensed to the broker if the salesperson has accumulated at least two years full-time experience as a salesperson licensee during the immediately preceding five-year period and has entered into a written agreement with the broker with respect to the delegation of responsibility.

NOTE

Authority cited: Sections 10080 and 10131.01, Business and Professions Code. Reference: Section 10131.01, Business and Professions Code.

HISTORY

1. New section filed 2-19-57; effective thirtieth day thereafter (Register 57, No. 4).

2. Repealer filed 7-12-80; effective thirtieth day thereafter (Register 80, No. 28).

3. New section filed 5-26-92; operative 6-25-92 (Register 92, No. 22).

§2725. Broker Supervision.

Note • History

A broker shall exercise reasonable supervision over the activities of his or her salespersons. Reasonable supervision includes, as appropriate, the establishment of policies, rules, procedures and systems to review, oversee, inspect and manage:

(a) Transactions requiring a real estate license.

(b) Documents which may have a material effect upon the rights or obligations of a party to the transaction.

(d) The handling of trust funds.

(e) Advertising of any service for which a license is required.

(f) Familiarizing salespersons with the requirements of federal and state laws relating to the prohibition of discrimination.

(g) Regular and consistent reports of licensed activities of salespersons.

The form and extent of such policies, rules, procedures and systems shall take into consideration the number of salespersons employed and the number and location of branch offices.

A broker shall establish a system for monitoring compliance with such policies, rules, procedures and systems. A broker may use the services of brokers and salespersons to assist in administering the provisions of this section so long as the broker does not relinquish overall responsibility for supervision of the acts of salespersons licensed to the broker.

NOTE

Authority cited: Sections 10080 and 10170.4, Business and Professions Code. Reference: Section 10177(h), Business and Professions Code.

HISTORY

1. New section filed 11-19-69; designated effective 1-2-70 (Register 69, No. 47).

2. Amendment filed 12-10-71; effective thirtieth day thereafter. (Register 71, No. 50).

3. Amendment filed 12-27-72; effective thirtieth day thereafter (Register 72, No. 53).

4. Repealer and new section filed 11-30-77; effective thirtieth day thereafter (Register 77, No. 49).

5. Editorial correction of History 2 and 3 (Register 95, No. 13).

6. Amendment of section heading, repealer and new section, and amendment of Note filed 11-13-96; operative 11-13-96 pursuant to Government Code section 11343.4(d) (Register 96, No. 46).

§2725.5. Broker Responsibility Regarding Debarred Persons.

Note • History

Business and Professions Code Section 10087 authorizes the Commissioner to debar licensed or unlicensed persons from any position of employment with, or management or control of, a real estate business. Such debarred persons are further prohibited by Section 10087 from participating in any business activity of a real estate salesperson or a real estate broker and from engaging in any real estate-related business activity on the premises where a real estate salesperson or real estate broker is conducting business.

A broker is responsible for screening his or her employees, both licensed and unlicensed, and regular business associates engaging in any real estate-related business activity on the broker's premises, for compliance with Section 10087. Such broker responsibility includes, but is not limited to, quarterly review of the Department's online listing of debarred persons and of the listing of disciplinary actions published in the Department's quarterly bulletin. A broker who becomes aware of violations of Section 10087 is responsible for reporting such violations to the Department.

NOTE

Authority cited: Section 10080, Business and Professions Code. Reference: Section 10087, Business and Professions Code.

HISTORY

1. New section filed 9-26-2011; operative 10-26-2011 (Register 2011, No. 39).

§2726. Broker-Salesman Relationship Agreements.

Note • History

Every real estate broker shall have a written agreement with each of his salesmen, whether licensed as a salesman or as a broker under a broker-salesman arrangement. The agreement shall be dated and signed by the parties and shall cover material aspects of the relationship between the parties, including supervision of licensed activities, duties and compensation.

NOTE

Authority cited: Section 10080, Business and Professions Code. Reference: Section 10177(h), Business and Professions Code.

HISTORY

1. New section filed 12-10-71; designated effective 4-1-72 (Register 71, No. 50).

2. Amendment of section and new Note filed 11-13-96; operative 11-13-96 pursuant to Government Code section 11343.4(d) (Register 96, No. 46).

§2727. Disclosure of Principal Transactions. [Repealed]

Note • History

NOTE

Authority cited: Sections 10080, 10170.4, 10226, 10149.2, 11001 and 11011.8, Business and Professions Code and Section 21082, Public Resources Code.

HISTORY

1. New section filed 12-2-74; effective thirtieth day thereafter (Register 74, No. 49).

2. Amendment filed 11-30-77; effective thirtieth day thereafter (Register 77, No. 49).

3. Repealer filed 7-1-83; effective thirtieth day thereafter (Register 83, No. 30).

§2728. Brokers and Salespersons Performing Licensed Activities Through a Partnership.

Note • History

While California law does not permit the issuance of real estate broker licenses to partnerships, real estate brokers may, pursuant to section 10137.1 of the Business and Professions Code, form partnerships that can perform acts requiring a real estate broker license provided that every partner through whom the partnership performs such acts is a licensed real estate broker.

Where a real estate broker is a member of such a partnership operating as a real estate brokerage business, a salesperson who is licensed to that broker and properly supervised and working under a broker-salesman agreement, may perform acts for which a real estate license is required for and on behalf of the partnership.

A real estate broker who is a member of such a partnership may conduct business from a branch office of the partnership without applying for or acquiring a branch office license in his or her own name, provided another real estate broker member of the partnership has a current branch office license at the location in question.

NOTE

Authority cited: Sections 10080, 10226, 11001 and 11011.8, Business and Professions Code; and Section 21082, Public Resources Code. Reference: Sections 10132 and 10137.1, Business and Professions Code.

HISTORY

1. New section filed 1-16-76; effective thirtieth day thereafter (Register 76, No. 3).

2. Repealer and new section heading, section and Note filed 10-6-2009; operative 11-5-2009 (Register 2009, No. 41).

§2728.5. Broker/Salesman Operating from Branch Offices.

Note • History

A real estate broker acting in the capacity of a salesman to another broker under written agreement may perform acts for which a license is required on behalf of the employing broker at any place of business at which the employing broker is currently licensed to perform acts for which a real estate license is required.

NOTE

Authority cited: Sections 10080 and 11001, Business and Professions Code and Section 21082, Public Resources Code.

HISTORY

1. New section filed 2-10-77; effective thirtieth day thereafter (Register 77, No. 7).

§2729. Record Retention.

Note • History

(a) A real estate broker may use electronic image storage media to retain and store copies of all listings, deposit receipts, canceled checks, trust records and other documents executed by him or her or obtained by him or her in connection with any transaction for which a real estate broker license is required, provided the following requirements are satisfied:

(1) The electronic image storage shall be nonerasable “write once, read many” (“WORM”) that does not allow changes to the stored document or record.

(2) The stored document or record is made or preserved as part of and in the regular course of business.

(3) The original record from which the stored document or record was copied was made or prepared by the broker or the broker's employees at or near the time of the act, condition or event reflected in the record.

(4) The custodian of the record is able to identify the stored document or record, the mode of its preparation, and the mode of storing it on the electronic image storage.

(5) The electronic image storage system contains a reliable indexing system that provides ready access to a desired document or record, appropriate quality control of the storage process to ensure the quality of imaged documents or records, and date ordered arrangement of stored documents or records to assure a consistent and logical flow of paperwork to preclude unnecessary search time.

(6) Records copied and stored under this section shall be retained for three years pursuant to Section 10148 of the Code.

(b) A broker will maintain at the broker's office a means of viewing copies of documents or records stored pursuant to this section. A broker shall provide, at the broker's expense, a paper copy of any document or record requested by the Department.

NOTE

Authority cited: Section 10080, Business and Professions Code. Reference: Section 10148, Business and Professions Code.

HISTORY

1. New section filed 10-26-99; operative 11-25-99 (Register 99, No. 44). For prior history, see Register 96, No. 48.

2. Amendment of subsections (a)-(a)(1) and (a)(4)-(5) filed 11-9-2000; operative 12-9-2000 (Register 2000, No. 45).

§2729.5. Record Retention--Uniform Electronic Transactions Act.

Note • History

(a) A real estate broker who obtains documents in connection with any transaction for which a real estate broker license is required when such documents contain an electronic signature pursuant to the Uniform Electronic Transactions Act (Section 1633.1 et seq. of the Civil Code) or the Electronic Signatures in Global and National Commerce Act shall retain a copy of such documents, including the electronic signatures. The broker shall retain a copy of such documents by: 1) Causing a paper copy of the document to be made or 2) By using electronic image storage media pursuant to Section 2729. The broker may retain copies of such documents at a location other than the broker's place of business.

(b) A broker shall maintain at the broker's office a means of viewing copies of documents or records stored pursuant to this section. After notice, such documents or records shall be made available for examination, inspection, and copying by the Commissioner or his or her designated representative during regular business hours. The broker shall provide, at the broker's expense, a paper copy of any document or record requested by the Department.

NOTE

Authority cited: Section 10080, Business and Professions Code. Reference: Section 10148, Business and Professions Code.

HISTORY

1. New section filed 6-20-2002; operative 7-20-2002 (Register 2002, No. 25).

Article 5. Licenses Under Fictitious Names

§2730. Definitions of Fictitious Name.

Note • History

NOTE

Authority cited for new Article 5 (Sections 2730, 2731, 2732, and 2733); Sections 10080, 10176.2 and 11001, Business and Professions Code.

HISTORY

1. Repealer and new Article 5 filed 7-1-59; effective thirtieth day thereafter (Register 59, No. 11). For history of former Article 5, See Register 58, No. 19.

2. Amendment of Section 2730 filed 8-21-63; designated effective 9-20-63 (Register 63, No. 14).

3. Amendment filed 10-14-68; effective thirtieth day thereafter (Register 68, No. 39).

4. Repealer filed 12-2-74; effective thirtieth day thereafter (Register 74, No. 49).

§2731. Use of False or Fictitious Name.

Note • History

(a) A licensee shall not use a fictitious name in the conduct of any activity for which a license is required under the Real Estate Law unless the licensee is the holder of a license bearing the fictitious name.

(b) The Department shall issue a license required under the Real Estate Law only in the legal name of the licensee or in the fictitious business name of a broker who presents evidence of having complied with the provisions of Sections 17910 and 17917 of the Code.

(1) Is misleading or would constitute false advertising.

(2) Implies a partnership or corporation when a partnership or corporation does not exist in fact.

(3) Includes the name of a real estate salesperson.

(4) Constitutes a violation of the provisions of Sections 17910, 17910.5, 17913 or 17917 of the Code.

(5) Is the name formerly used by a licensee whose license has since been revoked.

(d) A license may not be issued or renewed with a fictitious business name containing the term “escrow”, or any name which implies that escrow services are provided, unless the fictitious business name includes the term, “a non-independent broker escrow” following the name. Licensees who have been or are issued a license with a fictitious business name with the term “escrow”, or any term which implies that escrow services are provided, must include the term “a non-independent broker escrow” in any advertising, signs, or electronic promotional material.

(e) Where a licensee is a natural person, the use of a nickname in place of his or her legal given name (first name) shall not constitute a fictitious name for purposes of this section, provided that where the nickname is used, the licensee also uses as a surname (last name) his or her surname as it appears on his or her real estate license, and includes his or her Department-issued license identification number as required by Section 10140.6 of the Code.

NOTE

Authority cited: Section 10080, Business and Professions Code. Reference: Sections 10140.6, 10159.5 and 10177, Business and Professions Code.

HISTORY

1. New section filed 8-21-63; designated effective 9-20-63 (Register 63, No. 14).

2. Repealer and new section filed 7-1-83; effective thirtieth day thereafter (Register 83, No. 30).

3. Amendment of subsection (a), new subsections (b)-(b)(4) and subsection relettering filed 9-5-2003; operative 10-5-2003 (Register 2003, No. 36).

4. Amendment of subsection (a), repealer of subsections (b)-(b)(4), subsection relettering and amendment of Note filed 9-22-2004; operative 10-22-2004 (Register 2004, No. 39).

5. New subsection (d) filed 10-6-2009; operative 11-5-2009 (Register 2009, No. 41).

6. New subsection (e) and amendment of Note filed 8-11-2011; operative 9-10-2011 (Register 2011, No. 32).

§2732. True Name or Registered Fictitious Name on License. [Repealed]

History

HISTORY

1. Amendment filed 8-21-63; designated effective 9-20-63 (Register 63, No. 14).

2. Repealer filed 7-1-83; effective thirtieth day thereafter (Register 83, No. 30).

§2733. Grounds for Refusal of Fictitious Name. [Repealed]

History

HISTORY

1. New section filed 2-25-60; effective thirtieth day thereafter (Register 60, No. 4).

2. Repealer filed 7-1-83; effective thirtieth day thereafter (Register 83, No. 30).

§2734. Operation by Partners from Branch Offices. [Repealed]

Note • History

NOTE

Authority cited: Sections 10080, 10249.2 and 11001, Business and Professions Code.

HISTORY

1. New section filed 10-14-68; effective thirtieth day thereafter (Register 68, No. 39).

2. Repealer filed 1-16-76; effective thirtieth day thereafter (Register 76, No. 3).

Article 6. Corporate Licenses

§2740. Broker Officers.

Note • History

No acts for which a real estate license is required may be performed for, or in the name of, a corporation when there is no officer of the corporation licensed under Section 10158 or 10211.

NOTE

Authority cited: Section 10080, Business and Professions Code. Reference: Sections 10132, 10158 and 10211, Business and Professions Code.

HISTORY

1. New section filed 10-14-68; effective thirtieth day thereafter (Register 68, No. 39).

2. Repealer and new section filed 7-1-83; effective thirtieth day thereafter (Register 83, No. 30).

3. Amendment of section heading, section and Note filed 11-13-96; operative 11-13-96 pursuant to Government Code section 11343.4(d) (Register 96, No. 46).

§2741. Officer Not to Have Salesperson's License. [Repealed]

Note • History

NOTE

Authority cited: Section 10080, Business and Professions Code. Reference: Sections 10132, 10158, 10177(h), and 10211, Business and Professions Code.

HISTORY

1. Amendment filed 8-21-63; designated effective 9-20-63 (Register 63, No. 14).

2. Amendment filed 10-14-68; effective thirtieth day thereafter (Register 68, No. 39).

3. Repealer and new section filed 1-16-79; effective thirtieth day thereafter (Register 79, No. 3).

4. Repealer filed 11-13-96; operative 11-13-96 pursuant to Government Code section 11343.4(d) (Register 96, No. 46).

§2741.5. Conditions Under Which Officer of a Licensed Corporation May Act As Salesman for It. [Repealed]

Note • History

NOTE

Authority cited: Sections 10080, 10238.1(b), 10249.2 and 11001, Business and Professions Code. Reference: Section 10160, Business and Professions Code.

HISTORY

1. Repealer filed 1-16-79; effective thirtieth day thereafter (Register 79, No. 3). For prior history, see Register 66, No. 25.

§2742. Certificate of Status, Qualification or Good Standing.

Note • History

(a) An applicant for an original broker license for a domestic corporation shall submit with the application, a Certificate of Status (Domestic Corporation) executed by the California Secretary of State not earlier than 30 days before the date of mailing or delivering the application to the headquarters office of the Department.

However, if the applicant is a domestic corporation which filed its original Articles of Incorporation not earlier than six (6) months before the date of mailing or delivering the application to the headquarters office of the Department, Articles of Incorporation executed by the California Secretary of State may be submitted instead of a Certificate of Status.

(b) An applicant for an original broker license for a foreign corporation shall submit with the application, a Certificate of Qualification or a Certificate of Good Standing (Foreign Corporation) executed by the California Secretary of State not earlier than 30 days before the date of mailing or delivering the application to the headquarters office of the Department.

(c) A corporation licensed under Section 10211 of the Code shall not engage in the business of a real estate broker while not in good legal standing with the Office of the Secretary of State.

NOTE

Authority cited: Section 10080, Business and Professions Code. Reference: Sections 10158 and 10211, Business and Professions Code.

HISTORY

1. Repealer and new section filed 7-1-83; effective thirtieth day thereafter (Register 83, No. 30).

2. New subsection (c) filed 4-1-93; operative 5-1-93 (Register 93, No. 14).

3. Amendment of subsection (a) filed 11-13-96; operative 11-13-96 pursuant to Government Code section 11343.4(d) (Register 96, No. 46).

§2743. Assignment of Supervisory Responsibility.

Note • History

(a) A resolution assigning supervisory responsibility over salespersons licensed to a corporate broker is in compliance with Section 10159.2 of the Code if the assignment is made by reference to a specified business address or addresses of the corporate broker rather than by the listing of the names of salespersons subject to the supervision of the broker officer.

(b) In filing the resolution with the Department, the following information shall be furnished on a form prescribed by the Department:

(1) Name, business address and license number of the corporate broker.

(2) Name of the individual broker licensee who was responsible for supervision of the salespersons in question immediately preceding the effective date of the resolution.

NOTE

Authority cited: Section 10080, Business and Professions Code. Reference: Section 10159.2, Business and Professions Code.

HISTORY

1. Repealer filed 12-7-73; effective thirtieth day thereafter (Register 73, No. 49). For prior history, see Register 68, No. 39.

2. New section filed 7-9-80; effective thirtieth day thereafter (Register 80, No. 28).

§2744. Corporation License When No Remaining Licensed Officer. [Repealed]

History

HISTORY

1. Repealer filed 7-1-83; effective thirtieth day thereafter (Register 83, No. 30).

§2745. Disciplinary Action Against Corporate Broker License. [Repealed]

Note • History

NOTE

Authority cited: Sections 10080, 10248.8, 10248.9 and 11001, Business and Professions Code.

HISTORY

1. New section filed 12-7-73; effective thirtieth day thereafter (Register 73, No. 49).

2. Repealer filed 11-27-96; operative 12-27-96 (Register 96, No. 48).

§2746. Corporate Real Estate Brokers, Officers, Directors and Shareholders.

Note • History

(a) At the time of application for, or in the reinstatement of, an original real estate broker license, the designated officer shall file a background statement of information for each director, the chief executive officer, the president, first level vice presidents, secretary, chief financial officer, subordinate officers with responsibility for forming policy of the corporation and all natural persons owning or controlling more than ten percent of its shares, if such person has been the subject of any of the following:

(1) Received an order or judgment issued by a court or governmental agency during the preceding 10 years temporarily or permanently restraining or enjoining any business conduct, practice or employment;

(2) Has had a license to engage in or practice real estate or other regulated profession, occupation or vocation denied, suspended or revoked during the preceding 10 years;

(3) Engaged in acts requiring a real estate license of any state without the benefit of a valid license or permit authorizing that conduct during the preceding 10 years which have been enjoined by a court of law or administrative tribunal;

(4) Been convicted of a crime which is substantially related to the qualifications, functions or duties of a licensee of the Department as specified in Section 2910 of these Regulations (excluding drunk driving, reckless driving and speeding violations).

(b) The background statement shall be set forth in DRE Form 212 and shall inquire only about the information to be disclosed pursuant to subdivision (a). The background statement must be verified and completed by each corporate officer, director or stockholder as named in subdivision (a) to the fullest extent of the signatory's actual knowledge.

(c) Whenever there is a change in the persons whose background statements are required to be on file with the Department for a corporate licensee pursuant to subdivision (a) or an addition to the persons required to file statements pursuant to subdivision (a), the designated officer of the corporation shall, within 30 days thereafter, file with the Department a background statement of information for each new or changed person.

NOTE

Authority cited: Section 10080, Business and Professions Code. Reference: Section 10152, Business and Professions Code.

HISTORY

1. New section filed 7-6-89; operative 8-5-89 (Register 89, No. 31).

2. Amendment filed 3-19-90; operative 4-18-90 (Register 90, No. 13).

3. Amendment of subsection (a), new subsections (a)(1)-(a)(4), repealer and new subsection (b), amendment of subsection (c), and repealer of subsections (d)-(d)(11) filed 11-13-96; operative 11-13-96 pursuant to Government Code section 11343.4(d) (Register 96, No. 46).

4. Amendment of subsection (a)(2) filed 12-30-97; operative 1-29-98 (Register 98, No. 1).

Article 7. Salespersons

§2750. Minimum Age.

Note • History

A real estate salesperson license shall not be issued to a person who has not attained the age of 18 years.

NOTE

Authority cited: Section 10080, Business and Professions Code. Reference: Section 10017, Business and Professions Code.

HISTORY

1. Amendment filed 1-16-76; effective thirtieth day thereafter (Register 76, No. 3).

2. Amendment of article heading and section filed 2-23-2010 as an emergency; operative 2-23-2010 (Register 2010, No. 9). A Certificate of Compliance must be transmitted to OAL by 8-23-2010 or emergency language will be repealed by operation of law on the following day.

3. Certificate of Compliance as to 2-23-2010 order transmitted to OAL 5-6-2010 and filed 6-29-2010 (Register 2010, No. 27).

§2751. Notice to Employing Broker. [Repealed]

History

HISTORY

1. Repealer filed 10-14-68; effective thirtieth day thereafter (Register 68, No. 39).

§2752. Notice of Change of Broker.

Note • History

Whenever a real estate salesperson enters the employ of a real estate broker, the broker shall notify the commissioner of that fact within five days. This notification shall be given on a form prepared by the Department and shall be signed by the broker and the salesperson. The form of notification shall provide for the furnishing of at least the following information:

(1) Name and business address of the broker.

(2) Mailing address of the salesperson, if different from the business address.

(3) Date when the salesperson entered the employ of the broker.

(4) Certification by the salesperson that he has complied with the provisions of Section 10161.8(d) of the Business and Professions Code.

(5) Name and business address of the real estate broker to whom the salesperson was last licensed and the date of termination of that relationship.

(6) Certification by the salesperson that the predecessor broker has notice of the termination of the relationship.

As an acceptable alternative to (5) and (6) above, the form may be utilized by the predecessor broker to give notice of the termination of the broker/salesperson relationship as required by Section 10161.8(b) of the Business and Professions Code if this notice is mailed to the commissioner not more than ten days following such termination.

NOTE

Authority cited: Section 10080, Business and Professions Code. Reference: Section 10161.8, Business and Professions Code.

HISTORY

1. Repealer and new section filed 12-7-73; effective thirtieth day thereafter (Register 73, No. 49). For prior history, see Register 71, No. 1.

2. Amendment of section and repealer and new Note filed 11-27-96; operative 12-27-96 (Register 96, No. 48).

§2753. Retention of Salesperson's License Certificate.

Note • History

The license certificate of a real estate salesperson licensee shall be retained at the main business office of the real estate broker to whom the salesperson is licensed. Upon the termination of employment of the salesperson, the broker shall return the license certificate to the salesperson within three business days following the termination.

NOTE

Authority cited: Section 10080, Business and Professions Code. Reference: Section 10160, Business and Professions Code.

HISTORY

1. Repealer filed 7-16-64; effective thirtieth day thereafter (Register 64, No. 15).

2. New section filed 1-16-79; effective thirtieth day thereafter (Register 79, No. 3).

3. Amendment filed 12-3-80; effective thirtieth day thereafter (Register 80, No. 49).

4. Amendment filed 11-13-96; operative 11-13-96 pursuant to Government Code section 11343.4(d) (Register 96, No. 46).

§2754. Licensees Must File Address. [Repealed]

History

HISTORY

1. New section filed 8-17-53; effective thirtieth day thereafter (Register 53, No. 14).

2. Amendment filed 8-21-63; designated effective 9-20-63 (Register 63, No. 14).

3. Amendment filed 10-14-68; effective thirtieth day thereafter (Register 68, No. 39).

4. Repealer filed 1-16-76; effective thirtieth day thereafter (Register 76, No. 3).

§2755. Salesperson Working for Partnership. [Repealed]

Note • History

NOTE

Authority cited: Section 10080, Business and Professions Code. Reference: Sections 10132 and 10137.1, Business and Professions Code.

HISTORY

1. New section filed 10-14-68; effective thirtieth day thereafter (Register 68, No. 39).

2. Repealer and new section filed 7-1-83; effective thirtieth day thereafter (Register 83, No. 30).

3. Repealer filed 10-6-2009; operative 11-5-2009 (Register 2009, No. 41).

§2756. Salesperson Performance of Mortgage Loan Origination.

Note • History

A salesperson must obtain and be maintaining a mortgage loan originator license endorsement and be employed by a licensed real estate broker who has obtained and is maintaining a mortgage loan originator license endorsement to perform acts for which a mortgage loan originator license endorsement is required.

NOTE

Authority cited: Sections 10080 and 10166.17, Business and Professions Code. Reference: Sections 10132, 10166.01(b), 10166.02, 10166.07(a), 10166.11(a), 10166.11(b) and 10166.12(a), Business and Professions Code.

HISTORY

1. New section filed 2-23-2010 as an emergency; operative 2-23-2010 (Register 2010, No. 9). A Certificate of Compliance must be transmitted to OAL by 8-23-2010 or emergency language will be repealed by operation of law on the following day.

2. Certificate of Compliance as to 2-23-2010 order transmitted to OAL 5-6-2010 and filed 6-29-2010 (Register 2010, No. 27).

Article 7.5. Mortgage Loan Originator License Endorsement

§2758.1. Examination.

Note • History

(a) The examination to qualify for a mortgage loan originator license endorsement shall be administered through the federal Nationwide Mortgage Licensing System and Registry and will consist of a national component and California state component. No portion of the examination is applicable, or a condition precedent, to the application required to obtain a real estate license in California.

(b) A person taking the examination to qualify for a mortgage loan originator license endorsement shall abide by the rules, policies, and procedures set forth by the Nationwide Mortgage Licensing System and Registry.

NOTE

Authority cited: Sections 10080 and 10166.17, Business and Professions Code. Reference: Sections 10150(d), 10151(e), 10166.02(b)(2), 10166.02(d) and 10166.06, Business and Professions Code.

HISTORY

1. New article 7.5 (sections 2758.1-2758.7) and section filed 2-23-2010 as an emergency; operative 2-23-2010 (Register 2010, No. 9). A Certificate of Compliance must be transmitted to OAL by 8-23-2010 or emergency language will be repealed by operation of law on the following day.

2. Certificate of Compliance as to 2-23-2010 order transmitted to OAL 5-6-2010 and filed 6-29-2010 (Register 2010, No. 27).

§2758.2. Fingerprints.

Note • History

In order to apply for a mortgage loan originator license endorsement, an applicant must submit his or her fingerprints to the Nationwide Mortgage Licensing System and Registry. The submission of fingerprints shall be in addition to the fingerprint submission requirement to obtain a California real estate license.

NOTE

Authority cited: Sections 10080 and 10166.17, Business and Professions Code. Reference: Sections 10150(d), 10151(e), 10166.02(b)(2), 10166.02(d) and 10166.04(a)(1), Business and Professions Code.

HISTORY

2. Certificate of Compliance as to 2-23-2010 order transmitted to OAL 5-6-2010 and filed 6-29-2010 (Register 2010, No. 27).

§2758.3. Evidence of Financial Responsibility.

Note • History

The Commissioner's finding required by Section 10166.05(c) of the Business and Professions Code relates to any matter, personal or professional, that may impact upon an applicant's propensity to operate honestly, fairly, and efficiently when engaging in the fiduciary role of a mortgage loan originator.

In order to apply for a mortgage loan originator license endorsement, an applicant shall authorize the Nationwide Mortgage Licensing System and Registry (NMLSR) to obtain the applicant's current credit report. The credit report will be used as needed to validate the applicant's responses to the NMLSR's electronic application form, in order to support the Commissioner's finding required by Section 10166.05(c) of the Business and Professions Code.

(a) The applicant may be precluded from obtaining a mortgage loan originator license endorsement where his or her personal history includes:

(1) any liens or judgments for fraud, misrepresentation, dishonest dealing, and/or mishandling of trust funds, or

(2) other liens, judgments, or financial or professional conditions that indicate a pattern of dishonesty on the part of the applicant.

(b) Notwithstanding the requirements above, where an applicant for a mortgage loan originator license endorsement (1) is currently holding a restricted real estate license, or (2) has a right to a restricted license and is making a dual application for the restricted license and mortgage loan originator license endorsement, such applicant must demonstrate, where pertinent, the completion of restitution to any person who has suffered monetary losses through acts or omissions of the applicant that include, but are not limited to, those that substantially related to the qualifications, functions or duties of a real estate licensee as defined in Section 2910 of these regulations, and/or the discharge of, or bona fide efforts toward discharging, adjudicated debts or monetary obligations to others.

NOTE

Authority cited: Sections 10080 and 10166.17, Business and Professions Code. Reference: Sections 10150(d), 10151(e), 10166.02(b)(2), 10166.02(d), 10166.04(a)(2) and 10166.05(c), Business and Professions Code.

HISTORY

2. Certificate of Compliance as to 2-23-2010 order, including amendment of second paragraph, transmitted to OAL 5-6-2010 and filed 6-29-2010 (Register 2010, No. 27).

§2758.4. Fees.

Note • History

The fee to obtain and maintain a mortgage loan originator license endorsement shall consist of a processing fee charged by the Nationwide Mortgage Licensing System and Registry and an annual license endorsement fee charged by the Department. The annual license endorsement fee is $300. Fees submitted to obtain a license endorsement are deemed earned upon receipt.

A licensee who applies for a mortgage loan originator license endorsement during 2010 shall pay a fee of $300, which will be for the licensee's 2011 license endorsement. A licensee who makes his or her original application for a license endorsement in 2011 or later shall pay a fee of $300 for the year in which the licensee applies, except that a license endorsement application approved after October 31 of a given year will be valid until December 31 of the following year.

A licensee who holds a mortgage loan originator license endorsement may apply to renew the license endorsement in November and December for the following calendar year. The license endorsement renewal application is entered via the Nationwide Mortgage Licensing System and Registry, and the license endorsement fee for the renewal shall be paid to the Nationwide Mortgage Licensing System and Registry during the November/December processing period.

NOTE

Authority cited: Sections 10080 and 10166.17, Business and Professions Code. Reference: Section 10166.17(b), Business and Professions Code.

HISTORY

2. Certificate of Compliance as to 2-23-2010 order transmitted to OAL 5-6-2010 and filed 6-29-2010 (Register 2010, No. 27).

§2758.5. Application, Electronic Signature, and License Changes.

Note • History

(a) An application to obtain a mortgage loan originator license endorsement or to change licensing information on an existing mortgage loan originator license endorsement must be filed using the procedures and electronic system maintained by the Nationwide Mortgage Licensing System and Registry. An applicant shall sign and attest to the information provided in the application through the electronic signature function of the system.

(b) A real estate licensee who has been issued a license endorsement is required to maintain the same current license information on file with the Department and with the Nationwide Mortgage Licensing System and Registry, including licensee name, licensee main office and mailing address. License information regarding a licensee's fictitious business names and branch office locations that are used for mortgage loan origination activities must also be provided contemporaneously by the licensee to both the Department and Nationwide Mortgage Licensing System and Registry.

(c) Where a licensed real estate salesperson acts as a mortgage loan originator and holds a mortgage loan originator license endorsement, notice of employment or employment change for that salesperson that is required to be submitted to the Department under the provisions of the Real Estate Law and the Regulations of the Commissioner must also be filed electronically using the Nationwide Mortgage Licensing System and Registry.

(d) Brokers who employ broker associates to conduct mortgage loan originator activities must provide employment sponsorship information to the Nationwide Mortgage Licensing System and Registry within five (5) days of the commencement of employment. Termination of a broker/broker associate employment relationship must be reported to the Nationwide Mortgage Licensing System and Registry within five (5) days of the termination.

NOTE

Authority cited: Sections 10080 and 10166.17, Business and Professions Code. Reference: Sections 10150(d), 10151(e) and 10161.8, Business and Professions Code.

HISTORY

2. Certificate of Compliance as to 2-23-2010 order transmitted to OAL 5-6-2010 and filed 6-29-2010 (Register 2010, No. 27).

§2758.6. Corporate Real Estate Brokers, Officers, Directors, and Shareholders.

Note • History

The designated officer of a corporation who applies for or has been issued a mortgage loan originator license endorsement on behalf of the corporation is responsible for maintaining and updating, as needed, on the Nationwide Mortgage Licensing System and Registry, background information for the following individuals associated with the corporation:

(a) directors,

(b) officers,

(d) all natural persons owning or controlling ten percent or more of the corporation's shares.

These directors, officers, subordinate officers, and owners/controlling persons are required by these regulations to provide personal information and background information as requested by the Nationwide Mortgage Licensing System and Registry. A broker officer who conducts mortgage loan originator activities on behalf of a corporate real estate licensee must hold an individual mortgage loan originator license endorsement.

NOTE

Authority cited: Sections 10080 and 10166.17, Business and Professions Code. Reference: Sections 10150(d), 10151(e), 10159 and 10159.2, Business and Professions Code.

HISTORY

2. Certificate of Compliance as to 2-23-2010 order, including amendment of subsection (d), transmitted to OAL 5-6-2010 and filed 6-29-2010 (Register 2010, No. 27).

§2758.7. Renewal and Continuing Education.

Note • History

(a) After January 1, 2011, the term for a mortgage loan originator license endorsement shall expire on December 31 of the year for which the license endorsement is issued, except that license endorsement applications approved after October 31 of a given year will be valid until December 31 of the following year.

(b) The renewal requirements for a mortgage loan originator license endorsement, including a renewal request and evidence of completion of required continuing education courses that have been completed in the same calendar year, must be filed and all applicable fees paid between November 1 and December 31 through the Nationwide Mortgage Licensing System and Registry.

(c) A licensee who fails to file the necessary requirements to renew a mortgage loan originator license endorsement by December 31 may request reinstatement of the expired license endorsement by filing the appropriate renewal and other applicable minimum application requirements before March 1 of the following year. Notwithstanding Section 10166.10(f) of the Business and Professions Code, continuing education completed between January 1 and March 1, while a license endorsement is expired and for the purpose of meeting the requirements to reinstate the expired license endorsement, will be credited to, and only be credited to, the renewal period of the previous year. If the renewal requirements are not filed by March 1, the licensee must apply for a new mortgage loan originator license endorsement and meet the requirements for a license endorsement at that time.

NOTE

Authority cited: Sections 10080 and 10166.17, Business and Professions Code. Reference: Sections 10150(d), 10151(e), 10166.10 and 10166.17(c), Business and Professions Code.

HISTORY

2. Certificate of Compliance as to 2-23-2010 order transmitted to OAL 5-6-2010 and filed 6-29-2010 (Register 2010, No. 27).

Article 8. Examinations

§2760. Notice of Time and Place. [Repealed]

History

HISTORY

1. Repealer filed 7-1-83; effective thirtieth day thereafter (Register 83, No. 30).

§2761. Application for Examination.

Note • History

A person desiring to take an examination for a license issued by the department shall apply to take the examination on a form furnished by the department. This form and the examination papers may require that the applicant set forth such information as is necessary to identify the applicant from among other examinees and for the purpose of correlating the application form and examination paper of each examinee.

NOTE

Authority cited: Sections 10080, 10226, 11001, 11011.8, Business and Professions Code and Section 21082, Public Resources Code.

HISTORY

1. New section filed 1-16-76; effective thirtieth day thereafter (Register 76, No. 3). For history of former section, see Register 71, No. 1.

§2761.5. Persons Not Eligible for Examination.

Note • History

An examination shall not ordinarily be administered to a person who has a license or the right to the issuance of a license of the class for which the examination is to be given.

NOTE

Authority cited: Sections 10080 and 10170.4, Business and Professions Code.

HISTORY

1. New section filed 4-24-78; effective thirtieth day thereafter (Register 78, No. 17).

§2762. Time Allowed. [Repealed]

History

HISTORY

1. Amendment filed 8-6-54, as procedural and organizational; designated effective upon filing (Register 54, No. 17).

2. Repealer filed 7-1-83; effective thirtieth day thereafter (Register 83, No. 30).

§2763. Examination Rules.

Note • History

(a) A person taking an examination for a license issued by the Department shall abide by all of the following rules from the time of entry into the examination room until the examinee has completed the examination and left the examination room:

(1) An examinee may not refer to any printed or written material other than that furnished by the Department.

(2) Written computations by examinees shall be made only on paper furnished by the Department for that purpose.

(3) An examinee may not communicate with another examinee nor with any person other than an examination proctor.

(4) The copying of questions and the making of any notes of examination materials by an examinee is prohibited.

(5) An examinee may not leave the examination room prior to completion of the examination unless express permission of an examination proctor has been obtained and all examination papers and materials have been turned over to the proctor.

(6) The only materials or devices, other than those furnished by the Department, that an examinee may use during the course of the examination are pencils and slide rules or silent, battery-operated, electronic, pocket-sized calculators which are non-programmable, do not have a print-out capability, or an alphabetic keyboard.

(7) An examinee may not share the use of examination materials with any other examinee.

(b) A violation of any of the above rules or verbal directives of an examination proctor is ground to disqualify an examinee and to initiate appropriate administrative action to deny the issuance of a license to the examinee.

NOTE

Authority cited: Section 10080, Business and Professions Code. Reference: Section 10153, Business and Professions Code.

HISTORY

1. Amendment filed 12-30-70; effective thirtieth day thereafter (Register 70, No. 1).

2. Repealer and new section filed 4-24-78; effective thirtieth day thereafter (Register 78, No. 17).

3. Amendment of subsection (a) filed 3-18-88; operative 4-17-88 (Register 88, No. 14).

4. Amendment of subsection (a)(6) filed 5-4-89; operative 6-3-89 (Register 89, No. 23).

§2764. Notification of Result. [Repealed]

History

HISTORY

1. Repealer filed 7-1-83; effective thirtieth day thereafter (Register 83, No. 30).

§2765. Re-Examination. [Repealed]

History

HISTORY

1. Repealer filed 2-25-60; effective thirtieth day thereafter (Register 60, No. 4).

§2766. Renewal License Examination. [Repealed]

History

HISTORY

1. New section filed 2-19-57; effective thirtieth day thereafter (Register 57, No. 4).

2. Repealer filed 8-21-63; designated effective 9-20-63 (Register 63, No. 14).

§2767. Time Limit After Renewal License Examination. [Repealed]

History

HISTORY

1. New section filed 2-19-57; effective thirtieth day thereafter (Register 57, No. 4).

2. Repealer filed 11-21-61; effective thirtieth day thereafter (Register 61, No. 23).

§2768. Time Limits for Taking Examinations for Renewable Licenses. [Repealed]

History

HISTORY

1. New section filed 5-16-57; effective thirtieth day thereafter (Register 57, No. 8).

2. Repealer filed 8-21-63; designated effective 9-20-63 (Register 63, No. 14).

Article 9. Signs and Advertising

§2770. Electronic Communication--Advertising and Dissemination of Information on the Internet.

Note • History

(a) The following definitions shall apply for the purposes of this section:

(1) “Customer” means the person located within the State of California on whose behalf a service is provided or offered or to whom an advertisement is directed.

(2) “Services” means any activity for which a real estate license in required and which is offered or provided to a customer located within this state.

(b) Persons who advertise or disseminate information about services over the Internet, the World Wide Web, or similar electronic common carrier systems, will not be deemed to be engaged in the business, act in the capacity of, advertise or assume to act as a real estate broker within this state if any of the following apply:

(1) The advertisement or information involves a service but (A) is not directed to any particular person or customer located within the State of California, (B) is limited to general information about the services offered to customers or the public in general, and (C) includes the legend “The services referred to herein are not available to persons located within the State of California.”.

(2) The advertisement or information does not involve a service provided in connection with activity for which a real estate license is required.

(3) The advertisement or information is not being published, circulated or transmitted on behalf of another or others.

(4)(A) The person is engaged exclusively in advertising and performs no other acts requiring a real estate license; and

(B) The person conducting the advertising does not compile or represent that he or she will compile information about specific parties in a real estate transaction. General information such as demographic or marketing information may be compiled; and

(D) The advertisements provide for direct contact between prospective parties to a real estate transaction or contact through a licensed California real estate broker.

(c) A person who advertises or disseminates information with respect to providing a service is not required to have a real estate broker license if any of the following conditions apply:

(1) The person publishing, circulating or transmitting the advertisement or disseminating the information is acting within the exemptions from the definition of real estate broker contained in Sections 10133 or 10133.1. of the Code.

(2) The services provided do not include any of the acts within the meaning of Sections 10131, 10131.1, 10131.2, 10131.3, 10131.4, 10131.45 and 10131.6 of the Code.

(3) (A) Prior to any direct electronic communication or any response or contact with a specific customer there is in place, barriers or other implemented policies and procedures, designed to ensure that prior to the response or contact, the person making it is appropriately licensed under the Real Estate Law or qualifies for an exemption from real estate broker licensure; and,

(B) There is a legend in all advertising and information disseminated about services offered indicating whether the person making the advertising or disseminating the information is a licensed California real estate broker. If the person is not a licensed California real estate broker, an additional legend shall be included which provides as follows: “The services are not available to persons located within the State of California.”

NOTE

Authority cited: Section 10080, Business and Professions Code. Reference: Sections 10131, 10131.1, 10131.2, 10131.3, 10131.4, 10131.45 and 10131.6, Business and Professions Code.

HISTORY

1. Repealer of section and new Note filed 11-13-96; operative 11-13-96 pursuant to Government Code section 11343.4(d) (Register 96, No. 46).

2. New section filed 7-31-98; operative 8-30-98 (Register 98, No. 31).

3. New subsections (b)(4)-(b)(4)(D) filed 2-28-2006; operative 3-30-2006 (Register 2006, No. 9).

§2770.1. Advertising--License Designation.

Note • History

Use of the terms broker, agent, Realtor, loan correspondent or the abbreviations bro., agt., or other similar terms or abbreviations, is deemed sufficient identification to fulfill the designation requirements of Section 10140.6(a) and (c) of the Business and Professions Code.

Use of the terms and abbreviations set forth above does not satisfy the requirements of Sections 10235.5 and 17539.4 of the Code.

NOTE

Authority cited: Section 10080, Business and Professions Code. Reference: Sections 10140.6, 10235.5 and 17539.4, Business and Professions Code.

HISTORY

1. New section filed 9-17-65; effective thirtieth day thereafter (Register 65, No. 17).

2. Amendment of section and Note filed 4-1-93; operative 5-1-93 (Register 93, No. 14).

3. Amendment filed 7-27-2011; operative 8-26-2011 (Register 2011, No. 30).

§2771. Size and Location of Sign. [Repealed]

History

HISTORY

1. Repealer filed 11-19-69; designated effective 1-2-70 (Register 69, No. 47). For prior history, see Register 68, No. 39.

§2771.6. Sign Requirements for Partners. [Repealed]

History

HISTORY

1. New section filed 10-14-68; effective thirtieth day thereafter (Register 68, No. 39).

2. Repealer filed 11-19-69; designated effective 1-2-70 (Register 69, No. 47).

§2772. Wording of Sign. [Repealed]

History

HISTORY

1. New section filed 12-13-50; effective thirtieth day thereafter (Register 22, No. 4).

2. Amendment filed 9-17-65; designated effective 1-2-66 (Register 65, No. 17).

3. Repealer filed 11-19-69; designated effective 1-2-70 (Register 69, No. 47).

§2773. Disclosure of License Identification Number on Solicitation Materials -- First Point of Contact with Consumers.

Note • History

(a) A real estate broker or salesperson, when engaging in acts for which a license is required, shall disclose its, his or her eight (8) digit real estate license identification number on all solicitation materials intended to be the first point of contact with consumers. If the name of more than one licensee appears in the solicitation, the license identification number of each licensee shall be disclosed. The license numbers of employing brokers or corporate brokers whose names or logos or trademarks appear on solicitation materials along with the names and license numbers of licensed employees or broker associates do not need to appear on those materials.

Solicitation materials intended to be the first point of contact with consumers, and in which a licensee must disclose a license identification number, include the following:

(1) Business cards;

(2) Stationery;

(3) Websites owned, controlled, and/or maintained by the soliciting real estate licensee; and

(4) Promotional and advertising fliers, brochures, email and regular mail, leaflets, and any marketing or promotional materials designed to solicit the creation of a professional relationship between the licensee and a consumer, or which is intended to incentivize, induce or entice a consumer to contact the licensee about any service for which a license is required. The type size of the license identification number shall be no smaller than the smallest size type used in the solicitation material.

(b) For the purposes of Business and Professions Code Section 10140.6, solicitation materials do not include the following:

(1) Advertisements in electronic media (including, without limitation, radio, cinema and television ads, and the opening section of streaming video and audio);

(2) Print advertising in any newspaper or periodical; and

(3) “For Sale” signs placed on or around a property intended to alert the public the property is available for lease, purchase or trade.

NOTE

Authority cited: Section 10080, Business and Professions Code. Reference: Section 10140.6, Business and Professions Code.

HISTORY

1. New section filed 10-6-2009; operative 11-5-2009 (Register 2009, No. 41).

Article 10. Discrimination and Panic Selling

§2780. Discriminatory Conduct As the Basis for Disciplinary Action.

Note • History

Prohibited discriminatory conduct by a real estate licensee based upon race, color, sex, religion, ancestry, physical handicap, marital status or national origin includes, but is not limited to, the following:

(a) Refusing to negotiate for the sale, rental or financing of the purchase of real property or otherwise making unavailable or denying real property to any person because of such person's race, color, sex, religion, ancestry, physical handicap, marital status or national origin.

(b) Refusing or failing to show, rent, sell or finance the purchase of real property to any person or refusing or failing to provide or volunteer information to any person about real property, or channeling or steering any person away from real property, because of that person's race, color, sex, religion, ancestry, physical handicap, marital status or national origin or because of the racial, religious, or ethnic composition of any occupants of the area in which the real property is located.

It shall not constitute discrimination under this subdivision for a real estate licensee to refuse or fail to show, rent, sell or finance the purchase of real property to any person having a physical handicap because of the presence of hazardous conditions or architectural barriers to the physically handicapped which conform to applicable state or local building codes and regulations.

(c) Discriminating because of race, color, sex, religion, ancestry, physical handicap, marital status or national origin against any person in the sale or purchase or negotiation or solicitation of the sale or purchase or the collection of payment or the performance of services in connection with contracts for the sale of real property or in connection with loans secured directly or collaterally by liens on real property or on a business opportunity.

Prohibited discriminatory conduct by a real estate licensee under this subdivision does not include acts based on a person's marital status which are reasonably taken in recognition of the community property laws of this state as to the acquiring, financing, holding or transferring of real property.

(d) Discriminating because of race, color, sex, religion, ancestry, physical handicap, marital status or national origin against any person in the terms, conditions or privileges of sale, rental or financing of the purchase of real property.

This subdivision does not prohibit the sale price, rent or terms of a housing accommodation containing facilities for the physically handicapped to differ reasonably from a housing accommodation not containing such facilities.

(e) Discriminating because of race, color, sex, religion, ancestry, physical handicap, marital status or national origin against any person in providing services or facilities in connection with the sale, rental or financing of the purchase of real property, including but not limited to: processing applications differently, referring prospects to other licensees because of the prospect's race, color, sex, religion, ancestry, physical handicap, marital status or national origin, using with discriminatory intent or effect, codes or other means of identifying minority prospects or assigning real estate licensees on the basis of a prospective client's race, color, sex, religion, ancestry, physical handicap, marital status or national origin.

(f) Representing to any person because of his or her race, color, sex, religion, ancestry, physical handicap, marital status or national origin that real property is not available for inspection, sale or rental when such real property is in fact available.

(g) Processing an application more slowly or otherwise acting to delay, hinder or avoid the sale, rental or financing of the purchase of real property on account of the race, color, sex, religion, ancestry, physical handicap, marital status or national origin of a potential owner or occupant.

(h) Making any effort to encourage discrimination against persons because of their race, color, sex, religion, ancestry, physical handicap, marital status or national origin in the showing, sale, lease or financing of the purchase of real property.

(i) Refusing or failing to cooperate with or refusing or failing to assist another real estate licensee in negotiating the sale, rental or financing of the purchase of real property because of the race, color, sex, religion, ancestry, physical handicap, marital status or national origin of any prospective purchaser or tenant.

(j) Making any effort to obstruct, retard or discourage the purchase, lease or financing of the purchase of real property by persons whose race, color, sex, religion, ancestry, physical handicap, marital status or national origin differs from that of the majority of persons presently residing in a structural improvement to real property or in an area in which the real property is located.

(k) Performing any acts, making any notation, asking any questions or making or circulating any written or oral statement which when taken in context, expresses or implies a limitation, preference or discrimination based upon race, color, sex, religion, ancestry, physical handicap, marital status or national origin; provided, however, that nothing herein shall limit the administering of forms or the making of a notation required by a federal, state or local agency for data collection or civil rights enforcement purposes; or in the case of a physically handicapped person, making notation, asking questions or circulating any written or oral statement in order to serve the needs of such a person.

(l) Making any effort to coerce, intimidate, threaten or interfere with any person in the exercise or enjoyment of, or on account of such person's having exercised or enjoyed, or on account of such person's having aided or encouraged any other person in the exercise or enjoyment of any right granted or protected by a federal or state law, including but not limited to: assisting in any effort to coerce any person because of his or her race, color, sex, religion, ancestry, physical handicap, marital status or national origin to move from, or to not move into, a particular area; punishing or penalizing real estate licensees for their refusal to discriminate in the sale or rental of housing because of the race, color, sex, religion, ancestry, physical handicap, marital status or national origin of a prospective purchaser or lessee; or evicting or taking other retaliatory action against any person for having filed a fair housing complaint or for having undertaken other lawful efforts to promote fair housing.

(m) Soliciting of sales, rentals or listings of real estate from any person, but not from another person within the same area because of differences in the race, color, sex, religion, ancestry, physical handicap, marital status or national origin of such persons.

(n) Discriminating because of race, color, sex, religion, ancestry, physical handicap, marital status or national origin in informing persons of the existence of waiting lists or other procedures with respect to the future availability of real property for purchase or lease.

(o) Making any effort to discourage or prevent the rental, sale or financing of the purchase of real property because of the presence or absence of occupants of a particular race, color, sex, religion, ancestry, physical handicap, marital status or national origin, or on the basis of the future presence or absence of a particular race, color, sex, religion, ancestry, physical handicap, marital status or national origin, whether actual, alleged or implied.

(p) Making any effort to discourage or prevent any person from renting, purchasing or financing the purchase of real property through any representations of actual or alleged community opposition based upon race, color, sex, religion, ancestry, physical handicap, marital status or national origin.

(q) Providing information or advice to any person concerning the desirability of particular real property or a particular residential area(s) which is different from information or advice given to any other person with respect to the same property or area because of differences in race, color, sex, religion, ancestry, physical handicap, marital status or national origin of such persons.

This subdivision does not limit the giving of information or advice to physically handicapped persons for the purpose of calling to the attention of such persons the existence or absence of housing accommodation services or housing accommodations for the physically handicapped.

(r) Refusing to accept a rental or sales listing or application for financing of the purchase of real property because of the owner's race, color, sex, religion, ancestry, physical handicap, marital status or national origin or because of the race, color, sex, religion, ancestry, physical handicap, marital status or national origin of any of the occupants in the area in which the real property is located.

(s) Entering into an agreement, or carrying out any instructions of another, explicit or understood, not to show, lease, sell or finance the purchase of real property because of race, color, sex, religion, ancestry, physical handicap, marital status or national origin.

(t) Making, printing or publishing, or causing to be made, printed or published, any notice, statement or advertisement concerning the sale, rental or financing of the purchase of real property that indicates any preference, limitation or discrimination because of race, color, sex, religion, ancestry, physical handicap, marital status or national origin, or any intention to make such preference, limitation or discrimination.

This subdivision does not prohibit advertising directed to physically handicapped persons for the purpose of calling to the attention of such persons the existence or absence of housing accommodation services or housing accommodations for the physically handicapped.

(u) Using any words, phrases, sentences, descriptions or visual aids in any notice, statement or advertisement describing real property or the area in which real property is located which indicates any preference, limitation or discrimination because of race, color, sex, religion, ancestry, physical handicap, marital status or national origin.

(v) Selectively using, placing or designing any notice, statement or advertisement having to do with the sale, rental or financing of the purchase of real property in such a manner as to cause or increase discrimination by restricting or enhancing the exposure or appeal to persons of a particular race, color, sex, ancestry, physical handicap, marital status or national origin.

This subdivision does not limit in any way the use of an affirmative marketing program designed to attract persons of a particular race, color, sex, religion, ancestry, physical handicap, marital status or national origin who would not otherwise be attracted to the real property or to the area.

(w) Quoting or charging a price, rent or cleaning or security deposit for a particular real property to any person which is different from the price, rent or security deposit quoted or charged to any other person because of differences in the race, color, sex, religion, ancestry, physical handicap, marital status or national origin of such persons.

This subdivision does not prohibit the quoting or charging of a price, rent or cleaning or security deposit for a housing accommodation containing facilities for the physically handicapped to differ reasonably from a housing accommodation not containing such facilities.

(x) Discriminating against any person because of race, color, sex, religion, ancestry, physical handicap, marital status or national origin in performing any acts in connection with the making of any determination of financial ability or in the processing of any application for the financing or refinancing of real property.

Nothing herein shall limit the administering of forms or the making of a notation required by a federal, state or local agency for data collection or civil rights enforcement purposes. In any evaluation or determination as to whether, and under what terms and conditions, a particular lender or lenders would be likely to grant a loan, licensees shall proceed as though the lender or lenders are in compliance with Sections 35800 through 35833 of the California Health and Safety Code (The Housing Financial Discrimination Act of 1977).

(y) Advising a person of the price or value of real property on the basis of factors, related to the race, color, sex, religion, ancestry, physical handicap, marital status or national origin of residents of an area or of residents or potential residents of the area in which the property is located.

(z) Discriminating in the treatment of, or services provided to, occupants of any real property in the course of providing management services for the real property because of the race, color, sex, religion, ancestry, physical handicap, marital status or national origin of said occupants.

This subdivision does not prohibit differing treatment or services to a physically handicapped person because of the physical handicap, marital status in the course of providing management services for a housing accommodation.

(aa) Discriminating against the owners or occupants of real property because of the race, color, sex, religion, ancestry, physical handicap, marital status or national origin of their guests, visitors or invitees.

(bb) Making any effort to instruct or encourage, expressly or impliedly, by either words or acts, licensees or their employees or other agents to engage in any discriminatory act in violation of a federal or state fair housing law.

(cc) Establishing or implementing rules that have the effect of limiting the opportunity for any person because of his or her race, color, sex, religion, ancestry, physical handicap, marital status or national origin to secure real property through a multiple listing or other real estate service.

(dd) Assisting or aiding in any way, any person in the sale, rental or financing of the purchase of real property where there are reasonable grounds to believe that such person intends to discriminate because of race, color, sex, religion, ancestry, physical handicap, marital status or national origin.

NOTE

Authority cited for Article 10, Section 10080, Business and Professions Code. Reference: Sections 125.6 and 10177, Business and Professions Code.

HISTORY

1. New Article 10 (Sections 2780-2782) filed 4-14-77; effective thirtieth day thereafter (Register 77, No. 16.) For history of former Article 10 (Sections 2775-2777), see Register 69, No. 47.

2. Amendment filed 4-24-78; effective thirtieth day thereafter (Register 78, No. 17).

3. Amendment filed 12-3-80; effective thirtieth day thereafter (Register 80, No. 49).

§2781. Panic Selling As the Basis for Disciplinary Action.

Note • History

Prohibited discriminatory conduct includes, but is not limited to, soliciting sales or rental listings, making written or oral statements creating fear or alarm, transmitting written or oral warnings or threats, or acting in any other manner so as to induce or attempt to induce the sale or lease of real property through any representation, express or implied, regarding the present or prospective entry of one or more persons of another race, color, sex, religion, ancestry, marital status or national origin into an area or neighborhood.

NOTE

Authority cited: Section 10080, Business and Professions Code. Reference: Section 125.6, Business and Professions Code.

HISTORY

1. Amendment filed 12-3-80; effective thirtieth day thereafter (Register 80, No. 49).

§2782. Duty to Supervise. [Repealed]

Note • History

NOTE

Authority cited: Section 10080, Business and Professions Code. Reference: Sections 125.6, 10159.2, and 10177(h), Business and Professions Code.

HISTORY

1. Amendment filed 4-24-78; effective thirtieth day thereafter (Register 78, No. 17).

2. Amendment of subsection (a) filed 12-1-81; designated effective 1-1-82 (Register 81, No. 49).

3. Repealer of section and amendment of Note filed 11-13-96; operative 11-13-96 pursuant to Government Code section 11343.4(d) (Register 96, No. 46).

Article 11. Licensee Ethics

§2785. Improper Influence of Real Property Appraisers.

Note • History

(a) In conformance with Civil Code section 1090.5, real estate licensees engaged in a real estate transaction involving an appraisal shall not improperly influence or attempt to improperly influence the development, reporting, result, or review of a real estate appraisal sought in connection with a mortgage loan. For the purposes of the Real Estate Law, “improper influence” as the term is used in Civil Code section 1090.5, includes but is not limited to:

(1) withholding or threatening to withhold timely payment or partial payment for a completed appraisal report, regardless of whether a sale or financing transaction closes;

(2) withholding or threatening to withhold future business from an appraiser, or demoting or terminating or threatening to demote or terminate an appraiser;

(3) expressly or impliedly promising future business, promotions, or increased compensation for an appraiser;

(4) conditioning the ordering of an appraisal report or the payment of an appraisal fee or salary or bonus on the opinion, conclusion, or valuation to be reached, or on a preliminary value estimate requested from an appraiser;

(5) requesting that an appraiser provide an estimated, predetermined, or desired valuation in an appraisal report prior to the completion of the appraisal report, or requesting that an appraiser provide estimated values or comparable sales at any time prior to the appraiser's completion of an appraisal report;

(6) providing to an appraiser an anticipated, estimated, encouraged, or desired value for a subject property or a proposed or target amount to be loaned to the borrower, except that a copy of the sales contract for purchase transactions may be provided;

(7) requesting the removal of language related to observed physical, functional or economic obsolescence, or adverse property conditions noted in an appraisal report;

(8) providing to an appraiser, appraisal company, or appraisal management company, stock or other financial or non-financial benefits.

(b) Subdivision (a) does not prohibit a person with an interest in a real estate transaction from asking an appraiser to do any of the following:

(1) Consider additional, appropriate property information.

(2) Provide further detail, substantiation, or explanation for the appraiser's value conclusion.

(3) Correct errors in the appraisal report.

(c) Nothing in this section shall be construed to authorize communications that are otherwise prohibited under existing law.

NOTE

Authority cited: Section 10080, Business and Professions Code. Reference: Section 1090.5, Civil Code.

HISTORY

1. New article 11 (section 2785) and section filed 9-26-2011; operative 10-26-2011 (Register 2011, No. 39). For prior history of article 11, section 2785, see Register 96, No. 46.

Article 12. Subdivisions

§2790. Application for Public Report.

Note • History

An application for a public report whether it includes a completed questionnaire or consists only of a notice of intention shall be made on a form prescribed by the Department and shall be submitted to the Department with the applicable filing fee. The application shall be executed by or on behalf of the person to whom the public report is to be issued. If executed within California, the information in the application and the documents submitted therewith shall be certified to be true under penalty of perjury or verified before a notary public or other person qualified to administer oaths. If executed outside of California, the information in the application and accompanying documents shall be verified before a person qualified to administer oaths within the jurisdiction where executed, or certified under penalty of perjury in accordance with the provisions of subdivision (b) of Section 2015.5 of the Code of Civil Procedure.

NOTE

Authority cited: Section 11001, Business and Professions Code. Reference: Sections 11010 and 11011, Business and Professions Code.

HISTORY

1. Amendment filed 10-14-68; effective thirtieth day thereafter (Register 68, No. 39).

2. Amendment filed 12-10-71; effective thirtieth day thereafter (Register 71, No. 50).

3. Repealer and new section filed 7-1-83; effective thirtieth day thereafter (Register 83, No. 30).

4. Amendment of subsection (a) filed 11-11-84; effective thirtieth day thereafter (Register 84, No. 2).

5. Amendment filed 2-26-85; effective thirtieth day thereafter (Register 85, No. 9).

§2790.1. Filing Fees. [Repealed]

Note • History

NOTE

Authority cited: Sections 11001 and 11011, Business and Professions Code. Reference: Sections 11004.5, 11010 and 11011, Business and Professions Code.

HISTORY

1. Amendment filed 1-16-79; effective thirtieth day thereafter (Register 79, No. 3). For prior history, see Register 74, No. 49.

2. Amendment filed 1-17-80; effective thirtieth day thereafter (Register 80, No. 3).

3. Amendment filed 12-3-80; effective thirtieth day thereafter (Register 80, No. 49).

4. Amendment filed 12-22-81; designated effective 2-1-82 (Register 81, No. 52).

5. Amendment filed 8-10-82; effective thirtieth day thereafter (Register 82, No. 33).

6. Amendment filed 1-9-85; effective thirtieth day thereafter (Register 85, No. 2).

7. Amendment of section and Note filed 12-7-94; operative 1-6-95 (Register 94, No. 49).

8. New subsection (c) and amendment of Note filed 12-30-97; operative 1-29-98 (Register 98, No. 1).

9. Amendment and redesignation of first paragraph as subsection (a), new subsections (a)(1)-(a)(11), and subsection relettering filed 6-18-98; operative 8-1-98. Submitted to OAL for printing only pursuant to Business and Professions Code section 10226 (Register 98, No. 26).

10. Amendment of subsections (a)(2)-(3) and (a)(8)-(11) filed 6-1-99; amended and refiled 7-14-99; operative 8-1-99. Submitted to OAL for printing only pursuant to Business and Professions Code section 10226 (Register 99, No. 29).

11. Amendment of subsections (a)(2), (a)(3) and (a)(8)-(11) filed 5-16-2001; operative 6-15-2001 (Register 2001, No. 20).

12. Amendment of subsection (d) filed 6-20-2002; operative 7-20-2002 (Register 2002, No. 25).

13. Repealer filed 5-1-2007; operative 5-31-2007 (Register 2007, No. 18).

§2790.1.5. Filing Fees.

Note • History

(a) The subdivision filing fees for an application for a public report shall be the following:

(1) A notice of intention without a completed questionnaire: One hundred fifty dollars ($150).

(2) An original public report for subdivision interests described in Section 11004.5: One thousand seven hundred dollars ($1,700) plus ten dollars ($10) for each subdivision interest to be offered.

(3) An original public report for subdivision interests other than those described in Section 11004.5: Six hundred dollars ($600) plus ten dollars ($10) for each subdivision interest to be offered.

(4) A conditional public report for subdivision interests described in Section 11004.5: Five hundred dollars ($500).

(5) A conditional public report for subdivision interests other than those described in Section 11004.5: Five hundred dollars ($500).

(6) A preliminary public report for subdivision interests described in Section 11004.5: Five hundred dollars ($500).

(7) A preliminary public report for subdivision interests other than those described in Section 11004.5: Five hundred dollars ($500).

(8) A renewal public report for subdivision interests described in Section 11004.5: Six hundred dollars ($600).

(9) A renewal public report for subdivision interests other than those described in Section 11004.5: Six hundred dollars ($600).

(10) An amended public report for subdivision interests described in Section 11004.5: Five hundred dollars ($500) plus ten dollars ($10) for each subdivision interest to be offered under the amended public report for which a fee has not previously been paid.

(11) An amended public report to offer subdivision interests other than those described in Section 11004.5: Five hundred dollars ($500) plus ten dollars ($10) for each subdivision interest to be offered under the amended public report for which a fee has not previously been paid.

(b) The maximum fee under Section 11011(b)(2) and (b)(10) shall be $7,600 regardless of the number of interests authorized to be offered for sale or lease.

(c) The maximum fee under Section 11011(b)(3) and (b)(11) shall be $4,100 regardless of the number of interests authorized to be offered for sale or lease.

(d) The filing fee for an amended public report where the amendment consists only of a recurring and non-substantive change including, but not limited to a change in the name of the subdivider shall be $125 and the filing fee for each additional amended public report consisting only of the same recurring and non-substantive change including, but not limited to a change in the name of the subdivider submitted by that subdivider at the same time shall be $60. The subsection does not apply where there is a change in the ownership of the subdivision along with a change in the name of the subdivider.

NOTE

Authority cited: Sections 11001 and 11011, Business and Professions Code. Reference: Sections 11004.5, 11010 and 11018.5, Business and Professions Code.

HISTORY

1. New section filed 7-15-2003; operative 8-31-2003 (Register 2003, No. 29).

2. Amendment of subsection (a) and repealer of subsection (e) filed 5-1-2007; operative 5-31-2007 (Register 2007, No. 18).

3. Amendment of subsections (a)(2)-(3) and (a)(8)-(11) filed 5-12-2009; operative 5-12-2009 pursuant to Government Code section 11343.4 (Register 2009, No. 20).

§2790.2. Conditional Public Reports.

Note • History

(a) An applicant for an original, renewed or amended Final Public Report for a subdivision of the type not described in Section 11000.1 of the Code may also apply for a Conditional Public Report for the subdivision.

(b) An applicant for a Conditional Public Report shall submit the following information and documents with the applicable filing fee:

(1) A copy of the statement set forth in Section 11018.12(f) which the applicant proposes to use.

(2) An exemplar sales agreement or lease to be used in any transaction conducted under authority of the Conditional Public Report. Such sales agreement or lease shall include the following provisions:

(A) As a condition of the sale or lease that no escrow will close, funds will not be released from escrow and the interest contracted for will not be conveyed until a current Final Public Report for the subdivision is furnished to the purchaser.

(B) The return of the entire sum of money paid or advanced by the purchaser if a Final Public Report for the subdivision has not been issued within six months of the date of issuance of the Conditional Public Report or the purchaser or lessee is dissatisfied with the Final Public Report because of a change pursuant to Section 11012.

(3) An exemplar of escrow instructions to be used in any transaction conducted under authority of the Conditional Public Report which includes at least the following:

(A) The name and address of the escrow depository.

(B) A description of the nature of the transaction.

(D) Provisions ensuring that no escrow will close, funds will not be released from escrow and the interest contracted for will not be conveyed until a current Final Public Report for the subdivision is furnished to the purchaser or lessee.

(E) Provisions for the return of money as prescribed in subsection (2)(B) above.

(4) For a subdivision described in Section 11004.5 of the Code, in addition to the requirements set forth above:

(A) Information and documents demonstrating that reasonable arrangements have been made to assure completion of the subdivision and all offsite improvements included in the offering.

(B) Information and documents demonstrating that the applicant has complied with Section 11018.5(a)(2) of the Code for the subdivision.

(c) A Conditional Public Report will not be issued unless the applicant has met the requirements set forth in Section 11018.12 of the Code.

(d) Written notice of the decision to deny issuance of a Conditional Public Report will be mailed to the applicant, pursuant to Section 11018.12(c) of the Code, within five business days after the Commissioner decides not to issue a Conditional Public Report.

(e) The term of a Conditional Public Report will not exceed six months, but the Conditional Public Report may be renewed for one additional six-month period if the Commissioner determines that the requirements for issuance of a public report are likely to be satisfied during the renewal term.

(f) The Commissioner may issue a conditional permit for a subdivision as defined in Section 10250.1 in accordance with the provisions of subsections (a) through (e), above.

NOTE

Authority cited: Section 11001, Business and Professions Code. Reference: Sections 10250.1, 11010.2, 11011 and 11018.12, Business and Professions Code.

HISTORY

1. New section filed 3-1-94; operative 3-31-94 (Register 94, No. 9). For prior history, see Register 85, No. 2.

2. Amendment of subsection (c), repealer of subsections (c)(1)-(c)(2), new subsection (f) and amendment of Note filed 7-10-97; operative 7-10-97 pursuant to Government Code section 11343.4(d) (Register 97, No. 28).

3. Amendment of subsections (a), (b)(3)(E) and (f) filed 10-26-99; operative 11-25-99 (Register 99, No. 44).

§2790.4. Questionnaire Waiver--Rural Housing Service.

Note • History

The submission of a completed questionnaire shall be waived pursuant to subdivision (c) of Section 11010 of the Code for a proposed subdivision offering that satisfies all of the following criteria:

(a) Except as provided in (d) below, the division of the land is not a subdivision as defined in Sections 11000.1, or 11004.5 of the Code.

(b) The financing of the purchase or lease of lots and parcels will be provided exclusively by the Rural Housing Service pursuant to Section 502 of the Housing Act of 1949 (42 U.S.C. Section 1472) as amended.

(c) Lots and parcels will be developed and improved with residential structures exclusively through technical assistance grants to nonprofit agencies pursuant to Section 523 of the Housing Act of 1949 (42 U.S.C. Section 1490(c)) as amended.

(d) If the proposed offering is a planned development subdivision within the meaning of subdivision (a) of Section 11004.5 of the Code, the submission of a completed questionnaire shall be waived if the applicant, pursuant to subdivision (b)(14) of Section 11010 of the Code, submits the following for the subdivision:

(1) Governing instruments for the subdivision and the association of owners.

(2) Detailed budget reflecting estimated costs of ownership, operation and maintenance expenses and reserves for the subdivision.

(3) Evidence that common areas and facilities have been or will be conveyed free of liens and encumbrances, to the association of owners or to the owners as tenants in common.

NOTE

Authority cited: Sections 11001 and 11010, Business and Professions Code. Reference: Sections 11010 and 11011, Business and Professions Code.

HISTORY

1. New section filed 2-1-84; designated effective 2-10-84 pursuant to Government Code Section 11346.2(d) (Register 84, No. 5).

2. Amendment filed 2-26-85; effective thirtieth day thereafter (Register 85, No. 9).

3. Amendment of section heading and subsection (b) filed 11-27-96; operative 12-27-96 (Register 96, No. 48).

4. Amendment of subsection (a) filed 10-26-99; operative 11-25-99 (Register 99, No. 44).

§2790.5. Phased Senior Citizen Housing Developments.

Note • History

(a) An applicant for a public report may qualify a proposed project as a senior citizen housing development, even though there are an insufficient number of dwelling units in the initial phase of the project to satisfy the statutory definition of the term as set forth in Section 51.3 of the Civil Code, by complying with the provisions of Section 11010.05 of the Code.

(b) The submission of documentation of the following items shall be deemed to have satisfied the requirements of subdivision (c) of Section 11010.05 of the Code.

(1) A preliminary title report or policy of title insurance showing that the applicant holds fee title, a long-term leasehold interest, or other evidence of controlling interest in the property to be annexed to the first phase, and any subsequent phase, of the subdivision, such as an irrevocable option, as being vested in the applicant.

(2) A covenant, recorded in the office of the appropriate county recorder, limiting use on the land proposed to be annexed to a senior citizen housing development.

(3) A certification from the appropriate local authority that the land proposed to be annexed is sufficient in size to construct the number of additional units necessary to qualify the project as a senior citizen housing development as that term is defined in Section 51.3(b)(4) of the Civil Code.

NOTE

Authority cited: Section 11001, Business and Professions Code. Reference: Section 11010.05(c), Business and Professions Code.

HISTORY

1. New section filed 4-1-86; effective thirtieth day thereafter (Register 86, No. 14). For history of former section, see Registers 83, No. 30; 76, No. 3; 63, No. 14; and 53, No. 14.

2. Repealer of subsection (c) filed 10-26-99; operative 11-25-99 (Register 99, No. 44).

3. Amendment of subsection (a) filed 11-9-2000; operative 12-9-2000 (Register 2000, No. 45).

4. Amendment of subsection (b)(3) filed 9-5-2003; operative 10-5-2003 (Register 2003, No. 36).

§2790.6. Separate Review of Declarations.

Note • History

The filing fee to review a declaration as described in Section 11010.10 of the Code shall be the maximum fee set forth in Section 11011 of the Code.

NOTE

Authority cited: Sections 11001 and 11011, Business and Professions Code. Reference: Section 11010.10, Business and Professions Code.

HISTORY

1. New section filed 6-20-2002; operative 7-20-2002 (Register 2002, No. 25). For prior history, see Register 61, No. 15.

§2790.7. General Housing Information -- For Research and Statistical Purposes.

Note • History

As a part of any application required by Section 11010 of the Code (application), each applicant for a final subdivision public report shall, prior to the issuance of the final subdivision public report, complete and submit general housing information to be used solely for statistical and research purposes. Evidence of submission of the information shall be included in the application file, but the information is not a part of the application or its file. A copy of the information will not be included or retained in the application or its file. The information will not be used in any decision controlling the issuance of any public report. Once submitted, the data provided will be incorporated into the statistical database, and the original information provided will be permanently deleted. Unless otherwise established by an amendment to this regulation, the applicant must provide only the following information: the city and/or county in which the subdivision is located; the zip code; the total acreage; the estimated average number of lots, units or parcels proposed for each phase; whether lots, units or parcels will be offered vacant or with completed residential structures; the anticipated date of the first close of escrow; the estimated average lot/parcel size; the estimated average sale price of the lots, units or parcels; the number of bedrooms, the estimated average square footage and parking arrangements for the residential structures; the prior use of the property (improved or unimproved); and, if the applicant originally entitled the project, the number of lots, units or parcels requested of local government and the total number of lots, units or parcels approved by local government.

NOTE

Authority cited: Section 11001, Business and Professions Code. Reference: Section 11010, Business and Professions Code.

HISTORY

1. New section filed 8-2-2006; operative 9-1-2006 (Register 2006, No. 31). For prior history, see Register 85, No. 2.

§2790.8. Existing Subdivision Interest Disclosure.

Note • History

(a) An applicant for a public report for the sale or lease of an existing subdivision interest shall include an Existing Subdivision Interest Disclosure Statement with the public report application.

(b) The Existing Subdivision Interest Disclosure Statement shall be completed and provided by the Subdivider/Seller (Seller) to each buyer as soon as practicable before the transfer of title.

(c) If any Existing Subdivision Interest Disclosure required by this Section is delivered after the execution of an offer to purchase, the buyer shall have three days after delivery in person or five days after delivery by deposit in the mail, to terminate the purchase agreement by delivery of a written notice of termination to the Seller.

(d) The Seller is obligated to disclose information in the Existing Subdivision Interest Disclosure based on Seller's actual knowledge, after making a reasonable effort to obtain such information, whether derived from Seller's own investigation and inspection of the Existing Subdivision Interest or from written reports prepared by third parties retained by Seller to perform inspections.

(e) The Seller shall amend any information in an Existing Subdivision Interest Disclosure after the Disclosure is provided to the buyer, if the information in the Disclosure is or becomes materially inaccurate and the Seller has actual knowledge of the inaccuracy. The Seller is otherwise not required to amend the Disclosure once it has been provided to the Buyer. A buyer shall have the right to terminate a purchase agreement based on an amended Disclosure if the amended Disclosure shows that the original Disclosure was inaccurate or has become inaccurate in any material respect. Buyer shall have three days after delivery in person or five days after delivery by deposit in the mail of the amended Disclosure to terminate the purchase agreement by delivery of a written notice of termination to the Seller.

(f) The term “Existing Subdivision Interest” as used in this section is a subdivision interest described in Section 11004.5 of the Code where the dwelling comprising the subdivision interest has been completed (completion is normally the date on which a Notice of Completion has been recorded evidencing completion of the improvement) or occupied (the occupancy of the improvements is normally the date shown by the issuance of a Certificate of Occupancy or equivalent issued by the local jurisdiction), whichever occurs first, three (3) years or more before the date that the public report application is filed with the Department.

NOTE

Authority cited: Section 11001, Business and Professions Code. Reference: Sections 10050 and 11010, Business and Professions Code.

HISTORY

1. New section filed 2-14-2008; operative 3-15-2008 (Register 2008, No. 7). For prior history, see Register 85, No. 2.

§2790.9. Existing Subdivision Interest Disclosure Form.

Note • History

The form approved by the Commissioner for the disclosure of Existing Subdivision Interest information is as follows:

EXISTING SUBDIVISION INTEREST DISCLOSURE STATEMENT

Embedded Graphic 10.0281

I. COORDINATION WITH OTHER DISCLOSURE FORMS AND EXISTING REPORTS

Embedded Graphic 10.0282

II. SELLER'S INFORMATION

Embedded Graphic 10.0283

NOTE

Authority cited: Section 11001, Business and Professions Code. Reference: Sections 10050 and 11010, Business and Professions Code.

HISTORY

1. New section filed 2-14-2008; operative 3-15-2008 (Register 2008, No. 7).

§2791. Purchase Money Disbursements.

Note • History

(a) The Contract proposed to be used by an applicant for a public report (Subdivider) for the sale or lease of subdivision interests shall provide that if the escrow for sale or lease of a subdivision interest does not close on or before the date set forth in the contract, or a later closing date mutually agreed to by subdivider and the prospective buyer or lessee (Buyer), within 15 days after the closing date set forth in the contract or an extended closing date mutually agreed to by Subdivider and Buyer, Subdivider shall, except as provided in subdivision (c), order all of the money remitted by Buyer under the terms of the Contract for acquisition of the subdivision interest (Purchase Money) to be refunded to Buyer.

(b) The Contract may provide for disbursements or charges to be made against Purchase Money for payments to third parties for credit reports, escrow services, preliminary title reports, appraisals and loan processing services by such parties provided that the Contract includes:

(1) specific enumeration of all of the disbursements or charges that may be made against Purchase Money, and

(2) the Subdivider's estimate of the total amount of such disbursements and charges.

(c)(1) Any contractual provision which calls for disbursement or a charge against Purchase Money based upon Buyer's alleged failure to complete the purchase of the subdivision interest must conform with Civil Code Sections 1675 (including either subsection (c) or subsection (d) thereof), 1676, 1677 and 1678.

(2) Except for a disbursement made following substantial compliance with the procedures set forth in paragraph (4) below or pursuant to a written agreement of the parties which either cancels the Contract or is executed after the final closing date specified by the parties, a disbursement or charge against Purchase Money as liquidated damages may be done only pursuant to a determination by a court of law, or by an arbitrator if the parties have so provided by contract, that Subdivider is entitled to a disbursement or charge against Purchase Money as liquidated damages.

(3) A contractual provision for a determination by arbitration that Subdivider is entitled to a disbursement or charge against Purchase Money as liquidated damages shall require that the arbitration be conducted in accordance with procedures that are equivalent in substance to the commercial arbitration rules of the American Arbitration Association, that any arbitration include every cause of action that has arisen between Buyer and Subdivider under the Contract, and that the Subdivider remit the fee to initiate arbitration with the costs of the arbitration ultimately to be borne as determined by the arbitrator.

(4) The contract of sale may include a procedure under which Purchase Money may be disbursed by the escrow holder to the Subdivider as liquidated damages upon Buyer's failure to timely give the escrow holder Buyer's written objection to disbursement of Purchase Money as liquidated damages. This procedure shall contain at least the following elements:

(A) The Subdivider shall give written notice, in the manner prescribed by Section 116.340 of the Code of Civil Procedure for service in a small claims action, to escrow holder and to Buyer that Buyer is in default under the Contract and that Subdivider is demanding that escrow holder remit $_______ from the Purchase Money to Subdivider as liquidated damages unless, within 20 days, Buyer gives escrow holder Buyer's written objection to disbursement of Purchase Money as liquidated damages.

(B) Buyer shall have a period of 20 days from the date of receipt of the Subdivider's 20-day notice and demand in which to give escrow holder Buyer's written objection to disbursement of Purchase Money as liquidated damages.

(5) The Contract may not make Buyer's failure to timely give the escrow holder the aforesaid written objection a waiver of any cause of action, other than a waiver of the right to specific performance of the contract, that the Buyer may have against the Subdivider under the Contract unless the waiver is conditioned upon service of the Subdivider's 20-day notice and demand in a manner prescribed by Section 116.340 of the Code of Civil Procedure for service in a small claims action.

(6) If the Subdivider has had the use of Purchase Money pending consummation of the sale or lease transaction under authorization by the Department pursuant to subdivision (c) or (d) of Section 11013.2 of the Code or subdivision (b) or (c) of Section 11013.4 of the Code, Subdivider shall immediately upon alleging the default of Buyer, transmit to the escrow holder, funds equal to all of the Purchase Money paid by Buyer.

NOTE

Authority cited: Section 11001, Business and Professions Code. Reference: Sections 11013.2 and 11013.4, Business and Professions Code.

HISTORY

1. New section filed 12-3-80; effective thirtieth day thereafter (Register 80, No. 49). For history of former section, see Register 71, No. 50.

2. Amendment filed 1-21-83; effective thirtieth day thereafter (Register 83, No. 4).

3. Amendment filed 11-13-96; operative 11-13-96 pursuant to Government Code section 11343.4(d) (Register 96, No. 46).

4. Amendment of subsection (c)(3) filed 7-31-98; operative 8-30-98 (Register 98, No. 31).

5. Amendment of subsections (c)(1) and (c)(5) filed 2-28-2006; operative 3-30-2006 (Register 2006, No. 9).

§2791.1. Purchase Money Impounds.

Note • History

(a) The amount of the money paid or advanced by a prospective buyer or lessee toward the purchase or lease of a subdivision interest (Purchase Money) that must be deposited and retained in an escrow depository or trust account pursuant to Section 11013.2(a) or 11013.4(a) of the Code shall ordinarily be the entire amount of the Purchase Money less disbursements made to third parties for services enumerated in subdivision (b) of Regulation 2791.

(b) For purposes of compliance with Section 11013.2(a) of the Code:

(1) A proper release has not ben obtained from a deed of trust encumbering subdivision lots or parcels unless an instrument has been duly recorded unconditionally reconveying and releasing the lot or lots being sold or leased from the lien or charge of such deed of trust.

(2) As an alternative to obtaining a proper release from the lien or charge of such deed of trust, it shall be deemed acceptable by the commissioner, pursuant to the provisions of Section 11013.2(d) of the Code, if:

(A) the holder of the deed of trust has duly executed an agreement or demand (“release agreement”) wherein the holder has agreed, notwithstanding any provision to the contrary in the deed of trust, to promptly perform any act reasonably necessary to record an instrument unconditionally reconveying and releasing the subdivision lots or parcels being sold from the lien or charge of the deed of trust upon payment to the holder of an amount or amounts specified in the release agreement as the release price for the affected subdivision lots or parcels, and the holder has further agreed that specific performance of the terms and provisions of the release agreement shall be compelled in favor of the purchaser or lessee of the lot or lots;

(B) the release agreement has been deposited with the escrow holder for the transaction(s);

(C) the subdivider has notified each purchaser or lessee that the release agreement is available upon request from the escrow holder; and

(D) each purchaser or lessee has been provided a policy of title insurance insuring the purchaser or lessee against loss by reason of the deed of trust.

NOTE

Authority cited: Section 11001, Business and Professions Code. Reference: Sections 11013.1 and 11013.4, Business and Professions Code.

HISTORY

1. New section filed 12-3-80; effective thirtieth day thereafter (Register 80, No. 49). For history of former section, see Registers 63, No. 14, and 62, No. 7.

2. Amendment filed 1-21-83; effective thirtieth day thereafter (Register 83, No. 4).

3. Amendment filed 11-13-96; operative 11-13-96 pursuant to Government Code section 11343.4(d) (Register 96, No. 46).

§2791.2. Bond Alternative to Purchase Money Impound.

Note • History

The penal sum of a bond or bonds furnished by or on behalf of a subdivider pursuant to Section 11013.2(c) or Section 11013.4(b) or (c) of the Code shall ordinarily be not less than the aggregate amount of the money paid or advanced toward the purchase or lease of subdivision interests for which the subdivider is accountable to prospective purchasers or lessees less the sum of the amount held in escrow depositories or trust accounts pursuant to Section 11013.2(a) or Section 11013.4(a) of the Code and the disbursements made to third parties for services enumerated in subdivision (b) of Regulation 2791.

NOTE

Authority cited: Section 11001, Business and Professions Code. Reference: Sections 11013.2 and 11013.4, Business and Professions Code.

HISTORY

1. Repealer and new section filed 12-3-80; effective thirtieth day thereafter (Register 80, No. 49). For prior history, see Register 65, No. 17.

2. Amendment filed 1-21-83; effective thirtieth day thereafter (Register 83, No. 4).

§2791.3. Lien and Completion Bonds for Onsite Construction Work.

Note • History

The penal sum of a bond or bonds furnished by or on behalf of a subdivider pursuant to Section 11013.4(d)(2) of the Code shall ordinarily be not less than 120 percent of the estimate of the total cost of the onsite construction work to be completed on the subdivision interest being offered for sale or lease.

NOTE

Authority cited: Section 11001, Business and Professions Code. Reference: Section 11013.4, Business and Professions Code.

HISTORY

1. New section filed 9-5-2003; operative 10-5-2003 (Register 2003, No. 36). For prior history, see Register 96, No. 46.

§2791.4. Acceptable Escrow Depositories.

Note • History

(a) The following entities which are qualified to do business in the State of California are escrow depositories acceptable to the Commissioner under Sections 11013.2 and 11013.4 of the Code: escrow agents licensed by the Corporations Commissioner, banks, trust companies, savings and loan associations, title insurers and underwritten title companies.

(b) In exceptional circumstances the Commissioner may approve an escrow depository other than an entity enumerated in subdivision (a).

NOTE

Authority cited: Section 11001, Business and Professions Code. Reference: Sections 11013.2, 11013.4, Business and Professions Code.

HISTORY

1. Repealer and new section filed 12-3-80 effective thirtieth day thereafter (Register 80, No. 49). For prior history, see Register 77, No. 49.

§2791.6. Acceptable Trustees.

Note • History

A trust company as defined in Section 107 of the Financial Code which is qualified to do business in California is a trustee acceptable to the Commissioner to hold title to a subdivision under Section 11013.2(b) and other applicable provisions of the Subdivided Lands Law. In exceptional circumstances the Commissioner may approve a trustee other than a trust company as defined in Section 107 of the Financial Code.

NOTE

Authority cited: Section 11001, Business and Professions Code. Reference: Section 11013.2, Business and Professions Code.

HISTORY

1. New section filed 12-3-80; effective thirtieth day thereafter (Register 80, No. 49).

§2791.7. Purchase Money Protection for Exempt Subdivisions. [Repealed]

Note • History

NOTE

Authority cited: Section 11001, Business and Professions Code. Reference: Sections 11013.2 and 11013.4, Business and Professions Code.

HISTORY

1. New section filed 12-3-80; effective thirtieth day thereafter (Register 80, No. 49).

2. Repealer filed 11-13-96; operative 11-13-96 pursuant to Government Code section 11343.4(d) (Register 96, No. 46).

§2791.8. Dispute Resolution.

Note • History

(a) A contractual provision setting forth terms, conditions and procedures for resolution of a dispute or claim between a homeowner and a subdivider, or a provision in the covenants, conditions and restrictions setting forth terms, conditions and procedures for resolution of a dispute of claim between a homeowners association and a subdivider shall, at a minimum, provide that the dispute or claim resolution process, proceeding, hearing or trial to be conducted in accordance with the following rules:

(1) For the subdivider to advance the fees necessary to initiate the dispute or claim resolution process, with the costs and fees, including ongoing costs and fees, if any, to be paid as agreed by the parties and if they can't agree then the costs and fees are to be paid as determined by the person or persons presiding at the dispute or claim resolution proceeding or hearing.

(2) For a neutral or impartial person(s) to administer and preside over the claim or dispute resolution process.

(3) For the appointment, or selection, as designation, or assignment of the person(s) to administer and preside over the claim or dispute resolution process within a specific period of time, which in no event shall be more than sixty (60) days from initiation of the claim or dispute resolution process or hearing. The person(s) appointed, selected, designated or assigned to preside may be challenged for bias.

(4) For the venue of the claim or dispute resolution process to be in the county where the subdivision is located unless the parties agree to some other location.

(5) For the prompt and timely commencement of the claim or dispute resolution process. When the contract provisions provide for a specific type of claim or dispute resolution process, the process shall be deemed to be promptly and timely commenced if it is to be commenced in accordance with the rules applicable to that process, or if the rules don't specify a date by which the proceeding or hearing must commence, then to a date agreed upon by the parties, and if they cannot agree, a date determined by the person(s) presiding over the dispute resolution process.

(6) For the claim or dispute resolution process to be conducted in accordance with rules and procedures that are reasonable and fair to the parties.

(7) For the prompt and timely conclusion of the claim or dispute resolution process, including the issuance of any decision or ruling following the proceeding or hearing.

(8) For the person(s) presiding at the claim or dispute resolution process to be authorized to provide all recognized remedies available in law or equity for any cause of action that is the basis of the proceeding or hearing. The parties may authorize the limitation or prohibition of punitive damages.

(b) A copy of the rules applicable to the claim or dispute resolution process shall be submitted as part of the application for a public report.

(c) If the claim or dispute resolution process provides or allows for a judicial remedy in accordance with the laws of this state, it shall be presumed that the proceeding or hearing satisfies the provisions of paragraph (a).

NOTE

Authority cited: Section 11001, Business and Professions Code. Reference: Section 11018.5, Business and Professions Code.

HISTORY

1. New section filed 6-15-98; operative 7-15-98 (Register 98, No. 25). For prior history see Register 96, No. 46.

2. Amendment of subsections (b) and (c) filed 6-20-2002; operative 7-20-2002 (Register 2002, No. 25).

3. Repealer and new section filed 9-5-2003; operative 10-5-2003 (Register 2003, No. 36).

§2791.9. Use of Real Property Sales Contracts.

Note • History

If a subdivider proposes to sell subdivision interests using real property sales contracts (hereafter sales contracts) as defined in Section 10029 of the Code, a plan under which the subdivider conveys the subdivision interests in trust and records the conveyance prior to the execution of a sales contract by a prospective purchaser (hereafter vendee) and which includes all of the following elements shall be an acceptable alternative method under Section 11013.2(d) and Section 11013.4(f) of the Code:

(a) The original trustee and any successor trustee are expressly subject to the approval of the commissioner.

(b) An express prohibition against any amendment of the trust instrument directly or indirectly affecting the interests of a vendee without the prior written approval of the commissioner.

(c) An agreement by the trustee to continue in that capacity until a successor trustee acceptable to the commissioner has assumed the position.

(d) Vendees are expressly designated in the trust instrument as beneficiaries.

(e) If the subdivision interests in the trust are not subject to a blanket encumbrance, provisions for the vendee to make payments under the contract (hereafter purchase money) to the trustee and for the trustee to make disbursements from purchase money as follows:

(1) Debt service, taxes, assessments, insurance premiums and any other periodic payments related to the ownership and use of the subdivision interest that the vendee is obligated to make under terms of the sales contract.

(2) Payment to the subdivider from the balance of purchase money remaining after the trustee has paid or set aside funds to make payments under (1) above.

(f) If a subdivision interest is subject to a blanket encumbrance as defined in Section 11013 of the Code:

(1) Unless there has been an independent determination that the vendee is in default under the terms of the sales contract, all of the purchase money of a vendee will be held by the trustee in an interest-bearing account for the benefit of the vendee until the subdivision interest that the vendee has contracted to purchase is released from the blanket encumbrance.

(2) Unless there has been an independent determination that the vendee is in default under the terms of the sales contract, the refund on demand by the vendee of the entire sum of purchase money paid if the subdivision interest has not been released from the blanket encumbrance within a specified period of time determined by the commissioner to be reasonable in the circumstances.

(3) If the subdivider proposes a disbursement of purchase money to himself or for his account based upon vendee's default under the sales contract, a procedure for a determination of default by a court of law or arbitrator and for the disbursement by the trustee of funds as liquidated damages on the basis of the determination that the vendee has defaulted.

NOTE

Authority cited: Section 11001, Business and Professions Code. Reference: Sections 11013.2, 11013.4, 11018 and 11018.5, Business and Professions Code.

HISTORY

1. New section filed 7-1-83; effective thirtieth day thereafter (Register 83, No. 30).

§2792. Substantially Complete Application--Standard Subdivision.

Note • History

An application for a final subdivision public report is “substantially complete” within the meaning of Section 11010.2 of the Code if it contains the documents and information enumerated below:

(a) For a subdivision (standard subdivision) of a type not listed or referred to in Section 11000.1, or 11004.5 of the Code:

(1) Subdivision filing fee including fee for a preliminary public report if applicable.

(2) Completed subdivision questionnaire.

(3) Approved tentative subdivision map unless the Commissioner has made a finding that because of processing delays, a tentative subdivision map has not been approved but will be approved within a reasonable amount of time.

(4) Certificate of qualification from Secretary of State if applicant is a foreign corporation.

(5) Consent to service of process upon Secretary of State if applicant is a nonresident of California.

(6) Current preliminary title report covering all subdivision interests for which a public report is sought including:

(A) Legal description of the subdivided property.

(B) Nature of the interest or estate covered by the report.

(D) All easements, liens, rights, interest and claims disclosed by an examination of the indices in the office of the recorder of the county in which the property is located.

(E) Existence of any encroachment of improvements over lines of record title.

(F) All mechanics liens arising out of work completed or in progress.

(G) Existence of assessments or potential assessments for public improvements completed or under construction.

(7) Proposed or existing covenants, conditions and restrictions for the subdivision.

(8) Coastal Commission permit or exemption if subdivision in coastal zone.

(9) Evidence of availability of domestic utilities and services to the subdivision.

(10) Information concerning hazards and other unusual conditions within or in the vicinity of the subdivision.

(11) Assessment and improvement bond information if applicable to the subdivision interests to be offered.

(12) Exemplars of all marketing, financing and conveyancing instruments to be used in the offering of subdivision interests.

(13) Exemplar of escrow instructions including at least the following:

(A) A description of the nature of the transaction.

(B) Provision for the return to nondefaulting buyers of funds deposited toward the purchase of subdivision interests if escrows are not closed on or before a date prescribed in the instructions.

(14) Bond or other device to be used as a means of compliance with Sections 11013.2 and 11013.4 of the Code.

(15) Completed documents for reservations and reservation deposits if preliminary public report is requested.

(16) Evidence of financial arrangements to assure completion of all offsite improvements included in the offering.

(17) Evidence of financial arrangements for any guarantee or warranty included in the offering.

(18) Evidence of all arrangements to assure completion, maintenance and availability for any use of privately-owned facility that will be offered as an inducement to the purchase of subdivision interests.

NOTE

Authority cited: Sections 11001 and 11010.2, Business and Professions Code. Reference: Section 11010.2, Business and Professions Code.

HISTORY

1. New section filed 12-3-80; effective thirtieth day thereafter (Register 80, No. 49). For history of former section, see Register 63, No. 14.

2. Repealer of subsection (a)(17), subsection renumbering, and amendment of Note filed 11-13-96; operative 11-13-96 pursuant to Government Code section 11343.4(d) (Register 96, No. 46).

3. Repealer of subsections (a)(1) and (a)(2), subsection renumbering, and amendment of Note filed 11-27-96; operative 12-27-96 (Register 96, No. 48).

4. Amendment of subsection (a)(5) and repealer of subsections (b)-(b)(6) filed 12-30-97; operative 1-29-98 (Register 98, No. 1).

5. Amendment of subsection (a) filed 10-26-99; operative 11-25-99 (Register 99, No. 44).

6. Amendment of subsection (a)(3) filed 6-20-2002; operative 7-20-2002 (Register 2002, No. 25).

§2792.1. Substantially Complete Application-- Condominium, Planned Development, Community Apartment Project and Undivided Interest Subdivision.

Note • History

An application for a final subdivision public report is “substantially complete” within the meaning of Section 11010.2 of the Code if it contains the documents and information enumerated below:

(a) For a condominium project, community apartment project or planned development:

(1) All of the applicable documents and information listed under subdivision (a) of Section 2792.

(2) Proposed or existing governing instruments for the owners' association.

(3) Condominium plan if the subdivision is a condominium.

(4) Plot plan delineating all improvements including recreational amenities if the subdivision is not a condominium.

(5) Overall subdivision plan if the subdivision is part of a phased development.

(6) Evidence of financial arrangements for completion of the common areas and facilities in the offering.

(7) Copies of all contracts or proposed contracts obligating the owners' association.

(8) Agreement of subdivider to subsidize common area maintenance and owners' association operation where applicable.

(9) Financial arrangements to assure performance of the subdivision agreement where applicable.

(10) Detailed pro forma budget reflecting estimated costs of ownership, operation and maintenance expenses and reserves for the subdivision.

(11) Most recent balance sheet and annual operating statement for the owners' association if applicable.

(12) Duplicate budget package for departmental analysis of proposed budget for common area maintenance and owners' association operations.

(13) Subdivision trust agreement if applicable.

(14) Exemplar of deed for conveyance of common area to owners' association.

(15) Exemplar of escrow instructions including at least the following:

(A) A description of the nature of the transaction.

(B) Provision for the return to Buyers of funds deposited toward the purchase of subdivision interests if escrows are not closed on or before a date prescribed in the instructions.

(D) Provision to assure compliance with subdivision (c) of Section 11018.5 of the Code if applicable.

(E) Provision for conveyance of common area to owners' association if applicable.

(16) A completed supplemental questionnaire if the project is a conversion of an existing structure to a condominium or community apartment project.

(17) A permit issued by the Department of Corporations if applicable to the offering.

(b) For an undivided interest subdivision:

(1) All of the applicable documents and information listed in subdivision (a) above.

(2) A proposed schedule of undivided interests in the subdivision sufficient to identify the undivided interest acquired by each purchaser.

(3) Statement from the appropriate authority of the county in which the real property is located setting forth the proposed method to be used in assessing and collecting real property taxes for the subdivision.

NOTE

Authority cited: Sections 11001 and 11010.2, Business and Professions Code. Reference: Section 11010.2, Business and Professions Code.

HISTORY

1. New section filed 12-3-80; effective thirtieth day thereafter (Register 80, No. 49). For history of former section, see Registers 71, No. 50; 65, No. 17; and 63, No. 14.

2. Amendment of subsection (a), repealer of former subsections (b)-(b)(6) and (c)(2), subsection relettering and renumbering, and amendment of Note filed 12-30-97; operative 1-29-98 (Register 98, No. 1).

§2792.2. Substantially Complete Application--Stock Cooperative and Limited Equity Housing Cooperative.

Note • History

An application for a final subdivision public report is “substantially complete” within the meaning of Section 11010.2 of the Code if it contains the documents and information enumerated below:

(a) For a stock cooperative subdivision:

(1) Subdivision filing fee including fee for preliminary public report if applicable.

(2) Completed subdivision questionnaire.

(3) Approved tentative subdivision map if applicable.

(4) Plot plan delineating apartments within the subdivision.

(5) Certificate of qualification from Secretary of State if applicant is a foreign corporation.

(6) Consent to service of process upon Secretary of State if applicant is a nonresident of California.

(7) Current preliminary title report covering all subdivision interests for which a public report is sought including:

(A) Legal description of the subdivided property.

(B) Nature of the interest or estate covered by the report.

(D) All easements, liens, rights, interests and claims disclosed by an examination of the indices in the office of the recorder of the county in which the property is located.

(E) Existence of any encroachment of improvements over lines of record title.

(F) All mechanics liens arising out of work completed or in progress.

(G) Existence of assessments or potential assessments for public improvements completed or under construction.

(8) Proposed or recorded covenants, conditions and restrictions for the subdivision, if applicable.

(9) Coastal Commission permit or exemption if subdivision is in coastal zone.

(10) Evidence of availability of domestic utilities and services to the subdivision.

(11) Information concerning hazards and other unusual conditions within or in the vicinity of the subdivision.

(12) Assessment and improvement bond information if applicable to the subdivision interests to be offered.

(13) Exemplars of all marketing, financing and conveyancing instruments to be used in the offering of subdivision interests.

(14) Exemplar of escrow instructions for conveyance of the subdivision to the cooperative corporation.

(15) Exemplar of escrow instructions for issuance of memberships and exclusive occupancy rights to purchasers including at least the following:

(A) A description of the nature of the transaction.

(B) Provision for the return to Buyers of funds deposited toward the purchase of memberships if escrows are not closed on or before a date prescribed in the instructions.

(D) Provision to assure compliance with subdivision (c) of Section 11018.5 of the Code if applicable.

(16) Bond or other device to be used as a means of compliance with Sections 11013.2 and 11013.4 of the Code.

(17) Narrative explanation of plan for financing sales of memberships in cooperative corporation.

(18) Subordination agreement or other instrument to assure compliance with subdivision (c) of Section 11018.5 of the Code.

(19) Completed documents for reservations and reservation deposits if a preliminary public report is requested.

(20) Evidence of financial arrangements to assure completion or proposed renovation of offsite improvements included in the offering.

(21) Evidence of financial arrangements for completion or renovation of common areas of the subdivision.

(22) Evidence of financial arrangements for any guarantee or warranty included in the offering.

(23) Proposed articles of incorporation for cooperative corporation.

(24) Proposed bylaws for cooperative corporation.

(25) Proposed proprietary lease (exclusive occupancy) agreement and proposed lease assignment instrument if applicable.

(26) Copies of all contracts or proposed contracts obligating the cooperative corporation.

(27) Proposed preclosing rental agreements if applicable.

(28) Completed supplemental questionnaire if the subdivision is a conversion of an existing structure to a subdivision.

(29) Detailed pro forma budget reflecting estimated costs of ownership, operation and maintenance expenses and reserves for the subdivision.

(30) Most recent balance sheet and annual operating statement for the cooperative corporation if applicable.

(31) Agreement of subdivider to subsidize common-area maintenance and cooperative corporation operations if applicable.

(32) Duplicate budget package for departmental analysis of proposed budget for common area maintenance and owners association operations.

(33) Proposed schedule for allocation of assessments for property taxes and corporate debt service (if applicable) to members of the corporation.

(34) Exemplar of deed for conveyance of subdivision to cooperative corporation.

(35) Exemplar of membership certificate or stock certificate to be issued by cooperative corporation.

(36) A permit issued by the Department of Corporations if applicable to the offering.

(b) For a limited equity housing cooperative:

(1) All of the applicable documents and information listed in subdivision (a) above.

(2) Information concerning the selling prices and methods for determination of transfer value referred to in Section 33007.5 of the Health and Safety Code.

NOTE

Authority cited: Sections 11001 and 11010.2, Business and Professions Code. Reference: Section 11010.2, Business and Professions Code.

HISTORY

1. New section filed 12-3-80; effective thirtieth day thereafter (Register 80, No. 49). For history of former section, see Registers 71, No. 50; 65, No. 17; 63, No. 14; and 55, No. 5.

2. Repealer of subsection (a)(21), subsection renumbering, and amendment of Note filed 11-13-96; operative 11-13-96 pursuant to Government Code section 11343.4(d) (Register 96, No. 46).

3. Repealer of subsections (a)(2) and (a)(3), subsection renumbering, and amendment of Note filed 11-27-96; operative 12-27-96 (Register 96, No. 48).

§2792.3. Approved Form of Bond for Completion of Common Facilities.

Note • History

A bond posted pursuant to Section 11018.5(a)(2)(A) to secure the faithful performance of a commitment by the subdivider to complete common facilities and common-area improvements shall be in substantially the following form:

COMPANY NAME

Bond No.__________

Premium: $__________

KNOW ALL MEN BY THESE PRESENTS, that we, _________ (Name of subdivider), as PRINCIPAL, and ______ (Name of surety), a corporation organized under the law of the State of ___________, and authorized to transact the business of surety in the State of California, as SURETY, are firmly held and bound unto __________ (Name of homeowners association) (hereinafter referred to as OBLIGEE) in the penal sum of _________ Dollars ($________) for which sum, well and truly to be paid, we bind ourselves, our heirs, administrators, successors and assigns, jointly and severally, firmly by these presents.

This bond is given pursuant to Section 11018.5(a)(2)(A) of the California Business and Professions Code to assure lien-free completion of the improvements described in PRINCIPAL's “Planned Construction Statement,” a copy of which is attached hereto and incorporated herein by reference, for the subdivision development known as ____________ (Name of subdivision), situated in the County of _______, State of _______.

SURETY, for value received, hereby agrees that the matters set forth in California Civil Code Section 3225, or similar acts or omissions which might release the SURETY pursuant to law, shall not in any way release SURETY from the obligation of this bond or reduce SURETY's obligation thereunder.

SURETY, for value received, does hereby waive the right granted to SURETY under California Civil Code Section 2845 to require that OBLIGEE proceed independently against PRINCIPAL to enforce this obligation, but reserves to itself any right under said Section 2845 to require that OBLIGEE proceed jointly against PRINCIPAL and SURETY in any such actions.

The condition of this obligation is such that if PRINCIPAL shall complete or cause to be completed said improvements free of liens and claims on or before the latest completion date specified in said “Planned Construction Statement,” or an extension thereof given in writing by OBLIGEE to PRINCIPAL and assented to in writing by SURETY, then this obligation shall be null and void; otherwise, it shall remain in full force and effect.

A suit or action on this bond must be filed within two years after the latest completion date set forth in the “Planned Construction Statement” or any extension thereof given in writing by OBLIGEE to PRINCIPAL and assented to in writing by SURETY.

The terms, conditions and coverage of this bond have been approved by the Real Estate Commissioner of the State of California.

IN WITNESS WHEREOF, PRINCIPAL and SURETY have caused these presents to be duly signed and sealed this ____ day of __________, 19___

____________ _________

(PRINCIPAL) (SURETY)

By_______________ By____________

NOTE

Authority cited: Sections 10080, 10226, 10149.2, 11001, and 11011.8, Business and Professions Code and Section 21082, Public Resources Code.

HISTORY

1. New section filed 12-2-74; effective thirtieth day thereafter (Register 74, No. 49). For history of former section, see Register 65, No. 17.

§2792.4. Special Provision for Enforcement of Bonded Obligations.

Note • History

When common-area improvements which are included in the subdivision offering have not been completed prior to the issuance of the public report and the subdivision owners' association (hereafter Association) is obligee under a bond or other arrangement (hereafter Bond) to secure performance of the commitment of the subdivider to complete the improvements, the covenants, conditions and restrictions for the subdivision shall include at least the following substantive and procedural provisions relative to the initiation of action to enforce the obligations of the subdivider and the surety under the Bond:

(1) The governing body of the Association shall be directed to consider and vote on the question of action by the Association to enforce the obligations under the Bond with respect to any improvement for which a Notice of Completion has not been filed within 60 days after the completion date specified for that improvement in the Planned Construction Statement appended to the Bond. If the Association has given an extension in writing for the completion of any common-area improvement, the governing body shall be directed to consider and vote on the aforesaid question if a Notice of Completion has not been filed within 30 days after the expiration of the extension.

(2) A special meeting of members for the purpose of voting to override a decision by the governing body not to initiate action to enforce the obligations under the Bond or on the failure of the governing body to consider and vote on the question. The meeting shall be required to be held not less than 35 days nor more than 45 days after receipt by the governing body of a petition for such a meeting signed by members representing 5% or more of the total voting power of the Association.

(3) A vote by members of the Association other than the subdivider at the special meeting called for the purpose set forth in (2) above.

(4) A vote of a majority of the voting power of the Association residing in members other than the subdivider to take action to enforce the obligations under the Board shall be deemed to be the decision of the Association and the governing body shall thereafter implement this decision by initiating and pursuing appropriate action in the name of the Association.

NOTE

Authority cited: Sections 10080, 10226, 10149.2, 11001, and 11011.8, Business and Professions Code, and Sections 21082, Public Resources Code. Reference: Section 11018.5, Business and Professions Code.

HISTORY

1. New section filed 12-2-74; effective thirtieth day thereafter (Register 74, No. 49). For history of former section, see Register 65, No. 17.

2. Amendment filed 7-9-80; effective thirtieth day thereafter (Register 80, No. 28).

§2792.5. Requirements When Improvement District Is Utilized.

Note • History

NOTE

Authority cited: Sections 10080, 10249.2 and 11001, Business and Professions Code.

HISTORY

1. New section filed 8-21-63; designated effective 9-20-63 (Register 63, No. 14). For history of former section see Register 55, No. 14.

2. Amendment filed 9-17-65; effective thirtieth day thereafter (Register 65, No. 17).

3. Repealer filed 11-13-96; operative 11-13-96 pursuant to Government Code section 11343.4(d) (Register 96, No. 46).

§2792.6. Required Documents for Condominium and Planned Development Public Report Application.

Note • History

NOTE

Authority cited: Sections 11001, 11010.2, Business and Professions Code. Reference: Sections 11010.2 (Ch. 1152, Statutes of 1980, AB 2320), Business and Professions Code.

HISTORY

1. Repealer and new section filed 2-10-77; effective thirtieth day thereafter (Register 77, No. 7). For prior history, see Register 71, No. 50

2. Amendment filed 1-16-79; effective thirtieth day thereafter (Register 79, No. 3).

3. Amendment filed 7-9-80; effective thirtieth day thereafter (Register 80, No. 28).

4. Repealer filed 12-3-80; effective thirtieth day thereafter (Register 80, No. 49).

§2792.7. Statement of Maintenance and Operational Costs in Connection with Condominium, Planned Development or Community Apartment.

History

HISTORY

1. New section filed 8-21-63; designated effective 9-20-63 (Register 63, No. 14).

2. Amendment filed 9-17-65; effective thirtieth day thereafter (Register 65, No. 17).

3. Repealer filed 12-10-71; effective thirtieth day thereafter (Register 71, No. 50).

§2792.8. Governing Instruments for Common Interest Subdivisions.

Note • History

(a) Governing instruments for the ownership and management of subdivisions enumerated in Section 11004.5 of the Code (common- interest subdivisions) including the Covenants, Conditions and Restrictions (CC&Rs), Articles of Incorporation (Articles) and Bylaws shall ordinarily provide for, but need not be limited to, the following:

(1) Creation of an organization (hereafter Association) of subdivision interest owners;

(2) A description of the common interests of the subdivision owners or lessees;

(3) Transfer of title and/or control of common interests or of mutual and reciprocal rights of use to the owners in common or to the Association;

(4) Procedures for calculating and collecting regular assessments from owners to defray expenses attributable to the ownership, operation or furnishing of common interests or to the enjoyment of mutual and reciprocal rights of use;

(5) Procedures for establishing and collecting special assessments for capital improvements or for other purposes;

(6) Liens upon privately-owned subdivision interests for assessments levied pursuant to the CC&Rs and foreclosure thereof for nonpayment;

(7) Policies and Procedures relating to the disciplining of members for failure to comply with provisions of the governing instruments;

(8) Creation of a governing body for the Association;

(9) Procedures for the election and removal of governing body members and officers of the Association;

(10) Enumeration of the powers and duties of the governing body and the officers and of the limitations upon the authority of the governing body to act without the prior approval of members representing a majority of the voting power of the Association;

(11) Allocation of voting rights to Association members;

(12) Preparation of the budgets and financial statements of the Association and for distribution to the Association members;

(13) Regular and special meetings of Association members with notice requirements;

(14) Regular meetings of the governing body with provision for notice to Association members;

(15) Quorum requirements for meetings of members of the Association and of the governing body;

(16) Procedures for proxy voting at members' meetings;

(17) Policies and procedures governing the inspection of books and records of the Association by members;

(18) Amendment procedures for those provisions of the governing instruments which relate to the ownership, management and control of the Association and/or the common interests;

(19) Prohibitions against or restrictions upon the severability of a separately-owned portion from the common interest portion of a subdivision interest;

(20) Conditions upon which a partition of a condominium project may be had pursuant to Section 1359 of the Civil Code;

(21) Action to be taken and procedures to be followed in the event of condemnation, destruction or extensive damage to the subdivision interests, including provisions respecting the use and disposition of insurance proceeds or damages payable to the Association or to a trustee on behalf of owners on account of condemnation, destruction or damage;

(22) Annexation of additional land to the existing development where appropriate;

(23) Architectural and/or design control;

(24) Special provisions for enforcement of financial arrangements by the subdivider to secure performance of his commitment to complete common-area improvements;

(25) Granting of easements or use rights affecting the common areas;

(26) Special provisions authorizing the governing body, subject to compliance with Section 1354 of the Civil Code, to institute, defend, settle or intervene on behalf of the Association in litigation, arbitration, mediation, or administrative proceedings in matters pertaining to (A) enforcement of the governing instruments, (B) damage to the common areas, (C) damage to the separate interests which the Association is obligated to maintain or repair, or (D) damage to the separate interests which arises out of, or is integrally related to, damage to the common areas or separate interests that the association is obligated to maintain or repair.

(b) The Commissioner will ordinarily consider provisions of the governing instruments proposed for a common-interest subdivision to constitute “reasonable arrangements” under Section 11018.5 of the Code if the provisions are in substantial conformance to the applicable standards prescribed in Sections 2792.4, 2792.15 through 2792.21, 2792.23, 2792.24 and 2792.26 through 2792.28 of these Regulations and if they do not otherwise arbitrarily deny, limit or abridge the right of owners with respect to management, maintenance, preservation, operation or control of their subdivision interests.

NOTE

Authority cited: Section 11001, Business and Professions Code. Reference: Sections 11004.5, 11018 and 11018.5, Business and Professions Code.

HISTORY

1. Amendment of subsections (a)(6), (7) and (20) filed 1-16-79; effective thirtieth day thereafter (Register 79, No. 3). For prior history, see Register 76, No. 3.

2. Amendment of subsection (b) filed 1-17-80; effective thirtieth day thereafter (Register 80, No. 3).

3. Amendment of subsection (a)(20) filed 4-2-86; effective thirtieth day thereafter (Register 86, No. 14).

4. Amendment of subsections (a) and (a)(25), new subsection (a)(26) and amendment of Note filed 12-7-94; operative 1-6-95 (Register 94, No. 49).

5. Amendment of subsection (b) filed 12-30-97; operative 1-29-98 (Register 98, No. 1).

§2792.9. Assuring Operating and Maintenance Fund for Common Facilities and Services.

Note • History

(a) To assure the availability of funds, or sources of funds, to defray the costs of common facilities and services during the early stages of ownership and operation by the Association and to assure the fulfillment of the subdivider's obligation to pay assessments as an owner of subdivision interests, the Commissioner will ordinarily require that:

(1) No sale of a subdivision interest be closed until 80% of all subdivision interests covered by the final subdivision public report have been conveyed (or leased if that is the marketing plan) and are simultaneously closed; or

(2) The subdivider furnish funds, a surety bond to the Association as obligee, or other security convertible to cash by the escrow depository to assure the fulfillment of the subdivider's obligations as an owner of separate interests covered by the final subdivision public report to pay regular and special assessments; or

(3) The subdivider present an alternative arrangement satisfactory to the Commissioner to secure the fulfillment of the subdivider's obligations to the Association as an owner of separate interests covered by the final subdivision public report.

(b) The security referred to in (a)(2) or (a)(3) above shall ordinarily:

(1) Be in an amount which is equal to six (6) months' regular assessments for the separate interests covered by the final subdivision public report.

(2) Be subject to terms, and conditions which will assure that the subdivider pays, as and when due, all regular and special assessments which are levied by the Association against separate interests owned by the subdivider in the subdivision until title to 80% of the separate interests which are covered by the final subdivision public report have been conveyed (or leased if that is the marketing plan).

(3) Be the subject of a contract signed on behalf of the subdivider and the Association covering release and enforcement of the security.

(4) Be delivered to a neutral escrow depository acceptable to the Commissioner along with instructions to the depository signed on behalf of the subdivider and the Association covering handling of the security, return of the security to the subdivider, and remittance of the security to the Association, including the following:

(A) The escrow instructions shall include a procedure under which the security shall be returned to the subdivider upon the Association's failure to give the escrow depository within 40 days the Association's written objection to return of the security. The return of the security shall be made but only if the subdivider's demand for return of the security is accompanied by the subdivider's written statement that the subdivider has paid, as and when due, all regular and special assessments which have been levied by the Association against separate interests which are covered by the final subdivision public report owned by the subdivider. Before the security shall be returned, the subdivider shall certify that title to 80% of the separate interests which are covered by the final subdivision public report have been conveyed (or leased if that is the marketing plan).

(B) The escrow instructions shall include a procedure under which all or some specified portion of the security shall be remitted to the Association upon the subdivider's failure to give the escrow depository within 40 days the subdivider's written objection to remittance of the security, but only if the Association's demand for remittance of all or some specified portion of the security is accompanied by a written statement signed by an officer of the Association that the subdivider is delinquent in the payment of regular or special assessments which have been levied by the Association against separate interests covered by the final subdivision public report owned by the subdivider.

(C) The escrow instructions shall provide that, in the event the escrow depository receives conflicting instructions from the subdivider and the Association, the escrow holder is authorized, in its sole discretion, to (1) interplead the security or (2) retain the security until the security is disposed of in accordance with (i) the joint or mutual instructions of the subdivider and the Association, (ii) the order of a court of competent jurisdiction or (iii) in accordance with the final binding decision rendered in an alternative dispute resolution proceeding.

(D) If the security is a letter of credit, the escrow instructions shall include a procedure under which the escrow depository shall draw upon the letter of credit prior to the expiration of the time for drawing thereupon, or upon the subdivider's failure to give the escrow depository within 40 days the subdivider's written objection to remittance of the security to the Association.

NOTE

Authority cited: Section 11001, Business and Professions Code. Reference: Section 11018.5, Business and Professions Code.

HISTORY

1. New section filed 8-21-63; designated effective 9-20-63 (Register 63, No. 14).

2. Repealer and new section filed 9-17-65; effective thirtieth day thereafter (Register 65, No. 17).

3. Amendment filed 12-10-71; effective thirtieth day thereafter (Register 71, No. 50).

4. Amendment filed 1-16-76; effective thirtieth day thereafter (Register 76, No. 3).

5. Amendment of subdivision (b) filed 7-1-83; effective thirtieth day thereafter (Register 83, No. 30).

6. Amendment of subsections (a)(1)-(b), repealer of subsections (b)(1) and (b)(2), and new subsections (b)(1)-(b)(4)(D) filed 12-30-97; operative 1-29-98 (Register 98, No. 1).

§2792.10. Subsidization by Subdivider.

Note • History

(a) When the subdivider undertakes to provide goods and/or services to the Association or to pay a portion of a purchaser's share of the Association's financial obligations, the subdivider shall:

(1) Enter into a contract with the Association acceptable in form and content to the Commissioner which shall specify in detail the obligations which the subdivider will undertake to fulfill and, if applicable, the methods to be employed in valuing the goods and services furnished under the program, and cover the release and enforcement of the security referred to in (a)(4), below.

(2) Furnish the Association with an executed copy of the contract , the security referred to in (a)(4), below, and the escrow instructions referred to in (c), below, within ten days after the closing of the first sale (or lease) of subdivision interests.

(3) Submit a monthly accounting to the Association and if the subsidy is other than cash, it shall also contain a description and valuation of the goods and services for the common area furnished directly by the subdivider or contracted and paid for by him.

(4) Furnish a bond to the Association as obligee or other device to secure the subdivider's undertaking to the Association and the owners under the program. The bond or other device shall be in an amount and subject to terms and conditions which will assure prompt and faithful performance of the contract. The penal sum of a bond shall not ordinarily be reduced by reason of the fact that the subdivider has posted a bond or other security device pursuant to Section 2792.9 of these regulations.

(b) The Commissioner will not ordinarily approve any program in which the subdivider undertakes to provide goods and/or services to the Association or promises to pay a portion of a purchaser's share of the Association's financial obligations unless it provides for the accumulation by the Association of reserves for replacement and major maintenance in accordance with accepted property management practices.

(c) The security device referred to in (a)(4) above shall be delivered to a neutral escrow depository acceptable to the Commissioner along with an executed copy of the contract and instructions to the depositary signed by the subdivider and the Association covering handling of the security, return of the security to the subdivider, and remittance of the security to the Association, including the following:

(1) The escrow instructions shall include a procedure under which the security shall be returned to the subdivider upon the Association's failure to give the escrow depository within 40 days the Association's written objection to return of the security, but only if the subdivider's demand for return of the security is accompanied by the subdivider's written statement that the subdivider has faithfully performed all of the subdivider's obligations under the contract.

(2) The escrow instructions shall include a procedure under which all or some specified portion of the security shall be paid to the Association upon the subdivider's failure to give the escrow depository within 40 days the subdivider's written objection to payment of the security, but only if the Association's demand for payment of the security is accompanied by the Association's written statement that the subdivider has failed to perform the subdivider's obligations under the contract.

(3) The escrow instructions shall provide that, in the event the escrow holder receives conflicting instructions from the subdivider and the Association, the escrow holder is authorized, in its sole discretion, to (1) interplead the security or (2) retain the security until the security is disposed of in accordance with (i) the joint or mutual instructions of the subdivider and the Association, (ii) the order of a court of competent jurisdiction or (iii) in accordance with the final binding decision rendered in an alternative dispute resolution proceeding.

(4) If the security is a letter of credit, the escrow instructions shall include a procedure under which the escrow depository shall draw upon the letter of credit prior to the expiration of the time for drawing thereupon, or upon the subdivider's failure to give the escrow depository within 40 days the subdivider's written objection to remittance of the security to the Association.

NOTE

Authority cited: Section 11001, Business and Professions Code. Reference: Section 11018.5, Business and Professions Code.

HISTORY

1. Repealer and new section filed 1-16-76; effective thirtieth day thereafter (Register 76, No. 3). For prior history, see Register 66, No. 25.

2. Amendment of section and Note filed 12-30-97; operative 1-29-98 (Register 98, No. 1).

§2792.11. Subdivider's Obligation to Pay Assessments-- Record Maintenance.

Note • History

NOTE

Authority cited: Section 11001, Business and Professions Code. Reference: Section 11018.5, Business and Professions Code; and PJNR, Inc. v. Department of Real Estate (1991) 230 C.A.3d 1176.

HISTORY

1. New section filed 9-29-92; operative 10-30-92 (Register 92, No. 40). For prior history see Register 80, No. 49.

2. Repealer filed 11-13-96; operative 11-13-96 pursuant to Government Code section 11343.4(d) (Register 96, No. 46).

§2792.12. Undivided Interests Subdivisions--Conveyance of the Property.

Note • History

NOTE

Authority cited: Section 11001, Business and Professions Code. Reference: Section 11000.1, Business and Professions Code.

HISTORY

1. New section filed 9-17-65; effective thirtieth day thereafter (Register 65, No. 17).

2. Repealer and new section filed 12-10-71; effective thirtieth day thereafter (Register 71, No. 50).

3. Repealer of section and new Note filed 11-13-96; operative 11-13-96 pursuant to Government Code section 11343.4(d) (Register 96, No. 46).

§2792.13. Undivided Interests Subdivisions--Impound of Funds.

History

All funds received from prospective buyers to be applied to the purchase of undivided subdivision interests, including community apartment projects and stock cooperatives and limited equity housing cooperatives, shall be deposited and held intact in an escrow depository acceptable to the Real Estate Commissioner until bona fide offers have been obtained for the purchase of a prescribed percentage of all of the interests being offered for sale.

In the event that the prescribed percentage of offers have not been obtained within two years from the date of the issuance of the public report, or such other period as the commissioner may approve, all funds theretofore collected shall be promptly returned by the escrow depository to owners without deduction.

The prescribed percentage shall be determined by the commissioner based upon the facts and circumstances of each such offering. Ordinarily this percentage shall be not less than 60% of the interests being offered for sale provided, however, that the commissioner may prescribe a lesser percentage if the plan of the offering includes other financial arrangements to lessen the possibility of foreclosure of a non-delinquent interest on account of the delinquencies of other owners.

HISTORY

1. New section filed 9-17-65; effective thirtieth day thereafter (Register 65, No. 17).

2. Amendment filed 12-10-71; effective thirtieth day thereafter (Register 71, No. 50).

3. Amendment filed 6-30-80; effective thirtieth day thereafter (Register 80, No. 28).

§2792.14. Undivided Interests Subdivisions--Blanket Encumbrances.

Note • History

(a) Except as provided in subdivision (b) hereof, if the real property to be owned by the stock cooperative corporation will be subject to a mortgage or deed of trust affecting the interest of more than one member or shareholder of the stock cooperative (hereafter blanket encumbrance), a public report will not be issued unless legal or financial arrangements satisfactory to the Real Estate Commissioner have been made to:

(1) Provide assurance that the ownership and possessory rights of a member of the stock cooperative will not be adversely affected by foreclosure or acceleration of the blanket encumbrance by or on behalf of the beneficiary unless the affected member or shareholder is delinquent in payments allocated by the stock cooperative to debt service on the blanket encumbrance.

(2) Provide assurance for the payment of said blanket encumbrance.

(b) The provisions of subdivision (a) shall not apply in the case of a stock cooperative which is

(1) insured under section 213 or section 221 of the National Housing Act, as amended and involves a regulatory agreement between stock cooperative and the Secretary of Housing and Urban Development with the provision for the establishment and maintenance of a general operating reserve or

(2) assisted under section 8 of the U. S. Housing Act of 1937 as amended and involves a housing assistance payment contract between the stock cooperative and the Secretary of Housing and Urban Development with a special provision for the establishment and maintenance of a general operating reserve as the Secretary of Housing and Urban Development may approve.

NOTE

Authority cited: Section 11001, Business and Professions Code. Reference: Sections 11013, 11013.1, 11013.2, 11013.4, Business and Professions Code.

HISTORY

1. New section filed 9-17-65; effective thirtieth day thereafter (Register 65, No. 17).

2. Repealer and new section filed 1-17-80; effective thirtieth day thereafter (Register 80, No. 3).

3. Amendment of section (a) filed 7-12-91; operative 8-11-91 (Register 91, No. 44).

§2792.15. Reasonable Arrangements--Transfer of Common Areas and Facilities to Association.

Note • History

(a) In subdivisions in which all or a portion of the common areas and facilities are to be transferred to the Association, those areas and facilities shall be transferred to the Association or to a corporate trustee under a trust agreement acceptable to the Commissioner prior to or coincident with the first transfer or conveyance of a subdivision interest by the subdivider.

(b) The subdivider may create a contractual right in himself or may reserve easements of limited duration, for common driveway purposes, for drainage and encroachment purposes and for ingress to and egress from the common areas for the purpose of completing improvements thereon or for the performance of necessary repair work and, in the case of phased subdivision projects, for entry onto adjacent property in connection with the development of additional phases of the overall project.

NOTE

Authority cited: Sections 10080, 10226, 11001, 11011.8, Business and Professions Code, and Section 21082, Public Resources Code.

HISTORY

1. New section filed 9-17-65; effective thirtieth day thereafter (Register 65, No. 17).

2. Repealer and new section filed 1-16-76; effective thirtieth day thereafter (Register 76, No. 3).

§2792.16. Reasonable Arrangements--Assessments and Liens.

Note • History

(a) Regular assessments to defray expenses attributable to the ownership, operation and furnishing of common interests by the Association shall ordinarily be levied against each owner according to the ratio of the number of subdivision interests owned by the owner assessed to the total number of interests subject to assessments.

(b) In the case of a subdivision offering in which it is reasonable to anticipate that any owner will derive as much as 10% more than any other owner in the value of common services supplied by the Association, the assessment against each owner may be determined according to a formula or schedule under which the assessments against the various subdivision interests bear a relationship which is equitably proportionate to the value of the common services furnished to the respective interests.

(c) The subdivider--and his successor in interest, if any--is an owner subject to the payment of regular and special assessments against subdivision interests which he owns provided, however, that the subdivider and any other owner of a subdivision interest which does not include a structural improvement for human occupancy may be exempted by the governing instruments from the payment of that portion of any assessment which is for the purpose of defraying expenses and reserves directly attributable to the existence and the use of the structural improvement. The exemption may include, but shall not necessarily be limited to:

Roof replacement;

Exterior maintenance;

Walkway and carport lighting;

Refuse disposal;

Cable television; and

Domestic water supplied to living units.

(1) Any exemption from the payment of assessments attributed to dwelling units shall be in effect only until the earliest of the following events.

(A) A notice of completion of the structural improvements has been recorded.

(B) Occupation or use of the dwelling unit.

(2) The subdivider and any other owner of a subdivision interest may be exempted by the governing instruments from the payment of that portion of any assessment which is for the purpose of defraying expenses and reserves directly attributable to the existence and use of a common facility that is not complete at the time assessments commence. Any exemption from the payment of assessments attributed to common facilities shall be in effect only until the earliest of the following events.

(A) A notice of completion of the common facility has been recorded.

(B) The common facility has been placed into use.

(d) The governing body of the Association must comply with the provisions of Section 1366 of the Civil Code prior to any increase in assessments.

(e) (T)he governing body of the Association may not levy special assessments without complying with the provisions of Section 1366 of the Civil Code.

(f)(1) Regular assessments against the subdivision interests in a phase of a multi-phase subdivision or against all subdivision interests in a single-phase subdivision shall commence on the date of the first conveyance of a subdivision interest in that phase under authority of a public report or on the first day of the month following the first conveyance of a subdivision interest in the phase.

(2) Except in those subdivision offerings where there is an approved subsidization plan which otherwise provides, voting rights attributable to subdivision interests shall not vest until assessments against those interests have been levied by the Association.

(g)(1) A lien for regular or special assessments against an owner may be made subordinate by the CC&R's to the lien of any first mortgage or first deed of trust (hereafter collectively first encumbrance) against subdivision interests of the owner.

(2) In the case of a subordination of a lien for assessments to a first encumbrance, the transfer of a subdivision interest as the result of the exercise of a power of sale or a judicial foreclosure involving a default under the first encumbrance shall extinguish the lien of assessments which were due and payable prior to the transfer of the subdivision interest.

(3) No transfer of the subdivision interest as the result of a foreclosure or exercise of a power of sale shall relieve the new owner, whether it be the former beneficiary of the first encumbrance or another person, from liability for any assessments thereafter becoming due or from the lien thereof.

(h)(1) For the purpose of subdivision (d) and subdivision (e), a quorum means more than 50% of the members of the Association.

(2) Any meeting or election of the Association for purposes of complying with subdivision (d) and subdivision (e) shall be conducted in accordance with Chapter 5 (commencing with Section 7510) of Part 3, Division 2 of Title 1 of the Corporations Code and Section 7613 of the Corporations Code.

(i) Notwithstanding any other provision contained in this section, the governing body may increase assessments necessary for emergency situations pursuant to Section 1366 of the Civil Code.

(j) The governing body shall not expend funds designated as reserve funds for any purpose other than those purposes set forth in Section 1365.5 of the Civil Code.

NOTE

Authority cited: Sections 10080, 11001 and 11018.5, Business and Professions Code. Reference: Section 11018.5, Business and Professions Code; and Sections 1365.5 and 1366, Civil Code.

HISTORY

1. New subsection (g) filed 1-16-79; effective thirtieth day thereafter (Register 79, No. 3). For prior history, see Register 77, No. 7.

2. Amendment filed 1-17-80; effective thirtieth day thereafter (Register 80, No. 3).

3. Amendment of subsection (e) filed 5-13-82; effective thirtieth day thereafter (Register 82, No. 20).

4. Amendment filed 1-11-84; effective thirtieth day thereafter (Register 84, No. 2).

5. Amendment of subsection (c) filed 12-30-86; effective thirtieth day thereafter (Register 87, No. 1).

6. Amendment of subsections (d) and (e) and new subsections (h) and (i) filed 3-18-88; operative 4-17-88 (Register 88, No. 14).

7. Amendment of subsection (d) and new subsections (e)(5) and (j)(1)-(j)(3)(c)4. filed 4-1-93; operative 5-3-93 (Register 93, No. 14).

8. New subsections (d)-(d)(1)(B), subsection renumbering, and amendment of newly designated subsection (d)(2), subsection (d)(3) and Note filed 11-8-93; operative 12-8-93 (Register 93, No. 46).

9. Editorial correction of printing error in subsection (d)(2) (Register 94, No. 21).

10. Editorial correction restoring inadvertently omitted subsection (g)(1) (Register 95, No. 21).

11. Amendment filed 11-13-96; operative 11-13-96 pursuant to Government Code section 11343.4(d) (Register 96, No. 46).

§2792.17. Reasonable Arrangements--Members' Meetings.

Note • History

(a) Regular meetings of members of the Association shall be held not less frequently than once each calendar year at a time and place prescribed by the Bylaws. The first meeting of the Association, whether a regular or special meeting, shall be held within 45 days after the closing of the sale of the subdivision interest which represents the 51st percentile interest authorized for sale under the first public report for the subdivision, provided that public report authorizes the sale of 50 subdivision interests or more in the subdivision. However, but in no event shall the meeting be held later than six months after the closing of the sale of the first subdivision interest without regard to the number of subdivision interests authorized for sale in the first public report.

(b) Meetings of Association members shall be conducted in accordance with the provisions of Section 1363 of the Civil Code.

(c) A special meeting of the members of the Association shall be promptly scheduled by the governing body in response to:

(1) The vote of the governing body itself.

(2) Written request for a special meeting signed by members representing at least 5% of the total voting power of the Association.

(d) Written notice of regular and special meetings shall be given to members by the governing body by any means which is appropriate given the physical setup of the subdivision. This notice shall be given not less than 10 nor more than 90 days before the date of any meeting at which members are required or permitted to take any action. The notice shall specify the place, day and hour of the meeting and the matters the governing body intends to present for action by the members. Except as otherwise provided by law, any proper matter may be presented at the meeting for action.

(e) (1) Except as provided in Sections 2792.16(d) and (e)(1), a quorum for the transaction of business at a meeting of members of the Association through presence in person or by proxy shall be established at a percentage of not less than 25% and not more than 66 2/3% of the total voting power of the Association. Within these percentage limits, the quorum requirements for members' meetings shall be suited to such factors as the proposed physical layout of the subdivision, the contemplated number of owners of subdivision interests and the nature and extent of the common areas, facilities and services.

(2) In the absence of a quorum at a members' meeting a majority of those present in person or by proxy may adjourn the meeting to another time, but may not transact any other business. An adjournment for lack of a quorum by those in attendance shall be to a date not less than five days and not more than 30 days from the original meeting date. The quorum for an adjourned meeting may be set by the governing instruments at a percentage less than that prescribed for the regular meeting, but it shall not be less than 25 percent of the total voting power of the Association. If a time and place for the adjourned meeting is not fixed by those in attendance at the original meeting or if for any reason a new date is fixed for the adjourned meeting after adjournment, notice of the time and place of the adjourned meeting shall be given to members in the manner prescribed for regular meetings.

(f) Any action which may be taken by the vote of members at a regular or special meeting, except the election of governing body members where cumulative voting is a requirement, may be taken without a meeting if done in compliance with the provisions of Section 7513 of the Corporations Code.

(g) Any form of proxy or written ballot distributed by any person to the membership of the Association shall afford the opportunity to specify a choice between approval and disapproval of each matter or group of matters to be acted upon, except it shall not be mandatory that a candidate for election to the governing body be named in the proxy or written ballot. The proxy or written ballot shall provide that, where the member specifies a choice, the vote shall be cast in accordance with that choice. The proxy shall also identify the person or persons authorized to exercise the proxy and the length of time it will be valid.

NOTE

Authority cited: Sections 10080 and 11001, Business and Professions Code. Reference: Section 11018.5, Business and Professions Code.

HISTORY

1. New section filed 1-16-76; effective thirtieth day thereafter (Register 76, No. 3).

2. Amendment filed 1-17-80; effective thirtieth day thereafter (Register 80, No. 3).

3. Amendment of subsection (c) filed 1-21-83; effective thirtieth day thereafter (Register 83, No. 4).

4. New subsection (g) filed 11-16-87; operative 12-16-87 (Register 87, No. 47).

5. Amendment of subsection (e)(1) filed 3-18-88; operative 4-17-88 (Register 88, No. 14).

6. Amendment of subsection (a) filed 4-7-92; operative 5-7-92 (Register 92, No. 14).

7. Amendment of subsections (b) and (d) filed 4-1-93; operative 5-3-93 (Register 93, No. 14).

8. Amendment of subsection (b) filed 11-13-96; operative 11-13-96 pursuant to Government Code section 11343.4(d) (Register 96, No. 46).

§2792.18. Reasonable Arrangements--Members' Voting Rights.

Note • History

(a) With the exception of those Associations which have two classes of voting membership, a member of an Association, including an Association which provides for unequal assessments against the subdivision interests, shall be entitled to one vote for each subdivision interest owned. If a subdivision interest is owned by more than one person, each such person shall be a member of the Association, but there shall be no more than one vote for each subdivision interest.

(b) An Association may have two classes of voting membership according to the following provisions:

(1) Each owner of a subdivision interest other than a subdivider is a Class A member. Class A membership entitles the holder to one vote for each subdivision interest owned.

(2) The subdivider is a Class B member. Class B membership entitles the holder to not more than three votes for each subdivision interest owned.

(3) In a single-phase subdivision development, Class B membership shall be irreversibly converted to Class A membership on the first to occur of the following:

(A) The total outstanding votes held by Class A members equal the total outstanding votes held by the Class B member.

(B) A prescribed date which is not later than the second anniversary of the first conveyance of a subdivision interest in the development.

(4) In a multi-phase development for which the subdivider has submitted a plan for phased development through annexation which satisfies the requirements of Section 2792.27, the Class B membership shall be irreversibly converted to Class A membership on the first to occur of the following:

(A) A prescribed date certain which is not later than the second anniversary of the first conveyance of a subdivision interest in the most recent phase of the development.

(B) A prescribed date certain which is not later than the fourth anniversary of the first conveyance of a subdivision interest in the first phase of the development.

(c) With the exception of Section 2792.4, no regulation which requires the approval of a prescribed majority of the voting power of members of the Association other than the subdivider for action to be taken by the Association is intended to preclude the subdivider from casting votes attributable to subdivision interest which he or she owns. Governing instruments may specify either or both of the following for approval of action for which a regulation of the Department±--±other than Section 2792.4±--±requires the approval of a prescribed majority of the voting power of members of the Association other than the subdivider:

(1) In those Associations in which Class A and Class B voting memberships have been prescribed in accordance with this regulation, the vote or written assent of a bare majority of the Class B voting power as well as the vote or written assent of a prescribed majority of the Class A voting power.

(2) In those Associations in which a single class of voting membership exists, either as originally established or after the conversion of Class B to Class A shares, the vote or written assent of a bare majority of the total voting power of the Association as well as the vote or written assent of a prescribed majority of the total voting power of members other than the subdivider.

NOTE

Authority cited: Sections 10080 and 11001, Business and Professions Code. Reference: Section 11018.5, Business and Professions Code.

HISTORY

1. New section filed 1-16-76; effective thirtieth day thereafter (Register 76, No. 3).

2. Amendment filed 2-10-77; effective thirtieth day thereafter (Register 77, No. 7).

3. Amendment of subsection (e)(4) filed 1-17-80; effective thirtieth day thereafter (Register 80, No. 3).

4. Amendment filed 1-7-81; effective thirtieth day thereafter (Register 81, No. 2).

5. Amendment of subsections (a) and (b) filed 4-2-86; effective thirtieth day thereafter (Register 86, No. 14).

6. Amendment of subsections (b)(3)(B), (b)(4)(A)-(B) and (c) filed 4-7-92; operative 5-7-92 (Register 92, No. 14).

7. Amendment of subsections (b)(3)(B), (4)(A), (4)(B) and Note filed 11-8-93; operative 12-8-93 (Register 93, No. 46).

§2792.19. Reasonable Arrangements--Election of Governing Body.

Note • History

(a) The first election of a governing body for the Association shall be conducted at the first meeting of the Association. All positions on the governing body shall be filled at that election.

(b) (1) Voting for the governing body shall be by secret written ballot. Cumulative voting in the election of governing body members shall be prescribed for all elections in which more than two positions on the governing body are to be filled subject only to the procedural prerequisites to cumulative voting prescribed in Section 7615(b) of the Corporations Code.

(2) Unless the entire governing body is removed from office by the vote of members of the Association, no individual governing body members shall be removed prior to the expiration of his term of office if the votes cast against removal would be sufficient to elect the governing body member if voted cumulatively at an election at which the same total number of votes were cast and the entire number of governing body members authorized at the time of the most recent election of the governing body member were then being elected.

(c) (1) A special procedure shall be established by the governing instruments to assure that from the first election of the governing body and thereafter for so long as a majority of the voting power of the Association resides in the subdivider, or so long as there are two outstanding classes of membership in the Association, not less than 20% of the incumbents on the governing body shall have been elected solely by the votes of owners other than the subdivider.

(2) A governing body member who has been elected to office solely by the votes of members of the Association other than the subdivider may be removed from office prior to the expiration of his term of office only by the vote of at least a simple majority of the voting power residing in members other than the subdivider.

NOTE

Authority cited: Sections 10080 and 11001, Business and Professions Code and Section 21082, Public Resources Code. Reference: Section 11018.5, Business and Professions Code.

HISTORY

1. New section filed 1-16-76; effective thirtieth day thereafter (Register 76, No. 3).

2. Amendment filed 2-10-77; effective thirtieth day thereafter (Register 77, No. 7).

3. Amendment of subsection (b)(2) filed 1-17-80; effective thirtieth day thereafter (Register 80, No. 3).

4. Amendment filed 7-9-80; effective thirtieth day thereafter (Register 80, No. 28).

5. Amendment of subsection (b)(2) and repealer of subsection (d) filed 11-13-96; operative 11-13-96 pursuant to Government Code section 11343.4(d) (Register 96, No. 46).

§2792.20. Reasonable Arrangements--Governing Body Meetings.

Note • History

(a) Regular meetings of the governing body of the Association shall be held as prescribed in the Bylaws. Ordinarily such meetings shall be conducted at least monthly though the Bylaws may prescribe meetings as infrequently as every six months if business to be transacted by the governing body does not justify more frequent meetings.

(b)(1) Regular meetings of the governing body shall be held at a time and at a meeting place fixed by the governing body from time to time. The meeting place shall ordinarily be within the subdivision itself unless in the judgment of the governing body a larger meeting room is required than exists within the subdivision in which case the meeting room selected shall be as close as possible to the subdivision.

(2) Notice of the time and place of a regular meeting shall be posted at a prominent place or places within the common area and shall be communicated to governing body members not less than four days prior to the meeting unless the time and place of meeting is fixed by the Bylaws provided, however that notice of a meeting need not be given to any governing body member who has signed a waiver of notice or a written consent to holding of the meeting. If the common area consists only of an easement or is otherwise unsuitable for posting of such notice, the governing body shall communicate the notice of the time and place of such meeting by any means it deems appropriate.

(c)(1) A special meeting of the governing body may be called by written notice signed by the President of the Association or by any two members of the governing body other than the President.

(2) The notice shall specify the time and place of the meeting and the nature of any special business to be considered.

(3) Notice shall be posted or communicated in a manner prescribed for notice of regular meetings and shall be sent to all governing body members not less than 72 hours prior to the scheduled time of the meeting provided however that notice of the meeting need not be given to any governing body member who signed a waiver of notice or a written consent to holding of the meeting.

(d) Regular and special meetings of the governing body shall be governed by the provisions of Section 1363.05 of the Civil Code.

(e)(1) The governing body may take actions without a meeting if all of its members consent in writing to the action to be taken.

(2) If the governing body resolves by unanimous written consent to take action, an explanation of the action taken shall be posted at a prominent place or places within the common area within three days after the written consents of all governing body members have been obtained. If the common area consists only of an easement or is otherwise unsuitable for posting the explanation of the action taken, the governing body shall communicate said explanation by any means it deems appropriate.

NOTE

Authority cited: Section 11001, Business and Professions Code. Reference: Section 11018.5, Business and Professions Code.

HISTORY

1. New section filed 1-16-76; effective thirtieth day thereafter (Register 76, No. 3).

2. Amendment filed 2-10-77; effective thirtieth day thereafter (Register 77, No. 7).

3. Amendment filed 1-17-80; effective thirtieth day thereafter (Register 80, No. 3).

4. New subsection (e) filed 7-9-80; effective thirtieth day thereafter (Register 80, No. 28).

5. Amendment filed 7-1-83; effective thirtieth day thereafter (Register 83, No. 30).

6. Amendment filed 5-9-90; operative 6-8-90 (Register 90, No. 25).

7. Amendment of subsection (d) filed 7-12-91; operative 8-11-91 (Register 91, No. 44).

8. Editorial correction of printing errors in section (Register 91, No. 44).

9. Amendment of subsections (b)(2), (c)(2)-(3) and (e)(2) filed 4-7-92; operative 5-7-92 (Register 92, No. 14).

10. Editorial correction of subsections (c)(2) and (e)(2) (Register 95, No. 13).

11. Redesignation and amendment of former subsection (d)(1) to new subsection (d), repealer of subsection (d)(2), and amendment of subsection (e) filed 12-30-97; operative 1-29-98 (Register 98, No. 1).

§2792.21. Reasonable Arrangements--Governing Body Powers and Limitations.

Note • History

(a) The powers and duties of the governing body of the Association shall normally include, but shall not be limited to, the following:

(1) Enforcement of applicable provisions of the Covenants, Conditions and Restrictions, Articles, Bylaws and other instruments for the ownership, management and control of the subdivision.

(2) Payment of taxes and assessments which are, or could become, a lien on the common area or a portion thereof.

(3) Contracting for casualty, liability and other insurance on behalf of the Association.

(4) Contracting for goods and/or services for the common areas, facilities and interests or for the Association subject to the limitations set forth below.

(5) Delegation of its powers to committees, officers or employees of the Association as expressly authorized by the governing instruments.

(6) Preparation of budgets and financial statements for the Association as prescribed in the governing instruments.

(7) Formulation of rules of operation of the common areas and facilities owned or controlled by the Association.

(8) Initiation and execution of disciplinary proceedings against members of the Association for violations of provisions of the governing instruments in accordance with procedures set forth in the governing instruments.

(9) Entering upon any privately-owned subdivision interest as necessary in connection with construction, maintenance or emergency repair for the benefit of the common area or the owners in common.

(10) Election of officers of the governing body.

(11) Filling of vacancies on the governing body except for a vacancy created by the removal of a governing body member.

(b) The governing body of the Association shall ordinarily be prohibited from taking any of the following actions, except with the assent, by vote at a meeting of the Association or by written ballot without a meeting pursuant to Corporations Code Section 7513, of a simple majority of the members, other than the subdivider, constituting a quorum consisting of more than 50 percent of the voting power of the Association residing in members other than the subdivider:

(1) Entering into a contract with a third person wherein the third person will furnish goods or services for the common area or the owners' Association for a term longer than one year with the following exceptions:

(A) A management contract, the terms of which have been approved by the Federal Housing Administration or Veterans Administration.

(B) A contract with a public utility company if the rates charged for the materials or services are regulated by the Public Utilities Commission provided, however, that the term of the contract shall not exceed the shortest term for which the supplier will contract at the regulated rate.

(C) Prepaid casualty and/or liability insurance policies of not to exceed three years duration provided that the policy permits short rate cancellation by the insured.

(D) Lease agreements for laundry room fixtures and equipment of not to exceed five years duration provided that the lessor under the agreement is not an entity in which the subdivider has a direct or indirect ownership interest of 10 percent or more.

(E) Agreements for cable television services and equipment or satellite dish television services and equipment of not to exceed five years duration provided that the supplier is not an entity in which the subdivider has a direct or indirect ownership interest of 10 percent or more.

(F) Agreements for sale or lease of burglar alarm and fire alarm equipment, installation and services of not to exceed five years duration provided that the supplier or suppliers are not entities in which the subdivider has a direct or indirect ownership interest of 10 percent or more.

(G) A contract for a term not to exceed three years that is terminable by the Association after no longer than one year without cause, penalty, or other obligation upon ninety (90) days written notice of termination to the other party.

(2) Incurring aggregate expenditures for capital improvements to the common area in any fiscal year in excess of 5% of the budgeted gross expenses of the Association for that fiscal year.

(3) Selling during any fiscal year property of the Association having an aggregate fair market value greater than 5% of the budgeted gross expenses of the Association for that fiscal year.

(4) Paying compensation to members of the governing body or to officers of the Association for services performed in the conduct of the Association's business provided, however, that the governing body may cause a member or officer to be reimbursed for expenses incurred in carrying on the business of the Association.

(5) In the case of a limited equity housing cooperative, using the corporate equity for any purpose permitted under Section 33007.5(d)(1) of the Health and Safety Code without the vote or written consent of a bare majority of the stock or membership interests of resident owners.

NOTE

Authority cited: Section 11001, Business and Professions Code. Reference: Section 11018.5, Business and Professions Code; and Sections 1354 and 1355, Civil Code.

HISTORY

1. New section filed 1-16-76; effective thirtieth day thereafter (Register 76, No. 3).

2. Amendment filed 1-17-80; effective thirtieth day thereafter (Register 80, No. 3).

3. New subsection (b)(6) filed 7-9-80; effective thirtieth day thereafter (Register 80, No. 28).

4. Amendment of subsections (a)(1) and (b)(1) filed 12-1-81; designated effective 1-1-82 (Register 81, No. 49).

5. Amendment filed 7-1-83; effective thirtieth day thereafter (Register 83, No. 30).

6. New subsection (b)(1)(E) filed 1-9-85; effective thirtieth day thereafter (Register 85, No. 2).

7. Amendment of subsection (b)(1)(E) filed 4-2-86; effective thirtieth day thereafter (Register 86, No. 14).

8. New subsection (b)(1)(F) filed 12-30-86; effective thirtieth day thereafter (Register 87, No. 1).

9. Amendment of subsection (b), new subsections (b)(1)(G) and (c)-(d)(2) and amendment of Note filed 12-7-94; operative 1-6-95 (Register 94, No. 49).

10. New subsection (e) filed 11-27-96; operative 12-27-96 (Register 96, No. 48).

11. Repealer of subsections (c)-(e) filed 6-15-98; operative 7-15-98 (Register 98, No. 25).

§2792.22. Reasonable Arrangements--Budgets and Financial Statements.

Note • History

NOTE

Authority cited: Section 11001, Business and Professions Code. Reference: Section 11018.5, Business and Professions Code; and Section 1365, Civil Code.

HISTORY

1. Amendment filed 1-17-80; effective thirtieth day thereafter (Register 80, No. 3). For prior history, see Register 76, No. 3.

2. Amendment filed 2-1-84; designated effective 2-10-84 pursuant to Government Code section 11346.2(d) (Register 84, No. 5).

3. Amendment of subsection (a)(1) filed 1-9-85; effective thirtieth day thereafter (Register 85, No. 2).

4. New subsection (d) filed 11-16-87; operative 12-16-87 (Register 87, No. 47).

5. Amendment of subsections (a)(1)(C) and (b) filed 5-4-89; operative 6-3-89 (Register 89, No. 23).

6. Amendment filed 5-9-90; operative 6-8-90 (Register 90, No. 25).

7. Amendment of subsections (b) and (c) filed 7-12-91; operative 8-11-91 (Register 91, No. 44).

8. Editorial correction of printing errors (Register 91, No. 44).

9. Repealer and new subsections (a)(1)(B) and (a)(1)(C) filed 4-1-93; operative 5-3-93 (Register 93, No. 14).

10. Repealer filed 11-13-96; operative 11-13-96 pursuant to Government Code section 11343.4(d) (Register 96, No. 46).

§2792.23. Reasonable Arrangements--Inspection of Association's Books and Records.

Note • History

(a) Commencing not later than 90 days after the close of escrow of the first interest in the subdivision, copies of the documents listed below, as soon as readily obtainable, shall be delivered by the subdivider to the governing body of the Association at the office of the Association, or at such other place as the governing body of the Association shall prescribe. The obligation to deliver the documents listed below shall apply to any documents obtained by the subdivider no matter when obtained, provided, however, such obligation shall terminate upon the earlier of (1) the conveyance of the last subdivision interest covered by a subdivision public report or (2) three years after the expiration of the most recent public report, on the subdivision:

(1) The recorded subdivision map or maps for the project.

(2) The recorded condominium plan, if any, and all amendments thereto.

(3) The deeds and easements executed by the subdivider conveying the common area or other interest to the Association, to the extent applicable.

(4) The recorded covenants, conditions and restrictions for the subdivision, including all amendments and annexations thereto.

(5) The Association's filed articles of incorporation, if any, and all amendments thereto.

(6) The Association's bylaws and all amendments thereto.

(7) All architectural guidelines and all other rules regulating the use of an owner's interest in the subdivision or use of the common area which have been promulgated by the Association.

(8) The plans approved by the local agency or county where the subdivision is located for the construction or improvement of facilities that the Association is obligated to maintain or repair; provided, however, that the plans need not be as-built plans and that the plans may bear appropriate restrictions on their commercial exploitation or use and may contain appropriate disclaimers regarding their accuracy.

(9) All notice of completion certificates issued for common area improvements (other than residential structures).

(10) Any bond or other security device in which the Association is the beneficiary.

(11) Any written warranty being transferred to the Association for common area equipment, fixtures or improvements.

(12) Any insurance policy procured for the benefit of the Association, its governing board or the common area.

(13) Any lease or contract to which the Association is a party.

(14) The membership register, including mailing addresses and telephone numbers, books of account and minutes of meetings of the members, of the governing body and of committees of the governing body of the Association.

(15) Any instrument referred to in Section 11018.6(d) but not described above which establishes or defines the common, mutual or reciprocal rights or responsibilities of members of the Association.

(b) Commencing not later than 90 days after the annexation of additional phases to the subdivision, copies of those documents listed under subdivision (a) which are applicable to that phase, shall, as soon as readily obtainable, be delivered by the subdivider to the governing body of the Association at the office of the Association, or at such other place as the governing body of the Association shall prescribe. The obligation to deliver the documents listed in subsection (a) shall apply to any documents obtained by the subdivider no matter when obtained, provided, however, such obligation shall terminate upon the earlier of (1) the conveyance of the last subdivision interest covered by a subdivision public report or (2) three years after the expiration of the most recent public report, on the subdivision.

(c) The membership register, including mailing addresses and telephone numbers, books of account and minutes of meetings of the members, of the governing body and of committees of the governing body of the Association shall be made available for inspection and copying by any member of the Association--or by his duly-appointed representative--at any reasonable time and for a purpose reasonably related to his interest as a member, at the office of the Association or at such other place within the subdivision as the governing body shall prescribe.

(d)(1) In the case of the minutes, minutes proposed for adoption that are marked to indicate draft status, or a summary of the minutes, of any meeting of the governing body, other than an executive session, shall be available to members within 30 days of the meeting and shall be distributed to only members upon request and payment of the fee prescribed in (e)(3) below.

(2) At the time the pro forma operating budget is distributed or at the time of any general mailing, members of the Association shall be notified in writing of their right to have copies of the minutes of meetings of the governing body and as to how and where those minutes may be obtained and the cost of obtaining such copies.

(e) The governing body shall establish reasonable rules with respect to:

(1) Notice to be given to the custodian of the records by the member of the Association desiring to make the inspection.

(2) Hours and days of the week when such an inspection may be made.

(3) Payment of the cost of reproducing copies of documents requested by a member of the Association.

(f) Every member of the governing body shall have the absolute right at any reasonable time to inspect all books, records and documents of the Association and the physical properties owned or controlled by the Association. The right of inspection by a member of the governing body includes the right to make extracts and copies of documents.

NOTE

Authority cited: Section 11001, Business and Professions Code. Reference: Section 11018.5, Business and Professions Code; and Section 1363, Civil Code.

HISTORY

1. New section filed 1-16-76; effective thirtieth day thereafter (Register 76, No. 3).

2. Amendment of NOTE filed 7-1-83; effective thirtieth day thereafter (Register 83, No. 30).

3. Amendment of subsection (a) filed 11-16-87; operative 12-16-87 (Register 87, No. 47).

4. New subsections (b)(1) and (b)(2) and subsection relettering filed 4-1-93; operative 5-3-93 (Register 93, No. 14).

5. New subsections (a)-(b), subsection redesignation and amendment of subsections (d)(1), (e)(1), (e)(3), (f) and Note filed 12-7-94; operative 1-6-95 (Register 94, No. 49).

6. Amendment of subsection (d)(2) and Note filed 12-30-97; operative 1-29-98 (Register 98, No. 1).

§2792.24. Reasonable Arrangements--Governing Instruments Amendments.

Note • History

(a) In a single-class voting structure, amendments of the CC&R's may be enacted by requiring the vote or written assent of members representing both:

(1) A majority of the total voting power of the Association which is at least a bare majority and not more than 75%; and

(2) At least a bare majority of the votes of members other than the subdivider.

The percentage of the voting power necessary to amend a specific clause or provision shall not be less than the percentage of affirmative votes prescribed for action to be taken under that clause. For example, if the CC&R's expressly state that 75% of the voting power must agree to an increase in the maximum annual assessment, then 75% of the voting power is necessary to amend this provision regardless of the percentage prescribed in the general provision pertaining to amendments of the CC&R's.

(b) Amendments of the Articles or Bylaws shall require the vote or written assent of members as follows:

(1) An owners association other than for a limited equity housing cooperative.

(A) Articles

1. At least a bare majority of the governing body; and

2. At least a bare majority of the voting power of the association; and

3. At least a bare majority of the votes of members other than the subdivider.

(B) Bylaws

1. At least a bare majority of a quorum, but not more than a bare majority of the voting power of the association; and

2. At least a bare majority of the votes of members other than the subdivider.

(2) An owners association for a limited equity housing cooperative.

(A) Articles

1. At least a bare majority of the governing body; and

2. At least 66 2/3 percent of the resident-owner members or shareholders.

(B) Bylaws

1. At least 66 2/3 percent of the resident-owner members or shareholders.

(c) Notwithstanding the provisions of (b) above, the percentage of a quorum or of the voting power of the Association or of members other than the subdivider necessary to amend a specific clause or provision in the Articles or Bylaws shall not be less than the prescribed percentage of affirmative votes required for action to be taken under that clause.

(d) If a two-class voting structure is provided and is still in effect in the Association, none of the governing instruments may be amended without the vote or written assent of a prescribed percentage of the voting power of each class of membership or a prescribed percentage of a quorum of members of each class.

(e) If a two-class voting structure was originally provided in the governing instruments, but is no longer in effect because of the conversion of one class to the other, the provisions for amending the governing instruments set forth in subdivisions (a) and (b) above shall be applicable.

NOTE

Authority cited: Sections 10080, 10170.4, and 11001, Business and Professions Code and Section 21082, Public Resources Code. Reference: Sections 11003.2, 11018.5, Business and Professions Code.

HISTORY

1. New section filed 1-16-76; effective thirtieth day thereafter (Register 76, No. 3).

2. Amendment filed 2-10-77; effective thirtieth day thereafter (Register 77, No. 7).

3. Amendment filed 11-30-77; effective thirtieth day thereafter (Register 77, No. 49).

4. Amendment filed 7-9-80; effective thirtieth day thereafter (Register 80, No. 28).

§2792.25. Reasonable Arrangements--Restrictions upon Alienation.

Note • History

NOTE

Authority cited: Sections 10080, 10226, 11001, 11011.8, Business and Professions Code and Section 21082, Public Resources Code. Reference: Sections 11003.2, 11018, 11018.5, Business and Professions Code; and Sections 35700 et seq., Health and Safety Code.

HISTORY

1. New section filed 1-16-76; effective thirtieth day thereafter (Register 76, No. 3).

2. Amendment and new subsection (c) filed 7-9-80; effective thirtieth day thereafter (Register 80, No. 28).

3. Amendment filed 12-3-80; effective thirtieth day thereafter (Register 80, No. 49).

4. Repealer filed 11-13-96; operative 11-13-96 pursuant to Government Code section 11343.4(d) (Register 96, No. 46).

§2792.26. Reasonable Arrangements--Disciplining of Members by the Association.

Note • History

(a) The Association cannot be empowered to cause a forfeiture or abridgement of an owner's right to the full use and enjoyment of his individually-owned subdivision interest on account of the failure by the owner to comply with provisions of the governing instruments or of duly-enacted rules of operation for common areas and facilities except by judgment of a court or a decision arising out of an arbitration or on account of a foreclosure or sale under a power of sale for failure of the owner to pay assessments duly levied by the Association.

(b) The governing instruments shall include provisions which authorize the governing body to impose monetary penalties, temporary suspensions of an owner's rights as a member of the Association or other appropriate discipline for failure to comply with the governing instruments provided that the procedures for notice and hearing, satisfying the minimum requirements of subdivision (h) of Section 1363 of the Civil Code, are followed with respect to the accused member before a decision to impose discipline is reached.

(c) A monetary penalty imposed by the Association as a disciplinary measure for failure of a member to comply with the governing instruments or as a means of reimbursing the Association for costs incurred by the Association in the repair of damage to common areas and facilities for which the member was allegedly responsible or in bringing the member and his subdivision interest into compliance with the governing instruments may not be characterized nor treated in the governing instruments as an assessment which may become a lien against the member's subdivision interest enforceable by a sale of the interest in accordance with the provisions of Sections 2924, 2924(b) and 2924(c) of the Civil Code.

(d) The provisions of subdivision (c) do not apply to charges imposed against an owner consisting of reasonable late payment penalties for delinquent assessments and/or charges to reimburse the Association for the loss of interest and for costs reasonably incurred (including attorney's fees) in its efforts to collect delinquent assessments.

NOTE

Authority cited: Section 11001, Business and Professions Code. Reference: Section 11018.5, Business and Professions Code.

HISTORY

1. Amendment of subsection (b) filed 1-17-80; effective thirtieth day thereafter (Register 80, No. 3). For prior history, see Register 76, No. 3.

2. Amendment filed 12-1-81; designated effective 1-1-82 (Register 81, No. 49).

3. Amendment of subsection (b) filed 9-5-2003; operative 10-5-2003 (Register 2003, No. 36).

§2792.27. Reasonable Arrangements--Annexation of Property to the Subdivision.

Note • History

(a) Provisions in the CC & Rs to effect the annexation of real property to the existing subdivision shall require the vote or written assent of not less than 66 2/3% of the total votes residing in Association members other than the subdivider unless the proposed annexation is in substantial conformance with a detailed plan of phased development submitted to the commissioner with the application for a public report for the first phase of the subdivision.

(b) The plan for phased development through annexation referred to in subdivision (a) must include, but need not be limited to, the following:

(1) Proof satisfactory to the Commissioner that no proposed annexation will result in an overburdening of common facilities.

(2) Proof satisfactory to the Commissioner that no proposed annexation will cause a substantial increase in assessments against existing owners which was not disclosed in subdivision public reports under which pre-existing owners purchased their interests.

(3) Identification of the land proposed to be annexed and the total number of residential units then contemplated by the subdivider for the overall subdivision development.

(4) A written commitment by the subdivider to pay to the association, concurrently with the closing of the escrow for the first sale of a subdivision interest in an annexed phase, appropriate amounts for reserves for replacement or deferred maintenance of common area improvements in the annexed phase necessitated by or arising out of the use and occupancy of residential units under a rental program conducted by the subdivider which has been in effect for a period of at least one year as of the date of closing of escrow for the first sale of a residential unit in the annexed phase.

NOTE

Authority cited: Section 11001, Business and Professions Code. Reference: Section 11018.5, Business and Professions Code.

HISTORY

1. New section filed 1-16-76; effective thirtieth day thereafter (Register 76, No. 3).

2. Amendment filed 2-10-77; effective thirtieth day thereafter (Register 77, No. 7).

3. Amendment filed 1-21-83; effective thirtieth day thereafter (Register 83, No. 4).

4. Repealer of subsection (b)(4) and subsection renumbering filed 11-13-96; operative 11-13-96 pursuant to Government Code section 11343.4(d) (Register 96, No. 46).

§2792.28. Reasonable Arrangements--Architectural and Design Control.

Note • History

(a) The committee for the control of structural and landscaping architecture and design (Architectural Control Committee) within the subdivision shall consist of not less than three nor more than five members.

(b) The subdivider may appoint all of the original members of the Architectural Control Committee and all replacements until the first anniversary of the issuance of the original public report for the first (or only) phase of the subdivision. The subdivider may reserve to himself the power to appoint a majority of the members of the Committee until 90% of all the subdivision interests in the overall development have been sold or until the fifth anniversary date of the original issuance of the final public report for the first (or only) phase of the subdivision, whichever first occurs.

(c) After one year from the date of issuance of the original public report for the first (or only) phase of the subdivision, the governing body of the Association shall have the power to appoint one member to the Architectural Control Committee until 90% of all of the subdivision interests in the overall development have been sold or until the fifth anniversary date of the original issuance of the final public report for the first (or only) phase of the subdivision, whichever first occurs. Thereafter the governing body of the Association shall have the power to appoint all of the members of the Architectural Control Committee.

NOTE

Authority cited: Sections 10080 and 11001, Business and Professions Code; and Section 21082, Public Resources Code. Reference: Section 11018.5, Business and Professions Code.

HISTORY

1. New section filed 1-16-76; effective thirtieth day thereafter (Register 76, No. 3).

2. Amendment filed 2-10-77; effective thirtieth day thereafter (Register 77, No. 7).

3. Redesignation of former subsections (a)(1), (a)(2) and (a)(3) as subsections (a), (b) and (c), respectively, repealer of former subsection (b), and amendment of Note filed 11-13-96; operative 11-13-96 pursuant to Government Code section 11343.4(d) (Register 96, No. 46).

§2792.29. Reasonable Arrangements--Distribution in the Case of Condemnation or Destruction.

Note • History

NOTE

Authority cited: Section 11001, Business and Professions Code. Reference: Sections 11018.5, 11003.2, Business and Professions Code.

HISTORY

1. New section filed 1-17-80; effective thirtieth day thereafter (Register 80, No. 3).

2. New subsection (c) filed 7-9-80; effective thirtieth day thereafter (Register 80, No. 28).

3. Repealer filed 11-13-96; operative 11-13-96 pursuant to Government Code section 11343.4(d) (Register 96, No. 46).

§2792.30. Rescission Rights.

Note • History

A person who has made an offer to purchase an interest in an undivided interest subdivision may exercise the right of rescission granted by Section 11000.2 of the Code by giving written notification of the election to rescind to the subdivider at the place of business designated by the subdivider pursuant to Section 2792.31 of these regulations.

If the notice of election is by United States mail, it shall be considered given on the date that it is postmarked. If the notice is sent by telegraph, it shall be considered as given when transmitted by telegraph from the place of origin. If notification is by means of writing sent other than by United States mail or telegraph, it shall be considered as given at the time of delivery at the place of business designated by the subdivider.

NOTE

Authority cited: Section 11001, Business and Professions Code. Reference: Section 11000.2, Business and Professions Code.

HISTORY

1. New section filed 5-4-89; operative 6-3-89 (Register 89, No. 23).

§2792.31. Notice of Rescission Rights.

Note • History

(a) To inform a person of his/her right of rescission under Section 11000.2 of the Code, the subdivider shall attach to the face page of every copy of a subdivision public report given to a prospective purchaser, the notice set forth in subdivision (b) hereof printed in not less than 12-point bold face capital letters and numerals.

(b) The form and content of the notice shall be as follows:

IF YOU MAKE AN OFFER TO PURCHASE AN UNDIVIDED INTEREST(S) IN THE UNDIVIDED INTEREST SUBDIVISION IDENTIFIED BELOW, YOU HAVE A LEGAL RIGHT TO RESCIND (CANCEL) THIS OFFER, AND ANY CONTRACT RESULTING FROM THE ACCEPTANCE OF YOUR OFFER, AND THE RETURN OF ALL MONEY AND OTHER CONSIDERATION THAT YOU HAVE GIVEN TOWARD THE PURCHASE UNTIL MIDNIGHT OF THE THIRD CALENDAR DAY AFTER THE DAY ON WHICH YOU SIGN THE OFFER TO PURCHASE.

YOU MAY EXERCISE THIS RIGHT TO RESCIND WITHOUT GIVING ANY REASON AND WITHOUT INCURRING ANY PENALTY OR OBLIGATION BY NOTIFYING

(Name of Subdivider)

(Address)

OF YOUR ELECTION TO RESCIND BY TELEGRAPHIC COMMUNICATION, MAIL OR OTHER WRITTEN NOTICE.

IF THE NOTICE OF RESCISSION IS SENT BY UNITED STATES MAIL, IT SHALL BE CONSIDERED GIVEN ON THE DATE THAT IT IS POSTMARKED. IF THE NOTICE IS BY TELEGRAPHIC COMMUNICATION, IT SHALL BE CONSIDERED GIVEN WHEN TRANSMITTED FROM THE PLACE OF ORIGIN. IF NOTIFICATION IS BY MEANS OF A WRITING TRANSMITTED OTHER THAN BY UNITED STATES MAIL OR TELEGRAPH, IT SHALL BE CONSIDERED GIVEN AT THE TIME OF DELIVERY AT THE ABOVE PLACE OF BUSINESS.

YOU MAY USE THIS NOTICE FOR THE PURPOSE OF RESCINDING YOUR OFFER TO PURCHASE BY COMPLETING THE BLANKS AND BY DATING AND SIGNING BELOW. THE USE OF REGISTERED OR CERTIFIED MAIL WITH RETURN RECEIPT REQUESTED IS RECOMMENDED FOR TRANSMITTAL OF THIS NOTICE BY MAIL.

(Name of Undivided Interest (DRE File Number)

Subdivision)

I HEREBY RESCIND MY OFFER OF

(Date)

TO PURCHASE AN UNDIVIDED INTEREST

(Identification Number, If Known)

IN THE ABOVE-NAMED UNDIVIDED INTEREST SUBDIVISION.

____________________, 19____.

(Date)

(Signature)

NOTE

Authority cited: Section 11001, Business and Professions Code. Reference: Section 11000.2, Business and Professions Code.

HISTORY

1. New section filed 5-4-89; operative 6-3-89 (Register 89, No. 23).

§2792.32. Alternative Arrangements for Master Planned Communities.

Note • History

(a) A “Master Planned Development” is a development which ordinarily satisfies all of the following criteria:

(1) The development is or will be a planned development subdivision within the meaning of subdivision (k) of Section 1351 of the Civil Code.

(2) The development consists of, will generally consist of, or is proposed to consist of both (a) approximately five hundred (500) or more separate residential interests, and (b) one or more subdivisions, including planned developments, community apartment projects, condominium projects, stock cooperatives, time-share projects, or other residential, recreational, commercial, or mixed residential/non-residential projects.

(3) The Master Planned Development shall be managed by a community association (“Master Association”) that is responsible for the maintenance and operation of areas and/or facilities affecting the Master Planned Development and enforcement of use restrictions pertaining to the Master Planned Development.

(4) The Master Planned Development is or will be developed in two or more phases.

Provided, however, the subdivider may demonstrate from specific facts and circumstances that a development that does not satisfy the criteria set forth in this subsection (a) should nonetheless be treated as a Master Planned Development.

(b) Recognizing that control by the subdivider over the governing body serving a residential common interest development and over the architectural control committee serving the development is ordinarily necessary until a reasonable portion of the project has been completed, in order to fulfill the expectations of the subdivider and the purchasers, the governing instruments for a Master Association shall substantially conform to the applicable standards prescribed in subsections (c) through (g), inclusive, below.

(c) SUBDIVIDER'S MEMBERSHIP VOTING RIGHTS: The governing instruments for a Master Association may include provisions for two classes of membership as defined in Section 2792.18(b). For such a Master Association, Class B membership shall be automatically converted to Class A membership and Class B membership shall thereafter cease to exist on the first to occur of the following:

(1) When seventy-five percent of the separate residential interests proposed for the overall Master Planned Development have been conveyed to Class A members;

(2) On the fifth anniversary following the most recent conveyance to a Class A member of the first separate residential interest in any phase of the overall Master Planned Development under the authority of a public report; or

(3) On the twenty-fifth anniversary of the first conveyance of a separate residential interest to a Class A member in the overall Master Planned Development under the authority of a public report.

(d) DELEGATE VOTING: The governing instruments for a Master Association may include provisions for establishing a geographical area in the Master Planned Development for one or more delegates to represent the collective voting power of the members residing in such residential or mixed residential/non-residential projects within the Master Planned Development. Arrangements in the governing instruments for the exercise of the voting power of the Master Association by delegates selected by each delegate district shall conform to the following criteria:

(1) The governing instruments must establish a procedure for the selection of delegates, for defining delegate districts, and for determining the number of votes that may be cast by a delegate.

(2) There shall be at least one delegate and one alternate for each delegate district.

(3) In any meeting of the members of the Master Association, the votes of members residing in a delegate district shall be cast by delegates selected to represent that delegate district.

(4) The duties of the delegates shall be prescribed in the governing instruments.

(e) QUORUM FOR MEMBERSHIP MEETINGS: The quorum for an adjourned meeting of the members of the Master Association, as described in Section 2792.17(e)(2) of these Regulations, may be set by the governing instruments at a percentage less than that prescribed for the regular meeting, but it shall not be less than 15 percent of the total voting power of the Master Association.

(f) GOVERNING BODY MEMBERSHIP:

(1) The governing instruments may include provision for the election of a majority of the governing body of the Master Association by the subdivider under a Class C vote or similar device. For such a Master Association, this arrangement shall irreversibly terminate on the first to occur of the following:

(A) When seventy-five percent of the separate residential interest proposed for the overall Master Planned Development have been conveyed to Class A members;

(B) On the fifth anniversary following the most recent conveyance to a Class A member of the first separate residential interest in any phase of the overall Master Planned Development under the authority of a public report; or

(C) On the twenty-fifth anniversary of the first conveyance of a separate residential interest to a Class A member in the overall Master Planned Development under the authority of a public report.

(2) The governing instruments may include provision for the election of twenty percent of the members of the board of directors of the Master Association by the subdivider until the first to occur of the following:

(A) When ninety percent of the subdivision interests in the overall development have been conveyed to Class A members;

(C) On the twenty-fifth anniversary of the first conveyance of a separate residential interest to a Class A member in the overall Master Planned Development under the authority of a public report.

(g) ARCHITECTURAL CONTROL: Members appointed to the Architectural Control Committee by the governing body or by the subdivider need not be members of the Master Association. The governing instruments may include provision for the election of a majority of the Architectural Control Committee of the Master Association by the subdivider. This arrangement shall irreversibly terminate on the first to occur of the following:

(1) When ninety percent of the subdivision interests proposed for the overall Master Planned Development have been conveyed to Class A members; or

(h) ADDITIONAL ASSOCIATIONS: If any residential structure or other major special benefit facility or amenity will be constructed or provided within the Master Planned Development and commonly maintained or operated for the use or benefit of some but not all of the homeowners within the Master Planned Development, ordinarily one or more separate homeowners associations shall be established under arrangements substantially satisfying the requirements of Sections 2792.4, 2792.8(a), and 2792.15 to 2792.26, inclusive, of these Regulations to maintain the residential structure or to maintain and operate the major special benefit facility or amenity and to enforce any obligation or commitment, and any bond or other arrangement securing such obligation or commitment, relating to the residential structure or major special benefit facility or amenity.

(i) Notwithstanding the foregoing, the subdivider may present to the Commissioner specific facts an circumstances relating to a Master Planned Development that demonstrate the need for alternative arrangements, satisfactory to the Commissioner, from those provisions set forth in subsections (c) through (h) above.

(j) The subdivider of a Master Planned Development may enter into an arrangement with the Master Association to sell or to convey under a lease purchase arrangement common area amenities to the Master Association. The provisions of this subsection are not available to anyone other than the subdivider of a Master Planned Development. The sale or lease purchase arrangement shall include:

(1) All common area amenities subject to this arrangement shall be specifically identified and defined as “common area” or “future common areas” in the CC&Rs. The common area amenity must be a part of the proposed Master Planned Development, accessible to all homeowners who will be charged an assessment to pay for the amenity and must be located on a separate lot or parcel. The term common area shall not include any element or amenity within a separate interest or unit.

(2) All common area amenities subject to this arrangement that have not been completed shall be covered by a bond or other arrangement to secure completion of the amenities.

(3) The Master Association shall not be obligated to make any payments nor shall any homeowner be required to pay any assessment for common area amenities subject to this arrangement until those amenities have been completed and a Notice of Completion as defined in Civil Code Section 3093 has been recorded.

(4) The CC&Rs must obligate the Master Association to maintain and control the common area amenities subject to this arrangement after the sale or lease purchase and to act on those amenities, as appropriate, during the term of the sale or lease purchase.

(5) Title to the common area amenities shall be delivered free and clear of any liens or blanket encumbrances to the Master Association upon completion of the sale or lease purchase. All encumbrances affecting the common area amenities shall include assurances that the ownership or use by the Master Association shall not be adversely affected.

(6) The purchase price of the common area amenities shall not exceed the cost of construction of those amenities. The master subdivider shall provide a bond to secure completion of construction. The Department may, in its discretion, determine whether the purchase price of the common area amenities exceeds the cost of construction of those amenities. In order to make that determination, the Department may review construction bids, records or analyses submitted by the subdivider and, if deemed necessary, may request an independent third party evaluation. The costs of any independent third party evaluation shall be paid by the subdivider.

(7) The term of the sale or lease purchase arrangement shall not exceed ten (10) years and shall provide for substantially equal monthly payments by the Master Association sufficient to fully amortize the sale or lease purchase. The terms of the sale or lease purchase agreement shall be fair, just and equitable and may not provide for a prepayment penalty, negative amortization or balloon payments. Payments on the sale or lease purchase arrangement shall begin not later than three years from the date a Notice of Completion as defined in Civil Code Section 3093 has been recorded unless the Department has approved a longer time period.

(8) The master subdivider shall submit to the Department, prior to use or execution all sale or lease purchase agreements, covenants and documents relating to the sale or lease purchase agreement.

(9) The sale or lease purchase arrangement shall specify who is responsible for maintenance, insurance, reserves and operation of the common area amenities. In a lease purchase arrangement, the subdivider shall pay the property taxes attributable to the common area amenities. The subdivider shall post a bond or other form of acceptable security to insure performance if the master subdivider is responsible for any task requiring such security.

(10) The sale or lease purchase arrangement shall provide for the distribution of proceeds and the action to be taken in the event of condemnation or destruction.

(11) The Master Association CC&Rs and budget shall provide for: specific language binding the Association to fund the common area amenities prior to, during and after acquisition of the amenities; the ability of the Association to address issues related to the operation of the common area amenities while they are subject to a sale or lease purchase arrangement; sufficient funds to meet the monthly obligations of the sale or lease purchase arrangement, including a minimum 5% sinking fund to cover defaulting individual homeowner payments until such time as the sinking fund equals the outstanding balance; reserve payments for the common area amenities commencing upon recordation of a notice of completion; and, the right of the Master Association to file liens against the interests of homeowners who have failed to pay their respective portion of the sale or lease purchase costs. Individual homeowner assessments to create the sinking fund shall begin upon the commencement of payments by the Master Association under the sale or lease purchase arrangement. The sinking fund may only be used to cover defaulting individual homeowner payments on the common area amenities covered by the sale or lease purchase arrangement.

(12) The sale or lease purchase arrangement and agreements shall not be modified without the assent of a simple majority of the owners other than a subdivider.

NOTE

Authority cited: Section 11001, Business and Professions Code. Reference: Section 11018.5, Business and Professions Code.

HISTORY

1. New section filed 5-9-90; operative 6-8-90 (Register 90, No. 25).

2. Repealer and new section, and amendment of Note filed 11-13-96; operative 11-13-96 pursuant to Government Code section 11343.4(d) (Register 96, No. 46).

3. New subsections (j)-(j)(12) filed 2-28-2006; operative 3-30-2006 (Register 2006, No. 9).

§2792.33. Continuing Care Subdivisions.

Note • History

(a) A “Continuing Care Subdivision” is a subdivision described in Section 11004.5 of the Code that includes all of the following:

(1) The subdivision qualifies as housing for older persons pursuant to 42 USC 3607(b)(2)(c) and Section 51.3 of the California Civil Code.

(2) The subdivision offers or provides to its members continuing care services or assisted living services as described in Section 1771 of the Health and Safety Code.

(3) The continuing care provider is a person or entity responsible for providing such continuing care services or assisted living services.

(b) Notwithstanding the provisions of Sections 2792.17, 2792.18, 2792.19 and 2792.21, the governing instruments of a continuing care subdivision may provide for the following:

(1) A quorum for an adjourned meeting of the members of the Association as set forth in Section 2792.17(e)(2) of not less than 15 percent of the total voting power of the Association.

(2) Two classes of membership as defined in 2792.18.

(A) The continuing care provider may be a Class B member. Class B membership entitles the holder to not more than three votes for each subdivision interest owned.

(B) The continuing care provider or its successor may hold at least one Class B membership for as long as the provider or successor provides continuing care services or assisted living services for the subdivision.

(C) The governing instruments shall contain provisions for the resolution of impasses or disputes between Class A and Class B memberships.

(3) The election by Class B membership of 20 percent of the members of the governing body of the Association.

(4) The governing body of the Association may enter into an agreement with a continuing care provider to provide for members of the Association continuing care services or assisted living services as described in Section 1771 of the Health and safety Code. Such agreements shall ordinarily include at least the following provisions:

(A) A term of not more than five years with automatic renewals for a two year period after expiration of the first term unless the Association by the vote or written assent of a majority of the voting power residing in members other than the subdivider or continuing care provider determines not to renew the agreement and gives notice of that determination. Notice of a determination not to renew shall be given not less than six months prior to expiration of the first term or of a subsequent renewal.

(B) Termination for cause at any time by the governing body.

(D) No agreement to provide continuing care services or assisted living services shall be terminated unless the governing body has entered into an agreement with another continuing care provider so that there will be no lapse in services provided to members.

(c) The provisions of this section and Section 2792.21 do not apply to continuing care services or assisted living services agreements between a continuing care provider and individual members.

(d) If the State Department of Social Services determines in writing that a conflict exists under Section 1775 of the Health and Safety Code, the Commissioner may vary some of the requirements of the following regulations in order to remove such conflict: 2792.8, 2792.9, 2792.15, 2792.16, 2792.17, 2792.18, 2792.19, 2792.20, 2792.21, 2792.23, 2792.24, 2792.26, 2792.27 and 2792.28.

NOTE

Authority cited: Section 11001, Business and Professions Code. Reference: Section 11018.5, Business and Professions Code; and Section 1775, Health and Safety Code.

HISTORY

1. New section filed 9-5-2003; operative 10-5-2003 (Register 2003, No. 36).

§2793. Applications for Consent Under Section 11018.7.

Note • History

(a) Application for consent of the Real Estate Commissioner under Section 11018.7 of the Business and Professions Code shall be made on a form provided by the department.

(b) The application shall consist of at least the following:

(1) A statement signed by or on behalf of the applicant containing the following:

(A) A narrative explanation of the proposed change and the anticipated effects thereof.

(B) The reasons why the amendment is being proposed.

(C) The means whereby persons eligible to vote on the proposed change will be informed concerning the substance of the change, and the voting procedure to be employed if the consent of the commissioner is obtained.

(D) Identification of the subdivisions which will be affected by the proposed change by reference to the file numbers of the public reports for the subdivisions.

(2) A copy of the instrument to be amended in its present form.

(3) A copy of the instrument incorporating the changes proposed in the application with suitable marking to indicate proposed amendments.

(4) A copy of the resolution or other authority for submission of the application if made on behalf of a corporation or association.

(5) A copy of the letter or notice to be given to all persons eligible to vote on the proposed change.

(6) An application fee of twenty dollars ($20.00) in the form of a check or money order.

(c) If the commissioner finds that the proposed change will not materially change the rights of any owner to ownership, possession or use of interests in the subdivision, the commissioner shall consent to the submission of the proposed change to a vote of the owners or members. If the commissioner finds that the proposed change will materially change such rights, the commissioner shall require, as a condition of the commissioner's consent, that a notice approved by the commissioner describing the substance of the proposed change be given to those persons eligible to vote at least fifteen days prior to the vote.

(d) If the commissioner determines that the change as proposed would create a new condition or circumstance that would be the basis for denial of a public report under Section 11018 or 11018.5, the commissioner shall issue a formal order denying consent to the submission of the proposal to persons eligible to vote thereon.

(e) If an applicant fails to take the steps necessary to obtaining the consent of the commissioner within ninety days after the application is filed, the commissioner may deem the application to be abandoned in which case a new application must be filed if the application is to be thereafter pursued.

NOTE

Authority cited: Sections 10080 and 11001, Business and Professions Code. Reference: Section 11018.7, Business and Professions Code.

HISTORY

1. Amendment filed 10-14-68; effective thirtieth day thereafter (Register 68, No. 39).

2. Repealer and new section filed 12-7-73; effective thirtieth day thereafter (Register 73, No. 49).

3. Amendment of section and repealer and new Note filed 11-27-96; operative 12-27-96 (Register 96, No. 48).

§2794. Use of Final Public Reports.

Note • History

NOTE

Authority cited: Section 11001, Business and Professions Code. Reference: Section 11018, Business and Professions Code.

HISTORY

1. Amendment filed 7-30-51 as an emergency; effective upon filing (Register 25, No. 3).

2. Amendment filed 11-21-61; effective thirtieth day thereafter (Register 61, No. 23).

3. Repealer filed 8-21-63; designated effective 9-20-63 (Register 63, No. 14).

4. New section filed 7-9-80; effective thirtieth day thereafter (Register 80, No. 28).

5. Repealer filed 11-13-96; operative 11-13-96 pursuant to Government Code section 11343.4(d) (Register 96, No. 46).

§2795. Preliminary Public Report.

Note • History

(a) If a subdivider makes application and pays the appropriate fee, a preliminary subdivision public report may be issued by the Department in advance of satisfaction of all requirements for issuance of a final public report when in the judgment of the Commissioner it is reasonable to expect that all of the requirements for the issuance of a final public report will be satisfied in due course.

(b) A subdivider and persons acting on his behalf may solicit and accept reservations to purchase or lease subdivision interests under authority of a preliminary public report if there is compliance with each of the following:

(1) The person making the reservation (potential buyer) has been given a copy of the preliminary public report and has executed a receipt for a copy before any money or other thing of value has been accepted by or on behalf of the subdivider in connection with the reservation.

(2) A copy of the reservation instrument signed by the potential buyer and by or on behalf of the subdivider, along with any deposit taken from the potential buyer, is placed into a neutral escrow depository acceptable to the Commissioner.

(3) The reservation instrument used is a form previously approved by the Department with at least the following provisions:

(A) The right of either subdivider or potential buyer to unilaterally cancel the reservation at any time.

(B) The payment to the potential buyer of his total deposit on cancellation of the reservation by either party.

(C) The placing of the deposit into an interest bearing account for the benefit of the prospective buyer at the prospective buyer's request and upon the prospective buyer's agreement to pay any charges of the escrow depository for this service.

(c) The initial term of a preliminary public report shall not exceed one year from the date of issuance. The authority to use a preliminary public report shall automatically terminate with respect to those subdivision interests covered by a final public report which is issued before the scheduled termination date of the preliminary report.

NOTE

Authority cited: Section 11001, Business and Professions Code. Reference: Section 11018.1, Business and Professions Code.

HISTORY

1. Amendment filed 12-10-71; effective thirtieth day thereafter (Register 71, No. 50). For prior history see Register 66, No. 25.

2. Repealer and new section filed 7-9-80; effective thirtieth day thereafter (Register 80, No. 28).

3. Amendment of subsection (b)(3) filed 12-3-80; effective thirtieth day thereafter (Register 80, No. 49).

§2795.1. Receipt for Final or Preliminary Public Report.

Note • History

(a) A receipt on the form specified herein shall be taken by or on behalf of the subdivider from each person executing a reservation agreement under authority of a preliminary public report and each person who has made a written offer to purchase or lease a subdivision interest under authority of a final subdivision public report.

(b) The subdivider or his agent shall retain each receipt for a public report for a period of three years from the date of the receipt and shall make the receipts available for inspection by the Commissioner or his designated representative during regular business hours.

(c) The form approved by the Commissioner for the acknowledgment of receipt of a final or preliminary public report as follows:

RECEIPT FOR PUBLIC REPORT

The Law and Regulations of the Real Estate Commissioner require that you as a prospective purchaser or lessee be afforded an opportunity to read the public report for this subdivision before you make any written offer to purchase or lease a subdivision interest or before any money or other consideration toward purchase or lease of a subdivision interest is accepted from you.

In the case of a preliminary or interim subdivision public report, you must be afforded an opportunity to read the report before a written reservation or any deposit in connection therewith is accepted from you.

In the case of a conditional subdivision public report, delivery of legal title or any other interest contracted for will not take place until issuance of a final public report. Provision has been made in the sales agreement and escrow instructions for the return to you of the entire sum of money paid or advanced by you if you are dissatisfied with the final public report because of a material change. (See California Business and Professions Code Section 11012.)

DO NOT SIGN THIS RECEIPT UNTIL YOU HAVE RECEIVED A COPY OF THE REPORT AND HAVE READ IT.

I have read the commissioner's public report on

(File No.) (Tract No. or Name)

I understand the report is not a recommendation or endorsement of the subdivision, but is for information only.

The date of the public report which I received and read is

____________ ________________________

(Date Issued) (Date Amended)

________________________

Name

________________________

Address

________________________

(Date)

Subdivider Is Required to Retain This Receipt for Three Years.

NOTE

Authority cited: Section 11001, Business and Professions Code. Reference: Section 11018.1, Business and Professions Code.

HISTORY

1. Amendment filed 12-10-71; effective thirtieth day thereafter (Register 71, No. 50). For prior history see Register 66, No. 25.

2. Amendment filed 1-16-76; effective thirtieth day thereafter (Register 76, No. 3).

3. Amendment filed 7-9-80; effective thirtieth day thereafter (Register 80, No. 28).

4. Amendment of subsection (b) filed 12-3-80; effective thirtieth day thereafter (Register 80, No. 49).

5. Amendment of subsection (c) filed 2-28-2006; operative 3-30-2006 (Register 2006, No. 9).

§2795.2. Delivery of Subdivision Public Report to Advertising Media. [Repealed]

History

HISTORY

1. New section filed 11-21-61; effective thirtieth day thereafter (Register 61, No. 23).

2. Repealer filed 7-1-83; effective thirtieth day thereafter (Register 83, No. 30).

§2795.3. Term of Public Report and Extension Thereof.

History

The term of any Final Subdivision Public Report issued pursuant to Section 11018 of the Business and Professions Code shall be limited to five (5) years. A renewal shall be issued if the subdivider, owner or agent makes application for renewal of any report and has submitted such additional information as the commissioner may require.

HISTORY

1. New section filed 4-5-62; effective thirtieth day thereafter (Register 62, No. 7).

2. Amendment filed 12-30-70; effective thirtieth day thereafter (Register 71, No. 1).

§2796. Procedure Re Subdivisions Prior to August 11, 1933. [Repealed]

Note • History

NOTE

Authority cited: Section 11001, Business and Professions Code. Reference: Sections 11000 and 11010, Business and Professions Code.

HISTORY

1. Amendment filed 4-2-86; effective thirtieth day thereafter (Register 86, No. 14).

2. Repealer filed 11-13-96; operative 11-13-96 pursuant to Government Code section 11343.4(d) (Register 96, No. 46).

§2797. Common Interest Development -- Individual Homeowner Maintenance.

Note • History

A subdivision that is a common interest development as defined by Civil Code 1351(c) consisting of three (3) or more attached residential dwellings may have individual homeowner maintenance for their own dwelling if all of the following exist:

(a) The individual dwellings will be independent structurally from the other dwellings.

(b) All utility lines, except for the fire service line as described below, serving the individual dwellings will consist of separate lines which run through easements located in accessible areas capable of maintenance by each owner of a dwelling. Such easements will be established in the CC&R's. A fire service main will run through the easement and will branch off from the main to each dwelling.

(c) The individual homeowners will be responsible for exterior maintenance of their dwelling. The exterior stucco will contain architectural enhancements, which will indicate the boundaries between the dwellings.

(d) The homeowners association will maintain, repair and replace the roof. The association budget will include a reserve item for roof replacement.

(e) The association will also have other limited maintenance responsibilities, such as, fire extinguisher cabinets, fire extinguishers, electrical panels, gas meters and telephone panels, gutters and downspouts, address numbers and common exterior lighting. These responsibilities will be described in the CC&Rs or in an exhibit to the CC&Rs specifically allocating responsibility to the association.

(f) Maintenance Manuals and warranty manuals will be prepared to be consistent with this allocation of responsibility and will further elaborate as necessary on the maintenance obligations.

(g) The association is responsible for obtaining property insurance for each residential dwelling, excluding items typically covered by dwelling owners such as personal property, floor and wall surface materials, upgrades installed by the homeowners and liability insurance for injury or damage caused inside the dwelling. The insurance should cover all components of the dwelling including the roof, foundation and other exterior elements.

(h) In the event of damage or destruction, the association is responsible for the reconstruction of the dwellings.

(i) The dwelling owners will receive a separate disclosure to be signed or initialed describing in detail their maintenance, repair, replacement and insurance obligations. That information will also be included in the subdivision's CCR's. In addition, the subdivision public report will include a special note that there is a separate disclosure, which must be signed by all homebuyers and describing the building configuration, association assessment structure, maintenance responsibilities and financing issues. The report will indicate that the lower than usual association assessment will be offset by higher owner maintenance costs.

NOTE

Authority cited: Section 11001, Business and Professions Code. Reference: Sections 11003, 11004.5 and 11018.5, Business and Professions Code; and Section 1351, Civil Code.

HISTORY

1. New section filed 2-28-2006; operative 3-30-2006 (Register 2006, No. 9). For prior history, see Register 96, No. 46.

2. Amendment of section heading, section and Note filed 7-9-2009; operative 8-8-2009 (Register 2009, No. 28).

§2798. Phased Subdivision Development.

Note • History

If a subdivider, for the purpose of developing and marketing subdivided land in increments or phases, requests and obtains a public report that covers less than all of the contiguous subdivision interests or land which the subdivider intends ultimately to develop as part of an overall project, a new notice of intention, questionnaire and original filing fee must be submitted in connection with each subsequent application for a public report covering subdivision interests to be annexed to the subdivision interests for which a final public report has previously been issued.

NOTE

Authority cited: Section 11001, Business and Professions Code. Reference: Sections 11000, 11010 and 11011, Business and Professions Code.

HISTORY

1. Repealer and new section filed 7-1-83; effective thirtieth day thereafter (Register 83, No. 30).

§2799. Use of Public Report in Advertising Restricted.

History

HISTORY

1. Amendment filed 8-21-63; designated effective 9-20-63 (Register 63, No. 14).

2. Amendment filed 10-14-68; effective thirtieth day thereafter (Register 68, No. 39).

3. Repealer filed 7-1-83; effective thirtieth day thereafter (Register 83, No. 30).

§2799.1. Subdivision Advertising Criteria.

Note • History

(a) Standards which will be applied by the Real Estate Commissioner in determining whether advertising for sale or lease of subdivision interests is false, untrue or misleading within the meaning of those terms in Sections 10140, 10177(c), 11022 and 17500 of the Business and Professions Code shall include, but shall not be limited to the following:

(1) Advertising shall not imply a use of a subdivision interest that is not set forth in the Notice of Intention and Questionnaire comprising the application for a public report or permit.

(2) A subdivision shall not be advertised under a name, designation or appellation that is not set forth in a Notice of Intention and Questionnaire.

(3) A subdivision shall not be advertised by a name or trade style which implies, contrary to fact, that the subdivider or his agent is a bona fide research organization, public agency, nonprofit organization or similar entity.

(4) No improvement, facility or utility service may be advertised unless it has been completed or installed and is available for use, or unless completion and availability for use are assured through bonding or other arrangements approved by the commissioner. If not completed, the estimated date of completion shall be set forth in the advertising.

(5) There shall be no reference to the prospective availability of private facilities outside of the subdivision for the use and enjoyment of purchasers of subdivision interests if the facilities are to be constructed or installed by the subdivider or an affiliated entity unless financial arrangements for completion or installation have been approved by the commissioner.

(6) There shall be no reference to proposed or uncompleted private facilities over which the subdivider has no control unless the estimated date of completion is set forth and unless evidence has been presented to the commissioner that the completion and operation of the facilities are reasonably assured within the time represented in the advertisement.

(7) Unless the facilities and improvements listed below have been completed, or unless financial and other arrangements for completion have been made, subdivided land offered for residential use shall not be described as “improved,” “developed,” or by similar terms without disclosure of any facility or improvement listed below that is not included in the offering:

(A) Paved roads within the subdivision.

(B) A potable water system.

(D) A source of electricity at the building site.

(8) Reference shall not be made to a proposed public facility or project which purports to affect the value and utility of subdivided lands without a disclosure of the existing status of the proposed facility based upon information supplied or verified by the authority responsible for the public facility or project.

(9) A subdivider shall not advertise the availability of financing for on-site construction unless he has a bona fide written expression of an intention to finance such construction by a recognized lender or unless the subdivider has established to the satisfaction of the commissioner that financing of on-site construction will be provided by a source other than a recognized lender.

(10) Pictoral or illustrative depictions of the subdivision and surrounding lands must accurately portray the land as it exists and proposed improvements as they will be constructed.

(11) Pictoral or illustrative depictions other than unmodified photographs shall bear a prominent disclosure identifying the nature of the depiction, e.g., ARTIST'S CONCEPTION and a legend identifying those improvements which are not then in existence.

(12) If a map or diagram is used to show the location of the subdivision in relation to other places, actual road miles from each other place to the subdivision shall be shown or the map or diagram shall be prepared to scale and shall include a scale of miles.

(13) If there is advertising of streets, roads, sewers, storm drains or other utilities which have not been accepted for maintenance by a public entity, that fact must be disclosed in the advertising. Rights-of-way for passenger vehicles to a subdivision or to lots within a subdivision which have not been accepted for maintenance by a public entity shall be adequately described in terms of roadbed and surfacing.

(14) If the existence of a lake, river, canal or other body of water, which is subject to a fluctuating water level other than through natural causes, is advertised as a feature of the subdivision, any significant effect of the fluctuation upon the use of the water facility and upon the subdivision interests shall be described.

(15) No advertisement shall imply that a facility is available for the exclusive use of purchasers of subdivision interests if a public right of access or of use of the facility exists.

(16) There shall be no reference to the availability for use by owners of subdivision interests of private clubs or facilities in which an owner will not acquire a proprietary interest through purchase of a subdivision interest without an accompanying disclosure that the existence of the facilities and their availability for use by subdivision interest owners are at the pleasure of the owner of the facility.

(17) An advertisement of any facility in which a purchaser will acquire a proprietary interest with his purchase of a subdivision must set forth the estimated costs and other obligations of the purchaser with respect to the facility or shall refer the purchaser to a fact sheet or similar source of this information.

(18) No representation may be made that subdivision interests being offered for sale can be further divided unless a full disclosure is included as to the legal requirements for further division of the interests.

(19) Subdivision interests may not be advertised as available at a particular minimum price if the number of subdivision interests available at that price comprise less than 10% of the unsold inventory of the subdivider, unless the number of lots then for sale at the minimum price is set forth in the advertisement.

(20) Advertising of a discounted purchase price shall not be made unless the subdivider has established base prices for application of the discount through a substantial number of sales at base prices.

(21) A prospective increase in the price of a subdivision interest other than an interest offered with an on-site residential, commercial or industrial structure may not be implied nor shall a price increase of such a subdivision interest be announced more than sixty days prior to the date that the increase will be placed into effect.

(22) If the phrase “closing costs only” or similar terminology is used to describe the price of a subdivision interest, the estimated dollar amount of the costs must be set forth in the advertisement.

(23) The total amount of any special bonded indebtedness, or the range of such bonded indebtedness, against the subdivision interests shall be set forth in any advertisement which states or implies that off-site improvements for the subdivision have been completed and paid for in connection with the development of the project. If the selling price of a subdivision interest is advertised, the special bonded indebtedness against that subdivision interest shall be given equal prominence with the selling price unless the bonded indebtedness is included in the advertised selling price.

(24) No representation shall be made as to the availability of a resale program offered by or on behalf of the subdivider unless the resale program has been made a part of the offering as submitted to the commissioner.

(25) An asterisk or other reference symbol may be used to explain, but not to contradict or to change the ordinary meaning of the material in the body of the advertisement.

(26) Unless an offer made in connection with a sales promotion is unequivocally without conditions, the terms “free,” “no obligation” or terms of similar import may not be used to describe that which is offered.

(27) Offers of travel, accommodations, meals or entertainment at no cost or reduced cost, the purpose of which is to promote sales, shall not be described as “awards,” “prizes” or by words of similar import.

(28) Offers or solicitations of trip reservations to visit subdivided property or any other place where a sales presentation for subdivided property is to be made shall set forth all conditions, limitations or qualifications that will be applied before the recipient will be allowed to make the trip.

(29) The approximate retail value of any gift, prize or premium offered through an advertisement to prospective purchasers shall be set forth in the advertisement.

(30) Complete rules and procedures for any contest or drawing advertised in connection with the marketing of subdivision interests shall be included in the advertisement, or the advertisement shall state the means by which a person can secure full information concerning said rules and procedures prior to his participation in the contest or drawing.

(31) Advertising shall not include testimonials or endorsements which contain matters which the subdivider would be precluded by law or regulation from making in his own behalf.

(32) An offer or inducement to purchase which purports to be limited as to quantity or restricted as to time shall set forth the numerical quantity and/or time applicable to the offer or inducement.

(33) An advertisement or an offering of undivided or fractional interests in a subdivision, which does not include a right of exclusive ownership or occupancy of a particular lot, parcel or unit by the purchaser, shall disclose the total number of undivided or fractional interests to be offered for sale in the subdivision.

(34) If the subdivision offering involves something less than a fee interest with an exclusive and perpetual right to occupy a lot, parcel or unit, e.g., a leasehold or time-sharing-ownership interest, the limitations and restrictions on occupancy rights shall be included in the advertisement or the advertisement shall refer the purchaser to a fact sheet or similar source of this information.

(35) No direct mail advertisement purporting to have resulted through a referral shall be used unless the solicitation includes the name of the person making said referral.

(36) Investment merit or profit potential of a subdivision interest other than an interest which is offered with an on-site residential, commercial or industrial structure shall not be expressed or implied unless the commissioner has determined from evidence submitted by or on behalf of the subdivider that the representation is neither false nor misleading.

(37) Statements appearing in the public report for a subdivision shall not be quoted, paraphrased or cited out of context nor shall any part of the public report be underscored, italicized, bold faced or otherwise highlighted except in strict conformance with highlighting in the public report itself.

NOTE

Authority cited: Section 11001, Business and Professions Code. Reference: Sections 10140, 10177, 11022 and 17500, Business and Professions Code.

HISTORY

1. New section filed 9-18-63; effective thirtieth day thereafter (Register 63, No. 14).

2. Amendment filed 12-30-70; effective thirtieth day thereafter (Register 71, No. 1).

3. Repealer and new section filed 12-7-73; effective thirtieth day thereafter (Register 73, No. 49).

4. New subsection (a)(37) filed 7-1-83; effective thirtieth day thereafter (Register 83, No. 30).

§2799.2. Advertising Review Fee.

Note • History

A submission of each advertisement to the Department for approval pursuant to Section 11022 of the Code shall be accompanied by a fee of seventy-five dollars ($75).

NOTE

Authority cited: Sections 11001 and 11022, Business and Professions Code. Reference: Section 11022, Business and Professions Code.

HISTORY

1. New section filed 12-30-97; operative 1-29-98 (Register 98, No. 1).

§2800. Notification of Material Change.

Note • History

The owner of a subdivision which is the subject of an outstanding public report shall immediately report in writing to the Real Estate Commissioner relevant details concerning any material change in the subdivision itself or in the program for marketing the subdivision interests. A material change in the subdivision or in the offering shall include, but shall not be limited to the following:

(a) The sale, conveyance, including a transfer of title in trust, or the granting of an option to another to acquire, five or more subdivision interests in a subdivision other than a time-share project or twelve or more time-share estates or time-share uses in a time-share project.

(b) Change in the name or organization of the subdividing entity such as incorporation, dissolution of corporation or change in corporate or fictitious business name.

(c) Change in purchase money handling procedures under Section 11013.2 or 11013.4 of the Code including but not limited to a change in name or location of escrow or trust account depository or the creation of a blanket lien or encumbrance affecting a lot, parcel or unit of subdivided land being offered for sale.

(d) Change in methods of marketing or conveyance of subdivision interests, including but not limited to the following:

(1) Use of real property sales contracts, lease-option agreements or similar marketing instruments.

(2) Special sales inducements involving a financial commitment to purchasers by or on behalf of the subdivider such as buy-back agreements, special interest rates or a short-term basis and prizes, gifts or premiums.

(e) Inability of the subdivider to fulfill agreements and assurances to purchasers of subdivision interests given by the subdivider to the commissioner in the application for a public report.

(f) Creation or discovery of latent hazards affecting the subdivisions such as adverse geologic conditions not apparent at the time of issuance of the current public report for the subdivision.

(g) Addition of common areas or common facilities for the use and enjoyment of owners in the subdivision which were not contemplated at the time of issuance of the current public report for the subdivision.

(h) A relocation of easements affecting unsold subdivision interests.

(i) The creation of a district, or the annexation of the subdivision into a district, having the power to tax or levy assessments against real property interests within the subdivision.

(j) An increase of 20% or more or a decrease of 10% or more in the regular assessment charged by an Association against owners in a common-interest subdivision over the amount of the regular assessment reflected in the current public report for the subdivision.

(k) Delinquencies in the payment of regular assessments by owners within a common-interest subdivision resulting in the receipt by the Association of income which is more than 10% less than scheduled income from said assessments.

(l) A proposed change in the use for which the subdivision is offered as, for example, from residential to investment or a proposed change from an offering of the sole and exclusive use of a unit in a common-interest subdivision to a program involving the sharing of ownership or use with others as, for example, a time sharing program.

(m) Changes in the means for furnishing potable water, sewage disposal and other public services to lots, parcels or units within the subdivision.

(n) Any change in the configuration of the subdivision interest being offered for sale from the configuration according to the subdivision map or parcel map upon which the current public report for the subdivision was based.

(o) An amendment to the CC&Rs or other governing instruments for the subdivision or for an association of owners of subdivision interests.

(p) Failure by the subdivider as an owner of interests in a common interest subdivision to pay regular assessments where:

(1) Assessments are payable on a monthly basis and the subdivider has failed to pay three or more months of such assessments.

(2) Assessments are not payable on a monthly basis and the subdivider has failed to pay such assessments within three months after such assessments become due and payable.

(q) A program which does not comply with Section 2792.10 in which the subdivider undertakes to subsidize the cost of operating and maintaining common areas and of providing services in lieu of payment of regular assessments by the subdivider.

(r) The affiliation by a single-site time-share project as defined in Section 11003.5 of the Code with: 1) other time-share projects or accomodations under a contractual or membership program through a mandatory reservation system or 2) a mandatory reservation system.

NOTE

Authority cited: Section 11001, Business and Professions Code. Reference: Sections 11010, 11012, 11018 and 11018.5, Business and Professions Code.

HISTORY

1. Repealer and new section filed 2-10-77; effective thirtieth day thereafter (Register 77, No. 7).

2. Amendment of subsection (c) filed 4-24-78; effective thirtieth day thereafter (Register 78, No. 17).

3. Amendment of subsection (j) filed 1-21-83; effective thirtieth day thereafter (Register 83, No. 4).

4. Amendment of subsection (l) filed 7-1-83; effective thirtieth day thereafter (Register 83, No. 30).

5. Amendment filed 1-9-85; effective thirtieth day thereafter (Register 85, No. 2).

6. Adoption of new subsections (p) and (q) filed 7-12-91; operative 8-11- 91 (Register 91, No. 44).

7. Amendment of subsections (c), (p)(1), (p)(2), (q) and Note filed 4-1-93; operative 5-3-93 (Register 93, No. 14).

8. New subsection (r) filed 6-20-2002; operative 7-20-2002 (Register 2002, No. 25).

§2801. Notification of Option or Sale by Owner. [Repealed]

History

HISTORY

1. Repealer filed 2-10-77; effective thirtieth day thereafter (Register 77, No. 7). For prior history, see Register 71, No. 50.

§2801.5. “Subdivider” Defined.

Note • History

The term “any person” in Section 11010 and the terms “owner” and “subdivider” in Sections 11012 and 11018.1 of the Code include any person, who at any point in time, owns, or has an option or contract to acquire, the subdivision interests listed in (a) or (b) below for purposes of sale, lease or financing if the subdivision interests were acquired or are to be acquired from the original recipient of a public report for the subdivided land, or from a person who succeeded to the interest of the original recipient in five or more subdivision interests in a subdivision other than a time-share project or in twelve or more time-share estates or uses in a time-share project:

(a) Five or more subdivision interests in a subdivision other than a time-share project.

(b) Twelve or more time-shares estates or time-share uses in a time-share project.

Except as provided in Section 11010.5 of the Code, an “owner” or “subdivider” as herein defined shall not offer for sale or lease, nor cause to be offered for sale or lease, any of the subdivision interests herein above referred to unless a subdivision public report has been issued by the Department expressly authorizing the sale or lease of the interests by or on behalf of said owner or subdivider.

NOTE

Authority cited: Sections 11080 and 11001, Business and Professions Code. Reference: Sections 11000, 11004.5, 11010, 11012, 11018.1, Business and Professions Code.

HISTORY

1. Amendment filed 1-17-80; effective thirtieth day thereafter (Register 80, No. 3). For prior history, see Registers 78, No. 17; 71, No. 50; and 66, No. 25.

2. Amendment filed 12-3-80; effective thirtieth day thereafter (Register 80, No. 49).

3. Editorial Correction filed 2-6-81 (Register 81, No. 6).

4. Amendment filed 5-13-82; effective thirtieth day thereafter (Register 82, No. 20).

§2802. Reports from Competent Authorities May Be Required. [Repealed]

Note • History

NOTE

Authority cited: Section 11001, Business and Professions Code. Reference: Section 11010, Business and Professions Code.

HISTORY

1. Repealer of section and new Note filed 11-13-96; operative 11-13-96 pursuant to Government Code section 11343.4(d) (Register 96, No. 46).

§2803. Noncontinguous Parcels.

Note • History

If the notice of intention referred to in Section 11010 of the Code includes lots, parcels or units of subdivided land that are not contiguous to each other, the commissioner will determine which of the lots, parcels or units are sufficiently close together and sufficiently similar to each other in physical and other characteristics to be included within the coverage of a single public report.

NOTE

Authority cited: Section 11001, Business and Professions Code. Reference: Sections 11000 and 11010, Business and Professions Code.

HISTORY

1. Repealer and new section filed 7-1-83; effective thirtieth day thereafter (Register 83, No. 30).

§2804. Abandoning Application For Public Report.

Note • History

(a) The commissioner may abandon an application for a final, conditional, amended, or renewed public report, if:

(1) The data required by Section 11010 has not been furnished within three years from the date a notice of intention was filed for the subdivision public report; and

(2) Six months have elapsed since the commissioner has given notice of deficiencies or substantive inadequacies contained in the documents which are required to make the filing substantially complete and the deficiencies and inadequacies have not been corrected by the applicant; and

(3) The term of any one-year extension of time in which to complete the application, as provided in subdivision (d), has elapsed.

(b) Ninety (90) days prior to abandoning an application the commissioner shall mail to the applicant and the applicant's designated representative, notice of the commissioner's intent to abandon the application. The notice shall include a statement that the applicant may, in accordance with subdivision (d), file a petition to keep the application open.

(c) Sixty (60) days or more following the mailing of the notice required by subdivision (b), the commissioner may issue a final notice of intention to abandon the application. The application shall be deemed abandoned thirty (30) days after the final notice is mailed to the applicant and the applicant's designated representative, unless, prior to the expiration of the thirty day period, a one-year extension has been granted pursuant to subdivision (d).

(d) The commissioner, on his own motion, or after receipt of a petition from the applicant or the applicant's designated representative, may, under the following terms and conditions, grant a one-year extension in order to allow the applicant to complete the application:

(1) The petition is received prior to the expiration of the thirty (30) day notice period referred to in subdivision (c).

Written notice of the decision to grant or deny the petition will be mailed or delivered to the applicant and the applicant's designated representative, within thirty (30) calendar days after receipt of the petition.

(e) The commissioner may grant one or more one-year extensions, provided that the application has not been abandoned as provided in subdivision (c).

(f) The term “applicant” as used in this section shall have the same meaning as the term “subdivider” as used in Section 11018.13 of the Code.

NOTE

Authority cited: Sections 11001 and 11018.13, Business and Professions Code. Reference: Sections 11010 and 11018.13, Business and Professions Code.

HISTORY

1. New section filed 12-7-94; operative 1-6-95 (Register 94, No. 49). For prior history, see Register 83, No. 30.

Article 12.1. Out-of-State Subdivision Offerings [Repealed]

HISTORY

1. Repealer of article 12.1 (sections 2805-2809) filed 5-5-2005; operative 7-1-2005 (Register 2005, No. 18).

Article 12.2. Time-Share Project

§2805. “Developer” Defined.

Note • History

The terms “developer” in Section 11212 and “any person” in Section 11212 and in Section 11226 of the Code include any person, who at any point in time, owns, or has an option or contract to acquire eleven or more time-share interests for purposes of sale in the ordinary course of business if the time-share interests were acquired or are to be acquired from the original recipient of a public report for the time-share plan, or from a person who succeeded to the interest of the original recipient in eleven or more time-share interests in a time-share plan.

NOTE

Authority cited: Section 11281, Business and Professions Code. Reference: Sections 11211.5, 11212 and 11226, Business and Professions Code.

HISTORY

1. New section filed 2-26-85; effective thirtieth day thereafter (Register 85, No. 9). For history of former Section 2805, see Register 83, No. 30.

2. Amendment of subsection (a) filed 11-27-96; operative 12-27-96 (Register 96, No. 48).

3. Amendment moving section 2805 from article 12.1 to article 12.2. and repealer and new section filed 5-5-2005; operative 7-1-2005 (Register 2005, No. 18).

4. Amendment of section and Note filed 8-29-2007; operative 9-28-2007 (Register 2007, No. 35).

§2805.1. Filing Fees.

Note • History

(a) The filing fees in connection with applications to the Department pursuant to Article 8.5 of Chapter 3 of the Real Estate Law shall be the following:

(1) One thousand six hundred fifty dollars ($1,650) plus ten dollars ($10) for each subdivision interest to be offered for an original permit application.

(2) Five hundred fifty dollars ($550) plus ten dollars ($10) for each subdivision interest to be offered that was not permitted to be offered under the permit to be renewed for a renewal permit application.

(3) Four hundred dollars ($400) plus ten dollars ($10) for each subdivision interest to be offered under the amended permit for which a fee has not previously been paid for an amended permit application.

(4) Five hundred dollars ($500) for a conditional permit application.

(b) The maximum fee for an original, renewal or amended permit shall not exceed $7,500 regardless of the number of interests authorized to be offered for sale or lease.

NOTE

Authority cited: Section 10250.3, Business and Professions Code. Reference: Section 10250.3, Business and Professions Code.

HISTORY

1. New Article 12.1 (Sections 2805.1, 2806 and 2806.5) filed 1-9-85; effective thirtieth day thereafter (Register 85, No. 2).

2. Amendment filed 11-27-96; operative 12-27-96 (Register 96, No. 48).

3. Amendment and redesignation of first paragraph as subsection (a), new subsections (a)(1)-(b), and amendment of Note filed 6-18-98; operative 8-1-98. Submitted to OAL for printing only pursuant to Business and Professions Code section 10226 (Register 98, No. 26).

4. Amendment of subsections (a)(1)-(3) filed 6-1-99; amended and refiled 7-14-99; operative 8-1-99. Submitted to OAL for printing only pursuant to Business and Professions Code section 10226 (Register 99, No. 29).

5. Amendment of subsections (a)(1)-(3) filed 5-16-2001; operative 6-15-2001 (Register 2001, No. 20).

§2805.1.5. Filing Fees.

Note • History

(a) Notwithstanding Section 2805.1, the filing fees in connection with applications to the Department pursuant to Article 8.5 of Chapter 3 of the Real Estate Law shall be the following:

(1) One thousand six hundred dollars ($1,600) plus ten dollars ($10) for each subdivision interest to be offered for an original permit application.

(2) Five hundred dollars ($500) plus ten dollars ($10) for each subdivision interest to be offered that was not permitted to be offered under the permit to be renewed for a renewal permit application.

(3) Three hundred dollars ($300) plus ten dollars ($10) for each subdivision interest to be offered under the amended permit for which a fee has not previously been paid for an amended permit application.

(4) Five hundred dollars ($500) for a conditional permit application.

(b) The maximum fee for an original, renewal or amended permit shall not exceed $7,500 regardless of the number of interests authorized to be offered for sale or lease.

(c) This Section shall become operative August 31, 2003 and shall remain in effect only until July 1, 2007 and as of that date is repealed.

NOTE

Authority cited: Section 10250.3, Business and Professions Code. Reference: Section 10250.3, Business and Professions Code.

HISTORY

1. New section filed 7-15-2003; operative 8-31-2003 (Register 2003, No. 29).

§2805.2. Appraisal and Inspection Fee for Out-of-State Subdivision.

Note • History

NOTE

Authority cited: Section 10249.2, Business and Professions Code. Reference: Sections 10237.6 and 10249.4, Business and Professions Code.

HISTORY

1. New section filed 2-26-85; effective thirtieth day thereafter (Register 85, No. 9).

2. Repealer filed 11-27-96; operative 12-27-96 (Register 96, No. 48).

§2805.5. Inducement to Out-of-State Solicitation.

Note • History

The terms “sells”, “offers to sell” and “attempts to solicit prospective purchasers” in Section 11226 of the Code include any written or oral communication which is disseminated or otherwise used within this state for the purpose of inducing a resident to travel outside this state for a required presentation with the primary intention of causing the person to purchase time-share interests located outside of this state.

NOTE

Authority cited: Section 11281, Business and Professions Code. Reference: Section 11226, Business and Professions Code.

HISTORY

1. New section filed 5-5-2005; operative 7-1-2005 (Register 2005, No. 18).

§2805.9. Reservation Rights.

Note • History

(a) The term “the right to use accommodations at a specific time-share property” used in Section 11212(z)(2)(A) means a priority right of not less than sixty days to reserve accommodations at that specific time-share property without competing with owners of time-share interests at other time-share properties that are part of the multi-site time-share plan.

(b) The term “use rights in accommodations at one or more other component sites” as used in Section 11212(z)(2)(A) means the right, on a non-priority basis, to reserve accommodations in component sites of the multi-site time-share plan.

NOTE

Authority cited: Section 11281, Business and Professions Code. Reference: Section 11212, Business and Professions Code.

HISTORY

1. New section filed 5-5-2005; operative 7-1-2005 (Register 2005, No. 18).

§2805.11. Impound of Funds to Assure Completion.

Note • History

“All funds from the sale of time-share interests as the commissioner shall determine are sufficient to assure construction of the improvement or improvements” as used in Section 11230(b) of the Code, means 100% of all funds received from purchasers up to a maximum of the amount required to complete the improvement or improvements, consistent with Section 11243 of the Code.

NOTE

Authority cited: Section 11281, Business and Professions Code. Reference: Sections 11230 and 11243, Business and Professions Code.

HISTORY

1. New section filed 5-5-2005; operative 7-1-2005 (Register 2005, No. 18).

§2806. Notification of Material Change.

Note • History

The developer of a time-share plan which is the subject of an outstanding public report shall report to the Department pursuant to Section 11226(f)(1), relevant details concerning any material change in the time-share plan. A material change in the time-share plan includes, but shall not be limited to, the following:

(a) Deletion of an accommodation from the time-share plan or addition of an accommodation not authorized under an existing time-share public report for the time-share plan.

(b) Change in the name or form of organization of the developer such as incorporation, dissolution of a corporation or a change in the corporate or fictitious business name.

(d) Change in purchase money handling procedures previously submitted to the Department including but not limited to a change in the escrow depository or the creation of an encumbrance affecting more than one timeshare interest in the time-share plan.

(e) Resignation of the trustee or other change in any of the terms of the trust agreement for the time-share plan.

(f) The existence of either of the following conditions with respect to the corpus of the trust.

(1) Insufficient funds in the trust to satisfy the trust fund provision for payment of debt service, property taxes, assessments and/or insurance premiums for the trust property.

(2) Insufficient non-delinquent installment sales contracts and/or promissory notes to satisfy the provision of the trust agreement for payment of the aggregate principal balance owing under a blanket encumbrance against the trust properties.

(g) Any legal or physical condition rendering an accommodation of the time-share plan unusable by time-share owners for one year or more.

(h) Litigation undertaken by a governmental entity or time-share owners' association seeking to prohibit or restrict the dedication of an accommodation to the time-share plan.

(i) An annual budget for a time-share project which will necessitate a regular annual assessment that is more than 20 percent greater than the regular annual assessment in the certified budget for the immediately preceding year.

(j) An amendment to any provision of the recorded time-share plan or declaration.

(k) A change in any aspect of the offering for the time-share plan which will cause information in the current public report for the project to be incorrect or misleading.

NOTE

Authority cited: Section 11281, Business and Professions Code. Reference: Section 11226, Business and Professions Code.

HISTORY

1. New section filed 1-9-85; effective thirtieth day thereafter (Register 85, No. 2). For prior history, see Register 83, No. 30.

2. Amendment of subsection (a)(1) filed 4-2-86; effective thirtieth day thereafter (Register 86, No. 14).

3. Amendment of subsection (a)(1) filed 11-16-87; operative 12- 16-87 (Register 87, No. 47).

4. Amendment of subsections (b)(3) and NOTE, and adoption of subsection (b)(4) filed 4-7-92; operative 5-7-92 (Register 92, No. 14).

5. New subsection (a)(3) and amendment of Note filed 4-1-93; operative 5-1-93 (Register 93, No. 14).

6. Amendment of section and Note filed 12-30-97; operative 1-29-98 (Register 98, No. 1).

7. Amendment moving section 2806 from article 21.1 to article 12.2. and repealer and new section filed 5-5-2005; operative 7-1-2005 (Register 2005, No. 18).

§2806.5. Inducement to Out-of-State Solicitation.

Note • History

The terms “sale,” “sell,” “sell or lease,” and “offer for sale or lease” in Sections 10249 10250 and 10261 of the Code include any written or oral communication which is disseminated or otherwise used within this state for the purpose of inducing a resident to travel to another state or country for a presentation or solicitation intended to cause the person to purchase or lease subdivision interests located outside of this state.

NOTE

Authority cited: Section 10250.2, Business and Professions Code. Reference: Sections 10250 and 10261, Business and Professions Code.

HISTORY

1. New section filed 1-9-85; effective thirtieth day thereafter (Register 85, No. 2).

2. Amendment of NOTE filed 2-26-85; effective thirtieth day thereafter (Register 85, No. 9).

3. Amendment of section and Note filed 12-30-97; operative 1-29-98 (Register 98, No. 1).

§2807. Purchase Money Impounds.

Note • History

(a) The amount of the money paid or advanced by a prospective buyer toward the purchase of a time-share interest (Purchase Money) that must be deposited and retained in an escrow depository or trust account pursuant to Section 11243 of the Code shall ordinarily be the entire amount of the Purchase Money less disbursements made to third parties for services enumerated in subdivision (b) of Regulation 2791.

(b) For purposes of compliance with Section 11243 of the Code:

(l) A proper release has not been obtained from a deed of trust encumbering time-share interests or accommodations in a time-share plan unless an instrument has been duly recorded unconditionally reconveying and releasing the interests being sold or leased from the lien or charge of such deed of trust.

(2) As an alternative to obtaining a proper release from the lien or charge of such deed of trust, it shall be deemed acceptable by the commissioner pursuant to Section 11243 of the Code if:

(A) the holder of the deed of trust has duly executed an agreement or demand (“release agreement”) wherein the holder has agreed, notwithstanding any provision to the contrary in the deed of trust, to promptly perform any act reasonably necessary to record an instrument unconditionally reconveying and releasing the time-share interests or accommodations in a time-share plan being sold from the lien or charge of the deed of trust upon payment to the holder of an amount or amounts specified in the release agreement as the release price for the affected time-share interests or accommodations in a time-share plan, and the holder has further agreed that specific performance of the terms and provisions of the release agreement shall be compelled in favor of the purchaser of the time-share interests or accommodations in a time-share plan;

(B) the release agreement has been deposited with the escrow holder for the transaction(s);

(C) the developer has notified each purchaser that the release agreement is available upon request from the escrow holder; and

(D) each purchaser has been provided a policy of title insurance insuring the purchaser or lessee against loss by reason of the deed of trust.

NOTE

Authority cited: Section 11281, Business and Professions Code. Reference: Section 11243, Business and Professions Code.

HISTORY

1. Amendment moving section 2807 from article 12.1 to article 12.2. and new section filed 5-5-2005; operative 7-1-2005 (Register 2005, No. 18). For prior history, see Register 96, No. 48.

§2807.1. Alternative to Purchase Money Impound.

Note • History

The penal sum of the financial assurances permitted pursuant to Section 11243(c) furnished by or on behalf of a developer shall be in an amount equal to or in excess of the lesser of (1) the funds that would otherwise be placed in escrow, or (2) the cost to complete the incomplete property in which the time-share interest is located. However, in no event shall the amount be less than the amount of funds that would otherwise be placed in escrow pursuant to Section 11243(a)(1).

NOTE

Authority cited: Section 11281, Business and Professions Code. Reference: Section 11243, Business and Professions Code.

HISTORY

1. New section filed 5-5-2005; operative 7-1-2005 (Register 2005, No. 18).

§2807.2. Acceptable Escrow Depositories.

Note • History

(a) The following entities which are qualified to do business in the State of California are escrow depositories acceptable to the Commissioner: escrow agents licensed by the Corporations Commissioner, banks, trust companies, savings and loan associations, title insurers and underwritten title companies.

(b) In exceptional circumstances the Commissioner may approve an escrow depository other than an entity enumerated in subdivision (a).

NOTE

Authority cited: Section 11281, Business and Professions Code. Reference: Section 11243, Business and Professions Code.

HISTORY

1. New section filed 5-5-2005; operative 7-1-2005 (Register 2005, No. 18).

§2807.3. Acceptable Trustees.

Note • History

A trust company as defined in Section 107 of the Financial Code which is qualified to do business in California is a trustee acceptable to the Commissioner to hold title to a time-share plan pursuant to Section 11243 of the Code. In exceptional circumstances the Commissioner may approve a trustee other than a trust company as defined in Section 107 of the Financial Code.

NOTE

Authority cited: Section 11281, Business and Professions Code. Reference: Section 11243, Business and Professions Code.

HISTORY

1. New section filed 5-5-2005; operative 7-1-2005 (Register 2005, No. 18).

§2807.4. Qualified Budget Certification.

Note • History

The Budget Review Section of the Department of Real Estate is considered qualified pursuant to Section 11240(f)(3) to determine whether budgets of time-share plans meet the requirements of the Vacation Ownership and Time-share Act of 2004. In the event budget review is to be conducted by the Budget Review Section pursuant to Section 11240(g), budget review may take place concurrently with processing the application for a final public report.

NOTE

Authority cited: Section 11281, Business and Professions Code. Reference: Section 11240, Business and Professions Code.

HISTORY

1. New section filed 5-5-2005; operative 7-1-2005 (Register 2005, No. 18).

§2808. Approved Form of Bond for Completion of Common Facilities.

Note • History

A bond posted pursuant to Section 11230 to secure the faithful performance of a commitment by the developer to complete common facilities and common-area improvements shall be in substantially the following form:

Embedded Graphic 10.0284

NOTE

Authority cited: Section 11281, Business and Professions Code. Reference: Section 11230, Business and Professions Code.

HISTORY

1. Amendment moving section 2808 from article 12.1 to article 12.2. and new section filed 5-5-2005; operative 7-1-2005 (Register 2005, No. 18). For prior history, see Register 83, No. 30.

§2809. Application.

Note • History

(a) An application for a public report to sell or to offer to sell interests in a time-share plan pursuant to Chapter 2 of Part 2 of the Real Estate Law shall be filed with Department at its principal office in Sacramento along with the applicable fee.

(b) The application shall be signed by or on behalf of the person to whom the permit is to be issued or by an agent with appropriate written authorization on behalf of the person to whom the permit is to be issued. If executed within California, the information in the application and in the document submitted therewith shall be certified to be true under penalty of perjury or verified before a notary public or other person qualified to administer oaths. If executed outside of California, the information in the application and accompanying documents shall be verified before a person qualified to administer oaths within the jurisdiction where executed or certified under penalty of perjury in accordance with the provisions of subdivision (b) of Section 2015.5 of the Code of Civil Procedure.

NOTE

Authority cited: Section 11281, Business and Professions Code. Reference: Section 11226, Business and Professions Code.

HISTORY

1. Amendment moving section 2809 from article 12.1 to article 12.2. and new section filed 5-5-2005; operative 7-1-2005 (Register 2005, No. 18). For prior history, see Register 83, No. 30.

§2809.1. Properly Completed Application -- Single-Site Time-Share Plan.

Note • History

An application for a final public report for a single-site time-share plan is “properly completed” within the meaning of Section 11231 of the Code if it contains the documents and information enumerated below:

(a) For every single-site time-share plan:

(1) The developer's legal name, any assumed names used by the developer, principal office street address, mailing address, primary contact person, and telephone number.

(2) The name of the developer's authorized or registered agent in the state upon whom claims can be served or service of process be had, the agent's street address in California, and telephone number.

(3) The name, street address, mailing address, primary contact person, and telephone number of any time-share plan being registered.

(4) The name, street address, mailing address, and telephone number of any managing entity of the time-share plan.

(5) Consent to service of process upon the Department of Real Estate if applicant is a nonresident of California.

(6) A description of the inventory control system that will ensure compliance with Section 11250 of the Code.

(7) Evidence that the accommodation is presently suitable for human occupancy or that financial arrangements have been made to complete construction or renovation of the accommodation to make it suitable for human occupancy on or before the first date for occupancy by a time-share interest owner.

(8) Evidence that the accommodations are owned or leased by the developer of the time-share plan or is the subject of an enforceable option or contract under which the developer will build, purchase, or lease the accommodations.

(9) If an accommodation in a time-share plan is located within a local governmental jurisdiction or subdivision of real property in which the dedication of accommodations to time-sharing is expressly prohibited by ordinance or recorded restriction, either absolutely or without a permit or other entitlement from the governing body, the applicant for a public report shall present evidence of a permit or other entitlement by the appropriate authority for the local government or the subdivision.

(10) A description of the existing or proposed accommodations, including the type and number of time-share interests in the accommodations.

(11) The number of accommodations and time-share interests expressed in periods of seven-day use availability or other time increments applicable to the time-share plan, and available for use by purchasers and a representation about the percentage of useable time authorized for sale.

(12) A description of any existing or proposed amenities that will be part of the time-share plan.

(13) A description of the financial arrangements that have been made, pursuant to Section 11230, for the completion of any incomplete, promised amenities.

(14) A description of the duration, phases and operation of the time-share plan.

(15) Copy of the budget meeting the requirements of Section 11240, along with the budget certification or request that the budget be certified by the Budget Review Section of the Department of Real Estate, and a description of the method for calculating and apportioning the assessments among purchasers.

(16) A description of any initial or special fee due from the purchaser at closing together with a description of the purpose and method of calculating the fee.

(17) A description of any financing available through the developer.

(18) A description of any liens, defects, or encumbrances on or affecting the title to the time-share interests.

(19) A description of any bankruptcies, pending civil or criminal suits, adjudications, or disciplinary actions of which the developer has knowledge, that would have a material effect on the developer's ability to perform its obligations.

(20) A description of any fees or charges to be paid by time-share purchasers for the use of any amenities related to the time-share plan.

(21) A description and amount of insurance coverage provided for the protection of the purchaser.

(22) If applicable, a description of any right of first refusal or other restraint on the transfer of all or any portion of a time-share interest.

(23) A copy of instructions to escrow depository for compliance with Section 11241 including the following:

(A) Name and address of escrow depository.

(B) A description of the nature of the transaction.

(D) Provision for the return to a prospective purchaser of funds deposited toward the purchase of a time-share interest if the escrow for the transaction has not closed on or before a given date.

(24) Evidence of financial arrangements to assure fulfillment of developers obligation to pay assessments for unsold timeshare interests pursuant to Section 11241.

(25) Copy of the contract utilized between the exchange company and a purchaser of a time-share interest and all promotional and informational material delivered to purchasers pertaining to any offered exchange program.

(26) Filing fee including fee for preliminary public report if applicable.

(27) Certificate of qualification from Secretary of State if applicant is a foreign corporation.

(28) Preliminary title report for all accommodations comprising the time-share plan, dated not more than 90 days prior to the date of submission of the application or, if the preliminary title report is dated more than 90 days earlier, with an accompanying letter from the title officer, dated not more than 90 days prior to submission of the application, indicating that state of title has not changed from that set forth in the submitted preliminary title report.

(29) If the offering is a security subject to the jurisdiction of the Department of Corporations, a Department of Corporations permit or interpretive opinion or copy of application for permit or request for interpretive opinion submitted to Department of Corporations.

(30) State or local assessment and improvement bond information if applicable to accommodations in the project.

(31) Copies of all contracts, deeds, fact sheets and other instruments to be used in marketing, financing and conveyancing of time-share interests.

(32) Copy of the covenants to be recorded for the time-share plan pursuant to Section 11251 of the Code.

(33) Copy of trust agreement for the time-share plan if applicable.

(34) Copy of proposed or existing agreements for management of the time-share plan.

(35) Format of fidelity insurance or bond to be obtained for the managing agent of the time-share plan and other employees who will have custody or control of funds of the Association.

(36) Copy of letter or other evidence giving notice of the proposed dedication of the timeshare project to local governments in which accommodations of the time-share plan will be located. For time-share projects located outside this state, evidence of approval or compliance of the time-share project in the state in which the time-share project is located is sufficient to satisfy this requirement.

(37) Completed documents for reservations and reservation deposits if a preliminary public report is requested.

(38) Evidence of financial arrangements for any repurchase guarantee included in the offering.

(39) Description of the furnishings and other personal property to be included in the time-share offering.

(40) In a time-share plan which comprises less than all of the accommodations in a hotel, motel or similar commercial lodging establishment and in which the accommodations not part of the time-share plan are concurrently used for transient accommodations, a copy of the proposed contract for the following:

(A) Arrangements for temporary use for transient occupancy of accommodations comprising the time-share plan and temporary use by the time-share plan of accommodations regularly used for transient occupancy.

(B) Apportionment of the costs of operation of the hotel/motel that are for the joint benefit of accommodations in the time-share plan and accommodations for transient occupancy.

(41) Agreement of developer to subsidize maintenance and operation of the single-site time-share plan where applicable.

(42) Description of each incidental benefit pursuant to Section 11237(b).

(43) If applicable, information as required by Section 11233.

(44) If applicable, a certification meeting requirements of Section 11246.

(45) Audited financial statements of the Association, if applicable.

(46) For every single-site time-share plan involving newly-built or as yet unbuilt accommodations, or accommodations which will be renovated or reconstructed prior to occupancy, evidence of availability of domestic utilities and services to the project.

(47) If the time-share plan is located outside this state, a public report or other disclosure document meeting the requirements of Section 11226(c)(5).

(48) A draft public report.

(b) For the sole purpose of determining the effect on the time-share plan, for every single-site time-share plan with accommodations in a condominium development or other common-interest subdivision:

(1) Proposed or existing governing instruments for the common-interest subdivision.

(2) Copies of all contracts or proposed contracts obligating the owners' association of the common-interest subdivision if the subdivision is one for which a public report has not been issued.

(3) If included in the subdivision offering, a copy of agreement of developer to subsidize maintenance and operations of the common interest subdivision if a public report has not been issued for the subdivision.

(4) Financial arrangements to assure performance of the subsidization agreement referred to in (3) above if applicable.

(5) Latest balance sheet and annual operating statement for the owners' association for the common interest subdivision.

(6) Pro-forma budget reflecting estimated ownership, maintenance and operational expenses and reserves for the subdivision.

(7) Financial arrangements to assure fulfillment of developer's obligation to pay assessments for unsold time-share interests if public report has not been issued for the subdivision.

(8) Copy of letters by which the developer has given notice of the proposed dedication of an accommodation to a time-share project to the owners' association of each common-interest subdivision in which an accommodation of the time-share project is located.

(9) Evidence of financial arrangements for completion of common areas and facilities in the subdivision.

NOTE

Authority cited: Section 11281, Business and Professions Code. Reference: Sections 11226, 11231 and 11234, Business and Professions Code.

HISTORY

1. New section filed 5-5-2005; operative 7-1-2005 (Register 2005, No. 18).

§2809.2. Properly Completed Application -- Specific Interest Multi-Site Time-Share Plan.

Note • History

An application for a final public report for a specific time-share interest multi-site time-share plan is “properly completed” within the meaning of Section 11231 of the Code if it contains the documents and information enumerated below:

(a) With regard to the component site(s) in which the purchaser will receive a specific time-share interest along with a reservation priority right at that specific timeshare property, all of the applicable information related to that component site as required under Section 2809.1.

(b) With regard to the component site(s) in which the purchaser does not receive a specific time-share interest, the information required by Section 11234(b) and evidence:

(1) that the accommodation is presently suitable for human occupancy or that financial arrangements have been made to complete construction or renovation of the accommodation to make it suitable for human occupancy on or before the first date for occupancy by a time-share owner, and

(2) that there is an enforceable use right assuring occupancy of the accommodation by a time-share owner.

NOTE

Authority cited: Section 11281, Business and Professions Code. Reference: Sections 11226, 11231 and 11234, Business and Professions Code.

HISTORY

1. New section filed 5-5-2005; operative 7-1-2005 (Register 2005, No. 18).

§2809.3. Properly Completed Application -- Nonspecific Time-Share Interest Multi-Site Time-Share Plan.

Note • History

An application for a final public report for nonspecific time-share interest multi-site time-share plan is “properly completed” within the meaning of Section 11231 of the Code if it contains the documents and information enumerated below:

(a) For every nonspecific time-share interest multi-site time-share plan:

(1) The developer's legal name, any assumed names used by the developer, principal office street address, mailing address, primary contact person, and telephone number.

(3) The name, street address, mailing address, and telephone number of any managing entity of the multi-site time-share plan.

(4) Consent to service of process upon the Department of Real Estate if applicant is a nonresident of California.

(5) A description of the inventory control system that will ensure compliance with Section 11250 of the Code.

(6) Evidence that the accommodation is presently suitable for human occupancy or that financial arrangements have been made to complete construction or renovation of the accommodation to make it suitable for human occupancy on or before the first date for occupancy by a time-share interest owner.

(7) Evidence that the accommodations are owned or leased by the developer of the time-share plan or is the subject of an enforceable option or contract under which the developer will build, purchase, or lease the accommodations.

(8) If an accommodation in a time-share plan is located within a local governmental jurisdiction or subdivision of real property in which the dedication of accommodations to time-sharing is expressly prohibited by ordinance or recorded restriction, either absolutely or without a permit or other entitlement from the governing body, the applicant for a public report shall present evidence of a permit or other entitlement by the appropriate authority for the local government or the subdivision.

(9) A description of the type of interest and usage rights the purchaser will receive.

(10) A description of the duration and operation of the time-share plan.

(11) A description of the type of insurance coverage provided for each component site.

(12) An explanation of who holds title to the accommodations of each component site.

(13) A description of each component site, including the name and address of each component site.

(14) The number of accommodations and time-share interests, expressed in periods of seven-day use availability or other time increments applicable to the multi-site time-share plan for each component site committed to the multi-site time-share plan and available for use by purchasers and a representation about the percentage of useable time authorized for sale, and if that percentage is 100%, then a statement describing how adequate periods of time for maintenance and repair will be provided.

(15) A description of each type of accommodation in terms of the number of bedrooms, bathrooms, and sleeping capacity, and a statement of whether or not the accommodation contains a full kitchen. For purposes of this description, a “full kitchen” means a kitchen having a minimum of a dishwasher, range, sink, oven, and refrigerator.

(16) A description of amenities available for use by the purchaser at each component site.

(17) A description of any incomplete amenities at any of the component sites along with a statement as to any assurance for completion pursuant to Section 11230 and the estimated date the amenities will be available.

(18) The historical occupancy of each component site for the prior 12-month period, if the component site was part of the multi-site time-share plan during such 12-month time period, as well as any periodic adjustment or amendment to the reservation system that may be needed in order to respond to actual purchaser use patterns and changes in purchaser use demand for the accommodations existing at that time within the multi-site time-share plan.

(19) A description of any right to make any additions, substitutions, or deletions of accommodations, amenities, or component sites, and a description of the basis upon which accommodations, amenities, or component sites may be added to, substituted in, or deleted from the multi-site time-share plan.

(20) A description of the reservation system that shall include all of the following:

(A) The entity responsible for operating the reservation system, its relationship to the developer, and the duration of any agreement for operation of the reservation system.

(B) A summary of the rules and regulations governing access to and use of the reservation system.

(C) The existence of and an explanation regarding any priority reservation features that affect a purchaser's ability to make reservations for the use of a given accommodation on a first-come, first-served basis.

(21) A description of any liens, defects, or encumbrances that materially affect the purchaser's use rights.

(22) A description of the relationship between a multi-site time-share plan managing entity and the managing entity of the component sites of a multi-site time-share plan, if different from the multi-site time-share plan managing entity.

(23) Copy of the budget meeting the requirements of Section 11240, along with the budget certification or request that the budget be certified by the Budget Review Section of the Department of Real Estate and a description of the method for calculating and apportioning the assessments among purchasers.

(24) Any current fees or charges to be paid by time-share purchasers for the use of any amenities related to the time-share plan and a statement that the fees or charges are subject to change.

(25) Any initial or special fee due from the purchaser at closing with a description of the purpose and the method of calculating the fee.

(26) A description of any financing offered by or available through the developer.

(27) A description of any bankruptcies, pending civil or criminal suits, adjudications, or disciplinary actions of which the developer has knowledge, which would have a material effect on the developer's ability to perform its obligations.

(28) A statement disclosing any right of first refusal or other restraint on the transfer of all or any portion of a time-share interest.

(29) A copy of instructions to escrow depository for compliance with Section 11241 including the following:

(A) Name and address of escrow depository.

(B) A description of the nature of the transaction.

(D) Provision for the return to a prospective purchaser of funds deposited toward the purchase of a time-share interest if the escrow for the transaction has not closed on or before a given date.

(30) Evidence of financial arrangements to assure fulfillment of developer obligation to pay assessments for unsold time-share interests pursuant to Section 11241.

(31) Copy of the contract utilized between the exchange company and a purchaser of a time-share interest and all promotional and informational material delivered to purchasers pertaining to any offered exchange program.

(32) Filing fee including fee for preliminary public report if applicable.

(33) Certificate of qualification from Secretary of State if applicant is a foreign corporation.

(34) Preliminary title report for all accommodations comprising the time-share plan, dated not more than 90 days prior to the date of submission of the application or, if the preliminary title report is dated more than 90 days earlier, with an accompanying letter from the title officer, dated not more than 90 days prior to submission of the application, indicating that state of title has not changed from that set forth in the submitted preliminary title report.

(35) If the offering is a security subject to the jurisdiction of the Department of Corporations, a Department of Corporations permit or interpretive opinion or copy of application for permit or request for interpretive opinion submitted to Department of Corporations.

(36) State or local assessment and improvement bond information if applicable to accommodations in the project.

(37) Copies of all contracts, deeds, fact sheets and other instruments to be used in marketing, financing and conveyancing of time-share interests.

(38) Copy of the covenants for component sites of the multi-site time-share plan in accordance with Section 11251 of the Code.

(39) Copy of trust agreement for the multi-site time-share plan if applicable.

(40) Copy of proposed or existing agreements for management of the multi-site time-share plan.

(41) Format of fidelity insurance or bond to be obtained for the managing agent of the multi-site time-share plan and other employees who will have custody or control of funds of the multi-site time-share plan association.

(42) Copy of letter or other evidence giving notice of the proposed dedication of the timeshare project to local governments in which accommodations of the multi-site time-share plan will be located. For time-share projects located outside this state, evidence of approval or compliance of the time-share project in the state in which the time-share project is located is sufficient to satisfy this requirement.

(43) Completed documents for reservations and reservation deposits if a preliminary public report is requested.

(44) Evidence of financial arrangements for any repurchase guarantee included in the offering.

(45) Description of the furnishings and other personal property to be included in the time-share offering.

(46) In a time-share plan which comprises less than all of the accommodations in a hotel, motel or similar commercial lodging establishment and in which the accommodations not part of the time-share plan are concurrently used for transient accommodations, a copy of the proposed contract for the following:

(B) Apportionment of the costs of operation of the hotel/motel that are for the joint benefit of accommodations in the time-share plan and accommodations for transient occupancy.

(47) Agreement of developer to subsidize maintenance and operation of the multi-site time-share plan where applicable.

(48) Description of each incidental benefit pursuant to Section 11237(b).

(49) If applicable, information as required by Section 11233.

(50) If applicable, a certification meeting requirements of Section 11246.

(51) Audited financial statements of the multi-site time-share plan association, if applicable.

(52) For every component involving newly-built or as yet unbuilt accommodations, or accommodations which will be renovated or reconstructed prior to occupancy, evidence of availability of domestic utilities and services to the component site.

(53) If the time-share plan is located outside this state, a public report or other disclosure document meeting the requirements of Section 11226(c)(5).

(54) A draft public report.

(b) For the sole purpose of determining the effect on the time-share plan, for every multi-site time-share plan with accommodations in a condominium development or other common-interest subdivision:

(1) Proposed or existing governing instruments for the common-interest subdivision.

(2) Copies of all contracts or proposed contracts obligating the owners' association of the common-interest subdivision if the subdivision is one for which a public report has not been issued.

(4) Financial arrangements to assure performance of the subsidization agreement referred to in (3) above if applicable.

(5) Latest balance sheet and annual operating statement for the owners' association for the common interest subdivision.

(6) Pro-forma budget reflecting estimated ownership, maintenance and operational expenses and reserves for the subdivision.

(7) Financial arrangements to assure fulfillment of developer's obligation to pay assessments for unsold time-share interests if public report has not been issued for the subdivision.

(9) Evidence of financial arrangements for completion of any promised and not yet completed amenities in the subdivision.

NOTE

Authority cited: Section 11281, Business and Professions Code. Reference: Sections 11226, 11231 and 11234, Business and Professions Code.

HISTORY

1. New section filed 5-5-2005; operative 7-1-2005 (Register 2005, No. 18).

2. Amendment of subsections (a), (a)(3), (a)(14), (a)(18), (a)(22), (a)(38)-(42), (a)(47) and (a)(51), new subsection (a)(54) and amendment of subsection (b) filed 8-29-2007; operative 9-28-2007 (Register 2007, No. 35).

§2809.5. Abandoning Application for Public Report.

Note • History

(a) The commissioner may abandon an application for a final, conditional, amended, or renewed public report, if:

(1) The data required by Sections 11226 and 11234 of the Code has not been furnished within three years from the date a notice of intention was filed for the subdivision public report; and

(2) Six months have elapsed, without communication from the developer, since the commissioner has given notice of deficiencies or substantive inadequacies contained in the documents which are required to make the filing substantially complete and the deficiencies and inadequacies have not been corrected by the applicant; and

(3) The term of any one-year extension of time in which to complete the application, as provided in subdivision (d), has elapsed.

(c) Sixty (60) days or more following the mailing of the notice required by subdivision (b), the commissioner may issue a final notice of intention to abandon the application. The application shall be deemed abandoned thirty (30) days after the final notice is mailed to the applicant and the applicant's designated representative, unless, prior to the expiration of the thirty (30) day period, a one-year extension has been granted pursuant to subdivision (d).

(1) The petition is received prior to the expiration of the thirty (30) day notice period referred to in subdivision (c).

(2) The petition sets forth reasons of hardship or justifiable extenuating circumstances explaining why the file has been inactive. Hardship and justifiable extenuating circumstances shall include mistake, inadvertence, surprise, excusable neglect, or circumstances beyond the control of the applicant or the applicant's designated representative. Written notice of the decision to grant or deny the petition will be mailed or delivered to the applicant and the applicant's designated representative, within thirty (30) calendar days after receipt of the petition.

(e) The commissioner may grant one or more one-year extensions, provided that the application has not been abandoned as provided in subdivision (c).

(f) The term “applicant” as used in this section shall have the same meaning as the term “developer” as used in Section 11212 of the Code.

NOTE

Authority cited: Section 11281, Business and Professions Code. Reference: Sections 11226 and 11234, Business and Professions Code.

HISTORY

1. New section filed 5-5-2005; operative 7-1-2005 (Register 2005, No. 18).

Article 12.2. Time-Share Project

§2810. Filing Fees. [Repealed]

Note • History

NOTE

Authority cited: Section 11281, Business and Professions Code. Reference: Section 11232, Business and Professions Code.

HISTORY

1. New Article 12.2 (Sections 2810-2813.8) filed 7-17-81; effective thirtieth day thereafter (Register 81, No. 29). For prior history, see Registers 81, No. 21; 80, No. 49; 8, No. 28; 80, No. 3; 75, No. 2; 71, No. 50; 68, No. 9; 59, No. 20; and 55, No. 14.

2. Amendment of subsection (a)(18) filed 1-11-84; effective thirtieth day thereafter (Register 84, No. 2).

3. Repealer of subsections (a)(2) and (a)(3) and subsection renumbering filed 11-27-96; operative 12-27-96 (Register 96, No. 48).

4. New subsection (a)(28) filed 12-30-97; operative 1-29-98 (Register 98, No. 1).

5. New subsections (d)-(d)(3) filed 6-20-2002; operative 7-20-2002 (Register 2002, No. 25).

6. Repealer and new section filed 5-5-2005; operative 7-1-2005 (Register 2005, No. 18).

7. Repealer filed 5-1-2007; operative 5-31-2007 (Register 2007, No. 18).

§2810.1. Regulations Applicable to Time-Share Projects. [Repealed]

Note • History

NOTE

Authority cited: Section 11001, Business and Professions Code. Reference: Sections 11000, 11000.1, 11001, 11003.5, 11004.5(e), 11018.5, and 11018.12, Business and Professions Code.

HISTORY

1. Amendment filed 1-11-84; effective thirtieth day thereafter (Register 84, No. 2).

2. Amendment filed 4-2-86; effective thirtieth day thereafter (Register 86, No. 14).

3. Amendment filed 11-16-87; operative 12-16-87 (Register 87, No. 47).

4. Amendment of NOTE filed 5-4-89; operative 6-3-89 (Register 89, No. 23).

5. Amendment of section and Note filed 9-29-92; operative 10-30-92 (Register 92, No. 40).

6. Amendment of section and Note filed 11-8-93; operative 12-8-93 (Register 93, No. 46).

7. Amendment filed 12-30-97; operative 1-29-98 (Register 98, No. 1).

8. Amendment filed 10-26-99; operative 11-25-99 (Register 99, No. 44).

9. Amendment filed 11-9-2000; operative 12-9-2000 (Register 2000, No. 45).

10. Repealer filed 5-5-2005; operative 7-1-2005 (Register 2005, No. 18).

§2810.2. Availability and Suitability for Time-Share Project. [Repealed]

Note • History

NOTE

Authority cited: Section 11001, Business and Professions Code. Reference: Sections 11018, 11018.5, Business and Professions Code.

HISTORY

1. Repealer filed 5-5-2005; operative 7-1-2005 (Register 2005, No. 18).

§2810.3. Time-Share Point Systems. [Repealed]

Note • History

NOTE

Authority cited: Section 11001, Business and Professions Code. Reference: Section 11018.5, Business and Professions Code.

HISTORY

1. New section filed 9-5-2003; operative 10-5-2003 (Register 2003, No. 36). For prior history, see Register 2000, No. 45.

2. Repealer filed 5-5-2005; operative 7-1-2005 (Register 2005, No. 18).

§2810.4. Addition of Dwelling Units to the Project. [Repealed]

Note • History

NOTE

Authority cited: Section 11001, Business and Professions Code. Reference: Section 11018.5, Business and Professions Code.

HISTORY

1. Repealer filed 5-5-2005; operative 7-1-2005 (Register 2005, No. 18).

§2810.5. Filing Fees.

Note • History

(a) The filing fees in connection with applications to the Department pursuant to Article 2 of Chapter 2 of Part 2 of the Real Estate Law shall be the following:

(1) One thousand seven hundred dollars ($1,700) plus ten dollars ($10) for each time-share interest to be offered for an original public report application.

(2) Six hundred dollars ($600) plus ten dollars ($10) for each time-share interest to be offered that was not permitted to be offered under the public report to be renewed for a renewal public report application.

(3) Five hundred dollars ($500) plus ten dollars ($10) for each time-share interest to be offered under the amended public report for which a fee has not previously been paid for an amended public report application.

(4) Five hundred dollars ($500) for a conditional public report application.

(5) Five hundred dollars ($500) for a preliminary public report application.

(b) The maximum fee for an original, renewal or amended public report shall not exceed $7,500 regardless of the number of interests authorized to be offered for sale or lease.

(c) The filing fee for an amended public report where the amendment consists only of a recurring and non-substantive change including, but not limited to, a change in the name of the developer, shall be $125 and the filing fee for each additional amended public report consisting only of the same recurring and non-substantive change including, but not limited to, a change in the name of the developer, submitted by that developer at the same time, shall be $60. This subsection does not apply where there is a change in the ownership of the time-share property along with a change in the name of the developer.

NOTE

Authority cited: Section 11281, Business and Professions Code. Reference: Section 11232, Business and Professions Code.

HISTORY

1. New section filed 5-5-2005; operative 7-1-2005 (Register 2005, No. 18). For prior history, see Register 2000, No. 45.

2. Amendment of subsections (a)-(a)(4), new subsection (a)(5), amendment of subsection (b) and repealer and new subsection (c) filed 5-1-2007; operative 5-31-2007 (Register 2007, No. 18).

3. Amendment of subsections (a)(1)-(3) filed 5-12-2009; operative 5-12-2009 pursuant to Government Code section 11343.4 (Register 2009, No. 20).

§2810.6. Notification of Material Change. [Repealed]

Note • History

NOTE

Authority cited: Section 11001, Business and Professions Code. Reference: Section 11012, Business and Professions Code.

HISTORY

1. Repealer filed 5-5-2005; operative 7-1-2005 (Register 2005, No. 18).

§2810.7. Alternative Arrangements for Purchaser Protection. [Repealed]

Note • History

NOTE

Authority cited: Section 11001, Business and Professions Code. Reference: Section 11018.5, Business and Professions Code.

HISTORY

1. Repealer filed 5-5-2005; operative 7-1-2005 (Register 2005, No. 18).

§2811. Time-Share Advertising Criteria.

Note • History

Standards which will be applied by the Real Estate Commissioner in determining whether advertising for sale or lease of time-share interests is false, untrue or misleading within the meaning of those terms in Section 11245 of the Code shall include, but shall not be limited to the following:

(1) Advertising shall not represent the availability for use of a time-share interest that is not set forth in the public report.

(2) A time-share plan shall not be advertised under a name that is not set forth in the application.

(3) A time-share plan shall not be advertised by a name or trade style which implies, contrary to fact, that the developer or his agent is a bona fide research organization, public agency, nonprofit organization or similar entity.

(4) No accommodation, improvement or facility, over which the developer does not have control with respect to completion, may be advertised unless (1) it has been completed (2) completion is assured through bonding or other arrangements approved by the commissioner, or (3) a clear and conspicuous disclosure is included in close proximity to the mention or depiction of the advertised accommodation, improvement or facility stating that the accommodation, improvement or facility is proposed and may not be built.

(5) Reference shall not be made to a proposed public facility or project which purports to affect the value and utility of time-share interests without a disclosure of the existing status of the proposed facility based upon information supplied or verified by the authority responsible for the public facility or project.

(6) Pictorial or illustrative depictions of the time-share property and surrounding lands must accurately portray the land as it exists and proposed improvements as they will be constructed.

(7) Pictorial or illustrative depictions other than unmodified photographs shall bear a prominent disclosure identifying the nature of the depiction, e.g., ARTISTS CONCEPTION and a legend identifying those improvements which are not then in existence.

(8) If a map or diagram is used to show the location of the time-share property in relation to other places, actual miles from each other place to the time-share property shall be shown or the map or diagram shall be prepared to scale and shall include a scale of miles or the map or diagram shall be prominently marked “Not to Scale.”

(9) If the existence of a lake, river, canal or other body of water, which is subject to a fluctuating water level other than through natural causes, is advertised as a feature of the time-share property, any significant effect of the fluctuation upon the use of the water facility and upon the time-share interests shall be described.

(10) No advertisement shall imply that a facility is available for the exclusive use of purchasers of time-share interests if a public right of access or of use of the facility exists.

(11) Full disclosure shall be made of the conditions or restrictions upon the availability for use by owners of time-share interests of private clubs or facilities in which an owner will not acquire a proprietary or contractual interest through purchase of a time-share interest, including, if applicable, that the use is at the pleasure of the owner of the facility.

(12) No representation may be made that time-share interests being offered for sale can be further divided unless a full disclosure is included as to the legal requirements for further division of the interests.

(13) Time-share interests may not be advertised as available at a particular minimum price if the number of time-share interests available at that price comprise less than 10% of the unsold inventory of the developer, unless the number of interests then for sale at the minimum price is set forth in the advertisement.

(14) Advertising of a discounted purchase price shall not be made unless the developer has established base prices for application of the discount through a substantial number of sales at base prices.

(15) A prospective increase in the price of a time-share interest may not be implied nor shall a price increase of such a time-share interest be announced without announcing the approximate date on which the increase will be placed into effect, and without a good faith belief that the price increase will be placed into effect on that date.

(16) If the phrase “closing costs only” or similar terminology is used to describe the price of a time-share interest, the estimated dollar amount of the costs must be set forth in the advertisement.

(17) No representation shall be made as to the availability of a resale program offered by or on behalf of the developer, unless the resale program is then in existence and the extent and intended duration of the resale program and any restrictions on the program are fully disclosed to the prospective purchaser.

(18) An asterisk or other reference symbol may be used to explain, but not to contradict or to change the ordinary meaning of the material in the body of the advertisement.

(19) Unless an offer made in connection with a sales promotion is unequivocally without conditions, the terms “free”, “no obligation” or similar terms may not be used to describe that which is offered.

(20) Offers of travel, accommodations, meals or entertainment at no cost or reduced cost, the purpose of which is to promote sales, shall not be described as “awards”, “prizes” or similar terms.

(21) Offers or solicitations of trip reservations to visit time-share property or any other place where a sales presentation for subdivided property is to be made shall set forth all conditions, limitations or qualifications that will be applied before the recipient will be allowed to make the trip.

(22) The approximate retail value of any gift, prize or premium offered through an advertisement to prospective purchasers shall be set forth in the advertisement. This requirement is limited to gifts, prizes or premiums with a retail value in excess of $25.

(23) Complete rules and procedures for any contest or drawing advertised in connection with the marketing of time-share interests shall be included in the advertisement, or the advertisement shall state the means by which a person can secure full information concerning said rules and procedures prior to his participation in the contest or drawing.

(24) Advertising shall not include testimonials or endorsements which contain matters which the developer would be precluded by law or regulation from making in his own behalf.

(25) An offer or inducement to purchase which purports to be limited as to quantity or restricted as to time shall set forth the numerical quantity and/or time applicable to the offer or inducement.

(26) No direct mail advertisement purporting to have resulted through a referral shall be used unless the developer can, upon request of the commissioner, provide evidence of the referral. Names purchased from marketing lists and similar commercial sources are not considered “referrals” for purposes of this section.

(27) Statements appearing in the public report for a time-share plan shall not be quoted, paraphrased or cited out of context nor shall any part of the public report be underscored, italicized, bold faced or otherwise highlighted except in strict conformance with highlighting in the public report itself.

NOTE

Authority cited: Section 11281, Business and Professions Code. Reference: Section 11245, Business and Professions Code.

HISTORY

1. New subsection (a)(24) filed 6-20-2002; operative 7-20-2002 (Register 2002, No. 25).

2. Repealer and new section filed 5-5-2005; operative 7-1-2005 (Register 2005, No. 18).

§2812. Reasonable Arrangements in Time-Share Projects. [Repealed]

Note • History

NOTE

Authority cited: Section 11001, Business and Professions Code. Reference: Sections 11018.5, Business and Professions Code.

HISTORY

1. Repealer filed 5-5-2005; operative 7-1-2005 (Register 2005, No. 18).

§2812.1. Transfer of Dwelling Units to Association or in Trust. [Repealed]

Note • History

NOTE

Authority cited: Section 11001, Business and Professions Code. Reference: Sections 11018.5, Business and Professions Code.

HISTORY

1. Repealer filed 5-5-2005; operative 7-1-2005 (Register 2005, No. 18).

§2812.2. Conveyance of Dwelling Units in Trust. [Repealed]

Note • History

NOTE

Authority cited: Section 11001, Business and Professions Code. Reference: Sections 11013.2, 11013.4, 11018.5, Business and Professions Code.

HISTORY

1. Repealer filed 5-5-2005; operative 7-1-2005 (Register 2005, No. 18).

§2812.3. Security for Sponsor's Obligations As Owners of Interests. [Repealed]

Note • History

NOTE

Authority cited: Section 11001, Business and Professions Code. Reference: Sections 11018(h) and 11018.5, Business and Professions Code.

HISTORY

1. Amendment filed 4-2-86; effective thirtieth day thereafter (Register 86, No. 14).

2. Repealer filed 5-5-2005; operative 7-1-2005 (Register 2005, No. 18).

§2812.4. Subsidization by Sponsor. [Repealed]

Note • History

NOTE

Authority cited: Section 11001 Business and Professions Code. Reference: Sections 11018.5, Business and Professions Code.

HISTORY

1. Amendment filed 1-11-84; effective thirtieth day thereafter (Register 84, No. 2).

2. Repealer filed 5-5-2005; operative 7-1-2005 (Register 2005, No. 18).

§2812.5. Covenant Not to Encumber. [Repealed]

Note • History

NOTE

Authority cited: Section 11001 Business and Professions Code. Reference: Sections 11018.5, Business and Professions Code.

HISTORY

1. Repealer filed 5-5-2005; operative 7-1-2005 (Register 2005, No. 18).

§2812.6. Prohibition Against Partition. [Repealed]

Note • History

NOTE

Authority cited: Section 11001, Business and Professions Code. Reference: Section 11018.5, Business and Professions Code.

HISTORY

1. Repealer filed 5-5-2005; operative 7-1-2005 (Register 2005, No. 18).

§2812.7. Concurrent Time-Share and Commercial Operation. [Repealed]

Note • History

NOTE

Authority cited: Section 11001, Business and Professions Code. Reference: Section 11018.5, Business and Professions Code.

HISTORY

1. Repealer filed 5-5-2005; operative 7-1-2005 (Register 2005, No. 18).

§2812.8. Managing Agent Employment. [Repealed]

Note • History

NOTE

Authority cited: Section 11001, Business and Professions Code. Reference: Section 11018.5, Business and Professions Code.

HISTORY

1. Amendment of subsection (a)(10) filed 1-9-85; effective thirtieth day thereafter (Register 85, No. 2).

2. Amendment of subsection (a)(10) filed 4-2-86; effective thirtieth day thereafter (Register 86, No. 14).

3. Amendment of subsection (a)(10) filed 11-16-87; operative 12-16-87 (Register 87, No. 47).

4. Amendment of subsection (a)(3) filed 11-9-2000; operative 12-9-2000 (Register 2000, No. 45).

5. Repealer filed 5-5-2005; operative 7-1-2005 (Register 2005, No. 18).

§2812.9. Rental of Occupancy Periods to Public. [Repealed]

Note • History

NOTE

Authority cited: Section 11001, Business and Professions Code. Reference: Section 11018.5, Business and Professions Code.

HISTORY

1. Repealer filed 5-5-2005; operative 7-1-2005 (Register 2005, No. 18).

§2812.10. Property and Liability Insurance. [Repealed]

Note • History

NOTE

Authority cited: Section 11001, Business and Professions Code. Reference: Sections 11018.5, Business and Professions Code.

HISTORY

1. Amendment filed 1-11-84; effective thirtieth day thereafter (Register 84, No. 2).

2. Repealer filed 5-5-2005; operative 7-1-2005 (Register 2005, No. 18).

§2812.11. Special Procedures for Enforcement of Sponsor's Obligations. [Repealed]

Note • History

NOTE

Authority cited: Section 11001, Business and Professions Code Section. Reference: Sections 11018.5, Business and Professions Code.

HISTORY

1. New section filed 1-14-84; effective thirtieth day thereafter (Register 84, No. 2).

2. New subsections (d) and (e) filed 2-1-84; designed effective 2-10-84 pursuant to Government Code Section 11346.2(d) (Register 84, No. 5).

3. Repealer filed 5-5-2005; operative 7-1-2005 (Register 2005, No. 18).

§2813. Member's Meetings. [Repealed]

Note • History

NOTE

Authority cited: Section 11001, Business and Professions Code. Reference: Sections 11018.5, Business and Professions Code.

HISTORY

1. Amendment of subsections (e)(1) and (f)(3) filed 11-9-2000; operative 12-9-2000 (Register 2000, No. 45).

2. Repealer filed 5-5-2005; operative 7-1-2005 (Register 2005, No. 18).

§2813.1. Members' Voting Rights. [Repealed]

Note • History

NOTE

Authority cited: Section 11001, Business and Professions Code. Reference: Section 11018.5, Business and Professions Code.

HISTORY

1. Repealer filed 5-5-2005; operative 7-1-2005 (Register 2005, No. 18).

§2813.2. Governing Body Election and Make-Up. [Repealed]

Note • History

NOTE

Authority cited: Section 11001, Business and Professions Code. Reference: Section 11018.5, Business and Professions Code.

HISTORY

1. Repealer filed 5-5-2005; operative 7-1-2005 (Register 2005, No. 18).

§2813.3. Governing Body Meetings. [Repealed]

Note • History

NOTE

Authority cited: Section 11001, Business and Professions Code. Reference: Section 11018.5, Business and Professions Code.

HISTORY

1. Repealer filed 5-5-2005; operative 7-1-2005 (Register 2005, No. 18).

§2813.4. Regular and Special Assessments. [Repealed]

Note • History

NOTE

Authority cited: Section 11001, Business and Professions Code. Reference: Sections 11018.5, Business and Professions Code.

HISTORY

1. Repealer filed 5-5-2005; operative 7-1-2005 (Register 2005, No. 18).

§2813.5. Dissemination of Financial and Other Information to Members. [Repealed]

Note • History

NOTE

Authority cited: Section 11001, Business and Professions Code. Reference: Sections 11018.5, Business and Professions Code.

HISTORY

1. Amendment filed 2-1-84; designated effective 2-10-84 pursuant to Government Code Section 11346.2(d) (Register 84, No. 5).

2. Amendment of subsection (a)(1) filed 4-2-86; effective thirtieth day thereafter (Register 86, No. 14).

3. New subsection (c) and subsection relettering filed 11-9-2000; operative 12-9-2000 (Register 2000, No. 45).

4. Repealer filed 5-5-2005; operative 7-1-2005 (Register 2005, No. 18).

§2813.6. Inspection and Copying of Association's Books and Records and Properties. [Repealed]

Note • History

NOTE

Authority cited: Section 11001, Business and Professions Code. Reference: Sections 11018.5, Business and Professions Code.

HISTORY

1. Repealer filed 5-5-2005; operative 7-1-2005 (Register 2005, No. 18).

§2813.7. Disciplining Owners for Violations. [Repealed]

Note • History

NOTE

Authority cited: Section 11001, Business and Professions Code. Reference: Sections 11018.5, Business and Professions Code.

HISTORY

1. Repealer filed 5-5-2005; operative 7-1-2005 (Register 2005, No. 18).

§2813.8. Governing Instruments Amendments. [Repealed]

Note • History

NOTE

Authority cited: Section 11001, Business and Professions Code. Reference: Sections 11018.5, Business and Professions Code.

HISTORY

1. Amendment of subsections (a)-(c) filed 11-9-2000; operative 12-9-2000 (Register 2000, No. 45).

2. Repealer filed 5-5-2005; operative 7-1-2005 (Register 2005, No. 18).

§2813.12. Rescission Rights. [Repealed]

Note • History

NOTE

Authority cited: Section 11001, Business and Professions Code. Reference: Section 11024, Business and Professions Code.

HISTORY

1. New section filed 9-11-81 as an emergency; effective upon filing (Register 81, No. 39). A Certificate of Compliance must be transmitted to OAL within 120 days or emergency language will be repealed on 1-9-82.

2. New section refiled 12-1-81; designated effective1-1-82 (Register 81, No. 49).

3. Certificate of Compliance as to 9-11-81 order filed 12-01-81 (Register 81, No. 50).

4. Repealer filed 5-5-2005; operative 7-1-2005 (Register 2005, No. 18).

§2813.13. Notice of Rescission Rights. [Repealed]

Note • History

NOTE

Authority cited: Section 11001, Business and Professions Code. Reference: Sections 11024, Business and Professions Code.

HISTORY

2. New section refiled 12-1-81; designated effective1-1-82 (Register 81, No. 49).

3. Certificate of Compliance as to 9-11-81 order filed 12-10-81 (Register 81, No. 50).

4. Amendment filed 1-9-85; effective thirtieth day thereafter (Register 85, No. 2).

5. Repealer filed 5-5-2005; operative 7-1-2005 (Register 2005, No. 18).

§2813.14. Authority of Commissioner to Vary Requirements. [Repealed]

Note • History

NOTE

Authority cited: Sections 10250.2 and 11001, Business and Professions Code. Reference: Section 10250.2, Business and Professions Code.

HISTORY

1. New section filed 1-10-2001; operative 2-9-2001 (Register 2001, No. 2).

2. Repealer filed 5-5-2005; operative 7-1-2005 (Register 2005, No. 18).

Article 12.3. Qualified Resort Vacation Club Projects

§2814. Applicable Regulations.

Note • History

A qualified resort vacation club is subject to Sections 2810 and 2810.5.

NOTE

Authority cited: Section 11281, Business and Professions Code. Reference: Section 11232, Business and Professions Code.

HISTORY

1. New article heading and section filed 4-1-93; operative 5-3-93 (Register 93, No. 14). For prior history, see Register 83, No. 30.

2. Amendment filed 12-30-97; operative 1-29-98 (Register 98, No. 1).

3. Amendment filed 10-26-99; operative 11-25-99 (Register 99, No. 44).

4. Amendment of section heading, section and Note filed 5-5-2005; operative 7-1-2005 (Register 2005, No. 18).

§2815. Authority of Commissioner to Vary Requirements of Specified Regulations. [Repealed]

Note • History

NOTE

Authority cited: Sections 10263 and 11001, Business and Professions Code. Reference: Sections 10260 and 10263, Business and Professions Code.

HISTORY

1. New section filed 4-1-93; operative 5-3-93 (Register 93, No. 14). For prior history, see Register 80, No. 49.

2. Amendment filed 12-30-97; operative 1-29-98 (Register 98, No. 1).

3. Repealer filed 5-5-2005; operative 7-1-2005 (Register 2005, No. 18).

§2817. Prospective Purchaser Disclosure Form.

Note • History

(a) To inform a prospective purchaser of an interest in a qualified resort vacation club of the requirements under Section 10260(e), the notice set forth in subdivision (b) hereof printed in not less than 12-point bold-face capital letters and numerals shall be contained in and immediately follow the face page of every subdivision permit issued for a qualified resort vacation club.

(b) The form and the content of the notice shall be as follows:

NOTICE

IF YOU DECIDE TO PURCHASE AN INTEREST IN THIS QUALIFIED RESORT VACATION CLUB YOU SHOULD BASE YOUR PURCHASE ON THE VALUE OF THE INTEREST AS A VACATION OR LEISURE TIME EXPERIENCE AND NOT AS AN APPRECIATING INVESTMENT OR ON AN EXPECTATION OF RESALE. BEFORE CONTRACTING TO PURCHASE YOU SHOULD CONSIDER THE FOLLOWING:

1. A QUALIFIED RESORT VACATION CLUB PROJECT IS AN OFFERING OF TIME SHARES.

2. AS A GENERAL RULE, A SIGNIFICANT PORTION OF THE PURCHASE PRICE OF AN INTEREST IN A TIME-SHARE PROJECT REPRESENTS THE DEVELOPER'S PROMOTIONAL AND MARKETING COSTS.

3. INDIVIDUAL RESALE OF TIME-SHARE INTERESTS HAVE PROVEN TO BE DIFFICULT FOR OWNERS PRIMARILY BECAUSE TIME-SHARE OWNERS HAVE TO COMPETE WITH HIGHLY SOPHISTICATED SALES PROMOTIONS OF THE DEVELOPER.

4. BECAUSE THE ORIGINAL PURCHASE PRICE REPRESENTS A SIGNIFICANT PART OF THE DEVELOPER'S MARKETING COSTS, A TIME-SHARE OWNER MAY RECOUP ONLY A PORTION OF THE PURCHASE PRICE IF A RESALE BUYER CAN BE FOUND.

5. SINCE MOST TIME-SHARE OWNERS RESIDE SOME DISTANCE FROM THE RESORT OR RESORTS INCLUDED IN THE OFFERING, IT IS USUALLY INCONVENIENT FOR SUCH OWNERS TO SHOW THE DWELLING UNITS TO PROSPECTIVE RESALE BUYERS AND USUALLY THIS CAN ONLY BE DONE DURING THE PERIODS OF USE.

6. LICENSED REAL ESTATE AGENTS HAVE NOT ENTERED INTO THE TIME-SHARE RESALE MARKET IN GREAT NUMBERS, AND THOSE WHO HAVE OFTEN CHARGE A COMMISSION THAT SIGNIFICANTLY EXCEEDS THE NORMAL COMMISSION FOR SALE OF A SINGLE-FAMILY DWELLING.

NOTE

Authority cited: Sections 10263 and 11001, Business and Professions Code. Reference: Section 10260, Business and Professions Code.

HISTORY

1. New section filed 4-1-93; operative 5-3-93 (Register 93, No. 14). For prior history, see Register 83, No. 49.

Article 12.5. Land Projects [Repealed]

§2819.5. Definitions. [Repealed]

Note • History

NOTE

Authority cited for Article 12.5: Section 10080, 10249.2, 10312 and 11001, Business and Professions Code.

HISTORY

1. New Article 12.5 (Sections 2819.5 through 2819.9, 2819.95 and 2819.96) filed 12-12-69, effective thirtieth day thereafter (Register 69, No. 50).

2. Amendment filed 12-10-71; effective thirtieth day thereafter (Register 71, No. 50).

3. Repealer filed 7-1-83; effective thirtieth day thereafter (Register 83, No. 30).

§2819.6. Rescission Rights. [Repealed]

Note • History

NOTE

Authority cited: Section 11001, Business and Professions Code. Reference: Sections 11028, Business and Professions Code.

HISTORY

1. Amendment filed 12-10-71; designated effective 3-6-72 (Register 71, No. 50).

2. Repealer and new section filed 7-1-83; effective thirtieth day thereafter (Register 83, No. 30).

3. Repealer filed 12-30-97; operative 1-29-98 (Register 98, No. 1).

§2819.7. Disclosure of Rescission Rights. [Repealed]

History

HISTORY

1. Amendment filed 12-30-70; effective thirtieth thereafter (Register 71, No. 1).

2. Amendment filed 12-10-71; designated effective 3-6-72 (Register 71, No. 50).

3. Repealer filed 7-1-83; effective thirtieth day thereafter (Register 83, No. 30).

§2819.8. Cash Deposit Defined. [Repealed]

History

HISTORY

1. Repealer filed 4-3-73 as an emergency; designed effective 4-5-73. Certificate of Compliance included (Register 73, No. 14).

§2819.9. Evidence for Specific Findings. [Repealed]

Note • History

NOTE

Authority cited: Section 11001, Business and Professions Code. Reference: Sections 11011 and 11025, Business and Professions Code.

HISTORY

1. Repealer and new section filed 12-10-71; designated effective 3-6-72 (Register 71, No. 50).

2. Repealer and new section filed 7-1-83; effective thirtieth day thereafter (Register 83, No. 30).

3. Repealer filed 12-30-97; operative 1-29-98 (Register 98, No. 1).

§2819.10. Land Project Treatment Exemption. [Repealed]

Note • History

NOTE

Authority cited: Section 11001, Business and Professions Code. Reference: Sections 1100.6 and 11028, Business and Professions Code.

HISTORY

1. New section filed 12-27-72; effective thirtieth day thereafter (Register 72, No. 53).

2. Repealer and new Note filed 12-30-97; operative 1-29-98 (Register 98, No. 1).

§2819.55. Land Project Subdivision Advertising Criteria. [Repealed]

History

HISTORY

1. Repealer filed 12-7-73; designated effective thirtieth day thereafter (Register 73, No. 49).

§2819.85. Submission of Advertising. [Repealed]

History

HISTORY

1. New section filed 12-30-70 effective thirtieth day thereafter (Register 71, No. 1).

2. Repealer filed 11-8-93; operative 12-8-93 (Register 93, No. 46).

§2819.95. Acceptance for Maintenance Defined. [Repealed]

History

HISTORY

1. Repealer filed 12-10-71; designated effective 3-6-72 (Register 71, No. 50).

§2819.96. Report of Withdrawals. [Repealed]

Note • History

NOTE

Authority cited: Sections 11001 and 11029, Business and Professions Code. Reference: Section 11029, Business and Professions Code.

HISTORY

1. Amendment filed 12-10-71; designated effective 3-6-72 (Register 71, No. 50).

2. Repealer and new section filed 7-1-83; effective thirtieth day thereafter (Register 83, No. 30).

3. Repealer of section and amendment of Note filed 11-13-96; operative 11-13-96 pursuant to Government Code section 11343.4(d) (Register 96, No. 46).

Article 13. Environmental Impact Evaluation [Repealed]

§2820. Purpose and Objective. [Repealed]

Note • History

NOTE

Authority cited: Sections 10080 and 11001, Business and Professions Code and Section 21082, Public Resources Code.

HISTORY

1. Repealer of Article 13 (Sections 2820-2822) and new Article 13 (Sections 2820-2823.1) filed 4-3-73 as an emergency; designated effective 4-5-73. Certificate of Compliance included (Register 73, No. 14). For prior history, see Register 60, No. 1 and Register 68, No. 9.

2. Repealer filed 11-27-96; operative 12-27-96 (Register 96, No. 48).

§2820.1. References and Definitions. [Repealed]

Note • History

NOTE

Authority cited: Section 11001, Business and Professions Code and Section 21082 Public Resources Code. Reference: Section 21082, Public Resources Code.

HISTORY

1. Amendment filed 1-16-74; effective thirtieth day thereafter (Register 74, No. 3).

2. Amendment filed 7-1-83; effective thirtieth day thereafter (Register 83, No. 30).

3. Repealer filed 11-27-96; operative 12-27-96 (Register 96, No. 48).

§2820.2. Discretionary Project Approval. [Repealed]

Note • History

NOTE

Authority cited: Section 11001, Business and Professions Code. Reference: Section 21082, Public Resources Code. (Ch. 1335, Statutes of 1980, SB 1777) Business and Professions Code.

HISTORY

1. Amendment filed 12-2-74; effective thirtieth day thereafter (Register 74, No. 49).

2. Amendment filed 12-3-80; effective thirtieth day thereafter (Register 80, No. 49).

3. Amendment filed 11-8-93; operative 12-8-93 (Register 93, No. 46).

4. Repealer filed 11-27-96; operative 12-27-96 (Register 96, No. 48).

§2820.3. Application of Environmental Guidelines. [Repealed]

History

HISTORY

1. Amendment filed 1-16-74; effective thirtieth day thereafter (Register 74, No. 3).

2. Repealer filed 11-8-93; operative 12-8-93 (Register 93, No. 46).

§2820.4. When “Approval” Occurs. [Repealed]

Note • History

NOTE

Authority cited: Section 11001, Business and Professions Code. Reference: Section 21082, Public Resources Code (Ch. 335, Statutes of 1980, SB 1777), Business and Professions Code.

HISTORY

1. Amendment filed 12-3-80; effective thirtieth day thereafter (Register 80, No. 49).

2. Repealer filed 11-8-93; operative 12-8-93 (Register 93, No. 46).

§2821. Local Agency As Lead Agency. [Repealed]

Note • History

NOTE

Authority cited: Section 11001, Business and Professions Code. Reference: Section 21082 Public Resources Code. (Ch. 1335, Statutes of 1980, SB 1777) Business and Professions Code.

HISTORY

1. Amendment filed 12-3-80; effective thirtieth day thereafter (Register 80, No. 49).

2. Repealer filed 2-28-2006; operative 3-30-2006 (Register 2006, No. 9).

§2821.1. Department As Lead Agency. [Repealed]

History

HISTORY

1. Amendment filed 1-16-74; effective thirtieth day thereafter (Register 74, No. 3).

2. Repealer filed 11-8-93; operative 12-8-93 (Register 93, No. 46).

§2821.2. Categorical Exemptions for Amended and Renewal Public Reports. [Repealed]

Note • History

NOTE

Authority cited: Section 11001, Business and Professions Code, Reference: Section 21082 Public Resources Code. (Ch. 1335, Statutes of 1980, SB 1777) Business and Professions Code.

HISTORY

1. Amendment filed 1-16-74; effective thirtieth day thereafter (Register 74, No. 3).

2. Amendment filed 12-3-80; effective thirtieth day thereafter (Register 80, No. 49).

3. Repealer filed 7-1-83; effective thirtieth day thereafter (Register 83, No. 30).

§2822. Submission of Environmental Documentation. [Repealed]

Note • History

NOTE

Authority cited: Section 11001, Business and Professions Code. Reference: Sections 21082, 21084 and 21086, Public Resources Code.

HISTORY

1. Amendment filed 2-10-77; effective thirtieth day thereafter (Register 77, No. 7).

2. Repealer and new section filed 7-1-83; effective thirtieth day thereafter (Register 83, No. 30).

3. Repealer filed 2-28-2006; operative 3-30-2006 (Register 2006, No. 9).

§2822.1. Initial Study. [Repealed]

Note • History

NOTE

Authority cited: Section 11001, Business and Professions Code. Reference: Sections 21082, 21082.1, Public Resources Code.

HISTORY

1. Amendment filed 1-16-74; effective thirtieth day thereafter (Register 74, No. 3).

2. Amendment filed 2-10-77; effective thirtieth day thereafter (Register 77, No. 7).

3. Amendment filed 1-17-80; effective thirtieth day thereafter (Register 80, No. 3).

4. Amendment filed 7-1-83; effective thirtieth day thereafter (Register 83, No. 30).

5. Repealer filed 11-8-93; operative 12-8-93 (Register 93, No. 46).

§2822.2. Preparation and Distribution of Draft Environmental Impact Report. [Repealed]

History

HISTORY

1. Amendment filed 1-16-74; effective thirtieth day thereafter (Register 74, No. 3).

2. Amendment filed 1-16-76; effective thirtieth day thereafter (Register 76, No. 3).

3. Amendment filed 2-10-77; effective thirtieth day thereafter (Register 77, No. 7).

4. Repealer filed 11-8-93; operative 12-8-93 (Register 93, No. 46).

§2822.3. Hearing Procedure. [Repealed]

History

HISTORY

1. Amendment filed 1-16-76; effective thirtieth day thereafter (Register 76, No. 3).

2. Repealer filed 11-8-93; operative 12-8-93 (Register 93, No. 46).

§2822.4. Preparation and Distribution of Negative Declaration. [Repealed]

History

HISTORY

1. New section filed 1-16-74; effective thirtieth day thereafter (Register 74, No. 3).

2. Amendment filed 2-10-77; effective thirtieth day thereafter (Register 77, No. 7).

3. Repealer filed 11-8-93; operative 12-8-93 (Register 93, No. 46).

§2823. Environmental Impact Report Coverage. [Repealed]

History

HISTORY

1. Amendment filed 1-16-74; effective thirtieth day thereafter (Register 74, No. 3).

2. Amendment filed 2-10-77; effective thirtieth day thereafter (Register 77, No. 7).

3. Repealer filed 11-8-93; operative 12-8-93 (Register 93, No. 46).

§2823.1. Fees. [Repealed]

History

HISTORY

1. Amendment filed 1-16-74; effective thirtieth day thereafter (Register 74, No. 3).

2. Amendment filed 2-10-77; effective thirtieth day thereafter (Register 77, No. 7).

3. Repealer filed 11-8-93; operative 12-8-93 (Register 93, No. 46).

Article 14. Mineral, Oil and Gas Transactions [Repealed]

§2825. Application for Permit. [Repealed]

History

HISTORY

1. Repealer filed 7-1-83; effective thirtieth day thereafter (Register 83, No. 30).

§2825.5. Salesperson Permittee. [Repealed]

Note • History

NOTE

Authority cited: Section 11080 Business and Professions Code. Reference: Section 10507, Business and Professions Code.

HISTORY

1. New section filed 7-1-59; effective thirtieth day thereafter (Register 59, No. 11).

2. Repealer and new section filed 7-1-83; effective thirtieth day thereafter (Register 83, No. 30).

3. Repealer filed 11-27-96; operative 12-27-96 (Register 96, No. 48).

§2826. Limitation on Number. [Repealed]

History

HISTORY

1. Amendment filed 10-16-58; effective thirtieth day thereafter (Register 58, No. 19).

2. Repealer filed 7-1-83; effective thirtieth day thereafter (Register 83, No. 30).

§2827. Expiration Date. [Repealed]

History

HISTORY

1. Amendment filed 10-16-58; effective thirtieth day thereafter (Register 58, No. 19).

2. Repealer filed 7-1-83; effective thirtieth day thereafter (Register 83, No. 30).

§2828. Transactions to Be Reported. [Repealed]

Note • History

NOTE

Authority cited: Sections 10080 and 11001, Business and Professions Code.

HISTORY

1. New Section filed 4-3-73 as an emergency; designated effective 4-5-73 (Register 73, No. 14).

2. Repealer filed 7-1-83; effective thirtieth day thereafter (Register 83, No. 30).

§2828.1. Filing Reports of Mineral, Oil and Gas Transactions. [Repealed]

Note • History

NOTE

Authority cited: Section 10080, Business and Professions Code. Reference: Sections 10500 and 10513, Business and Professions Code.

HISTORY

1. New section filed 4-3-73 as an emergency; designated effective 4-5-73 (Register 73, No. 14).

2. Repealer and new section filed 7-1-83; effective thirtieth day thereafter (Register 83, No. 30).

3. Repealer filed 4-2-86; effective thirtieth day thereafter (Register 86, No. 14).

§2828.2. Type of Report. [Repealed]

Note • History

NOTE

Authority cited: Sections 10080 and 11001, Business and Professions Code. Reference: Section 10500, Business and Professions Code.

HISTORY

1. New section filed 4-3-73 as an emergency; designated effective 4-5-73 (Register 73, No. 14).

2. Repealer filed 4-2-86; effective thirtieth day thereafter (Register 86, No. 14).

Article 15. Trust Fund Accounts

§2830. Broker Placement of Trust Funds with Financial Institutions.

Note • History

The relationship between a real estate broker and a client for whom the broker holds funds in trust is an agency relationship. As an agent, the broker owes a fiduciary duty to the client regarding the handling of the trust. Any benefit received by the broker relating to the broker's handling of client funds in trust belongs to the client by law, and the broker must pass that benefit along to the client.

(a) Unless in possession of written permission from the client, it is unlawful for any real estate broker, including any corporate broker, to receive, directly or indirectly, any commission, compensation, or other consideration, whether personal or professional, from any person or institution other than the client as an inducement for the placement of a trust fund account in accordance with Section 10145 of the Business and Professions Code. Actual placement of a trust fund account is not a precondition to a violation of this section, whether the violation is or is not a per se violation pursuant to subsection (c), below.

(b) For purposes of this section, a “compensating balance” is a balance maintained in a checking account or other account in a bank or other recognized depository in the name of a real estate broker for the purpose of paying bank fees on a separate trust fund account.

(c) Unless in possession of written permission from the client as described in subsection (a), the following activities, whether performed directly or indirectly, are deemed per se receipt of inducements for the placement of trust account business by any person and are unlawful:

(1) Receiving or requesting payment for, accepting or requesting provision of, or accepting or requesting assistance with business expenses, including, but not limited to, rent, employee salaries, furniture, copiers, facsimile machines, automobiles, telephone services or equipment, or computers.

(2) Receiving or requesting receipt of any form of consideration intended for the benefit of the broker, rather than the trust account itself, including cash, below market rate loans, automobile charges, or merchandise or merchandise credits.

(3) Receiving or requesting to receive on behalf of the broker or corporation, compensating balances or benefits in the pricing or fees for the maintenance of a compensating balance account.

(4) Receiving or requesting provision of all, or any part, of the time or productive effort of any employee of the bank or other recognized depository for any service unrelated to the trust account.

(5) Receiving or requesting expenditures for food, beverages, and entertainment.

(d) Receipt or request of receipt of the following are not deemed to be unlawful or in violation of this section:

(1) Promotional items with a permanently affixed company logo of the bank or other recognized depository with a value of not more than ten dollars ($10) each. “Promotional item” does not include a gift certificate, gift card, or other item that has a specific monetary value on its face, or that may be exchanged for any other item having a specific monetary value.

(2) Receipt or requested receipt of education or educational materials exclusively related to the business of trust fund management if continuing education credits are not provided.

(e) The receipt or requested receipt of any form of consideration as an inducement for the placement of a trust account not specifically set forth in this section shall not be presumed lawful merely because it is not specifically prohibited.

NOTE

Authority cited: Section 10080, Business and Professions Code. Reference: Sections 10145 and 10176, Business and Professions Code.

HISTORY

1. New section filed 9-26-2011; operative 10-26-2011 (Register 2011, No. 39). For prior history, see Register 96, No. 46.

§2830.1. Interest Bearing Trust Account.

Note • History

A real estate broker, when acting as agent for a financial institution as beneficiary of a loan, may deposit and maintain funds from or for the account of an obligor for the future payment of property taxes, assessments or insurance relating to real property containing only a one-to-four family residence, in an interest-bearing trust account in a bank or savings and loan association in order to pay interest to the obligor in accordance with Section 2954.8 of the Civil Code if the following requirements are met:

(a) The account is in the name of the broker as trustee.

(b) All of the funds in the account are covered by insurance provided by an agency of the federal government.

(d) The broker discloses to the obligor how interest will be calculated and paid.

(e) No interest earned on the funds shall inure directly or indirectly to the benefit of the broker nor to any person licensed to the broker.

NOTE

Authority cited: Section 10081, Business and Professions Code. Reference: Section 10145, Business and Professions Code; and Section 2954.8, Civil Code.

HISTORY

1. New section filed 1-17-80; effective thirtieth day thereafter (Register 80, No. 3).

2. Amendment filed 7-9-80; effective thirtieth day thereafter (Register 80, No. 28).

3. Repealer and new section filed 1-9-85; effective thirtieth day thereafter (Register 85, No. 2).

§2831. Trust Fund Records to Be Maintained.

Note • History

(a) Every broker shall keep a record of all trust funds received, including uncashed checks held pursuant to instructions of his or her principal. This record, including records maintained under an automated data processing system, shall set forth in chronological sequence the following information in columnar form:

(1) Date trust funds received.

(2) From whom trust funds received.

(3) Amount received.

(4) With respect to funds deposited in an account, date of said deposit.

(5) With respect to trust funds previously deposited to an account, check number and date of related disbursement.

(6) With respect to trust funds not deposited in an account, identity of other depository and date funds were forwarded.

(7) Daily balance of said account.

(b) For each bank account which contains trust funds, a record of all trust funds received and disbursed shall be maintained in accordance with subdivision (a) or (c).

(c) Maintenance of journals of account cash receipts and disbursements, or similar records, or automated data processing systems, including computer systems and electronic storage and manipulation of information and documents, in accordance with generally accepted accounting principles, shall constitute compliance with subdivision (a) provided that such journals, records, or systems contain the elements required by subdivision (a) and that such elements are maintained in a format that will readily enable tracing and reconciliation in accordance with Section 2831.2.

(d) Nothing in this section shall be construed to permit a violation of Section 10145 of the Code.

(e) A broker is not required to keep records pursuant to this section of checks which are written by a principal, given to the broker and made payable to third parties for the provision of services, including but not limited to escrow, credit and appraisal services, when the total amount of such checks for any transaction from that principal does not exceed $1,000. Upon request of the Department or the maker of such checks, a broker shall account for the receipt and distribution of such checks. A broker shall retain for three years copies of receipts issued or obtained in connection with the receipt and distribution of such checks.

NOTE

Authority cited: Section 10080, Business and Professions Code. Reference: Sections 10145 and 10148, Business and Professions Code.

HISTORY

1. Amendment filed 10-16-58; effective thirtieth day thereafter (Register 58, No. 19).

2. Amendment filed 8-21-63; designated effective 9-20-63 (Register 63, No. 14).

3. Amendment filed 7-9-80; designated effective thirtieth day thereafter (Register 80, No. 28).

4. Amendment filed 7-1-83; effective thirtieth day thereafter (Register 83, No. 30).

5. Amendment of subsection (a) filed 4-2-86; effective thirtieth day thereafter (Register 86, No. 14).

6. Amendment of subsection (a) filed 3-18-88; operative 4-17-88 (Register 88, No. 14).

7. New subsections (b) and (d), subsection relettering, and amendment of subsections (a)-(a)(7) and newly designated subsection (c) filed 11-8-93; operative 12-8-93 (Register 93, No. 46).

8. Amendment of subsection (c) and new subsection (e) filed 11-13-96; operative 11-13-96 pursuant to Government Code section 11343.4(d) (Register 96, No. 46).

9. Amendment of subsections (b)-(e) filed 12-30-97; operative 1-29-98 (Register 98, No. 1).

§2831.1. Separate Record for Each Beneficiary or Transaction.

Note • History

(a) A broker shall keep a separate record for each beneficiary or transaction, accounting for all funds which have been deposited to the broker's trust bank account and interest, if any, earned on the funds on deposit. This record shall include information sufficient to identify the transaction and the parties to the transaction. Each record shall set forth in chronological sequence the following information in columnar form:

(1) Date of deposit.

(2) Amount of deposit.

(3) Date of each related disbursement.

(4) Check number of each related disbursement.

(5) Amount of each related disbursement.

(6) If applicable, dates and amounts of interest earned and credited to the account.

(7) Balance after posting transactions on any date.

(b) Maintenance of trust ledgers of separate beneficiaries or transactions, or similar records, or automated data processing systems, including computer systems and electronic storage and manipulation of information and documents, in accordance with generally accepted accounting principles will constitute compliance with subdivision (a), provided that such ledgers, records, or systems contain the elements required by subdivision (a) and that such elements are maintained in a format that will readily enable tracing and reconciliation in accordance with Section 2831.2.

NOTE

Authority cited: Section 10080, Business and Professions Code. Reference: Sections 10145 and 10148, Business and Professions Code.

HISTORY

1. New section filed 8-21-63; designated effective 9-20-63 (Register 63, No. 14).

2. Amendment filed 7-9-80; effective thirtieth day thereafter (Register 80, No. 28).

3. Repealer and new section filed 7-1-83; effective thirtieth day thereafter (Register 83, No. 30).

4. Amendment filed 1-9-85; effective thirtieth day thereafter (Register 85, No. 2).

5. Amendment of subsection (a) filed 4-2-86; effective thirtieth day thereafter (Register 86, No. 14).

6. Amendment of subsection (b) filed 11-13-96; operative 11-13-96 pursuant to Government Code section 11343.4(d) (Register 96, No. 46).

7. Amendment of subsection (b) and Note filed 12-30-97; operative 1-29-98 (Register 98, No. 1).

§2831.2. Trust Account Reconciliation.

Note • History

The balance of all separate beneficiary or transaction records maintained pursuant to the provisions of Section 2831.1 must be reconciled with the record of all trust funds received and disbursed required by Section 2831, at least once a month, except in those months when the bank account did not have any activities. A record of the reconciliation must be maintained, and it must identify the bank account name and number, the date of the reconciliation, the account number or name of the principals or beneficiaries or transactions, and the trust fund liabilities of the broker to each of the principals, beneficiaries or transactions.

NOTE

Authority cited: Section 10080, Business and Professions Code. Reference: Section 10145, Business and Professions Code.

HISTORY

1. New section filed 3-18-88; operative 4-17-88 (Register 88, No. 14).

§2832. Trust Fund Handling.

Note • History

(a) Compliance with Section 10145 of the Code requires that the broker place funds accepted on behalf of another into the hands of the owner of the funds, into a neutral escrow depository or into a trust fund account in the name of the broker, or in a fictitious name if the broker is the holder of a license bearing such fictitious name, as trustee at a bank or other financial institution not later than three business days following receipt of the funds by the broker or by the broker's salesperson.

(b) Except as expressly provided by subdivision (d) of Section 10145 of the Code or by a regulation in this article, the account into which the trust funds are deposited shall not be an interest-bearing account for which prior written notice can by law or regulation be required by the financial institution as a condition to the withdrawal of funds.

(1) the check by its terms is not negotiable by the broker or if the offeror has given written instructions that the check shall not be deposited nor cashed until acceptance of the offer and

(2) the offeree is informed that the check is being so held before or at the time the offer is presented for acceptance.

(d) In these circumstances if the offeror's check was held by the broker in accordance with subdivision (c) until acceptance of the offer, the check shall be placed into a neutral escrow depository or the trust fund account, or into the hands of the offeree if offeror and offeree expressly so provide in writing, not later than three business days following acceptance of the offer unless the broker receives written authorization from the offeree to continue to hold the check.

(e) Notwithstanding the provisions of subdivisions (a) and (d), a real estate broker who is not licensed under the Escrow Law (Section 17000, et seq., of the Financial Code) when acting in the capacity of an escrow holder in a real estate purchase and sale, exchange or loan transaction in which the broker is performing acts for which a real estate license is required shall place all funds accepted on behalf of another into the hands of the owner of the funds, into a neutral escrow depository or into a trust fund account in the name of the broker, or in a fictitious name if the broker is the holder of a license bearing such fictitious name, as trustee at a bank or other financial institution not later than the next business day following receipt of the funds by the broker or by the broker's salesperson.

NOTE

Authority cited: Section 10080, Business and Professions Code. Reference: Section 10145, Business and Professions Code.

HISTORY

1. Amendment filed 10-16-58; effective thirtieth day thereafter (Register 58, No. 19).

2. Amendment filed 7-16-64; effective thirtieth day thereafter (Register 64, No. 15).

3. Amendment filed 9-17-65; designated effective 1-2-66 (Register 65, No. 17).

4. Amendment filed 12-27-72; effective thirtieth day thereafter (Register 72, No. 53).

5. Amendment filed 1-9-85; effective thirtieth day thereafter (Register 85, No. 2).

6. Amendment of subsection (a) and repealer and new subsection (b) filed 11-13-96; operative 11-13-96 pursuant to Government Code section 11343.4(d) (Register 96, No. 46).

7. Amendment of subsection (d), new subsection (e) and amendment of Note filed 12-30-97; operative 1-29-98 (Register 98, No. 1).

8. Amendment of subsections (a) and (e) filed 7-31-98; operative 8-30-98 (Register 98, No. 31).

§2832.1. Trust Fund Handling for Multiple Beneficiaries.

Note • History

The written consent of every principal who is an owner of the funds in the account shall be obtained by a real estate broker prior to each disbursement if such a disbursement will reduce the balance of funds in the account to an amount less than the existing aggregate trust fund liability of the broker to all owners of the funds.

NOTE

Authority cited: Section 10080, Business and Professions Code. Reference: Section 10145, Business and Professions Code.

HISTORY

1. New section filed 12-2-74; effective thirtieth day thereafter (Register 74, No. 49). For history of former section, see Register 72, No. 53.

2. Amendment of section and Note filed 11-8-93; operative 12-8-93 (Register 93, No. 46).

3. Amendment filed 11-13-96; operative 11-13-96 pursuant to Government Code section 11343.4(d) (Register 96, No. 46).

§2833. Unexplained Trust Account Overages. [Repealed]

Note • History

NOTE

Authority cited: Section 10080, Business and Professions Code. Reference: Sections 10145 and 10148, Business and Professions Code.

HISTORY

1. New section filed 12-14-51; effective thirtieth day thereafter (Register 26, No. 6).

2. Amendment filed 8-21-63; designated effective 9-20-63 (Register 63, No. 14).

3. Repealer filed 12-1-81; designated effective 1-1-82 (Register 81, No. 49).

4. New section with new heading filed 7-12-91; operative 8-11-91 (Register 91, No. 44).

5. Repealer of section and amendment of Note filed 11-13-96; operative 11-13-96 pursuant to Government Code section 11343.4(d) (Register 96, No. 46).

§2834. Trust Account Withdrawals.

Note • History

(a) Withdrawals may be made from a trust fund account of an individual broker only upon the signature of the broker or one or more of the following persons if specifically authorized in writing by the broker:

(1) a salesperson licensed to the broker.

(2) a person licensed as a broker who has entered into a written agreement pursuant to section 2726 with the broker.

(3) an unlicensed employee of the broker with fidelity bond coverage at least equal to the maximum amount of the trust funds to which the employee has access at any time.

(b) Withdrawals may be made from the trust fund account of a corporate broker only upon the signature of:

(1) an officer through whom the corporation is licensed pursuant to section 10158 or 10211 of the Code; or

(2) one of the persons enumerated in paragraph (1), (2) or (3) of subdivision (a) above, provided that specific authorization in writing is given by the officer through whom the corporation is licensed and that the officer is an authorized signatory of the trust fund account.

(c) An arrangement under which a person enumerated in paragraph (1), (2) or (3) of subdivision (a) above is authorized to make withdrawals from a trust fund account of a broker shall not relieve an individual broker, or the broker-officer of a corporate broker licensee, from responsibility or liability as provided by law in handling trust funds in the broker's custody.

NOTE

Authority cited: Section 1008, Business and Professions Code. Reference: Section 10145, Business and Professions Code.

HISTORY

1. New section filed 5-16-57; effective thirtieth day thereafter (Register 57, No. 8).

2. Amendment filed 1-31-58; effective thirtieth day thereafter (Register 58, No. 2).

3. Amendment filed 7-16-64; effective thirtieth day thereafter (Register 64, No. 15).

4. Amendment filed 10-14-68; effective thirtieth day thereafter (Register 68, No. 39).

5. Amendment filed 1-21-83; effective thirtieth day thereafter (Register 83, No. 4).

6. Amendment of subsections (a), (b) and (c) filed 7-12-91; operative 8- 11-91 (Register 91, No. 44).

7. Amendment of subsection (b) and newly designated subsections (b)(1) and (b)(2), and amendment of Note filed 11-8-93; operative 12-8-93 (Register 93, No. 46).

§2835. Commingling.

Note • History

“Commingling” as used in Section 10176(e) of the Code is prohibited except as specified in this section. For purposes of Section 10176(e), the following shall not constitute “commingling”:

(a) The deposit into a trust account of reasonably sufficient funds, not to exceed $200, to pay service charges or fees levied or assessed against the account by the bank or financial institution where the account is maintained.

(b) The deposit into a trust account maintained in compliance with subdivision (d) of funds belonging in part to the broker's principal and in part to the broker when it is not reasonably practicable to separate such funds, provided the part of the funds belonging to the broker is disbursed not later than twenty-five days after their deposit and there is no dispute between the broker and the broker's principal as to the broker's portion of the funds. When the right of a broker to receive a portion of trust funds is disputed by the broker's principal, the disputed portion shall not be withdrawn until the dispute is finally settled.

(c) The deposit into a trust account of broker owned funds in connection with activities pursuant to either subdivision (d) or (e) of Section 10131 of the Code or when making, collecting payments or servicing a loan which is subject to the provisions of Section 10240 of the Code provided:

(1) The broker meets the criteria of Section 10232 of the Code.

(2) All funds in the account which are owned by the broker are identified at all times in a separate record which is distinct from any separate record maintained for a beneficiary.

(3) All broker owned funds deposited into the account are disbursed from the account not later than 25 days after their deposit.

(4) The funds are deposited and maintained in compliance with subdivision (d).

(5) For the purpose of this section, a broker shall be deemed to be subject to the provisions of Section 10240 of the Code if the broker delivers the statement to the borrower required by Section 10240.

(d) The trust fund account into which the funds are deposited is maintained in accordance with the provisions of Section 10145 and the regulations of this article.

NOTE

Authority cited: Section 10080, Business and Professions Code. Reference: Section 10176, Business and Professions Code.

HISTORY

1. New section filed 4-1-93; operative 5-3-93 (Register 93, No. 14). For prior history, see Register 83, No. 30.

2. Amendment of subsection (a) filed 11-13-96; operative 11-13-96 pursuant to Government Code section 11343.4(d) (Register 96, No. 46).

3. Amendment of subsection (d) filed 3-17-2005; operative 4-16-2005 (Register 2005, No. 11).

§2836. Subdivider and Broker Records.

Note • History

(a)(1) A subdivider shall maintain or cause to be maintained, in accordance with accepted accounting practices, records of all funds received from prospective purchasers or lessees of subdivisions interests.

(2) A subdivider shall maintain or cause to be maintained, in accordance with accepted accounting practices, records of receipt, deposit and disbursement of all funds collected or obtained in connection with the operation of a homeowners association

(3) The records shall reflect dates of receipt and disbursement of funds and the names of persons from whom received and to whom disbursed. The records shall be retained by the subdivider for a period of three years after the date of receipt or disbursement.

(b) A broker shall maintain or cause to be maintained, in accordance with accepted accounting practices, all trust fund records described in Section 10148 of the Code.

(c) Such records shall be made available for examination and inspection in California during regular business hours upon request by the commissioner or his or her designated representative.

NOTE

Authority cited: Sections 10080 and 11001, Business and Professions Code. Reference: Sections 10145, 10148, 11013.2, 11013.4 and 11018.5 Business and Professions Code.

HISTORY

1. New section filed 9-5-2003; operative 10-5-2003 (Register 2003, No. 36).

Article 16. Mortgage Loan Brokerage

§2840. Approved Borrower Disclosure Statements.

Note • History

(a) The Commissioner shall publish and make available to interested persons as official forms of the Department of Real Estate Forms RE 882 (Rev. 8/08) and RE 883 (Rev. 8/08) which are incorporated by reference. Forms RE 882 and RE 883 contain approved format and content for the disclosure statement required by subdivision (a) of Section 10240 of the Code and Section 10241 of the Code.

(b) The publication of the forms pursuant to subdivision (a) hereof is for the purpose of aiding real estate licensees in providing the disclosure of material information to prospective borrowers in a uniform and effective manner.

(c) A real estate broker must obtain the prior written approval of the Commissioner if he/she wishes to use forms different than those referred to in (a). Forms that do not adequately provide the information required by the forms in subsection (a) above, as appropriate, and in a format that is easily used by the Department will not be approved.

NOTE

Authority cited: Sections 10080 and 10240.3, Business and Professions Code. Reference: Sections 10240, 10240.3 and 10241, Business and Professions Code.

HISTORY

1. Amendment filed 11-19-69; designated effective 1-2-70 (Register 69, No. 47). For prior history, see Register 63, No. 14.

2. Repealer and new section filed 4-17-73 as an emergency; designated effective 4-18-73. Certificate of Compliance included (Register 73, No. 16).

3. Amendment filed 12-11-73 as an emergency; designated effective 1-1-74. Certificate of Compliance included (Register 73, No. 50).

4. Amendment filed 12-3-80; effective thirtieth day thereafter (Register 80, No. 49).

5. Amendment filed 2-17-83; designated effective 2-20-83 pursuant to Government Code Section 11346.2(d) (Register 83, No. 8).

6. Amendment of subsection (a) filed 11-16-87; operative 12-16-87 (Register 87, No. 47).

7. Amendment filed 3-18-88; operative 4-17-88 (Register 88, No. 14).

8. Amendment filed 7-12-91; operative 8-11-91 (Register 91, No. 44).

9. Amendment of subsections (a)-(c) filed 11-8-93; operative 12-8-93 (Register 93, No. 46).

10. Amendment of subsection (b) filed 11-13-96; operative 11-13-96 pursuant to Government Code section 11343.4(d) (Register 96, No. 46).

11. Amendment of subsection (a) filed 12-30-97; operative 1-29-98 (Register 98, No. 1).

12. Amendment of section and Note filed 3-17-2005; operative 4-16-2005 (Register 2005, No. 11).

13. Amendment of section heading, repealer and new section and amendment of Note filed 8-29-2007; operative 9-28-2007 (Register 2007, No. 35).

14. Amendment of section and Note filed 1-14-2008 as an emergency; operative 1-14-2008 (Register 2008, No. 3). A Certificate of Compliance must be transmitted to OAL by 7-14-2008 or emergency language will be repealed by operation of law on the following day.

15. Certificate of Compliance as to 1-24-2008 order, including further amendment of subsections (a) and (b), transmitted to OAL 7-3-2008 and filed 8-15-2008 (Register 2008, No. 33).

§2840.1. Alternative Approved Borrower Disclosure Statement. [Repealed]

Note • History

NOTE

Authority cited: Section 10080, Business and Professions Code. Reference: Sections 10236.4, 10240, 10240.2 and 10241, Business and Professions Code.

HISTORY

1. New section filed 11-8-93; operative 12-8-93 (Register 93, No. 46).

2. New subsection (d) filed 11-13-96; operative 11-13-96 pursuant to Government Code section 11343.4(d) (Register 96, No. 46).

3. Amendment of section and Note filed 3-17-2005; operative 4-16-2005 (Register 2005, No. 11).

4. Repealer filed 8-29-2007; operative 9-28-2007 (Register 2007, No. 35).

§2841. Mortgage Loan Negotiation.

Note • History

(a) The term “negotiation” as used in Section 10133.1(c) of the Code does not include any of the limited activities described as follows when done by an employee of a real estate broker under the control, direction and supervision of the broker:

(1) Preparing and designing advertising relating to loan transactions for broker review and written approval prior to its distribution, circulation, use or publication.

(2) Distributing, circulating, using or publishing preprinted brochures, flyers, fact sheets or other written materials relating to loans secured by real property which the broker can make or negotiate and which have been reviewed and approved in writing by the broker prior to their being distributed, circulated or published. Materials subject to this subdivision may not contain the name, address or telephone number of the nonlicensed employee.

(3) Providing written factual information about loan terms, conditions or qualification requirements to a prospective borrower that has been either prepared by the broker, or reviewed and approved in writing by the broker. A nonlicensed employee may discuss such information with a prospective borrower in general terms, but may not provide counseling or advice to a prospective borrower.

(4) Notifying a prospective borrower of the information needed in order to complete a loan application without providing counseling or advice to a prospective borrower.

(5) Entering information provided by the prospective borrower on a pre-printed application form without providing counseling or advice to a prospective borrower.

(6) Entering information provided by a prospective borrower or third party into a preformatted computer database.

(7) Accepting and providing a receipt on behalf of a broker for funds received from a prospective borrower for credit or appraisal fees.

(8) Preparing and mailing requests for verification of employment, verification of deposits, credit reports or appraisal reports. Obtaining such reports for transmission to the broker.

(9) Assembling, under the direction of the broker, materials obtained in the course of a loan transaction for submission to a prospective lender or loan committee, providing the final determination as to completeness or compliance is made by the broker.

(10) Communicating with a service provider in connection with a loan transaction to determine when reports or other information needed concerning any aspect of the transaction will be delivered, or when certain services will be performed or completed.

(11) Mailing, delivering, picking up, or arranging the mailing, delivery, or picking up of documents or instruments related to the loan transaction, including obtaining signatures to the documents or instruments from principals, parties or service providers in connection with the loan transaction, as long as the nonlicensed employee does not interpret or explain the content, relevance, significance or effect of the document or signature and such documents or instruments have been reviewed and approved in writing by the broker.

(12) Contacting a prospective lender to determine the status of a loan application.

(13) Responding to an inquiry or notifying a prospective borrower or his or her agent of the status of the loan application as long as the nonlicensed employee does not interpret or explain the relevance, significance or effect of that status. A nonlicensed employee may communicate omissions to a party or principal to the loan as long as the nonlicensed employee does not interpret or explain the relevance or significance of those omissions.

(14) Preparing and completing documents and instruments under the supervision and direction of the broker if the final documents or instruments will be or have been reviewed and approved in writing by the broker.

(15) Arranging or making appointments for third party service providers to enter the real property securing the loan, or arranging or making appointments for the prospective borrower or lender to meet with the broker, lender or other party or service provider in connection with the loan.

(b) As used in this section the terms “loan” or “loan transaction” mean a loan secured directly or collaterally by a lien on real property which is a residential mortgage loan transaction, as defined in Section 50003 of the Financial Code and where the lender is an institutional lender, as defined in Section 50003 of the Financial Code. Other than the acts specifically authorized by this Section, at no time may the nonlicensed employee perform any acts for which a real estate license is required within the meaning of Section 10131(d) of the Business and Professions Code.

(c) As used in this Section and in Section 10133.1(c) of the Code the term “employee” means a person in the service of a broker under any appointment or contract of hire, express or implied, oral or written and for whom the broker is obligated to withhold income tax payments and provide workers compensation insurance and unemployment insurance.

(d) As used in this Section, the term “written approval” shall consist of the broker's signature or initials affixed by the broker to a copy of the instrument being approved along with the date of the approval. The broker shall retain a copy of the approval for a period of three years from the date the approval was made. A broker may delegate to a broker or salesperson employed by the broker the authority to provide written approval so long as the broker does not relinquish overall responsibility for supervision of nonlicensed persons acting under this Section.

NOTE

Authority cited: Sections 10080 and 10133.1, Business and Professions Code. Reference: Section 10133.1, Business and Professions Code.

HISTORY

1. New section filed 11-9-2000; operative 12-9-2000 (Register 2000, No. 45). For prior history, see Register 96, No. 46.

§2841.5. Recordation of Trust Deeds -- Multi-Lender Loans.

Note • History

A real estate licensee who negotiates a promissory note secured by a trust deed on real property pursuant to Section 10238 of the Code shall cause the trust deed to be executed naming as beneficiaries the lenders or their nominee (who shall not be the licensee or the licensee's nominee) and shall cause the trust deed to be recorded, with the county recorder of the county in which the real property is located prior to the time that any funds are disbursed, except when the lender has given written authorization for prior release. If funds are released on the lenders' written authorization, the trust deed shall be recorded, or delivered to the lenders or beneficiaries with a written recommendation that it be recorded forthwith, within 10 days following release.

NOTE

Authority cited: Section 10080, Business and Professions Code. Reference: Section 10238, Business and Professions Code.

HISTORY

1. New section filed 2-28-2006; operative 3-30-2006 (Register 2006, No. 9).

§2842. Approved Borrower Disclosure Statement for Nontraditional and Subprime Mortgage Products.

Note • History

(a) Notwithstanding Section 2840 of these regulations, the Commissioner shall publish and make available to interested persons as an official form of the Department of Real Estate Form RE 885 (Rev. 8/08) which is incorporated by reference, with approved format and content for the disclosure statement referred to in subdivision (a) of Section 10240 of the Code and Section 10241 of the Code.

(b) The publication of the form pursuant to subdivision (a) hereof is for the purpose of aiding real estate licensees in providing the disclosure of material information in a uniform and effective manner to prospective borrowers relating to home loans on one-to-four unit single-family residences whose loans involve a “nontraditional mortgage product” as that term is defined in subsection (c) below.

(c) For the purpose of this regulation, a “nontraditional mortgage product” is a loan that allows borrowers to defer repayment of principal or interest. Such products include, but are not limited to, interest only loans where a borrower pays no loan principal for a period of time and payment option loans where one or more of the payment options may result in negative amortization.

A “nontraditional mortgage product” does not include reverse mortgages or home equity lines of credit (other than simultaneous second lien loans).

(d) A real estate broker must obtain the prior written approval of the Commissioner if he/she wishes to use a form different than that referred to in subsection (a) above with a nontraditional mortgage product. Forms that do not adequately provide the information required by Sections 10240 and/or 10241 of the Code, as appropriate, and in a format that is easily used by the Department, will not be approved.

NOTE

Authority cited: Sections 10080 and 10240.3, Business and Professions Code. Reference: Sections 10236.4, 10240, 10240.2, 10240.3 and 10241, Business and Professions Code.

HISTORY

1. New section filed 8-29-2007; operative 9-28-2007 (Register 2007, No. 35). For prior history, see Register 61, No. 15.

2. Amendment of section heading, subsections (a) and (b) and Note filed 1-14-2008 as an emergency; operative 1-14-2008 (Register 2008, No. 3). A Certificate of Compliance must be transmitted to OAL by 7-14-2008 or emergency language will be repealed by operation of law on the following day.

3. Certificate of Compliance as to 1-24-2008 order, including further amendment of subsections (a) and (b), transmitted to OAL 7-3-2008 and filed 8-15-2008 (Register 2008, No. 33).

§2842.5. Signing Mortgage Loan Disclosure Statement.

Note • History

For purposes of Section 10240 of the Code a loan application shall be considered complete when the licensee receives or has prepared a written application on an application form or forms normally used by the lender for a Federally Related Mortgage Loan, and as to non-federally related mortgage loans, when the licensee receives or has prepared a written application on an application form or forms normally used by a lender or the licensee.

NOTE

Authority cited: Section 10080, Business and Professions Code. Reference: Sections 10240 and 10241, Business and Professions Code.

HISTORY

1. Amendment filed 12-11-73 as an emergency; designated effective 1-1-74. Certificate of Compliance included (Register 73, No. 50). For prior history, see Register 61, No. 15.

2. Amendment filed 7-1-83; effective thirtieth day thereafter (Register 83, No. 30).

3. Amendment filed 11-8-93; operative 12-8-93 (Register 93, No. 46).

4. Amendment filed 11-13-96; operative 11-13-96 pursuant to Government Code section 11343.4(d) (Register 96, No. 46).

§2842.7. Costs and Expenses to Be Shown on Mortgage Loan Broker's Statement. [Repealed]

History

HISTORY

1. New section filed 12-16-58; effective thirtieth day thereafter (Register 58, No. 23).

2. Repealer filed 7-5-61 as an emergency; effective on filing (Register 61, No. 13).

3. Certificate of Compliance filed 8-4-61 (Register 61, No. 15).

§2843. Restrictions on Chargeable Costs and Expenses.

Note • History

No “costs and expenses of making the loan” referred to in Section 10241(a) which have not been paid, incurred or reasonably earned by the loan broker shall be charged to the borrower. No fee may be charged to a borrower as part of the costs and expenses of making the loan which exceeds the fee customarily charged for the same or comparable service in the community where the service was rendered.

If the escrow depositary for a loan transaction is a licensed escrow agent, a title insurance company, a bank or trust company or a savings and loan association, and a fee is charged to the borrower by the escrow depositary for the escrow function, no additional fee may be charged by the broker, a salesperson licensed to the broker or any entity controlled by the broker for services related to the conduct of an escrow.

NOTE

Additional authority cited: Section 10248.9, Business and Professions Code. Reference: Sections 10241 and 10241.1, Business and Professions Code.

HISTORY

1. Amendment filed 11-19-69; designated effective 1-2-70 (Register 69, No. 47). For prior history, see Register 61, No. 15.

2. Amendment filed 12-11-73 as an emergency; designated effective 1-1-74. Certificate of Compliance included (Register 73, No. 50).

3. Amendment of section and Note filed 11-13-96; operative 11-13-96 pursuant to Government Code section 11343.4(d) (Register 96, No. 46).

§2844. Lending Practices for Nontraditional and Subprime Mortgage Products.

Note • History

(a) A real estate broker acting within the meaning of Section 10131.1 of the Code shall adopt and adhere to the policies and procedures set forth in the guidance on nontraditional mortgage product risks published on November 14, 2006, by the Conference of State Bank Supervisors and the American Association of Residential Mortgage Regulators, and the Statement on Subprime Mortgage Lending published on July 17, 2007, by the aforementioned entities and the National Association of Consumer Credit Administrators, and which are incorporated by reference.

(b) Pursuant to subdivision (a), a real estate broker shall, at a minimum, adopt and adhere to the following:

(1) Risk Management Practices

(A) Consider a borrower's ability to repay the mortgage loan according to its terms as the primary basis for making the loan rather than the foreclosure or liquidation value of the collateral.

(B) Ensure that a loan results in an identifiable benefit to the borrower and refrain from inducing a borrower to repeatedly refinance a loan in order to charge high points and fees each time the loan is refinanced.

(2) Underwriting Standards

(A) Analyze a borrower's repayment capacity to include an evaluation of his/her ability to repay the loan by final maturity at the fully indexed rate, assuming a fully amortizing repayment schedule. For products that permit negative amortization, a repayment analysis should be based on the initial loan amount plus any balance increase that may accrue from the negative amortization.

(B) Avoid combining nontraditional loan features such as interest-only or negative amortization loans with reduced documentation or simultaneous second-lien loans (piggyback) unless there are mitigating factors such as high credit scores, low loan to value ratios (LTVs) and debt to income ratios (DTI), significant liquid assets, mortgage insurance or other credit enhancements.

(C) Accept stated income or reduced documentation only if there are mitigating factors that clearly minimize the need for direct verification of the borrower's repayment. The mitigating factors shall be documented.

(D) When setting introductory rates on adjustable rate mortgages, consider the spread between the introductory rate and the fully indexed rate to minimize negative amortization, “payment shock” and earlier-than-scheduled recasting of monthly payments. Pursuant to the Statement on Subprime Mortgage Landing “. . . [p]ayment shock refers to a significant increase in the amount of the monthly payment that generally occurs as the interest rate adjusts to a fully indexed basis. Products with a wide spread between the initial interest rate and the fully indexed rate that do not have payment caps or periodic interest rate caps, or that contain very high caps, can produce significant payment shock”.

(E) When making loans to borrowers ensure that such programs do not feature terms that could become predatory or abusive as described in the “Statement on Subprime Mortgage Lending” under “Predatory Lending Considerations” and the “Guidance on Nontraditional Mortgage Product Risks” under “Lending to Subprime Borrowers”.

(F) Qualify borrowers financing non-owner occupied investment properties on their ability to service the debt over the life of the loan and require evidence that the borrower has sufficient cash reserves to service the loan considering the possibility of extended periods of property vacancy and the variability of debt service requirements associated with nontraditional mortgage loan products.

(G) Qualify a borrower's repayment capacity by a debt-to-income (DTI) ratio that includes an assessment of the borrower's total monthly housing-related payments (e.g. principal, interest, taxes and insurance) and total monthly obligations as a percentage of gross income.

(3) Control Systems

(A) Design compensation programs that avoid providing incentives for originations inconsistent with sound underwriting and consumer protection principles. Such programs should not result in the steering of consumers to products resulting in payment shock or containing prepayment penalties, balloon payments or a higher cost due to reduced documentation or stated income, to the exclusion of other products for which the consumer may qualify.

(B) Monitor the quality of third-party originations so that they reflect the broker's lending standards and compliance with the Real Estate Law, Regulations of the Real Estate Commissioner and other applicable state and federal laws and regulations.

(4) Consumer Protection

(A) In approving loans, primarily consider the borrower's ability to repay the loan according to its terms.

(B) Assist the consumer in selecting a product by providing information that enables the consumer to understand material terms, costs, and risks of loan products.

(C) When offering mortgage product descriptions and advertisements, provide clear, detailed information about the costs, terms, features, and risks of the loan to the borrower including:

w Potential payment shock

w Negative amortization

w Prepayment penalties

w Balloon payments

w Cost of reduced documentation loans

w Responsibility for taxes and insurance

(D) Provide monthly statements to consumers who have Payment Option adjustable rate mortgages (ARMs) which include information that enables consumers to make informed payment choices, and which include an explanation of each payment option available and the impact of that choice on loan balances.

(E) Avoid leading borrowers who have Payment Option ARMs to select a non-amortizing or negatively amortizing payment.

NOTE

Authority cited: Sections 10080 and 10240.3, Business and Professions Code. Reference: Sections 10131.1, 10240.3 and 10245, Business and Professions Code.

HISTORY

1. New section filed 1-14-2008 as an emergency; operative 1-14-2008 (Register 2008, No. 3). A Certificate of Compliance must be transmitted to OAL by 7-14-2008 or emergency language will be repealed by operation of law on the following day. For prior history, see Register 61, No. 15.

2. Certificate of Compliance as to 1-24-2008 order, including further amendment of subsections (b)(2)(D)-(E) and (b)(4)(A), transmitted to OAL 7-3-2008 and filed 8-15-2008 (Register 2008, No. 33).

§2845. Interpretive Opinion Request.

Note • History

(a) A request for an interpretive opinion pursuant to Section 10236 of the Code shall be addressed to the Headquarters Office of the Department to the attention of Chief Counsel.

(b) An interpretive opinion request shall satisfy each of the following conditions:

(1) The request shall clearly state that it is a request for an interpretive opinion pursuant to Section 10236 of the Code.

(2) The request shall be addressed to a specific transaction or transactions or to a narrowly-defined course of conduct or business practice. The persons or entities on whose behalf the request is made shall be identified. If the persons or entities cannot be identified by name at the time of the request, they must be identified by their capacities in the transaction, course of conduct, or business practice. If the person requesting the opinion knows of persons other than those on whose behalf the request is made who intend to engage in a transaction, course of conduct, or business practice in reliance upon the opinion, such information shall also be included in the request for opinion.

(3) The nature of the transaction, course of conduct, or business practice, the capacities of parties to the transaction, and relevant details about it shall be described. Instruments, or other documents that will be used in the transaction, course of conduct, or business practice, completed in illustrative form to explain the transaction, course of conduct, or business practice, shall be appended to the request.

(4) The question or questions central to the opinion request shall be specifically and narrowly framed.

(c) Attorneys at law seeking interpretive opinions on behalf of clients shall include with the opinion requests, their own analyses of the issues presented by the request, their views with respect to the issues presented and citations of legal authority in support of those views.

NOTE

Authority cited: Section 10080, Business and Professions Code. Reference: Section 10236, Business and Professions Code.

HISTORY

1. Amendment filed 8-3-66; effective thirtieth day thereafter (Register 66, No. 25). For prior history, see Register 57, No. 20.

2. Repealer and new section filed 7-9-80; effective thirtieth day thereafter (Register 80, No. 28).

3. Repealer and new section filed 1-21-83; effective thirtieth day thereafter (Register 83, No. 4).

§2846. Approved Lender/Purchaser Disclosure Statement.

Note • History

(a) The commissioner shall publish and make available to interested persons as an official form of the Department of Real Estate, an approved format and content for the disclosure statements referred to in subdivisions (a) and (b) of Section 10232.5 of the Code.

(b) The publication of a form pursuant to subdivision (a) hereof is for the purpose of aiding real estate licensees in providing information of significance to prospective lenders and purchasers of promissory notes secured by real property and real property sales contracts in a uniform and effective manner. The form shall not constitute the only format or prescribed content that will satisfy the requirements of Section 10232.5 of the Code. The commissioner will entertain requests for approval of a proposed disclosure statement not in conformance with the form published pursuant to subdivision (a) only from persons who have established to the satisfaction of the commissioner that the request for approval is made on behalf of 25 or more real estate brokers who are subject to subdivision (e) of Section 10232 of the Code.

NOTE

Authority cited: Section 10080, Business and Professions Code. Reference: Sections 10232.4 and 10232.5, Business and Professions Code.

HISTORY

1. Repealer filed 5-13-82; effective thirtieth day thereafter (Register 82, No. 20).

2. New section filed 5-13-82; effective thirtieth day thereafter (Register 82, No. 20). For prior history, see Register 61, No. 15.

§2846.1. Material Change--Multi-Lender Loans.

Note • History

A material change requiring an amended notice under Section 10238(a) of the Code shall include but shall not be limited to the following:

(a) A change of the month in which the broker's fiscal year ends.

(b) A change with respect to whether the broker is (or expects to be) required to file reports of inspection of its trust account(s) with the Real Estate Commissioner pursuant to paragraph (3) of subdivision (k) of Section 10238 of the Code.

NOTE

Authority cited: Section 10080, Business and Professions Code. Reference: Section 10238, Business and Professions Code.

HISTORY

1. New section filed 6-20-2002; operative 7-20-2002 (Register 2002, No. 25).

2. Amendment of first paragraph, subsection (b) and Note filed 2-28-2006; operative 3-30-2006 (Register 2006, No. 9).

§2846.5. Report of Annual Trust Fund Accounts Review.

Note • History

(a) The annual report of a review of trust fund financial statements required under subdivision (a) of Section 10232.2 and/or subdivision (o) of Section 10238 of the Code shall include confirmation by an independent public accountant that:

(1) The broker maintains those records specified in Sections 2831 and 2831.1 of these regulations, and reconciles such records in accordance with Section 2831.2 of these regulations.

(2) Each trust fund bank account is maintained by the broker in compliance with Sections 2832 and 2834 of these regulations.

(3) The accountant has reviewed the accompanying balance sheet of trust funds held by the broker as of the last day of the fiscal year, and the accompanying statement of receipts and disbursements of trust funds and changes in cash for the fiscal year, in accordance with standards established by the American Institute of Certified Public Accountants.

(4) The accountant is not aware of any material modifications that should be made to the trust fund financial statements in order for them to be in conformity with generally accepted accounting principles.

(5) The adjusted balance(s) of the bank trust account(s) maintained by the broker as shown in the accompanying financial statements were on deposit as of the financial statements date.

(6) The trust fund bank account balance(s) and receipts and disbursements shown on the financial statements agreed with the amounts reflected on the cash records specified in Section 2831 of these regulations.

(7) The trust fund liability balance for each open account as itemized in the financial statements agreed with the amount reflected on the separate beneficiary records specified in Section 2831.1 of these regulations.

(b) In preparing the report referred to in subdivision (a), the accountant may incorporate qualifying representations or disclaimers substantially as follows:

(1) All information included in the financial statements examined by the accountant are representations of the broker or of responsible officers of the broker.

(2) The review by the accountant consisted principally of inquiries of company personnel and analytical procedures applied to financial data. It was substantially less in scope than an examination in accordance with generally accepted auditing standards, the objective of which is the expression of an opinion regarding the financial statements taken as a whole. The report therefore includes no such opinion.

(c) In lieu of complying with subdivision (a) above, a broker may satisfy subdivision (a) of Section 10232.2 and/or subdivision (o) of Section 10238 of the Code by submitting the report by a California independent public accountant of an audit of the trust fund financial statements of the broker in which the accountant expresses an unqualified opinion that the financial statements fairly present, in conformity with generally accepted accounting principles, (1) the trust fund position of the broker at the end of the fiscal year and (2) a compilation of receipts and disbursements of trust funds for the fiscal year.

(d) The annual report of a review of trust fund financial statements shall include the following financial statements:

(1) Balance sheet of trust funds held by the broker as of the last day of the fiscal year. Each of the trust fund bank accounts shall be identified, either in the balance sheet or in the notes thereto, by name of bank and account number.

(2) Statement of receipts and disbursements of trust funds and changes in cash for the fiscal year.

(3) Schedule of trust fund liability balances showing each open beneficiary account in connection with trust funds received in carrying on the activities described in subdivisions (d) and (e) of Section 10131 of the Code.

NOTE

Authority cited: Section 10080, Business and Professions Code. Reference: Sections 10145, 10232, 10232.2 and 10238, Business and Professions Code.

HISTORY

1. New section filed 5-13-82; effective thirtieth day thereafter (Register 82, No. 20).

2. Amendment of subsection (a) and new subsection (d) filed 5-4-89; operative 6-3-89 (Register 89, No. 23).

3. Amendment of subsection (a)(2) filed 11-9-2000; operative 12-9-2000 (Register 2000, No. 45).

4. Amendment of subsections (a) and (c) and Note filed 2-28-2006; operative 3-30-2006 (Register 2006, No. 9).

§2846.7. Delayed Filing of Annual Trust Account Report.

Note • History

(a) A real estate broker whose fiscal year ends between the last day of November and the last day of February inclusive shall regularly have until the following May 31 in which to file the report required by subdivision (a) of Section 10232.2 or subdivision (o) of Section 10238 of the Code.

(b) A real estate broker whose fiscal year ends between March 1 and November 29 inclusive shall file the report required by subdivision (a) of Section 10232.2 or subdivision (o) of Section 10238 of the Code not later than 90 days after the end of the fiscal year unless the broker shall have previously obtained written authorization from the Department to file the report more than 90 days after the end of the fiscal year.

NOTE

Authority cited: Section 10080, Business and Professions Code. Reference: Sections 10232.2 and 10238, Business and Professions Code.

HISTORY

1. New section filed 5-13-82; effective thirtieth day thereafter (Register 82, No. 20).

2. Amendment of section heading, section and Note filed 11-9-2000; operative 12-9-2000 (Register 2000, No. 45).

3. Amendment of section and Note filed 2-28-2006; operative 3-30-2006 (Register 2006, No. 9).

§2846.8. Quarterly Trust Fund Status Report.

Note • History

(a) The Commissioner shall publish and make available to interested persons as an official form of the Department, an approved format and content for the Trust Fund Status Report described in Section 10232.25 of the Code.

(b) The publication of a form pursuant to subdivision (a) is for the purpose of aiding real estate licensees in complying with Section 10232.25 of the code. The form prescribed by the Commissioner shall not constitute the only format or content that will satisfy the requirements of Section 10232.25.

NOTE

Authority cited: Section 10080, Business and Professions Code. Reference: Section 10232.25, Business and Professions Code.

HISTORY

1. New section filed 1-21-83; effective thirtieth day thereafter (Register 83, No. 4).

2. Repealer of subsection (c) filed 11-13-96; operative 11-13-96 pursuant to Government Code section 11343.4(d) (Register 96, No. 46).

§2847. Voluntary Submission of Proposed Advertising.

Note • History

(a) A real estate broker may submit for departmental approval advertising proposed to be used in connection with the performance of acts for which a real estate license is required pursuant to Section 10131.1 or subdivision (d) or (e) of Section 10131 of the Code.

(b) Proposed advertising copy shall be submitted to the Sacramento office of the Department. Written or graphic advertising shall be submitted in the format in which it will be displayed to the public. A written script shall be submitted for radio or television advertisements. A submission of advertisement to the Department shall be accompanied by the maximum fee set forth in Section 10232.1 of the Code.

NOTE

Authority cited: Sections 10080 and 10232.1, Business and Professions Code. Reference: Section 10232.1, Business and Professions Code.

HISTORY

1. Amendment filed 7-31-61 as an emergency; effective upon filing. Certificate of Compliance filed 8-4-61 (Register 61, No. 15). For prior history of section, see Register 61, No. 13).

2. Amendment filed 12-11-73 as an emergency; designated effective 1-1-74. Certificate of Compliance included (Register 73, No. 50).

3. Amendment filed 5-13-82; effective thirtieth day thereafter (Register 82, No. 20).

4. Redesignation and amendmenty of first paragraph as new subsection (a), new subsection (b), and amendment of Note filed 12-30-97; operative 1-29-98 (Register 98, No. 1).

§2847.1. Advertising Submission and Clearance Procedures. [Repealed]

Note • History

NOTE

Authority cited: Section 10080, Business and Professions Code. Reference: Section 10232.1, Business and Professions Code.

HISTORY

1. New section filed 12-11-73 as an emergency; designated effective 1-1-74. Certificate of Compliance included (Register 73, No. 50).

2. Amendment filed 5-13-82; effective thirtieth day thereafter (Register 82, No. 20).

3. Amendment of subsection (a) filed 11-16-87; operative 12-16-87 (Register 87, No. 47).

4. Repealer filed 11-27-96; operative 12-27-96 (Register 96, No. 48).

§2847.2. Advertising Identification System. [Repealed]

Note • History

NOTE

Authority cited: Sections 10080 and 10232.1, Business and Professions Code. Reference: Sections 10232.2 and 10237.7, Business and Professions Code.

HISTORY

1. New section filed 12-11-73 as an emergency; designated effective 1-1-74. Certificate of Compliance included (Register 73, No. 50).

2. Repealer and new section filed 5-13-82; effective thirtieth day thereafter (Register 82, No. 20).

3. Repealer filed 11-13-96; operative 11-13-96 pursuant to Government Code section 11343.4(d) (Register 96, No. 46).

4. Repealer filed 11-27-96; operative 12-27-96 (Register 96, No. 48).

§2847.3. Disclosure of License and Issuing Department.

Note • History

(a) Use of either of the following statements shall satisfy the requirements of Sections 10235.5 and 17539.4 of the Code.

(1) Real estate broker, California Department of Real Estate.

(2) California Department of Real Estate, real estate broker. The words “California” and “Department” may be abbreviated only as “CA” or “CAL” or “Calif” and “Dept”. A dash (- -) may be used in lieu of the comma appearing in the statements set forth above in paragraphs (1) and (2).

(b) The type size of the statement shall be no less than the smallest size type used in the advertisement copy.

(c) Use of either statement as set forth in subdivision (a) will also satisfy the designation requirements of Section 10140.6(a) and (c) of the Code.

NOTE

Authority cited: Section 10080, Business and Professions Code. Reference: Sections 10140.6, 10235.5 and 17539.4, Business and Professions Code.

HISTORY

1. New section filed 4-1-93; operative 5-3-93 (Register 93, No. 14). For prior history, see Register 83, No. 4.

2. Editorial correction restoring inadvertently omitted subsection (c) (Register 2011, No. 30).

3. New section heading and amendment of subsection (c) and Note filed 7-27-2011; operative 8-26-2011 (Register 2011, No. 30).

4. Editorial correction of subsection (b) (Register 2012, No. 27).

§2847.4. Notice to Commissioner. [Repealed]

Note • History

NOTE

Additional authority cited: Section 10248.9, Business and Professions Code.

HISTORY

1. New section filed 12-11-73 as an emergency; designated effective 1-1-74. Certificate of Compliance included (Register 73, No. 50).

2. Repealer filed 1-16-76; effective thirtieth day thereafter (Register 76, No. 3).

§2848. Advertising Criteria.

Note • History

(a) In administering Sections 10232.1 and 10235 of the Code, the commissioner shall take such action as is appropriate to prevent or halt the publication of advertising that is false, misleading or deceptive in itself or through the omission of information necessary to make a representation not misleading in the context in which it is used. To this end, the commissioner may disapprove or require verification of representations in advertising submitted pursuant to Section 10232.1 of the Code, or Section 2847 of these regulations.

In addition to the actual text, consideration shall be given to such factors as format, pictorial display and emphasis in determining whether an advertisement is likely to create a false impression.

By way of illustration and not of limitation, advertising containing any of the following is considered to be false, misleading or deceptive and will not ordinarily be approved for publication by the commissioner:

(1) The use of “guaranteed,” “insured,” “bonded,” “sure,” “safe,” “sound” or other words or phrases of similar import to describe or characterize the security of lenders' or purchasers' funds, or the return to lenders or purchasers from the use of their funds, without an accompanying statement of fact supporting the use of the words or phrases implying high security. A representation to the effect that no losses or minimal losses have been sustained by lenders or purchasers doing business with the licensee shall include the period of time to which the representation applies.

(2) The use of terms in the comparative or superlative degree to describe any aspect of the business of the licensee, or any terms applicable to loans negotiated by the licensee, without such additional information as necessary to make the representation unambiguous in the context in which it is used.

(3) A statement that the licensee represents any lender enumerated in Section 10133.1(a) of the Code unless the licensee has a contractual arrangement to act as agent or representative for such lender.

(4) An implication contrary to the fact that the licensee will act in the capacity of a lender rather than as an agent or that a borrower will be able to obtain a loan without deductions from the principal amount for the payment of commissions, costs and expenses customarily attendant upon mortgage loan broker transactions.

(5) A representation of a specific installment in repayment of a loan without an equally prominent disclosure of the following information about the loan:

(A) Principal amount

(B) Simple annual interest rate

(D) Number, amount and period of payments scheduled to the date of maturity

(E) Balance due at maturity (balloon payment) if not fully amortized.

(6) A representation of a specific installment payment, interest rate, annual percentage rate or other provision concerning a loan unless it is clearly indicated whether the advertised terms are available for first loans, junior loans or for both first and junior loans.

(7) A representation or implication that loans are available on terms more favorable to the borrower than terms then generally available in the community through mortgage loan brokers or other sources for loan funds unless the advertised terms are in fact then available to a borrower without the application of undisclosed, special conditions or restrictions to qualify the borrower or the security for the loan.

(8) A representation or implication that loans are available on terms more favorable to the borrower than terms then generally available in the community through mortgage loan brokers or other sources for loan funds unless the broker has previously presented evidence satisfactory to the commissioner that the advertising is not illusory or deceptive in light of all relevant factors of the broker's business practices including the amount of loan funds prospectively available to meet borrower demands in response to the advertising.

(9) A representation that loans are available at or to a maximum percentage of market value unless there is a disclosure as to how market value will be determined for purposes of a loan transaction.

(10) A representation or implication that the credit rating or other personal financial data of the prospective borrower will not be a factor in determining eligibility for a loan unless the broker in fact neither conducts nor causes to be conducted any investigation or inquiry into any aspect of any prospective borrower's credit rating or into his personal financial circumstances for the purpose of determining his qualifications for a loan.

(11) A representation or implication that a loan can or will be approved by telephone.

(12) A representation implying that the Department or any other governmental agency has endorsed or approved any aspect of the licensee's business activities. A statement that the offering referred to in the advertisement is being made under authority of a permit issued by the Department or by the Department of Corporations without more, will not be considered to be a representation implying endorsement or approval by a governmental entity.

(13) A representation or implication contrary to fact as to the number and location of offices maintained by the licensee for the conduct of his/her mortgage loan brokerage business.

(14) Use of “investment plan,” “growth plan,” or similar term to describe a program of a licensee carrying on activities described in Section 10131.1.

(15) The use of “savings,” “savings plan” or terms of similar import indicating that the licensee is engaged in business activities requiring a particular license, permit or authority unless the licensee then has such a license, permit or authority.

(16) A representation of a simple annual interest rate without an equally prominent disclosure of the annual percentage rate.

(17) A representation of an installment in repayment of an adjustable rate, interest only or payment-option loan without an equally prominent disclosure of the following information about the loan:

(A) Principal amount

(B) Term of loan

(D) Number of months the initial interest rate will be in effect

(E) Fully-indexed interest rate

(F) Maximum interest rate

(G) If different, an explanation of the difference between the payment rate, initial interest rate and fully-indexed rate.

(H) Annual percentage rate

(I) How often the interest rate and payments can change

(J) Maximum periodic change in the interest rate and payments (periodic caps)

(K) Number of months and percentage of original loan amount after which minimum payments will not be accepted and the loan re-amortizes

(L) The monthly payment based on the maximum interest rate, and the loan balance after all negative amortization is included, assuming minimum payments are made

(M) If the loan contains a prepayment penalty, a statement to that effect

(N) If the loan contains a balloon payment, a statement to that effect

(18) A statement that the licensee can arrange “low doc/no doc”, “no income/no asset”, “stated income”, “stated asset”, “no ratio” or similar loan products without a statement that these products may have a higher interest rate, more points or more fees than other products requiring documentation.

(19) The failure to include a statement, in an advertisement for investments in trust deeds secured by one or more interests in real property, that “investments in trust deeds secured by one or more interests in real property are subject to risk of loss”. Any advertisements, for investments in trust deeds secured by one or more interests in real property shall be retained for a period of three years from the date of its last publication or use. After notice, advertisements for investments in trust deeds secured by one or more interests in real property shall be made available for examination, inspection, and copying by the commissioner or his or her designated representative during regular business hours.

NOTE

Authority cited: Sections 10080 and 10232.1, Business and Professions Code. Reference: Sections 10232.1 and 10235, Business and Professions Code.

HISTORY

1. Amendment filed 12-11-73 as an emergency; designated effective 1-1-74. Certificate of Compliance included (Register 73, No. 50). For prior history, see Register 68, No. 39.

2. Amendment filed 5-13-82; effective thirtieth day thereafter (Register 82, No. 20).

3. New subsection (16) filed 11-8-93; operative 12-8-93 (Register 93, No. 46).

4. Editorial correction (Register 95, No. 13).

5. Amendment of section and Note filed 9-5-2003; operative 10-5-2003 (Register 2003, No. 36).

6. New subsections (a)(17) and (a)(18) filed 8-29-2007; operative 9-28-2007 (Register 2007, No. 35).

7. New subsection (a)(19) filed 10-6-2009; operative 11-5-2009 (Register 2009, No. 41).

§2849. Annual Report Format.

Note • History

The following format shall be used by a real estate broker who meets the criteria of Section 10232 of the Code for the annual report required by Section 10232.2(c).

MORTGAGE LOAN/TRUST DEED ANNUAL REPORT

(Business and Professions Code Section 10232.2(c))

(Name of Reporting Broker)

(Principal Business Office Address)

This report covers mortgage loan brokerage and trust deed and real property sales contract transactions for the period from __________, 19_____, to _____________, 19____.

During the reporting period, mortgage loan/trust deed business activities were conducted by the reporting broker and his affiliates at the following address in addition to the principal business address above:

I. LOANS ORIGINATED AS AGENT (Section 10131(d))

Article 7* Other

Loans Loans

A. Total Loans

Number

Aggregate Principal Amount $ $

Commissions Received $ $

B. Multiple Lender Loans (Fractionalized)**

Number

Aggregate Principal Amount $ $

C. Loans to Refinance***Loans

Previously Negotiated by Reporting Broker

or Affiliate****

Number

Aggregate Principal Amount $ $

D. Balloon Payment and Interest-Only

Loans

Number

Aggregate Principal Amount

(at maturity) $ $

II. LOANS ORIGINATED AS PRINCIPAL (FUNDED BY BROKER) FOR RESALE (Section 10131.1)

Article 7* Other

Loans Loans

A. Total Loans

Number

Aggregate Principal Amount $ $

Loan Origination or Other Fees

in Lieu of Commission $ $

B. Loans to Refinance Loans Previously

Negotiated By Reporting Broker or

Affiliate

Number

Aggregate Principal Amount $ $

C. Balloon Payment and Interest-Only

Loans Number

Aggregate Principal Amount

(at maturity) $ $

D. Principal (Broker Funded) Loans Resold

1. Single Purchaser

a. Number

b. Aggregate Selling Price $ $

2. Multiple Purchasers (Fractionalized)**

a. Number

b. Aggregate Selling Price $ $

III. COSTS AND EXPENSES CHARGED TO BORROWERS IN ORIGINATED LOAN TRANSACTIONS*****

Total $ $

Retained by Broker or Affiliate

for Services $ $

IV. LOANS FOR BROKER'S USE OR BENEFIT (Section 10231.2)

All Loans/Sales

Number

Aggregate Amounts Borrowed $

V. SALES OF NOTES AS AGENT (Section 10131 (e))

Number

Selling Price $

Commissions Received $

VI. RESALES AS PRINCIPAL OF NOTES PURCHASED BY BROKER (Section 10131.1)

Number

Aggregate Purchase Price $

Aggregate Resale Price $

VII. SALES OF REAL PROPERTY SALES (RPS)CONTRACTS****** AS AGENT OR PRINCIPAL (Sections 10131(e) and 10131.1)

Number

Aggregate Selling Price $

VIII. NOTE AND RPS CONTRACT SERVICING

A. Number Serviced by Broker

or Affiliate

B. Late Charges $

1. Total Late Charges Paid $

2. Retained by Broker or Affiliate $

C. Prepayment Penalties

1. Number Prepaid

2. Total Paid by Borrowers $

3. Retained By Broker or Affiliate $

D. Total Other Charges of Broker or

Affiliate for Servicing $

E. Notice of Default Filed

F. Trustee's Sale, Judicial Sales or Deeds

in Lieu of Foreclosure Recorde

To the best of knowledge and belief the information contained in this report is true and correct.

Date:

Signature

License No.

_______

* Article 7 loans are loans of less than $20,000 secured by first deeds of trust on dwellings and loans of less than $10,000 secured by junior deeds of trust on dwellings if originated before January 1, 1991; or loans of less than $30,000 secured by first deeds of trust on dwellings and loans of less than $20,000 secured by junior trust deeds on dwellings if originated on or after January 1, 1991.

** Fractionalized loan (sale)--One funded through the issuance of a series of notes of equal priority secured by the same real property, or the sale of undivided interests in a single note secured by the same real property, to two or more persons not otherwise associated.

*** Loan to refinance--A loan funded within 90 days of the maturity date of an existing obligation of the borrower in which 75 percent or more of the proceeds made available to the borrower are applied to pay off the existing obligation.

**** Affiliate--Any entity in which an individual reporting broker or an officer, director or shareholder of a corporate reporting broker has more than a nominal financial interest or from whom the reporting broker receives any form of compensation for the referral of business in connection with the reporting broker's mortgage loan activities.

***** For services enumerated in Section 10241(a) and any other charge made to the borrower.

****** As defined in Section 10029 of the Business and Professions Code.

NOTE

Authority cited: Sections 10080, 10232.2, 10248.9, Business and Professions Code. Reference: Sections 10232, 10232, 10240, 10241, 10245, and 10248.9, Business and Professions Code.

HISTORY

1. New section filed 12-11-73 as an emergency; designated effective 1-1-74. Certificate of Compliance included (Register 73, No. 50). For history of former section, see Register 61, No. 5.

2. Amendment filed 1-16-76; effective thirtieth day thereafter (Register 76, No. 3).

3. Amendment filed 2-2-76 as an emergency; designated effective 2-15-76 (Register 76, No. 6).

4. Certificate of Compliance filed 3-5-76 (Register 76, No. 10).

5. Amendment filed 1-17-80; effective thirtieth day thereafter (Register 80, No. 3).

6. Repealer and new section filed 5-13-82; effective thirtieth day thereafter (Register 82, No. 20).

7. Amendment filed 7-12-91; operative 8-11-91 (Register 91, No. 44).

8. Editorial correction of printing errors (Register 91, No. 44).

9. Editorial correction (Register 95, No. 13).

§2849.01. Annual Report Format.

Note • History

For reports submitted to the Department, the following format shall be used by a real estate broker who meets the criteria of section 10232 and/or 10238 of the Code for the annual report required by section 10232.2(c) and 10238(p).

Embedded Graphic 10.0285

Embedded Graphic 10.0286

Embedded Graphic 10.0287

----------

1. ARTICLE 7 LOANS -- Loans of less than $30,000 secured by first deeds of trust on dwellings and loans of less than $20,000 secured by junior deeds of trust on dwellings.

2. MULTIPLE LENDER LOAN (FRACTIONALIZED) -- A loan funded through the sale of or offer to sell a series of notes secured directly by an interest in the same real property, or the sale of undivided interests in a note secured directly by real property equivalent to a series transaction.

3. LOAN TO REFINANCE -- A loan funded within 90 days of the maturity date of an existing obligation of the borrower in which 75 percent or more of the proceeds made available to the borrower are applied to pay off the existing obligation.

4. AFFILIATE -- Any entity in which an individual reporting broker or an officer, director or shareholder of a corporate reporting broker has more than a nominal financial interest or from whom the reporting broker receives any form of compensation for the referral of business in connection with the reporting broker's mortgage loan activities. Should the affiliate meet the criteria of Section 10232, a separate report must be compiled and submitted for each entity.

5. COSTS AND EXPENSES -- For services enumerated in Section 10241(a) (appraisal fees, escrow fees, title charges, notary fees, recording fees, credit investigation fees) and any other charge made to the borrower. Total amount and amount retained by the broker, an affiliate or subsidiary.

6. A purchase or loan transaction in which the broker directly or indirectly obtained the use or benefit of the funds other than for commissions, fees, costs and expenses.

7. REAL PROPERTY SALES (RPS) CONTRACTS -- As defined in Section 10029 of the Business and Professions Code:

“Real property sales contract” as used in this part is an agreement wherein one party agrees to convey title to real property to another party upon the satisfaction of specified conditions set forth in the contract and which does not require conveyance of title within one year from the date of formation of the contract.

8. Includes payments collected on behalf of obligors.

9. Outstanding principal of each note on the last day of the fiscal year or the reporting period including fractionalized (multi-lender) loans.

10. Fractionalized (multi-lender) loans only.

11. Refer to Financial Code Section 4970(a) through (e) for the definition of a covered loan.

NOTE

Authority cited: Sections 10080, 10232 and 10232.2, Business and Professions Code. Reference: Sections 10232, 10232.2, 10236, 10240, 10241 and 10245, Business and Professions Code; and Sections 4970 and 4979, Financial Code.

HISTORY

1. New section filed 7-12-91; operative 8-11-91 (Register 91, No. 44).

2. Amendment filed 11-8-93; operative 12-8-93 (Register 93, No. 46).

3. Amendment of section and Note filed 11-9-2000; operative 12-9-2000 (Register 2000, No. 45).

4. Amendment of section and Note filed 2-28-2006; operative 3-30-2006 (Register 2006, No. 9).

5. Amendment of section and Note filed 8-29-2007; operative 9-28-2007 (Register 2007, No. 35).

§2849.1. Reporting Transactions Pending at Close of Fiscal Year.

Note • History

In preparing the report required by Section 10232.2(c) of the Code, a sale or loan transaction shall be considered as business conducted in the fiscal year in which the escrow for the transaction closed.

NOTE

Authority cited: Section 10081, Business and Professions Code. Reference: Section 10232.2, Business and Professions Code.

HISTORY

1. Repealer and new section filed 1-17-80; effective thirtieth day thereafter (Register 80, No. 3). For prior history, see Register 76, No. 3 and 61, No.4.

2. Repealer and new section filed 5-13-82; effective thirtieth day thereafter (Register 82, No. 20).

3. Repealer and new section filed 1-9-85; effective thirtieth day thereafter (Register 85, No. 2).

§2849.2. Recording Trust Deeds or Assignments. [Repealed]

Note • History

NOTE

Authority cited: Section 10176.2, Business and Professions Code; Sections 3081.095 and 3081.096, Civil Code.

HISTORY

1. New section filed 5-16-60 as a emergency; effective upon filing (Register 60, No. 12).

2. Repealer filed 7-5-61; as an emergency; effective upon filing (Register 61, No. 13). For prior history see Register 61, No. 12.

§2849.3. Withdrawing Funds from Escrow. [Repealed]

Note • History

NOTE

Authority cited: Sections 10176.2 and 11001, Business and Professions Code; Sections 3081.095 and 3081.096, Civil Code.

HISTORY

1. New Sections 2849.3, 2849.4, 2849.5, 2849.6 filed 2-20-61 as an emergency; effective upon filing (Register 61, No. 4)

2. Amendments filed 6-16-61 as an emergency; effective upon filing. Certificate of Compliance--Gov. Code. 11422.1 including (Register 61, No. 12).

3. Repealers of 2849.3, 2849.4, 2849.5 and 2849.6 filed 7-5--61 as an emergency; effective on filing (Register 61. No. 13).

4. Certificate of Compliance filed 8-4-61 (Register 61, No. 15).

§2849.4. Notification to Escrow Companies.

§2849.5. Record of Discount Broker Transaction.

§2849.6. Notice of Intention.

§2849.7. Dishonest Dealing Defined. [Repealed]

Note • History

NOTE

Authority cited: Sections 10176.2 and 11001, Business and Professions Code; Sections 3081.095 and 3081.096, Civil Code. Additional authority cited: Sections 10080, 10237.5 and 10238.1(b), Business and Professions Code.

HISTORY

1. New section filed 2-20-61 as an emergency; effective upon filing (Register 61, No. 4).

2. Amendment filed 6-16-61 as an emergency; effective upon filing. Certificate of Compliance--Gov. Code, Sec.11422.1, included (Register 61. No. 12).

3. Amendment filed 7-31-61 as an emergency; effective on filing (Register 61, No. 13).

4. Amendment filed 7-31-61 as an emergency; effective on filing. Certificate of Compliance filed 8-4-61 (Register 61, No. 15).

5. Repealer filed 7-1-83; effective thirtieth day thereafter (Register 83, No. 30).

§2849.8. Reports of Transactions. [Repealed]

Note • History

NOTE

Authority cited: Sections 10176.2 and 11001, Business and Professions Code; Sections 3081.095 and 3081.096, Civil Code.

HISTORY

1. New section filed 2-20-61 as an emergency; effective upon filing (Register 61, No. 4).

2. Repealer filed 6-16-61 as an emergency; effective upon filing. Certificate of Compliance--Gov. Code, Sec. 11422.1, included (Register 61, No. 12).

§2849.31. Treatment of Funds to Be Reinvested. [Repealed]

History

HISTORY

1. New section filed 2-20-61 as an emergency; effective upon filing (Register 61, No. 4).

2. Amendment filed 6-16-61 as an emergency; effective upon filing. Certificate of Compliance--Gov. Code, Sec. 11422.1 including (Register 61. No. 12).

3. Repealer filed 7-5-61 as an emergency; effective on filing (Register 61, No. 13).

4. Certificate of Compliance filed 8-4-61 (Register 61, No. 15).

Article 16.5. California Foreclosure Prevention Act

Subarticle 1. Requirements

§2850.1. Scope of Regulations.

Note • History

(a) This article clarifies the application of Civil Code Sections 2923.52 and 2923.53, and sets forth the minimum requirements for a comprehensive loan modification program under Civil Code Section 2923.53, in order for a mortgage loan servicer to obtain an order of exemption from Civil Code Section 2923.52.

(b) The modification of loans in conformance with the Home Affordable Modification Program Guidelines issued by the U.S. Department of the Treasury on March 4, 2009, as amended (the “Guidelines”), shall constitute the implementation of a comprehensive loan modification program that meets the requirements of subdivision (a) of Civil Code Section 2923.53, and shall be deemed to meet all of the requirements in this subarticle (including Sections 2850.2, 2850.3, 2850.4, 2850.5, and 2850.6 of these rules). All other comprehensive loan modification programs shall comply with the minimum standards in this subarticle to obtain an order from the Commissioner for exemption from Civil Code Section 2923.52.

(c) For purposes of this article, “residential mortgage loan” shall mean any loan primarily for personal, family, or household use that is secured by a mortgage, deed of trust, or other equivalent consensual security interest on a dwelling (as defined in section 103(v) of the Truth in Lending Act) or residential real estate upon which is constructed a dwelling (as so defined).

(d) For purposes of this article, “borrower” shall mean a person who was the original obligor on the note or other secured obligation primarily for personal, family or household use and who is the trustor or mortgagor under the security device. “Borrower” includes a person who has formally assumed the secured obligations with the written consent of the beneficiary or mortgagee.

NOTE

Authority cited: Section 2923.53(d), Civil Code. Reference: Sections 2923.52 and 2923.53, Civil Code.

HISTORY

1. New article 16.5 (subarticles 1-4, sections 2850.1-2850.10) subarticle 1 (sections 2850.1-2850.6) and section filed 6-1-2009 as an emergency; operative 6-1-2009 (Register 2009, No. 23). A Certificate of Compliance must be transmitted to OAL by 11-30-2009 or emergency language will be repealed by operation of law on the following day.

2. New article 16.5 (subarticles 1-4, sections 2850.1-2850.10) subarticle 1 (sections 2850.1-2850.6) and section refiled 12-1-2009 as an emergency; operative 12-1-2009 (Register 2009, No. 49). A Certificate of Compliance must be transmitted to OAL by 3-1-2010 or emergency language will be repealed by operation of law on the following day.

3. Certificate of Compliance as to 12-1-2009 order, including amendment of subsections (a) and (b), transmitted to OAL 2-22-2010 and filed 4-6-2010 (Register 2010, No. 15).

§2850.2. Eligibility.

Note • History

(1) The residential mortgage loan to be modified was recorded during the period of January 1, 2003 to January 1, 2008.

(2) The borrower occupies the property as his or her principal residence, and occupied the property as his or her principal residence at the time the loan became delinquent.

(3) The loan is in default, and a notice of default has been filed with the county recorder under Civil Code Section 2924 for the mortgaged property.

(5) The mortgaged property is located in California.

(7) The borrower has not surrendered the property.

(9) The borrower does not currently have a bankruptcy action pending under Chapter 7, 11, 12, or 13 of Title 11 of the United States Code.

NOTE

Authority cited: Section 2923.53(d), Civil Code. Reference: Sections 2923.52 and 2923.53, Civil Code.

HISTORY

3. Certificate of Compliance as to 12-1-2009 order transmitted to OAL 2-22-2010 and filed 4-6-2010 (Register 2010, No. 15).

§2850.3. Availability.

Note • History

(a) For an applicant to obtain an order of exemption from Civil Code Section 2923.52, the comprehensive loan modification program shall, at a minimum, be made available to any borrower meeting the eligibility requirements of Section 2850.2 of these rules who calls, writes, or otherwise communicates with the mortgage loan servicer to notify the servicer of a financial hardship or to explore modifications to an existing loan, and shall be made available to borrowers as part of the contact required under Civil Code Section 2923.5.

(b) Every servicer that contacts a borrower in writing under Civil Code Section 2923.5 shall notify the borrower of the availability of the servicer's comprehensive loan modification program.

NOTE

Authority cited: Section 2923.53(d), Civil Code. Reference: Sections 2923.52 and 2923.53, Civil Code.

HISTORY

3. Certificate of Compliance as to 12-1-2009 order, including amendment of subsection (c), transmitted to OAL 2-22-2010 and filed 4-6-2010 (Register 2010, No. 15).

§2850.4. Program Requirements.

Note • History

(a) For an applicant to obtain an order of exemption from Civil Code Section 2923.52, the comprehensive loan modification program shall meet the minimum requirements in Sections 2850.5 and 2850.6 of these rules.

NOTE

Authority cited: Section 2923.53(d), Civil Code. Reference: Sections 2923.52 and 2923.53, Civil Code.

HISTORY

3. Certificate of Compliance as to 12-1-2009 order transmitted to OAL 2-22-2010 and filed 4-6-2010 (Register 2010, No. 15).

§2850.5. Loan Modification Features.

Note • History

(a) Any residential mortgage loan refinanced under the HOPE for Homeowners Program of the HOPE for Homeowners Act of 2008 (Title IV of Division A of the Housing and Economic Recovery Act of 2008 (Pub. L. 110-289, 122 Stat. 2654, approved July 30, 2008) as amended, and the rules adopted thereunder) is conclusively presumed to meet the minimum requirements for a loan modification under a comprehensive loan modification plan.

(A) A borrower is unable to document his or her ability to repay the loan; or

(d) Debt to Income Ratio of 38% or Less

(2) For loan modification programs that do not achieve a 38% or lower ratio on an aggregate basis, a servicer shall be able to establish other borrower characteristics that support a borrower's ability to repay the loan. These characteristics may include, but are not limited to, assets, a high income, low consumer debt, or any other borrower characteristics that support a borrower's ability to repay the loan, using customary underwriting criteria or current industry standards. If a servicer's comprehensive loan modification program does not achieve a debt-to-income ratio of 38% or lower on an aggregate basis, the servicer shall explain in the application the reasons for the higher ratio.

(3) For purposes of calculating housing-related debt to gross income, housing-related debt does not include junior liens.

(e) Other Features

(1) A comprehensive loan modification program shall include at least two of the following features:

(A) An interest rate reduction, as needed, for a fixed term of at least 5 years.

(B) An extension of amortization period for the loan term, to no more than 40 years from the original date of the loan.

(D) Reduction of principal.

(E) Compliance with a federally mandated loan modification program.

(2) While a comprehensive loan modification program must include at least two of the features set forth in paragraph (1), each individual loan modification need not include two features.

(3) A servicer shall have criteria in place that define when a borrower qualifies for the potential concessions or modifications.

(f) Long-term Sustainability:

A loan modification shall be presumed to constitute a long-term sustainable modification if it includes at least one of the following characteristics:

(1) The modification provides a reduction in monthly payment for the borrower for at least 5 years;

(2) The modification provides the borrower with a housing-related debt to gross income ratio of 38% or less;

(4) The borrower is current under the terms of the modified loan at the end of a 3-month trial period; or

(5) The modification is pursuant to the Home Affordable Modification Program Guidelines, HOPE for Homeowners Program, or another federal program intended to reduce the rate of foreclosures.

NOTE

Authority cited: Section 2923.53(d), Civil Code. Reference: Sections 2923.52 and 2923.53, Civil Code.

HISTORY

3. Certificate of Compliance as to 12-1-2009 order transmitted to OAL 2-22-2010 and filed 4-6-2010 (Register 2010, No. 15).

§2850.6. Other Requirements for Comprehensive Loan Modification Programs.

Note • History

(b) A servicer shall consider all eligible loans under this article unless prohibited by the rules of the applicable pooling and servicing agreement or other investor servicing agreements.

(c) A servicer shall use reasonable efforts to remove any prohibitions and obtain waivers or approvals from all necessary parties, including but not limited to junior lien holders and investors.

(e) If a borrower fails to participate in the modification process by providing documentation within a reasonable time or otherwise abandoning the borrower's loan modification request, a servicer may decline the request and pursue other remedies such as foreclosure sale. For purposes of this subsection, a borrower that provides documentation within 2 weeks of a request by a servicer shall be presumed to have provided documentation within a reasonable time. A servicer shall notify a borrower in writing of the time period to respond to a request for information and the potential consequence of failing to provide information in a reasonable time, prior to declining a loan modification request because of a borrower's undue delay.

NOTE

Authority cited: Section 2923.53(d), Civil Code. Reference: Sections 2923.52 and 2923.53, Civil Code.

HISTORY

3. Certificate of Compliance as to 12-1-2009 order, including amendment of subsection (b), transmitted to OAL 2-22-2010 and filed 4-6-2010 (Register 2010, No. 15).

Subarticle 2. Application

§2850.7. Initial Application.

Note • History

1. Where to File

FORECLOSURE EXEMPTIONS -- DEPARTMENT OF CORPORATIONS
320 WEST 4TH STREET, SUITE 750
LOS ANGELES, CA 90013-2344

Applications not filed by mail may be delivered to any of the Department of Corporations' locations.

Alternatively, applications may be submitted to the Department of Corporations through any electronic means that may be made available by the department at its Internet website (www.corp.ca.gov)

FORECLOSURE EXEMPTIONS -- DEPARTMENT OF FINANCIAL INSTITUTIONS 1810 -- 13TH STREET
SACRAMENTO, CALIFORNIA 95811-7118

Applications may be submitted by electronic mail to foreclosures@ dfi.ca.gov.

(c) Applicants licensed by the Department of Real Estate under the Real Estate Law shall file their application with the Department of Real Estate at the following address:

FORECLOSURE EXEMPTIONS -- DEPARTMENT OF REAL ESTATE
P.O. BOX 187007
SACRAMENTO, CA 95818-7007

Applications may be submitted by electronic mail to foreclosures@ dre.ca.gov.

The inadvertent filing of an application with the incorrect department will not constitute grounds for denial of the application.

2. When to File

3. Temporary Order

4. Final Order

5. Denial of Application

6. Changes to Application

The Department will accept changes to an application while the application is under consideration. However, the Temporary Order may not be extended.

NOTE

Authority cited: Section 2923.53(d), Civil Code. Reference: Sections 2923.52 and 2923.53, Civil Code.

HISTORY

1. New subarticle 2 (sections 2850.7-2850.8) and section filed 6-1-2009 as an emergency; operative 6-1-2009 (Register 2009, No. 23). A Certificate of Compliance must be transmitted to OAL by 11-30-2009 or emergency language will be repealed by operation of law on the following day.

2. New subarticle 2 (sections 2850.7-2850.8) and section refiled 12-1-2009 as an emergency; operative 12-1-2009 (Register 2009, No. 49). A Certificate of Compliance must be transmitted to OAL by 3-1-2010 or emergency language will be repealed by operation of law on the following day.

3. Certificate of Compliance as to 12-1-2009 order transmitted to OAL 2-22-2010 and filed 4-6-2010 (Register 2010, No. 15).

§2850.8. Changes to Program After Final Order.

Note • History

NOTE

Authority cited: Section 2923.53(d), Civil Code. Reference: Sections 2923.52 and 2923.53, Civil Code.

HISTORY

3. Certificate of Compliance as to 12-1-2009 order transmitted to OAL 2-22-2010 and filed 4-6-2010 (Register 2010, No. 15).

Subarticle 3. Application Form

§2850.9.

Note • History

The exemption application shall be in the following form:

STATE OF CALIFORNIA

DEPARTMENTS OF

CORPORATIONS, FINANCIAL INSTITUTIONS,

AND REAL ESTATE

APPLICATION FOR ORDER OF EXEMPTION FROM

CIVIL CODE SECTION 2923.52(a)

CALIFORNIA FORECLOSURE PREVENTION ACT

When completing the application, please note the following:

• The name of the applicant must be the applicant's legal name.

• The applicant's regulatory license number must be provided.

• The applicant must provide the name, title, address, email address, and telephone number of the contact person to whom questions regarding the filing of this application should be directed.

• The application must be signed by the applicant if a sole proprietor, by a general partner if a partnership, or by an authorized officer if a corporation or other entity.

The applicant's loan modification program must meet the following requirements:

• The program targets a ratio of the borrower's housing related debt to gross income of 38% or less, on an aggregate basis in the program.

• The program includes a combination of the following:

1. An interest rate reduction, as needed, for at least five years.

2. An extension of the amortization period for the loan term, to no more than forty years from the original date of the loan.

3. A deferral of some portion of the unpaid principal balance until the maturity of the loan.

4. A reduction of principal.

5. Compliance with a federally mandated loan modification program.

6. Any other factor the Commissioner determines is appropriate, as identified and described in this application and approved by the Commissioner (see 10 CCR §2923.5(e)(1)(F)).

• In determining a loan modification solution for the borrower, the program seeks to achieve long-term sustainability for the borrower.

The appropriate page and paragraph from the loan modification plan must be referenced on the application to show the program's compliance with the above requirements and expectations.

NOTE: A servicer is not required to violate a contractual agreement for the investor-owned loans or provide a modification to a borrower who is not willing or able to pay under the modification.

The application shall be filed with the appropriate agencies as follows:

Department of Corporations

• Licensed residential mortgage lenders and servicers

• Licensed finance lenders and brokers servicing mortgage loans

• Any other entities servicing mortgage loans that are not required to file the application with the Department of Financial Institutions or the Department of Real Estate

Department of Financial Institutions

• Commercial and industrial banks

• Savings associations

• Credit unions

Organized in this state servicing mortgage loans (for purposes of this regulation, the phrase “organized in this state” means institutions headquartered in this state)

Department of Real Estate

• Licensed real estate brokers servicing mortgage loans

An application will not be rejected by a department based upon an applicant's inadvertent failure to file with the designated department.

APPLICATION FOR ORDER OF EXEMPTION UNDER

SECTION 2923.53 OF THE

CALIFORNIA FORECLOSURE PREVENTION ACT

(CIVIL CODE SECTION 2923.52 ET SEQ.)

1. Legal name of applicant:

Fictitious business name (FBN):

2. License numbers:

DOC Primary License Number:

DFI Primary License Number:

DRE Primary License Number:

Other entity servicing mortgage loans

Name of Primary Regulator:

License/Identification Number, if applicable:

(Specify every license held by applicant that this application applies to.)

j Check this box if an application has also been filed with another department.

3. Contact Person/Title:

4. Telephone Number:

5. Email Address:

(Confirmation of Temporary Order will be provided to this e-mail address.)

6. Mailing Address:

7. Date comprehensive loan modification program was implemented:

8. Link to applicant's website describing its loan modification program:

Yes ___ No ____.

Indicate any differences from the Home Affordable Modification Program:

If your answer is “Yes,” please skip the remaining questions, provide only Exhibits 2 and 3, and complete the declaration section of this application. If your answer is “No,” please continue to complete the remainder of this application.

10. Are you currently participating in a federally sponsored loan modification program, or other federal loan modification program?

Yes_____ No_______

If yes, please indicate the program below:

___ Home Affordable Modification Program

___ Home Affordable Refinance Program

___ Hope for Homeowners

___ Other. Please specify:

A. Have you entered into a contract or agreement with the federal agency responsible for the program?

Yes_____ No _______

B. Does the federal loan modification program(s) you are participating in cover all types of residential mortgage loans you service? (i.e. Fannie Mae, Freddie Mac, FHA, VA, etc.)

Yes_____ No_____

If no, please explain and include how modifications for the loans not covered by the federal program are performed.

The following exhibits must be submitted with this application:

Program 1 Name/Identity:

Program 2 Name/Identity:

Program 3 Name/Identity:

Program 1

Yes_____No_____

If yes, indicate the location of the provision. Page___ Paragraph____

Program 2

Yes_____No_____

If yes, indicate the location of the provision. Page___ Paragraph____

Program 3

Yes_____No_____

If yes, indicate the location of the provision. Page___ Paragraph____

• Does the program contain a provision that it targets a ratio of the borrower's housing related debt to gross income of 38% or less, on an aggregate basis in the program?

Program 1

Yes_____No_____

If yes, indicate the location of the provision. Page___ Paragraph____

Program 2

Yes_____No_____

If yes, indicate the location of the provision. Page___ Paragraph____

Program 3

Yes_____No_____

If yes, indicate the location of the provision. Page___ Paragraph____

• The program includes the consideration of a combination of the following features:

A. Does the program include an interest rate reduction, as needed, for at least five years?

Program 1

Yes_____No_____

If yes, indicate the location of the provision. Page___ Paragraph____

Program 2

Yes_____No_____

If yes, indicate the location of the provision. Page___ Paragraph____

Program 3

Yes_____No_____

If yes, indicate the location of the provision. Page___ Paragraph____

B. Does the program include an extension of the amortization period for the loan term, to no more than forty years from the original date of the loan?

Program 1

Yes_____No_____

If yes, indicate the location of the provision. Page___ Paragraph____

Program 2

Yes_____No_____

If yes, indicate the location of the provision. Page___ Paragraph____

Program 3

Yes_____No_____

If yes, indicate the location of the provision. Page___ Paragraph____

C. Does the program include a deferral of some portion of the unpaid principal balance until the maturity of the loan?

Program 1

Yes_____No_____

If yes, indicate the location of the provision. Page___ Paragraph____

Program 2

Yes_____No_____

If yes, indicate the location of the provision. Page___ Paragraph____

Program 3

Yes_____No_____

If yes, indicate the location of the provision. Page___ Paragraph____

D. Does the program include a reduction of principal?

Program 1

Yes_____No_____

If yes, indicate the location of the provision. Page___ Paragraph____

Program 2

Yes_____No_____

If yes, indicate the location of the provision. Page___ Paragraph____

Program 3

Yes_____No_____

If yes, indicate the location of the provision. Page___ Paragraph____

E. Does the program provide for loan modifications that comply with any federal loan modification program?

Program 1

Yes_____No_____

If yes, indicate the location of the provision. Page___ Paragraph____

Program 2

Yes_____No_____

If yes, indicate the location of the provision. Page___ Paragraph____

Program 3

Yes_____No_____

If yes, indicate the location of the provision. Page___ Paragraph____

• In determining a loan modification solution for the borrower, does the servicer seek to reduce monthly payments for at least 5 years?

Program 1

Yes_____No_____

If yes, indicate the location of the provision. Page___ Paragraph____

Program 2

Yes_____No_____

If yes, indicate the location of the provision. Page___ Paragraph____

Program 3

Yes_____No_____

If yes, indicate the location of the provision. Page___ Paragraph____

Exhibit (3). A copy of the notice that will be sent to borrowers informing them of the program.

Servicing portfolio volume, including number of units and unpaid principal balance

Delinquency status of portfolio

Loss mitigation data including total number of modifications made

Loan modification features used

Housing related debt ratios (if available)

Subsequent defaults on loan modifications

Reasons for denial of loan modifications

Exhibit (5): Explanations for items included in the application.

(b) If the program is unable to achieve a debt-to-income ratio of 38% or less, on an aggregate basis, provide an explanation of why the program is unable to achieve this target.

NOTE: Exhibits 1, 4 and 5 are considered Confidential in nature and therefore will not be made available for public inspection on an individual basis.

Applicant

Signature of Declarant

Typed Name and Title of Declarant

Executed at: ______________________________

(City, County, and State)

Date:___________________________________

NOTE

Authority cited: Section 2923.53(d), Civil Code. Reference: Sections 2923.52 and 2923.53, Civil Code.

HISTORY

1. New subarticle 3 (section 2850.9) and section filed 6-1-2009 as an emergency; operative 6-1-2009 (Register 2009, No. 23). A Certificate of Compliance must be transmitted to OAL by 11-30-2009 or emergency language will be repealed by operation of law on the following day.

2. New subarticle 3 (section 2850.9) and section refiled 12-1-2009 as an emergency; operative 12-1-2009 (Register 2009, No. 49). A Certificate of Compliance must be transmitted to OAL by 3-1-2010 or emergency language will be repealed by operation of law on the following day.

3. Certificate of Compliance as to 12-1-2009 order transmitted to OAL 2-22-2010 and filed 4-6-2010 (Register 2010, No. 15).

Subarticle 4. Data Collection

§2850.10. Reports.

Note • History

(b) The loan modification data shall be reported on the FORECLOSURE PREVENTION LOAN MODIFICATION DATA report form, dated November 25, 2009, hereby incorporated by reference.

2. The servicer's infrastructure prevents it from collecting the data requested by the Commissioner, or the necessary changes are cost prohibitive. In granting a hardship exemption under this paragraph, the Commissioner may require a servicer to collect and report on information in the format that the servicer maintains the information or such other format agreed upon between the servicer and the Commissioner.

(d) The Commissioner may accept a report required or requested under, or pursuant to, a federal loan modification program, in lieu of the report in subsection (b).

NOTE

Authority cited: Section 2923.53(d), Civil Code. Reference: Sections 2923.52 and 2923.53, Civil Code.

HISTORY

1. New subarticle 4 (section 2850.10) and section filed 6-1-2009 as an emergency; operative 6-1-2009 (Register 2009, No. 23). A Certificate of Compliance must be transmitted to OAL by 11-30-2009 or emergency language will be repealed by operation of law on the following day.

2. New subarticle 4 (section 2850.10) and section refiled 12-1-2009 as an emergency; operative 12-1-2009 (Register 2009, No. 49). A Certificate of Compliance must be transmitted to OAL by 3-1-2010 or emergency language will be repealed by operation of law on the following day.

3. Certificate of Compliance as to 12-1-2009 order, including amendment of subsection (b), transmitted to OAL 2-22-2010 and filed 4-6-2010 (Register 2010, No. 15).

Article 17. Prepaid Rental Listing Services

HISTORY

1. Editorial correction removing section 2850 (Register 2009, No. 23). For prior history of section 2850, see Register 99, No. 44.

§2851. Surety Bond Format.

Note • History

A corporate survey bond provided to the Department by prepaid rental listing service pursuant to Section 10167.7 of the Code shall be in substantially the following form:

PREPAID RENTAL LISTING SERVICE BOND

Bond No._______________ _________

Premium $____________ ____________

Know all men by these presents:

That we, ______________________ as _______________________ PRINCIPAL and

a corporation organized under the laws of the State of

_____________________________ and authorized to transact the business of surety in the State of California as SURETY are held and firmly bound unto the State of California (OBLIGEE) in the penal sum of ___________________________ dollars ($___________________) for which payment, well and truly to be made, we bind ourselves, our heirs, administrators, successors and assigns, jointly and severally liable and liable on the obligations of the bond and the statute providing for the bond.

PRINCIPAL has applied to the Department of Real Estate of the State of California for a license to act as a Prepaid Rental Listing Service, or for the renewal of said license and is required by Section 10167.7 of the Business and Professions Code to have on file with the Department of Real Estate, a bond in the amount of $10,000 for each licensed location. This bond is executed and tendered in accordance with Section 10167.7.

The condition of this obligation is that if PRINCIPAL satisfies any and all final judgments entered against PRINCIPAL as the result of any action undertaken pursuant to subdivision (f) of Section 10167.10, then this obligation shall be null and void. Otherwise it shall remain in full force and effect.

For value received, SURETY does hereby waive any right granted to SURETY by Section 2845 if the California Civil Code to require that OBLIGEE proceed independently against PRINCIPAL to enforce this obligation or that the underlying judgment creditor of PRINCIPAL pursue any other remedies for the collection of said judgment.

This bond is continuous in form and shall remain in full force and effect and shall run concurrently with the term of the Rental Listing Service License issued to PRINCIPAL and for the term of any renewal thereof unless earlier terminated or cancelled by SURETY as provided by law.

The SURETY, its successors and assigns, are jointly and severally liable on the obligations of the bond, chapter 2 (commencing with section 995.010), Title 14, part 2, Code of Civil Procedure and Article 2.3, Chapter 3, Part 1, Division 4, Business and Professions Code.

The PRINCIPAL and SURETY may be served with notices, papers and other documents under chapter 2 (commencing with section 995.010), Title 14, part 2, Code of Civil Procedure at the addresses given above.

I certify (declare) under penalty of perjury under the laws of the State of California that I have executed this foregoing bond.

PRINCIPAL and SURETY have executed this agreement this __________________ day of _________, 20___.

(Principal) (Surety)

Address: Address:

By: By: ____________________

(Signature) (Signature)

NOTE

Authority cited: Section 10080, Business and Professions Code; and Section 11110, Government Code. Reference: Section 10167.7, Business and Professions Code.

HISTORY

1. New section filed 12-3-80; effective thirtieth day thereafter (Register 80, No. 49).

2. Amendment filed 12-1-81; designated effective 1-1-82 (Register 81, No. 49).

3. Amendment filed 4-2-86; effective thirtieth day thereafter (Register 86, No. 14).

4. Amendment of section and Note filed 9-19-2002; operative 10-19-2002 (Register 2002, No. 38).

5. Amendment filed 3-17-2005; operative 4-16-2005 (Register 2005, No. 11).

§2851.1. Cash Deposit Security Format.

Note • History

The following shall constitute an acceptable format for the creation and assignment of a cash deposit to the Commissioner pursuant to Section 10167.7 of the Code:

PREPAID RENTAL LISTING SERVICE

CASH DEPOSIT SECURITY

__________________________________________ (ASSIGNOR), a prepaid rental listing service licensee whose principal licensed location is at:

hereby

assigns to the Real Estate Commissioner of the State of California (ASSIGNEE) all of ASSIGNOR'S right, title and interest in a cash deposit /certificate of deposit in the amount of ________________ ($________) identified as follows:

Name and/or Number

Depository/Issuer

Name

Address

City and State

ASSIGNOR has applied to the Department of Real Estate of the State of California for a license to act as a prepaid listing service, or for the renewal of said license, and is required by Section 10167.7 of the Business and Professions Code to provide a cash deposit in the amount of $10,000 for each licensed location. This assignment is made in accordance with and pursuant to Section 1067.7.

This assignment includes any or all rights arising out of insurance of the principal amount of the account by the Federal Deposit Insurance Corporation or other insurer, but ASSIGNOR retains for himself all rights to interest earned on the principal and all rights arising out of insurance of the unpaid interest earned on the principal amount.

ASSIGNOR hereby gives to ASSIGNEE or his duly appointed representative the authority to withdraw funds from the account at any time without notice to ASSIGNOR for the purpose of paying unsatisfied judgements in accordance with Section 10167.7. This authority of ASSIGNEE shall include the power to convert a Certificate of Deposit or similar evidence of a deposit to cash as necessary to make payments for the benefit of unsatisfied judgement creditors notwithstanding the fact that such conversion may result in an interest penalty.

The Certificate of Deposit or other certificate evidencing the above identified account shall be retained in the custody of ASSIGNEE while this assignment remains in effect. This assignment shall remain effective until ASSIGNEE shall determine that there is not longer any potential liability of ASSIGNOR under Section 10167.10 of the Code.

DATED_________________, 20___

____________________________

Signature of Assignor*

*If an account or certificate is in the name of a corporation, the assignment must be signed by an officer of the corporation.

NOTE

Authority cited: Section 10080, Business and Professions Code. Reference: Section 10167.7, Business and Professions Code.

HISTORY

1. New section filed 12-3-80; effective thirtieth day thereafter (Register 80, No. 49).

2. Amendment of section and Note filed 9-19-2002; operative 10-19-2002 (Register 2002, No. 38).

§2851.2. Restoration of Surety Bond or Cash Deposit. [Repealed]

Note • History

NOTE

Authority cited: Section 10080, Business and Professions Code, Reference: Section 10167.7 (Ch. 1051, Statutes of 1980, SB 1564), Business and Professions Code.

HISTORY

1. New section filed 12-3-80; effective thirtieth day thereafter (Register 80, No. 49).

2. Repealer filed 10-26-99; operative 11-25-99 (Register 99, No. 44).

§2852. Change of Location for Office Address.

Note • History

(a) If a prepaid rental listing service (PRLS) licensee or a real estate broker operating a prepaid rental listing service under his broker license proposes to move either the principal location or main office to a different address, he shall, prior to effecting the move, give notice of the address and telephone number of the new principal location or main office in a manner reasonably calculated to reach all of the prospective tenants with whom the PRLS licensee or broker has contracts that have not expired.

(b) If a PRLS licensee or a real estate broker operating a prepaid rental listing service under his broker license proposes to move either a branch location or branch office to a different address, he shall, prior to effecting the move, give notice of the address and telephone number of the new branch location or branch office in a manner reasonably calculated to reach all of the prospective tenants previously supplied with listings of rental properties by the branch location or branch office under contracts that have not expired.

NOTE

Authority cited: Section 10080, Business and Professions Code. Reference: Article 23 (Ch. 1051, Statutes of 1980, SB 1564), Business and Professions Code.

HISTORY

1. Amendment filed 1-17-80; effective thirtieth day thereafter (Register 80, No. 3).

2. Amendment filed 7-9-80; effective thirtieth day thereafter (Register 80, No. 28).

3. Repealer and new section filed 12-3-80; effective thirtieth day thereafter (Register 80, No. 49).

§2852.1. Different Names for Branch Locations.

Note • History

If a licensee conducts a prepaid rental listing service business under different fictitious business names at separate locations or branch office within the boundaries of the same city or within ten miles of the boundary of that city, the name or fictitious business name under which each office or location is operated and the corresponding address of each office shall be set forth in the contract referred to in Section 10167.9 of the Code.

NOTE

Authority cited: Section 10081, Business and Professions Code. Reference: Sections 10167.9, 10167.10 and 10167.11, Business and Professions Code.

HISTORY

1. New section filed 1-9-85; effective thirtieth day thereafter (Register 85, No. 2). For prior history, see Register 80, No. 49.

§2852.2. Change of Business Office Location. [Repealed]

Note • History

NOTE

Authority cited: Section 10080, Business and Professions Code. Reference: Article 2.3 (Ch. 1051, Statutes of 1980, SB 1564), Business and Professions Code.

HISTORY

1. New section filed 1-7-75; designated effective 3-1-75 (Register 75, No. 2).

2. Repealer filed 12-3-80; effective thirtieth day thereafter (Register 80, No. 49).

§2852.3. Handling and Disposition of Advance Rental Fee. [Repealed]

Note • History

NOTE

Authority cited: Section 10080, Business and Professions Code. Reference: Article 2.3 (Ch. 1051, Statutes of 1980, SB 1564), Business and Professions Code.

HISTORY

1. New section filed 1-7-75; designated effective 3-1-75 (Register 75, No. 2).

2. Amendment filed 1-17-80; effective thirtieth day thereafter (Register 80, No. 3).

3. Repealer filed 12-3-80; effective thirtieth day thereafter (Register 80, No. 49).

§2853. Notice of Remedies for Failure to Refund.

Note • History

The clause required under subdivision (a)(8) of Section 10167.9 of the Code in a prepaid rental listing service contract shall appear in bold face type immediately below the RIGHT TO REFUND notice specified in Section 10167.10 of the Code and shall read as follows:

“You may bring a small claims court action against the licensee for his/her refusal to make a refund on your demand of all or part of the fee paid by you under this contract. If the court finds that the licensee has acted in bad faith in refusing to make the refund, the court has the authority to award you up to one thousand dollars ($1,000) in addition to damages actually sustained by you.”

NOTE

Authority cited: Section 10080, Business and Professions Code. Reference: Sections 10167.9 and 10167.10, Business and Professions Code.

HISTORY

1. New section filed 1-9-85; effective thirtieth day thereafter (Register 85, No. 2). For prior history, see Register 80, No. 49 and 80. No. 3.

2. Amendment of second paragraph and amendment of Note filed 9-5-2003; operative 10-5-2003 (Register 2003, No. 36).

§2854. List of Addresses. [Repealed]

Note • History

NOTE

Authority cited: Section 10080, Business and Professions Code. Reference: Section 10143, Business and Professions Code.

HISTORY

1. Repealer filed 1-17-80; effective thirtieth day thereafter (Register 80, No. 3).

§2855. Registry of Advertisements. [Repealed]

Note • History

NOTE

Authority cited: Section 10080, Business and Professions Code. Reference: Section 10143, Business and Professions Code.

HISTORY

1. Repealer filed 1-17-80; effective thirtieth day thereafter (Register 80, No. 3).

§2856. Authorization Required. [Repealed]

Note • History

NOTE

Authority cited: Section 10080, Business and Professions Code. Reference: Article 23 (Ch. 1051, Statutes of 1980, SB 1564), Business and Professions Code.

HISTORY

1. Amendment filed 11-19-69; designated effective 1-2-70 (Register 80, No. 3).

2. Amendment filed 7-9-80; effective thirtieth day thereafter (Register 80, No. 28).

3. Repealer and new section filed 12-3-80; effective thirtieth day thereafter (Register 80, No. 49).

Article 17.5. Mobile Home Sales

§2860. Transfer of Registration.

Note • History

(a) A real estate broker acting pursuant to Section 10131.6 of the Code shall, not later than the end of the tenth calendar day after the sale of a mobilehome, that is subject to registration, give written notice of the transfer to the headquarters office of the Department of Housing and Community Development as prescribed by that Department.

(b) In a transaction in which the certificate of ownership of a mobilehome that is subject to registration is not demanded in writing by the purchaser, a real estate broker acting pursuant to Section 10131.6 of the Code shall submit the following to the Department of Housing and Community Development on behalf of the purchaser within 10 days after the sale:

(1) All fees and penalties for transfer of registration of the mobilehome.

(2) The ownership certificate and last-issued registration card for the mobilehome and any other supporting documents required by the Department of Housing and Community Development.

(3) The use tax payable in the transaction.

NOTE

Authority cited: Section 10080, Business and Professions Code. Reference: Section 10131.6, Business and Professions Code; and Section 18100.5, Health and Safety Code.

HISTORY

1. New section filed 9-5-2003; operative 10-5-2003 (Register 2003, No. 36). For prior history, see Register 96, No. 46.

§2861. Notice of Transfer of Registration. [Repealed]

Note • History

NOTE

Authority cited: Section 10080, Business and Professions Code. Reference: Section 10131.6, Business and Professions Code, and Section 18100.5, Health and Safety Code.

HISTORY

1. Amendment filed 5-18-81; effective thirtieth day thereafter (Register 81, No. 21).

2. Amendment filed 1-11-84; effective thirtieth day thereafter (Register 84, No. 2).

3. Repealer of section and amendment of Note filed 11-13-96; operative 11-13-96 pursuant to Government Code section 11343.4(d) (Register 96, No. 46).

§2862. Submittal of Documents and Fees on Transfer. [Repealed]

Note • History

NOTE

Authority cited: Section 10131.6, Business and Professions Code. Reference: Section 18075 et seq., Health and Safety Code.

HISTORY

1. Amendment filed 1-16-76; effective thirtieth day thereafter (Register 76, No. 3).

2. Amendment filed 5-18-81; effective thirtieth day thereafter (Register 81, No. 21).

3. Editorial correction filed 7-16-81 (Register 81, No. 29).

4. Repealer filed 11-13-96; operative 11-13-96 pursuant to Government Code section 11343.4(d) (Register 96, No. 46).

§2863. Use of Fictitious Name. [Repealed]

Note • History

NOTE

Authority cited: Section 10080, Business and Professions Code. Reference: Section 10177.2, Business and Professions Code.

HISTORY

1. Repealer of section and new Note filed 11-13-96; operative 11-13-96 pursuant to Government Code section 11343.4(d) (Register 96, No. 46).

Article 18. Contracts, Writings and Other Documents

§2900. Blank Spaces in Instruments. [Repealed]

Note • History

NOTE

Authority cited for Article 18: Section 10080, and 10170.4 and 10176.2, Business and Professions Code.

HISTORY

1. New Article 18 (2900 through 2902) filed 12-11-57 effective thirtieth day thereafter (Register 57, No. 22).

2. Amendment filed 11-30-77; effective thirtieth day thereafter (Register 77, No. 49).

3. Repealer filed 7-1-83; effective thirtieth day thereafter (Register 83, No. 30).

§2901. Additions or Modifications. [Repealed]

History

HISTORY

1. Amendment filed 2-10-77; effective thirtieth day thereafter (Register 77, No. 7).

2. Repealer filed 7-1-83; effective thirtieth day thereafter (Register 83, No. 30).

§2902. Furnishing Copies. [Repealed]

History

HISTORY

1. Amendment filed 2-10-77; effective thirtieth day thereafter (Register 77, No. 7).

2. Repealer filed 7-1-83; effective thirtieth day thereafter (Register 83, No. 30).

§2903. Disclosure By Person or Entity Acting in a Transaction as Both Agent in a Sale, Lease, or Exchange and as an Arranger of Financing.

Note • History

When a corporate real estate broker, individual real estate broker, or real estate salesperson in the employ of a real estate broker (hereinafter each of the foregoing licensees will be referred to as “Real Estate Licensee”) who is acting as an agent in connection with a sale, lease or exchange of real property undertakes to arrange financing with respect to the transaction, or where a Real Estate Licensee who is arranging financing in connection with a sale, lease or exchange of real property undertakes to act as a real estate agent with respect to the transaction, the Real Estate Licensee shall, within twenty-four (24) hours of the undertaking (through which the Real Estate Licensee will have dual roles as a real estate agent and an arranger of financing), make a written disclosure of those roles to all parties to the sale, lease, or exchange, and any related loan or financing transaction. Where the Real Estate Licensee is a real estate salesperson in the employ of a real estate broker, the written disclosure must be made by the real estate broker who employs the salesperson. The written disclosure made by the Real Estate Licensee shall include an acknowledgement of receipt, which acknowledgment must be signed by all parties to the transaction.

NOTE

Authority cited: Section 10080, Business and Professions Code. Reference: Section 10177.6, Business and Professions Code.

HISTORY

1. New section filed 10-6-2009; operative 11-5-2009 (Register 2009, No. 41). For prior history, see Register 83, No. 30.

§2904. Disclosure of Compensation for Obtaining Financing.

Note • History

It shall constitute misrepresentation under Section 10176(a) of the Code for a real estate licensee who acts as an agent for either party in a transaction for the sale, lease or exchange of real property, a business opportunity or a mobilehome as described in Section 10131.6 of the Code, and who receives compensation, or who anticipates receiving compensation, from a lender in connection with the securing of financing for the transaction, to fail to disclose to both parties, prior to the closing of the transaction, the form, amount and source of compensation received or expected.

NOTE

Authority cited: Section 10080, 10170.4, 10226, 10149.2 11001, and 11011.8, Business and Professions Code and Sections 21082, Public Resources Code.

HISTORY

1. New section filed 12-2-74; effective thirtieth day thereafter (Register 74, No. 49). For history of former section, see Register 63, No. 14.

2. Amendment filed 2-10-77; effective thirtieth day thereafter (Register 77, No. 7).

3. Amendment filed 11-30-77; effective thirtieth day thereafter (Register 77, No. 49).

§2905. Pest Control Documentation.

Note • History

In a real estate transaction subject to the provisions of Section 1099 of the Civil Code, the real estate broker acting as agent for the seller in the transaction shall effect delivery of the inspection report, certification and the notice of work completed, if any, to the transferee in accordance with said section.

If more than one real estate broker licensee is acting as an agent of the transferor in the transaction, the broker who has obtained the offer made by the transferee shall effect delivery of the required documents to the transferee unless the transferor has given written directions to another real estate broker licensee acting as agent of the transferor in the transaction to effect delivery.

If the agent cannot obtain the required documents to deliver to the transferee and does not have written assurance from the transferee that all of said documents have been received, the agent shall advise the transferee in writing of the transferee's rights under Section 1099.

The broker shall maintain a record of the action taken to effect compliance with this regulation in accordance with Section 10148 of the Business and Professions Code.

NOTE

Authority cited: Sections 10080 and 10131.6, Business and Professions Code. Reference: Section 10148, Business and Professions Code.

HISTORY

1. New section filed 6-13-75 as an emergency; designated effective 71-15-75 (Register 75, No. 24).

2. Certificate of Compliance filed 8-28-75 (Register 75, No. 35).

3. Amendment filed 1-6-76; effective thirtieth day thereafter (Register 76, No. 3).

4. Amendment of section and Note filed 11-13-96; operative 11-13-96 pursuant to Government Code section 11343.4(d) (Register 96, No. 46).

Article 18.5. Substantial Relationship and Rehabilitation Criteria

§2910. Criteria of Substantial Relationship.

Note • History

(a) When considering whether a license should be denied, suspended or revoked on the basis of the conviction of a crime, or on the basis of an act described in Section 480(a)(2) or 480(a)(3) of the Code, the crime or act shall be deemed to be substantially related to the qualifications, functions or duties of a licensee of the Department within the meaning of Sections 480 and 490 of the Code if it involves:

(1) The fraudulent taking, obtaining, appropriating or retaining of funds or property belonging to another person.

(2) Counterfeiting, forging or altering of an instrument or the uttering of a false statement.

(3) Willfully attempting to derive a personal financial benefit through the nonpayment or underpayment of taxes, assessments or levies duly imposed upon the licensee or applicant by federal, state, or local government.

(4) The employment of bribery, fraud, deceit, falsehood or misrepresentation to achieve an end.

(5) Sexually related conduct affecting a person who is an observer or non-consenting participant in the conduct or convictions which require registration pursuant to the provisions of Section 290 of the Penal Code.

(6) Willfully violating or failing to comply with a provision of Division 4 of the Business and Professions Code of the State of California.

(7) Willfully violating or failing to comply with a statutory requirement that a license, permit or other entitlement be obtained from a duly constituted public authority before engaging in a business or course of conduct.

(8) Doing of any unlawful act with the intent of conferring a financial or economic benefit upon the perpetrator or with the intent or threat of doing substantial injury to the person or property of another.

(9) Contempt of court or willful failure to comply with a court order.

(10) Conduct which demonstrates a pattern of repeated and willful disregard of law.

(11) Two or more convictions involving the consumption or use of alcohol or drugs when at least one of the convictions involve driving and the use or consumption of alcohol or drugs.

(b) The conviction of a crime constituting an attempt, solicitation or conspiracy to commit any of the above enumerated acts or omissions is also deemed to be substantially related to the qualifications, functions or duties of a licensee of the department.

(c) If the crime or act is substantially related to the qualifications, functions or duties of a licensee of the department, the context in which the crime or acts were committed shall go only to the question of the weight to be accorded to the crime or acts in considering the action to be taken with respect to the applicant or licensee.

NOTE

Authority cited: Section 10080, Business and Professions Code. Reference: Sections 480, 481 and 490, Business and Professions Code; and In re Gossage (2000) 23 Cal 4th 1080.

HISTORY

1. New Article 18.5 (Sections 2910-2912) filed 4-24-78, effective thirtieth day thereafter (Register 78, No. 17).

2. Amendment filed 7-1-83; effective thirtieth day thereafter (Register 83, No. 30).

3. Amendment of subsection (a)(5) and new subsections (a)(9) and (a)(10) filed 6-20-2002; operative 7-20-2002 (Register 2002, No. 25).

4. Amendment of subsection (a)(2), new subsection (a)(11) and amendment of Note filed 9-5-2003; operative 10-5-2003 (Register 2003, No. 36).

§2911. Criteria of Rehabilitation (Denial).

Note • History

The following criteria have been developed by the department pursuant to Section 482(a) of the Business and Professions Code for the purpose of evaluating the rehabilitation of an applicant for issuance or for reinstatement of a license in considering whether or not to deny the issuance or reinstatement on account of a crime or act committed by the applicant:

(a) The passage of not less than two years since the most recent criminal conviction or act of the applicant that is a basis to deny the departmental action sought. (A longer period will be required if there is a history of acts or conduct substantially related to the qualifications, functions or duties of a licensee of the department.)

(b) Restitution to any person who has suffered monetary losses through “substantially related” acts or omissions of the applicant.

(d) Expungement or discontinuance of a requirement of registration pursuant to the provisions of Section 290 of the Penal Code.

(e) Successful completion or early discharge from probation or parole.

(f) Abstinence from the use of controlled substances or alcohol for not less than two years if the conduct which is the basis to deny the departmental action sought is attributable in part to the use of controlled substances or alcohol.

(g) Payment of the fine or other monetary penalty imposed in connection with a criminal conviction or quasi-criminal judgment.

(h) Stability of family life and fulfillment of parental and familial responsibilities subsequent to the conviction or conduct that is the basis for denial of the agency action sought.

(i) Completion of, or sustained enrollment in, formal education or vocational training courses for economic self-improvement.

(j) Discharge of, or bona fide efforts toward discharging, adjudicated debts or monetary obligations to others.

(k) Correction of business practices resulting in injury to others or with the potential to cause such injury.

(l) Significant or conscientious involvement in community, church or privately-sponsored programs designed to provide social benefits or to ameliorate social problems.

(m) New and different social and business relationships from those which existed at the time of the conduct that is the basis for denial of the departmental action sought.

(n) Change in attitude from that which existed at the time of the conduct in question as evidenced by any or all of the following:

(1) Testimony of applicant.

(2) Evidence from family members, friends or other persons familiar with applicant's previous conduct and with his subsequent attitudes and behavioral patterns.

(3) Evidence from probation or parole officers or law enforcement officials competent to testify as to applicant's social adjustments.

(4) Evidence from psychiatrists or other persons competent to testify with regard to neuropsychiatric or emotional disturbances.

(5) Absence of subsequent felony or misdemeanor convictions that are reflective of an inability to conform to societal rules when considered in light of the conduct in question.

(o) Each of the above criteria notwithstanding, no mortgage loan originator license endorsement shall be issued to an applicant for such license endorsement where the applicant has been convicted of any felony within seven (7) years from the date of his or her application for a license endorsement. This ban is not subject to mitigation or rehabilitation.

(p) Each of the above criteria notwithstanding, no mortgage loan originator license endorsement shall be issued to an applicant for such license endorsement where the applicant has ever been convicted of a felony where such felony involved an act of fraud, dishonesty, a breach of trust, or money laundering. This ban is not subject to mitigation or rehabilitation.

NOTE

Authority cited: Sections 10080 and 10166.17, Business and Professions Code. Reference: Section 10166.05(b), Business and Professions Code.

HISTORY

1. New subsection (d), subsection relettering and new Note filed 6-20-2002; operative 7-20-2002 (Register 2002, No. 25).

2. New subsection (n)(5) and amendment of Note filed 9-5-2003; operative 10-5-2003 (Register 2003, No. 36).

3. New subsections (o) and (p) and amendment of Note filed 2-23-2010 as an emergency; operative 2-23-2010 (Register 2010, No. 9). A Certificate of Compliance must be transmitted to OAL by 8-23-2010 or emergency language will be repealed by operation of law on the following day.

4. Certificate of Compliance as to 2-23-2010 order transmitted to OAL 5-6-2010 and filed 6-29-2010 (Register 2010, No. 27).

§2912. Criteria of Rehabilitation (Revocation or Suspension).

Note • History

The following criteria have been developed by the department pursuant to Section 482(b) of the Business and Professions Code for the purpose of evaluating the rehabilitation of a licensee against whom an administrative disciplinary proceeding for revocation or suspension of the license has been initiated on account of a crime committed by the licensee.

(a) The passage of not less than two years from the most recent criminal conviction that is “substantially related” to the qualifications, functions or duties of a licensee of the department. (A longer period will be required if there is a history of criminal convictions or acts substantially related to the qualifications, functions or duties of a licensee of the department.)

(b) Restitution to any person who has suffered monetary losses through “substantially related” acts or omissions of the licensee.

(c) Expungement of the conviction or convictions which culminated in the administrative proceeding to take disciplinary action.

(d) Expungement or discontinuance of a requirement of registration pursuant to the provisions of Section 290 of the Penal Code.

(e) Successful completion or early discharge from probation or parole.

(f) Abstinence from the use of controlled substances or alcohol for not less than two years if the criminal conviction was attributable in part to the use of a controlled substance or alcohol.

(g) Payment of any fine imposed in connection with the criminal conviction that is the basis for revocation or suspension of the license.

(h) Correction of business practices responsible in some degree for the crime or crimes of which the licensee was convicted.

(i) New and different social and business relationships from those which existed at the time of the commission of the acts that led to the criminal conviction or convictions in question.

(j) Stability of family life and fulfillment of parental and familial responsibilities subsequent to the criminal conviction.

(k) Completion of, or sustained enrollment in, formal educational or vocational training courses for economic self-improvement.

(l) Significant and conscientious involvement in community, church or privately-sponsored programs designed to provide social benefits or to ameliorate social problems.

(m) Change in attitude from that which existed at the time of the commission of the criminal acts in question as evidenced by any or all of the following:

(1) Testimony of applicant.

(2) Evidence from family members, friends or other persons familiar with the licensee's previous conduct and with subsequent attitudes and behavioral patterns.

(3) Evidence from probation or parole officers or law enforcement officials competent to testify as to applicant's social adjustments.

(4) Evidence from psychiatrists, clinical psychologists, sociologists or other persons competent to testify with regard to neuropsychiatric or emotional disturbances.

(5) Absence of subsequent felony or misdemeanor convictions that are reflective of an inability to conform to societal rules when considered in light of the conduct in question.

NOTE

Authority cited: Sections 482 and 10080, Business and Professions Code. Reference: Section 482, Business and Professions Code and In re Gossage (2000) 23 Cal 4th 1080.

HISTORY

1. Amendment of subsection (l)(4) filed 11-16-87; operative 12-16-87 (Register 87, No. 47).

2. New subsection (d) and subsection relettering filed 6-20-2002; operative 7-20-2002 (Register 2002, No. 25).

3. New subsection (m)(5) and amendment of Note filed 9-5-2003; operative 10-5-2003 (Register 2003, No. 36).

Article 18.6. Monetary Penalty in Lieu of Suspension

§2920. Amount of Penalty. [Repealed]

Note • History

NOTE

Authority cited: Section 10080, Business and Professions Code. Reference: Section 10175.2, Business and Professions Code.

HISTORY

1. New section filed 11-16-87; operative 12-16-87 (Register 87, No. 47).

2. Repealer filed 11-27-96; operative 12-27-96 (Register 96, No. 48).

§2921. Procedures.

Note • History

(a) Licensees may petition in writing for a monetary penalty at any time after filing of an accusation and before the effective date of a decision.

(b) No specific form of petition is required. It may contain argument to support a grant of the petition or any other relevant material the petitioner desires to present to the Commissioner.

(c) Upon receipt of a timely petition, the Commissioner shall grant a stay of the effective date of the decision, if any, for a period of up to 30 days for the purpose of determining whether the public interest and welfare will be adequately served if the petition is granted.

(d) Any order granting a petition for a monetary penalty in lieu of a license suspension order shall be published in the “Real Estate Bulletin.”

NOTE

Authority cited: Sections 10080 and 10083, Business and Professions Code. Reference: Section 10175.2, Business and Professions Code.

HISTORY

1. New section filed 11-16-87; operative 12-16-87 (Register 87, No. 47).

§2922. Payment.

Note • History

Payment of a monetary penalty shall be by means of a certified or cashier's check made payable to the Department of Real Estate.

NOTE

Authority cited: Section 10080, Business and Professions Code. Reference: Section 10175.2, Business and Professions Code.

HISTORY

1. New section filed 11-16-87; operative 12-16-87 (Register 87, No. 47).

Article 18.7. Standard Proposed Decision Language

§2930. Standard Proposed Decision Language.

Note • History

The following language, terms and conditions will be used, as appropriate, in Proposed Decisions and Decisions of the commissioner in administrative adjudications conducted pursuant to Sections 11500, et seq. of the Government Code:

1. Revocation:

All licenses and licensing rights of Respondent ____________ under the Real Estate Law are revoked.

2. Revocation With Right to Restricted License--Broker:

All licenses and licensing rights of Respondent ___________ under the Real Estate Law are revoked; provided, however, a restricted real estate broker license shall be issued to Respondent pursuant to Section 10156.5 of the Business and Professions Code if Respondent makes application therefor and pays to the Department of Real Estate the appropriate fee for the restricted license within 90 days from the effective date of this Decision. The restricted license issued to Respondent shall be subject to all of the provisions of Section 10156.7 of the Business and Professions Code and to the following limitations, conditions and restrictions imposed under authority of Section 10156.6 of that Code:

1. The restricted license issued to Respondent may be suspended prior to hearing by Order of the Real Estate Commissioner in the event of Respondent's conviction or plea of nolo contendere to a crime which is substantially related to Respondent's fitness or capacity as a real estate licensee.

2. The restricted license issued to Respondent may be suspended prior to hearing by Order of the Real Estate Commissioner on evidence satisfactory to the Commissioner that Respondent has violated provisions of the California Real Estate Law, the Subdivided Lands Law, Regulations of the Real Estate Commissioner or conditions attaching to the restricted license.

3. Respondent shall not be eligible to apply for the issuance of an unrestricted real estate license nor for the removal of any of the conditions, limitations or restrictions of a restricted license until two years have elapsed from the effective date of this Decision.

4. Respondent shall, within nine months from the effective date of this Decision, present evidence satisfactory to the Real Estate Commissioner that Respondent has, since the most recent issuance of an original or renewal real estate license, taken and successfully completed the continuing education requirements of Article 2.5 of Chapter 3 of the Real Estate Law for renewal of a real estate license. If Respondent fails to satisfy this condition, the Commissioner may order the suspension of the restricted license until the Respondent presents such evidence. The Commissioner shall afford Respondent the opportunity for a hearing pursuant to the Administrative Procedure Act to present such evidence.

3. Revocation With Right to Restricted License--Salesperson:

All licenses and licensing rights of Respondent ____________ under the Real Estate Law are revoked; provided, however, a restricted real estate salesperson license shall be issued to Respondent pursuant to Section 10156.5 of the Business and Professions Code if Respondent makes application therefor and pays to the Department of Real Estate the appropriate fee for the restricted license within 90 days from the effective date of this Decision. The restricted license issued to Respondent shall be subject to all of the provisions of Section 10156.7 of the Business and Professions Code and to the following limitations, conditions and restrictions imposed under authority of Section 10156.6 of that Code:

4. Respondent shall submit with any application for license under an employing broker, or any application for transfer to a new employing broker, a statement signed by the prospective employing real estate broker on a form approved by the Department of Real Estate which shall certify:

(a) That the employing broker has read the Decision of the Commissioner which granted the right to a restricted license; and

(b) That the employing broker will exercise close supervision over the performance by the restricted licensee relating to activities for which a real estate license is required.

5. Respondent shall, within nine months from the effective date of this Decision, present evidence satisfactory to the Real Estate Commissioner that Respondent has, since the most recent issuance of an original or renewal real estate license, taken and successfully completed the continuing education requirements of Article 2.5 of Chapter 3 of the Real Estate Law for renewal of a real estate license. If Respondent fails to satisfy this condition, the Commissioner may order the suspension of the restricted license until the Respondent presents such evidence. The Commissioner shall afford Respondent the opportunity for a hearing pursuant to the Administrative Procedure Act to present such evidence.

4. Suspension Added to Revocation With Right to a Restricted License:

Any restricted real estate license issued to Respondent pursuant to this Decision shall be suspended for ____ days from the date of issuance of said restricted license.

5. Professional Responsibility Condition:

Respondent shall, within six months from the effective date of this Decision, take and pass the Professional Responsibility Examination administered by the Department including the payment of the appropriate examination fee. If Respondent fails to satisfy this condition, the Commissioner may order suspension of Respondent's license until Respondent passes the examination.

6. Conditional License Condition--Salesperson Only--(Accusation):

Respondent's original real estate salesperson license was issued subject to the provisions of Section 10153.4 of the Business and Professions Code, and the restricted real estate salesperson license issued to Respondent shall be similarly limited, to wit: Respondent shall, within eighteen (18) months of the issuance of Respondent's original real estate salesperson license under the provisions of Section 10153.4 of the Business and Professions Code, submit evidence satisfactory to the Commissioner of successful completion, at an accredited institution, of a course in real estate practices and one of the courses listed in Section 10153.2, other than real estate principles, advanced legal aspects of real estate, advanced real estate finance or advanced real estate appraisal. If Respondent fails to present satisfactory evidence of successful completion of said courses, the restricted license shall be automatically suspended effective eighteen (18) months after issuance of Respondent's original real estate salesperson license. Said suspension shall not be lifted until Respondent has submitted the required evidence of course completion and the Commissioner has given written notice to the Respondent of lifting of the suspension.

7. Restitution Condition:

Respondent shall, prior to the issuance of the restricted license and as a condition of the issuance of said restricted license, submit proof satisfactory to the Commissioner of payment of restitution in the amount of ___________ to ______________.

8. Reporting Condition (Broker Only):

Respondent shall report in writing to the Department of Real Estate as the Real Estate Commissioner shall direct by his Decision herein or by separate written order issued while the restricted license is in effect such information concerning Respondent's activities for which a real estate license is required as the Commissioner shall deem to be appropriate to protect the public interest.

Such reports may include, but shall not be limited to, periodic independent accountings of trust funds in the custody and control of Respondent and periodic summaries of salient information concerning each real estate transaction in which the Respondent engaged during the period covered by the report.

9. Suspension (Broker and Salesperson):

All licenses and licensing rights of Respondent _____________ under the Real Estate Law are suspended for a period of ___________ (____) days from the effective date of this Decision.

10. Suspension With All or a Portion Stayed (Broker and Salesperson):

All licenses and licensing rights of Respondent _____________ under the Real Estate Law are suspended for a period of _____________(____) days from the effective date of this Decision; provided, however, that ___________(____) days of said suspension shall be stayed for one (1) year upon the following terms and conditions:

1. Respondent shall obey all laws, rules and regulations governing the rights, duties and responsibilities of a real estate licensee in the State of California; and

2. That no final subsequent determination be made, after hearing or upon stipulation, that cause for disciplinary action occurred within one (1) year of the effective date of this Decision. Should such a determination be made, the Commissioner may, in his discretion, vacate and set aside the stay order and reimpose all or a portion of the stayed suspension. Should no such determination be made, the stay imposed herein shall become permanent.

11. Suspension With Monetary Penalty in Lieu of Suspension Pursuant to Business and Professions Code Section 10175.2 (Broker and Salesperson):

All licenses and licensing rights of Respondent _____________ under the Real Estate Law are suspended for a period of _____________(____) days from the effective date of this Decision; provided, however, that if Respondent petitions, said suspension (or a portion thereof) shall be stayed upon condition that:

1. Respondent pays a monetary penalty pursuant to Section 10175.2 of the Business and Professions Code at the rate of $_________ for each day of the suspension for a total monetary penalty of $____________.

2. Said payment shall be in the form of a cashier's check or certified check made payable to the Recovery Account of the Real Estate Fund. Said check must be received by the Department prior to the effective date of the Decision in this matter.

3. No further cause for disciplinary action against the real estate license of Respondent occurs within one year from the effective date of the Decision in this matter.

4. If Respondent fails to pay the monetary penalty in accordance with the terms and conditions of the Decision, the Commissioner may, without a hearing, order the immediate execution of all or any part of the stayed suspension in which event the Respondent shall not be entitled to any repayment nor credit, prorated or otherwise, for money paid to the Department under the terms of this Decision.

5. If Respondent pays the monetary penalty and if no further cause for disciplinary action against the real estate license of Respondent occurs within one year from the effective date of the Decision, the stay hereby granted shall become permanent.

12. Denial of Broker License Application With Right to a Restricted Broker License. (Note: The continuing education condition should not be used in application cases):

Respondent's application for a real estate broker license is denied; provided, however, a restricted real estate broker license shall be issued to Respondent pursuant to Section 10156.5 of the Business and Professions Code. The restricted license issued to the Respondent shall be subject to all of the provisions of Section 10156.7 of the Business and Professions Code and to the following limitations, conditions and restrictions imposed under authority of Section 10156.6 of said Code:

1. The license shall not confer any property right in the privileges to be exercised, and the Real Estate Commissioner may by appropriate order suspend the right to exercise any privileges granted under this restricted license in the event of:

(a) The conviction of Respondent (including a plea of nolo contendere) of a crime which is substantially related to Respondent's fitness or capacity as a real estate licensee; or

(b) The receipt of evidence that Respondent has violated provisions of the California Real Estate Law, the Subdivided Lands Law, Regulations of the Real Estate Commissioner or conditions attaching to this restricted license.

2. Respondent shall not be eligible to apply for the issuance of an unrestricted real estate license nor the removal of any of the conditions, limitations or restrictions attaching to the restricted license until two years have elapsed from the date of issuance of the restricted license to Respondent.

13. Denial of Salesperson License Application With Right to a Restricted Salesperson License (Unconditional). (Note: The continuing education condition should not be used in application cases):

Respondent's application for a real estate salesperson license is denied; provided, however, a restricted real estate salesperson license shall be issued to Respondent pursuant to Section 10156.5 of the Business and Professions Code. The restricted license issued to the Respondent shall be subject to all of the provisions of Section 10156.7 of the Business and Professions Code and to the following limitations, conditions and restrictions imposed under authority of Section 10156.6 of said Code:

(a) The conviction of Respondent (including a plea of nolo contendere) of a crime which is substantially related to Respondent's fitness or capacity as a real estate licensee; or

3. With the application for license, or with the application for transfer to a new employing broker, Respondent shall submit a statement signed by the prospective employing real estate broker on a form RE 552 (Rev. 4/88) approved by the Department of Real Estate which shall certify as follows:

(a) That the employing broker has read the Decision which is the basis for the issuance of the restricted license; and

(b) That the employing broker will carefully review all transaction documents prepared by the restricted licensee and otherwise exercise close supervision over the licensee's performance of acts for which a license is required.

14. Denial of Application for Conditional Salesperson Application or Revocation of Conditional Salesperson License. (Note: A license is “conditional” when the respondent has not completed the two additional courses required by Section 10153.4):

Denial: Restricted License:

1. Respondent's restricted real estate salesperson license is issued subject to the requirements of Section 10153.4 of the Business and Professions Code, to wit: Respondent shall, within eighteen (18) months of the issuance of the restricted license, submit evidence satisfactory to the Commissioner of successful completion, at an accredited institution, of a course in real estate practices and one of the courses listed in Section 10153.2, other than real estate principles, advanced legal aspects of real estate, advanced real estate finance or advanced real estate appraisal. If Respondent fails to timely present to the Department satisfactory evidence of successful completion of the two required courses, the restricted license shall be automatically suspended effective eighteen (18) months after the date of its issuance. Said suspension shall not be lifted unless, prior to the expiration of the restricted license, Respondent has submitted the required evidence of course completion and the Commissioner has given written notice to Respondent of lifting of the suspension.

2. Pursuant to Section 10154, if Respondent has not satisfied the requirements for an unqualified license under Section 10153.4, Respondent shall not be entitled to renew the restricted license, and shall not be entitled to the issuance of another license which is subject to Section 10153.4 until four years after the date of the issuance of the preceding restricted license.

Revocation: Restricted License. (Applicable if less than eighteen (18) months have passed since the issuance of the conditional license being revoked):

1. Respondent's restricted real estate salesperson license is issued subject to the requirements of Section 10153.4 of the Business and Professions Code, to wit: Respondent shall, within eighteen (18) months of the issuance of the license revoked herein, submit evidence satisfactory to the Commissioner of successful completion, at an accredited institution, of a course in real estate practices and one of the courses listed in Section 10153.2, other than real estate principles, advanced legal aspects of real estate, advanced real estate finance or advanced real estate appraisal. If Respondent fails to present to the Department satisfactory evidence of successful completion of the two required courses, the restricted license shall be automatically suspended effective eighteen (18) months after the date of issuance of the license revoked herein. Said suspension shall not be lifted unless prior to the expiration of the restricted license Respondent has submitted the required evidence of course completion and the Commissioner has given written notice to Respondent of lifting of the suspension.

Revocation: Restricted License. (More than 18 months have passed since the issuance of the conditional license being revoked):

1. Prior to the delivery or mailing of Respondent's restricted license, Respondent shall submit evidence satisfactory to the Commissioner of successful completion, at an accredited institution, of a course in real estate practices and one of the courses listed in Section 10153.2, other than real estate principles, advanced legal aspects of real estate, advanced real estate finance or advanced real estate appraisal. If Respondent fails to present to the Department satisfactory evidence of successful completion of the two required courses, the restricted license shall be automatically suspended. Said suspension shall not be lifted unless, prior to the expiration of the restricted license, Respondent has submitted the required evidence of course completion and the Commissioner has given written notice to Respondent of lifting of the suspension.

2. If Respondent has not satisfied the requirements for an unqualified license within four years from the date of issuance of the restricted license revoked herein, Respondent shall not be entitled to renew the restricted license, and shall not be entitled to the issuance of another license which is subject to Section 10153.4 until four years after the date of the issuance of the preceding restricted license.

15. Trust Fund Violations: Standard Terms and Conditions for a Restricted License:

Pursuant to Section 10148 of the Business and Professions Code, Respondent shall pay the Commissioner's reasonable cost for: a) the audit which led to this disciplinary action and, b) a subsequent audit to determine if Respondent has corrected the trust fund violation(s) found in paragraphs __________ of the Determination of Issues. In calculating the amount of the Commissioner's reasonable cost, the Commissioner may use the estimated average hourly salary for all persons performing audits of real estate brokers, and shall include an allocation for travel time to and from the auditor's place of work. Respondent shall pay such cost within 60 days of receiving an invoice from the Commissioner detailing the activities preformed during the audit and the amount of time spent performing those activities. The Commissioner may suspend the restricted license issued to respondent pending a hearing held in accordance with Section 11500, et seq., of the Government Code, if payment is not timely made as provided for herein, or as provided for in a subsequent agreement between the Respondent and the Commissioner. The suspension shall remain in effect until payment is made in full or until Respondent enters into an agreement satisfactory to the Commissioner to provide for payment, or until a decision providing otherwise is adopted following a hearing held pursuant to this condition.

16. Trust Fund Violations: Standard Terms and Conditions for a Suspended License:

All licenses and licensing rights of Respondent are suspended for two years from the effective date of this Decision; provided, however, that the suspension shall be stayed upon the following terms and conditions:

1. Respondent's license and license rights shall be actually suspended for a period of ____ days. Respondent may, pursuant to Section 10175.2, petition the Commissioner to pay a monetary penalty and thereby further stay imposition of the term of the actual suspension. (Note: The last sentence is optional.)

2. Respondent shall obey all laws, rules and regulations governing the rights, duties and responsibilities of a real estate licensee in the State of California.

3. The Commissioner may, if a final subsequent determination is made, after hearing or upon stipulation, that cause for disciplinary action occurred during the term of the suspension provided for in condition “1”, vacate and set aside the stay order including any further stay imposed pursuant to Section 10175.2. Should no order vacating the stay be made pursuant to this condition or condition “4” below, the stay imposed herein shall become permanent.

4. Pursuant to Section 10148 of the Business and Professions Code, Respondent shall pay the Commissioner's reasonable cost for: a) the audit which led to this disciplinary action and, b) a subsequent audit to determine if Respondent has corrected the trust fund violation(s) found in paragraphs ________________ of the Determination of Issues. In calculating the amount of the Commissioner's reasonable cost, the Commissioner may use the estimated average hourly salary for all persons performing audits of real estate brokers, and shall include an allocation for travel costs, including mileage, time to and from the auditor's place of work and per diem. Respondent shall pay such cost within 60 days of receiving an invoice from the Commissioner detailing the activities performed during the audit and the amount of time spent performing those activities. The Commissioner may, in his discretion, vacate and set aside the stay order, if payment is not timely made as provided for herein, or as provided for in a subsequent agreement between the Respondent and the Commissioner. The vacation and the set aside of the stay shall remain in effect until payment is made in full, or until Respondent enters into an agreement satisfactory to the Commissioner to provide for payment. Should no order vacating the stay be issued, either in accordance with this condition or condition “3”, the stay imposed herein shall become permanent.

17. Trust Fund Violation Course Requirement.

Restricted License:

Respondent shall, prior to and as a condition of the issuance of the restricted license, submit proof satisfactory to the Commissioner of having taken and successfully completed the continuing education course on trust fund accounting and handling specified in subdivision (a) of Section 10170.5 of the Business and Professions Code. Proof of satisfaction of this requirement includes evidence that respondent has successfully completed the trust fund account and handling continuing education course within 120 days prior to the effective date of the Decision in this matter.

Suspended License:

All licenses and licensing rights of Respondent _________________ are indefinitely suspended unless or until Respondent provides proof satisfactory to the Commissioner, of having taken and successfully completed the continuing education course on trust fund accounting and handling specified in paragraph (3) of subdivision (a) of Section 10170.5 of the Business and Professions Code. Proof of satisfaction of this requirement includes evidence that respondent has successfully completed the trust fund account and handling continuing education course within 120 days prior to the effective date of the Decision in this matter.

18. Unlicensed Activity (Brokers and Salespersons) License Suspension with Right to Petition to Pay Monetary Penalty.

(a) In addition to any other penalty imposed, when a Respondent is found to have been compensated for performing acts requiring a real estate license without having a license or when his or her real estate license was suspended, revoked or expired, the penalty shall include a suspension of the license with the right to pay a monetary penalty to stay all or a portion of the suspension. The length of the suspension shall be based on the aggregate amount of compensation paid during the period of non-licensure measured by one (1) day of suspension for each one hundred dollars ($100) of compensation received up to a maximum of $10,000.00.)

(b) All licenses and licensing rights of Respondent __________ under the Real Estate Law are suspended for a period of __________ (____) days from the effective date of this Decision; provided, however, that if Respondent petitions, said suspension (or a portion thereof) shall be stayed upon condition that:

1. Respondent pays a monetary penalty pursuant to Section 10175.2 of the Business and Professions Code at the rate of $100.00 for each day of the suspension for a total monetary penalty of $___________.

3. No further cause for disciplinary action against the real estate license of Respondent occurs within one year from the effective date of the Decision in this matter.

19. Reporting Condition Criminal Conviction Cases (Brokers and Salespersons) -- Restricted License.

In addition to any other penalty imposed, when a Respondent is found to have violated Sections 475(a)(2), 480(a)(1), 490 or 10177(b) of the Code, the following condition shall be included among the terms and conditions attached to a restricted license:

Respondent shall notify the Commissioner in writing within 72 hours of any arrest by sending a certified letter to the Commissioner at the Department of Real Estate, Post Office Box 187000, Sacramento, CA 95818-7000. The letter shall set forth the date of Respondent's arrest, the crime for which Respondent was arrested and the name and address of the arresting law enforcement agency. Respondent's failure to timely file written notice shall constitute an independent violation of the terms of the restricted license and shall be grounds for the suspension or revocation of that license.

20. Order of Debarment

Pursuant to Section 10087 of the Business and Professions Code, Respondent ______ is hereby barred and prohibited for a period of thirty-six (36) months from the effective date of this order from performing any of the following activities in the State of California:

(a) Participating in any capacity to further the business activity of a real estate salesperson or real estate broker, or engaging in any business activity involving real estate that is subject to regulation under Division 4 (Sections 10000 through 11288) of the Business & Professions Code;

(b) Participating in any activity for which a real estate salesperson or a real estate broker license is required;

(c) Engaging in any real estate-related business activity on the premises where a real estate salesperson or real estate broker is conducting business which requires a real estate license;

(d) Participating in any real estate-related business activity of a finance lender, residential mortgage lender, bank, credit union, escrow company, title company, or underwritten title company; and

(e) Holding any position of employment, management, control, or ownership, as a real estate broker, a real estate salesperson, or an unlicensed person, in any business involving any of the activities mentioned in subparagraphs (a) through (d) above.

NOTE

Authority cited: Section 10080, Business and Professions Code. Reference: Sections 10087, 10148 and 10153.4, Business and Professions Code; and Section 11425.50, Government Code.

HISTORY

1. New article 18.7 (section 2930) and section filed 12-30-97; operative 1-29-98 (Register 98, No. 1).

2. Amendment filed 10-26-99; operative 11-25-99 (Register 99, No. 44).

3. Editorial correction of item 16 (Register 2000, No. 45).

4. Amendment of item 11.2. and amendment of Note filed 11-9-2000; operative 12-9-2000 (Register 2000, No. 45).

5. Amendment of section and Note filed 6-20-2002; operative 7-20-2002 (Register 2002, No. 25).

6. Amendment of item 16. and new items 17.-18.(b)5. filed 9-5-2003; operative 10-5-2003 (Register 2003, No. 36).

7. Amendment of items 6. and 14. and amendment of Note filed 3-17-2005; operative 4-16-2005 (Register 2005, No. 11).

8. Amendment adding item 19. filed 2-28-2006; operative 3-30-2006 (Register 2006, No. 9).

9. Amendment of item 17. filed 10-6-2009; operative 11-5-2009 (Register 2009, No. 41).

10. New item 20. filed 9-26-2011; operative 10-26-2011 (Register 2011, No. 39).

Article 18.8. Voluntary Surrender of License

§2940. Petition for Voluntary Surrender of License.

Note • History

(a) A licensee may petition the commissioner under Section 10100.2 of the Code to accept the voluntary surrender of his or her real estate license or license rights. The petition shall be in writing and shall contain the following:

(1) A reference to the investigation or accusation giving rise to the petition.

(2) An identification of the real estate licenses or license rights held by the petitioner.

(3) An acknowledgment that the petitioner has read and agrees to the following as a condition of the commissioner's acceptance of the petition:

The filing of a petition shall be deemed to be an understanding and agreement by the licensee that upon acceptance by the commissioner all affidavits obtained in the investigation prior to the acceptance and all allegations contained in an accusation filed pursuant to Section 11503 of the Government Code may be considered by the Department to be true and correct for the purpose of deciding whether or not to grant reinstatement of the license.

(b) Acceptance of a petition to surrender a license shall be pursuant to an Order issued by the commissioner. The commissioner may refuse to accept a surrender of a license if it is determined in the exercise of his or her discretion, that it would not be in the public interest to accept the surrender.

NOTE

Authority cited: Section 10080, Business and Professions Code. Reference: Section 10100.2, Business and Professions Code.

HISTORY

1. New article 18.8 (section 2940) and section filed 12-30-97; operative 1-29-98 (Register 98, No. 1).

Article 18.9. Discipline Regarding Mortgage Loan Originator License Endorsement

§2945.1. Effect of License Discipline on Mortgage Loan Originator License Endorsement.

Note • History

Real estate license discipline, including a revocation, a suspension, a voluntary surrender of a real estate license, a public reproval, and/or a bar order, may be cause for the revocation and/or suspension of the real estate licensee's mortgage loan originator license endorsement. The disciplinary action on an existing license endorsement may be imposed via the same process and within the same order as the license discipline.

NOTE

Authority cited: Sections 10080 and 10166.17, Business and Professions Code. Reference: Sections 10150(d), 10151(e) and 10166.05(a), Business and Professions Code.

HISTORY

1. New article 18.9 (sections 2945.1-2945.4) and section filed 2-23-2010 as an emergency; operative 2-23-2010 (Register 2010, No. 9). A Certificate of Compliance must be transmitted to OAL by 8-23-2010 or emergency language will be repealed by operation of law on the following day.

2. Certificate of Compliance as to 2-23-2010 order transmitted to OAL 5-6-2010 and filed 6-29-2010 (Register 2010, No. 27).

§2945.2. Effect of Prior License Discipline on Mortgage Loan Originator License Endorsement Application.

Note • History

(a) Where a real estate licensee was subject to a real estate license discipline action filed by the Department prior to January 1, 2010, resulting in discipline in the form of a revocation and/or suspension, such discipline in itself shall not be the sole basis to deny the issuance of a mortgage loan originator license endorsement.

(b) Where a real estate licensee was subject to a real estate license discipline action filed by the Department on January 1, 2010, or later, resulting in a revocation, a suspension, a voluntary surrender of a real estate license, a public reproval, and/or a bar order, such discipline alone may be cause for denial of a subsequent mortgage loan originator license endorsement.

(c) A disciplinary action resulting in the revocation of a real estate license with an immediate right to a restricted real estate license shall not constitute a revocation for purposes of invoking a lifetime ban from holding a mortgage loan originator license endorsement.

NOTE

Authority cited: Sections 10080 and 10166.17, Business and Professions Code. Reference: Sections 10150(d), 10151(e) and 10166.05(a), Business and Professions Code.

HISTORY

2. Certificate of Compliance as to 2-23-2010 order transmitted to OAL 5-6-2010 and filed 6-29-2010 (Register 2010, No. 27).

§2945.3. Effect of Prior Felony Conviction on Mortgage Loan Originator License Endorsement Application.

Note • History

A conviction for any felony within seven (7) years of a real estate licensee's application for a mortgage loan originator license endorsement is cause for denial of the application. A felony conviction at any time in the applicant's personal history where such felony involved an act of fraud, dishonesty, a breach of trust, or money laundering is cause for denial of the application. These restrictions constitute a ban on the real estate licensee's ability to apply for a license endorsement. These restrictions are not subject to mitigation or rehabilitation.

NOTE

Authority cited: Sections 10080 and 10166.17, Business and Professions Code. Reference: Sections 10150(d), 10151(e) and 10166.05(b), Business and Professions Code.

HISTORY

2. Certificate of Compliance as to 2-23-2010 order transmitted to OAL 5-6-2010 and filed 6-29-2010 (Register 2010, No. 27).

§2945.4. Disciplinary Process Uniformity: Real Estate License and Mortgage Loan Originator License Endorsement.

Note • History

The Department will apply parallel standards and process to mortgage loan originator license endorsements as the Real Estate Law and Regulations of the Real Estate Commissioner apply to real estate licenses with regard to disciplinary procedure, voluntary surrender of license, statute of limitations, and jurisdiction over lapsed and suspended licenses.

NOTE

Authority cited: Sections 10080 and 10166.17, Business and Professions Code. Reference: Sections 10100, 10100.2, 10101, 10103, 10150(d), 10151(e) and 10166.17(d), Business and Professions Code.

HISTORY

2. Certificate of Compliance as to 2-23-2010 order transmitted to OAL 5-6-2010 and filed 6-29-2010 (Register 2010, No. 27).

Article 19. Escrows

§2950. When Broker Handles Escrow.

Note • History

The following acts in the handling of an escrow by a real estate broker exempted from the provisions of the Escrow Law (by Section 17006(a)(4) of the Financial Code) are prohibited and may be considered grounds for disciplinary action:

(a) Soliciting or accepting an escrow instruction (or amended or supplemental escrow instruction) containing any blank to be filled in after signing or initialing of such escrow instruction (or amended or supplemental escrow instruction).

(b) Permitting any person to make any addition to, deletion from, or alteration of an escrow instruction (or amended or supplemental escrow instruction) received by such licensee, unless such addition, deletion or alteration is signed or initialed by all persons who had signed or initialed such escrow instruction (or amended or supplemental escrow instruction) prior to such addition, deletion or alteration.

(c) Failing to deliver at the time of execution of any escrow instruction or amended or supplemental escrow instruction a copy thereof to all persons executing the same.

(d) Failing to maintain books, records and accounts in accordance with accepted principles of accounting and good business practice.

(e) Failing to maintain the office, place of books, records, accounts, safes, files, and papers relating to such escrows freely accessible and available for audit, inspection and examination by the commissioner.

(f) Failing to deposit all money received as an escrow agent and as part of an escrow transaction in a bank, trust account, or escrow account on or before the close of the next full working day after receipt thereof.

(g) Withdrawing or paying out any money deposited in such trustee account or escrow account without the written instruction of the party or parties paying the money into escrow.

(h) Failing to advise all parties in writing if he has knowledge that any licensee acting as such in the transaction has any interest as a stockholder, officer, partner or owner of the agency holding the escrow.

(i) Failing upon closing of an escrow transaction to render to each principal in the transaction a written statement of all receipts and disbursements together with the name of the person to whom any such disbursement is made.

(j) Delivering or recording any instrument which purportedly transfers a party's title or interest in or to real property without first obtaining the written consent of that party to the delivery or recording.

NOTE

Authority cited: Section 10080, Business and Professions Code. Reference: Section 10145, Business and Professions Code; and Section 17006(a)(4), Financial Code.

HISTORY

1. New Article 19 (§2950) filed 12-11-57; effective thirtieth day thereafter (Register 57, No. 22).

2. Amendment filed 8-21-63; designated effective 9-20-63 (Register 63, No. 14).

3. New subsection (j) filed 3-18-88; operative 4-17-88 (Register 88, No. 14).

4. Amendment of first paragraph and Note filed 9-5-2003; operative 10-5-2003 (Register 2003, No. 36).

§2951. Record Keeping and Funds Handling.

Note • History

The provisions of Sections 2831, 2831.1, 2831.2, 2832, 2832.1, 2834 and 2835 of these regulations shall apply to the handling of funds and the keeping of records by a real estate broker who is not licensed under the Escrow Law (Section 17000, et seq., of the Financial Code) when acting in the capacity of an escrow holder in a real estate purchase and sale, exchange or loan transaction in which the broker is performing acts for which a real estate license is required.

NOTE

Authority cited: Section 10080, Business and Professions Code. Reference: Sections 10145 and 10148, Business and Professions Code; and Section 17006 (d), Financial Code.

HISTORY

1. New section filed 12-1-81; designated effective 1-1-82 (Register 81, No. 49).

2. Amendment filed 1-9-85; effective thirtieth day thereafter (Register 85, No. 2).

3. Amendment of section and Note filed 11-8-93; operative 12-8-93 (Register 93, No. 46).

4. Amendment filed 11-13-96; operative 11-13-96 pursuant to Government Code section 11343.4(d) (Register 96, No. 46).

Article 20. Suspension and Bar Orders

§2960. General Definitions and Short Form References.

Note • History

Unless otherwise expressly indicated or compelled by the context in which used, words, phrases and short form references appearing in this Article shall have meanings as ascribed herein.

(a) “Bar” -- to prohibit or exclude from.

(b) “Business activities” -- include, but are not limited to, all real estate business functions, activity requiring a real estate license, any clerical activity (i.e., typing, filing, copying, reception, telephone communications), mailroom activity, customer service, telemarketing, marketing, advertising, soliciting, processing transactions, bookkeeping, accounting, computer activities, counseling, advising, planning, supervising or overseeing, making referrals, interviewing, intake, entertaining clients, notary, credit report checking, any consulting services, any project management, and any activity as an independent contractor.

(c) “Business activities of a finance lender” -- any business activity set out in subsection (b) performed for any lender, including, but not limited to, a finance lender, residential mortgage lender, bank and/or other institutional lender, credit union, private lender, or hard money lender, whether or not the loan is secured by an interest in real property.

(d) “Date of a notice of intention” -- the date the notice of intention was mailed or served.

(e) “Employment, management or control” -- 1) Employment -- employment as an employee or independent contractor; 2) Management -- holding a position which requires or allows the supervision or management of the tasks performed by employees and/or independent contractors; 3) Control -- holding a position in a corporation as a director, officer, or shareholder owning or controlling more than ten percent of the shares of the corporation.

(f) “In the public interest” -- for the common or general welfare of the public.

(g) “Material damage to the public” -- significant, not minor or inconsequential, harm or loss to any member of the public.

(h) “On the premises” -- a particular physical location and/or place of business including, but not limited to, a building or part of a building, store, shop, apartment, house, hotel room, restaurant, condominium, mobile home, trailer, motor home, fifth wheel, automobile, boat, yacht, airliner, airplane, or private or commuter jet.

(i) “Participating” -- taking part in or sharing in any of the business activities referred to in subsection (b).

(j) “Reasonably related” -- related to a moderately sufficient extent or degree; less than substantially related.

(k) “Suspend” -- to temporarily prohibit or exclude from.

NOTE

Authority cited: Section 10080, Business and Professions Code. Reference: Section 10087, Business and Professions Code.

HISTORY

1. New article 20 (sections 2960-2963) and section filed 9-26-2011; operative 10-26-2011 (Register 2011, No. 39). For prior history of article 20, section 2960, see Register 96, No. 46.

§2961. Grounds for Issuing an Order of Suspension or Debarment.

Note • History

An order of suspension or debarment pursuant to Section 10087 may be based upon a finding by the Commissioner of one or more of the following grounds:

(a) The suspension or bar is in the public interest and the person subject to suspension or bar has committed or caused a violation of Division 4 (Sections 10000 through 11288) of the Code or a rule or order of the Commissioner and the violation was known or should have been known by the person committing or causing the violation.

(b) The suspension or bar is in the public interest and the person subject to suspension or bar has committed or caused a violation of Division 4 (Sections 10000 through 11288) of the Code or a rule or order of the Commissioner and the violation has caused material damage to the public.

(c) The person subject to suspension or bar has been convicted of or pleaded nolo contendere to any crime involving dishonesty, fraud, or deceit, or any other crime reasonably related to the qualifications, functions, or duties of a person engaged in the real estate business.

(d) The person subject to suspension or bar has been held liable in any civil action by final judgment, or any administrative judgment by any public agency, if that civil or administrative judgment involved any offense involving dishonesty, fraud, or deceit, or any other offense reasonably related to the qualifications, functions, or duties of a person engaged in the real estate business.

NOTE

Authority cited: Section 10080, Business and Professions Code. Reference: Section 10087, Business and Professions Code.

HISTORY

1. New section filed 9-26-2011; operative 10-26-2011 (Register 2011, No. 39).

§2962. Effect of Receipt of Notice of Intention to Issue Order.

Note • History

A person who is the subject of a notice of intention to issue an order of suspension or debarment under Section 10087 of the Business and Professions Code is, immediately upon receipt of the notice, prohibited from engaging in any business activity involving real estate, within the State of California, that is subject to regulation under Division 4 (Sections 10000 through 11288) of the Code. This prohibition is subject to no exceptions. The prohibition will remain in place until lifted via due process or until the expiration of the period of time set out in the subsequent suspension or bar order.

NOTE

Authority cited: Section 10080, Business and Professions Code. Reference: Section 10087, Business and Professions Code.

HISTORY

1. New section filed 9-26-2011; operative 10-26-2011 (Register 2011, No. 39).

§2963. Effect of Issuance of Order.

Note • History

An order of debarment is not a form of discipline that substitutes for another type of discipline under the Real Estate Law. Rather, the order of debarment is an additional level of consumer protection. Debarment is imposed against a licensee, disciplined licensee, or unlicensed person where the Department has identified a higher risk to the public and to the real estate industry, necessitating the separation of the debarred individual from all practice and practitioners of real estate, as described in (a) through (e), below.

Upon adoption of an order of debarment, any person who is the subject of the order is, for the period of time stated in the order, prohibited from:

(a) Engaging in any business activity involving real estate that is subject to regulation under Division 4 (Sections 10000 through 11288) of the Business & Professions Code;

(b) Participating in any activity for which a real estate salesperson or a real estate broker license is required;

(c) Engaging in any real estate-related business activity on the premises where a real estate salesperson or real estate broker is conducting business which requires a real estate license;

(d) Participating in any real estate-related business activity of a finance lender, residential mortgage lender, bank, credit union, escrow company, title company, or underwritten title company; and

NOTE

Authority cited: Section 10080, Business and Professions Code. Reference: Section 10087, Business and Professions Code.

HISTORY

1. New section filed 9-26-2011; operative 10-26-2011 (Register 2011, No. 39).

Article 20. Land Locators [Repealed]

HISTORY

1. Repealer of article 20 (section 2960) filed 11-13-96; operative 11-13-96 pursuant to Government Code section 11343.4 (Register 96, No. 46).

Article 21. Advance Fee Agreements

§2970. Advance Fee Materials.

Note • History

(a) A person who proposes to collect an advance fee as defined in Section 10026 in the Code shall submit to the Commissioner not less than ten calendar days before publication or other use, all materials to be used in advertising, promoting, soliciting and negotiating an agreement calling for the payment of an advance fee including the form of advance fee agreement proposed for use.

(b) Material used in advertising, promoting, soliciting and negotiating an advance fee agreement shall not be approved if it:

(1) Includes any representation which is false, misleading or deceptive.

(2) Does not set forth a specific, complete description of the services to be rendered for the advance fee.

(3) Does not set forth the total amount of the advance fee along with the date on which the fee shall become due and payable.

(4) Contains any provision which purports to relieve or exempt the person collecting the advance fee from an obligation to fulfill verbal commitments and representations made by employees and agents of the person contracting for the advance fee.

(5) Contains any provision which purports to give a guarantee that the real property or business opportunity in question will be purchased, leased or exchanged or that a loan secured by real property will be obtained as a result of the services rendered by the person collecting the advance fee.

(6) Does not set forth a definite date for full performance of the services promised under the advance fee agreement.

NOTE

Authority cited: Section 10080, Business and Professions Code. Reference: Sections 10026 and 10085, Business and Professions Code.

HISTORY

1. New Article 21 (Sections 2970 through 2974) filed 9-18-59 as an emergency; effective upon filing (Register 59, No. 16).

2. Certificate of Compliance--Sec. 11422.1, Gov. Code for Article 21 (Sections 2970-2974), filed 12-15-59 (Register 59, No. 21).

3. Repealer and new section filed 7-1-83; effective thirtieth day thereafter (Register 83, No. 30).

4. Amendment of subsection (a) filed 4-1-93; operative 5-1-93 (Register 93, No. 14).

§2971. Form of Advance Fee Agreements. [Repealed]

History

HISTORY

1. Repealer filed 7-1-83; effective thirtieth day thereafter (Register 83, No. 30).

§2972. Accounting Content.

Note • History

Each verified accounting to a principal or to the commissioner as required by Section 10146 of the Code shall include at least the following information:

(a) The name of the agent.

(b) The name of the principal.

(d) Identification of the trust fund account into which the advance fee has been deposited.

(e) The amount of the advance fee collected.

(f) The amount allocated or disbursed from the advance fee for each of the following:

(1) In providing each of the services enumerated under (c) above.

(2) Commissions paid to field agents and representatives.

(3) Overhead costs and profit.

(g) In cases in which disbursements has been made for advertising, a copy of the advertisement, the name of the publication, the number of the advertisements actually published and the dates that they were carried.

(h) In the case of an advance fee for the arrangement of a loan secured by a real property or a business opportunity, a list of the names and addresses of the persons to whom information pertaining to the principal's loan requirements were submitted and the dates of the submittal.

NOTE

Authority cited: Section 10080, Business and Professions Code. Reference: Section 10146, Business and Professions Code.

HISTORY

1. Amendment filed 9-17-65; designated effective 1-2-66 (Register 65, No. 17).

2. Repealer and new section filed 7-1-83; effective thirtieth day thereafter (Register 83, No. 30).

§2973. Retention of Advance Fee Records. [Repealed]

History

HISTORY

1. Amendment filed 9-17-65; designated effective 1-2-66 (Register 65, No. 17).

2. Repealer filed 7-1-83; effective thirtieth day thereafter (Register 83, No. 30).

§2974. Advance Fee Statement of Account Required. [Repealed]

History

HISTORY

1. Amendment filed 9-17-65; designated effective 1-2-66 (Register 65, No. 17).

2. Repealer filed 7-1-83; effective thirtieth day thereafter (Register 83, No. 30).

Article 22. Real Property Securities Dealers [Repealed]

HISTORY

1. Repealer of article 22 (sections 2975-2980) filed 12-30-97; operative 1-29-98 (Register 98, No. 1).

Article 23. Real Estate Syndicate Securities [Repealed]

HISTORY

1. Repealer of Article 23 (Sections 2990-2999.6, not consecutive) filed 1-16-79; effective thirtieth day thereafter (Register 79, No. 3). For prior history, see Register 69, No. 50.

Article 24. Private Vocational School and Supervised Course of Study Approvals

§3000. Equivalent Courses of Study at Private Vocational Schools.

Note • History

(a) In making a determination under authority of section 10153.5 of the Code as to whether a course of study at a private vocational school is equivalent in quality to real estate courses offered by colleges and universities accredited by the Western Association of Schools and Colleges, the commissioner shall consider, but shall not be limited to the following criteria:

(1) An attended course must provide at least 45 periods of classroom instruction, each of which shall be not less than 50 minutes duration. A correspondence course shall consist of not less than 15 separate lesson assignments.

(2)(A) An attended course must provide for a final examination administered and supervised by the school in a classroom setting.

(B) A correspondence course must provide for a final examination administered and supervised by a person designated by the school for that purpose. The school shall send the final examination materials to the person so designated and the completed final examination shall be returned to the school by the person so designated.

(3) The school must provide instructors, instructional material and classroom facilities adequate to achieve the objective of the course offered.

(4) The school shall maintain records for each student sufficient to allow for the preparation of a duplicate certificate upon request by a student.

(5) The school shall not use advertising or other promotional devices that are deceptive or misleading.

(6) The school shall, within 15 days of a student's successful completion of the course, deliver a document to the student evidencing such completion. The document shall contain the following information:

(A) Department of Real Estate course approval number.

(B) Name of student.

(D) Dates of course completion.

(E) Name and address of school.

The school may include such additional information in this document as it deems necessary.

(7) The school shall have an appropriate method of assessing student knowledge of the subject, such as, but not limited to, multiple choice, essay or oral examinations.

(8) Instructors must have credentials issued by the Board of Governors of the California Community Colleges or by a comparable California teacher-credentialing agency or meet the qualifications established in Sections 53400 et seq. of Title 5. The commissioner may approve instructors who in his or her judgment meet the qualifications, or who otherwise evidence their teaching qualifications by education or experience or a combination of the two. An instructor shall not teach a course if the instructor:

(A) Does not satisfy the criteria in this subdivision.

(B) Has engaged in any violation of Article 24 (commencing with Section 3000) of these regulations or has engaged in conduct which would have warranted the denial of an application for approval or withdrawal of approval of an equivalent course of study.

(D) Acted or conducted himself or herself in a manner which would have warranted the denial of his or her application for a real estate license.

(9) Beginning on January 1, 2004, the school shall notify each student that an evaluation form is available on the Department's internet website for on-line evaluation of courses and instructors.

(b) The simultaneous instruction of two or more students in one of the courses enumerated in sections 10153.2, 10153.3 or 10153.4 of the Code constitutes a “private vocational school” as that term is used in section 10153.5.

NOTE

Authority cited: Section 10080, Business and Professions Code. Reference: Section 10153.5, Business and Professions Code.

HISTORY

1. New section filed 12-10-71; designated effective 3-6-72 (Register 71, No. 50).

2. Amendment filed 1-17-80; effective thirtieth day thereafter (Register 80, No. 3).

3. Editorial correction in subsection (c) (Register 80, No. 28).

4. Amendment of subsection (c) filed 12-1-81; designated effective 1-1-82 (Register 81, No. 49).

5. Repealer and new section filed 7-1-83; effective thirtieth day thereafter (Register 83, No. 30).

6. Amendment of subsection (a)(1) filed 1-11-84; effective thirtieth day thereafter (Register 84, No. 2).

7. Amendment of subsection (a) filed 4-2-86; effective thirtieth day thereafter (Register 86, No. 14).

8. Amendment filed 11-16-87; operative 12-16-87 (Register 87, No. 47).

9. Amendment of subsection (a) filed 5-4-89; operative 6-3-89 (Register 89, No. 23).

10. Amendment of subsections (a) and (b) filed 7-12-91; operative 8-11-91 (Register 91, No. 44).

11. New subsections (a)(2)-(5) and subsection renumbering to subsections (a)(6)-(12) filed 4-7-92; operative 5-7-92 (Register 92, No. 14).

12. Amendment filed 11-13-96; operative 11-13-96 pursuant to Government Code section 11343.4(d) (Register 96, No. 46).

13. Amendment of subsection (a)(4) filed 12-30-97; operative 1-29-98 (Register 98, No. 1).

14. New subsections (a)(8)-(9) filed 9-5-2003; operative 10-5-2003 (Register 2003, No. 36).

§3001. Supervised Courses of Study. [Repealed]

Note • History

NOTE

Authority cited: Section 10080, Business and Professions Code. Reference: Sections 10153.2, 10153.4 and 10153.5, Business and Professions Code.

HISTORY

1. New section filed 12-10-71; designated effective 3-6-72 (Register 71, No. 50).

2. Repealer and new section filed 7-1-83; effective thirtieth day thereafter (Register 83, No. 30).

3. Repealer filed 11-13-96; operative 11-13-96 pursuant to Government Code section 11343.4(d) (Register 96, No. 46).

§3002. Application and Fee.

Note • History

(a) A person making application for approval by the commissioner of an equivalent course of study within the meaning of Sections 10153.2, 10153.4 or 10153.5 of the Code shall make application on a form prescribed by the Department and shall include therein such relevant information as the commissioner may require. The application shall be accompanied by the appropriate fee as provided in subdivision (c) hereof and include at least the following:

(1) The name, address and telephone number of the applicant.

(2) Summary of the course including:

(A) Type of course (resident lecture or correspondence/independent study).

(B) Course title.

(D) Textbook(s) and student materials prescribed.

(E) Evidence of Private Vocational School approval or registration by the Bureau for Private Postsecondary and Vocational Education of the California Department of Consumer Affairs if the sponsor is not otherwise exempt from the requirement for such approval or registration or by the appropriate approval authority of the state in which the school is located shall be included with the course application.

(b) Any material change to an approved equivalent course of study shall be submitted by the school to the Department for approval prior to use.

A material change for purposes of this section is a deviation from an equivalent course of study approved by the Department, including a change in curriculum, course length, workbooks, texts or syllabi, but not including changes designed exclusively to reflect recent changes in statutes, regulations or decisional law.

(c) The fees for applications for approval of equivalent courses of study under Sections 10153.2, 10153.3 and 10153.4 of the Code and for material changes to previously approved courses shall be the fees prescribed in Section 10209 of the Code.

NOTE

Authority cited: Section 10080, Business and Professions Code. Reference: Section 10153.5, Business and Professions Code.

HISTORY

1. New section filed 12-10-71; designated effective 3-6-72 (Register 71, No. 50).

2. Repealer and new section filed 7-1-83; effective thirtieth day thereafter (Register 83, No. 30).

3. Amendment filed 11-16-87; operative 12-16-87 (Register 87, No. 47).

4. Amendment including new subsections (a)(1)-(6) and (b) and subsection relettering filed 5-26-92; operative 6-25-92 (Register 92, No. 22).

5. Amendment filed 11-27-96; operative 12-27-96 (Register 96, No. 48).

6. Amendment of subsection (a)(2)(E) filed 10-26-99; operative 11-25-99 (Register 99, No. 44).

§3003. Course Disapproval.

Note • History

(a) If the commissioner determines that a course of study previously approved as equivalent is no longer equivalent in quality to courses offered by colleges and universities accredited by the Western Association of Schools and Colleges, or if the commissioner determines that an instructor or lecturer for the course is no longer qualified, or that the course sponsor has engaged in activity violating the provisions of Section 3004, the commissioner shall give written notice of withdrawal of approval setting forth the reasons for the determination. If the commissioner determines, following an application for course approval, that the course will not provide applicants for real estate broker or real estate salesperson licenses with knowledge and understanding equivalent to that provided through courses offered by colleges and universities accredited by the Western Association of Schools and Colleges or if the commissioner determines that the instructor for the course is unqualified, the commissioner shall give written notice of denial of approval setting forth the reasons for the determination. Withdrawal or denial of approval will be effective 30 days after the notice of withdrawal or denial is received by the sponsor unless the sponsor earlier files a written request for hearing on the withdrawal or denial action. If the request for hearing is received by the commissioner before 30 days after the date of receipt of notice of withdrawal by the sponsor, the withdrawal or denial of approval shall not be effective unless and until ordered by the commissioner pursuant to findings and conclusions reached after hearing pursuant to Chapter 5 (commencing with Section 11500) of Part 1 of Division 3 of Title 2 of the Government Code. The hearing shall be commenced within 30 days after receipt of the request for hearing unless continued to a later date by order of the commissioner or by agreement of the parties. In a hearing on an order of withdrawal issued by the commissioner, the burden of proving that the course is no longer equivalent in quality shall be on the commissioner. In any hearing on an order of denial issued by the commissioner, the burden of proving the equivalency of the proposed course of study shall be on the applicant.

(b) Petition for Reinstatement.

(1) The sponsor of an offering for which approval has been withdrawn pursuant to subdivision (a) may, after a period of not less than one year has elapsed from the effective date of the withdrawal of approval, petition the commissioner in writing for reinstatement of approval of the offering. The petitioner shall be given the opportunity to present in writing argument and other evidence, statements or matters in support of the petition. The commissioner shall decide the petition and the decision shall include the reasons therefor.

(2) Upon a showing of good cause, the commissioner may allow the filing of a petition for reinstatement prior to the expiration of one year from the effective date of the withdrawal of approval.

NOTE

Authority cited: Sections 10080 and 10170.4, Business and Professions Code. Reference: Sections 10153.5 and 10177, Business and Professions Code.

HISTORY

1. New section filed 12-10-71; designated effective 3-6-72 (Register 71, No. 50).

2. Repealer and new section filed 7-1-83; effective thirtieth day thereafter (Register 83, No. 30).

3. Amendment of subsection (a) filed 11-16-87; operative 12-16-87 (Register 87, No. 47).

4. Amendment filed 3-18-88; operative 4-17-88 (Register 88, No. 14).

5. Amendment of subsection (c)(1) and Note filed 12-7-94; operative 1-6-95 (Register 94, No. 49).

6. Amendment filed 11-13-96; operative 11-13-96 pursuant to Government Code section 11343.4(d) (Register 96, No. 46).

7. New subsection (a) designator, new subsections (b)-(b)(2) and amendment of Note filed 10-26-99; operative 11-25-99 (Register 99, No. 44).

§3004. Advertising and Promotion of Equivalent Courses of Study.

Note • History

The use of advertising or promotional material by or on behalf of the private vocational school or other sponsor of an equivalent course of study will be considered by the commissioner to be deceptive or misleading if it does not comply with the following standards:

(a) An advertisement shall clearly and conspicuously identify the entity offering an equivalent course of study as a private vocational school or the sponsor of a supervised course of study or other approved equivalent course of study and shall include the name of the entity.

(b) Advertising which makes reference to courses of study approved by the commissioner shall identify the specific course or courses that have been approved by listing the Department's course approval number.

(c) No advertising or materials, including oral representations, promoting approved equivalent courses shall contain language which implies or states, directly or indirectly, that a course can be completed in less time than the number of hours for which it is approved.

(d) No advertising or materials, including oral representation, shall include false or misleading statements or representations.

NOTE

Authority cited: Section 10080, Business and Professions Code. Reference: Section 10153.5, Business and Professions Code.

HISTORY

1. New section filed 12-10-71; designated effective 3-6-72 (Register 71, No. 50).

2. Repealer and new section filed 7-1-83; effective thirtieth day thereafter (Register 83, No. 30).

3. Amendment of subsection (e) and new subsection (g) filed 4-2-86; effective thirtieth day thereafter (Register 86, No. 14).

4. Amendment of subsections (a) and (b) filed 11-16-87; operative 12-16-87 (Register 87, No. 47).

5. Amendment of subsection (g) and new subsections (h)-(j) filed 5-4-89; operative 6-3-89 (Register 89, No. 23).

6. Amendment of subsections (d) and (j) filed 7-12-91; operative 8-11-91 (Register 91, No. 44).

7. Amendment of first paragraph, repealer of subsections (a)-(c), (f)-(h) and (j), subsection relettering, amendment of newly designated subsection (c), and new subsection (d) filed 11-13-96; operative 11-13-96 pursuant to Government Code section 11343.4(d) (Register 96, No. 46).

Article 25. Continuing Education Requirements

§3005. Definitions. [Repealed]

Note • History

NOTE

Authority cited: Sections 10080 and 10170.4, Business and Professions Code. Reference: Sections 10170.4 and 10170.5, Business and Professions Code.

HISTORY

1. New section filed 7-5-84; designated effective 8-1-84 (Register 84, No. 27). For history of former Section 3005, see Registers 83, No. 30; and 77, No. 49.

2. Amendment of subsection (a), repealer of subsections (d), (f), (i) and (j), subsection relettering, and amendment of newly designated subsection (d) filed 11-27-96; operative 12-27-96 (Register 96, No. 48).

3. Amendment filed 7-31-98; operative 8-30-98 (Register 98, No. 31).

4. Amendment of subsections (c)-(e) filed 8-29-2007; operative 2-29-2008 (Register 2007, No. 35).

5. Repealer filed 9-16-2010; operative 1-1-2011 (Register 2010, No. 38).

§3005.1. Access to Offerings. [Repealed]

Note • History

NOTE

Authority cited: Sections 10080 and 10170.4, Business and Professions Code. Reference: Section 10170.4, Business and Professions Code.

HISTORY

1. New section filed 7-5-84; designated effective 8-1-84 (Register 84, No. 27).

2. Repealer filed 11-13-96; operative 11-13-96 pursuant to Government Code section 11343.4(d) (Register 96, No. 46).

§3006. Criteria for Approval of Offerings.

Note • History

In acting on an application for approval of a continuing education offering, the Commissioner shall apply, but shall not be limited to the application of the following criteria in determining that the appropriate hours of continuing education credit will be given to licensees who have successfully completed the course within the time period specified by Section 10170.5 of the Business and Professions Code:

(a) The offering shall have at least one successive clock hour of instruction which is based on 50 minute increments of actual instruction.

(b) For other than a correspondence course offering, participants shall be physically present for at least 90% of the offering time exclusive of the time allocated to the administering of a final examination.

(c) For all continuing education offerings, a sponsor shall provide each participant at least a written course outline that is a narrative outline consisting of not less than three (3) pages per credit-hour. Each page shall contain an average of 200 words.

(d) A continuing education offering shall have an appropriate form of final examination as set forth in Section 3007.3.

(e) Instructors, conference leaders, lecturers, and others who present a continuing education offering shall meet at least one of the following qualifications:

(1) A bachelor's degree in a related field to that in which the person is to teach, from a school listed as an institution of higher learning by the U.S. Department of Education, or from a comparable school of a foreign country.

(2) A valid teaching credential or certificate issued by the Board of Governors of the California Community Colleges or by a comparable California teacher-credentialing agency authorizing the holder to teach in the field of knowledge covered in the offering.

(3) Three years full-time experience in the applicable field.

(4) Any combination of at least three years of full-time experience and college level education in the applicable field.

(5) The Commissioner may approve instructors who in his or her judgment meet the criteria for approval or who otherwise evidence their teaching qualifications by education or experience or a combination of the two.

(f) An instructor shall not be qualified if the instructor:

(1) Does not satisfy the criteria in subdivision (e);

(2) Has engaged in any violation of Article 25 (commencing with Section 3005) of these regulations or has engaged in conduct which would have warranted the denial of an application for approval or withdrawal of approval of a continuing education offering;

(3) As a real estate licensee has had that license suspended, revoked or restricted as a result of disciplinary action; or

(4) Acted or conducted himself or herself in a manner which would have warranted the denial of his or her application for a real estate license.

(g) A correspondence course shall consist of adequate study materials to assure that the course cannot be completed in less time than the number of hours for which it is approved.

(h) Every sponsor shall maintain on file with the Commissioner a current address.

(i) The sponsor shall notify each participant that an evaluation form is available on the Department's internet website for on-line evaluation of courses and instructors.

(j) The sponsor shall comply with the provisions of the Americans with Disabilities Act in the offering of approved courses.

(k) A sponsor that is a corporation, company or partnership shall maintain good legal standing with the State of California Office of the Secretary of State during any term of course approval.

(l) Prior to the start of the course, the sponsor shall provide participants with the following disclaimer statement: “This course is approved for continuing education credit by the California Department of Real Estate. However, this approval does not constitute an endorsement of the views or opinions which are expressed by the course sponsor, instructors, authors or lecturers.”

(m) All offerings shall require completion within one year from the date of registration.

(n) Every participant who successfully completes the course shall be provided with a course completion certificate within 15 days from date of completion.

(o) A correspondence course offered via the internet in one or more aspects of the course offering must have a method of control in place to protect the integrity of the exam, ensure by written statement signed under penalty of perjury that the participant enrolled is the person completing the course and ensure the course cannot be completed in less time than the approved credit hours by controlling the participant's navigation through the course content.

(p) Incremental assessments shall be required that are designed to properly measure a participant's mastery of the course content after each logical unit of instruction or chapter within a correspondence course, i.e. case studies, quizzes or other form of exercises. Remediation to the participant shall be provided after each assessment has been completed.

(q) A sponsor or course instructor is prohibited from marketing, selling or displaying any product or service during a continuing education offering including during breaks between instructional periods. The foregoing shall not prohibit marketing activities conducted outside of the instruction room before or after the course of instruction, or outside of the instruction room during breaks in the course of instruction.

NOTE

Authority cited: Sections 10080 and 10170.4, Business and Professions Code. Reference: Sections 10170.4 and 10170.5, Business and Professions Code.

HISTORY

1. Amendment of subsection (b)(2)(G) filed 1-17-80; effective thirtieth day thereafter (Register 80, No. 3).

2. Amendment filed 7-9-80; effective thirtieth day thereafter (Register 80, No. 28).

3. Amendment filed 7-1-83; effective thirtieth day thereafter (Register 83, No. 30).

4. Amendment filed 1-11-84; effective thirtieth day thereafter (Register 84, No. 2).

5. Amendment filed 9-12-84; effective upon filing pursuant to Government Code Section 11346.2(d) (Register 84, No. 37).

6. Amendment filed 3-18-88; operative 4-17-88 (Register 88, No. 14).

7. Amendment filed 5-4-89; operative 6-3-89 (Register 89, No. 23).

8. Amendment of subsection (g)(2)(B) filed 11-8-93; operative 12-8-93 (Register 93, No. 46).

9. Amendment filed 11-13-96; operative 11-13-96 pursuant to Government Code section 11343.4(d) (Register 96, No. 46).

10. Amendment of subsection (c) and Note filed 7-31-98; operative 8-30-98 (Register 98, No. 31).

11. New subsections (c), (e)-(f)(4) and (i), repealer of subsection (d) and subsection relettering filed 9-5-2003; operative 10-5-2003 (Register 2003, No. 36).

12. Amendment of subsection (d) filed 8-29-2007; operative 2-29-2008 (Register 2007, No. 35).

13. Amendment filed 9-16-2010; operative 1-1-2011 (Register 2010, No. 38).

§3006.1. Expiration of Approval.

Note

If an offering had approval at the time of registration by a licensee, credit for the offering shall be given to the licensee at the time of license renewal notwithstanding the fact that approval had expired and had not been renewed or reinstated at the time that the applicant successfully completed the offering.

NOTE

Authority cited: Sections 10080 and 10170.4, Business and Professions Code. Reference: Section 10170.6, Business and Professions Code.

§3007. Application for Offering Approval.

Note • History

An application for approval of a continuing education offering shall be made on a RE 315 (Rev. 2/06) “C.E. Offering Approval Application” form, herein incorporated by reference, not less than 90 days before the proposed commencement date of the offering. The completed application shall be accompanied by the fee and include at least the following supporting documents when applicable:

(a) Upon initial application and as updates to the information specified in this subsection occur, a Sponsor is required to submit the following:

(1) If sponsoring entity is a corporation, company, or partnership:

(A) From a Domestic Corporation - the filed Articles of Incorporation endorsed by the California Secretary of State.

(B) From a Foreign Corporation - a Certificate of Qualification executed by the California Secretary of State.

(C) From a Company or Partnership (whether Domestic or Foreign) - one of the following documents, issued by the California Secretary of State: Certificate of Qualification, Certificate of Registration, or Certificate of Good Standing.

(2) If the Sponsor is operating under a “doing business as” (“DBA”) name, include a Fictitious Business Name Statement that has been filed with the county recorder in the county where the Sponsor maintains their principal place of business or in Sacramento County if the Sponsor does not maintain a place of business in California.

(b) A copyright authorization from the copyright holder specifying the material that may be used and to whom the authorization has been granted if copyrighted material will be used in a manner that would be in violation of the copyright laws.

(c) A RE 304 (Rev. 3/09) “Consent to Service of Process” form, herein incorporated by reference, if the applicant is a non-resident of California.

(d) A RE 335 (Rev. 5/05) “C.E. Instructor Certification” form, herein incorporated by reference, must be submitted for each live course offering.

(e) All instruction materials, student materials, textbooks, CDs, DVDs, audio/video cassettes, case studies, sample forms, incremental assessments, etc., to be used as part of the offering.

(1) If CDs are utilized during the course of instruction the following shall be submitted with a copy of each CD:

(A) A Table of Contents for each CD.

(B) If the CD contains a textbook, copies of the text cover, publication page and table of contents.

(2) If DVDs or audio/visual cassettes are utilized during the course of instruction, provide a course outline as defined in Section 3006(c) that has been keyed to the elapsed time for each topic and subtopic.

(f) A General Information Page that will be provided to the participant prior to registration for the course that sets forth all requirements and policies that affect the participant's enrollment and completion of the course, i.e., fees, cancellation, refund; attendance and dismissal; final exam criteria, etc.

(g) A Course Outline as defined in Section 3006(c) with each topic and subtopic annotated with its allocated time in minutes.

(h) Detailed statement(s) addressing and/or copies of the following if applicable for a correspondence course offering:

(1) Method of control to protect the integrity of an exam administered via the internet.

(2) When the course is delivered via the internet, procedures controlling the participant's navigation through the course content to ensure the completion time is appropriate for the number of clock hours for which the course is approved.

(3) A copy of the incremental assessments to be utilized and a statement detailing the method of providing remediation to the participant.

(4) A copy of the signed written statement, required by Section 3006(o), to be executed by the participant.

(5) Final Exam Instructions provided to the participant and the proctor.

(6) A Certification to be executed by the proctor in accordance with Section 3007.3(h).

(i) The Final Exam or bank of questions with answer key that has been keyed to the course material. If re-examinations are allowed for participants that fail the initial examination two final examinations must be submitted or the item bank must contain a sufficient number of questions to compile two separate examinations.

(j) A Sample Course Completion Certificate containing at least:

(1) The name and license number of participant;

(2) A statement regarding meeting attendance and/or examination criteria;

(3) The name of the offering as approved by the Department;

(4) The number of credit hours;

(5) The date of registration if a correspondence course;

(6) The date of successful completion;

(7) The category of the offering;

(8) The eight-digit DRE approval number;

(9) The name, address and telephone number of the sponsor; and

(10) The printed name, signature and telephone number of the individual verifying the participant's completion of the course.

(k) If a course is a live educational seminar, conference or symposium that will not be offered more than annually in two (2) locations covering subject material dealing with new or changing trends, concepts or innovations in areas relevant to the real estate industry, a cover letter shall be submitted identifying the course as a one-time offering and the first date it is to be offered.

NOTE

Authority cited: Sections 10080 and 10170.4, Business and Professions Code. Reference: Sections 10170.4 and 10170.5, Business and Professions Code.

HISTORY

1. Amendment of subsection (d)(13) filed 1-17-80; effective thirtieth day thereafter (Register 80, No. 3).

2. Amendment filed 12-3-80; effective thirtieth day thereafter (Register 80, No. 49).

3. Amendment filed 7-1-83; effective thirtieth day thereafter (Register 83, No. 30).

4. Amendment filed 7-5-84; designated effective 8-1-84 (Register 84, No. 27).

5. Amendment of subsection (d) (6), (d) (8) and (d) (11) filed 5-4-89; operative 6-3-89 (Register 89, No. 23).

6. Amendment of subsection (d) filed 7-12-91; operative 8-11-91 (Register 91, No. 44).

7. Amendment of subsection (d)(11) and Note filed 12-7-94; operative 1-6-95 (Register 94, No. 49).

8. Amendment filed 11-27-96; operative 12-27-96 (Register 96, No. 48).

9. Amendment filed 9-16-2010; operative 1-1-2011 (Register 2010, No. 38).

§3007.05. Forms of Identification Accepted.

Note • History

A participant shall present one of the following forms of identification immediately before admittance to a live presentation of an offering or, immediately before the administration of the final examination for a correspondence offering.

(a) A current California driver license.

(b) A current identification card described in Section 13000 of the California Vehicle Code.

(c) Any identification of the participant issued by a governmental agency or a recognized real estate related trade organization within the immediately preceding five years which bears a photograph, signature and identification number of the participant.

NOTE

Authority cited: Sections 10080 and 10170.4, Business and Professions Code. Reference: Section 10170.4, Business and Professions Code.

HISTORY

1. New section filed 8-29-2007; operative 2-29-2008 (Register 2007, No. 35).

2. Amendment of subsection (a) filed 9-16-2010; operative 1-1-2011 (Register 2010, No. 38).

§3007.1. Submittal of Audio Tapes. [Repealed]

Note • History

NOTE

Authority cited: Sections 10080 and 10170.4, Business and Professions Code. Reference: Section 10170.4, Business and Professions Code.

HISTORY

1. New section filed 7-5-84; designated effective 8-1-84 (Register 84, No. 27). For history of former Section 3007.1, see Registers 83, No. 30; and 78, No. 17.

2. Repealer filed 11-13-96; operative 11-13-96 pursuant to Government Code section 11343.4(d) (Register 96, No. 46).

§3007.2. Material Change in Course Offering.

Note • History

(a) Any proposed change to an approved course offering that is a significant deviation, in one or more aspects, from the offering as approved by the Department including a change in curriculum, course length, method of presentation, workbooks, texts, or syllabi, but not including changes designed exclusively to reflect recent changes in statutes, regulations or decisional law, shall be deemed to be material and shall be submitted by the sponsor to the Department for consideration and approval prior to use.

(b) A material change shall require a new application and fee.

(c) If a course was approved under the regulations in effect from 2008 through January 1, 2011, and the sponsor continues to offer the course after January 1, 2011, the sponsor must change the course by January 1, 2011, to meet the new standard.

(d) A course that is changed as described in (c), above, to come into compliance with the regulatory changes adopted to go into effect on January 1, 2011, does not need to be submitted to the Department for review until the course is renewed.

NOTE

Authority cited: Sections 10080 and 10170.4, Business and Professions Code. Reference: Sections 10170.4 and 10170.5, Business and Professions Code.

HISTORY

1. New section filed 8-29-2007; operative 2-29-2008 (Register 2007, No. 35). For prior history, see Register 96, No. 46.

2. Amendment filed 9-16-2010; operative 1-1-2011 (Register 2010, No. 38).

§3007.3. Final Examination Rules.

Note • History

A final examination is required for all continuing education courses. Sponsors shall establish the following final examination rules for approved offerings that are to be observed by all offering participants:

(a) The final examination shall provide the means by which a sponsor determines whether a participant has successfully completed the offering. The sponsor shall take steps to protect the integrity of the examination by controlling access to the exam by the participant and to prevent cheating in an examination.

(b) The examination shall not be taken by participants until completion of the instructional portion of the offering to which the examination applies.

(c) Participants taking a correspondence offering or package of offerings shall be limited to completion of final examinations for a maximum of fifteen (15) credit hours during any one 24 hour period A participant shall not be granted access to additional segments of the final examination for offerings or a package of offerings that exceed fifteen (15) credit hours until the appropriate 24-hour period has lapsed.

(d) The minimum number of questions required on a final examination consisting only of multiple choice, true/false and/or fill-in the blank questions shall be:

(1) 1 credit hour - 5 questions

(2) 2 credit hours - 10 questions

(3) 3-5 credit hours - 15 questions

(4) 6-8 credit hours - 20 questions

(5) 9-11 credit hours - 25 questions

(6) 12-14 credit hours - 30 questions

(7) 15-18 credit hours - 40 questions

(8) 19-23 credit hours - 50 questions

(9) 24-27 credit hours - 60 questions

(10) 28-31 credit hours - 70 questions

(11) 32-35 credit hours - 80 questions

(12) 36-39 credit hours - 90 questions

(13) 40 credit hours and over - 100 questions

(e) A final examination consisting only of multiple choice, true/false and/or fill-in the blank questions shall be limited to a maximum of 10% true/false questions.

(f) Time calculations for a final examination consisting of multiple choice, true/false and/or fill-in the blank questions will be allowed a maximum amount of one (1) minute per each such question.

(g) Final examinations may be administered as open or closed book but must be consistent for all participants. If open book examinations are administered, the participant may only refer to the instructional material approved for the course.

(h) Final examinations for a correspondence course may be administered by a proctor designated by the Sponsor who is not related by blood, marriage, domestic partnership, or any other relationship, i.e. future employing broker, to the participant taking the examination which might reasonably influence them from properly administering the exam. The proctor must certify in writing that they have complied with all examination rules during the administration of the examination.

(i) Final examinations for a correspondence course may be administered via the internet provided the integrity of the final examination is protected by restricting access to one-time, cannot be printable or downloadable, and must time-out after the maximum amount of time authorized for completion has lapsed.

(j) Participants taking a correspondence course must have access to the course materials for the approved number of credit hours for that correspondence course prior to completion of the final examination.

(1) For a correspondence course that uses static print or static print delivered in electronic media, such as CD, DVD, audio/video cassette or internet download when not administered via the internet, a maximum of eight (8) hours reading time per day shall be utilized in calculating the number of days that must lapse from the time the participant has had access to the course material until the examination can be accessed.

(2) For a correspondence course administered via the internet, a participant must spend the requisite number of hours navigating through the content and completing the incremental assessments prior to being granted access to the final examination.

(k) An offering may include a provision for one retaking of the final examination by a participant who failed the original examination provided the questions in the re-examination are different questions than those asked in the original final examination. A participant who fails the re-examination has failed the course and receives no credit from that course. Such a participant is not barred from re-enrolling and attempting completion of the same course, but must re-complete the credit hours and pass the final examination to receive credit for the course.

(l) Questions used in a final examination shall not duplicate any more than 10% of questions used in any other quiz or examination utilized during the presentation of the course.

(m) Participants shall not take possession of the final examination outside of the controlled environment under which the examination is administered.

(n) A violation of a final examination rule by the sponsor or the sponsor's representative administering the examination shall constitute grounds for denial or withdrawal of approval of the offering.

(o) To pass the examination, a participant must achieve a percentage score of 70 percent or more.

(p) Time involved in the final examination process may be included in establishing “clock-hours” for the offering.

NOTE

Authority cited: Sections 10080 and 10170.4, Business and Professions Code. Reference: Section 10170.4, Business and Professions Code.

HISTORY

1. New section filed 10-1-84; effective upon filing pursuant to Government Code Section 11346.2(d) (Register 84, No. 40).

2. Amendment of subsection (a) filed 5-4-89; operative 6-3-89 (Register 89, No. 23).

3. Repealer of subsections (a)(1)-(a)(4), (a)(6) and (a)(8)-(a)(15), new subsection (a)(1), and subsection renumbering filed 11-13-96; operative 11-13-96 pursuant to Government Code section 11343.4(d) (Register 96, No. 46).

4. Amendment of section heading and section filed 7-31-98; operative 8-30-98 (Register 98, No. 31).

5. Amendment of section heading and subsections (a) and (a)(2) and new subsections (a)(3) and (c)-(d) filed 8-29-2007; operative 2-29-2008 (Register 2007, No. 35).

6. Amendment filed 9-16-2010; operative 1-1-2011 (Register 2010, No. 38).

§3007.4. Offerings Approved Before Final Examination or Evaluation Requirement. [Repealed]

Note • History

NOTE

Authority cited: Sections 10080, and 10170.4, Business and Professions Code. Reference: Sections 10170.4, and 10170.6, Business and Professions Code.

HISTORY

1. New section filed 7-5-84; designated effective 8-1-84 (Register 84, No. 27).

2. Repealer filed 5-4-89; operative 6-3-89 (Register 89, No. 23).

§3007.5. Consumer Protection Courses. [Repealed]

Note • History

NOTE

Authority cited: Sections 10080, and 10170.4, Business and Professions Code. Reference: Sections 10170.4 and 10170.5, Business and Professions Code.

HISTORY

1. New section filed 7-5-84; designated effective 8-1-84 (Register 84, No. 27).

2. Amendment filed 5-4-89; operative 6-3-89 (Register 89, No. 23).

3. Repealer filed 12-7-94; operative 1-6-95 (Register 94, No. 49).

§3007.6. Advertising and Promotional Material.

Note • History

(a) All advertising and promotional material for a continuing education offering shall:

(1) Not include false or misleading statements or representations.

(2) Classify the offering in accordance with Section 10170.5(a) of the Code.

(3) Contain only the four-digit identification number assigned by the Department immediately following the words “DRE Sponsor No.” The full eight (8) digit course approval number shall not be included in any advertisement.

NOTE

Authority cited: Sections 10080 and 10170.4, Business and Professions Code. Reference: Sections 10170.4 and 10170.5, Business and Professions Code.

HISTORY

1. New section filed 2-26-85; effective thirtieth day thereafter (Register 85, No. 9).

2. New subsection (a)(6) filed 3-18-88; operative 4-17-88 (Register 88, No. 14).

3. Amendment of subsection (a)(3) and new subsections (c) and (d) filed 5-4-89; operative 6-3-89 (Register 89, No. 23).

4. New subsections (a)(3)(C)-(D) and subsection redesignation filed 12-7-94; operative 1-6-95 (Register 94, No. 49).

5. Amendment filed 11-13-96; operative 11-13-96 pursuant to Government Code section 11343.4(d) (Register 96, No. 46).

6. New subsection (a)(3) filed 9-16-2010; operative 1-1-2011 (Register 2010, No. 38).

§3008. Offerings Not to Be Approved.

Note • History

The Commissioner shall not approve a proposed continuing education offering that includes any of the following subject matter or conditions:

(a) Offerings which do not address the subject matter areas set forth in Section 10170.5(a) of the Code.

(b) Sales promotion.

(c) That portion of any offering devoted to the consuming of meals or to transporting participants to and from sites to be viewed or inspected as part of the offering.

(d) Any offering for which approval has been denied or withdrawn pursuant to Section 3010.

(e) Any offering substantially similar to and offered by the sponsor of an offering for which approval has been denied or withdrawn pursuant to Section 3010.

NOTE

Authority cited: Sections 10080 and 10170.4, Business and Professions Code. Reference: Sections 10170.4 and 10170.5, Business and Professions Code.

HISTORY

1. Amendment filed 7-1-83; effective thirtieth day thereafter (Register 83, No. 30).

2. Amendment filed 1-11-84; effective thirtieth day thereafter (Register 84, No. 2).

3. Amendment filed 7-5-84; designated effective 8-1-84 (Register 84, No. 27).

4. Amendment of subsection (b) filed 4-2-86; effective thirtieth day thereafter (Register 86, No. 14).

5. Amendment filed 3-18-88; operative 4-17-88 (Register 88, No. 14).

6. Amendment of subsection (b) filed 7-12-91; operative 8-11-91 (Register 91, No. 44).

7. Repealer of subsections (a), (d), (f) and (i), subsection relettering, and amendment of newly designated subsection (b) filed 11-13-96; operative 11-13-96 pursuant to Government Code section 11343.4(d) (Register 96, No. 46).

8. Amendment filed 9-16-2010; operative 1-1-2011 (Register 2010, No. 38).

§3009. Fees.

Note • History

(a) Approval by the Department of a continuing education offering shall be for a term of two years from the date of approval or from a date specified by the Department in granting the approval. The fee for processing the application for approval of an offering of three or more hours duration shall be $500. The fee for processing the application for approval of an offering of less than three hours duration shall be $350.

(b) The fee for processing a petition for continuing education credit based upon a claim of equivalency by the petitioner pursuant to subdivision (c) of Section 10170.4 of the Code shall be $60.

NOTE

Authority cited: Sections 10080 and 10170.4, Business and Professions Code. Reference: Sections 10170.4 and 10170.5, Business and Professions Code.

HISTORY

1. Amendment filed 12-3-80; effective thirtieth day thereafter (Register 80, No. 49).

2. Amendment filed 1-7-81; effective thirtieth day thereafter (Register 81, No. 2).

3. Repealer and new section filed 7-1-83; effective thirtieth day thereafter (Register 83, No. 30).

4. Repealer and new section filed 1-9-85; effective thirtieth day thereafter (Register 85, No. 2).

5. Amendment of subsection (a) filed 7-31-98; operative 8-30-98 (Register 98, No. 31).

§3010. Denial or Withdrawal of Approval.

Note • History

(a) If the Commissioner determines that a previously-approved continuing education offering no longer meets the prescribed statutory and regulatory standards for approval, or if the Commissioner determines that an instructor or lecturer for the course is no longer qualified, or that the course sponsor has engaged in activity violating the provisions of Article 25 (commencing with section 3005) of these regulations or has engaged in conduct which would have warranted the denial of an application for approval or withdrawal of approval of a continuing education offering, or the course differs materially from that which was previously approved, the Commissioner shall give written notice of withdrawal of approval setting forth the reasons for the determination. If the Commissioner determines, following an application for course approval, that the course will not meet the prescribed statutory and regulatory standards for approval or if the Commissioner determines that the instructor for the course is unqualified, the Commissioner shall give written notice of denial of approval setting forth the reasons for the determination. Withdrawal or denial of approval will be effective 30 days after the notice of withdrawal or denial is received by the sponsor unless the sponsor earlier files a written request for hearing on the withdrawal or denial action. If the request for hearing is received by the Commissioner before 30 days after the date of receipt of notice of withdrawal by the sponsor, the withdrawal or denial of approval shall not be effective unless and until ordered by the Commissioner pursuant to findings and conclusions reached after hearing pursuant to Chapter 5 (commencing with Section 11500) of Part 1 of Division 3 of Title 2 of the Government Code. The hearing shall be commenced within 30 days after receipt of the request for hearing unless continued to a later date by order of the Commissioner or by agreement of the parties. In a hearing on an order of withdrawal issued by the Commissioner, the burden of proving that the course does not meet the prescribed statutory and regulatory standards for approval shall be on the Commissioner. In a hearing on an order of denial issued by the Commissioner, the burden of proving that the course meets the prescribed statutory and regulatory standards for approval shall be on the applicant.

(b) Petition for Reinstatement.

(1) The sponsor of an offering for which approval has been withdrawn pursuant to subdivision (a) may, after a period of not less than one year has elapsed from the effective date of the withdrawal of approval, petition the Commissioner in writing for reinstatement of approval of the offering. The petitioner shall be given the opportunity to present in writing argument and other evidence, statements or matters in support of the petition. The Commissioner shall decide the petition and the decision and the decision shall include the reasons therefor.

(2) Upon a showing of good cause, the Commissioner may allow the filing of a petition for reinstatement prior to the expiration of one year from the effective date of the withdrawal of approval.

NOTE

Authority cited: Sections 10080 and 10170.4, Business and Professions Code. Reference: Section 10170.4, Business and Professions Code.

HISTORY

1. Repealer and new section filed 7-1-83; effective thirtieth day thereafter (Register 83, No. 30).

2. Amendment filed 7-5-84; designated effective 8-1-84 (Register 84, No. 27).

3. Amendment filed 3-18-88; operative 4-17-88 (Register 88, No. 14).

4. Amendment of subsection (a), new subsection (b) and subsection redesignation, and amendment of newly designated subsections (g)(1) and (g)(2) filed 11-8-93; operative 12-8-93 (Register 93, No. 46).

5. Repealer of subsections (a)-(f)(2), new subsection (a), subsection relettering, and amendment of newly designated subsections (b)(1) and (b)(2) filed 11-13-96; operative 11-13-96 pursuant to Government Code section 11343.4(d) (Register 96, No. 46).

6. Amendment filed 9-16-2010; operative 1-1-2011 (Register 2010, No. 38).

§3010.5. Determination of Qualifications of Instructor. [Repealed]

Note • History

NOTE

Authority cited: Sections 10080 and 10170.4, Business ant Professions Code. Reference: Section 10170.4(b), Business and Professions Code.

HISTORY

1. New section filed 3-18-88, operative 4-17-88 (Register 88, No. 14).

2. Amendment of subsection (a) filed 11-8-93; operative 12-8-93 (Register 93, No. 46).

3. Repealer of section and amendment of Note filed 11-13-96; operative 11-13-96 pursuant to Government Code section 11343.4(d) (Register 96, No. 46).

§3011. Equivalent Activities Criteria.

Note • History

(a) The primary consideration in determining whether a specific activity qualifies as an acceptable alternative to attendance at approved continuing education offerings is that it must include either presentation, development, authorship or research of information and materials designed to contribute directly to assuring that licensees maintain a reasonable currency of knowledge as a basis for a level of real estate practice as set forth in Business and Professions Code Section 10170.4.

(b) Equivalent activities may include but not be limited to:

(1) Attendance at courses not approved by the Commissioner.

(2) Instructing others in approved continuing education for real estate license renewal.

(3) Instruction or presentation of real estate related topics if the petitioner can demonstrate that the material conveyed contained reasonably current information designed to assist real estate licensees in providing a high level of consumer protection or service.

(4) Authorship of published professional articles, periodicals or books on current real estate procedures and law.

(c) Activities engaged in during the course of a licensee's normal occupation shall not be acceptable for a claim of equivalency unless such activities comply with subsections (a) and (b).

(d) Development of real estate education programs shall be given continuing education credit if the program would otherwise meet the requirements necessary for approval for continuing education credit.

(1) Sole authorship or development of a real estate educational program shall be credited upon an approved petition, with two hours continuing education credit for each hour of the program entitled to continuing education credit.

(2) Multiple authorship and development of a real estate educational program shall be credited, upon approval of a petition, based on the percentage each author or developer contributed to the total offering.

NOTE

Authority cited: Sections 10080 and 10170.4, Business and Professions Code. Reference: Sections 10170.4 and 10170.5, Business and Professions Code.

HISTORY

1. Amendment filed 7-1-83; effective thirtieth day thereafter (Register 83, No. 30).

2. Repealer and new section filed 10-1-84; effective upon filing pursuant to Government Code section 11346.2(d) (Register 84, No. 40).

3. Repealer of subsection (b)(3) and new subsection (b)(3) filed 5-26-92; operative 6-25-92 (Register 92, No. 22).

4. Editorial correction of subsection (b)(3) (Register 95, No. 42).

§3011.1. Petitions for Continuing Education Credit Equivalency for Course Instruction.

Note • History

(a) To receive continuing education credit for instruction of real estate related courses not approved for continuing education, the petitioner shall submit a statement under penalty of perjury which includes at least the following information:

(1) The petitioner's qualifications to teach the course.

(2) The title of the course.

(3) The date(s) and location the instruction took place.

(4) Clock hours of instruction.

(5) Titles and description of instructional materials used including the author(s), date of publication, and a copy of the Table of Contents, if applicable.

(6) An outline or syllabus for the course.

(7) Any other information useful in determining that the course will contribute to current knowledge as set forth in Business and Professions Code Section 10170.4.

(8) A statement by the course sponsor or school that the petitioner taught the course.

(b) A sponsor of an approved continuing education course may issue a completion certificate to the instructor of an approved continuing education course for one presentation of the course during its approval period.

NOTE

Authority cited: Sections 10080 and 10170.4, Business and Professions Code. Reference: Sections 10170.4 and 10170.5, Business and Professions Code.

HISTORY

1. New section filed 7-5-84; designated effective 8-1-84 (Register 84, No. 27).

2. Amendment of subsections (a)(5) and (a)(7) filed 11-27-96; operative 12-27-96 (Register 96, No. 48).

3. Amendment of subsections (a)(6) and (b) filed 7-31-98; operative 8-30-98 (Register 98, No. 31).

4. Amendment of section heading and section filed 9-16-2010; operative 1-1-2011 (Register 2010, No. 38).

§3011.2. Petitions for Continuing Education Credit Equivalency for Authorship of Articles or Books.

Note • History

(a) To receive continuing education credit equivalency for authorship of articles or books, the applicant shall submit a petition under penalty of perjury that includes at least the following information:

(1) The date of publication of the article or book.

(2) An explanation of how the material published meets the criteria of Section 3011.

(3) The number of hours the petitioner devoted to authorship of the article or book.

(4) The period during which the article or book was written.

(b) The applicant shall submit a copy of the published article or book.

NOTE

Authority cited: Sections 10080 and 10170.4, Business and Professions Code. Reference: Sections 10170.4 and 10170.5, Business and Professions Code.

HISTORY

1. New section filed 7-5-84; effective thirtieth day thereafter (Register 84, No. 27).

2. Amendment of subsection (b)(1) and repealer of subsection (b)(3) filed 11-27-96; operative 12-27-96 (Register 96, No. 48).

3. Amendment of section heading and section filed 9-16-2010; operative 1-1-2011 (Register 2010, No. 38).

§3011.3. Petitions for Equivalency for Development of Real Estate Programs, Laws, and Research.

Note • History

(a) If the claim for continuing education credit is based upon development of education programs, submit a statement under penalty of perjury including at least the following information:

(1) A clear and complete description of the education program.

(2) A description of the role of the petitioner in developing the program.

(3) The number of hours the petitioner devoted to development of the program.

(4) The period during which the program was developed.

(5) An explanation of how the development of the program meets the standard of Section 3011.

(b) If the claim involves development of real estate law or research, submit a statement under penalty of perjury that includes at least:

(1) A detailed description of the law affected or the research performed.

(2) The number of hours devoted to the research or development of law.

(3) An explanation of how the petitioner's participation meets the standard set forth in Section 3011.

(4) A copy of the research report or of the law developed shall be attached to the petition, if the report or law exists. If research support data is not available, the Commissioner may request whatever additional information is needed to support the claim.

NOTE

Authority cited: Sections 10080 and 10170.4, Business and Professions Code. Reference: Sections 10170.4 and 10170.5, Business and Professions Code.

HISTORY

1. New section filed 7-5-84; designated effective 8-1-84 (Register 84, No. 27).

§3011.4. Petitions for Continuing Education Credit Equivalency for Attendance at Unapproved Programs.

Note • History

(a) The Commissioner, when acting upon a petition for continuing education credit for completing a course that is not approved, shall apply the criteria set forth in Sections 3006 and 3007.3.

(b) The applicant shall submit a petition under penalty of perjury including at least the following information:

(1) The name, address, and telephone number of the course sponsor or school.

(2) The title of the course.

(3) The title, publisher, and date of publication of any text or course material used.

(4) The number of clock hours attended.

(5) Any outline or syllabus.

(6) A list of reading assignments with page references.

(7) A final grade report for the final examination.

(8) A completion certificate.

NOTE

Authority cited: Sections 10080 and 10170.4, Business and Professions Code. Reference: Sections 10170.4 and 10170.5, Business and Professions Code.

HISTORY

1. New section filed 10-1-84; effective upon filing pursuant to Government Code Section 11346.2(d) (Register 84, No. 40).

2. Amendment of subsection (b)(5), repealer of subsection (b)(7) and subsection renumbering filed 11-27-96; operative 12-27-96 (Register 96, No. 48).

3. Amendment of subsections (a) and (b)(6) and repealer of subsection (b)(7) filed 7-31-98; operative 8-30-98 (Register 98, No. 31).

4. Amendment of subsections (a) and (a)(6) filed 8-29-2007; operative 2-29-2008 (Register 2007, No. 35).

5. Amendment of section heading and subsection (b)(6) and new subsections (b)(7)-(8) filed 9-16-2010; operative 1-1-2011 (Register 2010, No. 38).

§3012. Extension Conditions.

Note • History

An extension of the time for completing the continuing education requirements may be obtained by submitting with the regular renewal application evidence showing that applicant was unable to comply with the continuing education requirements. Such evidence may be (1) health reasons preventing attendance, (2) active duty in the military service with assignment to a permanent duty station outside of the state during the last 18 months of a license period, or (3) other compelling cause beyond the control of the applicant while engaged in the real estate business.

The Commissioner may extend an otherwise expired license while investigating such evidence for not to exceed 90 days if he finds applicant can reasonably be expected to be found to meet minimum requirements for renewal under this Article.

NOTE

Authority cited: Sections 10080 and 10170.4, Business and Professions Code. Reference: Section 10170.4, Business and Professions Code.

HISTORY

1. Amendment filed 5-18-81; effective thirtieth day thereafter (Register 81, No. 21).

2. Amendment filed 7-5-84; designated effective 8-1-84 (Register 84, No. 27).

3. Amendment filed 4-2-86; effective thirtieth day thereafter (Register 86, No. 14).

§3012.2. Record Keeping.

Note • History

The sponsor shall maintain a record of attendance or registration and final examination grade of each participant, for a period of five years, sufficient to allow for the preparation of a duplicate certificate upon request by a participant.

NOTE

Authority cited: Sections 10080 and 10170.4, Business and Professions Code. Reference: Sections 10170.4 and 10170.5, Business and Professions Code.

HISTORY

1. New section filed 10-1-84; effective upon filing pursuant to Government Code section 11346.2(d) (Register 84, No. 40).

2. Amendment of subsection (a) filed 4-2-86; effective thirtieth day thereafter (Register 86, No. 14).

3. Amendment of subsections (a) and (b) filed 5-4-89; operative 6-3-89 (Register 89, No. 23).

4. Amendment of subsection (a) filed 7-12-91; operative 8-11-91 (Register 91, No. 44).

5. Editorial correction of printing errors (Register 91, No. 44).

6. Amendment filed 11-13-96; operative 11-13-96 pursuant to Government Code section 11343.4(d) (Register 96, No. 46).

7. Amendment filed 9-16-2010; operative 1-1-2011 (Register 2010, No. 38).

§3012.3. “Good Standing” Defined.

Note • History

The term “good standing” as used in Section 10170.8 of the Code means an active license that has not been suspended, revoked, or restricted as a result of disciplinary action. A license shall retain good standing if

(a) the license was renewed without expiration, or

(b) the license was renewed within a two year late renewal grace period after expiration, without requalification through an examination. The term of such temporary expiration, prior to renewal within the two year grace period granted by Section 10201 of the Code, may be included within the years used to calculate the “30 continuous years” specified by Section 10170.8 of the Code.

NOTE

Authority cited: Sections 10080, 10170.4 and 10170.6, Business and Professions Code. Reference: Sections 10170.8 and 10201, Business and Professions Code.

HISTORY

1. New section filed 2-28-2006; operative 3-30-2006 (Register 2006, No. 9).

2. Amendment of section and Note filed 8-1-2011; operative 8-31-2011 (Register 2011, No. 31).

§3013. License Renewal Procedure.

Note • History

In making application for renewal of a real estate license, the applicant shall provide such information as the Department may require concerning continuing education offerings that the applicant has completed within the four years immediately preceding expiration of the license or in the case of an application made pursuant to Section 10201 of the Code within the four years immediately preceding the date that the application is submitted to the Department. If requested by the Department, the applicant shall submit certificates of attendance or certified copies thereof from sponsors of approved offerings to substantiate information provided by the applicant.

NOTE

Authority cited: Sections 10080 and 10170.4, Business and Professions Code. Reference: Sections 10156.2, 10170.4, 10171 and 10171.2, Business and Professions Code.

HISTORY

1. Amendment filed 7-9-80; effective thirtieth day thereafter (Register 80, No. 28).

2. Repealer and new section filed 7-1-83; effective thirtieth day thereafter (Register 83, No. 30).

3. Amendment filed 1-11-84; effective thirtieth day thereafter (Register 84, No. 2).

Article 25.2. Minority and Women Business Participation Goals for State Contracts [Repealed]

HISTORY

1. Repealer of article 25.2 (sections 3050-3056) filed 11-27-96; operative 12-27-96 (Register 96, No. 48).

Article 26. Recovery Account

§3100. Definitions.

Note • History

As used in this Article, the following definitions will apply:

(a) “Recovery Account” means the separate account in the Real Estate Fund established pursuant to Section 10450.6 of the Code for purposes of carrying out the provisions of Chapter 6.5 of the Real Estate Law.

(b) “Application” means an application for payment from the Recovery Account filed with the Department pursuant to Section 10471(a) of the Code.

(d) “Claimant” means an aggrieved person who filed an application pursuant to Section 10471(a) of the Code.

(e) “Person” includes corporation, partnership, company or firm.

(f) “Final Judgment” means a judgment, arbitration award, or criminal restitution order for which the period for appeal has expired, enforcement of which is not barred by the order of any court or by any statutory provision, and which has not been nullified or rendered void by any court order or statutory provision.

(g) “Court of Competent Jurisdiction” means a small claims, municipal or superior court of the State of California, or a United States district court or United States bankruptcy court sitting to conduct its affairs within the boundaries of the State of California.

(h) “County in Which a Judgment Was Rendered” means the county within California in which the court issuing the judgment or restitution order sits or, if the claim is based on an arbitration award, the county in which the arbitration was conducted, or in which the claimant resides.

(i) Where appropriate to the context the singular number includes the plural and the plural number includes the singular.

NOTE

Authority cited: Section 10080, Business and Professions Code. Reference: Sections 10450.6, 10470, 10470.1, 10471, 10471.1, 10471.2, 10471.3, 10471.4, 10471.5, 10471.6, 10472, 10472.1, 10473, 10473.1, 10474, 10474.5, 10475, 10476, 10477, 10478, 10479, 10480 and 10481, Business and Professions Code.

HISTORY

1. New section filed 12-15-86; designated effective 1-1-87 pursuant to Government Code Section 11346.2(d) (Register 86, No. 51).

2. New subsections (g) and (h) and subsection relettering filed 12-30-97; operative 1-29-98 (Register 98, No. 1).

3. Amendment of subsections (f) and (h) filed 10-26-99; operative 11-25-99 (Register 99, No. 44).

§3101. Application for Payment from Recovery Account.

Note • History

(a) An application for payment from the Recovery Account shall be made on a form prescribed by the Department, shall contain the items specified by Section 10471(c) of the Code, and shall contain all of the information specified in Section 3102, except as provided in subdivision (b) of this section. The application shall be verified by the claimant in the manner specified in Section 446 of the Code of Civil Procedure for the verification of a pleading. If executed outside of California, the information in the application and accompanying documents shall be verified before a person qualified to administer oaths within the jurisdiction where executed or certified under penalty of perjury in accordance with the provisions of subdivision (b) of Section 2015.5 of the Code of Civil Procedure.

(b) The claimant may submit with the application less than all of the information defined by Section 3102 of these regulations as constituting a substantially complete application if the claimant believes that the information submitted with the application is sufficient for the Department to determine whether the application qualifies under Sections 10470 through 10481 of the Code for payment from the Recovery Account. However, an application will not be deemed substantially complete within the meaning of Section 3102 of these regulations unless:

(1) The Department determines that what has been submitted is sufficient for it to make a determination whether the application qualifies for payment from the Recovery Account and so notifies the claimant as provided in Section 3105 of these regulations; or

(2) The application and supporting information meet all of the requirements specified in Section 3102 of these regulations.

(c) If any documents or other attachments are submitted with the application, the application shall contain a verification by the claimant that the documents are true and correct copies of the originals, and if such documents purport to be copies of documents filed in court that they are true and correct copies of the originals filed with the court.

(d) The application shall contain the name and address of the claimant, and if the claimant is not being represented by an attorney in the filing of the application, a telephone number where the claimant can be reached during regular business hours. If the claimant is represented by an attorney in filing of the application, the application shall contain the name, business address, and telephone number of the attorney.

NOTE

Authority cited: Section 10080, Business and Professions Code. Reference: Sections 10471 and 10471.2, Business and Professions Code.

HISTORY

1. New section filed 12-15-86; designated effective 1-1-87 pursuant to Government Code Section 11346.2(d) (Register 86, No. 51).

2. Amendment of subsection (b) filed 11-16-87; operative 12-16-87 (Register 87, No. 47).

§3102. Substantially Complete Application.

Note • History

Except as provided in Section 3101 of these regulations, an application for payment from the Recovery Account is “substantially complete” within the meaning of Section 10471.2(b) of the Code if it contains all of the documents and information enumerated below:

(a) Proof that the judgment debtor was served with the Notice and Application.

(b) A copy of the judgment showing it to be a final judgment as defined in this article, and any findings of facts, conclusions of law, jury verdicts, jury special verdicts, statements of decisions, memorandum decisions, or any other indication by the court or jury, as the case may be, of its decision and the reasons for the decision. If the original judgment was appealed, copies of the appellate decision and remittitur.

(c) Copies of the original complaint, answer, cross-complaints, answers to cross-complaints, and all amendments or other subsequent versions of any of those documents.

(d) Copies of any pre-trial or post-trial briefs or settlement conference statements.

(e) A listing of all depositions and interrogatories taken in the underlying action, describing the party or parties taking the deposition or propounding the interrogatories, the deponent or person responding to interrogatories, and all persons present at any deposition.

(f) Copies of any demurrers or motions for summary judgment, supporting documents, and rulings thereon.

(g) Copies of all documents reflecting the terms of the underlying transaction, including for example offers, counteroffers, escrow instructions, closing statements, deeds, notes and deeds of trust.

(h) A detailed narrative description by the claimant under penalty of perjury of all the facts of the underlying transaction, including how he or she was damaged by the judgment debtors, and the roles of all other persons involved in the transaction (such as other brokers or salespersons, sellers and buyers).

(i) A description by the claimant of the basis for each element of damages.

(j) If the only judgment debtor was a salesperson, a statement as to why the employing broker was not either sued or taken to judgment.

(k) If any codefendants were dismissed from the underlying lawsuit, a statement of the reason for dismissal as to each such codefendant.

(l) A list of the names of any witnesses who testified at the underlying trial and the present or last known addresses of the witnesses to the extent known by the claimant.

(m) A description of searches and inquiries conducted by or on behalf of the claimant with respect to the assets of the judgment debtor and the assets of all other persons liable to the claimant in the transaction which assets may be liable to be sold or applied to the losses suffered by the claimants, an itemized valuation of the assets discovered, and the results of actions by the claimant to have the assets applied to the losses suffered by the claimant.

(n) If the claimant claimed any loss related to the transaction as a deduction on his or her tax return or returns, a description of the amount of the tax benefit derived therefrom.

(o) A statement whether the judgment debtor is known to have filed bankruptcy. If so, a statement whether the claimant was named as a creditor in the bankruptcy, filed a claim in the bankruptcy, and pursued an adversary complaint to have the debt determined to be nondischargeable. If the judgment debtor filed bankruptcy and the claimant failed to take any of the foregoing actions, a statement as to why the claimant failed to take such actions.

(p) Abstracts of judgment bearing evidence of having been recorded in the county or counties in which the judgment debtor may possibly have assets.

(q) If any of the above items are not included in the initial application, or are requested in a deficiency letter and not supplied, a statement under penalty of perjury that the claimant has made a diligent effort to locate and produce the items but has been unable to locate them or has found that they do not exist.

(r) All documents or copies of documents submitted to meet the requirements of this section must be clear and legible.

(s) Certification by the claimant that all documents submitted are true and correct copies of the originals, and if such documents purport to be copies of documents filed in court, that they are true and correct copies of the originals filed with the court.

NOTE

Authority cited: Sections 10080 and 10471.2, Business and Professions Code. Reference: Section 10471.2, Business and Professions Code.

HISTORY

1. New section filed 12-15-86; designated effective 1-1-87 pursuant to Government Code Section 11346.2(d) (Register 86, No. 51).

2. Amendment of subsection (a) filed 3-18-88; operative 4-17-88 (Register 88, No. 14).

§3103. Response by Judgment Debtor.

Note • History

(a) The response by a judgment debtor must contain a verification that a copy of the response was sent to the claimant, or if the claimant is represented by an attorney, to the claimant's attorney, at the address specified in the application for the claimant or his or her attorney.

(b) If the judgment debtor is not represented by an attorney in objecting to payment of the application, the response must contain the judgment debtor's name, the address at which he or she wishes to receive correspondence and notices relating to the application, and a telephone number where he or she can be reached during regular business hours. If the judgment debtor is represented by an attorney in objecting to the application, the response must contain the name, business address, and telephone number of the attorney.

NOTE

Authority cited: Section 10080, Business and Professions Code. Reference: Section 10471.1, Business and Professions Code.

HISTORY

1. New section filed 12-15-86; designated effective 1-1-87 pursuant to Government Code Section 11346.2(d) (Register 86, No. 51).

2. Repealer of subsection (a), subsection relettering, and amendment of newly designated subsection (a) filed 11-27-96; operative 12-27-96 (Register 96, No. 48).

§3104. Subsequent Service of Correspondence and Notices.

Note • History

After initial service of the application on the Department and the judgment debtor by the claimant as provided by sections 10471(b) and 10471.1(a) and (b), and after service of a response by the judgment debtor as provided by section 10471.1(c) of the Code and section 3103 of these regulations, all parties shall be served with subsequent correspondence and notices by first class mail as follows:

(a) The Department shall be served at:

Department of Real Estate

Recovery Account Unit

P.O. Box 187007

Sacramento, CA 95818-7007

(b) The claimant shall be served at his or her address as specified in the application, or if the claimant is represented by an attorney, at the address of the attorney as specified in the application.

(c) The judgment debtor shall be served at his or her address as specified in the response, or if the judgment debtor is represented by an attorney as specified in the response.

If the claimant or judgment debtor later wishes to be served at an address other than as specified above, such party shall notify the other parties by first class mail of the new address.

NOTE

Authority cited: Section 10080, Business and Professions Code Reference: Sections 10471, 10471.1, 10471.2, 10471.5 and 10472, Business and Professions Code.

HISTORY

1. New section filed 12-15-86; designated effective 1-1-87 pursuant to Government Code section 11346.2(d) (Register 86, No. 51).

2. Amendment of subsection (a) filed 3-18-88; operative 4-17-88 (Register 88, No. 14).

3. Amendment of subsection (a) filed 7-12-91; operative 8-11-91 (Register 91, No. 44).

§3105. Notification of Substantially Complete Application. [Repealed]

Note • History

NOTE

Authority cited: Sections 10080 and 10471.2, Business and Professions Code. Reference: Sections 10471.2 and 10471.3, Business and Professions Code.

HISTORY

1. New section filed 12-15-86; designated effective 1-1-87 pursuant to Government Code Section 11346.2(d) (Register 86, No. 51).

2. Repealer filed 11-27-96; operative 12-27-96 (Register 96, No. 48).

§3106. Procedures to Be Followed When Judgment Debtor Has Filed a Response.

Note • History

(a) A judgment debtor who has filed a response objecting to payment to a claimant from the Recovery Account may submit written argument setting forth in detail the factual and legal bases upon which he or she believes the application should be denied. Such argument may be submitted at any time from the filing of the response until 30 days after the date of mailing of the Notice set forth in Section 10471.1(c) of the Code, and shall be served upon the Department and the claimant as specified in Section 3104 of these regulations.

(b) The claimant shall have 30 days after the mailing of argument by the judgment debtor in which to submit his or her own argument in favor of payment. Such argument by the claimant shall be served upon the Department and the judgment debtor as provided in Section 3104 of these regulations.

NOTE

Authority cited: Section 10080, Business and Professions Code. Reference: Section 10471.1, Business and Professions Code.

HISTORY

1. New section filed 12-15-86; designated effective 1-1-87 pursuant to Government Code Section 11346.2(d) (Register 86, No. 51).

2. Amendment of subsection (a) filed 11-9-2000; operative 12-9-2000 (Register 2000, No. 45).

§3107. Unreasonable Delay by Claimant in Responding to Deficiency Letter.

Note • History

(a) In the event that the Department has mailed one or more itemized lists of deficiencies to a claimant as provided by Section 10471.2(a) of the Code, and if after an unreasonable length of time the Department has received no response to the latest such list of deficiencies, the Department may notify the claimant that unless the application is substantially complete within a specified period of time of not less than 30 days, the application will be denied.

(b) The determination of what constitutes an unreasonable length of time shall be within the discretion of the Commissioner, taking into account the degree of difficulty in meeting the deficiencies specified. However, an “unreasonable length of time” shall not be deemed to be less than six months after the last mailing of a list of deficiencies.

(c) If no response has been received from the claimant after the passing of the deadline specified by the Department pursuant to subdivision (a) of this section, the Commissioner may deny the application.

NOTE

Authority cited: Sections 10080 and 10471.2, Business and Professions Code. Reference: Sections 10471.2, 10471.3, Business and Professions Code.

HISTORY

1. New section filed 12-15-86; designated effective 1-1-87 pursuant to Government Code Section 11346.2(d) (Register 86, No. 51).

§3108. Procedure upon Filing of Proration Proceeding. [Repealed]

Note • History

NOTE

Authority cited: Section 10080, Business and Professions Code. Reference: Section 10471.6, Business and Professions Code.

HISTORY

1. New section filed 12-15-86; designated effective 1-1-87 pursuant to Government Code Section 11346.2(d) (Register 86, No. 51).

2. Repealer filed 11-27-96; operative 12-27-96 (Register 96, No. 48).

§3109. Procedure upon Filing of Writ of Mandamus by Judgment Debtor.

Note • History

(a) If the decision of the Commissioner is to make a payment out of the Recovery Account, and the judgment debtor files a writ of mandamus as provided in Section 10471.5(c) of the Code, no payment shall be made of the pending application unless and until the writ of mandamus has been denied and such denial has become final.

(b) If such writ of mandamus is granted on the basis that the claimant has not met the requirements for payment from the Recovery Account, the application shall be denied.

NOTE

Authority cited: Section 10080, Business and Professions Code. Reference: Section 10471.5, Business and Professions Code.

HISTORY

1. New section filed 12-15-86; designated effective 1-1-87 pursuant to Government Code Section 11346.2(d) (Register 86, No. 51).

Article 36. Conflict of Interest Code of the Department of Real Estate

NOTE: Pursuant to a regulation of the Fair Political Practices Commission (Title 2, CCR, section 18750(k)(2)), an agency adopting a conflict of interest code has the options of requesting that the code either be (1) printed in the CCR in its entirety or (2) incorporated by reference into the CCR. Here, the adopting agency has requested incorporation by reference. However, the full text of the regulations is available to the public for review or purchase at cost at the following locations:

DEPARTMENT OF REAL ESTATE
2201 BROADWAY
P.O. BOX 187000
SACRAMENTO, CA 95818-7000

FAIR POLITICAL PRACTICES COMMISSION
428 J STREET
SACRAMENTO, CA 95814-2331

ARCHIVES
SECRETARY OF STATE
1020 0 STREET
SACRAMENTO, CA 95814-5704

The Conflict of Interest Code is designated as Article 36, Chapter 6 of Title 10 of the California Code of Regulations, and consists of sections numbered and titled as follows:

Article 36. Conflict of Interest Code of the Department of Real Estate

Section

3200. General Provisions

Appendix

NOTE

Authority cited: Sections 87300 and 87304, Government Code. Reference: Sections 87300, 87302, 87306, 89503, and 89505, Government Code.

HISTORY

1. New Article 36 (sections 3200-3208) filed 5-20-77; effective thirtieth day thereafter. Approved by Fair Political Practices Commission 3-17-77 (Register 77, No. 21).

2. Amendment of section 3201 filed 12-3-80; effective thirtieth day thereafter (Register 80, No. 49).

3. Repealer of article 36 (sections 3200-3208) and new article 36 (section 3200 and Appendix) filed 2-26-81; effective thirtieth day thereafter. Approved by Fair Political Practices Commission 12-1-80 (Register 81, No. 9).

4. Amendment filed 12-12-91; operative 1-13-92. Approved by Fair Political Practices Commission 10-9-91 (Register 92, No. 10).

5. Editorial correction of History 4 (Register 95, No. 42).

6. Amendment of addresses, section and appendix filed 9-17-97; operative 10-17-97. Approved by Fair Political Practices Commission 7-31-97 (Register 97, No. 38).

7. Amendment of Appendix filed 2-13-2003; operative 3-15-2003. Approved by Fair Political Practices Commission 12-5-2002 (Register 2003, No. 7).

Chapter 6.5. Real Estate Appraisers

Article 1. Definitions

§3500. Meaning of Words and General Definitions.

Note • History

(a) Words shall have their usual meaning unless the context or a definition clearly indicates a different meaning. Words used in their present tense include the future tense and words in the singular form include the plural form. Use of the word “shall” or “must” denotes mandatory conduct; “may” denotes permissive conduct; and “should” denotes recommended conduct.

(b) As used in these regulations, the following words and phrases shall have the following definitions:

(1) “Applicant” means a natural person who has made application to be a State Licensed Real Estate Appraiser, a State Certified Real Estate Appraiser, a Course Provider or a person who has applied for a Trainee License, a Reciprocal License or a Temporary Practice Permit. Applicant also means an entity or Controlling Person that has applied for a Certificate of Registration as an Appraisal Management Company;

(2)(A) “Appraisal Management Company” means any person or entity that satisfies all of the following conditions:

1. Maintains an approved list or lists, containing 11 or more independent contractor appraisers licensed or certified pursuant to Part 3 (commencing with section 11300), of Division 4 of the Business and Professions Code or employs 11 or more appraisers licensed or certified pursuant to that Part.

2. Receives requests for appraisals from one or more clients.

3. For a fee paid by one or more of its clients, delegates appraisal assignments for completion by its independent contractor or employee appraisers.

(B) “Appraisal Management Company” does not include any of the following, when that person or entity directly contracts with an independent appraiser:

1. Any bank, credit union, trust company, savings and loan association, or industrial loan company doing business under the authority of, or in accordance with, a license, certificate, or charter issued by the United States or any state, district, territory, or commonwealth of the United States that is authorized to transact business in this state.

2. Any finance lender or finance broker licensed pursuant to Division 9 (commencing with Section 22000) of the Financial Code, when acting under the authority of that license.

3. Any residential mortgage lender or residential mortgage servicer licensed pursuant to Division 20 (commencing with Section 50000) of the Financial Code, when acting under the authority of that license.

4. Any real estate broker licensed pursuant to Part 1 (commencing with Section 10000) of Division 4 of the Business and Professions Code, when acting under the authority of that license.

(C) “Appraisal Management Company” does not include any person licensed to practice law in this state who is working with or on behalf of a client of that person in connection with one or more appraisals for that client;

(3) “Appraisal Standards Board (ASB)” means the board of The Appraisal Foundation;

(4) “Appraisal Subcommittee (ASC)” means the Appraisal Subcommittee of the Federal Financial Institutions Examination Council;

(5) “Appraiser” means an individual who holds a license issued by the Office of Real Estate Appraisers;

(6) “Appraiser Qualifications Board (AQB)” means the subcommittee of The Appraisal Foundation. The “Appraiser Qualifications Board” (AQB) is the board of The Appraisal Foundation which promulgates the minimum national requirements for licensure for licensed appraisers. The minimum national requirements includes the interpretations and clarification's of the appraiser qualifications criteria issued by AQB;

(7) “Certificate of Registration” means a certificate issued by the California Office of Real Estate Appraisers verifying the registration of a person or entity as approved to conduct business in California as an Appraisal Management Company.

(8) “Controlling Person” means one of more of the following:

(A) An officer or director of an Appraisal Management Company, or an individual that holds 10% or greater ownership interest in an Appraisal Management Company.

(B) An individual employed, appointed or authorized by an Appraisal Management Company that has the authority to enter into a contractual relationship with clients for the performance of appraisal services and that has the authority to enter into agreements with independent appraisers for the completion of appraisals.

(C) An individual who possesses the power to direct or cause the direction of the management or policies of an Appraisal Management Company.

(9) “Course Provider” means a person or organization that has been approved by the Office of Real Estate Appraisers to provide educational courses within the parameters set forth herein.

(10) “Designated Officer” means a Controlling Person authorized by the governing structure of the Appraisal Management Company to act on behalf of the company for purposes of application for, and compliance with, a Certificate of Registration to operate as an Appraisal Management Company pursuant to California law. The Designated Officer shall be responsible for the supervision and control of activities conducted on behalf of the Appraisal Management Company by its officers and employees as necessary to secure full compliance with the provisions of SB 237 (Chapter 173, Statutes of 2009), including contract services provided to the Appraisal Management Company for the performance of appraisal activities for which a California Real Estate Appraisal license is required.

(11) “Director” means the Director of OREA or his or her designee;

(12) “FIRREA” means the Financial Institutions Reform, Recovery and Enforcement Act of 1989, Public Law 101-73 and any amendments thereto;

(13) “Non-residential property” means all other property except one to four unit residential structures and land suitable for one to four unit residential use;

(14) “Office” means the Office of Real Estate Appraisers, and/or the Director;

(15) “OREA” means the Office of Real Estate Appraisers;

(16) “Registrant” means a person or entity authorized to conduct business as an Appraisal Management Company in California through issuance of a Certificate of Registration by the California Office of Real Estate Appraisers.

(17) “Registration” means the procedures and requirements with which a person or entity shall comply in order to qualify to conduct business as an Appraisal Management Company;

(18) “Residential property” means real property containing, and land suitable for, four or fewer residential units.

(19) “Uniform Standards of Professional Appraisal Practice; (USPAP)” means those standards as adopted by the Appraisal Standards Board of the Appraisal Foundation.

NOTE

Authority cited: Sections 11310, 11313, 11314, 11316, 11350 and 11361, Business and Professions Code. Reference: Sections 10, 11302, 11310, 11360 and 11361, Business and Professions Code.

HISTORY

1. New chapter 6.5, article 1 and section filed 6-7-94; operative 6-7-94 (Register 94, No. 23). For prior history, see Register 93, No. 8.

2. Amendment of section and Note filed 11-1-96; operative 11-1-96 pursuant to Government Code section 11343.4(d) (Register 96, No. 44).

3. Amendment of subsection (b)(1), new subsection (b)(6), subsection renumbering and amendment of Note filed 8-8-2006; operative 9-7-2006 (Register 2006, No. 32).

4. Amendment filed 1-21-2010 as an emergency; operative 1-21-2010 (Register 2010, No. 4). A Certificate of Compliance must be transmitted to OAL by 7-20-2010 or emergency language will be repealed by operation of law on the following day.

5. Amendment refiled 7-21-2010 as an emergency; operative 7-21-2010 (Register 2010, No. 30). A Certificate of Compliance must be transmitted to OAL by 10-19-2010 or emergency language will be repealed by operation of law on the following day.

6. Amendment refiled 10-18-2010 as an emergency; operative 10-18-2010 (Register 2010, No. 43). A Certificate of Compliance must be transmitted to OAL by 1-18-2011 or emergency language will be repealed by operation of law on the following day.

7. Certificate of Compliance as to 10-18-2010 order transmitted to OAL 12-17-2010 and filed 1-31-2011 (Register 2011, No. 5).

Article 2. General Requirements

§3501. Business Entities. [Repealed]

Note • History

NOTE

Authority cited: Sections 11313, 11314 and 11325, Business and Professions Code. Reference: Sections 11320 and 11325, Business and Professions Code.

HISTORY

1. New article 2 and section filed 6-7-94; operative 6-7-94 (Register 94, No. 23).

2. Repealer filed 11-1-96; operative 11-1-96 pursuant to Government Code section 11343.4(d) (Register 96, No. 44).

§3521. Scope of Practice.

Note • History

The types of federally related transactions which shall be performed by each class of licensed appraisers shall be as provided in Section 323.3 of Part 323 of Subchapter B of Chapter III of Title 12 of the Code of Federal Regulations.

NOTE

Authority cited: Section 11325, Business and Professions Code. Reference: 12 C.F.R., Part 323, Section 323.3.

HISTORY

1. Renumbering and amendment of former section 3503 to new section 3521 and renumbering of former section 3521 to new section 3566 filed 11-1-96; operative 11-1-96 pursuant to Government Code section 11343.4(d) (Register 96, No. 44). For prior history, see Register 94, No. 23.

§3522. License or Certificate of Registration.

Note • History

Each license or Certificate of Registration shall show on its face in clear and concise language the following information:

(a) The name of the holder;

(b) The license number or Certificate of Registration number;

(d) Whether restricted or limited in any manner, and if so, the nature of the restriction or limitation; and

(e) The dates of issuance and expiration of the document.

NOTE

Authority cited: Section 11314, Business and Professions Code. Reference: Sections 11320 and 11321, Business and Professions Code.

HISTORY

1. Renumbering and amendment of section heading and former section 3504 to new section 3522, and renumbering of former section 3522 to new section 3567 filed 11-1-96; operative 11-1-96 pursuant to Government Code section 11343.4(d) (Register 96, No. 44). For prior history, see Register 94, No. 23.

2. Amendment of section heading and section filed 1-21-2010 as an emergency; operative 1-21-2010 (Register 2010, No. 4). A Certificate of Compliance must be transmitted to OAL by 7-20-2010 or emergency language will be repealed by operation of law on the following day.

3. Amendment of section heading and section refiled 7-21-2010 as an emergency; operative 7-21-2010 (Register 2010, No. 30). A Certificate of Compliance must be transmitted to OAL by 10-19-2010 or emergency language will be repealed by operation of law on the following day.

4. Amendment of section heading and section refiled 10-18-2010 as an emergency; operative 10-18-2010 (Register 2010, No. 43). A Certificate of Compliance must be transmitted to OAL by 1-18-2011 or emergency language will be repealed by operation of law on the following day.

5. Certificate of Compliance as to 10-18-2010 order transmitted to OAL 12-17-2010 and filed 1-31-2011 (Register 2011, No. 5).

§3523. License or Certificate of Registration Property of the Office.

Note • History

Each license or Certificate of Registration shall remain the property of the Office and shall be surrendered to the Office or its authorized representative upon order of the Director, unless otherwise ordered pursuant to these regulations.

NOTE

Authority cited: Sections 11313 and 11314, Business and Professions Code. Reference: Sections 11315 and 11319, Business and Professions Code.

HISTORY

1. Renumbering and amendment of former section 3523 to new section 3568 and new section filed 11-1-96; operative 11-1-96 pursuant to Government Code section 11343.4(d) (Register 96, No. 44). For prior history, see Register 94, No. 23.

5. Certificate of Compliance as to 10-18-2010 order transmitted to OAL 12-17-2010 and filed 1-31-2011 (Register 2011, No. 5).

§3524. Term of License or Certificate of Registration.

Note • History

Every original license or Certificate of Registration shall be valid for the term set forth in Sections 11341 and 11345.1 of the Business and Professions Code unless otherwise ordered pursuant to these regulations.

NOTE

Authority cited: Sections 11313 and 11314, Business and Professions Code. Reference: Sections 11341 and 11345.1, Business and Professions Code.

HISTORY

1. Renumbering and amendment of section heading and former section 3505 to new section 3524 and renumbering of former section 3524 to new section 3569 filed 11-1-96; operative 11-1-96 pursuant to Government Code section 11343.4(d) (Register 96, No. 44). For prior history, see Register 94, No. 23.

2. Amendment of section heading, section and Note filed 1-21-2010 as an emergency; operative 1-21-2010 (Register 2010, No. 4). A Certificate of Compliance must be transmitted to OAL by 7-20-2010 or emergency language will be repealed by operation of law on the following day.

5. Certificate of Compliance as to 10-18-2010 order transmitted to OAL 12-17-2010 and filed 1-31-2011 (Register 2011, No. 5).

§3525. Temporary Practice Permit.

Note • History

(a) In lieu of obtaining a license, appraisers with currently valid unrestricted licenses issued by another state may be issued a Temporary Practice Permit to perform a single appraisal assignment.

(b) A Temporary Practice Permit is not required if an appraiser from another state associates with an appraiser licensed in California and the work is limited to assisting in the preparation of an appraisal under the conditions specified in Business and Professions Code Section 11324.

(c) The applicant shall have satisfied the requirements for a license in a state or territory where the licensing provisions comply with Title XI of FIRREA and where the Appraisal Subcommittee has not issued a finding that the policies, practices, or procedures of the state or territory are inconsistent with Title XI.

(d) The license held shall be current and in good standing with the issuing state or territory.

(e) A Temporary Practice Permit is required when any appraiser enters California to appraise or provide technical review services in a federally related transaction and the appraiser is not licensed in California.

(f) Application for a Temporary Practice Permit shall be made on Request for Temporary Practice Permit Form REA 3009 (Rev. 3/16/10) which is herein incorporated by reference, or any federally-approved equivalent form to the Office at its principal office in Sacramento, together with the fees specified in Section 3582 and such information as may be requested by the Director.

(g) An appraisal assignment under such temporary practice shall be completed within one year after issuance of the Temporary Practice Permit, or within the period of time that the applicant holds a valid, current license in his or her issuing state, whichever is sooner. Should the applicant's license from the issuing state expire less than one year from the issuance date of the Temporary Practice Permit, the Office shall extend the term of the Temporary Practice Permit for up to one year from the initial date of issuance upon proof of renewal of the license from the applicant's issuing state. The term of the Temporary Practice Permit shall not be extended beyond one year from the initial date of issuance.

NOTE

Authority cited: Sections 11313, 11314, 11324, 11340, 11350 and 11352, Business and Professions Code. Reference: Sections 11350 and 11351, Business and Professions Code.

HISTORY

1. Renumbering and amendment of former section 3507 to new section 3525 and renumbering of former section 3525 to new section 3570 filed 11-1-96; operative 11-1-96 pursuant to Government Code section 11343.4(d) (Register 96, No. 44). For prior history, see Register 94, No. 23.

2. Amendment of subsection (f) filed 11-2-99; operative 12-2-99 (Register 99, No. 45).

3. Change without regulatory effect amending subsection (f) filed 9-18-2000 pursuant to section 100, title 1, California Code of Regulations (Register 2000, No. 38).

4. Amendment of subsections (a) and (g) and amendment of Note filed 8-8-2006; operative 9-7-2006 (Register 2006, No. 32).

5. Amendment of subsections (f)-(g) filed 8-24-2010; operative 9-23-2010 (Register 2010, No. 35).

§3526. Consent to Service of Process.

Note • History

(a) Each applicant for a license or temporary practice permit who is a non-resident of California shall complete the Consent to Service of Process Form REA 3006 (Rev. 5/8/00), which is herein incorporated by reference or any federally-approved equivalent form.

(b) Any Controlling Person applicant who is a non-resident of California shall complete the Consent to Service of Process Form REA 3006 (Rev. 5/8/00).

NOTE

Authority cited: Sections 11313, 11314 and 11340, Business and Professions Code. Reference: Section 1018, Code of Civil Procedure.

HISTORY

1. Renumbering and amendment of former section 3508 to new section 3526 and renumbering of former section 3526 to new section 3581 filed 11-1-96; operative 11-1-96 pursuant to Government Code section 11343.4(d) (Register 96, No. 44). For prior history, see Register 94, No. 23.

2. Amendment filed 11-2-99; operative 12-2-99 (Register 99, No. 45).

3. Change without regulatory effect amending section filed 9-18-2000 pursuant to section 100, title 1, California Code of Regulations (Register 2000, No. 38).

7. Certificate of Compliance as to 10-18-2010 order transmitted to OAL 12-17-2010 and filed 1-31-2011 (Register 2011, No. 5).

§3527. Personal Information or Contact Change.

Note • History

(a) All applicants for and holders of a license, temporary practice permit or course provider approval permit shall submit written notice to OREA of any change to the following within 10 days on the Change Notification and Miscellaneous Requests Form REA 3011 (Rev. 5/8/00), which is herein incorporated by reference:

(1) Name;

(2) Residence telephone number;

(3) Business telephone number;

(4) Residence address;

(5) Business name or address; or

(6) Mailing address.

(b) All holders of a Certificate of Registration, or a Controlling Person for an Appraisal Management Company shall submit written notice to OREA of any change to the following within 10 days on the Appraisal Management Company Change Notification and Miscellaneous Requests Form REA 5011 (New 09/01/10), which is herein incorporated by reference:

(1) Name Change (addition or deletion of a Controlling Person);

(2) Residence telephone number;

(3) Business telephone number;

(4) Residence address;

(5) Business name or address; or

(6) Mailing address.

Any Form REA 5011 (New 09/01/10) submitted to OREA must be signed by the Designated Officer of the Appraisal Management Company.

(c) The business name, address and telephone number shall be considered the applicant's, licensee's or Registrant's address and telephone number of record for all purposes unless otherwise requested in writing by the applicant, licensee or Registrant and shall be considered a matter of public record. If no business address is provided, the mailing address shall be the address of record. A physical address is required as the address of record (a P.O. Box, Rural Route, Star Route, or mail box rental service location is not allowed).

NOTE

Authority cited: Sections 11313, 11314 and 11340, Business and Professions Code. Reference: Sections 11340 and 11345.05, Business and Professions Code.

HISTORY

1. Renumbering and amendment of former section 3509 to new section 3527 and renumbering of former section 3527 to new section 3582 filed 11-1-96; operative 11-1-96 pursuant to Government Code section 11343.4(d) (Register 96, No. 44). For prior history, see Register 94, No. 23.

2. Change without regulatory effect amending subsection (a) filed 9-18-2000 pursuant to section 100, title 1, California Code of Regulations (Register 2000, No. 38).

3. Amendment of subsection (a) filed 8-8-2006; operative 9-7-2006 (Register 2006, No. 32).

4. Amendment of section and Note filed 1-21-2010 as an emergency; operative 1-21-2010 (Register 2010, No. 4). A Certificate of Compliance must be transmitted to OAL by 7-20-2010 or emergency language will be repealed by operation of law on the following day.

5. Amendment of section and Note refiled 7-21-2010 as an emergency; operative 7-21-2010 (Register 2010, No. 30). A Certificate of Compliance must be transmitted to OAL by 10-19-2010 or emergency language will be repealed by operation of law on the following day.

6. Amendment of subsection (b) filed 8-24-2010; operative 9-23-2010 (Register 2010, No. 35).

7. Amendment of section and Note refiled 10-18-2010 as an emergency; operative 10-18-2010 (Register 2010, No. 43). A Certificate of Compliance must be transmitted to OAL by 1-18-2011 or emergency language will be repealed by operation of law on the following day.

8. Certificate of Compliance as to 10-18-2010 order, including amendment of subsection (a), new subsections (b)-(b)(6), subsection relettering and amendment of newly designated subsection (c), transmitted to OAL 12-17-2010 and filed 1-31-2011 (Register 2011, No. 5).

§3528. Minimum Requirements.

Note • History

(a) All applicants for, and holders of, any license or permit authorized by this chapter shall meet the minimum requirements set forth in this chapter or those established by the Appraiser Qualifications Board, whichever is greater.

(b) Effective January 1, 2008, all applicants for licensure must meet all of the minimum requirements effective on that date. Applications received on or before December 31, 2007, that are not complete as to education and/or experience, will be evaluated based on the completion date of the education and/or experience component requirements. Applicants who have completed the education requirements prior to January 1, 2008, may complete the experience requirement after January 1, 2008.

(c) Any holder of a Certificate of Registration issued by the Office of Real Estate Appraisers as authorized by this chapter, and any person or entity acting in a capacity that requires a Certificate of Registration under this chapter, shall meet the requirements set forth in Article 4 for registration as an Appraisal Management Company.

NOTE

Authority cited: Sections 11313, 11314 and 11340, Business and Professions Code. Reference: Sections 11328, 11328.1 and 11340, Business and Professions Code; and Section 1112, Financial Institutions Reform, Recovery and Enforcement Act of 1989, Public Law 101-73 (FIRREA).

HISTORY

1. Renumbering and amendment of former section 3528 to new section 3601 and new section filed 11-1-96; operative 11-1-96 pursuant to Government Code section 11343.4(d) (Register 96, No. 44). For prior history, see Register 94, No. 23.

2. Amendment of section and Note filed 6-5-2006 as an emergency; operative 6-5-2006 (Register 2006, No. 23). A Certificate of Compliance must be transmitted to OAL by 10-3-2006 or emergency language will be repealed by operation of law on the following day.

3. Amendment filed 8-8-2006; operative 9-7-2006 (Register 2006, No. 32).

4. Amendment of section and Note refiled 9-14-2006 as an emergency; operative 10-4-2006 (Register 2006, No. 37). A Certificate of Compliance must be transmitted to OAL by 2-1-2007 or emergency language will be repealed by operation of law on the following day.

5. Certificate of Compliance as to 9-14-2006 order transmitted to OAL 12-7-2006 and filed 1-10-2007 (Register 2007, No. 2).

6. Amendment of section and Note filed 1-21-2010 as an emergency; operative 1-21-2010 (Register 2010, No. 4). A Certificate of Compliance must be transmitted to OAL by 7-20-2010 or emergency language will be repealed by operation of law on the following day.

7. Amendment of section and Note refiled 7-21-2010 as an emergency, including further amendment of subsection (e); operative 7-21-2010 (Register 2010, No. 30). A Certificate of Compliance must be transmitted to OAL by 10-19-2010 or emergency language will be repealed by operation of law on the following day.

8. Amendment of section and Note refiled 10-18-2010 as an emergency; operative 10-18-2010 (Register 2010, No. 43). A Certificate of Compliance must be transmitted to OAL by 1-18-2011 or emergency language will be repealed by operation of law on the following day.

9. Certificate of Compliance as to 10-18-2010 order, including repealer of subsections (d)-(e), transmitted to OAL 12-17-2010 and filed 1-31-2011 (Register 2011, No. 5).

§3529. Audits.

Note • History

The Office may review and audit the records of applicants, licensees, educational providers, registered Appraisal Management Companies and persons or entities acting in a capacity that requires a Certificate of Registration, to determine compliance with the requirements of this chapter and state and federal law. Applicants, licensees, educational providers, and registered Appraisal Management Companies shall cooperate with the Office in the conduct of such audits and provide access during normal business hours to records and such information as the Office deems reasonably necessary for the completion of the audit.

NOTE

Authority cited: Sections 11313, 11314, 11328 and 11340, Business and Professions Code. Reference: Sections 11320.5, 11328, 11328.1, 11340 and 11345.45, Business and Professions Code.

HISTORY

1. Renumbering and amendment of former section 3529 to new section 3602 and new section filed 11-1-96; operative 11-1-96 pursuant to Government Code section 11343.4(d) (Register 96, No. 44). For prior history, see Register 94, No. 23.

2. Amendment of section and Note filed 1-21-2010 as an emergency; operative 1-21-2010 (Register 2010, No. 4). A Certificate of Compliance must be transmitted to OAL by 7-20-2010 or emergency language will be repealed by operation of law on the following day.

3. Amendment of section and Note refiled 7-21-2010 as an emergency; operative 7-21-2010 (Register 2010, No. 30). A Certificate of Compliance must be transmitted to OAL by 10-19-2010 or emergency language will be repealed by operation of law on the following day.

4. Amendment of section and Note refiled 10-18-2010 as an emergency; operative 10-18-2010 (Register 2010, No. 43). A Certificate of Compliance must be transmitted to OAL by 1-18-2011 or emergency language will be repealed by operation of law on the following day.

5. Certificate of Compliance as to 10-18-2010 order transmitted to OAL 12-17-2010 and filed 1-31-2011 (Register 2011, No. 5).

§3530. Limitations on Licenses and Certificates of Registration for Aliens.

Note • History

(a) All eligibility requirements contained herein shall be applied without regard to the race, creed, color, gender, religion, national origin, or disability of the individual applying for the public benefit.

(b) Pursuant to Section 411 of the Personal Responsibility and Work Opportunity Reconciliation Act of 1996 (Pub. L. No. 104-193) (PRWORA)), (8 U.S.C. § 1621), and notwithstanding any other provision of this division, aliens who are not qualified aliens, nonimmigrant aliens under the Immigration and Nationality Act (INA) (8 U.S.C. § 1101 et seq.), or aliens paroled into the United States under Section 212(d)(5) of the INA (8 U.S.C. § 1182(d)(5)) for less than one year, are not eligible to receive any license to act as a state licensed real estate appraiser or Controlling Person of an Appraisal Management Company as set forth in California Business and Professions Code, Division 4, Part 3, Sections 11300 et seq., except as provided in 8 U.S.C. § 1621(c)(2).

(c) A qualified alien is an alien who, at the time he or she applies for, receives, or attempts to receive a public benefit, is under Section 431(b) and (c) of the PRWORA (8 U.S.C. § 1641(b) and (c)), any of the following:

(1) An alien who is lawfully admitted for permanent residence under the INA (8 U.S.C. § 1101 et seq.).

(2) An alien who is granted asylum under Section 208 of the INA (8 U.S.C. § 1158).

(3) A refugee who is admitted to the United States under Section 207 of the INA (8 U.S.C. § 1157).

(4) An alien who is paroled into the United States under Section 212(d)(5) of the INA (8 U.S.C. § 1182(d)(5)) for a period of at least one year.

(5) An alien whose deportation is being withheld under Section 243(h) of the INA (8 U.S.C. § 1253(h)) (as in effect immediately before the effective date of Section 307 of Division C of Public Law 104-208) or Section 241(b)(3) of such Act (8 U.S.C. § 1251(b)(3)) (as amended by Section 305(a) of Division C of Public Law 104-208).

(6) An alien who is granted conditional entry pursuant to Section 203(a)(7) of the INA as in effect prior to April 1, 1980. (8 U.S.C. § 1153(a)(7)) (See editorial note under 8 U.S.C. § 1101, “Effective Date of 1980 Amendment.”)

(7) An alien who is a Cuban or Haitian entrant (as defined in Section 501(e) of the Refugee Education Assistance Act of 1980 (8 U.S.C. § 1522 note)).

(8) An alien who meets all of the conditions of subparagraphs (A), (B), (C), and (D) below:

(B) There is a substantial connection between such battery or cruelty and the need for the benefits to be provided in the opinion of the Office. For purposes of this subsection, the following circumstances demonstrate a substantial connection between the battery or cruelty and the need for the benefits to be provided:

1. The benefits are needed to enable the alien to become self-sufficient following separation from the abuser.

2. The benefits are needed to enable the alien to escape the abuser and/or the community in which the abuser lives, or to ensure the safety of the alien from the abuser.

3. The benefits are needed due to loss of financial support resulting from the alien's separation from the abuser.

5. The benefits are needed because the alien requires medical attention or mental health counseling, or has become disabled, as a result of the battery or extreme cruelty.

6. The benefits are needed because the loss of a dwelling or source of income or fear of the abuser following separation from the abuser jeopardizes the alien's ability to care for his or her children (e.g., inability to house, feed, or clothe children or to put children into day care for fear of being found by the abuser).

7. The benefits are needed to alleviate nutritional risk or need resulting from the abuse or following separation from the abuser.

9. Where medical coverage and/or health care services are needed to replace medical coverage or health care services the alien had when living with the abuser.

1. status as a spouse or child of a United States citizen pursuant to clause (ii), (iii), or (iv) of Section 204(a)(1)(A) of the INA (8 U.S.C. § 1154(a)(1)(A)(ii), (iii) or (iv)),

2. classification pursuant to clause (ii) or (iii) of Section 204(a)(1)(B) of the INA (8 U.S.C. § 1154(a)(1)(B)(ii) or (iii)),

3. suspension of deportation and adjustment of status pursuant to section 244(a)(3) of the INA (8 U.S.C. sec. 1254) as in effect prior to April 1, 1997 [Pub.L. 104-208, sec. 501 (effective Sept. 30, 1996, pursuant to sec. 591); Pub.L. 104-208, sec. 304 (effective April 1, 1997, pursuant to sec. 309); Pub.L. 105-33, sec. 5581 (effective pursuant to sec. 5582)] (incorrectly codified as “cancellation of removal under section 240A of such Act [8 U.S.C. § 1229b] (as in effect prior to April 1, 1997),”

4. status as a spouse or child of a United States citizen pursuant to clause (i) of Section 204(a)(1)(A) of the INA (8 U.S.C. § 1154(a)(1)(A)(i)) or classification pursuant to clause (i) of Section 204(a)(1)(B) of the INA (8 U.S.C. § 1154(a)(1)(B)(i)), or

5. cancellation of removal pursuant to Section 240A(b)(2) of the INA (8 U.S.C. § 1229b(b)(2)).

(9) An alien who meets all of the conditions of subparagraphs (A), (B), (C), (D) and (E) below:

(B) The alien did not actively participate in such battery or cruelty.

(C) There is a substantial connection between such battery or cruelty and the need for the benefits to be provided in the opinion of the Office. For purposes of this subsection, the following circumstances demonstrate a substantial connection between the battery or cruelty and the need for the benefits to be provided: